Document is copied.
AMENDMENT #1 TO FORM 8-K, DATED April 9, 2001
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 April 9, 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
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders' and Board of Directors
of Blue Chip Broadcasting, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, statements of cash flows and statements
of stockholders deficit present fairly, in all material respects, the financial
position of Blue Chip Broadcasting, Inc. and their subsidiaries at December 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the two years then ended in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. The
financial statements of the Company as of December 31, 1998 and for the year
then ended were audited by other independent accountants whose report dated
February 1, 1999 expressed an unqualified opinion on those statements.
/s/ PricewaterhouseCoopers LLP
March 8, 2001, except for Note 2, as to which the date is March 16, 2001
Cincinnati, Ohio
To the Stockholders' and Board of Director
of Blue Chip Broadcasting, Inc.:
We have audited the accompanying consolidated tatements of operation and cash
flow of Blue Chip Broadcast Company and subsidiary for the year ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the results of operations and their cash flows for the year
ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States.
/s/ Clark, Schaefer, Hackett & Co.
Cincinnati, Ohio
February 1, 1999
Page 1
Blue Chip Broadcasting, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2000 and 1999
2000 1999
---- ----
ASSETS:
Cash and cash equivalents $ 893,474 $ 1,612,105
Accounts receivable, less allowance
for doubtful accounts of $352,000 and
$535,000, respectively 6,602,909 5,891,763
Prepaid expenses and other 248,310 406,529
---------------- ----------------
Total current assets 7,744,693 7,910,397
Property and equipment, net 8,829,222 7,420,247
Intangible assets, net 80,889,744 63,081,541
Other 1,271,254 1,676,798
---------------- ----------------
Total assets $ 98,734,913 $ 80,088,983
================ ================
LIABILITIES:
Current portion of long-term debt $ 2,934,836 $ 1,648,715
Accounts payable, trade 724,512 393,887
Accrued expenses 1,100,246 1,200,803
Accrued commissions 448,394 440,407
Accrued interest 56,168 883,913
Other 20,079 6,521
---------------- ----------------
Total current liabilities 5,284,235 4,574,246
Long-term debt 48,245,242 51,773,828
Accrued interest, subordinated debt 3,113,759 2,050,048
Other 73,260 133,441
---------------- ----------------
Total liabilities 56,716,496 58,531,563
Commitments and contingencies
Series B redeemable common stock, $.01 par value,
776,962 shares authorized, issued and outstanding;
liquidation value of $40,000,000 and $38,500,000
at December 31, 2000 and 1999, respectively 40,000,000 38,500,000
Series D redeemable common stock, $.01 par value,
398,794 shares authorized, issued and outstanding;
liquidation value of $31,306,027 at December 31, 2000 31,306,027
STOCKHOLDERS' DEFICIT (See Note 4):
Series A common stock, $.01 par value, 1,031,429
shares authorized, 1,015,063 issued and outstanding 10,151 10,151
Series C common stock, $.01 par value, 199,114
shares authorized, none issued or outstanding
Accumulated deficit (29,297,761) (16,952,731)
---------------- ----------------
Total stockholders' deficit (29,287,610) (16,942,580)
---------------- ----------------
Total liabilities, redeemable common stock and
stockholders' deficit $ 98,734,913 $ $ 80,088,983
================ ================
The accompanying notes are an integral part of the consolidated financial
statements.
1
Blue Chip Broadcasting, Inc. and Subsidiaries
Consolidated Statements of Operations
for the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Broadcast revenue $ 31,765,422 $ 24,112,789 $ 13,402,810
Barter revenue 897,792 717,183 96,086
Other revenues 3,957,486 2,860,526 269,631
Less agency commissions (4,407,125) (3,255,748) (1,757,294)
-------------- -------------- --------------
Net revenue 32,213,575 24,434,750 12,011,233
Broadcast operating expenses 21,629,966 15,120,668 7,130,203
Barter expense 1,000,362 701,890 96,086
Depreciation and amortization 7,514,898 4,890,542 2,201,887
Corporate general and administrative 1,934,884 853,965 393,507
Asset impairment loss 2,560,000
Terminated acquisition costs 312,652
Non-cash compensation 390,000
-------------- -------------- --------------
Operating (loss) income (2,739,187) 2,477,685 2,189,550
Merger related expenses (125,000)
Time brokerage agreement (283,200) (336,879)
Interest expense (6,037,558) (5,116,540) (3,025,764)
Interest income 55,299 35,673 14,556
Gain (loss) on sale of property and equipment 1,806 (58,976) (30,486)
Other (18,491) (89,460) (13,489)
-------------- -------------- --------------
Loss before extraordinary item (9,146,331) (3,088,497) (865,633)
Extraordinary loss (1,665,719)
-------------- -------------- --------------
Net loss (9,146,331) (4,754,216) (865,633)
Series D redeemable stock dividends (1,306,027)
Accretion of increased redemption value
of Series D redeemable common stock (392,672)
Accretion of increased redemption value
of Series B redeemable common stock (1,500,000) (9,197,906)
-------------- -------------- --------------
Net loss applicable to common stock $(12,345,030) $(13,952,122) $ (865,633)
============== ============== ==============
Basic and Diluted Loss Per Common Share
Loss before extraordinary item $ (6.05) $ (8.08) $ (0.90)
Extraordinary loss (1.10)
-------------- -------------- --------------
Net loss per common share $ (6.05) $ (9.18) $ (0.90)
Weighted Average Common Shares Outstanding
Basic and Diluted 2,040,042 1,520,478 966,071
The accompanying notes are an integral part of the consolidated financial
statements.
2
Blue Chip Broadcasting, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
----- ----- ----
Cash flows from operating activities:
Net loss $ (9,146,331) $ (4,754,216) $ (865,633)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,517,053 882,928 454,194
Amortization of intangible assets 5,997,845 4,007,614 1,747,693
Extraordinary loss 1,665,719
Asset impairment loss 2,560,000
Non-cash compensation 390,000
(Gain) loss on sale of assets (1,806) 58,976 30,486
Provision for bad debts 455,984 436,489 (12,568)
Barter expense in excess of barter revenue 102,570
Changes in operating assets and liabilties, net
of acquisitions
Accounts receivable (1,138,878) (3,409,152) (599,484)
Prepaid expenses and deposits 158,219 53,252 (280,758)
Accounts payable and accrued expenses 523,303 2,460,383 764,999
Other 13,558 (77,830) 84,352
------------- -------------- --------------
Net cash provided by operating activities 1,041,517 1,714,163 1,323,281
------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (1,503,366) (680,028) (268,152)
Cash paid for acquisitions (27,417,488) (46,674,640) (11,257,817)
Cash receipts from sale of assets 9,000
Deposits and other 180,495 (1,644,705) 2,500
------------- -------------- --------------
Net cash used by investing activities (28,731,359) (48,999,373) (11,523,469)
------------- -------------- --------------
Cash flows from financing activities:
Issuance of long-term debt 10,350,000 51,701,500 11,191,574
Issuance of common stock 30,000,000 32,000,000
Repayment of long-term debt (12,592,465) (26,465,412) (1,548,225)
Redemption of common stock and warrants (5,500,000)
Payment of debt issuance costs (333,524) (1,258,890)
Payment of equity issuance costs (392,672) (1,322,906)
Debt prepayment penalty (543,000)
Other (60,128) 133,441
------------- -------------- --------------
Net cash provided by financing activities 26,971,211 48,744,733 9,643,349
------------- -------------- --------------
Net (decrease) increase in cash (718,631) 1,459,523 (556,839)
Cash and cash equivalents, beginning of year 1,612,105 152,582 709,421
------------- -------------- ---------------
Cash and cash equivalents, end of year $ 893,474 $ 1,612,105 $ 152,582
============= ============== ===============
Cash paid for interest $ 5,753,712 $ 3,786,580 $ 2,458,931
============= ============== ===============
Supplemental schedule of non-cash activities:
Common stock issued for equity financing services $ 375,000
Equipment purchased under capital leases 85,043
Issuance of promissory note for acquisition 842,500 $ 586,000
The accompanying notes are an integral part of the consolidated financial
statements.
Blue Chip Broadcasting, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
For the years ended December 31, 2000, 1999 and 1998
Series A Common Stock
Common Stock Units Additional
-----------------------------------------
Shares Par Shares Stated Paid-In Accumulated
Value Value Capital Deficit Total
--------- -------- --------- --------- ------------ ------------ ------------
Balances,
December 31, 1997 959,792 $ 9,598 1,000 $ 50,000 $ 2,260,402 $ (6,159,825) $ (3,839,825)
Net loss (865,633) (865,633)
--------- -------- --------- --------- ------------ ------------ ------------
Balances,
December 31, 1998 959,792 9,598 1,000 50,000 2,260,402 (7,025,458) (4,705,458)
Issuance of common stock 55,271 553 1,764,447 1,765,000
Accretion of Series B common stock
redemption value (4,024,849) (5,173,057) (9,197,906)
Redemption of stock units
and warrants (1,000) (50,000) (50,000)
Net loss (4,754,216) (4,754,216)
--------- -------- --------- --------- ------------ ------------ ------------
Balances,
December 31, 1999 1,015,063 10,151 - - - (16,952,731) (16,942,580)
Accretion of Series B common
stock redemption value (1,500,000) (1,500,000)
Accretion of Series D common
stock redemption value (392,672) (392,672)
Series D redeemable common
stock dividends (1,306,027) (1,306,027)
Net loss (9,146,331) (9,146,331)
--------- -------- --------- --------- ------------ ------------ ------------
Balances,
December 31, 2000 1,015,063 $ 10,151 - $ - $ - $(29,297,761) $(29,287,610)
========= ======== ========= ========= ============ ============ =============
The accompanying notes are an integral part of the consolidated financial
statements.
4
Blue Chip Broadcasting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Accounting Policies and Description of Business
Description of Business
As of December 31, 2000, Blue Chip Broadcasting, Inc. (the "Company") owned
and/or operated 19 radio stations in six broadcast areas, including
Cincinnati, Columbus and Dayton, Ohio, Louisville and Lexington, Kentucky,
and Minneapolis, Minnesota.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The Company operated one radio station under a time brokerage agreement
during 2000. Revenues and expenses related to operating this station are
included in operations during the contract period (See Note 3).
Revenues
Revenues for commercial broadcasting advertisements are recognized when the
commercial is broadcast. Other revenues relate to activities complementary
to the Company's radio stations, including concerts, tower rentals and
event sponsorship income. Other revenues are recognized when the services
are performed and in accordance with contractual arrangements, if
appropriate.
Barter Transactions
Barter transactions are reported at the estimated fair value of the product
or service received. Revenue from barter transactions (advertising
provided in exchange for goods and services) is recognized as income when
advertisements are broadcast, and merchandise or services received are
charged to expense when received or used. If merchandise or services are
received prior to the broadcast of the advertising, a liability (deferred
barter revenue) is recorded. If the advertising is broadcast before the
receipt of the goods or services, a receivable is recorded.
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.
5
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of temporary cash
investments and accounts receivable. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of
customers comprising the Company's customer base and their dispersion
across different broadcast areas. The Company also maintains cash in bank
deposit accounts at financial institutions where the balance, at times,
exceeds federally insured limits.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization; depreciation and amortization is provided on the declining
balance and straight-line methods over the estimated useful lives of the
assets as follows:
Land improvements 20 Years
Buildings 40 Years
Equipment 3 to 15 Years
Automobiles 5 Years
Furniture and fixtures 7 Years
Leasehold improvements Life of Lease
Intangible Assets
Intangible assets are stated at cost less accumulated amortization;
amortization is provided principally on the straight-line basis over the
following lives:
FCC licenses 15 Years
Goodwill 15 Years
Contracts and other intellectual property 3 to 15 Years
The Company reviews the carrying value of intangible assets when events or
circumstances suggest that the recoverability of an asset may be impaired.
If future expected undiscounted cash flows are insufficient to recover the
carrying amount of the asset, then an impairment loss is recognized based
upon the excess of the carrying value of the asset over the anticipated
cash flows on a discounted basis. The Company recognized an asset
impairment loss for the year ended December 31, 2000 of $2,560,000 on its
radio stations in Lexington, Kentucky. The loss was calculated based on
the difference between the carrying value of the assets and the present
value of the anticipated proceeds from the pending sale of the radio
stations (See Note 2).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions.
6
These estimates and assumptions can affect the reported amounts of assets
and liabilities, and disclosure of contingent assets and liabilities, at
the dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The fair value of the Company's cash, accounts receivable, accrued expenses
and other short-term liabilities approximate book value. The fair value of
the Company's Credit Facility (See Note 7) approximates book value since
the rates are variable. It is not practicable to estimate the fair value of
other debt instruments since there is no liquid market for this debt.
Earnings Per Share
Earnings per share calculations have been made in compliance with Statement
on Financial Accounting Standards No. 128, "Net Earnings Per Share" ("SFAS
128"). Basic earnings per share equals net earnings applicable to common
stock divided by the weighted average number of common shares outstanding.
Diluted earnings per share equals net earnings applicable to common stock
divided by the weighted average number of common shares outstanding after
giving effect to other dilutive securities. Basic and diluted earnings per
share are the same for all periods presented, since the effect of the
Company's common stock equivalents would be anti-dilutive.
Stock Based Compensation Plans
The Company accounts for its employee and director stock based compensation
plans in accordance with APB Opinion No. 25. The Company has elected not
to adopt the cost recognition provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation"
("SFAS 123"). The Company follows only the disclosure provisions of SFAS
123, as permitted by the statement.
Income Taxes
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), (See Note 9). Prior to
December 23, 1999, the Company was an Ohio Limited Liability Company (the
"LLC")(See Note 4). In lieu of corporation income taxes, the members of
the LLC were taxed on the Company's taxable income. Accordingly, no income
tax provision or benefit has been recorded in these financial statements
for periods prior to December 23, 1999.
Reclassifications
Certain reclassifications have been made to the 1999 and 1998 comparative
totals to conform to the 2000 presentation.
7
2. Subsequent Events
Merger with Radio One, Inc.
On February 7, 2001, the Company and the Company's stockholders entered
into a definitive merger agreement with Radio One, Inc. ("Radio One")
providing for the merger of the Company with and into a wholly owned
subsidiary of Radio One. All of the Company's subsidiaries will become
wholly owned subsidiaries of Radio One subsequent to the merger. The
Company's stockholders will receive aggregate consideration of $190,000,000
less the consolidated liabilities of the Company and other adjustments as
defined in the merger agreement. The net proceeds payable to the Company's
stockholders will consist of a minimum of $25,000,000 in cash and a maximum
of $50,000,000 in cash, with the balance consisting of Radio One Class D
common stock valued at $14 per share. Consummation of the merger is
conditioned upon receipt of customary regulatory approvals and other
standard conditions. The merger is intended to constitute a reorganization
under Section 368(a) of the Internal Revenue Code; therefore, any gain
attributable to the stock consideration received by the Company's
stockholders will not be immediately subject to federal income taxes.
The Company has incurred approximately $125,000 in legal and accounting
fees related to the merger through December 31, 2000. These costs have
been expensed as incurred.
Sale of WBTF and WLXO
On February 8, 2001, the Company entered into a definitive agreement to
sell substantially all of the assets of radio stations WBTF-FM and WLXO-FM,
serving the Lexington broadcast area, to a third party for total potential
consideration of $3,000,000. Additionally, the Company entered into a time
brokerage agreement with the third party, and on February 12, 2001, the
Company and the buyer commenced operations pursuant to the time brokerage
agreement. In exchange for the radio station assets and a two-year
consulting agreement, the Company will receive $1,500,000 in cash at
closing and a promissory note in the amount of $1,500,000. The promissory
note bears interest at an annual rate of 8% beginning on the 25th month
after closing. The principal balance of $1,500,000 is due on the sixth
anniversary of the closing date; however, the buyer shall have the option
to make full payment of the obligation for $500,000 prior to the 31st month
after the closing, and for $1,000,000 prior to the 49th month after the
closing.
Sale of WFIA
In December 2000, the Company entered into an agreement with a third party
to sell the FCC license and certain broadcast assets of WFIA-AM in
Louisville, Kentucky for $1,750,000 in cash. The sale was consummated on
March 16, 2001.
8
3. Acquisitions
2000 Completed Acquisitions
On February 10, 2000, the Company completed the acquisition of the FCC
licenses and certain broadcast equipment of radio station WXLN-FM, licensed
to Shepardsville, Kentucky, for $2,000,000 in cash, plus acquisition costs
of approximately $25,000. The Company did not purchase any intellectual
property and did not hire any employees of the station. The Company
commenced operation of the station under a different format and changed the
call letters to WLRS-FM. Approximately $1,920,000 of the purchase price was
allocated to FCC licenses and other intangibles and $105,000 was allocated
to fixed assets.
On May 18, 2000, the Company completed the acquisition of the FCC licenses,
broadcast equipment and intellectual property of radio station KARP-FM,
licensed to Glencoe, Minnesota, for a purchase price of $20,000,000 in
cash, plus acquisition costs of approximately $100,000. Approximately
$19,200,000 of the purchase price was allocated to FCC licenses and other
intangibles and $900,000 was allocated to fixed assets. Subsequent to
closing, the Company changed the call letters of the station to KTTB-FM and
commenced operation of the station under a different format to serve the
Minneapolis/St Paul broadcast area. The purchase was funded by the
issuance of a newly created Series D common stock and the issuance of an
option to purchase 16,366 shares of Series A common stock for a nominal
exercise price (See Note 4).
On June 2, 2000, the Company completed the acquisition of the FCC licenses,
broadcast equipment and certain intellectual property of radio station
WBTF-FM in Lexington, Kentucky for a purchase price of $3,000,000 in cash,
plus acquisition costs of approximately $80,000. Approximately $2,850,000
of the purchase price was allocated to FCC licenses and other intangibles
and $230,000 was allocated to fixed assets.
On August 22, 2000, the Company completed the acquisition of the FCC
licenses and certain broadcast equipment of radio station WUBE-AM, licensed
to Cincinnati, Ohio, for $2,000,000 in cash, plus acquisition costs of
approximately $50,000. The Company commenced operation of the station
under a different format and changed the call letters to WDBZ-AM.
Approximately $1,960,000 of the purchase price was allocated to FCC
licenses and other intangibles and $90,000 was allocated to fixed assets.
1999 Completed Acquisitions
On April 30, 1999, the Company completed the acquisition of the FCC
licenses, broadcast equipment and certain intellectual property of six
radio stations for a purchase price of $40,000,000 in cash, plus
acquisition costs of approximately $400,000. Approximately $34,750,000 of
the purchase price was allocated to FCC licenses and other intangibles and
$5,650,000 was allocated to fixed assets.
9
The acquisitions included three radio stations in the Louisville broadcast
area and three stations in the Dayton broadcast area.
On March 12, 1999, the Company completed the acquisition of the FCC license
and certain broadcast equipment of WKYI-FM in Lexington, Kentucky for
$1,250,000 in cash. The Company did not commence broadcasting under a
format with this license until June 2000, at which time the Company changed
the call letters to WLXO-FM. During that time there were no revenues and
nominal station operating expenses associated with the station.
On October 13, 1999, the Company completed the acquisition of the FCC
license, broadcast equipment and intellectual property of a radio station
licensed to Springfield, Ohio for $5,000,000 in cash. Prior to
consummation of the acquisition, the Company operated the radio station
under a time brokerage agreement beginning July 1, 1999.
All of the above acquisitions have been accounted for under the purchase
method of accounting. The excess cost over the fair value of net assets
acquired is being amortized over 15 years. The results of operations of
the acquired businesses are included in the Company's financial statements
since the respective dates of acquisition. Assuming each of the 2000 and
1999 acquisitions had taken place at the beginning of 1999, unaudited pro
forma consolidated results of operations would have been as follows:
Pro Forma (unaudited)
---------------------------------------
2000 1999
------------------ ----------------
Net revenue $32,466,653 $28,453,231
Net loss before extraordinary
Items $(9,396,225) $(4,404,473)
Diluted loss per common share $ (5.75) $ (6.21)
These unaudited pro forma amounts do not purport to be indicative of the
results that might have occurred if the foregoing transactions had been
consummated on the indicated dates.
Pending Acquisitions
On May 8, 1999, the Company entered into a time brokerage agreement to
operate radio station WBLO-FM serving the Louisville market. The Company
issued a promissory note to a third party in the amount of $842,000 for the
rights to the time brokerage agreement and the option to purchase the
station, which are included in the category other assets in the Company's
financial statements. Beginning in September 2002, the Company has the
exclusive option for a period of 180 days to purchase the radio station for
$2,000,000.
10
4. Capital Stock and Corporate Reorganization
Description of Capital Stock
The Company has 2,406,299 shares of authorized common stock, which are
divided into four series. None of these series of common stock is traded
in any established public market. The relative privileges, rights and
preferences of each series are governed by Delaware law, the Company's
Certificate of Incorporation and by-laws, as amended, and a Shareholders
Agreement between the Company and all of its stockholders. Pursuant to the
Shareholders Agreement, the Series A, B and D stockholders are entitled to
designate six, three and two members, respectively, to the Company's board
of directors.
Each share of Series A, Series B redeemable and Series D redeemable common
stock entitles the holder thereof to vote on each matter submitted to a
vote of stockholders of the Company and to have one vote for each full
share of stock. The Series C common stock is non-voting and has been
designated for issuance to holders of related stock options upon their
exercise.
Upon dissolution, liquidation or winding up of the Company, proceeds
available for distribution shall be distributed (adjusted for any prior
distributions) first to the Series D stockholders in an amount equal to
$30,000,000 plus accrued but unpaid dividends, second to Series B
stockholders in an aggregate amount of $31,000,000, third to Series A
stockholders in an amount equal to $40,500,000, fourth to Series A and B
stockholders pro rata among them in an amount equal to $64,540,000, fifth
to the Series C stockholders in an amount equal to $1,080,000 and sixth to
holders of all series of common stock in proportion to the number of such
shares owned at that time.
The Series A, Series B and Series D stockholders have entered into a
Shareholders Agreement that provides for certain rights and obligations
among the stockholders. Until such time as the current Series B and D
stockholders, respectively, own less than five percent of the fully diluted
shares of the Company, subject to certain adjustments, certain actions
require the affirmative vote or consent of stockholders holding a majority
of both the Series B and Series D shares. Such actions include, but are
not limited to; 1) the issuance of new shares, options or warrants, 2)
redemption or repurchase of any shares, options or warrants, 3) payment of
dividends or distributions, 4) consolidation or merger with another entity
or consummation of material acquisitions or dispositions, 5) election of
certain officers and independent auditors and 6) consummation of an initial
public offering.
If the Company has not made an initial public offering and no other
complete liquidity event has occurred prior to October 31, 2005, then the
holders of Series B common stock have the right to request the Company to
purchase their shares and the shares of the holders of Series D common
stock. If the Company does not purchase such shares, the Series B
stockholders have the right to cause the sale of the Company or its assets.
Additionally, if the Company has not made its initial
11
public offering and no other complete liquidity event has occurred prior to
April 30, 2007, then the holders of Series B common stock and Series D
common stock have the right to request the Company to purchase their
shares. The Series B stockholders shall have the right to cause the Company
to purchase all of the Series B shares equal to the greater of fair market
value or the original purchase price plus an 8% per annum dividend amount.
The Series D stockholders shall have the right to cause the Company to
purchase all of the Series D shares equal to the greater of fair market
value or the original purchase price plus accrued dividends. If the Company
does not purchase their shares, sell or consummate a qualified public
offering, then the Series B and D stockholders have the right to: 1) assume
control of the board of directors, 2) receive interest on their shares of
Series B and D common stock, and 3) vote the shares held by all other
stockholders on any matter, including without limitation, on the sale of
Series B and D common stock, the purchase of Series B and D common stock
and the sale or liquidation of the Company.
At December 31, 2000 and 1999, the Series B redeemable common stock has
been accreted from its original issue amount of $31,000,000, less issuance
costs, to its estimated fair value, which was greater than the mandatory
redemption amount at such dates. The Series D redeemable common stock has
been accreted from its original issue amount of $30,000,000, less issuance
costs, to its mandatory redemption amount at December 31, 2000, which was
greater than its estimated fair value.
Corporate Reorganization
On December 23, 1999, the Company completed a tax-free reorganization under
Section 351 of the Internal Revenue Code. The reorganization created a
form of organization whereby a Delaware Subchapter C corporation (the
"Company") was created to serve as a holding company for all of the
subsidiaries of the Company. Prior to the reorganization, the Company's
stockholders held membership units in an LLC. The change did not impact
the results of operations or total stockholders' equity of the Company for
any of the periods presented in these financial statements. Throughout
these financial statements, management describes transactions prior to the
reorganization utilizing the definitions of the Company's classes of common
stock as it now exists.
Recapitalization in 1999
On April 30, 1999, the Company consummated a recapitalization in conjuction
with several acquisitions that substantially modified its debt and capital
structure. The Company issued 776,962 shares of Series B redeemable common
stock for $31,000,000 in cash and issued 35,620 shares of Series A common
stock for $1,000,000 in cash. Also, the company issued 9,888 shares of
Series A common stock in exchange for certain investment banking services
and 9,763 shares of Series A common stock to an employee of the Company in
exchange for past services rendered. The proceeds from the issuance of
stock and borrowings under the new credit facility (See Note 7) were used
to repay all of the outstanding indebtedness under the Company's old credit
facility, which was approximately $27,600,000, to redeem certain stock
units and related common stock warrants for $5,500,000, and to fund
acquisitions totaling $40,000,000. The common stock warrants were
exercisable at a nominal exercise price for approximately ten percent of
the fully diluted equity value of the company. The warrants were also
redeemable at the option of the holder after April 2, 2002. The mandatory
redemption price was the greater of fair market value or $5,000,000. Prior
to redemption, the redeemable common stock warrants were classified under
other long-term liabilities due to the associated "put" rights. During
1999, $450,000 was charged to interest expense to account for the increase
in the redemption amount in 1999.
Capital Stock Issued in 2000
On May 18, 2000, the Company issued 398,794 shares of its newly created
Series D redeemable common stock for $30,000,000 in cash. The stock
accrues quarterly dividends at a 7% annual rate. Cumulative accrued
dividends can be paid in either cash or additional shares of Series D
common stock. The proceeds from the stock sale were used to fund the
purchase of KARP-FM and to repay borrowings under the Company's credit
facility (See Note 7).
Concurrent with entering into the agreement for the acquisition of KARP-FM,
the Company agreed to issue a stock option to an independent third party,
which assisted the Company with the acquisition. The option is for the
purchase of
12
16,366 shares of Series A common stock and has a nominal exercise price.
The exercise of the option is conditioned upon a liquidation event of the
Company.
5. Property and Equipment
Property and equipment consists of the following at December 31:
2000 1999
---- ----
Land and improvements $ 789,642 $ 786,942
Buildings 914,701 878,260
Equipment 9,403,133 6,838,916
Automobiles 87,006 87,006
Furniture and fixtures 766,730 628,703
Leasehold improvements 463,129 257,923
Construction in progress 38,820 61,134
----------- -----------
12,463,161 9,538,884
Less accumulated depreciation
and amortization (3,633,939) (2,118,637)
----------- -----------
$ 8,829,222 $ 7,420,247
=========== ===========
Depreciation and amortization expense was $1,517,053, $882,928 and $454,194
in 2000, 1999 and 1998, respectively.
6. Intangible and Other Assets
Intangible assets consist of the following at December 31:
2000 1999
---- ----
FCC licenses $ 86,054,296 $63,263,580
Goodwill 6,034,791 5,492,083
Deferred financing costs 1,437,061 1,103,537
Other 994,211 855,112
------------ -----------
94,520,359 70,714,312
Less accumulated amortization (13,630,615) (7,632,771)
------------ -----------
$ 80,889,744 $63,081,541
============ ===========
Amortization expense was $5,997,845, $4,007,614 and $1,747,693 in 2000,
1999 and 1998, respectively.
13
7. Long-Term Debt
Long-term debt consists of the following at December 31:
2000 1999
----------- -----------
Credit Facility Borrowings
Term loan - variable rates $29,250,000 $30,000,000
Revolving notes - variable rates 20,100,000 20,750,000
25% Subordinated Notes
Due 1999 through 2002 (See Note 13) 1,106,250 1,275,000
10.25% Installment Note
Due 1999 through 2003 381,600 487,808
Other Promissory Notes
Due 2000 through 2002 342,228 909,735
----------- -----------
51,180,078 53,422,543
Less current portion 2,934,836 1,648,715
----------- -----------
$48,245,242 $51,773,828
=========== ===========
The aggregate annual maturities and scheduled payments of long-term debt
for each of the next five years are as follows:
2001 $ 2,934,836
2002 5,006,522
2003 7,986,220
2004 11,417,500
2005 11,417,500
thereafter 12,417,500
-----------
Total $51,180,078
Credit Facility Borrowings
On April 30, 1999 the Company entered into a new credit facility (the
"Credit Facility"). Concurrent with entering into the Credit Facility, the
outstanding notes under the Company's old agreement were repaid. The
Company recognized an extraordinary loss of $1,665,719 associated with
prepayment penalties and the write-off of previously capitalized loan
origination costs. The Credit Facility, as amended, provides for
borrowings of up to $56,750,000, consisting of a $30,000,000 term loan and
a reducing revolving facility of $26,750,000. The term loan is payable in
twenty-five (25) quarterly installments, commencing on December 31, 2000
and ending on December 31, 2006. Quarterly principal payments in 2001
begin at $625,000 and increase by varying amounts until 2006,
14
at which time such amounts are $1,700,000. The revolving commitments reduce
quarterly beginning on March 31, 2002 at a rate of 4.06% and increase to
5.25% for quarters beginning in 2004. Outstanding borrowings are
$49,350,000 at December 31, 2000 and consist of term loan borrowings of
$29,250,000 and revolving borrowings of $20,100,000. The borrowings are
collateralized by all of the assets of the Company.
Outstanding borrowings generally bear interest at the London interbank
offered rate ("LIBOR") plus an applicable margin, which is currently 3.5%.
The Company's current borrowing rate under the Credit Facility as of
December 31, 2000 is approximately 10%. The Company is required to pay an
annual commitment fee on the unused portion of the revolving facility equal
to .5%. In accordance with the Credit Facility, the Company purchased an
interest rate cap for $146,000 on the notional principal amount of
$22,000,000 for a period of three years. The interest rate cap limits the
Company's three-month LIBOR rate exposure to 7% in year one, 7.5% in year
two and 8% in year three.
In December 2000, the Credit Agreement was amended to permit consolidated
leverage ratio and interest coverage ratios as follows:
Leverage Interest Coverage
-------- -----------------
October 1, 2000 to March 31, 2001 6.75x 1.40x
April 1 to June 30, 2001 6.50x 1.50x
July 1 to September 30, 2001 5.75x 1.50x
October 1 to December 31, 2001 5.00x 1.75x
Although the Credit Facility was amended in December 2000, the Company
required a waiver in February 2001 to allow for a consolidated leverage
ratio of greater than 6.75x but not more than 7.0x through March 30, 2001.
The Company incurred bank fees of approximately $70,000 to obtain the
waiver.
At December 31, 2000, on a pro forma basis (unaudited), subsequent to the
sale of radio station WFIA-AM and the time brokerage agreement of radio
stations WBTF-FM and WLXO-FM, the Company's leverage ratio would be less
than 6.75x. The Company also amended the agreement with the holders of the
subordinated notes which suspended all principal and interest payments
until maturity at December 31, 2002, at which time all principal and
accrued interest payments in the amount of $6,236,000 will become payable.
15
8. Commitments and Contingencies
Lease and contractual obligations
The Company leases certain facilities and equipment under non-cancelable
operating leases. The Company also has various employment agreements that
provide for base compensation. Future minimum lease payments, and payments
under employment agreements as of December 31, 2000 are as follows:
2001 $2,160,992
2002 1,902,757
2003 1,004,266
2004 448,880
2005 391,434
thereafter 582,310
Rent expense and compensation expense under employment agreements were
approximately $1,674,000 in 2000, $732,500 in 1999 and $283,000 in 1998.
Legal proceedings
From time to time, the Company becomes involved in various claims and
lawsuits that are incidental to its business. In the opinion of the
Company's management, there are no material legal proceedings pending
against the Company.
9. Income Taxes
The Company recorded no income tax expense in 2000 or 1999. The components
of the Company's deferred tax assets and liabilities are as follows as of
December 31:
Deferred tax assets: 2000 1999
---- ----
Net operating losses $ 2,924,183 $ 41,133
Asset impairment loss 1,024,000
Accrued expenses 10,000
Reserves 140,800 214,000
----------- ---------
4,098,983 255,133
Deferred tax liabilities:
Property and equipment (400,745) (165,428)
Valuation allowance (3,698,238) (89,705)
----------- ---------
Net deferred tax asset(liability) $ 0 $ 0
=========== =========
16
The Company has cumulative federal and state loss carryforwards of
approximately $7,300,000 at December 31, 2000. These loss carryforwards
expire in years 2019 through 2020 if not used. The utilization of the
aforementioned operating losses for federal income tax purposes is limited
pursuant to the annual utilization limitations provided under the
provisions of Internal Revenue Code Section 382.
10. Earnings Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted Earnings Per Share ("EPS") computations for income before
extraordinary items for the years ended December 31, as follows:
2000 1999 1998
---- ---- ----
Loss before extraordinary item $ (9,146,331) $ (3,088,497) $ (865,633)
Series D redeemable stock dividends (1,306,027)
Accretion of increased redemption value of
series B and D common stock (1,892,672) (9,197,906)
------------ ------------ ----------
Loss applicable to common stock
before extraordinary item $(12,345,030) $(12,286,403) $ (865,633)
============ ============ ==========
Weighted average shares-basic 2,040,042 1,520,478 966,071
Effect of dilutive securities:
Warrants --- --- ---
Weighted average shares-diluted 2,040,042 1,520,478 966,071
------------ ------------ ----------
Basic and diluted loss per $ (6.05) $ (8.08) $ (.90)
commons share before
extraordinary item
17
11. Retirement Plan
The Company maintains a 401(k) profit sharing plan covering substantially
all employees who have met certain age and service eligibility
requirements. Participants may elect to contribute a percentage of their
compensation each year, up to the amount allowable by law, into the 401(k)
retirement savings plan. The Company may elect to match employee elective
deferrals based on a percentage determined annually. The Company may also
contribute an additional amount determined in its sole judgment. The
Company accrued approximately $19,000 for matching contributions for the
calendar year 2000, which is expected to be paid in the first quarter of
2001. The Company made no contributions in 1999 or 1998.
12. Stock Based Compensation Plans
In March 2000, the Board of Directors of the Company adopted the 2000 Long-
Term Incentive Stock Plan ("the Long-Term Plan"). The Long-Term Plan
authorizes the issuance of up to 199,114 shares of Series C common stock
pursuant to the grant or exercise of stock options, including non-qualified
stock options and Incentive Stock Options, restricted stock, stock
appreciation rights (SARs), and certain other instruments to executive
officers, key employees and directors, subject to board approval and
certain other restrictions. Stock options may not be granted at less than
the fair market value of the underlying stock on the date of grant. Twenty-
five percent of the options vest one year from the date of the grant and
25% vest on each of the next three anniversaries. Options expire 10 years
after the date of grant.
On March 29, 2000 and June 1, 2000, the Company granted options to certain
executive employees for the right to acquire 39,500 and 2,400 shares of
Series C common stock, respectively. The options have an exercise price of
$49.44 per share and a fair value of $30.41 which was determined at the
grant date using the Black-Scholes option pricing model. For purposes of
the model, the company used a volatility assumption of 40% and a risk free
interest rate of 5.55%. As of December 31, 2000, no options under the Plan
were exercisable or have been forfeited and the remaining average
contractual life of the outstanding options is 9.25 years. The Company
follows the disclosure-only provisions of SFAS 123, but applies Accounting
Principles Board Opinion 25 and related interpretations in accounting for
its plans. If the Company had elected to recognize compensation cost for
the issuance of the Company options to employees based on the fair value at
the grant date for awards, consistent with the method prescribed by SFAS
123, an additional non-cash compensation expense of $239,000 would have
been recognized in the Company's financial statements, resulting in a pro
forma net loss of $9,385,331 and basic and diluted net loss per share of
$4.60 for the year ended December 31, 2000.
18
13. Related Party Transactions
Blue Chip Opportunity Fund (BCOF) and Blue Chip Capital Fund (BCCF), are
related parties to Blue Chip Venture Capital Funds, which is a minority
shareholder of the Company. The Company has notes payable to BCOF and BCCF
of $1,106,250 at December 31, 2000 and related accrued interest on these
notes of $3,113,759 at December 31, 2000. All of the accrued interest has
been classified as non-current. At December 31, 1999 the Company had notes
payable and related accrued interest payable to BCOF and BCCF of $1,275,000
and $2,615,991, respectively.
14. New Accounting Pronouncements
The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements," ("SAB 101"),
which is effective for the fourth quarter of 2000. In SAB 101, the SEC
staff expressed its views regarding the appropriate recognition of revenue
with regard to a variety of circumstances. The Company has evaluated SAB
101 and have determined that the impact of adoption is not material.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Including Stock
Compensation - an Interpretation of APB Opinion No. 25," ("FIN 44"). FIN 44
provides guidance for certain issues that arose in applying APB Opinion No.
25, "Accounting for Stock Issued to Employees." The Company has adopted FIN
44, as required, in the third quarter of 2000, and deemed that the impact
of adoption is not material.
In June 1998, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"). SFAS 133 prescribes the
accounting treatment for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company has adopted SFAS 133 and
related amendments, as required, in year 2001, and have determined the
impact of adoption to not be material.
19
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
- --------------------------------------------------------------------------------
Page 2
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
======= ======== ========
- --------------------------------------------------------------------------------
Page 3
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
======= ======= ======== ======== ========
- --------------------------------------------------------------------------------
Page 4
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........ $ -- $ -- $ -- $ -- $ --
--------- -------- --------- --------- -------
- --------------------------------------------------------------------------------
Page 5
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
________________________________________________________________________________
Page 5
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.
________________________________________________________________________________
Page 6
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.
________________________________________________________________________________
Page 7
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
________________________________________________________________________________
Page 8
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.
________________________________________________________________________________
Page 9
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.
________________________________________________________________________________
Page 10
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.
________________________________________________________________________________
Page 11
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.
________________________________________________________________________________
Page 12
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.
________________________________________________________________________________
Page 13
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.
- --------------------------------------------------------------------------------
Page 13
(b) Pro Forma Financial Information.
Unaudited Pro Forma Consolidated Statement of Operations and Other Data
Year Ended December 31, 2000
------------------------------------------------------------------------------------------------
Pro Forma
Pro Forma for
Completed for Pending Completed
Transactions Completed Transactions and Pending Other Pro Forma
Historical(a) Adjustments(b) Transactions Adjustments(c) Transactions Adjustment as Adjusted
------------- -------------- ------------ -------------- ------------ ----------- -----------
(in thousands)
Statement of Operations:
Net broadcast revenue.......... $155,666 $ 70,527 $226,193 $ 31,469 $257,662 $ 257,662
Station operating expenses..... 77,280 30,585 107,865 21,728 129,593 129,593
Corporate expenses............. 6,303 910 7,213 170 7,383 7,383
Depreciation and amortization.. 63,207 58,808 122,015 15,315 137,330 137,330
-------- -------- -------- -------- -------- ------- ---------
Operating income (loss)........ 8,876 (19,776) (10,900) (5,744) (16,644) (16,644)
Interest expense............... 32,407 28,316 60,723 4,170 64,893 64,893
Other income (expense), net.... 20,084 (20,053) 31 34 65 65
Income tax expense (benefit)... 804 -- 804 -- 804 (804)(d) --
-------- -------- -------- -------- -------- ----- ---------
Net (loss) income............ $ (4,251) $(68,145) $(72,396) $ (9,880) $(82,276) $ 804 $ (81,472)
======== ======== ======== ======== ======== ===== =========
Net loss applicable to
common stockholders......... $(13,487) $(101,622)
======== =========
Earnings per common share:
Basic.......................... $ (0.16) $ (1.10)
Diluted........................ (0.16) (1.10)
Weighted average common
shares outstanding:
Basic.......................... 84,540 92,448
Diluted........................ 84,540 92,448
Other Data:
Broadcast cash flow(e)......... $ 78,386 $ 128,069
Broadcast cash flow
margin(f)..................... 50.4% 49.7%
EBITDA (before non-cash
compensation expense)(e)...... $ 72,271 $ 120,874
After-tax cash flow(e)......... 48,712 33,896
Cash interest expense(g)....... 28,581 61,067
Capital expenditures........... 3,665 5,168
Ratio of earnings to combined
fixed charges and preferred
stock dividends(h)............
Ratio of total debt to
EBITDA (before non-cash
compensation expense)......... 6.0x
Ratio of EBITDA
(before non-cash
compensation expense)
to interest expense........... 1.9x
Ratio of EBITDA
(before non-cash
compensation expense)
to cash interest
expense....................... 2.0x
________________
Footnotes for the Unaudited Pro Forma Consolidated Statement of Operations
and Other Data for the Year Ended December 31, 2000,
(a) See the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.
- --------------------------------------------------------------------------------
Page 14
(b) The table below gives effect to the acquisitions completed during the period
January 1, 2000 through December 31, 2000, as if they occurred on January 1,
2000. 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(/5/) Total
--------------- --------------- --------------- --------------- --------------- --------------- --------
(in thousands)
Statement of
Operations:
Net broadcast
revenue............. $1,405 $1,534 $2,189 $32,246 $33,153 $ -- $ 70,527
Station operating
expenses............ 726 961 1,539 15,342 12,138 (121)(/6/) 30,585
Corporation
expenses............ 117 49 8 -- 736 (/7/) 910
Depreciation and
amortization........ 6 135 160 5,947 3,488 49,072 (/8/) 58,808
------ ------ ------ ------- ------- -------- --------
Operating income
(loss)............ 556 389 482 10,957 17,527 (49,687) (19,776)
Interest expense..... -- 85 -- -- 28,231 (/9/) 28,316
Other income
(expense), net...... 9 -- 22 -- -- (20,084)(/10/) (20,053)
Income tax
allocation.......... -- -- (4,382) (7,011) 11,393(/11/) --
------ ------ ------ ------- ------- -------- --------
Net income (loss).. $ 565 $ 389 $ 419 $ 6,575 $10,516 $(86,609) $(68,145)
====== ====== ====== ======= ======= ======== ========
_______________
(/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 period ended August 25, 2000, the date the stations were purchased
by Radio One. See the financial statements included elsewhere in the Form
8-K.
(/5/) Pro forma adjustments related to the sale of KJOI-AM (formerly KLUV-AM)
for $16.0 million have not been included in this statement of operations
as the activity for the year ended December 31, 2000 is not significant as
KJOI-AM was purchased on September 25, 2000.
(/6/) To eliminate expenses which Radio One does not expect to incur going
forward, which consist primarily of corporate officers' salaries.
(/7/) To record additional corporate expenses of $910 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.
(/8/) 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 year $58,523
Additional purchase price paid for Richmond II of $4.0 million
amortized over 15 years ....................................... 133
Amortization of the $3.5 million in acquisition costs over 15
years .......................................................... 152
Less: Previously recorded amortization expense................... 9,736
-------
Total.......................................................... $49,072
=======
(/9/) To reflect the interest expense on the new bank credit facility, to record
the amortization of deferred finance costs and to eliminate interest
expenses of the entities pruchased.
Assumed $570.0 million used of the line of credit at 7.5% to
fund the acquisitions........................................... $27,787
Amortization of the $5.7 million in financing costs using the
effective interest method ..................................... 529
Less: Interest expense that would not have been incurred......... 85
-------
Total........................................................... $28,231
=======
- --------------------------------------------------------------------------------
Page 15
(/10/) To eliminate Radio One's Historical interest income as excess cash would
have been used to partially finance the acquisitions.
(/11/) To eliminate the 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
(c) The table below gives effect to the acquisitions pending as of December 31,
2000.
Richmond III Blue Chip Adjusted Pro Forma
Historical(1) Historical(2) WFIA-AM(3) Lexington(4) Blue Chip Adjustments Total
------------- ------------ ---------- --------- ---------- ----------- ------
Statement of Operations:
Net broadcast revenues.......... $ -- $ 32,214 $ 451 $ 294 $ 31,469 $ -- $ 31,469
Station operating expenses...... -- 22,943 297 605 22,041 (313)(/5/) 21,728
Corporate expenses.............. -- 2,060 -- -- 2,060 (1,890)(/5/) 170
Depreciation and amortization... -- 7,515 175 246 7,094 8,221 (/6/) 15,315
Asset Impairment Loss........... -- 2,560 -- 2,560 -- -- --
---- -------- ----- ------- -------- ------- --------
Operating income (loss)....... -- (2,864) (21) (3,117) 274 (6,018) (5,744)
Interest expense................ -- 6,321 -- -- 6,321 (2,151)(/7/) 4,170
Other income.................... -- 39 1 4 34 -- 34
---- -------- ----- ------- ------- ------- --------
Net income (loss)............. $ -- $ (9,146) $ 20 $ 3,113 $(6,013) $(3,867) $ (9,880)
==== ======== ===== ======= ======= ======= ========
_________________
(/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
a Local Marketing Agreement with Richmond III during the period.
(/2/) The column represents the historical results of operations for the year
ended December 31, 2000 for Blue Chip Broadcasting. See attached audited
financial statements.
(/3/) The column represents the historical results of operations for the year
ended December 31, 2000 for WFIA-AM owned by Blue Chip (station not
acquired by Radio One).
(/4/) The column represents the historical results of operations for the year
ended December 31, 2000 for the Lexington Region Stations owned by Blue
Chip (not acquired by Radio One).
(/5/) To eliminate expenses which Radio One does not expect to incur going
forward, which consist primarily of one time costs incurred by Blue Chip,
Corporate officers' salaries and other corporate office expenses.
(/6/) To record additional depreciation and amortization expense that would
have been recorded if the acquisition had occurred on January 1, 2000,
calculated as the excess purchase price over tangible assets acquired
amortized over 15 years calculated as follows:
Excess purchase price over tangible assets acquired of Blue Chip
Amortized over 15 years ........................................ $11,693
Excess purchase price over tangible assets acquired of Richmond
III amortized over 15 years .................................... 2,186
Less: Previously recorded amortization expense................... 5,658
-------
Total........................................................... $ 8,221
=======
(/7/) To reflect the interest expense on the new bank credit facility, and to
eliminate LMA fees paid by Radio One:
Assumed $89.1 million used of the line of credit at 7.5% to
fund the acquisitions .......................................... $ 6,683
Less: LMA Fees paid to Richmond II................................ 2,796
Less: Interest that would not have
been incurred on outstanding debt............................... 6,038
-------
Total............................................................ $(2,151)
=======
(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) 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.
(f) Broadcast cash flow margin is defined as broadcast cash flow divided by net
broadcast revenue.
(g) 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.
- --------------------------------------------------------------------------------
Page 16
(h) 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 year ended December 31,
2000, by approximately $91.0 million.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 2000
---------------------------------------------
Radio One Pending Pro Forma
Historical(a) Transactions(b) as Adjusted
-------------- --------------- -------------
(in thousands)
ASSETS
Current Assets:
Cash and cash
equivalents.................... $ 20,879 $ (18,397) $ 2,482
Trade accounts
receivable, net................ 46,883 6,410 53,293
Prepaid expenses
and other...................... 6,557 239 6,796
Income tax receivable........... 2,476 2,476
Deferred income taxes........... 2,187 -- 2,187
---------- --------- ----------
Total current assets.......... 78,982 (11,748) 67,234
Property and equipment,net...... 33,376 8,033 41,409
Intangible assets, net.......... 1,637,180 193,395 1,830,575
Other assets.................... 15,680 (88) 15,592
---------- --------- ----------
Total assets.................. $1,765,218 $ 189,592 $1,954,810
========== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued expenses............... $ 31,810 $ 2,211 $ 34,021
Other current liabilities....... 4,696 -- 4,696
---------- --------- ----------
Total current liabilities..... 36,506 2,211 38,717
Bank Credit Facility............ 562,500 76,600 639,100
12% Senior Subordinated Notes
due May 15, 2004............... 84,368 -- 84,368
Other long-term debt............ 88 69 157
Deferred tax liability.......... 24,687 -- 24,687
---------- --------- ----------
Total liabilities............. 708,149 78,880 787,029
---------- --------- ----------
Stockholders' Equity (Deficit):
Preferred Stock................. -- -- --
Class A Common Stock............ 23 -- 23
Class B Common Stock............ 3 -- 3
Class C Common Stock............ 3 -- 3
Class D Common Stock............ 58 -- 58
Stock subscriptions
Receivable..................... (9,005) -- (9,005)
Additional paid in capital...... 1,105,681 110,712 1,216,393
Accumulated deficit............. (39,694) -- (39,694)
---------- --------- ----------
Total stockholders' equity.... 1,057,069 110,712 1,167,781
---------- --------- ----------
Total liabilities and
stockholders' equity......... $1,765,218 $ 189,592 $1,954,810
========== ========= ==========
- --------------------------------------------------------------------------------
Page 17
________________
(a) See the Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K as of December 31, 2000.
(b) The table below gives effect to the pending transactions as of December 31,
2000 as if they had occurred on December 31, 2000.
Blue Chip WFIA-AM Lexington Adjusted Richmond III Acquisition
Historical(1) Historical(2) Historical(2) Blue Chip Historical (3) Adjustments Total
------------- ------------- ------------- --------- -------------- ----------- -----
ASSETS
Current Assets:
Cash and cash
equivalents.............. $ 894 $ -- $ (38) $ 932 $ -- $ (19,329)(/4/) $(18,397)
Trade accounts
receivable, net.......... 6,603 47 146 6,410 -- -- 6,410
Prepaid expenses and
other.................... 248 9 239 -- 239
-------- -------- ------ -------- ----- ---------- --------
Total current assets.... 7,745 47 117 7,581 -- (19,329) (11,748)
Property and
equipment, net........... 8,829 175 621 8,033 -- -- 8,033
Intangible assets, net.... 80,890 1,575 1,272 78,043 -- 115,352 (/5/) 193,395
Other assets.............. 1,271 -- -- 1,271 -- (1,359)(/4/) (88)
-------- -------- ------ -------- ----- ---------- --------
Total assets............ $ 98,735 $ 1,797 $2,010 94,928 -- $ 94,664 $189,592
======== ======== ====== ======== ===== ========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses......... 2,350 33 106 2,211 -- -- 2,211
Current portion of debt.... 2,935 2,935 -- (2,935)(/6/) --
-------- -------- ------ -------- ----- ---------- --------
Total current
liabilities............ 5,285 33 106 5,146 -- (2,935) 2,211
Long-term debt and
accrued interest......... 51,359 -- -- 51,359 -- 25,241 (/6/) 76,600
Other...................... 73 4 69 -- -- 69
-------- -------- ------ -------- ----- ---------- --------
Total liabilities....... 56,717 33 110 56,574 22,306 78,880
-------- -------- ------ -------- ----- ---------- --------
Redeemable common stock.... 71,306 -- -- 71,306 -- (71,306) --
-------- -------- ------ -------- ----- ---------- --------
Stockholders' Equity
Common Stock .............. 10 -- 10 -- (10)(/7/) --
Additional Paid-In capital. 110,712 (/8/) 110,712
Accumulated Deficit........ (29,298) 1,764 1,900 (32,962) -- 32,962 (/7/) --
-------- -------- ------ -------- ----- ---------- --------
Total stockholders' equity. (29,288) 1,764 1,900 (32,952) -- 143,664 110,712
-------- -------- ------ -------- ----- ---------- --------
Total liabilities,
redeemable common
stock and
stockholders' equity... $ 98,735 $ 1,797 $ 2,010 $ 94,928 -- $ 94,664 $189,592
======== ======== ====== ======== ===== ========== ========
________________
(/1/) This column represents the historical balance sheet as of December 31,
2000. See the financial statements included elsewhere in the Form 8-K.
(/2/) These columns represent the historical balance sheet information related
to the WFIA-AM and Lexington stations. These stations are included in
Blue Chip historical numbers but are not being acquired by Radio One.
Their balance sheet activity is deducted for pro formas hereon.
(/3/) All broadcast assets and liabilities as of December 31, 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. The FCC license is proforma adjusted in Note 5.
(/4/) To reflect the use of cash as follows:
Additional debt assumed to finance the
Blue Chip and Richmond III acquisitions..................... $ 89,100
Proceeds from sale of KJOI-AM................................. 16,000
Escrow deposit for Richmond III acquisition................... 1,359
Less:
Assumed cash to be paid for Blue Chip acquisition............ 79,288
Purchase price for Richmond III acquisition.................. 34,000
Payment on bank credit facility.............................. 12,500
--------
Total....................................................... $(19,329)
========
(/5/) To record estimated intangible assets booked as a result of the
acquisitions and sale, calculated as follows:
Purchase price................................................ $224,000
Less: Net tangible assets..................................... 14,605
--------
Intangibles acquired.......................................... 209,395
Less: Intangibles sold........................................ 16,000
Less: Intangibles previously recorded......................... 78,043
--------
Total....................................................... $115,352
========
(/6/) To eliminate debt related to the Blue Chip acquisition as Radio One is
not acquiring the debt, to reflect the $12.5 million repaid on the bank
credit facility using the $16.0 million in proceeds from the sale of
KJOI-AM, and to reflect additional borrowings of $89.1 million on the
bank facility to finance the acquisitions.
(/7/) To eliminate the Blue Chip equity balances.
(/8/) To reflect the 7,908 shares of Class D common stock at $14 per share
issued to Blue Chip in the acquisition.
(c) Exhibits
20.1 Radio One's Annual Report on Form 10-K for the period ending December
31, 2000 (incorporated by reference to the filing of such Annual
Report on Form 10-K made on April 2, 2001 (File No. 000-25969; Film
No. 1591885))
23.1 Consent of Arthur Andersen LLP,
23.2 Consent of PricewaterhouseCoopers, LLP
23.3 Consent of Clark, Schaefer, Hackett & Co.
- --------------------------------------------------------------------------------
Page 18
SIGNATURES
According to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on April 9, 2001.
RADIO ONE, INC.
/s/ Linda J. Eckard Vilardo
-----------------------------
By: Linda J. Eckard Vilardo
Its: Vice President, General
Counsel and Assistant
Secretary