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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 333-30795
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
RADIO ONE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
52-1166660
(I.R.S. Employer Identification No.)
5900 Princess Garden Parkway,
8th Floor
Lanham, Maryland 20706
(Address of principal executive offices)
(301) 306-1111
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Class A Common Stock, $.001 par value The Nasdaq Stock Market's National Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
The number of shares outstanding of each of the issuer's classes of common
stock, as of March 8, 2000 is as follows:
Class Outstanding at March 8, 2000
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Class A Common Stock, $.001 par value 22,272,622
Class B Common Stock, $.001 par value 2,867,463
Class C Common Stock, $.001 par value 3,132,458
The aggregate market value as of March 8, 2000 of voting and non-voting common
equity held by non-affiliates of the registrant was $1,202,631,692.00.
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RADIO ONE, INC. AND SUBSIDIARIES
Form 10-K
For the Fiscal Year Ended December 31, 1999
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business............................................... 3
Item 2. Properties and Facilities.............................. 26
Item 3. Legal Proceedings...................................... 27
Item 4. Submission of Matters to a Vote of Security Holders.... 27
PART II
Market for Registrant's Common Equity and Related
Item 5. Stockholder Matters................................... 28
Item 6. Selected Financial Data................................ 28
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 31
Item 8. Financial Statements and Supplementary Data............ 38
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and
1999
Consolidated Statements of Operations for the years
ended December 31, 1997, 1998 and 1999
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1997, 1998 and
1999
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1998 and 1999
Notes to Consolidated Financial Statement
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 38
PART III
Item 10. Directors and Executive Officers of the Registrant..... 39
Item 11. Compensation of Directors and Officers................. 41
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................ 43
Item 13. Certain Relationship and Related Transactions.......... 45
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 47
SIGNATURES
EXHIBIT INDEX
2
PART I
ITEM 1. BUSINESS
Unless otherwise noted, the terms "Radio One," "we," "our" and "us" refer to
Radio One, Inc. and our subsidiaries, Radio One Licenses, Inc., WYCB
Acquisition Corporation, Broadcast Holdings, Inc., Bell Broadcasting Company,
Radio One of Detroit, Inc., Allur-Detroit, Inc., Allur Licenses, Inc., Radio
One of Atlanta, Inc., ROA Licenses, Inc., Dogwood Communications, Inc. and
Dogwood Licenses, Inc., from the time of their respective acquisitions.
Radio One was founded in 1980 and is the largest radio broadcasting company
in the United States primarily targeting African-Americans. After we complete
our pending acquisitions we will own 48 radio stations, 47 of which are
located in 18 of the 40 largest African-American markets in the United States.
Our strategy is to expand within our existing markets and into new markets
that have a significant African-American presence. We believe radio
broadcasting primarily targeting African-Americans has significant growth
potential. We also believe that we have a competitive advantage in the
African-American market and the radio industry in general, due to our primary
focus on urban formats, our skill in programming and marketing these formats,
and our turnaround expertise. The radio station clusters that we owned or
managed as of December 31, 1999, were ranked in the top three in their markets
in combined audience and revenue share among radio stations primarily
targeting African-Americans.
Radio One is led by our Chairperson and co-founder, Catherine L. Hughes, and
her son, Alfred C. Liggins, III, our Chief Executive Officer and President,
who together have over 40 years of operating experience in radio broadcasting.
Ms. Hughes, Mr. Liggins and our strong management team have successfully
implemented a strategy of acquiring and turning around underperforming radio
stations. We believe that we are well positioned to apply our proven operating
strategy to our recently or soon to be acquired stations, and to other radio
stations in existing and new markets as attractive acquisition opportunities
arise.
On May 6, 1999, we completed our initial public offering of approximately
5.4 million shares of our class A common stock. On November 11, 1999, we
completed a follow-on public offering of approximately 5.2 million shares of
our class A common stock and on March 8, 2000, we completed another follow-on
public offering of 5.0 million shares of our class A common stock. From these
three offerings we received net proceeds of approximately $747.0 million after
deducting offerings costs. We have used a portion of these proceeds to repay
amounts borrowed under our bank credit facility, redeem our preferred stock,
repay a note payable and deferred interest, fund acquisitions and for other
general corporate purposes. We plan to use the balance of the proceeds to fund
acquisitions and for general corporate purposes.
On March 11, 2000, we entered into agreements to acquire a total of 21 radio
stations in three separate transactions: (i) we agreed to acquire from Clear
Channel Communications, Inc. and AMFM, Inc. the assets of 12 radio stations
located in seven markets in the United States for approximately $1.3 billion;
(ii) we agreed to acquire from Davis Broadcasting, Inc. six radio stations in
Charlotte, North Carolina and Augusta, Georgia for approximately $24.0 million
in cash and stock and (iii) we agreed to acquire from Shirk, Inc. and IBL,
L.L.C. the assets of three radio stations located in Indianapolis, Indiana for
approximately $40.0 million in cash and stock.
Station Portfolio
We operate in some of the largest African-American markets. Additionally, we
have acquired or agreed to acquire 35 radio stations since January 1, 1999.
These acquisitions diversify our net broadcast revenue, broadcast cash flow
and asset bases and will increase the number of top 40 African-American
markets in which we currently operate from nine to 18. The table below
outlines our station operations and information about the markets where we own
stations (from the BIA 1999 Fourth Edition).
3
Radio One and Our Markets
Radio One Data Market Data
----------------------------------------------- ---------------------------------------------
Number of African-American 1999 Entire
Stations Market Market 1997 MSA Population
--------- ---------------- ----------------- ----------------------
Fall January- Estimated Ranking by
1999 12 December 1999 Annual Size of
Audience + 1999 Radio African- African-
Share Revenue Audience Revenue Revenue American Total American
Market FM AM Rank Rank Share Share ($millions) Population (in millions) %
- ------ ---- ---- -------- ------- -------- -------- ----------- ---------- ------------- --------
Washington, D.C......... 2 2 1 1 10.9 10.1% $289.7 3 4.3 26.5%
Detroit................. 2 2/1/ 2 2 5.0 3.7 246.1 5 4.6 22.3
Philadelphia............ 2 -- 2 2 5.9 5.3 283.7 6 4.9 20.2
Atlanta................. 2 -- 2 3 6.8 5.1 280.6 7 3.7 26.0
Baltimore............... 2 2 1 1 17.1 21.4 121.1 10 2.5 27.6
St. Louis 1 -- n/a n/a n/a n/a 123.7 14 2.6 17.7
Cleveland............... 1 1 2 2 4.1 3.0 106.6 17 2.1 19.2
Boston 1 -- n/a n/a n/a n/a 279.3 18 4.3 7.1
Richmond/2.........../.. 6 1 1 1 26.2 21.5 50.1 19 0.9 30.1
---- ----
Total................... 19 8
==== ====
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/1/Includes WJZZ(AM) licensed to Kingsley, Michigan.
/2/Includes four stations that Radio One has agreed to acquire, three of which
are operated pursuant to a time brokerage agreement.
The African-American Market Opportunity
We believe that operating urban formatted radio stations primarily targeting
African-Americans has significant growth potential for the following reasons:
Rapid African-American Population Growth. From 1980 to 1995, the African-
American population increased from approximately 26.7 million to 33.1
million, a 24.0% increase, compared to a 16.0% increase in the population
as a whole. (Source: 1998 U.S. Cenus Bureau Current Population Report)
Furthermore, the African-American population is expected to approach 40
million by 2010, a 20.8% increase from 1995, compared to an expected
increase of 14.1% for the population as a whole. (Source: U.S. Census
Bureau, Population Projection Program, Projection of the Resident
Population Report, January 13, 2000)
Higher African-American Income Growth. According to the U.S. Census Bureau,
from 1980 to 1995, the rate of increase in median family household income
in 1995 adjusted dollars for African-Americans was approximately 10.7%
compared to 4.3% for the population as a whole. African-American buying
power is estimated to reach $533 billion in 1999, up 73.0% from 1990
compared to a 57.0% increase for all Americans, and to account for 8.2% of
total buying power in 1999, compared to 7.4% in 1990. (Source: "African-
American Buying Power by Place of Residence: 1990-1999," Dr. Jeffrey M.
Humphreys). In addition, the African-American consumer tends to have a
different consumption profile than non-African-Americans. For example, 31%
of African-Americans purchased a TV, VCR or stereo in the past year
compared to 25% of average U.S. households. African-Americans' higher than
average rate of consumption is a powerful reason for U.S. retailers to
increase targeted advertising spending toward this consumer group. (Source:
Pricewaterhouse Coopers, LLP 1998 Study)
Growth in Advertising Targeting the African-American Market. We believe
that large corporate advertisers are becoming more focused on reaching
minority consumers in the United States. The African-American and Hispanic
communities are viewed as an emerging growth market within the mature
domestic market. A 1997 study estimated that major national advertisers
spent $881 million on advertising targeting African-American consumers, up
from $463 million in 1985. (Source: Target Market News (Chicago, IL-1997)).
For example, Ford Motor Company reportedly planned to increase its spending
targeting African-Americans and Hispanics by 20% in the 1998-99 model year.
(Source: Ad Week Midwest September 28, 1998). We believe Ford is one
example of many large corporations expanding their commitment to ethnic
advertising.
4
Growing Influence of African-American Culture. We believe that there is an
ongoing "urbanization" of many facets of American society as evidenced by
the influence of African-American culture in the areas of music (for
example, hip-hop and rap music), film, fashion, sports and urban-oriented
television shows and networks. We believe that companies as disparate as
the News Corporation's Fox television network, the sporting goods
manufacturer Nike, the fast food chain McDonald's, and prominent fashion
designers have embraced this urbanization trend in their products as well
as their advertising messages.
Growing Popularity of Radio Formats Primarily Targeting African-
Americans. We believe that urban programming has been expanded to target a
more diverse urban listener base and has become more popular with listeners
and advertisers over the past ten years. The number of urban radio stations
has increased from 294 in 1990 to an estimated 371 in 1998, or 26%, and is
expected to increase an additional 10% to 409 by 2002. In Fall 1997, urban
formats were one of the top three formats in nine of the top ten radio
markets nationwide and the top format in five of these markets. (Source:
INTEREP, Research Division, 1998 Regional Differences in Media Usage
Study).
Concentrated Presence of African-Americans in Urban Markets. In 1997,
approximately 61.8% of the African-American population was located in the
top 40 African-American markets. (Source: BIA 1999, Fourth Edition).
Relative to radio broadcasters targeting a broader audience, we believe we
can cover the various segments of our target market with fewer programming
formats and therefore fewer radio stations than the maximum of eight
allowed by the FCC.
Strong African-American Listenership and Loyalty. In 1996, African-
Americans in the ten largest markets listened to radio broadcasts an
average of 27.0 hours per week. (Source: INTEREP Research Division, 1998
Urban Radio Study). This compares to 22.0 hours per week for all Americans.
(Source: Forbes, June 1, 1998). In addition, we believe that African-
American radio listeners exhibit greater loyalty to radio stations that
target the African-American community because those radio stations become a
valuable source of entertainment and information responsive to the
community's interests and lifestyles.
Acquisition Strategy
Our acquisition strategy includes acquiring and turning around
underperforming radio stations principally in the top 40 African-American
markets. We will also make acquisitions in existing markets where expanded
coverage is desirable and in new markets where we believe it is advantageous
to establish a presence. In analyzing potential acquisition candidates, we
generally consider:
. the price and terms of the purchase;
. whether the radio station has a signal adequate to reach a large
percentage of the African-American community in a market;
. whether we can increase ratings and net broadcast revenue of the radio
station;
. whether we can reformat or improve the radio station's programming in
order to serve profitably the African-American community;
. whether the radio station affords us the opportunity to introduce
complementary formats in a market where we already maintain a presence;
and
. the number of competitive radio stations in the market.
For strategic reasons, or as a result of a station cluster purchase, we may
also acquire and operate stations with formats that target non-African-
American segments of the population.
5
RECENT AND PENDING ACQUISITIONS
We have acquired or agreed to acquire 35 radio stations since January 1,
1999. These acquisitions diversify our net broadcast revenue, broadcast cash
flow and asset bases and increase the number of top 40 African-American
markets in which we currently operate from nine to 18.
The table below sets forth information regarding each of the recently
completed or pending acquisitions as of March 11, 2000.
Approximate
Purchase
Price
No. of Call (in Date
Stations Letters millions) Completed
-------- ------- ----------- ---------
Completed Transactions
Atlanta (ROA and Dogwood)......... 2 WHTA-FM (1) 3/99
WAMJ-FM
Cleveland......................... 2 WENZ-FM $ 20.0 4/99
WERE-AM
St. Louis......................... 1 WFUN-FM 13.6 6/99
Richmond I........................ 1 WDYL-FM 4.6 7/99
Richmond II....................... 2 WKJS-FM 12.0 7/99
WARV-FM
Boston............................ 1 WBOT-FM 10.0 10/99
Philadelphia...................... 1 WPLY-FM 80.0 2/00
--- --------
Subtotal.......................... 10 140.2(2)
=== --------
Pending Transactions
Richmond III...................... 4 WJRV-FM 34.0 --
WCDX-FM
WPLZ-FM
WGCV-AM
Los Angeles (3)................... 1 KKBT-FM 1,302.5 --
Houston (3)....................... 2 KMJQ-FM
KBXX-FM
Dallas (3)........................ 1 KBFB-FM
Cleveland (3)..................... 2 WZAK-FM
WJMO-AM
Miami (3)......................... 1 WVCG-AM
Raleigh........................... 4 WQOK-FM
WFXK-FM
WNNL-FM
WFXC-FM
Greenville (3).................... 1 WJMZ-FM
Charlotte (4)..................... 1 WCCJ-FM 24.0
Augusta (4)....................... 5 WAKB-FM --
WAEG-FM
WAEJ-FM
WFXA-FM
WTHB-AM
Indianapolis (5).................. 4 WHHH-FM 40.0 --
WBKS-FM
WYJZ-FM
W53AV(6)
--- --------
Subtotal.......................... 25 1,400.5
--- --------
Total............................. 35 $1,540.7(2)
=== ========
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(1) Radio One issued approximately 3.3 million shares of its common stock and
assumed approximately $16.3 million of debt in this transaction.
(2) Excludes ROA and Dogwood.
6
(3) Stations being acquired from Clear Channel Communications, Inc./AMFM, Inc.
(4) Stations being acquired from Davis Broadcasting, Inc.
(5) Stations being acquired from Shirk, Inc. and IBL, LLC.
(6) Low powered Indianapolis television station not included in station total.
Completed Acquisitions
Atlanta--Radio One of Atlanta and Dogwood Communications Acquisition
On March 30, 1999, Radio One acquired ROA, an affiliate of Radio One, for
approximately 3.3 million shares of Radio One common stock. Radio One also
assumed and retired approximately $16.3 million of indebtedness of ROA and
Dogwood. At the time, ROA owned approximately 33% of Dogwood. On March 30,
1999, ROA acquired the remaining approximate 67% of Dogwood for $3.6 million.
Founded in 1995, ROA owns and operates WHTA-FM licensed to Fayetteville,
Georgia. Dogwood owns WAMJ-FM, licensed to Roswell, Georgia, which, prior to
ROA's acquisition of 100% of Dogwood, ROA operated under a local marketing
agreement ("LMA"). Upon the completion of these acquisitions, ROA became a
wholly owned subsidiary of Radio One, and Dogwood became a wholly owned
subsidiary of ROA. See "Certain Relationships and Related Transactions."
Cleveland--WENZ-FM and WERE-AM Acquisition
On April 30, 1999, Radio One acquired WENZ-FM and WERE-AM, both of which are
licensed to Cleveland, Ohio, for approximately $20.0 million in cash.
St. Louis--WFUN-FM Acquisition
On June 4, 1999, Radio One acquired the assets of WFUN-FM, licensed to
Bethalto, Illinois, for approximately $13.6 million in cash. We are in the
process of moving WFUN-FM to a broadcast tower site closer to downtown St.
Louis and upgrading its signal from 6 kW to 25 kW, and we expect to reformat
the station.
Richmond I and II--WDYL-FM Acquisition and WKJS-FM and WARV-FM Acquisition
On July 1, 1999, Radio One acquired WKJS-FM, licensed to Crewe, Virginia,
and WARV-FM, licensed to Petersburg, Virginia, for approximately $12.0 million
in cash, subject to purchase price adjustments.
On July 15, 1999, Radio One acquired WDYL-FM, licensed to Chester, Virginia,
for approximately $4.6 million in cash.
Boston--WBOT-FM Acquisition
On October 1, 1999, Radio One acquired the assets of WBOT-FM, licensed to
Brockton, Massachusetts, for approximately $10.0 million in cash. WBOT-FM
began broadcasting a Young Urban Contemporary format on December 1, 1999.
Philadelphia--WPLY-FM Acquisition
On February 28, 2000 Radio One acquired the assets of WPLY-FM, licensed to
Media, Pennsylvania for approximately $80.0 million in cash. We expect to
continue operating WPLY-FM in an Alternative Rock format.
Pending Acquisitions
Richmond III--WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM Acquisition
Pursuant to an asset purchase agreement dated May 6, 1999, Radio One has
agreed to acquire WCDX-FM, licensed to Mechanicsville, Virginia; WPLZ-FM,
licensed to Petersburg, Virginia; WJRV-FM, licensed to Richmond, Virginia; and
WGCV-AM, licensed to Petersburg, Virginia, for approximately $34.0 million in
cash. We have been operating WCDX-FM, WPLZ-FM and WJRV-FM under a time
brokerage agreement since June 1, 1999, and we expect to complete the
acquisition by the end of 2000.
7
Clear Channel Communications, Inc./AMFM, Inc. Acquisition
On March 11, 2000 we entered into an Asset Purchase Agreement with Clear
Channel Communications, Inc. and AMFM, Inc. to acquire the assets of 12 radio
stations located in seven markets in the United States for approximately $1.3
billion. The radio stations being acquired from Clear Channel and AMFM are as
follows: KKBT-FM (Los Angeles), KMJQ-FM and KBXX-FM (Houston), KBFB-FM
(Dallas), WZAK-FM and WJMO-AM (Cleveland), WVCG-AM (Miami), WQOK-FM, WFXK-FM,
WFXC-FM and WNNL-FM (Raleigh) and WJMZ-FM (Greenville, South Carolina).
Davis Broadcasting, Inc. Acquisition
On March 11, 2000 we entered into a Merger Agreement with Davis
Broadcasting, Inc. to acquire radio stations in Charlotte, North Carolina, and
Augusta, Georgia for approximately $24.0 million in cash and stock. The radio
stations being acquired from Davis Broadcasting are as follows: WCCJ-FM
(Charlotte), WAKB-FM, WAEG-FM, WAEJ-FM, WFXA-FM and WTHB-AM (Augusta).
Shirk, Inc. and IBL, L.L.C. Acquisition
On March 11, 2000 we entered into an Asset Purchase Agreement with Shirk,
Inc. and IBL, L.L.C. to acquire the assets of three radio stations located in
the Indianapolis, Indiana market for approximately $40.0 million in cash and
stock. The radio stations being acquired from Shirk, Inc. and IBL, L.L.C. are
as follows: WHHH-FM (Indianapolis), WBKS-FM (Greenwood) and WYJZ-FM (Lebanon).
We will also acquire W53AV, a low-powered Indianapolis television station, as
part of the purchase price.
Following the consummation of these acquisitions Radio One will own and/or
operate 48 radio stations in 19 markets.
Turnaround Expertise
Historically, we have entered a market by acquiring a station or stations
that have little or negative broadcast cash flow. Additional stations we have
acquired in existing markets have often been, in our opinion, substantially
underperforming. By implementing our operating strategies, we have succeeded
in increasing ratings, net broadcast revenue and broadcast cash flow of most
of the FM stations we have owned or managed for at least one year. We have
achieved these improvements while operating against much larger competitors.
Some of these successful turnarounds are described below by market:
Washington, D.C. In 1995, we acquired WKYS-FM for approximately $34.0
million. At the time, WKYS-FM was ranked number 12 by Arbitron in the 12-
plus age demographic. Over a two-year period, we repositioned WKYS-FM,
improved its programming and enhanced the station's community involvement
and image. For the Arbitron Survey four book averages ending with the Fall
1999 Arbitron Survey, the station was ranked number two in the 18-34 age
demographic (with a 9.8 share) and number three in the 12-plus age
demographic (with a 5.3 share).
In 1987, we acquired WMMJ-FM for approximately $7.5 million. At the time,
WMMJ-FM was being programmed in a general market Adult Contemporary format,
and had a 1.2 share of the 12-plus age demographic. After extensive
research we changed the station's format, making WMMJ-FM the first FM radio
station on the East Coast to introduce an Urban Adult Contemporary
programming format. For the Arbitron Survey four book averages ending with
the Fall 1999 Arbitron Survey, the station was ranked number seven in the
25-54 age demographic (with a 4.6 share) and was ranked number 10 in the
12-plus age demographic (with a 3.8 share).
Baltimore. In 1993, we acquired WERQ-FM and WOLB-AM for approximately $9.0
million. At the time, these stations had mediocre ratings. We converted
WERQ-FM's programming to a more focused Young Urban Contemporary format and
began aggressively marketing the station. WERQ-FM is now Baltimore's
8
dominant station, and in the Arbitron Survey four book averages ending with
the Fall 1999 Arbitron Survey, was ranked number one in the 12-plus and 18-
34 age demographics (with a 9.1 and a 16.4 share, respectively), a position
it first achieved in the Spring 1997 Arbitron Survey, and number two in the
25-54 age demographic (with a 7.6 share) behind Radio One's WWIN-FM.
In 1992, we acquired WWIN-FM and its sister station, WWIN-AM, for
approximately $4.7 million. At the time, WWIN-FM was a distant second in
ratings to its in-format direct competitor, WXYV-FM. We repositioned WWIN-
FM towards the 25-54 age demographic, and for the Arbitron Survey four book
averages ending with the Fall 1999 Arbitron Survey, the station was ranked
number one in that age demographic (with an 8.0 share).
Atlanta. In 1995, ROA, then an affiliate of Radio One, acquired WHTA-FM, a
Class A radio station located approximately 40 miles from Atlanta, for
approximately $4.5 million. Prior to that acquisition, the previous owners,
together with our management, upgraded and moved the station approximately
20 miles closer to Atlanta. The result was the introduction of a new, Young
Urban Contemporary radio station in the Atlanta market. The station's
ratings increased quickly, to an approximate 5.0 share in the 12-plus age
demographic. For the Arbitron Survey four book averages ending with the
Fall 1999 Arbitron Survey, the station was ranked number four in the 18-34
age demographic (with a 7.9 share).
Philadelphia. In May 1997, we acquired WPHI-FM for approximately $20.0
million. At the time the station was being programmed in a Modern Rock
format and had a 2.7 share in the 12-plus age demographic. We changed the
station's format to Young Urban Contemporary and, for the Arbitron Survey
four book averages ending with the Fall 1999 Arbitron Survey, the station
was ranked number six in the 18-34 age demographic (with a 5.5 share).
Detroit. We acquired WDTJ-FM, WCHB-AM, and WJZZ-AM for approximately $34.2
million in June, 1998. WDTJ-FM had an existing urban format garnering a
revenue share of 2.1% of the market in 1998. We repositioned the format
targeting a stronger female audience base, focusing on the urban adult age
demographic 18-34. Despite the addition of two new urban competitors
entering the arena in 1999, the sales force has been able to significantly
improve power ratios to a current ratio of .81, and achieved a 30% revenue
growth in 1999 versus a market growth rate of only 11%. In the Arbitron
Survey four book averages ending with the Fall 1999 Arbitron Survey, WDTJ
achieved a number two ranking in the 12-17 age demographic (with a 17.9
share), and ranked number four with persons aged 18 to 34 (with a 6.3
share).
Cleveland. In April 1999, we acquired WENZ-FM and WERE-AM for approximately
$20 million. At the time WENZ-FM was being programmed in an Alternative
Rock format and had a 2.1 share and ranked number 14 in the 12-plus age
demographic. We changed the station's format to Young Urban Contemporary in
May 1999 and, in the Fall 1999 Arbitron Survey, the station was ranked
number 11 in the 12-plus age demographic (with a 4.5 share), number five in
the 18-34 age demographic (with an 8.3 share), and number one in the 12-17
age demographic (with a 27.7 share).
9
Top 40 African-American Radio Markets in the United States
In the table below, boxes and bold text indicates markets where we currently
own or have agreed to acquire radio stations. Population estimates are for
1997 and are based upon BIA Investing in Radio Market Report ("BIA 1999 Fourth
Edition").
African-Americans
African American as a Percentage
Population in of the Overall
the Market Population in the
Rank Market (in thousands) Market
---- ----------------------------------- ---------------- -----------------
1. New York, NY 3,589 21.3%
2. Chicago, IL 1,670 19.6
- --------------------------------------------------------------------------------
| 3. Washington, DC 1,131 26.5 |
| 4. Los Angeles, CA 1,120 9.1 |
| 5. Detroit, MI 1,032 22.3 |
| 6. Philadelphia, PA 987 20.2 |
| 7. Atlanta, GA 957 26.0 |
| 8. Houston/Galveston, TX 795 18.3 |
| 9. Miami/Ft. Lauderdale/Hollywood, FL 713 19.7 |
| 10. Baltimore, MD 686 27.6 |
| 11. Dallas/Ft. Worth, TX 659 14.2 |
- --------------------------------------------------------------------------------
12. San Francisco, CA 594 8.9
13. Memphis, TN 491 42.0
- --------------------------------------------------------------------------------
| 14. St. Louis, MO 455 17.7 |
- --------------------------------------------------------------------------------
15. Norfolk/Virginia Beach/Newport
News, VA 455 30.2
16. New Orleans, LA 443 35.0
- --------------------------------------------------------------------------------
| 17. Cleveland, OH 408 19.2 |
| 18. Boston, MA 309 7.1 |
| 19. Richmond, VA 284 30.1 |
| 20. Charlotte/Gastonia/Rock Hill, NC 280 20.5 |
- --------------------------------------------------------------------------------
21. Birmingham, AL 267 27.4
22. Milwaukee/Racine, WI 261 15.5
- --------------------------------------------------------------------------------
| 23. Raleigh/Durham, NC 256 24.1 |
- --------------------------------------------------------------------------------
24. Jacksonville, FL 241 22.6
25. Tampa/St. Petersburg/Clearwater, FL 239 10.5
26. Kansas City, MO 229 13.5
Greensboro/Winston Salem/High
27. Point, NC 228 19.6
28. Cincinnati, OH 224 11.6
29. Nassau/Suffolk Counties (NY) 224 8.4
30. Pittsburgh, PA 198 8.4
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| 31. Indianapolis, IN 196 14.2 |
- --------------------------------------------------------------------------------
32. Orlando, FL 191 14.6
33. Columbus, OH 190 13.0
34. Jackson, MS 186 43.3
35. Nashville, TN 181 15.8
36. Baton Rouge, LA 181 31.5
37. San Diego, CA 174 6.3
38. Seattle/Tacoma, WA 174 5.1
- --------------------------------------------------------------------------------
| 39. Greenville/Spartanburg, SC 155 17.8 |
| 40. Augusta, GA 153 33.1 |
- --------------------------------------------------------------------------------
10
Operating Strategy
In order to maximize net broadcast revenue and broadcast cash flow at our
radio stations, we strive to achieve the largest audience share of African-
American listeners in each market, convert these audience share ratings to
advertising revenue, and control operating expenses. The success of our
strategy relies on the following:
. market research, targeted programming and marketing;
. strong management and performance-based incentives;
. strategic sales efforts;
. radio station clustering, programming segmentation and sales bundling;
. advertising partnerships and special events; and
. significant community involvement.
Market Research, Targeted Programming and Marketing
Radio One uses market research to tailor the programming, marketing and
promotions of our radio stations to maximize audience share. To achieve these
goals, we use market research to identify unserved or underserved markets or
segments of the African-American community in current and new markets and to
determine whether to acquire a new radio station or reprogram one of our
existing radio stations to target those markets or segments.
We also seek to reinforce our targeted programming by creating a distinct
and marketable identity for each of our radio stations. To achieve this
objective, in addition to our significant community involvement discussed
below, we employ and promote distinct, high-profile on-air personalities at
many of our radio stations, many of whom have strong ties to the African-
American community.
Strong Management and Performance-based Incentives
Radio One focuses on hiring highly motivated and talented individuals in
each functional area of the organization who can effectively help us implement
our growth and operating strategies. Radio One's management team is comprised
of a diverse group of individuals who bring expertise to their respective
functional areas. We seek to hire and promote individuals with significant
potential, the ability to operate with high levels of autonomy and the
appropriate team-orientation that will enable them to pursue their careers
within the organization.
To enhance the quality of our management in the areas of sales and
programming, general managers, sales managers and program directors have
significant portions of their compensation tied to the achievement of certain
performance goals. General managers' compensation is based partially on
achieving broadcast cash flow benchmarks which create an incentive for
management to focus on both sales growth and expense control. Additionally,
sales managers and sales personnel have incentive packages based on sales
goals, and program directors and on-air talent have incentive packages focused
on maximizing overall ratings as well as ratings in specific target segments.
Strategic Sales Efforts
Radio One has assembled an effective, highly trained sales staff responsible
for converting audience share into revenue. We operate with a focused, sales-
oriented culture which rewards aggressive selling efforts through a generous
commission and bonus compensation structure. We hire and deploy large teams of
sales professionals for each of Radio One's stations or station clusters, and
we provide these teams with the resources necessary to compete effectively in
the markets in which we operate. We utilize various sales strategies to sell
and market Radio One's stations as stand-alones, in combination with other
stations within a given market and across markets, where appropriate.
11
Radio Station Clustering, Programming Segmentation and Sales Bundling
Radio One strives to build clusters of radio stations in our markets, with
each radio station targeting different demographic segments of the African-
American population. This clustering and programming segmentation strategy
allows us to achieve greater penetration into each segment of our target
market. We are then able to offer advertisers multiple audiences and to bundle
the radio stations for advertising sales purposes when advantageous.
We believe there are several potential benefits that result from operating
multiple radio stations in the same market. First, each additional radio
station in a market provides us with a larger percentage of the prime
advertising time available for sale within that market. Second, the more
stations we program, the greater the market share we can achieve in our target
demographic groups through the use of segmented programming. Third, we are
often able to consolidate sales, promotional, technical support and corporate
functions to produce substantial cost savings. Finally, the purchase of
additional radio stations in an existing market allows us to take advantage of
our market expertise and existing relationships with advertisers.
Advertising Partnerships and Special Events
We believe that in order to create advertising loyalty, Radio One must
strive to be the recognized expert in marketing to the African-American
consumer in the markets in which we operate. We believe that Radio One has
achieved this recognition by focusing on serving the African-American consumer
and by creating innovative advertising campaigns and promotional tie-ins with
our advertising clients and sponsoring numerous entertainment events each
year. We sponsor the Stone Soul Picnic, an all-day free outdoor concert which
showcases advertisers, local merchants and other organizations to over 100,000
people in each of Washington, D.C. and Baltimore. We also sponsor The People's
Expo every Winter in Washington, D.C. and Baltimore, which provides
entertainment, shopping and educational seminars to Radio One's listeners and
others from the communities we serve. In these events, advertisers buy
signage, booth space and broadcast promotions to sell a variety of goods and
services to African-American consumers. As we expand our presence in our
existing markets and into new markets, we plan to increase the number of
events and the number of markets in which we host these major events.
Significant Community Involvement
We believe our active involvement and significant relationships in the
African-American community provides a competitive advantage in targeting
African-American audiences. In this way, we believe our proactive involvement
in the African-American community in each of our markets significantly
improves the marketability of our radio broadcast time to advertisers who are
targeting such communities.
We believe that a radio station's image should reflect the lifestyle and
viewpoints of the target demographic group it serves. Due to our fundamental
understanding of the African-American community, we believe we are able to
identify music and musical styles, as well as political and social trends and
issues, early in their evolution. This understanding is then integrated into
all aspects of our operations and enables us to create enhanced awareness and
name recognition in the marketplace. In addition, we believe our multi-level
approach to community involvement leads to increased effectiveness in
developing and updating our programming formats. We believe our enhanced
awareness and more effective programming formats lead to greater listenership
and higher ratings over the long-term.
We have a history of sponsoring events that demonstrate our commitment to
the African-American community, including:
. heightening the awareness of diseases which disproportionately impact
African-Americans, such as sickle-cell anemia and leukemia, and holding
fundraisers to benefit the search for their cure;
. developing contests specifically designed to assist African-American
single mothers with day care expenses;
12
. fundraising for the many African-American churches throughout the
country that have been the target of arsonists; and
. organizing seminars designed to educate African-Americans on personal
issues such as buying a home, starting a business, developing a credit
history, financial planning and health care.
Management Stock Option Plan
On March 10, 1999, we adopted the 1999 Stock Option and Restricted Stock
Grant Plan designed to provide incentives relating to equity ownership to
present and future executive, managerial, and other key employees of Radio One
and our subsidiaries. The option plan affords us latitude in tailoring
incentive compensation for the retention of key personnel, to support
corporate and business objectives, and to anticipate and respond to a changing
business environment and competitive compensation practices. For more
information see "Management--Stock Option Plan."
Station Operations
The following table sets forth selected information about our portfolio of
radio stations, including our acquisition of WPLY-FM, which closed in the
first quarter of fiscal year 2000, and four stations in Richmond that we have
agreed to acquire, three of which are operated pursuant to a time brokerage
agreement. Market population data and revenue rank data are from BIA 1999
Fourth Edition. Audience share and audience rank data are based on Arbitron
Survey four book averages ending with the Fall 1999 Arbitron Survey. Except as
noted, revenue share and revenue rank data for the Washington, D.C., Baltimore
and Detroit markets are based on the Radio Revenue Reports of Hungerford for
the twelve-month period ending December 31, 1999. For the Philadelphia,
Atlanta, Cleveland and Richmond markets, the revenue share and revenue rank
data are from revenue reports for the twelve-month period ending December 31,
1999, as prepared by Miller, Kaplan, Arase & Co., Certified Public
Accountants. As used in this table, "n/a" means not applicable or not
available and "t" means tied with one or more radio stations.
13
January-
December
1999
Radio One
Market
1999 Market Rank Four Book Average Four Book Average Revenue
------------------ ----------------- ----------------- -------------
Audience Audience Audience Audience
Target Share in Rank in Share in Rank in
Age 12+ 12+ Target Target
Metro Radio Year Demo- Demo- Demo- Demo- Demo-
Market(1) Population Revenue Acquired Format Graphic Graphic Graphic Graphic Graphic Share Rank
--------- ---------- ------- -------- ---------------- ------- -------- -------- -------- -------- ----- ----
Washington, DC 9 6
WKYS-FM 1995 Urban 18-34 5.2 3 9.8 2 5.3% 8
WMMJ-FM 1987 Urban AC 25-54 3.8 10 4.6 7 3.9% 13
WYCB-AM 1998 Gospel 35-64 0.9 23(t) 1.0 22 0.5% n/a(2)
WOL-AM 1980 Urban Talk 35-64 0.9 23(t) 0.9 24(t) 0.4% 21
Baltimore 20 20
WERQ-FM 1993 Urban 18-34 9.1 1 16.4 1 12.5% n/a(3)
WWIN-FM 1992 Urban AC 25-54 6.5 3 8.0 1 8.3% n/a(3)
WWIN-AM 1993 Gospel 35-64 0.9 16 1.0 15 0.4% n/a(3)
WOLB-AM 1992 Urban Talk 35-64 0.5 19 0.7 17(t) 0.2% n/a(3)
Philadelphia 5 9
WPHI-FM 1997 Urban 18-34 2.8 17(t) 5.5 6(t) 2.2% 16
WPLY-FM 2000 Alternative Rock 18-34 3.1 14 6.6 4 3.1% 15
Detroit 6 11
WDTJ-FM 1998 Urban 18-34 3.7 10(t) 6.3 4 2.8% 15
WDMK-FM 1998 Urban AC 25-54 0.8 26 1.0 24 0.7% 19
WCHB-AM 1998 Urban Talk 35-64 0.5 27(t) 0.6 27(t) .2% n/a(2)
Atlanta 12 7
WHTA-FM 1999 Urban 18-34 4.5 10 7.9 4 3.5% 12
WAMJ-FM 1999 Urban AC 25-54 2.3 14(t) 3.0 12 1.6% 13
Cleveland 24 23
WENZ-FM 1999 Urban 18-34 3.6 13 7.0 7 2.1% 14
WERE-AM 1999 News/Talk 35-64 -- -- -- -- -- --(4)
Richmond 57 47
WCDX-FM (pending) Urban 18-34 9.6 1 17.2 1 11.0% 3
WKJS-FM 1999 Urban AC 25-54 5.7 6(t) 7.4 3 6.5% 9
WPLZ-FM (pending) R&B 35-64 4.1 11 5.1 8 2.4% 11
WARV-FM 1999 Country 25-54 2.4 12 1.4 14(t) n/a(2) n/a(2)
WJRV-FM (pending) Country 25-54 2.3 13 2.4 12 1.6% 13
WGCV-AM (pending) Gospel/Oldies 35-64 1.2 18(t) 1.7 15(t) n/a(2) n/a(2)
WDYL-FM 1999 Modern Rock 18-34 0.9 20 1.4 13(t) -- 15
Boston 8 10
WBOT-FM(5) 1999 Urban 18-34 n/a n/a n/a n/a n/a n/a
- --------
(1) WJZZ-AM in Kingsley, MI and WFUN-FM in St. Louis, MO are not currently
broadcasting and are not included in the table.
(2) WYCB-AM, WCHB-AM, WARV-FM and WGCV-AM do not report revenues to
Hungerford or Miller Kaplan. Revenue shares for WYCB-AM and WCHB-AM
represent those stations' net broadcast revenue as a percentage of the
market radio revenue reported by Hungerford in their respective markets
for the twelve-month period ending December 31, 1999, as adjusted for
WYCB-AM and WCHB-AM revenue, as appropriate.
(3) The revenues of WERQ-FM and WOLB-AM are reported jointly to Hungerford,
as are the revenues of WWIN-FM and WWIN-AM. The revenue share percentages
for these stations reflect the proportional contribution by each station
to the joint share reported by Hungerford.
(4) WERE-AM's format consists of brokered time programming. The station's
ratings were not meaningful.
(5) Prior to resuming broadcasting on December 1, 1999, WBOT-FM in Boston, MA
was not operational. Accordingly, there are no ratings or revenue data to
be included in the table.
Advertising Revenue
Substantially all of our net broadcast revenue is generated from the sale of
local and national advertising for broadcast on our radio stations. Additional
net broadcast revenue is generated from network compensation payments and
other miscellaneous transactions. Local sales are made by the sales staffs
located in our markets. National sales are made by firms specializing in radio
advertising sales on the national level, in exchange for a commission from
Radio One that is based on a percentage of our net broadcast revenue from the
advertising obtained. Approximately 68.1% of our net broadcast revenue for the
year ended December 31, 1999, was
14
generated from the sale of local advertising and 30.1% from sales to national
advertisers. The balance of net broadcast revenue is derived from network
advertising, tower rental income and ticket and other revenue related to
special events hosted by Radio One.
We believe that advertisers can reach the African-American community more
cost effectively through radio broadcasting than through newspapers or
television. Advertising rates charged by radio stations are based primarily
on:
. a radio station's audience share within the demographic groups targeted
by the advertisers,
. the number of radio stations in the market competing for the same
demographic groups, and
. the supply and demand for radio advertising time.
Advertising rates are generally highest during the morning and afternoon
commuting hours.
A radio station's listenership is reflected in ratings surveys that estimate
the number of listeners tuned to a radio station and the time they spend
listening to that radio station. Each radio station's ratings are used by its
advertisers to consider advertising with the radio station, and are used by us
to chart audience growth, set advertising rates and adjust programming.
Strategic Diversification
We will continue to evaluate potential radio station acquisitions in
African-American markets. We are also exploring opportunities in other forms
of media to apply our expertise in marketing to African-Americans. Such
opportunities could include outdoor advertising in urban environments, an
urban-oriented Internet strategy, an urban-oriented radio network, music
production, publishing and other related businesses.
We have entered into a programming agreement with XM Satellite Radio, Inc.
to be the exclusive provider of African-American oriented programming to be
broadcast on XM Satellite's digital audio radio service, which is expected to
be available in 2001.
We have also invested, together with most other publicly-traded radio
companies, in a private placement for USA Digital Radio, Inc., a leading
developer of in-band on-channel digital audio broadcast technology. This
technology could enable radio broadcasters to convert from analog to digital
broadcasting within the existing frequency allocation of their AM and FM
stations. In conjunction with this investment, Alfred C. Liggins, III, the
Chief Executive Officer and President of Radio One, became a board member of
USA Digital Radio, Inc.
Additionally, we have invested in PNE Media Holdings, LLC, a privately-held
outdoor advertising company with a presence in several of the markets in which
we own radio stations.
We recently invested a combination of cash and advertising time in aka.com,
LLC, an aggregator of web sites devoted to hip hop culture. In conjunction
with this investment, our Chief Financial Officer, Scott R. Royster, became a
director of aka.com, LLC.
We also made a $750,000 loan to NetNoir, Inc., an internet portal service
provider. We provided $250,000 in cash and $500,000 of advertising in exchange
for the loan. The loan is convertible into preferred stock. Subsequent to
year-end, in March 2000, we made a commitment to invest an additional $2.5
million worth of advertising on our radio stations in exchange for an equity
investment in NetNoir, Inc.
Competition
The radio broadcasting industry is highly competitive. Radio One's stations
compete for audiences and advertising revenue with other radio stations and
with other media such as television, newspapers, direct mail
15
and outdoor advertising. Audience ratings and advertising revenue are subject
to change and any adverse change in a market could adversely affect our net
broadcast revenue in that market. If a competing station converts to a format
similar to that of one of our stations, or if one of our competitors
strengthens its operations, our stations could suffer a reduction in ratings
and advertising revenue. Other radio companies which are larger and have more
resources may also enter markets where we operate. Although we believe our
stations are well positioned to compete, we cannot assure you that our
stations will maintain or increase their current ratings or advertising
revenue.
The radio broadcasting industry is also subject to rapid technological
change, evolving industry standards and the emergence of new media
technologies. Several new media technologies are being developed, including
the following:
. audio programming by cable television systems, direct broadcast
satellite systems, Internet content providers and other digital audio
broadcast formats;
. satellite digital audio radio service, which could result in the
introduction of several new satellite radio services with sound quality
equivalent to that of compact discs; and
. in-band on-channel digital radio, which could provide multi-channel,
multi-format digital radio services in the same band width currently
occupied by traditional AM and FM radio services.
We recently entered into a programming agreement with a satellite digital
audio radio service and have also invested in a developer of digital audio
broadcast technology. However, we cannot assure you that these arrangements
will be successful or enable us to adapt effectively to these new media
technologies. We also cannot assure you that we will continue to have the
resources to acquire other new technologies or to introduce new services that
could compete with other new technologies.
Antitrust
An important part of our growth strategy is the acquisition of additional
radio stations. After the passage of the Telecommunications Act of 1996, the
Justice Department has become more aggressive in reviewing proposed
acquisitions of radio stations and radio station networks. The Justice
Department is particularly aggressive when the proposed buyer already owns one
or more radio stations in the market of the station it is seeking to buy. The
Justice Department has challenged a number of radio broadcasting transactions.
Some of those challenges ultimately resulted in consent decrees requiring,
among other things, divestitures of certain stations. In general, the Justice
Department has more closely scrutinized radio broadcasting acquisitions that
result in local market shares in excess of 40% of radio advertising revenue.
Similarly, the FCC staff has adopted procedures to review proposed radio
broadcasting transactions even if the proposed acquisition otherwise complies
with the FCC's ownership limitations. In particular, the FCC may invite public
comment on proposed radio transactions that the FCC believes, based on its
initial analysis, may present ownership concentration concerns in a particular
local radio market.
Federal Regulation of Radio Broadcasting
The radio broadcasting industry is subject to extensive and changing
regulation by the FCC of programming, technical operations, employment and
other business practices. The FCC regulates radio broadcast stations pursuant
to the Communications Act. The Communications Act permits the operation of
radio broadcast stations only in accordance with a license issued by the FCC
upon a finding that the grant of a license would serve the public interest,
convenience and necessity. The Communications Act provides for the FCC to
exercise its licensing authority to provide a fair, efficient and equitable
distribution of broadcast service throughout the United States. Among other
things, the FCC:
. assigns frequency bands for radio broadcasting;
. determines the particular frequencies, locations and operating power of
radio broadcast stations;
16
. issues, renews, revokes and modifies radio broadcast station licenses;
. establishes technical requirements for certain transmitting equipment
used by radio broadcast stations;
. adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation, program content and
employment and business practices of radio broadcast stations; and
. has the power to impose penalties, including monetary forfeitures, for
violations of its rules and the Communications Act.
The Communications Act prohibits the assignment of an FCC license, or other
transfer of control of an FCC licensee, without the prior approval of the FCC.
In determining whether to grant requests for consents to assignments or
transfers, and in determining whether to grant or renew a radio broadcast
license, the FCC considers a number of factors pertaining to the licensee (and
any proposed licensee), including restrictions on foreign ownership,
compliance with FCC media ownership limits and other FCC rules, licensee
"character" and compliance with the Anti-Drug Abuse Act of 1988.
The following is a brief summary of certain provisions of the Communications
Act and specific FCC rules and policies. This summary does not purport to be
complete and is qualified in its entirety by the text of the Communications
Act, the FCC's rules and regulations, and the rulings of the FCC. You should
refer to the Communications Act and these FCC rules and rulings for further
information concerning the nature and extent of federal regulation of radio
broadcast stations.
A licensee's failure to observe the requirements of the Communications Act
or FCC rules and policies may result in the imposition of various sanctions,
including admonishment, fines, the grant of renewal terms of less than eight
years, the grant of a license with conditions or, for particularly egregious
violations, the denial of a license renewal application, the revocation of an
FCC license or the denial of FCC consent to acquire additional broadcast
properties.
Congress and the FCC have had under consideration or reconsideration, and
may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could, directly or indirectly, affect
the operation, ownership and profitability of our radio stations, result in
the loss of audience share and advertising revenue for our radio broadcast
stations or affect our ability to acquire additional radio broadcast stations
or finance such acquisitions. Such matters may include:
. changes to the license authorization and renewal process;
. proposals to impose spectrum use or other fees on FCC licensees;
. auction of new broadcast licenses;
. changes to the FCC's equal employment opportunity regulations and other
matters relating to involvement of minorities and women in the
broadcasting industry;
. proposals to change rules relating to political broadcasting including
proposals to grant free air time to candidates, and other changes
regarding program content;
. proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages;
. technical and frequency allocation matters, including creation of a new
low power radio broadcast service;
. the implementation of digital audio broadcasting on both a satellite and
terrestrial basis;
. changes in broadcast cross-interest, multiple ownership, foreign
ownership, cross-ownership and ownership attribution policies;
17
. proposals to allow telephone companies to deliver audio and video
programming to homes in their service areas; and
. proposals to alter provisions of the tax laws affecting broadcast
operations and acquisitions.
We cannot predict what changes, if any, might be adopted, nor can we predict
what other matters might be considered in the future, nor can we judge in
advance what impact, if any, the implementation of any particular proposals or
changes might have on our business.
FCC Licenses
The Communications Act provides that a broadcast station license may be
granted to any applicant if the public interest, convenience and necessity
will be served thereby, subject to certain limitations. In making licensing
determinations, the FCC considers an applicant's legal, technical, financial
and other qualifications. The FCC grants radio broadcast station licenses for
specific periods of time and, upon application, may renew them for additional
terms. Under the Communications Act, radio broadcast station licenses may be
granted for a maximum term of eight years.
Generally, the FCC renews radio broadcast licenses without a hearing upon a
finding that:
. the radio station has served the public interest, convenience and
necessity;
. there have been no serious violations by the licensee of the
Communications Act or FCC rules and regulations; and
. there have been no other violations by the licensee of the
Communications Act or FCC rules and regulations which, taken together,
indicate a pattern of abuse.
After considering these factors, the FCC may grant the license renewal
application with or without conditions, including renewal for a term less than
the maximum otherwise permitted, or hold an evidentiary hearing.
In addition, the Communications Act authorizes the filing of petitions to
deny a license renewal application during specific periods of time after a
renewal application has been filed. Interested parties, including members of
the public, may use such petitions to raise issues concerning a renewal
applicant's qualifications. If a substantial and material question of fact
concerning a renewal application is raised by the FCC or other interested
parties, or if for any reason the FCC cannot determine that grant of the
renewal application would serve the public interest, convenience and
necessity, the FCC will hold an evidentiary hearing on the application. If as
a result of an evidentiary hearing the FCC determines that the licensee has
failed to meet the requirements specified above and that no mitigating factors
justify the imposition of a lesser sanction, then the FCC may deny a license
renewal application. Only after a license renewal application is denied will
the FCC accept and consider competing applications for the vacated frequency.
Also, during certain periods when a renewal application is pending, the
transferability of the applicant's license may be restricted. Historically,
our licenses have been renewed without any conditions or sanctions imposed.
However, there can be no assurance that the licenses of each of our stations
will be renewed or will be renewed without conditions or sanctions.
The FCC classifies each AM and FM radio station. An AM radio station
operates on either a clear channel, regional channel or local channel. A clear
channel is one on which AM radio stations are assigned to serve wide areas,
particularly at night. Clear channel AM radio stations are classified as
either: (1) Class A radio stations, which operate unlimited time and are
designed to render primary and secondary service over an extended area, or (2)
Class B radio stations, which operate unlimited time and are designed to
render service only over a primary service area. Class D radio stations, which
operate either daytime, or unlimited time with low nighttime power, may
operate on the same frequencies as clear channel radio stations. A regional
channel is one on which Class B and Class D AM radio stations may operate and
serve primarily a principal center of population and the rural areas
contiguous to it. A local channel is one on which AM radio stations operate
unlimited time and serve primarily a community and the suburban and rural
areas immediately contiguous to it. A Class C AM radio
18
station operates on a local channel and is designed to render service only
over a primary service area that may be reduced as a consequence of
interference.
The minimum and maximum facilities requirements for an FM radio station are
determined by its class. Possible FM class designations depend upon the
geographic zone in which the transmitter of the FM radio station is located.
In general, commercial FM radio stations are classified as follows, in order
of increasing power and antenna height: Class A, B1, C3, B, C2, C1 or C radio
stations. The FCC has proposed to divide Class C stations into two subclasses
based on antenna height. Stations not meeting the minimum height requirement
within a three-year transition period would be downgraded automatically to the
new Class C0 category.
In January 2000, the FCC voted to create a class of radio stations designed
to serve very localized communities or underrepresented groups within
communities by authorizing two new classes of noncommercial low power FM radio
stations which will be permitted to operate on commercial FM frequencies.
There will be two types of LPFM stations, LP100 stations with power from 50 to
100 watts and a service radius of approximately 3.5 miles and LP10 stations
with power from one to 10 watts and a service radius of approximately 1-2
miles. New LPFM stations will have to protect the signals of all other
authorized FM stations and may be authorized on any FM frequency. Eligible
licensees are limited to noncommercial government or private educational
organizations, associations or entities; non-profit entities with educational
purposes; or government or non-profit entities providing local public safety
or transportation services. No existing broadcasters or other media entities
may own an LPFM station. For the first two years of the LPFM service,
licensees will be limited to local entities headquartered within 10 miles of
the LPFM station transmitter. During the first two years, no entity may
operate more than one LPFM station. After two years, the ownership limit will
be five LPFM stations nationwide and after three years, the ownership limit
will be 10 LPFM stations nationwide.
The following table sets forth information with respect to each of our radio
stations, including the additional radio stations we have agreed to purchase
in Richmond three of which are currently operated pursuant to a local
marketing agreement . A broadcast station's market may be different from its
community of license. "ERP" refers to the effective radiated power of an FM
radio station. "HAAT" refers to the antenna height above average terrain of an
FM radio station. "AI" refers to the above insulator measurement of an AM
radio station. The coverage of an AM radio station is chiefly a function of
the power of the radio station's transmitter, less dissipative power losses
and any directional antenna adjustments. For FM radio stations, signal
coverage area is chiefly a function of the ERP of the radio station's antenna
and the HAAT of the radio station's antenna. The height of an AM radio
station's antenna is measured by reference to AI and the height of an FM radio
station's antenna is measured by reference to HAAT.
19
ERP (FM) Expiration
Station Power HAAT (FM) Date of
Call Year of FCC (AM) in AI (AM) Operating FCC
Market Letters Acquisition Class Kilowatts in Meters Frequency License
- -------------- ------- ----------- ----- --------- --------- --------- ----------
Washington, DC WOL-AM 1980 C 1.0 52.1 1450 kHz 10/01/2003
WMMJ-FM 1987 A 2.9 146.0 102.3 MHz 10/01/2003
WKYS-FM 1995 B 24.0 215.0 93.9 MHz 10/01/2003
WYCB-AM 1998 C 1.0 50.9 1340 kHz 10/01/2003
Baltimore WWIN-AM 1992 C 1.0 61.0 1400 kHz 10/01/2003
WWIN-FM 1992 A 3.0 91.0 95.9 MHz 10/01/2003
WOLB-AM 1993 D 1.0 85.4 1010 kHz 10/01/2003
WERQ-FM 1993 B 37.0 174.0 92.3 MHz 10/01/2003
Atlanta WHTA-FM 1999 C3 7.9 175.0 97.5 MHz 04/01/2004
WAMJ-FM 1999 C3 25.0 98.0 107.5 MHz 04/01/2004
Philadelphia WPHI-FM 1997 A 0.3(1) 305.0 103.9 MHz 08/01/2006
WPLY-FM 2000 B 35.0 183.0 100.3 MHz 08/01/2006
Detroit WDTJ-FM 1998 B 20.0 221.0 105.9 MHz 10/01/2004
WCHB-AM 1998 B 50.0 49.4 1200 kHz 10/01/2004
WJZZ-AM 1998 D 50.0(2) 59.7 1210 kHz 10/01/2004
WDMK-FM 1998 B 50.0 152.0 102.7 MHz 10/01/2004
St. Louis WFUN-FM 1999 A 6.0(3) 100.0 95.5 MHz 12/01/2003
Cleveland WERE-AM 1999 B 5.0 128.0 1300 kHz 10/01/2004
WENZ-FM 1999 B 16.0 272.0 107.9 MHz 10/01/2004
Richmond WDYL-FM 1999 A 6.0 100.0 101.1 MHz 10/01/2003
WKJS-FM 1999 C1 100.0 299.0 104.7 MHz 10/01/2003
WARV-FM 1999 A 4.7 113.0 100.3 MHz 10/01/2003
WCDX-FM (pending) B1 4.5 235.0 92.1 MHz 10/01/2003
WPLZ-FM (pending) A 6.0 100.0 99.3 MHz 10/01/2003
WJRV-FM (pending) A 2.3 162.0 105.7 MHz 10/01/2003
WGCV-AM (pending) C 1.0 122.0 1240 kHz 10/01/2003
Boston WBOT-FM 1999 A 2.7 150.0 97.7 MHZ 04/01/2006
- --------
(1) WPHI-FM operates with facilities equivalent to 3 kW at 100 meters.
(2) WJZZ-AM ceased broadcast operations on October 12, 1999.
(3) WFUN-FM is authorized to upgrade to a Class C3 facility. WFUN-FM ceased
broadcast operations on June 4, 1999.
Ownership Matters. The Communications Act requires prior approval of the FCC
for the assignment of a broadcast license or the transfer of control of a
corporation or other entity holding a license. In determining whether to
approve an assignment of a radio broadcast license or a transfer of control of
a broadcast licensee, the FCC considers, among other things:
. the financial and legal qualifications of the prospective assignee or
transferee, including compliance with FCC restrictions on non-U.S.
citizen or entity ownership and control;
. compliance with FCC rules limiting the common ownership of certain
"attributable" interests in broadcast and newspaper properties;
. the history of compliance with FCC operating rules; and
. the "character" qualifications of the transferee or assignee and the
individuals or entities holding "attributable" interests in them.
To obtain the FCC's prior consent to assign or transfer a broadcast license,
appropriate applications must be filed with the FCC. If the application to
assign or transfer the license involves a substantial change in ownership or
control of the licensee, for example, the transfer or acquisition of more than
50% of the voting stock, the
20
application must be placed on public notice for a period of 30 days during
which petitions to deny the application may be filed by interested parties,
including members of the public. Informal objections may be filed any time
until the FCC acts upon the application. If an assignment application does not
involve new parties, or if a transfer of control application does not involve
a "substantial change" in ownership or control, it is a pro forma application,
which is not subject to the public notice and 30-day petition to deny
procedure. The pro forma application is nevertheless subject to informal
objections that may be filed any time until the FCC acts on the application.
If the FCC grants an assignment or transfer application, interested parties
have 30 days from public notice of the grant to seek reconsideration of that
grant. The FCC usually has an additional ten days to set aside such grant on
its own motion. When ruling on an assignment or transfer application, the FCC
is prohibited from considering whether the public interest might be served by
an assignment or transfer to any party other than the assignee or transferee
specified in the application.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that has more than 20% of its capital stock owned or
voted by non-U.S. citizens or entities or their representatives, by foreign
governments or their representatives, or by non-U.S. corporations.
Furthermore, the Communications Act provides that no FCC broadcast license may
be granted to or held by any corporation directly or indirectly controlled by
any other corporation of which more than 25% of its capital stock is owned of
record or voted by non-U.S. citizens or entities or their representatives, or
foreign governments or their representatives or by non-U.S. corporations, if
the FCC finds the public interest will be served by the refusal or revocation
of such license. These restrictions apply in modified form to other forms of
business organizations, including partnerships and limited liability
companies. Thus, the licenses for our stations could be revoked if more than
25% of our outstanding capital stock is issued to or for the benefit of non-
U.S. citizens.
The FCC generally applies its other broadcast ownership limits to
"attributable" interests held by an individual, corporation, partnership or
other association or entity, including limited liability companies. In the
case of a corporation holding broadcast licenses, the interests of officers,
directors and those who, directly or indirectly have the right to vote five
percent or more of the stock of a licensee corporation are generally deemed
attributable interests, as are positions as an officer or director of a
corporate parent of a broadcast licensee. The FCC treats all partnership
interests as attributable, except for those limited partnership interests that
under FCC policies are considered "insulated" from "material involvement" in
the management or operation of the media-related activities of the
partnership. The FCC currently treats limited liability companies like limited
partnerships for purposes of attribution. Stock interests held by insurance
companies, mutual funds, bank trust departments and certain other passive
investors that hold stock for investment purposes only become attributable
with the ownership of 20% or more of the voting stock of the corporation
holding broadcast licenses.
To assess whether a voting stock interest in a direct or an indirect parent
corporation of a broadcast licensee is attributable, the FCC uses a
"multiplier" analysis in which non-controlling voting stock interests are
deemed proportionally reduced at each non-controlling link in a multi-
corporation ownership chain. A time brokerage agreement with another radio
station in the same market creates an attributable interest in the brokered
radio station as well for purposes of the FCC's local radio station ownership
rules, if the agreement affects more than 15% of the brokered radio station's
weekly broadcast hours.
Debt instruments, non-voting stock, options and warrants for voting stock
that have not yet been exercised, insulated limited partnership interests
where the limited partner is not "materially involved" in the media-related
activities of the partnership, and minority voting stock interests in
corporations where there is a single holder of more than 50% of the
outstanding voting stock whose vote is sufficient to affirmatively direct the
affairs of the corporation, generally do not subject their holders to
attribution. As of December 31, 1999, no single stockholder held more than 50%
of the total voting power of our common stock.
However, the FCC recently adopted a new rule, known as the equity-debt-plus
or EDP rule that causes certain creditors or investors to be attributable
owners of a station, regardless of whether there is a single majority
shareholder or other applicable exception to the FCC's attribution rules.
Under this new rule, a major programming supplier or a same-market media
entity will be an attributable owner of a station if the supplier or same-
market media entity holds debt or equity, or both, in the station that is
greater than 33% of the value of the
21
station's total debt plus equity. For purposes of the EDP rule, equity
includes all stock, whether voting or nonvoting, and equity held by insulated
limited partners in limited partnerships. Debt includes all liabilities,
whether long-term or short-term. A major programming supplier includes any
programming supplier that provides more than 15% of the station's weekly
programming hours. A same-market media entity includes any holder of an
attributable interest in a media company, including broadcast stations, cable
television and newspapers, located in the same market as the station, but only
if the holder's interest is attributable under an FCC attribution rule other
than the EDP rule. The FCC's rules also specify other exceptions to these
general principles for attribution.
Communications Act and FCC rules generally restrict ownership, operation or
control of, or the common holding of attributable interests in:
. radio broadcast stations above certain limits servicing the same local
market;
. radio broadcast stations and television broadcast stations servicing the
same local market; and
. a radio broadcast station and a daily newspaper serving the same local
market.
These rules include specific signal contour overlap standards to determine
compliance, and the FCC defined market will not necessarily be the same market
used by Arbitron, Neilsen or other surveys, or for purposes of the HSR Act.
Under these "cross-ownership" rules, we, absent waivers, would not be
permitted to own a radio broadcast station and acquire an attributable
interest in any daily newspaper in the same market where we then owned any
radio broadcast station. Our stockholders, officers or directors, absent a
waiver, may not hold an attributable interest in a daily newspaper in those
same markets.
Under the newly revised radio/television cross-ownership rule, a single
owner may own up to two television stations, consistent with the FCC's rules
on common ownership of television stations, together with one radio station in
all markets. In addition, an owner will be permitted to own additional radio
stations, not to exceed the local ownership limits for the market, as follows:
. In markets where 20 media voices will remain, an owner may own an
additional five radio stations, or, if the owner only has one television
station, an additional six radio stations; and
. In markets where 10 media voices will remain, an owner may own an
additional three radio stations.
A "media voice" includes each independently-owned and operating full power
television and radio station and each daily newspaper that has a circulation
exceeding 5% of the households in the market, plus one voice for all cable
television systems operating in the market.
Although current FCC nationwide radio broadcast ownership rules allow one
entity to own, control or hold attributable interests in an unlimited number
of FM radio stations and AM radio stations nationwide, the Communications Act
and the FCC's rules limit the number of radio broadcast stations in local
markets in which a single entity may own an attributable interest as follows:
. In a radio market with 45 or more commercial radio stations, a party may
own, operate or control up to eight commercial radio stations, not more
than five of which are in the same service (AM or FM).
. In a radio market with between 30 and 44 (inclusive) commercial radio
stations, a party may own, operate or control up to seven commercial
radio stations, not more than four of which are in the same service (AM
or FM).
. In a radio market with between 15 and 29 (inclusive) commercial radio
stations, a party may own, operate or control up to six commercial radio
stations, not more than four of which are in the same service (AM or
FM).
. In a radio market with 14 or fewer commercial radio stations, a party
may own, operate or control up to five commercial radio stations, not
more than three of which are in the same service (AM or FM), except that
a party may not own, operate, or control more than 50 percent of the
radio stations in such market.
22
The FCC staff has notified the public of its intention to review
transactions that comply with these numerical ownership limits but that might
involve undue concentration of market share.
Under its "cross-interest" policy, the FCC has considered "meaningful"
relationships among competing media outlets that serve "substantially the same
area" even if the FCC's ownership rules do not specifically prohibit the
relationship. Under this policy the FCC has considered whether to prohibit one
party from holding an attributable interest and a substantial non-attributable
interest (including non-voting stock, limited partnership and limited
liability company interests) in a media outlet in the same market, or from
entering into a joint venture or having common key employees with competitors.
The FCC, however, has determined that the recently adopted EDP rule addresses
many of the competitive concerns previously encompassed by its "cross-
interest" policy. As a result, effective November 16, 1999, the FCC has
eliminated its "cross-interest" policy. Nevertheless, the FCC has retained
discretion to review individual cases that present unusual cross-interest
relationships on a case-by-case basis.
Because of these multiple and cross-ownership rules, if a stockholder,
officer or director of Radio One holds an "attributable" interest in Radio
One, such stockholder, officer or director may violate the FCC's rules if such
person or entity also holds or acquires an attributable interest in other
television, radio stations or daily newspapers, depending on their number and
location. If an attributable stockholder, officer or director of Radio One
violates any of these ownership rules, we may be unable to obtain from the FCC
one or more authorizations needed to conduct our radio station business and
may be unable to obtain FCC consents for certain future acquisitions.
Programming and Operations. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1980s, the FCC has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of certain types of programming responsive to the needs of a radio
station's community of license. Nevertheless, a broadcast licensee continues
to be required to present programming in response to community problems, needs
and interests and to maintain certain records demonstrating its
responsiveness. The FCC will consider complaints from listeners about a
broadcast station's programming when it evaluates the licensee's renewal
application, but listeners' complaints also may be filed and considered at any
time. Stations also must pay regulatory and application fees, and follow
various FCC rules that regulate, among other things, political advertising,
the broadcast of obscene or indecent programming, sponsorship identification,
the broadcast of contests and lotteries and technical operation.
The FCC has always required that licensees not discriminate in hiring
practices, develop and implement programs designed to promote equal employment
opportunities and submit reports to the FCC on these matters annually and in
connection with each license renewal application. The FCC's employment rules,
as they related to outreach efforts for recruitment of minorities, however,
were struck down as unconstitutional by the U.S. Court of Appeals for the D.C.
Circuit. The FCC recently adopted new rules to address the concern of the U.S.
Court of Appeals. The new rules will require us not to discriminate in hiring
practices, to file certain employment reports annually and at other times, to
certify compliance with the rules, and to widely disseminate information
regarding job openings.
The FCC rules also prohibit a broadcast licensee from simulcasting more than
25% of its programming on another radio station in the same broadcast service
(that is, AM/AM or FM/FM). The simulcasting restriction applies if the
licensee owns both radio broadcast stations or owns one and programs the other
through a local marketing agreement, provided that the contours of the radio
stations overlap in a certain manner.
From time to time, complaints may be filed against Radio One's radio
stations alleging violations of these or other rules. In addition, the FCC
recently has proposed to establish a system of random audits to ensure and
verify licensee compliance with FCC rules and regulations. Failure to observe
these or other rules and policies can result in the imposition of various
sanctions, including fines or conditions, the grant of "short" (less than the
maximum eight year) renewal terms or, for particularly egregious violations,
the denial of a license renewal application or the revocation of a license.
23
Local Marketing Agreements. Often radio stations enter into LMAs or time
brokerage agreements. These agreements take various forms. Separately owned
and licensed radio stations may agree to function cooperatively in
programming, advertising sales and other matters, subject to compliance with
the antitrust laws and the FCC's rules and policies, including the requirement
that the licensee of each radio station maintain independent control over the
programming and other operations of its own radio station. One type of time
brokerage agreement is a programming agreement between two separately owned
radio stations that serve a common service area whereby the licensee of one
radio station programs substantial portions of the broadcast day of the other
licensee's radio station, subject to ultimate control by the radio station
licensee, and sells advertising time during these program segments. The FCC
has held that such agreements do not violate the Communications Act as long as
the licensee of the radio broadcast station that is being substantially
programmed by another entity (1) remains ultimately responsible for, and
maintains control over, the operation of its radio station, and (2) otherwise
ensures the radio station's compliance with applicable FCC rules and policies.
A radio broadcast station that brokers time on another radio broadcast
station or enters into a time brokerage agreement with a radio broadcast
station in the same market will be considered to have an attributable
ownership interest in the brokered radio station for purposes of the FCC's
local ownership rules if the time brokerage arrangement covers more than 15%
of the brokered station's weekly broadcast hours. As a result, a radio
broadcast station may not enter into a time brokerage agreement that allows it
to program more than 15% of the broadcast time, on a weekly basis, of another
local radio broadcast station that it could not own under the FCC's local
multiple ownership rules. Attribution for radio time brokerage agreements
applies to all of the FCC's multiple ownership rules applicable to radio
stations (daily newspaper/radio cross-ownership and radio/television cross-
ownership) and not only the local radio ownership rules. Also, as described
above, FCC rules prohibit a radio broadcast station from simulcasting more
than 25% of its programming on another radio broadcast station in the same
broadcast service (that is, AM/AM or FM/FM) where the two radio stations serve
substantially the same geographic area, whether the licensee owns both radio
stations or owns one radio station and programs the other through a time
brokerage agreement. Thus far, the FCC has not considered what relevance, if
any, a time brokerage agreement may have upon its evaluation of a licensee's
performance at renewal time.
Joint Sales Agreements. Over the past few years, a number of radio stations
have entered into cooperative arrangements commonly known as joint sales
agreements or JSAs. While these agreements may take varying forms, under the
typical JSA, a station licensee obtains, for a fee, the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical JSA also customarily involves
the provision by the selling party of certain sales, accounting and services
to the station whose advertising is being sold. The typical JSA is distinct
from a local marketing agreement in that a JSA normally does not involve
programming.
The FCC has determined that issues of joint advertising sales should be left
to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which
another licensee sells time under a JSA are not deemed by the FCC to be an
attributable interest of that licensee.
RF Radiation. In 1985, the FCC adopted rules based on a 1982 American
National Standards Institute ("ANSI") standard regarding human exposure to
levels of radio frequency ("RF") radiation. These rules require applicants for
renewal of broadcast licenses or modification of existing licenses to inform
the FCC at the time of filing such applications whether an existing broadcast
facility would expose people to RF radiation in excess of certain limits. In
1992, ANSI adopted a new standard for RF exposure that, in some respects, was
more restrictive in the amount of environmental RF exposure permitted. The FCC
has since adopted more restrictive radiation limits which became effective
October 15, 1997, which are based in part on the revised ANSI standard, and
which must be fully complied with by September 1, 2000.
Digital Audio Radio Service. The FCC allocated spectrum to a new technology,
digital audio radio service ("DARS"), to deliver satellite-based audio
programming to a national or regional audience and issued regulations for a
DARS service in early 1997. DARS may provide a medium for the delivery by
satellite or
24
terrestrial means of multiple new audio programming formats with compact disc
quality sound to local and national audiences. The nationwide reach of
satellite DARS could allow niche programming aimed at diverse communities that
Radio One is targeting. It is not known at this time whether this technology
also may be used in the future by existing radio broadcast stations either on
existing or alternate broadcasting frequencies. Two companies that hold
licenses for authority to offer multiple channels of digital, satellite-
delivered S-Band aural services could compete with conventional terrestrial
radio broadcasting. The licensees will be permitted to sell advertising and
lease channels in these media. The FCC's rules require that these licensees
launch and begin operating at least one space station by 2001 and be fully
operational by 2003.
The FCC has established a new Wireless Communications Service ("WCS") in the
2305-2320 and 2345-2360 MHz bands (the "WCS Spectrum") and awarded licenses.
Licensees are generally permitted to provide any fixed, mobile, radio location
services, or digital satellite radio service using the WCS Spectrum.
These satellite radio services use technology that may permit higher sound
quality than is possible with conventional AM and FM terrestrial radio
broadcasting.
Implementation of DARS would provide an additional audio programming service
that could compete with Radio One's radio stations for listeners, but the
effect upon Radio One cannot be predicted.
Low Power Radio Broadcast Service. In January 2000, the FCC voted to create
a class of radio stations designed to serve very localized communities or
underrepresented groups within communities by authorizing two new classes of
noncommercial low power FM radio stations that may operate on commercial FM
frequencies. There will be two types of LPFM stations, LP100 stations with
power from 50 to 100 watts and a service radius of approximately 3.5 miles and
LP10 stations with power from one to 10 watts and a service radius of
approximately 1-2 miles. New LPFM stations will have to protect the signals of
all other authorized FM stations and may be authorized on any FM frequency.
Eligible licensees are limited to noncommercial government or private
educational organizations, associations or entities; non-profit entities with
educational purposes; or government or non-profit entities providing local
public safety or transportation services. No existing broadcasters or other
media entities may own an LPFM station. For the first two years of the LPFM
service, licensees will be limited to local entities headquartered within 10
miles of the LPFM station transmitter. During the first two years, no entity
may operate more than one LPFM station. After two years, the ownership limit
will be five LPFM stations nationwide and after three years, the ownership
limit will be 10 LPFM stations nationwide. FCC engineers have conducted
interference testing and have concluded that the new lower power FM stations
will not produce unacceptable levels of interference to existing FM radio
stations, such as those owned by Radio One. Nevertheless, the effect of this
untested newly created low power radio service on Radio One cannot be
predicted.
Subsidiaries And Related Entities
Radio One has title to most of the assets used in the operations of our
radio stations. The FCC licenses for the radio stations in all cases are held
by direct or indirect wholly-owned subsidiaries of Radio One. In the case of
all of the Baltimore stations, three of the Washington, D.C. stations, the
Philadelphia stations, the St. Louis station, the Cleveland stations and the
Richmond stations, the FCC licenses are held by Radio One Licenses, Inc., a
Delaware corporation and a wholly-owned subsidiary of Radio One that is
subject to the restrictions imposed by the agreements governing our
indebtedness. Radio One Licenses, Inc. holds no other material assets. WYCB
Acquisition Corporation, a Delaware corporation and a wholly-owned
unrestricted subsidiary, holds title to all of the outstanding capital stock
of BHI, a District of Columbia corporation and an unrestricted subsidiary. The
FCC licenses for WYCB-AM are held by BHI which also holds the assets used in
the operation of that station. Bell Broadcasting, a Michigan corporation and a
wholly-owned restricted subsidiary, holds the assets used in the operation of
WCHB-AM, WDTJ-FM and WJZZ-AM. Bell Broadcasting holds title to all of the
outstanding capital stock of Radio One of Detroit, Inc., a Delaware
corporation and a restricted subsidiary. The FCC licenses for WCHB-AM, WDTJ-FM
and WJZZ-AM are held by Radio One of Detroit, Inc. Radio One of Detroit, Inc.
holds no other material assets.
25
Allur-Detroit, a Delaware corporation and a wholly-owned restricted
subsidiary, holds the assets used in the operation of station WDMK-FM. Allur-
Detroit holds title to all of the outstanding capital stock of Allur Licenses,
Inc., a Delaware corporation and a restricted subsidiary. The FCC licenses for
WDMK-FM are held by Allur Licenses, Inc. Allur Licenses, Inc. holds no other
material assets.
ROA, a Delaware corporation and a wholly-owned restricted subsidiary, holds
the assets used in the operation of station WHTA-FM and some assets used in
the operation of station WAMJ-FM. ROA holds title to all of the outstanding
capital stock of ROA Licenses, Inc., a Delaware corporation and a restricted
subsidiary. The FCC licenses for WHTA-FM are held by ROA Licenses, Inc. ROA
Licenses, Inc. holds no other material assets. Dogwood, a Delaware corporation
and a wholly-owned restricted subsidiary, owns some of the assets used in the
operation of station WAMJ-FM and all of the outstanding capital stock of
Dogwood Licenses, Inc., a Delaware corporation and a restricted subsidiary.
The FCC licenses for WAMJ-FM are held by Dogwood Licenses, Inc. Dogwood
Licenses, Inc., holds no other material assets.
The FCC licenses for radio stations included in pending acquisitions will be
held by existing or to be formed subsidiaries.
Employees
As of February 29, 2000, we employed approximately 684 people. Our employees
are not unionized. We have, however, agreed to assume a collective bargaining
agreement with regard to certain employees at KKBT-FM pursuant to our
agreement with Clear Channel Communications, Inc. and AMFM, Inc. to acquire
that radio station. We have not experienced any work stoppages and believe
relations with our employees are satisfactory. Each radio station has its own
on-air personalities and clerical staff. However, in an effort to control
broadcast and corporate expenses, we centralize certain radio station
functions by market location. For example, in each of our markets we typically
employ one General Manager who is responsible for all of our radio stations
located in such market and our Vice President of Programming oversees
programming for all of our urban-oriented FM radio stations.
Industry Segments
We consider radio broadcasting to be our only business segment.
Cautionary Note Regarding Forward-Looking Statements
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934. These forward-looking statements are not historical facts, but
rather are based on our current expectations, estimates and projections about
Radio One's industry, our beliefs and assumptions. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions are intended to identify forward-looking statements.
Because these statements apply to future events, they are subject to risks and
uncertainties that could cause actual results to differ materially, including
the absence of a combined operating history with an acquired company or radio
station and the potential inability to integrate acquired businesses, need for
additional financing, high degree of leverage, seasonality of the business,
market ratings, variable economic conditions and consumer tastes, as well as
restrictions imposed by existing debt and future payment obligations.
Important factors that could cause actual results to differ materially are
described in the Company's reports on Forms 10-K and 10-Q and other filings
with the Securities and Exchange Commission.
ITEM 2. PROPERTIES AND FACILITIES
Properties
The types of properties required to support each of our radio stations
include offices, studios and transmitter/antenna sites. We typically lease our
studio and office space with lease terms that are five to ten years.
26
A station's studios are generally housed with its offices in downtown or
business districts. We generally consider our facilities to be suitable and of
adequate size for our current and intended purposes. We lease a majority of
our main transmitter/antenna sites and when negotiating a lease for such sites
we try to obtain a lengthy lease term with options to renew. In general, we do
not anticipate difficulties in renewing facility or transmitter/antenna site
leases or in leasing additional space or sites if required.
We own substantially all of our equipment, consisting principally of
transmitting antennae, transmitters, studio equipment and general office
equipment. The towers, antennae and other transmission equipment used by Radio
One's stations are generally in good condition, although opportunities to
upgrade facilities are continuously reviewed.
The tangible personal property owned by Radio One and the real property
owned or leased by Radio One is the subject of a security interest held
pursuant to the terms of our amended and restated credit agreement (the
"Credit Agreement") dated as of February 26, 1999, under which we may borrow
$100 million on a revolving basis (the "Bank Credit Facility").
ITEM 3. LEGAL PROCEDINGS
We are involved from time to time in various routine legal and
administrative proceedings and threatened legal and administrative proceedings
incidental to the ordinary course of our business. We believe the resolution
of such matters will not have a material adverse effect on our business,
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to our stockholders for vote during the fourth
quarter of 1999.
27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Recent Sales of Unregistered Securities
On January 25, 1999, Radio One issued an aggregate of 51,194 shares of
common stock to its Chief Financial Officer. These shares were issued pursuant
to the exemption from registration provided by Rule 701 under the Securities
Act.
On February 25, 1999, pursuant to a plan of recapitalization, Radio One
issued to the holders of its class A common stock, in exchange for all of the
outstanding shares of class A common stock, 46.15 shares of class B common
stock and 92.3 shares of class C common stock. These shares were issued
pursuant to the exemption from registration provided by Section 3(a)(10) of
the Securities Act.
On March 30, 1999, Radio One issued approximately 3.3 million shares of
common stock to the shareholders of ROA in connection with Radio One's
acquisition of ROA. These shares were issued pursuant to the exemption from
registration provided by Section 3(a)(10) of the Securities Act.
Price Range of Our Class A Common Stock
Our class A common stock is traded on The Nasdaq Stock Market's National
Market under the symbol "ROIA." The table below shows, for the quarters
indicated, the reported high and low bid quotes for our class A common stock
on the Nasdaq Stock Market's National Market.
High Low
------ ------
Fiscal Year 1999
Second Quarter (beginning May 6)......................... $47.00 $28.00
Third Quarter............................................ 46.50 39.63
Fourth Quarter........................................... 97.50 41.50
The initial public offering of our class A common stock was priced on May 5,
1999 at $24.00 per share.
Dividends
Since becoming a public company in May 1999, we have not declared any
dividends on our common stock. We intend to retain future earnings for use in
our business and do not anticipate declaring or paying any cash or stock
dividends on shares of our common stock in the foreseeable future. In
addition, any determination to declare and pay dividends will be made by our
board of directors in light of our earnings, financial position, capital
requirements, the Bank Credit Facility, and the indenture governing our 12%
Notes due 2004 (the "Indenture"), and such other factors as the board of
directors deems relevant. See Note 4 to the Consolidated Financial Statements
of Radio One included elsewhere in this Form 10-K.
Number of Stockholders
Based upon a survey of record holders and a review of our stock transfer
records, as of the date of this report there were approximately 6,200 holders
of Radio One's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table contains selected historical consolidated financial data
with respect to Radio One. The selected historical consolidated financial data
have been derived from the Consolidated Financial Statements of Radio One for
each of the fiscal years for the five year period ended December 31, 1999,
which have been
28
audited by Arthur Andersen LLP, independent public accountants. The selected
historical consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of Radio One included
elsewhere in this Form 10-K.
The following table includes information regarding broadcast cash flow,
EBITDA, and after-tax cash flow. Broadcast cash flow consists of operating
income before depreciation, amortization, local marketing agreement fees and
corporate expenses. EBITDA consists of operating income before depreciation,
amortization, and local marketing agreement fees. After-tax cash flow consists
of income before income tax expense (benefit) and extraordinary items, minus
net gain on sale of assets (net of tax) and the current income tax provision,
plus depreciation and amortization expense. Although broadcast cash flow,
EBITDA, and after-tax cash flow are not measures of performance or liquidity
calculated in accordance with GAAP, we believe that these measures are useful
to an investor in evaluating Radio One because these measures are widely used
in the broadcast industry as a measure of a radio broadcasting company's
performance. Nevertheless, broadcast cash flow, EBITDA and after-tax cash flow
should not be considered in isolation from or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP, or as a measure of profitability or
liquidity. Moreover, because broadcast cash flow, EBITDA and after-tax cash
flow are not measures calculated in accordance with GAAP, these performance
measures are not necessarily comparable to similarly titled measures employed
by other companies.
29
Fiscal Years Ended (1)
------------------------------------------------
December 31,
December 25, -----------------------------------
1995 1996 1997 1998 1999
------------ ------- ------- ------- --------
(In Thousands)
Statement of Operations:
Net broadcast revenue....... $21,455 $23,702 $32,367 $46,109 $ 81,703
Station operating expenses.. 11,736 13,927 18,848 24,501 44,259
Corporate expenses.......... 1,995 1,793 2,155 2,800 4,380
Depreciation and
amortization............... 3,912 4,262 5,828 8,445 17,073
------- ------- ------- ------- --------
Operating income........... 3,812 3,720 5,536 10,363 15,991
Interest expense(2)......... 5,289 7,252 8,910 11,455 15,279
Other income (expense),
net........................ 89 (77) 415 358 2,149
Income tax (benefit)
expense(3)................. -- -- -- (1,575) 2,728
------- ------- ------- ------- --------
(Loss) income before
extraordinary item........ (1,388) (3,609) (2,959) 841 133
Extraordinary loss.......... 468 -- 1,985 -- --
------- ------- ------- ------- --------
Net (loss) income.......... $(1,856) $(3,609) $(4,944) $ 841 $ 133
======= ======= ======= ======= ========
Other Data:
Broadcast cash flow......... $ 9,719 $ 9,775 $13,519 $21,608 $ 37,444
Broadcast cash flow
margin(4).................. 45.3% 41.2% 41.8% 46.9% 45.8%
EBITDA (before non-cash
compensation).............. $ 7,724 $ 7,982 $11,364 $18,808 $ 33,289
After-tax cash flow......... 2,524 806 2,869 7,248 16,303
Cash interest expense(5).... 5,103 4,815 4,413 7,192 10,762
Capital expenditures........ 224 252 2,035 2,236 3,252
Balance Sheet Data (at
period end):
Cash and cash equivalents......................................... $ 6,221
Intangible assets, net............................................ 218,460
Total assets...................................................... 527,536
Total debt (including current portion and deferred interest)...... 82,626
Preferred stock................................................... --
Total stockholders' equity........................................ 420,256
- --------
(1) Year-to-year comparisons are significantly affected by Radio One's
acquisition of various radio stations during the periods covered. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations." Prior to the fiscal year ended December 31, 1996, Radio
One's accounting reporting period was based on a fifty-two/fifty-three
week period ending on the last Sunday of the calendar year. During 1996,
we changed our fiscal year end to December 31.
(2) Interest expense includes non-cash interest, such as the accretion of
principal, the amortization of discounts on debt and the amortization of
deferred financing costs.
(3) From January 1, 1996 to May 19, 1997, Radio One elected to be treated as
an S corporation for U.S. federal and state income tax purposes and,
therefore, generally was not subject to income tax at the corporate level
during that period.
(4) Broadcast cash flow margin is defined as broadcast cash flow divided by
net broadcast revenue.
(5) Cash interest expense is calculated as interest expense less non-cash
interest, including the accretion of principal, the amortization of
discounts on debt and the amortization of deferred financing costs, for
the indicated period.
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with "Selected
Financial Data" and the Consolidated Financial Statements and Notes thereto
included elsewhere in this Form 10-K.
Introduction
The net broadcast revenue of Radio One is derived from local and national
advertisers and, to a much lesser extent, ticket and other revenue related to
special events sponsored by Radio One throughout the year. Our significant
broadcast expenses are employee salaries and commissions, programming
expenses, advertising and promotion expenses, rental of premises for studios
and rental of transmission tower space and music license royalty fees. We
strive to control these expenses by centralizing certain functions such as
finance, accounting, legal, human resources and management information systems
and the overall programming management function, as well as using our multiple
stations, market presence and purchasing power to negotiate favorable rates
with certain vendors and national representative selling agencies.
Depreciation and amortization of costs associated with the acquisition of the
stations and interest carrying charges are significant factors in determining
Radio One's overall profitability.
Radi