Urban One - 10-Q quarterly report FY

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

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

      Radio One, Inc. (a Delaware corporation referred to as “Radio One”) and subsidiaries (collectively the “Company”) were organized to acquire, operate and maintain radio broadcasting stations and other media properties. The Company owns and/or operates 69 radio stations in 22 markets throughout the United States. In July 2003, the Company entered into a joint venture with an affiliate of Comcast Corporation and other investors to create TV One, LLC (“TV One”), an entity formed to operate a cable television network featuring lifestyle, entertainment, and news-related programming targeted primarily towards African-American viewers. In February 2005, the Company completed the acquisition of 51% of the common stock of Reach Media, Inc. (“Reach Media”) for approximately $55.8 million in a combination of approximately $30.4 million of cash and 1,809,648 shares of the Company’s Class D common stock.

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

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

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

      Certain reclassifications have been made to prior period amounts to conform to the current presentation.

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

      Results for interim periods are not necessarily indicative of results to be expected for the full year. It is suggested that these consolidated financial statements be read in conjunction with the Company’s December 31, 2004 financial statements and notes thereto included in the Company’s annual report on Form 10-K/ A.

      Financial instruments as of June 30, 2005 and December 31, 2004 consist of cash and cash equivalents, short term investments, trade accounts receivable, notes receivable (which are included in

other current assets), accounts payable, accrued expenses, long-term debt and subscriptions receivable. The carrying amounts approximate fair value for each of these financial instruments as of June 30, 2005 and December 31, 2004, except for the Company’s outstanding senior subordinated notes. The 8⁷/8% senior subordinated notes had a fair value of approximately $321.8 million and $334.1 million as of June 30, 2005 and December 31, 2004, respectively. In February 2005, the Company completed the private placement of $200.0 million 6³/8% senior subordinated notes. The 6³/8% senior subordinated notes had a fair value of approximately $196.5 million as of June 30, 2005. The fair value was determined based on the fair market value of similar instruments.

      The Company recognizes revenue for broadcast advertising when the commercial is broadcast and is reported net of agency commissions in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” as amended by Staff Accounting Bulletin No. 104, Topic 13, “Revenue Recognition, Revised and Updated.” Agency commissions, when applicable, are calculated based on a stated percentage applied to gross billing. Generally, clients remit the gross billing amount to the agency and the agency remits the gross billing, less their commission, to the Company. Agency commissions were approximately $13.0 million and $12.1 million during the three months ended June 30, 2005 and 2004, respectively. Agency commissions were $23.1 million and $21.3 million during the six months ended June 30, 2005 and 2004, respectively.

      The Company accounts for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25 (“APB No. 25”),“Accounting for Stock Issued to Employees,” and related interpretations, and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”),“Accounting for Stock-Based Compensation.”Under APB No. 25, compensation expense is based upon the difference, if any, on the date of grant, between the fair value of the Company’s stock and the exercise price.

      At June 30, 2005, the Company had one stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of APB No. 25 and related interpretations. The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:

      The per share weighted-average fair value of employee options granted during the three months ended June 30, 2005 and 2004 was $7.01 and $9.93, respectively, on the date of grant. The per share weighted-average fair value of employee options granted during the six months ended June 30, 2005 and 2004 was $7.17 and $10.19, respectively, on the date of grant. These fair values were derived using the Black-Scholes Option Pricing Model with the following weighted-average assumptions:

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

      The following table sets forth the components of comprehensive income:

      The net income applicable to common stockholders for the three months ended June 30, 2005 and 2004 (defined as net income less dividends on the Company’s preferred stock) was approximately $19.8 million and $12.4 million, respectively. The net income applicable to common stockholders for the six months ended June 30, 2005 and 2004 was approximately $26.8 million and $16.2 million, respectively.

      Earnings per share is based on the weighted average number of common and diluted common equivalent shares for stock options and warrants outstanding during the period the calculation is made, divided into the net income applicable to common stockholders. Diluted common equivalent shares consist of shares issuable upon the exercise of stock options and warrants, using the treasury stock method.

      In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123(R), (“SFAS No. 123(R)”),“Accounting for Stock-Based Compensation.”SFAS No. 123(R) sets accounting requirements for “share-based” compensation to employees, including employee stock purchase plans. The statement eliminates the ability to account for share-based compensation transactions using Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and generally requires instead that such transactions be accounted for using a fair-value-based method. Disclosure of the effect of expensing the fair value of equity compensation is currently required under existing literature. The statement also requires the tax benefit associated with these share based payments be classified as financing activities in the Statement of Cash Flows rather than operating activities as currently permitted. The SEC delayed the required implementation date for this statement from the third quarter of 2005 to the beginning of the 2006 fiscal year. The Company currently uses the Black-Scholes Option Pricing Model to compute the fair value of its stock options in connection with its disclosure of the pro forma effects on net earnings and earnings per share as if compensation cost had been recognized for such options at the date of grant. However, a number of technical implementation issues have not yet been resolved, including the selection and use of an appropriate valuation model, and therefore, the Company has not yet determined the ultimate impact of the adoption of SFAS No. 123(R).

      In February 2005, the Company completed the acquisition of 51% of the common stock of Reach Media for approximately $55.8 million in a combination of approximately $30.4 million of cash and 1,809,648 shares of the Company’s Class D common stock. Reach Media commenced operations in 2003 and was formed by Tom Joyner, Chairman, and David Kantor, Chief Executive Officer, to operate the Tom Joyner Morning Show and related businesses. Reach Media primarily derives its revenue from the sale of advertising inventory in connection with its syndication agreements. Mr. Joyner is a leading nationally syndicated radio personality. The Tom Joyner Morning Show is broadcast on over 115 affiliate stations across the United States and is a top-rated morning show in many of the markets in which it is broadcast. Reach Media also operates the Tom Joyner Sky Show, the Tom Joyner Family Reunion and various other special event-related activities. Additionally, Reach Media operates BlackAmericaWeb.com, an African-American targeted internet destination, and airs a television program on TV One. The Company allocated approximately $1.2 million of the purchase price to net working capital balances and the remaining amount to other intangible assets on the Company’s consolidated balance sheet as of June 30, 2005, pending completion of the purchase price allocation.

      In November 2004, the Company completed the acquisition of the assets of WABZ-FM, a radio station located in the Charlotte metropolitan area. Upon completing the acquisition, the Company consolidated the station with its existing Charlotte operations, changed the call sign to WPZS-FM and reformatted the station. The total acquisition price was approximately $11.5 million in cash. The Company initially allocated the full value of the purchase price to radio broadcasting licenses on the Company’s consolidated balance sheet as of December 31, 2004. Upon completion of this purchase price allocation in February 2005, the allocation was adjusted and approximately $11.4 million and $76,000 was assigned to radio broadcasting licenses and goodwill, respectively.

      In October 2004, the Company acquired the outstanding stock of New Mableton Broadcasting Corporation (“NMBC”), which owned WAMJ-FM, a radio station located in the Atlanta metropolitan area. The Company had operated WAMJ-FM under a local marketing agreement (“LMA”) since August 2001. New Mableton Broadcasting Corporation’s majority shareholder was an entity controlled by the Company’s Chief Executive Officer and President. The total acquisition price was approximately

$35.0 million in cash. The Company initially allocated the full value of the purchase price to radio broadcasting licenses on the Company’s consolidated balance sheet as of March 31, 2005. Upon completion of this purchase price allocation in April 2005, the allocation was adjusted and approximately $32.0 million was assigned to radio broadcasting licenses, approximately $2.0 million was assigned to goodwill, and $872,000 was assigned to other assets.

      In February 2004, the Company completed the acquisition of the assets of WSNJ-FM, a radio station located in the Philadelphia metropolitan area. Upon receiving the necessary regulatory approvals, the Company consolidated the station with its existing Philadelphia operations, changed the call sign to WRNB-FM and reformatted the station. The acquisition price was approximately $35.0 million in cash. The Company initially allocated the full value of the purchase price to radio broadcasting licenses on the Company’s consolidated balance sheet as of December 31, 2004. Upon completion of the purchase price allocation in January 2005, the allocation was adjusted and approximately $34.9 million and $54,000 was assigned to radio broadcasting licenses and goodwill, respectively.

      In July 2003, the Company entered into a joint venture agreement with an affiliate of Comcast Corporation and other investors to create TV One, an entity formed to operate a cable television network featuring lifestyle, entertainment and news-related programming targeted primarily towards African-American viewers. The Company has committed to make a cumulative cash investment of $74.0 million in TV One over approximately four years, of which the Company has already funded $37.0 million. In December 2004, TV One entered into a distribution agreement with DIRECTV, Inc. (“DIRECTV”) and certain affiliates of DIRECTV became investors in TV One. As of June 30, 2005, the Company owned approximately 36% of TV One on a fully converted basis.

      The Company has recorded its investment at cost and has adjusted the carrying amount of the investment to recognize the change in the Company’s claim on the net assets of TV One resulting from losses of TV One as well as other capital transactions of TV One using a hypothetical liquidation at book value approach. For the three months ended June 30, 2005 and 2004, the Company’s allocable share of TV One’s losses was $304,000 and approximately $1.4 million, respectively. For the six months ended June 30, 2005 and 2004, the Company’s allocable share of TV One’s losses was $763,000 and approximately $3.8 million, respectively. Under the hypothetical liquidation at book value approach, the decrease in the Company’s claim on the change in net assets of TV One resulting from additional equity contributed to TV One by investors, resulted in an insignificant decrease to additional paid-in capital of the Company in accordance with SEC Staff Accounting Bulletin No. 51, “Accounting for Sales of Stock by a Subsidiary.”

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

      The Company is accounting for these services transactions in accordance with Emerging Issues Task Force, Issue No. 00-8,“Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction with Providing Goods or Services.”As these services are provided to TV One, the Company is recording revenue based on the fair value of the most reliable unit of measurement in these transactions. For the advertising services agreement, this has been determined to be the value of underlying advertising time that is being provided to TV One. For the network services agreement, this has been determined to be the

initial value of the equity received in TV One. As a result, the Company is re-measuring the fair value of the equity received to complete its obligations under the network services agreement in each subsequent reporting period as the services are provided. The Company recognized $674,000 and $423,000 of revenue relating to these two agreements for the three months ended June 30, 2005 and 2004, respectively. The Company recognized approximately $1.3 million and $1.5 million of revenue relating to these two agreements for the six months ended June 30, 2005 and 2004, respectively.

      Long-term debt consists of the following:

      In February 2005, the Company completed the private placement of $200.0 million 6³/8% senior subordinated notes due 2013 realizing net proceeds of approximately $195.5 million. The Company recorded approximately $4.5 million in deferred offering costs, which are being amortized to interest expense over the life of the notes using the effective interest rate method.

      In May 2001, the Company completed the private placement of $300.0 million of 8⁷/8% senior subordinated notes due 2011 realizing net proceeds of approximately $291.8 million. The Company recorded approximately $8.2 million in deferred offering costs, which are being amortized to interest expense over the life of the notes using the effective interest rate method. In November 2001, the 8⁷/8% senior subordinated notes were exchanged for an equal amount of notes registered under the Securities Act of 1933, as amended (the “Securities Act”).

      In June 2005, the Company entered into a new credit agreement (the “Credit Agreement”) with a syndicate of banks. The term of the Credit Agreement is seven years and the total amount available under the Credit Agreement is $800.0 million, consisting of a $500.0 million revolving facility and a $300.0 million term loan facility. Borrowings under the bank credit facilities are subject to compliance with provisions of the Credit Agreement, including but not limited to financial covenants. The Company may use proceeds from the bank credit facilities for working capital, capital expenditures made in the ordinary course of business and other lawful corporate purposes, for its common stock repurchase program, and for direct and indirect investments permitted under the Credit Agreement. The Credit Agreement contains affirmative and negative covenants that the Company must comply with, including (a) maintaining a ratio of consolidated adjusted EBITDA to consolidated interest expense of no less than 2.50 to 1.00, (b) maintaining a ratio of consolidated debt for borrowed money to consolidated adjusted EBITDA of, no greater than 6.50 to 1.00 from June 13, 2005 to September 30, 2006, and no greater than 6.00 to 1.00

from October 1, 2006 and thereafter, (c) limitations on liens, (d) limitations on the sale of assets, (e) limitations on the payment of dividends, and (f) limitations on mergers, as well as other customary covenants. Simultaneous with entering into the Credit Agreement, the Company borrowed $437.5 million under the Credit Agreement to retire all outstanding obligations under its previous credit agreement, dated as of July 17, 2000. The previous credit agreement provided for borrowings of up to $600.0 million, and consisted of a $350.0 million term facility and a $250.0 million revolving facility.

      The Credit Agreement, and the indentures governing the Company’s senior subordinated notes, contain covenants that restrict, among other things, the ability of the Company to incur additional debt, purchase capital stock, make capital expenditures, make investments or other restricted payments, swap or sell assets, engage in transactions with related parties, secure non-senior debt with assets, or merge, consolidate or sell all or substantially all of its assets.

      Future minimum principal payments of long-term debt as of June 30, 2005 are as follows:

      On May 25, 2005, the Company’s Board of Directors authorized a stock repurchase program for up to $150.0 million of the Company’s Class A and Class D common stock over a period of 18 months, with the amount and timing of repurchases based on stock price, general economic and market conditions, certain restrictions contained in the Credit Agreement, the indentures governing the Company’s senior subordinated debt, and certain other factors. The repurchase program does not obligate the Company to repurchase any of its common stock and may be discontinued or suspended at any time.

      For the three and six months ended June 30, 2005, 137,100 shares of Class A and 988,800 shares of Class D common stock were repurchased at an average price of $13.15 and $13.17, respectively.

      In February 2005, the Company redeemed all of its outstanding 6¹/2% Convertible Preferred Remarketable Term Income Deferrable Equity Securities (“HIGH TIDES”) in the aggregate sum of approximately $309.8 million. This redemption was financed with the net proceeds of the sale of the Company’s 6³/8% senior subordinated notes due 2013, borrowings under its revolving credit facility and available excess cash.

      On June 30, 2005, the state of Ohio enacted a law that will phase-out the Corporation Franchise Tax and phase-in a Commercial Activity Tax. The Commercial Activity Tax is based on gross receipts. Temporary differences reversing after the phase-in period of the gross receipts based tax will no longer impact the Company’s income tax provision. The Company has determined the likelihood of a reversal of the temporary differences within the five year period of the phase-out is unlikely, as these temporary items

have indefinite lives. Therefore, the Company reduced its deferred tax liability and recorded an income tax benefit of approximately $3.9 million for the three months ended June 30, 2005.

      Three officers of the Company, the Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the Chief Administrative Officer (“CAO”), purchased 1,500,000 shares of the Company’s Class D common stock, 333,334 shares of the Company’s Class A common stock and 666,666 of the Company’s Class D common stock, and 250,000 shares of the Company’s Class D common stock, respectively. The stock was purchased with the proceeds of full recourse loans from the Company in the amounts of approximately $21.1 million, $7.0 million and $2.0 million, respectively. The CEO made an interest payment on his loan in the amount of $2.0 million in December 2004. As of December 31, 2004, accrued interest on these loans were approximately $2.5 million, $1.7 million and $401,000, respectively. The CEO made a further repayment of approximately $17.8 million on his loan in February 2005 and repaid the remaining balance of the loan of approximately $6.0 million in March 2005. The repayment of approximately $17.8 million was effected using 1,125,000 shares of the Company’s Class D common stock owned by the CEO. All shares transferred to the Company in satisfaction of these loans have been retired by the Company. As of June 30, 2005, the accrued interest on these loans to the CFO and CAO were approximately $1.9 million and $445,000, respectively.

      The Company also had loans outstanding to the Company’s CEO, CFO and Chief Operating Officer (“COO”) in the amounts of $380,000, $88,000 and $262,000, respectively. The loans are due on demand and bear interest at 5.6%. As of December 31, 2004, accrued interest on these loans was $163,000, $31,000 and $99,000, respectively. The CEO repaid in full, and in cash, the balance of his loan in the amount of $549,000 in March 2005. As of June 30, 2005, the accrued interest on the loans to the CFO and COO was $35,000 and $110,000 respectively.

      In February 2002, the Company’s CFO exercised a contractual right to receive a non-interest-bearing loan in the amount of $750,000. The loan was paid in full in January 2005. The repayment was effected using a combination of cash and 20,000 shares of the Company’s Class D common stock owned by the CFO. All shares transferred to the Company in satisfaction of these loans have been retired by the Company.

      In October 2004, the Company acquired the outstanding stock of NMBC, which owned WAMJ-FM, a radio station licensed to the Atlanta metropolitan area. The total acquisition price was approximately $35.0 million in cash, of which approximately $10.0 million was paid in available cash and $25.0 million was paid through borrowings under the Company’s bank credit facility. Prior to the acquisition, Mableton Investment Group, LLC (“MIG”) was NMBC’s majority shareholder. Alfred C. Liggins, III, the Company’s CEO, was the sole member and manager of MIG. Until February 2003, Syndicated Communications Venture Partners II, LP was also a member of MIG. Terry L. Jones, a general partner of Syndicated Communications Venture Partners II, LP is a member of the Company’s board of directors. The terms of the NMBC acquisition were approved by an independent committee of the Company’s board of directors and a fairness opinion was obtained from an independent third party. Prior to acquiring NMBC, the Company programmed and provided marketing services to WAMJ-FM through an LMA with MIG. Total fees paid under the LMA were $0 and $43,000, respectively for the three months ended June 30, 2005 and June 30, 2004. Total fees paid under the LMA were $0 and $154,000, respectively for the six months ended June 30,2005 and June 30, 2004.

      The Company leased office space from a partnership in which the Company’s CEO and Chairperson are partners. Effective June 28, 2004, the partnership sold the property to a third party. On that date, the Company entered into a new lease agreement with the third party that expired in January 2005, after which the Company relocated to a new facility. Total rent paid to the partnership was $60,000 during the

three months ended June 30, 2004. Total rent paid to the partnership was $119,000 during the six months ended June 30, 2004.

      Each of the Company’s radio stations operates pursuant to one or more licenses issued by the Federal Communications Commission that have a maximum term of eight years prior to renewal. The Company’s radio broadcasting licenses expire at various times through August 1, 2013. Although the Company may apply to renew its radio broadcasting licenses, third parties may challenge the Company’s renewal applications. The Company is not aware of any facts or circumstances that would prevent the Company from having its current licenses renewed.

      Pursuant to a limited liability company agreement dated July 18, 2003, the Company and certain other investors formed TV One for the purpose of developing and distributing a new television programming service. The Company has committed to make a cumulative cash investment of $74.0 million in TV One over approximately four years. As of June 30, 2005, the Company has already funded $37.0 million under this agreement.

      The Company has entered into fixed fee and variable share agreements with music performance rights organizations that expire as late as 2009. During the three months ended June 30, 2005 and 2004, the Company incurred expenses of approximately $2.7 million and $2.4 million, respectively, in connection with these agreements. During the six months ended June 30, 2005 and 2004, the Company incurred expenses of approximately $5.4 million and $4.8 million, respectively, in connection with these agreements.

      The Company has been named as a defendant in several legal actions occurring in the ordinary course of business. It is management’s opinion, after consultation with its legal counsel, that the outcome of these claims will not have a material adverse effect on the Company’s financial position or results of operations.

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

      Set forth below are consolidating financial statements for the Company and the Subsidiary Guarantors as of June 30, 2005 and 2004, and for the three- and six-month periods then ended. The equity method of accounting has been used by the Company to report its investments in subsidiaries. Separate financial statements for the Subsidiary Guarantors are not presented based on management’s determination that they do not provide additional information that is material to investors.