RADIO ONE INC.

Harvard Business School Case 201-025

Case Software 201-706 (4th edition)
Copyright 2000 by the President and Fellows of Harvard College
This case was prepared as the basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.

Exhibit 2
Market

Radio One's Acquisition Strategy

Number of Stations

FM
Washington D.C.
2
Baltimore, MD
2
Philadelphia, PA
1
a
2
Detroit, MI
Atlanta, GA
2
Cleveland, OH
1
St. Louis. MO
1
Richmond, VA
7
Boston, MA
1
TOTAL
19
Source: Adapted from numerous SEC 10-K Filings.
a
One station is located in Kingsley, MI.

AM
2
2
2
1

Year(s) of Acquisition
1980, 1987, 1995, 1998
1992, 1993
1997
1998
1999
1999
1999
1999
1999

Exhibit 3

African-American Demographic Information

21.2

13.3

ro
G

15

h
t

20

)
%
(

25

FasterIncomGwh
1980-5

10

e
t

5
0
General Population

African-Americans
Population

Key Demographic Statistics

60% faster Population Growth
Largest Minority Group in the United States
Population projected to reach 40MM by 2010
150% faster Income Growth than General Population
Source: Adapted from Company Reports.

a
R

Rate of Growth (%)

Faster Population Growth

1995-2010

1210.7
10
8
64.3
4
2
0
GenralPoputiAfc-ms
Populatin

Faster Income Growth

1980-1995

1210.7
10
8
64.3
4
2
0
GenralPoputiAfc-ms

Rate of Growth (%)

10.7

12
10
8
6
4
2
0

4.3

General Population

African-Americans
Population

Populatin

F
a
s
te

RateofGrwh(%)

a
R

e
t

ro
G

h
t

)
%
(

FasterIncomGwh
1980-5

Po
p
u
l
a
ti
o
n
1
9
9
5
-2
0
1
0

o
w
th

2
5

2
1
.

2
0
1
5

1
3
.

1
0
5
0
G
e
n
e
r
a
l

o
p
u
l

a
t

o
n

A
P

t
i

f
r
i

a
n
A

e
r
i

a
n
s

RateofGrwh(%)

F
a
s
te

I
n
c
o
m
e
G
1
9
8
0
-1
9
9
5

o
w
th

1
0
.

1
2
1
0
8
6
4
2
0

4
.

G
e
n
e
r
a
l

o
p
u
l

a
t

o
n

A
P

t
i

f
r
i

a
n
A

e
r
i

a
n
s

Exhibit 4

Rising Urban Format Power Ratios 1991 2002 a

0.90
0.85

Pow e r Ra tio

0.80
0.75

0.71

0.73

0.74

0.76

0.77

0.78

0.80

0.81

0.82

0.84

0.85

0.70

0.70
0.65
0.60
0.55

Ye a r

Source: Adapted from Company Reports.

a

Years 2000 2002 Estimated

02
20

01
20

00
20

99
19

98
19

97
19

96
19

95
19

94
19

93
19

92
19

19

91

0.50

Exhibit 5

Radio One's Turnaround Record

Washington DC
Baltimore
Philadelphia
Atlanta

Cost(mm)
$46.20
$13.70
$20.00
$13.50

Source: Adapted from Company Reports.

96BCF
$6.30
$3.30
$0.20
$1.20

Multiple
7.3x
4.2x
100x
11.2x

99BCF
$14.90
$11.80
$1.70
$6.90

Multiple
3.1x
1.2x
11.8x
2.0x

Radio One, Inc. and SubsidiariesConsolidated Statements of Operations

Exhibit 6

1997

1998

Revenue
Broadcast revenue, including barter revenue of
$1,010,000, $644,000 and $1,821,000,
respectively
Less: Agency commissions
Net broadcast revenue
Operating Expenses
Program and technical
Selling, general and administrative
Corporate expenses
Stock-based compensation
Depreciation and amortization
Total operating expenses
Operating income
Interest expense, including amortization of deferred
financing costs
Other income, net
(Loss) income before (benefit) provision for
income taxes and extraordinary item
(Benefit) Provision for income taxes
(Loss) income before extraordinary item
Extraordinary item
Loss on early retirement of debt
Net (loss) income
Net loss applicable to common shareholders
Basic and diluted loss per common share
Loss before extraordinary item
Net loss
Weighted average shares outstanding
Basic and diluted
Other Data:
Broadcast cash flow
EBITDA (before non-cash compensation)
After-tax cash flow
Capital expenditures

Source: Company Reports

$ 36,955,000
4,588,000
$ 32,367,000

$ 52,696,000
6,587,000
$ 46,109,000

5,934,000
12,914,000
2,155,000
-5,828,000
$ 26,831,000
$ 5,536,000

8,015,000
16,486,000
2,800,000
-8,445,000
$ 35,746,000
$ 10,363,000

8,910,000
415,000
$ (2,959,000)

11,455,000
358,000
$

--

(734,000)
(1,575,000)

$ (2,959,000)

841,000

1,985,000
$ (4,944,000)
$ (6,981,000)

-$
841,000
$ (2,875,000)

($0.53)
($0.74)

($0.31)
($0.31)

9,392,000

9,392,000

$ 13,519,000
$ 11,364,000
$ 2,869,000
$ 2,035,000

$ 21,608,000
$ 18,808,000
$ 7,248,000
$ 2,236,000

1999

$ 93,260,000
11,557,000
$ 81,703,000

$ 13,576,000
30,683,000
4,155,000
225,000
17,073,000
$ 65,712,000
$ 15,991,000
15,279,000
2,149,000
$

2,861,000
2,728,000

133,000

-$
133,000
$ (1,343,000)
($0.08)
($0.08)
16,137,000

$ 37,444,000
$ 33,289,000
$ 16,303,000
$ 3,252,000

15.94%

12.96%

11.10%

Exhibit 7

Radio One, Inc. and SubsidiariesConsolidated Balance Sheets

1997

Assets
Current assets:
Cash and equivalents
Investments, available for sale
Trade accounts receivable, net of allowance for
doubtful accounts of $1,243,000 and $2,429,000,
respectively
Prepaid expenses and other
Deferred income taxes
Total current assets
Property and equipment, net
Intangible assets, net
Other assets
Total assets
Liabilities and Stockholder Equity
Current liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Total current liabilities
Long-term debt and deferred interest, net of current
portion
Deferred income tax liability
Total liabilities
Commitments and contingencies
Senior cumulative redeemable preferred stock:
Series A, $.01 par value, 140,000 shares authorized,
84,843 shares issued and outstanding

$
$
$

8,500,000 $

1998

1999

4,455,000 $
6,221,000
-256,390,000

8,722,000
12,026,000
19,833,000
315,000
334,000
1,035,000
-826,000
984,000
17,537,000 $ 17,641,000 $ 284,463,000
4,432,000
6,717,000
15,512,000
54,942,000
127,639,000
218,460,000
2,314,000
1,859,000
9,101,000
79,225,000 $ 153,856,000 $ 527,536,000

258,000 $
3,029,000
-3,287,000 $

1,190,000 $
3,708,000
143,000
5,041,000 $

1,663,000
6,941,000
1,532,000
10,136,000

74,954,000
131,739,000
82,626,000
-15,251,000
14,518,000
78,241,000 $ 152,031,000 $ 107,280,000

9,310,000

10,816,000

--

Series B, $.01 par value, 150,000 shares authorized,

124,467 shares issued and outstanding
13,658,000
15,868,000
-Stockholders equity:
Common stockClass A, $.001 par value,
30,000,000 shares authorized, 0 and 17,221,000
shares issued and outstanding
--17,000
Common stockClass B, $.001 par value,
30,000,000 shares authorized, 1,572,000 and
2,867,000 shares issued and outstanding
-2,000
3,000
Common stockClass C, $.001 par value,
30,000,000 shares authorized, 3,146,000 and
3,184,000 shares issued and outstanding
-3,000
3,000
Accumulated comprehensive income adjustments
--40,000
Additional paid-in capital
--446,400,000
Accumulated deficit
(21,984,000)
(24,864,000)
(26,207,000)
Total stockholders (deficit) equity
$
(984,000) $ (1,825,000) $ 420,256,000
Total liabilities and stockholders equity
$ 79,225,000 $ 153,856,000 $ 527,536,000

Source: Company Reports

0.156626278

Current Assets
$ 17,222,000 #######

#######

Current Liability
$ 3,287,000
Work. Cap $ 13,935,000
103.08%
43.05%

#######
#######

#######
#######

53.61%
25.12%

46.60%
21.36%

23.24%

Exhibit 8
Ticker
BBGI
CBS
AFM
CITC
CCU
CXR
CMLS
EMMS
ETM
HBCCA
INF
ROIA
SGA
WOM

Radio Industry Trading Multiples as of March, 2000 based on 2001E forecasts

Company
After-Tax Cash
BCFa
EBITDAa
Flowb
Beasley Broadcasting Group
11.8
13.7
15.4
CBS
15.1
15.8
22.3
AMFM Inc
14.7
15.4
14.4
Citadel Communcations
14.6
15.7
21.7
Clear Channel Communic.
17.2
17.9
20.1
Cox Radio
17.4
18.7
24.2
Cumulus Media
17.7
19.2
37.2
Emmis Broadcasting
11
12
13.2
Entercom Communications
16.6
17.7
21.1
Hispanic Broadcasting
42.1
44.5
59.7
Infinity Broadcasting
18.8
19.4
26.9
Radio One
22.1
24.2
36.5
Saga Communications
9.9
11.4
14.5
Westwood One
24.4
25.3
38.6
AVERAGE
18.1
19.4
26.1

Source: Credit Suisse First Boston, Radio One, Inc. Equity Research Report, March 9, 2000 and casewriter estimates.
BCF & EBITDA: Adjusted Market Value Multiple to 2001

a
b

After-Tax Cash Flow: Current Price as a Multiple of 2001

Asset betas are equity betas adjusted for leverage by multiplying the equity beta by the equity-to-value ratio and adding the debt beta
(assumed to equal 0.25) times the debt-to-value ratio.

Asset Betac
NA
1.06
0.96
0.68
0.65
0.27
0.83
0.55
0.3
1.23
0.82
0.82
0.26
1.29
0.75

ratio and adding the debt beta

Exhibit 9

Radio One, Inc. Actual and Projected Financial Performance of Existing Markets and Potential New Markets
----Pro Forma---1999

Gross Revenue Existing Markets

Washington
Baltimore
Philadelphia (WPHI)
Philadelphia (WPLY)
Detroit
Atlanta
Cleveland
St. Louis
Richmond
Boston
Existing Gross Revenue
Gross Revenue Potential New Marketsa
Charlotte
Augusta
Indianapolis
Los Angeles
Miami
Cleveland
Houston
Dallas
Greenville
Raleigh
New Markets Gross Revenue
Direct Expenses Existing Markets
Washington
Baltimore
Philadelphia (WPHI)
Philadelphia (WPLY)
Detroit
Atlanta
Cleveland
St. Louis
Richmond
Boston
Existing Gross Expenses
Direct Expenses Potential New Marketsa
Charlotte
Augusta
Indianapolis
Los Angeles
Miami
Cleveland
Houston

2000

----------------------Projected---------------------2001
2002
2003

32,221
25,162
6,239
8,978
8,309
15,811
2,415
-10,713
-109,848

34,812
26,952
7,277
9,500
11,075
17,584
5,488
1,028
13,226
3,401
130,343

37,597
29,108
8,151
10,450
12,736
19,782
6,311
2,056
15,210
4,081
145,482

41,357
32,019
8,966
11,495
14,010
21,760
6,942
2,467
17,492
4,693
161,201

45,492
35,221
9,863
12,645
15,130
23,936
7,497
2,837
19,241
5,162
177,024

1,002
2,708
5,173
38,626
1,501
13,370
36,618
4,756
4,614
12,118
120,486

1,250
2,750
5,814
41,117
1,634
13,750
39,547
6,120
4,864
13,538
130,384

2,250
3,200
6,600
45,221
1,634
15,000
43,502
8,500
5,418
15,163
146,488

3,250
3,400
8,200
49,517
2,043
16,500
47,852
11,700
5,750
16,679
164,891

4,250
3,600
9,500
54,221
2,553
17,750
52,638
13,500
6,250
18,347
182,609

(4,098)
(3,232)
(800)
(921)
(818)
(2,080)
(166)
-(1,607)
-(13,722)

(5,080)
(4,018)
(1,078)
(1,078)
(1,483)
(2,436)
(632)
(163)
(1,982)
(484)
(18,434)

(5,486)
(4,339)
(1,207)
(1,207)
(1,705)
(2,741)
(727)
(326)
(2,279)
(581)
(20,598)

(5,790)
(4,483)
(1,255)
(1,379)
(1,961)
(3,046)
(972)
(345)
(2,449)
(657)
(22,337)

(6,369)
(4,931)
(1,381)
(1,517)
(2,118)
(3,351)
(1,050)
(397)
(2,694)
(723)
(24,531)

(150)
(406)
(519)
(5,155)
-(1,707)
(4,479)

(189)
(357)
(607)
(5,496)
-(1,650)
(4,746)

(313)
(379)
(702)
(6,045)
-(1,800)
(5,220)

(435)
(402)
(882)
(6,619)
-(1,980)
(5,742)

(549)
(426)
(1,078)
(7,248)
-(2,130)
(6,317)

Dallas
Greenville
Raleigh
ROI Direct Expenses
Net Revenue Existing Markets
Washington
Baltimore
Philadelphia (WPHI)
Philadelphia (WPLY)
Detroit
Atlanta
Cleveland
St. Louis
Richmond
Boston
Existing Net Revenue
Net Revenue Potential New Marketsa
Charlotte
Augusta

(547)
(566)
(1,565)
(15,094)

(825)
(603)
(1,770)
(16,243)

(1,063)
(672)
(1,982)
(18,176)

(1,463)
(729)
(2,180)
(20,432)

(1,688)
(791)
(2,398)
(22,624)

28,123
21,930
5,439
8,057
7,491
13,731
2,249
-9,106
-96,126

29,732
22,934
6,199
8,422
9,592
15,148
4,856
865
11,244
2,917
111,909

32,111
24,769
6,944
9,243
11,031
17,041
5,584
1,730
12,931
3,500
124,884

35,567
27,536
7,711
10,116
12,048
18,714
5,970
2,122
15,043
4,036
138,863

39,123
30,290
8,482
11,127
13,012
20,585
6,448
2,440
16,547
4,440
152,494

852
2,302

1,061
2,393

1,937
2,821

2,815
2,998

3,701
3,174

Indianapolis
Los Angeles
Miami
Cleveland
Houston
Dallas
Greenville
Raleigh
New Markets Net Revenue
Operating Expenses Existing Markets
Washington
Baltimore

4,654
33,471
1,501
11,663
32,139
4,209
4,048
10,553
105,392

5,207
35,621
1,634
12,100
34,802
5,295
4,261
11,769
114,143

5,898
39,176
1,634
13,200
38,282
7,438
4,746
13,181
128,313

7,318
42,898
2,043
14,520
42,110
10,238
5,021
14,499
144,460

8,422
46,973
2,553
15,620
46,321
11,813
5,459
15,949
159,985

13,480
9,860

13,827
10,260

14,864
11,030

15,734
11,737

16,316
12,121

Philadelphia (WPHI)
3,779
Philadelphia (WPLY)
5,815
Detroit
6,421
Atlanta
6,799
Cleveland
1,774
St. Louis
-Richmond
5,914
Boston
-Existing Operating Expenses
53,842
Operating Expenses Potential New Marketsa
Charlotte
665
Augusta
1,361

3,957
3,622
6,578
7,503
3,791
1,440
7,648
2,243
60,869

4,254
3,743
7,071
8,066
4,075
1,548
8,222
2,411
65,284

4,618
3,791
7,495
8,393
4,234
1,912
9,627
2,783
70,324

4,926
3,853
7,776
8,716
4,451
2,199
10,319
2,998
73,675

1,023
1,584

1,249
1,669

1,461
1,758

1,659
1,851

Indianapolis
Los Angeles
Miami
Cleveland
Houston
Dallas
Greenville

3,206
15,621
584
4,600
10,592
4,195
1,928

3,463
16,176
584
4,700
11,046
4,938
2,071

3,848
16,584
862
4,958
11,469
5,238
1,945

4,255
17,581
1,224
5,101
11,850
5,500
1,922

2,954
14,448
510
4,862
10,129
4,012
1,919

Raleigh
New Markets Operating Expenses
BCF Existing Markets
Washington
Baltimore
Philadelphia (WPHI)

5,516
46,376

5,769
49,102

5,981
51,877

6,627
54,750

7,077
58,020

14,866
11,846
1,658

15,904
12,673
2,242

17,246
13,738
2,689

19,833
15,799
3,092

22,808
18,169
3,556

Philadelphia (WPLY)
Detroit
Atlanta
Cleveland
St. Louis
Richmond
Boston
Existing BCF
BCF Potential New Marketsa
Charlotte
Augusta
Indianapolis
Los Angeles
Miami
Cleveland
Houston
Dallas
Greenville
Raleigh
New Markets BCF

2,500
1,069
6,933
470
-3,192
-42,534

4,800
3,013
7,645
1,066
-575
3,596
674
51,038

5,500
3,959
8,975
1,510
182
4,709
1,090
59,598

6,325
4,553
10,321
1,737
209
5,415
1,254
68,538

7,274
5,236
11,869
1,997
241
6,228
1,442
78,820

187
941
1,700
19,023
991
6,800
22,009
197
2,129
5,037
59,014

38
809
2,001
20,000
1,050
7,500
24,210
1,100
2,333
6,000
65,041

688
1,152
2,435
23,000
1,050
8,500
27,236
2,500
2,675
7,200
76,436

1,354
1,240
3,470
26,314
1,181
9,563
30,641
5,000
3,076
7,872
89,711

2,042
1,323
4,167
29,393
1,329
10,519
34,471
6,313
3,538
8,871
101,966

Total BCF

101,548

116,079

136,034

158,249

180,786

Corporate Expenses
EBITDA
Non-cash Compensation
Depreciation and amortizationb

6,000
95,548
225
107,520

6,000
110,079
0
107,520

6,900
129,134
0
107,500

7,935
150,314
0
107,500

9,125
171,661
0
107,500

EBIT

(12,197)

2,559

21,634

42,814

64,161

Source: Adapted from company reports

a

Potential acquisitions in Charlotte and Augusta were from Davis Broadcasting; in Indianapolis from Shirk, Inc and
IBL,LLC; and the remaining potential acquisitions were from Clear Channel Communications, Inc.
b
Includes about $90 million of tax deductible depreciation and amortization in each year beginning 2001 and ending in
2015, as a result of the potential acquisitions.

Growth Rate
BCF
Corp Expenses

2001
2002
2003
2004
2005
15
15
15
15 14.090909
76,436
89,711 101,966 115,277
131,521
2025.554 2377.342 2702.099 3054.841 3485.2953

Depreciation
PBT
Tax
PAT
Capex
NWC(gross)
Delta NWC
Depreciation
FCFE
CoA
TV
Final FCFE
DCF value

90140
90280
90420
90560
90700
-15,730
-2,946
8,844
21,662
37,335
-5348.04836 -1001.76 3006.926 7365.134 12693.996
-10,382
-1,945
5,837
14,297
24,641
2100
2100
2100
2100
2100
17580.28 20633.53 23452.18 26513.71 30249.733
17580.28
90140
60,078
11.975
3416190.098
60,078
$1,463,005.09

3053.25
90280
83,182

2818.65
90420
91,338

83,182

91,338

3061.53 3736.0228
90560
90700
99,695
109,505

99,695

109,505

and Potential New Markets

jected---------------------2004
50,042
38,743
10,849
13,909
16,341
26,330
8,097
3,064
20,780
5,575
193,730
4,700
3,800
11,000
59,372
3,191
19,000
57,743
15,188
6,500
20,182
200,676
(7,006)
(5,424)
(1,519)
(1,669)
(2,288)
(3,686)
(1,134)
(429)
(2,909)
(781)
(26,845)
(607)
(452)
(1,257)
(7,938)
-(2,280)
(6,929)

(1,898)
(858)
(2,638)
(24,857)
43,036
33,319
9,330
12,240
14,053
22,644
6,964
2,635
17,871
4,795
166,887
4,093
3,348
9,743
51,436
3,191
16,720
50,814
13,289
5,642
17,544
175,820
16,807
12,425
5,240
3,875
8,032
8,994
4,667
2,358
10,709
3,137
76,244
1,781
1,949
4,639
18,642
1,313
5,149
12,035
5,900
1,574

0.909091

7,561
60,543
26,229
20,894
4,090

8,365
6,021
13,650
2,297
277
7,162
1,658
90,643 0.163375

4083.04
5803.95
1720.91
65,041
0.026459

2,312
1,399
5,104
32,794
1,878
11,571
38,780
7,389
4,068
9,982
115,277 0.143293
205,920
10,494
195,426
0
107,500

0.050723 0.050142 0.050474 0.050962

8% BCF old +X% BCF new =5%(BCFold+BCFnew)

87,926

s from Shirk, Inc and

Inc.
nning 2001 and ending in
0.146784
0.909091

0.53

2006
2007
2008
2009
2010
2011
2012
2013
2014
13.181818 12.27273 11.36364 10.45455 9.545455 8.636364 7.727273 6.818182 5.909091
148,857 167,126 186,118 205,576 225,199 244,648 263,552 281,522 298,157
3944.7206 4428.845 4932.123 5447.754 5967.767 6483.165 6984.137 7460.328 7901.166

90840
90980
91120
91260
91400
91540
91680
91820
91960
54,073
71,717
90,066 108,868 127,831 146,625 164,888 182,241 198,296
18384.704 24383.91 30622.35 37015.08 43462.54 49852.36 56061.99 61962.11 67420.65
35,688
47,333
59,443
71,853
84,368
96,772 108,826 120,279 130,875
2100
2100
2100
2100
2100
2100
2100
2100
2100
34237.198 38439.04 42807.11 47282.4 51795.72 56268.98 60617.04 64750.02 68576.16
3987.4648 4201.838 4368.072 4475.289
90840
90980
91120
91260
120,440 132,012 144,095 156,538

120,440

132,012

144,095

156,538

4513.32 4473.266 4348.058

91400
91540
91680
169,155 181,739 194,058

4132.98 3826.138
91820
91960
205,866 216,909

169,155

205,866

181,739

194,058

216,909

2015
5
313,065
8296.224

92100
212,669
72307.41
140,361
2100
72004.97
3428.808
92100
226,933

3,643,123

Exhibit 10

Corporate & Government Bond Rates as of March 1, 2000

Government Bond Yields
Maturity
Rate
3 months
5.36
6 months
5.68
1 year
5.84
3 years
6.14
5 years
6.19
10 years
6.28
30 years
6.35
Corporate Bonds (10-year maturity)
Rating
AAA
AA
A
BBB
BB
B

Source: Federal Reserve Statistical Release; Bloomberg

Rate
7.1
7.18
7.34
7.7
9.1
9.68