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9-201-025
REV: MAY 29, 2003

RICHARD RUBACK
PAULINE FISCHER

Radio One, Inc.
Radio One (Nasdaq: ROIA, ROIAK), the largest radio group targeting African-Americans in the country, had achieved tremendous success by purchasing underperforming radio stations, changing them to urban formats, and using its programming, marketing, and operating skills to cut unnecessary costs. Under the leadership of Alfred Liggins III, chief executive officer and president, the company posted consistent, above-average, same-station broadcast revenue and cash flow growth, and grew from 7 stations in 1995 to 28 in 1999.
In October 1999, two of the nation’s largest owners of radio stations—Clear Channel
Communications Inc. (NYSE: CCU) and AMFM Inc (NYSE: AFM)—announced plans to merge. Scott
Royster (HBS ’92), chief financial officer and executive vice president of Radio One, knew that the
Federal Communications Commission (FCC) would require Clear Channel to divest some of its radio assets after the proposed merger. The divestitures were an opportunity for Radio One to acquire 12 established urban stations in the top 50 markets. Acquiring those stations would more than double the size of Radio One and help build its national platform. Liggins and Royster had to decide if
Radio One should purchase the stations and how much to offer.

The Company
Radio One was founded by Liggins’s mother, Catherine Hughes, who learned the radio business while teaching at Howard University. In 1980, Hughes and her husband raised money to purchase
WOL-AM in Washington, D.C., for just under $1 million.1 Hughes changed the format from R&B music and public affairs to talk radio.2 To save money, the Hugheses themselves became radio personalities. As a result, Cathy Hughes became known as a hard-hitting political analyst and spokesperson. (Exhibit 1 contains brief biographies of the Radio One executives.)
In 1987, Hughes purchased WMMJ-FM in Washington for about $7.5 million and began to broadcast a new musical format targeting African-Americans. In 1992 and 1993, Hughes acquired

1 Broadcasting & Cable, “Mother/Son Makes Radio One,” August 30, 1999. The Hugheses were the beneficiaries of a now

defunct FCC regulation that allowed the sale of financially distressed radio assets to minorities at below-market prices.
2 Ibid.

________________________________________________________________________________________________________________
High Tech Fellow Pauline Fischer and Professor Richard Ruback prepared this case solely as the basis for class discussion. HBS cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2000 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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201-025

Radio One, Inc.

four stations in Baltimore, Maryland, for $6.4 million and in 1995 purchased WKYS-FM in
Washington for $34.0 million—the largest acquisition in the company’s history at the time. WKYS-FM presented an exciting opportunity because the station had been No. 1 in its market but had fallen to
No. 13 by the time of the acquisition.
Also in 1995, Liggins discovered an opportunity to introduce a new radio station to the Atlanta,
Georgia, market. Liggins believed that the Atlanta market and its growing African-American population provided a profitable opportunity. But Hughes and the other members of Radio One’s board of directors thought that the company needed to focus on its newly acquired stations. Sure in his convictions, Liggins formed a separate company to purchase an Atlanta station for approximately
$5 million. In June 1995, Radio One of Atlanta introduced WHTA-FM.
By the end of 1996, WKYS had achieved a No. 2 ranking in Washington, and one of the acquired
Baltimore stations, WERQ-FM, had become the No. 1 station in its market. By 1998, Liggins’s Atlantabased WHTA was ranked No. 4.3 The WHTA affiliate and its sister station WAMJ-FM were later purchased by Radio One and became wholly owned subsidiaries of the company in March 1999.
(Exhibit 2 summarizes Radio One’s acquisition activity.)

Corporate Strategy
Radio One’s strategy was to “provide urban-oriented music, entertainment, and information to a primarily African-American audience in as many major markets as possible.”4 Hughes and Liggins believed that radio broadcasting primarily targeting African-Americans had significant growth potential. As Exhibit 3 summarizes, African-Americans were the largest minority group in the
United States and were expected to experience 60% faster population growth than the general population between 1995 and 2010. African-Americans also experienced 150% faster income growth between 1980 and 1995, and listened to the radio on average 24% longer than the general population.5
Radio One pursued a clustering strategy within each market by acquiring two or more stations that targeted different demographic segments within the African-American population. In Detroit, for example, the company owns WDTJ-FM, targeting the 18-34 demographic, WDMK-FM, targeting the 25-54 demographic, and WCHB-AM, a talk radio station targeting the 35-64 demographic. To build clusters, Radio One acquired underperforming stations in the top 50 African-American markets.6 Liggins and Royster worked together to cut costs and create efficiencies. Radio One centralized certain functions, including finance, accounting, legal, human resources management, information systems, and overall program management. The programming itself was left to local managers with strong oversight from the company’s vice president of programming.
Liggins and the company’s sales executives worked to convert audience share ratings into advertising revenue. Although minority-targeted advertising dollars lagged behind those of the general population, Radio One was able to use its multiple stations to sell more advertising by targeting the African-American market. Power ratios, calculated as revenue share divided by audience share, indicated how much of the total radio advertising dollars in a particular market was being captured by a particular station relative to its audience share. Historically, advertisers had not

3 Company reports.
4Ibid.
5 The company estimated that African-Americans listened to the radio for 27.2 hours per week and the general population

listened for 22.0 hours per week.
6 Radio One also made acquisitions in existing markets where expanded coverage was desirable and in new markets where

they believed it was advantageous to have a presence.

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Radio One, Inc.

201-025

been willing to pay as much to target the largely African-American urban listeners because their income generally lagged behind listeners to mainstream radio stations, resulting in power ratios substantially less than one. Radio One, however, was able to increase the power ratios of most of its stations by demonstrating to advertisers that the growing African-American population purchased more of certain goods and services than the general population despite their lower average income.
Exhibit 4 summarizes rising power ratios for urban radio, and Exhibit 5 details Radio One’s turnaround record.

Performance
Liggins assumed day-to-day control of Radio One in 1997 and led the company to its initial public offering in May 1999. In its 1999 fiscal year, ended December 31, 1999, Radio One recorded $81.7 million in net revenue, defined as revenue from local and national advertising less agency commissions – equivalent to an average annual growth rate of 51% over three years. Broadcast cash flow (BCF), which equals operating income before depreciation, amortization, local marketing arrangement fees, and corporate expenses, reached $37.4 million—a 56% average annual growth rate over three years. After-tax cash flow equaled $16.3 million—a 125% increase since 1998. During 1999,
Radio One’s same station net broadcast revenue and broadcast cash flow both increased almost 40%.
Exhibits 6 and 7 present Radio One’s Income Statements and Balance Sheets for 1997 through 1999.

The Radio Industry
Although the FCC historically imposed tight controls on the radio industry, it began to relax its rules in the 1990s. In 1992, the FCC relaxed existing regulations to allow one company to own two
FM stations in one market or 36 stations nationwide (18 AM and 18 FM). The Telecommunications
Act of 1996 lifted nearly all of the limitations on ownership.7 Significant consolidation occurred within a few years of the passage of the Act, which allowed stations to realize economies of scale through pricing power, capacity utilization, and cost reduction.
Radio had always been attractive to advertisers because it was the only medium that reached audiences at work and in the car.8 Consolidation enhanced the appeal of radio advertising because broadcasters that controlled numerous radio assets could deliver TV-like reach and offer attractive
“packages” to advertisers.9 These packages included sale of advertising inventory across their
“network” of stations. Rather than making sales on a station-by-station basis, network sales allowed the transfer of an advertisement from one station to the next, thereby ensuring that each was fully using its advertising capacity. The highly competitive radio network business doubled following the passage of the Act, reaching over $1 billion in early 1999.10
Consolidation significantly decreased expenses as companies enjoyed cost savings from programming syndication and purchasing from vendors, reduction in duplicate staffing in markets where multiple stations were owned, and the creation of national representation agreements.

7 The Act reserved power in the FCC to approve or deny all applications for ownership of stations.
8 Radio grew its share of all ad spending in 1999 to 8.2% from 7.5% in 1998 and 6.4% in 1992. Radio had consistently taken

market share from all other traditional media.
9 Credit Suisse First Boston, Radio One, Inc., Equity Research Report dated March 9, 2000.
10 Morgan Stanley Dean Witter, Radio One, Inc., Equity Research Report dated March 14, 2000.

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201-025

Radio One, Inc.

Clear Channel Opportunity
In 1999, Clear Channel was the nation’s largest radio station operator, owning over 500 stations domestically and two internationally.11 In the fall of 1999, Clear Channel petitioned the FCC to purchase the second-largest station group, fellow Texas-based competitor AMFM Inc., for $17.4 billion in stock and $6.1 billion in assumed debt. If consummated, the merger would create the largest radio company in the world in terms of revenue and number of stations.12 The combined company would own over 830 stations in both large and mid-sized markets across the country.
Although the Act of 1996 relaxed the national ownership cap, it retained a limit on the number of stations owned by a single entity in a particular market.13 As a result, Clear Channel would have to divest nearly 100 stations in 37 markets where it overlapped with AMFM. The proposed divestiture was the largest in the history of the industry; gross proceeds were predicted to reach $4.3 billion.
The divestitures were a potentially attractive opportunity for Radio One to enter new markets.
Some of the stations were similar to Radio One’s urban format and had management teams with strong positions in their markets. At least 25 of the 100 stations for sale were urban format; 12 of those were in the top 50 African-American markets. The station in Los Angeles, the fourth-largest
African-American market in the United States, presented an especially attractive opportunity for
Radio One. If it acquired the 12 stations from Clear Channel, Radio One would draw more AfricanAmerican listeners than any other radio broadcaster and cover more African-American households than any other media vehicle targeting that audience, including that of BET Holdings—a media company targeting the African-American audience largely through its cable asset, Black
Entertainment Television (BET).14
Consolidation had substantially increased the purchase price of radio stations. In 1990, for example, broadcast FM stations sold for roughly 10-12x BCF; by 1999, they sold for 18-20x BCF.
Minority-owned and women-owned ventures were most affected by the increase because they had traditionally lacked access to the amount of capital necessary to purchase stations. The FCC, under the leadership of Chairman William Kennard, took affirmative steps to ensure that these industry dynamics did not preclude broad participation in the broadcast radio market by advocating the sale of at least some of the divested stations to minorities and women. Clear Channel in a concerted effort to include these groups in sale negotiations, met with interested civic, political, and business leaders from the African-American and Hispanic communities. Only Radio One, however, had the experience and access to capital to purchase a significant group of stations.

Conclusion
Liggins and Royster realized that the Clear Channel/AMFM divestiture was an unprecedented growth opportunity for their company. Urban stations, particularly those in the top 50 markets,
11 Clear Channel also owned 24 television stations and was the nation’s largest outdoor advertising company based on total advertising display inventory of 133,097 domestically and 422,060 internationally.
12 Bill Carter, “The Leader in US Radio to Buy No. 2,” New York Times, October 5, 1999.
13 The FCC’s ownership limitations depended on the size of the city and other broadcasting assets owned. For example, in

New York a company could own as many as eight stations, while in a smaller city it was limited to owning six. If a company also owned a television station in a city, ownership was limited to seven radio stations; if two television station were owned, there was a six radio station ownership limit. The FCC also ordered stations to be divested if one company controlled more than 40% of the radio revenues in a city. Source: Bill Carter, “The Leader in US Radio to Buy No. 2,” New York Times, October 5,
1999.
14 Company estimated that it reached nearly 8 million African-Americans on a weekly basis, compared with just 2.1 million reached by BET’s cable station during evening hours during the same time period.

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Radio One, Inc.

201-025

rarely became available. Liggins and Royster, therefore, decided that Radio One should attempt to purchase 12 of the Clear Channel stations in the top 50 markets. The resulting larger national footprint would bring greater advertising revenue and serve as a more meaningful platform for the company’s planned expansion into other forms of media, including cable, the recording industry, and the Internet.
Royster was uncertain how much the company should be willing to pay for the stations. Infinity
Broadcasting paid $1.4 billion, or about 21.5x 2000 BCF to acquire 18 stations from Clear Channel15 and Cox Radio paid about $380 million, or about 18.4x 2000 BCF for 7 of the stations.16 The 12 stations Radio One targeted were of similar quality to those purchased by Infinity, and thus Royster anticipated offering at least 20x BCF.
In the weeks following Clear Channel’s divestiture announcement, Radio One’s stock increased from the mid-$40s to as high as $97 per share. At $97 per share, Radio One was trading at nearly
30X’s forward BCF. Exhibit 8 shows that the 30x multiple was substantially greater than the typical trading multiple for radio companies. Royster and Liggins attributed the stock price gains to the market’s expectation that Radio One would submit a bid, and by early March 2000 analysts were speculating on the scope of Radio One’s acquisition. In addition, Royster and Liggins were in negotiations with Davis Broadcasting for the purchase of 1 station in Charlotte, North Carolina, and 5 stations in Augusta, Georgia; and with Shirk, Inc. and IBL, LLC for the purchase of 3 stations in
Indianapolis, Indiana. The proposed acquisitions, therefore, would add 21 stations.
Royster projected the performance of Radio One’s stations and the 21 targeted stations. Those projections are contained in Exhibit 9. In addition to the information in Exhibit 9, Royster recognized that each targeted station would require about $100,000 of capital expenditures each year. Also,
Radio One would have to provide the stations with their initial working capital because the working capital of the targeted stations would not be sold to Radio One in the proposed asset sale.
Liggins and Royster wanted to gauge the purchase price range that would make sense. They wanted Radio One’s offer price to be preemptive but not dilutive. At one extreme, to be preemptive, the price would have to exceed the stand-alone cash flow value of the targeted stations. At the other extreme, to avoid dilution, Radio One could afford pay up to its 30x multiple.

15 Prudential Securities, Infinity Broadcasting, Equity Research Consumer Services Report dated May 16, 2000.
16 Credit Suisse First Boston, Cox Radio Inc., Equity Research Report dated March 25, 2000.

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201-025

Exhibit 1

Radio One, Inc.

Executive Biographiesa

Catherine L. Hughes, 53, became chairperson of the board of directors and secretary of Radio One in
1980 and was chief executive officer of Radio One from 1980 to 1997. Hughes was one of the founders of Radio One’s predecessor company in 1980. Starting 1980, Hughes worked in various capacities for Radio One, including president, general manager, general sales manager, and talkshow host. She began her career in radio as general sales manager of WHUR-FM—the Howard
University urban-contemporary radio station. Ms. Hughes was also the mother of Alfred Liggins,
Radio One’s chief executive officer, president, treasurer, and director.
Alfred C. Liggins III, 35, became chief executive officer in 1997, and president, treasurer, and a director of Radio One in 1989. Liggins joined Radio One in 1985 as an account manager at WOL-AM.
In 1987, he was promoted to general sales manager and promoted again in 1988 to general manager overseeing Radio One’s other markets. Liggins was a graduate of the Wharton School of
Business/Executive M.B.A. Program.
Scott R. Royster, 36, became executive vice president of Radio One in 1997 and chief financial officer in 1996. Prior to joining Radio One, he served as an independent consultant to Radio One. From
1995 to 1996, Royster was a principal at TSG Capital Group, LLC—a private equity investment firm located in Stamford, Connecticut, which became an investor in Radio One in 1987. Royster also served as an associate and later a principal at Capital Resource Partners—a private capital investment firm in Boston, Massachusetts, from 1992 to 1995. Scott Royster was a graduate of Duke University and Harvard Business School.
Mary Catherine Sneed, 49, was named Radio One’s chief operating officer in January 1998 and general manager of Radio One of Atlanta in 1995. Prior to joining Radio One, she held various positions with Summit Broadcasting, including executive vice president of the Radio Division and vice president of operations from 1992 to 1995. Ms. Sneed was a graduate of Auburn University.
Linda J. Eckard, 43, was named general counsel of Radio One in January 1998 and assistant secretary of Radio One in April 1999. Prior to this, Ms. Eckard represented Radio One as outside counsel from
July 1995 until assuming her role as general counsel. Ms. Eckard was a partner in the Washington,
D.C. office of Davis Wright Tremain LLP from August 1997 to December 1997. Prior to this, Ms.
Eckard was a shareholder of Roberts & Eckard, P.C.—a firm she co-founded in April 1992. Ms.
Eckard was a graduate of Gettysburg College, the National Law Center at George Washington
University, and the University of Glasgow. Ms. Eckard was admitted to the District of Columbia Bar and the Bar of the United States Supreme Court.
Steve Hegwood, 39, was vice president of programming for Radio One and program director of
WKYS-FM since 1995. From 1990 to 1995, Hegwood was program director of WJLB-FM in Detroit,
Michigan.

aSEC Form 10-K for fiscal year ended December 31, 1999.

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Radio One, Inc.

Exhibit 2

201-025

Radio One's Acquisition Strategy
Number of Stations
FM
AM

Market
Washington, DC
Baltimore, MD
Philadelphia, PA
Detroit, MIa
Atlanta, GA
Cleveland, OH
St. Louis. MO
Richmond, VA
Boston, MA
TOTAL

Source:

2
2
1
2
2
1
1
7
1
19

Year(s) of Acquisition

2
2

1980, 1987, 1995, 1998
1992, 1993
1997
1998
1999
1999
1999
1999
1999

2
1

7

Adapted from numerous SEC 10-K Filings.

aOne station is located in Kingsley, Michigan.

Exhibit 3

African-American Demographic Information

25
20
15
25
10
20
5
15
0
10

Faster Population Growth
1995-2010

Faster Income Growth
1980-1995
21.2

13.3
21.2
13.3
General Population

5

African-Americans
Population

0
General Population

African-Americans
Population

Rate of Growth (%)
Rate of Growth (%)

Rate of Growth (%)
Rate of Growth (%)

Faster Population Growth
1995-2010
12
10
8
6
12
4
10
2
8
0
6
4
2
0

Faster Income Growth
1980-1995

10.7

10.7

4.3

4.3
General Population

African-Americans
Population

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

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201-025

Radio One, Inc.

Rising Urban Format Power Ratios 1991–2002a

Exhibit 4

0.90
0.85

P ow e r Ra tio

0.80
0.75

0.71 0.70

0.73 0.74

0.78
0.76 0.77

0.82
0.80 0.81

0.84 0.85

0.70
0.65
0.60
0.55

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

Ye a r

Source: Adapted from company reports a Years 2000–2002 estimated

Exhibit 5

Radio One's Turnaround Record
Cost (mm)

Washington, DC
Baltimore
Philadelphia
Atlanta

Source:

96BCF

Multiple

$46.2
$13.7
$20.0
$13.5

$6.3
$3.3
$0.2
$1.2

7.3x
4.2x
100x
11.2x

99BCF
$14.9
$11.8
$ 1.7
$ 6.9

Multiple
3.1x
1.2x
11.8x
2.0x

Adapted from company reports

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Radio One, Inc.

Exhibit 6

201-025

Radio One, Inc., and Subsidiaries—Consolidated Statements of Operations
1997

1998

1999

$36,955,000
4,588,000

$52,696,000
6,587,000

$93,260,000
11,557,000

$32,367,000

$46,109,000

$81,703,000

$ 5,934,000
12,914,000
2,155,000
-5,828,000

$ 8,015,000
16,486,000
2,800,000
-8,445,000

$13,576,000
30,683,000
4,155,000
225,000
17,073,000

Total operating expenses

$26,831,000

$35,746,000

$65,712,000

Operating income

$ 5,536,000

$10,363,000

$15,991,000

8,910,000
415,000

11,455,000
358,000

15,279,000
2,149,000

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

$ 2,861,000
2,728,000

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

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

$ (2,959,000)
--

$

$ (2,959,000)

$

841,000

$

--

1,985,000

841,000

133,000
--

$ (4,944,000)

$

$

133,000

$ (6,981,000)

$ (2,875,000)

$ (1,343,000)

$

(.53)

$

(.31)

$

(.08)

$

(.74)

$

(.31)

$

(.08)

9,392,000

9,392,000

16,137,000

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

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

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

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201-025

Radio One, Inc.

Exhibit 7

Radio One, Inc., and Subsidiaries—Consolidated 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

$
$

1998

8,500,000
-8,722,000

$

1999

4,455,000
-12,026,000

$

6,221,000
256,390,000
19,833,000

315,000
--

334,000
826,000

1,035,000
984,000

Total current assets

$ 17,537,000

$ 17,641,000

$ 284,463,000

Property and equipment, net
Intangible assets, net
Other assets

4,432,000
54,942,000
2,314,000

6,717,000
127,639,000
1,859,000

15,512,000
218,460,000
9,101,000

$ 79,225,000

$ 153,856,000

$ 527,536,000

$
$

258,000
3,029,000
--

$

1,190,000
3,708,000
143,000

$

$

3,287,000

$

5,041,000

$ 10,136,000

74,954,000
--

131,739,000
15,251,000

82,626,000
14,518,000

$ 78,241,000

$152,031,000

$ 107,280,000

9,310,000

10,816,000

--

13,658,000

15,868,000

--

--

--

17,000

--

2,000

3,000

--

3,000

3,000

--(21,989,000)

--(24,864,000)

40,000
446,400,000
(26,207,000)

$ (21,984,000)

$ (24,859,000)

$ 420,256,000

$ 79,225,000

$153,856,000

$ 527,536,000

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
Series B, $.01 par value, 150,000 shares authorized,
124,467 shares issued and outstanding
Stockholders’ equity:
Common stock—Class A, $.001 par value,
30,000,000 shares authorized, 0 and 17,221,000 shares issued and outstanding
Common stock—Class B, $.001 par value,
30,000,000 shares authorized, 1,572,000 and 2,867,000 shares issued and outstanding
Common stock—Class C, $.001 par value,
30,000,000 shares authorized, 3,146,000 and
3,184,000 shares issued and outstanding
Accumulated comprehensive income adjustments
Additional paid-in capital
Accumulated deficit
Total stockholders’ (deficit) equity
Total liabilities and stockholders’ equity
Source:

1,663,000
6,941,000
1,532,000

Company reports

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Radio One, Inc.

Exhibit 8

201-025

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

EBITDAa

After-Tax
Cash Flowb

Asset Betac

11.8
15.1
14.7
14.6
17.2
17.4
17.7
11.0
16.6
42.1
18.8
22.1
9.9
24.4

13.7
15.8
15.4
15.7
17.9
18.7
19.2
12.0
17.7
44.5
19.4
24.2
11.4
25.3

15.4
22.3
14.4
21.7
20.1
24.2
37.2
13.2
21.1
59.7
26.9
36.5
14.5
38.6

NA
1.06
0.96
0.68
0.65
0.27
0.83
0.55
0.30
1.23
0.82
0.82
0.26
1.29

18.1

19.4

26.1

0.75

Ticker

Company

BCF

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

Beasley Broadcasting Group
CBS
AMFM Inc
Citadel Communications
Clear Channel Communications
Cox Radio
Cumulus Media
Emmis Broadcasting
Entercom Communications
Hispanic Broadcasting
Infinity Broadcasting
Radio One
Saga Communications
Westwood One
AVERAGE

Source:

a

Credit Suisse First Boston, Radio One, Inc., Equity Research Report, March 9, 2000 and casewriter estimates.

aBCF & EBITDA: Adjusted Market Value Multiple to 2001 bAfter-Tax Cash Flow: Current Price as a Multiple of 2001 cAsset 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.

11
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For the exclusive use of J. Ulrey, 2016.
201-025

Radio One, Inc.

Exhibit 9 Radio One, Inc. Actual and Projected Financial Performance of Existing Markets and
Potential New Markets

1999

----Pro Forma---2000

2001

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

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

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

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

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

50,042
38,743
10,849
13,909
16,341
26,330
8,097
3,064
20,780
5,575

Existing Gross Revenue a Gross Revenue – Potential New Markets
Charlotte
Augusta
Indianapolis
Los Angeles
Miami
Cleveland
Houston
Dallas
Greenville
Raleigh

109,848

130,343

145,482

161,201

177,024

193,730

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

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

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

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

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

4,700
3,800
11,000
59,372
3,191
19,000
57,743
15,188
6,500
20,182

New Markets Gross Revenue
Direct Expenses – Existing Markets
Washington
Baltimore
Philadelphia (WPHI)
Philadelphia (WPLY)
Detroit
Atlanta
Cleveland
St. Louis
Richmond
Boston

120,486

130,384

146,488

164,891

182,609

200,676

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

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

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

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

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

(7,006)
(5,424)
(1,519)
(1,669)
(2,288)
(3,686)
(1,134)
(429)
(2,909)
(781)

Existing Direct Expenses a Direct Expenses – Potential New Markets
Charlotte
Augusta
Indianapolis
Los Angeles
Miami
Cleveland
Houston
Dallas
Greenville
Raleigh
New Markets Direct Expenses

(13,722)

(18,434)

(20,598)

(22,337)

(24,531)

(26,845)

(150)
(406)
(519)
(5,155)
-(1,707)
(4,479)
(547)
(566)
(1,565)
(15,094)

(189)
(357)
(607)
(5,496)
-(1,650)
(4,746)
(825)
(603)
(1,770)
(16,243)

(313)
(379)
(702)
(6,045)
-(1,800)
(5,220)
(1,063)
(672)
(1,982)
(18,176)

(435)
(402)
(882)
(6,619)
-(1,980)
(5,742)
(1,463)
(729)
(2,180)
(20,432)

(549)
(426)
(1,078)
(7,248)
-(2,130)
(6,317)
(1,688)
(791)
(2,398)
(22,624)

(607)
(452)
(1,257)
(7,938)
-(2,280)
(6,929)
(1,898)
(858)
(2,638)
(24,857)

Gross Revenue – Existing Markets
Washington
Baltimore
Philadelphia (WPHI)
Philadelphia (WPLY)
Detroit
Atlanta
Cleveland
St. Louis
Richmond
Boston

-------------------Projected-------------2002
2003
2004

12
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For the exclusive use of J. Ulrey, 2016.
Radio One, Inc.

201-025

Exhibit 9 (continued)
----Pro Forma---1999
2000
Net Revenue – Existing Markets
Washington
Baltimore
Philadelphia (WPHI)
Philadelphia (WPLY)
Detroit
Atlanta
Cleveland
St. Louis
Richmond
Boston
Existing Net Revenue a Net Revenue – Potential New Markets
Charlotte
Augusta

----------------------Projected---------------------2001
2002
2003
2004

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

43,036
33,319
9,330
12,240
14,053
22,644
6,964
2,635
17,871
4,795
166,887

852
2,302

1,061
2,393

1,937
2,821

2,815
2,998

3,701
3,174

4,093
3,348

Indianapolis
4,654
Los Angeles
33,471
Miami
1,501
Cleveland
11,663
Houston
32,139
Dallas
4,209
Greenville
4,048
Raleigh
10,553
105,392
New Markets Net Revenue
Operating Expenses – Existing Markets
Washington
13,480
Baltimore
9,860

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

9,743
51,436
3,191
16,720
50,814
13,289
5,642
17,544
175,820

13,827
10,260

14,864
11,030

15,734
11,737

16,316
12,121

16,807
12,425

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

5,240
3,875
8,032
8,994
4,667
2,358
10,709
3,137
76,244

1,023
1,584

1,249
1,669

1,461
1,758

1,659
1,851

1,781
1,949

Indianapolis
Los Angeles
Miami
Cleveland
Houston
Dallas
Greenville
Raleigh
New Markets Operating Expenses

3,206
15,621
584
4,600
10,592
4,195
1,928
5,769
49,102

3,463
16,176
584
4,700
11,046
4,938
2,071
5,981
51,877

3,848
16,584
862
4,958
11,469
5,238
1,945
6,627
54,750

4,255
17,581
1,224
5,101
11,850
5,500
1,922
7,077
58,020

4,639
18,642
1,313
5,149
12,035
5,900
1,574
7,561
60,543

2,954
14,448
510
4,862
10,129
4,012
1,919
5,516
46,376

13
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For the exclusive use of J. Ulrey, 2016.
201-025

Radio One, Inc.

Exhibit 9 (continued)
----Pro Forma---1999
2000
BCF – Existing Markets
Washington
Baltimore
Philadelphia (WPHI)
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

----------------------Projected---------------------2001
2002
2003
2004

14,866
11,846
1,658
2,500
1,069
6,933
470
-3,192
-42,534

15,904
12,673
2,242
4,800
3,013
7,645
1,066
-575
3,596
674
51,038

17,246
13,738
2,689
5,500
3,959
8,975
1,510
182
4,709
1,090
59,598

19,833
15,799
3,092
6,325
4,553
10,321
1,737
209
5,415
1,254
68,538

22,808
18,169
3,556
7,274
5,236
11,869
1,997
241
6,228
1,442
78,820

26,229
20,894
4,090
8,365
6,021
13,650
2,297
277
7,162
1,658
90,643

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

2,312
1,399
5,104
32,794
1,878
11,571
38,780
7,389
4,068
9,982
115,277

Total BCF

101,548

116,079

136,034

158,249

180,786

205,920

Corporate Expenses
EBITDA
Non-cash Compensation b Depreciation and amortization

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

10,494
195,426
0
107,500

EBIT

(12,197)

2,559

21,634

42,814

64,161

87,926

Source:

Adapted from company reports

aPotential 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. bIncludes 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.

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Radio One, Inc.

201-025

Exhibit 10 Corporate and Government Bond Rates as of
March 1, 2000
Government Bond Yields
Maturity

Rate

3 months
6 months
1 year
3 years
5 years
10 years
30 years

5.36
5.68
5.84
6.14
6.19
6.28
6.35

Rating
AAA
AA
A
BBB
BB
B
Source:

Corporate Bonds (10-year maturity)
Rate
7.1
7.18
7.34
7.7
9.1
9.68
Federal Reserve Statistical Release; Bloomberg

15
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