Options News Could Hurt Radio One, Analysts Say

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By Anita Huslin
Washington Post Staff Writer
Friday, February 23, 2007

Radio One's announcement that it did not properly account for grants of stock options to employees in past financial reports raises concern about the company's fiscal health, industry analysts said yesterday.

In a filing with the Securities and Exchange Commission, the Lanham company on Wednesday requested a delay in submitting its 2006 year-end report, citing an internal review that had uncovered "errors associated with its historical stock option granting practices" that might require restating earnings back to 1999.

The review also found that other non-cash expenses that should have been recorded in 2004 and 2005 were not, but those omissions were not expected to materially change operating results for either year.

The disclosure comes at a time when the radio industry is losing ground to a variety of other media, and the prospect of even seemingly minor adjustments to revenue and expenses could have an impact on a company's bottom line, industry analysts said.

Radio One "has been a stock that has struggled on Wall Street for the last few years because of the flattening growth of the radio industry, so to heap this on top of those concerns represents another annoyance," said Frederick W. Moran, an analyst with the Stanford Group.

Radio One's stock fell 35 percent last year while the rest of the radio market was up 14 percent, Moran said. The company's 70 radio stations in 22 markets are generally aimed at an urban audience, he said, where they must compete with such other media as iPods, MP3 players, digital Internet radio and satellite radio.

"As the Internet steals more and more advertising dollars away from traditional media, the radio broadcasters appear to be one of the more vulnerable enterprises because they don't have a new outlet or service offering to offset that," Moran said.

Radio One and SEC officials did not return calls for comment. In its filing, Radio One said its review had found evidence of unreported backdating of stock options, a way of dialing back the effective date for an option to when the stock price was low, making the chance for profit greater when the option is sold. The practice is not illegal, as long as it is disclosed to investors.

"The company has not yet determined the tax consequences that may result from these matters or whether tax consequences will give rise to monetary liabilities which may have to be satisfied," the company said in its filing. It said its delayed 2006 filing will enumerate the full impact of the earnings restatement.


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