The Audit Committee of the Board of Directors and the management of Radio One have concluded that the company needs to restate its financial filings for the past three years and the first quarter of this year. However, the restatement will not change the reported net income or earnings per share.
According to a Radio One filing with the SEC, “the restatement is solely the result of an error of measurement and classification of a noncontrolling interest in Reach Media, Inc. as presented on the consolidated balance sheet and on the consolidated statement of changes in stockholders’ equity. The effects of this error overstated consolidated stockholders’ equity and understated mezzanine equity at the end of each reporting period by equal amounts. The adjustment will not affect any previously reported financial results in the consolidated statements of operations or consolidated statements of cash flows for the Company, and, hence, will not affect previously reported net income or earnings per share.”
The restatement will cover the years ended December 31, 2009, 2008 and 2007 and for each quarterly financial reporting period from January 1, 2009 through March 31, 2010.
As part of the Radio One’s acquisition of a controlling 51% ownership interest in Reach Media in 2005, the noncontrolling shareholders of Reach Media were granted the right to require Reach Media to purchase all or a portion of their shares at the then current fair market value for such shares during the 30 day period beginning on February 28, 2012 and each anniversary thereafter, Radio One explained. The issue causing the problem is accounting for those put rights.
If you are an accounting geek, here is the explanation:
“The Company did not initially record the noncontrolling interests at fair value nor elect an accounting policy to account for subsequent changes in the estimated redemption amount. Rather, the Company recorded and continues to report the noncontrolling interest at its historical cost basis adjusted for the portion of earnings attributable to the noncontrolling interests. The reported carrying value of the noncontrolling interests was approximately $6 million at March 31, 2010. The estimated redemption value of the noncontrolling interests is estimated to range from $40 to $50 million if redemption were to occur on March 31, 2010. Accordingly, the Company expects to reduce consolidated stockholders’ equity at March 31, 2010 by $34 to $44 million in connection with the restatement, and to record corresponding increases to mezzanine equity.”
The decision to restate earnings was made in consultation with Radio One’s independent auditor, Ernst & Young LLP.