Radio One, the seventh-largest U.S. radio owner by revenue, thinks it may have to restate its financial statements going back to 1999.
Analysts John Blackledge and Aaron Chew of JP Morgan reacted: “Essentially, we believe this is not related to the backdating of options but is merely a documentation issue.”
But Wachovia Capital analyst Marci L. Ryvicker thinks the big question is what happens to management. “Other than COO Mary Catherine Sneed, who departed in June 2006, most top executives, who were at the company during the period under review, are still there. Other public companies (that) have undergone similar financial scrutiny have made significant management changes so as to ‘wipe the slate clean,’ per se. We are not certain that this will happen, but it is a risk.”
Radio One said it would restate in order “to record additional non-cash stock-based compensation expense with respect to those stock option grants over the vesting periods of the options.” It says its financial statements and earnings press releases since 1999 should not be relied upon, and it is working with lawyers to review past stock option granting practices dating from its IPO.
The company thinks the correct measurement dates for certain stock option grants differ from the dates used before. But it also said its review is not complete. “Management has not reached a final conclusion regarding the full extent of the accounting errors associated with its historical stock option granting practices or the full amount of the additional non-cash stock-based compensation expense that Radio One will be required to recognize.”
It thinks the move could affect operating results for 1999 through 2003 but doesn’t think it will affect reported revenues, cash flows or total stockholders’ equity. The full impact of the change on financial numbers is expected to be more clear by mid-March.