ITEM 11.	EXECUTIVE COMPENSATION

 

 

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required by this Item 12 is incorporated into this report by reference to the information set forth under the caption “Principal Stockholders” in our proxy statement.

 

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

 

ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The information required by this Item 14 is incorporated into this report by reference to the information set forth under the caption “Audit Fees” in our proxy statement.

 

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The following financial statements required by this item are submitted in a separate section beginning on page F-1 of this report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2007 and 2006

Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005

Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005

Notes to Consolidated Financial Statements

Consolidating Financial Statements

Schedule II — Valuation and Qualifying Accounts

Schedules other than those listed above have been omitted from this Form 10-K because they are not required, are not applicable, or the required information is included in the financial statements and notes thereto.

 

40

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(a)(2) EXHIBITS AND FINANCIAL STATEMENTS:  The following exhibits are filed as part of this Annual Report, except for Exhibits 32.1 and 32.2, which are furnished, but not filed, with this Annual Report.

 

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of Radio One, Inc. (dated as of May 4, 2000), as filed with the State of Delaware on May 9, 2000 (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q for the period ended March 31, 2000).
3.1.1	Certificate of Amendment (dated as of September 21, 2000) of the Amended and Restated Certificate of Incorporation of Radio One, Inc. (dated as of May 4, 2000), as filed with the State of Delaware on September 21, 2000 (incorporated by reference to Radio One’s Current Report on Form 8-K filed October 6, 2000).
3.2	Amended and Restated By-laws of Radio One, Inc. amended as of June 5, 2001 (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q filed August 14, 2001).
4.1	Certificate Of Designations, Rights and Preferences of the 61/2% Convertible Preferred Securities Remarketable Term Income Deferrable Equity Securities (HIGH TIDES) of Radio One, Inc., as filed with the State of Delaware on July 13, 2000 (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q for the period ended June 30, 2000).
4.2	Indenture dated May 18, 2001 among Radio One, Inc., the Guarantors listed therein, and United States Trust Company of New York (incorporated by reference to Radio One’s Registration Statement on Form S-4, filed July 17, 2001 (File No. 333-65278)).
4.3	First Supplemental Indenture, dated August 10, 2001, among Radio One, Inc., the Guaranteeing Subsidiaries and other Guarantors listed therein, and The Bank of New York, as Trustee, (incorporated by reference to Radio One’s Registration Statement on Form S-4, filed October 4, 2001 (File No. 333-65278)).
4.4	Second Supplemental Indenture dated as of December 31, 2001, among Radio One, Inc., the Guaranteeing Subsidiaries and other Guarantors listed therein, and The Bank of New York, as Trustee, (incorporated by reference to Radio One’s registration statement on Form S-3, filed January 29, 2002 (File No. 333-81622)).
4.5	Third Supplemental Indenture dated as of July 17, 2003, among Radio One, Inc., the Guaranteeing Subsidiaries and other Guarantors listed therein, and The Bank of New York, as Trustee, (incorporated by reference to Radio One’s Annual Report on Form 10-K for the period ended December 31, 2003).
4.6	Fourth Supplemental Indenture dated as of October 19, 2004, among Radio One, Inc., the Guaranteeing Subsidiaries and other Guarantors listed therein, and The Bank of New York, as Trustee, (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q for the period ended September 30, 2004).
4.7	Fifth Supplemental Indenture dated as of February 8, 2005, among Radio One, Inc., the Guaranteeing Subsidiaries and other Guarantors listed therein, and The Bank of New York, as Trustee (incorporated by reference to Radio One’s Annual Report on Form 10-K for the period ended December 31, 2004).
4.8	Indenture dated February 10, 2005 between Radio One, Inc. and The Bank of New York, as Trustee, (incorporated by reference to Radio One’s Current Report on Form 8-K filed February 10, 2005).
4.9	Amended and Restated Stockholders Agreement dated as of September 28, 2004 among Catherine L. Hughes and Alfred C. Liggins, III (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q for the period ended June 30, 2005).
4.10	Sixth Supplemental Indenture dated as of February 15, 2006 among Radio One, Inc., the Guaranteeing Subsidiary and the Existing Guarantors listed therein, and The Bank of New York, as successor trustee under the Indenture dated May 18, 2001, as amended (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q for the period ended June 30, 2006).
4.11	First Supplemental Indenture dated as of February 15, 2006 among Radio One, Inc., Syndication One, Inc., the other Guarantors listed therein, and The Bank of New York, as trustee under the Indenture dated February 10, 2005 (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q for the period ended June 30, 2006).
4.12	Seventh Supplemental Indenture dated as of December 22, 2006 among Radio One, Inc., the Guaranteeing Subsidiary and the Existing Guarantors listed therein, and The Bank of New York, as successor trustee under the Indenture dated May 18, 2001, as amended.
4.13	Second Supplemental Indenture dated as of December 22, 2006 among Radio One, Inc., Magazine One, Inc., the other Guarantors listed therein, and The Bank of New York, as trustee under the Indenture dated February 10, 2005.
10.1	Credit Agreement, dated June 13, 2005, by and among Radio One Inc., Wachovia Bank and the other lenders party thereto (incorporated by reference to Radio One’s Current Report on Form 8-K filed June 17, 2005 (File No. 000-25969)).
10.2	Guarantee and Collateral Agreement, dated June 13, 2005, made by Radio One, Inc. and its Restricted Subsidiaries in favor of Wachovia Bank (incorporated by reference to Radio One’s Current Report on Form 8-K filed June 17, 2005 (File No. 000-25969)).
10.3	Amended and Restated Employment Agreement between Radio One, Inc. and Scott R. Royster dated October 18, 2000 (incorporated by reference to Radio One’s Annual Report on Form 10-K for the period ended December 31, 2000).
10.4	Amended and Restated Employment Agreement between Radio One, Inc. and Linda J. Eckard Vilardo dated October 31, 2000 (incorporated by reference to Radio One’s Annual Report on Form 10-K for the period ended December 31, 2000).
10.5	Employment Agreement between Radio One, Inc. and Alfred C. Liggins, III dated April 9, 2001 (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q for the period ended June 30, 2001).
10.6	Promissory Note and Stock Pledge Agreement dated October 18, 2000 between Radio One, Inc. and Scott R. Royster (incorporated by reference to Radio One’s Annual Report on Form 10-K for the period ended December 31, 2002).
10.7	Promissory Note and Stock Pledge Agreement dated October 31, 2000 between Radio One, Inc. and Linda J. Eckard Vilardo (incorporated by reference to Radio One’s Annual Report on Form 10-K for the period ended December 31, 2002).
10.8	Promissory Note and Stock Pledge Agreement dated April 9, 2001 between Radio One, Inc. and Alfred C. Liggins, III (incorporated by reference to Radio One’s Annual Report on Form 10-K for the period ended December 31, 2002).
10.9	Promissory Note dated January 30, 2002 between Radio One, Inc and Scott R. Royster (incorporated by reference to Radio One’s Annual Report on Form 10-K for the period ended December 31, 2002).
10.10	First Amendment to Credit Agreement dated as of April 26, 2006, to Credit Agreement dated June 13, 2005, by and among Radio One, Inc., Wachovia Bank and the other lenders party thereto (incorporated by reference to Radio One’s Current Report on Form 8-K filed April 28, 2006 (File No. 000-25969)).
10.11	Waiver to Credit Agreement dated July 12, 2007, by and among Radio One, Inc., the several Lenders thereto, and Wachovia Bank National Association, as Administrative Agent (incorporated by reference to  Radio One’s Quarterly Report on Form 10-Q for the period ended June 30, 2007).
10.12	Employment Agreement between Radio One, Inc. and Barry A. Mayo dated August 6, 2007 (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q for the period ended June 30, 2007).
10.13	Second Amendment to Credit Agreement and Waiver dated as of September 14, 2007, by and among Radio One, Inc., the several Lenders thereto, and Wachovia Bank National Association, as Administrative Agent (incorporated by reference to Radio One’s Current Report on Form 8-K filed September 18, 2007 (File No. 000-25969)).
10.14	Waiver and Consent to Credit Agreement dated May 14, 2007, by and among Radio One, Inc., the several Lenders thereto, and Wachovia Bank National Association, as Administrative Agent (incorporated by reference to Radio One’s Current Report on Form 8-K filed May 18, 2007 (File No. 000-25969)).
10.15	Consent to Credit Agreement dated March 30, 2007, by and among Radio One, Inc., the several Lenders thereto, and Wachovia Bank National Association, as Administrative Agent (incorporated by reference to Radio One’s Current Report on Form 8-K filed April 5, 2007 (File No. 000-25969)).
21.1	Subsidiaries of Radio One, Inc.
23.1	Consent of Ernst & Young LLP.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

41

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized on February 29, 2008.

Radio One, Inc.

By: /s/  Peter D. Thompson                                                                           

Name: Peter D. Thompson

             Title: Chief Financial Officer and Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on February 29, 2008.

By: /s/  Catherine L. Hughes

Name: Catherine L. Hughes

Title: Chairperson, Director and Secretary

By: /s/  Alfred C. Liggins, III

Name: Alfred C. Liggins, III

Title: Chief Executive Officer, President and Director

By: /s/  Terry L. Jones

Name: Terry L. Jones

Title: Director

By: /s/  Brian W. McNeill

Name: Brian W. McNeill

Title: Director

By: /s/  B. Doyle Mitchell, Jr.

Name: B. Doyle Mitchell, Jr.

Title: Director

By: /s/  D. Geoffrey Armstrong

Name: D. Geoffrey Armstrong

Title: Director

By: /s/  Ronald E. Blaylock

Name: Ronald E. Blaylock

Title: Director

42

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Radio One, Inc.:

We have audited the accompanying consolidated balance sheets of Radio One, Inc. and subsidiaries (“the Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders’equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index on Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Radio One, Inc. and subsidiaries at December 31, 2007 and 2006 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment. Also, as discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertainty in income taxes in 2007.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Radio One, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2008 expressed an unqualified opinion thereon.

/s/  ERNST & YOUNG LLP

Baltimore, Maryland

February 20, 2008

F-1

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RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		As of December 31,
		2007				2006
						(As Adjusted – See Note 1)
		(In thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	24,247			$	32,406
Trade accounts receivable, net of allowance for doubtful accounts of $2,162 and $3,901, respectively			52,462				57,148
Prepaid expenses and other current assets			6,639				5,377
Income tax receivable			-				1,296
Deferred income tax asset			15,147				2,856
Current assets from discontinued operations			691				4,829
Total current assets			99,186				103,912
PROPERTY AND EQUIPMENT, net			46,213				46,356
GOODWILL			146,156				148,107
RADIO BROADCASTING LICENSES			1,258,747				1,663,591
OTHER INTANGIBLE ASSETS, net			45,418				49,091
INVESTMENT IN AFFILIATED COMPANY			52,782				51,711
OTHER ASSETS			8,958				6,073
NON-CURRENT ASSETS FROM DISCONTINUED OPERATIONS			10,265				126,369
Total assets		$	1,667,725			$	2,195,210
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	6,031			$	9,946
Accrued interest			19,004				19,273
Accrued compensation and related benefits			16,837				18,111
Income taxes payable			4,463				2,465
Other current liabilities			12,880				13,259
Current portion of long-term debt			26,004				7,513
Current liabilities from discontinued operations			357				1,740
Total current liabilities			85,576				72,307
LONG-TERM DEBT, net of current portion			789,500				930,014
OTHER LONG-TERM LIABILITIES			5,710				8,201
DEFERRED INCOME TAX LIABILITY			149,950				165,616
NON-CURRENT LIABILITIES FROM DISCONTINUED OPERATIONS			—				825
Total liabilities			1,030,736				1,176,963
MINORITY INTEREST IN SUBSIDIARIES			3,889				(20	)
STOCKHOLDERS’ EQUITY:
Convertible preferred stock, $.001 par value; 1,000,000 shares authorized; no shares outstanding at December 31, 2007 and 2006, respectively			—				—
Common stock — Class A, $.001 par value, 30,000,000 shares authorized; 4,321,378 and 6,319,660 shares issued and outstanding at December 31, 2007 and 2006, respectively			4				6
Common stock — Class B, $.001 par value, 150,000,000 shares authorized; 2,861,843 and 2,867,463 shares issued and outstanding at December 31, 2007 and 2006, respectively			3				3
Common stock — Class C, $.001 par value, 150,000,000 shares authorized; 3,121,048 and 3,132,458 shares issued and outstanding at December 31, 2007 and 2006, respectively			3				3
Common stock — Class D, $.001 par value, 150,000,000 shares authorized; 88,638,576 and 86,391,052 shares issued and outstanding as of December 31, 2007 and 2006, respectively			89				87
Accumulated other comprehensive income			644				967
Stock subscriptions receivable			(1,717	)			(1,642	)
Additional paid-in capital			1,044,273				1,041,029
Accumulated deficit			(410,199	)			(22,186	)
Total stockholders’ equity			633,100				1,018,267
Total liabilities and stockholders’ equity		$	1,667,725			$	2,195,210

The accompanying notes are an integral part of these consolidated financial statements.

F-2

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RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

		For the Years Ended December 31,
		2007				2006				2005
						(As Adjusted - See Note 1)
		(In thousands, except share data)
NET REVENUE		$	330,271			$	341,240			$	342,027
OPERATING EXPENSES:
Programming and technical, including stock-based compensation of $634, $606 and $7, respectively			78,991				73,949				64,249
Selling, general and administrative, including stock-based compensation of $2,190, $2,137 and $44 , respectively			114,478				106,766				103,227
Corporate selling, general and administrative, including stock-based compensation of $213, $1,944 and $735, respectively			27,541				28,240				25,070
Depreciation and amortization			15,250				14,355				14,459
Impairment of intangible assets			409,604				49,930				—
Total operating expenses			645,864				273,240				207,005
Operating (loss) income			(315,593	)			68,000				135,022
INTEREST INCOME			1,242				1,393				1,428
INTEREST EXPENSE			72,770				72,932				63,010
EQUITY IN LOSS OF AFFILIATED COMPANY			11,453				2,341				1,846
OTHER EXPENSE, net			347				278				97
(Loss) income before provision for income taxes, minority interest in income of subsidiaries and (loss) income from discontinued operations, net of tax			(398,921	)			(6,158	)			71,497
(BENEFIT) PROVISION FOR INCOME TAXES			(23,032	)			1,279				25,179
MINORITY INTEREST IN INCOME OF SUBSIDIARIES			3,910				3,004				1,868
Net (loss) income from continuing operations			(379,799	)			(10,441	)			44,450
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, net of tax			(7,319	)			3,711				4,185
Net (loss) income			(387,118	)			(6,730	)			48,635
PREFERRED STOCK DIVIDENDS			—				—				2,761
NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS		$	(387,118	)		$	(6,730	)		$	45,874
BASIC AND DILUTED NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS:
Continuing operations		$	(3.85	)		$	(.11	)		$	.40
Discontinued operations, net of tax			(0.07	)			.04				.04
Net (loss) income available to common shareholders		$	(3.92	)		$	(.07	)		$	.44
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic			98,710,633				98,709,311				103,749,798
Diluted			98,710,633				98,709,311				103,893,782

The accompanying notes are an integral part of these consolidated financial statements.

F-3

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RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For The Years Ended December 31, 2005, 2006 and 2007

	Convertible Preferred Stock			Common    Stock Class A				Common Stock Class B			Common Stock Class C			Common Stock Class D			Comprehensive Income (Loss)				Accumulated     Other Comprehensive Income (Loss)				Stock Subscriptions Receivable				Additional Paid-In Capital				Accumulated Deficit				Total Stockholders’ Equity
	(In thousands, except share data)
BALANCE, as of December 31, 2004	$	—		$	22			$	3		$	3		$	77						$	(151	)		$	(34,731	)		$	1,424,757			$	(61,244	)		$	1,328,736
Comprehensive income:
Net income		—			—				—			—			—		$	48,635				—				—				—				48,635				48,635
Change in unrealized net gain on derivative and hedging activities, net of taxes		—			—				—			—			—			1,109				1,109				—				—				—				1,109
Comprehensive income																	$	49,744
Adjustment of basis for investment in affiliated company		—			—				—			—			—							—				—				(379	)			—				(379	)
Vesting of non-employee restricted stock		—			—				—			—			—							—				—				58				—				58
Stock-based compensation expense		—			—				—			—			—							—				—				786				—				786
Vesting of subsidiary compensatory employee stock options		—			—				—			—			—							—				—				157				—				157
Amendment to subsidiary stock option plan		—			—				—			—			—							—				—				(1,145	)			—				(1,145	)
Cash dividends		—			—				—			—			—							—				—				—				(2,847	)			(2,847	)
Redemption of preferred stock		—			—				—			—			—							—				—				(309,820	)			—				(309,820	)
Issuance of common stock pursuant to investment in Reach Media, Inc.		—			—				—			—			2							—				—				25,424				—				25,426
Repayment of officer loan		—			—				—			—			—							—				15,895				(10,251	)			—				5,644
Interest on stock subscriptions receivable		—			—				—			—			—							—				(482	)			—				—				(482	)
Repurchase of 592,744 shares of Class A and 5,805,697 shares of Class D common stock		—			(1	)			—			—			(7							—				17,752				(95,402	)			—				(77,658	)
Conversion of 9,560,297 shares of Class A common stock to 9,560,297 shares of Class D common stock		—			(9	)			—			—			9							—				—				—				—				—
Employee exercise of options for 131,842 shares of common stock		—			—				—			—			—							—				—				1,087				—				1,087
Tax effect of non-qualified option exercises and vesting of restricted stock		—			—				—			—			—							—				—				383				—				383
BALANCE, as of December 31, 2005		—			12				3			3			81							958				(1,566	)			1,035,655				(15,456	)			1,019,690
Comprehensive income:
Net loss		—			—				—			—			—		$	(6,730	)			—				—				—				(6,730	)			(6,730	)
Change in unrealized net gain on derivative and hedging activities, net of taxes		—			—				—			—			—			9				9				—				—				—				9
Comprehensive loss																	$	(6,721	)
Adjustment of basis for investment in affiliated company		—			—				—			—			—							—				—				(152	)			—				(152	)
Vesting of non-employee restricted stock		—			—				—			—			—							—				—				(55	)			—				(55	)
Stock-based compensation expense		—			—				—			—			—							—				—				5,529				—				5,529
Interest income on stock subscriptions receivable		—			—				—			—			—							—				(76	)			—				—				(76	)
Conversion of 6,899 shares of Class A common stock to 6,899 shares of Class D common stock		—			(6	)			—			—			6							—				—				—				—				—
Employee exercise of options for 8,460 shares of common stock		—			—				—			—			—							—				—				52				—				52
BALANCE, as of December 31, 2006		—			6				3			3			87							967				(1,642	)			1,041,029				(22,186	)			1,018,267
Comprehensive income:
Net loss		—			—				—			—			—		$	(387,118	)			—				—				—				(387,118	)			(387,118	)
Change in unrealized net gain on derivative and hedging activities, net of taxes		—			—				—			—			—			(323	)			(323	)			—				—				—				(323	)
Comprehensive loss																	$	(387,441	)
Vesting of non-employee restricted stock		—			—				—			—			—							—				—				(63	)			—				(63	)
Stock-based compensation expense		—			—				—			—			—							—				—				3,307				—				3,307
Interest income on stock subscriptions receivable		—			—				—			—			—							—				(75	)			—				—				(75	)
Cumulative impact of change in accounting for uncertainties in income taxes		—			—				—			—			—							—				—				—				(895	)			(895	)
Conversion of 1,998,281 shares of Class A common stock to 1,998,281 shares of Class D common stock		—			(2	)			—			—			2							—				—				—				—				—
Conversion of 5,620 shares of Class B common stock to 5,620 shares of Class D common stock		—			—				—			—			—							—				—				—				—				—
Conversion of 11,410 shares of Class C common stock to 11,410 shares of Class D common stock  common stock		—			—				—			—			—							—				—				—				—				—
BALANCE, as of December 31, 2007	$	—		$	4			$	3		$	3		$	89						$	644			$	(1,717	)		$	1,044,273			$	(410,199	)		$	633,100

The accompanying notes are an integral part of these consolidated financial statements.

F-4

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RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Years Ended December 31,
		2007				2006				2005
						(As Adjusted -See Note 1)
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income		$	(387,118	)		$	(6,730	)		$	48,635
Adjust for net (loss) income from discontinued operations			7,319				(3,711	)			(4,185	)
Net (loss) income from continuing operations		$	(379,799	)		$	(10,441	)		$	44,450
Adjustments to reconcile net (loss) income to net cash flows from operating activities:
Depreciation and amortization			15,250				14,355				14,459
Amortization of debt financing costs			2,241				2,097				4,171
Amortization of production content			—				2,277				3,690
Deferred income taxes			(28,013	)			2,066				25,515
Loss on write-down of investment			—				270				754
Intangible assets impairment			409,604				49,930				—
Equity in loss of affiliated company			11,453				2,341				1,846
Minority interest in income of subsidiaries			3,910				3,004				1,868
Stock-based and other non-cash compensation			3,037				5,981				2,544
Contract termination fee			—				—				5,271
Amortization of contract inducement and termination fee			(1,809	)			(2,065	)			(920	)
Change in interest due on stock subscriptions receivable			(75	)			(76	)			(482	)
Effect of change in operating assets and liabilities, net of assets acquired and disposed of:
Trade accounts receivable			4,685				2,043				(40	)
Prepaid expenses and other current assets			(793	)			1,734				(6,419	)
Income tax receivable			1,296				2,639				(285	)
Other assets			324				—				—
Accounts payable			(3,915	)			2,538				(5,781	)
Accrued interest			(270	)			(35	)			5,087
Accrued compensation and related benefits			(1,027	)			(3,186	)			(913	)
Income taxes payable			1,997				(1,340	)			288
Other liabilities			1,327				3,287				704
Net cash flows from operating activities from discontinued operations			4,591				41				5,338
Net cash flows from operating activities			44,014				77,460				101,145
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(10,635	)			(14,291	)			(13,816	)
Equity investments			(12,590	)			(17,086	)			(271	)
Acquisitions			—				(43,188	)			(21,320	)
Deposits for station equipment and purchases of other assets			(5,904	)			(1,129	)			(977	)
Proceeds from sale of assets			108,100				30,000				—
Sale of short-term investments			—				—				10,000
Net cash flows used in investing activities from discontinued operations			(503	)			(533	)			(1,917	)
Net cash flows from (used in) investing activities			78,468				(46,227	)			(28,301	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility			—				33,000				587,500
Repayment of long-term debt			(124,697	)			(48,020	)			(455,007	)
Proceeds from exercise of stock options			—				52				1,003
Payment of dividend to minority interest shareholders			(2,940	)			(2,940	)			—
Payment of preferred stock dividends			—				—				(6,959	)
Proceeds from debt issuances, net of offering costs			—				—				195,315
Redemption of convertible preferred stock			—				—				(309,820	)
Repayment of officer loan for stock subscription			—				—				5,644
Payment of bank financing costs			(3,004	)			—				(4,172	)
Repurchase of common stock			—				—				(77,658	)
Net cash flows used in financing activities			(130,641	)			(17,908	)			(64,154	)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(8,159	)			13,325				8,690
CASH AND CASH EQUIVALENTS, beginning of year			32,406				19,081				10,391
CASH AND CASH EQUIVALENTS, end of year		$	24,247			$	32,406			$	19,081
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest		$	70,798			$	70,876			$	53,753
Income taxes		$	6,093			$	6,407			$	1,033

The accompanying notes are an integral part of these consolidated financial statements.

F-5

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RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

 

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  (a)  Organization and Business

Radio One, Inc. (a Delaware corporation referred to as “Radio One”) and subsidiaries (collectively the “Company”) is one of the nation’s largest radio broadcasting companies and the largest broadcasting company that primarily targets African-American and urban listeners. While our primary source of revenue is the sale of local and national advertising for broadcast on our radio stations, we have made acquisitions and investments in other complementary media properties. We are near completion of having executed our $150.0 million non-strategic radio assets disposition plan. Pro forma for recently announced sale transactions, we own and or operate 54 radio stations located in 17 urban markets in the United States. Our other media acquisitions and investments include our approximate 36% ownership interest in TV One, LLC (“TV One”), an African-American targeted cable television network that we invested in with an affiliate of Comcast Corporation and other investors; our 51% ownership interest in Reach Media, Inc. (“Reach Media”), which operates the Tom Joyner Morning Show; and our acquisition of certain assets of Giant Magazine, LLC (“Giant Magazine”), an urban-themed lifestyle and entertainment magazine. Given the diversity of our business, we have changed the reference of Net Broadcast Revenue to Net Revenue in the accompanying consolidated financial statements.

  (b)  Basis of Presentation

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, and require management to make certain estimates and assumptions. These estimates and assumptions may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements. They may also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates upon subsequent resolution of identified matters.

Certain reclassifications associated with accounting for discontinued operations have been made to prior year and prior quarter balances to conform to the current year presentation. These reclassifications had no effect on any other previously reported net income or loss or any other statement of operations, balance sheet or cash flow amounts. Where applicable, these financial statements have been identified as “As Adjusted”. See Note 3 — Disposition of Assets and Discontinued Operations.

  (c)  Principles of Consolidation

The consolidated financial statements include the accounts of Radio One and subsidiaries in which Radio One has a controlling interest. In February 2005, the Company acquired a controlling interest in Reach Media and began consolidating Reach Media for financial reporting purposes. All significant intercompany accounts and transactions have been eliminated in consolidation. Minority interests have been recognized where a controlling interest exists, but the Company owns less than 100%. The equity method of accounting is used for investments in affiliates over which Radio One has significant influence (ownership between 20% and 50%), but does not have effective control. Investments in affiliates in which Radio One cannot exercise significant influence (ownership interest less than 20%) are accounted for using the cost method.

The Company accounts for its investment in TV One under the equity method of accounting in accordance with Accounting Principles Board (“APB”) Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” and other related interpretations. The Company has recorded its investment at cost and has adjusted the carrying amount of the investment to recognize the change in Radio One’s claim on the net assets of TV One resulting from losses of TV One as well as other capital transactions of TV One using a hypothetical liquidation at book value approach. The Company will review the realizability of the investment if conditions are present or events occur to suggest that an impairment of the investment may exist. The Company has determined that, although TV One is a variable interest entity (as defined by Financial Accounting Standards Board Interpretation (“FIN”) No. 46(R), “Consolidation of Variable Interest Entities,” the Company is not the primary beneficiary of TV One. See Note 6 — Investment in Affiliated Company for further discussion.

  (d)  Cash and Cash Equivalents

Cash and cash equivalents consist of cash, repurchase agreements and money market funds at various commercial banks. All cash equivalents have original maturities of 90 days or less. For cash and cash equivalents, cost approximates market value.

  (e)  Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s estimate of the amount of probable losses in the Company’s existing accounts receivable. The Company determines the allowance based on the aging of the accounts receivable, the impact of economic conditions on the advertisers’ ability to pay and other factors. Inactive delinquent accounts that are past due beyond a certain amount of days are written off and often pursued by ways of other collection efforts. Bankruptcy accounts are immediately written off upon receipt of the bankruptcy notice from the courts. In bankruptcy instances, we file a proof of claim with the courts in order to receive any later distribution of funds that may be forthcoming. 

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  (f)  Goodwill, Radio Broadcasting Licenses and Other Intangible Assets

Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired in business combinations. Radio broadcasting licenses acquired in business combinations are valued using a discounted cash flow analysis. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and radio broadcasting licenses are not amortized, but are tested annually for impairment at the reporting unit level and unit of accounting level, respectively. Impairment of goodwill is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The implied fair value of goodwill is the amount determined by deducting the estimated fair value of all tangible and identifiable intangible net assets of the reporting unit from the estimated fair value of the reporting unit. If the recorded value of goodwill exceeds its implied value, an impairment charge for goodwill is recorded for the excess. Impairment of radio broadcasting licenses is the condition that exists when the carrying amount of the radio broadcasting license exceeds its fair value. The fair value of a radio broadcasting license is the discounted cash flow value of its projected income stream. If the recorded value of the radio broadcasting license exceeds its fair value, an impairment charge for the radio broadcasting license is recorded for the excess. The Company performs an impairment test as of October 1 of each year, or when other conditions suggest an impairment may have occurred. As part of continuing operations, during the year ended December 31, 2007, the Company recognized approximately $409.6 million of impairment charges to its radio broadcasting licenses for its Los Angeles, Houston, Dallas, Cleveland, Philadelphia, Columbus, Cincinnati and Boston markets. As part of discontinued operations, the Company recognized approximately $10.4 million in impairment charges for the Louisville, Augusta and Minneapolis markets, for a total impairment charge of $420.0 million. During the year ended December 31, 2006, the Company recognized an approximate $49.9 million impairment charge to its radio broadcasting license for its Los Angeles station as part of continuing operations, and $13.4 million for its Louisville market as part of discontinued operations, for a total impairment charge of $63.3 million. During 2005, the Company determined that its goodwill, radio broadcasting licenses and other intangible assets were not impaired and accordingly no impairment charge was recognized during the year. See also Note 5 — Goodwill, Radio Broadcasting Licenses and Other Intangible Assets.

  (g)  Impairment of Long-Lived Intangible Assets, Excluding Goodwill and Radio Broadcasting Licenses

The Company accounts for the impairment of long-lived intangible assets, excluding goodwill and radio broadcasting licenses, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Long-lived intangible assets, excluding goodwill and radio broadcasting licenses, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration in operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future discounted net cash flows expected to be generated by the assets. Assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Fair value is generally determined by estimates of discounted future cash flows. The discount rate used in any estimate of discounted cash flows would be the rate of return for a similar investment of like risk. The Company determined that its long-lived assets, excluding goodwill and radio broadcast licenses were not impaired during 2007, 2006 and 2005 and, accordingly, no impairment charge was recognized related to these assets.

  (h)  Financial Instruments

Financial instruments as of December 31, 2007 and 2006 consisted of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, long-term debt and stock subscriptions receivable. The carrying amounts approximated fair value for each of these financial instruments as of December 31, 2007 and 2006, except for the Company’s outstanding senior subordinated notes. The 87/8% senior subordinated notes had a fair value of approximately $282.0 million and $309.8 million as of December 31, 2007 and 2006, respectively. The 63/8% senior subordinated notes had a fair value of approximately $166.5 million and $187.0 million as of December 31, 2007 and 2006, respectively. The fair value was determined based on the fair market value of similar instruments.

 

  (i)  Derivative Financial Instruments

The Company recognizes all derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  Derivative instruments are recorded on the balance sheet at fair value. The accounting for changes in derivative fair value depends on the classification of the derivative as a hedging instrument. Derivative value changes are recorded in income for any contracts not classified as qualifying cash flow hedges. For derivatives classified as qualifying cash flow hedges, the effective portion of the derivative value change is recorded through other comprehensive income, a component of stockholders’ equity, net of tax. See Note 8 — Derivative Instruments for further discussion.

  (j)  Revenue Recognition

The Company recognizes revenue for broadcast advertising when the commercial is broadcast and is reported, net of agency and outside sales representative commissions, in accordance with Staff Accounting Bulletin (“SAB”) No. 104, Topic 13, “Revenue Recognition, Revised and Updated.” Agency and outside sales representative commissions are based on a stated percentage applied to gross billing. Generally, clients remit the gross billing amount to the agency or outside sales representative, and the agency or outside sales representative remits the gross billing, less their commission, to the Company. Agency and outside sales representative commissions were approximately $38.3 million, $41.5 million and $44.1 million during the years ended December 31, 2007, 2006 and 2005, respectively.

  (k)  Barter Transactions

The Company provides broadcast advertising time in exchange for programming content and certain services. In accordance with guidance provided by Emerging Issues Task Force ("EITF") No. 99-17, “Accounting for Advertising Barter Transactions”, the terms of these exchanges generally permit the Company to preempt such broadcast time in favor of advertisers who purchase time in exchange for cash. The Company includes the value of such exchanges in both broadcasting net revenue and station operating expenses. The valuation of barter time is based upon the fair value of the network advertising time provided for the programming content and services received. For the years ended December 31, 2007 and 2006, barter transaction revenues were reflected in net revenue of approximately $2.7 million and $1.9 million, respectively. Additionally, barter transaction costs were reflected in programming and technical expenses and selling, general and administrative expenses of approximately $2.6 million and $1.8 million and $169,000 and $141,000, in the respective years ended December 31, 2007 and 2006.  No barter transactions took place during the year ended December 31, 2005.

F-7

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  (l)  Network Affiliation Agreements

The Company has network affiliation agreements classified as Other Intangible Assets. These agreements are amortized over their useful lives. Losses on contract terminations are determined based on the specifics of each contract in accordance with SFAS No. 63, “Financial Reporting by Broadcasters.” See also Note 5 — Goodwill, Radio Broadcasting Licenses and Other Intangible Assets.

  (m)  Advertising

The Company expenses advertising costs as incurred. Total advertising expenses, including discontinued operations were approximately $14.1 million, $13.9 million and $12.0 million for the years ended December 31, 2007, 2006 and 2005, respectively.  Excluding discontinued operations, for the years ended December 31, 2007, 2006, and 2005, total advertising expenses were approximately $13.5 million, $12.8 million and $11.1 million, respectively.

  (n)  Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, deferred tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. The Company provides a valuation allowance on its net deferred tax assets when it is more likely than not such assets will not be realized. Deferred income tax expense or benefits are based upon the changes in the asset or liability from period to period.

 

  (o)  Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based Payment” using the modified prospective transition method and therefore has not restated prior periods’ results as a result of the adoption of this pronouncement. Under this transition method, stock-based compensation expense during the year ended December 31, 2006 included compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, and was based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123. Stock-based compensation expense for all share-based payment awards granted after January 1, 2006 was based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). The Company recognized these compensation costs net of a forfeiture rate of 7.5% and recognized the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award. In general, the Company’s stock options vest ratably over a four-year period. The Company estimated the forfeiture rate for the year ended December 31, 2007 based on its historical experience during the preceding three years.

Prior to the adoption of SFAS No. 123(R), tax deduction benefits relating to stock-based compensation were presented in the Company’s consolidated statements of cash flows as operating cash flows, along with other tax cash flows, in accordance with the provisions of EITF No. 00-15,“Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option.” SFAS No. 123(R) supersedes EITF No. 00-15, amends SFAS No. 95, “Statement of Cash Flows,” and requires tax benefits relating to excess stock-based compensation deductions to be prospectively presented in the Company’s consolidated statements of cash flows as financing cash flows instead of operating cash flows. The Company is currently in a cumulative loss tax position; hence tax benefits resulting from stock-based compensation deductions in excess of amounts reported for financial reporting purposes were not recognized in financing cash flows during the years ended December 31, 2007 and 2006.

As a result of adopting SFAS No. 123(R), the impact to the Company’s consolidated financial statements for the year ended December 31, 2006 was to increase the net loss approximately $3.3 million after taxes, than if it had continued to account for stock-based compensation under APB No. 25, “Accounting for Stock Issued to Employees.” The impact on both basic and diluted loss per share for the year ended December 31, 2006 was $0.03 per share.

The pro forma table below reflects net income and basic and diluted net income per share during 2005 had the Company applied the fair value recognition provisions of SFAS No. 123, as follows:

		For the Year Ended December 31, 2005
		(In thousands, except share data)
Net income applicable to common stockholders, as reported:		$	45,874
Add: stock-based employee compensation expense included in net income			855
Less: total stock-based employee compensation expense determined under fair value-based method for all awards			11,678
Pro forma net income applicable to common stockholders		$	35,051
As reported net income per share — basic		$	0.44
As reported net income per share — diluted			0.44
Pro forma net income per share — basic			0.34
Pro forma net income per share — diluted			0.34

See details in Note 11 — Stockholders’ Equity.

 

F-8

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  (p)  Comprehensive (Loss) Income

The Company’s comprehensive (loss) income consists of net (loss) income and other items recorded directly to the equity accounts. The objective is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events during the period, other than transactions with owners. The Company’s other comprehensive (loss) income consists of gains and losses on derivative instruments that qualify for cash flow hedge treatment.

The following table sets forth the components of comprehensive (loss) income:

		2007				2006				2005
		(In thousands)
Net (loss) income		$	(387,118	)		$	(6,730	)		$	48,635
Other comprehensive income (net of tax of $242, $186 and $715, respectively):
Derivative and hedging activities			(323	)			9				1,109
Comprehensive (loss) income		$	(387,441	)		$	(6,721	)		$	49,744

  (q)  Segment Reporting and Major Customers

In accordance with Financial Accounting Standards Board (FASB) No. 131, “Disclosure about Segments of an Enterprise and Related Information,” the Company has one reportable segment. The Company came to this conclusion because it has one principal product or service (sale of advertising), has the same type of customer and operating strategy across its business units, has only one management group that manages the entire Company and provides information on the Company’s results as one segment to the key decision-makers. All of the Company’s revenue is derived from customers located in the United States.

Also in accordance with the disclosure requirements of  Statement of Position No. 94-6, “Disclosure of Certain Significant Risks and Uncertainties”, regarding revenue from major customers, a significant portion of our revenue is derived from a single customer. During the years ended December 31, 2007, 2006 and 2005, we derived 10.5%, 10.1% and 8.7% of our total consolidated revenues from that customer, respectively. The Company has no other single customer from which it derives 10% or more if its total consolidated net revenue.

 

  (r)  Earnings (Loss) Per Share

Earnings (loss) per share is based on the weighted-average number of common shares and diluted common equivalent shares for stock options outstanding during the period the calculation is made, divided into the net income (loss) applicable to common stockholders. Diluted common equivalent shares consist of shares issuable upon the exercise of stock options using the treasury stock method.

  (s)  Discontinued Operations

For those businesses where management has committed to a plan to divest, each business is valued at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. The fair values are estimated using accepted valuation techniques such as a discounted cash flow model, valuations performed by third parties, earnings multiples, or indicative bids, when available. A number of significant estimates and assumptions are involved in the application of these techniques, including the forecasting of markets and market share, revenues, costs and expenses, and multiple other factors. Management considers historical experience and all available information at the time the estimates are made. However, the fair values that are ultimately realized upon the sale of the businesses to be divested may differ from the estimated fair values reflected in the consolidated financial statements.

Businesses to be divested are classified in the consolidated financial statements as discontinued operations. For businesses classified as discontinued operations, the balance sheet amounts and statement of operations results are reclassified from their historical presentation to assets and liabilities of discontinued operations on the consolidated balance sheet and to discontinued operations in the consolidated statement of operations for all periods presented. The gains or losses associated with these divested businesses are recorded in income (loss) from discontinued operations on the consolidated statement of operations. The consolidated statement of cash flows is also reclassified for discontinued operations for all periods presented. Other than the collection of outstanding accounts receivable, management does not expect any continuing involvement with these businesses following the sale, and these businesses are expected to be disposed of within one year.

  (t)  Impact of Recently Issued Accounting Pronouncements

 In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”), which permits companies to choose to measure certain financial instruments and other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We may adopt SFAS No. 159 no later than first quarter 2008. The Company is currently evaluating SFAS No. 159 and its effect, if any, on the Company’s financial position, results of operations and cash flows.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”), which provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for more information about: (1) the extent to which companies measure assets and liabilities at fair value; (2) the information used to measure fair value; and (3) the effect that fair value measurements have on earnings. SFAS No. 157 will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value to any new circumstances. We will adopt SFAS No. 157 no later than the first quarter of 2008, except for any portion of the Statement that is deferred pursuant to a recently proposed FASB Staff Position. The Company is currently evaluating SFAS No. 157 and its effect, if any, on the Company’s financial position, results of operations and cash flows.

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. SAB 108 was issued to provide interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provisions of SAB 108 were effective for the Company for its December 2006 year-end. The adoption of SAB 108 did not have a material impact on the Company’s consolidated financial statements.

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In June 2006, the FASB issued Financial Accounting Standards Board interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — Interpretation of SFAS No. 109.” FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 requires that the Company recognize the impact of a tax position in the financial statements, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN No. 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN No. 48 were effective beginning January 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company adopted the provisions of FIN No. 48 on January 1, 2007. As a result of this adoption, the Company recognized a charge of  $895,000 to the January 1, 2007 opening accumulated deficit balance in order to reflect unrecognized tax benefits of approximately $4.9 million. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. Each quarter, the Company reviews its FIN No. 48 estimates, and any change in the associated liabilities results in an adjustment to income tax expense in the consolidated statement of operations in each period measured. The Company anticipates that there will be no immediate impact on its cash flows resulting from its conformity with FIN No. 48.

 

2.  ACQUISITIONS:

In July 2007, the Company purchased the assets of WDBZ-AM, a radio station located in the Cincinnati metropolitan area for approximately $2.6 million financed by the seller. Since August 2001 and up until closing, the station had been operated under a local marketing agreement (“LMA”), and the results of its operations had been included in the Company’s consolidated financials statements since the LMA. The station was consolidated with the Company’s existing Cincinnati operations in 2001. (See Note 12 — Related Party Transactions).

In April 2007, the Company signed an agreement and paid a deposit of $3.0 million to acquire the assets of WPRS-FM (formerly WXGG-FM), a radio station located in the Washington, DC metropolitan area for approximately $38.0 million in cash. The Company began operating the station under an LMA in April 2007 and the financial results since inception of the LMA have been included in the Company’s consolidated financial statements. The station has been consolidated with the existing Washington, DC operations. Subject to the necessary regulatory approvals, the Company expects to complete this acquisition in the second quarter of 2008.

In December 2006, the Company completed the acquisition of certain assets of Giant Magazine, a publishing company located in the New York City metropolitan area, for $367,000 in cash, inclusive of closing costs. The purchase price allocation consisted of approximately $1.8 million to current assets, $189,000 to property and equipment, $211,000 to definitive-lived intangibles (trade names), approximately $1.8 million to current liabilities and $14,000 to long-term debt (capital lease).

In September 2006, the Company completed the acquisition of the assets of WIFE-FM, a radio station located in the Cincinnati metropolitan area, for approximately $18.0 million in cash. In connection with the transaction, the Company also acquired the intellectual property of radio station WMOJ-FM, also in the Cincinnati market, for approximately $5.0 million in cash and changed WIFE-FM’s call sign to WMOJ-FM. The station has been consolidated with the Company’s existing Cincinnati operations. The purchase price allocation consisted of $198,000 to transmitters and towers, approximately $5.0 million to definite-lived intangibles (intellectual property) and $18.1 million to radio broadcasting licenses.

In May 2006, the Company acquired the assets of WHHL-FM (formerly WRDA-FM), a radio station located in the St. Louis metropolitan area, for approximately $20.0 million in cash. The Company began operating the station under a local marketing agreement (“LMA”) in October 2005, and the operating results since inception of the LMA have been included in the Company’s consolidated financial statements. The station has been consolidated with the existing St. Louis operations. The purchase price allocation consisted of $364,000 to definite-lived intangibles (a favorable transmitter lease), $180,000 to goodwill, $228,000 to transmitters and towers and approximately $19.3 million to radio broadcasting licenses.

In February 2005, the Company acquired 51% of the common stock of Reach Media for approximately $55.8 million in a combination of approximately $30.4 million of cash and 1,809,648 shares of the Company’s Class D common stock valued at approximately $25.4 million. Reach Media commenced operations in 2003 and was formed by Tom Joyner, Chairman, and David Kantor, Chief Executive Officer, to operate the Tom Joyner Morning Show and related businesses. Reach Media primarily derives its revenue from the sale of advertising inventory in connection with its syndication agreements. Mr. Joyner is a leading nationally syndicated radio personality. The Tom Joyner Morning Show is broadcast on 117 affiliate stations across the United States and is a top-rated morning show in many of the markets in which it is broadcast. Reach Media also operates the Tom Joyner Family Reunion and various other special event-related activities. Additionally, Reach Media operates www.BlackAmericaWeb.com, an African-American targeted internet destination, and provides programming content, which is aired on TV One, an affiliate. The purchase price allocation consisted of approximately $36.5 million to definite-lived intangibles ($19.5 million to a talent agreement, $9.2 million to intellectual property and $7.8 million to affiliate agreements), $13.7 million to deferred tax liability, $32.5 million to goodwill, and $1.3 million to other net assets.

F-10

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3.  DISPOSITION OF ASSETS AND DISCONTINUED OPERATIONS:

The Company has closed on the sale of the assets of 18 radio stations in five markets during 2007 and 2006 for approximately $138.1 million in cash, and has entered into an agreement to sell the assets of one radio station for approximately $12.3 million in cash. The assets and liabilities of these stations have been classified as discontinued operations as of December 31, 2007 and 2006, and the stations’ results of operations for the years ended December 31, 2007, 2006 and 2005 have been classified as discontinued operations in the accompanying consolidated financial statements. The Company used $131.0 million of the proceeds from these asset sales to pay down debt.

Miami Station:  In October 2007, the Company entered into an agreement to sell the assets of its radio station WMCU-AM (formerly WTPS-AM), located in the Miami metropolitan area, to Salem Communications Holding Corporation (“Salem”) for approximately $12.3 million in cash. Salem began operating the station under an LMA effective October 18, 2007. The Company’s board of directors approved the sale of WTPS-AM in September 2007. Subject to the necessary regulatory approvals, the transaction is expected to close in the second quarter of 2008.

Augusta Stations:  In December 2007, the Company closed on the sale of the assets all of its five radio stations in the Augusta metropolitan area to Perry Broadcasting Company for approximately $3.1 million in cash.

Louisville Station:  In November 2007, the Company closed on the sale of the assets of radio station WLRX-FM in the Louisville metropolitan area to WAY FM Media Group, Inc for approximately $1.0 million in cash.

Dayton and Louisville Stations:  In September 2007, the Company closed on the sale of the assets all of its five radio stations in the Dayton metropolitan area and five of its six radio stations in the Louisville metropolitan area to Main Line Broadcasting, LLC for approximately $76.0 million in cash.

Minneapolis Station:  In August 2007, the Company closed on the sale of the assets of radio station KTTB-FM in the Minneapolis metropolitan area to Northern Lights Broadcasting, LLC for approximately $28.0 million in cash.

Boston Station:  In December 2006, the Company closed on the sale of the assets of its radio station WILD-FM in the Boston metropolitan area to Entercom Boston, LLC (“Entercom”) for approximately $30.0 million in cash. Entercom began operating the station under an LMA effective August 18, 2006.

The following table summarizes the operating results for all of the stations sold or to be sold and classified as discontinued operations for all periods presented:

 

		December 31,
		2007				2006				2005
						(As Adjusted – See Note 1)
		(In thousands)
Net revenue		$	18,890			$	27,265			$	29,108
Station operating expenses			14,850				20,917				19,908
Depreciation and amortization			1,029				1,923				2,131
Impairment of intangible assets			10,395				13,354				—
Gain on sale of assets			2,183				18,628				—
(Loss) income before income taxes			(5,201	)			9,699				7,069
Provision for income taxes			2,118				5,988				2,884
(Loss) income from discontinued operations, net of tax		$	(7,319	)		$	3,711			$	4,185

The assets and liabilities of the stations sold or to be sold and classified as discontinued operations in the accompanying consolidated balance sheets consisted of the following:

		December 31,
		2007				2006
						(As Adjusted – See Note 1)
		(In thousands)
Currents assets:
Accounts receivable, net of allowance for doubtful accounts		$	688			$	3,953
Prepaid expenses and other current assets			3				876
Total current assets			691				4,829
Property and equipment, net			1,877				7,590
Intangible assets, net			8,388				117,469
Other assets			—				1,310
Total assets		$	10,956			$	131,198
Current liabilities:
Other current liabilities		$	357			$	1,740
Total current liabilities			357				1,740
Other long-term liabilities			—				825
Total liabilities		$	357			$	2,565

F-11

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4.  PROPERTY AND EQUIPMENT:

Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the related estimated useful lives. Property and equipment consists of the following:

		December 31,								Estimated
		2007				2006				Useful Lives
						(As Adjusted – See Note 1)
		(In thousands)
PROPERTY AND EQUIPMENT:
Land and improvements		$	3,278			$	3,273				—
Buildings and improvements			1,314				1,267			31 years
Transmitters and towers			31,765				28,217			7-15 years
Equipment			54,797				49,821			3-7 years
Leasehold improvements			16,780				16,390			Lease Term
Construction-in-progress			2,708				1,419				—
			110,642				100,387
Less: Accumulated depreciation and amortization			(64,429	)			(54,031	)
Property and equipment, net		$	46,213			$	46,356

For continuing operations, depreciation and amortization expense for the years ended December 31, 2007, 2006 and 2005 was approximately $10.3 million, $9.8 million, and $9.2 million, respectively. For both continuing and discontinued operations, total depreciation and amortization expense for the years ended December 31, 2007, 2006 and 2005 was approximately $11.3 million, $11.6 million and $11.3 million, respectively.

Repairs and maintenance costs are expensed as incurred.

5.  GOODWILL, RADIO BROADCASTING LICENSES AND OTHER INTANGIBLE ASSETS:

The fair value of goodwill and radio broadcasting licenses is determined on a market basis using a discounted cash flow model considering the market’s revenue, number of stations in the market, the performance of stations, the Company’s performance and estimated multiples for the sale of stations in the market. Because the assumptions used in estimating the fair value of goodwill and radio broadcasting licenses are based on current conditions, a change in market conditions or in the discount rate could have a significant effect on the estimated value of goodwill or radio broadcasting licenses. A significant decrease in the fair value of goodwill or radio broadcasting licenses in a market could result in an impairment charge. The Company performs an impairment test as of October 1st of each year, or when other conditions suggest impairment may have occurred.

During the year ended December 31, 2007, the Company recognized an approximate $420.0 million impairment charge to its radio broadcasting licenses, of which approximately $409.6 million was applicable to continuing operations, and $10.4 million was applicable to discontinued operations. For our continuing operations, the impairment charges occurred in several of our markets, predominantly Los Angeles and Houston, and to a lesser extent, our Boston, Cincinnati, Cleveland, Columbus, Dallas, and Philadelphia markets, and for discontinued operations, the impairment charges occurred in our Augusta, Minneapolis and Louisville markets. During the year ended December 31, 2006, a total impairment charge of approximately $63.3 million was recognized, $49.9 million of which was related to our Los Angeles station and $13.4 million of which was related to our Louisville market as part of discontinued operations. We believe the lower fair value of goodwill and radio broadcasting licenses that resulted in these impairment charges were primarily due to slower revenue growth for the radio industry and declining multiples for station sales.

The following table presents the changes in the carrying amount of goodwill for the years ended December 31, 2007 and 2006:

		December 31,
		2007				2006
						(As Adjusted – See Note 1)
		(In thousands)
Balance as of January 1		$	148,107			$	145,513
Acquisitions			—				180
Impairment			(1,951	)			(79	)
Purchase price allocation adjustment (See Note 2)			—				2,493
Balance as of December 31		$	146,156			$	148,107

F-12

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Other intangible assets, excluding goodwill and radio broadcasting licenses, are being amortized on a straight-line basis over various periods. Other intangible assets consist of the following:

 

		December 31,
									Period of
		2007				2006			Amortization
						(As Adjusted – See Note 1)
		(In thousands)
Trade names		$	16,850			$	16,798		2-5 Years
Talent agreement			19,549				19,549		10 Years
Debt financing costs			20,850				17,771		Term of debt
Intellectual property			14,533				14,157		4-10 Years
Affiliate agreements			7,769				7,769		1-10 Years
Favorable transmitter site and other intangibles			5,651				5,608		6-60 Years
			85,202				81,652
Less: Accumulated amortization			(39,784	)			(32,561	)
Other intangible assets, net		$	45,418			$	49,091

 

Amortization expense for the years ended December 31, 2007, 2006 and 2005 was approximately $4.9 million, $4.6 million, and $5.3 million, respectively. The amortization of deferred financing costs was charged to interest expense for all periods presented.

 

The following table presents the Company’s estimate of amortization expense for each of the five succeeding years for intangible assets, excluding deferred financing costs.

		(In thousands)
2008                                                                                                                                          & #160;		$	4,470
2009                                                                                                                                          & #160;		$	4,439
2010                                                                                                                                          & #160;		$	4,358
2011                                                                                                                                          & #160;		$	4,280
2012                                                                                                                                          & #160;		$	4,261

Future amortization expense may vary as a result of future acquisitions and dispositions.

6.  INVESTMENT IN AFFILIATED COMPANY:

In January 2004, together with an affiliate of Comcast Corporation and other investors, the Company launched TV One, an entity formed to operate a cable television network featuring lifestyle, entertainment and news-related programming targeted primarily towards African-American viewers. At that time, we committed to make a cumulative cash investment of $74.0 million in TV One, of which $60.3 million had been funded as of December 31, 2007. The initial commitment period for funding the capital was extended to June 30, 2008, due in part to TV One's lower than anticipated capital needs during the initial commitment period. In December 2004, TV One entered into a distribution agreement with DIRECTV and certain affiliates of DIRECTV became investors in TV One. As of December 31, 2007, the Company owned approximately 36% of TV One on a fully-converted basis.

The Company has recorded its investment at cost and has adjusted the carrying amount of the investment to recognize the change in the Company’s claim on the net assets of TV One resulting from operating losses of TV One as well as other capital transactions of TV One using a hypothetical liquidation at book value approach. For the years ended December 31, 2007, 2006, and 2005, the Company’s allocable share of TV One’s operating losses was approximately $11.5 million, $2.4 million and $1.8 million, respectively. The increased loss for the year ended December 31, 2007 resulted from  the higher overall losses of TV One, compared to the same period in 2006, as well as an increase in our share of TV One’s losses related to TV One’s current capital structure and the Company’s ownership levels in the equity securities of TV One that are currently absorbing its net losses. Under the hypothetical liquidation at book value approach, the increase in the Company’s claim on the change in net assets of TV One resulting from TV One’s buyback of equity from certain TV One investors, resulted in a decrease of $152,000 in additional paid-in capital of the Company for the year ended December 31, 2006, in accordance with SAB No. 51, “Accounting for Sales of Stock by a Subsidiary.”

The Company also entered into separate network services and advertising services agreements with TV One in 2003. Under the network services agreement, which expires in January 2009, the Company is providing TV One with administrative and operational support services. Under the advertising services agreement, the Company is providing a specified amount of advertising to TV One over a term of five years ending in January 2009. In consideration for providing these services, the Company has received equity in TV One and receives an annual fee of $500,000 in cash for providing services under the network services agreement.

The Company is accounting for the services provided to TV One under the advertising and network services agreements in accordance with EITF Issue No. 00-8, “Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction with Providing Goods or Services.” As services are provided to TV One, the Company is recording revenue based on the fair value of the most reliable unit of measurement in these transactions. For the advertising services agreement, the most reliable unit of measurement has been determined to be the value of underlying advertising time that is being provided to TV One. For the network services agreement, the most reliable unit of measurement has been determined to be the value of the equity received in TV One. As a result, the Company is re-measuring the fair value of the equity received in consideration of its obligations under the network services agreement in each subsequent reporting period as the services are provided. The Company recognized approximately $4.3 million, $2.9 million and $2.7 million of revenue relating to these two agreements for the years ended December 31, 2007, 2006 and 2005, respectively.

F-13

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7.  OTHER CURRENT LIABILITIES:

Other current liabilities consist of the following:

		December 31,
		2007				2006
						(As Adjusted – See Note 1)
		(In thousands)
Deferred revenue		$	3,345			$	3,136
Deferred barter revenue			2,060				2,530
Deferred contract termination credits			2,060				2,168
Deferred rent			261				795
Accrued national representative fees			692				798
Accrued miscellaneous taxes			187				364
Other			4,275				3,468
Other current liabilities		$	12,880			$	13,259

8.  DERIVATIVE INSTRUMENTS:

In June 2005, pursuant to the Credit Agreement (as defined in Note 9 —Long-Term Debt), the Company entered into four fixed rate swap agreements to reduce interest rate fluctuations on certain floating rate debt commitments. In June 2007, one of the four $25.0 million swap agreements expired. The Company accounts for the swap agreements using the mark-to-market method of accounting.

 

The swap agreements had the following terms:

Agreement	Notional Amount	Expiration	Fixed Rate
No. 1	$25.0 million	June 16, 2008	4.13%
No. 2	$25.0 million	June 16, 2010	4.27%
No. 3	$25.0 million	June 16, 2012	4.47%

Each swap agreement has been accounted for as a qualifying cash flow hedge of the Company’s senior bank term debt in accordance with SFAS No. 133, whereby changes in the fair market value are reflected as adjustments to the fair value of the derivative instruments as reflected in other assets and stockholders’ equity on the accompanying consolidated balance sheets.

Under the swap agreements, the Company pays the fixed rate listed in the table above plus a spread based on its leverage ratio (as defined in the Credit Agreement). The counterparties to the agreements pay the Company a floating interest rate based on the three-month London Interbank Offered Rate (“LIBOR”) (measurement and settlement is performed quarterly). The counterparties to these agreements are international financial institutions. The Company estimates the net fair value of these instruments as of December 31, 2007 to be a receivable of $642,000. The fair value of the interest rate swap agreements is estimated by obtaining quotations from the financial institutions, which are parties to the Company’s swap agreements. The fair value is an estimate of the net amount that the Company would receive on December 31, 2007 if the agreements were transferred to other parties or cancelled by the Company.

Costs incurred to execute the swap agreements are amortized over the term of the swap agreements. The amounts incurred by the Company, representing the effective difference between the fixed rate under the swap agreements and the variable rate on the underlying term of the debt, are included in interest expense in the accompanying consolidated statements of operations. In the event of early termination of these swap agreements, any gains or losses would be amortized over the respective lives of the underlying debt or recognized currently if the debt is terminated earlier than initially anticipated.

The Company had two swap agreements with a notional value of $150.0 million outstanding as of December 31, 2004. Those agreements were terminated when the company entered into the new bank agreement in June 2005. The Company did not incur an early termination fee. The Company recorded a $363,000 gain with the termination of the swap agreements in June 2005.

F-14

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9.  LONG-TERM DEBT:

Long-term debt consists of the following:

		December 31,
		2007				2006
		(In thousands)
87/8% senior subordinated notes		$	300,000			$	300,000
63/8% senior subordinated notes			200,000				200,000
Credit facilities			314,500				437,500
Seller financed acquisition loan			1,004				—
Capital lease obligations			—				27
Total long-term debt			815,504				937,527
Less: current portion			(26,004	)			(7,513	)
Long-term debt, net of current portion		$	789,500			$	930,014

Senior Subordinated Notes

In February 2005, the Company completed the private placement of $200.0 million 63/8% senior subordinated notes due 2013 realizing net proceeds of approximately $195.3 million. The Company recorded approximately $4.7 million in deferred financing costs, which are being amortized to interest expense over the life of the notes using the effective interest rate method. The net proceeds of the offering, in addition to borrowings of $110.0 million under the Company’s previous revolving credit facility, and available cash, were used to redeem our outstanding 61/2% Convertible Preferred Remarketable Term Income Deferrable Equity Securities (“HIGH TIDES”) in an amount of $309.8 million. In October 2005, the 63/8% senior subordinated notes were exchanged for an equal amount of notes registered under the Securities Act of 1933, as amended (“the Securities Act”).

 

Credit Facilities

In June 2005, the Company entered into a credit agreement with a syndicate of banks (the “Credit Agreement”). The Credit Agreement was amended in April 2006 and September 2007 to modify certain financial covenants and other provisions. The term of the Credit Agreement is seven years and the amount available under the Credit Agreement consists of a $500.0 million revolving facility and an initial $300.0 million term loan. Simultaneous with entering into the Credit Agreement in June 2005, the Company borrowed $437.5 million to retire all outstanding obligations under its previous credit agreement. Borrowings are subject to compliance with certain provisions of the Credit Agreement, including financial covenants. The Company may use proceeds from the credit facilities for working capital, capital expenditures made in the ordinary course of business, refinancing under certain conditions, investments and acquisitions permitted under the Credit Agreement, and other lawful corporate purposes. The Credit Agreement contains affirmative and negative covenants that the Company must comply with, including (a) maintaining an interest coverage ratio of no less than 1.60 to 1.00 through June 30, 2008, no less than 1.75 to 1.00 from July 1, 2008 to December 31, 2009, no less than 2.00 to 1.00 from January 1, 2010 through December 31, 2010, and no less than 2.25 to 1.00 from January 1, 2011 and thereafter, (b) maintaining a total leverage ratio of no greater than 7.75 to 1.00 through March 31, 2008, no greater than 7.50 to 1.00 from April 1, 2008 through September 30, 2008, no greater than 7.25 to 1.00 from October 1, 2008 through June 30, 2010, no greater than 6.50 to 1.00 from July 1, 2010 through September 30, 2011, and no greater that 6.00 to 1.00 from October 1, 2011 and thereafter, (c) limitations on liens, (d) limitations on the sale of assets, (e) limitations on the payment of dividends, and (f) limitations on mergers, as well as other customary covenants. The Company was in compliance with all debt covenants as of December 31, 2007. Based on current projections, the Company believes in 2008 it will be in compliance with all debt covenants.

For the years ended December 31, 2007 and 2006, the Company had borrowings outstanding of approximately $314.5 million and $437.5 million, respectively, at average annual interest rates of approximately 7.08% and 6.72%, respectively.

The Credit Agreement, and the indentures governing the Company’s senior subordinated notes, contain covenants that restrict, among other things, the ability of the Company to incur additional debt, purchase capital stock, make capital expenditures, make investments or other restricted payments, swap or sell assets, engage in transactions with related parties, secure non-senior debt with assets, or merge, consolidate or sell all or substantially all of its assets.

The Company’s borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its subsidiaries.

Future minimum principal payments of long-term debt as of December 31, 2007 are as follows:

		Senior Subordinated Notes				Credit Facilities				Seller Financed Loan
		(In thousands)
2008		$	—			$	25,000			$	1,004
2009			—				45,000				—
2010			—				50,000				—
2011			300,000				50,000				—
2012			—				144,500				—
2013 and thereafter			200,000				—				—
Total long-term debt		$	500,000			$	314,500			$	1,004

F-15

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10.  INCOME TAXES:

In June 2005, the state of Ohio enacted a law that will phase-out the corporation franchise tax and phase-in a commercial activity tax. The commercial activity tax is based on gross receipts. The Company has determined the likelihood of a reversal of certain temporary differences related to intangible assets within the five-year period of the phase-out is unlikely, as these temporary items have indefinite lives. Based on the law change, temporary differences (which would have created a deferred tax asset or liability) reversing after the phase-in period of the gross receipts based tax will no longer impact the Company’s income tax provision. Therefore, the Company reduced its deferred tax liability and recorded an income tax benefit of approximately $4.7 million for the year ended December 31, 2005. For year ended December 31, 2006, the Company recorded a net deferred tax liability of $948,000 based on the agreement to sell stations located in our Dayton and Louisville markets, the impact of which would be to reverse certain temporary differences. With the closing of the sales of our Dayton, Louisville, as well as Minneapolis markets, certain of those temporary differences did reverse. Any remaining deferred tax liabilities relate to temporary differences which are expected to reverse within the remaining phase-out period of the corporation franchise tax.

In May 2006, the State of Texas enacted a law that changed the current tax structure to a margin tax effective for tax years beginning January 1, 2007. This tax is calculated by deducting certain expenses from gross receipts to determine taxable income and is considered an income tax for SFAS No. 109 purposes. As of December 31, 2007, the Company has recorded a deferred tax liability of $509,000 for its difference between book and tax basis in its intangible assets in connection with the change of this law. Prior to June 2006, the Company did not previously establish any deferred tax liabilities for Texas because, historically, the Company paid a franchise tax rather than an income tax in Texas.

The Company’s purchase of 51% of the common stock of Reach Media in 2005 was a stock acquisition. Associated with this stock purchase, the Company allocated the purchase price to the related assets acquired, with the excess purchase price allocated to goodwill. For income tax purposes, in a stock purchase, the underlying assets of the acquired companies usually retain their historical tax basis. Accordingly, the Company recorded a deferred tax liability of approximately $28.3 million in 2005 related to the difference between the book and tax basis for all of the assets acquired (excluding nondeductible goodwill).

Deferred income taxes reflect the impact of temporary differences between the assets and liabilities recognized for financial reporting purposes and amounts recognized for tax purposes. Deferred taxes are based on tax laws as currently enacted.

 

A reconciliation of the statutory federal income taxes to the recorded income tax (benefit) provision for continuing operations is as follows:

		Year Ended December 31,
		2007				2006				2005
						(As Adjusted – See Note 1)
		(In thousands)
Statutory tax (@ 35% rate)		$	(139,608	)		$	(2,155	)		$	25,024
Effect of state taxes, net of federal			(15,359	)			(200	)			2,507
Effect of state rate and tax law changes			(959	)			495				(4,836	)
Permanent items, excluding impairment of intangibles and SFAS No. 123(R)			(854	)			978				1,159
Effect of equity adjustments including SFAS No. 123(R)			607				669				277
Valuation allowance			132,386				1,396				791
Effect of permanent impairment of intangibles			643				—				—
Other			112				96				257
(Benefit) provision for income taxes		$	(23,032	)		$	1,279			$	25,179

The components of the income tax (benefit) provision for continuing operations income taxes are as follows:

		Year Ended December 31,
		2007				2006				2005
		(As Adjusted - See Note 1)
		(In thousands)
Federal:
Current		$	4,194			$	4,373			$	697
Deferred			(22,297	)			(3,931	)			26,033
State:
Current			787				454				1,574
Deferred			(5,716	)			383				(3,125	)
(Benefit) provision for income taxes		$	(23,032	)		$	1,279			$	25,179

The decrease in the provision for income taxes for the year ended December 31, 2007, compared to the same period in 2006, was primarily due to an increase in pre-tax loss, offset by an increase in the valuation allowance for the year ended December 31, 2007.

F-16

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The components of the income tax provision for discontinued operations income taxes are as follows:

		Year Ended December 31,
		2007				2006				2005
						(As Adjusted – See Note 1)
		(In thousands)
Federal
Current		$	—			$	—			$	—
Deferred			105				4,830				2,369
State
Current			3,890				374				277
Deferred			(1,877	)			784				238
Provision for income taxes		$	2,118			$	5,988			$	2,884

 

The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2007 and 2006 are as follows:

		Year Ended December 31,
		2007				2006
		(In thousands)
Deferred tax assets:
Allowance for doubtful accounts		$	1,835			$	1,523
Accruals			2,149				1,624
Other			1				4
Total current tax assets before valuation allowance			3,985				3,151
Valuation allowance			(3,709	)			(48	)
Total current tax assets, net			276				3,103
Intangible assets			2,788				—
Depreciation			509				—
Stock-based compensation			2,312				1,857
Other accruals			622				938
Net operating loss carryforwards			136,780				117,886
Other			2,406				1,255
Total noncurrent deferred tax assets before valuation allowance			145,417				121,936
Valuation allowance			(130,267	)			(2,200	)
Net noncurrent deferred tax assets			15,150				119,736
Total deferred tax assets		$	15,426			$	122,839
Deferred tax liabilities:
Prepaid expenses			(118	)			(145	)
Television production costs			—				(57	)
Other			(50	)			(45	)
Total current deferred tax liabilities			(168	)			(247	)
Intangible assets			(137,187	)			(271,174	)
Depreciation			(628	)			(1,304	)
Interest expense			(355	)			(795	)
Partnership interests			(11,323	)			(11,612	)
Other			(468	)			(467	)
Total noncurrent deferred tax liabilities			(149,961	)			(285,352	)
Total deferred tax liabilities			(150,129	)			(285,599	)
Net deferred tax liabilities		$	(134,703	)		$	(162,760	)

 

The Company acquired net operating loss (“NOL”) carryforwards of approximately $1.2 million related to Reach Media in 2005 which have been fully utilized. As of December 31, 2007, the Company had gross federal and state NOL carryforward amounts of approximately $347.8 million, and 298.0 million, respectively, which have been recorded as a deferred tax asset. In addition, the Company had approximately $55.4 million in unrecognized tax benefits related to state NOLs. The NOLs begin to expire as early as 2008 for state income tax purposes, and in 2018 to 2027 for federal income tax purposes. Some of these NOLs may be subject to Internal Revenue Code Section 382 for loss limitations if there are significant changes in the stock ownership of the Company.

In assessing whether the Company will recognize a benefit from its deferred tax assets, including NOLs, management considered whether it is more likely than not that some portion of or all of the deferred tax assets would not be realized. The Company considered its historically profitable jurisdictions, its sources of future taxable income and tax planning strategies in determining the amount of valuation allowance needed. As part of this assessment, the Company also determined that it was not appropriate under generally accepted accounting principles to offset deferred tax assets against deferred tax liabilities related to indefinite-lived intangibles that cannot be scheduled to reverse in the same period. Because the deferred tax liability in this case would not reverse until some future indefinite period when the intangibles are either sold or impaired, any resulting temporary differences cannot be considered a source of future taxable income to support realization of the deferred tax assets. As a result of this assessment, and given its current total three year cumulative loss position, the uncertainty of future taxable income and the feasibility of tax planning strategies, the Company recorded a valuation allowance of approximately $134.0 million as of December 31, 2007.

F-17

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As disclosed in Note 1 — Organization and Summary of Significant Accounting Policies, we adopted the provisions of FIN No. 48 on January 1, 2007. The nature of the uncertainties pertaining to our income taxes is primarily due to various state tax positions. As of December 31, 2007, we had unrecognized tax benefits of approximately $4.5 million, of which $464,000, if recognized, would impact the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. Accordingly, during the year ended December 31, 2007, we recorded interest related to unrecognized tax benefits of $47,000, and at December 31, 2007, we had recorded a liability for accrued interest of $86,000. The Company estimates the possible change to its unrecognized tax benefits prior to December 31, 2008 would be $0 to $200,000, due to closed statutes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

		2007
		(In thousands)
Balance as of January 1		$	4,932
Additions for tax positions related to current year			71
Additions for tax position related to prior years			71
Reductions for tax positions as a result of the lapse of applicable statutes of limitations			(500	)
Settlements			(40	)
Balance as of December 31		$	4,534

 

As of December 31, 2007, the Company was not under audit in any jurisdiction for federal or state income tax purposes. However, the Company’s open tax years for federal income tax examinations include the tax years ended December 31, 2004 through 2006. For state and local purposes, the open years for tax examinations include the tax years ended December 31, 2002 through 2006.

11.  STOCKHOLDERS’ EQUITY:

Common Stock

Shareholders of Class A Common Stock are entitled to one vote per share. Shareholders of Class B Common Stock are entitled to ten votes per share. Shareholders of Class C and Class D Common Stock are not entitled to vote. 

 

Stock Repurchase Program

In May 2005, the Company’s board of directors authorized a stock repurchase program for up to $150.0 million of the Company’s Class A and Class D common stock over a period of 18 months, with the amount and timing of repurchases based on stock price, general economic and market conditions, certain restrictions contained in the Credit Agreement, the indentures governing the Company’s senior subordinated debt, and certain other factors. The repurchase program expired by its terms in November 2006.

No shares of Class A or Class D stocks were repurchased during 2007 and 2006. For the year ended December 31, 2005, 592,744 shares of Class A and 5,805,697 shares of Class D common stock were repurchased at an average price of $12.02 and $12.15, respectively, for a total of approximately $77.7 million.

    Redemption of Convertible Preferred Stock

In February 2005, the Company redeemed all of its outstanding HIGH TIDES in an amount of $309.8 million. This redemption was financed with the net proceeds of the sale of the Company’s 63/8% senior subordinated notes due 2013, borrowings under its revolving credit facility, and available cash.

Stock-based Compensation

On January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment, “using the modified prospective method, which requires measurement of compensation cost for all stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black- Scholes valuation model, which is consistent with our valuation methodologies previously used for options in footnote disclosures required under SFAS No. 123, “Accounting for Stock-Based Compensation, “as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” Such fair value is recognized as an expense over the service period, net of estimated forfeitures, using the straight-line method under SFAS No. 123(R). Estimating the number of stock awards that will ultimately vest requires judgment, and to the extent actual forfeitures differ substantially from our current estimates, amounts will be recorded as a cumulative adjustment in the period the estimated number of stock awards are revised. We consider many factors when estimating expected forfeitures, including the types of awards, employee classification and historical experience. Actual forfeitures may differ substantially from our current estimate.

In light of the accounting guidance under SFAS No. 123(R), the Company re-evaluated the assumptions used in estimating the fair value of options granted. As part of this assessment, management determined that the historical volatility of the preceding three years is a better indicator of expected volatility and future stock price trends than the historical volatility reflected since the Company conducted its initial public offering of common stock, which more closely approximates the expected life assumption used in the Company’s fair value calculations. This determination was based on analysis of:

1. implied volatility on publicly-traded options on Radio One shares;

2. implied and historical volatility of publicly-traded common stock of peer companies;

3. corporate and capital structure changes that may potentially affect future volatility; and

4. mean reversion tendencies, trends and cycles.

F-18

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In connection with its adoption of SFAS No. 123(R), the Company also examined the historical pattern of option exercises in an effort to determine if there were any discernable activity patterns based on certain option holder populations. From its analysis, the Company identified four groups. The expected lives computation is based on historical exercise patterns and post-vesting termination behavior within each of the four groups identified. The interest rate for periods within the expected life of the award is based on the United States Treasury Yield curve in effect at the time of the grant.

 

The Company granted 231,000, 62,000 and 1,634,000 stock options during the years ended December 31, 2007, 2006 and 2005, respectively. The per share weighted-average fair value of employee options granted during the years ended December 31, 2007, 2006 and 2005 was $2.77, $4.36 and $7.13, respectively, on the date of grant using the Black-Scholes Option Pricing Model with the following weighted-average assumptions:

		2007				2006				2005
Average risk-free interest rate			4.67	%			4.97	%			4.33	%
Expected dividend yield			0.00	%			0.00	%			0.00	%
Expected lives		7.4 years				7.7 years				5.0 years
Expected volatility			39.6	%			40.0	%			60.0	%

Stock Option and Restricted Stock Grant Plan

In March 2004, the Company’s board of directors voted to increase the number of shares of Class D common stock issuable under the Stock Option and Restricted Stock Grant Plan (“Plan”) to 10,816,198 and to incorporate all prior amendments into the Plan. This amendment to the Plan was approved by the Company’s stockholders in May 2004. At inception of the Plan, the Company’s board of directors authorized 1,408,099 shares of Class A common stock to be issuable under the plan. The options are exercisable in installments determined by the compensation committee of the Company’s board of directors. The options expire as determined by the committee, but no later than ten years from the date of the grant. The Company uses an average life for all option awards. The Company settles stock options upon exercise by issuing stock. As of December 31, 2007 there were 7,592,043 shares available for grant under the Company’s stock option plan.

 

Transactions and other information relating to stock options for the years ended December 31, 2007, 2006 and 2005 are summarized.

		Number of Shares to be Issued Upon Exercise of Options				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term (In Years)				Aggregate Intrinsic Value
Outstanding at December 31, 2004			6,231,000			$	15.46
Grants			1,503,000				12.78
Exercised			(132,000	)			8.25
Forfeited/cancelled/expired			(533,000	)			18.18
Outstanding at December 31, 2005			7,069,000				14.55				—				—
Grants			62,000				8.36
Exercised			(6,900	)			7.50
Forfeited/cancelled/expired			(1,248,000	)			14.97
Outstanding at December 31, 2006			5,876,100				14.49				—				—
Grants			230,800				5.54
Exercised			—				—
Forfeited/cancelled/expired			(1,671,700	)			14.50
Outstanding at December 31, 2007			4,435,200				14.05				6.19				—
Vested and expected to vest at December 31, 2007			4,122,800			$	14.05				6.19				—
Unvested at December 31, 2007			709,700			$	10.03				8.10
Exercisable at December 31, 2007			3,725,500			$	14.82				5.82				—

The aggregate intrinsic value in the table above represents the difference between the Company’s stock closing price on the last day of trading for the year ended December 31, 2007 and the exercise price, multiplied by the number of shares that would have been received by the holders of in-the-money options had all the option holders exercised their options on December 31, 2007. This amount changes based on the fair market value of the Company’s stock. Total intrinsic value of options exercised was $0 during the year ended December 31, 2007. The number of options vested during the year ended December 31, 2007 was 426,417. The weighted average option value was $8.55.  We have recorded a deferred tax asset of approximately $2.8 million, $1.9 million and $1.0 million related to the stock-based compensation expense recorded during the years ended December 31, 2007, 2006 and 2005 respectively.

As of December 31, 2007, approximately $3.8 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.2 years. The stock option weighted-average fair value per share was $5.46 at December 31, 2007.

F-19

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Transactions and other information relating to restricted stock grants for the year ended December 31, 2007 are summarized below:

		Shares				Average Fair Value at Grant Date
Unvested at December 31, 2004			71,000			$	19.62
Grants			—				—
Vested			(38,000	)			19.54
Forfeited/cancelled/expired			—				—
Unvested at December 31, 2005			33,000				19.71
Grants			—				—
Vested			(16,500	)			19.71
Forfeited/cancelled/expired			—				—
Unvested at December 31, 2006			16,500				19.71
Grants			232,200				6.20
Vested			(16,500	)			19.71
Forfeited/cancelled/expired			—				—
Unvested at December 31, 2007			232,200			$	6.20

The restricted stock grants were included in the Company’s outstanding share numbers on the effective date of grant. As of December 31, 2007, an amount of $994,000 in total unrecognized compensation cost related to restricted stock grants is expected to be recognized over the next 1.3 years.

 

12.  RELATED PARTY TRANSACTIONS:

In 2000, two officers of the Company, the now former Chief Financial Officer (“CFO”) and the Chief Administrative Officer (“CAO”) purchased shares of the Company’s common stock.  The former CFO purchased 333,334 shares of the Company’s Class A common stock and 666,666 shares of the Company’s Class D common stock and the CAO purchased 250,000 shares of the Company’s Class D common stock, respectively. In 2001, the Chief Executive Officer (“CEO”) purchased 1,500,000 shares of the Company’s Class D common stock. The stock was purchased with the proceeds of full recourse loans from the Company in the amounts of approximately $21.1 million for the CEO, $7.0 million for the former CFO and $2.0 million for the CAO.

The CEO made an interest payment on his loan in the amount of $2.0 million in December 2004. The CEO made a further repayment of approximately $17.8 million on his loan in February 2005 and repaid the remaining balance of the loan in an amount of approximately $6.0 million in March 2005. The repayment of approximately $17.8 million was effected using 1,125,000 shares of the Company’s Class D common stock owned by the CEO. All shares transferred to the Company in satisfaction of this loan have been retired.

In September 2005, the CAO repaid her loan in full. The repayment of approximately $2.5 million was effected using 174,754 shares of the Company’s Class D common stock owned by the CAO. All shares transferred to the Company in satisfaction of this loan have been retired.

Also in September 2005, the former CFO repaid a portion of his loan. The partial repayment of approximately $7.5 million was effected using 300,000 shares of the Company’s Class A common stock and 230,000 shares of the Company’s Class D common stock owned by the former CFO. All shares transferred to the Company in satisfaction of this loan have been retired. As of December 31, 2007, the remaining principal and interest balance on the former CFO’s loan was approximately $1.7 million, which includes accrued interest in the amount of $175,000. The former CFO was employed with the Company through December 31, 2007, and pursuant to an agreement with the Company, the loan becomes due in full in July 2008. Pursuant to his employment agreement, the former CFO will receive a retention bonus, in the amount of approximately $3.1 million in cash anticipated to be paid in July 2008 for having remained employed with the Company through December 31, 2007. The retention bonus is a pro rata portion of a $7.0 million retention bonus called for in his employment agreement, had he remained employed with the Company for ten years, and is based on the number of days of employment between October 18, 2005 and December 31, 2007.

As of December 31, 2007, the Company had an additional loan outstanding to the former CFO in the amount of $88,000. The loan was due on demand and accrued interest at 5.6%, totaling an amount of $53,000 as of December 31, 2007. In January 2008, the former CFO repaid the full remaining balance of the loan in cash in the amount of $140,000.

In July 2006, the former Chief Operating Officer paid $407,000 to satisfy in full a 5.6% unsecured loan issued and outstanding since 1999.

In July 2007, the Company closed on an agreement to acquire the assets of WDBZ-AM, a radio station located in the Cincinnati metropolitan area from Blue Chip Communications, Inc. (“Blue Chip”) for approximately $2.6 million in seller financing. The financing is a 5.1% interest bearing loan payable monthly through July 2008. Blue Chip is owned by L. Ross Love, a former member of the Company’s board of directors. The transaction was approved by a special committee of independent directors appointed by the board of directors. Additionally, the Company retained an independent valuation firm to provide a fair value appraisal of the station. Prior to the closing, and since August of 2001, the Company consolidated WDBZ-AM within its existing Cincinnati operations, and operated WDBZ-AM under a LMA for no annual fee, the results of which were incorporated in the Company’s financial statements.

In September 2006, the Company purchased a radio broadcasting tower and related facilities in the Detroit metropolitan area from American Signaling Corporation for $925,000 in cash. The tower serves as the transmitter site for station WDMK-FM. American Signaling Corporation is a wholly-owned subsidiary of Syndicated Communications Venture Partners II, LP. Terry L. Jones, a general partner of Syndicated Communications Venture Partners II, LP, is also a member of the Company’s board of directors. The terms of the transaction were approved by an independent committee of the Company’s board of directors. Prior to the purchase, the Company had leased space on the tower for the broadcast of WDMK-FM from American Signaling Corporation for $50,000 for the year ended December 31, 2006, and $75,000 for the same period in 2005.

F-20

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The Company’s CEO and Chairperson own a music company called Music One, Inc. (“Music One”). The Company sometimes engages in promoting the recorded music product of Music One. Based on the cross-promotional value received by Radio One, we believe that the provision of such promotion is fair to Radio One. There were no cash, trade or no-charge orders placed by Music One in 2007. As of December 31, 2007, Music One owed Radio One $30,000 for office space and administrative services provided. In 2006, Music One paid to Radio One a total of $169,000 for similar services provided during 2006 and 2005. During the years ended December 31, 2007 and 2006, Radio One paid $69,000 and $6,000, respectively, to or on behalf of Music One, primarily for market talent event appearances and travel reimbursement.

 

13.  PROFIT SHARING AND EMPLOYEE SAVINGS PLAN:

The Company maintains a profit sharing and employee savings plan under Section 401(k) of the Internal Revenue Code. This plan allows eligible employees to defer allowable portions of their compensation on a pre-tax basis through contributions to the savings plan. The Company may contribute to the plan at the discretion of its board of directors. Effective January 1, 2006, the Company began matching employee contributions to the employee savings plan. Employer contributions paid for the years ended December 31, 2007 and 2006 were approximately $1.3 million and $1.2 million, respectively.  Effective January 1, 2008, the Company has suspended the matching employer contribution indefinitely.

14.  COMMITMENTS AND CONTINGENCIES:

Radio Broadcasting Licenses

Each of the Company’s radio stations operates pursuant to one or more licenses issued by the Federal Communications Commission that have a maximum term of eight years prior to renewal. The Company’s radio broadcasting licenses expire at various times through August 1, 2014. Although the Company may apply to renew its radio broadcasting licenses, third parties may challenge the Company’s renewal applications. The Company is not aware of any facts or circumstances that would prevent the Company from having its current licenses renewed.

TV One Cable Network

Pursuant to a limited liability company agreement dated July 18, 2003, the Company and certain other investors formed TV One for the purpose of developing and distributing a new television programming service. At that time, we committed to make a cumulative cash investment of $74.0 million in TV One, of which $60.3 million had been funded as of December 31, 2007. The initial commitment period for funding the capital was extended to June 30, 2008, due in part to TV One's lower than anticipated capital needs during the initial commitment period.

Royalty Agreements

The Company has entered into fixed fee and variable share agreements with music performance rights organizations that expire as late as 2009. During the years ended December 31, 2007, 2006 and 2005, the Company incurred expenses, including discontinued operations, of approximately $13.8 million, $12.6 million, and $11.1 million, respectively, in connection with these agreements. Excluding discontinued operations, for the years ended December 31, 2007, 2006 and 2005, the Company incurred expenses, of approximately $13.0 million, $11.6 million and $10.1 million, respectively.

Leases and Other Operating Contracts and Agreements

The Company has non-cancelable operating leases for office space, studio space, broadcast towers and transmitter facilities that expire over the next 22 years. The Company’s leases for broadcast facilities generally provide for a base rent plus real estate taxes and certain operating expenses related to the leases. Certain of the Company’s leases contain renewal options, escalating payments over the life of the lease and rent concessions. Scheduled rent increases and rent concessions are being amortized over the terms of the agreements using the straight-line method, and are included in other liabilities in the accompanying consolidated balance sheet. The future rentals under non-cancelable leases as of December 31, 2007 are shown below.

The Company has other operating contracts and agreements including employment contracts, on-air talent contracts, severance obligations, retention bonuses, consulting agreements, equipment rental agreements, programming related agreements, and other general operating agreements that expire over the next seven years. The amounts the Company is obligated to pay for these agreements are shown below.

		Operating Lease Payments				Other Operating Contracts and Agreements
		(In thousands)
Year ending December 31:
2008		$	7,647			$	49,592
2009			6,703				34,561
2010			5,839				19,588
2011			5,158				21,019
2012			3,529				21,980
Thereafter			11,309				22,483
Total		$	40,185			$	169,223

Rent expense, including discontinued operations, for the years, ended December 31, 2007, 2006 and 2005 was approximately $8.3 million, $8.6 million, and $7.2 million, respectively. Rent expense, excluding discontinued operations, for the years ended December 31, 2007, 2006 and 2005 was approximately $8.0 million, $8.2 million and $6.4 million, respectively.

F-21

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Investment in Private Equity Fund

In October 2007, the Company committed (subject to the completion and execution of requisite legal documentation) to invest in QCP Capital Partners Fund, L.P. (the “Fund”), a new private equity fund with a target amount of $200.0 million, which is in the early stages of being raised. If QCP is successful in its fundraising process, the Company has committed to invest 1% of the Fund total, with a maximum investment of $2.0 million, which the Company would expect to contribute to the fund over a multi-year period, as is typical with funds of this type. Additionally, the Company will become a member of the general partner of the Fund, and become a member of QCP Capital Partners, LLC, the management company for the Fund. The Company also agreed to provide a working capital line of credit to QCP Capital Partners, LLC, in the amount of $775,000. As of December 31, 2007, the Company had provided $353,000 under the line of credit. The line of credit note is unsecured and bears interest at 7%. The final repayment of all principal and interest is due from QCP Capital Partners, LLC to the Company no later than December 31, 2009.

Other Contingencies

The Company has been named as a defendant in several legal actions occurring in the ordinary course of business.   It is management’s opinion, after consultation with its legal counsel, that the outcome of these claims will not have a material adverse effect on the Company’s financial position or results of operations.

15.  CONTRACT TERMINATION:

In 2005, the Company terminated its national sales representation agreements with Interep National Radio Sales, Inc. (“Interep”), and entered into new agreements with Katz Communications, Inc. (“Katz”), whereby Katz became the Company’s sole national sales representative. Interep had previously acted as a national sales representative for approximately half of the Company’s national advertising business, while Katz represented the remaining half. Katz paid the Company $3.4 million as an inducement to enter into the new agreements. Katz also agreed to pay Interep approximately $5.3 million to satisfy the Company’s termination obligations stemming from the previous sales representation agreements with Interep. Accordingly, the Company recorded the termination obligation of approximately $5.3 million as a one-time charge in selling, general and administrative expense for the year ended December 31, 2005. Both the $3.4 million inducement and the approximately $5.3 million termination amount are being amortized over the four-year life of the new Katz agreements as a reduction to selling, general and administrative expense. As of December 31, 2007, approximately $1.4 million of the deferred termination obligation and inducement amount is reflected in other long-term liabilities on the accompanying consolidated balance sheets, and approximately $2.1 million is reflected in other current liabilities.

As of December 31, 2007, the consolidated financial statements of the Company includes a liability for a retention bonus of approximately $3.1 million pursuant to an employment agreement with the former Chief Financial Officer (“CFO”) for remaining employed with the Company until his departure on December 31, 2007.  Currently, the Company anticipates that this amount will be paid in July 2008, is a pro rata portion of a $7.0 million retention bonus, had he remained employed with the Company for ten years, and is based on the number of days of employment between October18, 2005 and December 31, 2007.

F-22

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16.  QUARTERLY FINANCIAL DATA (UNAUDITED):

		Quarters Ended
		March 31				June 30				September 30				December 31(a)
		(As Adjusted – See Note 1)
		(In thousands, except share data)
2007:
Net revenue		$	76,480			$	85,283			$	90,428			$	78,081
Operating income (loss)			20,081				20,369				31,604				(387,647	)
Net income (loss) from continuing operations			(86	)			2,435				1,188				(383,336	)
Net income (loss) from discontinued operations			830				(8,684	)			3,613				(3,075	)
Net income (loss)			744				(6,252	)			4,801				(386,411	)
Net income (loss) from continuing operations per share — basic and diluted			0.00				0.03				0.01				(3.88	)
Net income (loss) from discontinued operations per share — basic and diluted			0.01				(0.09	)			0.04				(0.03	)
Net income (loss) per share — basic and diluted			0.01				(0.06	)			0.05				(3.91	)
Weighted average shares outstanding — basic			98,710,633				98,710,633				98,710,633				98,710,633
Weighted average shares outstanding — diluted			98,710,633				98,710,633				98,725,387				98,710,633

(a)

The net loss applicable to common stockholders for the quarter ended December 31, 2007 includes approximately $404.1 million of pre-tax impairment of intangible assets, a $132.1 million charge for valuation allowance related to deferred tax assets combined with approximately $3.1 million of losses from discontinued operations.

		Quarters Ended
		March 31				June 30				September 30				December 31(a)
		(As Adjusted – See Note 1)
		(In thousands, except share data)
2006:
Net revenue		$	76,434			$	90,568			$	91,967			$	82,271
Operating income (loss)			22,274				33,378				34,281				(21,933	)
Net income (loss) from continuing operations			2,375				6,568				6,509				(25,893	)
Net income (loss) from discontinued operations			218				1,535				1,525				433
Net income (loss)			2,593				8,103				8,034				(25,460	)
Net income (loss) from continuing operations per share — basic and diluted			0.03				0.06				0.07				(0.26	)
Net income (loss) from discontinued operations per share — basic and diluted			0.00				0.02				0.01				(0.00	)
Net income (loss) per share — basic and diluted			0.03				0.08				0.08				(0.26	)
Weighted average shares outstanding — basic			98,704,884				98,710,633				98,710,633				98,710,633
Weighted average shares outstanding — diluted			98,743,376				98,710,633				98,710,633				98,710,633

 

(a)

The net loss applicable to common stockholders for the quarter ended December 31, 2006 includes approximately $63.3 million of pre-tax impairment of long-lived assets expense, offset partially by approximately $11.1 million of income from discontinued operations, net of tax, related to the sale of WILD-FM in Boston.

 

17.  SUBSEQUENT EVENTS:

On February 20, 2008, the Company announced that Peter D. Thompson had assumed the role of Executive Vice President and Chief Financial Officer, the position vacated by Scott R. Royster on December 31, 2007.  Mr. Thompson joined the Company in October 2007 as Executive Vice President of Business Development. In that position, he focused on our business diversification strategy, including our Internet initiative and potential acquisitions.  Previously, in 2006, Mr. Thompson served the Company as a consultant with regard to strategic initiatives.  Mr. Thompson brings over 20 years of financial experience to the Company having worked as a public accountant and having spent 13 years, five of which he served as Chief Financial Officer, at Universal Music in the United Kingdom.

Subsequent to year-end, the Company’s 51% owned subsidiary, Reach Media, through its board of directors, declared and paid a common stock dividend of $8.0 million.  Of the $8.0 million, 49% or approximately $3.9 million was paid to the Reach Media minority shareholders. 

F-23

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CONSOLIDATING FINANCIAL STATEMENTS

The Company conducts a portion of its business through its subsidiaries. All of the Company’s restricted subsidiaries (Subsidiary Guarantors) have fully and unconditionally guaranteed the Company’s 87/8% senior subordinated notes due 2011, the 63/8% senior subordinated notes due 2013, and the Company’s obligations under the Credit Agreement.

Set forth below are consolidated balance sheets for the Company and the Subsidiary Guarantors as of December 31, 2007 and 2006, and related consolidated statements of operations and cash flow for each of the three years ended December 31, 2007, 2006 and 2005. The equity method of accounting has been used by the Company to report its investments in subsidiaries. Separate financial statements for the Subsidiary Guarantors are not presented based on management’s determination that they do not provide additional information that is material to investors.

F-24

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RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
As of December 31, 2007
		Combined
		Guarantor
		Subsidiaries				Radio One, Inc.				Eliminations				Consolidated
		(Unaudited)				(Unaudited)				(Unaudited)
		(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	822			$	23,425			$	-			$	24,247
Trade accounts receivable, net of allowance for doubtful accounts			25,297				27,165				-				52,462
Prepaid expenses and other current assets			2,340				4,299				-				6,639
Deferred income tax asset			2,282				12,865				-				15,147
Current assets from discontinued operations			622				69				-				691
Total current assets			31,363				67,823				-				99,186
PROPERTY AND EQUIPMENT, net			25,203				21,010				-				46,213
INTANGIBLE ASSETS, net			926,711				523,610				-				1,450,321
INVESTMENT IN SUBSIDIARIES			-				937,270				(937,270	)			-
INVESTMENT IN AFFILIATED COMPANY			-				52,782				-				52,782
OTHER ASSETS			631				8,327				-				8,958
NON-CURRENT ASSESTS FROM DISCONTINUED OPERATIONS			65				10,200				-				10,265
Total assets		$	983,973			$	1,621,022			$	(937,270	)		$	1,667,725
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	1,026			$	5,005			$	-			$	6,031
Accrued interest			-				19,004				-				19,004
Accrued compensation and related benefits			3,007				13,830				-				16,837
Income taxes payable			(1	)			4,464				-				4,463
Other current liabilities			3,447				9,433				-				12,880
Current portion of long-term debt			-				26,004				-				26,004
Current liabilities from discontinued operations			343				14				-				357
Total current liabilities			7,822				77,754				-				85,576
LONG-TERM DEBT, net of current portion			-				789,500				-				789,500
OTHER LONG-TERM LIABILITIES			1,994				3,716				-				5,710
DEFERRED INCOME TAX LIABILITY			36,887				113,063				-				149,950
NON-CURRENT LIABILITIES FROM DISCONTINUED OPERATIONS			-				-				-				-
Total liabilities			46,703				984,033				-				1,030,736
MINORITY INTEREST IN SUBSIDIARY			-				3,889				-				3,889
STOCKHOLDERS’ EQUITY:
Common stock			-				99				-				99
Accumulated comprehensive income adjustments			-				644				-				644
Stock subscriptions receivable			-				(1,717	)			-				(1,717	)
Additional paid-in capital			277,174				1,044,273				(277,174	)			1,044,273
Retained earnings (accumulated deficit)			660,096				(410,199	)			(660,096	)			(410,199	)
Total stockholders’ equity			937,270				633,100				(937,270	)			633,100
Total liabilities and stockholders’ equity		$	983,973			$	1,621,022			$	(937,270	)		$	1,667,725

 

F-25

---

RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
As of December 31, 2006
		Combined
		Guarantor
		Subsidiaries				Radio One, Inc.				Eliminations				Consolidated
		(Unaudited)				(Unaudited)				(Unaudited)
		(As Adjusted - See Note 1)
		(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	884			$	31,522			$	-			$	32,406
Trade accounts receivable, net of allowance for doubtful accounts			27,595				29,553				-				57,148
Prepaid expenses and other current assets			1,529				3,848				-				5,377
Income tax receivable			-				1,296				-				1,296
Deferred income tax asset			2,282				574				-				2,856
Current assets from discontinued operations			4,058				771				-				4,829
Total current assets			36,348				67,564				-				103,912
PROPERTY AND EQUIPMENT, net			25,890				20,466				-				46,356
INTANGIBLE ASSETS, net			1,798,448				62,341				-				1,860,789
INVESTMENT IN SUBSIDIARIES			-				1,929,896				(1,929,896	)			-
INVESTMENT IN AFFILIATED COMPANY			-				51,711				-				51,711
OTHER ASSETS			672				5,401				-				6,073
NON-CURRENT ASSESTS FROM DISCONTINUED OPERATIONS			115,208				11,161				-				126,369
Total assets		$	1,976,566			$	2,148,540			$	(1,929,896	)		$	2,195,210
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	2,395			$	7,551			$	-			$	9,946
Accrued interest			-				19,273				-				19,273
Accrued compensation and related benefits			2,610				15,501				-				18,111
Income taxes payable			-				2,465				-				2,465
Other current liabilities			1,270				11,989				-				13,259
Current portion of long-term debt			-				7,513				-				7,513
Current liabilities from discontinued operations			1,323				417				-				1,740
Total current liabilities			7,598				64,709				-				72,307
LONG-TERM DEBT, net of current portion			-				930,014				-				930,014
OTHER LONG-TERM LIABILITIES			2,088				6,113				-				8,201
DEFERRED INCOME TAX LIABILITY			36,984				128,632				-				165,616
NON-CURRENT LIABILITIES FROM DISCONTINUED OPERATIONS			-				825				-				825
Total liabilities			46,670				1,130,293				-				1,176,963
MINORITY INTEREST IN SUBSIDIARY			-				(20	)			-				(20	)
STOCKHOLDERS’ EQUITY:
Common stock			-				99				-				99
Accumulated comprehensive income adjustments			-				967				-				967
Stock subscriptions receivable			-				(1,642	)			-				(1,642	)
Additional paid-in capital			1,110,005				1,041,029				(1,110,005	)			1,041,029
Retained earnings (accumulated deficit)			819,891				(22,186	)			(819,891	)			(22,186	)
Total stockholders’ equity			1,929,896				1,018,267				(1,929,896	)			1,018,267
Total liabilities and stockholders’ equity		$	1,976,566			$	2,148,540			$	(1,929,896	)		$	2,195,210

 

F-26

---

RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2007
		Combined
		Guarantor				Radio
		Subsidiaries				One, Inc.				Eliminations				Consolidated
		(Unaudited)				(Unaudited)				(Unaudited)
		(In thousands)
NET REVENUE		$	144,036			$	186,118			$	117			$	330,271
OPERATING EXPENSES:
Programming and technical			30,840				48,044				107				78,991
Selling, general and administrative			54,991				59,477				10				114,478
Corporate selling, general and administrative			-				27,541				-				27,541
Depreciation and amortization			5,912				9,338				-				15,250
Impairment of long-lived assets			206,828				202,776				-				409,604
Total operating expenses			298,571				347,176				117				645,864
Operating loss			(154,535	)			(161,058	)			-				(315,593	)
INTEREST INCOME			-				1,242				-				1,242
INTEREST EXPENSE			1				72,769				-				72,770
EQUITY IN LOSS OF AFFILIATED COMPANY			-				11,453				-				11,453
OTHER EXPENSE, NET			(57	)			(290	)			-				(347	)
Loss before benefit from income taxes and minority interest in income of subsidiary and loss from discontinued operations, net of tax			(154,593	)			(244,328	)			-				(398,921	)
BENEFIT FROM INCOME TAXES			-				(23,032	)			-				(23,032	)
MINORITY INTEREST IN INCOME OF SUBSIDIARIES			-				3,910				-				3,910
Net loss before equity in income of subsidiaries and discontinued operations, net of tax			(154,593	)			(225,206	)			-				(379,799	)
EQUITY IN  INCOME OF SUBSIDIARIES			-				(161,065	)			161,065				-
Net loss from continuing operations			(154,593	)			(386,271	)			161,065				(379,799	)
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX			(6,472	)			(847	)			-				(7,319	)
NET LOSS		$	(161,065	)		$	(387,118	)		$	161,065			$	(387,118	)

F-27

---

RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2006
		Combined
		Guarantor				Radio
		Subsidiaries				One, Inc.				Eliminations				Consolidated
		(Unaudited)				(Unaudited)				(Unaudited)
		(As Adjusted - See Note 1)
		(In thousands)
NET REVENUE		$	153,536			$	187,517			$	187			$	341,240
OPERATING EXPENSES:
Programming and technical			27,070				46,737				142				73,949
Selling, general and administrative			52,245				54,476				45				106,766
Corporate selling, general and administrative			-				28,240				-				28,240
Depreciation and amortization			5,709				8,646				-				14,355
Impairment of long-lived assets			-				49,930				-				49,930
Total operating expenses			85,024				188,029				187				273,240
Operating lincome (loss)			68,512				(512	)			-				68,000
INTEREST INCOME			7				1,386				-				1,393
INTEREST EXPENSE			2				72,930				-				72,932
EQUITY IN LOSS OF AFFILIATED COMPANY			-				2,341				-				2,341
OTHER EXPENSE, NET			(10	)			(268	)			-				(278	)
Income (loss) before provision for income taxes and minority interest in income of subsidiary and (loss) income from discontinued operations, net of tax			68,507				(74,665	)			-				(6,158	)
PROVISON FOR INCOME TAXES			-				1,279				-				1,279
MINORITY INTEREST IN INCOME OF SUBSIDIARIES			-				3,004				-				3,004
Net income (loss) before equity in income of subsidiaries and (loss) income from discontinued operations, net of tax			68,507				(78,948	)			-				(10,441	)
EQUITY IN  INCOME OF SUBSIDIARIES			-				61,221				(61,221	)			-
Net income (loss) from continuing operations			68,507				(17,727	)			(61,221	)			(10,441	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX			(7,286	)			10,997				-				3,711
NET INCOME (LOSS)		$	61,221			$	(6,730	)		$	(61,221	)		$	(6,730	)

F-28

---

RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2005
		Combined
		Guarantor				Radio
		Subsidiaries				One, Inc.				Eliminations				Consolidated
		(Unaudited)				(Unaudited)				(Unaudited)
		(As Adjusted - See Note 1)
		(In thousands)
NET REVENUE		$	155,647			$	186,251			$	129			$	342,027
OPERATING EXPENSES:
Programming and technical			24,496				39,624				129				64,249
Selling, general and administrative			50,987				52,240				-				103,227
Corporate selling, general and administrative			-				25,070				-				25,070
Depreciation and amortization			6,205				8,254				-				14,459
Total operating expenses			81,688				125,188				129				207,005
Operating lincome			73,959				61,063				-				135,022
INTEREST INCOME			-				1,428				-				1,428
INTEREST EXPENSE			-				63,010				-				63,010
EQUITY IN LOSS OF AFFILIATED COMPANY			-				1,846				-				1,846
OTHER INCOME (EXPENSE), NET			63				(160	)			-				(97	)
Income (loss) before provision for income taxes and minority interest in income of subsidiary and income from discontinued operations, net of tax			74,022				(2,525	)			-				71,497
PROVISON FOR INCOME TAXES			-				25,179				-				25,179
MINORITY INTEREST IN INCOME OF SUBSIDIARIES			-				1,868				-				1,868
Net income (loss) before equity in income of subsidiaries and income from discontinued operations, net of tax			74,022				(29,572	)			-				44,450
EQUITY IN  INCOME OF SUBSIDIARIES			-				77,700				(77,700	)			-
Net income from continuing operations			74,022				48,128				(77,700	)			44,450
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX			3,678				507				-				4,185
NET INCOME			77,700				48,635				(77,700	)			48,635
PREFERRED STOCK DIVIDENDS			-				2,761				-				2,761
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS		$	77,000			$	45,874			$	(77,700	)		$	45,874

F-29

---

RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2007
		Combined
		Guarantor				Radio
		Subsidiaries				One, Inc.				Eliminations				Consolidated
		(Unaudited)				(Unaudited)				(Unaudited)
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)		$	(161,065	)		$	(387,118	)		$	161,065			$	(387,118	)
Adjust for net loss from discontinued operations			6,472				847				-				7,319
Net (loss) from continuing operations			(154,593	)			(386,271	)			161,065				(379,799	)
Adjustments to reconcile loss to net cash from operating activities:
Depreciation and amortization			5,912				9,338				-				15,250
Amortization of debt financing costs			-				2,241				-				2,241
Deferred income taxes			-				(28,013	)			-				(28,013	)
Impairment of long-lived assets			206,828				202,776				-				409,604
Equity in net losses of affiliated company			-				11,453				-				11,453
Minority interest in income of subsidiaries			-				3,910				-				3,910
Stock-based compensation and other non-cash compensation			1,246				1,791				-				3,037
Amortization of contract inducement and termination fee			(896	)			(913	)			-				(1,809	)
Change in interest due on stock subscription receivable			-				(75	)			-				(75	)
Effect of change in operating assets and liabilities, net of assets acquired:
Trade accounts receivable, net			1,211				3,474				-				4,685
Prepaid expenses and other current assets			(441	)			(352	)			-				(793	)
Income tax receivable			-				1,296				-				1,296
Other assets			38				286				-				324
Due to corporate/from subsidiaries			-				-				-				-
Accounts payable			(2,179	)			(1,736	)			-				(3,915	)
Accrued interest			-				(270	)			-				(270	)
Accrued compensation and related benefits			361				(1,388	)			-				(1,027	)
Income taxes payable			-				1,997				-				1,997
Other liabilities			1,288				39				-				1,327
Net cash flows from (used in) operating activities from discontinued operations			6,168				(1,577	)			-				4,591
Net cash flows from (used in) operating activities			64,943				(181,994	)			161,065				44,014
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(4,552	)			(6,083	)			-				(10,635	)
Equity investments			-				(12,590	)			-				(12,590	)
Investment in subsidiaries			-				(161,065	)			161,065				-
Proceeds from sale of assets			-				108,100				-				108,100
Deposits and payments for station purchases and other assets			-				(5,904	)			-				(5,904	)
Net cash flows used in investing activities from discontinued operations			-				(503	)			-				(503	)
Net cash flows used in investing activities			(4,552	)			(78,045	)			161,065				78,468
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt			(14	)			(124,683	)			-				(124,697	)
Proceeds from credit facility			-				-				-				-
Payment of bank financing costs			-				(3,004	)			-				(3,004	)
Payment to minority interest shareholders			-				(2,940	)			-				(2,940	)
Net cash flows used in financing activities			(14	)			(130,627	)			-				(130,641	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			60,377				(390,666	)			322,130				(8,159	)
CASH AND CASH EQUIVALENTS, beginning of period			884				31,522				-				32,406
CASH AND CASH EQUIVALENTS, end of period		$	61,261			$	(359,144	)		$	322,130			$	24,247

 

F-30

---

 

RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2006
		Combined
		Guarantor				Radio
		Subsidiaries				One, Inc.				Eliminations				Consolidated
		(Unaudited)				(Unaudited)				(Unaudited)
		(As Adjusted - See Note 1)
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	61,221			$	(6,730	)		$	(61,221	)		$	(6,730	)
Adjust for net loss (income) from discontinued operations			7,286				(10,997	)			-				(3,711	)
Net income (loss) from continuing operations			68,507				(17,727	)			(61,221	)			(10,441	)
Adjustments to reconcile loss to net cash from operating activities:
Depreciation and amortization			5,710				8,645				-				14,355
Amortization of debt financing costs			-				2,097				-				2,097
Amortization of production content			-				2,277				-				2,277
Deferred income taxes			-				2,066				-				2,066
Loss on write-down of investment			-				270				-				270
Impairment of long-lived assets			-				49,930				-				49,930
Equity in net losses of affiliated company			-				2,341				-				2,341
Minority interest in income of subsidiaries			-				3,004				-				3,004
Stock-based compensation and other non-cash compensation			1,717				4,264				-				5,981
Amortization of contract inducement and termination fee			(975	)			(1,090	)			-				(2,065	)
Change in interest due on stock subscription receivable			-				(76	)			-				(76	)
Effect of change in operating assets and liabilities, net of assets acquired:
Trade accounts receivable, net			(2,378	)			4,421				-				2,043
Prepaid expenses and other current assets			119				1,615				-				1,734
Income tax receivable			-				2,639				-				2,639
Due to corporate/from subsidiaries			(95,002	)			95,002				-				-
Accounts payable			1,536				1,002				-				2,538
Accrued interest			-				(35	)			-				(35	)
Accrued compensation and related benefits			82				(3,268	)			-				(3,186	)
Income taxes payable			-				(1,340	)			-				(1,340	)
Other liabilities			(799	)			4,086				-				3,287
Net cash used in operating activities from discontinued operations			73,162				(73,121	)			-				41
Net cash flows from operating activities			51,679				87,002				(61,221	)			77,460
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(6,421	)			(7,870	)			-				(14,291	)
Equity investments			-				(17,086	)			-				(17,086	)
Acquisitions			(44,063	)			875				-				(43,188	)
Investment in subsidiaries			-				(61,221	)			61,221				-
Proceeds from sale of assets			-				30,000				-				30,000
Deposits and payments for station purchases and other assets			(1,085	)			(44	)			-				(1,129	)
Net cash flows used in investing activities from discontinued operations			-				(533	)			-				(533	)
Net cash flows used in investing activities			(51,569	)			(55,879	)			61,221				(46,227	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt			(20	)			(48,000	)			-				(48,020	)
Proceeds from credit facility			-				33,000				-				33,000
Proceeds from exercise of stock options			-				52				-				52
Payment to minority interest shareholders			-				(2,940	)			-				(2,940	)
Net cash flows used in financing activities			(20	)			(17,888	)			-				(17,908	)
INCREASE IN CASH AND CASH EQUIVALENTS			90				13,235				-				13,325
CASH AND CASH EQUIVALENTS, beginning of period			794				18,287				-				19,081
CASH AND CASH EQUIVALENTS, end of period		$	884			$	31,522			$	-			$	32,406

 

F-31

---

RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2005
		Combined
		Guarantor				Radio
		Subsidiaries				One, Inc.				Eliminations				Consolidated
		(Unaudited)				(Unaudited)				(Unaudited)
		(As Adjusted - See Note 1)
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	77,700			$	48,635			$	(77,700	)		$	48,635
Adjust for net income from discontinued operations			(3,678	)			(507	)			-				(4,185	)
Net income from continuing operations			74,022				48,128				(77,700	)			44,450
Adjustments to reconcile loss to net cash from operating activities:
Depreciation and amortization			6,205				8,254				-				14,459
Amortization of debt financing costs			-				4,171				-				4,171
Amortization of production content			-				3,690				-				3,690
Deferred income taxes			13,151				12,364				-				25,515
Loss on write-down of investment			-				754				-				754
Equity in net losses of affiliated company			-				1,846				-				1,846
Minority interest in income of subsidiaries			-				1,868				-				1,868
Stock-based compensation and other non-cash compensation			178				2,366				-				2,544
Contract termination costs, net of amortization			2,185				2,166				-				4,351
Change in interest due on stock subscription receivable			-				(482	)			-				(482	)
Effect of change in operating assets and liabilities, net of assets acquired:
Trade accounts receivable, net			(277	)			237				-				(40	)
Prepaid expenses and other current assets			170				(6,589	)			-				(6,419	)
Income tax receivable			-				(285	)			-				(285	)
Due to corporate/from subsidiaries			(97,816	)			97,816				-				-
Accounts payable			(186	)			(5,595	)			-				(5,781	)
Accrued interest			-				5,087				-				5,087
Accrued compensation and related benefits			(155	)			(758	)			-				(913	)
Income taxes payable			-				288				-				288
Other liabilities			(756	)			1,460				-				704
Net cash flows from (used in) operating activities from discontinued operations			13,308				(7,970	)			-				5,338
Net cash flows from operating activities			10,029				168,816				(77,700	)			101,145
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(9,427	)			(4,389	)			0				(13,816	)
Equity investments			-				(271	)			0				(271	)
Acquisitions			-				(21,320	)			0				(21,320	)
Investment in subsidiaries			-				(77,700	)			77,700				-
Sale of short term investments			-				10,000				0				10,000
Deposits and payments for station purchases and other assets			-				(977	)			0				(977	)
Net cash used in investing activities from discontinued operations			-				(1,917	)			0				(1,917	)
Net cash flows used in investing activities			(9,427	)			(96,574	)			77,700				(28,301	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt			-				(455,007	)			-				(455,007	)
Proceeds from credit facility			-				587,500				-				587,500
Proceeds from debt issuances			-				195,315				-				195,315
Payment of preferred stock dividends			-				(6,959	)			-				(6,959	)
Payment of bank financing costs			-				(4,172	)			-				(4,172	)
Repurchase of common stock			-				(77,658	)			-				(77,658	)
Redemption of convertible preferred stock			-				(309,820	)			-				(309,820	)
Proceeds from exercise of stock options			-				1,003				-				1,003
Proceeds from stock subscriptions due			-				5,644				-				5,644
Net cash flows used in financing activities			-				(64,154	)			-				(64,154	)
INCREASE IN CASH AND CASH EQUIVALENTS			602				8,088				-				8,690
CASH AND CASH EQUIVALENTS, beginning of period			192				10,199				-				10,391
CASH AND CASH EQUIVALENTS, end of period		$	794			$	18,287			$	-			$	19,081

 

F-32

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RADIO ONE, INC. AND SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 2007, 2006 and 2005

Description		Balance at Beginning of Year				Additions Charged to Expense				Acquired from Acquisitions				Deductions				Balance at End of Year
		(In thousands)
Allowance for Doubtful Accounts:
2007		$	3,901			$	1,704			$	—			$	3,443			$	2,162
2006			3,197				2,667				23				1,986				3,901
2005			4,193				3,054				—				4,050				3,197

Description		Balance at Beginning of Year				Additions Charged to Expense				Acquired from Acquisitions				Deductions				Balance at End of Year
		(In thousands)
Valuation Allowance for Deferred Income Tax Assets:
2007		$	2,248			$	132,085			$	—			$	356	(1)		$	133,977
2006			791				1,457				—				—				2,248
2005			—				791				—				—				791

(1)	Relates to a change to the valuation allowance for deferred income tax assets pertaining to interest rate swaps charged to accumulated other comprehensive income instead of provision for income taxes.

 

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