URBAN ONE, INC. - Quarter Report: 2006 September (Form 10-Q)

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

Commission File No. 0-25969

RADIO ONE, INC.

(Exact name of registrant as specified in its charter)


Delaware		52-1166660
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5900 Princess Garden Parkway,
7th Floor
Lanham, Maryland 20706
(Address of principal executive offices)

(301) 306-1111
Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class	Outstanding at November 3, 2006

Class A Common Stock, $.001 Par Value		6,362,460
Class B Common Stock, $.001 Par Value		2,867,463
Class C Common Stock, $.001 Par Value		3,132,458
Class D Common Stock, $.001 Par Value		86,348,252

TABLE OF CONTENTS


			Page

PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2006 and 2005 (Unaudited)		3
		Consolidated Balance Sheets as of September 30, 2006 (Unaudited) and December 31, 2005		4
		Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2006 (Unaudited)		5
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005 (Unaudited)		6
		Notes to Consolidated Financial Statements (Unaudited)		7
		Consolidating Financial Statements		20
		Consolidating Statement of Income for the Three Months Ended September 30, 2006 (Unaudited)		21
		Consolidating Statement of Income for the Three Months Ended September 30, 2005 (Unaudited)		22
		Consolidating Statement of Income for the Nine Months Ended September 30, 2006 (Unaudited)		23
		Consolidating Statement of Income for the Nine Months Ended September 30, 2005 (Unaudited)		24
		Consolidating Balance Sheet as of September 30, 2006 (Unaudited)		25
		Consolidating Balance Sheet as of December 31, 2005 (Unaudited)		26
		Consolidating Statement of Cash Flows for the Nine Months Ended September 30, 2006 (Unaudited)		27
		Consolidating Statement of Cash Flows for the Nine Months Ended September 30, 2005 (Unaudited)		28
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
	Item 3	Quantitative and Qualitative Disclosures About Market Risk		44
	Item 4.	Controls and Procedures		44

PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings		45
	Item 1A.	Risk Factors		46
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		46
	Item 3.	Defaults Upon Senior Securities		46
	Item 4.	Submission of Matters to a Vote of Security Holders		46
	Item 5.	Other Information		46
	Item 6.	Exhibits		46
		SIGNATURES		47

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended September 30,					Nine Months Ended September 30,
	2006			2005		2006			2005
	(Unaudited)					(Unaudited)
	(In thousands, except share data)

NET BROADCAST REVENUE	$	99,058		$	100,749	$	277,853		$	278,106

OPERATING EXPENSES:
Programming and technical		20,430			16,952		59,874			50,050
Selling, general and administrative		30,079			36,457		87,157			87,908
Corporate selling, general and administrative		7,345			6,155		20,989			17,479
Stock-based compensation⁽¹⁾		1,542			—		4,626			—
Depreciation and amortization		3,741			3,063		11,770			9,472

Total operating expenses		63,137			62,627		184,416			164,909

Operating income		35,921			38,122		93,437			113,197
INTEREST INCOME		493			162		1,034			906
INTEREST EXPENSE		18,733			16,431		54,079			46,100
EQUITY IN LOSS OF AFFILIATED COMPANY		635			442		1,569			1,205
OTHER (EXPENSE) INCOME, net		(4	)		—		(269	)		123

Income before provision for income taxes, minority interest in income of subsidiaries and discontinued operations		17,042			21,411		38,554			66,921
PROVISION FOR INCOME TAXES		8,056			8,808		17,766			23,955
MINORITY INTEREST IN INCOME OF SUBSIDIARIES		882			1,089		1,920			1,714

Net income from continuing operations		8,104			11,514		18,868			41,252
LOSS FROM DISCONTINUED OPERATIONS, net of tax		70			48		137			254

Net income		8,034			11,466		18,731			40,998
PREFERRED STOCK DIVIDENDS		—			—		—			2,761

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS	$	8,034		$	11,466	$	18,731		$	38,237

BASIC AND DILUTED NET INCOME PER COMMON SHARE	$	0.08		$	0.11	$	0.19		$	0.36

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		98,710,633			103,709,135		98,708,819			105,535,683

Diluted		98,710,633			103,902,536		98,712,378			105,711,453


⁽¹⁾ Composition of stock-based compensation:
Programming and technical	$	204	$	—	$	635	$	—
Selling, general and administrative		747		—		2,219		—
Corporate selling, general and administrative		591		—		1,772		—

Total stock-based compensation	$	1,542	$	—	$	4,626	$	—

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

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	September 30,			December 31,
	2006			2005
	(Unaudited)
	(In thousands, except
	share data)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	16,923		$	19,081
Trade accounts receivable, net of allowance for doubtful accounts of $3,910 and $3,190, respectively		68,812			62,723
Prepaid expenses and other current assets		5,301			5,220
Income tax receivable		1,280			3,935
Deferred income tax asset		2,150			1,906
Current assets from discontinued operations		456			705

Total current assets		94,922			93,570
PROPERTY AND EQUIPMENT, net		51,996			48,317
GOODWILL		165,260			162,588
RADIO BROADCASTING LICENSES		1,826,127			1,788,643
OTHER INTANGIBLE ASSETS, net		50,735			53,644
INVESTMENT IN AFFILIATED COMPANY		46,407			37,362
OTHER ASSETS		7,117			6,527
NON-CURRENT ASSETS FROM DISCONTINUED OPERATIONS		11,120			10,729

Total assets	$	2,253,684		$	2,201,380


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	5,083		$	3,113
Accrued interest		9,523			19,308
Accrued compensation and related benefits		19,558			20,755
Income taxes payable		3,447			3,805
Other current liabilities		13,018			8,615
Current portion of long-term debt		3,750			8
Current liabilities from discontinued operations		131			237

Total current liabilities		54,510			55,841
LONG-TERM DEBT, net of current portion		969,750			952,512
OTHER LONG-TERM LIABILITIES		6,659			6,316
DEFERRED INCOME TAX LIABILITY		174,828			161,923
NON-CURRENT LIABILITIES FROM DISCONTINUED OPERATIONS		1,391			1,391

Total liabilities		1,207,138			1,177,983

MINORITY INTEREST IN SUBSIDIARIES		1,836			2,856
STOCKHOLDERS’ EQUITY:
Convertible preferred stock, $.001 par value, 1,000,000 shares authorized; no shares outstanding at September 30, 2006 and December 31, 2005		—			—
Common stock — Class A, $.001 par value, 30,000,000 shares authorized; 6,533,168 and 11,943,604 shares issued and outstanding as of September 30, 2006 and December 31, 2005, respectively		7			12
Common stock — Class B, $.001 par value, 150,000,000 shares authorized; 2,867,463 shares issued and outstanding		3			3
Common stock — Class C, $.001 par value, 150,000,000 shares authorized; 3,132,458 shares issued and outstanding		3			3
Common stock — Class D, $.001 par value, 150,000,000 shares authorized; 86,177,544 and 80,760,209 shares issued and outstanding as of September 30, 2006 and December 31, 2005, respectively		86			81
Accumulated other comprehensive income		1,045			958
Stock subscriptions receivable		(1,622	)		(1,566	)
Additional paid-in capital		1,031,836			1,026,429
Retained earnings (accumulated deficit)		13,352			(5,379	)

Total stockholders’ equity		1,044,710			1,020,541

Total liabilities and stockholders’ equity	$	2,253,684		$	2,201,380

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

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)


														Accumulated								Retained
	Convertible		Common			Common		Common		Common				Other		Stock			Additional			Earnings			Total
	Preferred		Stock			Stock		Stock		Stock		Comprehensive		Comprehensive		Subscriptions			Paid-In			(Accumulated			Stockholders’
	Stock		Class A			Class B		Class C		Class D		Income		Income		Receivable			Capital			Deficit)			Equity
	(In thousands, except share data)

BALANCE, as of December 31, 2005	$	—	$	12		$	3	$	3	$	81			$	958	$	(1,566	)	$	1,026,429		$	(5,379	)	$	1,020,541
Comprehensive income:
Net income		—		—			—		—		—	$	18,731		—		—			—			18,731			18,731
Change in unrealized income on derivative and hedging activities, net of taxes		—		—			—		—		—		87		87		—			—			—			87

Comprehensive income												$	18,818

Adjustment of basis for investment in affiliated company		—		—			—		—		—				—		—			792			—			792
Vesting of non-employee restricted stock		—		—			—		—		—				—		—			(63	)		—			(63	)
Stock-based compensation expense		—		—			—		—		—				—		—			4,626			—			4,626
Interest income on stock subscriptions receivable		—		—			—		—		—				—		(56	)		—			—			(56	)
Conversion of 5,410,436 shares of Class A common stock into 5,410,436 shares of Class D common stock		—		(5	)		—		—		5				—		—			—			—			—
Employee exercise of options for 6,899 shares		—		—			—		—		—				—		—			52			—			52

BALANCE, as of September 30, 2006	$	—	$	7		$	3	$	3	$	86			$	1,045	$	(1,622	)	$	1,031,836		$	13,352		$	1,044,710

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

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended
	September 30,
	2006			2005
	(Unaudited)
	(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	18,731		$	40,998
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		11,770			9,731
Amortization of debt financing costs		1,580			3,660
Amortization of production content		2,518			—
Deferred income taxes		13,918			22,676
Write-down of investment		270			—
Equity in loss of affiliated company		1,569			1,205
Minority interest in income of subsidiaries		1,920			1,714
Stock-based and other non-cash compensation		5,404			1,452
Contract termination fee		—			5,271
Amortization of contract inducement and termination fee		(1,626	)		(109	)
Effect of change in operating assets and liabilities, net of assets acquired:
Trade accounts receivable		(6,089	)		(6,591	)
Prepaid expenses and other assets		(1,009	)		(480	)
Income tax receivable		2,655			—
Accounts payable		1,970			(4,402	)
Accrued interest		(9,785	)		(4,925	)
Accrued compensation and related benefits		(2,038	)		(480	)
Income taxes payable		(358	)		563
Other liabilities		3,248			(2,616	)
Net cash used in operating activities from discontinued operations		(248	)		(366	)

Net cash flows from operating activities		44,400			67,301

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment		(10,214	)		(11,554	)
Equity investments		(9,743	)		(125	)
Acquisitions of station and broadcasting assets, net of cash acquired		(43,954	)		(21,320	)
Purchase of other intangible assets		(683	)		(874	)
Sale of short term investments		—			10,000
Net cash used in investing activities from discontinued operations		—			(1,144	)

Net cash flows used in investing activities		(64,594	)		(25,017	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility		33,000			587,500
Repayment of credit facility		(12,000	)		—
Repayment of debt		(20	)		(455,006	)
Proceeds from exercise of stock options		52			963
Change in interest due on stock subscriptions receivable		(56	)		(464	)
Payment to minority interest shareholders		(2,940	)		—
Payment of preferred stock dividends		—			(6,966	)
Proceeds from debt issuances, net of offering costs		—			195,177
Redemption of convertible preferred stock		—			(309,820	)
Proceeds from stock subscriptions due		—			5,962
Payment of bank financing costs		—			(4,172	)
Repurchase of common stock		—			(41,222	)

Net cash flows from (used in) financing activities		18,036			(28,048	)

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(2,158	)		14,236
CASH AND CASH EQUIVALENTS, beginning of period		19,081			10,391

CASH AND CASH EQUIVALENTS, end of period	$	16,923		$	24,627

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	63,103		$	51,025

Income taxes	$	4,821		$	1,129

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

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:


*(a)*	*Interim Financial Statements*

The interim consolidated financial statements included herein for Radio One, Inc. (a Delaware corporation referred to as “Radio One”) and subsidiaries (collectively the “Company”) have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, the interim financial data presented herein include all adjustments (which include only normal recurring adjustments) necessary for a fair presentation. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations.

Results for interim periods are not necessarily indicative of results to be expected for the full year. This form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s 2005 Annual Report on Form 10-K.

Certain reclassifications have been made to prior period amounts to conform to the current period presentation.


*(b)*	*Financial Instruments*

Financial instruments as of September 30, 2006 and December 31, 2005 consisted of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, long-term debt and subscriptions receivable. The carrying amounts approximated fair value for each of these financial instruments as of September 30, 2006 and December 31, 2005, except for the Company’s outstanding senior subordinated notes. The 87/8% senior subordinated notes had a fair value of approximately $307.5 million and $316.9 million as of September 30, 2006 and December 31, 2005, respectively. The 63/8% senior subordinated notes had a fair value of approximately $183.5 million and $194.5 million as of September 30, 2006 and December 31, 2005, respectively. The fair value was determined based on the fair market value of similar instruments.


*(c)*	*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 calculated 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 $12.0 million and $13.1 million during the three months ended September 30, 2006 and 2005, respectively. Agency and outside sales representative commissions were approximately $33.6 million and $36.0 million during the nine months ended September 30, 2006 and 2005, respectively.


*(d)*	*Barter Transactions*

The Company provides broadcast advertising time in exchange for programming content and certain services. The terms of the 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 revenues 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 three months ended September 30, 2006 and 2005, barter transactions reflected in net broadcast revenue, programming and technical expenses and selling, general and administrative expenses were approximately $1.2 million and $0, $1.1 million and $0 and $76,000 and $0, respectively. Net broadcast revenue, programming and technical expenses and selling,

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

general and administrative expenses related to barter transactions for the nine months ended September 30, 2006 and 2005 were approximately $1.4 million and $0, $1.2 million and $0 and $151,000 and $0, respectively.


*(e)*	*Stock-Based Compensation*

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“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 results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period the estimates 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 estimates. See Note 9 — Stockholders’ Equity.

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 Emerging Issues Task Force (“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 net operating 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 nine months ended September 30, 2006.


*(f)*	*Comprehensive Income*

The Company’s comprehensive income consists of net 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 income consists of gains on derivative instruments that qualify for cash flow hedge treatment.

The following table sets forth the components of comprehensive income:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2006			2005		2006		2005
	(In thousands)					(In thousands)

Net income	$	8,034		$	11,466	$	18,731	$	40,998
Other comprehensive (loss) income (net of tax benefit of $721, tax provision of $260, tax provision of $214 and tax provision of $732, respectively):
Derivative and hedging activities		(913	)		1,108		87		671

Comprehensive income	$	7,121		$	12,574	$	18,818	$	41,669

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


*(g)*	*Net Income Applicable to Common Stockholders*

Net income applicable to common stockholders for the nine months ended September 30, 2005 is net income less dividends on the Company’s preferred stock of approximately $2.8 million.


*(h)*	*Impact of Recently Issued Accounting Pronouncements*

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — Interpretation of SFAS No. 109,” which clarifies the accounting for uncertainty in income taxes. 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 and disclosure. The provisions of FIN No. 48 are 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 is currently evaluating the impact of adopting FIN No. 48 on its financial statements.


2.	ACQUISITIONS:

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 $18.2 million in cash. In February 2006, the Company made a deposit of $2.0 million related to the acquisition and applied the deposit to the approximately $18.2 million acquisition cost. 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 Company’s preliminary purchase price allocation consisted of $400,000 to transmitters and towers and approximately $5.0 million to definite-lived intangibles (intellectual property) and $17.7 million to radio broadcasting licenses on the Company’s consolidated balance sheet as of September 30, 2006.

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 financial results since inception of the LMA have been included in the Company’s financial statements. The station has been consolidated with the Company’s existing St. Louis operations. The Company’s preliminary purchase price allocation consisted of $364,000 to definite-lived intangibles (a favorable transmitter lease), $179,000 to goodwill, $228,000 to transmitters and towers, and approximately $19.3 million to radio broadcasting licenses on the Company’s consolidated balance sheet as of September 30, 2006.

In February 2005, the Company acquired 51% of the common stock of Reach Media, Inc. (“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. The final purchase price allocation was completed during the quarter ended March 31, 2006. The 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.


3.	DISCONTINUED OPERATIONS:

In August 2006, the Company entered into an agreement to sell radio station WILD-FM in the Boston metropolitan area to Entercom Boston, LLC (“Entercom”) for approximately $30.0 million in cash. Entercom

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

began operating the station under an LMA effective August 18, 2006. The assets and liabilities of WILD-FM have been classified as held for sale and reflected as discontinued operations as of September 30, 2006 and December 31, 2005 and its results of operations for the three and nine month periods ended September 30, 2006 and 2005 have been reflected as discontinued operations in the accompanying consolidated financial statements.

The following table summarizes certain operating results for WILD-FM for all periods presented:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
	(In thousands)				(In thousands)

Net broadcast revenue	$	369	$	643	$	1,491	$	1,820
Station operating expenses, excluding stock-based compensation		395		706		1,441		1,931
Depreciation		90		51		275		259
Loss before income taxes		116		114		225		370
Benefit for income taxes		46		66		88		116

The assets and liabilities of WILD-FM are classified as discontinued operations in the accompanying consolidated balance sheets as follows:


	September 30,		December 31,
	2006		2005
	(In thousands)

Current Assets:
Trade accounts receivable, net of allowance	$	183	$	374
Prepaid expenses and other current assets		259		317
Deferred income tax assets		14		14

Total current assets		456		705
Property and equipment, net		1,939		2,124
Goodwill and radio broadcasting licenses		9,181		8,605

Total assets	$	11,576	$	11,434

Current Liabilities:
Other current liabilities	$	131	$	237

Total current liabilities		131		237
Deferred income tax liability		1,391		1,391

Total liabilities	$	1,522	$	1,628


4.	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, the number of stations, the performance of the 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 an impairment may have occurred.

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents the changes in the carrying amount of goodwill:


	2006
	(In thousands)

Balance as of January 1	$	162,588
Acquisitions (see Note 2)		179
Purchase price allocation adjustment (see Note 2)		2,493

Balance as of September 30	$	165,260

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:


	September 30,			December 31,			Period of
	2006			2005			Amortization
	(In thousands)

Trade names	$	26,352		$	26,333		2-5 Years
Talent agreements		19,549			24,788		10 Years
Debt financing costs		17,771			17,224		Term of debt
Intellectual property		14,157			9,692		10 Years
Affiliate agreements		7,769			5,959		1-10 Years
Favorable transmitter leases and other intangibles		5,671			5,272		6-60 Years

		91,269			89,268
Less: Accumulated amortization		(40,534	)		(35,624	)

Other intangible assets, net	$	50,735		$	53,644

Amortization expense of intangible assets for the nine months ended September 30, 2006 and for the year ended December 31, 2005 was approximately $3.3 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)

2006	$	4,863
2007		4,708
2008		4,197
2009		4,096
2010		4,016

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


5.	INVESTMENT IN AFFILIATED COMPANY:

In July 2003, the Company entered into a joint venture agreement with an affiliate of Comcast Corporation and other investors to create TV One, LLC (“TV One”), an entity formed to operate a cable television network featuring lifestyle, entertainment and news-related programming targeted primarily towards African-American viewers. The Company has committed to make a cumulative cash investment of approximately $74.0 million in TV One over approximately four years, of which the Company has funded approximately $45.7 million as of September 30, 2006. As of September 30, 2006, the Company owned approximately 36% of TV One on a fully-converted basis.

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company has recorded its investment in TV One 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 losses of TV One as well as other capital transactions of TV One using a hypothetical liquidation at book value approach. For the three and nine months ended September 30, 2006, the Company’s allocable share of TV One’s losses was $635,000 and approximately $1.6 million, respectively. 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 $178,000 and an increase of $792,000 in additional paid-in capital of the Company for the three and nine months ended September 30, 2006, respectively, 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, this has been determined to be the value of underlying advertising time that is being provided to TV One. For the network services agreement, this 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 $582,000 and $399,000 of revenue relating to these two agreements for the three months ended September 30, 2006 and 2005, respectively. The Company recognized approximately $1.4 million and $1.7 million of revenue relating to these two agreements for the nine months ended September 30, 2006 and 2005, respectively.


6.	DERIVATIVE INSTRUMENTS:

In June 2005, pursuant to the Credit Agreement (as defined below), the Company entered into four fixed rate swap agreements to reduce interest rate fluctuations on certain floating rate debt commitments. 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, 2007

4.08

No. 2

25.0 million

June 16, 2008

4.13

No. 3

25.0 million

June 16, 2010

4.27

No. 4

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 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.

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company estimates the net fair value of these instruments as of September 30, 2006 to be a receivable of approximately $1.9 million. The fair value of the interest swap agreements is estimated by obtaining quotations from the financial institutions that are parties to the Company’s swap agreements. The fair value is an estimate of the net amount that the Company would receive on September 30, 2006, if the agreements were transferred to other parties or cancelled by the Company.

Costs incurred to execute the swap agreements are deferred and 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 income. 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.


7.	LONG-TERM DEBT:

Long-term debt consists of the following:


	September 30,		December 31,
	2006		2005
	(In thousands)

87/8% senior subordinated notes	$	300,000	$	300,000
63/8% senior subordinated notes		200,000		200,000
Credit facilities		473,500		452,500
Capital lease obligations		—		20

Total long-term debt		973,500		952,520
Less: current portion		3,750		8

Long term debt, net of current portion	$	969,750	$	952,512

Senior Subordinated Notes

In February 2005, the Company completed the private placement of $200.0 million of 63/8% senior subordinated notes due 2013 realizing net proceeds of approximately $195.3 million. The Company recorded approximately $4.7 million in deferred offering 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 its 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 new credit agreement with a syndicate of banks (the “Credit Agreement”). The agreement was amended in April 2006 to modify certain financial covenants. The term of the Credit Agreement is seven years and the total amount available under the Credit Agreement is $800.0 million, consisting of a $500.0 million revolving facility and a $300.0 million term loan facility. Borrowings under the credit facilities are subject to compliance with certain provisions of the Credit Agreement, including but not limited to, financial covenants. The Company may use proceeds from the credit facilities for working capital, capital expenditures made in the ordinary course of business, its common stock repurchase program, direct and indirect investments 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

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

interest coverage ratio of no less than 1.90 to 1.00 from January 1, 2006 to December 31, 2007, and no less than 2.25 to 1.00 from January 1, 2008 to December 31, 2008, and no less than 2.50 to 1.00, January 1, 2009 and thereafter, (b) maintaining a total leverage ratio of no greater than 6.50 to 1.00 from January 1, 2006 to March 31, 2006, and no greater than 7.00 to 1.00 beginning April 1, 2006 to December 31, 2007, and no greater than 6.00 to 1.00 beginning January 1, 2008 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. 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, dated as of July 17, 2000.

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 September 30, 2006 are as follows:


	Senior
	Subordinated		Credit
	Notes		Facilities
	(In thousands)

October — December, 2006	$	—	$	—
2007		—		7,500
2008		—		37,500
2009		—		67,500
2010		—		75,000
2011 and thereafter		500,000		286,000

Total long-term debt	$	500,000	$	473,500


8.	INCOME TAXES:

The effective tax rate for the nine month period ended September 30, 2006 was 46.1%. This rate is higher than the projected annual effective tax rate due to the tax impact of discrete items during the nine months ended September 30, 2006. These items include the current year benefit of the reversal of state tax reserves due to expired statutes, the State of Ohio’s phase-out of the corporation franchise tax and the phase-in of a commercial activity tax (discussed below). This was offset by unfavorable tax law changes in Kentucky and Texas (discussed below) and the increase of the valuation allowance for charitable contribution carryforwards. As of September 30, 2006, the Company’s annual effective tax rate, exclusive of discrete items, is projected at 44.2%, which reflects the permanent differences between income for book versus tax purposes and the impact of the adoption of SFAS No. 123(R).

As previously noted, the Company adopted SFAS No. 123(R) as of January 1, 2006 and incorporated the tax impact into its effective tax rate above. This has increased the expected effective tax rate for 2006 due to the unfavorable tax treatment of the Company’s book compensation expense for incentive stock options.

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 over a five-year period. The new commercial activity tax is based on gross receipts, and is not considered an income tax for SFAS No. 109, “Accounting for Income Taxes” purposes. In 2005, based on the enacted law, the Company determined that the likelihood of a reversal of the deferred tax liabilities related to

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

intangible assets within the five-year period of the phase-out was unlikely. In 2006, the remaining Ohio deferred tax balances have been adjusted to reflect the impact of the 2006 phase-in of the new tax law. The new tax law resulted in a tax benefit of $133,000 for the nine month period ended September 30, 2006. Further, the Company expects a benefit to its effective tax rate related to the current year tax amortization of the Ohio intangibles since no deferred tax liabilities will be created related to this amortization. It is expected that no additional deferred tax liability will result from the amortization of these intangibles during the remaining portion of the five-year phase-out period.

In May 2006, the State of Texas enacted a law that will change 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. During the quarter ended June 30, 2006, the Company recorded a deferred tax liability for its difference between book and tax basis in its intangible assets as a result of the change in the law. The Company did not previously establish any deferred tax liabilities for Texas tax law purposes because, historically, the Company paid a franchise tax to Texas.


9.	STOCKHOLDERS’ EQUITY:

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 to be 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 does not obligate the Company to repurchase any of its common stock and may be discontinued or suspended at any time.

The Company did not repurchase any of its common stock during the nine months ended September 30, 2006.

Stock Option and Restricted Stock Grant Plan

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R) using the modified prospective transition method and therefore has not restated prior periods’ results. Under this transition method, stock-based compensation expense during the three and nine months ended September 30, 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 three and nine months ended September 30, 2006 based on its historical experience during the preceding three years.

As a result of adopting SFAS No. 123(R), the impact to the Company’s consolidated financial statements for the three and nine months ended September 30, 2006 for net income was approximately $1.5 million and $4.6 million, respectively, lower than if it had continued to account for stock-based compensation under APB No. 25. The impact on both basic and diluted income per share for the three and nine months ended September 30, 2006 was $0.02 and $0.05 per share, respectively.

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The pro forma table below reflects net income and basic and diluted net income per share for the three and nine months ended September 30, 2005, had the Company applied the fair value recognition provisions of SFAS No. 123, as follows:


	Three Months			Nine Months
	Ended			Ended
	September 30, 2005			September 30, 2005
	(In thousands, except per
	share amounts)

Net income applicable to common stockholders, as reported	$	11,466		$	38,237
Add: Stock-based compensation included in reported net income, net of related tax effects		7			50
Less: Stock-based compensation expense determined under the fair-value-based method for all awards, net of related tax effects		(5,479	)		(14,968	)

Pro forma net income	$	5,994		$	23,319

Basic and diluted net income per share:
As reported	$	0.11		$	0.36
Pro forma	$	0.06		$	0.22

In light of new accounting guidance under SFAS No. 123(R), the Company reevaluated 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. 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.

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 discernible 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 grant.

The Company granted 0 and 46,000 stock options during the three months ended September 30, 2006 and 2005, respectively. The per share weighted-average fair values of options granted during the three months ended September 30, 2005 was $6.96, on the date of grant. The Company granted 42,500 and 1,473,500 stock options during the nine months ended September 30, 2006 and 2005, respectively. The per share weighted-average fair values of options granted during the nine months ended September 30, 2006 and 2005 were $4.66 and $7.16,

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

respectively, on the date of grant. These fair values were derived using the Black-Scholes Option Pricing model with the following weighted-average assumptions.


	For the Three Months
	Ended September 30,					For the Nine Months Ended September 30,
	2006		2005			2006			2005

Average risk-free interest rate		—		4.13	%		4.82	%		4.13	%
Expected dividend yield		—		0.00	%		0.00	%		0.00	%
Expected lives		—		5 years			7.7 years			5 years
Expected volatility		—		61	%		40	%		61	%

Transactions and other information relating to the stock options for the period ended September 30, 2006 are summarized below:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term		Value
				(In years)

Balance as of December 31, 2005		7,121,000		$	14.65
Granted		42,500			8.87
Exercised		(6,900	)		7.94
Forfeited, Cancelled, Expired		(184,000	)		15.78

Balance as of September 30, 2006		6,972,600		$	14.59		6.98		—
Vested and expected to vest as of September 30, 2006		6,448,000		$	14.59		6.98		—
Unvested as of September 30, 2006		1,737,000		$	14.37		8.25		—
Exercisable as of September 30, 2006		5,235,000		$	14.65		6.52		—

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing price on the last day of trading during the three months ended September 30, 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the option holders exercised their options on September 30, 2006. This amount changes based on the fair market value of the Company’s stock. Total intrinsic value of options exercised was $0 and $3,000 during the three months and nine months ended September 30, 2006, respectively. The number of options vested during the three and nine months ended September 30, 2006 was 9,584 and 348,790, respectively.

As of September 30, 2006, approximately $8.9 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of three years. The stock option weighted-average fair value per share was $7.89 at September 30, 2006.

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Transactions and other information relating to restricted stock grants for the period ended September 30, 2006 are summarized below:


				Weighted
	Number of			Average
	Restricted			Fair Value at
	Shares(1)			Grant Date

Balance as of December 31, 2005		71,000		$	19.69
Granted		—			—
Exercised		(38,000	)		19.67
Forfeited, Cancelled, Expired		—			—

Balance as of September 30, 2006		33,000		$	19.71

Vested as of September 30, 2006		—			—
Unvested as of September 30, 2006		33,000		$	19.71


(1)		The restricted stock grants were included in the Company’s outstanding share numbers on the effective date of grant. Additional shares were not issued and will not be issued upon exercise.

As of September 30, 2006, $30,000 of total unrecognized compensation cost related to restricted stock grants is expected to be recognized over a weighted-average period of two years.


10.	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. Contributions paid for the three months ended September 30, 2006 were $188,000. Contributions paid for the nine months ended September 30, 2006 were $823,000.


11.	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 June 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. The Company has committed to make a cumulative cash investment of approximately $74.0 million in TV One over approximately four years. As of September 30, 2006, the Company has already funded approximately $45.7 million under this agreement.

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 three months ended September 30, 2006 and 2005, the

RADIO ONE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company incurred expenses of approximately $3.2 million and $2.8 million, respectively, in connection with these agreements. During the nine months ended September 30, 2006 and 2005, the Company incurred expenses of approximately $9.5 million and $8.2 million, respectively, in connection with these agreements.

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, results of operations or liquidity.


12.	CONTRACT TERMINATION:

In September 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 amounts are being amortized over the four-year life of the new Katz agreements as a reduction to selling, general and administrative expense. As of September 30, 2006, approximately $4.2 million of the deferred termination obligation and inducement amount is reflected in other long-term liabilities on the accompanying Consolidated balance sheets, and approximately $2.2 million is reflected in other current liabilities.


13.	RELATED PARTY TRANSACTION:

In September 2006, the Company purchased a radio broadcasting tower and related facilities in the Detroit metropolitan area from American Signaling Corporation for $936,000 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, L.P. Terry L. Jones, a general partner of Syndicated Communications Venture Partners II, L.P., 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 $75,000 per year.

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 and the 63/8% senior subordinated notes due 2013.

Set forth below are consolidating financial statements for the Company and the Subsidiary Guarantors as of September 30, 2006 and 2005, and for the three and nine-month periods then ended. Also included is the consolidating balance sheet for the Company and the Subsidiary Guarantors as of December 31, 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.

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006


	Combined
	Guarantor		Radio
	Subsidiaries		One, Inc.			Eliminations			Consolidated
	(Unaudited)
	(In thousands)

NET BROADCAST REVENUE	$	47,628	$	51,430		$	—		$	99,058

OPERATING EXPENSES:
Programming and technical		8,174		12,256			—			20,430
Selling, general and administrative		15,459		14,620			—			30,079
Corporate selling, general and administrative		—		7,345			—			7,345
Stock-based compensation		643		899			—			1,542
Depreciation and amortization		1,583		2,158			—			3,741

Total operating expenses		25,859		37,278			—			63,137

Operating income		21,769		14,152			—			35,921
INTEREST INCOME		—		493			—			493
INTEREST EXPENSE		—		18,733			—			18,733
EQUITY IN LOSS OF AFFILIATED COMPANY		—		635			—			635
OTHER (EXPENSE) INCOME, net		2		(6	)		—			(4	)

Income (Loss) before provision for income taxes, minority interest in income of subsidiaries and discontinued operations		21,771		(4,729	)		—			17,042
PROVISION FOR INCOME TAXES		—		8,056			—			8,056
MINORITY INTEREST IN INCOME OF SUBSIDIARIES		—		882			—			882

Net income (loss) before equity in income of subsidiaries and discontinued operations		21,771		(13,667	)		—			8,104
EQUITY IN INCOME OF SUBSIDIARIES		—		21,771			(21,771	)		—

Net income from continuing operations		21,771		8,104			(21,771	)		8,104
LOSS FROM DISCONTINUED OPERATIONS, net of tax		—		70			—			70

Net income	$	21,771	$	8,034		$	(21,771	)	$	8,034

The accompanying notes are an integral part of this consolidating financial statement.

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005


	Combined
	Guarantor		Radio
	Subsidiaries		One, Inc.			Eliminations			Consolidated
	(Unaudited)
	(In thousands)

NET BROADCAST REVENUE	$	48,611	$	52,138		$	—		$	100,749

OPERATING EXPENSES:
Programming and technical		7,516		9,436			—			16,952
Selling, general and administrative		18,911		17,546			—			36,457
Corporate selling, general and administrative		—		6,155			—			6,155
Depreciation and amortization		1,960		1,103			—			3,063

Total operating expenses		28,387		34,240			—			62,627

Operating income		20,224		17,898			—			38,122
INTEREST INCOME		—		162			—			162
INTEREST EXPENSE		9		16,422			—			16,431
EQUITY IN NET LOSS OF AFFILIATED COMPANY		—		442			—			442

Income before provision for income taxes, minority interest in income of subsidiary and discontinued operations		20,215		1,196			—			21,411
PROVISION FOR INCOME TAXES		—		8,808			—			8,808
MINORITY INTEREST IN INCOME OF SUBSIDIARY		—		1,089			—			1,089

Net income (loss) before equity in income of subsidiaries and discontinued operations		20,215		(8,701	)		—			11,514
EQUITY IN INCOME OF SUBSIDIARIES		—		20,215			(20,215	)		—

Net income (loss) from continuing operations		20,215		11,514			(20,215	)		11,514
LOSS FROM DISCONTINUED OPERATIONS, net of tax		—		48			—			48

Net income	$	20,215	$	11,466		$	(20,215	)	$	11,466

The accompanying notes are an integral part of this consolidating financial statement.

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006


	Combined
	Guarantor		Radio
	Subsidiaries		One, Inc.			Eliminations			Consolidated
	(Unaudited)
	(In thousands)

NET BROADCAST REVENUE	$	132,828	$	145,025		$	—		$	277,853

OPERATING EXPENSES:
Programming and technical		24,127		35,747			—			59,874
Selling, general and administrative		45,272		41,885			—			87,157
Corporate selling, general and administrative		—		20,989			—			20,989
Stock-based compensation		1,929		2,697			—			4,626
Depreciation and amortization		5,301		6,469			—			11,770

Total operating expenses		76,629		107,787			—			184,416

Operating income		56,199		37,238			—			93,437
INTEREST INCOME		7		1,027			—			1,034
INTEREST EXPENSE		2		54,077			—			54,079
EQUITY IN LOSS OF AFFILIATED COMPANY		—		1,569			—			1,569
OTHER EXPENSE, net		3		266			—			269

Income (loss) before provision for income taxes, minority interest in income of subsidiaries and discontinued operations		56,201		(17,647	)		—			38,554
PROVISION FOR INCOME TAXES		—		17,766			—			17,766
MINORITY INTEREST IN INCOME OF SUBSIDIARIES		—		1,920			—			1,920

Net income (loss) before equity in income of subsidiaries and discontinued operations		56,201		(37,333	)		—			18,868
EQUITY IN INCOME OF SUBSIDIARIES		—		56,201			(56,201	)		—

Net income from continuing operations		56,201		18,868			(56,201	)		18,868
LOSS FROM DISCONTINUED OPERATIONS, net of tax		—		137			—			137

Net income	$	56,201	$	18,731		$	(56,201	)	$	18,731

The accompanying notes are an integral part of this consolidating financial statement.

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005


	Combined
	Guarantor		Radio
	Subsidiaries		One, Inc.			Eliminations			Consolidated
	(Unaudited)
	(In thousands)

NET BROADCAST REVENUE	$	137,921	$	140,185		$	—		$	278,106

OPERATING EXPENSES:
Programming and technical		22,236		27,814			—			50,050
Selling, general and administrative		47,596		40,312			—			87,908
Corporate selling, general and administrative		—		17,479			—			17,479
Depreciation and amortization		5,842		3,630			—			9,472

Total operating expenses		75,674		89,235			—			164,909

Operating income		62,247		50,950			—			113,197
INTEREST INCOME		—		906			—			906
INTEREST EXPENSE		10		46,090			—			46,100
EQUITY IN NET LOSS OF AFFILIATED COMPANY		—		1,205			—			1,205
OTHER INCOME, net		32		91			—			123

Income before provision for income taxes, minority interest in income of subsidiary and discontinued operations		62,269		4,652			—			66,921
PROVISION FOR INCOME TAXES		—		23,955			—			23,955
MINORITY INTEREST IN INCOME OF SUBSIDIARY		—		1,714			—			1,714

Net income (loss) before equity in income of subsidiaries and discontinued operations		62,269		(21,017	)		—			41,252
EQUITY IN INCOME OF SUBSIDIARIES		—		62,269			(62,269	)		—

Net income (loss) from continuing operations		62,269		41,252			(62,269	)		41,252
LOSS FROM DISCONTINUED OPERATIONS, net of tax		—		254			—			254

Net income	$	62,269	$	40,998		$	(62,269	)	$	40,998

PREFERRED STOCK DIVIDENDS				2,761						2,761

Net income applicable to common stockholders			$	38,237					$	38,237

The accompanying notes are an integral part of this consolidating financial statement.

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2006


	Combined
	Guarantor			Radio
	Subsidiaries			One, Inc.			Eliminations			Consolidated
	(Unaudited)
	(In thousands)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	796		$	16,127		$	—		$	16,923
Trade accounts receivable, net of allowance for doubtful accounts		33,597			35,215			—			68,812
Prepaid expenses and other current assets		1,138			4,163			—			5,301
Income tax receivable		—			1,280			—			1,280
Deferred income tax asset		2,281			(131	)		—			2,150
Current assets from discontinued operations		—			456			—			456

Total current assets		37,812			57,110			—			94,922
PROPERTY AND EQUIPMENT, net		30,458			21,538			—			51,996
INTANGIBLE ASSETS, net		1,970,088			72,034			—			2,042,122
INVESTMENT IN SUBSIDIARIES		—			2,004,031			(2,004,031	)		—
INVESTMENT IN AFFILIATED COMPANY		—			46,407			—			46,407
OTHER ASSETS		399			6,718			—			7,117
NON-CURRENT ASSETS FROM DISCONTINUED OPERATIONS		9,181			1,939			—			11,120

Total assets	$	2,047,938		$	2,209,777		$	(2,004,031	)	$	2,253,684


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	405		$	4,678		$	—		$	5,083
Accrued interest		—			9,523			—			9,523
Accrued compensation and related benefits		3,179			16,379			—			19,558
Income taxes payable		(1	)		3,448			—			3,447
Other current liabilities		3,233			9,785			—			13,018
Current portion of long-term debt		—			3,750			—			3,750
Current liabilities from discontinued operations		—			131			—			131

Total current liabilities		6,816			47,694			—			54,510
LONG-TERM DEBT, net of current portion		—			969,750			—			969,750
OTHER LONG-TERM LIABILITIES		205			6,454			—			6,659
DEFERRED INCOME TAX LIABILITY		36,886			137,942			—			174,828
NON-CURRENT LIABILITIES FROM DISCONTINUED OPERATIONS		—			1,391			—			1,391

Total liabilities		43,907			1,163,231			—			1,207,138

MINORITY INTEREST IN SUBSIDIARIES		—			1,836			—			1,836
STOCKHOLDERS’ EQUITY:
Common stock		—			99			—			99
Accumulated other comprehensive income		—			1,045			—			1,045
Stock subscriptions receivable		—			(1,622	)		—			(1,622	)
Additional paid-in capital		1,189,153			1,031,836			(1,189,153	)		1,031,836
Retained earnings		814,878			13,352			(814,878	)		13,352

Total stockholders’ equity		2,004,031			1,044,710			(2,004,031	)		1,044,710

Total liabilities and stockholders’ equity	$	2,047,938		$	2,209,777		$	(2,004,031	)	$	2,253,684

The accompanying notes are an integral part of this consolidating financial statement.

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2005


	Combined
	Guarantor		Radio
	Subsidiaries		One, Inc.			Eliminations			Consolidated
	(Unaudited)
	(In thousands)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	794	$	18,287		$	—		$	19,081
Trade accounts receivable, net of allowance for doubtful accounts		29,588		33,135			—			62,723
Prepaid expenses and other current assets		1,302		3,918			—			5,220
Income tax receivable		—		3,935			—			3,935
Deferred income tax asset		2,282		(376	)		—			1,906
Current assets from discontinued operations		—		705			—			705

Total current assets		33,966		59,604			—			93,570
PROPERTY AND EQUIPMENT, net		30,319		17,998			—			48,317
INTANGIBLE ASSETS, net		1,927,342		77,533			—			2,004,875
INVESTMENT IN SUBSIDIARIES		—		1,957,726			(1,957,726	)		—
INVESTMENT IN AFFILIATED COMPANY		—		37,362			—			37,362
OTHER ASSETS		673		5,854			—			6,527
NON-CURRENT ASSETS FROM DISCONTINUED OPERATIONS		8,604		2,125			—			10,729

Total assets	$	2,000,904	$	2,158,202		$	(1,957,726	)	$	2,201,380


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	899	$	2,214		$	—		$	3,113
Accrued interest		—		19,308			—			19,308
Accrued compensation and related benefits		3,294		17,461			—			20,755
Income taxes payable		—		3,805			—			3,805
Other current liabilities		2,079		6,536			—			8,615
Current portion of long-term debt		8		—			—			8
Current liabilities from discontinued operations		—		237			—			237

Total current liabilities		6,280		49,561			—			55,841
LONG-TERM DEBT, net of current portion		12		952,500			—			952,512
OTHER LONG-TERM LIABILITIES		—		6,316			—			6,316
DEFERRED INCOME TAX LIABILITY		36,886		125,037			—			161,923
NON-CURRENT LIABILITIES FROM DISCONTINUED OPERATIONS		—		1,391			—			1,391

Total liabilities		43,178		1,134,805			—			1,177,983

MINORITY INTEREST IN SUBSIDIARY		—		2,856			—			2,856
STOCKHOLDERS’ EQUITY:
Common stock		—		99			—			99
Accumulated other comprehensive income		—		958			—			958
Stock subscriptions receivable		—		(1,566	)		—			(1,566	)
Additional paid-in capital		1,199,056		1,026,429			(1,199,056	)		1,026,429
Retained earnings (accumulated deficit)		758,670		(5,379	)		(758,670	)		(5,379	)

Total stockholders’ equity		1,957,726		1,020,541			(1,957,726	)		1,020,541

Total liabilities and stockholders’ equity	$	2,000,904	$	2,158,202		$	(1,957,726	)	$	2,201,380

The accompanying notes are an integral part of this consolidating financial statement.

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006


	Combined
	Guarantor			Radio
	Subsidiaries			One, Inc.			Eliminations			Consolidated
	(Unaudited)
	(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	56,201		$	18,731		$	(56,201	)	$	18,731
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		5,301			6,469			—			11,770
Amortization of debt financing costs		—			1,580			—			1,580
Amortization of production content		—			2,518			—			2,518
Deferred income taxes		—			13,918			—			13,918
Write-down of investment		—			270			—			270
Equity in net loss of affiliated company		—			1,569			—			1,569
Minority interest in income of subsidiaries		—			1,920			—			1,920
Stock-based compensation and other non-cash compensation		1,935			3,469			—			5,404
Amortization of contract inducement and termination fee		(777	)		(849	)		—			(1,626	)
Effect of change in operating assets and liabilities, net of assets acquired:
Trade accounts receivable		(4,009	)		(2,080	)		—			(6,089	)
Prepaid expenses and other current assets		438			(1,447	)		—			(1,009	)
Income tax receivable		—			2,655			—			2,655
Due (to) from corporate		(12,031	)		12,031			—			—
Accounts payable		(494	)		2,464			—			1,970
Accrued interest		—			(9,785	)		—			(9,785	)
Accrued compensation and related benefits		(115	)		(1,923	)		—			(2,038	)
Income taxes payable		—			(358	)		—			(358	)
Other liabilities		1,359			1,889			—			3,248
Net cash provide used in operating activities from discontinued operations		—			(248	)		—			(248	)

Net cash flows from operating activities		47,808			52,793			(56,201	)		44,400

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		(3,857	)		(6,357	)		—			(10,214	)
Equity investments		—			(9,743	)		—			(9,743	)
Acquisitions of station and broadcasting assets		(43,727	)		(227	)		—			(43,954	)
Investment in subsidiaries		—			(56,201	)		56,201			—
Purchase of other intangible assets		(202			(481	)		—			(683	)

Net cash flows used in investing activities		(47,786	)		(73,009	)		56,201			(64,594	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility		—			33,000			—			33,000
Repayment of credit facility		—			(12,000	)		—			(12,000	)
Repayment of debt		(20	)		—			—			(20	)
Proceeds from exercise of stock options		—			52			—			52
Change in interest due on stock subscriptions receivable		—			(56	)		—			(56	)
Payment to minority interest shareholders		—			(2,940	)		—			(2,940	)

Net cash flows (used in) from financing activities		(20	)		18,056			—			18,036

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		2			(2,160	)		—			(2,158	)
CASH AND CASH EQUIVALENTS, beginning of period		794			18,287			—			19,081

CASH AND CASH EQUIVALENTS, end of period	$	796		$	16,127		$	—		$	16,923

The accompanying notes are an integral part of this consolidating financial statement.

RADIO ONE, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005


	Combined
	Guarantor			Radio
	Subsidiaries			One, Inc.			Eliminations			Consolidated
	(Unaudited)
	(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	62,269		$	40,998		$	(62,269	)	$	40,998
Adjustments to reconcile loss to net cash from operating activities:
Depreciation and amortization		5,842			3,889			—			9,731
Amortization of debt financing costs		—			3,660			—			3,660
Deferred income taxes		13,151			9,525			—			22,676
Minority interest in income of subsidiary		—			1,714			—			1,714
Equity in net losses of affiliated company		—			1,205			—			1,205
Non-cash compensation		8			1,444			—			1,452
Contract termination fee		2,598			2,673			—			5,271
Amortization of contract inducement and termination fee		(54	)		(55	)		—			(109	)
Effect of change in operating assets and liabilities, net of assets acquired:
Trade accounts receivable		4,885			(11,476	)		—			(6,591	)
Due to corporate/from subsidiaries		(81,663	)		81,663			—			—
Prepaid expenses and other current assets		141			(621	)		—			(480	)
Accounts payable		525			(4,927	)		—			(4,402	)
Accrued expenses and other liabilities		108			(7,566	)		—			(7,458	)
Net cash used in operating activities from discontinued operations		—			(366	)		—			(366	)

Net cash flows from operating activities		7,810			121,760			(62,269	)		67,301

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(7,551	)		(4,003	)		—			(11,554	)
Equity investments		—			(125	)		—			(125	)
Acquisition of 51% of common stock in Reach Media, Inc., net of cash acquired		—			(21,320	)		—			(21,320	)
Sale of short-term investments		—			10,000			—			10,000
Investment in subsidiaries		—			(62,269	)		62,269			—
Purchase of other intangible assets		—			(874	)		—			(874	)
Net cash used in investing activities from discontinued operations		—			(1,144	)		—			(1,144	)

Net cash flows used in investing activities		(7,551	)		(79,735	)		62,269			(25,017	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt		—			(455,006	)		—			(455,005	)
Proceeds from credit facility		—			587,500			—			587,500
Proceeds from debt issuances, net of offering costs		—			195,177			—			195,177
Redemption of convertible preferred stock		—			(309,820	)		—			(309,820	)
Proceeds from stock subscriptions due		—			5,962			—			5,962
Payment of bank financing costs		—			(4,172	)		—			(4,172	)
Payment of preferred stock dividends		—			(6,966	)		—			(6,966	)
Proceeds from exercise of stock options		—			963			—			963
Repurchase of common stock		—			(41,222	)		—			(41,222	)
Change in interest due on stock subscription receivable		—			(464	)		—			(464	)

Net cash flows used in financing activities		—			(28,048	)		—			(28,048	)

INCREASE IN CASH AND CASH EQUIVALENTS		259			13,977			—			14,236
CASH AND CASH EQUIVALENTS, beginning of period		192			10,199			—			10,391

CASH AND CASH EQUIVALENTS, end of period	$	451		$	24,176		$	—		$	24,627

The accompanying notes are an integral part of this consolidating financial statement.


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following information should be read in conjunction with “Selected Financial Data” and the Consolidated Financial Statements and Notes thereto included elsewhere in this report and the audited financial statements and Management’s Discussion and Analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2005.

Introduction

Revenue

We primarily derive revenue from the sale of advertising time and program sponsorships to local and national advertisers. Advertising revenue is affected primarily by the advertising rates our radio stations are able to charge, as well as the overall demand for radio advertising time in a market. These rates are largely based upon a radio station’s audience share in the demographic groups targeted by advertisers, the number of radio stations in the related market, and the supply of and demand for radio advertising time. Advertising rates are generally highest during morning and afternoon commuting hours.

In February 2005, we acquired 51% of the common stock of Reach Media, Inc. (“Reach Media”). Reach Media primarily derives revenue from the sale of advertising time on the affiliate stations that broadcast the Tom Joyner Morning Show. The affiliate radio stations provide Reach Media with advertising inventory on their stations, which is then sold to the marketplace through a sales representative agreement with ABC Radio Networks. ABC Radio Networks guarantees Reach Media an agreed upon amount of annual revenue, with the potential to earn additional amounts if certain revenue goals are met. The agreement with ABC Radio Networks runs through 2009. Additional revenue is generated by Reach Media from special events, sponsorships, its internet business and other related activities.

During the three months ended September 30, 2006, approximately 63% of our net revenue was generated from local advertising and approximately 36% was generated from national spot advertising, including network advertising. In comparison, during the three months ended September 30, 2005, approximately 66% of our net revenue was generated from local advertising and approximately 31% was generated from national spot advertising, including network advertising. During the nine months ended September 30, 2006, approximately 62% of our net revenue was generated from local advertising and approximately 36% was generated from national spot advertising, including network advertising. In comparison, during the nine months ended September 30, 2005, approximately 67% of our net revenue was generated from local advertising and approximately 31% was generated from national spot advertising, including network advertising. The balance of revenue was generated from tower rental income, ticket sales and revenue related to our sponsored events, management fees and other revenue.

In the broadcasting industry, radio stations often utilize trade or barter agreements to reduce cash expenses by exchanging advertising time for goods or services. In order to maximize cash revenue from our spot inventory, we closely monitor the use of trade and barter agreements.

Expenses

Our significant broadcast expenses are (i) employee salaries and commissions, (ii) programming expenses, (iii) advertising and promotion expenses, (iv) rental of premises for office facilities and studios, (v) rental of transmission tower space and (vi) music license royalty fees. We strive to control these expenses by centralizing certain functions such as finance, accounting, legal, human resources and management information systems and the overall programming management function. We also use our multiple stations, market presence and purchasing power to negotiate favorable rates with certain vendors and national representative selling agencies.

We generally incur advertising and promotional expenses to increase our audiences. However, because Arbitron reports ratings quarterly, any changed ratings and therefore the effect on advertising revenue, tends to lag behind the incurrence of advertising and promotional expenditures.

Measurement of Performance

We monitor the growth and operational results of our business using net income and the following key metrics:

(a) Net broadcast revenue: The performance of an individual radio station or group of radio stations in a particular market is customarily measured by its ability to generate net broadcast revenue. Net broadcast revenue consists of gross broadcast revenue, net of local and national agency and outside sales representative commissions consistent with industry practice. Net broadcast revenue is recognized in the period in which advertisements are broadcast. Net broadcast revenue also includes advertising aired in exchange for goods and services, which is recorded at fair value.

(b) Station operating income: Net income before depreciation and amortization, income taxes, interest income, interest expense, equity in loss of affiliated company, minority interest in income of subsidiaries, other income/expense, corporate expenses and non-cash and stock-based compensation expenses and loss from discontinued operations, net of tax is commonly referred to in our industry as station operating income. Station operating income is not a measure of financial performance under generally accepted accounting principles. Nevertheless, we believe station operating income is often a useful measure of a broadcasting company’s operating performance and is a significant basis used by our management to measure the operating performance of our stations within the various markets because station operating income provides helpful information about our results of operations, apart from expenses associated with our physical plant, income taxes provision, investments, debt financings, overhead and non-cash compensation. Station operating income is frequently used as one of the bases for comparing businesses in our industry, although our measure of station operating income may not be comparable to similarly titled measures of other companies. Station operating income does not purport to represent operating loss or cash flow from operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance.

(c) Station operating income margin: Station operating income margin represents station operating income as a percentage of net broadcast revenue. Station operating income margin is not a measure of financial performance under generally accepted accounting principles. Nevertheless, we believe that station operating income margin is a useful measure of our performance because it provides helpful information about our profitability as a percentage of our net broadcast revenue.

(d) EBITDA: Net income before interest income, interest expense, income taxes, depreciation and amortization is commonly referred to in our business as EBITDA. EBITDA is not a measure of financial performance under generally accepted accounting principles. We believe EBITDA is often a useful measure of a company’s operating performance and is a significant basis used by our management to measure the operating performance of our business because EBITDA excludes charges for depreciation, amortization and interest expense associated with our acquisitions and debt financings, and our provision for tax expense. Accordingly, we believe that EBITDA provides helpful information about the operating performance of our business, apart from the expenses associated with our physical plant and capital structure. EBITDA is frequently used as one of the bases for comparing businesses in our industry, although our measure of EBITDA may not be comparable to similarly titled measures of other companies. EBITDA does not purport to represent operating loss or cash flow from operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance.

Summary of Performance

The tables below provide a summary of our performance based on the metrics described above:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(In thousands, except margin data)

Net broadcast revenue	$	99,058		$	100,749		$	277,853		$	278,106
Station operating income		48,539			47,399			130,759			140,262
Station operating income margin		49.0	%		47.0	%		47.1	%		50.4	%
EBITDA	$	38,141		$	39,654		$	101,449		$	119,873
Net income		8,034			11,466			18,731			40,998

The reconciliation of net income to station operating income is as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(In thousands)						(In thousands)

Net income as reported	$	8,034		$	11,466		$	18,731		$	40,998
Add back non-station operating income items included in net income:
Interest income		(493	)		(162	)		(1,034	)		(906	)
Interest expense		18,733			16,431			54,079			46,100
Provision for income taxes		8,056			8,808			17,766			23,955
Corporate selling, general and administrative, excluding non-cash compensation		7,010			5,673			19,979			16,140
Non-cash compensation		325			541			947			1,453
Stock-based compensation		1,542			—			4,626			—
Equity in loss of affiliated company		635			442			1,569			1,205
Other expense (income), net		4			—			269			(123	)
Depreciation and amortization		3,741			3,063			11,770			9,472
Minority interest in income of subsidiaries		882			1,089			1,920			1,714
Loss from discontinued operations, net of tax		70			48			137			254

Station operating income	$	48,539		$	47,399		$	130,759		$	140,262

The reconciliation of net income to EBITDA is as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(In thousands)						(In thousands)

Net income as reported	$	8,034		$	11,466		$	18,731		$	40,998
Add back non-EBITDA items included in net income:
Interest income		(493	)		(162	)		(1,034	)		(906	)
Interest expense		18,733			16,431			54,079			46,100
Provision for income taxes		8,056			8,808			17,766			23,955
Depreciation and amortization		3,741			3,063			11,770			9,472
Loss from discontinued operations, net of tax		70			48			137			254

EBITDA	$	38,141		$	39,654		$	101,449		$	119,873

RADIO ONE, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS

The following table summarizes our historical consolidated results of operations:

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005 (In thousands)


	Three Months Ended
	September 30,
	2006		2005		Increase/(Decrease)

Statements of Income:
Net broadcast revenue	$	99,058	$	100,749	$	(1,691	)	(1.7	)%
Operating expenses:
Programming and technical, excluding non-cash compensation		20,440		16,900		3,540		21.0
Selling, general and administrative, excluding non-cash compensation		30,079		36,450		(6,371	)	(17.5	)
Corporate selling, general and administrative, excluding non-cash compensation		7,010		5,673		1,337		23.6
Non-cash compensation		325		541		(216	)	(40.0	)
Stock-based compensation		1,542		—		1,542		—
Depreciation and amortization		3,741		3,063		678		22.1

Total operating expenses		63,137		62,627		510		0.8

Operating income		35,921		38,122		(2,201	)	(5.8	)
Interest income		493		162		331		202.5
Interest expense		18,733		16,431		2,302		14.0
Equity in loss of affiliated company		635		442		193		43.7
Other expense, net		4		—		4		—

Income before provision for income taxes, minority interest in income of subsidiaries and discontinued operations		17,042		21,411		(4,369	)	(20.4	)
Provision for income taxes		8,056		8,808		(752	)	(8.5	)
Minority interest in income of subsidiaries		882		1,089		(207	)	(19.0	)

Net income from continuing operations		8,104		11,514		(3,410	)	(29.6	)
Loss from discontinued operations, net of tax		70		48		22		45.8

Net income	$	8,034	$	11,466	$	(3,432	)	(29.9	)%

Net broadcast revenue


Three Months Ended September 30,
2006		2005		Increase/(Decrease)

$	99,058	$	100,749	$	(1,691	)	(1.7	)%

During the three months ended September 30, 2006, we recognized approximately $99.1 million in net broadcast revenue compared to approximately $100.7 million during the same period in 2005. These amounts are net of agency commissions and outside sales representative commissions, which were approximately $12.0 million during the three months ended September 30, 2006, compared to approximately $13.1 million during the same period in 2005. The decrease in net broadcast revenue was due to a decline in overall industry revenue in the markets in which we operate, a significant revenue decline in our Los Angeles market and more modest declines in our Atlanta and Charlotte markets. These declines more than offset increases in net broadcast revenue experienced in

our Baltimore, Houston, Washington, DC and St. Louis markets, among others, increased net broadcast revenue from the operating results of Reach Media, net broadcast revenue from the January 2006 launch of the news/talk network and sponsorship revenue from our 25th Anniversary awards event held in August 2006.

Operating Expenses

Programming and technical, excluding non-cash compensation


Three Months Ended September 30,
2006		2005		Increase/(Decrease)

$	20,440	$	16,900	$	3,540	21.0	%

Selling, general and administrative, excluding non-cash compensation


Three Months Ended September 30,
2006		2005		Increase/(Decrease)

$	30,079	$	36,450	$	(6,371	)	(17.5	)%

Selling, general and administrative expenses include expenses associated with our sales departments, offices and facilities and personnel (outside of our corporate headquarters), marketing and promotional expenses and back office expenses. Selling, general and administrative expenses also include expenses related to the advertising traffic (scheduling and insertion) functions. The decrease in selling, general and administrative expenses resulted primarily from a one-time non-cash charge of approximately $5.3 million during September 2005 associated with terminating our national sales representation agreements with Interep National Radio Sales, Inc. (“Interep”). Further decreases in selling, general and administrative expenses were due to lower revenue. Excluding the 2005 one-time non-cash termination charge, selling, general and administrative expenses decreased 2.4% for the three months ended September 30, 2006, compared to the same period in 2005.

Corporate selling, general and administrative, excluding non-cash compensation


Three Months Ended September 30,
2006		2005		Increase/(Decrease)

$	7,010	$	5,673	$	1,337	23.6	%

Corporate selling, general and administrative expenses consist of expenses associated with maintaining our corporate headquarters and facilities, including personnel. The increase in corporate selling, general and administrative expenses resulted primarily from approximately $0.9 million in expenses associated with our 25th Anniversary event held in August 2006, approximately $0.4 million in additional legal and professional fees associated with an abandoned transaction and increased travel and transportation spending. Excluding our 25th Anniversary awards event, corporate selling, general and administrative expenses increased 7.5% for the three months ended September 30, 2006, compared to the same period in 2005.

Non-cash compensation


Three Months Ended September 30,
2006		2005		Increase/(Decrease)

$	325	$	541	$	(216	)	(40.0	)%

Non-cash compensation consists of expenses associated with certain officer retention bonuses and expenses associated with restricted stock granted to certain on-air talent. The decrease in non-cash compensation resulted from lower expenses associated with the vesting of officer retention bonuses and reduced restricted stock expenses due to a lower fair value for the stock as of September 30, 2006, compared to the same period in 2005.

Stock-based compensation


Three Months Ended September 30,
2006		2005		Increase/(Decrease)

$	1,542	$	—	$	1,542	—

Stock-based compensation consists of expenses associated with our January 1, 2006 adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment.” SFAS No. 123(R) eliminated accounting for share-based payments based on Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and 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.

Depreciation and amortization


Three Months Ended September 30,
2006		2005		Increase/(Decrease)

$	3,741	$	3,063	$	678	22.1	%

The increase in depreciation and amortization expense for the three months ended September 30, 2006 was due primarily to the depreciation and amortization of assets and intangibles acquired as a result of our acquisition of 51% of the common stock of Reach Media in February 2005. We completed the preliminary purchase price allocation for the Reach Media acquisition during the quarter ended December 31, 2005, resulting in additional amortization expense to be recognized over the remaining life of the identified assets. To a lesser extent, the increase in depreciation and amortization also resulted from depreciation associated with capital expenditures made since September 30, 2005, which was slightly offset by certain trade names being fully amortized.

Interest income


Three Months Ended September 30,
2006		2005		Increase/(Decrease)

$	493	$	162	$	331	202.5	%

The increase in interest income resulted primarily from interest income from an income tax refund receivable.

Interest expense


Three Months Ended September 30,
2006		2005		Increase/(Decrease)

$	18,733	$	16,431	$	2,302	14.0	%

The increase in interest expense resulted primarily from additional interest obligations associated with borrowings in August 2005 to fund partially our stock repurchase program during the second-half of 2005, borrowings in May 2006 to fund partially the acquisition of WHHL-FM (formerly WRDA-FM), a radio station located in the St. Louis metropolitan area, borrowings in September 2006 to fund partially the acquisition of WIFE-FM, a radio station located in the Cincinnati metropolitan area, and to fund partially the acquisition of the intellectual property of WMOJ-FM, also located in the Cincinnati metropolitan area. Interest expense also increased due to higher market interest rates on the variable portion of our debt.

Provision for income taxes


Three Months Ended September 30,
2006		2005		Increase/(Decrease)

$	8,056	$	8,808	$	(752	)	(8.5	)%

The decrease in the provision for income taxes was due primarily to a decrease in pre-tax income for the three months ended September 30, 2006, compared to the same period in 2005. In addition to lower pre-tax income, this decrease was offset by an increase to the valuation allowance for charitable contribution carryforwards, which are unlikely to be realized. For the quarter ended September 30, 2006, our effective tax rate was 47.3%. Excluding the tax impact of adopting SFAS No. 123(R) and the valuation allowance increase, our effective tax rate for the quarter ended September 30, 2006 was 41.4%, compared to 40.6% for the same period in 2005. This rate increase is attributable to the lower pre-tax income and proportionately higher permanent differences. As of September 30, 2006, our annual effective tax rate, exclusive of discrete items, is projected at 44.2%, which is impacted by the permanent differences between income subject to tax for book versus tax purposes.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005 (In thousands)


	Nine Months Ended
	September 30,
	2006			2005		Increase/(Decrease)

Statements of Income:
Net broadcast revenue	$	277,853		$	278,106	$	(253	)	(0.1	)%
Operating expenses:
Programming and technical, excluding non-cash compensation		59,937			49,942		9,995		20.0
Selling, general and administrative, excluding non-cash compensation		87,157			87,902		(745	)	(0.8	)
Corporate selling, general and administrative, excluding non-cash compensation		19,979			16,140		3,839		23.8
Non-cash compensation		947			1,453		(506	)	(34.8	)
Stock-based compensation		4,626			—		4,626		—
Depreciation and amortization		11,770			9,472		2,298		24.3

Total operating expenses		184,416			164,909		19,507		11.8

Operating income		93,437			113,197		(19,760	)	(17.5	)
Interest income		1,034			906		128		14.1
Interest expense		54,079			46,100		7,979		17.3
Equity in loss of affiliated company		1,569			1,205		364		30.2
Other (expense) income, net		(269	)		123		(392	)	(318.7	)

Income before provision for income taxes, minority interest in income of subsidiaries and discontinued operations		38,554			66,921		(28,367	)	(42.4	)
Provision for income taxes		17,766			23,955		(6,189	)	(25.8	)
Minority interest in income of subsidiaries		1,920			1,714		206		12.0

Net income from continuing operations		18,868			41,252		(22,384	)	(54.3	)
Loss from discontinued operations, net of tax		137			254		(117	)	(46.1	)

Net income		18,731			40,998		(22,267	)	(54.3	)
Preferred stock dividends		—			2,761		(2,761	)	(100.0	)

Net income applicable to common stockholders	$	18,731		$	38,237	$	(19,506	)	(51.0	)%

Net broadcast revenue


Nine Months Ended September 30,
2006		2005		Increase/(Decrease)

$	277,853	$	278,106	$	(253	)	(0.1	)%

During the nine months ended September 30, 2006, we recognized approximately $277.9 million in net broadcast revenue compared to approximately $278.1 million during the same period in 2005. These amounts are net of agency commissions and outside sales representative commissions, which were approximately $33.6 million during the nine months ended September 30, 2006, compared to approximately $36.0 million during the same period in 2005. Despite the consolidation of nine months of operating results for Reach Media during the period ended September 30, 2006, compared to seven months of operating results for the same period in 2005, net broadcast revenue was flat for the nine months ended September 30, 2006, compared to the same period in 2005. The decrease in net broadcast revenue was due to a decline in the overall industry revenue in the markets in which we operate, a significant revenue decline in our Los Angeles market and more modest declines in our Atlanta, Washington, DC, Cleveland and Dallas markets. These declines more than offset increases in net broadcast revenue due to consolidating Reach Media’s operating results and the January 2006 launch of the news/talk network, sponsorship revenue from our 25th Anniversary awards event held in August 2006 and increases in net broadcast revenue experienced in our Houston, St. Louis, Philadelphia and Baltimore markets. Excluding the operating results of Reach Media, our net broadcast revenue decreased approximately 4.2% for the nine months ended September 30, 2006, compared to the same period in 2005.

Operating Expenses

Programming and technical, excluding non-cash compensation


Nine Months Ended September 30,
2006		2005		Increase/(Decrease)

$	59,937	$	49,942	$	9,995	20.0	%

Programming and technical expenses include expenses associated with on-air talent and the management and maintenance of the systems, tower facilities, and studios used in the creation, distribution and broadcast of our programming content on our radio stations and on the Tom Joyner syndicated television variety show. Programming and technical expenses also include expenses associated with our research activities and music royalties. The increase in programming and technical expenses resulted primarily from our consolidation of nine months of operating results for Reach Media during the period ended September 30, 2006, compared to seven months of operating results for the period ended September 30, 2005. This includes approximately $3.4 million in new expenses associated with the Tom Joyner syndicated television variety show launched by Reach Media in October 2005. Increased programming and technical expenses were also due to approximately $1.5 million more in bartered programming expenses, approximately $1.2 million in expenses associated with the January 2006 launch of the news/talk network and approximately $1.3 million in additional music royalties. Increased programming and technical expenses were also due to higher programming compensation, increased tower expenses and additional production costs. Excluding the operating results of Reach Media, programming and technical expenses increased 7.8% for the nine months ended September 30, 2006, compared to the same period in 2005.

Selling, general and administrative, excluding non-cash compensation


Nine Months Ended September 30,
2006		2005		Increase/(Decrease)

$	87,157	$	87,902	$	(745	)	(0.8	)%

with terminating our national sales representation agreements with Interep. The decrease due to the 2005 termination charge was offset partially by increases in selling, general and administrative expenses resulting from our consolidation of nine months of operating results for Reach Media for the period ended September 30, 2006, compared to seven months of operating results for the same period in 2005, and the January 2006 launch of the news/talk network. Excluding both the one-time non-cash termination charge and the operating results of Reach Media, selling, general and administrative expenses increased 5.3% for the nine months ended September 30, 2006, compared to the same period in 2005.

Corporate selling, general and administrative, excluding non-cash compensation


Nine Months Ended September 30,
2006		2005		Increase/(Decrease)

$	19,979	$	16,140	$	3,839	23.8	%

Corporate selling, general and administrative expenses consist of expenses associated with maintaining our corporate headquarters and facilities, including personnel. The increase in corporate selling, general and administrative expenses resulted primarily from approximately $1.1 million in expenses associated with our 25th Anniversary event held in August 2006, approximately $0.7 million in severance expenses, additional professional services and consulting expenses and increased travel and transportation spending. The increase in corporate selling, general and administrative expenses also resulted from our consolidation of nine months of operating results for Reach Media during the period ended September 30, 2006, compared to seven months of operating results for the same period in 2005. Excluding expenses associated with our 25th Anniversary awards event and the operating results of Reach Media, corporate expenses increased 17.2% for the nine months ended September 30, 2006, compared to the same period in 2005.

Non-cash compensation


Nine Months Ended September 30,
2006		2005		Increase/(Decrease)

$	947	$	1,453	$	(506	)	(34.8	)%

Stock-based compensation


Nine Months Ended September 30,
2006		2005		Increase/(Decrease)

$	4,626	$	—	$	4,626	—

Stock-based compensation consists of expenses associated with our January 1, 2006 adoption of SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) eliminated accounting for share-based payments based on APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and 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.

Depreciation and amortization


Nine Months Ended September 30,
2006		2005		Increase/(Decrease)

$	11,770	$	9,472	$	2,298	24.3	%

The increase in depreciation and amortization expense for the nine months ended September 30, 2006 was due primarily to the depreciation and amortization of assets and intangibles acquired as a result of our acquisition of 51% of the common stock of Reach Media in February 2005. We completed the preliminary purchase price

allocation for the Reach Media acquisition in the fourth quarter of 2005, resulting in additional amortization expense to be recognized over the remaining life of the identified assets. To a lesser extent, the increase in depreciation and amortization also resulted from depreciation associated with capital expenditures made since September 30, 2005, which was slightly offset by certain trade names being fully amortized.

Interest income


Nine Months Ended September 30,
2006		2005		Increase/(Decrease)

$	1,034	$	906	$	128	14.1	%

The increase in interest income resulted primarily from interest income from an income tax refund receivable, which was offset partially by less interest income due to the repayment of certain officer loans during 2005, and lower average cash balances, cash equivalents and short-term investments.

Interest expense


Nine Months Ended September 30,
2006		2005		Increase/(Decrease)

$	54,079	$	46,100	$	7,979	17.3	%

The increase in interest expense resulted from additional interest obligations associated with additional borrowings to fund partially the February 2005 redemption of our 61/2% Convertible Preferred Remarketable Term Income Deferrable Equity Securities (“HIGH TIDES”) in an amount of $309.8 million. Additional interest obligations were also incurred from borrowings to fund partially the February 2005 acquisition of 51% of the common stock of Reach Media. This increase also resulted from additional interest obligations associated with borrowings in August 2005 to fund partially our stock repurchase program during the second half of 2005, borrowings in May 2006 to fund partially the acquisition of WHHL-FM (formerly WRDA-FM), a radio station located in the St. Louis metropolitan area, borrowings in September 2006 to fund partially the acquisition of WIFE-FM, a radio station located in the Cincinnati metropolitan area, and to fund partially the acquisition of the intellectual property of WMOJ-FM, also located in the Cincinnati metropolitan area. Interest expense also increased due to higher market interest rates on the variable portion of our debt.

Other (expense) income, net


Nine Months Ended September 30,
2006			2005		Increase/(Decrease)

$	(269	)	$	123	$	(392	)	(318.7	)%

The increase in other (expense) income, net resulted primarily from the write-down of an investment.

Provision for income taxes


Nine Months Ended September 30,
2006		2005		Increase/(Decrease)

$	17,766	$	23,955	$	(6,189	)	(25.8	)%

The decrease in the provision for income taxes was due primarily to a decrease in pre-tax income for the nine months ended September 30, 2006, compared to the same period in 2005. In addition to lower pre-tax income, other items contributing to the provision decrease include an adjustment for a favorable Ohio state tax law change and a release of reserve contingencies. These decreases were offset partially by increases to the provision for the tax impact of adopting SFAS No. 123(R), an adjustment to our Kentucky and Texas tax liability due to state tax law changes and a valuation allowance for charitable contribution carryforwards. Our effective tax rate as of September 30, 2006 was 46.1%. Excluding the tax impact of adopting SFAS No. 123(R), the Ohio, Kentucky and Texas state tax law changes, the release of the reserve contingency and the increase in valuation allowance for charitable contribution carryforwards, our effective tax rate as of September 30, 2006 was 40.9%, compared to 40.2% as of September 30, 2005. As of September 30, 2006, our annual effective tax rate, exclusive of discrete

items is projected at 44.2%, which is impacted by the permanent differences between income subject to tax for book versus tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity is cash provided by operations and, to the extent necessary, commitments available under our amended and restated credit facilities and other debt or equity financing.

In June 2005, we entered into a new credit agreement with a syndicate of banks (the “Credit Agreement”). The agreement was amended in April 2006 to modify certain financial covenants. The term of the Credit Agreement is seven years and the total amount available under the Credit Agreement is $800.0 million, consisting of a $500.0 million revolving facility and a $300.0 million term loan facility. Borrowings under the credit facilities are subject to compliance with provisions of the Credit Agreement, including but not limited to, financial covenants. We may use proceeds from the credit facilities for working capital, capital expenditures made in the ordinary course of business, our common stock repurchase program, direct and indirect investments permitted under the Credit Agreement, and other lawful corporate purposes. The Credit Agreement contains affirmative and negative covenants that we must comply with, including (a) maintaining an interest coverage ratio of no less than 1.90 to 1.00 from January 1, 2006 to December 31, 2007, and no less than 2.25 to 1.00 from January 1, 2008 to December 31, 2008, and no less than 2.50 to 1.00, January 1, 2009 and thereafter, (b) maintaining a total leverage ratio of no greater than 6.50 to 1.00 from January 1, 2006 to March 31, 2006, and no greater than 7.00 to 1.00 beginning April 1, 2006 to December 31, 2007, and no greater than 6.00 to 1.00 beginning January 1, 2008 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.

As of September 30, 2006, we had approximately $326.0 million available for borrowing. Taking into consideration the covenants under the Credit Agreement, approximately $39.2 million of that amount was available to be drawn down. Both the term loan facility and the revolving facility under the Credit Agreement bear interest, at our option, at a rate equal to either (i) the London Interbank Offered Rate (“LIBOR”) plus a spread that ranges from 0.63% to 1.50%, or (ii) the prime rate plus a spread of up to 0.50%. The amount of the spread varies depending on our leverage ratio. We also pay a commitment fee that varies depending on certain financial covenants and the amount of unused commitment, up to a maximum of 0.375% per annum on the average balance of the revolving facility. We believe that we are in compliance with all covenants under the amended Credit Agreement.

Under the Credit Agreement, we are required from time to time to protect ourselves from interest rate fluctuations using interest rate hedge agreements. As a result, we have entered into various fixed rate swap agreements designed to mitigate our exposure to higher floating interest rates. These swap agreements require that we pay a fixed rate of interest on the notional amount to a bank and that the bank pays to us a variable rate equal to three-month LIBOR. As of September 30, 2006, we had four swap agreements in place for a total notional amount of $100.0 million, and the periods remaining on these four swap agreements range in duration from 9 to 69 months.

Our credit exposure under the swap agreements is limited to the cost of replacing an agreement in the event of non-performance by our counter-party; however, we do not anticipate non-performance. All of the swap agreements are tied to the three-month LIBOR interest rate, which may fluctuate significantly on a daily basis. The valuation of each swap agreement is affected by the change in the three-month LIBOR rates and the remaining term of the agreement. Any increase in the three-month LIBOR rate results in a more favorable valuation, while a decrease results in a less favorable valuation.

The following table summarizes the interest rates in effect with respect to our debt as of September 30, 2006:


	Amount		Applicable
Type of Debt	Outstanding		Interest Rate
	(In millions)

Senior bank term debt (swap matures June 16, 2012)(1)(2)	$	25.0		5.97	%
Senior bank term debt (swap matures June 16, 2010)(1)(2)		25.0		5.77
Senior bank term debt (swap matures June 16, 2008)(1)(2)		25.0		5.63
Senior bank term debt (swap matures June 16, 2007)(1)(2)		25.0		5.58
Senior bank term debt (subject to variable interest rates)(3)		200.0		6.88
Senior bank revolving debt (subject to variable interest rates)(3)		173.5		6.88
87/8% senior subordinated notes (fixed rate)		300.0		8.88
63/8% senior subordinated notes (fixed rate)		200.0		6.38


(1)		A total of $100.0 million is subject to fixed rate swap agreements that became effective in June 2005.

(2)		Under our fixed rate swap agreements, we pay a fixed rate plus a spread based on our leverage ratio, as defined in our Credit Agreement. That spread is currently set at 1.50% and is incorporated into the applicable interest rates set forth above.

(3)		Subject to rolling 90-day LIBOR plus a spread currently at 1.50% and incorporated into the applicable interest rate set forth above.

In February 2005, we completed the private placement of $200.0 million of 63/8% senior subordinated notes due 2013, realizing net proceeds of approximately $195.3 million. We recorded approximately $4.7 million in deferred offering costs, which are being amortized to interest expense over the life of the related notes using the effective interest rate method. The net proceeds of the offering, in addition to borrowings of $110.0 million under our previous revolving credit facility and available cash, were primarily used to redeem our outstanding 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”).

Our Credit Agreement and the indentures governing our senior subordinated notes require that we comply with certain financial covenants limiting our ability to incur additional debt. Such terms also place restrictions on us with respect to the sale of assets, liens, investments, dividends, debt repayments, capital expenditures, transactions with affiliates, consolidation and mergers, and the issuance of equity interests, among other things. Our Credit Agreement also requires compliance with financial tests based on financial position and results of operations, including a leverage ratio, an interest coverage ratio and a fixed charge coverage ratio, all of which could effectively limit our ability to borrow under the Credit Agreement or to otherwise raise funds in the debt market.

The following table provides a comparison of our statements of cash flows for the nine months ended September 30, 2006 and 2005:


	2006			2005
	(In thousands)

Net cash flows from operating activities	$	44,400		$	67,301
Net cash flows used in investing activities		(64,594	)		(25,017	)
Net cash flows from (used in) financing activities		18,036			(28,048	)

Net cash flows from operating activities were approximately $44.4 million and $67.3 million for the nine months ended September 30, 2006 and 2005, respectively. Cash flows from operating activities for the nine months ended September 30, 2006 declined from the prior year due primarily to a decrease in operating income of approximately $19.8 million, coupled with increased interest expense resulting from a change to our capital structure. In February 2005, we modified our capital structure by redeeming all of our outstanding HIGH TIDES in an amount of $309.8 million. This redemption was financed with the net proceeds of the sale of our 63/8% senior subordinated notes, borrowings under our revolving credit facility, and available cash. As a result we now pay interest expense on debt, instead of dividends on our HIGH TIDES. The additional interest expense from the change

in our capital structure is reflected in operating activities, whereas, the dividends on our HIGH TIDES were reflected in financing activities.

Net cash flows used in investing activities were approximately $64.6 million and $25.0 million for the nine months ended September 30, 2006 and 2005, respectively. During the nine months ended September 30, 2006, we acquired the assets of WHHL-FM (formerly WRDA-FM), a radio station located in the St. Louis metropolitan area for approximately $20.0 million and the assets of WIFE-FM, a radio station located in the Cincinnati metropolitan area for approximately $18.2 million. In connection with this acquisition, we 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. Additionally, we funded approximately $8.7 million of our investment commitment in TV One. During the nine months ended September 30, 2005, we 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 our Class D common stock and sold short-term marketable securities for approximately $7.0 million. Capital expenditures were approximately $10.2 million and $12.7 million for the nine months ended September 30, 2006 and 2005, respectively.

Net cash flows provided from financing activities were approximately $18.0 million for the nine months ended September 30, 2006 compared to net cash flows used in financing activities of approximately $28.0 million for the nine months ended September 30, 2005. During the nine months ended September 30, 2006, we borrowed $33.0 million from our credit facility to fund partially the May and September 2006 acquisitions of WHHL-FM (formerly WRDA-FM) and WMOJ-FM (formerly WIFE-FM) and paid approximately $2.9 million in dividends to Reach Media’s minority interest shareholders. In September 2006, we made a repayment on our revolving credit facility of $12.0 million. During the nine months ended September 30, 2005, we made a principal payment of approximately $17.5 million on our previous term loan, realized net proceeds of approximately $195.3 million from the private placement of $200.0 million of our 63/8% senior subordinated notes, borrowed approximately $135.0 million under our previous revolving credit facility, redeemed our outstanding HIGH TIDES in an amount of $309.8 million, received approximately $6.0 million from our stock subscriptions receivable and paid approximately $7.0 million preferred dividends on our HIGH TIDES.

From time to time we consider opportunities to acquire additional radio stations, primarily in the top 60 African-American markets, and to make strategic investments and divestitures. In May and September 2006, we completed the acquisitions of WHHL-FM (formerly WRDA-FM) and WMOJ-FM (formerly WIFE-FM), as previously described above. Other than our agreement with an affiliate of Comcast Corporation, DIRECTV and other investors to fund TV One (the balance of our commitment was approximately $28.3 million at September 30, 2006), we have no definitive agreements to make acquisitions of additional radio stations or to make strategic investments. In August 2006, we announced an agreement to sell the assets of radio station WILD-FM, located in the Boston metropolitan area for approximately $30.0 million in cash. We expect to complete the sale during the fourth quarter of 2006. We anticipate that any future acquisitions or strategic investments will be financed through funds generated from operations, cash on hand, equity financings, permitted debt financings, debt financings through unrestricted subsidiaries or a combination of these sources. However, there can be no assurance that financing from any of these sources, if available, will be available on favorable terms.

As of September 30, 2006, we had two standby letters of credit in total of $417,000 in connection with our annual insurance policy renewals. To date, there has been no activity on these standby letters of credit.

Our ability to meet our debt service obligations and reduce our total debt, our ability to refinance the 87/8% senior subordinated notes at or prior to their scheduled maturity date in 2011, and our ability to refinance the 63/8% senior subordinated notes at or prior to their scheduled maturity date in 2013 will depend upon our future performance which, in turn, will be subject to general economic conditions and to financial, business and other factors, including factors beyond our control. In the next twelve months, our principal liquidity requirements will be for working capital, continued business development, strategic investment opportunities and for general corporate purposes, including capital expenditures.

We believe that, based on current levels of operations and anticipated internal growth, for the foreseeable future, cash flows from operations together with other available sources of funds will be adequate to make required payments of interest on our indebtedness, to fulfill our commitment to fund TV One, to fund acquisitions, to fund

anticipated capital expenditures and working capital requirements and to enable us to comply with the terms of our debt agreements. However, in order to finance future acquisitions or investments, if any, we may require additional financing and there can be no assurance that we will be able to obtain such financing on terms acceptable to us.

Credit Rating Agencies

On a continuing basis, credit rating agencies such as Moody’s Investor Services and Standard & Poor’s evaluate our debt. As a result of their reviews, our credit rating could change. We believe that any significant downgrade in our credit rating could adversely impact our future liquidity. The effect of a change in our credit rating may limit or eliminate our ability to obtain debt financing, or include, among other things, interest rate changes under any future credit facilities, notes or other types of debt.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our accounting policies are described in Note 1 of the Consolidated Financial Statements in our Annual Report on Form 10-K. We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. In Management’s Discussion and Analysis contained in our Annual Report on Form 10-K for the year ended December 31, 2005, we summarized the policies and estimates that we believe to be most critical in understanding the judgments involved in preparing our financial statements and the uncertainties that could affect our results of operations, financial condition and cash flows. Excluding the implementation of SFAS No. 123(R)in January 2006, there have been no material changes in such policies or estimates since we filed our Annual Report on Form 10-K for the year ended December 31, 2005.

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 154, “Accounting Changes and Error Corrections,” which amends APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements — An Amendment of APB Opinion No. 28,” was issued in May 2005. SFAS No. 154 requires retrospective application to financial statements of prior periods for changes in accounting principles that are not adopted prospectively. This statement was effective January 1, 2006, and had no impact on the Company’s 2006 financial statements as of and for the three and nine months ended September 30, 2006.

CAPITAL AND COMMERCIAL COMMITMENTS

Long-term debt

Our long-term debt consist of obligations under our Credit Agreement, our 87/8% senior subordinated notes and our 63/8% senior subordinated notes.

Lease obligations

We have non-cancelable operating leases for office space, studio space, and broadcast towers and transmitter facilities that expire over the next 20 years.

Operating Contracts and Agreements

We have other operating contracts and agreements including employment contracts, on-air contracts, severance obligations, retention bonuses, consulting agreements, equipment rental agreements, programming related agreements and other general operating agreements that expire over the next eight years.

Contractual Obligations Schedule

The following table represents our contractual obligations as of September 30, 2006:


	Payments Due by Period
	October-
	December										2011 and
Contractual Obligations	2006		2007		2008		2009		2010		Beyond		Total
	(In thousands)

87/8% senior subordinated notes(1)	$	13,313	$	26,625	$	26,625	$	26,625	$	26,625	$	313,313	$	433,126
63/8% senior subordinated notes(1)		6,375		12,750		12,750		12,750		12,750		227,094		284,469
Credit facilities(2)		9,959		41,497		71,970		101,970		109,470		390,831		725,697
Other operating contracts/agreements(3) (4)(5)		9,510		29,717		21,847		18,137		18,030		43,330		140,571
Operating lease obligations		2,212		7,566		7,222		6,624		5,801		17,234		46,659

Total	$	41,369	$	118,155	$	140,414	$	166,106	$	172,676	$	991,802	$	1,630,522


(1)		Includes interest obligations based on current effective interest rate on senior subordinated notes outstanding as of September 30, 2006.

(2)		Includes interest obligations based on current effective interest rate and projected interest expense on credit facilities outstanding as of September 30, 2006.

(3)		Includes employment contracts, severance obligations, on-air talent contracts, consulting agreements, equipment rental agreements, programming related agreements, and other general operating agreements.

(4)		Includes a retention bonus of approximately $2.0 million pursuant to an employment agreement with the Chief Administrative Officer (“CAO”) for remaining employed with the Company through and including October 31, 2008. If the CAO’s employment ends before October 31, 2008, the amount paid will be a pro rata portion of the retention bonus based on the number of days of employment between October 31, 2004 and October 31, 2008.

(5)		Includes a retention bonus of approximately $7.0 million pursuant to an employment agreement with the Chief Financial Officer (“CFO”) for remaining employed with the Company through and including October 18, 2010. If the CFO’s employment ends before October 18, 2010, the amount paid will be a pro rata portion of the retention bonus based on the number of days of employment between October 18, 2005 and October 18, 2010.

Reflected in the obligations above, as of September 30, 2006, we had four swap agreements in place for a total notional amount of $100.0 million. The periods remaining on the swap agreements range in duration from 9 to 69 months. If we terminate our interest swap agreements before they expire, we will be required to pay early termination fees. Our credit exposure under these agreements is limited to the cost of replacing an agreement in the event of non-performance by our counter-party, however, we do not anticipate non-performance.

RELATED PARTY TRANSACTIONS

In September 2006, we purchased a radio broadcasting tower and related facilities in the Detroit metropolitan area from American Signaling Corporation for $936,000 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, L.P. Terry L. Jones, a general partner of Syndicated Communications Venture Partners II, L.P., is also a member of our board of directors. The terms of the transaction were approved by an independent committee of our board of directors. Prior to the purchase, we had leased space on the tower for the broadcast of WDMK-FM from American Signaling Corporation for $75,000 per year.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are not historical facts, but rather reflect our current expectations concerning future results and events. You can identify some of these forward-looking statements by our use of words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “likely,” “may,” “estimates” and similar expressions. We cannot guarantee that we will achieve these plans, intentions or expectations. Because these statements apply to future events, they are subject to risks and uncertainties that could cause actual results to differ materially from those forecast or anticipated in the forward-looking statements. These risks, uncertainties and factors include, but are not limited to:


	•	economic conditions, both generally and relative to the radio broadcasting industry;

	•	risks associated with our acquisition strategy;

	•	the highly competitive nature of the broadcast industry;

	•	our high degree of leverage; and

	•	other factors described in our reports on Form 10-K and Form 10-Q.

You should not place undue reliance on these forward-looking statements, which reflect our view as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting Radio One, see Item 7A: “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2005. Our exposure related to market risk has not changed materially since December 31, 2005.


Item 4.	*Controls and Procedures*

Evaluation of disclosure controls and procedures

We have carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our CEO and CFO concluded that as of such date, our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure controls objectives. Our management, including our CEO and CFO, has concluded that our disclosure controls and procedures are effective in reaching that level of reasonable assurance.

Changes in internal control over financial reporting

During the quarter ended September 30, 2006, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	*Legal Proceedings*

In November 2001, Radio One and certain of its officers and directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York, now captioned, In re Radio One, Inc. Initial Public Offering Securities Litigation, Case No. 01-CV-10160. Similar complaints were filed in the same court against hundreds of other public companies (the “Issuers”) that conducted initial public offerings of their common stock in the late 1990s (the “IPO Lawsuits”). In the complaint filed against Radio One (as amended), the plaintiffs claim that Radio One, certain of its officers and directors, and the underwriters of certain of its public offerings violated Section 11 of the Securities Act of 1933, as amended, based on allegations that its registration statement and prospectus failed to disclose material facts regarding the compensation to be received by, and the stock allocation practices of, the underwriters. The complaint also contains a claim for violation of Section 10(b) of the Securities Exchange Act of 1934, as amended, based on allegations that this omission constituted a deceit on investors. The plaintiffs seek unspecified monetary damages and other relief.

In July 2002, Radio One joined in a global motion, filed by the Issuers, to dismiss the IPO Lawsuits. In October 2002, the court entered an order dismissing the Company’s named officers and directors from the IPO Lawsuits without prejudice, pursuant to an agreement tolling the statute of limitations with respect to Radio One’s officers and directors until September 30, 2003. In February 2003, the court issued a decision denying the motion to dismiss the Section 11 and Section 10(b) claims against Radio One and most of the Issuers.

In July 2003, a Special Litigation Committee of Radio One’s board of directors approved in principle a settlement proposal with the plaintiffs that is anticipated to include most of the Issuers. The proposed settlement would provide for the dismissal with prejudice of all claims against the participating Issuers and their officers and the assignment to plaintiffs of certain potential claims that the Issuers may have against their underwriters. The tentative settlement also provides that, in the event that plaintiffs ultimately recover less than a guaranteed sum from the underwriters, plaintiffs would be entitled to payment by each participating Issuer’s insurer of a pro rata share of any shortfall in the plaintiffs guaranteed recovery. In September 2003, in connection with the proposed settlement, Radio One’s named officers and directors extended the tolling agreement so that it would not expire prior to any settlement being finalized.

In June 2004, Radio One executed a final settlement agreement with the plaintiffs. On February 2005, the Court issued a decision certifying a class action for settlement purposes and granting preliminary approval of the settlement subject to modification of certain bar orders contemplated by the settlement. In August 2005, the Court reaffirmed class certification and preliminary approval of the modified settlement in a comprehensive Order, and directed that Notice of the settlement be published and mailed to class members beginning November 2005. In February 2006, the Court dismissed litigation filed against certain underwriters in connection with the claims to be assigned to the plaintiffs under the settlement. In April 2006, the Court held a Settlement Fairness Hearing to determine whether to grant final approval of the settlement. The Court’s decision on final approval of the settlement remains pending.

Radio One is involved from time to time in various routine legal and administrative proceedings and threatened legal and administrative proceedings incidental to the ordinary course of our business. Radio One believes the resolution of such matters will not have a material adverse effect on its business, financial condition, results of operations or liquidity.


Item 1A.	*Risk Factors*

There have been no material changes to our risk factors as set forth in our most recently filed Form 10-K.


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

None.


Item 3.	*Defaults Upon Senior Securities*

None.


Item 4.	*Submission of Matters to a Vote of Security Holders*

None.


Item 5.	*Other Information*

None.


Item 6.	*Exhibits*


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 (File No. 000-25969)).
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 (File No. 000-25969)).
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 (File No. 000-25969)).
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.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RADIO ONE, INC.

/s/ SCOTT R. ROYSTER

Scott R. Royster

Executive Vice President and Chief Financial

Officer (Principal Financial Officer)

November 8, 2006