Radio One, Inc. Reports 2006 Third Quarter Results

Radio One, Inc. (NASDAQ:ROIAK and ROIA) today reported its results for the quarter ended September 30, 2006. Net broadcast revenue was approximately $99.1 million, a decrease of 2% from the same period in 2005. Station operating income1 was approximately $48.5 million, an increase of 2% from the same period in 2005. Adjusted EBITDA2 was approximately $39.7 million, a decrease of 4% from the same period in 2005. Operating income was approximately $35.9 million, a decrease of 6% from the same period in 2005. Net income applicable to common stockholders3 was approximately $8.0 million or $0.08 per diluted share. Alfred C. Liggins, III, Radio One’s CEO and President stated, "This quarter was a fairly decent one, with the exception of our continuing poor performance in Los Angeles and some softness in Atlanta. In fact, if our LA radio station had performed in line with market industry results, we would have outperformed the radio industry for the quarter. We are working hard to correct our problems in these two locations and recently made significant senior level personnel changes in each of these markets. While we continue to have a lot of work to do, we are optimistic that 2007 will be a year of growth and renewal after what has been the most challenging year we have faced in our 25-year history.”   RESULTS OF OPERATIONS   Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  2006  2005  (unaudited) (unaudited) (in thousands) (in thousands) STATEMENT OF OPERATIONS DATA: NET BROADCAST REVENUE $ 99,058  $ 100,749  $ 277,853  $ 278,106    OPERATING EXPENSES: Programming and technical 20,440  16,900  59,937  49,942  Selling, general and administrative 30,079  36,450  87,157  87,902  Corporate expenses 7,010  5,673  19,979  16,140  Non-cash compensation 325  541  947  1,453  Stock-based compensation 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  Weighted average shares outstanding – basic 98,711  103,709  98,709  105,536  Weighted average shares outstanding – diluted 98,711  103,902  98,712  105,711      Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  2006  2005  (unaudited) (unaudited) (in thousands, except per share data) (in thousands, except per share data) PER SHARE DATA – basic and diluted: Net income per share $ 0.08  $ 0.11  $ 0.19  $ 0.39  Dividends per share   -      -      -      0.03  Net income per share applicable to common stockholders   0.08      0.11      0.19      0.36    SELECTED OTHER DATA: Station operating income $ 48,539  $ 47,399  $ 130,759  $ 140,262  Station operating income margin (% of net revenue) 49% 47% 47% 50% Station operating income reconciliation: Net income $ 8,034  $ 11,466  $ 18,731  $ 40,998  Plus: Depreciation and amortization 3,741  3,063  11,770  9,472  Plus: Corporate expenses 7,010  5,673  19,979  16,140  Plus: Non-cash compensation 325  541  947  1,453  Plus: Stock-based compensation 1,542  -  4,626  -  Plus: Equity in loss of affiliated company 635  442  1,569  1,205  Plus: Provision for income taxes 8, 056  8,808  17,766  23,955  Plus: Minority interest in income of subsidiaries 882  1,089  1,920  1,714  Plus: Interest expense 18,733  16,431  54,079  46,100  Plus: Loss from discontinued operations, net of tax 70  48  137  254  Less: Interest income 493  162  1,034  906  Less: Other (expense) income   (4)   -    (269)   123  Station operating income $ 48,539  $ 47,399  $ 130,759  $ 140,262    Adjusted EBITDA $ 39,658  $ 41,185  $ 104,938  $ 122,792  Adjusted EBITDA reconciliation: Net income $ 8,034  $ 11,466  $ 18,731  $ 40,998  Plus: Depreciation and amortization 3,741  3,063  11,770  9,472  Plus: Provision for income taxes 8,056  8,808  17,766  23,955  Plus: Interest expense 18,733  16,431  54,079  46,100  Plus: Loss from discontinued operations, net of tax 70  48  137  254  Less: Interest income   493    162    1,034    906  EBITDA $ 38,141  $ 39,654  $ 101,449  $ 119,873  Plus: Equity in loss of affiliated company 635  442  1,569  1,205  Plus: Minority interest in income of subsidiaries   882    1,089    1,920    1,714  Adjusted EBITDA $ 39,658  $ 41,185  $ 104,938  $ 122,792      September 30, December 31,   2006    2005  (unaudited) SELECTED BALANCE SHEET DATA: (in thousands)   Cash and cash equivalents $ 16,923  $ 19,081  Intangible assets, net 2,042,122  2,004,875  Total assets 2,253,684  2,201,380  Total debt (including current portion) 973,500  952,520  Total liabilities 1,207,138  1,177,983  Total stockholders' equity 1,044,710  1,020,541      Current Amount Outstanding Applicable Interest Rate (b) (in thousands) SELECTED LEVERAGE AND SWAP DATA: Senior bank term debt (swap matures 6/16/2012) $ 25,000  5.97% Senior bank term debt (swap matures 6/16/2010) 25,000  5.77% Senior bank term debt (swap matures 6/16/2008) 25,000  5.63% Senior bank term debt (swap matures 6/16/2007) 25,000  5.58% Senior bank term debt (at variable rates) (a) 200,000  approximately 6.94% Senior bank term debt (at variable rates) (a) 173,500  approximately 6.94% 8-7/8% senior subordinated notes (fixed rate) 300,000  8.88% 6-3/8% senior subordinated notes (fixed rate) 200,000  6.38% (a) Subject to rolling 90-day LIBOR plus a spread currently at 1.50% and incorporated into the rate set forth above. This tranche is not covered by swap agreements described in footnote (b). (b) Under its swap agreements, Radio One pays a fixed rate plus a spread based on the Company’s leverage, as defined in its credit agreement. As of September 30, 2006, that spread was 1.50% and is incorporated into the applicable interest rates set forth above. Net broadcast revenue decreased to approximately $99.1 million for the quarter ended September 30, 2006 from approximately $100.7 million for the quarter ended September 30, 2005, or 2%. This decrease in revenue was due to negative industry growth in the markets in which we operate, exacerbated by a significant decline in revenue at our Los Angeles radio station and more modest declines in Atlanta and Charlotte. These declines were partially offset by growth in our Baltimore, Houston, Washington, DC and St. Louis markets, among others, as well as revenue growth from Reach Media, our news/talk network and from our 25th Anniversary event held in August 2006. Net broadcast revenue excludes net broadcast revenue from discontinued operations of approximately $0.4 million and $0.6 million for the quarters ended September 30, 2006 and 2005, respectively, associated with the pending sale of one of our Boston radio stations. Net broadcast revenue is also reported net of agency and outside sales representative commissions of approximately $12.0 million and $13.1 million for the quarters ended September 30, 2006 and 2005, respectively. Operating expenses, excluding depreciation and amortization, stock-based compensation and non-cash compensation decreased to approximately $57.5 million for the quarter ended September 30, 2006 from approximately $59.0 million for the quarter ended September 30, 2005, or 3%. The decrease in operating expenses resulted primarily from higher operating expenses for the same period last year due to an approximately $5.3 million one-time, non-cash charge in September 2005 associated with the termination of our national sales representation agreements with Interep. The decrease in operating expenses was partially offset by increases in operating expenses due primarily to costs associated with the Tom Joyner television show launched in October 2005, higher talent costs, additional consulting and professional services fees and expenses associated with our 25th Anniversary event. Operating expenses exclude expenses from discontinued operations of approximately $0.4 million and $0.7 million for the quarters ended September 30, 2006 and 2005, respectively. Stock-based compensation was approximately $1.5 million for the quarter ended September 30, 2006, compared to $0 for the quarter ended September 30, 2005. The non-cash expense resulted from our January 1, 2006 adoption of Statement of Financial Accounting Standards ("SFAS”) No. 123R, "Share-Based Payment.” Depreciation and amortization expense increased to approximately $3.7 million for the quarter ended September 30, 2006 from approximately $3.1 million for the quarter ended September 30, 2005, or 22%. This increase was due primarily to the amortization of certain intangibles associated with the acquisition of 51% of the common stock of Reach Media. During the fourth quarter of 2005, we completed the preliminary purchase price allocation for the Reach Media acquisition, and began the associated depreciation and amortization of acquired assets and intangibles. To a lesser extent, the increase in depreciation and amortization resulted from depreciation associated with capital expenditures made since September 30, 2005. Depreciation and amortization expense excludes depreciation and amortization expense from discontinued operations of approximately $0.1 million for the quarters ended September 30, 2006 and 2005. Interest expense increased to approximately $18.7 million for the quarter ended September 30, 2006 from approximately $16.4 million for the quarter ended September 30, 2005, or 14%. This increase 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 decreased to approximately $8.1 million for the quarter ended September 30, 2006 from approximately $8.8 million for the quarter ended September 30, 2005, or 9%. This decrease was due to lower pre-tax income, which was partially offset by an increase in certain valuation allowances. For the quarter ended September 30, 2006, our effective tax rate was 47.3%. As of September 30, 2006, our annual effective tax rate is projected at 46.1%. Excluding the tax impact of adopting SFAS No. 123R, several state tax law changes, the release of certain reserve contingencies and the increase in certain valuation allowances, our projected annual effective rate as of September 30, 2006 was 40.9%. Loss from discontinued operations, net of tax, was $70,000 for the quarter ended September 30, 2006, compared to $48,000 for the quarter ended September 30, 2005, or 47%. Loss from discontinued operations, net of tax, resulted from our August 2006 agreement to sell the assets of WILD-FM, a radio station located in the Boston metropolitan area, for approximately $30.0 million in cash. Other pertinent financial information for the quarter ended September 30, 2006 includes capital expenditures of approximately $4.7 million, compared to approximately $4.4 million for the quarter ended September 30, 2005. Additionally, as of September 30, 2006, Radio One had total debt (net of cash balances) of approximately $956.6 million. In September 2006, we completed the acquisition of WIFE-FM, a radio station located in the Cincinnati metropolitan area, for approximately $18.0 million in cash. In connection with the transaction, 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. The station has been consolidated with our existing Cincinnati operations. In August 2006, we announced an agreement to sell the assets of WILD-FM for approximately $30.0 million in cash. We expect to complete the sale during the fourth quarter of 2006. On January 1, 2006, we adopted SFAS No. 123R and anticipate that it will result in an increase in operating expenses in the range of approximately $6.0 to $7.0 million for the full-year of 2006. This increase does not include the potential expense impact of any stock options or other equity instruments that might be granted during fiscal year 2006. Radio One will hold a conference call to discuss its results for the third quarter of 2006. This conference call is scheduled for Thursday, November 2, 2006 at 10:00 a.m. Eastern Time. Interested parties should call 703-639-1307 at least five minutes prior to the scheduled time of the call and provide the password "Radio One.” The conference call will be recorded and made available for replay from 1:30 p.m. Eastern Time the day of the call, until 11:59 p.m. Eastern Time the following day. Interested parties may listen to the replay by calling 320-365-3844; access code 844436. Access to live audio and replay of the conference call will also be available on Radio One’s corporate website at www.radio-one.com. The replay will be made available on the website for the seven business days following the call. Radio One, Inc. (www.radio-one.com) is the nation's seventh largest radio broadcasting company (based on 2005 net broadcast revenue) and the largest radio broadcasting company that primarily targets African-American and urban listeners. Including announced dispositions, Radio One owns and/or operates 70 radio stations located in 22 urban markets in the United States and reaches approximately 14 million listeners every week. Radio One also owns interests in TV One, LLC (www.tvoneonline.com), a cable/satellite network, programming primarily to African-Americans and Reach Media, Inc. (www.blackamericaweb.com), owner of the Tom Joyner Morning Show and other businesses associated with Tom Joyner, a leading urban media personality. Radio One also operates the country's only nationwide African-American news/talk network on free radio and programs "XM 169 The POWER," an African-American news/talk channel, on XM Satellite Radio. Notes: This press release includes 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. Because these statements apply to future events, they are subject to risks and uncertainties that could cause actual results to differ materially, including the absence of a combined operating history with an acquired company or radio station and the potential inability to integrate acquired businesses, need for additional financing, high degree of leverage, seasonal nature of the business, granting of rights to acquire certain portions of the acquired company’s or radio station’s operations, market ratings, variable economic conditions and consumer tastes, as well as restrictions imposed by existing debt and future payment obligations. Important factors that could cause actual results to differ materially are described in Radio One’s reports on Forms 10-K, and 10-Q and other filings with the Securities and Exchange Commission. 1 "Station operating income” consists of net income before depreciation and amortization, provision for income taxes, interest income, interest expense, equity in loss of affiliated company, minority interest in income of subsidiaries, other income (expense), corporate expenses, stock-based and non-cash compensation expenses and loss from discontinued operations, net of tax. 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 stock-based 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. A reconciliation of operating income to station operating income has been provided in this release. 2 "Adjusted EBITDA” consists of net income plus (1) depreciation, amortization, provision for income taxes, interest expense, equity in loss of affiliated company, minority interest in income of subsidiaries and loss from discontinued operations, net of tax and less (2) interest income. Net income before interest income, interest expense, provision for income taxes, depreciation and amortization is commonly referred to in our business as "EBITDA.” Adjusted EBITDA and EBITDA are not measures of financial performance under generally accepted accounting principles. We believe Adjusted 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 Adjusted EBITDA excludes charges for depreciation, amortization and interest expense that have resulted from our acquisitions and debt financings, our provision for income tax expense, as well as our equity in loss of our affiliated company and loss from discontinued operations. Accordingly, we believe that Adjusted EBITDA provides helpful information about the operating performance of our business, apart from the expenses associated with our physical plant, capital structure or the results of our affiliated company. Adjusted EBITDA is frequently used as one of the bases for comparing businesses in our industry, although our measure of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Adjusted EBITDA and EBITDA do not purport to represent operating income or cash flow from operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as alternatives to those measurements as an indicator of our performance. A reconciliation of net income to EBITDA and Adjusted EBITDA has been provided in this release. 3 Net income applicable to common stockholders is defined as net income minus dividends paid, if any.