Radio One Reports 2006 Second Quarter Results

Alfred C. Liggins, III, Radio One's CEO and President stated, "Last quarter, we said that the second quarter could be the bottom for the radio industry and for Radio One, and, on its face, this quarter was pretty disappointing. We are clearly facing some challenges in certain markets, over and above the ongoing softness in the radio industry, and are taking active steps to address those challenges. However, when viewed in the context of our out-performance of the industry in the second quarter of 2005, along with some discrete expense items in this quarter that should not be recurring, as well as investment spending that is already beginning to pay off in positive ways, we think that this quarter may represent the perfect storm of bad news and that better days are ahead."

Mr. Liggins continued, "In addition to ongoing management realignment that will greatly strengthen our management team and deepen our bench of talent, we are excited that in the past several months we have:

- launched the Tom Joyner Morning Show and The Michael Baisden Show on KKBT-FM in Los Angeles;

- achieved break-even results for our African-American talk radio network, launched earlier this year;

- seen significant early DVD sales results and retail distribution commitments for "Preaching to the Choir", the independent film we are helping promote and distribute; and

- continued to see TV One post significant revenue and subscriber gains on a year-over-year basis.

I believe that we are well positioned to benefit from the strategic initiatives we are currently pursuing, while we continue to re-energize the performance of our radio stations through key hires and making appropriate strategic decisions relative to our radio station portfolio that will be in our shareholders' long-term best interests."

Additional Second Quarter Information

During the second quarter, the Company incurred approximately $0.7 million in severance expense associated with former employees, approximately $1.2 million in expenses associated with a Tom Joyner syndicated television show that will not re-new for the upcoming television season, approximately $0.6 million associated with the new African-American talk radio network and approximately $1.0 million in expenses associated with activity around the Company's independent film distribution initiative; additional revenue from which should be earned over the next 18 months, while incurring little additional cost.

Net broadcast revenue decreased to approximately $97.8 million for the quarter ended June 30, 2006 from approximately $101.5 million for the quarter ended June 30, 2005, or 4%. We experienced net broadcast revenue declines in most of our markets, primarily due to overall industry revenue declines for the markets in which we operate. Declining ratings, and/or lower pricing led to declines in many of our markets, most notably Los Angeles, Washington, DC, Atlanta, Dallas, Cleveland and Cincinnati. These declines more than offset increases in net broadcast revenue experienced in our Houston, Philadelphia, Richmond and St. Louis markets, as well as increased net broadcast revenue from Reach Media. Net broadcast revenue is reported net of agency and outside sales representative commissions of approximately $12.0 million and $13.0 million for the quarters ended June 30, 2006 and 2005, respectively.

Operating expenses, excluding depreciation and amortization, stock-based compensation, and non-cash compensation increased to approximately $57.2 million for the quarter ended June 30, 2006 from approximately $51.7 million for the quarter ended June 30, 2005, or 11%. This increase was primarily due to costs associated with a syndicated Tom Joyner television show that will not re-new for the upcoming television season, spending on new initiatives, such as the Company's recently-launched African-American radio talk network and its film distribution initiative, severance expense associated with former employees, and costs associated with two recent additions to the Company's radio station portfolio. Excluding these expenses, operating expenses, excluding depreciation and amortization, stock-based compensation, and non-cash compensation would have increased 3% for the quarter ended June 30, 2006.

Stock-based compensation was approximately $1.5 million for the quarter ended June 30, 2006, compared to $0 for the same period in 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 $3.9 million for the quarter ended June 30, 2006 from approximately $3.2 million for the quarter ended June 30, 2005, an increase of approximately $0.7 million, or 23%. The increase was primarily due 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 fixed assets and intangibles. To a lesser extent, the increase in depreciation and amortization also resulted from depreciation associated with capital expenditures made since June 30, 2005, which was slightly offset by the completion of amortization of certain trade names.

Interest expense increased to approximately $18.1 million for the quarter ended June 30, 2006 from approximately $17.2 million for the quarter ended June 30, 2005, an increase of approximately $0.9 million, or 5%. The increase resulted from additional interest obligations associated with borrowings to fund partially our stock repurchase program during the second-half of 2005, and 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. Interest expense also increased due to the impact of higher market interest rates on the variable rate portion of our debt.

Provision for income taxes decreased to approximately $8.1 million for the quarter ended June 30, 2006 from approximately $8.5 million for the quarter ended June 30, 2005, a decrease of approximately $0.4 million or 4%. The decrease to the provision was due to lower pre-tax income, offset by an unfavorable adjustment to our liability associated with changes in Texas state tax law. Our effective tax rate as of June 30, 2006 was 49.0%. Excluding the tax impact of the permanent differences associated with SFAS No. 123R and the Texas state tax law change, our effective tax rate as of June 30, 2006 was 43.3%, compared to 40.2% as of June 30, 2005. This rate increase is attributable to the lower pre-tax income and proportionately higher permanent differences. As of June 30, 2006, our annual effective tax rate is projected at 42.9%, which is impacted by the permanent differences between income subject to tax for book versus tax purposes.

Other pertinent financial information for the second quarter of 2006 includes capital expenditures of approximately $3.8 million, compared to approximately $5.2 million for the second quarter of 2005. As of June 30, 2006, Radio One had total debt (net of cash balances) of approximately $945.9 million.

In May 2006, we completed the acquisition of 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.

In April 2006, we announced amendments to certain financial covenants in our existing $800.0 million senior credit facility. The total leverage ratio was increased for the second quarter of 2006, through fiscal year end 2007, while the interest coverage ratio was decreased from its original level for all of fiscal year 2006 through fiscal year 2008. The other material terms and conditions of the senior credit facility, including maturity, interest rates and other financial covenants, were not affected by the amendment.

In March 2006, we announced an agreement to acquire the assets of WIFE-FM, a radio station licensed to Connorsville, Indiana, for approximately $18.0 million in cash. Subject to the necessary regulatory approvals, we will move the station into the Cincinnati metropolitan area and consolidate the station with our existing Cincinnati operations. We expect to complete this acquisition during the second half 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 similar equity instruments that might be granted during fiscal year 2006.

Radio One will hold a conference call to discuss its results for the second quarter of 2006. This conference call is scheduled for Monday August 7, 2006 at 10:00 a.m. Eastern Time. Interested parties should call 1-612-288-0329 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 1-320-365-3844; access code 836084. 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.

Source: Radio One, Inc.