Urban One Inc (UONE) 2002 Q2 法說會逐字稿

Thank you for holding and welcome to Radio One conference call today. I just like to remind everyone that today's conference call is being recorded and at this time your lines are on listen mode only. You will have a chance to ask questions later in conference. I turn the call over to Radio One's CEO and President, Alfred Liggins.

Thank you very much and welcome everybody to our quarterly results conference call. As you all know, we've released our earnings and we're pretty pleased with. I'm actually call in for oversea -- from overseas so... Joining me today on the call is our Executive Vice President and Chief Financial Officer Scott Royster, who'll actually run the call today and then Chief Operating Officer Mary Catherine Sneed is also with us. After Scott reads the safe harbor statement and does an overview, he will go into the numbers, and we're all available to ask -- excuse me, to answer any questions that you all might have -- Scott.

Thank you Alfred. This conference call 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 the Company's reports on Forms 10-K and 10-Q and other filings with the Securities and Exchange Commission. Thanks again to every one for joining us our 2002 second quarter results conference call. We're reporting to you about a week earlier than usual in an attempt to communicate more expeditiously with the market our results of operation, and we expect to make continuous improvements on this score in upcoming quarters, particularly in the anticipation of new SEC rules which may ultimately require all public companies to not only report within 30 days of quarter end but file their 10-Q's within that timeframe. We'll be ready for whatever the SEC ultimately deems as required. Before I dive into the numbers, the quick snapshot of the quarter is that of a highly positive one if not a fairly consistent and a quite one. The theme for the quarter is the song or the story, if you will, remains the same. We're well beyond the integration stage of all of the radio stations we've acquired in the past few years and are deep into the optimization phase. Our ratings have generally been stable or growing across the portfolio, and our revenues, as you can see, has continued to benefit from the very strong range growth experienced by many of our stations over the past couple of years.

The competitive entry that we have seen in certain markets has not left us unblemished, but neither has it had a material adverse effect on our deeply diversified business model. Our profit margins continue to improve and our cash flow generation is impressive to say the least. We continue to enhance our operating team both in markets and in the corporate and feel that we've one of the best management teams in the business. All is fairly quiet on the deal front and our outlook for the upcoming quarter is more of the same in terms of revenue growth, cash flow generation, and general out performance of the industry. If all of this sounds familiar, it is because our message, strategy, and performance continue to be focused, clearly defined, consistent, and ultimately not all that complicated. We live in a new world, a world where investors not only wants to show them the money but how we got the money and we are happy to oblige. We've always run this company with the spirit of openness vis-a-vis the investment company. We are proud of our full disclosure mentality and culture. We also try to keep things simple and transparent without jeopardizing our various competitive advantages. Hopefully, a press release, you have seen this morning, provides you with a level of detail financial and otherwise that causes you to feel extremely comfortable with and knowledgeable about your company, your management team, and our results. Whatever you may have, you should feel free to ask during the QA period of this call or by calling or emailing me, Alfred, or Mary Catherine at any time. We'll be as responsive as humanly possible. Okay, on to the financial results for the quarter. Firstly, let me start by saying that once again the company managed to give all of its guidance numbers. Secondly, I went back and checked and the last time I said the following was almost two years ago, the company experienced double-digit same station and proforma revenue growth in the quarter just ended. In fact, on a same station and proforma basis, the company's revenue was up 12 percent, which significantly outperformed the mid-single digit growth in the industry for Q2.

On an as reported basis, the company's net revenue came in at 80.2 million dollars, up 29 percent from last year. This growth, as it usually is, was fairly geographically broad based, although national significantly outperformed local in the quarter. Low single digit growth for local compared to north of 20 percent for national. BCF was $43.4 million, up 28 percent from last year. BCF was also up 15 percent on a same station basis and 18 percent on a proforma basis. If I can point to one thing in the quarter that I wish was a little better was the same station BCF growth of 15 percent versus same station revenue growth of 12 percent. Normally, as you know, we like to see the same station BCF grow one and half times faster than the revenue growth as we did on a proforma basis. I'll address this further a bit later. The BCF margin came in at 54.2 percent, down only slightly from last year because of the addition of the blue chip stations which operate at lower margin levels, but the same station BCF margin came in at astounding 56.3 percent, up from 54.7 percent which is astonishing and speaks to the very strong operating culture in place of this company. EBITDA was 40.3 million, up 24 percent and net income, yes net income, came in at $13.2 million, or 13 cents per share up from a loss of 16 cents last year due to improved operating performance and the effect of FAS 142. ATCF was 21.4 million, or 21 cents per share, up 53 percent from last year and free cash flow was 18.3 million, or 18 cents per share, up 43 percent from last year.

Just so that we are clear, we define broadcast cash flow as revenue less station operating expenses; EBITDA as broadcast cash flow less corporate expenses; after-tax cash flow, as you can see from the detail provided on page four of the press release, is defined as pre-tax income plus depreciation and amortization plus loss on asset sale net of gain or loss if any plus non-cash interest expense and non-cash compensation less cash taxes and less preferred dividends; free cash flow is defined as after-tax cash flow less capital expenditures. For the six months ended June 30, revenue was 138.5 million, up 26 percent. Broadcast cash flow was 69.2 million, up 24 percent. EBITDA was 63.5 million, up 21 percent. Net income was a loss of $8.7 million due to the $23.2 million negative effect of the adoption of FAS 142, as we discussed in the first quarter. After-tax cash flow was 24.2 million and free cash flow was 19.1 million, up 50 percent and 45 percent respectively. Same station revenue for the six month period were up 9 percent and same station BCF was up 13 percent and the same station BCF margin was 52.3 percent. As for the slight deficiency with regard to the BCF growth relative to the revenue in the second quarter, I'd like to point the several things on the cost side that may have held us back a bit. One, the company has made some programming investments, which should provide us with healthy long-term growth potential. These investments have certainly increased the company's cost of programming, but we also certainly think that the returns on these investments will be significant. Two, we held the line on the salary increases until April 1st 2002 as we want to see ourselves clear of the 18 month add recession. Once we were comfortable that was behind us, we pushed through increases for the employee base. Additionally, many of our operating managers, throughout the company, did not earn bonuses last year because of the weakness in the add environment. This year, many of those same managers are earning these bonuses, which are earned and paid on a quarterly basis and are tied to BCF goals. Three, certain business expenses such as healthcare cost, many different types of insurance, and personnel costs are growing at enormous rates.

We may be in a soft economic environment but the cost of good people continues to increase their rates well above what any standard employment labor cost index might suggest. And lastly, increased advertising and promotion initiatives in certain markets have increased this department's cost all [being] fairly modestly. We still think that our 1.5 times ratio is a sound way of thinking about our business and we've always said this was not necessarily achievable on a consistent quarter-to-quarter basis, and we were right, but we are still extremely pleased with this performance no matter what expect of that you focus on. Turning now to the balance sheet. We ended the quarter, with a total of $650 million of senior and subordinated debt with a weighted average cost of approximately 8.2 percent. As I've stated in the past, we have $325 million of debt that was slopped and fixed when rates were significantly higher than they are today. The day draws closer on December 2nd, to be exact, when the swap matures and we can then take advantage of today's lower interest rate environment. At such time, we'll reduce our all in cost of debt probably somewhere between 100 to 200 basis points. This true cap savings will all flow to the bottom line after accounting for the deferred tax in fact of the higher pre-tax income, and we'll be virtually 100 percent additive to free cash flow as we continue to not be a federal cash taxpayer. Our leverage ratio has fallen from approximately 5.29 times; the level we reach after paying down debt with proceeds from our April equity offering to approximately 5.08 times today. Given our expected cash flow growth, we should be comfortably below five times by the end of the third quarter. Our current covenant level is 6.5 times. Also given our cash levels and continuing free cash flow generation, we should have no issues whatsoever relative to making our quarterly principle payments of approximately $13 million per quarter. These begin at the end of next March and can be made using our free cash or from borrowings under our $250 million revolver, which is completely undrawn.

Looking ahead to Q3, the one thing that stands out is the remarkable consistency from Q2. We do think that the same station and proforma revenue growth rates could be modestly higher in Q3 primarily because of the weakness in the business last September 11 through the end of the quarter. Otherwise, the industry seems to be hovering nicely in the mid-single digit growth range, although, July could turn out to be one of the fastest growing months so far this year. It certainly was a very solid month for us. One of the interest thing, and we believe positive aspects of Q3, is that the gap between local and national growth has narrowed considerably. While national has slowed a bit, local has picked up. With local as the bread and butter of our business, this is a sign that the fundamental health of the business is improving. August is looking pretty good and September is early but with easy comps looking fine. While the pacings jump around a bit, week-to-week and business slows and then it accelerates in a [oscilloscopic] manner directionally things appear to be fairly positive. As for the numbers, and no, we did not just copy this from our second quarter guidance model, we expect to achieve net revenue of $79.2 million, BCF of approximately $41.5 million, EBITDA of approximately $38.3 million, earnings per share of approximately 11 to 12 cents, ATCF per share of approximately 19 cents and free cash flow of approximately $16 million. These results would represent double-digit revenue growth for the quarter on a same station and proforma basis. CAPEX will be a bit higher in the quarter, approaching $4 million, as many of the company's infrastructure build-out initiatives gain steam and are happening simultaneously. However, we still expect full year CAPEX to end up in the $10.5 million to $11 million range. With that I'd like to ask Alfred and/or MC if they have any further comments before turning it over for Q&A.

I don't have any comments. MC.

No, none.

All right then, I'd like to turn it over to our moderator who can open up this call to questions. Moderator.

At this time, if anyone has a question, you can press "*" "1" on your touchtone phone. Again it's "*" "1" if you have a question. Your first question comes from Jack [Crensus] from [Mission Car] Capital.

It's actually [Sankman] Capital. Question regarding pacings. You mentioned that they have been bouncing around. Has visibility begun to extend -- I know it got down as low as two to three weeks. But you know as the recession -- or as recessions typically will end, you start to see a little lengthening in that. How has that been going, and are you recognizing any of the noise that's out there about local slowing a bit?

Hi, this is Scott. You may get a couple of different answers to your question. My perspective, and I think Alfred shares this, has always been that visibility fundamentally hasn't ever really changed all that much, it's -- and it's always been -- it has always been fairly limited to, you know, say several to maybe four or five weeks. The question is how much -- how strongly do you feel about what you're seeing and how much confidence do you place in the numbers that, you know, represent the pacing. As the economy improves and as we see stability with respect to the week-to-week numbers that makes us feel more comfortable about the numbers that we're seeing four weeks out. If the economy is volatile and there are a lot of cancellations coming through, then you frankly just can't hold in much confidence the numbers that you're seeing three, four, or five weeks out. As the economy improves and as you see stability in terms of what your managers are telling you on a week-to-week basis, then in fact while your visibility fundamentally did may be the same, you have that much more confidence with what you're seeing further out so that at the end of the day you can kind of hang your hat on those numbers a bit better than you can in a softer economic environment. With regard to local slowing, I certainly haven't seen anything, but I guess I would differ to MC on that.

15:14 Mary Sneed: Yes. No I haven't seen anything at all. And I have been on a lot of sales calls in the last, say, 60 days, and it feels good. It feels, you know, obviously much better than last year. But I think that there's much confidence too on the client and the advertisers' level as we go forward through the rest of the year.

15:36 Jack Crensus: Okay, back to the first question. You -- I understand what you're saying relative to how much confidence you have that those numbers will stay in place as to whether or not your visibility feels stronger. Is your visibility feeling stronger? Are you getting confidence that there's less cancellations?

Yes, but we -- that started for us six months ago.

Yes, this is Alfred and, you know, obviously we've been in a very turbulent, you know, economic time, particularly, as it relates to the stock market and so I for one don't know whether or not the world's going to fall off, you know, sharply, you know, because of -- sort of -- you know, sort of market correction or reaction. We're not seeing it but I'm not confident enough to go out there and pound the table that it's not going to affect us. And I don't think, you know, most people are that confident. Certainly not the, you know, United States investor community. So you know, we're just telling you what we are seeing. In our business, we feel good about it, but just like -- we hit the wall, you know, almost two years ago and we hit it rapidly, you know, who knows what sort of external forces, you know, can affect us. But right now we feel great about our business. It looks good. You know, it's strong, you know, growth for the third quarter.

Okay, great. That was what I was looking for. Thanks.

Thanks.

Jim Boyle with Wachovia Bank, your line is open.

Good morning.

Good morning.

Hi Jim.

Radio One's launched a lot of direct format attacks. You've defended several attacks. Do you think there are more or less today in your markets than lets say 10-15 years ago?

You know, we have -- we get this question from investors all the time. I think -- and MC correct me if I am wrong. I think there's only three places that we don't have competition. And so -- are we vulnerable to additional competition? Of course, but there's only three markets that we already don't, you know, have some sort of head to head competitor. So I think for us, we're not as concerned. The people that took shots at us took shots at us in our biggest markets already. They took shots at us in LA, they took shots in Houston, they took shots at us in Baltimore and so, you know, we are defending those. You know, I'd say, you know, very successfully and then in the other places that, you know, that we're really vulnerable, I am not, you know, sure that the market necessarily -- the market competitive dynamic is such that somebody might want to move from an existing format to come after us, you know, because I think there is more upside there. So I think we feel pretty good about our current competitive situation.

So would that be more than 10 to 15 years ago or about the same?

Considerably more format competition, I would think, 10 to 15 years ago because there were lesser radio stations then, and certainly, 10 years ago we were walking -- we were looking across the country and saying, "Alright there's, you know, the number one station in Detroit, and it's the only urban radio station. And so somebody needs to go after it." And those dynamics are drastically reduced today. MC would you agree with that.

Yes, and I will say too just having, you know, been involved in the format for quite some time, you know, there's been an incredible advertiser turnaround in the last decade too. 10 years ago, sometimes it was actually difficult to get, perhaps, a bank to spend money on an urban station just as, you know, 15 years before that it was hard to get a bank to spend money on a rock station. That's all changed.

And how many tend to be successful?

In terms of format attacks?

Correct, roughly?

I mean -- you know, in Atlanta, Georgia, you know, 15 years ago there was, and MC used to run that company, summer broadcasting on V103, and V103 had, you know, some enormous share, you know, 14-15 share and there was one urban radio station. Now, there is, you know, four or five. And they're pretty much all successful because the market was, you know, 27-28 percent [indiscernible] supported. There are some places where stations have not been successful and sometimes that -- you know, the [ups] or the execution of the company that's actually changing the format, but you know, one other things we look at is can the market support another urban format. And if they can, then we know that -- or we feel that we know the format well enough to go in and be successful at executing it. So I would say the places where you're seeing a lot of proliferation -- like in, let's say, you know, in New York. New York is like 22 percent African American and it's, you know, heavily Hispanic as well. But you know what, it can probably support, you know, two hip hop stations for sure and one that's kind of in the middle in an urban AC, which is what it's doing now. So I think at some level, all those stations will remain successful in some way.

No, it's not as, you know, some game so you can be successful defending and attacking.

I think absolutely.

Okay. Finally, how are rates trending and how's inventory sellout trending please?

You know, we always got the same, you know -- any time demand tightens, which it did, then the first thing that happens is you start to [indiscernible] your inventory, and then as demand continues to tighten and your rates go up -- we don't look at our rate structure and inventory structure from a corporate standpoint. We don't have like an average sub because each station is different depending on its competitive position. Lowly-rated stations have, you know, generally lower inventory sellouts and lower rates; however, you know, I would say just from a global standpoint, you know, we're selling more of our inventory and in some places where the ratings have gone up, we're getting significantly higher rates. But I wouldn't say that, you know, you're seeing significant rate increases, you know, for mature top-rated dominant stations at this point in time. I mean the economy has certainly gotten better, but you know, it's not at a fever pitch.

MC do you want to add some color to that?

Well, one place where the rates have increased significantly depending on the market is national because there are a couple of markets, very large ones for us, where national was at a point where it was actually taking up, maybe, too much of the inventory. So we've been able to maximize that in a couple of situations.

Thank you.

Thanks.

Drew Marcus with Deutsche Bank, you're line is open.

Good morning, hello everybody.

Hey Drew.

A couple of questions here. First question, a little more color on LA -- just how it's doing? How it's pacing, the [indiscernible] ratings have -- in the spring book where it used be 5 to 12 plus, you know, above where it was at spring a year ago. You know, there's been some [quality] in between. So update on LA. Second, Alfred, can you give us an update on what's going on with the cable networks venture? And then Scott, I'm assuming based on your comments on interest rates, you know, kind of the run rate after your swap unwinds is something in the $55 million area? And I'll stop there.

LA was tracking well growing, you know, faster than the market ratings, you know, are above where we were in the winter book. More importantly, the morning show continues to do very strongly. I think the morning show was, you know, fourth 18 to 34, third 25 to 54, and like third 12 to 17. Third 25 to 54 in that market for that morning show is very strong because over 50 percent of the money that comes into radio is in that demographic so we're in very good shape and again, we also just don't have a morning show. I asked the general manager there, you know, how much does your sales effort really improve by the fact that instead of just a DJ on who happens to get good ratings if you actually got a star on, you know, in the morning? And she said in Los Angles it's tremendously helpful. She said she couldn't describe it. So, you know, we continue to do well. That's the reason you know we signed a guy for a multiyear contract, you know, early. I am -- you got it -- what was the second question?

Well, [Alfred], I think you've answered a couple of them. Let me just give a little more color on it. LA for us is growing, you know, similar to our overall portfolio in the low double digits. And so again, we are growing faster than the market. I think the market there is probably slowed a little bit in last couple of months. Do you agree with that MC?

Yes, just a little bit.

Yes, and I think it's partly because national slowed. You know but in general LA is doing fine. With respect to the question on interest, Drew, I think I heard you say 55 million but if you actually assume 100 basis points savings overall from 8.2 percent all in cost of debt to 7 -- take it down to 7 percent, you are at around 45 million annual run rate on interest.

Again, then [Alfred].

[indiscernible] network. I just remembered it. Actually, we're making pretty good progress with that. I know, I keep saying it. I don't -- yes, I am not at a point where I can disclose anything at this point, but I feel better about it's prospects than I have ever, you know, had before. And if it happens, it's going to happen in the right way and it's going to happen in a big way, and we'll have to create significant shareholder value and there continues to be a high level of interest from, you know, the strategic players that you need be interested in this, i.e., the NSOs and the satellite guys. But it would be premature and inappropriate for me to, you know, to discuss the past back.

Again, one last question for Mary Catherine. The -- clearly, Radio One is gaining share. In analyzing where that share is coming from, is it coming from the general market, is it at all competing with the Hispanic targeted or where do you think you're gaining share from?

It's general market because you know, there are certainly black dollars and Latino dollars but the big dollars are still and always have been in the general market, and we absolutely focus on that. The dollars for African-American products, you know, we get those. I mean, we have great relationships with those clients, those agencies. So the focus is always general market.

Is it convincing them to shift dollars over or is it more rating based this -- the gaining share?

I think it's rating based but I also think that it's idea based too and we tend to be really dynamic, I think, in that area. Sometimes it just takes the right idea to get the coin or the advertiser to spend a little bit more money with you and certainly from, you know, a rating standpoint in most of our markets, we are pretty dominant.

Is your creative -- what percent of your creative is different from the general market creative, let's say for the same brand?

I would say our creative is always tailored to our foremen and to our markets. I mean it's -- that's critical because when you are talking to a specific audience, you have to talk to them in the correct language. I mean we absolutely....

And when you say, you're creative it's some of the stuff that come out of agencies?

For the local stuff.

Yes, because I would say, you know -- I mean I think we need to differentiate. How much of, you know, say if American Express advertises or if First Union Bank you know advertises they don't, you know, necessarily always have a specific ethnic spot. Often times we do get the same creative as the rock station does, but a lot of it is tailored. But, you know, there, you know, I would say are a bunch of advertisers that, you know, give us the same creative. Wouldn't you say or am I out-based on that one?

I would -- I understand what you are saying, but if you just look TV spots, I mean, it's important to target the specific audience. And I think what happened is and Alfred, you're right, but I think that clients have gotten a lot smarter about that on a national level. I think probably urban stations have already or have always been smart about that locally. But I see that you know -- I see it on a national level as it being -- they are doing a much better job.

Yes, thank a lot.

Thanks

Thank you.

Mike Russell with Morgan Stanley, your line is open.

Thanks. Scott, you have mentioned in LA that you're outgrowing the market and there seems to some confusion about how people are looking at the markets with [Miller Caplin] data. I was wondering, you know, are you seeing some difference between spot growth rates and the part of the growth that would include NGR and national and other? And can you kind of talk about how those categories kind of look for you relative to the market?

Actually, no, I just -- I mean overall we're growing faster than the market. And I don't think we necessarily want to comment on how our growth looks, you know, category-by-category. Personally -- I mean because that would be basically putting a lot trust in other companies numbers in terms of how they categorize the revenue and I'm not sure that that is something that I frankly will feel comfortable doing.

And what that comes down to is that -- you know, some companies may put ticket sales from concerts that they do, and you know, various other types of events and they account it as revenue. And we do well there and so -- we just look at -- whatever the total revenue number is in the market, how we're doing, you know, against that percentage growth and because it -- we're doing and we are outgrowing that market we don't really have reason to go in and you know, kind of complain, you know, about, you know, what other groups are accounting and what they are not, because we also don't incentivise our management there by a Miller Caplin range. We incentivise them, you know, by hitting the budget and the budget set against the power ratio and what we think the market growth is. So you know, the whole Miller Caplin capital gain for us really is just how much money is in the market. And you know, if we do a concert and if we $300,000 in ticket sales, you know, whether we put it in or whether we don't I think in the end it's not going to change the numbers in the market drastically. At least, you know, from our standpoint.

Let me -- can I answer that a little bit?

Sure.

First, the -- there was a committee last year and I was on the Miller Caplin committee and it is -- things are broken out a little bit more than they ever have been in the past and there is actually a line for just ticket sales. And so when you are talking about Los Angeles generally for ticket sales you are always talking about the clear channel concert from my experience, and because of that, I think that's one of the reasons that this committee was formed last year, and Miller Caplin realized that just for stations locally, it was important to break things out in a little bit more detail and that has been going on since the beginning of this year actually.

Can you just give us an idea of what your non-traditional revenues are as a percentage of total or how that's been trending in the last...

For the company overall it's, you know, about 1 percent.

And that is a lot lower than the acknowledged average of others?

Yes.

...or do you disagree?

Well, I mean I guess it depends on how you categorize non-traditional because that is highly subjective. So I mean, you know, our 10-K, we outlined what percentage of our revenue is local, what percentage is national and then the residual is, you know, effectively NTR and so it's a very low single digit number but doesn't mean that there isn't local and/or national advertising revenue that somehow [pied] to an event that might itself be classified as MTR. But we don't think that that revenue, which you know is related to spot ultimately, should be classified as MTR.

Okay. And, Alfred, on the last, you had gone into lot of detail on Atlanta [indiscernible] anything there -- is there anything new to add-on on the Atlanta at this point?

I don't know. We're in a fight with Arbitron right now. So I don't know what the ratings are. They just came out. And, you know, I don't know. I'm sure, at some point, we'll resolve our, you know, Arbitron issue. But we couldn't get the survey that's going around. It should not effect us, but my -- you know, my -- the way that the stations were trending, I mean, I suspect that, you know, we're probably still in a pretty good -- you know, call it 12 to 14 share point range. But again, I haven't seen the numbers.

And what's the source of the fight with Arbitron?

The source of every fight with Arbitron -- they're monopoly; and, you know, they want to charge what they want to charge. They're the only game in town. And, you know, we're fighting that.

And it's just in Atlanta that you're fighting or are you fighting it somewhere else?

It's just in Atlanta. That's correct.

Okay. Thanks very much.

Thanks.

Tim Wallace of Banc of America, your line is open.

Thank you very much. Can you hear me?

Yes.

Yes.

Okay. I think, during the call, at some point, you had -- someone had said that national was slowing down. Could you elaborate a little bit on that? Whether that's material or not or expected? And then two other questions. The -- Scott, would you have the proforma Q3 and Q4 numbers available yet, and if not, is there a point at which we could see those numbers? And then the last question would be the -- I don't know, if you quantified the impact of 9/11 last year. But is that a significant number; and can you give us some guidance on what it might look like, relative to this year? Thanks.

All right. MC, do you want to take that national question first?

Yes. I think it's just what Scott indicated at the beginning is that national starting to slow a little bit, but the local's gaining strength. And that's obviously a good thing, because national was growing so much faster than local. The other question about September 11th is -- I surveyed the group this morning before the call, because I thought we might get this question. And I know that it looks like television might take ahead; but from what I have received [back] information and just from talking to different advertisers in the last, say, 30 days, I don't think there's going to be a huge impact on radio. I think TV will get hit a lot harder; and I think that's because they're going to probably do, you know, special news programming for that whole day. It looks like everybody is. But we also have a program in place for advertisers that may not want to advertise that specific day. I have known only two cases where somebody has cancelled, and we've been able to move those pass over into the next day. So I don't think that's going to hurt us.

And with regard to [indiscernible].

Tim, with regard to trying to quantify -- I mean, obviously, it's difficult, because not only did you have a couple of days with no or extremely low ad levels -- and for us, it really was only a couple of days -- but then, you did have a very high cancel - not very high, but high cancellation levels through the end of the month. And last year, we said that we thought the impact was, you know, several million dollars of revenue. With respect to -- I will give you Q3 proforma numbers; this is Q3 from '01: 70.2 million of net revenue and 35.7 million of broadcast cash flow.

That's great. Thanks.

Yes.

Paul Sweeney with Credit Suisse Boston, your line is open. Go ahead.

Hi. Good morning, everyone.

Hey, Paul.

Couple of questions. First for Mary Catherine -- I guess we had a -- I guess an unusual trend in May and June where the pacing started out very, very strong in the industry, then kind of slowed down. Is that still an issue -- or I think it's getting a little bit more normalized. And then second, Alfred -- you know, given the tremendous uncertain times, not only in advertising but just in the market, is that impacting the M&A environment at all? Are you seeing any change in sellers and what they're looking for, because you guys have improved your balance sheet and perhaps it might be an opportunity for you?

On the M&A side, sellers in the market, that we're looking to expand in, never really changed their perception or expectation of what their stations were. So in the big, you know, in the top markets, you really never saw a change in asset value; you just saw a slowdown in M&A activity. And with everybody's multiples down and sellers still not changing, you know, their expectations, I think, you know, it's more difficult for anybody to buy anything. And I am -- you know, I don't think investors really want to see companies go out and buy stuff right now or so, unless the environment picks up. In our M&A activity, I think, we'll continue to be quiet. I know we certainly are only going to look at stuff that we, you know, see as highly strategic; and then, it will be more difficult for us to justify some of the seller prices at this point in time. So we'll see.

Great.

Cathy, do you want to talk about the slowdown that we've been seeing, you know, in last few months?

All right. And you're absolutely right about May and June. After like the 15th of the month, things really just started to dry up. So we really had to be very proactive to continue to book revenues. In July, that -- it didn't feel the same at all. I mean it was much, much better. And, you know, I'd like to predict August -- it's tough to do that, but the logic looks really good right now. So, hopefully, we'll be able to continue to book throughout the month. But you're right about May and June. That was weird.

But MC, you have some theory as just to why that might have happened? Is it possible that sellout rates were -- I mean, people were sold out and so that there was, you know, the unavailability of or the lack of availability of inventory that might have impacted advertising behavior?

I think it could have been a little bit of that. But, I know, in some our larger markets, that was the case because of the national because the national was so very strong. And so that could have been a part of it. But beyond that, I just -- actually, I don't know.

Okay.

Great. Thanks so much.

Thanks Paul.

Victor Miller with Bear Stearns, your line is open.

Good morning. A couple of things -- first on the Houston market -- when you really look through the urban numbers, it really looks like COX did not have much of an impact, neither did the new [Cumulus] station; yet, the shares were off a little bit. We heard there's a lot of confusion in market with our urban stations basically side by side by side on the dial and Hispanics, you know, do particularly well in the market during the last book. Could you just kind of walk through the dynamic you're seeing in Houston right now and the impact it might be having on you? And then, I have a follow-up. Thanks.

MC. Yes, MC, I think, can address that.

Yes, that is the situation. It is all Latino-based. And the fact that the stations are side by side by side has not affected us. We see in our [diary] review that clearly everybody knows where we are, they know who we are; but our stations have been pretty healthy as far as the Hispanic audience in that market. And now you have four stations going after that audience. So it has impacted us a little bit. I don't know if we'll be able to bounce back from that. As far as the shares, I think, we probably will a little bit, but that audience has got -- there are more choices right now for them.

Just a follow-up on the question on the impact of 9/11, which Tim asked. Scott, do you have revenue trends that you saw during the last third quarter, in other words, was July up 11 and then August was up 8 and then all of sudden September is only up 2 percent, you know, could you give us a sense of that? I don't know if you have that at your finger tips maybe answer that later? And the second question is, if you take your results, you subtract out your same station, the margins on the remaining group of stations is only about 40.3 percent relative to the 56.3 percent same station you talked about. Is there any reason why those other stations shouldn't be able to approach that level over -- your 56 percent level overtime? Thanks.

Okay. With regard to your first question, I have to admit I do not with me have the monthly growth rates from last year, July, August and September. I wish they were as high as much you had just articulated, but it certainly weren't. I do remember that July and August -- again, when we talked about last year, we talked about how we were beginning to see signs of a bounce back a little bit in July and August last year and then of course, you know, everything got shutdown in September. But I think the numbers were something along the line and you know, sort of mid-single -- low to mid-single digit growth in July and August. And then, you know, obviously September went negative. But overall we ended up the quarter I think, you know, low to mid-single digits. So don't hold me at that but I think that was the dynamic, but I'm not sure how helpful that is. I'm sorry Victor, your second question?

You know, just on the remaining stations at a 40 percent?

Yes. Okay, those remaining stations are -- you know, the vast majority of them are Blue Chip and then you have a couple of developing, new -- brand new developing stations in Atlanta. The Blue Chip stations' margins have actually improved very nicely when we acquired those stations, as you may recall, we have said that they were operating with margins overall in the mid -- low to mid thirties. So, you know, you're right, there's been a fairly significant improvement in not a lot of time on those stations. But we've also said that we do not believe that if you were to look at those stations as a portfolio that they can operate, you know, with margins in the mid fifties, because those markets are smaller markets. And in those types of small to mid size markets, it is hard to drive your margins to, you know, the levels that we achieve in the larger markets. But nevertheless, you know, is there still upside on those stations -- margin upside? Yes, I would say there is still some significant margin upside, and we'll continue to see that over the course of the next couple of years. Because of course, we haven't even owned those stations a year yet. The Atlanta station, while they may be operating with very low margins today, because they're -- you know, brand new, within the last six months those stations have the opportunity ultimately to show margins, you know, well north of 60 percent, because they're part of a very very successful and large cluster in a large market for us. So there is really, sort of two [buckets], the Blue Chip market and the Atlanta market. And hopefully I've, you know, answered you question as best I can.

You have. Thanks.

Thanks.

[David Bank] with RBC Capital Markets, your line is open.

Thanks very much. Congratulations on the numbers.

Thanks.

Just a question related to cash flow, could you guys just give your best shot at what year you think you'll start being cash tax payers? You know, if that's anytime in the next sort of couple of years? And can you also give a sense of working capital used this quarter and sort of, you know, some working capital assumption for the full year? And I guess last question would be, can you talk about where you're seeing sell outs for August, and you know, sell outs and sort of rates for August, and you know, versus what you saw them at a year ago at this time?

Okay. With regard to -- with regard to working capital, which is an interesting question, I mean and when -- the definition of working capital is obviously different for every industry. In our industry -- and correct me, if you sort of you're working capital a little differently, but I would say that really the only thing to look at is your growth in receivables.

Okay. I mean, I probably would have said, you know, current assets, current liabilities with...

Well, all right but...

...but I'll follow your logic if you want?

Well, All right. But first -- here is my point. Of 125 million of current assets at the end of June, 117 of -- no -- 100 yes -- roughly 117 of that are -- is cash and account receivable.

Okay.

So your prepays, your income -- for us we have an income tax receivable and our deferred income tax asset, you know, is under $10 million, and it's basically flat from the end of last year. So in terms of -- I mean -- I guess the way it will think about our business from a working capital perspective, if we just focused on the receivables aspect is, you know, we operate with -- call it around maybe 75 days sales outstanding. So if you just apply that to, you know, to your revenue expectations for, you know, call it Q4 this year, and then you compare that to what the receivables level was at the end of last year, you'll get a sense of receivables growth. And there will be receivables growth. That is somewhat obviously offset by your payables growth. But you know, again I wouldn't have -- I mean, if you're focused on overall sort of cash requirements of working capital, I would only assume that you're going to get a couple of million dollars of, you know, effectively cash benefit from the package your payables are higher.

Okay. And then, just on the cash taxes?

Yes. That's -- we're very focused on that and we're going through a fairly detailed analysis right now. I've been saying for, you know, pretty much ever since the clear channel deal that I did not expect us to be a tax payer for several years. That deal was, you know, going on a couple of years now, you know, come this August. We obviously did Blue Chip [spin] spend, which had some fairly favorable tax consequences about $110 million in tax bases if I recall correctly. I would say, and we can -- we will certainly provide more color on this, and we should be able to do that on the next call. I would say that, you know, you're probably looking at another 18 months. I would get to probably become a taxpayer at some point in '04 -- federal cash taxpayer at some point in '04.

Okay. And then the...

Assuming no other transactions.

Okay. And then sort of sell out -- sell out in pricing versus what you're seeing a year ago and sort of where it wound up?

MC, can you address that?

Yes. Sell out for August, I mean, I think it's a different world this August than it was last August. What we're seeing is we have some markets that are, you know, inches away from already making budget for August. And we still have inventory, so I think we're doing -- as time goes on, we do a much better job of managing that. I think last year was a -- there was a situation where a lot of us were forgot how to manage inventory, maybe, because you just were hoping you would get the business because of the environment. But we're doing a much better job right now. And actually, have inventory left even in some markets where we're almost at budget.

Okay. And actually, just a follow up to one other question to -- when you talked about the bucket where the non-traditional revenue might be, if there is any revenue generated from, sort of, the independent promoter staff, will that be in that bucket as well?

Well, that's a new, you know, bucket for us. There wasn't a bucket of that money last year.

Okay.

And so, I guess when we report and we breakout, you know, our business -- we're not going to separate that to its own bucket, because it doesn't deserve it's own bucket. Yes, but prices get thrown into, you know, these sort of other revenue category.

Okay.

Not directly related to local or national spots.

Okay. Thanks a lot guys.

Sure. Thank you.

[Suji Demerol] with [JMG Capital], your line is open.

Can you tell me, what is available on the credit line? You said it was 250?

Yes.

Are you using then the buildup in cash to pay down the other term A and term B [trounces], is that what's going on?

Well the term B doesn't exist anymore. So the only other [trounce] of senior is the term A, which is $350 million. And the amortization on that, as I said, it starts at the end of next March, roughly $13 million of quarterly principle payments, each quarter next year. And as I said in my sort of opening remark, you know, we'd expect to use either free cash and/or borrowing under our revolver to make those payments. We certainly have enough free cash to make those payments. But obviously, you know, what the world looks like next March, whether or not we're accretive will, you know, have an impact as to how we think about, how we're going to make those principle payments.

Okay, and...

So right now, we're just harvesting cash.

Right. Did you guys meet with the credit agencies?

Yes, we sure -- we sure did and now that we've put the second quarter bit, we're going to be, you know, having hopefully one final follow-up with them. And you know, we'll do what we can to improve our rating at hopefully both SNP and Moody's.

Okay. Thanks.

Thanks.

We have a question from Richard Rosenstein with Goldman Sachs. Go ahead.

Thank you. Actually, I just wanted to follow-up. I think Alfred, you had mentioned this before that your -- some of your people are compensated on the basis of how they perform relative to expectation vis-a-vis power ratios. And I was just wondering in that regard this year how they're doing? Are they are doing really well in that regard or are they doing well, you know, [indiscernible]?

When I said expectation in terms of power ratios that's how we set a budget, you know, for a station. We look at what the ratings are, we look at what we -- how much money we think is going to be in the market. And then we'll look at what the power ratio of the station has historically been over a period of a year, you know, last trailing 12 months. And then we, you know, set the expectation for the power ratio for the following year. And then out of that comes, you know, the expense level and a BCF number. So we're not, you know, checking the power rate. Once we do that, then we've set the budget and then what we'll do is, if the stations, you know, then instead of looking at power ratios we actually look at revenue growth versus the market. And so the power ratio analysis is really done, you know, once a year at budget time or if in fact the stations in trouble and we're trying to analysis the reasons why. But the actual power ratio is not a calculation into bonuses; it's really about BCF or revenue.

So, it's -- essentially, it's a fact [they're] coming up with the budget and then their performance against that budget is what you use?

Exactly.

Exactly. But again, there are times, when we will look at -- just because somebody is performing well against the budget if the market is up 25 percent, that doesn't necessarily mean that they're doing a great job, even if they are beating budget. So, you know, often times, we'll go and we'll dissect that performance; and then we'll look at the power ratio.

Well, we would not otherwise penalize them, if their power ratio was going down in this scenario. We would, however, revisit that power ratio on why it went down in the next year's budget process and probably raise the bar at that time.

Sure and just a follow -- conclude that point. Realizing that you don't necessarily compensate them directly on it. As you, I'm sure, look at it throughout the year, how would you say that you're doing currently in the power ratio area?

I don't know the answer of that question on top of my [head].

Okay. Thanks.

Greg Coules with Morgan Stanley, your line is open.

Hi. Great quarter guys. I just had a couple of quick questions. First, Scott, in the use of proceeds from the equity offering -- just to make sure that I understand sort of the flow of funds -- it looks like that you paid down a 130 million of the revolver and you got in around 200 million. Is it true about $50 million was paid for the closing of WHAT, and where the remainder of that cash go?

Well, let's see. That wasn't 130; it was about 52.5 million for the Atlanta station; and then the balance of the proceeds went on the balance sheet in cash.

Rest of them is cash. Okay. And as far as covenants -- have you -- given that you guys did what is considered, I guess, a qualified equity offering, are you still -- do your covenants stay at 6.5 times and then they stepped down to 6 times in '03?

Yes.

They do. Okay. Good. Great. Thanks guys.

Sure.

Bill Meyers of Lehman Brothers, your line is open.

Couple of quick questions. First, what kind of revenue contribution are you seeing from the Radio Network business? I don't know if that's become significant yet. And then just quickly on the competitive environment if you can just update us a little bit on Baltimore [management].

Baltimore is probably the -- that probably is the place that we're feeling the most competitive heat. You know, down -- you know -- kind of, sort of, mid-upper single digits for the third quarter. That's primarily because the station got attacked as a young, are young in stations. They are -- we've got two FMs that -- one is an adult-targeted station and the other is a young and, you know, urban/hip hop station. Although, the young and urban/hip hop station also have strong adult numbers and third quarters where most of the young money is. So I expect that when we're going to the fourth quarter with the older demos, our success there should increase. So third quarter --for third quarter right now, you know, we are feeling some pressure. Richmond -- I haven't look at the numbers lately; but the last I looked, we were actually doing pretty good there; and we're....

Yes, we're doing great on Richmond.

We're doing great.

Yes, with that we're really back on the biggest station there; and we've got few other stations that are adult formats, and they both had great books and even the station that we have, that has an inferior signal, certainly had a great showing.

Good. I understood.

Cathy, you want to add more color on Baltimore?

No, I agree with Alfred.

Okay. With regard to network that deal is working out very well for us; and outside of, just saying, what we've always said which is, we can't disclose the exact number, but it's millions of dollars. We feel very good about that. Alfred, do you want to add anything to it?

It's working out better than we thought it was going to work out to. So that's what we got to say on the network.

Well [said, Ric].

Jason Helfstein with CIBC World Markets, your line is open.

Hi, it's Jason Helfstein, just a quick question. Just any shifting as far as the categories go, which is what you saw in the second quarter and what you are seeing in the third quarter, as far as category is increasing decreasing sequentially?

We're not seeing anything, and we tend to sort of look at categories on a more historical basis and so comparing second quarter to third quarter, at this point it's a little difficult, but I think there is -- we are seeing pretty strong consistency -- no, you know, new categories taken off, no old categories that's falling off at least from my prospective. MC, do you have anything to add to that.

Well, Jason you've got -- you know, the typical second and third soft drink money that is much bigger and movies too. There seems to be a lot of movies coming out. They are not spending as much per movie, but there -- it just seems like there are more movies that have been released this year.

Okay, thank you.

Thanks.

[Michael Freedman] with [Sawgraph] Capital, your line is open.

Good morning. I was actually going to ask question on the same lines, but first I want to tell you guys you referred to your stock market evaluation volatility in the press release and if you keep putting up quarters like this you're not going to worry about it. Could you [indiscernible] that?

We just [indiscernible] as that it was just a market volatility in general.

Okay. I was -- can I ask you to drill down may be Mary Catherine on a similar question by sector -- I mean, we have the trend where national was stronger than local and recently it's being turning around a little bit? Is that a function of as you said earlier national inventory being sold out and national getting price increases or is it something that has to do with category spending or shifts in spending from national, local, or are local businesses starting to feel little better in spend? I was just hoping maybe you could put some more color on that.

Well, I think that, you know, as long as I've been doing this, you know, national can go up -- up or down, so can local. You just -- you want to make sure that we're not both going down at the same time, which is something that happened last year. So specific client, you know, we have the telecom stuff happening and the dotcom stuff years ago, but I couldn't -- I don't think there are any specific categories right now that I can point to that, that are impacting it. Just seems to be scattered. Did I answer your question?

Yes, thanks.

Thank you.

George [Pendaliya]. I'm sorry I cannot pronounce your last name with [Sites] Investment Advisors. Go ahead sir.

Yes, it's George Pendaliya. Most of my questions have been answered, but if you could just perhaps comment little bit more specific with your plans on the cash on the balance sheet and also what you consider your target leverage now that you are - you know heading south part times?

Sure, I mean -- I guess we've always said that our target leverage zone was four to six times so we're -- you know right in the middle of it, which is the other thing we always said we sort of strive for you know in a more normalized state. I mean obviously, if we don't do any other deals here that leverage will continue to come down. I think, you know, you run some fairly conservative numbers you could see it down below four times a year from now, so we are -- may be little more in the year for now. So we're feeling very good about that. You know, with regard to it it's a very interesting question and all the radio guys are going to have to address this. I think over the course in next few years as acquisition activity [weans] because we are as you know, tremendous free cash generators and so what do you do with your -- with the cash that you're building. Obviously, we have our schedule principle payment to start next year and actually continue from there, so if we don't otherwise renegotiate or restructure our bank facility, we certainly need to be mindful of the fact that, you know, we will be making principle payments you know for the foreseeable future starting in March of next year. But we're also not saying that, you know, acquisition activity is done. I think it's just taken a bit of a breather and so when Alfred and I think about sort of -- you know, resource allocation, cash allocation, you know, we certainly don't want to put ourselves in a position where our financial flexibility is limited long term vis-a-vis acquisition opportunities. You know, there still continues to be a number of very attractive opportunities out there and so I think it would be imprudent for us to take this cash at this point, and you know, start to pay down debt early or dividend it out to our share holders, you know, both of which are, you know, things we've sort of conceptually talked about because I think that, you know, hopefully within the course of next 12 to 18 months there will be other acquisition opportunities that are real and interesting and provide long-term share holder benefit and we're going to need this cash at that point in time to make those deal that much more readily doable on our part. So that in addition to the debt service that will have starting, like I said, at the end of March of next year. I think, really speaks [today] to kind of what the -- what we view this cash as being best year marked for.

Okay thank you very much.

Sure.

Thank you.

There are no other questions in queue at this time.

Well, Alfred you want to just close it out.

No -- I just want to thank everybody for tuning in and also for those of you who have been supportive throughout the company over the years, and we really appreciate that. And if there are any questions that needed to be answered offline let me know.

Operator, thank you very much. And operator, could you give the callback information for the recording.

Sure, just one moment.

Good.

Okay.

If you like to call in for the playback of today's conference, you can dial in either toll free 1800-252-6030 or long distance international 402-220-2491.

All right. Thank you.

You're welcome.