Westwood One Riding Out Slump in Media Advertising.

As other entertainment companies look for ways out of the hole created by the advertising slump that hit last year, Westwood One Inc. has used more conservative financial strategies to remain on solid ground.

By keeping down capital expenditures, the producer and distributor of radio and TV programming has generated increases in earnings and cash flow, despite a slight drop in revenues since last year.

The company -- managed by Infinity Broadcasting Corp., which has an equity stake in Westwood One -- has accordingly seen its stock bounce back to about $30 a share, after falling below $14 in October. Infinity is a subsidiary of Viacom Inc.

"We did better than the majority in the industry for the first six months of the year," said Joel Hollander, Westwood One's president and chief executive. "We managed our costs very, very efficiently and we did a very good job of bringing in new business."

Westwood One distributes the content of CBS Radio News, CNN Radio, Fox News and the NBC Radio Network. It reported net income of $12.1 million (11 cents a diluted share) for the second quarter ended June 30, up from $10.6 million (9 cents) in the like year-earlier period.

Second-quarter revenues were $155.3 million, vs. $159.2 million in the second quarter of 2000.

The company, which is headquartered in New York but produces most of its programming in Culver City, provides everything from music to news to traffic reports for more than 7,500 radio and television stations throughout the United States. The company produces more than 150 programs, including "The Tom Leykis Show" and "Loveline," which air on local stations.

Keening costs down

"Westwood One focuses on programming and not station operations. They have negligible capital-spending needs," said Edward Hatch, an analyst for SG Cowen Securities Corp.

He said the company's management has a reputation for being "shareholder focused" and has one of the industry's, most conservative balance sheets, with a low debt-to-cash flow ratio.

Westwood One reported second-quarter cash flow (cash receipts minus cash reimbursements) of $45.1 million, up from $43.1 million in the like year-earlier period.

Estimates show Westwood One ending the year with $178 million in cash flow and about $145 million in debt, Hatch said. Others in the industry have higher debt levels, he said.

For example, radio and TV-station operator Clear Channel Communications Inc. was expected to generate $2.3 billion in cash flow with $8.7 billion in debt for 2001, Hatch said. Emmis Communications Corp. will post $207 million in cash flow and end the year with $1.4 billion in debt, he estimated.

Westwood One's stock took a tumble last year because investors were nervous about putting money into radio and television.

"There's sort of an investment rotation in the market. If investors are fearful over technology or advertising or machinery, a whole group of stocks will go down in sympathy," Hatch said. "Over time, the market will differentiate between the better capitalized or better-managed (companies), and I think that led to the recovery of Westwood One."

Of the five brokerage analysts that cover Westwood One, four, including Hatch, rate the company buy or strong buy. One, Alissa Graham of William Blair & Co., rates it a hold.

While Westwood One's stock has been rising, a number of insiders have been selling, including Viacom President and Chief Operating Officer Mel Karmazin, who recently sold 400,000 shares, and Hollander himself, who sold half that amount in late June. Hollander was unavailable for further comment.

In the earlier interview, Hollander credited Westwood One's income growth in part to an increase in the company's commissioned sales force, which has been approaching advertisers in under-served areas, such as pharmaceuticals and packaged goods. Westwood One sells commercial airtime for its programs to local and national advertisers. The sales force also has focused on showing advertisers how well radio can work for them.

YEAR (Dec.31)                    2000    1999
Revenue (millions)             $553.7  $358.3
Operating Expenses (millions)   388.1   267.3
Operating Income (millions)     103.5    60.8
Net Income (millions)            42.3    23.9
Earnings Per Share              $0.36   $0.30

SUMMARY

Business: Radio, TV programming

Headquarters: New York

CEO: Joel Hollander

Market Cap: $3.1 billion Dividend Yield: N/A *

Total Liabilities: $335.7 million P/E Ratio: 72.76

Long-Term Debt: $168 million

(*.) Westwood One Inc. does not pay dividents.

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