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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21575
METRO NETWORKS, INC.
(Exact name of registrant as specified in charter)
DELAWARE 76-0505148
(State of incorporation) (IRS Employer Identification No.)
2800 POST OAK BLVD., SUITE 4000
HOUSTON, TEXAS 77056-6199
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 407-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. x Yes No
SHARES OF COMMON STOCK OUTSTANDING AT OCTOBER 31, 1997: 16,554,403
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<PAGE>
METRO NETWORKS, INC.
INDEX
Page
Number
------
Part I - Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets ................................... 2
Unaudited Consolidated Statements of Earnings .................. 3
Unaudited Condensed Consolidated Statements of Cash Flow ....... 4
Unaudited Consolidated Statement of Stockholders' Equity ...... 5
Notes to Consolidated Financial Statements .................... 6
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations .............. 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K ......................... 10
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Metro Networks, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(dollars amounts in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- ------------
ASSETS (unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $27,540 $41,386
Short-term marketable investments 611 -
Accounts receivable, net of allowance for
doubtful accounts of $859 and $663 28,694 23,318
Reciprocal
Receivables 11,918 11,398
Prepaid expenses - 440
Merchandise and scrip inventory 803 567
Other 732 842
-------- --------
Total current assets 70,298 77,951
-------- --------
PROPERTY AND EQUIPMENT
Work-in progress 3,377 170
Operating equipment 24,575 14,687
Transportation equipment 779 707
Leasehold improvements 2,108 1,170
-------- --------
30,839 16,734
Less - accumulated depreciation and amortization 8,653 5,993
-------- --------
22,186 10,741
-------- --------
PURCHASED BROADCAST CONTRACTS AND OTHER INTANGIBLES,
NET OF ACCUMULATED AMORTIZATION OF $10,427 AND $6,783 17,404 14,074
Other Assets 904 991
-------- --------
$110,792 $103,757
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payables $ 4,928 $ 3,076
Notes payable 1,197 3,618
Reciprocal payables and accrued liabilities 10,584 12,069
Accrued liabilities 8,678 9,575
Current portion of long-term debt 343 319
-------- --------
Total current liabilities 25,730 28,657
LONG-TERM DEBT 833 474
OTHER 2,147 2,696
-------- --------
Total liabilities 28,710 31,827
-------- --------
MINORITY INTEREST 27 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value (authorized 10,000,000 shares) 3 3
Common stock, $.001 par value (authorized 25,000,000 shares) 16 16
Additional paid-in capital 72,981 72,888
Retained earnings (deficit) 9,055 (977)
-------- --------
82,055 71,930
-------- --------
$110,792 $103,757
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Metro Networks, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- --------------------
1997 1996 1997 1996
---------- -------- -------- -------
<S> <C> <C> <C> <C>
ADVERTISING REVENUES $34,985 $29,000 $99,063 $79,077
OPERATING COSTS AND EXPENSES
Broadcasting 16,430 13,246 48,868 37,419
Marketing 6,408 4,910 19,396 15,012
General and administrative 2,683 2,609 8,343 6,959
Depreciation and amortization 2,403 1,668 6,735 4,604
------- ------- ------- --------
27,924 22,433 83,342 63,994
------- ------- ------- --------
TOTAL OPERATING EARNINGS 7,061 6,567 15,721 15,083
OTHER (INCOME) EXPENSE
Interest income (308) (65) (978) (119)
Interest expense 39 793 101 1,727
Other (274) (14) (248) (27)
------- ------- ------- --------
(543) 714 (1,125) 1,581
------- ------- ------- --------
EARNINGS BEFORE STATE AND FEDERAL INCOME TAXES 7,604 5,853 16,846 13,502
STATE AND FEDERAL INCOME TAXES 3,058 488 6,814 1,061
------- ------- ------- --------
NET EARNINGS $ 4,546 $ 5,365 $10,032 $12,441
======= ======= ======= ========
EARNINGS PER SHARE $ 0.27 $ - $ 0.60 $ -
======= ======= ======= ========
AVERAGE COMMON SHARES OUTSTANDING 16,768 11,900 16,771 11,985
======= ======= ======= ========
1996 PROFORMA NET EARNINGS
Earnings before State and Federal
income taxes as reported $ 5,853 $13,502
State and Federal income taxes 2,400 5,536
------- --------
Net earnings $ 3,453 $ 7,966
======= ========
Earnings per share $ 0.29 $ 0.66
======= ========
</TABLE>
The accompany notes are an integral part of these financial statements.
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Metro Networks, Inc. and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
----------------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 10,033 $ 12,441
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 6,735 4,604
Deferred Federal income taxes (76) (552)
Provision for doubtful accounts 667 683
Loss (gain) on dispositions of property and equipment 208 (21)
Loss (gain) on sale of marketable securities (69)
Loss (gain) on change in unrealized appreciation on marketable securities (37)
Amortization of discount on notes payable - 62
Undistributed minority interest, net of acquisition 8 -
Other - (6)
-------- --------
17,469 17,211
Changes in operating assets and liabilities (8,804) (7,732)
-------- --------
Cash provided by operating activities 8,665 9,479
-------- --------
INVESTING ACTIVITIES
Capital additions (12,382) (4,805)
Related party
Advances to - (1,323)
Payments from - 150
Proceeds from sale of marketable securities 327 -
Purchase of marketable securities (832) -
Proceeds from sale of property and equipment 86 25
Acquisitions of companies (6,389) (3,865)
-------- --------
Cash used for investing activities (19,190) (9,818)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of debt 769 8,931
Debt repayments (855)
Long-term debt (1,875)
Related party debt (2,308) -
Issuance of common stock 93
Cash distributions - (6,713)
Other - 758
-------- --------
Cash (used for) provided by financing activities (3,321) 2,121
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,846) 1,782
CASH AND CASH EQUIVALENTS
Beginning of period 41,386 3,050
-------- --------
End of period $ 27,540 $ 4,832
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 66 $ 1,413
Cash paid during the period for State and Federal income taxes $ 7,184 $ 1,017
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired through reciprocal activities $ 1,363 $ 103
Transfer of property - 277
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Metro Networks, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1997
(dollar amounts in thousands)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
DOLLAR AMOUNTS STOCK STOCK CAPITAL EARNINGS TOTAL
- -------------- --------- ------ --------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 3 $ 16 $72,888 $ (977) $71,930
Net earnings - - - 10,032 10,032
Issuance of stock under Stock Purchase Plan - - 93 - 93
--------- ------ --------- -------- -------
BALANCE, SEPTEMBER 30, 1997 $ 3 $ 16 $ 72,981 $ 9,055 $82,055
========= ====== ========= ======== =======
</TABLE>
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<TABLE>
<CAPTION>
SHARES ISSUED
---------------------------------
PREFERRED COMMON
SHARE AMOUNTS STOCK STOCK
- ------------- --------- ----------
<S> <C> <C>
BALANCE, DECEMBER 31, 1996 2,549,750 16,550,000
Issuance of stock under Stock Purchase Plan - 4,403
--------- ----------
BALANCE, SEPTEMBER 30, 1997 2,549,750 16,554,403
========= ==========
</TABLE>
- ----------------
The accompanying notes are an integral part of these financial statements.
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METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by Metro Networks, Inc. ("the Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosure normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
information furnished in this report reflects all adjustments which, in the
opinion of management, are necessary for a fair statement of the financial
position, results of operations and cash flows as of and for the interim
periods. Such adjustments consist of items of a normal recurring nature.
The results of operations for the interim periods are not necessarily
indicative of the results of operations expected for the full fiscal year
or for any other future period. Certain reclassifications have been made to
prior year amounts to conform to current year presentation. These financial
statements should be read in conjunction with the financial statements and
the notes thereto included in the Company's December 31, 1996 Annual Report
on Form 10K.
2. PRO FORMA EARNINGS PER SHARE
Proforma income taxes are set forth herein because certain predecessor
companies operated as S corporations or partnerships for federal income tax
purposes. Proforma net income reflects income taxes calculated using a C
corporation tax status.
Assuming that the public offering shares were outstanding for the periods
presented, the pro forma net income per share for the three months and nine
months ended September 30, 1996 would have been $0.21 and $0.47,
respectively.
3. ACQUISITIONS
On January 2, 1997, the Company acquired substantially all of the tangible
and intangible assets of Airborne Traffic Network, Inc. ("Airborne"), a
Kansas corporation. Airborne operates a network of broadcast affiliates
serving the Kansas City, Kansas and Omaha, Nebraska metropolitan areas. As
consideration for the
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asset purchase, the Company paid $1,350,000 at closing and agreed to pay an
additional contingent consideration in a final payment based upon net
revenue or operating cash flow of Airborne for the 12 month period
following the closing date. The final payment, based upon net revenue or
operating cash flow as defined in the Asset Purchase Agreement, ranges from
zero for net revenue less than $1,200,000 or operating cash flow less than
$400,000 up to $150,000 for net revenue greater than or equal to $1,800,000
or operating cash flow greater than or equal to $600,000.
On January 3, 1997, the Company acquired substantially all of the tangible
and intangible assets and assumed certain liabilities of TWI Networks,
Inc., an Ohio corporation ("TWI"). TWI operates a network of broadcast
affiliates serving the Cincinnati, Columbus and Dayton, Ohio areas, the
Memphis and Nashville, Tennessee areas and the Miami, Florida area. The
purchase price of approximately $3,700,000 consisted of cash consideration
of $2,700,000 and installment notes payable of $1,000,000. The purchase
price was allocated to the net assets based upon their estimated fair
market values. The excess purchase price of approximately $3,250,000 was
allocated to the value of purchased broadcast contracts, non-compete
agreements and goodwill and is being amortized over a five-year period.
On June 27, 1997, the Company acquired 80% (800 shares) of the common stock
of Washington News Network, Inc. ("WNN"), a Washington, D.C. corporation.
WNN provides video news feeds via satellite to approximately 85 broadcast
affiliates across the country. The purchase price of $400,000 consisted of
cash consideration of $100,000 and installment notes payable of $300,000.
Beginning on March 31, 1998, the Company will have an option to purchase
the remaining 200 shares of the common stock of WNN. The option may be
exercised at any time from March 31, 1998 through March 31, 2000.
On August 1, 1997, the Company acquired substantially all of the tangible
and intangible assets and assumed certain liabilities of Valley Watch
Broadcasting, a California corporation ("VWB"). VWB operates a network of
broadcast affiliates serving the Fresno, California area. The purchase
price consists of $10,000 cash and two additional contingent payments based
upon future operating cash flow.
On September 19, 1997, the Company acquired substantially all of the
tangible and intangible assets and assumed certain liabilities of Freecom,
Inc. ("FRE"), a Pennsylvania corporation. FRE operates a network of
broadcast affiliates serving the Harrisburg, PA, Wilkes-Barre, PA,
Allentown, PA, Albany, NY and Wilmington, DE metropolitan areas. The
purchase price of approximately $2,250,000 was allocated to the net assets
based upon their estimated fair market value. The excess purchase price of
approximately $1,900,000 was allocated to the value of purchased broadcast
contracts and non-compete agreements and is being amortized over a five-
year period.
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<PAGE>
4. RELATED PARTY TRANSACTIONS
Prior to the Public Offering, the Company entered into certain reciprocal
arrangements with unrelated third parties as a result of which the Company
received goods and services for the benefit of the controlling shareholder.
The reciprocal arrangements obligate the Company to provide commercial
airtime, provide other goods and services, and make cash disbursements to
such third parties in exchange for the goods and services received by the
Company. The dollar values of such arrangements have typically been
calculated based upon the Company's estimate of the fair market value of
the commercial airtime inventory involved on a basis similar to others in
the broadcast industry. As of September 30, 1997, the Company was
obligated to provide approximately $800,000 of commercial airtime, goods
and services and cash under these reciprocal arrangements.
In October 1996, the Company and the controlling shareholder entered into
an agreement pursuant to which the controlling shareholder may seek
reimbursement from the Company for any income tax obligation attributable
to any period prior to the Reorganization. Alternatively, in the event
that the status of any of Metro Video News, Inc. ("MVN"), Metro Reciprocal,
Inc. ("MRI") or Metro Traffic Control, Inc. ("MTC") as a subchapter S
corporation is not respected, the Company may seek reimbursement from the
controlling shareholder, but only to the extent that the controlling
shareholder receives a tax refund attributable to amounts he previously
included in income in his capacity as a shareholder of such corporations.
In October 1996, the Company distributed to the controlling shareholder a
note for $3,100,000. This note relates to estimated tax amounts owed by
the controlling shareholder as a result of his ownership interest in S
corporations and partnerships for the period prior to the public offering.
The note does not bear interest and is due on demand, but in all events no
later than December 31, 1997. The balance outstanding at September 30,
1997 was $792,000. This balance was subsequently paid in the month of
October 1997.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
Revenues increased by $6.0 million to $35.0 million, or 20.6% in the third
quarter and $20.0 million to $99.1 million, or 25.3%, for the first nine months
of 1997. The increase in revenue is primarily due to increased sales of
commercial airtime inventory. Revenues from reciprocal agreements were $1.5
million and $4.2 million in the third quarter and first nine months of 1997,
compared to $2.9 million and $7.7 million for the same periods of last year. As
a percentage of total revenues, revenues from reciprocal agreements decreased to
4.2% of total revenues in the third quarter and first nine months of 1997
compared to 10.1% and 9.7% for the same periods of last year. Earnings per share
for the three and nine months ended September 30, 1997 were $0.27 and $0.60,
respectively.
Total Operating Costs (broadcasting and marketing costs) increased by $4.7
million to $22.8 million, or 25.8% and $15.8 million to $68.3 million, or
30.2%, respectively, in the third quarter and first nine months of 1997 when
compared to the same periods last year. As a percentage of revenues, total
operating costs were 65.3% and 68.9% in the third quarter and first nine months
of 1997, compared to 62.6% and 66.3% for the same periods of last year. The
increase in costs are primarily due to the following: the Company's continued
development of it's Expanded Radio Services and Metro Television Services during
the year; new market start-up operations; acquisitions of Airborne Traffic
Network, Inc., Traffic Watch Networks, Inc., Washington News Network, Inc.,
Valley Watch Broadcasting, Inc. and Freecom, Inc.; and increased marketing
expenses resulting from sales commissions associated with increased revenues.
General and administrative expenses increased by $0.1 million to $2.7
million, or 2.8% and $1.4 million to $8.3 million, or 19.9%, respectively, in
the third quarter and first nine months of 1997 when compared to the same
periods last year. As a percentage of revenues, general and administrative
expenses decreased to 7.7% and 8.4%, respectively, in the third quarter and
first nine months of 1997, compared to 9.0% and 8.8% for the same periods last
year.
Earnings before interest expense, taxes, depreciation and amortization
(EBITDA) increased by $1.5 million to $9.7 million in the third quarter compared
to $8.2 million in the third quarter of 1996. For the nine months ended
September 30, 1997, EBITDA increased by approximately $3.0 million to $22.7
million, compared to $19.7 million for the same period last year. The increase
in EBITDA was primarily attributable to continued revenue growth. EBITDA as a
percentage of revenue was 27.8% and 22.9% for the third quarter and nine months
ended September 30, 1997, respectively.
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The Company recorded third-quarter 1997 net income of $4.5 million,
compared to $3.5 million (adjusted on a proforma basis to reflect C Corporation
tax status) in the third quarter of 1996, or an increase of 31.7%. For the nine
months ended September 30, 1997, net income was $10.0 million compared to $8.0
million (adjusted on a proforma basis to reflect C Corporation tax status) for
the first nine months of 1996, or an increase of approximately 25.9%.
FINANCIAL CONDITION
Cash and cash equivalents decreased $13.9 million from $41.4 million to
$27.5 million for the nine months ended September 30, 1997. Cash provided by
operating activities decreased $0.8 million from $9.5 million to $8.7 million
for the nine month period, primarily due to changes in operating assets and
liabilities. Cash used for investing activities increased by $9.4 million to
$19.2 million for the nine month period, due to increased acquisitions of
property and equipment and acquisitions of companies. Cash used and provided by
financing activities decreased by $5.4 million for the nine month period as a
result of the Company using internally generated cash flow rather than borrowed
funds.
The maximum aggregate permitted borrowings under the Credit Agreement is
$30.0 million. As of September 30, 1997 the Company had no debt outstanding
under the Credit Agreement.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
27.1 Financial Data Schedule
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
METRO NETWORKS, INC.
--------------------
(Registrant)
Dated: November 10, 1997 By: /s/ TIMOTHY D. MCMILLIN
_______________________________
Timothy D. McMillin
Senior Vice President
Chief Financial Officer
(Principal Financial and accounting
Officer and Duly Authorized Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 27,540
<SECURITIES> 611
<RECEIVABLES> 40,612
<ALLOWANCES> 0
<INVENTORY> 803
<CURRENT-ASSETS> 70,298
<PP&E> 30,839
<DEPRECIATION> 8,653
<TOTAL-ASSETS> 110,792
<CURRENT-LIABILITIES> 25,730
<BONDS> 0
0
3
<COMMON> 16
<OTHER-SE> 82,036
<TOTAL-LIABILITY-AND-EQUITY> 110,792
<SALES> 99,063
<TOTAL-REVENUES> 99,063
<CGS> 68,264
<TOTAL-COSTS> 83,342
<OTHER-EXPENSES> (1,226)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 16,846
<INCOME-TAX> 6,814
<INCOME-CONTINUING> 10,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,032
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
