<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM________TO__________.
COMMISSION FILE NUMBER: 0-21575
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METRO NETWORKS, INC.
---------------------------------------------------
(Exact Name of Registrant as specified in its charter)
DELAWARE 76-0505148
-------- ----------
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
2800 POST OAK BLVD.
SUITE 4000
HOUSTON, TEXAS 77056
-----------------------------------------------------
(Address of Registrant)
713-407-6000
--------------------------
(Registrant's phone number)
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 (OR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS. YES X NO
--- ---
NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING AS OF JUNE 30, 1997:
16,554,403
1
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METRO NETWORKS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1996
AND JUNE 30, 1997 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND JUNE 30, 1997 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 15
II. OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
</TABLE>
2
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METRO NETWORKS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
ASSETS DECEMBER 31, 1997
1996 (UNAUDITED)
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 43,441,293 $ 32,931,047
Accounts receivable, net 23,318,182 28,537,070
Prepaid expenses and other current assets 841,849 1,305,718
Reciprocal receivables 11,397,959 11,358,610
Merchandise and scrip inventory 567,144 699,472
Reciprocal prepaid expenses and other current
assets 440,246 666,922
------------ ------------
Total current assets 80,006,673 75,498,839
------------ ------------
Property and equipment:
Operating equipment 14,686,692 21,667,578
Transportation equipment 706,554 533,912
Leasehold improvements 1,170,189 1,803,658
------------ ------------
16,563,435 24,005,148
Less: accumulated depreciation 5,992,630 7,564,342
------------ ------------
10,570,805 16,440,806
Purchased broadcast contracts and other intangibles,
net of accumulated amortization of $9,022,969 in
1997 and $6,783,978 in 1996 14,074,242 16,650,686
Other assets 1,160,611 1,868,419
------------ ------------
Total assets $105,812,331 $110,458,750
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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METRO NETWORKS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
LIABILITIES
June 30,
DECEMBER 31, 1997
1996 (UNAUDITED)
------------ -------------
<S> <C> <C>
Current liabilities:
Disbursement float $ 2,055,467 $ 4,204,566
Accounts payable 3,076,333 3,454,713
Accrued payroll liabilities 5,418,751 5,125,711
Other accrued liabilities 2,766,898 1,290,374
Notes payable 518,244 744,125
Note payable to shareholder 3,100,000 984,000
Current portion of long-term debt 318,789 705,936
Deferred revenues 430,299 344,177
Income tax payable 897,788 1,169,847
Current deferred income taxes 61,000 61,000
Reciprocal payables 7,837,337 7,725,834
Accrued reciprocal liabilities 1,520,897 1,595,434
Reciprocal and airtime obligations 2,711,301 2,646,501
------------ ------------
Total current liabilities 30,713,104 30,052,218
------------ ------------
Long-term debt 473,356 833,346
Other liabilities 2,696,228 2,157,081
------------ ------------
Total liabilities 33,882,688 33,042,645
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 16,550 16,550
Preferred stock 2,550 2,550
Additional paid-in capital 72,888,027 72,888,027
Retained (deficit) earnings (977,484) 4,508,978
------------ ------------
Total stockholders' equity 71,929,643 77,416,105
------------ ------------
$105,812,331 $110,458,750
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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METRO NETWORKS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
(UNAUDITED)
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Advertising revenues $27,046,835 $34,710,335
Broadcasting costs 11,704,433 16,439,086
Marketing expense 4,616,804 6,779,353
General and administrative expense 2,667,488 2,617,197
Depreciation and amortization 1,446,411 2,202,079
----------- -----------
Total operating costs 20,435,136 28,037,715
----------- -----------
Income from operations 6,611,699 6,672,620
----------- -----------
Other (income) expense:
Interest income (31,126) (304,013)
Interest expense 611,786 39,817
Other (5,909) 42,847
----------- -----------
Income before income tax 6,036,948 6,893,969
----------- -----------
Income tax expense 69,907 2,862,253
----------- -----------
Net income $ 5,967,041 $ 4,031,716
=========== ===========
Net income per share $ - $0.24
=========== ===========
Pro forma income data (unaudited):
Income as reported before tax $ 6,036,948
Proforma federal and state income tax (2,506,200)
-----------
Proforma net income $ 3,530,748
===========
Pro forma net income per share 0.30
Weighted average shares outstanding 11,900,357 16,741,939
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
METRO NETWORKS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
(UNAUDITED)
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Advertising revenues $50,077,032 $64,078,162
Broadcasting costs 24,172,646 32,437,686
Marketing expense 10,101,411 12,988,432
General and administrative expense 4,350,708 5,660,529
Depreciation and amortization 2,936,082 4,331,716
----------- -----------
Total operating costs 41,560,847 55,418,363
----------- -----------
Income from operations 8,516,185 8,659,799
----------- -----------
Other (income) expense:
Interest income (53,734) (670,425)
Interest expense 933,895 61,985
Other (12,600) 26,431
----------- -----------
Income before income tax 7,648,624 9,241,808
----------- -----------
Income tax expense 572,855 3,755,367
----------- -----------
Net income $ 7,075,769 $ 5,486,441
=========== ===========
Net income per share $ - $0.33
=========== ===========
Pro forma income data (unaudited):
Income as reported before tax $ 7,648,624
Proforma federal and state income tax (3,107,984)
-----------
Proforma net income $ 4,540,640
===========
Pro forma net income per share 0.38
Weighted average shares outstanding 11,900,357 16,724,125
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
METRO NETWORKS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
(UNAUDITED)
------------------------------
1996 1997
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,075,769 $ 5,486,441
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 2,936,082 4,331,716
Loss on dispositions of property
and equipment - 213,787
Amortization of discount on note payable 44,150 -
Provision for doubtful receivables 438,725 574,481
Deferred federal income tax (367,727) -
Decrease (increase) in, net of acquisition of businesses
Accounts receivable, net (7,063,998) (5,353,186)
Prepaid expenses and other current assets (544,614) (69,970)
Other assets (207,270) (1,384,202)
(Decrease) increase in, net of acquisition of businesses
Accounts payable 516,295 210,153
Accrued payroll liabilities 216,204 (293,040)
Other accrued liabilities 2,295,899 (1,476,524)
Deferred revenues 385,617 (86,122)
Income tax payable (139,772) 272,059
Other liabilities 12,956 (574,267)
Net reciprocal arrangements (1,827,737) (1,456,212)
----------- ------------
Net cash provided by operating activities 3,770,579 395,114
----------- ------------
Cash flows from investing activities:
Acquisitions of companies (3,864,807) (4,131,093)
Advances on receivables to related parties (680,703) -
Payments on receivables from related parties 150,000 -
Proceeds from sale of property and equipment - 81,605
Acquisitions of property and equipment (1,957,823) (6,484,989)
----------- ------------
Net cash used in investing activities $(6,353,333) $(10,534,477)
----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
METRO NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
(UNAUDITED)
---------------------------
1996 1997
------------- ------------
<S> <C> <C>
Cash flows from financing activities:
Increase (decrease) in disbursements float $ 523,280 2,149,099
Proceeds from long-term debt 8,948,351 769,013
Principal payments on long term debt (468,883) (1,172,995)
Payments on shareholder debt - (2,116,000)
Distributions (6,003,740) -
------------ ------------
Net cash provided by financing activities 2,999,008 (370,883)
------------ -----------
Net (decrease) increase in cash and
cash equivalents 416,254 (10,510,246)
Cash and cash equivalents at beginning of period 3,049,946 43,441,293
----------- ------------
Cash and cash equivalents at end of period $ 3,466,200 $ 32,931,047
=========== ============
Supplemental disclosures of cash
flow information:
Cash paid during the period for interest $ 959,265 $ 61,985
=========== ============
Cash paid during the period for income taxes $ 686,054 $ 3,483,308
=========== ============
Supplemental noncash investing and financing
activities:
Property and equipment acquired through
reciprocal activities $ 176,610 $ 1,004,324
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
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 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.
2. INITIAL PUBLIC OFFERING
In October 1996, the Company completed its initial public offering of its
common stock (the "Public Offering"). Of the 7,200,000 shares of common
stock offered, 3,600,000 shares were sold by the selling shareholder. In
addition, the Company's underwriters exercised the underwriters' over-
allotment option which resulted in the Company selling an additional
1,050,000 shares. The Company received approximately $67.8 million in
cash, net of underwriting discounts and commissions, and other expenses.
3. PRO FORMA EARNINGS PER SHARE
Proforma income taxes are set forth herein because certain of the
Predecessor Companies (as defined below) operated as S corporations or
partnerships for federal income tax purposes. Proforma net income reflects
income taxes calculated using a C corporation tax status. Weighted average
shares outstanding and pro forma net income per share are calculated
assuming the shares issued in conjunction with the Reorganization (see note
6) were outstanding for the periods presented.
Assuming that the Public Offering shares were outstanding for the periods
presented the pro forma net income per share for the three months ended
June 30, 1996 would have been $0.21.
9
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4. NOTES PAYABLE AND LONG-TERM DEBT
Short-term notes payable consist of various notes with an original maturity
of less than one year. Long-term debt consists of:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
---------- -----------
<S> <C> <C>
Various acquisition notes payable, discounted
at 8%, due 1997 through 1999 $686,395 $1,449,782
Unsecured note payable to bank at prime
(8.50% at June 30, 1997), due 1997
through 2000 105,750 89,500
-------- -----------
792,145 1,539,282
Less: Current portion 318,789 705,936
-------- -----------
$473,356 $ 833,346
</TABLE> ======== ===========
On October 22, 1996, the Company paid off the notes payable related to a
$30.0 million revolving agreement and replaced this facility with a new
reducing revolving credit facility (the "Credit Agreement") which provides
for maximum aggregate permitted borrowings of $30.0 million. The new line
of credit expires December 31, 2003, and will begin reducing in March 1999.
The new line of credit bears interest at a variable rate indexed to the
lender's prime rate or LIBOR. The new line of credit has a commitment fee
based on the daily average unborrowed balance and is secured by the grant
of a lien by the Company and its subsidiary on all of their respective
assets and a pledge of the Company's equity interest in its subsidiary in
favor of the lender. The new line of credit provides for various
restrictions on the Company which would restrict the Company, without first
obtaining the lender's consent, from taking certain actions, including but
not limited to incurring additional indebtedness, making certain
acquisitions or consolidating with any other entity, altering its existing
capital structure and paying certain dividends.
10
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5. 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 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 $3.7 million 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
$3.25 million 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.
6. REORGANIZATION
From 1978 until the closing of the Public Offering, the business of the
Company was operated through Metro Traffic Control, Inc., a Maryland
corporation ("MTC"); Metro Networks, Ltd., a Texas limited partnership
("MNL"); Metro Video News, Inc., a Texas corporation ("MVN"); Metro
Reciprocal, Inc., a Texas corporation ("MRI") and their subsidiaries
(collectively, the "Predecessor
11
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Companies"). Until the closing of the Public Offering, all of the equity
interests in the Predecessor Companies were owned by David I. Saperstein,
the Chairman and Chief Executive Officer of the Company, and certain trusts
(the "Trusts") created for the benefit of Mr. Saperstein's children
(collectively, the "Saperstein Family").
In May 1996, Metro Networks, Inc. was incorporated in Delaware.
Immediately prior to the closing of the Public Offering in October 1996,
the Saperstein Family established Metro Networks, Inc. as a holding company
and consolidated the issued and outstanding equity interests in the
Predecessor Companies, by exchanging such interests for 9,350,607 shares of
Metro Networks, Inc.'s common stock and 2,549,750 shares of Metro Networks,
Inc.'s Series A Convertible Preferred Stock (the "Reorganization").
7. 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 Mr. Saperstein. 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 June 30, 1997, the Company was obligated to provide
approximately $1.2 million of commercial airtime, goods and services and
cash under these reciprocal arrangements. Immediately prior to the Public
Offering, the Company entered into an agreement with Mr. Saperstein
pursuant to which Mr. Saperstein was distributed the goods and services the
Company held for Mr. Saperstein's benefit. The Company also distributed to
Mr. Saperstein all of its rights to the goods and services that are the
subject of existing reciprocal arrangements but which had not yet been
delivered to the Company. The value of such goods and services was
approximately $4.1 million.
Immediately prior to the closing of the Public Offering, the Company
entered into a Stock Loan and Pledge Agreement with Mr. Saperstein pursuant
to which the Company loaned Mr. Saperstein 2,549,750 shares of common stock
(the "Loaned Stock"). The loan is for a term of ten years, although the
Company has the right to require the return of the Loaned Stock from Mr.
Saperstein prior to that time upon three days notice. As security for the
loan, Mr. Saperstein pledged 2,549,750 shares of Series A Convertible
Preferred Stock of the Company which, when converted into common stock,
will equal the number of shares of Loaned Stock. Mr. Saperstein is
obligated to pay the Company an annual fee over the term of the loan of
0.1% of the average fair market value of the Loaned Stock during the five
day period immediately following the date of the Stock Loan and Pledge
Agreement. One-half of this fee is payable annually, and the remaining
one-half of this fee is payable upon the termination of the loan if such
termination occurs pursuant to an Event of Default (as defined in the Stock
Loan and Pledge
12
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Agreement) or at the end of the ten year term of the Stock Loan and Pledge
Agreement. The Company will forfeit this portion of the fee if it calls
the loan prior to the end of the ten year term. In addition, Mr.
Saperstein paid an initial transaction fee of $2,550 to the Company and is
obligated to repay to the Company any dividends that are paid by the
Company on the Loaned Stock. The Series A Convertible Preferred Stock does
not pay any dividends.
8. INCOME TAXES
Prior to the Reorganization, MNL owned corporations which were taxed under
the C corporation provisions of the Internal Revenue Code. Taxes related
to income from the entities taxed under the C corporation provisions are
reported under the asset and liability method. Accordingly, deferred tax
assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Subsequent to the Reorganization all of the
operations will be included in the consolidated tax return of the Company.
Accordingly at the time of the Reorganization the Company recorded an
increase in the deferred tax liability of $66,000, which represented the
tax basis differential between financial and tax assets and liabilities
associated with the S corporations and partnerships included in the
reorganization.
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 MVN, MRI or 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 January 1, 1996 to the date of
the Reorganization. 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 June 30, 1997 is $984,000.
9. STOCK OPTIONS
The Company's Board of Directors has adopted the 1996 Incentive Stock
Option Plan (the "1996 Plan") for the Company's officers and employees.
The Board of Directors has discretionary authority, subject to certain
restrictions, to administer the 1996 Plan, including but not limited to
determining the individuals to whom, the times at which, and the exercise
price for which options will be granted. The total number of shares
reserved for issuance under the 1996 Plan is 1,000,000, of which
approximately 585,000 have been issued. The exercise price of options
13
<PAGE>
granted under the 1996 Plan may not be less than 100% of the fair market
value (or not less than 110% of the fair market value as to any individual
who, at the time the option is granted, owned more than 10% of the total
combined voting power of all classes of stock of the Company) of the common
stock on the date such option was granted. Options granted under the 1996
Plan typically become vested and exercisable for up to 33-1/3% of the total
optioned shares upon the first anniversary of the grant of the option and
for an additional 33-1/3% of the total optioned shares upon each succeeding
anniversary until the option is fully exercisable at the end of the third
year. Generally, the unexercised portion of any option automatically
terminates upon the earlier of (i) termination of the optionee's employment
with the Company, (ii) the expiration of 90 days from the date the
optionee's employment with the Company terminates for any reason other than
cause, death, or disability (iii) the expiration of one year after the
optionee's death or (iv) the expiration of the option. Upon the sale,
merger or liquidation of the Company, outstanding options may be exercised
immediately prior to the consummation of such a transaction, whether or not
vested as of such date of consummation. In addition, 40,000 options were
granted to non-employee members of the Board of Directors.
10. SUBSEQUENT EVENT
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.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Revenues increased by $7.7 million, or approximately 28.3%, to $34.7
million for the three months ended June 30, 1997 (the "current year period")
from $27.0 million for the three months ended June 30, 1996 (the "prior year
period") primarily due to increased sales of commercial airtime inventory.
Revenues from reciprocal arrangements were $0.9 million in the current year
period, a decrease of $0.6 million from $1.5 million in the prior year period.
As a percentage of total revenues, revenues from reciprocal arrangements
decreased to 2.6% in the current year period from 5.5% in the prior year period.
Broadcasting costs increased by $4.7 million, or approximately 40.5%, to
$16.4 million in the current year period from $11.7 million in the prior year
period. As a percentage of revenues, broadcasting costs increased to 47.4% for
the current year period from 43.3% for the prior year period. The Company's
continued development of its Expanded Radio Services, Metro TV Services, and
acquisitions of Airborne, TWI and several new market start-up operations
significantly contributed to the increase. Broadcasting costs attributable to
reciprocal arrangements decreased from approximately $0.7 million in the prior
year period to $0.5 million in the current year period.
Marketing expense increased by $2.2 million, to $6.8 million in the current
year period from $4.6 million in the prior year period. This increase resulted
from increased sales commissions associated with the increased revenues
generated in the current year period. Marketing expense as a percentage of
revenues increased to 19.5% in the current year period as compared to 17.1% in
the prior year period. Marketing expense related to reciprocal arrangements
increased by approximately $0.4 million, from $(0.2) million in the prior year
period to $0.2 million in the current year period.
General and administrative expense decreased by $0.1 million, to $2.6
million in the current year period from $2.7 million in the prior year period.
General and administrative expenses associated with reciprocal arrangements
increased by approximately $0.1 million from $34,000 in the prior year period to
$0.2 million in the current year period.
EBITDA consists of earnings before interest expense, taxes, depreciation,
and amortization. EBITDA increased by approximately $0.8 million to $8.9 million
in the current year period from $8.1 million in the prior year period. The
improvement represented an increase of 10.1%. The increase in EBITDA was
primarily attributable to the Company's continued revenue growth. EBITDA as a
percentage of revenue was 25.4% in the current year period.
As a result of the factors discussed above, net income increased to $4.0
million in the current year period from $3.5 million (adjusted on a pro forma
basis to reflect C corporation tax status) in the prior year period, or
approximately 14.2%. Earnings per share increased to $0.24 in the current year
period.
15
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SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues increased by $14.0 million, or approximately 28.0% to $64.1
million for the six months ended June 30, 1997 (the "June 1997 Period") from
$50.1 million for the six months ended June 30, 1996 (the "June 1996 Period")
primarily due to increased sales of commercial airtime inventory. Revenues from
reciprocal arrangements were $2.7 million in the June 1997 Period, a decrease of
$2.1 million from $4.8 million in the June 1996 Period. As a percentage of
total revenues, revenues from reciprocal arrangements decreased to 4.2% in the
June 1997 Period from 9.5% in the June 1996 Period.
Broadcasting costs increased by $8.3 million, or approximately 34.2%, to
$32.4 million in the June 1997 Period from $24.2 million in the June 1996
Period. As a percentage of revenues, broadcasting costs increased to 50.6% for
the June 1997 Period from 48.3% for the June 1996 Period. The Company's
continued development of its Expanded Radio Services, Metro TV Services, and
acquisitions of Airborne, TWI and several new market start-up operations
significantly contributed to the increase. Broadcasting costs attributable to
reciprocal arrangements decreased from approximately $2.7 million in the June
1996 Period to $1.4 million in the June 1997 Period.
Marketing expense increased by $2.9 million, to $13.0 million in the June
1997 Period from $10.1 million in the June 1996 Period. This increase resulted
from increased sales commissions associated with the increased revenues
generated in the June 1997 Period. Marketing expense as a percentage of
revenues increased slightly to 20.3% in the June 1997 Period as compared to
20.2% in the June 1996 Period. Marketing expense related to reciprocal
arrangements decreased by approximately $0.1 million from $0.6 million in the
June 1996 Period to $0.5 million in the June 1997 Period.
General and administrative expense increased by $1.3 million, to $5.7
million in the June 1997 Period from $4.4 million in the June 1996 Period.
This increase was primarily due to increased salaries and related overhead
associated with the Company's continued growth. General and administrative
expenses associated with reciprocal arrangements increased by approximately $0.2
million from $0.2 million in the June 1996 Period to $0.5 million in the June
1997 Period.
EBITDA increased by approximately $1.5 million to $13.0 million in the June
1997 Period from $11.5 million in the June 1996 Period. The improvement
represented an increase of 13.4%. The increase in EBITDA was primarily
attributable to the Company's continued revenue growth. EBITDA as a percentage
of revenue was 20.2% in the June 1997 Period.
As a result of the factors discussed above, net income increased to $5.5
million in the June 1997 Period from $4.5 million (adjusted on a pro forma basis
to reflect C corporation tax status) in the June 1996 Period, or approximately
20.8%. Earnings per share increased to $0.33 in the June 1997 Period.
During the June 1997 Period cash and cash equivalents decreased $10.5
million from $43.4 million to $32.9 million. Cash provided by operating
activities decreased from $3.8 million in the June 1996 Period to $0.4 million
in the June 1997 Period due primarily to the decrease in other accrued
16
<PAGE>
liabilities. Cash used in investing activities increased to $10.5 million in
the June 1997 Period from $6.4 million in June 1996 Period due to increased
acquisitions of property and equipment. Cash provided by financing activities
decreased to $(0.4) million in the June 1997 Period from $3.0 million in the
June 1996 period due to the absence of long term debt borrowing.
The maximum aggregate permitted borrowings under the Credit Agreement is
$30.0 million. As of June 30, 1997 the Company had no debt outstanding under the
Credit Agreement.
The Company intends to retain all of its earnings to finance the
development and expansion of its business and therefore does not intend to pay
any cash dividends on the common stock for the foreseeable future. The Credit
Agreement restricts the payment of cash dividends.
17
<PAGE>
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 6, 1997, the company held its annual meeting of shareholders.
At the annual meeting, the shareholders elected three Class 1 directors to serve
until the 2000 annual meeting. The results of the voting were as follows:
<TABLE>
<CAPTION>
NAME FOR WITHHELD
<S> <C> <C>
David I. Saperstein 18,078,693 167,922
Gary L. Worobow 18,078,693 167,922
Kenan H. Spivak 18,078,693 167,922
</TABLE>
The remaining directors of the company are Charles I. Bortnick, Shane E.
Coppola, Curtis H. Coleman, James A. Arcara, Dennis F. Holt, and Robert M.
Miggins.
In addition, the shareholders ratified and approved the appointment of
KPMG Peat Marwick, LLP, for the fiscal year ended December 31, 1997. The result
of the voting was as follows:
FOR AGAINST WITHHELD
18,244,276 689 1,200
Item 6. Exhibits and Reports on Form 8-K
27.1 Financial Data Schedule
18
<PAGE>
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.
DATED: 8-13-97 BY: /S/ CURTIS H. COLEMAN
---------------- --------------------------------------------
CURTIS H. COLEMAN
SENIOR VICE PRESIDENT-
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER AND DULY AUTHORIZED OFFICER)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 32,931
<SECURITIES> 0
<RECEIVABLES> 39,896
<ALLOWANCES> 0
<INVENTORY> 699
<CURRENT-ASSETS> 75,499
<PP&E> 24,005
<DEPRECIATION> 7,564
<TOTAL-ASSETS> 110,459
<CURRENT-LIABILITIES> 30,052
<BONDS> 0
0
3
<COMMON> 17
<OTHER-SE> 77,394
<TOTAL-LIABILITY-AND-EQUITY> 110,459
<SALES> 64,078
<TOTAL-REVENUES> 64,078
<CGS> 45,426
<TOTAL-COSTS> 55,418
<OTHER-EXPENSES> (644)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 9,242
<INCOME-TAX> 3,755
<INCOME-CONTINUING> 5,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,486
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
