<PAGE>
===============================================================================
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 JUNE 30, 1998
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 77056-6199
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
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 JULY 31, 1998: 16,593,638
===============================================================================
<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 Flows... 4
Unaudited Consolidated Statement of Stockholders' Equity.... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition................ 9
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds............... 11
Item 4. Submission of Matters to a Vote of Security Holders..... 12
Item 6. Exhibits and Reports on Form 8-K........................ 12
<PAGE>
Metro Networks, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------------- ---------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,123 $ 25,087
Short-term marketable investments 807 777
Accounts receivable, net 40,411 34,113
Reciprocal receivables, net 11,894 11,113
Merchandise and scrip inventory 750 686
Other 3,232 703
-------- --------
Total current assets 76,217 72,479
-------- --------
PROPERTY AND EQUIPMENT
Operating equipment 35,871 30,638
Transportation equipment 773 842
Leasehold improvements 2,979 2,747
-------- --------
39,623 34,227
Less - accumulated depreciation and amortization 12,475 9,838
-------- --------
27,148 24,389
-------- --------
PURCHASED BROADCAST CONTRACTS AND OTHER INTANGIBLES,
NET OF ACCUMULATED AMORTIZATION OF $13,432 AND $11,354 17,756 17,545
OTHER ASSETS 1,202 660
-------- --------
$122,323 $115,073
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,521 $ 3,030
Notes payable 1,022 568
Reciprocal payables and accrued liabilities 10,893 10,281
Accrued liabilities 8,730 9,476
Income taxes payable 1,621 598
Current portion of long-term debt 420 420
-------- --------
Total current liabilities 25,207 24,373
LONG-TERM DEBT 173 490
OTHER 1,777 1,917
-------- --------
Total liabilities 27,157 26,780
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value (authorized 10,000,000 shares) 3 3
Common stock, $.001 par value (authorized 25,000,000 shares) 17 16
Additional paid-in capital 73,902 73,708
Unrealized depreciation in equity investment (349) -
Retained earnings 21,593 14,566
-------- --------
95,166 88,293
-------- --------
$122,323 $115,073
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Metro Networks, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- --------------------------------
1998 1997 1998 1997
----------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES $42,950 $34,710 $77,342 $64,078
OPERATING COSTS AND EXPENSES
Broadcasting 20,563 16,439 40,153 32,438
Marketing 7,716 6,779 15,172 12,988
General and administrative 3,129 2,617 5,854 5,661
Depreciation 2,474 2,202 4,845 4,331
------- ------- ------- -------
33,882 28,037 66,024 55,418
------- ------- ------- -------
TOTAL OPERATING EARNINGS 9,068 6,673 11,318 8,660
OTHER (INCOME) EXPENSE
Interest income (238) (304) (461) (670)
Interest expense 32 40 95 62
Other (21) 43 (117) 26
------- ------- ------- -------
(227) (221) (483) (582)
------- ------- ------- -------
EARNINGS BEFORE STATE AND FEDERAL INCOME TAXES 9,295 6,894 11,801 9,242
STATE AND FEDERAL INCOME TAXES 3,722 2,862 4,774 3,755
------- ------- ------- -------
NET EARNINGS $ 5,573 $ 4,032 $ 7,027 $ 5,486
======= ======= ======= =======
BASIC EARNINGS PER SHARE $.34 $.24 $.42 $.33
======= ======= ======= =======
Basic Average Common Shares Outstanding 16,588 16,550 16,588 16,550
======= ======= ======= =======
Diluted Earnings Per Share $.33 $.24 $.42 $.33
======= ======= ======= =======
Diluted Average Common Shares Outstanding 16,965 16,744 16,927 16,710
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Metro Networks, Inc. and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 7,027 $ 5,486
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 4,845 4,332
Deferred federal income taxes 360 -
Provision for doubtful accounts 747 574
Loss on dispositions of property and equipment 26 214
Changes in operating assets and liabilities (11,097) (10,211)
-------- --------
Cash provided by operating activities 1,908 395
-------- --------
INVESTING ACTIVITIES
Additions to property and equipment (5,091) (4,131)
Purchases of marketable securities (379) -
Proceeds from sale of property and equipment 90 82
Purchases of other investments (350) -
Acquisitions of companies (2,460) (6,485)
-------- --------
Cash used for investing activities (8,190) (10,534)
-------- --------
FINANCING ACTIVITIES
Repayments of long-term debt (814) (1,173)
Proceeds from long-term borrowing 937 769
Related party long-term debt repayments - (2,116)
Proceeds from issuance of common stock 195 -
-------- --------
Cash provided by (used) for financing activities 318 (2,520)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,964) (12,659)
CASH AND CASH EQUIVALENTS
Beginning of period 25,087 41,386
-------- --------
End of period $ 19,123 $ 28,727
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 94 $ 62
Cash paid during the period for state and federal income $ 4,047 $ 3,483
taxes
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired through reciprocal activities $ 226 $ 1,004
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Metro Networks, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL DEPRECIATION
PREFERRED COMMON PAID-IN OF EQUITY RETAINED
DOLLAR AMOUNTS STOCK STOCK CAPITAL INVESTMENTS EARNINGS TOTAL
- -------------- --------- ------ ---------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 3 $ 16 $73,708 $ $14,566 $88,293
Net earnings - - - - 7,027 7,027
Change in unrealized depreciation
of equity investments - - - (349) - (349)
Issuance of stock under Stock Purchase Plan - - 174 - - 174
Issuance of stock under Stock Option Plan - 1 20 - - 21
------- ----- ------- -------- ------- -------
BALANCE, JUNE 30, 1998 $ 3 $ 17 $73,902 $ (349) $21,593 $95,166
======= ===== ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
SHARES ISSUED
---------------------------------
PREFERRED COMMON
SHARE AMOUNTS STOCK STOCK
- ------------- --------- -----------
<S> <C> <C>
BALANCE, DECEMBER 31, 1997 2,549,750 16,587,058
Issuance of stock under Stock Purchase Plan - 5,281
Issuance of stock under Stock Option Plan - 1,299
--------- ----------
BALANCE, JUNE 30, 1998 2,549,750 16,593,638
========= ==========
</TABLE>
5
<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 Metro Networks, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures 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, 1997 Annual Report on Form
10K.
2. ACQUISITIONS
On March 2, 1998, the Company acquired all of the outstanding common stock
of Traffic Patrol Broadcasting, Inc. ("TPB"), a Texas corporation. TPB
provides traffic reporting services to a network of broadcast affiliates
serving the Dallas/Ft. Worth, Texas area. The consideration for the stock
included cash of approximately $1,200,000.
On June 25, 1998, the Company acquired certain assets of Florida Traffic
Watch, Inc., which provides broadcast traffic reporting to the Tampa and
Fort Myers markets. The purchase price consisted of a cash payment of
$1,260,000 and additional future contingent consideration.
3. RELATED PARTY TRANSACTIONS
Prior to the October 1996 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 June 30, 1998, the Company was
obligated to provide
6
<PAGE>
approximately $521,000 of commercial airtime, goods and services and cash
under these reciprocal arrangements.
4. EARNING PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted computations for the quarters and six months ended June
30, 1998 and 1997 (in thousands, except per share data).
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
------------------------------------------------------------
WEIGHTED
AVERAGE SHARES PER SHARE
INCOME OUTSTANDING AMOUNT
------ ------------- -----------
<S> <C> <C> <C>
June 30, 1998:
- -------------
BASIC EPS
Income available to common stockholders $5,573 16,588 $0.34
EFFECT OF DILUTIVE SECURITIES
Options 377 .01
------ ------ -----
DILUTED EPS
Income available to stockholders plus assumed conversion $5,573 16,965 $0.33
====== ====== =====
JUNE 30, 1997:
- --------------
BASIC EPS
Income available to common stockholders $4,032 16,550 $0.24
EFFECT OF DILUTIVE SECURITIES
Options -- 194 --
------ ------ -----
DILUTED EPS
Income available to stockholders plus assumed conversion $4,032 16,744 $0.24
====== ====== =====
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
----------------------------------------------------------------
WEIGHTED
AVERAGE SHARES PER SHARE
INCOME OUTSTANDING AMOUNT
---------- -------------- ---------
<S> <C> <C> <C>
June 30, 1998:
- --------------
BASIC EPS
Income available to common stockholders $7,027 16,588 $0.42
EFFECT OF DILUTIVE SECURITIES
Options -- 339 --
------ ------ -----
DILUTED EPS
Income available to stockholders plus assumed
conversion $7,027 16,927 $0.42
====== ====== =====
JUNE 30, 1997:
- --------------
BASIC EPS
Income available to common stockholders $5,486 16,550 $0.33
EFFECT OF DILUTIVE SECURITIES
Options -- 160 --
------ ------ -----
DILUTED EPS
Income available to stockholders plus assumed
conversion $5,486 16,710 $0.33
====== ====== =====
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Revenues increased by $8.2 million to $43.0 million, or 23.7%, in the
second quarter of 1998 and $13.3 million to $77.3 million, or 20.7%, for the
first six months of 1998. The increase in revenue is primarily due to increased
sales of commercial airtime inventory. Revenues from reciprocal agreements were
$1.7 million and $3.8 million in the second quarter and first six months of
1998, compared to $.9 million and $2.7 million for the same periods of last
year. As a percentage of total revenues, revenues from reciprocal agreements
increased modestly to 3.9% and 4.9% of total revenues in the second quarter and
first six months of 1998 compared to 2.2% and 4.2% for the same periods last
year.
Total operating costs (broadcasting and marketing costs) increased by $5.1
million to $28.3 million, or 21.8%, and $9.9 million to $55.3 million, or 21.8%,
respectively, in the second quarter and first six months of 1998, when compared
to the same periods last year. As a percentage of revenues, total operating
costs were 65.8% and 71.5% in the second quarter and first six months of 1998,
compared to 66.9% and 70.9% for the same periods last year. The increase in
costs are primarily due to the Company's introduction of its Metro Source
service, continued development of its Expanded Radio Services and Metro
Television Services and various acquisitions which the Company completed in 1997
and 1998.
General and administrative expenses increased by $.5 million to $3.1
million, or 19.6%, and $.2 million to $5.9 million, or 3.4%, respectively, in
the second quarter and first six months of 1998 when compared to the same period
last year. As a percentage of revenues, general and administrative expenses
decreased to 7.3% and 7.6% in the second quarter and first six months of 1998,
compared to 7.5% and 8.8% for the same period last year.
Earnings before interest income, interest expense, taxes, depreciation and
amortization (EBITDA) increased by $2.7 million, or 30.9%, to $11.6 million in
the second quarter compared to $8.8 million in second quarter of 1997. For the
six months ended June 30, 1998, EBITDA increased approximately $3.3 million, or
25.6% to $16.3 million, compared to $13.0 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 26.9% and 21.0% for the second quarter and
six months ended June 30, 1998, respectively.
The Company recorded second quarter 1998 net income of $5.6 million,
compared to $4.0 million in the second quarter of 1997, or an increase of 38.2%.
Diluted earnings per share for the three months and six months ended June 30,
1998 were $.33 and $.42, respectively.
9
<PAGE>
FINANCIAL CONDITION
- -------------------
Cash and cash equivalents decreased $6.0 million from $25.1 million to
$19.1 million for the six months ended June 30, 1998. Cash provided by
operating activities increased $1.5 million to $1.9 million for the six months
ended June 30, 1998, when compared to the same period last year, primarily due
to increased earnings for the period. Cash used for investing activities
decreased by $2.3 million to $8.2 million for the first six months of 1998 when
compared to the same period last year, primarily due to a decrease in
acquisitions of companies from last year, offset by an increase in capital
purchases of property and equipment. Cash used for financing activities
decreased by $2.8 million due primarily to a reduction in long-term debt
repayments.
The maximum aggregate permitted borrowings under the Credit Agreement is
$30.0 million. As of June 30, 1998, the Company had no debt outstanding under
the Credit Agreement.
YEAR 2000
- ---------
Many computer software systems, as well as certain hardware and equipment
containing date sensitive data, were structured to utilize a two-digit date
field meaning that they may not be able to properly recognize dates in the Year
2000. This could result in significant system and equipment failures. While
the Year 2000 considerations are not expected to materially impact the Company's
internal operations, they may have an effect on some of our customers and
suppliers, and thus indirectly affect the Company. It is not possible to
quantify the aggregate cost to the Company with respect to customers and
suppliers with Year 2000 problems. The Company is currently in the planning
stages of developing new data processing systems throughout the organization for
management, operational and financial information. These systems will be free
of any Year 2000 limitations.
10
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Pursuant to a Registration Statement on Form S-1 (Commission File
No. 333-6311) declared effective by the Securities and Exchange Commission
on October 16, 1996, the Company sold 4,650,000 shares (including 1,050,000
shares pursuant to the exercise of an over allotment option) of its Common
Stock, par value $.001 per share (the "Common Stock") in an initial public
offering (the "Offering"). An additional 3,600,000 shares of the Common
Stock was sold by a selling stockholder in the offering. The offering
price of the Common Stock was $16.00 per share, resulting in an aggregate
offering price of $74,400,000 for the account of the Company and
$57,600,000 for the account of the selling stockholder. After underwriting
discounts, the proceeds to the Company from the Offering was $69,192,000
and the proceeds to the selling stockholder was $53,568,000. All of the
shares registered in the Offering were sold.
The Offering closed on October 22, 1996, and the managing
underwriters for the Offering were Goldman, Sachs & Co., CS First Boston
and Donaldson, Lufkin & Jenrette Securities Corporation.
The amount of expenses incurred for the Company's account in
connection with the Offering were as follows:
Underwriters discounts $5,208,000
Other expenses 1,428,000
----------
Total $6,636,000
==========
Of these amounts, none were direct or indirect payments to officers,
directors or their associates, or persons owning 10% or more of any class
of equity securities of the Company and all were direct or indirect payment
to others.
The net offering proceeds to the Company were used $10,465,000 for
the acquisition of other businesses, $6,536,000 for the purchase and
installation of machinery and equipment, $29,811,000 for the repayment of
indebtedness, and $1,900,000 for working capital.
Of these amounts, none were direct or indirect payments to officers,
directors or their associates, or persons owning 10% or more of any class
of equity securities of the Company and all were direct or indirect payment
to others.
11
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
On May 28, 1998, the Company held its annual meeting of
shareholders. At the annual meeting, the shareholders elected two Class II
Directors to serve until the 2001 annual meeting. The results of the voting
were as follows:
NAME FOR WITHHELD
Charles I. Bortnick 17,867,158 72,335
Robert M. Miggins 17,867,175 73,318
The remaining directors of the company are David I. Saperstein,
Shane E. Coppola, Gary L. Worobow, Kenin H. Spivak, James A. Arcara and
Dennis F. Holt.
In addition, the shareholders ratified and approved the 1997 Stock
Option Plan. The results of the voting were as follows:
FOR AGAINST WITHHELD
17,162,569 478,373 2,275
In addition, the shareholders ratified and approved certain stock
options to non-employee directors of the company. The results of the
voting were as follows:
FOR AGAINST WITHHELD
17,362,771 292,827 3,129
In addition, the shareholders ratified and approved the appointment
of KPMG Peat Marwick, LLP, for the fiscal year ended December 31, 1998.
The results of the voting were as follows:
FOR AGAINST WITHHELD
17,932,692 5,954 847
Item 6. Exhibits and Reports on Form 8-K
Exhibit
No.
-------
27.1 Financial Data Schedule.
No reports were filed on Form 8-K during the three-
month period ended June 30, 1998.
12
<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.
--------------------
(Registrant)
Dated: August 11, 1998 By: /s/ Timothy D. McMillin
----------------------------------------
Timothy D. McMillin
Senior Vice President
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 19,123
<SECURITIES> 807
<RECEIVABLES> 52,305
<ALLOWANCES> 0
<INVENTORY> 750
<CURRENT-ASSETS> 76,217
<PP&E> 39,623
<DEPRECIATION> 12,475
<TOTAL-ASSETS> 122,323
<CURRENT-LIABILITIES> 25,207
<BONDS> 0
0
3
<COMMON> 17
<OTHER-SE> 95,146
<TOTAL-LIABILITY-AND-EQUITY> 122,323
<SALES> 77,342
<TOTAL-REVENUES> 77,342
<CGS> 55,325
<TOTAL-COSTS> 66,024
<OTHER-EXPENSES> (578)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> 11,801
<INCOME-TAX> 4,774
<INCOME-CONTINUING> 7,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,027
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
