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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1998
[ ] 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 CHARTER)
DELAWARE 76-0505148
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2800 POST OAK BLVD., SUITE 4000 77056-6199
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(713) 407-6000
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
COMMON STOCK, $.001 PAR VALUE
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 for 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the shares of Registrant's Common Stock held
by non-affiliates of Registrant as of March 25, 1999 was $ 361,541,280, based
upon the average of the bid and asked price per share of Common Stock on March
25, 1999, as reported in the NASDAQ National Market.
The number of shares outstanding of Registrant's Common Stock as of March
25, 1999 was 16,714,973.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for its annual
meeting of shareholders (which will be filed with the Commission within 120
days of the Registrant's last fiscal year end) are incorporated by reference in
Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Metro Networks, Inc. (the "Company") is the largest domestic outsource
provider of traffic reporting services and is a leading supplier of local news,
sports, weather, video news and other information programming services to the
television and radio broadcast industries. The Company's information reports,
which are customized to meet the specific needs of each of the Company's
individual radio and television station affiliates, are presently being
broadcast by approximately 1,688 radio station affiliates and 155 television
station affiliates. The Company provides local broadcast information reports in
81 Metro Survey Area ("MSA") markets in the United States. In exchange for the
Company's information reports, radio and television station affiliates provide
commercial airtime inventory to the Company. The packaging and sale of this
commercial airtime inventory accounts for substantially all of the Company's
revenues.
Because the Company has numerous television and radio station affiliates
in each of its markets (averaging 23 affiliates per market), the Company
believes that its broadcasts of local information enable advertisers to reach
more people, more often, in a higher impact manner than can be achieved using
other advertising media. The Company's information reports are broadcast in 67
of the 75 largest MSA markets in the United States and are seen and heard by
more than 100 million people (age 12 and over) daily. Such reports and the
Company's commercial messages are listened to by an average of approximately
73% of the population (age 12 and over) in its markets. The Company's large
network of affiliates offers advertisers the opportunity to reach a broad-based
local, regional or national audience, through a single purchase of commercial
airtime inventory from the Company.
The Company offers advertisers two different networks on which to
broadcast their advertisements: (i) the network of radio station affiliates
(the "Radio Information Services Network") which includes the affiliate
stations to which the Company provides its core information reports (the "Radio
Traffic Services" and, separately, the "Radio Traffic Services Network") and
the affiliate stations to which the Company provides its news, sports, weather
and other information reports (the "Expanded Radio Services" and, separately,
the "Expanded Radio Services Network"), and (ii) the network of broadcast
television station affiliates and cable news channel affiliates (the "MetroTV
Network") to which the Company provides its traffic information reports (the
"Television Traffic Services") and video news information products (the "Video
News Services," and collectively with the Television Traffic Services, the
"MetroTV Services").
PROGRAMMING
The Company's information reports (including the length of report,
content of report, specific geographic coverage area, time of broadcast, number
of reports aired per day, broadcaster's style, etc.) are customized to meet
each individual affiliate's requirements. The Company typically works closely
with the program directors, news directors and general managers of its
affiliates to ensure that the Company's services meet its affiliates' quality
standards. The Company and its affiliates jointly select the on-air
broadcasters to ensure that each broadcaster's style is appropriate for the
station's format. The Company's broadcasters often become integral
"personalities" on such affiliates' stations as a result of their significant
on-air presence and interaction with the stations' on-air personnel. In order
to realize operating efficiencies, the Company endeavors to utilize its
professional broadcasters on multiple affiliate stations within a particular
market. Generally, each of the Company's broadcasters delivers reports to
between two and four of the Company's affiliates.
The Company does not require its affiliates to identify the Company as
the supplier of its information reports. This provides the Company's affiliates
with a high degree of customization and flexibility, as each affiliate has the
right to present the information reports provided by the Company as if the
affiliate had generated such reports with its own resources. For example,
multiple affiliates in a single market may suggest that the Company's
infrastructure, including its airplanes, helicopters and broadcasters, are
those of the affiliate.
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Radio Programming Services
The Company has been supplying radio stations with customized Radio
Traffic Services since its inception in 1978. The Company is now the largest
supplier of Radio Traffic Services in the United States. The Company has
offered its Expanded Radio Services since 1994 and is now a leading supplier of
such services, with over 674 affiliates in 70 markets as of December 31, 1998.
The Company's total radio station affiliates increased by 7% from 1,576 in 1997
to 1,688 in 1998.
The Company gathers traffic and other data utilizing the Company's
information-gathering infrastructure, which includes aircraft (helicopters and
airplanes), broadcast quality remote camera systems positioned at strategically
located fixed-positions and on aircraft, mobile units and cellular systems, and
by accessing various government-based traffic tracking systems. The Company
also gathers information through relationships with various third party news
and information services. The information is then processed, written into
broadcast copy and entered into the Company's computer systems by the Company's
local writers and producers. The Company's professional broadcasters then read
the customized reports on the air.
As a result of its extensive network of operations and broadcasters, the
Company regularly reports breaking and important news stories and provides its
affiliates with live coverage of these stories. The Company is able to
customize and personalize its reports of breaking stories using its individual
affiliates' call letters from the scene of news events. For example, during the
Hurricane Georges news event, the Company provided live customized reports to
its affiliates all over the country from within the National Hurricane Center
in Miami, from all the states affected by the Hurricane, as well as cities and
states which were sending relief supplies to storm ravaged areas. The Company
believes that it is the only radio network news organization that has local
studio operations that cover in excess of 80 markets and that is able to
provide such customized reports to these markets.
Metro Source, the Company's newest product within its Expanded Radio
Services division, was first introduced in September 1997 and installations
began in January 1998. Metro Source is a total information system and digital
audio workstation that allows Metro news affiliates to receive via satellite,
view, write, edit and report the latest news, features and show preparation
material. With this product, the Company provides continuously updated and
breaking news, weather, sports, business and entertainment information to its
affiliate stations. Information and content for Metro Source is primarily
generated from the Company's staff of News Bureau Chiefs, state correspondents
and professional news writers and reporters.
Local, regional and national news and information stories are fed to the
Company's national news operations center in Phoenix, Arizona where the
information is verified, edited, produced and disseminated via satellite to the
Company's internal Metro Source workstations located in each of its operations
centers and to workstations located at affiliate radio stations nationwide.
Metro Source includes proprietary software that allows for customizing reports
and editing in both audio and text formats. The benefit to stations is that
Metro Source allows them to substantially reduce time and cost from the news
gathering and editing process at the station level, while providing greater
volume and quality news and information coverage from a single source. As of
December 31, 1998, the Company had affiliated approximately 470 radio stations
for the Metro Source product.
Television Programming Services
The Company has been supplying its Television Traffic Services to
television stations for over ten years and is currently providing such services
to 155 television stations, an increase of 15% from 135 television station
affiliates in 1997. Originally, the Company provided television stations with
audio reports of traffic information and basic graphics. In 1995, the Company
began to expand and enhance the information services that it provides to
television stations. As of December 31, 1998, the Company provided its Video
News Services to approximately 61 television station affiliates in 28 markets,
up from 33 television stations in 17 markets at the end of 1997. Similar to its
radio programming services, with its MetroTV Services the Company supplies
customized information reports which are generally delivered on air by its
professional broadcasters to its television station affiliates. In addition,
the Company supplies customized graphics and other visual programming elements
to its television station affiliates.
The Company utilizes live studio cameras in order to enable its traffic
reporters to provide its Video News Services on television from the Company's
local broadcast studios. In addition, the Company provides its Video News
Services from its aircraft and fixed-position based camera systems. The Video
News Services include: (i) live video coverage from strategically located
fixed-position camera systems; (ii) live video news feeds from the
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Company's aircraft; and (iii) full-service, 24 hours per day/7 days per week
video coverage from the Company's camera crews using broadcast quality camera
equipment and news vehicles.
The Company owns an 80% interest in Washington News Network, Inc.
("WNN"), which provides customized video news feeds via satellite, primarily of
news events from Capitol Hill and the White House, to approximately 170
television station affiliates, bureaus and networks across the country. WNN
currently covers national news for local and regional consumption and provides
video crew hire services in the Washington, D.C. area for affiliate stations
nationwide. The Company offers WNN's services and products as a part of its
MetroTV Services.
In December 1998, the Company completed the acquisition of Ross Sports
Productions, Inc. ("Ross"), based in Philadelphia. Ross is a film and video
production company with nationally syndicated but locally produced scholastic
sports programs. Ross' main service is a weekly half-hour TV program, "The High
School Sports Show," which is marketed to local television stations, and Ross
sells sponsorship advertising packages to local and regional advertisers within
the show in exchange for commercial airtime inventory. The show currently airs
in 22 major markets, generally on major network affiliated stations late
Saturday afternoon or late Sunday morning. The Company offers Ross' services
and products as a part of its MetroTV Services.
Metro Information Services
The Company's Metro Information Services ("MIS") division develops
non-broadcast traffic information business. MIS develops innovative techniques
of gathering local traffic and transportation information, as well as new
methods of distributing such information to the public. The Company believes
that in order to remain competitive and to continue to provide an information
product of the highest quality to its affiliates, it is necessary to invest in
and participate in the development of new technology. The Company is currently
working with several public and private entities across the United States to
improve dissemination of traffic and transportation information. The Company is
a large supplier of information to the wireless telephone industry, providing
customized traffic information, direction services, and other local information
to cellular subscribers via the Company's STAR JAMTM and STAR FINDTM services.
In conjunction with Etak, a digital mapping and software company owned by
Sony, the Company has been working with a variety of private companies to
deploy commercial products and services involving traveler information. The
relationship allows for the provision of information on a personalized basis
through a variety of delivery mechanisms, including the internet, paging, FM
subcarrier, traditional cellular and newly-developed and evolving wireless
systems. Information can be delivered to a wide array of devices including
pagers, computers, and in-vehicle navigation and information systems.
The Company is participating in a number of United States Department of
Transportation ("USDOT") funded Intelligent Transportation Systems ("ITS")
projects. These include the AZTech Model Deployment Project in Phoenix and the
Smart Trek Model Deployment Project in Seattle. In addition, the Company is the
Operations Contractor for the TravInfo project in the San Francisco Bay area.
TravInfo was among the first of a series of federally-funded Field Operational
Tests for ITS, and is somewhat unique in that the system was actually deployed
following the test phase. As the leading provider of local traffic and other
information, the Company is well-positioned as a leader in the ITS field and
believes it will benefit from the evolution of future distribution systems.
INFRASTRUCTURE
In each of its larger markets, the Company typically employs a General
Manager who has overall operations and sales management responsibility for that
market. In smaller to medium markets, the Company usually employs one General
Manager to oversee two to four markets. In addition, the Company employs eight
Regional Vice Presidents/General Managers who oversee its General Managers and
who generally have responsibility for six to ten markets each.
In each of its markets, the Company employs a Director of Operations who
is responsible for all aspects of the Company's day-to-day operations. Each
Director of Operations is responsible for supervising all of the broadcasters,
airborne reporters, producers, editors, and writers in such Director's
operations center. Moreover, the Director of Operations is responsible for
maintaining day-to-day relations with affiliates and pursuing relationships
with unaffiliated stations. In addition, the Company employs eight Regional
Directors of Operations who supervise the
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Directors of Operations and who report to the Company's Regional Vice
Presidents/General Managers. In each of the markets where the Company provides
its Expanded Radio Services, the Company usually employs a News Bureau Chief
who generally reports to the Director of Operations for that market. Each News
Bureau Chief is responsible for collecting, writing and reporting local,
regional and national news and information stories generated in, or related to,
their respective market. Each News Bureau Chief is also responsible for feeding
these stories and information reports to the Company's national news operations
center, located in Arizona.
The Company believes that its extensive fleet of aircraft and other
information-gathering technology and broadcast equipment have allowed the
Company to provide high quality programming, enabling it to retain and expand
its affiliate base. In the aggregate, the Company utilizes approximately 120
helicopters and fixed-wing aircraft, 29 mobile units, 26 airborne camera
systems, 61 fixed-position camera systems, 66 broadcast studios and 1,355
broadcasters and producers. The Company also maintains a staff of computer
programmers and graphics experts to supply customized graphics and other visual
programming elements to television station affiliates. In addition, the
Company's operations centers and broadcast studios have sophisticated computer
technology, video and broadcast equipment and cellular and wireless technology
which enable the Company's broadcasters to deliver accurate reports to its
affiliates. The infrastructure and resources dedicated to a specific market by
the Company are determined by the size of the market, the number of affiliates
the Company serves in the market and the type of services being provided.
ADVERTISING SALES AND MARKETING
The Company packages its radio commercial airtime inventory on a network
basis, covering all affiliates in relevant markets. This packaged inventory
typically appeals to advertisers seeking a broad demographic reach. Because the
Company sells its commercial airtime inventory on a network basis rather than
station by station, the Company does not compete for advertising dollars with
its local radio station affiliates. The Company believes that this corporate
policy is a key factor in maintaining its affiliate relationships.
Currently, the Company packages its television commercial airtime
inventory on a regional and national network basis. In 1997, the Company began
providing a national unwired network morning news product on the MetroTV
Network. The Company has developed a separate sales force to sell its
television commercial airtime inventory and to optimize the efforts of the
Company's national internal structure of sales representatives.
In each of the markets in which it conducts operations, the Company
maintains an advertising sales office as part of its operations center. The
Company's advertising sales force is able to sell available commercial airtime
inventory in any and all of the Company's markets in addition to selling such
inventory in each local market, which the Company believes affords its sales
representatives an advantage over certain of their competitors. For example, an
airline advertiser can purchase sponsorship advertising packages in multiple
markets from the Company's local sales representative in the city in which the
airline is headquartered. The Company's advertising sales force is comprised of
approximately 180 sales representatives. Although the Company typically has two
or three sales representatives in an individual market, the number of sales
representatives in an individual market ranges from one to 12 depending on the
size of the market and the number of potential national and regional
advertising clients headquartered in the market. Specialized programs and
marketing campaigns, which support nationwide sales and other special forms of
advertising, are managed from the Company's headquarters in Houston, Texas.
Due to the number of markets in which the Company operates, its reach
within its markets and the range of services it provides, the Company has a
large number of advertising clients in a diverse group of industries. For the
year ended December 31, 1998, no single advertiser represented more than 4% of
the Company's total revenues and the Company's top ten advertisers, as a group,
represented less than 20% of the Company's total revenues.
The Radio Information Services Network
The Company's typical radio advertisement on the Radio Information
Services Network consists of an opening announcement and a ten-second
commercial message presented immediately prior to, in the middle of, or
immediately following a regularly scheduled information report. Because the
Company has numerous radio station affiliates in each of its markets (averaging
21 affiliates per market), the Company believes that its traffic and
information broadcasts reach more people, more often, in a higher impact manner
than can be achieved using any other advertising medium. The Company combines
its commercial airtime inventory into multiple "sponsorship" packages
(generally 125, 250 or 500 sponsorships broadcast over a four week period in
each market), which it then
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sells as an information sponsorship package to advertisers. These Company
sponsorship packages are run on a fair and equal rotation (i.e., each
advertiser receives its pro rata share of advertisements sold by the Company
for broadcast on each of the Company's affiliates in the relevant market or
markets) throughout the Radio Information Services Network on a local, regional
or national basis, primarily during morning and afternoon drive periods. The
Company does not allow an advertiser to select individual stations from the
Radio Information Services Network on which to run its advertising campaign.
The Company's 500 sponsorship package (which the Company believes is its most
frequently purchased package), reaches an average of over 66% of the population
(age 12 and over) in the Company's MSA markets. In addition, the Company's
large network of affiliates allows the Company to offer advertisers the
opportunity to purchase advertising in multiple markets nationwide through a
single purchase from the Company.
As the Company's business has developed, it has sold increasing amounts
of its advertising to regional/national advertisers. For the year ended
December 31, 1998, approximately 75% of the Company's radio advertising revenue
was attributable to regional/national advertisers, with the balance
attributable to local advertisers.
The Company believes that the positioning of advertisements within or
adjacent to its information reports appeals to advertisers because the
advertisers' messages are broadcast along with regularly scheduled programming
during peak morning and afternoon drive times when a majority of the radio
audience is listening. Radio advertisements broadcast during these times
typically generate premium rates. Moreover, surveys commissioned by the Company
demonstrate that because the Company's customized information reports are
related to topics of significant interest to listeners, listeners often seek
out the Company's information reports. Since advertisers' messages are embedded
in the Company's information reports, such messages have a high degree of
impact on listeners and generally will not be "pre-empted" (i.e., moved by the
radio station to another time slot). Most of the Company's advertisements are
read live by the Company's on-air broadcasters, providing the Company's
advertisers with the added benefit of an implied endorsement for their product.
The MetroTV Network
The Company's MetroTV Network consists of the Company's 155 Television
Traffic Services and 54 Video News Services affiliates throughout the U.S.
Generally, the Company provides its MetroTV services to television stations in
exchange for thirty-second commercial airtime inventory that the Company
packages and sells on a regional and national basis. The amount and placement
of the commercial airtime inventory that the Company receives from television
stations varies by market and the type of service provided by the Company. As
the Company has provided more enhanced MetroTV services, it has been able to
acquire more valuable commercial airtime inventory. The Company believes that
it offers advertisers significant benefits because, unlike traditional
television networks, the Company often delivers more than one station in major
markets and advertisers may select specific markets.
The Company has established a morning news network for its
advertisers' commercials to air during local news programming and local news
breaks from 6:00 a.m. to 9:00 a.m. Because the Company has affiliated a large
number of network television stations in major markets, its morning news
network delivers a significant national household rating in an efficient and
compelling local news environment. As the Company continues to expand its
service offerings for local television affiliates, it plans to create
additional news networks to leverage its television news gathering
infrastructure.
ACQUISITIONS
Ross Sports Productions, Inc. On December 4, 1998, the Company acquired
substantially all of the tangible and intangible business assets and acquired
certain liabilities of Ross Sports Productions, Inc. ("Ross"), a Pennsylvania
corporation. Ross is a film and video production company with nationally
syndicated but locally produced scholastic sports programs. Ross' main service
is a weekly half-hour TV program, "The High School Sports Show," which is
marketed to local television stations in exchange for commercial airtime
inventory. The show currently airs in 22 major markets.
Birmingham Acquisition. On August 31, 1998, the Company acquired
substantially all of the tangible and intangible business assets and acquired
certain liabilities of Today's Traffic, an Alabama partnership. As of the
closing, Today's Traffic provided traffic reporting services to 13 radio and
two television station affiliates in Birmingham, Alabama, ranked the 56th
largest MSA market.
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Tampa and Ft. Myers Acquisition. On June 25, 1998, the Company acquired
certain assets of Florida Traffic Watch, Inc. ("FTW"), a Florida corporation.
As of the closing, FTW provided traffic reporting services to nine radio
station affiliates in Tampa and 11 radio station affiliates in Ft. Myers. Tampa
and Ft. Myers are ranked the 22nd and 74th largest MSA markets, respectively.
Brisbane, Melbourne and Sydney Acquisition. On May 8, 1998, the Company
acquired a minority stake and an option to purchase the remaining shares of
Australian Traffic Network ("ATN"), a New South Wales corporation. As of the
closing, ATN provided traffic reporting services to 26 radio station affiliates
in Brisbane, Melbourne and Sydney, Australia.
Dallas/Fort Worth Acquisition. On March 2, 1998, the Company acquired all
of the outstanding common stock of Traffic Patrol Broadcasting, Inc. ("TPB"), a
Texas corporation. As of the closing, TPB provided traffic reporting services
to 13 radio and two television station affiliates in Dallas/Fort Worth, ranked
the 7th largest MSA market.
The Company is currently in discussions with several other entities that,
if acquired, would result in new or expanded geographic coverage or the
offering of additional or complementary services by the Company. The Company,
however, does not have any commitments, arrangements, or understandings with
respect to any such acquisitions. Further, there can be no assurance that the
Company will be able to effect any such transaction, or that any such
transactions, if consummated, will prove to be beneficial to the Company.
The Company generally consolidates the operations of acquired companies
or assets into its existing operations so that duplicative costs can be
eliminated, resulting in margin improvements for the consolidated operations.
In addition, as a result of the Company's significant sales force and existing
advertising relationships, the Company is generally able to increase revenues
by selling advertising in the acquired market to the Company's existing
regional and national sponsors. Moreover, as the Company continues to add new
markets and to increase its presence in existing markets, it has been able to
offer advertisers increased market penetration and to generate incremental
revenues from existing advertising clients.
INTERNATIONAL
In 1998, the Company acquired a minority stake and an option to purchase
the remaining shares of Australian Traffic Network, a traffic reporting service
operating in Brisbane, Melbourne and Sydney, Australia. Prior to 1998, the
Company's international presence was limited to its participation in licensing
agreements in the United Kingdom and France. Pursuant to these license
agreements, the Company provides its licensees the right to use its name,
computer technology, training and sales expertise in exchange for commercial
airtime inventory. Revenues from such licensing agreements are not material.
The Company is currently analyzing and evaluating various international
strategic opportunities.
COMPETITION
The Company faces various sources of competition in the provision of its
information reporting services. Although the Company is significantly larger
than the next largest provider of traffic and local information services, there
are several multi-market operators providing local radio and television
programming services in various markets. The Company believes that the next
largest provider of traffic and local information services (which operates
under the names "Shadow Traffic" and "Express Traffic") currently has a
presence in approximately 16 MSA markets in the United States, as compared to
the Company's operations in 81 MSA markets. Westwood One, Inc., which is
approximately 25% owned by Infinity Broadcasting Corporation, owns and operates
the Shadow Traffic operations. Additionally, the Company has competition from
single market operators and groups of radio stations providing their own
information reporting services.
The Company also faces competition in the sale of its commercial airtime
inventory. The Company positions its advertising so as not to compete with the
advertising of its local radio and television affiliates. However, the Company
competes for advertising dollars with other media such as newspapers and
magazines, outdoor advertising, network radio and network television
advertising, transit advertising, direct response advertising, yellow page
directories, internet/new media and point-of-sale advertising.
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EMPLOYEES
The Company employed approximately 1,612 full-time and 555 part-time
persons as of December 31, 1998, none of whom was covered by a collective
bargaining agreement. Approximately 35 of the Company's 2,167 employees, are
represented by a union. Such employees are located in the San Francisco Bay
area. Of the Company's total employees, approximately 1,851 were engaged in
broadcasting and operations; 178 in sales and marketing; and 138 in general and
administrative activities. Approximately 6% of the Company's employees are
located in the Company's Houston, Texas headquarters. The Company considers its
relationship with its employees to be satisfactory.
TRADEMARKS
The Company has registered "Metro Traffic Control", "Metro Networks" and
certain other trademarks which are relevant to its business. The Company does
not believe that its operations are materially dependent on these trademarks.
REORGANIZATION
From 1978 through October 1996, the business of the Company was operated
through Metro Traffic Control, Inc. ("MTC"), Metro Networks, Ltd. ("MNW"),
Metro Video News, Inc. ("MVN"), Metro Reciprocal, Inc. ("MRI") and their
subsidiaries (collectively, the "Predecessor Companies"). Until October 18,
1996, all of the equity interests in the Predecessor Companies were owned by
David I. Saperstein and certain trusts created for the benefit of his children
(the "Saperstein Family"). In October 1996, the Saperstein Family established
the Company 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"). In November 1997, Metro Traffic Control, Inc. changed its
name to Metro Networks Communications, Inc.
ITEM 2. PROPERTIES.
The Company's headquarters facility, which includes its principal
administrative, sales, marketing, management information systems and product
development offices and its local operations center, is located in
approximately 33,430 square feet of subleased space in Houston, Texas. The
sublease on this facility terminates in March 2004.
The Company leases additional operation centers/broadcast studios and
marketing and administrative offices across the United States consisting of
approximately 220,167 square feet in the aggregate, pursuant to the terms of
various lease agreements. The Company believes that its existing facilities are
adequate to meet current requirements and that suitable additional space in
close proximity to its existing headquarters will be available as needed to
accommodate growth of its operations and additional sales and support offices
through the foreseeable future.
For the year ended December 31, 1998, the Company incurred approximately
$6.1 million in total facilities expenses.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is involved from time to time in routine legal matters
incidental to its business. Management believes that the resolution of such
matters will not have a material adverse effect on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.
No matters were submitted to a vote of the Company's stockholders during
the quarter ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company is authorized to issue 25,000,000 shares of common stock, par
value $0.001 per share (the "Common Stock") and 10,000,000 shares of preferred
stock, par value $0.001 per share (the "Preferred Stock"). At March 25, 1999,
16,714,973 shares of Common Stock and 2,549,750 shares of Series A Convertible
Preferred Stock were outstanding.
The Common Stock is listed for trading on the NASDAQ National Market
("Nasdaq") under the symbol "MTNT." The high and low sales prices as reported
by Nasdaq for the Common Stock for the periods indicated:
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter Year
-------------------- -------------------- ------------------- ------------------- -------------------
High Low High Low High Low High Low High Low
--------- --------- --------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 43 30 3/8 44 3/8 37 3/8 44 1/2 34 1/32 42 13/16 29 3/16 44 1/2 29 3/16
1997 26 3/4 21 7/8 25 1/2 21 7/8 33 7/8 25 5/16 35 1/2 29 1/2 35 1/2 21 7/8
</TABLE>
The closing price of the shares of the Common Stock was $51.25 on March
25, 1999.
As of March 25, 1999, there were 201 record owners and in excess of 1,600
beneficial owners of the Common Stock.
The Company has never paid cash dividends on the Common Stock and does not
intend to pay any such cash dividends in the foreseeable future.
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
Use of Proceeds
The Company filed a Registration Statement on Form S-1 (Commission File
No. 333-6311) which was declared effective by the Securities and Exchange
Commission on October 16, 1996.
The net offering proceeds of approximately $68,000,000 to the Company have
been used as follows: $13,655,000 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.
8
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial and operating data should be read in
conjunction with the consolidated financial statements of the Company and the
Predecessor Companies' historical combined financial statements and related
notes thereto and with Management's Discussion and Analysis of Financial
Condition and Results of Operations. The selected financial data set forth
below with respect to the years ended December 31, 1998, 1997, 1996, 1995 and
1994 are derived from the audited financial statements for that year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Advertising revenues ............................... $ 172,132 $ 139,125 $ 109,237 $ 72,433 $ 60,048
--------- --------- --------- --------- ---------
Broadcasting costs ................................. 87,028 67,224 50,686 41,286 32,239
Marketing expense .................................. 31,053 26,526 21,378 14,504 11,355
General and administrative expense ................. 11,026 11,425 10,158 7,194 5,939
Depreciation and amortization expense............... 10,043 8,878 6,213 3,980 1,302
--------- --------- --------- --------- ---------
Total operating costs .............................. 139,150 114,053 88,435 66,964 50,835
--------- --------- --------- --------- ---------
Income from operations ............................. 32,982 25,072 20,802 5,469 9,213
Interest/other income ......................... (1,144) (1,865) (408) (137) (164)
Interest expense............................... 113 230 1,779 1,260 293
--------- --------- --------- --------- ---------
Income before tax provision ........................ 34,013 26,707 19,431 4,346 9,084
Income tax provision................................ 13,659 11,164 3,462 1,036 2,179
--------- --------- --------- --------- ---------
Net income ......................................... $ 20,354 $ 15,543 $ 15,969 $ 3,310 $ 6,905
========= ========= ========= ========= =========
Pro forma net income(1) ............................ $ -- $ -- $ 12,047 $ 2,803 $ --
Basic earnings per common share .................... $ 1.23 $ 0.94 --
Basic average common shares outstanding ............ 16,594 16,555 --
Diluted earnings per common share(1)(2) ............ $ 1.20 $ 0.93 $ 0.94 $ 0.23 --
Diluted average common shares outstanding(1)(2) .... 16,955 16,714 12,884 12,252 --
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ................................ $ 59,773 $ 48,106 $ 49,294 $ 7,900 $ 7,414
Total assets ................................... 139,087 115,073 103,757 48,030 27,502
Total debt ..................................... 992 1,478 1,310 22,624 6,650
Total stockholders' equity/partners' capital ... 108,804 88,293 71,930 4,478 9,401
</TABLE>
(1) The unaudited pro forma financial data for the year ended December 31,
1996 and 1995 give effect to the Reorganization. See
"Business--Reorganization."
(2) For the years ending December 31, 1996 and 1995, weighted average shares
outstanding and net income per common share are calculated on a pro forma
basis assuming the shares issued in conjunction with the Reorganization
were outstanding for all periods presented, adjusted for excess
distributions and assuming the Predecessor Companies were taxed at rates
applicable to the Company subsequent to the Reorganization. Metro
Networks, Inc. has not declared or paid any dividends on its Common Stock.
However, the Predecessor Companies have made cash distributions to their
shareholders from time to time. See "Business--Reorganization."
9
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company, which was founded in 1978, is the largest domestic outsource
provider of traffic reporting services and a leading supplier of local news,
sports, weather, video news and other information programming services to the
television and radio broadcast industries. The Company provides customized
information reports to affiliated radio and television stations in exchange for
commercial airtime inventory. The Company generates revenues by packaging such
commercial airtime inventory and selling it on a local, regional or national
basis. While the majority of the Company's revenues are currently generated
from sales of advertising on its Radio Traffic Services Network, the Company is
experiencing increased revenues from its Expanded Radio Services Network and
its MetroTV Network. The Company's expenses are primarily comprised of three
categories: (i) operations, which includes all the expenses related to
gathering, producing, and broadcasting information reports; (ii) marketing,
which includes sales commissions, salaries and benefits for sales personnel;
and (iii) general and administrative expenses, which include corporate
overhead. Most of the Company's expenses are associated with its Radio Traffic
Services. However, during 1996, 1997 and 1998, the Company incurred additional
expenses attributable to the development of its MetroTV Services and
development and operation of its Expanded Radio Services (including operating
expenses incurred prior to the generation of significant revenue from both of
these operations).
From 1978 through October 1996, the business of the Company was operated
through the Predecessor Companies and all of the equity interests in the
Predecessor Companies were owned by the Saperstein Family. See
"Business-Reorganization."
Immediately prior to the closing of the initial public offering, the
controlling shareholder established the Company as a holding company and
consolidated the issued and outstanding equity interests in the Predecessor
Companies into Metro Traffic Control, Inc. by exchanging such interests for
9,350,607 shares of the Company's Common Stock and 2,549,750 shares of the
Company's Series A Convertible Preferred Stock. In November 1997, Metro Traffic
Control, Inc. changed its name to Metro Networks Communications, Inc.
As the equity interests were held under common control and were
contributed by the controlling shareholder of the Company, the underlying
assets are recorded at their historical costs, similar to pooling of interest
accounting. References to Metro Networks, Inc. in the consolidated financial
statements of the Company include the Predecessor Companies prior to the
Reorganization.
In the analysis set forth below, the Company discusses EBITDA, which
consists of earnings before interest income, interest expense, taxes,
depreciation and amortization. EBITDA does not represent cash flows as defined
by generally accepted accounting principles and does not necessarily indicate
that cash flows are sufficient to fund all of the Company's cash needs. EBITDA
should not be considered in isolation or as a substitute for net income, cash
from operating activities or other measures of liquidity determined in
accordance with generally accepted accounting principles. The Company believes
that EBITDA is a measure of financial performance widely used in the media and
broadcasting industries and is useful to investors.
In certain circumstances, the Company engages in reciprocal arrangements
with advertisers whereby the Company exchanges a portion of its unsold
commercial airtime inventory for goods and services. The Company believes that
reciprocal transactions are common in the broadcasting industry. Revenues from
reciprocal arrangements accounted for 8.0% , 4.0% and 4.9% of total revenues in
1996, 1997, and 1998, respectively.
The Company's advertising revenues vary over the calendar year with the
first quarter generally reflecting the lowest revenues and the fourth quarter
the highest revenues for the year. Expenses, other than marketing expenses, are
generally spread evenly over the year, resulting in seasonality in the
Company's EBITDA.
10
<PAGE> 12
INCOME TAXES
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, and, prior to the Reorganization, the
combined financial statements of the Predecessor Companies.
Prior to the Reorganization, MNW 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 have been 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.
Prior to the Reorganization, MRI, MVN and MTC elected to be taxed under S
corporation provisions of the Internal Revenue Code of 1986, as amended. Under
these provisions, MRI, MVN and MTC are not liable for federal income taxes.
Instead, the stockholders of such entities are liable individually for federal
income taxes on their taxable income. Also, prior to the Reorganization, MNW
was a partnership for federal income tax purposes and accordingly, the partners
were liable individually for federal income taxes on their respective
partnership income. Accordingly, losses for these entities are not available to
the Company to offset income.
RESULTS OF OPERATIONS
The following table provides a summary of the Company's statement of
operations on an actual and percentage of revenues basis for the periods
indicated:
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Advertising revenues ......................... $172,132 100.0% $139,125 100.0% $109,237 100.0%
-------- -------- -------- -------- -------- --------
Broadcasting costs ........................... 87,028 50.6 67,224 48.3 50,686 46.4
Marketing expense ............................ 31,053 18.0 26,526 19.1 21,378 19.6
General and administrative expense ........... 11,026 6.4 11,425 8.2 10,158 9.3
Depreciation and amortization expense ........ 10,043 5.8 8,878 6.4 6,213 5.7
-------- -------- -------- -------- -------- --------
Total operating costs ................... 139,150 80.8 114,053 82.0 88,435 81.0
-------- -------- -------- -------- -------- --------
Income from operations ....................... 32,982 19.2 25,072 18.0 20,802 19.0
Interest/other income ................... 1,144 0.7 1,865 1.3 408 0.4
Interest expense ........................ 113 0.1 230 0.1 1,779 1.6
-------- -------- -------- -------- -------- --------
Income before income tax provision ........... 34,013 19.8 26,707 19.2 19,431 17.8
Income tax provision ......................... 13,659 7.9 11,164 8.0 3,462 3.2
-------- -------- -------- -------- -------- --------
Net income ................................... $ 20,354 11.9% $ 15,543 11.2% $ 15,969 14.6%
======== ======== ======== ======== ======== ========
Pro forma state and federal income taxes ..... $ 7,384 6.8%
Pro forma net income (1) ..................... $ 12,047 11.0%
======== ========
EBITDA (2) ................................... $ 43,280 25.1% $ 34,571 24.8% $ 27,027 24.7%
======== ======== ======== ======== ======== ========
</TABLE>
- -----------------
(1) The unaudited pro forma financial data for the year ended December 31,
1996 gives effect to the Reorganization. See "Business--Reorganization."
(2) EBITDA is earnings before interest income, interest expense, taxes,
depreciation and amortization. EBITDA does not represent cash flows as
defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of the
Company's cash needs. EBITDA should not be considered in isolation or as a
substitute for net income, cash from operating activities or other
measures of liquidity determined in accordance with generally accepted
accounting principles.
11
<PAGE> 13
Year ended December 31, 1998 compared to year ended December 31, 1997
Revenues. Revenues increased by $33.0 million, or approximately 23.7%, to
$172.1 million in 1998 from $139.1 million in 1997. This increase was primarily
due to revenues generated by increased sales of commercial airtime inventory.
Acquisitions accounted for $5.1 million of this increase. Excluding these
revenues, same market revenues increased $27.9 million in 1998, or 20.1%.
Revenues from reciprocal arrangements as a percentage of total revenues
increased to 4.9% in 1998 from 4.0% in 1997.
Broadcasting Costs. Broadcasting costs increased by $19.8 million, or
approximately 29.5% to $87.0 million in 1998 from $67.2 million in 1997. The
Company's continued development of its Expanded Radio Services and MetroTV
Services accounted for approximately $9.2 million of the increase.
Additionally, operating costs associated with acquisitions accounted for
approximately $2.9 million of the increase. Excluding the increases discussed
above, the Company's broadcasting costs would have increased by approximately
$7.7 million, or 11.5% to $74.9 million in 1998 from $67.2 million in 1997.
Broadcasting costs as a percentage of revenues increased from 48.3% in 1997 to
50.6% in 1998. Broadcasting costs associated with reciprocal arrangements
increased by $2.4 million from $1.9 million in 1997 to $4.3 million in 1998.
Marketing Expense. Marketing expense increased by $4.5 million, or
approximately 17.1%, from $26.5 million in 1997 to $31.1 million in 1998. This
increase resulted primarily from increased sales commissions associated with
the increased revenues generated in 1998. Acquisitions accounted for $0.6
million of the increase. As a percentage of revenues, marketing expense was
19.1% in 1997 and 18.0% in 1998. Marketing expense associated with reciprocal
arrangements increased by $1.8 million to $2.7 million in 1998, from $0.9
million in 1997.
General and Administrative Expense. General and administrative expenses
decreased by $0.4 million, or approximately 3.5%, to $11.0 million in 1998 from
$11.4 million in 1997. As a percentage of revenues, general and administrative
expense decreased to 6.4% in 1998 from 8.2% in 1997. General and administrative
expense associated with reciprocal arrangements decreased by $0.1 million to
$0.7 million in 1998, from $0.8 million in 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased to $10.0 million in 1998 from $8.9 million in 1997. This increase
resulted primarily from the increases in the Company's asset base resulting
from 1998 Acquisitions and the Company's increased purchases of equipment
pursuant to the development of its MetroTV Network and Expanded Radio Services
Network during 1998.
Other Income. Other income declined to $1.1 million in 1998 from $1.9
million in 1997. This decrease resulted primarily from a reduction in interest
income as the net proceeds from the Company's initial public offering were used
during 1998.
Interest Expense. Interest expense decreased to $0.1 million in 1998 from
$0.2 million in 1997.
Net Income. As a result of the factors discussed above, net income
increased by $4.9 million to $20.4 million in 1998, from $15.5 million in 1997.
EBITDA. EBITDA increased by $8.7 million, or approximately 25.2%, to $43.3
million in 1998 from approximately $34.6 million in 1997. EBITDA as a
percentage of revenues increased to 25.1% in 1998 from 24.8% in 1997.
12
<PAGE> 14
Year ended December 31, 1997 compared to year ended December 31, 1996
Revenues. Revenues increased by $29.9 million, or approximately 27.4%, to
$139.1 million in 1997 from $109.2 million in 1996. This increase was primarily
due to revenues generated by increased sales of commercial airtime inventory.
Acquisitions accounted for $5.7 million of this increase. Excluding these
revenues, same market revenues increased $24.2 million in 1997, or 22.2%.
Revenues from reciprocal arrangements as a percentage of total revenues
declined to 4.0% in 1997 from 8.0% in 1996.
Broadcasting Costs. Broadcasting costs increased by $16.5 million, or
approximately 32.6%, to $67.2 million in 1997 from $50.7 million in 1996. The
Company's continued development of its Expanded Radio Services and MetroTV
Services accounted for approximately $11.0 million of the increase.
Additionally, operating costs associated with acquisitions accounted for
approximately $3.6 million of the increase. Excluding the increases discussed
above, the Company's broadcasting costs would have increased by approximately
$1.9 million, or 3.7%, to $52.6 million in 1997 from $50.7 million in 1996.
Broadcasting costs as a percentage of revenues increased from 46.4% in 1996 to
48.3% in 1997. Broadcasting costs associated with reciprocal arrangements
decreased by $1.1 million from $3.0 million in 1996 to $1.9 million in 1997.
Marketing Expense. Marketing expense increased by $5.1 million, or
approximately 24.1%, from $21.4 million in 1996 to $26.5 million in 1997. This
increase resulted primarily from increased sales commissions associated with
the increased revenues generated in 1997. Acquisitions accounted for $1.2
million of the increase. As a percentage of revenues, marketing expense was
19.6% in 1996 and 19.1% in 1997. Marketing expense associated with reciprocal
arrangements decreased by $0.7 million to $0.9 million in 1997, from $1.6
million in 1996.
General and Administrative Expense. General and administrative expenses
increased by $1.3 million, or approximately 12.5%, to $11.4 million in 1997
from $10.2 million in 1996. This increase was primarily attributable to
increased salaries and related overhead associated with the Company's continued
growth. As a percentage of revenues, general and administrative expense
decreased to 8.2% in 1997 from 9.3% in 1996. General and administrative expense
associated with reciprocal arrangements increased by $0.1 million to $0.8
million in 1997, from $0.7 million in 1996.
Depreciation and Amortization. Depreciation and amortization expense
increased to $8.9 million in 1997 from $6.2 million in 1996. This increase
resulted primarily from the increases in the Company's asset base resulting
from 1997 Acquisitions and the Company's increased purchases of equipment
pursuant to the development of its MetroTV Network and Expanded Radio Services
Network during 1997.
Effective October 1, 1997, the Company changed its depreciable asset lives
for certain assets based upon industry practice and actual experience. This
change reduced depreciation and amortization expense for the year ended
December 31, 1997 and will result in lower ongoing depreciation and
amortization expense. See Note 1 to the Consolidated Financial Statements.
Other Income. Other income increased to $1.9 million in 1997 from $0.4
million in 1996. This increase resulted primarily from increased interest
income on the net proceeds from the Company's initial public offering during
the fourth quarter of 1996.
Interest Expense. Interest expense decreased to $0.2 million in 1997 from
$1.8 million in 1996. This decrease resulted primarily from paying off the
balance on the Company's line of credit in October 1996.
Net Income. As a result of the factors discussed above, net income
increased by $3.5 million to $15.5 million in 1997, from $12.0 million in 1996
(adjusted on a pro forma basis to reflect C corporation tax status).
EBITDA. EBITDA increased by $7.5 million, or approximately 27.9%, to $34.6
million in 1997 from approximately $27.0 million in 1996. EBITDA as a
percentage of revenues increased to 24.8% in 1997 from 24.7% in 1996.
13
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations with cash generated
by operations and funds provided pursuant to a prior credit agreement. The
Company has used cash provided by operating activities to fund capital
expenditures, operations and distributions to its stockholders.
On October 22, 1996, the Company closed the initial public offering of its
common stock and received approximately $68 million in cash, net of
underwriting discounts and commission, and other expenses. The Company used
approximately $30 million of the proceeds to repay existing indebtedness under
the Credit Agreement among NationsBank of Texas, N.A., Metro Traffic Control,
Inc. and Metro Networks, Ltd., dated October 21, 1994, as amended, and the
balance of the proceeds, including those from the underwriters' exercise of the
over allotment option, has been used for working capital and general corporate
purposes.
Net cash provided by operating activities increased by approximately $0.9
million, to $11.6 million in 1998 from $10.7 million in 1997, primarily as a
result of changes in operating assets and liabilities, which was partially
offset by an increase in depreciation and amortization. Net cash used in
investing activities decreased by $7.7 million to $15.9 million in 1998, from
$23.6 million in 1997 due primarily to a decline in capital expenditures. Cash
used and provided by financing activities increased by $3.8 million to $0.5
million in 1998, from $(3.3) million in 1997, due primarily to a reduction in
debt repayments.
Net cash provided by operating activities decreased by approximately $3.2
million, to $10.7 million in 1997 from $13.9 million in 1996, primarily as a
result of changes in operating assets and liabilities which was partially
offset by an increase in net earnings and depreciation and amortization. In
addition, the Company's net earnings for 1997 reflect an increase in income
taxes from 1996 of approximately $7.7 million due to the change in taxpayer
status from S corporation to C corporation. Net cash used in investing
activities increased by $10.4 million to $23.6 million in 1997, from $13.2
million in 1996, due to an increase in capital expenditures. Net cash used and
provided by financing activities decreased by $42.8 million to $(3.3) million
in 1997, from $39.5 million in 1996, as a result of the Company's initial
public offering in 1996 which was partially offset by a reduction in long-term
debt in 1996.
The Credit Agreement and Notes Payable
In October 1996, the Company entered into a new line of credit with
NationsBank of Texas, N.A. ("NationsBank") now known as Bank of America. The
maximum aggregate permitted borrowings (the "New Line of Credit") under the
Credit Agreement among Bank of America, certain lenders and the Company, dated
October 22, 1996 (the "Credit Agreement") is $30.0 million. The New Line of
Credit bears interest at a variable rate determined by the lender's prime rate
or LIBOR and the Company's total leverage; the interest rate ranges from 0 to
50 basis points over the prime rate or 75 to 150 basis points over LIBOR. The
New Line of Credit has a commitment fee of up to 0.25% per annum on the daily
average unborrowed balance of the New Line of Credit. The New Line of Credit
expires December 31, 2003, and will begin amortizing in March 1999. The Credit
Agreement provides for various restrictions on the Company which preclude the
Company, without first obtaining the lender's consent, from taking certain
actions, including incurring additional indebtedness, purchasing the assets of
any entity other than in the ordinary course of business, merging or
consolidating with any other entity or altering its existing capital structure
and paying certain dividends. As of December 31, 1998, the Company had no debt
outstanding under the New Line of Credit.
The Company issued non-interest-bearing notes in connection with the 1997
acquisition of Washington News Network, Inc. and the 1994 acquisition of
Charlotte Traffic Patrol, Inc. which had principal amounts of $0.2 million and
$0.3 million, respectively, outstanding as of December 31, 1998. The Company
has guaranteed a $0.3 million letter of credit related to the Charlotte
acquisition as of December 31, 1998. See "Business--Acquisitions."
Capital Expenditures
Capital expenditures were $10.1 million in 1998 and $16.6 million in 1997.
Historically, the Company's capital expenditures have related principally to
increasing the Company's information-gathering capabilities, broadcasting
capacity and technology base. The majority of the Company's increase in capital
expenditures during 1998 are primarily due to the Company's continued
development of its MetroTV Network and Expanded Radio Services Network. Funds
for capital expenditures have generally been provided from operations.
14
<PAGE> 16
The Company believes its existing sources of liquidity, cash on hand, cash
provided by operations and the Credit Agreement will satisfy the Company's
anticipated working capital and capital expenditure requirements for the
foreseeable future.
YEAR 2000
The "Year 2000 issue" is the result of computer programs that were
written using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the year 1900 rather than
the Year 2000. This could result in a system failure or miscalculations causing
disruptions to operation.
State of Readiness
The Company has identified five major categories of Year 2000 risk:
(1) Software systems -- these include the Company's revenue system
("Traffic System"), financial system (e.g. general ledger,
accounts payable, fixed assets, etc.) and other business systems;
(2) Equipment with embedded chip technology -- these include "on-air"
equipment (e.g., audio servers, compression gear, transmitters,
etc.), computer hardware, transmission systems and generators;
(3) External vendors and suppliers -- these include satellite
transmission operators and other third parties whose system
failures potentially could have a significant impact on the
Company's operations;
(4) Facilities -- these include fire alarm systems, phone systems and
access control systems; and
(5) Products and services the Company provides to customers.
The Company's compliance objectives include products and services the
Company has provided to customers in the past and will provide to customers in
the future; all internal operating software systems and equipment; and the
services, products, equipment and systems the Company has obtained and will
obtain in the future from outside vendors. The Company's first objective was to
assess all products and services the Company has, or will provide, to
customers. This included informing customers of their need to make their
applications Year 2000 compliant to provide or accept associated files for
services provided by the Company. This objective was deemed the top priority
and was initiated in 1998. In early 1999, the Company initiated action to
remediate, where needed, all internal business operation support systems and
the associated equipment it runs on. As part of this process, the Company
developed a standard Year 2000 compliance certification memorandum to be sent
to all vendors who have or are currently providing products or services to the
Company and instituted a review process for formally responding to customer
inquiries on the Company's Year 2000 compliance plans and status.
In 1999, the Company intends to replace its Traffic System with a system
that is Year 2000 compliant. Based on testing performed to date, the current
system has not revealed any Year 2000 issues. The Company replaced its
financial system with a Year 2000 compliant system in 1998. The implementation
of these new systems minimizes the possibility of Year 2000 issues
significantly interrupting normal operations.
The Company has a formal program in place to receive assurances as to
Year 2000 compliance from identified external vendors and suppliers. The
Company will evaluate their compliance programs.
The objective of the Company is complete assessment, remediation, testing
and certification of third-party software for all mission-critical systems and
components by October 31, 1999. Over the next few months as the Company
receives more information on the extent of Year 2000 compliance by external
vendors and third party suppliers, the nature of any contingency plans that may
be needed will evolve.
The Company is currently preparing contingency plans to identify and
handle its worst case scenarios. It expects to complete the plans by June 30,
1999 in conjunction with the completion of its assessment, remediation, testing
and certification phases.
15
<PAGE> 17
RISKS AND COSTS
Based on its current efforts, the Company does not believe that Year 2000
issues will have a material adverse effect on the results of its operations,
liquidity, or financial condition. However, this assessment is dependent on the
ability of third-party suppliers and others whose systems failures potentially
could have an impact on the Company's operations to be Year 2000 compliant.
Although the Company cannot control the conduct of external vendors and
suppliers, the Company expects to reduce the Company's level of uncertainty and
the adverse effect that any such failures may have.
EFFECTS OF INFLATION
The Company believes that the relatively moderate rate of inflation over
the past few years has not had a significant impact on the Company's results of
operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133")". SFAS 133 provides standards
on accounting and disclosure for derivative instruments and requires that all
derivatives be measured at fair value and reported as either assets or
liabilities in the statement of financial position. The Company will adopt this
statement for fiscal year 1999. The adoption of this statement will have no
impact on the Company's operating results as the Company does not invest in
derivative instruments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................................................................. 18
Consolidated Balance Sheets.................................................................................. 19
Consolidated Statements of Operations........................................................................ 20
Consolidated Statements of Stockholders' Equity/Partners' Capital............................................ 21
Consolidated Statements of Cash Flows........................................................................ 22
Notes to Consolidated Financial Statements................................................................... 24
</TABLE>
17
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Metro Networks, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Metro
Networks, Inc. and Subsidiaries, and its Predecessors as of December 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity/partners' capital and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Metro Networks, Inc. and Subsidiaries and its Predecessors as of December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
Houston, Texas
March 9, 1999
18
<PAGE> 20
METRO NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 21,241 $ 25,087
Short-term marketable investments .................................... 331 777
Accounts receivable, net ............................................. 52,429 34,113
Reciprocal receivables, net .......................................... 11,310 11,113
Merchandise and scrip inventory ...................................... 730 686
Other ................................................................ 2,203 703
--------- ---------
Total current assets ............................................ 88,244 72,479
--------- ---------
PROPERTY AND EQUIPMENT, NET .......................................... 29,880 24,389
PURCHASED BROADCAST CONTRACTS AND OTHER INTANGIBLES, NET ............. 19,500 17,545
OTHER ASSETS:
Deferred tax assets .................................................. 324 146
Other ................................................................ 1,139 514
--------- ---------
1,463 660
--------- ---------
$ 139,087 $ 115,073
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 4,937 $ 3,030
Notes payable ........................................................ 510 568
Reciprocal payables and accrued liabilities .......................... 11,055 10,281
Accrued liabilities .................................................. 11,540 10,074
Current portion of long-term debt .................................... 429 420
--------- ---------
Total current liabilities .................................... 28,471 24,373
LONG-TERM DEBT ....................................................... 53 490
DEFERRED INCOME TAXES ................................................ 1,044 670
OTHER ................................................................ 715 1,247
--------- ---------
Total liabilities ............................................ 30,283 26,780
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value (authorized 10,000,000 shares;
outstanding 2,549,750) .......................................... 3 3
Common stock, $.001 par value (authorized 25,000,000 shares;
outstanding 16,622,447 and 16,587,058 shares, respectively) ..... 17 16
Additional paid-in capital ........................................... 74,689 73,708
Retained earnings .................................................... 34,920 14,566
Accumulated other comprehensive loss -
net unrealized depreciation of equity investments ............... (825) --
--------- ---------
108,804 88,293
--------- ---------
$ 139,087 $ 115,073
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 21
METRO NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
ADVERTISING REVENUES ............................. $ 172,132 $ 139,125 $ 109,237
OPERATING COSTS AND EXPENSES
Broadcasting ..................................... 87,028 67,224 50,686
Marketing ........................................ 31,053 26,526 21,378
General and administrative ....................... 11,026 11,425 10,158
Depreciation and amortization .................... 10,043 8,878 6,213
--------- --------- ---------
139,150 114,053 88,435
--------- --------- ---------
TOTAL OPERATING EARNINGS ......................... 32,982 25,072 20,802
--------- --------- ---------
OTHER (INCOME) EXPENSE
Interest income .................................. (889) (1,245) (397)
Interest expense ................................. 113 230 1,779
Other ............................................ (255) (620) (11)
--------- --------- ---------
(1,031) (1,635) 1,371
--------- --------- ---------
EARNINGS BEFORE STATE AND FEDERAL INCOME TAXES ... 34,013 26,707 19,431
STATE AND FEDERAL INCOME TAXES ................... 13,659 11,164 3,462
--------- --------- ---------
NET EARNINGS ..................................... $ 20,354 $ 15,543 $ 15,969
========= ========= =========
BASIC EARNINGS PER SHARE ......................... $ 1.23 $ 0.94 $ --
========= ========= =========
DILUTED EARNINGS PER SHARE ....................... $ 1.20 $ 0.93 $ --
========= ========= =========
BASIC AVERAGE COMMON SHARES OUTSTANDING .......... 16,594 16,555 --
========= ========= =========
DILUTED AVERAGE COMMON SHARES OUTSTANDING ........ 16,955 16,714 --
========= ========= =========
PRO FORMA DATA (UNAUDITED):
Earnings before state and federal income taxes
as reported .................................. $ 19,431
Pro forma state and federal income taxes ......... (7,384)
---------
Pro forma net earnings ........................... $ 12,047
=========
Pro forma basic earnings per share ............... $ 0.94
---------
Pro forma diluted earnings per share ............. $ 0.94
=========
Weighted average shares outstanding .............. 12,884
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 22
METRO NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------------------
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ----------------------- PAID-IN PARTNERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL CAPITAL
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 ............. -- $ -- 3,198,000 $ 3 $ 4,024 $ 651
Distribution ............................. -- -- -- -- -- --
Capital contributed ...................... -- -- -- -- 700 --
Stock issuance, net of offering costs .... -- -- 4,650,000 5 67,758 --
Issuance of stock loan ................... -- -- 2,550,000 2 -- --
Reorganization ........................... 2,549,750 3 6,335,000 6 406 (415)
Net income ............................... -- -- -- -- -- (236)
Other comprehensive income ............. -- -- -- -- -- --
Comprehensive income ..................... -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 ............. 2,549,750 3 16,550,000 16 72,888 --
Issuance of stock under
stock option plan .................... -- -- 26,097 -- 570 --
Issuance of stock under
stock purchase plan .................. -- -- 10,961 -- 250 --
Net income ............................... -- -- -- -- -- --
Other comprehensive income ............. -- -- -- -- -- --
Comprehensive income ..................... -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1997 ............. 2,549,750 3 16,587,058 16 73,708 --
Issuance of stock under
stock option plan .................... -- -- 24,955 1 603 --
Issuance of stock under
stock purchase plan .................. -- -- 10,434 -- 378 --
Net income ............................... -- -- -- -- -- --
Other comprehensive loss ............... -- -- -- -- -- --
Comprehensive income ..................... -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1998 ............. 2,549,750 $ 3 16,622,447 $ 17 $ 74,689 $ --
========= ========== ========== ========== ========== ==========
<CAPTION>
ACCUMULATED
OTHER RETAINED
COMPREHENSIVE EARNINGS
LOSS (DEFICIT) TOTAL
----------- ---------- ----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 ............. $ -- $ (199) $ 4,479
Distribution ............................. -- (16,983) (16,983)
Capital contributed ...................... -- -- 700
Stock issuance, net of offering costs .... -- -- 67,763
Issuance of stock loan ................... -- -- 2
Reorganization ........................... -- -- --
Net income ............................... -- 16,205 15,969
Other comprehensive income ............. -- -- --
Comprehensive income ..................... -- -- 15,969
----------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 ............. -- (977) 71,930
Issuance of stock under
stock option plan .................... -- -- 570
Issuance of stock under
stock purchase plan .................. -- -- 250
Net income ............................... -- 15,543 15,543
Other comprehensive income ............. -- -- --
Comprehensive income ..................... -- -- 15,543
----------- ---------- ----------
BALANCE AT DECEMBER 31, 1997 ............. -- 14,566 88,293
Issuance of stock under
stock option plan .................... -- -- 604
Issuance of stock under
stock purchase plan .................. -- -- 378
Net income ............................... -- 20,354 20,354
Other comprehensive loss ............... (825) -- (825)
Comprehensive income ..................... -- -- 19,529
----------- ---------- ----------
BALANCE AT DECEMBER 31, 1998 ............. $ (825) $ 34,920 $ 108,804
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 23
METRO NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings .................................................. $ 20,354 $ 15,543 $ 15,969
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation and amortization ....................... 10,043 8,878 6,213
Deferred federal income taxes ....................... 196 633 (109)
Loss (gain) on dispositions of assets ............... 26 73 (11)
Amortization of discount on notes payable ........... -- -- 76
Decrease (increase) in, net of acquisition of businesses
Accounts receivable, net ............................ (16,385) (9,356) (10,045)
Prepaid expenses and other current assets ........... (1,372) 138 (484)
Other assets ........................................ (417) 157 (196)
(Decrease) increase in, net of acquisition of businesses
Accounts payable .................................... 1,051 (494) 1,160
Accrued liabilities ................................. (1,111) 559 5,780
Other liabilities ................................... (131) (1,605) 425
Net reciprocal arrangements ................................... (672) (3,874) (4,916)
-------- -------- --------
Cash provided by operating activities ............... 11,582 10,652 13,862
-------- -------- --------
INVESTING ACTIVITIES:
Capital additions ............................................. (10,052) (16,642) (6,840)
Related party
Advances to .............................................. -- -- (1,749)
Payments from ............................................ -- -- 316
Proceeds from sale of marketable securities ................... -- 414 --
Purchase of marketable securities ............................. (379) (1,062) --
Proceeds from sale of property and equipment .................. 101 83 17
Acquisitions of companies, net of cash acquired of $456 ....... (5,194) (6,410) (4,944)
Purchases of other investments ................................ (399) -- --
-------- -------- --------
Cash used for investing activities ....................... (15,923) (23,617) (13,200)
-------- -------- --------
</TABLE>
22
<PAGE> 24
METRO NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from issuance of debt .................................... 937 1,244 9,411
Debt repayments
Long-term debt ............................................... (1,423) (2,453) (30,801)
Related party debt ........................................... -- (2,945) --
Issuance of common stock .......................................... 981 820 67,765
Cash distributions ................................................ -- -- (7,601)
Capital contributions ............................................. -- -- 700
-------- -------- --------
Cash (used for) provided by financing activities ............. 495 (3,334) 39,474
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. (3,846) (16,299) 40,136
CASH AND CASH EQUIVALENTS
Beginning of period ............................................... 25,087 41,386 1,250
-------- -------- --------
End of period ..................................................... $ 21,241 $ 25,087 $ 41,386
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest .......................... $ 131 $ 228 $ 1,833
Cash paid during the period for State and Federal income taxes .... 12,745 11,419 2,856
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired through reciprocal activities ..... $ 657 $ 1,585 $ 490
Reciprocal activities related to business acquisitions ............ 15 41 --
Decrease in shareholder note payable .............................. -- 155 --
Stockholder distributions by:
Reduction in stockholder note receivable ................ -- -- 4,819
Increase in shareholder note payable .................... -- -- 3,100
Transfer of property .................................... -- -- 1,462
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 25
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
From 1978 until the closing of the Company's initial public offering (the
"Public Offering") in October 1996, the business of Metro Networks, Inc. and
subsidiaries ("the Company") was operated through Metro Traffic Control, Inc.
("MTC"), a Maryland corporation; Metro Reciprocal, Inc. ("MRI"), a Texas
corporation; Metro Networks, Ltd. ("MNW"), a Texas limited partnership; Metro
Video News, Inc. ("MVN"), a Texas corporation; and their subsidiaries
(collectively, the "Predecessor Companies"). Until the closing of the Public
Offering, all of the equity interests in the Predecessor Companies were owned
by the Chairman and Chief Executive Officer of the Company, and certain trusts
(the "Trusts") created for the benefit of this individual's children.
Immediately prior to the closing of the Public Offering, the controlling
shareholder established Metro Networks, Inc. as a holding company and
consolidated the issued and outstanding equity interests in the Predecessor
Companies into Metro Traffic Control, Inc., 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"). In November 1997, Metro Traffic Control, Inc. changed its
name to Metro Networks Communications, Inc. Subsequent to the Reorganization,
Metro Networks Communications, Inc. is a wholly-owned subsidiary of the
Company.
As the equity interests were held under common control and were
contributed by the resulting shareholder of the Company, the underlying assets
are recorded at their historical costs, similar to pooling of interest
accounting. References to Metro Networks, Inc. in the accompanying financial
statements include the predecessor entities prior to the Reorganization.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly and majority owned subsidiaries and, prior to the
Reorganization, the combined financial statements of the Predecessor Companies.
All intercompany accounts and transactions have been eliminated in
consolidation/combination.
Business
The Company provides traffic reporting services, local news, sports,
weather, video news and other information reporting services to the television
and radio broadcast industries. In exchange for the Company's information
reports, television and radio station broadcast affiliates provide commercial
airtime to the Company. The packaging and sale of this commercial airtime
accounts for substantially all of the Company's revenue. The Company's
information reports are broadcast by radio and television broadcast affiliates
throughout the United States.
Revenue Recognition
The Company provides programming to radio and television stations in
exchange for commercial airtime. The airtime is subsequently sold to
advertisers for either cash or other goods and services. Revenue and the
related accounts receivable is recognized at the time commercials are
broadcast. If cash, merchandise or services are received prior to the broadcast
of the commercial, deferred revenue is recorded.
Revenue from the Company's exchange of advertising time for goods and
services is recorded at the estimated fair market value of goods or services
received, or to be received. The value of goods and services is charged to
expense when used.
24
<PAGE> 26
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Investments in Equity Securities
All of the Company's marketable securities have been categorized as
available for sale and as a result are carried at fair market value.
Merchandise and Scrip Inventory
Merchandise and scrip inventory consists of miscellaneous merchandise and
airline tickets, lodging, meals and other goods received by the Company in
exchange for advertising time, and are valued at the fair market value of goods
received.
Property and Equipment
Property and equipment are stated at cost. The cost of ordinary
maintenance is charged to operations, while renewals and replacements are
capitalized. Depreciation is computed based on the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Operating equipment ......................... 3-10 years
Transportation equipment .................... 3 years
Leasehold improvements ...................... 10 years
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and 1996
was $5,652,000, $3,968,000 and $1,770,000, respectively.
Effective October 1, 1997, the Company revised its estimate of the useful
lives of certain intangible assets (purchased contracts) and camera equipment.
Previously, such assets were depreciated over five and three years,
respectively. Those lives were extended to seven and five years, respectively.
These changes were made to better reflect the estimated periods during which
such assets will remain in service based on actual experience and industry
practice. The change, which was accounted for prospectively from October 1,
1997, had the effect of reducing depreciation and amortization expense and
increasing net income by approximately $342,700 ($.02 per diluted share) for
the year ended December 31, 1997.
Intangible Assets
Intangible assets include goodwill, purchased broadcast contracts,
non-compete agreements, trademarks and licenses. Intangible assets are
amortized on a straight-line basis over the estimated eventual term of the
customer's contract, or the estimated useful life of the asset for periods
ranging from three to twenty years. The Company assesses the recoverability of
intangible assets by determining whether the amortization of the intangible
balances over their remaining life can be recovered through undiscounted future
operating cash flows of the acquired operations. The assessment of the
recoverability of intangible assets will be impacted if estimated future
operating cash flows are not achieved.
Federal and State Income Tax
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rate and laws that will be
in effect when the differences are expected to reverse.
25
<PAGE> 27
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the Reorganization, MNW 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. Subsequent to the Reorganization, all of
the operations are included in the consolidated tax return of the Company.
Prior to the Reorganization, MRI, MVN and MTC elected to be taxed under S
corporation provisions of the Internal Revenue Code. Under these provisions,
MRI, MVN and MTC were not liable for federal income taxes. Instead, the
stockholders were liable for individual federal income taxes on their taxable
income. Also, prior to the Reorganization, MNW was a partnership for federal
income tax purposes and accordingly, the partners were liable for federal
income taxes on their respective income.
Stock-Based Compensation
On January 1, 1996, the Company adopted Financial Accounting Standards
(SFAS) No. 123 ("Accounting for Stock-Based Compensation"), which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of Accounting Principles Board
(APB) Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
Reciprocal and Airtime Obligations
Reciprocal and airtime obligations represent broadcast obligations
incurred as part of the purchase price for acquisitions. Such obligations are
recorded at the fair market value of the airtime when the acquisition was made,
and are included in reciprocal payables and accrued liabilities in the
accompanying consolidated balance sheets. Reciprocal and airtime obligations
approximated $2,620,000 at December 31, 1998 and 1997.
Earnings Per Share
The Company has adopted the provisions of SFAS No. 128 ("Earnings Per
Share"), which replaces the presentation of primary earnings per share and
fully diluted earnings per share with a presentation of basic earnings per
share ("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS
excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or
converted into common stock.
Weighted average shares outstanding, net income per share and pro forma
net income per share are calculated assuming the shares issued in conjunction
with the Reorganization were outstanding for the periods presented. In
addition, an adjustment has been made to reflect the distributions which
exceeded capital contributions and net income in accordance with the rules of
the Securities and Exchange Commission.
For purposes of computing earnings per share, the common shares
outstanding as a result of the Stock Loan and Pledge Agreement (see Note 12)
are considered outstanding, however the shares related to the convertible
preferred stock are not considered to be Common Stock equivalents. This is due
to the fact that under the terms and provisions of the Stock Loan and Pledge
Agreement, the preferred shares outstanding cannot be converted into Common
Stock while the stock loan is outstanding.
26
<PAGE> 28
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro Forma Financial Data (unaudited)
Pro forma income taxes are set forth herein because certain of the
Predecessor Companies operated as subchapter S corporations or partnerships for
federal income tax purposes. Pro forma income taxes reflect federal income
taxes that would have been incurred had all the Predecessor Companies been
subject to such taxes. Such amounts have been deducted from net earnings for
pro forma purposes in the accompanying statements of operations pursuant to the
rules and regulations of the Securities and Exchange Commission.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgement and therefore, cannot be
determined with precision.
The Company believes that the carrying amounts of its current assets and
current liabilities approximate the fair value of such items due to their
short-term nature. The carrying amount of long-term debt approximates its fair
values because the interest rates approximate market.
Accounting Pronouncements
Effective January 1, 1998, the Company adopted issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income ("SFAS
130")". This standard establishes requirements for reporting and display of
comprehensive income and its components in the financial statements.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events from non-owner
sources. It includes all changes in equity during a period except those
resulting from investments by and distributions to owners.
Reclassifications
Certain reclassifications have been made to prior year amounts in order
to conform to the 1998 presentation.
NOTE 2--INITIAL PUBLIC OFFERING
In October 1996, the Company completed 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.
27
<PAGE> 29
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--ACQUISITIONS
During 1998, 1997 and 1996, the Company made the following acquisitions,
each of which has been accounted for using the purchase method of accounting.
On December 4, 1998, the Company acquired substantially all of the
tangible and intangible business assets and acquired certain liabilities of
Ross Sports Productions, Inc. ("Ross"), a Pennsylvania corporation. Ross is a
service business engaged in the production of video sports programming which is
marketed to local television stations in return for advertising. The purchase
price consisted of a cash payment of $3,000,000 plus three additional
contingent payments based upon future operating cash flow. The excess purchase
price of approximately $3,265,000 was allocated to intangible assets and is
being amortized over a twenty-year period.
On August 31, 1998, the Company acquired substantially all of the tangible
and intangible business assets and acquired certain liabilities of Today's
Traffic, an Alabama partnership. Today's Traffic provides traffic reporting
services to a network of broadcast affiliates serving the Birmingham, Alabama
area. The purchase price consisted of a cash payment of $190,000, plus
additional contingent consideration based upon future operating cash flow. The
excess purchase price of approximately $230,000 was allocated to intangible
assets and is being amortized over a period ranging from five to twenty years.
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 of $1,260,000, net of $500,000 in deferred
purchase price related to certain contingent liabilities, was allocated to net
assets acquired based upon their estimated fair market value. The excess
purchase price of approximately $1,665,000 was allocated to intangible assets
and is being amortized over a period ranging from five to twenty years.
On March 2, 1998, the Company acquired all 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. The excess purchase price of approximately $971,000
was allocated to intangible assets and is being amortized over a period ranging
from five to twenty years.
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 provides traffic reporting services to
a network of broadcast affiliates serving the Harrisburg, Wilkes-Barre, and
Allentown, Pennsylvania areas, Albany, New York and Salisbury/Ocean City,
Maryland and Delaware areas. The purchase price of approximately $2,250,000 was
allocated to the net assets acquired based upon their estimated fair market
value. The excess purchase price of $1,940,000 was allocated to intangible
assets and is being amortized over a seven-year period.
On August 1, 1997, the Company acquired substantially all of the tangible
and intangible assets and assumed certain liabilities of Valley Watch
Broadcasting ("VWB"). VWB provides traffic reporting services to a network of
broadcast affiliates serving the Fresno, California area. The purchase price
consisted of $10,000 cash at closing and a contingent payment of approximately
$140,000.
On June 27, 1997, the Company acquired 80% of the common stock of
Washington News Network, Inc. ("WNN"), a Washington, D.C. corporation. WNN
provides video news feeds via satellite to 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. The Company has an option
to purchase the remaining 20% of WNN which may be exercised at any time through
March 31, 2000.
28
<PAGE> 30
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 provides traffic and news reporting services to 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 acquired based upon their
estimated fair market values. The excess purchase price of approximately
$3,250,000 was allocated to intangible assets and is being amortized over a
seven-year period.
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 provides traffic reporting services to a network of
broadcast affiliates serving the Kansas City, Kansas and Omaha, Nebraska 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 twelve month
period following the closing date. The final payment, based upon net revenue or
operating cash flow as defined in the Asset Purchase Agreement, was determined
to be $150,000. The excess purchase price of approximately $1,470,000 was
allocated to intangible assets and is being amortized over a seven-year period.
On October 31, 1996, the Company acquired substantially all of the
tangible and intangible assets of Wisconsin Information Systems, Inc.
("Wisconsin"), an Ohio corporation. Wisconsin provides traffic reporting
services to a network of broadcast affiliates serving the Milwaukee, Wisconsin,
Oklahoma City, Oklahoma, Albuquerque, New Mexico and Omaha, Nebraska areas. The
cash purchase price of approximately $650,000 was allocated to the net assets
acquired based upon their estimated fair market values. The excess purchase
price of approximately $600,000 was allocated to intangible assets and is being
amortized over a seven-year period.
On January 4, 1996, the Company acquired 100% of the stock of Traffic Net,
Inc. ("TNI"), a Rhode Island corporation, Traffic Net of Connecticut, Inc.
("TNCI"), a Connecticut corporation, and The Weather Bureau, Inc. ("TWB"), a
Massachusetts corporation (collectively, the "Traffic Net Group"). The Traffic
Net Group provides traffic and weather reporting services to a network of
broadcast affiliates serving the Hartford, Connecticut area, the Providence,
Rhode Island area, the Boston, Massachusetts area and areas throughout New
England. The Company paid cash consideration of approximately $2,900,000, net
of $100,000 in deferred purchase price related to certain contingent
liabilities, as described in the TNI Stock Purchase Agreement. As additional
consideration, the Company paid cash of approximately $410,000 to acquire
existing trade receivables, all of which has been subsequently collected. The
excess purchase price of approximately $3,197,000 was allocated to intangible
assets and is being amortized over a seven-year period.
On January 3, 1996, the Company acquired substantially all of the tangible
and intangible business assets and assumed certain liabilities of Aeromedia,
Inc. ("Aeromedia"), a Utah corporation. Aeromedia provides traffic reporting
services to a network of broadcast affiliates serving the Salt Lake City, Utah
area in exchange for advertising availabilities and other compensation. As
consideration for the asset purchase, the Company paid $200,000 at closing,
plus additional contingent consideration of $250,000 based upon net sales as
defined in the Asset Purchase Agreement. The excess purchase price of
approximately $405,000 was allocated to intangible assets and is being amortized
over a seven-year period.
29
<PAGE> 31
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of the 1998, 1997 and 1996 acquisitions:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets acquired:
Cash ...................................................... $ 456 $ -- $ --
Accounts receivable ....................................... 1,969 454 554
Fixed assets .............................................. 561 740 123
Other assets .............................................. 138 21 74
Purchased broadcast contracts and other intangibles ....... 6,146 7,180 5,427
------ ------ ------
9,270 8,395 6,178
Liabilities assumed:
Notes payable ............................................. -- 77 --
Other liabilities ......................................... 3,620 178 1,804
------ ------ ------
3,620 255 1,804
Less: Notes payable issued ..................................... -- 1,730 --
------ ------ ------
Cash paid ...................................................... $5,650 $6,410 $4,374
====== ====== ======
</TABLE>
The following unaudited pro forma information represents the combined
results of operations of the Company as if the 1998 acquisitions had been
combined with the Company as of January 1, 1997 (in thousands, except earnings
per share). The pro forma results for 1996 are immaterial.
<TABLE>
<CAPTION>
DECEMBER 31,
(UNAUDITED)
-------------------
1998 1997
-------- --------
<S> <C> <C>
Advertising revenues (thousands) ...... $179,164 $146,418
Net earnings (thousands) .............. 20,661 15,823
Diluted earnings per share ............ $ 1.22 $ 0.95
</TABLE>
The pro forma information is not necessarily indicative of operating
results that would have occurred if each acquisition had been consummated as of
the respective dates, nor is it necessarily indicative of future operating
results. The actual results of operations of an acquired company are included
in the Company's consolidated financial statements only from the date of
acquisition.
30
<PAGE> 32
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Accounts Receivable:
Accounts receivable .................................................................... $53,467 $34,648
Less: allowance for doubtful accounts ................................................. 1,038 535
------- -------
$52,429 $34,113
======= =======
Property and Equipment:
Operating equipment .................................................................... $41,159 $30,638
Transportation equipment ............................................................... 774 842
Leasehold improvements ................................................................. 3,359 2,747
------- -------
45,292 34,227
Less: accumulated depreciation and amortization ....................................... 15,412 9,838
------- -------
$29,880 $24,389
======= =======
Purchased Broadcast Contracts and Other Intangibles:
Non-compete agreements ................................................................. $ 3,346 $ 3,021
Purchased broadcast contracts .......................................................... 27,891 22,070
Goodwill, trademarks and licenses ...................................................... 2,679 2,679
Investments in subsidiaries ............................................................ 50 50
Other .................................................................................. 1,079 1,079
------- -------
35,045 28,899
Less: accumulated amortization ........................................................ 15,545 11,354
------- -------
$19,500 $17,545
======= =======
Accrued Liabilities:
Accrued payroll and related costs ...................................................... $ 2,839 $ 2,626
Bonus accrual .......................................................................... -- 1,779
Commission ............................................................................. 1,910 2,416
Current income taxes payable ........................................................... 1,873 598
Deferred revenue ....................................................................... 2,444 742
Other .................................................................................. 2,474 1,913
------- -------
$11,540 $10,074
======= =======
</TABLE>
NOTE 5--RECIPROCAL REVENUES AND EXPENSES
The following is a summary of reciprocal revenues and expenses (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31,
---------------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Reciprocal revenues................................... $ 8,483 $ 5,611 $ 8,731
======== ======== ========
Reciprocal expenses................................... $ 8,203 $ 4,246 $ 6,314
======== ======== ========
</TABLE>
31
<PAGE> 33
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--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 the following in
thousands:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1998 1997
------ ------
<S> <C> <C>
Various acquisition notes payable, discounted at 8%, due 1999 through 2000 ........ $430 $841
Unsecured note payable to bank at prime (8.50% at December 31, 1998), due
1999 through 2000 .......................................................... 52 69
---- ----
482 910
Less: Current portion ............................................................. 429 420
---- ----
$ 53 $490
==== ====
</TABLE>
The $53,000 long-term portion of notes payable will mature during fiscal
year 2000.
On October 22, 1996, the Company paid off the notes payable related to the
$30,000,000 revolving agreement and replaced this facility with a reducing
revolving credit facility which provides for maximum aggregate permitted
borrowings of $30,000,000. 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. 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.
No balances under the new line of credit were outstanding at December 31, 1998
and 1997.
NOTE 7--INCOME TAXES
Income tax expense from continuing operations is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current, federal .................................. $11,481 $ 8,437 $ 2,393
Current, state ..................................... 1,982 2,094
1,178
Deferred, federal .................................. 196 633 (109)
------- ------- -------
$13,659 $11,164 $ 3,462
======= ======= =======
</TABLE>
The difference between the effective tax rate of income tax expense and
the amount which would be determined by applying the statutory U.S. income tax
rates to income from continuing operations before income tax expense is
explained below according to the tax implications of various items of income or
expense:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Provision for income tax expense at U.S. statutory rates .................. $ 11,909 $ 9,347 $ 6,801
Increase (decrease) in tax provision resulting from:
Nontaxable S corporation and partnership (earnings) losses ............ -- -- (5,449)
State income taxes, net of federal tax benefit ........................ 1,288 1,360 1,024
Amortization of goodwill .............................................. 690 929 1,100
Tax exempt income ..................................................... (246) (352) --
Other ..................................................................... 18 (120) (14)
-------- -------- --------
$ 13,659 $ 11,164 $ 3,462
======== ======== ========
</TABLE>
32
<PAGE> 34
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes related to the C corporations
included in the combined group.
The components of the net deferred income tax assets and liabilities at
December 31, 1998 and 1997 consist of the following (in thousands):
<TABLE>
<CAPTION>
Deferred income tax assets: 1998 1997
------- -------
<S> <C> <C>
Allowance for uncollectable accounts .......................... $ 287 $ 187
Accrued liabilities ........................................... 37 55
Book over tax amortization on intangible assets ............... 985 907
------- -------
Total deferred income tax assets .............................. 1,309 1,149
Deferred income tax liabilities:
Tax over book depreciation on property and equipment .......... (1,944) (1,214)
Book over tax barter valuation ................................ -- (96)
Fixed asset basis difference .................................. (66) 62
Investment in stock ........................................... (19) (19)
Research and development costs ................................ -- (406)
------- -------
Total deferred income tax liabilities ......................... (2,029) (1,673)
Net deferred income tax asset (liability) ..................... (720) (524)
Current deferred income tax asset (liability) ................. 324 146
------- -------
Net long-term deferred income tax asset (liability) ........... $(1,044) $ (670)
======= =======
</TABLE>
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Company leases certain of its office facilities and equipment over
periods ranging from one to ten years. Total facility expense for the years
ended December 31, 1998, 1997 and 1996 was $6,057,000, $4,415,000 and
$3,384,000, respectively. Future rentals for operating leases at December 31,
1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999..................................................................... $ 5,702
2000..................................................................... 3,419
2001..................................................................... 3,138
2002..................................................................... 2,413
2003..................................................................... 2,560
Thereafter............................................................... 7,326
---------
$ 24,558
=========
</TABLE>
Additionally, the Company is obligated to provide advertising in exchange
for leasing certain office facilities and equipment over periods ranging from
one to ten years. Future rentals for operating leases at December 31, 1998
based on the fair market value of the leases are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................................ $ 608
2000............................................................ 429
2001............................................................ 336
2002............................................................ 317
2003............................................................ 135
Thereafter...................................................... 484
--------
$ 2,309
========
</TABLE>
33
<PAGE> 35
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is subject to litigation arising in the ordinary course of
business. Management believes that the resolution of such matters will not have
a material adverse effect on the Company's financial position or results of
operations.
NOTE 9--DEFINED CONTRIBUTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN
Effective April 1995, the Company established a profit sharing plan under
Section 401(k) of the Internal Revenue Code for all eligible employees. All
eligible employees are permitted to defer compensation up to a maximum of 15%
of their income. The plan provides for a matching contribution by the Company,
which amounted to $410,000, $314,000 and $274,000 in 1998, 1997 and 1996,
respectively.
A total of 1,500,000 shares of the Company's Common Stock have been
reserved for issuance under the Company's 1996 Employee Stock Purchase Plan
(the "Purchase Plan"). As of December 31, 1998, a total of 21,395 shares have
been issued under the Purchase Plan. The Purchase Plan permits an eligible
employee of the Company to purchase common stock at a discount through payroll
deductions not to exceed 10% of the compensation received by such employee
during such pay period ("Employee Purchases"). An employee's right to purchase
shares under the Purchase Plan will be granted at the beginning of each six
month period based on payroll deductions made in the prior six month period.
All purchases will be made automatically at the end of each six month period.
Employee Purchases cannot exceed $25,000 in any plan year. The price at which
the Common Stock is purchased under the Purchase Plan, as set by the Board of
Directors, is the lesser of 95% of the fair market value of the Common Stock at
the time an employee's right to purchase the stock is granted, or the fair
market value of the Common Stock on the date of purchase.
NOTE 10--STOCK OPTIONS
The Company's Board of Directors adopted the 1996 Incentive Stock Option
Plan (the "1996 Plan") for the Company's officers and employees. The total
number of shares reserved for issuance under the 1996 Plan is 1,000,000, of
which approximately 984,330 were issued as of December 31, 1998. In October
1997, the Company's Board of Directors adopted the 1997 Stock Option Plan (the
"1997 Plan") for the Company's officers, employees and non-employee Directors.
The total number of shares reserved for issuance under the 1997 Plan is
1,500,000, of which approximately 870,500 were issued as of December 31, 1998.
The Board of Directors has discretionary authority, subject to certain
restrictions, to administer the 1996 Plan and the 1997 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 exercise price of
incentive options granted under the 1996 Plan or 1997 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
either plan are not transferable by the optionholders except by will or by the
laws of descent and distribution. Options granted under the 1996 Plan and 1997
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 his 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, options to purchase an aggregate of 80,000 shares were issued
to non-employee members of the Board of Directors outside of the 1996 and 1997
Plans.
34
<PAGE> 36
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1998, there were 629,500 and 15,670 additional shares
available for grant under the 1997 Plan and 1996 Plan, respectively. The per
share weighted-average value of stock options granted during 1998 and 1997 was
$14.03 and $14.89, respectively, on the date of grant using the Black Scholes
model with the following assumptions for 1998 and 1997: weighted-average
risk-free interest rate of 4.51% and 6.11%, respectively, expected life of 5
years, volatility of 43.0% and 49.4%, respectively, and an expected dividend
yield of 0%.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Net income:
As reported $ 20,354,000 $ 15,543,000
Pro forma - effects of SFAS No. 123 14,633,000 13,288,000
Diluted earnings per share:
As reported $ 1.20 $ 0.93
Pro forma - effects of SFAS No. 123 .86 0.80
</TABLE>
Information regarding the stock options outstanding at December 31, 1998,
is summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted-average Weighted- Number Weighted-
Range of outstanding remaining average exercisable average
exercise prices at 12/31/98 contractual life exercise price at 12/31/98 exercise price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$16.00-37.59 1,816,778 8.0 $26.66 532,077 $21.25
$38.00-42.13 67,000 9.6 $38.48 -- --
------------ --------- --- ------ ------- ------
$16,00-42.13 1,883,778 8.1 $27.08 532,077 $21.25
</TABLE>
At December 31, 1997, the number of options exercisable was 161,212 and
the weighted-average exercise price of these options was $16.33.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-average
shares exercise price
--------- ----------
<S> <C> <C>
Balance at December 31, 1995 0 $ --
Granted 570,000 16.05
---------
Balance at December 31, 1996 570,000 $ 16.05
Granted 577,000 30.08
Exercised (26,097) 16.00
Forfeited (10,001) 16.00
---------
Balance at December 31, 1997 1,110,902
---------
Granted 810,500 31.75
Exercised (24,955) 16.53
Forfeited (12,669) 29.49
---------
Balance at December 31, 1998 1,883,778
=========
</TABLE>
At December 31, 1998, the number of options exercisable was 532,077 and
the weighted-average exercise price of these options was $21.25 per share.
35
<PAGE> 37
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--EARNINGS PER COMMON SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted computations for the years ended December 31, 1998, 1997
and 1996 (in thousands, except per share data).
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
WEIGHTED AVERAGE PER SHARE
INCOME SHARES OUTSTANDING AMOUNT
-------- ------------------ --------
<S> <C> <C> <C>
1998
- ----
BASIC EPS $ 20,354 16,594 $ 1.23
Income available to common stockholders
EFFECT OF DILUTIVE SECURITIES
Options -- 361 (.03)
-------- ------ --------
DILUTED EPS
Income available to common stockholders
plus assumed conversion $ 20,354 16,955 $ 1.20
======== ====== ========
1997
- ----
BASIC EPS
Income available to common stockholders $ 15,543 16,555 $ 0.94
EFFECT OF DILUTIVE SECURITIES
Options -- 159 (0.01)
-------- ------ --------
DILUTED EPS
Income available to common stockholders
plus assumed conversion $ 15,543 16,714 $ 0.93
======== ====== ========
1996 PRO FORMA
- --------------
BASIC EPS
Income available to common stockholders $ 12,047 12,851 $ 0.94
EFFECT OF DILUTIVE SECURITIES
Options -- 33 --
-------- ------ --------
DILUTED EPS
Income available to common stockholders
Plus assumed conversion $ 12,047 12,884 $ 0.94
======== ====== ========
</TABLE>
Options to purchase 67,000 shares of Common Stock at exercise prices
ranging from $38.00 to $42.13 were outstanding during portions of 1998, but
were not included in the computation of diluted EPS because the options'
exercise price was greater than the average market price of the common shares.
The options, which have a weighted-average remaining contractual life of 9.6
years, were still outstanding at the end of 1998.
NOTE 12--COMMON STOCK, PREFERRED STOCK AND PARTNERS' CAPITAL
Immediately prior to the closing of the Public Offering, the Company
entered into a Stock Loan and Pledge Agreement with the controlling shareholder
pursuant to which the Company loaned the controlling shareholder 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 the controlling shareholder prior to that time upon three days
notice. As security for the loan, the controlling shareholder 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.
The controlling shareholder 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 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 Agreement), or at the end of the ten year term. The Company
will forfeit this portion of
36
<PAGE> 38
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the fee if it calls the loan prior to the end of the ten year term. The
controlling shareholder 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.
NOTE 13--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 the basis on which estimates are made
by others in the broadcast industry. As of December 31, 1998, the Company is
obligated to provide approximately $0.4 million of commercial airtime, goods
and services under these reciprocal arrangements. Immediately prior to the
Public Offering, the Company entered into an agreement with the controlling
shareholder pursuant to which the controlling shareholder was distributed the
goods and services the Company held for his benefit. The Company also
distributed to the controlling shareholder all of its rights to the goods and
services that are 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.
During 1996, the Company leased certain real property in Vail, Colorado
and in Malibu, California from Five S Properties, Ltd., a limited partnership
of which a company owned by the controlling shareholder is the general partner
("Five S"). Such properties were used for affiliate relations and for other
Company business-related purposes. The annual lease payments on these
properties were $60,000 and $240,000, respectively. The amounts of such lease
payments were determined by the Company based on its estimate of the values of
the leased properties but without preference to outside sources of valuation.
Because the Company did not make full-time use of these properties, such leases
were terminated as of October 1996, and the Company has no intention to enter
into similar leases. The Company paid $250,000 in rent expense to Five S for
the years ended December 31, 1996. Prior to October 1996, the Company incurred
certain operating and interest expenses on behalf of Five S. In October 1996,
the Company distributed a note receivable from Five S to the controlling
shareholder in the amount of $832,495, representing the amounts incurred on
behalf of Five S net of the lease payments.
As of 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 balance of this note was paid in
October 1997.
37
<PAGE> 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information is incorporated by reference to the Company's definitive
proxy statement for its annual meeting of shareholders to be filed pursuant to
Regulation 14A ("Regulation 14A") of the Securities Exchange Act of 1934, as
amended, not later than 120 days after the end of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the Company's definitive
proxy statement for its annual meeting of shareholders to be filed pursuant to
Regulation 14A not later than 120 days after the end of the Company's fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the Company's definitive
proxy statement for its annual meeting of shareholders to be filed pursuant to
Regulation 14A not later than 120 days after the end of the Company's fiscal
year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the Company's definitive
proxy statement for its annual meeting of shareholders to be filed pursuant to
Regulation 14A not later than 120 days after the end of the Company's fiscal
year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) List of documents filed as part of this report.
(1) Financial Statements
The Independent Auditors' Report and the following consolidated
financial statements are filed as part of this report:
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statement of Stockholder's Equity/Partners'
Capital for the years ended December 31, 1998, 1997 and
1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All information required to be included in a financial statement
schedule is disclosed in the consolidated financial statements
referred to above.
(3) Exhibits.
38
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --- ----------------------
<S> <C>
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant (1)
3.2 Form of Amended and Restated Bylaws of Registrant (1)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Series A Convertible Preferred Stock Certificate (1)
10.1 Lease Agreement, dated April 15, 1988 between Tower, Limited and Metro Traffic Control, Inc. (1)
10.2 First Amendment to Lease Agreement, dated September 1, 1988 between Tower, Limited and Metro Traffic
Control, Inc. (1)
10.3 Lease Amendment Number Two, dated April 23, 1991 between Tower, Limited and the Registrant (1)
10.4 Lease Amendment Number Three, dated January 28, 1992 between Tower, Limited and the Registrant (1)
10.5 Lease Agreement dated April 18, 1990 between Transco Tower Limited and Metro Traffic Control, Inc. (1)
10.6 Lease Amendment Number One dated October 19, 1988 between Transco Tower, Limited and Metro Traffic
Control, Inc. (1)
10.7 Lease Amendment Number Two dated January 29, 1992 between Transco Tower, Limited and Metro Traffic
Control, Inc. (1)
10.8 Lease Amendment Number Three dated May 28, 1992 between Transco Tower, Limited and Metro Traffic
Control, Inc. (1)
10.9 Sublease Agreement dated January 5, 1996 between Transcontinental Gas Pipe Line Corporation and Metro
Traffic Control, Inc. (1)
10.10 Lease Amendment Number One, dated March 1, 1998, between Transcontinental Gas Pipe Line Corporation and
Metro Traffic Control, Inc. (3)
10.11 Employment Agreement between the Registrant and Mr. David I. Saperstein (1)
10.12 Employment Agreement between the Registrant and Mr. Charles I. Bortnick (1)
10.13 Employment Agreement between the Registrant and Mr. Shane E. Coppola (1)
10.14 Employment Agreement between the Registrant and Mr. Gary L. Worobow (1)
10.15 Amendment to Employment Agreement between the Registrant and Mr. Gary L. Worobow (3)
10.16 Employment Agreement between the Registrant and Mr. Ivan N. Shulman (3)
10.17 Employment Agreement between the Registrant and Mr. D. Patrick LaPlatney (3)
10.18 Employment Agreement between the Registrant and Mr. John R. Tomlinson (3)
10.19 Employment Agreement between the Registrant and Mr. Timothy D. McMillin (3)
10.20 Metro Networks, Inc. Employee Stock Purchase Plan (1)
</TABLE>
39
<PAGE> 41
<TABLE>
<S> <C>
10.21 1996 Incentive Stock Option Plan (1)
10.22 Amendment No. 1 to the 1996 Incentive Stock Option Plan (4)
10.23 1997 Stock Option Plan (3)
10.24 Stock Loan and Pledge Agreement between the Registrant and Mr. David I. Saperstein (1)
10.25 Indemnification Agreement between the Registrant and Mr. David I. Saperstein (1)
10.26 Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A., as
Administrative Lender, dated as of October 22, 1996 (2)
10.27 First Amendment dated September 30, 1997 to Credit Agreement among Metro Networks, Inc., certain
lenders, and NationsBank of Texas, N.A. as Administrative Lender (3)
10.28 Second Amendment dated December 31, 1997 to Credit Agreement among Metro Networks, Inc., certain
lenders, and NationsBank of Texas, N.A. as Administrative Lender (4)
10.29 Third Amendment dated January 1, 1998 to Credit Agreement among Metro Networks, Inc., certain lenders,
and NationsBank of Texas, N.A. as Administrative Lender
10.30 Fourth Amendment dated July 1, 1998 to Credit Agreement among Metro Networks, Inc., certain lenders, and
NationsBank of Texas, N.A. as Administrative Lender
10.31 Fifth Amendment dated March 22, 1999 to Credit Agreement among Metro Networks, Inc., certain lenders,
and Bank of America as Administrative Lender
21.1 Subsidiaries of the Company
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule
</TABLE>
- --------------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, Registration No. 333-6311, originally filed with the Securities
and Exchange Commission on June 19, 1996, as subsequently amended, and
declared effective on October 16, 1996.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.
(3) Incorporated by Reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
(4) Incorporated by Reference to the Registrant's Quarterly Report on Form 10-Q
for the Quarter ended March 31, 1998.
40
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
30, 1999.
METRO NETWORKS, INC.
By: /s/ DAVID I. SAPERSTEIN
--------------------------------------
David I. Saperstein
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID I. SAPERSTEIN
- ----------------------------------- Chairman of the Board of Directors and Chief Executive March 30, 1999
David I. Saperstein Officer (Principal Executive Officer)
/s/ CHARLES I. BORTNICK
- ----------------------------------- President and Director March 30, 1999
Charles I. Bortnick
/s/ SHANE E. COPPOLA
- ----------------------------------- Executive Vice President and Director March 30, 1999
Shane E. Coppola
/s/ TIMOTHY D. McMILLIN
- ----------------------------------- Senior Vice President, Chief Financial Officer March 30, 1999
Timothy D. McMillin (Principal Financial and Accounting Officer)
/s/ GARY L. WOROBOW
- ----------------------------------- Senior Vice President, General Counsel, March 30, 1999
Gary L. Worobow Secretary and Director
/s/ JAMES A. ARCARA
- ----------------------------------- Director March 30, 1999
James A. Arcara
/s/ DENNIS F. HOLT
- ----------------------------------- Director March 30, 1999
Dennis F. Holt
/s/ KENIN M. SPIVAK
- ----------------------------------- Director March 30, 1999
Kenin M. Spivak
/s/ ROBERT M. MIGGINS
- ----------------------------------- Director March 30, 1999
Robert M. Miggins
</TABLE>
41
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant (1)
3.2 Form of Amended and Restated Bylaws of Registrant (1)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Series A Convertible Preferred Stock Certificate (1)
10.1 Lease Agreement, dated April 15, 1988 between Tower, Limited and Metro Traffic Control, Inc. (1)
10.2 First Amendment to Lease Agreement, dated September 1, 1988 between Tower, Limited and Metro Traffic
Control, Inc. (1)
10.3 Lease Amendment Number Two, dated April 23, 1991 between Tower, Limited and the Registrant (1)
10.4 Lease Amendment Number Three, dated January 28, 1992 between Tower, Limited and the Registrant (1)
10.5 Lease Agreement dated April 18, 1990 between Transco Tower Limited and Metro Traffic Control, Inc. (1)
10.6 Lease Amendment Number One dated October 19, 1988 between Transco Tower, Limited and Metro Traffic
Control, Inc. (1)
10.7 Lease Amendment Number Two dated January 29, 1992 between Transco Tower, Limited and Metro Traffic
Control, Inc. (1)
10.8 Lease Amendment Number Three dated May 28, 1992 between Transco Tower, Limited and Metro Traffic
Control, Inc. (1)
10.9 Sublease Agreement dated January 5, 1996 between Transcontinental Gas Pipe Line Corporation and Metro
Traffic Control, Inc. (1)
10.10 Lease Amendment Number One, dated March 1, 1998, between Transcontinental Gas Pipe Line Corporation and
Metro Traffic Control, Inc. (3)
10.11 Employment Agreement between the Registrant and Mr. David I. Saperstein (1)
10.12 Employment Agreement between the Registrant and Mr. Charles I. Bortnick (1)
10.13 Employment Agreement between the Registrant and Mr. Shane E. Coppola (1)
10.14 Employment Agreement between the Registrant and Mr. Gary L. Worobow (1)
10.15 Amendment to Employment Agreement between the Registrant and Mr. Gary L. Worobow (3)
10.16 Employment Agreement between the Registrant and Mr. Ivan N. Shulman (3)
10.17 Employment Agreement between the Registrant and Mr. D. Patrick LaPlatney (3)
</TABLE>
<PAGE> 44
<TABLE>
<S> <C>
10.18 Employment Agreement between the Registrant and Mr. John R. Tomlinson (3)
10.19 Employment Agreement between the Registrant and Mr. Timothy D. McMillin (3)
10.20 Metro Networks, Inc. Employee Stock Purchase Plan (1)
10.21 1996 Incentive Stock Option Plan (1)
10.22 Amendment No. 1 to the 1996 Incentive Stock Option Plan (4)
10.23 1997 Stock Option Plan (3)
10.24 Stock Loan and Pledge Agreement between the Registrant and Mr. David I. Saperstein (1)
10.25 Indemnification Agreement between the Registrant and Mr. David I. Saperstein (1)
10.26 Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A., as
Administrative Lender, dated as of October 22, 1996 (2)
10.27 First Amendment dated September 30, 1997 to Credit Agreement among Metro Networks, Inc., certain
lenders, and NationsBank of Texas, N.A. as Administrative Lender (3)
10.28 Second Amendment dated December 31, 1997 to Credit Agreement among Metro Networks, Inc., certain
lenders, and NationsBank of Texas, N.A. as Administrative Lender (4)
10.29 Third Amendment dated January 1, 1998 to Credit Agreement among Metro Networks, Inc., certain lenders,
and NationsBank of Texas, N.A. as Administrative Lender
10.30 Fourth Amendment dated July 1, 1998 to Credit Agreement among Metro Networks, Inc., certain lenders, and
NationsBank of Texas, N.A. as Administrative Lender
10.31 Fifth Amendment dated March 22, 1999 to Credit Agreement among Metro Networks, Inc., certain lenders,
and Bank of America as Administrative Lender
21.1 Subsidiaries of the Company
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule
</TABLE>
- --------------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, Registration No. 333-6311, originally filed with the Securities
and Exchange Commission on June 19, 1996, as subsequently amended, and
declared effective on October 16, 1996.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.
(3) Incorporated by Reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
(4) Incorporated by Reference to the Registrant's Quarterly Report on Form 10-Q
for the Quarter ended March 31, 1998.
<PAGE> 1
EXHIBIT 10.29
THIRD AMENDMENT
TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is
dated as of the 1st day of January, 1998 and entered into among METRO NETWORKS,
INC., a Delaware corporation (the "Borrower"), the Lenders party thereto, and
NATIONSBANK, N.A. (successor through merger to NationsBank of Texas, N.A.), a
national banking association, individually and as Administrative Lender (in
such latter capacity, the "Administrative Lender").
WITNESSETH:
WHEREAS, the Borrower, the Lenders, and the Administrative Lender
entered into a Credit Agreement, dated as of October 22, 1996, for a loan
facility in the amount of $30,000,000 (as amended, restated, waived or
otherwise modified from time to time, including without limitation, the First
Amendment dated September 30, 1997, between the Borrower, the Lenders party
thereto, and the Administrative Lender and the Second Amendment dated December
31, 1997 between the Borrower, the Lenders party thereto and the Administrative
Lender, the "Credit Agreement"); and
WHEREAS, the Lenders, the Administrative Lender, and the Borrower have
agreed to amend the Credit Agreement to make certain changes to the terms
therein upon the terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower, the Lenders and the Administrative Lender agree as follows:
SECTION 1. Definitions. Unless specifically defined or redefined
below, capitalized terms used herein shall have the meanings ascribed thereto
in the Credit Agreement.
SECTION 2. Amendment to Section 7.1 of the Credit Agreement. Section
7.1(f) shall be deleted in its entirety and amended by adding the following
Section 7.1(f):
(f) (i) Other Indebtedness of the Borrower and the
Subsidiaries not to exceed $2,000,000 in aggregate amount and (ii)
Indebtedness incurred by Borrower and its Subsidiaries in connection
with sale and leaseback obligations with respect to sales of
Borrower's and its Subsidiaries' motor vehicles, helicopters and other
rolling stock not to exceed in the aggregate $5,000,000.
SECTION 3. Amendment to Section 7.3(h) of the Credit Agreement.
Section 7.3(h) shall be deleted in its entirety and the following Section
7.3(h) shall be substituted in its stead:
(h) Other Investments primarily related to the Borrower's
Business not to exceed $5,000,000 in aggregate purchase price amount
for all such Investments,
<PAGE> 2
provided that no Default exists prior to or after giving effect to the
purchase of any such Investment.
SECTION 4. Amendment to Section 7.5(a) of the Credit Agreement.
Section 7.5(a) shall be deleted in its entirety and the following Section
7.5(a) shall be substituted in its stead:
(a) liquidate or dissolve itself (or suffer any
liquidation or dissolution) or otherwise wind up; or sell, lease,
abandon, transfer or otherwise dispose of all or any part of its
assets, properties or business, other than (i) immaterial assets sold
in the ordinary course of business, (ii) assets sold in accordance
with the provisions of Section 7.14 hereof, and (iii) sales of motor
vehicles, helicopters, and rolling stock pursuant to sale and
leaseback transactions as described in Section 7.1(f) hereof;
SECTION 5. Amendment to Sections 7.6(a) and (b) of the Credit
Agreement. Sections 7.6(a) and (b) shall be deleted in its entirety and the
following Sections 7.6(a) and (b) shall be substituted in its stead:
(a) single Acquisitions, the Acquisition
Consideration for which does not exceed $5,000,000, and so
long as in any fiscal year the aggregate Acquisition
Consideration paid by the Borrower and the Subsidiaries for
all Acquisitions during such fiscal year does not exceed
$10,000,000, and
(b) single Acquisitions the aggregate Acquisition
Consideration for which equals or exceeds $5,000,000, if each
Lender receives financial projections in form and substance
acceptable to the Lenders and demonstrating compliance with
(i) the covenants described in Section 6.3(a) hereof and (ii)
the required repayments as a result of the reductions in the
Commitment set forth in Section 2.6(c) hereof, each after
giving effect to such acquisition and for the period beginning
on such date of acquisition and ending on the Maturity Date;
SECTION 6. Amendment to Section 7.11 of the Credit Agreement.
Section 7.11 shall be deleted in its entirety and the following Section 7.11
shall be substituted in its stead:
Section 7.11 Fixed Charges Coverage Ratio. At the end of
each fiscal quarter occurring during the periods indicated below, the
Borrower, on a combined basis, shall not permit the ratio of (a)
Operating Cash Flow for the four fiscal quarters then ending to (b)
Fixed Charges for such fiscal quarters to be less than:
Period Ratio
------ -----
From Agreement Date through June 30, 1997 1.25 to 1.00
From July 1, 1997 through September 30, 1998 1.00 to 1.00
From October 1, 1998 and thereafter 1.10 to 1.00
2
<PAGE> 3
SECTION 7. Amendment to Section 7.14 of the Credit Agreement.
Section 7.14 shall be deleted in its entirety and the following Section 7.14
shall be substituted in its stead:
Section 7.14 Sale and Leaseback. The Borrower shall not,
and shall not permit any Subsidiary to, enter into any arrangement
whereby it sells or transfers any of its assets, and thereafter rents
or leases such assets, provided that, so long as there exists no
Default or Event of Default both before and immediately after giving
effect to such transaction, the Borrower may, and may permit its
Subsidiaries to, enter into sale and leaseback transactions which in
the aggregate for the Borrower and its Subsidiaries do not exceed
$5,000,000 for all assets sold.
SECTION 8. Affirmation. The Borrower hereby acknowledges and agrees
that nothing in this Third Amendment shall affect the Borrower's obligations
under the Credit Agreement or the other Loan Documents executed in connection
therewith (except as specifically provided in this Third Amendment), which
remain valid, binding and enforceable, and except as amended hereby, unamended,
or shall constitute a waiver by the Lenders of any of their rights or remedies,
now or at any time in the future, with respect to any requirement under the
Credit Agreement or the other Loan Documents or with respect to an Event of
Default or Default, occurring now or at any time in the future.
SECTION 9. Conditions Precedent. This Third Amendment shall not be
effective until:
(a) all proceedings of the Borrower taken in connection
with this Third Amendment and the transactions contemplated hereby
shall be satisfactory in form and substance to the Administrative
Lender and Lenders signatory hereto, and
(b) the Administrative Lender and Lenders shall have each
received such documents, instruments, and certificates, etc., each in
form and substance satisfactory to the Lenders, as the Lenders shall
deem necessary or appropriate in connection with this Third Amendment
and the transactions contemplated hereby.
SECTION 10. Representations and Warranties. The Borrower represents
and warrants to the Lenders and the Administrative Lender that (a) the Borrower
has the corporate power and has taken all necessary corporate action, to
authorize it to enter into and deliver this Third Amendment and all related
documentation, (b) this Third Amendment constitutes its legal, valid, and
binding obligations, enforceable in accordance with the terms hereof (subject
as to enforcement of remedies to any applicable bankruptcy, reorganization,
moratorium, or other laws or principles of equity affecting the enforcement of
creditors' rights generally), (c) there exists no Event of Default or Default
under the Credit Agreement after giving effect to this Third Amendment, (d) its
representations and warranties set forth in the Credit Agreement and other Loan
Documents are true and correct on the date hereof after giving effect to this
Third Amendment, (e) it has complied with all agreements and conditions to be
complied with by it under the Credit Agreement and the other Loan Documents by
the date hereof, (f) the Credit Agreement, as amended hereby, and the other
Loan Documents remain in full force and effect, and (g) no notice to, or
consent of, any Person is required under the terms of any agreement of the
Borrower in connection with the execution of this Third Amendment.
3
<PAGE> 4
SECTION 11. Further Assurances. The Borrower shall execute and
deliver such further agreements, documents, instruments, and certificates in
form and substance satisfactory to the Administrative Lender, as the
Administrative Lender or any Lender may deem reasonably necessary or
appropriate in connection with this Third Amendment, including without
limitation, a Compliance Certificate in form and substance satisfactory to the
Administrative Lender as required by Section 6.3 of the Credit Agreement.
SECTION 12. Counterparts. This Third Amendment and the other Loan
Documents may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument. In making proof of any
such agreement, it shall not be necessary to produce or account for any
counterpart other than one signed by the party against which enforcement is
sought.
SECTION 13. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b),
TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT
THE PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925,
AS AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AGREES THAT
THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE
JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS THIRD AMENDMENT AND THE
OTHER LOAN DOCUMENTS.
SECTION 14. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY
AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS THIRD
AMENDMENT AND MAKING ANY ADVANCES HEREUNDER.
SECTION 15. ENTIRE AGREEMENT. THIS THIRD AMENDMENT TOGETHER WITH
THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
================================================================================
4
<PAGE> 5
IN WITNESS WHEREOF, this Third Amendment to Credit Agreement is
executed as of the date first set forth above.
BORROWER: METRO NETWORKS, INC.
/s/ TIMOTHY D. MCMILLIN
------------------------------------
By: Timothy D. McMillin
Its: Senior Vice President
ADMINISTRATIVE LENDER: NATIONSBANK, N.A.,
as Administrative Lender
/s/ WHITNEY L. BUSSE
-------------------------------------
By: Whitney L. Busse
Its: Vice President
LENDERS: NATIONSBANK, N.A., as a
Lender
/s/ WHITNEY L. BUSSE
-------------------------------------
By: Whitney L. Busse
Its: Vice President
THE BANK OF NOVA SCOTIA, as a
Lender
/s/ VINCENT J. FITZGERALD, JR.
-------------------------------------
By: Vincent J. Fitzgerald, Jr.
----------------------------------
Its:
---------------------------------
5
<PAGE> 1
EXHIBIT 10.30
FOURTH AMENDMENT
TO
CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Fourth Amendment") is
dated as of the 1st day of July, 1998 and entered into among METRO NETWORKS,
INC., a Delaware corporation (the "Borrower"), the Lenders party thereto, and
NATIONSBANK, N.A. (successor through merger to NationsBank of Texas, N.A.), a
national banking association, individually and as Administrative Lender (in such
latter capacity, the "Administrative Lender").
WITNESSETH:
WHEREAS, the Borrower, the Lenders, and the Administrative Lender
entered into a Credit Agreement, dated as of October 22, 1996, for a loan
facility in the amount of $30,000,000 (as amended, restated, waived or otherwise
modified from time to time, including without limitation, the First Amendment
dated September 30, 1997, between the Borrower, the Lenders party thereto, and
the Administrative Lender, the Second Amendment dated December 31, 1997 between
the Borrower, the Lenders party thereto and the Administrative Lender, and the
Third Amendment dated January 1, 1998 between the Borrower, the Lenders party
thereto and the Administrative Lender, the "Credit Agreement"); and
WHEREAS, the Lenders, the Administrative Lender, and the Borrower have
agreed to amend the Credit Agreement to make certain changes to the terms
therein upon the terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower, the Lenders and the Administrative Lender agree as follows:
SECTION 1. Definitions.
(a) Definitions, Generally. Unless specifically defined or
redefined below, capitalized terms used herein shall have the meanings
ascribed thereto in the Credit Agreement.
(b) Definition of Intercompany Notes. The definition of
"Intercompany Notes" in Article 1 on page 8 of the Credit Agreement is
hereby deleted in its entirety and the following definition of
"Intercompany Notes" shall be substituted in its stead:
"Intercompany Notes" shall mean (a) any promissory
note executed by any Subsidiary made payable to the order of
the Borrower in the original principal amount not to exceed
$30,000,000 evidencing loans and advances made or to be made
by the Borrower to such Subsidiary, together with any
extension, renewal, increase or amendment thereof, or
substitution therefor
<PAGE> 2
and (b) any promissory note or series of promissory notes
executed by a Subsidiary of the Borrower and made payable to
the order of the Borrower, in the aggregate original
principal amount for all such notes not to exceed
$100,000,000, evidencing loans and advances made by the
Borrower to such Subsidiaries, together with any extension,
renewal, increase or amendment thereof, or substitution
therefor.
(c) Definition of Year 2000 Compliant. The definition of
"Year 2000 Compliant" shall be added to the end of Article 1
in alphabetical order as follows:
"Year 2000 Compliant" shall have the meaning ascribed
thereto in Section 4.1(y) hereof.
SECTION 2. Addition of Section 4.1(y) of the Credit Agreement.
Section 4.1(y) shall be added to Article 4 on page 44 of the Credit Agreement to
read as follows:
(y) Year 2000 Compliance. The Borrower has (i)
undertaken a detailed review and assessment of all areas
within its business and operations that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Borrower may be unable to
recognize and perform property date-sensitive functions
involving certain dates prior to and any date after December
31, 1999), (ii) developed a detailed plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii)
to date, implemented that plan in accordance with that
timetable. The Borrower reasonably anticipates that all
computer applications that are material to its business and
operations will on a timely basis be able to perform properly
date-sensitive functions for all dates before and after
January 1, 2000 (that is, be "Year 2000 Compliant").
SECTION 3. Addition of Section 5.16 of the Credit Agreement.
Section 5.16 shall be added to Article 5 on page 48 of the Credit Agreement to
read as follows:
5.16 Year 2000 Compliance. The Borrower will promptly
notify the Administrative Lender in the event the Borrower
discovers or determines that any computer application
(including those of its suppliers and vendors) that is
material to its or any of its Subsidiaries' business and
operations will not be Year 2000 Compliant on a timely basis,
except to the extent that such failure could not be reasonably
expected to have a Material Adverse Effect.
SECTION 4. Addition of Section 5.17 of the Credit Agreement.
Section 5.17 shall be added to Article 5 on page 48 of the Credit Agreement to
read as follows:
5.17 Formation and Capitalization of Metro Networks
Services, Inc. and Metro Networks Communications, Limited
Partnership. Prior to such time as the Borrower or any
Subsidiary
2
<PAGE> 3
of the Borrower makes any equity contribution (in cash or
any other tangible or intangible asset) or any loan or other
advance to either Metro Networks Services, Inc. or Metro
Networks Communications, Limited Partnership, the Borrower
agrees that the Administrative Lender shall have received
(a) a pledge of 100% of the capital stock and partnership
interests, respectively, of Metro Networks Services, Inc.
and Metro Networks Communications, Limited Partnership in
form and substance satisfactory to the Administrative
Lender, (b) a guaranty of the Obligations by Metro Networks
Services, Inc. and Metro Networks Communications, Limited
Partnership, (c) a security agreement and other security
documents granting a Lien on 100% of the intangible and
tangible assets of Metro Networks Services, Inc. and Metro
Networks Communications, Limited Partnership, (d) a pledge
of each Intercompany Note to secure the Obligations, each
such pledge in form and substance acceptable to the
Administrative Agent, and (e) an opinion of counsel
acceptable to the Administrative Lender regarding the due
organization and formation of such entities and the
authorization of such entities to execute their respective
Loan Documents.
SECTION 4. Amendment to Section 7.3(g) of the Credit Agreement.
Section 7.3(g) in Article 7 on page 55 of the Credit Agreement shall be deleted
in its entirety and the following Section 7.3(g) shall be substituted in its
stead:
(g) Investments in Subsidiaries permitted pursuant
to Section 7.8 hereof and pursuant to the Intercompany Notes
(without duplication); and
SECTION 5. Amendment to Section 7.5(c) of the Credit Agreement.
Section 7.5(c) in Article 7 on page 56 of the Credit Agreement shall be deleted
in its entirety and the following Section 7.5(c) shall be substituted in its
stead:
(c) create or acquire any Subsidiary, except the
Borrower may create (i) Subsidiaries as permitted by Section
7.6 hereof, (ii) Metro Networks Services, Inc., a Delaware
corporation and wholly owned Subsidiary of Metro Networks
Communications, Inc., and (iii) Metro Networks Communications,
Limited Partnership, a Delaware limited partnership and wholly
owned Subsidiary of Metro Networks Communications, Inc. and
Metro Networks Services, Inc.
SECTION 6. Amendment to Section 8.1. Section 8.1 in Article 8 of
the Credit Agreement is amended by deleting the "or" before subparagraph (o),
deleting the period at the end of subparagraph (o) and substituting ", or"
instead, and adding the following subparagraph (p):
(p) The Borrower shall fail to be Year 2000 Compliant.
3
<PAGE> 4
SECTION 7. Affirmation. The Borrower hereby acknowledges and
agrees that nothing in this Fourth Amendment shall affect the Borrower's
obligations under the Credit Agreement or the other Loan Documents executed in
connection therewith (except as specifically provided in this Fourth Amendment),
which remain valid, binding and enforceable, and except as amended hereby,
unamended, or shall constitute a waiver by the Lenders of any of their rights or
remedies, now or at any time in the future, with respect to any requirement
under the Credit Agreement or the other Loan Documents or with respect to an
Event of Default or Default, occurring now or at any time in the future.
SECTION 8. Conditions Precedent. This Fourth Amendment shall
not be effective until:
(a) all proceedings of the Borrower taken in connection
with this Fourth Amendment and the transactions contemplated hereby
(including, without limitation, the formation of Metro Network
Services, Inc. and Metro Networks Communications, Limited Partnership)
shall be satisfactory in form and substance to the Administrative
Lender and Lenders signatory hereto, and
(b) the Administrative Lender and Lenders shall have each
received such documents, instruments, and certificates, etc., each in
form and substance satisfactory to the Lenders, as the Lenders shall
deem necessary or appropriate in connection with this Fourth Amendment
and the transactions contemplated hereby.
SECTION 9. Representations and Warranties. The Borrower
represents and warrants to the Lenders and the Administrative Lender that (a)
the Borrower has the corporate power and has taken all necessary corporate
action, to authorize it to enter into and deliver this Fourth Amendment and all
related documentation, (b) this Fourth Amendment constitutes its legal, valid,
and binding obligations, enforceable in accordance with the terms hereof
(subject as to enforcement of remedies to any applicable bankruptcy,
reorganization, moratorium, or other laws or principles of equity affecting the
enforcement of creditors' rights generally), (c) there exists no Event of
Default or Default under the Credit Agreement after giving effect to this Fourth
Amendment, (d) its representations and warranties set forth in the Credit
Agreement and other Loan Documents are true and correct on the date hereof after
giving effect to this Fourth Amendment, (e) it has complied with all agreements
and conditions to be complied with by it under the Credit Agreement and the
other Loan Documents by the date hereof, (f) the Credit Agreement, as amended
hereby, and the other Loan Documents remain in full force and effect, and (g) no
notice to, or consent of, any Person is required under the terms of any
agreement of the Borrower in connection with the execution of this Fourth
Amendment and the transactions contemplated hereby, except such notices that
have been given or consents that have been obtained.
SECTION 10. Further Assurances. The Borrower shall execute and
deliver such further agreements, documents, instruments, and certificates in
form and substance satisfactory to the Administrative Lender, as the
Administrative Lender or any Lender may deem reasonably necessary or appropriate
in connection with this Fourth Amendment.
4
<PAGE> 5
SECTION 11. Counterparts. This Fourth Amendment and the other
Loan Documents may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument. In making proof of any
such agreement, it shall not be necessary to produce or account for any
counterpart other than one signed by the party against which enforcement is
sought.
SECTION 12. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(B), TITLE
79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE
PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS
AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AGREES THAT
THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE
JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS FOURTH AMENDMENT AND THE
OTHER LOAN DOCUMENTS.
SECTION 13. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY
AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS FOURTH
AMENDMENT AND MAKING ANY ADVANCES HEREUNDER.
SECTION 14. ENTIRE AGREEMENT. THIS FOURTH AMENDMENT TOGETHER
WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
================================================================================
5
<PAGE> 6
IN WITNESS WHEREOF, this Fourth Amendment to Credit Agreement is
executed as of the date first set forth above.
BORROWER: METRO NETWORKS, INC.
/s/ TIMOTHY D. MCMILLIN
-----------------------------------
By: Timothy D. McMillin
Its: Senior Vice President
ADMINISTRATIVE LENDER: NATIONSBANK, N.A.,
as Administrative Lender
/s/ WHITNEY L. BUSSE
-----------------------------------
By: Whitney L. Busse
Its: Vice President
LENDERS: NATIONSBANK, N.A., as a Lender
/s/ WHITNEY L. BUSSE
-----------------------------------
By: Whitney L. Busse
Its: Vice President
THE BANK OF NOVA SCOTIA, as a Lender
/s/ BRIAN ALLEN
-----------------------------------
By: Brian Allen
--------------------------------
Its:
-------------------------------
6
<PAGE> 1
EXHIBIT 10.31
FIFTH AMENDMENT
TO
CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Fifth Amendment") is
dated as of the 22nd day of March, 1999 and entered into among METRO NETWORKS,
INC., a Delaware corporation (the "Borrower"), the Lenders party hereto, and
BANK OF AMERICA, a national banking association, individually and as
Administrative Lender (successor in interest to NationsBank of Texas, N.A., in
such latter capacity, the "Administrative Lender").
WITNESSETH:
WHEREAS, the Borrower, the Lenders, and the Administrative Lender
entered into a Credit Agreement, dated as of October 22, 1996, for a loan
facility in the amount of $30,000,000 (as amended, restated, waived or otherwise
modified from time to time, including without limitation, the First Amendment
dated September 30, 1997, between the Borrower, the Lenders party thereto, and
the Administrative Lender, the Second Amendment dated December 31, 1997 between
the Borrower, the Lenders party thereto and the Administrative Lender, the Third
Amendment dated January 1, 1998 between the Borrower, the Lenders party thereto
and the Administrative Lender, and the Fourth Amendment dated July 1, 1998
between the Borrower, the Lenders party thereto and the Administrative Lender,
the "Credit Agreement"); and
WHEREAS, the Lenders, the Administrative Lender, and the Borrower have
agreed to amend the Credit Agreement to make certain changes to the terms
therein upon the terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower, the Lenders and the Administrative Lender agree as follows:
SECTION 1. Definitions. The definition of "Fixed Charges" shall
be amended and restated in its entirety as follows:
"Fixed Charges" shall mean, for the Borrower and the Subsidiaries on a
combined basis determined in accordance with GAAP, for the four most recently
ended fiscal quarters preceding any date of determination, an amount equal to
the sum of (a) all payments of principal, interest, fees and other amounts paid
on all Indebtedness, plus (b) all payments under Capitalized Leases, plus (c)
all Capital Expenditures(other than Capital Expenditures incurred in connection
with an Acquisition which is permitted pursuant to the terms hereof), plus (d)
cash expenditures for the payment of taxes. For purpose of calculation of Fixed
Charges with respect to any Subsidiary not owned at all times during the four
fiscal quarters preceding the date of determination of Fixed Charges there shall
be (i) included in Fixed Charges the Fixed Charges of any Subsidiary acquired
during any of such four fiscal quarters for the twelve month period preceding
the date of determination and (ii) excluded from Fixed Charges the Fixed Charges
of any Subsidiary disposed of during any of such four fiscal quarters for the
twelve month period preceding the date of determination.
<PAGE> 2
SECTION 2. Amendment to Section 7.6 of the Credit Agreement.
Section 7.6 is hereby amended to read in its entirety as follows:
The Borrower shall not, and shall not permit any Subsidiary to
make single Acquisitions, except for Acquisitions the
Acquisition Consideration for which does not exceed
$50,000,000, and so long as in any fiscal year the aggregate
Acquisition Consideration paid by the Borrower and the
Subsidiaries for all Acquisitions during such fiscal year does
not exceed $100,000,000, if (A) for single Acquisitions which
exceed $5,000,000 each Lender receives not later than 30 days
immediately following the closing of the Acquisitions
financial projections in form and substance acceptable to the
Lenders and a Compliance Certificate in the form required by
Section 6.3 hereof demonstrating compliance with (i) the
covenants described in Section 6.3(a) hereof and (ii) the
required repayments as a result of the reductions in the
Commitment set forth in Section 2.6(c) hereof, each both
before and after giving effect to such acquisition and for the
period beginning on such date of acquisition and ending on the
Maturity Date, (B) no Default or Event of Default shall exist
prior to or after such Acquisition, (C) the Person who is, or
whose assets are being, acquired is engaged in businesses
similar to the Borrower's Business, and (D) the Subsidiary
being acquired becomes party to a Subsidiary Guaranty.
SECTION 3. Addition of Section 7.19 of the Credit Agreement.
Section 7.19 is hereby added and shall read in its entirety as follows:
Section 7.19. Washington News Networks, Inc. Notwithstanding
anything contained in this Agreement to the contrary, the
Borrower and its Subsidiaries shall not be entitled to
distribute proceeds of Advances or make any Dividends to
Washington News Networks, Inc. ("WNN") in excess of $5,000,000
in the aggregate throughout the term of this Agreement. In
addition, WNN shall be excluded from the determination of
compliance with the financial covenants contained in Article
VII of the Credit Agreement.
SECTION 3. Affirmation. The Borrower hereby acknowledges and
agrees that nothing in this Fifth Amendment shall affect the Borrower's
obligations under the Credit Agreement or the other Loan Documents executed in
connection therewith (except as specifically provided in this Fifth Amendment),
which remain valid, binding and enforceable, and except as amended hereby,
unamended, or shall constitute a waiver by the Lenders of any of their rights or
remedies, now or at any time in the future, with respect to any requirement
under the Credit Agreement or the other Loan Documents or with respect to an
Event of Default or Default, occurring now or at any time in the future.
SECTION 4. Conditions Precedent. This Fifth Amendment shall not
be effective until:
2
<PAGE> 3
(a) all proceedings of the Borrower taken in connection
with this Fifth Amendment and the transactions contemplated hereby
shall be satisfactory in form and substance to the Administrative
Lender and Lenders signatory hereto; and
(b) the Administrative Lender and Lenders shall have each
received such documents, instruments, and certificates, etc., each in
form and substance satisfactory to the Lenders, as the Lenders shall
deem necessary or appropriate in connection with this Fifth Amendment
and the transactions contemplated hereby.
SECTION 5. Representations and Warranties. The Borrower
represents and warrants to the Lenders and the Administrative Lender that (a)
the Borrower has the corporate power and has taken all necessary corporate
action, to authorize it to enter into and deliver this Fifth Amendment and all
related documentation, (b) this Fifth Amendment constitutes its legal, valid,
and binding obligations, enforceable in accordance with the terms hereof
(subject as to enforcement of remedies to any applicable bankruptcy,
reorganization, moratorium, or other laws or principles of equity affecting the
enforcement of creditors' rights generally), (c) there exists no Event of
Default or Default under the Credit Agreement after giving effect to this Fifth
Amendment, (d) its representations and warranties set forth in the Credit
Agreement and other Loan Documents are true and correct on the date hereof after
giving effect to this Fifth Amendment, (e) it has complied with all agreements
and conditions to be complied with by it under the Credit Agreement and the
other Loan Documents by the date hereof, (f) the Credit Agreement, as amended
hereby, and the other Loan Documents, including without limitation the
Subsidiary Guaranties but excluding the Security Agreements and the Pledge
Agreements, remain in full force and effect, and (g) no notice to, or consent
of, any Person is required under the terms of any agreement of the Borrower in
connection with the execution of this Fifth Amendment and the transactions
contemplated hereby, except such notices that have been given or consents that
have been obtained.
SECTION 6. Further Assurances. The Borrower shall execute and
deliver such further agreements, documents, instruments, and certificates in
form and substance satisfactory to the Administrative Lender, as the
Administrative Lender or any Lender may deem reasonably necessary or appropriate
in connection with this Fifth Amendment. Lenders hereby release their Liens
securing the Obligations and Lenders hereby give the Administrative Lender the
authority to execute all documents necessary to effect such release. The
Guaranty executed by Washington News Networks, Inc. ("WNN"), the Borrower
Security Agreements, the Subsidiary Security Agreements, the Subsidiary Pledge
Agreements, and the Borrower Pledge Agreement are hereby null and void.
Notwithstanding anything contained herein to the contrary, all other Guaranties
securing the Obligations shall remain in full force and effect.
SECTION 7. Counterparts. This Fifth Amendment and the other Loan
Documents may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument. In making proof of any
such agreement, it shall not be necessary to produce or account for any
counterpart other than one signed by the party against which enforcement is
sought.
3
<PAGE> 4
SECTION 8. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(B), TITLE
79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE
PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS
AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AGREES THAT
THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE
JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS FIFTH AMENDMENT AND THE
OTHER LOAN DOCUMENTS.
SECTION 9. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY
AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS FIFTH
AMENDMENT AND MAKING ANY ADVANCES HEREUNDER.
SECTION 10. ENTIRE AGREEMENT. THIS FIFTH AMENDMENT TOGETHER
WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
================================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
================================================================================
4
<PAGE> 5
IN WITNESS WHEREOF, this Fifth Amendment to Credit Agreement is
executed as of the date first set forth above.
BORROWER: METRO NETWORKS, INC.
/s/ TIMOTHY D. MCMILLIN
-----------------------------------
By: Timothy D. McMillin
Its: Senior Vice President
ADMINISTRATIVE LENDER: BANK OF AMERICA,
as Administrative Lender
(successor in interest to
NationsBank of Texas, N.A.)
/s/ MATTHEW J. KOENIG
-----------------------------------
By: Matthew J. Koenig
--------------------------------
Its: Vice President
-------------------------------
LENDERS: BANK OF AMERICA, as a Lender
(successor in interest to
NationsBank of Texas, N.A.)
/s/ MATTHEW J. KOENIG
-----------------------------------
By: Matthew J. Koenig
--------------------------------
Its: Vice President
-------------------------------
THE BANK OF NOVA SCOTIA, as a Lender
/s/ PAUL A. WEISSENBERGER
-----------------------------------
By: P. A. Weissenberger
--------------------------------
Its:
-------------------------------
5
<PAGE> 6
The undersigned Guarantors hereby acknowledge and agree to the terms of this
Fifth Amendment and confirm that their Guaranties remain in full force and
effect and valid, binding and enforceable.
METRO NETWORKS SERVICES, INC.
/s/ TIMOTHY D. MCMILLIN
-----------------------------------
By: Timothy D. McMillin
Its: Senior Vice President
METRO NETWORKS COMMUNICATIONS,
LIMITED PARTNERSHIP
BY: METRO NETWORKS
COMMUNICATIONS, INC.
a Maryland corporation
By: TIMOTHY D. MCMILLIN
-----------------------
Its: Senior Vice President
6
<PAGE> 1
EXHIBIT 21.1
METRO NETWORKS, INC.
SUBSIDIARIES OF THE COMPANY
FISCAL 1998
The following is a list of subsidiaries of Metro Networks, Inc. (the
Parent) as of December 31, 1998. Unless otherwise noted, all subsidiaries are
100% owned by the Parent Company.
Metro Networks, Inc. - Incorporated in the State of Delaware
Metro Networks Communications, Inc., formerly Metro Traffic Control, Inc. -
Incorporated in the State of Maryland
Metro Networks Services, Inc. - Incorporated in the State of Delaware
Metro Networks Communications, Limited Partnership - Delaware Limited
Partnership
Washington News Networks, Inc. - Incorporated in the District of Columbia
(80% owned)
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Metro Networks, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-23561 and No. 333-32549) on Form S-8 of Metro Networks, Inc. of our report
dated March 9, 1999 relating to the consolidated balance sheets of Metro
Networks, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, cash flows and stockholders'
equity/partners' capital for each of the years in the three-year period ended
December 31, 1998, which report appears in the December 31, 1998 annual report
on Form 10-K of Metro Networks, Inc. and subsidiaries.
KPMG LLP
Houston, Texas
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 21,241
<SECURITIES> 331
<RECEIVABLES> 63,739
<ALLOWANCES> 1,038
<INVENTORY> 730
<CURRENT-ASSETS> 88,244
<PP&E> 45,292
<DEPRECIATION> 15,412
<TOTAL-ASSETS> 139,087
<CURRENT-LIABILITIES> 28,471
<BONDS> 0
0
3
<COMMON> 17
<OTHER-SE> 108,784
<TOTAL-LIABILITY-AND-EQUITY> 139,087
<SALES> 172,132
<TOTAL-REVENUES> 172,132
<CGS> 118,081
<TOTAL-COSTS> 139,150
<OTHER-EXPENSES> 1,144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> 34,013
<INCOME-TAX> 13,659
<INCOME-CONTINUING> 20,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,354
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.20
</TABLE>
