<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21575
METRO NETWORKS, INC.
(Exact name of registrant as specified in charter)
Delaware 76-0505148
(State of incorporation) (IRS Employer Identification No.)
2800 Post Oak Blvd., Suite 4000 77056-6199
Houston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 407-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. [x] Yes [ ] No
Shares of common stock outstanding at July 31, 1999: 16,737,148
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Metro Networks, Inc.
Index
Page
Number
------
Part I - Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets .............................. 2
Consolidated Statements of Earnings ...................... 3
Condensed Consolidated Statements of Cash Flows .......... 4
Consolidated Statement of Stockholders' Equity ........... 5
Notes to Consolidated Financial Statements ............... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ....... 8
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds ............... 11
Item 4. Submission of Matters to a Vote of Security Holders ..... 11
Item 6. Exhibits and Reports on Form 8-K ........................ 12
<PAGE> 3
Metro Networks, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 27,837 $ 21,241
Short-term marketable investments 258 331
Accounts receivable, net 50,136 52,429
Reciprocal receivables, net 14,076 11,310
Merchandise and scrip inventory 1,001 730
Other 3,176 2,203
--------- ---------
Total current assets 96,484 88,244
--------- ---------
Property and Equipment, net 30,587 29,880
Purchased Broadcast Contracts and Other Intangibles,
Net of Accumulated Amortization of $17,833 and $15,545 17,355 19,500
Other Assets 1,285 1,463
--------- ---------
$ 145,711 $ 139,087
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,471 $ 4,937
Notes payable 206 510
Reciprocal payables and accrued liabilities 11,313 11,055
Accrued liabilities 7,828 9,666
Income taxes payable 3,352 1,874
Current portion of long-term debt 370 429
--------- ---------
Total current liabilities 24,540 28,471
Long-Term Debt 11 53
Other 1,409 1,759
--------- ---------
Total liabilities 25,960 30,283
--------- ---------
Stockholders' Equity
Preferred stock, $.001 par value (authorized 10,000,000 shares) 3 3
Common stock, $.001 par value (authorized 25,000,000 shares) 17 17
Additional paid-in capital 76,969 74,689
Retained earnings 43,661 34,920
Accumulated other comprehensive loss - net unrealized
depreciation of equity investments (899) (825)
--------- ---------
119,751 108,804
--------- ---------
$ 145,711 $ 139,087
========= =========
</TABLE>
- ------------------------
The accompanying notes are an integral part of these financial statements.
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Metro Networks, Inc. and Subsidiaries
Unaudited Consolidated Statements of Earnings
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------------------
1999 1998 1999 1998
-------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 49,339 $ 42,950 $ 91,347 $ 77,342
Operating Costs and Expenses
Broadcasting
22,891 20,563 47,828 40,153
Marketing
9,245 7,716 17,935 15,172
General and administrative
2,513 3,129 5,549 5,854
Depreciation and amortization
2,984 2,474 5,714 4,845
-------- -------- -------- --------
37,633 33,882 77,026 66,024
-------- -------- -------- --------
Total Operating Earnings
11,706 9,068 14,321 11,318
Other (Income) Expense
Interest income (219) (238) (452) (461)
Interest expense
15 32 31 95
Other
142 (21) 180 (117)
-------- -------- -------- --------
(62) (227) (241) (483)
-------- -------- -------- --------
Earnings Before State and Federal Income Taxes 11,768 9,295 14,562 11,801
State and Federal Income Taxes
4,702 3,722 5,821 4,774
-------- -------- -------- --------
Net Earnings $ 7,066 $ 5,573 $ 8,741 $ 7,027
======== ======== ======== ========
Basic Earnings Per Share $ .42 $ .34 $ .52 $ .44
======== ======== ======== ========
Basic Average Common Shares Outstanding 16,729 16,588 16,707 16,588
======== ======== ======== ========
Diluted Earnings Per Share $ .41 $ .33 $ .50 $ .42
======== ======== ======== ========
Diluted Average Common Shares Outstanding 17,378 16,965 17,335 16,927
======== ======== ======== ========
</TABLE>
- ----------------------------------------
The accompanying notes are an integral part of these financial statements.
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Metro Networks, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Operating Activities
Net Earnings $ 8,741 $ 7,027
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 5,714 4,845
Deferred federal income taxes -- 360
Provision for doubtful accounts 651 747
Loss on dispositions of property and equipment 12 26
Changes in operating assets and liabilities (6,311) (11,097)
-------- --------
Cash provided by operating activities 8,807 1,908
-------- --------
Investing Activities
Additions to property and equipment (4,065) (5,091)
Purchases of marketable securities -- (379)
Proceeds from sale of property and equipment 3 90
Purchases of other investments (25) (350)
Acquisitions of companies -- (2,460)
-------- --------
Cash used for investing activities
(4,087) (8,190)
-------- --------
Financing Activities
Repayments of long-term debt (404) (814)
Proceeds from long-term borrowing -- 937
Proceeds from issuance of common stock 2,280 195
-------- --------
Cash provided by financing activities 1,876 318
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 6,596 (5,964)
Cash and Cash Equivalents
Beginning of period 21,241 25,087
-------- --------
End of period $ 27,837 $ 19,123
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 31 $ 94
Cash paid during the period for state and federal income taxes $ 4,343 $ 4,047
Supplemental Noncash Investing and Financing Activities
Property and equipment acquired through reciprocal activities $ 84 $ 226
</TABLE>
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The accompanying notes are an integral part of these financial statements.
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Metro Networks, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PREFERRED COMMON PAID-IN COMPREHENSIVE RETAINED
DOLLAR AMOUNTS STOCK STOCK CAPITAL LOSS EARNINGS TOTAL
- -------------- --------- -------- ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $ 3 $ 17 $ 74,689 $ (825) $ 34,920 $ 108,804
Balance of stock under Stock Option
Plan -- -- 2,091 -- -- 2,091
Issuance of stock under Stock Purchase
Plan -- -- 189 -- -- 189
Net earnings -- -- -- -- 8,741 8,741
Other comprehensive loss -- -- -- (74) -- (74)
---------
Comprehensive income -- -- -- -- -- 8,667
-------- -------- ------------ ------------- --------- ---------
BALANCE, JUNE 30, 1999 $ 3 $ 17 $ 76,969 $ (899) $ 43,661 $ 119,751
======== ======== ============ ============= ========= =========
</TABLE>
====================================================
<TABLE>
<CAPTION>
SHARES ISSUED
----------------------------
PREFERRED COMMON
SHARE AMOUNTS STOCK STOCK
----------- -------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1998 2,549,750 16,622,447
Issuance of stock under Stock Purchase Plan -- 4,680
Issuance of stock under Stock Option Plan -- 110,021
--------- -----------
BALANCE, JUNE 30, 1999 2,549,750 16,737,148
========= ===========
</TABLE>
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<PAGE> 7
METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have
been prepared by Metro Networks, Inc. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. The information furnished in this report
reflects all adjustments which, in the opinion of management, are
necessary for a fair statement of the financial position, results of
operations and cash flows as of and for the interim periods. Such
adjustments consist of items of a normal recurring nature. The results
of operations for the interim periods are not necessarily indicative of
the results of operations expected for the full fiscal year or for any
other future period. Certain reclassifications have been made to prior
year amounts to conform to current year presentation. These financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's December 31, 1998
Annual Report on Form 10K.
2. MERGER
On June 1, 1999, the Company, Westwood One, Inc. ("Westwood") and
Copter Acquisition Corp. ("Copter"), a wholly owned subsidiary of
Westwood, entered into an Agreement and Plan of Merger, pursuant to
which Copter will be merged with and into the Company (the "Merger")
with the Company surviving the Merger as a wholly-owned subsidiary of
Westwood. Upon consummation of the Merger, each outstanding share of
the Company's common stock and Series A convertible preferred stock
will entitle the holder thereof to 1.5 shares of Westwood common stock
and preferred stock, respectively. The Merger is subject to stockholder
approval of both the Company and Westwood. Although there can be no
assurance, the Company expects that the Merger will be consummated in
the third quarter or early fourth quarter of 1999.
3. RELATED PARTY TRANSACTIONS
Prior to the October 1996 Public Offering, the Company entered into
certain reciprocal arrangements with unrelated third parties as a
result of which the Company received goods and services for the benefit
of the controlling shareholder. The reciprocal arrangements obligate
the Company to provide commercial airtime, provide other goods and
services, and make cash disbursements to such third parties in exchange
for the goods and services received by the Company. The dollar values
of such arrangements have typically been calculated based upon the
Company's estimate of the fair market value of the commercial airtime
inventory involved on a basis similar to others in the
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broadcast industry. As of June 30, 1999, the Company was obligated to
provide approximately $418,000 of commercial airtime, goods and
services and cash under these reciprocal arrangements.
4. Earning Per Common Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted computations for the quarters and six months
ended June 30, 1999 and 1998 (in thousands, except per share data).
<TABLE>
<CAPTION>
For the Quarters Ended
------------------------------------------
Weighted
Average Shares Per Share
Income Outstanding Amount
-------- ----------- --------
<S> <C> <C> <C>
June 30, 1999:
Basic EPS
Income available to common stockholders $ 7,066 16,729 $ 0.42
Effect of Dilutive Securities
Options -- 649 .01
-------- ----------- --------
Diluted EPS
Income available to stockholders plus assumed conversion $ 7,066 17,378 $ 0.41
======== =========== ========
June 30, 1998:
Basic EPS
Income available to common stockholders $ 5,573 16,588 $ 0.34
Effect of Dilutive Securities
Options -- 377 .01
-------- ----------- --------
Diluted EPS
Income available to stockholders plus assumed conversion $ 5,573 16,965 $ 0.33
======== =========== ========
For the Six Months Ended
------------------------
June 30, 1999:
Basic EPS
Income available to common stockholders $ 8,741 16,707 $ 0.52
Effect of Dilutive Securities
Options
-- 628 .02
-------- ----------- --------
Diluted EPS
Income available to stockholders plus assumed conversion $ 8,741 17,335 0.50
======== =========== ========
June 30, 1998:
Basic EPS
Income available to common stockholders $ 7,027 16,588 $ 0.42
Effect of Dilutive Securities
Options -- 339 --
-------- ----------- --------
Diluted EPS
Income available to stockholders plus assumed conversion $ 7,027 16,927 $ 0.42
======== =========== ========
</TABLE>
-7-
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
Revenues increased by $6.3 million to $49.3 million, or 14.9%, in the
second quarter of 1999 and $14.0 million to $91.3 million, or 18.1%, for the
first six months of 1999. The increase in revenue is primarily due to increased
sales of commercial airtime inventory. Revenues from reciprocal agreements were
$2.6 million and $4.8 million in the second quarter and first six months of
1999, compared to $1.7 million and $3.8 million for the same periods of last
year. As a percentage of total revenues, revenues from reciprocal agreements
increased to 5.3% of total revenues in the second quarter and first six months
of 1999 compared to 3.9% and 4.9% for the same periods last year.
Total operating costs (broadcasting and marketing costs) increased by
$3.9 million to $32.1 million, or 13.6%, and $10.4 million to $65.7 million, or
18.9%, respectively, in the second quarter and first six months of 1999, when
compared to the same periods last year. As a percentage of revenues, total
operating costs were 65.1% and 72.0% in the second quarter and first six months
of 1999, compared to 65.8% and 71.5% for the same periods last year. The
increase in costs are primarily due to the Company's continued development of
its Metro Source product, Expanded Radio Services, Metro Television Services and
various acquisitions which the Company completed in 1998.
General and administrative expenses decreased by $.6 million to $2.5
million, or 19.7%, and $.4 million to $5.5 million, or 5.2%, respectively, in
the second quarter and first six months of 1999 when compared to the same period
last year. As a percentage of revenues, general and administrative expenses
decreased to 5.1% and 6.1% in the second quarter and first six months of 1999,
compared to 7.3% and 7.6% for the same period last year.
Earnings before interest income, interest expense, other, taxes,
depreciation and amortization (EBITDA) increased by $3.1 million, or 27.3%, to
$14.7 million in the second quarter compared to $11.5 million in second quarter
of 1998. For the six months ended June 30, 1999, EBITDA increased approximately
$3.8 million, or 24.0% to $20.0 million, compared to $16.2 million for the same
period last year. The increase in EBITDA was primarily attributable to continued
revenue growth. EBITDA as a percentage of revenue was 29.8% and 21.9% for the
second quarter and six months ended June 30, 1999, respectively.
The Company recorded second quarter 1999 net income of $7.1 million,
compared to $5.6 million in the second quarter of 1998, or an increase of 26.8%.
Diluted earnings per share for the three months and six months ended June 30,
1999 were $.41 and $.50, respectively.
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FINANCIAL CONDITION
Cash and cash equivalents increased $6.6 million from $21.2 million to
$27.8 million for the six months ended June 30, 1999. Cash provided by operating
activities increased $6.9 million to $8.8 million for the six months ended June
30, 1999, when compared to the same period last year, primarily due to changes
in operating assets and liabilities as well as increased earnings for the
period. Cash used for investing activities decreased by $4.1 million to $4.1
million for the first six months of 1999 when compared to the same period last
year, primarily due to a decrease in acquisitions of companies and capital
purchases of property and equipment. Cash provided by financing activities
increased by $1.6 million, primarily due to the issuance of common stock
associated with the exercise of stock options.
The maximum aggregate permitted borrowings under the Credit Agreement
is $27.0 million. As of June 30, 1999, the Company had no debt outstanding under
the Credit Agreement.
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 operations.
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.
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<PAGE> 11
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
intends to evaluate such vendors' and suppliers' 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 October 31,
1999 in conjunction with the completion of its assessment, remediation, testing
and certification phases.
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.
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<PAGE> 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and 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.
Item 4. Submission of Matters to a Vote of Security Holders
On June 9, 1999, the Company held its annual meeting of
shareholders. At the annual meeting, the shareholders elected two Class
III Directors to serve until the 2002 annual meeting. The results of
the voting were as follows:
NAME FOR WITHHELD
Shane E. Coppola 17,210,345 41,951
James A. Arcara 17,210,355 41,941
Dennis F. Holt 17,210,355 41,941
The remaining directors of the Company are David I.
Saperstein, Charles I. Bortnick, Gary L. Worobow, Kenin H. Spivak
and Robert M. Miggins.
In addition, the shareholders ratified and approved the
appointment of KPMG LLP, for the fiscal year ended December 31, 1999.
The results of the voting were as follows:
FOR AGAINST WITHHELD
17,245,804 6,178 314
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Item 6. Exhibits and Reports on Form 8-K
Exhibit
No.
-------
27.1 Financial Data Schedule.
A current report on Form 8-K (Item 5) dated June
1, 1999, regarding the merger of the Company with
Westwood One, Inc. and Copter Acquisition Corp.,
a wholly owned subsidiary of Westwood.
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<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
METRO NETWORKS, INC.
(Registrant)
Dated: August 10, 1999 By: /S/Timothy D. McMillin
------------------ ----------------------
Timothy D. McMillin
Senior Vice President
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
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<PAGE> 15
EXHIBIT INDEX
Exhibit
No.
- -------
27.1 Financial Data Schedule.
A current report on Form 8-K (Item 5) dated June
1, 1999, regarding the merger of the Company with
Westwood One, Inc. and Copter Acquisition Corp.,
a wholly owned subsidiary of Westwood.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 27,837
<SECURITIES> 258
<RECEIVABLES> 64,212
<ALLOWANCES> 1,284
<INVENTORY> 1,001
<CURRENT-ASSETS> 96,484
<PP&E> 49,421
<DEPRECIATION> 18,834
<TOTAL-ASSETS> 145,711
<CURRENT-LIABILITIES> 24,540
<BONDS> 0
0
3
<COMMON> 17
<OTHER-SE> 119,731
<TOTAL-LIABILITY-AND-EQUITY> 145,711
<SALES> 91,347
<TOTAL-REVENUES> 91,347
<CGS> 65,763
<TOTAL-COSTS> 77,026
<OTHER-EXPENSES> 211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 14,562
<INCOME-TAX> 5,821
<INCOME-CONTINUING> 8,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,741
<EPS-BASIC> .52
<EPS-DILUTED> .50
</TABLE>
