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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 MARCH 31, 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 APRIL 30, 1999: 16,727,404
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METRO NETWORKS, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
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 6. Exhibits and Reports on Form 8-K ................................................... 11
</TABLE>
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Metro Networks, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 25,262 $ 21,241
Short-term marketable investments 290 331
Accounts receivable, net 44,936 52,429
Reciprocal receivables, net 13,366 11,310
Merchandise and scrip inventory 1,035 730
Other 2,397 2,203
----------- -----------
Total current assets 87,286 88,244
----------- -----------
PROPERTY AND EQUIPMENT, NET 30,332 29,880
PURCHASED BROADCAST CONTRACTS AND OTHER INTANGIBLES,
NET OF ACCUMULATED AMORTIZATION OF $16,665 AND $15,545 18,456 19,500
OTHER ASSETS 1,324 1,463
----------- -----------
$ 137,398 $ 139,087
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,637 $ 4,937
Notes payable 427 510
Reciprocal payables and accrued liabilities 12,327 11,055
Accrued liabilities 7,451 11,540
Current portion of long-term debt 380 429
----------- -----------
Total current liabilities 23,222 28,471
LONG-TERM DEBT 37 53
DEFERRED INCOME TAXES 1,044 1,044
OTHER 715 715
----------- -----------
Total liabilities 25,018 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 76,631 74,689
Retained earnings 36,595 34,920
Accumulated other comprehensive loss - net unrealized
depreciation of equity investments (866) (825)
----------- -----------
112,380 108,804
----------- -----------
$ 137,398 $ 139,087
=========== ===========
</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 STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES $ 42,008 $ 34,392
OPERATING COSTS AND EXPENSES
Broadcasting 24,937 19,591
Marketing 8,690 7,456
General and administrative 3,036 2,724
Depreciation and amortization 2,730 2,371
---------- ----------
39,393 32,142
---------- ----------
TOTAL OPERATING EARNINGS
2,615 2,250
OTHER (INCOME) EXPENSE
Interest income (233) (223)
Interest expense 16 63
Other 38 (95)
---------- ----------
(179) (255)
---------- ----------
EARNINGS BEFORE STATE AND FEDERAL INCOME TAXES 2,794 2,505
STATE AND FEDERAL INCOME TAXES 1,119 1,052
---------- ----------
NET EARNINGS $ 1,675 $ 1,453
========== ==========
BASIC EARNINGS PER SHARE $ .10 $ .09
========== ==========
BASIC AVERAGE COMMON SHARES OUTSTANDING 16,684 16,587
========== ==========
DILUTED EARNINGS PER SHARE $ .10 $ .09
========== ==========
DILUTED AVERAGE COMMON SHARES OUTSTANDING 17,301 16,891
========== ==========
</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 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 1,675 $ 1,453
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 2,730 2,379
Deferred federal income taxes -- 125
Provision for doubtful accounts 388 197
Loss on dispositions of property and equipment -- 8
Changes in operating assets and liabilities (591) (1,202)
----------- -----------
Cash provided by operating activities 4,202 2,960
----------- -----------
INVESTING ACTIVITIES
Additions to property and equipment (1,953) (2,578)
Purchases of marketable securities -- (379)
Proceeds from sale of property and equipment 3 65
Purchases on other investments (25)
Acquisitions of companies -- (1,000)
----------- -----------
Cash used for investing activities (1,975) (3,892)
----------- -----------
FINANCING ACTIVITIES
Repayments of long-term debt (148) (506)
Proceeds from issuance of common stock 1,942 16
----------- -----------
Cash provided by (used) for financing activities 1,794 (490)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,021 (1,422)
CASH AND CASH EQUIVALENTS
Beginning of period 21,241 25,087
----------- -----------
End of period $ 25,262 $ 23,665
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 16 $ 36
Cash paid during the period for state and federal income taxes $ 3,504 $ 586
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired through reciprocal activities $ 80 $ 99
</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 Three Months Ended March 31, 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
Issuance of stock under Stock Option Plan -- -- 1,942 -- -- 1,942
Net earnings -- -- -- -- 1,675 1,675
Other comprehensive loss -- -- -- (41) -- (41)
---------
Comprehensive income -- -- -- -- -- 1,634
--------- --------- --------- --------- --------- ---------
$ 3 $ 17 $ 76,631 $ (866) $ 36,595 $ 112,380
BALANCE, MARCH 31, 1999 ========= ========= ========= ========= ========= =========
</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 -- --
Issuance of stock under Stock Option Plan
-- 104,957
---------- ----------
BALANCE, MARCH 31, 1999 2,549,750 16,727,404
========== ==========
</TABLE>
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METRO NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have
been prepared by Metro Networks, Inc. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote 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. RELATED PARTY TRANSACTIONS
Prior to the October 1996 Public Offering, the Company entered into
certain reciprocal arrangements with unrelated third parties as a
result of which the Company received goods and services for the
benefit of the controlling shareholder. The reciprocal arrangements
obligate the Company to provide commercial airtime, provide other
goods and services, and make cash disbursements to such third parties
in exchange for the goods and services received by the Company. The
dollar values of such arrangements have typically been calculated
based upon the Company's estimate of the fair market value of the
commercial airtime inventory involved on a basis similar to others in
the broadcast industry. As of March 31, 1999, the Company was
obligated to provide approximately $424,000 of commercial airtime,
goods and services and cash under these reciprocal arrangements.
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3. EARNING PER COMMON SHARE
The following is a reconciliation of the numerators and denominators
of the basic and diluted computations for the three months ended March
31, 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>
MARCH 31, 1999:
BASIC EPS
Income available to common stockholders $ 1,675 16,684 $ 0.10
EFFECT OF DILUTIVE SECURITIES
Options
-- 617 --
---------- ---------- ----------
DILUTED EPS
Income available to stockholders plus assumed conversion $ 1,675 17,301 $ 0.10
========== ========== ==========
MARCH 31, 1998:
BASIC EPS
Income available to common stockholders $ 1,453 16,587 $ 0.09
EFFECT OF DILUTIVE SECURITIES
Options -- 304 --
---------- ---------- ----------
DILUTED EPS
Income available to stockholders plus assumed conversion $ 1,453 16,891 $ 0.09
========== ========== ==========
</TABLE>
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<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED MARCH 31, 1999
RESULTS OF OPERATIONS
Revenues increased by $7.6 million to $42.0 million, or 22.1%, in the
first quarter of 1999. The increase in revenue is primarily due to increased
sales of commercial airtime inventory. Revenues from reciprocal agreements were
$2.2 million in the first quarter of 1999, compared to $2.1 million for the
same period of last year. As a percentage of total revenues, revenues from
reciprocal agreements decreased to 5.3% of total revenues in the first quarter
of 1999 compared to 6.2% for the same period last year.
Total operating costs (broadcasting and marketing costs) increased by
$6.6 million to $33.6 million, or 24.3%, in the first quarter of 1999, when
compared to the same period last year. As a percentage of revenues, total
operating costs were 80.1% in the first quarter of 1999, compared to 78.6% for
the same period 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 increased $0.3 million to $3.0
million, or 11.5% in the first quarter of 1999 when compared to the same period
last year. As a percentage of revenues, general and administrative expenses
decreased to 7.2% in the first quarter of 1999, compared to 7.9% for the same
period last year.
Earnings before interest income, interest expense, other, taxes,
depreciation and amortization (EBITDA) increased by $0.7 million, or 15.7%, to
$5.3 million in the first quarter compared to $4.6 million in first quarter of
1998. The increase in EBITDA was primarily attributable to continued revenue
growth. EBITDA as a percentage of revenue was 12.7% for the first quarter,
compared to 13.4% for the same period last year.
The Company recorded first quarter 1999 net income of $1.7 million,
compared to $1.5 million in the first quarter of 1998, or an increase of 15.3%.
Diluted earnings per share for the three months ended March 31, 1999 were $.10,
an increase of $.01 over the prior year.
FINANCIAL CONDITION
Cash and cash equivalents increased $4.1 million from $21.2 million to
$25.3 million for the three months ended March 31, 1999. Cash provided by
operating activities increased $1.2 million to $4.2 million for the three
months ended March 31, 1999, when compared to the same period last year,
primarily due to changes in operating assets and liabilities for the period.
Cash used for investing activities decreased by $1.9 million to $2.0 million
for the first three months of 1999 when compared to the same period last year,
primarily due to a decrease in acquisitions
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and capital purchases of property and equipment. Cash provided by financing
activities increased by $2.3 million due primarily to a reduction in long-term
debt repayments and the issuance of common stock.
The maximum aggregate permitted borrowings under the Company's credit
agreement is $28.5 million. As of March 31, 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.
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
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<PAGE> 11
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 June 30,
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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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, $29,811,0000 for the repayment of
indebtedness, and $1,900,000 for working capital.
Item 6. Exhibits and Reports on Form 8-K
Exhibit
No.
-------
27.1 Financial Data Schedule.
No reports were filed on Form 8-K during the
three-month period ended March 31, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
METRO NETWORKS, INC.
(Registrant)
Dated: May 12, 1999 By: /S/ Timothy D. McMillin
------------------------------
Timothy D. McMillin
Senior Vice President
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No.
- -------
<S> <C>
27.1 Financial Data Schedule.
No reports were filed on Form 8-K during the three-month period
ended March 31, 1999.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 25,262
<SECURITIES> 290
<RECEIVABLES> 58,302
<ALLOWANCES> 1,447
<INVENTORY> 1,035
<CURRENT-ASSETS> 87,286
<PP&E> 47,321
<DEPRECIATION> 16,989
<TOTAL-ASSETS> 137,398
<CURRENT-LIABILITIES> 23,222
<BONDS> 0
0
3
<COMMON> 17
<OTHER-SE> 112,360
<TOTAL-LIABILITY-AND-EQUITY> 137,398
<SALES> 42,008
<TOTAL-REVENUES> 42,008
<CGS> 33,627
<TOTAL-COSTS> 39,393
<OTHER-EXPENSES> 195
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 2,794
<INCOME-TAX> 1,119
<INCOME-CONTINUING> 1,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,675
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
