<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 28, 1994 Commission File Number
0-13020
WESTWOOD ONE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3980449
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9540 WASHINGTON BLVD., CULVER CITY, CALIFORNIA 90232
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (310) 204-5000
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
------- -------
As of April 1, 1994 30,037,402 shares of Common Stock were outstanding and
351,733 shares of Class B Stock were outstanding.
-1-
<PAGE> 2
WESTWOOD ONE, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION: Page No.
--------
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
-2-
<PAGE> 3
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
February 28, November 30,
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,305 $ 3,868
Accounts receivable, net of allowance for doubtful accounts 18,124 19,480
Programming costs and rights, current portion 7,225 6,849
Other current assets 2,537 2,790
----------- -----------
Total Current Assets 36,191 32,987
PROPERTY AND EQUIPMENT, NET 18,055 15,984
PROGRAMMING COSTS AND RIGHTS 4,049 6,185
INTANGIBLE ASSETS, NET (Note 5) 196,282 90,745
OTHER ASSETS 4,526 6,166
----------- -----------
TOTAL ASSETS $ 259,103 $ 152,067
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,707 $ 13,446
Accrued expenses and other liabilities 18,076 12,838
Current maturities of long-term debt 2,391 1,558
Short-term borrowings (Note 7) - 6,648
----------- -----------
Total Current Liabilities 35,174 34,490
LONG-TERM DEBT (Note 7) 136,784 51,943
OTHER LIABILITIES 11,745 10,483
----------- -----------
TOTAL LIABILITIES 183,703 96,916
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY (Notes 3 and 7):
Preferred stock: authorized 10,000,000 shares, none outstanding - -
Common stock, $.01 par value: authorized, 117,000,000 shares;
issued and outstanding, 26,108,777 (1994) and 15,978,758 (1993) 261 160
Class B stock, $.01 par value: authorized, 3,000,000 shares:
issued and outstanding, 351,733 (1994 and 1993) 4 4
Additional paid-in capital 144,443 110,547
Accumulated deficit (69,308) (55,560)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 75,400 55,151
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 259,103 $ 152,067
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE> 4
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
February 28,
-------------------------
1994 1993
------- -------
<S> <C> <C>
GROSS REVENUES $24,087 $20,046
Less Agency Commissions 3,452 2,909
------- -------
NET REVENUES 20,635 17,137
------- -------
Operating Costs and Expenses Excluding
Depreciation and Amortization 20,461 16,363
Depreciation and Amortization 4,013 4,158
Corporate General and Administrative Expenses 1,125 907
Restructuring Costs (Note 6) 2,405 -
------- -------
28,004 21,428
------- -------
OPERATING LOSS (7,369) (4,291)
Interest Expense 1,479 1,788
Other Income (34) (7)
------- -------
LOSS BEFORE INCOME TAXES, DISCONTINUED
OPERATIONS, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (8,814) (6,072)
INCOME TAXES (NOTE 5) - -
------- -------
LOSS FROM CONTINUING OPERATIONS (8,814) (6,072)
LOSS ON DISCONTINUED OPERATIONS - (3,140)
------- -------
LOSS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (8,814) (9,212)
EXTRAORDINARY ITEM - LOSS ON RETIREMENT OF DEBT (590) -
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (NOTE 5) (4,344) -
------- -------
NET LOSS ($13,748) ($9,212)
======= =======
LOSS PER SHARE:
Continuing Operations ($ .41) ($ .40)
Discontinued Operations - ( .21)
------- -------
Loss Before Extraordinary Item and Cumulative
Effect of Accounting Change ( .41) ( .61)
Extraordinary Item ( .03) -
------- -------
( .44) ( .61)
Cumulative Effect of Accounting Change ( .20) -
------- -------
Net Loss ($ .64) ($ .61)
======= =======
Pro forma amounts assuming the new accounting
method is applied retroactively:
Loss Before Extraordinary Item ($8,814) ($8,989)
Net Loss (9,404) (8,989)
Loss Per Share:
Loss Before Extraordinary Item ($ .41) ($ .60)
Net Loss ( .44) ( .60)
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE> 5
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
February 28,
-------------------------
1994 1993
-------- -------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss ($13,748) ($9,212)
Adjustments to reconcile net loss to net cash provided by operating
activities before cash payments related to extraordinary item:
Cummulative effect of accounting change 4,344 -
Depreciation and amortization 4,013 5,148
Extraordinary item - loss on retirement of debt 590 -
Other 207 462
Changes in assets and liabilities:
Decrease in accounts receivable 1,356 3,735
Increase in prepaid assets (560) (1,005)
Increase (decrease) in accounts payable and accrued liabilities 4,255 (2,581)
-------- -------
Net cash from (used by) operating activities before cash payments 457 (3,453)
related to extraordinary item
Cash payments related to extraordinary item (250) -
-------- -------
Net Cash From (Used By) Operating Activities 207 (3,453)
-------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies (Unistar in 1994) (104,685) (437)
Cash payments related to disposition of discontinued operations (548) -
Capital expenditures (366) (905)
Capitalized programming costs and rights - (951)
Capitalized station affiliation agreements (Note 5) - (288)
Proceeds related to sale of unconsolidated subsidary - 10,249
Other (1,882) (43)
-------- -------
Net Cash Provided (Used) By Investing Activities (107,481) 7,625
-------- -------
CASH PROVIDED (REQUIRED) BEFORE FINANCING ACTIVITIES (107,274) 4,172
-------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Debt repayments (13,648) (6,150)
Borrowings under debt arrangements 110,000 -
Issuance of common stock 15,359 27
Issuance of subordinated debentures - 433
-------- -------
NET CASH FROM (USED IN) FINANCING ACTIVITIES 111,711 (5,690)
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,437 (1,518)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,868 6,455
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,305 $ 4,937
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE> 6
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - Basis of Presentation:
The accompanying consolidated balance sheet as of February 28, 1994,
the consolidated statements of operations and the consolidated statements of
cash flows for the three month periods ended February 28, 1994 and 1993 are
unaudited, but in the opinion of management include adjustments necessary for a
fair presentation of the financial position and the results of operations for
the periods presented.
These financial statements should be read in conjunction with the
Company's Annual Report of Form 10-K, filed with the Securities and Exchange
Commission.
NOTE 2 - Reclassification
Certain amounts in the prior year Statement of Operations and
Statement of Cash Flows have been reclassified to conform to the current year
presentation.
NOTE 3 - Earnings Per Share:
Net loss per share is computed based upon the weighted average number
of shares outstanding of 21,547 and 15,003 for the three month periods ended
February 28, 1994 and 1993, respectively.
NOTE 4 - Acquisition of Unistar Radio Networks, Inc:
On February 3, 1993, the Company completed the acquisition of all of
the issued and outstanding capital stock of Unistar Radio Networks, Inc.
("Unistar"). The acquisition was accounted for as a purchase. Accordingly,
the operating results of Unistar are included with those of the Company from
the date of acquisition. Based on a preliminary purchase price allocation, the
purchase price has been allocated to the fair value of assets and liabilities
acquired. The excess of cost over net assets of acquired company resulting
from the transaction is being amortized over 40 years.
The pro forma unaudited combined condensed results of operations of
the Company and Unistar for the three months ended February 28, 1994 and 1993
(presented as though the combination had occurred on December 1, 1992 after
giving effect to certain pro forma adjustments) are as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Net Revenues $29,441 $28,999
Loss from Continuing Operations 6,834 9,040
Loss Per Share from
Continuing Operations $ .23 $ .31
</TABLE>
-6-
<PAGE> 7
The foregoing pro forma results of operations principally reflect
adjusting historical interest expense, depreciation and amortization, the sale
of 5,000 newly issued shares of common stock to a subsidiary of Infinity and
restructuring costs based on the transaction being completed at the beginning
of the periods presented.
NOTE 5 - Accounting Changes:
Effective December 1, 1993, the Company changed its method of
accounting for capitalized station affiliation agreements to expense these
costs as incurred. The Company believes this method is preferable and conforms
to the predominate current industry practice, including Unistar. Accordingly,
the Company recognized the cumulative effect of the change as of December 1,
1993. The non-cash charge to earnings was an expense of $4,344, or $.20 per
share and has been reflected in the accompanying financial statements.
Effective December 1, 1993, the Company adopted SFAS No. 109
"Accounting for Income Taxes" and, under the provisions of the Statement, has
elected not to restate prior years' financial statements. The adoption of SFAS
109 changes the Company's method of accounting for income taxes from the
deferred method, where the effects of timing differences between financial
reporting and taxable income were deferred, to an asset and liability method,
which requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between tax bases and
financial reporting bases of assets and liabilities. There was no effect on
the current period results as a result of this change.
NOTE 6 - Restructuring Costs:
As a result of the Company's February 1994 acquisition of Unistar
Radio Networks, Inc., the Company will consolidate certain facilities and
operations. Accordingly, the Company recorded an expense of approximately
$2,405 for the estimated restructuring charges, including the expected costs of
employee separations, facility consolidations, relocations and related costs.
NOTE 7 - Revolving Credit Facilities and Long-Term Debt:
On February 3, 1994, the Company entered into a new senior loan
agreement with a syndicate of banks (the "Agreement"). The Agreement provides
for a $15,000 revolving facility and $110,000 in term loans which mature on
November 30, 2001. Interest is payable at the prime rate plus an applicable
margin of 1.5% or LIBOR plus an applicable margin of 2.5%, at the Company's
option. Based on the Company's total debt ratio, the applicable margins may be
reduced to as low as .5% for prime rate loans and 1.5% for LIBOR loans.
Principal on the term loans is payable quarterly starting on February 28, 1995.
The agreement contains covenants relating to dividends, liens, indebtedness,
capital expenditures and interest coverage and leverage ratios.
The proceeds of the Loans were used to acquire Unistar and repay its
indebtedness, repay the Company's existing senior debt, and for working
capital.
-7-
<PAGE> 8
At February 28, 1994, the Company did not have any borrowings
outstanding under its $15,000 revolving facility.
During the quarter, $17,325 of Senior Debentures were converted into
4,950 shares of the Company's common stock. On February 11, 1994 the Company
announced its intention to redeem all its outstanding Senior Debentures. As of
February 28, 1994, approximately $13,700 of Senior Debentures were outstanding.
Subsequent to February 28, 1994, substantially all the remaining Senior
Debentures were converted into 3,913 shares of common stock.
NOTE 8 - Discontinued operations:
In fiscal 1993, the Company classified the results of operations from
Radio & Records and its Los Angeles and New York radio stations as discontinued
operations. The Company disposed of these assets during fiscal 1993.
-8-
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share amounts)
On February 3, 1994 the Company completed the acquisition of all of
the issued and outstanding capital stock of the Unistar Radio Networks, Inc.
("Unistar"). The acquisition was accounted for as a purchase, and accordingly,
the operating results of Unistar are included with those of the Company from
the date of acquisition.
Effective December 1, 1993, the Company changed its method of
accounting for capitalized station affiliation agreements and income taxes. In
order to conform to predominate current industry practice, capitalized station
affiliation agreements will be expensed as incurred. SFAS No. 109 "Accounting
for Income Taxes" was adopted by the Company in this quarter. The Company
elected not to restate prior year's financial statements. Adopting SFAS No.
109 did not effect the current period results.
In fiscal 1993, the Company classified the results of operations from
Radio & Records and its Los Angeles and New York radio stations as discontinued
operations. The Company disposed of these assets during fiscal 1993.
RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1994 COMPARED
WITH THREE MONTHS ENDED FEBRUARY 28, 1993
Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenue, which is seasonally low in the
Company's first fiscal quarter, increased 20% to $20,635 in the first quarter
of 1994 from $17,137 in the comparable prior year quarter. The increase in net
revenue was primarily a result of the purchase of Unistar in February 1994.
Operating costs and expenses excluding depreciation and amortization
increased 25% to $20,461 in the first fiscal quarter of 1994 from $16,363 in
the first quarter of 1993. The increase was primarily attributable to the
purchase of Unistar and higher programming expenses.
Depreciation and amortization decreased 3% to $4,013 in the first
quarter of 1994 from $4,158 in the first quarter of 1993. The decrease is
principally attributable to the change in accounting for capitalized station
affiliation agreements as well as lower amortization of production costs,
partially offset by higher depreciation and amortization resulting from the
purchase of Unistar in February 1994.
Corporate general and administrative expenses increased 24% to $1,125
in 1994 from $907 in 1993. The increase is attributable to the Management
Agreement with Infinity Broadcasting Corporation and an additional bonus paid
to the Company's former Chief Financial Officer.
As a result of the purchase of Unistar, the Company accrued
restructuring costs of approximately $2,405 in the first quarter of 1994
principally relating to consolidations of certain facilities and operations.
The effect of the restructuring will be to reduce operating costs in the
future.
-9-
<PAGE> 10
Operating loss increased $3,078, or 72%, to $7,369 in the first fiscal
quarter of 1994 from $4,291 in the same period of 1993. The higher loss is
principally attributable to one-time restructuring costs of approximately
$2,405 and slightly higher operating costs, partially offset by lower
depreciation and amortization. Excluding the effects of the restructuring
costs, operating loss in the first quarter of 1994 increased $673 to $4,964 as
compared to $4,291 in the first quarter of 1993.
Interest expense decreased 17% to $1,479 in the first quarter of 1994
from $1,788 in 1993. The decrease is principally attributable to lower
interest expense on the Company's Senior Debentures due to holders converting
$17,325 of the Senior Debentures to the Company's Common Stock during the
quarter, partially offset by higher debt levels as a result of the purchase of
Unistar.
Loss from continuing operations increased $2,742, or 45%, to $8,814
($.41 per share) in 1994 from $6,072 ($.40 per share) in the first quarter of
1993. Even though the loss from continuing operations increased 45%, the per
share loss from continuing operations increased slightly in the first quarter
of 1994 due to a 44% increase in the weighted average number of shares
outstanding. The increase in weighted average shares was principally due to
the sale of 5,000 shares of Common Stock to a subsidiary of Infinity
Broadcasting Corporation ("Infinity") and the partial conversion of Senior
Debentures to Common Stock.
In connection with the refinancing of its senior debt facility, the
Company recorded an extraordinary loss of $590 ($.03 per share).
The cumulative effect of the change in accounting principle was an
expense of $4,344, or $.20 per share.
The net loss in the first quarter of 1994 was $13,748, or $.64 per
share. The first quarter 1993 net loss was $9,212, or $.61 per share. On a
pro forma basis, assuming the new accounting principle was applied
retroactively, the Company's net loss would have been $9,404, or $.44 per
share, and $8,989, or $.60 per share, in the first quarters of fiscal 1994 and
1993, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1994, the Company's cash and cash equivalents were
$8,305, an increase of $4,437 from November 30, 1993. In addition, the Company
had available borrowings under its Loans of $15,000.
For the three months ended February 28, 1994 versus the comparable
prior year, net cash from operating activities increased $3,660, principally as
a result of reductions in working capital requirements. Net cash used for
investing activities was $107,481 in 1994 principally due to the purchase of
Unistar in 1994.
-10-
<PAGE> 11
In the first quarter of 1994, the Company entered into a new senior
loan agreement with a syndicate of banks which was comprised of a $15,000
revolving facility and $110,000 in term loans which mature on November 30,
2001. In addition, the Company sold 5,000 shares of Common Stock and a warrant
to purchase up to an additional 3,000 shares of Common Stock at an exercise
price of $3.00 per share (subject to certain vesting conditions) to a
subsidiary of Infinity for $15,000. Proceeds from the loans and Common Stock
sale were used to finance the acquisition of Unistar ($101,300), repay
borrowings outstanding under its previous senior debt agreement ($13,648) and
for working capital. Also in the first quarter of 1994, holders of $17,325 of
Senior Debentures converted their debentures to Common Stock in the quarter.
Subsequent to February 28, 1994, substantially all of the remaining
Senior Debentures (approximately $13,700) were converted into Common Stock.
Management believes that the Company's cash, available borrowings and
anticipated cash flow from operations will be sufficient to finance current and
forecasted operations.
-11-
<PAGE> 12
PART II OTHER INFORMATION
Items 1 through 3
These items are not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) A special meeting of shareholders was held on January 28, 1994.
(b) The matter voted upon involved the authorization to acquire
the Unistar Radio Networks, Inc. and related agreements
including the issuance and sale of 5 million shares of Common
Stock and a warrant to purchase up to an additional 3 million
shares of Common Stock at an exercise price of $3.00 per
share, a Management Agreement between the Company and Infinity
Broadcasting Corporation and a Voting Agreement which includes
increasing the number of board members to nine. The
shareholders vote was as follows (Common Stock and Class B
Stock voted together):
<TABLE>
<S> <C>
FOR 29,950,209
AGAINST 120,161
ABSTAIN 12,210
</TABLE>
Item 5
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
18. Letter regarding change in accounting principles.
(b) Reports on Form 8-K
A report on Form 8-K dated February 3, 1994 was filed with the
Commission on February 14, 1994, relating to the acquisition
of all the issued and outstanding common stock of Unistar
Radio Networks, Inc. from Unistar Communications Group, Inc.
Amendment No.1 to the Form 8-K dated February 3, 1994 was
filed with the Commission on February 15, 1994.
-12-
<PAGE> 13
SIGNATURES
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.
WESTWOOD ONE, INC.
By: FARID SULEMAN
----------------------------------
FARID SULEMAN
Executive Vice President and
Chief Financial Officer
Dated: April 12, 1994
-13-
<PAGE> 1
April 11, 1994
To the Board of Directors
of Westwood One, Inc.
Dear Directors:
We have been furnished a copy of Westwood One, Inc.'s Form 10-Q for the quarter
ended February 28, 1994. Note 5 therein describes a change in the method of
accounting for station affiliation agreements from one of capitalization of
expenditures associated with major new affiliate agreements for the periods
prior to the affiliate's inclusion in rating service publications, for use in
generating advertising revenue, to an expense as incurred method. It should be
understood that the preferability of one acceptable method of accounting for
expenditures associated with new affiliation agreements over another has not
been addressed in any authoritative accounting literature and in arriving at
our opinion expressed below, we have relied on management's judgment. Based
upon our discussions with management and the stated reasons for the change, we
believe that such change represents, in the Company's circumstances, the
adoption of a preferable alternative accounting principle in conformity with
Accounting Principles Board Opinion No. 20.
We have not made an audit in accordance with generally accepted auditing
standards of the financial statements of Westwood One, Inc. for the three month
periods ended February 28, 1994 or February 28, 1993 and, accordingly, we
express no opinion thereon or on the financial information filed as part of the
Form 10-Q of which this letter is to be an exhibit.
Yours very truly,
PRICE WATERHOUSE
EXHIBIT 18
