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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 May 31, 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 July 1, 1994 30,443,652 shares of Common Stock were outstanding and
351,733 shares of Class B Stock were outstanding.
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WESTWOOD ONE, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION: Page No.
_______
Consolidated Balance Sheets 3
Consolidated Statements of Operations 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>
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WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
May 31, November 30,
1994 1993
___________ ___________
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,552 $ 3,868
Accounts receivable, net of allowance for doubtful accounts 28,092 19,480
Programming costs and rights, current portion 5,743 6,849
Other current assets 2,844 2,790
----------- -----------
Total Current Assets 40,231 32,987
PROPERTY AND EQUIPMENT, NET 17,457 15,984
PROGRAMMING COSTS AND RIGHTS 3,508 6,185
INTANGIBLE ASSETS, NET (Note 5) 194,534 90,745
OTHER ASSETS 4,052 6,166
----------- -----------
TOTAL ASSETS $259,782 $152,067
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 15,761 $ 13,446
Accrued expenses and other liabilities 16,001 12,838
Current maturities of long-term debt 5,000 1,558
Short-term borrowings (Note 7) - 6,648
----------- -----------
Total Current Liabilities 36,762 34,490
LONG-TERM DEBT (Note 7) 120,443 51,943
OTHER LIABILITIES 11,177 10,483
----------- -----------
TOTAL LIABILITIES 168,382 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, 30,193,652 (1994) and 15,978,758 (1993) 302 160
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 158,914 110,547
Accumulated deficit (67,820) (55,560)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 91,400 55,151
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $259,782 $152,067
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
___________________ ________________
1994 1993 1994 1993
_______ _______ _______ _______
<S> <C> <C> <C> <C>
GROSS REVENUES $ 41,265 $ 24,812 $ 65,352 $ 44,858
Less Agency Commissions 5,879 3,605 9,331 6,514
---------- ---------- ---------- ----------
NET REVENUES 35,386 21,207 56,021 38,344
---------- ---------- ---------- ----------
Operating Costs and Expenses Excluding
Depreciation and Amortization 25,945 15,780 46,406 32,143
Depreciation and Amortization 4,690 4,008 8,703 8,166
Corporate General and Administrative Expenses 1,134 1,100 2,259 2,007
Restructuring Costs (Note 6) - - 2,405 -
---------- ---------- ---------- ----------
31,769 20,888 59,773 42,316
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 3,617 319 (3,752) (3,972)
Interest Expense 2,222 1,640 3,701 3,428
Other Income (93) (18) (127) (25)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES, DISCONTINUED
OPERATIONS, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,488 (1,303) (7,326) (7,375)
INCOME TAXES (NOTE 5) - - - -
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 1,488 (1,303) (7,326) (7,375)
(LOSS) ON DISCONTINUED OPERATIONS - - - (3,140)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,488 (1,303) (7,326) (10,515)
EXTRAORDINARY ITEM - (LOSS) ON RETIREMENT OF DEBT - - (590) -
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (NOTE 5) - - (4,344) -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $1,488 ($1,303) ($12,260) ($10,515)
========== ========== ========== ==========
INCOME (LOSS) PER SHARE:
Continuing Operations $ .04 ($ .09) ($ .28) ($ .49)
Discontinued Operations - - - ( .21)
---------- ---------- ---------- ----------
Income (Loss) Before Extraordinary Item and Cumulative
Effect of Accounting Change .04 ( .09) ( .28) ( .70)
Extraordinary Item - - ( .02) -
---------- ---------- ---------- ----------
.04 ( .09) ( .30) ( .70)
Cumulative Effect of Accounting Change - - ( .17) -
---------- ---------- ---------- ----------
Net Income (Loss) $ .04 ($ .09) ($ .47) ($ .70)
========== ========== ========== ==========
Pro forma amounts assuming the new accounting
method is applied retroactively:
Income (Loss) Before Extraordinary Item $1,488 ($1,332) ($7,326) ($10,321)
Net Income (Loss) 1,488 ( 1,332) ( 7,916) ( 10,321)
Income (Loss) Per Share:
Income (Loss) Before Extraordinary Item $ .04 ($ .09) ($ .28) ($ .69)
Net Income (Loss) .04 ( .09) ( .30) ( .69)
</TABLE>
See accompanying notes to consolidated financial statements.
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WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
May 31,
_________________
1994 1993
_______ _______
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss ($12,260) ($10,515)
Adjustments to reconcile net loss to net cash used by operating
activities before cash payments related to extraordinary item:
Cummulative effect of accounting change 4,344 -
Depreciation and amortization 8,703 9,154
Extraordinary item - loss on retirement of debt 590 -
Other, principally capitalized programming costs and rights (177) (1,481)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (8,612) 472
Increase in prepaid assets (460) (212)
Increase in accounts payable and accrued liabilities 4,571 567
---------- ----------
Net cash used by operating activities before cash payments
related to extraordinary item (3,301) (2,015)
Cash payments related to extraordinary item (250) -
---------- ----------
Net Cash Used By Operating Activities (3,551) (2,015)
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies (Unistar in 1994) (105,955) (816)
Cash payments related to disposition of discontinued operations (661) -
Capital expenditures (585) (1,415)
Capitalized station affiliation agreements (Note 5) - (456)
Proceeds related to sale of unconsolidated subsidary - 10,442
Other (principally deferred financing costs in 1994) (1,592) (326)
---------- ----------
Net Cash Provided (Used) By Investing Activities (108,793) 7,429
---------- ----------
CASH PROVIDED (REQUIRED) BEFORE FINANCING ACTIVITIES (112,344) 5,414
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Debt repayments (13,648) (11,499)
Borrowings under debt arrangements 110,000 -
Issuance of common stock 15,676 60
Issuance of subordinated debentures - 433
---------- ----------
NET CASH FROM (USED IN) FINANCING ACTIVITIES 112,028 (11,006)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (316) (5,592)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,868 6,455
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,552 $ 863
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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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 May 31,
1994, the consolidated statements of operations and the consolidated
statements of cash flows for the three and six month periods ended May 31,
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 income (loss) per share is computed based upon the
weighted average number of shares outstanding and Common Stock equivalents in
periods where there is net income of 33,584 and 15,014 for the three month
periods ended May 31, 1994 and 1993, respectively and 25,968 and 15,008 for
the six month periods ended May 31, 1994 and 1993, respectively.
NOTE 4 - Acquisition of Unistar Radio Networks, Inc:
On February 3, 1994, 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 proforma unaudited combined condensed results of
operations of the Company and Unistar for the six months ended May 31, 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 $64,827 $64,735
Loss from Continuing Operations 5,346 8,038
Loss Per Share from Continuing Operations $ .18 $ . 27
</TABLE>
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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. No adjustments were made to
historical results for potential cost reductions due to the elimination of
duplicate facilities and costs resulting from the acquisition of Unistar.
However, 1994 pro forma results reflect the benefit of cost reductions to the
extent that they have been realized.
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 $.17 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 principally to acquire
Unistar and repay the Company's existing senior debt.
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At May 31, 1994, the Company did not have any borrowings
outstanding under its $15,000 revolving facility.
In 1994 the Company redeemed all its outstanding 9% Convertible
Senior Subordinated Debentures ("Senior Debentures"). During 1994 those
debentures were converted into 8,863 shares of common stock. At May 31, 1994
no Senior Debentures were outstanding.
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.
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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 its first fiscal
quarter of 1994. 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 MAY 31, 1994 COMPARED
WITH THREE MONTHS ENDED MAY 31, 1993
Westwood One derives substantially all of its revenue from the
sale of advertising time to advertisers. Net revenue increased 67% to $35,386
in the second quarter of 1994 from $21,207 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 64% to $25,945 in the second fiscal quarter of 1994
from $15,780 in the second quarter of 1993. The increase was primarily
attributable to the purchase of Unistar and higher programming expenses.
Depreciation and amortization increased 17% to $4,690 in the
second quarter of 1994 from $4,008 in the second quarter of 1993. The
increase is principally attributable to higher depreciation and amortization
resulting from the purchase of Unistar in February 1994, partially offset by
lower amortization of production costs as well as the change in accounting for
capitalized station affiliation agreements whereby station affiliation expenses
are expensed currently and are no longer capitalized.
Corporate general and administrative expenses increased 3% to
$1,134 in 1994 from $1,100 in 1993. The increase is attributable to the
Management Agreement with Infinity Broadcasting Corporation ("Infinity"),
partially offset by across-the-board expense reductions.
Operating income increased $3,298, to $3,617 in the second
quarter of 1994 from $319 in the same period of 1993. The substantial
improvement in operating income is attributable to the acquisition of Unistar
and cost savings resulting from operating synergies from the Unistar
acquisition, partially offset by higher depreciation and amortization.
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Interest expense increased 35% to $2,222 in the second quarter
of 1994 from $1,640 in the second quarter of 1993. The increase is principally
attributable to higher debt levels as a result of the acquisition of Unistar,
partially offset by the elimination of interest expense on the Company's
Senior Debentures due to their conversion to Common Stock.
Income from continuing operations was $1,488 ($.04 per share)
in the second quarter of 1994 as compared to a loss from continuing operations
in the second quarter of 1993 of $1,303 ($.09 per share). The weighted
average number of shares outstanding (including Common Stock equivalents)
increased 124% to 33,584 in the second quarter of 1994 from 15,014 in the
comparable 1993 quarter. The increase in weighted average shares was
principally attributable to the conversion of Senior Debentures into the
Company's Common Stock and the sale of 5,000 shares of Common Stock to a
subsidiary of Infinity.
Net income in the second quarter of 1994 was $1,488 ($.04 per
share) as compared to a net loss of $1,303 ($.09 per share) in 1993. On a pro
forma basis, the change in accounting for station affiliation agreements did
not affect the comparability of the second quarter results.
SIX MONTHS ENDED MAY 31, 1994 COMPARED
WITH SIX MONTHS ENDED MAY 31, 1993
Net revenue for the first half of fiscal 1994 increased 46% to
$56,021 in 1994 from $38,344 in the first half of 1993. The increase in net
revenue was primarily a result of the purchase of Unistar in February 1994.
Operating costs and expenses increased 44% to $46,406 in the
first half of 1994 from $32,143 in the comparable 1993 period. The increase
was primarily attributable to the purchase of Unistar and higher programming
expenses. As a percentage of net revenue, operating costs and expenses
decreased to 83% in 1994 from 84% in 1993.
Depreciation and amortization increased $537 to $8,703
in 1994 from $8,166 in the first half of 1993. The increase is principally
attributable to higher depreciation and amortization resulting from the
purchase of Unistar partially offset by lower amortization of production costs
and the change in accounting for capitalized station affiliation agreements
whereby station affiliation expenses are expensed currently and are no longer
capitalized.
Corporate general and administrative expenses increased $252,
or 13%, to $2,259 in the first half of 1994 from $2,007 in 1993's first half.
The increase is attributable to the Infinity Management Agreement, partially
offset by across-the-board expense reductions.
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.
Operating loss decreased 6% to $3,752 in the first half of
1994 from $3,972 in comparable 1993. The decrease is principally attributable
to synergies from the Unistar acquisition and reductions in expenses partially
offset by one-time restructuring costs and higher depreciation and
amortization.
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Interest expense increased $273, or 8%, to $3,701 in 1994 from
$3,428 in the first half of 1993. The increase is attributable to higher debt
levels as a result of the purchase of Unistar, partially offset by lower
interest due to the conversion of the Company's Senior Debentures to Common
Stock.
Loss from continuing operations decreased $49 to $7,326 ($.28
per share) in the first half of 1994 from $7,375 ($.49 per share) in the first
half of 1993. Loss per share from continuing operations decreased 43%
due to a 73% increase in the weighted average number of increase in weighted
average shares was principally attributable to the conversion of Senior
Debentures to the Company's Common Stock and the sale of 5,000 shares of
Common Stock to a subsidiary of Infinity.
In connection with the refinancing of its senior debt
facility, the Company in the first quarter of 1994 recorded an extraordinary
loss of $590 ($.02 per share).
The cumulative effect of the change in accounting for station
affiliation expenses in the first quarter of 1994 was an expense of $4,344,
or $.17 per share.
The net loss for the first half of 1994 was $12,260 ($.47 per
share) as compared to $10,515 ($.70 per share) for the first half of 1993. On
a pro forma basis, assuming the new accounting principle was applied
effective the beginning of the period presented, the Company's net loss would
have been $7,916 ($.30 per share) and $10,321 ($.69 per share) in the first half
of fiscal 1994 and 1993, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1994, the Company's cash and cash equivalents were
$3,552, a decrease of $316 from November 30, 1993. In addition, the Company
had available borrowings under its Loans of $15,000.
For the six months ended May 31, 1994 versus the comparable
prior year period, net cash from operating activities decreased $1,536,
principally due to working capital requirements resulting from the acquisition
of Unistar. Net cash used for investing activities was $108,793 in 1994
principally due to the purchase of Unistar in 1994.
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. In addition, from December 1993 through March 1993,
holders of approximately $31,058 of the Company's Senior Debentures converted
their debentures to 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.
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PART II OTHER INFORMATION
Items 1 through 5
These items are not applicable.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for
the three months ended May 31, 1994.
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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
Chief Financial Officer
Dated: July 7, 1994
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