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 September 30, 1997 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
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(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 November 1, 1997, 31,464,935 shares of Common Stock, excluding 3,659,795
treasury shares, were outstanding and 351,733 shares of Class B Stock were
outstanding.
<PAGE>
WESTWOOD ONE, INC.
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INDEX
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PART I. FINANCIAL INFORMATION: Page No.
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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 7
PART II. OTHER INFORMATION 10
SIGNATURES 11
2
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<TABLE>
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,909 $ 2,655
Accounts receivable, net of allowance for doubtful accounts 59,931 41,325
Other current assets 7,340 4,399
-------- --------
Total Current Assets 69,180 48,379
PROPERTY AND EQUIPMENT, NET 15,433 16,146
INTANGIBLE ASSETS, NET 205,336 201,730
OTHER ASSETS 9,051 6,791
-------- --------
TOTAL ASSETS $299,000 $273,046
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 22,262 $ 20,233
Accrued expenses and other liabilities 38,169 31,793
-------- --------
Total Current Liabilities 60,431 52,026
LONG-TERM DEBT 100,000 130,443
OTHER LIABILITIES 13,685 3,729
-------- --------
TOTAL LIABILITIES 174,116 186,198
-------- --------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock: authorized 10,000,000 shares, none outstanding - -
Common stock, $.01 par value: authorized, 117,000,000 shares;
issued and outstanding, 34,624,730 (1997) and 31,817,652 (1996) 346 318
Class B stock, $.01 par value: authorized, 3,000,000 shares:
issued and outstanding, 351,733 (1997 and 1996) 4 4
Additional paid-in capital 203,672 152,708
Accumulated deficit (20,046) (37,399)
-------- --------
183,976 115,631
Less treasury stock, at cost; 3,054,795 (1997) and 1,895,395 shares (1996) (59,092) (28,783)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 124,884 86,848
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $299,000 $273,046
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
GROSS REVENUES $73,467 $55,267 $198,277 $147,085
Less Agency Commissions 10,094 7,706 27,326 20,284
------ ------ ------- -------
NET REVENUES 63,373 47,561 170,951 126,801
------ ------ ------- -------
Operating Costs and Expenses Excluding
Depreciation and Amortization 48,211 34,138 132,462 93,798
Depreciation and Amortization 3,363 2,958 9,301 8,896
Corporate General and Administrative Expenses 1,021 1,509 3,692 4,273
------ ------ ------- -------
52,595 38,605 145,455 106,967
------ ------ ------- -------
OPERATING INCOME 10,778 8,956 25,496 19,834
Interest Expense 2,114 2,271 6,615 6,494
Other Income (132) (81) (252) (207)
------ ------ ------- -------
INCOME BEFORE INCOME TAXES 8,796 6,766 19,133 13,547
INCOME TAXES 930 301 1,780 730
------ ------ ------- -------
NET INCOME $7,866 $6,465 $17,353 $12,817
====== ====== ======= =======
NET INCOME PER SHARE $ .23 $ .19 $ .50 $ .38
====== ====== ====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING 34,959 34,381 34,468 33,599
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Nine Months Ended
September 30,
-----------------
1997 1996
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $17,353 $12,817
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 9,301 8,896
Other 242 292
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable (18,606) 592
Decrease (Increase) in prepaid assets (2,941) 436
Increase (Decrease) in accounts payable and accrued liabilities 4,569 (773)
------- -------
Net Cash Provided By Operating Activities 9,918 22,260
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies and other (Shadow Traffic in 1996) (9,383) (25,615)
Capital expenditures (924) (940)
-------- --------
Net Cash Used For Investing Activities (10,307) (26,555)
-------- --------
CASH (USED) BEFORE
FINANCING ACTIVITIES (389) (4,295)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Debt repayments (15,150) (1,250)
Borrowings under bank and other long-term obligations 9,012 23,750
Issuance of common stock 36,090 914
Repurchase of common stock (30,309) (15,143)
-------- --------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (357) 8,271
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS (746) 3,976
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,655 256
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,909 $4,232
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
5
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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 September 30, 1997,
the consolidated statements of operations for the three and nine month periods
ended September 30, 1997 and 1996 and the consolidated statements of cash flows
for the nine months ended September 30, 1997 and 1996 are unaudited, but in the
opinion of management include all 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 on Form 10-K, filed with the Securities and Exchange
Commission.
NOTE 2 - Earnings Per Share:
- ----------------------------
Net income per share is computed based upon the weighted average number
of shares outstanding and Common Stock equivalents in periods where there is net
income. The number of shares used to compute earnings per share are 34,959 and
34,381 for the three month periods ended September 30, 1997 and 1996,
respectively and 34,468 and 33,599 for the nine month periods ended September
30, 1997 and 1996, respectively.
NOTE 3 - Debt:
- --------------
At September 30, 1997, the Company had outstanding borrowings of $100,000
under its bank revolving credit facility and available borrowings of $50,000.
On July 21, 1997, $15,293 principal amount of the Company's 6 3/4%
Convertible Subordinated Debentures were converted into approximately 622 shares
of the Company's Common Stock and the remaining balance of $150 was redeemed for
cash, thereby resulting in a complete redemption of the securities.
NOTE 4 - Representation of CBS Radio Network:
- ---------------------------------------------
On March 31, 1997, the Company entered into a representation and management
agreement (the "Representation Agreement") with CBS Inc. ("CBS"), whereby the
Company will operate the CBS Radio Network for an initial two-year period ending
March 31, 1999. In accordance with the Representation Agreement, the Company
pays CBS a representation fee and retains all revenues from sales of commercial
time and is responsible for all expenses of the CBS Radio Network. Accordingly,
the operating results of CBS Radio Network are included with those of the
Company from the effective date of the Representation Agreement. Pursuant to the
Representation Agreement, CBS provided a working capital loan of $9,012,
repayable on March 31, 1999, with interest payable at 50 basis points over the
six-month LIBOR rate. The Company is required to pay a representation fee of
$10,000 and $12,000 respectively in the first and second year of the
Representation Agreement and to reimburse CBS for certain programming costs,
including news, that CBS provides to Westwood One.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(In thousands, except per share amounts)
On March 31, 1997, the Company entered into a Representation Agreement with
CBS to operate the CBS Radio Network. The Company retains all revenue and is
responsible for all expenses of the CBS Radio Network from the effective date of
the Represenation Agreement.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
WITH THREE MONTHS ENDED SEPTEMBER 30, 1996
- -----------------------------------------------
Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenue increased $15,812, or 33% to
$63,373 in the third quarter of 1997 from $47,561 in the comparable prior year
quarter. The increase in net revenue was primarily due to the inclusion of the
results of the CBS Radio Network and higher advertising rates for the Company's
programs, partially offset by the non-recurrence of revenue associated with the
1996 Summer Olympics.
Operating costs and expenses excluding depreciation and amortization
increased $14,073, or 41%, to $48,211 in the third quarter of 1997 from $34,138
in the third quarter of 1996. The increase was primarily attributable to the
inclusion of the CBS Radio Network, including fees payable to CBS in connection
with the Representation Agreement, partially offset by lower station
compensation expenses for the Company's network operation and the non-recurrence
of costs associated with the Company's coverage of the 1996 Summer Olympics.
Depreciation and amortization increased 14% to $3,363 in the third
quarter of 1997 from $2,958 in the third quarter of 1996. The increase is
principally attributable to amortization associated with the inclusion of the
CBS Radio Network and higher amortization from the Shadow Traffic acquisition.
Corporate general and administrative expenses decreased 32% to $1,021 in
1997 from $1,509 in 1996. The decrease is primarily attributable to lower
compensation expense.
Operating income increased $1,822, or 20%, to $10,778 in the third
quarter of 1997 from $8,956 in the third quarter of 1996. The improvement is
principally attributable to higher revenue and consolidations in operations
resulting from the inclusion of the CBS Radio Network, partially offset by the
non-recurrence of the 1996 Summer Olympics.
Interest expense decreased 7% to $2,114 in the third quarter of 1997 from
$2,271 in the third quarter of 1996. The decrease was principally attributable
to lower debt levels as a result of the conversion of the Company's 6 3/4%
Convertible Subordinated Debentures to Common Stock.
Income taxes increased 209% to $930 in 1997 from $301 in 1996. The
increase is principally attributable to higher state taxes.
7
<PAGE>
Net income in the third quarter increased 22% to $7,866, or $.23 per share,
in 1997 from $6,465, or $.19 per share, in 1996. The weighted average number of
shares outstanding (including common stock equivalents) increased 2% to 34,959
in the third quarter of 1997 from 34,381 in the comparable 1996 quarter, due
principally to the conversion of the Company's 6 3/4% Convertible Subordinated
Debentures into 622 shares of Common Stock and the issuance of 2,036 shares as a
result of warrants being exercised, partially offset by the Company's stock
repurchase program.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
WITH NINE MONTHS ENDED SEPTEMBER 30, 1996
- ---------------------------------------------
Net revenue for the first nine months of 1997 increased 35% to $170,951 in
1997 from $126,801 in the first nine months of 1996. The increase is primarily
attributable to the inclusion of the CBS Radio Network, the acquisition of
Shadow Traffic, and higher advertising rates for the Company's programs,
partially offset by the non-recurrence of the 1996 Summer Olympics.
Operating costs and expenses increased 41% to $132,462 in the first nine
months of 1997 from $93,798 in the comparable 1996 period. The increase was
primarily attributable to the inclusion of the CBS Radio Network and the
acquisition of Shadow Traffic, partially offset by the non-recurrence of the
1996 Summer Olympics and lower station compensation expenses.
Depreciation and amortization increased 5% to $9,301 in the first nine
months of 1997 from $8,896 in the first nine months of 1996. The increase is
principally attributable to the purchase of Shadow Traffic and the inclusion of
the CBS Radio Network.
Corporate general and administrative expenses decreased 14%, to $3,692
in the first nine months of 1997 from $4,273 in 1996's first nine months,
principally to lower compensation expense.
Interest expense increased 2% to $6,615 in the first nine months of 1997
as compared to $6,494 in the first nine months of 1996. The increase is
principally attributable to higher debt levels for a majority of the nine month
period, partially offset by lower interest rates.
Income taxes increased 144% to $1,780 in 1997 from $730 in 1996. The
increase is principally attributable to the reasons discussed under the three
month results.
Net income increased 35% to $17,353 ($.50 per share) in the first nine
months of 1997 as compared to $12,817 ($.38 per share) in the comparable 1996
period. The weighted average number of shares outstanding increased 3% to 34,468
in 1997 from 33,599 in 1996, due principally to the reasons discussed under the
three month results.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1997, the Company's cash and cash equivalents were
$1,909, a decrease of $746 from December 31, 1996.
For the nine months ended September 30, 1997 net cash from operating
activities was $9,918. Cash flow from operations was principally used to fund
working capital requirements resulting from the inclusion of the CBS Radio
Network.
8
<PAGE>
At September 30, 1997, the Company had available borrowings of $50,000
on its revolving credit facility. In addition, as part of the Representation
Agreement with CBS, CBS provided a $9,012 working capital loan to the Company
which is payable on March 31, 1999.
On July 21, 1997, $15,293 principal amount of the Company's 6 3/4%
Convertible Subordinated Debentures were converted into approximately 622 shares
of the Company's Common Stock. The remaining outstanding balance of the issuance
was redeemed for cash. In addition, in the third quarter, warrants covering
approximately 2,036 shares were exercised, resulting in a cash inflow of $35,093
to the Company. These warrants expired on September 4, 1997.
The Company has used its available cash to repurchase its Common Stock.
In the first nine months of 1997, the Company repurchased 1,160 shares of Common
Stock at a cost of $30,309. In addition, in October 1997 the Company repurchased
500 warrants and an additional 105 shares of Common Stock at a cost of $15,827.
9
<PAGE>
PART II OTHER INFORMATION
Items 1 through 5
- -----------------
These items are not applicable.
Item 6 - Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
--------
27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed for the three months ended
September 30, 1997.
10
<PAGE>
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: November 11, 1997
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,909
<SECURITIES> 0
<RECEIVABLES> 59,931<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 69,180
<PP&E> 15,433<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 299,000
<CURRENT-LIABILITIES> 60,431
<BONDS> 100,000
0
0
<COMMON> 350<F3>
<OTHER-SE> 124,534
<TOTAL-LIABILITY-AND-EQUITY> 299,000
<SALES> 0
<TOTAL-REVENUES> 170,951<F4>
<CGS> 0
<TOTAL-COSTS> 132,462<F5>
<OTHER-EXPENSES> 12,993<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,615
<INCOME-PRETAX> 19,133
<INCOME-TAX> 1,780
<INCOME-CONTINUING> 17,353
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,353
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<FN>
<F1> REFLECTED NET OF THE ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2> REFLECTED NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
<F3> COMPRISED OF COMMON STOCK AND CLASS B STOCK.
<F4> COMPRISED OF NET REVENUES.
<F5> COMPRISED OF OPERATING COSTS AND EXPENSES EXCLUDING
DEPRECIATION AND AMORTIZATION.
<F6> COMPRISED OF: (A) DEPRECIATION AND AMORTIZATION, AND (B)
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES.
</FN>
</TABLE>
