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 June 30, 1998 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 August 4, 1998, 30,652,435 shares of Common Stock, excluding 4,219,295
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.
--------
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 8
PART II. OTHER INFORMATION 11
SIGNATURES 12
2
<PAGE>
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,785 $ 2,763
Accounts receivable, net of allowance for doubtful accounts
of $3,097 (1998) and $2,907 (1997) 67,034 67,765
Other current assets 8,471 7,405
-------- --------
Total Current Assets 77,290 77,933
PROPERTY AND EQUIPMENT, NET 18,384 15,516
INTANGIBLE ASSETS, NET 225,293 204,339
DEFERRED TAXES 26,145 28,722
OTHER ASSETS 8,913 9,340
-------- --------
TOTAL ASSETS $356,025 $335,850
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 28,473 $ 24,412
Accrued expenses and other liabilities 52,210 41,341
-------- --------
Total Current Liabilities 80,683 65,753
LONG-TERM DEBT 139,000 115,000
DEFERRED TAXES 18,155 18,155
OTHER LIABILITIES 4,806 12,264
-------- --------
TOTAL LIABILITIES 242,644 211,172
-------- --------
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, 34,777,730 (1998) and 34,639,730 (1997) 348 347
Class B stock, $.01 par value: authorized, 3,000,000 shares:
issued and outstanding, 351,733 (1998 and 1997) 4 4
Additional paid-in capital 203,135 201,759
Accumulated deficit (7,776) (11,903)
-------- --------
195,711 190,207
Less treasury stock, at cost; 3,894,795 (1998) and 3,272,295 (1997) shares (82,330) (65,529)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 113,381 124,678
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $356,025 $335,850
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
GROSS REVENUES $73,010 $76,804 $134,069 $124,810
Less Agency Commissions 9,523 10,687 17,242 17,232
------- ------- -------- --------
NET REVENUES 63,487 66,117 116,827 107,578
------- ------- -------- --------
Operating Costs and Expenses Excluding
Depreciation and Amortization 47,490 49,731 94,323 84,251
Depreciation and Amortization 5,196 3,090 8,631 5,938
Corporate General and Administrative Expenses 1,205 1,336 2,295 2,671
------- ------- -------- --------
53,891 54,157 105,249 92,860
------- ------- -------- --------
OPERATING INCOME 9,596 11,960 11,578 14,718
Interest Expense 2,438 2,251 4,517 4,501
Other Income (88) (70) (266) (120)
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 7,246 9,779 7,327 10,337
INCOME TAXES 3,168 796 3,200 850
------- ------- -------- --------
NET INCOME $ 4,078 $ 8,983 $ 4,127 $ 9,487
======= ======= ======== ========
NET INCOME PER SHARE:
BASIC $ .13 $ .30 $ .13 $ .31
======= ======= ======== ========
DILUTED $ .12 $ .26 $ .12 $ .27
======= ======= ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 31,487 30,103 31,576 30,144
======= ======= ======== ========
DILUTED 34,885 34,589 35,046 34,630
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $4,127 $9,487
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 8,631 6,071
Other 2,734 164
-------- -------
15,492 15,722
Changes in assets and liabilities:
Decrease in accounts receivable 731 (19,366)
Increase in prepaid assets (1,066) (888)
Decrease in accounts payable and accrued liabilities 3,587 4,688
-------- --------
Net Cash Provided By Operating Activities 18,744 156
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies and other (26,447) (4,182)
Capital expenditures (3,351) (951)
-------- --------
Net Cash Used For Investing Activities (29,798) (5,133)
-------- --------
CASH USED BEFORE FINANCING ACTIVITIES (11,054) (4,977)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings (repayments) under debt arrangements and capital leases 25,500 9,012
Issuance of common stock 1,377 1,396
Repurchase of common stock (16,801) (5,992)
-------- --------
NET CASH (USED IN) FROM FINANCING ACTIVITIES 10,076 4,416
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (978) (561)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,763 2,655
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,785 $2,094
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
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 June 30, 1998, the
consolidated statements of operations for the three and six month periods ended
June 30, 1998 and 1997 and the consolidated statements of cash flows for the six
months ended June 30, 1998 and 1997 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 in accordance with SFAS No. 128. Basic
earnings per share excludes all dilution and is calculated using the weighted
average number of shares outstanding in the period. Diluted earnings per share
reflects the potential dilution that would occur if all financial instruments
which may be exchanged for equity securities were exercised or converted to
Common Stock.
The Company has issued options and warrants which may have a dilutive
effect on reported earnings if they were exercised or converted to Common Stock.
The following numbers of shares related to options and warrants were added to
the basic weighted average shares outstanding to arrive at the diluted weighted
average shares outstanding for each period:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Warrants 2,671 3,735 2,697 3,433
Options 682 746 751 851
NOTE 3 - Debt:
- --------------
At June 30, 1998 the Company had outstanding borrowings of $139,000
under its bank revolving credit facility and available borrowings of $11,000.
NOTE 4 - Acquisition:
- ---------------------
In May, 1998, the Company acquired the operating assets of the Shadow
Traffic operations in Baltimore, Boston, Dallas, Detroit, Houston, Miami,
Sacramento, San Diego, San Francisco and Washington, D.C. for approximately
$20,000 plus costs and the assumption of certain obligations. The acquisition
was accounted for as a purchase, and accordingly, the operating results are
6
<PAGE>
included with those of the Company from May 1, 1998. The purchase price has been
allocated to the assets and liabilities acquired based on preliminary estimates
of their respective fair values. The intangible assets acquired as part of the
purchase are being amortized over 40 years.
NOTE 5 - Subsequent Event:
- --------------------------
On August 4, 1998, the Company announced a consolidation of its news
operations, resulting in the elimination of certain news operations in Virginia.
Accordingly, the Company will be recording a one-time expense, comprised
principally of severance obligations, associated with this consolidation of
approximately $1,800 in its third fiscal quarter.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(In thousands, except per share amounts)
On May 7, 1998, the Company purchased the operating assets of the
Shadow Traffic operations in Baltimore, Boston, Dallas, Detroit, Houston, Miami,
Sacramento, San Diego, San Francisco and Washington, D.C. The results of
operations for these additional cities are included in the consolidated
financial statements of the Company from May 1, 1998. On March 31, 1997, the
Company entered into a Representation Agreement with CBS, Inc. to operate the
CBS Radio Networks. The Company retains all revenue and is responsible for all
expenses of the CBS Radio Networks from the effective date of the Representation
Agreement.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED
WITH THREE MONTHS ENDED JUNE 30, 1997
- -----------------------------------------
Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenue decreased $ 2,630, or 4%, to
$63,487 in the second quarter of 1998 from $66,117 in the comparable prior year
quarter. The decrease in net revenue was primarily due to lower network revenues
in part due to the elimination of revenues associated with the termination of
certain programming, including Major League Baseball. The decrease was partially
offset by revenues from the Company's May 1998 acquisition of the remaining
Shadow Traffic operations.
Operating costs and expenses excluding depreciation and amortization
decreased $2,241, or 5%, to $47,490 in the second quarter of 1998 from $49,731
in the second quarter of 1997. The decrease was primarily attributable to the
elimination of costs related to certain unprofitable programs and lower network
expenses partially offset by expenses related to the recently acquired Shadow
Traffic operations.
Depreciation and amortization increased $2,106, or 68%, to $5,196 in the
second quarter of 1998 as compared to $3,090 in the second quarter of 1997. The
change is principally attributable to depreciation and amortization related to
fixed assets from capitalized leases and the recently acquired Shadow Traffic
operations.
Operating income decreased $2,364, or 20%, to $9,596 in the second quarter
of 1998 from $11,960 in the second quarter of 1997. The decrease is in part due
to higher depreciation and amortization expense.
Interest expense increased 8% to $2,438 in the second quarter of 1998
from $2,251 in 1997. The increase is principally attributable to higher debt
levels as a result of the newly acquired Shadow Traffic operations.
Income taxes increased $2,372, or 298%, to $3,168 in the second quarter
of 1998 from $796 in the second quarter of 1997. The effective income tax rate
in the first half of 1998 was 44% as compared to 8% in the first half of 1997.
8
<PAGE>
The 1998 provision is substantially all deferred taxes as the Company has
significant tax net operating loss deductions to reduce cash taxes payable.
Net income decreased $4,905, or 55%, to $4,078 ($.13 per basic share
and $.12 per diluted share) in the second quarter of 1998 from $8,983 ($.30 per
basic share and $.26 per diluted share) in the second quarter of 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED
WITH SIX MONTHS ENDED JUNE 30, 1997
- ---------------------------------------
Net revenue for the first half of 1998 increased 9% to $116,827 from
$107,578 in the first half of 1997. The increase is principally attributable to
the inclusion of the CBS Radio Networks and the recently acquired Shadow Traffic
operations partially offset by the elimination of revenues associated with the
termination of certain programming, including Major League Baseball.
Operating costs and expenses increased 12% to $94,323 in the first half
of 1998 from $84,251 in the comparable 1997 period. The increase was primarily
attributable to the inclusion of the CBS Radio Networks and the purchase of the
remaining Shadow Traffic operations partially offset by the elimination of costs
related to certain unprofitable programs and lower network expenses.
Depreciation and amortization increased 45% to $8,631 in the first half of
1998 as compared to $5,938 in the first half of 1997. The increase is
principally attributable to depreciation and amortization related to fixed
assets from capitalized leases, the recently acquired Shadow Traffic operations
and the Representation Agreement with CBS.
Income taxes increased $2,350, or 277%, to $3,200 in the first half of 1998
from $850 in the second quarter of 1997. The effective income tax rate in the
first half of 1996 was 44% as compared to 8% in the first half of 1997. The 1998
provision is substantially all deferred taxes as the Company has significant tax
net operating loss deductions to reduce cash taxes payable.
Net income decreased $5,360, or 57% to $4,127 ($.13 per basic share and
$.12 per diluted share) in the first half of 1998 from $9,487 ($.31 per basic
share and $.27 per diluted share) in the comparable 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1998, the Company's cash and cash equivalents were $1,785,
a decrease of $978 from December 31, 1997.
For the six months ended June 30, 1998, net cash from operating activities
was $18,744 as compared to $156 for the six months ended June 30, 1997, an
increase of $18,588. The cash flow from operations was principally used to fund
the Company's stock buy-back program.
At June 30, 1998, the Company had available borrowings of $11,000 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. The Company is currently in discussions with
its lenders to increase the Company's borrowing facilities.
9
<PAGE>
The Company has used its available cash to repurchase its Common Stock. In
the first six months of 1998, the Company repurchased approximately 623 shares
of Common Stock at a cost of $16,801. In addition, from July 1, 1998 through
August 4, 1998 the Company repurchased an additional 325 shares of Common Stock
at a cost of $8,224.
10
<PAGE>
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) The Annual Meeting of Shareholders of the Company was held on
June 16, 1998.
(b) The Matters voted upon and the related voting results were as
follows (holders of Common Stock and Class B stock voted
together on all matters except for the election of Joseph B.
Smith as a Class I director, for which holders of Common Stock
voted alone):
1) Election of Class II Directors:
Norman J. Pattiz Mel Karmazin Joseph B. Smith
---------------- ------------ ---------------
FOR 27,781,542 27,797,347 27,929,042
WITHHELD 753,998 738,193 606,498
2) Ratification of the selection of Price Waterhouse as the
independent accountants of the Company for fiscal 1998.
FOR 28,525,026
AGAINST 5,976
ABSTAIN 4,538
Item 5
- ------
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 June 30, 1998.
11
<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: August 14, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,785
<SECURITIES> 0
<RECEIVABLES> 67,034<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77,290
<PP&E> 18,384<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 356,025
<CURRENT-LIABILITIES> 80,683
<BONDS> 139,000
0
0
<COMMON> 348<F3>
<OTHER-SE> 113,033
<TOTAL-LIABILITY-AND-EQUITY> 356,025
<SALES> 0
<TOTAL-REVENUES> 116,827<F4>
<CGS> 0
<TOTAL-COSTS> 94,323<F5>
<OTHER-EXPENSES> 10,926<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,517
<INCOME-PRETAX> 7,327
<INCOME-TAX> 3,200
<INCOME-CONTINUING> 4,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,127
<EPS-PRIMARY> .13
<EPS-DILUTED> .12
<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>
