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, 1999 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 August 2, 1999, 28,041,135 shares of Common Stock and 351,733 shares of
Class B Stock were outstanding.
<PAGE>
WESTWOOD ONE, INC.
------------------
INDEX
-----
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, December 31,
<S> <C> <C>
1999 1998
-------- ------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 257 $ 2,549
Accounts receivable, net of allowance for doubtful accounts
of $3,967 (1999) and $3,720 (1998) 64,972 75,402
Other current assets 7,614 7,712
-------- --------
Total Current Assets 72,843 85,663
PROPERTY AND EQUIPMENT, NET 22,629 24,353
INTANGIBLE ASSETS, NET 219,053 224,242
OTHER ASSETS 11,329 11,021
-------- --------
TOTAL ASSETS $325,854 $345,279
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 27,137 $ 28,484
Other accrued expenses and liabilities 37,471 50,068
-------- --------
Total Current Liabilities 64,608 78,552
LONG-TERM DEBT 167,000 170,000
OTHER LIABILITIES 17,648 19,509
-------- --------
TOTAL LIABILITIES 249,256 268,061
-------- --------
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, 35,078,730 (1999) and 34,962,230 (1998) 351 350
Class B stock, $.01 par value: authorized, 3,000,000 shares:
issued and outstanding, 351,733 (1999 and 1998) 4 4
Additional paid-in capital 212,414 206,688
Accumulated earnings 5,324 1,143
-------- --------
218,093 208,185
Less treasury stock, at cost; 7,058,595 (1999) and 6,647,095 (1998) shares (141,495) (130,967)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 76,598 77,218
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $325,854 $345,279
======== ========
</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,
------------------ ----------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---- ---- ---- ----
GROSS REVENUES $76,591 $73,010 $144,336 $134,069
Less Agency Commissions 10,238 9,523 19,465 17,242
------- ------- -------- --------
NET REVENUES 66,353 63,487 124,871 116,827
------- ------- -------- --------
Operating Costs and Expenses Excluding
Depreciation and Amortization 49,148 47,490 100,268 94,323
Depreciation and Amortization 4,725 5,196 9,293 8,631
Corporate General and Administrative Expenses 1,002 1,205 2,195 2,295
------- ------- -------- --------
54,875 53,891 111,756 105,249
------- ------- -------- --------
OPERATING INCOME 11,478 9,596 13,115 11,578
Interest Expense 2,943 2,438 5,954 4,517
Other Income (128) (88) (319) (266)
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 8,663 7,246 7,480 7,327
INCOME TAXES 3,820 3,168 3,299 3,200
------- ------- -------- --------
NET INCOME $4,843 $4,078 $4,181 $4,127
====== ====== ====== ======
NET INCOME PER SHARE:
BASIC $.17 $.13 $.15 $.13
==== ==== ==== ====
DILUTED $.15 $.12 $.13 $.12
==== ==== ==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 28,329 31,487 28,299 31,576
====== ====== ====== ======
DILUTED 32,790 34,885 32,355 35,046
====== ====== ====== ======
</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,
--------
<S> <C> <C>
1999 1998
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 4,181 $ 4,127
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 9,293 8,631
Other 2,782 2,734
------- -------
16,256 15,492
Changes in assets and liabilities:
Decrease in accounts receivable 10,430 731
Decrease (Increase) in prepaid assets 98 (1,066)
(Decrease) Increase in accounts payable and accrued liabilities (4,380) 3,587
------- -------
Net Cash Provided By Operating Activities 22,404 18,744
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies and other (10,263) (26,447)
Capital expenditures (1,098) (1,851)
------- -------
Net Cash Used For Investing Activities (11,361) (28,298)
------- -------
CASH PROVIDED (USED) BEFORE FINANCING ACTIVITIES 11,043 (9,554)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings (repayments) under debt arrangements and capital leases (4,534) 24,000
Issuance of common stock 1,727 1,377
Repurchase of common stock (10,528) (16,801)
------- --------
NET CASH (USED IN) FROM FINANCING ACTIVITIES (13,335) 8,576
------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,292) (978)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,549 2,763
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $257 $1,785
======= =======
</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, 1999, the
consolidated statements of operations for the three and six month periods ended
June 30, 1999 and 1998 and the consolidated statements of cash flows for the six
months ended June 30, 1999 and 1998 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 - Reclassification:
- --------------------------
Certain prior period amounts have been reclassified to conform to the
current presentation.
NOTE 3 - 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,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Warrants 3,455 2,671 3,244 2,697
Options 1,006 727 812 773
NOTE 4 - Debt:
- --------------
At June 30, 1999 the Company had outstanding borrowings of $167,000
under its bank revolving credit facility and available borrowings of $28,000.
6
<PAGE>
NOTE 5 - Acquisition:
- ---------------------
On June 1, 1999 the Company entered into a definitive agreement to
merge with Metro Networks, Inc. ("Metro"). At the effective time of the Merger,
each outstanding share of Metro will be converted into the right to receive 1.5
shares of the Company's common stock and each outstanding share of Metro Series
A Convertible Preferred Stock will be converted into the right to receive 1.5
shares of a corresponding series of preferred stock of the Company. The
consummation of the Merger is subject to certain conditions including the
approval of the issuance of the Company's common stock by the Company's
stockholders, the approval of the Merger by Metro stockholders' and the receipt
of all necessary regulatory approvals.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(In thousands, except per share amounts)
Effective May 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. Accordingly, the
consolidated financial statements reflect the results of the acquisition from
the effective date.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED
WITH THREE MONTHS ENDED JUNE 30, 1998
- -----------------------------------------
Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenue increased $2,866, or 5%, to $66,353
in the second quarter of 1999 from $63,487 in the comparable prior year quarter.
The increase in net revenue was primarily due to higher revenues from the
Company's Shadow Traffic operations, including those acquired in May 1998,
partially offset by lower revenues from the Company's network programs.
Operating costs and expenses excluding depreciation and amortization
increased $1,658, or 3%, to $49,148 in the second quarter of 1999 from $47,490
in the second quarter of 1998. The increase was due to additional expenses
related to the Shadow Traffic operations, including those acquired in May 1998,
partially offset by lower news programming and affiliate compensation expenses
for the Company's network operations.
Depreciation and amortization decreased $471, or 9%, to $4,725 in the
second quarter of 1999 as compared to $5,196 in the second quarter of 1998. The
change is principally attributable to lower depreciation and amortization
related to fixed assets as a result of assets being fully depreciated and to the
final purchase price allocation of the May 1998 Shadow Traffic purchase.
Corporate general and administrative expenses decreased $203, or 17%,
to $1,002 in the second quarter of 1999 from $1,205 in the comparable 1998
quarter. The decrease is principally attributable to lower compensation expense.
Operating income increased $1,882, or 20%, to $11,478 in the second quarter
of 1999 from $9,596 in the second quarter of 1998. The increase is in part due
to effective cost control measures.
Interest expense increased 21% to $2,943 in the second quarter of 1999
from $2,438 in 1998. The increase is principally attributable to higher debt
levels as a result of the Company's stock repurchase program and the May 1998
Shadow Traffic acquisition.
Income taxes increased $652, or 21%, to $3,820 in the second quarter of
1999 from $3,168 in the second quarter of 1998. The effective income tax rate in
the first half of 1999 and 1998 was 44%. The provision is substantially all
deferred taxes as the Company has significant tax net operating loss deductions
to reduce cash taxes payable.
8
<PAGE>
Net income increased $765, or 19%, to $4,843 ($.17 per basic share and
$.15 per diluted share) in the second quarter of 1999 from $4,078 ($.13 per
basic share and $.12 per diluted share) in the second quarter of 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED
WITH SIX MONTHS ENDED JUNE 30, 1998
- ---------------------------------------
Net revenue for the first half of 1999 increased 7% to $124,871 from
$116,827 in the first half of 1998. The increase is principally attributable to
higher revenues from the Company's Shadow Traffic operations, including those
acquired in May 1998, and higher network revenues partially offset by the
non-recurrence of revenues from the 1998 Winter Olympics.
Operating costs and expenses increased 6% to $100,268 in the first half
of 1999 from $94,323 in the comparable 1998 period. The increase was primarily
attributable to additional expenses related to the Shadow Traffic operations,
including those acquired in May 1998, partially offset by lower news programming
and affiliate compensation expenses for the Company's network operations and the
non-recurrence of expenses associated with the Company's live coverage of the
1998 Winter Olympics.
Depreciation and amortization increased 8% to $9,293 in the first half
of 1999 as compared to $8,631 in the first half of 1998. The increase is
principally attributable to depreciation and amortization related to fixed
assets acquired as part of the May 1998 Shadow Traffic operations.
Interest expense increased 32% to $5,954 in the first half of 1999 from
$4,517 in the comparable 1998 period. The increase results from higher debt
levels associated with the Company's stock repurchase program and the May 1998
Shadow Traffic acquisition.
Net income increased 1% to $4,181 ($.15 per basic share and $.13 per
diluted share) in the first half of 1999 from $4,127 ($.13 per basic share and
$.12 per diluted share) in the comparable 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1999, the Company's cash and cash equivalents were $257, a
decrease of $2,292 from December 31, 1998.
For the six months ended June 30, 1999, net cash provided by operating
activities was $22,404 as compared to $18,744 for the six months ended June 30,
1998, an increase of $3,660. The cash flow from operations was principally used
to fund the Company's stock buy-back program and to reduce debt.
At June 30, 1999, the Company had available borrowings of $28,000 on
its revolving credit facility. The Company has used its available cash to
repurchase its Common Stock. In the first six months of 1999, the Company
repurchased approximately 412 shares of Common Stock at a cost of $10,528.
9
<PAGE>
Year 2000 Compliance
- --------------------
The Company has been working to identify and evaluate the changes
necessary to its existing computerized business systems to make those systems
Year 2000 compliant. The Company's exposure to potential Year 2000 problems
exists in two areas: technological operations in the sole control of the Company
and technological operations in some way dependent on one or more third parties.
These technological operations include information technology ("IT") systems and
non-IT systems, including those with embedded technology, hardware and software.
In respect to technological operations dependent in some way on one or more
third parties the situation is much less in the Company's ability to predict or
control.
The Company has been replacing, upgrading or modifying key financial
and operating systems in the normal course of business. Remediation with respect
to technological operations in the sole control of the Company is expected to be
fully complete by August 31, 1999.
In addition, the Company's business is dependent on third parties that
are themselves dependent on technology. For example, systems failures in
satellite transmissions and communication systems could impact the Company and
its ability to deliver programming and provide commercial air time to its
customers. To mitigate this risk, the Company has contacted major third party
vendors to ascertain their state of readiness with respect to being Year 2000
compliant. The Company's most significant vendors have indicated they believe
they are or will be Year 2000 compliant by mid-1999. However, no assurances can
be given that these third parties have corrected and identified all the Year
2000 problems and that such third party failure to correct or identify such
problems would not have a material adverse effect on the Company.
As the Company has been using existing resources to complete the
modifications necessary to become Year 2000 compliant, the Company believes that
the related costs will not be material (approximately $500). These expenditures
have been and are expected to continue to be sourced from the Company's
operating cash flow and have not and are not expected to have a material impact
on the Company's financial statements.
In conjunction with the ongoing efforts to ensure Year 2000 compliance,
the Company is establishing alternative contingency plans. Accordingly, the
Company does not anticipate that internal system failures will result in any
material effect to its operations.
10
<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
-------------------
On June 4, 1999 the Company filed a report on Form 8-K related
to the Company's proposed Merger with Metro Networks, Inc. and the Infinity
Broadcasting Corporation Management and Representation Agreements.
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: /S/ FARID SULEMAN
-----------------------
Farid Suleman
Chief Financial Officer
Dated: August 13, 1999
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 257
<SECURITIES> 0
<RECEIVABLES> 64,972<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 72,843
<PP&E> 22,629<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 325,854
<CURRENT-LIABILITIES> 64,608
<BONDS> 167,000
0
0
<COMMON> 355<F3>
<OTHER-SE> 76,243
<TOTAL-LIABILITY-AND-EQUITY> 325,854
<SALES> 0
<TOTAL-REVENUES> 124,871<F4>
<CGS> 0
<TOTAL-COSTS> 100,268<F5>
<OTHER-EXPENSES> 11,488<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,954
<INCOME-PRETAX> 7,480
<INCOME-TAX> 3,299
<INCOME-CONTINUING> 4,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,181
<EPS-BASIC> .15
<EPS-DILUTED> .13
<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 DEPRECIATION AND AMORTIZATION, AND CORPORATE GENERAL AND
ADMINISTRATIVE EXPENSES.
</FN>
</TABLE>
