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 March 31, 1999 Commission File Number 0-13020
WESTWOOD ONE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 95-3980449
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(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
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As of May 6, 1999, 27,946,135 shares of Common Stock, excluding 7,058,595
treasury shares, were outstanding and 351,733 shares of Class B Stock were
outstanding.
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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
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WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
---- ----
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 3,580 $ 2,549
Accounts receivable, net of allowance for doubtful accounts
of $3,925 (1999) and $3,720 (1998) 54,834 75,402
Other current assets 7,462 7,712
-------- --------
Total Current Assets 65,876 85,663
PROPERTY AND EQUIPMENT, NET 23,486 24,353
INTANGIBLE ASSETS, NET 221,547 224,242
OTHER ASSETS 11,064 11,021
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TOTAL ASSETS $321,973 $345,279
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 24,552 $ 28,484
Other accrued expenses and liabilities 35,611 50,068
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Total Current Liabilities 60,163 78,552
LONG-TERM DEBT 177,000 170,000
OTHER LIABILITIES 18,421 19,509
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TOTAL LIABILITIES 255,584 268,061
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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, 34,985,730 (1999) and 34,962,230 (1998) 350 350
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 206,780 206,688
Accumulated earnings (deficit) 481 1,143
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207,615 208,185
Less treasury stock, at cost; 7,050,095 (1999) and 6,647,095 (1998) shares (141,226) (130,967)
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TOTAL SHAREHOLDERS' EQUITY 66,389 77,218
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $321,973 $345,279
======== ========
</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>
<S> <C> <C>
Three Months Ended
March 31,
1999 1998
---- ----
GROSS REVENUES $67,745 $61,059
Less Agency Commissions 9,227 7,719
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NET REVENUES 58,518 53,340
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Operating Costs and Expenses Excluding
Depreciation and Amortization 51,120 46,833
Depreciation and Amortization 4,568 3,435
Corporate General and Administrative Expenses 1,193 1,090
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56,881 51,358
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OPERATING INCOME 1,637 1,982
Interest Expense 3,011 2,079
Other Income (191) (178)
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INCOME (LOSS) BEFORE INCOME TAXES (1,183) 81
INCOME TAXES (521) 32
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NET INCOME (LOSS) ($662) $49
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NET INCOME (LOSS) PER SHARE:
BASIC $(.02) $.00
====== ====
DILUTED $(.02) $.00
====== ====
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 28,268 31,664
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DILUTED 31,592 35,251
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</TABLE>
See accompanying notes to consolidated financial statements.
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WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1999 1998
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) ($662) $ 49
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 4,568 3,435
Other (392) 78
------ ------
3,514 3,562
Changes in assets and liabilities:
Decrease in accounts receivable 20,568 15,801
Decrease (Increase) in prepaid assets 250 (150)
Decrease in accounts payable and accrued liabilities (8,910) (2,825)
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Net Cash Provided By Operating Activities 15,422 16,388
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CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies and other (9,919) (1,316)
Capital expenditures (544) (239)
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Net Cash Used For Investing Activities (10,463) (1,555)
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CASH PROVIDED BEFORE FINANCING ACTIVITIES 4,959 14,833
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CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under bank and other long-term obligations 7,000 -
Issuance of common stock 92 73
Debt repayments and payments of capital lease obligations (761) (8,000)
Repurchase of common stock (10,259) (5,007)
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NET CASH (USED IN) FROM FINANCING ACTIVITIES (3,928) (12,934)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 1,031 1,899
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,549 2,763
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,580 $ 4,662
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</TABLE>
See accompanying notes to consolidated financial statements.
5
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WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(In thousands, except per share data)
NOTE 1 - Basis of Presentation:
- -------------------------------
The accompanying consolidated balance sheet as of March 31, 1999, the
consolidated statements of operations and the consolidated statements of cash
flows for the three month periods ended March 31, 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 - Earnings Per Share:
- ----------------------------
Net income (loss) 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:
March 31,
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1999 1998
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Warrants 2,661 2,719
Options 663 873
NOTE 3 - Debt:
- --------------
At March 31, 1999 the Company had outstanding borrowings of $177,000
under its bank revolving credit facility and available borrowings of $18,000.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(In thousands, except per share amounts)
On May 1, 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED
WITH THREE MONTHS ENDED MARCH 31, 1998
- ------------------------------------------
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 10% to $58,518 in the first quarter of
1999 from $53,340 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, and higher network revenues,
including higher revenues from the broadcasts of NFL football games and the
Grammy's, partially offset by the non-recurrence of revenues from the 1998
Winter Olympics.
Operating costs and expenses excluding depreciation and amortization
increased 9% to $51,120 in the first quarter of 1999 from $46,833 in the first
quarter of 1998. The increase was principally due to additional expenses related
to the Shadow Traffic operations acquired in May 1998, partially offset by the
non-recurrence of expenses associated with the Company's broadcast of the 1998
Winter Olympics.
Depreciation and amortization increased 33% to $4,568 in the first
quarter of 1999 as compared to $3,435 in the first quarter of 1998 due
principally to higher depreciation and amortization related to fixed assets from
capitalized leases and the Shadow Traffic operations acquired in May 1998.
Corporate administrative expenses increased 9% to $1,193 in the first
quarter of 1999 from $1,090 in the first quarter of 1998. The increase was
primarily attributable to higher compensation expense.
Operating income decreased 17% to $1,637 in the first quarter of 1999 from
$1,982 in the first quarter of 1998, primarily due to higher depreciation and
amortization expense.
Net interest expense increased 48% to $2,820 in the first quarter of
1999 from $1,901 in 1998. The increase was due to higher debt levels
attributable to the Company's stock repurchase program and the May 1998 Shadow
Traffic acquisition.
7
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Net loss in the first quarter of 1999 was $662 ($.02 per basic and
diluted share) as compared to the first quarter of 1998 net income of $49, a
decrease of approximately $711. The decrease in net income was due to higher
depreciation and amortization and interest expense.
Weighted average shares outstanding used to compute basic and diluted
earnings per share decreased to 28,268 and 31,592, respectively, in the first
quarter of 1999 as compared to 31,664 and 35,251 in the first quarter of 1998.
The decreases were attributable to the Company's stock repurchase program.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1999, the Company's cash and cash equivalents were $3,580, an
increase of $1,031 from the December 31, 1998 balance.
For the three months ended March 31, 1999 versus the comparable prior year
period, net cash from operating activities decreased $966. The decrease was
primarily attributable to higher working capital requirements. Net cash used for
investing activities increased $8,908 in the first quarter of 1999 due to the
payment of contingent consideration associated with the Company's 1996
acquisition of Shadow Traffic operations.
At March 31, 1999, the Company had available borrowings of $18,000 on
its revolving credit facility. The Company has used its available cash to
repurchase its Common Stock. In the first quarter of 1999, the Company
repurchased 404 shares of Common Stock at a cost of $10,259.
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 mid-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
8
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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.
9
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PART II OTHER INFORMATION
Items 1 through 5
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These items are not applicable.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
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27. Financial Data Schedule.
(b) Reports on Form 8-K
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There were no reports on Form 8-K filed for the three months
ended March 31, 1999.
10
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SIGNATURES
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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: May 12, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,580
<SECURITIES> 0
<RECEIVABLES> 54,834<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 65,876
<PP&E> 23,486<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 321,973
<CURRENT-LIABILITIES> 60,163
<BONDS> 177,000
0
0
<COMMON> 354<F3>
<OTHER-SE> 66,035
<TOTAL-LIABILITY-AND-EQUITY> 321,973
<SALES> 0
<TOTAL-REVENUES> 58,518<F4>
<CGS> 0
<TOTAL-COSTS> 51,120<F5>
<OTHER-EXPENSES> 5,761<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,011
<INCOME-PRETAX> (1,183)
<INCOME-TAX> (521)
<INCOME-CONTINUING> (662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (662)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<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>
