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, 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 November 5, 1999, 55,110,226 shares of Common Stock; 3,824,625 shares of
Preferred 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 12
SIGNATURES 13
2
<PAGE>
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
<S> <C> <C>
1999 1998
---- ----
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 10,502 $ 2,549
Accounts receivable, net of allowance for doubtful accounts
of $10,136 (1999) and $3,720 (1998) 118,952 75,402
Other current assets 14,222 7,712
---------- -------
Total Current Assets 143,676 85,663
PROPERTY AND EQUIPMENT, NET 55,339 24,353
INTANGIBLE ASSETS, NET 1,084,720 224,242
OTHER ASSETS 23,799 11,021
---------- --------
TOTAL ASSETS $1,307,534 $345,279
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 34,100 $ 28,484
Other accrued expenses and liabilities 84,027 50,068
---------- --------
Total Current Liabilities 118,127 78,552
LONG-TERM DEBT 160,000 170,000
OTHER LIABILITIES 21,666 19,509
---------- --------
TOTAL LIABILITIES 299,793 268,061
---------- --------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, authorized 10,000,000 shares; issued and
outstanding, 3,824,625 shares (1999) 38 -
Common stock, $.01 par value: authorized, 117,000,000 shares;
issued and outstanding, 63,231,950 (1999) and 34,962,230 (1998) 595 350
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 1,150,887 206,688
Accumulated earnings 10,654 1,143
---------- --------
1,162,178 208,185
Less treasury stock, at cost; 7,420,995 (1999) and 6,647,095 (1998) shares (154,437) (130,967)
---------- --------
TOTAL SHAREHOLDERS' EQUITY 1,007,741 77,218
---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,307,534 $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 Nine Months Ended
September 30, September 30,
------------- -------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---- ---- ---- ----
GROSS REVENUES $91,209 $77,179 $235,545 $211,248
Less Agency Commissions 12,307 10,510 31,772 27,752
------- ------- -------- --------
NET REVENUES 78,902 66,669 203,773 183,496
------- ------- -------- --------
Operating Costs and Expenses Excluding
Depreciation and Amortization 57,677 50,285 157,945 144,608
Depreciation and Amortization 5,719 4,905 15,012 13,536
Corporate General and Administrative Expenses 1,126 1,233 3,321 3,528
Nonrecurring Items, net - 551 - 551
------- ------- -------- --------
64,522 56,974 176,278 162,223
------- ------- -------- --------
OPERATING INCOME 14,380 9,695 27,495 21,273
Interest Expense 2,992 2,741 8,946 7,258
Other Income (155) (72) (474) (338)
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 11,543 7,026 19,023 14,353
INCOME TAXES 6,213 3,150 9,512 6,350
------- ------- -------- --------
NET INCOME $5,330 $ 3,876 $ 9,511 $ 8,003
====== ======= ======== ========
NET INCOME PER SHARE:
BASIC $.17 $.14 $.32 $.26
====== ====== ====== ======
DILUTED $.15 $.12 $.29 $.24
====== ====== ====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 31,932 28,637 29,510 30,596
====== ====== ====== ======
DILUTED 35,431 31,694 33,263 33,981
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
<S> <C> <C>
1999 1998
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 9,511 $ 8,003
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 15,012 13,536
Other 6,904 5,695
------- -------
31,427 27,234
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 2,019 (8,222)
Increase in prepaid assets (1,943) (797)
(Decrease) Increase in accounts payable and accrued liabilities (2,623) 7,259
------- -------
Net Cash Provided By Operating Activities 28,880 25,474
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies and other 14,781 (27,360)
Capital expenditures (2,581) (2,030)
------- -------
Net Cash Provided By (Used For) Investing Activities 12,200 (29,390)
------- -------
CASH PROVIDED (USED) BEFORE FINANCING ACTIVITIES 41,080 (3,916)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings (repayments) under debt arrangements and capital leases (21,084) 65,000
Issuance of common stock 11,427 1,919
Repurchase of common stock (23,470) (63,997)
------- -------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (33,127) 2,922
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,953 (994)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,549 2,763
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $10,502 $ 1,769
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Common and Preferred Stock for business acquisitions $925,556 -
Acquisition of equity in exchange for commercial inventory 9,000 -
Issuance of warrants 7,500 -
</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 September 30, 1999,
the consolidated statements of operations for the three and nine month periods
ended September 30, 1999 and 1998 and the consolidated statements of cash flows
for the nine months ended September 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 consolidated 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 - Acquisition:
- ---------------------
On September 22, 1999 the Company acquired Metro Networks, Inc. ("Metro").
Under the terms of the merger, each outstanding share of Metro was converted
into 1.5 shares of the Company's common stock and each outstanding share of
Metro Series A Convertible Preferred Stock was converted into 1.5 shares of a
corresponding series of preferred stock of the Company.
The acquisition was accounted for as a purchase, and accordingly, the
operating results are included with those of the Company from September 22,
1999. 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 30
years.
NOTE 4 - 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.
6
<PAGE>
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 that were added
to the basic weighted average shares outstanding to arrive at the diluted
weighted average shares outstanding for each period:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Warrants 2,284 2,584 2,838 2,676
Options 1,215 473 915 709
NOTE 5 - Debt:
- --------------
At September 30, 1999 the Company had outstanding borrowings of
$160,000 under its bank revolving credit facility and available borrowings of
$32,000.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(In thousands, except per share amounts)
On September 22, 1999, the Company completed the acquisition of Metro.
The acquisition was treated as a purchase and accordingly, the results of
operations of Metro are included in the Company's consolidated financial
statements from September 22, 1999.
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 SEPTEMBER 30, 1999 COMPARED
WITH THREE MONTHS ENDED SEPTEMBER 30, 1998
- ----------------------------------------------
Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenue increased $12,233, or 18%, to
$78,902 in the third quarter of 1999 from $66,669 in the comparable prior year
quarter. The increase in net revenue was primarily attributable to higher
revenues at both the Company's Network and Shadow Traffic operations and the
acquisition of Metro. The Company's net revenues for the third quarter of 1999,
excluding the results of the Metro acquisition, rose approximately 10% from the
comparable 1998 period.
Operating costs and expenses excluding depreciation and amortization
increased $7,392, or 15%, to $57,677 in the third quarter of 1999 from $50,285
in the third quarter of 1998. The increase was due principally to additional
operating expenses associated with the Metro acquisition, broadcast rights fees
associated with the Company's live broadcast of Woodstock, and higher station
compensation expenses at the Company's Shadow Traffic operations.
Depreciation and amortization increased $814, or 17%, to $5,719 in the
third quarter of 1999 as compared to $4,905 in the third quarter of 1998. The
change is principally attributable to depreciation and amortization associated
with the Metro acquisition.
Corporate general and administrative expenses decreased $107, or 9%, to
$1,126 in the third quarter of 1999 from $1,233 in the comparable 1998 quarter.
The decrease is principally attributable to lower compensation expense.
In the third quarter of 1998, the Company incurred a net charge of $551
for nonrecurring items. The nonrecurring items related to the consolidation of
the Company's news operations, one-time costs associated with evaluating various
strategic alternatives to enhance shareholder value and a settlement with a
satellite carrier whereby the Company recognized a gain for past services.
Operating income increased $4,685, or 48%, to $14,380 in the third quarter
of 1999 from $9,695 in the third quarter of 1998. The increase is in part due to
higher revenues.
8
<PAGE>
Interest expense increased 9% to $2,992 in the third quarter of 1999
from $2,741 in 1998. The increase is principally attributable to higher debt
levels as a result of the Company's stock repurchase program.
Income taxes increased $3,063, or 97%, to $6,213 in the third quarter
of 1999 from $3,150 in the third quarter of 1998. The effective income tax rate
in the quarter increased to approximately 54% in 1999 from 45% in the third
quarter of 1998. The increase in the effective rate is principally attributable
to nondeductible goodwill associated with the Metro acquisition. The provision
is comprised principally of deferred taxes as the Company has significant tax
net operating loss deductions to reduce cash taxes payable.
Net income increased $1,454, or 38%, to $5,330 ($.17 per basic share
and $.15 per diluted share) in the third quarter of 1999 from $3,876 ($.14 per
basic share and $.12 per diluted share) in the third quarter of 1998.
Weighted average shares outstanding for the third quarter of 1999 were
31,932 basic shares and 35,431 diluted shares as compared to 28,637 basic shares
and 31,694 diluted shares in the third quarter of 1998, an increase of 12% for
both basic and diluted shares. The increase in basic shares was principally
attributable to the exercise of warrants and options and the issuance of shares
in conjunction with the acquisition of Metro, partially offset by stock
repurchases. The increase in diluted shares was principally attributable to the
issuance of shares in conjunction with the acquisition of Metro, partially
offset by stock repurchases.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED
WITH NINE MONTHS ENDED SEPTEMBER 30, 1998
- ---------------------------------------------
Net revenue for the first nine months of 1999 increased 11% to $203,773
from $183,496 in the first nine months of 1998. The increase is principally
attributable to higher revenues from the Company's Shadow Traffic operations,
including those acquired in May 1998, the Metro acquisition and higher network
revenues partially offset by the non-recurrence of revenues from the 1998 Winter
Olympics.
Operating costs and expenses increased 9% to $157,945 in the first nine
months of 1999 from $144,608 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 and expenses related to Metro's
operations, partially offset by lower news programming and affiliate
compensation expenses for the Company's network operations and the nonrecurrence
of expenses associated with the Company's live coverage of the 1998 Winter
Olympics.
Depreciation and amortization increased 11% to $15,012 in the first
nine months of 1999 as compared to $13,536 in the first nine months of 1998. The
increase is principally attributable to depreciation and amortization related to
the Metro acquisition and assets acquired as part of the May 1998 Shadow Traffic
operations.
Interest expense increased 23% to $8,946 in the first nine months of
1999 from $7,258 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.
9
<PAGE>
Net income increased 19% to $9,511 ($.32 per basic share and $.29 per
diluted share) in the first nine months of 1999 from $8,003 ($.26 per basic
share and $.24 per diluted share) in the comparable 1998 period.
Weighted average shares outstanding for the first nine months of 1999
were 29,510 basic shares and 33,263 diluted shares as compared to 30,596 basic
shares and 33,981 diluted shares in the first mine months of 1998. The decrease
in basic shares was primarily attributable to the Company's stock repurchase
program partially offset by additional share issuances due to the acquisition of
Metro and the exercise of outstanding warrants and options. The decrease in
diluted shares was primarily attributable to stock repurchases, offset primarily
by the issuance of shares in conjunction with the Metro acquisition.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1999, the Company's cash and cash equivalents were
$10,502, an increase of $7,953 from December 31, 1998.
For the nine months ended September 30, 1999, net cash provided by
operating activities was $28,880 as compared to $25,474 for the nine months
ended September 30, 1998, an increase of $3,406. The cash flow from operations
was principally used to fund the Company's stock buy-back program and to reduce
debt.
At September 30, 1999, the Company had available borrowings of $32,000 on
its revolving credit facility. The Company has used its available cash to
repurchase its Common Stock. In the nine month period ended September 30, 1999,
the Company repurchased approximately 774 shares of Common Stock at a cost of
$23,471. In October 1999, the Company repurchased an additional 780 shares of
Common Stock at a cost of $30,256. The purchase was financed principally by bank
borrowings.
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 was substantially
completed in October.
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
10
<PAGE>
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 which may include
distributing commercials and programs to be aired by affiliates in the first
week of January 2000 in advance of January 2000 (to the extent possible).
Accordingly, the Company does not anticipate that internal system failures will
result in any material effect to its operations.
11
<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
- ------------------------------------------------------------
On October 1, 1999, the Company filed a report on Form 8-K which among
other matters provided information related to the outcome of items voted upon by
shareholders at its annual meeting held on September 22, 1999.
Item 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
-------------------
None
12
<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: November 12, 1999
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,502
<SECURITIES> 0
<RECEIVABLES> 118,952<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 143,676
<PP&E> 55,339<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,307,534
<CURRENT-LIABILITIES> 118,127
<BONDS> 160,000
0
38
<COMMON> 599<F3>
<OTHER-SE> 1,007,104
<TOTAL-LIABILITY-AND-EQUITY> 1,307,534
<SALES> 0
<TOTAL-REVENUES> 203,773<F4>
<CGS> 0
<TOTAL-COSTS> 157,945<F5>
<OTHER-EXPENSES> 18,333<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,946
<INCOME-PRETAX> 19,023
<INCOME-TAX> 9,512
<INCOME-CONTINUING> 9,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,511
<EPS-BASIC> .32
<EPS-DILUTED> .29
<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>
