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, 2000 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.)
40 WEST 57TH STREET, 5TH FLOOR, NEW YORK, NEW YORK
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10019 (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 October 31, 2000, 108,760,286 shares of Common Stock, excluding treasury
shares, and 703,466 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 9
PART II. OTHER INFORMATION 11
SIGNATURES 12
2
<PAGE>
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
ASSETS ---- ----
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,631 $ 10,626
Accounts receivable, net of allowance for doubtful accounts
of $7,664 (2000) and $7,714 (1999) 121,533 145,833
Other current assets 10,403 12,800
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Total Current Assets 134,567 169,259
PROPERTY AND EQUIPMENT, NET 53,172 55,957
INTANGIBLE ASSETS, NET 1,057,774 1,078,587
OTHER ASSETS 20,317 31,085
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TOTAL ASSETS $1,265,830 $1,334,888
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 41,584 $ 32,121
Current maturity of long-term debt 10,000 10,000
Other accrued expenses and liabilities 94,663 85,884
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Total Current Liabilities 146,247 128,005
LONG-TERM DEBT 122,500 158,000
OTHER LIABILITIES 28,451 29,108
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TOTAL LIABILITIES 297,198 315,113
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COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock: authorized 10,000,000 shares, none outstanding - -
Common stock, $.01 par value: authorized, 300,000 shares;
issued, 129,217 (2000) and 127,898 (1999) 1,290 1,280
Class B stock, $.01 par value: authorized, 3,000 shares:
issued and outstanding, 703 (2000 and 1999) 7 7
Additional paid-in capital 1,193,542 1,171,370
Accumulated earnings 48,857 24,387
Accumulated other comprehensive income (loss) (1,197) 7,862
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1,242,499 1,204,906
Less treasury stock, at cost; 19,663 (2000) and 16,421 (1999) shares (273,867) (185,131)
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TOTAL SHAREHOLDERS' EQUITY 968,632 1,019,775
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,265,830 $1,334,888
========== ==========
</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,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
GROSS REVENUES $161,533 $91,209 $464,507 $235,545
Less Agency Commissions 22,519 12,307 66,890 31,772
-------- ------- -------- --------
NET REVENUES 139,014 78,902 397,617 203,773
------- ------- -------- --------
Operating Costs and Expenses Excluding
Depreciation and Amortization 96,980 57,677 280,635 157,945
Depreciation and Amortization 15,834 5,719 46,957 15,012
Corporate General and Administrative Expenses 2,020 1,126 6,104 3,321
-------- ------- -------- --------
114,834 64,522 333,696 176,278
-------- ------- -------- --------
OPERATING INCOME 24,180 14,380 63,921 27,495
Interest Expense 2,486 2,992 7,612 8,946
Other Income (164) (155) (536) (474)
-------- ------- -------- --------
INCOME BEFORE INCOME TAXES 21,858 11,543 56,845 19,023
INCOME TAXES 11,988 6,213 32,375 9,512
-------- ------- -------- --------
NET INCOME $9,870 $5,330 $24,470 $9,511
======== ======= ======= ========
NET INCOME PER SHARE:
BASIC $ .09 $ .08 $ .22 $ .16
======== ======= ======= ========
DILUTED $ .09 $ .08 $ .21 $ .14
======== ======= ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 110,057 63,864 111,397 59,020
======== ======== ======= ========
DILUTED 114,929 70,862 117,165 66,526
======== ======== ======= ========
</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,
-----------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 24,470 $ 9,511
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 46,957 15,012
Deferred taxes and other 7,811 6,904
-------- -------
79,238 31,427
Changes in assets and liabilities:
Decrease in accounts receivable 22,659 2,019
Decrease (Increase) in other assets 992 (1,943)
Increase (Decrease) in accounts payable and accrued liabilities 24,863 (2,623)
-------- -------
Net Cash Provided By Operating Activities 127,752 28,880
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CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies and other (14,142) 14,781
Capital expenditures (7,371) (2,581)
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Net Cash (Used In) Provided By Investing Activities (21,513) 12,200
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CASH PROVIDED BEFORE FINANCING ACTIVITIES 106,239 41,080
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CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 12,523 11,427
Debt repayments and payments of capital lease obligations (38,021) (21,084)
Repurchase of common stock (88,736) (23,470)
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NET CASH USED IN FINANCING ACTIVITIES (114,234) (33,127)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,995) 7,953
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,626 2,549
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,631 $10,502
======== =======
</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, 2000, the
consolidated statements of operations for the three and nine month periods ended
September 30, 2000 and 1999 and the consolidated statements of cash flows for
the nine months ended September 30, 2000 and 1999 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.
Total comprehensive income for the Company includes net income and other
comprehensive income items including unrealized loss on securities.
Comprehensive income is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 9,870 $ 5,330 $24,470 $ 9,511
Unrealized loss on securities, net of tax ( 417) - (9,059) -
------- ------- ------- -------
Comprehensive income $ 9,453 $ 5,330 $15,411 $ 9,511
======= ======= ======= =======
</TABLE>
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 that were added
to the basic weighted average shares outstanding to arrive at the diluted
weighted average shares outstanding for each period:
6
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Warrants 1,379 4,568 1,530 5,676
Options 3,493 2,430 4,238 1,830
</TABLE>
NOTE 4 - Debt:
--------------
At September 30, 2000 the Company had outstanding borrowings of $132,500
under its bank revolving credit facility and available borrowings of $40,000.
NOTE 5 - Acquisition:
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On September 22, 1999 the Company acquired all the issued and outstanding
common and preferred stock of Metro Networks, Inc. ("'Metro") for approximately
$954,400. The acquisition was accounted for as a purchase with the excess of the
purchase price over the fair value of the net assets acquired being amortized
over 25 years.
The unaudited pro forma combined historical results, as if Metro had been
acquired on January 1, 1999 are estimated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
Net Revenues $139,014 $121,012 $397,617 $337,230
Net Income 9,870 2,050 24,470 3,256
Net Income Per Share:
Basic $.09 $.02 $.22 $.03
Diluted .09 .02 .21 .03
</TABLE>
This pro forma financial information is presented for comparative purposes
only and is not necessarily indicative of the operating results that actually
would have occurred had the Metro acquisition been consummated on January 1,
1999. In addition, these results are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
On June 12, 2000 the Company entered into a definitive agreement to
purchase the operating assets of SmartRoute Systems for approximately $25,000 in
cash and the assumption of certain obligations. The purchase is expected to be
completed in the fourth quarter of 2000.
NOTE 6 - Stock Split:
---------------------
In March 2000, the Company's shareholders approved an increase in the
number of authorized shares of common stock from 117,000 to 300,000 and the
Company subsequently effected a two-for-one stock split of its Common Stock and
Class B Stock. All references to Common Stock, Class B Stock, common shares
outstanding, weighted average shares outstanding, and per share amounts have
been restated to give retroactive effect to the stock split.
7
<PAGE>
NOTE 7 - Subsequent Events:
---------------------------
In October 2000, the Company amended its existing revolving credit facility
to permit the repurchase of Common Stock provided the Company's debt to cash
flow ratio is less than 4.0:1, to increase the Company's capital expenditure
limitation and to allow for up to $150,000 of additional debt on terms
substantially similar to its existing facility.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(In thousands, except per share amounts)
All references to Common Stock, Class B Stock, common shares outstanding,
weighted average shares outstanding and per share amounts have been restated to
give retroactive effect to the two-for-one split of the Company's Common Stock
and Class B Stock which was paid to shareholders in March 2000.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED
WITH THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------
Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenue increased $60,112, or 76%, to
$139,014 in the third quarter of 2000 from $78,902 in the comparable prior year
quarter. The increase in net revenue was primarily attributable to higher
revenues at the Company's network operations, including the Company's live
coverage of the 2000 Summer Olympics, and traffic operations as well as the
Company's September 1999 acquisition of Metro. On a pro forma basis, assuming
the acquisition of Metro had occurred as of January 1, 1999, net revenue for the
third quarter of 2000 would have increased by approximately by 15%.
Operating costs and expenses excluding depreciation and amortization
increased $39,303 or 68%, to $96,980 in the third quarter of 2000 from $57,677
in the third quarter of 1999. The increase was due principally to operating
expenses associated with the Metro acquisition and broadcast rights fees and
other related costs associated with the 2000 Summer Olympics.
Depreciation and amortization increased $10,115, or 177%, to $15,834 in the
third quarter of 2000 as compared to $5,719 in the third quarter of 1999. The
increase is principally attributable to the amortization of goodwill resulting
from the Metro acquisition.
Corporate general and administrative expenses increased $894, or 79%, to
$2,020 in the third quarter of 2000 from $1,126 in the comparable 1999 quarter.
The increase is principally attributable to higher management fees.
Operating income increased $9,800, or 68%, to $24,180 in the third quarter
of 2000 from $14,380 in the third quarter of 1999 due to higher revenues from
the Company's operations partially offset by higher depreciation and
amortization.
Interest expense decreased 17% to $2,486 in the third quarter of 2000 from
$2,992 in 1999. The decrease is principally attributable to lower debt levels
partially offset by higher interest rates.
Income taxes increased $5,775, or 93%, to $11,988 in the third quarter of
2000 from $6,213 in the third quarter of 1999. The Company's effective income
tax rate in the first nine months of 2000 was approximately 57% due principally
to non-deductible goodwill amortization from the Metro acquisition.
Net income increased $4,540, or 85%, to $9,870 ($.09 per basic and diluted
share) in the third quarter of 2000 from $5,330 ($.08 per basic and diluted
share) in the third quarter of 1999.
Weighted average shares outstanding for the third quarter of 2000 were
110,057 basic shares and 114,929 diluted shares as compared to 63,864 basic
shares and 70,862 diluted shares in the third quarter of 1999, an increase of
72% for basic shares and 62% for diluted shares. The increase is attributable to
stock issued as part of the Metro acquisition and the exercise of options,
partially offset by stock repurchases.
9
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED
WITH NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------
Net revenue for the first nine months of 2000 increased 95% to $397,617
from $203,733 in the first nine months of 1999. The increase in net revenue was
due to a strong advertising environment benefiting the Company's operations as
well as the Company's acquisition of Metro. On a pro forma basis, assuming the
acquisition of Metro had occurred as of January 1, 1999, net revenue for the
nine months of 2000 would have increased by approximately 18%.
Operating costs and expenses increased 78% to $280,635 in the first nine
months of 2000 from $157,945 in the comparable 1999 period. The increase was
primarily attributable to the acquisition of Metro in addition to higher
affiliate compensation expense and one-time costs associated with the Company's
coverage of the 2000 Summer Olympics.
Depreciation and amortization increased 213% to $46,957 in the first nine
months of 2000 as compared to $15,012 in the first nine months of 1999. The
increase is principally attributable to depreciation and amortization related to
the Metro acquisition.
Corporate general and administrative expenses increased 84% to $6,104 in
the first nine months of 2000 from $3,321 in the comparable 1999 period. The
increase is principally attributable to higher management fees.
Interest expense decreased 15% to $7,612 in the first nine months of 2000
from $8,946 in the comparable 1999 period. The decrease results from lower debt
levels partially offset by higher interest rates.
Net income increased 157% to $24,470 ($.22 per basic share and $.21 per
diluted share) in the first nine months of 2000 from $9,511 ($.16 per basic
share and $.14 per diluted share) in the comparable 1999 period.
Weighted average shares outstanding for the first nine months of 2000 were
111,397 basic shares and 117,165 diluted shares as compared to 59,020 basic
shares and 66,526 diluted shares in the first mine months of 1999. The decrease
in shares was primarily attributable to the issuances of shares in connection
with the acquisition of Metro and the exercise of outstanding warrants and
options, partially offset by shares repurchased as part of the Company's stock
repurchase program.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At September 30, 2000, the Company's cash and cash equivalents were $2,631,
a decrease of $7,995 from December 31, 1999.
For the nine months ended September 30, 2000, net cash provided by
operating activities was $127,752 as compared to $28,880 for the nine months
ended September 30, 1999, an increase of $98,872. The cash flow from operations
was principally used to fund the Company's stock buy-back program and to reduce
debt.
At September 30, 2000, the Company had available borrowings of $40,000 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, 2000,
the Company repurchased approximately 3,241 shares of Common Stock at a cost of
approximately $88,735. In October 2000, the Company repurchased an additional
836 shares of Common Stock at a cost of $13,942. The October purchase was
financed principally by bank borrowings.
The Company's Board of Directors approved an additional $200,000 share
repurchase program. Accordingly, as of November 1, 2000, the Company has
authorization to repurchase up to $265,490 of its Common Stock.
In October 2000, the Company amended its existing revolving credit facility
to permit the repurchase of Common Stock provided the Company's debt to cash
flow ratio is less than 4.0:1, to increase the Company's capital expenditure
limitation and to allow for up to $150,000 of additional debt on terms
substantially similar to its existing facility. The Company is currently
negotiating to increase its credit facility by $150,000. The Company expects to
close on its acquisition of SmartRoute Systems in November 2000.
10
<PAGE>
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
--------
27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
11
<PAGE>
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: November 14, 2000
12
