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, 2002 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 10019
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (212) 641-2000
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 1, 2002, 106,427,217 shares of Common Stock were outstanding,
excluding treasury shares, and 703,466 shares of Class B Stock were outstanding.
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 8
PART II. OTHER INFORMATION 10
SIGNATURES 12
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2002 2001
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,560 $ 4,509
Accounts receivable, net of allowance for doubtful accounts
of $8,383 (2002) and $9,282 (2001) 115,852 123,733
Other current assets 5,940 10,240
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Total Current Assets 131,352 138,482
PROPERTY AND EQUIPMENT, NET 55,999 56,778
GOODWILL 991,043 978,011
INTANGIBLE ASSETS, NET 11,447 25,326
OTHER ASSETS 9,498 9,375
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TOTAL ASSETS $1,199,339 $1,207,972
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $34,556 $33,729
Current maturity of long-term debt 8,750 7,500
Other accrued expenses and liabilities 57,507 64,286
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Total Current Liabilities 100,813 105,515
LONG-TERM DEBT 167,000 152,000
DEFERRED INCOME TAXES 22,013 21,123
OTHER LIABILITIES 12,956 13,963
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TOTAL LIABILITIES 302,782 292,601
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock: authorized 10,000 shares, none outstanding - -
Common stock, $.01 par value: authorized, 274,237 shares;
issued and outstanding, 107,807 (2002) and 106,862 (2001) 1,078 1,069
Class B stock, $.01 par value: authorized, 3,000 shares:
issued and outstanding, 704 (2002 and 2001) 7 7
Additional paid-in capital 808,281 804,429
Accumulated earnings 127,309 109,866
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936,675 915,371
Less treasury stock, at cost; 1,213 (2002) shares (40,118) -
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TOTAL SHAREHOLDERS' EQUITY 896,557 915,371
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,199,339 $1,207,972
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See accompanying notes to consolidated financial statements.
3
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended
March 31,
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2002 2001
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GROSS REVENUES $146,667 $140,477
Less Agency Commissions 20,371 18,908
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NET REVENUES 126,296 121,569
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Operating Costs and Expenses Excluding
Depreciation and Amortization 92,401 90,441
Depreciation and Amortization 2,835 17,007
Corporate General and Administrative Expenses 1,737 1,811
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96,973 109,259
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OPERATING INCOME 29,323 12,310
Interest Expense 1,758 2,846
Other Income (35) (103)
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INCOME BEFORE INCOME TAXES 27,600 9,567
INCOME TAXES 10,157 4,967
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NET INCOME $17,443 $4,600
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NET INCOME PER SHARE:
BASIC $ .16 $ .04
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DILUTED $ .16 $ .04
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WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 106,629 107,865
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DILUTED 110,434 111,766
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See accompanying notes to consolidated financial statements
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WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
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2002 2001
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CASH FLOW FROM OPERATING ACTIVITIES:
Net income $17,443 $4,600
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,835 17,007
Other 1,277 658
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21,555 22,265
Changes in assets and liabilities:
Decrease in accounts receivable 7,881 29,184
Decrease in other assets 3,628 2,370
Increase (Decrease) in accounts payable and accrued liabilities 9,848 (8,935)
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Net Cash Provided By Operating Activities 42,912 44,884
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CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (1,022) (1,723)
Acquisition of companies and other (32) (185)
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Net Cash Used For Investing Activities (1,054) (1,908)
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CASH PROVIDED BEFORE FINANCING ACTIVITIES 41,858 42,976
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CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 12,491 3,232
Borrowings under bank and other long-term obligations 16,250 -
Debt repayments and payments of capital lease obligations - (32,895)
Repurchase of common stock and warrants (65,548) (14,664)
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NET CASH (USED IN) FINANCING ACTIVITIES (36,807) (44,327)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,051 (1,351)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,509 6,757
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,560 $5,406
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See accompanying notes to consolidated financial statements.
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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:
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The accompanying consolidated balance sheet as of March 31, 2002, the
consolidated statements of operations and the consolidated statements of cash
flows for the three month periods ended March 31, 2002 and 2001 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 - Accounting Change - Goodwill and Other Intangible Assets
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In July 2001, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets ("SFAS 142")
(collectively, the "Statements"). SFAS 141 supercedes APB Opinion No. 16,
"Business Combinations" and requires all business combinations to be accounted
for under the purchase methods. SFAS 142 primarily addresses the accounting for
goodwill and intangible assets subsequent to their initial recognition. The
provisions of SFAS 142 (1) prohibit the amortization of goodwill and
indefinite-lived intangible assets, (2) require that goodwill and indefinite
-lived intangible assets be tested annually for impairment, (3) require that
reporting units be identified for the purpose of assessing potential future
impairments of goodwill, and (4) remove the forty-year limitation on the
amortization period of intangible assets that have finite lives. The Company
adopted these Statements, as required, on January 1, 2002.
In accordance with SFAS No. 142, the Company completed its transitional
impairment testing of intangible assets during the first quarter of 2002. The
outcome of such impairment testing indicated that the fair value of the
Company's intangible assets were in excess of their carrying value.
At March 31, 2002, intangible assets subject to amortization primarily
consisted of network affiliation agreements that are being amortized on an
accelerated basis over periods ranging from 4 to 20 years with a
weighted-average amortization period of approximately 8 years. At March 31,
2002, the Company's amortizable intangible assets gross value was $29,337 with
accumulated amortization of $17,890. The Company's estimated aggregate
amortization expense for fiscal year 2002, 2003, 2004, 2005 and 2006 are $1,800,
$1,450, $1,450, $1,450 and $900, respectively.
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The following table provides a reconciliation of reported net income for
the three months ended March 31, 2001 to net income that would have been
reported had SFAS No. 142 been applied as of January 1, 2001:
Three months ended
March 31, 2001
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Reported net income $4,600
Add back goodwill amortization, net of tax 8,735
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Adjusted net income $13,335
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Basic and diluted earnings per share:
As reported $.04
Goodwill amortization .08
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As adjusted $.12
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NOTE 3 - Reclassification:
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Certain prior period amounts have been reclassified to conform to the
current presentation.
NOTE 4 - Earnings Per Share:
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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:
March 31,
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2002 2001
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Warrants 394 1,154
Options 3,411 2,747
NOTE 5 - Debt:
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A March 31, 2002 the Company had outstanding borrowings of $175,750 under
its bank revolving credit facility and additional available borrowings of
$121,000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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(In thousands, except per share amounts)
RESULTS OF OPERATIONS
Effective January 1, 2002, the Company adopted SFAS 141 and SFAS 142. The
Statements prohibit retroactive application, and accordingly several comparisons
to prior year reported amounts are not meaningful. As a result, the Company has
included pro forma disclosures to compare the current year operating results to
those that would have been reported had the Statements been applied as of
January 1, 2001.
THREE MONTHS ENDED MARCH 31, 2002 COMPARED
WITH THREE MONTHS ENDED MARCH 31, 2001
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Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenue in the first quarter of 2002 was
$126,296 compared with $121,569 in the first quarter of 2001. The increase in
net revenue was principally related to the Company's exclusive radio broadcast
of the Winter Olympics from Salt Lake City.
Operating costs and expenses excluding depreciation and amortization
increased 2% to $92,401 in the first quarter of 2002 from $90,441 in the first
quarter of 2001. The increase was principally due to broadcast rights fees and
other related costs associated with the Company's exclusive radio broadcast of
the Winter Olympics, partially offset by tight cost controls, and reductions in
affiliate compensation and personnel costs.
Depreciation and amortization decreased $14,172, or 83%, to $2,835 in the
first quarter of 2002 compared with $17,007 in the first quarter of 2001 due
principally to the Company's adoption of SFAS 142, which prohibits the Company
from continuing to amortize goodwill.
Corporate administrative expenses decreased 4% to $1,737 in the first
quarter of 2002 from $1,811 in the first quarter of 2001. The decrease was
primarily attributable to lower compensation expense.
Operating income increased 138% to $29,323 in the first quarter of 2002
from $12,310 in the first quarter of 2001, primarily due to lower depreciation
and amortization expense resulting from the Company's adoption of SFAS 142 and
higher operating cash flow (EBITDA). On a pro forma basis, assuming the Company
had adopted the provisions of SFAS 142 on January 1, 2001, the Company's
operating income would have increased approximately 23%.
Net interest expense decreased in the first quarter of 2002 to $1,723 from
$2,743 in 2001. The decrease was due to lower interest rates, partially offset
by slightly higher borrowing levels.
Income tax expense in the first quarter of 2002 was $10,157 compared with
$4,967 in the first quarter of 2001. The Company's effective income tax rate in
2002 is approximately 37% compared with a 52% effective tax rate in the first
quarter of 2001. Both the Company's reported income tax expense and effective
income tax rate were affected by the Company's adoption of SFAS 142. On a pro
forma basis, assuming the Company had adopted the provisions of SFAS 142 on
January 1, 2001, income tax expense would have increased by approximately 30%
and the Company's effective income tax rate would have been approximately 37% in
the first quarter of 2001.
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Net income in the first quarter of 2002 was $17,443 ($.16 per basic and
diluted share) compared with $4,600 ($.04 per basic and diluted share) in the
first quarter of 2001, an increase of approximately $12,843, or 279%. On a pro
forma basis, assuming the Company had adopted the provisions of SFAS 142 on
January 1, 2001, the Company's net income would have increased by approximately
31% and net income per basic and diluted share would have increased by
approximately 32%.
Weighted average shares outstanding used to compute basic and diluted
earnings per share decreased to 106,629 and 110,434, respectively, in the first
quarter of 2002 compared with 107,865 and 111,766, respectively, in the first
quarter of 2001. The decrease is principally attributable to the Company's stock
repurchase program.
LIQUIDITY AND CAPITAL RESOURCES
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At March 31, 2002, the Company's cash and cash equivalents were $9,560, an
increase of $5,051 from the December 31, 2001 balance.
For the three months ended March 31, 2002 versus the comparable prior year
period, net cash from operating activities decreased $1,972. The decrease was
primarily attributable to changes in working capital.
At March 31, 2002, the Company had available borrowings of $121,000 on its
revolving credit facility. Pursuant to the terms of the facility, the amount of
available borrowings declines by $6,000 at the end of each quarter in 2002. In
addition, the Company was required to repay its term loan by $3,750 per quarter
in its third and fourth quarters of 2002. The Company paid its September 2002
term loan installment in February 2002 and its December 2002 term loan
installment in April 2002. The Company has used its available cash to either
repurchase its Common Stock and warrants and/or repay its debt. In the first
quarter of 2002, the Company repurchased approximately 1,213 shares of Common
Stock and 1,000 warrants at a cost of $65,548. In the month of April, the
Company repurchased an additional 322 shares of Common Stock at a cost of
approximately $12,058.
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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
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(a) EXHIBIT
NUMBER DESCRIPTION
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3.1 Certificate of Incorporation of Registrant. (1)
3.2 Agreement of Merger. (1)
3.3 Certificate of Amendment of Certificate of Incorporation, as
filed on October 10, 1986. (2)
3.4 Certificate of Amendment of Certificate of Incorporation, as
filed on October 9, 1986. (3)
3.5 Certificate of Amendment of Certificate of Incorporation, as
filed on March 23, 1987. (3)
3.6 Certificate of Correction of Certificate of Amendment, as filed
on March 31, 1987 at 10:00 a.m. (3)
3.7 Certificate of Correction of Certificate of Amendment, as filed
on March 31, 1987 at 10:01 a.m. (3)
3.8 Bylaws of Registrant as currently in effect. (10)
*10.1Employment Agreement, dated April 29, 1998, between Registrant
and Norman J. Pattiz. (12)
10.2 Form of Indemnification Agreement between Registrant and its
Directors and Executive Officers. (4)
10.3 Amended and Restated Credit Agreement, dated September 30, 1996,
between Registrant and The Chase Manhattan Bank and Co-Agents.
(10)
10.4 Second Amended and Restated Credit Agreement dated November 17,
2000, between Registrant and The Chase Manhattan Bank and
Co-Agents. (16)
10.5 Purchase Agreement, dated as of August 24, 1987, between
Registrant and National Broadcasting Company, Inc. (5)
10.6 Agreement and Plan of Merger among Registrant, Copter Acquisition
Corp. and Metro Networks, Inc. dated as of June 1, 1999 (13)
*10.7Amendment No. 1 to the Agreement and Plan Merger, dated as of
August 20, 1999, by and among Registrant, Copter Acquisition
Corp. and Metro Networks, Inc. (14)
10.8 Management Agreement, dated as of March 30, 1999, between
Registrant and Infinity Broadcasting Corporation. (13)
10.9 Representation Agreement, dated as of March 31, 1997, between
Registrant and CBS, Inc. (11)
10.10Westwood One Amended 1999 Stock Incentive Plan. (13)
10.11Westwood One, Inc. 1989 Stock Incentive Plan. (6)
10.12Amendments to the Westwood One, Inc. Amended 1989 Stock
Incentive Plan. (7) (9)
10.13Leases, dated August 9, 1999, between Lefrak SBN LP and Westwood
One, Inc. and between Infinity and Westwood One, Inc. relating to
New York, New York offices. (15)
10.14Lease, dated December 18, 1991, between Valencia Paragon
Associates, Ltd., and Unistar Communications Group, Inc. relating
to Valencia, California offices. (8)
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed for the three months ended
March 31, 2002
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* Indicates a management contract or compensatory plan.
(1) Filed as an exhibit to Registrant's registration statement on
Form S-1 (File Number 2-98695) and incorporated herein by
reference.
(2) Filed as an exhibit to Registrant's registration statement on
Form S-1 (Registration Number 33-9006) and incorporated herein by
reference.
10
(3) Filed as an exhibit to Registrant's Form 8 dated March 1, 1988,
and incorporated herein by reference.
(4) Filed as part of Registrant's September 25, 1986 proxy statement
and incorporated herein by reference.
(5) Filed an exhibit to Registrant's current report on Form 8-K dated
September 4, 1987 and incorporated herein by reference.
(6) Filed as part of Registrant's March 27, 1992 proxy statement and
incorporated herein by reference.
(7) Filed as an exhibit to Registrant's July 20, 1994 proxy statement
and incorporated herein by reference.
(8) Filed as an exhibit to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference.
(9) Filed as an exhibit to Registrant's May 17, 1996 proxy statement
and incorporated herein by reference.
(10) Filed as an exhibit to Registrant's Quarterly report on Form 10-Q
for the quarter ended September 30, 1996 and incorporated herein
by reference.
(11) Filed as an exhibit to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997 and incorporated herein by
reference.
(12) Filed as an exhibit to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated herein by
reference.
(13) Filed as an exhibit to Registrant's August 24, 1999 proxy
statement and incorporated herein by reference.
(14) Filed as an exhibit to Registrant's current report on Form 8-K
dated October 1, 1999 and incorporated herein by reference.
(15) Filed as an exhibit to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999 and incorporated herein by
reference.
(16) Filed as an exhibit to Registrant's Annual Report on Form 10-K
for the year ended December 31, 2000 and incorporated herein by
reference.
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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/ ROBERT FREEDLINE
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ROBERT FREEDLINE
Chief Financial Officer
Dated: May 8, 2002
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