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, 2001 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
(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, 2001, 106,578,966 shares of Common Stock, excluding treasury
shares, and 703,466 shares of Class B Stock were outstanding.
WESTWOOD ONE, INC.
INDEX
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 11
SIGNATURES 12
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2001 2000
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ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 8,657 $ 6,757
Accounts receivable, net of allowance for doubtful accounts
of $10,441 (2001) and $9,356 (2000) 113,076 135,550
Other current assets 8,911 11,574
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Total Current Assets 130,644 153,881
PROPERTY AND EQUIPMENT, NET 58,992 58,052
INTANGIBLE ASSETS, NET 1,014,978 1,055,727
OTHER ASSETS 11,231 17,896
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TOTAL ASSETS $1,215,845 $1,285,556
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $42,305 $41,916
Current maturity of long-term debt 7,500 10,000
Other accrued expenses and liabilities 75,568 86,286
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Total Current Liabilities 125,373 138,202
LONG-TERM DEBT 151,250 168,000
OTHER LIABILITIES 32,550 29,462
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TOTAL LIABILITIES 309,173 335,664
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COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock: authorized 10,000 shares, none outstanding - -
Common stock, $.01 par value: authorized, 300,000 shares;
issued and outstanding, 131,206 (2001) and 129,300 (2000) 1,312 1,293
Class B stock, $.01 par value: authorized, 3,000 shares:
issued and outstanding, 704 (2001 and 2000) 7 7
Additional paid-in capital 1,206,880 1,194,118
Accumulated earnings 93,584 66,671
Accumulated other comprehensive loss - (3,635)
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1,301,783 1,258,454
Less treasury stock, at cost; 25,045 (2001) and 21,612 (2000) shares (395,111) (308,562)
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TOTAL SHAREHOLDERS' EQUITY 906,672 949,892
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,215,845 $1,285,556
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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 Nine Months Ended
September 30, September 30,
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2001 2000 2001 2000
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GROSS REVENUES $144,215 $161,533 $439,990 $464,507
Less Agency Commissions 20,232 22,519 60,754 66,890
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NET REVENUES 123,983 139,014 379,236 397,617
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Operating Costs and Expenses Excluding
Depreciation and Amortization 82,183 96,980 259,339 280,635
Depreciation and Amortization 17,015 15,834 51,131 46,957
Corporate General and Administrative Expenses 1,674 2,020 5,338 6,104
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100,872 114,834 315,808 333,696
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OPERATING INCOME 23,111 24,180 63,428 63,921
Interest Expense 2,075 2,486 7,010 7,612
Other Income (75) (164) 1,005 (536)
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INCOME BEFORE INCOME TAXES 21,111 21,858 55,413 56,845
INCOME TAXES 10,930 11,988 28,500 32,375
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NET INCOME $10,181 $9,870 $26,913 $24,470
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NET INCOME PER SHARE:
BASIC $ .10 $ .09 $ .25 $ .22
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DILUTED $ .09 $ .09 $ .24 $ .21
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WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 106,852 110,057 107,698 111,397
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DILUTED 111,165 114,929 112,219 117,165
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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)
Nine Months Ended
September 30,
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2001 2000
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CASH FLOW FROM OPERATING ACTIVITIES:
Net income $26,913 $24,470
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 51,131 46,957
Deferred taxes and other 2,885 7,811
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80,929 79,238
Changes in assets and liabilities:
Decrease in accounts receivable 23,174 22,659
Decrease in other assets 2,034 992
Increase in accounts payable and accrued liabilities 18,442 24,863
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Net Cash Provided By Operating Activities 124,579 127,752
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CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies and other (6,211) (14,142)
Capital expenditures (5,934) (7,371)
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Net Cash Used For Investing Activities (12,145) (21,513)
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CASH PROVIDED BEFORE FINANCING ACTIVITIES 112,434 106,239
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CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 18,471 12,523
Debt repayments and payments of capital lease obligations (21,366) (38,021)
Repurchase of common stock (107,639) (88,736)
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NET CASH (USED IN) FINANCING ACTIVITIES (110,534) (114,234)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,900 (7,995)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,757 10,626
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $8,657 $2,631
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See accompanying notes to consolidated financial statements.
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WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
NOTE 1 - Basis of Presentation:
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The accompanying consolidated balance sheet as of September 30, 2001, the
consolidated statements of operations for the three and nine month periods ended
September 30, 2001 and 2000 and the consolidated statements of cash flows for
the nine months ended September 30, 2001 and 2000 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:
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Certain prior period amounts have been reclassified to conform to the
current presentation.
NOTE 3 - 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 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,
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2001 2000 2001 2000
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Warrants 1,083 1,379 1,345 1,530
Options 3,230 3,493 3,176 4,238
NOTE 4 - Debt:
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At September 30, 2001 the Company had outstanding borrowings of $158,750
under its bank revolving credit facility and available borrowings of $156,000.
In April 2001, the Company entered into a one year interest rate swap
agreement covering $25,000 principal value of its outstanding borrowing to
effectively fix the interest rate at 4.27% plus the Applicable Margin (typically
the Company borrows at a variable interest rate of three-month LIBOR plus the
Applicable Margin).
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
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED
WITH THREE MONTHS ENDED SEPTEMBER 30, 2000
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Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenue decreased $15,031, or 11%, to
$123,983 in the third quarter of 2001 from $139,014 in the comparable prior year
quarter. The decrease in net revenue was primarily attributable to the
non-recurrence of revenues from the 2000 Summer Olympics, a reduction of
spending by internet companies, and a slowdown in the advertising market
generally. The Company's third quarter 2001 revenues were also adversely
affected by lost revenue from the cancellation and rescheduling of programming
and advertiser commitments due to the events of September 11.
Operating costs and expenses excluding depreciation and amortization
decreased $14,797 or 15%, to $82,183 in the third quarter of 2001 from $96,980
in the third quarter of 2000. The decrease was due principally to the
non-recurrence of broadcast rights fees and other related costs associated with
the 2000 Summer Olympics, tight cost controls and reductions in affiliate and
personnel costs, partially offset by additional operating costs associated with
the operations of SmartRoute Systems, Inc. ("SmartRoute"), whose assets were
acquired in mid-November 2000.
Depreciation and amortization expense increased $1,181, or 7%, to $17,015
in the third quarter of 2001 as compared with $15,834 in the third quarter of
2000. The increase is principally attributable to the amortization of goodwill
resulting from the acquisition of the operating assets of SmartRoute.
Corporate general and administrative expenses decreased $346, or 17%, to
$1,674 in the third quarter of 2001 from $2,020 in the comparable 2000 quarter.
The decrease is principally attributable to lower management compensation.
Operating income decreased $1,069, or 4%, to $23,111 in the third quarter
of 2001 from $24,180 in the third quarter of 2000 due to higher depreciation and
amortization.
Interest expense decreased 17% to $2,075 in the third quarter of 2001 from
$2,486 in 2000. The decrease is principally attributable to lower interest
rates.
Income taxes decreased $1,058, or 9%, to $10,930 in the third quarter of
2001 from $11,988 in the third quarter of 2000. The Company's effective income
tax rate in the first nine months of 2001 was approximately 51% due principally
to non-deductible goodwill and lower state taxes.
Net income increased $311, or 3%, to $10,181 ($.10 per basic share and $.09
per diluted share) in the third quarter of 2001 from $9,870 ($.09 per basic and
diluted share) in the third quarter of 2000.
Weighted average shares outstanding for the third quarter of 2001 were
106,852 basic shares and 111,165 diluted shares as compared to 110,057 basic
shares and 114,929 diluted shares in the third quarter of 2000, a decrease of 3%
for both basic and diluted shares. The decrease is attributable to the Company's
stock repurchase program.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED
WITH NINE MONTHS ENDED SEPTEMBER 30, 2000
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Net revenue for the first nine months of 2001 decreased 5% to $379,236 from
$397,617 in the first nine months of 2000. The decrease in net revenue was due
to the non-recurrence of revenues from the 2000 Summer Olympics, a reduction of
spending by internet companies, the cancellation of programming and advertising
commitments due to the events of September 11 and a slowdown in the advertising
market generally.
Operating costs and expenses excluding depreciation and amortization
decreased 8% to $259,339 in the first nine months of 2001 from $280,635 in the
comparable 2000 period. The decrease was primarily attributable to the
non-recurrence of broadcast rights fees and related costs associated with the
2000 Summer Olympics, tight cost controls and reductions in affiliate and
personnel costs, partially offset by operating costs associated with the
operations of SmartRoute.
Depreciation and amortization expense increased 9% to $51,131 in the first
nine months of 2001 as compared with $46,957 in the first nine months of 2000.
The increase is principally attributable to depreciation and amortization
related to the acquisition of the operating assets of SmartRoute.
Corporate general and administrative expenses decreased 13% to $5,338 in
the first nine months of 2001 from $6,104 in the comparable 2000 period. The
decrease is principally attributable to lower management compensation.
Interest expense decreased 8% to $7,010 in the first nine months of 2001
from $7,612 in the comparable 2000 period. The decrease results from lower
average debt levels and higher interest rates.
Net income increased 10% to $26,913 ($.25 per basic share and $.24 per
diluted share) in the first nine months of 2001 from $24,470 ($.22 per basic
share and $.21 per diluted share) in the comparable 2000 period.
Weighted average shares outstanding for the first nine months of 2001 were
107,698 basic shares and 112,219 diluted shares as compared with 111,397 basic
shares and 117,165 diluted shares in the first mine months of 2000. The decrease
in shares was primarily attributable to the Company's stock repurchase program.
LIQUIDITY AND CAPITAL RESOURCES
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At September 30, 2001, the Company's cash and cash equivalents were $8,657,
an increase of $1,900 from December 31, 2000.
For the nine months ended September 30, 2001, net cash provided by
operating activities was $124,579 as compared with $127,752 for the nine months
ended September 30, 2000, a decrease of $3,173. The cash flow from operations
was principally used to fund the Company's stock buy-back program and to reduce
debt.
At September 30, 2001, the Company had available borrowings of $156,000 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, 2001,
the Company repurchased approximately 4,433 shares of Common Stock and warrants
at a cost of approximately $107,639. In October 2001, the Company repurchased an
additional 430 shares of Common Stock at a cost of $10,119.
Recently Issued Accounting Standards
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In July 2001, the Financial Standards Board (FASB) issued FASB Statement
No. 142 (FAS 142), "Goodwill and Other Intangible Assets." FAS 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Upon adoption of FAS 142, goodwill will be tested at the reporting
unit annually and whenever events or circumstances occur indicating that
goodwill might be impaired. Amortization of goodwill, including goodwill
recorded in past business combinations, will cease. The adoption date for the
Company will be January 1, 2002. The Company has not yet determined what the
impact of FAS 142 will be on the Company's results of operations and financial
position.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets." This statement establishes a
single accounting model for the impairment of long-lived assets. The Company
does not expect adoption of this standard to have a material effect on its
results of operations and financial position. The Company will adopt this
statement on January 1, 2002.
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) Exhibits
None
(b) Reports on Form 8-K
None
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
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FARID SULEMAN
Chief Financial Officer
Dated: November 12, 2001