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 June 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: (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 August 3, 2001, 107,465,538 shares of Common Stock were outstanding,
excluding treasury shares, and 703,466 shares of Class B Stock were outstanding.
1
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 11
SIGNATURES 12
2
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2001 2000
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ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 2,407 $ 6,757
Accounts receivable, net of allowance for doubtful accounts
of $10,250 (2001) and $9,356 (2000) 114,973 135,550
Other current assets 10,959 11,574
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Total Current Assets 128,339 153,881
PROPERTY AND EQUIPMENT, NET 53,971 58,052
INTANGIBLE ASSETS, NET 1,030,127 1,055,727
OTHER ASSETS 10,760 17,896
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TOTAL ASSETS $1,223,197 $1,285,556
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $39,554 $41,916
Current maturity of long-term debt 10,000 10,000
Other accrued expenses and liabilities 66,889 86,286
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Total Current Liabilities 116,443 138,202
LONG-TERM DEBT 120,000 168,000
OTHER LIABILITIES 265,001 29,462
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TOTAL LIABILITIES 271,001 335,664
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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, 131,103 (2001) and 129,300 (2000) 1,311 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 1,205,818 1,194,118
Accumulated earnings 83,403 66,671
Accumulated other comprehensive (loss) - (3,635)
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1,290,539 1,258,454
Less treasury stock, at cost; 23,678 (2001) and 21,612 (2000) shares (332,343) (308,562)
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TOTAL SHAREHOLDERS' EQUITY 958,196 949,892
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,223,197 $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 Six Months Ended
June 30, June 30,
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2001 2000 2001 2000
GROSS REVENUES $155,298 $159,176 $295,775 $302,974
Less Agency Commissions 21,614 22,675 40,522 44,371
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NET REVENUES 133,684 136,501 255,253 258,603
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Operating Costs and Expenses Excluding
Depreciation and Amortization 86,715 91,311 177,156 183,655
Depreciation and Amortization 17,109 15,628 34,116 31,123
Corporate General and Administrative Expenses 1,853 2,068 3,664 4,084
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105,677 109,007 214,936 218,862
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OPERATING INCOME 28,007 27,494 40,317 39,741
Interest Expense 2,089 2,382 4,935 5,126
Other Income 1,183 (168) 1,080 (372)
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INCOME BEFORE INCOME TAXES 24,735 25,280 34,302 34,987
INCOME TAXES 12,603 14,636 17,570 20,387
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NET INCOME $12,132 $10,644 $16.732 $14,600
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NET INCOME PER SHARE:
BASIC $ .11 $ .10 $ .15 $ .13
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DILUTED $ .11 $ .09 $ .16 $ .12
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WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 108,377 111,979 108,121 112,067
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DILUTED 113,544 118,058 112,739 118,192
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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)
Six Months Ended
June 30,
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2001 2000
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CASH FLOW FROM OPERATING ACTIVITIES:
Net income $16,732 $14,600
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 34,116 31,123
Other 2,745 3,175
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52,393 48,898
Changes in assets and liabilities:
Decrease in accounts receivable 20,577 22,521
(Increase) Decrease in other assets (14) 2,890
Increase in accounts payable and accrued liabilities 5,192 12,475
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Net Cash Provided By Operating Activities 79,348 86,784
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CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies and other (2,430) (10,519)
Capital expenditures (4,044) (4,866)
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Net Cash Used For Investing Activities (6,474) (15,385)
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CASH PROVIDED BEFORE FINANCING ACTIVITIES 72,874 71,399
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CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 17,408 7,924
Debt repayments and payments of capital lease obligations (49,761) (47,659)
Repurchase of common stock and warrants (44,871) (29,414)
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NET CASH (USED IN) FINANCING ACTIVITIES (77,224) (69,149)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,350) 2,250
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,757 10,626
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,407 $12,876
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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 June 30, 2001, the
consolidated statements of operations for the three and six month periods ended
June 30, 2001 and 2000 and the consolidated statements of cash flows for the six
months ended June 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 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:
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 were added to
the basic weighted average shares outstanding to arrive at the diluted weighted
average shares outstanding for each period:
Three Months Ended Six Months Ended
June 30, June 30,
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2001 2000 2001 2000
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Warrants 1,429 1,593 1,363 1,590
Options 3,738 4,486 3,255 4,535
NOTE 4 - Debt:
At June 30, 2001 the Company had outstanding borrowings of $130,000 under
its bank revolving credit facility and available borrowings of $195,500.
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).
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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
THREE MONTHS ENDED JUNE 30, 2001 COMPARED
WITH THREE MONTHS ENDED JUNE 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 $2,817, or 2%, to
$133,684 in the second quarter of 2001 from $136,501 in the comparable prior
year quarter. The decrease in net revenue was due to a reduction in spending by
Internet companies partially offset by higher revenue from the Company's
traditional, as well as, new advertisers.
Operating costs and expenses excluding depreciation and amortization
decreased $4,596, or 5%, to $86,715 in the second quarter of 2001 from $91,311
in the second quarter of 2000. The decrease was principally due to tight cost
controls, and reductions in affilitate compensation 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 increased $1,481, or 9% to $17,109 in the
second quarter of 2001 as compared to $15,628 in the second quarter of 2000 due
principally to the amortization of goodwill resulting from the Company's
acquisition of the operating assets of SmartRoute.
Corporate general and administrative expenses decreased $215, or 10%, to
$1,853 in the second quarter of 2001 from $2,068 in the comparable 2000 quarter.
The decrease is principally attributable to reducing travel and entertainment
expenses as well as other discretionary spending.
Operating income increased $513, or 2%, to $28,007 in the second quarter of
2001 from $27,494 in the second quarter of 2000, primarily due to a planned
reduction in operating costs, partially offset by higher depreciation and
amortization from the SmartRoute acquisition.
Interest expense decreased 12% to $2,089 in the second quarter of 2001 from
$2,382 in 2000. The decrease is principally attributable to lower average debt
levels and interest rates.
Other expense in the second quarter of 2001 was $1,183 compared with other
income of $168 in the second quarter of 2000, an increase of $1,351. The
increase is principally attributable to a non-cash charge to write-down the
carrying value of the Company's investments in internet companies, principally
Sportsline USA, to its estimated market value.
Income taxes decreased $2,033, or 14%, to $12,603 in the second quarter of
2001 from $14,636 in the second quarter of 2000. The Company's effective income
tax rate in the first half of 2001 is approximately 51% compared with a 58%
effective tax rate in the first half of 2000. The decrease in the effective tax
rate is principally a result of nondeductible goodwill amortization being a
smaller percentage of pretax income and lower state tax expense.
8
Net income increased $1,488, or 14%, to $12,132 ($.11 per basic and diluted
share) in the second quarter of 2001 from $10,644 ($.10 per basic share and $.09
per diluted share) in the second quarter of 2000.
Weighted average shares outstanding used to compute basic and diluted
earnings per share decreased to 108,377 and 113,544, respectively, in the second
quarter of 2001 as compared to 111,979 and 118,058 in the second quarter of
2000. The decrease is principally attributable to the Company's stock repurchase
program.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED
WITH SIX MONTHS ENDED JUNE 30, 2000
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Net revenue for the first half of 2001 decreased 1% to $255,253 from
$258,603 in the first half of 2000. The decrease in net revenue was due to a
reduction in advertising spending by Internet companies partially offset by
higher revenue from the Company's traditional, as well as, new advertisers.
Operating costs and expenses decreased 4% to $177,156 in the first half of
2001 from $183,655 in the comparable 2000 period. The decrease was primarily
attributable to tight cost controls and reductions in affiliate compensation and
personnel costs, partially offset by additional operating costs associated with
the Company's SmartRoute acquisition.
Depreciation and amortization increased 10% to $34,116 in the first half of
2001 as compared to $31,123 in the first half of 2000. The decrease is
principally attributable to depreciation and amortization related to the
Company's acquisition of the operating assets of SmartRoute.
Interest expense decreased 4% to $4,935 in the first half of 2001 from
$5,126 in the comparable 2000 period. The decrease results from lower average
debt levels and lower interest rates.
Net income increased 15% to $16,732 ($.15 per basic and diluted share) in
the first half of 2001 from $14,600 ($.13 per basic share and $.12 per diluted
share) in the comparable 2000 period.
Weighted average shares outstanding used to compute basic and diluted
earnings per share decreased to 108,121 and 112,739, respectively, in the first
six months of 2001 as compared to 112,067 and 118,192 in the comparable 2000
period. The decrease is attributable to the Company's stock repurchase program.
LIQUIDITY AND CAPITAL RESOURCES
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At June 30, 2001, the Company's cash and cash equivalents were $2,407, a
decrease of $4,350 from December 31, 2000.
For the six months ended June 30, 2001, net cash provided by operating
activities was $79,348 as compared to $86,784 for the six months ended June 30,
2000, a decrease of $7,436. The cash flow from operations was principally used
to fund the Company's stock buy-back program and to reduce debt.
9
At June 30, 2001, the Company had available borrowings of $195,500 on its
revolving credit facility. Pursuant to the terms of the facility, the amount of
available borrowings declines by $4,500 at the end of each quarter. In addition,
the Company is required to repay its term loan by $2,500 per quarter in 2001. In
the first half of 2001, the Company reduced its outstanding borrowings by
$48,000. In April 2001, the Company entered into a one year interest rate swap
agreement covering $25,000 of its debt to effectively fix the interest rate at
4.27%. The effect of this swap was not material.
The Company has used its available cash to repurchase its Common Stock and
repay debt. In the first six months of 2001, the Company repurchased 2,033
shares and warrants of Common Stock at a cost of $44,871. Subsequent to the
quarter through July 31, 2001, the Company repurchased an additional 1,050
shares of Common Stock at a cost of approximately $31,743.
Recently Issued Accounting Standard
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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. As the Statement has only recently been issued,
the Company has not yet determined the impact FAS 142 will have on the Company's
results of operations and financial position.
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PART II OTHER INFORMATION
Items 1 through 3
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These items are not applicable.
Items 4 - Submission of Matters to a Vote of Security Holders
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(a) The Annual Meeting of Shareholders of the Company was held on May 30,
2001.
(b) The Matters voted upon and the related voting results were as follows
(holders of Common Stock and Class B Stock voted together on all
matters except for the election of Class I directors, for which
holders of Common Stock voted alone):
1) Election of Class I Directors:
FOR WITHHELD
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Joseph B. Smith 85,184,832 734,576
Norman J. Pattiz 112,450,446 8,637,962
Mel Karmazin 116,424,638 4,663,770
Dennis F. Holt 117,831,835 3,256,573
2) Ratification of the selection of PricewaterhouseCoopers LLP as the
independent accountants of the Company for fiscal 2001.
FOR 895,820,713
AGAINST 45,596
ABSTAIN 53,099
Item 5
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Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
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(a) Exhibits
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None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
June 30, 2001.
11
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: August 9, 2001
12