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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission file number 0-13020
WESTWOOD ONE, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3980449
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9540 Washington Boulevard
Culver City, CA 90232
(Address of principal executive offices)
(310) 204-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b)of the Act:
Name of Each Exchange on
Title of each class Which Registered
None None
Securities registered pursuant to Section 12(g)of the Act:
Common Stock
(Title of Class)
Seven Year Common Stock Purchase Warrants
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates as of
February 15, 1997 was approximately $433 million.
As of February 15, 1997, 29,784,257 shares (excluding 2,090,395 treasury
shares) of Common Stock were outstanding and 351,733 shares of Class B Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its annual
meeting of shareholders (which will be filed with the Commission within 120 days
of the registrant's last fiscal year end) are incorporated in Part III of this
Form 10-K.
PART I
Item 1. Business
General
Westwood One, Inc. (the "Company" or "Westwood One") is a leading producer and
distributor of nationally sponsored radio programs and is the nation's second
largest radio network. In addition, the Company owns and operates Westwood One
Broadcasting Services, Inc. ("WBS"), which provides local traffic, news, sports
and weather programming to radio stations and other media outlets in New York,
Chicago, Los Angeles and Philadelphia. Westwood One is managed by Infinity
Broadcasting Corporation (now an affiliate of CBS Radio) ("CBS Radio") pursuant
to a five-year Management Agreement which expires on February 3, 1999.
The Company's principal source of revenue is selling radio time to advertisers
through one of its three operating divisions: Westwood One Radio Networks,
Westwood One Entertainment (the "Network Divisions"), and, effective March 1996,
WBS. The Company generates revenue principally by its Network Divisions entering
into radio station affiliation agreements to obtain audience and commercial
spots and then selling the spots to national advertisers. WBS generates revenue
principally by selling audience it obtains from radio stations and other media
outlets where it has operations to local as well as national advertisers. The
Company is strategically positioned to provide a broad range of programming and
services which both deliver audience to advertisers and news, talk, sports, and
entertainment programs to radio stations.
Westwood One Radio Networks offers radio stations three traditional news
services, CNN Radio, NBC Radio Network and the Mutual Broadcasting System, plus
youth-oriented network news and entertainment programming from The Source, in
addition to eight 24-hour satellite-delivered continuous play music formats and
weekday and weekend news and entertainment features and programs.
Westwood One Entertainment produces music, sports, talk and special event
programming. These programs include: countdown shows; music and interview
programs; live concert broadcasts; major sporting events (principally covering
the NFL, Notre Dame football and other college football and basketball games);
live, personality intensive talk shows; and exclusive satellite simulcasts with
HBO and other cable networks.
The Company's programs are broadcast in every radio market in the United States
measured by The Arbitron Ratings Company ("Arbitron"), the leading rating
service, as well as being broadcast internationally.
WBS provides radio stations and other media outlets, including television and
cable companies, with local traffic, news, sports and weather programming in New
York, Chicago, Los Angeles and Philadelphia.
Westwood One, through its Divisions, enables national advertisers to purchase
advertising time and to have their commercial messages broadcast on radio
stations throughout the United States, reaching demographically defined
listening audiences. The Company delivers both of the major demographic groups
targeted by national advertisers: the 25 to 54-year old adult market and the 12
to 34-year-old youth market. The Company currently sells advertising time to
over 300 national advertisers, including each of the 25 largest network radio
advertisers. Radio stations are able to obtain quality programming from Westwood
One to meet their objective of attracting larger listening audiences and
increasing local advertising revenue. Westwood One, through the development of
internal programming as well as through acquisitions, has developed an extensive
tape library of previously aired programs, interviews, live concert
performances, news and special events.
Westwood One is managed by CBS Radio pursuant to a Management Agreement between
the Company and CBS Radio pursuant to which (a) the Chief Executive Officer of
CBS Radio, currently Mel Karmazin, became the Chief Executive Officer of the
Company, (b) the Chief Financial Officer of CBS Radio, currently Farid Suleman,
became the Chief Financial Officer of the Company and CBS Radio began managing
the business and operations for an annual base fee of $2,000,000 (adjusted for
inflation), an annual cash bonus (payable in the event of meeting certain
financial targets) and warrants to acquire shares of Common Stock exercisable
after the Company's Common Stock reaches certain market prices per share. In
-1-
addition, a Voting Agreement was executed providing for the reconstitution of
the Board of Directors into a maximum nine-member Board (currently eight members
due to the sale of Common Stock by Norman Pattiz) and the voting of Norman
Pattiz's shares of the Company's Common Stock and Class B Stock and the shares
of the Common Stock held by Infinity Network, Inc. ("INI"), a wholly-owned
subsidiary of CBS Radio.
Industry Background
Radio Broadcasting
As of January 1, 1997, there were approximately 9,750 commercial radio stations
in the United States.
A radio station selects a style of programming ("format") to attract a target
listening audience and thereby attract commercial advertising directed at that
audience. There are many formats from which a station may select, including
news, talk, sports and various types of music and entertainment programming.
The diversity in program formats has intensified competition among stations for
local advertising revenue. A radio station has two principal ways of effectively
competing for these revenues. First, it can differentiate itself in its local
market by selecting and successfully executing a format targeted at a particular
audience thus enabling advertisers to place their commercial messages on
stations aimed at audiences with certain demographic characteristics. A station
can also broadcast special programming, syndicated shows, sporting events or
national news product, such as supplied by Westwood One, not available to its
competitors within its format. National programming broadcast on an exclusive
geographic basis can help differentiate a station within its market, and thereby
enable a station to increase its audience and local advertising revenue.
Radio Advertising
Radio advertising time can be purchased on a local, regional or national basis.
Local purchases allow an advertiser to select specific radio stations in chosen
geographic markets for the broadcast of commercial messages. However, this
process can be expensive and inefficient. Local and regional purchases are
typically best suited for an advertiser whose business or ad campaign is in a
specific geographic area. Advertising purchased from a radio network is one
method by which an advertiser targets its commercial messages to a specific
demographic audience, achieving national coverage on a cost efficient basis. In
addition, an advertiser can choose to emphasize their message in a certain
market or markets by supplementing a national purchase with local and/or
regional purchases.
In recent years the increase in the number of program formats has led to more
demographically specific listening audiences, making radio an attractive,
alternative medium for national advertisers. In addition, nationally broadcast
news, concerts and special event programming have made radio an effective medium
of reach (size of listening audiences) as well as frequency (number of exposures
to the target audience).
To verify audience delivery and demographic composition, specific measurement
information is available to national advertisers by independent rating services
such as Arbitron and Statistical Research, Inc.'s RADAR. These rating services
provide demographic information such as the age and sex composition of the
listening audiences. Consequently, national advertisers can verify that their
advertisements are being heard by their target listening audience.
Business Strategy
Westwood One's Network Divisions provide targeted radio audiences and commercial
spots to national advertisers through its recognized programming and other
network products. The Company, through its various radio networks, produces and
distributes quality programming to radio stations seeking to increase their
listening audience and improve local and national advertising revenue. The
Company sells advertising time within its programs to national advertisers
desiring to reach large listening audiences nationwide with specific demographic
characteristics.
In 1996, the Company expanded its strategy to include providing local traffic,
news, sports and weather programming to radio stations and other media outlets
-2-
in selected cities across the United States. In March 1996, WBS acquired the
operating assets of New York Shadow Traffic Limited Partnership, Chicago Shadow
Traffic Limited Partnership, Los Angeles Shadow Traffic Limited Partnership, and
Philadelphia Express Traffic Limited Partnership (collectively "Shadow Traffic")
for $20,000,000 plus expenses, subject to an adjustment based on actual cash
flow for the twelve month period ending February 28, 1997 (See Note 2 to
Consolidated Financial Statements). In addition, WBS has options to acquire the
Shadow operations in other cities.
Radio Programming
The Company produces and distributes 24-hour continuous play formats, regularly
scheduled and special syndicated programs, including exclusive live concerts,
music and interview shows, national music countdowns, lifestyle short features,
news broadcasts, talk programs, sporting events, and sports features.
The Company controls most aspects of production of its programs, therefore being
able to tailor its programs to respond to current and changing listening
preferences. The Company produces regularly scheduled short-form programs
(typically 5 minutes or less), long-form programs (typically 60 minutes or
longer) and 24-hour continuous play formats. Typically, the short-form programs
are produced at the Company's in-house facilities located in Culver City,
California, New York, New York and Arlington, Virginia. The long-form programs
include shows produced entirely at the Company's in-house production facilities
and recordings of live concert performances and sports events made on location.
The 24-hour continuous play formats are produced at the Company's facilities in
Valencia, California.
Westwood One also produces and distributes special event syndicated programs. In
1996 the Company produced and distributed numerous special event programs,
including exclusive broadcasts of The Who: Quadrophenia Live from Madison Square
Garden, Sting: Live from Houston, Texas, and Gloria Estefan: Live HBO Simulcast.
Westwood One obtains most of the programming for its concert series by recording
live concert performances of prominent recording artists. The agreements with
these artists often provide the exclusive right to broadcast the concerts
worldwide over the radio (whether live or pre-recorded) for a specific period of
time. The Company may also obtain interviews with the recording artist and
retain a copy of the recording of the concert and the interview for use in its
radio programs and as additions to its extensive tape library. The agreements
provide the artist with master recordings of their concerts and nationwide
exposure on affiliated radio stations. In certain cases the artists may receive
compensation.
Westwood One's syndicated programs are produced at its in-house production
facilities. The Company determines the content and style of a program based on
the target audience it wishes to reach. The Company assigns a producer, writer,
narrator or host, interviewer and other personnel to record and produce the
programs. Because Westwood One controls the production process, it can refine
the programs' content to respond to the needs of its affiliated stations and
national advertisers. In addition, the Company can alter program content in
response to current and anticipated audience demand.
The Company produces and distributes eight 24-hour continuous play formats
providing music, news and talk programming for Country, Hot Country, Adult
Contemporary, Soft AC, Oldies, Adult Standards, Adult Rock and Roll and the 70's
formats. Using its production facilities in Valencia, California, the Company
provides all the programming for stations affiliated with each of these formats.
Affiliates compensate the Company for these formats by providing the Company
with a portion of their commercial air time and, in most cases, cash fees.
The Company believes that its tape library is a valuable asset for its future
programming and revenue generating capabilities. The library contains previously
broadcast programs, live concert performances, interviews, daily news programs,
sports and entertainment features, Capitol Hill hearings and other special
events. New programs can be created and developed at a low cost by excerpting
material from the library.
Affiliated Radio Stations
The Network Divisions' business strategy is to provide for the programming
needs of radio stations by supplying to radio stations programs and services
-3-
that individual stations may not be able to produce on their own. The Company
offers radio stations a wide selection of regularly scheduled and special event
syndicated programming as well as 24-hour continuous play formats. These
programs and formats are completely produced by the Company and, therefore, the
stations have no production costs. Typically, each program is offered for
broadcast by the Company exclusively to one station in its geographic market,
which assists the station in competing for audience share in its local
marketplace. In addition, except for news programming, Westwood One's programs
contain available commercial air time that the stations may sell to local
advertisers. Westwood One typically distributes promotional announcements to the
stations and places advertisements in trade and consumer publications to further
promote the upcoming broadcast of its programs.
Westwood One's networks enter into affiliation agreements with radio stations.
In the case of news and current events programming, the agreements commit the
station to broadcast only the advertisements associated with these programs and
allows the station flexibility to have the news headlined by their newscasters.
The other affiliation agreements require a station to broadcast the Company's
programs and to use a portion of the program's commercial slots to air national
advertisements and any related promotional spots. With respect to the 24-hour
formats, the Company may also receive a fee from the affiliated stations for the
right to broadcast the formats. Radio stations in the top 200 national markets
may also receive compensation for airing national advertising spots.
Affiliation agreements specify the number of times and the approximate daypart
each program and advertisement may be broadcast. Westwood One requires that each
station complete and promptly return to the Company an affidavit
(proof-of-performance) that verifies the time of each broadcast. Affiliation
agreements for Westwood One's entertainment programming are non-cancelable for
26 weeks and are automatically renewed for subsequent 26-week periods, if not
canceled 30 days prior to the end of the existing contract term. Affiliation
agreements for Westwood One's news and current events programming generally run
for a period of at least one year, are automatically renewable for subsequent
periods and are cancelable by either the Company or the station upon 90 days'
notice.
The Company has a number of people responsible for station relations and
marketing its programs to radio stations. Station relationships are managed
geographically to allow the marketing staff to concentrate on specific
geographical regions. This enables the Company's staff to develop and maintain
close, professional relationships with radio station personnel and to provide
them with quick programming assistance.
National Advertisers
Westwood One provides national advertisers with a cost-effective way to
communicate their commercial messages to large listening audiences nationwide
that have specific demographic characteristics. An advertiser can obtain both
frequency (number of exposures to the target audience) and reach (size of
listening audience) by purchasing advertising time in the Company`s programs. By
purchasing time in programs directed to different formats, advertisers can be
assured of obtaining high market penetration and visibility as their commercial
messages will be broadcast on several stations in the same market at the same
time. The Company supports its national sponsors with promotional announcements
and advertisements in trade and consumer publications. This support promotes the
upcoming broadcasts of Company programs and is designed to increase the
advertisers' target listening audience.
The Company sells its commercial time to advertisers either as "bulk" or
"flighted" purchases. Bulk purchases are long-term contracts (26 to 52 weeks)
that are sold "up-front" (early advertiser commitments for national broadcast
time). Flighted purchases are contracts for a specific, short-term period of
time (one to six weeks) that are sold at or above prevailing market prices.
Advertising prices vary significantly based on prevailing market conditions.
Generally, the contracts provide that advertising orders are firm and
non-cancelable. The Company's strategy for growth in advertising revenue is to
increase the amount of advertising time sold on the usually more profitable
flighted basis, to increase revenue of the non-RADAR rated programs, and to
increase audience size for news, talk and current events programming.
-4-
Local Traffic and Information Programming
In 1996, the Company expanded its business to include the production and
distribution of local traffic, news, sports and weather programming in selected
metropolitan areas (initially New York, Chicago, Los Angeles and Philadelphia).
The programming is produced in facilities rented by the Company in those
metropolitan areas. Local traffic information is obtained through the
utilization of strategically placed cameras overlooking portions of major
freeways, monitoring police radio bands, phone calls from drivers, and through
patrolling freeways with rented aircraft.
Competition
The Company operates in a very competitive environment. In marketing its
programs to national advertisers, the Company directly competes with other radio
networks as well as with independent radio syndication producers and
distributors. In addition, Westwood One competes for advertising revenue with
network television, cable television, print and other forms of communications
media. The Company believes that the high quality of its programming and the
strength of its station relations and advertising sales forces enable it to
compete effectively with other forms of communication media. Westwood One
markets its programs to radio stations, including affiliates of other radio
networks, that it believes will have the largest and most desirable listening
audience for each of its programs. The Company often has different programs
airing on a number of stations in the same geographic market at the same time.
The Company believes that in comparison with any other independent radio
syndication producer and distributor or radio network it has a more diversified
selection of programming from which national advertisers and radio stations may
choose. In addition, the Company both produces and distributes programs, thereby
enabling it to respond more effectively to the demands of advertisers and radio
stations.
The increase in the number of program formats has led to increased competition
among local radio stations for audience. As stations attempt to differentiate
themselves in an increasingly competitive environment, their demand for quality
programming available from outside programming sources increases. This demand
has been intensified by high operating and production costs at local radio
stations and increased competition for local advertising revenue.
WBS, in the metropolitan areas in which it operates, competes for advertising
revenue with local print and other forms of communications media. The Company's
principal competitor providing local traffic, news, sports and weather
programming is Metro Networks.
Government Regulation
Radio broadcasting and station ownership are regulated by the FCC. Westwood One,
as a producer and distributor of radio programs, is generally not subject to
regulation by the FCC. Shadow Traffic utilizes FCC regulated frequencies
pursuant to licenses issued by the FCC.
Employees
On February 15, 1997, Westwood One had 576 full-time employees, including a
domestic advertising sales force of 68 people. In addition, the Company
maintains continuing relationships with approximately 53 independent writers,
program hosts, technical personnel and producers. Certain employees at the
Mutual Broadcasting System, NBC Radio Networks, and Unistar Radio Networks
("Unistar") are covered by collective bargaining agreements. The Company
believes relations with its employees and independent contractors are good.
-5-
Item 2. Properties
The Company owns a 7,600 square-foot building in Culver City, California in
which its production facilities are located and a 14,000 square-foot building
and an adjacent 10,000 square-foot building in Culver City, California which
contains administrative, sales and marketing offices, and storage space. In
addition, the Company leases offices in New York; Chicago; Detroit; Dallas;
Philadelphia; San Francisco; Arlington, Virginia and Valencia, California.
The Company believes that its facilities are adequate for its current level of
operations.
Item 3. Legal Proceedings
- None -
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of the year ended December 31, 1996.
-6-
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
On February 15, 1997 there were approximately 272 holders of record of the
Company's Common Stock, several of which represent "street accounts" of
securities brokers. Based upon the number of proxies requested by brokers in
conjunction with its shareholders' meeting on June 17, 1996, the Company
estimates that the total number of beneficial holders of the Company's Common
Stock exceeds 4,500.
The Company's Common Stock has been traded in the over-the-counter market under
the NASDAQ symbol WONE since the Company's initial public offering on April 24,
1984. The following table sets forth the range of high and low last sales prices
on the NASDAQ/National Market System, as reported by NASDAQ, for the Common
Stock for the calendar quarters indicated.
1996 High Low
First Quarter........................... 18 1/2 14 1/8
Second Quarter.......................... 18 5/8 15 1/8
Third Quarter........................... 18 3/8 13 1/2
Fourth Quarter.......................... 18 5/8 15 3/8
1995
First Quarter........................... 13 1/8 9 3/4
Second Quarter.......................... 15 1/8 12 1/8
Third Quarter........................... 19 3/8 14 3/4
Fourth Quarter.......................... 17 3/4 13 3/4
No cash dividend was paid on the Company's stock during 1996 or 1995, and the
payment of dividends is restricted by the terms of its loan agreements.
-7-
Item 6. Selected Financial Data
(In thousands except per share data)
The table below summarizes selected consolidated financial data of the Company
for each of the last five fiscal years:
OPERATING RESULTS FOR YEAR ENDED:
December 31, November 30,
-------------------------------------- ----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
NET REVENUES $171,784 $145,729 $136,340 $84,014 $86,376
OPERATING EXPENSES, EXCLUDING
DEPRECIATION AND AMORTIZATION 132,247 112,661 112,198 69,821 85,415
DEPRECIATION AND AMORTIZATION 12,265 13,753 18,160 16,384 19,661
OPERATING INCOME (LOSS) 27,272 19,315 5,982 (2,191) (18,700)
INCOME (LOSS) FROM CONTINUING
OPERATIONS 17,500 9,685 (2,730) (8,682) (21,397)
(LOSS) FROM DISCONTINUED
OPERATIONS - - - (15,227) (2,721)
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 17,500 9,685 (2,730) (23,909) (24,118)
EXTRAORDINARY LOSS - - (590) - -
NET INCOME (LOSS) $17,500 $9,685 ($3,320) ($23,909) ($24,118)
INCOME (LOSS) PER SHARE:
Continuing Operations $ .52 $ .28 ($ .09) ($ .57) ($1.44)
Discontinued Operations - - - ( 1.01) ( .18)
------- ------- -------- --------- ---------
Income (Loss) Before Extraordinary Item .52 .28 ( .09) ( 1.58) ( 1.62)
Extraordinary Item - - ( .02) - -
------- ------- -------- --------- ---------
Net Income (Loss) $ .52 $ .28 ($ .11) ($1.58) ($1.62)
======= ======= ======== ========= =========
BALANCE SHEET DATA AT:
December, 31 November 30,
------------------------------------- ----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
CURRENT ASSETS $48,379 $41,885 $46,157 $32,987 $51,091
WORKING CAPITAL (3,647) 6,563 7,685 (1,503) (11,942)
TOTAL ASSETS 273,046 245,595 260,112 152,067 295,740
LONG-TERM DEBT 130,443 107,943 115,443 51,943 146,622
TOTAL SHAREHOLDERS' EQUITY 86,848 94,123 95,454 55,151 75,204
- --------------------------------------------------------
Results for the year ended December 31, 1996 include Shadow Traffic from the
time it was acquired in March 1996.
Results for the year ended December 31, 1994 include Unistar from the time it
was acquired in February 1994.
No cash dividend was paid on the Company's Common Stock during the periods
presented above.
-8-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (In thousands except for per share amounts)
Results of Operations
Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenues increased 18% to $171,784 in 1996
from $145,729 in 1995, and increased 7% in 1995 from $136,340 in 1994. The
increase in 1996 net revenues was primarily due to the acquisition of Shadow
Traffic effective March 1, 1996 and the Company's exclusive radio rights to the
1996 Summer Olympics. The increase in 1995 net revenues was primarily a result
of the purchase of Unistar in February 1994.
Operating costs and expenses excluding depreciation and amortization increased
19% to $126,702 in 1996 from $106,685 in 1995, and increased 1% in 1995 from
$105,389 in 1994. The 1996 increase was primarily attributable to the
acquisition of Shadow Traffic and costs associated with the 1996 Summer
Olympics, partially offset by lower station compensation expenses. The 1995
increase was primarily attributable to the purchase of Unistar, partially offset
by reductions in affiliate compensation expenses.
Depreciation and amortization decreased 11% to $12,265 in 1996 from $13,753 in
1995, and decreased 24% in 1995 from $18,160 in 1994. The 1996 decrease is
principally attributable to lower amortization of programming costs and rights
due to lower capitalized balances, partially offset by higher depreciation and
amortization associated with the acquisition of Shadow Traffic. The 1995
decrease was primarily a result of lower amortization of programming costs and
rights from lower levels of capitalized costs.
Corporate general and administrative expenses decreased 7% to $5,545 in 1996
from $5,976 in 1995, and increased 36% in 1995 from $4,404 in 1994. The decrease
in 1996 was principally attributable to a reduction in corporate staff. The
increase in 1995 was primarily a result of fees attributable to management fees
under the CBS Radio Management Agreement and higher compensation for the
Company's chairman.
As a result of the purchase of Unistar, the Company accrued restructuring costs
of $2,405 in the first quarter of 1994 principally relating to the consolidation
of certain facilities and operations.
Operating income increased 41% to $27,272 in 1996 from $19,315 in 1995, and
increased 223% in 1995 from $5,982 in 1994. The significant improvement in 1996
was attributable to the acquisition of Shadow Traffic, the 1996 Summer Olympics,
controlling costs and lower amortization of programming costs and rights. The
improvement in 1995 was attributable to the acquisition of Unistar and lower
amortization of programming costs and rights, partially offset by higher
corporate general and administrative expenses.
Interest expense was $8,749, $9,524 and $8,802 in 1996, 1995 and 1994,
respectively. The decrease in 1996 was primarily attributable to lower interest
rates, partially offset by higher debt levels due to the purchase of Shadow
Traffic. The increase in 1995 was primarily attributable to twelve months'
interest in the year for debt incurred as a result of the Unistar acquisition
and higher interest rates, partially offset by lower debt levels.
Net income in 1996 increased 81% to $17,500 ($.52 per share) from $9,685 ($.28
per share) in 1995. Net income in 1995 was $9,685 as compared to a 1994 net loss
of $3,320 ($.11 per share). The 1994 net loss includes an extraordinary loss of
$590 ($.02 per share) as a result of refinancing its senior debt facility in
that year.
Weighted average shares outstanding (including common stock equivalents)
decreased 2% to 33,563 in 1996 from 34,310 in 1995, and increased 17% in 1995
from 29,414 in 1994. The weighted average shares outstanding decreased in 1996
due principally to the Company's stock repurchase program. The 1995 increase is
primarily attributable to the full year impact of share issuances made in 1994
(conversion of 9% Senior Debentures and sale of 5,000 shares to INI).
Liquidity and Capital Resources
At December 31, 1996, the Company's cash and cash equivalents were $2,655 an
increase of $2,399 from December 31, 1995. In addition, the Company had
available borrowings under its loan agreement of $35,000.
-9-
For 1996, net cash from operating activities was $33,237, an increase of $9,014
from 1995. The increase was primarily attributable to higher cash flow from
operations. In 1994, net cash from operating activities was much lower due to
high working capital requirements as a result of the Unistar acquisition. Net
cash used for investing activities increased $24,238 due principally to the
purchase of Shadow Traffic. Cash provided before financing activities was $5,364
in 1996.
The Company's amended and restated loan agreement (the "Agreement") permits the
Company to repurchase up to $50,000 of its Common Stock from September 30, 1996
through the end of the Agreement. In November 1996, the Company's Board of
Directors authorized a new Common Stock repurchase program in the amount of
$50,000. During 1996, the Company purchased 1,288 shares of the Company's Common
Stock and 500 warrants for a total cost of $25,689. During 1995, the Company
purchased 607 shares of the Company's Common Stock and 500 warrants for a total
cost of $14,475. At December 31, 1996, the Company had the ability to repurchase
$39,454 of its Common Stock pursuant to the Agreement. In 1997 (through February
14), the Company repurchased an additional 195 shares of Common Stock at a cost
of $3,517. The stock buybacks have been funded principally from the Company's
free cash flow.
On March 1, 1996, the Company purchased the operating assets of New York Shadow
Traffic Limited Partnership, Chicago Shadow Traffic Limited Partnership, Los
Angeles Shadow Traffic Limited Partnership, and Philadelphia Express Traffic
Limited Partnership (collectively "Shadow Traffic") for $20,000 plus expenses,
subject to an adjustment based on the actual cash flow of Shadow Traffic for the
twelve month period ending February 28, 1997. The acquisition was financed using
the Company's existing cash and available bank borrowings.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements and the related notes and schedules of the
Company are indexed on page F-1 of this Report, and attached hereto as pages F-1
through F-15 and by this reference incorporated herein.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
-10-
PART III
Item 10. Directors and Executive Officers of the Registrant
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
Item 11. Executive Compensation
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after then end of the Company's fiscal year.
Item 13. Certain Relationships and Related Transactions
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
-11-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this Report on Form 10-K
1. Financial statements and schedules to be filed thereunder are indexed
on page F-1 hereof.
2. Exhibits
EXHIBIT
NUMBER DESCRIPTION
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. (15)
4 Form of Indenture for 6 3/4% Convertible Subordinated Debentures
(including the form of the Debenture). (2)
4.1 Warrant Agreement dated August 27, 1990 between Registrant and Security
Pacific National Bank, as Warrant Agent. (7)
*10.1 Employment Agreement and Registration Rights Agreement, dated
October 18, 1993, between Registrant and Norman J. Pattiz. (13)
*10.2 First Amendment to Employment Agreement, dated January 26, 1994,
between Registrant and Norman J. Pattiz. (13)
*10.3 Second Amendment to Employment Agreement, dated February 2, 1994,
between Registrant and Norman J. Pattiz. (15)
*10.4 Employment Agreement, dated June 1, 1995, between Registrant and
Gregory P. Batusic. (16)
*10.5 Employment Agreement, dated April 10, 1995, between Registrant and
Jeffrey Lawenda. (16)
10.6 Form of Indemnification Agreement Between Registrant and its Directors
and Executive Officers. (4)
10.7 Amended and Restated Credit Agreement, dated September 30, 1996,
between Registrant and The Chase Manhattan Bank and Co-Agents. (18)
10.8 Purchase Agreement, dated as of August 24, 1987, between Registrant and
National Broadcasting Company, Inc. (5)
10.9 Stock Purchase Agreement, dated November 4, 1993, between Registrant
and Unistar Communications Group, Inc., Unistar Radio Network, Inc.,
and Infinity Broadcasting Corporation. (12)
10.10 Securities Purchase Agreement, dated November 4, 1993, between
Registrant and Infinity Network, Inc. (12)
*10.11 Management Agreement, dated as of February 4, 1994, between Registrant
and Infinity Broadcasting Corporation. (12)
*10.12 Voting Agreement, dated as of February 4, 1994, among Registrant,
Infinity Network, Inc., Infinity Broadcasting Corporation and Norman
J. Pattiz. (12)
10.13 Asset Purchase Agreement, dated March 4, 1996, between Westwood One
Broadcasting Services, Inc. and Chicago Shadow Traffic Limited
Partnership, New York Shadow Traffic Limited Partnership, Los Angeles
Shadow Traffic Limited Partnership, Philadelphia Express Traffic
Limited Partnership, City Traffic Corp., Express Traffic Corp. and Alan
Markowitz. (16)
10.14 Westwood One, Inc. 1989 Stock Incentive Plan. (10)
10.15 Amendments to the Westwood One, Inc. Amended 1989 Stock Incentive
Plan. (14) (17)
10.16 Lease, dated July 19, 1989, between First Ball Associates Limited
Partnership and Registrant, relating to Arlington, Virginia
offices. (6)
10.17 Lease, dated June 18, 1990, between Broadway 52nd Associates and
Unistar Communications Group, Inc. relating to New York, New York
offices. (15)
-12-
10.18 Lease, dated December 18, 1991, between Valencia Paragon Associates,
Ltd., and Unistar Communications Group, Inc. relating to Valencia,
California offices. (15)
10.19 Digital Audio Transmission Service Agreement, dated June 5, 1990,
between Registrant and GE American Communications, Inc. (8)
10.20 Transmission Service Agreement, dated May 28, 1993, between IDB
Communications Group, Inc. and Unistar Radio Networks, Inc. (15)
10.21 Stipulation of Settlement of Class Action Law Suit. (6)
10.22 Agreement for Cancellation of Loan Documents, Guarantees and Securities
Purchase Documents, dated as of November 19, 1993, between Registrant,
Westwood One Stations Group, Inc., Westwood One Stations-LA, Inc.,
Radio & Records, Inc. and Westinghouse Electric Corporation. (13)
22 List of Subsidiaries
24 Consent of Independent Accountants
27 Financial Data Schedule
**********************
* 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.
(3) Filed as an exhibit to Registrant's Form 8 dated March 1, 1988
(File Number 0-13020), and incorporated herein by reference.
(4) Filed as part of Registrant's September 25, 1986 proxy statement
(File Number 0-13020) and incorporated herein by reference.
(5) Filed an exhibit to Registrant's current report on Form 8-K dated
September 4, 1987 (File Number 0-13020) and incorporated herein by
reference.
(6) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1989 (File Number 0-13020) and
incorporated herein by reference.
(7) Filed as an exhibit to Registrant's Quarterly report on Form 10-Q for
the quarter ended August 31, 1990 (File Number 0-13020) and
incorporated herein by reference.
(8) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1990 (File Number 0-13020) and
incorporated herein by reference.
(9) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1991 (File Number 0-13020) and
incorporated herein by reference.
(10) Filed as part of Registrant's March 27, 1992 proxy statement
(File Number 0-13020) and incorporated herein by reference.
(11) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1992 (File Number 0-13020) and
incorporated herein by reference.
(12) Filed as part of Registrant's January 7, 1994 proxy statement
(File Number 0-13020) and incorporated herein by reference.
(13) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1993 (File Number 0-13020) and
incorporated herein by reference.
(14) Filed as an exhibit to Registrant's July 20, 1994 proxy statement
(File Number 0-13020) 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, 1994 (File Number 0-13020) 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, 1995 (File Number 0-13020) and incorporated
herein by reference.
(17) Filed as an exhibit to Registrant's May 17, 1996 proxy statement (File
Number 0-13020) and incorporated herein by reference.
(18) Filed as an exhibit to Registrant's Quarterly report on Form 10-Q for
the quarter ended September 30, 1996 (File Number 0-13020) and
incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1996.
-13-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 7, 1997 By /s/ FARID SULEMAN
---------------------
Farid Suleman
Director, Secretary and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
Principal Executive Officer:
/s/ MEL A. KARMAZIN Director, President and March 7, 1997
- ---------------------------- Chief Executive Officer
Mel A. Karmazin
Principal Financial Officer and
Chief Accounting Officer:
/s/ FARID SULEMAN Director, Secretary and March 7, 1997
- ---------------------------- Chief Financial Officer
Farid Suleman
Additional Directors:
/s/ NORMAN J. PATTIZ Chairman of the Board of March 7, 1997
- ---------------------------- Directors
Norman J. Pattiz
/s/ DAVID L. DENNIS Director March 7, 1997
- ----------------------------
David L. Dennis
/s/ GERALD GREENBERG Director March 7, 1997
- ----------------------------
Gerald Greenberg
/s/ STEVEN A. LERMAN Director March 7, 1997
- ----------------------------
Steven A. Lerman
/s/ ARTHUR E. LEVINE Director March 7, 1997
- ----------------------------
Arthur E. Levine
/s/ JOSEPH B. SMITH Director March 7, 1997
- ----------------------------
Joseph B. Smith
-14-
WESTWOOD ONE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
1. Consolidated Financial Statements Page
----
--Report of Independent Accountants F-2
--Consolidated Balance Sheets at December 31, 1996
and 1995 F-3
--Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994 F-4
--Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994 F-5
--Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 F-6
--Notes to Consolidated Financial Statements F-7 - F15
2. Financial Statement Schedules:
IX. --Short-term Borrowings F-16
All other schedules have been omitted because they are not applicable, the
required information is immaterial, or the required information is included
in the consolidated financial statements or notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Westwood One, Inc.
In our opinion, the consolidated financial statements listed in the index to
consolidated financial statements and financial statement schedules on page F-1
present fairly, in all material respects, the financial position of Westwood
One, Inc. and its subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Century City, California
February 12, 1997
F-2
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31,
------------
1996 1995
---- ----
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 2,655 $ 256
Accounts receivable, net of allowance for doubtful accounts
of $1,724 (1996) and $2,157 (1995) 41,325 36,591
Other current assets 4,399 5,038
--------- ----------
Total Current Assets 48,379 41,885
PROPERTY AND EQUIPMENT, NET 16,146 15,632
INTANGIBLE ASSETS, NET 201,730 184,441
OTHER ASSETS 6,791 3,637
--------- ----------
TOTAL ASSETS $ 273,046 $ 245,595
--------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 13,250 $ 14,468
Deferred revenue 3,767 2,028
Other accrued expenses and liabilities 24,166 12,647
Amounts payable to affiliates 10,843 6,179
--------- ---------
Total Current Liabilities 52,026 35,322
LONG-TERM DEBT 130,443 107,943
OTHER LIABILITIES 3,729 8,207
--------- ---------
TOTAL LIABILITIES 186,198 151,472
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY
Preferred stock: authorized 10,000,000 shares, none outstanding -- --
Common stock, $.01 par value: authorized, 117,000,000 shares;
issued and outstanding, 31,817,652 (1996) and 31,507,027 (1995) 318 315
Class B stock, $.01 par value: authorized, 3,000,000 shares:
issued and outstanding, 351,733 (1996 and 1995) 4 4
Additional paid-in capital 152,708 157,547
Accumulated deficit (37,399) (54,899)
--------- ----------
115,631 102,967
Less treasury stock, at cost; 1,895,395 (1996) and 607,395 (1995) shares (28,783) (8,844)
--------- ----------
TOTAL SHAREHOLDERS' EQUITY 86,848 94,123
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 273,046 $ 245,595
========= =========
See accompanying notes to consolidated financial statements.
F - 3
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
GROSS REVENUES $ 198,988 $ 169,598 $ 158,780
Less Agency Commissions 27,204 23,869 22,440
---------- ---------- ----------
NET REVENUES 171,784 145,729 136,340
---------- ---------- ----------
Operating Costs and Expenses Excluding
Depreciation and Amortization 126,702 106,685 105,389
Depreciation and Amortization 12,265 13,753 18,160
Corporate General and Administrative Expenses 5,545 5,976 4,404
Restructuring Costs -- -- 2,405
---------- ---------- ----------
144,512 126,414 130,358
---------- ---------- ----------
OPERATING INCOME 27,272 19,315 5,982
Interest Expense 8,749 9,524 8,802
Other Income (307) (389) (290)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 18,830 10,180 (2,530)
INCOME TAXES 1,330 495 200
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 17,500 9,685 (2,730)
EXTRAORDINARY ITEM - (LOSS) ON RETIREMENT OF DEBT -- -- (590)
---------- ---------- ----------
NET INCOME (LOSS) $ 17,500 $ 9,685 ($ 3,320)
========== ========== ==========
INCOME (LOSS) PER SHARE:
Income (Loss) Before Extraordinary Item $ .52 $ .28 ($ .09)
Extraordinary Item -- -- ( .02)
---------- ---------- ----------
Net Income (Loss) $ .52 $ .28 ($ .11)
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 33,563 34,310 29,414
========== ========== ==========
See accompanying notes to consolidated financial statements.
F - 4
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Common Stock Class B Stock Additional Treasury Stock
------------ ------------- Paid-in Accumulated --------------
Shares Amount Shares Amount Capital (Deficit) Shares Amount
------ ------ ------ ------ ------- --------- ------ ------
BALANCE AT DECEMBER 31, 1993 ............. 19,701 $197 352 $4 $123,443 ($61,264) - -
Net loss for 1994 ....................... - - - - - (3,320) - -
Issuance of common stock and
warrants .............................. 5,000 50 - - 15,933 - - -
Issuance of common stock under
stock option plans .................... 629 7 - - 1,169 - - -
Conversion of Senior Debentures to
common stock .......................... 5,322 53 - - 19,170 - - -
Issuance of common stock to 401-K plan... 1 - - - 12 - - -
------ ---- ----- --- --------- --------- ------ -----
BALANCE AT DECEMBER 31, 1994 ............. 30,653 307 352 4 159,727 (64,584) - -
Net income for 1995 ..................... - - - - - 9,685 - -
Issuance of common stock under
stock option plans .................... 754 7 - - 3,215 - - -
Issuance of common stock under
warrants .............................. 100 1 - - 236 - - -
Purchase and cancellation of warrant..... - - - - (5,631) - - -
Purchase of treasury stock .............. - - - - - - 607 8,844
------ ---- ----- --- --------- --------- ------ -------
BALANCE AT DECEMBER 31, 1995 ............. 31,507 315 352 4 157,547 (54,899) 607 8,844
Net income for 1996 ..................... - - - - - 17,500 - -
Issuance of common stock under
stock option plans .................... 311 3 - - 911 - - -
Purchase and cancellation of warrant..... - - - - (5,750) - - -
Purchase of treasury stock .............. - - - - - - 1,288 19,939
------ ---- ----- --- --------- --------- ------ -------
BALANCE AT DECEMBER 31, 1996 ............. 31,818 $318 352 $4 $152,708 ($37,399) 1,895 $28,783
====== ==== ===== === ========= ========= ====== ========
See accompanying notes to consolidated financial statements
F - 5
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1996 1995 1994
---- ---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $17,500 $ 9,685 ($3,320)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities before cash payments related to extraordinary item:
Depreciation and amortization 12,265 13,753 18,160
Extraordinary item - loss on retirement of debt -- -- 590
Other 403 (206) (677)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (489) 1,040 (19,191)
Decrease (increase) in prepaid assets 310 (430) (377)
Increase in accounts payable and accrued liabilities 3,248 381 7,510
-------- -------- --------
Net cash provided by operating activities before cash payments
related to extraordinary item 33,237 24,223 2,695
Cash payments related to extraordinary item -- -- (250)
-------- -------- ---------
Net Cash Provided By Operating Activities 33,237 24,223 2,445
-------- -------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies and other (Shadow Traffic
in 1996; Unistar in 1994) (26,172) (1,106) (108,206)
Capital expenditures (1,701) (1,229) (1,487)
-------- -------- ---------
Net Cash Used For Investing Activities (27,873) (2,335) (109,693)
-------- -------- ---------
CASH PROVIDED (USED) BEFORE
FINANCING ACTIVITIES 5,364 21,888 (107,248)
-------- -------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Debt repayments (1,250) (12,500) (14,515)
Borrowings under debt arrangements 23,750 -- 110,000
Issuance of common stock 914 3,459 16,126
Repurchase of common stock and warrants (25,689) (14,475) --
Deferred financing costs (690) (555) (2,038)
-------- -------- --------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (2,965) (24,071) 109,573
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,399 (2,183) 2,325
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 256 2,439 114
-------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,655 $256 $2,439
======== ======== =========
See accompanying notes to consolidated financial statements.
F-6
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 1 - Summary of Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements include the accounts of all wholly-owned
subsidiaries.
Revenue Recognition
Revenue is recognized when commercial advertisements are broadcast.
Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of
less than three months to be cash equivalents. The carrying amount of cash
equivalents approximates fair value because of the short maturity of these
instruments.
Depreciation
Depreciation is computed using the straight line method over the estimated
useful lives of the assets.
Measurement of Intangible Asset Impairment
At each balance sheet date, the Company determines whether an impairment of
Intangible Assets has occurred based upon expectations of nondiscounted
broadcast cash flow. Broadcast Cash Flow is based on the consolidated statement
of operations, calculated by subtracting from net revenue, operating costs and
expenses excluding depreciation and amortization. To date, the Company has not
experienced an impairment in any of its intangible assets. However, should such
an impairment exist, the impairment will be measured as the amount by which the
carrying amount of the asset exceeds its fair value, as defined by Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees," and related
Interpretations.
Income Taxes
Effective December 1, 1993, the Company implemented, on a prospective basis,
Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for
Income Taxes" which requires the use of the asset and liability method of
financial accounting and reporting for income taxes. Under FAS 109, deferred
income taxes reflect the tax impact of temporary differences between the amount
of assets and liabilities recognized for financial reporting purposes and the
amounts recognized for tax purposes.
Earnings (Loss) per Share
Net income (loss) per share is based on the weighted average number of common
shares and common equivalent shares (where inclusion of such equivalent shares
would not be anti-dilutive) outstanding during the year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results may differ from those estimates.
F-7
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 - Acquisition of companies:
On February 3, 1994, the Company completed the acquisition of all of the issued
and outstanding capital stock of Unistar Radio Networks, Inc. ("Unistar") for
$101,300 plus expenses. The acquisition was accounted for as a purchase.
Accordingly, the operating results of Unistar are included with those of the
Company from the date of acquisition. Based on management's estimates, the
purchase price has been allocated to the fair value of assets and liabilities
acquired. The excess of cost over net assets of acquired company resulting from
the transaction ($92,464) is being amortized over 40 years.
On March 1, 1996, the Company through its wholly-owned subsidiary Westwood One
Broadcasting Services Inc. acquired the operating assets of New York Shadow
Traffic Limited Partnership, Chicago Shadow Traffic Limited Partnership, Los
Angeles Shadow Traffic Limited Partnership and Philadelphia Express Traffic
Limited Partnership (collectively "Shadow Traffic") for $20,000 plus expenses,
subject to an adjustment based on the future cash flow of Shadow Traffic. The
acquisition was accounted for as a purchase, and accordingly, Shadow Traffic's
operating results are included with those of the Company from the date of
acquisition. 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 ($25,093) are being amortized
over 15 years. At December 31, 1996, the Company had included in Other Accrued
Expenses, $5,405 related to the purchase price adjustment.
NOTE 3 - Property and Equipment:
Property and equipment is recorded at cost and is summarized as follows at:
December 31,
------------
1996 1995
---- ----
Land............................................... $ 3,378 $ 3,378
Recording and studio equipment..................... 16,117 15,906
Buildings and leasehold improvements............... 7,972 7,574
Furniture and equipment............................ 6,734 5,788
Transportation equipment........................... 557 587
Construction-in-progress........................... 1,378 347
------- -------
36,136 33,580
Less: Accumulated depreciation and amortization... 19,990 17,948
------- -------
Property and equipment, net................. $16,146 $15,632
======= =======
Depreciation expense was $2,472 in 1996, $2,340 in 1995, and $3,238 in 1994.
F-8
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 - Intangible Assets:
Intangible assets are summarized as follows at:
December 31,
1996 1995
Goodwill, less accumulated amortization of $26,205 (1996) and
$20,572 (1995) ................................................. $168,249 $148,967
Acquired station affiliation agreements, less accumulated
amortization of $6,274 (1996) and $4,823 (1995) ............... 17,505 18,956
Other intangible assets, less accumulated amortization of
$5,622 (1996) and $5,082 (1995) ................................ 15,978 16,518
-------- --------
Intangible assets, net ................................... $201,730 $184,441
======== ========
Intangible assets, except for acquired station affiliation agreements, are
amortized on a straight-line basis principally over 40 years.
Station affiliation agreements are comprised of values assigned to agreements
acquired as part of the purchase of radio networks and are amortized using an
accelerated method over 40 years. The period of amortization is evaluated
periodically to determine whether a revision to the estimated useful life is
warranted.
NOTE 5 - Debt:
Long-term debt consists of the following at:
December 31,
1996 1995
Revolving Credit Facility/Term Loans ...........................................$115,000 $ 92,500
6 3/4% Convertible Subordinated Debentures maturing 2011 ....................... 15,443 15,443
-------- --------
130,443 107,943
Less current maturities ........................................................ -- --
-------- --------
$130,443 $107,943
======== ========
The Company's amended senior loan agreement with a syndicate of banks, lead by
Chase Manhattan Bank, provides for an unsecured $75,000 revolving credit
facility and an unsecured $75,000 term loan (the "Facility"). The Facility is
available until September 30, 2004. At December 31, 1996, the Company had
available borrowings under the Facility of $35,000. Interest is payable at the
prime rate plus an applicable margin of up to .25% or LIBOR plus an applicable
margin of up to 1.25%, at the Company's option. At December 31, 1996, the
applicable margin was LIBOR plus .75%. At December 31, 1996, the Company had
borrowed $40,000 under the revolving credit facility and $75,000 under the term
loan at an interest rate of 6.38%. The Facility contains covenants relating to
dividends, liens, indebtedness, capital expenditures and interest coverage and
leverage ratios.
F-9
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The 6 3/4% Convertible Subordinated Debentures ("Debentures") are unsecured and
subordinated in right of payment to senior indebtedness. Interest on the
Debentures is payable semiannually on April 15 and October 15. The Debentures
are convertible at any time prior to maturity, unless previously redeemed, into
shares of common stock of the Company at the conversion price of $24.58 per
share, subject to adjustment upon the occurrence of certain events.
The aggregate maturities of long-term debt for the next five fiscal years and
thereafter, pursuant to the Company's debt agreements as in effect at December
31, 1996, are as follows:
Year
- ------
2000................................ $ 10,000
2001................................. 10,000
Thereafter........................... 110,443
--------
$130,443
========
With the exception of the Company's Debentures, the fair value of short and
long-term debt approximates its carrying value. The fair value of the Debentures
at December 31, 1996 was approximately $13,899, based on its quoted market
price.
NOTE 6 - Shareholders' Equity:
The authorized capital stock of the Company consists of Common stock, Class B
stock and Preferred stock. Common stock is entitled to one vote per share while
Class B stock is entitled to 50 votes per share.
In connection with the Company's purchase of Unistar, the Company sold 5 million
shares of common stock and a warrant to purchase up to an additional 3 million
shares of common stock at an exercise price of $3.00 per share (subject to
certain vesting conditions) to Infinity Network, Inc. ("INI"), a wholly-owned
subsidiary of Infinity Broadcasting Corporation ("CBS Radio") for $15,000.
As part of a settlement relating to class action lawsuits filed against the
Company, warrants to purchase 3,000,000 shares of the Company's common stock at
$17.25 per share were issued. The warrants expire on September 4, 1997. Warrants
not exercised may be redeemable under certain circumstances at $1.00 per
warrant.
NOTE 7 - Stock Options:
The Company has a stock option plan established in 1989 which provides for the
granting of options to directors, officers and key employees to purchase stock
at its market value on the date the options are granted. There are 4,800,000
shares authorized under the 1989 Plan, as amended. Options granted generally
become exercisable after one year in 20% increments per year and expire within
ten years from the date of grant.
F-10
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company applies APB 25 and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its stock
option plans. Had compensation cost been determined in accordance with the
methodology prescribed by FAS 123, the Company's net income and earnings per
share would have been reduced by approximately $795 ($.02 per share) in 1996 and
$134 in 1995. The weighted average fair value of the options granted in 1996 and
1995 is estimated at $24.30 and $20.74, respectively, on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
1996 1995
---- ----
Risk Free Interest Rate 6.1% 5.8%
Expected Life (In Years) 5 5
Expected Volatility 31.1% 38.7%
Expected Dividend Yield - -
Expected Forfeitures per Year 5% 5%
Information concerning options outstanding under the Plan is as follows for the
year ended:
Year Ended December 31,
-----------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of
period 2,036,875 $ 9.02 1,686,875 $ 5.65 1,827,750 $2.87
Granted during the period 50,000 $17.50 675,000 $14.47 630,000 $9.64
Exercised during the period (310,625) $ 3.01 (304,375) $ 2.92 (629,000) $1.89
Forfeited or expired during the
period (43,750) $10.61 (20,625) $ 2.19 (141,875) $4.26
---------- ---------- ----------
Outstanding at end of period 1,732,500 $10.30 2,036,875 $ 9.02 1,686,875 $5.65
========== ========== ==========
Available for new stock options
at end of period 971,500 977,750 1,632,125
========== ========== ==========
At December 31, 1996, options to purchase 642,250 shares of common stock were
currently exerciseable at a weighted average exercise price of $7.94.
F-11
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table contains additional information with respect to options at
December 31, 1996:
Remaining
Weighted Weighted
Average Average
Number of Exercise Contractual
Options Price Life (In Years)
Options Outstanding at Exercise Price Ranges of:
$ 1.81 - $ 2.75 197,500 $ 2.22 5.3
$ 5.38 - $ 9.75 840,000 $ 8.58 7.6
$12.75 - $17.50 695,000 $14.69 8.9
---------
1,732,500 $10.30 7.8
=========
On December 1, 1986, the Chairman of the Board was granted options not covered
by the Plan to acquire 525,000 shares of common stock, which vested ratably
over a seven-year term or immediately upon a change in control of the Company.
The options became exercisable at the fair market value of the common stock, as
defined, on the date of vesting. During 1995, options to acquire 450,000 shares
were exercised at a weighted average exercise price of $5.39. At December 31,
1996, options covering 75,000 shares were exercisable at $16.31 per share.
NOTE 8 - Income Taxes:
The Company has approximately $68,000 of available U.S. net operating loss
carryforwards for tax purposes, which begin to expire in 2002. Utilization of
the carryforwards is dependent upon future taxable income and the absence of any
significant changes in the stock ownership of the Company. For financial
purposes, a valuation allowance of $15,539 has been recorded to offset the
deferred tax assets related to those carryforwards.
F-12
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities on the Company's balance
sheet and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities follow:
December 31,
1996 1995
Deferred tax liabilities:
Affiliation agreements......................... $ 7,840 $ 8,475
Purchase accruals.............................. 7,705 7,956
Other.......................................... 594 1,643
------- --------
Total deferred tax liabilities............... 16,139 18,074
------- --------
Deferred tax assets:
Net operating loss............................. 24,104 30,695
Accrued liabilities and reserves............... 5,724 6,673
Tax credits (AMT and ITC)...................... 1,850 1,345
------- --------
Total deferred tax assets.................... 31,678 38,713
------- --------
Valuation allowance.............................. 15,539 20,639
------- --------
Total deferred income taxes......................... $ - $ -
======= ========
The components of the provision (benefit) for income taxes related to continuing
operations is summarized as follows:
Year Ended December 31,
---------------------------------------
Current payable: 1996 1995 1994
---- ---- ----
Federal...................... $ 520 $280 $ 70
State........................ 810 215 130
------ ---- ----
Total income tax expense..... $1,330 $495 $200
====== ==== ====
Note 9 - Related Party Transactions:
In connection with the acquisition of Unistar, the Company sold 5,000,000 shares
of the Company's common stock and a warrant to purchase up to an additional
3,000,000 shares to INI (See Note 6) and entered into a Management Agreement
with CBS Radio. Pursuant to the Management Agreement, the Company paid or
accrued expenses aggregating $2,825 to CBS Radio in 1996 ($2,709 in 1995). As
part of the Management Agreement, CBS Radio was given 1,500,000 warrants to
acquire shares of common stock after the Company's common stock reaches certain
market prices per share. In November 1996, the Company purchased and cancelled
CBS Radio's $4.00 incentive warrants covering 500,000 common shares for $5,750.
In November 1995, the Company purchased and cancelled CBS Radio's $3.00
incentive warrants covering 500,000 common shares for $5,631.
At December 31, 1996, CBS Radio held 500,000 incentive warrants that become
exercisable at $5.00 per share when the market price of the Company's Common
Stock is at least $20.00 for at least 20 out of thirty consecutive trading days.
F-13
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, several of CBS Radio's radio stations are affiliated with the
Company's radio networks and the Company purchases several programs from CBS
Radio. During 1996 the Company incurred expenses aggregating approximately
$22,886 for CBS Radio affiliations and programs ($14,657 in 1995).
NOTE 10 - Restructuring Costs:
As a result of the Company's February 1994 acquisition of Unistar, the Company
consolidated certain facilities and operations. Accordingly, the Company
recorded (and paid) an expense for the estimated restructuring charges,
including the costs of facility consolidations ($865), eliminating programs
($426), and employee separations, relocations and related costs ($1,114).
NOTE 11 - Commitments and Contingencies:
The Company has various non-cancelable, long-term operating leases for office
space and equipment. In addition, the Company is committed under various
contractual agreements to pay for talent, broadcast rights, research, certain
digital audio transmission services and the Management Agreement with Infinity.
The approximate aggregate future minimum obligations under such operating leases
and contractual agreements for the five years after December 31, 1996, are set
forth below:
Year
-------
1997.............................................. $19,944
1998.............................................. 16,139
1999.............................................. 13,983
2000.............................................. 7,419
2001.............................................. 4,033
-------
$61,519
=======
NOTE 12 - Supplemental Cash Flow Information:
Supplemental Information on cash flows, including amounts from discontinued
operations, and non-cash transactions is summarized as follows:
Year Ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
Cash paid for:
Interest.................................. $6,837 $9,597 $7,763
Income taxes.............................. 754 326 125
Non-cash investing and financing activities:
Conversion of Senior Debentures
to common stock.......................... - - 19,223
F-14
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13 - Quarterly Results of Operations (unaudited):
The following is a tabulation of the unaudited quarterly results of operations.
The quarterly results are presented for the years ended December 31, 1996 and
1995.
(In thousands, except per share data)
First Second Third Fourth For the
Quarter Quarter Quarter Quarter Year
-------- ------- -------- -------- ---------
1996
----
Net revenues ................................. $33,848 $45,392 $47,561 $44,983 $171,784
Operating income ............................. 1,330 9,548 8,956 7,438 27,272
Net income (loss) ............................ (639) 6,991 6,465 4,683 17,500
Net income (loss) per share .................. $ (0.02) $ 0.20 $ 0.19 $ 0.14 $ 0.52
1995
----
Net revenues ................................. $31,421 $37,558 $38,305 $38,445 $145,729
Operating income ............................. 45 6,738 6,451 6,081 19,315
Net income (loss) ............................ (2,492) 4,235 4,099 3,843 9,685
Net income (loss) per share .................. $ (0.08) $ 0.12 $ 0.12 $ 0.11 $ 0.28
F-15
WESTWOOD ONE, INC.
SCHEDULE IX
CONSOLIDATED SHORT-TERM BORROWINGS
(In thousands)
MAXIMUM AVERAGE WEIGHTED
AMOUNT AMOUNT AVERAGE
CATEGORY OF BALANCE WEIGHTED OUT- OUT- INTEREST
AGGREGATE AT AVERAGE STANDING STANDING RATE
SHORT-TERM END OF INTEREST DURING THE DURING THE DURING THE
BORROWINGS PERIOD RATE PERIOD PERIOD PERIOD
- ---------- ------- -------- --------- ---------- ----------
Year ended
December 31,
1996:
Notes payable $ - - $10,000 $1,760 6.4 %
Notes: Short-term borrowings during the years covered by this schedule consist
of loans made under various established credit lines. The average amount
outstanding during each period was computed by dividing the average outstanding
principal balance by 365 days. The weighted average interest rate during each
period was computed by dividing the actual interest expense on such borrowings
by the average amount outstanding during that period. The Company did not have
any short-term borrowings in 1995.
F-16