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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, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
40 West 57th Street, 5th Floor
New York, NY 10019
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(Address of principal executive offices)
(212) 641-2000
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(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
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Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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(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
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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
March 1, 2002 was approximately $3,007,000,000.
As of March 1, 2002, 106,301,225 shares (excluding treasury shares) of
Common Stock were outstanding and 703,466 shares of Class B Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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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 by reference in
Part III of this Form 10-K.
PART I
Item 1. Business
General
Westwood One, Inc. (the "Company" or "Westwood One") supplies radio and
television stations with information services and programming. The Company is
the largest domestic outsource provider of traffic reporting services and the
nation's largest radio network, producing and distributing national news,
sports, talk, music and special event programs, in addition to local news,
sports, weather, video news and other information programming.
The Company's principal source of revenue is selling commercial airtime to
advertisers through one of its two operating divisions: (i) Metro/Shadow, which
is comprised of Metro Networks, Inc. ("Metro") and "Shadow Traffic" and the (ii)
Network Division. The Company generates revenue principally by selling audience
it obtains from radio and television affiliates to local and national
advertisers. The Company provides a broad range of programming and information
services which deliver audience to advertisers and also deliver traffic, news,
talk, sports, and entertainment programs to its affiliate stations.
Metro/Shadow provides local traffic and information broadcast reports in
over 80 Metro Survey Area markets (referred to herein as MSA markets) in the
United States. The Network Division offers radio stations traditional news
services, CBS Radio news, CNN Radio and Fox news in addition to seven 24-hour
satellite-delivered continuous play music formats ("24/7 Formats") and weekday
and weekend news and entertainment features and programs. These programs
include: major sporting events (principally covering the National Football
League, Notre Dame football and other college football and basketball games, the
National Hockey League, the Masters and the Olympics); live, personality
intensive talk shows; live concert broadcasts; countdown shows; music and
interview programs; and exclusive satellite simulcasts with HBO and other cable
networks.
Westwood One enables advertisers to purchase advertising time and have
their commercial messages broadcast on radio and television stations throughout
the United States, reaching demographically defined listening audiences. The
commercial inventory obtained by Westwood offers advertisers the opportunity to
reach a broad-based local, regional or national audience through a single
purchase from the Company.
Westwood One is managed by Infinity Broadcasting Corporation ("Infinity"),
a wholly-owned subsidiary of Viacom, Inc., pursuant to a Management Agreement
between the Company and Infinity which expires on March 31, 2004 (the
"Agreement"). Pursuant to the Agreement, Infinity currently receives an annual
fee of $2,633,000 (adjusted for inflation) and an incentive bonus based on the
Company exceeding predetermined cash flow objectives. Westwood One has also
issued to Infinity warrants to acquire shares of Common Stock pursuant to the
Agreement, of which 2,000,000 warrants are vested and outstanding.
Industry Background
Radio Broadcasting
There are approximately 10,300 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.
A radio station has two principal ways of effectively competing for
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
products, such as those 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.
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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. 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 its message in a
certain market or markets by supplementing a national purchase with local and/or
regional purchases.
To verify its network audience delivery and demographic composition,
specific measurement information is available to advertisers from an independent
rating service such as Arbitron and their RADAR rating service. The rating
service provides demographic information such as the age and gender composition
of the listening audiences. Consequently, advertisers can verify that their
advertisements are being heard by their target listening audience.
Business Strategy
Westwood One provides broad-based, local, regional or national audiences
and commercial spots to advertisers through its recognized programming and other
information products. The Company, through its various radio networks, produces
and distributes quality programming to meet listener needs for information and
to radio stations seeking to increase their listening audience and improve
advertising revenue by differentiating themselves from their competitors. The
Company sells advertising time within its programs to advertisers desiring to
reach large listening audiences with specific demographic characteristics.
In 1996, the Company expanded its product offerings to include providing
local traffic, news, sports and weather programming to radio stations and other
media outlets in selected cities across the United States. This expansion gave
the Company's advertisers the ability to easily supplement their national
purchases with local and regional purchases from the Company. It also allowed
the Company to develop relationships with local and regional advertisers. In
1996 and 1998, the Company acquired the operating assets of Shadow Traffic in a
total of 14 major metropolitan markets (4 in 1996 and 10 in 1998). In 1999,
Westwood One significantly expanded its local and regional reach through its
merger with the countr's largest traffic service provider, Metro, which
broadcast information reports in 67 of the 75 largest MSA markets in the United
States. Since then, the Company has expanded its reach to more than 80 of the
largest MSA markets. In late 2000, the Company continued its expansion of
products with its acquisition of the operating assets of SmartRoute Systems,
Inc. ("SmartRoute"), a company which collects, organizes and distributes a
database of advanced traveller information through various electronic media and
telecommunications.
Local Traffic and Information Programming
With respect to local content, the Company, through its Metro and Shadow
Traffic units, provides traffic reports and local news, weather and sports
information to its radio and television affiliates.
The Company gathers traffic and other data utilizing the Company's
information-gathering infrastructure, which includes aircraft (helicopters and
airplanes), broadcast-quality remote camera systems positioned at strategically
located fixed positions and on aircraft, mobile units and wireless systems, and
by accessing various government-based traffic tracking systems. The Company also
gathers information from various third-party news and information services. The
information is then processed, converted into broadcast copy and entered into
the Company's computer systems by the Company's local writers and producers.
This permits the Company to easily resell the information to other third parties
for distribution through the internet, wireless devices or personnel digital
assistants ("PDA") and various other new media systems. The Company's
professional announcers read the customized reports on the air. The Company's
information reports (including the length of report, content of report, specific
geographic coverage area, time of broadcast, number of reports aired per day,
broadcaster's style, etc.) are customized to meet each individual affiliate's
requirements. The Company typically works closely with the program directors,
news directors and general managers of its affiliates to ensure that the
Company's services meet its affiliates' goals and standards. The Company and its
affiliates jointly select the on-air talent to ensure that each on-air talent's
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style is appropriate for the station's format. The Company's on-air talent often
becomes integral "personalities" on such affiliates' station as a result of
their significant on-air presence and interaction with the station's on-air
personnel. In order to realize operating efficiencies, the Company endeavors to
utilize its professional on-air talent on multiple affiliate stations within a
particular market.
The Company generally does not require its affiliates to identify the
Company as the supplier of its information reports. This provides the Company's
affiliates with a high degree of customization and flexibility, as each
affiliate has the right to present the information reports provided by the
Company as if the affiliate had generated such reports with its own resources.
For example, multiple affiliates in a single market may imply that the Company's
infrastructure, including its airplanes, helicopters and talent, are those of
the affiliate.
As a result of its extensive network of operations and talent, the Company
regularly reports breaking and important news stories and provides its
affiliates with live coverage of these stories. The Company is able to customize
and personalize its reports of breaking stories using its individual affiliates'
call letters from the scene of news events. For example, in 2001, the Company
provided live airborne coverage of the September 11 terrorist attack on the
World Trade Center. By using our news helicopters, the Company fed live video to
television affiliates around the country. Moreover, by leveraging our
infrastructure, the same reporters provided live customized airborne reports for
the Company's radio affiliates via Metro Source. The Company believes that it is
the only radio network news organization that has local studio operations that
cover in excess of 80 markets and that is able to provide such customized
reports to these markets.
Metro Source, an information service available to subscribing affiliates,
is a total information system and digital audio workstation that allows the
Company's news affiliates to receive via satellite and view, write, edit and
report the latest news, features and show preparation material. With this
product, the Company provides continuously updated and breaking news, weather,
sports, business and entertainment information to its affiliate stations which
have subscribed to the service. Information and content for Metro Source is
primarily generated from the Company's staff of news bureau chiefs, state
correspondents and professional news writers and reporters.
Local, regional and national news and information stories are fed to the
Company's national news operations center in Phoenix, Arizona where the
information is verified, edited, produced and disseminated via satellite to the
Company's internal Metro Source workstations located in each of its operations
centers and to workstations located at affiliate radio stations nationwide.
Metro Source includes proprietary software that allows for customizing reports
and editing in both audio and text formats. The benefit to stations is that
Metro Source allows them to substantially reduce time and cost from the news
gathering and editing process at the station level, while providing greater
volume and quality news and information coverage from a single source. As of
January 2002, the Company had affiliated over 1,000 radio stations for the Metro
Source product.
Television Programming Services
The Company is supplying its Television Traffic Services to over 200
television stations. Similar to its radio programming services, with its MetroTV
Services the Company supplies customized information reports which are generally
delivered on air by its reporters to its television station affiliates. In
addition, the Company supplies customized graphics and other visual programming
elements to its television station affiliates.
The Company utilizes live studio cameras in order to enable its traffic
reporters to provide its Video News Services on television from the Company's
local broadcast studios. In addition, the Company provides its Video News
Services from its aircraft and fixed-position based camera systems. The Video
News Services include: (i) live video coverage from strategically located
fixed-position camera systems; (ii) live video news feeds from the Company's
aircraft; and (iii) full-service, 24 hours per day/7 days per week video
coverage from the Company's camera crews using broadcast quality camera
equipment and news vehicles.
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Information Services
The Company's Information Services ("IS") develops non-broadcast traffic
information business. IS develops innovative techniques of gathering local
traffic and transportation information, as well as new methods of distributing
such information to the public. The Company believes that in order to remain
competitive and to continue to provide an information product of the highest
quality to its affiliates, it is necessary to invest in and participate in the
development of new technology. Accordingly, in 2000 the Company acquired the
operating assets of SmartRoute. The Company is currently working with several
public and private entities across the United States to improve dissemination of
traffic and transportation information. The Company is a large supplier of
information to the wireless telephone industry, providing customized traffic
information, direction services, and other local information to wireless
subscribers via the Company's STAR JAM (TM) and STAR FIND (TM) services. IS
revenues are not presently a significant source of revenues to the Company.
The Company, through its SmartRoute operations, collects, organizes and
distributes a database of advanced traveler information to automobiles, homes
and offices through various electronic media and telecommunications. The Company
delivers its information under the SmartTraveler brand name. In addition, the
Company has participated in a number of federally funded Intelligent
Transportation Systems Field Operational tests and Model Deployment Initiatives
including the AZTech Model Deployment in Phoenix, the Smart Trek Model
Deployment in Seattle, TravInfo, TransCal, St. Louis, Salt Lake City, the
Atlanta Olympics Technology Showcase, Partners in Motion in the Washington DC
area, Advanced Regional Traffic Interactive Management and Information System
Program in Ohio, Kentucky and Indianapolis, ORION City Model deployment with
Minnesota DOT and Traffic Wise in Indianapolis, and Advanced Traveler
Information System in Massachusetts, Connecticut, Pennsylvania and New Jersey.
In conjunction with ETAK, a digital mapping and software company owned by
Tele Atlas, the Company has been working with a variety of private companies to
deploy commercial products and services involving traveler information. The
relationship allows for the provision of information on a personalized basis
through numerous delivery mechanisms, including the internet, paging, FM
subcarrier, traditional cellular and newly-developed and evolving wireless
systems. Information can be delivered to a wide array of devices including
pagers, computers, and in-vehicle navigation and information systems.
The Company believes that its extensive fleet of aircraft and other
information-gathering technology and broadcast equipment have allowed the
Company to provide high quality programming, enabling it to retain and expand
its affiliate base. In the aggregate, the Company utilizes approximately: 125
helicopters and fixed-wing aircraft; 30 mobile units; 30 airborne camera
systems; 125 fixed-position camera systems; 75 broadcast studios; and 1,300
broadcasters and producers. The Company also maintains a staff of computer
programmers and graphics experts to supply customized graphics and other visual
programming elements to television station affiliates. In addition, the
Company's operations centers and broadcast studios have sophisticated computer
technology, video and broadcast equipment and cellular and wireless technology,
which enables the Company's on-air talent to deliver accurate reports to its
affiliates. The infrastructure and resources dedicated to a specific market by
the Company are determined by the size of the market, the number of affiliates
the Company serves in the market and the type of services being provided.
National Radio Programming
The Company produces and distributes 24/7 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, thereby
being able to tailor its programs to respond to current and changing listening
preferences. The Company produces regularly scheduled short-form programs
(typically five minutes or less), long-form programs (typically 60 minutes or
longer) and 24/7 Formats. Typically, the short-form programs are produced at the
Company's in-house facilities located in Culver City, California, and New York,
New York. The long-form programs include shows produced primarily at the
Company's in-house production facilities and recordings of live concert
performances and sports events made on location. The 24/7 Formats are produced
at the Company's facilities in Valencia, California.
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Westwood One also produces and distributes special event syndicated
programs. In 2001, the Company produced and distributed numerous special event
programs, including exclusive broadcasts of The Grammy Awards, Destiny's Child,
The Backstreet Boys, Madonna, Britney Spears, and Martina McBride among others.
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 primarily 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 seven 24/7 Formats providing music,
news and talk programming for Country, Hot Country, Adult Contemporary, Soft AC,
Oldies, Adult Standards, and the Adult Rock and Roll 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 Company's business strategy is to provide for the programming needs of
radio stations by supplying to radio stations, programs and services that
individual stations may not be able to produce on their own on a cost effective
basis. The Company offers radio stations traffic and news information as well as
a wide selection of regularly scheduled and special event syndicated programming
and 24/7 Formats. The information, programs and formats are produced by the
Company and, therefore, the stations typically have virtually no production
costs. With respect to the Company's programs and formats, each program or
format 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 enters into affiliation agreements with radio stations which
requires the affiliate to provide the Company with a specific number of
commercial positions which it aggregates by similar day and time periods and
resells to its advertisers. Some affiliation agreements also 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 24/7 Formats, the Company typically receives 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 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.
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The Company has a number of people responsible for station sales and
marketing its programs to radio stations. The Company's staff develops and
maintains close, professional relationships with radio station personnel to
provide them with quick programming assistance.
Advertising Sales and Marketing
The Company packages its radio commercial airtime inventory on a network
basis, covering all affiliates in relevant markets, either regionally or
nationally. This packaged inventory typically appeals to advertisers seeking a
broad demographic reach. Because the Company generally sells its commercial
airtime inventory on a network basis rather than station-by-station, the Company
does not compete for advertising dollars with its local radio station
affiliates. The Company believes that this corporate policy is a key factor in
maintaining its affiliate relationships. The Company packages its television
commercial airtime inventory on a regional and national network basis. The
Company has developed a separate sales force to sell its television commercial
airtime inventory and to optimize the efforts of the Company's national internal
structure of sales representatives. The Company's advertising sales force is
comprised of approximately 300 sales representatives.
In most of the Metro/Shadow markets in which it conducts operations, the
Company maintains an advertising sales office as part of its operations center.
The Company's advertising sales force is able to sell available commercial
airtime inventory in any and all of the Company's markets in addition to selling
such inventory in each local market, which the Company believes affords its
sales representatives an advantage over certain of its competitors. For
example, an airline advertiser can purchase sponsorship advertising packages in
multiple markets from the Company's local sales representative in the city in
which the airline is headquartered.
The Company's typical radio advertisement for traffic and information
programming consists of an opening announcement and a ten-second commercial
message presented immediately prior to, in the middle of, or immediately
following a regularly scheduled information report. Because the Company has
numerous radio station affiliates in each of its markets (averaging
approximately 25 affiliates per market), the Company believes that its traffic
and information broadcasts reach more people, more often, in a higher impact
manner than can be achieved using any other advertising medium. The Company
combines its commercial airtime inventory into multiple "sponsorship" packages
which it then sells as an information sponsorship package to advertisers
throughout its networks on a local, regional or national basis, primarily during
morning and afternoon drive periods. The Company generally does not allow an
advertiser to select individual stations from its networks on which to run its
advertising campaign.
The Company believes that the positioning of advertisements within or
adjacent to its information reports appeals to advertisers because the
advertisers' messages are broadcast along with regularly scheduled programming
during peak morning and afternoon drive times when a majority of the radio
audience is listening. Radio advertisements broadcast during these times
typically generate premium rates. Moreover, surveys commissioned by the Company
demonstrate that because the Company's customized information reports are
related to topics of significant interest to listeners, listeners often seek out
the Company's information reports. Since advertisers' messages are embedded in
the Company's information reports, such messages have a high degree of impact on
listeners and generally will not be "pre-empted" (i.e., moved by the radio
station to another time slot). Most of the Company's advertisements are read
live by the Company's on-air talent, providing the Company's advertisers with
the added benefit of an implied endorsement for their product.
Westwood One's Network Division provides national advertisers with a
cost-effective way to communicate their commercial messages to large listening
audiences nationwide through purchases of commercial airtime in its national
radio networks and programs. An advertiser can obtain both frequency (number of
exposures to the target audience) and reach (size of listening audience) by
purchasing advertising time from the Company. By purchasing time in networks or
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,
on occasion, 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.
Generally, the Company provides its MetroTV services to television stations
in exchange for thirty-second commercial airtime inventory that the Company
packages and sells on a regional and national basis. The amount and placement of
the commercial airtime inventory that the Company receives from television
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stations varies by market and the type of service provided by the Company. As
the Company has provided enhanced television video services, it has been able to
acquire more valuable commercial airtime inventory. The Company believes that it
offers advertisers significant benefits because, unlike traditional television
networks, the Company often delivers more than one station in major markets and
advertisers may select specific markets.
The Company has established a morning news network for its advertisers'
commercials to air during local news programming and local news breaks from 5:30
a.m. to 9:00 a.m. Because the Company has affiliated a large number of network
television stations in major markets, its morning news network delivers a
significant national household rating in an efficient and compelling local news
environment. As the Company continues to expand its service offerings for local
television affiliates, it plans to create additional news networks to leverage
its television news gathering infrastructure.
Competition
The Company's Metro/Shadow Division, in the MSA markets in which it
operates, competes for advertising revenue with local print and other forms of
communications media including; magazines, outdoor advertising, network radio
and network television advertising, transit advertising, direct response
advertising, yellow page directories, internet/new media and point-of-sale
advertising. Although the Company is significantly larger than the next largest
provider of traffic and local information services, there are several
multi-market operations providing local radio and television programming
services in various markets. In addition, the recent consolidation of the radio
industry has created opportunities for large radio groups, such as Clear Channel
Communications, to gather information on their own.
The Company's Network Division 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. More recently, as a result of consolidations in the
radio industry, companies owning large groups of stations have begun to create
competing networks that have resulted in additional competition for network
radio advertising expenditures. In addition, as with its Metro/Shadow Division,
the Network Division 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.
Government Regulation
Radio broadcasting and station ownership are regulated by the FCC. Westwood
One, as a producer and distributor of radio programs and services, is generally
not subject to regulation by the FCC. Metro/Shadow utilizes FCC regulated
two-way radio frequencies pursuant to licenses issued by the FCC.
Employees
On February 1, 2002, Westwood One had approximately 2,740 employees,
including a domestic advertising sales force of approximately 300 people, and
920 part-time employees. In addition, the Company maintains continuing
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relationships with approximately 175 independent writers, program hosts,
technical personnel and producers. Certain employees at the Company's traffic
and network operations are covered by collective bargaining agreements.
Including full and part-time employees, approximately 600 persons are covered by
collective bargaining agreements. The Company believes relations with its
employees and independent contractors are satisfactory.
Item 2. Properties
The Company owns a 7,600 square-foot building in Culver City, California in
which its Network Division syndicated program production facilities are located
and a 14,000 square-foot building in Culver City, California which contains
administrative, and sales and marketing offices. The Company also owns a 10,000
square-foot building adjacent to its offices which it subleases. In addition,
the Company leases operation centers/broadcast studios and marketing and
administrative offices across the United States consisting of over 275,000
square feet in the aggregate, pursuant to the terms of various lease agreements.
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, 2001.
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PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
On February 1, 2002 there were approximately 320 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 the Company estimates that the total
number of beneficial holders of the Company's Common Stock exceeds 5,000.
Since December 15, 1998, the Company's Common Stock has been traded on the
New York Stock Exchange ("NYSE") under the symbol "WON". The following table
sets forth the range of high and low last sales prices on the NYSE for the
Common Stock for the calendar quarters indicated. These prices have been
adjusted on a retroactive basis to reflect the effect of the Company's
two-for-one stock split which was paid on March 22, 2000.
2001 High Low
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First Quarter $25.00 $18.18
Second Quarter 36.85 22.11
Third Quarter 36.50 21.00
Fourth Quarter 31.38 22.10
2000
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First Quarter $39.81 $29.50
Second Quarter 39.00 30.81
Third Quarter 34.38 19.81
Fourth Quarter 22.38 14.25
The Company does not intend to pay cash dividends. No cash dividend was
paid on the Company's stock during 2001 or 2000, and the payment of dividends is
restricted by the terms of its loan agreements.
The following table contains information regarding equity compensation
plans as of December 31, 2001:
Options (1) Warrants (2)
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Shares to be issued upon exercise 11,089,934 2,000,000
Weighted-average exercise price $16.01 $12.50
Shares available for future issuance 4,002,500 -
(1) - Options included herein were granted or are available for grant as part
of the Company's 1989 and/or 1999 stock option plans that were approved by
shareholders of the Company. The Company's 1999 stock option plan provides
for mandatory grants of options to members of the Company's Board of
Directors on an annual basis. The Compensation Committee of the Board of
Directors approves periodic option grants to Executive Officers and other
employees based on their contributions to the operations of the Company.
(2) - Warrants included herein were issued in conjunction with the Infinity
Management Agreement.
-9-
Item 6. SELECTED FINANCIAL DATA
(In thousands except per share data)
The per share amounts included herein have been restated to reflect on a
retroactive basis the Company's two-for-one stock split which was paid on March
22, 2000.
2001 2000 1999 (1) 1998 (2) 1997 (3)
---- ---- -------- -------- --------
OPERATING RESULTS FOR YEAR ENDED DECEMBER 31:
Net Revenues $515,940 $553,693 $358,305 $259,310 $240,790
Operating and Corporate Costs, Excluding
Depreciation and Amortization 349,936 388,095 267,294 206,996 191,854
Depreciation and Amortization 67,611 62,104 30,214 18,409 13,031
Operating Income 98,393 103,494 60,797 33,354 35,905
Net Income $43,195 $42,283 $23,887 $13,046 $25,496
Income Per Basic Share $.40 $.38 $.33 $.22 $.41
Income Per Diluted Share $.38 $.36 $.30 $.20 $.37
Current Assets $ 138,482 $153,881 $ 167,848 $85,663 $77,933
Working Capital 32,967 15,679 39,843 7,111 12,180
Total Assets 1,207,972 1,285,556 1,333,153 345,279 317,695
Long-Term Debt 152,000 168,000 158,000 170,000 115,000
Total Shareholders' Equity 915,371 949,892 1,019,775 77,218 124,678
Other Financial Data For Year Ended
December 31:
OPERATING CASH FLOW (EBITDA) (4) $166,004 $165,598 $91,011 $52,314 $48,936
(1) Results for the year ended December 31, 1999 include the results of Metro
from the date of the merger on September 22, 1999.
(2) Results for the year ended December 31, 1998 include the Shadow Traffic
Operations for 10 markets from the time they were acquired in May 1998.
(3) Results for the year ended December 31, 1997 include the CBS Radio Networks
from the effective date of the Representation Agreement in April 1997.
(4) Operating cash flow is defined as operating income plus depreciation and
amortization and non-recurring items. Operating cash flow is not determined
in accordance with generally accepted accounting principles (GAAP), is not
indicative of Cash Provided by Operating Activities and should not be
considered in isolation from, or as an alternative to, other measures
determined in accordance with GAAP.
- -- No cash dividend was paid on the Company's Common Stock during the periods
presented above.
-10-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (In thousands except for per share amounts)
On January 27, 2000 the Board of Directors approved a two-for-one stock
split of the Company's Common Stock and Class B Stock effective March 22, 2000.
All references herein to share and per share amounts have been restated to give
effect to the stock split on a retroactive basis.
On September 22, 1999, the Company completed its acquisition of Metro
Networks, Inc. ("Metro"). The results of operations for Metro are included in
the consolidated financial statements of the Company from the date of the
acquisition.
Results of Operations
Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Net revenues decreased 7% to $515,940 in 2001
from $553,693 in 2000, and increased 55% in 2000 from $358,305 in 1999. The 2001
decrease in net revenue was due to the non-recurrence of revenues from the 2000
Summer Olympics from Sydney, Australia, a reduction of spending by internet
companies, the cancellation of programming and advertising commitments due to
the events of September 11 and a slowdown in the advertising market generally.
The 2000 increase was primarily attributable to the September 22, 1999 merger
with Metro, higher advertising rates at both the Company's Network and Traffic
operations and due to the Company's exclusive live broadcast of the 2000 Summer
Olympics. On a pro forma basis, assuming the acquisition of Metro had occurred
as of January 1, 1999, net revenue for 2000 would have increased by
approximately 13%.
Operating costs and expenses excluding depreciation and amortization
decreased 10% to $343,120 in 2001 from $380,346 in 2000, and increased 45% in
2000 from $261,538 in 1999. The 2001 decrease was primarily attributable to the
non-recurrence of broadcast rights fees and related costs associated with the
2000 Summer Olympics, tight cost controls, reductions in affiliate and personnel
costs, and lower revenue related expenses including bad debts, partially offset
by operating costs incurred for the full year in 2001 associated with the
operations of SmartRoute, whose assests were acquired in November 2000. The 2000
increase was attributable to operating expenses associated with the Metro
acquisition and broadcast rights fees and other related costs associated with
the 2000 Summer Olympics.
Depreciation and amortization increased 9% to $67,611 in 2001 from $62,104
in 2000, and increased 106% in 2000 from $30,214 in 1999. The 2001 increase was
principally attributable to depreciation and amortization related to the
acquisition of the operating assets of SmartRoute. The 2000 increase was
principally related to the amortization of goodwill resulting from the Metro
acquisition.
Corporate general and administrative expenses decreased 12% to $6,816 in
2001 from $7,749 in 2000, and increased 35% in 2000 from $5,756 in 1999. The
decrease in 2001 was principally attributable to a lower incentive bonus payable
to Infinity pursuant to the terms of the Management Agreement. The increase in
2000 was principally attributable to expenses related to Infinity's incentive
bonus.
Operating income decreased 5% to $98,393 in 2001 from $103,494 in 2000, and
increased 70% in 2000 from $60,797 in 1999. The 2001 decrease was due to lower
revenues and higher depreciation and amortization partially offset by a
reduction in operating costs. The 2000 increase was attributable to higher
revenues from the Company's operations partially offset by higher depreciation
and amortization.
Interest expense was $8,705, $10,785 and $12,150 in 2001, 2000 and 1999,
respectively. The 2001 decrease was attributable to lower interest rates and
debt levels. The 2000 decrease was attributable to lower debt levels throughout
most of 2000 (compared with 1999 debt levels) partially offset by higher
interest rates.
The income tax provisions for 2001, 2000 and 1999 are based on annual
effective tax rates of 51%, 55% and 52%, respectively. The decrease in the
effective tax rate in 2001 is primarily attributable to lower state taxes. The
increase in the effective tax rate in 2000 is principally attributable to
non-deductible goodwill resulting from the Metro acquisition.
Net income in 2001 increased 2% to $43,195 ($.40 per basic share and $.38
per diluted share) from $42,283 ($.38 per basic share and $.36 per diluted
share) in 2000 and increased 77% in 2000 from $23,887 ($.33 per basic share and
$.30 per diluted share) in 1999.
Weighted averages shares outstanding for purposes of computing basic
earnings per share were 107,551, 110,640 and 72,168 in 2001, 2000 and 1999,
-11-
respectively. The decrease in 2001 was primarily attributable to the Company's
stock repurchase program partially offset by additional share issuances as a
result of stock option exercises. The increase in 2000 was primarily
attributable to the issuance of 50,224 shares of Common Stock in conjunction
with the Company's acquisition of Metro partially offset by stock repurchases
made pursuant to the Company's ongoing stock repurchase program. Weighted
average shares outstanding for purposes of computing diluted earnings per share
were 112,265, 115,864 and 78,930 in 2001, 2000 and 1999, respectively. The
changes in weighted average diluted shares are due principally to the increase
in basic shares partially offset by the effect of stock option grants and the
increase in the Company's stock price.
Liquidity and Capital Resources
At December 31, 2001, the Company's principal sources of liquidity were its
cash and cash equivalents of $4,509 and available borrowings under its loan
agreement of $147,000.
For 2001, net cash from operating activities was $145,673, a decrease of
$10,719 from 2000. Cash flow from operations was principally used to fund the
Company's stock repurchase program.
At December 31, 2001, the Company had an unsecured $259,000 bank revolving
credit facility and an unsecured $47,500 term loan (collectively the
"Facility"). At December 31, 2001, the Company had available borrowings of
$147,000 under its Facility. The amount of the Facility is scheduled to be
reduced by $6,000 at the end of each quarter during 2002. In addition, the
Company is required to repay its term loan by $3,750 at the end of the Company's
third and fourth quarters of 2002.
In 2001, the Company purchased 6,152 shares of the Company's Common Stock
and warrants for a total cost of $146,278. In 2000, the Company purchased 5,190
shares of the Company's Common Stock for a total cost of $123,431 and in 1999,
purchased 3,128 shares of the Company's Common Stock for a total cost of
$54,164. In 2002 (through February 28, 2002), the Company repurchased an
additional 944 shares of Common Stock at a cost of $29,658. The stock buybacks
have been funded principally from the Company's free cash flow.
The Company believes that its cash, other liquid assets, operating cash
flows and available bank borrowings, taken together, provide adequate resources
to fund ongoing operating requirements.
Critical Accounting Policies and Estimates
Westwood One's financial statements are prepared in accordance with
accounting principles that are generally accepted in the United States. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses as well as the disclosure of contingent assets and liabilities.
Management continually evaluates its estimates and judgments including those
related to allowances for doubtful accounts, useful lives of property, plant and
equipment and intangible assets, investments, income taxes, and other
contingencies. Management bases its estimates and judgments on historical
experience and other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. We believe that of our significant accounting
policies, the following may involve a higher degree of judgment or
complexity:
Allowances for doubtful accounts - we maintain allowances for doubtful
accounts for estimated losses which may result from the inability of our
customers to make required payments. We base our allowances on the likelihood of
recoverability of accounts receivable by aging category, based on past
experience and taking into account current collection trends that are expected
to continue. If economic or specific industry trends worsen beyond our
estimates, we would be required to increase our allowances for doubtful accounts
by recording additional expense. Alternatively, if trends improve beyond our
estimates, we would be required to decrease our allowance for doubtful accounts
by reducing our recorded expense.
Estimated useful lives of property, plant and equipment and intangible
assets - we estimate the useful lives of property, plant and equipment and
intangible assets in order to determine the amount of depreciation and
amortization expense to be recorded during any reporting period. The useful
lives are estimated at the time the asset is acquired and are based on
historical experience with similar assets as well as taking into account
anticipated technological or other changes. If technological changes were to
occur more rapidly than anticipated or in a different form than anticipated, the
useful lives assigned to these assets may need to be shortened, resulting in the
recognition of increased depreciation and amortization expense in future
periods. Alternatively, these types of technological changes could result in the
recognition of an impairment charge to reflect the write-down in value of the
asset. We review these types of assets for impairment annually, or when events
or circumstances indicate that the carrying amount may not be recoverable over
the remaining lives of the assets. Beginning January 1, 2002, in accordance with
the provisions of SFAS 142 (see below), we will no longer amortize goodwill but
will test these assets at least annually for impairment.
-12-
New Accounting Pronouncements Affecting Future Results
In July 2001, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 supercedes APB Opinion No. 16, "Business Combinations" and requires all
business combinations to be accounted for under the purchase method. SFAS 142
primarily addresses the accounting for goodwill and intangible assets subsequent
to their initial recognition. The provisions of SFAS 142 (1) prohibit the
amortization of goodwill and indefinite-lived intangible assets, (2) require
that goodwill and indefinite-lived intangible assets be tested annually for
impairment (and in interim periods if events occur indicating that the carrying
value of goodwill and/or indefinite-lived intangible assets may be impaired),
(3) require that reporting units be identified for the purpose of assessing
potential future impairments of goodwill, and (4) remove the forty-year
limitation on the amortization period of intangible assets that have finite
lives. SFAS 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.
The Company expects to complete that first step of the goodwill impairment test
during the first quarter of 2002, but does not anticipate that any of its
goodwill will be impaired. If necessary, the second step of the goodwill
impairment test measures the amount of the impairment loss (measured as of the
beginning of the year of adoption), if any, and must be completed by the end of
the Company's fiscal year. Intangible assets deemed to have an indefinite life
will be tested for impairment using a one-step process which compares the fair
value to the carrying amount of the asset as of the beginning of the fiscal
year. These Statements are effective on January 1, 2002 and accordingly the
Company will adopt the provisions of SFAS 142 in its first quarter ended
March 31, 2002.
As a result of adopting these new standards, the Company's effective tax
rate and depreciation and amortization expense is expected to decrease
substantially in 2002. Had SFAS 142 been in effect for 2001, the Company's
reported depreciation and amortization expense for 2001 would have been reduced
by approximately $48,000.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Asset" ("SFAS 144"). SFAS 144 supercedes SFAS 121, "Accounting For the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and establishes a single accounting model for the impairment or disposal of
long-lived assets. SFAS 144 is effective for years beginning after December 15,
2001. The Company does not expect the adoption will have a material impact on
its consolidated results of operations and financial position.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements made by or on the behalf of the Company.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Various
risks that could cause future results to differ from those expressed by
forward-looking statements include, but are not limited to: changes in economic
conditions in the US (both general and relative to the advertising industry);
fluctuations in interest rates; changes in industry conditions; changes in
operating performance; shifts in population and other demographics; changes in
the level of competition for advertising dollars; technological changes and
innovations; changes in government regulations and policies and actions of
regulatory bodies; changes in tax rates and access to capital markets. These
statements are based on management's views and assumptions at the time the
statements are made, however no assurances can be given that management's
expectations will come to pass. The forward-looking statements included in this
document are only made as of the date of this document and the Company does not
have any obligation to publicly update any forward-looking statement to reflect
subsequent events or circumstances.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk
The Company is exposed to market risk related to changes in interest rates.
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).
-13-
The interest rate on the Company's outstanding borrowings is based on the
prime rate plus an applicable margin of up to .25%, or LIBOR plus an applicable
margin of up to 1.25%, as chosen by the Company. Historically, the Company has
typically chosen the LIBOR option with a three month maturity. Every .25% change
in interest rates has the effect of increasing or decreasing our annual interest
expense by $5 for every $2,000 of outstanding debt.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements and the related notes and schedules
were prepared by and are the responsibility of management. The financial
statements and related notes were prepared in conformity with generally accepted
accounting principles and include amounts based upon management's best estimates
and judgments. All financial information in this annual report is consistent
with the consolidated financial statements.
The Company maintains internal accounting control systems and related
policies and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and properly recorded, and that accounting records may be relied
upon for the preparation of consolidated financial statements and other
financial information. The design, monitoring, and revision of internal
accounting control systems involve, among other things, management's judgment
with respect to the relative cost and expected benefits of specifc control
measures.
Westwood One's consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants, who have expressed their
opinion with respect to the presentation of these statements.
The Audit Committee of the Board of Directors, which is comprised solely of
directors who are not employees of the Company, meets periodically with the
independent accountants, as well as with management, to review accounting,
auditing, internal accounting controls and financial reporting matters. The
Audit Committee is also responsible for recommending to the Board of Directors
the independent accounting firm to be retained for the coming year. The
independent accountants have full and free access to the Audit Committee with
and without management's presence.
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-17 and by this reference incorporated herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-14-
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.
-15-
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 hereunder 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. (10)
*10.1Employment Agreement, dated April 29, 1998, between Registrant and Norman
J. Pattiz. (12)
10.2 Form of Indemnification Agreement between Registrant and its Directors and
Executive Officers. (4)
10.3 Amended and Restated Credit Agreement, dated September 30, 1996, between
Registrant and The Chase Manhattan Bank and Co-Agents. (10)
10.4 Second Amended and Restated Credit Agreement dated November 17, 2000,
between Registrant and The Chase Manhattan Bank and Co-Agents. (16)
10.5 Purchase Agreement, dated as of August 24, 1987, between Registrant and
National Broadcasting Company, Inc. (5)
10.6 Agreement and Plan of Merger among Registrant, Copter Acquisition Corp. and
Metro Networks, Inc. dated as of June 1, 1999 (13)
*10.7Amendment No. 1 to the Agreement and Plan Merger, dated as of August 20,
1999, by and among Registrant, Copter Acquisition Corp. and Metro Networks,
Inc. (14)
10.8 Management Agreement, dated as of March 30, 1999, between Registrant and
Infinity Broadcasting Corporation. (13)
10.9 Representation Agreement, dated as of March 31, 1997, between Registrant
and CBS, Inc. (11)
10.10 Westwood One Amended 1999 Stock Incentive Plan. (13)
10.11 Westwood One, Inc. 1989 Stock Incentive Plan. (6)
10.12 Amendments to the Westwood One, Inc. Amended 1989 Stock Incentive
Plan. (7) (9)
10.13Leases, dated August 9, 1999, between Lefrak SBN LP and Westwood One, Inc.
and between Infinity and Westwood One, Inc. relating to New York, New York
offices. (15)
10.14Lease, dated December 18, 1991, between Valencia Paragon Associates, Ltd.,
and Unistar Communications Group, Inc. relating to Valencia, California
offices. (8)
21 List of Subsidiaries
23 Consent of Independent Accountants
**********************
* Indicates a management contract or compensatory plan.
-16-
(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 part of Registrant's March 27, 1992 proxy statement (File Number
0-13020) and incorporated herein by reference.
(7) Filed as an exhibit to Registrant's July 20, 1994 proxy statement (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 year
ended December 31, 1994 (File Number 0-13020) and incorporated herein by
reference.
(9) Filed as an exhibit to Registrant's May 17, 1996 proxy statement (File
Number 0-13020) and incorporated herein by reference.
(10) Filed as an exhibit to Registrant's Quarterly report on Form 10-Q for the
quarter ended September 30, 1996 (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 year
ended December 31, 1997 (File Number 0-13020) and incorporated herein by
reference.
(12) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998 (File Number 0-13020) and incorporated herein by
reference.
(13) Filed as an exhibit to Registrant's August 24, 1999 proxy statement (File
Number 0-13020) and incorporated herein by reference.
(14) Filed as an exhibit to Registrant's current report on Form 8-K dated
October 1, 1999 (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, 1999 (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, 2000 (File Number 0-13020) and incorporated herein by
reference.
(b) Reports on Form 8-K
None.
-17-
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 21, 2002 By /S/FARID SULEMAN
---------------------------
Farid Suleman
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/ JOEL HOLLANDER Director, President and March 21, 2002
- ----------------------- Chief Executive Officer
Joel Hollander
Principal Financial Officer and
Chief Accounting Officer:
/s/ FARID SULEMAN Director and Chief March 21, 2002
- ----------------------- Financial Officer
Farid Suleman
Additional Directors:
/s/ NORMAN J. PATTIZ Chairman of the Board of March 21, 2002
- ----------------------- Directors
Norman J. Pattiz
/s/ DAVID L. DENNIS Director March 21, 2002
- ----------------------
David L. Dennis
/s/ GERALD GREENBERG Director March 21, 2002
- ----------------------
Gerald Greenberg
/s/ DENNIS HOLT Director March 21, 2002
- ----------------------
Dennis Holt
/s/ MARIA D. HUMMER Director March 21, 2002
- ----------------------
Maria D. Hummer
/s/ MEL A. KARMAZIN Director March 21, 2002
- ----------------------
Mel A. Karmazin
/s/ STEVEN A. LERMAN Director March 21, 2002
- ----------------------
Steven A. Lerman
/s/ DAVID SAPERSTEIN Director March 21, 2002
- ----------------------
David Saperstein
/s/ JOSEPH B. SMITH Director March 21, 2002
- ----------------------
Joseph B. Smith
-18-
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, 2001
and 2000 F-3
--Consolidated Statements of Operations for the years
ended December 31, 2001, 2000 and 1999 F-4
--Consolidated Statements of Shareholders' Equity
for the years ended December 31, 2001, 2000 and 1999 F-5
--Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999 F-6
--Notes to Consolidated Financial Statements F-7 - F-16
2. Financial Statement Schedules:
V. -Valuation and Qualifying Accounts F-17
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
accompanying index present fairly, in all material respects, the financial
position of Westwood One, Inc. and it subsidiaries at December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, 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 our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
New York, New York
February 15, 2002
F-2
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31,
------------
2001 2000
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,509 $ 6,757
Accounts receivable, net of allowance for doubtful accounts
of $9,282 (2001) and $9,356 (2000) 123,733 135,550
Other current assets 10,240 11,574
---------- --------
Total Current Assets 138,482 153,881
PROPERTY AND EQUIPMENT, NET 56,778 58,052
INTANGIBLE ASSETS, NET 1,003,337 1,055,727
OTHER ASSETS 9,375 17,896
---------- ----------
TOTAL ASSETS $1,207,972 $1,285,556
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,848 $ 17,985
Amounts payable to related parties 26,315 26,542
Other accrued expenses and liabilities 54,852 83,675
Current maturity of long-term debt 7,500 10,000
---------- ----------
Total Current Liabilities 105,515 138,202
LONG-TERM DEBT 152,000 168,000
DEFERRED INCOME TAXES 21,123 15,568
OTHER LIABILITIES 13,963 13,894
---------- ----------
TOTAL LIABILITIES 292,601 335,664
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock: authorized 10,000,000 shares, none outstanding - -
Common stock, $.01 par value: authorized, 274,236,950 shares;
issued and outstanding, 106,862,304 (2001) and 129,299,636 (2000) 1,069 1,293
Class B stock, $.01 par value: authorized, 3,000,000 shares:
issued and outstanding, 703,466 (2001 and 2000) 7 7
Additional paid-in capital 804,429 1,194,118
Retained earnings 109,866 66,671
Accumulated other comprehensive income (loss) - (3,635)
---------- ----------
915,371 1,258,454
Less treasury stock, at cost; 21,611,450 (2000) shares - (308,562)
---------- -----------
TOTAL SHAREHOLDERS' EQUITY 915,371 949,892
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,207,972 $1,285,556
========== ==========
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,
-----------------------
2001 2000 1999
---- ---- ----
GROSS REVENUES $597,719 $644,774 $414,959
Less Agency Commissions 81,779 91,081 56,654
-------- -------- --------
NET REVENUES 515,940 553,693 358,305
-------- -------- --------
Operating Costs and Expenses Excluding
Depreciation and Amortization 343,120 380,346 261,538
Depreciation and Amortization 67,611 62,104 30,214
Corporate General and Administrative Expenses 6,816 7,749 5,756
-------- -------- --------
417,547 450,199 297,508
-------- -------- --------
OPERATING INCOME 98,393 103,494 60,797
Interest Expense 8,705 10,785 12,150
Other Expense (Income) 929 (659) (610)
-------- -------- --------
INCOME BEFORE TAXES 88,759 93,368 49,257
INCOME TAXES 45,564 51,085 25,370
-------- -------- --------
NET INCOME $43,195 $42,283 $23,887
======= ======= =======
INCOME PER SHARE:
Basic $ .40 $ .38 $ .33
Diluted $ .38 $ .36 $ .30
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 107,551 110,640 72,168
Diluted 112,265 115,864 78,930
See accompanying notes to consolidated financial statements.
F - 4
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Accumul'd
Other Treasury
Preferred Common Stock Class B Stock Add'l Retained Comp Stock Total
--------- ------------ ------------- Paid-in Earnings Income ----- Shareholders'
Shares Amount Shares Amount Shares Amount Capital (Deficit) (Loss) Shares Amount Equity
------ ----- ------ ------ ------ ------ ------- -------- ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1998 - - 34,962 $ 350 352 $ 4 $206,688 $ 1,143 - 6,647 $130,967 $ 77,218
Components of comprehensive income:
Net income for 1999 - - - - - - - 23,887 - - - 23,887
Unrealized holding gain in equity
securities net of tax - - - - - - - - 7,862 - - 7,862
----- ----- ------ ----- ----- --- -------- ------ ------ ------ ------- -------
Total comprehensive income - - - - - - - 23,887 7,862 - - 31,749
Issuance of common stock - - 25,112 251 - - 925,304 - - - - 925,555
Issuance of common stock under warrants - - 3,000 30 - - 8,970 - - - - 9,000
Issuance of common stock under
stock option plans - - 875 9 - - 23,648 - - - - 23,657
Issuance of warrants - - - - - - 6,760 - - - - 6,760
Purchase of treasury stock - - - - - - - - - 1,564 54,164 (54,164)
Two-for-one stock split - - 63,949 639 352 3 - (642) - 8,211 - -
----- ----- ------ ----- ----- --- --------- ------- ------ ------ ------- ---------
BALANCE AT DECEMBER 31, 1999 - - 127,898 1,279 704 7 1,171,370 24,388 7,862 16,422 185,131 1,019,775
Components of comprehensive income:
Net income for 2000 - - - - - - - 42,283 - - - 42,283
Unrealized holding gain (loss) in
equity securities net of tax - - - - - - - - (11,497) - - (11,497)
----- ----- ------ ------ ----- --- --------- ------- ------ ------ -------- -------
Total comprehensive income - - - - - - - 42,283 (11,497) - - 30,786
Issuance of common stock under
stock option plans - - 1,402 14 - - 22,748 - - - - 22,762
Purchase of treasury stock - - - - - - - - - 5,190 123,431 (123,431)
----- ----- ------ ------ ----- --- --------- ------- ------- ------ -------- --------
BALANCE AT DECEMBER 31, 2000 - - 129,300 1,293 704 7 1,194,118 66,671 (3,635)21,612 308,562 949,892
Components of comprehensive income:
Net income for 2001 - - - - - - - 43,195 - - - 43,195
Unrealized holding gain (loss)in
equity securities net of tax - - - - - - - - 3,635 - - 3,635
----- ----- ------ ----- ----- --- -------- ------ ------ ------ ------- -------
Total comprehensive income - - - - - - - 43,195 3,635 - - 46,830
Issuance of common stock under
stock option plans - - 3,326 34 - - 64,893 - - - - 64,927
Purchase and cancellation of warrants (41,350) (41,350)
Purchase of treasury stock - - - - - - - - - 4,152 104,928 (104,928)
Retirement of treasury stock - - (25,764) (258) - - (413,232) - - (25,764)(413,490) -
----- ---- ------ ----- ----- --- -------- -------- ------ ------- ------- --------
BALANCE AT DECEMBER 31, 2001 - - 106,862 $1,069 704 $7 $804,429 $109,866 - - - $915,371
===== ==== ======= ====== ===== === ======== ======== ====== ======= ======= ========
See accompanying notes to consolidated financial statements.
F-5
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $43,195 $42,283 $23,887
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 67,611 62,104 30,214
Deferred taxes 5,555 13,144 11,451
Other 1,802 329 314
------- ------- -------
118,163 117,860 65,866
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 11,817 8,976 (26,271)
Decrease (increase) in prepaid assets 1,334 (179) (1,978)
Increase in accounts payable and accrued liabilities 14,359 29,735 16,720
------- ------- -------
Net Cash Provided By Operating Activities 145,673 156,392 54,337
------- ------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of companies and other (6,218) (46,280) 6,105
Capital expenditures (6,828) (9,201) (6,084)
------- ------- -------
Net Cash Provided By (Used For) Investing Activities (13,046) (55,481) 21
------- ------- -------
CASH PROVIDED BEFORE FINANCING ACTIVITIES 132,627 100,911 54,358
------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Debt repayments and payments of capital lease obligations (20,623) (3,404) (14,973)
Borrowings under bank and other long-term obligations - 10,000 -
Issuance of common stock 32,026 13,028 22,856
Repurchase of common stock and warrants (146,278) (123,431) (54,164)
Deferred financing costs - (973) -
------- ------- -------
Net Cash (Used For) Financing Activities (134,875) (104,780) (46,281)
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,248) (3,869) 8,077
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,757 10,626 2,549
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,509 $6,757 $10,626
======= ======= =======
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:
Nature of Business
- ------------------
Westwood One, Inc. and subsidiaries (the "Company") supplies radio and
television stations with information services and programming. Its principle
source of revenue is selling commercial airtime to advertisers.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of all majority and
wholly-owned subsidiaries.
Revenue Recognition
- -------------------
Revenue is recognized when commercial advertisements are broadcast.
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.
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, as follows:
Buildings and improvements 40 years
Recording and studio equipment 5 - 10 years
Capitalized leases Term of lease
Furniture and equipment and other 3 - 10 years
Intangible Assets
- -----------------
Intangible assets are amortized over periods ranging from five to forty years.
At each balance sheet date, the Company determines whether an impairment of
Intangible Assets has occurred based upon expectations of undiscounted 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 or
Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." See
also "New Accounting Pronouncements" below.
Stock-Based Compensation
- ------------------------
Statement of Financial Accounting Standards No. 123 ("SFAS 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
- ------------
The Company uses the asset and liability method of financial accounting and
reporting for income taxes required by Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". Under SFAS 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.
F-7
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
Earnings per Share
- ------------------
Basic earnings per share excludes all dilution and is calculated using the
weighted average number of common shares outstanding in the period. Diluted
earnings per share amounts are based upon the weighted average number of common
and common equivalent shares outstanding during the year. Common equivalent
shares are related to warrants and stock options. The following number of common
equivalent shares were added to the basic weighted average shares outstanding
for each period:
2001 2000 1999
---- ---- ----
Warrants 1,238,000 1,431,000 4,578,000
Options 3,476,000 3,793,000 2,184,000
Common equivalent shares are excluded in periods in which they are
anti-dilutive. The following options were excluded from the calculation of
diluted earnings per share because the exercise price was greater than the
average market price of the Company's Common Stock for the years presented:
2001 2000 1999
---- ---- ----
Options 1,380,000 1,350,000 960,000
The per share exercise prices of the options were $30.30-$40.70 in 2001,
$32.25-$40.70 in 2000, and $22.57 in 1999.
New Accounting Pronouncements Affecting Future Results
In July 2001, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141")
and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141
supercedes APB Opinion No. 16, "Business Combinations" and requires all business
combinations to be accounted for under the purchase method. SFAS 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
initial recognition. The provisions of SFAS 142 (1) prohibit the amortization of
goodwill and indefinite-lived intangible assets, (2) require that goodwill and
indefinite-lived intangible assets be tested annually for impairment (and in
interim periods if events occur indicating that the carrying value of goodwill
and/or indefinite-lived intangible assets may be impaired), (3) require that
reporting units be identified for the purpose of assessing potential future
impairments of goodwill, and (4) remove the forty-year limitation on the
amortization period of intangible assets that have finite lives. SFAS 142
requires that goodwill be tested annually for impairment using a two-step
process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.
The Company expects to complete that first step of the goodwill impairment test
during the first quarter of 2002, but does not anticipate that any of its
goodwill will be impaired. If necessary, the second step of the goodwill
impairment test measures the amount of the impairment loss (measured as of the
beginning of the year of adoption), if any, and must be completed by the end of
the Company's fiscal year. Intangible assets deemed to have an indefinite life
will be tested for impairment using a one-step process which compares the fair
value to the carrying amount of the asset as of the beginning of the fiscal
year. These Statements are effective on January 1, 2002 and accordingly the
Company will adopt the provisions of SFAS 142 in its first quarter ended March
31, 2002.
As a result of adopting these new standards, the Company's effective tax rate
and depreciation and amortization expense is expected to decrease substantially
in 2002. Had SFAS 142 been in effect for 2001, the Company's reported
depreciation and amortization expense for 2001 would have been reduced by
approximately $48,000.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). SFAS 144 supercedes SFAS 121, "Accounting For the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and establishes
a single accounting model for the impairment or disposal of long-lived assets.
SFAS 144 is effective for years beginning after December 15, 2001. The Company
does not expect the adoption will have a material impact on its consolidated
results of operations and financial position.
F-8
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 2 - Acquisitions of Businesses:
On September 22, 1999, the Company acquired all the issued and outstanding
common and preferred stock of Metro Networks, Inc. ("Metro"). Under the terms of
the merger, each outstanding share of Metro was converted into 1.5 shares of the
Company's Common Stock and each outstanding share of Metro Series A Convertible
Preferred Stock was converted into 1.5 shares of a corresponding series of
preferred stock of the Company. Accordingly, the Company issued approximately
50,224,000 shares of its Common Stock and 3,824,625 shares of its Series A
Convertible Preferred Stock. The Westwood Preferred Stock was issued subject to
a stock loan and pledge agreement with the preferred shareholder. In December
1999, the Company's Series A Convertible Preferred Stock was converted to Common
Stock and the related loan of Common Stock was repaid. The acquisition was
accounted for as a purchase, and accordingly, the operating results are included
with those of the Company from September 22, 1999. Based on the value of the
shares issued and to be issued and expense of the acquisition, which included
investment banking fees, professional fees, severance costs and costs of
eliminating duplicative facilities, the purchase price aggregated approximately
$951,605. Goodwill and intangible assets associated with the transaction
approximated $864,672. The purchase price has been allocated to the assets and
liabilities acquired based on estimates of their respective fair values. The
intangible assets acquired are being amortized over 25 years. The unaudited pro
forma combined historical results for Net revenues, Net Income and Income per
share, as if Metro had been acquired at the beginning of 1999, are estimated to
be $491,762, $8,274 and $.08 per basic share and $.07 per diluted share,
respectively. The pro forma results include amortization of the intangible
assets and the issuance of the additional shares. The pro forma results are not
necessarily indicative of what actually would have occurred if the acquisition
had been completed as of the beginning of 1999, nor are they indicative of
future consolidated results.
On November 17, 2000, the Company acquired the operating assets of SmartRoute
Systems, Inc. for $24,250 plus costs and the assumption of certain obligations,
including loss contracts. The acquisition was accounted for as a purchase, and
accordingly, the operating results are included with those of the Company from
November 18, 2000. The purchase price has been allocated to the assets and
liabilities acquired based on their respective fair values. The intangible
assets acquired as part of the purchase are being amortized over periods up to
10 years.
NOTE 3 - Property and Equipment:
Property and equipment is recorded at cost and is summarized as follows at:
December 31,
-------------------
2001 2000
---- ----
Land, buildings and improvements..................... $12,380 $12,097
Recording and studio equipment....................... 51,521 45,234
Capitalized leases................................... 6,723 11,123
Furniture and equipment and other.................... 16,817 21,416
------ ------
87,441 89,870
Less: Accumulated depreciation and amortization..... 30,663 31,818
------- -------
Property and equipment, net................... $56,778 $58,052
======= =======
Depreciation expense was $14,579 in 2001, $13,188 in 2000, and $7,304 in 1999.
F-9
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 4 - Intangible Assets:
Intangible assets are summarized as follows at:
December 31,
--------------------
2001 2000
---- ----
Goodwill, less accumulated amortization of $143,030 (2001)
and $97,476 (2000) ..................................... $978,011 $1,026,502
Other identifiable intangible assets, less accumulated
amortization of $25,612 (2001) and $25,484 (2000)....... 25,326 29,225
-------- ---------
Intangible assets, net..............................$1,003,337 $1,055,727
========== ==========
NOTE 5 - Debt:
Long-term debt consists of the following at:
December 31,
-----------------------
2001 2000
---- ----
Revolving Credit Facility/Term Loan................. $152,000 $168,000
======== ========
The Company's amended senior loan agreement with a syndicate of banks, led by
Chase Manhattan Bank, provides for an unsecured $259,000 revolving credit
facility at December 31, 2001 and an unsecured $47,500 term loan (the
"Facility"). The Facility is available until September 30, 2004, however, the
facility contains provisions which require mandatory reductions in the amount of
the facility starting in September 1999 ($6,000 per quarter in 2002). At
December 31, 2001, the Company had available borrowings under the Facility of
$147,000. 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, 2001, the applicable margin was LIBOR plus .50% -.625%.
At December 31, 2001, the Company had borrowed $112,000 under the revolving
credit facility and $47,500 under the term loan at a weighted-average interest
rate of 2.74% (including the applicable margin). At December 31, 2000, the
Company had borrowed $113,000 under the revolving credit facility and $65,000
under the term loan at a weighted-average interest rate of 7.1% (including the
applicable margin). The Facility contains covenants relating to dividends,
liens, indebtedness, capital expenditures and interest coverage and leverage
ratios.
In April 2001, the Company entered into a one year interest 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).
The aggregate maturities of debt for the next five years and thereafter,
pursuant to the Company's debt agreements as in effect at December 31, 2001, are
as follows:
Year
----
2002............... $ 7,500
2003............... 20,000
2004............... 132,000
2005............... -
2006............... -
-------
$159,500
========
F-10
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
The fair value of debt approximates its carrying value.
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 conjunction with the renewal of the Company's Management Agreement with
Infinity. Infinity was granted warrants to purchase 2,000,000 shares of Common
Stock at $10.00 per share and 2,000,000 shares of Common Stock at $12.50 per
share. Vesting of the warrants was contingent upon the Company's stock price
exceeding predetermined levels for 20 out of 30 consecutive trading days. In
2001, Infinity sold their $10.00 warrants to the Company at the closing market
price, less a discount of $.20, on the date of sale. Infinity was vested in all
outstanding warrants at December 31, 2001. The warrants expire on March 31,
2009.
The Company effected a two-for-one split of its Common Stock and Class B Stock
on March 22, 2000.
NOTE 7 - Stock Options:
The Company has stock option plans established in 1989 and 1999 (collectively
"the Plan") which provide 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. Under the 1989 Plan, 12,600,000 shares were reserved for grant through
March 1999. This plan expired, but certain previous grants remain outstanding at
December 31, 2001. On September 22, 1999, the stockholders ratified the
Company's 1999 stock incentive plan which authorized the grant of up to
8,000,000 shares of Common Stock. Options granted generally become exercisable
after one year in 20% increments per year and expire within ten years from the
date of grant.
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 SFAS 123, the Company's net income and earnings per
share would have been reduced by approximately $7,168 ($.07 per basic share and
$.06 per diluted share) in 2001, $5,709 ($.05 per basic and diluted share) in
2000 and $3,606 ($.05 per basic and diluted share) in 1999. The weighted average
fair value of the options granted in 2001, 2000 and 1999 is estimated at $12.56,
$15.46 and $8.84, respectively, on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
2001 2000
---- ----
Weighted Average Risk Free Interest Rate 6.0% 7.0%
Expected Life (In Years) ............... 5 5
Expected Volatility .................... 61.9% 50.7%
Expected Dividend Yield ................ - -
Expected Forfeitures per Year .......... 4.1% 1.0%
F-11
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
Information concerning options outstanding under the Plan is as follows for:
Year Ended December 31,
----------------------------------------------------------------------------------
2001 2000 1999
------------------------ --------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Outstanding at beginning
of period.................. 13,522,288 $14.03 13,242,758 $11.39 6,820,000 $ 9.89
Granted during the period..... 1,181,500 $22.30 1,929,000 $29.00 2,210,000 $17.28
Metro options converted to
Westwood One options.......... - - - - 6,125,458 $9.89
Exercised during the period... (3,325,718) $ 9.81 (1,402,136) $ 9.79 (1,748,700) $7.93
Forfeited during the period... (288,136) $ 20.21 (247,334) $13.71 (164,000) $8.97
---------- ---------- ----------
Outstanding at end of period.. 11,089.934 $ 16.01 13,522,288 $14.03 13,242,758 $11.39
========== ========== ==========
Available for new stock
options at end of period...... 4,002,500 5,037,000 6,940,000
========== ========== ==========
At December 31, 2001, options to purchase 6,009,424 shares of Common Stock were
currently exercisable at a weighted average exercise price of $12.10.
The following table contains additional information with respect to options at
December 31, 2001:
Remaining
Weighted Weighted
Average Average
Number of Exercise Contractual
Options Price Life (In Years)
--------- -------- ---------------
Options Outstanding at Exercise Price Ranges of:
$ 1.07 - $ 5.34 ........................... 1,330,262 $ 4.76 2.9
$ 7.25 - $11.55 ........................... 2,236,154 $ 9.28 5.6
$ 12.54 - $15.75 ........................... 3,558,718 $14.10 6.3
$ 17.25 - $22.57 ........................... 2,585,200 $21.48 8.8
$ 30.30 - $40.70 ........................... 1,379,600 $32.40 8.3
---------
11,089,934 $16.01 6.6
==========
F-12
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 8 - Income Taxes:
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,
--------------------
2001 2000
---- ----
Deferred tax liabilities:
Affiliation agreements.................................. $4,714 $5,404
Difference between book and tax bases of assets......... 25,794 24,769
Other................................................... 394 233
------ ------
Total deferred tax liabilities ......................... 30,902 30,406
------ ------
Deferred tax assets.......................................
Accrued liabilities and reserves........................ 9,779 14,838
------ ------
Net deferred tax liabilities............................... $21,123 $15,568
======= =======
The components of the provision for income taxes follows:
Year Ended December 31,
--------------------------------------
Current 2001 2000 1999
---- ---- ----
Federal..................................... $40,490 $30,688 $10,345
State....................................... (481) 7,253 3,574
------- ------- -------
40,009 37,941 13,919
------- ------- -------
Deferred
Federal..................................... 5,107 12,167 11,854
State....................................... 448 977 (403)
----- ------ ------
5,555 13,144 11,451
----- ------ ------
Income tax expense............................. $45,564 $51,085 $25,370
======= ======= =======
F-13
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
The reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate follows:
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Federal statutory rate............. 35.0% 35.0% 35.0%
State taxes net of federal benefit - 3.3 5.1
Nondeductible amortization of
intangible assets................ 16.3 16.4 11.1
Other, net......................... - - .3
----- ---- ----
Effective tax rate................. 51.3% 54.7% 51.5%
===== ===== =====
In 2001, 2000 and 1999, $32,901, $9,734 and $9,800 respectively, of income tax
benefits attributable to employee stock transactions were allocated to
shareholders' equity.
NOTE 9 - Related Party Transactions:
The Company is managed by Infinity Broadcasting Corporation ("Infinity"), a
wholly-owned subsidiary of Viacom Inc., pursuant to a five year Management
Agreement which expires on March 31, 2004. Pursuant to the Management Agreement,
the Company paid or accrued expenses aggregating $3,983 in 2001 ($5,022 in 2000
and $3,613 in 1999). As part of the Management Agreement, Infinity was granted
4,000,000 warrants to acquire shares of Common Stock which became exercisable
after the Company's Common Stock reached certain market prices per share. In
2001, Infinity sold its $10.00 warrants, representing 2,000,000 shares of Common
Stock, to the Company, receiving net proceeds aggregating $41,350. At December
31, 2001, Infinity owned warrants to purchase 2,000,000 shares of the Company's
Common Stock at $12.50. Those warrants are fully vested.
On March 31, 1997, the Company entered into a Representation Agreement with CBS,
a wholly-owned subsidiary of Viacom Inc. In addition, many of Infinity's radio
stations are affiliated with the Company's radio networks and the Company
purchases several programs from Infinity. During 2001 the Company incurred
expenses aggregating approximately $77,444 for the Representation Agreement and
Infinity affiliations and programs ($77,578 in 2000 and $70,241 in 1999).
F-14
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 10 - 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, the CBS
Representation Agreement 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, 2001, are set forth
below:
Year
----
2002................................... $65,971
2003................................... 56,012
2004................................... 31,505
2005................................... 12,174
2006................................... 11,261
-------
$176,923
========
NOTE 11 - Supplemental Cash Flow Information:
Supplemental information on cash flows, is summarized as follows:
Year Ended December 31,
-----------------------------
2001 2000 1999
---- ---- ----
Cash paid for:
Interest.............................. $8,473 $11,017 $10,712
Income taxes.......................... 8,403 28,569 3,634
The Company had certain non-cash investing and financing activities in 2001,
2000 and 1999. During 2001, $6,723 of lease assets and obligations were
capitalized. During 1999, the Company merged with Metro (see Note 2) issuing
approximately 50,224,000 shares of its Common Stock in exchange for all the
issued and outstanding shares of common and preferred stock of Metro.
F-15
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 12 - 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, 2001 and
2000.
(In thousands, except per share data)
First Second Third Fourth For the
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
2001
----
Net revenues......................... $121,569 $133,684 $123,983 $136,704 $515,940
Operating income..................... 12,310 28,007 23,111 34,965 98,393
Net income........................... 4,600 12,132 10,181 16,282 43,195
Net income per share:
Basic.............................. $0.04 $0.11 $0.10 $0.15 $0.40
Diluted............................ 0.04 0.11 0.09 0.15 0.38
2000
----
Net revenues......................... $122,102 $136,501 $139,014 $156,076 $553,693
Operating income..................... 12,247 27,494 24,180 39,573 103,494
Net income........................... 3,956 10,644 9,870 17,813 42,283
Net income per share:
Basic.............................. $0.04 $0.10 $0.09 $0.16 $0.38
Diluted............................ 0.03 0.09 0.09 0.16 0.36
F-16
WESTWOOD ONE, INC.
FINANCIAL STATEMENT SCHEDULE
(Dollars in Thousands)
Schedule V - Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
Additions Deductions
Balance at ---------------------------------- ----------------- Balance at
Beginning of Charged to Costs Charged to Write-offs and End of
Period And Expenses Other Accounts Other Adjustments Period
------------ ---------------------------------- ----------------- ----------
2001 $9,356 $1,968 - $(2,042) $9,282
2000 7,714 12,112 - (10,470) 9,356
1999 3,720 4,994 - (1,000) 7,714
F-17