Item 1. Business
General
Westwood One, Inc. (the "Company" or "Westwood One") is the leading producer and distributor of nationally sponsored radio programs and is the nation's second largest radio network.
The Company's principal source of revenue is selling radio time to advertisers through one of its two operating divisions: Westwood One Radio Networks and Westwood One Entertainment (the "Divisions"). The Company generates revenue principally by its Divisions entering into radio station affiliation agreements to obtain audience and commercial spots and then selling the spots to national advertisers. The Company is strategically positioned to provide a broad range of programming and services which both deliver audience to advertisers and news, talk, sports, and entertainment programs to radio stations.
Westwood One Radio Networks offers radio stations three traditional news services, CNN Radio, NBC Radio Network and the Mutual Broadcasting System, plus youth-oriented network news and entertainment programming from The Source, in addition to eight 24-hour satellite-delivered continuous play music formats and weekday and weekend news and entertainment features and programs.
Westwood One Entertainment produces music, sports, talk and special event programming. These programs include: countdown shows; music and interview programs; live concert broadcasts; major sporting events (principally covering the NFL, Notre Dame football and other college football and basketball games); live, personality intensive talk shows; and exclusive satellite simulcasts with HBO and other cable networks.
The Company's programs are broadcast in every radio market in the United States measured by The Arbitron Ratings Company ("Arbitron"), the leading rating service, as well as being broadcast internationally.
Westwood One, through its Divisions, enables national advertisers to purchase advertising time and to have their commercial messages broadcast on radio stations throughout the United States, reaching demographically defined listening audiences. The Company delivers both of the major demographic groups targeted by national advertisers: the 25 to 54-year old adult market and the 12 to 34-year-old youth market. The Company currently sells advertising time to over 300 national advertisers, including each of the 25 largest network radio advertisers. Radio stations are able to obtain quality programming from Westwood One to meet their objective of attracting larger listening audiences and increasing local advertising revenue. Westwood One, through the development of internal programming as well as through acquisitions, has developed an extensive tape library of previously aired programs, interviews, live concert performances, news and special events. The Company uses its library as a major source of new programming, enhancing the Company's future programming and revenue generating capabilities.
Industry Background
Radio Broadcasting
As of January 1, 1995, there were approximately 9,750 commercial radio stations in the United States. The radio broadcast industry, however, remains highly fragmented with no broadcaster permitted to own more than 40 radio stations. This fragmentation is due primarily to FCC limitations on multiple station ownership.
A radio station selects a style of programming ("format") to attract a target listening audience and thereby attract commercial advertising directed at that audience. There are many formats from which a station may select, including news, talk, sports and various types of music and entertainment programming.
The diversity in program formats has intensified competition among stations for local advertising revenue. A radio station has two principal ways of effectively competing for these revenues. First, it can differentiate itself in its local market by selecting and successfully executing a format targeted at a particular audience thus enabling advertisers to place their commercial messages on stations aimed at audiences with certain demographic characteristics. A station can also broadcast special programming, sporting events or national news product, such as supplied by Westwood One, not available to its competitors within its format. National programming broadcast on an
exclusive geographic basis can help differentiate a station within its market, and thereby enable a station to increase its audience and local advertising revenue.
Radio Advertising
Radio advertising time can be purchased on a local, regional or national basis. Local purchases allow an advertiser to select specific radio stations in chosen geographic markets for the broadcast of commercial messages. However, this process can be expensive and time-consuming, and may not permit the advertiser to select the specific program in which its advertisements will be broadcast. 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. A national advertising purchase can enable an advertiser to achieve its objective with one purchase, at a lower cost per listener, and to select a particular program environment in which its advertisements will be broadcast.
In recent years the increase in the number of program formats has led to more demographically specific listening audiences, making radio an attractive, alternative medium for national advertisers. In addition, nationally broadcast news, concerts and special event programming have made radio an effective medium of reach (size of listening audiences) as well as frequency (number of exposures to the target audience).
To verify audience delivery and demographic composition, specific measurement information is available to national advertisers by independent rating services such as Arbitron and Statistical Research, Inc.'s RADAR. These rating services provide demographic information such as the age and sex composition of the listening audiences. Consequently, national advertisers can verify that their advertisements are being heard by their target listening audience.
Business Strategy
Westwood One provides targeted radio audiences and commercial spots to national advertisers through its recognized programming and other network products. The Company, through its various radio networks, produces and distributes quality programming to radio stations seeking to increase their listening audience and improve local and national advertising revenue. The Company sells advertising time within its programs to national advertisers desiring to reach large listening audiences nationwide with specific demographic characteristics.
In 1993 the Company developed and implemented a strategy to focus on its core radio network business and to reduce debt by divesting of all other businesses. In refocusing on its core network and radio syndication
business, the Company has concentrated on across-the-board cost reductions in order to improve profitability and, in February 1994, the Company took a major step to enhance its future and ability to compete by acquiring Unistar Radio Networks, Inc. ("Unistar") for $101,300,000 plus expenses along with the following additional matters in connection with the acquisition:
(a) the sale by the Company to Infinity Network, Inc. ("INI"), a wholly-owned subsidiary of Infinity Broadcasting Corporation ("Infinity"), of 5,000,000 shares of the Company's Common Stock and a warrant to purchase up to an additional 3,000,000 shares of Common Stock at an exercise price of $3.00 per share, for a total purchase price of $15,000,000;
(b) a Management Agreement between the Company and Infinity pursuant to which (a) the Chief Executive Officer of Infinity, currently Mel Karmazin, became the Chief Executive Officer of the Company, (b) the Chief Financial Officer of Infinity, currently Farid Suleman, became the Chief Financial Officer of the Company and (c) Infinity began managing the business and operations for an annual base fee of $2,000,000 (adjusted for inflation), an annual cash bonus (payable in the event of meeting certain financial targets) and additional warrants to acquire up to 1,500,000 shares of common stock exercisable after the Company's common stock reaches certain market prices per share.
(c) a Voting Agreement providing for the reconstitution of the Board of Directors into a nine-member Board and the voting of Norman Pattiz's shares of the Company's Common Stock and Class B Stock and the shares of the Common Stock held by INI.
The Company financed the acquisition ($101,300,000), with a new senior loan from a syndicate of banks in the amount of $125,000,000.
Radio Programming
The depth of Westwood One's programming has grown through internal expansion and through acquisition. The Company produces and distributes 24-hour continuous play formats, regularly scheduled and special syndicated programs, including exclusive live concerts, music and interview shows, national music countdowns, lifestyle short features, news broadcasts, talk programs, sporting events, and sports features.
The Company controls most aspects of production of its programs, therefore being able to tailor its programs to respond to current and
changing listening preferences. The Company produces regularly scheduled short-form programs (typically 5 minutes or less), long-form programs (typically 60 minutes or longer) and 24-hour continuous play formats. Typically, the short-form programs are produced at the Company's in-house facilities located in Culver City, California, New York, New York and Arlington, Virginia. The long-form programs include shows produced entirely at the Company's in-house production facilities and recordings of live concert performances and sports events made on location. The 24-hour continuous play formats are produced at the Company's facilities in Valencia, California.
Westwood One also produces and distributes special event syndicated programs. In 1994 the Company produced and distributed numerous special event programs, including exclusive broadcasts of the Rolling Stones Voodoo Lounge concert tour, Sting Live, an HBO simulcast of Barbara Streisand and an MTV simulcast of "The Eagles: Hell Freezes Over." Westwood One believes these broadcasts have contributed to its reputation and are an integral part of its business strategy to increase its share of the national radio network advertising market.
Westwood One obtains most of the programming for its concert series by recording live concert performances of prominent recording artists. The agreements with these artists often provide the exclusive right to broadcast the concerts worldwide over the radio (whether live or pre- recorded) for a specific period of time. The Company may also obtain interviews with the recording artist and retain a copy of the recording of the concert and the interview for use in its radio programs and as additions to its extensive tape library. The agreements provide the artist with master recordings of their concerts and nationwide exposure on affiliated radio stations. In certain cases the artists may receive compensation.
Westwood One's syndicated programs are produced at its in-house production facilities. The Company determines the content and style of a program based on the target audience it wishes to reach. The Company assigns a producer, writer, narrator or host, interviewer and other personnel to record and produce the programs. Because Westwood One controls the production process, it can refine the programs' content to respond to the needs of its affiliated stations and national advertisers. In addition, the Company can alter program content in response to current and anticipated audience demand.
The Company produces and distributes eight 24-hour continuous play formats providing music, news and talk programming for Country, Hot Country, Adult Contemporary, Format 41, Oldies, AM only, Adult Rock and Roll and the 70's formats. Using its production facilities in Valencia, California, the Company provides all the programming for stations
affiliated with each of these formats. Affiliates compensate the Company for these formats by providing the Company with a portion of their commercial air time and, in most cases, cash fees.
The Company believes that its tape library is a valuable asset and significantly enhances 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
Westwood One's radio network business strategy addresses the programming needs and financial limitations of radio stations. The Company offers radio stations a wide selection of regularly scheduled and special event syndicated programming as well as 24-hour continuous play formats. These programs and formats are completely produced by the Company and, therefore, the stations have no production costs. Typically, each program is offered for broadcast by the Company exclusively to one station in its geographic market, which assists the station in competing for audience share in its local marketplace. In addition, except for news programming, Westwood One's programs contain available commercial air time that the stations may sell to local advertisers. Westwood One typically distributes promotional announcements to the stations and places advertisements in trade and consumer publications to further promote the upcoming broadcast of its programs.
Westwood One's networks enter into affiliation agreements with radio stations. In the case of news and current events programming, the agreements commit the station to broadcast only the advertisements associated with these programs and allows the station flexibility to have the news headlined by their newscasters. The other affiliation agreements require a station to broadcast the Company's programs and to use a portion of the program's commercial slots to air national advertisements and any related promotional spots. With respect to the 24-hour formats, the Company, in most cases, also 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 associated with the Company's news and current events programming.
Affiliation agreements specify the number of times and the approximate time of day each program and advertisement may be broadcast. Westwood One requires that each station complete and promptly return to the Company an affidavit (proof-of-performance) that verifies the time of each broadcast. Affiliation agreements for Westwood One's entertainment programming are non-cancelable for 26 weeks and are automatically
renewed for subsequent 26-week periods, if not canceled 30 days prior to the end of the existing contract term. Affiliation agreements for Westwood One's news and current events programming generally run for a period of at least one year, are automatically renewable for subsequent periods and are cancelable by either the Company or the station upon 90 days' notice.
The Company has a number of people responsible for station relations and marketing its programs to radio stations. Station relationships are managed geographically to allow the marketing staff to concentrate on specific geographical regions. This enables the Company's staff to develop and maintain close, professional relationships with radio station personnel and to provide them with quick programming assistance.
National Advertisers
Westwood One provides national advertisers with a cost-effective way to communicate their commercial messages to large listening audiences nationwide that have specific demographic characteristics. An advertiser can obtain both frequency (number of exposures to the target audience) and reach (size of listening audience) by purchasing advertising time in the Company`s programs. By purchasing time in programs directed to different formats, advertisers can be assured of obtaining high market penetration and visibility as their commercial messages will be broadcast on several stations in the same market at the same time. The Company supports its national sponsors with promotional announcements and advertisements in trade and consumer publications. This support promotes the upcoming broadcasts of Company programs and is designed to increase the advertisers' target listening audience.
The Company sells its commercial time to advertisers either as "bulk" or "flighted" purchases. Bulk purchases are long-term contracts (26 to 52 weeks) that are sold "up-front" (early advertiser commitments for national broadcast time). Flighted purchases are contracts for a specific, short-term period of time (one to six weeks) that are sold at or above prevailing market prices. The Company's strategy for growth in advertising revenue is to increase the amount of advertising time sold on the usually more profitable flighted basis, to increase revenue of the non-RADAR rated programs, and to increase audience size for news, talk and current events programming.
Competition
The Company operates in a very competitive environment. In marketing its programs to national advertisers, the Company directly competes with other radio networks as well as with smaller independent radio syndication producers and distributors. In addition, Westwood One competes for advertising revenue with network television, cable television, print and other forms of communications media. The Company believes that the high quality of its programming and the strength of
its station relations and advertising sales forces enable it to compete effectively with other forms of communication media. Westwood One markets its programs to radio stations, including affiliates of other radio networks, that it believes will have the largest and most desirable listening audience for each of its programs. The Company often has different programs airing on a number of stations in the same geographic market at the same time. The Company believes that in comparison with any other independent radio syndication producer and distributor or radio network it has a larger and 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, is not subject to regulation by the FCC.
Employees
On February 15, 1995, Westwood One had 414 full-time employees, including a domestic advertising sales force of 46 people. In addition, the Company maintains continuing relationships with approximately 50 independent writers, program hosts, technical personnel and producers. Certain employees at the Mutual Broadcasting System, NBC Radio Networks, and Unistar Radio Networks are covered by collective bargaining agreements. The Company believes relations with its employees and independent contractors are good.
Item 2.
Item 2. Properties
The Company owns a 7,600 square-foot building in Culver City, California in which its production facilities are located; a 14,000 square-foot building and an adjacent 10,000 square-foot building in Culver City, California which contains administrative, sales and marketing offices, and storage space; and a 7,700 square-foot unoccupied building in Culver City. In addition, the Company leases offices in New York; Chicago; Detroit; Dallas; Arlington, Virginia and Valencia, California.
The Company believes that its facilities are more than adequate for its current level of operations.
Item 3.
Item 3. Legal Proceedings
- None -
Item 4.
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, 1994.
PART II
Item 5.
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
On March 1, 1995 there were approximately 370 holders of record of the Company's Common Stock, several of which represent "street accounts" of securities brokers. Based upon the number of proxies requested by brokers in conjunction with its shareholders' meeting on August 18, 1994, the Company estimates that the total number of beneficial holders of the Company's Common Stock exceeds 4,500.
The Company's Common Stock has been traded in the over-the-counter market under the NASDAQ symbol WONE since the Company's initial public offering on April 24, 1984. The following table sets forth the range of high and low last sales prices on the NASDAQ/National Market System, as reported by NASDAQ, for the Common Stock for the calendar quarters indicated.
No cash dividend was paid on the Company's stock during 1994 or 1993, and the payment of dividends is restricted by the terms of The Loans.
Item 6.
Item 6. Selected Financial Data (In thousands except per share data)
The table below summarizes selected consolidated financial data of the Company for each of the last five fiscal years:
OPERATING RESULTS FOR YEAR ENDED:
[FN] - - ------------------------------------- Effective December 1, 1993, the Company changed its method of accounting for capitalized station affiliation agreements to expense the costs as incurred. The effect of this change in accounting method does not materially affect the comparability of the information reflected herein. Results for the year ended December 31, 1994 include Unistar from the time it was acquired in February 1994. No cash dividend was paid on the Company's common stock during the periods presented above.
Item 7.
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations (In thousands except for share and per share amounts)
In August 1994, the Company changed its fiscal year end from November 30 to December 31 effective with the fiscal year ending December 31, 1994. Accordingly, in the following discussion "1994" will refer to the calendar year 1994, "1993" will refer to the fiscal year ended November 30, 1993 and "1992" will refer to the fiscal year ended November 30, 1992.
On February 3, 1994 the Company completed the acquisition of all of the issued and outstanding capital stock of the Unistar Radio Networks, Inc. ("Unistar"). The acquisition was accounted for as a purchase, and accordingly, the operating results of Unistar are included with those of the Company from the date of acquisition.
Effective December 1, 1993, the Company changed its method of accounting for capitalized station affiliation agreements and income taxes. In order to conform to predominate current industry practice, capitalized station affiliation agreements will be expensed as incurred. The cumulative effect of the change in accounting for station affiliation expenses in December 1993 was an expense of $4,344, or $.23 per share. SFAS No. 109 "Accounting for Income Taxes" was adopted by the Company in December 1993. The Company elected not to restate prior year's financial statements. Adopting SFAS No. 109 did not affect the December 1993 or current period results.
In 1993, the Company classified the results of operations from Radio & Records and its Los Angeles and New York radio stations as discontinued operations. The Company disposed of these assets during 1993.
RESULTS OF OPERATIONS
Westwood One derives substantially all of its revenue from the sale of advertising time to advertisers. Net revenues increased 62% to $136,340 in 1994 from $84,014 in 1993 and decreased 3% in 1993 from $86,376 in 1992. The increase in 1994 net revenues was primarily a result of the purchase of Unistar in February 1994. The decrease in 1993 net revenues was attributed to the non-recurrence of the Company's exclusive radio coverage of the 1992 Summer Olympics, partially offset by net revenue growth associated with an overall increase in the network radio marketplace.
Operating costs and expenses excluding depreciation and amortization increased 61% to $105,389 in 1994 from $65,353 in 1993 and decreased 15% in 1993 from $77,335 in 1992. The 1994 increase was primarily attributable to the purchase of Unistar and higher programming expenses resulting from the production of additional programs. The 1993 decrease was primarily due to cost reduction programs associated with affiliate compensation, programming, news and related staff expenses, and the non-recurrence of the 1992 Summer Olympics.
Depreciation and amortization increased 11% to $18,160 in 1994 from $16,384 in 1993 and decreased 17% in 1993 from $19,661 in 1992. The increase in 1994 was primarily a result of the purchase of Unistar, partially offset by lower amortization of production costs and lower amortization as a result of the Company's December 1, 1993 change in its method of accounting for capitalized station affiliation agreements. The reduction in 1993 was primarily due to lower amortization of production costs and lower write- offs resulting from fewer terminated station affiliation agreements.
Corporate general and administrative expenses decreased 1% to $4,404 in 1994 from $4,468 in 1993 and decreased 26% in 1993 from $6,017 in 1992. The nominal decrease in 1994 is a result of across-the-board expense cuts, partially offset by fees attributable to the Infinity Management Agreement. The decrease in 1993 was attributable to across-the-board expense cuts and the non-recurrence of a 1992 one-time charge for a vested benefit related to an executive officer's employment contract.
As a result of the purchase of Unistar, the Company accrued restructuring costs of $2,405 in the first quarter of 1994 principally relating to the consolidation of certain facilities and operations. Approximately $2,100 of these costs were paid in 1994, with the balance scheduled to be paid in 1995.
Severance and termination expenses of $2,063 in 1992 were principally due to management changes implemented to achieve future efficiencies.
Operating income increased $8,173 to $5,982 in 1994 from an operating loss of $2,191 in 1993 and the 1993 operating loss decreased 88% from $18,700 in 1992. The significant improvement in 1994 is attributable to the acquisition of Unistar and cost savings resulting from operating synergies from the Unistar acquisition, partially offset by higher depreciation and amortization expense as a result of the Unistar acquisition. The 1993 improvement was primarily due to extensive cost reduction programs and the non-recurrence of prior year severance and termination expenses, partially offset by the non-recurrence of profit from the 1992 Summer Olympics.
Interest expense was $8,802, $6,551 and $5,562 in 1994, 1993 and 1992, respectively. The 1994 increase is principally attributable to higher debt levels as a result of the acquisition of Unistar, partially offset by the elimination of interest expense on the Company's 9% Senior Debentures due to their conversion to Common Stock.
Other income is principally comprised of investment income. The other expense of $301 in 1992 was due principally to a provision to write-down a parcel of real estate that was held for sale to its net realizable value, partially offset by investment income.
Equity in net loss of an unconsolidated subsidiary represents the Company's share of the operating performance of WNEW-AM, which was sold in August 1992.
Loss on the sale of an unconsolidated subsidiary of $6,536 in 1992 represents the provision for the sale of WNEW-AM, which closed on December 15, 1992.
Loss from continuing operations decreased 69% to $2,730 ($.09 per share) from $8,682 ($.57 per share) in 1993 and 59% in 1993 from $21,397 ($1.44 per share) in 1992.
Loss on discontinued operations, net of income tax benefit, was $3,140 in 1993 and $2,721 in 1992. The 1993 loss represents the operating performance of discontinued operations through March 1, 1993.
The $12,087 provision for loss on disposal of discontinued operations included estimated future costs and operating results of the discontinued assets from March 1, 1993 until the date of disposition.
In connection with the refinancing of its senior debt facility, the Company recorded an extraordinary loss of $590 ($.02 per share).
The net loss decreased 86% to $3,320 ($.11 per share) in 1994 from $23,909 ($1.58 per share) in 1993 and 1% in 1993 from $24,118 ($1.62 per share) in 1992.
Weighted average shares outstanding increased 94% to 29,414 in 1994 from 15,153 in 1993 and 2% in 1993 from 14,906 in 1992. The 1994 increase in weighted average shares is primarily attributable to the conversion of its 9% Senior Debentures into approximately 8,864 shares of Common Stock and the sale of 5,000 shares of Common Stock to a subsidiary of Infinity.
Liquidity and Capital Resources
At December 31, 1994, the Company's cash and cash equivalents were $2,439, a decrease of $1,429 from November 30, 1993. In addition, the Company had available borrowings under its Loans of $15,000.
For 1994, net cash from operating activities was $2,445, an increase of $4,739 from 1993. The increase was primarily attributable to higher cash flow from operations and an increase in accounts payable due to the Unistar acquisition, partially offset by an increase in accounts receivable resulting principally from the Unistar acquisition. Net cash used by investing activities was $111,731 principally due to the purchase of Unistar. Consequently, cash used before financing activities was $109,286.
In the first quarter of 1994, the Company entered into a new senior loan agreement with a syndicate of banks which was comprised of a $15,000 revolving facility and $110,000 in term loans which mature on November 30, 2001. In addition, the Company sold 5,000 shares of Common Stock and a warrant to purchase up to an additional 3,000 shares of Common Stock at an exercise price of $3.00 per share (subject to certain vesting conditions) to a subsidiary of Infinity for $15,000. Proceeds from the loans and Common
Stock sale were used to finance the acquisition of Unistar ($101,300), repay borrowings outstanding under its previous senior debt agreement ($8,841) and for working capital. In addition, from December 1993 through March 1994, holders of approximately $31,058 of the Company's 9% Senior Debentures converted their debentures to approximately 8,864 shares of Common Stock. In August 1994, the Company prepaid $5,000 on its term loans which mature on November 30, 2001. At December 31, 1994, the outstanding balance of the Company's term loans were $105,000. In January 1995, the Company prepaid an additional $2,500 on its term loans. As a result, the Company's next scheduled principal repayment of $2,500 is due in November 1995.
Management believes that the Company's cash, available borrowings and anticipated cash flow from operations will be sufficient to finance current and forecasted operations over the next 12 months.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements and the related notes and schedules of the Company are indexed on page of this Report, and attached hereto as pages through and by this reference incorporated herein.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
PART III
Item 10.
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.
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.
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.
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.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this Report on Form 10-K
1. Financial statements and schedules to be filed thereunder are indexed on page hereof.
2. Exhibits
[FN] ********************** * Indicates a management contract or compensatory plan.
(1) Filed as an exhibit to Registrant's registration statement on Form S-1 (File Number 2-98695) and incorporated herein by reference. (2) Filed as an exhibit to Registrant's registration statement on Form S-1 (Registration Number 33-9006) and incorporated herein by reference. (3) Filed as an exhibit to Registrant's Form 8 dated March 1, 1988 (File Number 0-13020), and incorporated herein by reference. (4) Filed as part of Registrant's September 25, 1986 proxy statement (File Number 0-13020) and incorporated herein by reference. (5) Filed an exhibit to Registrant's current report on Form 8-K dated September 4, 1987 (File Number 0-13020) and incorporated herein by reference. (6) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended November 30, 1989 (File Number 0-13020) and incorporated herein by reference. (7) Filed as an exhibit to Registrant's Quarterly report on Form 10-Q for the quarter ended August 31, 1990 (File Number 0-13020) and incorporated herein by reference. (8) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended November 30, 1990 (File Number 0-13020) and incorporated herein by reference. (9) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended November 30, 1991 (File Number 0-13020) and incorporated herein by reference. (10)Filed as part of Registrant's March 27, 1992 proxy statement (File Number 0-13020) and incorporated herein by reference. (11)Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended November 30, 1992 (File Number 0-13020) and incorporated herein by reference. (12)Filed as part of Registrant's January 7, 1994 proxy statement (File Number 0-13020) and incorporated herein by reference. (13)Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended November 30, 1993 (File Number 0-13020) and incorporated herein by reference. (14)Filed as an exhibit to Registrant's July 20, 1994 proxy statement (File Number 0-13020) and incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal 1994.
SIGNATURES
Pursuant to the requirements of Section13 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 31, 1995 By FARID SULEMAN _______________________ Farid Suleman Director, Secretary and Chief Financial Officer
Pursuant to the requirements of the Security 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.
WESTWOOD ONE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Westwood One, Inc.
In our opinion, the consolidated financial statements listed in the index to consolidated financial statements and financial statement schedules on page present fairly, in all material respects, the financial position of Westwood One, Inc. and its subsidiaries at December 31, 1994, November 30, 1993 and 1992, and the results of their operations and their cash flows for the year ended December 31, 1994, the one month ended December 31, 1993 and for each of the two fiscal years in the period ended November 30, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As discussed in the Notes to Consolidated Financial Statements, effective December 1, 1993 the Company changed its accounting policy for capitalized station affiliation agreements and adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
PRICE WATERHOUSE LLP
Century City, California February 24, 1995
WESTWOOD ONE, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
See accompanying notes to consolidated financial statements.
WESTWOOD ONE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
WESTWOOD ONE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
See accompanying notes to consolidated financial statements.
WESTWOOD ONE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
See accompanying notes to consolidated financial statements.
WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts)
NOTE 1 - Summary of Significant Accounting Policies:
Principles of Consolidation The consolidated financial statements include the accounts of all wholly-owned subsidiaries.
Revenue Recognition Revenue is recognized when commercial advertisements are broadcast.
Cash Equivalents The Company considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. The carrying amount of cash equivalents approximates fair value because of the short maturity of these instruments.
Depreciation Depreciation is computed using the straight line method over the estimated useful lives of the assets.
Programming Costs and Rights The Company defers a portion of its costs for recorded library material and produced radio entertainment programs with a life of longer than a year. Recorded library material includes previously broadcast programs, live concert performances, interviews, news and special events. Programming costs and rights ("Production costs") are amortized using the straight line method over the period of expected benefit, not to exceed five years. The current portion of deferred production costs represents the portion to be amortized over the next twelve months.
Measurement of Intangible Asset Impairment The Company periodically evaluates the carrying value of Intangible Assets. The Company considers the ability to generate positive broadcast cash flow (based on the consolidated statement of operations, calculated by subtracting from net revenue, operating costs and expenses excluding depreciation and amortization) as the key factor in determining whether the assets have been impaired. To date, the Company has not experienced an impairment in any of its intangible assets.
Income Taxes Effective December 1, 1993, the Company implemented Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes" which requires the use of the asset and liability method of financial accounting and reporting for income taxes. Under FAS 109, deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes.
Earnings (Loss) per Share Net income (loss) per share is based on the weighted average number of common shares and common equivalent shares (where inclusion of such equivalent shares would not be anti-dilutive) outstanding during the year.
WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reclassification Financial statements for all prior periods have been reclassified to conform to the 1994 presentation.
NOTE 2 - Accounting Change:
Effective December 1, 1993, the Company changed its method of accounting for capitalized station affiliation agreements to expense these costs as incurred. The Company believes this method is preferable and conforms to the predominant current industry practice, including Unistar. Accordingly, the Company recognized the cumulative effect of the change as of December 1, 1993. The non-cash charge to earnings was an expense of $4,344, or $.23 per share and has been reflected in the financial statements for the month of December 1993.
NOTE 3 - Change in Fiscal Year:
In the third quarter of 1994, the Company changed its fiscal year end from November 30 to December 31 effective with the fiscal year ending December 31, 1994. The accompanying financial statements include audited statements of operations, shareholders' equity and cash flows for the one month transition period ended December 31, 1993.
NOTE 4 - Acquisition of Unistar Radio Networks, Inc.:
On February 3, 1994, the Company completed the acquisition of all of the issued and outstanding capital stock of Unistar Radio Networks, Inc. ("Unistar"). The acquisition was accounted for as a purchase. Accordingly, the operating results of Unistar are included with those of the Company from the date of acquisition. Based on management's estimates, the purchase price has been allocated to the fair value of assets and liabilities acquired. The excess of cost over net assets of acquired company resulting from the transaction is being amortized over 40 years.
The pro forma unaudited combined condensed results of operations of the Company and Unistar for the years ended December 31, 1994 and November 30, 1993 (presented as though the combination had occurred on December 1, 1992 after giving effect to certain pro forma adjustments) are as follows:
The foregoing pro forma results of operations principally reflect adjusting historical interest expense, depreciation and amortization, the sale of 5,000 newly issued shares of common stock to a subsidiary of Infinity and restructuring costs based on the transaction being completed at the beginning of the periods presented. No adjustments were made to historical results for potential cost reductions due to the elimination of duplicate facilities and costs resulting from the acquisition of Unistar. However, 1994 pro forma results reflect the benefit of cost reductions to the extent that they have been realized.
WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 - Property and Equipment:
Property and equipment is recorded at cost and is summarized as follows at:
NOTE 6 - Intangible Assets:
Intangible assets are summarized as follows at:
Goodwill represents the excess of the cost of purchased businesses over the fair value of their net assets at the date of acquisition.
Station affiliation agreements are comprised of values assigned to agreements acquired as part of the purchase of radio networks and are amortized using an accelerated method over 40 years. Intangible assets, except for acquired station affiliation agreements, are amortized on a straight-line basis over 40 years.
WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 - Debt:
Long-term debt consists of the following at:
The Company's senior loan agreement with a syndicate of banks provides for $110,000 in term loans ("Term Loans") and a $15,000 revolving facility ("Revolver") which mature on November 30, 2001 (referred to collectively as "The Loans"). Interest is payable at the prime rate plus an applicable margin of up to 1.5% or LIBOR plus an applicable margin of up to 2.5%, at the Company's option. Based on the Company's Total Debt Ratio, the applicable margins may be reduced to as low as .5% for prime rate loans and 1.5% for LIBOR loans. At December 31, 1994, the applicable margins were 1.0% and 2.0%, respectively. Principal on the Term Loans is payable quarterly starting February 28, 1995, however in 1994, the Company prepaid the quarterly installments due on February 28, 1995 and May 31, 1995 resulting in a December 31, 1994 balance of $105,000. The Loans are secured by substantially all the Company's assets and contain covenants relating to dividends, liens, indebtedness, capital expenditures and interest coverage and leverage ratios. As a matter of policy, the Company does not engage in derivative trading, however as part of The Loans, the Company is required to enter into interest rate protection agreements. Accordingly, the Company has entered into two interest rate protection agreements under which the Company's interest rate on $50,000 of borrowings under The Loans will not exceed 8% (based on the current margin). The agreements are effective from July and August 1995 thru July and August 1996, with each covering $25,000 of borrowings. At December 31, 1994, the Company did not have any borrowings outstanding under the Revolver.
The 6 3/4% Convertible Subordinated Debentures ("Debentures") are unsecured and subordinated in right of payment to senior indebtedness. Interest on the Debentures is payable semiannually on April 15 and October 15. The Debentures are convertible at any time prior to maturity, unless previously redeemed, into shares of common stock of the Company at the conversion price of $24.58 per share, subject to adjustment upon the occurrence of certain events.
WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 1994, the Company repaid the Term Notes which were outstanding at the beginning of the year ($7,000). In addition, the 9% Convertible Senior Subordinated Debentures, which were outstanding on November 30, 1993, were converted into approximately 8,864,000 shares of common stock.
The aggregate maturities of long-term debt for the next five fiscal years and thereafter, pursuant to the Company's debt agreements as in effect at December 31, 1994, are as follows:
With the exception of the Company's Debentures, the fair value of short and long-term debt approximates its carrying value. The fair value of the Debentures at December 31, 1994 was approximately $10,350, based on its quoted market price.
NOTE 8 - Shareholders' Equity:
The authorized capital stock of the Company consists of Common stock, Class B stock and Preferred stock. Common stock is entitled to one vote per share while Class B stock is entitled to 50 votes per share.
In connection with the Company's purchase of Unistar, the Company sold 5 million shares of common stock and a warrant to purchase up to an additional 3 million shares of common stock at an exercise price of $3.00 per share (subject to certain vesting conditions) to a wholly-owned subsidiary of Infinity Broadcasting Corporation for $15,000.
In December 1992, the Company's Board of Directors authorized the issuance of 41,500 shares of common stock to an officer of the Company for services performed in fiscal 1992.
As part of a settlement relating to class action lawsuits filed against the Company, it issued warrants to purchase 3,000,000 shares of the Company's common stock at $17.25 per share. The warrants expire on September 4, 1997. Warrants not exercised may be redeemable under certain circumstances at $1.00 per warrant.
WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 - Stock Options:
The Company has stock option plans established in 1989 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. There are 4,800,000 shares authorized under the 1989 Plan, as amended. Options granted generally become exercisable after one year in 25% increments per year and expire within ten years from the date of grant. The 1989 Plan will remain in existence for 10 years or until otherwise terminated by the Board of Directors.
Information concerning options outstanding under the Plans is as follows for the year ended:
As part of a Management Agreement between the Company and Infinity Broadcasting Corporation ("Infinity"), a subsidiary of Infinity was given warrants to acquire up to 1,500,000 shares of common stock at prices ranging between $3.00 and $5.00 per share, subject to adjustment, which are exercisable after the Company's common stock reaches certain market prices per share. At December 31, 1994, 500,000 warrants were exercisable at $3.00 per share.
WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On December 1, 1986, the Chairman of the Board was granted options not covered by the Plans to acquire 525,000 shares of common stock, which vested ratably over a seven-year term or immediately upon a change in control of the Company. The options became exercisable at the fair market value of the common stock, as defined, on the date of vesting. At December 31, 1994, all the options granted are exercisable at exercise prices ranging from $1.67 to $16.31 per share.
NOTE 10 - Income Taxes:
Effective December 1, 1993, the Company changed its method of accounting for income taxes as required by FAS109. As permitted under the new rules, prior year financial statements have not been restated, and adoption of FAS109 did not affect reported earnings.
The Company has approximately $90,000 of available U.S. net operating loss carryforwards for tax purposes. Utilization of the carryforwards is dependent upon future taxable income and they begin to expire in 2002. As a result of the Company's prior and pending debt and equity transactions, some of the Federal net operating losses may be subject to certain limitations. For financial purposes, a valuation allowance of $27,781 has been recorded to offset the deferred tax assets related to those carryforwards.
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 at December 31, 1994 follow:
WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of the provision (benefit) for income taxes related to continuing operations is summarized as follows:
The deferred tax benefits recorded for the year ended November 30, 1992, are attributable to the reversal of deferred taxes for timing differences, provided for in earlier years.
Note 11 - Related Party Transactions:
In connection with the acquisition of Unistar, the Company sold 5,000,000 shares of the Company's common stock and a warrant to purchase up to an additional 3,000,000 shares to a subsidiary of Infinity (See Note 8) and entered into a Management Agreement with Infinity. Pursuant to the Management Agreement, the Company paid or accrued expenses aggregating $1,849 to Infinity in 1994.
In addition, several of Infinity's radio stations are affiliated with the Company's radio networks and the Company purchases several programs from Infinity. During 1994 the Company incurred expenses aggregating approximately $12,159 for Infinity affiliations and programs.
NOTE 12 - Restructuring Costs:
As a result of the Company's February 1994 acquisition of Unistar, the Company consolidated certain facilities and operations. Accordingly, the Company recorded an expense of approximately $2,405 for the estimated restructuring charges, including the costs of facility consolidations, eliminating programs, employee separations, relocations and related costs.
WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13 - Commitments and Contingencies:
The Company has various non-cancelable, long-term operating leases for office space and equipment. In addition, the Company is committed under various contractual agreements to pay for talent, broadcast rights, research, certain digital audio transmission services and the Management Agreement with Infinity. The approximate aggregate future minimum obligations under such operating leases and contractual agreements for the five years after December 31, 1994, are set forth below:
NOTE 14 - Supplemental Cash Flow Information:
Supplemental Information on cash flows, including amounts from discontinued operations, and non-cash transactions is summarized as follows:
For the one month ended December 31, 1993, $12,565 of Senior Debentures were converted to common stock.
WESTWOOD ONE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15 - Discontinued Operations:
At the end of the Company's first fiscal quarter of 1993, the Company classified the results of operations from Radio & Records and its Los Angeles (KQLZ-FM) and New York (WYNY-FM) radio stations as discontinued operations. These three businesses collateralized the Company's 16% Debentures and Revolving Credit Facility with Westinghouse Electric Corporation ("WEC"). In June 1993 the Company completed the sales of its Los Angeles and New York radio stations, and used the net proceeds from the sales to retire the Company's 16% Debentures and reduce the outstanding balance of its Revolving Credit Facility. On November 1, 1993, WEC acquired the outstanding stock of Radio & Records and the net assets of Westwood One Stations Group for the outstanding balance of the Revolving Credit Facility, accrued interest and any other potential claims. Accordingly, the historical net loss of the Company's owned-and-operated radio stations and Radio & Records have been reported separately from continuing operations, and the prior periods have been restated (including an allocation of interest of $7,043 and $12,273 for fiscal 1993 and 1992 respectively).
The Company made a provision for the loss on the disposition of these assets including estimated future costs and operating results from March 1, 1993 until the date of disposition, of $12,087. Revenue from discontinued operations for fiscal 1993 and 1992 were $22,282 and $36,443, respectively.
NOTE 16 - 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, 1994 and November 30, 1993.
The following is a tabulation of the unaudited quarterly results of operations for each of the quarters for the fiscal year ended December 31, 1993. As a result of restating the quarterly periods, the effect of accounting change is presented as if the change was made as of the beginning of the year.
WESTWOOD ONE, INC. SCHEDULE IX CONSOLIDATED SHORT-TERM BORROWINGS (In thousands)
Notes: Short-term borrowings during the years covered by this schedule consist of loans made under various established credit lines. The average amount outstanding during each period was computed by dividing the average outstanding principal balance by 365 days. The weighted average interest rate during each period was computed by dividing the actual interest expense on such borrowings by the average amount outstanding during that period.