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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1993
COMMISSION FILE NUMBER: 0-13020
WESTWOOD ONE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-3980449
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9540 WASHINGTON BOULEVARD, CULVER CITY, CA 90232
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 204-5000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK
(Title of Class)
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.
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
The aggregate market value of Common Stock held by non-affiliates as of
January 15, 1994 was $142,393,663.
As of January 15, 1994, 19,742,275 shares of Common Stock were outstanding
and 351,733 shares of Class B Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its annual
meeting of shareholders to be held on May 3, 1994 (which will be filed with the
Commission within 120 days of the registrant's last fiscal year end) are
incorporated in Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Westwood One, Inc. (the "Company" or "Westwood One") is a leading producer
and distributor of nationally sponsored radio programs and believes it is the
nation's second largest radio network.
The Company's principal source of revenue is selling radio time to
advertisers. The Company generates revenue principally by its radio networks
entering into radio station affiliation agreements to obtain audience and
commercial spots and then selling the audience and 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.
The Company produces and distributes regularly scheduled news, talk,
sports, and entertainment programs through its various operating radio networks:
Mutual Broadcasting System, NBC Radio Networks (National Radio Network, The
Source and Talknet) and Westwood One Radio. The Company's programs encompass
exclusive live concerts, music and interview shows, national music countdowns,
lifestyle short features, live talk shows, and sports events (principally
covering the NFL, Notre Dame football and other college football and basketball
games). The Company also produces and distributes special event programs,
including exclusive satellite simulcasts with HBO and other cable networks.
Mutual Broadcasting System, National Radio Network and Talknet are primarily
adult-oriented networks, in the News, Sports, Talk and Country formats. Westwood
One Radio and The Source are primarily youth-oriented networks, in the
Contemporary Hit Radio ("CHR"), Album Oriented Rock ("AOR"), Country and Black
formats. The Company's programs are broadcast in every radio market in the
United States measured by Arbitron, the leading rating service, and are carried
by Armed Forces Radio, VOA Europe and other foreign broadcast services.
Westwood One, through its networks and programming, 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. The tape library enhances
Westwood One's future programming and revenue generating capabilities.
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INDUSTRY BACKGROUND
RADIO BROADCASTING
On January 1, 1993, there were approximately 9,750 commercial radio
stations in the United States. The radio broadcast industry, however, remains
highly fragmented with no broadcaster owning more than 36 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
number of formats has become further segmented over recent years. For example,
what once was the Rock & Roll format has now been divided into several narrower
formats, including Album Oriented Rock, Adult Contemporary Music ("AC") and
Contemporary Hit Radio, each with a more demographically specific audience.
The increase in the number of 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. Second, a station can 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. In the top 175
markets, the number of listeners per station is
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measured and published by independent rating services such as The Arbitron
Ratings Co. and Statistical Research, Inc.'s RADAR. These rating services
provide demographic information such as the age and sex composition of the
listening audiences. Consequently, national advertisers can verify that their
advertisements are being heard by their target listening audience.
BUSINESS STRATEGY
Westwood One's principal business is providing 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 fiscal 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. During the year other businesses such as radio stations (WYNY-FM and
KQLZ-FM) and Radio & Records were disposed. Consequently, the financial
results for these businesses are reported as discontinued operations in the
Company's financial statements. Additionally, in fiscal 1993 the Company
completed the sale of an unconsolidated subsidiary, WNEW-AM, (reported in
1992) and sold a parcel of real estate that had been held for sale for two
years. The net proceeds from all these transactions enabled the Company to
reduce its debt to $60,149,000 at November 30, 1993 from $178,579,000 at
November 30, 1992. Lastly, in the fourth quarter of 1993 the Company repaid
its Revolving Facility and term loan with a bank by entering into a new
senior debt agreement with a maximum borrowing capacity of $20,000,000.
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. In late fiscal 1993 the Company took a major step to enhance its
future and ability to compete by entering into a definitive agreement to acquire
Unistar Radio Networks, Inc. ("Unistar") for $101,300,000 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, will become Chief Executive Officer of the Company, (b) the
Chief Financial Officer of Infinity, currently Farid Suleman, will
become Chief Financial Officer of the Company and (c) Infinity will
manage the business and operation 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 at 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
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Stock and Class B Stock and the shares of the Common Stock held by the
Infinity subsidiary.
Unistar is a producer and distributor of radio programs and 24-hour
continuous play formats to radio stations nationwide. Unistar serves
approximately 2,000 affiliated radio stations, and similar to Westwood One,
produces and distributes regularly scheduled news, business, sports and
entertainment programs through its various operating radio networks: Unistar
Power Radio Network, CNN+Radio Network, Unistar Super Radio Network, CNBC
Business Radio Network and Unistar Programming Network.
Generally, Unistar pays the cost of producing or acquiring the broadcasting
rights for its programming and pays compensation to its affiliated stations for
broadcasting the programs and commercial announcements included therein. Like
the Company, Unistar derives substantially all of its revenue from the sale of
commercial time to national advertisers.
The Company anticipates financing the acquisition ($101,300,000), repaying
its current senior debt agreement ($13,648,000 at November 30, 1993) and
improving its working capital with a new senior loan from a syndicate of banks
in the amount of $125,000,000 and the sale of $15,000,000 of Common Stock to
INI.
RADIO PROGRAMMING
The depth of Westwood One's programming has grown through internal
expansion and through acquisition. The Company produces and distributes
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 both regularly scheduled short-form programs
(typically 5 minutes or less) and long-form programs (typically 60 minutes or
longer). 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.
Westwood One also produces and distributes special event syndicated
programs. In fiscal 1993 the Company produced and distributed numerous special
event programs, including the multi-venue Country music extravaganza, Country
Takes Manhattan, worldwide broadcasts of Paul McCartney Live In The New World,
Zooropa 93: U2 Live From Dublin, Aerosmith Live From Brussels, the HBO simulcast
of Madonna: Live Down Under "The Girlie Show", and exclusive live concert
broadcasts of Tom Petty and The Heartbreakers, and Rod Stewart. 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
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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 other 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 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. For
example, in 1993 Westwood One delved into its vast archives to bring back the
sounds of the 70's and 80's for its new series The Retro Show. The Company also
utilized its extensive music and interview resources for one time only specials
and ongoing series such as Off The Record with Mary Turner, Classic Tracks and
On The Edge.
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. These programs 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. 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
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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 34 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.
Westwood One generally guarantees an advertiser delivery of an audience of
a specified size and demographic composition, which can be verified through
independent surveys. Furthermore, advertisers receive affidavits that indicate
the number of times and the time of day the advertisers' commercial messages
were broadcast. 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) at discounts below prevailing market prices. 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, some of which may have greater financial resources than the Company,
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
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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 has
increased. 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
regulations by the FCC.
EMPLOYEES
On January 15, 1994, Westwood One, had 269 full-time employees, including a
domestic advertising sales force of 48 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 and NBC Radio Networks are covered by collective
bargaining agreements. The Company believes relations with its employees and
independent contractors are good.
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 which contained production
facilities and offices for KQLZ -FM until shortly after the station was sold. In
addition, the Company leases offices in New York, Chicago, Detroit, Dallas, and
Arlington, Virginia.
The Company believes that its facilities are more than adequate for its
current level of operations and contemplates reducing its available square
footage in the Culver City area.
ITEM 3. LEGAL PROCEEDINGS
The Company submitted to the Securities and Exchange Commission
("Commission") an offer of settlement arising out of a formal investigation by
the Commission which has been pending since 1989. The settlement offer, which
was accepted by the Commission on January 7, 1994 and an order entered on
January 19, 1994, involved the Company's consent, without admitting or denying
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any of the findings of the Commission, to an administrative cease and desist
order based upon findings that in 1987 and 1988 the Company violated antifraud
and accounting provisions of the federal securities laws and the rules
thereunder in its revenue recognition and accounting practices during that
period.
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 fiscal year ended November 30, 1993.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
On January 15, 1994 there were approximately 475 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 special shareholders' meeting on January 28, 1994, the
Company estimates that the total number of beneficial holders of the Company's
Common Stock exceeds 5,000.
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 fiscal quarters indicated.
FISCAL 1993 HIGH LOW
----------- ---- ---
First Quarter.............................................. 2 5/8 1 9/16
Second Quarter............................................. 3 1 13/16
Third Quarter.............................................. 3 1/8 2 5/8
Fourth Quarter............................................. 9 1/4 2 3/8
FISCAL 1992
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First Quarter.............................................. 3 1/2 1 5/16
Second Quarter............................................. 3 3/8 2 1/16
Third Quarter.............................................. 3 2
Fourth Quarter............................................. 2 1/2 1 9/16
No cash dividend was paid on the Company's stock during fiscal 1993 or 1992.
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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 FISCAL YEAR ENDED:
NOVEMBER 30,
------------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
REVENUE.................................................. $ 99,579 $101,290 $108,586 $107,629 $105,420
OPERATING COSTS AND EXPENSES............................. 101,770 119,990 114,517 116,938 115,541
-------- -------- -------- -------- --------
OPERATING (LOSS)......................................... (2,191) (18,700) (5,931) (9,309) (10,121)
-------- -------- -------- -------- --------
Interest Expense......................................... 6,551 5,562 5,610 8,031 8,155
Other Expense (Income)................................... (60) 301 1,081 (366) (612)
Equity in Net Loss of Unconsolidated Subsidiary.......... -- 789 1,901 1,608 996
Loss on Sale of Unconsolidated Subsidiary................ -- 6,536 -- -- --
Effect of Litigation Settlement.......................... -- -- -- -- 6,129
-------- -------- -------- -------- --------
6,491 13,188 8,592 9,273 14,668
-------- -------- -------- -------- --------
(LOSS) BEFORE TAXES, DISCONTINUED OPERATIONS AND
EXTRAORDINARY GAIN..................................... (8,682) (31,888) (14,523) (18,582) (24,789)
(BENEFIT) FOR INCOME TAXES............................... -- (10,491) (4,519) (5,667) (8,044)
-------- -------- -------- -------- --------
(LOSS) FROM CONTINUING OPERATIONS........................ (8,682) (21,397) (10,004) (12,915) (16,745)
(LOSS) ON DISCONTINUED OPERATIONS, NET OF INCOME TAX
BENEFIT................................................ (3,140) (2,721) (6,778) (5,260) (5,993)
PROVISION FOR (LOSS) ON DISPOSAL OF DISCONTINUED
OPERATIONS............................................. (12,087) -- -- -- --
-------- -------- -------- -------- --------
(LOSS) BEFORE EXTRAORDINARY GAIN......................... (23,909) (24,118) (16,782) (18,175) (22,738)
EXTRAORDINARY GAIN....................................... -- -- 25,618 -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS)........................................ $(23,909) $(24,118) $ 8,836 $(18,175) $(22,738)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
EARNINGS (LOSS) PER SHARE:
Primary:
Continuing Operations................................ $ (.57) $ (1.44) $ (.67) $ (.89) $ (1.16)
Discontinued Operations.............................. (1.01) (.18) (.46) (.36) (.42)
-------- -------- -------- -------- --------
(Loss) Before Extraordinary Gain..................... (1.58) (1.62) (1.13) (1.25) (1.58)
Extraordinary Gain................................... -- -- 1.73 -- --
-------- -------- -------- -------- --------
Net Income (Loss)................................ $ (1.58) $ (1.62) $ .60 $ (1.25) $ (1.58)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Fully diluted:
Continuing Operations................................ $ (.57) $ (1.44) $ (.30) $ (.89) $ (1.16)
Discontinued Operations.............................. (1.01) (.18) (.28) (.36) (.42)
-------- -------- -------- -------- --------
(Loss) Before Extraordinary Gain..................... (1.58) (1.62) (.58) (1.25) (1.58)
Extraordinary Gain................................... -- -- 1.06 -- --
-------- -------- -------- -------- --------
Net Income (Loss)................................ $ (1.58) $ (1.62) $ .48 $ (1.25) $ (1.58)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
BALANCE SHEET DATA AT PERIOD ENDED:
NOVEMBER 30,
------------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
CURRENT ASSETS........................................... $ 32,987 $ 51,091 $ 46,126 $ 54,312 $ 54,613
WORKING CAPITAL.......................................... (1,503) (11,942) 10,200 28,676 27,112
TOTAL ASSETS............................................. 152,067 295,740 322,561 343,783 353,065
LONG-TERM DEBT........................................... 51,943 146,622 169,083 214,342 195,750
TOTAL SHAREHOLDERS' EQUITY............................... 55,151 75,204 98,765 89,496 106,713
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No cash dividend was paid on the Company's common stock during the five
years ended November 30, 1993.
Operating results for all prior periods have been reclassified to conform
to the fiscal 1993 presentation for discontinued operations.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
In June 1993, the Company completed the sales of its two owned-and-operated
radio stations, WYNY-FM and KQLZ-FM (collectively, the "Stations"), and in
November 1993 Westinghouse Electric Corporation ("WEC") acquired Radio & Records
and the remaining net assets of Westwood One Stations Group, Inc. ("The Group")
(a subsidiary initially set up by the Company as the owner of the Stations and
Radio & Records in order to collateralize loans from WEC) in complete
satisfaction of The Group's remaining obligations for the principal amount of
loans and accrued interest thereon owed to WEC. Accordingly, the results of the
Stations and Radio & Records are classified as discontinued operations for all
periods presented.
The following table sets forth the consolidated statements of operations in
dollars and as a percent of revenue for the three years ended November 30, 1993,
1992, and 1991, accompanied by dollar and percent comparisons covering 1993 vs
1992 and 1992 vs 1991:
FISCAL YEAR ENDED NOVEMBER 30,
---------------------------------------------------
1993 1992 1991 1993 VS 1992 1992 VS 1991
--------------- --------------- --------------- ---------------- ----------------
DOLLARS % DOLLARS % DOLLARS % DOLLARS % DOLLARS %
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
REVENUE........................ $ 99,579 100% $101,290 100% $108,586 100% $ (1,711) -2% $ (7,296) -7%
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
Operating Costs and Expenses
Excluding Depreciation and
Amortization................. 80,918 81% 92,249 91% 86,287 79% (11,331) -12% 5,962 7%
Depreciation and
Amortization................. 16,384 16% 19,661 19% 22,055 20% (3,277) -17% (2,394) -11%
Corporate General and
Administrative Expenses...... 4,468 4% 6,017 6% 6,175 6% (1,549) -26% (158) -3%
Severance and Termination
Expenses..................... -- -- 2,063 -- -- -- (2,063) -100% 2,063 NM
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
101,770 102% 119,990 118% 114,517 105% (18,220) -15% 5,473 5%
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
OPERATING (LOSS)............... (2,191) -2% (18,700) -18% (5,931) -5% 16,509 88% (12,769) -215%
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
Interest Expense............... 6,551 7% 5,562 5% 5,610 5% 989 18% (48) -1%
Other Expense (Income)......... (60) -- 301 -- 1,081 1% (361) NM (780) -72%
Equity in Net Loss of
Unconsolidated Subsidiary.... -- -- 789 1% 1,901 2% (789) -100% (1,112) -58%
Loss on Sale of Unconsolidated
Subsidiary................... -- -- 6,536 6% -- -- (6,536) -100% 6,536 NM
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
6,491 7% 13,188 13% 8,592 8% (6,697) -51% 4,596 53%
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
(LOSS) BEFORE TAXES,
DISCONTINUED OPERATIONS AND
EXTRAORDINARY GAIN........... (8,682) -9% (31,888) -31% (14,523) -13% 23,206 73% (17,365) -120%
(BENEFIT) FOR INCOME TAXES..... -- -- (10,491) -10% (4,519) -4% 10,491 100% (5,972) -132%
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
(LOSS) FROM CONTINUING
OPERATIONS................... (8,682) -9% (21,397) -21% (10,004) -9% 12,715 59% (11,393) -114%
(LOSS) ON DISCONTINUED
OPERATIONS, NET OF INCOME TAX
BENEFIT...................... (3,140) -3% (2,721) -3% (6,778) -6% (419) -15% 4,057 60%
PROVISION FOR (LOSS) ON
DISPOSAL OF DISCONTINUED
OPERATIONS................... (12,087) -12% -- -- -- -- (12,087) NM -- --
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
(LOSS) BEFORE EXTRAORDINARY
GAIN......................... (23,909) -24% (24,118) -24% (16,782) -15% 209 1% (7,336) -44%
EXTRAORDINARY GAIN............. -- -- -- -- 25,618 24% -- -- (25,618) 100%
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
NET INCOME (LOSS).............. ($23,909) -24% ($24,118) -24% $ 8,836 8% $ 209 1% $(32,954) NM
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
-------- ---- -------- ---- -------- ---- -------- ----- -------- -----
- ---------------
NM -- not meaningful
11
13
Westwood One derives substantially all of its revenue from the sale of
advertising time to advertisers. Revenue decreased 2% to $99,579 in fiscal 1993
from $101,290 in fiscal 1992 and decreased 7% in fiscal 1992 from $108,586 in
fiscal 1991. The decrease in revenue in fiscal 1993 was attributed to the
non-recurrence of the Company's exclusive radio coverage of the 1992 Summer
Olympics, partially offset by revenue growth associated with an overall increase
in the market. The decrease in revenue in fiscal 1992 was primarily attributable
to a 13% erosion of the national network radio revenue marketplace (according to
the Radio Network Association). The decline in revenue in 1992 would have been
slightly greater had the Company not had the exclusive radio coverage for the
1992 Summer Olympics. The Company's market share, based on advertising revenue
reported to the Radio Network Association, was 24% in fiscal 1993 as compared to
approximately 25% in fiscal 1992 and 24% in 1991.
Operating costs and expenses (excluding depreciation and amortization)
primarily include affiliate compensation (to radio stations in exchange for
commercial spots, which the Company sells to advertisers), current period
production costs of syndicated radio programs (excluding the amortization of
production costs) and network administration, which typically do not vary
directly with revenue, and selling expenses (including agency commissions
related to advertising revenue) which often vary closely with revenue. Operating
costs and expenses excluding depreciation and amortization decreased 12% to
$80,918 in fiscal 1993 from $92,249 in fiscal 1992 and increased 7% in fiscal
1992 from $86,287 in fiscal 1991. The 1993 decrease is primarily due to cost
reduction programs associated with affiliate compensation, programming, news and
related staff expenses, the non-recurrence of the 1992 Summer Olympics, and
lower agency commissions. The fiscal 1992 increase is primarily attributable to
costs associated with broadcasting the 1992 Summer Olympics, a provision for
contract losses and higher affiliate compensation expense, partially offset by
lower syndicated music programming expense, reduced agency commissions, lower
write-offs of doubtful accounts and lower transmission expense.
Depreciation and amortization dropped 17% to $16,384 in 1993 from $19,661
in 1992 and dropped 11% in 1992 from $22,055 in 1991. The reductions are
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 26% to $4,468 in
fiscal 1993 from $6,017 in fiscal 1992 and decreased 3% in fiscal 1992 from
$6,175 in fiscal 1991. The decrease in 1993 was attributable to across-the-board
expense cuts and the non-recurrence of one-time charges from 1992. In 1992,
reduced legal and consulting fees were almost offset by a one-time charge for
a vested benefit related to a new executive officer's employment contract, an
executive search fee and expenses associated with restructuring loan agreements.
Severance and termination expenses of $2,063 in 1992 were principally due
to management changes implemented to achieve future efficiencies.
Operating loss decreased 88% to $2,191 in 1993 from $18,700 in 1992 after a
215% increase in 1992 from a loss of $5,931 in 1991. The 1993 significant
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. The
increase in the 1992 operating loss occurred principally due to the profit
impact of lower revenue resulting from the overall decline in the marketplace
(somewhat offset by profit from the 1992 Olympics), increased operating costs
and expenses excluding depreciation and amortization and
12
14
significant severance and termination expenses, partially offset by lower
depreciation and amortization.
Interest expense was $6,551, $5,562 and $5,610 in fiscal 1993, 1992 and
1991, respectively. The 18% increase in fiscal 1993 was primarily due to
restructuring expenses accompanied by an increased interest rate associated with
amending the terms of the Company's bank revolving credit facility and term
loan.
In fiscal 1993, other income of $60 was principally comprised of investment
income. In fiscal 1992 and 1991, other expense of $301 and $1,081, respectively,
was due principally to provisions in 1992 and 1991 of $250 and $1,428,
respectively, 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 before taxes, discontinued operations, and extraordinary gain
decreased 73% to $8,682 in 1993 from $31,888 in 1992 and increased 120% in 1992
from $14,523 in 1991. The 1993 dramatic improvement was attributable to the
decreased operating loss and the elimination of both the equity in net loss and
loss on sale of an unconsolidated subsidiary resulting from its sale in the
third quarter of fiscal 1992. The increased loss in 1992 was principally due to
the increased operating loss, the loss on the sale of an unconsolidated
subsidiary, and the provision for the write-down to net realizable value of a
parcel of real estate.
Starting in fiscal 1993 the Company no longer has deferred tax liabilities
available to offset its loss from continuing operations resulting in a reduced
benefit for income taxes of $10,491 in 1993. The benefit for income taxes
increased 132% to $10,491 in 1992 from $4,519 in 1991, principally as a result
of the change in pre-tax loss. The Company's effective tax rates in fiscal 1992
and 1991 were 33% and 31%, respectively.
Loss from continuing operations decreased $12,715 to $8,682 in 1993 from
$21,397 in 1992 and increased $11,393 in 1992 from $10,004 in 1991 due to
changes in the pre-tax loss, partially offset by the benefit for income taxes.
Loss on discontinued operations, net of income tax benefit, was $3,140 in
1993, $2,721 in 1992 and $6,778 in 1991. The 1993 loss represents the operating
performance of discontinued operations through March 1, 1993. The decrease in
the loss in 1992 was due to improved operating performance of WYNY-FM and Radio
& Records, lower interest expense and the non-occurrence of costs associated
with a 1991 format change at KQLZ-FM.
The $12,087 provision for loss on disposal of discontinued operations
includes estimated future costs and operating results of the discontinued assets
from March 1, 1993 until the date of disposition.
The Company had an extraordinary gain on the debt exchange offer in fiscal
1991, net of taxes, amounting to $25,618.
13
15
In 1992, the Financial Accounting Standards Board issued FAS No. 109
"Accounting for Income Taxes". The Company will adopt the standard on
December 1, 1993, and currently estimates that its deferred tax liability will
be increased by approximately $2,000. The resulting expense will be recorded in
the statement of operations and reported as a cumulative effect of a change in
an accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1993, the Company's cash and cash equivalents were $3,868,
a decrease of $2,587 from November 30, 1992. The decrease in cash of $2,587
combined with the cash provided before financing activities of $92,544 and the
proceeds from the issuance of common stock of $1,507 were used to reduce
outstanding borrowings by $96,638. Additionally, WEC acquired the outstanding
stock of Radio & Records and the net assets of Westwood One Stations Group in
complete satisfaction of the Group's remaining debt and a conversion to common
stock of $2,068 face value of Senior Debentures occurred. Consequently, total
debt was reduced to $60,149 at November 30, 1993, a decrease of $118,430 from
$178,579 at November 30, 1992.
For fiscal 1993, net cash from operating activities was $2,045, a decrease
of $7,207 from fiscal 1992. The decrease was primarily attributable to higher
prior year network collections associated with fourth quarter 1991 revenue and a
large reduction in accounts payable and accrued liabilities primarily related to
reduced interest, partially offset by improved broadcast cash flow (based on the
consolidated statement of operations, calculated by subtracting from revenue,
operating costs and expenses excluding depreciation and amortization) and
receipt of a multi-year license fee (deferred revenue). Net cash provided by
investing activities was $90,499, an increase of $101,841 over the prior year,
principally due to net proceeds from the sales of two radio stations, an
unconsolidated subsidiary and a parcel of real estate. Consequently, cash
provided before financing activities increased by $94,634 from 1992.
The Company used the assets of The Group as collateral for a revolving
credit facility and for the 16% Senior Subordinated Debentures with WEC, both
non-recourse to the Company, which amounted to $104,960 at November 30, 1992. In
June 1993 the Company completed the sale of both radio stations and used the net
proceeds to retire the 16% Debentures ($43,733) and reduce the outstanding
balance of the revolving credit facility. Effective November 1, 1993, WEC
acquired Radio & Records and the remaining net assets of The Group in complete
satisfaction of The Group's remaining obligations for the principal amount of
loans and accrued interest thereon owed to WEC.
On November 22, 1993 the Company repaid its Revolving Facility and term
loan by entering into a new senior debt agreement involving a revolving facility
and two term loans with a maximum borrowing capacity of $20,000. At November 30,
1993, the Company had outstanding borrowings under the revolving facility of
$6,648 and available borrowings of $6,352.
From December 1, 1993 through January 15, 1994, holders of the Company's
Senior Debentures converted $12,542 face amount of the Senior Debentures into
3,584,000 shares of the Company's common stock, reducing the outstanding amount
of the Senior Debentures to $18,516.
In order to finance the acquisition of Unistar (which will be accounted for
as a purchase) the Company anticipates obtaining a new senior loan with a
syndicate of banks in the amount of $125,000. Additionally, the Company will
sell 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 INI for $15,000. The proceeds
will be used to acquire
14
16
Unistar and repay its indebtedness ($101,300), repay the Company's current
senior debt agreement, and improve working capital. Immediately following the
acquisition, and as a condition to obtaining a new senior loan, the Company will
also redeem its Senior Debentures.
Management believes that the Company's cash, anticipated cash flow from
operations and available borrowings will be sufficient to finance current and
forecasted operations and debt obligations over the next 12 months. Furthermore,
management believes the acquisition of Unistar will strengthen the Company's
liquidity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and the related notes and schedules
of the Company are indexed on page F-1 of this Report, and attached hereto as
pages F-1 through F-17 and by this reference incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
17
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 the 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.
16
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT ON FORM 10-K
1. Financial statements and schedules to be filed thereunder are indexed on
page F-1 hereof.
2. Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------------
3.1 Certificate of Incorporation of Registrant.(1)
3.2 Agreement of Merger.(1)
3.3 Certificate of Amendment of Certificate of Incorporation, as filed on October
10, 1986.(2)
3.4 Certificate of Amendment of Certificate of Incorporation, as filed on October 9,
1986.(3)
3.5 Certificate of Amendment of Certificate of Incorporation, as filed on March 23,
1987.(3)
3.6 Certificate of Correction of Certificate of Amendment, as filed on March 31,
1987 at 10:00 a.m.(3)
3.7 Certificate of Correction of Certificate of Amendment, as filed on March 31,
1987 at 10:01 a.m.(3)
3.8 Bylaws of Registrant as currently in effect.(7)
4 Form of Indenture for 6 3/4% Convertible Subordinated Debentures (including the
form of the Debenture).(2)
4.1 Warrant Agreement dated August 27, 1990 between Registrant and Security Pacific
National Bank, as Warrant Agent.(9)
4.2 Form of Indenture for 9% Convertible Senior Subordinated Debentures (including
the form of the Debenture).(10)
10.1 Employment Agreement and Registration Rights Agreement, dated October 18, 1993,
between Registrant and Norman J. Pattiz
10.2 First Amendment to Employment Agreement between Registrant and Norman J. Pattiz,
dated January 26, 1994.
10.3 Employment Agreement, dated December 5, 1991, between Registrant and Bruce E.
Kanter.(12)
10.4 Employment Agreement dated June 1, 1992, between Registrant and Gregory P.
Batusic.(14)
10.5 Employment Agreement dated August 30, 1993 between Registrant and Eric R. Weiss.
10.6 Form of Indemnification Agreement Between Registrant and its Directors and
Executive Officers.(5)
10.7 Executive Stock Bonus Plan for Bruce E. Kanter dated December 16, 1992.(15)
10.8 Lease dated November 1, 1981 between 1700 Broadway Co. and National Broadcasting
Company, Inc., relating to New York, New York offices.(4)
10.9 Lease dated May 24, 1983 between 1700 Broadway Co. and National Broadcasting
Company, Inc., relating to New York, New York offices.(4)
10.10 Lease dated July 19, 1989, between First Ball Associates Limited Partnership and
Westwood
17
19
One, Inc., relating to Arlington, Virginia offices.(8)
10.11 Loan and Security Agreement between Registrant and Foothill Capital Corporation
dated November 15, 1993.
10.12 Purchase Agreement Between Registrant and National Broadcasting Company, Inc.
dated as of August 24, 1987.(6)
10.13 Westwood One, Inc. 1989 Stock Incentive Plan.(13)
10.14 Agreement for Cancellation of Loan Documents, Guarantees and Securities Purchase
Documents dated as of November 19, 1993 between Registrant, Westwood One
Stations Group, Inc., Westwood One Stations-LA, Inc., Radio & Records, Inc. and
Westinghouse Electric Corporation.
10.15 Stock Purchase Agreement between Registrant and Unistar Communications Group,
Inc., Unistar Radio Network, Inc., and Infinity Broadcasting Corporation, dated
November 4, 1993.(16)
10.16 Stipulation of Settlement of Class Action Law Suit.(8)
10.17 Digital Audio Transmission Service Agreement dated June 5, 1990 between
Registrant and GE American Communications, Inc.(11)
11 Computation of Earnings (Loss) Per Share
22 List of Subsidiaries
24 Consent of Independent Accountants
- ---------------
(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 an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1987 (File Number 0-13020) and incorporated
herein by reference.
(5) Filed as part of Registrant's September 25, 1986 proxy statement (File
Number 0-13020) and incorporated herein by reference.
(6) Filed as an exhibit to Registrant's current report on Form 8-K dated
September 4, 1987 (File Number 0-13020) and incorporated herein by
reference.
(7) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended November 30, 1988 (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, 1989 (File Number 0-13020) and incorporated
herein by reference.
(9) 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.
(10) Filed as an exhibit to Registrant's application for qualification of
indentures on Form T-3 which became effective and qualified on January 11,
1991 (File Number 22-20701) 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, 1990 (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
fiscal year ended November 30, 1991 (File Number 0-13020) and incorporated
herein by reference.
18
20
(13) Filed as part of Registrant's March 27, 1992 proxy statement (File Number
0-13020) and incorporated herein by reference.
(14) 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.
(15) Filed as an exhibit to Registrant's June 18, 1993 Registration Statement on
Form S-8.
(16) Filed as part of Registrant's January 7, 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 1993.
19
21
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.
February 1, 1994 By NORMAN J. PATTIZ
----------------------------------
Norman J. Pattiz
Chairman of the Board of Directors
and Chief Executive 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:
NORMAN J. PATTIZ Chairman of the Board of February 1, 1994
------------------------------ Directors and Chief
Norman J. Pattiz Executive Officer
PRINCIPAL FINANCIAL OFFICER AND
CHIEF ACCOUNTING OFFICER:
BRUCE E. KANTER Director, Executive Vice February 1, 1994
------------------------------ President
Bruce E. Kanter and Chief Financial Officer
ADDITIONAL DIRECTORS:
JOSEPH B. SMITH Director February 1, 1994
------------------------------
Joseph B. Smith
ARTHUR E. LEVINE Director February 1, 1994
------------------------------
Arthur E. Levine
PAUL G. KRASNOW Director February 1, 1994
------------------------------
Paul G. Krasnow
20
22
WESTWOOD ONE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
PAGE
--------
1. CONSOLIDATED FINANCIAL STATEMENTS
--Report of Independent Accountants..................................... F-2
--Consolidated Balance Sheets at November 30, 1993 and 1992............. F-3
--Consolidated Statements of Operations for the fiscal years ended
November 30, 1993, 1992 and 1991...................................... F-4
--Consolidated Statements of Shareholders' Equity for the fiscal years
ended November 30, 1993, 1992 and 1991................................ F-5
--Consolidated Statements of Cash Flows for the fiscal years ended
November 30, 1993, 1992 and 1991...................................... F-6
--Notes to Consolidated Financial Statements............................ F-7 - F-16
2. FINANCIAL STATEMENT SCHEDULES:
IX. --Short-term Borrowings............................................. 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
23
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF WESTWOOD ONE, INC.
In our opinion, the consolidated financial statements listed in the index
to consolidated financial statements and financial statement schedules on page
F-1 present fairly, in all material respects, the financial position of
Westwood One, Inc. and its subsidiaries at November 30, 1993 and 1992, and the
results of their operations and their cash flows for each of the three 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.
PRICE WATERHOUSE
Century City, California
February 1, 1994
F-2
24
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOVEMBER 30,
---------------------
1993 1992
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 3,868 $ 6,455
Accounts receivable, net of allowance for doubtful accounts of $959
(1993) and $1,104 (1992).......................................... 19,480 22,306
Production costs..................................................... 6,849 9,546
Receivable from sale of unconsolidated subsidiary.................... -- 9,830
Prepaid expenses and other........................................... 2,790 2,954
-------- --------
Total Current Assets......................................... 32,987 51,091
PROPERTY AND EQUIPMENT, NET (Note 3)................................... 15,984 23,032
DEFERRED PRODUCTION COSTS.............................................. 6,185 8,870
INTANGIBLE ASSETS, NET (Note 4)........................................ 90,745 205,196
OTHER.................................................................. 6,166 7,551
-------- --------
TOTAL ASSETS................................................. $152,067 $295,740
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................... $ 13,446 $ 15,776
Accrued expenses and other liabilities............................... 12,838 15,300
Current maturities of long-term debt (Note 5)........................ 1,558 25,157
Short-term borrowings (Note 5)....................................... 6,648 6,800
-------- --------
Total Current Liabilities.................................... 34,490 63,033
LONG-TERM DEBT (Notes 5 and 12)........................................ 51,943 146,622
OTHER LIABILITIES...................................................... 10,483 10,881
-------- --------
TOTAL LIABILITIES............................................ 96,916 220,536
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)......................... -- --
SHAREHOLDERS' EQUITY (Notes 6 and 12):
Preferred stock: authorized 10,000,000 shares, none outstanding...... -- --
Common stock, $.01 par value: authorized, 117,000,000 shares; issued
and outstanding, 15,978,758 (1993) and 14,621,695 (1992).......... 160 147
Class B stock, $.01 par value: authorized, 3,000,000 shares: issued
and outstanding, 351,733 (1993 and 1992).......................... 4 4
Additional paid-in capital........................................... 110,547 106,704
Accumulated deficit.................................................. (55,560) (31,651)
-------- --------
TOTAL SHAREHOLDERS' EQUITY................................... 55,151 75,204
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $152,067 $295,740
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
F-3
25
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED
NOVEMBER 30,
------------------------------
1993 1992 1991
-------- -------- --------
REVENUE........................................................ $ 99,579 $101,290 $108,586
-------- -------- --------
Operating Costs and Expenses Excluding Depreciation and
Amortization................................................. 80,918 92,249 86,287
Depreciation and Amortization.................................. 16,384 19,661 22,055
Corporate General and Administrative Expenses.................. 4,468 6,017 6,175
Severance and Termination Expenses............................. -- 2,063 --
-------- -------- --------
101,770 119,990 114,517
-------- -------- --------
OPERATING (LOSS)............................................... (2,191) (18,700) (5,931)
-------- -------- --------
Interest Expense............................................... 6,551 5,562 5,610
Other Expense (Income)......................................... (60) 301 1,081
Equity in Net Loss of Unconsolidated Subsidiary................ -- 789 1,901
Loss on Sale of Unconsolidated Subsidiary...................... -- 6,536 --
-------- -------- --------
6,491 13,188 8,592
-------- -------- --------
(LOSS) BEFORE TAXES, DISCONTINUED OPERATIONS AND EXTRAORDINARY
GAIN......................................................... (8,682) (31,888) (14,523)
(BENEFIT) FOR INCOME TAXES (Note 8)............................ -- (10,491) (4,519)
-------- -------- --------
(LOSS) FROM CONTINUING OPERATIONS.............................. (8,682) (21,397) (10,004)
(LOSS) ON DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFIT
(Note 2)..................................................... (3,140) (2,721) (6,778)
PROVISION FOR (LOSS) ON DISPOSAL OF DISCONTINUED OPERATIONS
(Note 2)..................................................... (12,087) -- --
-------- -------- --------
(LOSS) BEFORE EXTRAORDINARY GAIN............................... (23,909) (24,118) (16,782)
EXTRAORDINARY GAIN............................................. -- -- 25,618
-------- -------- --------
NET INCOME (LOSS).............................................. $(23,909) $(24,118) $ 8,836
-------- -------- --------
-------- -------- --------
EARNINGS (LOSS) PER SHARE:
Primary:
Continuing Operations..................................... $ (.57) $ (1.44) $ (.67)
Discontinued Operations................................... (1.01) (.18) (.46)
-------- -------- --------
(Loss) Before Extraordinary Gain.......................... (1.58) (1.62) (1.13)
Extraordinary Gain........................................ -- -- 1.73
-------- -------- --------
Net Income (Loss).................................... $ (1.58) $ (1.62) $ .60
-------- -------- --------
-------- -------- --------
Fully diluted:
Continuing Operations..................................... $ (.57) $ (1.44) $ (.30)
Discontinued Operations................................... (1.01) (.18) (.28)
-------- -------- --------
(Loss) Before Extraordinary Gain.......................... (1.58) (1.62) (.58)
Extraordinary Gain........................................ -- -- 1.06
-------- -------- --------
Net Income (Loss).................................... $ (1.58) $ (1.62) $ .48
-------- -------- --------
-------- -------- --------
See accompanying notes to consolidated financial statements.
F-4
26
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK CLASS B STOCK ADDITIONAL TREASURY STOCK
--------------- --------------- PAID-IN ACCUMULATED ---------------
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
------ ------ ------ ------ ---------- ----------- ------ ------
BALANCE AT NOVEMBER 30, 1990............ 14,593 $146 352 $4 $107,321 $(16,369) 121 $1,606
Net income for 1991................... -- -- -- -- -- 8,836 -- --
Amortization of deferred compensation
(Note 6)............................ -- -- -- -- 281 -- -- --
Issuance of treasury stock to 401-K
plan................................ -- -- -- -- (768) -- (68) (900)
Issuance of common stock.............. 1 -- -- -- 20 -- -- --
------ ------ ------ -- ---------- ----------- ------ ------
BALANCE AT NOVEMBER 30, 1991............ 14,594 146 352 4 106,854 (7,533) 53 706
Net loss for 1992..................... -- -- -- -- -- (24,118) -- --
Amortization of deferred compensation
(Note 6)............................ -- -- -- -- 281 -- -- --
Issuance of treasury stock to 401-K
plan................................ -- -- -- -- (591) -- (53) (706)
Issuance of common stock under stock
option plans (Note 7)............... 3 -- -- -- 5 -- -- --
Conversion of Senior Debentures to
common stock........................ 25 -- -- -- 89 -- -- --
Common stock issued as compensation to
an officer (Note 6)................. 42 1 -- -- 67 -- -- --
------ ------ ------ -- ---------- ----------- ------ ------
BALANCE AT NOVEMBER 30, 1992............ 14,663 147 352 4 106,704 (31,651) -- --
Net loss for 1993..................... -- -- -- -- -- (23,909) -- --
Amortization of deferred compensation
(Note 6)............................ -- -- -- -- 281 -- -- --
Issuance of common stock under stock
option plans (Note 7)............... 680 7 -- -- 1,381 -- -- --
Conversion of Senior Debentures to
common stock (Note 5)............... 591 6 -- -- 2,062 -- -- --
Issuance of common stock to 401-K
plan................................ 46 -- -- -- 119 -- -- --
------ ------ ------ -- ---------- ----------- ------ ------
BALANCE AT NOVEMBER 30, 1993............ 15,980 $160 352 $4 $110,547 $(55,560) -- --
------ ------ ------ -- ---------- ----------- ------ ------
------ ------ ------ -- ---------- ----------- ------ ------
See accompanying notes to consolidated financial statements.
F-5
27
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED NOVEMBER 30,
------------------------------
1993 1992 1991
-------- -------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $(23,909) $(24,118) $ 8,836
Adjustments to reconcile net income (loss) to net cash provided
by operating activities before cash payments related to
extraordinary gain:
Extraordinary gain on debt exchange offer, net of taxes........ -- -- (25,618)
Depreciation and amortization.................................. 17,372 23,606 26,026
Loss on disposal of discontinued operations.................... 12,087 -- --
Equity in loss of unconsolidated subsidiary.................... -- 789 1,901
Loss on sale of unconsolidated subsidiary...................... -- 6,536 --
Deferred income taxes.......................................... -- (11,622) (7,707)
Write-down and provision for loss on assets.................... -- 1,000 1,428
Changes in assets and liabilities:
Decrease (increase) in accounts receivable................... (2,239) 6,965 (672)
Decrease in prepaid assets................................... 209 1,124 1,097
Increase (decrease) in accounts payable and accrued
liabilities................................................. (2,189) 4,041 3,854
Other.......................................................... 714 931 719
-------- -------- --------
Net cash from operating activities before cash payments related
to extraordinary gain............................................. 2,045 9,252 9,864
Cash payments related to extraordinary gain......................... -- -- (1,869)
-------- -------- --------
Net Cash From Operating Activities........................ 2,045 9,252 7,995
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capitalized production costs...................................... (4,339) (5,650) (8,238)
Property and equipment capital expenditures....................... (2,270) (1,192) (4,634)
Post-acquisition obligations...................................... (1,217) (1,878) (1,969)
Capitalized station affiliation agreements........................ (694) (545) (1,766)
Proceeds related to sales of discontinued operations.............. 88,062 -- --
Proceeds (cash payments) related to sale of unconsolidated
subsidiary..................................................... 10,372 (1,680) --
Proceeds related to sale of property and equipment................ 853 -- --
Other............................................................. (268) (397) (2,571)
-------- -------- --------
Net Cash Provided (Used) By Investing Activities.......... 90,499 (11,342) (19,178)
-------- -------- --------
CASH PROVIDED (REQUIRED) BEFORE FINANCING ACTIVITIES...... 92,544 (2,090) (11,183)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Debt repayments................................................... (104,071) (2,306) (500)
Borrowings under debt arrangements................................ 7,000 9,288 278
Issuance of common stock.......................................... 1,507 -- --
Issuance of subordinated debentures............................... 433 853 6,055
-------- -------- --------
NET CASH FROM (USED IN) FINANCING ACTIVITIES.............. (95,131) 7,835 5,833
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ (2,587) 5,745 (5,350)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 6,455 710 6,060
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................... $ 3,868 $ 6,455 $ 710
-------- -------- --------
-------- -------- --------
See accompanying notes to consolidated financial statements.
F-6
28
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. Investments in 20 to 50 percent-owned companies are
accounted for under the equity method.
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.
Depreciation
Depreciation is computed using the straight line method over the estimated
useful lives of the assets.
Production Costs
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. Production costs are
amortized using the straight line method over the period of expected benefit,
not to exceed five years. Approximately 79% of current and deferred production
costs at November 30, 1993 will be amortized by November 30, 1995. The current
portion of deferred production costs represents the portion to be amortized over
the next twelve months.
Capitalized Station Affiliation Agreements
Expenditures associated with major new affiliate agreements are capitalized
and amortized starting once the affiliate's audience is included in rating
service publications for use in generating advertising revenue. Capitalized
station affiliation agreements exclude station affiliation agreements acquired
as part of a purchase of an existing network. These expenditures, which are
included in other assets, are amortized over 10 years or the period of known
benefit, whichever is less.
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 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
Deferred income taxes are provided for timing differences, resulting
principally from deferred production costs.
F-7
29
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Earnings (Loss) per Share
Net income (loss) per share is based on the weighted average number of
common shares outstanding during the year. Average shares outstanding, used to
compute per share figures, were as follows:
YEAR ENDED NOVEMBER 30,
-------------------------------------
1993 1992 1991
----------- ----------- -----------
Primary.................... 15,153,000 14,906,000 14,810,000
Fully diluted.............. 15,153,000 14,906,000 24,242,000
Reclassification
Financial statements for all prior periods have been reclassified to
conform to the fiscal 1993 presentation. The principal adjustments were to
include the amortization of intangible assets acquired through acquisition in
arriving at an operating loss and to segregate discontinued operations.
NOTE 2 -- 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, $12,273, and $13,058 for fiscal 1993, 1992 and 1991,
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, which includes a fourth quarter
provision of $3,587 as a result of the net proceeds from the disposal of Radio
& Records and the WEC agreement. Revenue from discontinued operations for
fiscal 1993, 1992 and 1991 were $22,282, $36,443, and $35,764, respectively.
The consolidated statements of cash flows include both continuing and
discontinued operations of the Company.
F-8
30
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 3 -- PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows at:
NOVEMBER 30,
-------------------
1993 1992
------- -------
Land..................................................... $ 3,378 $ 4,409
Recording and studio equipment........................... 15,433 18,033
Buildings and leasehold improvements..................... 6,576 9,414
Furniture and equipment.................................. 4,007 5,214
Transportation equipment................................. 721 860
Construction-in-progress................................. 180 217
------- -------
30,296 38,147
Less: Accumulated depreciation and amortization.......... 14,312 15,115
------- -------
Property and equipment, net......................... $15,984 $23,032
------- -------
------- -------
NOTE 4 -- INTANGIBLE ASSETS:
Intangible assets are summarized as follows at:
NOVEMBER 30,
--------------------
1993 1992
------- --------
Goodwill, less accumulated amortization of $12,127
(1993) and $12,096 (1992)............................. $64,947 $ 77,878
Acquired station affiliation agreements, less
accumulated amortization of $1,851 (1993) and $1,727
(1992)................................................ 8,156 8,992
Other intangible assets and radio station broadcast
licenses (1992), less accumulated amortization of
$3,958 (1993) and $14,752 (1992)...................... 17,642 118,326
------- --------
Intangible assets, net........................ $90,745 $205,196
------- --------
------- --------
Station affiliation agreements are comprised of values assigned to
agreements acquired as part of the purchase of radio networks and are
amortized using an accelerated method over 40 years. The value of station
affiliation agreements, whose period of known benefit will expire in the next
twelve months, is $549 and $800 at November 30, 1993 and 1992, respectively.
Goodwill represents the excess of the cost of purchased businesses over the
fair value of their net assets at the date of acquisition.
Intangible assets, except for acquired station affiliation agreements, are
amortized on a straight-line method over 40 years.
F-9
31
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5 -- FINANCING ARRANGEMENTS AND LONG-TERM DEBT:
Financing Arrangements
In addition to long-term debt, the Company has a secured Revolving Facility
in the maximum amount of $13,000 (based on a percentage of Eligible Accounts
Receivable). The Revolving Facility bears interest, payable monthly, at the rate
of prime plus 2.25%. At November 30, 1993, the Company owed $6,648 under this
Revolving Facility and had available borrowings of $6,352. The Loan and Security
Agreement for the Revolving Facility and the term notes (see below) contain
provisions which require the Company to maintain minimum levels of Working
Capital and Adjusted Tangible Net Worth along with a minimum current ratio. (See
Note 12 -- Subsequent Events)
Long-Term Debt
Long-term debt consists of the following at:
NOVEMBER 30,
------------------
1993 1992
------- --------
Term Notes:
Maturing December 1, 1995............................... $ 3,500 $ --
Maturing December 1, 1996............................... 3,500 --
Prime plus 1 1/2% term loan from bank..................... -- 18,250
Prime plus 1 1/4% Revolving Credit Facility............... -- 61,660
16% Senior Subordinated Debentures and contingent payment
obligations maturing 1999............................... -- 43,300
9% Convertible Senior Subordinated Debentures maturing
2002.................................................... 31,058 33,126
6 3/4% Convertible Subordinated Debentures maturing
2011.................................................... 15,443 15,443
------- --------
Total long-term debt................................. 53,501 171,779
Less current maturities................................... 1,558 25,157
------- --------
Net long-term debt................................... $51,943 $146,622
------- --------
------- --------
The Company has two Term Notes which mature on December 1, 1995 ("Note A")
and December 1, 1996 ("Note B") (collectively the "Notes"). The Notes bear
interest at the rate of prime plus 2.25%. Interest is payable monthly. Principal
is payable monthly on each note commencing on January 1, 1994 in the amounts of
$83 and $58 for Note A and Note B, respectively. (See Note 12 -- Subsequent
Events).
During fiscal 1993, the Company paid or exchanged the following debt
instruments which were outstanding at the beginning of the year: Prime plus
1 1/2% term loan from bank, Prime plus 1 1/4% Revolving Credit Facility and 16%
Senior Subordinated Debentures (See Note 2 -- Discontinued Operations).
The 9% Convertible Senior Subordinated Debentures ("Senior Debentures") are
unsecured and subordinated in right of payment to senior indebtedness of the
Company. Interest on the Senior Debentures is payable semiannually on April 15
and October 15. The Senior Debentures are
F-10
32
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
convertible at any time prior to maturity, unless previously redeemed, into
shares of Common Stock of the Company at the conversion price of $3.50 per
share, subject to adjustment upon the occurrence of certain events. The Senior
Debentures are redeemable at the option of the Company at a declining premium to
par until 1996 and at par thereafter. In fiscal 1993, $2,068 of Senior
Debentures were converted to Common Stock (See Note 12 -- Subsequent Events).
The 6 3/4% Convertible Subordinated Debentures ("Debentures") are unsecured
and subordinated in right of payment to senior indebtedness and Senior
Debentures. 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. On January 11, 1991, the Company accepted, and, thereafter,
retired $83,037 principal amount of the Debentures (84% of the then outstanding
bonds) tendered pursuant to its offer to exchange its Senior Debentures for any
and all of its Debentures. As a result of this transaction, the Company recorded
an extraordinary gain, net of taxes, of $25,618.
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
November 30, 1993, are as follows:
FISCAL
YEAR
-------
1994............................... $ 1,558
1995............................... 1,700
1996............................... 2,283
1997............................... 1,460
1998............................... --
Thereafter......................... 46,501
-------
$53,501
-------
-------
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 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.
In October 1990 the Company issued 267,740 shares of common stock to a
company owned by the Chairman of the Board in full satisfaction of an amount
owed that company for transportation services.
F-11
33
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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.
As part of a seven year employment agreement which commenced December 1,
1986, 112,500 shares of Class B stock were placed in escrow for the Chairman of
the Board. As of November 30, 1993, all the shares were vested.
NOTE 7 -- STOCK OPTIONS:
The Company has stock option plans established in 1984 and 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. No
additional options can be granted under the 1984 Plans. There are 2,800,000
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:
FISCAL YEAR ENDED NOVEMBER 30,
--------------------------------
1993 1992
----------- ------------
Shares authorized under option plans at
end of period.............................. 2,800,000 2,800,000
Exercisable at end of period................. 734,750 866,250
-- at exercise prices per share............ $1.63-$9.13 $1.63-$22.75
Exercised during the period.................. 679,500 2,500
-- at exercise prices per share............ $2.00-$2.75 $2.00
Granted during the period.................... 745,000 810,000
-- at exercise prices per share............ $1.63-$5.38 $1.63-$2.75
Canceled during the period................... 141,250 234,500
Expired during the period.................... 171,000 218,000
Available for new stock options at end of
period..................................... 170,250 694,000
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 November 30, 1993, all the options
granted are exercisable at exercise prices ranging from $1.67 to $16.31 per
share.
F-12
34
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8 -- INCOME TAXES:
Starting in fiscal 1993 the Company no longer has deferred tax liabilities
available to offset its losses.
The components of the (benefit) for income taxes related to continuing
operations is summarized as follows:
FISCAL YEAR ENDED NOVEMBER 30,
---------------------------------
1993 1992 1991
-------- -------- -------
Currently payable:
Federal................................................... $ -- $ -- $ --
State..................................................... -- 26 125
-------- -------- -------
-- 26 125
-------- -------- -------
Deferred:
Federal................................................... -- (9,520) (6,217)
State..................................................... -- (2,102) (1,490)
-------- -------- -------
-- (11,622) (7,707)
-------- -------- -------
Total (benefit) for income taxes.......................... -- (11,596) (7,582)
Less amount allocated to discontinued operations............ -- 1,105 3,063
-------- -------- -------
(Benefit) allocated to continuing operations.............. $ -- $(10,491) $(4,519)
-------- -------- -------
-------- -------- -------
The deferred tax benefits recorded for the two years ended November 30,
1992, are attributable to the reversal of deferred taxes for timing differences,
provided for in earlier years. Certain of these deferred taxes were reinstated
in fiscal 1991 as a result of a tax expense of $19,828 on the extraordinary
gain.
A reconciliation between the Company's effective income tax rate and the
U.S. statutory rate is as follows:
FISCAL YEAR ENDED NOVEMBER 30,
---------------------------------
1993 1992 1991
-------- -------- -------
Federal statutory income tax rate................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit................. -- 3.9 3.7
Amortization of intangible assets................... -- (3.0) (7.0)
Losses for which no benefit given................... (34.0) -- --
Other items......................................... -- (2.4) .4
---- ---- ----
Effective income tax rate......................... 0.0% 32.5% 31.1%
---- ---- ----
---- ---- ----
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 2003. 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.
In 1992, the Financial Accounting Standards Board issued FAS No. 109
"Accounting for Income Taxes". The Company will adopt the standard on
December 1, 1993, and currently estimates that its deferred tax liability will
be increased by approximately $2,000. The resulting expense will be recorded in
the statement of operations and reported as a cumulative effect of a change in
an accounting principle.
F-13
35
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9 -- 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 and
certain digital audio transmission services. The approximate aggregate future
minimum obligations under such operating leases and contractual agreements
for the five years after November 30, 1993, are set forth below:
FISCAL
YEAR
--------
1994............................... $13,346
1995............................... 11,108
1996............................... 10,785
1997............................... 8,160
1998............................... 6,931
--------
$50,330
--------
--------
NOTE 10 -- SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental Information on cash flows, including amounts from discontinued
operations, and non-cash transactions is summarized as follows:
FISCAL YEAR ENDED NOVEMBER 30,
------------------------------
1993 1992 1991
-------- -------- ---------
Cash paid (received) for:
Interest........................................................ $16,580 $17,083 $12,306
Income taxes.................................................... 31 (176) 1,005
Non-cash investing and financing activities:
Conversion of Senior Debentures to common stock................. 2,068 89 --
Disposition of discontinued operations:
Debt exchanged............................................... 19,724 -- --
Accrued interest exchanged................................... 198 -- --
Accounts receivable exchanged................................ (448) -- --
F-14
36
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following is a tabulation of the unaudited quarterly results of
operations for each of the quarters for the fiscal years ended November 30, 1993
and 1992:
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
1993
REVENUE................................. $20,352 $25,132 $25,782 $28,313 $ 99,579
OPERATING INCOME (LOSS)................. (4,291) 319 973 808 (2,191)
(LOSS) FROM CONTINUING OPERATIONS....... (6,072) (1,303) (580) (727) (8,682)
NET LOSS................................ (9,212) (1,303) (9,080) (4,314) (23,909)
(LOSS) PER SHARE:
PRIMARY AND FULLY DILUTED
CONTINUING OPERATIONS.............. (.40) (.09) (.04) (.04) (.57)
DISCONTINUED OPERATIONS............ (.21) -- (.56) (.24) (1.01)
NET (LOSS)......................... $ (.61) $ (.09) $ (.60) $ (.28) $ (1.58)
1992
REVENUE................................. $23,444 $24,279 $27,810 $25,757 $101,290
OPERATING (LOSS)........................ (5,857) (5,428) (3,516) (3,899) (18,700)
(LOSS) FROM CONTINUING OPERATIONS....... (5,343) (4,544) (7,657) (3,853) (21,397)
NET (LOSS).............................. (7,240) (4,810) (7,743) (4,325) (24,118)
(LOSS) PER SHARE:
PRIMARY AND FULLY DILUTED:
CONTINUING OPERATIONS.............. (.36) (.30) (.51) (.26) (1.44)
DISCONTINUED OPERATIONS............ (.13) (.02) (.01) (.03) (.18)
NET (LOSS)......................... $ (.49) $ (.32) $ (.52) $ (.29) $ (1.62)
NOTE 12 -- SUBSEQUENT EVENTS(UNAUDITED):
The Company submitted to the Commission an offer of settlement arising out
of a formal investigation by the Commission which has been pending since 1989.
The settlement offer, which was accepted by the Commission on January 7, 1994
and an order entered on January 19, 1994, involved the Company's consent,
without admitting or denying any of the findings of the Commission, to an
administrative cease and desist order based upon findings that in 1987 and 1988
the Company violated antifraud and accounting provisions of the federal
securities laws and the rules thereunder in its revenue recognition and
accounting practices during that period.
F-15
37
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
From December 1, 1993 through January 15, 1994, holders of the Company's
Senior Debentures converted $12,542 face amount of the Senior Debentures into
3,584,000 shares of the Company's Common Stock.
On January 28, 1994 the shareholders of the Company approved and
authorized the acquisition by the Company of all the issued and outstanding
capital stock of Unistar Radio Networks, Inc. ("Unistar") and the assumption of
$84,711 of Unistar's indebtedness for an aggregate purchase price of $101,300.
The acquisition will be accounted for as a purchase and, accordingly,
Unistar's results of operations will be included in the consolidated statement
of operations from the date the acquisition is consummated.
In order to finance the acquisition of Unistar, the Company anticipates
obtaining a new senior loan with a syndicate of bank's in the amount of
$125,000. Additionally, the Company will sell 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. The net proceeds will be used to acquire Unistar and repay its
indebtedness ($101,300), repay the Company's current senior debt agreement,
and improve working capital. Immediately following the acquisition, and as a
condition to obtaining a new senior loan, the Company will also redeem its
Senior Debentures.
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38
WESTWOOD ONE, INC.
SCHEDULE IX
CONSOLIDATED SHORT-TERM BORROWINGS
(IN THOUSANDS)
WEIGHTED
MAXIMUM AVERAGE AVERAGE
WEIGHTED AMOUNT AMOUNT INTEREST
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE
CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD PERIOD
- -------------------------------------------- ---------- -------- ----------- ----------- ----------
YEAR ENDED NOVEMBER 30, 1993:
Note payable............................. $6,648 8.3% $ 7,448 $ 4,404 8.2%
YEAR ENDED NOVEMBER 30, 1992:
Note payable ............................ 6,800 8 6,800 3,948 7.5
YEAR ENDED NOVEMBER 30, 1991:
Note payable............................. 250 9 3,000 412 9
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.
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