FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 001-14691
WESTWOOD ONE, INC.
(Exact name of registrant as specified in its charter)
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| Delaware
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95-3980449 |
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(I.R.S. Employer |
| incorporation or organization)
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Identification No.) |
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| 40 West 57th Street |
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| New York, NY
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10019 |
| (Address of principal executive offices)
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(Zip Code) |
Registrant’s telephone number, including area code: (212) 641-2000
Securities Registered Pursuant to Section 12(b) of the Act:
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| Title of each class
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Name of each exchange on which registered |
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| Common Stock, par value $0.01 per share
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issued, as defined in Rule 405 of
the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act. Yes o No þ
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 (“Exchange Act”) 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 þ No o
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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check one):
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| Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The aggregate market value of Common Stock held by non-affiliates of the registrant was
approximately $1.5 billion based on the last reported sales price of the registrant’s Common Stock
on June 30, 2005 (the last business day of the most recently completed second quarter) and assuming
solely for the purpose of this calculation that all directors and officers of the registrant are
“affiliates.” The determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of February 15, 2006, 85,973,821 shares (excluding treasury shares) of Common Stock, par value
$0.01 per share, were outstanding and 291,796 shares of Class B Stock, par value $0.01 per share,
were outstanding.
Documents Incorporated By Reference
Portions of the registrant’s definitive proxy statement for its 2006 annual meeting of shareholders
(which will be filed with the Commission within 120 days of the registrant’s 2005 fiscal year end)
are incorporated by reference in Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
Item 1. Business
In this report, “Westwood One,” “Company,” “registrant,” “we,” “us” and “our” refer to Westwood
One, Inc.
General
Westwood One supplies radio and television stations with information services and programming. The
Company is the largest domestic outsource provider of traffic reporting services and the nation’s
largest radio network, producing and distributing national news, sports, talk, music and special
event programs, in addition to local news, sports, weather, video news and other information
programming.
The Company derives substantially all of its revenues from the sale of :10 second, :30 second and
:60 second commercial airtime to advertisers. The Company obtains the commercial airtime it sells
to advertisers from radio and television affiliates in exchange for the programming or information
services it provides to them. The Company supplements the commercial airtime it receives from
programming and information services by providing affiliates with compensation to obtain additional
commercial airtime. That commercial airtime is sold to local/regional advertisers (typically :10
second commercial airtime) and to national advertisers (typically :30 or :60 second commercial
airtime). By purchasing commercial airtime from the Company, advertisers are able to have their
commercial messages broadcast on radio and television stations throughout the United States,
reaching demographically defined listening audiences.
The Company provides local traffic and information broadcast reports in over 95 of the top 100
Metro Survey Area markets (referred to herein as “MSA markets”) in the United States. The Company
also offers radio stations traditional news services, including CBS Radio news and CNN Radio news,
in addition to eight 24-hour satellite-delivered continuous play music formats (“24/7 Formats”) and
weekday and weekend news and entertainment features and programs. These programs include: major
sporting events, including the National Football League, Notre Dame football and other college
football and basketball games, the National Hockey League, the Masters and the Olympics, live
personality intensive talk shows, live concert broadcasts, countdown shows, music and interview
programs and exclusive satellite simulcasts with cable networks.
The Company is developing alternative revenue streams generally by leveraging its existing
resources and creating new distribution channels for its extensive content. The Company provides
programming to satellite radio services, services to complimentary distribution channels, and data
for digital map and automotive navigation systems.
Westwood One is managed by CBS Radio Inc. (“CBS Radio”; previously known as Infinity Broadcasting
Corporation (“Infinity”)), a wholly-owned subsidiary of CBS Corporation, pursuant to a management
agreement between the Company and CBS Radio (then Infinity) which expires on March 31, 2009 (the
“Management Agreement”).
Industry Background
Radio Broadcasting
There are approximately 11,000 commercial radio stations in the United States.
A radio station selects a style of programming (“format”) to attract a target listening audience
and thereby attracts advertisers that are targeting that audience demographic. There are many
formats from which a station may select, including news, talk, sports and various types of music
and entertainment programming.
A radio station has two principal ways of effectively competing for revenues. First, it can
differentiate itself in its local market by selecting and successfully executing a format targeted
at a particular audience thus enabling advertisers to place their commercial messages on stations
aimed at audiences with certain demographic characteristics. A station can also broadcast special
programming, syndicated shows, sporting events or national news products, such as those supplied by
Westwood One, not available to its competitors within its format. National
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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 advertising revenue.
In addition to the traditional “terrestrial” radio stations, new technologies and services have
entered the marketplace. Currently, there are a number of satellite based broadcasters with
programming very similar to traditional radio. Additionally, the radio industry is preparing to
launch HD “High Definition” channels which may effectively increase the number of radio stations in
the United States.
Radio Advertising
Radio advertising time can be purchased on a local, regional or national basis. Local and regional
purchases allow an advertiser to choose a geographic market for the broadcast of commercial
messages. Local and regional purchases are typically best suited for an advertiser whose business
or ad campaign is in a specific geographic area. Advertising purchased from a national radio
network allows an advertiser to target its commercial messages to a specific demographic audience,
nationally, on a cost-efficient basis. In addition, an advertiser can choose to emphasize its
message in a certain market or markets by supplementing a national purchase with local and/or
regional purchases.
To plan its network audience delivery and demographic composition, specific measurement information
is available to advertisers from independent rating services such as Arbitron and their RADAR
rating service. The rating service provides demographic information such as the age and gender
composition of the listening audiences. Consequently, advertisers can verify that their
advertisements are being heard by their target listening audience.
In addition to targeting and reaching defined audiences, the Company’s products provide creative
marketing opportunities, including endorsements by trusted personalities, product integration,
association with high quality and desirable blue chip programming and on-location sponsorship
opportunities at cost effective rates.
Business Strategy/Services
The Company’s business strategy is to provide for the programming needs of radio stations by
supplying to radio stations programs and services that individual stations may not be able to
produce on their own on a cost effective basis. The Company offers radio stations traffic and news
information as well as a wide selection of regularly scheduled and special event syndicated
programming and 24/7 Formats. The information, programs and formats are produced by the Company
and, therefore, the stations typically have virtually no production costs. With respect to the
Company’s programs and formats, each program or format is offered for broadcast by the Company
exclusively to one station in its geographic market, which assists the station in competing for
audience share in its local marketplace. In addition, except for news programming, Westwood One’s
programs contain available commercial airtime that the stations may sell to local advertisers.
Westwood One typically distributes promotional announcements to the stations and occasionally
places advertisements in trade and consumer publications to further promote the upcoming broadcast
of its programs.
In 1996, the Company expanded its product offerings to include providing local traffic, news,
sports and weather programming to radio stations and other media outlets in selected cities across
the United States. This expansion gave the Company’s advertisers the ability to easily supplement
their national purchases with local and regional purchases from the Company. It also allowed the
Company to develop relationships with local and regional advertisers. In 1996 and 1998, the Company
acquired the operating assets of Shadow Traffic in a total of 14 major metropolitan markets (4 in
1996 and 10 in 1998). In 1999, Westwood One significantly expanded its local and regional reach
through its merger with the country’s largest traffic service provider, Metro Networks, Inc., which
broadcast information reports in 67 of the 75 largest MSA markets in the United States. Since
then, the Company has expanded its reach to more than 95 of the top 100 MSA markets. In late 2000,
the Company continued its expansion of products with its acquisition of the operating assets of
SmartRoute Systems, Inc. (“SmartRoute”), a company which collects, organizes and distributes a
database of advanced traveler information through various electronic media and telecommunications.
Westwood One enters into affiliation arrangements with radio stations which require the affiliate
to provide the Company with a specific number of commercial positions which it aggregates by
similar day and
time periods and
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resells to its advertisers. Some affiliation agreements also
require a station to broadcast the Company’s programs and to use a portion of the program’s
commercial slots to air national advertisements and any related promotional spots. With respect to
24/7 Formats, the Company typically receives a portion of the commercial airtime and a cash fee
from the affiliated stations in exchange for the stations receiving the right to broadcast the
formats.
Affiliation arrangements specify the number of times and the approximate daypart each program and
advertisement may be broadcast. Westwood One requires that each station complete and promptly
return to the Company an affidavit (proof-of-performance) that verifies the time of each broadcast.
Affiliation agreements generally run for a period of at least one year and are automatically
renewable for subsequent periods. The Company has agreements with over 5,000 radio stations, many
of which have more than one arrangement.
The Company has personnel responsible for station sales and marketing its programs to radio
stations. The Company’s staff develops and maintains close, professional relationships with radio
station personnel to provide them with quick programming assistance.
Local Traffic and Information Programming
The Company, through its Traffic and Information Division, provides traffic reports and local news,
weather and sports information programming to radio and television affiliates.
The Company gathers traffic and other data utilizing the Company’s information-gathering
infrastructure, which includes aircraft (helicopters and airplanes), broadcast-quality remote
camera systems positioned at strategically located fixed positions and on aircraft, mobile units
and wireless systems, and by accessing various government-based traffic tracking systems. The
Company also gathers information from various third-party news and information services. The
information is processed, converted into broadcast copy and entered into the Company’s computer
systems by the Company’s local writers and producers. This permits the Company to easily resell the
information to third parties for distribution through the internet, wireless devices or personal
digital assistants (“PDAs”) and various other distribution channels. The Company’s professional
announcers read the customized reports on the air. The Company’s information reports (including
the length of report, content of report, specific geographic coverage area, time of broadcast,
number of reports aired per day, broadcaster’s style, etc.) are customized to meet each individual
affiliate’s requirements. The Company typically works closely with the program directors, news
directors and general managers of its affiliates to ensure that the Company’s services meet its
affiliates’ goals and standards. The Company and its affiliates jointly select the on-air talent
to ensure that each on-air talent’s style is appropriate for the station’s format. The Company’s
on-air talent often become integral “personalities” on such affiliate stations as a result of
their significant on-air presence and interaction with the stations’ on-air personnel. In order to
realize operating efficiencies, the Company endeavors to utilize its professional on-air talent on
multiple affiliate stations within a particular market.
The Company believes that its extensive fleet of aircraft and other information-gathering
technology and broadcast equipment have allowed the Company to provide high quality programming,
enabling it to retain and expand its affiliate base. In the aggregate, the Company utilizes
approximately: 110 helicopters and fixed-wing aircraft; 39 mobile units; 32 airborne camera
systems; 125 fixed-position camera systems; 70 broadcast studios and 1,400 broadcasters and
producers. The Company also maintains a staff of computer programmers and graphics experts to
supply customized graphics and other visual programming elements to television station affiliates.
In addition, the Company’s operations centers and broadcast studios have sophisticated computer
technology, video and broadcast equipment and cellular and wireless technology, which enables the
Company’s on-air talent to deliver reports to its affiliates. The infrastructure and resources
dedicated to a specific market by the Company are determined by the size of the market, the number
of affiliates the Company serves in the market and the type of services being provided. The Company
believes its long-standing and continued investment in incident data and traffic gathering
infrastructure differentiates the Company from its competitors.
The Company generally does not require its affiliates to identify the Company as the supplier of
its information reports. This provides the Company’s affiliates with a high degree of customization
and flexibility, as each affiliate has the right to present the information reports provided by the
Company as if the affiliate had generated the reports with its own resources.
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As a result of its extensive network of operations and talent, the Company regularly reports
breaking and important news stories and provides its affiliates with live coverage of these
stories. The Company is able to customize and personalize its reports of breaking stories using its
individual affiliates’ call letters from the scene of news events. Past examples have included,
among others, providing live airborne coverage of the September 11 terrorist attack on the World
Trade Center and the Seattle earthquake. By using our news helicopters, the Company feeds live
video to television affiliates around the country. Moreover, by leveraging our infrastructure, the
same reporters provide live customized airborne reports for the Company’s radio affiliates via the
Company’s Metro Source service, which is described below. The Company believes that it is the only
radio network news organization that has local studio operations that cover in excess of 95 markets
and that is able to provide customized reports to these markets.
Metro Source, an information service available to subscribing affiliates, is an information system
and digital audio workstation that allows the Company’s news affiliates to receive via satellite
and view, write, edit and report the latest news, features and show preparation material. With this
product, the Company provides continuously updated and breaking news, weather, sports, business and
entertainment information to its affiliate stations which have subscribed to the service.
Information and content for Metro Source is primarily generated from the Company’s staff of news
bureau chiefs, state correspondents and professional news writers and reporters.
Local, regional and national news and information stories are fed to the Company’s national news
operations center in Phoenix, Arizona where the information is verified, edited, produced and
disseminated via satellite to the Company’s internal Metro Source workstations located in each of
its operations centers and to workstations located at affiliate radio stations nationwide. Metro
Source includes proprietary software that allows for customizing reports and editing in both audio
and text formats. The benefit to stations is that Metro Source allows them to substantially reduce
time and cost from the news gathering and editing process at the station level, while providing
greater volume and quality news and information coverage from a single source.
As part of its efforts to expand its inventory and commercial footprint, the Company entered in
2005 into a strategic sales representation agreement with the Associated Press (“AP”). The AP
agreement gives the Company the exclusive right to represent all of the AP’s :10 second news
sponsorship inventory on over 150 AP radio affiliates. The Company believes the AP agreement
provides it with an excellent opportunity to procure inventory from the AP’s nearly 4,000
affiliates.
Television Programming Services
The Company supplies Television Traffic Services (“MetroTV Services”) to over 200 television
stations. Similar to its radio programming services, the Company supplies with its MetroTV Services
customized information reports which are generally delivered on air by its reporters to its
television station affiliates. In addition, the Company supplies customized graphics and other
visual programming elements to its television station affiliates.
The Company utilizes live studio cameras in order to enable its traffic reporters to provide its
Video News Services on television from the Company’s local broadcast studios. In addition, the
Company provides its Video News Services from its aircraft and fixed-position based camera systems.
The Video News Services include: (i) live video coverage from strategically located fixed-position
camera systems; (ii) live video news feeds from the Company’s aircraft; and (iii) full-service, 24
hours per day/7 days per week video coverage from the Company’s camera crews using broadcast
quality camera equipment and news vehicles.
SmartRoute Systems
In 2000, the Company acquired the operating assets of SmartRoute (“SRS”) which develops
non-broadcast traffic information. SRS develops innovative techniques for gathering local traffic
and transportation information, as well as new methods of distributing such information to the
public. The Company believes that in order to remain competitive and to continue to provide an
information product of the highest quality to its affiliates, it is necessary to invest in and
participate in the development of new technology. The Company is currently working with several
public and private entities across the United States to improve dissemination of traffic and
transportation information. SRS revenues are not presently a significant source of revenues to the
Company.
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The Company, through SmartRoute, collects, organizes and distributes a database of advanced
traveler information to automobiles, homes and offices through various electronic media and
telecommunications. The Company delivers its information under the SRS brand name. In addition,
the Company has participated in a number of Federal and State funded Intelligent Transportation
System projects, including various operational, 511 Interactive Voice Response (“IVR”), advanced
web sites, and combined advanced traveler and transit information systems for Massachusetts,
Florida, North Carolina, Virginia, Missouri and New Jersey Departments of Transportation. SRS also
operates Traffic Management Centers for Jacksonville, Florida; Massachusetts; South East Florida;
and New Jersey Departments of Transportation.
The Company has been working with a variety of private companies to deploy commercial products and
services involving traveler information. These relationships allow for the provision of information
on a personalized basis through numerous delivery mechanisms, including the internet, paging, FM
subcarrier, traditional cellular and newly-developed and evolving wireless systems. Information can
be delivered to a wide array of devices including pagers, computers, and in-vehicle navigation and
information systems.
National Radio Programming
The Company produces and distributes 24/7 Formats, regularly scheduled and special syndicated
programs, including exclusive live concerts, music and interview shows, national music countdowns,
lifestyle short features, news broadcasts, talk programs, sporting events and sports features.
The Company controls most aspects of the production of its programs, thereby being able to tailor
its programs to respond to current and changing listening preferences. The Company produces
regularly scheduled short-form programs (typically five minutes or less), long-form programs
(typically 60 minutes or longer) and 24/7 Formats. Typically, the short-form programs are produced
at the Company’s in-house facilities located in Culver City, California, and New York, New York.
The long-form programs include shows produced primarily at the Company’s in-house production
facilities and recordings of live concert performances and sports events made on location. The
24/7 Formats are produced at the Company’s facilities in Valencia, California.
Westwood One also produces and distributes special event syndicated programs. In 2005, the Company
produced and distributed numerous special event programs, including exclusive radio broadcasts of
The Grammy Awards, the Academy of Country Music Awards, MTV Music Awards and the BET Awards, among
others.
Westwood One obtains most of the programming for its concert series by recording live concert
performances of prominent recording artists. The agreements with these artists often provide the
exclusive right to broadcast the concerts worldwide over the radio (whether live or pre-recorded)
for a specified period of time. The Company may also obtain interviews with the recording artist
and retain a copy of the recording of the concert and the interview for use in its radio programs
and as additions to its extensive tape library. The agreements provide the artist with master
recordings of their concerts and nationwide exposure on affiliated radio stations. In certain
cases, the artists may receive compensation.
Westwood One’s syndicated programs are primarily produced at its in-house production facilities.
The Company determines the content and style of a program based on the target audience it wishes to
reach. The Company assigns a producer, writer, narrator or host, interviewer and other personnel
to record and produce the programs. Because Westwood One controls the production process, it can
refine the programs’ content to respond to the needs of its affiliated stations and national
advertisers. In addition, the Company can alter program content in response to current and
anticipated audience demand.
The Company produces and distributes eight 24/7 Formats providing music programming for Simply
About Music, Mainstream Country, Hot Country, Bright Adult Contemporary, Soft Adult Contemporary,
Oldies, Adult Standards and the Adult Rock and Roll formats. Using its production facilities in
Valencia, California, the Company provides all the programming for stations affiliated with each of
these formats. Affiliates compensate the Company for these formats by providing the Company with a
portion of their commercial air time and, in most cases, cash fees.
The Company believes that its tape library is a valuable asset for its future programming and
revenue generating capabilities. The library contains previously broadcast programs, live concert
performances, interviews, daily news
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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.
Advertising Sales and Marketing
The Company packages its radio commercial airtime on a network basis, covering all affiliates in
relevant markets, either locally, regionally or nationally. This packaged airtime typically appeals
to advertisers seeking a broad demographic reach. Because the Company generally sells its
commercial airtime on a network basis rather than station-by-station, the Company does not compete
for advertising dollars with its local radio station affiliates. The Company believes that this is
a key factor in maintaining its affiliate relationships. The Company packages its television
commercial airtime on a local, regional and national network basis. The Company has developed a
separate sales force to sell its television commercial airtime and to optimize the efforts of the
Company’s national internal structure of sales representatives. The Company’s advertising sales
force is comprised of approximately 325 sales representatives and sales managers.
In most of the markets in which the Traffic and Information Division conducts operations, the
Company maintains an advertising sales office as part of its operations center. The Company’s
advertising sales force is able to sell available commercial airtime in any and all of the
Company’s markets in addition to selling such airtime in each local market, which the Company
believes affords its sales representatives an advantage over certain of its competitors. For
example, an airline advertiser can purchase sponsorship advertising packages in multiple markets
from the Company’s local sales representative in the city in which the airline is headquartered.
The Company’s typical radio advertisement for traffic and information programming consists of an
opening announcement and a ten-second commercial message presented immediately prior to, in the
middle of, or immediately following a regularly scheduled information report. Because the Company
has numerous radio station affiliates in each of its markets (averaging approximately 25 affiliates
per market in our top 50 markets), the Company believes that its traffic and information broadcasts
reach more people, more often, in a higher impact manner than can be achieved using any other
advertising medium. The Company combines its commercial airtime into multiple “sponsorship”
packages which it then sells as an information sponsorship package to advertisers throughout its
networks on a local, regional or national basis, primarily during morning and afternoon drive
periods. The Company generally does not allow an advertiser to select individual stations from its
networks on which to run its advertising campaign.
The Company believes that the positioning of advertisements within or adjacent to its information
reports appeals to advertisers because the advertisers’ messages are broadcast along with regularly
scheduled programming during peak morning and afternoon drive times when a majority of the radio
audience is listening. Radio advertisements broadcast during these times typically generate premium
rates. Moreover, surveys commissioned by the Company demonstrate that because the Company’s
customized information reports are related to topics of significant interest to listeners,
listeners often seek out the Company’s information reports. Since advertisers’ messages are
embedded in the Company’s information reports, such messages have a high degree of impact on
listeners and generally will not be “pre-empted” (i.e., moved by the radio station to another time
slot). Most of the Company’s advertisements are read live by the Company’s on-air talent,
providing the Company’s advertisers with the added benefit of an implied endorsement for their
product.
Westwood One’s Network Division provides national advertisers with a cost-effective way to
communicate their commercial messages to large listening audiences nationwide through purchases of
commercial airtime in its national radio networks and programs. An advertiser can obtain both
frequency (number of exposures to the target audience) and reach (size of listening audience) by
purchasing advertising time from the Company. By purchasing time in networks or programs directed
to different formats, advertisers can be assured of obtaining high market penetration and
visibility as their commercial messages will be broadcast on several stations in the same market at
the same time. The Company, on occasion, supports its national sponsors with promotional
announcements and advertisements in trade and consumer publications. This support promotes the
upcoming broadcasts of Company programs and is designed to increase the advertisers’ target
listening audience.
Generally, the Company provides its MetroTV Services to television stations in exchange for
thirty-second commercial airtime that the Company packages and sells on a national basis. The
amount and placement of the
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commercial airtime that the Company receives from television stations
varies by market and the type of service provided by the Company. As the Company has provided
enhanced television video services, it has been able to acquire more valuable commercial airtime.
The Company believes that it offers advertisers significant benefits because, unlike traditional
television networks, the Company often delivers more than one station in major markets and
advertisers may select specific markets.
The Company has established a morning TV news network for its advertisers’ commercials to air
during local news programming and local news breaks from 5:30 a.m. to 9:00 a.m. Because the
Company has affiliated a large number of network television stations in major markets, its morning
news network delivers a significant national household rating in an efficient and compelling local
news environment. As the Company continues to expand its service offerings for local television
affiliates, it plans to create additional news networks to leverage its television news gathering
infrastructure.
Competition
In the MSA markets in which it operates, the Company competes for advertising revenue with local
print and other forms of communications media, including magazines, outdoor advertising, network
radio and network television advertising, transit advertising, direct response advertising, yellow
page directories, internet/new media and point-of-sale advertising. Although the Company is
significantly larger than the next largest provider of traffic and local information services,
there are several multi-market operations providing local radio and television programming services
in various markets. In addition, the consolidation of the radio industry has created opportunities
for large radio groups, such as Clear Channel Communications, to gather information on their own.
In marketing its programs to national advertisers, the Company directly competes with other radio
networks as well as with independent radio syndication producers and distributors. More recently,
as a result of consolidation in the radio industry, companies owning large groups of stations have
begun to create competing networks that have resulted in additional competition for network radio
advertising expenditures. In addition, the Company competes for advertising revenue with network
television, cable television, print and other forms of communications media. The Company believes
that the quality of its programming and the strength of its station relations and advertising sales
forces enable it to compete effectively with other forms of communication media. Westwood One
markets its programs to radio stations, including affiliates of other radio networks that it
believes will have the largest and most desirable listening audience for each of its programs. The
Company often has different programs airing on a number of stations in the same geographic market
at the same time. The Company believes that in comparison with any other independent radio
syndication producer and distributor or radio network it has a more diversified selection of
programming from which national advertisers and radio stations may choose. In addition, the
Company both produces and distributes programs, thereby enabling it to respond more effectively to
the demands of advertisers and radio stations.
The increase in the number of program formats has led to increased competition among local radio
stations for audience. As stations attempt to differentiate themselves in an increasingly
competitive environment, their demand for quality programming available from outside programming
sources increases. This demand has been intensified by high operating and production costs at
local radio stations and increased competition for local advertising revenue.
Government Regulation
Radio broadcasting and station ownership are regulated by the Federal Communications Commission
(the “FCC”). Westwood One, as a producer and distributor of radio programs and information
services, is generally not subject to regulation by the FCC. The Traffic and Information Division
utilizes FCC regulated two-way radio frequencies pursuant to licenses issued by the FCC.
Employees
On December 31, 2005, Westwood One had approximately 2,400 employees, including an advertising
sales force of approximately 325 people and 660 part-time employees. In addition, the Company
maintains continuing relationships with numerous independent writers, program hosts, technical
personnel and producers. Approximately
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660 of the Company’s employees are covered by collective
bargaining agreements. The Company believes relations with its employees, unions and independent
contractors are satisfactory.
Available Information
The Company is a Delaware corporation, having re-incorporated in Delaware on June 21, 1985. Our
current and periodic reports filed with the Securities and Exchange Commission (“SEC”), including
amendments to those reports, may be obtained through our internet website at
www.westwoodone.com or from the SEC’s website at www.sec.gov free of charge as soon
as reasonably practicable after we file these reports with the SEC.
Cautionary Statement regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements made by or on the behalf of the Company. Forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These statements are based
on management’s views and assumptions at the time the statements are made, however no
assurances can be given that management’s expectations will come to pass. The forward-looking
statements included in this document, including those related to our revenues, operating costs,
general and administrative expenses, interest expense and capital expenditure trend for 2006, are
only made as of the date of this document and the Company does not have any obligation to publicly
update any forward-looking statement to reflect subsequent events or circumstances.
Item 1A. Risk Factors
A wide range of factors could materially affect future developments and performance including
the following:
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Westwood One is managed by CBS Radio under a Management Agreement, which expires on
March 31, 2009. While Westwood One provides programming to all major radio station groups,
the Company has affiliation agreements with most of CBS Radio’s owned and operated radio
stations, which in the aggregate, provide the Company with a significant portion of the
audience that it sells to advertisers. Accordingly, the Company’s operating performance
could be materially adversely impacted by its inability to continue to renew its affiliate
agreements with CBS Radio stations. |
| |
| |
• |
|
The Company competes in a highly competitive business. Its radio programming competes
for audiences and advertising revenues directly with radio and television stations and
other syndicated programming, as well as with such other media as newspapers, magazines,
cable television, outdoor advertising and direct mail. Audience ratings and performance
based revenue arrangements are subject to change and any adverse change in a particular
geographic area could have a material and adverse effect on the Company’s ability to
attract not only advertisers in that region, but national advertisers as well. Future
operations are further subject to many factors which could have an adverse effect upon the
Company’s financial performance. These factors include: |
| |
|
|
– economic conditions, both generally and relative to the broadcasting industry; |
| |
|
|
– advertiser spending patterns, including the notion that orders are being placed
in close proximity to air, limiting visibility of
demand; |
| |
|
|
– the level of competition for advertising dollars; |
| |
|
|
– technological changes and innovations; |
| |
|
|
– fluctuations in programming costs; |
| |
|
|
– shifts in population and other demographics; |
| |
|
|
– changes in labor conditions; and |
| |
|
|
– changes in governmental regulations and policies and actions of federal and
state regulatory bodies. |
-8-
Although the Company believes that its radio programming will be able to compete effectively
and will continue to attract audiences and advertisers, there can be no assurance that the Company
will be able to maintain or increase the current audience ratings and advertising revenues.
| |
• |
|
The radio broadcasting industry has experienced a significant amount of consolidation in
recent years. As a result, certain major station groups, including CBS Radio and Clear
Channel Communications, have emerged as powerful forces in the industry. Given the size
and financial resources of these station groups, they may be able to develop their own
programming as a substitute to that offered by the Company or, alternatively, they could
seek to obtain programming from the Company’s competitors. Any such occurrences, or merely
the threat of such occurrences, could adversely affect the Company’s ability to negotiate
favorable terms with its station affiliates, to attract audiences and to attract
advertisers. In addition, a major station group has recently announced plans to reduce
overall amounts of commercial inventory broadcast on their radio stations. To the extent
similar initiatives are adopted by other major station groups, this could adversely impact
the amount of commercial inventory made available to the Company or increase the cost of
such commercial inventory at the time of renewal of existing affiliate agreements. |
| |
| |
• |
|
Changes in U.S. financial and equity markets, including market disruptions and
significant interest rate fluctuations, could impede the Company’s access to, or increase
the cost of, external financing for its operations and investments. |
| |
| |
• |
|
The Company believes relations with its employees and independent contractors are
satisfactory. However, the Company may be adversely affected by future labor disputes,
which may lead to increased costs or disruption of operations in any of the Company s
business units. |
This list of factors that may affect future performance and the accuracy of forward-looking
statements are illustrative, but by no means all-inclusive or exhaustive. Accordingly, all
forward-looking statements should be evaluated with the understanding of their inherent
uncertainty.
Item 1B. Unresolved Staff Comments
This item is not applicable.
Item 2. Properties
The Company owns a 14,000 square-foot building in Culver City, California which contains
administrative, and sales and marketing, as well as its two traffic and news reporting divisions,
Metro Networks and Shadow Broadcast Services. The Company also owns a 7,900 square-foot building
adjacent to its administrative and sales and marketing offices in Culver City, California. In
addition, the Company leases operation centers/broadcast studios and marketing and administrative
offices across the United States consisting of over 365,000 square feet in the aggregate, pursuant
to the terms of various lease agreements.
The Company believes that its facilities are adequate for its current level of operations.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-9-
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
On February 1, 2006, there were approximately 194 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 2006 shareholders’ meeting, the Company
estimates that the total number of beneficial holders of the Company’s Common Stock exceeds 5,000.
Since December 15, 1998, the Company’s Common Stock has been traded on the New York Stock Exchange
(“NYSE”) under the symbol “WON”. The following table sets forth the range of high and low last
sales prices on the NYSE for the Common Stock for the calendar quarters indicated.
| |
|
|
|
|
|
|
|
|
| |
|
High |
|
Low |
2005 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
26.65 |
|
|
$ |
19.96 |
|
Second Quarter |
|
|
20.75 |
|
|
|
18.30 |
|
Third Quarter |
|
|
20.93 |
|
|
|
19.06 |
|
Fourth Quarter |
|
|
19.84 |
|
|
|
16.02 |
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
34.66 |
|
|
$ |
27.82 |
|
Second Quarter |
|
|
32.40 |
|
|
|
22.76 |
|
Third Quarter |
|
|
24.36 |
|
|
|
19.21 |
|
Fourth Quarter |
|
|
26.95 |
|
|
|
20.12 |
|
The last sales price for the Company’s Common Stock on the NYSE on February 15, 2006 was $13.86.
On April 29, 2005, August 3, 2005 and November 2, 2005, the Company’s Board of Directors declared
cash dividends of $0.10 per share for every issued and outstanding share of Common Stock and $0.08
per share for every issued and outstanding share of Class B stock. No cash dividend was paid on
the Company’s stock during 2004, and the payment of dividends is restricted by the terms of its
loan agreements, to the extent that such a payment would cause an event of default. The Company
expects to continue to use its cash flows and available bank borrowings to pay quarterly dividends;
however, the payment of future dividends, including the establishment of record and payment dates,
is subject to the final determination by the Company’s Board of Directors.
There is no established public trading market for our Class B Stock. However, the Class B Stock is
convertible to Common Stock on a share-for-share basis. On February 1, 2006, there were 3 holders
of record of the Company’s Class B Stock.
Equity Compensation Plan Information
The following table contains information regarding the Company’s equity compensation plans as well
as regarding warrants issued to CBS Radio under the Management Agreement as of December 31, 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of securities to be |
|
|
Weighted average exercise |
|
|
|
|
| |
|
issued upon exercise of |
|
|
price of outstanding |
|
|
Number of securities |
|
| |
|
outstanding options, |
|
|
options, warrants and |
|
|
remaining available for |
|
| Plan Category |
|
warrants and rights |
|
|
rights |
|
|
future issuance |
|
Equity compensation plans
approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Options (1) |
|
|
7,787,589 |
|
|
$ |
25.07 |
|
|
|
9,674,070 |
|
Warrants (2) |
|
|
4,000,000 |
|
|
|
50.77 |
|
|
|
N/A |
|
Restricted Stock Units |
|
|
100,683 |
|
|
|
N/A |
|
|
|
N/A |
|
Equity compensation plans not
approved by security holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
11,888,272 |
|
|
|
|
|
|
|
9,674,070 |
|
|
|
|
|
|
|
|
|
|
|
|
-10-
|
|
|
| (1) |
|
Options included herein were granted or are available for grant as part of the Company’s 1989
and/or 1999 stock option plans that were approved by shareholders of the Company. The
Compensation Committee of the Board of Directors approves periodic option grants to executive
officers and other employees based on their contributions to the operations of the Company.
Also, on May 19, 2005, the stockholders of the Company approved the Company’s 2005 Equity
Compensation Plan (the “2005 Plan”) at the Company’s annual meeting of stockholders. Among
other things, the 2005 Plan provides for the granting of restricted stock units (“RSUs”) of
the Company. A maximum of 9,200,000 shares of common stock of the Company is authorized for
the issuance of awards under the 2005 Plan. Pursuant to the 2005 Plan, beginning on May 19,
2005, the date of the Company’s 2005 annual meeting of stockholders, outside directors
automatically receive a grant of RSUs equal to $100 in value on the date of each Company
annual meeting of stockholders. Any newly appointed outside director will receive an initial
grant of RSUs equal to $150 in value on the date such director is appointed to the Company’s
Board. Recipients of RSUs are entitled to receive dividend equivalents on the RSUs (subject
to vesting) when and if the Company pays a cash dividend on its Common Stock. RSUs awarded to
outside directors vest over a three-year period in equal one-third increments on the first,
second and third anniversary of the date of the grant, subject to the director’s continued
service with the Company. Directors’ RSUs vest automatically, in full, upon a change in
control or upon their retirement, as defined in the 2005 Plan. RSUs are payable to outside
directors in shares of the Company’s Common Stock. For a more complete description of the
provisions of the 2005 Plan, refer to the Company’s proxy statement in which the 2005 Plan and
a summary thereof are included as exhibits, filed with the SEC on April 29, 2005. |
| |
| (2) |
|
Warrants included herein were granted to CBS Radio in conjunction with the Management
Agreement, and were approved by shareholders of the Company on May 29, 2002. Of the seven
warrants issued, two warrants to purchase an aggregate of 2,000,000 shares of Common Stock
each have an exercise price of $43.11 and $48.36, respectively, and become exercisable: (A) if
the average price of the Company’s Common Stock reaches a price of $64.67 and $77.38,
respectively, for at least 20 out of 30 consecutive trading days for any period throughout the
ten year term of the warrants or (B) upon the termination of the Management Agreement by the
Company in certain circumstances as described in the terms of such warrants. Of the remaining
five warrants to purchase an aggregate of 2,500,000 shares of Common Stock, the exercise
price for each of the five warrants is equal to $38.87, $44.70, $51.40, $59.11, and $67.98,
respectively. The five warrants have a term of 10 years (only if they become exercisable) and
become exercisable on January 2, 2005, 2006, 2007, 2008, and 2009, respectively. However, in
order for the warrants to become exercisable, the average price of the Company’s Common Stock
for each of the 15 trading days prior to January 2 of such year (commencing on January 2, 2005
with respect to the first 500,000 warrant tranche and each January 2 thereafter for each of
the remaining four warrants) must be at least equal to both the exercise price of the warrant
and 120% of the corresponding prior year 15 day trading average. In the case of the $38.87
warrants, the Company’s average stock price for the 15 trading days prior to January 2, 2005
must equal or exceed $40.66 for the warrants to become exercisable. The average stock price
for the 15 trading days prior to January 2, 2005 did not equal or exceed $40.66, and
therefore, the warrants did not become exercisable. In the case of the $44.70 warrants, the
company’s average stock price for the 15 trading days prior to January 2, 2006 did not exceed
$31.37, and therefore the warrants did not become exercisable. |
-11-
Issuer Purchases of Equity Securities
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar |
| |
|
|
|
|
|
|
|
|
|
Total Number of |
|
Value of Shares that |
| |
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
May Yet Be Purchased |
| |
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
Under the Plans or |
| |
|
Number of Shares |
|
Average Price Paid |
|
Announced Plans or |
|
Programs |
| Period |
|
Purchased in Period |
|
Per Share |
|
Programs |
|
(A) |
10/1/05 – 10/31/05
|
|
|
250,000 |
|
|
$ |
18.67 |
|
|
|
18,563,524 |
|
|
$ |
329,925,000 |
|
11/1/05 – 11/30/05
|
|
|
322,000 |
|
|
|
17.90 |
|
|
|
18,885,824 |
|
|
|
324,155,000 |
|
12/1/05 – 12/31/05
|
|
|
1,366,000 |
|
|
|
16.56 |
|
|
|
20,251,424 |
|
|
|
301,534,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,938,000 |
|
|
$ |
17.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (A) |
|
Represents remaining authorization from the additional $250,000 repurchase
authorization approved on February 24, 2004 and the additional $300,000 authorization
approved on April 29, 2005. The Company’s existing stock purchase program was publicly
announced on September 23, 1999. |
Item 6. Selected Financial Data
(In thousands except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 (1) |
|
2004 (1) |
|
2003(1) |
|
2002 (1) |
|
2001 |
OPERATING RESULTS FOR YEAR ENDED
DECEMBER 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
$ |
557,830 |
|
|
$ |
562,246 |
|
|
$ |
539,226 |
|
|
$ |
550,751 |
|
|
$ |
515,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and Corporate Costs, Excluding
Depreciation and Amortization |
|
|
381,740 |
|
|
|
378,240 |
|
|
|
357,688 |
|
|
|
360,390 |
|
|
|
349,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
|
20,826 |
|
|
|
18,429 |
|
|
|
11,513 |
|
|
|
11,464 |
|
|
|
67,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
155,264 |
|
|
|
165,577 |
|
|
|
170,025 |
|
|
|
178,897 |
|
|
|
98,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
84,683 |
|
|
$ |
95,490 |
|
|
$ |
100,039 |
|
|
$ |
109,115 |
|
|
$ |
43,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Per Basic Share |
|
$ |
.93 |
|
|
$ |
.98 |
|
|
$ |
.99 |
|
|
$ |
1.03 |
|
|
$ |
.40 |
|
Income Per Diluted Share |
|
$ |
.93 |
|
|
$ |
.97 |
|
|
$ |
.97 |
|
|
$ |
1.00 |
|
|
$ |
.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA AT DECEMBER 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
$ |
172,245 |
|
|
$ |
174,346 |
|
|
$ |
165,495 |
|
|
$ |
153,628 |
|
|
$ |
140,527 |
|
Working Capital |
|
|
72,094 |
|
|
|
93,005 |
|
|
|
81,433 |
|
|
|
63,542 |
|
|
|
35,012 |
|
Total Assets |
|
|
1,230,877 |
|
|
|
1,246,279 |
|
|
|
1,262,034 |
|
|
|
1,266,312 |
|
|
|
1,210,017 |
|
Long-Term Debt |
|
|
427,514 |
|
|
|
359,439 |
|
|
|
300,366 |
|
|
|
232,135 |
|
|
|
152,000 |
|
Total Shareholders’ Equity |
|
|
684,641 |
|
|
|
784,493 |
|
|
|
835,950 |
|
|
|
903,040 |
|
|
|
915,371 |
|
|
|
|
| (1) |
|
Results for the years ended December 31, 2005, 2004, 2003 and 2002 include the effects of
adopting Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible
Assets” (“SFAS 142”). Retroactive application prior to January 1, 2002 was prohibited. |
| |
| — |
|
No cash dividend was paid on the Company’s Common Stock during the periods 2002 to 2004. In
2005, the Company’s board of directors declared cash dividends of $0.10 per share for every
issued and outstanding share of Common Stock and $0.08 per share for every issued and
outstanding share of Class B stock on each of April 29, 2005, August 3, 2005 and November 2,
2005. |
-12-
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
(in thousands except for share and per share amounts)
EXECUTIVE OVERVIEW
Westwood One supplies radio and television stations with content, information services, and
programming. The Company is the largest domestic outsource provider of traffic reporting services
and the nation’s largest radio network, producing and distributing national news, sports, talk,
music and special event programs, in addition to local news, sports, weather, video news and other
information programming. The commercial airtime that we sell to our advertisers is acquired from
radio and television affiliates in exchange for our programming, content, information, and in
certain circumstances, cash compensation.
The radio broadcasting industry has experienced a significant amount of consolidation in recent
years. As a result, certain major radio station groups, including CBS Radio and Clear Channel
Communications, have emerged as powerful forces in the industry. Westwood One is managed by CBS
Radio under a Management Agreement, which expires on March 31, 2009. While Westwood One provides
programming to all major radio station groups, the Company has affiliation agreements with most of
CBS Radio’s owned and operated radio stations, which in the aggregate, provide the Company with a
significant portion of the audience that it sells to advertisers. Accordingly, the Company’s
operating performance could be materially adversely impacted by its inability to continue to renew
its affiliate agreements with CBS Radio stations.
The Company derives substantially all of its revenues from the sale of :10 second, :30 second and
:60 second commercial airtime to advertisers. Our advertisers who target local/regional audiences
generally find the most effective method is to purchase shorter duration :10 second advertisements,
which are principally correlated to traffic and information related programming and content. Our
advertisers who target national audiences generally find the most cost effective method is to
purchase longer :30 or :60 second advertisements, which are principally correlated to news, talk,
sports and music and entertainment related programming and content. A growing number of
advertisers purchase both local/regional and national airtime. Generally, the greater amount of
programming we provide our affiliates the greater amount of commercial airtime becomes available
for the Company to sell. Additionally, over an extended period of time an increase in the
listening audience results in our ability to generate more revenues. Our goal is to maximize the
yield of our available commercial airtime to optimize revenues.
In managing our business, we develop programming and exploit the commercial airtime by concurrently
taking into consideration the demands of our advertisers on both a market specific and national
basis, the demands of the owners and management of our radio station affiliates, and the demands of
our programming partners and talent. Our continued success and prospects for growth are dependent
upon our ability to manage the aforementioned factors in a cost effective manner. Our results may
also be impacted by overall economic conditions, trends in demand for radio related advertising,
competition, and risks inherent in our customer base, including customer attrition and our ability
to generate new business opportunities to offset any attrition.
There are a variety of factors that influence the Company’s revenues on a periodic basis including
but not limited to: (i) economic conditions and the relative strength or weakness in the United
States economy; (ii) advertiser spending patterns and the timing of the broadcasting of our
programming, principally the seasonal nature of sports programming; (iii) advertiser demand on a
local/regional or national basis for radio related advertising products; (iv) increases or
decreases in our portfolio of program offerings and related audiences, including changes in the
demographic composition of our audience base; and (v) competitive and alternative programs and
advertising mediums.
Our ability to specifically isolate the relative historical aggregate impact of price and volume is
not practical as commercial airtime is sold and managed on an order-by-order basis. It should be
noted, however, that the Company closely monitors advertiser commitments for the current calendar
year, with particular emphasis placed on a prospective three month period. Factors impacting the
pricing of commercial airtime include, but are not limited to: (i) the dollar value, length and
breadth of the order; (ii) the desired reach and audience demographic; (iii) the quantity of
commercial airtime available for the desired demographic requested by the advertiser for sale at
the time their order is negotiated; and (iv) the proximity of the date of the order placement to
the desired broadcast date of the
-13-
commercial airtime. Our commercial airtime is perishable, and
accordingly, our revenues are significantly impacted by the commercial airtime available at the
time we enter into an arrangement with an advertiser.
The principal critical components of our operating expenses are programming, production and
distribution costs (including affiliate compensation and broadcast rights fees), selling expenses
(including bad debt expenses, commissions and promotional expenses), depreciation and amortization,
and corporate, general and administrative expenses. Corporate general and administrative expenses
are primarily comprised of costs associated with the Management Agreement, personnel costs and
other administrative expenses, including those associated with corporate governance matters.
We consider the Company’s operating cost structure to be predominantly fixed in nature, and as a
result, the Company needs at least several months lead-time to make modifications to its cost
structure to react to what it believes are more than temporary increases or decreases in advertiser
demand. This factor is important in predicting the Company’s performance in periods when
advertiser revenues are increasing or decreasing. In periods where advertiser revenues are
increasing, the fixed nature of a substantial portion of our costs means that operating income will
grow faster than the related growth in revenue. Conversely, in a period of declining revenues,
operating income will decrease by a greater percentage than the decline in revenue because of the
lead-time needed to reduce the Company’s operating cost structure. Furthermore, if the Company
perceives a decline in revenue to be temporary, it may choose not to reduce its fixed costs, or may
even increase its fixed costs, so as to not limit its future growth potential when the advertising
marketplace rebounds. The Company carefully considers matters such as credit and inventory risks,
among others, in assessing arrangements with its programming and distribution partners. In those
circumstances wherein the Company functions as the principal in the transaction, the revenues and
associated operating costs are presented on a gross basis in the consolidated statement of
operations. In those circumstances wherein the Company functions as an agent or sales
representative, the Company’s effective commission is presented within Revenues with no
corresponding operating expenses. Although no individual relationship is significant, the relative
mix of such arrangements should be considered when elevating operating margin and/or increases and
decreases in operating expenses.
Revenues
Revenues presented by type of commercial advertisements are as follows for the years ending
December 31:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
|
$ |
|
|
% of Total |
|
|
$ |
|
|
% of Total |
|
|
$ |
|
|
% of Total |
|
Local/Regional |
|
$ |
300,560 |
|
|
|
54 |
% |
|
$ |
299,307 |
|
|
|
53 |
% |
|
$ |
283,687 |
|
|
|
53 |
% |
National |
|
|
257,270 |
|
|
|
46 |
% |
|
|
262,939 |
|
|
|
47 |
% |
|
|
255,539 |
|
|
|
47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1) |
|
$ |
557,830 |
|
|
|
100 |
% |
|
$ |
562,246 |
|
|
|
100 |
% |
|
$ |
539,226 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
As described above, the Company currently aggregates revenue data based on the type of
commercial airtime sold. A number of advertisers purchase both local/regional and national
commercial airtime. Accordingly, this factor should be considered in evaluating the
relative revenues generated on a local/regional versus national basis. Our objective is to
optimize total revenues from those advertisers. |
Fiscal Year 2005 as compared to Fiscal Year 2004
Revenues for the year ended December 31, 2005 decreased $4,416, or 0.8%, compared with the year
ended December 31, 2004. During the year ended December 31, 2005, revenues aggregated from the
sale of local/regional airtime increased approximately 0.4%, or approximately $1,253, while
national-based revenues decreased approximately 2.2%, or $5,669.
The increase in local/regional revenues was facilitated by a combination of an increase in the
quantity of commercial airtime available for sale, improved inventory utilization and management
and the increased demand for information services and data by terrestrial and non-terrestrial
users. Further, the increase in demand for our local/regional commercial airtime was greatest in
the Western region. Revenues primarily increased in the Auto Dealers and Manufacturers, Business
Services, Quick Service Restaurant, Internet, Utilities and Energy categories.
-14-
The decline in our aggregated national-based revenues was primarily a result of an estimated $6,000
of non-comparable revenues associated with the Company’s exclusive 2004 Summer Olympics radio
broadcast and a decrease in news programming offset by increases in the music, talk and sports
programming categories.
Fiscal Year 2004 as compared to Fiscal Year 2003
Revenues for the year ended December 31, 2004 increased $23,020, or 4.3%, compared with the year
ended December 31, 2003. The increase in revenues is attributable to an increase in demand for the
Company’s local/regional commercial airtime, coupled with non-comparable revenues associated with
the Company’s exclusive 2004 Summer Olympic broadcast. During the year ended December 31, 2004,
revenues aggregated from the sale of local/regional airtime increased approximately 5.5%, or
approximately $15,620, while national-based revenues increased approximately 2.9%, or $7,400.
The increase in local/regional revenues was facilitated by a combination of an overall increase in
demand for our :10 second commercial airtime, an increase in the quantity of commercial airtime
available for sale, improved inventory utilization and management resulting from a centralization
of sales management functions, and the increased demand for information services and data by
terrestrial and non-terrestrial users. Further, the increase in demand for our local/regional
commercial airtime was greatest in the Western and Mid-Western regions.
In 2004, the increase in our aggregated national-based revenues was primarily in the news and
sports programming categories as a result of an estimated $6,000 of revenue associated with the
Company’s exclusive 2004 Summer Olympics radio broadcast and a better radio advertising climate.
Operating Costs
Operating costs for the years ended December 31,:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
|
$ |
|
|
% of total |
|
|
$ |
|
|
% of total |
|
|
$ |
|
|
% of total |
|
Programming, production
and distribution
expenses |
|
$ |
279,364 |
|
|
|
75 |
% |
|
$ |
278,232 |
|
|
|
75 |
% |
|
$ |
261,754 |
|
|
|
75 |
% |
Selling expenses |
|
|
52,089 |
|
|
|
14 |
% |
|
|
53,246 |
|
|
|
15 |
% |
|
|
53,264 |
|
|
|
15 |
% |
Other operating expenses |
|
|
40,824 |
|
|
|
11 |
% |
|
|
38,156 |
|
|
|
10 |
% |
|
|
35,564 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
372,277 |
|
|
|
100 |
% |
|
$ |
369,634 |
|
|
|
100 |
% |
|
$ |
350,582 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2005 as compared to Fiscal Year 2004
Operating costs increased $2,643, or 0.7%, to $372,277 from $369,634 in 2004. The increase was
principally attributable to increases in programming, production and distribution expenses
resulting from increased costs in connection with the development of new and expanded program
offerings, new and expanded traffic and information markets and higher broadcast rights fees
resulting from increases in existing and new program commitments. These increases were offset by
reduced distribution expenses and the non-comparable costs in 2004 associated with our exclusive
broadcast of the 2004 Summer Olympic games. Operating costs also increased due to an increase of
7% in other operating expenses, primarily labor, but also including facilities and other fees,
offset by a decrease in selling expenses, primarily as a result of decreases in promotional and
travel and entertainment expenses, but also because of slightly reduced selling related labor costs
correlated with a decline in revenue.
Fiscal Year 2004 as compared to Fiscal Year 2003
Operating costs increased 5.4% to $369,634 in 2004 from $350,582 in 2003. The increase in 2004 was
principally attributable to an estimated $6,000 of costs associated with our exclusive broadcast of
the 2004 Summer Olympic games, increases in programming, production and distribution expenses
resulting from the investment in national audiences as a result of adding station affiliations,
expanding into approximately four new traffic and information markets, the development of new
program offerings and normal recurring contractual rate increases with respect to
-15-
existing
programming. In addition, during the year ended December 31, 2003 the Company received proceeds of
$3,200 from an insurance settlement related to claims attributable to the September 11, 2001
terrorist attacks which offset reported operating expenses for the year ended December 31, 2003.
Depreciation and Amortization
Depreciation and amortization increased 13.0% to $20,826 in 2005 from $18,429 in 2004, and
increased 60.1% to $18,429 in 2004 from $11,513 in 2003. The increase in 2005 was principally
attributable to the amortization of warrants issued to CBS Radio as part of the extension of the
Management Agreement which was effective in the second quarter of 2004, over four quarters in 2005
as compared to three quarters in 2004. The increase in 2004 was principally attributable to higher
amortization resulting from an increase in the fair market value of the warrants issued to CBS
Radio as part of the extension of the Management Agreement which was effective in the second
quarter of 2004.
Corporate General and Administrative Expenses
Corporate general and administrative expenses increased 10% to $9,463 in 2005 from $8,606 in 2004,
and increased 21.1% in 2004 from $7,106 in 2003. The 2005 increase was principally attributable to
higher expenses associated with our corporate governance, business development and certain
compliance initiatives. The 2004 increase was principally attributable to higher expenses
associated with our corporate governance activities, including fees incurred for professional
services and increased severance amounts.
Operating Income
Operating income decreased 6.2% to $155,264 in 2005 from $165,577 in 2004, and decreased 2.6% in
2004 from $170,025 in 2003. The 2005 decrease was principally attributable to the decline in net
revenues and higher operating and depreciation and amortization costs. The 2004 decrease was
principally attributable to higher depreciation and amortization expense and operating costs
partially offset by increased net revenues.
Interest Expense
Interest expense was $18,315, $11,911 and $10,132 in 2005, 2004 and 2003, respectively. The 2005
increase was attributable to higher outstanding borrowings under our credit facilities and higher
average interest rates The 2004 increase was attributable to higher outstanding debt and the
accelerated amortization of previously capitalized deferred debt issuance costs in connection with
the refinancing of our bank credit facility. Our average effective interest rate for 2005, 2004
and 2003 was 4.29% 3.1% and 3.1%, respectively. The increase in the 2005 and 2004 debt levels
result from share repurchases pursuant to the Company’s stock repurchase program, as well as
dividend payments made quarterly throughout 2005, which are further described below.
Other (Income) Expense
Other income was $1,440 in 2005 as compared to $948 in 2004. In the fourth quarter of 2005, the
Company sold a building in Culver City, California and consolidated the operations of that facility
into another Company owned property. The pre-tax gain recognized on the sale of the property was
$1,022.
The Company previously owned 450,000 shares of common stock in SportsLine.com, Inc. (“SportsLine,”
previously known as SportsLine USA, Inc.). In December of 2004, SportsLine was acquired by Viacom
Inc. (“Viacom”) and the terms of the acquisition provided that all public shareholders of
SportsLine were entitled to receive cash upon closing of the transaction. For the period ending
December 31, 2004, the Company recognized a net gain of $787,500 in Other income, as a result of
the sale of its interest in SportsLine.
Provision for income taxes
The income tax provisions for 2005, 2004 and 2003 are based on annual effective tax rates of 38.8%,
38.2% and 37.5%, respectively, resulting in income tax expense of $53,706, $59,124 and $59,906 in
2005, 2004 and 2003, respectively. The Company’s effective income tax rate in 2005 was higher
than in 2004 principally as a result of
-16-
higher state taxes resulting from recent tax developments
in the states in which we operate. The Company’s effective rate increased in 2004 from 2003 as a
result of similar state changes. For the years ended December 31, 2005, 2004 and 2003, a portion
of the Company’s current income tax expense is not paid in cash as a result of tax deductions
related to stock option exercises and warrant purchases of $1,327, $18,182 and $3,911
respectively, which are credited directly to Additional Paid in Capital.
Net income
Net income in 2005 decreased 11.3% to $84,683 ($0.93 per basic share and $0.93 per diluted share)
from $95,490 ($0.98 per basic share and $0.97 per diluted share) in 2004 and decreased 4.5% in 2004
from $100,039 ($0.99 per basic share and $0.97 per diluted share) in 2003.
Earnings per share
Weighted averages shares outstanding for purposes of computing basic earnings per share were
91,006,000, 97,177,000 and 101,243,000 in 2005, 2004 and 2003, respectively. The decreases in each
of the previous two periods were primarily attributable to Common Stock repurchases under the
Company’s stock repurchase program partially offset by additional share issuances as a result of
stock option exercises. Weighted average shares outstanding for purposes of computing diluted
earnings per share were 91,488,000, 98,454,000 and 103,625,000 in 2005, 2004 and 2003,
respectively. The changes in weighted average diluted shares are due principally to the decrease
in basic shares and the effect of the decrease in the Company’s share price, partially offset by
the effect of stock option and restricted stock unit grants.
Liquidity and Capital Resources
The Company continually projects anticipated cash requirements, which include share repurchases,
dividends, potential acquisitions, capital expenditures, and principal and interest payments on its
outstanding and future indebtedness. Funding requirements have been financed through cash flow
from operations and the issuance of long-term debt.
At December 31, 2005, the Company’s principal sources of liquidity were its cash and cash
equivalents of $10,399 and available borrowings under its bank facility as further described below.
The Company has and continues to expect to generate significant cash flows from operating
activities. For the years ended December 31, 2005, 2004 and 2003, net cash provided by operating
activities were $119,150, $127,974 and $107,870, respectively. For 2005, net cash from operating
activities decreased $8,824 from 2004. The decrease is primarily attributable to a decrease in net
income, and changes in working capital, including timing differences in cash taxes paid which may
or may not occur in the future. For 2004, net cash from operating activities increased $20,104
from 2003. The increase is primarily attributable to a decrease in cash taxes paid resulting from
higher tax benefits from the exercise of stock options in 2004. Upon the adoption of Statement of
Financial Accounting Standards 123R, the tax benefit from the exercise of stock options will be
classified as a financing activity.
At December 31, 2005, the Company has an unsecured five-year $120,000 term loan and a five-year
$180,000 revolving credit facility (collectively the “New Facility”), both of which mature in 2009.
The New Facility was entered into with a syndicate of banks led by JP Morgan Chase Bank and Bank
of America on March 3, 2004 when the Company refinanced its existing senior loan agreement. In
connection with the closing of the New Facility, the Company borrowed the full amount of the term
loan, the proceeds of which were used to repay the outstanding borrowing under the existing
facility. As of December 31, 2005, the Company had available borrowings of $70,000 under the New
Facility. Interest on the New Facility is payable at the prime rate plus an applicable margin of
up to .25% or LIBOR plus an applicable margin of up to 1.25%, at the Company’s option. The Company
also has issued, through a private placement, $150,000 of ten year Senior Unsecured Notes due
November 30, 2012 (interest at a fixed rate of 5.26%) and $50,000 of seven year Senior Unsecured
Notes due November 30, 2009 (interest at a fixed rate of 4.64%). In addition, the Company has
entered into fixed to floating interest rate swap agreements for 50% of the notional amount of its
two classes of Senior Unsecured Notes. The New Facility and/or Senior Unsecured Notes contain
covenants relating to dividends, liens, indebtedness, capital expenditures, and interest coverage
and leverage
-17-
ratios. None of these covenants are expected to have an impact on the Company’s
ability to operate and manage its business.
In conjunction with the Company’s objective of enhancing shareholder value, the Company’s Board of
Directors authorized a stock repurchase program in 1999. Most recently, on April 29, 2005, the
Company’s Board of Directors authorized an additional $300,000 for such stock repurchase program,
which gave the Company, as of April 29, 2005, authorization to repurchase up to $402,023 of its
Common Stock. Under its stock repurchase program, the Company purchased approximately: 8,015,000
shares of the Company’s Common Stock, at a total cost of $160,604, in 2005; 8,456,000 shares of the
Company’s Common Stock, at a total cost of $216,503, in 2004; and 5,534,000 shares of the Company’s
Common Stock and warrants, at a total cost of $180,412, in 2003. The Company expects to continue
to use its cash flow and credit facilities to repurchase its Common Stock. At the end of December
2005, the Company had authorization to repurchase up to an additional $301,534 of its Common Stock.
On April 29, 2005, the Board of Directors declared the Company’s first cash dividend of $0.10 per
share of issued and outstanding Common Stock and $0.08 per share of issued and outstanding Class B
stock. The Board declared additional dividends for all issued and outstanding common and Class B
stock on the same terms on August 3, 2005 and November 2, 2005. Dividend payments totaling $27,032
were made in 2005. On February 2, 2006, the Board of Directors declared another dividend for all
issued and outstanding common and Class B stock on the same terms.
The Company’s business does not require, and is not expected to require, significant cash outlays
for capital expenditures.
The Company is currently working with a syndication of banks to increase its credit facilities.
Subject to market conditions, the Company expects to complete this process during the first quarter
of 2006.
The Company believes that its cash, other liquid assets, operating cash flows and available bank
borrowings, taken together, provide adequate resources to fund ongoing operating requirements.
Investments
On November 9, 2005, the Company purchased a senior secured note from Canadian Traffic Network ULC
(“CTN”) for $2,000. The note, which bears interest at an annual rate of 10%, is due to the Company
upon the earlier of (i) November 9, 2008, (ii) one year following an initial public offering of CTN
or Global Traffic Network, Inc., the parent company of CTN, or (iii) such earlier date as such
amount shall become due and payable on account of accelerations in accordance with its terms. The
note is secured by certain assets of CTN. Interest payments are due quarterly, commencing December
31, 2005. This note has been included in Other Assets in the accompanying Consolidated Balance
Sheet. Concurrently, the Company and CTN entered into a cross-selling arrangement enabling the
respective entities to sell each other’s inventory locally in exchange for a commission.
On October 28, 2005, the Company became a limited partner of POP Radio, LP (“POP Radio”) pursuant
to the terms of a subscription agreement dated as of the same date. As part of the transaction,
effective January 1, 2006, the Company will serve as the exclusive sales representative of the
majority of advertising on the POP Radio network for five years, until December 31, 2010, unless
earlier terminated by the express terms of the sales representative agreement. The Company holds a
20% limited partnership interest in POP Radio. No additional capital contributions are required by
any of the limited partners.
As part of the POP Radio transaction, the Company posted a $1,400 bond with the Superior Court of
the State of Connecticut as surety for a temporary injunction issued in favor of POP Radio against
News America In-Store Marketing, Inc. (“NAMI”). If the sales representative agreement terminates,
the Company’s obligation to provide the bond shall terminate. If any amount of the bond has been
paid to NAMI at such time of termination, such amount shall be immediately due and payable by POP
Radio. If any amounts are paid under the NAMI bond during the term of the sales representative
agreement, such amounts shall be deducted from the monthly and/or quarterly payments payable by the
Company in accordance with the terms of the sales representative agreement.
-18-
Contractual Obligations and Commitments
The following table lists the Company’s future contractual obligations and commitments as of
December 31, 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Payments due by Period |
|
| Contractual Obligations |
|
Total |
|
|
<1 year |
|
|
1 - 3 years |
|
|
3 - 5 years |
|
|
>5 years |
|
Long-term Debt (1) |
|
$ |
533,033 |
|
|
$ |
22,596 |
|
|
$ |
45,192 |
|
|
$ |
299,997 |
|
|
$ |
165,248 |
|
Capital Lease Obligations |
|
|
5,440 |
|
|
|
960 |
|
|
|
1,920 |
|
|
|
1,920 |
|
|
|
640 |
|
Operating Leases |
|
|
37,556 |
|
|
|
7,267 |
|
|
|
12,342 |
|
|
|
7,910 |
|
|
|
10,037 |
|
Other Long-term Obligations |
|
|
326,301 |
|
|
|
99,132 |
|
|
|
161,912 |
|
|
|
54,657 |
|
|
|
10,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations |
|
$ |
902,330 |
|
|
$ |
129,955 |
|
|
$ |
221,366 |
|
|
$ |
364,484 |
|
|
$ |
186,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Includes the estimated net interest payments on fixed and variable rate debt and
related interest rate swaps. Estimated interest payments on floating rate instruments are
computed using the Company’s interest rate as of December 31, 2005, and borrowings
outstanding are assumed to remain at current levels. |
The Company has long-term noncancelable operating lease commitments for office space and equipment.
The Company has also entered into capital leases for satellite transponders.
Included in Other Long-term Obligations enumerated in the table above, are various contractual
agreements to pay for talent, broadcast rights, research and various related party arrangements,
including $114,653 of payments due under the Management Agreement and the Representation Agreement.
See below the section entitled “Related Parties” and Note 2 – “Related Party Transactions” to the
consolidated financial statements for further discussion.
Related Parties
CBS Radio holds a common equity position in the Company and provides ongoing management services to
the Company under the terms of the Management Agreement. In return for receiving services under
the Management Agreement, the Company compensates CBS Radio via an annual base fee and provides CBS
Radio the opportunity to earn an incentive bonus if the Company exceeds pre-determined targeted
cash flows. For the years ended December 31, 2005, 2004 and 2003, CBS Radio earned cash
compensation of $2,853, $2,959 and $2,793, respectively, however, no incentive bonus was paid to
CBS Radio in such years as targeted cash flow levels were not achieved during such periods.
In addition to the base fee and incentive compensation described above, the Company granted to CBS
Radio two fully vested and non-forfeitable warrants to purchase 4,000,000 shares of the Company’s
Common Stock in the aggregate (comprised of one warrant to purchase 2,000,000 shares at an exercise
price of $10.00 per share and another warrant to purchase 2,000,000 shares at an exercise price of
$12.50 per share) in connection with extending the term of the Management Agreement in March 1999
for an additional term of five years commencing April 1, 1999. Such warrants were only exercisable
to the extent the Company’s Common Stock reached certain market prices, which have subsequently
been achieved. In 2002, Infinity (now CBS Radio) sold its $12.50 warrant, representing 2,000,000
shares of Common Stock, to the Company for cash consideration of $51,070. In 2001, Infinity sold
its $10.00 warrant, representing 2,000,000 shares of Common Stock, to the Company for cash
consideration of $41,350. The repurchase of the CBS Radio warrants for cash consideration has been
reflected as a reduction to Additional Paid in Capital during 2002 and 2001.
On May 29, 2002, the Company’s shareholders ratified an extension of the Management Agreement for
an additional five-year term, which commenced April 1, 2004, and expires on March 31, 2009. In
return for receiving services under the Management Agreement, the Company will continue to
compensate CBS Radio via an annual base fee and an opportunity to earn an annual incentive bonus
provided certain performance objectives are met. Additionally, the Company granted to CBS Radio
seven fully vested and nonforfeitable warrants to purchase 4,500,000 shares of the Company’s Common
Stock (comprised of two warrants to purchase 1,000,000 Common shares per warrant and five warrants
to purchase 500,000 Common shares per warrant). For additional information on these warrants see
Note 2 – “Related Party Transactions” to our consolidated financial statements.
-19-
In addition to the Management Agreement described above, the Company also enters into other
transactions with CBS Radio and affiliates of CBS Radio, including Viacom, in the normal course of
business. Such arrangements include a representation agreement (including a related news
programming agreement, a license agreement and a technical services agreement with an affiliate of
CBS Radio – collectively referred to in this report as the “Representation Agreement”) to operate
the CBS Radio Networks, affiliation agreements with many of CBS Radio’s radio stations and the
purchase of programming rights from CBS Radio and affiliates of CBS Radio. The Management
Agreement provides that all transactions, other than the Management Agreement and Representation
Agreement to operate the CBS Radio Networks which were ratified by the Company’s shareholders,
between the Company and CBS Radio or its affiliates must be on a basis that is at least as
favorable to the Company as if the transaction were entered into with an independent third party.
In addition, subject to specified exceptions, all agreements between the Company and CBS Radio or
any of its affiliates must be approved by the Company’s Board of Directors. During 2005, the
Company incurred expenses aggregating approximately $78,389 for the Representation Agreement,
affiliation agreements and the purchase of programming rights from CBS Radio and affiliates
($84,338 in 2004 and $80,659 in 2003). The description and amounts regarding related party
transactions set forth in this report, and the consolidated financial statements and related notes,
also reflect transactions between the Company and Viacom because of Viacom’s affiliation with CBS
Radio. Viacom is the former parent company of CBS Radio and, like CBS Radio, is majority-owned by
National Amusements, Inc.
Critical Accounting Policies and Estimates
Westwood One’s financial statements are prepared in accordance with accounting principles that are
generally accepted in the United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities.
Management continually evaluates its estimates and judgments including those related to allowances
for doubtful accounts, useful lives of property, plant and equipment and intangible assets, and
other contingencies. Management bases its estimates and judgments on historical experience and
other factors that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates under different assumptions or conditions. We believe that of our
significant accounting policies, the following may involve a higher degree of judgment or
complexity.
Allowances for doubtful accounts – we maintain allowances for doubtful accounts for
estimated losses which may result from the inability of our customers to make required payments.
We base our allowances on the likelihood of recoverability of accounts receivable by aging
category, based on past experience and taking into account current collection trends that are
expected to continue. If economic or specific industry trends worsen beyond our estimates, we
would be required to increase our allowances for doubtful accounts. Alternatively, if trends
improve beyond our estimates, we would be required to decrease our allowance for doubtful accounts.
Our estimates are reviewed periodically, and adjustments are reflected through bad debt expense in
the period they become known. Our bad debt expense approximated $2,035, or 0.4% of revenue, in
2005, $874, or 0.2% of revenue, in 2004, and $3,624, or 0.7% of revenue, in 2003. Changes in our
bad debt experience can materially affect our results of operations. Our allowance for bad debts
requires us to consider anticipated collection trends and requires a high degree of judgment. In
addition, as fully described herein, our results in any reporting period could be impacted by
relatively few significant bad debts.
Estimated useful lives of property, plant and equipment, and intangible assets – we
estimate the useful lives of property, plant and equipment and intangible assets in order to
determine the amount of depreciation and amortization expense to be recorded during any reporting
period. The useful lives, which are disclosed in Note 1- “Summary of Significant Accounting
Policies” of the consolidated financial statements, are estimated at the time the asset is acquired
and are based on historical experience with similar assets as well as taking into account
anticipated technological or other changes. If technological changes were to occur more rapidly
than anticipated or in a different form than anticipated, the useful lives assigned to these assets
may need to be shortened, resulting in the recognition of increased depreciation and amortization
expense in future periods. Alternately, these types of technological changes could result in the
recognition of an impairment charge to reflect the write-down in value of the asset.
Westwood evaluates its intangible assets for impairment annually or more frequently if impairment
indicators arise in accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible
-20-
Assets. Westwood’s intangible asset balance is material ($987,000 at
December 31, 2005), and the evaluation of intangible assets requires that the Company make
important assumptions and judgments about future operating results and cash flows as well as
discount rates. In estimating future operating results and cash flows, the Company considers
internal budgets and strategic plans, expected long term growth rates, and the effects of external
factors and market conditions. If actual future operating results and cash flows or external
conditions differ from the Company’s judgments, or if changes in assumed discount rates are made,
an impairment charge may be necessary to reduce the carrying value of intangible assets, which
charge could be material to the Company’s operations.
Valuation of stock options and warrants and barter transactions – For purposes of computing
the value of stock options and warrants, various valuation methods and assumptions can be used.
The selection of a different valuation method or use of different assumptions may result in a value
that is significantly different from that computed by the Company. In certain circumstances,
usually depending on the complexity of the calculation, we may employ the services of a valuation
expert.
Barter transactions represent the exchange of commercial announcements for merchandise or services.
These transactions are recorded at the fair market value of the commercial announcements
relinquished, or the fair value of
the merchandise and services received. A wide range of factors could materially affect the fair
market value of commercial airtime sold in future periods (See the section entitled “Cautionary
Statement regarding Forward-Looking Statements” in Item 1 and Item 1A “Risk Factors”), which would
require the Company to increase or decrease the amount of assets and liabilities and related
revenue and expenses recorded from prospective barter transactions.
Recent Accounting Pronouncements Affecting Future Results
In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No.154 (“SFAS 154”), “Accounting Changes and Error Corrections,” which
replaces Accounting Principles Board No. 20 (“APB 20”), “Accounting Changes,” and Statement of
Financial Accounting Standards No.3, “Reporting Accounting Changes in Interim Financial
Statements.” SFAS 154 applies to all voluntary changes in accounting principle and changes the
requirements for accounting for and reporting a change in accounting principle. SFAS 154 requires a
voluntary change in accounting principle to be applied retrospectively to all prior period
financial statements so that those financial statements are presented as if the current accounting
principle had always been applied, unless it is impracticable. APB 20 previously required that most
voluntary changes in accounting principle be recognized with a cumulative effect adjustment in net
income of the period of the change. SFAS 154 is effective for accounting changes made in annual
periods beginning after December 15, 2005. The Company does not expect the adoption of SFAS 154 to
have a material impact on the Company’s consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”),
which replaced SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) and superseded
APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS 123R requires all
share-based payments to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values beginning with the first annual period after
June 15, 2005.
In the first quarter of 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) which
provided further clarification regarding the implementation of SFAS 123R. SAB 107 provides the SEC
staff position regarding the application of SFAS 123R and certain SEC rules and regulations, as
well as the staff’s views regarding the valuation of share-based payment arrangements for public
companies. Additionally, SAB 107 highlights the importance of disclosures made related to the
accounting for share-based payment transactions.
Effective January 1, 2006, the Company adopted SFAS 123R and SAB 107. In connection with the
adoption, the Company will restate all prior periods to reflect stock compensation expense
beginning with the financial information for the three-month period ending March 31, 2006. For
information regarding the impact of adoption on the Company’s Consolidated Statement of Operations,
refer to Note 1- “Summary of Significant Accounting Policies” in the consolidated financial
statements included herein.
In December 2004, the FASB issued SFAS No.153, “Exchanges of Non-monetary Assets—an Amendment of
APB No. 29” (“SFAS 153”). The amendments made by SFAS 153 are based on the principle that exchanges
of non-monetary assets should be measured based on the fair value of the assets exchanged. Further,
the amendments
-21-
eliminate the narrow exception for non-monetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of non-monetary assets that do not
have “commercial substance.” This standard is effective for non-monetary asset exchanges occurring
after July 1, 2005. The adoption of this standard did not impact the Company’s consolidated
financial statements.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk
In the normal course of business, the Company employs established policies and procedures to manage
its exposure to changes in interest rates using financial instruments. The Company uses derivative
financial instruments (fixed-to-floating interest rate swap agreements) for the purpose of hedging
specific exposures and holds all derivatives for purposes other than trading. All derivative
financial instruments held reduce the risk of the underlying hedged item and are designated at
inception as hedges with respect to the underlying hedged item. Hedges of fair value exposure are
entered into in order to hedge the fair value of a recognized asset, liability, or a firm
commitment.
In order to achieve a desired proportion of variable and fixed rate debt, in December 2002, the
Company entered into a seven year interest rate swap agreement covering $25,000 notional value of
its outstanding borrowing to effectively float the interest rate at three-month LIBOR plus 74 basis
points and two ten year interest rate swap agreements covering $75,000 notional value of its
outstanding borrowing to effectively float the interest rate at three-month LIBOR plus 80 basis
points.
These swap transactions allow the Company to benefit from short-term declines in interest rates.
The instruments meet all of the criteria of a fair-value hedge. The Company has the appropriate
documentation, including the risk management objective and strategy for undertaking the hedge,
identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and
how the hedging instrument’s effectiveness offsets the exposure to changes in the hedged item’s
fair value or variability in cash flows attributable to the hedged risk.
With respect to the borrowings pursuant to the Company’s revolving credit facility, the interest
rate on the borrowings is based on the prime rate plus an applicable margin of up to .25%, or LIBOR
plus an applicable margin of up to 1.25%, as chosen by the Company. Historically, the Company has
typically chosen the LIBOR option with a three month maturity. Every .25% change in interest rates
has the effect of increasing or decreasing our annual interest expense by $5,000 for every $2,000
of outstanding debt. As of December 31, 2005, the Company had $230,000 outstanding under the New
Facility.
The Company continually monitors its positions with, and the credit quality of, the financial
institutions that are counterparties to its financial instruments, and does not anticipate
non-performance by the counterparties.
The Company’s receivables do not represent a significant concentration of credit risk due to the
wide variety of customers and markets in which the Company operates.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and the related notes and schedules were prepared by and are
the responsibility of management. The financial statements and related notes were prepared in
conformity with generally accepted accounting principles and include amounts based upon
management’s best estimates and judgments. All financial information in this annual report is
consistent with the consolidated financial statements.
The Company maintains internal accounting control systems and related policies and procedures
designed to provide reasonable assurance that assets are safeguarded, that transactions are
executed in accordance with management’s authorization and properly recorded, and that accounting
records may be relied upon for the preparation of consolidated financial statements and other
financial information. The design, monitoring, and revision of internal accounting control systems
involve, among other things, management’s judgment with respect to the relative cost and expected
benefits of specific control measures.
Westwood One’s consolidated financial statements have been audited by PricewaterhouseCoopers LLP,
independent registered accountants, who have expressed their opinion with respect to the
presentation of these statements.
-22-
The Audit Committee of the Board of Directors, which is comprised solely of directors who are not
employees of the Company, meets periodically with the independent auditors, as well as with
management, to review accounting, auditing, internal accounting controls and financial reporting
matters. The Audit Committee, pursuant to its charter, is also responsible for retaining the
Company’s independent accountants. The independent accountants have full and free access to the
Audit Committee with and without management’s presence. Further, as a result of changes in the
listing standards for the New York Stock Exchange and as a result of the Sarbanes-Oxley Act of
2002, members of the Audit Committee will be required to meet stringent independence standards and
at least one member must have financial expertise. The majority of our Audit Committee members
satisfy the new independence standards and the Audit Committee also has at least one member with
financial expertise.
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-21 and by this
reference incorporated herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Company’s management, under the supervision and with the participation of the Company’s Chief
Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of
the design and operation of the Company’s disclosure controls and procedures as of December 31,
2005 (the “Evaluation”). Based upon the Evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in
Exchange Act Rule 13a-15(e)) are effective in ensuring that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the SEC’s rules and forms.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control
over financial reporting. The Company’s internal control over financial reporting is a process
designed under the supervision of its Chief Executive Officer and Chief Financial Officer to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of the Company’s financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. Management evaluated the
effectiveness of the Company’s internal control over financial reporting using the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control—Integrated Framework. Management, under the supervision and with the participation of the
Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2005 and concluded that it
is effective.
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has
audited the effectiveness of the Company’s internal control over financial reporting and
management’s assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2005, and has expressed unqualified opinions in their report which
appears on page F-2.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during
the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
-23-
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.
Additionally, the Company has submitted to the NYSE a certification by its then Chief
Executive Officer that as of June 17, 2005, he is not aware of any violation by the Company of the
NYSE’s Corporate Governance listing standards.
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 and Related Stockholder
Matters
This information is incorporated by reference to the Company’s definitive proxy statement to
be filed pursuant to Regulation 14A not later than 120 days after then end of the Company’s fiscal
year.
Item 13. Certain Relationships and Related Transactions
This information is incorporated by reference to the Company’s definitive proxy statement to
be filed pursuant to Regulation 14A not later than 120 days after the end of the Company’s fiscal
year.
Item 14. Principal Accountant Fees and Services
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.
-24-
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report on Form 10-K
| |
1,2. |
|
Financial statements and schedules to be filed hereunder are indexed on page F-1
hereof. |
| |
| |
3. |
|
Exhibits |
| |
|
|
| EXHIBIT |
|
|
| NUMBER (A) |
|
DESCRIPTION |
3.1
|
|
Restated Certificate of Incorporation, as filed on October 25, 2002. (14) |
3.2
|
|
Bylaws of Registrant as currently in effect. (6) |
4.
|
|
Note Purchase Agreement, dated as of December 3, 2002, between Registrant and the Purchasers parties
thereto. (15) |
10.1
|
|
Employment Agreement, dated April 29, 1998, between Registrant and Norman J. Pattiz. (8) * |
10.2
|
|
Amendment to Employment Agreement, dated October 27, 2003, between Registrant and Norman J. Pattiz. (16)* |
10.2.1
|
|
Amendment No. 2 to Employment Agreement, dated November 28, 2005, between Registrant and Norman J. Pattiz (7) * |
10.3
|
|
Form of Indemnification Agreement between Registrant and its directors and executive officers. (1) |
10.4
|
|
Credit Agreement, dated March 3, 2004, between Registrant, the Subsidiary Guarantors parties thereto,
the Lenders parties thereto and JPMorgan Chase Bank as Administrative Agent. (16) |
10.5
|
|
Purchase Agreement, dated as of August 24, 1987, between Registrant and National Broadcasting
Company, Inc. (2) |
10.6
|
|
Agreement and Plan of Merger among Registrant, Copter Acquisition Corp. and Metro Networks, Inc.
dated June 1, 1999 (9) |
10.7
|
|
Amendment No. 1 to the Agreement and Plan Merger, dated as of August 20, 1999, by and among
Registrant, Copter Acquisition Corp. and Metro Networks, Inc. (10) |
10.8
|
|
Management Agreement, dated as of March 30, 1999, as amended by Letter Agreement dated April 15, 2002 by
and between Registrant and Infinity Broadcasting Corporation. (9) (13) |
10.9
|
|
Amended and Restated Representation Agreement, dated as of March 30, 1999, by and between Registrant and
Infinity Broadcasting Corporation (9) |
10.9.1
|
|
Letter Agreement, dated April 15, 2002, amending the Amended and Restated Representation Agreement
between Registrant and Infinity Broadcasting Corporation (13) |
10.10
|
|
Registrant Amended 1999 Stock Incentive Plan. (23) * |
10.11
|
|
Amendment to Registrant Amended 1999 Stock Incentive Plan, effective May 25, 2005 (19) * |
10.12
|
|
Registrant 1989 Stock Incentive Plan. (3) * |
10.13
|
|
Amendments to Registrant’s Amended 1989 Stock Incentive Plan. (4) (5) * |
10.14
|
|
Leases, dated August 9, 1999, between Lefrak SBN LP and Westwood One, Inc. and between Infinity and
Westwood One, Inc. relating to New York, New York offices. (11) |
10.15
|
|
Form of Stock Option Agreement under Registrant’s Amended 1999 Stock Incentive Plan. (17) * |
10.16
|
|
Employment Agreement, effective January 1, 2004, between Registrant and Andrew Zaref. (18) * |
10.17
|
|
Employment Agreement, dated June 1, 1999, between Registrant and Charles I. Bortnick, as amended by
Amendment 1 to Employment Agreement, effective January 1, 2002; Amendment 2 to Employment Agreement,
effective June 1, 2002; and Amendment 3 to Employment Agreement, dated June 1, 2004.
(18) * |
10.18
|
|
Registrant 2005 Equity Compensation Plan (19) * |
10.19
|
|
Form Amended and Restated Restricted Stock Unit Agreement under Registrant 2005 Equity Compensation
Plan for outside directors (20) * |
10.20
|
|
Form Stock Option Agreement under Registrant 2005 Equity Compensation Plan for directors. (21) * |
10.21
|
|
Form Stock Option Agreement under Registrant 2005 Equity Compensation Plan for non-director
participants. (21) * |
10.22
|
|
Form Restricted Stock Unit Agreement under Registrant 2005 Equity Compensation Plan for non-director
participants. (22) * |
10.23
|
|
Form Restricted Stock Agreement under Registrant 2005 Equity Compensation Plan for non-director
participants. (22) * |
-25-
| |
|
|
| EXHIBIT |
|
|
| NUMBER (A) |
|
DESCRIPTION |
10.24
|
|
Employment Agreement, effective May 1, 2003, between Registrant and Paul Gregrey, as amended by
Amendment 1 to Employment Agreement, effective January 1, 2006.
*† |
21
|
|
List of Subsidiaries. † |
23
|
|
Consent of Independent Registered Public Accounting Firm. † |
31.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002. † |
31.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002. † |
32.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002. *** |
32.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002. *** |
|
|
|
| * |
|
Indicates a management contract or compensatory plan |
| † |
|
Filed herewith. |
| *** |
|
Furnished herewith. |
| |
| (A) |
|
The Company agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request. |
| |
(1) |
|
Filed as part of Registrant’s September 25, 1986 proxy statement and incorporated herein
by reference. |
| |
(2) |
|
Filed an exhibit to Registrant’s current report on Form 8-K dated September 4, 1987 and
incorporated herein by reference. |
| |
(3) |
|
Filed as part of Registrant’s March 27, 1992 proxy statement and incorporated herein by
reference. |
| |
(4) |
|
Filed as an exhibit to Registrant’s July 20, 1994 proxy statement and incorporated
herein by reference. |
| |
(5) |
|
Filed as an exhibit to Registrant’s April 29, 1996 proxy statement and incorporated
herein by reference. |
| |
(6) |
|
Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference. |
| |
(7) |
|
Filed as an exhibit to Registrant’s current report on Form 8-K dated November 28, 2005
and incorporated herein by reference. |
| |
(8) |
|
Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference. |
| |
(9) |
|
Filed as an exhibit to Registrant’s current report on Form 8-K dated June 4, 1999 and
incorporated herein by reference. |
| |
(10) |
|
Filed as an exhibit to Registrant’s current report on Form 8-K dated October 1, 1999 and
incorporated herein by reference. |
| |
(11) |
|
Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended
December 31, 1999 and incorporated herein by reference. |
| |
(12) |
|
Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended
December 31, 2000 and incorporated herein by reference. |
| |
(13) |
|
Filed as an exhibit to Registrant’s April 29, 2002 proxy statement and incorporated
herein by reference. |
| |
(14) |
|
Filed as an exhibit to Registrant’s quarterly report on Form 10-Q for the quarter ended
September 30, 2002 and incorporated herein by reference. |
| |
(15) |
|
Filed as an exhibit to Registrant’s current report on Form 8-K dated December 4, 2002 and
incorporated herein by reference. |
| |
(16) |
|
Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference. |
| |
(17) |
|
Filed as an exhibit to Registrant’s current report on Form 8-K dated October 12, 2004 and
incorporated herein by reference. |
| |
(18) |
|
Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended
December 31, 2004 and incorporated herein by reference. |
| |
(19) |
|
Filed as an exhibit to Company’s current report on Form 8-K, dated May 25, 2005 and
incorporated herein by reference. |
| |
(20) |
|
Filed as an exhibit to Company’s current report of Form 8-K dated September 13, 2005 and
incorporated herein by reference. |
| |
(21) |
|
Filed as an exhibit to Registrant’s current report on Form 8-K dated December 5, 2005 and
incorporated herein by reference. |
| |
(22) |
|
Filed as an exhibit to Registrant’s current report on Form 8-K dated December 23, 2005
and incorporated herein by reference. |
| |
(23) |
|
Filed as an exhibit to Registrant’s April 30, 1999 proxy statement and incorporated
herein by reference. |
-26-
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.
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|
|
|
|
|
|
| |
|
WESTWOOD ONE, INC. |
|
|
|
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Date: February 24, 2006
|
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By:
|
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/S/ ANDREW ZAREF |
|
|
|
|
|
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Andrew Zaref
|
|
|
|
|
|
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Chief Financial Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
| /S/ PETER KOSANN
Peter Kosann |
|
Director, President and
Chief Executive Officer
(Principal Executive Officer)
|
|
February 24, 2006 |
| /S/ ANDREW ZAREF
Andrew Zaref |
|
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
|
|
February 24, 2006 |
| /S/ NORMAN J. PATTIZ
Norman J. Pattiz |
|
Chairman of the Board of
Directors
|
|
February 23, 2006 |
| /S/ ALBERT CARNESALE
Albert Carnesale |
|
Director
|
|
February 23, 2006 |
| /S/ DAVID L. DENNIS
David L. Dennis |
|
Director
|
|
February 23, 2006 |
| /S/ GERALD GREENBERG
Gerald Greenberg |
|
Director
|
|
February 23, 2006 |
| /S/ ROBERT K. HERDMAN
Robert K. Herdman |
|
Director
|
|
February 23, 2006 |
| /S/ JOEL HOLLANDER
Joel Hollander |
|
Director
|
|
February 24, 2006 |
| /S/ DENNIS HOLT
Dennis Holt |
|
Director
|
|
February 22, 2006 |
| /S/ STEVEN A. LERMAN
Steven A. Lerman |
|
Director
|
|
February 23, 2006 |
-27-
Table of
Contents
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
| /S/ GEORGE MILES
George Miles |
|
Director
|
|
February 23, 2006 |
| /S/ LESLIE MOONVES
Leslie Moonves |
|
Director
|
|
February 23, 2006 |
| /S/ JOSEPH B. SMITH
Joseph B. Smith |
|
Director
|
|
February 22, 2006 |
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders as of the date of this report.
The registrant’s annual report and definitive proxy statement for its 2006 annual meeting of
shareholders will be furnished to security holders within 120 days of the registrant’s 2005 fiscal
year end and will be filed with the Commission at the time such materials are sent to the security
holders.
-28-
WESTWOOD ONE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
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Page |
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1. |
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Consolidated Financial Statements |
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--Report of Independent Registered Public Accounting Firm |
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F-2 |
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--Consolidated Balance Sheets at December 31, 2005 and 2004 |
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F-3 |
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--Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003 |
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F-4 |
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--Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2005, 2004 and 2003 |
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F-5 |
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--Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 |
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F-6 |
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--Notes to Consolidated Financial Statements |
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F-7 |
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2. |
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Financial Statement Schedule: |
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II. -Valuation and Qualifying Accounts |
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F-21 |
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All other schedules have been omitted because they are not applicable, the required information is
immaterial, or the required information is included in the consolidated financial statements or notes thereto.
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Westwood One, Inc.:
We have completed integrated audits of Westwood One, Inc.’s (“Westwood” or “the Company”) December
31, 2005 and 2004 consolidated financial statements and of its internal control over financial
reporting as of December 31, 2005, and an audit of its December 31, 2003 consolidated financial
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Westwood One, Inc. and its subsidiaries
at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We conducted our audits
of these statements in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on
Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained
effective internal control over financial reporting as of December 31, 2005 based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based
on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005, based on criteria
established in Internal Control — Integrated Framework issued by the COSO. The Company’s
management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management’s assessment and on the effectiveness of the
Company’s internal control over financial reporting based on our audit. We conducted our audit of
internal control over financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. An audit of internal control over financial
reporting includes obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and operating effectiveness
of internal control, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
| |
|
|
New York, NY
|
|
/S/ PRICEWATERHOUSECOOPERS LLP |
February 24, 2006 |
|
|
F-2
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2005 |
|
|
2004 |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
10,399 |
|
|
$ |
10,932 |
|
Accounts receivable, net of allowance for doubtful accounts
of $2,797 (2005) and $2,566 (2004) |
|
|
135,184 |
|
|
|
142,014 |
|
Prepaid and other assets |
|
|
26,662 |
|
|
|
21,400 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
172,245 |
|
|
|
174,346 |
|
PROPERTY AND EQUIPMENT, NET |
|
|
41,166 |
|
|
|
47,397 |
|
GOODWILL |
|
|
982,219 |
|
|
|
981,969 |
|
INTANGIBLE ASSETS, NET |
|
|
5,007 |
|
|
|
6,176 |
|
OTHER ASSETS |
|
|
30,240 |
|
|
|
36,391 |
|
|
|
|
|
|
|
|
| |
TOTAL ASSETS |
|
$ |
1,230,877 |
|
|
$ |
1,246,279 |
|
|
|
|
|
|
|
|
| |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
15,044 |
|
|
$ |
13,135 |
|
Amounts payable to related parties |
|
|
21,192 |
|
|
|
20,274 |
|
Deferred revenue |
|
|
9,086 |
|
|
|
14,258 |
|
Income taxes payable |
|
|
21,861 |
|
|
|
5,211 |
|
Accrued expenses and other liabilities |
|
|
32,968 |
|
|
|
28,463 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
100,151 |
|
|
|
81,341 |
|
LONG-TERM DEBT |
|
|
427,514 |
|
|
|
359,439 |
|
DEFERRED INCOME TAXES |
|
|
10,619 |
|
|
|
12,541 |
|
OTHER LIABILITIES |
|
|
7,952 |
|
|
|
8,465 |
|
|
|
|
|
|
|
|
| |
TOTAL LIABILITIES |
|
|
546,236 |
|
|
|
461,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Preferred stock: authorized 10,000,000 shares, none outstanding |
|
|
— |
|
|
|
— |
|
Common stock, $.01 par value: authorized, 252,751,250 shares;
issued and outstanding, 86,673,821 (2005) and 94,353,675 (2004) |
|
|
867 |
|
|
|
944 |
|
Class B stock, $.01 par value: authorized, 3,000,000 shares: issued and outstanding, 291,796 (2005 and 2004) |
|
|
3 |
|
|
|
3 |
|
Additional paid-in capital |
|
|
211,610 |
|
|
|
369,036 |
|
Accumulated earnings |
|
|
472,161 |
|
|
|
414,510 |
|
|
|
|
|
|
|
|
| |
TOTAL SHAREHOLDERS’ EQUITY |
|
|
684,641 |
|
|
|
784,493 |
|
|
|
|
|
|
|
|
| |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
$ |
1,230,877 |
|
|
$ |
1,246,279 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-3
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
| |
NET REVENUES |
|
$ |
557,830 |
|
|
$ |
562,246 |
|
|
$ |
539,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Costs (includes related party expenses
of $78,388, $84,338 and $80,659, respectively) |
|
|
372,277 |
|
|
|
369,634 |
|
|
|
350,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization (includes related party
warrant amortization of $9,706, $7,618 and
$1,352, respectively) |
|
|
20,826 |
|
|
|
18,429 |
|
|
|
11,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate General and Administrative Expenses
(includes related party expenses of $2,853, $2,959
and $2,793, respectively) |
|
|
9,463 |
|
|
|
8,606 |
|
|
|
7,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
402,566 |
|
|
|
396,669 |
|
|
|
369,201 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
155,264 |
|
|
|
165,577 |
|
|
|
170,025 |
|
Interest Expense |
|
|
18,315 |
|
|
|
11,911 |
|
|
|
10,132 |
|
Other (Income) Expense |
|
|
(1,440 |
) |
|
|
(948 |
) |
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
138,389 |
|
|
|
154,614 |
|
|
|
159,945 |
|
INCOME TAXES |
|
|
53,706 |
|
|
|
59,124 |
|
|
|
59,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
84,683 |
|
|
$ |
95,490 |
|
|
$ |
100,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
BASIC |
|
$ |
0.93 |
|
|
$ |
0.98 |
|
|
$ |
0.99 |
|
|
|
|
|
|
|
|
|
|
|
DILUTED |
|
$ |
0.93 |
|
|
$ |
0.97 |
|
|
$ |
0.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
|
BASIC |
|
|
91,006 |
|
|
|
97,117 |
|
|
|
101,243 |
|
|
|
|
|
|
|
|
|
|
|
DILUTED |
|
|
91,488 |
|
|
|
98,454 |
|
|
|
103,625 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-4
WESTWOOD ONE, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| |
|
Common Stock |
|
|
Class B Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Treasury Stock |
|
|
Shareholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Equity |
|
BALANCE
AT
DECEMBER 31, 2002 |
|
|
103,989 |
|
|
$ |
1,040 |
|
|
|
704 |
|
|
$ |
7 |
|
|
$ |
684,311 |
|
|
$ |
218,981 |
|
|
|
(35 |
) |
|
$ |
(1,299 |
) |
|
$ |
903,040 |
|
Net income for 2003 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100,039 |
|
|
|
— |
|
|
|
— |
|
|
|
100,039 |
|
Issuance of common stock under
stock option plans |
|
|
602 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
13,277 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,283 |
|
Purchase of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,534 |
) |
|
|
(180,412 |
) |
|
|
(180,412 |
) |
Retirement of treasury stock |
|
|
(5,534 |
) |
|
|
(55 |
) |
|
|
— |
|
|
|
— |
|
|
|
(180,456 |
) |
|
|
— |
|
|
|
5,534 |
|
|
|
180,511 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT
DECEMBER 31, 2003 |
|
|
99,057 |
|
|
$ |
991 |
|
|
|
704 |
|
|
$ |
7 |
|
|
$ |
517,132 |
|
|
$ |
319,020 |
|
|
|
(35 |
) |
|
$ |
(1,200 |
) |
|
$ |
835,950 |
|
Net income for 2004 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
95,490 |
|
|
|
— |
|
|
|
— |
|
|
|
95,490 |
|
Issuance of common stock under
stock option plans |
|
|
3,788 |
|
|
|
38 |
|
|
|
(412 |
) |
|
|
(4 |
) |
|
|
69,522 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
69,556 |
|
Purchase of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,456 |
) |
|
|
(216,503 |
) |
|
|
(216,503 |
) |
Retirement of treasury stock |
|
|
(8,491 |
) |
|
|
(85 |
) |
|
|
— |
|
|
|
— |
|
|
|
(217,618 |
) |
|
|
— |
|
|
|
8,491 |
|
|
|
217,703 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT
DECEMBER 31, 2004 |
|
|
94,354 |
|
|
$ |
944 |
|
|
|
292 |
|
|
$ |
3 |
|
|
$ |
369,036 |
|
|
$ |
414,510 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
784,493 |
|
Net income for 2005 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
84,683 |
|
|
|
— |
|
|
|
— |
|
|
|
84,683 |
|
Issuance of common stock under
stock option plans |
|
|
335 |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
2,698 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,701 |
|
Restricted Stock Units |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
400 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
400 |
|
Cash dividend paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(27,032 |
) |
|
|
|
|
|
|
|
|
|
|
(27,032 |
) |
Purchase of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,015 |
) |
|
|
(160,604 |
) |
|
|
(160,604 |
) |
Retirement of treasury stock |
|
|
(8,015 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
(160,524 |
) |
|
|
|
|
|
|
8,015 |
|
|
|
160,604 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT
DECEMBER 31, 2005 |
|
|
86,674 |
|
|
$ |
867 |
|
|
|
292 |
|
|
$ |
3 |
|
|
$ |
211,610 |
|
|
$ |
472,161 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
684,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-5
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
CASH FLOW FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
84,683 |
|
|
$ |
95,490 |
|
|
$ |
100,039 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
20,826 |
|
|
|
18,429 |
|
|
|
11,513 |
|
Disposal of Property and Equipment |
|
|
60 |
|
|
|
— |
|
|
|
— |
|
Deferred taxes |
|
|
(2,962 |
) |
|
|
642 |
|
|
|
5,331 |
|
Non-cash stock compensation |
|
|
400 |
|
|
|
391 |
|
|
|
— |
|
Gain on sale of property |
|
|
(1,022 |
) |
|
|
— |
|
|
|
— |
|
Amortization of deferred financing costs |
|
|
333 |
|
|
|
709 |
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,318 |
|
|
|
115,661 |
|
|
|
117,518 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
6,830 |
|
|
|
(7,082 |
) |
|
|
(4,044 |
) |
Prepaid and other assets |
|
|
(6,787 |
) |
|
|
1,929 |
|
|
|
(1,186 |
) |
Deferred revenue |
|
|
(5,172 |
) |
|
|
2,043 |
|
|
|
(525 |
) |
Income taxes payable |
|
|
17,237 |
|
|
|
17,324 |
|
|
|
2,822 |
|
Accounts payable and accrued expenses
and other liabilities |
|
|
3,807 |
|
|
|
(3,495 |
) |
|
|
(8,348 |
) |
Amounts payable to related parties |
|
|
918 |
|
|
|
1,594 |
|
|
|
1,633 |
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Operating Activities |
|
|
119,151 |
|
|
|
127,974 |
|
|
|
107,870 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(4,524 |
) |
|
|
(5,920 |
) |
|
|
(4,370 |
) |
Proceeds from sale of property |
|
|
2,244 |
|
|
|
— |
|
|
|
— |
|
Purchase of loan receivable |
|
|
(2,000 |
) |
|
|
— |
|
|
|
— |
|
Acquisition of companies and other |
|
|
(181 |
) |
|
|
6 |
|
|
|
(602 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities |
|
|
(4,461 |
) |
|
|
(5,914 |
) |
|
|
(4,972 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
3,055 |
|
|
|
38,595 |
|
|
|
9,372 |
|
Borrowings under bank and other long-term obligations |
|
|
105,000 |
|
|
|
195,000 |
|
|
|
70,000 |
|
Debt repayments and payments of capital lease obligations |
|
|
(35,642 |
) |
|
|
(135,602 |
) |
|
|
(564 |
) |
Dividend Payments |
|
|
(27,032 |
) |
|
|
— |
|
|
|
— |
|
Repurchase of common stock |
|
|
(160,604 |
) |
|
|
(216,503 |
) |
|
|
(180,412 |
) |
Deferred financing costs |
|
|
— |
|
|
|
(1,283 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Financing Activities |
|
|
(115,223 |
) |
|
|
(119,793 |
) |
|
|
(101,604 |
) |
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
(533 |
) |
|
|
2,267 |
|
|
|
1,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
10,932 |
|
|
|
8,665 |
|
|
|
7,371 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
10,399 |
|
|
$ |
10,932 |
|
|
$ |
8,665 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-6
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
NOTE 1 — Summary of Significant Accounting Policies:
Nature of Business
Westwood One, Inc. and its subsidiaries (collectively, the “Company”) supply radio and television
station affiliates throughout the United States with a broad range of programming and information
services. The Company is the largest domestic outsource provider of traffic reporting services
and the nation’s largest radio network, producing and distributing national news, sports, talk,
music and special event programs, in addition to local news, sports, weather, video news and
other information programming.
Westwood One is managed by CBS Radio, Inc. (“CBS Radio”, previously known as Infinity Broadcasting
Corporation (“Infinity”)), a wholly-owned subsidiary of CBS Corp., pursuant to a management
agreement between the Company and CBS Radio (then Infinity) which expires on March 31, 2009
(the “Management Agreement”).
Principles of Consolidation
The consolidated financial statements include the accounts of all majority and wholly-owned
subsidiaries.
Geographic and Segment Information
Statement of Financial Accounting Standards 131, “Disclosures about Segments of an Enterprise and
Related Information” requires disclosure of financial and descriptive information about reportable
operating segments, revenues by products or services, and revenues and assets by geographic areas.
The Company has determined that it operates in a single reportable operating segment: the sale of
commercial airtime. The Company identifies segments based on the Company’s organization under one
management group. The Company’s operations are managed as one unit and resources are allocated
without regard to separate functions.
Revenue Recognition
Revenue is recognized when earned, which occurs at the time commercial advertisements are
broadcast. Payments received in advance are deferred until earned and such amounts are included as
a component of Deferred Revenue in the accompanying Balance Sheet.
Barter transactions represent the exchange of commercial announcements for programming rights,
merchandise or services. These transactions are recorded at the fair market value of the commercial
announcements relinquished, or the fair value of the merchandise and services received. Revenue is
recognized on barter transactions when the advertisements are broadcast. Expenses are recorded when
the merchandise or service is utilized. Barter revenue of $20,200, $22,083, and $22,441 has been
recognized for the years ended December 31, 2005, 2004 and 2003, respectively and barter expenses
of $17,038, $20,808, and $20,885 have been recognized for the years ended December 31, 2005, 2004
and 2003, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. For 2005, 2004, and 2003, total advertising
expense was $3,318, $4,601 and $5,078, respectively.
Equity-Based Compensation
Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based
Compensation,” encourages, but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” and related
Interpretations.
F-7
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
No compensation expense has been recognized in the accompanying financial statements for stock
option grants as all such grants had an exercise price not less than the closing price of the stock
on the date of grant, except for a non-cash stock compensation charge of $391 recorded in 2004 in
connection with the change in status of an employee to an independent contractor, and $400 recorded
in 2005 in connection with the grant of restricted stock units (“RSUs”) to certain individuals (see
Note 9 – Equity Compensation for more information). Had compensation cost been determined in
accordance with the methodology prescribed by SFAS 123, the Company’s net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net Income as Reported |
|
$ |
84,683 |
|
|
$ |
95,490 |
|
|
$ |
100,039 |
|
Add: Stock-based compensation
included in net income as reported,
net of tax effects |
|
|
246 |
|
|
|
242 |
|
|
|
— |
|
Deduct: Total stock-based compensation
expense determined under fair-value
based method, net of tax effects |
|
|
7,043 |
|
|
|
8,777 |
|
|
|
8,056 |
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Net Income |
|
$ |
77,886 |
|
|
$ |
86,955 |
|
|
$ |
91,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic – As Reported |
|
$ |
.93 |
|
|
$ |
.98 |
|
|
$ |
.99 |
|
|
|
|
|
|
|
|
|
|
|
Basic – Pro Forma |
|
$ |
.86 |
|
|
$ |
.90 |
|
|
$ |
.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted – As Reported |
|
$ |
.93 |
|
|
$ |
.97 |
|
|
$ |
.97 |
|
|
|
|
|
|
|
|
|
|
|
Diluted – Pro Forma |
|
$ |
.85 |
|
|
$ |
.88 |
|
|
$ |
.90 |
|
|
|
|
|
|
|
|
|
|
|
| Effective January 1, 2006, the Company adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS
123R eliminates the alternative set forth in APB 25 allowing companies to use the intrinsic value
method of accounting and requires that companies record expense for stock compensation on a fair
value based method. In connection with the adoption of SFAS 123R, the Company has elected to
utilize the modified retrospective transition alternative and will restate all prior periods to
reflect stock compensation expense. The effect of restatement on 2005, 2004 and 2003 net income
will be as shown above. The Company believes the pro forma disclosures above provide an
appropriate short-term indicator of the level of expense that will be recognized in accordance with
SFAS 123R. However, the total expense recorded in future periods will depend on several variables,
including the number of share-based awards that vest and the fair value of those vested awards. |
Effective January 1, 2006, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R eliminates the alternative set forth in APB 25 allowing companies to use the intrinsic value method of accounting and requires that companies record expense for stock compensation on a fair
value based method. In connection with the adoption of SFAS 123R, the Company has elected to utilize the modified retrospective transition alternative and will restate all prior periods to reflect stock compensation expense. The effect of restatement on 2005, 2004 and 2003 net income will be as shown above. The Company believes the pro forma disclosures above provide an appropriate short-term indicator of the level of expense that will be recognized in accordance with SFAS 123R.
However, the total expense recorded in future periods will depend on several variables, including the number of share-based awards that vest and the fair value of those vested awards.
Depreciation
Depreciation is computed using the straight line method over the estimated useful lives of the
assets, as follows:
| |
|
|
|
|
Buildings and improvements |
|
40 years |
Recording, broadcasting and studio equipment |
|
5 – 10 years |
Furniture and equipment and other |
|
3 – 10 years |
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities.
Management continually evaluates its estimates and judgments including those related to allowances
for doubtful accounts, useful lives of property, plant and equipment and intangible assets, fair
value of stock options granted, income taxes and other contingencies. Management bases its
estimates and judgments on historical experience and other factors that are believed to be
reasonable in the circumstances. Actual results may differ from those estimates under different
assumptions or conditions.
F-8
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of less than three
months to be cash equivalents. The carrying amount of cash equivalents approximates fair value
because of the short maturity of these instruments.
Allowances for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses which may result from the
inability of our customers to make required payments. We base our allowances on the likelihood of
recoverability of accounts receivable by aging category, based on past experience and taking into
account current collection trends that are expected to continue. If economic or specific industry
trends worsen beyond our estimates, we would be required to increase our allowances for doubtful
accounts. Alternatively, if trends improve beyond our estimates, we would be required to decrease
our allowance for doubtful accounts. Our estimates are reviewed periodically, and adjustments are
reflected through bad debt expense in the period they become known. Our bad debt expense
approximated $2,035, or 0.4% of revenue, in 2005, $874, or 0.2% of revenue, in 2004, and $3,624, or
0.7% of revenue, in 2003. Changes in our bad debt experience can materially affect our results of
operations. Our allowance for bad debts requires us to consider anticipated collection trends and
requires a high degree of judgment. In addition, as fully described herein, our results in any
reporting period could be impacted by relatively few significant bad debts.
Program Rights
Program rights are stated at the lower of cost, less accumulated amortization, or net realizable
value. Program rights and the related liabilities are recorded when the license period begins and
the program is available for use, and are charged to expense when the event is broadcast.
Financial Instruments
The Company uses derivative financial instruments (fixed-to-floating interest rate swap agreements)
for the purpose of hedging specific exposures and holds all derivatives for purposes other than
trading. All derivative financial instruments held reduce the risk of the underlying hedged item
and are designated at inception as hedges with respect to the underlying hedged item. Hedges of
fair value exposure are entered into in order to hedge the fair value of a recognized asset,
liability or a firm commitment. Derivative contracts are entered into with major creditworthy
institutions to minimize the risk of credit loss and are structured to be 100% effective. We have
designated the interest rate swaps as a fair value hedge. Accordingly and pursuant to SFAS No.
133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, the fair value of
the swaps are included in other current assets (liabilities) on the consolidated balance sheet with
a corresponding adjustment to the carrying value of the underlying debt at December 31, 2005 and
2004
Goodwill and Intangible Assets
Goodwill represents the excess of cost over fair value of net assets of businesses acquired. In
accordance with Statement of Financial Accounting Standards No. 142 (“SFAS 142”) “Goodwill and
Other Intangible Assets”, the value assigned to goodwill and indefinite lived intangible assets is
not amortized to expense, but rather the fair value of the reporting unit is compared to its
carrying amount on an annual basis to determine if there is a potential impairment. If the fair
value of the reporting unit is less than its carrying value, an impairment loss is recorded to the
extent that the fair value of the goodwill and intangible assets is less than their carrying value,
determined based on discounted cash flows, market multiples or appraised values as appropriate.
The Company has determined that there was no impairment of goodwill as a result of completing an
impairment review as of December 31, 2005.
Intangible assets subject to amortization primarily consist of affiliation agreements
that were acquired in prior years. Such affiliate contracts, when aggregated, create a nationwide
audience that is sold to national advertisers. The intangible asset values assigned to the
affiliate agreements for each acquisition were determined based upon the expected discounted
aggregate cash flows to be derived over the life of the affiliate relationship. The method of
amortizing the intangible asset values reflects, based upon the Company’s historical experience, an
accelerated rate of attrition in the affiliate base over the expected life of the affiliate
relationships. Accordingly, the Company amortizes the value assigned to affiliate agreements on an
accelerated basis (periods ranging from 4 to 20 years with
F-9
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
a weighted-average amortization period of approximately 8 years) consistent with the pattern of cash flows which are expected to be
derived.
Income Taxes
The Company uses the asset and liability method of financial accounting and reporting for income
taxes required by Statement of Financial Accounting Standards No. 109 (“SFAS 109”), “Accounting for
Income Taxes”. Under SFAS 109, deferred income taxes reflect the tax impact of temporary
differences between the amount of assets and liabilities recognized for financial reporting
purposes and the amounts recognized for tax purposes.
Earnings per Share
Basic earnings per share excludes all dilution and is calculated using the weighted average number
of common shares outstanding in the period. Diluted earnings per share reflects the potential
dilution that would occur if all dilutive financial instruments which may be exchanged for equity
securities were exercised or converted to Common Stock.
The Company has issued options, restricted stock units and warrants, which may have a dilutive
effect on reported earnings if they are exercised or converted to Common Stock. The following
number of shares related to options, restricted stock units and warrants were added to the basic
weighted average shares outstanding to arrive at the diluted weighted average shares outstanding
for each period:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
2003 |
Options |
|
|
382,048 |
|
|
|
1,336,841 |
|
|
|
2,382,368 |
|
Restricted Stock Units |
|
|
100,059 |
|
|
|
— |
|
|
|
— |
|
Warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Common equivalent shares are excluded in periods in which they are anti-dilutive. The following
options, restricted stock units and warrants (see Note 2 — Related Party Transactions for more
information) were excluded from the calculation of diluted earnings per share because the exercise
price was greater than the average market price of the Company’s Common Stock for the years
presented:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
2003 |
Options |
|
|
4,601,500 |
|
|
|
3,779,700 |
|
|
|
1,904,382 |
|
Restricted Stock Units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Warrants |
|
|
4,000,000 |
|
|
|
4,500,000 |
|
|
|
4,500,000 |
|
The per share exercise prices of the options excluded were $21.45-$38.34 in 2005,
$26.96-$38.34 in 2004, and $32.90-38.34 in 2003. The per share exercise prices of the warrants
excluded were $43.11-$67.98 in 2005 and $38.87-$67.98 in 2004 and 2003.
Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No.154 (“SFAS 154”), “Accounting Changes and Error Corrections,” which
replaces Accounting Principles Board No. 20 (“APB 20”), “Accounting Changes,” and Statement of
Financial Accounting Standards No.3, “Reporting Accounting Changes in Interim Financial
Statements.” SFAS 154 applies to all voluntary changes in accounting principle and changes the
requirements for accounting for and reporting a change in accounting principle. SFAS 154 requires a
voluntary change in accounting principle to be applied retrospectively to all prior period
financial statements so that those financial statements are presented as if the current accounting
principle had always been applied, unless it is impracticable. APB 20 previously required that most
voluntary changes in accounting principle be recognized with a cumulative effect adjustment in net
income of the period of the change. SFAS 154 is effective for accounting changes made in annual
periods beginning after December 15, 2005. The Company does not expect the adoption of SFAS 154 to
have a material impact on the Company’s consolidated financial statements.
F-10
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”),
which replaced SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) and superseded
APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS 123R requires all
share-based payments to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values beginning with the first annual period after
June 15, 2005.
In the first quarter of 2005, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 107 (“SAB 107”) which provided further clarification regarding the
implementation of SFAS 123R. SAB 107 provides the SEC staff position regarding the application of
SFAS 123R and certain SEC rules and regulations, as well as the staff’s views regarding the
valuation of share-based payment arrangements for public companies. Additionally, SAB 107
highlights the importance of disclosures made related to the accounting for share-based payment
transactions.
Effective January 1, 2006, the Company adopted SFAS 123R and SAB 107. In connection with the
adoption, the Company will restate all prior periods to reflect stock compensation expense
beginning with the financial information for the three-month period ending March 31, 2006. The
adoption of SFAS 123R and SAB 107 will have a material impact on the Company’s consolidated results
of operations and earnings per share as presented herein.
In December 2004, the FASB issued SFAS No.153, “Exchanges of Non-monetary Assets—an Amendment of
APB No. 29” (“SFAS 153”). The amendments made by SFAS 153 are based on the principle that exchanges
of non-monetary assets should be measured based on the fair value of the assets exchanged. Further,
the amendments eliminate the narrow exception for non-monetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of non-monetary assets that do not
have “commercial substance.” This standard is effective for non-monetary asset exchanges occurring
after July 1, 2005. The adoption of this standard did not impact the Company’s consolidated
financial statements.
Reclassification
Certain amounts reported in prior years have been reclassified to conform to the current year
presentation.
NOTE 2 – Related Party Transactions:
CBS Radio holds a common equity position in the Company and provides ongoing management services to
the Company under the terms of the Management Agreement. In return for receiving services under
the Management Agreement, the Company compensates CBS Radio via an annual base fee and provides CBS
Radio the opportunity to earn an incentive bonus if the Company exceeds pre-determined targeted
cash flows. For the years ended December 31, 2005, 2004 and 2003, CBS Radio earned cash
compensation of $2,853, $2,959 and $2,793, respectively, however, no incentive bonus was paid to
CBS Radio in such years as targeted cash flow levels were not achieved during such periods.
On May 29, 2002, the Company’s shareholders ratified an extension of the Management Agreement for
an additional five-year term which commenced April 1, 2004 and expires on March 31, 2009. In
return for receiving services under the Management Agreement, the Company will continue to
compensate CBS Radio via an annual base fee and an opportunity to earn an annual incentive bonus
provided certain performance objectives are met. Additionally, the Company granted to CBS Radio
seven fully vested and non-forfeitable warrants to purchase 4,500,000 shares of the Company’s
Common Stock in the aggregate (comprised of two warrants to purchase 1,000,000 shares of Common
Stock per warrant and five warrants to purchase 500,000 shares of Common Stock per warrant). Of
the seven warrants issued, the two 1,000,000 share warrants have an exercise price of $43.11 and
$48.36, respectively, and become exercisable: (A) if the average price of the Company’s Common
Stock reaches a price of $64.67 and $77.38, respectively, for at least 20 out of 30 consecutive
trading days for any period throughout the ten year term of the warrants or (B) upon the
termination of the Management Agreement by the Company in certain circumstances as described in the
terms of such warrants.
F-11
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
The exercise prices for the five remaining warrants are equal to $38.87, $44.70, $51.40, $59.11 and
$67.98, respectively. These warrants each have a term of 10 years (only if they become
exercisable) and become exercisable on January 2, 2005, 2006, 2007, 2008, and 2009, respectively,
subject to a trading price condition. The trading price condition specifies that the average price
of the Company’s Common Stock for each of the 15 trading days prior to January 2 of the applicable
year (commencing on January 2, 2005 with respect to the first 500,000 warrant tranche and each
January 2 thereafter for each of the remaining four warrants) must be equal to at least both the
exercise price of the warrant and 120% of the corresponding prior year 15 day trading average. In
the case of the $38.87 warrants, the Company’s average stock price for the 15 trading days prior to
January 2, 2005 was required to equal or exceed $40.66 for the warrants to become exercisable. The
Company’s stock price did not equal or exceed $40.66 for the 15 trading days prior to January 2,
2005 and therefore, the warrants did not become exercisable. In connection with the cancellation of
these warrants the Company reduced the related deferred tax asset, resulting in a reduction of
additional paid in capital of $1,682. In the case of the $44.70 warrants, the company’s average
stock price for the 15 trading days prior to January 2, 2006 did not exceed $31.37 (the price
required for the warrants to become exercisable), and therefore the warrants did not become
exercisable.
In connection with the May 2002 issuance of warrants to CBS Radio for management services to be
provided to the Company in the future, the Company originally reflected the fair value of the
warrant issuance of $48,530 as a component of Other Assets with a corresponding increase to
Additional Paid in Capital in the accompanying Consolidated Balance Sheet. Upon commencement of
the term of the service period to which the warrants relate (April 1, 2004), the Company commenced
amortizing the cost of the warrants issued ratably over the five-year service period. At December
31, 2005, the unamortized value of the May 2002 warrants was $31,544 of which $9,706 was included
as a component of Prepaid and Other Assets and $21,838 was included as a component of Other Assets
in the accompanying Consolidated Balance Sheet. Related Amortization Expense was $9,706 and $7,618
in 2005 and 2004, respectively.
In addition to the Management Agreement described above, the Company also enters into other
transactions with CBS Radio and affiliates of CBS Radio, including Viacom, in the normal course of
business. Such arrangements include a Representation Agreement (including a related news
programming agreement, a license agreement and a technical services agreement with an affiliate of
CBS Radio – collectively referred to as the “Representation Agreement”) to operate the CBS Radio
Networks, affiliation agreements with many of CBS Radio’s radio stations and the purchase of
programming rights from CBS Radio and affiliates of CBS Radio. The Management Agreement provides
that all transactions between the Company and CBS Radio or its affiliates, other than the
Management Agreement and Representation Agreement which were ratified by the Company’s
shareholders, must be on a basis that is at least as favorable to the Company as if the
transactions were entered into with an independent third party. In addition, subject to specified
exceptions, all agreements between the Company and CBS Radio or any of its affiliates must be
approved by the Company’s Board of Directors.
The Company incurred the following expenses relating to transactions with CBS Radio or its
affiliates for the following years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Nature |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Representation Agreement |
|
$ |
25,699 |
|
|
$ |
25,093 |
|
|
$ |
24,575 |
|
Programming and Affiliations |
|
|
52,689 |
|
|
|
59,245 |
|
|
|
56,084 |
|
Management Agreement (excluding warrant
amortization) |
|
|
2,853 |
|
|
|
2,959 |
|
|
|
2,793 |
|
Warrant Amortization |
|
|
9,706 |
|
|
|
7,618 |
|
|
|
1,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
90,947 |
|
|
$ |
94,915 |
|
|
$ |
84,804 |
|
|
|
|
|
|
|
|
|
|
|
Expenses incurred for the Representation Agreement and programming and affiliate arrangements are
included as a component of Operating Costs in the accompanying Consolidated Statement of
Operations. Expenses incurred for the Management Agreement (excluding warrant amortization) and
amortization of the warrants granted to CBS Radio under the Management Agreement are included as a
component of Corporate General and Administrative
F-12
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Expenses and Depreciation and Amortization, respectively, in the accompanying Consolidated
Statement of Operations. The description and amounts regarding related party transactions set
forth in these consolidated financial statements and related notes, also reflect transactions
between the Company and Viacom because of Viacom’s affiliation with CBS Radio. Viacom is the
former parent company of CBS Radio and, like CBS Radio, is majority-owned by National Amusements,
Inc.
NOTE 3 — Property and Equipment:
Property and equipment is recorded at cost and is summarized as follows at:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2005 |
|
|
2004 |
|
Land, buildings and improvements |
|
$ |
11,719 |
|
|
$ |
14,208 |
|
Recording, broadcasting and studio
equipment |
|
|
72,997 |
|
|
|
68,405 |
|
Furniture and equipment and other |
|
|
11,747 |
|
|
|
12,105 |
|
|
|
|
|
|
|
|
|
|
|
96,463 |
|
|
|
94,718 |
|
Less: Accumulated depreciation and
amortization |
|
|
55,297 |
|
|
|
47,321 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
41,166 |
|
|
$ |
47,397 |
|
|
|
|
|
|
|
|
Depreciation expense was $9,412, $9,085 and $7,898 for the year ended December 31, 2005, 2004 and
2003, respectively. In 2001, the Company entered into one capital lease totaling $6,723.
Accumulated amortization related to the capital lease was $2,913 and $2,241 as of December 31, 2005
and 2004, respectively.
In December 2005, the Company sold property with a net book value of approximately $1,222 resulting
in a pre-tax gain of approximately $1,022. This pre-tax gain has been included in Other Income in
the accompanying Consolidated Statement of Operations.
NOTE 4 – Goodwill and Intangible Assets:
The changes in the carrying amount of goodwill for the years ended December 31, 2005 and 2004 are
as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
Balance at January 1, |
|
$ |
981,969 |
|
|
$ |
990,472 |
|
Contingent consideration paid |
|
|
250 |
|
|
|
— |
|
Pre-acquisition contingencies related to income
taxes and other |
|
|
— |
|
|
|
(8,503 |
) |
|
|
|
|
|
|
|
|
|
$ |
982,219 |
|
|
$ |
981,969 |
|
|
|
|
|
|
|
|
At December 31, 2005, the gross value of the Company’s amortizable intangible assets was
approximately $28,780 with accumulated amortization of approximately $23,773. At December 31,
2004, the gross value of the Company’s amortizable intangible assets was approximately $28,780 with
accumulated amortization of approximately $22,603. Amortization expense was $1,170, $1,449, and
$2,263, for the year ended December 31, 2005, 2004 and 2003, respectively. The Company’s estimated
aggregate amortization expense for intangibles for fiscal year 2006, 2007, 2008, 2009 and 2010 are
$783, $783, $783, $783, and $734, respectively.
NOTE 5 – Investments and Note Receivable:
On November 9, 2005, the Company purchased a senior secured note from Canadian Traffic Network ULC
(“CTN”) for $2,000. The note, which bears interest at an annual rate of 10%, is due to the Company
upon the earlier of (i) November 9, 2008, (ii) one year following an initial public offering of CTN
or Global Traffic Network, Inc., the parent company of CTN, or (iii) such earlier date as such
amount shall become due and payable on account of
F-13
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
accelerations in accordance with its terms. The note is secured by certain assets of CTN.
Interest payments are due quarterly, commencing December 31, 2005. This note has been included in
Other Assets in the accompanying Consolidated Balance Sheet. Concurrently, the Company and CTN
entered into a cross-selling arrangement enabling the respective entities to sell each other’s
inventory locally in exchange for a commission.
On October 28, 2005, the Company became a limited partner of POP Radio, LP (“POP Radio”) pursuant
to the terms of a subscription agreement dated as of the same date. As part of the transaction,
effective January 1, 2006, the Company will serve as the exclusive sales representative of the
majority of advertising on the POP Radio network for five years, until December 31, 2010, unless
earlier terminated by the express terms of the sales representative agreement. The Company holds a
20% limited partnership interest in POP Radio. No additional capital contributions are required by
any of the limited partners. This investment is being accounted for under the equity method. The
initial investment balance was de minimis, and the Company’s equity in earnings of POP Radio
through December 31, 2005 was de minimis.
As part of the POP Radio transaction, the Company posted a $1,400 bond with the Superior Court of
the State of Connecticut as surety for a temporary injunction issued in favor of POP Radio against
News America In-Store Marketing, Inc. (“NAMI”). If the sales representative agreement terminates,
the Company’s obligation to provide the bond shall terminate. If any amount of the bond has been
paid to NAMI at such time of termination, such amount shall be immediately due and payable by POP
Radio. If any amounts are paid under the NAMI bond during the term of the sales representative
agreement, such amounts shall be deducted from the monthly and/or quarterly payments payable by the
Company in accordance with the terms of the sales representative agreement. This guarantee is being
accounted for in accordance with FASB Interpretation 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. The fair
value of the liability, measured using expected present value was de minimis at December 31, 2005.
NOTE 6 — Debt:
Long-term debt consists of the following at:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2005 |
|
|
2004 |
|
Revolving Credit Facility/Term Loan |
|
$ |
230,000 |
|
|
$ |
160,000 |
|
4.64% Senior Unsecured Notes due on November 30,
2009 |
|
|
50,000 |
|
|
|
50,000 |
|
5.26% Senior Unsecured Notes due on November 30,
2012 |
|
|
150,000 |
|
|
|
150,000 |
|
Fair market value of Swap |
|
|
(2,486 |
) |
|
|
(561 |
) |
|
|
|
|
|
|
|
|
|
$ |
427,514 |
|
|
$ |
359,439 |
|
|
|
|
|
|
|
|
On March 3, 2004, the Company refinanced its existing senior loan agreement with a syndicate of
banks led by JP Morgan Chase Bank and Bank of America. The new facility is comprised of a
five-year $120,000 term and a five-year $180,000 revolving credit facility (collectively the “New
Facility”). In connection with the closing of the New Facility, the Company borrowed the full
amount of the term loan, the proceeds of which were used to repay the outstanding borrowings under
the then existing facility. Interest on the New Facility is payable at the prime rate plus an
applicable margin of up to .25% or LIBOR plus an applicable margin of up to 1.25%, at the Company’s
option. The New Facility contains covenants relating to dividends, liens, indebtedness, capital
expenditures and interest coverage and leverage ratios. Costs incurred to issue the debt were
approximately $1,300. These costs are deferred and amortized on a straight-line basis to interest
expense over the life of the debt instrument.
At December 31, 2005, the Company had available borrowings under the New Facility of $70,000. As
of December 31, 2005, the applicable margin was LIBOR plus .875%. Additionally, at December 31,
2005, the Company had borrowed $230,000 under the New Facility at a weighted-average interest rate
of 4.0% (including the applicable
F-14
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
margin). As of December 31, 2004, the Company had borrowed $160,000 under the previous revolving
credit facility at a weighted-average interest rate of 2.2% (including applicable margin).
On December 3, 2002, the Company issued, through a private placement, $150,000 of ten-year Senior
Unsecured Notes due November 30, 2012 and $50,000 of seven-year Senior Unsecured Notes due November
30, 2009 (collectively the “Notes”). Interest on the Notes is payable semi-annually in May and
November. The Notes, which are unsecured, contain covenants relating to indebtedness and interest
coverage ratios that are identical to those contained in the Company’s New Facility. The Notes may
be prepaid at the option of the Company upon proper notice and by paying principal, interest and an
early payment penalty.
The aggregate maturities of debt for the next five years and thereafter, pursuant to the Company’s
debt agreements as in effect at December 31, 2005, are as follows (excludes market value
adjustments):
| |
|
|
|
|
| Year |
|
|
|
|
2006 |
|
$ |
— |
|
2007 |
|
|
— |
|
2008 |
|
|
— |
|
2009 |
|
|
280,000 |
|
2010 |
|
|
— |
|
2011 and thereafter |
|
|
150,000 |
|
|
|
|
|
|
|
$ |
430,000 |
|
|
|
|
|
NOTE 7 – Financial Instruments:
Interest Rate Risk Management
In order to achieve a desired proportion of variable and fixed rate debt, the Company has entered
into fixed-to-floating interest rate swap agreements covering one-half of the notional amounts of
the Notes. These swap transactions allow the Company to benefit from short-term declines in
interest rates while having the long-term stability of fairly low fixed rates. The instruments
meet all of the criteria of a fair-value hedge and are classified in the same category as the item
being hedged in the accompanying balance sheet. The Company has the appropriate documentation,
including the risk management objective and strategy for undertaking the hedge, identification of
the hedged instrument, the hedge item, the nature of the risk being hedged, and how the hedging
instrument’s effectiveness offsets the exposure to changes in the hedged item’s fair value.
At December 31, 2005, the Company had the following interest rate swaps:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Interest Rate |
|
|
| Maturity
Dates |
|
Notional Principal Amount |
|
Paid (1) |
|
Received |
|
Variable Rate Index |
November 2009 |
|
$ |
25,000 |
|
|
|
4.4 |
% |
|
|
3.907 |
% |
|
3 Month LIBOR |
November 2012 |
|
$ |
25,000 |
|
|
|
4.4 |
% |
|
|
4.410 |
% |
|
3 Month LIBOR |
November 2012 |
|
$ |
50,000 |
|
|
|
4.4 |
% |
|
|
4.535 |
% |
|
3 Month LIBOR |
|
|
|
| (1) |
|
The interest rate paid at December 31, 2005 was 4.4%. |
The estimated fair values of the Company’s interest rate swaps at December 31, 2005 and 2004 were
($2,486) and ($561), respectively.
Fair Value of Financial Instruments
The Company’s financial instruments include cash, cash equivalents, receivables, accounts payable,
borrowings and interest rate contracts. At December 31, 2005 and 2004, the fair values of cash and
cash equivalents, receivables and accounts payable approximated carrying values because of the
short-term nature of these instruments. The estimated fair values of other financial instruments
subject to fair value disclosures, determined based on broker
F-15
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
quotes or quoted market prices or rates for the same or similar instruments, and the related
carrying amounts are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2005 |
|
December 31, 2004 |
| |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
| |
|
Amount |
|
Value |
|
Amount |
|
Value |
Borrowings (Short and Long Term) |
|
$ |
427,514 |
|
|
$ |
425,028 |
|
|
$ |
359,439 |
|
|
$ |
358,878 |
|
Risk management contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
(2,486 |
) |
|
|
(2,486 |
) |
|
|
(561 |
) |
|
|
(561 |
) |
Credit Concentrations
The Company continually monitors its positions with, and the credit quality of, the financial
institutions that are counterparties to its financial instruments, and does not anticipate
nonperformance by the counterparties.
The Company’s receivables do not represent a significant concentration of credit risk at December
31, 2005, due to the wide variety of customers and markets in which the Company operates.
NOTE 8 — Shareholders’ Equity:
The authorized capital stock of the Company consists of Common Stock, Class B Stock and Preferred
Stock. Common Stock is entitled to one vote per share while Class B Stock is entitled to 50 votes
per share. Class B Stock is convertible to Common Stock on a share-for-share basis.
The Company’s Board of Directors has approved plans to purchase shares of the Company’s Common
Stock to enhance shareholder value. The Company purchased 8,015,000 shares in 2005 for
approximately $160,604, 8,456,000 shares in 2004 for approximately $216,503 and 5,534,000 shares in
2003 for approximately $180,412. On April 29, 2005, the Board of Directors authorized an
additional $300,000 for the repurchase program. As a result, the Company had authorization to
repurchase up to $402,023 of its Common Stock as of that date.
On April 29, August 3, and November 2, 2005, the Company’s Board of Directors declared cash
dividends of $0.10 per share for each issued and outstanding share of Common Stock and $0.08 per
share for each issued and outstanding share of Class B stock.
On September 27, 2004, a shareholder converted 411,670 shares of Class B Stock into an equal number
of shares of Common Stock.
NOTE 9 — Equity Based Compensation:
The Company established stock option plans in 1989 (the “1989 Plan”) and 1999 (the “1999 Plan”)
which provide for the granting of options to directors, officers and key employees to purchase
stock at its market value on the date the options are granted. Under the 1989 Plan, 12,600,000
shares were reserved for grant through March 1999. The 1989 Plan expired, but certain grants made
under the 1989 Plan remain outstanding at December 31, 2005. On September 22, 1999, the
stockholders ratified the 1999 Plan which authorized the grant of up to 8,000,000 shares of Common
Stock. Options granted under the 1999 Plan generally become exercisable after one year in 20%
increments per year and expire within ten years from the date of grant.
On May 19, 2005, the Board modified the 1999 Plan by deleting the provisions of the 1999 Plan that
provided for a mandatory annual grant of 10,000 stock options to outside directors.
Also, on May 19, 2005, the stockholders of the Company approved the Company’s 2005 Equity
Compensation Plan (the “2005 Plan”) at the Company’s annual meeting of stockholders. Among other
things, the 2005 Plan provides
F-16
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
for the granting of restricted stock and restricted stock units (“RSUs”) of the Company. A maximum
of 9,200,000 shares of common stock of the Company is authorized for the issuance of awards under
the 2005 Plan.
Pursuant to the 2005 Plan, beginning on May 19, 2005, the date of the Company’s 2005 annual meeting
of stockholders, outside directors automatically receive a grant of RSUs equal to $100 in value on
the date of each Company annual meeting of stockholders. Any newly appointed outside director will
receive an initial grant of RSUs equal to $150 in value on the date such director is appointed to
the Company’s Board. Recipients of restricted stock and RSUs are entitled to receive dividend
equivalents (subject to vesting) when and if the Company pays a cash dividend on its Common Stock.
RSUs awarded to outside directors vest over a three-year period in equal one-third increments on
the first, second and third anniversary of the date of the grant, subject to the director’s
continued service with the Company. Directors’ RSUs vest automatically, in full, upon a change in
control or upon their retirement, as defined in the 2005 Plan. RSUs are payable to outside
directors in shares of the Company’s Common Stock.
For a more complete description of the provisions of the 2005 Plan, refer to the Company’s proxy
statement in which the 2005 Plan and a summary thereof are included as exhibits, filed with the SEC
on April 29, 2005.
Information concerning RSUs outstanding under the 2005 Plan is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
|
|
|
|
Average |
|
| |
|
|
|
|
|
|
|
|
|
Grant Date |
|
| |
|
2005 |
|
|
Grant Date |
|
|
Fair Value |
|
| |
|
Shares |
|
|
Fair Value |
|
|
Per Share |
|
Outstanding at beginning of
period |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
Granted during the period |
|
|
105,077 |
|
|
|
1,907 |
|
|
|
18.15 |
|
Dividend equivalents during the period |
|
|
649 |
|
|
|
13 |
|
|
|
19.41 |
|
Forfeited during the period |
|
|
(5,043 |
) |
|
|
(101 |
) |
|
|
19.93 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
100,683 |
|
|
$ |
1,819 |
|
|
$ |
18.07 |
|
|
|
|
|
|
|
|
|
|
|
Information concerning options outstanding under the plans is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
| |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
| |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
| |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
Price |
Outstanding at beginning of
period |
|
|
7,996,018 |
|
|
$ |
24.90 |
|
|
|
10,319,549 |
|
|
$ |
21.27 |
|
|
|
9,442,330 |
|
|
$ |
19.40 |
|
Granted during the period |
|
|
624,125 |
|
|
$ |
20.25 |
|
|
|
1,472,000 |
|
|
$ |
21.38 |
|
|
|
1,568,500 |
|
|
$ |
31.32 |
|
Exercised during the period |
|
|
(334,704 |
) |
|
$ |
9.13 |
|
|
|
(3,376,786 |
) |
|
$ |
11.43 |
|
|
|
(602,381 |
) |
|
$ |
15.56 |
|
Forfeited during the period |
|
|
(497,850 |
) |
|
$ |
26.98 |
|
|
|
(418,745 |
) |
|
$ |
31.19 |
|
|
|
(88,900 |
) |
|
$ |
36.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
7,787,589 |
|
|
$ |
25.07 |
|
|
|
7,996,018 |
|
|
$ |
24.90 |
|
|
|
10,319,549 |
|
|
$ |
21.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for stock option
issuance at end of
period |
|
|
9,674,070 |
|
|
|
|
|
|
|
600,345 |
|
|
|
|
|
|
|
1,653,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005, options to purchase 4,762,414 shares of Common Stock were currently
exercisable at a weighted average exercise price of $24.69.
F-17
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
The weighted average fair value of the options granted in 2005, 2004 and 2003 is estimated at
$5.90, $6.77 and $10.09, respectively, measured on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
2003 |
Risk Free Interest Rate |
|
|
4.0 |
% |
|
|
3.5 |
% |
|
|
3.3 |
% |
Expected Life (In Years) |
|
|
4.9 |
|
|
|
5.0 |
|
|
|
5.0 |
|
Expected Volatility |
|
|
28.97 |
% |
|
|
28.3 |
% |
|
|
29.6 |
% |
Expected Dividend Yield |
|
|
1.16 |
|
|
|
— |
|
|
|
— |
|
The following table contains additional information with respect to options at December 31, 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Remaining |
| |
|
|
|
|
|
Weighted |
|
Weighted |
| |
|
|
|
|
|
Average |
|
Average |
| |
|
Number of |
|
Exercise |
|
Contractual |
| |
|
Options |
|
Price |
|
Life (In Years) |
Options Outstanding at Exercise Price Ranges of: |
|
|
|
|
|
|
|
|
|
|
|
|
$5.34-$19.29 |
|
|
1,211,654 |
|
|
$ |
12.94 |
|
|
|
2.8 |
|
$20.25-26.96 |
|
|
3,057,485 |
|
|
$ |
20.97 |
|
|
|
7.3 |
|
$30.19-$38.34 |
|
|
3,518,450 |
|
|
$ |
32.81 |
|
|
|
6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,787,589 |
|
|
$ |
25.07 |
|
|
|
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10 — Income Taxes:
The components of the provision for income taxes are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
48,682 |
|
|
$ |
51,205 |
|
|
$ |
49,138 |
|
State |
|
|
7,986 |
|
|
|
7,277 |
|
|
|
5,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,668 |
|
|
|
58,482 |
|
|
|
54,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(2,545 |
) |
|
|
483 |
|
|
|
4,842 |
|
State |
|
|
(417 |
) |
|
|
159 |
|
|
|
489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,962 |
) |
|
|
642 |
|
|
|
5,331 |
|
|
|
|
|
|
|
|
|
|
|
Income Tax |
|
$ |
53,706 |
|
|
$ |
59,124 |
|
|
$ |
59,906 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities on the Company’s balance sheet and the amounts used for income
tax purposes. Significant components of the Company’s deferred tax assets and liabilities follow:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2005 |
|
|
2004 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Goodwill, intangibles and other |
|
$ |
11,308 |
|
|
$ |
9,174 |
|
Property and equipment |
|
|
5,670 |
|
|
|
7,758 |
|
Other |
|
|
445 |
|
|
|
188 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
17,423 |
|
|
|
17,120 |
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
|
1,077 |
|
|
|
978 |
|
Deferred Compensation |
|
|
6,324 |
|
|
|
4,060 |
|
Accrued expenses and other |
|
|
480 |
|
|
|
519 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
7,881 |
|
|
|
5,557 |
|
|
|
|
|
|
|
|
F-18
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2005 |
|
|
2004 |
|
Net deferred tax liabilities |
|
|
9,542 |
|
|
|
11,563 |
|
|
|
|
|
|
|
|
Net deferred tax asset – current |
|
|
1,077 |
|
|
|
978 |
|
|
|
|
|
|
|
|
Net deferred tax liability – long-term |
|
$ |
10,619 |
|
|
$ |
12,541 |
|
|
|
|
|
|
|
|
The reconciliation of the federal statutory income tax rate to the Company’s effective income tax
rate is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
2005 |
|
2004 |
|
2003 |
Federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State taxes net of federal benefit |
|
|
3.8 |
|
|
|
3.2 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
38.8 |
% |
|
|
38.2 |
% |
|
|
37.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2005, 2004 and 2003, $1,327, $18,182, and $3,911 respectively, of income tax benefits
attributable to employee stock and warrant transactions were allocated to shareholders’ equity.
NOTE 11 — Commitments and Contingencies:
The Company has various non-cancelable, long-term operating leases for office space and equipment.
In addition, the Company is committed under various contractual agreements to pay for talent,
broadcast rights, research, the CBS Representation Agreement and the Management Agreement with CBS
Radio. The approximate aggregate future minimum obligations under such operating leases and
contractual agreements for the five years after December 31, 2005 and thereafter, are set forth
below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Leases |
|
|
|
|
|
|
|
Year |
|
Capital |
|
|
Operating |
|
|
Other |
|
|
Total |
|
2006 |
|
$ |
960 |
|
|
$ |
7,267 |
|
|
$ |
99,132 |
|
|
$ |
107,359 |
|
2007 |
|
|
960 |
|
|
|
6,604 |
|
|
|
84,195 |
|
|
|
91,759 |
|
2008 |
|
|
960 |
|
|
|
5,738 |
|
|
|
77,717 |
|
|
|
84,415 |
|
2009 |
|
|
960 |
|
|
|
4,816 |
|
|
|
36.165 |
|
|
|
41,941 |
|
2010 |
|
|
960 |
|
|
|
3,094 |
|
|
|
18,492 |
|
|
|
22,546 |
|
Thereafter |
|
|
640 |
|
|
|
10,037 |
|
|
|
10,600 |
|
|
|
21,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,440 |
|
|
$ |
37,556 |
|
|
$ |
326,301 |
|
|
$ |
369,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The present value of net minimum payments under capital leases was $4,540 at December 31, 2005.
Rent expense charged to operations for 2005, 2004, and 2003 was $8,957, $8,485 and $8,597,
respectively.
Included in Other in the table above is $152,508 of commitments due to CBS Radio and its affiliates
pursuant to various agreements as described in Note 2 – Related Party Transactions.
NOTE 12 — Supplemental Cash Flow and Other Information:
Supplemental information on cash flows, is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
2005 |
|
2004 |
|
2003 |
Cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
17,134 |
|
|
$ |
13,564 |
|
|
$ |
12,047 |
|
Income taxes |
|
|
39,432 |
|
|
|
41,158 |
|
|
|
51,755 |
|
F-19
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Insurance Claim
The Company has insurance policies that cover business interruption related to September 11, 2001
terrorist attacks. For the year ended December 31, 2003, the Company recorded $3,200 as a
reduction to operating costs in the accompanying Consolidated Statements of Operations, reflecting
the settlement of its business interruption insurance claim.
NOTE 13 — Quarterly Results of Operations (unaudited):
The following is a tabulation of the unaudited quarterly results of operations. The quarterly
results are presented for the years ended December 31, 2005 and 2004.
(In thousands, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First |
|
Second |
|
Third |
|
Fourth |
|
For the |
| |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Year |
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
134,082 |
|
|
$ |
141,837 |
|
|
$ |
134,928 |
|
|
$ |
146,983 |
|
|
$ |
557,830 |
|
Operating income |
|
|
29,216 |
|
|
|
41,355 |
|
|
|
40,372 |
|
|
|
44,321 |
|
|
|
155,264 |
|
Net income |
|
|
15,789 |
|
|
|
23,104 |
|
|
|
21,753 |
|
|
|
24,037 |
|
|
|
84,683 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
.17 |
|
|
$ |
.25 |
|
|
$ |
.24 |
|
|
$ |
.27 |
|
|
$ |
.93 |
|
Diluted |
|
$ |
.17 |
|
|
$ |
.25 |
|
|
$ |
.24 |
|
|
$ |
.27 |
|
|
$ |
.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
129,608 |
|
|
$ |
139,585 |
|
|
$ |
141,422 |
|
|
$ |
151,632 |
|
|
$ |
562,246 |
|
Operating income |
|
|
30,988 |
|
|
|
43,062 |
|
|
|
40,419 |
|
|
|
51,108 |
|
|
|
165,577 |
|
Net income |
|
|
17,547 |
|
|
|
25,106 |
|
|
|
23,236 |
|
|
|
29,601 |
|
|
|
95,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
.18 |
|
|
$ |
.26 |
|
|
$ |
.24 |
|
|
$ |
.31 |
|
|
$ |
.98 |
|
Diluted |
|
$ |
.18 |
|
|
$ |
.26 |
|
|
$ |
.24 |
|
|
$ |
.31 |
|
|
$ |
.97 |
|
NOTE 14 – Subsequent Events:
The Board of Directors of the Company has declared a cash dividend of $0.10 per share for all
issued and outstanding Common Stock, payable February 28, 2006, to stockholders of record at the
close of business on February 17, 2006. Further declarations of dividends, including the
establishment of record and payment dates related to dividends, will be at the discretion of the
Company’s Board of Directors.
F-20
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Schedule II – Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at |
|
Additions |
|
Deductions |
|
Balance at |
| |
|
Beginning of |
|
Charged to Costs |
|
Charged to |
|
Write-offs and |
|
End of |
| |
|
Period |
|
And Expenses |
|
Other Accounts |
|
Other Adjustments |
|
Period |
2005 |
|
$ |
2,566 |
|
|
$ |
2,031 |
|
|
|
— |
|
|
|
($1,800 |
) |
|
$ |
2,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
$ |
4,334 |
|
|
$ |
874 |
|
|
|
— |
|
|
|
($2,642 |
) |
|
$ |
2,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
$ |
11,757 |
|
|
$ |
3,624 |
|
|
|
— |
|
|
|
($11,047 |
) |
|
$ |
4,334 |
|
F-21