10-K/A
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
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(Mark One)
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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OR
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period
from to
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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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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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40 West 57th Street
New York, NY
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10019
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(Address of principal executive
offices)
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(Zip Code)
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Registrants 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
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, 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 registrants 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):
Large accelerated filer o
Accelerated
filer þ 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
$529.2 million based on the last reported sales price of
the registrants Common stock on June 30, 2006 (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, 2007, 86,328,261 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.
Explanatory
Note
This Amendment No. 1 on
Form 10-K/A
amends our Annual Report on
Form 10-K
for the year ended December 31, 2006 filed with the SEC on
March 7, 2007 (the Original
10-K).
This amendment replaces the information previously incorporated
by reference in Part III of the Original
10-K with
the actual text for Part III of
Form 10-K
and updates Part IV (Item 15: Exhibits, Financial
Statement Schedules) of the Original
10-K.
Except for the information described above, the Company has not
modified or updated disclosures provided in the Original
10-K in this
Form 10-K/A.
Accordingly this
Form 10-K/A
does not reflect events occurring after the filing of the
Original
10-K or
modify or update those disclosures affected by subsequent
events. Information not affected by this amendment is unchanged
and reflects the disclosures made at the time the Original
10-K was
filed.
TABLE OF CONTENTS
PART I
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 one of the
largest domestic outsource provider of traffic reporting
services and one of the nations 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, or
other distribution partners, in exchange for the programming or
information services it provides to them. The Company often
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 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 continues to develop 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, data for digital map and
automotive navigation systems, and for distribution into all
electronic mediums.
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).
On November 9, 2006, the Company announced that its Board
of Directors established a Strategic Review Committee comprised
of independent directors to evaluate means by which Westwood may
be able to enhance shareholder value. The Committees
principal task at this time is to seek to modify and extend the
Companys various agreements with CBS Radio Inc. and its
affiliates, including the Companys management agreement
and programming and distribution arrangements with CBS Radio.
The Companys principal agreements with CBS Radio currently
expire on March 31, 2009. The Committee and CBS Radio are
currently engaged in discussions relating to these matters.
There can be no assurance that this process will result in any
modification or extension to these agreements.
Industry
Background
Radio
Broadcasting
There are approximately 11,000 commercial radio stations in the
United States.
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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 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 has begun to roll out 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 estimated network audience delivery and demographic
composition, specific historical measurement information is
available to advertisers from independent rating services such
as Arbitron and their RADAR rating service. The rating service
provides historical demographic information such as the age and
gender composition of the listening audiences. Consequently,
advertisers can predict that their advertisements are being
heard by their target listening audience.
In addition to targeting and reaching defined audiences, the
Companys 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 Companys 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. The information and programs are
produced by the Company and, therefore, the stations typically
have virtually no production costs. With respect to the
Companys programs, each program is offered for broadcast
by the Company exclusively to one station in its geographic
market, which assists the station in competing for audience
share in its local marketplace. In addition, except for news
programming, Westwood Ones 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 Companys
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
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regional reach through its merger with the countrys
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 resells to its advertisers.
Some affiliation agreements also require a station to broadcast
the Companys programs and to use a portion of the
programs commercial slots to air national advertisements
and any related promotional spots.
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 Companys
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
Companys 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
Companys computer systems by the Companys local
writers and producers. This permits the Company to easily
re-sell the information to third parties for distribution
through the internet, wireless devices or personal digital
assistants (PDAs) and various other distribution
channels. The Companys professional announcers read the
customized reports on the air. The Companys information
reports (including the length of report, content of report,
specific geographic coverage area, time of broadcast, number of
reports aired per day, broadcasters style, etc.) are
customized to meet each individual affiliates
requirements. The Company typically works closely with the
program directors, news directors and general managers of its
affiliates to ensure that the Companys services meet its
affiliates goals and standards. The Company and its
affiliates jointly select the on-air talent to ensure that each
on-air talents style is appropriate for the stations
format. The Companys 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: 85 helicopters
and fixed-wing aircraft; 25 mobile units; 30 airborne camera
systems; 125 fixed-position proprietary cameras; 62 broadcast
studios and 1,272 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
Companys operations centers and broadcast studios have
sophisticated computer technology, video and broadcast equipment
and cellular and wireless technology, which enables the
Companys 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
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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 Companys 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.
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 Hurricane Katrina. 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 Companys radio affiliates via the
Companys 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 90 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 Companys 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 Companys 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 Companys national news operations center in
Phoenix, Arizona where the information is verified, edited,
produced and disseminated via satellite to the Companys
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, in 2005 the Company entered 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 APs :10 second
news sponsorship inventory on over 150 AP radio affiliates. The
Company believes the AP agreement provides it with an
opportunity to procure inventory from the APs 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 Companys 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 Companys
aircraft; and (iii) full-service, 24 hours per
day/7 days per week video coverage from the Companys
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
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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.
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. In particular, the Company has been
aggressively working to expand its Real-Traffic
product line primarily by adding real-time traffic information
on the internet.
National
Radio Programming
The Company produces and distributes regularly scheduled and
special syndicated programs, including exclusive live concerts,
music and interview shows, national music countdowns, lifestyle
short features, news broadcasts, talk programs, sporting events
and sports features.
The Company controls most aspects of 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) and long-form programs (typically 60 minutes or
longer). Typically, the short-form programs are produced at the
Companys in-house facilities located in Culver City,
California, and New York, New York. The long-form programs
include shows produced primarily at the Companys in-house
production facilities and recordings of live concert
performances and sports events made on location.
Westwood One also produces and distributes special event
syndicated programs. In 2006, 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 Ones 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 believes that its tape library is a valuable
resource for use in its future programming and revenue
generating capabilities. The library contains previously
broadcast programs, live concert performances, interviews,
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daily news programs, sports and entertainment features, Capitol
Hill hearings and other special events. New programs can be
created and developed at a low cost by excerpting material from
the library.
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
individual 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
Companys national internal structure of sales
representatives. The Companys advertising sales force is
comprised of approximately 160 sales representatives and sales
managers, who are part of a larger sales workforce.
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
Companys advertising sales force is able to sell available
commercial airtime in any and all of the Companys 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 Companys local sales
representative in the city in which the airline is headquartered.
The Companys 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 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 Companys
customized information reports are related to topics of
significant interest to listeners, listeners often seek out the
Companys information reports. Since advertisers
messages are embedded in the Companys 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 Companys
advertisements are read live by the Companys on-air
talent, providing the Companys advertisers with the added
benefit of an implied endorsement for their product.
Westwood Ones 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.
In most cases, 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 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
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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 in most dayparts. 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, local radio, 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. Furthermore, in recent history, the radio industry has
experienced a significant increase in the number of
shorter-duration commercial inventory. Also, the consolidation
of the radio industry has created opportunities for large radio
groups, such as Clear Channel Communications and other station
owners, 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 local, regional and 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, 2006, Westwood One had approximately 2,013
employees, including 723 part-time employees. In addition,
the Company maintains continuing relationships with numerous
independent writers, program hosts, technical personnel and
producers. Approximately 554 of the Companys employees are
covered by collective
-7-
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, from us in print upon request or
from the SECs 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
This annual report on
Form 10-K,
including Item 1A Risk Factors
and Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations, contains both historical and forward-looking
statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Exchange Act. 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 not based on historical fact
but rather are based on managements views and assumptions
concerning future events and results at the time the statements
are made. No assurances can be given that managements
expectations will come to pass. There may be additional risks,
uncertainties and factors that the Company does not currently
view as material or that are not necessarily known. Any
forward-looking statements included in this document are only
made as of the date of this document and the Company does not
have any obligation to publicly update any forward-looking
statement to reflect subsequent events or circumstances.
A wide range of factors could materially affect future
developments and performance including the following:
|
|
|
|
|
The Company is party to a Management Agreement, a Representation
Agreement and other related programming agreements and
arrangements with CBS Radio, which expire on March 31,
2009. While the Company provides programming to all major radio
station groups, the Company has affiliation agreements with most
of the radio stations owned and operated by CBS Radio which, in
the aggregate, provide the Company with a significant portion of
the audience
and/or
commercial inventory that it sells to advertisers. While the
Company is currently involved in discussions with CBS Radio
regarding the modification
and/or
extension of such agreements and arrangements, there can be no
assurance the Company and CBS Radio will be able to agree on
extensions or modifications to such agreements on similar
economic terms. If the Company is unable to secure agreements
with CBS Radio beyond March 31, 2009, the Companys
operations and financial condition could be materially affected.
|
|
|
|
Under the terms of the Management Agreement, CBS Radio manages
the business and operations of the Company, including by
providing individuals to serve as the CEO and CFO of the Company
(CBS Radio employs the CEO and reimburses to the Company the
cash compensation of the CFO, who is employed directly by the
Company). CBS Radio receives a management fee for its management
services. The Management Agreement also includes certain
non-competition provisions in favor of the Company and a right
of first refusal on syndication opportunities to the Company
where CBS Radio determines, in its sole discretion, to syndicate
programming. Two executives of CBS Radio serve on the
Companys Board of Directors, and CBS Radio owns
approximately 18.6% of the Companys common stock. In
addition, CBS Radio competes with the Company in advertising
sales and most of the radio stations owned and operated by CBS
Radio have affiliation agreements with the Company. The
foregoing could create, or appear to create, potential conflicts
of interest for CBS Radio in its decisions regarding the
day-to-day
operation of its business and in providing its management
services to the Company under the Management Agreement. The
|
-8-
|
|
|
|
|
foregoing could materially adversely impact the Companys
future business, financial condition and operating performance.
|
|
|
|
|
|
While the Company provides programming to all major radio
station groups, the Company has affiliation agreements with most
of CBS Radios owned and operated radio stations which, in
the aggregate, provide the Company with a significant portion of
the audience
and/or
commercial inventory that it sells to advertisers. In addition,
the Company operates the CBS Radio Network and syndicates
and/or
distributes several other programs from CBS and its affiliates.
In 2006, the Company experienced a material decline in the
amount of audience and quantity and quality of commercial
inventory delivered by the CBS Radio owned and operated radio
stations. Reasons for the decline include: (1) the
cancellation of, and loss of syndication opportunities
associated with, key national programming; (2) the sale of
CBS radio stations as described in more detail below and
(3) the reduction of commercial inventory levels, including
certain RADAR inventory, provided to the Company under
affiliation agreements. At the same time, other than for
reductions in compensation paid to CBS Radio to reflect reduced
commercial inventory levels, the economic arrangement between
the Company and CBS Radio has remained substantially fixed
pursuant to the terms of many of the existing agreements between
the Company and CBS Radio. At this time, it is unclear whether
such decline is permanent. To the extent the decline is
permanent or new economic terms to its agreements with CBS Radio
and its affiliates cannot be negotiated, the Companys
operating performance could be materially adversely impacted by
this decline in audience and commercial inventory.
|
|
|
|
As a result of deterioration in the Companys operating
performance, the Company amended its senior loan agreement in
October 2006 with a syndicate of banks in order to remain in
compliance with the covenants under such agreement, including
the total debt ratio covenant which was amended to 4.00 to 1
through March 31, 2008. Further changes in the
Companys operating performance may cause the Company to
seek further amendments to the covenants under the senior loan
agreement or to seek to replace the senior loan agreement, which
matures on February 28, 2009. The Companys ability
and timing to obtain, if needed, additional amendments or
additional financing, or to refinance the existing senior loan
agreement, may be adversely impacted by the timing of the
Companys ability, if at all, to extend its relationship
with CBS Radio beyond the March 31, 2009 expiration of the
Management Agreement and related agreements.
|
|
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|
In connection with its agreements with CBS Radio dating back to
1994, the Company has benefited from the historical practice of
long-term distribution relationships for its programming,
including pursuant to affiliation agreements with most of
CBSs owned and operated radio stations, many of which
operate on a
month-to-month
basis or contain
90-day
termination provisions which historically have not been
exercised by the CBS radio stations. During 2006, CBS Radio
reached agreements to sell 39 radio stations in ten of its
smaller markets; to date, the sale of 15 of those stations have
been completed. To the extent CBS Radio continues to sell
and/or
restructure its portfolio of radio assets and these existing
distribution arrangements are terminated
and/or not
continued on a long-term basis by the new owners of the former
CBS radio stations, as was the case with certain of the radio
stations sold by CBS in 2006, there is a greater likelihood that
the Company will not be able to continue to benefit from the
long-term distribution relationship it has with CBS Radio on
substantially similar economic terms and conditions or at all.
If a significant number of additional radio stations or radio
stations in key markets affiliated with the Company are sold by
CBS Radio, and the new owners of such stations terminate
and/or do
not continue the affiliation agreements with the Company on a
long-term basis, or if the Company cannot enter into new
affiliation agreements with other radio stations in such markets
on similar terms and conditions, the Companys operating
performance would be materially adversely impacted.
|
|
|
|
The Company and CBS Radio are presently seeking to resolve a
dispute as to whether the manner of sale of certain short
duration commercial inventory conducted by or on behalf of radio
stations owned by CBS Radio is permitted under the terms of
existing agreements between the parties, including the non-
competition provisions of the Management Agreement. If this
dispute cannot be resolved, the Companys relationship with
CBS Radio could be adversely affected, which could, in turn,
have a material adverse impact on the Company.
|
-9-
|
|
|
|
|
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 Companys 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 Companys financial
performance. These factors include:
|
|
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|
|
-
|
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, including by
new entrants into the radio advertising sales market, including
Google;
|
|
|
-
|
new competitors or existing competitors with expanded resources,
including as a result of consolidation (as described below),
NAVTEQs purchase of Traffic.com or the recently announced
proposed merger between XM Satellite Radio and Sirius Satellite
Radio;
|
|
|
-
|
lower than anticipated market acceptance of new or existing
products;
|
|
|
-
|
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.
|
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 continued to experience
significant change, including as a result of a significant
amount of consolidation in recent years, and increased business
transactions in 2006 by key players in the radio industry
(e.g., Clear Channel, Citadel, ABC, CBS Radio). In
connection therewith, certain major station groups have:
(1) recently modified overall amounts of commercial
inventory broadcast on their radio stations,
(2) experienced significant declines in audience and
(3) increased their supply of shorter duration
advertisements which is directly competitive to the Company. 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. Additionally, if the size and
financial resources of certain station groups continue to
increase, the station groups 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
Companys competitors. Any such occurrences, or merely the
threat of such occurrences, could adversely affect the
Companys ability to negotiate favorable terms with its
station affiliates, to attract audiences and to attract
advertisers.
|
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|
Changes in U.S. financial and equity markets, including
market disruptions and significant interest rate fluctuations,
could impede the Companys access to, or increase the cost
of, external financing for its operations and investments
|
As otherwise discussed in this report, including Item 7
(Managements Discussion and Analysis of Financial
Condition and Results of Operations), the Company, in connection
with its annual impairment test, recorded an impairment of
goodwill of $515,916 in the fourth quarter of 2006. Goodwill
represents the residual value remaining after ascribing
estimated fair values to a reporting units tangible and
intangible assets and liabilities. In order to estimate the fair
values of assets and liabilities the Company is required to make
important assumptions and
-10-
judgments about future operating results, cash flows, discount
rates, and the probability of various event scenarios, as well
as the proportional contribution of various assets to results
and other judgmental allocations. If actual future conditions or
events differ from the Companys estimates, an additional
impairment charge may be necessary to reduce the carrying value
of goodwill, which charge could be material to the
Companys operations. The Company believes it is possible
it may have a further impairment of goodwill in the future as
further discussed in Critical Accounting Policies and
Estimates Valuation of Goodwill.
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.
The Company owns three buildings in Culver City, California:
(1) a 10,000 square-foot building which contains
administrative, sales and marketing; (2) a
10,000 square-foot building which contains its two traffic
and news reporting divisions, Metro Networks and Shadow
Broadcast Services; and (3) a 6,500 square-foot
building which contains its production facilities. In addition,
the Company leases operation centers/broadcast studios and
marketing and administrative offices across the United States
consisting of over 300,000 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
|
On September 12, 2006, Mark Randall, derivatively on behalf
of Westwood One, Inc., filed suit in the Supreme Court of the
State of New York, County of New York, against the Company and
certain of its current and former directors and certain former
executive officers. The complaint alleges breach of fiduciary
duties and unjust enrichment in connection with the granting of
certain options to former directors and executives of the
Company. Plaintiff seeks judgment against the individual
defendants in favor of the Company for an unstated amount of
damages, disgorgement of the options which are the subject of
the suit (and any proceeds from the exercise of those options
and subsequent sale of the underlying stock) and equitable
relief. Subsequently, on December 15, 2006, Plaintiff filed
an amended complaint which asserts claims against certain former
directors and executives of the Company who were not named in
the initial complaint filed in September 2006 and dismisses
claims against other former directors and executives named in
the initial complaint. On March 2, 2007, the Company filed
a motion to dismiss the suit.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
-11-
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity and Related Stockholder
Matters
|
On February 14, 2007, there were approximately 345 holders
of record of the Companys Common stock, several of which
represent street accounts of securities brokers.
Based upon the number of proxies requested by brokers in
conjunction with its 2007 shareholders meeting, the
Company estimates that the total number of beneficial holders of
the Companys Common stock exceeds 5,000.
Since December 15, 1998, the Companys 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.
|
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|
|
|
2006
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
16.58
|
|
|
$
|
10.85
|
|
Second Quarter
|
|
|
11.00
|
|
|
|
7.43
|
|
Third Quarter
|
|
|
7.94
|
|
|
|
6.44
|
|
Fourth Quarter
|
|
|
8.40
|
|
|
|
6.50
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
26.65
|
|
|
$
|
19.96
|
|
Second Quarter
|
|
|
20.75
|
|
|
|
18.30
|
|
Third Quarter
|
|
|
20.93
|
|
|
|
19.06
|
|
Fourth Quarter
|
|
|
19.84
|
|
|
|
16.02
|
|
The last sales price for the Companys Common stock on the
NYSE on February 15, 2007 was $7.09.
On April 29, 2005, August 3, 2005 and November 2,
2005, the Companys 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
February 2, 2006, April 18, 2006 and August 7,
2006, the Companys Board of Directors declared cash
dividends of $.10 per share for each issued and outstanding
share of Common stock and $.08 per share for each issued and
outstanding share of Class B stock. On November 7,
2006, the Companys Board of Directors declared a cash
dividend of $0.02 per share for every issued and
outstanding share of Common stock and $0.016 per share for
every issued and outstanding share of Class B stock.
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 Companys 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, 2007, there were three holders of
record of the Companys Class B Stock.
-12-
Equity
Compensation Plan Information
The following table contains information regarding the
Companys equity compensation plans as well as regarding
warrants issued to CBS Radio under the Management Agreement as
of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
securities to
|
|
|
|
|
|
|
|
|
|
be issued
|
|
|
Weighted average
|
|
|
|
|
|
|
upon exercise
|
|
|
exercise price
|
|
|
Number of
|
|
|
|
of outstanding
|
|
|
of outstanding
|
|
|
securities remaining
|
|
|
|
options, warrants
|
|
|
options, warrants
|
|
|
available for
|
|
Plan Category
|
|
and rights
|
|
|
and rights
|
|
|
future issuance
|
|
|
Equity compensation plans approved
by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Options(1)(2)
|
|
|
6,085,794
|
|
|
$
|
23.84
|
|
|
|
|
|
Warrants(3)
|
|
|
3,500,000
|
|
|
|
51.63
|
|
|
|
N/A
|
|
Restricted Stock Units(2)
|
|
|
226,461
|
|
|
|
N/A
|
|
|
|
|
|
Restricted Stock(2)
|
|
|
326,326
|
|
|
|
N/A
|
|
|
|
|
|
Equity compensation plans not
approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,138,581
|
|
|
|
|
|
|
|
6,761,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Options included herein were granted or are available for grant
as part of the Companys 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. On May 19, 2005, the stockholders of the Company
approved the Companys 2005 Equity Compensation Plan (the
2005 Plan) at the Companys annual meeting of
stockholders. Among other things, the 2005 Plan provides 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 Companys 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 Companys 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 directors 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 Companys Common stock. For a more complete description
of the provisions of the 2005 Plan, refer to the Companys
proxy statement in which the 2005 Plan and a summary thereof are
included as exhibits, filed with the SEC on April 29, 2005. |
|
(2) |
|
A maximum of 9,200,000 shares of Common stock is authorized
for issuance of equity compensation awards under the 2005 Plan.
Options, RSUs and restricted stock are deducted from this
authorized total, with grants of RSUs, restricted stock, and
related dividend equivalents being deducted at the rate of three
shares for every one share granted. At December 31, 2006,
there were 6,761,411 authorized shares remaining available for
future issuance. |
|
(3) |
|
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 Companys
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 |
-13-
|
|
|
|
|
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 Companys 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 Companys 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 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 Companys average stock price
for the 15 trading days prior to January 2, 2006 must equal
or exceed $44.70 for the warrants to become exercisable. The
Companys average stock price for the 15 trading days prior
to January 2, 2006 did not exceed $44.70, and therefore the
warrants did not become exercisable. In the case of the $51.40
warrants, the Companys average stock price for the 15
trading days prior to January 2, 2007 must equal or exceed
$51.40 for the warrants to become exercisable. The
Companys average stock price for the 15 trading days prior
to January 2, 2007 did not exceed $51.40, and therefore the
warrants did not become exercisable. |
-14-
The performance graph below compares the performance of the
Companys Common stock to the Dow Jones US Total Market
Index and the Dow Jones US Media Index for the Companys
last five calendar years. The graph assumes that $100 was
invested in the Companys Common stock and each index on
December 31, 2001.
The following table sets forth the closing price of the
Companys Common stock at the end of each of the last five
years.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Westwood One, Inc., The Dow Jones US Total Market Index
And The Dow Jones US Media Index
|
|
* |
$100 invested on 12/31/01 in stock or index-including
reinvestment of dividends.
Fiscal year ending December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CUMULATIVE TOTAL RETURN
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
Westwood One, Inc.
|
|
|
|
100.00
|
|
|
|
|
124.33
|
|
|
|
|
113.84
|
|
|
|
|
89.62
|
|
|
|
|
55.10
|
|
|
|
|
24.74
|
|
Dow Jones US Total Market Index
|
|
|
|
100.00
|
|
|
|
|
77.92
|
|
|
|
|
101.88
|
|
|
|
|
114.12
|
|
|
|
|
121.34
|
|
|
|
|
140.23
|
|
Dow Jones US Media Industry Index
|
|
|
|
100.00
|
|
|
|
|
68.50
|
|
|
|
|
89.96
|
|
|
|
|
91.47
|
|
|
|
|
80.97
|
|
|
|
|
102.39
|
|
Westwood One Closing Stock Price
|
|
|
|
30.05
|
|
|
|
|
37.36
|
|
|
|
|
34.21
|
|
|
|
|
26.93
|
|
|
|
|
16.30
|
|
|
|
|
7.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Value of Shares that
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
May Yet Be Purchased
|
|
|
|
Number of Shares
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
Under the Plans or
|
|
Period
|
|
Purchased in Period
|
|
|
Paid per Share
|
|
|
Programs
|
|
|
Programs(A)
|
|
|
10/1/06 10/31/06
|
|
|
0
|
|
|
|
n/a
|
|
|
|
21,001,424
|
|
|
$
|
290,490,000
|
|
11/1/06 11/30/06
|
|
|
0
|
|
|
|
n/a
|
|
|
|
21,001,424
|
|
|
$
|
290,490,000
|
|
12/1/06 12/31/06
|
|
|
0
|
|
|
|
n/a
|
|
|
|
21,001,424
|
|
|
$
|
290,490,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Companys existing stock purchase program was
publicly announced on September 23, 1999. |
-15-
|
|
Item 6.
|
Selected
Financial Data
|
(In thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
2003(1)
|
|
|
2002(1)
|
|
|
OPERATING RESULTS FOR YEAR
ENDED DECEMBER 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
493,995
|
|
|
$
|
557,830
|
|
|
$
|
562,246
|
|
|
$
|
539,226
|
|
|
$
|
550,751
|
|
Operating and Corporate Costs,
Excluding Depreciation and Amortization and Goodwill Impairment
|
|
|
393,303
|
|
|
|
393,026
|
|
|
|
392,693
|
|
|
|
371,206
|
|
|
|
373,577
|
|
Goodwill Impairment
|
|
|
515,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
20,756
|
|
|
|
20,826
|
|
|
|
18,429
|
|
|
|
11,513
|
|
|
|
11,464
|
|
Operating (Loss) Income
|
|
|
(435,980
|
)
|
|
|
143,978
|
|
|
|
151,124
|
|
|
|
156,507
|
|
|
|
165,710
|
|
Net (Loss) Income
|
|
$
|
(469,453
|
)
|
|
$
|
77,886
|
|
|
$
|
86,955
|
|
|
$
|
91,983
|
|
|
$
|
101,717
|
|
(Loss) Income Per Basic Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
(5.46
|
)
|
|
$
|
0.86
|
|
|
$
|
0.90
|
|
|
$
|
0.91
|
|
|
$
|
0.97
|
|
Class B stock
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
(Loss) Income Per Diluted Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
(5.46
|
)
|
|
$
|
0.85
|
|
|
$
|
0.88
|
|
|
$
|
0.86
|
|
|
$
|
0.93
|
|
Class B stock
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Dividends Declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
0.32
|
|
|
$
|
0.30
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Class B stock
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
BALANCE SHEET DATA AT DECEMBER
31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
149,222
|
|
|
$
|
172,245
|
|
|
$
|
174,346
|
|
|
$
|
165,495
|
|
|
$
|
153,628
|
|
Working Capital
|
|
|
29,313
|
|
|
|
72,094
|
|
|
|
93,005
|
|
|
|
86,484
|
|
|
|
68,314
|
|
Total Assets
|
|
|
696,701
|
|
|
|
1,239,646
|
|
|
|
1,262,495
|
|
|
|
1,280,737
|
|
|
|
1,281,205
|
|
Long-Term Debt
|
|
|
366,860
|
|
|
|
427,514
|
|
|
|
359,439
|
|
|
|
300,366
|
|
|
|
232,135
|
|
Total Shareholders Equity
|
|
|
202,931
|
|
|
|
704,029
|
|
|
|
800,709
|
|
|
|
859,704
|
|
|
|
922,705
|
|
|
|
|
(1) |
|
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) utilizing the
modified retrospective transition alternative. Accordingly,
results for years prior to 2006 have been restated to reflect
stock based compensation expense in accordance with
SFAS 123R. |
|
|
|
No cash dividend was paid on the Companys Common stock or
Class B stock during the periods 2002 to 2004. In 2005, the
Companys 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. In 2006, the Companys 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 February 2, 2006, April 18, 2006 and August 7,
2006. The Companys Board of Directors declared a cash
dividend of $0.02 per share for every issued and
outstanding share of Common stock and $0.016 per share for
every issued and outstanding share of Class B stock on
November 7, 2006.
|
-16-
|
|
Item 7.
|
Managements
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 one of the nations largest radio networks,
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 Clear Channel
Communications and CBS Radio, 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 Radios owned and operated radio stations, which in
the aggregate, provide the Company with a significant portion of
the audience and/or commercial inventory that it sells to
advertisers. Accordingly, the Companys operating
performance could be materially adversely impacted by its
inability to continue to renew its affiliate agreements with CBS
Radio stations.
On November 9, 2006, the Company announced that its Board
of Directors has established a Strategic Review Committee
comprised of independent directors to evaluate means by which
Westwood may be able to enhance shareholder value. The
Committees principal task at this time is to seek to
modify and extend the Companys various agreements with CBS
Radio Inc. and its affiliates, including the Companys
management agreement and programming and distribution
arrangements with CBS Radio. The Companys principal
agreements with CBS Radio currently expire on March 31,
2009. The Committee and CBS Radio are currently engaged in
discussions relating to these matters. There can be no assurance
that this process will result in any modification or extension
to these agreements.
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 Companys
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, including, but not limited to, radio.
-17-
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 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 Companys operating cost structure to be
predominantly fixed in nature, and as a result, the Company
needs at least several months lead-time to make significant
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
Companys 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 Companys 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 Companys
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.
Note: in connection with the adoption of SFAS 123R
effective January 1, 2006 the Company has restated all
prior periods to reflect stock based compensation in accordance
with SFAS 123R. Refer to Note 9
Equity-Based Compensation to the consolidated
financial statements for further information.
Revenues
Revenues presented by type of commercial advertisements are as
follows for the years ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
$
|
|
|
Total
|
|
|
$
|
|
|
Total
|
|
|
$
|
|
|
Total
|
|
|
Local/Regional
|
|
$
|
256,700
|
|
|
|
52
|
%
|
|
$
|
300,560
|
|
|
|
54
|
%
|
|
$
|
299,307
|
|
|
|
53
|
%
|
National
|
|
|
237,295
|
|
|
|
48
|
%
|
|
|
257,270
|
|
|
|
46
|
%
|
|
|
262,939
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
$
|
493,995
|
|
|
|
100
|
%
|
|
$
|
557,830
|
|
|
|
100
|
%
|
|
$
|
562,246
|
|
|
|
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.
|
-18-
Fiscal
Year 2006 as compared to Fiscal Year 2005
Revenues for the year ended December 31, 2006 decreased
$63,835, or 11.4%, to $493,995 compared with $557,830 in the
year ended 2005. In 2006, revenues aggregated from the sale of
local/regional airtime decreased approximately 14.6%, or
approximately $43,860, and national-based revenues decreased
approximately 7.8%, or $19,975, compared with the year ended
2005. An estimated 93% of revenues were derived from terrestrial
radio sources, while 7% of revenues were derived from sources
other than terrestrial radio, including satellite, data,
television and new media.
The decrease in local/regional revenues was a result of reduced
demand for our :10 second commercial airtime from prior year
levels, and increased competition. The reduced demand was
experienced in virtually all markets and all advertiser
categories, primarily in the Auto Dealers, Drug Products,
Retail, Gambling, Utilities and TV Tune-in categories.
The decline in our aggregated national-based revenue was
primarily a result of decreases in revenue originating from
music, talk and news programming offset by increased revenue
related to our exclusive broadcast of the 2006 Winter Olympic
games, as well as an increase in our other sports programming.
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.
The decline in our aggregated national-based revenues was
primarily a result of an estimated $6,000 of non-comparable
revenues associated with the Companys exclusive 2004
Summer Olympics radio broadcast and a decrease in news
programming offset by increases in the music, talk and sports
programming categories.
Operating
Costs
Operating costs for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
|
|
of
|
|
|
|
$
|
|
|
Total
|
|
|
$
|
|
|
Total
|
|
|
$
|
|
|
Total
|
|
|
Programming, production and
distribution expenses
|
|
$
|
284,303
|
|
|
|
75
|
%
|
|
$
|
279,364
|
|
|
|
73
|
%
|
|
$
|
278,232
|
|
|
|
73
|
%
|
Selling expenses
|
|
|
47,271
|
|
|
|
12
|
%
|
|
|
52,089
|
|
|
|
14
|
%
|
|
|
53,246
|
|
|
|
14
|
%
|
Stock-based compensation
|
|
|
6,345
|
|
|
|
2
|
%
|
|
|
6,721
|
|
|
|
2
|
%
|
|
|
9,463
|
|
|
|
3
|
%
|
Other operating expenses
|
|
|
40,600
|
|
|
|
11
|
%
|
|
|
40,824
|
|
|
|
11
|
%
|
|
|
38,156
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
378,519
|
|
|
|
100
|
%
|
|
$
|
378,998
|
|
|
|
100
|
%
|
|
$
|
379,097
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2006 as compared to Fiscal Year 2005
Operating costs decreased to $378,519 from $378,998 in 2005. The
decrease was due to lower stock-based compensation expense, and
a decrease in discretionary expenses including advertising and
promotional, travel and entertainment expenses, lower
distribution and payroll and related benefit costs. Such
declines were offset by net increases in existing and new
program offerings, and an estimated $7.8 million in costs
associated with our exclusive broadcast of the 2006 Winter
Olympic Games.
-19-
Fiscal
Year 2005 as compared to Fiscal Year 2004
Operating costs decreased to $378,998 from $379,097 in 2004. The
decrease was due to lower stock-based compensation expense, 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) reduced distribution
expenses, and the non-comparable costs in 2004 associated with
our exclusive broadcast of the 2004 Summer Olympic games. These
decreases were offset by an increase 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. Operating costs also
increased due to an increase of 7% in other operating expenses,
primarily labor, but also including facilities and other fees.
Depreciation
and Amortization
Depreciation and amortization was $20,756 in 2006 and $20,826 in
2005, effectively constant year over year. The Companys
complement of productive assets and related service periods has
not changed. Depreciation and amortization increased 13% to
$20,826 in 2005 from $18,429 in 2004. The decrease in 2006 was
principally attributable to a decrease in amortization expense
related to the historical acquisition of certain service
agreements. 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.
Goodwill
Impairment
In connection with its annual goodwill impairment testing for
the year ended December 31, 2006, the Company determined
there was an impairment and recorded a non-cash charge of
$515,916. The goodwill impairment, the majority of which is not
deductible for income tax purposes, is primarily due to our
declining operating performance in fiscal 2006 and the reduced
valuation multiples in the radio industry. Such negative factors
are reflected in our stock price and market capitalization.
Corporate,
General and Administrative Expenses
Corporate, general and administrative expenses increased 5.4% to
$14,784 in 2006 from $14,028 in 2005, and increased 3.2% in 2005
from $13,596 in 2004. The 2006 increase was principally
attributable to higher expenses associated with our corporate
governance, business development and compliance initiatives,
including approximately $1,200 in professional fees associated
with the activities of the Strategic Review Committee. The 2005
increase was principally attributable to higher expenses
associated with our corporate governance, business development
and certain compliance initiatives.
Operating
(Loss) Income
Operating (loss) income decreased 402.8% to $(435,980) in 2006
from $143,978 in 2005, and decreased 4.7% in 2005 from $151,124
in 2004. The 2006 decrease was principally attributable to a
$515,916 charge for the impairment of goodwill, as well as the
decline in net revenues and higher operating costs. The 2005
decrease was principally attributable to the decline in net
revenues and higher operating and depreciation and amortization
costs.
Interest
Expense
Interest expense was $25,590, $18,315 and $11,911 in 2006, 2005
and 2004, respectively. The 2006 and 2005 increase was
attributable to higher outstanding borrowings throughout the
year under our credit facilities and higher average interest
rates. Our average effective interest rate for 2006, 2005 and
2004 was 5.9%, 4.29% and 3.1%, respectively. The increase in the
2006 and 2005 debt levels during the year result from share
repurchases pursuant to the Companys stock repurchase
program, as well as dividend payments made quarterly throughout
2006 and 2005, which are further described below.
-20-
Other
(Income) Expense
Other (income) expense was $926, $1,440 and $948 in 2006, 2005
and 2004, respectively. In 2006, the Company received $529 in
connection with a recapitalization transaction of its investee,
POP Radio, LP (POP Radio). In 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. For the period ending December 31, 2004, the
Company recognized a net gain of $787 in other income, as a
result of the sale of its interest in SportsLine.
Provision
for Income Taxes
The income tax provision was $8,809, $49,217 and $53,206 in
2006, 2005 and 2004, respectively. The 2006 income tax provision
was impacted by the goodwill impairment and related deferred tax
attributes. The Companys effective rate increased to 38.7%
in 2005 from 38.0% in 2004 as a result of recent tax
developments in states in which we operate. For the years ended
December 31, 2006, 2005 and 2004, a portion of the
Companys current income tax expense is not paid in cash as
a result of windfall tax benefits related to stock option
exercises (the amount by which a realized tax benefit for an
option exercised exceeds the compensation expense previously
recognized, net of tax) of $12, $861 and $10,518 respectively.
Net
(Loss) Income
Net (loss) income in 2006 decreased 702.7% to ($469,453) ($5.46)
per basic and diluted Common share and $0.26 per basic and
diluted Class B share) from $77,886 ($0.86 per basic
and $0.85 per diluted Common share, and $0.24 per
basic and diluted Class B share) in 2005 and decreased
10.4% in 2005 from $86,955 ($0.90 per basic and
$0.88 per diluted Common share and $0.00 per basic and
diluted Class B share) in 2004.
Earnings
per share
Weighted average shares outstanding for purposes of computing
basic earnings per Common share were 86,013,000, 90,714,000 and
96,722,000 in 2006, 2005 and 2004, respectively. The decreases
in each of the previous two periods were primarily attributable
to Common stock repurchases under the Companys 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 Common share were 86,013,000, 91,519,000 and
99,009,000 in 2006, 2005 and 2004, respectively. The changes in
weighted average diluted Common shares are due principally to
the decrease in basic shares and the effect of the decrease in
the Companys share price, partially offset by the effect
of stock option and restricted stock unit grants. Weighted
average shares outstanding for purposes of computing basic and
diluted earnings per Class B share were 292,000 in 2006 and
2005 and 395,000 in 2004. The decrease in weighted average
Class B shares from 2004 to 2005 reflects the conversion of
Class B shares to Common shares in 2004.
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, 2006, the Companys principal sources
of liquidity were its cash and cash equivalents of $11,528 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, 2006, 2005 and 2004, net cash provided by
operating activities were $104,251, $118,290 and $117,456,
respectively. The decrease in 2006 is primarily attributable to
a decrease in net income, offset by changes in working capital.
For 2005, the increase is primarily attributable to a decrease
in cash taxes paid resulting from higher tax benefits from the
exercise of stock options in 2005.
-21-
On October 31, 2006 the Company amended its existing senior
loan agreement with a syndicate of banks led by JP Morgan Chase
Bank and Bank of America. The facility, as amended, is comprised
of an unsecured five-year $120,000 term loan and a five-year
$150,000 revolving credit facility which shall be automatically
reduced to $125,000 effective September 28, 2007
(collectively the Facility). In connection with the
original closing of the Facility on March 3, 2004, the
Company borrowed the full amount of the term loan, the proceeds
of which were used to repay the outstanding borrowings under a
prior facility. As of December 31, 2006, the Company had
available borrowings of $100,000 under the Facility. Interest on
the Facility is variable and is payable at a maximum of the
prime rate plus an applicable margin of up to .25% or LIBOR plus
an applicable margin of up to 1.25%, at the Companys
option. The applicable margin is determined by the
Companys Total Debt Ratio, as defined. The Facility
contains covenants relating to dividends, liens, indebtedness,
capital expenditures and restricted payments, as defined,
interest coverage and leverage ratios. 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 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. In total, the
swaps cover $100,000 which represents 50% of the notional amount
of Senior Unsecured Notes. The Senior Unsecured Notes contain
covenants relating to dividends, liens, indebtedness, capital
expenditures, and interest coverage and leverage ratios. None of
the Facility or Senior Unsecured Note covenants are expected to
have an impact on the Companys ability to operate and
manage its business.
In conjunction with the Companys objective of enhancing
shareholder value, the Companys Board of Directors
authorized a stock repurchase program in 1999. Most recently, on
April 29, 2005, the Companys 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: 750,000 shares of the Companys Common
stock, at a total cost of $11,044, in 2006;
8,015,000 shares of the Companys Common stock, at a
total cost of $160,604, in 2005 and 8,456,000 shares of the
Companys Common stock, at a total cost of $216,503, in
2004. The Company has not repurchased any of its Common stock
since February 2006. At the end of December 2006, the Company
had authorization to repurchase up to an additional $290,490 of
its Common stock.
On April 29, 2005, the Board of Directors declared the
Companys 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 stock
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, April 18, 2006
and August 7, 2006, the Companys Board of Directors
declared cash dividends of $.10 per share for every issued
and outstanding share of Common stock and $.08 per share
for every issued and outstanding share of Class B stock. On
November 7, 2006, the Companys Board of Directors
declared a cash dividend of $0.02 per share for every
issued and outstanding share of Common stock and $0.016 per
share for every issued and outstanding share of Class B
stock. Dividend payments totaling $27,640 were made in 2006.
The Companys business does not require, and is not
expected to require, significant cash outlays for capital
expenditures.
The Company believes that its cash, other liquid assets,
operating cash flows, ability to cease issuing a dividend, and
existing and available bank borrowings, taken together, provide
adequate resources to fund ongoing operations relative to its
current expectations, organizational structure, and operating
agreements. If the assumptions underlying our current
expectations regarding future revenues and operating expenses
change, or if unexpected opportunities arise or strategic
priorities change, we may need to raise additional cash by
future modifications to our existing debt instruments or seek to
obtain replacement financing. The Companys ability to
obtain, if needed, amendments to its existing financing or
replacement financing may be impacted by the timing of the
Companys ability, if at all, to extend its relationship or
operating arrangements with CBS Radio beyond March 31, 2009.
-22-
Investments
On March 29, 2006, the Companys cost method
investment in The Australia Traffic Network Pty Limited
(ATN) was converted to 1,540,195 shares of
common stock of Global Traffic Network, Inc. (GTN)
in connection with the initial public offering of GTN on that
date. The Company is subject to a one-year
lock-up
provision with respect to its shares in GTN. The investment in
GTN, valued at $7,917 at December 31, 2006, is classified
as an available for sale security and included in other assets
in the accompanying Consolidated Balance Sheet. Accordingly, the
unrealized gain as of December 31, 2006 is included in
unrealized gain on available for sale securities in the
accompanying Consolidated Balance Sheet.
GTN is the parent company of ATN, and also of Canadian Traffic
Network ULC (CTN) from whom the Company purchased a
senior secured note in an aggregate principal amount of $2,000
in November 2005. This note was included in other assets in the
accompanying Consolidated Balance Sheet at December 31,
2005. On September 7, 2006, CTN repaid this note in full.
On October 28, 2005, the Company became a limited partner
of 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 became 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). On October 18, 2006, in connection with
the withdrawal of the dispute between POP Radio and NAMI, the
Superior Court of the State of Connecticut vacated the temporary
injunction against POP Radio and released the $1,400 bond posted
by the Company.
On September 29, 2006, the Company, along with the other
limited partners of POP Radio, elected to participate in a
recapitalization transaction negotiated by POP Radio with Alta
Communications, Inc. (Alta), in return for which the
Company received $529 on November 13, 2006. Pursuant to the
terms of the transaction, if and when Alta elects to exercise
warrants it received in connection with the transaction, the
Companys limited partnership interest in POP Radio will
decrease from 20% to 6%.
Contractual
Obligations and Commitments
The following table lists the Companys future contractual
obligations and commitments as of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
|
|
|
<1
|
|
|
1-3
|
|
|
3-5
|
|
|
>5
|
|
Contractual Obligations
|
|
Total
|
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Long-term Debt(1)
|
|
$
|
451,439
|
|
|
$
|
21,864
|
|
|
$
|
254,645
|
|
|
$
|
17,095
|
|
|
$
|
157,835
|
|
Capital Lease Obligations
|
|
|
4,480
|
|
|
|
960
|
|
|
|
1,920
|
|
|
|
1,600
|
|
|
|
|
|
Operating Leases
|
|
|
38,581
|
|
|
|
6,968
|
|
|
|
12,198
|
|
|
|
7,778
|
|
|
|
11,637
|
|
Other Long-term Obligations
|
|
|
254,497
|
|
|
|
95,813
|
|
|
|
117,227
|
|
|
|
34,357
|
|
|
|
7,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
748,997
|
|
|
$
|
125,605
|
|
|
$
|
385,990
|
|
|
$
|
60,830
|
|
|
$
|
176,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Companys interest rate as of December 31,
2006, 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 $101,343 of payments due
-23-
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.
On November 9, 2006, the Company announced that its Board
of Directors established a Strategic Review Committee comprised
of independent directors to evaluate means by which Westwood may
be able to enhance shareholder value. The Committees
principal task at this time is to seek to modify and extend the
Companys various agreements with CBS Radio Inc. and its
affiliates, including the Companys management agreement
and programming and distribution arrangements with CBS Radio.
The Companys principal agreements with CBS Radio currently
expire on March 31, 2009. The Committee and CBS Radio are
currently engaged in discussions relating to these matters.
There can be no assurance that this process will result in any
modification or extension to these agreements.
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, 2006, 2005 and 2004, CBS Radio earned cash
compensation of $3,273, $2,853 and $2,959, 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 Companys 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 Companys Common stock
reached certain market prices, which were subsequently 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 Companys 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 Companys 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). As of December 31, 2006, 1,000,000 of these
warrants were cancelled as the Companys Common stock did
not reach the specified price targets necessary for the warrants
to become exercisable. For additional information on these
warrants see Note 2 Related Party
Transactions to our consolidated financial statements.
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 Radios 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
Companys 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
-24-
agreements between the Company and CBS Radio or any of its
affiliates must be approved by the independent members of the
Companys Board of Directors. During 2006, the Company
incurred expenses aggregating approximately $75,514 for the
Representation Agreement, affiliation agreements and the
purchase of programming rights from CBS Radio and affiliates
($78,388 in 2005 and $84,338 in 2004). 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 Viacoms affiliation with CBS Radio. Viacom is
the former parent company of CBS Radio and, like CBS Radio, is
majority-owned by National Amusements, Inc.
On November 9, 2006, the Company announced that its Board
of Directors established a Strategic Review Committee comprised
of independent directors to evaluate means by which Westwood may
be able to enhance shareholder value. The Committees
principal task at this time is to seek to modify and extend the
Companys various agreements with CBS Radio Inc. and its
affiliates, including the Companys management agreement
and programming and distribution arrangements with CBS Radio.
The Companys principal agreements with CBS Radio currently
expire on March 31, 2009. The Committee and CBS Radio are
currently engaged in discussions relating to these matters.
There can be no assurance that this process will result in any
modification or extension to these agreements.
Critical
Accounting Policies and Estimates
Westwood Ones 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.
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.
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 Companys
effective commission is presented within Revenues with no
corresponding operating expenses.
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.
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.
Valuation of Goodwill Goodwill represents the
residual value remaining after ascribing estimated fair values
to a reporting units tangible and intangible assets and
liabilities. In order to estimate the fair values of assets and
liabilities the Company may use various methods including
probability-weighted discounted cash flows, excess
-25-
earnings, profit split and income methods. Utilization of any of
these methods requires that the Company make important
assumptions and judgments about future operating results, cash
flows, discount rates, and the probability of various event
scenarios, as well as the proportional contribution of various
assets to results and other judgmental allocations. In arriving
at these estimates and judgments the Company considers internal
budgets and strategic plans, expected long term growth rates,
and the potential effects of possible external factors and
market conditions. If actual future conditions or events differ
from the Companys estimates, an additional impairment
charge may be necessary to reduce the carrying value of goodwill
which charge could be material to the Companys operations.
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 $2,323, or 0.5% of
revenue, in 2006, $2,035, or 0.4% of revenue, in 2005 and $874,
or 0.2% of revenue, in 2004. 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.
The Company reviews the recoverability of its long-lived assets
and finite-lived identifiable intangible assets for
recoverability whenever events or changes in circumstances
indicated that the carrying amount of an asset may not be
recoverable in accordance with Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long Lived Assets. Westwoods intangible asset
balance is material ($4,225 at December 31, 2006), 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 Companys 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
Companys operations.
Valuation of stock options and warrants 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.
Additionally, a change in the estimated rate of forfeitures may
result in a significant change in stock-based compensation
expense for a given period. For further information on
assumptions used refer to Note 9
Equity-Based Compensation to the consolidated
financial statements.
-26-
Recent
Accounting Pronouncements Affecting Future Results
In May 2006, 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, 2006. The Company does not expect the adoption
of SFAS 154 to have a material impact on the Companys
consolidated financial statements.
In June 2006, the FASB issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes, an interpretation of SFAS No. 109,
(SFAS No. 109), Accounting for
Income Taxes. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises
financial statements in accordance with SFAS No. 109
and prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
evaluation of a tax position in accordance with this
Interpretation is a two-step process. The first step is
recognition, in which the enterprise determines whether it is
more likely than not that a tax position will be sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. The second step is measurement. A tax position that
meets the more-likely-than-not recognition threshold is measured
to determine the amount of benefit to recognize in the financial
statements. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The Company will adopt FIN 48
on January 1, 2007 and does not presently expect that it
will have a material effect on the consolidated financial
position or results of operations.
In September 2006, the FASB issued Fair Value
Measurements (SFAS No. 157).
SFAS No. 157 establishes a common definition of fair
value to be applied to US GAAP guidance that requires the use of
fair value, establishes a framework for measuring fair value and
expands disclosure about such fair value measurements.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. The Company is currently assessing
the impact of adopting SFAS No. 157, but does not
presently expect that it will have a material effect on the
consolidated financial position or results of operations.
In September 2006, the SEC staff issued Staff Accounting
Bulletin (SAB) 108 Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (SAB 108).
SAB 108 requires that public companies utilize a
dual-approach to assess the quantitative effects of
financial misstatements. This dual approach includes both an
income statement focused assessment and a balance sheet focused
assessment. The guidance in SAB 108 must be applied to
annual financial statements for fiscal years ending after
November 15, 2006. The adoption of SAB 108 did not
have a material effect on the consolidated financial position or
results of operations.
|
|
Item 7A.
|
Quantitative
and Qualitative 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
-27-
agreements covering $75,000 notional value of its outstanding
borrowing to effectively float the interest rate at three-month
LIBOR plus 80 basis points. In total, the swaps cover
$100,000 which represents 50% of the notional amount of Senior
Unsecured Notes.
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 instruments
effectiveness offsets the exposure to changes in the hedged
items fair value or variability in cash flows attributable
to the hedged risk.
With respect to the borrowings pursuant to the Companys
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 for every $2,000 of outstanding
debt. As of December 31, 2006, the Company had $170,000
outstanding under the 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 Companys receivables do not represent a significant
concentration of credit risk due to the wide variety of
customers and markets in which the Company operates.
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|
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 managements 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 managements 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, managements judgment with respect to the
relative cost and expected benefits of specific control measures.
The Companys consolidated financial statements have been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, who have expressed their opinion with
respect to the presentation of these statements.
The Audit Committee of the Board of Directors, which is
comprised solely of directors who are not employees of the
Company, meets periodically with the independent 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 Companys independent
accountants. The independent accountants have full and free
access to the Audit Committee with and without managements
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-28
and by this reference incorporated herein.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
-28-
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
The Companys management, under the supervision and with
the participation of the Companys Chief Executive Officer
and Chief Financial Officer, carried out an evaluation of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures as of December 31, 2006
(the Evaluation). Based upon the Evaluation, the
Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys 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 SECs
rules and forms.
Managements
Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting. The Companys 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 Companys financial
statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
Management evaluated the effectiveness of the Companys
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 Companys Chief Executive
Officer and Chief Financial Officer, assessed the effectiveness
of the Companys internal control over financial reporting
as of December 31, 2006 and concluded that it is effective.
The Companys independent registered public accounting
firm, PricewaterhouseCoopers LLP, has audited the effectiveness
of the Companys internal control over financial reporting
and managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2006, 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 Companys internal control over
financial reporting that occurred during the Companys most
recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
-29-
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Directors
The directors of the Company, as of April 15, 2007 are
listed below. The Companys Board of Directors (referred to
in this Part III only as the Board) is divided
into three classes (Class I, II, and III), each class
serving for three-year terms, which terms are staggered and
expire as indicated below. Each directors class and the
year he became a director of the Company is indicated below.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
Age
|
|
|
Director Since
|
|
|
Class
|
|
Term Expires
|
|
|
Walter Berger
|
|
|
51
|
|
|
|
2006
|
|
|
II
|
|
|
2009
|
|
Albert Carnesale(I)
|
|
|
70
|
|
|
|
2005
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|
|
II
|
|
|
2009
|
|
David L. Dennis(I)
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|
|
58
|
|
|
|
1994
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|
|
II
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|
|
2009
|
|
Gerald Greenberg(I)
|
|
|
64
|
|
|
|
1994
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|
|
III
|
|
|
2008
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|
Peter Kosann
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|
|
37
|
|
|
|
2006
|
|
|
I
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|
|
2007
|
|
Grant F. Little, III(I)
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42
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|
|
|
2006
|
|
|
II
|
|
|
2009
|
|
H. Melvin Ming(I)
|
|
|
60
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|
|
|
2006
|
|
|
III
|
|
|
2008
|
|
Norman J. Pattiz
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|
|
64
|
|
|
|
1974
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|
|
I
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|
|
2007
|
|
Joseph B. Smith(I)
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|
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79
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|
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|
1994
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|
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I
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|
|
2007
|
|
The principal occupations and professional background of the
nine directors are as follows:
Mr. Berger has been a director of the
Company since April 4, 2006. Mr. Berger has been the
Executive Vice President and Chief Financial Officer of CBS
Radio Inc. since January 2006. Mr. Berger was the Executive
Vice President, Chief Financial Officer, and a member of the
Board of Directors of Emmis Communications Corporation from 1999
to 2005. Prior to Emmis, Mr. Berger served as Group
President of the Energy Marketing Division for LG&E Energy
Corporation, where he previously served as Executive Vice
President and Chief Financial Officer. Mr. Berger is a
cum laude graduate of the University of Massachusetts,
Amherst, with a degree in business administration. He is also a
C.P.A. who serves on numerous civic boards and committees.
Dr. Carnesale has been a director of the
Company since August 3, 2005. Dr. Carnesale is
Chancellor Emeritus and Professor at the University of
California, Los Angeles (UCLA). He served as Chancellor of UCLA
from July 1, 1997 through June 20, 2006. Prior to
joining UCLA, Dr. Carnesale served for 23 years as
Professor of Public Policy and Administration at Harvard
Universitys John F. Kennedy School of Government. During
that period, Dr. Carnesale also served as Provost of the
University (October 1994 June 1997) and Dean of
the Kennedy School (November 1991 December 1995).
Dr. Carnesale is a director of Teradyne, Inc.
Mr. Dennis has been a director of the
Company since May 24, 1994. Mr. Dennis has been a
Managing Director of Pacific Venture Group, a healthcare venture
capital firm, since November 2004. Mr. Dennis was a private
investor and consultant from December 2002 to November 2004.
Mr. Dennis served as Vice Chairman, Co-President, Chief
Corporate Officer and Chief Financial Officer of Tenet
Healthcare, a hospital owner and healthcare provider, from March
2000 through November 2002. Mr. Dennis served as Managing
Director, Investment Banking for Donaldson, Lufkin &
Jenrette Securities Corporation from April 1989 to February 2000.
Mr. Greenberg has been a director of the
Company since May 24, 1994. Since February 2001,
Mr. Greenberg has been President of Mirage Music
Entertainment, a company which owns the Mirage Record label.
From April 1993 to January 2001, Mr. Greenberg served as
President of MJJ Music, a Michael Jackson/Sony owned record
label.
Mr. Kosann was appointed to the Board of
Directors of the Company on January 1, 2006, when he became
President and Chief Executive Officer of the Company. Prior to
such time, Mr. Kosann was President, Sales of the Company
since May 2003 and Co-Chief Operating Officer since April 2005.
Mr. Kosann was the Companys Executive Vice
President Network Advertising Sales from January
2001 to May 2003; Senior Vice President
-30-
Affiliate Sales and New Media from December 1999 to January 2001
and Vice President Affiliate Sales from May 1999 to
December 1999. Mr. Kosann was employed by Bloomberg
Financial Markets from November 1992 to May 1999 in several
media sales and business development capacities.
Mr. Little has been a director of the
Company since March 14, 2006. Mr. Little is the Chief
Executive Officer and Founder of Hudson Advisory Partners
(Hudson). Founded in August 2005, Hudson assists
companies and entrepreneurs on business and capital strategy
with a long-term orientation and alignment of interests. Prior
to Hudson, Mr. Little spent thirteen years
(1987-2000)
with Donaldson, Lufkin & Jenrette Securities
Corporation in its investment banking division, until it was
acquired by Credit Suisse First Boston (CSFB) in
late 2000. Mr. Little was a Managing Director in the
Investment Banking Division of CSFB based in Los Angeles from
late 2000 to August 2005. He served as a consultant to CSFB
until December 2005. During his investment banking career,
Mr. Little worked with companies in various stages of
development
(start-up,
high-growth, mature and restructuring), executed a multitude of
products (e.g., capital raising including debt and equity
in public and private markets, buy and sell-side M&A and
restructurings) and worked with companies in a variety of
industries (e.g., retail, manufacturing, healthcare, real
estate, gaming and media) in executing their capital strategies.
Mr. Ming has been a director of the
Company since July 7, 2006. Since October 2002,
Mr. Ming has been the Chief Operating Officer of Sesame
Workshop, the producers of Sesame Street and other
childrens educational media. Mr. Ming joined Sesame
Workshop in 1999 as the Chief Financial Officer. Prior to
joining Sesame Workshop, Mr. Ming was the Chief Financial
Officer of the Museum of Television and Radio in New York from
1997 to 1999; Chief Operating Officer at WQED in Pittsburgh from
1994-1996;
and Chief Financial Officer and Chief Administrative Officer at
Thirteen/WNET New York from 1984 to 1994. Mr. Ming is a
C.P.A. and graduated from Temple University in Philadelphia, PA.
Mr. Pattiz founded the Company in 1976
and has held the position of Chairman of the Board since that
time. He also was the Companys Chief Executive Officer
until February 3, 1994. From May 2000 to March 2006,
Mr. Pattiz served on the Broadcasting Board of Governors
(BBG) of the United States of America, which oversees all
U.S. non-military international broadcast services. As
chairman of BBGs Middle East Committee, Mr. Pattiz
was the driving force behind the creation of Radio Sawa and
Alhurra Television, the U.S. Governments
Arabic-language
radio and TV services to the 22 countries of the Middle East.
Mr. Pattiz has served as a Regent of the University of
California since September 2001, and chairs the Regents
Oversight Committee of the Department of Energy Laboratories. He
also serves on the Board of the Annenberg School of
Communication at the University of Southern California, the
Board of Trustees of the Museum of Television & Radio
and is past president of the Broadcast Education Association. He
is a member of the Council on Foreign Relations and the Pacific
Council on International Policy.
Mr. Smith has been a director of the
Company since May 24, 1994. He was previously a director of
the Company from February 1984 until February 3, 1994.
Since April 1993, Mr. Smith has been the President of
Unison Productions, Inc., through which he serves as an industry
consultant involved in a number of projects in the entertainment
business.
Named
Executive Officers
The following is a list of the Companys Chief (Principal)
Executive Officer, Chief (Principal) Financial Officer, and the
three most highly compensated of the Companys executive
officers (excluding the CEO and CFO) using the SECs
methodology for determining total compensation. Such
individuals are referred to in this report as the Companys
named executive officers (or NEOs) for
2006:
|
|
|
Named Executive Officer
|
|
Position
|
|
Norman J. Pattiz
|
|
Chairman of the Board
|
Peter Kosann
|
|
Chief Executive Officer and
President
|
Andrew Zaref
|
|
Executive Vice President and Chief
Financial Officer
|
David Hillman
|
|
Executive Vice President, Business
Affairs and General Counsel
|
Paul Gregrey
|
|
Executive Vice President, Sales,
Network Division
|
-31-
The professional background of the executive officers who are
not also directors of the Company follows:
Andrew
Zaref
Andrew Zaref (age 41) serves as the Companys
Executive Vice President and Chief Financial Officer and is
responsible for the Companys financial affairs. Prior to
joining the Company in such position in January 2004,
Mr. Zaref served as an Audit Partner in the Information,
Communications and Entertainment practice of KPMG LLP. While at
KPMG, Mr. Zaref played a key role in advising numerous high
profile media and technology clients. Mr. Zaref is a CPA
licensed in New York State.
David
Hillman
David Hillman (age 38) serves as the Companys
Executive Vice President, Business Affairs and General Counsel.
Mr. Hillman joined the Company in June 2000 as Vice
President, Labor Relations and Associate General Counsel, which
positions he held through September 2004, and thereafter became
Senior Vice President, General Counsel in October 2004. He
became an Executive Vice President in February 2006.
Paul
Gregrey
Paul Gregrey (age 47) serves as the Companys
Executive Vice President, Sales, Network Division, a position he
has held since May 2003. Mr. Gregrey joined the Company in
1999 as a Vice President in the Network, Western Sales division
in Los Angeles and from June 2000 to May 2003, served as a
Senior Vice President in the Network, Eastern Sales division in
New York.
There is no family relationship between any Company director and
executive officer.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the
Companys executive officers and directors and persons who
own more than ten percent of a registered class of the
Companys equity securities to file reports of ownership
and changes in ownership with the SEC. Officers, directors and
more than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received
by it, or written representations from its directors and
executive officers, the Company believes that during 2006 its
executive officers, directors and more than ten percent
beneficial owners complied with all SEC filing requirements
applicable to them.
Code of
Ethics
The Company has a written policy entitled Code of
Ethics that is applicable to all employees, officers and
directors of the Company. In addition to its Code of Ethics, the
Company has a Supplemental Code of Ethics for its Chief
Executive Officer and Chief Financial Officer. Both the Code of
Ethics and the Supplemental Code of Ethics are available on the
Companys website (www.westwoodone.com) and are
available in print at no cost to any shareholder upon request.
Changes
to Director Nomination Procedures
No material changes have been made to the Companys
procedures regarding how security holders may recommend nominees
to the Companys Board.
Audit
Committee
The Board has an Audit Committee and has adopted a written
charter for such committee, a copy of which is available on the
Companys website at www.westwoodone.com and
available in print at no cost to any shareholder upon request.
Such committee is composed entirely of non-employee, independent
members of the Board. The current members of the Audit Committee
are Messrs. Little (Chair), Greenberg, Ming and Smith.
Pursuant to the Sarbanes-Oxley Act of 2002 (SOX) and
the NYSE listing standards, Messrs. Greenberg, Little, Ming
and Smith
-32-
meet the requirements of independence proscribed thereunder. In
addition, the Board has determined that Mr. Little is an
audit committee financial expert pursuant to SOX and
the NYSE listing standards. For further information concerning
Mr. Littles qualifications as audit committee
financial expert, see his biography which appears above
under the heading entitled Directors in this
Item 10.
|
|
Item 11.
|
Executive
Compensation
|
Compensation
Discussion and Analysis
The following narrative is a description of how the Company
determines compensation for its named executive officers
(referred to as NEOs or executives
below), including the elements of their compensation and how the
levels of their compensation are determined and by whom. This
description will help further explain the disclosure listed in
the compensation tables that follow the narrative. When
references are made to key employees, we are
referring to a broader group of senior managers, such as
department heads, who may be eligible for a particular
compensation element. Finally, references to the executive
team or management mean the Chief Executive
Officer, Chief Financial Officer and General Counsel.
Overview
The Companys Compensation Committee (referred to in this
narrative as the Committee), which is comprised of
three independent directors, is primarily responsible for
determining the compensation of the Companys NEOs on an
annual basis. The Committee exercises its responsibility
primarily by determining two key discretionary
components of NEO compensation: the discretionary annual bonus,
payable in cash, if any, and the annual equity compensation
award, if any, based on managements recommendation (in the
case of the CEO, based on CBS Radios recommendation) to
the Committee. Depending on the circumstances, the Committee may
be involved in determining NEOs base salaries, which
typically are set when a NEO enters into an employment agreement
with the Company. The Committee is aided in its decision-making
process by its independent, nationally recognized compensation
consultant, the Semler Brossy Consulting Group
(SBCG), which reports directly to the Committee
Chair and performs no other work for the Company. SBCG has been
the adviser to the Committee since 2003. When appropriate the
Committee also directly receives legal advice from Proskauer
Rose LLP. CBS Radio, Inc., which owns 18.4% of the Company and
which under a long standing management agreement manages the
Company, plays a significant role in reviewing, recommending and
establishing NEOs compensation, as described below. In
particular, in the case of the CEO, CBS Radio determined the
CEOs base salary and potential discretionary annual bonus
pursuant to the CEOs employment agreement with CBS Radio.
In general, the Committee seeks to provide appropriate and
reasonable levels of compensation to its NEOs. The Company
strives to be competitive with pay opportunities of comparable
companies in the media industry, while accounting for individual
performance and the overall performance of the Company. The
Company provides minimal perquisites, consisting mainly of
reimbursements for parking and car allowances. The Company does
not provide to its executives any other types of perquisites,
including supplemental pension plans or other deferred
compensation arrangements.
Objectives
The objective of the Companys executive compensation
policy (which affects NEOs) is to attract, retain and motivate
management in a manner that is in the best interests of the
Companys shareholders. Compensation for NEOs and other key
employees is primarily comprised of three elements: a base
salary, a discretionary annual bonus and discretionary annual
grants of equity compensation awards. While annual bonuses and
equity compensation awards may be addressed in NEOs
employment agreements, the awards of either or both are wholly
discretionary and subject to the sole determination of the
Committee (as stated in such employment agreements). The
Committee believes that equity compensation awards are important
contributors to the attraction, retention and motivation of the
Companys executives and more closely aligns the interest
of executives and management to the interests of the
Companys shareholders.
-33-
The Committee has established the following objectives when
determining the compensation for NEOs:
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|
|
Pay for Performance. Corporate goals and
objectives, and the progress made in achievement thereof, both
as such goals and objectives have been presented by management
and as expressed by CBS Radio, as manager of the Company, and
the Board, should be a key consideration in any pay decisions;
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|
|
Be Competitive. Total compensation
opportunities for the NEOs generally should be competitive with
comparable companies in the industry, to be able to continue to
maintain and attract needed managerial talent;
|
|
|
Align Long-term Interests of Executives with Shareholder
Interests. Elements of compensation should be
structured to give substantial weight to the future performance
of the Company in order to better align the interests of the
Companys shareholders and NEOs; and
|
|
|
Attract and Retain Key Employees. In the midst
of a challenging business environment, the Committee believes
that the best interests of the shareholders are served by
remembering that an effective compensation program also reflects
the value of attracting and retaining key employees and talent.
|
The Company generally establishes a NEOs base salary in
the individuals employment contract, based generally on
competitive pay levels and appropriate fixed pay to compensate
sufficiently the NEOs for performing
his/her
duties and responsibilities.
What are the duties and responsibilities of the Committee in
establishing compensation?
The Committee has the following responsibilities pursuant to its
Charter (a copy of which is available on the Companys
website at www.westwoodone.com):
|
|
|
Establish, oversee and recommend to the Board the implementation
of overall compensation policies for executive officers as well
as for compensation provided to officers (pursuant to the
Management Agreement) and the Chairman of the Board;
|
|
|
Review and approve corporate goals and objectives relative to
the compensation of executive officers;
|
|
|
Review the results of and procedures for the evaluation of other
executive officers by the Chief Executive Officer;
|
|
|
At the direction of the Board, establish compensation for the
Companys non-employee directors; and
|
|
|
Oversee the administration of all qualified and non-qualified
employee compensation and benefit plans, including stock
incentive plans.
|
Each of the members of the Committee is independent within the
meaning of the Companys Corporate Governance Guidelines
and the listing standards of the NYSE.
In carrying out its responsibilities, the Committee is
authorized to engage outside advisors to consult with the
Committee as it deems appropriate.
Process
What is
the timeline for establishing NEOs discretionary
compensation?
The Committee generally discusses NEOs discretionary
compensation during the period beginning with the last Board
meeting of the year (customarily held in December) and ending
with the first Board meeting after the announcement of
Companys earnings for the full year (customarily held in
March). Between those meetings, the Company reports its year-end
financial results and prepares a preliminary budget setting
forth goals and objectives for the upcoming year. The CEO makes
recommendations to the Committee for other NEOs
discretionary annual bonuses and equity compensation awards,
including the suggested allocation between stock options, on the
one hand, and restricted stock or restricted stock units (RSUs),
on the other. Before management makes its recommendations to the
Committee, the CEO reviews them with a representative of CBS
Radio. The CEO does not make recommendations, review or
otherwise participate in the process of determining his own
discretionary compensation. Any proposal regarding the
CEOs discretionary compensation is made by CBS Radio.
-34-
What are
the roles of the various parties involved in the compensation
process?
While the Committee ultimately is responsible for making most of
the compensation decisions related to NEOs, it believes it is
advisable to obtain managements insight and input as well
as the independent guidance of a third-party compensation
adviser. Since the middle of 2003, the SBCG has acted as such
adviser to the Committee and has attended several of the
Committee meetings as needed. SBCG advises the Committee as to
the appropriateness and reasonableness of the awards of
discretionary compensation, including with respect to companies
comparable in size or otherwise similar to the Company. Its
analysis may include such considerations as the form of award
(cash, stock options, restricted stock or RSUs), the aggregate
percentage of the Companys stock being allocated
(including how much stock remains issuable under the shareholder
approved 2005 Plan) and the present value of the award. The
Committee receives significant input from management, as
appropriate, and the Committee meets separately with CBS Radio,
to understand and factor into its decisions as full a picture of
the relevant facts and circumstances as possible.
How large
a role is played by CBS Radio, as manager of the Company, in
determining compensation to NEOs?
CBS Radio is involved in reviewing managements
recommendations regarding discretionary annual bonuses and
equity compensation awards to key employees, including NEOs,
prior to the submission of such proposal to the Committee. CBS
Radio is then included in future dialogue among the Committee,
the Board and management regarding managements
recommendations. CBS Radio plays a particularly significant role
in the CEOs and CFOs compensation, as: (i) the
Companys CEO is compensated pursuant to an employment
agreement with CBS Radio, and not the Company, and (ii) the
current CFOs salary and bonus is paid by the Company but
is reimbursed by CBS Radio, and such employment agreement is
with, and was negotiated by, the Company in conjunction with CBS
Radio.
Prior to 2004, the Companys CEO, Joel Hollander (CEO from
October 1998 to May 2003), and CFO, Jacques Tortoroli (CFO
from July 2002 to December 2003), were both employees of CBS
Radio. During such time period, neither individual received any
salary or bonus from the Company. When Mr. Zaref became CFO
in January 2004, the Committee assumed responsibility for the
determination of the CFOs salary and bonus, as well as
continuing to determine any equity compensation awards.
When do
NEOs receive their discretionary compensation awards?
The Company makes its annual discretionary compensation awards
(i.e., annual bonus and equity compensation) to NEOs
after the performance of the immediately preceding fiscal year,
including year-end earnings, has been publicly reported and is
known by Board members, including the Committee. The Committee
has, in certain limited circumstances, chosen to make equity
compensation awards at an earlier time to a broader group of key
employees when retention and other considerations made such
actions advisable. While the Committee does not have a formal
written policy on awarding equity compensation based on material
non-public information, it has acted to ensure that it does not
do so. General awards of annual equity compensation (i.e., those
not tied to a special event such as a promotion or
extension of an employment agreement) for 2005 and 2006 were
made by the Committee in February 2006 and March 2007.
What are
the elements of compensation to NEOs and how are levels of
compensation determined?
There are three main components of compensation: (1) base
salary; (2) discretionary annual bonus; and (3) equity
compensation. While two NEOs received a cash retention bonus in
connection with executing their employment agreements, such is
not considered a major component of compensation.
Messrs. Hillman and Gregrey received retention bonuses, in
the amount of $100,000 each, for their respective commitments to
multi-year contracts. All of the NEOs have employment agreements
with the Company (with the exception of the CEO whose agreement
is with CBS Radio) and such employment agreements cover, to
varying degrees, the elements of compensation comprising the
Companys compensation policy as described below in more
detail under the heading employment agreements.
-35-
Base
Salary
In determining base salary, the Committee considers an
individuals performance, experience and responsibilities,
as well as the base salary levels of similarly-situated
employees at comparable companies in the media industry. A base
salary is meant to create a secure base of cash compensation,
which is competitive in the industry. The Company relies to a
large extent on the CEOs evaluation and recommendation
based on his assessment of the NEOs performance.
Salaries generally are reviewed at the time a NEO enters into a
new or amended employment agreement, which typically occurs upon
the assumption of a new position
and/or new
responsibilities or the termination of the agreement. Any
increase in salary is based on a review of the factors set forth
above.
As stated in the Overview the Committee customarily
is not involved in the structuring of employment agreements
which set forth a NEOs base salary. Two recent exceptions
were the amendments to the employment agreements for the
Companys Chairman and the CFO. The Committee took an
active role, along with its compensation adviser, in structuring
the amendments to Mr. Pattizs employment agreement in
2005 based on the recommendation of the Board to the Committee.
The Committee, along with its advisor, similarly took an active
role in structuring the amendment to Mr. Zarefs
employment agreement in 2006, based on the CEOs
recommendation to the Committee and the input of CBS Radio.
The employment agreements of the General Counsel and EVP,
Network Sales were negotiated by the Companys CEO. Both
individuals have been employed by the Company for several years
(since 2000 and 1999, respectively) and the base salaries
negotiated for them increased annually.
Discretionary
Annual Compensation Bonus
In 2006, with the exception of the Companys Chairman, NEOs
were eligible to receive discretionary annual
bonuses and their employment agreements provide a target
amount for which they are eligible (Mr. Pattizs
employment agreement does not provide for such a bonus). While
the bonus amounts differ from agreement to agreement, all such
bonuses are in the sole and absolute discretion of the Board of
Directors or its Committee or their designee.
Each year, management makes a recommendation regarding
discretionary bonuses and equity compensation for key employees
to the Committee. Upon receipt of managements
recommendations, the Committee reviews with management its
suggestions about the management team, and then confers with its
compensation consultant and with CBS Radio. After reviewing its
decisions with the full Board and taking into account the views
expressed by members of the Board, the Committee makes its final
determination. The Committee also takes into account a
NEOs base salary and views cash compensation as a whole
when making its bonus determinations.
In 2006, the Company experienced a 34.9% decrease in EBITDA when
compared to 2005 and a significant decline in its stock price,
which played a significant role in the levels of annual (cash)
discretionary bonuses awarded to NEOs. The actual bonuses paid
to the NEOs for 2006 performance were substantially below their
target amounts, reflecting the Committees view of the
Companys 2006 performance, as more specifically indicated
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
NEO
|
|
Target Bonus(1)
|
|
|
Bonus Paid
|
|
|
% of Target
|
|
|
Norman Pattiz
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Peter Kosann
|
|
$
|
600,000
|
|
|
$
|
150,000
|
|
|
|
25.0
|
%
|
Andrew Zaref
|
|
$
|
275,000
|
|
|
$
|
120,000
|
|
|
|
43.6
|
%
|
David Hillman
|
|
$
|
125,000
|
|
|
$
|
100,000
|
|
|
|
80.0
|
%
|
Paul Gregrey
|
|
$
|
250,000
|
|
|
$
|
17,500
|
|
|
|
7.0
|
%
|
|
|
|
(1) |
|
As set forth in such NEOs employment agreement.
Mr. Pattizs employment agreement does not specify a
target bonus. |
While the Committee does not have a written policy regarding
bonuses payable upon attaining certain financial metrics, all
members of management were judged on the basis of the
Companys overall performance and to the extent applicable,
on the performance of departments over which they exercise
substantial control. The Committee
-36-
took into account the Companys revenues, net income, cash
flow and stock price when analyzing Company performance, while
simultaneously recognizing the current challenges in the radio
industry and the ongoing discussions with CBS Radio to modify
and extend the various agreements between CBS Radio and the
Company. In the case of Mr. Hillman, the Committee also
took into account the increased responsibilities assumed by
Mr. Hillman in 2006 in connection with his promotion to
Executive Vice President.
Equity
Compensation
Equity is a critical component of the Companys
compensation plan. Equity compensation awards are made under the
Westwood One, Inc. 2005 Equity Compensation Plan (referred to
herein as the 2005 Plan), customarily on an annual
basis. The Company and the Committee believe that equity
compensation provides the greatest long-term value potential to
both the Company and its employees in creating long-term growth
and success for employees and shareholders alike. Aside from
promoting retention and incentivizing management, the Company,
where appropriate, uses equity rather than cash as a
signing bonus to management-level individuals hired
by the Company. The Company believes that equity compensation
serves as a critical tool for attracting and retaining key
talent. A total of 9.2 million shares are available for
issuance under the 2005 Plan. As of December 31, 2006
(which does not include the shares awarded in March 2007),
approximately 2,438,589 of such shares have been issued by the
Company under the 2005 Plan.
In 2007 (for services rendered in 2006), the Committee
determined that retaining key employees below the NEO level was
important to the future success of the Company, and agreed to
make equity grants for the non-NEOs solely in restricted stock
this year, and not all or part in stock options as has
historically been the case. For exclusively NEOs, the Committee
chose to incentivize core management by tying a significant
portion of their equity compensation to stock options over
restricted stock. In general, the Committee felt each of the
CEO, CFO and GC is more able to affect the Companys
performance and stock price and believed it was appropriate to
tie a roughly equivalent value of each individuals equity
compensation between stock options and restricted stock. In
March 2007, Mr. Kosann received 41,667 shares of
restricted stock and 125,000 stock options and Mr. Zaref
received 25,000 shares of restricted stock and 75,000 stock
options. While each of Mr. Kosann and Mr. Zaref
received the same number of shares of stock options and
restricted stock in March 2007 as they had received in the first
quarter of 2006 (with the exception that they received
restricted stock, not RSUs, in 2007), the value of such awards
was approximately $899,587 less in the case of Mr. Kosann
and $427,500 less in the case of Mr. Zaref than the value
of the awards made to such individuals in February 2006, as the
Companys stock price (at which price the awards were
granted) declined from $14.27 to $6.17 during such time period.
In December 2006, Mr. Pattiz received 8,333 RSUs and 25,000
stock options pursuant to his employment agreement. In March
2007, Mr. Hillman received 20,000 shares of restricted
stock and 40,000 stock options and Mr. Gregrey received
39,000 shares of restricted stock. Notwithstanding the
increased amount of shares awarded to Mr. Hillman and
Mr. Gregrey, the value of the March 2007 awards to such
individuals also was approximately $205,778 less in the case of
Mr. Hillman and $84,020 less in the case of
Mr. Gregrey than the value of the awards made to them in
February 2006 as a result of the decline in the Companys
stock price as described above. The value of
Mr. Pattizs December 1, 2006 award, when
compared to his December 1, 2005 award, was $117,246 less.
Payments
Upon Termination
Certain NEOs are entitled to cash payments upon their
Termination, including upon a Change in Control and in the case
of Messrs. Pattiz and Zaref, upon their death or
disability. These payments are more particularly described under
the headings entitled Employment Agreements;
Potential Payments upon Change in Control and
Payments upon Disability or Death. The Company does
not have any arrangements with its NEOs, written or otherwise,
for 280G
gross-up
or similar type payments.
Vesting
All equity compensation awarded to employees in 2006 was subject
to a four-year vesting period. In March 2007, the Committee made
a decision for the 2007 awards only, to shorten the vesting
period to three years, in large part to
-37-
help retain critical talent, recognizing that our key employees
have experienced a significant decline in the value of their
equity compensation as the Companys stock price has
declined and have received low annual bonuses in the last two
years. Once granted, an employee is entitled to the benefits of
such award upon vesting, provided, such employee remains
employed by the Company for the duration of the vesting period.
Stock
Options
Stock options only have value if the Companys stock price
increases after the date the stock options are granted, and
their value is measured only by the increase in the stock price.
Under the 2005 Plan, various forms of full value share equity
compensation awards are available, including restricted stock,
restricted stock units, performance shares and deferred stock.
For all such full value shares, each share granted is worth more
than an option share, since the value of such share is measured
by the actual stock price, not just the increase in the stock
price. For this reason, the 2005 Plan calls for the share
authorization to be reduced by three option shares for every
full value share issued. The Committee believes that stock
options remain a useful management incentive tool, but for the
annual 2007 grant, the Committee limited their use to NEOs, so
that more retention-oriented restricted stock would be the
primary component of other employees grants. Unvested
stock options generally are forfeited upon an employees
Termination, including by death or disability. By the terms of
the awards, all outstanding options vest upon a
participants Termination within a
24-month
period after a Change in Control (as such term is defined in the
2005 Plan) has occurred.
Restricted
Stock, RSUs
As mentioned above, the Company began to include restricted
stock and RSUs in its equity compensation awards in May 2005,
after the 2005 Plan was approved by Company shareholders. In
general, only NEOs and the directors have received RSUs which
gives the recipient the right to defer the receipt/payment of
the restricted stock; all other key employees, including NEOs,
have received restricted stock. Generally speaking, restricted
stock and RSUs are substantially similar awards, except that
while a participant receives full voting and economic rights of
the shares of restricted stock upon receipt of the grant, a
participant does not receive such rights upon the grant of a RSU
because the payment of shares underlying a RSU is deferred until
vesting. While dividends, if any, begin to accrue on the date a
RSU is granted, a participants right to the underlying
restricted shares and dividend equivalents are not received by a
participant until the related RSU vest. Furthermore, if a
participant elects to defer receipt of RSUs, the
shares and accumulated dividends thereon, if any, are not
distributed until the date of deferment. A decision to defer
must be made a minimum of twelve (12) months prior to the
initial vesting date and a participant generally may choose to
defer his award until the last vesting date applicable to such
award or his date of Termination.
Awards of restricted stock and RSUs are valued at the closing
market price of the Companys Common stock on the date of
the grant of the award.
Any unvested awards generally are forfeited upon an
employees Termination, including by death or disability.
By the terms of the awards, all outstanding RSUs and restricted
stock shares vest upon a participants Termination within a
24-month
period after a Change in Control (as such term is defined in the
2005 Plan) has occurred. In Mr. Pattizs case only,
all of his outstanding RSUs vest automatically upon a Change in
Control or his Retirement (as such term is defined in the 2005
Plan). Mr. Pattiz is entitled to certain rights under the
terms of his employment agreement as described in more detail
below under the heading Change of Control
Provisions. In addition, if Mr. Pattizs
employment agreement is not renewed, Mr. Pattiz shall
become a part-time employee
and/or
consultant of the Company for six years through
November 30, 2015 and his option shares will continue to
vest throughout such term.
How does
the Committee determine the allocation between the elements of
compensation?
In certain circumstances, the Company awards retention
bonuses to retain the services of NEOs for multi-year
periods. Discretionary annual bonuses may be used to reward a
NEOs outstanding individual performance. The Committee
believes NEOs are more appropriately compensated, motivated and
rewarded (and more likely to remain at the Company) when bonuses
are paid in cash in a lump sum after the year has ended. Equity
compensation
-38-
awards, on the other hand, are intended to provide a potential
for upside should the Companys performance improve over
the long-term. In recent years, a large portion of NEOs
compensation has been their salary.
The following table shows the compensation awarded to each NEO
for the 2006 performance year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elements of Compensation(1)
|
|
|
|
|
NEO
|
|
Salary
|
|
|
Bonus(2)
|
|
|
Equity Awards(3)
|
|
|
Total Compensation
|
|
|
Norman Pattiz
|
|
$
|
400,000
|
|
|
|
|
|
|
$
|
125,748
|
|
|
$
|
525,748
|
|
Peter Kosann
|
|
$
|
600,000
|
|
|
$
|
150,000
|
|
|
$
|
573,335
|
|
|
$
|
1,323,335
|
|
Andrew Zaref
|
|
$
|
475,000
|
|
|
$
|
120,000
|
|
|
$
|
344,000
|
|
|
$
|
939,000
|
|
David Hillman
|
|
$
|
319,231
|
|
|
$
|
133,333
|
|
|
$
|
224,600
|
|
|
$
|
677,164
|
|
Paul Gregrey
|
|
$
|
344,237
|
|
|
$
|
48,269
|
|
|
$
|
240,630
|
|
|
$
|
633,136
|
|
|
|
|
(1) |
|
All amounts reported in this table have been rounded to the
nearest dollar. Because perquisites are de minimus, such
have not been included in the table above. |
|
(2) |
|
The amounts listed in the table under Bonus above
reflect discretionary bonuses awarded in 2007 for 2006
performance. These also include, in the case of
Mr. Hillman, a $33,333.36 retention bonus and in the case
of Mr. Gregrey, a $30,769.20 retention bonus earned in 2006
as further described in footnotes (3) and (4) of the
Summary Compensation Table. |
|
(3) |
|
The value listed in the table under Equity Awards
above contains only the value of the equity awards granted to
the NEOs in March 2007 for 2006 performance. This amount is not
the same amount disclosed in the Summary Compensation Table. As
discussed in footnote 5 to the Summary Compensation Table,
the amounts reported in columns (e) and (f) of such
table represent the portion of total value ascribed to
all stock and option awards, including those made in
prior years, that was expensed by the Company in 2006 in
accordance with FAS 123R. |
What
other factors does the Committee consider when making its
decisions regarding compensation to NEOs?
Section 162(m) of the Internal Revenue Code of 1986, as
amended (along with related regulations, the Code),
limits the annual tax deduction a Company may take on
compensation its pays to the CEO and the four other most highly
compensated executive officers (in this case, the NEOs) to
covered pay of $1 million per executive in any given year.
The Committees general policy is to structure compensation
programs that allow the Company to fully deduct the compensation
under Section 162(m) requirements. However, the Committee
seeks to maintain the Companys flexibility to meet its
incentive and retention objectives, even if the Company may not
deduct all of the compensation.
In 2005, the Committee began granting RSUs and restricted stock
to NEOs. The Committee determined that although the amount of
RSUs and restricted stock that qualifies for a deduction under
Section 162(m) may be limited, the equity-based awards are
a significant component of compensation that promotes long-term
Company performance and management retention, and strengthen the
mutuality of interests between the awardees and shareholders.
The Committee also considers the accounting cost and the
dilutive effect of equity compensation awards when granting such
awards.
To the extent permitted by the Committee, a participant may
elect to defer the payment of RSUs in a manner that complies
with Section 409A of the Code.
What role
does the Committee play in establishing compensation for
directors?
The Committee reviews and evaluates compensation for the
Companys non-employee directors on an annual basis, in
consultation with its outside compensation adviser prior to
making a recommendation to the Board. The elements of director
compensation and more particulars regarding the elements are
described below under the table appearing below the header
Director Compensation.
-39-
SUMMARY
COMPENSATION TABLE
The following table and accompanying footnotes set forth the
compensation earned, held by, or paid to, each of the
Companys named executive officers for the year ended
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Plan
|
|
|
Deferred
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Name and Principal
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Earnings ($)
|
|
|
($)
|
|
|
($)
|
|
Position (a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)(5)
|
|
|
(f)(5)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)(6)
|
|
|
(j)
|
|
|
CURRENT OFFICERS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norman J. Pattiz,
|
|
|
2006
|
|
|
$
|
400,000
|
|
|
|
|
|
|
$
|
196,409
|
|
|
$
|
294,384
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
$
|
890,973
|
|
Chairman of the Board
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Kosann,
|
|
|
2006
|
|
|
$
|
600,000
|
|
|
$
|
150,000
|
|
|
$
|
173,034
|
|
|
$
|
675,955
|
|
|
|
|
|
|
|
N/A
|
|
|
$
|
12,000(6
|
)
|
|
$
|
1,610,989
|
|
President and CEO(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Zaref,
|
|
|
2006
|
|
|
$
|
475,000
|
|
|
$
|
120,000
|
|
|
$
|
108,126
|
|
|
$
|
370,238
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
$
|
1,073,364
|
|
EVP and CFO(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Hillman,
|
|
|
2006
|
|
|
$
|
319,231
|
|
|
$
|
133,333
|
|
|
$
|
57,110
|
|
|
$
|
185,639
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
$
|
695,313
|
|
EVP Business Affairs and General
Counsel(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Gregrey,
|
|
|
2006
|
|
|
$
|
344,237
|
|
|
$
|
48,269
|
|
|
$
|
50,097
|
|
|
$
|
266,190
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
$
|
708,793
|
|
EVP Sales, Network
Division(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Peter Kosann is employed by CBS Radio pursuant to the terms of
the Management Agreement. |
|
(2) |
|
Andrew Zaref earned base salary at an annual rate of $450,000
from January 1, 2006 through June 30, 2006 and
$500,000 from July 1, 2006 through December 31, 2006.
In April 2007, Mr. Zaref received a discretionary bonus of
$120,000 for services rendered in 2006. CBS Radio reimburses the
Company for Mr. Zarefs salary and bonus. |
|
(3) |
|
David Hillman earned base salary at an annual rate of $300,000
from January 1, 2006 through March 31, 2006 and
$325,000 from April 1, 2006 through December 31, 2006.
In April 2007, Mr. Hillman received a discretionary bonus
of $100,000 for services rendered in 2006. He also received a
$100,000 retention bonus at the time he entered into his
employment agreement, of which $33,333.36 was earned in 2006.
Such amount is earned over the stated term of his employment
($2,777.78 per month) and any unearned portion must be
repaid if Mr. Hillman leaves the Company prior to the
expiration thereof. |
|
(4) |
|
Paul Gregrey received a discretionary bonus of $17,500 in
February 2007 for services rendered in 2006 and a $100,000
retention bonus at the time he entered into his employment
agreement, of which $30,769.20 was earned in 2006. Such amount
is earned over the stated term of his employment
($2,564.10 per month) and any unearned portion must be
repaid if Mr. Gregrey leaves the Company prior to the
expiration thereof. |
|
(5) |
|
The amounts reported in columns (e) and (f) represent
the portion of total value ascribed to all stock and option
awards, including those made in prior years, that was expensed
by the Company in 2006 in accordance with FAS 123R. In
accordance with FAS 123R, the Company expenses the
estimated fair value of stock based compensation awards over the
related vesting period. In the case of restricted stock and
restricted stock units, estimated fair value is calculated as
the fair market value of the shares on the date of grant. The
estimated fair value of options is measured on the date of grant
using the Black-Scholes option pricing model. For a more
detailed discussion of the assumptions used by the Company in
estimating fair value, refer to Note 9 (Equity-Based
Compensation) of the Notes to the Consolidated Financial
Statements. The vesting terms of the stock awards and option
awards reported in the table above are described under the table
entitled Grants of Plan-Based Awards in 2006 which
appears below. |
|
(6) |
|
Mr. Pattiz receives perquisites which do not exceed $10,000
in the aggregate and accordingly are not described above as
permitted by applicable SEC rules. The only perquisites provided
by the Company to its other named executive officers in 2006
were: (i) for each of Messrs. Kosann and Zaref only
parking allowances; (ii) in the case of Mr. Kosann
only, a monthly car allowance and (iii) Company matches to
the contributions made by such individuals to their 401(k)
accounts. The Company matches 25% of all employees
contributions to their 401(k) Plan in an amount not to exceed 6%
of an employees salary. Any employee vests in such
Company match based on his years of service with the
Company as follows: 20% for one year of service; 40% for two
years of |
-40-
|
|
|
|
|
service; 60% for three years of service; 80% for four years of
service and 100% for five years of service. Until
December 31, 2006, the Company made such matches in Company
stock; as of January 1, 2007, the matches are made in cash.
None of the perquisites for the Companys named executive
officers exceed in the aggregate $10,000, except in the case of
Mr. Kosann, who receives a $500 monthly car allowance
and a $500 monthly reimbursement for parking. Accordingly,
except for Mr. Kosann, such amounts have not been included
above as allowed by applicable SEC rules. Under the terms of his
employment agreement, Mr. Pattiz has the right to purchase
at any time the Company car he uses at the fair market value as
such is reported in the Kelly Blue Book. |
GRANTS OF
PLAN-BASED AWARDS IN 2006 (1)
The following table provides information for awards of stock
options, restricted stock and restricted stock units made to
each of the Companys named executive officers during the
year ended December 31, 2006.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
All Other
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Awards:
|
|
|
Exercise
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
|
Estimated Future Payouts
|
|
|
Number of
|
|
|
Number of
|
|
|
or Base
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Under Non-Equity Incentive
|
|
|
Under Equity Incentive
|
|
|
Shares of
|
|
|
Securities
|
|
|
Price of
|
|
|
Stock and
|
|
|
|
|
|
|
|
|
|
Plan Awards
|
|
|
Plan Awards
|
|
|
Stock or
|
|
|
Underlying
|
|
|
Option
|
|
|
Option
|
|
|
|
Grant
|
|
|
Approval
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Options
|
|
|
Awards
|
|
|
Awards
|
|
Name
|
|
Date
|
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($/Sh)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(b) (6)
|
|
|
(c)
|
|
|
(d) (7)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
(k)
|
|
|
(l)(8)
|
|
|
Norman J. Pattiz(2)
|
|
|
12/1/06
|
|
|
|
11/28/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
$
|
6.57
|
|
|
$
|
71,000
|
|
|
|
|
12/1/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,333
|
*
|
|
|
|
|
|
|
|
|
|
$
|
54,748
|
|
Peter Kosann(3)
|
|
|
1/3/06
|
|
|
|
12/19/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
$
|
16.42
|
|
|
$
|
788,750
|
|
|
|
|
1/3/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,667
|
*
|
|
|
|
|
|
|
|
|
|
$
|
684,172
|
|
Andrew Zaref(4)
|
|
|
2/10/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
*
|
|
|
|
|
|
$
|
14.27
|
|
|
$
|
414,750
|
|
|
|
|
2/10/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
$
|
356,750
|
|
|
|
|
6/30/06
|
|
|
|
6/29/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
$
|
187,500
|
|
David Hillman(5)
|
|
|
2/10/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,700
|
|
|
$
|
14.27
|
|
|
$
|
186,361
|
|
|
|
|
2/10/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,100
|
|
|
|
|
|
|
|
|
|
|
$
|
244,017
|
|
Paul Gregrey(5)
|
|
|
2/10/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
$
|
14.27
|
|
|
$
|
110,600
|
|
|
|
|
2/10/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
$
|
214,050
|
|
|
|
|
(1) |
|
All awards disclosed in the table above awarded on
February 10, 2006 vest over four years, commencing on a
date eleven (11) months after the date of grant (i.e.,
January 10, 2007, 2008, 2009 and 2010). While other awards
granted under the 2005 Plan vest commencing on the first
anniversary of the date of grant, the awards made on
February 10, 2006 were the first awards made to a group of
employees after the adoption of the 2005 Plan in May 2005, and
upon the recommendation of Company management, the Compensation
Committee determined a slightly accelerated vesting schedule was
reasonable. Awards with an exercise price noted in column
(k) are options; awards denoted with an asterisk (*) are
RSUs and all other awards are shares of restricted stock. |
|
(2) |
|
Pursuant to an amendment to his employment agreement, effective
November 28, 2005, beginning on December 1, 2005 and
on each subsequent December 1 of his term of employment,
Mr. Pattiz is entitled to a non-qualified option to
purchase 25,000 shares of Common stock of the Company and
8,333 RSUs (which vest over a three-year period), each pursuant
to the terms of the 2005 Plan. Such agreement was approved by
the Board on November 28, 2005. As disclosed below under
the heading Right to Defer; Mandatory Deferral in
2005, any RSU awarded in 2005 was automatically deferred
by the Company. Beginning in 2006, the decision whether to defer
a RSU award was given to participants. Mr. Pattiz chose not
to defer the RSUs granted to him in 2006. |
|
(3) |
|
On January 3, 2006 (the first business day of the year),
Mr. Kosann received 41,667 RSUs and 125,000 options in
connection with his appointment to CEO on January 1, 2006.
Mr. Kosanns election was approved by the Board on
December 19, 2005. |
|
(4) |
|
Mr. Zaref received 25,000 shares of restricted stock
as a signing bonus in connection with entering into an amendment
of his employment agreement on June 30, 2006 (effective
July 1, 2006) which extends his term as the
Companys Chief Financial Officer through June 30,
2009. Such agreement was approved by the |
-41-
|
|
|
|
|
Committee on June 29, 2006. He also received 25,000 RSUs
and 25,000 options on February 10, 2006, the date equity
compensation was awarded by the Company to its key employees. |
|
|
|
(5) |
|
Received on February 10, 2006, the date equity compensation
was awarded by the Company to its key employees. |
|
(6) |
|
With respect to all awards of equity compensation that was
approved on a date other than the grant date, the grant date of
the award was specified in advance of such date. |
|
(7) |
|
While no amount has been disclosed above (in accordance with SEC
rules), there are target discretionary bonus amounts set forth
in each individuals employment agreement which are
described above in the Compensation Discussion and Analysis
under the heading Discretionary Annual Compensation
Bonus. |
|
(8) |
|
The value of the awards disclosed in column (l) represents
the total value ascribed to all stock and option awards granted
in 2006. In the case of restricted stock and restricted stock
units, estimated fair value is calculated as the fair market
value of the shares on the date of grant. The estimated fair
value of options is measured on the date of grant using the
Black-Scholes option pricing model. For a more detailed
discussion of the assumptions used by the Company in estimating
fair value, refer to Note 9 (Equity-Based Compensation) of
the Notes to the Consolidated Financial Statements. The vesting
terms of the stock awards and option awards are reported below. |
The following summary is applicable solely to the equity
compensation awarded in 2006 as reported in the table entitled
Grants of Plan-Based Awards in 2006 which appears
above.
Vesting
The following terms do not apply to Mr. Pattizs
awards. For a description of the terms applicable to his awards,
see Mr. Pattizs Awards below.
All awards of stock options, restricted stock and RSUs listed in
the table Grants of Plan-Based Awards in 2006 were
granted under the 2005 Plan and vest in equal installments over
a four-year period (with the exception of Mr. Pattizs
awards, which vest over three years), commencing on the first
anniversary of the date of grant (with the exception of the
grants made on February 10, 2006 as described above). Upon
a participants Termination (as such terms are defined in
the 2005 Plan), all vested stock options remain exercisable as
follows, but in no event later than ten years after the grant
date: (i) three years in the event of the
participants Retirement; (ii) one year in the event
of the participants death (in which case the
participants estate or legal representative may exercise
such stock option) or (iii) three months for any other
Termination (other than for Cause). A participant
forfeits any unvested stock options on the date of his
Termination (except for Mr. Pattiz as indicated in more
detail below).
Undefined terms used herein (such as participant, Termination,
Retirement, Cause and Change in Control) have the meaning set
forth in the 2005 Plan.
Change of
Control Provisions
If an employee is terminated without Cause during the
24-month
period following a Change in Control, all unvested
options, restricted stock and RSUs shall immediately vest;
provided an employee is still a participant.
Mr. Pattizs
Awards
Mr. Pattiz, who receives the same type of RSU and
restricted stock award as Company directors, receives equity
compensation which vests over three years and all such shares of
restricted stock and RSUs vest in their entirety upon a Change
in Control. Under the terms of his Employment Agreement, as
amended, Mr. Pattiz is entitled to exercise at any time:
(i) one-half of his outstanding option awards which have
not yet become exercisable upon a Partial Event of Change and
(ii) 100% of his outstanding option awards which have not
yet become exercisable upon an Event of Change (as such terms
are defined in his Employment Agreement). If any event
constituting an Event of Change is not consummated, the options
will immediately revert back to their original vesting schedule,
except to the extent Mr. Pattiz has already exercised his
option to purchase some or all of such options.
-42-
Dividends;
Transfer Restrictions; Voting Rights
RSUs and restricted stock accrue dividend equivalents when
dividends are paid, if any, on the Companys Common stock
beginning on the date of grant. Such dividend equivalents are
credited to a book entry account, and are deemed to be
reinvested in common shares on the date the cash dividend is
paid. Dividend equivalents are payable, in shares of Common
stock, only upon the vesting of the related restricted shares.
Until the stock vests, shares of restricted stock and RSUs may
not be sold, pledged, or otherwise transferred; however, once a
grant of such is made, the holder is entitled to receive
dividends thereon (as described above). In the case of
restricted stock only (i.e., not RSUs), a holder is
entitled to vote the shares once he has been awarded such
shares. A holder may not vote shares associated with RSUs until
the shares underlying such award have been distributed (which
occurs upon vesting, unless the RSUs have been deferred as
described below).
Right to
Defer; Mandatory Deferral in 2005
A participant may elect to defer receipt of his RSUs
in which case shares and any dividend equivalents thereon, are
not distributed until the date of deferment. A decision to defer
must be made a minimum of twelve (12) months prior to the
initial vesting date and a participant may choose to defer his
award until the last vesting date applicable to such award or
his date of Termination. In 2005, the deferral of equity
compensation awards until a participants Termination was
mandatory. Accordingly, the grants made to all directors on
May 19, 2005 and the grants made to Mr. Pattiz in
December 2005 have been deferred until such individuals
Termination.
-43-
OUTSTANDING
EQUITY AWARDS AT 2006 FISCAL YEAR-END
The following table sets forth, on an
award-by-award
basis, the number of shares covered by exercisable and
unexercisable stock options and unvested restricted stock and
restricted stock units outstanding to each of the Companys
named executive officers as of December 31, 2006.
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1)
|
|
Stock Awards(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Plan Awards:
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Payout
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
Market
|
|
Plan Awards:
|
|
Value of
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
Number
|
|
Value of
|
|
Number
|
|
Unearned
|
|
|
Number of
|
|
Number of
|
|
Number
|
|
|
|
|
|
of Shares
|
|
Shares or
|
|
of Unearned
|
|
Shares,
|
|
|
Securities
|
|
Securities
|
|
of Securities
|
|
|
|
|
|
or Units of
|
|
Units of
|
|
Shares,
|
|
Units
|
|
|
Underlying
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Stock
|
|
Stock
|
|
Units or
|
|
or Other
|
|
|
Unexercised
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
That
|
|
That
|
|
Other Rights
|
|
Rights That
|
|
|
Options
|
|
Options
|
|
Unearned
|
|
Exercise
|
|
Option
|
|
Have Not
|
|
Have Not
|
|
That Have
|
|
Have Not
|
|
|
(#)
|
|
(#)
|
|
Options
|
|
Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
|
Not Vested
|
|
Vested
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
(#)
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)(3)
|
|
(i)
|
|
(j)
|
|
Norman J. Pattiz(4)
|
|
|
308,000
|
|
|
|
|
|
|
|
|
|
|
$
|
14.07
|
|
|
|
04/29/08
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
12.69
|
|
|
|
03/10/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
30.99
|
|
|
|
12/01/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
|
|
|
16,667
|
|
|
|
|
|
|
|
23.16
|
|
|
|
12/01/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,333
|
*
|
|
|
16,667
|
|
|
|
|
|
|
|
18.27
|
|
|
|
12/01/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,167
|
*
|
|
|
8,333
|
|
|
|
|
|
|
|
18.27
|
|
|
|
12/07/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
6.57
|
|
|
|
12/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,555
|
*
|
|
|
39,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,099
|
*
|
|
|
21,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,357
|
|
|
|
59,000
|
|
|
|
|
|
|
|
|
|
Peter Kosann
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
22.57
|
|
|
|
09/30/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
32.25
|
|
|
|
03/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
20.25
|
|
|
|
09/28/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
21.46
|
|
|
|
09/20/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
35.19
|
|
|
|
09/25/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
30.19
|
|
|
|
09/30/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
20.50
|
|
|
|
10/05/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
20.97
|
|
|
|
03/14/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
|
|
|
|
16.42
|
|
|
|
01/03/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,273
|
|
|
|
305,507
|
|
|
|
|
|
|
|
|
|
Andrew Zaref
|
|
|
20,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
30.97
|
|
|
|
04/05/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
20.50
|
|
|
|
10/05/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
20.97
|
|
|
|
03/14/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
14.27
|
|
|
|
02/10/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,963
|
|
|
|
183,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,418
|
|
|
|
179,451
|
|
|
|
|
|
|
|
|
|
David Hillman
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
20.25
|
|
|
|
09/28/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
21.46
|
|
|
|
09/20/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,600
|
|
|
|
2,400
|
|
|
|
|
|
|
|
35.19
|
|
|
|
09/25/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,200
|
|
|
|
4,800
|
|
|
|
|
|
|
|
30.19
|
|
|
|
09/30/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
18,000
|
|
|
|
|
|
|
|
20.50
|
|
|
|
10/05/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
20.97
|
|
|
|
03/14/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,700
|
|
|
|
|
|
|
|
14.27
|
|
|
|
02/10/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,758
|
|
|
|
125,371
|
|
|
|
|
|
|
|
|
|
Paul Gregrey
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
22.57
|
|
|
|
09/30/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
32.25
|
|
|
|
03/08/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
22.06
|
|
|
|
02/21/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
21.46
|
|
|
|
09/20/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,000
|
|
|
|
7,000
|
|
|
|
|
|
|
|
35.19
|
|
|
|
09/25/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000
|
|
|
|
16,000
|
|
|
|
|
|
|
|
30.19
|
|
|
|
09/30/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
20.50
|
|
|
|
10/05/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
9,000
|
|
|
|
|
|
|
|
19.93
|
|
|
|
05/19/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
14.27
|
|
|
|
02/10/16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,579
|
|
|
|
109,988
|
|
|
|
|
|
|
|
|
|
-44-
|
|
|
(1) |
|
All options listed in the above table were granted pursuant to
the terms of the 1999 Plan and are subject to five-year vesting
terms in equal installments, commencing on the first anniversary
of the date of grant, except in the case of: (i) the third
and fourth option entries for Mr. Pattiz (expiring on
December 1, 2013 and December 1, 2014, respectively),
which options were modified by a letter agreement dated as of
May 25, 2005 and vest over three years in equal
installments and (ii) all option entries in the table above
with an expiration date on or after May 19, 2015 which
options were granted pursuant to the terms of the 2005 Plan,
which options vest in equal installments over four years (except
for Mr. Pattizs options which have a three-year
vesting term) commencing on the first anniversary of the date of
grant. As discussed elsewhere in this report, options granted on
February 10, 2006 had an initial vesting date of
January 10, 2007 (11 months after the grant date). |
|
(2) |
|
All stock awards listed in the above table were granted pursuant
to the terms of the 2005 Plan and are subject to four-year
vesting terms (except for Mr. Pattizs stock awards
which have a three-year vesting term) commencing on the first
anniversary of the date of grant. As discussed elsewhere in this
report, restricted stock granted on February 10, 2006 had
an initial vesting date of January 10, 2007 (11 months
after the grant date). The numbers disclosed in column
(g) above include all dividend equivalents that have
accrued on such shares. |
|
(3) |
|
The value of the awards disclosed in column (h) above is
based on a per share closing stock price on the NYSE for the
Companys Common stock of $7.06 on December 29, 2006
(the last business day of 2006). |
|
(4) |
|
The entries for Mr. Pattiz denoted above by an asterisk (*)
represent awards made to Mr. Pattiz in December 2005, which
although reported in columns (b) and (g) respectively
because such shares have vested, the payment of such shares were
deferred at the time of their award until Termination (as such
term is defined in the 2005 Plan). Included in the above table
is an award of 4,167 RSUs and 12,500 options which
Mr. Pattiz was awarded on December 7, 2005, which
awards are in addition to the awards he received on
December 1, 2005 pursuant to the terms of his employment
agreement as discussed above and were also automatically
deferred until Termination. |
OPTIONS
EXERCISED AND STOCK VESTED
During the year ended December 31, 2006, none of our named
executive officers exercised any stock options and none of the
restricted stock or RSUs previously awarded to them were
acquired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
Value Realized on
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
|
|
Shares
|
|
|
Exercise(1)
|
|
|
Acquired on Vesting
|
|
|
Vesting(1)
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
Norman J. Pattiz
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
(1
|
)
|
Peter Kosann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Zaref
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Hillman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Gregrey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As previously discussed, Mr. Pattiz received two grants of
restricted stock in December 2005, which although reported in
column (g) of the table entitled Outstanding Equity
Awards at 2006 Fiscal Year-End, are not reported in
the table above because although such shares have vested, such
shares have not been acquired by Mr. Pattiz (and thus no
value was realized by Mr. Pattiz in 2006) because the
receipt of such awards was mandatorily deferred at the time of
grant and will not be distributed until Mr. Pattizs
Termination (as such term is defined in the 2005 Plan). If the
award had not been deferred, 4,327 shares of restricted
stock would have vested in December 2006 and the value of such
shares as of December 31, 2006 would have been $30,549
based on a per share closing stock price on the NYSE for the
Companys Common stock of $7.06 on December 29, 2006
(the last business day of 2006). |
-45-
PENSION
BENEFITS
None of our named executive officers are covered by a pension
plan or similar benefit plan that provides for payment or other
benefits at, following, or in connection with retirement.
NONQUALIFIED
DEFERRED COMPENSATION(1)
Except for Mr. Pattiz, none of our named executive officers
are covered by a deferred contribution or other plan that
provides for the deferral of compensation on a basis that is not
tax-qualified.
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|
|
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
Contributions in
|
|
|
Contributions in
|
|
|
Aggregate Earnings
|
|
|
Withdrawals/
|
|
|
Aggregate Balance
|
|
|
|
2006
|
|
|
2006
|
|
|
in 2006
|
|
|
Distributions
|
|
|
at
12/31/06
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
Norman J. Pattiz
|
|
$
|
28,599
|
|
|
|
|
|
|
$
|
1,950
|
|
|
|
|
|
|
$
|
30,549
|
|
Peter Kosann
|
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|
Andrew Zaref
|
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|
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|
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|
David Hillman
|
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|
|
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|
|
|
|
|
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|
|
|
|
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|
Paul Gregrey
|
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(1) |
|
As disclosed above under the heading Right to Defer;
Mandatory Deferral in 2005, only named executive officers
and directors have received RSUs which gives the
recipient/participant the right to defer the receipt/payment of
the restricted stock underlying such awards. As previously
discussed, any RSU awarded in 2005 was automatically deferred by
the Company. Beginning in 2006, the decision whether to defer an
award was given to participants. |
Employment
Agreements
The Company has written employment agreements with each of the
named executive officers (with the exception of the CEO whose
agreement is with CBS Radio), the material terms of which are
set forth below (terms applicable to a Change in Control are
located below under the heading Potential Payments upon
Termination or Change in Control). Compensation terms are
presented for 2006 and beyond. All of the following employment
agreements contain non-competition and non-solicitation
provisions which extend after the termination of such
agreements, with the exception of Mr. Pattizs
agreement which contains no such restrictions except during the
Continued Engagement Period (as described below). More detailed
terms and provisions of equity compensation held by the
following named executive officers can be located in the table
entitled Outstanding Equity Awards At 2006 Fiscal
Year-End which appears above.
Mr. Pattiz,
Chairman
|
|
|
Term expires November 30, 2008; provided, that if the
Company does not renew the agreement, Mr. Pattiz will
continue as a part-time employee
and/or
consultant (at the Companys option) for six years through
November 30, 2015;
|
|
|
Annual salary of $400,000 (2006 through the end of the Term);
|
|
|
Each December 1, Pattiz receives 25,000 options and 8,333
RSUs;
|
|
|
Mr. Pattiz is entitled to full piggy-back registration
rights and limited demand registration rights on his shares of
Company Common stock;
|
|
|
Terminable by Mr. Pattiz upon 90 days written
notice to the Company (or 30 days in the event of a
material breach); Terminable by the Company only in the event of
death, permanent and total disability (upon such event), or for
Cause (as such term is defined in the employment
agreement) upon 90 days notice;
|
|
|
If the agreement is not renewed and Mr. Pattiz becomes a
part-time employee
and/or
consultant as described above, only Section 5 of the
Agreement shall continue to apply (non-competition and unfair
competition
|
-46-
|
|
|
provisions), Mr. Pattiz shall be subject to a
non-solicitation provision and his option shares will continue
to vest throughout his part-time employment/consultancy term
(such term, Continued Engagement Period);
|
|
|
|
If any remuneration to Mr. Pattiz in any given year would
not be deductible under Code Section 162(m) and would
result in non-deductible payments of over $1 million in any
one year, such excess would be deferred until the first year
payment of such excess amount would not result in non-deductible
remuneration of over $1 million in such year.
|
Mr. Zaref,
EVP and CFO
|
|
|
Term expires June 30, 2009;
|
|
|
Annual salary of $500,000 (effective July 1, 2006 for
remainder of Term);
|
|
|
Discretionary annual bonus target of $275,000 for 2006 and
$350,000 for each calendar year thereafter in the sole and
absolute discretion of the Chief Executive Officer, Board of
Directors or its Compensation Committee;
|
|
|
Management to recommend to the Compensation Committee an equity
compensation grant equal to 75% of CEO award;
|
|
|
Terminable by Mr. Zaref for good reason (which
requires 30 days advance notice); Terminable by the Company
in the event of death, permanent and total disability or for
Cause;
|
|
|
If Mr. Zaref is terminated for good reason or
other than Cause, Mr. Zaref will receive his
base salary and bonus compensation for the remainder of the Term
(bonus compensation forfeitable upon Mr. Zarefs
securing future employment or consulting work); in the case of a
good reason termination only, Mr. Zaref will
receive medical and dental coverage via COBRA for the Term or
until he is eligible for coverage from a third party. In
addition, Mr. Zaref is entitled to certain payments if
sufficient notice of the Companys decision not to
extend/renew his employment agreement is not provided to
Mr. Zaref as further described under Other
below;
|
|
|
CBS Radio reimburses the Company for Mr. Zarefs
salary and bonus under the Management Agreement.
|
Mr. Hillman,
EVP, Business Affairs and General Counsel
|
|
|
Term expires December 31, 2008;
|
|
|
Annual salary of $325,000 (effective
4/1/06);
$350,000 (2007) and $375,000 (2008);
|
|
|
Retention bonus of $100,000, earned during the period from
1/1/06 to
12/31/08
(subject to repayment in the event of Mr. Hillmans
breach of the employment agreement);
|
|
|
Discretionary annual bonus eligibility valued at up to $125,000
(2006), $135,000 (2007) and $150,000 (2008), each in the
sole and absolute discretion of the Board of Directors or its
Compensation Committee or their designee;
|
|
|
Management to recommend to the Compensation Committee an equity
compensation grant equal to 85,000 stock options (2006) and
75,000 stock options (2007);
|
|
|
If Mr. Hillman continues to be employed by the Company
after the Term, the agreement is terminable by either party upon
90 days written notice;
|
|
|
In the event of termination without Cause, Mr. Hillman will
receive his base salary for the remainder of the Term and any
earned but unpaid discretionary bonus.
|
Mr. Gregrey,
EVP, Network Sales
|
|
|
Term expires April 1, 2009;
|
|
|
Annual salary of $345,050 (2006); $370,050 (2007); $395,050
(2008) and $420,050 (2009);
|
|
|
Retention bonus of $100,000, earned during the period from
1/1/06 to
4/1/09
(subject to repayment in the event of Mr. Gregreys
breach of the employment agreement);
|
-47-
|
|
|
Discretionary annual bonus eligibility valued at up to $250,000
(2003) in the sole and absolute discretion of the Board of
Directors or its Compensation Committee or their designee,
subject to a 10% annual increase at the discretion of management
and the Board;
|
|
|
Management to recommend to the Compensation Committee an equity
compensation grant in 2006 equal to 20,000 stock options and
15,000 shares of restricted stock (not specified for future
years);
|
|
|
If Mr. Gregrey continues to be employed by the Company
after the Term, the agreement is terminable by either party upon
30 days written notice.
|
Potential
Payments upon Termination or Change in Control
The Company has entered into employment agreements with
Messrs. Pattiz and Zaref that require it to make payments
upon a Change in Control as described below. In
addition, while Mr. Kosann is employed by CBS Radio, the
Company does award Mr. Kosann discretionary equity
compensation. Accordingly, the value of the equity compensation
payable by the Company upon a Termination following a Change in
Control is included below for Mr. Kosann under the heading
Change in Control All NEOs. While the
Company is not responsible for the payment of
Mr. Kosanns base salary and discretionary bonus, or
any other cash payments to Kosann upon his termination or a
change of control, the amounts payable to Mr. Kosann by CBS
Radio upon Mr. Kosanns termination under the terms of
his employment agreement with CBS Radio are included herein.
Event of
Change Mr. Pattiz
In Mr. Pattizs case, if an Event of Change (as such
term is defined in Section 8.2 of his employment agreement)
occurs and the Company terminates either Mr. Pattiz or his
employment agreement, Mr. Pattiz shall continue to receive
his salary compensation through the end of the term of his
employment agreement. In such event Mr. Pattiz would also
be entitled to exercise, immediately upon his election, all of
his outstanding option awards which have not then become
exercisable. Additionally, by their terms, all outstanding
unvested RSUs would automatically vest upon a Change of Control
(as such term is defined in the 2005 Plan). If Mr. Pattiz
had been terminated in connection with an Event of Change on
December 31, 2006, Mr. Pattiz would be entitled to his
base salary through November 30, 2008 which in the
aggregate equals $766,667 payable in accordance with the
Companys normal payroll practices. The value of
Mr. Pattizs options on December 31, 2006
(assuming Mr. Pattiz chose to exercise them on such
date) would be $12,250. The value of Mr. Pattizs
outstanding RSUs had he been terminated on December 31,
2006 would be $120,098.
Partial
Event of Change Mr. Pattiz
If, instead of an Event of Change, a Partial Event of Change (as
such term is defined in Section 8.1 of his employment
agreement) had occurred, Mr. Pattiz would be entitled, in
lieu of the foregoing, to exercise, immediately upon his
election one-half of his outstanding unvested option awards
which have not yet become exercisable. The value of half of
Mr. Pattizs options on December 31, 2006
(assuming Mr. Pattizs chose to exercise them on such
date) would be $6,125. His outstanding RSUs would not vest upon
such an event.
Change in
Control Mr. Zaref
Upon a Change in Control, Mr. Zaref is entitled to
terminate his employment for Good Reason within 30 days of
such event with an effective date not earlier than 30 business
days from the date of notice. Mr. Zaref would then be
entitled to the payment described above in the summary of his
employment agreement. A Change in Control is defined
as any merger, consolidation, dissolution or reorganization of
the Company with, or any transfer of all or substantially all of
the assets of the Company to, an entity other than
CBS Corporation. If Mr. Zaref terminated his
employment effective December 31, 2006 in connection with a
Change in Control (in accordance with the foregoing provisions),
Mr. Zarefs termination would constitute good
reason. In such event, Mr. Zaref would be entitled
to: (i) his base salary through June 30, 2009 which in
the aggregate equals $1,250,000 and potential discretionary
bonus compensation for 2006, 2007 and 2008 in an aggregate
amount of up to $975,000 payable in accordance with the
Companys normal payroll practices, assuming Mr. Zaref
did not secure future employment or consulting work for
-48-
such period. Additionally, Mr. Zaref would receive medical
and dental coverage via COBRA, which premium would cost the
Company approximately $29,796 through June 30, 2009.
Change in
Control All NEOs
If a Change in Control occurred and any of Messrs. Kosann,
Zaref, Hillman and Gregrey was terminated in connection
therewith, each individuals outstanding unvested options,
restricted stock and RSUs would immediately vest. Assuming such
Change in Control and Termination occurred on December 29,
2006 (the last business day of the year), the value of the
equity compensation payable to each of Messrs. Kosann,
Zaref, Hillman and Gregrey would be: $305,507, $362,750,
$125,371 and $109,988, respectively. As discussed above, the
value of Mr. Pattizs outstanding unvested RSUs had he
been terminated on December 31, 2006 would be $120,098. All
such values are based on a per share closing stock price on the
NYSE for the Companys Common stock of $7.06 on
December 29, 2006. Of the foregoing values for
Messrs. Kosann, Zaref, Hillman and Gregrey, none is
ascribed to the options held by such individuals as all of the
options held by such NEOs are underwater (i.e.,
the exercise price of such options exceed the current Common
stock price).
Payments
upon Disability or Death
As part of the Companys employment agreement with its
named executive officers (or in the case of Mr. Kosann, as
part of his employment agreement with CBS Radio), the following
terms are in effect in the event of such officers
disability or death.
In the event of permanent and total disability (including
death), Mr. Pattiz will receive his base salary for the
following twelve months and 75% of his base salary for the
remainder of the term of the agreement. He will continue to
receive Company benefits, he will be entitled to exercise his
equity compensation as described elsewhere in this report and he
will continue to be entitled to the registration rights set
forth in his employment agreement and described above. Assuming
Mr. Pattiz had become disabled on December 31, 2006,
Mr. Pattiz would be entitled to: (i) 100% of his 2007
base salary, or $400,000, and (ii) 75% of his 2008 base
salary through November 30, 2008, or $275,000, for an
aggregate payment of $675,000 payable in accordance with the
Companys normal payroll practices.
In the event of his death or loss of legal capacity,
Mr. Zaref (or his estate) will be entitled to such payments
as if he were terminated without Cause (i.e.,
his base salary and bonus for the remainder of the term).
Assuming such event occurred on December 31, 2006,
Mr. Zaref (or his estate) would be entitled to:
(i) base salary through June 30, 2009 which in the
aggregate equals $1,250,000 and (ii) potential
discretionary bonus compensation for 2006, 2007 and 2008 in an
aggregate amount of up to $975,000 payable in accordance with
the Companys normal payroll practices.
In the event of their death or disability, each of
Messrs. Hillman and Gregrey are entitled to any accrued and
unpaid salary and any then entitlement under employee benefit
plans and stock options, subject to reduction for any disability
payments made under the Companys policies.
In the event of his death, Mr. Kosann is entitled to any
base salary due and not yet paid through the date of
Mr. Kosanns death.
Payments
upon Termination Without Cause
If any NEO were terminated without Cause on December 31,
2006, the following amounts would be payable by the Company (or
in the case of Mr. Kosann, CBS Radio):
|
|
|
Mr. Pattiz: no provision regarding
Termination without Cause is included in Mr. Pattizs
employment agreement, however, the Company estimates the amount
payable in such event would be base salary through
November 30, 2008 in the aggregate amount of $766,667
payable in accordance with the Companys normal payroll
practices;
|
|
|
Mr. Zaref: base salary through
June 30, 2009 in the aggregate amount of $1,250,000 and
potential discretionary bonus compensation for 2006, 2007 and
2008 in an aggregate amount of up to $975,000 payable in
accordance
|
-49-
|
|
|
with the Companys normal payroll practices, assuming
Mr. Zaref did not secure future employment or consulting
work for such period;
|
|
|
|
Mr. Hillman: base salary through
December 31, 2008 in the aggregate amount of $725,000
payable in accordance with the Companys normal payroll
practices;
|
|
|
Mr. Gregrey: no provision regarding
Termination without Cause is included in Mr. Pattizs
employment agreement, however, the Company estimates the amount
payable in such event would be base salary through April 1,
2009 in the aggregate amount of $870,112.50 payable in
accordance with the Companys normal payroll practices; and
|
|
|
Mr. Kosann: base salary through
December 31, 2008 in the aggregate amount of $1,275,000
payable in accordance with the regular payroll practices of CBS
Radio, so long as Mr. Kosann is ready, willing and able to
render exclusive services under his employment agreement during
such period.
|
Other
Mr. Zaref is entitled to three months of his salary,
payable in accordance with the Companys then current
payroll practices, if either: (i) the Company provides
Mr. Zaref with notice of its election not to extend or
renew his employment agreement and terminates his employment
without Cause within three months after the stated
term or (ii) his employment is terminated for good
reason or death or disability less than three months
before the end of the stated term, such payment to be made from
the date on which the non-renewal notice is given or
Mr. Zarefs employment is terminated, whichever is
earlier. If: (A) the Company does not provide a non-renewal
notice to Mr. Zaref, (B) Mr. Zaref remains
employed through the end of the term (June 30,
2009) and (C) the Company terminates his employment
without Cause within three months after the stated
term, Mr. Zaref shall be entitled to his base salary for
the balance, if any, of the three months after expiration of his
term (i.e., until September 30, 2009).
-50-
DIRECTOR
COMPENSATION
The following table sets forth the compensation for the
Companys directors who served during the year ended
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
Earned
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
or Paid
|
|
|
Stock
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
Deferred
|
|
|
All Other
|
|
|
|
|
|
|
in Cash
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Earnings
|
|
|
($)
|
|
|
($)
|
|
(a)
|
|
(b)
|
|
|
(c)(5)
|
|
|
(d)(5)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
Current directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walter Berger(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albert Carnesale
|
|
$
|
68,750
|
|
|
$
|
72,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,969
|
|
David L. Dennis
|
|
$
|
111,875
|
|
|
$
|
61,063
|
|
|
$
|
85,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
258,113
|
|
Gerald Greenberg
|
|
$
|
106,250
|
|
|
$
|
66,161
|
|
|
$
|
85,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
257,586
|
|
Peter Kosann(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant F. Little, III
|
|
$
|
84,375
|
|
|
$
|
58,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
142,678
|
|
H. Melvin Ming
|
|
$
|
33,125
|
|
|
$
|
25,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,303
|
|
Norman J. Pattiz(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph B. Smith
|
|
$
|
94,375
|
|
|
$
|
117,988
|
|
|
$
|
85,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
297,538
|
|
Former directors:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Herdman
|
|
$
|
23,125
|
|
|
|
|
|
|
$
|
3,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,461
|
|
Dennis Holt
|
|
$
|
10,625
|
|
|
$
|
3,767
|
|
|
$
|
44,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,748
|
|
Steve Lerman(1)
|
|
$
|
30,000
|
|
|
|
|
|
|
$
|
61,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,199
|
|
George L. Miles, Jr.
|
|
$
|
11,875
|
|
|
|
|
|
|
$
|
6,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,347
|
|
Leslie Moonves(1)
|
|
|
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|
|
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|
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Former directors and
executive officers:
|
|
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|
|
|
|
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|
|
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|
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Joel Hollander(1)(4)
|
|
|
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|
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$
|
1,245,090
|
|
|
|
|
|
|
|
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|
|
|
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|
|
$
|
1,245,090
|
|
Farid Suleman(1)(4)
|
|
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|
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|
$
|
4,591
|
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|
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|
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|
|
$
|
4,591
|
|
|
|
|
(1) |
|
As reflected above, as employees of CBS Radio
and/or its
affiliates, Messrs. Berger, Hollander and Moonves elected
not to receive cash compensation for their services as directors
in 2006. Mr. Berger and Mr. Hollander have elected not
to receive cash compensation for their services as directors in
2007. Mr. Lerman received only cash compensation, not
equity compensation, for his services as director in 2006 and
2007. Mr. Suleman did not receive compensation as no
meetings were held prior to his resignation in February 2006. |
|
(2) |
|
Messrs. Kosann and Pattiz do not receive compensation for
acting as directors. |
|
(3) |
|
Mr. Herdman resigned in April 2006, Mr. Holt in July
2006, Mr. Lerman in January 2007, Mr. Miles in March
2006 and Mr. Moonves in April 2006. |
|
(4) |
|
Mr. Hollander resigned in March 2007 and Mr. Suleman
in February 2006. Each of Messrs. Hollander and Suleman
served as executive officers and directors of the Company and
the compensation listed above includes options which were
granted in consideration of such service during their tenure as
executive officers of the Company. |
|
(5) |
|
The value of stock awards and option awards reported in columns
(c) and (d) above is based on the estimated fair value
of the underlying instrument in accordance with FAS 123R,
and is recognized over the related vesting period. In the case
of restricted stock and restricted stock units, estimated fair
value is calculated as the fair market value of the shares on
the date of grant. The estimated fair value of options is
measured on the date of grant using the Black-Scholes option
pricing model. For a more detailed discussion of the assumptions
used by the Company in estimating fair value, refer to
Note 9 (Equity-Based Compensation) of the Notes to the |
-51-
|
|
|
|
|
Consolidated Financial Statements. All stock awards and option
awards reported in the table above were issued under the terms
of the 2005 Plan and are subject to three-year vesting periods
(subject to immediate vesting upon a participants
Termination within the
24-month
period following a Change in Control as described elsewhere in
this report). No director elected to defer the receipt of his
RSUs at the time the May 2006 RSU awards were made. |
General
The Compensation Committee reviews and evaluates compensation
for the Companys non-employee directors (with the
exception of Mr. Kosann who does not receive compensation
as a director) on an annual basis, in consultation with its
outside compensation adviser and the Board prior to making a
recommendation to the Board. The Board then considers the
recommendation of the Compensation Committee and generally
approves such recommendation at the meeting held after the
Companys annual meeting of shareholders.
Fees. Directors of the Company who are not
officers receive $5,000 per meeting attended for their
services as directors and $1,875 per meeting attended for
their services as committee members. For the
2006-2007
board term, the Directors of the Company who serve as Chairs of
the Compensation Committee, Nominating and Governance Committee
and Audit Committee shall receive $10,000, $10,000 and $15,000,
respectively, for their services as the Chairs of such
committees during the
2006-2007
board term.
Equity Compensation. Beginning on May 19,
2005, the date of the Companys 2005 annual meeting of
shareholders, directors of the Company who are not officers
receive a mandatory grant of $100,000 in value of RSUs each
year, which awards are governed by the terms of the 2005 Plan,
which became effective in May 2005. Each grant is made on the
date of the Companys annual shareholder meeting. In
addition to the foregoing, newly appointed directors who are not
officers receive a mandatory grant of $150,000 in value of RSUs
on the date such director is appointed to the Companys
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 directors
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 Companys Common stock.
Messrs. Berger, Hollander (who resigned effective
March 30, 2007), Lerman (who resigned effective
January 30, 2007) and Moonves (who resigned effective
April 4, 2006) elected not to receive in 2006 equity
compensation normally provided to non-officer directors.
Messrs. Berger, Hollander (who resigned effective
March 30, 2007) and Lerman (who resigned effective
January 30, 2007) elected not to receive equity
compensation in 2007.
Waivers
of Compensation
Messrs. Kosann and Pattiz do not receive any remuneration
for their services as directors of the Company.
Messrs. Berger, Hollander, Lerman and Moonves, as current
and former directors of the Company who are/were employed by CBS
and/or its
affiliates, waived their right to cash and equity compensation,
with the exception of Mr. Lerman, who received cash
compensation only.
Compensation
Committee Interlocks and Insider Participation
The Companys Compensation Committee is comprised solely of
independent outside directors, Messrs. Greenberg, Dennis
and Smith. The Company has no interlocking relationships or
other transactions involving any of our Compensation Committee
members that are required to be reported pursuant to applicable
SEC rules. None of the members of the Compensation Committee
served as an officer or employee of the Company or any of its
subsidiaries during the fiscal year ended December 31,
2006. There were no material transactions between the Company
and any of the members of the Compensation Committee during the
fiscal year ended December 31, 2006.
No member of the Compensation Committee simultaneously served
both as a member of the Compensation Committee and as an officer
or employee of the Company during 2006. None of the
Companys executive officers serves as a member of the
Board or the Compensation Committee, or committee performing an
equivalent function,
-52-
of any other entity that has one or more of its executive
officers serving as a member of the Board or Compensation
Committee.
Compensation
Committee Report
The Compensation Committee has reviewed and discussed with
Company management the Compensation Discussion and Analysis
which appears above beginning on page 33 in this report.
Based on its review and discussions with management, the
Compensation Committee recommended to the Board that it approve
the inclusion of the Compensation Discussion and Analysis in
this report to be filed by the Company with the SEC on or prior
to April 30, 2007.
Submitted by the members of the Compensation Committee:
Gerald Greenberg, Chair
David L. Dennis
Joseph B. Smith
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Equity
Compensation Plan Information
Information regarding securities available for issuance under
the Companys equity compensation plans is set forth in
Item 5 (Market for Registrants Common Equity and
Related Stockholder Matters) of this report under the heading
Equity Compensation Plan Information.
Beneficial Ownership of 5% Holders
The following table shows the amount of the Common stock and
Class B stock beneficially owned (unless otherwise
indicated) by our largest shareholders (those who own more than
5% of the outstanding class of shares). For purposes of
calculating the percentage ownership of each large shareholder,
the Company used figures as of March 31, 2007, when there
were 87,115,389 shares of Common stock outstanding and
291,796 shares of Class B stock outstanding.
|
|
|
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|
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|
Aggregate Number of Shares
|
|
|
|
Beneficially Owned(1)
|
|
|
|
Common Stock
|
|
|
Class B Stock
|
|
Name and Address of Beneficial Owner(2)
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Percent
|
|
|
CBS Radio Network Inc., a
subsidiary of
|
|
|
16,000,000
|
(3)
|
|
|
18.4
|
%
|
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|
CBS Radio Inc.
1515 Broadway
New York, NY 10036
|
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FMR Corp.
|
|
|
5,053,774
|
(4)
|
|
|
5.8
|
%
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|
|
82 Devonshire Street
Boston, MA 02109
|
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Hotchkis and Wiley Capital
Management, LLC
|
|
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7,672,700
|
(5)
|
|
|
8.8
|
%
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|
725 S. Figueroa Street,
39th Floor
Los Angeles, CA 90017
|
|
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Royce & Associates, LLC
|
|
|
6,242,300
|
(6)
|
|
|
7.2
|
%
|
|
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|
|
|
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|
|
1414 Avenue of the Americas
New York, NY 10019
|
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|
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(1) |
|
The persons in the table have sole voting and investment power
with respects to all shares of Common stock and Class B
stock, unless otherwise indicated. |
|
(2) |
|
Tabular information for such entities is based on information
contained in the most recent Schedule 13D/13G filings made
available to the Company. |
|
(3) |
|
These shares are owned by CBS Radio Network Inc., a wholly-owned
subsidiary of CBS Radio Media Corporation, which in turn is a
wholly-owned subsidiary of CBS Radio Inc. (CBS
Radio), a wholly-owned |
-53-
|
|
|
|
|
subsidiary of CBS Corporation, but may also be deemed to be
beneficially owned by: (a) NAIRI, Inc. (NAIRI),
which owns approximately 76% of CBS Corporation s
voting stock, (b) NAIRIs parent corporation, National
Amusements, Inc. (NAI), and (c) Sumner M.
Redstone, who is the controlling shareholder of NAI. Such amount
does not include 2,000,000 shares underlying warrants held
by CBS Radio. As of December 31, 2006, CBS Radio Network
Inc. has shared voting power and shared dispositive power with
respect to 16,000,000 shares. |
|
|
|
(4) |
|
These shares are owned by Fidelity Management &
Research Company (Fidelity), a wholly-owned
subsidiary of FMR Corp., through one investment company,
Fidelity Low Priced Stock Fund. As of December 31, 2006,
each of Edward C. Johnson 3d and FMR Corp., through its control
of Fidelity, has sole voting power with respect to 0 shares
and sole dispositive power with respect to 5,053,774 shares. |
|
(5) |
|
As of December 31, 2006 Hotchkis and Wiley Capital
Management, LLC has sole voting power with respect to
5,220,400 shares and sole dispositive power with respect to
7,672,700 shares. |
|
(6) |
|
As of December 31, 2006 Royce & Associates, LLC
has sole voting power with respect to 6,242,300 shares and
sole dispositive power with respect to 6,242,300 shares. |
Beneficial
Ownership of Named Executive Officers and Directors
The following table shows the amount of the Common stock and
Class B stock beneficially owned (unless otherwise
indicated) by members of our management team, which include the
current executive officers named in the Summary Compensation
Table (the named executive officers), our directors,
and our directors and executive officers as a group. For
purposes of calculating the percentage ownership of each such
individual, the Company used figures as of March 31, 2007,
when there were 87,115,389 shares of Common stock
outstanding and 291,796 shares of Class B stock
outstanding. All numbers presented below include all shares
which would be vested on, or exercisable by, a holder as of
May 30, 2007, as beneficial ownership is deemed to include
securities that a holder has the right to acquire within
60 days.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Number of Shares
|
|
|
|
Beneficially Owned(1)
|
|
|
|
Common Stock
|
|
|
Class B Stock
|
|
Name of Beneficial Owner
|
|
Number
|
|
|
Percent
|
|
|
Number
|
|
|
Percent
|
|
|
NAMED EXECUTIVE
OFFICERS:
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Norman J. Pattiz(2)
|
|
|
857,833
|
|
|
|
|
*
|
|
|
291,710
|
|
|
|
99.9
|
%
|
Peter Kosann(3)
|
|
|
286,069
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
Andrew Zaref(4)
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|
|
105,563
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
David Hillman(5)
|
|
|
57,320
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
Paul Gregrey(6)
|
|
|
155,897
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
DIRECTORS AND
NOMINEES:(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walter Berger
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
Albert Carnesale(8)
|
|
|
3,739
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
David L. Dennis(9)
|
|
|
182,070
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
Gerald Greenberg(9)
|
|
|
53,860
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
Grant F. Little, III(8)
|
|
|
8,383
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
H. Melvin Ming(8)
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
Joseph B. Smith(9)
|
|
|
80,860
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
All Current Directors and
Executive Officers as a Group (13 persons)
|
|
|
1,791,594
|
|
|
|
2.1
|
%
|
|
|
291,710
|
|
|
|
99.9
|
%
|
-54-
|
|
|
* |
|
Represents less than one percent (1%) of the Companys
outstanding shares of Common stock. |
|
(1) |
|
The persons in the table have sole voting and investment power
with respects to all shares of Common stock and Class B
stock, unless otherwise indicated. The numbers presented above
do not include: (i) shares of restricted stock granted
under the 2005 Plan that have not vested and (ii) unvested
and/or deferred RSUs which have no voting rights until shares
are distributed in accordance with their terms. All dividend
equivalents on vested RSUs and shares of restricted stock are
included in the numbers reported above. |
|
(2) |
|
Includes vested stock options for 407,833 shares granted
under the Company 1989 Stock Incentive Plan (the 1989
Plan) and the Company 1999 Stock Incentive Plan (the
1999 Plan). Also includes 450,000 Common stock
shares pledged by Mr. Pattiz to Merrill, Lynch, Pierce,
Fenner & Smith Incorporated (Merrill Lynch)
in connection with a prepaid variable forward contract (the
Merrill Contract) Mr. Pattiz entered into on
September 27, 2004 with Merrill Lynch. Under the Merrill
Contract, in exchange for a lump-sum cash payment of $7,182,000,
Mr. Pattiz agreed to deliver upon the earlier of September
2009 or the termination of the Merrill Contract, a
pre-determined number of shares of Company Common stock pursuant
to formulas set forth in the Merrill Contract. Mr. Pattiz
may also settle the amount in cash. When Mr. Pattiz entered
into the Merrill Contract in September 2004, he converted
411,670 of his shares of Class B stock into Common stock
and pledged the aforementioned 450,000 shares of Company
Common stock. Because each share of Class B stock has 50
votes, as opposed to one vote for each share of Common stock,
Mr. Pattizs stock holdings represent 15.2% of the
total voting power of the Company. |
|
(3) |
|
Includes 275,250 vested and unexercised options granted under
the 1999 Plan and Westwood One, Inc. 2005 Equity Compensation
Plan (the 2005 Plan). Includes 10,819 vested RSUs
(including dividend equivalents) granted under the 2005 Plan. |
|
(4) |
|
Includes 98,750 vested and unexercised options granted under the
1999 Plan and 2005 Plan. Includes 6,491 vested RSUs (including
dividend equivalents) granted under the 2005 Plan and
322 shares of Common stock held in the Company 401(k)
account. |
|
(5) |
|
Includes 56,825 vested and unexercised options granted under the
1999 Plan and 2005 Plan. Includes 495 shares of Common
stock held in the Company 401(k) account. |
|
(6) |
|
Includes 155,000 vested and unexercised options granted under
the 1999 Plan and 2005 Plan. Includes 897 shares of Common
stock held in the Company 401(k) account. |
|
(7) |
|
Does not include Norman J. Pattiz and Peter Kosann, who are also
named executive officers and listed with the other named
executive officers. |
|
(8) |
|
Represents 3,739 vested RSUs (Carnesale) and 8,383 vested RSUs
(Little) granted under the 2005 Plan. Does not include deferred
and/or unvested RSUs which have no voting rights until shares
are distributed in accordance with their terms. |
|
(9) |
|
Represents 129,000 (Dennis), 50,000 (Greenberg) and 77,000
(Smith) vested and unexercised stock options granted under the
1989 Plan, the 1999 Plan
and/or the
2005 Plan. Includes 3,860 vested RSUs (including dividend
equivalents) granted under the 2005 Plan for each of
Messrs. Dennis, Greenberg and Smith. Does not include
deferred and/or unvested RSUs which have no voting rights until
shares are distributed in accordance with their terms. |
Changes
in Control
The Company is not aware of any arrangement which may at a
subsequent date result in a change in control of the Company.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Related
Party Transactions
Except for the transactions with CBS Radio described below, the
Company is not aware of any transaction entered into in 2006, or
any transaction currently proposed, in which a related person
has, or will have, a direct or indirect material interest. As
indicated elsewhere in this report, one of the Companys
directors, Mr. Berger, is an officer of CBS Radio and
pursuant to the terms of the Management Agreement, the
Companys CEO is an employee of CBS Radio. As of
March 31, 2007, CBS Radio beneficially owned 18.4% of the
Common stock of the Company.
-55-
Through the Management Agreement, CBS Radio currently provides
to the Company the services of a chief executive officer and a
chief financial officer. The Management Agreement was entered
into in March 1999 and was subsequently amended to, among other
things, extend the Management Agreement until March 31,
2009. Pursuant to the Management Agreement, the Company is
obligated to pay to CBS Radio an annual base fee (which base fee
is $3,000,000, effective April 1, 2004) subject to an
annual increase by a percentage amount equal to the increase
based on a specified consumer price index. The expense
associated with the Management Agreement in 2006 was $3,273,000.
In addition, the Company pays to CBS Radio incentive bonus
compensation in an amount equal to 10% of the amount by which
the Companys operating cash flow exceeds a target amount
for the applicable year, subject to certain adjustments. The
Company must also reimburse CBS Radio for certain
out-of-pocket
expenses incurred by CBS Radio in performing the services
contemplated by the Management Agreement consistent with past
practice. CBS Radio did not earn an incentive bonus in fiscal
2006 as targeted cash flow levels were not achieved. As
additional compensation to CBS Radio under the Management
Agreement, CBS Radio was granted seven warrants to purchase an
aggregate 4,500,000 shares of the Companys Common
stock (comprised of two warrants to purchase 1,000,000 Common
stock shares per warrant and five warrants to purchase 500,000
Common stock shares per warrant). Of the seven warrants issued,
the two one million share warrants have an exercise price of
$43.11 and $48.36, respectively, and become exercisable if
(A) if the average price of the Companys 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.
The exercise price for each of the five remaining warrants is
equal to $38.87, $44.70, $51.40, $59.11 and $67.98,
respectively. These warrants each have a term of 10 years
and become exercisable on January 2, 2005, 2006, 2007,
2008, and 2009, respectively, subject to a trading price
condition. The trading price condition specifies the average
price of the Companys 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 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 Companys average stock
price for the 15 trading days prior to January 2, 2005 must
have equalled or exceeded $40.66 for the warrants to have 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 Companys average stock
price for the 15 trading days prior to January 2, 2006 must
equal or exceed $44.70 for the warrants to become exercisable.
The Companys average stock price for the 15 trading days
prior to January 2, 2006 did not exceed $44.70, and
therefore the warrants did not become exercisable. In the case
of the $51.40 warrants, the Companys average stock price
for the 15 trading days prior to January 2, 2007 must equal
or exceed $51.40 for the warrants to become exercisable. The
Companys average stock price for the 15 trading days prior
to January 2, 2007 did not exceed $51.40, and therefore the
warrants did not become exercisable
The Company and CBS Radio also have entered into a registration
rights agreement with respect to the shares of Common stock
issuable upon exercise of the warrants pursuant to which the
Company granted to CBS Radio specified demand and registration
rights.
The Company has a Representation Agreement with CBS Radio to
operate the CBS Radio Networks until March 31, 2009. The
Company retains all revenue and is responsible for all expenses
of the CBS Radio Networks. In addition, a number of CBS
Radios radio stations are affiliated with the
Companys radio networks and the Company purchases several
programs from CBS Radio. During 2006, the Company incurred
expenses aggregating approximately $75,514,000 under the
Representation Agreement and for CBS Radio affiliations and
programs.
In addition to the foregoing, CBS Radio enters into other
agreements with the Company in the ordinary course to purchase
programming rights and affiliate stations with the
Companys network and traffic operations.
Company
Review, Approval or Ratification of Related Party
Transactions
While the Company does not have a written policy outlining such,
it is the Companys practice to review all transactions
with its related parties (referred to herein as related
party transactions) as they arise. Related parties are
identified by the finance, accounts payable and legal
departments, who, among other things, review
-56-
questionnaires submitted to the Companys directors and
officers on an annual basis, monitor Schedule 13Ds and 13Gs
filed with the SEC, review employee certifications regarding
code of ethics and business conduct which are updated annually,
and review CBS Radios listings of affiliates which CBS
Radio submits to the Company or files with the SEC. Any related
party transaction is reviewed by either the Office of the
General Counsel or Chief Financial Officer, who examines, among
other things, the approximate dollar value of the transaction
and the material facts surrounding the related partys
interest in, or relationship to, the related party transaction.
With respect to related party transactions that involve an
independent director, such parties also consider whether such
transaction affects the independence of such
director pursuant to applicable rules and regulations, including
those of the NYSE and the Companys corporate governance
rules. Customarily, the Chief Financial Officer must approve any
related party transaction, however, if after consultation, the
General Counsel and Chief Financial Officer determine a related
party transaction is significant, the transaction is then
referred to the Board for its review and approval.
While the foregoing procedures are not in writing, the Company
does have written procedures regarding transactions with its
manager, CBS Radio, as set forth in the Management Agreement
between the Company and CBS Radio (the Management
Agreement), which agreement describes the terms and
conditions by which CBS Radio manages the business and
operations of the Company. Under the terms of the Management
Agreement, all transactions (other than the Management Agreement
and Representation Agreement (as described below), which
agreements were ratified by the Companys 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 Companys Board. Such exceptions include
new or special programming agreements not requiring
compensation; the renewal of existing agreements on the same or
better terms or affiliation agreements involving compensation
terms consistent with those of non-affiliates of CBS Radio
involving annual payments of less than $500,000.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Fees to
Independent Auditors
The following table presents fees billed for fiscal years 2006
and 2005 for professional services rendered by
PricewaterhouseCoopers LLP for the audit of the Companys
financial statements for fiscal years 2006 and 2005 as well as
fees billed for audit-related services, tax services and all
other services rendered by PricewaterhouseCoopers LLP for 2006
and 2005.
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2006
|
|
|
2005
|
|
|
(1) Audit Fees(a)
|
|
$
|
725
|
|
|
$
|
646
|
|
(2) Audit-Related Fees(b)
|
|
|
|
|
|
|
|
|
(3) Tax Fees
|
|
|
|
|
|
|
|
|
(4) All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts reported above reflect, in the case of 2005, the
actual amount billed by PricewaterhouseCoopers LLP for 2005 and,
in the case of 2006, the amounts agreed to date by the Company
for services rendered by PricewaterhouseCoopers LLP related to
2006. |
|
(b) |
|
Such services included employee benefit plan audits, audits
required by state municipalities, internal control reviews and
consultations regarding financial accounting and reporting
standards. |
As discussed above, all audit-related services were approved by
the Audit Committee, which concluded that the provision of such
services by PricewaterhouseCoopers LLP did not impair that
firms independence in the conduct of the audit.
Audit
Committee Pre-Approval Policies and Procedures
All services provided to the Company by PricewaterhouseCoopers
LLP in 2006 were pre-approved by the Audit Committee. Under the
Companys pre-approval policies and procedures, the Chair
of the Audit Committee is authorized to pre-approve the
engagement of PricewaterhouseCoopers LLP to provide certain
specified audit and non-audit services, and the engagement of
any accounting firm to provide certain specified audit services.
-57-
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
|
.4.1
|
|
Amendment No. 1, dated as of
October 31, 2006, to the Credit Agreement, dated as of
March 3, 2004, between Westwood One, Inc., the Subsidiary
Guarantors parties thereto, the Lenders parties thereto and
JPMorgan Chase Bank, N.A., as Administrative Agent.(23)
|
|
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.(22)*
|
|
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 Registrants
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 Registrants Amended 1999 Stock Incentive Plan.(17)*
|
|
10
|
.16
|
|
Employment Agreement, effective
January 1, 2004, between Registrant and Andrew Zaref.(18)*
|
|
10
|
.16.1
|
|
Amendment No. 1 to Employment
Agreement, dated as of June 30, 2006, between Westwood One,
Inc. and Andrew Zaref(24)*
|
|
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)*
|
-58-
|
|
|
|
|
EXHIBIT
|
|
|
NUMBER(A)
|
|
DESCRIPTION
|
|
|
10
|
.17.1
|
|
Letter Agreement, dated
April 13, 2006, between the Company and Chuck I. Bortnick
relating to Mr. Bortnicks separation from the
Company.(25)*
|
|
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.(20)*
|
|
10
|
.23
|
|
Form Restricted Stock
Agreement under Registrant 2005 Equity Compensation Plan for
non-director
participants.(20)*
|
|
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.*
|
|
10
|
.25
|
|
Employment Agreement, effective
October 16, 2004, between Registrant and David Hillman, 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 Registrants September 25, 1986 proxy
statement and incorporated herein by reference. |
(2) |
|
Filed an exhibit to Registrants current report on
Form 8-K
dated September 4, 1987 and incorporated herein by
reference. |
(3) |
|
Filed as part of Registrants March 27, 1992 proxy
statement and incorporated herein by reference. |
(4) |
|
Filed as an exhibit to Registrants July 20, 1994
proxy statement and incorporated herein by reference. |
(5) |
|
Filed as an exhibit to Registrants April 29, 1996
proxy statement and incorporated herein by reference. |
(6) |
|
Filed as an exhibit to Registrants annual report on
Form 10-K
for the year ended December 31, 1994 and incorporated
herein by reference. |
(7) |
|
Filed as an exhibit to Registrants current report on
Form 8-K
dated November 28, 2005 and incorporated herein by
reference. |
(8) |
|
Filed as an exhibit to Registrants annual report on
Form 10-K
for the year ended December 31, 1998 and incorporated
herein by reference. |
(9) |
|
Filed as an exhibit to Registrants current report on
Form 8-K
dated June 4, 1999 and incorporated herein by reference. |
(10) |
|
Filed as an exhibit to Registrants current report on
Form 8-K
dated October 1, 1999 and incorporated herein by reference. |
(11) |
|
Filed as an exhibit to Registrants annual report on
Form 10-K
for the year ended December 31, 1999 and incorporated
herein by reference. |
-59-
|
|
|
(12) |
|
Filed as an exhibit to Registrants annual report on
Form 10-K
for the year ended December 31, 2000 and incorporated
herein by reference. |
(13) |
|
Filed as an exhibit to Registrants April 29, 2002
proxy statement and incorporated herein by reference. |
(14) |
|
Filed as an exhibit to Registrants quarterly report on
Form 10-Q
for the quarter ended September 30, 2002 and incorporated
herein by reference. |
(15) |
|
Filed as an exhibit to Registrants current report on
Form 8-K
dated December 4, 2002 and incorporated herein by reference. |
(16) |
|
Filed as an exhibit to Registrants annual report on
Form 10-K
for the year ended December 31, 2003 and incorporated
herein by reference. |
(17) |
|
Filed as an exhibit to Registrants current report on
Form 8-K
dated October 12, 2004 and incorporated herein by reference. |
(18) |
|
Filed as an exhibit to Registrants annual report on
Form 10-K
for the year ended December 31, 2004 and incorporated
herein by reference. |
(19) |
|
Filed as an exhibit to Registrants current report on
Form 8-K
dated May 25, 2005 and incorporated herein by reference. |
(20) |
|
Filed as an exhibit to Registrants current report of
Form 8-K
dated March 17, 2006 and incorporated herein by reference. |
(21) |
|
Filed as an exhibit to Registrants current report on
Form 8-K
dated December 5, 2005 and incorporated herein by reference. |
(22) |
|
Filed as an exhibit to Registrants April 30, 1999
proxy statement and incorporated herein by reference. |
(23) |
|
Filed as an exhibit to Registrants current report on
Form 8-K
dated November 6, 2006 and incorporated herein by reference. |
(24) |
|
Filed as an exhibit to Registrants current report on
Form 8-K
dated June 30, 2006 and incorporated herein by reference. |
(25) |
|
Filed as an exhibit to Registrants quarterly report on
Form 10-Q
for the quarter ended March 31, 2006 and incorporated
herein by reference. |
-60-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WESTWOOD ONE, INC.
Date: April 30, 2007
Andrew Zaref
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)
|
|
April 30, 2007
|
|
|
|
|
|
/S/
Andrew Zaref
Andrew
Zaref
|
|
Chief Financial Officer (Principal
Financial Officer and Chief Accounting Officer)
|
|
April 30, 2007
|
|
|
|
|
|
/S/
Norman J. Pattiz
Norman
J. Pattiz
|
|
Chairman of the Board of Directors
|
|
April 25, 2007
|
|
|
|
|
|
/S/
Walter Berger
Walter
Berger
|
|
Director
|
|
April 26, 2007
|
|
|
|
|
|
/S/
Albert Carnesale
Albert
Carnesale
|
|
Director
|
|
April 25, 2007
|
|
|
|
|
|
/S/
David L. Dennis
David
L. Dennis
|
|
Director
|
|
April 25, 2007
|
|
|
|
|
|
/S/
Gerald Greenberg
Gerald
Greenberg
|
|
Director
|
|
April 25, 2007
|
|
|
|
|
|
/S/
Grant F.
Little, III
Grant
F. Little, III
|
|
Director
|
|
April 27, 2007
|
|
|
|
|
|
/S/
H. Melvin Ming
H.
Melvin Ming
|
|
Director
|
|
April 30, 2007
|
|
|
|
|
|
/S/
Joseph B. Smith
Joseph
B. Smith
|
|
Director
|
|
April 26, 2007
|
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 registrants
annual report and definitive proxy statement for its 2007 annual
meeting of shareholders will be filed with the Commission at the
time such materials are sent to the security holders.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
1.
|
|
|
Consolidated Financial
Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report of Independent
Registered Public Accounting Firm
|
|
|
F-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
at December 31, 2006 and 2005
|
|
|
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of
Operations for the years ended December 31, 2006, 2005 and
2004
|
|
|
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of
Shareholders Equity for the years ended December 31,
2006, 2005 and 2004
|
|
|
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of
Cash Flows for the years ended December 31, 2006, 2005 and
2004
|
|
|
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Consolidated
Financial Statements
|
|
|
F-7
|
|
|
2.
|
|
|
Financial Statement
Schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II. Valuation and
Qualifying Accounts
|
|
|
F-28
|
|
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 Board of Directors of Westwood One, Inc.:
We have completed integrated audits of Westwood One, Incs
(Westwood or the Company) consolidated
financial statements and of its internal control over financial
reporting as of December 31, 2006, 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, 2006 and 2005, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2006 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 Companys
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.
As discussed in Note 9 Equity-Based
Compensation to the consolidated financial statements, the
Company changed the manner in which it accounts for share-based
compensation in 2006.
Internal
control over financial reporting
Also, in our opinion, managements assessment, included in
Managements 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, 2006 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, 2006,
based on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
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 managements
assessment and on the effectiveness of the Companys
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 managements 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 companys 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 companys
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
companys 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.
/s/
PricewaterhouseCoopers
LLP
New York, New York
March 7, 2007
F-2
WESTWOOD
ONE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(Restated)
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,528
|
|
|
$
|
10,399
|
|
Accounts receivable, net of
allowance for doubtful accounts of $4,387 (2006) and $2,797
(2005)
|
|
|
115,505
|
|
|
|
130,783
|
|
Warrants current
portion
|
|
|
9,706
|
|
|
|
9,706
|
|
Prepaid and other assets
|
|
|
12,483
|
|
|
|
21,357
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
149,222
|
|
|
|
172,245
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
37,353
|
|
|
|
41,166
|
|
GOODWILL
|
|
|
464,114
|
|
|
|
982,219
|
|
INTANGIBLE ASSETS, NET
|
|
|
4,225
|
|
|
|
5,007
|
|
OTHER ASSETS
|
|
|
41,787
|
|
|
|
39,009
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
696,701
|
|
|
$
|
1,239,646
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
35,425
|
|
|
$
|
15,044
|
|
Amounts payable to related parties
|
|
|
26,344
|
|
|
|
21,192
|
|
Deferred revenue
|
|
|
8,150
|
|
|
|
9,086
|
|
Income taxes payable
|
|
|
6,149
|
|
|
|
21,861
|
|
Accrued expenses and other
liabilities
|
|
|
43,841
|
|
|
|
32,968
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
119,909
|
|
|
|
100,151
|
|
LONG-TERM DEBT
|
|
|
366,860
|
|
|
|
427,514
|
|
OTHER LIABILITIES
|
|
|
7,001
|
|
|
|
7,952
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
493,770
|
|
|
|
535,617
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock: authorized
10,000,000 shares, none outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value:
authorized, 300,000,000 shares; issued and outstanding,
85,996,019 (2006) and 86,673,821 (2005)
|
|
|
860
|
|
|
|
867
|
|
Class B stock, $.01 par
value: authorized, 3,000,000 shares; issued and
outstanding, 291,796 (2006 and 2005)
|
|
|
3
|
|
|
|
3
|
|
Additional paid-in capital
|
|
|
291,851
|
|
|
|
300,419
|
|
Unrealized gain on available for
sale securities
|
|
|
4,570
|
|
|
|
|
|
Accumulated (deficit) earnings
|
|
|
(94,353
|
)
|
|
|
402,740
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
202,931
|
|
|
|
704,029
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
$
|
696,701
|
|
|
$
|
1,239,646
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
NET REVENUES
|
|
$
|
493,995
|
|
|
$
|
557,830
|
|
|
$
|
562,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Costs (includes related
party expenses of $75,514, $78,388 and $84,338, respectively)
|
|
|
378,519
|
|
|
|
378,998
|
|
|
|
379,097
|
|
Depreciation and Amortization
(includes related party warrant amortization of $9,706, $9,706
and $7,618, respectively)
|
|
|
20,756
|
|
|
|
20,826
|
|
|
|
18,429
|
|
Goodwill Impairment
|
|
|
515,916
|
|
|
|
|
|
|
|
|
|
Corporate General and
Administrative Expenses (includes related party expenses of
$3,273, $2,853 and $2,959, respectively)
|
|
|
14,784
|
|
|
|
14,028
|
|
|
|
13,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
929,975
|
|
|
|
413,852
|
|
|
|
411,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) INCOME
|
|
|
(435,980
|
)
|
|
|
143,978
|
|
|
|
151,124
|
|
Interest Expense
|
|
|
25,590
|
|
|
|
18,315
|
|
|
|
11,911
|
|
Other Income
|
|
|
(926
|
)
|
|
|
(1,440
|
)
|
|
|
(948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME BEFORE INCOME TAXES
|
|
|
(460,644
|
)
|
|
|
127,103
|
|
|
|
140,161
|
|
INCOME TAXES
|
|
|
8,809
|
|
|
|
49,217
|
|
|
|
53,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
$
|
(469,453
|
)
|
|
$
|
77,886
|
|
|
$
|
86,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
(5.46
|
)
|
|
$
|
0.86
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
$
|
(5.46
|
)
|
|
$
|
0.85
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLASS B STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
86,013
|
|
|
|
90,714
|
|
|
|
96,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
86,013
|
|
|
|
91,519
|
|
|
|
99,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLASS B STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
292
|
|
|
|
292
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
292
|
|
|
|
292
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-4
WESTWOOD
ONE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Available
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common Stock
|
|
|
Class B Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
for Sale
|
|
|
Treasury Stock
|
|
|
Shareholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Securities
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
BALANCE AT DECEMBER 31, 2003
(restated)
|
|
|
99,057
|
|
|
$
|
991
|
|
|
|
704
|
|
|
$
|
7
|
|
|
$
|
594,975
|
|
|
$
|
264,931
|
|
|
|
|
|
|
|
(35
|
)
|
|
$
|
(1,200
|
)
|
|
$
|
859,704
|
|
|
|
|
|
Net income for 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,955
|
|
|
$
|
86,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,955
|
|
Equity based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,844
|
|
|
|
|
|
Issuance of common stock under
equity based compensation plans
|
|
|
3,788
|
|
|
|
38
|
|
|
|
(412
|
)
|
|
|
(4
|
)
|
|
|
45,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,842
|
|
|
|
|
|
Excess windfall (shortfall)
benefits on stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,518
|
|
|
|
|
|
Cancellations of vested equity
grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(651
|
)
|
|
|
|
|
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
(restated)
|
|
|
94,354
|
|
|
$
|
944
|
|
|
|
292
|
|
|
$
|
3
|
|
|
$
|
447,876
|
|
|
$
|
351,886
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
800,709
|
|
|
|
|
|
Net income for 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,886
|
|
|
$
|
77,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,886
|
|
Equity based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,686
|
|
|
|
|
|
Issuance of common stock under
equity based compensation plans
|
|
|
335
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
1,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,374
|
|
|
|
|
|
Excess windfall (shortfall)
benefits on stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
861
|
|
|
|
|
|
Cancellations of vested equity
grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(851
|
)
|
|
|
|
|
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
(restated)
|
|
|
86,674
|
|
|
$
|
867
|
|
|
|
292
|
|
|
$
|
3
|
|
|
$
|
300,419
|
|
|
$
|
402,740
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
704,029
|
|
|
|
|
|
Net loss for 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(469,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(469,453
|
)
|
|
$
|
(469,453
|
)
|
Unrealized gain on available for
sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,570
|
|
|
|
|
|
|
|
|
|
|
|
4,570
|
|
|
|
4,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(464,883
|
)
|
Equity based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,269
|
|
|
|
|
|
Issuance of common stock under
equity based compensation plans
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
Excess windfall (shortfall)
benefits on stock option exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131
|
)
|
|
|
|
|
Cancellations of vested equity
grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,351
|
)
|
|
|
|
|
Cancellation of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
Cash dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,640
|
)
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(750
|
)
|
|
|
(11,044
|
)
|
|
|
(11,044
|
)
|
|
|
|
|
Retirement of treasury stock
|
|
|
(750
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,037
|
)
|
|
|
|
|
|
|
|
|
|
|
750
|
|
|
|
11,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2006
|
|
|
85,996
|
|
|
$
|
860
|
|
|
|
292
|
|
|
$
|
3
|
|
|
$
|
291,851
|
|
|
$
|
(94,353
|
)
|
|
$
|
4,570
|
|
|
|
|
|
|
$
|
|
|
|
$
|
202,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-5
WESTWOOD
ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
CASH FLOW FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(469,453
|
)
|
|
$
|
77,886
|
|
|
$
|
86,955
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
20,756
|
|
|
|
20,826
|
|
|
|
18,429
|
|
Goodwill Impairment
|
|
|
515,916
|
|
|
|
|
|
|
|
|
|
Disposal of property and equipment
|
|
|
|
|
|
|
60
|
|
|
|
|
|
Deferred taxes
|
|
|
(20,546
|
)
|
|
|
(7,451
|
)
|
|
|
(5,276
|
)
|
Non-cash stock compensation
|
|
|
12,269
|
|
|
|
11,686
|
|
|
|
14,844
|
|
Gain on sale of property
|
|
|
|
|
|
|
(1,022
|
)
|
|
|
|
|
Amortization of deferred financing
costs
|
|
|
359
|
|
|
|
333
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,301
|
|
|
|
102,318
|
|
|
|
115,661
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
17,278
|
|
|
|
6,830
|
|
|
|
(7,082
|
)
|
Prepaid and other assets
|
|
|
6,367
|
|
|
|
(6,787
|
)
|
|
|
1,929
|
|
Deferred revenue
|
|
|
(936
|
)
|
|
|
(5,172
|
)
|
|
|
2,043
|
|
Income taxes payable and prepaid
income taxes
|
|
|
(15,724
|
)
|
|
|
16,376
|
|
|
|
6,806
|
|
Accounts payable and accrued
expenses and other liabilities
|
|
|
32,813
|
|
|
|
3,807
|
|
|
|
(3,495
|
)
|
Amounts payable to related parties
|
|
|
5,152
|
|
|
|
918
|
|
|
|
1,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Operating
Activities
|
|
|
104,251
|
|
|
|
118,290
|
|
|
|
117,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(5,880
|
)
|
|
|
(4,524
|
)
|
|
|
(5,920
|
)
|
Proceeds from sale of property
|
|
|
|
|
|
|
2,244
|
|
|
|
|
|
Purchase of loan receivable
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
Collection of loan receivable
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
Acquisition of companies and other
|
|
|
75
|
|
|
|
(181
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing
Activities
|
|
|
(3,805
|
)
|
|
|
(4,461
|
)
|
|
|
(5,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
equity based compensation plans
|
|
|
392
|
|
|
|
3,055
|
|
|
|
38,595
|
|
Borrowings under bank and other
long-term obligations
|
|
|
10,000
|
|
|
|
105,000
|
|
|
|
195,000
|
|
Debt repayments and payments of
capital lease obligations
|
|
|
(70,685
|
)
|
|
|
(35,642
|
)
|
|
|
(135,602
|
)
|
Dividend payments
|
|
|
(27,640
|
)
|
|
|
(27,032
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
(11,044
|
)
|
|
|
(160,604
|
)
|
|
|
(216,503
|
)
|
Deferred financing costs
|
|
|
(352
|
)
|
|
|
|
|
|
|
(1,283
|
)
|
Excess windfall tax benefits from
stock option exercises
|
|
|
12
|
|
|
|
861
|
|
|
|
10,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Financing
Activities
|
|
|
(99,317
|
)
|
|
|
(114,362
|
)
|
|
|
(109,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
|
|
|
1,129
|
|
|
|
(533
|
)
|
|
|
2,267
|
|
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
|
|
|
10,399
|
|
|
|
10,932
|
|
|
|
8,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END
OF PERIOD
|
|
$
|
11,528
|
|
|
$
|
10,399
|
|
|
$
|
10,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 stations
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
nations 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 Corporation, 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
Companys organization under one management group. The
Companys 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.
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 Companys
effective commission is presented within Revenues with no
corresponding operating expenses.
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 $22,932, $20,200 and $22,083 has
been recognized for the years ended December 31, 2006, 2005
and 2004, respectively and barter expenses of $19,433, $17,038
and $20,808 have been recognized for the years ended
December 31, 2006, 2005 and 2004, respectively.
Advertising
Costs
The Company expenses advertising costs as incurred. For 2006,
2005 and 2004, total advertising expense was $2,158, $3,318 and
$4,601, respectively.
F-7
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Equity-Based
Compensation
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 has restated all prior
periods to reflect stock compensation expense in accordance with
SFAS 123.
Depreciation
Depreciation is computed using the straight line method over the
estimated useful lives of the assets, as follows:
|
|
|
Buildings
|
|
40 years
|
Leasehold Improvements
|
|
Shorter of life or lease term
|
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, forfeiture rate of equity based
compensation grants, 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.
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 $2,323, or 0.5% of
revenue, in 2006, $2,035, or 0.4% of revenue, in 2005 and $874,
or 0.2% of revenue, in 2004. 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 a relatively few but significant bad debts.
F-8
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
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, 2006 and 2005.
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 estimated fair value of the reporting unit is compared to
its carrying amount on at least 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 implied fair value of
the reporting unit goodwill and intangible assets is less than
their carrying value. Fair value is determined based on
discounted cash flows, market multiples or appraised values as
appropriate. The Company has determined that there was an
impairment of goodwill as a result of completing its annual
impairment analysis as of December 31, 2006. The results of
this review and impact of the impairment are more fully
described in Note 4 Goodwill and
Intangible Assets.
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 Companys 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 a weighted-average amortization
period of approximately 8 years) consistent with the
pattern of cash flows which are expected to be derived. The
Company reviews the recoverability of its finite-lived
intangible assets for recoverability whenever events or
circumstances indicated that the carrying amount of an asset may
not be recoverable. Recoverability is assessed by comparison to
associated undiscounted cash flows.
Income
Taxes
The Company uses the asset and liability method of financial
accounting and reporting for income taxes required by Statement
of Financial Accounting Standards No. 109
(SFAS 109), Accounting for Income
Taxes. Under SFAS 109, deferred income taxes reflect
the tax impact of temporary differences between the amount of
assets and liabilities recognized for financial reporting
purposes and the amounts recognized for tax purposes.
F-9
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Earnings
per Share
Basic earnings per share excludes all dilution and is calculated
using the weighted average number of Common shares outstanding
in the period. Diluted earnings per share 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.
Diluted EPS for Common stock is calculated utilizing the
if-converted method. All other EPS calculations are
calculated, utilizing the two-class method, by
dividing the sum of distributed earnings to Common and
Class B shareholders and undistributed earnings allocated
to Common shareholders by the weighted average number of Common
shares outstanding during the period. In applying the
two-class method, undistributed earnings are
allocated to Common shares and Class B stock in accordance
with the cash dividend provisions of the Companys articles
of incorporation. Such provision provides that payment of a cash
dividend to holders of Common shares does not necessitate a
dividend payment to holders of Class B stock. Therefore, in
accordance with SFAS 128, Earnings Per Share
and Emerging Issues Task Force Issue
03-06, the
Company has allocated all undistributed earnings to Common
shareholders in the calculations of net income per share.
The following is a reconciliation of the Companys Common
and Class B shares outstanding for calculating basic and
diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net Income
|
|
$
|
(469,453
|
)
|
|
$
|
77,886
|
|
|
$
|
86,955
|
|
Less: distributed earnings to
Common shareholders
|
|
|
27,565
|
|
|
|
26,962
|
|
|
|
|
|
Less: distributed earnings to
Class B shareholders
|
|
|
75
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings
|
|
$
|
(497,093
|
)
|
|
$
|
50,854
|
|
|
$
|
86,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings to Common
shareholders
|
|
$
|
27,565
|
|
|
$
|
26,962
|
|
|
$
|
|
|
Undistributed earnings allocated
to Common shareholders
|
|
|
(497,093
|
)
|
|
|
50,854
|
|
|
|
86,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings
Common stock, basic
|
|
$
|
(469,528
|
)
|
|
$
|
77,816
|
|
|
$
|
86,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings to Common
shareholders
|
|
$
|
27,565
|
|
|
$
|
26,962
|
|
|
$
|
|
|
Distributed earnings to
Class B shareholders
|
|
|
|
|
|
|
70
|
|
|
|
|
|
Undistributed earnings allocated
to Common shareholders
|
|
|
(497,093
|
)
|
|
|
50,854
|
|
|
|
86,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings
Common stock, diluted
|
|
$
|
(469,528
|
)
|
|
$
|
77,886
|
|
|
$
|
86,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common shares
outstanding, basic
|
|
|
86,013,000
|
|
|
|
90,714,000
|
|
|
|
96,722,000
|
|
Share-based compensation
|
|
|
|
|
|
|
513,000
|
|
|
|
1,892,000
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class B
shares
|
|
|
|
|
|
|
292,000
|
|
|
|
395,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common shares
outstanding, diluted
|
|
|
86,013,000
|
|
|
|
91,519,000
|
|
|
|
99,009,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-10
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Earnings per Common share,
basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings, basic
|
|
$
|
0.32
|
|
|
$
|
0.30
|
|
|
$
|
|
|
Undistributed earnings
basic
|
|
|
(5.78
|
)
|
|
|
0.56
|
|
|
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(5.46
|
)
|
|
$
|
0.86
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common share,
diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings, diluted
|
|
$
|
0.32
|
|
|
$
|
0.29
|
|
|
$
|
|
|
Undistributed earnings
diluted
|
|
|
(5.78
|
)
|
|
|
0.56
|
|
|
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(5.46
|
)
|
|
$
|
0.85
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
Class B Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings to
Class B shareholders
|
|
$
|
75
|
|
|
$
|
70
|
|
|
$
|
|
|
Undistributed earnings allocated
to Class B shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings per
share Class B Stock, basic
|
|
$
|
75
|
|
|
$
|
70
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed Earnings to
Class B shareholders
|
|
$
|
75
|
|
|
$
|
70
|
|
|
|
|
|
Undistributed earnings allocated
to Class B shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings
Class B Stock, diluted
|
|
$
|
75
|
|
|
$
|
70
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class B
shares outstanding, basic
|
|
|
292,000
|
|
|
|
292,000
|
|
|
|
395,000
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Class B
shares outstanding, diluted
|
|
|
292,000
|
|
|
|
292,000
|
|
|
|
395,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Class B
share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings, basic
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
$
|
|
|
Undistributed earnings
basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Class B
share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings, diluted
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
$
|
|
|
Undistributed earnings
diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-11
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Common equivalent shares are excluded in periods in which they
are anti-dilutive. The following options, restricted stock,
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 Companys Common stock for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Options
|
|
|
6,993,414
|
|
|
|
8,003,000
|
|
|
|
4,677,500
|
|
Restricted Stock
|
|
|
326,326
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
|
226,461
|
|
|
|
100,683
|
|
|
|
|
|
Warrants
|
|
|
3,500,000
|
|
|
|
4,000,000
|
|
|
|
4,500,000
|
|
The per share exercise prices of the options excluded were
$9.13-$38.34 in 2006, $20.50-$38.34 in 2005 and $30.19-$38.34 in
2004. The per share exercise prices of the warrants excluded
were $43.11-67.98 in 2006, $43.11-$67.98 in 2005 and
$38.87-$67.98 in 2004.
Recent
Accounting Pronouncements
In May 2006, 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, 2006. The Company does not expect the adoption
of SFAS 154 to have a material impact on the Companys
consolidated financial statements.
In June 2006, the FASB issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes, an interpretation of SFAS No. 109,
(SFAS No. 109), Accounting for
Income Taxes. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises
financial statements in accordance with SFAS No. 109
and prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
evaluation of a tax position in accordance with this
Interpretation is a two-step process. The first step is
recognition, in which the enterprise determines whether it is
more likely than not that a tax position will be sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. The second step is measurement. A tax position that
meets the more-likely-than-not recognition threshold is measured
to determine the amount of benefit to recognize in the financial
statements. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The Company will adopt FIN 48
on January 1, 2007 and does not presently expect that it
will have a material effect on the consolidated financial
position or results of operations.
In September 2006, the FASB issued Fair Value
Measurements (SFAS No. 157).
SFAS No. 157 establishes a common definition of fair
value to be applied to US GAAP guidance that requires the use of
fair value, establishes a framework for measuring fair value and
expands disclosure about such fair value measurements.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. The Company is currently assessing
the impact of adopting SFAS No. 157, but does not
presently expect that it will have a material effect on the
consolidated financial position or results of operations.
F-12
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
In September 2006, the SEC staff issued Staff Accounting
Bulletin (SAB) 108 Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (SAB 108).
SAB 108 requires that public companies utilize a
dual-approach to assess the quantitative effects of
financial misstatements. This dual approach includes both an
income statement focused assessment and a balance sheet focused
assessment. The guidance in SAB 108 must be applied to
annual financial statements for fiscal years ending after
November 15, 2006. The adoption of SAB 108 did not
have a material effect on the consolidated financial position or
results of operations.
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, 2006, 2005 and 2004, CBS Radio earned cash
compensation of $3,273, $2,853 and $2,959, 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 Companys 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 Companys 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 Companys 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.
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 Companys 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 Companys 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 Companys 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 Companys average stock price for the
15 trading days prior to January 2, 2006 did not exceed
$44.70 (the price required for the warrants to become
exercisable), 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
$1,611. Subsequent to December 31, 2006, in the case of the
$51.40 warrants, the Companys average
F-13
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
stock price for the 15 trading days prior to January 2,
2007 did not exceed $51.40 (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, 2006, the unamortized value of the
May 2002 warrants was $21,838 of which $9,706 was included as a
component of Prepaid and Other Assets and $12,132 was included
as a component of Other Assets in the accompanying Consolidated
Balance Sheet. Related Amortization Expense was $9,706 and
$9,706 in 2006 and 2005, 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
Radios owned and operated 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 Companys 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 Companys Board of Directors.
The Company incurred the following expenses relating to
transactions with CBS Radio or its affiliates for the following
years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nature
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Representation Agreement
|
|
$
|
27,142
|
|
|
$
|
25,699
|
|
|
$
|
25,093
|
|
Programming and Affiliations
|
|
|
48,372
|
|
|
|
52,689
|
|
|
|
59,245
|
|
Management Agreement (excluding
warrant amortization)
|
|
|
3,273
|
|
|
|
2,853
|
|
|
|
2,959
|
|
Warrant Amortization
|
|
|
9,706
|
|
|
|
9,706
|
|
|
|
7,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,493
|
|
|
$
|
90,947
|
|
|
$
|
94,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 Viacoms affiliation with
CBS Radio. Viacom is the former parent company of CBS Radio and,
like CBS Radio, is majority-owned by National Amusements, Inc.
The Company also has a related party relationship, including a
sales representation agreement, with its investee, POP Radio,
LP, which is described in Note 5
Investments and Note Receivable.
F-14
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
NOTE 3
Property and Equipment:
Property and equipment is recorded at cost and is summarized as
follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
Land, buildings and improvements
|
|
$
|
12,278
|
|
|
$
|
11,719
|
|
|
|
|
|
|
|
|
|
Recording, broadcasting and studio
equipment
|
|
|
77,927
|
|
|
|
72,997
|
|
|
|
|
|
|
|
|
|
Furniture and equipment and other
|
|
|
11,641
|
|
|
|
11,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,846
|
|
|
|
96,463
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and
amortization
|
|
|
64,493
|
|
|
|
55,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
37,353
|
|
|
$
|
41,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $9,693, $9,412 and $9,085 for the year
ended December 31, 2006, 2005 and 2004, respectively. In
2001, the Company entered into one capital lease totaling
$6,723. Accumulated amortization related to the capital lease
was $3,586 and $2,913 as of December 31, 2006 and 2005,
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 for the year ended December 31, 2005.
NOTE 4
Goodwill and Intangible Assets:
In connection with its annual goodwill impairment testing for
the year ended December 31, 2006, the Company determined
there was an impairment and recorded a non-cash charge of
$515,916. The goodwill impairment, the majority of which is not
deductible for income tax purposes, is primarily due to our
declining operating performance in fiscal 2006 and the reduced
valuation multiples in the radio industry. Such negative factors
are reflected in our stock price and market capitalization.
The impairment charge reflects the amount by which the carrying
value of goodwill exceeded the residual value remaining after
ascribing fair values to the Companys tangible and
intangible assets. In performing the related valuation analyses,
the Company, with the assistance of a valuation specialist, used
various methods including probability-weighted discounted cash
flows, excess earnings, profit split and income methods to
determine whether goodwill is impaired.
The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business
combination. As a result, the Company allocated the fair value
of the reporting unit to all of the assets and liabilities of
the Company as if the reporting unit had been acquired in a
business combination and the fair value of the reporting unit
was the price paid to acquire the reporting unit. The excess of
the fair value of the reporting unit over the amounts assigned
to its assets and liabilities is the implied fair value of the
goodwill.
The changes in the carrying amount of goodwill for the years
ended December 31, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Balance at January 1,
|
|
$
|
982,219
|
|
|
$
|
981,969
|
|
Contingent consideration paid
|
|
|
|
|
|
|
250
|
|
Pre-acquisition contingencies
related to income taxes and other
|
|
|
(2,189
|
)
|
|
|
|
|
Impairment
|
|
|
(515,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
464,114
|
|
|
$
|
982,219
|
|
|
|
|
|
|
|
|
|
|
F-15
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
At December 31, 2006, the gross value of the Companys
amortizable intangible assets was approximately $28,380 with
accumulated amortization of approximately $24,155. At
December 31, 2005, the gross value of the Companys
amortizable intangible assets was approximately $28,380 with
accumulated amortization of approximately $23,373. Amortization
expense was $783, $1,170 and $1,449 for the year ended
December 31, 2006, 2005 and 2004, respectively. The
Companys estimated aggregate amortization expense for
intangibles for fiscal year 2007, 2008, 2009, 2010 and 2011 are
$783, $783, $783, $734 and $634 respectively.
NOTE 5
Investments and Note Receivable:
On March 29, 2006, the Companys cost method
investment in The Australia Traffic Network Pty Limited
(ATN) was converted to 1,540,195 shares of
Common stock of Global Traffic Network, Inc. (GTN)
in connection with the initial public offering of GTN on that
date. The Company is subject to a one-year
lock-up
provision with respect to its shares in GTN. The investment in
GTN, valued at $7,917 at December 31, 2006, is classified
as an available for sale security and included in other assets
in the accompanying Consolidated Balance Sheet. Accordingly, the
unrealized gain as of December 31, 2006 is included in
unrealized gain on available for sale securities in the
accompanying Consolidated Balance Sheet.
GTN is the parent company of ATN, and also of Canadian Traffic
Network ULC (CTN) from whom the Company purchased a
senior secured note in an aggregate principal amount of $2,000
in November 2005. This note was included in other assets in the
accompanying Consolidated Balance Sheet at December 31,
2005. On September 7, 2006, CTN repaid this note in full.
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
became 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 Companys equity in earnings of POP Radio through
December 31, 2006 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). This guarantee is accounted for in
accordance with FASB Interpretation 45, Guarantors
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.
On October 18, 2006, in connection with the withdrawal of
the dispute between POP Radio and NAMI, the Superior Court of
the State of Connecticut vacated the temporary injunction
against POP Radio and released the $1,400 bond posted by the
Company.
On September 29, 2006, the Company, along with the other
limited partners of POP Radio, elected to participate in a
recapitalization transaction negotiated by POP Radio with Alta
Communications, Inc. (Alta), in return for which the
Company received $529 on November 13, 2006 which was
recorded within Other Income in the Consolidated Statement of
Operations for the year ended December 31, 2006. Pursuant
to the terms of the transaction, if and when Alta elects to
exercise warrants it received in connection with the
transaction, the Companys limited partnership interest in
POP Radio will decrease from 20% to 6%.
F-16
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
NOTE 6
Debt:
Long-term debt consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Revolving Credit Facility/Term Loan
|
|
$
|
170,000
|
|
|
$
|
230,000
|
|
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
|
|
|
(3,140
|
)
|
|
|
(2,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
366,860
|
|
|
$
|
427,514
|
|
|
|
|
|
|
|
|
|
|
On October 31, 2006 the Company amended its existing senior
loan agreement with a syndicate of banks led by JP Morgan
Chase Bank and Bank of America. The facility, as amended, is
comprised of an unsecured five-year $120,000 term loan and a
five-year $150,000 revolving credit facility which shall be
automatically reduced to $125,000 effective September 28,
2007 (collectively the Facility). In connection with
the original closing of the Facility on March 3, 2004, the
Company borrowed the full amount of the term loan, the proceeds
of which were used to repay the outstanding borrowings under a
prior facility. As of December 31, 2006, the Company had
available borrowings of $100,000 under the Facility. Interest on
the Facility is variable and is payable at a maximum of the
prime rate plus an applicable margin of up to .25% or LIBOR plus
an applicable margin of up to 1.25%, at the Companys
option. The applicable margin is determined by the
Companys Total Debt Ratio, as defined in the underlying
agreements. The Facility contains covenants relating to
dividends, liens, indebtedness, capital expenditures and
restricted payments, as defined, interest coverage and leverage
ratios. On December 3, 2002, the Company also 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%,
collectively referred to as Senior Unsecured 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 Companys 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.
In addition, the Company entered into a seven-year interest rate
swap agreement covering $25,000 notional value of its
outstanding borrowings under the Senior Unsecured Notes to
effectively float the majority of 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 borrowings under the Senior Unsecured Notes to
effectively float the majority of the interest rate at
three-month LIBOR plus 80 basis points. In total, the swaps
cover $100,000 which represents 50% of the notional amount of
Senior Unsecured Notes. The Senior Unsecured Notes contain
covenants relating to dividends, liens, indebtedness, capital
expenditures, and interest coverage and leverage ratios.
At December 31, 2006, the Company had available borrowings
under the Facility of $100,000. Additionally, at
December 31, 2006, the Company had borrowed $170,000 under
the Facility at a weighted-average interest rate of 6.3%
(including the applicable margin of LIBOR plus 1.125%). As of
December 31, 2005, the Company had borrowed $230,000 under
the Facility at a weighted-average interest rate of 4.0%
(including applicable margin).
F-17
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
The aggregate maturities of debt for the next five years and
thereafter, pursuant to the Companys debt agreements as in
effect at December 31, 2006, are as follows (excludes
market value adjustments):
|
|
|
|
|
Year
|
|
|
|
|
2007
|
|
$
|
|
|
2008
|
|
|
|
|
2009
|
|
|
220,000
|
|
2010
|
|
|
|
|
2011
|
|
|
|
|
2012
|
|
|
150,000
|
|
|
|
|
|
|
|
|
$
|
370,000
|
|
|
|
|
|
|
NOTE 7
Financial Instruments:
Interest
Rate Risk Management
In order to achieve a desired proportion of variable and fixed
rate debt, the Company entered into a seven year interest rate
swap agreement covering $25,000 notional value of its
outstanding borrowing to effectively float the majority of 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
majority of the interest rate at three-month LIBOR plus
80 basis points. In total, the swaps cover $100,000 which
represents 50% of the notional amount of senior unsecured 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 instruments effectiveness offsets the exposure to
changes in the hedged items fair value.
At December 31, 2006, the Company had the following
interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
Interest Rate
|
|
|
Variable Rate
|
|
|
|
|
Maturity Dates
|
|
Principal Amount
|
|
|
Paid(1)
|
|
|
Received
|
|
|
Index
|
|
|
|
|
|
November 2009
|
|
$
|
25,000
|
|
|
|
5.37
|
|
|
|
3.907
|
%
|
|
|
3 Month LIBOR
|
|
|
|
|
|
November 2012
|
|
$
|
25,000
|
|
|
|
5.37
|
|
|
|
4.410
|
%
|
|
|
3 Month LIBOR
|
|
|
|
|
|
November 2012
|
|
$
|
50,000
|
|
|
|
5.37
|
|
|
|
4.535
|
%
|
|
|
3 Month LIBOR
|
|
|
|
|
|
|
|
|
(1) |
|
The interest rate paid at December 31, 2006 was 5.37%. |
The estimated fair values of the Companys interest rate
swaps at December 31, 2006 and 2005 were $3,140 and $2,486,
respectively and were included in accrued expenses in the
accompanying Consolidated Balance Sheet.
F-18
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Fair
Value of Financial Instruments
The Companys financial instruments include cash, cash
equivalents, receivables, accounts payable, borrowings and
interest rate contracts. At December 31, 2006 and 2005, 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 quotes or quoted market
prices or rates for the same or similar instruments, and the
related carrying amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Borrowings (Short and Long Term)
|
|
$
|
370,000
|
|
|
$
|
366,860
|
|
|
$
|
430,000
|
|
|
$
|
427,514
|
|
Risk management contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
(3,140
|
)
|
|
|
(3,140
|
)
|
|
|
(2,486
|
)
|
|
|
(2,486
|
)
|
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 Companys receivables do not represent a significant
concentration of credit risk at December 31, 2006, 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.
On September 27, 2004, a shareholder converted
411,670 shares of Class B Stock into an equal number
of shares of Common stock.
The Companys Board of Directors has approved plans to
purchase shares of the Companys Common stock to enhance
shareholder value. The Company purchased 750,000 shares in
2006 for approximately $11,044, 8,015,000 shares in 2005
for approximately $160,604 and 8,456,000 shares in 2004 for
approximately $216,503. 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
Companys 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 February 2, April 18, and August 7, 2006, the
Companys Board of Directors declared cash dividends of
$0.10 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 November 7, 2006, the Companys
Board of Directors declared cash dividends of $0.02 for each
issued and outstanding share of Common stock and $0.016 for each
issued and outstanding share of Class B stock.
NOTE 9
Equity-Based Compensation:
Equity
Compensation Plans
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 Company Common stock at its
F-19
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
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 September 30, 2006. 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 2005 Equity Compensation Plan (the
2005 Plan). Among other things, the 2005 Plan
provides 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.
Beginning on May 19, 2005, outside directors automatically
receive a grant of RSUs equal to $100 in value on the date of
each Company annual meeting of stockholders. Newly appointed
outside directors receive an initial grant of RSUs equal to $150
in value on the date such director is appointed to the
Companys Board. Such awards are governed by the 2005 Plan.
Options and restricted stock granted under the 2005 Plan
generally vest in 25% increments per year, at the end of each
year, and options expire within ten years from the date of
grant. RSUs awarded to directors generally vest over a
three-year period in equal one-third increments per year.
Directors RSUs vest automatically, in full, upon a change
in control or upon their retirement, as defined in the 2005
Plan. RSUs are payable in shares of the Companys Common
stock. 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. Such
dividend equivalents are payable, in shares of Common stock,
only upon the vesting of the related restricted shares.
Restricted stock has the same cash dividend and voting rights as
other Common stock and is considered to be currently issued and
outstanding. Restricted stock and RSUs have dividend equivalent
rights equal to the cash dividend paid on Common stock. RSUs do
not have the voting rights of Common stock, and the shares
underlying the RSUs are not considered issued and outstanding.
At December 31, 2006, there were 6,761,411 shares
available for grant under the Companys equity compensation
plans.
Adoption
of SFAS 123R
Prior to January 1, 2006, the Company accounted for
equity-based compensation under the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25
(APB No. 25), Accounting for Stock Issued
to Employees, and the related Interpretations, as
permitted by Financial Accounting Standards Board Statement
No. 123, Accounting for Stock Based
Compensation. No share based compensation expense was
recognized in the Statement of Operations as all option grants
had an exercise price equal to the market value of the
underlying Common stock on the date of grant and the number of
shares was fixed, 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 RSUs to certain
individuals.
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
eliminated the alternative set forth in APB 25 allowing
companies to use the intrinsic value method of accounting and
required that companies record expense for stock compensation on
a fair value based method. In connection with the adoption of
SFAS 123R, the Company elected to utilize the modified
retrospective transition alternative and has restated all prior
periods to reflect stock compensation expense in accordance with
SFAS 123.
As a result of adopting SFAS 123R, the Companys
income before income taxes was $10,165, $11,286 and $14,453
lower for the years ended December 31, 2006, 2005 and 2004
respectively, than if it had continued to account for the
F-20
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
share-based compensation under APB No. 25. Income taxes
were $4,034, $4,489 and $5,918 lower for years ended
December 31, 2006, 2005 and 2004, respectively.
Prior to the adoption of SFAS 123R, the Company presented
all tax benefits of deductions resulting from the exercise of
stock options as operating cash flows in the Consolidated
Statements of Cash Flows. SFAS 123R requires that cash
flows resulting from tax deductions that are in excess of the
compensation costs recognized for those options (known as
Windfall Tax Benefits) be classified as financing cash flows.
The following is a summary of the adjustments to the
consolidated financial statements as a result of these
restatements:
Selected
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
|
As previously
|
|
|
|
|
|
|
|
|
|
reported
|
|
|
Adjustment
|
|
|
As restated
|
|
|
Deferred tax (liability) /asset
|
|
$
|
(32,713
|
)
|
|
$
|
18,703
|
|
|
$
|
(14,010
|
)
|
Paid-in capital
|
|
|
517,132
|
|
|
|
77,843
|
|
|
|
594,975
|
|
Retained earnings
|
|
|
319,020
|
|
|
|
(54,089
|
)
|
|
|
264,931
|
|
Selected
Statement of Operations Data for the years ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
As previously
|
|
|
|
|
|
|
|
|
As previously
|
|
|
|
|
|
|
|
|
|
reported
|
|
|
Adjustment
|
|
|
As restated
|
|
|
reported
|
|
|
Adjustment
|
|
|
As restated
|
|
|
Operating Costs
|
|
$
|
372,277
|
|
|
$
|
6,721
|
|
|
$
|
378,998
|
|
|
$
|
369,634
|
|
|
$
|
9,463
|
|
|
$
|
379,097
|
|
Corporate General and
Administrative Expenses
|
|
|
9,463
|
|
|
|
4,565
|
|
|
|
14,028
|
|
|
|
8,606
|
|
|
|
4,990
|
|
|
|
13,596
|
|
Income Before Income Taxes
|
|
|
138,389
|
|
|
|
(11,286
|
)
|
|
|
127,103
|
|
|
|
154,614
|
|
|
|
(14,453
|
)
|
|
|
140,161
|
|
Income Taxes
|
|
|
53,706
|
|
|
|
(4,489
|
)
|
|
|
49,217
|
|
|
|
59,124
|
|
|
|
(5,918
|
)
|
|
|
53,206
|
|
Net Income
|
|
|
84,683
|
|
|
|
(6,797
|
)
|
|
|
77,886
|
|
|
|
95,490
|
|
|
|
(8,535
|
)
|
|
|
86,955
|
|
Basic Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
0.93
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.86
|
|
|
$
|
0.98
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.90
|
|
Class B Stock
|
|
|
0.24
|
|
|
|
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
0.93
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.85
|
|
|
$
|
0.97
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.88
|
|
Class B Stock
|
|
|
0.24
|
|
|
|
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Equity
Compensation Activity
The Company has awarded RSUs to Board members and certain key
executives, which vest over three and four years, respectively.
The cost of the RSUs, which is determined to be the fair market
value of the shares at the date of grant net of estimated
forfeitures, is expensed ratably over the vesting period, or
period to retirement eligibility if shorter. There were no RSUs
granted in 2004. During 2005, there were 105,077 RSUs granted
with a weighted average grant date fair value of $18.15. The
Companys RSU activity during year ended December 31,
2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Aggregate
|
|
|
Grant Date
|
|
|
|
2006
|
|
|
Grant Date
|
|
|
Fair Value
|
|
RSUs:
|
|
Shares
|
|
|
Fair Value
|
|
|
Per Share
|
|
|
Outstanding at December 31,
2005
|
|
|
100,683
|
|
|
$
|
1,819
|
|
|
$
|
18.07
|
|
Granted during the period
|
|
|
189,110
|
|
|
|
2,249
|
|
|
|
11.89
|
|
Dividend equivalents during the
period
|
|
|
8,441
|
|
|
|
70
|
|
|
|
8.27
|
|
Forfeited during the period
|
|
|
(44,075
|
)
|
|
|
(733
|
)
|
|
|
16.64
|
|
Converted to Common stock
|
|
|
(27,698
|
)
|
|
|
(447
|
)
|
|
|
16.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
226,461
|
|
|
$
|
2,958
|
|
|
$
|
13.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested at December 31,
2006
|
|
|
15,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 211,363 and 100,683 outstanding but unvested RSUs at
December 31, 2006 and 2005, respectively. As of
December 31, 2006, there was $1,698 of unearned
compensation cost, and 226,461 RSUs are expected to vest in
connection with the RSUs granted. That cost is expected to be
recognized over a weighted-average period of 1.72 years.
The total compensation expense recognized related to RSUs was
$1,304, $400 and $0 for the years ended December 31, 2006,
2005, and 2004, respectively. These costs have been included in
Corporate, General and Administrative expenses in the
accompanying Statement of Operations.
The Company has awarded restricted shares of Common stock to
certain key employees. The awards have restriction periods tied
solely to employment and vest over four years. The cost of these
restricted stock awards, calculated as the fair market value of
the shares on the date of grant net of estimated forfeitures, is
expensed ratably over the vesting period. The Companys
restricted stock activity during the year ended
December 31, 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
2006
|
|
|
Grant Date
|
|
|
Fair Value
|
|
RESTRICTED STOCK:
|
|
Shares
|
|
|
Fair Value
|
|
|
Per Share
|
|
|
Unvested at December 31, 2005
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Granted during the period(1)
|
|
|
352,973
|
|
|
$
|
4,642
|
|
|
|
13.15
|
|
Vested during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited during the period
|
|
|
(26,647
|
)
|
|
|
(377
|
)
|
|
|
14.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2006
|
|
$
|
326,326
|
|
|
$
|
4,265
|
|
|
$
|
13.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes dividend equivalents on unvested shares |
F-22
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
As of December 31, 2006, there was $2,790 of
unearned compensation cost, and 262,492 shares expected to
vest, related to restricted stock grants. That cost is expected
to be recognized over a weighted-average period of
3.0 years. The total compensation expense recognized
related to restricted stock is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
Included In:
|
|
2006
|
|
|
2005*
|
|
|
2004*
|
|
|
Corporate General and
Administrative Expenses
|
|
$
|
101
|
|
|
$
|
|
|
|
$
|
|
|
Operating Costs
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
795
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
There was no restricted stock issued prior to 2006. |
The Companys stock option activity during the period
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Aggregate Intrinsic
|
|
STOCK OPTIONS:
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
|
Outstanding at December 31,
2005
|
|
|
7,787,589
|
|
|
$
|
25.07
|
|
|
|
|
|
Granted during the period
|
|
|
805,560
|
|
|
|
13.98
|
|
|
|
|
|
Exercised during the period
|
|
|
(44,500
|
)
|
|
|
8.54
|
|
|
|
|
|
Cancelled during the period
|
|
|
(1,836,653
|
)
|
|
|
25.32
|
|
|
|
|
|
Forfeited during the period
|
|
|
(618,702
|
)
|
|
|
23.23
|
|
|
|
|
|
Expired during the Period
|
|
|
(7,500
|
)
|
|
|
20.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
6,085,794
|
|
|
$
|
23.84
|
|
|
$
|
12
|
|
Vested and exercisable at
December 31, 2006
|
|
|
3,807,041
|
|
|
$
|
25.03
|
|
|
$
|
0
|
|
The weighted average remaining contractual term of vested
options was 4.46 years at December 31, 2006. The
aggregate intrinsic value of options exercised was $74, $3,445
and $47,543 during the years ended December 31, 2006, 2005
and 2004, respectively. Additionally, at December 31, 2006,
2,086,329 options were expected to vest with a weighted average
exercise price of $21.45, and weighted average remaining term of
7.97 years. The aggregate intrinsic value of these options
was $12. The aggregate intrinsic value of options represents the
total pre-tax intrinsic value (the difference between the
Companys closing stock price on the last trading day of
fiscal 2006 and the exercise price, multiplied by the number of
in-the-money
options) that would have been received by the option holders had
all option holders exercised their options on December 31,
2006. This amount changes based on the fair market value of the
Companys Common stock.
As of December 31, 2006, there was $15,400 of unearned
compensation cost related to stock options granted under the
plans. That cost is expected to be recognized over a
weighted-average period of 2.30 years. The total
compensation expense recognized related to options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Included In:
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Corporate General and
Administrative Expenses
|
|
$
|
4,519
|
|
|
$
|
4,565
|
|
|
$
|
5,381
|
|
Operating Costs
|
|
|
5,646
|
|
|
|
6,721
|
|
|
|
9,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,165
|
|
|
$
|
11,286
|
|
|
$
|
14,844
|
|
The aggregate estimated fair value of options vesting was $7,446
during the year ended December 31, 2006. The weighted
average fair value of the options granted was $5.37,
$5.90 and $6.77 during the years ended December 31,
F-23
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
2006, 2005 and 2004, respectively. The estimated fair value of
options granted was measured on the date of grant using the
Black-Scholes option pricing model with the following weighted
average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Risk-Free Interest Rate
|
|
|
4.53
|
%
|
|
|
4.0
|
%
|
|
|
3.5
|
%
|
Expected Term
|
|
|
6.2
|
%
|
|
|
4.9
|
%
|
|
|
5.0
|
%
|
Expected Volatility
|
|
|
45.05
|
%
|
|
|
28.97
|
%
|
|
|
28.3
|
%
|
Expected Dividend Yield
|
|
|
2.8
|
%
|
|
|
1.16
|
%
|
|
|
|
|
The risk-free interest rate for periods within the life of the
option is based on a blend of U.S. Treasury bond rates.
Beginning with options granted after January 1, 2006, the
expected term assumption has been calculated using the
shortcut method as permitted by Staff Accounting
Bulletin No. 107. Prior to January 1, 2006, the
Company set the expected term equal to the applicable vesting
period. The expected volatility assumption used by the Company
is based on the historical volatility of the Companys
stock. The dividend yield represents the expected dividends on
the Company stock for the expected term of the option.
Additional information related to options outstanding at
December 31, 2006, segregated by grant price range, is
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (In Years)
|
|
|
Options Outstanding at Exercise
Price Ranges of:
|
|
|
|
|
|
|
|
|
|
|
|
|
$5.34-$9.88
|
|
|
181,500
|
|
|
$
|
8.56
|
|
|
|
4.28
|
|
$10.09-$19.93
|
|
|
1,516,334
|
|
|
$
|
15.43
|
|
|
|
5.98
|
|
$20.25-$26.96
|
|
|
2,158,510
|
|
|
$
|
21.26
|
|
|
|
5.94
|
|
$30.19-$38.34
|
|
|
2,229,450
|
|
|
$
|
33.30
|
|
|
|
5.51
|
|
NOTE 10
Income Taxes:
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
26,304
|
|
|
$
|
48,682
|
|
|
$
|
51,200
|
|
State
|
|
|
3,588
|
|
|
|
7,988
|
|
|
|
7,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,892
|
|
|
|
56,670
|
|
|
|
58,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(18,537
|
)
|
|
|
(6,421
|
)
|
|
|
(4,746
|
)
|
State
|
|
|
(2,546
|
)
|
|
|
(1,030
|
)
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,083
|
)
|
|
|
(7,451
|
)
|
|
|
(5,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax
|
|
$
|
8,809
|
|
|
$
|
49,219
|
|
|
$
|
53,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities on the Companys balance sheet and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets and liabilities follow:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(Restated)
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill, intangibles and other
|
|
|
|
|
|
$
|
11,308
|
|
Property and equipment
|
|
$
|
4,122
|
|
|
|
5,670
|
|
Investment
|
|
|
2,876
|
|
|
|
|
|
Other
|
|
|
227
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
7,225
|
|
|
|
17,423
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Goodwill, intangibles and other
|
|
|
6,249
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
1,665
|
|
|
|
1,077
|
|
Deferred compensation
|
|
|
1,509
|
|
|
|
6,324
|
|
Equity based compensation
|
|
|
15,057
|
|
|
|
19,388
|
|
Accrued expenses and other
|
|
|
237
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
24,717
|
|
|
|
27,269
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
17,492
|
|
|
|
9,846
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
current
|
|
|
1,666
|
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
long term
|
|
$
|
15,826
|
|
|
$
|
8,769
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of the federal statutory income tax rate to
the Companys effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes net of federal benefit
|
|
|
(0.2
|
)
|
|
|
3.5
|
|
|
|
3.0
|
|
Non-deductible portion of goodwill
impairment
|
|
|
(36.6
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(1.9
|
)%
|
|
|
38.7
|
%
|
|
|
38.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2006, 2005 and 2004, $12, $861 and $10,518 respectively, of
windfall tax benefits attributable to employee stock exercises
were allocated to shareholders equity.
F-25
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
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, 2006 and thereafter, are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
|
|
|
|
|
Year
|
|
Capital
|
|
|
Operating
|
|
|
Other
|
|
|
Total
|
|
|
2007
|
|
$
|
960
|
|
|
$
|
6,968
|
|
|
$
|
95,813
|
|
|
$
|
103,741
|
|
2008
|
|
|
960
|
|
|
|
6,534
|
|
|
|
82,910
|
|
|
|
90,404
|
|
2009
|
|
|
960
|
|
|
|
5,664
|
|
|
|
34,317
|
|
|
|
40,941
|
|
2010
|
|
|
960
|
|
|
|
4,082
|
|
|
|
19,055
|
|
|
|
24,097
|
|
2011
|
|
|
640
|
|
|
|
3,696
|
|
|
|
15,302
|
|
|
|
19,638
|
|
Thereafter
|
|
|
0
|
|
|
|
11,637
|
|
|
|
7,100
|
|
|
|
18,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,480
|
|
|
$
|
38,581
|
|
|
$
|
254,497
|
|
|
$
|
297,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The present value of net minimum payments under capital leases
was $3,855 at December 31, 2006.
Rent expense charged to operations for 2006, 2005 and 2004 was
9,295, $8,957 and $8,485 respectively.
Included in Other in the table above is $101,343 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,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
24,642
|
|
|
$
|
17,134
|
|
|
$
|
13,564
|
|
Income Taxes
|
|
|
45,676
|
|
|
|
39,432
|
|
|
|
41,158
|
|
F-26
WESTWOOD
ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
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, 2006 and 2005.
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
For the
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
120,772
|
|
|
$
|
129,162
|
|
|
$
|
114,263
|
|
|
$
|
129,798
|
|
|
$
|
493,995
|
|
Operating (loss) income
|
|
|
(140
|
)
|
|
|
26,717
|
|
|
|
23,836
|
|
|
|
(486,393
|
)(1)
|
|
|
(435,980
|
)
|
Net (loss) income
|
|
|
(3,527
|
)
|
|
|
12,170
|
|
|
|
10,484
|
|
|
|
(488,580
|
)
|
|
|
(469,453
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
(0.04
|
)
|
|
|
0.14
|
|
|
|
0.12
|
|
|
|
(5.68
|
)
|
|
|
(5.46
|
)
|
Class B Stock
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
0.02
|
|
|
|
0.26
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
(0.04
|
)
|
|
|
0.14
|
|
|
|
0.12
|
|
|
|
(5.68
|
)
|
|
|
(5.46
|
)
|
Class B Stock
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
0.02
|
|
|
|
0.26
|
|
2005 (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
134,082
|
|
|
$
|
141,837
|
|
|
$
|
134,928
|
|
|
$
|
146,983
|
|
|
$
|
557,830
|
|
Operating income
|
|
|
25,825
|
|
|
|
38,687
|
|
|
|
37,632
|
|
|
|
41,834
|
|
|
|
143,978
|
|
Net income
|
|
|
13,844
|
|
|
|
21,464
|
|
|
|
20,069
|
|
|
|
22,509
|
|
|
|
77,886
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
0.15
|
|
|
$
|
0.23
|
|
|
$
|
0.22
|
|
|
$
|
0.26
|
|
|
$
|
0.86
|
|
Class B Stock
|
|
|
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
0.24
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
0.15
|
|
|
$
|
0.23
|
|
|
$
|
0.22
|
|
|
$
|
0.25
|
|
|
$
|
0.85
|
|
Class B Stock
|
|
|
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
0.24
|
|
|
|
|
(1) |
|
The Company recorded a goodwill impairment charge of $515,916 in
the fourth quarter of 2006. Refer to Note 4, Goodwill
and Intangible Assets, for further information. |
NOTE 14
Subsequent Events:
On March 6, 2007, the Board of Directors of the Company
declared a cash dividend of $0.02 per share for all issued
and outstanding Common stock and $0.016 per share for all issued
and outstanding Class B stock, payable March 30, 2007,
to stockholders of record at the close of business on
March 20, 2007. Further declarations of dividends,
including the establishment of record and payment dates related
to dividends, will be at the discretion of the Companys
Board of Directors.
F-27
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
|
|
|
2006
|
|
$
|
2,797
|
|
|
$
|
2,323
|
|
|
|
|
|
$
|
(733
|
)
|
|
$
|
4,387
|
|
2005
|
|
$
|
2,566
|
|
|
$
|
2,031
|
|
|
|
|
|
$
|
(1,800
|
)
|
|
$
|
2,797
|
|
2004
|
|
$
|
4,334
|
|
|
$
|
874
|
|
|
|
|
|
$
|
(2,642
|
)
|
|
$
|
2,566
|
|
F-28