-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QbC3nav5ILsATO/SZ8XH7bl+Rumalt7BEUo0g5giGzwgxq5dkkM31jXwx4Tr7Uth ajL7X4+xlhz1fuTtCwp3YQ== 0000950129-99-001302.txt : 19990402 0000950129-99-001302.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950129-99-001302 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METRO NETWORKS INC CENTRAL INDEX KEY: 0001016718 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 760505148 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21575 FILM NUMBER: 99582091 BUSINESS ADDRESS: STREET 1: 2800 POST OAK BLVD STREET 2: STE 4000 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7136212800 MAIL ADDRESS: STREET 1: 2700 POST OAK BLVD CITY: HOUSTON STATE: TX ZIP: 77056 10-K 1 METRO NETWORKS, INC. - DATED 12/31/98 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number: 0-21575 --------------- METRO NETWORKS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 76-0505148 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 2800 POST OAK BLVD., SUITE 4000 77056-6199 HOUSTON, TEXAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (713) 407-6000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: TITLE OF CLASS COMMON STOCK, $.001 PAR VALUE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the shares of Registrant's Common Stock held by non-affiliates of Registrant as of March 25, 1999 was $ 361,541,280, based upon the average of the bid and asked price per share of Common Stock on March 25, 1999, as reported in the NASDAQ National Market. The number of shares outstanding of Registrant's Common Stock as of March 25, 1999 was 16,714,973. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive proxy statement for its annual meeting of shareholders (which will be filed with the Commission within 120 days of the Registrant's last fiscal year end) are incorporated by reference in Part III of this Form 10-K. ================================================================================ 2 PART I ITEM 1. BUSINESS. OVERVIEW Metro Networks, Inc. (the "Company") is the largest domestic outsource provider of traffic reporting services and is a leading supplier of local news, sports, weather, video news and other information programming services to the television and radio broadcast industries. The Company's information reports, which are customized to meet the specific needs of each of the Company's individual radio and television station affiliates, are presently being broadcast by approximately 1,688 radio station affiliates and 155 television station affiliates. The Company provides local broadcast information reports in 81 Metro Survey Area ("MSA") markets in the United States. In exchange for the Company's information reports, radio and television station affiliates provide commercial airtime inventory to the Company. The packaging and sale of this commercial airtime inventory accounts for substantially all of the Company's revenues. Because the Company has numerous television and radio station affiliates in each of its markets (averaging 23 affiliates per market), the Company believes that its broadcasts of local information enable advertisers to reach more people, more often, in a higher impact manner than can be achieved using other advertising media. The Company's information reports are broadcast in 67 of the 75 largest MSA markets in the United States and are seen and heard by more than 100 million people (age 12 and over) daily. Such reports and the Company's commercial messages are listened to by an average of approximately 73% of the population (age 12 and over) in its markets. The Company's large network of affiliates offers advertisers the opportunity to reach a broad-based local, regional or national audience, through a single purchase of commercial airtime inventory from the Company. The Company offers advertisers two different networks on which to broadcast their advertisements: (i) the network of radio station affiliates (the "Radio Information Services Network") which includes the affiliate stations to which the Company provides its core information reports (the "Radio Traffic Services" and, separately, the "Radio Traffic Services Network") and the affiliate stations to which the Company provides its news, sports, weather and other information reports (the "Expanded Radio Services" and, separately, the "Expanded Radio Services Network"), and (ii) the network of broadcast television station affiliates and cable news channel affiliates (the "MetroTV Network") to which the Company provides its traffic information reports (the "Television Traffic Services") and video news information products (the "Video News Services," and collectively with the Television Traffic Services, the "MetroTV Services"). PROGRAMMING The Company's information reports (including the length of report, content of report, specific geographic coverage area, time of broadcast, number of reports aired per day, broadcaster's style, etc.) are customized to meet each individual affiliate's requirements. The Company typically works closely with the program directors, news directors and general managers of its affiliates to ensure that the Company's services meet its affiliates' quality standards. The Company and its affiliates jointly select the on-air broadcasters to ensure that each broadcaster's style is appropriate for the station's format. The Company's broadcasters often become integral "personalities" on such affiliates' 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 broadcasters on multiple affiliate stations within a particular market. Generally, each of the Company's broadcasters delivers reports to between two and four of the Company's affiliates. The Company does not require its affiliates to identify the Company as the supplier of its information reports. This provides the Company's affiliates with a high degree of customization and flexibility, as each affiliate has the right to present the information reports provided by the Company as if the affiliate had generated such reports with its own resources. For example, multiple affiliates in a single market may suggest that the Company's infrastructure, including its airplanes, helicopters and broadcasters, are those of the affiliate. 3 Radio Programming Services The Company has been supplying radio stations with customized Radio Traffic Services since its inception in 1978. The Company is now the largest supplier of Radio Traffic Services in the United States. The Company has offered its Expanded Radio Services since 1994 and is now a leading supplier of such services, with over 674 affiliates in 70 markets as of December 31, 1998. The Company's total radio station affiliates increased by 7% from 1,576 in 1997 to 1,688 in 1998. The Company gathers traffic and other data utilizing the Company's information-gathering infrastructure, which includes aircraft (helicopters and airplanes), broadcast quality remote camera systems positioned at strategically located fixed-positions and on aircraft, mobile units and cellular systems, and by accessing various government-based traffic tracking systems. The Company also gathers information through relationships with various third party news and information services. The information is then processed, written into broadcast copy and entered into the Company's computer systems by the Company's local writers and producers. The Company's professional broadcasters then read the customized reports on the air. As a result of its extensive network of operations and broadcasters, the Company regularly reports breaking and important news stories and provides its affiliates with live coverage of these stories. The Company is able to customize and personalize its reports of breaking stories using its individual affiliates' call letters from the scene of news events. For example, during the Hurricane Georges news event, the Company provided live customized reports to its affiliates all over the country from within the National Hurricane Center in Miami, from all the states affected by the Hurricane, as well as cities and states which were sending relief supplies to storm ravaged areas. The Company believes that it is the only radio network news organization that has local studio operations that cover in excess of 80 markets and that is able to provide such customized reports to these markets. Metro Source, the Company's newest product within its Expanded Radio Services division, was first introduced in September 1997 and installations began in January 1998. Metro Source is a total information system and digital audio workstation that allows Metro news affiliates to receive via satellite, 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. Information and content for Metro Source is primarily generated from the Company's staff of News Bureau Chiefs, state correspondents and professional news writers and reporters. Local, regional and national news and information stories are fed to the Company's national news operations center in Phoenix, Arizona where the information is verified, edited, produced and disseminated via satellite to the Company's internal Metro Source workstations located in each of its operations centers and to workstations located at affiliate radio stations nationwide. Metro Source includes proprietary software that allows for customizing reports and editing in both audio and text formats. The benefit to stations is that Metro Source allows them to substantially reduce time and cost from the news gathering and editing process at the station level, while providing greater volume and quality news and information coverage from a single source. As of December 31, 1998, the Company had affiliated approximately 470 radio stations for the Metro Source product. Television Programming Services The Company has been supplying its Television Traffic Services to television stations for over ten years and is currently providing such services to 155 television stations, an increase of 15% from 135 television station affiliates in 1997. Originally, the Company provided television stations with audio reports of traffic information and basic graphics. In 1995, the Company began to expand and enhance the information services that it provides to television stations. As of December 31, 1998, the Company provided its Video News Services to approximately 61 television station affiliates in 28 markets, up from 33 television stations in 17 markets at the end of 1997. Similar to its radio programming services, with its MetroTV Services the Company supplies customized information reports which are generally delivered on air by its professional broadcasters to its television station affiliates. In addition, the Company supplies customized graphics and other visual programming elements to its television station affiliates. The Company utilizes live studio cameras in order to enable its traffic reporters to provide its Video News Services on television from the Company's local broadcast studios. In addition, the Company provides its Video News Services from its aircraft and fixed-position based camera systems. The Video News Services include: (i) live video coverage from strategically located fixed-position camera systems; (ii) live video news feeds from the 2 4 Company's aircraft; and (iii) full-service, 24 hours per day/7 days per week video coverage from the Company's camera crews using broadcast quality camera equipment and news vehicles. The Company owns an 80% interest in Washington News Network, Inc. ("WNN"), which provides customized video news feeds via satellite, primarily of news events from Capitol Hill and the White House, to approximately 170 television station affiliates, bureaus and networks across the country. WNN currently covers national news for local and regional consumption and provides video crew hire services in the Washington, D.C. area for affiliate stations nationwide. The Company offers WNN's services and products as a part of its MetroTV Services. In December 1998, the Company completed the acquisition of Ross Sports Productions, Inc. ("Ross"), based in Philadelphia. Ross is a film and video production company with nationally syndicated but locally produced scholastic sports programs. Ross' main service is a weekly half-hour TV program, "The High School Sports Show," which is marketed to local television stations, and Ross sells sponsorship advertising packages to local and regional advertisers within the show in exchange for commercial airtime inventory. The show currently airs in 22 major markets, generally on major network affiliated stations late Saturday afternoon or late Sunday morning. The Company offers Ross' services and products as a part of its MetroTV Services. Metro Information Services The Company's Metro Information Services ("MIS") division develops non-broadcast traffic information business. MIS develops innovative techniques of gathering local traffic and transportation information, as well as new methods of distributing such information to the public. The Company believes that in order to remain competitive and to continue to provide an information product of the highest quality to its affiliates, it is necessary to invest in and participate in the development of new technology. The Company is currently working with several public and private entities across the United States to improve dissemination of traffic and transportation information. The Company is a large supplier of information to the wireless telephone industry, providing customized traffic information, direction services, and other local information to cellular subscribers via the Company's STAR JAMTM and STAR FINDTM services. In conjunction with Etak, a digital mapping and software company owned by Sony, the Company has been working with a variety of private companies to deploy commercial products and services involving traveler information. The relationship allows for the provision of information on a personalized basis through a variety of delivery mechanisms, including the internet, paging, FM subcarrier, traditional cellular and newly-developed and evolving wireless systems. Information can be delivered to a wide array of devices including pagers, computers, and in-vehicle navigation and information systems. The Company is participating in a number of United States Department of Transportation ("USDOT") funded Intelligent Transportation Systems ("ITS") projects. These include the AZTech Model Deployment Project in Phoenix and the Smart Trek Model Deployment Project in Seattle. In addition, the Company is the Operations Contractor for the TravInfo project in the San Francisco Bay area. TravInfo was among the first of a series of federally-funded Field Operational Tests for ITS, and is somewhat unique in that the system was actually deployed following the test phase. As the leading provider of local traffic and other information, the Company is well-positioned as a leader in the ITS field and believes it will benefit from the evolution of future distribution systems. INFRASTRUCTURE In each of its larger markets, the Company typically employs a General Manager who has overall operations and sales management responsibility for that market. In smaller to medium markets, the Company usually employs one General Manager to oversee two to four markets. In addition, the Company employs eight Regional Vice Presidents/General Managers who oversee its General Managers and who generally have responsibility for six to ten markets each. In each of its markets, the Company employs a Director of Operations who is responsible for all aspects of the Company's day-to-day operations. Each Director of Operations is responsible for supervising all of the broadcasters, airborne reporters, producers, editors, and writers in such Director's operations center. Moreover, the Director of Operations is responsible for maintaining day-to-day relations with affiliates and pursuing relationships with unaffiliated stations. In addition, the Company employs eight Regional Directors of Operations who supervise the 3 5 Directors of Operations and who report to the Company's Regional Vice Presidents/General Managers. In each of the markets where the Company provides its Expanded Radio Services, the Company usually employs a News Bureau Chief who generally reports to the Director of Operations for that market. Each News Bureau Chief is responsible for collecting, writing and reporting local, regional and national news and information stories generated in, or related to, their respective market. Each News Bureau Chief is also responsible for feeding these stories and information reports to the Company's national news operations center, located in Arizona. 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 120 helicopters and fixed-wing aircraft, 29 mobile units, 26 airborne camera systems, 61 fixed-position camera systems, 66 broadcast studios and 1,355 broadcasters and producers. The Company also maintains a staff of computer programmers and graphics experts to supply customized graphics and other visual programming elements to television station affiliates. In addition, the Company's operations centers and broadcast studios have sophisticated computer technology, video and broadcast equipment and cellular and wireless technology which enable the Company's broadcasters to deliver accurate reports to its affiliates. The infrastructure and resources dedicated to a specific market by the Company are determined by the size of the market, the number of affiliates the Company serves in the market and the type of services being provided. ADVERTISING SALES AND MARKETING The Company packages its radio commercial airtime inventory on a network basis, covering all affiliates in relevant markets. This packaged inventory typically appeals to advertisers seeking a broad demographic reach. Because the Company sells its commercial airtime inventory on a network basis rather than station by station, the Company does not compete for advertising dollars with its local radio station affiliates. The Company believes that this corporate policy is a key factor in maintaining its affiliate relationships. Currently, the Company packages its television commercial airtime inventory on a regional and national network basis. In 1997, the Company began providing a national unwired network morning news product on the MetroTV Network. The Company has developed a separate sales force to sell its television commercial airtime inventory and to optimize the efforts of the Company's national internal structure of sales representatives. In each of the markets in which it conducts operations, the Company maintains an advertising sales office as part of its operations center. The Company's advertising sales force is able to sell available commercial airtime inventory in any and all of the Company's markets in addition to selling such inventory in each local market, which the Company believes affords its sales representatives an advantage over certain of their competitors. For example, an airline advertiser can purchase sponsorship advertising packages in multiple markets from the Company's local sales representative in the city in which the airline is headquartered. The Company's advertising sales force is comprised of approximately 180 sales representatives. Although the Company typically has two or three sales representatives in an individual market, the number of sales representatives in an individual market ranges from one to 12 depending on the size of the market and the number of potential national and regional advertising clients headquartered in the market. Specialized programs and marketing campaigns, which support nationwide sales and other special forms of advertising, are managed from the Company's headquarters in Houston, Texas. Due to the number of markets in which the Company operates, its reach within its markets and the range of services it provides, the Company has a large number of advertising clients in a diverse group of industries. For the year ended December 31, 1998, no single advertiser represented more than 4% of the Company's total revenues and the Company's top ten advertisers, as a group, represented less than 20% of the Company's total revenues. The Radio Information Services Network The Company's typical radio advertisement on the Radio Information Services Network 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 21 affiliates per market), the Company believes that its traffic and information broadcasts reach more people, more often, in a higher impact manner than can be achieved using any other advertising medium. The Company combines its commercial airtime inventory into multiple "sponsorship" packages (generally 125, 250 or 500 sponsorships broadcast over a four week period in each market), which it then 4 6 sells as an information sponsorship package to advertisers. These Company sponsorship packages are run on a fair and equal rotation (i.e., each advertiser receives its pro rata share of advertisements sold by the Company for broadcast on each of the Company's affiliates in the relevant market or markets) throughout the Radio Information Services Network on a local, regional or national basis, primarily during morning and afternoon drive periods. The Company does not allow an advertiser to select individual stations from the Radio Information Services Network on which to run its advertising campaign. The Company's 500 sponsorship package (which the Company believes is its most frequently purchased package), reaches an average of over 66% of the population (age 12 and over) in the Company's MSA markets. In addition, the Company's large network of affiliates allows the Company to offer advertisers the opportunity to purchase advertising in multiple markets nationwide through a single purchase from the Company. As the Company's business has developed, it has sold increasing amounts of its advertising to regional/national advertisers. For the year ended December 31, 1998, approximately 75% of the Company's radio advertising revenue was attributable to regional/national advertisers, with the balance attributable to local advertisers. The Company believes that the positioning of advertisements within or adjacent to its information reports appeals to advertisers because the advertisers' messages are broadcast along with regularly scheduled programming during peak morning and afternoon drive times when a majority of the radio audience is listening. Radio advertisements broadcast during these times typically generate premium rates. Moreover, surveys commissioned by the Company demonstrate that because the Company's customized information reports are related to topics of significant interest to listeners, listeners often seek out the Company's information reports. Since advertisers' messages are embedded in the Company's information reports, such messages have a high degree of impact on listeners and generally will not be "pre-empted" (i.e., moved by the radio station to another time slot). Most of the Company's advertisements are read live by the Company's on-air broadcasters, providing the Company's advertisers with the added benefit of an implied endorsement for their product. The MetroTV Network The Company's MetroTV Network consists of the Company's 155 Television Traffic Services and 54 Video News Services affiliates throughout the U.S. Generally, the Company provides its MetroTV services to television stations in exchange for thirty-second commercial airtime inventory that the Company packages and sells on a regional and national basis. The amount and placement of the commercial airtime inventory that the Company receives from television stations varies by market and the type of service provided by the Company. As the Company has provided more enhanced MetroTV services, it has been able to acquire more valuable commercial airtime inventory. The Company believes that it offers advertisers significant benefits because, unlike traditional television networks, the Company often delivers more than one station in major markets and advertisers may select specific markets. The Company has established a morning news network for its advertisers' commercials to air during local news programming and local news breaks from 6:00 a.m. to 9:00 a.m. Because the Company has affiliated a large number of network television stations in major markets, its morning news network delivers a significant national household rating in an efficient and compelling local news environment. As the Company continues to expand its service offerings for local television affiliates, it plans to create additional news networks to leverage its television news gathering infrastructure. ACQUISITIONS Ross Sports Productions, Inc. On December 4, 1998, the Company acquired substantially all of the tangible and intangible business assets and acquired certain liabilities of Ross Sports Productions, Inc. ("Ross"), a Pennsylvania corporation. Ross is a film and video production company with nationally syndicated but locally produced scholastic sports programs. Ross' main service is a weekly half-hour TV program, "The High School Sports Show," which is marketed to local television stations in exchange for commercial airtime inventory. The show currently airs in 22 major markets. Birmingham Acquisition. On August 31, 1998, the Company acquired substantially all of the tangible and intangible business assets and acquired certain liabilities of Today's Traffic, an Alabama partnership. As of the closing, Today's Traffic provided traffic reporting services to 13 radio and two television station affiliates in Birmingham, Alabama, ranked the 56th largest MSA market. 5 7 Tampa and Ft. Myers Acquisition. On June 25, 1998, the Company acquired certain assets of Florida Traffic Watch, Inc. ("FTW"), a Florida corporation. As of the closing, FTW provided traffic reporting services to nine radio station affiliates in Tampa and 11 radio station affiliates in Ft. Myers. Tampa and Ft. Myers are ranked the 22nd and 74th largest MSA markets, respectively. Brisbane, Melbourne and Sydney Acquisition. On May 8, 1998, the Company acquired a minority stake and an option to purchase the remaining shares of Australian Traffic Network ("ATN"), a New South Wales corporation. As of the closing, ATN provided traffic reporting services to 26 radio station affiliates in Brisbane, Melbourne and Sydney, Australia. Dallas/Fort Worth Acquisition. On March 2, 1998, the Company acquired all of the outstanding common stock of Traffic Patrol Broadcasting, Inc. ("TPB"), a Texas corporation. As of the closing, TPB provided traffic reporting services to 13 radio and two television station affiliates in Dallas/Fort Worth, ranked the 7th largest MSA market. The Company is currently in discussions with several other entities that, if acquired, would result in new or expanded geographic coverage or the offering of additional or complementary services by the Company. The Company, however, does not have any commitments, arrangements, or understandings with respect to any such acquisitions. Further, there can be no assurance that the Company will be able to effect any such transaction, or that any such transactions, if consummated, will prove to be beneficial to the Company. The Company generally consolidates the operations of acquired companies or assets into its existing operations so that duplicative costs can be eliminated, resulting in margin improvements for the consolidated operations. In addition, as a result of the Company's significant sales force and existing advertising relationships, the Company is generally able to increase revenues by selling advertising in the acquired market to the Company's existing regional and national sponsors. Moreover, as the Company continues to add new markets and to increase its presence in existing markets, it has been able to offer advertisers increased market penetration and to generate incremental revenues from existing advertising clients. INTERNATIONAL In 1998, the Company acquired a minority stake and an option to purchase the remaining shares of Australian Traffic Network, a traffic reporting service operating in Brisbane, Melbourne and Sydney, Australia. Prior to 1998, the Company's international presence was limited to its participation in licensing agreements in the United Kingdom and France. Pursuant to these license agreements, the Company provides its licensees the right to use its name, computer technology, training and sales expertise in exchange for commercial airtime inventory. Revenues from such licensing agreements are not material. The Company is currently analyzing and evaluating various international strategic opportunities. COMPETITION The Company faces various sources of competition in the provision of its information reporting services. Although the Company is significantly larger than the next largest provider of traffic and local information services, there are several multi-market operators providing local radio and television programming services in various markets. The Company believes that the next largest provider of traffic and local information services (which operates under the names "Shadow Traffic" and "Express Traffic") currently has a presence in approximately 16 MSA markets in the United States, as compared to the Company's operations in 81 MSA markets. Westwood One, Inc., which is approximately 25% owned by Infinity Broadcasting Corporation, owns and operates the Shadow Traffic operations. Additionally, the Company has competition from single market operators and groups of radio stations providing their own information reporting services. The Company also faces competition in the sale of its commercial airtime inventory. The Company positions its advertising so as not to compete with the advertising of its local radio and television affiliates. However, the Company competes for advertising dollars with other media such as newspapers and magazines, outdoor advertising, network radio and network television advertising, transit advertising, direct response advertising, yellow page directories, internet/new media and point-of-sale advertising. 6 8 EMPLOYEES The Company employed approximately 1,612 full-time and 555 part-time persons as of December 31, 1998, none of whom was covered by a collective bargaining agreement. Approximately 35 of the Company's 2,167 employees, are represented by a union. Such employees are located in the San Francisco Bay area. Of the Company's total employees, approximately 1,851 were engaged in broadcasting and operations; 178 in sales and marketing; and 138 in general and administrative activities. Approximately 6% of the Company's employees are located in the Company's Houston, Texas headquarters. The Company considers its relationship with its employees to be satisfactory. TRADEMARKS The Company has registered "Metro Traffic Control", "Metro Networks" and certain other trademarks which are relevant to its business. The Company does not believe that its operations are materially dependent on these trademarks. REORGANIZATION From 1978 through October 1996, the business of the Company was operated through Metro Traffic Control, Inc. ("MTC"), Metro Networks, Ltd. ("MNW"), Metro Video News, Inc. ("MVN"), Metro Reciprocal, Inc. ("MRI") and their subsidiaries (collectively, the "Predecessor Companies"). Until October 18, 1996, all of the equity interests in the Predecessor Companies were owned by David I. Saperstein and certain trusts created for the benefit of his children (the "Saperstein Family"). In October 1996, the Saperstein Family established the Company as a holding company and consolidated the issued and outstanding equity interests in the Predecessor Companies, by exchanging such interests for 9,350,607 shares of Metro Networks, Inc.'s Common Stock and 2,549,750 shares of Metro Networks, Inc.'s Series A Convertible Preferred Stock (the "Reorganization"). In November 1997, Metro Traffic Control, Inc. changed its name to Metro Networks Communications, Inc. ITEM 2. PROPERTIES. The Company's headquarters facility, which includes its principal administrative, sales, marketing, management information systems and product development offices and its local operations center, is located in approximately 33,430 square feet of subleased space in Houston, Texas. The sublease on this facility terminates in March 2004. The Company leases additional operation centers/broadcast studios and marketing and administrative offices across the United States consisting of approximately 220,167 square feet in the aggregate, pursuant to the terms of various lease agreements. The Company believes that its existing facilities are adequate to meet current requirements and that suitable additional space in close proximity to its existing headquarters will be available as needed to accommodate growth of its operations and additional sales and support offices through the foreseeable future. For the year ended December 31, 1998, the Company incurred approximately $6.1 million in total facilities expenses. 7 9 ITEM 3. LEGAL PROCEEDINGS. The Company is involved from time to time in routine legal matters incidental to its business. Management believes that the resolution of such matters will not have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS. No matters were submitted to a vote of the Company's stockholders during the quarter ended December 31, 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Company is authorized to issue 25,000,000 shares of common stock, par value $0.001 per share (the "Common Stock") and 10,000,000 shares of preferred stock, par value $0.001 per share (the "Preferred Stock"). At March 25, 1999, 16,714,973 shares of Common Stock and 2,549,750 shares of Series A Convertible Preferred Stock were outstanding. The Common Stock is listed for trading on the NASDAQ National Market ("Nasdaq") under the symbol "MTNT." The high and low sales prices as reported by Nasdaq for the Common Stock for the periods indicated:
First Quarter Second Quarter Third Quarter Fourth Quarter Year -------------------- -------------------- ------------------- ------------------- ------------------- High Low High Low High Low High Low High Low --------- --------- --------- --------- -------- --------- -------- --------- -------- --------- 1998 43 30 3/8 44 3/8 37 3/8 44 1/2 34 1/32 42 13/16 29 3/16 44 1/2 29 3/16 1997 26 3/4 21 7/8 25 1/2 21 7/8 33 7/8 25 5/16 35 1/2 29 1/2 35 1/2 21 7/8
The closing price of the shares of the Common Stock was $51.25 on March 25, 1999. As of March 25, 1999, there were 201 record owners and in excess of 1,600 beneficial owners of the Common Stock. The Company has never paid cash dividends on the Common Stock and does not intend to pay any such cash dividends in the foreseeable future. The Transfer Agent and Registrar for the Common Stock is American Stock Transfer & Trust Company. Use of Proceeds The Company filed a Registration Statement on Form S-1 (Commission File No. 333-6311) which was declared effective by the Securities and Exchange Commission on October 16, 1996. The net offering proceeds of approximately $68,000,000 to the Company have been used as follows: $13,655,000 for the acquisition of other businesses, $6,536,000 for the purchase and installation of machinery and equipment, $29,811,000 for the repayment of indebtedness, and $1,900,000 for working capital. 8 10 ITEM 6. SELECTED FINANCIAL DATA. The following selected financial and operating data should be read in conjunction with the consolidated financial statements of the Company and the Predecessor Companies' historical combined financial statements and related notes thereto and with Management's Discussion and Analysis of Financial Condition and Results of Operations. The selected financial data set forth below with respect to the years ended December 31, 1998, 1997, 1996, 1995 and 1994 are derived from the audited financial statements for that year.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Advertising revenues ............................... $ 172,132 $ 139,125 $ 109,237 $ 72,433 $ 60,048 --------- --------- --------- --------- --------- Broadcasting costs ................................. 87,028 67,224 50,686 41,286 32,239 Marketing expense .................................. 31,053 26,526 21,378 14,504 11,355 General and administrative expense ................. 11,026 11,425 10,158 7,194 5,939 Depreciation and amortization expense............... 10,043 8,878 6,213 3,980 1,302 --------- --------- --------- --------- --------- Total operating costs .............................. 139,150 114,053 88,435 66,964 50,835 --------- --------- --------- --------- --------- Income from operations ............................. 32,982 25,072 20,802 5,469 9,213 Interest/other income ......................... (1,144) (1,865) (408) (137) (164) Interest expense............................... 113 230 1,779 1,260 293 --------- --------- --------- --------- --------- Income before tax provision ........................ 34,013 26,707 19,431 4,346 9,084 Income tax provision................................ 13,659 11,164 3,462 1,036 2,179 --------- --------- --------- --------- --------- Net income ......................................... $ 20,354 $ 15,543 $ 15,969 $ 3,310 $ 6,905 ========= ========= ========= ========= ========= Pro forma net income(1) ............................ $ -- $ -- $ 12,047 $ 2,803 $ -- Basic earnings per common share .................... $ 1.23 $ 0.94 -- Basic average common shares outstanding ............ 16,594 16,555 -- Diluted earnings per common share(1)(2) ............ $ 1.20 $ 0.93 $ 0.94 $ 0.23 -- Diluted average common shares outstanding(1)(2) .... 16,955 16,714 12,884 12,252 -- AT DECEMBER 31, ---------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital ................................ $ 59,773 $ 48,106 $ 49,294 $ 7,900 $ 7,414 Total assets ................................... 139,087 115,073 103,757 48,030 27,502 Total debt ..................................... 992 1,478 1,310 22,624 6,650 Total stockholders' equity/partners' capital ... 108,804 88,293 71,930 4,478 9,401
(1) The unaudited pro forma financial data for the year ended December 31, 1996 and 1995 give effect to the Reorganization. See "Business--Reorganization." (2) For the years ending December 31, 1996 and 1995, weighted average shares outstanding and net income per common share are calculated on a pro forma basis assuming the shares issued in conjunction with the Reorganization were outstanding for all periods presented, adjusted for excess distributions and assuming the Predecessor Companies were taxed at rates applicable to the Company subsequent to the Reorganization. Metro Networks, Inc. has not declared or paid any dividends on its Common Stock. However, the Predecessor Companies have made cash distributions to their shareholders from time to time. See "Business--Reorganization." 9 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The Company, which was founded in 1978, is the largest domestic outsource provider of traffic reporting services and a leading supplier of local news, sports, weather, video news and other information programming services to the television and radio broadcast industries. The Company provides customized information reports to affiliated radio and television stations in exchange for commercial airtime inventory. The Company generates revenues by packaging such commercial airtime inventory and selling it on a local, regional or national basis. While the majority of the Company's revenues are currently generated from sales of advertising on its Radio Traffic Services Network, the Company is experiencing increased revenues from its Expanded Radio Services Network and its MetroTV Network. The Company's expenses are primarily comprised of three categories: (i) operations, which includes all the expenses related to gathering, producing, and broadcasting information reports; (ii) marketing, which includes sales commissions, salaries and benefits for sales personnel; and (iii) general and administrative expenses, which include corporate overhead. Most of the Company's expenses are associated with its Radio Traffic Services. However, during 1996, 1997 and 1998, the Company incurred additional expenses attributable to the development of its MetroTV Services and development and operation of its Expanded Radio Services (including operating expenses incurred prior to the generation of significant revenue from both of these operations). From 1978 through October 1996, the business of the Company was operated through the Predecessor Companies and all of the equity interests in the Predecessor Companies were owned by the Saperstein Family. See "Business-Reorganization." Immediately prior to the closing of the initial public offering, the controlling shareholder established the Company as a holding company and consolidated the issued and outstanding equity interests in the Predecessor Companies into Metro Traffic Control, Inc. by exchanging such interests for 9,350,607 shares of the Company's Common Stock and 2,549,750 shares of the Company's Series A Convertible Preferred Stock. In November 1997, Metro Traffic Control, Inc. changed its name to Metro Networks Communications, Inc. As the equity interests were held under common control and were contributed by the controlling shareholder of the Company, the underlying assets are recorded at their historical costs, similar to pooling of interest accounting. References to Metro Networks, Inc. in the consolidated financial statements of the Company include the Predecessor Companies prior to the Reorganization. In the analysis set forth below, the Company discusses EBITDA, which consists of earnings before interest income, interest expense, taxes, depreciation and amortization. EBITDA does not represent cash flows as defined by generally accepted accounting principles and does not necessarily indicate that cash flows are sufficient to fund all of the Company's cash needs. EBITDA should not be considered in isolation or as a substitute for net income, cash from operating activities or other measures of liquidity determined in accordance with generally accepted accounting principles. The Company believes that EBITDA is a measure of financial performance widely used in the media and broadcasting industries and is useful to investors. In certain circumstances, the Company engages in reciprocal arrangements with advertisers whereby the Company exchanges a portion of its unsold commercial airtime inventory for goods and services. The Company believes that reciprocal transactions are common in the broadcasting industry. Revenues from reciprocal arrangements accounted for 8.0% , 4.0% and 4.9% of total revenues in 1996, 1997, and 1998, respectively. The Company's advertising revenues vary over the calendar year with the first quarter generally reflecting the lowest revenues and the fourth quarter the highest revenues for the year. Expenses, other than marketing expenses, are generally spread evenly over the year, resulting in seasonality in the Company's EBITDA. 10 12 INCOME TAXES The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, and, prior to the Reorganization, the combined financial statements of the Predecessor Companies. Prior to the Reorganization, MNW owned corporations which were taxed under the C corporation provisions of the Internal Revenue Code. Taxes related to income from the entities taxed under the C corporation provisions are reported under the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Subsequent to the Reorganization, all of the operations have been included in the consolidated tax return of the Company. Accordingly, at the time of the Reorganization, the Company recorded an increase in the deferred tax liability of $66,000, which represented the tax basis differential between financial and tax assets and liabilities associated with the S corporations and partnerships included in the Reorganization. Prior to the Reorganization, MRI, MVN and MTC elected to be taxed under S corporation provisions of the Internal Revenue Code of 1986, as amended. Under these provisions, MRI, MVN and MTC are not liable for federal income taxes. Instead, the stockholders of such entities are liable individually for federal income taxes on their taxable income. Also, prior to the Reorganization, MNW was a partnership for federal income tax purposes and accordingly, the partners were liable individually for federal income taxes on their respective partnership income. Accordingly, losses for these entities are not available to the Company to offset income. RESULTS OF OPERATIONS The following table provides a summary of the Company's statement of operations on an actual and percentage of revenues basis for the periods indicated: SUMMARY CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------- ------------------- (IN THOUSANDS) Advertising revenues ......................... $172,132 100.0% $139,125 100.0% $109,237 100.0% -------- -------- -------- -------- -------- -------- Broadcasting costs ........................... 87,028 50.6 67,224 48.3 50,686 46.4 Marketing expense ............................ 31,053 18.0 26,526 19.1 21,378 19.6 General and administrative expense ........... 11,026 6.4 11,425 8.2 10,158 9.3 Depreciation and amortization expense ........ 10,043 5.8 8,878 6.4 6,213 5.7 -------- -------- -------- -------- -------- -------- Total operating costs ................... 139,150 80.8 114,053 82.0 88,435 81.0 -------- -------- -------- -------- -------- -------- Income from operations ....................... 32,982 19.2 25,072 18.0 20,802 19.0 Interest/other income ................... 1,144 0.7 1,865 1.3 408 0.4 Interest expense ........................ 113 0.1 230 0.1 1,779 1.6 -------- -------- -------- -------- -------- -------- Income before income tax provision ........... 34,013 19.8 26,707 19.2 19,431 17.8 Income tax provision ......................... 13,659 7.9 11,164 8.0 3,462 3.2 -------- -------- -------- -------- -------- -------- Net income ................................... $ 20,354 11.9% $ 15,543 11.2% $ 15,969 14.6% ======== ======== ======== ======== ======== ======== Pro forma state and federal income taxes ..... $ 7,384 6.8% Pro forma net income (1) ..................... $ 12,047 11.0% ======== ======== EBITDA (2) ................................... $ 43,280 25.1% $ 34,571 24.8% $ 27,027 24.7% ======== ======== ======== ======== ======== ========
- ----------------- (1) The unaudited pro forma financial data for the year ended December 31, 1996 gives effect to the Reorganization. See "Business--Reorganization." (2) EBITDA is earnings before interest income, interest expense, taxes, depreciation and amortization. EBITDA does not represent cash flows as defined by generally accepted accounting principles and does not necessarily indicate that cash flows are sufficient to fund all of the Company's cash needs. EBITDA should not be considered in isolation or as a substitute for net income, cash from operating activities or other measures of liquidity determined in accordance with generally accepted accounting principles. 11 13 Year ended December 31, 1998 compared to year ended December 31, 1997 Revenues. Revenues increased by $33.0 million, or approximately 23.7%, to $172.1 million in 1998 from $139.1 million in 1997. This increase was primarily due to revenues generated by increased sales of commercial airtime inventory. Acquisitions accounted for $5.1 million of this increase. Excluding these revenues, same market revenues increased $27.9 million in 1998, or 20.1%. Revenues from reciprocal arrangements as a percentage of total revenues increased to 4.9% in 1998 from 4.0% in 1997. Broadcasting Costs. Broadcasting costs increased by $19.8 million, or approximately 29.5% to $87.0 million in 1998 from $67.2 million in 1997. The Company's continued development of its Expanded Radio Services and MetroTV Services accounted for approximately $9.2 million of the increase. Additionally, operating costs associated with acquisitions accounted for approximately $2.9 million of the increase. Excluding the increases discussed above, the Company's broadcasting costs would have increased by approximately $7.7 million, or 11.5% to $74.9 million in 1998 from $67.2 million in 1997. Broadcasting costs as a percentage of revenues increased from 48.3% in 1997 to 50.6% in 1998. Broadcasting costs associated with reciprocal arrangements increased by $2.4 million from $1.9 million in 1997 to $4.3 million in 1998. Marketing Expense. Marketing expense increased by $4.5 million, or approximately 17.1%, from $26.5 million in 1997 to $31.1 million in 1998. This increase resulted primarily from increased sales commissions associated with the increased revenues generated in 1998. Acquisitions accounted for $0.6 million of the increase. As a percentage of revenues, marketing expense was 19.1% in 1997 and 18.0% in 1998. Marketing expense associated with reciprocal arrangements increased by $1.8 million to $2.7 million in 1998, from $0.9 million in 1997. General and Administrative Expense. General and administrative expenses decreased by $0.4 million, or approximately 3.5%, to $11.0 million in 1998 from $11.4 million in 1997. As a percentage of revenues, general and administrative expense decreased to 6.4% in 1998 from 8.2% in 1997. General and administrative expense associated with reciprocal arrangements decreased by $0.1 million to $0.7 million in 1998, from $0.8 million in 1997. Depreciation and Amortization. Depreciation and amortization expense increased to $10.0 million in 1998 from $8.9 million in 1997. This increase resulted primarily from the increases in the Company's asset base resulting from 1998 Acquisitions and the Company's increased purchases of equipment pursuant to the development of its MetroTV Network and Expanded Radio Services Network during 1998. Other Income. Other income declined to $1.1 million in 1998 from $1.9 million in 1997. This decrease resulted primarily from a reduction in interest income as the net proceeds from the Company's initial public offering were used during 1998. Interest Expense. Interest expense decreased to $0.1 million in 1998 from $0.2 million in 1997. Net Income. As a result of the factors discussed above, net income increased by $4.9 million to $20.4 million in 1998, from $15.5 million in 1997. EBITDA. EBITDA increased by $8.7 million, or approximately 25.2%, to $43.3 million in 1998 from approximately $34.6 million in 1997. EBITDA as a percentage of revenues increased to 25.1% in 1998 from 24.8% in 1997. 12 14 Year ended December 31, 1997 compared to year ended December 31, 1996 Revenues. Revenues increased by $29.9 million, or approximately 27.4%, to $139.1 million in 1997 from $109.2 million in 1996. This increase was primarily due to revenues generated by increased sales of commercial airtime inventory. Acquisitions accounted for $5.7 million of this increase. Excluding these revenues, same market revenues increased $24.2 million in 1997, or 22.2%. Revenues from reciprocal arrangements as a percentage of total revenues declined to 4.0% in 1997 from 8.0% in 1996. Broadcasting Costs. Broadcasting costs increased by $16.5 million, or approximately 32.6%, to $67.2 million in 1997 from $50.7 million in 1996. The Company's continued development of its Expanded Radio Services and MetroTV Services accounted for approximately $11.0 million of the increase. Additionally, operating costs associated with acquisitions accounted for approximately $3.6 million of the increase. Excluding the increases discussed above, the Company's broadcasting costs would have increased by approximately $1.9 million, or 3.7%, to $52.6 million in 1997 from $50.7 million in 1996. Broadcasting costs as a percentage of revenues increased from 46.4% in 1996 to 48.3% in 1997. Broadcasting costs associated with reciprocal arrangements decreased by $1.1 million from $3.0 million in 1996 to $1.9 million in 1997. Marketing Expense. Marketing expense increased by $5.1 million, or approximately 24.1%, from $21.4 million in 1996 to $26.5 million in 1997. This increase resulted primarily from increased sales commissions associated with the increased revenues generated in 1997. Acquisitions accounted for $1.2 million of the increase. As a percentage of revenues, marketing expense was 19.6% in 1996 and 19.1% in 1997. Marketing expense associated with reciprocal arrangements decreased by $0.7 million to $0.9 million in 1997, from $1.6 million in 1996. General and Administrative Expense. General and administrative expenses increased by $1.3 million, or approximately 12.5%, to $11.4 million in 1997 from $10.2 million in 1996. This increase was primarily attributable to increased salaries and related overhead associated with the Company's continued growth. As a percentage of revenues, general and administrative expense decreased to 8.2% in 1997 from 9.3% in 1996. General and administrative expense associated with reciprocal arrangements increased by $0.1 million to $0.8 million in 1997, from $0.7 million in 1996. Depreciation and Amortization. Depreciation and amortization expense increased to $8.9 million in 1997 from $6.2 million in 1996. This increase resulted primarily from the increases in the Company's asset base resulting from 1997 Acquisitions and the Company's increased purchases of equipment pursuant to the development of its MetroTV Network and Expanded Radio Services Network during 1997. Effective October 1, 1997, the Company changed its depreciable asset lives for certain assets based upon industry practice and actual experience. This change reduced depreciation and amortization expense for the year ended December 31, 1997 and will result in lower ongoing depreciation and amortization expense. See Note 1 to the Consolidated Financial Statements. Other Income. Other income increased to $1.9 million in 1997 from $0.4 million in 1996. This increase resulted primarily from increased interest income on the net proceeds from the Company's initial public offering during the fourth quarter of 1996. Interest Expense. Interest expense decreased to $0.2 million in 1997 from $1.8 million in 1996. This decrease resulted primarily from paying off the balance on the Company's line of credit in October 1996. Net Income. As a result of the factors discussed above, net income increased by $3.5 million to $15.5 million in 1997, from $12.0 million in 1996 (adjusted on a pro forma basis to reflect C corporation tax status). EBITDA. EBITDA increased by $7.5 million, or approximately 27.9%, to $34.6 million in 1997 from approximately $27.0 million in 1996. EBITDA as a percentage of revenues increased to 24.8% in 1997 from 24.7% in 1996. 13 15 LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has financed its operations with cash generated by operations and funds provided pursuant to a prior credit agreement. The Company has used cash provided by operating activities to fund capital expenditures, operations and distributions to its stockholders. On October 22, 1996, the Company closed the initial public offering of its common stock and received approximately $68 million in cash, net of underwriting discounts and commission, and other expenses. The Company used approximately $30 million of the proceeds to repay existing indebtedness under the Credit Agreement among NationsBank of Texas, N.A., Metro Traffic Control, Inc. and Metro Networks, Ltd., dated October 21, 1994, as amended, and the balance of the proceeds, including those from the underwriters' exercise of the over allotment option, has been used for working capital and general corporate purposes. Net cash provided by operating activities increased by approximately $0.9 million, to $11.6 million in 1998 from $10.7 million in 1997, primarily as a result of changes in operating assets and liabilities, which was partially offset by an increase in depreciation and amortization. Net cash used in investing activities decreased by $7.7 million to $15.9 million in 1998, from $23.6 million in 1997 due primarily to a decline in capital expenditures. Cash used and provided by financing activities increased by $3.8 million to $0.5 million in 1998, from $(3.3) million in 1997, due primarily to a reduction in debt repayments. Net cash provided by operating activities decreased by approximately $3.2 million, to $10.7 million in 1997 from $13.9 million in 1996, primarily as a result of changes in operating assets and liabilities which was partially offset by an increase in net earnings and depreciation and amortization. In addition, the Company's net earnings for 1997 reflect an increase in income taxes from 1996 of approximately $7.7 million due to the change in taxpayer status from S corporation to C corporation. Net cash used in investing activities increased by $10.4 million to $23.6 million in 1997, from $13.2 million in 1996, due to an increase in capital expenditures. Net cash used and provided by financing activities decreased by $42.8 million to $(3.3) million in 1997, from $39.5 million in 1996, as a result of the Company's initial public offering in 1996 which was partially offset by a reduction in long-term debt in 1996. The Credit Agreement and Notes Payable In October 1996, the Company entered into a new line of credit with NationsBank of Texas, N.A. ("NationsBank") now known as Bank of America. The maximum aggregate permitted borrowings (the "New Line of Credit") under the Credit Agreement among Bank of America, certain lenders and the Company, dated October 22, 1996 (the "Credit Agreement") is $30.0 million. The New Line of Credit bears interest at a variable rate determined by the lender's prime rate or LIBOR and the Company's total leverage; the interest rate ranges from 0 to 50 basis points over the prime rate or 75 to 150 basis points over LIBOR. The New Line of Credit has a commitment fee of up to 0.25% per annum on the daily average unborrowed balance of the New Line of Credit. The New Line of Credit expires December 31, 2003, and will begin amortizing in March 1999. The Credit Agreement provides for various restrictions on the Company which preclude the Company, without first obtaining the lender's consent, from taking certain actions, including incurring additional indebtedness, purchasing the assets of any entity other than in the ordinary course of business, merging or consolidating with any other entity or altering its existing capital structure and paying certain dividends. As of December 31, 1998, the Company had no debt outstanding under the New Line of Credit. The Company issued non-interest-bearing notes in connection with the 1997 acquisition of Washington News Network, Inc. and the 1994 acquisition of Charlotte Traffic Patrol, Inc. which had principal amounts of $0.2 million and $0.3 million, respectively, outstanding as of December 31, 1998. The Company has guaranteed a $0.3 million letter of credit related to the Charlotte acquisition as of December 31, 1998. See "Business--Acquisitions." Capital Expenditures Capital expenditures were $10.1 million in 1998 and $16.6 million in 1997. Historically, the Company's capital expenditures have related principally to increasing the Company's information-gathering capabilities, broadcasting capacity and technology base. The majority of the Company's increase in capital expenditures during 1998 are primarily due to the Company's continued development of its MetroTV Network and Expanded Radio Services Network. Funds for capital expenditures have generally been provided from operations. 14 16 The Company believes its existing sources of liquidity, cash on hand, cash provided by operations and the Credit Agreement will satisfy the Company's anticipated working capital and capital expenditure requirements for the foreseeable future. YEAR 2000 The "Year 2000 issue" is the result of computer programs that were written using two digits rather than four to define the applicable year. If the Company's computer programs with date-sensitive functions are not Year 2000 compliant, they may recognize a date using "00" as the year 1900 rather than the Year 2000. This could result in a system failure or miscalculations causing disruptions to operation. State of Readiness The Company has identified five major categories of Year 2000 risk: (1) Software systems -- these include the Company's revenue system ("Traffic System"), financial system (e.g. general ledger, accounts payable, fixed assets, etc.) and other business systems; (2) Equipment with embedded chip technology -- these include "on-air" equipment (e.g., audio servers, compression gear, transmitters, etc.), computer hardware, transmission systems and generators; (3) External vendors and suppliers -- these include satellite transmission operators and other third parties whose system failures potentially could have a significant impact on the Company's operations; (4) Facilities -- these include fire alarm systems, phone systems and access control systems; and (5) Products and services the Company provides to customers. The Company's compliance objectives include products and services the Company has provided to customers in the past and will provide to customers in the future; all internal operating software systems and equipment; and the services, products, equipment and systems the Company has obtained and will obtain in the future from outside vendors. The Company's first objective was to assess all products and services the Company has, or will provide, to customers. This included informing customers of their need to make their applications Year 2000 compliant to provide or accept associated files for services provided by the Company. This objective was deemed the top priority and was initiated in 1998. In early 1999, the Company initiated action to remediate, where needed, all internal business operation support systems and the associated equipment it runs on. As part of this process, the Company developed a standard Year 2000 compliance certification memorandum to be sent to all vendors who have or are currently providing products or services to the Company and instituted a review process for formally responding to customer inquiries on the Company's Year 2000 compliance plans and status. In 1999, the Company intends to replace its Traffic System with a system that is Year 2000 compliant. Based on testing performed to date, the current system has not revealed any Year 2000 issues. The Company replaced its financial system with a Year 2000 compliant system in 1998. The implementation of these new systems minimizes the possibility of Year 2000 issues significantly interrupting normal operations. The Company has a formal program in place to receive assurances as to Year 2000 compliance from identified external vendors and suppliers. The Company will evaluate their compliance programs. The objective of the Company is complete assessment, remediation, testing and certification of third-party software for all mission-critical systems and components by October 31, 1999. Over the next few months as the Company receives more information on the extent of Year 2000 compliance by external vendors and third party suppliers, the nature of any contingency plans that may be needed will evolve. The Company is currently preparing contingency plans to identify and handle its worst case scenarios. It expects to complete the plans by June 30, 1999 in conjunction with the completion of its assessment, remediation, testing and certification phases. 15 17 RISKS AND COSTS Based on its current efforts, the Company does not believe that Year 2000 issues will have a material adverse effect on the results of its operations, liquidity, or financial condition. However, this assessment is dependent on the ability of third-party suppliers and others whose systems failures potentially could have an impact on the Company's operations to be Year 2000 compliant. Although the Company cannot control the conduct of external vendors and suppliers, the Company expects to reduce the Company's level of uncertainty and the adverse effect that any such failures may have. EFFECTS OF INFLATION The Company believes that the relatively moderate rate of inflation over the past few years has not had a significant impact on the Company's results of operations. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS 133")". SFAS 133 provides standards on accounting and disclosure for derivative instruments and requires that all derivatives be measured at fair value and reported as either assets or liabilities in the statement of financial position. The Company will adopt this statement for fiscal year 1999. The adoption of this statement will have no impact on the Company's operating results as the Company does not invest in derivative instruments. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. 16 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report................................................................................. 18 Consolidated Balance Sheets.................................................................................. 19 Consolidated Statements of Operations........................................................................ 20 Consolidated Statements of Stockholders' Equity/Partners' Capital............................................ 21 Consolidated Statements of Cash Flows........................................................................ 22 Notes to Consolidated Financial Statements................................................................... 24
17 19 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors Metro Networks, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Metro Networks, Inc. and Subsidiaries, and its Predecessors as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity/partners' capital and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Metro Networks, Inc. and Subsidiaries and its Predecessors as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Houston, Texas March 9, 1999 18 20 METRO NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, ---------------------- 1998 1997 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents ............................................ $ 21,241 $ 25,087 Short-term marketable investments .................................... 331 777 Accounts receivable, net ............................................. 52,429 34,113 Reciprocal receivables, net .......................................... 11,310 11,113 Merchandise and scrip inventory ...................................... 730 686 Other ................................................................ 2,203 703 --------- --------- Total current assets ............................................ 88,244 72,479 --------- --------- PROPERTY AND EQUIPMENT, NET .......................................... 29,880 24,389 PURCHASED BROADCAST CONTRACTS AND OTHER INTANGIBLES, NET ............. 19,500 17,545 OTHER ASSETS: Deferred tax assets .................................................. 324 146 Other ................................................................ 1,139 514 --------- --------- 1,463 660 --------- --------- $ 139,087 $ 115,073 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ..................................................... $ 4,937 $ 3,030 Notes payable ........................................................ 510 568 Reciprocal payables and accrued liabilities .......................... 11,055 10,281 Accrued liabilities .................................................. 11,540 10,074 Current portion of long-term debt .................................... 429 420 --------- --------- Total current liabilities .................................... 28,471 24,373 LONG-TERM DEBT ....................................................... 53 490 DEFERRED INCOME TAXES ................................................ 1,044 670 OTHER ................................................................ 715 1,247 --------- --------- Total liabilities ............................................ 30,283 26,780 --------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value (authorized 10,000,000 shares; outstanding 2,549,750) .......................................... 3 3 Common stock, $.001 par value (authorized 25,000,000 shares; outstanding 16,622,447 and 16,587,058 shares, respectively) ..... 17 16 Additional paid-in capital ........................................... 74,689 73,708 Retained earnings .................................................... 34,920 14,566 Accumulated other comprehensive loss - net unrealized depreciation of equity investments ............... (825) -- --------- --------- 108,804 88,293 --------- --------- $ 139,087 $ 115,073 ========= =========
See accompanying notes to consolidated financial statements. 19 21 METRO NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 --------- --------- --------- ADVERTISING REVENUES ............................. $ 172,132 $ 139,125 $ 109,237 OPERATING COSTS AND EXPENSES Broadcasting ..................................... 87,028 67,224 50,686 Marketing ........................................ 31,053 26,526 21,378 General and administrative ....................... 11,026 11,425 10,158 Depreciation and amortization .................... 10,043 8,878 6,213 --------- --------- --------- 139,150 114,053 88,435 --------- --------- --------- TOTAL OPERATING EARNINGS ......................... 32,982 25,072 20,802 --------- --------- --------- OTHER (INCOME) EXPENSE Interest income .................................. (889) (1,245) (397) Interest expense ................................. 113 230 1,779 Other ............................................ (255) (620) (11) --------- --------- --------- (1,031) (1,635) 1,371 --------- --------- --------- EARNINGS BEFORE STATE AND FEDERAL INCOME TAXES ... 34,013 26,707 19,431 STATE AND FEDERAL INCOME TAXES ................... 13,659 11,164 3,462 --------- --------- --------- NET EARNINGS ..................................... $ 20,354 $ 15,543 $ 15,969 ========= ========= ========= BASIC EARNINGS PER SHARE ......................... $ 1.23 $ 0.94 $ -- ========= ========= ========= DILUTED EARNINGS PER SHARE ....................... $ 1.20 $ 0.93 $ -- ========= ========= ========= BASIC AVERAGE COMMON SHARES OUTSTANDING .......... 16,594 16,555 -- ========= ========= ========= DILUTED AVERAGE COMMON SHARES OUTSTANDING ........ 16,955 16,714 -- ========= ========= ========= PRO FORMA DATA (UNAUDITED): Earnings before state and federal income taxes as reported .................................. $ 19,431 Pro forma state and federal income taxes ......... (7,384) --------- Pro forma net earnings ........................... $ 12,047 ========= Pro forma basic earnings per share ............... $ 0.94 --------- Pro forma diluted earnings per share ............. $ 0.94 ========= Weighted average shares outstanding .............. 12,884
See accompanying notes to consolidated financial statements. 20 22 METRO NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS, EXCEPT SHARES)
OUTSTANDING ------------------------------------------------ PREFERRED STOCK COMMON STOCK ADDITIONAL ---------------------- ----------------------- PAID-IN PARTNERS' SHARES AMOUNT SHARES AMOUNT CAPITAL CAPITAL --------- ---------- ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1995 ............. -- $ -- 3,198,000 $ 3 $ 4,024 $ 651 Distribution ............................. -- -- -- -- -- -- Capital contributed ...................... -- -- -- -- 700 -- Stock issuance, net of offering costs .... -- -- 4,650,000 5 67,758 -- Issuance of stock loan ................... -- -- 2,550,000 2 -- -- Reorganization ........................... 2,549,750 3 6,335,000 6 406 (415) Net income ............................... -- -- -- -- -- (236) Other comprehensive income ............. -- -- -- -- -- -- Comprehensive income ..................... -- -- -- -- -- -- --------- ---------- ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1996 ............. 2,549,750 3 16,550,000 16 72,888 -- Issuance of stock under stock option plan .................... -- -- 26,097 -- 570 -- Issuance of stock under stock purchase plan .................. -- -- 10,961 -- 250 -- Net income ............................... -- -- -- -- -- -- Other comprehensive income ............. -- -- -- -- -- -- Comprehensive income ..................... -- -- -- -- -- -- --------- ---------- ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1997 ............. 2,549,750 3 16,587,058 16 73,708 -- Issuance of stock under stock option plan .................... -- -- 24,955 1 603 -- Issuance of stock under stock purchase plan .................. -- -- 10,434 -- 378 -- Net income ............................... -- -- -- -- -- -- Other comprehensive loss ............... -- -- -- -- -- -- Comprehensive income ..................... -- -- -- -- -- -- --------- ---------- ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1998 ............. 2,549,750 $ 3 16,622,447 $ 17 $ 74,689 $ -- ========= ========== ========== ========== ========== ========== ACCUMULATED OTHER RETAINED COMPREHENSIVE EARNINGS LOSS (DEFICIT) TOTAL ----------- ---------- ---------- BALANCE AT DECEMBER 31, 1995 ............. $ -- $ (199) $ 4,479 Distribution ............................. -- (16,983) (16,983) Capital contributed ...................... -- -- 700 Stock issuance, net of offering costs .... -- -- 67,763 Issuance of stock loan ................... -- -- 2 Reorganization ........................... -- -- -- Net income ............................... -- 16,205 15,969 Other comprehensive income ............. -- -- -- Comprehensive income ..................... -- -- 15,969 ----------- ---------- ---------- BALANCE AT DECEMBER 31, 1996 ............. -- (977) 71,930 Issuance of stock under stock option plan .................... -- -- 570 Issuance of stock under stock purchase plan .................. -- -- 250 Net income ............................... -- 15,543 15,543 Other comprehensive income ............. -- -- -- Comprehensive income ..................... -- -- 15,543 ----------- ---------- ---------- BALANCE AT DECEMBER 31, 1997 ............. -- 14,566 88,293 Issuance of stock under stock option plan .................... -- -- 604 Issuance of stock under stock purchase plan .................. -- -- 378 Net income ............................... -- 20,354 20,354 Other comprehensive loss ............... (825) -- (825) Comprehensive income ..................... -- -- 19,529 ----------- ---------- ---------- BALANCE AT DECEMBER 31, 1998 ............. $ (825) $ 34,920 $ 108,804 =========== ========== ==========
See accompanying notes to consolidated financial statements. 21 23 METRO NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For the Years Ended December 31, -------------------------------- 1998 1997 1996 -------- -------- -------- OPERATING ACTIVITIES: Net earnings .................................................. $ 20,354 $ 15,543 $ 15,969 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation and amortization ....................... 10,043 8,878 6,213 Deferred federal income taxes ....................... 196 633 (109) Loss (gain) on dispositions of assets ............... 26 73 (11) Amortization of discount on notes payable ........... -- -- 76 Decrease (increase) in, net of acquisition of businesses Accounts receivable, net ............................ (16,385) (9,356) (10,045) Prepaid expenses and other current assets ........... (1,372) 138 (484) Other assets ........................................ (417) 157 (196) (Decrease) increase in, net of acquisition of businesses Accounts payable .................................... 1,051 (494) 1,160 Accrued liabilities ................................. (1,111) 559 5,780 Other liabilities ................................... (131) (1,605) 425 Net reciprocal arrangements ................................... (672) (3,874) (4,916) -------- -------- -------- Cash provided by operating activities ............... 11,582 10,652 13,862 -------- -------- -------- INVESTING ACTIVITIES: Capital additions ............................................. (10,052) (16,642) (6,840) Related party Advances to .............................................. -- -- (1,749) Payments from ............................................ -- -- 316 Proceeds from sale of marketable securities ................... -- 414 -- Purchase of marketable securities ............................. (379) (1,062) -- Proceeds from sale of property and equipment .................. 101 83 17 Acquisitions of companies, net of cash acquired of $456 ....... (5,194) (6,410) (4,944) Purchases of other investments ................................ (399) -- -- -------- -------- -------- Cash used for investing activities ....................... (15,923) (23,617) (13,200) -------- -------- --------
22 24 METRO NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED) (IN THOUSANDS)
For the Years Ended December 31, -------------------------------- 1998 1997 1996 -------- -------- -------- FINANCING ACTIVITIES: Proceeds from issuance of debt .................................... 937 1,244 9,411 Debt repayments Long-term debt ............................................... (1,423) (2,453) (30,801) Related party debt ........................................... -- (2,945) -- Issuance of common stock .......................................... 981 820 67,765 Cash distributions ................................................ -- -- (7,601) Capital contributions ............................................. -- -- 700 -------- -------- -------- Cash (used for) provided by financing activities ............. 495 (3,334) 39,474 -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. (3,846) (16,299) 40,136 CASH AND CASH EQUIVALENTS Beginning of period ............................................... 25,087 41,386 1,250 -------- -------- -------- End of period ..................................................... $ 21,241 $ 25,087 $ 41,386 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest .......................... $ 131 $ 228 $ 1,833 Cash paid during the period for State and Federal income taxes .... 12,745 11,419 2,856 SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: Property and equipment acquired through reciprocal activities ..... $ 657 $ 1,585 $ 490 Reciprocal activities related to business acquisitions ............ 15 41 -- Decrease in shareholder note payable .............................. -- 155 -- Stockholder distributions by: Reduction in stockholder note receivable ................ -- -- 4,819 Increase in shareholder note payable .................... -- -- 3,100 Transfer of property .................................... -- -- 1,462
See accompanying notes to consolidated financial statements. 23 25 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation From 1978 until the closing of the Company's initial public offering (the "Public Offering") in October 1996, the business of Metro Networks, Inc. and subsidiaries ("the Company") was operated through Metro Traffic Control, Inc. ("MTC"), a Maryland corporation; Metro Reciprocal, Inc. ("MRI"), a Texas corporation; Metro Networks, Ltd. ("MNW"), a Texas limited partnership; Metro Video News, Inc. ("MVN"), a Texas corporation; and their subsidiaries (collectively, the "Predecessor Companies"). Until the closing of the Public Offering, all of the equity interests in the Predecessor Companies were owned by the Chairman and Chief Executive Officer of the Company, and certain trusts (the "Trusts") created for the benefit of this individual's children. Immediately prior to the closing of the Public Offering, the controlling shareholder established Metro Networks, Inc. as a holding company and consolidated the issued and outstanding equity interests in the Predecessor Companies into Metro Traffic Control, Inc., by exchanging such interests for 9,350,607 shares of Metro Networks, Inc.'s Common Stock and 2,549,750 shares of Metro Networks, Inc.'s Series A Convertible Preferred Stock (the "Reorganization"). In November 1997, Metro Traffic Control, Inc. changed its name to Metro Networks Communications, Inc. Subsequent to the Reorganization, Metro Networks Communications, Inc. is a wholly-owned subsidiary of the Company. As the equity interests were held under common control and were contributed by the resulting shareholder of the Company, the underlying assets are recorded at their historical costs, similar to pooling of interest accounting. References to Metro Networks, Inc. in the accompanying financial statements include the predecessor entities prior to the Reorganization. The accompanying consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries and, prior to the Reorganization, the combined financial statements of the Predecessor Companies. All intercompany accounts and transactions have been eliminated in consolidation/combination. Business The Company provides traffic reporting services, local news, sports, weather, video news and other information reporting services to the television and radio broadcast industries. In exchange for the Company's information reports, television and radio station broadcast affiliates provide commercial airtime to the Company. The packaging and sale of this commercial airtime accounts for substantially all of the Company's revenue. The Company's information reports are broadcast by radio and television broadcast affiliates throughout the United States. Revenue Recognition The Company provides programming to radio and television stations in exchange for commercial airtime. The airtime is subsequently sold to advertisers for either cash or other goods and services. Revenue and the related accounts receivable is recognized at the time commercials are broadcast. If cash, merchandise or services are received prior to the broadcast of the commercial, deferred revenue is recorded. Revenue from the Company's exchange of advertising time for goods and services is recorded at the estimated fair market value of goods or services received, or to be received. The value of goods and services is charged to expense when used. 24 26 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments in Equity Securities All of the Company's marketable securities have been categorized as available for sale and as a result are carried at fair market value. Merchandise and Scrip Inventory Merchandise and scrip inventory consists of miscellaneous merchandise and airline tickets, lodging, meals and other goods received by the Company in exchange for advertising time, and are valued at the fair market value of goods received. Property and Equipment Property and equipment are stated at cost. The cost of ordinary maintenance is charged to operations, while renewals and replacements are capitalized. Depreciation is computed based on the straight-line method over the following estimated useful lives: Operating equipment ......................... 3-10 years Transportation equipment .................... 3 years Leasehold improvements ...................... 10 years
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was $5,652,000, $3,968,000 and $1,770,000, respectively. Effective October 1, 1997, the Company revised its estimate of the useful lives of certain intangible assets (purchased contracts) and camera equipment. Previously, such assets were depreciated over five and three years, respectively. Those lives were extended to seven and five years, respectively. These changes were made to better reflect the estimated periods during which such assets will remain in service based on actual experience and industry practice. The change, which was accounted for prospectively from October 1, 1997, had the effect of reducing depreciation and amortization expense and increasing net income by approximately $342,700 ($.02 per diluted share) for the year ended December 31, 1997. Intangible Assets Intangible assets include goodwill, purchased broadcast contracts, non-compete agreements, trademarks and licenses. Intangible assets are amortized on a straight-line basis over the estimated eventual term of the customer's contract, or the estimated useful life of the asset for periods ranging from three to twenty years. The Company assesses the recoverability of intangible assets by determining whether the amortization of the intangible balances over their remaining life can be recovered through undiscounted future operating cash flows of the acquired operations. The assessment of the recoverability of intangible assets will be impacted if estimated future operating cash flows are not achieved. Federal and State Income Tax The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rate and laws that will be in effect when the differences are expected to reverse. 25 27 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Prior to the Reorganization, MNW owned corporations which were taxed under the C corporation provisions of the Internal Revenue Code. Taxes related to income from the entities taxed under the C corporation provisions are reported under the asset and liability method. Subsequent to the Reorganization, all of the operations are included in the consolidated tax return of the Company. Prior to the Reorganization, MRI, MVN and MTC elected to be taxed under S corporation provisions of the Internal Revenue Code. Under these provisions, MRI, MVN and MTC were not liable for federal income taxes. Instead, the stockholders were liable for individual federal income taxes on their taxable income. Also, prior to the Reorganization, MNW was a partnership for federal income tax purposes and accordingly, the partners were liable for federal income taxes on their respective income. Stock-Based Compensation On January 1, 1996, the Company adopted Financial Accounting Standards (SFAS) No. 123 ("Accounting for Stock-Based Compensation"), which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of Accounting Principles Board (APB) Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Reciprocal and Airtime Obligations Reciprocal and airtime obligations represent broadcast obligations incurred as part of the purchase price for acquisitions. Such obligations are recorded at the fair market value of the airtime when the acquisition was made, and are included in reciprocal payables and accrued liabilities in the accompanying consolidated balance sheets. Reciprocal and airtime obligations approximated $2,620,000 at December 31, 1998 and 1997. Earnings Per Share The Company has adopted the provisions of SFAS No. 128 ("Earnings Per Share"), which replaces the presentation of primary earnings per share and fully diluted earnings per share with a presentation of basic earnings per share ("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS excludes dilution and is determined by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock. Weighted average shares outstanding, net income per share and pro forma net income per share are calculated assuming the shares issued in conjunction with the Reorganization were outstanding for the periods presented. In addition, an adjustment has been made to reflect the distributions which exceeded capital contributions and net income in accordance with the rules of the Securities and Exchange Commission. For purposes of computing earnings per share, the common shares outstanding as a result of the Stock Loan and Pledge Agreement (see Note 12) are considered outstanding, however the shares related to the convertible preferred stock are not considered to be Common Stock equivalents. This is due to the fact that under the terms and provisions of the Stock Loan and Pledge Agreement, the preferred shares outstanding cannot be converted into Common Stock while the stock loan is outstanding. 26 28 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Pro Forma Financial Data (unaudited) Pro forma income taxes are set forth herein because certain of the Predecessor Companies operated as subchapter S corporations or partnerships for federal income tax purposes. Pro forma income taxes reflect federal income taxes that would have been incurred had all the Predecessor Companies been subject to such taxes. Such amounts have been deducted from net earnings for pro forma purposes in the accompanying statements of operations pursuant to the rules and regulations of the Securities and Exchange Commission. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments Fair value estimates are made at discrete points in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgement and therefore, cannot be determined with precision. The Company believes that the carrying amounts of its current assets and current liabilities approximate the fair value of such items due to their short-term nature. The carrying amount of long-term debt approximates its fair values because the interest rates approximate market. Accounting Pronouncements Effective January 1, 1998, the Company adopted issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income ("SFAS 130")". This standard establishes requirements for reporting and display of comprehensive income and its components in the financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events from non-owner sources. It includes all changes in equity during a period except those resulting from investments by and distributions to owners. Reclassifications Certain reclassifications have been made to prior year amounts in order to conform to the 1998 presentation. NOTE 2--INITIAL PUBLIC OFFERING In October 1996, the Company completed the Public Offering. Of the 7,200,000 shares of common stock offered, 3,600,000 shares were sold by the selling shareholder. In addition, the Company's underwriters exercised the underwriters' over-allotment option which resulted in the Company selling an additional 1,050,000 shares. The Company received approximately $67.8 million in cash, net of underwriting discounts and commissions, and other expenses. 27 29 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--ACQUISITIONS During 1998, 1997 and 1996, the Company made the following acquisitions, each of which has been accounted for using the purchase method of accounting. On December 4, 1998, the Company acquired substantially all of the tangible and intangible business assets and acquired certain liabilities of Ross Sports Productions, Inc. ("Ross"), a Pennsylvania corporation. Ross is a service business engaged in the production of video sports programming which is marketed to local television stations in return for advertising. The purchase price consisted of a cash payment of $3,000,000 plus three additional contingent payments based upon future operating cash flow. The excess purchase price of approximately $3,265,000 was allocated to intangible assets and is being amortized over a twenty-year period. On August 31, 1998, the Company acquired substantially all of the tangible and intangible business assets and acquired certain liabilities of Today's Traffic, an Alabama partnership. Today's Traffic provides traffic reporting services to a network of broadcast affiliates serving the Birmingham, Alabama area. The purchase price consisted of a cash payment of $190,000, plus additional contingent consideration based upon future operating cash flow. The excess purchase price of approximately $230,000 was allocated to intangible assets and is being amortized over a period ranging from five to twenty years. On June 25, 1998, the Company acquired certain assets of Florida Traffic Watch, Inc., which provides broadcast traffic reporting to the Tampa and Fort Myers markets. The purchase price of $1,260,000, net of $500,000 in deferred purchase price related to certain contingent liabilities, was allocated to net assets acquired based upon their estimated fair market value. The excess purchase price of approximately $1,665,000 was allocated to intangible assets and is being amortized over a period ranging from five to twenty years. On March 2, 1998, the Company acquired all the outstanding common stock of Traffic Patrol Broadcasting, Inc. ("TPB"), a Texas corporation. TPB provides traffic reporting services to a network of broadcast affiliates serving the Dallas/Ft. Worth, Texas area. The consideration for the stock included cash of approximately $1,200,000. The excess purchase price of approximately $971,000 was allocated to intangible assets and is being amortized over a period ranging from five to twenty years. On September 19, 1997, the Company acquired substantially all of the tangible and intangible assets and assumed certain liabilities of Freecom, Inc. ("FRE"), a Pennsylvania corporation. FRE provides traffic reporting services to a network of broadcast affiliates serving the Harrisburg, Wilkes-Barre, and Allentown, Pennsylvania areas, Albany, New York and Salisbury/Ocean City, Maryland and Delaware areas. The purchase price of approximately $2,250,000 was allocated to the net assets acquired based upon their estimated fair market value. The excess purchase price of $1,940,000 was allocated to intangible assets and is being amortized over a seven-year period. On August 1, 1997, the Company acquired substantially all of the tangible and intangible assets and assumed certain liabilities of Valley Watch Broadcasting ("VWB"). VWB provides traffic reporting services to a network of broadcast affiliates serving the Fresno, California area. The purchase price consisted of $10,000 cash at closing and a contingent payment of approximately $140,000. On June 27, 1997, the Company acquired 80% of the common stock of Washington News Network, Inc. ("WNN"), a Washington, D.C. corporation. WNN provides video news feeds via satellite to broadcast affiliates across the country. The purchase price of $400,000 consisted of cash consideration of $100,000 and installment notes payable of $300,000. The Company has an option to purchase the remaining 20% of WNN which may be exercised at any time through March 31, 2000. 28 30 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On January 3, 1997, the Company acquired substantially all of the tangible and intangible assets and assumed certain liabilities of TWI Networks, Inc., an Ohio corporation ("TWI"). TWI provides traffic and news reporting services to a network of broadcast affiliates serving the Cincinnati, Columbus and Dayton, Ohio areas, the Memphis and Nashville, Tennessee areas and the Miami, Florida area. The purchase price of approximately $3,700,000 consisted of cash consideration of $2,700,000 and installment notes payable of $1,000,000. The purchase price was allocated to the net assets acquired based upon their estimated fair market values. The excess purchase price of approximately $3,250,000 was allocated to intangible assets and is being amortized over a seven-year period. On January 2, 1997, the Company acquired substantially all of the tangible and intangible assets of Airborne Traffic Network, Inc. ("Airborne"), a Kansas corporation. Airborne provides traffic reporting services to a network of broadcast affiliates serving the Kansas City, Kansas and Omaha, Nebraska areas. As consideration for the asset purchase, the Company paid $1,350,000 at closing and agreed to pay an additional contingent consideration in a final payment based upon net revenue or operating cash flow of Airborne for the twelve month period following the closing date. The final payment, based upon net revenue or operating cash flow as defined in the Asset Purchase Agreement, was determined to be $150,000. The excess purchase price of approximately $1,470,000 was allocated to intangible assets and is being amortized over a seven-year period. On October 31, 1996, the Company acquired substantially all of the tangible and intangible assets of Wisconsin Information Systems, Inc. ("Wisconsin"), an Ohio corporation. Wisconsin provides traffic reporting services to a network of broadcast affiliates serving the Milwaukee, Wisconsin, Oklahoma City, Oklahoma, Albuquerque, New Mexico and Omaha, Nebraska areas. The cash purchase price of approximately $650,000 was allocated to the net assets acquired based upon their estimated fair market values. The excess purchase price of approximately $600,000 was allocated to intangible assets and is being amortized over a seven-year period. On January 4, 1996, the Company acquired 100% of the stock of Traffic Net, Inc. ("TNI"), a Rhode Island corporation, Traffic Net of Connecticut, Inc. ("TNCI"), a Connecticut corporation, and The Weather Bureau, Inc. ("TWB"), a Massachusetts corporation (collectively, the "Traffic Net Group"). The Traffic Net Group provides traffic and weather reporting services to a network of broadcast affiliates serving the Hartford, Connecticut area, the Providence, Rhode Island area, the Boston, Massachusetts area and areas throughout New England. The Company paid cash consideration of approximately $2,900,000, net of $100,000 in deferred purchase price related to certain contingent liabilities, as described in the TNI Stock Purchase Agreement. As additional consideration, the Company paid cash of approximately $410,000 to acquire existing trade receivables, all of which has been subsequently collected. The excess purchase price of approximately $3,197,000 was allocated to intangible assets and is being amortized over a seven-year period. On January 3, 1996, the Company acquired substantially all of the tangible and intangible business assets and assumed certain liabilities of Aeromedia, Inc. ("Aeromedia"), a Utah corporation. Aeromedia provides traffic reporting services to a network of broadcast affiliates serving the Salt Lake City, Utah area in exchange for advertising availabilities and other compensation. As consideration for the asset purchase, the Company paid $200,000 at closing, plus additional contingent consideration of $250,000 based upon net sales as defined in the Asset Purchase Agreement. The excess purchase price of approximately $405,000 was allocated to intangible assets and is being amortized over a seven-year period. 29 31 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following is a summary of the 1998, 1997 and 1996 acquisitions:
DECEMBER 31, ------------------------ 1998 1997 1996 ------ ------ ------ (IN THOUSANDS) Assets acquired: Cash ...................................................... $ 456 $ -- $ -- Accounts receivable ....................................... 1,969 454 554 Fixed assets .............................................. 561 740 123 Other assets .............................................. 138 21 74 Purchased broadcast contracts and other intangibles ....... 6,146 7,180 5,427 ------ ------ ------ 9,270 8,395 6,178 Liabilities assumed: Notes payable ............................................. -- 77 -- Other liabilities ......................................... 3,620 178 1,804 ------ ------ ------ 3,620 255 1,804 Less: Notes payable issued ..................................... -- 1,730 -- ------ ------ ------ Cash paid ...................................................... $5,650 $6,410 $4,374 ====== ====== ======
The following unaudited pro forma information represents the combined results of operations of the Company as if the 1998 acquisitions had been combined with the Company as of January 1, 1997 (in thousands, except earnings per share). The pro forma results for 1996 are immaterial.
DECEMBER 31, (UNAUDITED) ------------------- 1998 1997 -------- -------- Advertising revenues (thousands) ...... $179,164 $146,418 Net earnings (thousands) .............. 20,661 15,823 Diluted earnings per share ............ $ 1.22 $ 0.95
The pro forma information is not necessarily indicative of operating results that would have occurred if each acquisition had been consummated as of the respective dates, nor is it necessarily indicative of future operating results. The actual results of operations of an acquired company are included in the Company's consolidated financial statements only from the date of acquisition. 30 32 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS)
DECEMBER 31, ----------------- 1998 1997 ------- ------- Accounts Receivable: Accounts receivable .................................................................... $53,467 $34,648 Less: allowance for doubtful accounts ................................................. 1,038 535 ------- ------- $52,429 $34,113 ======= ======= Property and Equipment: Operating equipment .................................................................... $41,159 $30,638 Transportation equipment ............................................................... 774 842 Leasehold improvements ................................................................. 3,359 2,747 ------- ------- 45,292 34,227 Less: accumulated depreciation and amortization ....................................... 15,412 9,838 ------- ------- $29,880 $24,389 ======= ======= Purchased Broadcast Contracts and Other Intangibles: Non-compete agreements ................................................................. $ 3,346 $ 3,021 Purchased broadcast contracts .......................................................... 27,891 22,070 Goodwill, trademarks and licenses ...................................................... 2,679 2,679 Investments in subsidiaries ............................................................ 50 50 Other .................................................................................. 1,079 1,079 ------- ------- 35,045 28,899 Less: accumulated amortization ........................................................ 15,545 11,354 ------- ------- $19,500 $17,545 ======= ======= Accrued Liabilities: Accrued payroll and related costs ...................................................... $ 2,839 $ 2,626 Bonus accrual .......................................................................... -- 1,779 Commission ............................................................................. 1,910 2,416 Current income taxes payable ........................................................... 1,873 598 Deferred revenue ....................................................................... 2,444 742 Other .................................................................................. 2,474 1,913 ------- ------- $11,540 $10,074 ======= =======
NOTE 5--RECIPROCAL REVENUES AND EXPENSES The following is a summary of reciprocal revenues and expenses (in thousands):
FOR THE YEAR ENDING DECEMBER 31, --------------------------------------------- 1998 1997 1996 ----------- ------------ ------------ Reciprocal revenues................................... $ 8,483 $ 5,611 $ 8,731 ======== ======== ======== Reciprocal expenses................................... $ 8,203 $ 4,246 $ 6,314 ======== ======== ========
31 33 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--NOTES PAYABLE AND LONG-TERM DEBT Short-term notes payable consist of various notes with an original maturity of less than one year. Long-term debt consists of the following in thousands:
DECEMBER 31, ------------- 1998 1997 ------ ------ Various acquisition notes payable, discounted at 8%, due 1999 through 2000 ........ $430 $841 Unsecured note payable to bank at prime (8.50% at December 31, 1998), due 1999 through 2000 .......................................................... 52 69 ---- ---- 482 910 Less: Current portion ............................................................. 429 420 ---- ---- $ 53 $490 ==== ====
The $53,000 long-term portion of notes payable will mature during fiscal year 2000. On October 22, 1996, the Company paid off the notes payable related to the $30,000,000 revolving agreement and replaced this facility with a reducing revolving credit facility which provides for maximum aggregate permitted borrowings of $30,000,000. The new line of credit expires December 31, 2003, and will begin reducing in March 1999. The new line of credit bears interest at a variable rate indexed to the lender's prime rate or LIBOR. The new line of credit has a commitment fee based on the daily average unborrowed balance. The new line of credit provides for various restrictions on the Company which would restrict the Company, without first obtaining the lender's consent, from taking certain actions, including but not limited to incurring additional indebtedness, making certain acquisitions or consolidating with any other entity, altering its existing capital structure and paying certain dividends. No balances under the new line of credit were outstanding at December 31, 1998 and 1997. NOTE 7--INCOME TAXES Income tax expense from continuing operations is comprised of the following (in thousands):
DECEMBER 31, --------------------------- 1998 1997 1996 ------- ------- ------- Current, federal .................................. $11,481 $ 8,437 $ 2,393 Current, state ..................................... 1,982 2,094 1,178 Deferred, federal .................................. 196 633 (109) ------- ------- ------- $13,659 $11,164 $ 3,462 ======= ======= =======
The difference between the effective tax rate of income tax expense and the amount which would be determined by applying the statutory U.S. income tax rates to income from continuing operations before income tax expense is explained below according to the tax implications of various items of income or expense:
DECEMBER 31, -------------------------------- 1998 1997 1996 -------- -------- -------- Provision for income tax expense at U.S. statutory rates .................. $ 11,909 $ 9,347 $ 6,801 Increase (decrease) in tax provision resulting from: Nontaxable S corporation and partnership (earnings) losses ............ -- -- (5,449) State income taxes, net of federal tax benefit ........................ 1,288 1,360 1,024 Amortization of goodwill .............................................. 690 929 1,100 Tax exempt income ..................................................... (246) (352) -- Other ..................................................................... 18 (120) (14) -------- -------- -------- $ 13,659 $ 11,164 $ 3,462 ======== ======== ========
32 34 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes related to the C corporations included in the combined group. The components of the net deferred income tax assets and liabilities at December 31, 1998 and 1997 consist of the following (in thousands):
Deferred income tax assets: 1998 1997 ------- ------- Allowance for uncollectable accounts .......................... $ 287 $ 187 Accrued liabilities ........................................... 37 55 Book over tax amortization on intangible assets ............... 985 907 ------- ------- Total deferred income tax assets .............................. 1,309 1,149 Deferred income tax liabilities: Tax over book depreciation on property and equipment .......... (1,944) (1,214) Book over tax barter valuation ................................ -- (96) Fixed asset basis difference .................................. (66) 62 Investment in stock ........................................... (19) (19) Research and development costs ................................ -- (406) ------- ------- Total deferred income tax liabilities ......................... (2,029) (1,673) Net deferred income tax asset (liability) ..................... (720) (524) Current deferred income tax asset (liability) ................. 324 146 ------- ------- Net long-term deferred income tax asset (liability) ........... $(1,044) $ (670) ======= =======
NOTE 8--COMMITMENTS AND CONTINGENCIES The Company leases certain of its office facilities and equipment over periods ranging from one to ten years. Total facility expense for the years ended December 31, 1998, 1997 and 1996 was $6,057,000, $4,415,000 and $3,384,000, respectively. Future rentals for operating leases at December 31, 1998 are as follows (in thousands): 1999..................................................................... $ 5,702 2000..................................................................... 3,419 2001..................................................................... 3,138 2002..................................................................... 2,413 2003..................................................................... 2,560 Thereafter............................................................... 7,326 --------- $ 24,558 =========
Additionally, the Company is obligated to provide advertising in exchange for leasing certain office facilities and equipment over periods ranging from one to ten years. Future rentals for operating leases at December 31, 1998 based on the fair market value of the leases are as follows (in thousands): 1999............................................................ $ 608 2000............................................................ 429 2001............................................................ 336 2002............................................................ 317 2003............................................................ 135 Thereafter...................................................... 484 -------- $ 2,309 ========
33 35 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company is subject to litigation arising in the ordinary course of business. Management believes that the resolution of such matters will not have a material adverse effect on the Company's financial position or results of operations. NOTE 9--DEFINED CONTRIBUTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN Effective April 1995, the Company established a profit sharing plan under Section 401(k) of the Internal Revenue Code for all eligible employees. All eligible employees are permitted to defer compensation up to a maximum of 15% of their income. The plan provides for a matching contribution by the Company, which amounted to $410,000, $314,000 and $274,000 in 1998, 1997 and 1996, respectively. A total of 1,500,000 shares of the Company's Common Stock have been reserved for issuance under the Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan"). As of December 31, 1998, a total of 21,395 shares have been issued under the Purchase Plan. The Purchase Plan permits an eligible employee of the Company to purchase common stock at a discount through payroll deductions not to exceed 10% of the compensation received by such employee during such pay period ("Employee Purchases"). An employee's right to purchase shares under the Purchase Plan will be granted at the beginning of each six month period based on payroll deductions made in the prior six month period. All purchases will be made automatically at the end of each six month period. Employee Purchases cannot exceed $25,000 in any plan year. The price at which the Common Stock is purchased under the Purchase Plan, as set by the Board of Directors, is the lesser of 95% of the fair market value of the Common Stock at the time an employee's right to purchase the stock is granted, or the fair market value of the Common Stock on the date of purchase. NOTE 10--STOCK OPTIONS The Company's Board of Directors adopted the 1996 Incentive Stock Option Plan (the "1996 Plan") for the Company's officers and employees. The total number of shares reserved for issuance under the 1996 Plan is 1,000,000, of which approximately 984,330 were issued as of December 31, 1998. In October 1997, the Company's Board of Directors adopted the 1997 Stock Option Plan (the "1997 Plan") for the Company's officers, employees and non-employee Directors. The total number of shares reserved for issuance under the 1997 Plan is 1,500,000, of which approximately 870,500 were issued as of December 31, 1998. The Board of Directors has discretionary authority, subject to certain restrictions, to administer the 1996 Plan and the 1997 Plan, including but not limited to determining the individuals to whom, the times at which, and the exercise price for which options will be granted. The exercise price of incentive options granted under the 1996 Plan or 1997 Plan may not be less than 100% of the fair market value (or not less than 110% of the fair market value as to any individual who, at the time the option is granted, owned more than 10% of the total combined voting power of all classes of stock of the Company) of the Common Stock on the date such option was granted. Options granted under either plan are not transferable by the optionholders except by will or by the laws of descent and distribution. Options granted under the 1996 Plan and 1997 Plan typically become vested and exercisable for up to 33 1/3% of the total optioned shares upon the first anniversary of the grant of the option and for an additional 33 1/3% of the total optioned shares upon each succeeding anniversary until the option is fully exercisable at the end of the third year. Generally, the unexercised portion of any option automatically terminates upon the earlier of (i) termination of the optionee's employment with the Company, (ii) the expiration of 90 days from the date his employment with the Company terminates for any reason other than cause, death, or disability (iii) the expiration of one year after the optionee's death or (iv) the expiration of the option. Upon the sale, merger or liquidation of the Company, outstanding options may be exercised immediately prior to the consummation of such a transaction, whether or not vested as of such date of consummation. In addition, options to purchase an aggregate of 80,000 shares were issued to non-employee members of the Board of Directors outside of the 1996 and 1997 Plans. 34 36 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1998, there were 629,500 and 15,670 additional shares available for grant under the 1997 Plan and 1996 Plan, respectively. The per share weighted-average value of stock options granted during 1998 and 1997 was $14.03 and $14.89, respectively, on the date of grant using the Black Scholes model with the following assumptions for 1998 and 1997: weighted-average risk-free interest rate of 4.51% and 6.11%, respectively, expected life of 5 years, volatility of 43.0% and 49.4%, respectively, and an expected dividend yield of 0%. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:
1998 1997 -------------- -------------- Net income: As reported $ 20,354,000 $ 15,543,000 Pro forma - effects of SFAS No. 123 14,633,000 13,288,000 Diluted earnings per share: As reported $ 1.20 $ 0.93 Pro forma - effects of SFAS No. 123 .86 0.80
Information regarding the stock options outstanding at December 31, 1998, is summarized as follows:
Options Outstanding Options Exercisable Number Weighted-average Weighted- Number Weighted- Range of outstanding remaining average exercisable average exercise prices at 12/31/98 contractual life exercise price at 12/31/98 exercise price - --------------- ----------- ---------------- -------------- ----------- -------------- $16.00-37.59 1,816,778 8.0 $26.66 532,077 $21.25 $38.00-42.13 67,000 9.6 $38.48 -- -- ------------ --------- --- ------ ------- ------ $16,00-42.13 1,883,778 8.1 $27.08 532,077 $21.25
At December 31, 1997, the number of options exercisable was 161,212 and the weighted-average exercise price of these options was $16.33. Stock option activity during the periods indicated is as follows:
Number of Weighted-average shares exercise price --------- ---------- Balance at December 31, 1995 0 $ -- Granted 570,000 16.05 --------- Balance at December 31, 1996 570,000 $ 16.05 Granted 577,000 30.08 Exercised (26,097) 16.00 Forfeited (10,001) 16.00 --------- Balance at December 31, 1997 1,110,902 --------- Granted 810,500 31.75 Exercised (24,955) 16.53 Forfeited (12,669) 29.49 --------- Balance at December 31, 1998 1,883,778 =========
At December 31, 1998, the number of options exercisable was 532,077 and the weighted-average exercise price of these options was $21.25 per share. 35 37 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--EARNINGS PER COMMON SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted computations for the years ended December 31, 1998, 1997 and 1996 (in thousands, except per share data).
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- WEIGHTED AVERAGE PER SHARE INCOME SHARES OUTSTANDING AMOUNT -------- ------------------ -------- 1998 - ---- BASIC EPS $ 20,354 16,594 $ 1.23 Income available to common stockholders EFFECT OF DILUTIVE SECURITIES Options -- 361 (.03) -------- ------ -------- DILUTED EPS Income available to common stockholders plus assumed conversion $ 20,354 16,955 $ 1.20 ======== ====== ======== 1997 - ---- BASIC EPS Income available to common stockholders $ 15,543 16,555 $ 0.94 EFFECT OF DILUTIVE SECURITIES Options -- 159 (0.01) -------- ------ -------- DILUTED EPS Income available to common stockholders plus assumed conversion $ 15,543 16,714 $ 0.93 ======== ====== ======== 1996 PRO FORMA - -------------- BASIC EPS Income available to common stockholders $ 12,047 12,851 $ 0.94 EFFECT OF DILUTIVE SECURITIES Options -- 33 -- -------- ------ -------- DILUTED EPS Income available to common stockholders Plus assumed conversion $ 12,047 12,884 $ 0.94 ======== ====== ========
Options to purchase 67,000 shares of Common Stock at exercise prices ranging from $38.00 to $42.13 were outstanding during portions of 1998, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options, which have a weighted-average remaining contractual life of 9.6 years, were still outstanding at the end of 1998. NOTE 12--COMMON STOCK, PREFERRED STOCK AND PARTNERS' CAPITAL Immediately prior to the closing of the Public Offering, the Company entered into a Stock Loan and Pledge Agreement with the controlling shareholder pursuant to which the Company loaned the controlling shareholder 2,549,750 shares of common stock (the "Loaned Stock"). The loan is for a term of ten years, although the Company has the right to require the return of the Loaned Stock from the controlling shareholder prior to that time upon three days notice. As security for the loan, the controlling shareholder pledged 2,549,750 shares of Series A Convertible Preferred Stock of the Company which, when converted into Common Stock, will equal the number of shares of Loaned Stock. The controlling shareholder is obligated to pay the Company an annual fee over the term of the loan of 0.1% of the average fair market value of the Loaned Stock during the five day period immediately following the date of the Stock Loan and Pledge Agreement. One-half of this fee is payable annually, and the remaining one-half is payable upon the termination of the loan if such termination occurs pursuant to an Event of Default (as defined in the Stock Loan and Pledge Agreement), or at the end of the ten year term. The Company will forfeit this portion of 36 38 METRO NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) the fee if it calls the loan prior to the end of the ten year term. The controlling shareholder paid an initial transaction fee of $2,550 to the Company and is obligated to repay to the Company any dividends that are paid by the Company on the Loaned Stock. The Series A Convertible Preferred Stock does not pay any dividends. NOTE 13--RELATED PARTY TRANSACTIONS Prior to the Public Offering, the Company entered into certain reciprocal arrangements with unrelated third parties as a result of which the Company received goods and services for the benefit of the controlling shareholder. The reciprocal arrangements obligate the Company to provide commercial airtime, provide other goods and services, and make cash disbursements to such third parties in exchange for the goods and services received by the Company. The dollar values of such arrangements have typically been calculated based upon the Company's estimate of the fair market value of the commercial airtime inventory involved on a basis similar to the basis on which estimates are made by others in the broadcast industry. As of December 31, 1998, the Company is obligated to provide approximately $0.4 million of commercial airtime, goods and services under these reciprocal arrangements. Immediately prior to the Public Offering, the Company entered into an agreement with the controlling shareholder pursuant to which the controlling shareholder was distributed the goods and services the Company held for his benefit. The Company also distributed to the controlling shareholder all of its rights to the goods and services that are subject of existing reciprocal arrangements but which had not yet been delivered to the Company. The value of such goods and services was approximately $4.1 million. During 1996, the Company leased certain real property in Vail, Colorado and in Malibu, California from Five S Properties, Ltd., a limited partnership of which a company owned by the controlling shareholder is the general partner ("Five S"). Such properties were used for affiliate relations and for other Company business-related purposes. The annual lease payments on these properties were $60,000 and $240,000, respectively. The amounts of such lease payments were determined by the Company based on its estimate of the values of the leased properties but without preference to outside sources of valuation. Because the Company did not make full-time use of these properties, such leases were terminated as of October 1996, and the Company has no intention to enter into similar leases. The Company paid $250,000 in rent expense to Five S for the years ended December 31, 1996. Prior to October 1996, the Company incurred certain operating and interest expenses on behalf of Five S. In October 1996, the Company distributed a note receivable from Five S to the controlling shareholder in the amount of $832,495, representing the amounts incurred on behalf of Five S net of the lease payments. As of October 1996, the Company and the controlling shareholder entered into an agreement pursuant to which the controlling shareholder may seek reimbursement from the Company for any income tax obligation attributable to any period prior to the Reorganization. Alternatively, in the event that the status of any of MVN, MRI or MTC as a subchapter S corporation is not respected, the Company may seek reimbursement from the controlling shareholder, but only to the extent that the controlling shareholder receives a tax refund attributable to amounts he previously included in income in his capacity as a shareholder of such corporations. In October 1996, the Company distributed to the controlling shareholder a note for $3,100,000. This note relates to estimated tax amounts owed by the controlling shareholder as a result of his ownership interest in S corporations and partnerships for the period January 1, 1996 to the date of the Reorganization. The balance of this note was paid in October 1997. 37 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information is incorporated by reference to the Company's definitive proxy statement for its annual meeting of shareholders to be filed pursuant to Regulation 14A ("Regulation 14A") of the Securities Exchange Act of 1934, as amended, not later than 120 days after the end of the Company's fiscal year. ITEM 11. EXECUTIVE COMPENSATION This information is incorporated by reference to the Company's definitive proxy statement for its annual meeting of shareholders to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is incorporated by reference to the Company's definitive proxy statement for its annual meeting of shareholders to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is incorporated by reference to the Company's definitive proxy statement for its annual meeting of shareholders to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) List of documents filed as part of this report. (1) Financial Statements The Independent Auditors' Report and the following consolidated financial statements are filed as part of this report: Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statement of Stockholder's Equity/Partners' Capital for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements (2) Financial Statement Schedules All information required to be included in a financial statement schedule is disclosed in the consolidated financial statements referred to above. (3) Exhibits. 38 40
EXHIBIT NO. DESCRIPTION OF EXHIBIT - --- ---------------------- 3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant (1) 3.2 Form of Amended and Restated Bylaws of Registrant (1) 4.1 Form of Common Stock Certificate (1) 4.2 Form of Series A Convertible Preferred Stock Certificate (1) 10.1 Lease Agreement, dated April 15, 1988 between Tower, Limited and Metro Traffic Control, Inc. (1) 10.2 First Amendment to Lease Agreement, dated September 1, 1988 between Tower, Limited and Metro Traffic Control, Inc. (1) 10.3 Lease Amendment Number Two, dated April 23, 1991 between Tower, Limited and the Registrant (1) 10.4 Lease Amendment Number Three, dated January 28, 1992 between Tower, Limited and the Registrant (1) 10.5 Lease Agreement dated April 18, 1990 between Transco Tower Limited and Metro Traffic Control, Inc. (1) 10.6 Lease Amendment Number One dated October 19, 1988 between Transco Tower, Limited and Metro Traffic Control, Inc. (1) 10.7 Lease Amendment Number Two dated January 29, 1992 between Transco Tower, Limited and Metro Traffic Control, Inc. (1) 10.8 Lease Amendment Number Three dated May 28, 1992 between Transco Tower, Limited and Metro Traffic Control, Inc. (1) 10.9 Sublease Agreement dated January 5, 1996 between Transcontinental Gas Pipe Line Corporation and Metro Traffic Control, Inc. (1) 10.10 Lease Amendment Number One, dated March 1, 1998, between Transcontinental Gas Pipe Line Corporation and Metro Traffic Control, Inc. (3) 10.11 Employment Agreement between the Registrant and Mr. David I. Saperstein (1) 10.12 Employment Agreement between the Registrant and Mr. Charles I. Bortnick (1) 10.13 Employment Agreement between the Registrant and Mr. Shane E. Coppola (1) 10.14 Employment Agreement between the Registrant and Mr. Gary L. Worobow (1) 10.15 Amendment to Employment Agreement between the Registrant and Mr. Gary L. Worobow (3) 10.16 Employment Agreement between the Registrant and Mr. Ivan N. Shulman (3) 10.17 Employment Agreement between the Registrant and Mr. D. Patrick LaPlatney (3) 10.18 Employment Agreement between the Registrant and Mr. John R. Tomlinson (3) 10.19 Employment Agreement between the Registrant and Mr. Timothy D. McMillin (3) 10.20 Metro Networks, Inc. Employee Stock Purchase Plan (1)
39 41 10.21 1996 Incentive Stock Option Plan (1) 10.22 Amendment No. 1 to the 1996 Incentive Stock Option Plan (4) 10.23 1997 Stock Option Plan (3) 10.24 Stock Loan and Pledge Agreement between the Registrant and Mr. David I. Saperstein (1) 10.25 Indemnification Agreement between the Registrant and Mr. David I. Saperstein (1) 10.26 Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A., as Administrative Lender, dated as of October 22, 1996 (2) 10.27 First Amendment dated September 30, 1997 to Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A. as Administrative Lender (3) 10.28 Second Amendment dated December 31, 1997 to Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A. as Administrative Lender (4) 10.29 Third Amendment dated January 1, 1998 to Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A. as Administrative Lender 10.30 Fourth Amendment dated July 1, 1998 to Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A. as Administrative Lender 10.31 Fifth Amendment dated March 22, 1999 to Credit Agreement among Metro Networks, Inc., certain lenders, and Bank of America as Administrative Lender 21.1 Subsidiaries of the Company 23.1 Consent of KPMG LLP 27.1 Financial Data Schedule
- -------------------- (1) Incorporated by reference to the Registrant's Registration Statement on Form S-1, Registration No. 333-6311, originally filed with the Securities and Exchange Commission on June 19, 1996, as subsequently amended, and declared effective on October 16, 1996. (2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. (3) Incorporated by Reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. (4) Incorporated by Reference to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1998. 40 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 30, 1999. METRO NETWORKS, INC. By: /s/ DAVID I. SAPERSTEIN -------------------------------------- David I. Saperstein Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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/ DAVID I. SAPERSTEIN - ----------------------------------- Chairman of the Board of Directors and Chief Executive March 30, 1999 David I. Saperstein Officer (Principal Executive Officer) /s/ CHARLES I. BORTNICK - ----------------------------------- President and Director March 30, 1999 Charles I. Bortnick /s/ SHANE E. COPPOLA - ----------------------------------- Executive Vice President and Director March 30, 1999 Shane E. Coppola /s/ TIMOTHY D. McMILLIN - ----------------------------------- Senior Vice President, Chief Financial Officer March 30, 1999 Timothy D. McMillin (Principal Financial and Accounting Officer) /s/ GARY L. WOROBOW - ----------------------------------- Senior Vice President, General Counsel, March 30, 1999 Gary L. Worobow Secretary and Director /s/ JAMES A. ARCARA - ----------------------------------- Director March 30, 1999 James A. Arcara /s/ DENNIS F. HOLT - ----------------------------------- Director March 30, 1999 Dennis F. Holt /s/ KENIN M. SPIVAK - ----------------------------------- Director March 30, 1999 Kenin M. Spivak /s/ ROBERT M. MIGGINS - ----------------------------------- Director March 30, 1999 Robert M. Miggins
41 43 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant (1) 3.2 Form of Amended and Restated Bylaws of Registrant (1) 4.1 Form of Common Stock Certificate (1) 4.2 Form of Series A Convertible Preferred Stock Certificate (1) 10.1 Lease Agreement, dated April 15, 1988 between Tower, Limited and Metro Traffic Control, Inc. (1) 10.2 First Amendment to Lease Agreement, dated September 1, 1988 between Tower, Limited and Metro Traffic Control, Inc. (1) 10.3 Lease Amendment Number Two, dated April 23, 1991 between Tower, Limited and the Registrant (1) 10.4 Lease Amendment Number Three, dated January 28, 1992 between Tower, Limited and the Registrant (1) 10.5 Lease Agreement dated April 18, 1990 between Transco Tower Limited and Metro Traffic Control, Inc. (1) 10.6 Lease Amendment Number One dated October 19, 1988 between Transco Tower, Limited and Metro Traffic Control, Inc. (1) 10.7 Lease Amendment Number Two dated January 29, 1992 between Transco Tower, Limited and Metro Traffic Control, Inc. (1) 10.8 Lease Amendment Number Three dated May 28, 1992 between Transco Tower, Limited and Metro Traffic Control, Inc. (1) 10.9 Sublease Agreement dated January 5, 1996 between Transcontinental Gas Pipe Line Corporation and Metro Traffic Control, Inc. (1) 10.10 Lease Amendment Number One, dated March 1, 1998, between Transcontinental Gas Pipe Line Corporation and Metro Traffic Control, Inc. (3) 10.11 Employment Agreement between the Registrant and Mr. David I. Saperstein (1) 10.12 Employment Agreement between the Registrant and Mr. Charles I. Bortnick (1) 10.13 Employment Agreement between the Registrant and Mr. Shane E. Coppola (1) 10.14 Employment Agreement between the Registrant and Mr. Gary L. Worobow (1) 10.15 Amendment to Employment Agreement between the Registrant and Mr. Gary L. Worobow (3) 10.16 Employment Agreement between the Registrant and Mr. Ivan N. Shulman (3) 10.17 Employment Agreement between the Registrant and Mr. D. Patrick LaPlatney (3)
44 10.18 Employment Agreement between the Registrant and Mr. John R. Tomlinson (3) 10.19 Employment Agreement between the Registrant and Mr. Timothy D. McMillin (3) 10.20 Metro Networks, Inc. Employee Stock Purchase Plan (1) 10.21 1996 Incentive Stock Option Plan (1) 10.22 Amendment No. 1 to the 1996 Incentive Stock Option Plan (4) 10.23 1997 Stock Option Plan (3) 10.24 Stock Loan and Pledge Agreement between the Registrant and Mr. David I. Saperstein (1) 10.25 Indemnification Agreement between the Registrant and Mr. David I. Saperstein (1) 10.26 Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A., as Administrative Lender, dated as of October 22, 1996 (2) 10.27 First Amendment dated September 30, 1997 to Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A. as Administrative Lender (3) 10.28 Second Amendment dated December 31, 1997 to Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A. as Administrative Lender (4) 10.29 Third Amendment dated January 1, 1998 to Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A. as Administrative Lender 10.30 Fourth Amendment dated July 1, 1998 to Credit Agreement among Metro Networks, Inc., certain lenders, and NationsBank of Texas, N.A. as Administrative Lender 10.31 Fifth Amendment dated March 22, 1999 to Credit Agreement among Metro Networks, Inc., certain lenders, and Bank of America as Administrative Lender 21.1 Subsidiaries of the Company 23.1 Consent of KPMG LLP 27.1 Financial Data Schedule
- -------------------- (1) Incorporated by reference to the Registrant's Registration Statement on Form S-1, Registration No. 333-6311, originally filed with the Securities and Exchange Commission on June 19, 1996, as subsequently amended, and declared effective on October 16, 1996. (2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. (3) Incorporated by Reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. (4) Incorporated by Reference to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1998. EX-10.29 2 THIRD AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.29 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is dated as of the 1st day of January, 1998 and entered into among METRO NETWORKS, INC., a Delaware corporation (the "Borrower"), the Lenders party thereto, and NATIONSBANK, N.A. (successor through merger to NationsBank of Texas, N.A.), a national banking association, individually and as Administrative Lender (in such latter capacity, the "Administrative Lender"). WITNESSETH: WHEREAS, the Borrower, the Lenders, and the Administrative Lender entered into a Credit Agreement, dated as of October 22, 1996, for a loan facility in the amount of $30,000,000 (as amended, restated, waived or otherwise modified from time to time, including without limitation, the First Amendment dated September 30, 1997, between the Borrower, the Lenders party thereto, and the Administrative Lender and the Second Amendment dated December 31, 1997 between the Borrower, the Lenders party thereto and the Administrative Lender, the "Credit Agreement"); and WHEREAS, the Lenders, the Administrative Lender, and the Borrower have agreed to amend the Credit Agreement to make certain changes to the terms therein upon the terms and conditions set forth below; NOW, THEREFORE, for valuable consideration hereby acknowledged, the Borrower, the Lenders and the Administrative Lender agree as follows: SECTION 1. Definitions. Unless specifically defined or redefined below, capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. SECTION 2. Amendment to Section 7.1 of the Credit Agreement. Section 7.1(f) shall be deleted in its entirety and amended by adding the following Section 7.1(f): (f) (i) Other Indebtedness of the Borrower and the Subsidiaries not to exceed $2,000,000 in aggregate amount and (ii) Indebtedness incurred by Borrower and its Subsidiaries in connection with sale and leaseback obligations with respect to sales of Borrower's and its Subsidiaries' motor vehicles, helicopters and other rolling stock not to exceed in the aggregate $5,000,000. SECTION 3. Amendment to Section 7.3(h) of the Credit Agreement. Section 7.3(h) shall be deleted in its entirety and the following Section 7.3(h) shall be substituted in its stead: (h) Other Investments primarily related to the Borrower's Business not to exceed $5,000,000 in aggregate purchase price amount for all such Investments, 2 provided that no Default exists prior to or after giving effect to the purchase of any such Investment. SECTION 4. Amendment to Section 7.5(a) of the Credit Agreement. Section 7.5(a) shall be deleted in its entirety and the following Section 7.5(a) shall be substituted in its stead: (a) liquidate or dissolve itself (or suffer any liquidation or dissolution) or otherwise wind up; or sell, lease, abandon, transfer or otherwise dispose of all or any part of its assets, properties or business, other than (i) immaterial assets sold in the ordinary course of business, (ii) assets sold in accordance with the provisions of Section 7.14 hereof, and (iii) sales of motor vehicles, helicopters, and rolling stock pursuant to sale and leaseback transactions as described in Section 7.1(f) hereof; SECTION 5. Amendment to Sections 7.6(a) and (b) of the Credit Agreement. Sections 7.6(a) and (b) shall be deleted in its entirety and the following Sections 7.6(a) and (b) shall be substituted in its stead: (a) single Acquisitions, the Acquisition Consideration for which does not exceed $5,000,000, and so long as in any fiscal year the aggregate Acquisition Consideration paid by the Borrower and the Subsidiaries for all Acquisitions during such fiscal year does not exceed $10,000,000, and (b) single Acquisitions the aggregate Acquisition Consideration for which equals or exceeds $5,000,000, if each Lender receives financial projections in form and substance acceptable to the Lenders and demonstrating compliance with (i) the covenants described in Section 6.3(a) hereof and (ii) the required repayments as a result of the reductions in the Commitment set forth in Section 2.6(c) hereof, each after giving effect to such acquisition and for the period beginning on such date of acquisition and ending on the Maturity Date; SECTION 6. Amendment to Section 7.11 of the Credit Agreement. Section 7.11 shall be deleted in its entirety and the following Section 7.11 shall be substituted in its stead: Section 7.11 Fixed Charges Coverage Ratio. At the end of each fiscal quarter occurring during the periods indicated below, the Borrower, on a combined basis, shall not permit the ratio of (a) Operating Cash Flow for the four fiscal quarters then ending to (b) Fixed Charges for such fiscal quarters to be less than: Period Ratio ------ ----- From Agreement Date through June 30, 1997 1.25 to 1.00 From July 1, 1997 through September 30, 1998 1.00 to 1.00 From October 1, 1998 and thereafter 1.10 to 1.00 2 3 SECTION 7. Amendment to Section 7.14 of the Credit Agreement. Section 7.14 shall be deleted in its entirety and the following Section 7.14 shall be substituted in its stead: Section 7.14 Sale and Leaseback. The Borrower shall not, and shall not permit any Subsidiary to, enter into any arrangement whereby it sells or transfers any of its assets, and thereafter rents or leases such assets, provided that, so long as there exists no Default or Event of Default both before and immediately after giving effect to such transaction, the Borrower may, and may permit its Subsidiaries to, enter into sale and leaseback transactions which in the aggregate for the Borrower and its Subsidiaries do not exceed $5,000,000 for all assets sold. SECTION 8. Affirmation. The Borrower hereby acknowledges and agrees that nothing in this Third Amendment shall affect the Borrower's obligations under the Credit Agreement or the other Loan Documents executed in connection therewith (except as specifically provided in this Third Amendment), which remain valid, binding and enforceable, and except as amended hereby, unamended, or shall constitute a waiver by the Lenders of any of their rights or remedies, now or at any time in the future, with respect to any requirement under the Credit Agreement or the other Loan Documents or with respect to an Event of Default or Default, occurring now or at any time in the future. SECTION 9. Conditions Precedent. This Third Amendment shall not be effective until: (a) all proceedings of the Borrower taken in connection with this Third Amendment and the transactions contemplated hereby shall be satisfactory in form and substance to the Administrative Lender and Lenders signatory hereto, and (b) the Administrative Lender and Lenders shall have each received such documents, instruments, and certificates, etc., each in form and substance satisfactory to the Lenders, as the Lenders shall deem necessary or appropriate in connection with this Third Amendment and the transactions contemplated hereby. SECTION 10. Representations and Warranties. The Borrower represents and warrants to the Lenders and the Administrative Lender that (a) the Borrower has the corporate power and has taken all necessary corporate action, to authorize it to enter into and deliver this Third Amendment and all related documentation, (b) this Third Amendment constitutes its legal, valid, and binding obligations, enforceable in accordance with the terms hereof (subject as to enforcement of remedies to any applicable bankruptcy, reorganization, moratorium, or other laws or principles of equity affecting the enforcement of creditors' rights generally), (c) there exists no Event of Default or Default under the Credit Agreement after giving effect to this Third Amendment, (d) its representations and warranties set forth in the Credit Agreement and other Loan Documents are true and correct on the date hereof after giving effect to this Third Amendment, (e) it has complied with all agreements and conditions to be complied with by it under the Credit Agreement and the other Loan Documents by the date hereof, (f) the Credit Agreement, as amended hereby, and the other Loan Documents remain in full force and effect, and (g) no notice to, or consent of, any Person is required under the terms of any agreement of the Borrower in connection with the execution of this Third Amendment. 3 4 SECTION 11. Further Assurances. The Borrower shall execute and deliver such further agreements, documents, instruments, and certificates in form and substance satisfactory to the Administrative Lender, as the Administrative Lender or any Lender may deem reasonably necessary or appropriate in connection with this Third Amendment, including without limitation, a Compliance Certificate in form and substance satisfactory to the Administrative Lender as required by Section 6.3 of the Credit Agreement. SECTION 12. Counterparts. This Third Amendment and the other Loan Documents may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. SECTION 13. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS THIRD AMENDMENT AND THE OTHER LOAN DOCUMENTS. SECTION 14. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS THIRD AMENDMENT AND MAKING ANY ADVANCES HEREUNDER. SECTION 15. ENTIRE AGREEMENT. THIS THIRD AMENDMENT TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. ================================================================================ 4 5 IN WITNESS WHEREOF, this Third Amendment to Credit Agreement is executed as of the date first set forth above. BORROWER: METRO NETWORKS, INC. /s/ TIMOTHY D. MCMILLIN ------------------------------------ By: Timothy D. McMillin Its: Senior Vice President ADMINISTRATIVE LENDER: NATIONSBANK, N.A., as Administrative Lender /s/ WHITNEY L. BUSSE ------------------------------------- By: Whitney L. Busse Its: Vice President LENDERS: NATIONSBANK, N.A., as a Lender /s/ WHITNEY L. BUSSE ------------------------------------- By: Whitney L. Busse Its: Vice President THE BANK OF NOVA SCOTIA, as a Lender /s/ VINCENT J. FITZGERALD, JR. ------------------------------------- By: Vincent J. Fitzgerald, Jr. ---------------------------------- Its: --------------------------------- 5 EX-10.30 3 FOURTH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.30 FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Fourth Amendment") is dated as of the 1st day of July, 1998 and entered into among METRO NETWORKS, INC., a Delaware corporation (the "Borrower"), the Lenders party thereto, and NATIONSBANK, N.A. (successor through merger to NationsBank of Texas, N.A.), a national banking association, individually and as Administrative Lender (in such latter capacity, the "Administrative Lender"). WITNESSETH: WHEREAS, the Borrower, the Lenders, and the Administrative Lender entered into a Credit Agreement, dated as of October 22, 1996, for a loan facility in the amount of $30,000,000 (as amended, restated, waived or otherwise modified from time to time, including without limitation, the First Amendment dated September 30, 1997, between the Borrower, the Lenders party thereto, and the Administrative Lender, the Second Amendment dated December 31, 1997 between the Borrower, the Lenders party thereto and the Administrative Lender, and the Third Amendment dated January 1, 1998 between the Borrower, the Lenders party thereto and the Administrative Lender, the "Credit Agreement"); and WHEREAS, the Lenders, the Administrative Lender, and the Borrower have agreed to amend the Credit Agreement to make certain changes to the terms therein upon the terms and conditions set forth below; NOW, THEREFORE, for valuable consideration hereby acknowledged, the Borrower, the Lenders and the Administrative Lender agree as follows: SECTION 1. Definitions. (a) Definitions, Generally. Unless specifically defined or redefined below, capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. (b) Definition of Intercompany Notes. The definition of "Intercompany Notes" in Article 1 on page 8 of the Credit Agreement is hereby deleted in its entirety and the following definition of "Intercompany Notes" shall be substituted in its stead: "Intercompany Notes" shall mean (a) any promissory note executed by any Subsidiary made payable to the order of the Borrower in the original principal amount not to exceed $30,000,000 evidencing loans and advances made or to be made by the Borrower to such Subsidiary, together with any extension, renewal, increase or amendment thereof, or substitution therefor 2 and (b) any promissory note or series of promissory notes executed by a Subsidiary of the Borrower and made payable to the order of the Borrower, in the aggregate original principal amount for all such notes not to exceed $100,000,000, evidencing loans and advances made by the Borrower to such Subsidiaries, together with any extension, renewal, increase or amendment thereof, or substitution therefor. (c) Definition of Year 2000 Compliant. The definition of "Year 2000 Compliant" shall be added to the end of Article 1 in alphabetical order as follows: "Year 2000 Compliant" shall have the meaning ascribed thereto in Section 4.1(y) hereof. SECTION 2. Addition of Section 4.1(y) of the Credit Agreement. Section 4.1(y) shall be added to Article 4 on page 44 of the Credit Agreement to read as follows: (y) Year 2000 Compliance. The Borrower has (i) undertaken a detailed review and assessment of all areas within its business and operations that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by the Borrower may be unable to recognize and perform property date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a detailed plan and timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan in accordance with that timetable. The Borrower reasonably anticipates that all computer applications that are material to its business and operations will on a timely basis be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 Compliant"). SECTION 3. Addition of Section 5.16 of the Credit Agreement. Section 5.16 shall be added to Article 5 on page 48 of the Credit Agreement to read as follows: 5.16 Year 2000 Compliance. The Borrower will promptly notify the Administrative Lender in the event the Borrower discovers or determines that any computer application (including those of its suppliers and vendors) that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 Compliant on a timely basis, except to the extent that such failure could not be reasonably expected to have a Material Adverse Effect. SECTION 4. Addition of Section 5.17 of the Credit Agreement. Section 5.17 shall be added to Article 5 on page 48 of the Credit Agreement to read as follows: 5.17 Formation and Capitalization of Metro Networks Services, Inc. and Metro Networks Communications, Limited Partnership. Prior to such time as the Borrower or any Subsidiary 2 3 of the Borrower makes any equity contribution (in cash or any other tangible or intangible asset) or any loan or other advance to either Metro Networks Services, Inc. or Metro Networks Communications, Limited Partnership, the Borrower agrees that the Administrative Lender shall have received (a) a pledge of 100% of the capital stock and partnership interests, respectively, of Metro Networks Services, Inc. and Metro Networks Communications, Limited Partnership in form and substance satisfactory to the Administrative Lender, (b) a guaranty of the Obligations by Metro Networks Services, Inc. and Metro Networks Communications, Limited Partnership, (c) a security agreement and other security documents granting a Lien on 100% of the intangible and tangible assets of Metro Networks Services, Inc. and Metro Networks Communications, Limited Partnership, (d) a pledge of each Intercompany Note to secure the Obligations, each such pledge in form and substance acceptable to the Administrative Agent, and (e) an opinion of counsel acceptable to the Administrative Lender regarding the due organization and formation of such entities and the authorization of such entities to execute their respective Loan Documents. SECTION 4. Amendment to Section 7.3(g) of the Credit Agreement. Section 7.3(g) in Article 7 on page 55 of the Credit Agreement shall be deleted in its entirety and the following Section 7.3(g) shall be substituted in its stead: (g) Investments in Subsidiaries permitted pursuant to Section 7.8 hereof and pursuant to the Intercompany Notes (without duplication); and SECTION 5. Amendment to Section 7.5(c) of the Credit Agreement. Section 7.5(c) in Article 7 on page 56 of the Credit Agreement shall be deleted in its entirety and the following Section 7.5(c) shall be substituted in its stead: (c) create or acquire any Subsidiary, except the Borrower may create (i) Subsidiaries as permitted by Section 7.6 hereof, (ii) Metro Networks Services, Inc., a Delaware corporation and wholly owned Subsidiary of Metro Networks Communications, Inc., and (iii) Metro Networks Communications, Limited Partnership, a Delaware limited partnership and wholly owned Subsidiary of Metro Networks Communications, Inc. and Metro Networks Services, Inc. SECTION 6. Amendment to Section 8.1. Section 8.1 in Article 8 of the Credit Agreement is amended by deleting the "or" before subparagraph (o), deleting the period at the end of subparagraph (o) and substituting ", or" instead, and adding the following subparagraph (p): (p) The Borrower shall fail to be Year 2000 Compliant. 3 4 SECTION 7. Affirmation. The Borrower hereby acknowledges and agrees that nothing in this Fourth Amendment shall affect the Borrower's obligations under the Credit Agreement or the other Loan Documents executed in connection therewith (except as specifically provided in this Fourth Amendment), which remain valid, binding and enforceable, and except as amended hereby, unamended, or shall constitute a waiver by the Lenders of any of their rights or remedies, now or at any time in the future, with respect to any requirement under the Credit Agreement or the other Loan Documents or with respect to an Event of Default or Default, occurring now or at any time in the future. SECTION 8. Conditions Precedent. This Fourth Amendment shall not be effective until: (a) all proceedings of the Borrower taken in connection with this Fourth Amendment and the transactions contemplated hereby (including, without limitation, the formation of Metro Network Services, Inc. and Metro Networks Communications, Limited Partnership) shall be satisfactory in form and substance to the Administrative Lender and Lenders signatory hereto, and (b) the Administrative Lender and Lenders shall have each received such documents, instruments, and certificates, etc., each in form and substance satisfactory to the Lenders, as the Lenders shall deem necessary or appropriate in connection with this Fourth Amendment and the transactions contemplated hereby. SECTION 9. Representations and Warranties. The Borrower represents and warrants to the Lenders and the Administrative Lender that (a) the Borrower has the corporate power and has taken all necessary corporate action, to authorize it to enter into and deliver this Fourth Amendment and all related documentation, (b) this Fourth Amendment constitutes its legal, valid, and binding obligations, enforceable in accordance with the terms hereof (subject as to enforcement of remedies to any applicable bankruptcy, reorganization, moratorium, or other laws or principles of equity affecting the enforcement of creditors' rights generally), (c) there exists no Event of Default or Default under the Credit Agreement after giving effect to this Fourth Amendment, (d) its representations and warranties set forth in the Credit Agreement and other Loan Documents are true and correct on the date hereof after giving effect to this Fourth Amendment, (e) it has complied with all agreements and conditions to be complied with by it under the Credit Agreement and the other Loan Documents by the date hereof, (f) the Credit Agreement, as amended hereby, and the other Loan Documents remain in full force and effect, and (g) no notice to, or consent of, any Person is required under the terms of any agreement of the Borrower in connection with the execution of this Fourth Amendment and the transactions contemplated hereby, except such notices that have been given or consents that have been obtained. SECTION 10. Further Assurances. The Borrower shall execute and deliver such further agreements, documents, instruments, and certificates in form and substance satisfactory to the Administrative Lender, as the Administrative Lender or any Lender may deem reasonably necessary or appropriate in connection with this Fourth Amendment. 4 5 SECTION 11. Counterparts. This Fourth Amendment and the other Loan Documents may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. SECTION 12. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(B), TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS FOURTH AMENDMENT AND THE OTHER LOAN DOCUMENTS. SECTION 13. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS FOURTH AMENDMENT AND MAKING ANY ADVANCES HEREUNDER. SECTION 14. ENTIRE AGREEMENT. THIS FOURTH AMENDMENT TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. ================================================================================ 5 6 IN WITNESS WHEREOF, this Fourth Amendment to Credit Agreement is executed as of the date first set forth above. BORROWER: METRO NETWORKS, INC. /s/ TIMOTHY D. MCMILLIN ----------------------------------- By: Timothy D. McMillin Its: Senior Vice President ADMINISTRATIVE LENDER: NATIONSBANK, N.A., as Administrative Lender /s/ WHITNEY L. BUSSE ----------------------------------- By: Whitney L. Busse Its: Vice President LENDERS: NATIONSBANK, N.A., as a Lender /s/ WHITNEY L. BUSSE ----------------------------------- By: Whitney L. Busse Its: Vice President THE BANK OF NOVA SCOTIA, as a Lender /s/ BRIAN ALLEN ----------------------------------- By: Brian Allen -------------------------------- Its: ------------------------------- 6 EX-10.31 4 FIFTH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.31 FIFTH AMENDMENT TO CREDIT AGREEMENT THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Fifth Amendment") is dated as of the 22nd day of March, 1999 and entered into among METRO NETWORKS, INC., a Delaware corporation (the "Borrower"), the Lenders party hereto, and BANK OF AMERICA, a national banking association, individually and as Administrative Lender (successor in interest to NationsBank of Texas, N.A., in such latter capacity, the "Administrative Lender"). WITNESSETH: WHEREAS, the Borrower, the Lenders, and the Administrative Lender entered into a Credit Agreement, dated as of October 22, 1996, for a loan facility in the amount of $30,000,000 (as amended, restated, waived or otherwise modified from time to time, including without limitation, the First Amendment dated September 30, 1997, between the Borrower, the Lenders party thereto, and the Administrative Lender, the Second Amendment dated December 31, 1997 between the Borrower, the Lenders party thereto and the Administrative Lender, the Third Amendment dated January 1, 1998 between the Borrower, the Lenders party thereto and the Administrative Lender, and the Fourth Amendment dated July 1, 1998 between the Borrower, the Lenders party thereto and the Administrative Lender, the "Credit Agreement"); and WHEREAS, the Lenders, the Administrative Lender, and the Borrower have agreed to amend the Credit Agreement to make certain changes to the terms therein upon the terms and conditions set forth below; NOW, THEREFORE, for valuable consideration hereby acknowledged, the Borrower, the Lenders and the Administrative Lender agree as follows: SECTION 1. Definitions. The definition of "Fixed Charges" shall be amended and restated in its entirety as follows: "Fixed Charges" shall mean, for the Borrower and the Subsidiaries on a combined basis determined in accordance with GAAP, for the four most recently ended fiscal quarters preceding any date of determination, an amount equal to the sum of (a) all payments of principal, interest, fees and other amounts paid on all Indebtedness, plus (b) all payments under Capitalized Leases, plus (c) all Capital Expenditures(other than Capital Expenditures incurred in connection with an Acquisition which is permitted pursuant to the terms hereof), plus (d) cash expenditures for the payment of taxes. For purpose of calculation of Fixed Charges with respect to any Subsidiary not owned at all times during the four fiscal quarters preceding the date of determination of Fixed Charges there shall be (i) included in Fixed Charges the Fixed Charges of any Subsidiary acquired during any of such four fiscal quarters for the twelve month period preceding the date of determination and (ii) excluded from Fixed Charges the Fixed Charges of any Subsidiary disposed of during any of such four fiscal quarters for the twelve month period preceding the date of determination. 2 SECTION 2. Amendment to Section 7.6 of the Credit Agreement. Section 7.6 is hereby amended to read in its entirety as follows: The Borrower shall not, and shall not permit any Subsidiary to make single Acquisitions, except for Acquisitions the Acquisition Consideration for which does not exceed $50,000,000, and so long as in any fiscal year the aggregate Acquisition Consideration paid by the Borrower and the Subsidiaries for all Acquisitions during such fiscal year does not exceed $100,000,000, if (A) for single Acquisitions which exceed $5,000,000 each Lender receives not later than 30 days immediately following the closing of the Acquisitions financial projections in form and substance acceptable to the Lenders and a Compliance Certificate in the form required by Section 6.3 hereof demonstrating compliance with (i) the covenants described in Section 6.3(a) hereof and (ii) the required repayments as a result of the reductions in the Commitment set forth in Section 2.6(c) hereof, each both before and after giving effect to such acquisition and for the period beginning on such date of acquisition and ending on the Maturity Date, (B) no Default or Event of Default shall exist prior to or after such Acquisition, (C) the Person who is, or whose assets are being, acquired is engaged in businesses similar to the Borrower's Business, and (D) the Subsidiary being acquired becomes party to a Subsidiary Guaranty. SECTION 3. Addition of Section 7.19 of the Credit Agreement. Section 7.19 is hereby added and shall read in its entirety as follows: Section 7.19. Washington News Networks, Inc. Notwithstanding anything contained in this Agreement to the contrary, the Borrower and its Subsidiaries shall not be entitled to distribute proceeds of Advances or make any Dividends to Washington News Networks, Inc. ("WNN") in excess of $5,000,000 in the aggregate throughout the term of this Agreement. In addition, WNN shall be excluded from the determination of compliance with the financial covenants contained in Article VII of the Credit Agreement. SECTION 3. Affirmation. The Borrower hereby acknowledges and agrees that nothing in this Fifth Amendment shall affect the Borrower's obligations under the Credit Agreement or the other Loan Documents executed in connection therewith (except as specifically provided in this Fifth Amendment), which remain valid, binding and enforceable, and except as amended hereby, unamended, or shall constitute a waiver by the Lenders of any of their rights or remedies, now or at any time in the future, with respect to any requirement under the Credit Agreement or the other Loan Documents or with respect to an Event of Default or Default, occurring now or at any time in the future. SECTION 4. Conditions Precedent. This Fifth Amendment shall not be effective until: 2 3 (a) all proceedings of the Borrower taken in connection with this Fifth Amendment and the transactions contemplated hereby shall be satisfactory in form and substance to the Administrative Lender and Lenders signatory hereto; and (b) the Administrative Lender and Lenders shall have each received such documents, instruments, and certificates, etc., each in form and substance satisfactory to the Lenders, as the Lenders shall deem necessary or appropriate in connection with this Fifth Amendment and the transactions contemplated hereby. SECTION 5. Representations and Warranties. The Borrower represents and warrants to the Lenders and the Administrative Lender that (a) the Borrower has the corporate power and has taken all necessary corporate action, to authorize it to enter into and deliver this Fifth Amendment and all related documentation, (b) this Fifth Amendment constitutes its legal, valid, and binding obligations, enforceable in accordance with the terms hereof (subject as to enforcement of remedies to any applicable bankruptcy, reorganization, moratorium, or other laws or principles of equity affecting the enforcement of creditors' rights generally), (c) there exists no Event of Default or Default under the Credit Agreement after giving effect to this Fifth Amendment, (d) its representations and warranties set forth in the Credit Agreement and other Loan Documents are true and correct on the date hereof after giving effect to this Fifth Amendment, (e) it has complied with all agreements and conditions to be complied with by it under the Credit Agreement and the other Loan Documents by the date hereof, (f) the Credit Agreement, as amended hereby, and the other Loan Documents, including without limitation the Subsidiary Guaranties but excluding the Security Agreements and the Pledge Agreements, remain in full force and effect, and (g) no notice to, or consent of, any Person is required under the terms of any agreement of the Borrower in connection with the execution of this Fifth Amendment and the transactions contemplated hereby, except such notices that have been given or consents that have been obtained. SECTION 6. Further Assurances. The Borrower shall execute and deliver such further agreements, documents, instruments, and certificates in form and substance satisfactory to the Administrative Lender, as the Administrative Lender or any Lender may deem reasonably necessary or appropriate in connection with this Fifth Amendment. Lenders hereby release their Liens securing the Obligations and Lenders hereby give the Administrative Lender the authority to execute all documents necessary to effect such release. The Guaranty executed by Washington News Networks, Inc. ("WNN"), the Borrower Security Agreements, the Subsidiary Security Agreements, the Subsidiary Pledge Agreements, and the Borrower Pledge Agreement are hereby null and void. Notwithstanding anything contained herein to the contrary, all other Guaranties securing the Obligations shall remain in full force and effect. SECTION 7. Counterparts. This Fifth Amendment and the other Loan Documents may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of any such agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. 3 4 SECTION 8. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(B), TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE BORROWER AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS FIFTH AMENDMENT AND THE OTHER LOAN DOCUMENTS. SECTION 9. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS FIFTH AMENDMENT AND MAKING ANY ADVANCES HEREUNDER. SECTION 10. ENTIRE AGREEMENT. THIS FIFTH AMENDMENT TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. ================================================================================ 4 5 IN WITNESS WHEREOF, this Fifth Amendment to Credit Agreement is executed as of the date first set forth above. BORROWER: METRO NETWORKS, INC. /s/ TIMOTHY D. MCMILLIN ----------------------------------- By: Timothy D. McMillin Its: Senior Vice President ADMINISTRATIVE LENDER: BANK OF AMERICA, as Administrative Lender (successor in interest to NationsBank of Texas, N.A.) /s/ MATTHEW J. KOENIG ----------------------------------- By: Matthew J. Koenig -------------------------------- Its: Vice President ------------------------------- LENDERS: BANK OF AMERICA, as a Lender (successor in interest to NationsBank of Texas, N.A.) /s/ MATTHEW J. KOENIG ----------------------------------- By: Matthew J. Koenig -------------------------------- Its: Vice President ------------------------------- THE BANK OF NOVA SCOTIA, as a Lender /s/ PAUL A. WEISSENBERGER ----------------------------------- By: P. A. Weissenberger -------------------------------- Its: ------------------------------- 5 6 The undersigned Guarantors hereby acknowledge and agree to the terms of this Fifth Amendment and confirm that their Guaranties remain in full force and effect and valid, binding and enforceable. METRO NETWORKS SERVICES, INC. /s/ TIMOTHY D. MCMILLIN ----------------------------------- By: Timothy D. McMillin Its: Senior Vice President METRO NETWORKS COMMUNICATIONS, LIMITED PARTNERSHIP BY: METRO NETWORKS COMMUNICATIONS, INC. a Maryland corporation By: TIMOTHY D. MCMILLIN ----------------------- Its: Senior Vice President 6 EX-21.1 5 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 METRO NETWORKS, INC. SUBSIDIARIES OF THE COMPANY FISCAL 1998 The following is a list of subsidiaries of Metro Networks, Inc. (the Parent) as of December 31, 1998. Unless otherwise noted, all subsidiaries are 100% owned by the Parent Company. Metro Networks, Inc. - Incorporated in the State of Delaware Metro Networks Communications, Inc., formerly Metro Traffic Control, Inc. - Incorporated in the State of Maryland Metro Networks Services, Inc. - Incorporated in the State of Delaware Metro Networks Communications, Limited Partnership - Delaware Limited Partnership Washington News Networks, Inc. - Incorporated in the District of Columbia (80% owned) EX-23.1 6 CONSENT OF KPMG LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Metro Networks, Inc.: We consent to incorporation by reference in the registration statements (No. 333-23561 and No. 333-32549) on Form S-8 of Metro Networks, Inc. of our report dated March 9, 1999 relating to the consolidated balance sheets of Metro Networks, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, cash flows and stockholders' equity/partners' capital for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998 annual report on Form 10-K of Metro Networks, Inc. and subsidiaries. KPMG LLP Houston, Texas March 30, 1999 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 21,241 331 63,739 1,038 730 88,244 45,292 15,412 139,087 28,471 0 0 3 17 108,784 139,087 172,132 172,132 118,081 139,150 1,144 0 113 34,013 13,659 20,354 0 0 0 20,354 1.23 1.20
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