##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-14691
 WESTWOOD ONE, INC.
  Delaware
    
    95-3980449(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)40 West 57thStreet, 5thFloor, New York, NY
    
    10019(Address of principal executive offices)
    
    (Zip Code)
 (212) 641-2000
 
 þ o
  o þ o
 o þ




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##### 



WESTWOOD ONE, INC.
 INDEX
 Page No.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited)Consolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Qualitative and Quantitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    25PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    27SIGNATURES
    
    
    28CERTIFICATIONS
    
    
    29EX-31.A: CERTIFICATIONEX-31.B: CERTIFICATIONEX-32.A: CERTIFICATIONEX-32.B: CERTIFICATION
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 WESTWOOD ONE, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share amounts)
 (unaudited)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    13,456
    
    
    $
    11,528Accounts receivable, net of allowance for doubtful accounts
of $5,376 (2007) and $4,387 (2006)
    
    
    108,807
    
    
    
    115,505Warrants, current portion
    
    
    9,706
    
    
    
    9,706Prepaid and other assets
    
    
    10,037
    
    
    
    12,483Total Current Assets
    
    
    142,006
    
    
    
    149,222PROPERTY AND EQUIPMENT, NET
    
    
    33,623
    
    
    
    37,353GOODWILL
    
    
    464,114
    
    
    
    464,114INTANGIBLE ASSETS, NET
    
    
    3,639
    
    
    
    4,225OTHER ASSETS
    
    
    33,168
    
    
    
    41,787TOTAL ASSETS
    
    $
    676,550
    
    
    $
    696,701LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    17,291
    
    
    $
    35,425Amounts payable to related parties
    
    
    28,928
    
    
    
    26,344Deferred revenue
    
    
    5,182
    
    
    
    8,150Income taxes payable
    
    
    3,961
    
    
    
    6,149Accrued expenses and other liabilities
    
    
    40,371
    
    
    
    43,841Total Current Liabilities
    
    
    95,733
    
    
    
    119,909LONG-TERM DEBT
    
    
    355,339
    
    
    
    366,860OTHER LIABILITIES
    
    
    6,422
    
    
    
    7,001TOTAL LIABILITIES
    
    
    457,494
    
    
    
    493,770COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITYPreferred stock: authorized 10,000 shares, none outstanding
    
    
    
    
    
    
    Common stock, $.01 par value: authorized, 300,000 shares;
issued and outstanding, 86,141 (2007) and 85,956 (2006)
    
    
    861
    
    
    
    860Class B stock, $.01 par value: authorized, 3,000 shares;
issued and outstanding, 292 (2007 and 2006)
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    289,674
    
    
    
    291,851Unrealized gain on available for sale securities
    
    
    6,807
    
    
    
    4,570Accumulated deficit
    
    
    (78,289
    )
    
    
    (94,353
    )TOTAL SHAREHOLDERS EQUITY
    
    
    219,056
    
    
    
    202,931TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    676,550
    
    
    $
    696,701
  3




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##### Table of Contents



WESTWOOD ONE, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006NET REVENUE
    
    $
    108,083
    
    
    $
    118,485
    
    
    $
    333,067
    
    
    $
    377,973Operating Costs (includes related party expenses
of $15,408, $17,117, $51,238 and $58,853, respectively)
    
    
    79,351
    
    
    
    86,232
    
    
    
    260,419
    
    
    
    299,105Depreciation and Amortization (includes related party
warrant amortization of $2,427, $2,427, $7,281
and $7,281, respectively)
    
    
    4,791
    
    
    
    5,239
    
    
    
    14,739
    
    
    
    15,424Corporate General and Administrative Expenses
(includes related party expenses of $861, $825, $2,551
and $2,440 respectively)
    
    
    2,867
    
    
    
    3,107
    
    
    
    10,318
    
    
    
    11,562Special Charges
    
    
    1,388
    
    
    
    71
    
    
    
    4,025
    
    
    
    1,46988,397
    
    
    
    94,649
    
    
    
    289,501
    
    
    
    327,560OPERATING INCOME
    
    
    19,686
    
    
    
    23,836
    
    
    
    43,566
    
    
    
    50,413Interest Expense
    
    
    5,790
    
    
    
    6,625
    
    
    
    17,739
    
    
    
    19,117Other Income
    
    
    (4
    )
    
    
    (154
    )
    
    
    (154
    )
    
    
    (389
    )INCOME BEFORE INCOME TAXES
    
    
    13,900
    
    
    
    17,365
    
    
    
    25,981
    
    
    
    31,685INCOME TAXES
    
    
    5,448
    
    
    
    6,881
    
    
    
    9,917
    
    
    
    12,558NET INCOME
    
    $
    8,452
    
    
    $
    10,484
    
    
    $
    16,064
    
    
    $
    19,127EARNINGS PER SHARE:COMMON STOCKBASIC
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.19
    
    
    $
    0.22DILUTED
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.19
    
    
    $
    0.22CLASS B STOCKBASIC
    
    $
    
    
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    0.24DILUTED
    
    $
    
    
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    0.24WEIGHTED AVERAGE SHARES OUTSTANDING:COMMON STOCKBASIC
    
    
    86,137
    
    
    
    85,954
    
    
    
    86,101
    
    
    
    86,995DILUTED
    
    
    86,481
    
    
    
    86,250
    
    
    
    86,434
    
    
    
    87,015CLASS B STOCKBASIC
    
    
    292
    
    
    
    292
    
    
    
    292
    
    
    
    292DILUTED
    
    
    292
    
    
    
    292
    
    
    
    292
    
    
    
    292DIVIDENDS DECLARED PER SHARE:COMMON STOCK
    
    $
    
    
    
    $
    0.10
    
    
    $
    0.02
    
    
    $
    0.30CLASS B STOCK
    
    $
    
    
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    0.24
  4




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WESTWOOD ONE, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006CASH FLOW FROM OPERATING ACTIVITIES:Net income
    
    $
    16,064
    
    
    $
    19,127Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    14,738
    
    
    
    15,424Deferred taxes
    
    
    (5,055
    )
    
    
    (4,554
    )Non-cash stock compensation
    
    
    7,808
    
    
    
    9,596Amortization of deferred financing costs
    
    
    359
    
    
    
    25033,914
    
    
    
    39,843Changes in assets and liabilities:Accounts receivable
    
    
    6,698
    
    
    
    26,124Prepaid and other assets
    
    
    3,286
    
    
    
    2,771Deferred revenue
    
    
    (2,968
    )
    
    
    (606
    )Income taxes payable and prepaid income taxes
    
    
    (2,188
    )
    
    
    (20,287
    )Accounts payable and accrued expenses
and other liabilities
    
    
    (20,660
    )
    
    
    17,414Amounts payable to related parties
    
    
    2,584
    
    
    
    (3,109
    )Net Cash Provided By Operating Activities
    
    
    20,666
    
    
    
    62,150CASH FLOW FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (4,031
    )
    
    
    (5,258
    )Repayment of loan receivable
    
    
    
    
    
    
    2,000Acquisition of companies and other
    
    
    
    
    
    
    75Net Cash Used In Investing Activities
    
    
    (4,031
    )
    
    
    (3,183
    )CASH FLOW FROM FINANCING ACTIVITIES:Issuance of common stock under equity based compensation plans
    
    
    
    
    
    
    302Borrowings under bank and other long-term obligations
    
    
    30,000
    
    
    
    10,000Debt repayments and payments of capital lease obligations
    
    
    (43,044
    )
    
    
    (30,509
    )Dividend payments
    
    
    (1,663
    )
    
    
    (25,910
    )Repurchase of common stock
    
    
    
    
    
    
    (11,044
    )Net Cash Used in Financing Activities
    
    
    (14,707
    )
    
    
    (57,161
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    1,928
    
    
    
    1,806CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    11,528
    
    
    
    10,399CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    13,456
    
    
    $
    12,205
  5




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##### Table of Contents



WESTWOOD ONE, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except per share data)
 NOTE 1 Basis of Presentation:
   NOTE 2 Reclassifications:
  NOTE 3 Income Taxes:
   6




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WESTWOOD ONE, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except per share data)
   NOTE 4 Equity Based Compensation:
  WeightedAverageGrant Date2007
    
    
    Grant Date
    
    
    Fair ValueShares
    
    
    Fair Value
    
    
    Per ShareRestricted Stock:Unvested at December 31, 2006
    
    
    326
    
    
    $
    4,265
    
    
    $
    13.06Granted
during the period (1)
    
    
    873
    
    
    
    4,889
    
    
    
    5.60Vested during the period
    
    
    (76
    )
    
    
    (1,009
    )
    
    
    13.28Forfeited during the period
    
    
    (139
    )
    
    
    (1,199
    )
    
    
    8.62Unvested at September 30, 2007
    
    
    984
    
    
    $
    6,946
    
    
    $
    7.06
 
 (1)
    
    Amount includes dividend equivalents on unvested shares.  NOTE 5 Special Charges:
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Professional and other fees related to new
CBS agreements
    
    $
    1,388
    
    
    $
    71
    
    
    $
    3,025
    
    
    $
    1,469Severance related obligations related to
executive officer changes
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    $
    1,388
    
    
    $
    71
    
    
    $
    4,025
    
    
    $
    1,469
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WESTWOOD ONE, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except per share data)
 NOTE 6 Investments:
  NOTE 7 Comprehensive Income:
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net Income
    
    $
    8,452
    
    
    $
    10,484
    
    
    $
    16,064
    
    
    $
    19,127Other Comprehensive Income:Unrealized Gain, net of tax
    
    
    517
    
    
    
    (752
    )
    
    
    2,237
    
    
    
    4,152Comprehensive Income
    
    $
    8,969
    
    
    $
    9,732
    
    
    $
    18,301
    
    
    $
    23,279
 NOTE 8 Earnings Per Share:
    8




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WESTWOOD ONE, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except per share data)
 Three Months ended
    
    
    Nine Months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net Income
    
    $
    8,452
    
    
    $
    10,484
    
    
    $
    16,064
    
    
    $
    19,127Less: distributed earnings to Common shareholders
    
    
    
    
    
    
    8,624
    
    
    
    1,658
    
    
    
    25,840Less: distributed earnings to Class B shareholders
    
    
    
    
    
    
    23
    
    
    
    5
    
    
    
    70Undistributed earnings (loss)
    
    $
    8,452
    
    
    $
    1,837
    
    
    $
    14,401
    
    
    
    ($6,783
    )Earnings  Common stockBasicDistributed earnings to Common shareholders
    
    $
    
    
    
    $
    8,624
    
    
    $
    1,658
    
    
    $
    25,840Undistributed earnings (loss) allocated to
Common shareholders
    
    
    8,452
    
    
    
    1,837
    
    
    
    14,401
    
    
    
    (6,783
    )Total Earnings  Common stock, basic
    
    $
    8,452
    
    
    $
    10,461
    
    
    $
    16,059
    
    
    $
    19,057Earnings  Common stockDilutedDistributed earnings to Common shareholders
    
    $
    
    
    
    $
    8,624
    
    
    $
    1,658
    
    
    $
    25,840Distributed earnings to Class B shareholders
    
    
    
    
    
    
    23
    
    
    
    5
    
    
    
    70Undistributed earnings (loss) allocated to
Common shareholders
    
    
    8,452
    
    
    
    1,837
    
    
    
    14,401
    
    
    
    (6,783
    )Total Earnings (loss)  Common stock, Diluted
    
    $
    8,452
    
    
    $
    10,484
    
    
    $
    16,064
    
    
    $
    19,127Weighted average Common shares outstanding, basic
    
    
    86,137
    
    
    
    85,954
    
    
    
    86,101
    
    
    
    86,995Share-based compensation shares
    
    
    52
    
    
    
    4
    
    
    
    41
    
    
    
    20Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average Class B shares
    
    
    292
    
    
    
    292
    
    
    
    292
    
    
    
    Weighted average Common shares outstanding, diluted
    
    
    86,481
    
    
    
    86,250
    
    
    
    86,434
    
    
    
    87,015Earnings per Common share, basicDistributed earnings, basic
    
    $
    
    
    
    $
    0.10
    
    
    $
    0.02
    
    
    $
    0.30Undistributed earnings (loss)  basic
    
    
    0.10
    
    
    
    0.02
    
    
    
    0.17
    
    
    
    (0.08
    )Total
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.19
    
    
    $
    0.22Earnings per Common share, dilutedDistributed earnings, diluted
    
    $
    
    
    
    $
    0.10
    
    
    $
    0.02
    
    
    $
    0.30Undistributed earnings (loss)  diluted
    
    
    0.10
    
    
    
    0.02
    
    
    
    0.17
    
    
    
    (0.08
    )Total
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.19
    
    
    $
    0.22
 9




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WESTWOOD ONE, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except per share data)
 Three Months ended
    
    
    Nine Months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Earnings Class B stockBasicDistributed earnings to Class B shareholders
    
    $
    
    
    
    $
    23
    
    
    $
    5
    
    
    $
    70Undistributed earnings allocated to Class B
shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Earnings  Class B stock, basic
    
    $
    
    
    
    $
    23
    
    
    $
    5
    
    
    $
    70DilutedDistributed Earnings to Class B shareholders
    
    $
    
    
    
    $
    23
    
    
    $
    5
    
    
    $
    70Undistributed earnings allocated to Class B shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Earnings Class B stock, diluted
    
    $
    
    
    
    $
    23
    
    
    $
    5
    
    
    $
    70Weighted average Class B shares outstanding, basic and
diluted
    
    
    292
    
    
    
    292
    
    
    
    292
    
    
    
    292Earnings per Class B share, basicDistributed earnings, basic
    
    $
    
    
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    0.24Undistributed earnings  basic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    0.24Earnings per Class B share, dilutedDistributed earnings, diluted
    
    $
    
    
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    0.24Undistributed earnings  diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    0.08
    
    
    $
    0.02
    
    
    $
    0.24
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Options
    
    
    4,953
    
    
    
    6,363
    
    
    
    6,326
    
    
    
    7,183Restricted Stock
    
    
    970
    
    
    
    328
    
    
    
    954
    
    
    
    328Restricted Stock Units
    
    
    220
    
    
    
    124
    
    
    
    203
    
    
    
    112Warrants
    
    
    3,000
    
    
    
    3,500
    
    
    
    3,000
    
    
    
    3,500
  10




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WESTWOOD ONE, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except per share data)
 NOTE 9 Debt:
  September 30, 2007
    
    
    December 31, 2006Revolving Credit Facility/Term Loan
    
    $
    157,500
    
    
    $
    170,0004.64% Senior Unsecured Notes due 2009
    
    
    50,000
    
    
    
    50,0005.26% Senior Unsecured Notes due 2012
    
    
    150,000
    
    
    
    150,000Fair market value of Swap (a)
    
    
    (2,161
    )
    
    
    (3,140
    )$
    355,339
    
    
    $
    366,860
 
 (a)
    
    write-up (write-down) to market value adjustments for debt with qualifying hedges that are
recorded as debt on the balance sheet.    NOTE 10 Related Party Transactions:
  11




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WESTWOOD ONE, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except per share data)
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Representation Agreement
    
    $
    6,590
    
    
    $
    6,751
    
    
    $
    20,330
    
    
    $
    20,392Programming and Affiliations
    
    
    8,818
    
    
    
    10,366
    
    
    
    30,908
    
    
    
    38,461Management Agreement
(excluding warrant amortization)
    
    
    861
    
    
    
    825
    
    
    
    2,551
    
    
    
    2,440Warrant Amortization
    
    
    2,427
    
    
    
    2,427
    
    
    
    7,281
    
    
    
    7,281$
    18,696
    
    
    $
    20,369
    
    
    $
    61,070
    
    
    $
    68,574
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Revenue
    
    
    561
    
    
    
    415
    
    
    
    2,405
    
    
    
    1,532POP fees
    
    
    465
    
    
    
    316
    
    
    
    1,869
    
    
    
    1,177
 NOTE 11 Shareholders Equity
  NOTE 12 Recent Accounting Pronouncements:
  12




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##### Table of Contents



WESTWOOD ONE, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (In thousands, except per share data)
  NOTE 13 Subsequent Event:
  13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations  (In thousands except for share and per share amounts)
 EXECUTIVE OVERVIEW
       14




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Results of Operations
 Three Months Ended September 30, 2007 Compared With Three Months Ended September 30, 2006
 Revenues
  15




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##### Table of Contents



Three Months Ended September 30,2007
    
    
    2006$
    
    
    % of total
    
    
    $
    
    
    % of totalLocal/Regional
    
    $
    57,763
    
    
    
    53
    %
    
    $
    66,252
    
    
    
    56
    %National
    
    
    50,320
    
    
    
    47
    %
    
    
    52,233
    
    
    
    44
    %Total (1)
    
    $
    108,083
    
    
    
    100
    %
    
    $
    118,485
    
    
    
    100
    %
 
 (1)
    
    As described above, the Company currently aggregates revenue data based on the type or
duration of commercial airtime sold. A number of advertisers purchase both local/regional and
national commercial airtime. Accordingly, this factor should be considered in evaluating the
relative revenue generated on a local/regional versus national basis. Our objective is to
optimize total revenue from those advertisers. %,
   Operating Costs
  Three Months Ended September 30,2007
    
    
    2006$
    
    
    % of total
    
    
    $
    
    
    % of totalProgramming, production
and distribution
expenses
    
    $
    61,052
    
    
    
    77
    %
    
    $
    66,425
    
    
    
    77
    %Selling expenses
    
    
    8,035
    
    
    
    10
    %
    
    
    9,838
    
    
    
    11
    %Stock-based compensation
    
    
    1,555
    
    
    
    2
    %
    
    
    1,659
    
    
    
    2
    %Other operating expenses
    
    
    8,709
    
    
    
    11
    %
    
    
    8,310
    
    
    
    10
    %$
    79,351
    
    
    
    100
    %
    
    $
    86,232
    
    
    
    100
    %
 %,
 16




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##### Table of Contents



Depreciation and Amortization
  Corporate General and Administrative Expenses
  Special Charges
  Operating Income
  Interest Expense
  Provision for Income Taxes
  Net Income
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Nine Months Ended September 30, 2007 Compared With Nine Months Ended September 30, 2006
 Revenues
  Nine Months Ended September 30,2007
    
    
    2006$
    
    
    % of total
    
    
    $
    
    
    % of totalLocal/Regional
    
    $
    175,129
    
    
    
    53
    %
    
    $
    196,757
    
    
    
    52
    %National
    
    
    157,938
    
    
    
    47
    %
    
    
    181,216
    
    
    
    48
    %Total (1)
    
    $
    333,067
    
    
    
    100
    %
    
    $
    377,973
    
    
    
    100
    %
 
 (1)
    
    As described above, the Company currently aggregates revenue data based on the type or
duration of commercial airtime sold. A number of advertisers purchase both local/regional and
national commercial airtime. Accordingly, this factor should be considered in evaluating the
relative revenues generated on a local/regional versus national basis. Our objective is to
optimize total revenues from those advertisers. %,
    Operating Costs
  Nine Months Ended September 30,2007
    
    
    2006$
    
    
    % of total
    
    
    $
    
    
    % of totalProgramming, production
and distribution
expenses
    
    $
    202,307
    
    
    
    78
    %
    
    $
    227,695
    
    
    
    76
    %Selling expenses
    
    
    26,142
    
    
    
    10
    %
    
    
    36,486
    
    
    
    12
    %Stock-based compensation
    
    
    4,484
    
    
    
    2
    %
    
    
    5,072
    
    
    
    2
    %Other operating expenses
    
    
    27,486
    
    
    
    10
    %
    
    
    29,852
    
    
    
    10
    %$
    260,419
    
    
    
    100
    %
    
    $
    299,105
    
    
    
    100
    %
 %,
 18




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Depreciation and Amortization
   Corporate General and Administrative Expenses
   Special Charges
  Operating Income
   Interest Expense
   Provision for Income Taxes
  19




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Net Income
  Liquidity and Capital Resources
       20




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Critical Accounting Policies and Estimates
  Recent Accounting Pronouncements
  Cautionary Statement Concerning Forward-Looking Statements and Factors Affecting Forward-Looking
Statements
  21




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##### Table of Contents




    
    As a result of deterioration in the Companys operating performance, the Company amended
its senior loan agreement in October 2006 with a syndicate of banks in order to remain in
compliance with the covenants under such agreement, including the total debt ratio covenant
which was amended to 4.00 to 1 through March 31, 2008 and 3.5 to 1, thereafter. Further
changes in the Companys operating performance may cause the Company to seek further
amendments to the covenants under the senior loan agreement or to seek to replace the
senior loan agreement, which matures on February 28, 2009. The Companys ability and
timing to obtain, if needed, additional amendments or additional financing, or to refinance
the existing senior loan agreement, may be adversely impacted by the current tightening of
the credit markets as a result of the sub-prime lending crisis. A continued deterioration
in operating results could also result in the Company violating one or more financial
covenants on its Senior Unsecured Notes, thereby resulting in all such notes becoming
immediately due and payable. If the Company defaults on one or more of its loan agreements,
the Company might be required to unwind its current interest rate swap agreements.
    
    The Company is party to a Management Agreement, a Representation Agreement and other
related programming agreements and arrangements with CBS Radio, which expire on March 31,
2009. While the Company provides programming to all major radio station groups, the
Company has affiliation agreements with most of the radio stations owned and operated by
CBS Radio which, in the aggregate, provide the Company with a significant portion of the
audience and/or commercial inventory that it sells to advertisers. While the Company has
reached an agreement with CBS Radio to modify and extend such agreements and arrangements,
there can be no assurance the Companys shareholders will approve such agreement and that
other closing conditions (as described elsewhere in this report) will be satisfied. If the
affiliation agreements with CBS Radio are not renewed or extended the Companys operating
and financial condition could be materially adversely affected.
    
    Under the terms of the Management Agreement, CBS Radio manages the business and
operations of the Company, including by providing individuals to serve as the CEO and CFO
of the Company (CBS Radio employs the CEO and reimburses to the Company the cash
compensation of the CFO, who is employed directly by the Company). CBS Radio receives a
management fee for its management services. The Management Agreement also includes certain
non-competition provisions in favor the Company and a right of first refusal on syndication
opportunities to the Company where CBS Radio determines, in its sole discretion, to
syndicate programming. Two employees of CBS Radio serve on the Companys Board of
Directors, and CBS Radio owns approximately 18.4% of the Companys Common stock. In
addition, CBS Radio competes with the Company in advertising sales and most of the radio
stations owned and operated by CBS Radio have affiliation agreements with the Company. The
foregoing could create, or appear to create, potential conflicts of interest for CBS Radio
in its decisions regarding the day-to-day operation of its business and in providing its
management services to the Company under the Management Agreement. The foregoing could
materially adversely impact the Companys future business, financial condition and
operating performance. While the proposed CBS arrangement contemplates the termination of
the Management Agreement and the resignation of the CBS directors from the Companys Board,
there can be no assurance that the arrangement with CBS as proposed will be consummated.
    
    While the Company provides programming to all major radio station groups, the Company
has affiliation agreements with most of CBS Radios owned and operated radio stations
which, in the aggregate, provide
the Company with a significant portion of the audience and/or commercial inventory that it
sells to advertisers. In addition, the Company operates the CBS Radio Network and
syndicates and/or distributes several other programs from CBS and its affiliates. In 2006,
the Company experienced a material decline in the amount of audience and quantity and
quality of commercial inventory delivered by the CBS Radio owned and operated radio
stations. Reasons for the decline include: (1) the cancellation of, and loss of syndication
opportunities associated with, key national programming; (2) the sale of CBS radio stations as
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##### Table of Contents



described in more detail below and (3) the reduction of commercial inventory levels,
including certain RADAR inventory, provided to the Company under affiliation agreements. At
the same time, other than for reductions in compensation paid to CBS Radio to reflect
reduced commercial inventory levels the economic arrangement between the Company and CBS
Radio has remained substantially fixed pursuant to the terms of many of the existing
agreements between the Company and CBS Radio. At this time, it is unclear whether such
decline is permanent. To the extent the decline is permanent, the Companys operating
performance could be materially adversely impacted by this decline in audience and
commercial inventory. While the proposed CBS arrangement includes provisions relating to the
assignment of such affiliation agreements upon the sale of radio
stations by CBS Radio and adjustable compensation, there can be no assurance that the arrangement with CBS as proposed
will be consummated.
    
    In connection with its agreements with CBS Radio dating back to 1994, the Company has
benefited from the historical practice of long-term distribution relationships for its
programming, including pursuant to affiliation agreements with most of CBSs owned and
operated radio stations, many of which operate on a month-to-month basis or contain 90-day
termination provisions which historically have not been exercised by the CBS radio
stations. During 2006, CBS Radio reached agreements to sell 39 radio stations in ten of
its smaller markets; to date, the sale of 24 of those stations have been completed. To the
extent CBS Radio continues to sell and/or restructure its portfolio of radio assets and
these existing distribution arrangements are terminated and/or not continued on a long-term
basis by the new owners of the former CBS radio stations, as was the case with certain of
the radio stations sold by CBS in 2006, there is a greater likelihood that the Company will
not be able to continue to benefit from the long-term distribution relationship it has with
CBS Radio on substantially similar economic terms and conditions or at all. If a
significant number of additional radio stations or radio stations in key markets affiliated
with the Company are sold by CBS Radio, and the new owners of such stations terminate
and/or do not continue the affiliation agreements with the Company on a long-term basis, or
if the Company cannot enter into new affiliation agreements with other radio stations in
such markets on similar terms and conditions, the Companys operating performance would be
materially and adversely impacted. While the proposed CBS arrangement includes provisions relating to the
assignment of such affiliation agreements upon the sale of radio stations by CBS Radio, there can be no assurance that the arrangement with CBS as proposed
will be consummated.
    
    The Company and CBS Radio have had an ongoing dispute as to whether the manner of sale
of certain short duration commercial inventory conducted by or on behalf of radio stations
owned by CBS Radio is permitted under the terms of existing agreements between the
parties, including the non-competition provisions of the Management Agreement. Such
dispute is addressed by the non-competition provision and Mutual General Release and
Covenant Not to Sue which is a part of the proposed CBS arrangement; however, there can be
no assurance that the arrangement with CBS as proposed will be consummated. If the CBS
arrangement is not consummated, and this dispute cannot be resolved, the Companys
relationship with CBS Radio could be adversely affected, which could, in turn, have a
material and adverse impact on the Company.
    
    The Company competes in a highly competitive business. Its radio programming competes
for audiences and advertising revenues directly with radio and television stations and
other syndicated programming, as well as with such other media as newspapers, magazines,
cable television, outdoor advertising and direct mail. Audience ratings and
performance-based revenue arrangements are subject to change and any adverse change in a
particular geographic area could have a material and adverse effect on the Companys
ability to attract not only advertisers in that region, but national advertisers as well.
Future operations are further subject to many factors, which could have an adverse effect
upon the Companys financial performance. These factors include:
 
    
    economic conditions, both generally and relative to the broadcasting industry;
    
    advertiser spending patterns, including the notion that orders are being placed
in close proximity to air, limiting visibility of demand;
    
    the level of competition for advertising dollars, including by new entrants into
the radio advertising sales market, including Google;
    
    new competitors or existing competitors with expanded resources, including as a
result of consolidation (as described below), NAVTEQs purchase of Traffic.com or
the announced proposed merger between XM Satellite Radio and Sirius Satellite
Radio;
    
    lower than anticipated market acceptance of new or existing products;
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##### Table of Contents




    
    technological changes and innovations;
    
    fluctuations in programming costs;
    
    shifts in population and other demographics;
    
    changes in labor conditions; and
    
    changes in governmental regulations and policies and actions of federal and
state regulatory bodies.
 There can be no assurance that the Company will be able to maintain or increase the current
audience ratings and advertising revenue.
    
    The radio broadcasting industry has continued to experience significant change,
including as a result of a significant amount of consolidation in recent years, and
increased business transactions in 2006 by key players in the radio industry (e.g.,Clear
Channel, Citadel, ABC, CBS Radio). In connection therewith, certain major station groups
have: (1) recently modified overall amounts of commercial inventory broadcast on their
radio stations, (2) experienced significant declines in audience and (3) increased their
supply of shorter duration advertisements which is directly competitive to the Company. To
the extent similar initiatives are adopted by other major station groups, this could
adversely impact the amount of commercial inventory made available to the Company or
increase the cost of such commercial inventory at the time of renewal of existing affiliate
agreements. Additionally, if the size and financial resources of certain station groups
continue to increase, the station groups may be able to develop their own programming as a
substitute to that offered by the Company or, alternatively, they could seek to obtain
programming from the Companys competitors. Any such occurrences, or merely the threat of
such occurrences, could adversely affect the Companys ability to negotiate favorable terms
with its station affiliates, to attract audiences and to attract advertisers.
    
    Changes in U.S. financial and equity markets, including market disruptions and
significant interest rate fluctuations, could impede the Companys access to, or increase
the cost of, external financing for its operations and investments.
   
 Item 3. Qualitative and Quantitative Disclosures about Market Risk
  24




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Item 4. Controls and Procedures
   25




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Items 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  26




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber (A)
    
    Description of Exhibit3.1
    
    Restated Certificate of Incorporation of the Company, as filed on October 25, 2002. (1)3.2
    
    Bylaws of Company as currently in effect. (2)4.1
    
    Note Purchase Agreement, dated as of December 3, 2002, between the Company and the
Purchasers parties thereto. (3)10.1+
    
    Employment Agreement, effective as of July 16, 2007, by and between the Company and Gary
Yusko. (4)10.2+
    
    Amendment No. 2, effective July 10, 2007, to the Employment Agreement, entered into by and
between the Company and David Hillman, effective as of October 16, 2004, as amended. (4)10.3
    
    Master Agreement, dated as of October 2, 2007, by and between the Company and CBS Radio
Inc. (5)31.a*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.b*
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.a**
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.b**
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.**
    
    Furnished herewith.+
    
    Indicates a management contract or compensatory plan.(A)
    
    The Company agrees to furnish supplementally a copy of any omitted schedule to the SEC upon
request.(1)
    
    Filed as an exhibit to Companys quarterly report on Form 10-Q for the quarter ended
September 30, 2002 and incorporated herein by reference.(2)
    
    Filed as an exhibit to Companys annual report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference.(3)
    
    Filed as an exhibit to Companys current report on Form 8-K dated December 3, 2002 and
incorporated herein by reference.(4)
    
    Filed as an exhibit to Companys current report on Form 8-K dated July 10, 2007 and
incorporated herein by reference.(5)
    
    Filed as an exhibit to Companys current report on Form 8-K dated October 2, 2007 and
incorporated herein by reference. 27




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SIGNATURES
  WESTWOOD ONE, INC.By:
    
    /S/ Peter KosannName: Peter KosannTitle: Chief Executive OfficerBy:
    
    /S/ Gary J. YuskoName: Gary J. YuskoTitle: Chief Financial OfficerDate: November 1, 2007
 28