<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 1, 1997
------------------
Cox Radio, Inc.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charters)
Delaware
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
1-12187 58-1620022
- ------------------------------ ----------------------------------
(Commission File Number) (I.R.S. Employer
Identification Numbers)
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
- ------------------------------ ----------------------------------
(Address of principal (Zip Code)
executive offices)
(404) 843-5000
- -------------------------------------------------------------------------------
Registrant's telephone number, including area code
Not applicable
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On April 1, 1997, Cox Radio, Inc. (the "Company"), through the merger
of its wholly owned subsidiary New Cox Radio II, Inc. with and into NewCity
Communications, Inc. ("NewCity"), with NewCity as the surviving corporation,
acquired all of the issued and outstanding capital stock of NewCity (the
"NewCity Acquisition"). Cox Radio purchased the stock of NewCity for an
aggregate consideration of approximately $253 million, consisting of
approximately $87 million in assumption of NewCity indebtedness and
approximately $3 million in working capital adjustments. The NewCity
Acquisition provides the Company with an additional 18 radio stations (12 FM
and 6 AM): seven stations in three new markets (Birmingham, Bridgeport and San
Antonio) and 11 stations in four existing markets (Atlanta, Orlando, Syracuse
and Tulsa). Two of the three new markets are in the Sunbelt, a region which the
Company believes will, over the next several years, demonstrate greater radio
advertising revenue growth than the U.S. radio industry as a whole. The
acquisition of three radio stations in Syracuse provides the Company with five
stations (three FM and two AM) in that market, and the acquisition of four
radio stations in Orlando provides the Company with seven stations (four FM and
three AM) in that market. Richard A. Ferguson, James T. Morley and Richard A.
Reis have joined the Company as executive officers of the Company. In addition,
the Company expects to nominate Richard A. Ferguson to the Board of Directors
of the Company.
To consummate the NewCity Acquisition, the Company borrowed
approximately $105 million pursuant to the Company's $300 million, five-year,
senior, unsecured revolving credit facility with certain banks, including Texas
Commerce Bank National Association, as Administrative Agent.
On April 2, 1997, NewCity was merged with and into the Company, with
the Company as the surviving corporation.
Item 5. Other Events
In connection with the NewCity Acquisition and the merger of NewCity
with and into the Company as described in Item 2., the Company succeeded to
NewCity's obligations as the issuer of $75 million principal amount of 11-3/8%
Senior Subordinated Notes due 2003 (the "Notes"). On April 3, 1997, the Company
commenced a tender offer for all of the outstanding Notes (the "Tender Offer").
The purchase price to be paid for each $1,000 of principal of tendered Notes
will equal (a) the present value on the payment date therefor (the "Payment
Date") of (i) $1,042.66 (the price at which the Notes are callable on the first
date (the "Call Date") on which the Notes may be redeemed by the Company
pursuant to the Indenture therefor), plus (ii) interest payments which would
have been payable on the Notes from the Payment Date to, but not including, the
Call Date, in each case, based on a fixed spread of 55 basis points over the
yield of the
<PAGE> 3
5-7/8% U.S. Treasury Note due October 31, 1998 on the third business day prior
to the expiration date for the Tender Offer, plus (b) accrued and unpaid
interest on the Notes to, but not including the Payment Date, minus (c) a
consent payment of $2.50 per $1,000 in Note principal (the "Consent Payment").
In conjunction with the Tender Offer, the Company is soliciting
consents (the "Consent Solicitation") to effect certain proposed amendments to
the Indenture under which the Notes were issued, including the elimination of
substantially all of the restrictive covenants contained in the Indenture. The
applicable Consent Payment per $1,000 principal amount will be paid on consents
which are validly delivered before the consent date. The consent date is the
later of April 17, 1997 or one business day following a public announcement (by
press release) of the date on which the Company receives the requisite consents
in accordance with the Tender Offer and Consent Solicitation.
The scheduled expiration date for the Tender Offer and Consent
Solicitation is April 30, 1997, unless extended by the Company.
On April 3, 1997, the Company also commenced an offer to purchase all
of the outstanding Notes at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of the
purchase pursuant to Section 4.08 of the Indenture pursuant to which the Notes
were issued (the "Change of Control Offer"). The Change of Control Offer will
expire on April 30, 1997.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
Substantially the same information as is required by this Form 8-K
with respect to financial statements, pro forma financial information and
exhibits in connection with the NewCity Acquisition has been previously
reported by the Company. The NewCity financial statements for the period ended
December 31, 1995 were previously reported as part of the Company's
Registration Statement on Form S-1 (Registration No. 333-08737) with respect to
the Company's Class A Common Stock, par value $1.00 per share. Pro forma
financial information regarding the NewCity Acquisition was previously reported
in the Company's Annual Report on Form 10-K for the period ended December 31,
1996. Accordingly, pursuant to the provisions of General Instructions B.3 to
Form 8-K, no additional report of such previously reported information is
required herein. The NewCity financial statements for the period ended December
31, 1996 are attached hereto as Exhibit 99.1 to this Current Report on Form 8-
K.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COX RADIO, INC.
Dated: April 14, 1997 By: /s/ ROBERT F. NEIL
--------------------------
Name: Robert F. Neil
Title: President and Chief
Executive Officer
<PAGE> 5
COX RADIO, INC.
Index to Exhibits to Form 8-K dated April 1, 1997
Exhibit Description
23.1 Consent of Ernst & Young L.L.P.
99.1 Financial Statements of NewCity Communications,
Inc. for the period ended December 31, 1996.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statement
(Form S-8 No. 333-13281) pertaining to the Cox Radio, Inc. Long-Term Incentive
Plan of our report dated March 7, 1997, with respect to the consolidated
financial statements of NewCity Communications, Inc., included in the Current
Report (Form 8-K) of Cox Radio, Inc. dated April 1, 1997 filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
------------------------
ERNST & YOUNG LLP
Stamford, Connecticut
April 14, 1997
<PAGE> 1
EXHIBIT 99.1
Report of Independent Auditors
To the Board of Directors and Shareholders
NewCity Communications, Inc.
We have audited the accompanying consolidated balance sheet of NewCity
Communications, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NewCity
Communications, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
------------------------
ERNST & YOUNG LLP
Stamford, Connecticut
March 7, 1997
F-1
<PAGE> 2
NewCity Communications, Inc.
Consolidated Balance Sheet
(In thousands, except for share data)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 206 $1,510
Accounts receivable, less allowances of $678 and $645 10,709 13,882
Prepaid expenses and other current assets 608 674
Deferred barter expenses 1,104 1,214
---------------------------
Total current assets 12,627 17,280
Property and equipment:
Land 2,237 2,154
Buildings 2,269 3,124
Equipment 16,800 17,784
Leasehold improvements 559 577
---------------------------
21,865 23,639
Less accumulated depreciation and amortization 12,828 14,353
---------------------------
9,037 9,286
Other assets:
Intangibles, primarily cost in excess of net assets of businesses acquired,
less accumulated amortization of $13,195 and $15,351 60,064 57,995
Other 212 169
---------------------------
60,276 58,164
---------------------------
Total assets $81,940 $84,730
===========================
</TABLE>
See accompanying notes.
F-2
<PAGE> 3
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 933 $ 981
Salaries, wages and commissions payable 733 1,426
Accrued interest payable 1,671 1,689
Other accrued expenses 927 2,284
State income taxes payable 898 1,251
Deferred barter revenue 1,736 1,967
Current portion of long-term debt 1,200 2,000
------------------------------
Total current liabilities 8,098 11,598
Long-term debt, less current portion 85,800 83,373
$166.67 Cumulative redeemable preferred stock held by certain Investors
(preference in liquidation, redemption value in 2005 - $14,000)
Authorized, issued and outstanding shares - 6,000 11,348 12,348
COMMITMENTS AND CONTINGENCIES -- (Notes 9 and 12)
Stockholders' deficiency:
Preferred Stock, par value $.05:
Authorized shares - 5,000
Issued shares - none
9%Convertible Preferred Stock held by certain Investors
(preference in liquidation), par value $.05:
Authorized, issued and outstanding shares - 8,000 - -
Class A Common Stock, par value $.01:
Authorized shares - 500,000
Issued and outstanding shares - 262,000 3 3
Class B Common Stock, par value $.01:
Authorized shares - 700,000
Issued and outstanding shares - 166,817 2 2
Accumulated deficit (22,671) (21,954)
8% Notes receivable from officers and shareholders for Class A
Common Stock (640) (640)
------------------------------
(23,306) (22,589)
------------------------------
Total liabilities and stockholders' deficiency $ 81,940 $ 84,730
==============================
</TABLE>
F-3
<PAGE> 4
NewCity Communications, Inc.
Consolidated Statement of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
------------------------------------------
(In thousands)
<S> <C> <C> <C>
Broadcasting revenues:
Local $ 39,572 $42,774 $ 47,862
National and regional 17,781 17,335 21,995
Other 2,193 2,571 2,348
------------------------------------------
59,546 62,680 72,205
Less advertising agency commissions 6,878 7,044 8,247
------------------------------------------
Net revenues 52,668 55,636 63,958
Station operating costs and expenses:
Broadcasting operations 17,226 20,059 21,389
Selling, general and administrative 19,694 20,654 24,003
Depreciation and amortization 3,070 3,510 3,317
Corporate general and administrative expenses 1,802 1,745 2,232
------------------------------------------
Total operating costs 41,792 45,968 50,941
------------------------------------------
Operating income 10,876 9,668 13,017
Interest expense (10,050) (9,817) (10,117)
Gain on sale of broadcasting property assets 1,585 - -
Non recurring costs related to sale of Company - - (700)
------------------------------------------
Income (loss) before income taxes and extraordinary item 2,411 (149) 2,200
Income taxes 165 249 500
------------------------------------------
Income (loss) before extraordinary item 2,246 (398) 1,700
Extraordinary item, loss on extinguishment of debt (182) - -
------------------------------------------
Net income (loss) before preferred stock dividend 2,064 (398) 1,700
Preferred stock dividend (1,000) (1,000) (1,000)
------------------------------------------
Net income (loss) available to common stockholders $ 1,064 $(1,398) $ 700
==========================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 5
NewCity Communications, Inc.
Consolidated Statement of Stockholders' Deficiency
(In thousands, except for share data)
<TABLE>
<CAPTION>
Common Stock
9% Convertible -------------------------------------------------
Preferred Stock Class A Class B
------------------------ -------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------------------ -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 8,000 $-0- 262,000 $3 168,317 $2
Cash dividends accrued on $166.67
Redeemable Preferred Stock
Cash dividends accrued on $50 Redeemable
Preferred Stock (Series B)
Cash dividends accrued on $50 Redeemable
Preferred Stock (Series C)
Net income
---------------------------------------------------------------------------
Balance at December 31, 1994 8,000 -0- 262,000 3 168,317 2
Cash dividends accrued on $166.67
Redeemable Preferred Stock
Net loss
---------------------------------------------------------------------------
Balance at December 31, 1995 8,000 -0- 262,000 3 168,317 2
Cash dividends accrued on $166.67
Redeemable Preferred Stock
Other
Net income
---------------------------------------------------------------------------
Balance at December 31, 1996 8,000 $-0- 262,000 $3 168,317 $2
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Additional Notes Receivable
Paid-in Accumulated From Officers
Capital Deficit and Shareholders Total
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 1,468 $(23,629) $(640) $(22,796)
Cash dividends accrued on $166.67
Redeemable Preferred Stock (1,000) (1,000)
Cash dividends accrued on $50 Redeemable
Preferred Stock (Series B) (121) (121)
Cash dividends accrued on $50 Redeemable
Preferred Stock (Series C) (55) (55)
Net income 2,064 2,064
------------------------------------------------------------
Balance at December 31, 1994 292 (21,565) (640) (21,908)
Cash dividends accrued on $166.67
Redeemable Preferred Stock (292) (708) (1,000)
Net loss (398) (398)
------------------------------------------------------------
Balance at December 31, 1995 0 (22,671) (640) (23,306)
Cash dividends accrued on $166.67
Redeemable Preferred Stock (17) (983) (1,000)
Other 17 17
Net income 1,700 1,700
------------------------------------------------------------
Balance at December 31, 1996 $ 0 $(21,954) $(640) $(22,589)
============================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 6
NewCity Communications, Inc.
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,064 $ (398) $ 1,700
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization of intangibles and deferred
interest expense 4,168 3,892 3,707
Provision for losses on accounts receivable 538 434 588
Gain on sale of broadcasting property assets (1,585) - -
Extraordinary item 182 - -
Other 64 (71) 43
Net changes in operating assets and liabilities (1,256) (1,507) (1,237)
-------------------------------------
Net cash provided by operating activities 4,175 2,350 4,801
INVESTING ACTIVITIES
Purchases of property and equipment (1,307) (1,514) (2,081)
Cash in escrow (175) 1,175 -
Purchase of radio station assets:
Property and equipment - (2,608) -
Intangibles - (9,844) -
Increase in intangibles (267) (521) (87)
Net proceeds from sale of broadcasting property assets 8,895 - 300
-------------------------------------
Net cash provided (used) by investing activities 7,146 (13,312) (1,868)
FINANCING ACTIVITIES
Long-term debt borrowings 3,000 17,200 8,450
Extinguishment of debt (3,360) - -
Redemption of Cumulative Preferred Stock:
Series B (842) - -
Series C (374) - -
Payments of deferred interest to Investors (1,457) - -
Payments on long-term debt borrowings (10,527) (6,200) (10,079)
-------------------------------------
Net cash provided (used) by financing activities (13,560) 11,000 (1,629)
-------------------------------------
Increase (decrease) in cash and cash equivalents (2,239) 38 1,304
Cash and cash equivalents at beginning of year 2,407 168 206
-------------------------------------
Cash and cash equivalents at end of year $ 168 $ 206 $ 1,510
=====================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 7
NewCity Communications, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
NewCity Communications, Inc. (the "Company") operates exclusively in the radio
broadcasting industry. Through its subsidiaries, the Company is the owner and
operator of seventeen radio stations that are located in six geographical
markets in the Southeastern, Southwestern and Northeastern regions of the
United States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, NewCity Broadcasting Company, Inc.,
which itself has various wholly owned subsidiaries. Upon consolidation, all
significant intercompany accounts and transactions are eliminated.
REVENUE RECOGNITION
Revenue is recognized as advertising air time is broadcast and is net of
advertising agency commissions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts and disclosures reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Depreciation of
equipment is computed by the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized by the straight-line
method over the lesser of the useful lives of the improvements or the lease
term.
INTANGIBLES
The excess of cost over the net assets of broadcasting properties acquired
(attributable primarily to FCC licenses) is being amortized over a forty year
period by the straight-line method. Other intangible assets are amortized over
the economic useful lives of such assets. Upon the determination by management
that any impairment has occurred in the carrying value of an intangible, based
on economic events or circumstances, an adjustment is recorded reducing such
intangible during such determination period. The valuation method used to
determine if any impairment has occurred is based on fair value measurements
provided by independent sources or undiscounted future cash flows. Such cash
flows are defined by management as earnings before interest, income taxes,
depreciation and amortization expenses. There were no impairment adjustments to
goodwill during 1996, 1995 or 1994.
F-7
<PAGE> 8
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BARTER TRANSACTIONS
The Company records barter transactions at the fair value of goods and/or
services received. Expenses from barter transactions are recognized when goods
and/or services received have been used. Revenue from barter transactions is
recognized when advertising time is provided.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Fair value approximates
carrying value.
DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan (the "Plan") that covers all
employees who meet the eligibility conditions of the Plan, as defined.
Contributions to the Plan by the Company are determined annually by its Board
of Directors in accordance with the terms of the Plan. During the years ended
December 31, 1996, 1995 and 1994, the Company contribution to the Plan was
approximately $10,000 each year. Employee contributions to the Plan are
voluntary and are based on eligible compensation, as defined.
RADIO STATION FORMAT COSTS
The Company considers all costs incurred in connection with changing the
programming format of its radio stations to be period costs expensed as
incurred.
2. DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 1996
1995 1996 FAIR VALUE
--------------------------------------------
<S> <C> <C> <C>
Borrowings under Senior Credit Facility:
Line of Credit due in 2000 $ 6,000 $ 4,700 $ 4,700
Term Loan due in 1999 4,000 3,800 3,800
--------------------------------------------
10,000 8,500 8,500
16.33% promissory note 2,000 1,000 1,000
11.375% senior subordinated notes, due November 1, 2003 75,000 75,000 80,625
Mortgage note payable - 873 873
---------------------------
87,000 85,373
Less current portion 1,200 2,000
---------------------------
$85,800 $83,373
===========================
</TABLE>
The fair value of the Company's 11.375% subordinated notes is based on
published market prices.
F-8
<PAGE> 9
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
2. DEBT (CONTINUED)
On November 1, 1993 in connection with a refinancing, the Company entered into
a loan agreement with Fleet National Bank (Fleet) that provided for an
aggregate senior credit facility of $15,000,000. One portion of the senior
credit facility provided an $11,000,000 reducing revolving line of credit
maturing on March 31, 2000 (the "Line of Credit"). Beginning on March 31, 1996,
the Line of Credit became subject to permanent quarterly reductions that
continue until maturity on March 31, 2000, when a final aggregate reduction of
$2,000,000 occurs. As of December 31, 1996, the Line of Credit availability was
$3,837,000 as the result of scheduled reductions in 1996, an open standby
letter of credit of $1,163,300 issued by Fleet in May 1996 in connection with
the Company's 16.33% promissory note due May 16, 1997, and borrowings
outstanding. The Fleet Agreement also provided for a separate revolving line of
credit of $4,000,000 for acquisitions of radio stations, as defined, that
converted to a term loan on March 31, 1996 and matures on December 31, 1999
(the "Term Loan"). Principal payments for borrowings outstanding on the
conversion date began on June 30, 1996 and continue on a quarterly basis until
maturity in amounts ranging from $66,666 to $400,000. Collectively, the Line of
Credit and the Term Loan represent the Company's aggregate senior credit
facility (the "Senior Credit Facility").
Interest on any borrowings under the Fleet Agreement is payable at the prime
interest rate maintained by Fleet plus 1.5% or, at the Company's option, the
London Interbank Offered Rate ("LIBOR") plus 2.75% (the "LIBOR Option"). At
December 31, 1995 and 1996, the Company had exercised its LIBOR Option for the
entire principal balances outstanding with Fleet, thereby setting its interest
rates on such borrowings at approximately 8.4% through November 1996, and 8.3%
through February 1997, respectively. The effective interest rate for the Fleet
borrowings, including amortization of deferred financing costs, was 9.4%, 10%,
and 10.9% for the years ended December 31, 1994, 1995 and 1996, respectively.
The Company has pledged all assets to Fleet. In addition, the terms of the
Fleet Agreement, among other conditions, restrict the Company's ability to pay
dividends and incur additional indebtedness; require the Company to maintain an
annual minimum level of cash flow, as defined; and restrict annual capital
expenditures.
The 16.33% promissory note was issued on May 17, 1995 in connection with the
acquisition of substantially all the assets of radio station KJSR-FM in Tulsa,
Oklahoma (see Note 4). Such promissory note, which will be constantly secured
by a standby letter of credit for all future debt service payments, requires a
final principal payment of $1,000,000, plus interest, on May 16, 1997.
On November 2, 1993, the Company entered into an agreement with Shawmut Bank
Connecticut, National Association (the "Trustee") that governs the terms and
conditions of the 11.375% Senior Subordinated Notes (the "Notes") (the
"Indenture"). Among the conditions of the Indenture are limitations on the
Company's ability to incur additional indebtedness and make restricted
payments, as defined. Interest on the Notes is payable each May 1 and November
1 to the Trustee. For the years ended December 31, 1994, 1995 and 1996, the
effective interest rate for the Notes, including amortization of deferred
financing costs, approximated 12%, respectively.
F-9
<PAGE> 10
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
2. DEBT (CONTINUED)
The Company also entered into an Amended and Restated Note and Stock Purchase
Agreement on November 2, 1993 with its Investors, as defined in Note 6, (the
"Amended Investor Agreement") in connection with its refinancing. The Amended
Investor Agreement provides for limitations on additional indebtedness and
restricted payments, as defined, among other conditions. In addition, the
Amended Investor Agreement provides for limitations, as defined, on any
distributions related to, or redemptions of, its capital stock and grants
certain registration rights, as defined, to the Investors in connection with
certain future events affecting the Common Stock of the Company. The Company
has also agreed to indemnify the Investors for any future incremental income
taxes incurred by the Investors arising as a result of the refinancing of
certain Investor indebtedness in 1993 that was paid in 1994.
During the year ended December 31, 1994, the Company recorded an extraordinary
loss of $182,000 related to its early retirement of certain indebtedness to
Investors. Such loss represents the write-off of unamortized deferred financing
costs.
Annual principal maturities of long-term debt through the year 2001 at December
31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 2,000
1998 1,235
1999 4,338
2000 2,041
2001 45
Thereafter 75,714
-------------
$85,373
=============
</TABLE>
3. AGREEMENT TO SELL AND LEASE BROADCASTING PROPERTY
On June 18, 1993 the Company entered into a contract for the sale of
substantially all the assets of WJZF-(FM) (formerly WYAI-FM), a radio
broadcasting property also located in Atlanta, Georgia, for $8,000,000. A
challenge to such contract was filed with the Federal Communications Commission
("FCC") which significantly delayed the completion of the contract closing. On
May 5, 1995, the FCC dismissed the application for consent to the sale of
WJZF-(FM). The prospective buyer has appealed the FCC ruling. The FCC's
decision and the ultimate outcome of any appeal related to WJZF-(FM) should not
have a material financial impact on the Company.
The company that is appealing the FCC's decision to allow the purchase of
WJZF-(FM) also entered into an agreement effective January 1, 1994 to begin
leasing substantially all the assets of such radio station. The lease may be
terminated at the option of either party, as defined.
F-10
<PAGE> 11
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
3. AGREEMENT TO SELL AND LEASE BROADCASTING PROPERTY (CONTINUED)
On September 20, 1994, the Company amended the existing leasing arrangement for
radio station WJZF-(FM) (the "Amendment"). Among other items, the Amendment
provided for the extension of the lease term through December 31, 1999 and the
issuance by the Company to the lessee of an exclusive option to purchase
substantially all the assets of radio station WJZF-(FM) during the lease term
(the "Option"). In consideration for the Option, the Company received a cash
payment of $9,123,000 that is nonrefundable (the "Option Payment"). Upon the
exercise of the Option, the Company will receive additional cash consideration
of $100. In addition, upon the exercise of the option, the Company is obligated
to execute a new definitive agreement for the sale of substantially all the
assets of WJZF-(FM). Of the total cash proceeds received, $6,033,000 was
immediately paid to the Investors to retire certain indebtedness, plus deferred
interest, and all the outstanding shares of certain redeemable preferred stock,
plus accrued dividends (see Note 6). An additional $3,000,000 was concurrently
used to reduce outstanding borrowings under the Company's Senior Credit
Facility. Because the cash proceeds received from the Option Payment are
nonrefundable and such proceeds, in the opinion of management, approximated the
fair market value of the assets of WJZF-(FM), the Company accounted for the
economic substance of this transaction as if a sale of substantially all the
assets of WJZF-(FM) had occurred. Accordingly, a gain of $1,585,000 was
recorded for financial reporting purposes equal to the difference between the
Option Payment received, less all related selling expenses, and the net
carrying value of the assets of WJZF-(FM), including all intangibles and
equipment. For income tax purposes, the Company recognized a loss related to
the WJZF-(FM) transaction.
Net broadcasting revenues and operating costs and expenses for the broadcasting
properties sold or held for sale or lease were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-----------------------------------------------------
<S> <C> <C> <C>
Net broadcasting revenues $270 $349 $363
Operating costs and expenses 485 270 283
</TABLE>
4. ACQUISITIONS
During 1995 the Company acquired substantially all the assets of the following
radio broadcasting properties:
<TABLE>
<CAPTION>
ACQUISITION PURCHASE PRICE RADIO BROADCASTING PROPERTY
DATE AND LOCATION
- ----------------------------------------------------------------------
<S> <C> <C>
May 31, 1995 $6,000,000 WCFB(FM), Orlando, Florida
May 17, 1995 3,500,000 KJSR(FM), Tulsa, Oklahoma
March 17, 1995 3,206,000 KCJZ(FM), San Antonio, Texas
March 3, 1995 500,000 WZKD(AM), Orlando, Florida
</TABLE>
Each of these acquisitions was financed with a combination of borrowings under
the Senior Credit Facility (see Note 2), promissory notes to seller, certain
indebtedness to Investors, cash in escrow or cash on hand.
F-11
<PAGE> 12
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
4. ACQUISITIONS (CONTINUED)
The purchase method of accounting for business combinations was used to record
all acquisitions and, accordingly, the accompanying consolidated financial
statements reflect the operating results of the radio stations from the
respective dates of acquisition. A substantial portion of each purchase price
was allocated to intangibles to reflect the FCC broadcasting licenses acquired.
The unaudited consolidated results of operations of the Company on a pro forma
basis for the years ended December 31, 1994 and 1995, assuming all
acquisitions occurred on January 1 of each respective year, are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995
-----------------------------------
<S> <C> <C>
Net broadcasting revenues $53,995 $55,636
Loss before extraordinary item (34) (675)
Net income (loss) 1,369 (675)
</TABLE>
5. LEASING ARRANGEMENTS FOR BROADCASTING PROPERTIES
During the three year period ended December 31, 1996, the Company leased
substantially all the assets of certain radio broadcasting properties under
separate leasing arrangements, including two such leasing arrangements for
KCJZ(FM) and WODL(FM) with its Investors. At December 31, 1996, only leasing
arrangements involving two radio stations in Syracuse, two radio stations in
Tulsa and three radio stations in Orlando remained in effect. Such leasing
arrangements, which are all with Cox Radio, Inc., will expire upon the sale of
the Company's outstanding capital stock to Cox Radio, Inc. (see Note 14).
Monthly fees for each leasing arrangement are based on defined terms.
The Company has treated all leasing arrangements for radio stations as
operating leases. It has included the broadcasting revenues and operating costs
and expenses of each radio station from the respective initial lease dates in
its consolidated statement of operations.
6. TRANSACTIONS WITH INVESTORS
During 1990, the Company entered into a Note and Stock Purchase Agreement
(Investor Agreement) with an association of investment partnerships and
individual investors (collectively the Investors) that provided for a cash
investment in the Company by the Investors. As consideration for such
investment, the Investors received 6,000 shares of newly created $166.67
Redeemable Preferred Stock and 8,000 shares of newly created 9% Convertible
Preferred Stock. Each share of these two new classes of preferred stock was
sold to the Investors at $1,000 per share.
On November 2, 1993, as a result of a refinancing of the Company's long-term
indebtedness, the Company entered into an Amended Investor Agreement that
provided for the Company to issue two new series of Redeemable Preferred Stock
to the Investors in exchange for certain outstanding shares of Preferred Stock
held by the Investors prior to the refinancing which had been issued by two
subsidiaries to assist in financing certain acquisitions. As a result, the
Company issued to its Investors 2,700 shares of newly created Series B
Redeemable Preferred Stock and 1,450 shares of newly created Series C
Redeemable Preferred Stock. The Preferred Stock shares returned to the Company
by the Investors were retired. Both the Series B and C shares were subject to a
mandatory redemption on December 31, 2005.
F-12
<PAGE> 13
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
6. TRANSACTIONS WITH INVESTORS (CONTINUED)
However, on September 20, 1994, the Company redeemed all shares of its Series B
and C Preferred Stock for $830,000 and paid aggregate accrued cumulative
dividends thereon of $385,700 to its Investors (see Note 2 for additional
details). In addition, on September 20, 1994, the Company retired certain
indebtedness due to the Investors of $3,360,000, plus deferred interest through
such date. The Company had borrowed such indebtedness from the Investors to
assist in financing the acquisitions of certain radio broadcasting properties.
As part of the Amended Investor Agreement, the Company amended its certificate
of incorporation on November 2, 1993 to provide for the extension of the
mandatory redemption date for the $166.67 Redeemable Preferred Stock to
December 31, 2005. Also, such amendment provides that dividends on the $166.67
Preferred Stock cease to accrue after July 31, 1998 and that the aggregate
maximum redemption value is $14,000,000.
On March 17, 1995, the Company acquired substantially all the assets of
KCJZ(FM), located in San Antonio, Texas, from its Investors for a cash payment
of $3,206,000 (see Note 4). Previously, such radio station had been leased from
the Investors.
The $166.67 Redeemable Preferred Stock shareholders are entitled to a
cumulative cash dividend each year on July 31. However, the declaration and
payment date for such dividends is subject to the approval of the Board of
Directors. Since the date of issuance, the Company has not paid a cash dividend
on this stock. Convertible Preferred Stock dividends are payable only if and
when declared by the Board of Directors.
The $166.67 Redeemable Preferred Stock has a mandatory redemption value of
$1,000 per share plus any unpaid cumulative dividends. Also, the $166.67
Redeemable Preferred Stock is subject to a mandatory redemption and,
accordingly, dividends are accrued ratably over the period by increasing the
carrying amount of the Redeemable Preferred Stock obligation with a
corresponding charge to additional paid-in capital or accumulated deficit. At
December 31, 1996, aggregate cumulative accrued dividends amounted to
$6,348,000 on such stock. In the event of the Company's liquidation or similar
circumstances, as defined in the Investor Agreement, the Redeemable Preferred
Stock shareholders are entitled to receive $1,000 per share plus any unpaid
cumulative dividends while the Convertible Preferred Stock shareholders are
entitled to receive $1,000 per share before any payments can be made to Common
Stock shareholders.
However, the liquidation value per share for the Convertible Preferred Stock
reduces annually by $125 each August 1. The Convertible Preferred Stock
provides the option, at any time, to convert each share into 44.26 shares of
the Company's Class B Common Stock, subject to certain adjustments, and to
exercise registration rights in certain circumstances. The $166.67 Redeemable
Preferred Stock and Convertible Preferred Stock provide for shareholder voting
approval of certain transactions, as defined. The Company has reserved 354,080
shares of Class B stock for such conversion.
The amendment to the certificate of incorporation on November 2, 1994 required
by the Amended Investor Agreement also provided that the approval of a majority
interest of the holders of the $166.67 Redeemable Preferred Stock is required
for any future changes to the Company's existing capital stock structure.
F-13
<PAGE> 14
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
6. TRANSACTIONS WITH INVESTORS (CONTINUED)
Because the Series B and C Preferred Stock shares redeemed in 1995 were subject
to a mandatory redemption, dividends were accrued ratably over the period by
increasing the carrying amount of the respective obligations with a
corresponding charge to additional paid-in capital due to the absence of
accumulated earnings.
All shares outstanding for the $166.67 Redeemable Preferred Stock are nonvoting
except as required by law or agreement.
7. CAPITAL STOCK
The $.05 Preferred Stock is issuable in designated series at the discretion of
the Board of Directors. The Board of Directors also has the authority to
determine all rights and restrictions associated with any designated series to
be issued including redemption and liquidation values, and dividend and
conversion rights. All series of Preferred Stock are nonvoting, except as
required by law or agreement.
The Board of Directors designated 25,000 shares of Preferred Stock as
Cumulative Preferred Stock, Series A, with a redemption value of $1,000 per
share and an annual dividend rate of $200 per share in cash or additional
shares of Series A Preferred Stock payable on each December 31. The Series A
Preferred Stock was subject to a mandatory redemption on July 31, 1998 and
accordingly dividends were accrued ratably over the period by increasing the
carrying amount of the Series A Preferred Stock obligation with a corresponding
charge to additional paid-in capital.
The shareholders of Class A and Class B Common Stock have the right to vote,
with Class A shares having ten times the voting rights of Class B shares. Under
the terms of its loan agreements, the Company cannot pay cash dividends on its
Class A and Class B Common Stock until minimum annual cash flow and operating
income requirements, as defined in the respective loan agreements, have been
attained.
Additionally, all holders of currently outstanding Common Stock have entered
into, and anyone purchasing Common Stock shall be required to enter into, a
"Purchase Agreement" containing restrictions on the resale or transfer of that
stock. Any sale, assignment, transfer or other disposition of Common Stock is
subject to the Company's right of first refusal and upon the other terms and
conditions as offered by a third party.
In total, the Company had reserved 515,994 shares of Class B Common Stock for
future issuance at December 31, 1996.
All repurchases of Common Stock are subject to compliance with covenants
contained in the Company's loan agreements as well as restrictions imposed by
applicable legal requirements regarding sufficiency of capital surplus. The
Purchase Agreement provides that the Company may purchase shares of Common
Stock with either cash or, if not permitted by its loan agreements to pay cash,
a noninterest bearing promissory note which will be subordinated to the
Company's other debt instruments. The promissory notes will have no stated
maturity, permitting the Company to defer payment of such notes until it is
permitted to do so under its various loan agreements.
See Notes 6 and 8 for additional information concerning the Company's capital
stock.
F-14
<PAGE> 15
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN
The Company has an Incentive Stock Option Plan (the Plan) and has authorized
100,000 shares of Class B Common Stock for issuance thereunder, of which 53,070
are available for grant at December 31, 1996. Under terms of the Plan, the
exercise price of any options will not be less than the fair market value of
such shares at the date such options are granted. The Company accounts for
stock option grants in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees." At December 31, 1996, there were no options
outstanding under such plan. During 1996, 1995 and 1994, there were no such
options exercised.
On February 1, 1996, the Company granted an option to an officer that permits
the purchase of up to 3,534 shares of Class B Common Stock at an exercise price
of $20 per share. Such option expires in 2001. The Company is accounting for
this option in accordance with APB 25 as permitted under SFAS 123, "Accounting
for Stock Based Compensation." Pro forma information related to the stock
option grant in 1996 has not been presented as the impact of the fair value of
the stock option was insignificant to the results of operations.
The Company also has an Employee Stock Purchase Plan and has reserved 158,500
shares of Class B Common Stock and 694 shares of Series A Redeemable Preferred
Stock for issuance thereunder, of which 108,883 shares and 62 shares,
respectively, are available for purchase at December 31, 1996. The purchase
price per share for both the Class B Common Stock and the Series A Redeemable
Preferred Stock shall be determined by the Board of Directors on the date such
shares are authorized to be granted. During 1996, 1995 and 1994, respectively,
no shares of Class B Common Stock or Series A Stock were sold under the Plan.
9. LEASE COMMITMENTS
The Company conducts a substantial portion of its operations from leased
premises and also leases various equipment. The leases, classified as operating
leases, extend through 2010 and provide for options to extend lease terms in
certain instances.
Future annual minimum payments under noncancelable office space and equipment
operating leases are as follows at December 31, 1996 (in thousands):
<TABLE>
<S> <C>
1997 $1,122
1998 982
1999 720
2000 370
2001 338
Thereafter 629
------------
$4,161
============
</TABLE>
Rent expense attributable to all operating leases was $1,805,000, $1,693,000
and $2,680,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
Included in such rental expense is $618,000, $380,000 and $1,204,000 in 1994,
1995 and 1996, respectively, for operating lease arrangements related to
broadcasting properties.
F-15
<PAGE> 16
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
10. BARTER TRANSACTIONS
Excluding barter transactions related to its broadcasting properties sold the
accompanying consolidated statement of operations includes revenue from barter
transactions of $3,180,000, $4,346,000 and $4,268,000, and expenses from barter
transactions of $3,230,000, $4,292,000 and $4,412,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
11. INCOME TAXES
Significant components of the Company's deferred income tax liability and
assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
----------------------------
<S> <C> <C>
Deferred income tax liability - goodwill amortization $ 332 $ 554
============================
Deferred income tax assets:
FCC broadcast licenses $ 7,796 $ 6,237
Allowance for bad debts 264 252
Net operating loss carryforwards 2,366 2,234
All others 289 318
----------------------------
Total deferred income tax assets 10,715 9,041
Valuation allowance for deferred income tax assets (10,383) (8,487)
----------------------------
Net deferred income tax assets $ 332 $ 554
============================
</TABLE>
The valuation allowance for deferred income tax assets was $1,659,000 at
January 1, 1995.
The reconciliation of income tax attributable to income before extraordinary
item computed at the U.S. federal statutory tax rates to income tax expense
follows (in thousands):
<TABLE>
<CAPTION>
LIABILITY METHOD
1994 1995 1996
----------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. federal statutory rates $ 820 34.0% $ (51) (34)% $ 748 34.0%
State income taxes, net of federal tax benefit 109 4.5 164 110 330 15.0
Amortization of goodwill 440 18.2 188 126 481 21.9
Expense of sale of stock - - - - 238 10.8
Gain on sale of broadcasting property (663) (27.5) - - - -
Change in valuation allowance (718) (29.8) - - (1,531) (69.6)
Effect of extraordinary item (61) (2.6) - - - -
Other 238 10.0 (52) (35) 234 10.6
----------------------------------------------------------------------
$ 165 6.8% $ 249 167 % $ 500 22.7%
======================================================================
</TABLE>
F-16
<PAGE> 17
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES (CONTINUED)
At December 31, 1996, the Company had a federal net operating loss carryforward
of approximately $7,511,000 that expires in various amounts in years through
2011. Pursuant to the Internal Revenue Code, the Company's loss carryforwards
could be limited under certain circumstances.
During 1995, the Company obtained the approval of the Internal Revenue Service
(IRS) to begin amortizing, for federal income tax reporting purposes, the costs
attributable to the Federal Communications Commission (FCC) broadcasting
licenses acquired in 1986. The total of such costs of $33,317,000 will be
included as additional amortization expense in the Company's income tax returns
through 2000.
The Company reported the following current provisions for income taxes (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----------------------------------------------------
<S> <C> <C> <C>
Federal $ - $ - $ -
State 165 249 500
----------------------------------------------------
$165 $249 $500
====================================================
</TABLE>
For the years ended December 31, 1994, 1995 and 1996, the Company also recorded
provisions for state franchise taxes. However, such amounts, which are
immaterial to consolidated results of operations, are included in selling,
general and administrative expenses.
On April 17, 1993, the Department of Revenue of the Commonwealth of
Massachusetts made an assessment against the Company of approximately $451,000
relating to the tax years 1987 to 1989. The Company intends to defend this
assessment vigorously through the administrative process and, if necessary, in
the courts. In the opinion of management, the outcome of the matter described
in this paragraph will not have a material adverse effect on the Company's
financial condition or results of operations.
12. CONTINGENCIES
The Company is party to certain litigation arising in the ordinary course of
business. Management believes, based upon discussion with counsel, that such
litigation will not have any material adverse effect on the financial
condition, cash flows or results of operations of the Company.
F-17
<PAGE> 18
NewCity Communications, Inc.
Notes to Consolidated Financial Statements (continued)
13. SUPPLEMENTAL CASH FLOW INFORMATION
Net changes in operating assets and liabilities include (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-----------------------------------------
<S> <C> <C> <C>
Accounts receivable $ (575) $ (489) $(3,761)
Prepaid expenses and other assets 246 141 (66)
Deferred barter expenses 165 (53) (110)
Accounts payable (158) (212) 48
Salaries, wages and commissions payable 21 45 693
Accrued interest payable (402) 249 18
Other accrued expenses (527) (1,369) 1,357
State taxes payable 107 (9) 353
Deferred barter revenue (133) 190 231
-----------------------------------------
$(1,256) $(1,507) $(1,237)
=========================================
The components of depreciation, amortization and deferred interest expense are
as follows (in thousands):
<CAPTION>
1994 1995 1996
-----------------------------------------
<S> <C> <C> <C>
Depreciation and amortization of property and equipment $1,282 $1,751 $1,544
Amortization of intangibles 1,788 1,759 1,773
Deferred interest expense 1,098 382 390
-----------------------------------------
$4,168 $3,892 3,707
=========================================
</TABLE>
Income tax payments were $190,000, $267,000 and $241,000 in 1994, 1995 and
1996, respectively.
During the years ended December 31, 1994, 1995 and 1996, interest payments
amounted to $9,425,000 (excluding aggregate deferred interest payments to
Investors of $1,457,000), $9,125,000 and $9,709,000, respectively.
See Notes 2, 4, 6 and 10 for description of noncash transactions.
14. MERGER WITH COX RADIO, INC.
On July 3, 1996, the Company filed a report on Form 8-K related to an Agreement
and Plan of Merger dated July 1, 1996 (Agreement) signed with Cox Radio, Inc. a
wholly owned subsidiary of Cox Broadcasting, Inc. (Cox). Such Agreement
involves the proposed sale of all outstanding capital stock to Cox for total
consideration, including assumed indebtedness, of approximately $250,000,000,
subject to certain post-closing adjustments in accordance with the terms of the
agreement. Management expects the merger to occur in April 1997.
F-18
