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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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<TABLE>
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 1-12187
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(COX RADIO INC. LOGO)
(Exact name of Registrant as specified in its charter)
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DELAWARE 58-1620022
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
1400 LAKE HEARN DRIVE, ATLANTA, GEORGIA 30319
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (404) 843-5000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Class A Common Stock, par value $1.00 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
As of February 28, 1999, the aggregate market value of the Class A common
stock held by non-affiliates of the registrant was $388,981,599 based on the
closing price on the New York Stock Exchange on such date.
There were 9,006,284 shares of Class A common stock outstanding as of
February 28, 1999.
There were 19,577,672 shares of Class B common stock outstanding as of
February 28, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Stockholders and the Proxy Statement
for the 1999 Annual Meeting of Stockholders are incorporated by reference into
Part II and Part III.
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COX RADIO, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 21
Item 3. Legal Proceedings........................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......... 22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 23
Item 6. Selected Consolidated Financial Data........................ 23
Item 7. Management's Discussion and Analysis of Financial Conditions
and Results of Operations......................................24
Item 7a. Quantitative and Qualitative Disclosure about Market Risk... 30
Item 8. Financial Statements and Supplementary Data................. 32
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 53
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 53
Item 11. Executive Compensation...................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 53
Item 13. Certain Relationships and Related Transactions.............. 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 53
Signatures.............................................................. 55
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PART I
ITEM 1. BUSINESS
Cox Radio, Inc. is the fifth largest radio broadcasting company in the
United States, based on net revenues. Cox Radio, upon completion of all pending
transactions, will own or operate, or provide sales and marketing services for
59 radio stations (45 FM and 14 AM) clustered in 12 markets.
Cox Radio is an indirect majority-owned subsidiary of Cox Enterprises, Inc.
Cox Enterprises indirectly owns approximately 69% of Cox Radio's common stock
and has approximately 96% of the voting power of Cox Radio. Cox Radio has two
classes of common stock outstanding, Class A common stock, par value $1.00 per
share, and Class B common stock, par value $1.00 per share. Cox Enterprises'
wholly-owned subsidiary, Cox Broadcasting, Inc., is the sole stockholder of
shares of Cox Radio's Class B common stock.
Cox Enterprises, a privately-held corporation headquartered in Atlanta,
Georgia, is one of the largest media companies in the United States, with
consolidated 1998 revenues of approximately $5.4 billion. Prior to Cox Radio's
initial public offering in September 1996, Cox Enterprises transferred all of
its U.S. radio operations to Cox Radio. Cox Radio, as part of Cox Enterprises,
was a pioneer in radio broadcasting, building its first station in 1934,
acquiring its flagship station, WSB-AM (Atlanta), in 1939 and launching its
first FM station, WSB-FM (Atlanta), in 1948.
Cox Radio seeks to maximize the revenues and broadcast cash flow of its
radio stations by operating and developing clusters of stations in
demographically attractive and rapidly growing markets, including major markets
such as Los Angeles and Atlanta and Sunbelt markets such as Miami, Tampa,
Orlando, San Antonio and Birmingham. During the past five years, the 12 markets
in which Cox Radio's stations operate have demonstrated, on an aggregate basis,
greater radio advertising revenue growth than the compound annual growth rate
for the U.S. radio industry as a whole of 9.3%, which was calculated using
revenue projections obtained from the Radio Advertising Bureau.
The April 1997 acquisition of NewCity Communications, Inc. enhanced the
clustering of Cox Radio's radio stations by increasing the total number of
markets in which Cox Radio owns and/or operates stations to 12 and by
strengthening its penetration in those markets. The NewCity Communications
acquisition created a platform for additional strategic acquisitions that
further clustered radio stations in Cox Radio's markets. In 1998, Cox Radio
added an operating market when it acquired four radio stations in Long Island,
New York. In February 1999, Cox Radio agreed to trade its stations serving the
Syracuse, New York market for additional stations serving the Tampa-St.
Petersburg, Florida and Louisville, Kentucky markets. Therefore, pending the
consummation of all announced transactions, Cox Radio will own and/or operate
stations in a total of 12 markets. Cox Radio operates three or more stations in
10 of its 12 markets.
As a result of Cox Radio's management, programming and sales efforts, its
radio stations are characterized by strong ratings and above average power
ratios (defined as revenue share in a particular market divided by audience
share in such market). Cox Radio's stations are diversified in terms of format,
target audience, geographic location and stage of development.
Cox Radio has a track record of acquiring, repositioning and improving the
operating performance of previously underperforming stations. Management
believes that a number of Cox Radio's stations have significant growth
opportunities or turnaround potential and can therefore be characterized as
start-up or developing stations. Generally, Cox Radio considers start-up or
developing stations to include those stations that have been recently acquired
and offer the greatest potential for growth. Currently, Cox Radio considers 28
of its stations to be start-up or developing stations. Cox Radio believes these
stations can achieve significant broadcast cash flow growth by employing its
operating strategy. Management believes that its mix of stations in different
stages of development enables Cox Radio to maximize its growth potential.
Cox Radio's senior operating management is comprised of six individuals
with an average of over 25 years of experience in the radio broadcasting
industry, including an average of over 16 years with Cox
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Radio. Cox Radio believes that this experienced senior management team is well
positioned to manage larger radio station clusters and take advantage of new
opportunities arising in the U.S. radio broadcasting industry.
During 1998, Cox Radio began syndicating radio broadcast programming,
including the stock market investment advice show The Motley Fool, consumer
advocate Clark Howard, and Neal Boortz's political and issue talk show. Cox
Radio entered into an Advertising Sales and Affiliate Marketing Agreement with
Media America, Inc. Cox Radio is exploring offering other syndication products
in the future.
ACQUISITIONS AND DISPOSITIONS
During the past several years, Cox Radio has actively managed its portfolio
of radio stations through selected acquisitions, dispositions and exchanges, as
well as through the use of local marketing agreements, or LMAs, and joint sales
agreements, or JSAs. Specific transactions entered into by Cox Radio during the
past three years are discussed below.
Under an LMA or a JSA, the company operating a station provides a
combination of programming, sales, marketing and similar services. The broadcast
revenues and operating expenses of stations operated by Cox Radio under LMAs and
JSAs have been included in Cox Radio's operations since the respective dates of
such agreements.
In January 1996, Cox Radio completed the acquisition of Louisville,
Kentucky stations WRKA-FM and WRVI-FM, later renamed WLSY-FM, for $8.7 million.
Cox Radio also acquired Louisville station WXNU-FM, later renamed WRVI-FM, for
$2.6 million in August 1996.
In June 1996, Cox Radio acquired WHEN-AM and WWHT-FM in Syracuse, New York
for $4.5 million. These stations were operated by NewCity Communications under
an LMA until the consummation of the NewCity Communications acquisition.
In October 1996, Cox Radio completed the sale of WIOD-AM in Miami, Florida
for $13.0 million plus a working capital adjustment of $1.2 million. This
transaction resulted in a pre-tax gain of approximately $2.0 million, which was
recognized in the fourth quarter of 1996.
In December 1996, Cox Radio acquired KRAV-FM and KGTO-AM in Tulsa, Oklahoma
for $5.5 million. These stations were operated by NewCity Communications under
an LMA until the consummation of the NewCity Communications acquisition.
In March 1997, Cox Radio exchanged WCKG-FM and WYSY-FM in Chicago, Illinois
for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando, Florida. This transaction resulted
in a pre-tax gain of approximately $49 million. In addition to receiving the
three Orlando stations, Cox Radio also received cash proceeds of approximately
$20 million. Prior to the NewCity Communications acquisition, the Orlando
stations were operated by NewCity Communications since July 1996 under an LMA.
In March 1997, Cox Radio acquired WSUN-AM (formerly WFNS-AM) serving the
Tampa-St. Petersburg, Florida market for an aggregate consideration of $1.5
million. Cox Radio had been operating this station pursuant to an LMA or a JSA
since June 1995.
In April 1997, Cox Radio completed its acquisition of the license and
certain assets of KRTO-FM in Los Angeles, California for $19 million in cash.
In April 1997, Cox Radio acquired all of the issued and outstanding capital
stock of NewCity Communications, through the merger of its wholly owned
subsidiary, New Cox Radio II, Inc., with and into NewCity Communications, with
NewCity Communications surviving as a wholly owned subsidiary of Cox Radio. Cox
Radio purchased the stock of NewCity Communications for an aggregate
consideration of approximately $253 million, including approximately $87 million
in assumption of NewCity Communications' indebtedness and approximately $3
million in working capital adjustments. To consummate the NewCity Communications
acquisition, Cox Radio utilized approximately $56 million of amounts due from
Cox Enterprises and borrowed approximately $110 million pursuant to Cox Radio's
$300 million, five-year,
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senior, unsecured revolving credit facility with certain banks, including Texas
Commerce Bank National Association, as Administrative Agent. On April 2, 1997,
NewCity Communications was merged with and into Cox Radio, with Cox Radio as the
surviving corporation. NewCity Communications' subsidiaries were subsequently
consolidated into Cox Radio. In October 1997, Cox Radio disposed of the assets
of American Comedy Network, a former subsidiary of NewCity Communications, for
aggregate proceeds of approximately $1.1 million including certain non-compete
agreements.
In May 1997, Cox Radio agreed to acquire WENN-FM and WAGG-AM, later renamed
WEZN-AM, in Birmingham, Alabama, for consideration of $15 million. In July 1997,
Cox Radio assigned its right to purchase WENN-FM for consideration of $14.5
million to a third party. Cox Radio consummated both the acquisition of WAGG-AM
and the disposition of WENN-FM during November 1997.
In September 1997, Cox Radio acquired KISS-FM, KSMG-FM and KLUP-AM in San
Antonio, Texas for an aggregate consideration of $30.4 million plus certain
non-compete agreements.
In January 1998, Cox Radio entered into an agreement to assign its option
to purchase KRIO-FM serving the San Antonio, Texas market for an aggregate
consideration of $0.3 million. This disposition was consummated in May 1998.
In February 1998, Cox Radio entered into an agreement to acquire the assets
of radio station WPYO-FM (formerly WTLN-FM) serving the Orlando, Florida market
for consideration of $14.5 million. Cox Radio has been operating WPYO-FM
pursuant to an LMA since January 1999. In a related transaction, Cox Radio
entered into an agreement to dispose of the assets of radio station WTLN-AM
(formerly WZKD-AM), also serving the Orlando, Florida market for $0.5 million.
Pending certain regulatory approvals, Cox Radio anticipates closing the
acquisition of WPYO-FM and the disposition of WTLN-AM in the first half of 1999.
In March 1998, Cox Radio acquired KONO-FM and KONO-AM in San Antonio, Texas
for $23 million.
In May 1998, Cox Radio acquired the assets of radio stations WBLI-FM,
WBAB-FM, WHFM-FM and WGBB-AM, serving the Nassau-Suffolk (Long Island), New York
market; for consideration of $48 million. In October 1998, Cox Radio entered
into an agreement with a third party to dispose of the assets of radio station
WGBB-AM for consideration of $1.7 million. Cox Radio anticipates consummating
this disposition in 1999.
In October 1998, Cox Radio consummated the acquisition of radio stations
WCLR-FM, WZLR-FM and WPTW-AM serving the Dayton, Ohio market for approximately
$6.3 million. Cox Radio had been operating these stations pursuant to an LMA
since December 1997. In November 1998, Cox Radio entered into an agreement to
dispose of WPTW-AM for approximately $0.1 million. Cox Radio expects to
consummate this disposition in the first half of 1999.
In November 1998, Cox Radio consummated the acquisition of radio stations
WBHJ-FM and WBHK-FM in Birmingham, Alabama for an aggregate consideration of $17
million. Cox Radio had been operating these stations pursuant to an LMA since
August 1997.
In November 1998, Cox Radio entered into an LMA for WEDA-FM in Homewood,
Alabama serving the Birmingham market. Cox Radio also acquired an option to
purchase the station, in September 1997, for an aggregate consideration of $5.5
million and the assumption of debt in an amount not to exceed $0.2 million. Cox
Radio has exercised this option and, pending certain regulatory approvals,
expects to consummate this acquisition in the first half of 1999.
In January 1999, Cox Radio acquired the assets of radio station WSUN-FM
(formerly WLVU-FM) serving the Tampa-St. Petersburg, Florida market in exchange
for the assets of WSUN-AM in Tampa-St. Petersburg, Florida and approximately $17
million. Cox Radio had been operating WSUN-FM pursuant to an LMA since September
1998.
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In January 1999, Cox Radio entered into an agreement to acquire KRTQ-FM
(formerly KTFX-FM) in Tulsa, Oklahoma for $3.5 million. Cox Radio also entered
into a Station Investment Note Receivable with the seller for $0.9 million which
is collateralized by substantially all the assets of the station. Cox Radio has
been operating this station pursuant to an LMA since January 1999. Pending
certain regulatory approvals, Cox Radio expects to consummate this acquisition
in December 1999.
In February 1999, Cox Radio entered into an agreement in principle to
acquire radio stations WVEZ-FM, WSFR-FM and the option to purchase WMHX-FM
serving the Louisville, Kentucky market and radio stations WFJO-FM, WHPT-FM and
WTBT-FM serving the Tampa-St. Petersburg, Florida market in exchange for Cox
Radio stations WYYY-FM, WBBS-FM, WWHT-FM, WHEN-AM and WSYR-AM serving the
Syracuse, New York market plus additional cash consideration presently estimated
at $94 million. In connection with obtaining regulatory approvals for these
transactions, Cox Radio has agreed to divest WRVI-FM and WLSY-FM in Louisville,
Kentucky. Pending certain regulatory approvals, Cox Radio expects to consummate
these transactions in the second half of 1999.
On December 21, 1998 and March 1, 1999, Cox Radio purchased shares of
common stock of USA Digital Radio, Inc., a developer of digital radio
broadcasting technology, for a total purchase price of $2.5 million. Cox Radio
will account for this investment under the cost method.
The following table summarizes certain information relating to radio
stations owned or operated by Cox Radio, assuming the consummation of all
pending transactions:
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AUDIENCE DEMOGRAPHIC GROUP
SHARE IN RANK IN (ADULTS 25-54)
TARGET TARGET TARGET -----------------
MARKET AND STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC AUDIENCE
CALL LETTERS(1) FORMAT GROUP GROUP GROUP SHARE RANK
------------------ ------ ----------- ----------- ----------- ----------- -----
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LOS ANGELES
KFI-AM Talk Adults 35-54 3.8 7 3.1 13
KOST-FM Adult Contemporary Women 25-44 5.5 3 4.1 3
KACE-FM R&B Oldies African American 11.7(2) 4(2) 1.2(2) 27(2)
Adults 35-54
KRTO-FM R&B Oldies African American -- -- -- --
Adults 35-54
ATLANTA
WSB-AM News/Talk Adults 35-64 12.1 1 8.6 1
WSB-FM Adult Contemporary Women 25-54 7.3 5 6.0 5
WJZF-FM Jazz Men 25-54 2.7 17 2.8 15
WCNN-AM(3) News/Talk Adults 35-64 0.6 25 0.5 24
MIAMI
WFLC-FM Hot Adult Contemporary Adults 25-54 4.9 4 4.9 4
WHQT-FM Urban Adult Adults 25-54 6.5 1 6.5 1
Contemporary
TAMPA
WWRM-FM Soft Adult Contemporary Women 35-54 8.1 2 5.0 8
WCOF-FM 70's Oldies Adults 25-44 5.2 7 4.7 9
WSUN-AM (formerly
WFNS-AM) 50's Oldies Adults 45-64 0.6 30 .1 44
WSUN-FM (formerly
WLVU-FM) 60's Oldies Adults 35-54 1.2 20 .9 24
WFJO-FM(4) Rhythmic Oldies Adults 25-44 2.4 13 2.5 14
WHPT-FM(4) Adult Rock Adults 25-54 3.5 13 3.5 13
WTBT-FM(4) Easy Listening Adults 45+ 2.4 12 9.4 1
</TABLE>
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<TABLE>
<CAPTION>
AUDIENCE DEMOGRAPHIC GROUP
SHARE IN RANK IN (ADULTS 25-54)
TARGET TARGET TARGET -----------------
MARKET AND STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC AUDIENCE
CALL LETTERS(1) FORMAT GROUP GROUP GROUP SHARE RANK
------------------ ------ ----------- ----------- ----------- ----------- -----
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ORLANDO
WDBO-AM News/Talk Adults 35-64 7.1 4 4.3 11
WWKA-FM Country Adults 25-54 7.8 3 7.8 3
WCFB-FM Urban Adult Women 25-54 6.1 6 5.4 8
Contemporary
WHOO-AM Standards Adults 55+ 10.7 3 .7 23
WHTQ-FM Classic Rock Men 25-54 7.3 4 4.8 10
WMMO-FM Rock Adult Contemporary Adults 25-54 6.3 4 6.3 4
WPYO-FM (formerly
WTLN-FM)(3)(4) Hit Radio Adults 18-34 --(5) --(5) --(5) --(5)
SAN ANTONIO
KCYY-FM Country Adults 25-54 4.9 9 4.9 9
KKYX-AM Classic Country Adults 35-64 2.0 20 0.9 21
KCJZ-FM Smooth Jazz Adults 25-54 3.7 12 3.7 12
KISS-FM Adult Oriented Rock Adults 18-49 7.4 4 5.3 7
KSMG-FM Hot Adult Contemporary Adults 25-54 8.2 2 8.2 2
KLUP-AM Adult Standards Adults 35-64 2.1 18 .7 25
KONO-FM Oldies Adults 25-54 6.3(6) 4(6) 6.3(6) 4(6)
KONO-AM Oldies Adults 25-54 -- -- -- --
LOUISVILLE
WRKA-FM Oldies Adults 35-54 8.5 4 6.5 5
WRVI-FM(7) Rock Adult Contemporary Adults 25-49 1.5 17 1.4 17
WLSY-FM(7) R&B Oldies Adults 35-54 2.2 13 1.4 17
WVEZ-FM(4) Adult Contemporary Adults 25-54 8.1 3 8.1 3
WSFR-FM(4)(9) Classic Rock Adults 25-54 6.8 4 6.8 4
WMHX-FM(8) Hot Adult Contemporary Adults 18-49 1.9 12 2.0 14
BIRMINGHAM
WZZK-FM Country Adults 25-54 9.9 2 9.9 2
WEZN-AM (formerly
WAGG-AM) Stardust Adults 50+ 7.7 3 1.1 20
WODL-FM Oldies Adults 25-54 6.2 6 6.2 6
WBHJ-FM Contemporary Hit Urban Adults 18-34 14.0 2 5.5 7
WBHK-FM Urban Adult Adults 25-54 10.8 1 10.8 1
Contemporary
WAGG-AM (formerly
WEZN-AM) Gospel Adults 25-54 3.1 12 3.1 12
WEDA-FM(3)(4)(9) Adult Hit Radio Adults 18-34 --(10) --(10) --(10) --(10)
DAYTON
WHIO-AM News/Talk Adults 35-64 5.5 4 3.9 9
WHKO-FM Country Adults 25-54 13.4 1 13.4 1
WCLR-FM Oldies Adults 35-54 6.0(11) 5(11) 4.5(11) 7(11)
WZLR-FM Oldies Adults 35-54 -- -- -- --
TULSA
KRMG-AM News/Talk Adults 25-54 9.3 3 9.3 3
KWEN-FM Country Adults 25-54 9.7 2 9.7 2
KJSR-FM 70's Oldies Adults 25-54 6.6 5 6.6 5
KRAV-FM Adult Contemporary Adults 25-54 5.7 8 5.7 8
KGTO-AM Standards Adults 55+ 8.3 5 .7 21
KRTQ-FM (formerly
KTFX-FM)(3)(4) Adult Oriented Rock Men 18-30 --(12) --(12) --(12) --(12)
BRIDGEPORT
WEZN-FM Adult Contemporary Adults 25-54 12.2(13) 2(13) 12.2(13) 2(13)
</TABLE>
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<TABLE>
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AUDIENCE DEMOGRAPHIC GROUP
SHARE IN RANK IN (ADULTS 25-54)
TARGET TARGET TARGET -----------------
MARKET AND STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC AUDIENCE
CALL LETTERS(1) FORMAT GROUP GROUP GROUP SHARE RANK
------------------ ------ ----------- ----------- ----------- ----------- -----
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LONG ISLAND
WBLI-FM Hot Adult Contemporary Adults 25-54 4.8 4 4.8 4
WBAB-FM Adult Oriented Rock Men 25-54 6.6(14) 3(14) 4.8(14) 4(14)
WHFM-FM Adult Oriented Rock Men 25-54 -- -- -- --
</TABLE>
Source: Arbitron 1998 Market Reports four-book average
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(1) Metropolitan market served; city of license may differ.
(2) Audience share and audience rank information for KACE-FM and KRTO-FM are
combined because the stations are simulcast.
(3) Station operated by Cox Radio pursuant to an LMA.
(4) Station to be acquired by Cox Radio.
(5) WPYO-FM format was changed in January 1999; therefore, the station's
audience share and audience rank information for 1998 are not applicable.
(6) Audience share and audience rank information for KONO-FM and KONO-AM are
combined because the stations are simulcast.
(7) Cox Radio has agreed to divest of these stations in connection with
obtaining regulatory approval for the acquisition of WVEZ-FM, WSFR-FM and
the option to purchase WMHX-FM in Louisville, Kentucky.
(8) Cox Radio will accept assignment of a JSA and purchase option for this
station.
(9) Station is operating pursuant to program test authority. An application for
the station's initial license is pending before the Federal Communications
Commission.
(10) WEDA-FM commenced operations in November 1998; therefore, audience share
and audience rank information for 1998 are not applicable.
(11) Audience share and audience rank information for WCLR-FM and WZLR-FM are
combined because the stations are simulcast.
(12) KRTQ-FM format was changed in January 1999; therefore applicable audience
share and audience rank information for 1998 are not applicable.
(13) Audience share and rank data is based only on Arbitron Market Reports for
Fall 1998 and Spring 1998 because Arbitron does not produce Summer and
Winter Arbitron Market Reports for the Bridgeport/Fairfield County market.
(14) Audience share and audience rank information for WBAB-FM and WHFM-FM are
combined because the stations are simulcast.
WSB, INC. AND WHIO, INC. MERGERS
WHIO, Inc., a Delaware corporation, and WSB, Inc., a Delaware corporation,
both wholly-owned subsidiaries of Cox Radio, were merged with and into Cox Radio
on November 1, 1998, and November 10, 1998, respectively.
LICENSE DROP-DOWN
On January 1, 1999, Cox Radio transferred the licenses, permits and
authorizations it held from the Federal Communications Commission in respect of
the radio stations it owns (other than in respect of the radio stations it owns
in the states of California and Florida and WGBB-AM and WPTW-AM) to CXR
Holdings, Inc., a Nevada corporation and wholly-owned subsidiary of Cox Radio.
OPERATING STRATEGY
The following is a description of the key elements of Cox Radio's operating
strategy:
Clustering of Stations
Cox Radio operates its stations in clusters to:
- Enhance net revenue growth by increasing the appeal of Cox Radio's
stations to advertisers and enabling such stations to compete more
effectively with other forms of advertising and
- Achieve operating efficiencies by consolidating broadcast facilities,
eliminating duplicative positions in management and production and
reducing overhead expenses.
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Management believes that operating several radio stations in each of its
markets will enable its sales teams to offer advertisers more attractive
advertising packages. Furthermore, as radio groups achieve significant audience
share, they can deliver to advertisers the audience reach that historically only
television and newspapers could offer, with the added benefit of frequent
exposure to advertisers' target customers. Management believes that Cox Radio's
clusters of stations, and their corresponding audience share, provide
opportunities to capture an increased share of total advertising revenue in each
of its markets.
Development of Underperforming Stations
Cox Radio's management has demonstrated its ability to acquire
underperforming radio stations and develop them into consistent ratings and
revenue leaders. Cox Radio's historic margins reflect the acquisition and
continued development of underperforming stations, as well as the fact that
increases in net revenue are typically realized subsequent to increases in
audience share. Management believes that a number of its stations have
significant growth opportunities or turnaround potential and can therefore be
characterized as developing stations.
Implementation of Cox Radio's Management Philosophy
Cox Radio's local station operations are supported by a lean corporate
staff which employs a management philosophy emphasizing:
- Market research and targeted programming
- A customer-focused selling strategy; and
- Marketing and promotional activities.
Market Research and Targeted Programming. Cox Radio's research,
programming and marketing strategy combines extensive research with an
assessment of competitors' vulnerabilities and market dynamics in order to
identify specific audience opportunities within each market. Cox Radio also
retains consultants and research organizations to continually evaluate listener
preferences. Using this information, Cox Radio tailors the programming,
marketing and promotions of each station to maximize its appeal to its target
audience. Cox Radio's disciplined application of market research enables each of
its stations to be responsive to the changing preferences of its targeted
listeners. This approach focuses on the needs of the listener and its community
and is designed to improve ratings and maximize the impact of advertising for
Cox Radio's customers.
Through its research, programming and marketing, Cox Radio also seeks to
create a distinct and marketable local identity for each of its stations in
order to enhance audience share and listener loyalty and to protect against
direct format competition. To achieve this objective, Cox Radio employs and
promotes distinct high-profile on-air personalities and local sports programming
at many of its stations. For example, Cox Radio broadcasts "Dr. Laura" in Los
Angeles, Dayton, Syracuse, Tulsa and Orlando; "Rush Limbaugh" in Los Angeles,
Orlando, Syracuse and Tulsa; the Atlanta Braves in Atlanta and Tampa; and the
Orlando Magic in Orlando.
Customer-Focused Selling Strategy. Cox Radio has implemented a unique,
customer-focused approach to selling advertising known as the Consultative
Selling System. Cox Radio's sales personnel are trained to approach each
advertiser with a view towards solving the marketing needs of the customer. In
this regard, the sales staff consults with customers, attempts to understand
their business goals and offers comprehensive marketing solutions, including the
use of radio advertising. Instead of merely selling station advertising time,
Cox Radio's sales personnel are encouraged to develop innovative marketing
strategies for the station's advertising customers.
Marketing and Promotional Activities. Cox Radio's stations regularly
engage in significant local promotional activities, including advertising on
local television and in local print media, participating in telemarketing and
direct mailings and sponsoring contests, concerts and events. Special events may
include
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charitable athletic events, events centered around a major local occasion or
local ethnic group and special community or family events. Cox Radio also
engages in joint promotional activities with other media in its markets to
further leverage its promotional spending. These promotional efforts help Cox
Radio's stations add new listeners and increase the amount of time spent
listening to the stations.
Strong Management Teams
In addition to relying upon its experienced senior operating management,
Cox Radio places great importance on the hiring and development of strong local
management teams and has been successful in retaining experienced management
teams that have strong ties to their communities and customers.
Cox Radio invests significant resources in identifying and training
employees to create a talented team of managers at all levels of station
operations. These resources include:
- Gallup/SRI, which helps Cox Radio identify and select talented
individuals for management and sales positions;
- Center for Sales Strategy, an independent sales and management training
company which trains and develops managers and sales executives; and
- A program of leadership development conducted by Cox Radio's senior
operating management and outside consultants.
Local managers are empowered to run the day-to-day operations of their
stations and to develop and implement policies that will improve station
performance and establish long-term relationships with listeners and
advertisers. The compensation of the senior operating management team and local
station managers is dependent upon financial performance and linked to
participation in Cox Radio's Long-Term Incentive Plan. See Note 10 to the Cox
Radio's Consolidated Financial Statements included elsewhere herein.
ACQUISITION STRATEGY
During the last several years, Cox Radio has implemented its clustering
strategy through the acquisition of radio stations in several of its existing
markets. Management believes that recent changes in federal regulations will
allow Cox Radio to continue to pursue its acquisition strategy. The
Telecommunications Act of 1996 removed the limit on the number of radio stations
an operator may own nationwide and increased the number of radio stations an
operator may own in a single market. As a result of this legislation, the
competitive landscape in the radio broadcasting industry is changing. Management
believes that larger, well-capitalized companies with experienced management,
such as Cox Radio, are best positioned to take advantage of this changing
environment. Management considers the following factors when making an
acquisition:
Market Selection Considerations
Cox Radio's acquisition strategy has been focused on clustering stations in
its existing markets. In the future, Cox Radio will seek to make opportunistic
acquisitions in additional markets in which Cox Radio believes that it can
cost-effectively achieve a leading position in terms of audience and revenue
share. Management also believes that Cox Radio will have the financial resources
and management expertise to continue to pursue its acquisition strategy. Certain
future acquisitions may be limited by the multiple and cross-ownership rules of
the Federal Communications Commission. See "-- Federal Regulation of
Broadcasting -- General Ownership Matters" and "-- Proposed Changes."
Station Considerations
Cox Radio expects to concentrate on acquiring radio stations that offer,
through application of Cox Radio's operating philosophy, the potential for
improvement in the stations' performance, particularly its broadcast cash flow.
Such stations may be in various stages of development, presenting Cox Radio with
an
8
<PAGE> 11
opportunity to apply its management techniques and to enhance asset value. In
evaluating potential acquisitions, Cox Radio considers the strength of a
station's broadcast signal. A powerful broadcast signal enhances delivery range
and clarity, thereby influencing listener preference and loyalty. Cox Radio also
assesses the strategic fit of an acquisition with its existing clusters of radio
stations. When entering a new market, Cox Radio expects to acquire a "platform"
upon which to expand its portfolio of stations and to build a leading cluster of
stations.
INDUSTRY OVERVIEW
The primary source of revenues for radio stations is generated from the
sale of advertising time to local and national spot advertisers and national
network advertisers. During the past decade, local advertising revenue as a
percentage of total radio advertising revenue in a given market has ranged from
approximately 75% to 80% according to the Radio Advertising Bureau. The growth
in total radio advertising revenue tends to be fairly stable and has generally
grown at a rate faster than the Gross National Product. With the exception of
1991, when total radio advertising revenue fell by approximately 2.8% compared
to the prior year, advertising revenue has risen in each of the 15 years through
1997 (the most recent year for which this information is available), more
rapidly than both inflation and the Gross National Product. Total domestic radio
advertising revenue in 1997 of $13.6 billion, as reported by the Radio
Advertising Bureau, was at its highest level in the industry's history.
According to the Radio Advertising Bureau's Radio Marketing Guide and Fact
Book for Advertisers, 1998, radio reaches approximately 96% of all Americans
over the age of 12 every week. More than one-half of all radio listening is done
outside the home, in contrast to other advertising media, and three out of four
adults are reached by car radio each week. The average listener spends
approximately three hours and 11 minutes per day listening to radio. Most radio
listening occurs during the morning, particularly between the time a listener
wakes up and the time the listener reaches work. Radio programming during this
"morning drive time" period reaches more than 82% of people over the age of 12
on a weekly basis, and, as a result, radio advertising sold during this period
achieves premium advertising rates. Radio listeners have gradually shifted over
the years from AM to FM stations. FM reception, as compared to AM, is generally
clearer and provides greater tonal range and higher fidelity. In comparison to
AM, FM's listener share is now in excess of 75%, despite the fact that the
number of AM and FM commercial stations in the United States is approximately
equal.
Radio is considered an efficient, cost-effective means of reaching
specifically identified demographic groups. Stations are typically classified by
their on-air format, such as country, adult contemporary, oldies and news/talk.
A station's format and style of presentation enables it to target certain
demographics. By capturing a specific share of a market's radio listening
audience, with particular concentration in a targeted demographic, a station is
able to market its broadcasting time to advertisers seeking to reach a specific
audience. Advertisers and stations utilize data published by audience measuring
services, such as Arbitron, to estimate how many people within particular
geographical markets and demographics listen to specific stations.
The number of advertisements that can be broadcast without jeopardizing
listening levels (and the resulting ratings) is limited in part by the format of
a particular station and the local competitive environment. Although the number
of advertisements broadcast during a given time period may vary, the total
number of advertisements broadcast on a particular station generally does not
vary significantly from year to year.
A station's local sales staff generates the majority of its local and
regional advertising sales through direct solicitations of local advertising
agencies and businesses. To generate national advertising sales, a station
usually will engage a firm that specializes in soliciting radio advertising
sales on a national level. National sales representatives obtain advertising
principally from advertising agencies located outside the station's market and
receive commissions based on the revenue from the advertising obtained.
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<PAGE> 12
COMPETITION; CHANGES IN THE BROADCASTING INDUSTRY
The radio broadcasting industry is a highly competitive business. The
success of each of Cox Radio's stations depends largely upon its audience
ratings and its share of the overall advertising revenue within its market. Cox
Radio's stations compete for listeners directly with other radio stations in
their respective markets primarily on the basis of program content that appeals
to a target demographic group. By building a strong listener base consisting of
a specific demographic in each of its markets, Cox Radio is able to attract
advertisers seeking to reach those listeners. Cox Radio's stations compete for
advertising revenue directly with other radio stations and with other electronic
and print media within their respective markets.
Factors that are material to a station's competitive position include
management experience, the station's audience share rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance, and the number and characteristics of other stations in the market
area. Cox Radio attempts to improve its competitive position with promotional
campaigns aimed at the demographics targeted by its stations and by sales
efforts designed to attract advertisers. Recent changes in the law have
increased the number of radio stations a broadcaster may own in a given market
and permit, within limits, joint arrangements with other stations in a market
relating to programming, advertising sales, and station operations. Management
believes that radio stations that elect to take advantage of these opportunities
may, in certain circumstances, have lower operating costs and may be able to
offer advertisers more attractive rates and services.
Although the radio broadcasting industry is highly competitive, some
barriers to entry exist. The operation of a radio broadcast station requires a
license from the Federal Communications Commission. The number of radio stations
that a single entity may own and operate in a given market is limited by the
availability of FM and AM radio frequencies allotted by the Federal
Communications Commission to communities in that market, as well as by the
Federal Communications Commission's multiple ownership rules. These rules
regulate the number of stations that may be owned and controlled by a single
entity. The Federal Communications Commission also recently initiated a
rulemaking proceeding to consider the use of competitive bidding procedures
(auctions) to award licenses or construction permits for new broadcast stations
to the highest bidder. The Federal Communications Commission also will subject
to auction pending and future applications by licensees to make major changes in
their existing facilities, where such applications would be mutually exclusive
with other licensees' applications.
Cox Radio's stations compete for advertising revenue with other radio
stations and with other electronic and print media. Potential advertisers can
substitute advertising through broadcast television, cable television systems
(which can offer concurrent exposure on a number of cable networks to enlarge
the potential audience), daily, weekly, and free-distribution newspapers, other
print media, direct mail, and on-line computer services for radio advertising.
Competing media commonly target the customers of their competitors, and
advertisers regularly shift dollars from radio to these competing media and vice
versa. Accordingly, there can be no assurance that any of Cox Radio's stations
will be able to maintain or increase its advertising revenue share. In addition,
the radio broadcasting industry is subject to competition from new media
technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems, by satellite digital audio radio
service, and by digital audio broadcasting. Digital audio broadcasting and
satellite digital audio radio service provide for the delivery by terrestrial or
satellite means of multiple new audio programming formats with compact disc
quality sound to local and national audiences. The delivery of information
through the Internet also could create a new form of competition. The radio
broadcasting industry historically has grown despite the introduction of new
technologies for the delivery of entertainment and information, such as
broadcast television, cable television, audio tapes and compact discs. A growing
population and greater availability of radios, particularly car and portable
radios, have contributed to this growth. There can be no assurance, however,
that the development or introduction in the future of any new media technology
will not have an adverse effect on the radio broadcasting industry.
10
<PAGE> 13
Cox Radio cannot predict what other matters might be considered in the
future by the Federal Communications Commission, nor can it assess in advance
what impact, if any, the implementation of any Federal Communications Commission
proposals or changes might have on its business.
FEDERAL REGULATION OF RADIO BROADCASTING
The ownership, operation and sale of radio stations, including those
licensed to Cox Radio, are subject to the jurisdiction of the Federal
Communications Commission, which acts under authority granted by the
Communications Act of 1934, as amended. Among other things, the Federal
Communications Commission assigns frequency bands for broadcasting, determines
the particular frequencies, locations and operating power of stations, issues,
renews and modifies station licenses, determines whether to approve changes in
ownership or control of station licenses, regulates equipment used by stations,
adopts and implements regulations and policies that directly or indirectly
affect the ownership, operation, program content, employment practices, and
business of stations, and has the power to impose penalties, including license
revocations, for violations of its rules or the Communications Act of 1934, as
amended.
The Telecommunications Act of 1996, which significantly amended the
Communications Act of 1934, as amended, in numerous respects, dramatically
changed the ground rules for competition and regulation in virtually all sectors
of the telecommunications industry, including broadcasting, local and
long-distance telephone services, cable television services and
telecommunications equipment manufacturing. In addition, the Telecommunications
Act of 1996 imposed numerous requirements on the Federal Communications
Commission to launch new inquiries and rulemaking proceedings, perhaps 80 in
all, involving a multitude of telecommunications issues, including those
described herein that will directly affect the broadcast industry. The
Telecommunications Act of 1996 mandated that such rulemaking proceedings be
completed within certain time frames, in some cases as short as six months. Some
of these proceedings have been completed while others remain pending.
The following is a brief summary of certain provisions of the
Communications Act of 1934, as amended by the Telecommunications Act of 1996,
and of specific Federal Communications Commission rules and policies. Reference
should be made to the Communications Act of 1934, as amended, Federal
Communications Commission rules and public notices and rulings of the Federal
Communications Commission for further information concerning the nature and
extent of Federal Communications Commission regulation of broadcast stations.
License Renewal
Broadcast station licenses are subject to renewal upon application to the
Federal Communications Commission. All radio station licenses have a term of
eight years. All licenses renewed as part of the current renewal cycle will have
a term of eight years. The Federal Communications Commission will renew a
broadcast license if it determines that the "public convenience, interest or
necessity" will be served thereby. During a specified period after an
application for renewal of a broadcast station license has been filed, persons
objecting to the renewal may file petitions to deny the application. Competing
applications for the license, however, will not be accepted unless the current
licensee's renewal application is denied. Also, during the period when a renewal
application is pending (generally four months prior to expiration of the
license), the transferability of the applicant's license may be restricted.
Historically, Cox Radio's management has not experienced any material
difficulty in obtaining renewal from the Federal Communications Commission of
any of the broadcast licenses for stations under its control.
11
<PAGE> 14
The following table sets forth selected information concerning each of the
stations owned, or operated pursuant to an LMA, by Cox Radio, including the date
on which each such station's Federal Communications Commission license expires
(a station may continue to operate beyond the expiration date if a timely-filed
license renewal application is pending), assuming the consummation of all
pending transactions:
<TABLE>
<CAPTION>
EXPIRATION
MARKET AND STATION DATE OF HEIGHT ABOVE
CALL LETTERS(1) FREQUENCY LICENSE CLASS AVERAGE TERRAIN POWER
- ------------------ --------- ---------- ----- --------------- -----
<S> <C> <C> <C> <C> <C>
LOS ANGELES
KFI-AM 640 KHz 12/1/05 A N.A. 50 kw
KOST-FM 103.5 MHz 12/1/05 B 949 m 12.5 kw
KACE-FM 103.9 MHz 12/1/05 A 118 m 4.1 kw
KRTO-FM 98.3 MHz 12/1/05 A 306 m .6 kw
ATLANTA
WSB-AM 750 KHz 4/1/04 A N.A. 50 kw
WSB-FM 98.5 MHz 4/1/04 C 313 m 100 kw
WJZF-FM 104.1 MHz 4/1/04 C1 371 m 60 kw
WCNN-AM(2) 680 KHz 4/1/04 B N.A. 50 kw day
10 kw night
MIAMI
WFLC-FM 97.3 MHz 2/1/04 C 307m 100 kw
WHQT-FM 105.1 MHz 2/1/04 C 307m 100 kw
TAMPA
WWRM-FM 94.9 MHz 2/1/04 C 392 m 95 kw
WCOF-FM 107.3 MHz 2/1/04 C1 182 m 100 kw
WSUN-AM
(formerly
WFNS-AM) 910 KHz 2/1/04 B N.A. 5 kw
WSUN-FM
(formerly
WLVU-FM) 97.1 MHz 2/1/04 C2 224 m 11.5 kw
WHPT-FM(3) 102.5 MHz 2/1/04 C 503 m 100 kw
WFJO-FM(3) 101.5 MHz 2/1/04 C 415 m 100 kw
WTBT-FM(3) 105.5 MHz 2/1/04 C1 410 m 46 kw
ORLANDO
WDBO-AM 580 KHz 2/1/04 B N.A. 5 kw
WWKA-FM 92.3 MHz 2/1/04 C 408 m 98 kw
WCFB-FM 94.5 MHz 2/1/04 C 448 m 96 kw
WHTQ-FM 96.5 MHz 2/1/04 C 487 m 100 kw
WMMO-FM 98.9 MHz 2/1/04 C2 134 m 38 kw
WHOO-AM 990 KHz 2/1/04 B N.A. 50 kw day
5 kw night
WPYO-FM
(formerly
WTLN-FM)(2)(3) 95.3 MHz 2/1/04 A 96 m 6 kw
SAN ANTONIO
KCYY-FM 100.3 MHz 8/1/05 C 300 m 98 kw
KCJZ-FM 106.7 MHz 8/1/05 C 310 m 100 kw
KKYX-AM 680 KHz 8/1/05 B N.A. 50 kw
10 kw night
KISS-FM 99.5 MHz 8/1/05 C 339 m 100 kw
KSMG-FM 105.3 MHz 8/1/05 C 381 m 95 kw
KLUP-AM 930 KHz 8/1/05 B N.A. 5 kw
KONO-AM 860 KHz 8/1/05 B N.A. 5 kw day
0.9 kw night
KONO-FM 101.1 MHz 8/1/05 C1 302 m 97 kw
LOUISVILLE
WRKA-FM 103.1 MHz 8/1/04 A 95 m 6 kw
WLSY-FM (4) 94.7 MHz 8/1/04 A 118 m 2.15 kw
WRVI-FM (4) 105.9 MHz 8/1/04 A 126 m 1.9 kw
WSFR-FM(3) 107.7 MHz 8/1/04 B1 173 m 8.2 kw
WVEZ-FM(3) 106.9 MHz 8/1/04 B 204 m 24.5 kw
WMHX-FM(5) 103.9 MHz 8/1/04 A 149 m 1.35 kw
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
EXPIRATION
MARKET AND STATION DATE OF HEIGHT ABOVE
CALL LETTERS(1) FREQUENCY LICENSE CLASS AVERAGE TERRAIN POWER
- ------------------ --------- ---------- ----- --------------- -----
<S> <C> <C> <C> <C> <C>
BIRMINGHAM
WZZK-FM 104.7 MHz 4/1/04 C 396 m 99 kw
WODL-FM 106.9 MHz 4/1/04 C 351 m 99 kw
WAGG-AM
(formerly
WEZN-AM) 610 KHz 4/1/04 B N.A. 5 kw day
1 kw night
WEZN-AM
(formerly
WAGG-AM) 1320 KHz 4/1/04 D N.A. 5 kw day
0.111 kw night
WBHK-FM 98.7 MHz 4/1/04 C2 343 m 9.4 kw
WBHJ-FM 95.7 MHz 4/1/04 C1 299 m 100 kw
WEDA-
FM(2)(3)(6) 97.3 MHz N.A. A 306 m .64 kw
DAYTON
WHIO-AM 1290 KHz 10/1/04 B N.A 5 kw
WHKO-FM 99.1 MHz 10/1/04 B 325 m 50 kw
WCLR-FM 95.7 MHz 10/1/04 B 145 m 50 kw
WZLR-FM 95.3 MHz 10/1/04 A 98 m 6 kw
TULSA
KWEN-FM 95.5 MHz 6/1/05 C 405 m 96 kw
KJSR-FM 103.3 MHz 6/1/05 C 390 m 100 kw
KRAV-FM 96.5 MHz 6/1/05 C 405 m 96 kw
KGTO-AM 1050 KHz 6/1/05 D N.A. 1 kw day
0.022 kw night
KRMG-AM 740 KHz 6/1/05 B N.A. 50 kw day
KRTQ-FM
(formerly
KTFX-FM)(2)(3) 102.3 MHz 6/1/05 C2 150 m 50 kw day
25 kw night
BRIDGEPORT
WEZN-FM 99.9 MHz 4/1/06 B 204 m 27.5 kw
LONG ISLAND
WBLI-FM 106.1 MHz 6/1/06 B 152 m 49 kw
WBAB-FM 102.3 MHz 6/1/06 A 82 m 3 kw
WHFM-FM 95.3 MHz 6/1/06 A 108 m 5 kw
</TABLE>
- ---------------
(1) Metropolitan market served; city of license may differ.
(2) Cox Radio provides programming to this station pursuant to an LMA.
(3) Station to be acquired by Cox Radio.
(4) Cox Radio has agreed to divest of these stations in connection with
obtaining regulatory approval for the acquisition of WVEZ-FM, WSFR-FM and
the option to purchase WMHX-FM in Louisville, Kentucky.
(5) Cox Radio will accept assignment of a JSA and purchase option for this
station.
(6) Station is operating pursuant to program test authority. An application for
the station's initial license is pending before the Federal Communications
Commission.
General Ownership Matters
In determining whether to grant or renew a broadcast license, the Federal
Communications Commission considers a number of factors pertaining to the
licensee, including compliance with the statutory limitations on alien (foreign)
ownership; compliance with various rules limiting common ownership of broadcast,
cable and newspaper properties; and the "character" of the licensee and those
persons holding "attributable" interests in the licensee. In the case of
corporations holding broadcast licenses, the interests of officers, directors
and those who, directly or indirectly, have the right to vote 5% or more of the
corporation's voting stock are generally deemed to be attributable, as are
positions of an officer or director of a corporate parent of a broadcast
licensee. The Federal Communications Commission treats all partnership interests
as attributable, except for those limited partnership interests that are
"insulated" by the terms of the limited partnership agreement from "material
involvement" in the media related activities of the partnership under Federal
Communications Commission policies. Stock interests
13
<PAGE> 16
held by certain "passive institutional investors" only become attributable with
the ownership of 10% or more of the stock of a corporation holding a broadcast
license.
Cox Radio's indirect parent, Cox Enterprises, has attributable ownership
interests in television stations located in:
- Orlando, Florida;
- Charlotte, North Carolina;
- Pittsburgh, Pennsylvania;
- Dayton, Ohio;
- Atlanta, Georgia;
- Oakland, California;
- El Paso, Texas;
- Seattle, Washington; and
- Reno, Nevada.
Cox Enterprises also has attributable ownership interests in daily
newspapers located in:
- Grand Junction, Colorado;
- Palm Beach, Florida;
- Atlanta, Georgia;
- Greenville, Rocky Mount and Elizabeth City, North Carolina;
- Dayton and Springfield, Ohio; and
- Austin, Longview, Lufkin, Waco, Nacogdoches, Marshall and Jefferson,
Texas.
Cox Enterprises has a non-attributable ownership interest in a daily
newspaper located in Daytona Beach, Florida.
Paul J. Rizzo, a director of Cox Enterprises, is a director of The
McGraw-Hill Companies, Inc. which, through a wholly-owned subsidiary, owns and
operates the following television stations:
- KMGH-TV, Denver, Colorado;
- WRTV, Indianapolis, Indiana;
- KERO-TV, Bakersfield, California; and
- KGTV, San Diego, California.
Mr. Rizzo has no involvement in the day-to-day operations and management of
any of the McGraw-Hill television stations, only one of which, KERO-TV, is
located in a market (Los Angeles, CA) in which Cox Radio owns radio stations.
None of the other officers, directors or, to Cox Radio's knowledge, 5% or
greater shareholders of the voting stock of Cox Radio or of its subsidiaries has
any attributable interest in any broadcast stations other than through Cox Radio
and its subsidiaries.
The Communications Act of 1934, as amended, prohibits the assignment of a
broadcast license or the transfer of control of a broadcast licensee without the
prior approval of the Federal Communications Commission. To obtain the Federal
Communications Commission's prior consent to assign or transfer a broadcast
license, appropriate applications must be filed with the Federal Communications
Commission. Depending on whether the application involves the assignment of the
license or a "substantial change" in ownership or control (e.g., the transfer of
more than 50% of the voting stock), the application may be required to go on
public notice for a period of approximately 30 days during which petitions to
deny the application may be filed by interested parties, including members of
the public. When passing on an
14
<PAGE> 17
assignment or transfer application, the Federal Communications Commission is
prohibited from considering whether the public interest might be served by an
assignment or transfer to any party other than the assignee or transferee
specified in the application.
The Federal Communications Commission has a "cross-interest" policy that
under certain circumstances could prohibit a person or entity with an
attributable interest in a broadcast station or daily newspaper from having a
"meaningful" non-attributable interest in another broadcast station or daily
newspaper in the same local market. Among other things, "meaningful" interests
could include significant equity interests (including non-voting stock, voting
stock, and limited partnership interests) and significant employment positions.
This policy may limit the permissible acquisitions and investments Cox Radio may
make and the permissible investments a purchaser of Cox Radio's common stock may
make or hold. If the Federal Communications Commission determines that a
stockholder of Cox Radio has violated this cross-interest policy, Cox Radio may
be unable to obtain from the Federal Communications Commission one or more
authorizations needed to conduct its radio station business and may be unable to
obtain Federal Communications Commission consents for certain future
acquisitions. As part of its rulemaking proceedings soliciting public comment on
various proposals to modify its broadcast attribution policies, the Federal
Communications Commission also has requested public comment on whether to
eliminate or codify the remaining aspects of the cross-interest policy with
respect to significant employment positions, non-attributable equity interests
and joint venture arrangements.
Local Radio Ownership Rule
The Federal Communications Commission's local radio multiple ownership rule
provides for certain limits on the number of radio stations that one entity may
own in a local geographic market. These limits are as follows:
(a) In a radio market with 45 or more commercial radio stations, a
party may own, operate or control up to eight commercial radio stations,
not more than five of which are in the same broadcast service (i.e., AM or
FM);
(b) In a radio market with between 30 and 44 (inclusive) commercial
radio stations, a party may own, operate or control up to seven commercial
radio stations, not more than four of which are in the same broadcast
service;
(c) In a radio market with between 15 and 29 (inclusive) commercial
radio stations, a party may own, operate or control up to six commercial
radio stations, not more than four of which are in the same broadcast
service; and
(d) In a radio market with 14 or fewer commercial radio stations, a
party may own, operate or control up to five commercial radio stations, not
more than three of which are in the same broadcast service, except that a
party may not own, operate or control more than 50 percent of the stations
in the market.
Notwithstanding the limits contained in the Federal Communications
Commission's local radio multiple ownership rule, the Federal Communications
Commission has the authority to permit any person or entity to own, operate or
control, or have an attributable ownership interest in a number of radio
broadcast stations in excess of the rule's limits if the Federal Communications
Commission determines that such ownership, operation, control or interest will
result in an increase in the number of radio broadcast stations that are in
operation. Although the Telecommunications Act of 1996, which granted the
Federal Communications Commission such authority, does not explain the intent or
rationale for this provision, Cox Radio believes that this exception may apply
to newly-constructed stations and/or stations that have been off the air but are
resuming broadcast operations.
The Federal Communications Commission does not regulate the number of radio
stations that may be owned or controlled by one entity nationally.
15
<PAGE> 18
Local Marketing Agreements and Joint Sales Agreements
Over the past several years, a significant number of radio broadcast
licensees, including Cox Radio, have entered into local marketing agreements, or
LMAs, and joint sales agreements, or JSAs. Under a typical LMA, separately-owned
and licensed radio stations serving a common geographic area agree to function
cooperatively in terms of programming, advertising sales, etc., subject to the
licensee of each station maintaining independent control over the programming
and station operations of its own station and subject to compliance with other
requirements of the Federal Communications Commission's rules and policies as
well as the antitrust laws. The LMA concept is referred to in the Federal
Communications Commission rules as "time brokerage" under which a licensee of a
station is permitted to sell the right to broadcast blocks of time on its
station to an entity or entities which program the blocks of time and sell their
own commercial advertising announcements for their own account during the time
periods in question. Under a typical JSA, two separately-owned radio stations
serving a common service area agree to function cooperatively in terms of
advertising sales only. Under such an arrangement, the licensee of one station
sells the advertising time on the other licensee's station for its own account
but does not provide any programming to the other licensee's station. This
arrangement is also subject to ultimate control by the latter licensee.
LMAs between two radio stations in the same market that involve more than
15% of the brokered station's broadcast hours per week are treated as if the
brokered station were owned by the brokering station for purposes of the Federal
Communications Commission's local radio multiple ownership rule. A broadcast
station, therefore, is not permitted to enter into an LMA giving it the right to
program more than 15% of the broadcast time, on a weekly basis, of another local
station which it would not be permitted to own under the Federal Communications
Commission's local radio multiple ownership rule. A JSA where no programming is
provided is not considered an attributable ownership interest under current
Federal Communications Commission rules. However, in connection with its
broadcast attribution rulemaking proceeding, the Federal Communications
Commission is considering revising its attribution rules to deem attributable,
for purposes of applying the ownership rules, interests in JSAs where the
brokered and brokering stations serve substantially the same market.
Cross-Ownership Rules
The Federal Communications Commission's radio/television cross ownership
rule generally prohibits a single individual or entity from having an
attributable interest in a television station and a radio station serving the
same market, although the Federal Communications Commission will waive this rule
under certain circumstances and is considering elimination of the rule or
relaxing its policy for granting waivers. The Federal Communications
Commission's rules also prohibit the common ownership of a radio station and a
daily newspaper in the same market, and the Federal Communications Commission is
considering changes to what is currently a very limited waiver policy. Pursuant
to these and certain Federal Communications Commission multiple ownership rules
discussed above, a purchaser of Cox Radio's common stock who acquires an
attributable interest in Cox Radio may violate and may cause Cox Radio to
violate the Federal Communications Commission's ownership rules if such
purchaser also has an attributable interest in other television or radio
stations, or in daily newspapers, depending on the number and location of those
radio or television stations or daily newspapers. Such a purchaser also may be
restricted in the companies in which it may invest, to the extent that those
investments give rise to an attributable interest. If a stockholder of Cox Radio
who holds an attributable interest in Cox Radio violates any of these ownership
rules, Cox Radio may be unable to obtain from the Federal Communications
Commission one or more authorizations needed to conduct its radio station
business and may be unable to obtain Federal Communications Commission consent
for certain future acquisitions.
Under the Telecommunications Act of 1996, the Federal Communications
Commission is required to review all of its broadcast ownership rules every
other year to determine whether the public interest dictates that such rules be
repealed or modified.
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<PAGE> 19
Programming and Operation
The Communications Act of 1934 requires broadcasters to serve the "public
interest." Since the late 1970s, the Federal Communications Commission gradually
has relaxed or eliminated many of the more formalized procedures it had
developed to promote the broadcast of certain types of programming responsive to
the needs of a station's community of license. However, licensees are still
required to present programming that is responsive to community problems, needs
and interests and to maintain certain records demonstrating such responsiveness.
Stations also must follow various rules promulgated under the Communications Act
of 1934, as amended, that regulate, among other things, political advertising,
sponsorship identification, the advertisement of contests and lotteries, obscene
and indecent broadcasts and technical operations, including limits on radio
frequency radiation.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
short-term (i.e., less than the full term) renewals or, for particularly
egregious violations, the denial of a license renewal application or the
revocation of a license.
Proposed Changes
Congress and the Federal Communications Commission have under
consideration, and may in the future consider and adopt, new laws, regulations
and policies regarding a wide variety of matters that could, directly or
indirectly:
- Affect the operation, ownership and profitability of Cox Radio and its
radio broadcast stations;
- Result in the loss of audience share and advertising revenue of Cox
Radio's radio broadcast stations; and
- Affect the ability of Cox Radio to acquire additional radio broadcast
stations or to finance such acquisitions.
Such matters include, for example:
- Changes to the license renewal process;
- Proposals to impose spectrum use fees or other governmentally-imposed
fees upon licensees;
- Proposals to adopt equal employment opportunity rules and other matters
relating to minority and female involvement in broadcasting;
- Proposals to repeal or modify some or all of the Federal Communications
Commission's multiple ownership rules and/or policies;
- Proposals to modify the attribution rules, such as increasing the
benchmarks or thresholds for attributing ownership interests in broadcast
media;
- Proposals to change rules or policies relating to political broadcasting;
- Technical and frequency allocation matters, including those relative to
the implementation of digital audio broadcasting, satellite digital audio
radio service, and AM stereo broadcasting;
- Proposals to permit expanded use of FM translator stations and low power
FM stations;
- Proposals to restrict or prohibit the advertising of beer, wine and other
alcoholic beverages on radio;
- Changes in the Federal Communications Commission's "cross-interest" and
alien ownership rules and policies;
- Changes in the Federal Communications Commission's cross-ownership rules;
- Changes to technical requirements for broadcast services;
- Proposals to allow telephone companies to deliver audio and video
programming to homes through existing phone lines; and
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<PAGE> 20
- Proposals to limit the tax deductibility of advertising expenses by
advertisers.
In addition, the Federal Communications Commission has adopted rules
pursuant to which it will auction to the highest bidder the right to use the
radio broadcast spectrum where there are mutually exclusive applications for use
of such radio broadcast spectrum. Auctions will now be used to resolve mutual
exclusivity among applications for new stations and major changes in existing
stations. The Federal Communications Commission has not yet adopted procedural
rules to govern broadcast auctions. Consequently, pending applications for major
modifications are presently "frozen" and will not be acted upon by the Federal
Communications Commission pending the adoption of auction procedure rules. Cox
Radio's pending and future applications for major modifications may become
subject to auction proceedings if they are found to be mutually exclusive with
modification applications filed by other radio licensees.
Cox Radio cannot predict what other matters might be considered in the
future, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on its business.
SEASONALITY
Seasonal revenue fluctuations are common in the radio broadcasting industry
and are due primarily to fluctuations in advertising expenditures. Cox Radio's
revenues and broadcast cash flows are typically lowest in the first quarter and
higher in the second and fourth quarters.
EMPLOYEES
As of December 31, 1998, Cox Radio employed 1,028 full-time and 500
part-time employees. Of these employees, 50 were represented by American
Federation of Television and Radio Announcers. Cox Radio considers its employee
relations to be satisfactory.
Cox Radio employs several on-air personalities with large audiences in
their respective markets. Cox Radio enters into employment agreements with
certain on-air personalities in order to protect its interests in these employee
relationships. Cox Radio does not believe that the loss of any one of these
on-air personalities would have a material adverse effect on Cox Radio's
financial condition or results of operations.
PATENTS AND TRADEMARKS
Cox Radio owns numerous domestic trademark registrations related to the
business of Cox Radio's stations. Cox Radio owns no patents or patent
applications. Cox Radio does not believe that any of its trademarks are material
to its business or operations.
FORWARD-LOOKING STATEMENTS
Any matters discussed or incorporated by reference in this Form 10-K that
are not historical facts are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Any expressions
that indicate future events and trends identify forward-looking statements.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from historical results, results
Cox Radio anticipates or results expressed or implied by such forward-looking
statements. These risks and uncertainties include, among others:
- General economic and business conditions, both nationally and in the
regions in which Cox Radio operates;
- Technology changes;
- Competition;
- Changes in business strategy or development plans;
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<PAGE> 21
- The ability to attract and retain qualified personnel;
- Existing governmental regulations and changes in, or the failure to
comply with, governmental regulations;
- Liability and other claims asserted against Cox Radio; and
- Year 2000 issues and Year 2000 readiness disclosures.
Cox Radio undertakes no obligation to update any forward-looking statements
or to release publicly the results of any revisions to forward-looking
statements made in this Form 10-K to reflect events or circumstances after the
date of this Form 10-K or to reflect the occurrence of unanticipated events.
Additional factors that could have a material and adverse impact on Cox
Radio's business are set forth below.
RISK FACTORS
The following factors (in addition to others) could have a material and
adverse impact on Cox Radio's business:
- Risks Associated with Cox Radio's Acquisition Strategy
A principal component of Cox Radio's business strategy is the
acquisition of additional radio stations. In addition to the pending
transactions described herein, Cox Radio intends to continue to evaluate
the acquisition of additional radio stations or radio station groups. There
can be no assurance that future acquisitions will be available on
attractive terms. In addition, there can be no assurance that any synergies
or savings will be achieved as a result of any acquisitions, that the
integration of Cox Radio and new stations or management groups can be
accomplished successfully or on a timely basis or that Cox Radio's
acquisition strategy can be implemented. Although Cox Radio has entered
into definitive agreements regarding the pending transactions described
herein, there can be no assurance that any of the pending transactions will
be consummated. Consummation of the pending transactions is subject to
certain closing conditions, including the receipt of Federal Communications
Commission approvals, which receipt cannot be assured.
- Competition
The radio broadcasting industry is a highly competitive business. Cox
Radio's radio stations compete against other radio stations and other media
(including new media technologies that are being developed or introduced)
for audience share and advertising revenue. Factors that are material to a
station's competitive position include management experience, the stations'
audience share rank in its market, transmitter power, assigned frequency,
audience characteristics, local program acceptance, and the number and
characteristics of other stations in the market area. Recent changes in the
law and in Federal Communications Commission rules and policies have
increased the number of radio stations a broadcaster may own in a given
market and permit, within limits, joint arrangements with other stations in
a market relating to programming, advertising sales, and station
operations. Management believes that radio stations that elect to take
advantage of these opportunities may, in certain circumstances, have lower
operating costs and may be able to offer advertisers more attractive rates
and services. No assurance can be given that any of Cox Radio's stations
will be able to maintain or increase its current audience ratings and
advertising revenue share.
- Government Regulation of the Broadcasting Industry
The radio broadcasting industry is subject to extensive and changing
regulation. Among other things, the Communications Act of 1934, as amended,
and Federal Communications Commission rules and policies limit the number
of radio stations that one entity can own in a given market. The
Communications Act of 1934, as amended, and Federal Communications
Commission rules and policies also require Federal Communications
Commission approval for transfers of control of licensees and assignments
of Federal Communications Commission licenses. The filing of petitions or
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<PAGE> 22
complaints against Federal Communications Commission licensees such as Cox
Radio could result in the Federal Communications Commission delaying the
grant of, or refusing to grant, its consent to the assignment of licenses
to or from a Federal Communications Commission licensee or the transfer of
control of a Federal Communications Commission licensee. In certain
circumstances, the Communications Act of 1934, as amended, and Federal
Communications Commission rules will operate to impose limitations on alien
ownership and voting of Cox Radio's common stock. There can be no assurance
that there will be no changes in the current regulatory scheme, the
imposition of additional regulations or the creation of new regulatory
agencies, which changes could restrict or curtail the ability of Cox Radio
to acquire, operate and dispose of stations or, in general, to compete
profitably with other operators of radio and other media properties.
Each of Cox Radio's radio stations operates pursuant to one or more
licenses issued by the Federal Communications Commission. Under Federal
Communications Commission rules, radio licenses are granted for a term of
eight years. Cox Radio's licenses expire at various times through the year
2006. Although Cox Radio has applied or will apply to renew these licenses,
third parties may challenge Cox Radio's renewal applications. While Cox
Radio is not aware of facts or circumstances that would prevent it from
having its current licenses renewed, there can be no assurance that the
licenses will be renewed. Failure to obtain the renewal of any of Cox
Radio's broadcast licenses or to obtain Federal Communications Commission
approval for an assignment or transfer to Cox Radio of a license in
connection with a radio station acquisition may have a material adverse
effect on Cox Radio's business and operations. In addition, if Cox Radio or
any of its officers, directors or significant stockholders materially
violates the Federal Communications Commission's rules and regulations or
the Communications Act of 1934, as amended, is convicted of a felony or is
found to have engaged in unlawful anticompetitive conduct or fraud upon
another government agency, the Federal Communications Commission may, in
response to a petition from a third party or on its own initiative, in its
discretion, commence a proceeding to impose sanctions upon Cox Radio which
could involve the imposition of monetary fines, the revocation of Cox
Radio's broadcast licenses or other sanctions. If the Federal
Communications Commission were to issue an order denying a license renewal
application or revoking a license, Cox Radio would be required to cease
operating the applicable radio station only after Cox Radio had exhausted
all rights to administrative and judicial review without success.
- The Importance of Cox Radio's Los Angeles and Atlanta Radio Stations
In 1998, Cox Radio's four radio stations in Los Angles and four radio
stations in Atlanta generated approximately 22% each of Cox Radio's net
revenues. A significant decline in net revenues from Cox Radio's stations
in these markets, as a result of a ratings decline or otherwise, could have
a material adverse effect on Cox Radio's financial position and results of
operations.
- Control of Cox Radio by Cox Enterprises and Potential Conflicts of
Interest
Cox Enterprises, through wholly-owned subsidiaries, owns approximately
69% of the outstanding common stock of Cox Radio and has approximately 96%
of the voting power of Cox Radio. As a result, Cox Enterprises has
sufficient voting power to elect all the members of the Board of Directors
of Cox Radio and effect transactions without the approval of Cox Radio's
public stockholders. Cox Radio's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws also contain certain
anti-takeover provisions. The interests of Cox Enterprises, which operates
businesses in other industries, including television broadcasting,
broadband communications, auto auctions and newspapers, may from time to
time diverge from the interests of Cox Radio. In addition, from time to
time, Cox Radio enters into transactions with Cox Enterprises or its
affiliates and has entered into a credit facility with Cox Enterprises.
Conflicts of interest between Cox Radio and Cox Enterprises could arise
with respect to business dealings between them, including potential
acquisitions of businesses or properties, the issuance of additional
securities and the election of new or additional members of Cox Radio's
Board of Directors. The Audit Committee of Cox Radio's Board of Directors
consists of independent directors and addresses certain potential conflicts
of interest that
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may arise between Cox Radio and Cox Enterprises. There can be no assurance
that any conflicts of interest will be resolved in favor of Cox Radio.
- Year 2000 Readiness Disclosure
Cox Radio has begun implementing a plan to assess, remediate and test
its computer systems, software applications and equipment with imbedded
microprocessors sufficiently in advance of the Year 2000 in order to reduce
the risk of an interruption in critical services related to the millennium
date change. Cox Radio is currently not aware of any material
non-compliance by its vendors or suppliers critical to Cox Radio's
operations that will materially affect its business; however, Cox Radio
does not control these systems and cannot assure that they will be
converted in a timely fashion and, if not converted, would not have an
adverse effect on Cox Radio's business operations.
ITEM 2. PROPERTIES
Cox Radio's corporate offices are located in Atlanta, Georgia. The types of
properties required to support each of Cox Radio's stations include offices,
studios, transmitter sites and antenna sites. The transmitter sites and antenna
sites generally are located so as to provide maximum market coverage.
Cox Radio owns transmitter and antenna sites in:
- Atlanta;
- Long Island;
- Los Angeles;
- Louisville;
- Miami;
- Orlando;
- San Antonio;
- Syracuse;
- Tampa; and
- Tulsa.
Cox Radio leases transmitter and antenna sites in:
- Atlanta;
- Birmingham;
- Bridgeport;
- Dayton;
- Long Island;
- Los Angeles;
- Louisville;
- Miami;
- Orlando;
- San Antonio;
- Syracuse;
- Tampa; and
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- Tulsa.
Cox Radio owns studio and office facilities in:
- Birmingham;
- Los Angeles;
- Long Island;
- Miami; and
- Orlando.
Cox Radio leases studio and office facilities in:
- Atlanta;
- Bridgeport;
- Dayton;
- Louisville;
- Orlando;
- San Antonio;
- Syracuse;
- Tampa; and
- Tulsa.
Cox Radio generally considers its facilities to be suitable and of adequate
size for their current and intended purposes. Cox Radio does not anticipate any
difficulties in renewing any facility leases or in leasing additional space, if
required.
Cox Radio owns substantially all of its other equipment, consisting
principally of transmitting antennae, transmitters, studio equipment and general
office equipment. The towers, antennae and other transmission equipment used by
Cox Radio's stations are generally in good condition, although opportunities to
upgrade facilities are continuously reviewed.
ITEM 3. LEGAL PROCEEDINGS
Cox Radio is a party to various legal proceedings which are ordinary and
incidental to its business. Management does not expect that any legal
proceedings currently pending will have a material adverse impact on Cox Radio's
consolidated financial position, results of operations, or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to Cox
Radio's 1998 Annual Report to Stockholders.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data have been derived from the
Consolidated Financial Statements of Cox Radio. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of Cox
Radio and notes thereto included elsewhere herein. The statements of operations
data, other operating data and balance sheet data as of and for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998 have been derived from audited
Consolidated Financial Statements of Cox Radio.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues(1)........................... $111.5 $123.6 $132.9 $199.6 $261.2
Station operating expenses................ 76.3 90.0 91.9 129.8 167.0
Corporate general and administrative
expenses(2)............................. 2.7 5.9 5.3 6.9 8.5
Depreciation and amortization............. 6.9 7.2 8.1 17.5 23.4
------ ------ ------ ------ ------
Operating income.......................... 25.6 20.5 27.6 45.4 62.3
Interest expense, net..................... 5.2 6.0 4.6 9.4 16.9
Net income................................ 11.2 8.2 14.9 49.7(3) 23.0
Basic income per common share............. --(4) --(4) .69 1.75 .81
Diluted income per common share........... --(4) --(4) .69 1.75 .80
OTHER OPERATING DATA:
Broadcast cash flow(5).................... $ 35.2 $ 33.6(6) $ 41.0 $ 69.8 $ 94.2
Broadcast cash flow margin(5)............. 31.6% 27.2% 30.9% 35.0% 36.1%
EBITDA(5)................................. $ 32.5 $ 27.7(6) $ 35.7 $ 62.9 $ 85.7
After-tax cash flow(5).................... 18.2 15.0 24.0 92.4 52.2
Net cash provided by operating
activities.............................. 14.1 14.0 26.9 42.2 47.2
Net cash used in investing activities..... 12.3 17.3 62.6 285.1 115.1
Net cash provided by (used in) financing
activities.............................. (1.6) 3.1 44.6 238.5 68.1
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents(7).............. $ 1.9 $ 1.7 $ 10.6 $ 6.2 $ 6.5
Intangible assets, net.................... 120.1 126.8 138.1 518.9 590.7
Total assets.............................. 180.0 191.8 261.7 654.6 753.1
Total debt (including amounts due from/to
Cox Enterprises)........................ 120.3 125.1 -- 232.6 269.9
</TABLE>
- ---------------
(1) Total revenues less advertising agency commissions.
(2) As described in Note 10 to the Consolidated Financial Statements, certain
executives participated in Cox Enterprises' Unit Appreciation Plan. Because
Cox Enterprises is, and Cox Radio was, a private company, the benefits under
the Unit Appreciation Plan are generally payable in cash. This cash payment
option has resulted in charges to compensation expense of $0.8 million, $1.6
million, and $2.5 million for the years ended December 31, 1994, 1995 and
1996, respectively. This compensation expense is included in historical
corporate general and administrative expenses. Public companies
traditionally implement stock award plans that provide for the issuance of
stock to participants and do not result in compensation expense under
accounting standards followed by Cox Radio. Cox Radio implemented the Cox
Radio Long-Term Incentive Plan in 1996 and, therefore, has not
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incurred this expense since 1996. In addition, for the year ended December
31, 1995, corporate general and administrative expenses include a
nonrecurring corporate charge.
(3) Includes an after-tax gain on the sale of WCKG-FM/WYSY-FM in Chicago of
approximately $29.3 million.
(4) Cox Radio became publicly traded on the New York Stock Exchange effective
September 27, 1996. Earnings per common share calculations for 1994 and 1995
have not been disclosed because the dissimilarity of the previous capital
structure of Cox Radio precludes a meaningful comparison.
(5) "Broadcast cash flow" consists of operating income plus depreciation and
amortization and corporate general and administrative expenses. "Broadcast
cash flow margin" is broadcast cash flow as a percentage of net revenues.
"EBITDA" is operating income plus depreciation and amortization. "After-tax
cash flow" is income (loss) before extraordinary items plus depreciation,
amortization and deferred tax expense. Although broadcast cash flow,
broadcast cash flow margin, EBITDA and after-tax cash flow are not
recognized under generally accepted accounting principles, they are accepted
by the broadcasting industry as generally recognized measures of performance
and are used by analysts who report publicly on the condition and
performance of broadcast companies. For the foregoing reasons, Cox Radio
believes that these measures are useful to investors. However, investors
should not consider these measures to be an alternative to operating income
as determined in accordance with generally accepted accounting principles,
an alternative to cash flows from operating activities (as a measure of
liquidity) or an indicator of Cox Radio's performance under generally
accepted accounting principles.
(6) Declines in broadcast cash flow and EBITDA from the prior year are due
mainly to the impact of the 1995 baseball strike on advertiser spending, the
cost of sports programming rights in Atlanta, start-up costs related to
acquisitions or LMA's consummated in late 1994 and early 1995 and a
nonrecurring corporate charge in 1995.
(7) 1996 amount includes $9.1 million in restricted cash, representing the net
proceeds from disposition of WIOD-AM in Miami, net of the cash used for the
acquisition of KRAV-FM and KGTO-AM in Tulsa.
UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following table sets forth selected quarterly financial information for
Cox Radio. This information is derived from unaudited financial statements of
Cox Radio and includes, in the opinion of management, only normal and recurring
adjustments that management considers necessary for a fair presentation of the
results for such periods. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
1997
Net revenues............................................ $29,155 $54,349 $55,188 $60,880
Corporate general and administrative expenses........... 1,422 2,028 1,709 1,726
Depreciation and amortization........................... 2,052 5,133 4,834 5,437
Operating income........................................ 6,082 11,144 14,070 14,171
Net income.............................................. 34,203(1) 3,937 5,995 5,589
1998
Net revenues............................................ $52,060 $69,161 $69,155 $70,837
Corporate general and administrative expenses........... 1,875 2,057 1,992 2,538
Depreciation and amortization........................... 5,361 5,593 6,144 6,303
Operating income........................................ 9,331 16,581 18,584 17,888
Net income.............................................. 2,775 6,345 7,020 6,900
</TABLE>
- ---------------
(1) Includes an after-tax gain on the sale of WCKG-FM/WYSY-FM in Chicago of
approximately $29.3 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Cox Radio is a leading national radio broadcast company whose business is
acquiring, developing and operating radio stations located throughout the United
States. Cox Enterprises indirectly owns approximately 69% of the common stock of
Cox Radio.
The performance of a radio station group, such as Cox Radio, is customarily
measured by its ability to generate Broadcast Cash Flow, EBITDA and After-tax
Cash Flow. Broadcast Cash Flow is defined as operating income plus depreciation
and amortization and corporate general and administrative expenses. EBITDA is
defined as operating income plus depreciation and amortization. After-tax Cash
Flow is
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<PAGE> 27
defined as income (loss) before extraordinary items plus depreciation,
amortization and deferred tax expense. Although Broadcast Cash Flow, EBITDA and
After-tax Cash Flow are not recognized under generally accepted accounting
principles, they are accepted by the broadcasting industry as generally
recognized measures of performance and are used by analysts who report publicly
on the condition and performance of broadcasting companies. For the foregoing
reasons, Cox Radio believes that these measures will be useful to investors.
However, Broadcast Cash Flow, EBITDA or After-tax Cash Flow should not be
considered to be an alternative to operating income as determined in accordance
with generally accepted accounting principles, an alternative to cash flows from
operating activities (as a measure of liquidity) or an indicator of Cox Radio's
performance under generally accepted accounting principles.
The primary source of Cox Radio's revenues is the sale of local and
national advertising. Historically, approximately 73% and 25% of Cox Radio's
gross revenues have been generated from local and national advertising,
respectively. Cox Radio's most significant station operating expenses are
employees' salaries and benefits, commissions, programming expenses and
advertising and promotional expenditures.
Cox Radio's revenues vary throughout the year. As is typical in the radio
broadcasting industry, Cox Radio's revenues and broadcast cash flows are
typically lowest in the first quarter and higher in the second and fourth
quarters. Cox Radio's operating results in any period may be affected by the
incurrence of advertising and promotional expenses that do not necessarily
produce commensurate revenues until the impact of the advertising and promotion
is realized in future periods.
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the accompanying audited
Consolidated Financial Statements and Notes thereto of Cox Radio. The results of
operations for Cox Radio represent the operations of the radio stations
currently owned or operated or to which sales and marketing services were
provided in connection with Cox Enterprises' U.S. radio broadcasting operations
prior to their transfer to Cox Radio. The historical financial statements do not
necessarily reflect the results of operations or financial position that would
have been reported had Cox Radio been an independent company.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Net Revenues. Net revenues increased $61.6 million to $261.2 million in
1998, a 30.9% increase over the prior year. This growth is primarily
attributable to Cox Radio's 1997 acquisitions, the largest being the NewCity
Communications acquisition. This growth was also attributable to significant
percentage increases in net revenues at Cox Radio's stations in Atlanta, Miami
and Louisville as a result of continued strong ratings. On a "same station"
basis (reflecting results from stations operated for the entire year ended
December 31 in both 1998 and 1997), net revenues increased $17.4 million to
$157.1 million, an increase of 12.5% over 1997.
Station Operating Expenses. Station operating expenses increased $37.2
million to $167.0 million, an increase of 28.7% over the prior year primarily as
a result of Cox Radio's 1997 acquisitions as discussed above. Additionally,
significant contributors to this increase included higher programming costs
resulting from an increase in talent costs (which fluctuate with ratings) and
additional selling expenses associated with the stations' local and national
revenue growth. On a "same station" basis, station operating expenses increased
$5.8 million to $93.2 million, an increase of 6.6% over 1997.
Broadcast Cash Flow. Broadcast cash flow increased $24.4 million to $94.2
million in 1998, a 35.0% increase over 1997 for the reasons noted above. On a
"same station" basis, broadcast cash flow increased by $11.6 million to $63.9
million, an increase of 22.2% over the prior year. In addition, "same station"
broadcast cash flow margin increased to 40.7% in 1998 from 37.5% for the prior
year.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $1.6 million to $8.5 million in 1998 primarily
due to increased costs related to growth in the number of stations and
information technology costs.
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Operating Income. Operating income increased $16.9 million to $62.4
million, an increase of 37.2% over 1997 for the reasons noted above. In
addition, the operating margin increased to 23.9% in 1998 from 22.8% in 1997.
Interest Expense. Interest expense for 1998 totaled $16.9 million as
compared to $9.4 million during 1997 primarily as a result of borrowings
incurred to complete Cox Radio's acquisitions during 1997 and 1998. Such
expenses were partially offset by interest income earned during the first
quarter of 1997.
Net Income. Net income decreased by $26.7 million from 1997 to $23.0
million primarily as a result of an after-tax gain of approximately $29.3
million on the sale of WCKG-FM and WYSY-FM in Chicago during March 1997.
Excluding this gain, net income increased $2.6 million over the prior year for
the reasons discussed above.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Net Revenues. Net revenues increased $66.7 million to $199.6 million in
1997, a 50.2% increase over the prior year. This growth is primarily
attributable to Cox Radio's 1997 acquisitions, the largest being the NewCity
Communications acquisition. This growth was also attributable to significant
percentage increases in net revenues at Cox Radio's stations in Atlanta and
Tampa as a result of continued ratings growth. These increases were offset
partially by the disposition of the operations of WCKG-FM/WYSY-FM in Chicago
through an LMA commencing July 1996 and the sale of WIOD-AM in Miami in October
1996. On a "same station" basis (reflecting results from stations operated for
the entire year ended December 31 in both 1997 and 1996), net revenues increased
$18.1 million to $139.3 million, an increase of 15.0% over 1996.
Station Operating Expenses. Station operating expenses increased $37.9
million to $129.8 million, an increase of 41.3% over the prior year primarily as
a result of Cox Radio's 1997 acquisitions as discussed above. Additionally,
significant contributors to this increase included higher programming costs
resulting from an increase in talent costs (which fluctuate with ratings) and
additional selling expenses associated with the stations' local and national
revenue growth. These increases were offset partially by the disposition of the
operations of WCKG-FM/WYSY-FM in Chicago through an LMA commencing July 1996 and
the sale of WIOD-AM in Miami in October 1996. On a "same station" basis, station
operating expenses increased $5.1 million to $87.4 million, an increase of 6.1%
over 1996.
Broadcast Cash Flow. Broadcast cash flow increased $28.8 million to $69.8
million in 1997, a 70.1% increase over 1996. On a "same station" basis,
broadcast cash flow increased by $13.1 million to $51.9 million, an increase of
33.7% over the prior year. In addition, "same station" broadcast cash flow
margin (defined as broadcast cash flow as a percentage of net revenues)
increased to 37.3% in 1997 from 32.0% for the prior year.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $1.6 million to $6.9 million in 1997 primarily
as a result of the NewCity Communications acquisition and as a result of costs
associated with Cox Radio being publicly-held during 1997.
Operating Income. Operating income increased $17.8 million to $45.5
million, an increase of 64.5% over 1996 for the reasons noted above. In
addition, the operating margin increased to 22.8% in 1997 from 20.8% in 1996.
Interest Expense. Interest expense for 1997 totaled $9.4 million as
compared to $4.6 million during 1996 primarily as a result of borrowings
incurred to complete the NewCity Communications acquisition, the acquisition of
WBHJ-FM and WBHK-FM in Birmingham, Alabama, the acquisition of KISS-FM, KSMG-FM
and KLUP-AM in San Antonio, Texas, and the acquisition of WCLR-FM, WZLR-FM, and
WPTW-AM in Dayton, Ohio. Such expenses were partially offset by interest income
earned during the first quarter of 1997.
26
<PAGE> 29
Net Income. Net income increased by $34.8 million over 1996 to $49.7
million for the reasons noted above and as a result of an after-tax gain of
approximately $29.3 million on the sale of WCKG-FM and WYSY-FM in Chicago during
March 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cox Radio's primary source of liquidity is cash provided by operations.
Historically, cash requirements have been funded by Cox Radio's operating
activities and through borrowings under Cox Radio's bank credit facility. In
addition, cash requirements have been funded on a temporary basis through
intercompany advances from Cox Enterprises under a revolving credit facility.
Cox Radio's borrowings under the Cox Enterprises revolving credit facility are
typically repaid within 30 days and accrue interest at Cox Enterprises'
commercial paper rate plus .40%. Cox Enterprises continues to perform day-to-day
cash management services for Cox Radio.
On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior,
unsecured revolving credit facility with certain guarantors and banks, including
Texas Commerce Bank National Association, as Administrative Agent, Nationsbank
of Texas, N.A., as Syndications Agent, and Citibank, N.A., as Documentation
Agent. The loan proceeds were used to finance the payment of the consideration
payable in the NewCity Communications acquisition, repay certain secured debt of
NewCity Communications and finance certain acquisitions. The remaining credit
availability may be used to finance additional acquisitions and other corporate
purposes. The bank credit facility has restrictions on the payment of dividends,
certain mergers, consolidations or dispositions of assets and establishes
limitations on, among other things, additional indebtedness and transactions
with affiliates.
Cox Radio borrowed approximately $110 million under the bank credit
facility to consummate the NewCity Communications acquisition. In connection
with this acquisition, Cox Radio assumed certain indebtedness of NewCity
Communications. NewCity Communications was the obligor of $75 million principal
amount of 11 3/8% Senior Subordinated Notes due 2003. On May 2, 1997, following
a tender offer and consent solicitation, Cox Radio paid an aggregate amount of
$82.1 million to holders of these notes in exchange for approximately $74.6
million principal amount of the notes and consents to the elimination of
substantially all of the restrictive covenants applicable to the notes. On
December 24, 1998, Cox Radio called the remaining notes in the amount of $0.4
million. Cox Radio obtained the funds necessary to make such payments from
borrowings under the bank credit facility.
At December 31, 1998, Cox Radio had approximately $100 million of
outstanding indebtedness under the bank credit facility and had approximately
$200 million available under the bank credit facility. Cox Radio had
approximately $30.3 million in amounts due from Cox Enterprises at December 31,
1998.
On May 26, 1998, Cox Radio issued and sold an aggregate of $200 million
principal amount of notes in an offering exempt from registration under the
Securities Act of 1933, as amended, pursuant to Rule 144A thereunder. As
provided in the Registration Rights Agreement dated as of May 26, 1998 among Cox
Radio, its wholly owned subsidiaries WSB, Inc. and WHIO, Inc. (each a guarantor
of the notes), NationsBanc Montgomery Securities LLC, Chase Securities, Inc.,
and J.P. Morgan Securities, Inc., on December 14, 1998, Cox Radio consummated an
exchange offer pursuant to which Cox Radio exchanged $200 million principal
amount of the notes for an aggregate of $200 million principal amount of notes
(the terms and form of which are the same in all material respects as the
original notes, except as to restrictions on transfer) which have been
registered under the Securities Act of 1933. As a result of the mergers of WSB,
Inc. and WHIO, Inc. into Cox Radio, WSB, Inc. and WHIO, Inc. are no longer
guarantors of the notes. As a result of the transfer of certain Federal
Communications Commission licenses, permits and authorizations to CXR Holdings,
CXR Holdings will become a guarantor of the notes.
Cox Radio has entered into interest rate swap agreements with certain
lenders providing bank financing. Pursuant to the interest rate swap agreements,
Cox Radio has exchanged its floating rate interest obligations on an aggregate
of $100 million in principal at an average fixed rate of 6.23% per annum for an
average initial maturity of 6.25 years. The fixing of interest rates for this
period reduces Cox Radio's
27
<PAGE> 30
exposure to the uncertainty of floating interest rates. The differential paid or
received on the interest rate swap agreements are recognized as an adjustment to
interest expense. The counterparties to these interest rate swap agreements are
a diverse group of major financial institutions. Cox Radio is exposed to credit
loss in the event of nonperformance by these counterparties. However, Cox Radio
does not anticipate nonperformance by the other parties, and no material loss
would be expected from their nonperformance. The fair value of the interest rate
swap agreements was not recognized in the consolidated financial statements
since they are accounted for as hedges. At December 31, 1998, the estimated fair
value of the interest rate swap agreements, based on current market rates,
approximated a net payable of $4.6 million.
Future cash requirements are expected to include capital expenditures,
principal and interest payments on indebtedness and funds for acquisitions. Cox
Radio expects its operations to generate sufficient cash to meet its capital
expenditures and debt service requirements. Additional cash requirements,
including funds for pending or other acquisitions, will be funded by various
sources, including the proceeds from bank financing and, if or when appropriate,
other issuances of Cox Radio securities.
Net cash provided by operating activities for the year ended December 31,
1998 increased $5.0 million to $47.2 million over 1997 primarily as a result of
an increase in net income, excluding the gain on WCKG-FM and WYSY-FM in Chicago,
an increase in non-cash charges for depreciation and amortization and the net
change in working capital accounts. Net cash provided by operating activities
for 1997 increased $15.3 million to $42.2 million over 1996 primarily as a
result of an increase in net income. Net cash provided by operating activities
for 1996 increased $12.9 million to $26.9 million over 1995 primarily as a
result of an increase in net income.
Net cash used in investing activities for all periods presented principally
reflects Cox Radio's acquisition activity discussed above and capital
expenditures. The increases in annual capital expenditures from 1996 to 1998
were due to the increasing number of stations owned or operated by Cox Radio.
Net cash provided by financing activities represents the net change in
amounts due to Cox Enterprises, proceeds from Cox Radio's initial public
offering, borrowings and repayments of debt, dividends paid, proceeds of stock
options exercised and net changes in book overdrafts. Fluctuations for the
periods presented generally reflect the differences between changes in both cash
flows from operating activities and cash flows from investing activities.
Cox Radio has contractual commitments for sports programming and on-air
personalities of $17.0 million, $5.8 million, $1.4 million, $1.0 million and
$0.9 million for 1999, 2000, 2001, 2002 and 2003, respectively, which are
expected to be funded through operations.
At December 31, 1998, Cox Radio had outstanding purchase commitments for
additions to plant and equipment totaling approximately $0.6 million.
IMPACT OF INFLATION
The impact of inflation on Cox Radio's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in the
future would not have an adverse impact on Cox Radio's operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. This
statement establishes accounting and reporting standards for derivative
instruments, and requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position at determined fair
values. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. The effect on the financial statements upon adoption of this statement
currently has not been determined.
28
<PAGE> 31
OTHER MATTERS
Impact of the Year 2000 Issue and Year 2000 Readiness Disclosure
Cox Radio recognizes the importance of the Year 2000 issue and is
proactively managing an appropriate transition into the year 2000. The Year 2000
issue is the result of computer programs and embedded computer microprocessors
being unable to distinguish between the year 1900 and the year 2000, or
misinterpreting the date field. Any of Cox Radio's systems that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in miscalculations or system failures. A
system or application is deemed Year 2000 compliant when it continues to produce
understandable, accurate and predictable results which conform to the original
functional specifications, regardless of the millennium change.
State of Readiness
Cox Radio has implemented a project team utilizing both internal and
external resources, including those of majority shareholder, Cox Broadcasting,
to develop its Year 2000 initiative, which may, as necessary, involve upgrading
or replacing affected computer systems, software and equipment with embedded
chips, and preparing contingency and disaster recovery plans.
Cox Radio has substantially completed an inventory of current systems and
operations to identify any information technology and non-information technology
systems (including equipment with embedded chips) that do not properly recognize
dates after December 31, 1999. The project team has developed a plan to assess,
remediate, test, and, sufficiently in advance of the Year 2000, ascertain that
the systems of Cox Radio that are critical to its operations will properly
recognize such dates. The plan includes on-site audits at each of Cox Radio's
stations. The project team has commenced the audit process, which is scheduled
to be complete by the end of the first quarter of 1999.
Based on the results of the inventory, Cox Radio began in second quarter of
1998 to remediate noncompliant systems. Cox Radio anticipates that remediation
will be complete by the end of third quarter 1999. Cox Radio uses Cox
Enterprises' financial and human resources information systems, which are being
tested by Cox Enterprises.
Cox Radio has substantially completed a formal communication program with
its significant vendors to determine the extent to which it is vulnerable to
those third parties who fail to remediate their own Year 2000 non-compliance.
Cox Radio is to a large degree dependent on vendor remediation and testing of
vendor systems. Cox Radio's two most significant vendors are Marketron, which
provides Cox Radio's traffic and billing system for the majority of its
stations, and ADP which provides payroll services. Cox Radio uses Marketron's
Version 28 running on DOS 6.2, which Marketron has indicated is Year 2000
compliant; and ADP Version 2.5 running on Windows 95 for the majority of its
stations, which ADP has indicated is Year 2000 compliant. Cox Radio is in the
process of assessing and, as necessary, upgrading payroll systems using other
ADP versions. Cox Radio has not performed its own tests on these systems, and no
assurance can be given at this time that these systems are compliant. Marketron
has indicated to Cox Radio that it intends to test Version 28 during the second
quarter of 1999 using Cox Radio data. Cox Enterprises intends to test ADP
Version 2.5 during 1999.
Costs
As of December 31, 1998, costs of approximately $200,000 have been incurred
related to Cox Radio's Year 2000 initiative. Cox Radio will incur capital
expenditures and internal staff costs as well as additional outside consulting
and other expenditures related to this initiative. Cox Radio expects these costs
will not exceed approximately $1.5 million, based on currently available
information. Total incremental expenses (including depreciation and
amortization) of bringing current systems into compliance, writing off existing
non-compliant systems, and capital replacements have not had a material impact
on Cox Radio's financial condition to date and are not at present, based on
known facts, expected to have a material impact on Cox
29
<PAGE> 32
Radio's financial condition. All costs of the Year 2000 initiative will be
funded by Cox Radio's cash flow from operations.
Risks and Most Reasonably Likely Worst Case Scenario
If systems critical to Cox Radio's operations are not Year 2000 compliant,
the most reasonably likely worst case scenario would include service
interruptions resulting from failure in electrical power and satellite feeds
providing news, weather and syndicated shows for broadcast and failure of
equipment with embedded chips including master clocks, studio equipment,
transmission equipment and telephone, security and environmental control
systems.
Based on the information currently available, Cox Radio is not aware of any
likely Year 2000 non-compliance by Cox Radio or its vendors or customers that
will materially affect its business operations; however, Cox Radio does not
control the systems of other companies, and cannot assure that such systems will
be timely converted and, if not converted, would not have an adverse effect on
Cox Radio's business operations. Furthermore, no assurance can be given at this
time that any or all of Cox Radio's systems are or will be Year 2000 compliant,
or that the ultimate costs required to address the Year 2000 issue or the impact
of any failure to achieve substantial Year 2000 compliance by Cox Radio, its
vendors or customers will not have a material adverse effect on Cox Radio's
financial condition.
Like most other businesses, Cox Radio is dependent on general service
outside vendors including providers of electrical power, telephony, water, fuel
for vehicles and other necessary commodities. Cox Radio also relies upon the
interstate banking system and related electronic communications for such
functions as transmitting financial data from field locations to the home office
and sweeping cash into lockboxes. Cox Radio is currently not aware of any
material non-compliance by these providers that will materially affect its
business operations; however, Cox Radio does not control these systems and
cannot assure that they will be converted in a timely fashion and if not
converted would not have an adverse effect on its business operations.
Contingency Plans
The Year 2000 project team is working with each station to expand and
modify existing emergency contingency plans to encompass potential Year 2000
exposures, including increased risk of loss of electrical power, and satellite
failures resulting in need for alternate delivery system for programming,
potential multiple systems failures and other relevant issues. It is anticipated
that contingency plans will be in place for each station by third quarter 1999.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and Liquidity and Capital Resources, and other parts of
this report, contain "forward-looking" statements about matters that are
inherently difficult to predict. Those statements include statements regarding
the intent, belief or current expectations of Cox Radio and its management. Some
of the important factors that affect these statements involve risks and
uncertainties that may affect future developments such as, for example, the
ability to deal with the Year 2000 issue, including problems that may arise on
the part of third parties. If the modifications and conversions required to make
Cox Radio Year 2000 ready are not made or are not completed on a timely basis,
the resulting problems could have a material impact on the operations of Cox
Radio.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Cox Radio has entered into interest rate swap agreements with certain
lenders providing bank financing. Pursuant to the interest rate swap agreements,
Cox Radio has exchanged its floating rate interest obligations on an aggregate
of $100 million in principal at an average fixed rate of 6.23% per annum for an
average maturity of 6.25 years. The fixing of interest rates for this period
reduces in part Cox Radio's exposure to the uncertainty of floating interest
rates. The differential paid or received on the interest rate swap agreements
are recognized as an adjustment to interest expense. The counterparties to these
interest rate swap agreements are a diverse group of major financial
institutions. Cox Radio is exposed to credit
30
<PAGE> 33
loss in the event of nonperformance by these counterparties. However, Cox Radio
does not anticipate nonperformance by the other parties, and no material loss
would be expected from their nonperformance. The fair value of the interest rate
swap agreements was not recognized in the consolidated financial statements
since they are accounted for as hedges. At December 31, 1997 and 1998, the
estimated fair value of the interest rate swap agreements, based on current
market rates, approximated a net payable of $1.2 million and $4.6 million,
respectively.
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<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Cox Radio, Inc.
We have audited the accompanying consolidated balance sheets of Cox Radio,
Inc. as of December 31, 1997 and 1998, and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1998. Our audits also included the financial
statement schedule of Cox Radio, Inc., listed in the Index at Item 14. These
financial statements and financial statement schedule are the responsibility of
Cox Radio, Inc.'s management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cox Radio,
Inc. at December 31, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Also in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 8, 1999 (March 1, 1999 as to Note 16)
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<PAGE> 35
COX RADIO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 6,218 $ 6,479
Accounts and notes receivable, less allowance for doubtful
accounts of $1,875 and $2,862, respectively............... 50,680 58,190
Prepaid expenses and other current assets................... 3,795 3,430
-------- --------
Total current assets.............................. 60,693 68,099
Plant and equipment, net.................................... 46,071 51,886
Intangible assets, net...................................... 518,926 590,686
Amounts due from Cox Enterprises, Inc....................... 3,113 30,292
Station investment notes receivable......................... 18,220 7,250
Other assets................................................ 7,617 4,899
-------- --------
Total assets...................................... $654,640 $753,112
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses....................... $ 18,121 $ 20,878
Accrued salaries and wages.................................. 3,646 4,570
Income taxes payable........................................ 3,487 2,686
Other current liabilities................................... 1,964 1,018
-------- --------
Total current liabilities......................... 27,218 29,152
Notes payable............................................... 235,740 300,235
Deferred income taxes....................................... 104,401 110,693
-------- --------
Total liabilities................................. 367,359 440,080
-------- --------
Commitments and contingencies (Note 13)
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value: 5,000,000 shares,
authorized, none outstanding.............................. -- --
Class A common stock, $1.00 par value; 70,000,000 shares
authorized; 8,831,376 and 8,971,955 shares outstanding at
December 31, 1997 and 1998, respectively.................. 8,831 8,972
Class B common stock, $1.00 par value; 45,000,000 shares
authorized; 19,577,672 shares outstanding at December 31,
1997 and 1998............................................. 19,578 19,578
Additional paid-in capital.................................. 250,637 253,207
Retained earnings........................................... 8,235 31,275
-------- --------
Total shareholders' equity........................ 287,281 313,032
-------- --------
Total liabilities and shareholders' equity........ $654,640 $753,112
======== ========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 36
COX RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- -------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
NET REVENUES:
Local....................................................... $99,291 $146,326 $191,568
National.................................................... 31,648 50,457 65,469
Other....................................................... 1,965 2,789 4,176
------- -------- --------
Total net revenues................................ 132,904 199,572 261,213
COSTS AND EXPENSES:
Operating................................................... 41,280 50,220 62,180
Selling, general and administrative......................... 50,585 79,544 104,786
Corporate general and administrative........................ 5,332 6,885 8,462
Depreciation and amortization............................... 8,069 17,456 23,401
------- -------- --------
OPERATING INCOME............................................ 27,638 45,467 62,384
OTHER INCOME (EXPENSE):
Interest income (expense), net.............................. 219 (10,122) (17,420)
Intercompany interest income (expense), net................. (4,799) 758 498
Gain on sale of radio stations.............................. 2,016 49,129 --
Other -- net................................................ (377) (701) (408)
------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 24,697 84,531 45,054
Income taxes................................................ 9,752 34,807 22,014
------- -------- --------
NET INCOME.................................................. $14,945 $ 49,724 $ 23,040
======= ======== ========
Basic income per common share............................... $ .69 $ 1.75 $ .81
======= ======== ========
Diluted income per common share............................. $ .69 $ 1.75 $ .80
======= ======== ========
Weighted average basic common shares outstanding............ 21,762 28,344 28,461
Weighted average diluted common shares outstanding.......... 21,762 28,494 28,852
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 37
COX RADIO, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL (DEFICIT IN)
--------------- --------------- ---------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------ ------ ------ ------- ---------- ------------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995........ 1 $1 -- $ -- -- $ -- $ 90,947 $(43,778) $ 47,170
Net income.......................... -- -- -- -- -- -- -- 14,945 14,945
Dividends to Cox Enterprises........ -- -- -- -- -- -- -- (12,656) (12,656)
Capital contribution by Cox
Enterprises....................... -- -- -- -- -- -- 36,744 -- 36,744
Issuance of Class B common stock to
Cox Enterprises................... (1) (1) -- -- 19,578 19,578 (19,577) -- --
Issuance of Class A common stock
related to initial public
offering.......................... -- -- 8,625 8,625 -- -- 140,588 -- 149,213
Issuance of restricted Class A
common stock related to incentive
plans............................. -- -- 112 112 -- -- 1,960 -- 2,072
Offering costs for common stock..... -- -- -- -- -- -- (1,690) -- (1,690)
--- -- ----- ------ ------ ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996........ -- -- 8,737 8,737 19,578 19,578 248,972 (41,489) 235,798
--- -- ----- ------ ------ ------- -------- -------- --------
Net income.......................... -- -- -- -- -- -- -- 49,724 49,724
Issuance of Class A common stock
related to incentive plans........ -- -- 94 94 -- -- 1,665 -- 1,759
--- -- ----- ------ ------ ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997........ -- -- 8,831 8,831 19,578 19,578 250,637 8,235 287,281
--- -- ----- ------ ------ ------- -------- -------- --------
Net income.......................... -- -- -- -- -- -- -- 23,040 23,040
Issuance of Class A common stock
related to incentive plans........ -- -- 141 141 -- -- 2,570 -- 2,711
--- -- ----- ------ ------ ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1998........ -- -- 8,972 $8,972 19,578 $19,578 $253,207 $ 31,275 $313,032
=== == ===== ====== ====== ======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE> 38
COX RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 14,945 $ 49,724 $ 23,040
Items not requiring cash:
Depreciation.............................................. 2,533 4,286 5,841
Amortization.............................................. 5,536 13,170 17,560
Deferred income taxes..................................... 1,001 25,187 5,789
Settlement of Unit Appreciation Plan liability through the
issuance of restricted stock........................... 2,071 -- --
Gain on sale of radio stations............................ (2,016) (49,129) --
Increase in accounts receivable............................. (844) (6,436) (7,510)
(Increase) decrease in prepaid expenses and other current
assets.................................................... (22) 1,789 365
Increase in accounts payable and accrued expenses........... 1,470 3,310 1,860
Increase (decrease) in accrued salaries and wages........... (359) 1,930 924
Increase (decrease) in taxes payable........................ 2,938 271 (801)
Decrease in Unit Appreciation Plan liability................ (317) (646) --
Other, net.................................................. (25) (1,273) 171
-------- --------- ---------
Net cash provided by operating activities......... 26,911 42,183 47,239
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (3,526) (10,820) (6,898)
Acquisitions................................................ (21,500) (317,268) (92,633)
(Increase) decrease in station investment notes
receivable................................................ -- (18,220) 10,970
(Increase) decrease in other long-term assets............... (2,137) (5,208) 659
Net proceeds from sale of radio stations.................... 14,195 19,647 --
(Increase) decrease in amounts due from Cox Enterprises..... (49,667) 46,554 (27,179)
-------- --------- ---------
Net cash used in investing activities............. (62,635) (285,315) (115,081)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in amounts due to Cox Enterprises.................. (88,345) -- --
Net borrowings (repayments) of long-term debt............... -- 235,000 (135,000)
Net proceeds from public debt offering...................... -- -- 199,668
Net proceeds from initial public offering................... 149,213 -- --
Payment of stock offering costs............................. (1,690) -- --
Proceeds from issuance of common stock related to incentive
plans..................................................... -- 1,759 2,711
Dividends paid.............................................. (12,656) -- --
Increase (decrease) in book overdrafts...................... (1,894) 1,256 897
Other, net.................................................. -- 740 (173)
-------- --------- ---------
Net cash provided by financing activities......... 44,628 238,755 68,103
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 8,904 (4,377) 261
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 1,691 10,595 6,218
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 10,595 $ 6,218 $ 6,479
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 39
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Cox Radio is a leading national radio broadcast company whose business,
which constitutes one reportable segment, is devoted to acquiring, developing
and operating radio stations located throughout the United States. Cox
Enterprises indirectly owns approximately 69% of the common stock of Cox Radio.
On September 30, 1996, pursuant to an Agreement and Plan of Merger of KFI,
Inc., WCKG, Inc., WWRM, Inc. and Cox Syracuse, Inc. with and into Cox Radio, Cox
Enterprises transferred direct or indirect ownership of its U.S. radio broadcast
properties to Cox Radio. In connection with the Cox Radio consolidation, Cox
Radio amended its Certificate of Incorporation to change its capital structure.
As a result, Cox Radio's capital stock consists of 70,000,000 authorized shares
of Class A common stock, 45,000,000 authorized shares of Class B common stock
and 5,000,000 authorized shares of preferred stock, all at $1.00 par value per
share. Pursuant to the Agreement and Plan of Merger, Cox Enterprises, through
its indirect subsidiary, Cox Broadcasting, Inc., received 19,577,672 shares of
Cox Radio's Class B common stock for its ownership interests. Cox Enterprises'
historical basis in the assets and liabilities of the operations was carried
over to Cox Radio.
On October 2, 1996, Cox Radio completed an initial public offering of
8,625,000 shares of its Class A common stock at a price of $18.50 per share.
Proceeds to Cox Radio from the public offering and the underwriters'
overallotment option totaled approximately $149.2 million net of underwriting
discounts and commissions. Cox Radio used approximately $107.1 million of such
net proceeds to repay all amounts then outstanding under notes due to Cox
Enterprises. The balance of the net proceeds was used for general corporate
purposes and acquisitions, including to partially fund the NewCity
Communications acquisition (see Note 4).
The consolidated financial statements of Cox Radio represent the operations
of the radio broadcast stations owned or operated by Cox Radio, Cox Enterprises
or its other subsidiaries. The historical financial statements do not
necessarily reflect the results of operations or financial position that would
have existed had Cox Radio been an independent company. All significant
intercompany accounts have been eliminated in the consolidated financial
statements of Cox Radio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cox Radio considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying value of
these investments approximates fair value.
Revenue Recognition
Revenue is recognized as advertising air time is broadcast and is net of
advertising agency commissions.
Corporate General and Administrative Expenses
Corporate general and administrative expenses consist of corporate overhead
costs not specifically allocable to any of Cox Radio's individual stations plus
expense related to the Cox Enterprises Unit Appreciation Plan during 1996.
Plant and Equipment
Plant and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using principally the straight-line method at rates
based upon estimated useful lives of 5 to 40 years for buildings and building
improvements and 5 to 20 years for broadcast equipment.
37
<PAGE> 40
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures for maintenance and repairs are charged to operating expense
as incurred. At the time of retirements, sales or other dispositions of
property, the original cost and related accumulated depreciation are written
off.
Intangible Assets
Intangible assets consist primarily of Goodwill/Federal Communications
Commission broadcast licenses and non-compete agreements. Goodwill/Federal
Communications Commission broadcast licenses recorded in business combinations
generally are amortized on a straight-line basis over 30 to 40 years.
Non-compete agreements are amortized on a straight-line basis over the
contractual lives of the agreements, generally 3 to 5 years. Cox Radio assesses
on an on-going basis the recoverability of intangible assets based on estimates
of future undiscounted cash flows for the applicable business acquired compared
to net book value. If the future undiscounted cash flow estimate is less than
net book value, net book value is then reduced to the estimated fair value. Cox
Radio also evaluates the amortization periods of intangible assets to determine
whether events or circumstances warrant revised estimates of useful lives.
Impairment of Long-Lived Assets
Long-lived assets and certain intangibles are required to be reviewed for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, with any impairment losses being
reported in the period in which the recognition criteria are first applied based
on the fair value of the asset. Long-lived assets and certain intangibles to be
disposed of are required to be reported at the lower of carrying amount or fair
value less cost to sell.
Income Taxes
Prior to 1997, the accounts of Cox Radio were included in the consolidated
federal income tax return and certain state income tax returns of Cox
Enterprises. Current federal and state income tax expenses and benefits were
allocated on a separate return basis to Cox Radio based on (i) the current year
tax effects of the inclusion of its income, expenses and credits in the
consolidated income tax returns of Cox Enterprises or (ii) separate state income
tax returns.
Deferred income taxes are recognized for all temporary differences between
the tax and financial reporting bases of Cox Radio's assets and liabilities
based on enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income.
Pension, Postretirement and Postemployment Benefits
Cox Enterprises generally provides defined pension benefits to eligible
employees based on years of service and compensation during those years. Cox
Enterprises also provides certain health care and life insurance benefits to
eligible retirees and employees. For certain employees and retirees of Cox Radio
eligible for such coverages, these benefits are provided through the Cox
Enterprises plans. Expenses related to these plans are allocated to Cox Radio
through the intercompany account. The amount of the allocations is generally
based on actuarial determinations of the effects of Cox Radio employees'
participation in the plans.
Incentive Compensation Plans
Cox Radio accounts for stock compensation in accordance with the
requirements of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation",
38
<PAGE> 41
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
requires disclosure of the pro forma effects on net income and earnings per
share had the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123 been adopted.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Risk
A significant portion of Cox Radio's business historically has been
conducted in the areas of Los Angeles, Atlanta and Miami. Revenues earned from
radio stations located in Los Angeles, Atlanta, and Miami represented 36%, 30%
and 16%, respectively, of total revenues for the year ended December 31, 1996.
Revenues earned from radio stations located in Los Angeles, Atlanta, Orlando and
Miami represented 27%, 24%, 9% and 8%, respectively, of total revenues for the
year ended December 31, 1997 and 22%, 22%, 10% and 8%, respectively, of total
revenues for the year ended December 31, 1998. Cox Radio's concentration of risk
in each of the aforementioned markets has been and is expected to continue to be
reduced as a result of the NewCity Communications acquisition and other
transactions.
Earnings Per Common Share
Cox Radio became publicly traded on the New York Stock Exchange effective
September 27, 1996. During the fourth quarter of 1997, Cox Radio adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share," which
replaced the presentation of primary earnings per share and fully diluted
earnings per share with a presentation of basic earnings per share and diluted
earnings per share, respectively. Basic earnings per share excludes dilution and
is computed by dividing earnings available to common stockholders by the
weighted average number of common shares outstanding for the period. Similar to
fully diluted earnings per share, diluted earnings per share assumes issuance of
common stock for all other potentially dilutive equivalent shares outstanding.
Cox Radio's 1996 earnings per share data have been restated.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. This
statement establishes accounting and reporting standards for derivative
instruments, and requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position at determined fair
values. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. The effect on the financial statements upon adoption of this statement
currently has not been determined.
Reclassifications
Certain prior year amounts have been reclassified for comparative purposes.
3. CASH MANAGEMENT SYSTEM
Cox Radio participates in Cox Enterprises' cash management system, whereby
the bank sends daily notification of Cox Radio's checks presented for payment.
Cox Enterprises transfers funds from other
39
<PAGE> 42
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sources to cover Cox Radio's checks presented for payment. Book overdrafts of
$3.0 million and $3.9 million existed at December 31, 1997 and 1998,
respectively, as a result of Cox Radio's checks outstanding. These book
overdrafts were reclassified as accounts payable in the accompanying balance
sheets.
4. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES
During the past several years, Cox Radio has actively managed its portfolio
of radio stations through selected acquisitions, dispositions and exchanges, as
well as through the use of local marketing agreements, or LMAs, and joint sales
agreements, or JSAs. Specific transactions entered into by Cox Radio during the
past three years are discussed below.
Under an LMA or a JSA, the company operating a station provides a
combination of programming, sales, marketing and similar services. The broadcast
revenues and operating expenses of stations operated by Cox Radio under LMAs and
JSAs have been included in Cox Radio's operations since the respective dates of
such agreements.
In January 1996, Cox Radio completed the acquisition of Louisville,
Kentucky stations WRKA-FM and WRVI-FM, later renamed WLSY-FM, for $8.7 million.
Cox Radio also acquired Louisville station WXNU-FM, later renamed WRVI-FM, for
$2.6 million in August 1996.
In June 1996, Cox Radio acquired WHEN-AM and WWHT-FM in Syracuse, New York
for $4.5 million. These stations were operated by NewCity Communications under
an LMA until the consummation of the NewCity Communications acquisition.
In October 1996, Cox Radio completed the sale of WIOD-AM in Miami, Florida
for $13.0 million plus a working capital adjustment of $1.2 million. This
transaction resulted in a pre-tax gain of approximately $2.0 million, which was
recognized in the fourth quarter of 1996.
In December 1996, Cox Radio acquired KRAV-FM and KGTO-AM in Tulsa, Oklahoma
for $5.5 million. These stations were operated by NewCity Communications under
an LMA until the consummation of the NewCity Communications acquisition.
In March 1997, Cox Radio exchanged WCKG-FM and WYSY-FM in Chicago, Illinois
for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando, Florida. This transaction resulted
in a pre-tax gain of approximately $49 million. In addition to receiving the
three Orlando stations, Cox Radio also received cash proceeds of approximately
$20 million. Prior to the NewCity Communications acquisition, the Orlando
stations were operated by NewCity Communications since July 1996 under an LMA.
In March 1997, Cox Radio acquired WSUN-AM (formerly WFNS-AM) serving the
Tampa-St. Petersburg, Florida market for an aggregate consideration of $1.5
million. Cox Radio had been operating this station pursuant to an LMA or a JSA
since June 1995.
In April 1997, Cox Radio completed its acquisition of the license and
certain assets of KRTO-FM in Los Angeles for $19 million in cash.
In April 1997, Cox Radio acquired all of the issued and outstanding capital
stock of NewCity Communications, through the merger of its wholly owned
subsidiary, New Cox Radio II, Inc., with and into NewCity Communications, with
NewCity Communications surviving as a wholly owned subsidiary of Cox Radio. Cox
Radio purchased the stock of NewCity Communications for an aggregate
consideration of approximately $253 million, including approximately $87 million
in assumption of NewCity Communications' indebtedness and approximately $3
million in working capital adjustments. To consummate the NewCity Communications
acquisition, Cox Radio utilized approximately $56 million of amounts due from
Cox Enterprises and borrowed approximately $110 million pursuant to Cox Radio'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 Communications was merged with
and
40
<PAGE> 43
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
into Cox Radio, with Cox Radio as the surviving corporation. NewCity
Communications' subsidiaries were subsequently consolidated into Cox Radio. In
October 1997, Cox Radio disposed of the assets of American Comedy Network, a
former subsidiary of NewCity Communications, for aggregate proceeds of
approximately $1.1 million including certain non-compete agreements.
The NewCity Communications acquisition was recorded effective April 1,
1997, using the purchase method of accounting, whereby the allocable share of
the NewCity Communications purchase price was allocated to the assets acquired
and liabilities assumed based on their fair values at the date of acquisition as
follows (in thousands):
<TABLE>
<S> <C>
Net working capital......................................... $ 8,342
Plant and equipment......................................... 9,310
Goodwill/Federal Communications Commission broadcast
licenses.................................................. 316,634
Deferred taxes.............................................. (67,268)
--------
Total cost of acquisition including assumed
liabilities..................................... $267,018
========
</TABLE>
In May 1997, Cox Radio agreed to acquire WENN-FM and WAGG-AM, later renamed
WEZN-AM, in Birmingham, Alabama, for consideration of $15 million. In July 1997,
Cox Radio assigned its right to purchase WENN-FM for consideration of $14.5
million to a third party. Cox Radio consummated both the acquisition of WAGG-AM
and the disposition of WENN-FM during November 1997.
In September 1997, Cox Radio acquired KISS-FM, KSMG-FM and KLUP-AM in San
Antonio, Texas for an aggregate consideration of $30.4 million plus certain
non-compete agreements.
In January 1998, Cox Radio entered into an agreement to assign its option
to purchase KRIO-FM serving the San Antonio, Texas market for an aggregate
consideration of $0.3 million. This assignment was consummated in May 1998.
In February 1998, Cox Radio entered into an agreement to acquire the assets
of radio station WPYO-FM (formerly WTLN-FM) serving the Orlando, Florida market
for consideration of $14.5 million. Cox Radio has been operating WPYO-FM
pursuant to an LMA since January 1999. In a related transaction, Cox Radio
entered into an agreement to dispose of the assets of radio station WTLN-AM
(formerly WZKD-AM), also serving the Orlando, Florida market for $0.5 million.
Pending certain regulatory approvals, Cox Radio anticipates closing the
acquisition of WPYO-FM and the disposition of WTLN-AM in the first half of 1999.
In March 1998, Cox Radio acquired KONO-FM and KONO-AM in San Antonio, Texas
for $23 million.
In May 1998, Cox Radio acquired the assets of radio stations WBLI-FM,
WBAB-FM, WHFM-FM and WGBB-AM, serving the Nassau-Suffolk (Long Island), New York
market; for consideration of $48 million. In October 1998, Cox Radio entered
into an agreement with a third party to dispose of the assets of radio station
WGBB-AM for consideration of $1.7 million. Cox Radio anticipates consummating
this disposition in 1999.
In October 1998, Cox Radio consummated the acquisition of radio stations
WCLR-FM, WZLR-FM and WPTW-AM serving the Dayton, Ohio market for approximately
$6.3 million. Cox Radio had been operating these stations pursuant to an LMA
since December 1997. In November 1998, Cox Radio entered into an agreement to
dispose of WPTW-AM for approximately $0.1 million. Pending certain regulatory
approvals, Cox Radio expects to consummate this disposition in the first half of
1999.
41
<PAGE> 44
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1998, Cox Radio consummated the acquisition of radio stations
WBHJ-FM and WBHK-FM in Birmingham, Alabama for an aggregate consideration of $17
million. Cox Radio had been operating these stations pursuant to an LMA since
August 1997.
In November 1998, Cox Radio entered into an LMA for WEDA-FM in Homewood,
Alabama serving the Birmingham market. Cox Radio also acquired an option to
purchase the station in September 1997, for an aggregate consideration of $5.5
million and the assumption of debt in an amount not to exceed $0.2 million. Cox
Radio has exercised this option and, pending certain regulatory approvals,
expects to consummate this acquisition in the first half of 1999.
In January 1999, Cox Radio acquired the assets of radio station WSUN-FM
(formerly WLVU-FM) serving the Tampa-St. Petersburg, Florida market in exchange
for the assets of WSUN-AM in Tampa-St. Petersburg, Florida and approximately $17
million. Cox Radio had been operating WSUN-FM pursuant to an LMA since September
1998.
In January 1999, Cox Radio entered into an agreement to acquire KRTQ-FM
(formerly KTFX-FM) in Tulsa, Oklahoma for $3.5 million. Cox Radio also entered
into a Station Investment Note Receivable with the seller for $0.9 million which
is collateralized by substantially all the assets of the station. Cox Radio has
been operating this station pursuant to an LMA since January 1999. Pending
certain regulatory approvals, Cox Radio expects to consummate this acquisition
in December 1999.
The following unaudited pro forma summary of operations presents the
consolidated results of operations as if all consummated transactions and those
pending transactions discussed above had occurred at the beginning of the
periods presented and does not purport to be indicative of what would have
occurred had these transactions been made as of those dates or of results which
may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
--------- ---------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net revenues................................................ $235,488 $264,333
Corporate general and administrative expenses............... 7,361 8,462
Depreciation and amortization............................... 22,682 23,977
Operating income............................................ 49,631 62,772
-------- --------
Net income.................................................. $ 15,945 $ 22,727
======== ========
Basic pro forma earnings per common share................... $ .56 $ .80
======== ========
Diluted pro forma earnings per common share................. $ .56 $ .79
======== ========
Basic pro forma shares outstanding.......................... 28,344 28,461
======== ========
Diluted pro forma shares outstanding........................ 28,494 28,852
======== ========
</TABLE>
42
<PAGE> 45
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Land and land improvements.................................. $ 14,240 $ 15,307
Buildings and building improvements......................... 15,392 16,253
Broadcast equipment......................................... 51,161 57,261
Construction in progress.................................... 2,875 1,611
-------- --------
Plant and equipment, at cost................................ 83,668 90,432
Less accumulated depreciation............................... (37,597) (38,546)
-------- --------
Net plant and equipment........................... $ 46,071 $ 51,886
======== ========
</TABLE>
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Goodwill/Federal Communications Commission broadcast
licenses.................................................. $567,542 $652,693
Non-compete agreements...................................... 8,351 6,145
Other....................................................... 6,036 12,314
-------- --------
Total............................................. 581,929 671,152
Less accumulated amortization............................... (63,003) (80,466)
-------- --------
Net intangible assets............................. $518,926 $590,686
======== ========
</TABLE>
7. INCOME TAXES
Income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................... $7,788 $ 8,076 $12,816
State..................................................... 963 1,544 3,409
------ ------- -------
Total current..................................... 8,751 9,620 16,225
------ ------- -------
Deferred:
Federal................................................... 1,198 20,703 3,017
State..................................................... (197) 4,484 2,772
------ ------- -------
Total deferred.................................... 1,001 25,187 5,789
------ ------- -------
Total income taxes................................ $9,752 $34,807 $22,014
====== ======= =======
</TABLE>
43
<PAGE> 46
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant temporary differences which comprise the net
deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Current deferred tax assets:
Provision for doubtful accounts........................... $ 964 $ 968
Employee benefits......................................... -- 868
--------- ---------
Total net current asset........................... 964 1,836
--------- ---------
Noncurrent deferred tax assets (liabilities):
Plant and equipment....................................... (21,607) (21,586)
Intangibles............................................... (86,366) (90,669)
Net operating loss carryforwards.......................... 3,616 1,074
Employee benefits......................................... 871 --
Other..................................................... (915) 488
--------- ---------
Total net noncurrent liability.................... (104,401) (110,693)
--------- ---------
Net deferred tax liability........................ $(103,437) $(108,857)
========= =========
</TABLE>
As of December 31, 1998, Cox Radio has net operating loss carryforwards in
various state jurisdictions in which it operates. These net operating loss
carryforwards expire through 2005. Cox Radio anticipates that these net
operating loss carryforwards will be realized within the allowable period.
Income tax expense computed using the United States federal statutory rates
is reconciled to the reported income tax provisions as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Federal statutory income tax rate.......................... 35% 35% 35%
Computed tax expense at federal statutory rates on income
before income taxes...................................... $8,643 $29,586 $15,769
State income taxes (net of federal tax benefit)............ 498 3,918 4,018
Non-deductible amortization of intangibles................. 1,037 1,341 1,454
Benefit arising from low income housing credits............ (605) (613) (942)
Adjustment to estimated income tax accruals................ 68 349 1,318
Other, net................................................. 111 226 397
------ ------- -------
Income tax provision............................. $9,752 $34,807 $22,014
====== ======= =======
</TABLE>
The consolidated federal income tax returns of Cox Enterprises for 1986
through 1997 and the combined California franchise tax returns of Cox
Enterprises for 1984 through 1990 are presently under audit. The consolidated
federal income tax returns of Cox Radio for 1996 through 1997 are presently
under audit. Management believes that any additional liabilities arising from
current tax-related audits (through 1996 for Cox Enterprises and all years for
Cox Radio) are sufficiently provided for at December 31, 1998.
8. LONG-TERM DEBT
On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior,
unsecured revolving credit facility. The interest rate is based on the London
Interbank Offered Rate plus a spread determined
44
<PAGE> 47
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by the ratio of debt to EBITDA. This facility includes a commitment fee on the
unused portion of the total amount available of .1% to .25% based on the ratio
of debt to EBITDA. Cox Radio borrowed approximately $110 million under this bank
credit facility to consummate the NewCity Communications acquisition.
In connection with this acquisition, Cox Radio assumed certain indebtedness
of NewCity Communications. NewCity Communications was the obligor of $75 million
principal amount of 11 3/8% Senior Subordinated Notes due 2003. On May 2, 1997,
following a tender offer and consent solicitation, Cox Radio paid an aggregate
amount of $82.1 million to holders of these notes in exchange for approximately
$74.6 million principal amount of the notes and consents to the elimination of
substantially all of the restrictive covenants applicable to the notes. On
December 24, 1998, Cox Radio called the remaining notes in the amount of $.4
million. Cox Radio obtained the funds necessary to make such payments from
borrowings under the bank credit facility.
At December 31, 1998, Cox Radio had approximately $100 million of
outstanding indebtedness and had approximately $200 million available under the
bank credit facility. During 1998, the interest rate applied to amounts due
under this facility ranged from 5.46% to 6.37% (5.97% at December 31, 1998). The
bank credit facility contains, among other provisions, defined requirements as
to ratio of debt to EBITDA and ratio of EBITDA to interest expense. At December
31, 1998, Cox Radio was in compliance with these covenants. Borrowings under the
bank credit facility approximate fair value based upon the current borrowing
rates available to Cox Radio.
On May 26, 1998, Cox Radio issued and sold an aggregate of $200 million
principal amount of notes in an offering exempt from registration under the
Securities Act of 1933, as amended, pursuant to Rule 144A thereunder. The notes
consist of $100 million principal amount of 6.25% notes due in full in 2003 and
$100 million principal amount of 6.375% notes due in full in 2005. As provided
in the Registration Rights Agreement dated as of May 26, 1998 among Cox Radio,
its wholly owned subsidiaries WSB, Inc. and WHIO, Inc. (each a guarantor of the
notes), NationsBanc Montgomery Securities LLC, Chase Securities, Inc., and J.P.
Morgan Securities, Inc., on December 14, 1998, Cox Radio consummated an exchange
offer pursuant to which Cox Radio exchanged $200 million principal amount of the
notes for an aggregate of $200 million principal amount of notes (the terms and
form of which are the same in all material respects as the original notes,
except as to restrictions on transfer) which have been registered under the
Securities Act of 1933. As a result of the mergers of WSB, Inc. and WHIO, Inc.
into Cox Radio, WSB, Inc. and WHIO, Inc. are no longer guarantors of the notes.
As a result of the transfer of certain Federal Communications Commission
licenses, permits and authorizations to CXR Holdings, a wholly-owned subsidiary
of Cox Radio, CXR Holdings will become a guarantor of the notes. At December 31,
1998, the estimated fair value of these notes is approximately $208.6 million
based on quoted market prices.
Cox Radio has entered into interest rate swap agreements with certain
lenders providing bank financing. Pursuant to the interest rate swap agreements,
Cox Radio has exchanged its floating rate interest obligations on an aggregate
of $100 million in principal at an average fixed rate of 6.23% per annum for an
average maturity of 6.25 years. The fixing of interest rates for this period
reduces Cox Radio's exposure to the uncertainty of floating interest rates. The
differential paid or received on the interest rate swap agreements are
recognized as an adjustment to interest expense. The counterparties to these
interest rate swap agreements are a diverse group of major financial
institutions. Cox Radio is exposed to credit loss in the event of nonperformance
by these counterparties. However, Cox Radio does not anticipate nonperformance
by the other parties, and no material loss would be expected from their
nonperformance. The fair value of the interest rate swap agreements was not
recognized in the consolidated financial statements since they are accounted for
as hedges. At December 31, 1997 and 1998, the estimated fair
45
<PAGE> 48
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value of the interest rate swap agreements, based on current market rates,
approximated a net payable of $1.2 million and $4.6 million, respectively.
9. RETIREMENT PLANS
Substantially all of Cox Radio's employees participate in the funded,
noncontributory defined benefit pension plan of Cox Enterprises and certain key
employees participate in an unfunded, non-qualified supplemental pension plan.
The plans call for benefits to be paid to eligible employees at retirement based
primarily upon years of service with Cox Radio and compensation rates during
those years. Pension expense allocated to Cox Radio by Cox Enterprises was
$801,000, $661,000 and $858,000 for the years ended December 31, 1996, 1997 and
1998, respectively.
The following table sets forth certain information attributable to the Cox
Radio employees' participation in the Cox Enterprises pension plans:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------------ ------------------
FUNDED UNFUNDED FUNDED UNFUNDED
PLANS PLANS PLANS PLANS
------- -------- ------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits................................ $11,963 $1,638 $12,562 $1,668
Nonvested benefits............................. 1,237 243 1,215 226
------- ------ ------- ------
Accumulated benefit obligation................... $13,200 $1,881 $13,777 $1,894
======= ====== ======= ======
Projected benefit obligation..................... $15,961 $2,512 $16,438 $2,616
======= ====== ======= ======
</TABLE>
Assumptions used in the actuarial computations were:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- ----
<S> <C> <C>
Discount rate............................................... 7.25% 6.75%
Rate of increase in compensation levels..................... 5.00% 4.50%
Expected long-term rate of return on assets................. 9.00% 9.00%
</TABLE>
Cox Enterprises may establish a defined benefit pension plan and segregate
plan assets for Cox Radio. The amount of the assets that would be segregated
would have an estimated fair value equal to the projected benefit obligation of
the Cox Enterprises defined benefit pension plan attributable to Cox Radio
employees as of December 31, 1998, or $16,438,000. The assets segregated would
be used to fund payments to retirees. Any non-qualified supplemental pension
plan payments due to Cox Radio employees will be made by Cox Enterprises.
Cox Enterprises provides certain health care and life insurance benefits to
substantially all retirees of Cox Enterprises and its subsidiaries.
Postretirement expense allocated to Cox Radio by Cox Enterprises was $166,000,
$158,000 and $133,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. Cox Radio's actuarial present value of benefit obligations at
December 31, 1998 was $3,241,000.
The funded status of the portion of the postretirement plan covering the
employees of Cox Radio is not determinable. The actuarial present value of
benefit obligations for the postretirement plan of Cox Enterprises substantially
exceeded the fair value of assets held in the plan at December 31, 1998.
Actuarial assumptions used to determine the actuarial present value of
benefit obligations include a discount rate of 6.75% (7.25% in 1997) and an
expected long-term rate of return on plan assets of 9%. The assumed health care
cost trend rate for retirees is 10.0% (10.5% in 1997). For participants prior to
age 65, the trend rate gradually decreases to 5.5% by year 2007 and remains
level thereafter. For retirees
46
<PAGE> 49
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at age 65 or older, this rate decreases to 5.0% by year 2008. Increasing the
assumed health care cost trend rate by one percentage point would have resulted
in an increase in the Cox Enterprises plan's actuarial present value of benefit
obligations of approximately 4.8% and an increase in the aggregate of the
service cost and interest cost components of the net periodic postretirement
benefit cost of approximately 3.1% for 1998.
In addition, substantially all of Cox Radio's employees are eligible to
participate in the savings and investment plan of Cox Enterprises. Under the
terms of the plan, Cox Radio matches a discretionary amount no greater than 50%
of employee contributions up to a maximum of 6% of the employee's base salary.
Cox Radio's expense under the plan was $584,000, $745,000 and $1,088,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
Cox Radio employees whose savings and investment plan contributions are at
the Internal Revenue Service, or IRS, maximum or are restricted in order to pass
the nondiscrimination test required by the IRS, are eligible to participate in
Cox Enterprises' non-qualified savings restoration plan. Under the terms of this
plan, which began in 1995, Cox Radio matches a discretionary amount no greater
than 50% of employee contributions to both the savings and investment and
restoration plans up to a maximum percentage of the employee's eligible
compensation. Cox Radio's expense under the non-qualified savings restoration
plan was not material to the financial statements for any period presented.
10. STOCK-BASED COMPENSATION PLANS
During the three years in the period ending December 31, 1998, Cox Radio
had three stock-based compensation plans. Cox Radio accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, and related Interpretations. Compensation for
the Cox Radio participation in the Cox Enterprises Unit Appreciation Plan was
recorded annually based on the appraised value of Cox Enterprises stock at the
end of the period. Compensation for the Cox Radio Long-Term Incentive Plan and
the Employee Stock Purchase Plan is measured as the excess, if any, of the
quoted market price of Cox Radio's stock at the date of the grant over the
exercise price. Specific information regarding each plan and required disclosure
of pro forma effect on Cox Radio's operations if Statement of Financial
Accounting Standards No. 123 had been adopted is presented below.
Cox Enterprises Unit Appreciation Plan
Prior to Cox Radio's initial public offering during 1996, certain of the
executives and key employees of Cox Radio participated in the Cox Enterprises
Unit Appreciation Plan that provided for payment of benefits in the form of
shares of Cox Enterprises common stock, cash, or both, generally five years
after the date of award. Unit benefits are based on the excess, if any, over a
base amount (value of award), of the fair value of a share of Cox Enterprises
common stock five years after the effective date of award. Fair values are
determined by independent appraisal. The plans provide for a maximum unit
benefit of 150% of the base amount and benefits vest over the five year period
following the date of award. The cost of awards made under the plans was
allocated to Cox Radio by Cox Enterprises over the applicable vesting periods
and was charged to corporate general and administrative expense. Amounts charged
to expense for Cox Radio employees for the year ended December 31, 1996 was
$2,464,000. In connection with Cox Radio's initial public offering, a portion of
the 1994 plan was settled through the issuance of 111,973 shares of restricted
Class A common stock of Cox Radio as discussed below. The adoption of Statement
of Financial Accounting Standards No. 123 would have resulted in no additional
compensation expense related to the Cox Enterprises Unit Appreciation Plan.
47
<PAGE> 50
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cox Radio, Inc. Employee Stock Purchase Plan
During 1997, Cox Radio adopted an Employee Stock Purchase Plan, under which
Cox Radio was authorized to issue purchase rights totaling 350,000 shares of
Class A common stock to substantially all employees who were employed on
December 1, 1996 and who work at least 20 hours per week. Pursuant to this plan,
Cox Radio issued purchase rights totaling 186,118 shares of Class A common
stock. Under the terms of this plan, the purchase price ($17.37 per share) was
85% of the market value on May 1, 1997, and employees are allowed to purchase
the shares via payroll deductions through August 1, 1999, at which time the
shares will be issued to the employees. During 1997 and 1998, 165 and 3,425
shares, respectively, were issued to employees under the plan due to
cancellation of employees' participation in the plan or termination of
employment. The fair value of the employees' purchase rights granted in 1997 was
estimated using the Black-Scholes model with the following assumptions: expected
volatility of 32%, no payment of dividends, expected life of 2 years and
risk-free interest rate of 5.4%. The grant date fair value of each purchase
right granted in 1997 was $6.27.
Cox Radio, Inc. Long-Term Incentive Plan
Pursuant to the Long-Term Incentive Plan, executive officers and certain
employees of Cox Radio who have been selected as participants are eligible to
receive awards of various forms of equity-based incentive compensation,
including stock options, stock appreciation rights, stock bonuses, restricted
stock awards, performance units and phantom stock and awards consisting of
combinations of such incentives. Cox Radio has reserved 2,400,000 shares of
Class A common stock for issuance under this plan.
Subject to the maximum shares reserved under the Long-Term Incentive Plan,
no individual may receive a stock option covering more than 300,000 shares of
Class A common stock in any year nor be granted more than 100,000 shares of
Class A common stock, in any combination of performance awards, restricted stock
or other stock-based awards that are subject to performance criteria in any
year. The maximum payout for any individual for a performance award paid in cash
is 100% of his or her base salary as of the beginning of the year of the
performance award payment.
Upon the closing of Cox Radio's initial public offering, certain Cox
Enterprises Unit Appreciation Plan units awarded in 1994 that would have matured
in 1999, were converted into 111,973 restricted shares of Class A common stock
issued pursuant to the Long-Term Incentive Plan based on the calculated
appreciation of the units and the quoted market price at the date of conversion.
These restricted shares remained unvested until the end of the original
five-year Unit Appreciation Plan appreciation period. In January 1999, Cox Radio
reacquired 39,952 shares of previously restricted Class A common stock for cash
consideration of approximately $1.7 million. Certain units awarded in 1996 were
cancelled and converted to options to acquire Class A common stock pursuant to
the Long-Term Incentive Plan. Options granted under this plan vest 60% after
three years from the date of the grant, 80% after four years from the date of
the grant and 100% after five years from the date of the grant and expire ten
years after the date of the grant. An accelerated vesting schedule has been
provided such that the options become fully vested if the market value of the
shares exceeds the exercise price by 140% for ten consecutive trading days.
Vesting of the options granted during 1996 and 1997 was accelerated during 1997
and 1998 based upon this schedule.
48
<PAGE> 51
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because the issue price of incentive stock options awarded during 1996, 1997 and
1998 equaled the then current market price of Cox Radio Class A common stock, no
compensation cost has been recognized for these options. The fair value of the
options granted during 1996, 1997 and 1998 is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
expected volatility of 38%, 32% and 45%, respectively, no dividend yield,
risk-free interest rate of 6.7%, 5.5% and 5.1%, respectively, and expected life
of three years after vesting. A summary of the status of Cox Radio's stock
options granted under the Long-Term Incentive Plan as of December 31, 1996, 1997
and 1998 and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------- ------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- -------------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year....... -- 511,673 $18.50 548,202 $ 19.29
Granted................................ 511,673 $18.50 135,607 22.27 187,178 40.16
Exercised.............................. -- (83,214) 18.62 (136,704) 19.25
Cancelled.............................. -- (15,864) 22.53 (5,566) 40.16
-------- -------- ---------
Outstanding at end of year............. 511,673 $18.50 548,202 $19.29 593,110 $ 23.96
======== ======== =========
Options exercisable at year-end........ -- 488,524 411,498 $ 19.31
Weighted-average fair value of options
granted during the year.............. $ 9.39 $ 9.87 $ 21.34
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED-AVERAGE
NUMBER OF OPTIONS REMAINING NUMBER OF OPTIONS
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
--------------- ----------------- ------------------- -----------------
<S> <C> <C> <C>
17.31 32,022 8.00 32,022
18.50 306,351 7.75 306,351
20.75 28,293 8.25 28,293
25.38 44,832 8.46 44,832
40.16 181,612 9.00 --
</TABLE>
Had compensation cost for the Long-Term Incentive Plan and Employee Stock
Purchase Plan been determined based on the fair value at the grant dates for
awards in 1996, 1997 and 1998 consistent with the provisions of Statement of
Financial Accounting Standards No. 123, Cox Radio's net income and net income
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------- ------- -------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income -- As reported.............................. $14,945 $49,724 $23,040
======= ======= =======
Basic net income per share -- As reported.............. $ .69 $ 1.75 $ .81
======= ======= =======
Diluted net income per share -- As reported............ $ .69 $ 1.75 $ .80
======= ======= =======
Net income -- Pro Forma................................ $14,744 $46,509 $21,807
======= ======= =======
Basic net income per share -- Pro Forma................ $ .68 $ 1.64 $ .77
======= ======= =======
Diluted net income per share -- Pro Forma.............. $ .68 $ 1.63 $ .76
======= ======= =======
</TABLE>
49
<PAGE> 52
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. TRANSACTIONS WITH AFFILIATED COMPANIES
Cox Radio borrows funds for working capital and other needs from Cox
Enterprises. Certain management services are provided to Cox Radio by Cox
Enterprises. Such services include legal, corporate secretarial, tax, treasury,
internal audit, risk management, benefits administration and other support
services and are included in corporate general and administrative expenses in
the Consolidated Statements of Operations. Cox Radio was allocated expenses for
the years ended December 31, 1996, 1997 and 1998 of approximately $1,499,000,
$2,191,000, and $2,500,000 respectively, related to these services. Cox Radio
pays rent and certain other occupancy costs to Cox Enterprises for office
facilities. Related rent and occupancy expense was approximately $29,000,
$46,000 and $73,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. Corporate general and administrative expense allocations are based
on a specified percentage of expenses related to the services provided to Cox
Radio in relation to those provided to other subsidiaries. Rent and occupancy
expense is allocated based on occupied space. Management believes that these
allocations were made on a reasonable basis. However, the allocations are not
necessarily indicative of the level of expenses that might have been incurred
had Cox Radio contracted directly with third parties. Management has not made a
study or any attempt to obtain quotes from third parties to determine what the
cost of obtaining such services from third parties would have been. The fees and
expenses to be paid by Cox Radio to Cox Enterprises are subject to change.
The amounts due from (to) Cox Enterprises are generally due on demand and
represent the net of various transactions, including those described above. The
amounts due from Cox Enterprises totaled $3.1 million and $30.3 million as of
December 31, 1997 and 1998, respectively. Cox Radio is paid or pays interest on
the daily intercompany balance based on Cox Enterprises' commercial paper rate.
The rates used during 1998 ranged from 5.5% to 6.2%.
Included in the amounts due from (to) Cox Enterprises are the following
transactions:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
----------------------
<S> <C>
Intercompany due to Cox Enterprises, December 31,
1995............................................... $ (66,171)
Dividends to Cox Enterprises....................... (12,656)
Cash transferred to Cox Enterprises................ 115,002
Acquisitions....................................... (21,500)
Capital contributions by Cox Enterprises........... 36,744
Proceeds from initial public offering.............. 149,213
Net operating expense allocations and
reimbursements.................................. (150,965)
---------
Intercompany due from Cox Enterprises, December 31,
1996............................................... 49,667
---------
Cash transferred to Cox Enterprises................ 164,720
Acquisitions....................................... (317,268)
Borrowings on bank credit facility................. 235,000
Net operating expense allocations and
reimbursements.................................. (129,006)
---------
Intercompany due from Cox Enterprises, December 31,
1997............................................... 3,113
---------
Cash transferred to Cox Enterprises................ 244,274
Acquisitions....................................... (92,633)
Repayments on bank credit facility................. (135,000)
Net proceeds from public debt offering............. 199,668
Net operating expense allocations and
reimbursements.................................. (189,130)
---------
Intercompany due from Cox Enterprises, December 31,
1998............................................... $ 30,292
=========
</TABLE>
Cox Radio has estimated that the carrying value of its intercompany
advances approximates fair value, given the short-term nature of these advances.
50
<PAGE> 53
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Additional cash flow information:
Cash paid for interest.................................... $5,466 $ 9,886 $17,575
Cash paid for income taxes................................ 6,033 11,142 17,024
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
Cox Radio leases land, office facilities, and various items of equipment
under noncancellable operating leases. Rental expense under operating leases
amounted to $1,520,000 in 1996, $2,995,000 in 1997 and $3,961,000 in 1998.
Future minimum lease payments as of December 31, 1998 for all noncancellable
operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 2,519
2000........................................................ 2,272
2001........................................................ 1,922
2002........................................................ 1,568
2003........................................................ 1,230
Thereafter.................................................. 1,897
-------
Total............................................. $11,408
=======
</TABLE>
Cox Radio has various contracts primarily for sports programming and on-air
personalities with future minimum payments for 1999, 2000, 2001, 2002 and 2003
of $17.0 million, $5.8 million, $1.4 million, $1.0 million and $0.9 million,
respectively.
At December 31, 1998, Cox Radio had outstanding purchase commitments for
additions to plant and equipment totaling approximately $0.6 million.
Cox Radio is a party to various legal proceedings which are ordinary and
incidental to its business. Management does not expect that any legal
proceedings currently pending will have a material adverse impact on Cox Radio's
consolidated financial position, results of operations, or cash flows.
14. STATION INVESTMENT NOTES RECEIVABLE
In connection with certain transactions discussed in Note 4, Cox Radio has
loaned funds at certain rates of interest to entities which own radio stations
that Cox Radio has agreed to purchase or is operating under an LMA. As of
December 31, 1997 and 1998, Station Investment Notes Receivable totaled
$18,220,000 and $7,250,000, respectively. The remaining receivable as of
December 31, 1998 bore interest at 7%, was to have matured in January 2000, and
was collateralized by substantially all of the assets of the related station.
Such receivable was collected in full in January 1999.
51
<PAGE> 54
COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. EARNINGS PER COMMON SHARE AND CAPITAL STRUCTURE
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
(AMOUNT IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
NET INCOME.................................................. $14,945 $49,724 $23,040
======= ======= =======
BASIC EARNINGS PER SHARE
Weighted-average common shares outstanding.................. 21,762 28,344 28,461
======= ======= =======
Basic income per common share............................... $ .69 $ 1.75 $ .81
======= ======= =======
DILUTED EARNINGS PER SHARE
Weighted-average common shares outstanding.................. 21,762 28,344 28,461
Shares issuable on exercise of dilutive options........... -- 505 595
Shares assumed to be purchased with proceeds of options... -- (446) (366)
Shares issuable pursuant to Employee Stock Purchase
Plan................................................... -- 186 183
Shares assumed to be purchased with proceeds from Employee
Stock Purchase Plan.................................... -- (95) (21)
------- ------- -------
Shares applicable to diluted earnings per share............. 21,762 28,494 28,852
======= ======= =======
Diluted income per common share............................. $ .69 $ 1.75 $ .80
======= ======= =======
</TABLE>
Historical earnings per common share for 1996 assumes (i) 19,577,672 shares
issued to Cox Enterprises in connection with the Cox Radio consolidation were
issued on January 1, 1996 and (ii) 8,625,000 shares issued in connection with
Cox Radio's initial public offering were outstanding during the entire fourth
quarter.
Unexercised incentive stock options to purchase 511,673 shares of Cox
Radio's common stock as of December 31, 1996 were not included in the
computation of diluted earnings per share for 1996, because the options'
exercise price was greater than the average market price of Cox Radio common
stock during the respective period.
16. SUBSEQUENT EVENTS
In February 1999, Cox Radio entered into an agreement in principle to
acquire radio stations WVEZ-FM, WSFR-FM and the option to purchase WMHX-FM
serving the Louisville, Kentucky market and radio stations WFJO-FM, WHPT-FM and
WTBT-FM serving the Tampa-St. Petersburg, Florida market in exchange for Cox
Radio stations WYYY-FM, WBBS-FM, WWHT-FM, WHEN-AM and WSYR-AM serving the
Syracuse, New York market plus additional cash consideration presently estimated
at $94 million. In connection with obtaining regulatory approvals for these
transactions, Cox Radio has agreed to divest WRVI-FM and WLSY-FM. Pending
certain regulatory approvals, Cox Radio expects to consummate these transactions
in the second half of 1999.
On December 21, 1998 and March 1, 1999, Cox Radio purchased shares of
common stock of USA Digital Radio, Inc., a developer of digital radio
broadcasting technology, for a total purchase price of $2.5 million. Cox Radio
will account for this investment under the cost method.
52
<PAGE> 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to Cox
Radio's Proxy Statement for the 1999 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to Cox
Radio's Proxy Statement for the 1999 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to Cox
Radio's Proxy Statement for the 1999 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to Cox
Radio's Proxy Statement for the 1999 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents incorporated by reference or filed with this Report
(1) Audited Consolidated Balance Sheets as of December 31, 1997 and 1998
and Consolidated Statements of Operations, Shareholders' Equity and
Cash Flows for each of the three years in the period ended December 31,
1998.
(2) Schedule II - Valuation and qualifying accounts
(3) Exhibits required to be filed by Item 601 of Regulation S-K:
Listed below are the exhibits which are filed as part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated as of July 1, 1996, by
and among Cox Radio, Inc., New Cox Radio II, Inc., NewCity
Communications, Inc. and certain stockholders of NewCity
Communications, Inc.(1)(2)
2.2 -- Guaranty by Cox Broadcasting, Inc., dated as of July 1,
1996, in favor of NewCity Communications, Inc.(1)
3.1 -- Amended and Restated Certificate of Incorporation of Cox
Radio, Inc.(1)
3.2 -- Amended and Restated Bylaws of Cox Radio, Inc.(1)
4.1 -- Indenture dated as of May 26, 1998 between Cox Radio, Inc.,
The Bank of New York, WSB, Inc., and WHIO, Inc.(3)
4.2 -- First Supplemental Indenture dated as of February 1, 1999
between Cox Radio, Inc., CXR Holdings, Inc. and the Bank of
New York.
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
4.3 -- Registration Rights Agreement dated May 26, 1998 among Cox
Radio, Inc., WSB, Inc., WHIO, Inc., and Nationsbanc
Montgomery Securities, LLC, Chase Securities, Inc., and J.P.
Morgan Securities, Inc.(4)
4.4 -- Specimen of Class A Common Stock Certificate.(5)
10.1 -- Credit Agreement, dated as of March 7, 1997, by and among
Cox Rdio, Inc., Texas Commerce Bank National Association,
Nationsbank of Texas, N.A. and Citibank, N.A., individually
and as agents, and the other banks signatory thereto(2)(6)
10.2 -- New CEI Credit Facility.(1)
10.3 -- Cox Radio, Inc. Long-Term Incentive Plan.(1)
10.4 -- Cox Radio, Inc. Employee Stock Purchase Plan.(1)
10.5 -- Cox Radio, Inc. Restricted Stock Plan for Non-Employee
Directors(1)
10.6 -- Tax Allocation and Indemnification Agreement, dated as of
September 30, 1996, by and between Cox Enterprises, Inc. and
Cox Radio, Inc.(1)
11 -- Statement Re: Computation of Per Share Earnings
21 -- Subsidiaries of the Registrant
23.1 -- Consent of Deloitte & Touche LLP
24.1 -- Power of Attorney (included on page 55)
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
(1) Incorporated by reference to the corresponding exhibit of Cox Radio's
Registration Statement on Form S-1 (Commission File No. 333-08737).
(2) Schedules and Exhibits intentionally omitted.
(3) Incorporated by reference to Exhibit 4.1 of Cox Radio's Registration
Statement on Form S-4 (Commission File No. 333-61179).
(4) Incorporated by reference to Exhibit 4.2 of Cox Radio's Registration
Statement on Form S-4 (Commission File No. 333-61179).
(5) Incorporated by reference to Exhibit 4.3 of Cox Radio's Registration
Statement on Form S-1 (Commission File No. 333-08737).
(6) Incorporated by reference to Cox Radio's Annual Report on Form 10-K for the
period ending December 31, 1996 (Commission File No. 1-12187).
(b) Reports on Form 8-K. A report on Form 8-K was filed on December 14,
1998 reporting "Other Events" pursuant to Item 5 thereof.
54
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Cox Radio, Inc. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Cox Radio, Inc.
By: /s/ ROBERT F. NEIL
------------------------------------
Robert F. Neil
President and Chief Executive
Officer
Date: March 24, 1999
POWER OF ATTORNEY
Cox Radio, Inc., a Delaware corporation, and each person whose signature
appears below, constitutes and appoints Robert F. Neil and Maritza C. Pichon,
and either of them, with full power to act without the other, such person's true
and lawful attorneys-in-fact, with full power of substitution and
resubstitution, for him and her and in his or her name, place and stead, in any
and all capacities, to sign this Annual Report on Form 10-K and any and all
amendments to such Annual Report on Form 10-K and other documents in connection
therewith, and to file the same and all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing necessary or desirable to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, thereby ratifying and confirming all that said
attorneys-in-fact, or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Cox Radio,
Inc. and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ NICHOLAS D. TRIGONY Chairman of the Board of March 24, 1999
- -------------------------------------------------------- Directors
Nicholas D. Trigony
/s/ ROBERT F. NEIL President and Chief Executive March 24, 1999
- -------------------------------------------------------- Officer; Director
Robert F. Neil
/s/ MARITZA C. PICHON Chief Financial Officer March 24, 1999
- -------------------------------------------------------- (principal accounting
Maritza C. Pichon officer and principal
financial officer)
/s/ JAMES C. KENNEDY Director March 24, 1999
- --------------------------------------------------------
James C. Kennedy
/s/ DAVID E. EASTERLY Director March 24, 1999
- --------------------------------------------------------
David E. Easterly
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ERNEST D. FEARS, JR. Director March 24, 1999
- --------------------------------------------------------
Ernest D. Fears, Jr.
/s/ PAUL M. HUGHES Director March 24, 1999
- --------------------------------------------------------
Paul M. Hughes
</TABLE>
56
<PAGE> 59
SCHEDULE II
COX RADIO, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
BALANCE AS OF ASSUMED IN CHARGES TO BALANCE AS OF
BEGINNING BUSINESS COSTS AND END OF
OF PERIOD COMBINATION EXPENSES DEDUCTIONS PERIOD
------------- ----------- ---------- ---------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1996................................ $ 774 $ -- $ 580 $520 $ 834
1997................................ $ 834 $705 $1,139 $803 $1,875
1998................................ $1,875 $ -- $1,577 $590 $2,862
</TABLE>
57
<PAGE> 60
(COX RADIO INC. LOGO)
<PAGE> 1
EXHIBIT 4.2
================================================================================
COX RADIO, INC., as Issuer,
CXR HOLDINGS, INC.,
as Subsequent Guarantor,
and
THE BANK OF NEW YORK, as Trustee
-----------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of February 1, 1999
TO
INDENTURE,
Dated as of May 26, 1998
Debt Securities
-----------------
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of February 1, 1999, by and
among COX RADIO, INC., a corporation duly organized and existing under the laws
of the State of Delaware (hereinafter called the "Company"), CXR HOLDINGS, INC.,
a corporation duly organized and existing under the laws of the State of Nevada
(the "Subsequent Guarantor"), and THE BANK OF NEW YORK, a New York banking
corporation, as trustee (hereinafter called the "Trustee"). Capitalized terms
used but not defined herein shall have the meanings ascribed to them in the
Indenture (as defined below).
WITNESSETH:
WHEREAS, the Company and the Trustee are parties to that certain
Indenture, dated as of May 26, 1998 (the "Indenture"), relating to $100,000,000
principal amount of the Company's 6.250% Notes due 2003 and $100,000,000
principal amount of the Company's 6.375% Notes due 2005; and
WHEREAS, the Subsequent Guarantor was incorporated as a Nevada
corporation on September 11, 1998 and, as of the date hereof, the Subsequent
Guarantor is a wholly-owned Restricted Subsidiary of the Company; and
WHEREAS, in connection with the Company's Credit Agreement, the
Subsequent Guarantor entered into a guarantee of the indebtedness under the
Company's Credit Agreement on February 1, 1999; and
WHEREAS, in accordance with Section 10.12 of the Indenture, the Company
is required to cause the Subsequent Guarantor, for so long as the Subsequent
Guarantor is obligated to guarantee the Company's indebtedness pursuant to the
Credit Agreement, to fully and unconditionally guarantee the Securities by
executing and delivering to the Trustee this First Supplemental Indenture; and
WHEREAS, Section 9.1(12) of the Indenture provides that the Trustee may
amend or supplement the Indenture or the Securities without the consent of the
Holders that does not adversely affect the interests of the Holders of any
Outstanding Securities; and
WHEREAS, the Company, the Subsequent Guarantor and the Trustee desire
to enter into, execute and deliver this First Supplemental Indenture in
compliance with the foregoing provisions of the Indenture; and
WHEREAS, all things prescribed by law and by the terms of the Indenture
necessary to make this First Supplemental Indenture, when duly executed and
delivered by the Company, the Subsequent Guarantor and the Trustee a valid and
binding instrument, enforceable in accordance with its terms, and otherwise to
effectuate the amendment of the Indenture, have been done and performed, and the
execution and delivery of this First Supplemental Indenture have been in all
respects duly authorized;
-2-
<PAGE> 3
NOW, THEREFORE, in consideration of the above premises, the Company,
the Subsequent Guarantor and the Trustee covenant and agree as follows:
ARTICLE ONE
Supplemental Indenture
Section 1.01. This First Supplemental Indenture is a supplement to the
Indenture and does and shall be deemed to form a part of, and shall be construed
in connection with and as a part of, the Indenture for any and all purposes,
including but not limited to satisfaction and discharge of the Indenture as
provided in Article 4 of the Indenture.
Section 1.02. This First Supplemental Indenture shall become effective
immediately upon execution and delivery by each of the Company, the Subsequent
Guarantor and the Trustee.
ARTICLE TWO
Subsequent Guarantee
Section 2.01. Subject to section 16.1 of the Indenture, for so long as
the Subsequent Guarantor is obligated to guarantee the Company's indebtedness
pursuant to the Credit Agreement, the Subsequent Guarantor hereby fully and
unconditionally guarantees the due and punctual payment of the principal of,
interest on and any other amounts payable under the Securities, when and if the
same shall become due and payable, whether at the Stated Maturity, by
declaration of acceleration, upon redemption, repurchase or repayment or
otherwise. The Subsequent Guarantor hereby further agrees to be bound by all
other provisions of the Indenture that are applicable to a "Subsequent
Guarantor" and the guarantee of the Subsequent Guarantor set forth in this First
Supplemental Indenture shall be subject to release upon the terms set forth in
the Indenture.
Section 2.02. The Company hereby expressly ratifies, adopts, renews,
confirms and continues in full force and effect, without limitation, except as
hereby amended, each and every covenant, agreement, condition and provision
contained in the Indenture.
Section 2.03. The Company and the Subsequent Guarantor covenant that
the recitals of fact and statements contained in this First Supplemental
Indenture are true and that, upon the execution and delivery of this First
Supplemental Indenture, the Company is not in default in any respect under any
of the provisions of the Indenture or of the Securities.
-3-
<PAGE> 4
ARTICLE THREE
Additional Provisions
Section 3.01. Except to the extent supplemented by Article Two of this
First Supplemental Indenture, the Indenture remains in full force and effect in
accordance with its terms. It shall not be necessary in connection with any
future reference to the Indenture to also make reference to this First
Supplemental Indenture.
Section 3.02. The cover page of this First Supplemental Indenture and
all article and description headings are inserted for convenience of reference
only and are not to be taken to be any part of this First Supplemental Indenture
or to control or affect the meaning, construction or effect of the same.
Section 3.03. The laws of the State of New York shall govern this First
Supplemental Indenture without regard to principles of conflicts of law.
Section 3.04. This First Supplemental Indenture shall be simultaneously
executed in several counterparts, and all such counterparts executed and
delivered each as an original shall constitute but one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the date first written above.
COX RADIO, INC.
By: /s/ Robert F. Neil
--------------------------
Name: Robert F. Neil
Title: President
CXR HOLDINGS, INC.
By: /s/ Robert F. Neil
--------------------------
Name: Robert F. Neil
Title: President
THE BANK OF NEW YORK,
as Trustee
By: /s/ Marie Trimboli
--------------------------
Authorized Signatory
-5-
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
NET INCOME.................................................. $14,945 $49,724 $23,040
======= ======= =======
BASIC EARNINGS PER SHARE
Weighted-average common shares outstanding.................. 21,762 28,344 28,461
======= ======= =======
Basic income per common share............................... $ .69 $ 1.75 $ .81
======= ======= =======
DILUTED EARNINGS PER SHARE
Weighted-average common shares outstanding.................. 21,762 28,344 28,461
Shares issuable on exercise of dilutive options........... -- 505 595
Shares assumed to be purchased with proceeds of options... -- (446) (366)
Shares issuable pursuant to Employee Stock Purchase
Plan................................................... -- 186 183
Shares assumed to be purchased with proceeds from Employee
Stock Purchase Plan.................................... -- (95) (21)
------- ------- -------
Shares applicable to diluted earnings per share............. 21,762 28,494 28,852
======= ======= =======
Diluted income per common share............................. $ .69 $ 1.75 $ .80
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
CXR Holdings, Inc.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-13281 and 333-26417) on Form S-8 of Cox Radio, Inc. of our report
dated February 8, 1999 (March 1, 1999 as to Note 16), appearing in this Annual
Report on Form 10-K of Cox Radio, Inc. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COX RADIO, INC. FOR THE YEAR ENDED DECEMBER 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 6,479
<SECURITIES> 0
<RECEIVABLES> 61,052
<ALLOWANCES> 2,862
<INVENTORY> 0
<CURRENT-ASSETS> 68,099
<PP&E> 90,432
<DEPRECIATION> 38,546
<TOTAL-ASSETS> 753,112
<CURRENT-LIABILITIES> 29,152
<BONDS> 300,325
0
0
<COMMON> 28,550
<OTHER-SE> 284,482
<TOTAL-LIABILITY-AND-EQUITY> 753,112
<SALES> 0
<TOTAL-REVENUES> 261,213
<CGS> 0
<TOTAL-COSTS> 166,966
<OTHER-EXPENSES> 31,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,922
<INCOME-PRETAX> 45,054
<INCOME-TAX> 22,014
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,040
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.80
</TABLE>
