<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-12187
COX RADIO, INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-1620022
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
1400 LAKE HEARN DRIVE, ATLANTA, GEORGIA 30319
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (404) 843-5000
---------------
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 the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
There were 9,022,573 shares of Class A Common Stock outstanding as of
April 30, 1999.
There were 19,577,672 shares of Class B Common Stock outstanding as of
April 30, 1999.
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COX RADIO, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS.............................................................. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................................... 10
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................ 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 16
SIGNATURES.................................................................................. 18
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COX RADIO, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------------ ------------
(AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ...................................... $ 5,854 $ 6,479
Accounts receivable, less allowance for doubtful accounts
of $2,724 and $2,862, respectively .......................... 49,667 58,190
Prepaid expenses and other current assets ........................ 4,709 3,430
--------- ---------
Total current assets ........................................ 60,230 68,099
Plant and equipment, net ......................................... 52,154 51,886
Intangible assets, net ........................................... 604,030 590,686
Amounts due from Cox Enterprises, Inc. ........................... 37,549 30,292
Station investment notes receivable .............................. 850 7,250
Other assets ..................................................... 6,983 4,899
--------- ---------
Total assets ................................................ $ 761,796 $ 753,112
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses .......................... $ 19,404 $ 19,245
Accrued salaries and wages ..................................... 4,870 4,570
Accrued interest ............................................... 4,746 1,633
Income taxes payable ........................................... 3,133 2,686
Other current liabilities ...................................... 1,405 1,018
--------- ---------
Total current liabilities ................................... 33,558 29,152
Notes payable .................................................... 300,252 300,235
Deferred income taxes ............................................ 110,276 110,693
--------- ---------
Total liabilities ........................................... 444,086 440,080
--------- ---------
Commitments and contingencies (Note 3)
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; 9,020,798 and 8,971,955 shares outstanding at
March 31, 1999 and December 31, 1998, respectively .......... 9,021 8,972
Class B common stock, $1.00 par value; 45,000,000 shares
Authorized; 19,577,672 shares outstanding at March 31, 1999
and December 31, 1998 ....................................... 19,578 19,578
Additional paid-in capital ..................................... 255,663 253,207
Retained earnings .............................................. 35,099 31,275
Class A common stock held in treasury (39,952 shares at cost) .. (1,651) --
--------- ---------
Total shareholders' equity .................................. 317,710 313,032
--------- ---------
Total liabilities and shareholders' equity .................. $ 761,796 $ 753,112
========= =========
</TABLE>
See notes to consolidated financial statements.
3
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COX RADIO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
-------------- -----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
NET REVENUES:
Local .............................................. $45,210 $38,545
National ........................................... 13,744 12,783
Other .............................................. 1,419 732
------- -------
Total net revenues ............................... 60,373 52,060
COSTS AND EXPENSES:
Operating .......................................... 14,866 13,094
Selling, general and administrative ................ 25,803 22,399
Corporate general and administrative ............... 2,186 1,875
Depreciation and amortization ...................... 6,358 5,361
------- -------
OPERATING INCOME ...................................... 11,160 9,331
OTHER INCOME (EXPENSE):
Interest income ....................................... 466 27
Interest expense ...................................... (4,846) (3,844)
Other - net ........................................... (69) (58)
------- -------
INCOME BEFORE INCOME TAXES ............................ 6,711 5,456
Income taxes .......................................... 2,887 2,681
------- -------
NET INCOME ............................................ $ 3,824 $ 2,775
======= =======
Basic and diluted income per common share ............. $ .13 $ .10
======= =======
Weighted average basic common shares outstanding ...... 28,577 28,427
======= =======
Weighted average diluted common shares outstanding .... 28,884 28,708
======= =======
</TABLE>
See notes to consolidated financial statements.
4
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COX RADIO, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
------------------ ----------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
-------- -------- ------- -------- ---------- -------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 ........... 8,972 $ 8,972 19,578 $ 19,578 $ 253,207 31,275 $ 313,032
Net income............................ -- -- -- -- -- 3,824 3,824
Issuance of Class A common stock
Related to incentive plans......... 49 49 -- -- 928 -- 977
Tax benefit on stock options exercised 1,528 1,528
Repurchase of Class A common stock.... $ (1,651) 1,651)
-------- ------- ------- ------- -------- ------- -------- --------
BALANCE AT MARCH 31, 1999 .............. 9,021 $ 9,021 19,578 $ 19,578 $ 255,663 $ 35,099 $ (1,651) $ 317,710
======= ======= ======= ======= ======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
5
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COX RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
------------ ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 3,824 $ 2,775
Items not requiring cash:
Depreciation ........................................... 1,637 1,273
Amortization ........................................... 4,721 4,088
Deferred income taxes .................................. 265 708
Decrease in accounts receivable .......................... 8,523 7,256
Increase in accounts payable and accrued expenses ........ 938 316
Increase (decrease) in accrued salaries and wages ........ 300 (306)
Increase (decrease) in accrued interest .................. 3,113 (179)
Increase (decrease) in taxes payable ..................... 1,975 (546)
Other, net ............................................... (1,574) (1,270)
-------- --------
Net cash provided by operating activities ......... 23,722 14,115
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................................... (1,780) (1,847)
Acquisitions, net of cash acquired ....................... (18,132) (23,086)
(Increase) decrease in station investment notes receivable 6,400 (52)
Increase in other long-term assets ....................... (2,142) (8,860)
(Increase) decrease in amounts due from Cox Enterprises .. (7,257) 20,579
-------- --------
Net cash used in investing activities ............. (22,911) (13,266)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in public debt .................................. 17 --
Proceeds from stock options exercised .................... 977 739
Repurchase of Class A common stock ....................... (1,651) --
Increase (decrease) in book overdrafts ................... (779) 132
-------- --------
Net cash provided by financing activities ........ (1,436) 871
-------- --------
Net increase (decrease) in cash and cash equivalents ..... (625) 1,720
Cash and cash equivalents at beginning of period ......... 6,479 6,218
-------- --------
Cash and cash equivalents at end of period ............... $ 5,854 $ 7,938
======== ========
</TABLE>
See notes to consolidated financial statements.
6
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COX RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
1. BASIS OF PRESENTATION AND OTHER INFORMATION
Cox Radio, Inc. 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, Inc. indirectly owns approximately 69% of the Common Stock of
Cox Radio.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnote disclosures required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the financial
statements reflect all adjustments considered necessary for a fair statement of
the results of operations and financial position for the interim periods
presented. All such adjustments are of a normal, recurring nature. These
unaudited consolidated interim financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1998 and notes thereto contained in Cox Radio's Annual Report
on Form 10-K filed with the Securities and Exchange Commission (Commission File
No. 1-12187).
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1999 or any other interim period.
2. 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
swaps, as well as the use of local marketing agreements, or LMA's, and joint
sales agreements, or JSA's. Specific transactions entered into or consummated by
Cox Radio during the three months ended March 31, 1999, and through May 7, 1999,
are discussed below.
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.
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
accounts for this investment under the cost method.
In May 1999, Cox Radio acquired 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 WDUV-FM (formerly WTBT-FM) serving the Tampa-St.
Petersburg, Florida market in exchange for the Company's radio stations WYYY-FM,
WBBS-FM, WWHT-FM, WHEN-AM and WSYR-AM serving
7
<PAGE> 8
the Syracuse, New York market, plus additional cash consideration of
approximately $94 million. In connection with obtaining regulatory approvals for
these transactions, Cox Radio has agreed to divest ownership of WRVI-FM and
WLSY-FM serving the Louisville, Kentucky market. Such stations have been
transferred to a trust for the benefit of Cox Radio pending sale to a third
party.
In May 1999, Cox Radio entered into an agreement to acquire WNGC-FM,
licensed to Athens, Georgia for approximately $78 million. Pending regulatory
approvals, Cox Radio expects to consummate this acquisition in the second half
of 1999.
3. COMMITMENTS AND CONTINGENCIES
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 for the acquisition of NewCity Communications, Inc. in
April 1997, repay certain secured debt of NewCity Communications and finance
certain other 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.
At March 31, 1999, 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.
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. Pursuant
to 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 originally sold on May 26, 1998, 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 held by
Cox Radio to CXR Holdings, Inc., a wholly-owned subsidiary of Cox Radio, CXR
Holdings became a guarantor of the notes on February 1, 1999.
Cox Radio has entered into interest rate swap agreements with certain
lenders providing bank financing under the bank credit facility. 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 March 31, 1999, the estimated fair value of
the interest rate swap agreements, based on current market rates, approximated a
net payable of $2.6 million.
8
<PAGE> 9
4. FINANCIAL INFORMATION FOR GUARANTORS OF COX RADIO'S DEBT
As discussed in Note 3, Cox Radio's notes are unconditionally
guaranteed by CXR Holdings, a wholly-owned subsidiary of Cox Radio. The
following table sets forth condensed financial information of CXR Holdings as of
and for the three months ended March 31, 1999. Comparative data are not
presented as CXR Holdings was not a guarantor of Cox Radio's notes during the
comparative prior year period. Separate financial statements and other
disclosures concerning CXR Holdings are not presented because CXR Holdings is
comprised primarily of non-operating assets including certain FCC licenses and
royalties earned from the parent company.
<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE MONTHS ENDED
MARCH 31, 1999
--------------
(AMOUNTS IN THOUSANDS)
<S> <C>
BALANCE SHEET:
ASSETS:
Accounts receivable ...................... $ 6,870
Intangible assets, net ................... 175,260
Other assets ............................. 14
--------
Total assets ............................. $182,144
========
LIABILITIES AND SHAREHOLDER'S EQUITY:
Accrued liabilities ...................... $ 30
Shareholder's equity ..................... 182,114
--------
Total liabilities and shareholder's equity $182,144
========
STATEMENT OF OPERATIONS:
Royalty income ........................... $ 6,870
Depreciation and amortization ............ 1,160
--------
Income before income taxes ............... $ 5,710
========
</TABLE>
5. EARNINGS PER COMMON SHARE AND CAPITAL STRUCTURE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
---- ----
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
NET INCOME.......................................... $ 3,824 $ 2,775
======= ========
BASIC EPS
Weighted-average common shares outstanding.......... 28,577 28,427
======= ========
Basic net income per common share................... $ .13 $ .10
======= ========
DILUTED EPS
Weighted-average common shares outstanding - basic.. 28,577 28,427
Shares issuable on exercise of dilutive options.. 749 698
Shares assumed to be purchased with proceeds from (616) (553)
options........................................
Shares issuable pursuant to employee stock purchase 186 186
plan ..........................................
Shares assumed to be purchased with proceeds from
employee stock purchase plan................... (12) (50)
-------- --------
Shares applicable to diluted EPS.................... 28,884 28,708
======== ========
Diluted net income per common share................. $ .13 $ .10
======== ========
</TABLE>
In January 1999, Cox Radio reacquired 39,952 shares of previously
restricted Class A common stock for cash consideration of approximately $1.7
million.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying unaudited historical Consolidated Statements of Income for the
three month periods ended March 31, 1999 and 1998.
This report contains forward-looking statements that are subject to
risks and uncertainties. Forward-looking statements include, but may not be
limited to, the information regarding future cash requirements of Cox Radio,
statements regarding Year 2000 issues (including problems that may arise on the
part of third parties), and statements regarding the intent, belief or current
expectations of Cox Radio and its management. For such statements, Cox Radio
claims the protection of the safe harbor for forward-looking statements
contained in Section 21E of the Securities Exchange Act of 1934, as amended. Cox
Radio's results could differ materially from those discussed in each
forward-looking statement due to various factors which are outside Cox Radio's
control, including competition for audience share and advertising revenue from
other radio stations, electronic and print media and new media technologies and
governmental regulation of the radio broadcasting industry. For a more detailed
discussion of these factors and others, see the Risk Factors section of Cox
Radio's Annual Report on Form 10-K (Commission File No. 1-12187).
GENERAL
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
through its wholly-owned subsidiary, Cox Broadcasting, Inc.
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 defined as net income (loss) before extraordinary items
plus depreciation, amortization and deferred tax expense/benefit. Although
Broadcast Cash Flow, EBITDA and After-Tax Cash Flow are not recognized under
generally accepted accounting principles, or GAAP, 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 GAAP, an alternative to cash flows from
operating activities (as a measure of liquidity) or an indicator of Cox Radio's
performance under GAAP.
The primary source of Cox Radio's revenues is the sale of local and
national advertising. Historically, approximately 75% and 23% 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.
10
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ACQUISITIONS AND DISPOSITIONS
During the past several years, Cox Radio has actively managed its
portfolio of radio stations through selected acquisitions, dispositions and
swaps, as well as the use of LMA's and JSA's. Specific transactions entered into
or consummated by Cox Radio during the three months ended March 31, 1999, and
through May 7, 1999, are discussed below.
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.
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
accounts for this investment under the cost method.
In May 1999, Cox Radio acquired 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 WDUV-FM (formerly WTBT-FM) serving the Tampa-St.
Petersburg, Florida market in exchange for the Company's radio stations WYYY-FM,
WBBS-FM, WWHT-FM, WHEN-AM and WSYR-AM serving the Syracuse, New York market,
plus additional cash consideration of approximately $94 million. In connection
with obtaining regulatory approvals for these transactions, Cox Radio has
agreed to divest ownership of WRVI-FM and WLSY-FM serving the Louisville,
Kentucky market. Such stations have been transferred to a trust for the benefit
of Cox Radio pending sale to a third party.
In May 1999, Cox Radio entered into an agreement to acquire WNGC-FM,
licensed to Athens, Georgia for approximately $78 million. Pending regulatory
approvals, Cox Radio expects to consummate this acquisition in the second half
of 1999.
RESULTS OF OPERATIONS
Three months ended March 31, 1999 compared to three months ended March 31, 1998
Net Revenues. Net revenues for the first quarter of 1999 increased $8.3
million to $60.4 million, a 16% increase over the first quarter of 1998. This
increase was primarily as a result of the acquisition of radio stations in Long
Island, New York, in addition to substantial increases in net revenues at the
stations in Orlando, Atlanta and Miami, which were realized as a result of
continued strong ratings performance.
Station Operating Expenses. Station operating expenses increased $5.2
million to $40.7 million, an increase of 14.6% over the first quarter of 1998.
The increase was primarily attributable to the acquisition of stations in Long
Island, New York, and also due to higher programming and sales related costs
which are driven by ratings and revenues, respectively.
Broadcast Cash Flow. Broadcast cash flow increased $3.1 million to
$19.7 million, an 18.9% increase over the first quarter of 1998 for the
reasons discussed above.
11
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Corporate general and administrative expenses. Corporate general and
administrative expenses increased $0.3 million to $2.2 million primarily due to
higher overhead costs incurred as a result of the increase in number of stations
owned and/or operated in 1999.
Operating Income. Operating income for the first quarter of 1999
increased $1.8 million to $11.2 million, an increase of 19.6% over the first
quarter of 1998 for the reasons discussed above.
Interest expense. Interest expense during the first quarter of 1999
totaled $4.4 million as compared to first quarter 1998 of $3.8 million as a
result of borrowings incurred to complete Cox Radio's acquisitions during 1998
and the first quarter of 1999.
Net Income. Net income increased $1.0 million to $3.8 million for the
first quarter of 1999 for the reasons discussed above.
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
described below. For the three months ended March 31, 1999 as compared to the
three months ended March 31, 1998, cash from operations increased $8.1 million
to $22.2 million, primarily attributable to an increase in non-cash charges for
depreciation and amortization and the net change in working capital accounts. In
addition, cash requirements historically have been funded on a temporary basis
through intercompany advances from Cox Enterprises under a revolving credit
facility with Cox Enterprises. Borrowings, if any, by Cox Radio under the Cox
Enterprises credit facility would typically be repaid by Cox Radio within 30
days. Borrowings, if any, under the Cox Enterprises credit facility would 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 bank credit facility. The interest rate is based on
the London Interbank Offered Rate plus a spread determined by certain leverage
ratios. This facility also includes a commitment fee on the unused portion of
the total amount available of .1% to .25% based on certain leverage ratios. At
March 31, 1999, Cox Radio had $100 million of outstanding indebtedness under the
bank credit facility and had $200 million available under the bank credit
facility. The interest rate applied to amounts due under the bank credit
facility was 5.29% at March 31, 1999.
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. Pursuant
to 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 originally sold on May 26, 1998, 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 held by
Cox Radio to CXR Holdings, a wholly-owned subsidiary of Cox Radio, CXR Holdings
became a guarantor of the notes on February 1, 1999.
Cox Radio has entered into interest rate swap agreements with certain
lenders providing bank financing under the bank credit facility. 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
12
<PAGE> 13
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 March 31, 1999, the estimated fair value of the interest rate swap
agreements, based on current market rates, approximated a net payable of $2.6
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 from various
sources, including the proceeds from bank financing and, if or when appropriate,
other issuances of Company securities.
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. As of March 31, 1999, the project team has
substantially completed this audit process.
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
13
<PAGE> 14
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 Year 2000
compliant. Cox Radio intends to test Version 28 during the second quarter of
1999. Cox Enterprises has successfully completed testing of ADP Version 2.5 and
concluded that Version 2.5 appears to be Year 2000 compliant.
COSTS
As of March 31, 1999, costs of approximately $300,000 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 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.
14
<PAGE> 15
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Cox Radio has entered into interest rate swap agreements with certain
lenders providing bank financing under the bank credit facility. 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 March 31, 1999, the estimated fair value of
the interest rate swap agreements, based on current market rates, approximated a
net payable of $2.6 million.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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>
(1) 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. (2)
(1) 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. (3)
(3) 4.1 -- Indenture dated as of May 26, 1998
between Cox Radio, Inc., The Bank
of New York, WSB, Inc., and WHIO, Inc.
4.2 -- First Supplemental Indenture dated as
of February 1, 1999 by and between Cox
Radio, Inc., CXR Holdings, Inc., and
the Bank of New York
(4) 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.
(5) 4.4 -- Specimen of Class A Common Stock
Certificate.
(6)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)
(1) 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.
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).
16
<PAGE> 17
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COX RADIO, INC.
May 12, 1999 /s/ Maritza C. Pichon
-------------------------------------
Maritza C. Pichon
Chief Financial Officer
(Principal Financial Officer and
duly authorized officer)
18
<PAGE> 1
================================================================================
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-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 5,854
<SECURITIES> 0
<RECEIVABLES> 52,391
<ALLOWANCES> 2,724
<INVENTORY> 0
<CURRENT-ASSETS> 60,230
<PP&E> 92,338
<DEPRECIATION> (40,184)
<TOTAL-ASSETS> 761,796
<CURRENT-LIABILITIES> 33,558
<BONDS> 300,252
0
0
<COMMON> 28,599
<OTHER-SE> 289,111
<TOTAL-LIABILITY-AND-EQUITY> 761,796
<SALES> 0
<TOTAL-REVENUES> 60,373
<CGS> 0
<TOTAL-COSTS> 40,669
<OTHER-EXPENSES> 8,544
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,380)
<INCOME-PRETAX> 6,711
<INCOME-TAX> 2,887
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,824
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
