<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 SEPTEMBER 30, 2000
[ ] 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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 40,670,133 shares of Class A common stock outstanding as of
October 31, 2000.
There were 58,733,016 shares of Class B common stock outstanding as of
October 31, 2000.
<PAGE> 2
COX RADIO, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................................. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................ 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....... 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................ 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 22
SIGNATURES................................................................ 24
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COX RADIO, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------------- -------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................ $ 20,596 $ 14,704
Restricted cash...................................................... 1,444 --
Accounts receivable, less allowance for doubtful accounts
of $3,305 and $2,966, respectively .............................. 90,148 74,775
Prepaid expenses and other current assets ........................... 6,539 4,387
Amounts due from Cox Enterprises, Inc. .............................. 20,216 --
----------------- -------------------
Total current assets ............................................. 138,943 93,866
Plant and equipment, net .............................................. 73,092 56,582
Intangible assets, net ................................................ 2,127,262 829,307
Station investment note receivable .................................... -- 850
Other assets .......................................................... 8,894 6,016
----------------- -------------------
Total assets ..................................................... $ 2,348,191 $ 986,621
================= ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ............................... $ 25,682 $ 28,115
Accrued salaries and wages .......................................... 6,838 4,464
Accrued interest .................................................... 8,258 2,476
Income taxes payable ................................................ 6,092 5,462
Other current liabilities ........................................... 979 1,572
Current portion of notes payable .................................... 230,000 --
Amounts due to Cox Enterprises, Inc. ............................... -- 17,138
----------------- -------------------
Total current liabilities ........................................ 277,849 59,227
Notes payable ......................................................... 549,937 420,105
Deferred income taxes ................................................. 483,995 128,623
----------------- -------------------
Total liabilities ................................................ 1,311,781 607,955
----------------- -------------------
Commitments and contingencies (Note 3)
Shareholders' Equity:
Preferred stock, $1.00 par value: 15,000,000 shares authorized,
None outstanding.................................................. -- --
Class A common stock, $0.33 par value; 210,000,000 shares
authorized; 40,658,397 and 28,015,983 shares outstanding at
September 30, 2000 and December 31, 1999, respectively ........... 13,418 9,245
Class B common stock, $0.33 par value; 135,000,000 shares
authorized; 58,733,016 shares outstanding at September 30, 2000
and December 31, 1999, respectively .............................. 19,382 19,382
Additional paid-in capital .......................................... 609,469 265,155
Retained earnings ................................................... 395,792 86,535
----------------- -------------------
1,038,061 380,317
Less: Class A common stock held in treasury (119,856 shares at cost) (1,651) (1,651)
----------------- -------------------
Total shareholders' equity ....................................... 1,036,410 378,666
----------------- -------------------
Total liabilities and shareholders' equity ....................... $ 2,348,191 $ 986,621
================= ===================
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
COX RADIO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- -----------------------------------
2000 1999 2000 1999
--------------- -------------- --------------- ---------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET REVENUES:
Local .................................. $ 69,468 $ 57,244 $ 193,005 $ 160,635
National ............................... 21,209 19,814 61,348 52,064
Other .................................. 4,392 2,696 12,263 6,013
--------------- -------------- --------------- ---------------
Total revenues ...................... 95,069 79,754 266,616 218,712
COSTS AND EXPENSES:
Operating .............................. 21,684 18,422 59,479 51,043
Selling, general and administrative .... 32,865 28,058 102,043 84,005
Corporate general and administrative ... 3,611 2,673 9,590 7,268
Depreciation and amortization .......... 11,206 7,544 26,261 20,758
Loss on sales of assets ................ 63 -- 5 --
Gain on sales of radio stations ........ (437,977) (719) (483,330) (40,521)
--------------- -------------- --------------- ---------------
OPERATING INCOME ......................... 463,617 23,776 552,568 96,159
OTHER INCOME (EXPENSE):
Interest income ........................ 2,775 -- 4,482 466
Interest expense ....................... (9,268) (5,831) (23,409) (16,288)
Non-cash mark-to-market unrealized
(loss)/gain ......................... (698) -- 1,474 --
Other - net ............................ (122) (135) (466) (266)
--------------- -------------- --------------- ---------------
INCOME BEFORE INCOME TAXES................ 456,304 17,810 534,649 80,071
Income taxes ........................... 193,382 7,750 225,392 33,513
--------------- -------------- --------------- ---------------
NET INCOME ............................... $ 262,922 $ 10,060 $ 309,257 $ 46,558
=============== ============== =============== ===============
Basic net income per common share......... $ 2.65 $ 0.12 $ 3.39 $ 0.54
=============== ============== =============== ===============
Diluted net income per common share....... $ 2.63 $ 0.12 $ 3.37 $ 0.54
=============== ============== =============== ===============
Weighted average basic common shares
outstanding............................. 99,362 86,274 91,230 85,946
=============== ============== =============== ===============
Weighted average diluted common shares
outstanding............................. 99,966 86,761 91,892 86,362
=============== ============== =============== ===============
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
COX RADIO, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B TREASURY STOCK
COMMON STOCK COMMON STOCK ADDITIONAL ------------------
----------------- ----------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ------ ------ ---------- -------- ------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1999........ 28,016 $ 9,245 58,733 $ 19,382 $ 265,155 $ 86,535 120 $ (1,651) $ 378,666
Net income............... -- -- -- -- -- 309,257 -- -- 309,257
Issuance of Class A
common stock
pursuant to equity
offering............... 12,392 4,089 -- -- 340,116 -- -- -- 344,205
Issuance of Class A
common stock
related to
incentive plans........ 250 84 -- -- 4,198 -- -- -- 4,282
------- -------- -------- -------- --------- --------- -------- -------- ----------
BALANCE AT
SEPTEMBER 30, 2000....... 40,658 $ 13,418 58,733 $ 19,382 $ 609,469 $ 395,792 120 $ (1,651) $1,036,410
======= ======== ======== ======== ========= ========= ======== ======== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE> 6
COX RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
------------ ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 309,257 $ 46,558
Items not requiring cash:
Depreciation ......................................................... 5,198 5,173
Amortization ......................................................... 21,063 15,585
Deferred income taxes ................................................ 207,372 17,741
Tax benefit from exercise of stock options ........................... 1,382 2,442
Non-cash mark-to-market unrealized (gain)............................. (1,474) --
Loss on sales of assets............................................... 5 --
(Gain) on sales of radio stations .................................... (483,330) (40,521)
Changes in assets and liabilities (net of effects of acquisitions and
dispositions):
Increase in accounts receivable ...................................... (15,541) (9,264)
(Decrease) increase in accounts payable and accrued expenses ......... (49) 1,381
Increase in accrued salaries and wages ............................... 2,374 1,233
Increase in accrued interest ......................................... 5,782 3,121
Increase in taxes payable ............................................ 630 5,637
Other, net ........................................................... (2,613) (1,287)
------------- -----------
Net cash provided by operating activities ....................... 50,056 47,799
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................... (7,346) (4,901)
Acquisitions, net of cash acquired ..................................... (811,330) (208,776)
Decrease in station investment note receivable ......................... 850 6,400
Decrease (increase) in other long-term assets .......................... 1,256 (6,652)
Proceeds from sales of assets .......................................... 423 --
Proceeds from sales of radio stations .................................. 107,618 5,868
Increase in cash restricted for investment.............................. (1,444) --
(Decrease) increase in amounts due to/from Cox Enterprises, Inc. ....... (37,354) 37,361
------------- -----------
Net cash used in investing activities ........................... (747,327) (170,700)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of revolving credit facility ............................ 359,832 119,857
Proceeds from stock options exercised .................................. 2,899 5,720
Net proceeds from stock offering ....................................... 344,205 --
Repurchase of Class A common stock ..................................... -- (1,651)
(Decrease) increase in book overdrafts ................................. (2,635) 311
Payment of credit facility financing costs ............................. (1,138) --
------------- -----------
Net cash provided by financing activities ....................... 703,163 124,237
------------- -----------
Net increase in cash and cash equivalents .............................. 5,892 1,336
Cash and cash equivalents at beginning of period ....................... 14,704 6,479
------------- -----------
Cash and cash equivalents at end of period ............................. $ 20,596 $ 7,815
============= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ......................................................... $ 17,627 $ 13,167
Income taxes ..................................................... $ 16,097 $ 7,697
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Value of businesses exchanged ................................... $ 470,000 $55,000
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE> 7
COX RADIO, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND OTHER INFORMATION
Cox Radio is a leading national radio broadcasting 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 63% of the common stock of Cox
Radio and has approximately 94% of the voting power 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, 1999 and notes thereto contained in Cox Radio's Annual Report
on Form 10-K, as amended, filed with the Securities and Exchange Commission.
The results of operations for the three and nine months ended September 30,
2000 are not necessarily indicative of the results to be expected for the year
ending December 31, 2000 or any other interim period.
Certain prior year amounts have been reclassified for comparative purposes.
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 exchanges, as
well as through the use of local marketing agreements, or LMAs, and joint sales
agreements, or JSAs. Under an LMA, the company operating a station provides
programming, sales and marketing services. Under a JSA, the company operating a
station provides sales and marketing 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.
All consummated and pending acquisitions discussed below have been or will
be accounted for using the purchase method. As such, the results of operations
of acquired stations have been or will be included in the results of operations
from the date of acquisition. Specific transactions entered into or consummated
by Cox Radio during the nine months ended September 30, 2000 and through
November 7, 2000 are discussed below.
In January 2000, Cox Radio acquired the assets of KRTQ-FM (formerly
KTFX-FM) in Tulsa, Oklahoma for consideration of $3.5 million. Cox Radio had
been operating this station pursuant to an LMA since January 1999.
Also in January 2000, Cox Radio disposed of the assets of KACE-FM and
KRTO-FM, serving Los Angeles, California, for consideration of approximately $75
million.
On April 2, 2000, the LMA for WCNN-AM, serving Atlanta, Georgia,
terminated.
Also in April 2000, Cox Radio disposed of the assets of KGMZ-FM, serving
Honolulu, Hawaii, for approximately $6.6 million. Cox Radio continues to manage
this station's local, regional and national
7
<PAGE> 8
advertising sales efforts under a JSA. In addition, Cox Radio is a guarantor of
the buyer's financing for this transaction.
On May 1, 2000, Cox Radio acquired the assets of KINE-FM, KCCN-FM and
KCCN-AM, serving Honolulu, Hawaii, for consideration of approximately $17.8
million.
On July 13, 2000, Cox Radio acquired the outstanding capital stock of
Marlin Broadcasting, Inc., which owned radio stations WTMI-FM serving Miami,
Florida, WCCC-FM and WCCC-AM serving Hartford, Connecticut, and WBOQ-FM serving
Gloucester, Massachusetts, for approximately $125 million. As part of this
transaction, Cox Radio sold those assets of Marlin comprising WCCC-FM, WCCC-AM
and WBOQ-FM to certain of the former principals of Marlin for approximately $25
million. Cox Radio did not recognize any gain or loss on the sale of these
assets.
On August 25, 2000, Cox Radio acquired WEDR-FM in Miami, Florida; WFOX-FM
in Atlanta, Georgia; WFYV-FM, WAPE-FM, WBWL-AM, WKQL-FM, WMXQ-FM and WOKV-AM in
Jacksonville, Florida; WEFX-FM, WNLK-AM, WKHL-FM and WSTC-AM in
Stamford/Norwalk, Connecticut; and WPLR-FM and national and local sales and
marketing rights at WYBC-FM in New Haven, Connecticut in exchange for KFI-AM and
KOST-FM in Los Angeles, California, plus approximately $3 million. The
transaction was accounted for as a purchase business combination with a fair
value of $473 million based on an independent appraisal. Cox Radio recorded a
$252.6 million after-tax gain on the transaction in the third quarter of 2000.
Cox Radio has operated the acquired stations (other than WYBC-FM) pursuant to an
LMA and WYBC-FM pursuant to a JSA since October 1999. Cox Radio obtained a
temporary waiver of the FCC's newspaper-radio cross-ownership rule for the
acquisition of WFOX-FM in Atlanta.
On August 30, 2000, Cox Radio acquired the assets of radio stations
KKBQ-FM, KLDE-FM and KKTL-FM, serving Houston, Texas, and WKHK-FM, WMXB-FM,
WKLR-FM and WVBB-AM (formerly WTVR-AM), serving Richmond, Virginia, for
consideration of approximately $380 million.
Also on August 30, 2000, Cox Radio acquired the capital stock of Midwestern
Broadcasting Company, Inc., which owned WALR-FM, serving Atlanta, Georgia, for
$280 million. In a related transaction with Salem Communications Corporation on
September 1, 2000, Cox Radio exchanged the license and transmitting facilities
of WALR-FM, as well as the license and transmitting facilities of radio stations
KLUP-AM, serving San Antonio, Texas, and WSUN-AM, serving Tampa, Florida, for
the license and transmitting facilities of radio station KHPT-FM (formerly
KKHT-FM), serving Houston, Texas. Cox Radio retained the intellectual property
of WALR-FM and is broadcasting WALR-FM's programming on its WJZF-FM signal in
Atlanta. Cox Radio has changed WJZF-FM's call letters to WALR-FM.
The following unaudited pro forma summary of operations presents the
consolidated results of operations as if all consummated and pending
transactions had occurred on January 1, 1999 and does not purport to be
indicative of what would have occurred had these transactions been made as of
that date, or indicative of results which may occur in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.................................... $104,486 $ 97,002 $305,356 $267,758
Net income...................................... 11,256 7,465 31,839 21,570
===============================================
Basic pro forma net income per common share..... $ 0.11 $ 0.09 $ 0.35 $ 0.25
===============================================
Diluted pro forma net income per common......... $ 0.11 $ 0.09 $ 0.35 $ 0.25
===============================================
Basic pro forma shares outstanding.............. 99,362 86,274 91,230 85,946
===============================================
Diluted pro forma shares outstanding............ 99,966 86,761 91,892 86,362
===============================================
</TABLE>
8
<PAGE> 9
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 interest rate was based on the London Interbank Offered Rate plus a spread
determined by the ratio of Cox Radio's debt to EBITDA. This facility included a
commitment fee on the unused portion of the total amount available of .1% to
.25% based on the ratio of Cox Radio's debt to EBITDA. At December 31, 1999, Cox
Radio had approximately $220 million of outstanding indebtedness and
approximately $80 million available under the bank credit facility. Borrowings
under the bank credit facility approximated fair value based upon current
borrowing rates available to Cox Radio. The interest rate applied to amounts due
under the bank credit facility was 6.9% at December 31, 1999. This bank credit
facility contained, among other provisions, defined requirements as to ratio of
debt to EBITDA and ratio of EBITDA to interest expense. At December 31, 1999,
Cox Radio was in compliance with these covenants. On June 27, 2000, all amounts
previously outstanding under this facility were repaid with a portion of the net
proceeds from the offering of Class A common stock discussed in Note 5 below.
On June 30, 2000, Cox Radio replaced its $300 million, five-year, senior,
unsecured revolving credit facility, with a $350 million, five-year, senior,
unsecured revolving credit facility and a $350 million, 364-day, senior,
unsecured revolving credit facility, each with certain banks, including The
Chase Manhattan Bank as the Administrative Agent, Bank of America, N.A. as the
Syndications Agent, and Citibank, N.A. as the Documentation Agent. The interest
rate for each facility is based on the Federal funds borrowing rate plus 1/2%;
the London Interbank Offered Rate plus a spread based on the credit ratings of
Cox Radio's senior, long-term debt; or the bid rate for the purchase of
certificates of deposit of equal principal amount and maturity plus a spread
based on the credit ratings of Cox Radio's senior, long-term debt. Each facility
includes a commitment fee on the unused portion of the total amount available of
.1% to .25% based on the credit ratings of Cox Radio's senior, long-term debt.
Each facility also contains, among other provisions, defined requirements as to
the ratio of debt to EBITDA and the ratio of EBITDA to interest expense. At
September 30, 2000, Cox Radio was in compliance with the covenants. At September
30, 2000, Cox Radio had approximately $350 million of outstanding indebtedness
under the five-year facility with no additional amounts available, and $230
million of outstanding indebtedness under the 364-day facility with $120 million
available. The interest rate applied to amounts due under the bank credit
facilities was 7.13% at September 30, 2000.
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 Rule
144A of the Securities Act of 1933, as amended, (the "Securities Act"), which
were later exchanged for notes registered under the Securities Act. The notes
consisted of $100 million principal amount of 6.25% notes due in 2003 and $100
million principal amount of 6.375% notes due in 2005. Pursuant to the
Registration Rights Agreement dated as of May 26, 1998 among Cox Radio, its
then-wholly owned subsidiaries WSB, Inc. and WHIO, Inc. (each a former guarantor
of the notes), NationsBanc Montgomery Securities LLC, Chase Securities, Inc.,
and J.P. Morgan Securities, Inc., on December 14, 1998, an exchange offer was
consummated 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. 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. At
9
<PAGE> 10
September 30, 2000 and December 31, 1999, the estimated fair value of these
notes was approximately $194.1 million and $191.0 million, respectively, based
on quoted market prices.
In September 1997, Cox Radio entered into interest rate swap agreements
with certain lenders providing bank financing under its bank credit facility.
Pursuant to the interest rate swap agreements, Cox Radio exchanged its floating
rate interest obligations on an aggregate of $100 million in principal amount at
an average fixed rate of 6.23% per annum having 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 is 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 these counterparties nor would we expect any such
loss to be material. The estimated fair value of the interest rate swap
agreements, based on current market rates, approximated a net receivable of $1.9
million at December 31, 1999.
Prior to June 27, 2000, Cox Radio accounted for the interest rate swap
agreements as hedges. In connection with the offering of Class A common stock as
discussed in Note 5 below, Cox Radio used a portion of the net proceeds from the
offering to repay all amounts then outstanding under its bank credit facility.
As the interest rate swap agreements were no longer matched with existing debt,
Cox Radio recorded a non-cash mark-to-market unrealized gain as of June 30, 2000
of $2.2 million, which represents the fair value of the interest rate swap
agreements at that date. On August 4, 2000, Cox Radio redesignated these
interest rate swap agreements as hedges of floating rate borrowings under the
new revolving credit facilities dated June 30, 2000 discussed above. Concurrent
with the redesignation of these swaps, Cox Radio recorded a non-cash,
mark-to-market unrealized loss of $0.7 million, which represents the difference
in the fair value of the interest rate swap agreements from June 30, 2000 to
August 4, 2000. The estimated fair value of the interest rate swap agreements,
based on current market rates, approximated a net receivable of $0.9 million at
September 30, 2000.
On May 2, 2000, Cox Radio's universal shelf registration statement filed
with the Securities and Exchange Commission on Form S-3 was declared effective.
Under the universal shelf registration statement, Cox Radio and two financing
trusts sponsored by Cox Radio may from time to time offer and issue debentures,
notes, bonds and other evidences of indebtedness, forward contracts in respect
of any such indebtedness, shares of preferred stock, shares of Class A common
stock, warrants, stock purchase contracts and stock purchase units of Cox Radio
and preferred securities of the Cox Radio trusts for a maximum aggregate
offering amount of $750 million. Unless otherwise described in future prospectus
supplements, Cox Radio intends to use the net proceeds from the sale of
securities registered under this universal shelf registration statement for
general corporate purposes, which may include additions to working capital, the
repayment or redemption of existing indebtedness and the financing of capital
expenditures and acquisitions. See Note 5 below for a discussion of an offering
of Class A common stock during the second quarter of 2000 under the universal
shelf registration statement of Cox Radio.
On March 6, 2000, Cox Radio was named as a defendant in a putative class
action suit filed in the state court of Gwinnett County, Georgia, alleging
violations of the federal Telephone Consumer Protection Act and related Georgia
telemarketing laws. The complaint sought statutory damages in the amount of
$1,500, plus actual and punitive damages and attorneys' fees, on behalf of each
person "throughout the State of Georgia" who received an unsolicited
pre-recorded telephone message delivering an "advertisement" from a Cox Radio
radio station. On May 1, 2000, the lawsuit was dismissed without prejudice.
Counsel for the plaintiff has indicated his intention to file a similar action
against Cox Radio at a later date.
4. GUARANTOR FINANCIAL INFORMATION
CXR Holdings, Inc., a wholly-owned subsidiary of Cox Radio, was formed on
September 11, 1998, and Cox Radio transferred certain of its Federal
Communications Commission licenses, permits and authorizations to CXR Holdings
as of January 1, 1999. CXR Holdings became the guarantor of Cox Radio's $200
million in registered notes described in Note 3 above pursuant to a full and
unconditional
10
<PAGE> 11
guarantee on February 1, 1999. Separate financial statements and other
disclosures concerning CXR Holdings are not presented because CXR Holdings is
comprised primarily of non-operating assets, including Federal Communications
Commission licenses, permits and authorizations and cash royalties, and such
separate financial statements and other disclosures would not be meaningful to
investors. The following table sets forth condensed financial information of CXR
Holdings as of September 30, 2000 and December 31, 1999 and for the three and
nine month periods ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------------------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Accounts receivable - Cox Radio........................... $ 62,481 $ 15,066
Intangible assets, net.................................... 670,259 391,832
Other assets.............................................. 29 767
-------------------------------------
Total assets........................................... $ 732,769 $ 407,665
=====================================
-------------------------------------
Shareholders' equity...................................... $ 732,769 $ 407,665
=====================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------------------------------------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Royalty income - Cox Radio................................ $ 13,805 $ 6,559 $ 38,611 $ 20,081
Intercompany interest, net................................ 1,259 -- 2,282 --
Depreciation and amortization............................. (3,241) (1,135) (8,299) (3,387)
------------------------------------------------------
Operating income.......................................... $ 11,823 $ 5,424 $ 32,594 $ 16,694
======================================================
</TABLE>
5. EARNINGS PER COMMON SHARE AND CAPITAL STRUCTURE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET INCOME............................................ $ 262,922 $ 10,060 $ 309,257 $ 46,558
========= ======== ========= ========
BASIC EPS
Weighted-average common shares outstanding ........... 99,362 86,274 91,230 85,946
========= ======== ========= ========
Basic net income per common share..................... $ 2.65 $ 0.12 $ 3.39 $ 0.54
========= ======== ========= ========
DILUTED EPS
Weighted-average common shares outstanding - basic.... 99,362 86,274 91,230 85,946
Shares issuable on exercise of dilutive options.... 1,445 1,751 1,445 1,751
Shares assumed to be purchased with proceeds from
options.......................................... (986) (1,295) (939) (1,347)
Shares issuable pursuant to employee stock
purchase plan.................................... 229 234 229 234
Shares assumed to be purchased with proceeds from
employee stock purchase plan.................... (84) (203) (73) (222)
--------- -------- --------- --------
Shares applicable to diluted EPS...................... 99,966 86,761 91,892 86,362
========= ======== ========= ========
Diluted net income per common share................... $ 2.63 $ 0.12 $ 3.37 $ 0.54
========= ======== ========= ========
</TABLE>
In January 1999, Cox Radio reacquired 119,856 shares of previously
restricted Class A common stock from employees for cash consideration of
approximately $1.7 million which was used to pay employee withholding taxes.
On February 7, 2000, Cox Radio announced that its Board of Directors
approved a three-for-one stock split. The stock split resulted in a decrease in
par value of each share, including shares of preferred stock (authorized with no
shares presently outstanding), from $1.00 to $0.33 per share. At the Annual
Meeting of Stockholders, the stockholders voted to amend Cox Radio's Articles of
Incorporation to increase
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<PAGE> 12
authorized (a) Class A common stock from 70,000,000 to 210,000,000 shares; (b)
Class B common stock from 45,000,000 to 135,000,000 shares; and (c) preferred
stock from 5,000,000 to 15,000,000 shares. The stock split was distributed on
May 19, 2000 to stockholders of record on May 12, 2000. All financial
information contained elsewhere in these financial statements has been adjusted
to reflect the impact of this stock split.
On June 27, 2000, Cox Radio consummated a public offering of 8,800,000
shares of its Class A common stock pursuant to its universal shelf registration
statement and completed a concurrent private placement of 3,591,954 shares of
Class A common stock directly to Cox Enterprises at the public offering price
per share, less underwriting discounts and commissions. Cox Radio received net
proceeds of approximately $344.2 million from this offering to partially finance
acquisitions, repay outstanding indebtedness and for general corporate purposes.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133). This statement requires that all derivatives
be recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be designated, reassessed and documented pursuant to the provisions of SFAS
133. SFAS 133, as amended by SFAS 137 and 138, is effective for fiscal years
beginning after June 15, 2000. Accordingly, Cox Radio will be required to adopt
SFAS 133 on January 1, 2001.
In November 1999, Cox Radio developed an SFAS 133 implementation plan and
appointed a team to implement SFAS 133 on a company-wide basis. The
implementation plan includes, among other things, the education of both
financial and non-financial personnel, the conducting of an inventory of all
free-standing and embedded derivatives, the development of a SFAS 133 compliant
risk management process, the development of controls and processes to identify
and account for derivatives on an on going basis, and the documentation and
assessment of the Company's hedging strategies. Cox Radio does not believe that
the adoption of SFAS 133 will have a material impact on the financial
statements.
7. SUBSEQUENT EVENT
On November 8, 2000, Cox Radio entered into an agreement to acquire the
assets of radio stations WDYL-FM serving Richmond, Virginia, and WJMZ-FM and
WPEK-FM serving Greenville, South Carolina for a purchase price of $52.5 million
in cash. Pending customary regulatory approvals, Cox Radio anticipates closing
this transaction during the first quarter of 2001.
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 and nine-month periods ended September 30, 2000 and 1999.
This report contains "forward-looking" statements, including but not
limited to statements relating to future cash requirements, which are statements
that relate to Cox Radio's future plans, earnings, objectives, expectations,
performance, and similar projections, as well as any facts or assumptions
underlying these statements or projections. Actual results may differ materially
from the results expressed or implied in these forward-looking statements, due
to various risks, uncertainties or other factors. These factors include
competition within the radio broadcasting industry, advertising demand in our
markets, competition for audience share, our success in executing and
integrating acquisitions, our ability to execute our Internet strategy
effectively, and our ability to generate sufficient cash flow to meet our debt
service obligations and finance operations. For a more detailed discussion of
these and other risk factors, see the Risk Factors section of Cox Radio's Annual
Report on Form 10-K, as amended, for the year ended
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<PAGE> 13
December 31, 1999. Cox Radio assumes no responsibility to update any
forward-looking statements as a result of new information, future events or
otherwise.
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 63% of the common stock of Cox Radio
through its wholly-owned subsidiary, Cox Broadcasting, Inc., and has
approximately 94% of the voting power 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 net revenues less station operating
expenses. EBITDA is defined as operating income excluding the gain on sales of
assets and radio stations plus depreciation and amortization. After-tax Cash
Flow is defined as income (loss) before extraordinary items excluding gain on
sales of assets and radio stations plus depreciation and amortization. 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 or
cash flows from operating activities as a measure of liquidity, each as
determined in accordance with accounting principles generally accepted in the
United States of America, 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 net 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 advertising and promotion is
realized in future periods.
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. Under an LMA, the company operating a station provides
programming, sales and marketing services. Under a JSA, the company operating a
station provides sales and marketing 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.
All consummated and pending acquisitions discussed below have been or will
be accounted for using the purchase method. As such, the results of operations
of acquired stations have been or will be included in the results of operations
from the date of acquisition. Specific transactions entered into or consummated
by Cox Radio during the nine months ended September 30, 2000 and through
November 7, 2000 are discussed below.
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<PAGE> 14
In January 2000, Cox Radio acquired the assets of KRTQ-FM (formerly
KTFX-FM) in Tulsa, Oklahoma for consideration of $3.5 million. Cox Radio had
been operating this station pursuant to an LMA since January 1999.
Also in January 2000, Cox Radio disposed of the assets of KACE-FM and
KRTO-FM, serving Los Angeles, California, for consideration of approximately $75
million.
On April 2, 2000, the LMA for WCNN-AM, serving Atlanta, Georgia,
terminated.
Also in April 2000, Cox Radio disposed of the assets of KGMZ-FM, serving
Honolulu, Hawaii, for approximately $6.6 million. Cox Radio continues to manage
this station's local, regional and national advertising sales efforts under a
JSA. In addition, Cox Radio is a guarantor of the buyer's financing for this
transaction.
On May 1, 2000, Cox Radio acquired the assets of KINE-FM, KCCN-FM and
KCCN-AM, serving Honolulu, Hawaii, for consideration of approximately $17.8
million.
On July 13, 2000, Cox Radio acquired the outstanding capital stock of
Marlin Broadcasting, Inc., which owned radio stations WTMI-FM serving Miami,
Florida, WCCC-FM and WCCC-AM serving Hartford, Connecticut, and WBOQ-FM serving
Gloucester, Massachusetts, for approximately $125 million. As part of this
transaction, Cox Radio sold those assets of Marlin comprising WCCC-FM, WCCC-AM
and WBOQ-FM to certain of the former principals of Marlin for approximately $25
million. Cox Radio did not recognize any gain or loss on the sale of these
assets.
On August 25, 2000, Cox Radio acquired WEDR-FM in Miami, Florida; WFOX-FM
in Atlanta, Georgia; WFYV-FM, WAPE-FM, WBWL-AM, WKQL-FM, WMXQ-FM and WOKV-AM in
Jacksonville, Florida; WEFX-FM, WNLK-AM, WKHL-FM and WSTC-AM in
Stamford/Norwalk, Connecticut; and WPLR-FM and national and local sales and
marketing rights at WYBC-FM in New Haven, Connecticut in exchange for KFI-AM and
KOST-FM in Los Angeles, California, plus approximately $3 million. The
transaction was accounted for as a purchase business combination with a fair
value of $473 million based on an independent appraisal. Cox Radio recorded a
$252.6 million after-tax gain on the transaction in the third quarter of 2000.
Cox Radio has operated the acquired stations (other than WYBC-FM) pursuant to an
LMA and WYBC-FM pursuant to a JSA since October 1999. Cox Radio obtained a
temporary waiver of the FCC's newspaper-radio cross-ownership rule for the
acquisition of WFOX-FM in Atlanta.
On August 30, 2000, Cox Radio acquired the assets of radio stations
KKBQ-FM, KLDE-FM and KKTL-FM, serving Houston, Texas, and WKHK-FM, WMXB-FM,
WKLR-FM and WVBB-AM (formerly WTVR-AM), serving Richmond, Virginia, for
consideration of approximately $380 million.
Also on August 30, 2000, Cox Radio acquired the capital stock of Midwestern
Broadcasting Company, Inc., which owned WALR-FM, serving Atlanta, Georgia, for
$280 million. In a related transaction with Salem Communications Corporation on
September 1, 2000, Cox Radio exchanged the license and transmitting facilities
of WALR-FM, as well as the license and transmitting facilities of radio stations
KLUP-AM, serving San Antonio, Texas, and WSUN-AM, serving Tampa, Florida, for
the license and transmitting facilities of radio station KHPT-FM (formerly
KKHT-FM), serving Houston, Texas. Cox Radio retained the intellectual property
of WALR-FM and is broadcasting WALR-FM's programming on its WJZF-FM signal in
Atlanta. Cox Radio has changed WJZF-FM's call letters to WALR-FM.
RESULTS OF OPERATIONS
Three months ended September 30, 2000 compared to three months ended September
30, 1999
Net revenues for the third quarter of 2000 increased $15.3 million to $95.1
million, a 19.2% increase over the third quarter of 1999. This increase was
primarily a result of the acquisition of radio stations in Honolulu,
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<PAGE> 15
Hawaii; Houston, Texas; Richmond, Virginia; Jacksonville, Florida; New Haven,
Connecticut; Stamford-Norwalk, Connecticut; Atlanta, Georgia; and Miami,
Florida; and was offset somewhat by the disposition of stations in Los Angeles,
California. In addition, significant increases in net revenues at Cox Radio's
previously owned radio stations in Atlanta, Georgia; Long Island, New York;
Tampa, Florida; and San Antonio, Texas, were realized as a result of continued
strong ratings performance.
Station operating expenses increased $8.1 million to $54.5 million, an
increase of 17.4% over the third quarter of 1999. This increase was primarily a
result of the acquisition of radio stations in Honolulu, Hawaii; Houston, Texas;
Richmond, Virginia; Jacksonville, Florida; New Haven, Connecticut;
Stamford-Norwalk, Connecticut; Atlanta, Georgia; and Miami, Florida, as well as
higher programming and sales related costs which are driven by ratings and
revenues, respectively. These increases were offset somewhat by the disposition
of stations in Los Angeles, California.
Broadcast cash flow increased $7.2 million to $40.5 million, a 21.8%
increase over the third quarter of 1999, for the reasons discussed above.
Corporate general and administrative expenses increased $0.9 million to
$3.6 million, primarily due to higher overhead costs incurred as a result of the
increase in number of stations owned and/or operated in 2000.
Operating income increased $439.8 million to $463.6 million for the third
quarter of 2000, for the reasons discussed above and as a result of a $438.0
million pre-tax gain recorded in the third quarter of 2000 on the exchange of
KFI-AM and KOST-FM in Los Angeles, California.
Interest expense during the third quarter of 2000 increased $3.4 million to
$9.3 million as a result of borrowings incurred to complete Cox Radio's
acquisitions during 1999 and the first nine months of 2000.
Net income increased $252.9 million to $262.9 million for the third quarter
of 2000, primarily for the reasons discussed above. In addition, a $252.6
million after-tax gain was recorded in the third quarter of 2000 on the exchange
of KFI-AM and KOST-FM in Los Angeles, California, offset by a $0.4 million
non-cash after-tax "mark-to-market" unrealized loss related to Cox Radio's
interest rate swap agreements.
Nine months ended September 30, 2000 compared to nine months ended September 30,
1999
Net revenues for the first nine months of 2000 increased $47.9 million to
$266.6 million, a 21.9% increase over the first nine months of 1999. This
increase was primarily a result of the acquisition of radio stations in Tampa,
Florida; Louisville, Kentucky; Honolulu, Hawaii; Houston, Texas; Richmond,
Virginia; Jacksonville, Florida; New Haven, Connecticut; Stamford-Norwalk,
Connecticut; Atlanta, Georgia; and Miami, Florida; and offset somewhat by the
disposition of radio stations in Syracuse, New York and Los Angeles, California.
In addition, significant increases in net revenues at Cox Radio's previously
owned radio stations in Atlanta, Georgia; Birmingham, Alabama; Long Island, New
York; Orlando, Florida; Southern Connecticut; Tulsa, Oklahoma; and San Antonio,
Texas, were realized as a result of continued strong ratings performance.
Station operating expenses increased $26.5 million to $161.5 million, an
increase of 19.6% over the first nine months of 1999. This increase was
primarily as a result of the acquisition of radio stations in Tampa, Florida;
Louisville, Kentucky; Honolulu, Hawaii; Houston, Texas; Richmond, Virginia;
Jacksonville, Florida; New Haven and Stamford-Norwalk, Connecticut; Atlanta,
Georgia; and Miami, Florida, as well as higher programming and sales related
costs which are driven by ratings and revenues, respectively. These increases
were offset somewhat by the disposition of stations in Syracuse, New York and
Los Angeles, California.
Broadcast cash flow increased $21.4 million to $105.1 million, a 25.6%
increase over the first nine months of 1999, for the reasons discussed above.
Corporate general and administrative expenses increased $2.3 million to
$9.6 million, primarily due to higher overhead costs incurred as a result of the
increase in number of stations owned and/or operated in 2000.
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<PAGE> 16
Operating income increased $456.4 million to $552.6 million for the first
nine months of 2000, primarily as a result of a $438.0 million pre-tax gain
recorded on the exchange of KFI-AM and KOST-FM in Los Angeles, California and
for the reasons discussed above. In addition, a $46.6 million pre-tax gain was
recorded in the first nine months of 2000 on the sale of KACE-FM and KRTO-FM in
Los Angeles, California. These gains were significantly greater than the $39.8
million pre-tax gain recorded in the first nine months of 1999 on the sale of
Cox Radio's stations in Syracuse, New York.
Interest expense during the first nine months of 2000 increased $7.1
million to $23.4 million as a result of borrowings incurred to complete Cox
Radio's acquisitions during 1999 and the first nine months of 2000.
Net income increased $262.7 million to $309.3 million for the first nine
months of 2000, primarily for the reasons discussed above and due to a $0.9
million after-tax non-cash "mark-to-market" unrealized gain related to Cox
Radio's interest rate swap agreements in the first nine months of 2000. In
addition, a $27.9 million after-tax gain was recorded on the sale of KACE-FM and
KRTO-FM in Los Angeles, California and a $252.6 million after-tax gain was
recorded on the exchange of KFI-AM and KOST-FM in Los Angeles, California in the
first nine months of 2000. These gains were significantly greater than the $23.8
million after-tax gain recorded in the first nine months of 1999 on the sale of
Cox Radio's stations in Syracuse, New York.
LIQUIDITY AND CAPITAL RESOURCES
Cox Radio's primary source of liquidity is cash provided by operations.
Historically, cash requirements have been funded through Cox Radio's operating
activities and borrowings under Cox Radio's bank credit facility. For the nine
months ended September 30, 2000 as compared to the nine months ended September
30, 1999, cash flow from operations increased $2.3 million to $50.1 million,
primarily attributable to the net change in working capital accounts. In
addition, cash requirements historically have been funded on a temporary basis
through intercompany advances 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 and would accrue
interest at Cox Enterprises' commercial paper rate plus .4%. 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 interest rate was based on the London Interbank Offered Rate plus a spread
determined by the ratio of Cox Radio's debt to EBITDA. This facility included a
commitment fee on the unused portion of the total amount available of .1% to
.25% based on the ratio of Cox Radio's debt to EBITDA. At December 31, 1999, Cox
Radio had approximately $220 million of outstanding indebtedness and
approximately $80 million available under the bank credit facility. Borrowings
under the bank credit facility approximated fair value based upon current
borrowing rates available to Cox Radio. The interest rate applied to amounts due
under the bank credit facility was 6.9% at December 31, 1999. This bank credit
facility contained, among other provisions, defined requirements as to ratio of
debt to EBITDA and ratio of EBITDA to interest expense. At December 31, 1999,
Cox Radio was in compliance with these covenants. On June 27, 2000, all amounts
previously outstanding under this facility were repaid with a portion of the net
proceeds from the offering of Class A common stock discussed in Note 5 to the
financial statements.
On June 30, 2000, Cox Radio replaced its $300 million, five-year, senior,
unsecured revolving credit facility, with a $350 million, five-year, senior,
unsecured revolving credit facility and a $350 million, 364-day, senior,
unsecured revolving credit facility, each with certain banks, including The
Chase Manhattan Bank as the Administrative Agent, Bank of America, N.A. as the
Syndications Agent, and Citibank, N.A. as the Documentation Agent. The interest
rate for each facility is based on the Federal funds borrowing rate plus 1/2%;
the London Interbank Offered Rate plus a spread based on the credit ratings of
Cox Radio's senior, long-term debt; or the bid rate for the purchase of
certificates of deposit of equal principal amount and maturity plus a spread
based on the credit ratings of Cox Radio's senior, long-term debt. Each facility
16
<PAGE> 17
includes a commitment fee on the unused portion of the total amount available of
.1% to .25% based on the credit ratings of Cox Radio's senior, long-term debt.
Each facility also contains, among other provisions, defined requirements as to
the ratio of debt to EBITDA and the ratio of EBITDA to interest expense. At
September 30, 2000, Cox Radio was in compliance with the covenants. At September
30, 2000, Cox Radio had approximately $350 million of outstanding indebtedness
under the five-year facility with no additional amounts available, and $230
million of outstanding indebtedness under the 364-day facility with $120 million
available. The interest rate applied to amounts due under the bank credit
facilities was 7.13% at September 30, 2000.
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 Rule
144A of the Securities Act of 1933, as amended, (the "Securities Act"), which
were later exchanged for notes registered under the Securities Act. The notes
consisted of $100 million principal amount of 6.25% notes due in 2003 and $100
million principal amount of 6.375% notes due in 2005. Pursuant to the
Registration Rights Agreement dated as of May 26, 1998 among Cox Radio, its
then-wholly owned subsidiaries WSB, Inc. and WHIO, Inc. (each a former guarantor
of the notes), NationsBanc Montgomery Securities LLC, Chase Securities, Inc.,
and J.P. Morgan Securities, Inc., on December 14, 1998, an exchange offer was
consummated 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. 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. At September 30, 2000 and
December 31, 1999, the estimated fair value of these notes was approximately
$194.1 million and $191.0 million, respectively, based on quoted market prices.
In September 1997, Cox Radio entered into interest rate swap agreements
with certain lenders providing bank financing under its bank credit facility.
Pursuant to the interest rate swap agreements, Cox Radio exchanged its floating
rate interest obligations on an aggregate of $100 million in principal amount at
an average fixed rate of 6.23% per annum having 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 is 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 these counterparties nor would we expect any such
loss to be material. The estimated fair value of the interest rate swap
agreements, based on current market rates, approximated a net receivable of $1.9
million at December 31, 1999.
Prior to June 27, 2000, Cox Radio accounted for the interest rate swap
agreements as hedges. In connection with the offering of Class A common stock as
discussed in Note 5 to the financial statements included in Item 1. hereof, Cox
Radio used a portion of the net proceeds from the offering to repay all amounts
then outstanding under its bank credit facility. As the interest rate swap
agreements were no longer matched with existing debt, Cox Radio recorded a
non-cash mark-to-market unrealized gain as of June 30, 2000 of $2.2 million,
which represents the fair value of the interest rate swap agreements at that
date. On August 4, 2000, Cox Radio redesignated these interest rate swap
agreements as hedges of floating rate borrowings under the new revolving credit
facilities dated June 30, 2000 discussed above. Concurrent with the
redesignation of these swaps, Cox Radio recorded a non-cash, mark-to-market
unrealized loss of $0.7 million, which represents the difference in the fair
value of the interest rate swap agreements from June 30, 2000 to August 4, 2000.
The estimated fair value of the interest rate swap agreements, based on current
market rates, approximated a net receivable of $0.9 million at September 30,
2000.
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
17
<PAGE> 18
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.
On May 2, 2000, Cox Radio's universal shelf registration statement filed
with the Securities and Exchange Commission on Form S-3 was declared effective.
Under the universal shelf registration statement, Cox Radio and two financing
trusts sponsored by Cox Radio may from time to time offer and issue debentures,
notes, bonds and other evidences of indebtedness, forward contracts in respect
of any such indebtedness, shares of preferred stock, shares of Class A common
stock, warrants, stock purchase contracts and stock purchase units of Cox Radio
and preferred securities of the Cox Radio trusts for a maximum aggregate
offering amount of $750 million. Unless otherwise described in future prospectus
supplements, Cox Radio intends to use the net proceeds from the sale of
securities registered under this universal shelf registration statement for
general corporate purposes, which may include additions to working capital, the
repayment or redemption of existing indebtedness and the financing of capital
expenditures and acquisitions.
On June 27, 2000, Cox Radio consummated a public offering of 8,800,000
shares of its Class A common stock pursuant to its universal shelf registration
statement and completed a concurrent private placement of 3,591,954 shares of
Class A common stock directly to Cox Enterprises at the public offering price
per share, less underwriting discounts and commissions. Cox Radio received net
proceeds of approximately $344.2 million from this offering to partially finance
acquisitions, repay outstanding indebtedness and for general corporate purposes.
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<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest rate risk is the risk that the Company will incur economic losses
due to adverse changes in interest rates. The Company manages interest-rate risk
through the use of fixed- and floating-rate debt, and through the use of
derivatives.
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 interest rate was based on the London Interbank Offered Rate plus a spread
determined by the ratio of Cox Radio's debt to EBITDA. This facility included a
commitment fee on the unused portion of the total amount available of .1% to
.25% based on the ratio of Cox Radio's debt to EBITDA. At December 31, 1999, Cox
Radio had approximately $220 million of outstanding indebtedness and
approximately $80 million available under the bank credit facility. Borrowings
under the bank credit facility approximated fair value based upon current
borrowing rates available to Cox Radio. The interest rate applied to amounts due
under the bank credit facility was 6.9% at December 31, 1999. This bank credit
facility contained, among other provisions, defined requirements as to ratio of
debt to EBITDA and ratio of EBITDA to interest expense. At December 31, 1999,
Cox Radio was in compliance with these covenants. On June 27, 2000, all amounts
previously outstanding under this facility were repaid with a portion of the net
proceeds from the offering of Class A common stock discussed in Note 5 to the
financial statements included in Item 1 hereof.
On June 30, 2000, Cox Radio replaced its $300 million, five-year, senior,
unsecured revolving credit facility, with a $350 million, five-year, senior,
unsecured revolving credit facility and a $350 million, 364-day, senior,
unsecured revolving credit facility, each with certain banks, including The
Chase Manhattan Bank as the Administrative Agent, Bank of America, N.A. as the
Syndications Agent, and Citibank, N.A. as the Documentation Agent. The interest
rate for each facility is based on the Federal funds borrowing rate plus 1/2%;
the London Interbank Offered Rate plus a spread based on the credit ratings of
Cox Radio's senior, long-term debt; or the bid rate for the purchase of
certificates of deposit of equal principal amount and maturity plus a spread
based on the credit ratings of Cox Radio's senior, long-term debt. Each facility
includes a commitment fee on the unused portion of the total amount available of
.1% to .25% based on the credit ratings of Cox Radio's senior, long-term debt.
Each facility also contains, among other provisions, defined requirements as to
the ratio of debt to EBITDA and the ratio of EBITDA to interest expense. At
September 30, 2000, Cox Radio was in compliance with the covenants. At September
30, 2000, Cox Radio had approximately $350 million of outstanding indebtedness
under the five-year facility with no additional amounts available, and $230
million of outstanding indebtedness under the 364-day facility with $120 million
available. The interest rate applied to amounts due under the bank credit
facilities was 7.13% at September 30, 2000.
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 Rule
144A of the Securities Act of 1933, as amended, (the "Securities Act"), which
were later exchanged for notes registered under the Securities Act. The notes
consisted of $100 million principal amount of 6.25% notes due in 2003 and $100
million principal amount of 6.375% notes due in 2005. Pursuant to the
Registration Rights Agreement dated as of May 26, 1998 among Cox Radio, its
then-wholly owned subsidiaries WSB, Inc. and WHIO, Inc. (each a former guarantor
of the notes), NationsBanc Montgomery Securities LLC, Chase Securities, Inc.,
and J.P. Morgan Securities, Inc., on December 14, 1998, an exchange offer was
consummated 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. 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-
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owned subsidiary of Cox Radio, CXR Holdings became a guarantor of the notes on
February 1, 1999. At September 30, 2000 and December 31, 1999, the estimated
fair value of these notes was approximately $194.1 million and $191.0 million,
respectively, based on quoted market prices.
In September 1997, Cox Radio entered into interest rate swap agreements
with certain lenders providing bank financing under its bank credit facility.
Pursuant to the interest rate swap agreements, Cox Radio exchanged its floating
rate interest obligations on an aggregate of $100 million in principal amount at
an average fixed rate of 6.23% per annum having 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 is 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 these counterparties nor would we expect any such
loss to be material. The estimated fair value of the interest rate swap
agreements, based on current market rates, approximated a net receivable of $1.9
million at December 31, 1999.
Prior to June 27, 2000, Cox Radio accounted for the interest rate swap
agreements as hedges. In connection with the offering of Class A common stock as
discussed in Note 5 to the financial statements included in Item 1. hereof, Cox
Radio used a portion of the net proceeds from the offering to repay all amounts
then outstanding under its bank credit facility. As the interest rate swap
agreements were no longer matched with existing debt, Cox Radio recorded a
non-cash mark-to-market unrealized gain as of June 30, 2000 of $2.2 million,
which represents the fair value of the interest rate swap agreements at that
date. On August 4, 2000, Cox Radio redesignated these interest rate swap
agreements as hedges of floating rate borrowings under the new revolving credit
facilities dated June 30, 2000 discussed above. Concurrent with the
redesignation of these swaps, Cox Radio recorded a non-cash, mark-to-market
unrealized loss of $0.7 million, which represents the difference in the fair
value of the interest rate swap agreements from June 30, 2000 to August 4, 2000.
The estimated fair value of the interest rate swap agreements, based on current
market rates, approximated a net receivable of $0.9 million at September 30,
2000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 6, 2000, Cox Radio was named as a defendant in a putative class
action suit filed in the state court of Gwinnett County, Georgia, alleging
violations of the federal Telephone Consumer Protection Act and related Georgia
telemarketing laws. The complaint sought statutory damages in the amount of
$1,500, plus actual and punitive damages and attorneys' fees, on behalf of each
person "throughout the State of Georgia" who received an unsolicited
pre-recorded telephone message delivering an "advertisement" from a Cox Radio
radio station. On May 1, 2000, the lawsuit was dismissed without prejudice.
Counsel for the plaintiff has indicated his intention to file a similar action
against Cox Radio at a later date.
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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):
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------
(1) 2.1 -- Asset Exchange Agreement dated August 30, 1999 by and among Cox
Radio, Inc. and AMFM Inc.
(2) 2.2 -- Letter dated as of August 30, 1999 by and among Cox Radio, Inc.
and AMFM Inc.
(3) 2.3 -- Merger Agreement dated March 14, 2000 by and among Marlin
Broadcasting, Inc., Cox Radio, Inc., Cox Miami Merger Sub, Inc.
and Marlin Broadcasting, LLC
(4) 2.4 -- Asset Purchase Agreement dated March 3, 2000 by and among Clear
Channel Broadcasting, Inc., Clear Channel Broadcasting Licenses,
Inc., Citicasters Co., Capstar Radio Operating Company, Capstar TX
Limited Partnership, AMFM Texas Broadcasting, L.P., AMFM Texas
Licenses Limited Partnership, Cox Radio, Inc., and CXR Holdings,
Inc.
(5) 2.5 -- Asset Exchange Agreement dated as of May 31, 2000 by and among Cox
Radio, Inc., CXR Holdings, Inc., Salem Communications Corporation
and South Texas Broadcasting, Inc.
(6) 2.6 -- Letter dated May 31, 2000 by and among Cox Radio, Inc., CXR
Holdings, Inc., Salem Communications Corporation and South Texas
Broadcasting, Inc.
(7) 2.7 -- Letter dated June 7, 2000 by and among Cox Radio, Inc., CXR
Holdings, Inc., Salem Communications Corporation and South Texas
Broadcasting, Inc.
(8) 2.8 -- Stock Purchase Agreement dated as of June 7, 2000 by and among
Midwestern Broadcasting Company, Inc., the stockholders of
Midwestern Broadcasting Company, Inc., and Cox Radio, Inc.
2.9 -- Asset Purchase Agreement dated November 8, 2000 between and
among Cox Radio, Inc., CXR Holdings, Inc. and Radio One, Inc.
(9) 3.1 -- Amended and Restated Certificate of Incorporation of Cox Radio,
Inc.
(9) 3.2 -- Amended and Restated Bylaws of Cox Radio, Inc.
(10) 4.1 -- Indenture dated as of May 26, 1998 between Cox Radio, Inc., The
Bank of New York, WSB, Inc., and WHIO, Inc.
(11) 4.2 -- Supplemental Indenture dated as of February 1, 1999 by and among
trustee, Cox Radio, Inc., CXR Holdings, Inc. and The Bank of New
York
(12) 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.
(13) 4.4 -- Specimen of Class A Common Stock Certificate.
27.1 -- Financial Data Schedule (for SEC use only)
----------
(1) Incorporated by reference to Exhibit 99.1 of Cox Radio's Report on Form
8-K dated September 17, 1999.
(2) Incorporated by reference to Exhibit 99.2 of Cox Radio's Report on Form
8-K dated September 17, 1999.
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(3) Incorporated by reference to Exhibit 2.2 of Cox Radio's Report on Form
8-K dated April 19, 2000.
(4) Incorporated by reference to Exhibit 2.3 of Cox Radio's Report on Form
8-K dated April 19, 2000.
(5) Incorporated by reference to Exhibit 10.5 of Cox Radio's Report on Form
10-Q for the period ending June 30, 2000.
(6) Incorporated by reference to Exhibit 10.6 of Cox Radio's Report on Form
10-Q for the period ending June 30, 2000.
(7) Incorporated by reference to Exhibit 10.7 of Cox Radio's Report on Form
10-Q for the period ending June 30, 2000.
(8) Incorporated by reference to Exhibit 10.8 of Cox Radio's Report on Form
10-Q for the period ending June 30, 2000.
(9) Incorporated by reference to the corresponding exhibit of Cox Radio's
Registration Statement on Form S-1 (Commission File No. 333-08737).
(10) Incorporated by reference to Exhibit 4.1 of Cox Radio's Registration
Statement on Form S-4 (Commission File No. 333-61179).
(11) Incorporated by reference to Exhibit 4.2 of Cox Radio's Report on Form
10-Q for the period ending March 31, 1999.
(12) Incorporated by reference to Exhibit 4.2 of Cox Radio's Registration
Statement on Form S-4 (Commission File No. 333-61179).
(13) Incorporated by reference to Exhibit 4.3 of Cox Radio's Registration
Statement on Form S-1 (Commission File No. 333-08737).
(b) Reports on Form 8-K
On September 11, 2000, Cox Radio filed a Current Report on Form 8-K to
report the following consummated transactions:
(a) On August 25, 2000, Cox Radio acquired from AMFM Inc., one FM
station serving Miami, Florida; one FM station serving Atlanta,
Georgia; two FM stations and two AM stations serving
Stamford/Norwalk, Connecticut; four FM and two AM stations serving
Jacksonville, Florida; and one FM station and national and local
sales and marketing rights at another FM station serving New
Haven, Connecticut in exchange for one FM and one AM station
serving Los Angeles, California plus approximately $3 million (the
"AMFM Acquisition");
(b) On August 30, 2000, Cox Radio acquired from Clear Channel
Communications, Inc, three FM stations serving Houston, Texas and
three FM stations and one AM station serving Richmond, Virginia,
for consideration of $380 million (the "Clear Channel
Acquisition");
(c) Also on August 30, 2000, Cox Radio acquired the capital stock of
Midwestern Broadcasting Company, Inc. which owns one FM station
serving Atlanta, Georgia, for $280 million. In a related
transaction on September 1, 2000, Cox Radio acquired from Salem
Communications Corporation the license and transmitting facilities
of one FM station serving Houston, Texas in exchange for the
license and transmitting facilities of one FM station serving
Atlanta, Georgia as well as the license and transmitting
facilities of one AM station serving San Antonio, Texas and one AM
station serving Tampa, Florida.
On November 8, 2000, Cox Radio filed a Current Report on Form 8-K to
provide certain financial information for the AMFM Acquisition and the Clear
Channel Acquisition, including certain audited financial information as of and
for the year ended December 31, 1999; certain unaudited financial information as
of June 30, 2000 and for the six months ended June 30, 2000 and 1999; and
certain unaudited pro forma financial information for the year ended December
31, 1999 and as of and for the six months ended June 30, 2000.
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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.
November 13, 2000 /s/ Neil O. Johnston
-----------------------------------
Neil O. Johnston
Chief Financial Officer
(Principal Financial Officer and
duly authorized officer)
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