-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I4Vek+zF2JtK45JEp8nrVtl4ilB/glCWv1jWO3ADxH3r45ruoSphznkFcoOiFirG hLo5dUy1pZM0UuXibGJNBA== 0000950144-98-003537.txt : 19980331 0000950144-98-003537.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950144-98-003537 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COX RADIO INC CENTRAL INDEX KEY: 0001018522 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 581620022 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12187 FILM NUMBER: 98577624 BUSINESS ADDRESS: STREET 1: C/O COX ENTERPRISES INC STREET 2: 1400 LAKE HEARN DR CITY: ATLANTA STATE: GA ZIP: 30319 BUSINESS PHONE: 4048435000 MAIL ADDRESS: STREET 1: C/O COX ENTERPRISES INC STREET 2: 1400 LAKE HEARN DR CITY: ATLANTA STATE: GA ZIP: 30319 10-K405 1 COX RADIO INC 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K --------------------- (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 [ ] 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. LOGO) (Exact name of Registrant as specified in its charter) DELAWARE 58-1620022 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 1400 LAKE HEARN DRIVE, ATLANTA, GEORGIA 30319 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 843-5000 --------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Class A Common Stock, par value $1.00 per share SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [X] As of February 27, 1998, the aggregate market value of the Class A Common Stock held by non-affiliates of the registrant was $360,349,503 based on the closing price on the New York Stock Exchange on such date. There were 8,862,712 shares of Class A Common Stock outstanding as of February 27, 1998. There were 19,577,672 shares of Class B Common Stock outstanding as of February 27, 1998. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1997 Annual Report to Stockholders and the Proxy Statement for the 1998 Annual Meeting of Stockholders are incorporated by reference into Part II and Part III. ================================================================================ 2 COX RADIO, INC. 1997 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 15 Item 3. Legal Proceedings........................................... 16 Item 4. Submission of Matters to a Vote of Security Holders......... 16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 16 Item 6. Selected Consolidated Financial Data........................ 17 Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations................................... 19 Item 7a. Quantitative and Qualitative Disclosure about Market Risk... 26 Item 8. Financial Statements and Supplementary Data................. 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 47 PART III Item 10. Directors and Executive Officers of the Registrant.......... 47 Item 11. Executive Compensation...................................... 47 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 47 Item 13. Certain Relationships and Related Transactions.............. 47 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 47 Signatures............................................................ 49
i 3 PART I ITEM 1. BUSINESS Cox Radio, Inc. ("Cox Radio" or the "Company") is one of the ten largest radio broadcasting companies in the United States, based on both net revenues and number of stations. Cox Radio, upon completion of all pending transactions, will own or operate, or provide sales and marketing services for 54 radio stations (36 FM and 18 AM) clustered in 12 markets, including 18 stations acquired from NewCity Communications, Inc. ("NewCity") during 1997 (the "NewCity Acquisition"). On a pro forma basis, Cox Radio would have generated net revenue of $225.2 million and broadcast cash flow (as defined in Item 6. Selected Consolidated Financial Data) of $76.2 million during the year ending December 31, 1997. Cox Radio is an indirect majority-owned subsidiary of Cox Enterprises, Inc. ("CEI"). CEI indirectly owns approximately 69% of the Company's Common Stock (defined below) and has approximately 96% of the voting power of Cox Radio. The Company has two classes of common stock outstanding, Class A Common Stock, par value $1.00 per share (the "Class A Common Stock") and Class B Common Stock, par value $1.00 per share (the "Class B Common Stock"), collectively defined as the "Common Stock." CEI's wholly-owned subsidiary, Cox Broadcasting, Inc. ("Cox Broadcasting") is the sole stockholder of shares of the Company's Class B Common Stock. CEI, a privately-held corporation headquartered in Atlanta, Georgia, is one of the largest media companies in the United States, with consolidated 1997 revenues of approximately $4.9 billion. Prior to the Company's initial public offering in September 1996, CEI transferred all of its U.S. radio operations to Cox Radio (the "Cox Radio Consolidation"). Cox Radio, as part of CEI, was a pioneer in radio broadcasting, building its first station in 1934, acquiring its flagship station, WSB-AM (Atlanta), in 1939 and launching its first FM station, WSB-FM (Atlanta), in 1948. Cox Radio seeks to maximize the revenues and broadcast cash flow of its radio stations by operating and developing clusters of stations in demographically attractive and rapidly growing markets, including major markets such as Los Angeles and Atlanta and Sunbelt markets such as Miami, Tampa, Orlando, San Antonio and Birmingham. During the past five years, the 12 markets in which the Company's stations operate have demonstrated, on an aggregate basis, greater radio advertising revenue growth than the average of 5.3%, which was calculated using revenue projections obtained from the Radio Advertising Bureau (the "RAB"), for the U.S. radio industry as a whole. The NewCity Acquisition enhanced the clustering of the Company's radio stations by increasing the total number of markets in which Cox Radio owns and/or operates stations to 12 and by strengthening the Company's penetration in those markets. Cox Radio operates four or more stations in 9 of its 12 markets. In addition, the NewCity Acquisition created a platform for additional strategic acquisitions that further clustered radio stations in the Company's markets. As a result of the Company's management, programming and sales efforts, the Company's radio stations are characterized by strong ratings and above average power ratios (defined as revenue share divided by audience share). The Company's stations are diversified in terms of format, target audience, geographic location and stage of development. Cox Radio has a track record of acquiring, repositioning and improving the operating performance of previously underperforming stations. Management believes that a number of the Company's stations have significant growth opportunities or turnaround potential and can therefore be characterized as start-up or developing stations. Generally, the Company considers start-up or developing stations to include those which have been recently acquired by the Company and offer the greatest potential for growth. Currently, the Company considers 28 of its stations to be start-up or developing stations. Cox Radio believes these stations can achieve significant broadcast cash flow growth by employing the Company's operating strategy. Management believes that its mix of stations in different stages of development enables it to maximize the Company's growth potential. Cox Radio's senior operating management is comprised of six individuals with an average of over 24 years of experience in the radio broadcasting industry, including an average of over 15 years with Cox Radio. The Company believes that this experienced senior management team is well positioned to manage larger radio station clusters and take advantage of new opportunities arising in the U.S. radio broadcasting industry. 4 RECENT AND PENDING TRANSACTIONS Orlando Acquisition In March 1997, the Company exchanged WCKG-FM and WYSY-FM in Chicago for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando (the "Orlando Acquisition"). The Orlando Acquisition resulted in a pre-tax gain of approximately $49 million. In addition to receiving the three Orlando stations, Cox Radio also received cash proceeds of approximately $20 million. Prior to the NewCity Acquisition, the Orlando stations were operated by NewCity since July 1996 under a local marketing agreement ("LMA"). Tampa Acquisition In March 1997, the Company acquired WFNS-AM in Tampa for an aggregate consideration of $1.5 million (the "Tampa Acquisition"). The Company had been operating this station pursuant to an LMA or a joint sales agreement ("JSA") since June 1995. Los Angeles Acquisition In April 1997, Cox Radio completed its acquisition of the license and certain assets of KRTO-FM in Los Angeles for $19 million in cash (the "Los Angeles Acquisition"). NewCity Acquisition In April 1997, the Company, through the merger of its wholly owned subsidiary New Cox Radio II, Inc. with and into NewCity, with NewCity surviving as a wholly owned subsidiary of Cox Radio, acquired all of the issued and outstanding capital stock of NewCity. Cox Radio purchased the stock of NewCity for an aggregate consideration of approximately $253 million, including approximately $87 million in assumption of NewCity indebtedness and approximately $3 million in working capital adjustments. To consummate the NewCity Acquisition, the Company utilized approximately $56 million of amounts due from CEI and borrowed approximately $110 million pursuant to the Company's $300 million, five-year, senior, unsecured revolving credit facility with certain banks (the "Credit Facility"), including Texas Commerce Bank National Association, as Administrative Agent. On April 2, 1997, NewCity was merged with and into the Company, with the Company as the surviving corporation. NewCity's subsidiaries were subsequently consolidated into Cox Radio. In October 1997, the Company disposed of the assets of American Comedy Network, a former subsidiary of NewCity, for aggregate proceeds of approximately $1.1 million including certain non-compete agreements. Birmingham Transactions In May 1997, the Company agreed to acquire WBHJ-FM and WBHK-FM in Birmingham, Alabama (the "Birmingham Acquisition I") for an aggregate consideration of $17 million, consisting of $5 million paid for an option to purchase and $12 million issued to the seller as a Station Investment Note Receivable. See further discussion at Note 14 to the Company's Consolidated Financial Statements included elsewhere herein. On August 1, 1997, the Company began operating WBHJ-FM and WBHK-FM under an LMA. The Company expects to consummate this acquisition during the second half of 1998. In May 1997, the Company agreed to acquire WENN-FM and WAGG-AM, also in Birmingham, Alabama, for consideration of $15 million (the "Birmingham Acquisition II"). In July 1997, the Company assigned its right to purchase WENN-FM for consideration of $14.5 million to a third party (the "Birmingham Disposition"). The Company consummated both the Birmingham Acquisition II and the Birmingham Disposition during November 1997. In September 1997, the Company announced that it had entered into an agreement in principle with a third party to construct, program and own WEDA-FM, a new Class A FM radio station in Homewood, Alabama to serve the Birmingham market (the "Birmingham Acquisition III"). Consummation of the transaction is contingent upon FCC approval of the application for the new construction permit and settlement of the comparative hearing between three applicants for the construction permit. As part of the agreement in 2 5 principle, the third party would construct the station, the Company would enter into an LMA for the new station and the Company would acquire an option to purchase the station for an aggregate consideration of $5.5 million and the assumption of debt in an amount not to exceed $200,000. San Antonio Transactions In September 1997, the Company acquired KISS-FM, KSMG-FM and KLUP-AM in San Antonio, Texas for an aggregate consideration of $30.4 million plus certain non-compete agreements (the "San Antonio Acquisition I"). In December 1997, the Company acquired an option to purchase KRIO-FM serving the San Antonio market. The Company entered into an agreement to assign this option in January 1998 for an aggregate consideration of $250,000 (the "San Antonio Disposition"). In March 1998, the Company acquired KONO-FM and KONO-AM in San Antonio for $23 million (the "San Antonio Acquisition II"). Dayton Acquisition In February 1998, the Company entered into an agreement to acquire WCLR-FM, WZLR-FM and WPTW-AM serving the Dayton, Ohio market for approximately $6 million (the "Dayton Acquisition"). The Company has been operating these stations pursuant to an LMA since December 1997. In addition, the Company has entered into a Station Investment Note Receivable with the seller for $6 million. See further discussion at Note 14 to the Company's Consolidated Financial Statements included elsewhere herein. Pending certain regulatory approvals, the Company anticipates closing the Dayton Acquisition in the second half of 1998. Orlando Exchange In February 1998, the Company entered into an agreement to acquire the assets of WTLN-FM serving the Orlando, Florida market for consideration of $14.5 million. In a related transaction, the Company entered into an agreement to dispose of the assets of WZKD-AM, also serving the Orlando, Florida market for $.5 million (the "Orlando Exchange"). Pending certain regulatory approvals, the Company expects to complete the Orlando Exchange in the second half of 1998. The Birmingham Acquisition III, the San Antonio Disposition, the Dayton Acquisition and the Orlando Exchange are collectively referred to herein as the "Pending Transactions". The following table summarizes certain information relating to radio stations owned or operated by the Company, assuming the consummation of the Pending Transactions:
AUDIENCE DEMOGRAPHIC GROUP SHARE IN RANK IN (ADULTS 25-54) TARGET TARGET TARGET ----------------- MARKET AND STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC AUDIENCE CALL LETTERS(1) FORMAT GROUP GROUP GROUP SHARE RANK ------------------ ------ ----------- ----------- ----------- ----------- ----- LOS ANGELES KFI-AM Talk Adults 35-54 4.5 5 3.5 7 KOST-FM Adult Contemporary Women 25-44 5.0 3 4.0 5 KACE-FM R&B Oldies African American 11.4(2) 4(2) 1.6(2) 22(2) Adults 35-54 KRTO-FM R&B Oldies African American -- -- -- -- Adults 35-54 ATLANTA WSB-AM News/Talk Adults 35-64 11.4 1 8.0 2 WSB-FM Adult Contemporary Women 25-54 7.9 4 6.1 6 WJZF-FM Jazz Men 25-54 3.6 13 3.4 13 WCNN-AM(3) News/Talk Adults 35-64 1.2 18 1.0 19
3 6
AUDIENCE DEMOGRAPHIC GROUP SHARE IN RANK IN (ADULTS 25-54) TARGET TARGET TARGET ----------------- MARKET AND STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC AUDIENCE CALL LETTERS(1) FORMAT GROUP GROUP GROUP SHARE RANK ------------------ ------ ----------- ----------- ----------- ----------- ----- MIAMI WFLC-FM Hot Adult Contemporary Adults 25-54 4.5 6 4.5 6 WHQT-FM Urban Adult Contemporary Adults 25-54 6.5 1 6.5 1 TAMPA WWRM-FM Soft Adult Contemporary Women 35-54 10.9 1 6.8 3 WCOF-FM 70's Oldies Adults 25-44 7.5(4) 5(4) 6.7(4) 4(4) WFNS-AM 70's Oldies Adults 25-44 -- -- -- -- WSUN-AM News Adults 25-54 .4 27 .4 27 ORLANDO WDBO-AM News/Talk Adults 35-64 6.3 5 4.1 13 WWKA-FM Country Adults 25-54 8.4 1 8.4 1 WCFB-FM Urban Adult Contemporary Women 25-54 5.3(5) 7(5) 4.7(5) 10(5) WZKD-AM(6) Urban Adult Contemporary Women 25-54 -- -- -- -- WHOO-AM Standards Adults 55+ 14.0 2 .8 21 WHTQ-FM Classic Rock Men 25-54 8.0 2 5.3 8 WMMO-FM Rock Adult Contemporary Adults 25-54 6.2 5 6.2 5 WTLN-FM(7) Religious 1.1 18 1.1 18 SAN ANTONIO KCYY-FM Country Adults 25-54 6.2 6 6.2 6 KKYX-AM Classic Country Adults 35-64 2.5 15 1.2 20 KCJZ-FM Smooth Jazz Adults 25-54 3.6 11 3.6 11 KISS-FM Adult Oriented Rock Adults 18-49 7.1 4 4.7 9 KSMG-FM Hot Adult Contemporary Adults 25-54 7.2 3 7.2 3 KLUP-AM Adult Standards Adults 35-64 2.2 16 .7 26 KONO-FM(8) Oldies Adults 25-54 6.9(9) 4(9) 6.9(9) 4(9) KONO-AM(8) Oldies Adults 25-54 -- -- -- -- LOUISVILLE WRKA-FM Oldies Adults 35-54 8.6 4 6.3 4 WRVI-FM Rock Adult Contemporary Adults 25-49 1.9 15 1.7 16 WLSY-FM R&B Oldies Adults 35-54 .5 27 .5 26 BIRMINGHAM(10) WZZK-FM Country Adults 25-54 11.6 1 11.6 1 WEZN-AM(11) Stardust Adults 50+ 7.8 4 1.7 16 WODL-FM Oldies Adults 25-54 6.7 6 6.7 6 WBHJ-FM(3) Contemporary Hit Urban Adults 18-34 13.6 1 4.5 8 WBHK-FM(3) Urban Adult Contemporary Adults 25-54 8.1 3 8.1 3 WAGG-AM Gospel Adults 25-54 3.7 11 3.7 11 DAYTON WHIO-AM News/Talk Adults 35-64 5.4 4 3.9 8 WHKO-FM Country Adults 25-54 14.2 1 14.2 1 WCLR-FM(3)(12) Oldies Adults 35-54 6.4(13) 4(13) 4.7(13) 7(13) WZLR-FM(3)(12) Oldies Adults 35-54 -- -- -- -- WPTW-AM(3)(12) Local Programming Adults 35+ .3 39 -- -- TULSA KRMG-AM News/Talk Adults 25-54 7.2 4 7.2 4 KWEN-FM Country Adults 25-54 11.1 2 11.1 2 KJSR-FM 70's Oldies Adults 25-54 8.1 3 8.1 3 KRAV-FM Adult Contemporary Adults 25-54 5.7 7 5.7 7 KGTO-AM Standards Adults 55+ 10.2 3 .7 20 BRIDGEPORT WEZN-FM Adult Contemporary Adults 25-54 14.6(14) 1(14) 14.6(14) 1(14) SYRACUSE WSYR-AM News/Talk Adults 35-64 8.6 4 5.4 7 WYYY-FM Adult Contemporary Adults 25-54 9.8 2 9.8 2 WBBS-FM Country Adults 25-54 12.1 1 12.1 1 WHEN-AM Sports/Talk Men 25-54 3.6 9 2.1 14 WWHT-FM Adult Hit Radio Women 18-34 10.1 4 2.7 11
Source: Arbitron 1997 Market Reports four-book average 4 7 - --------------- (1) Metropolitan market served; city of license may differ. (2) Audience share and audience rank information for KACE-FM and KRTO-FM are combined because the stations are simulcast. (3) Station operated by Cox Radio pursuant to an LMA. (4) Audience share and audience rank information for WCOF-FM and WFNS-AM are combined because the stations are simulcast. (5) Audience share and audience rank information for WCFB-FM and WZKD-AM are combined because the stations are simulcast. (6) Station to be sold by Cox Radio pursuant to the Orlando Exchange. (7) Station to be acquired by Cox Radio pursuant to the Orlando Exchange. (8) Station acquired by Cox Radio pursuant to the San Antonio Acquisition II. (9) Audience share and audience rank information for KONO-FM and KONO-AM are combined because the stations are simulcast. (10) WEDA-FM is excluded from this listing because the FCC has not yet granted the application for the new construction permit. (11) Audience share and rank data is based only on Arbitron Market Report for Fall 1997 because format was only applicable for that period. (12) Station to be acquired by Cox Radio pursuant to the Dayton Acquisition. (13) Audience share and audience rank information for WCLR-FM and WZLR-FM are combined because the stations are simulcast. (14) Audience share and rank data is based only on Arbitron Market Reports for Fall 1997 and Spring 1997 because Arbitron does not produce Summer and Winter Arbitron Market Reports for the Bridgeport/Fairfield County market. OPERATING STRATEGY The following is a description of the key elements of the Company's operating strategy: Clustering of Stations Cox Radio operates its stations in clusters to (i) enhance net revenue growth by increasing the appeal of the Company's stations to advertisers and enabling such stations to compete more effectively with other forms of advertising and (ii) achieve operating efficiencies by consolidating broadcast facilities, eliminating duplicative positions in management and production and reducing overhead expenses. Management believes that operating several radio stations in each of its markets will enable its sales teams to offer advertisers more attractive advertising packages. Furthermore, as radio groups achieve significant audience share, they can deliver to advertisers the audience reach that historically only television and newspapers could offer, with the added benefit of frequent exposure to advertisers' target customers. Management believes that the Company's clusters of stations, and their corresponding audience share, provide opportunities to capture an increased share of total advertising revenue in each of the Company's markets. Development of Underperforming Stations The Company's management has demonstrated its ability to acquire underperforming radio stations and develop them into consistent ratings and revenue leaders. The Company's historic margins reflect the acquisition and continued development of underperforming stations, as well as the fact that increases in net revenue are typically realized subsequent to increases in audience share. Management believes that a number of the Company's stations have significant growth opportunities or turnaround potential and can therefore be characterized as developing stations. Implementation of the Company's Management Philosophy The Company's local station operations are supported by a lean corporate staff which employs a management philosophy emphasizing (i) market research and targeted programming; (ii) a customer-focused selling strategy; and (iii) marketing and promotional activities. (i) Market Research and Targeted Programming. Cox Radio's research, programming and marketing strategy combines extensive research with an assessment of competitors' vulnerabilities and market dynamics in order to identify specific audience opportunities within each market. Cox Radio also retains consultants and research organizations to continually evaluate listener preferences. Using this information, Cox Radio tailors the programming, marketing and promotions of each Cox Radio station to maximize its appeal to its target audience. Cox Radio's disciplined application of market research enables each of its stations to be responsive to the changing preferences of its targeted listeners. This approach focuses on the needs of the listener and its community and is designed to improve ratings and maximize the impact of advertising for the Company's customers. 5 8 Through its research, programming and marketing, Cox Radio also seeks to create a distinct and marketable local identity for each of its stations in order to enhance audience share and listener loyalty and to protect against direct format competition. To achieve this objective, the Company employs and promotes distinct high-profile on-air personalities and local sports programming at many of its stations. For example, the Company broadcasts (i) "Dr. Laura" in Los Angeles, Atlanta, Dayton, Syracuse, Tulsa and Orlando; (ii) "Rush Limbaugh" in Los Angeles, Orlando, Syracuse and Tulsa; (iii) the Atlanta Braves in Atlanta and Tampa; and (iv) the Orlando Magic in Orlando. (ii) Customer-Focused Selling Strategy. The Company has implemented a unique, customer-focused approach to selling advertising known as the Consultative Selling System. The Company's sales personnel are trained to approach each advertiser with a view towards solving the marketing needs of the customer. In this regard, the sales staff consults with customers, attempts to understand their business goals and offers comprehensive marketing solutions, including the use of radio advertising. Instead of merely selling station advertising time, the Company's sales personnel are encouraged to develop innovative marketing strategies for the station's advertising customers. (iii) Marketing and Promotional Activities. The Company's stations regularly engage in significant local promotional activities, including advertising on local television and in local print media, participating in telemarketing and direct mailings and sponsoring contests, concerts and events. Special events may include charitable athletic events, events centered around a major local occasion or local ethnic group and special community or family events. Cox Radio also engages in joint promotional activities with other media in their markets to further leverage the Company's promotional spending. These promotional efforts help the Company's stations add new listeners and increase the amount of time spent listening to the stations. Strong Management Teams In addition to relying upon its experienced senior operating management, the Company places great importance on the hiring and development of strong local management teams and has been successful in retaining experienced management teams that have strong ties to their communities and customers. The Company invests significant resources in identifying and training employees to create a talented team of managers at all levels of station operations. These resources include: (i) Gallup/SRI, which helps the Company identify and select talented individuals for management and sales positions; (ii) Center for Sales Strategy ("CSS"), an independent sales and management training company which trains and develops managers and sales executives; and (iii) a program of leadership development conducted by the Company's senior operating management and outside consultants. Local managers are empowered to run the day-to-day operations of their stations and to develop and implement policies that will improve station performance and establish long-term relationships with listeners and advertisers. The compensation of the senior operating management team and local station managers is dependent upon financial performance and linked to participation in the Company's Long-Term Incentive Plan. See Note 10 to the Company's Consolidated Financial Statements included elsewhere herein. ACQUISITION STRATEGY During the last several years, the Company has implemented its clustering strategy through the acquisition of radio stations in several of its existing markets. Management believes that recent changes in federal regulations will allow Cox Radio to continue to pursue its acquisition strategy. The Telecommunications Act of 1996 (the "1996 Act") removed the limit on the number of radio stations an operator may own nationwide and increased the number of radio stations an operator may own in a single market. As a result of this legislation, the competitive landscape in the radio broadcasting industry is changing. Management believes that larger, well-capitalized companies with experienced management, such as Cox Radio, will be best positioned to take advantage of this changing environment. Management considers the following factors when making an acquisition. 6 9 Market Selection Considerations Cox Radio's acquisition strategy has been focused on clustering stations in its existing markets. In the future, Cox Radio will seek to make opportunistic acquisitions in additional markets in which the Company believes that it can cost-effectively achieve a leading position in terms of audience and revenue share. Management also believes that Cox Radio will have the financial resources and management expertise to continue to pursue its acquisition strategy. Certain future acquisitions may be limited by the multiple and cross-ownership rules of the Federal Communications Commission ("FCC"). See "-- Federal Regulation of Broadcasting -- General Ownership Matters" and "-- Proposed Changes." Station Considerations Cox Radio expects to concentrate on acquiring radio stations that offer, through application of Cox Radio's operating philosophy, the potential for improvement in the station's performance, particularly its broadcast cash flow. Such stations may be in various stages of development, presenting Cox Radio with an opportunity to apply its management techniques and to enhance asset value. In evaluating potential acquisitions, the Company considers the strength of a station's broadcast signal. A powerful broadcast signal enhances delivery range and clarity, thereby influencing listener preference and loyalty. Cox Radio also assesses the strategic fit of an acquisition with its existing clusters of radio stations. When entering a new market, Cox Radio expects to acquire a "platform" upon which to expand its portfolio of stations and to build a leading cluster of stations. INDUSTRY OVERVIEW The primary source of revenues for radio stations is generated from the sale of advertising time to local and national spot advertisers and national network advertisers. During the past decade, local advertising revenue as a percentage of total radio advertising revenue in a given market has ranged from approximately 75% to 80%. The growth in total radio advertising revenue tends to be fairly stable and has generally grown at a rate faster than the Gross National Product ("GNP"). With the exception of 1991, when total radio advertising revenue fell by approximately 2.8% compared to the prior year, advertising revenue has risen in each of the 15 years through 1995 (the most recent year for which this information is available) more rapidly than both inflation and the GNP. Total domestic radio advertising revenue in 1995 of $11.5 billion, as reported by the RAB, was at its highest level in the industry's history. According to the RAB's Radio Marketing Guide and Fact Book for Advertisers, 1997, radio reaches approximately 95% of all Americans over the age of 12 every week. More than one-half of all radio listening is done outside the home, in contrast to other advertising media, and three out of four adults are reached by car radio each week. The average listener spends approximately three hours and 20 minutes per day listening to radio. Most radio listening occurs during the morning, particularly between the time a listener wakes up and the time the listener reaches work. Radio programming during this "morning drive time" period reaches more than 83% of people over the age of 12 on a weekly basis, and, as a result, radio advertising sold during this period achieves premium advertising rates. Radio listeners have gradually shifted over the years from AM to FM stations. FM reception, as compared to AM, is generally clearer and provides greater tonal range and higher fidelity. In comparison to AM, FM's listener share is now in excess of 75%, despite the fact that the number of AM and FM commercial stations in the United States is approximately equal. Radio is considered an efficient, cost-effective means of reaching specifically identified demographic groups. Stations are typically classified by their on-air format, such as country, adult contemporary, oldies and news/talk. A station's format and style of presentation enables it to target certain demographics. By capturing a specific share of a market's radio listening audience, with particular concentration in a targeted demographic, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Advertisers and stations utilize data published by audience measuring services, such as Arbitron, to estimate how many people within particular geographical markets and demographics listen to specific stations. The number of advertisements that can be broadcast without jeopardizing listening levels (and the resulting ratings) is limited in part by the format of a particular station and the local competitive environment. 7 10 Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. A station's local sales staff generates the majority of its local and regional advertising sales through direct solicitations of local advertising agencies and businesses. To generate national advertising sales, a station usually will engage a firm that specializes in soliciting radio advertising sales on a national level. National sales representatives obtain advertising principally from advertising agencies located outside the station's market and receive commissions based on the revenue from the advertising obtained. COMPETITION; CHANGES IN THE BROADCASTING INDUSTRY The radio broadcasting industry is a highly competitive business. The success of each of the Company's stations depends largely upon its audience ratings and its share of the overall advertising revenue within its market. The Company's radio stations compete for listeners directly with other radio stations in their respective markets primarily on the basis of program content that appeals to a target demographic group. By building a strong listener base consisting of a specific demographic in each of its markets, Cox Radio is able to attract advertisers seeking to reach those listeners. The Company's stations compete for advertising revenue directly with other radio stations and with other electronic and print media within their respective markets. Factors that are material to a station's competitive position include management experience, the station's audience share rank in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance, and the number and characteristics of other stations in the market area. Cox Radio attempts to improve its competitive position with promotional campaigns aimed at the demographics targeted by its stations and by sales efforts designed to attract advertisers. Recent changes in the law and in FCC rules and policies have increased the number of radio stations a broadcaster may own in a given market and permit, within limits, joint arrangements with other stations in a market relating to programming, advertising sales, and station operations. Management believes that radio stations that elect to take advantage of these opportunities may, in certain circumstances, have lower operating costs and may be able to offer advertisers more attractive rates and services. Although the radio broadcasting industry is highly competitive, some barriers to entry exist. The operation of a radio broadcast station requires a license from the FCC and the number of radio stations that a single entity may own and operate in a given market is limited by the availability of FM and AM radio frequencies allotted by the FCC to communities in that market, as well as by the FCC's multiple ownership rules, which regulate the number of stations that may be owned and controlled by a single entity. The FCC also recently initiated a rulemaking proceeding to consider the use of competitive bidding procedures (auctions) to award licenses or construction permits for new broadcast stations to the highest bidder, and may also subject to auction all pending and future applications by licensees to improve or otherwise modify their existing facilities, where such applications would be mutually exclusive with other licensees' applications. The Company's stations compete for advertising revenue with other radio stations and with other electronic and print media. Potential advertisers can substitute advertising through broadcast television, cable television systems (which can offer concurrent exposure on a number of cable networks to enlarge the potential audience), daily, weekly, and free-distribution newspapers, other print media, direct mail, and on-line computer services for radio advertising. Competing media commonly target the customers of their competitors, and advertisers regularly shift dollars from radio to these competing media and vice versa. Accordingly, there can be no assurance that any of the Company's stations will be able to maintain or increase its current audience ratings and advertising revenue share. In addition, the radio broadcasting industry is subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems, by satellite digital audio radio service ("satellite DARS" or "SDARS"), and by digital audio broadcasting ("DAB"). DAB and SDARS provide for the delivery by terrestrial or satellite means of multiple new audio programming formats with compact disc quality sound to local and national audiences. The delivery of information through the Internet also could create a new form of competition. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as broadcast television, cable 8 11 television, audio tapes and compact discs. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry. Cox Radio cannot predict what other matters might be considered in the future by the FCC, nor can it assess in advance what impact, if any, the implementation of any FCC proposals or changes might have on its business. FEDERAL REGULATION OF RADIO BROADCASTING The ownership, operation and sale of radio stations, including those licensed to Cox Radio, are subject to the jurisdiction of the FCC, which acts under authority granted by the Communications Act of 1934, as amended ("the Communications Act"). Among other things, the FCC assigns frequency bands for broadcasting, determines the particular frequencies, locations and operating power of stations, issues, renews and modifies station licenses, determines whether to approve changes in ownership or control of station licenses, regulates equipment used by stations, adopts and implements regulations and policies that directly or indirectly affect the ownership, operation, program content, employment practices, and business of stations, and has the power to impose penalties, including license revocations, for violations of its rules or the Communications Act. The 1996 Act, which significantly amended the Communications Act in numerous respects, dramatically changed the ground rules for competition and regulation in virtually all sectors of the telecommunications industry, including broadcasting, local and long-distance telephone services, cable television services and telecommunications equipment manufacturing. In addition, the 1996 Act imposed numerous requirements on the FCC to launch new inquiries and rulemaking proceedings, perhaps 80 in all, involving a multitude of telecommunications issues, including those described herein that will directly affect the broadcast industry. The 1996 Act mandated that such rulemaking proceedings be completed within certain time frames, in some cases as short as six months. Some of these proceedings have been completed while others remain pending. The following is a brief summary of certain provisions of the Communications Act, as amended by the 1996 Act, and of specific FCC rules and policies. Reference should be made to the Communications Act, FCC rules and public notices and rulings of the FCC for further information concerning the nature and extent of FCC regulation of broadcast stations. License Renewal Broadcast station licenses are subject to renewal upon application to the FCC. Pursuant to Congress' mandate in the 1996 Act, the FCC has adopted a rule extending radio station license terms from seven to eight years. All licenses renewed as part of the current renewal cycle will have a term of eight years. The FCC will renew a broadcast license if it determines that the "public convenience, interest or necessity" will be served thereby. During a specified period after an application for renewal of a broadcast station license has been filed, persons objecting to the renewal may file petitions to deny the application. Competing applications for the license, however, will not be accepted unless the current licensee's renewal application is denied. Also, during the period when a renewal application is pending (generally four months prior to expiration of the license), the transferability of the applicant's license may be restricted. Historically, Cox Radio's management has not experienced any material difficulty in obtaining renewal from the FCC of any of the broadcast licenses for stations under its control. 9 12 The following table sets forth selected information concerning each of the stations owned, or operated pursuant to a LMA by Cox Radio, including the date on which each such station's FCC license expires (a station may continue to operate beyond the expiration date if a timely-filed license renewal application is pending):
EXPIRATION MARKET AND STATION DATE OF HEIGHT ABOVE CALL LETTERS(1) FREQUENCY LICENSE CLASS AVERAGE TERRAIN POWER - ------------------ --------- ---------- ----- --------------- ----- LOS ANGELES KFI-AM 640 KHz 12/1/05 A N.A. 50 kw KOST-FM 103.5 MHz 12/1/05 B 949 m 12.5 kw KACE-FM 103.9 MHz 12/1/05 A 119 m 1.65 kw KRTO-FM 98.3 MHz 12/1/05 A 296 m .65 kw ATLANTA WSB-AM 750 KHz 4/1/04 A N.A. 50 kw WSB-FM 98.5 MHz 4/1/04 C 311 m 100 kw WJZF-FM 104.1 MHz 4/1/04 C1 371 m 60 kw WCNN-AM(2) 680 KHz 4/1/04 B N.A. 50 kw day 10 kw night MIAMI WFLC-FM 97.3 MHz 2/1/04 C 307 100 kw WHQT-FM 105.1 MHz 2/1/04 C 307 100 kw TAMPA WWRM-FM 94.9 MHz 2/1/04 C 393 m 95 kw WCOF-FM 107.3 MHz 2/1/04 C1 182 m 100 kw WSUN-AM 620 KHz 2/1/04 B N.A. 5 kw WFNS-AM 910 KHz 2/1/04 B N.A. 5 kw ORLANDO WDBO-AM 580 KHz 2/1/04 B N.A 5 kw WWKA-FM 92.3 MHz 2/1/04 C 408 m 98 kw WCFB-FM 94.5 MHz 2/1/04 C 448 m 96 kw WZKD-AM(3) 950 KHz 2/1/04 B N.A. 5 kw WHTQ-FM 96.5 MHz 2/1/04 C 487 m 100 kw WMMO-FM 98.9 MHz 2/1/04 C2 134 m 38 kw WHOO-AM 990 KHz 2/1/04 B N.A. 50 kw day 5 kw night WTLN-FM(4) 95.3 MHz 2/1/04 A 96 m 6 kw SAN ANTONIO KCYY-FM 100.3 MHz 8/1/05 C 300 m 98 kw KCJZ-FM 106.7 MHz 8/1/05 C 310 m 100 kw KKYX-AM 680 KHz 8/1/05 B N.A. 50 kw day 10 kw night KISS-FM 99.5 MHz 8/1/05 C 339 m 100 kw KSMG-FM 105.3 MHz 8/1/05 C 381 m 95 kw KLUP-AM 930 KHz 8/1/05 B N.A. 5 kw KONO-AM(5) 860 KHz 8/1/05 B N.A. 5 kw day 0.9 kw night KONO-FM(5) 101.1 MHz 8/1/05 C1 302 m 97 kw LOUISVILLE WRKA-FM 103.1 MHz 8/1/04 A 95 m 6 kw WLSY-FM(6) 94.7 MHz 8/1/04 A 118 m 2.15 kw WRVI-FM(7) 105.9 MHz 8/1/04 A 100 m 3 kw BIRMINGHAM WZZK-FM 104.7 MHz 4/1/04 C 396 m 99 kw WODL-FM 106.9 MHz 4/1/04 C 351 m 99 kw WEZN-AM(8) 610 KHz 4/1/04 B N.A. 5 kw day 1 kw night WAGG-AM 1320 KHz 4/1/04 D N.A. 5 kw day 0.111 kw night WBHK-FM(2,9) 98.7 MHz 4/1/04 C3 200 m 6.2 kw WBHJ-FM(2,9) 95.7 MHz 4/1/04 C1 299 m 100 kw
10 13
EXPIRATION MARKET AND STATION DATE OF HEIGHT ABOVE CALL LETTERS(1) FREQUENCY LICENSE CLASS AVERAGE TERRAIN POWER - ------------------ --------- ---------- ----- --------------- ----- DAYTON WHIO-AM 1290 KHz 10/1/04 B N.A. 5 kw WHKO-FM 99.1 MHz 10/1/04 B 325 m 50 kw WCLR-FM(2)(10) 95.7 MHz 10/1/04 B 145 m 50 kw WPTW-AM(2)(10) 1570 KHz 10/1/04 B N.A. 0.25 kw WZLR-FM(2)(10) 95.3 MHz 10/1/04 A 98 m 6 kw TULSA KWEN-FM 95.5 MHz 6/1/05 C 405 m 96 kw KJSR-FM 103.3 MHz 6/1/05 C 390 m 100 kw KRAV-FM 96.5 MHz 6/1/05 C 405 m 96 kw KGTO-AM 1050 KHz 6/1/05 D N.A. 1 kw day 0.022 kw night KRMG-AM 740 KHz 6/1/05 B N.A. 50 kw day 25 kw night BRIDGEPORT WEZN-FM(11) 99.9 MHz 4/1/98 B 204 m 27.5 kw SYRACUSE WSYR-AM(11) 570 KHz 6/1/98 B N.A. 5 kw WHEN-AM(11) 620 KHz 6/1/98 B N.A. 5 kw day 1 kw night WYYY-FM(11) 94.5 MHz 6/1/98 B 198 m 100 kw WBBS-FM(11) 104.7 MHz 6/1/98 B 150 m 50 kw WWHT-FM(11) 107.9 MHz 6/1/98 B 152 m 50 kw
- --------------- (1) Metropolitan market served; city of license may differ. (2) Cox Radio provides programming to this station pursuant to an LMA. (3) Station to be sold by Cox Radio pursuant to the Orlando Exchange. (4) Station to be acquired by Cox Radio pursuant to the Orlando Exchange. (5) Station acquired by Cox Radio pursuant to the San Antonio Acquisition II. (6) The prior call sign of this station was WRVI-FM. (7) The prior call sign of this station was WHTE-FM. (8) The prior call sign of this station was WZZK-AM. (9) Cox Radio has an option to acquire this station. (10) Station to be acquired by Cox Radio pursuant to the Dayton Acquisition. (11) Cox Radio has filed an application with the FCC to renew this license. The renewal application is pending FCC approval as of March 19, 1998. General Ownership Matters In determining whether to grant or renew a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with the Communications Act's limitations on alien (foreign) ownership, compliance with various rules limiting common ownership of broadcast, cable and newspaper properties, and the "character" of the licensee and those persons holding "attributable" interests in the licensee. In the case of corporations holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation's voting stock are generally deemed to be attributable, as are positions of an officer or director of a corporate parent of a broadcast licensee. The FCC treats all partnership interests as attributable, except for those limited partnership interests that are "insulated" by the terms of the limited partnership agreement from "material involvement" in the media related activities of the partnership under FCC policies. Stock interests held by certain "passive institutional investors" only become attributable with the ownership of 10% or more of the stock of a corporation holding a broadcast license. Cox Radio's indirect parent, CEI, has attributable ownership interests in television stations located in Orlando, Florida; Charlotte, North Carolina; Pittsburgh, Pennsylvania; Dayton, Ohio; Atlanta, Georgia; Oakland, California; El Paso, Texas; Seattle, Washington; and Reno, Nevada. CEI also has attributable 11 14 ownership interests in daily newspapers located in Grand Junction, Colorado; Palm Beach, Florida; Atlanta, Georgia; Greenville, Rocky Mount and Elizabeth City, North Carolina; Dayton and Springfield, Ohio; and Austin, Longview, Lufkin, Waco, Nacogdoches, Marshall and Jefferson, Texas. CEI has a non-attributable ownership interest in a daily newspaper located in Daytona Beach, Florida. Paul J. Rizzo, a director of CEI, is a director of The McGraw-Hill Companies, Inc. which, through a wholly-owned subsidiary, owns and operates television stations KMGH-TV, Denver, Colorado; WRTV, Indianapolis, Indiana; KERO-TV, Bakersfield, California; and KGTV, San Diego, California. Mr. Rizzo has no involvement in the day-to-day operations and management of any of the McGraw-Hill television stations, only one of which, KERO-TV, is located in a market (Los Angeles, CA) in which Cox Radio owns radio stations. None of the other officers, directors or, to Cox Radio's knowledge, 5% or greater shareholders of the voting stock of Cox Radio or of its subsidiaries has any attributable interest in any broadcast stations other than through Cox Radio and its subsidiaries. The Communications Act prohibits the assignment of a license or the transfer of control of a broadcast licensee without the prior approval of the FCC. To obtain the FCC's prior consent to assign or transfer a broadcast license, appropriate applications must be filed with the FCC. Depending on whether the application involves the assignment of the license or a "substantial change" in ownership or control (e.g., the transfer of more than 50% of the voting stock), the application may be required to go on public notice for a period of approximately 30 days during which petitions to deny the application may be filed by interested parties, including members of the public. When passing on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer to any party other than the assignee or transferee specified in the application. The FCC has a "cross-interest" policy that under certain circumstances could prohibit a person or entity with an attributable interest in a broadcast station or daily newspaper from having a "meaningful" non-attributable interest in another broadcast station or daily newspaper in the same local market. Among other things, "meaningful" interests could include significant equity interests (including non-voting stock, voting stock, and limited partnership interests) and significant employment positions. This policy may limit the permissible acquisitions and investments Cox Radio may make and the permissible investments a purchaser of Cox Radio's Common Stock may make or hold. If the FCC determines that a stockholder of Cox Radio has violated this cross-interest policy, Cox Radio may be unable to obtain from the FCC one or more authorizations needed to conduct its radio station business and may be unable to obtain FCC consents for certain future acquisitions. As part of its rulemaking proceedings soliciting public comment on various proposals to modify its broadcast attribution policies, the FCC also has requested public comment on whether to eliminate or codify the remaining aspects of the cross-interest policy with respect to significant employment positions, non-attributable equity interests and joint venture arrangements. Local Radio Ownership Rule The FCC's local radio multiple ownership rule (the "Radio Contour Overlap Rule") provides for certain limits on the number of radio stations that one entity may own in a local geographic market. These limits are as follows: (a) In a radio market with 45 or more commercial radio stations, a party may own, operate or control up to eight commercial radio stations, not more than five of which are in the same broadcast service (i.e., AM or FM); (b) In a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate or control up to seven commercial radio stations, not more than four of which are in the same broadcast service; 12 15 (c) In a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate or control up to six commercial radio stations, not more than four of which are in the same broadcast service; and (d) In a radio market with 14 or fewer commercial radio stations, a party may own, operate or control up to five commercial radio stations, not more than three of which are in the same broadcast service, except that a party may not own, operate or control more than 50 percent of the stations in the market. Notwithstanding the limits contained in the Radio Contour Overlap Rule, the FCC has the authority to permit any person or entity to own, operate or control, or have an attributable ownership interest in a number of radio broadcast stations in excess of the rule's limits if the FCC determines that such ownership, operation, control or interest will result in an increase in the number of radio broadcast stations that are in operation. Although the 1996 Act, which granted the FCC such authority, does not explain the intent or rationale for this provision, Cox Radio believes that this exception may apply to newly-constructed stations and/or stations that have been off the air but are resuming broadcast operations. The FCC does not regulate the number of radio stations that may be owned or controlled by one entity nationally. LMAs and JSAs Over the past several years, a significant number of radio broadcast licensees, including Cox Radio, have entered into LMAs and JSAs. Under a typical LMA, separately-owned and licensed radio stations serving a common geographic area agree to function cooperatively in terms of programming, advertising sales, etc., subject to the licensee of each station maintaining independent control over the programming and station operations of its own station and subject to compliance with other requirements of the FCC's rules and policies as well as the antitrust laws. The LMA concept is referred to in the FCC rules as "time brokerage" under which a licensee of a station is permitted to sell the right to broadcast blocks of time on its station to an entity or entities which program the blocks of time and sell their own commercial advertising announcements for their own account during the time periods in question. Under a typical JSA, two separately-owned radio stations serving a common service area agree to function cooperatively in terms of advertising sales only. Under such an arrangement, the licensee of one station sells the advertising time on the other licensee's station for its own account but does not provide any programming to the other licensee's station. This arrangement is also subject to ultimate control by the latter licensee. LMAs between two radio stations in the same market that involve more than 15% of the brokered station's broadcast hours per week are treated as if the brokered station were owned by the brokering station for purposes of the Radio Contour Overlap Rule. A broadcast station, therefore, is not permitted to enter into an LMA giving it the right to program more than 15% of the broadcast time, on a weekly basis, of another local station which it would not be permitted to own under the FCC's Radio Contour Overlap Rule. A JSA where no programming is provided is not considered an attributable ownership interest under current FCC rules. However, in connection with its broadcast attribution rulemaking proceeding, the FCC is considering revising its attribution rules to deem attributable, for purposes of applying the ownership rules, interests in JSAs where the brokered and brokering stations serve substantially the same market. Cross-Ownership Rules The FCC's radio/television cross ownership rule (the "one to a market" rule) generally prohibits a single individual or entity from having an attributable interest in a television station and a radio station serving the same market, although the FCC will waive this rule under certain circumstances and is considering elimination of the rule or relaxing its policy for granting waivers. The FCC's rules also prohibit the common ownership of a radio station and a daily newspaper in the same market, and the FCC is considering changes to what is currently a very limited waiver policy. Pursuant to these and certain FCC multiple ownership rules discussed above, a purchaser of Cox Radio's Common Stock who acquires an attributable interest in Cox Radio may violate and may cause Cox Radio to violate the FCC's ownership rules if such purchaser also has 13 16 an attributable interest in other television or radio stations, or in daily newspapers, depending on the number and location of those radio or television stations or daily newspapers. Such a purchaser also may be restricted in the companies in which it may invest, to the extent that those investments give rise to an attributable interest. If a stockholder of Cox Radio who holds an attributable interest in Cox Radio violates any of these ownership rules, Cox Radio may be unable to obtain from the FCC one or more authorizations needed to conduct its radio station business and may be unable to obtain FCC consent for certain future acquisitions. Under the 1996 Act, the FCC is required to review all of its broadcast ownership rules every other year to determine whether the public interest dictates that such rules be repealed or modified. Programming and Operation The Communications Act requires broadcasters to serve the "public interest." Since the late 1970s, the FCC gradually has relaxed or eliminated many of the more formalized procedures it had developed to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. However, licensees are still required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Stations also must follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identification, the advertisement of contests and lotteries, obscene and indecent broadcasts and technical operations, including limits on radio frequency radiation. In addition, broadcast licensees must develop and implement programs designed to promote equal employment opportunities for minorities and women and must submit reports to the FCC with respect to these matters annually and in connection with the station's license renewal application. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of short-term (i.e., less than the full term) renewals or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. Proposed Changes Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly: (i) affect the operation, ownership and profitability of Cox Radio and its radio broadcast stations; (ii) result in the loss of audience share and advertising revenue of the Company's radio broadcast stations; and (iii) affect the ability of Cox Radio to acquire additional radio broadcast stations or to finance such acquisitions. Such matters include, for example: changes to the license renewal process; proposals to impose spectrum use fees or other governmentally-imposed fees upon licensees; proposals to expand the FCC's equal employment opportunity rules and other matters relating to minority and female involvement in broadcasting; proposals to repeal or modify some or all of the FCC's multiple ownership rules and/or policies; proposals to modify the attribution rules, such as increasing the benchmarks or thresholds for attributing ownership interests in broadcast media; proposals to change rules or policies relating to political broadcasting; technical and frequency allocation matters, including those relative to the implementation of DAB, SDARS, and AM stereo broadcasting; proposals to permit expanded use of FM translator stations; proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio; changes in the FCC's "cross-interest" and alien ownership rules and policies; changes in the FCC's cross-ownership rules; changes to technical requirements for broadcast services; proposals to allow telephone companies to deliver audio and video programming to homes through existing phone lines; and proposals to limit the tax deductibility of advertising expenses by advertisers. In addition, the FCC is proposing to auction to the highest bidder the right to use the radio broadcast spectrum, instead of granting broadcast licenses and subsequent license renewals free of charge. The FCC rulemaking proceeding initiated in November 1997 solicits public comment on proposed broadcast auction rules to cover not only competing applications for initial licenses and construction permits, but also competing applications for major and possibly minor modifications to existing broadcast facilities. Consequently, pending applications for major modifications are presently "frozen" and will not be acted upon by the FCC pending the outcome of the rulemaking proceeding. The Company's pending and future applications for both major and minor modifications may become subject to auction proceedings if they are found to be mutually exclusive 14 17 with modification applications filed by other radio licensees, depending on any final rules adopted by the FCC in its rulemaking proceeding. Cox Radio cannot predict what other matters might be considered in the future, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. SEASONALITY Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures. Cox Radio's revenues and broadcast cash flows are typically lowest in the first quarter and higher in the second and fourth quarters. EMPLOYEES As of December 31, 1997, Cox Radio employed 904 full-time and 443 part-time employees. Of these employees, 50 were represented by American Federation of Television and Radio Announcers ("AFTRA") and two were represented by National Association of Broadcasting Employees and Technicians, AFL-CIO ("NABET"). Cox Radio considers its employee relations to be satisfactory. Cox Radio employs several on-air personalities with large audiences in their respective markets. Cox Radio enters into employment agreements with certain on-air personalities in order to protect its interests in these employee relationships. Cox Radio does not believe that the loss of any one of these on-air personalities would have a material adverse effect on Cox Radio's financial condition or results of operations. PATENTS AND TRADEMARKS Cox Radio owns numerous domestic trademark registrations related to the business of the Company's stations. Cox Radio owns no patents or patent applications. Cox Radio does not believe that any of its trademarks are material to its business or operations. FORWARD-LOOKING STATEMENTS The matters discussed or incorporated by reference in this Form 10-K contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Actual results and events may differ significantly from those discussed in such forward-looking statements. In addition to other information discussed herein, factors that might cause or contribute to such differences include the risks and uncertainties set forth under the caption "Risk Factors" in the Prospectus, dated as of September 27, 1996, included in the Company's Registration Statement on Form S-1 (File No. 333-08737). ITEM 2. PROPERTIES Cox Radio's corporate offices are located in Atlanta, Georgia. The types of properties required to support each of the Company's radio stations include offices, studios, transmitter sites and antenna sites. The transmitter sites and antenna sites generally are located so as to provide maximum market coverage. Cox Radio owns transmitter and antenna sites in the Atlanta, Los Angeles, Louisville, Miami, Orlando, San Antonio, Syracuse, Tampa and Tulsa markets and leases transmitter and antenna sites in the Atlanta, Birmingham, Bridgeport, Dayton, Los Angeles, Louisville, Miami, Orlando, San Antonio, Syracuse, Tampa and Tulsa markets. Cox Radio owns studio and office facilities in Birmingham, Los Angeles, Miami and Orlando and leases facilities in Atlanta, Bridgeport, Dayton, Louisville, Orlando, San Antonio, Syracuse, Tampa and Tulsa. Cox Radio generally considers its facilities to be suitable and of adequate size for their current and intended purposes. Cox Radio does not anticipate any difficulties in renewing any facility leases or in leasing additional space, if required. Cox Radio owns substantially all of its other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission 15 18 equipment used by the Company's stations are generally in good condition, although opportunities to upgrade facilities are continuously reviewed. ITEM 3. LEGAL PROCEEDINGS Cox Radio is involved in litigation from time to time in the ordinary course of its business. In management's opinion, the litigation in which Cox Radio is currently involved, individually and in the aggregate, is not material to Cox Radio's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is incorporated by reference to Cox Radio's 1997 Annual Report to Stockholders. 16 19 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data have been derived from the Consolidated Financial Statements of Cox Radio. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of Cox Radio and notes thereto included elsewhere herein. The statements of operations data and other operating data for the years ended December 31, 1993, 1994, 1995, 1996 and 1997 and the balance sheet data as of December 31, 1994, 1995, 1996 and 1997 have been derived from audited Consolidated Financial Statements of Cox Radio. The balance sheet data as of December 31, 1993 have been derived from unaudited Consolidated Financial Statements of Cox Radio, which, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position at such date. The pro forma financial data for 1997 assumes all consummated transactions, the Pending Transactions and the Company's initial public offering occurred at the beginning of the year.
YEAR ENDED DECEMBER 31, PRO FORMA ---------------------------------------------- --------- 1993 1994 1995 1996 1997 1997 ------ ------ ------ ------ ------ --------- (DOLLARS IN MILLIONS) STATEMENTS OF OPERATIONS DATA: Net revenues(1)................... $ 95.0 $111.5 $123.6 $132.9 $199.6 $225.2 Station operating expenses........ 67.9 76.3 90.0 91.9 129.8 149.0 Corporate general and administrative expenses(2)...... 2.5 2.7 5.9 5.3 6.9 7.4 Depreciation and amortization..... 7.3 6.9 7.2 8.1 17.5 21.5 ------ ------ ------ ------ ------ ------ Operating income.................. 17.3 25.6 20.5 27.6 45.4 47.3 Interest expense.................. 5.6 5.2 6.0 4.6 9.4 16.2 Net income (loss)(3).............. (1.1)(4) 11.2 8.2 14.9 49.7(5) 18.0 OTHER OPERATING DATA: Broadcast cash flow(6)............ $ 27.1 $ 35.2 $ 33.6(7) $ 41.0 $ 69.8 $ 76.2 Broadcast cash flow margin(6)..... 28.5% 31.6% 27.2% 30.9% 35.0% 33.8% EBITDA(6)......................... $ 24.6 $ 32.5 $ 27.7(7) $ 35.7 $ 62.9 $ 68.8 After-tax cash flow(6)............ 13.7 18.2 15.0 24.0 92.4 45.3 Net cash provided by (used in) operating activities............ 11.4 14.1 14.0 26.9 42.2 49.1 Net cash used in investing activities...................... 6.1 12.3 17.3 62.6 285.1 322.1 Net cash provided by (used in) financing activities............ (4.8) (1.6) 3.1 44.6 238.5 275.5 BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents(8)...... $ 1.7 $ 1.9 $ 1.7 $ 10.6 $ 6.2 $ 6.2 Intangible assets, net............ 114.2 120.1 126.8 138.1 518.9 577.4 Total assets...................... 168.3 180.0 191.8 261.7 654.6 691.6 Total debt (including amounts due to CEI)......................... 89.7 120.3 125.1 -- 232.6 269.6
- --------------- (1) Total revenues less advertising agency commissions. (2) As described in Note 9 to the Consolidated Financial Statements, certain executives participated in CEI's Unit Appreciation Plan ("UAP"). Because CEI is, and Cox Radio was, a private company, the benefits under the UAP are generally payable in cash. This cash payment option has resulted in charges to compensation expense of $0.9 million, $0.8 million, $1.6 million, and $2.5 million for the years ended December 31, 1993, 1994, 1995 and 1996, respectively. This compensation expense is included in historical corporate general and administrative expenses. Public companies traditionally implement stock award plans that provide for the issuance of stock to participants and do not result in compensation expense under applicable accounting standards. The Company implemented the Cox Radio, Inc. Long-Term Incentive Plan in 1996 and, therefore, has not incurred this expense since 1996. In addition, for the year ended December 31, 1995, corporate general and administrative expenses include a nonrecurring corporate charge. (3) Cox Radio became publicly traded on the New York Stock Exchange effective September 27, 1996. Historical earnings per share information has not been presented because the dissimilarity of the previous capital structure of Cox Radio precludes a meaningful 17 20 comparison. Pro forma earnings per pro forma common share is presented for comparative purposes at Note 4 to the Company's Consolidated Financial Statements included elsewhere herein. (4) Includes a $7.6 million noncash charge for the cumulative effect of accounting changes. (5) Includes an after-tax gain on the sale of WCKG-FM/WYSY-FM (Chicago) of approximately $29.3 million. (6) "Broadcast cash flow" consists of operating income plus depreciation and amortization and corporate general and administrative expenses. "Broadcast cash flow margin" is broadcast cash flow as a percentage of net revenues. "EBITDA" is operating income plus depreciation and amortization. "After-tax cash flow" is income (loss) before extraordinary items plus depreciation, amortization and deferred tax expense. Although broadcast cash flow, broadcast cash flow margin, EBITDA and after-tax cash flow are not recognized under 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 broadcast companies. For the foregoing reasons, the Company believes that these measures are useful to investors. However, investors should not consider these measures to be an alternative to operating income as determined in accordance with GAAP, an alternative to cash flows from operating activities (as a measure of liquidity) or an indicator of the Company's performance under GAAP. (7) Declines in broadcast cash flow and EBITDA from the prior year are due mainly to the impact of the baseball strike on advertiser spending, the cost of sports programming rights in Atlanta, start-up costs related to acquisitions or LMA's consummated in late 1994 and early 1995 and a nonrecurring corporate charge in 1995. (8) 1996 amount includes $9.1 million in restricted cash, representing the net proceeds from the Miami Disposition, net of the cash used for the Tulsa Acquisition. 18 21 UNAUDITED QUARTERLY FINANCIAL INFORMATION The following table sets forth selected quarterly financial information for Cox Radio. This information is derived from unaudited financial statements of Cox Radio and includes, in the opinion of management, all normal and recurring adjustments that management considers necessary for a fair presentation of the results for such periods. The operating results for any quarter are not necessarily indicative of results for any future period.
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (THOUSANDS OF DOLLARS) 1996 Net revenues........................................... $29,568 $36,740 $33,017 $33,579 Corporate general and administrative expenses.......... 1,103 1,238 1,986 1,005 Depreciation and amortization.......................... 1,982 1,997 2,027 2,063 Operating income....................................... 4,700 7,991 6,578 8,369 Net income............................................. 1,812 3,401 2,370 7,362 1997 Net revenues........................................... $29,155 $54,349 $55,188 $60,880 Corporate general and administrative expenses.......... 1,422 2,028 1,709 1,726 Depreciation and amortization.......................... 2,052 5,133 4,834 5,437 Operating income....................................... 6,082 11,144 14,070 14,171 Net income............................................. 34,203(1) 3,937 5,995 5,589
- --------------- (1) Includes an after-tax gain on the sale of WCKG-FM/WYSY-FM (Chicago) of approximately $29.3 million. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Cox Radio is a leading national radio broadcast company whose business is devoted to acquiring, developing and operating radio stations located throughout the United States. Cox Enterprises, Inc. ("CEI") indirectly owns approximately 69% of the Common Stock of Cox Radio. The performance of a radio station group, such as the Company, is customarily measured by its ability to generate Broadcast Cash Flow and EBITDA. 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 income (loss) before extraordinary items plus depreciation, amortization and deferred tax expense. Although Broadcast Cash Flow, EBITDA and after-tax cash flow are not recognized under generally accepted accounting principles ("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, the Company 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 the Company's performance under GAAP. The primary source of the Company's revenues is the sale of local and national advertising. Historically, approximately 73% and 25% of the Company's gross revenues have been generated from local and national advertising, respectively. The Company's most significant station operating expenses are employees' salaries and benefits, commissions, programming expenses and advertising and promotional expenditures. The Company's revenues vary throughout the year. As is typical in the radio broadcasting industry, the Company's revenues and broadcast cash flows are typically lowest in the first quarter and higher in the second and fourth quarters. The Company'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. 19 22 ACQUISITIONS AND DISPOSITIONS During the past several years, the Company has actively managed its portfolio of radio stations through selected acquisitions, dispositions and exchanges, as well as through the use of local marketing agreements ("LMAs") and joint sales agreements ("JSAs"). Specific transactions entered into by the Company during the past three years are discussed below. Under an LMA or a JSA, the company operating a station provides a combination of programming, sales, marketing and similar services. The broadcast revenues and operating expenses of stations operated by Cox Radio under LMAs and JSAs have been included in the Company's operations since the respective dates of such agreements. In April 1995, Cox Radio entered into an LMA to operate WCNN-AM (Atlanta). In August 1995, Cox Radio completed the acquisition of KACE-FM in Inglewood, California, a suburb of Los Angeles, for $11.7 million. Cox Radio had operated this station under an LMA since August 1994. In January 1996, Cox Radio completed the acquisition of Louisville stations WRKA-FM and WRVI-FM, later renamed WLSY-FM for $8.7 million. The Company also acquired Louisville station WXNU-FM, later renamed WRVI-FM, for $2.6 million in August 1996. In June 1996, the Company acquired WHEN-AM and WWHT-FM in Syracuse for $4.5 million. These stations were operated by NewCity (as defined below) under an LMA until the consummation of the NewCity Acquisition (as defined below). In October 1996, the Company completed the sale of WIOD-AM in Miami for $13.0 million plus a working capital adjustment of $1.2 million (the "Miami Disposition"). This transaction resulted in a pre-tax gain of approximately $2.0 million which was recognized in the fourth quarter of 1996. In December 1996, the Company acquired KRAV-FM and KGTO-AM (Tulsa) for $5.5 million. These stations were operated by NewCity under an LMA until the consummation of the NewCity Acquisition. In March 1997, the Company exchanged WCKG-FM and WYSY-FM in Chicago for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando (the "Orlando Acquisition"). The Orlando Acquisition resulted in a pre-tax gain of approximately $49 million. In addition to receiving the three Orlando stations, Cox Radio also received cash proceeds of approximately $20 million. Prior to the NewCity Acquisition (as defined below), the Orlando stations were operated by NewCity (as defined below) since July 1996 under an LMA. In March 1997, the Company acquired WFNS-AM in Tampa for an aggregate consideration of $1.5 million (the "Tampa Acquisition"). The Company had been operating this station pursuant to an LMA or a JSA since June 1995. In April 1997, Cox Radio completed its acquisition of the license and certain assets of KRTO-FM in Los Angeles for $19 million in cash (the "Los Angeles Acquisition"). In April 1997, the Company, through the merger of its wholly owned subsidiary New Cox Radio II, Inc. with and into NewCity Communications, Inc. ("NewCity"), with NewCity surviving as a wholly owned subsidiary of Cox Radio, acquired all of the issued and outstanding capital stock of NewCity (the "NewCity Acquisition"). Cox Radio purchased the stock of NewCity for an aggregate consideration of approximately $253 million, including approximately $87 million in assumption of NewCity indebtedness and approximately $3 million in working capital adjustments. To consummate the NewCity Acquisition, the Company utilized approximately $56 million of amounts due from CEI and borrowed approximately $110 million pursuant to the Company's $300 million, five-year, senior, unsecured revolving credit facility with certain banks (the "Credit Facility"), including Texas Commerce Bank National Association, as Administrative Agent. On April 2, 1997, NewCity was merged with and into the Company, with the Company as the surviving corporation. NewCity's subsidiaries were subsequently consolidated into Cox Radio. In October 1997, the Company disposed of the assets of American Comedy Network, a former subsidiary of NewCity for aggregate proceeds of approximately $1.1 million including certain non-compete agreements. 20 23 In May 1997, the Company agreed to acquire WBHJ-FM and WBHK-FM in Birmingham, Alabama (the "Birmingham Acquisition I") for an aggregate consideration of $17 million, consisting of $5 million paid for an option to purchase and $12 million issued to the seller as a Station Investment Note Receivable. See further discussion at Note 14 to the Company's Consolidated Financial Statements included elsewhere herein. On August 1, 1997, the Company began operating WBHJ-FM and WBHK-FM under an LMA. The Company expects to consummate this acquisition during the second half of 1998. In May 1997, the Company agreed to acquire WENN-FM and WAGG-AM, also in Birmingham, Alabama, for consideration of $15 million (the "Birmingham Acquisition II"). In July 1997, the Company assigned its right to purchase WENN-FM for consideration of $14.5 million to a third party (the "Birmingham Disposition"). The Company consummated both the Birmingham Acquisition II and the Birmingham Disposition during November 1997. In September 1997, the Company announced that it had entered into an agreement in principle with a third party to construct, program and own a new Class A FM radio station in Homewood, Alabama to serve the Birmingham market (the "Birmingham Acquisition III"). Consummation of this transaction is contingent upon FCC approval of the application for the new construction permit and settlement of the comparative hearing between three applicants for the construction permit. As part of the agreement in principle, the third party would construct the station, the Company would enter into an LMA for the new station and the Company would acquire an option to purchase the station for an aggregate consideration of $5.5 million and the assumption of debt in an amount not to exceed $200,000. In September 1997, the Company acquired KISS-FM, KSMG-FM and KLUP-AM in San Antonio, Texas for an aggregate consideration of $30.4 million plus certain non-compete agreements (the "San Antonio Acquisition I"). In December 1997, the Company acquired an option to purchase KRIO-FM serving the San Antonio market. The Company entered into an agreement to assign this option in January 1998 for an aggregate consideration of $250,000 (the "San Antonio Disposition"). In February 1998, the Company entered into an agreement to acquire WCLR-FM, WZLR-FM and WPTW-AM serving the Dayton, Ohio market for approximately $6 million (the "Dayton Acquisition"). The Company has been operating these stations pursuant to an LMA since December 1997. In addition, the Company has entered into a Station Investment Note Receivable with the seller for $6 million. See further discussion at Note 14 to the Company's Consolidated Financial Statements included elsewhere herein. Pending certain regulatory approvals, the Company anticipates closing the Dayton Acquisition in the second half of 1998. In February 1998, the Company entered into an agreement to acquire the assets of WTLN-FM serving the Orlando, Florida market for consideration of $14.5 million. In a related transaction, the Company entered into an agreement to dispose of the assets of WZKD-AM, also serving the Orlando, Florida market for $.5 million (the "Orlando Exchange"). Pending certain regulatory approvals, the Company expects to complete the Orlando Exchange in the second quarter of 1998. In March 1998, the Company acquired KONO-FM and KONO-AM in San Antonio for $23 million (the "San Antonio Acquisition II"). The Birmingham Acquisition III, the San Antonio Disposition, Dayton Acquisition and the Orlando Exchange are collectively referred to herein as the "Pending Transactions". RESULTS OF OPERATIONS This discussion should be read in conjunction with the accompanying audited Consolidated Financial Statements and Notes thereto of Cox Radio. The results of operations for Cox Radio represent the operations of the radio stations currently owned or operated or to which sales and marketing services were provided in connection with CEI's U.S. radio broadcasting operations. The historical financial statements do not necessarily reflect the results of operations or financial position that would have been reported had Cox Radio been an independent company. 21 24 As a result of the acquisition activity discussed above, the Company's historical financial statements are not directly comparable from period to period. Pro Forma 1997 Compared with Pro Forma 1996 The following pro forma financial information has been derived from the unaudited pro forma summary of operations included in Note 4 to the Consolidated Financial Statements included elsewhere herein. The unaudited pro forma summary of operations presents the consolidated results of operations as if all consummated transactions, the Pending Transactions and the Company's initial public offering had occurred at the beginning of the periods presented and does not purport to be indicative of what would have occurred had these transactions been made as of those dates or of results which may occur in the future. No pro forma adjustments have been made for the Louisville Acquisitions, the Tampa Acquisition and the Los Angeles Acquisition due to immateriality. Net Revenues. Pro forma net revenes increased $25.3 million to $225.2 million in 1997, a 12.6% increase over the prior year. Contributors to this growth included the Company's radio stations in Atlanta, Los Angeles and Orlando which experienced continued ratings performance during 1997. Additionally, a successful station management and sales department restructuring resulted in increased revenues at the Company's radio stations in Tampa. Station Operating Expenses. Pro forma station operating expenses increased $8.4 million to $149.0 million, an increase of 6.0% over the prior year. This increase was primarily due to higher programming costs resulting from an increase in talent costs (which fluctuate with ratings) and additional selling expenses associated with the stations' local and national revenue growth. Broadcast Cash Flow. Pro forma broadcast cash flow increased $16.9 million to $76.2 million in 1997, a 28.5% increase over 1996 for the reasons noted above. In addition, pro forma broadcast cash flow margin (defined as broadcast cash flow as a percentage of net revenues) increased to 33.8% in 1997 from 29.7% for the prior year. Corporate General and Administrative Expenses. Pro forma corporate general and administrative expenses increased $.3 million to $7.4 million in 1997, an increase of 4.1%, primarily as a result of increased personnel-related costs. Operating Income. Pro forma operating income increased $9.8 million to $47.3 million, an increase of 26.0% over 1996 for the reasons noted above. In addition, the pro forma operating margin increased to 21.0% in 1997 from 18.8% in 1996. Interest Expense. Pro forma interest expense for 1997 totaled $16.2 million as compared to $15.8 million during 1996 primarily as a result of interest rate fluctuations during 1996 and 1997. Net Income. Pro forma net income increased by $5.4 million over 1996 to $18.0 million for the reasons noted above. Historical 1997 Compared with Historical 1996 Net Revenues. Net revenues increased $66.7 million to $199.6 million in 1997, a 50.2% increase over the prior year. This growth is primarily attributable to the Company's 1997 acquisitions, the largest being the NewCity Acquisition. This growth was also attributable to significant percentage increases in net revenues at the Company's stations in Atlanta and Tampa as a result of continued ratings growth. These increases were offset partially by the disposition of the operations of WCKG-FM/WYSY-FM in Chicago through an LMA commencing July 1996 and the sale of WIOD-AM in Miami in October 1996. On a "same station" basis (reflecting results from stations operated for the entire year ended December 31 in both 1997 and 1996), net revenues increased $18.1 million to $139.3 million, an increase of 15.0% over 1996. Station Operating Expenses. Station operating expenses increased $37.9 million to $129.8 million, an increase of 41.3% over the prior year primarily as a result of the Company's 1997 acquisitions as discussed above. Additionally, significant contributors to this increase included higher programming costs resulting from 22 25 an increase in talent costs (which fluctuate with ratings) and additional selling expenses associated with the stations' local and national revenue growth. These increases were offset partially by the disposition of the operations of WCKG-FM/WYSY-FM in Chicago through an LMA commencing July 1996 and the sale of WIOD-AM in Miami in October 1996. On a "same station" basis, station operating expenses increased $5.1 million to $87.4 million, an increase of 6.1% over 1996. Broadcast Cash Flow. Broadcast cash flow increased $28.8 million to $69.8 million in 1997, a 70.1% increase over 1996. On a "same station" basis, broadcast cash flow increased by $13.1 million to $51.9 million, an increase of 33.7% over the prior year. In addition, "same station" broadcast cash flow margin (defined as broadcast cash flow as a percentage of net revenues) increased to 37.3% in 1997 from 32.0% for the prior year for the reasons noted above. Corporate General and Administrative Expenses. Corporate general and administrative expenses increased $1.6 million to $6.9 million in 1997 primarily as a result of the NewCity Acquisition and as a result of costs associated with the Company being publicly-held during 1997. Operating Income. Operating income increased $17.8 million to $45.5 million, an increase of 64.5% over 1996 for the reasons noted above. In addition, the operating margin increased to 22.8% in 1997 from 20.8% in 1996. Interest Expense. Interest expense for 1997 totaled $9.4 million as compared to $4.6 million during 1996 primarily as a result of borrowings incurred to complete the NewCity Acquisition, the Birmingham Acquisition I, the San Antonio Acquisition I and the Dayton Acquisition. Such expenses were partially offset by interest income earned during the first quarter of 1997. Net Income. Net income increased by $34.8 million over 1996 to $49.7 million for the reasons noted above and as a result of an after-tax gain of approximately $29.3 million on the sale of WCKG-FM and WYSY-FM in Chicago during March 1997. Historical 1996 Compared with Historical 1995 Net Revenues. Net revenues increased $9.3 million to $132.9 million in 1996, a 7.6% increase over the prior year. This growth is primarily attributable to increases at the Atlanta and Los Angeles station groups and the addition of the Louisville stations during January and August 1996. Such increases were partially offset by the disposition of WIOD-AM (Miami) in October 1996 and an LMA with the prospective purchaser of WCKG-FM and WYSY-FM (Chicago) in June 1996. Revenue growth in Atlanta is primarily attributable to higher ratings at WSB-AM and revenues generated from a full season of Atlanta Braves baseball in 1996. The baseball strike in 1995 delayed the start of the season by 18 games. In Los Angeles, higher spot advertising rates resulting from improved utilization of customer-focused selling contributed to higher revenues. On a "same station" basis (reflecting results from stations operated for the entire year ended December 31 in both 1996 and 1995), net revenues increased $15.1 million to $115.8 million, an increase of 15.0% over 1995. Station Operating Expenses. Station operating expenses increased $1.9 million to $91.9 million, an increase of 2.1% over the prior year. Significant contributors to this increase include higher programming costs resulting from an increase in talent costs which fluctuate with ratings and additional selling expenses associated with the stations' local and national revenue growth. The increase in station operating expenses was partially offset by the disposal of the operations of WIOD-AM (Miami) in October 1996 and an LMA with the prospective purchaser of WCKG-FM and WYSY-FM (Chicago) in June 1996. On a "same station" basis, station operating expenses increased $6.8 million, to $75.4 million an increase of 9.9% over 1995. Broadcast Cash Flow. Broadcast cash flow increased $7.4 million to $41.0 million in 1996, a 22.0% increase over 1995. On a "same station" basis, broadcast cash flow increased by $8.3 million to $40.3 million, an increase of 26.0% over the prior year. In addition, "same station" broadcast cash flow margin (defined as broadcast cash flow as a percentage of net revenues) increased to 34.9% in 1996 from 31.8% for the prior year for the reasons noted above. 23 26 Corporate General and Administrative Expenses. Corporate general and administrative expenses decreased $.5 million to $5.3 million in 1996 primarily due to a non-recurring corporate charge in 1995. Operating Income. Operating income increased $7.1 million to $27.6 million, an increase of 34.8% over 1995 for the reasons noted above. In addition, the operating margin increased to 20.8% in 1996 from 16.6% in 1995. Interest Expense. Interest expense for 1996 decreased $1.4 million to $4.6 million, a 23.3% decrease from 1995 primarily due to the repayment of amounts due to CEI funded by the Company's initial public offering. Net Income. Net income increased by $6.8 million to $14.9 million, an increase of 83.1% over 1995, for the reasons noted above as well as a $1.4 million after-tax gain on the sale of WIOD-AM (Miami). LIQUIDITY AND CAPITAL RESOURCES The Company'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 the Credit Agreement (as defined below). In addition, cash requirements have been funded on a temporary basis through intercompany advances from CEI under a revolving credit facility with CEI (the "CEI Credit Facility"). Borrowings by the Company under the CEI Credit Facility are typically repaid by the Company within 30 days. Borrowings under the CEI Credit Facility accrue interest at CEI's commercial paper rate plus .40%. CEI 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 (the "Credit Agreement") with certain guarantors and banks, including Texas Commerce Bank National Association, as Administrative Agent, Nationsbank of Texas, N.A., as Syndications Agent, and Citibank, N.A., as Documentation Agent. The loan proceeds were used to finance the payment of the consideration payable in the NewCity Acquisition, repay certain secured debt of NewCity and and finance certain acquisitions. The remaining credit availability may be used to finance additional acquisitions and other corporate purposes. The Credit Agreement has restrictions on the payment of dividends, certain mergers, consolidations or dispositions of assets and establishes limitations on, among other things, additional indebtedness and transactions with affiliates. Cox Radio borrowed approximately $110 million under the Credit Agreement to consummate the NewCity Acquisition. In connection with the NewCity Acquisition, Cox Radio assumed certain indebtedness of NewCity. NewCity was the obligor of $75 million principal amount of 11 3/8% Senior Subordinated Notes due 2003 (the "Notes"). On May 2, 1997, following a tender offer and consent solicitation, the Company paid an aggregate amount of $82.1 million to holders of the Notes in exchange for approximately $74.6 million principal amount of the Notes and consents to the elimination of substantially all of the restrictive covenants applicable to the Notes. As a result, the Company is the obligor of $.4 million principal amount of the Notes. The Notes are general unsecured obligations of Cox Radio and are subordinated to all existing and future senior indebtedness of Cox Radio. The Company obtained the funds necessary to make such payments from borrowings under the Credit Agreement. The Company has entered into interest rate swap agreements with certain lenders providing bank financing. Pursuant to the interest rate swap agreements, the Company 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 the Company'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. The company is exposed to credit loss in the 24 27 event of nonperformance by these counterparties. However, the Company does not anticipate nonperformance by the other parties, and no material loss would be expected from their nonperformance. The fair value of the interest rate swap agreements was not recognized in the consolidated financial statements since they are accounted for as hedges. At December 31, 1997, the estimated fair value of the interest rate swap agreements, based on current market rates, approximated a net payable of $1,223,000. At December 31, 1997, the Company had approximately $235.8 million of outstanding indebtedness and had approximately $65.0 million available under the Credit Agreement. The Company had approximately $3.1 million in amounts due from CEI at December 31, 1997. Future cash requirements are expected to include capital expenditures, principal and interest payments on indebtedness and funds for acquisitions. The Company expects its operations to generate sufficient cash to meet its capital expenditures and debt service requirements. Additional cash requirements, including funds for pending or other acquisitions, will be funded by various sources, including the proceeds from bank financing and, if or when appropriate, other issuances of Company securities. Net cash provided by operating activities for the year ended December 31, 1997 increased $15.3 million to $42.2 million over 1996 primarily as a result of an increase in net income. Net cash from operating activities for 1996 increased $12.9 million to $26.9 million over 1995 primarily as a result of an increase in net income. Net cash from operating activities for 1995 remained substantially the same as in 1994. Net cash used in investing activities for all periods presented principally reflects the Company's acquisition activity discussed above and capital expenditures. The increases in annual capital expenditures from 1995 to 1997 were due to the increasing number of stations owned or operated by Cox Radio. Net cash provided by (used in) financing activities represents the net change in amounts due to CEI, proceeds from the Company's initial public offering, borrowing and repayment of debt, dividends paid and net changes in book overdrafts. Fluctuations for the periods presented generally reflect the differences between changes in both cash flows from operating activities and cash flows from investing activities. The Company has contractual commitments for sports programming and on-air personalities of $16.2 million, $11.8 million, $1.0 million and $.3 million for 1998, 1999, 2000 and 2001, respectively, which are expected to be funded through operations. IMPACT OF INFLATION The impact of inflation on the Company's operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse impact on the Company's operating results. OTHER MATTERS The Company is currently working to resolve the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems. The year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the Company's programs 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. The Company is in the process of assessing the potential impact of the year 2000 problem on the Company's financial position. At this time, the Company has not determined whether costs of addressing potential problems, if any, would have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods or whether failure by the Company, its customers or vendors to resolve such processing issues, if any, in a timely manner could result in a material financial risk. The Company plans to devote the necessary resources to assess and to resolve all significant year 2000 issues, if any, in a timely manner. 25 28 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company has entered into interest rate swap agreements with certain lenders providing bank financing. Pursuant to the interest rate swap agreements, the Company has exchanged its floating rate interest obligations on an aggregate of $100 million in principal at an average fixed rate of 6.23% per annum for an average maturity of 6.25 years. The fixing of interest rates for this period reduces in part the Company'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. 26 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Cox Radio, Inc. We have audited the accompanying consolidated balance sheets of Cox Radio, Inc. ("Cox Radio") as of December 31, 1996 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of Cox Radio's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cox Radio at December 31, 1996 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Atlanta, Georgia February 6, 1998 (March 17, 1998, as to the KONO-FM/AM acquisition described in Note 4) 27 30 COX RADIO, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------- 1996 1997 -------- -------- (THOUSANDS OF DOLLARS) ASSETS CURRENT ASSETS: Cash and cash equivalents................................... $ 1,544 $ 6,218 Restricted cash............................................. 9,051 -- Accounts receivable, less allowance for doubtful accounts of $834 and $1,875, respectively............................. 31,511 50,680 Prepaid expenses and other current assets................... 1,575 3,795 -------- -------- Total current assets.............................. 43,681 60,693 Plant and equipment, net.................................... 27,070 46,071 Intangible assets, net...................................... 138,119 518,926 Amounts due from Cox Enterprises, Inc....................... 49,667 3,113 Station investment notes receivable......................... -- 18,220 Other assets................................................ 3,182 7,617 -------- -------- Total assets...................................... $261,719 $654,640 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses....................... $ 10,296 $ 21,767 Unit appreciation plan ("UAP") liability.................... 646 -- Income taxes payable........................................ 3,216 3,487 Other current liabilities................................... 668 1,964 -------- -------- Total current liabilities......................... 14,826 27,218 Notes payable............................................... -- 235,740 Deferred income taxes....................................... 11,095 104,401 -------- -------- Total liabilities................................. 25,921 367,359 -------- -------- Commitments and contingencies (Note 13) SHAREHOLDERS' EQUITY: Preferred stock, $1.00 par value: 5,000,000 shares, authorized, none outstanding.............................. -- -- Class A common stock, $1.00 par value; 70,000,000 shares authorized; 8,736,972 and 8,831,376 shares outstanding at December 31, 1996 and 1997, respectively.................. 8,737 8,831 Class B common stock, $1.00 par value; 45,000,000 shares authorized and 19,577,672 shares outstanding at December 31, 1996 and 1997......................................... 19,578 19,578 Additional paid-in capital.................................. 248,972 250,637 (Deficit in) retained earnings.............................. (41,489) 8,235 -------- -------- Total shareholders' equity........................ 235,798 287,281 -------- -------- Total liabilities and shareholders' equity........ $261,719 $654,640 ======== ========
See notes to consolidated financial statements. 28 31 COX RADIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, --------------------------------- 1995 1996 1997 --------- --------- --------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) NET REVENUES: Local....................................................... $ 93,465 $ 99,291 $146,326 National.................................................... 29,385 31,648 50,457 Other....................................................... 722 1,965 2,789 -------- -------- -------- Total net revenues................................ 123,572 132,904 199,572 COSTS AND EXPENSES: Operating................................................... 41,831 41,280 50,220 Selling, general and administrative......................... 48,131 50,585 79,544 Corporate general and administrative........................ 5,853 5,332 6,885 Depreciation and amortization............................... 7,247 8,069 17,456 -------- -------- -------- OPERATING INCOME............................................ 20,510 27,638 45,467 OTHER INCOME (EXPENSE): Interest income (expense), net.............................. 97 219 (10,122) Intercompany interest income (expense), net................. (6,071) (4,799) 758 Gain on sale of radio station............................... -- 2,016 49,129 Other -- net................................................ (147) (377) (701) -------- -------- -------- INCOME BEFORE INCOME TAXES.................................. 14,389 24,697 84,531 Income taxes................................................ 6,226 9,752 34,807 -------- -------- -------- NET INCOME.................................................. $ 8,163 $ 14,945 $ 49,724 ======== ======== ======== Basic and diluted income per common share................... -- $ .69 $ 1.75 Weighted average basic common shares outstanding............ -- 21,762 28,344 Weighted average diluted common shares outstanding.......... -- 21,762 28,494
See notes to consolidated financial statements. 29 32 COX RADIO, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
CLASS A CLASS B COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL (DEFICIT IN) --------------- --------------- ---------------- PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL ------ ------ ------ ------ ------ ------- ---------- ------------ -------- (AMOUNTS IN THOUSANDS) BALANCE AT DECEMBER 31, 1994........ 1 $ 1 -- $ -- -- $ -- $ 90,947 $(50,541) $ 40,407 Net income.......................... -- -- -- -- -- -- -- 8,163 8,163 Dividends to CEI.................... -- -- -- -- -- -- -- (1,400) (1,400) -- ---- ----- ------ ------ ------- -------- -------- -------- BALANCE AT DECEMBER 31, 1995........ 1 1 -- -- -- -- 90,947 (43,778) 47,170 Net income.......................... -- -- -- -- -- -- -- 14,945 14,945 Dividends to CEI.................... -- -- -- -- -- -- -- (12,656) (12,656) Capital contribution by CEI......... -- -- -- -- -- -- 36,744 -- 36,744 Issuance of Class B common stock to CEI............................... (1) (1) -- -- 19,578 19,578 (19,577) -- -- Issuance of Class A common stock related to initial public offering.......................... -- -- 8,625 8,625 -- -- 140,588 -- 149,213 Issuance of restricted Class A common stock related to incentive plans............................. -- -- 112 112 -- -- 1,960 -- 2,072 Offering costs for common stock..... -- -- -- -- -- -- (1,690) -- (1,690) -- ---- ----- ------ ------ ------- -------- -------- -------- BALANCE AT DECEMBER 31, 1996........ -- -- 8,737 8,737 19,578 19,578 248,972 (41,489) 235,798 -- ---- ----- ------ ------ ------- -------- -------- -------- Net income.......................... -- -- -- -- -- -- -- 49,724 49,724 Issuance of Class A common stock related to incentive plans........ -- -- 94 94 -- -- 1,665 -- 1,759 -- ---- ----- ------ ------ ------- -------- -------- -------- BALANCE AT DECEMBER 31, 1997........ -- $ -- 8,831 $8,831 19,578 $19,578 $250,637 $ 8,235 $287,281 == ==== ===== ====== ====== ======= ======== ======== ========
See notes to consolidated financial statements. 30 33 COX RADIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 -------- -------- --------- (THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................. $ 8,163 $ 14,945 $ 49,724 Items not requiring cash: Depreciation.............................................. 2,382 2,533 4,286 Amortization.............................................. 4,865 5,536 13,170 Deferred income taxes..................................... (441) 1,001 25,187 Settlement of UAP liability through issuance of restricted stock.................................................. -- 2,071 -- Gain on sale of radio station............................. -- (2,016) (49,129) Changes in assets and liabilities net of effect of acquisitions: Increase in accounts receivable............................. (2,221) (844) (6,436) Increase (decrease) in prepaid expenses and other current assets.................................................... (57) (22) 1,789 Increase (decrease) in accounts payable and accrued expenses.................................................. (299) 1,111 5,240 Increase (decrease) in taxes payable........................ (37) 2,938 271 Increase (decrease) in UAP liability........................ 776 (317) (646) Other, net.................................................. 856 (25) (1,267) -------- -------- --------- Net cash provided by operating activities......... 13,987 26,911 42,189 -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures........................................ (4,073) (3,526) (10,820) Acquisitions................................................ (11,697) (21,500) (317,268) Payments for station investment notes receivable............ (18,220) (Increase) in other long-term assets........................ (1,580) (2,137) (5,208) Net proceeds from sale of radio station..................... -- 14,195 19,647 Decrease (increase) in amounts due from CEI................. -- (49,667) 46,554 Other, net.................................................. 8 -- 201 -------- -------- --------- Net cash used in investing activities............. (17,342) (62,635) (285,114) -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in amounts due to CEI................... 4,781 (88,345) -- Borrowings of debt.......................................... -- -- 235,740 Net proceeds from initial public offering................... -- 149,213 -- Payment of stock offering costs............................. -- (1,690) -- Proceeds from stock options exercised....................... -- -- 1,552 Dividends paid.............................................. (1,400) (12,656) -- Increase (decrease) in book overdrafts...................... (232) (1,894) 1,256 -------- -------- --------- Net cash provided by financing activities......... 3,149 44,628 238,548 -------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (206) 8,904 (4,377) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 1,897 1,691 10,595 -------- -------- --------- CASH AND CASH EQUIVALENTS (INCLUDING RESTRICTED CASH OF $9,051 AT DECEMBER 31, 1996) AT END OF PERIOD............. $ 1,691 $ 10,595 $ 6,218 ======== ======== =========
See notes to consolidated financial statements. 31 34 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Cox Radio, Inc. ("Cox Radio" or the "Company") is a leading national radio broadcast company whose business is devoted to acquiring, developing and operating radio stations located throughout the United States. Cox Enterprises, Inc. ("CEI") indirectly owns approximately 69% of the Common Stock of Cox Radio. On September 30, 1996, pursuant to an Agreement and Plan of Merger of KFI, Inc., WCKG, Inc., WWRM, Inc. and Cox Syracuse, Inc. with and into Cox Radio, Inc. (the "Plan of Merger"), CEI transferred direct or indirect ownership of its U.S. radio broadcast properties to Cox Radio (the "Cox Radio Consolidation"). In connection with the Cox Radio Consolidation, the Company amended its Certificate of Incorporation to change the capital structure of the Company. As a result, the Company's capital stock consists of 70,000,000 authorized shares of Class A Common Stock, 45,000,000 authorized shares of Class B Common Stock and 5,000,000 authorized shares of Preferred Stock, all at $1.00 par value per share. Pursuant to the Plan of Merger, CEI, through its indirect subsidiary, Cox Broadcasting, Inc., received 19,577,672 shares of the Company's Class B Common Stock for its ownership interests. CEI's historical basis in the assets and liabilities of the operations was carried over to Cox Radio. On October 2, 1996, the Company completed an initial public offering of 8,625,000 shares of the Company's Class A Common Stock at a price of $18.50 per share. Proceeds to the Company from the public offering and the underwriters' overallotment option totaled approximately $149 million net of underwriting discounts and commissions. The Company used approximately $107.1 million of such net proceeds to repay all amounts then outstanding under notes due to CEI. The balance of the net proceeds was used for general corporate purposes and acquisitions, including to partially fund the NewCity Acquisition (see note 4). The consolidated financial statements of Cox Radio represent the operations of the radio broadcast stations owned by Cox Radio, CEI or its other subsidiaries. The historical financial statements do not necessarily reflect the results of operations or financial position that would have existed had Cox Radio been an independent company. All significant intercompany accounts have been eliminated in the consolidated financial statements of Cox Radio. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Fair value approximates carrying value. Revenue Recognition Revenue is recognized as advertising air time is broadcast and is net of advertising agency commissions. Corporate General and Administrative Expenses Corporate general and administrative expenses consist of corporate overhead costs not specifically allocable to any of the Company's individual stations plus expense related to the CEI Unit Appreciation Plan during 1995 and 1996. In 1995, corporate general and administrative expenses included a nonrecurring corporate charge. Plant and Equipment Plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using principally the straight-line method at rates based upon estimated useful lives of 5 to 40 years for buildings and building improvements and 5 to 20 years for broadcast equipment. 32 35 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Expenditures for maintenance and repairs are charged to operating expense as incurred. At the time of retirements, sales or other dispositions of property, the original cost and related accumulated depreciation are written off. Intangible Assets Intangible assets consist primarily of goodwill/FCC broadcast licenses and non-compete agreements. Goodwill/FCC broadcast licenses recorded in business combinations generally are amortized on a straight-line basis over 30 to 40 years. Non-compete agreements are amortized on a straight-line basis over the contractual lives of the agreements, generally 3 to 5 years. Cox Radio assesses on an on-going basis the recoverability of intangible assets based on estimates of future undiscounted cash flows for the applicable business acquired compared to net book value. If the future undiscounted cash flow estimate is less than net book value, net book value is then reduced to the estimated fair value. Cox Radio also evaluates the amortization periods of intangible assets to determine whether events or circumstances warrant revised estimates of useful lives. Impairment of Long-Lived Assets SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," became effective in January 1996. This Statement requires that long-lived assets and certain intangibles be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, with any impairment losses being reported in the period in which the recognition criteria are first applied based on the fair value of the asset. Long-lived assets and certain intangibles to be disposed of are required to be reported at the lower of carrying amount or fair value less cost to sell. Income Taxes Prior to 1997, the accounts of Cox Radio were included in the consolidated federal income tax return and certain state income tax returns of CEI. Current federal and state income tax expenses and benefits were allocated on a separate return basis to Cox Radio based on (i) the current year tax effects of the inclusion of its income, expenses and credits in the consolidated income tax returns of CEI or (ii) separate state income tax returns. Deferred income taxes are recognized for all temporary differences between the tax and financial reporting bases of the Company's assets and liabilities based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Pension, Postretirement and Postemployment Benefits CEI generally provides defined pension benefits to eligible employees based on years of service and compensation during those years. CEI also provides certain health care and life insurance benefits to eligible retirees and employees. For certain employees and retirees of Cox Radio eligible for such coverages, these benefits are provided through the CEI plans. Expenses related to these plans are allocated to Cox Radio through the intercompany account. The amount of the allocations is generally based on actuarial determinations of the effects of Cox Radio employees' participation in the plans. Incentive Compensation Plans Cox Radio accounts for stock compensation in accordance with the requirements of APB No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123, "Accounting for Stock-Based Compensation," became effective in January 1996, and requires disclosure of the pro forma effects on net income and earnings 33 36 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) per share had the fair value recognition provisions of SFAS No. 123 been elected over the provisions of APB No. 25. Station Investment Notes Receivable Station investment notes receivable consist of amounts loaned to certain entities which own radio stations. These notes are at varying interest rates and are secured by substantially all of the assets of the related radio stations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Risk A significant portion of the Company's business historically has been conducted in certain markets. Revenues earned from radio stations located in Los Angeles, Atlanta, and Miami represented 35%, 25% and 17%, respectively, of total revenues for the year ended December 31, 1995 and 36%, 30% and 16%, respectively, of total revenues for the year ended December 31, 1996. Revenues earned from radio stations located in Los Angeles, Atlanta, Orlando and Miami represented 27%, 24%, 9% and 8%, respectively, of total revenues for the year ended December 31, 1997. The Company's concentration of risk in each of the aforementioned markets has been and is expected to continue to be reduced as a result of the NewCity Acquisition and other transactions. Earnings Per Common Share Cox Radio became publicly traded on the New York Stock Exchange effective September 27, 1996. Earnings per common share calculation for 1995 has not been disclosed because the dissimilarity of the previous capital structure of Cox Radio precludes a meaningful comparison. During the fourth quarter of 1997, Cox Radio adopted SFAS No. 128, "Earnings per Share," which replaces the presentation of primary earnings per share ("EPS") and fully diluted EPS with a presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Similar to fully diluted EPS, diluted EPS assumes issuance of common stock for all other potentially dilutive equivalent shares outstanding. The Company's 1996 EPS data have been restated. The adoption of this new accounting standard did not have a material effect on the Company's reported EPS amounts. 3. CASH MANAGEMENT SYSTEM Cox Radio participates in CEI's cash management system, whereby the bank sends daily notification of Cox Radio's checks presented for payment. CEI transfers funds from other sources to cover Cox Radio's checks presented for payment. Book overdrafts of $1.7 million and $3.0 million existed at December 31, 1996 and 1997, respectively, as a result of Cox Radio's checks outstanding. These book overdrafts were reclassified as accounts payable on Cox Radio's financial statements. 34 37 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES In April 1995, Cox Radio entered into a local marketing agreement ("LMA") to operate WCNN-AM (Atlanta). In August 1995, Cox Radio completed the acquisition of KACE-FM in Inglewood, California, a suburb of Los Angeles, for $11.7 million. Cox Radio had operated this station under an LMA since August 1994. In January 1996, Cox Radio completed the acquisition of Louisville stations WRKA-FM and WRVI-FM for $8.7 million. The Company also acquired Louisville station WXNU-FM, later renamed WLSY-FM, for $2.6 million in August 1996. In June 1996, the Company acquired WHEN-AM and WWHT-FM in Syracuse for $4.5 million. These stations were operated by NewCity (as defined below) under an LMA until the consummation of the NewCity Acquisition (as defined below). In October 1996, the Company completed the sale of WIOD-AM in Miami for $13.0 million plus a working capital adjustment of $1.2 million (the "Miami Disposition"). This transaction resulted in a pre-tax gain of approximately $2.0 million which was recognized in the fourth quarter of 1996. In December 1996, the Company acquired KRAV-FM and KGTO-AM (Tulsa) for $5.5 million. These stations were operated by NewCity under an LMA until the consummation of the NewCity Acquisition. In March 1997, the Company exchanged WCKG-FM and WYSY-FM in Chicago for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando (the "Orlando Acquisition"). The Orlando Acquisition resulted in a pre-tax gain of approximately $49 million. In addition to receiving the three Orlando stations, Cox Radio also received cash proceeds of approximately $20 million. Prior to the NewCity Acquisition (as defined below), the Orlando stations were operated by NewCity (as defined below) since July 1996 under an LMA. In March 1997, the Company acquired WFNS-AM in Tampa for an aggregate consideration of $1.5 million (the "Tampa Acquisition"). The Company had been operating this station pursuant to an LMA or a joint sales agreement ("JSA") since June 1995. In April 1997, Cox Radio completed its acquisition of the license and certain assets of KRTO-FM in Los Angeles for $19 million in cash (the "Los Angeles Acquisition"). In April 1997, the Company, through the merger of its wholly owned subsidiary New Cox Radio II, Inc. with and into NewCity Communications, Inc. ("NewCity"), with NewCity surviving as a wholly owned subsidiary of Cox Radio, acquired all of the issued and outstanding capital stock of NewCity (the "NewCity Acquisition"). Cox Radio purchased the stock of NewCity for an aggregate consideration of approximately $253 million, including approximately $87 million in assumption of NewCity indebtedness and approximately $3 million in working capital adjustments. To consummate the NewCity Acquisition, the Company utilized approximately $56 million of amounts due from CEI and borrowed approximately $110 million pursuant to the Company's $300 million, five-year, senior, unsecured revolving credit facility with certain banks (the "Credit Facility"), including Texas Commerce Bank National Association, as Administrative Agent. On April 2, 1997, NewCity was merged with and into the Company, with the Company as the surviving corporation. NewCity's subsidiaries were subsequently consolidated into Cox Radio. In October 1997, the Company disposed of the assets of American Comedy Network, a former subsidiary of NewCity, for aggregate proceeds of approximately $1.1 million including certain non-compete agreements. 35 38 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The NewCity Acquisition was recorded effective April 1, 1997, using the purchase method of accounting, whereby the allocable share of the NewCity purchase price was allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition as follows (in thousands): Net working capital......................................... $ 8,342 Plant and equipment......................................... 9,310 Goodwill/FCC broadcast licenses............................. 316,634 Deferred taxes.............................................. (67,268) -------- Total cost of acquisition including assumed liabilities..................................... $267,018 ========
In May 1997, the Company agreed to acquire WBHJ-FM and WBHK-FM in Birmingham, Alabama (the "Birmingham Acquisition I") for an aggregate consideration of $17 million, consisting of $5 million paid for an option to purchase and $12 million issued to the seller as a Station Investment Note Receivable. See further discussion at Note 14 to the Company's Consolidated Financial Statements included elsewhere herein. On August 1, 1997, the Company began operating WBHJ-FM and WBHK-FM under an LMA. The Company expects to consummate this acquisition during the second half of 1998. In May 1997, the Company agreed to acquire WENN-FM and WAGG-AM, also in Birmingham, Alabama, for consideration of $15 million (the "Birmingham Acquisition II"). In July 1997, the Company assigned its right to purchase WENN-FM for consideration of $14.5 million to a third party (the "Birmingham Disposition"). The Company consummated both the Birmingham Acquisition II and the Birmingham Disposition during November 1997. In September 1997, the Company announced that it had entered into an agreement in principle with a third party to construct, program and own a new Class A FM radio station in Homewood, Alabama to serve the Birmingham market (the "Birmingham Acquisition III"). Consummation of the transaction is contingent upon FCC approval of the application for the new construction permit and settlement of the comparative hearing between three applicants for the construction permit. As part of the agreement in principle, the third party would construct the station, the Company would enter into an LMA for the new station and the Company would acquire an option to purchase the station for an aggregate consideration of $5.5 million and the assumption of debt in an amount not to exceed $200,000. In September 1997, the Company acquired KISS-FM, KSMG-FM and KLUP-AM in San Antonio, Texas for an aggregate consideration of $30.4 million plus certain non-compete agreements (the "San Antonio Acquisition I"). In December 1997, the Company acquired an option to purchase KRIO-FM serving the San Antonio market. The Company entered into an agreement to assign this option in January 1998 for an aggregate consideration of $250,000 (the "San Antonio Disposition"). In February 1998, the Company entered into an agreement to acquire WCLR-FM, WZLR-FM and WPTW-AM serving the Dayton, Ohio market for approximately $6 million (the "Dayton Acquisition"). The Company has been operating these stations pursuant to an LMA since December 1997. In addition, the Company has entered into a Station Investment Note Receivable with the seller for $6 million. See further discussion at Note 14 to the Company's Consolidated Financial Statements included elsewhere herein. Pending certain regulatory approvals, the Company anticipates closing the Dayton Acquisition in the second half of 1998. In February 1998, the Company entered into an agreement to acquire the assets of WTLN-FM serving the Orlando, Florida market for consideration of $14.5 million. In a related transaction, the Company entered into an agreement to dispose of the assets of WZKD-AM, also serving the Orlando, Florida market for $.5 million (the "Orlando Exchange"). Pending certain regulatory approvals, the Company expects to complete the Orlando Exchange in the second quarter of 1998. 36 39 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In March 1998, the Company acquired KONO-FM and KONO-AM in San Antonio for $23 million (the "San Antonio Acquisition II"). The Birmingham Acquisition III, the San Antonio Disposition, the Dayton Acquisition and the Orlando Exchange are collectively referred to herein as the "Pending Transactions". The following unaudited pro forma summary of operations presents the consolidated results of operations as if all consummated transactions, the Pending Transactions and the Company's initial public offering had occurred at the beginning of the periods presented and does not purport to be indicative of what would have occurred had these transactions been made as of those dates or of results which may occur in the future. No pro forma adjustments have been made for the Louisville Acquisitions, the Tampa Acquisition and the Los Angeles Acquisition due to immateriality.
YEAR ENDED DECEMBER 31, ------------------------ 1996 1997 ---------- ---------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues................................................ $199,938 $225,222 Corporate general and administrative expenses............... 7,072 7,361 Depreciation and amortization............................... 14,651 21,476 Operating income............................................ 37,564 47,346 Net income.................................................. $ 12,559 $ 17,954 -------- -------- Basic and diluted pro forma earnings per common share....... $ .44 $ .63 ======== ======== Basic pro forma shares outstanding.......................... 28,315 28,344 ======== ======== Diluted pro forma shares outstanding........................ 28,315 28,494 ======== ========
5. PLANT AND EQUIPMENT
DECEMBER 31, ---------------------- 1996 1997 --------- --------- (THOUSANDS OF DOLLARS) Land and land improvements.................................. $ 10,718 $ 14,240 Buildings and building improvements......................... 5,334 15,392 Broadcast equipment......................................... 31,067 51,161 Construction in progress.................................... 2,454 2,875 -------- -------- Plant and equipment, at cost................................ 49,573 83,668 Less accumulated depreciation............................... (22,503) (37,597) -------- -------- Net plant and equipment........................... $ 27,070 $ 46,071 ======== ========
37 40 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INTANGIBLE ASSETS
DECEMBER 31, ----------------------- 1996 1997 ---------- ---------- (THOUSANDS OF DOLLARS) Goodwill/FCC broadcast licenses............................. $184,758 $573,069 Non-compete agreements...................................... 6,707 8,351 Other....................................................... 2,131 6,036 -------- -------- Total............................................. 193,596 587,456 Less accumulated amortization............................... (55,477) (68,530) -------- -------- Net intangible assets............................. $138,119 $518,926 ======== ========
7. INCOME TAXES Income tax expense (benefit) is summarized as follows:
YEAR ENDED DECEMBER 31, ------------------------- 1995 1996 1997 ------ ------ ------- (THOUSANDS OF DOLLARS) Current: Federal................................................... $5,226 $7,788 $ 8,076 State..................................................... 1,441 963 1,544 ------ ------ ------- Total current..................................... 6,667 8,751 9,620 ------ ------ ------- Deferred: Federal................................................... (589) 1,198 20,703 State..................................................... 148 (197) 4,484 ------ ------ ------- Total deferred.................................... (441) 1,001 25,187 ------ ------ ------- Total income taxes................................ $6,226 $9,752 $34,807 ====== ====== =======
The tax effects of significant temporary differences which comprise the net deferred tax liabilities are as follows:
DECEMBER 31, -------------------- 1996 1997 -------- --------- (THOUSANDS OF DOLLARS) Current deferred tax asset: Provision for doubtful accounts........................... $ 279 $ 964 -------- --------- Noncurrent deferred tax assets (liabilities): Plant and equipment....................................... (3,273) (22,773) Intangibles............................................... (10,351) (91,028) Net operating loss carryforwards -- states................ 2,013 2,389 Employee benefits......................................... 1,061 918 State taxes............................................... (955) 6,914 Other..................................................... 410 (821) -------- --------- Total net noncurrent liability......................... (11,095) (104,401) -------- --------- Net deferred tax liability............................. $(10,816) $(103,437) ======== =========
38 41 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) \Income tax expense computed using the United States federal statutory rates is reconciled to the reported income tax provisions as follows:
YEAR ENDED DECEMBER 31, ------------------------- 1995 1996 1997 ------ ------ ------- (THOUSANDS OF DOLLARS) Federal statutory income tax rate........................... 35% 35% 35% Computed tax expense at federal statutory rates on income before income taxes....................................... $5,036 $8,643 $29,586 State income taxes (net of federal tax benefit)............. 1,033 498 3,918 Non-deductible amortization of intangibles.................. 811 1,037 1,341 Benefit arising from low income housing credits............. (555) (605) (613) Other, net.................................................. (99) 179 575 ------ ------ ------- Income tax provision...................................... $6,226 $9,752 $34,807 ====== ====== =======
The consolidated federal income tax returns of CEI for 1986 through 1994 and the combined California franchise tax returns of CEI for 1984 through 1990 are presently under audit. The Company will be indemnified by CEI for any additional liabilities arising from tax-related audits of periods prior to the Company's initial public offering. Management believes that any additional liabilities arising from tax-related audits of periods after the Company's initial public offering are sufficiently provided for at December 31, 1997. 8. LONG-TERM DEBT On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior, unsecured revolving credit facility (the "Credit Agreement"). The interest rate is based on the London Interbank Offered Rate plus a spread determined by the ratio of debt to EBITDA. This facility includes a commitment fee on the unused portion of the total amount available of .1% to .25% based on the ratio of debt to EBITDA. Cox Radio borrowed approximately $110 million under the Credit Agreement to consummate the NewCity Acquisition. In connection with the NewCity Acquisition, Cox Radio assumed certain indebtedness of NewCity. NewCity was the obligor of $75 million principal amount of 11 3/8% Senior Subordinated Notes due 2003 (the "Notes"). The Notes were general unsecured obligations of Cox Radio and were subordinated to all existing and future senior indebtedness of Cox Radio. On May 2, 1997, following a tender offer and consent solicitation, the Company paid an aggregate amount of $82.1 million to holders of the Notes in exchange for approximately $74.6 million principal amount of the Notes and consents to the elimination of substantially all of the restrictive covenants applicable to the Notes. As a result, the Company is the obligor of $.4 million principal amount of Notes. The Company obtained the funds necessary to make such payments from borrowings under the Credit Agreement. At December 31, 1997, the Company had approximately $235.7 million of outstanding indebtedness and had approximately $65.0 million available under the Credit Agreement. During 1997, the interest rate applied to amounts due under the Credit Agreement ranged from 6.03% to 6.37% (6.37% at December 31, 1997). The Credit Agreement contains, among other provisions, defined requirements as to ratio of debt to EBITDA and ratio of EBITDA to interest expense. At December 31, 1997, the Company was in compliance with these covenants. In accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," the Company estimated the fair value of its amounts outstanding under the Credit Agreement. Borrowings under the Credit Agreement approximate fair value because the amounts because the applicable interest rate floats at the current market rate. 39 42 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has entered into interest rate swap agreements with certain lenders providing bank financing. Pursuant to the interest rate swap agreements, the Company has exchanged its floating rate interest obligations on an aggregate of $100 million in principal at an average fixed rate of 6.23% per annum for an average maturity of 6.25 years. The fixing of interest rates for this period reduces in part the Company'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. The company is exposed to credit loss in the event of nonperformance by these counterparties. However, the Company does not anticipate nonperformance by the other parties, and no material loss would be expected from their nonperformance. The fair value of the interest rate swap agreements was not recognized in the consolidated financial statements since they are accounted for as hedges. At December 31, 1997, the estimated fair value of the interest rate swap agreements, based on current market rates, approximated a net payable of $1,223,000. 9. RETIREMENT PLANS Certain of Cox Radio's employees are eligible to participate in the funded, noncontributory defined benefit pension plan of CEI and certain key employees participate in an unfunded, non-qualified supplemental pension plan. New hires employed by Cox Radio on or after January 1, 1997, including employees previously employed by NewCity, generally are not eligible to participate in the plans. The plans call for benefits to be paid to eligible employees at retirement based primarily upon years of service with Cox Radio and compensation rates during those years. Pension expense allocated to Cox Radio by CEI was $636,000, $801,000 and $661,000 for the years ended December 31, 1995, 1996 and 1997, respectively. The following table sets forth certain information attributable to the Cox Radio employees' participation in the CEI pension plans:
DECEMBER 31, DECEMBER 31, 1996 1997 ------------------ ------------------ FUNDED UNFUNDED FUNDED UNFUNDED PLANS PLANS PLANS PLANS ------- -------- ------- -------- Actuarial present value of benefit obligations: Vested benefits................................ $10,464 $1,188 $11,963 $1,638 Nonvested benefits............................. 973 172 1,237 243 ------- ------ ------- ------ Accumulated benefit obligation................... $11,437 $1,360 $13,200 $1,881 ======= ====== ======= ====== Projected benefit obligation..................... $14,434 $1,867 $15,961 $2,512 ======= ====== ======= ======
Assumptions used in the actuarial computations were:
DECEMBER 31, -------------------- 1995 1996 1997 ---- ---- ---- Discount rate............................................... 7.25% 7.75% 7.25% Rate of increase in compensation levels..................... 5.00% 5.50% 5.00% Expected long-term rate of return on assets................. 9.00% 9.00% 9.00%
CEI may establish a defined benefit pension plan and segregate plan assets for Cox Radio. The amount of the assets that would be segregated would have an estimated fair value equal to the projected benefit obligation of the CEI defined benefit pension plan attributable to Cox Radio employees as of December 31, 1997, or $15,961,000. The assets segregated would be used to fund payments to retirees. Any non-qualified supplemental pension plan payments due to Cox Radio employees will be made by CEI. CEI provides certain health care and life insurance benefits to eligible retirees of CEI and its subsidiaries. New hires employed by Cox Radio on or after January 1, 1997, including employees previously employed by 40 43 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NewCity, generally are not eligible for such health care and life insurance coverages. Postretirement expense allocated to Cox Radio by CEI was $218,000, $166,000 and $158,000 for the years ended December 31, 1995, 1996 and 1997, respectively. Cox Radio's APBO at December 31, 1997 was $3,309,000. The funded status of the portion of the postretirement plan covering the employees of Cox Radio is not determinable. The APBO for the postretirement plan of CEI substantially exceeded the fair value of assets held in the plan at December 31, 1997. Actuarial assumptions used to determine the APBO include a discount rate of 7.25% (7.75% in 1996) and an expected long-term rate of return on plan assets of 9%. The assumed health care cost trend rate for retirees is 10.5% (11.5% in 1996). For participants prior to age 65, the trend rate gradually decreases to 5.5% by year 2007 and remains level thereafter. For retirees at age 65 or older, this rate decreases to 5.0% by year 2008. Increasing the assumed health care cost trend rate by one percentage point would have resulted in an increase in the CEI plan's APBO of approximately 6.5% and an increase in the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost of approximately 5.1% for 1997. In addition, substantially all of Cox Radio's employees are eligible to participate in the savings and investment plan of CEI. Under the terms of the plan, Cox Radio matches a discretionary amount no greater than 50% of employee contributions up to a maximum of 6% of the employee's base salary. Cox Radio's expense under the plan was $523,000, $584,000 and $745,000 for the years ended December 31, 1995, 1996 and 1997, respectively. Cox Radio employees whose savings and investment plan contributions are at the Internal Revenue Service ("IRS") maximum or are restricted in order to pass the nondiscrimination test required by the IRS are eligible to participate in CEI's non-qualified savings restoration plan, which began in 1995. Under the terms of this plan, Cox Radio matches a discretionary amount no greater than 50% of employee contributions to both the savings and investment and restoration plans up to a maximum percentage of the employee's eligible compensation. Cox Radio's expense under the non-qualified savings restoration plan was $23,000, $23,000 and $36,000 for the years ended December 31, 1995, 1996 and 1997, respectively. 10. STOCK-BASED COMPENSATION PLANS During the three years in the period ending December 31, 1997, the Company had three stock-based compensation plans. The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Compensation for the Cox Radio participation in the Cox Enterprises, Inc. Unit Appreciation Plan ("UAP") was recorded annually based on the appraised value of Cox Enterprises, Inc. stock at the end of the period. Compensation for the Cox Radio, Inc. Long-Term Incentive Plan ("LTIP") and the Employee Stock Purchase Plan ("ESPP") is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the exercise price. Specific information regarding each plan and required disclosure of pro forma effect on the Company's operations if Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") had been adopted is presented below. Cox Enterprises, Inc. UAP Prior to the Company's initial public offering during 1996, certain of the executives and key employees of Cox Radio participated in certain Cox Enterprises, Inc. UAPs that provided for payment of benefits in the form of shares of CEI common stock, cash, or both, generally five years after the date of award. Unit benefits are based on the excess, if any, over a base amount (value of award), of the fair value of a share of CEI common stock five years after the effective date of award. Fair values are determined by independent appraisal. The plans provide for a maximum unit benefit of 150% of the base amount and benefits vest over the 41 44 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) five year period following the date of award. The cost of awards made under the plans was allocated to Cox Radio by CEI over the applicable vesting periods and was charged to corporate general and administrative expense. Amounts charged to expense for Cox Radio employees for the years ended December 31, 1995 and 1996 were $1,646,000 and, $2,464,000, respectively. In connection with the Company's initial public offering, a portion of the 1994 plan was settled through the issuance of 111,973 shares of restricted Class A Common Stock of Cox Radio as discussed below. The adoption of SFAS No. 123 would have resulted in no additional compensation expense related to the Cox Enterprises, Inc. UAP. Cox Radio, Inc. ESPP During 1997, the Company adopted an ESPP, under which the Company was authorized to issue purchase rights totaling 350,000 shares of Class A Common Stock to substantially all employees who were employed on December 1, 1996 and who work at least 20 hours per week. Pursuant to this plan the Company issued purchase rights totaling 186,118 shares of Class A Common Stock. Under the terms of the ESPP, the purchase price ($17.37 per share) was 85% of the market value on May 1, 1997, and employees were allowed to purchase the shares via payroll deductions through August 1, 1999, at which time the shares will be issued to the employees. During 1997, 165 shares were issued to employees under the ESPP due to cancellation of employees' participation in the ESPP or termination of employment. The fair value of the employees' purchase rights granted in 1997 was estimated using the Black-Scholes model with the following assumptions: expected volatility of 32%, no payment of dividends, expected life of 2 years and risk-free interest rate of 5.4%. The grant date fair value of each purchase right granted in 1997 was $6.27. Cox Radio, Inc. LTIP Pursuant to the LTIP, executive officers and certain employees of Cox Radio who have been selected as participants are eligible to receive awards of various forms of equity-based incentive compensation, including stock options, stock appreciation rights, stock bonuses, restricted stock awards, performance units and phantom stock and awards consisting of combinations of such incentives. Cox Radio has reserved 2,400,000 shares of Class A Common Stock for issuance under the LTIP. Subject to the maximum shares reserved under the LTIP, no individual may receive a stock option covering more than 300,000 shares of Class A Common Stock in any year nor be granted more than 100,000 shares of Class A Common Stock, in any combination of performance awards, restricted stock or other stock-based awards that are subject to performance criteria in any year. The maximum payout for any individual for a performance award paid in cash is 100% of his or her base salary as of the beginning of the year of the performance award payment. Upon the closing of the Company's initial public offering, certain UAP units awarded in 1994 that would have matured in 1998, were converted into 111,973 restricted shares of Class A Common Stock issued pursuant to the LTIP based on the calculated appreciation of the UAP units and the quoted market price at the date of conversion. These restricted shares will remain unvested until the end of the original five-year UAP appreciation period. Certain UAP units awarded in 1996 were cancelled and converted to options to acquire Class A Common Stock pursuant to the LTIP. Options granted under the LTIP vest 60% after three years from the date of the grant, 80% after four years from the date of the grant and 100% after five years from the date of the grant and expire ten years after the date of the grant. An accelerated vesting schedule has been provided such that the options become fully vested if the market value of the shares exceeds the exercise price by 140% for ten consecutive trading days. Vesting of certain of the options granted during 1996 and 1997 was accelerated based upon this schedule. Because the issue price of incentive stock options awarded during 1996 and 1997 equaled the then current market price, no compensation cost has been recognized for these options. The fair value of the options granted during 1996 and 1997 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 38% and 32%, respectively, 42 45 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) no dividend yield, risk-free interest rate of 6.7% and 5.5%, respectively, and expected life of three years after vesting. A summary of the status of Cox Radio's stock options granted under the LTIP as of December 31, 1996 and 1997 and changes during the years ending on those dates is presented below:
1996 1997 ------------------------ ------------------------ WEIGHTED WEIGHTED AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------- -------------- ------- -------------- Outstanding at beginning of year........... -- 511,673 $18.50 Granted.................................... 511,673 $18.50 135,607 22.27 Exercised.................................. -- (83,214) 18.62 Cancelled.................................. -- (15,864) 22.53 ------- ------- Outstanding at end of year................. 511,673 $18.50 548,202 $19.29 ======= ======= Options exercisable at year-end............ -- 488,524 Weighted-average fair value of options granted during the year.................. $ 9.39 $ 9.87
The following table summarizes information about stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING WEIGHTED-AVERAGE NUMBER OF OPTIONS REMAINING NUMBER OF OPTIONS EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE --------------- ----------------- ------------------- ----------------- $17.31 32,742 9.00 32,742 $18.50 426,679 8.75 426,679 $20.75 29,103 9.25 29,103 $25.38 59,678 9.46 --
Had compensation cost for the LTIP and ESPP been determined based on the fair value at the grant dates for awards in 1996 and 1997 consistent with the provisions of SFAS No. 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ------------------ 1996 1997 ------- ------- (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Net income -- As reported................................... $14,945 $49,724 ======= ======= Basic and diluted net income per share -- As reported....... $ .69 $ 1.75 ======= ======= Net income -- Pro Forma..................................... $14,744 $46,509 ======= ======= Basic net income per share -- Pro Forma..................... $ .68 $ 1.64 ======= ======= Diluted net income per share -- Pro Forma................... $ .68 $ 1.63 ======= =======
11. TRANSACTIONS WITH AFFILIATED COMPANIES Cox Radio borrows funds for working capital and other needs from CEI. Certain management services are provided to Cox Radio by CEI. Such services include rent, legal, corporate secretarial, tax, treasury, internal audit, risk management, benefits administration, web page development and other support services and are included in corporate general and administrative expenses in the Consolidated Statements of Operations. Cox Radio was allocated expenses for the years ended December 31, 1995, 1996 and 1997 of approximately $2,207,000, $1,499,000, and $2,191,000 respectively, related to these services. Cox Radio pays 43 46 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) rent and certain other occupancy costs to CEI for office facilities. Related rent and occupancy expense was approximately $30,000, $29,000 and $46,000 for the years ended December 31, 1995, 1996 and 1997, respectively. Corporate general and administrative expense allocations are based on a specified percentage of expenses related to the services provided to Cox Radio in relation to those provided to other subsidiaries. Rent and occupancy expense is allocated based on occupied space. Management believes that these allocations were made on a reasonable basis. However, the allocations are not necessarily indicative of the level of expenses that might have been incurred had Cox Radio contracted directly with third parties. Management has not made a study or any attempt to obtain quotes from third parties to determine what the cost of obtaining such services from third parties would have been. The fees and expenses to be paid by Cox Radio to CEI are subject to change. The amounts due to CEI are generally due on demand and represent the net of various transactions, including those described above. The amounts due to CEI were classified as long-term because the Company has the ability and the intent to refinance these obligations on a long-term basis. The amounts due from CEI are correspondingly classified as long-term assets. The amounts due to (from) CEI are as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1995 1996 1997 --------- ------- ------ (THOUSANDS OF DOLLARS) Notes payable to CEI..................................... $ (58,918) $ -- $ -- Other intercompany amounts due from (to) CEI............. (66,171) 49,667 3,113 --------- ------- ------ Total.......................................... $(125,089) $49,667 $3,113 ========= ======= ======
Notes payable to CEI bore interest at prime plus 1.5%. The interest rates for 1995 and 1996 were established at the beginning of each quarter and ranged from 10.0% to 10.5% in 1995 and was 8.75% during 1996. Cox Radio is paid interest on the daily intercompany balance based on CEI's commercial paper rate. The rates used during 1997 ranged from 5.6% to 6.1%. 44 47 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Included in the other intercompany amounts due to CEI are the following transactions:
(THOUSANDS OF DOLLARS) ---------------------- Intercompany due to CEI, December 31, 1994............ $ (61,390) Dividends to CEI.................................... (1,400) Cash transferred to CEI............................. 110,617 Acquisitions........................................ (11,697) Net operating expense allocations and reimbursements................................... (102,301) --------- Intercompany due to CEI, December 31, 1995............ $ (66,171) Dividends to CEI.................................... (12,656) Cash transferred to CEI............................. 115,002 Acquisitions........................................ (21,500) Capital contributions by CEI........................ 36,744 Proceeds from initial public offering............... 149,213 Net operating expense allocations and reimbursements................................... (150,965) --------- Intercompany due from CEI, December 31, 1996.......... $ 49,667 ========= Cash transferred to CEI............................. 164,720 Acquisitions........................................ (317,268) Borrowings on revolver.............................. 235,000 Net operating expense allocations and reimbursements................................... (129,006) --------- Intercompany due from CEI, December 31, 1997.......... $ 3,113 =========
In accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," Cox Radio has estimated the fair value of its intercompany advances and notes payable. Given the short-term nature of these advances, the carrying amounts reported in the balance sheets approximate fair value. 12. SUPPLEMENTAL CASH FLOW INFORMATION
1995 1996 1997 ------ ------ ------- (THOUSANDS OF DOLLARS) Additional cash flow information: Cash paid for interest.................................... $6,071 $5,466 $ 9,886 Cash paid for income taxes................................ 7,844 6,033 11,142
13. COMMITMENTS AND CONTINGENCIES Cox Radio leases land, office facilities, and various items of equipment under noncancellable operating leases. Rental expense under operating leases amounted to $1,735,000 in 1995, $1,520,000 in 1996 and $2,995,000 in 1997. Future minimum lease payments as of December 31, 1997 for all noncancellable operating leases are as follows (in thousands): 1998........................................................ $ 2,850 1999........................................................ 2,715 2000........................................................ 2,177 2001........................................................ 1,742 2002........................................................ 1,242 Thereafter.................................................. 3,219 ------- Total............................................. $13,945 =======
45 48 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cox Radio has various contracts primarily for sports programming and on-air personalities with future minimum payments for 1998, 1999, 2000 and 2001 of $16.2 million, $11.8 million, $1.0 million and $0.3 million, respectively. At December 31, 1997, the Company had outstanding purchase commitments for additions to plant and equipment totaling approximately $0.7 million. Cox Radio is a party to various legal proceedings which are ordinary and incidental to its business. Management does not expect that any legal proceedings currently pending will have a material adverse impact on Cox Radio's consolidated financial position or consolidated results of operations or cash flows. 14. STATION INVESTMENT NOTES RECEIVABLE In connection certain transactions discussed in Note 4, the Company has loaned funds at varying rates of interest to certain entities which own radio stations that the Company has agreed to purchase or is operating under an LMA. These Station Investment Notes Receivable have interest rates ranging from 8.5% to 10% and repayment dates ranging from June 1999 to December 2002. These notes are collateralized by substantially all of the assets of the related radio stations. 15. EARNINGS PER COMMON SHARE AND CAPITAL STRUCTURE
1996 1997 ------- ------- (AMOUNTS IN THOUSANDS) NET INCOME.................................................. $14,945 $49,724 ======= ======= BASIC EPS Weighted-average common shares outstanding.................. 21,762 28,344 ======= ======= Basic income per common share............................... .69 1.75 ======= ======= DILUTED EPS Weighted-average common shares outstanding.................. 21,762 28,344 Shares issuable on exercise of dilutive options........... -- 550 Shares assumed to be purchased with proceeds of options... -- (400) ------- ------- Shares applicable to diluted EPS............................ 21,762 28,494 ======= ======= Diluted income per common share............................. .69 1.75 ======= =======
Historical earnings per common share for 1996 assumes (i) 19,578,000 shares issued to CEI in connection with the Cox Radio Consolidation were issued on January 1, 1996 and (ii) 8,625,000 shares issued in connection with the Company's initial public offering were outstanding during the entire fourth quarter. Unexercised incentive stock options to purchase 511,673 million of the Company's common stock as of December 31, 1996 were not included in the computations of diluted EPS because the options' exercise price was greater than the average market price of Cox Radio common stock during the respective period. 46 49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated by reference to Cox Radio's Proxy Statement for the 1998 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to Cox Radio's Proxy Statement for the 1998 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to Cox Radio's Proxy Statement for the 1998 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to Cox Radio's Proxy Statement for the 1998 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents incorporated by reference or filed with this Report (1) No financial statement schedules are required to be filed by Items 8 and 14(d) because they are not required or are not applicable, or the required information is set forth in the applicable financial statements or notes thereto. (2) Exhibits required to be filed by Item 601 of Regulation S-K: Listed below are the exhibits which are filed as part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 -- Agreement and Plan of Merger, dated as of July 1, 1996, by and among Cox Radio, Inc., New Cox Radio II, Inc., NewCity Communications, Inc. and certain stockholders of NewCity Communications, Inc.(1)** 2.2 -- Guaranty by Cox Broadcasting, Inc., dated as of July 1, 1996, in favor of NewCity Communications, Inc.(1) 3.1 -- Amended and Restated Certificate of Incorporation of Cox Radio, Inc.(1) 3.2 -- Amended and Restated Bylaws of Cox Radio, Inc.(1) 4.1 -- Indenture between NewCity Communications, Inc. and Shawmut Bank Connecticut, National Association, as Trustee, dated as of November 2, 1993, related to the 11 3/8% Notes due 2003 of NewCity Communications, Inc.(1)**
47 50
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.2 -- First Supplemental Indenture between NewCity Communications, Inc. and Shawmut Bank Connecticut, National Association, as Trustee, dated as of September 16, 1994, relating to the 11 3/8% Notes due 2003 of NewCity Communications, Inc.(1) 4.3 -- Specimen of Class A Common Stock Certificate.(1) 10.1 -- Credit Agreement, dated as of March 7, 1997, by and among Cox Radio, 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)** 10.2 -- 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.(2) 21 -- Subsidiaries of the Registrant(3) 23.1 -- Consent of Deloitte & Touche LLP 24.1 -- Power of Attorney (included on page 49) 27.1 -- Financial Data Schedule (for SEC use only)
- --------------- (1) Incorporated by reference to Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737). (2) Incorporated by reference to Cox Radio's Annual Report on Form 10-K for the period ended December 31, 1996 (Commission File No. 1-12187). (3) Incorporated by reference to Cox Radio's Quarterly Report on Form 10-Q for the period ended September 30, 1997 (Commission file No. 1-12187). ** Schedules and Exhibits intentionally omitted. 48 51 Dynamic Station Clusters [COX RADIO, INC. LOGO] Proven Operating Strategy Customer Focused Selling Ratings Leadership Solid Balance Sheet Portfolio Diversity Exceptional People 1997 Annual Report 52 SHAREHOLDER INFORMATION CORPORATE HEADQUARTERS Cox Radio, Inc. 1400 Lake Hearn Drive, N.E. Atlanta, GA 30319 404-843-5000 STOCK DATA Cox Radio's Class A Common Stock is traded on the New York Stock Exchange. Ticker symbol: CXR. Daily newspaper stock table listing: CoxRadio A. As of February 27, 1998, there were 68 shareholders of record of Cox Radio's Class A Common Stock and one shareholder of record of the Class B Common Stock, Cox Broadcasting, Inc. There is no established trading market for Cox Radio's Class B Common Stock. There were no sales of unregistered securities of the Company. There have been no stock or cash dividends paid on any of Cox Radio's equity securities. Cox Radio does not intend to pay cash dividends in the foreseeable future. Class A Common Stock commenced trading on September 27, 1996, following effectiveness of the Company's initial public offering. Accordingly, history of sales prices is limited to 1997 and the fourth quarter of 1996. QUARTERLY MARKET INFORMATION
Class A Common Stock 1996 High Low Fourth Quarter $23 1/2 $16 1997 First Quarter $21 1/8 $17 1/4 Second Quarter 27 9/16 19 5/8 Third Quarter 29 3/4 23 15/16 Fourth Quarter 42 30 5/16
Cox Radio has been selected for listing on the Chicago Board Options Exchange, a national securities exchange. Trading in options began on February 28, 1997. TRANSFER AGENT AND REGISTRAR First Chicago Trust Company of New York P.O. Box 2500 Jersey City, N.J. 07303-2500 (201) 324-1225 http://www.fctc.com fctc@em.fcnbd.com ANNUAL MEETING OF SHAREHOLDERS May 13, 1998, 9:30 a.m. Cox Radio Corporate Headquarters 1400 Lake Hearn Drive, N.E. Atlanta, GA 30319 FORM 10-K Cox Radio's Annual Report on Form 10-K as filed with the Securities and Exchange Commission is available free upon written request to: Finance Department, Cox Radio, Inc., at the address above. COMPANY INFORMATION Communications regarding stock transfers, lost certificates or account changes should be directed to the transfer agent, First Chicago Trust Company of New York. For other information, contact one of the following: Analysts/Institutional Investors: Maritza Pichon, Chief Financial Officer, 404-843-5159, fax: 404-843-5890. Individual Shareholders: Tye Hanna, Assistant Controller, 404-843-5572, fax: 404-843-5890. News media: Ellen East, Assistant Director, Communication, 404-843-5281, fax: 404-843-5109. INDEPENDENT AUDITORS Deloitte & Touche LLP 100 Peachtree St. Suite 1700 Atlanta, GA 30303-1943 404-220-1500 COX RADIO, INC. BOARD OF DIRECTORS Chairman Nicholas D. Trigony President Cox Broadcasting, Inc. David E. Easterly President and Chief Operating Officer Cox Enterprises, Inc. Ernest D. Fears, Jr. Lecturer Howard University Richard F. Ferguson Vice President and Chief Operating Officer Cox Radio, Inc. Paul M. Hughes President and Chief Operating Officer OG Holding Ltd. James C. Kennedy Chairman and Chief Executive Officer Cox Enterprises, Inc. Robert F. Neil President and Chief Executive Officer Cox Radio, Inc. EXECUTIVE OFFICERS Robert F. Neil President and Chief Executive Officer Richard F. Ferguson Vice President and Chief Operating Officer Maritza C. Pichon Chief Financial Officer Marc W. Morgan Senior Group Vice President James T. Morley Senior Group Vice President Robert B. Green Group Vice President Richard A. Reis Group Vice President 53 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Cox Radio, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cox Radio, Inc. By: /s/ ROBERT F. NEIL ------------------------------------ Robert F. Neil President and Chief Executive Officer Date: March 27, 1998 POWER OF ATTORNEY Cox Radio, Inc., a Delaware corporation, and each person whose signature appears below, constitutes and appoints Robert F. Neil and Maritza C. Pichon, and either of them, with full power to act without the other, such person's true and lawful attorneys-in-fact, with full power of substitution and resubstitution, for him and her and in his or her name, place and stead, in any and all capacities, to sign this Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K and other documents in connection therewith, and to file the same and all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, thereby ratifying and confirming all that said attorneys-in-fact, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Cox Radio, Inc. and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ NICHOLAS D. TRIGONY Chairman of the Board of March 27, 1998 - --------------------------------------------------- Directors Nicholas D. Trigony /s/ ROBERT F. NEIL President and Chief Executive March 27, 1998 - --------------------------------------------------- Officer; Director Robert F. Neil /s/ MARITZA C. PICHON Chief Financial Officer March 27, 1998 - --------------------------------------------------- (principal accounting Maritza C. Pichon officer and principal financial officer) /s/ JAMES C. KENNEDY Director March 27, 1998 - --------------------------------------------------- James C. Kennedy /s/ DAVID E. EASTERLY Director March 27, 1998 - --------------------------------------------------- David E. Easterly
49 54
SIGNATURE TITLE DATE --------- ----- ---- /s/ ERNEST D. FEARS, JR. Director March 27, 1998 - --------------------------------------------------- Ernest D. Fears, Jr. /s/ PAUL M. HUGHES Director March 27, 1998 - --------------------------------------------------- Paul M. Hughes
50 EX-23.1 2 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our report dated February 6, 1998, appearing in this Annual Report on Form 10-K of Cox Radio, Inc. for the year ended December 31, 1997, in the following Registration Statements of Cox Radio, Inc.:
FORM FILE NO. - ---- --------- S-8......................................................... 333-13281 S-8......................................................... 333-26417
Atlanta, Georgia March 27, 1998 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 U. S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 6,218 0 52,555 (1,875) 0 3,795 83,668 (37,597) 654,640 27,218 0 0 0 28,409 258,872 654,640 0 199,572 0 129,764 24,341 0 9,364 84,531 34,807 0 0 0 0 49,724 1.75 1.75
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