-----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, HsOJJcQ9MNKvEfjRkyNuObCpsIq8mNc7lqJ2+FXseldhkZ5hfg0ODakGbc+ZTO9V 0EDbPtvgYwcgzB//VrhAZA== 0000950144-99-005655.txt : 19990513 0000950144-99-005655.hdr.sgml : 19990513 ACCESSION NUMBER: 0000950144-99-005655 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 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-Q SEC ACT: SEC FILE NUMBER: 001-12187 FILM NUMBER: 99617888 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-Q 1 COX RADIO INC 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER 1-12187 COX RADIO, INC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 58-1620022 (STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER OR ORGANIZATION) IDENTIFICATION NO.) 1400 LAKE HEARN DRIVE, ATLANTA, GEORGIA 30319 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (404) 843-5000 --------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] --------------- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. There were 9,022,573 shares of Class A Common Stock outstanding as of April 30, 1999. There were 19,577,672 shares of Class B Common Stock outstanding as of April 30, 1999. 2 COX RADIO, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 TABLE OF CONTENTS
PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS.............................................................. 3 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................................... 10 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................ 15 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 16 SIGNATURES.................................................................................. 18
2 3 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COX RADIO, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31, 1999 1998 ------------------ ------------ (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current Assets: Cash and cash equivalents ...................................... $ 5,854 $ 6,479 Accounts receivable, less allowance for doubtful accounts of $2,724 and $2,862, respectively .......................... 49,667 58,190 Prepaid expenses and other current assets ........................ 4,709 3,430 --------- --------- Total current assets ........................................ 60,230 68,099 Plant and equipment, net ......................................... 52,154 51,886 Intangible assets, net ........................................... 604,030 590,686 Amounts due from Cox Enterprises, Inc. ........................... 37,549 30,292 Station investment notes receivable .............................. 850 7,250 Other assets ..................................................... 6,983 4,899 --------- --------- Total assets ................................................ $ 761,796 $ 753,112 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses .......................... $ 19,404 $ 19,245 Accrued salaries and wages ..................................... 4,870 4,570 Accrued interest ............................................... 4,746 1,633 Income taxes payable ........................................... 3,133 2,686 Other current liabilities ...................................... 1,405 1,018 --------- --------- Total current liabilities ................................... 33,558 29,152 Notes payable .................................................... 300,252 300,235 Deferred income taxes ............................................ 110,276 110,693 --------- --------- Total liabilities ........................................... 444,086 440,080 --------- --------- Commitments and contingencies (Note 3) Shareholders' Equity: Preferred stock, $1.00 par value: 5,000,000 shares authorized, None outstanding ............................................ -- -- Class A common stock, $1.00 par value; 70,000,000 shares Authorized; 9,020,798 and 8,971,955 shares outstanding at March 31, 1999 and December 31, 1998, respectively .......... 9,021 8,972 Class B common stock, $1.00 par value; 45,000,000 shares Authorized; 19,577,672 shares outstanding at March 31, 1999 and December 31, 1998 ....................................... 19,578 19,578 Additional paid-in capital ..................................... 255,663 253,207 Retained earnings .............................................. 35,099 31,275 Class A common stock held in treasury (39,952 shares at cost) .. (1,651) -- --------- --------- Total shareholders' equity .................................. 317,710 313,032 --------- --------- Total liabilities and shareholders' equity .................. $ 761,796 $ 753,112 ========= =========
See notes to consolidated financial statements. 3 4 COX RADIO, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------------- 1999 1998 -------------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) NET REVENUES: Local .............................................. $45,210 $38,545 National ........................................... 13,744 12,783 Other .............................................. 1,419 732 ------- ------- Total net revenues ............................... 60,373 52,060 COSTS AND EXPENSES: Operating .......................................... 14,866 13,094 Selling, general and administrative ................ 25,803 22,399 Corporate general and administrative ............... 2,186 1,875 Depreciation and amortization ...................... 6,358 5,361 ------- ------- OPERATING INCOME ...................................... 11,160 9,331 OTHER INCOME (EXPENSE): Interest income ....................................... 466 27 Interest expense ...................................... (4,846) (3,844) Other - net ........................................... (69) (58) ------- ------- INCOME BEFORE INCOME TAXES ............................ 6,711 5,456 Income taxes .......................................... 2,887 2,681 ------- ------- NET INCOME ............................................ $ 3,824 $ 2,775 ======= ======= Basic and diluted income per common share ............. $ .13 $ .10 ======= ======= Weighted average basic common shares outstanding ...... 28,577 28,427 ======= ======= Weighted average diluted common shares outstanding .... 28,884 28,708 ======= =======
See notes to consolidated financial statements. 4 5 COX RADIO, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
CLASS A CLASS B COMMON STOCK COMMON STOCK ADDITIONAL ------------------ ----------------- PAID-IN RETAINED TREASURY SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL -------- -------- ------- -------- ---------- -------- -------- ------- (AMOUNTS IN THOUSANDS) BALANCE AT DECEMBER 31, 1998 ........... 8,972 $ 8,972 19,578 $ 19,578 $ 253,207 31,275 $ 313,032 Net income............................ -- -- -- -- -- 3,824 3,824 Issuance of Class A common stock Related to incentive plans......... 49 49 -- -- 928 -- 977 Tax benefit on stock options exercised 1,528 1,528 Repurchase of Class A common stock.... $ (1,651) 1,651) -------- ------- ------- ------- -------- ------- -------- -------- BALANCE AT MARCH 31, 1999 .............. 9,021 $ 9,021 19,578 $ 19,578 $ 255,663 $ 35,099 $ (1,651) $ 317,710 ======= ======= ======= ======= ======== ======= ======== ========
See notes to consolidated financial statements. 5 6 COX RADIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------------- 1999 1998 ------------ ------------ (AMOUNTS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................... $ 3,824 $ 2,775 Items not requiring cash: Depreciation ........................................... 1,637 1,273 Amortization ........................................... 4,721 4,088 Deferred income taxes .................................. 265 708 Decrease in accounts receivable .......................... 8,523 7,256 Increase in accounts payable and accrued expenses ........ 938 316 Increase (decrease) in accrued salaries and wages ........ 300 (306) Increase (decrease) in accrued interest .................. 3,113 (179) Increase (decrease) in taxes payable ..................... 1,975 (546) Other, net ............................................... (1,574) (1,270) -------- -------- Net cash provided by operating activities ......... 23,722 14,115 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ..................................... (1,780) (1,847) Acquisitions, net of cash acquired ....................... (18,132) (23,086) (Increase) decrease in station investment notes receivable 6,400 (52) Increase in other long-term assets ....................... (2,142) (8,860) (Increase) decrease in amounts due from Cox Enterprises .. (7,257) 20,579 -------- -------- Net cash used in investing activities ............. (22,911) (13,266) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in public debt .................................. 17 -- Proceeds from stock options exercised .................... 977 739 Repurchase of Class A common stock ....................... (1,651) -- Increase (decrease) in book overdrafts ................... (779) 132 -------- -------- Net cash provided by financing activities ........ (1,436) 871 -------- -------- Net increase (decrease) in cash and cash equivalents ..... (625) 1,720 Cash and cash equivalents at beginning of period ......... 6,479 6,218 -------- -------- Cash and cash equivalents at end of period ............... $ 5,854 $ 7,938 ======== ========
See notes to consolidated financial statements. 6 7 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1999 1. BASIS OF PRESENTATION AND OTHER INFORMATION Cox Radio, Inc. is a leading national radio broadcast company whose business, which constitutes one reportable segment, is devoted to acquiring, developing and operating radio stations located throughout the United States. Cox Enterprises, Inc. indirectly owns approximately 69% of the Common Stock of Cox Radio. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal, recurring nature. These unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1998 and notes thereto contained in Cox Radio's Annual Report on Form 10-K filed with the Securities and Exchange Commission (Commission File No. 1-12187). The results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999 or any other interim period. 2. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES During the past several years, Cox Radio has actively managed its portfolio of radio stations through selected acquisitions, dispositions and swaps, as well as the use of local marketing agreements, or LMA's, and joint sales agreements, or JSA's. Specific transactions entered into or consummated by Cox Radio during the three months ended March 31, 1999, and through May 7, 1999, are discussed below. In January 1999, Cox Radio acquired the assets of radio station WSUN-FM (formerly WLVU-FM) serving the Tampa-St. Petersburg, Florida market in exchange for the assets of WSUN-AM in Tampa-St. Petersburg, Florida and approximately $17 million. Cox Radio had been operating WSUN-FM pursuant to an LMA since September 1998. In January 1999, Cox Radio entered into an agreement to acquire KRTQ-FM (formerly KTFX-FM) in Tulsa, Oklahoma for $3.5 million. Cox Radio also entered into a Station Investment Note Receivable with the seller for $0.9 million which is collateralized by substantially all the assets of the station. Cox Radio has been operating this station pursuant to an LMA since January 1999. Pending certain regulatory approvals, Cox Radio expects to consummate this acquisition in December 1999. On December 21, 1998 and March 1, 1999, Cox Radio purchased shares of common stock of USA Digital Radio, Inc., a developer of digital radio broadcasting technology, for a total purchase price of $2.5 million. Cox Radio accounts for this investment under the cost method. In May 1999, Cox Radio acquired radio stations WVEZ-FM, WSFR-FM and the option to purchase WMHX-FM serving the Louisville, Kentucky market and radio stations WFJO-FM, WHPT-FM and WDUV-FM (formerly WTBT-FM) serving the Tampa-St. Petersburg, Florida market in exchange for the Company's radio stations WYYY-FM, WBBS-FM, WWHT-FM, WHEN-AM and WSYR-AM serving 7 8 the Syracuse, New York market, plus additional cash consideration of approximately $94 million. In connection with obtaining regulatory approvals for these transactions, Cox Radio has agreed to divest ownership of WRVI-FM and WLSY-FM serving the Louisville, Kentucky market. Such stations have been transferred to a trust for the benefit of Cox Radio pending sale to a third party. In May 1999, Cox Radio entered into an agreement to acquire WNGC-FM, licensed to Athens, Georgia for approximately $78 million. Pending regulatory approvals, Cox Radio expects to consummate this acquisition in the second half of 1999. 3. COMMITMENTS AND CONTINGENCIES On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior, unsecured revolving credit facility with certain guarantors and banks, including Texas Commerce Bank National Association, as Administrative Agent, Nationsbank of Texas, N.A., as Syndications Agent, and Citibank, N.A., as Documentation Agent. The loan proceeds were used to finance the payment of the consideration payable for the acquisition of NewCity Communications, Inc. in April 1997, repay certain secured debt of NewCity Communications and finance certain other acquisitions. The remaining credit availability may be used to finance additional acquisitions and other corporate purposes. The bank credit facility has restrictions on the payment of dividends, certain mergers, consolidations or dispositions of assets and establishes limitations on, among other things, additional indebtedness and transactions with affiliates. At March 31, 1999, Cox Radio had approximately $100 million of outstanding indebtedness under the bank credit facility and had approximately $200 million available under the bank credit facility. On May 26, 1998, Cox Radio issued and sold an aggregate of $200 million principal amount of notes in an offering exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 144A thereunder. Pursuant to the Registration Rights Agreement dated as of May 26, 1998 among Cox Radio, its wholly owned subsidiaries WSB, Inc. and WHIO, Inc. (each a guarantor of the notes), NationsBanc Montgomery Securities LLC, Chase Securities, Inc., and J.P. Morgan Securities, Inc., on December 14, 1998, Cox Radio consummated an exchange offer pursuant to which Cox Radio exchanged $200 million principal amount of the notes originally sold on May 26, 1998, for an aggregate of $200 million principal amount of notes (the terms and form of which are the same in all material respects as the original notes, except as to restrictions on transfer) which have been registered under the Securities Act of 1933. As a result of the mergers of WSB, Inc. and WHIO, Inc. into Cox Radio, WSB, Inc. and WHIO, Inc. are no longer guarantors of the notes. As a result of the transfer of certain Federal Communications Commission licenses, permits and authorizations held by Cox Radio to CXR Holdings, Inc., a wholly-owned subsidiary of Cox Radio, CXR Holdings became a guarantor of the notes on February 1, 1999. Cox Radio has entered into interest rate swap agreements with certain lenders providing bank financing under the bank credit facility. Pursuant to the interest rate swap agreements, Cox Radio has exchanged its floating rate interest obligations on an aggregate of $100 million in principal at an average fixed rate of 6.23% per annum for an average maturity of 6.25 years. The fixing of interest rates for this period reduces Cox Radio's exposure to the uncertainty of floating interest rates. The differential paid or received on the interest rate swap agreements are recognized as an adjustment to interest expense. The counterparties to these interest rate swap agreements are a diverse group of major financial institutions. Cox Radio is exposed to credit loss in the event of nonperformance by these counterparties. However, Cox Radio does not anticipate nonperformance by the other parties, and no material loss would be expected from their nonperformance. The fair value of the interest rate swap agreements was not recognized in the consolidated financial statements since they are accounted for as hedges. At March 31, 1999, the estimated fair value of the interest rate swap agreements, based on current market rates, approximated a net payable of $2.6 million. 8 9 4. FINANCIAL INFORMATION FOR GUARANTORS OF COX RADIO'S DEBT As discussed in Note 3, Cox Radio's notes are unconditionally guaranteed by CXR Holdings, a wholly-owned subsidiary of Cox Radio. The following table sets forth condensed financial information of CXR Holdings as of and for the three months ended March 31, 1999. Comparative data are not presented as CXR Holdings was not a guarantor of Cox Radio's notes during the comparative prior year period. Separate financial statements and other disclosures concerning CXR Holdings are not presented because CXR Holdings is comprised primarily of non-operating assets including certain FCC licenses and royalties earned from the parent company.
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 -------------- (AMOUNTS IN THOUSANDS) BALANCE SHEET: ASSETS: Accounts receivable ...................... $ 6,870 Intangible assets, net ................... 175,260 Other assets ............................. 14 -------- Total assets ............................. $182,144 ======== LIABILITIES AND SHAREHOLDER'S EQUITY: Accrued liabilities ...................... $ 30 Shareholder's equity ..................... 182,114 -------- Total liabilities and shareholder's equity $182,144 ======== STATEMENT OF OPERATIONS: Royalty income ........................... $ 6,870 Depreciation and amortization ............ 1,160 -------- Income before income taxes ............... $ 5,710 ========
5. EARNINGS PER COMMON SHARE AND CAPITAL STRUCTURE
THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 ---- ---- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) NET INCOME.......................................... $ 3,824 $ 2,775 ======= ======== BASIC EPS Weighted-average common shares outstanding.......... 28,577 28,427 ======= ======== Basic net income per common share................... $ .13 $ .10 ======= ======== DILUTED EPS Weighted-average common shares outstanding - basic.. 28,577 28,427 Shares issuable on exercise of dilutive options.. 749 698 Shares assumed to be purchased with proceeds from (616) (553) options........................................ Shares issuable pursuant to employee stock purchase 186 186 plan .......................................... Shares assumed to be purchased with proceeds from employee stock purchase plan................... (12) (50) -------- -------- Shares applicable to diluted EPS.................... 28,884 28,708 ======== ======== Diluted net income per common share................. $ .13 $ .10 ======== ========
In January 1999, Cox Radio reacquired 39,952 shares of previously restricted Class A common stock for cash consideration of approximately $1.7 million. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the accompanying unaudited historical Consolidated Statements of Income for the three month periods ended March 31, 1999 and 1998. This report contains forward-looking statements that are subject to risks and uncertainties. Forward-looking statements include, but may not be limited to, the information regarding future cash requirements of Cox Radio, statements regarding Year 2000 issues (including problems that may arise on the part of third parties), and statements regarding the intent, belief or current expectations of Cox Radio and its management. For such statements, Cox Radio claims the protection of the safe harbor for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934, as amended. Cox Radio's results could differ materially from those discussed in each forward-looking statement due to various factors which are outside Cox Radio's control, including competition for audience share and advertising revenue from other radio stations, electronic and print media and new media technologies and governmental regulation of the radio broadcasting industry. For a more detailed discussion of these factors and others, see the Risk Factors section of Cox Radio's Annual Report on Form 10-K (Commission File No. 1-12187). GENERAL Cox Radio is a leading national radio broadcast company whose business, which constitutes one reportable segment, is devoted to acquiring, developing and operating radio stations located throughout the United States. Cox Enterprises indirectly owns approximately 69% of the Common Stock of Cox Radio through its wholly-owned subsidiary, Cox Broadcasting, Inc. The performance of a radio station group, such as Cox Radio, is customarily measured by its ability to generate Broadcast Cash Flow, EBITDA and After-Tax Cash Flow. Broadcast Cash Flow is defined as operating income plus depreciation and amortization and corporate general and administrative expenses. EBITDA is defined as operating income plus depreciation and amortization. After-Tax Cash Flow is defined as net income (loss) before extraordinary items plus depreciation, amortization and deferred tax expense/benefit. Although Broadcast Cash Flow, EBITDA and After-Tax Cash Flow are not recognized under generally accepted accounting principles, or GAAP, they are accepted by the broadcasting industry as generally recognized measures of performance and are used by analysts who report publicly on the condition and performance of broadcasting companies. For the foregoing reasons, Cox Radio believes that these measures will be useful to investors. However, Broadcast Cash Flow, EBITDA or After-Tax Cash Flow should not be considered to be an alternative to operating income as determined in accordance with GAAP, an alternative to cash flows from operating activities (as a measure of liquidity) or an indicator of Cox Radio's performance under GAAP. The primary source of Cox Radio's revenues is the sale of local and national advertising. Historically, approximately 75% and 23% of Cox Radio's gross revenues have been generated from local and national advertising, respectively. Cox Radio's most significant station operating expenses are employees' salaries and benefits, commissions, programming expenses and advertising and promotional expenditures. Cox Radio's revenues vary throughout the year. As is typical in the radio broadcasting industry, Cox Radio's revenues and broadcast cash flows are typically lowest in the first quarter and higher in the second and fourth quarters. Cox Radio's operating results in any period may be affected by the incurrence of advertising and promotional expenses that do not necessarily produce commensurate revenues until the impact of the advertising and promotion is realized in future periods. 10 11 ACQUISITIONS AND DISPOSITIONS During the past several years, Cox Radio has actively managed its portfolio of radio stations through selected acquisitions, dispositions and swaps, as well as the use of LMA's and JSA's. Specific transactions entered into or consummated by Cox Radio during the three months ended March 31, 1999, and through May 7, 1999, are discussed below. In January 1999, Cox Radio acquired the assets of radio station WSUN-FM (formerly WLVU-FM) serving the Tampa-St. Petersburg, Florida market in exchange for the assets of WSUN-AM in Tampa-St. Petersburg, Florida and approximately $17 million. Cox Radio had been operating WSUN-FM pursuant to an LMA since September 1998. In January 1999, Cox Radio entered into an agreement to acquire KRTQ-FM (formerly KTFX-FM) in Tulsa, Oklahoma for $3.5 million. Cox Radio also entered into a Station Investment Note Receivable with the seller for $0.9 million which is collateralized by substantially all the assets of the station. Cox Radio has been operating this station pursuant to an LMA since January 1999. Pending certain regulatory approvals, Cox Radio expects to consummate this acquisition in December 1999. On December 21, 1998 and March 1, 1999, Cox Radio purchased shares of common stock of USA Digital Radio, Inc., a developer of digital radio broadcasting technology, for a total purchase price of $2.5 million. Cox Radio accounts for this investment under the cost method. In May 1999, Cox Radio acquired radio stations WVEZ-FM, WSFR-FM and the option to purchase WMHX-FM serving the Louisville, Kentucky market and radio stations WFJO-FM, WHPT-FM and WDUV-FM (formerly WTBT-FM) serving the Tampa-St. Petersburg, Florida market in exchange for the Company's radio stations WYYY-FM, WBBS-FM, WWHT-FM, WHEN-AM and WSYR-AM serving the Syracuse, New York market, plus additional cash consideration of approximately $94 million. In connection with obtaining regulatory approvals for these transactions, Cox Radio has agreed to divest ownership of WRVI-FM and WLSY-FM serving the Louisville, Kentucky market. Such stations have been transferred to a trust for the benefit of Cox Radio pending sale to a third party. In May 1999, Cox Radio entered into an agreement to acquire WNGC-FM, licensed to Athens, Georgia for approximately $78 million. Pending regulatory approvals, Cox Radio expects to consummate this acquisition in the second half of 1999. RESULTS OF OPERATIONS Three months ended March 31, 1999 compared to three months ended March 31, 1998 Net Revenues. Net revenues for the first quarter of 1999 increased $8.3 million to $60.4 million, a 16% increase over the first quarter of 1998. This increase was primarily as a result of the acquisition of radio stations in Long Island, New York, in addition to substantial increases in net revenues at the stations in Orlando, Atlanta and Miami, which were realized as a result of continued strong ratings performance. Station Operating Expenses. Station operating expenses increased $5.2 million to $40.7 million, an increase of 14.6% over the first quarter of 1998. The increase was primarily attributable to the acquisition of stations in Long Island, New York, and also due to higher programming and sales related costs which are driven by ratings and revenues, respectively. Broadcast Cash Flow. Broadcast cash flow increased $3.1 million to $19.7 million, an 18.9% increase over the first quarter of 1998 for the reasons discussed above. 11 12 Corporate general and administrative expenses. Corporate general and administrative expenses increased $0.3 million to $2.2 million primarily due to higher overhead costs incurred as a result of the increase in number of stations owned and/or operated in 1999. Operating Income. Operating income for the first quarter of 1999 increased $1.8 million to $11.2 million, an increase of 19.6% over the first quarter of 1998 for the reasons discussed above. Interest expense. Interest expense during the first quarter of 1999 totaled $4.4 million as compared to first quarter 1998 of $3.8 million as a result of borrowings incurred to complete Cox Radio's acquisitions during 1998 and the first quarter of 1999. Net Income. Net income increased $1.0 million to $3.8 million for the first quarter of 1999 for the reasons discussed above. LIQUIDITY AND CAPITAL RESOURCES Cox Radio's primary source of liquidity is cash provided by operations. Historically, cash requirements have been funded by Cox Radio's operating activities and through borrowings under Cox Radio's bank credit facility described below. For the three months ended March 31, 1999 as compared to the three months ended March 31, 1998, cash from operations increased $8.1 million to $22.2 million, primarily attributable to an increase in non-cash charges for depreciation and amortization and the net change in working capital accounts. In addition, cash requirements historically have been funded on a temporary basis through intercompany advances from Cox Enterprises under a revolving credit facility with Cox Enterprises. Borrowings, if any, by Cox Radio under the Cox Enterprises credit facility would typically be repaid by Cox Radio within 30 days. Borrowings, if any, under the Cox Enterprises credit facility would accrue interest at Cox Enterprises' commercial paper rate plus .40%. Cox Enterprises continues to perform day-to-day cash management services for Cox Radio. On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior, unsecured revolving bank credit facility. The interest rate is based on the London Interbank Offered Rate plus a spread determined by certain leverage ratios. This facility also includes a commitment fee on the unused portion of the total amount available of .1% to .25% based on certain leverage ratios. At March 31, 1999, Cox Radio had $100 million of outstanding indebtedness under the bank credit facility and had $200 million available under the bank credit facility. The interest rate applied to amounts due under the bank credit facility was 5.29% at March 31, 1999. On May 26, 1998, Cox Radio issued and sold an aggregate of $200 million principal amount of notes in an offering exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 144A thereunder. Pursuant to the Registration Rights Agreement dated as of May 26, 1998 among Cox Radio, its wholly owned subsidiaries WSB, Inc. and WHIO, Inc. (each a guarantor of the notes), NationsBanc Montgomery Securities LLC, Chase Securities, Inc., and J.P. Morgan Securities, Inc., on December 14, 1998, Cox Radio consummated an exchange offer pursuant to which Cox Radio exchanged $200 million principal amount of the notes originally sold on May 26, 1998, for an aggregate of $200 million principal amount of notes (the terms and form of which are the same in all material respects as the original notes, except as to restrictions on transfer) which have been registered under the Securities Act of 1933. As a result of the mergers of WSB, Inc. and WHIO, Inc. into Cox Radio, WSB, Inc. and WHIO, Inc. are no longer guarantors of the notes. As a result of the transfer of certain Federal Communications Commission licenses, permits and authorizations held by Cox Radio to CXR Holdings, a wholly-owned subsidiary of Cox Radio, CXR Holdings became a guarantor of the notes on February 1, 1999. Cox Radio has entered into interest rate swap agreements with certain lenders providing bank financing under the bank credit facility. Pursuant to the interest rate swap agreements, Cox Radio has exchanged its floating rate interest obligations on an aggregate of $100 million in principal at an average fixed rate of 6.23% per annum for an average maturity of 6.25 years. The fixing of interest rates for this 12 13 period reduces Cox Radio's exposure to the uncertainty of floating interest rates. The differential paid or received on the interest rate swap agreements are recognized as an adjustment to interest expense. The counterparties to these interest rate swap agreements are a diverse group of major financial institutions. Cox Radio is exposed to credit loss in the event of nonperformance by these counterparties. However, Cox Radio does not anticipate nonperformance by the other parties, and no material loss would be expected from their nonperformance. The fair value of the interest rate swap agreements was not recognized in the consolidated financial statements since they are accounted for as hedges. At March 31, 1999, the estimated fair value of the interest rate swap agreements, based on current market rates, approximated a net payable of $2.6 million. Future cash requirements are expected to include capital expenditures, principal and interest payments on indebtedness and funds for acquisitions. Cox Radio expects its operations to generate sufficient cash to meet its capital expenditures and debt service requirements. Additional cash requirements, including funds for pending or other acquisitions, will be funded from various sources, including the proceeds from bank financing and, if or when appropriate, other issuances of Company securities. OTHER MATTERS IMPACT OF THE YEAR 2000 ISSUE AND YEAR 2000 READINESS DISCLOSURE Cox Radio recognizes the importance of the Year 2000 issue and is proactively managing an appropriate transition into the year 2000. The Year 2000 issue is the result of computer programs and embedded computer microprocessors being unable to distinguish between the year 1900 and the year 2000, or misinterpreting the date field. Any of Cox Radio's systems that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. A system or application is deemed Year 2000 compliant when it continues to produce understandable, accurate and predictable results which conform to the original functional specifications, regardless of the millennium change. STATE OF READINESS Cox Radio has implemented a project team utilizing both internal and external resources, including those of majority shareholder, Cox Broadcasting, to develop its Year 2000 initiative, which may, as necessary, involve upgrading or replacing affected computer systems, software and equipment with embedded chips, and preparing contingency and disaster recovery plans. Cox Radio has substantially completed an inventory of current systems and operations to identify any information technology and non-information technology systems (including equipment with embedded chips) that do not properly recognize dates after December 31, 1999. The project team has developed a plan to assess, remediate, test, and, sufficiently in advance of the Year 2000, ascertain that the systems of Cox Radio that are critical to its operations will properly recognize such dates. The plan includes on-site audits at each of Cox Radio's stations. As of March 31, 1999, the project team has substantially completed this audit process. Based on the results of the inventory, Cox Radio began in second quarter of 1998 to remediate noncompliant systems. Cox Radio anticipates that remediation will be complete by the end of third quarter 1999. Cox Radio uses Cox Enterprises' financial and human resources information systems, which are being tested by Cox Enterprises. Cox Radio has substantially completed a formal communication program with its significant vendors to determine the extent to which it is vulnerable to those third parties who fail to remediate their own Year 2000 non-compliance. Cox Radio is to a large degree dependent on vendor remediation and 13 14 testing of vendor systems. Cox Radio's two most significant vendors are Marketron, which provides Cox Radio's traffic and billing system for the majority of its stations, and ADP which provides payroll services. Cox Radio uses Marketron's Version 28 running on DOS 6.2, which Marketron has indicated is Year 2000 compliant; and ADP Version 2.5 running on Windows 95 for the majority of its stations, which ADP has indicated is Year 2000 compliant. Cox Radio is in the process of assessing and, as necessary, upgrading payroll systems using other ADP versions. Cox Radio has not performed its own tests on these systems, and no assurance can be given at this time that these systems are Year 2000 compliant. Cox Radio intends to test Version 28 during the second quarter of 1999. Cox Enterprises has successfully completed testing of ADP Version 2.5 and concluded that Version 2.5 appears to be Year 2000 compliant. COSTS As of March 31, 1999, costs of approximately $300,000 have been incurred related to Cox Radio's Year 2000 initiative. Cox Radio will incur capital expenditures and internal staff costs as well as additional outside consulting and other expenditures related to this initiative. Cox Radio expects these costs will not exceed approximately $1.5 million, based on currently available information. Total incremental expenses (including depreciation and amortization) of bringing current systems into compliance, writing off existing non-compliant systems, and capital replacements have not had a material impact on Cox Radio's financial condition to date and are not at present, based on known facts, expected to have a material impact on Cox Radio's financial condition. All costs of the Year 2000 initiative will be funded by Cox Radio's cash flow from operations. RISKS AND MOST REASONABLY LIKELY WORST CASE SCENARIO If systems critical to Cox Radio's operations are not Year 2000 compliant, the most reasonably likely worst case scenario would include service interruptions resulting from failure in electrical power and satellite feeds providing news, weather and syndicated shows for broadcast and failure of equipment with embedded chips including master clocks, studio equipment, transmission equipment and telephone, security and environmental control systems. Based on the information currently available, Cox Radio is not aware of any likely Year 2000 non-compliance by Cox Radio or its vendors or customers that will materially affect its business operations; however, Cox Radio does not control the systems of other companies, and cannot assure that such systems will be timely converted and, if not converted, would not have an adverse effect on Cox Radio's business operations. Furthermore, no assurance can be given at this time that any or all of Cox Radio's systems are or will be Year 2000 compliant, or that the ultimate costs required to address the Year 2000 issue or the impact of any failure to achieve substantial Year 2000 compliance by Cox Radio, its vendors or customers will not have a material adverse effect on Cox Radio's financial condition. Like most other businesses, Cox Radio is dependent on general service outside vendors including providers of electrical power, telephony, water, fuel for vehicles and other necessary commodities. Cox Radio also relies upon the interstate banking system and related electronic communications for such functions as transmitting financial data from field locations to the home office and sweeping cash into lockboxes. Cox Radio is currently not aware of any material non-compliance by these providers that will materially affect its business operations; however, Cox Radio does not control these systems and cannot assure that they will be converted in a timely fashion and, if not converted, would not have an adverse effect on its business operations. CONTINGENCY PLANS The Year 2000 project team is working with each station to expand and modify existing emergency contingency plans to encompass potential Year 2000 exposures, including increased risk of loss of electrical power, and satellite failures resulting in need for alternate delivery system for programming, potential multiple systems failures and other relevant issues. It is anticipated that contingency plans will be in place for each station by third quarter 1999. 14 15 If the modifications and conversions required to make Cox Radio Year 2000 ready are not made or are not completed on a timely basis, the resulting problems could have a material impact on the operations of Cox Radio. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Cox Radio has entered into interest rate swap agreements with certain lenders providing bank financing under the bank credit facility. Pursuant to the interest rate swap agreements, Cox Radio has exchanged its floating rate interest obligations on an aggregate of $100 million in principal at an average fixed rate of 6.23% per annum for an average maturity of 6.25 years. The fixing of interest rates for this period reduces Cox Radio's exposure to the uncertainty of floating interest rates. The differential paid or received on the interest rate swap agreements are recognized as an adjustment to interest expense. The counterparties to these interest rate swap agreements are a diverse group of major financial institutions. Cox Radio is exposed to credit loss in the event of nonperformance by these counterparties. However, Cox Radio does not anticipate nonperformance by the other parties, and no material loss would be expected from their nonperformance. The fair value of the interest rate swap agreements was not recognized in the consolidated financial statements since they are accounted for as hedges. At March 31, 1999, the estimated fair value of the interest rate swap agreements, based on current market rates, approximated a net payable of $2.6 million. 15 16 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Listed below are the exhibits which are filed as part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
EXHIBIT NUMBER DESCRIPTION ------ --------------------------------------- (1) 2.1 -- Agreement and Plan of Merger, dated as of July 1, 1996, by and among Cox Radio, Inc., New Cox Radio II, Inc., NewCity Communications, Inc. and certain stockholders of NewCity Communications, Inc. (2) (1) 2.2 -- Guaranty by Cox Broadcasting, Inc., dated as of July 1, 1996, in favor of NewCity Communications, Inc. (1) 3.1 -- Amended and Restated Certificate of Incorporation of Cox Radio, Inc. (1) 3.2 -- Amended and Restated Bylaws of Cox Radio, Inc. (3) (3) 4.1 -- Indenture dated as of May 26, 1998 between Cox Radio, Inc., The Bank of New York, WSB, Inc., and WHIO, Inc. 4.2 -- First Supplemental Indenture dated as of February 1, 1999 by and between Cox Radio, Inc., CXR Holdings, Inc., and the Bank of New York (4) 4.3 -- Registration Rights Agreement dated May 26, 1998 among Cox Radio, Inc., WSB, Inc., WHIO, Inc., and Nationsbanc Montgomery Securities, LLC, Chase Securities, Inc., and J.P. Morgan Securities, Inc. (5) 4.4 -- Specimen of Class A Common Stock Certificate. (6)10.1 -- Credit Agreement, dated as of March 7, 1997, by and among Cox Rdio, Inc., Texas Commerce Bank National Association, Nationsbank of Texas, N.A. and Citibank, N.A., individually and as agents, and the other banks signatory thereto (2) (1) 10.2 -- New CEI Credit Facility. (1) 10.3 -- Cox Radio, Inc. Long-Term Incentive Plan. (1) 10.4 -- Cox Radio, Inc. Employee Stock Purchase Plan. (1) 10.5 -- Cox Radio, Inc. Restricted Stock Plan for Non-Employee Directors (1) 10.6 -- Tax Allocation and Indemnification Agreement, dated as of September 30, 1996, by and between Cox Enterprises, Inc. and Cox Radio, Inc. 27.1 -- Financial Data Schedule (for SEC use only)
---------- (1) Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737). (2) Schedules and Exhibits intentionally omitted. (3) Incorporated by reference to Exhibit 4.1 of Cox Radio's Registration Statement on Form S-4 (Commission File No. 333-61179). (4) Incorporated by reference to Exhibit 4.2 of Cox Radio's Registration Statement on Form S-4 (Commission File No. 333-61179). (5) Incorporated by reference to Exhibit 4.3 of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737). (6) Incorporated by reference to Cox Radio's Annual Report on Form 10-K for the period ending December 31, 1996 (Commission File No. 1-12187). 16 17 (b) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter for which this report is filed. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COX RADIO, INC. May 12, 1999 /s/ Maritza C. Pichon ------------------------------------- Maritza C. Pichon Chief Financial Officer (Principal Financial Officer and duly authorized officer) 18 EX-4.2 2 FIRST SUPPLEMENTAL INDENTURE 1 ================================================================================ COX RADIO, INC., as Issuer, CXR HOLDINGS, INC., as Subsequent Guarantor, and THE BANK OF NEW YORK, as Trustee ----------------- FIRST SUPPLEMENTAL INDENTURE Dated as of February 1, 1999 TO INDENTURE, Dated as of May 26, 1998 Debt Securities ----------------- 2 FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE, dated as of February 1, 1999, by and among COX RADIO, INC., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), CXR HOLDINGS, INC., a corporation duly organized and existing under the laws of the State of Nevada (the "Subsequent Guarantor"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (hereinafter called the "Trustee"). Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Indenture (as defined below). WITNESSETH: WHEREAS, the Company and the Trustee are parties to that certain Indenture, dated as of May 26, 1998 (the "Indenture"), relating to $100,000,000 principal amount of the Company's 6.250% Notes due 2003 and $100,000,000 principal amount of the Company's 6.375% Notes due 2005; and WHEREAS, the Subsequent Guarantor was incorporated as a Nevada corporation on September 11, 1998 and, as of the date hereof, the Subsequent Guarantor is a wholly-owned Restricted Subsidiary of the Company; and WHEREAS, in connection with the Company's Credit Agreement, the Subsequent Guarantor entered into a guarantee of the indebtedness under the Company's Credit Agreement on February 1, 1999; and WHEREAS, in accordance with Section 10.12 of the Indenture, the Company is required to cause the Subsequent Guarantor, for so long as the Subsequent Guarantor is obligated to guarantee the Company's indebtedness pursuant to the Credit Agreement, to fully and unconditionally guarantee the Securities by executing and delivering to the Trustee this First Supplemental Indenture; and WHEREAS, Section 9.1(12) of the Indenture provides that the Trustee may amend or supplement the Indenture or the Securities without the consent of the Holders that does not adversely affect the interests of the Holders of any Outstanding Securities; and WHEREAS, the Company, the Subsequent Guarantor and the Trustee desire to enter into, execute and deliver this First Supplemental Indenture in compliance with the foregoing provisions of the Indenture; and WHEREAS, all things prescribed by law and by the terms of the Indenture necessary to make this First Supplemental Indenture, when duly executed and delivered by the Company, the Subsequent Guarantor and the Trustee a valid and binding instrument, enforceable in accordance with its terms, and otherwise to effectuate the amendment of the Indenture, have been done and performed, and the execution and delivery of this First Supplemental Indenture have been in all respects duly authorized; -2- 3 NOW, THEREFORE, in consideration of the above premises, the Company, the Subsequent Guarantor and the Trustee covenant and agree as follows: ARTICLE ONE Supplemental Indenture Section 1.01. This First Supplemental Indenture is a supplement to the Indenture and does and shall be deemed to form a part of, and shall be construed in connection with and as a part of, the Indenture for any and all purposes, including but not limited to satisfaction and discharge of the Indenture as provided in Article 4 of the Indenture. Section 1.02. This First Supplemental Indenture shall become effective immediately upon execution and delivery by each of the Company, the Subsequent Guarantor and the Trustee. ARTICLE TWO Subsequent Guarantee Section 2.01. Subject to section 16.1 of the Indenture, for so long as the Subsequent Guarantor is obligated to guarantee the Company's indebtedness pursuant to the Credit Agreement, the Subsequent Guarantor hereby fully and unconditionally guarantees the due and punctual payment of the principal of, interest on and any other amounts payable under the Securities, when and if the same shall become due and payable, whether at the Stated Maturity, by declaration of acceleration, upon redemption, repurchase or repayment or otherwise. The Subsequent Guarantor hereby further agrees to be bound by all other provisions of the Indenture that are applicable to a "Subsequent Guarantor" and the guarantee of the Subsequent Guarantor set forth in this First Supplemental Indenture shall be subject to release upon the terms set forth in the Indenture. Section 2.02. The Company hereby expressly ratifies, adopts, renews, confirms and continues in full force and effect, without limitation, except as hereby amended, each and every covenant, agreement, condition and provision contained in the Indenture. Section 2.03. The Company and the Subsequent Guarantor covenant that the recitals of fact and statements contained in this First Supplemental Indenture are true and that, upon the execution and delivery of this First Supplemental Indenture, the Company is not in default in any respect under any of the provisions of the Indenture or of the Securities. -3- 4 ARTICLE THREE Additional Provisions Section 3.01. Except to the extent supplemented by Article Two of this First Supplemental Indenture, the Indenture remains in full force and effect in accordance with its terms. It shall not be necessary in connection with any future reference to the Indenture to also make reference to this First Supplemental Indenture. Section 3.02. The cover page of this First Supplemental Indenture and all article and description headings are inserted for convenience of reference only and are not to be taken to be any part of this First Supplemental Indenture or to control or affect the meaning, construction or effect of the same. Section 3.03. The laws of the State of New York shall govern this First Supplemental Indenture without regard to principles of conflicts of law. Section 3.04. This First Supplemental Indenture shall be simultaneously executed in several counterparts, and all such counterparts executed and delivered each as an original shall constitute but one and the same instrument. [SIGNATURE PAGE FOLLOWS] -4- 5 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the date first written above. COX RADIO, INC. By: /s/ Robert F. Neil -------------------- Name: Robert F. Neil Title: President CXR HOLDINGS, INC. By: /s/ Robert F. Neil -------------------- Name: Robert F. Neil Title: President THE BANK OF NEW YORK, as Trustee By: /s/ Marie Trimboli -------------------- Authorized Signatory -5- EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 5,854 0 52,391 2,724 0 60,230 92,338 (40,184) 761,796 33,558 300,252 0 0 28,599 289,111 761,796 0 60,373 0 40,669 8,544 0 (4,380) 6,711 2,887 0 0 0 0 3,824 0.13 0.13
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