-----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, Foq8+33JCHSRV1LbEOzln/d5+lEQRIByUWJHSDypyKzPEfvXTUID8pwA4LGUnp66 LbLfz70ZLyrhv1nS5zvUEQ== 0000950144-00-003224.txt : 20000316 0000950144-00-003224.hdr.sgml : 20000316 ACCESSION NUMBER: 0000950144-00-003224 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000315 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: 570529 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, 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. LOGO) (Exact name of Registrant as specified in its charter) DELAWARE 58-1620022 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization) 1400 LAKE HEARN DRIVE, ATLANTA, GEORGIA 30319 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 843-5000 --------------------- 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 29, 2000, the aggregate market value of the Class A common stock held by non-affiliates of the registrant was $738,079,040 based on the closing price on the New York Stock Exchange on such date. There were 9,342,074 shares of Class A common stock outstanding as of February 29, 2000. There were 19,577,672 shares of Class B common stock outstanding as of February 29, 2000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1999 Annual Report to Stockholders and the Proxy Statement for the 2000 Annual Meeting of Stockholders are incorporated by reference into Part II and Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 COX RADIO, INC. 1999 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 22 Item 3. Legal Proceedings........................................... 23 Item 4. Submission of Matters to a Vote of Security Holders......... 23 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 24 Item 6. Selected Consolidated Financial Data........................ 24 Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations................................... 25 Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 31 Item 8. Financial Statements and Supplementary Data................. 32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 55 PART III Item 10. Directors and Executive Officers............................ 55 Item 11. Executive Compensation...................................... 55 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 55 Item 13. Certain Relationships and Related Transactions.............. 55 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 55 Signatures.............................................................. 57
i 3 PART I ITEM 1. BUSINESS Cox Radio, Inc. is the fourth largest radio broadcasting company in the United States, based on net revenues. Cox Radio, upon completion of all pending transactions, will own or operate, or provide sales and marketing services for, 83 radio stations (63 FM and 20 AM) clustered in 17 markets. Cox Radio is an indirect majority-owned subsidiary of Cox Enterprises, Inc. Cox Enterprises indirectly owns approximately 68% of Cox Radio's common stock and has approximately 95% of the voting power of Cox Radio. Cox Radio has two classes of common stock outstanding, Class A common stock, par value $1.00 per share, and Class B common stock, par value $1.00 per share. Cox Enterprises' wholly-owned subsidiary, Cox Broadcasting, Inc., owns 100% of Cox Radio's outstanding Class B common stock. Cox Enterprises, a privately-held corporation headquartered in Atlanta, Georgia, is one of the largest media companies in the United States, with consolidated 1999 revenues of approximately $6.1 billion. Cox Radio operated as part of Cox Enterprises prior to Cox Radio's initial public offering in September 1996 when Cox Enterprises transferred all of its U.S. radio operations to Cox Radio. Cox Radio, as part of Cox Enterprises, was a pioneer in radio broadcasting, building its first station in 1934, acquiring its flagship station, WSB-AM (Atlanta), in 1939 and launching its first FM station, WSB-FM (Atlanta), in 1948. Cox Radio seeks to maximize the revenues and broadcast cash flow of its radio stations by operating and developing clusters of stations in demographically attractive and rapidly growing markets, including Atlanta and other Sunbelt markets such as Miami, Tampa, Orlando, Jacksonville, San Antonio and Birmingham. During the past five years, the 17 markets in which Cox Radio's stations operate have demonstrated, on an aggregate basis, radio advertising revenue growth of 24.9%, which is greater than the compounded annual growth rate for the U.S. radio industry as a whole of 11.4% and was calculated using revenue projections obtained from the Radio Advertising Bureau. Cox Radio's April 1997 acquisition of NewCity Communications, Inc. enhanced the clustering of Cox Radio's radio stations by increasing the total number of markets in which Cox Radio owns and/or operates stations to 12 and by strengthening its penetration in those markets. The NewCity Communications acquisition created a platform for additional strategic acquisitions that further clustered radio stations in Cox Radio's markets. In 1998, Cox Radio added an operating market when it acquired four radio stations in Long Island, New York. In May 1999, Cox Radio swapped its stations serving the Syracuse, New York market for additional stations serving the Tampa-St. Petersburg, Florida and Louisville, Kentucky markets. In October 1999, Cox Radio entered into an agreement to exchange two stations serving the Los Angeles market for additional stations serving the southern Connecticut, Atlanta, and Miami markets, as well as six radio stations in a new market, Jacksonville, Florida. In November 1999, Cox Radio added another operating market when it acquired four radio stations in Honolulu, Hawaii. In March 2000, Cox Radio added two new operating markets when it entered into an agreement to acquire three radio stations in Houston, Texas, and four radio stations in Richmond, Virginia. Pending the consummation of all announced transactions, Cox Radio will own and/or operate stations in a total of 17 markets. Cox Radio operates three or more stations in 15 of its 17 markets. As a result of Cox Radio's management, programming and sales efforts, its radio stations are characterized by strong ratings and above average power ratios (defined as revenue share in a particular market divided by audience share in such market). Cox Radio's stations are diversified in terms of format, target audience, geographic location and stage of development. Cox Radio has a track record of acquiring, repositioning and improving the operating performance of previously under-performing stations. Management believes that a number of Cox Radio's stations have significant growth opportunities or turnaround potential and, therefore, can be characterized as start-up or developing stations. Generally, Cox Radio considers start-up or developing stations to include those stations that have been recently acquired and offer the greatest potential for growth. Currently, Cox Radio considers 48 of its stations to be start-up or developing stations. Cox Radio believes these stations can 4 achieve significant broadcast cash flow growth by employing its operating strategy. Management believes that its mix of stations in different stages of development enables Cox Radio to maximize its growth potential. Cox Radio's senior operating management is comprised of five individuals with an average of over 26 years of experience in the radio broadcasting industry, including an average of over 9 years with Cox Radio. Cox Radio believes that this experienced senior management team is well positioned to manage larger radio station clusters, as well as new radio station clusters, and take advantage of new opportunities arising in the U.S. radio broadcasting industry. During 1998, Cox Radio began syndicating radio broadcast programming, including the stock market investment advice show The Motley Fool, consumer advocate Clark Howard, and Neal Boortz's political and issue talk show. Cox Radio also entered into an Advertising Sales and Affiliate Marketing Agreement with Media America, Inc. Cox Radio is exploring offering other syndication products in the future. ACQUISITIONS AND DISPOSITIONS During the past several years, Cox Radio has actively managed its portfolio of radio stations through selected acquisitions, dispositions and exchanges, as well as through the use of local marketing agreements, or LMAs, and joint sales agreements, or JSAs. Under an LMA or a JSA, the company operating a station provides programming or sales and marketing or a combination of such services. The broadcast revenues and operating expenses of stations operated by Cox Radio under LMAs and JSAs have been included in Cox Radio's operations since the respective dates of such agreements. All consummated and pending acquisitions discussed below have been or will be accounted for using the purchase method. As such, the results of operations of the acquired stations have been or will be included in the results of operations from the date of acquisition. Specific transactions entered into by Cox Radio during the past three years are discussed below. In March 1997, Cox Radio exchanged WCKG-FM and WYSY-FM in Chicago, Illinois for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando, Florida. This transaction resulted in a pre-tax gain of approximately $49 million. In addition to receiving the three Orlando stations, Cox Radio also received cash proceeds of approximately $20 million. Prior to the NewCity Communications acquisition, the Orlando stations were operated by NewCity Communications since July 1996 under an LMA. In March 1997, Cox Radio acquired WSUN-AM (formerly WFNS-AM) serving the Tampa-St. Petersburg, Florida market for an aggregate consideration of $1.5 million. Cox Radio had been operating this station pursuant to an LMA or a JSA since June 1995. In April 1997, Cox Radio completed its acquisition of the license and certain assets of KRTO-FM in Los Angeles for $19 million in cash. In April 1997, Cox Radio acquired all of the issued and outstanding capital stock of NewCity Communications, through the merger of its wholly owned subsidiary, New Cox Radio II, Inc., with and into NewCity Communications, with NewCity Communications surviving as a wholly owned subsidiary of Cox Radio. Cox Radio purchased the stock of NewCity Communications for an aggregate consideration of approximately $253 million, including approximately $87 million in assumption of NewCity Communications' indebtedness and approximately $3 million in working capital adjustments. To consummate the NewCity Communications acquisition, Cox Radio utilized approximately $56 million of amounts due from Cox Enterprises and borrowed approximately $110 million pursuant to Cox Radio's $300 million, five-year, senior, unsecured revolving credit facility with certain banks, including Texas Commerce Bank National Association, as Administrative Agent. On April 2, 1997, NewCity Communications was merged with and into Cox Radio, with Cox Radio as the surviving corporation. NewCity Communications' subsidiaries were subsequently consolidated into Cox Radio. In October 1997, Cox Radio disposed of the assets of American Comedy Network, a former subsidiary of NewCity Communications, for aggregate proceeds of approximately $1.1 million including certain non-compete agreements. 2 5 In May 1997, Cox Radio agreed to acquire WENN-FM and WAGG-AM, later renamed WRJS-AM, in Birmingham, Alabama, for consideration of $15 million. In July 1997, Cox Radio assigned its right to purchase WENN-FM for consideration of $14.5 million to a third party. Cox Radio consummated both the acquisition of WAGG-AM and the disposition of its interest in WENN-FM during November 1997. In September 1997, Cox Radio acquired KISS-FM, KSMG-FM and KLUP-AM in San Antonio, Texas for an aggregate consideration of $30.4 million plus certain non-compete agreements. In January 1998, Cox Radio entered into an agreement to assign to an unrelated third party its option to purchase KRIO-FM serving the San Antonio, Texas market for an aggregate consideration of $0.3 million. This disposition was consummated in May 1998. In March 1998, Cox Radio acquired KONO-FM and KONO-AM in San Antonio, Texas for consideration of $23 million. In May 1998, Cox Radio acquired the assets of radio stations WBLI-FM, WBAB-FM, WHFM-FM and WGBB-AM, serving the Nassau-Suffolk (Long Island), New York market, for consideration of $48 million. In October 1998, Cox Radio consummated the acquisition of radio stations WCLR-FM, WZLR-FM and WPTW-AM serving the Dayton, Ohio market for consideration of approximately $6.3 million. Cox Radio had been operating these stations pursuant to an LMA since December 1997. In November 1998, Cox Radio consummated the acquisition of radio stations WBHJ-FM and WBHK-FM in Birmingham, Alabama for an aggregate consideration of $17 million. Cox Radio had been operating these stations pursuant to an LMA since August 1997. In 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. Prior to the acquisition, Cox Radio had been operating WSUN-FM pursuant to an LMA since September 1998. In May 1999, Cox Radio acquired radio stations WVEZ-FM and WSFR-FM and an 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 Cox Radio'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, resulting in a pre-tax gain of approximately $39.2 million. In connection with obtaining regulatory approvals for this transaction, Cox Radio agreed to divest ownership of WRVI-FM and WLSY-FM serving the Louisville, Kentucky market. In May 1999, such stations were transferred to a trust for the benefit of Cox Radio pending sale to a third party. In June 1999, Cox Radio disposed of the assets of WPTW-AM in Dayton, Ohio for consideration of $0.1 million. In August 1999, Cox Radio consummated its acquisition of WRLR-FM (formerly WEDA-FM) in Homewood, Alabama serving the Birmingham, Alabama market for a purchase price of approximately $5.5 million and the assumption of debt of approximately $0.2 million. Prior to the acquisition, Cox Radio had been operating this station under an LMA since November 1998. In August 1999, Cox Radio acquired WPYO-FM (formerly WTLN-FM) serving the Orlando, Florida market for consideration of $14.5 million. Cox Radio had been operating the station pursuant to an LMA since January 1999. In a related transaction, Cox Radio disposed of the assets of WTLN-AM, also serving the Orlando, Florida market, for consideration of $0.5 million. In August 1999, Cox Radio agreed to acquire WEDR-FM in Miami, Florida; WFOX-FM in Atlanta, Georgia; WFYV-FM, WAPE-FM, WBWL-AM, WKQL-FM, WMXQ-FM and WOKV-AM in Jacksonville, Florida; WEFX-FM, WNLK-AM, WKHL-FM and WSTC-AM in Stamford/Norwalk, Connecticut; and WPLR-FM and local sales rights at WYBC-FM in New Haven, Connecticut in exchange for 3 6 KFI-AM and KOST-FM in Los Angeles, California plus approximately $3 million. In October 1999, Cox Radio began operating the stations to be acquired (other than WYBC-FM) pursuant to an LMA and WYBC-FM pursuant to a JSA. Pending certain regulatory approvals, including obtaining a temporary waiver of the FCC's newspaper-radio cross-ownership rule for the acquisition of WFOX-FM in Atlanta, Cox Radio anticipates consummating this transaction in the first half of 2000. In September 1999, Cox Radio consummated the acquisition of WMHX-FM in Louisville, Kentucky for consideration of approximately $2 million. Cox Radio had been operating the station under a JSA or LMA since May 1999. In September 1999, Cox Radio disposed of the assets of WGBB-AM serving the Nassau-Suffolk (Long Island), New York market for consideration of $1.7 million. In September 1999, Cox Radio and its trust disposed of WRVI-FM and WLSY-FM serving the Louisville, Kentucky market for consideration of $5 million, resulting in a pre-tax gain of approximately $1.6 million. In September 1999, Cox Radio acquired WBTS-FM (formerly WNGC-FM) in Athens, Georgia for consideration of approximately $78 million. In November 1999, Cox Radio acquired KRTR-FM, KXME-FM, KGMZ-FM and KGMZ-AM in Honolulu, Hawaii for consideration of approximately $16.4 million. In January 2000, Cox Radio acquired the assets of KRTQ-FM (formerly KTFX-FM) in Tulsa, Oklahoma for consideration of $3.5 million. Cox Radio had been operating this station pursuant to an LMA since January 1999. In January 2000, Cox Radio disposed of the assets of KACE-FM and KRTO-FM serving the Los Angeles market for consideration of approximately $75 million. In January 2000, Cox Radio entered into an agreement to acquire the assets of KINE-FM, KCCN-FM and KCCN-AM in Honolulu, Hawaii for consideration of approximately $17.8 million. Cox Radio also entered into an agreement to sell KGMZ-FM serving the Honolulu, Hawaii market for approximately $6.6 million. In conjunction with the sale of KGMZ-FM, Cox Radio anticipates entering into a JSA whereby Cox Radio would manage the local, regional and national sales efforts for KGMZ-FM. Pending certain regulatory approvals, Cox Radio anticipates consummating these transactions in the first half of 2000. In March 2000, Cox Radio entered into an agreement to acquire the outstanding capital stock of Marlin Broadcasting, Inc., which owns radio stations WTMI-FM serving Miami, Florida, WCCC-FM and WCCC-AM serving Hartford, Connecticut, and WBOQ-FM serving Gloucester, Massachusetts, for approximately $125 million. As part of this transaction, Cox Radio will sell the assets of WCCC-FM, WCCC-AM and WBOQ-FM to certain principals of Marlin Broadcasting for approximately $25 million. Pending receipt of all necessary legal and regulatory approvals, Cox Radio anticipates closing these transactions during the second quarter of 2000. In March 2000, Cox Radio entered into an agreement to acquire the assets of radio stations KKBQ-FM, KLDE-FM and KKTL-FM serving the Houston, Texas market, and WKHK-FM, WMXB-FM, WKLR-FM and WTVR-AM serving Richmond, Virginia, for consideration of approximately $380 million. Pending receipt of all necessary legal and regulatory approvals, Cox Radio anticipates closing this transaction during the second half of 2000. 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. 4 7 The following table summarizes certain information relating to radio stations owned or operated by Cox Radio, assuming the consummation of all pending transactions:
AUDIENCE DEMOGRAPHIC GROUP SHARE IN RANK IN (ADULTS 25-54) TARGET TARGET TARGET ------------------------ MARKET (1) AND STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC AUDIENCE CALL LETTERS FORMAT GROUP GROUP GROUP SHARE RANK ---------------------- ----------------------- ----------- ----------- ----------- ----------------- ---- ATLANTA Adults WSB-AM News/Talk 35-64 10.8 1 7.9 3 WSB-FM Adult Contemporary Women 25-54 8.4 3 6.5 5 Adults WJZF-FM Jazz 25-54 2.8 14 2.8 14 Adults WBTS-FM Contemporary Hit Radio 18-34 --(5) --(5) --(5) --(5) Adults WFOX-FM (2)(3) Oldies 35-54 5.6 8 4.0 10 Adults WCNN-AM (2)(4) News/Talk 35-64 0.7 25 0.5 25 BIRMINGHAM Adults WZZK-FM Country 25-54 9.1 2 9.1 2 WRJS-AM (formerly Adults WEZN-AM) Gospel 25-54 --(5) --(5) --(5) --(5) Adults WODL-FM Oldies 25-54 6.1 7 6.1 7 Adults WBHJ-FM Contemporary Hit Urban 18-34 15.3 1 5.7 8 Adults WBHK-FM Urban Adult 25-54 10.0 1 10.0 1 Contemporary Adults WAGG-AM Gospel 25-54 3.6 9 3.6 9 WRLR-FM(6)(formerly Adults WEDA-FM) Active Rock 18-34 --(5) --(5) --(5) --(5) DAYTON Adults WHIO-AM News/Talk 35-54 3.6 9 3.1 10 Adults WHKO-FM Country 25-54 12.6 1 12.6 1 Adults WCLR-FM Oldies 25-54 2.8(7) 11(7) 2.8(7) 11(7) Adults WZLR-FM Oldies 25-54 -- -- -- -- HONOLULU Adults KRTR-FM Adult Contemporary 25-54 8.8 3 8.8 3 Adults KXME-FM Contemporary Hit Radio 18-34 10.3 3 4.0 10 Adults KGMZ-FM (8) Oldies 35-64 7.6(9) 5(9) 5.8(9) 5(9) Adults KGMZ-AM Oldies 35-64 -- -- -- -- Adults KINE-FM (3) Adult Contemporary 25-54 7.3 4 7.3 4 Adults KCCN-FM (3) Contemporary Hit Radio 18-34 16.3 1 11.2 2 Adults KCCN-AM (3) News/Talk/Sports 25-54 0.7 20 0.7 20 HOUSTON Adults KLDE-FM (3)(10) Oldies 25-54 4.5 8 4.5 8 Adults KKTL-FM (3) Alternative 25-54 0.1 45 0.1 45 Adults KKBQ-FM (3) Country 25-54 3.1 14 3.1 14 JACKSONVILLE WAPE-FM (2)(3) Contemporary Hit Radio Women 18-34 19.4 1 9.6 2 WFYV-FM (2)(3) Adult Oriented Rock Men 25-54 15.1 1 10.4 1 Adults WKQL-FM (2)(3) Oldies 35-54 8.6 3 6.8 6 WMXQ-FM (2)(3) Adult Contemporary Women 25-54 4.6 8 4.0 9 WBWL-AM (2)(3) Sports Talk Men 18-49 2.6 12 1.8 17 Adults WOKV-AM (2)(3) News/Talk 35-64 5.3 8 3.6 10 LONG ISLAND WBLI-FM Contemporary Hit Radio Women 25-54 7.3 2 5.1 4 WBAB-FM Adult Oriented Rock Men 25-54 6.6(11) 3(11) 5.3(11) 3(11) WHFM-FM Adult Oriented Rock Men 25-54 -- -- -- -- LOUISVILLE Adults WRKA-FM Oldies 25-54 6.0 6 6.0 6 Adults WVEZ-FM Adult Contemporary 25-54 9.0 2 9.0 2 Adults WSFR-FM Classic Rock 25-54 6.4 5 6.4 5 Adults WMHX-FM Hot Adult Contemporary 25-54 2.6 13 2.6 13
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AUDIENCE DEMOGRAPHIC GROUP SHARE IN RANK IN (ADULTS 25-54) TARGET TARGET TARGET ------------------------ MARKET (1) AND STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC AUDIENCE CALL LETTERS FORMAT GROUP GROUP GROUP SHARE RANK ---------------------- ----------------------- ----------- ----------- ----------- ----------------- ---- MIAMI Adults WFLC-FM Hot Adult Contemporary 25-54 4.1 9 4.1 9 Adults WHQT-FM Urban Adult 25-54 5.9 2 5.9 2 Contemporary Adults WEDR-FM (2)(3) Urban Adult 25-54 6.3 1 6.3 1 Contemporary Adults WTMI-FM (3) Classical 25-54 1.9 19 1.9 19 ORLANDO Adults WDBO-AM News/Talk 35-54 5.7 9 4.4 13 Adults WWKA-FM Country 25-54 6.7 4 6.7 4 Adults WCFB-FM Urban Adult 25-44 4.6 9 4.6 10 Contemporary WHOO-AM Standards Adults 45+ 5.3 6 0.5 26 WHTQ-FM Classic Rock Men 25-44 8.9 2 5.7 6 Adults WMMO-FM Rock Adult Contemporary 25-44 7.6 3 6.9 3 WPYO-FM (formerly Adults WTLN-FM) Contemporary Hit Radio 18-24 6.9 5 1.3 19 RICHMOND Adults WKHK-FM (3) Country 25-54 6.7 7 6.7 7 Adults WKLR-FM (3) Classic Rock 25-54 6.8 5 6.8 5 Adults WMXB-FM (3) Hot Adult Contemporary 25-54 7.0 4 7.0 4 Adults WTVR-AM (3) Nostalgia 25-54 0.4 24 0.4 24 SAN ANTONIO Adults KCYY-FM Country 25-54 5.0 8 5.0 8 Adults KKYX-AM Classic Country 35-64 1.6 19 1.0 19 Adults KCJZ-FM Rhythmic Oldies 35-44 --(5) --(5) --(5) --(5) Adults KISS-FM Adult Oriented Rock 18-49 9.2 3 6.5 3 Adults KSMG-FM Hot Adult Contemporary 25-54 5.8 7 5.8 7 Adults KLUP-AM Adult Standards 35-64 2.0 17 0.7 25 Adults KONO-FM Oldies 25-54 6.0(12) 6(12) 6.0(12) 6(12) Adults KONO-AM Oldies 25-54 -- -- -- -- SOUTHERN CONNECTICUT (13) Bridgeport/Fairfield County Adults WEZN-FM Adult Contemporary 25-54 14.3 1 14.3 1 New Haven Adults WPLR-FM (2)(3) Adult Oriented Rock 25-44 11.6 1 9.1 1 Adults WYBC-FM (8) Urban Adult 25-54 6.7 3 6.7 3 Contemporary Stamford-Norwalk Adults WEFX-FM (2)(3) Classic Rock 25-44 1.9 19 2.2 15 Adults WKHL-FM (2) (3) Oldies 25-54 3.5 9 3.5 9 Adults WNLK-AM (2) (3) News/Talk/Sports 25-54 0.4 36 0.4 36 Adults WSTC-AM (2) (3) News/Talk 25-54 0.9 27 0.9 27 TAMPA WWRM-FM Soft Adult Contemporary Women 35-54 7.5 1 4.7 7 WBBY-FM (formerly Adults WCOF-FM) Rock Adult Contemporary 25-44 --(5) --(5) --(5) --(5) WSUN-AM (formerly Adults WFNS-AM) 50's Oldies 35-64 0.3 39 0.2 37 WSUN-FM (formerly Adults WLVU-FM) Oldies 35-54 3.7 14 2.6 16 Adults WFJO-FM Rhythmic Oldies 25-44 4.2 11 4.0 13 WHPT-FM Classic Rock Men 25-54 --(5) --(5) --(5) --(5) WDUV-FM (formerly WTBT-FM) Easy Listening Adults 45+ 17.6 1 2.1 18
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AUDIENCE DEMOGRAPHIC GROUP SHARE IN RANK IN (ADULTS 25-54) TARGET TARGET TARGET ------------------------ MARKET (1) AND STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC AUDIENCE CALL LETTERS FORMAT GROUP GROUP GROUP SHARE RANK ---------------------- ----------------------- ----------- ----------- ----------- ----------------- ---- TULSA Adults KRMG-AM News/Talk 35-54 9.3 2 7.4 3 Adults KWEN-FM Country 25-54 8.6 2 8.6 2 Adults KJSR-FM Classic Rock 25-54 7.1 4 7.1 4 KRAV-FM Adult Contemporary Women 25-54 9.2 2 6.6 5 KGTO-AM Standards Adults 55+ 7.2 5 0.5 23 KRTQ-FM (formerly KTFX-FM) Active Rock Men 18-34 13.5 1 5.0 11
Source: Arbitron Market Reports four-book average for Winter 1999, Spring 1999, Summer 1999 and Fall 1999. - --------------- (1) Metropolitan market served; city of license may differ. (2) Station operated by Cox Radio pursuant to an LMA. (3) Station to be acquired by Cox Radio. (4) Local marketing agreement to terminate in April 2000. (5) The station format was changed in 1999; therefore, the station's audience share and audience rank information for 1999 are not applicable. (6) Station is operating pursuant to program test authority. An application for the station's initial license is pending before the Federal Communications Commission. (7) Audience share and audience rank information for WCLR-FM and WZLR-FM are combined because the stations are simulcast. (8) Station operated by Cox Radio under a JSA. (9) Audience share and audience rank information for KGMZ-FM and KGMZ-AM are combined because the stations are simulcast. (10) Station call letters are currently KTBZ-FM, but will be changed to KLDE-FM upon consummation of the acquisition. (11) Audience share and audience rank information for WBAB-FM and WHFM-FM are combined because the stations are simulcast (12) Audience share and audience rank information for KONO-FM and KONO-AM are combined because the stations are simulcast. (13) Audience share and rank data is based only on Arbitron Market Reports for Fall 1999 and Spring 1999 because Arbitron does not produce Summer and Winter Arbitron Market Reports for the Bridgeport/Fairfield County, Stamford-Norwalk, and New Haven markets. WSB, INC. AND WHIO, INC. MERGERS WHIO, Inc., a Delaware corporation, and WSB, Inc., a Delaware corporation, both of which were wholly-owned subsidiaries of Cox Radio, were merged with and into Cox Radio on November 1, 1998, and November 10, 1998, respectively. LICENSE DROP-DOWN On January 1, 1999, Cox Radio transferred the licenses, permits and authorizations it held from the Federal Communications Commission in respect of the radio stations it owns (other than in respect of the radio stations it owns in the states of California and Florida and WGBB-AM and WPTW-AM) to CXR Holdings, Inc., a Nevada corporation and wholly-owned subsidiary of Cox Radio. A majority of the Federal Communication Commission licenses, permits and authorizations for the radio stations owned by Cox Radio are held by CXR Holdings, Inc. OPERATING STRATEGY The following is a description of the key elements of Cox Radio's operating strategy: Clustering of Stations. Cox Radio operates its stations in clusters to: - Enhance net revenue growth by increasing the appeal of Cox Radio's stations to advertisers and enabling such stations to compete more effectively with other forms of advertising; and - Achieve operating efficiencies by consolidating broadcast facilities, eliminating duplicative positions in management and production and reducing overhead expenses. 7 10 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 clusters achieve significant audience share, they can deliver to advertisers the audience reach that historically only television and newspapers could offer, with the added benefit of frequent exposure to advertisers' target customers. Management believes that Cox Radio's clusters of stations, and their corresponding audience share, provide opportunities to capture an increased share of total advertising revenue in each of its markets. Development of Under-performing Stations. Cox Radio's management has demonstrated its ability to acquire under-performing radio stations and develop them into consistent ratings and revenue leaders. Cox Radio's historic margins reflect the acquisition and continued development of under-performing stations, as well as the fact that increases in net revenue are typically realized subsequent to increases in audience share. Management believes that a number of its stations have significant growth opportunities or turnaround potential and can therefore be characterized as start-up or developing stations. Implementation of Cox Radio's Management Philosophy. Cox Radio's local station operations are supported by a lean corporate staff which employs a management philosophy emphasizing: - Market research and targeted programming; - A customer-focused selling strategy; and - Marketing and promotional activities. Market Research and Targeted Programming. Cox Radio's research, programming and marketing strategy combines extensive research with an assessment of competitors' vulnerabilities and market dynamics in order to identify specific audience opportunities within each market. Cox Radio also retains consultants and research organizations to continually evaluate listener preferences. Using this information, Cox Radio tailors the programming, marketing and promotions of each station to maximize its appeal to its target audience. Cox Radio's disciplined application of market research enables each of its stations to be responsive to the changing preferences of its targeted listeners. This approach focuses on the needs of the listeners and their community and is designed to improve ratings and maximize the impact of advertising for Cox Radio's customers. Through its research, programming and marketing, Cox Radio also seeks to create a distinct and marketable local identity for each of its stations in order to enhance audience share and listener loyalty and to protect against direct format competition. To achieve this objective, Cox Radio employs and promotes distinct high-profile on-air personalities and local sports programming at many of its stations. For example, Cox Radio broadcasts "Dr. Laura" in Dayton, Jacksonville, Orlando and Tulsa; "Rush Limbaugh" in Dayton, Jacksonville, Orlando and Tulsa; "The Clark Howard Show" in Atlanta, Dayton, Jacksonville and Tulsa; "Neal Boortz" in Atlanta, Dayton, Jacksonville, and Tulsa; the Atlanta Braves in Atlanta; the Jacksonville Jaguars in Jacksonville; the Tampa Bay Devil Rays in Orlando; and the Orlando Magic in Orlando. Customer-Focused Selling Strategy. Cox Radio has implemented a unique, customer-focused approach to selling advertising known as the Consultative Selling System. Cox Radio's sales personnel are trained to approach each advertiser with a view towards solving the marketing needs of the customer. In this regard, the sales staff consults with customers, attempts to understand their business goals and offers comprehensive marketing solutions, including the use of radio advertising. Instead of merely selling station advertising time, Cox Radio's sales personnel are encouraged to develop innovative marketing strategies for the station's advertising customers. Marketing and Promotional Activities. Cox Radio's stations regularly engage in significant local promotional activities, including advertising on local television and in local print media, participating in telemarketing and direct mailings and sponsoring contests, concerts and events. Special events may include charitable athletic events, events centered around a major local occasion or local ethnic group and special community or family events. Cox Radio also engages in joint promotional activities with other media in its 8 11 markets to further leverage its promotional spending. These promotional efforts help Cox Radio's stations add new listeners and increase the amount of time spent listening to the stations. Strong Management Teams. In addition to relying upon its experienced senior operating management, Cox Radio places great importance on the hiring and development of strong local management teams and has been successful in retaining experienced management teams that have strong ties to their communities and customers. Cox Radio invests significant resources in identifying and training employees to create a talented team of managers at all levels of station operations. These resources include: - Gallup/SRI, which helps Cox Radio identify and select talented individuals for management and sales positions; - Center for Sales Strategy, an independent sales and management training company which trains and develops managers and sales executives; and - A program of leadership development conducted by Cox Radio's senior operating management and outside consultants. Local managers are empowered to run the day-to-day operations of their stations and to develop and implement policies that will improve station performance and establish long-term relationships with listeners and advertisers. The compensation of the senior operating management team and local station managers is dependent upon financial performance and linked to participation in Cox Radio's Long-Term Incentive Plan. See Note 11 to the Cox Radio's Consolidated Financial Statements included elsewhere herein. ACQUISITION STRATEGY During the last several years, Cox Radio has implemented its clustering strategy through the acquisition of radio stations in several of its existing markets as well as in new markets. Management believes that recent changes in federal regulations will allow Cox Radio to continue to pursue its acquisition strategy. The Telecommunications Act of 1996 removed the limit on the number of radio stations an operator may own nationwide and increased the number of radio stations an operator may own in a single market. As a result of this legislation, the competitive landscape in the radio broadcasting industry is changing. Management believes that larger, well-capitalized companies with experienced management, such as Cox Radio, are best positioned to take advantage of this changing environment. Management considers the following factors when making an acquisition: Market Selection Considerations Cox Radio's acquisition strategy has been focused on clustering stations in its existing markets and making opportunistic acquisitions in additional markets in which Cox Radio believes that it can cost-effectively achieve a leading position in terms of audience and revenue share. Management also believes that Cox Radio will have the financial resources and management expertise to continue to pursue its acquisition strategy. Certain future acquisitions may be limited by the multiple and cross-ownership rules of the Federal Communications Commission. See "-- Federal Regulation of Radio Broadcasting -- General Ownership Matters" and "-- Proposed Changes." Station Considerations Cox Radio expects to concentrate on acquiring radio stations that offer, through application of Cox Radio's operating philosophy, the potential for improvement in the stations' performance, particularly its broadcast cash flow. Such stations may be in various stages of development, presenting Cox Radio with an opportunity to apply its management techniques and to enhance asset value. In evaluating potential acquisitions, Cox Radio considers the strength of a station's broadcast signal. A powerful broadcast signal enhances delivery range and clarity, thereby influencing listener preference and loyalty. Cox Radio also 9 12 assesses the strategic fit of an acquisition with its existing clusters of radio stations. When entering a new market, Cox Radio expects to acquire a "platform" upon which to expand its portfolio of stations and to build a leading cluster of stations. Industry Overview The primary source of revenues for radio stations is generated from the sale of advertising time to local and national spot advertisers and national network advertisers. During the past decade, local advertising revenue as a percentage of total radio advertising revenue in a given market has ranged from approximately 75% to 80% according to the Radio Advertising Bureau. The growth in total radio advertising revenue tends to be fairly stable and has generally grown at a rate faster than the Gross National Product. With the exception of 1991, when total radio advertising revenue fell by approximately 2.8% compared to the prior year, advertising revenue has risen in each of the 15 years through 1999 (the most recent year for which this information is available), more rapidly than both inflation and the Gross National Product. Total domestic radio advertising revenue in 1999 of $17.7 billion, as reported by the Radio Advertising Bureau, was at its highest level in the industry's history. According to the Radio Advertising Bureau's Radio Marketing Guide and Fact Book for Advertisers, 1999, every week radio reaches approximately 95% of all Americans over the age of 12. More than one-half of all radio listening is done outside the home, in contrast to other advertising media, and radio reaches 81% of adults 18 and older in the car each week. The average listener spends approximately 21 hours and 30 minutes per week listening to radio. Most radio listening occurs during the morning and evening hours, and radio programming during these "drive times" reaches more than 61% of people over the age of 18 on a weekly basis. As a result, radio advertising sold during these period achieves premium advertising rates. Radio is considered an efficient, cost-effective means of reaching specifically identified demographic groups. Stations are typically classified by their on-air format, such as country, adult contemporary, oldies and news/talk. A station's format and style of presentation enables it to target certain demographics. By capturing a specific share of a market's radio listening audience, with particular concentration in a targeted demographic, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Advertisers and stations utilize data published by audience measuring services, such as Arbitron, to estimate how many people within particular geographical markets and demographics listen to specific stations. The number of advertisements that can be broadcast without jeopardizing listening levels (and the resulting ratings) is limited in part by the format of a particular station and the local competitive environment. Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. A station's local sales staff generates the majority of its local and regional advertising sales through direct solicitations of local advertising agencies and businesses. To generate national advertising sales, a station usually will engage a firm that specializes in soliciting radio advertising sales on a national level. National sales representatives obtain advertising principally from advertising agencies located outside the station's market and receive commissions based on the revenue from the advertising obtained. COMPETITION; CHANGES IN THE BROADCASTING INDUSTRY The radio broadcasting industry is a highly competitive business. The success of each of Cox Radio's stations depends largely upon its audience ratings and its share of the overall advertising revenue within its market. Cox Radio's stations compete for listeners directly with other radio stations in their respective markets primarily on the basis of program content that appeals to a target demographic group. By building a strong listener base consisting of a specific demographic in each of its markets, Cox Radio is able to attract advertisers seeking to reach those listeners. Cox Radio's stations compete for advertising revenue directly with other radio stations and with other electronic and print media within their respective markets. 10 13 Factors that are material to a station's competitive position include management experience, the station's audience share rank in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance, and the number and characteristics of other stations in the market area. Cox Radio attempts to improve its competitive position with promotional campaigns aimed at the demographics targeted by its stations and by sales efforts designed to attract advertisers. Recent changes in the law have increased the number of radio stations a broadcaster may own in a given market and permit, within limits, joint arrangements with other stations in a market relating to programming, advertising sales, and station operations. Management believes that radio stations that elect to take advantage of these opportunities may, in certain circumstances, have lower operating costs and may be able to offer advertisers more attractive rates and services. Although the radio broadcasting industry is highly competitive, some barriers to entry exist. The operation of a radio broadcast station requires a license from the Federal Communications Commission. The number of radio stations that a single entity may own and operate in a given market is limited by the availability of FM and AM radio frequencies allotted by the Federal Communications Commission to communities in that market, as well as by the Federal Communications Commission's multiple ownership rules. These rules regulate the number of stations that may be owned and controlled by a single entity. The Federal Communications Commission also uses competitive bidding procedures (auctions) to select among mutually exclusive applicants for new broadcast stations and major changes to existing stations. Cox Radio's stations compete for advertising revenue with other radio stations and with other electronic and print media. Potential advertisers can substitute advertising through broadcast television, cable television systems (which can offer concurrent exposure on a number of cable networks to enlarge the potential audience), daily, weekly, and free-distribution newspapers, other print media, direct mail, and on-line computer services for radio advertising. Competing media commonly target the customers of their competitors, and advertisers regularly shift dollars from radio to these competing media and vice versa. Accordingly, there can be no assurance that any of Cox Radio's stations will be able to maintain or increase their advertising revenue share. In addition, the radio broadcasting industry is subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems, by satellite digital audio radio service, and by digital audio broadcasting. Digital audio broadcasting and satellite digital audio radio service provide for the delivery by terrestrial or satellite means of multiple new audio programming formats with compact disc quality sound to local and national audiences, and the Federal Communications Commission is currently considering proposed rules to implement a digital audio broadcasting service. The delivery of information through the Internet also could create a new form of competition. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as broadcast television, cable television, audio tapes and compact discs. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry. Cox Radio cannot predict what other matters might be considered in the future by the Federal Communications Commission, nor can it assess in advance what impact, if any, the implementation of any Federal Communications Commission proposals or changes might have on its business. FEDERAL REGULATION OF RADIO BROADCASTING The ownership, operation and sale of radio stations, including those licensed to Cox Radio, are subject to the jurisdiction of the Federal Communications Commission, which acts under authority granted by the Communications Act of 1934, as amended. Among other things, the Federal Communications Commission assigns frequency bands for broadcasting, determines the particular frequencies, locations and operating power of stations, issues, renews and modifies station licenses, determines whether to approve changes in ownership or control of station licenses, regulates equipment used by stations, adopts and implements regulations and policies that directly or indirectly affect the ownership, operation, program content, 11 14 employment practices, and business of stations, and has the power to impose penalties, including license revocations, for violations of its rules or the Communications Act of 1934, as amended. The Telecommunications Act of 1996, which significantly amended the Communications Act of 1934, as amended, in numerous respects, dramatically changed the ground rules for competition and regulation in virtually all sectors of the telecommunications industry, including broadcasting, local and long-distance telephone services, cable television services and telecommunications equipment manufacturing. The following is a brief summary of certain provisions of the Communications Act of 1934, as amended by the Telecommunications Act of 1996, and of specific Federal Communications Commission rules and policies. Reference should be made to the Communications Act of 1934, as amended by the Telecommunications Act of 1996, Federal Communications Commission rules and public notices and rulings of the Federal Communications Commission for further information concerning the nature and extent of Federal Communications Commission regulation of broadcast stations. License Renewal Broadcast station licenses are subject to renewal upon application to the Federal Communications Commission. All radio station licenses have a term of eight years. The Federal Communications Commission will renew a broadcast license if it determines that the "public convenience, interest or necessity" will be served thereby. During a specified period after an application for renewal of a broadcast station license has been filed, persons objecting to the renewal may file petitions to deny the application. Competing applications for the license, however, will not be accepted unless the current licensee's renewal application is denied. Also, during the period when a renewal application is pending (generally four months prior to expiration of the license), the transferability of the applicant's license may be restricted. Historically, Cox Radio's management has not experienced any material difficulty in obtaining renewal from the Federal Communications Commission of any of the broadcast licenses for stations under its control. The following table sets forth selected information concerning each of the stations owned, or operated pursuant to an LMA or a JSA, by Cox Radio, including the date on which each such station's Federal Communications Commission license expires (a station may continue to operate beyond the expiration date if a timely-filed license renewal application is pending), assuming the consummation of all pending transactions:
EXPIRATION MARKET(1) AND STATION DATE OF HEIGHT ABOVE CALL LETTERS FREQUENCY LICENSE CLASS AVERAGE TERRAIN POWER --------------------- --------- ---------- ----- --------------- ----- ATLANTA WSB-AM 750 KHz 4/1/04 A N.A 50 kw WSB-FM 98.5 MHz 4/1/04 C 313 m 100 kw WJZF-FM 104.1 MHz 4/1/04 C1 371 m 60 kw WBTS-FM 95.5 MHz 4/1/04 C1 295 m 100 kw WFOX-FM (2) (3) 97.1 MHz 4/1/04 C 483 m 100 kw WCNN-AM (2) (4) 680 KHz 4/1/04 B N.A 50 kw day 10 kw night BIRMINGHAM WZZK-FM 104.7 MHz 4/1/04 C 396 m 100 kw WODL-FM 106.9 MHz 4/1/04 C 351 m 100 kw WAGG-AM 610 KHz 4/1/04 B N.A 5 kw day 1 kw night WRJS-AM (formerly WEZN-AM) 1320 KHz 4/1/04 D N.A 5 kw day 0.111 kw night WBHK-FM 98.7 MHz 4/1/04 C2 343 m 9.4 kw WBHJ-FM 95.7 MHz 4/1/04 C1 299 m 100 kw WRLR-FM (6) (formerly WEDA-FM) 97.3 MHz N.A A 306 m 0.64 kw DAYTON WHIO-AM 1290 KHz 10/1/04 B N.A 5 kw WHKO-FM 99.1 MHz 10/1/04 B 325 m 50 kw WCLR-FM 95.7 MHz 10/1/04 B 145 m 50 kw WZLR-FM 95.3 MHz 10/1/04 A 98 m 6 kw
12 15
EXPIRATION MARKET(1) AND STATION DATE OF HEIGHT ABOVE CALL LETTERS FREQUENCY LICENSE CLASS AVERAGE TERRAIN POWER --------------------- --------- ---------- ----- --------------- ----- HONOLULU KRTR-FM 96.3 MHz 2/1/06 C 645 m 75 kw KXME-FM 104.3 MHz 2/1/06 C 645 m 75 kw KGMZ-FM (5) 107.9 MHz 2/1/06 C 599 m 100 kw KGMZ-AM 1460 KHz 2/1/06 B N.A 5 kw KINE-FM (3) 105.1 MHz 2/1/06 C 599 m 100 kw KCCN-FM (3) 100.3 MHz 2/1/06 C 599 m 100 kw KCCN-AM (3) 1420 KHz 2/1/06 B N.A 5 kw HOUSTON KLDE-FM (3) (7) 107.5 MHz 8/1/05 C 601 m 98 kw KKTL-FM (3) 97.1 MHz 8/1/05 C 458 m 100 kw KKBQ-FM (3) 92.9 MHz 8/1/05 C 585 m 100 kw JACKSONVILLE WAPE-FM (2) (3) 95.1 MHz 2/1/04 C 300 m 100 kw WFYV-FM (2) (3) 104.5 MHz 2/1/04 C 309 m 100 kw WKQL-FM (2) (3) 96.9 MHz 2/1/04 C 309 m 100 kw WMXQ-FM (2) (3) 102.9 MHz 2/1/04 C 309 m 100 kw WBWL-AM (2) (3) 600 KHz 2/1/04 B N.A 5 kw WOKV-AM (2) (3) 690 MHz 2/1/04 B N.A 50 kw day 10.5 kw night LONG ISLAND WBLI-FM 106.1 MHz 6/1/06 B 152 m 49 kw WBAB-FM 102.3 MHz 6/1/06 A 82 m 6 kw WHFM-FM 95.3 MHz 6/1/06 A 108 m 5 kw LOUISVILLE WRKA-FM 103.1 MHz 8/1/04 A 95 m 6 kw WSFR-FM 107.7 MHz 8/1/04 B1 173 m 8.2 kw WVEZ-FM 106.9 MHz 8/1/04 B 204 m 24.5 kw WMHX-FM 103.9 MHz 8/1/04 A 149 m 1.35 kw MIAMI WFLC-FM 97.3 MHz 2/1/04 C 307 m 100 kw WHQT-FM 105.1 MHz 2/1/04 C 307 m 100 kw WEDR-FM (2) (3) 99.1 MHz 2/1/04 C1 280 m 100 kw WTMI-FM (3) 93.1 MHz 2/1/04 C 307 m 100 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 100 kw WCFB-FM 94.5 MHz 2/1/04 C 448 m 96 kw WHTQ-FM 96.5 MHz 2/1/04 C 487 m 100 kw WMMO-FM 98.9 MHz 2/1/04 C2 159 m 44 kw WHOO-AM 990 KHz 2/1/04 B N.A 50 kw day 5 kw night WPYO-FM (formerly WTLN-FM) 95.3 MHz 2/1/04 A 96 m 6 kw RICHMOND WKHK-FM (3) 95.3 MHz 10/1/03 B1 120 m 17.5 kw WKLR-FM (3) 96.5 MHz 10/1/03 B 138 m 50 kw WMXB-FM (3) 103.7 MHz 10/1/03 B 256 m 20 kw WTVR-AM (3) 1380 KHz 10/1/03 B N.A 5 kw SAN ANTONIO KCYY-FM 100.3 MHz 8/1/05 C 300 m 100 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 day 1 kw night KONO-AM 860 KHz 8/1/05 B N.A 5 kw day 0.9 kw night KONO-FM 101.1 MHz 8/1/05 C1 302 m 98 kw SOUTHERN CONNECTICUT Bridgeport/Fairfield County WEZN-FM 99.9 MHz 4/1/06 B 204 m 27.5 kw New Haven WPLR-FM (2) (3) 99.1 MHz 4/1/06 B 276 m 15 kw WYBC-FM (5) 94.3 MHz 4/1/06 A 99 m 1.8 kw
13 16
EXPIRATION MARKET(1) AND STATION DATE OF HEIGHT ABOVE CALL LETTERS FREQUENCY LICENSE CLASS AVERAGE TERRAIN POWER --------------------- --------- ---------- ----- --------------- ----- Stamford-Norwalk WEFX-FM (2) (3) 95.9 MHz 4/1/06 A 91 m 3 kw WKHL-FM (2) (3) 96.7 MHz 4/1/06 A 100 m 3 kw WNLK-AM(2) (3) 1350 KHz 4/1/06 B N.A 1 kw day 0.5 kw day WSTC-AM(2)(3) 1400 KHz 4/1/06 C N.A 0.78 kw TAMPA WWRM-FM 94.9 MHz 2/1/04 C 392 m 100 kw WBBY-FM (formerly WCOF-FM) 107.3 MHz 2/1/04 C1 182 m 100 kw WSUN-AM (formerly WFNS-AM) 910 KHz 2/1/04 B N.A 5 kw WSUN-FM (formerly WLVU-FM) 97.1 MHz 2/1/04 C2 224 m 11.5 kw WHPT-FM 102.5 MHz 2/1/04 C 503 m 100 kw WFJO-FM 101.5 MHz 2/1/04 C 414 m 100 kw WDUV-FM (formerly WTBT-FM) 105.5 MHz 2/1/04 C1 410 m 46 kw TULSA KWEN-FM 95.5 MHz 6/1/05 C 405 m 100 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 100 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 KRTQ-FM (formerly KTFX-FM) 102.3 MHz 6/1/05 C2 150 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 acquired by Cox Radio. (4) Local marketing agreement to terminate in April 2000. (5) Cox Radio provides sales and other services to this station pursuant to a JSA. (6) Station is operating pursuant to program test authority. An application for the station's initial license is pending before the Federal Communications Commission. (7) Station call letters are currently KTBZ-FM, but will be changed to KLDE-FM upon consummation of the acquisition. General Ownership Matters The Communications Act of 1934, as amended, prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the Federal Communications Commission. To obtain the Federal Communications Commission's prior consent to assign or transfer a broadcast license, appropriate applications must be filed with the Federal Communications Commission. Depending on whether the application involves the assignment of the license or a "substantial change" in ownership or control (e.g., the transfer of more than 50% of the voting stock), the application may be required to go on public notice for a period of approximately 30 days during which petitions to deny the application may be filed by interested parties, including members of the public. When reviewing an assignment or transfer application, the Federal Communications Commission is prohibited from considering whether the public interest might be served by an assignment or transfer to any party other than the assignee or transferee specified in the application. As detailed below, in August 1999, the Federal Communications Commission substantially revised its multiple ownership and attribution rules. These revisions became effective on November 16, 1999, but may be modified or reconsidered in subsequent proceedings. In three reports and orders, the Federal Communications Commission revised its rules regarding restrictions on radio-television cross-ownership, attribution of broadcast ownership interests and local television ownership. The three orders, which resolve several rulemaking proceedings launched in the early 1990's, take into consideration mandates in the Telecommunications Act of 1996 which relaxed the radio ownership rules. The Federal Communications Commission multiple ownership rules may limit the permissible acquisitions and investments Cox Radio may make. The Federal Communications Commission generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. In the case of corporations 14 17 holding, or through subsidiaries controlling, 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 stock (or 20% or more of such stock in the case of insurance companies, investment companies and bank trust departments that are passive investors) are generally attributable, except that, in general, no minority voting stock interest will be attributable if there is a single holder of more than 50% of the outstanding voting power of the corporation (the "single majority shareholder exception"). The Federal Communications Commission treats all partnership interests as attributable, except for those limited partnership interests that are "insulated" by the terms of the limited partnership agreement from "material involvement" in the media related activities of the partnership. The Federal Communications Commission applies the same attribution and insulation standards to limited liability companies and other new business forms. In its recently revised rules, the Federal Communications Commission decided to treat as attributable equity and debt interests, which combined, exceed 33% of a station licensee's total assets, if the party holding the equity/debt interest supplies more than 15% of the station's total weekly programming, or has an attributable interest in another media entity, whether TV, radio, cable or newspaper, in the same market. Under these new rules, all non-conforming interests acquired before November 7, 1996 (other than LMAs) are permanently grandfathered and thus do not constitute attributable ownership interests. Any nonconforming interests acquired after that date must be brought into compliance by August 5, 2000. The Communications Act of 1934, as amended, prohibits the holding of broadcast licenses by any corporation of which more than 20% of the capital stock is owned of record or voted by non-U.S. citizens, a foreign government, any corporation organized under the laws of a foreign country, or their representatives (collectively "Aliens"), or the holding of a broadcast license by any corporation directly or indirectly controlled by any other corporation of which more than 25% of the capital stock is owned of record or voted by Aliens, unless the Federal Communications Commission finds that the public interest would be served by granting a license under such circumstances. The Federal Communications Commission generally has declined to permit the control of broadcast licenses by corporations with foreign ownership or voting rights in excess of the 25% benchmark. Cox Radio's indirect parent, Cox Enterprises, has attributable ownership interests in television stations located in: - Orlando, Florida; - Charlotte and Kanapolis, North Carolina; - Pittsburgh, Pennsylvania; - Dayton, Ohio; - Atlanta, Georgia; - Oakland and San Jose, California; - El Paso, Texas; - Seattle, Washington; and - Reno, Nevada. Cox Enterprises also has attributable ownership interests in daily newspapers located in: - Grand Junction, Colorado; - Palm Beach, Florida; - Atlanta, Georgia; - Greenville, Rocky Mount and Elizabeth City, North Carolina; - Dayton and Springfield, Ohio; and - Austin, Longview, Lufkin, Waco, Nacogdoches, and Marshall, Texas. Cox Enterprises has a non-attributable ownership interest in a daily newspaper located in Daytona Beach, Florida. None of the officers, directors or, to Cox Radio's knowledge, 5% or greater shareholders of the voting stock of Cox Radio or any of its subsidiaries has any attributable interest in any broadcast stations other than through Cox Radio and its subsidiaries. 15 18 Local Radio Ownership Rule The Federal Communications Commission's local radio multiple ownership rule provides for certain limits on the number of radio stations that one entity may own in a local geographic market. These limits are as follows: (a) In a radio market with 45 or more commercial radio stations, a party may own, operate or control up to eight commercial radio stations, not more than five of which are in the same broadcast service (i.e., AM or FM); (b) In a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate or control up to seven commercial radio stations, not more than four of which are in the same broadcast service; (c) In a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate or control up to six commercial radio stations, not more than four of which are in the same broadcast service; and (d) In a radio market with 14 or fewer commercial radio stations, a party may own, operate or control up to five commercial radio stations, not more than three of which are in the same broadcast service, except that a party may not own, operate or control more than 50 percent of the stations in the market. Notwithstanding the limits contained in the Federal Communications Commission's local radio multiple ownership rule, the Federal Communications Commission has the authority to permit any person or entity to own, operate or control, or have an attributable ownership interest in a number of radio broadcast stations in excess of the rule's limits if the Federal Communications Commission determines that such ownership, operation, control or interest will result in an increase in the number of radio broadcast stations that are in operation. Although the Telecommunications Act of 1996, which granted the Federal Communications Commission such authority, does not explain the intent or rationale for this provision, Cox Radio believes that this exception may apply to newly-constructed stations and/or stations that have been off the air but are resuming broadcast operations. The Federal Communications Commission does not regulate the number of radio stations that may be owned or controlled by one entity nationally. Local Marketing Agreements and Joint Sales Agreements Over the past several years, a significant number of radio broadcast licensees, including Cox Radio, have entered into local marketing agreements, or LMAs, and joint sales agreements, or JSAs. Under a typical LMA, separately-owned and licensed radio stations serving a common geographic area agree to function cooperatively in terms of programming, advertising sales, etc., subject to the licensee of each station maintaining independent control over the programming and station operations of its own station and subject to compliance with other requirements of the Federal Communications Commission's rules and policies as well as the antitrust laws. The LMA concept is referred to in the Federal Communications Commission rules as "time brokerage" under which a licensee of a station is permitted to sell the right to broadcast blocks of time on its station to an entity or entities which program the blocks of time and sell their own commercial advertising announcements for their own account during the time periods in question. Under a typical JSA, two separately-owned radio stations serving a common service area agree to function cooperatively in terms of advertising sales only. Under such an arrangement, the licensee of one station sells the advertising time on the other licensee's station for its own account but does not provide any programming to the other licensee's station. This arrangement is also subject to ultimate control by the latter licensee. The Federal Communications Commission's multiple ownership rules specifically permit radio stations to enter into and implement LMAs, so long as the licensee of the station which is being programmed under the LMA maintains complete control over the operations of its station and assures compliance with 16 19 applicable Federal Communications Commission requirements. A radio station being programmed pursuant to an LMA is not considered an attributable ownership interest unless that entity already owns a radio station in the same market. Under the Federal Communications Commission revised ownership rules, the Federal Communications Commission's radio-television and radio-newspaper cross-ownership rules (see below) also apply to radio LMAs. JSAs are not attributable under the Federal Communications Commission's ownership rules. Radio/Television Cross-Ownership Rule The Federal Communications Commission's radio/television cross-ownership rule (the "one-to-a-market" rule) has until recently prohibited common ownership or control of a radio station, whether AM, FM or both, and a television station in the same market, subject to waivers in some circumstances. The Federal Communications Commission's new radio-television cross-ownership rule permits cross-ownership of stations in the same market based on the number of independently owned media voices in the local market. In large markets, i.e., markets with at least 20 independently owned media voices, a single entity may own up to one television station and seven radio stations or, if permissible under the local television ownership rule, two television stations and six radio stations. In a market that includes at least ten other independently owned media voices, a single entity may own a television station and up to four radio stations and, if permitted under the local television ownership rule, two television stations and up to four radio stations. A single entity may own one radio station and one television station in a market or one radio station and two television stations, if permitted under the local television ownership rule, without regard to the number of media voices in the market. Waivers of the new radio-television cross-ownership rule will be granted only under the "failed station" test (i.e., the subject station has been off the air for at least four months or is currently involved in involuntary bankruptcy or insolvency proceedings). Cox Radio currently holds a waiver of the one-to-a-market rule permitting its ownership of television and radio stations in Orlando, Florida that was conditioned on the outcome of the Federal Communications Commission's ownership proceeding. Although Cox Radio's ownership interests in Orlando do not comply with the revised rule, they are grandfathered until August 2004 when the Federal Communications Commission is scheduled to conduct a further review of the one-to-a-market rule. Broadcast/Daily Newspaper Cross-Ownership Rule The Federal Communications Commission's rules prohibit the common ownership of a radio or television broadcast station and a daily newspaper in the same market. In 1993, Congress authorized the Federal Communications Commission to grant waivers of the radio-newspaper cross-ownership rule to permit cross-ownership of a radio station and a daily newspaper in a top 25 market with at least 30 independent media voices, provided the Federal Communications Commission finds the transaction in the public interest. Under current policy, the Federal Communications Commission will grant a permanent waiver of the radio-newspaper cross-ownership rule only in those circumstances in which the effects of applying the rule would be "unduly harsh," i.e., the newspaper is unable to sell the commonly owned station, the sale would be at an artificially depressed price, or the local community could not support a separately-owned newspaper and radio station. The Federal Communications Commission previously has granted only two permanent waivers of this rule. The Federal Communications Commission has pending a Notice of Inquiry requesting comment on possible changes to its policy for waiving the rule. Cox Radio's ownership of WJZF-FM in Atlanta, Georgia is conditioned on the outcome of the Federal Communication Commission's inquiry proceeding. Biennial Review of Broadcast Ownership Rules. In March 1998, as required by the Telecommunications Act of 1996, the Federal Communications Commission initiated a proceeding to review its broadcast ownership rules. The proceeding did not propose to revise or repeal any existing rule, but rather to solicit comment on whether any of the rules should be the subject of a subsequent rulemaking to modify or repeal it. The rules on which the Federal Communications Commission has requested comment include those on daily newspaper/broadcast cross- 17 20 ownership, local television/cable cross-ownership, national television ownership, local radio ownership, and dual network ownership. Expansion of Cox Radio's broadcast operations on both a local and national level will continue to be subject to the Federal Communications Commission's ownership rules and any changes that may be adopted. Any relaxation of the ownership rules may increase the level of competition to the extent that any of Cox Radio's competitors may have greater resources and thereby may be in a superior position to take advantage of such changes. Any restriction may also have an effect on Cox Radio and its investors. Cox Radio cannot predict the ultimate outcome of the Federal Communications Commission's ownership proceedings or its impact on Cox Radio's business and operations. Low Power FM Radio In January 2000, the Federal Communications Commission adopted rules establishing a new noncommercial low power FM radio service that will operate on channels throughout the commercial FM radio band. The Federal Communications Commission's new rules include the requirement that stations operating in this new service not interfere with existing commercial radio stations operating on the same or adjacent channels. Cox Radio cannot predict at this time the ultimate impact of this new service on its radio stations. Programming and Operation The Communications Act of 1934, as amended, requires broadcasters to serve the "public interest." Since the late 1970s, the Federal Communications Commission gradually has relaxed or eliminated many of the more formalized procedures it had developed to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. However, licensees are still required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Stations also must follow various rules promulgated under the Communications Act of 1934, as amended, that regulate, among other things, political advertising, sponsorship identification, the advertisement of contests and lotteries, obscene and indecent broadcasts and technical operations, including limits on radio frequency radiation. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of short-term (i.e., less than the full term) renewals or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. Equal Employment Opportunities Requirements The Federal Communications Commission recently adopted new equal employment opportunity rules for radio and television stations. The rules prohibit discrimination on the basis of race, religion, color, national origin or gender and require broadcasters to maintain a recruitment outreach program and prepare reports concerning such programs on an annual basis. The Federal Communications Commission will review the reports and a station's compliance midway through the license term and in connection with the station's license renewal. Broadcasters also are required to complete annual reports regarding their employment profile that will be used by the Federal Communications Commission to monitor industry trends. The Federal Communications Commission's new rules are not yet effective and therefore are subject to reconsideration and modification in subsequent proceedings. At this time, Cox Radio cannot predict the impact of these new rules on it or its stations. 18 21 Proposed Changes Congress and the Federal Communications Commission have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly: - Affect the operation, ownership and profitability of Cox Radio and its radio broadcast stations; - Result in the loss of audience share and advertising revenue of Cox Radio's radio broadcast stations; and - Affect the ability of Cox Radio to acquire additional radio broadcast stations or to finance such acquisitions. Such matters include, for example: - Changes to the license renewal process; - Proposals to impose spectrum use fees or other governmentally-imposed fees upon licensees; - Proposals to adopt equal employment opportunity rules and other matters relating to minority and female involvement in broadcasting; - Proposals to repeal or modify some or all of the Federal Communications Commission's multiple ownership rules and/or policies; - Proposals to modify the attribution rules, such as increasing the benchmarks or thresholds for attributing ownership interests in broadcast media; - Proposals to change rules or policies relating to political broadcasting; - Technical and frequency allocation matters, including those relative to the implementation of digital audio broadcasting, satellite digital audio radio service, and AM stereo broadcasting; - Proposals to permit expanded use of FM translator stations and low power FM stations; - Proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio; - Changes in the Federal Communications Commission's alien ownership rules and policies; - Changes in the Federal Communications Commission's cross-ownership rules; - Changes to technical requirements for broadcast services; - Proposals to allow telephone companies to deliver audio and video programming to homes through existing phone lines; and - Proposals to limit the tax deductibility of advertising expenses by advertisers. 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, 1999, Cox Radio employed 1,272 full-time and 524 part-time employees. Of these employees, 10 were represented by American Federation of Television and Radio Announcers. Cox Radio considers its employee relations to be satisfactory. 19 22 Cox Radio employs several on-air personalities with large audiences in their respective markets. Cox Radio enters into employment agreements with certain on-air personalities in order to protect its interests in these employee relationships. Cox Radio does not believe that the loss of any one of these on-air personalities would have a material adverse effect on Cox Radio's financial condition or results of operations. PATENTS AND TRADEMARKS Cox Radio owns numerous domestic trademark registrations related to the business of Cox Radio's stations. Cox Radio owns no patents or patent applications. Cox Radio does not believe that any of its trademarks are material to its business or operations. FORWARD-LOOKING STATEMENTS Any matters discussed or incorporated by reference in this Form 10-K that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Any expressions that indicate future events and trends identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical results, results Cox Radio anticipates or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among others: - General economic and business conditions, both nationally and in the regions in which Cox Radio operates; - Technology changes; - Competition; - Changes in business strategy or development plans; - The ability to attract and retain qualified personnel; - Existing governmental regulations and changes in, or the failure to comply with, governmental regulations; and - Liability and other claims asserted against Cox Radio. Cox Radio undertakes no obligation to update any forward-looking statements or to release publicly the results of any revisions to forward-looking statements made in this Form 10-K to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events. Additional factors that could have a material and adverse impact on Cox Radio's business are set forth below. RISK FACTORS The following factors (in addition to others) could have a material and adverse impact on Cox Radio's business: Risks Associated with Cox Radio's Acquisition Strategy A principal component of Cox Radio's business strategy is the acquisition of additional radio stations. In addition to the pending transactions described herein, Cox Radio intends to continue to evaluate the acquisition of additional radio stations or radio station groups. There can be no assurance that future acquisitions will be available on attractive terms. In addition, there can be no assurance that any synergies or savings will be achieved as a result of any acquisitions, that the integration of Cox Radio and new stations or management groups can be accomplished successfully or on a timely basis or that Cox Radio's acquisition strategy can be implemented. Although Cox Radio has entered into definitive agreements regarding the pending transactions described herein, there can be no assurance that any of the pending 20 23 transactions will be consummated. Consummation of the pending transactions is subject to certain closing conditions, including the receipt of Federal Communications Commission approvals, which receipt cannot be assured. Competition The radio broadcasting industry is a highly competitive business. Cox Radio's radio stations compete against other radio stations and other media (including new media technologies that are being developed or introduced) for audience share and advertising revenue. Factors that are material to a station's competitive position include management experience, the stations' audience share rank in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance, and the number and characteristics of other stations in the market area. Recent changes in the law and in Federal Communications Commission rules and policies have increased the number of radio stations a broadcaster may own in a given market and permit, within limits, joint arrangements with other stations in a market relating to programming, advertising sales, and station operations. Management believes that radio stations that elect to take advantage of these opportunities may, in certain circumstances, have lower operating costs and may be able to offer advertisers more attractive rates and services. No assurance can be given that any of Cox Radio's stations will be able to maintain or increase their current audience ratings and advertising revenue share. Government Regulation of the Broadcasting Industry The radio broadcasting industry is subject to extensive and changing regulation. Among other things, the Communications Act of 1934, as amended, and Federal Communications Commission rules and policies limit the number of radio stations that one entity can own in a given market. The Communications Act of 1934, as amended, and Federal Communications Commission rules and policies also require Federal Communications Commission approval for transfers of control and assignments of Federal Communications Commission licenses. The filing of petitions or complaints against Federal Communications Commission licensees such as Cox Radio could result in the Federal Communications Commission delaying the grant of, or refusing to grant, its consent to the assignment of licenses to or from a Federal Communications Commission licensee or the transfer of control of a Federal Communications Commission licensee. In certain circumstances, the Communications Act of 1934, as amended, and Federal Communications Commission rules will operate to impose limitations on alien ownership and voting of Cox Radio's common stock. There can be no assurance that there will be no changes in the current regulatory scheme, the imposition of additional regulations or the creation of new regulatory agencies, which changes could restrict or curtail the ability of Cox Radio to acquire, operate and dispose of stations or, in general, to compete profitably with other operators of radio and other media properties. Each of Cox Radio's radio stations operates pursuant to one or more licenses issued by the Federal Communications Commission. Under Federal Communications Commission rules, radio licenses are granted for a term of eight years. Cox Radio's licenses expire at various times between the years 2004 and 2006. Although Cox Radio has applied or will apply to renew these licenses, third parties may challenge Cox Radio's renewal applications. While Cox Radio is not aware of facts or circumstances that would prevent it from having its current licenses renewed, there can be no assurance that the licenses will be renewed. Failure to obtain the renewal of any of Cox Radio's broadcast licenses or to obtain Federal Communications Commission approval for an assignment or transfer to Cox Radio of a license in connection with a radio station acquisition may have a material adverse effect on Cox Radio's business and operations. In addition, if Cox Radio or any of its officers, directors or significant stockholders materially violates the Federal Communications Commission's rules and regulations or the Communications Act of 1934, as amended, is convicted of a felony or is found to have engaged in unlawful anticompetitive conduct or fraud upon another government agency, the Federal Communications Commission may, in response to a petition from a third party or on its own initiative, in its discretion, commence a proceeding to impose sanctions upon Cox Radio which could involve the imposition of monetary fines, the revocation of Cox Radio's broadcast licenses or other sanctions. If the Federal Communications Commission were to 21 24 issue an order denying a license renewal application or revoking a license, Cox Radio would be required to cease operating the applicable radio station only after Cox Radio had exhausted all rights to administrative and judicial review without success. Control of Cox Radio by Cox Enterprises and Potential Conflicts of Interest Cox Enterprises, through wholly-owned subsidiaries, owns approximately 68% of the outstanding common stock of Cox Radio and has approximately 95% of the voting power of Cox Radio. As a result, Cox Enterprises has sufficient voting power to elect all the members of the Board of Directors of Cox Radio and effect transactions without the approval of Cox Radio's public stockholders. Cox Radio's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws also contain certain anti-takeover provisions. The interests of Cox Enterprises, which operates businesses in other industries, including television broadcasting, broadband communications, auto auctions and newspapers, may from time to time diverge from the interests of Cox Radio. In addition, from time to time, Cox Radio enters into transactions with Cox Enterprises or its affiliates and has entered into a credit facility with Cox Enterprises. Conflicts of interest between Cox Radio and Cox Enterprises could arise with respect to business dealings between them, including potential acquisitions of businesses or properties, the issuance of additional securities and the election of new or additional members of Cox Radio's Board of Directors. The Audit Committee of Cox Radio's Board of Directors consists of independent directors and addresses certain potential conflicts of interest that may arise between Cox Radio and Cox Enterprises and its other affiliates. There can be no assurance that any conflicts of interest will be resolved in favor of Cox Radio. ITEM 2. PROPERTIES Cox Radio's corporate offices are located in Atlanta, Georgia. The types of properties required to support each of Cox Radio's stations include offices, studios, transmitter sites and antenna sites. The transmitter sites and antenna sites generally are located so as to provide maximum market coverage. Cox Radio owns transmitter and antenna sites in: - Atlanta; - Houston; - Jacksonville; - Long Island; - Louisville; - Orlando; - Richmond; - San Antonio; - Tampa; and - Tulsa. Cox Radio leases transmitter and antenna sites in: - Atlanta; - Birmingham; - Dayton; - Honolulu; - Houston; - Jacksonville; - Long Island; - Louisville; - Miami; - Orlando; - Richmond; - San Antonio; - Southern Connecticut; 22 25 - Tampa; and - Tulsa. Cox Radio owns studio and office facilities in: - Birmingham; - Jacksonville; - Long Island; - Miami; and - Orlando. Cox Radio leases studio and office facilities in: - Atlanta; - Birmingham; - Dayton; - Honolulu; - Houston; - Louisville; - Orlando; - Richmond; - San Antonio; - Southern Connecticut; - Tampa; and - Tulsa. Cox Radio generally considers its facilities to be suitable and of adequate size for their current and intended purposes. Cox Radio does not anticipate any difficulties in renewing any facility leases or in leasing additional space, if required. Cox Radio owns substantially all of its other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission equipment used by Cox Radio's stations are generally in good condition, although opportunities to upgrade facilities are continuously reviewed. ITEM 3. LEGAL PROCEEDINGS Cox Radio is a party to various legal proceedings which are ordinary and incidental to its business. Management does not expect that any legal proceedings currently pending will have a material adverse impact on Cox Radio's consolidated financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 23 26 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 1999 Annual Report to Stockholders. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data have been derived from the Consolidated Financial Statements of Cox Radio. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of Cox Radio and notes thereto included elsewhere herein. The statements of operations data, other operating data and balance sheet data as of and for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 have been derived from audited Consolidated Financial Statements of Cox Radio.
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1999 1998 1997 1996 1995 ------ ------ ------ ------- ------ (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Net revenues(1)............................. $300.5 $261.2 $199.6 $ 132.9 $123.6 Station operating expenses.................. 183.9 167.0 129.8 91.9 90.0 Corporate general and administrative expenses.................................. 10.1 8.4 6.9 5.3(2) 5.9(2) Depreciation and amortization............... 29.1 23.4 17.4 8.1 7.2 (Gain) on sales of radio stations........... (40.5) -- (49.1) (2.0) -- ------ ------ ------ ------- ------ Operating income............................ 117.9 62.4 94.6 29.6 20.5 Interest expense, net....................... 22.8 16.9 9.4 4.6 6.0 Net income.................................. 55.3 23.0 49.7 14.9 8.2 Basic income per common share............... 1.92 .81 1.75 .69 --(3) Diluted income per common share............. 1.91 .80 1.75 .69 --(3) OTHER OPERATING DATA: Broadcast cash flow(4)...................... $116.6 $ 94.2 $ 69.8 $ 41.0 $ 33.6 Broadcast cash flow margin(4)............... 38.8% 36.1% 35.0% 30.9% 27.2% EBITDA(4)................................... $106.5 $ 85.8 $ 62.9 $ 35.7 $ 27.7 After-tax cash flow(4)...................... 62.3 52.2 44.1 24.0 15.0 Net cash provided by operating activities... 56.1 47.2 42.2 26.9 14.0 Net cash used in investing activities....... 179.1 115.1 285.1 62.6 17.3 Net cash provided by financing activities... 131.2 68.1 238.5 44.6 3.1 BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents................... $ 14.7 $ 6.5 $ 6.2 $ 10.6(5) $ 1.7 Intangible assets, net...................... 829.3 590.7 518.9 138.1 126.8 Total assets................................ 986.6 753.1 654.6 261.7 191.8 Total debt (including amounts due from/to Cox Enterprises).......................... 437.2 269.9 232.6 -- 125.1
- --------------- (1) Total revenues less advertising agency commissions. (2) Certain executives participated in Cox Enterprises' Unit Appreciation Plan. Because Cox Enterprises is, and Cox Radio was, a private company, the benefits under the Unit Appreciation Plan are generally payable in cash. This cash payment option has resulted in charges to compensation expense of $2.5 million and $1.6 million for the years ended December 31, 1996 and 1995, respectively. This compensation expense is included in historical corporate general and administrative expenses. Public companies traditionally implement stock award plans that provide for the issuance of stock to participants and do not result in compensation expense under accounting standards followed by Cox Radio. Cox Radio implemented the Cox Radio Long-Term Incentive Plan in 1996 and, therefore, has not incurred this expense since 1996. In addition, for the year ended December 31, 1995, corporate general and administrative expenses include a nonrecurring corporate charge. 24 27 (3) Cox Radio became publicly traded on the New York Stock Exchange effective September 27, 1996. Earnings per common share calculations for 1995 have not been disclosed because the dissimilarity of the previous capital structure of Cox Radio precludes a meaningful comparison. (4) "Broadcast cash flow" consists of net revenues less station operating expenses. "Broadcast cash flow margin" is broadcast cash flow as a percentage of net revenues. "EBITDA" is operating income excluding the gain on sales of radio stations plus depreciation and amortization. "After-tax cash flow" is income (loss) before extraordinary items excluding gain on sales of radio stations plus depreciation, amortization and deferred tax expense. Although broadcast cash flow, broadcast cash flow margin, EBITDA and after-tax cash flow are not recognized under generally accepted accounting principles, they are accepted by the broadcasting industry as generally recognized measures of performance and are used by analysts who report publicly on the condition and performance of broadcast companies. For the foregoing reasons, Cox Radio believes that these measures are useful to investors. However, investors should not consider these measures to be an alternative to operating income as determined in accordance with generally accepted accounting principles, an alternative to cash flows from operating activities (as a measure of liquidity) or an indicator of Cox Radio's performance under generally accepted accounting principles. (5) 1996 amount includes $9.1 million in restricted cash, representing the net proceeds from disposition of WIOD-AM in Miami, net of the cash used for the acquisition of KRAV-FM and KGTO-AM in Tulsa. UNAUDITED QUARTERLY FINANCIAL INFORMATION The following table sets forth selected quarterly financial information for Cox Radio. This information is derived from unaudited financial statements of Cox Radio and includes, in the opinion of management, only normal and recurring adjustments that management considers necessary for a fair presentation of the results for such periods. The operating results for any quarter are not necessarily indicative of results for any future period.
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (THOUSANDS OF DOLLARS) 1999 Net revenues.......................................... $60,373 $78,585 $79,754 $81,782 Corporate general and administrative expenses......... 2,186 2,409 2,673 2,770 Depreciation and amortization......................... 6,358 6,856 7,544 8,354 Operating income...................................... 11,160 61,223(1) 23,776(2) 21,775 Net income............................................ 3,824 32,674 10,060 8,702 Net income per common share -- basic.................. .13 1.14 .35 .30 Net income per common share -- diluted................ .13 1.13 .35 .30 1998 Net revenues.......................................... $52,060 $69,161 $69,155 $70,837 Corporate general and administrative expenses......... 1,875 2,057 1,992 2,538 Depreciation and amortization......................... 5,361 5,593 6,144 6,303 Operating income...................................... 9,331 16,581 18,584 17,888 Net income............................................ 2,775 6,345 7,020 6,900 Net income per common share -- basic.................. .10 .22 .25 .24 Net income per common share -- diluted................ .10 .22 .24 .24
- --------------- (1) Includes a pre-tax gain on the sale of Cox Radio's stations in Syracuse, New York of approximately $39.2 million. (2) Includes a pre-tax gain on the sale of WRVI-FM and WLSY-FM in Louisville, Kentucky of approximately $1.6 million. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Cox Radio is a leading national radio broadcast company whose business is acquiring, developing and operating radio stations located throughout the United States. Cox Enterprises indirectly owns approximately 68% of the common stock of Cox Radio and has approximately 95% of the voting power of Cox Radio. The performance of a radio station group, such as Cox Radio, is customarily measured by its ability to generate Broadcast Cash Flow, EBITDA and After-tax Cash Flow. Broadcast Cash Flow is defined as 25 28 net revenues less station operating expenses. EBITDA is defined as operating income excluding the gain on sales of radio stations plus depreciation and amortization. After-tax Cash Flow is defined as income (loss) before extraordinary items excluding gain on sales of radio stations plus depreciation, amortization and deferred tax expense. Although Broadcast Cash Flow, EBITDA and After-tax Cash Flow are not recognized under generally accepted accounting principles, they are accepted by the broadcasting industry as generally recognized measures of performance and are used by analysts who report publicly on the condition and performance of broadcasting companies. For the foregoing reasons, Cox Radio believes that these measures will be useful to investors. However, Broadcast Cash Flow, EBITDA or After-tax Cash Flow should not be considered to be an alternative to operating income or cash flows from operating activities (as a measure of liquidity), each as determined in accordance with generally accepted accounting principles, or an indicator of Cox Radio's performance under generally accepted accounting principles. The primary source of Cox Radio's revenues is the sale of local and national advertising. Historically, approximately 73% and 25% of Cox Radio's net revenues have been generated from local and national advertising, respectively. Cox Radio's most significant station operating expenses are employees' salaries and benefits, commissions, programming expenses and advertising and promotional expenditures. Cox Radio's revenues vary throughout the year. As is typical in the radio broadcasting industry, Cox Radio's revenues and broadcast cash flows are typically lowest in the first quarter and higher in the second and fourth quarters. Cox Radio's operating results in any period may be affected by the incurrence of advertising and promotional expenses that do not necessarily produce commensurate revenues until the impact of the advertising and promotion is realized in future periods. RESULTS OF OPERATIONS This discussion should be read in conjunction with the accompanying audited Consolidated Financial Statements and Notes thereto of Cox Radio. The results of operations for Cox Radio represent the operations of the radio stations currently owned or operated or to which sales and marketing services were provided. The financial statements for periods prior to 1997 do not necessarily reflect the results of operations or financial position that would have been reported had Cox Radio been an independent company. Year Ended December 31, 1999 Compared with Year Ended December 31, 1998 Net Revenues. Net revenues increased $39.3 million to $300.5 million, a 15.0% increase over the prior year. This increase was primarily as a result of the acquisition of radio stations in Long Island, New York; Tampa, Florida; Louisville, Kentucky; Honolulu, Hawaii; Jacksonville, Florida; New Haven, Connecticut; Stamford-Norwalk, Connecticut; Atlanta, Georgia; and Miami, Florida and offset somewhat by the disposition of stations in Syracuse, New York and the disposition of the operations of KFI-AM and KOST-FM in Los Angeles, California. In addition, the stations in Atlanta, Georgia; Miami, Florida; and Orlando, Florida had increases in net revenues that were realized as a result of continued strong ratings performance. On a "same station" basis (reflecting results from stations operated for the entire year ended December 31 in both 1999 and 1998), net revenues increased $19.1 million to $202.7 million, an increase of 10.4% over 1998. Station Operating Expenses. Station operating expenses increased $17.0 million to $184.0 million, an increase of 10.2% over the prior year, primarily as a result of Cox Radio's acquisitions as discussed above. Additionally, significant contributions to this increase came from higher programming costs resulting from an increase in talent costs (which fluctuate with ratings) and additional selling expenses associated with the stations' local and national revenue growth. On a "same station" basis, station operating expenses increased $5.6 million to $128.8 million, an increase of 4.6% over 1998. Broadcast Cash Flow. Broadcast cash flow increased $22.3 million to $116.6 million, a 23.7% increase over 1998, for the reasons noted above. On a "same station" basis, broadcast cash flow increased by $13.5 million to $73.8 million, an increase of 22.3% over the prior year. In addition, "same station" broadcast cash flow margin increased to 36.4% in 1999 from 32.9% for the prior year. 26 29 Corporate General and Administrative Expenses. Corporate general and administrative expenses increased $1.6 million to $10.1 million in 1999 primarily due to increased costs related to growth in the number of stations and information technology costs. Operating Income. Operating income increased $55.6 million to $117.9 million, an increase of 89% over 1998, primarily as a result of a $39.2 million pre-tax gain on the sale of Cox Radio's stations in Syracuse, New York, a $1.6 million pre-tax gain on the sale of WRVI-FM and WLSY-FM in Louisville, Kentucky and for the reasons discussed above. In addition, operating margin increased to 39.2% in 1999 from 23.9% in 1998. Interest Expense. Interest expense for 1999 totaled $23.2 million as compared to $17.6 million during 1998 primarily as a result of borrowings incurred to complete Cox Radio's acquisitions during 1999 and 1998. Net Income. Net income increased $32.2 million in 1999 to $55.3 million primarily as a result of a $23.5 million after-tax gain on the sale of Cox Radio's stations in Syracuse, New York, a $0.9 million after-tax gain on the sale of WRVI-FM and WLSY-FM in Louisville, Kentucky and for the reasons discussed above. Year Ended December 31, 1998 Compared with Year Ended December 31, 1997 Net Revenues. Net revenues increased $61.6 million to $261.2 million, a 30.9% increase over the prior year. This increase was primarily attributable to Cox Radio's 1997 acquisitions, the largest being the NewCity Communications acquisition, and was also attributable to significant percentage increases in net revenues at Cox Radio's stations in Atlanta, Georgia; Miami, Florida; and Louisville, Kentucky as a result of continued strong ratings. On a "same station" basis (reflecting results from stations operated for the entire year ended December 31 in both 1998 and 1997), net revenues increased $17.4 million to $157.1 million, an increase of 12.5% over 1997. Station Operating Expenses. Station operating expenses increased $37.2 million to $167.0 million, an increase of 28.7% over the prior year, primarily as a result of Cox Radio's 1997 acquisitions as discussed above. Additionally, 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 contributed to this increase. On a "same station" basis, station operating expenses increased $5.8 million to $93.2 million, an increase of 6.6% over 1997. Broadcast Cash Flow. Broadcast cash flow increased $24.4 million to $94.2 million, a 35.0% increase over 1997, for the reasons noted above. On a "same station" basis, broadcast cash flow increased by $11.6 million to $63.9 million, an increase of 22.2% over the prior year. In addition, "same station" broadcast cash flow margin increased to 40.7% in 1998 from 37.5% for the prior year. Corporate General and Administrative Expenses. Corporate general and administrative expenses increased $1.6 million to $8.5 million in 1998 primarily due to increased costs related to growth in the number of stations and information technology costs. Operating Income. Operating income increased $16.9 million to $62.4 million, an increase of 37.2% over 1997, for the reasons noted above. In addition, the operating margin increased to 23.9% in 1998 from 22.8% in 1997. Interest Expense. Interest expense for 1998 totaled $16.9 million as compared to $9.4 million during 1997, primarily as a result of borrowings incurred to complete Cox Radio's acquisitions during 1997 and 1998. Such expenses were partially offset by interest income earned during the first quarter of 1997. Net Income. Net income decreased by $26.7 million from 1997 to $23.0 million primarily as a result of an after-tax gain of approximately $29.3 million on the sale of WCKG-FM and WYSY-FM in Chicago, Illinois during March 1997. Excluding this gain, net income increased $2.6 million over the prior year for the reasons discussed above. 27 30 LIQUIDITY AND CAPITAL RESOURCES Cox Radio's primary source of liquidity is cash provided by operations. Historically, cash requirements have been funded by Cox Radio's operating activities and through borrowings under Cox Radio's bank credit facility. In addition, cash requirements have been funded on a temporary basis through intercompany advances from Cox Enterprises under a revolving credit facility. Cox Radio's borrowings under the Cox Enterprises revolving credit facility are typically repaid within 30 days and accrue interest at Cox Enterprises' commercial paper rate plus .40%. Cox Enterprises continues to perform day-to-day cash management services for Cox Radio. Cox Radio had approximately $17.1 million in amounts due to Cox Enterprises at December 31, 1999 and approximately $30.3 million in amounts due from Cox Enterprises at December 31, 1998. On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior, unsecured revolving credit facility with certain guarantors and banks, including Texas Commerce Bank National Association, as Administrative Agent, Nationsbank of Texas, N.A., as Syndications Agent, and Citibank, N.A., as Documentation Agent. The interest rate is based on the London Interbank Offered Rate plus a spread determined by the ratio of Cox Radio's 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 Cox Radio's debt to EBITDA. Cox Radio borrowed approximately $110 million under this bank credit facility to consummate the NewCity Communications acquisition. At December 31, 1999 and 1998, Cox Radio had approximately $220 million and $100 million, respectively, of outstanding indebtedness under the bank credit facility and had approximately $80 million and $200 million, respectively, available under the bank credit facility. The interest rate applied to amounts due under the bank credit facility was 6.90% and 5.78% at December 31, 1999 and 1998, respectively. The bank credit facility contains, among other provisions, defined requirements as to ratio of debt to EBITDA and ratio of EBITDA to interest expense. At December 31, 1999 and 1998, Cox Radio was in compliance with these covenants. Borrowings under the bank credit facility approximate fair value based upon the current borrowing rates available to Cox Radio. In connection with this acquisition, Cox Radio assumed certain indebtedness of NewCity Communications. NewCity Communications was the obligor of $75 million principal amount of 11 3/8% Senior Subordinated Notes due 2003. On May 2, 1997, following a tender offer and consent solicitation, Cox Radio paid an aggregate amount of $82.1 million to holders of these notes in exchange for approximately $74.6 million principal amount of the notes and consents to the elimination of substantially all of the restrictive covenants applicable to the notes. On December 24, 1998, Cox Radio called the remaining notes in the amount of $.4 million. Cox Radio obtained the funds necessary to make such payments from borrowings under the bank credit facility. On May 26, 1998, Cox Radio issued and sold an aggregate of $200 million principal amount of notes in an offering exempt from registration under Rule 144A of the Securities Act of 1933, as amended, which have been exchanged for notes which have been registered under the Securities Act of 1933. The notes consist of $100 million principal amount of 6.25% notes due in full in 2003 and $100 million principal amount of 6.375% notes due in full in 2005. Pursuant to the Registration Rights Agreement dated as of May 26, 1998 among Cox Radio, its then-wholly owned subsidiaries WSB, Inc. and WHIO, Inc. (each a former guarantor of the notes), NationsBanc Montgomery Securities LLC, Chase Securities, Inc., and J.P. Morgan Securities, Inc., on December 14, 1998, 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. At December 31, 1999 and 1998, the estimated fair value of these notes was approximately $191.0 million and $208.6 million, respectively, based on quoted market prices. 28 31 In September 1997, Cox Radio 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 amount at an average fixed rate of 6.23% per annum having an average maturity of 6.25 years. The fixing of interest rates for this period reduces Cox Radio's exposure to the uncertainty of floating interest rates. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense. The counterparties to these interest rate swap agreements are a diverse group of major financial institutions. Cox Radio is exposed to credit loss in the event of nonperformance by these counterparties. However, Cox Radio does not anticipate nonperformance by these counterparties, 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. The estimated fair value of the interest rate swap agreements, based on current market rates, approximated a net receivable of $1.9 million at December 31, 1999 and a net payable of $4.6 million at December 31, 1998. Future cash requirements are expected to include capital expenditures, principal and interest payments on indebtedness and funds for acquisitions. Cox Radio expects its operations to generate sufficient cash to meet its capital expenditures and debt service requirements. Additional cash requirements, including funds for pending or other acquisitions, will be funded by various sources, including the proceeds from bank financing and, if or when appropriate, other issuances of Cox Radio securities. Net cash provided by operating activities for the year ended December 31, 1999 increased $8.8 million to $56.1 million over 1998 primarily as a result of an increase in net income, excluding the gains on the sale of the Syracuse, New York stations as well as the sale of WRVI-FM and WLSY-FM in Louisville, Kentucky, an increase in non-cash charges for depreciation and amortization and the net change in working capital accounts. Net cash provided by operating activities for 1998 increased $5.0 million over 1997 to $47.2 million, primarily as a result of an increase in net income, excluding the gain on WCKG-FM and WYSY-FM in Chicago, Illinois, an increase in non-cash charges for depreciation and amortization and the net change in working capital accounts. Net cash provided by operating activities for 1997 increased $15.3 million over 1996 to $42.2 million, primarily as a result of an increase in net income. Net cash used in investing activities for all periods presented principally reflects Cox Radio's acquisition activity discussed above and the net change in amounts due to or from Cox Enterprises. Net cash provided by financing activities represents the proceeds from Cox Radio's public debt offering, borrowings and repayments of debt, proceeds from issuance of common stock related to incentive plans and net changes in book overdrafts. Fluctuations for the periods presented generally reflect the differences between changes in both cash flows from operating activities and cash flows from investing activities. Cox Radio has contractual commitments for sports programming and on-air personalities of $13.8 million, $14.8 million, $14.3 million, $14.8 million, $15.6 million and $0.2 million for 2000, 2001, 2002, 2003, 2004 and thereafter, respectively, which are expected to be funded through operations. IMPACT OF INFLATION The impact of inflation on Cox Radio's operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse impact on Cox Radio's operating results. RECENT ACCOUNTING PRONOUNCEMENTS In June 1999, Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- an amendment of FASB Statement 133" was issued. FASB No. 137 changed the effective date of the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and 29 32 Hedging Activities" from all fiscal quarters of fiscal years beginning after June 15, 1999 to all fiscal quarters of fiscal years beginning after June 15, 2000. FASB No. 133 establishes accounting and reporting standards for derivative instruments, and requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position at determined fair values. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The effect on Cox Radio's financial statements upon adoption of FASB No. 133 currently has not been determined. IMPACT OF YEAR 2000 ISSUE Introduction The term "year 2000 issue" is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 was approached and reached. Our failure to appropriately address a material year 2000 issue, or the failure by any third parties who provide goods or services that are critical to our business activities to appropriately address their year 2000 issues, could have a material adverse effect on our financial condition, liquidity or results of operations. State of Readiness Since entering the year 2000, we have not experienced any significant disruptions related to the year 2000 issue, nor are we aware of any significant year 2000 related disruptions impacting any third parties who provide goods or services that are critical to our business activities. While we will continue to monitor our business critical information technology assets, we do not anticipate that we, nor the above mentioned third parties, will experience any significant year 2000 related disruptions on our internal systems. Costs to Address the Year 2000 Issue Costs incurred to achieve the year 2000 readiness were charged to expense as incurred. Such costs include both internal resources dedicated to achieving year 2000 compliance, as well as costs of independent consultants retained to assess our year 2000 initiative. The total costs related to our year 2000 initiative will total less than $1 million. Substantially all of these costs were incurred prior to December 31, 1999. Risks and Reasonably Likely Worst Case Scenarios The failure to correct a material Year 2000 problem could result in system failures leading to a disruption in, or failure of certain normal business activities or operations. Such failures could materially and adversely affect Cox Radio's results of operations, liquidity and financial condition. In spite of the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third-party suppliers and customers, Cox Radio is unaware at this time of any material consequences of Year 2000 failures that would have a material impact on Cox Radio's results of operations, liquidity or financial condition. Contingency Plans In the normal course of business, we maintain and deploy contingency plans designed to address potential business interruptions. We completed risk assessment under our year 2000 initiative for each business unit, and developed further contingency plans specifically related to the year 2000 issue. These contingency plans remain in place in case of a year 2000 related disruption to our internal systems, or to the systems of third parties which provide goods or services that are critical to our business activities. 30 33 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Interest rate risk is the risk that the Company will incur economic losses due to adverse changes in interest rates. The Company manages interest-rate risk through the use of fixed- and floating-rate debt, and through the use of derivatives. In 1998, Cox Radio issued and sold an aggregate of $200 million principal amount of notes in an offering exempt from registration under Rule 144A of the Securities Act of 1933, as amended, which have been exchanged for notes which have been registered under the Securities Act of 1933. The notes consist of $100 million principal amount of 6.25% notes due in full in 2003 and $100 million principal amount of 6.375% notes due in full in 2005. At December 31, 1999 and 1998, the estimated fair value of these notes was approximately $191.0 million and $208.6 million, respectively, based on quoted market prices. In 1997, Cox Radio entered into a $300 million, five-year, senior, unsecured revolving credit facility with certain guarantors and banks, including Texas Commerce Bank National Association, as Administrative Agent, Nationsbank of Texas, N.A., as Syndications Agent, and Citibank, N.A., as Documentation Agent. The interest rate is based on the London Interbank Offered Rate plus a spread determined by the ratio of debt to EBITDA. At December 31, 1999 and 1998, Cox Radio had approximately $220 million and $100 million, respectively, of outstanding indebtedness under the bank credit facility and had approximately $80 million and $200 million, respectively, available under the bank credit facility. The interest rate applied to amounts due under the bank credit facility was 6.90% and 5.78% at December 31, 1999 and 1998, respectively. Borrowings under the bank credit facility approximate fair value based upon the current borrowing rates available to Cox Radio. In September 1997, Cox Radio 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 having an average maturity of 6.25 years. The fixing of interest rates for this period reduces Cox Radio's exposure to the uncertainty of floating interest rates. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense. The counterparties to these interest rate swap agreements are a diverse group of major financial institutions. Cox Radio is exposed to credit loss in the event of nonperformance by these counterparties. However, Cox Radio does not anticipate nonperformance by these counterparties, and no material loss would be expected from their nonperformance. The fair value of the interest rate swap agreements was not recognized in Cox Radio's consolidated financial statements since they are accounted for as hedges. The estimated fair value of the interest rate swap agreements, based on current market rates, approximated a net receivable of $1.9 million at December 31, 1999 and a net payable of $4.6 million at December 31, 1998. 31 34 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Cox Radio, Inc. We have audited the accompanying consolidated balance sheets of Cox Radio, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule of Cox Radio, listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of Cox Radio's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cox Radio at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Atlanta, Georgia February 7, 2000 (March 14, 2000 as to Note 16) 32 35 COX RADIO, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------- 1999 1998 -------- -------- (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash and cash equivalents................................... $ 14,704 $ 6,479 Accounts and notes receivable, less allowance for doubtful accounts of $2,966 and $2,862, respectively............... 74,775 58,190 Prepaid expenses and other current assets................... 4,387 3,430 -------- -------- Total current assets.............................. 93,866 68,099 Plant and equipment, net.................................... 56,582 51,886 Intangible assets, net...................................... 829,307 590,686 Amounts due from Cox Enterprises, Inc....................... -- 30,292 Station investment notes receivable......................... 850 7,250 Other assets................................................ 6,016 4,899 -------- -------- Total assets...................................... $986,621 $753,112 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses....................... $ 28,115 $ 19,245 Accrued salaries and wages.................................. 4,464 4,570 Accrued interest............................................ 2,476 1,633 Income taxes payable........................................ 5,462 2,686 Other current liabilities................................... 1,572 1,018 -------- -------- Total current liabilities......................... 42,089 29,152 Notes payable............................................... 420,105 300,235 Deferred income taxes....................................... 128,623 110,693 Amounts due to Cox Enterprises, Inc......................... 17,138 -- -------- -------- Total liabilities................................. 607,955 440,080 -------- -------- Commitments and contingencies (Note 15) 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; 9,338,661 and 8,971,955 shares outstanding at December 31, 1999 and 1998, respectively.................. 9,339 8,972 Class B common stock, $1.00 par value; 45,000,000 shares authorized; 19,577,672 shares outstanding at December 31, 1999 and 1998............................................. 19,578 19,578 Additional paid-in capital.................................. 264,865 253,207 Retained earnings........................................... 86,535 31,275 -------- -------- 380,317 313,032 Less: Class A common stock held in treasury (39,952 shares at cost).................................................. (1,651) -- -------- -------- Total shareholders' equity........................ 378,666 313,032 -------- -------- Total liabilities and shareholders' equity........ $986,621 $753,112 ======== ========
See notes to consolidated financial statements. 33 36 COX RADIO, INC. CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) NET REVENUES: Local....................................................... $219,691 $191,568 $146,326 National.................................................... 72,408 65,469 50,457 Other....................................................... 8,395 4,176 2,789 -------- -------- -------- Total net revenues................................ 300,494 261,213 199,572 COSTS AND EXPENSES: Operating................................................... 68,923 62,180 50,220 Selling, general and administrative......................... 114,996 104,786 79,544 Corporate general and administrative........................ 10,038 8,462 6,885 Depreciation and amortization............................... 29,112 23,401 17,456 Gain on sales of radio stations............................. (40,509) -- (49,129) -------- -------- -------- OPERATING INCOME............................................ 117,934 62,384 94,596 OTHER INCOME (EXPENSE): Interest income............................................. 466 719 1,669 Interest expense............................................ (23,226) (17,641) (11,033) Other -- net................................................ (348) (408) (701) -------- -------- -------- INCOME BEFORE INCOME TAXES.................................. 94,826 45,054 84,531 Income taxes................................................ 39,566 22,014 34,807 -------- -------- -------- NET INCOME.................................................. $ 55,260 $ 23,040 $ 49,724 Net income per common share -- basic........................ $ 1.92 $ .81 $ 1.75 ======== ======== ======== Net income per common share -- diluted...................... $ 1.91 $ .80 $ 1.75 ======== ======== ======== Weighted average basic common shares outstanding............ 28,709 28,461 28,344 Weighted average diluted common shares outstanding.......... 28,879 28,852 28,494
See notes to consolidated financial statements. 34 37 COX RADIO, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CLASS A CLASS B COMMON STOCK COMMON STOCK ADDITIONAL (DEFICIT IN) TREASURY STOCK --------------- ---------------- PAID-IN RETAINED ---------------- SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL ------ ------ ------ ------- ---------- ------------ ------ ------- -------- (AMOUNTS IN THOUSANDS) BALANCE AT DECEMBER 31, 1996....... 8,737 $8,737 19,578 $19,578 $248,972 $(41,489) -- $ -- $235,798 ----- ------ ------ ------- -------- -------- -- ------- -------- Net income......................... -- -- -- -- -- 49,724 -- -- 49,724 Issuance of Class A common stock related to incentive plans....... 94 94 -- -- 1,665 -- -- -- 1,759 ----- ------ ------ ------- -------- -------- -- ------- -------- BALANCE AT DECEMBER 31, 1997....... 8,831 8,831 19,578 19,578 250,637 8,235 -- -- 287,281 ----- ------ ------ ------- -------- -------- -- ------- -------- Net income......................... -- -- -- -- -- 23,040 -- -- 23,040 Issuance of Class A common stock related to incentive plans....... 141 141 -- -- 2,570 -- -- -- 2,711 ----- ------ ------ ------- -------- -------- -- ------- -------- BALANCE AT DECEMBER 31, 1998....... 8,972 8,972 19,578 19,578 253,207 31,275 -- -- 313,032 ----- ------ ------ ------- -------- -------- -- ------- -------- Net income......................... -- -- -- -- -- 55,260 -- -- 55,260 Repurchase of Class A common stock............................ -- -- -- -- -- -- 40 (1,651) (1,651) Issuance of Class A common stock related to incentive plans....... 367 367 -- -- 11,658 -- -- -- 12,025 ----- ------ ------ ------- -------- -------- -- ------- -------- BALANCE AT DECEMBER 31, 1999....... 9,339 $9,339 19,578 $19,578 $264,865 $ 86,535 40 $(1,651) $378,666 ===== ====== ====== ======= ======== ======== == ======= ========
See notes to consolidated financial statements. 35 38 COX RADIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- --------- (AMOUNTS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 55,260 $ 23,040 $ 49,724 Items not requiring cash: Depreciation........................................... 7,175 5,841 4,286 Amortization........................................... 21,937 17,560 13,170 Deferred income taxes.................................. 18,446 5,789 25,187 Gain on sales of radio stations........................ (40,509) -- (49,129) Increase in accounts receivable........................... (16,585) (7,510) (6,436) (Increase) decrease in prepaid expenses and other current assets................................................. (1,216) 365 1,789 Increase in accounts payable and accrued expenses......... 4,755 1,599 3,310 (Decrease) increase in accrued salaries and wages......... (106) 924 1,930 Increase in accrued interest.............................. 843 261 -- Increase (decrease) in taxes payable...................... 6,367 (801) 271 Decrease in Unit Appreciation Plan liability.............. -- -- (646) Other, net................................................ (293) 171 (1,273) --------- --------- --------- Net cash provided by operating activities......... 56,074 47,239 42,183 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (6,749) (6,898) (10,820) Acquisitions, net of cash acquired........................ (232,278) (92,633) (317,268) Decrease (increase) of station investment notes receivable............................................. 6,400 10,970 (18,220) (Increase) decrease in other long-term assets............. (1,086) 659 (5,208) Net proceeds from sale of radio stations.................. 7,721 -- 19,647 Decrease (increase) in amounts due from/to Cox Enterprises............................................ 46,895 (27,179) 46,554 --------- --------- --------- Net cash used in investing activities............. (179,097) (115,081) (285,315) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) of long-term debt............. 119,870 (135,000) 235,000 Net proceeds from public debt offering.................... -- 199,668 -- Proceeds from issuance of common stock related to incentive plans........................................ 8,434 2,711 1,759 Repurchase of Class A common stock........................ (1,651) -- -- Increase in book overdrafts............................... 4,595 897 1,256 Other, net................................................ -- (173) 740 --------- --------- --------- Net cash provided by financing activities......... 131,248 68,103 238,755 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 8,225 261 (4,377) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 6,479 6,218 10,595 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 14,704 $ 6,479 $ 6,218 ========= ========= ========= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: Value of businesses exchanged........................ $ 55,000 -- $ 65,000
See notes to consolidated financial statements. 36 39 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Cox Radio is a leading national radio broadcasting company whose business, which constitutes one reportable segment, is devoted to acquiring, developing and operating radio stations located throughout the United States. Cox Enterprises indirectly owns approximately 68% of the common stock of Cox Radio and has approximately 95% of the voting power of Cox Radio. The consolidated financial statements of Cox Radio represent the operations of the radio broadcasting stations owned or operated by Cox Radio. The historical financial statements do not necessarily reflect the results of operations or financial position that would have existed had Cox Radio been an independent company. All significant intercompany accounts have been eliminated in the consolidated financial statements of Cox Radio. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents Cox Radio considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying value of these investments approximates fair value. Revenue Recognition Revenue is recognized as advertising air time is broadcast and is net of advertising agency commissions. Corporate General and Administrative Expenses Corporate general and administrative expenses consist of corporate overhead costs not specifically allocable to any of Cox Radio's individual stations. Plant and Equipment Plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed principally using 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. 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 and Federal Communications Commission broadcast licenses and non-compete agreements. Goodwill and Federal Communications Commission broadcast licenses recorded in business combinations generally are amortized on a straight-line basis over 30 to 40 years. Non-compete agreements are amortized on a straight-line basis over the contractual lives of the agreements, generally 3 to 5 years. Cox Radio assesses on an on-going basis the recoverability of intangible assets based on estimates of future undiscounted cash flows for the applicable business acquired compared to net book value. If the future undiscounted cash flow estimate is less than net book value, net book value is then reduced to the estimated fair value. Cox Radio also evaluates the amortization periods of intangible assets to determine whether events or circumstances warrant revised estimates of useful lives. 37 40 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Impairment of Long-Lived Assets Long-lived assets and certain intangibles are required to be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, with any impairment losses being reported in the period in which the recognition criteria are first applied based on the fair value of the asset. Long-lived assets and certain intangibles to be disposed of are required to be reported at the lower of carrying amount or fair value less cost to sell. Income Taxes Deferred income taxes are provided based on the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The liability method measures the expected tax impact of future taxable income or deductions resulting from differences in the tax and financial reporting bases of assets and liabilities reflected in the consolidated balance sheets and the expected tax impact of carryforwards for tax purposes. Pension, Postretirement and Postemployment Benefits Cox Enterprises generally provides defined pension benefits to eligible employees based on years of service and compensation during those years. Cox Enterprises also provides certain health care and life insurance benefits to eligible retirees and employees. For certain employees and retirees of Cox Radio eligible for such coverages, these benefits are provided through the Cox Enterprises plans. Expenses related to these plans are allocated to Cox Radio through the intercompany account. The amount of the allocations is generally based on actuarial determinations of the effects of Cox Radio employees' participation in the plans. Incentive Compensation Plans Cox Radio accounts for stock compensation in accordance with the requirements of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", requires disclosure of the pro forma effects on net income and earnings per share had the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 been adopted. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Risk A significant portion of Cox Radio's business historically has been conducted in the areas of Atlanta, Los Angeles, and Orlando. Revenues earned from radio stations located in Atlanta, Los Angeles, and Orlando represented 24%, 16%, and 10%, respectively, of total revenues for the year ended December 31, 1999, 22%, 22%, and 10%, respectively, of total revenues for the year ended December 31, 1998, and 26%, 29%, and 10%, respectively, of total revenues for the year ended December 31, 1997. Cox Radio's concentration of risk in each of the aforementioned markets has been and is expected to continue to be reduced as a result of the disposition of radio stations serving the Los Angeles market, as well as other transactions (see Note 4). 38 41 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Recent Accounting Pronouncements In June 1999, Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- an amendment of FASB Statement 133," was issued. FASB No. 137 changed the effective date of the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," from all fiscal quarters of fiscal years beginning after June 15, 1999 to all fiscal quarters of fiscal years beginning after June 15, 2000. FASB No. 133 establishes accounting and reporting standards for derivative instruments, and requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position at determined fair values. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The effect on the financial statements upon adoption of FASB No. 133 currently has not been determined. Reclassifications Certain prior year amounts have been reclassified for comparative purposes. 3. EARNINGS PER COMMON SHARE AND CAPITAL STRUCTURE
1999 1998 1997 ------- ------- ------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) NET INCOME.................................................. $55,260 $23,040 $49,724 ======= ======= ======= BASIC EARNINGS PER SHARE Weighted-average common shares outstanding.................. 28,709 28,461 28,344 ======= ======= ======= Basic income per common share............................... $ 1.92 $ 0.81 $ 1.75 ======= ======= ======= DILUTED EARNINGS PER SHARE Weighted-average common shares outstanding.................. 28,709 28,461 28,344 Shares issuable on exercise of dilutive options........... 560 595 505 Shares assumed to be purchased with proceeds of options... (410) (366) (446) Shares issuable pursuant to Employee Stock Purchase Plan................................................... 78 183 186 Shares assumed to be purchased with proceeds from Employee Stock Purchase Plan.................................... (58) (21) (95) ------- ------- ------- Shares applicable to diluted earnings per share............. 28,879 28,852 28,494 ======= ======= ======= Diluted income per common share............................. $ 1.91 $ 0.80 $ 1.75 ======= ======= =======
4. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES During the past several years, Cox Radio has actively managed its portfolio of radio stations through selected acquisitions, dispositions and exchanges, as well as through the use of local marketing agreements, or LMAs, and joint sales agreements, or JSAs. Under an LMA or a JSA, the company operating a station provides programming or sales and marketing or a combination of such services. The broadcast revenues and operating expenses of stations operated by Cox Radio under LMAs and JSAs have been included in Cox Radio's operations since the respective dates of such agreements. All consummated and pending acquisitions discussed below have been or will be accounted for using the purchase method. As such, the results of operations of the acquired stations have been or will be included in the results of operations from the date of acquisition. Specific transactions entered into by Cox Radio during the past three years are discussed below. 39 42 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In March 1997, Cox Radio exchanged WCKG-FM and WYSY-FM in Chicago, Illinois for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando, Florida. This transaction resulted in a pre-tax gain of approximately $49 million. In addition to receiving the three Orlando stations, Cox Radio also received cash proceeds of approximately $20 million. Prior to the NewCity Communications acquisition, the Orlando stations were operated by NewCity Communications since July 1996 under an LMA. In March 1997, Cox Radio acquired WSUN-AM (formerly WFNS-AM) serving the Tampa-St. Petersburg, Florida market for an aggregate consideration of $1.5 million. Cox Radio had been operating this station pursuant to an LMA or a JSA since June 1995. In April 1997, Cox Radio completed its acquisition of the license and certain assets of KRTO-FM in Los Angeles for $19 million in cash. In April 1997, Cox Radio acquired all of the issued and outstanding capital stock of NewCity Communications, through the merger of its wholly owned subsidiary, New Cox Radio II, Inc., with and into NewCity Communications, with NewCity Communications surviving as a wholly owned subsidiary of Cox Radio. Cox Radio purchased the stock of NewCity Communications for an aggregate consideration of approximately $253 million, including approximately $87 million in assumption of NewCity Communications' indebtedness and approximately $3 million in working capital adjustments. To consummate the NewCity Communications acquisition, Cox Radio utilized approximately $56 million of amounts due from Cox Enterprises and borrowed approximately $110 million pursuant to Cox Radio's $300 million, five-year, senior, unsecured revolving credit facility with certain banks, including Texas Commerce Bank National Association, as Administrative Agent. On April 2, 1997, NewCity Communications was merged with and into Cox Radio, with Cox Radio as the surviving corporation. NewCity Communications' subsidiaries were subsequently consolidated into Cox Radio. In October 1997, Cox Radio disposed of the assets of American Comedy Network, a former subsidiary of NewCity Communications, for aggregate proceeds of approximately $1.1 million including certain non-compete agreements. The NewCity Communications acquisition was recorded effective April 1, 1997 using the purchase method of accounting, whereby the allocable share of the NewCity Communications purchase price was allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition as follows (in thousands): Net working capital......................................... $ 8,342 Plant and equipment......................................... 9,310 Goodwill/Federal Communications Commission broadcast licenses.................................................. 316,634 Deferred taxes.............................................. (67,268) -------- Total cost of acquisition including assumed liabilities..................................... $267,018 ========
In May 1997, Cox Radio agreed to acquire WENN-FM and WAGG-AM, later renamed WRJS-AM, in Birmingham, Alabama, for consideration of $15 million. In July 1997, Cox Radio assigned its right to purchase WENN-FM for consideration of $14.5 million to a third party. Cox Radio consummated both the acquisition of WAGG-AM and the disposition of its interest in WENN-FM during November 1997. In September 1997, Cox Radio acquired KISS-FM, KSMG-FM and KLUP-AM in San Antonio, Texas for an aggregate consideration of $30.4 million plus certain non-compete agreements. In January 1998, Cox Radio entered into an agreement to assign to an unrelated third party its option to purchase KRIO-FM serving the San Antonio, Texas market for an aggregate consideration of $0.3 million. This disposition was consummated in May 1998. In March 1998, Cox Radio acquired KONO-FM and KONO-AM in San Antonio, Texas for consideration of $23 million. 40 43 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In May 1998, Cox Radio acquired the assets of radio stations WBLI-FM, WBAB-FM, WHFM-FM and WGBB-AM, serving the Nassau-Suffolk (Long Island), New York market, for consideration of $48 million. In October 1998, Cox Radio consummated the acquisition of radio stations WCLR-FM, WZLR-FM and WPTW-AM serving the Dayton, Ohio market for consideration of approximately $6.3 million. Cox Radio had been operating these stations pursuant to an LMA since December 1997. In November 1998, Cox Radio consummated the acquisition of radio stations WBHJ-FM and WBHK-FM in Birmingham, Alabama for an aggregate consideration of $17 million. Cox Radio had been operating these stations pursuant to an LMA since August 1997. In 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. Prior to the acquisition, Cox Radio had been operating WSUN-FM pursuant to an LMA since September 1998. In May 1999, Cox Radio acquired radio stations WVEZ-FM and WSFR-FM and an 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 Cox Radio'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, resulting in a pre-tax gain of approximately $39.2 million. In connection with obtaining regulatory approvals for this transaction, Cox Radio agreed to divest ownership of WRVI-FM and WLSY-FM serving the Louisville, Kentucky market. In May 1999, such stations were transferred to a trust for the benefit of Cox Radio pending sale to a third party. In June 1999, Cox Radio disposed of the assets of WPTW-AM in Dayton, Ohio for consideration of $0.1 million. In August 1999, Cox Radio consummated its acquisition of WRLR-FM (formerly WEDA-FM) in Homewood, Alabama serving the Birmingham, Alabama market for a purchase price of approximately $5.5 million and the assumption of debt of approximately $0.2 million. Prior to the acquisition, Cox Radio had been operating this station under an LMA since November 1998. In August 1999, Cox Radio acquired WPYO-FM (formerly WTLN-FM) serving the Orlando, Florida market for consideration of $14.5 million. Cox Radio had been operating the station pursuant to an LMA since January 1999. In a related transaction, Cox Radio disposed of the assets of WTLN-AM, also serving the Orlando, Florida market, for consideration of $0.5 million. In August 1999, Cox Radio agreed to acquire WEDR-FM in Miami, Florida; WFOX-FM in Atlanta, Georgia; WFYV-FM, WAPE-FM, WBWL-AM, WKQL-FM, WMXQ-FM and WOKV-AM in Jacksonville, Florida; WEFX-FM, WNLK-AM, WKHL-FM and WSTC-AM in Stamford/Norwalk, Connecticut; and WPLR-FM and local sales rights at WYBC-FM in New Haven, Connecticut in exchange for KFI-AM and KOST-FM in Los Angeles, California plus approximately $3 million. In October 1999, Cox Radio began operating the stations to be acquired (other than WYBC-FM) pursuant to an LMA and WYBC-FM pursuant to a JSA. Pending certain regulatory approvals, including obtaining a temporary waiver of the FCC's newspaper-radio cross-ownership rule for the acquisition of WFOX-FM in Atlanta, Cox Radio anticipates consummating this transaction in the first half of 2000. In September 1999, Cox Radio consummated the acquisition of WMHX-FM in Louisville, Kentucky for consideration of approximately $2 million. Cox Radio had been operating the station under a JSA or LMA since May 1999. 41 44 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In September 1999, Cox Radio disposed of the assets of WGBB-AM serving the Nassau-Suffolk (Long Island), New York market for consideration of $1.7 million. In September 1999, Cox Radio and its trust disposed of WRVI-FM and WLSY-FM serving the Louisville, Kentucky market for consideration of $5 million, resulting in a pre-tax gain of approximately $1.6 million. In September 1999, Cox Radio acquired WBTS-FM (formerly WNGC-FM) in Athens, Georgia for consideration of approximately $78 million. In November 1999, Cox Radio acquired KRTR-FM, KXME-FM, KGMZ-FM and KGMZ-AM in Honolulu, Hawaii for consideration of approximately $16.4 million. In January 2000, Cox Radio acquired the assets of KRTQ-FM (formerly KTFX-FM) in Tulsa, Oklahoma for consideration of $3.5 million. Cox Radio had been operating this station pursuant to an LMA since January 1999. In January 2000, Cox Radio disposed of the assets of KACE-FM and KRTO-FM serving the Los Angeles market for consideration of approximately $75 million. In January 2000, Cox Radio entered into an agreement to acquire the assets of KINE-FM, KCCN-FM and KCCN-AM in Honolulu, Hawaii for consideration of approximately $17.8 million. Cox Radio also entered into an agreement to sell KGMZ-FM serving the Honolulu, Hawaii market for approximately $6.6 million. In conjunction with the sale of KGMZ-FM, Cox Radio anticipates entering into a JSA whereby Cox Radio would manage the local, regional and national sales efforts for KGMZ-FM. Pending certain regulatory approvals, Cox Radio anticipates consummating these transactions in the first half of 2000. The following unaudited pro forma summary of operations presents the consolidated results of operations as if all consummated transactions and those pending transactions discussed above had occurred at the beginning of the periods presented and does not purport to be indicative of what would have occurred had these transactions been made as of those dates or of results which may occur in the future.
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 ---------- ---------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues................................................ $312,926 $275,540 Corporate general and administrative expenses............... 10,038 8,462 Depreciation and amortization............................... 43,400 39,886 Operating income............................................ 59,600 45,734 -------- -------- Net income.................................................. $ 15,634 $ 6,800 ======== ======== Basic pro forma earnings per common share................... $ .54 $ .24 ======== ======== Diluted pro forma earnings per common share................. $ .54 $ .24 ======== ======== Basic pro forma shares outstanding.......................... 28,709 28,461 ======== ======== Diluted pro forma shares outstanding........................ 28,879 28,852 ======== ========
42 45 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. INVESTMENTS Station investment notes receivable. In connection with certain transactions discussed in Note 4, Cox Radio has loaned funds at certain rates of interest to entities which own radio stations that Cox Radio has agreed to purchase or is operating under a JSA or LMA. As of December 31, 1999 and 1998, station investment notes receivable totaled approximately $0.9 million and $7.3 million, respectively. The remaining receivable as of December 31, 1999 bore interest at 7% and was collected in full in January 2000. USA Digital Radio. 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, included in other assets in the accompanying balance sheets, under the cost method. 6. PLANT AND EQUIPMENT
DECEMBER 31, ---------------------- 1999 1998 -------- -------- (AMOUNTS IN THOUSANDS) Land and land improvements.................................. $ 14,890 $ 15,307 Buildings and building improvements......................... 17,039 16,253 Broadcast equipment......................................... 63,947 57,261 Construction in progress.................................... 359 1,611 -------- -------- Plant and equipment, at cost................................ 96,235 90,432 Less accumulated depreciation............................... (39,653) (38,546) -------- -------- Net plant and equipment........................... $ 56,582 $ 51,886 ======== ========
7. INTANGIBLE ASSETS
DECEMBER 31, ---------------------- 1999 1998 -------- -------- (AMOUNTS IN THOUSANDS) Goodwill and Federal Communications Commission broadcast licenses.................................................. $876,079 $652,693 Non-compete agreements...................................... 5,645 6,145 Other....................................................... 13,568 12,314 -------- -------- Total............................................. 895,292 671,152 Less accumulated amortization............................... (65,985) (80,466) -------- -------- Net intangible assets............................. $829,307 $590,686 ======== ========
43 46 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES Income tax expense is summarized as follows:
YEAR ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ------- ------- ------- (AMOUNTS IN THOUSANDS) Current: Federal................................................. $17,575 $11,586 $ 8,076 State................................................... 3,545 4,639 1,544 ------- ------- ------- Total current................................... 21,120 16,225 9,620 ------- ------- ------- Deferred: Federal................................................. 14,286 3,017 20,703 State................................................... 4,160 2,772 4,484 ------- ------- ------- Total deferred.................................. 18,446 5,789 25,187 ------- ------- ------- Total income tax expense........................ $39,566 $22,014 $34,807 ======= ======= =======
The tax effects of significant temporary differences which comprise the net deferred tax liabilities are as follows:
DECEMBER 31, ------------------------ 1999 1998 --------- --------- (AMOUNTS IN THOUSANDS) Current deferred tax assets: Provision for doubtful accounts.......................... $ 1,301 $ 968 Employee benefits........................................ -- 868 --------- --------- Total net current asset.......................... 1,301 1,836 --------- --------- Noncurrent deferred tax assets (liabilities): Plant and equipment...................................... (36,355) (21,586) Intangibles.............................................. (93,600) (90,669) Net operating loss carryforwards......................... 709 1,074 Other.................................................... 623 488 --------- --------- Total net noncurrent liability................... (128,623) (110,693) --------- --------- Net deferred tax liability....................... $(127,322) $(108,857) ========= =========
As of December 31, 1999, Cox Radio had net operating loss carryforwards in various state jurisdictions in which it operates. These net operating loss carryforwards expire through 2005. Cox Radio anticipates that these net operating loss carryforwards will be realized within the allowable periods. 44 47 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, --------------------------- 1999 1998 1997 ------- ------- ------- (AMOUNTS IN THOUSANDS) Federal statutory income tax rate....................... 35% 35% 35% Computed tax expense at federal statutory rates on income before income taxes............................ $33,189 $15,769 $29,586 State income taxes (net of federal tax benefit)......... 5,008 4,818 3,918 Non-deductible amortization of intangibles.............. 1,447 1,454 1,341 Benefit arising from low income housing credits......... (608) (942) (613) Other, net.............................................. 530 915 575 ------- ------- ------- Income tax provision.......................... $39,566 $22,014 $34,807 ======= ======= =======
The consolidated federal income tax returns of Cox Enterprises for 1986 through 1997 and the combined California franchise tax returns of Cox Enterprises for 1987 through 1994 are currently under audit. The consolidated federal income tax returns of Cox Radio for 1996 through 1997 are currently under audit. Management believes that any additional liabilities arising from current tax-related audits are sufficiently provided for at December 31, 1999. 9. LONG-TERM DEBT On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior, unsecured revolving credit facility with certain guarantors and banks, including Texas Commerce Bank National Association, as Administrative Agent, Nationsbank of Texas, N.A., as Syndications Agent, and Citibank, N.A., as Documentation Agent. The interest rate 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 this bank credit facility to consummate the NewCity Communications acquisition. In connection with this acquisition, Cox Radio assumed certain indebtedness of NewCity Communications. NewCity Communications was the obligor of $75 million principal amount of 11 3/8% Senior Subordinated Notes due 2003. On May 2, 1997, following a tender offer and consent solicitation, Cox Radio paid an aggregate amount of $82.1 million to holders of these notes in exchange for approximately $74.6 million principal amount of the notes and consents to the elimination of substantially all of the restrictive covenants applicable to the notes. On December 24, 1998, Cox Radio called the remaining notes in the amount of $.4 million. Cox Radio obtained the funds necessary to make such payments from borrowings under the bank credit facility. At December 31, 1999 and 1998, Cox Radio had approximately $220 million and $100 million, respectively, of outstanding indebtedness under the bank credit facility and had approximately $80 million and $200 million, respectively, available under the bank credit facility. The interest rate applied to amounts due under the bank credit facility was 6.90% and 5.78% at December 31, 1999 and 1998, respectively. The bank credit facility contains, among other provisions, defined requirements as to ratio of debt to EBITDA and ratio of EBITDA to interest expense. At December 31, 1999 and 1998, Cox Radio was in compliance with these covenants. Borrowings under the bank credit facility approximate fair value based upon the current borrowing rates available to Cox Radio. On May 26, 1998, Cox Radio issued and sold an aggregate of $200 million principal amount of notes in an offering exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The 45 48 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) notes consist of $100 million principal amount of 6.25% notes due in full in 2003 and $100 million principal amount of 6.375% notes due in full in 2005. Pursuant to the Registration Rights Agreement dated as of May 26, 1998 among Cox Radio, its then wholly owned subsidiaries WSB, Inc. and WHIO, Inc. (each a former guarantor of the notes), NationsBanc Montgomery Securities LLC, Chase Securities, Inc., and J.P. Morgan Securities, Inc., on December 14, 1998, 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 (see Note 14). At December 31, 1999 and 1998, the estimated fair value of these notes was approximately $191.0 million and $208.6 million, respectively, based on quoted market prices. In September 1997, Cox Radio entered into interest rate swap agreements with certain lenders providing bank financing under 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 amount at an average fixed rate of 6.23% per annum having an average maturity of 6.25 years. The fixing of interest rates for this period reduces Cox Radio's exposure to the uncertainty of floating interest rates. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense. The counterparties to these interest rate swap agreements are a diverse group of major financial institutions. Cox Radio is exposed to credit loss in the event of nonperformance by these counterparties. However, Cox Radio does not anticipate nonperformance by these counterparties, 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. The estimated fair value of the interest rate swap agreements, based on current market rates, approximated a net receivable of $1.9 million at December 31, 1999 and a net payable of $4.6 million at December 31, 1998. 10. RETIREMENT PLANS Substantially all of Cox Radio's employees participate in the funded, noncontributory defined benefit pension plan of Cox Enterprises and certain key employees participate in an unfunded, non-qualified supplemental pension plan. The plans call for benefits to be paid to eligible employees at retirement based primarily upon years of service with Cox Radio and compensation rates during those years. Pension expense allocated to Cox Radio by Cox Enterprises was $1.2 million, $0.9 million and $0.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. 46 49 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth certain information attributable to the Cox Radio employees' participation in the Cox Enterprises pension plans:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------------ ------------------ FUNDED UNFUNDED FUNDED UNFUNDED PLANS PLANS PLANS PLANS ------- -------- ------- -------- (AMOUNTS IN THOUSANDS) Actuarial present value of benefit obligations: Vested benefits................................ $14,051 $2,402 $12,562 $1,668 Nonvested benefits............................. 1,451 303 1,215 226 ------- ------ ------- ------ Accumulated benefit obligation................... $15,502 $2,705 $13,777 $1,894 ======= ====== ======= ====== Projected benefit obligation..................... $19,268 $3,817 $16,438 $2,616 ======= ====== ======= ======
Assumptions used in the actuarial computations were:
DECEMBER 31, -------------- 1999 1998 ---- ---- Discount rate............................................... 8.00% 6.75% Rate of increase in compensation levels..................... 5.75% 4.50% Expected long-term rate of return on assets................. 9.00% 9.00%
Cox Enterprises may establish a defined benefit pension plan and segregate plan assets for Cox Radio. The amount of the assets that would be segregated would have an estimated fair value equal to the projected benefit obligation of the Cox Enterprises defined benefit pension plan attributable to Cox Radio employees as of December 31, 1999, or $19.3 million. The assets segregated would be used to fund payments to retirees. Any non-qualified supplemental pension plan payments due to Cox Radio employees will be made by Cox Enterprises. Cox Enterprises provides certain health care and life insurance benefits to substantially all retirees of Cox Enterprises and its subsidiaries. Postretirement expense allocated to Cox Radio by Cox Enterprises was $0.1 million, $0.1 million and $0.2 million for the years ended December 31, 1999, 1998 and 1997, respectively. Cox Radio's actuarial present value of benefit obligations at December 31, 1999 was $3.9 million. The funded status of the portion of the postretirement plan covering the employees of Cox Radio is not determinable. The actuarial present value of benefit obligations for the postretirement plan of Cox Enterprises substantially exceeded the fair value of assets held in the plan at December 31, 1999. Actuarial assumptions used to determine the actuarial present value of benefit obligations include a discount rate of 8.00% (6.75% in 1998) and an expected long-term rate of return on plan assets of 9%. The assumed health care cost trend rate for retirees is 9.5% (10.0% in 1998). 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 Cox Enterprises plan's actuarial present value of benefit obligations of approximately 4.0% and an increase in the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost of approximately 2.8% for 1999. In addition, substantially all of Cox Radio's employees are eligible to participate in the savings and investment plan of Cox Enterprises. Under the terms of the plan, Cox Radio matches a discretionary amount no greater than 50% of employee contributions up to a maximum of 6% of the employee's eligible 47 50 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) compensation. Cox Radio's expense under the plan was $1.2 million, $1.1 million and $0.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. Cox Radio employees whose savings and investment plan contributions are at the Internal Revenue Service, or IRS, maximum or are restricted in order to pass the nondiscrimination test required by the IRS, are eligible to participate in Cox Enterprises' non-qualified savings restoration plan. Under the terms of this plan, which began in 1995, Cox Radio matches a discretionary amount no greater than 50% of employee contributions to both the savings and investment and restoration plans up to a maximum percentage of the employee's eligible compensation. Cox Radio's expense under the non-qualified savings restoration plan was not material to the financial statements for any period presented. 11. STOCK-BASED COMPENSATION PLANS During the three years in the period ending December 31, 1999, Cox Radio maintained certain stock-based compensation plans. Cox Radio accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, and related Interpretations. Compensation for the Cox Radio Long-Term Incentive Plan and the Employee Stock Purchase Plan is measured as the excess, if any, of the quoted market price of Cox Radio's stock at the date of the grant over the exercise price. Specific information regarding each plan and required disclosure of pro forma effect on Cox Radio's operations if Statement of Financial Accounting Standards No.123 had been adopted is presented below. Cox Radio Employee Stock Purchase Plans During 1999, Cox Radio adopted an Employee Stock Purchase Plan, under which Cox Radio was authorized to issue purchase rights totaling 250,000 shares of Class A common stock to substantially all employees who were employed on February 1, 1999 and who work at least 20 hours per week. Pursuant to this plan, Cox Radio issued purchase rights totaling 76,431 shares of Class A common stock. Under the terms of this plan, the purchase price ($48.15 per share) was 85% of the average market value during the ten trading days ending on August 2, 1999. Employees are allowed to purchase the shares via payroll deductions through October 31, 2001, at which time the shares will be issued to the employees. During 1999, no shares were issued to employees under the plan due to cancellation of employees' participation in the plan or termination of employment. The fair value of the employees' purchase rights granted in 1999 was estimated using the Black-Scholes model with the following assumptions: expected volatility of 34%, no payment of dividends, expected life of 2 years and risk-free interest rate of 5.67%. The grant date fair value of each purchase right granted in 1999 was $18.87. During 1997, Cox Radio adopted an Employee Stock Purchase Plan, under which Cox Radio was authorized to issue purchase rights totaling 350,000 shares of Class A common stock to substantially all employees who were employed on December 1, 1996 and who work at least 20 hours per week. Pursuant to this plan, Cox Radio issued purchase rights totaling 186,118 shares of Class A common stock. Under the terms of this plan, the purchase price ($17.37 per share) was 85% of the market value on May 1, 1997, and employees were allowed to purchase the shares via payroll deductions through August 1, 1999. During 1999, 1998 and 1997, 5,789, 3,425 and 165 shares, respectively, were issued to employees under the plan due to cancellation of employees' participation in the plan or termination of employment. Upon conclusion of the 1997 plan on August 2, 1999, 152,112 shares of Class A common stock were issued to the remaining plan participants. 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. 48 51 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cox Radio Long-Term Incentive Plan Pursuant to the Long-Term Incentive Plan, executive officers and certain employees of Cox Radio who have been selected as participants are eligible to receive awards of various forms of equity-based incentive compensation, including stock options, stock appreciation rights, stock bonuses, restricted stock awards, performance units and phantom stock and awards consisting of combinations of such incentives. Cox Radio has reserved 2,400,000 shares of Class A common stock for issuance under this plan. Subject to the maximum shares reserved under the Long-Term Incentive Plan, no individual may receive a stock option covering more than 300,000 shares of Class A common stock in any year nor be granted more than 100,000 shares of Class A common stock, in any combination of performance awards, restricted stock or other stock-based awards that are subject to performance criteria in any year. The maximum payout for any individual for a performance award paid in cash is 100% of his or her base salary as of the beginning of the year of the performance award payment. Upon the closing of Cox Radio's initial public offering, certain Cox Enterprises Unit Appreciation Plan units awarded in 1994 that would have matured in 1999, were converted into 111,973 restricted shares of Class A common stock issued pursuant to the Long-Term Incentive Plan based on the calculated appreciation of the units and the quoted market price at the date of conversion. These restricted shares remained unvested until the end of the original five-year Unit Appreciation Plan appreciation period. In January 1999, Cox Radio reacquired 39,952 shares of previously restricted Class A common stock for cash consideration of approximately $1.7 million used to pay employee withholding taxes. Certain units awarded in 1996 were cancelled and converted to options to acquire Class A common stock pursuant to the Long-Term Incentive Plan. Options granted under this plan vest 60% after three years from the date of the grant, 80% after four years from the date of the grant and 100% after five years from the date of the grant and expire ten years after the date of the grant. An accelerated vesting schedule has been provided such that the options become fully vested if the market value of the shares exceeds the exercise price by 140% for ten consecutive trading days. Vesting of the options granted during 1999, 1998 and 1997 was accelerated during 1999, 1998 and 1997 based upon this schedule. Because the issue price of incentive stock options awarded during 1999, 1998 and 1997 equaled the then current market price of Cox Radio Class A common stock, no compensation cost has been recognized for these options. The fair value of the options granted during 1999, 1998 and 1997 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 34%, 45% and 32%, respectively, no dividend yield, risk-free interest rate of 4.8%, 5.1% 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 49 52 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Long-Term Incentive Plan as of December 31, 1999, 1998 and 1997 and changes during the years ending on those dates is presented below:
1999 1998 1997 -------------------------- -------------------------- ------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE --------- -------------- --------- -------------- ------- -------------- Outstanding at beginning of year.. 593,110 $23.96 548,202 $19.29 511,673 $18.50 Granted.............. 203,156 41.75 187,178 40.16 135,607 22.27 Exercised............ (209,031) 27.25 (136,704) 19.25 (83,214) 18.62 Cancelled............ (27,007) 41.13 (5,566) 40.16 (15,864) 22.53 --------- --------- ------- Outstanding at end of year............... 560,228 $30.19 593,110 $23.96 548,202 $19.29 ========= ========= ======= Options exercisable at year-end........ 560,228 $30.19 411,498 $19.31 488,524 $18.55 Weighted-average fair value of options granted during the year............... $ 17.46 $ 21.34 $ 9.87
The following table summarizes information about stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING WEIGHTED-AVERAGE NUMBER OF OPTIONS REMAINING NUMBER OF OPTIONS EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE --------------- ----------------- ------------------- ----------------- $17.31 19,332 7.00 19,332 $18.50 210,980 6.75 210,980 $20.75 22,168 7.25 22,168 $25.38 25,911 7.46 25,911 $40.16 129,935 8.00 129,935 $41.75 151,902 9.00 151,902 -------- ------- 560,228 560,228 ======== =======
Had compensation cost for the Long-Term Incentive Plan and Employee Stock Purchase Plan been determined based on the fair value at the grant dates for awards in 1999, 1998 and 1997 consistent with the provisions of Statement of Financial Accounting Standards No. 123, Cox Radio's net income and net income per share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ------- ------- ------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income -- As reported................................. $55,260 $23,040 $49,724 ======= ======= ======= Net income per share -- basic -- As reported.............. $ 1.92 $ .81 $ 1.75 ======= ======= ======= Net income per share -- diluted -- As reported............ $ 1.91 $ .80 $ 1.75 ======= ======= ======= Net income -- Pro Forma................................... $51,337 $21,807 $46,509 ======= ======= ======= Basic net income per share -- Pro Forma................... $ 1.79 $ .77 $ 1.64 ======= ======= ======= Diluted net income per share -- Pro Forma................. $ 1.78 $ .76 $ 1.63 ======= ======= =======
50 53 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. TRANSACTIONS WITH AFFILIATED COMPANIES Cox Radio borrows funds for working capital and other needs from Cox Enterprises. Certain management services are provided to Cox Radio by Cox Enterprises. Such services include legal, corporate secretarial, tax, treasury, internal audit, risk management, benefits administration and other support services and are included in corporate general and administrative expenses in the Consolidated Statements of Operations. Cox Radio was allocated expenses for the years ended December 31, 1999, 1998 and 1997 of approximately $2.7 million, $2.5 million, and $2.2 million, respectively, related to these services. Cox Radio pays rent and certain other occupancy costs to Cox Enterprises for office facilities. Related rent and occupancy expense was approximately $0.1 million for each of the years ended December 31, 1999, 1998 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 Cox Enterprises are subject to change. The amounts due from (to) Cox Enterprises are generally due on demand and represent the net of various transactions, including those described above. The amounts due to Cox Enterprises totaled $17.1 million as of December 31, 1999 and amounts due from Cox Enterprises totaled $30.3 million as of December 31, 1998. Cox Radio is paid or pays interest on the daily intercompany balance based on Cox Enterprises' commercial paper rate plus .40%. The rates used during 1999 ranged from 5.5% to 6.9%. Included in the amounts due from (to) Cox Enterprises are the following transactions:
(AMOUNTS IN THOUSANDS) ---------------------- Intercompany due from Cox Enterprises, December 31, 1996.... $ 49,667 Cash transferred to Cox Enterprises....................... 164,720 Acquisitions.............................................. (317,268) Borrowings on revolver.................................... 235,000 Net operating expense allocations and reimbursements...... (129,006) --------- Intercompany due from Cox Enterprises, December 31, 1997.... 3,113 --------- Cash transferred to Cox Enterprises....................... 244,274 Acquisitions.............................................. (92,633) Repayments on revolver.................................... (135,000) Net proceeds from public debt offering.................... 199,668 Net operating expense allocations and reimbursements...... (189,130) --------- Intercompany due from Cox Enterprises, December 31, 1998.... 30,292 --------- Cash transferred to Cox Enterprises....................... 250,059 Acquisitions.............................................. (232,278) Borrowings on revolver.................................... 119,870 Net operating expense allocations and reimbursements...... (185,081) --------- Intercompany due to Cox Enterprises, December 31, 1999...... $ (17,138) =========
Cox Radio has estimated that the carrying value of its intercompany advances approximates fair value, given the short-term nature of these advances. Cox Radio participates in Cox Enterprises' cash management system, whereby the bank sends daily notification of Cox Radio's checks presented for payment. Cox Enterprises transfers funds from other 51 54 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) sources to cover Cox Radio's checks presented for payment. Book overdrafts of $8.5 million and $3.9 million existed at December 31, 1999 and 1998, respectively, as a result of Cox Radio's checks outstanding. These book overdrafts were reclassified as accounts payable in the accompanying balance sheets. Cox Radio entered into leases with Cox Broadcasting with respect to studio and tower site properties in Atlanta and Dayton that are used for Cox Radio's operations in those markets. These leases have one year terms and the annual rental cost in the aggregate was less than $0.5 million for each of the three years ended December 31, 1999, 1998 and 1997. In addition, Cox Interactive Media, Inc., a wholly-owned subsidiary of Cox Enterprises, has designed, developed and operated Internet sites and other similar facilities for Cox Radio. 13. SUPPLEMENTAL CASH FLOW INFORMATION
1999 1998 1997 ------- ------- ------- (AMOUNTS IN THOUSANDS) Additional cash flow information: Cash paid for interest.................................... $22,383 $17,575 $ 9,886 Cash paid for income taxes................................ $14,758 $17,024 $11,142
14. GUARANTOR FINANCIAL INFORMATION CXR Holdings, Inc., a wholly-owned subsidiary of Cox Radio, is the guarantor of Cox Radio's $200 million notes pursuant to a full and unconditional guarantee. Separate financial statements and other disclosures concerning CXR Holdings are not presented because CXR Holdings is comprised primarily of non-operating assets, including Federal Communications Commission licenses, permits and authorizations and cash royalties, and such separate financial statements and other disclosures would not be meaningful to investors. The following table sets forth condensed financial information of CXR Holdings as of and for the year ended December 31, 1999. Comparative condensed financial information as of and for the year ended December 31, 1998 is presented on a pro forma basis as though CXR Holdings had been formed on January 1, 1998. CXR Holdings was formed on September 11, 1998, and Cox Radio transferred certain of its Federal Communications Commission licenses, permits and authorizations to CXR Holdings as of January 1, 1999. CXR Holdings became the guarantor of the notes on February 1, 1999. Pro forma adjustments consist solely of the recognition of royalty income associated with royalty fees that would have been charged to Cox Radio had CXR Holdings been formed and the corresponding assets transferred on January 1, 1998.
AS OF DECEMBER 31, 1999 1998 (ACTUAL) (PRO FORMA) -------- ----------- ASSETS: Accounts receivable......................................... $ 15,066 $ 25,656 Intangible assets, net...................................... 391,832 176,404 Other assets................................................ 767 -- -------- -------- Total assets...................................... $407,665 $202,060 ======== ======== Shareholder's equity........................................ $407,665 $202,060 ======== ========
52 55 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 1998 (ACTUAL) (PRO FORMA) -------- ----------- Royalty income.............................................. $39,495 $25,656 Other income................................................ 564 -- Depreciation and amortization............................... (7,301) (3,701) ------- ------- Operating income............................................ $32,758 $21,955 ======= =======
15. COMMITMENTS AND CONTINGENCIES Cox Radio leases land, office facilities, and various items of equipment under non-cancelable operating leases. Rental expense under operating leases amounted to $4.2 million in 1999, $4.0 million in 1998, and $3.0 million in 1997. Future minimum lease payments as of December 31, 1999 for all non-cancelable operating leases are as follows (in thousands): 2000........................................................ $ 2,684 2001........................................................ 2,439 2002........................................................ 2,165 2003........................................................ 1,629 2004........................................................ 1,001 Thereafter.................................................. 3,517 ------- Total............................................. $13,435 =======
Cox Radio has various contracts, primarily for sports programming and on-air personalities, with future minimum payments for 2000, 2001, 2002, 2003, 2004 and thereafter of $13.8 million, $14.8 million, $14.3 million, $14.8 million, $15.6 million and $0.2 million, respectively. Cox Radio is a party to various legal proceedings that 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, consolidated results of operations or cash flows. 16. SUBSEQUENT EVENTS On February 7, 2000, Cox Radio announced that its Board of Directors approved a three-for-one stock split which could be effected promptly following Cox Radio's May 11, 2000 Annual Meeting of Stockholders. If approved, the stock split would result in a decrease in par value of each share, including shares of preferred stock (authorized with no shares presently outstanding), from $1.00 to $0.33 per share. The shareholders will also vote on a proposal to amend Cox Radio's Articles of Incorporation to increase authorized (a) Class A Common Stock from 70,000,000 to 210,000,000 shares; (b) Class B Common Stock from 45,000,000 to 135,000,000 shares; and (c) preferred stock from 5,000,000 to 15,000,000. If approval is received, the stock split will be payable on May 19, 2000 to shareholders of record on May 12, 2000, unless the Board determines that the stock split is no longer in the best interests of Cox Radio and its shareholders. Because approval is pending until May 11, 2000, financial information contained elsewhere in these financial statements has not been adjusted to reflect the impact of the proposed stock split. 53 56 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pro forma actual and weighted average shares outstanding and earnings per common share amounts, after giving retroactive effect to the three-for-one stock split, are presented below for all of the per share amounts disclosed in the consolidated financial statements and the notes to the consolidated financial statements:
YEAR ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ------- ------- ------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Shares outstanding Class A Common Stock...................................... 28,016 26,916 26,494 Class B Common Stock...................................... 58,733 58,733 58,733 Per share data Net income per share -- basic............................. $ 0.64 $ 0.27 $ 0.59 Net income per share -- diluted........................... $ 0.64 $ 0.27 $ 0.58 Weighted average shares outstanding -- basic.............. 86,127 85,383 85,032 Weighted average shares outstanding -- diluted............ 86,637 86,556 85,482
On March 3, 2000, Cox Radio entered into an agreement to acquire the assets of radio stations KKBQ-FM, KLDE-FM and KKTL-FM serving the Houston, Texas market, and WKHK-FM, WMXB-FM, WKLR-FM and WTVR-AM serving the Richmond, Virginia market, for consideration of approximately $380 million. Pending receipt of all necessary legal and regulatory approvals, Cox Radio anticipates closing this transaction during the second half of 2000. On March 14, 2000, Cox Radio entered into an agreement to acquire the outstanding capital stock of Marlin Broadcasting, Inc., which owns radio stations WTMI-FM serving Miami, WCCC-FM and WCCC-AM serving Hartford, Connecticut and WBOQ-FM serving Gloucester, Massachusetts, for approximately $125 million. As part of this transaction, Cox Radio will sell the assets of WCCC-FM, WCCC-AM and WBOQ-FM to certain principals of Marlin Broadcasting for approximately $25 million. Pending receipt of all necessary legal and regulatory approvals, Cox Radio anticipates closing these transactions during the second quarter of 2000. 54 57 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The information required by this Item is incorporated by reference to Cox Radio's Proxy Statement for the 2000 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 2000 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 2000 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 2000 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents incorporated by reference or filed with this Report. (1) Audited Consolidated Balance Sheets as of December 31, 1999 and 1998 and Consolidated Statements of Operations, Shareholders' Equity and Cash Flows for each of the three years in the period ended December 31, 1999. (2) Schedule II - Valuation and qualifying accounts (3) Exhibits required to be filed by Item 601 of Regulation S-K: Listed below are the exhibits which are filed as part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
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) 2.2 -- Guaranty by Cox Broadcasting, Inc., dated as of July 1, 1996, in favor of NewCity Communications, Inc.(1) 3.1 -- Amended and Restated Certificate of Incorporation of Cox Radio, Inc.(1) 3.2 -- Amended and Restated Bylaws of Cox Radio, Inc.(1) 4.1 -- Indenture dated as of May 26, 1998 between Cox Radio, Inc., The Bank of New York, WSB, Inc., and WHIO, Inc.(3)
55 58
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.2 -- Supplemental Indenture dated as of February 1, 1999 by and among trustee, Cox Radio, Inc. and CXR Holdings, Inc.(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 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)(7) 10.2 -- New CEI Credit Facility.(1) 10.3 -- Cox Radio, Inc. Long-Term Incentive Plan.(1) 10.4 -- Cox Radio, Inc. 1997 Employee Stock Purchase Plan.(1) 10.5 -- Cox Radio, Inc. Restricted Stock Plan for Non-Employee Directors.(1) 10.6 -- Tax Allocation and Indemnification Agreement, dated as of September 30, 1996, by and between Cox Enterprises, Inc. and Cox Radio, Inc.(1) 10.7 -- Cox Radio, Inc. 1999 Employee Stock Purchase Plan. 21 -- Subsidiaries of the Registrant 23.1 -- Consent of Deloitte & Touche LLP 24.1 -- Power of Attorney (included on page 48) 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 the corresponding exhibit of Cox Radio's Report on Form 10-Q for the period ending March 31, 1999 (Commission File No. 1-12187). (5) Incorporated by reference to Exhibit 4.2 of Cox Radio's Registration Statement on Form S-4 (Commission File No. 333-61179). (6) Incorporated by reference to Exhibit 4.3 of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737). (7) Incorporated by reference to Cox Radio's Annual Report on Form 10-K for the period ending December 31, 1996 (Commission File No. 1-12187). (b) No Reports on Form 8-K. 56 59 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 15, 2000 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 15, 2000 - -------------------------------------------------------- Directors Nicholas D. Trigony /s/ ROBERT F. NEIL President and Chief Executive March 15, 2000 - -------------------------------------------------------- Officer; Director Robert F. Neil (principal executive officer) /s/ MARITZA C. PICHON Chief Financial Officer March 15, 2000 - -------------------------------------------------------- (principal accounting Maritza C. Pichon officer and principal financial officer) /s/ JAMES C. KENNEDY Director March 15, 2000 - -------------------------------------------------------- James C. Kennedy /s/ DAVID E. EASTERLY Director March 15, 2000 - -------------------------------------------------------- David E. Easterly /s/ ERNEST D. FEARS, JR. Director March 15, 2000 - -------------------------------------------------------- Ernest D. Fears, Jr.
57 60
SIGNATURE TITLE DATE --------- ----- ---- /s/ PAUL M. HUGHES Director March 15, 2000 - -------------------------------------------------------- Paul M. Hughes /s/ MARC W. MORGAN Director March 15, 2000 - -------------------------------------------------------- Marc W. Morgan /s/ RICHARD F. FERGUSON Director March 15, 2000 - -------------------------------------------------------- Richard F. Ferguson
58 61 SCHEDULE II COX RADIO, INC. VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE AS OF ASSUMED IN CHARGES TO BEGINNING BUSINESS COSTS AND BALANCE AS OF FOR THE FISCAL YEARS ENDED DECEMBER 31, OF PERIOD COMBINATION EXPENSES DEDUCTIONS END OF PERIOD - --------------------------------------- ------------- ----------- ---------- ---------- ------------- (AMOUNTS IN THOUSANDS) 1999.................................. $2,862 $ -- $1,772 $1,668 $2,966 1998.................................. 1,875 -- 1,577 590 2,862 1997.................................. 834 705 1,139 803 1,875
59 EX-10.7 2 COX RADIO, INC. 1999 EMPLOYEE STOCK PURCHASE 1 EXHIBIT 10.7 COX RADIO, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE OF THE PLAN The purpose of the Cox Radio, Inc. 1999 Employee Stock Purchase Plan (the "Plan") is to provide a method by which eligible employees of Cox Radio, Inc. ("Company") and its subsidiary corporations may purchase shares of Class A Common Stock of the Company ("Shares") by payroll deductions and at favorable prices. By this means, eligible employees will be given an opportunity to acquire an additional interest in the economic progress of the Company and a further incentive to promote the best interest of the Company. The Plan is intended to meet the requirements for an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended, (the "Code") and is to be interpreted and applied consistent with those requirements. The Plan shall be effective as of the day it is approved by the shareholders of the Company. 2. ELIGIBILITY TO PARTICIPATE Any regular employee of the Company and of its subsidiary corporations who has been employed by the Company since February 1, 1999 is eligible to participate in the Plan. For this purpose, prior employment with a radio station acquired by the Company on or before August 1, 1999 through a purchase or exchange of assets or a purchase of stock will be counted as employment with the Company. A "regular employee" means any employee regularly scheduled to work at least 20 hours per week, including any such person on an authorized leave of absence. Notwithstanding the foregoing, any employee who, after purchasing Shares under the Plan, would own 5 percent or more of the total combined voting power or value of all classes of stock of the Company, or any parent corporation or subsidiary corporation thereof, is not eligible to participate in the Plan. Ownership of stock is determined in accordance with the provisions of Section 424(d) of the Code. For all Plan purposes, the terms "parent corporation" and "subsidiary corporation" have the meanings set forth in Sections 424(e) and (f) of the Code, respectively. 3. NUMBER OF SHARES TO BE OFFERED An aggregate 250,000 Shares will be offered for subscription under the Plan. 4. PURCHASE PRICE The purchase price per Share offered under this Plan will be 85 percent of the "Fair Market Value" of a Share determined as of the "Grant Date." "Fair Market Value" means the average of the closing prices per Share as reflected by composite transactions on the national securities exchange on which the Shares are listed throughout a period of the last ten (10) trading days ending on and including the Grant Date. The "Grant Date" will be August 2, 1999. 2 5. OFFERING OF SHARES FOR SUBSCRIPTION Shares will be offered to eligible employees for subscription during the period beginning with the Grant Date and ending on the date 45 days thereafter (the "Subscription Period"). To subscribe, an eligible employee must complete, sign and deliver a subscription agreement to the Company no later than the last day of the Subscription Period. In the subscription agreement, the employee shall indicate the dollar amount of Shares for which the employee is subscribing to purchase (the "Subscription Amount"). 6. METHOD OF PAYMENT Payment of an employee's Subscription Amount will be made through payroll deductions, and an employee's participation in the Plan is contingent on the employee providing the Company with written authorization to withhold payroll deductions. The Subscription Amount shall be withheld from the employee's pay in substantially equal installments each pay day during the 25 month period beginning on the first day of the month next following the close of the Subscription Period. Notwithstanding the foregoing, an employee may arrange to pay any installment due for any payroll period directly to the Company in the event the employee is on an authorized unpaid leave of absence during such payroll period. 7. LIMIT ON AMOUNT OF SHARES SUBSCRIBED Notwithstanding an employee's subscription agreement, the maximum amount that may be withheld from an employee's pay or otherwise paid to the Company for the purchase of Shares over the 25 month period referenced in Section 6 of the Plan shall not exceed $25,000. In the event of an oversubscription of Shares, each employee's subscription shall be reduced on a pro rata basis so that the total number of Shares subject to subscription does not exceed the maximum number of Shares authorized under Section 3 of the Plan. 8. PURCHASE OF SHARES Unless an employee previously has withdrawn from the Plan as provided in Section 9 or otherwise has had his or her participation terminated as provided in Section 11, a participating employee will be deemed to have exercised his or her right to purchase Shares as of the Purchase Date. The "Purchase Date" means the first day of the month next following the close of the 25 month period referenced in Section 6 of the Plan. The number of Shares purchased by the employee generally shall be equal to the whole number of Shares that may be purchased with the total amount of withheld payments made by the employee under the Plan that have not been refunded to the employee. Any amount remaining after the purchase of full Shares will be refunded to the employee without interest; provided, that the Committee (as defined hereafter in Section 14), to the extent otherwise permissible, reserves the right to authorize the purchase of fractional Shares in lieu of such refunds. 2 3 9. CHANGE IN PARTICIPATION AND WITHDRAWAL FROM PLAN A participating employee may reduce his or her Subscription Amount at any time, but on a prospective basis only, by giving written notice to that effect to the Company. Such a reduction shall take effect as soon as is administratively feasible following the date as of which the Company is so notified. An employee may withdraw from the Plan and cancel his or her subscription at any time prior to the Purchase Date by giving written notice of cancellation to the Company. In such event, the employee may elect to have the entire amount he or she has paid to date applied to the purchase of whole Shares, with any remaining amount refunded in cash to the employee, or to have the entire amount paid to date refunded to the employee in cash without interest. Should any installment be due and unpaid for 30 days (as in the case of an unpaid leave of absence) without satisfactory arrangement for the payment being made within such period, the subscription shall be canceled automatically, the amount previously paid shall be refunded without interest to the employee in cash and the employee shall have no right to purchase Shares under the Plan. 10. RIGHTS NOT TRANSFERABLE An employee's rights under the Plan belong to the employee alone and may not be transferred or assigned to any other person during the employee's lifetime. After Shares have been issued under the Plan, such Shares may be assigned or transferred the same as any other Shares. 11. TERMINATION OF RIGHTS In the case of termination of employment, including retirement or death, the participating employee or his or her beneficiary may elect within 30 days after the happening of such event to (i) receive in cash the full amount paid by the employee, or (ii) have the amount paid applied to the purchase of full Shares with any remaining funds refunded in cash to the employee or to his or her beneficiary without interest. A failure to make such election within such 30 day period will be treated as notice of cancellation and the full amount paid will be refunded without interest in cash to the employee. Each employee shall be permitted to designate his or her beneficiary under this Section 11, which designation shall be made in writing on a form prepared by or satisfactory to the Company and shall be delivered to the Company. In the event an employee does not so designate a beneficiary, any election rights under this Section 11 otherwise subject to delegation to a beneficiary will be deemed delegated to the employee's estate. 12. ISSUANCE OF SHARES As soon as is administratively feasible after the purchase of any Shares under the Plan, the employee or beneficiary will be issued a stock certificate for the number of Shares purchased. The Shares will be issued only in the name of the participating employee, or if directed by the employee or beneficiary, in the employee's or beneficiary's name and in the name of one other person as tenants by the entireties or joint tenants with right of survivorship. 3 4 13. APPLICATION OF FUNDS All funds held or received by the Company under this Plan may be used for any corporate purpose until applied to the purchase of Shares or refunded to employees and shall not be segregated from the general assets of the Company. 14. ADMINISTRATION The Plan shall be administered by the Management Committee appointed by the Board of Directors of the Company (the "Committee"). The Committee shall prescribe such rules as it deems necessary to administer the Plan and shall have the sole and discretionary authority to resolve any questions regarding the interpretation or application of the terms of the Plan. 15. AMENDMENT OR DISCONTINUANCE OF PLAN The Board of Directors of the Company shall have the right to amend, modify or terminate the Plan at any time without notice; provided that no employee's then existing rights are adversely affected without his or her consent, and provided further that any amendment of the Plan, except as is provided in Section 15 of the Plan, shall be subject to shareholder approval to the extent required by any Federal or state law or the rules of any stock exchange on which the Shares may be listed. 16. ADJUSTMENT OF SUBSCRIPTIONS In the event of reorganization, recapitalization, stock split, stock dividend, merger, consolidation or any other change in the structure of Shares of the Common Stock of the Company, the Board of Directors of the Company may make such adjustment as it may deem appropriate in the number, kind and subscription price of Shares available for purchase under the Plan. 4 5 EX-21 3 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT CXR Holdings, Inc. Cox Miami Merger Sub, Inc. EX-23.1 4 CONSENT OF DELOITTE & TOUCHE LLP 1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements (Nos. 333-13281 and 333-87193) on Form S-8 of Cox Radio, Inc. of our report dated February 7, 2000, except as to Note 16 to the consolidated financial statements which is dated March 14, 2000 appearing in this Annual Report on Form 10-K of Cox Radio, Inc. for the year ended December 31, 1999. DELOITTE & TOUCHE LLP Atlanta, Georgia March 15, 2000 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF COX RADIO, INC. FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 US DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 14,704 0 77,741 2,966 0 93,866 96,235 39,653 986,621 42,089 420,105 0 0 28,917 349,749 986,621 0 300,494 0 183,919 (1,359) 0 (23,226) 94,826 39,566 55,260 0 0 0 55,260 1.92 1.91
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