-----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, RxD0xGcbHL/P8T5gWfILjGBTYeUv2Fla8d33RHZqBinEjDHfFIMtcw3u4kJ5tOpn Lgqgmw7ezfR+O5hsFHahtg== 0000950144-97-011995.txt : 19971113 0000950144-97-011995.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950144-97-011995 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COX RADIO INC CENTRAL INDEX KEY: 0001018522 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 581620022 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12187 FILM NUMBER: 97715325 BUSINESS ADDRESS: STREET 1: C/O COX ENTERPRISES INC STREET 2: 1400 LAKE HEARN DR CITY: ATLANTA STATE: GA ZIP: 30319 BUSINESS PHONE: 4048435000 MAIL ADDRESS: STREET 1: C/O COX ENTERPRISES INC STREET 2: 1400 LAKE HEARN DR CITY: ATLANTA STATE: GA ZIP: 30319 10-Q 1 COX RADIO 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________ COMMISSION FILE NUMBER 1-12187 COX RADIO, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 58-1620022 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1400 LAKE HEARN DRIVE, ATLANTA, GEORGIA 30319 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (404) 843-5000 --------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] --------------- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. There were 8,806,595 shares of Class A Common Stock outstanding as of September 30, 1997. There were 19,577,672 shares of Class B Common Stock outstanding as of September 30, 1997. 2 COX RADIO, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 TABLE OF CONTENTS
PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS................................................... 3 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................................. 11 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................... 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................... 15 SIGNATURES...................................................................... 17
2 3 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COX RADIO, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ (Thousands of Dollars) ASSETS CURRENT ASSETS: Cash and cash equivalents .................................................... $ 9,273 $ 1,544 Restricted cash .............................................................. -- 9,051 Accounts receivable, less allowance for doubtful accounts of $1,778 and $834 ......................................................... 44,913 31,511 Prepaid expenses and other current assets .................................... 5,465 1,575 Income taxes receivable ...................................................... 589 --------- --------- Total current assets ...................................................... 60,240 43,681 Plant and equipment, net ....................................................... 44,374 27,070 Intangible assets, net ......................................................... 519,402 138,119 Amounts due from Cox Enterprises, Inc. ......................................... -- 49,667 Station investment note receivable ............................................. 12,000 -- Other assets ................................................................... 10,192 3,182 --------- --------- Total assets .............................................................. $ 646,208 $ 261,719 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses ........................................ $ 18,553 $ 10,296 Unit appreciation plan ("UAP") liability ..................................... -- 646 Income taxes payable ......................................................... -- 3,216 Deferred barter/trade ........................................................ 2,656 -- Other current liabilities .................................................... 141 668 --------- --------- Total current liabilities ................................................. 21,350 14,826 Amounts due to Cox Enterprises, Inc. ........................................... 14,882 -- Notes payable .................................................................. 225,000 -- Deferred income taxes .......................................................... 103,009 11,095 Other noncurrent liabilities ................................................... 743 -- --------- --------- Total liabilities ......................................................... 364,984 25,921 --------- --------- Commitments and contingencies (Note 3) SHAREHOLDERS' EQUITY: Class A common stock, $1.00 par value; 70,000,000 shares authorized; 8,806,595 and 8,736,972 shares outstanding at September 30, 1997 and December 31, 1996, respectively .................................... 8,807 8,737 Class B common stock, $1.00 par value; 45,000,000 shares authorized; 19,577,672 shares outstanding at September 30, 1997 and December 31, 1996 ........................................................... 19,578 19,578 Additional paid-in capital ................................................... 250,193 248,972 Retained earnings (accumulated deficit) ...................................... 2,646 (41,489) --------- --------- Total shareholders' equity ................................................ 281,224 235,798 --------- --------- Total liabilities and shareholders' equity ................................ $ 646,208 $ 261,719 ========= =========
See notes to consolidated financial statements. 3 4 COX RADIO, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------- ---------------------- SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1997 1996 1997 1996 --------- --------- --------- --------- (Thousands of dollars, except per share data) NET REVENUES: Local ..................................... $ 40,326 $ 24,294 $ 101,168 $ 74,708 National .................................. 13,988 7,984 35,289 23,463 Other ..................................... 874 739 2,235 1,154 --------- --------- --------- --------- Total revenues .......................... 55,188 33,017 138,692 99,325 COSTS AND EXPENSES: Operating ................................. 14,918 11,482 36,760 32,046 Selling, general and administrative ....... 19,657 10,944 53,458 37,677 Corporate general and administrative ...... 1,709 1,986 5,159 4,327 Depreciation and amortization ............. 4,834 2,027 12,019 6,006 --------- --------- --------- --------- OPERATING INCOME ............................. 14,070 6,578 31,296 19,269 OTHER INCOME (EXPENSE): Interest income .............................. 106 -- 1,578 -- Interest expense ............................. (3,501) (2,553) (7,072) (5,409) Gain on sale of radio station ................ -- -- 49,072 -- Other - net .................................. (425) (51) (538) (326) --------- --------- --------- --------- INCOME BEFORE INCOME TAXES ................... 10,250 3,974 74,336 13,534 Income taxes ................................. 4,255 1,604 30,201 5,951 --------- --------- --------- --------- NET INCOME ................................... $ 5,995 $ 2,370 $ 44,135 $ 7,583 ========= ========= ========= ========= Net income per common share .................. $ .21 $ .12 $ 1.56 $ .39 ========= ========= ========= ========= Weighted average common shares outstanding .................................. 28,339 19,578 28,327 19,578 ========= ========= ========= =========
See notes to consolidated financial statements. 4 5 COX RADIO, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
CLASS A CLASS B RETAINED COMMON STOCK COMMON STOCK ADDITIONAL EARNINGS -------------------- -------------------- PAID-IN (ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) 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 .............................. -- -- -- -- -- 44,135 44,135 Issuance of restricted stock .............. 13 13 -- -- 224 -- 237 Issuance of stock related to incentive .... 57 57 997 1,054 -------- -------- -------- -------- -------- -------- -------- BALANCE AT SEPTEMBER 30, 1997 ............. 8,807 $ 8,807 19,578 $ 19,578 $250,193 $ 2,646 $281,224 ======== ======== ======== ======== ======== ======== ========
See notes to consolidated financial statements. 5 6 COX RADIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1997 1996 --------- --------- (Thousands of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................... $ 44,135 $ 7,583 Items not requiring cash: Depreciation ........................................................... 3,204 1,931 Amortization ........................................................... 8,815 4,075 Deferred income taxes .................................................. 25,394 1,134 Gain on sale of radio station .......................................... (49,072) -- Decrease (increase) in accounts receivable ............................... (654) 1,443 Increase (decrease) in accounts payable and accrued expenses ............. 1,365 (226) Decrease in taxes payable ................................................ (3,805) (278) Increase (decrease) of UAP liability ..................................... (646) 1,589 Other, net ............................................................... 379 565 --------- --------- Net cash provided by operating activities ......................... 29,115 17,816 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ..................................................... (7,835) (1,381) Acquisitions, net of cash acquired ....................................... (315,121) (15,811) Increase in other long-term assets ....................................... (19,822) (3,205) Net proceeds from sale of radio station .................................. 19,590 -- Other, net ............................................................... 237 -- --------- --------- Net cash used in investing activities ............................. (322,951) (20,397) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in amounts due to CEI ............................................. 64,549 18,774 Borrowings of debt ....................................................... 224,994 -- Net proceeds from issuance of stock related to incentive plan ............ 1,054 -- Dividends paid ........................................................... -- (12,656) Increase (decrease) in book overdrafts ................................... 1,917 (2,415) --------- --------- Net cash provided by financing activities ......................... 292,514 3,703 --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS ................................ (1,322) 1,122 CASH AND CASH EQUIVALENTS (INCLUDING RESTRICTED CASH) AT BEGINNING OF PERIOD ................................................................. 10,595 1,691 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................. $ 9,273 $ 2,813 ========= =========
See notes to consolidated financial statements. 6 7 COX RADIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1997 1. BASIS OF PRESENTATION AND OTHER INFORMATION Cox Radio, Inc. ("Cox Radio" or the "Company"), a majority-owned subsidiary of Cox Enterprises, Inc. ("CEI"), is a leading national radio broadcasting company whose business is devoted exclusively to operating, acquiring and developing radio stations located throughout the United States. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal, recurring nature. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1996 and notes thereto contained in Cox Radio's Annual Report on Form 10-K filed with the Securities and Exchange Commission (Commission File No. 1-12187). The results of operations for the nine months ended September 30, 1997 are not necessarily indicative of the results to be expected for the year ending December 31, 1997 or any interim period. 2. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES In March 1997, the Company exchanged WCKG-FM and WYSY-FM in Chicago for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando (the "Orlando Acquisition"). The Orlando Acquisition resulted in a pre-tax gain of approximately $49 million. In addition to receiving the three Orlando stations, Cox Radio also received cash proceeds of approximately $20 million. Prior to the NewCity Acquisition (as defined below), the Orlando stations were operated by NewCity Communications, Inc. ("NewCity") since July 1996 under a local marketing agreement ("LMA"). In March 1997, the Company acquired WFNS-AM in Tampa for an aggregate consideration of $1.5 million (the "Tampa Acquisition"). The Company had been operating this station pursuant to an LMA or a joint sales agreement ("JSA") since June 1995. In April 1997, Cox Radio completed its acquisition of the license and certain assets of KRTO-FM in Los Angeles for $19 million in cash (the "Los Angeles Acquisition"). On April 1, 1997, the Company, through the merger of its wholly owned subsidiary New Cox Radio II, Inc. with and into NewCity Communications, Inc. ("NewCity"), with NewCity as the surviving corporation, acquired all of the issued and outstanding capital stock of NewCity (the "NewCity Acquisition"). Cox Radio purchased the stock of NewCity for an aggregate consideration of approximately $253 million, including approximately $87 million in assumption of NewCity indebtedness and approximately $3 million in working capital adjustments. To consummate the NewCity Acquisition, the Company utilized approximately $56 million of amounts due from CEI and borrowed approximately $110 million pursuant to the Company's $300 million, five-year, senior, unsecured revolving credit facility with certain banks, including Texas Commerce Bank National Association, as Administrative Agent. On April 2, 1997, NewCity was merged with and into the Company, with the Company as the surviving corporation. 7 8 The NewCity Acquisition was recorded effective April 1, 1997, using the purchase method of accounting, whereby the allocable share of the NewCity purchase price was allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition as follows (in thousands): Net working capital................................................ $ 8,342 Plant and equipment................................................ 9,310 Goodwill/FCC broadcast licenses.................................... 311,684 Deferred taxes..................................................... (65,735) -------- Total cost of acquisition including assumed liabilities............ $263,601 ========
The above amounts reflect certain purchase accounting adjustments which have been made through September 30, 1997. These amounts are subject to certain other purchase accounting adjustments which will be made in subsequent periods. In May 1997, the Company agreed to acquire WBHJ-FM and WBHK-FM in Birmingham, Alabama (the "Birmingham Acquisition I") for an aggregate consideration of $17 million, consisting of $5 million paid for an option to purchase and $12 million issued to the seller as a Station Investment Note Receivable. See further discussion at Note 4. On August 1, 1997, the Company began operating WBHJ-FM and WBHK-FM under an LMA. The Company expects to consummate this acquisition during the second half of 1998. In May 1997, the Company agreed to acquire WENN-FM and WAGG-AM, also in Birmingham, Alabama, for consideration of $15 million (the "Birmingham Acquisition II"). In July, 1997, the Company assigned its right to purchase WENN-FM for consideration of $14.5 million to a third party (the "Birmingham Disposition"). The Company consummated both the Birmingham Acquisition II and the Birmingham Disposition during November 1997. In September 1997, the Company announced that it had entered into an agreement in principle with a third party to construct, program and own a new Class A FM radio station in Homewood, Alabama to serve the Birmingham market (the "Birmingham Acquisition III"). The transaction is pending FCC approval of the application for the new construction permit and settlement of the comparative hearing between three applicants for the construction permit. As part of the agreement, the third party would construct the station, the Company would enter into an LMA for the new station and the Company would acquire an option to purchase the station for an aggregate consideration of $5.5. The Birmingham Acquisition I, the Birmingham Acquisition II, the Birmingham Acquisition III and the Birmingham Disposition are collectively referred to herein as the "Birmingham Transactions". In September 1997, the Company acquired KISS-FM, KSMG-FM and KLUP-AM in San Antonio, Texas for an aggregate consideration of $30.4 million plus certain non-compete agreements (the "San Antonio Acquisition"). In October 1997, the Company disposed of the assets of American Comedy Network (the "American Comedy Network Disposition") for aggregate proceeds of approximately $1.1 million including certain non-compete agreements. This transaction resulted in a pretax gain of approximately $.1 million. 8 9 The following unaudited pro forma summary of operations presents the consolidated results of operations as if the Cox Radio Consolidation (as discussed in the Company's Annual Report on Form 10-K for the period ended December 31, 1996), the Company's Initial Public Offering, the Orlando Acquisition, the NewCity Acquisition, the Birmingham Transactions and the San Antonio Acquisition had occurred at the beginning of the periods presented and does not purport to be indicative of what would have occurred had these transactions been made as of those dates or of results which may occur in the future. No pro forma adjustments have been made for the Tampa Acquisition, the Los Angeles Acquisition, the Birmingham Acquisition III and the American Comedy Network Disposition due to immateriality.
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues........................................ $56,747 $49,488 $161,471 $143,204 Corporate general and administrative expenses....... 1,709 2,373 5,635 5,110 Depreciation and amortization....................... 4,834 4,577 15,314 9,349 Operating income.................................... 14,507 9,442 33,021 28,521 Net income.......................................... 6,027 3,290 12,586 10,686 --------------------------------------------- Earnings per common share........................... $ .21 $ .12 $ .44 $ .38 --------------------------------------------- Pro forma shares outstanding........................ 28,328 28,328 28,328 28,328 =============================================
3. COMMITMENTS AND CONTINGENCIES On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior, unsecured revolving credit facility (the "Credit Agreement") with certain guarantors and banks, including Texas Commerce Bank National Association, as Administrative Agent, Nationsbank of Texas, N.A., as Syndications Agent, and Citibank, N.A., as Documentation Agent. The loan proceeds were used to finance the payment of the consideration payable in the Merger, repay certain secured debt of NewCity and and finance certain acquisitions. The remaining loan proceeds may be used to finance (A) the repayment or repurchase of certain unsecured debt of NewCity, (B) additional acquisitions and (C) other corporate purposes. The Credit Agreement restricts the payment of dividends, prohibits certain mergers, consolidations or dispositions of assets and establishes limitations on, among other things, additional indebtedness and transactions with affiliates. Cox Radio borrowed approximately $110 million under the Credit Agreement to consummate the NewCity Acquisition. At the closing of the NewCity Acquisition and the merger of NewCity with and into the Company, as described in Note 2, NewCity was the obligor of $75 million principal amount of 11-3/8% Senior Subordinated Notes due 2003 (the "Notes"). 9 10 On May 2, 1997, following a tender offer and consent solicitation, the Company paid an aggregate amount of $82.1 million to holders of the Notes in exchange for approximately $74.6 million principal amount of the Notes and consents to the elimination of substantially all the restrictive covenants applicable to the Notes. The Company obtained the funds necessary to make such payments from borrowings under the Credit Agreement. The Company has entered into interest rate swap agreements with certain lenders providing bank financing. Pursuant to the interest rate swap agreements, the Company has exchanged its floating rate interest obligations on an aggregate of $100 million in principal at an average fixed rate of 6.23% per annum for an average maturity of 6.25 years. The fixing of interest rates for this period reduces in part the Company's exposure to the uncertainty of floating interest rates. The differential paid or received on the interest rate swap agreements are recognized as an adjustment to interest expense. At September 30, 1997, the Company had approximately $240 million of outstanding indebtedness including approximately $14.9 million due to CEI, and had approximately $75 million available under the Credit Agreement. 4. STATION INVESTMENT NOTE RECEIVABLE In connection with the Birmingham Acquisition I, the Company has loaned $12 million to an entity which owns radio stations that the Company has agreed to purchase. This Station Investment Note Receivable has an interest rate of 8.5% and is collateralized by substantially all of the assets of Birmingham radio stations WBHJ-FM and WBHK-FM. 5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In February 1997, SFAS No. 128, "Earnings per Share," was issued. This statement establishes standards for computing and presenting earnings per share (EPS). It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15, "Earnings per Share," which is superseded by this Statement. This Statement requires restatement of all prior-period EPS data presented. Upon adoption of this Statement in December 1997, the EPS amounts presented will not be materially different than those previously presented in accordance with Opinion 15. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF COX RADIO The following discussion should be read in conjunction with the accompanying historical Consolidated Statements of Income for the three and nine month periods ended September 30, 1997 and 1996. This report contains forward-looking statements that are subject to risks and uncertainties. Forward-looking statements include the information regarding future cash requirements of the Company. For such statements, the Company claims the protection of the safe harbor for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934, as amended. The Company's results could differ materially from those discussed in each forward-looking statement due to various factors which are outside the Company's control, including competition for audience share and advertising revenue from other radio stations, electronic and print media and new media technologies and governmental regulation of the radio broadcasting industry. For a more detailed discussion of these factors and others, see the Risk Factors section of the Company's prospectus filed as part of its Registration Statement on Form S-1 (File No. 333-08737). GENERAL The performance of a radio station group, such as the Company, is customarily measured by its ability to generate Broadcast Cash Flow and EBITDA. Broadcast Cash Flow is defined as net revenues less station operating expenses. EBITDA is defined as operating income plus depreciation and amortization. Although Broadcast Cash Flow and EBITDA are not recognized under generally accepted accounting principles ("GAAP"), they are accepted by the broadcasting industry as generally recognized measures of performance and are used by analysts who report publicly on the condition and performance of broadcasting companies. For the foregoing reasons, the Company believes that these measures will be useful to investors. However, investors should not consider Broadcast Cash Flow or EBITDA to be an alternative to operating income as determined in accordance with GAAP, an alternative to cash flows from operating activities (as a measure of liquidity) or an indicator of the Company's performance under GAAP. The primary source of the Company's revenues is the sale of local, national and network advertising. Most of the Company's revenue is generated from local advertising which is sold by each station's sales staff. Historically, approximately 76% and 24% of the Company's gross revenues were generated from local and national advertising, respectively. The Company's most significant station operating expenses are employees' salaries and benefits, commissions, programming expenses and advertising and promotional expenditures. The Company's revenues vary throughout the year. As is typical in the radio broadcasting industry, the Company's first calendar quarter generally produces the lowest revenues for the year, and the fourth calendar quarter generally produces the highest revenues for the year. The Company's operating results in any period may be affected by the incurrence of advertising and promotional expenses that do not necessarily produce commensurate revenues until the impact of the advertising and promotion is realized in future periods. ACQUISITIONS AND DISPOSITIONS During the past several years, the Company has actively managed its portfolio of radio stations through selected acquisitions, dispositions and swaps, as well as the use of local marketing agreements ("LMA's") and joint sales agreements ("JSA's"). Specific transactions entered into by the Company during the nine months ended September 30, 1997 are discussed below. 11 12 In March 1997, the Company exchanged WCKG-FM and WYSY-FM in Chicago for WHOO-AM, WHTQ-FM and WMMO-FM in Orlando (the "Orlando Acquisition"). The Orlando Acquisition resulted in a pre-tax gain of approximately $49 million. In addition to receiving the three Orlando stations, Cox Radio also received cash proceeds of approximately $20 million. Prior to the NewCity Acquisition (as defined below), the Orlando stations were operated by NewCity Communications, Inc. ("NewCity") since July 1996 under an LMA. In March 1997, the Company acquired WFNS-AM in Tampa for an aggregate consideration of $1.5 million (the "Tampa Acquisition"). The Company had been operating this station pursuant to an LMA or a JSA since June 1995. In April 1997, Cox Radio completed its acquisition of the license and certain assets of KRTO-FM in Los Angeles for $19 million in cash (the "Los Angeles Acquisition"). On April 1, 1997, the Company, through the merger of its wholly owned subsidiary New Cox Radio II, Inc. with and into NewCity Communications, Inc. (NewCity), with NewCity as the surviving corporation, acquired all of the issued and outstanding capital stock of NewCity (the "NewCity Acquisition"). Cox Radio purchased the stock of NewCity for an aggregate consideration of approximately $253 million, including approximately $87 million in assumption of NewCity indebtedness and approximately $3 million in working capital adjustments. To consummate the NewCity Acquisition, the Company utilized approximately $56 million of amounts due from CEI and borrowed approximately $110 million pursuant to the Company's $300 million, five-year, senior, unsecured revolving credit facility with certain banks, including Texas Commerce Bank National Association, as Administrative Agent. On April 2, 1997, NewCity was merged with and into the Company, with the Company as the surviving corporation. In May 1997, the Company agreed to acquire WBHJ-FM and WBHK-FM in Birmingham, Alabama (the "Birmingham Acquisition I") for an aggregate consideration of $17 million, consisting of $5 million paid as an option to purchase and $12 million issued to the seller as a Station Investment Note Receivable. See further discussions at Note 4. On August 1, 1997, the Company began operating WBHJ-FM and WBHK-FM under an LMA. The Company expects to consummate this acquisition during the second half of 1998. In May 1997, the Company agreed to acquire WENN-FM and WAGG-AM, also in Birmingham, Alabama, for consideration of $15 million (the "Birmingham Acquisition II"). In July, 1997, the Company assigned its right to purchase WENN-FM for consideration of $14.5 million to a third party (the "Birmingham Disposition"). The Company consummated both the Birmingham Acquisition II and the Birmingham Disposition during November 1997. In September 1997, the Company announced that it had entered into an agreement in principle with a third party to construct, program and own a new Class A FM radio station in Homewood, Alabama to serve the Birmingham market (the "Birmingham Acquisition III"). The transaction is pending FCC approval of the application for the new construction permit and settlement of the comparative hearing between three applicants for the construction permit. As part of the agreement, the third party would construct the station, the Company would enter into an LMA for the new station and the Company would acquire an option to purchase the station for an aggregate consideration of $5.5. In September 1997, the Company acquired KISS-FM, KSMG-FM and KLUP-AM in San Antonio, Texas for an aggregate consideration of $30.4 million plus certain non-compete agreements. In October 1997, the Company disposed of the assets of American Comedy Network for aggregate proceeds of approximately $1.1 million including certain non-compete agreements. This transaction resulted in a pretax gain of approximately $.1 million. 12 13 RESULTS OF OPERATIONS Three months ended September 30, 1997 compared to three months ended September 30, 1996 Net Revenues. Net revenues for the third quarter of 1997 increased $22.2 million to $55.2 million, a 67.2% increase over the third quarter of 1996. This increase was primarily attributable to the NewCity Acquisition. Additionally, substantial increases in net revenues at the stations in Atlanta, Los Angeles, Miami and Tampa offset approximately $2.0 million of lost revenue due to the sale of WIOD-AM in Miami during December of 1996. Station Operating Expenses. Station operating expenses increased $12.1 million to $34.6 million, an increase of 54.2% over the third quarter of 1996. The increase was primarily attributable to the NewCity Acquisition but was offset somewhat by the disposal of WIOD-AM in Miami during December of 1996. Broadcast Cash Flow. Broadcast cash flow increased $10.0 million to $20.6 million, a 94.6% increase over the third quarter of 1996 for the reasons discussed above. Corporate general and administrative expenses. Corporate general and administrative expenses decreased $.3 million to $1.7 million primarily due to a non-recurring corporate charge during the third quarter of 1996 as well as costs associated with the Company's initial public offering during the third quarter of 1996. Operating Income. Operating income for the third quarter of 1997 increased $7.5 million to $14.1 million, an increase of 113.9% over the third quarter of 1996 for the reasons discussed above. Interest expense. Interest expense during the third quarter of 1997 totaled $3.3 million as compared to $2.6 million during the third quarter of 1996 as a result of borrowings incurred to complete the NewCity Acquisition, the Birmingham Acquisition I and the San Antonio Acquisition. Net Income. Net income increased $3.6 million to $6.0 million, a 153.0% increase over the third quarter of 1996 for the reasons discussed above. Nine months ended September 30, 1997 compared to nine months ended September 30, 1996 Net Revenues. Net revenues for the nine months ended September 30, 1997 increased $39.4 million to $138.7 million, a 39.6% increase over the comparable period of 1996. This increase was primarily attributable to the NewCity Acquisition as discussed above and substantial percentage increases in net revenues at the stations in Atlanta, Los Angeles and Tampa offset somewhat by the disposal of the operations of WCKG-FM/WYSY-FM in Chicago through an LMA commencing July 1996 and the sale of WIOD-AM in Miami in December 1996. Station Operating Expenses. Station operating expenses for the nine months ended September 30, 1997 increased $20.5 million to $90.2 million, an increase of 29.4% over the comparable period of 1996. The increase was primarily attributable to the NewCity Acquisition but offset somewhat by the disposal of the operations of the Chicago stations through an LMA commencing July 1996 and the sale of WIOD-AM in Miami during December of 1996. Additionally, substantial reductions in station operating expenses were realized at the Tampa station group as a result of efforts to control costs. Broadcast Cash Flow. Broadcast cash flow for the nine months ended September 30, 1997 increased $18.9 million to $48.5 million, a 63.8% increase over the comparable period of 1996 for the reasons discussed above. Corporate general and administrative expenses. Corporate general and administrative expenses for the nine months ended September 30, 1997 increased $.8 million to $5.2 million primarily due to 13 14 additional costs incurred as a result of the NewCity Acquisition and as a result of the Company being publicly-held during the first nine months of 1997 but somewhat offset by a non-recurring corporate charge during 1996. Operating Income. Operating income for the nine months ended September 30, 1997 increased $12.0 million to $31.3 million, an increase of 62.4% over the comparable period of 1996 for the reasons discussed above. Interest income/expense. Interest expense during the nine months ended September 30, 1997 totaled $5.5 million as compared to $5.4 million during the comparable period of 1996, primarily as a result of borrowings incurred to complete the NewCity Acquisition, the Birmingham Acquisition I and the San Antonio Acquisition offset somewhat by interest income earned during the first quarter of 1997. Net Income. Net income increased $36.6 million over the prior period to $44.1 million for the reasons discussed above and as a result of an after-tax gain of approximately $29.3 million on the sale of WCKG-FM and WYSY-FM in Chicago during March 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's primary source of liquidity is cash provided by operations. For the nine months ended September 30, 1997, cash from operations increased $7.5 million to $25.3 million, a 42.2% increase primarily attributable to an increase in net income and deferred taxes and a decrease in accounts payable, accrued expenses and income taxes payable. Historically, cash requirements have been funded by Cox Radio's operating activities and through borrowings under the Credit Agreement (as defined below). In addition, cash requirements have been funded on a temporary basis through intercompany advances from CEI under a revolving credit facility with CEI (the "New CEI Credit Facility"). Borrowings by the Company under the New CEI Credit Facility are typically repaid by the Company within 30 days. Borrowings under the New CEI Credit Facility accrue interest at CEI's commercial paper rate plus .75%. CEI continues to perform day-to-day cash management services for Cox Radio. On March 7, 1997, Cox Radio entered into a $300 million, five-year, senior, unsecured revolving credit facility (the "Credit Agreement") with certain guarantors and banks, including Texas Commerce Bank National Association, as Administrative Agent, Nationsbank of Texas, N.A., as Syndications Agent, and Citibank, N.A., as Documentation Agent. The loan proceeds were used to finance the payment of the consideration payable in the Merger, repay certain secured debt of NewCity and and finance certain acquisitions. The remaining loan proceeds may be used to finance (A) the repayment or repurchase of certain unsecured debt of NewCity, (B) additional acquisitions and (C) other corporate purposes. The Credit Agreement restricts the payment of dividends, prohibits certain mergers, consolidations or dispositions of assets and establishes limitations on, among other things, additional indebtedness and transactions with affiliates. Cox Radio borrowed approximately $110 million under the Credit Agreement to consummate the NewCity Acquisition. Upon consummation of the Cox Radio Merger, Cox Radio assumed certain indebtedness of NewCity. NewCity was the obligor of $75 million principal amount of 11-3/8% Senior Subordinated Notes due 2003 (the "Notes"). The Notes were general unsecured obligations of Cox Radio and are subordinated to all existing and future senior indebtedness of Cox Radio. On May 2, 1997, following a tender offer and consent solicitation, the Company paid an aggregate amount of $82.1 million to holders of the Notes in exchange for approximately $76.4 million principal amount of the Notes and consents to the elimination of substantially all of the restrictive covenants applicable to the Notes. The Company obtained the funds necessary to make such payments from borrowings under the Credit Agreement. The Company has entered into interest rate swap agreements with certain lenders providing bank financing. Pursuant to the interest rate swap agreements, the Company has exchanged its floating rate interest obligations on an aggregate of $100 million in principal at an average fixed rate of 6.23% per 14 15 annum for an average maturity of 6.25 years. The fixing of interest rates for this period reduces in part the Company's exposure to the uncertainty of floating interest rates. The differential paid or received on the interest rate swap agreements are recognized as an adjustment to interest expense. At September 30, 1997, the Company had approximately $240 million of outstanding indebtedness including approximately $14.9 due to CEI, and had approximately $75 million available under the Credit Agreement. Future cash requirements are expected to include capital expenditures, principal and interest payments on indebtedness and funds for acquisitions. The Company expects its operations to generate sufficient cash to meet its capital expenditures and debt service requirements. Additional cash requirements, including funds for pending or other acquisitions, will be funded by various sources, including the proceeds from bank financing and, if or when appropriate, other issuances of Company securities. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Listed below are the exhibits which are filed as part of this Report (according to the number assigned to them in Item 601 of Regulation S-K): EXHIBIT DESCRIPTION NUMBER 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. (Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737))* 2.2 Guaranty by Cox Broadcasting, Inc., dated as of July 1, 1996, in favor of NewCity Communications, Inc. (Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737)) 3.1 Amended and Restated Certificate of Incorporation of Cox Radio, Inc. (Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737)) 3.2 Amended and Restated Bylaws of Cox Radio, Inc. (Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737)) 4.1 Indenture between NewCity Communications, Inc. and Shawmut Bank Connecticut, National Association, as Trustee, dated as of November 2, 1993, related to the 11 3/8% Notes due 2003 of NewCity Communications, Inc. (Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737))* 4.2 First Supplemental Indenture between NewCity Communications, Inc. and Shawmut Bank Connecticut, National Association, as Trustee, dated as of September 16, 1994, relating to the 11 3/8% Notes due 2003 of NewCity Communications, Inc. (Incorporated by reference to the corresponding exhibit of 15 16 Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737)) 4.3 Specimen of Class A Common Stock Certificate. (Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737)) 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. (Incorporated by reference to the corresponding exhibit of Cox Radio's Annual Report on Form 10-K (Commission File No. 1-12187))* 10.2 New CEI Credit Facility. (Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737)) 10.3 Cox Radio, Inc. Long-Term Incentive Plan. (Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737)) 10.4 Cox Radio, Inc. Employee Stock Purchase Plan. (Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737)) 10.5 Cox Radio, Inc. Restricted Stock Plan for Non-Employee Directors (Incorporated by reference to the corresponding exhibit of Cox Radio's Registration Statement on Form S-1 (Commission File No. 333-08737)) 10.6 Tax Allocation and Indemnification Agreement dated as of October 2, 1996, by and between Cox Enterprises, Inc. and Cox Radio, Inc. (Incorporated by reference to the corresponding exhibit of Cox Radio's Annual Report on Form 10-K (Commission File No. 1-12187)) 21 Subsidiaries of the Registrant 27.1 Financial Data Schedule (for SEC use only) * Schedules and Exhibits intentionally omitted. (b) Reports on Form 8-K filed during the quarter ended September 30, 1997: None 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COX RADIO, INC. November 13, 1997 /s/ Maritza C. Phicon -------------------------------------------- Maritza C. Pichon Chief Financial Officer (Principal Financial Officer and duly authorized officer) 17 EX-21 2 LIST OF SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF COX RADIO, INC. WHIO, Inc. WSB, Inc. EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 9,273 0 46,691 (1,778) 0 60,240 82,787 (38,413) 646,208 21,350 0 0 0 28,385 252,839 646,208 0 138,692 0 90,218 17,178 0 (7,072) 74,336 30,201 44,135 0 0 0 44,135 1.56 0
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