Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

Commission File Number 1-12187

Registrant’s telephone number, including area code: (678) 645-0000

     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   o

     Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

     There were 41,565,063 shares of Class A Common Stock outstanding as of July 31, 2002.

     There were 58,733,016 shares of Class B Common Stock outstanding as of July 31, 2002.

Table of Contents

COX RADIO, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
TABLE OF CONTENTS

2

Table of Contents

PART 1 — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Cox Radio, Inc.
Consolidated Balance Sheets
(Unaudited)

See notes to unaudited consolidated financial statements.

3

Table of Contents

Cox Radio, Inc.
Consolidated Statements of Income
(Unaudited)

See notes to unaudited consolidated financial statements.

4

Table of Contents

Cox Radio, Inc.
Consolidated Statement of Shareholders’ Equity
(Unaudited)

See notes to unaudited consolidated financial statements.

5

Table of Contents

Cox Radio, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

See notes to unaudited consolidated financial statements.

6

Table of Contents

COX RADIO, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND OTHER INFORMATION

     Cox Radio is a leading national radio broadcasting company whose business, which constitutes one reportable segment, is devoted to acquiring, developing and operating radio stations located throughout the United States. Cox Enterprises, Inc. indirectly owns approximately 62% of the common stock of Cox Radio and has approximately 94% of the voting power of Cox Radio.

     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal, recurring nature. These unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2001 and notes thereto contained in Cox Radio’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission.

     The results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002 or any other period.

     Certain prior year amounts have been reclassified for comparative purposes.

2. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES

     During the past several years, Cox Radio has actively managed its portfolio of radio stations through selected acquisitions, dispositions and exchanges, as well as through the use of local marketing agreements, or LMAs, and joint sales agreements, or JSAs. Under an LMA or a JSA, the company operating a station provides programming or sales and marketing or a combination of such services on behalf of the owner of a station.

     The following disposition activity has been entered into or consummated during the six months ended June 30, 2002 and through August 14, 2002.

     In January 2002, Cox Radio disposed of the assets of KRTR-AM (formerly KGMZ-AM) serving Honolulu, Hawaii for $0.6 million. The buyer of the station had been operating the station under an LMA since October 2001.

     In June 2002, Cox Radio disposed of the assets of KCCN-AM serving Honolulu, Hawaii for $0.8 million.

     In August 2002, Cox Radio disposed of the assets of WBWL-AM serving Jacksonville, Florida for $2.5 million.

     The pro forma effects of these transactions are immaterial for the three-month and six-month periods ended June 30, 2002 and 2001.

7

Table of Contents

3. COMMITMENTS AND CONTINGENCIES

     On June 30, 2000, Cox Radio entered into a $350 million, five-year senior unsecured revolving credit facility and a $350 million, 364-day senior unsecured revolving credit facility, each with certain banks, including The Chase Manhattan Bank as the Administrative Agent, Bank of America, N.A. as the Syndication Agent, and Citibank, N.A. as the Documentation Agent. On June 29, 2001, the five-year facility was amended to revise the definition of interest expense and to make certain other non-material changes. On June 28, 2002, Cox Radio replaced its $350 million, 364-day senior unsecured revolving credit facility with a $150 million, 364-day senior unsecured revolving credit facility. The interest rate for each facility is, at Cox Radio’s option, the greater of the prime rate or the federal funds borrowing rate plus 0.5%; the London Interbank Offered Rate plus a spread based on the credit ratings of Cox Radio’s senior long-term debt; or the bid rate for the purchase of certificates of deposit of equal principal amount and maturity plus a spread based on the credit ratings of Cox Radio’s senior long-term debt. Under the new $150 million 364-day senior unsecured revolving credit facility, Cox Radio may also choose an interest rate index based on the federal funds rate. The $150 million 364-day facility also amended certain financial covenants and provides for a letter of credit facility. Each facility includes a commitment fee on the unused portion of the total amount available of 0.1% to 0.25% based on the credit ratings of Cox Radio’s senior long-term debt. Each facility also contains, among other provisions, specified requirements as to the ratio of debt to EBITDA and the ratio of EBITDA to interest expense. At June 30, 2002, Cox Radio was in compliance with the covenants under both facilities. Cox Radio’s credit facilities contain Events of Default based on (i) the failure to pay when due other debt, the outstanding amount of which exceeds $25 million, after the expiration of applicable grace periods and (ii) the acceleration of other debt, the outstanding amount of which exceeds $25 million. At June 30, 2002, Cox Radio had approximately $210 million of outstanding indebtedness under the five-year facility with $140 million available, and no amounts outstanding under the 364-day facility with $150 million available. The interest rate applied to amounts due under the bank credit facilities was 2.475% at June 30, 2002. At December 31, 2001, Cox Radio had approximately $255 million of outstanding indebtedness under the five-year facility with $95 million available, and no amounts outstanding under the 364-day facility with $350 million available. The interest rate applied to amounts due under the bank credit facilities was 2.755% at December 31, 2001. Since the interest rate is variable, the recorded balance of the credit facilities approximates fair value. See Note 5 for a discussion of Cox Radio’s interest rate swap agreements.

     On June 20, 2002, Moody’s Investors Service, Inc. lowered its rating on Cox Radio’s senior, unsecured, long-term debt securities from Baa2 to Baa3. Following this action, Cox Radio’s Moody’s rating remains investment grade. This action did not have a material adverse effect on Cox Radio’s financial position, results of operations, or cash flows.

     Cox Radio has $450 million in outstanding public debt, as described below:

8

Table of Contents

     Cox Radio has an effective universal shelf registration statement under which Cox Radio and two financing trusts sponsored by Cox Radio may from time to time offer and issue debentures, notes, bonds and other evidence of indebtedness and forward contracts in respect of any such indebtedness, shares of preferred stock, shares of Class A Common Stock, warrants, stock purchase contracts, stock purchase units and stock purchase rights of Cox Radio and preferred securities of the Cox Radio trusts. At June 30, 2002 and December 31, 2001, $244.8 million was available under the universal shelf registration.

     Cox Radio is the guarantor of certain acquisition debt of Honolulu Broadcasting, Inc. totaling $7.6 million. Honolulu Broadcasting, Inc. owns WARV-FM, serving Richmond, Virginia, and KGMZ-FM, serving Honolulu, Hawaii, and Cox Radio provides sales and marketing services under JSAs to these stations.

     In October 1999, the Radio Music License Committee, of which Cox Radio is a participant, filed a motion in the New York courts against Broadcast Music, Inc. to commence a rate-making proceeding on behalf of the radio industry and to seek a determination of fair and reasonable industry-wide license fees. Cox Radio is currently operating under interim license agreements for the period commencing January 1, 1997 at the rates and terms reflected in prior agreements. Cox Radio’s management estimates that the impact of an unfavorable outcome of the motion will not materially impact Cox Radio’s financial position, results of operations or cash flows.

     On June 13, 2001, Cox Radio was named as defendant in a putative class action suit filed in an amended complaint in the state court in Fulton County, Georgia, alleging violations of the Federal Telephone Consumer Protection Act. The complaint seeks statutory damages in the amount of $1,500 plus attorneys’ fees, on behalf of each person “throughout the State of Georgia” who received an unsolicited pre-recorded telephone message in October 1999 delivering an “advertisement” from a Cox Radio radio station. On October 30, 2001, the parties entered into a consent agreement staying all proceedings through April 2002. On May 24, 2002, the court granted the parties’ joint request for a further stay of all proceedings until the earlier of either six months, or a ruling by the Georgia Court of Appeals in a similar action pending against a third-party radio broadcast company. Cox Radio intends to defend this action vigorously. The outcome of this matter cannot be predicted at this time.

     Cox Radio and its controlling shareholder, Cox Broadcasting, Inc., have been sued in Georgia federal court by broadcast station broker Force Communications for breach of contract and other theories involving a failure to pay the broker a commission allegedly due on two transactions. The suit seeks contract damages in excess of $5 million plus interest, costs, expenses and attorneys’ fees. Following completion of discovery, the parties filed cross-motions for summary judgment and on July 1, 2002, the court granted defendants’ motion for summary judgment and denied Force Communications’ cross-motion for partial summary judgment. On July 5, 2002, the court entered judgment in favor of Cox Radio and Cox Broadcasting, Inc. on all counts. On July 31, 2002, Force Communications filed a notice of appeal to the United States Court of Appeals for the 11th Circuit from the order entering summary judgment in favor of Cox Radio and Cox Broadcasting, Inc. and from the entry of judgment. Cox Radio and Cox Broadcasting, Inc. intend to defend this matter vigorously on appeal. The outcome of this matter cannot be predicted at this time.

     Cox Radio is a party to various other legal proceedings that are ordinary and incidental to its business. Management does not expect that any of these legal proceedings currently pending will have a material adverse impact on Cox Radio’s consolidated financial position, consolidated results of operations or cash flows.

9

Table of Contents

4. EARNINGS PER COMMON SHARE AND CAPITAL STRUCTURE

     Options to purchase 766,194 shares of Class A Common Stock at $31.66 per share were outstanding during the three-month and six-month periods ended June 30, 2002, but were not included in the computation of diluted net income per common share because the options’ exercise price were greater than the average market price of the Class A Common Stock at the end of each period. The options, which expire in 2009, were still outstanding as of June 30, 2002.

10

Table of Contents

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     Cox Radio is exposed to fluctuations in interest rates. Cox Radio actively monitors these fluctuations and uses derivative instruments from time to time to manage the related risk. In accordance with its risk management strategy, Cox Radio uses derivative instruments only for the purpose of managing risk associated with an asset, liability, committed transaction, or probable forecasted transaction that is identified by management. Cox Radio’s use of derivative instruments may result in short-term gains or losses and may increase volatility in its earnings. Cox Radio had three interest rate swap agreements outstanding as of June 30, 2002, each of which is used to manage its exposure to the variability of future cash flows related to certain of its floating rate interest obligations that may result due to changes in interest rates. The counterparties to these interest rate swap agreements are a diverse group of major financial institutions. Although Cox Radio is exposed to credit loss in the event of nonperformance by these counterparties, Cox Radio does not anticipate nonperformance by these counterparties nor would Cox Radio expect any such loss to be material.

     On January 1, 2001, Cox Radio adopted the Financial Accounting Standards Board’s (the “FASB”) Statement of Financial Accounting Standards (“Statement”) No. 133, as amended, “Accounting for Derivative Instruments and Hedging Activities,” as amended by Statement No. 137, “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133,” and Statement No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” Statement No. 133, as amended, requires all derivative instruments to be measured at fair value and recognized as either assets or liabilities. In addition, all derivative instruments used in hedging transactions must be designated, reassessed and documented pursuant to the provisions of Statement No. 133, as amended.

     Under Statement No. 133, as amended, the accounting for changes in the fair values of derivative instruments at each new measurement date is dependent upon their intended use. The effective portion of changes in the fair values of derivative instruments designated as hedges of forecasted transactions, referred to as cash flow hedges, are deferred and recorded as a component of accumulated other comprehensive income until the hedged forecasted transactions occur and are recognized in earnings. The ineffective portion of changes in the fair values of derivative instruments designated as cash flow hedges are immediately reclassified to earnings. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense.

     Cox Radio’s three interest rate swap agreements qualify as cash flow hedges, and upon adoption of Statement No. 133, as amended, Cox Radio recognized a one-time after-tax transition adjustment to reduce earnings and increase accumulated other comprehensive loss by approximately $0.8 million and $0.7 million, respectively. These amounts were presented as a cumulative effect of change in accounting principle, net of tax, in the Consolidated Statements of Income and Shareholders’ Equity for the year ended December 31, 2001. The portion of the transition adjustment affecting earnings relates to the previously recorded fair values of the derivatives.

     During the three-month and six-month periods ended June 30, 2002 and 2001, there was no ineffective portion related to the changes in fair values of the interest rate swap agreements and there were no amounts excluded from the measure of effectiveness. In addition, of the $0.7 million recorded as an increase in accumulated other comprehensive loss on January 1, 2001, approximately $76,000, before related income tax effects of approximately $33,000, was reclassified into earnings as interest expense during each quarter of 2001 and during each of the first two quarters of 2002. The balance of ($0.1) million recorded in accumulated other comprehensive loss at June 30, 2002 is expected to be reclassified into future earnings, contemporaneously with, and offsetting, changes in interest expense on certain of Cox Radio’s floating rate interest obligations. The estimated amount to be reclassified into future earnings as interest expense over the twelve months ending June 30, 2003 is approximately $0.3 million, before related income tax effects of approximately $0.1 million. The actual amount that will be reclassified to future earnings over the next twelve months may vary from this amount as a result of changes in market conditions related to interest rates.

11

Table of Contents

     At June 30, 2002, interest rate swap agreements with a $75 million notional principal amount were outstanding at an average rate of 6.28% per annum and an average maturity of 3 years. The estimated fair value of these swap agreements, based on current market rates, approximated a net payable of $4.1 million and $3.8 million at June 30, 2002 and December 31, 2001, respectively. The fair value of the swap agreements at June 30, 2002 is included in other current liabilities and other long-term liabilities according to the respective maturity dates of the swaps.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

     In June 2001, the FASB issued Statement No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill and certain intangible assets not be amortized. Instead, these assets are to be reviewed annually for impairment and written down only in the periods in which the recorded value of goodwill and certain intangibles is more than their fair value. The provisions of Statement No. 142 also require the completion of a transitional impairment test within six months of adoption, with any impairments identified treated as a cumulative effect of a change in accounting principle. Cox Radio adopted this Statement on January 1, 2002.

     In accordance with Statement No. 142, Cox Radio discontinued the amortization of its FCC licenses and goodwill effective January 1, 2002. During the quarter ended March 31, 2002, Cox Radio also recognized an after-tax impairment charge of $13.9 million related to changes in valuation assumptions for FCC licenses in certain markets based on independent appraisals. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of amortization of goodwill and intangible assets with indefinite lives, net of the related income tax effect, follows: