<PAGE>
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, 1996
[ ] 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 1-6590
[LOGO OF COX COMMUNICATIONS APPEARS HERE]
Cox Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware 58-2112281
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1400 Lake Hearn Drive, N.E., 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 270,258,279 shares of Class A Common Stock outstanding as of
November 1, 1996.
There were 13,798,896 shares of Class C Common Stock outstanding as of
November 1, 1996.
<PAGE>
Cox Communications, Inc.
Form 10-Q
For the Quarter Ended September 30, 1996
Table of Contents
Page
----
Part I - Financial Information
Item 1. Financial Statements..................................... 2
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 11
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K......................... 17
Signatures......................................................... 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COX COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
(unaudited)
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Cash............................................... $ 53,718 $ 39,166
Accounts and notes receivable, less allowance
for doubtful accounts of $6,988 and $6,804,
respectively..................................... 102,755 117,885
Net plant and equipment............................ 1,424,179 1,213,857
Investments........................................ 1,296,962 1,201,253
Intangible assets.................................. 2,732,858 2,775,903
Other assets....................................... 113,630 207,193
---------- ----------
Total assets................................. $5,724,102 $5,555,257
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses.............. $ 211,194 $ 202,204
Deferred income.................................... 32,461 40,900
Deferred income taxes.............................. 246,494 288,039
Other liabilities.................................. 66,610 116,771
Debt............................................... 2,763,112 2,392,725
Amounts due to Cox Enterprises, Inc................ 129,468 182,605
---------- ----------
Total liabilities............................ 3,449,339 3,223,244
---------- ----------
Shareholders' equity:
Preferred Stock, $1 par value; 5,000,000 shares
authorized; none issued........................ -- --
Class A Common Stock, $1 par value;
286,000,000 shares authorized; shares issued
and outstanding: 256,455,896 in 1996 and
256,365,194 in 1995............................ 256,456 256,365
Class C Common Stock; $1 par value; 14,000,000
shares authorized; shares issued and
outstanding: 13,798,896 in 1996 and 1995....... 13,799 13,799
Additional paid-in capital....................... 1,740,903 1,739,422
Retained earnings................................ 273,895 267,648
Foreign currency translation adjustment.......... (1,860) (3,413)
Net unrealized gain (loss) on securities......... (8,430) 58,192
---------- ----------
Total shareholders' equity................... 2,274,763 2,332,013
---------- ----------
Total liabilities and shareholders' equity... $5,724,102 $5,555,257
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
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COX COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
----------------------- ----------------------
1996 1995 1996 1995
--------- --------- ---------- ---------
(unaudited)
(Thousands of Dollars)
<S> <C> <C> <C> <C>
REVENUES:
Standard service............................. $ 245,900 $ 234,084 $ 740,021 $ 654,464
New product tier............................. 3,547 3,222 10,156 7,836
Premium service.............................. 47,278 47,530 142,736 138,076
Pay-per-view................................. 10,187 12,740 32,967 32,528
Advertising.................................. 21,539 17,614 57,492 46,963
Satellite.................................... 22,043 10,458 58,938 27,691
Other........................................ 13,322 9,439 36,339 26,812
--------- --------- ---------- ---------
Total revenues............................. 363,816 335,087 1,078,649 934,370
COSTS AND EXPENSES:
Programming costs............................ 87,991 81,248 262,764 229,641
Plant operations............................. 35,814 31,960 105,056 94,990
Marketing.................................... 10,968 11,251 33,361 29,228
General and administrative................... 71,635 72,349 214,874 194,833
Satellite operating and administrative....... 19,338 9,891 52,544 28,917
Depreciation................................. 61,040 51,329 180,122 140,538
Amortization................................. 17,427 18,152 53,519 50,583
--------- --------- ---------- ---------
OPERATING INCOME............................... 59,603 58,907 176,409 165,640
Interest expense............................... (37,037) (37,866) (105,843) (106,400)
Equity in net losses of affiliated companies... (53,189) (25,595) (101,257) (59,665)
Gain on issuance of stock by affiliated
companies.................................... -- -- 50,100 --
Gain on sale of affiliated companies........... -- -- 4,640 10,201
Other, net..................................... 4,062 (526) 13,943 8,913
--------- --------- ---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.............. (26,561) (5,080) 37,992 18,689
Income taxes................................... 1,513 8,937 31,745 25,910
--------- --------- ---------- ---------
Net income (loss).............................. $ (28,074) $ (14,017) $ 6,247 $ (7,221)
========= ========= ========== =========
PER SHARE DATA (NOTE 3):
Net income (loss) per share.................... $ (0.10) $ (0.05) $ 0.02 --
Weighted average number of common shares
outstanding.................................. 270,250,069 270,131,458 270,233,224 --
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
COX COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Foreign unrealized
Common Stock Additional currency gain (loss)
------------------ paid-in Retained translation on
Class A Class C capital earnings adjustment securities Total
-------- -------- ----------- --------- ----------- ----------- ------------
(unaudited)
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.... $ 256,365 $ 13,799 $ 1,739,422 $ 267,648 $ (3,413) $ 58,192 $ 2,332,013
Net income.................... 6,247 6,247
Issuance of stock related to
incentive plans............. 91 1,481 1,572
Foreign currency translation
adjustment.................. 1,553 1,553
Change in net unrealized gain
(loss) on securiteis........ (66,622) (66,622)
---------- --------- ----------- --------- ----------- --------- -----------
Balance at September 30, 1996... $ 256,456 $ 13,799 $ 1,740,903 $ 273,895 $ (1,860) $ (8,430) $ 2,274,763
========== ========= =========== ========= =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
COX COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ended September 30
---------------------
1996 1995
-------- ---------
(unaudited)
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...................................... $ 6,247 $ (7,221)
Adjustments to reconcile net income to net cash
provided by operating activities, net of effect
of acquisitions:
Depreciation......................................... 180,122 140,538
Amortization......................................... 53,519 50,583
Equity in net losses of affiliated companies......... 101,257 59,665
Deferred income taxes................................ (75,529) (12,704)
Gain on issuance of stock by affiliated companies.... (50,100) --
Gain on sale of affiliated companies................. (4,640) (10,201)
(Increase) decrease in accounts and notes receivable... 15,597 (14,600)
Increase in inventory.................................. (20,399) (7,675)
Increase (decrease) in accounts payable and accrued
expenses............................................. (1,105) 24,187
Increase (decrease) in taxes payable................... (35,842) 9,190
Other, net............................................. (16,906) 15,627
--------- ---------
Net cash provided by operating activities......... 152,221 247,389
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................... (392,671) (248,889)
Acquisitions, net of cash acquired..................... -- 15,860
Investments in affiliated companies.................... (241,984) (482,901)
Proceeds from sale of businesses....................... 201,791 20,000
Proceeds from affiliated companies..................... -- 106,365
Other, net............................................. (1,796) 1,233
--------- ---------
Net cash used in investing activities............. (434,660) (588,332)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (repayments) of short-term debt, net........ 366,322 (956,956)
Proceeds from issuance of debt......................... 4,969 907,714
Repayment of debt...................................... (5,080) (17,645)
Proceeds from exercise of stock options................ 1,158 --
Increase (decrease) in amounts due to
Cox Enterprises, Inc................................. (52,898) 41,508
Proceeds from issuance of Common Stock................. -- 357,031
Increase (decrease) in book overdrafts................. (17,480) 26,976
--------- ---------
Net cash provided by financing activities.......... 296,991 358,628
--------- ---------
Net increase in cash................................... 14,552 17,685
Cash at beginning of period............................ 39,166 3,346
--------- ---------
Cash at end of period.................................. $ 53,718 $ 21,031
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
COX COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
--------------------
1996 1995
------- -------
(Unaudited)
(Thousands of
Dollars)
<S> <C> <C>
CASH PAID DURING THE PERIOD FOR:
Interest (net of amounts capitalized)...............$ 78,888 $ 76,982
Income taxes........................................ 143,095 29,369
NONCASH ACTIVITIES:
Cox Common Stock issued in connection with the
Time Mirror Merger............................... -- $932,000
Purchase of PCS license............................. -- 251,918
Capital contributions by Cox Enterprises, Inc....... -- 40,991
Capital lease additions.............................$ 6,355 17,999
Net gain on Teleport offering....................... 50,100 --
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
Cox Communications, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1996
1. Basis of Presentation and Other Information
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 and notes thereto contained in Cox
Communication, Inc.'s ("Cox") Annual Report on Form 10-K for the year ended
December 31, 1995.
The results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the year ended
December 31, 1996 or any interim period.
2. Summary of Significant Accounting Policies
Earnings Per Common Share
Cox became publicly traded on the New York Stock Exchange effective
February 1, 1995. The earnings per common share calculation for the nine months
ended September 30, 1995 is not disclosed as the dissimilarity of the previous
capital structure of Cox precludes a meaningful comparison. Pro forma earnings
per common share is presented for comparative purposes at Note 3.
Reclassifications
Certain amounts in the 1995 financial statements have been reclassified for
comparative purposes. In addition, certain revenue categories have been
reclassified in order to more accurately reflect Cox's product offerings.
3. Acquisitions and Dispositions of Businesses
In April 1996, Cox exchanged its Williamsport, Pennsylvania cable
television system serving approximately 24,500 customers for $13 million and a
cable television system in East Providence, Rhode Island serving approximately
15,500 customers. No gain or loss resulted from this transaction.
Also in April 1996, Cox sold certain cable television systems in the
Ashland, Kentucky and Defiance, Ohio area for $136 million. These systems
together served approximately 78,600 customers. No gain or loss resulted from
this transaction.
In October 1996, Cox and Time Warner Entertainment/Advance-Newhouse ("Time
Warner") entered into an agreement whereby Cox agreed to trade its Myrtle Beach,
South Carolina cable television system serving approximately 37,600 customers
for Time Warner's Hampton and Williamsburg, Virginia cable television systems
7
<PAGE>
serving approximately 45,300 customers. The transaction also includes a Texas
cable television system serving approximately 7,000 customers to be purchased by
Cox and then immediately traded to Time Warner. No gain or loss is expected to
be recorded for this transaction, which is expected to close in the first
quarter of 1997.
In August 1996, Cox and Tele-Communications, Inc. ("TCI") entered into an
agreement to exchange certain cable television systems. Cox will exchange
certain of its systems serving approximately 300,000 customers for certain of
TCI's systems serving approximately 300,000 customers. Cox will receive TCI's
systems serving customers in Bellevue/La Vista, Nebraska; Council Bluffs, Iowa;
Chesapeake, Virginia; Scottsdale, Arizona; North Attleboro/Taunton,
Massachusetts; Lincoln, Rhode Island; and Saint Bernard, Louisiana. TCI will
receive Cox's systems serving customers in the greater Pittsburgh, Pennsylvania
area; Spokane, Washington; Springfield, Illinois; Cedar Rapids, Iowa, the Quad
Cities area of Illinois and Iowa; and Saginaw, Missouri. No gain or loss is
expected to be recorded for this transaction, which is expected to close in the
first quarter of 1997.
In July 1996, Cox and Continental Cablevision, Inc. ("Continental") entered
into an agreement whereby Cox agreed to trade certain cable television systems
in western Massachusetts serving approximately 47,700 customers for
Continental's cable television systems in James City and York County, Virginia
and Pawtucket, Rhode Island serving approximately 48,500 customers. No gain or
loss is expected to be recorded for this transaction, which is expected to close
in the fourth quarter of 1996.
Effective February 1, 1995, Cox, Cox Enterprises, Inc. ("CEI"), The Times
Mirror Company ("Times Mirror") and New TMC Inc. consummated a merger (the
"Merger"), pursuant to which Times Mirror (which, at the time of the Merger, was
engaged only in the cable television business) merged with and into Cox. The
following unaudited pro forma statement of income for the nine months ended
September 30, 1995 presents the consolidated results of operations as if the
Merger had occurred on January 1, 1995 and does not purport to be indicative of
what would have occurred had the Merger been consummated as of that date nor is
it necessarily indicative of the future operating results.
8
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
Nine Months Ended
September 30, 1995
----------------------
(Thousands of dollars,
except per share data)
<S> <C>
Revenues:
Standard service......................................... $ 685,744
New product tier......................................... 8,546
Premium service.......................................... 143,561
Pay-per-view............................................. 34,069
Advertising.............................................. 48,959
Satellite................................................ 27,691
Other.................................................... 27,676
---------
Total revenues......................................... 976,246
Costs and expenses:
Programming costs........................................ 238,430
Plant operations......................................... 99,890
Marketing................................................ 30,523
General and administrative............................... 204,622
Satellite operating and administrative................... 28,917
Depreciation............................................. 148,464
Amortization............................................. 54,465
---------
Operating income........................................... 170,935
Interest expense........................................... (114,155)
Equity in net losses of affiliated companies............... (59,665)
Gain on sale of affiliated companies....................... 10,201
Other, net................................................. 9,082
---------
Income before income taxes................................. 16,398
Income taxes............................................... 26,189
---------
Net loss................................................... $ (9,791)
=========
Per share data:
Net loss per share......................................... $ (0.04)
Weighted average number of common shares outstanding....... 257,628,976
</TABLE>
4. Investments
In March 1996, Syntellect, Inc. ("Syntellect") merged with the operations
of Telecorp Systems, Inc. ("Telecorp Systems"). As a result of this merger, Cox
received an 8.6% interest in Syntellect in exchange for its 24.5% interest in
Telecorp Systems. Cox recognized a gain of $4.6 million related to this
transaction.
In June 1996, Teleport Communications Group, Inc. ("TCGI") entered into a
reorganization under which, among other things, its four stockholders, Cox,
Comcast Corporation, Continental and TCI (collectively, the "Cable
Stockholders") contributed to TCGI all of their partnership interests in TCG
Partners, any additional interests in local joint ventures and debt and accrued
interest owed by TCGI to the Cable Stockholders (the "Reorganization").
Following the Reorganization, TCGI
9
<PAGE>
conducted an initial public offering in which it sold 27,025,000 shares of Class
A Common Stock (the "TCGI IPO"). Upon completion of the Reorganization and TCGI
IPO, Cox owns 39,087,594 shares of TCGI's Class B Common Stock representing
29.8% of TCGI's Class B Common Stock, 24.6% of total shares outstanding and
29.1% voting interest. Each share of Class B Common Stock is convertible into
one share of Class A Common Stock. As a result of the TCGI IPO, Cox recognized a
pre-tax gain of $50.1 million.
5. Debt
Debt consists of:
<TABLE>
<CAPTION>
September 30 December 30
1996 1995
------------------------------
(Thousands of Dollars)
<S> <C> <C>
Revolving credit facility, due December 18, 1996........... -- --
Revolving credit facility, due December 20, 2000, 6.1%
at September 30, 1996 and 6.3% at December 31, 1995...... $ 488,544 $ 866,800
Commercial paper, due in varying amounts through
November 22, 1996, interest at fixed rates ranging
from 5.5% to 5.7%, net of unamortized discounts of
$2,814................................................... 741,186 --
Medium-term notes, 7.19% Notes due August 9, 2006,
net of unamortized discount of $31....................... 4,969 --
6 3/8% Notes, due June 15, 2000, net of unamortized
discount of $1,232....................................... 424,120 423,944
6 1/2% Notes, due November 15, 2002, net of
unamortized discount of $671............................. 199,461 199,395
6 7/8% Notes, due June 15, 2005, net of unamortized
discount and hedging cost of $15,582..................... 361,052 360,235
7 1/4% Debentures, due November 15, 2015, net of
unamortized discount of $970............................. 99,101 99,066
7 5/8% Debentures, due June 15, 2025, net of
unamortized discount and hedging cost of $18,411......... 131,829 131,709
Obligation to the FCC...................................... 251,918 251,918
Notes and debentures, due in varying amounts through
2023, interest at fixed rates ranging from 7.125% to
8.875%................................................... 41,804 41,804
Capitalized lease obligations.............................. 19,128 17,854
----------- -----------
$ 2,763,112 $ 2,392,725
=========== ===========
</TABLE>
In April 1996, Cox filed a Form S-3 Registration Statement with the
Securities and Exchange Commission (the "Shelf Registration") under which Cox
may from time to time offer and issue debentures, notes, bonds or other evidence
of indebtedness for a maximum aggregate amount of $750 million. Cox currently
intends to use the net proceeds from the sale of these debt securities for
general corporate purposes, which may include additions to working capital, the
repayment or redemption of existing indebtedness and the financing of capital
expenditures and acquisitions.
In June 1996, Cox entered into a commercial paper program under which Cox
may borrow $750 million. The commercial paper program is backed by committed
revolving credit. The outstanding notes have maturities up to 270 days and
interest rates based on market. During June, Cox borrowed $734.1 million under
the commercial paper program to repay existing debt.
10
<PAGE>
6. Transactions with Affiliated Companies
Cash requirements are funded by internally generated funds, by various
external financing transactions and, as needed, through intercompany loans from
CEI. CEI performs day-to-day cash management services for Cox, with settlements
of credit or debit balances between Cox and CEI occurring periodically with
interest at market rates (5.87% at September 30, 1996). Included in the amounts
due to CEI are the following transactions:
(Thousands of Dollars)
Balance, December 31, 1995.................................. $182,605
Cash transferred to CEI..................................... (40,887)
Net operating reimbursement................................. (12,250)
--------
Balance, September 30, 1996................................. $129,468
========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
accompanying historical Consolidated Statements of Income for the three and nine
month periods ended September 30, 1996 and 1995 and the pro forma financial
information included in Note 3 to the Consolidated Financial Statements.
Recent Acquisitions, Dispositions and Investments
U.S. Broadband Networks
In April 1996, Cox exchanged its Williamsport, Pennsylvania cable
television system serving approximately 24,500 customers for $13 million and a
cable television system in East Providence, Rhode Island serving approximately
15,500 customers. No gain or loss resulted from this transaction.
Also in April 1996, Cox sold certain cable television systems in the
Ashland, Kentucky and Defiance, Ohio area for $136 million. These systems
together served approximately 78,600 customers. No gain or loss resulted from
this transaction.
In October 1996, Cox and Time Warner entered into an agreement whereby Cox
agreed to trade its Myrtle Beach, South Carolina cable television system serving
approximately 37,600 customers for Time Warner's Hampton and Williamsburg,
Virginia cable television systems serving approximately 45,300 customers. The
transaction also includes a Texas cable television system serving approximately
7,000 customers to be purchased by Cox and then immediately traded to Time
Warner. No gain or loss is expected to be recorded for this transaction, which
is expected to close in the first quarter of 1997.
In August 1996, Cox and TCI entered into an agreement to exchange certain
cable television systems. Cox will exchange certain of its systems serving
approximately 300,000 customers for certain of TCI's systems serving
11
<PAGE>
approximately 300,000 customers. Cox will receive TCI's systems serving
customers in Bellevue/La Vista, Nebraska; Council Bluffs, Iowa; Chesapeake,
Virginia; Scottsdale, Arizona; North Attleboro/Taunton, Massachusetts; Lincoln,
Rhode Island; and Saint Bernard, Louisiana. TCI will receive Cox's systems
serving customers in the greater Pittsburgh, Pennsylvania area; Spokane,
Washington; Springfield, Illinois; Cedar Rapids, Iowa, the Quad Cities area of
Illinois and Iowa; and Saginaw, Missouri. No gain or loss is expected to be
recorded for this transaction, which is expected to close in the first quarter
of 1997.
In July 1996, Cox and Continental entered into an agreement whereby Cox
agreed to trade certain cable television systems in western Massachusetts
serving approximately 47,700 customers for Continental's cable television
systems in James City and York County, Virginia and Pawtucket, Rhode Island
serving approximately 48,500 customers. No gain or loss is expected to be
recorded for this transaction, which is expected to close in the fourth quarter
of 1996.
Three Months Ended September 30, 1996 Compared with Three Months Ended September
30, 1995
Revenues for the three months ended September 30, 1996 were $363.8 million,
a 9% increase over revenues of $335.1 million for the three months ended
September 30, 1995. Basic customers were 3,235,442 at September 30, 1996.
Adjusting for the acquisitions and sales of cable systems during 1996 and 1995,
total revenues increased 10% and basic customers grew 2.5% compared to the third
quarter of 1995.
Standard service revenues for the third quarter of 1996 grew 5% over the
same period in 1995 to $245.9 million. Adjusting for the acquisitions and sales
of cable systems, standard service revenues increased 8% compared to the same
period in 1995 due to a larger customer base and rate increases during the
fourth quarter of 1995. These rate increases reflected channel additions and the
allowable pass-through of inflation adjustments and external costs, primarily
programming fee increases.
Premium service revenues for the current quarter were $47.3 million, down
1% from the third quarter of 1995. However, adjusting for the acquisitions and
sales, premium service revenues were consistent with the same quarter in 1995.
The average premium channel rate per unit was lower in the current quarter as
compared to the same period in 1995 due to the April 1996 launch of a three-for-
one premium channel promotion. This promotion boosted growth in premium units to
2,044,019 at September 30, 1996 compared to 1,835,363 at September 30, 1995.
Pay-per-view revenues for the third quarter of 1996 were $10.2 million,
down 20% from the same period in 1995 primarily as a result of the
Tyson/McNeeley boxing event in 1995. Advertising revenues increased 22% to $21.5
million primarily as a result of additional revenues from a Sprint campaign.
Revenues from satellite operations (PrimeStar and Cox Satellite
Programming) were $22.0 million for the current quarter, an 111% increase over
revenues of $10.5 million for the same quarter in 1995 as PrimeStar customers
increased from 40,885 at September 30, 1995 to 103,004 at September 30, 1996.
Programming costs were $88.0 million for the third quarter of 1996, an
increase of 8% over the comparable period in 1995 due primarily to Cox's larger
customer base and the offering of additional channels. Plant operations expenses
increased 12% to $35.8 million due to additional salaries and benefits
associated with Cox's increased focus on customer retention programs. Marketing
costs were $11.0 million for the current quarter, a 3% decrease from the third
quarter of 1995 primarily due to increased marketing reimbursements from
12
<PAGE>
programmers. General and administrative expenses for the third quarter of 1996
decreased slightly to $71.6 million due to efficiencies gained through continued
implementation of the shared services initiative offset by costs associated with
the development of high-speed data and telephony services.
Operating income before depreciation and amortization ("EBITDA") is a
commonly used financial analysis tool for measuring and comparing cable
television companies in several areas, such as liquidity, operating performance
and leverage. EBITDA for the third quarter of 1996 was $138.1 million, an 8%
increase over EBITDA of $128.4 million for the third quarter of 1995. Adjusting
for the sales and acquisitions of cable systems, EBITDA growth was 9% over the
third quarter of 1995. Included in EBITDA is a contribution from satellite
operations of $2.7 million for the current quarter as compared to $0.6 million
in the third quarter of 1995.
The EBITDA margin (EBITDA as a percentage of revenues) for the current
quarter was 38.0%, a slight decrease from 38.3% for the third quarter of 1995
due to the up-front marketing costs associated with the strong growth of the
satellite business. Excluding satellite operations, the cable EBITDA margin for
the current quarter was 39.6%, a slight increase over the third quarter of 1995.
The cable EBITDA margin also includes the additional costs associated with the
development of new high-speed data and telephony services.
Depreciation was $61.0 million for the third quarter of 1996, a 19%
increase compared to the third quarter of 1995, reflecting the continued upgrade
of the broadband network. Operating income for the third quarter of 1996 was
$59.6 million, a 1% increase compared to the same period in 1995.
Interest expense for the current quarter was $37.0 million, a 2% decrease
from the third quarter of 1995 due to the capitalization of interest expense on
debt incurred to fund Sprint Spectrum. Total interest costs, excluding
capitalized interest of $10.8 million and $6.1 million for the third quarter of
1996 and 1995, respectively, increased 8.9% due primarily to the increase in
total debt outstanding. Equity in net losses of affiliated companies was $53.2
million, a $27.6 million increase over the prior year due to increased losses
from Sprint Spectrum and new programming ventures which were partially offset by
the elimination of losses from SBC CableComms as a result of the SBC/TeleWest
merger in October 1995.
Net loss for the current quarter was $28.1 million as compared to net loss
of $14.0 million for the third quarter of 1995.
Nine Months Ended September 30, 1996 Compared with Pro Forma Nine Months Ended
September 30, 1995
The pro forma results discussed below reflect the Merger and related
transactions as if these transactions had occurred on January 1, 1995.
Revenues for the nine months ended September 30, 1996 were $1,078.6
million, a 10% increase over revenues of $976.2 million for the nine months
ended September 30, 1995. Basic customers were 3,235,442 at September 30, 1996.
Adjusting for the acquisitions and sales of cable systems during 1995 and 1996,
basic customers grew 2.5% over customers at September 30, 1995.
Standard service revenues for the first nine months of 1996 grew 8% over
the same period of 1995 to $740.0 million due to the larger customer base and
rate increases during the fourth quarter of 1995. These rate increases reflected
channel additions and the allowable pass-through of inflation adjustments and
external costs, primarily programming fee increases.
13
<PAGE>
Premium service revenues for the nine months ended September 30, 1996 were
$142.7 million, down 1% from the same period in 1995. The average premium
channel rate per unit decreased during 1996 due to the February and April 1996
promotions which offered two-for-one and three-for-one premium channels,
respectively. These promotions boosted growth in premium units to 2,044,019 at
September 30, 1996 from 1,835,363 at September 30, 1995. Pay-per-view revenues
were $33.0 million, a 3% decrease from the nine months ended September 30, 1995
due primarily to the Tyson/McNeeley boxing event in the third quarter of 1995.
Advertising revenues increased 17% to $57.5 million reflecting continued gains
in national account revenue and new customers such as Sprint.
Revenues from satellite operations (Cox Satellite Programming and
PrimeStar) were $58.9 million for the nine months ended September 30, 1996, a
113% increase over revenues of $27.7 million for the same period in 1995 as
PrimeStar customers increased from 40,885 at September 30, 1995 to 103,004 at
September 30, 1996.
Programming costs increased 10% due primarily to Cox's larger customer base
and the offering of additional channels. Marketing costs increased 9% as a
result of sales programs associated with the premium channel promotions and an
increase in advertising. General and administrative expenses increased 5% due to
the increase in salaries and benefits associated with Cox's larger customer base
and the development of new services.
EBITDA for the nine months ended September 30, 1996 was $410.1 million, a
10% increase over EBITDA of $373.9 million for the same period in 1995. Included
in EBITDA is a contribution from satellite operations of $6.4 million for the
nine months ended September 30, 1996 as compared to a loss of $1.2 million for
the same period in 1995.
The EBITDA margin for the first nine months of 1996 was 38.0%, a slight
decrease from 38.3% for the first nine months of 1995 due to the up-front
marketing costs associated with the strong growth of the satellite business.
Excluding satellite operations, the EBITDA margin for the nine months ended
September 30, 1996 was 39.6% which was in line with the same period in 1995. The
1996 margin also reflects expenses related to the development of new services.
Depreciation increased 21% to $180.1 million, reflecting the continued
upgrade of the broadband network and acceleration of the depreciation of analog
converters. Operating income for the nine months ended September 30, 1996 was
$176.4 million, a 3% increase compared to the same period in 1995.
Interest expense decreased 7% to $105.8 million due to the capitalization
of interest expense on debt incurred to fund Sprint Spectrum. Equity in net
losses of affiliated companies was $101.3 million, a $41.6 million increase over
the prior year due to increased losses from Sprint Spectrum and new programming
ventures which were partially offset by the elimination of losses from SBC
CableComms as a result of the SBC/TeleWest merger. A gain on issuance of stock
by affiliated companies of $50.1 million was recognized in the second quarter of
1996 as a result of the initial public offering of Teleport. A gain on sale of
affiliated companies of $4.6 million was recognized in the first quarter of 1996
as a result of the merger of Telecorp Systems and Syntellect.
Net income for the nine months ended September 30, 1996 was $6.2 million as
compared to a net loss of $9.8 million for the nine months ended September 30,
1995.
14
<PAGE>
Nine Months Ended September 30, 1996 Compared with Nine Months Ended
September 30, 1995
Revenues for the nine months ended September 30, 1996 were $1,078.6
million, a 13% increase over revenues of $934.4 million for the comparable
period of 1995. EBITDA for the first nine months of 1996 was $410.1 million, a
15% increase as compared to $356.8 million for the first nine months of 1995.
Operating income for the nine months ended September 30, 1996 was $176.4
million, a 7% increase from the comparable period of 1995. Equity in net losses
of affiliated companies increased $41.6 million due to increased losses from
Sprint Spectrum and new programming ventures which were partially offset by the
elimination of losses from SBC CableComms as a result of the SBC/TeleWest
merger. A gain on issuance of stock by affiliated companies of $50.1 million was
recognized in the second quarter of 1996 as a result of the initial public
offering of Teleport. A gain on sale of affiliated companies of $4.6 million was
recognized in the first quarter of 1996 as a result of the merger of Telecorp
Systems and Syntellect. Net income for the nine months ended September 30, 1996
was $6.2 million as compared to a net loss of $7.2 million for the nine months
ended September 30, 1995.
Liquidity and Capital Resources
Uses of Cash
As part of Cox's ongoing strategic plan, Cox has invested, and will
continue to invest, significant amounts of capital to enhance the reliability
and capacity of its broadband cable television network in preparation of the
offering of new services and to make investments in affiliated companies
primarily focused on telephony, programming and communications-related
activities.
Capital expenditures in 1996 are expected to be approximately $400 million
for cable television operations, $85 million for telephony-related upgrades and
$70 million for reception equipment for PrimeStar satellite customers. During
the nine months ended September 30, 1996, Cox made capital expenditures of
$392.7 million.
Funding requirements in 1996 for investments in affiliated companies are
expected to be approximately $209 million for Sprint Spectrum and PhillieCo and
$47 million for programming ventures, PrimeStar Partners and other investments.
During the nine months ended September 30, 1996, Cox funded approximately $187.7
million for Sprint Spectrum and other telephony investments and $54.3 million to
PrimeStar Partners, Outdoor Life, Speedvision and various other programming
interests.
Sources of Cash
Cox generated $152.2 million from operating activities during the first
nine months of 1996. Proceeds from sale of businesses of $201.8 million
represents the sales of the Texarkana and the Ashland and Defiance systems and
the trade of the Williamsport system. In addition, Cox borrowed $366.3 million
of short-term debt during the nine months ended September 30, 1996.
In April 1996, Cox filed a Form S-3 Registration Statement with the
Securities and Exchange Commission (the "Shelf Registration") under which Cox
may from time to time offer and issue debentures, notes, bonds or other evidence
of indebtedness for a maximum aggregate amount of $750 million. Cox currently
intends to use the net proceeds from the sale of these debt securities for
general corporate purposes, which may include additions to working capital, the
repayment or redemption of existing indebtedness and the financing of capital
expenditures and acquisitions.
In June 1996, Cox entered into a commercial paper program under which Cox
may borrow $750 million. The commercial paper program is backed by committed
revolving credit. The outstanding notes have maturities up to 270 days and
interest rates based on market. During June, Cox borrowed $734.1 million under
the commercial paper program to repay existing debt.
15
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 -- Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September 30,
1996:
A Current Report on Form 8-K was filed on August 9, 1996, which
included certain exhibits in Item 7 of the report, in connection
with a medium-term note offering disclosed in the Form S-3 shelf
registration statement (File No. 333-3766).
16
<PAGE>
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 Communications, Inc.
Date: November 12, 1996 /s/ Jimmy W. Hayes
----------------------------------
Jimmy W. Hayes
Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
17
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