<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 JUNE 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 1-13576
[LOGO OF COX COMMUNICATIONS APPEARS HERE]
COMMUNICATIONS
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, 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 256,440,701 shares of Class A Common Stock outstanding as of
August 1, 1996.
There were 13,798,896 shares of Class C Common Stock outstanding as of
August 1, 1996.
<PAGE>
<TABLE>
<CAPTION>
COX COMMUNICATIONS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................. 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............. 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................. 15
SIGNATURES ................................................. 16
</TABLE>
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
Cox Communications, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
------------ -----------
(unaudited)
(Thousands of Dollars)
<S> <C> <C>
Assets
Cash................................................................... $ 43,390 $ 39,166
Accounts and notes receivable, less allowance for doubtful
accounts of $7,391 and $6,804, respectively.......................... 107,296 117,885
Net plant and equipment................................................ 1,345,539 1,213,857
Investments............................................................ 1,391,461 1,201,253
Intangible assets...................................................... 2,743,731 2,775,903
Other assets........................................................... 101,466 207,193
------------ -----------
Total assets...................................................... $ 5,732,883 $ 5,555,257
============ ===========
Liabilities and shareholders' equity
Accounts payable and accrued expenses.................................. $ 184,592 $ 202,204
Deferred income........................................................ 35,668 40,900
Deferred income taxes.................................................. 307,178 288,039
Other liabilities...................................................... 124,930 116,771
Debt................................................................... 2,600,807 2,392,725
Amounts due to Cox Enterprises, Inc.................................... 90,870 182,605
------------ -----------
Total liabilities................................................. 3,344,045 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: 256,440,701
in 1996 and 256,365,194 in 1995................................... 256,441 256,365
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........................................... 1,740,667 1,739,422
Retained earnings.................................................... 301,969 267,648
Foreign currency translation adjustment.............................. (6,229) (3,413)
Net unrealized gain on securities.................................... 82,191 58,192
------------ -----------
Total shareholders' equity........................................ 2,388,838 2,332,013
------------ -----------
Total liabilities and shareholders' equity........................ $ 5,732,883 $ 5,555,257
============ ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
Cox Communications, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------------- ----------------------
1996 1995 1996 1995
------------ ---------- ---------- ---------
(unaudited)
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Revenues:
Regulated..........................................$ 238,130 $ 222,376 $ 476,356 $ 408,651
A la carte......................................... 11,830 9,782 24,496 16,344
Premium service.................................... 47,761 48,059 95,336 90,546
Pay-per-view....................................... 9,860 12,717 22,780 19,788
Advertising........................................ 18,671 16,828 35,953 29,348
Satellite.......................................... 19,246 9,097 36,895 17,233
Other.............................................. 11,837 9,205 23,017 17,373
------------ ---------- ---------- ---------
Total revenues................................... 357,335 328,064 714,833 599,283
Costs and expenses:
Programming costs.................................. 85,746 81,025 174,773 148,393
Plant operations................................... 34,442 33,777 69,242 63,030
Marketing.......................................... 11,656 10,463 22,393 17,977
General and administrative......................... 72,291 67,031 143,239 122,484
Satellite operating and administrative............. 17,551 10,224 33,206 19,026
Depreciation....................................... 63,220 45,435 119,082 89,209
Amortization....................................... 17,592 19,310 36,092 32,431
------------ ---------- ---------- ---------
Operating income...................................... 54,837 60,799 116,806 106,733
Interest expense...................................... (34,301) (39,912) (68,806) (68,534)
Equity in net losses of affiliated companies.......... (28,811) (16,251) (48,068) (34,070)
Gain on issuance of stock by
affiliated companies............................. 50,100 -- 50,100 --
Gain on sale of affiliated companies.................. -- 10,201 4,640 10,201
Other, net............................................ 5,124 6,219 9,881 9,439
------------ ---------- ---------- ---------
Income before income taxes............................ 46,949 21,056 64,553 23,769
Income taxes.......................................... 19,985 16,026 30,232 16,973
------------ ---------- ---------- ---------
Net income............................................$ 26,964 $ 5,030 $ 34,321 $ 6,796
============ ========== ========== =========
Per share data:
Net income per share..................................$ 0.10 $ 0.02 $ 0.13 --
Weighted average number of common
shares outstanding............................... 270,239,597 252,174,007 270,224,247 --
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Cox Communications, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Foreign Net
Common Stock Additional currency unrealized
------------------------ paid-in Retained translation gain 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........................ 34,321 34,321
Issuance of stock related to
incentive plans................ 76 1,245 1,321
Foreign currency translation
adjustment...................... (2,816) (2,816)
Change in net unrealized gain
on securities................... 23,999 23,999
---------- --------- ------------ --------- --------- -------- -----------
Balance at June 30, 1996............ $ 256,441 $ 13,799 $ 1,740,667 $ 301,969 $ (6,229) $ 82,191 $ 2,388,838
========== ========= ============ ========= ========= ======== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Cox Communications, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months
Ended June 30
-------------------------
1996 1995
----------- -----------
(unaudited)
(Thousands of Dollars)
<S> <C> <C>
Cash flows from operating activities
Net income...................................................... $ 34,321 $ 6,796
Adjustments to reconcile net income to net cash provided
by operating activities, net of effect of acquisitions:
Depreciation.................................................. 119,082 89,209
Amortization.................................................. 36,092 32,431
Equity in net losses of affiliated companies.................. 48,068 34,070
Deferred income taxes......................................... (61,987) (7,266)
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............ 11,192 (9,781)
Increase (decrease) in accounts payable and accrued expenses.... (8,202) 2,452
Other, net...................................................... (3,832) 868
----------- ----------
Net cash provided by operating activities................ 119,994 138,578
----------- ----------
Cash flows from investing activities
Capital expenditures............................................ (256,809) (142,759)
Acquisitions, net of cash acquired.............................. -- 20,239
Investments in affiliated companies............................. (148,750) (465,102)
Proceeds from sale of business.................................. 201,791 13,319
Proceeds from affiliated companies.............................. -- 93,046
Other, net...................................................... 353 2,817
----------- ----------
Net cash used in investing activities.................... (203,415) (478,440)
----------- ----------
Cash flows from financing activities
Borrowings (repayments) of short-term debt, net................. 209,221 (1,055,735)
Proceeds from issuance of debt.................................. -- 907,714
Repayment of debt............................................... (3,190) (16,501)
Proceeds from exercise of stock options......................... 907 --
Increase (decrease) in amounts due to Cox Enterprises, Inc..... (91,496) 167,514
Proceeds from issuance of Common Stock.......................... -- 329,918
Increase (decrease) in book overdrafts.......................... (27,797) 16,491
----------- ----------
Net cash provided by financing activities................ 87,645 349,401
----------- ----------
Net increase in cash............................................ 4,224 9,539
Cash at beginning of period..................................... 39,166 3,346
----------- ----------
Cash at end of period........................................... $ 43,390 $ 12,885
=========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Cox Communications, Inc.
Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Six Months
Ended June 30
-----------------------
1996 1995
-------- --------
(unaudited)
(Thousands of Dollars)
<S> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized)...................$ 63,973 $ 61,058
Income taxes............................................ 77,677 25,939
Noncash activities:
Cox Common Stock issued in connection with the
Times Mirror Merger.................................. -- $ 932,000
Purchase of PCS license................................. -- 251,918
Capital contributions by Cox Enterprises, Inc........... -- 40,991
Capital lease additions.................................$ 2,620 15,943
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 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 six months ended June 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 six months ended June
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.
7
<PAGE>
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.
In April 1996, Cox sold certain cable television systems in the Ashland,
Kentucky and Defiance, Ohio area for $136 million. These systems, which were
acquired as a result of the Merger, together served approximately 78,600
customers. No gain or loss resulted from this transaction.
Also, in April 1996, Cox and Continental Cablevision, Inc. ("Continental")
signed a letter of intent for Cox 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. Cox anticipates this
transaction will be consummated during the fourth quarter of 1996.
In March 1996, Cox and Time Warner Entertainment/Advance-Newhouse ("Time
Warner") signed a letter of intent for Cox 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. Cox anticipates this transaction
will be consummated during 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 six months ended June
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
SIX MONTHS ENDED
JUNE 30, 1995
------------------------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
REVENUES:
<S> <C> <C>
Regulated................................... $ 438,172
A la carte.................................. 18,908
Premium service............................. 95,935
Pay-per-view................................ 21,329
Advertising................................. 31,345
Satellite................................... 17,233
Other....................................... 18,237
------------
Total revenues............................. 641,159
COSTS AND EXPENSES:
Programming costs........................... 157,182
Plant operations............................ 67,930
Marketing................................... 19,272
General and administrative.................. 132,273
Satellite operating and administrative...... 19,026
Depreciation................................ 97,135
Amortization................................ 36,313
------------
OPERATING INCOME............................. 112,028
Interest expense............................. (76,289)
Equity in net losses of affiliated companies. (34,070)
Gain on sale of affiliated companies......... 10,201
Other, net................................... 9,608
------------
INCOME BEFORE INCOME TAXES................... 21,478
Income taxes................................. 17,252
------------
NET INCOME................................... $ 4,226
============
PER SHARE DATA:
Net income per share......................... $ 0.02
Weighted average number of common
shares outstanding........................ 251,274,123
</TABLE>
4. INVESTMENTS
In March 1996, Syntellect, Inc. ("Syntellect") merged with the
operations of Telecorp Systems, Inc. ("Telecorp"). As a result of this merger,
Cox received an 8.6% interest in Syntellect in exchange for its 24.5% interest
in Telecorp. Cox recognized a gain of $4.6 million related to this transaction.
9
<PAGE>
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 Tele-Communications, Inc. (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 conducted an initial public offering in which
it sold 27,025,000 shares (the "TCGI IPO"). Upon completion of the
Reorganization and TCGI IPO, Cox owns 24.5% of the total TCGI shares outstanding
and a 29.1% voting interest. As a result of the TCGI IPO, Cox recognized a pre-
tax gain of $50.1 million.
5. DEBT
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. During June, Cox borrowed $734.1 million under
the commercial paper program to repay existing debt.
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 (6.531% at June 30, 1996). Included in the amounts due
to CEI are the following transactions:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Balance, December 31, 1995............................ $ 182,605
Cash transferred to CEI............................... (185,794)
Net operating expense allocations and reimbursement... 94,059
----------
Balance, June 30, 1996................................ $ 90,870
==========
</TABLE>
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 six month periods
ended June 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.
10
<PAGE>
In April 1996, Cox sold certain cable television systems in the Ashland,
Kentucky and Defiance, Ohio area for $136 million. These systems, which were
acquired as a result of the Merger, together served approximately 78,600
customers. No gain or loss resulted from this transaction.
Also, in April 1996, Cox and Continental signed a letter of intent for Cox
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. Cox anticipates this transaction will be
consummated during the fourth quarter of 1996.
In March 1996, Cox and Time Warner signed a letter of intent for Cox 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. Cox anticipates this transaction will be consummated during the fourth
quarter of 1996.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995
Revenues for the three months ended June 30, 1996 were $357.3 million,
a 9% increase over revenues of $328.1 million for the three months ended June
30, 1995. Basic customers were 3,216,993 at June 30, 1996. Adjusting for the
acquisitions and sales of cable television systems during 1996 and 1995, total
revenues increased 11% and basic customers grew 2.8% compared to the second
quarter of 1995.
Regulated revenues for the second quarter of 1996 grew 7% over the same
period in 1995 to $238.1 million. On a comparable basis, adjusting for the
acquisitions and sales of cable television systems, regulated revenue increased
10% compared to the same period in 1995 due to the larger customer base and
average rate increases of $1.80 per month per subscriber during the second half
of 1995. These rate increases reflected channel additions and the allowable
pass-through of inflation adjustments and external costs, primarily programming
fee increases. A la carte revenues increased 21% to $11.8 million reflecting
continued growth as additional systems offer a la carte packages, and selected
price adjustments during the fourth quarter of 1995.
Premium service revenues for the current quarter were $47.8 million,
down 1% from the second 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 decreased during the current
quarter due to the April 1996 launch of a three-for-one premium channel
promotion. This promotion boosted growth in premium units to 2,149,196 at June
30, 1996 compared to 1,835,261 at June 30, 1995. Pay-per-view revenues for the
second quarter of 1996 were $9.9 million, down 22% from the same period in 1995
as a result of Phoenix Suns playoff games and other non-recurring sporting
events in 1995. Advertising revenues increased 11% to $18.7 million reflecting
continued gains in national account revenue.
Revenues from satellite operations (Cox Satellite Programming and
PrimeStar) were $19.2 million for the current quarter, an 112% increase over
revenues of $9.1 million for the same quarter in 1995 as PrimeStar customers
increased from 30,849 at June 30, 1995 to 88,163 at June 30, 1996.
Programming costs were $85.7 million for the second quarter of 1996,
an increase of 6% over the comparable period in 1995 due primarily to Cox's
larger customer base and the offering of additional channels. Marketing costs
were $11.7 million for the current quarter, an 11% increase over the second
11
<PAGE>
quarter of 1995 primarily as a result of sales programs associated with the
premium channel promotion and an increase in advertising. General and
administrative expenses for the second quarter of 1996 increased 8% to $72.3
million due to the increase in salaries and benefits associated with Cox's
larger customer base. Also included in general and administrative expenses for
the current quarter is $1.1 million related to 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 second quarter of 1996 was $135.6 million, an 8%
increase over EBITDA of $125.5 million for the second quarter of 1995. Adjusting
for the sales and acquisitions of cable television systems, EBITDA growth was
10% over the second quarter of 1995. Included in EBITDA is a contribution from
satellite operations of $1.7 million for the current quarter as compared to a
loss of $1.1 in the second 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 second quarter of 1995
due to the up-front costs associated with the strong growth of the satellite
business. Excluding satellite operations, the EBITDA margin for the current
quarter was 39.6% which was in line with the second quarter of 1995. The 1996
margin also reflects expenses related to the development of new services.
Depreciation was $63.2 million for the second quarter of 1996, a 39%
increase compared to the second quarter of 1995, reflecting the continued
upgrade of the broadband network and acceleration of the depreciation of analog
converters. Operating income for the second quarter of 1996 was $54.8 million, a
10% decrease compared to the same period in 1995.
Interest expense for the current quarter was $34.3 million, a 14% decrease
from the second quarter of 1995 due to the capitalization of interest expense on
debt incurred to fund Sprint Spectrum. Excluding capitalized interest of $11.0
million and $5.8 million for the second quarter of 1996 and 1995, respectively,
interest expense was comparable. Equity in net losses of affiliated companies
was $28.8 million, a $12.6 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. A gain on issuance of stock by affiliated
companies of $50.1 million was recognized in the second quarter as a result of
the initial public offering of Teleport.
Net income for the current quarter was $27.0 million as compared to net
income of $5.0 million for the second quarter of 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH PRO FORMA SIX MONTHS ENDED JUNE 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 six months ended June 30, 1996 were $714.8 million,
an 11% increase over revenues of $641.2 million for the comparable period of
1995. Basic customers were 3,216,993 at June 30, 1996.
Regulated revenues grew 9% to $476.4 million due to the larger
customer base and average rate increases of $1.80 per month per subscriber
during the second half of 1995. These rate increases reflected channel additions
and the allowable pass-through of inflation adjustments and external costs,
primarily programming fee increases. A la carte revenues increased 30% to $24.5
12
<PAGE>
million reflecting continued growth as additional systems offer a la carte
packages, and selected price adjustments during the fourth quarter of 1995.
Premium service revenues for the six months ended June 30, 1996 were
$95.3 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 2,149,196 at
June 30, 1996 from 1,835,261 at June 30, 1995. Pay-per-view revenues were
$22.8 million, a 7% increase over the six months ended June 30, 1995 due
primarily to the Tyson/Bruno boxing event in March 1996. Advertising revenues
increased 15% to $36.0 million reflecting continued gains in national account
revenue and new customers such as Sprint.
Revenues from satellite operations (Cox Satellite Programming and
PrimeStar) were $36.9 million for the six months ended June 30, 1996, a 114%
increase over revenues of $17.2 million for the same period in 1995 as PrimeStar
customers increased from 30,849 at June 30, 1995 to 88,163 at June 30, 1996.
Programming costs increased 11% due primarily to Cox's larger customer
base and the offering of additional channels. Marketing costs increased 16% as a
result of sales programs associated with the premium channel promotion and an
increase in advertising. General and administrative expenses increased 8% due to
the increase in salaries and benefits associated with Cox's larger customer base
and the development of new services.
EBITDA for the six months ended June 30, 1996 was $272.0 million, an
11% increase over EBITDA of $245.5 million for the same period in 1995. Included
in EBITDA is a contribution from satellite operations of $3.7 million for the
six months ended June 30, 1996 as compared to a loss of $1.8 million for the
same period in 1995.
The EBITDA margin for the first six months of 1996 was 38.0%, a slight
decrease from 38.3% for the first six months of 1995 due to the up-front costs
associated with the strong growth of the satellite business. Excluding satellite
operations, the EBITDA margin for the six months ended June 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 23% to $119.1 million, reflecting the continued
upgrade of the broadband network and acceleration of the depreciation of analog
converters. Operating income for the six months ended June 30, 1996 was $116.8
million, a 4% increase compared to the same period in 1995.
Interest expense decreased 10% to $68.8 million due to the
capitalization of interest expense on debt incurred to fund Sprint Spectrum.
Equity in net losses of affiliated companies was $48.1 million, a $14.0 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 and Syntellect.
Net income for the six months ended June 30, 1996 was $34.3 million as
compared to net income of $4.2 million for the six months ended June 30, 1995.
13
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
Revenues for the six months ended June 30, 1996 were $714.8 million, a
19% increase over revenues of $599.3 million for the comparable period of 1995.
EBITDA for the first six months of 1996 was $272.0 million, a 19% increase as
compared to $228.4 million for the first six months of 1995. Operating income
for the six months ended June 30, 1996 was $116.8 million, a 9% increase from
the comparable period of 1995. Equity in net losses of affiliated companies
increased $14.0 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 and Syntellect. Net income
for the six months ended June 30, 1996 was $34.3 million as compared to net
income of $6.8 million for the six months ended June 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 six months ended June 30, 1996, Cox made capital expenditures of $256.8
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 six months ended June 30, 1996, Cox funded approximately $105 million
for Sprint Spectrum and other telephony investments and $43.8 million to
PrimeStar, Outdoor Life, Speedvision and various other programming interests.
Sources of Cash
In April 1996, Cox filed a Form S-3 Registration Statement with the
Securities and Exchange Commission 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 (the "commercial paper program"). 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. During June, Cox borrowed $734.1 million
under the commercial paper program to repay existing debt.
14
<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 June 30, 1996:
None.
15
<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.
/s/ Jimmy W. Hayes Date: August 8, 1996
- ----------------------------------
Jimmy W. Hayes
Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
PERIOD ENDING JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 43,390 43,390
<SECURITIES> 0 0
<RECEIVABLES> 114,687 114,687
<ALLOWANCES> (7,391) (7,391)
<INVENTORY> 45,866 45,866
<CURRENT-ASSETS> 14,377 14,377
<PP&E> 2,155,022 2,155,022
<DEPRECIATION> (809,483) (809,483)
<TOTAL-ASSETS> 5,732,883 5,732,883
<CURRENT-LIABILITIES> (304,548) (304,548)
<BONDS> 0 0
0 0
0 0
<COMMON> (270,240) (270,240)
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> (5,732,883) (5,732,883)
<SALES> 0 0
<TOTAL-REVENUES> (357,335) (714,833)
<CGS> 0 0
<TOTAL-COSTS> 149,395 299,614
<OTHER-EXPENSES> 153,103 298,413
<LOSS-PROVISION> 4,892 9,699
<INTEREST-EXPENSE> 34,301 68,806
<INCOME-PRETAX> (46,949) (64,553)
<INCOME-TAX> 19,985 30,232
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (26,964) (34,321)
<EPS-PRIMARY> 0.10 0.13
<EPS-DILUTED> 0.10 0.13
</TABLE>
