<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, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-13576
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 256,695,153 shares of Class A Common Stock outstanding as
of August 1, 1997.
There were 13,798,896 shares of Class C Common Stock outstanding as
of August 1, 1997.
<PAGE>
COX COMMUNICATIONS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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........................... 11
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 14
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
1997 1996
----------- --------------
(UNAUDITED )
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Cash......................................................... $ 78,444 $ 42,349
Accounts and notes receivable, less allowance for doubtful
accounts of $7,904 and $7,778............................... 123,162 122,574
Net plant and equipment...................................... 1,789,658 1,531,811
Investments.................................................. 1,411,880 1,219,082
Intangible assets............................................ 2,560,554 2,728,955
Other assets................................................. 129,815 139,819
----------- --------------
Total assets............................................... $ 6,093,513 $ 5,784,590
=========== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses........................ $ 211,485 $ 220,859
Deferred income.............................................. 31,012 29,440
Deferred income taxes........................................ 337,048 294,453
Other liabilities............................................ 157,672 97,526
Debt......................................................... 3,100,688 2,823,853
Amounts due to Cox Enterprises, Inc.......................... -- 57,147
----------- --------------
Total liabilities.......................................... 3,837,905 3,523,278
----------- --------------
Shareholders' equity
Preferred Stock, $1 par value; 5,000,000 shares authorized;
none issued................................................ -- --
Class A Common Stock, $1 par value; 316,000,000 shares
authorized; shares issued and outstanding: 256,541,556
and 256,463,651............................................ 256,541 256,464
Class C Common Stock, $1 par value; 14,000,000 shares
authorized; shares issued and outstanding: 13,798,896...... 13,799 13,799
Additional paid-in capital................................... 1,781,976 1,742,121
Retained earnings............................................ 239,439 216,097
Foreign currency translation adjustment...................... 16,311 23,424
Net unrealized gain (loss) on securities..................... (52,458) 9,407
----------- --------------
Total shareholders' equity................................. 2,255,608 2,261,312
----------- --------------
Total liabilities and shareholders' equity................. $ 6,093,513 $ 5,784,590
=========== ==============
</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
------------------------------ ------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
REVENUES
Complete basic....................... $ 265,837 $ 246,489 $ 528,915 $ 494,120
New product tier..................... 4,852 3,405 9,637 6,609
Premium service...................... 47,036 47,827 92,755 95,458
Pay-per-view......................... 15,703 9,860 26,675 22,780
Advertising.......................... 25,815 22,061 47,088 42,578
Satellite............................ 29,884 19,247 55,750 36,895
Other................................ 11,971 8,446 23,388 16,393
-------------- -------------- -------------- --------------
TOTAL REVENUES....................... 401,098 357,335 784,208 714,833
COSTS AND EXPENSES
Programming costs.................... 92,209 79,392 180,732 162,139
Plant operations..................... 38,190 34,467 76,301 69,278
Marketing............................ 17,989 19,873 35,809 38,141
General and administrative........... 77,205 70,403 151,952 140,089
Satellite operating and
administrative....................... 28,265 17,551 52,612 33,206
Depreciation......................... 85,296 63,220 158,143 119,082
Amortization......................... 18,978 17,592 36,027 36,092
-------------- -------------- -------------- --------------
OPERATING INCOME........................ 42,966 54,837 92,632 116,806
Interest expense........................ (50,170) (34,301) (96,986) (68,806)
Equity in net losses of affiliated
companies.............................. (81,827) (28,811) (163,108) (48,068)
Gain on exchanges of cable
systems................................ -- -- 24,642 --
Gain on issuance of stock by affiliated
companies.............................. -- 50,100 -- 50,100
Gain on sale of affiliated companies.... 190,844 -- 193,780 4,640
Other, net.............................. (907) 5,124 3,093 9,881
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES.............. 100,906 46,949 54,053 64,553
Income taxes............................ 39,742 19,985 30,711 30,232
-------------- -------------- -------------- --------------
NET INCOME.............................. $ 61,164 $ 26,964 $ 23,342 $ 34,321
============== ============== ============== ==============
PER SHARE DATA
Net income per share.................. 0.23 0.10 0.09 0.13
Weighted-average shares outstanding... 270,335,907 270,239,597 270,324,395 270,224,247
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
COX COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
FOREIGN UNREALIZED
ADDITIONAL CURRENCY GAIN
COMMON STOCK PAID-IN RETAINED TRANSLATION (LOSS) 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, 1996... $ 256,464 $ 13,799 $ 1,742,121 $ 216,097 $ 23,424 $ 9,407 $ 2,261,312
Net income................... 23,342 23,342
Issuance of stock related to
stock compensation plans.... 77 1,234 1,311
Capital contribution by CEI.. 38,621 38,621
Foreign currency translation
adjustment.................. (7,113) (7,113)
Change in net unrealized
gain (loss) on securities... (61,865) (61,865)
--------- -------- ------------ ---------- ---------- --------- -----------
BALANCE AT JUNE 30, 1997....... $ 256,541 $ 13,799 $ 1,781,976 $ 239,439 $ 16,311 $ (52,458) $ 2,255,608
========= ======== ============ ========== ========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
COX COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
--------------------------
1997 1996
------------ -----------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................... $ 23,342 $ 34,321
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation................................. 158,143 119,082
Amortization................................. 36,027 36,092
Equity in net losses of affiliated
companies................................... 163,108 48,068
Deferred income taxes........................ (19,219) (61,987)
Gain on issuance of stock by affiliated
companies................................... -- (50,100)
Gain on exchange of cable systems............ (24,642) --
Gain on sale of affiliated companies......... (193,780) (4,640)
Increase (decrease) in accounts and
notes receivable............................. (1,672) 11,192
Decrease in accounts payable and
accrued expenses............................. (36,811) (44,580)
Increase in taxes payable..................... 85,032 36,378
Other, net.................................... (11,249) (3,832)
----------- ----------
Net cash provided by operating activities.. 178,279 119,994
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.......................... (361,855) (256,809)
Investments in affiliated companies........... (251,494) (148,750)
Proceeds from sale of affiliated companies.... 6,983 --
Payments for exchanges of cable
systems...................................... (53,442) --
Proceeds from sale of businesses.............. -- 201,791
Other, net.................................... (4,058) 353
----------- ----------
Net cash used in investing activities...... (663,866) (203,415)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term debt borrowings, net............... 400,000 209,221
Commercial paper repayments, net.............. (20,239) --
Proceeds from issuance of debt................ 150,000 --
Repayment of debt............................. (7,113) (3,190)
Proceeds from exercise of stock options....... 1,311 907
Decrease in amounts due to Cox
Enterprises, Inc............................. (35,120) (91,496)
Increase (decrease) in book overdrafts........ 32,843 (27,797)
----------- ----------
Net cash provided by financing
activities................................ 521,682 87,645
----------- ----------
Net increase in cash.......................... 36,095 4,224
Cash at beginning of period................... 42,349 39,166
----------- ----------
Cash at end of period......................... $ 78,444 $ 43,390
=========== ==========
</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
-------------------------
1997 1996
----------- ----------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
SIGNIFICANT NONCASH TRANSACTIONS
Transfer of PCS license.................. $ 251,918 $ --
Flextech merger stock exchange........... 203,119 --
Gemstar merger stock exchange............ 19,373 --
ADDITIONAL CASH FLOW INFORMATION
Interest paid............................ 102,403 63,973
Income taxes paid (refunded)............. (35,101) 77,677
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
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
Communications, Inc.'s ("Cox") Annual Report on Form 10-K for the year ended
December 31, 1996.
The results of operations for the six months ended June 30, 1997 are
not necessarily indicative of the results to be expected for the year ended
December 31, 1997 or any interim period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS"). It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15, "Earnings per Share," ("Opinion 15")
which is superseded by this Statement. This Statement requires restatement of
all prior-period EPS data presented. Upon adoption of this Statement in December
1997, the EPS amounts presented will not be materially different than those
previously presented in accordance with Opinion 15.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was
issued. This Statement requires that Cox (a) classify, by nature, items of
other comprehensive income in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. This Statement will also require Cox to report other comprehensive
income, a measure of performance that includes all non-owner sources of changes
in equity, in addition to net income reported in the financial statements.
Reclassification of financial statements for earlier periods provided for
comparative purposes will be required. There will be no effect on Cox's
financial position upon adoption in the first quarter of 1998.
Reclassifications
Certain amounts in the 1996 financial statements have been
reclassified for comparative purposes.
7
<PAGE>
3. EXCHANGES OF BUSINESSES
In March 1997, Cox exchanged its Myrtle Beach, South Carolina cable
television system serving approximately 42,230 customers for Time Warner
Entertainment/Advance-Newhouse's ("Time Warner") Hampton and Williamsburg,
Virginia cable television systems serving approximately 45,300 customers. The
transaction included a Texas cable television system serving approximately 7,000
customers which was purchased by Cox and then immediately traded to Time Warner.
Cox recognized a book gain of $27.8 million in conjunction with the exchange.
4. INVESTMENTS
The summarized unaudited financial information presented below for
significant equity method investments served as the basis for which Cox recorded
its share of equity in net losses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- ----------------------------
(THOUSANDS OF DOLLARS)
SPRINT PIONEER OUTDOOR GEMS
PCS CO TCGI LIFE SPEEDVISION TELEVISION
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30, 1997
- ----------------
REVENUES $ 25,386 $ 1,793 $115,700 $ 2,841 $ 1,880 $ 2,560
OPERATING LOSS (277,712) (31,217) (28,600) (4,798) (8,113) (1,794)
NET LOSS (331,332) (47,512) (51,400) (5,056) (8,454) (2,803)
JUNE 30, 1996
- ----------------
REVENUES -- -- 65,100 47 398 2,057
OPERATING LOSS (46,897) (7,629) (20,500) (5,912) (8,705) (2,496)
NET LOSS (90,772) (8,015) (25,200) (5,966) (8,759) (3,320)
<CAPTION>
SIX MONTHS ENDED
- ----------------------------
(THOUSANDS OF DOLLARS)
SPRINT PIONEER OUTDOOR GEMS
PCS CO TCGI LIFE SPEEDVISION TELEVISION
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30, 1997
- ----------------
REVENUES $ 34,853 $ 2,872 $212,500 $ 5,358 $ 3,360 $ 5,019
OPERATING LOSS (468,526) (72,488) (52,200) (9,510) (15,186) (3,663)
NET LOSS (546,835) (103,157) (96,400) (9,919) (15,732) (5,683)
JUNE 30, 1996
- ----------------
REVENUES -- -- 123,200 624 522 4,318
OPERATING LOSS (77,875) (13,049) (40,800) (9,774) (12,686) (4,041)
NET LOSS (158,130) (13,646) (49,500) (9,849) (12,761) (5,706)
</TABLE>
In June 1997, PrimeStar Partners L.P. ("PrimeStar Partners"), in which
Cox holds a 10.4% interest, agreed to merge with TCI Satellite Entertainment,
Inc. and create a new company, PrimeStar, Inc. As part of this transaction Cox
will roll-up, along with the other owners of PrimeStar Partners, its ownership
interest in PrimeStar Partners and its PrimeStar distribution businesses into
PrimeStar, Inc. in exchange for (i) cash (or the assumption of debt), (ii)
shares of Series A Common Stock of PrimeStar, Inc., and (iii) shares of Series C
Common Stock of PrimeStar, Inc. It is expected that upon consummation of the
roll-up, shares of the Series A Common Stock of PrimeStar, Inc. will be publicly
traded on the NASDAQ Stock Market.
8
<PAGE>
Subsequent to the roll-up, Cox will own 9% of the common equity ownership of
PrimeStar, Inc. and may continue to market and support the PrimeStar programming
services on an agency basis.
In May 1997, Starsight Telecast, Inc. merged with Gemstar International
Group Limited, a public company that develops and markets proprietary
technologies aimed at making technology more user friendly to consumers. Cox, as
a holder of Starsight shares, received 1,313,421 shares of Gemstar as a result
of the merger, representing a 2.8% interest in Gemstar and recognized a gain of
approximately $11.0 million related to this transaction in the second quarter of
1997.
In April 1997, Cox exchanged its 37.9% interest in UK Gold and 49.6%
interest in UK Living for 20,701,084 shares, or a 12.6% interest, in Flextech
plc, a United Kingdom publicly held programming company. Cox recognized a gain
related to this transaction of $179.8 million during the second quarter of 1997.
In December 1996, pursuant to previous agreements, Cox, CEI, Tele-
Communications, Inc. ("TCI"), Comcast Corporation ("Comcast") and Sprint
Corporation ("Sprint") formed Cox Communications PCS, L.P. ("PioneerCo") to
operate the PCS system in the Los Angeles-San Diego Major Trading Area ("MTA").
PioneerCo is owned 49% by Sprint Spectrum Holding Company L.P. ("Sprint PCS") as
limited partner and 51% by Cox Pioneer Partnership ("CPP") as general partner.
CPP is a jointly controlled partnership owned approximately 78% by Cox and
approximately 22% by CEI. In March 1997, upon approval from the Federal
Communication Commission ("FCC"), Cox transferred the PCS license for the Los
Angeles-San Diego MTA and the related obligation to the FCC of $251.9 million to
PioneerCo. The December 1996 formation of PioneerCo and the March 1997 transfer
of the license and obligation resulted in Cox recording $38.6 million as a
capital contribution from CEI.
9
<PAGE>
5. DEBT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------------------------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revolving Credit Facilities................................. $ 849,999 $ 449,999
Commercial Paper, net of
unamortized discount of $4,372
and $3,296................................................. 697,389 718,704
Medium Term Notes........................................... 163,863 166,082
Floating Rate Reset Notes, due
June 15, 2009.............................................. 150,000 --
6.375% Notes, due June 15, 2000,
net of unamortized discount
of $703 and $821........................................... 424,297 424,179
6.5% Notes, due November 15, 2002,
net of unamortized discount
of $474 and $517........................................... 199,526 199,483
6.875% Notes, due June 15, 2005,
net of unamortized discount and
hedging of $13,085 and $13,661............................. 361,915 361,339
7.25% Debentures, due
November 15, 2015, net of
unamortized discount
of $857 and $880........................................... 99,143 99,120
7.625% Debentures, due June 15, 2025,
net of unamortized discount and
hedging of $18,043 and $18,128............................. 131,957 131,872
Obligation to the FCC....................................... -- 251,918
Capitalized Lease Obligations............................... 22,599 21,157
------------------------------------
Total Debt................................................ $3,100,688 $2,823,853
====================================
</TABLE>
In June 1997, Cox issued $150 million principal amount of Floating Rate
Reset Notes due June 15, 2009 (the "Notes"). The Notes bear interest at a
floating rate equal to 0.8975% per annum below LIBOR until June 15, 1999, at
which time the interest rate will be reset at a fixed annual rate equal to 6.62%
plus Cox's spread to the ten year Treasury rate. The Notes are redeemable at the
election of the holder, in whole but not in part, at 100% of the principal
amount on June 15, 1999.
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 (6.38% at June 30, 1997). Included in the amounts due
to/(from) CEI are the following transactions:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
Balance, December 31, 1996............................................ $ 57,147
Cash transferred from CEI............................................. 19,975
Capital contribution by CEI........................................... (38,620)
Net operating expense allocations and reimbursement................... (55,147)
-----------
Balance, June 30, 1997................................................ $ (16,645)
===========
</TABLE>
10
<PAGE>
7. SHAREHOLDERS' EQUITY
In April 1997, Cox amended its Certificate of Incorporation thereby
increasing authorized Class A Common Stock from 286,000,000 shares to
316,000,000 shares.
8. COMMITMENTS AND CONTINGENCIES
Cox is a party to various legal proceedings that are ordinary and
incidental to its business. Management does not expect that any legal
proceedings currently pending will have a material adverse impact on Cox's
consolidated financial position or consolidated results of operations.
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 six-month
period ended June 30, 1997 and 1996.
RECENT EXCHANGES
In March 1997, Cox exchanged its Myrtle Beach, South Carolina cable
television system serving approximately 42,230 customers for Time Warner
Entertainment/Advance-Newhouse's ("Time Warner") Hampton and Williamsburg,
Virginia cable television systems serving approximately 45,300 customers. The
transaction included a Texas cable television system serving approximately 7,000
customers which was purchased by Cox and then immediately traded to Time Warner.
Cox recognized a book gain of $27.8 million in conjunction with the exchange.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
Revenues for the three months ended June 30, 1997 were $401.1 million, a
12% increase over revenues of $357.3 million for the three months ended June 30,
1996. Basic customers were 3,272,380 at June 30, 1997, a 2.1% increase over
customers at June 30, 1996 after adjusting for the trades of cable systems
during the first quarter of 1997.
Complete basic revenues for the second quarter of 1997 increased 8% over
the same period in 1996 to $265.8 million due to customer growth and average
rate increases in the fourth quarter of 1996 of $1.50 per month per customer.
These rate increases are the result of new channel additions and the pass-
through of inflation adjustments. New product tier revenues grew 42% to $4.9
million as a result of launching these channel offerings in additional systems.
Premium service revenues for the current quarter were $47.0 million, down
2% from the second quarter of 1996. In the current quarter, the average revenue
per premium unit increased, resulting in a 3% increase in premium service
revenues compared to the first quarter of 1997, and premium units decreased to
1,907,238 at June 30, 1997 due to the completion of the spring 1996 three-for-
one promotion.
Pay-per-view revenues for the current quarter increased 59% over the same
period in 1996 to $15.7 million due to the June 1997 Tyson/Holyfield boxing
event. Advertising revenues increased 17% to $25.8 million as a result of
strong growth in local and national ad sales and Cox's telecasts of the San
Diego Padres major league baseball games.
11
<PAGE>
Revenues from satellite operations were $29.9 million for the current
quarter, a 55% increase over revenues of $19.2 million for the same quarter in
1996 as PrimeStar customers increased to 150,168 at June 30, 1997 from 88,163 at
June 30, 1996.
Programming costs were $92.2 million for the second quarter of 1997, an
increase of 16% over the same period in 1996 due primarily to Cox's customer
growth, January 1997 programming rate increases, new channel additions and the
Tyson/Holyfield boxing event. Plant operations expenses increased 11% to $38.2
million due to 1997 annual salary increases and additional repair and
maintenance costs related to systems acquired in the trades during the first
quarter of 1997. Marketing costs decreased 9% to $18.0 million for the second
quarter due in part to costs associated with the spring 1996 marketing
campaigns. General and administrative expenses for the second quarter of 1997
increased 10% to $77.2 million due to annual salary increases and the increase
in direct costs associated with developing and providing 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 increased 9% to $147.2 million for the second quarter of
1997. EBITDA for the core video business, which excludes satellite and Fibernet
operations and $4.0 million of direct costs associated with data and telephony
services, grew 10% to $148.4 million compared to the second quarter of 1996.
The EBITDA margin (EBITDA as a percentage of revenues) for the current
quarter was 36.7%, a decrease from 38.0% for the second quarter of 1996 due to
the increase in the data and telephony direct costs. The core video business
EBITDA margin was 40.4% for the current quarter, a slight increase over the
second quarter of 1996 and in line with Cox's expectations for the year.
Depreciation was $85.3 million for the second quarter of 1997, a 35%
increase compared to the same period in 1996 due to the continued upgrade and
rebuild of the broadband network. Amortization increased 8% to $19.0 million
for the current quarter as a result of additional goodwill resulting from the
trades of cable systems during the first quarter of 1997. Operating income for
the second quarter of 1997 was $43.0 million, a decrease of 22% compared to the
same period in 1996.
Interest expense increased $15.9 million to $50.2 million for the second
quarter of 1997 due to the discontinuance of capitalizing interest resulting
from the launch of services by Cox's PCS investments. Equity in net losses of
affiliated companies was $81.8 million, a $53.0 million increase over the prior
year due to the losses associated with Sprint PCS, Cox PCS and Teleport.
A pre-tax gain of $190.8 million was recognized in the second quarter of
1997 primarily as a result of the transfer of Cox's interest in UK Gold and UK
Living to Flextech plc, for which Cox received shares representing a 12.6%
interest of Flextech plc.
Net income for the current quarter was $61.2 million as compared to net
income of $27.0 million for the second quarter of 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Revenues for the six months ended June 30, 1997 were $784.2 million, a 10%
increase over revenues of $714.8 million for the six months ended June 30, 1996.
Basic customers were 3,272,380 at June 30, 1997 compared to 3,216,993 at June
30, 1996.
12
<PAGE>
Complete basic revenues grew 7% to $528.9 million due to customer growth
and average rate increases in the fourth quarter of 1996 of $1.50 per month per
customer. These rate increases are the result of new channel additions and the
pass-through of inflation adjustments. New product tier revenues grew 46% to
$9.6 million as a result of launching these channel offerings in additional
systems.
Premium service revenues for the six months ended June 30, 1997 were $92.8
million, down 3% from the same period in 1996. Premium units decreased to
1,907,238 at June 30, 1997 from 2,149,196 at June 30, 1996 due to the completion
of the spring 1996 three-for-one premium channel promotion.
Pay-per-view revenues were $26.7 million, a 17% increase over the six
months ended June 30, 1996 due primarily to the June 1997 Tyson/Holyfield boxing
event. Advertising revenues increased $4.5 million to $47.1 million as a result
of strong growth in local and national ad sales and Cox's telecasts of the San
Diego Padres major league baseball games.
Revenues from satellite operations were $55.8 million for the six months
ended June 30, 1997, a 51% increase over revenues of $36.9 million for the same
period in 1996 as PrimeStar customers increased to 150,168 at June 30, 1997 from
88,163 at June 30, 1996.
Programming costs increased 11% due primarily to Cox's customer growth,
January 1997 programming rate increases, new channel additions and the
Tyson/Holyfield boxing event. Plant operations expenses increased 10% to $76.3
million due to 1997 annual salary increases and additional repair and
maintenance costs related to systems acquired in the trades during the first
quarter of 1997. Marketing costs decreased 6% to $35.8 million for the six
months ended June 30, 1997 due in part to costs associated with the spring 1996
marketing campaigns. General and administrative expenses were $152.0 for the
six months ended June 30, 1997, an 8% increase for the same period in 1996 due
to annual salary increases and the increase in direct costs associated with
developing and providing high-speed data and telephony services.
EBITDA for the six months ended June 30, 1997 was $286.8 million, a 5%
increase over $272.0 million for the same period in 1996. EBITDA for the core
video business, which excludes satellite and Fibernet operations and $7.2
million of direct costs associated with data and telephony services, grew 7% to
$288.7 million compared to the six months ended June 30, 1996.
The EBITDA margin for the first six months of 1997 was 36.6%, a decrease
from 38.0% for the first six months of 1996 due to the increase in the data and
telephony direct costs. The core video business EBITDA margin was 40.0% for the
six months ended June 30, 1997, a slight increase over the same period of 1996
and in line with Cox's expectations for the year.
Depreciation increased 33% to $158.1 million, reflecting the continued
upgrade and rebuild of the broadband network. Operating income for the six
months ended June 30, 1997 was $92.6 million, a decrease of 21% compared to the
same period in 1996.
Interest expense increased $28.2 million to $97.0 million for the six
months ended June 30, 1997 due to the discontinuance of capitalizing interest
resulting from the launch of services by Cox's PCS investments. Equity in net
losses of affiliated companies was $163.1 million, a $115.0 million increase
over the prior year due to the losses associated with Sprint PCS, Cox PCS and
Teleport.
A pre-tax gain of $193.8 million was recognized in the first six months of
1997 primarily as a result of the transfer of Cox's interest in UK Gold and UK
Living to Flextech plc, for which Cox received shares representing a 12.6%
interest of Flextech plc.
13
<PAGE>
Net income for the six months ended June 30, 1997 was $23.3 million as
compared to net income of $34.3 million for the six months ended June 30, 1996.
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 network in preparation for the offering of
new services and to make investments in affiliated companies primarily focused
on telephony, programming and communications-related activities.
Capital expenditures are primarily directed at upgrading and rebuilding
broadband cable networks in preparation for the delivery of additional services.
Capital expenditures for 1997 are expected to range between $625 million and
$675 million. During the six months ended June 30, 1997, Cox made capital
expenditures of $361.9 million.
Funding requirements in 1997 for investments in affiliated companies are
expected to be approximately $173 million for Sprint PCS and PhillieCo, $165
million for PioneerCo and $33 million for programming, PrimeStar and other
investments. During the six months ended June 30, 1997, Cox funded approximately
$230.6 million for Sprint PCS, PioneerCo and other telephony ventures and $20.9
million for programming, PrimeStar and other investments.
During the six months ended June 30, 1997, repayments of $20.2 million were
made for the commercial paper program. In addition, payments for exchanges of
cable systems of $53.4 million were made for the trades which were closed during
the first quarter of 1997.
Sources of Cash
Cox generated $178.3 million from operating activities during the six
months ended June 30, 1997. In addition, Cox received $150 million from the
issuance of Floating Rate Reset Notes due June 15, 2009 and borrowed $400
million of short term debt under the revolving credit facilities during the six
months ended June 30, 1997.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on April 17, 1997.
Four matters were voted upon at the meeting: (a) the election of a Board of
Directors of seven members to serve until the 1998 Annual Meeting or until their
successors are duly elected and qualified; (b) ratification of the appointment
by the Board of Directors of Deloitte & Touche, LLP, independent certified
public accountants, as the Company's independent auditors for the fiscal year
ending December 31, 1997; (c) an Amendment to the Company's Certificate of
Incorporation to increase the number of shares of the Company's Class A Common
Stock authorized for issuance thereunder from 286,000,000 to 316,000,000 shares;
and (d) adoption of the Cox Communications, Inc. 1997 Employee Stock Purchase
Plan.
14
<PAGE>
The following directors were elected and they received the votes indicated:
<TABLE>
<CAPTION>
Nominee Votes in Favor Votes Withheld
------- -------------- --------------
<S> <C> <C>
Janet Morrison Clarke 382,115,869 340,063
John R. Dillon 381,999,715 456,217
David E. Easterly 381,999,715 456,217
Robert F. Erburu 382,088,819 367,113
James C. Kennedy 381,296,457 1,159,475
James O. Robbins 381,999,849 456,083
Andrew J. Young 376,065,144 6,390,788
</TABLE>
Ratification of Deloitte & Touche, LLP, as independent auditors of the fiscal
year ending December 31, 1997, was approved with 382,356,933 votes in favor,
15,984 votes opposed to, and 83,015 abstentions.
The Amendment to the Certificate of Incorporation increasing the number of
shares of Cox's Class A Common Stock authorized for issuance from 286,000,000 to
316,000,000 shares was approved with 381,610,291 votes in favor, 651,859 votes
opposed to, and 193,782 abstentions.
The Cox Communications, Inc. Employee Stock Purchase Plan was adopted with
381,886,050 votes in favor, 283,038 votes opposed to, and 286,844 abstentions.
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, 1997:
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 11, 1997
- --------------------------
Jimmy W. Hayes
Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
16
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<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
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