<PAGE>
RULE 424(b)(2)
FILE NO. 333-58531
PROSPECTUS SUPPLEMENT
(To Prospectus dated July 13, 1998)
$250,000,000
Cox Communications, Inc.
6.15% RESET PUT SECURITIES ("REPSSM") DUE 2033*
---------------
Interest payable February 1 and August 1
---------------
COX COMMUNICATIONS, INC. (THE "COMPANY") IS OFFERING $250,000,000 PRINCIPAL
AMOUNT OF 6.15% RESET PUT SECURITIES DUE AUGUST 1, 2033 (THE "REPS"). THE
REPS WILL MATURE ON AUGUST 1, 2033, BUT WILL BE SUBJECT TO MANDATORY
REDEMPTION FROM THE EXISTING HOLDERS ON AUGUST 1, 2003, THROUGH EITHER (I)
THE EXERCISE BY THE REMARKETING DEALER (AS DEFINED HEREIN) OF ITS RIGHT
TO PURCHASE THE REPS FOR REMARKETING, OR (II) IN THE EVENT THE
REMARKETING DEALER DOES NOT EXERCISE ITS RIGHT TO PURCHASE THE REPS,
THE AUTOMATIC REPURCHASE OF THE REPS BY THE COMPANY. THE "REMARKETING
DEALER" WILL BE MORGAN STANLEY & CO. INCORPORATED. IF THE REMARKETING
DEALER, OR ANY SUCCESSOR, PURCHASES THE REPS, THE REPS WILL BE
PURCHASED BY THE REMARKETING DEALER FROM THE HOLDERS THEREOF ON
AUGUST 1, 2003 (THE "COUPON RESET DATE"), AT 100% OF THE PRINCIPAL
AMOUNT THEREOF, AND THE INTEREST RATE ON THE REPS WILL BE RESET
(THE "COUPON RESET RATE") EFFECTIVE ON THE COUPON RESET DATE
PURSUANT TO THE COUPON RESET PROCESS (AS DEFINED HEREIN). SEE
"DESCRIPTION OF THE REPS."
THE REPS WILL BE REPRESENTED BY ONE OR MORE FULLY REGISTERED GLOBAL
SECURITIES ("GLOBAL SECURITIES") REGISTERED IN THE NAME OF THE DEPOSITORY
TRUST COMPANY AS DEPOSITORY, OR ITS NOMINEE. BENEFICIAL INTERESTS IN THE
GLOBAL SECURITIES WILL BE SHOWN ON, AND TRANSFER THEREOF WILL BE
EFFECTED THROUGH, RECORDS MAINTAINED BY THE DEPOSITORY OR ITS
PARTICIPANTS. EXCEPT AS DESCRIBED HEREIN, REPS IN DEFINITIVE FORM
WILL NOT BE ISSUED. SEE "DESCRIPTION OF THE DEBT SECURITIES--GLOBAL
SECURITIES."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
PRICE 99.939% AND ACCRUED INTEREST, IF ANY
---------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)(4)
--------- -------------- ----------------
<S> <C> <C> <C>
Per REPS........................... 99.939% .600% 103.879%
Total.............................. $249,847,500 $1,500,000 $259,697,500
</TABLE>
- -------
(1) Plus accrued interest, if any, from July 27, 1998.
(2) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at
$267,000.
(4) Includes consideration for the REPS payable by the Remarketing Dealer
for the right to serve as Remarketing Dealer.
---------------
* REPS is a service mark of Morgan Stanley Dean Witter & Co.
---------------
The REPS are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Cravath,
Swaine & Moore, counsel for the Underwriters. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that delivery of the REPS will be made through the
facilities of The Depository Trust Company on or about July 27, 1998, against
payment therefor in immediately available funds.
---------------
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
SUNTRUST EQUITABLE SECURITIES
July 22, 1998
<PAGE>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS, AND ANY SUCH OTHER INFORMATION, OR REPRESENTATIONS, IF GIVEN OR
MADE, MUST NOT BE RELIED UPON AS HAVING BEEN SO AUTHORIZED. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR ANY SALE MADE
HEREUNDER OR THEREUNDER AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
INCLUDED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE
ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY OR THEREBY IN ANY
JURISDICTION WHERE, AND TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
The Company.............................................................. S-4
Recent Developments...................................................... S-4
Use of Proceeds.......................................................... S-5
Capitalization........................................................... S-6
Summary Historical and Pro Forma Consolidated Financial Information and
Other Data.............................................................. S-7
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-9
Description of the REPS.................................................. S-12
Certain United States Federal Income Tax Considerations.................. S-16
Underwriting............................................................. S-22
Legal Matters............................................................ S-22
PROSPECTUS
Available Information.................................................... 3
Information Incorporated by Reference.................................... 3
The Company.............................................................. 4
Ratio of Earnings to Fixed Charges....................................... 4
Use of Proceeds.......................................................... 5
Description of the Debt Securities....................................... 6
Plan of Distribution..................................................... 15
Legal Matters............................................................ 15
Experts.................................................................. 16
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING OF THE REPS MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
REPS OR ANY SECURITIES THE PRICES OF WHICH MAY BE USED TO DETERMINE PAYMENTS
ON THE REPS. SPECIFICALLY, THE UNDERWRITERS OR AGENTS SPECIFIED IN THIS
PROSPECTUS SUPPLEMENT MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY
BID FOR AND PURCHASE THE REPS OR ANY SECURITIES THE PRICES OF WHICH MAY BE
USED TO DETERMINE PAYMENTS ON THE REPS IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING" IN THIS PROSPECTUS SUPPLEMENT AND
"PLAN OF DISTRIBUTION" IN THE ACCOMPANYING PROSPECTUS.
S-2
<PAGE>
THIS PROSPECTUS SUPPLEMENT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
ALL STATEMENTS REGARDING THE EXPECTED FINANCIAL POSITION, RESULTS OF
OPERATIONS, BUSINESS AND FINANCING PLANS OF THE COMPANY ARE FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS
("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN AND THEREIN BY
REFERENCE. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY, ITS SUBSIDIARIES OR PERSONS ACTING ON ITS OR
THEIR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
S-3
<PAGE>
THE COMPANY
Cox Communications, Inc. (the "Company") is among the nation's largest
broadband communications companies with (i) U.S. broadband network operations
and (ii) investments in cable television programming, telecommunications and
technology and broadband networks.
The Company's business strategy includes the development of new and advanced
communications services for its customers by capitalizing on its highly
clustered cable television systems, its industry leading position in upgrading
the technological capabilities of its broadband networks, and its commitment
to customer service. Currently, the Company anticipates that approximately 60%
of its cable television systems will operate with bandwidths of 750 MHz by the
end of 1998. The Company believes that an integrated package of existing
multichannel video, new services such as digital video, high-speed Internet
access and local and long-distance telephone, and commercial competitive local
exchange carrier operations will enhance its ability to acquire and retain
customers while increasing revenues per customer.
In addition, the Company has sought to utilize its expertise and position as
one of the nation's premier cable television companies to invest in
programming, telecommunications and technology companies which are
complementary to the Company's business strategy. The Company believes that
these investments have contributed substantially to the growth of its core
broadband communications business and that its leadership position in
broadband communications has facilitated the growth of these investments. The
Company seeks to utilize insights gained from the integrated operations of its
cable television systems and related programming, telecommunications and
technology investments to continue its leadership in the broadband
communications industry by anticipating and capitalizing upon long-term
industry trends.
The Company is an indirect 75.0% owned subsidiary of Cox Enterprises, Inc.
("CEI"). CEI, a privately-held corporation headquartered in Atlanta, Georgia,
is one of the largest media companies in the United States with consolidated
revenues in 1997 of approximately $4.9 billion. CEI, which has a 100-year
history in the media and communications industry, publishes 16 daily and 11
weekly newspapers and owns or operates 11 television stations in addition to
its interest in the Company. Also, through its indirect majority-owned
subsidiary, Cox Radio, Inc., CEI owns, operates or provides sales and
marketing services for 59 radio broadcast stations (after the closing of
previously announced transactions) and through Manheim Auctions, CEI is the
world's largest operator of auto auctions.
RECENT DEVELOPMENTS
On May 4, 1998, the Company entered into an Agreement and Plan of Merger to
acquire Prime South Diversified, Inc. ("PSDI"), which owns and operates the
cable television system serving Las Vegas, Nevada and surrounding communities,
for a combination of Company stock and cash (the "Las Vegas Acquisition"). The
transaction values all of the businesses of PSDI, comprised of 319,000
residential cable television customers, 105,000 hotel units and interests in
various other non-consolidated operations at $1.3 billion. In addition to the
cable television system serving Las Vegas, Nevada, PSDI's interests include a
provider of resort-hotel room video entertainment and interactive services in
Las Vegas and other gaming cities domestically and internationally; a minority
interest in a provider of video, voice and data to multiple dwelling units in
the United States; a 35% interest in a facilities based provider of commercial
local and interexchange telecommunications services; a 33% interest in Las
Vegas's only 24 hour television news operation (in the development stage); and
certain other diversified investments. Consummation of the Las Vegas
Acquisition is subject to necessary government and regulatory approvals, and
it is currently anticipated that the Las Vegas Acquisition will be consummated
in the fourth calendar quarter of 1998.
On June 15, 1998, the Company acquired from Tele-Communications, Inc.
("TCI") the cable television systems serving areas in and around Tucson and
Sierra Vista, Arizona (the "Tucson Acquisition"), representing approximately
115,000 cable television customers, for a purchase price of approximately
$250.2 million.
S-4
<PAGE>
On April 22, 1998, the Company and a subsidiary of TCI entered into a non-
binding letter of intent to form a joint venture serving approximately 270,000
cable television customers in several key Oklahoma communities. Under the
terms of the proposed transaction, the Company will contribute its cable
television system serving approximately 120,000 customers in the Oklahoma City
area along with debt in exchange for a 50% interest in the joint venture. TCI
will contribute its cable television system serving approximately 150,000
customers in and around Tulsa along with debt in exchange for a 50% interest
in the joint venture. The joint venture will be managed by the Company.
USE OF PROCEEDS
The net proceeds to the Company from the offering of the REPS are estimated
to be approximately $259,430,500 million, after deducting the estimated
discount due the Underwriters and commissions and other expenses payable by
the Company. Concurrently with the offering of the REPS, the Company is also
offering $200,000,000 aggregate principal amount of its 6.40% Notes due August
1, 2008 (the "Notes") and $200,000,000 aggregate principal amount of its 6.80%
Debentures due August 1, 2028 (the "Debentures") pursuant to a separate
prospectus supplement to the Prospectus accompanying this Prospectus
Supplement. None of the offerings of the REPS, the Notes or the Debentures is
conditioned upon the completion or success of any other of such offerings. The
Company will use the net proceeds from the offering of the REPS, together with
the proceeds from the offering of the Notes and the Debentures (which are
currently estimated to be approximately $395,389,000, after deducting the
estimated discount due the Underwriters and commissions and other expenses
payable by the Company), to repay an equal amount of its outstanding short
term indebtedness under the Company's $1.5 billion commercial paper program.
Borrowings under the Company's commercial paper program are used for the
Company's general corporate purposes, including acquisitions. The weighted
average per annum interest rate applicable to outstanding borrowings under the
Company's commercial paper program for the three months ended March 31, 1998
was 5.77%, and the weighted average maturity date for borrowings thereunder
outstanding as of March 31, 1998 was 70 days.
S-5
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 (i) on a historical basis, (ii) on a pro forma basis to give effect
to the Las Vegas Acquisition as if it were consummated as of March 31, 1998
and (iii) on a pro forma basis to give effect to the Las Vegas Acquisition as
if it were consummated as of March 31, 1998, as adjusted to give effect to the
offer and sale of the REPS, Notes and Debentures and the application of the
net proceeds therefrom as described under "Use of Proceeds" (collectively, the
"Offerings"). This table should be read in conjunction with, and is qualified
by reference to, the "Summary Historical and Pro Forma Consolidated Financial
Information and Other Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
and notes thereto incorporated by reference in this Prospectus Supplement and
the accompanying Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------
PRO FORMA AS ADJUSTED
ACTUAL PRO FORMA(A) FOR THE OFFERINGS(B)
-------- ------------ ---------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
CASH(c).......................... $ 30.5 $ 36.6 $ 36.6
======== ======== ========
DEBT
Revolving credit facilities.... -- $ 967.5(d) $ 24.6
Commercial paper............... $1,211.9 1,211.9 1,500.0
Medium term notes.............. 463.3 463.3 463.3
Floating Rate Reset Notes, due
June 2009..................... 147.2 147.2 147.2
6.375% Notes due June 2000..... 424.5 424.5 424.5
6.5% Notes due November 2002... 199.6 199.6 199.6
6.875% Notes due June 2005..... 362.8 362.8 362.8
7.25% Debentures due November
2015.......................... 99.2 99.2 99.2
7.625% Debentures due June
2025.......................... 132.1 132.1 132.1
6.40% Notes due August 2008.... -- -- 200.0
6.80% Debentures due August
2028.......................... -- -- 200.0
6.15% REPS due August 2033..... -- -- 250.0
Capitalized lease obligations.. 42.3 48.0 48.0
-------- -------- --------
Total debt................. 3,082.9 4,056.1 4,051.3
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value;
5,000,000 shares authorized... -- 2.4 2.4
Class A Common Stock, $1 par
value; 316,000,000 shares
authorized.................... 257.5 263.1 263.1
Class C Common Stock, $1 par
value; 14,000,000 shares
authorized; 13,798,896 shares
issued and outstanding........ 13.8 13.8 13.8
Additional paid-in capital..... 1,794.5 2,142.7 2,142.7
Retained deficit............... (22.3) (22.3) (22.3)
Foreign currency translation
adjustment.................... 16.0 16.0 16.0
Net unrealized gain on
securities.................... 322.6 322.6 322.6
-------- -------- --------
Total shareholders'
equity.................... 2,382.1 2,738.3 2,738.3
-------- -------- --------
Total capitalization....... $5,465.0 $6,794.4 $6,789.6
======== ======== ========
</TABLE>
- --------
(a) Gives pro forma effect to the Las Vegas Acquisition as if it were
consummated as of March 31, 1998.
(b) Gives pro forma effect to the Las Vegas Acquisition as if it were
consummated as of March 31, 1998, as adjusted to give effect to the
Offerings. Net proceeds have been adjusted by Underwriters' discounts and
commissions, estimated expenses with respect to the Offerings of $700,000
and consideration received by the Company in respect of the REPS for the
Remarketing Dealer's right to serve as Remarketing Dealer of $11.4
million.
(c) Does not include $197.8 million of restricted cash held in escrow as of
March 31, 1998 pending reinvestment.
(d) Assumes an increase in the commitments under the Company's revolving
credit facilities to fund the cash portion of the purchase consideration
for, and the refinancing of debt to be assumed in connection with, the Las
Vegas Acquisition.
S-6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION AND OTHER
DATA
The summary historical statement of operations data for the years ended
December 31, 1994, 1995, 1996 and 1997 and the historical balance sheet data
as of December 31, 1994, 1995, 1996 and 1997 have been derived from the
audited financial statements of the Company incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus. The unaudited summary
pro forma consolidated financial information and other data have been derived
from the historical consolidated financial statements of both the Company and
PSDI as of the dates and for the periods presented as if the Las Vegas
Acquisition had been consummated as of January 1, 1997 as to the Consolidated
Statement of Operations and March 31, 1998 as to the Consolidated Balance
Sheet. The summary historical and pro forma consolidated financial information
and other data are provided for informational purposes only and do not purport
to be indicative of the results which would have actually been obtained had
the Las Vegas Acquisition been consummated as of the date indicated or which
may be expected to occur in the future. The summary historical and pro forma
consolidated financial information and other data should be read in
conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
and notes thereto incorporated by reference in this Prospectus Supplement and
the accompanying Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31, 1998
----------------------------------------------------- ----------------------
PRO PRO
HISTORICAL FORMA(A) HISTORICAL FORMA(A)
---------------------------------------- -------- ---------- --------
1994 1995 1996 1997 1997
------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenues................ $ 736.3 $1,286.2 $1,460.3 $1,610.4 $1,773.9 $ 415.8 $ 460.0
Operating income........ 139.8 226.0 221.7 205.3 200.0 43.5 44.2
Interest expense........ 46.1 132.3 146.1 202.1 263.7 53.1 68.1
Equity in net losses of
affiliated companies... 43.9 79.7 170.4 404.4 404.3 141.8 141.8
Gain on sale and
exchange of cable
television system...... -- -- -- 51.8 51.6 -- --
Gain on issuance of
stock by affiliated
companies.............. -- -- 50.1 90.8 90.8 -- --
Gain on sale of affili-
ated companies......... -- 188.8 4.6 248.7 248.7 -- --
Loss on write down of
affiliated company..... -- -- -- 183.9 185.9 -- --
Net income (loss)....... 26.6 103.8 (51.6) (136.5) (184.0) (101.9) (112.2)
Basic and diluted net
income (loss) per
share.................. $ 0.13 $ 0.41 $ (0.19) $ (0.50) $ (0.67) $ (0.38) $ (0.41)
OTHER OPERATING AND FI-
NANCIAL DATA
Net cash provided by op-
erating
activities............. $ 205.0 $ 324.9 $ 309.1 $ 554.5 -- $ 191.5 --
Net cash used in invest-
ing activities......... 372.2 865.5 552.2 1,108.0 -- 124.9 --
Net cash provided (used)
by financing activi-
ties................... 156.3 576.4 246.2 539.3 -- (64.3) --
EBITDA(b)............... 268.5 493.3 556.9 609.8 $679.4 149.1 $ 168.7
EBITDA as a % of reve-
nue.................... 36.5% 38.4% 38.1% 37.9% 38.3% 35.9% 36.7%
Debt to EBITDA ratio.... 2.9x 5.2x 5.2x(c) 5.2x(c) 6.1x 5.2x(d) 6.0x(d)
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
----------------------------------- -----------------------
HISTORICAL HISTORICAL PRO FORMA(A)
----------------------------------- ---------- ------------
1994 1995 1996 1997
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets..... $1,874.7 $5,555.3 $5,784.6 $6,556.6 $6,623.5 $8,381.4
Total debt (e)... 787.8 2,575.3 2,881.0 3,148.8 3,082.9 4,056.1
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
-------------------------------------------------------- -------------------------
PRO PRO
HISTORICAL FORMA(A),(E) HISTORICAL FORMA (A),(E)
------------------------------------------ ------------ ---------- -------------
1994 1995 1996 1997 1997
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CUSTOMER DATA
Homes passed.......... 2,878,857 5,005,858 5,016,749 5,023,870 5,498,209 5,058,452 5,541,934
Basic customers....... 1,851,726 3,248,759 3,259,384 3,235,338 3,528,618 3,256,820 3,555,369
Premium service
units................ 1,203,606 1,827,068 2,000,673 1,865,184 2,100,780 1,852,077 2,073,962
Basic penetration..... 64.3% 64.9% 65.0% 64.4% 64.2% 64.4% 64.2%
PrimeStar customers... 17,894 56,822 130,606 171,531 171,531 183,723 183,723
</TABLE>
- --------
(a) Gives pro forma effect to the Las Vegas Acquisition as if it were
consummated as of January 1, 1997 as to the Consolidated Statement of
Operations and March 31, 1998 as to the Consolidated Balance Sheet.
(b) Operating income before depreciation and amortization ("EBITDA"). The
Company believes that EBITDA and related measures of cash flow serve as
financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage. EBITDA should not be considered by the reader as an alternative
to net income as an indicator of the Company's performance or as an
alternative to cash flows from operating activities as a measure of
liquidity.
(c) Using the fourth quarter annualized operating cash flow, the ratio was
4.6x and 4.9x at December 31, 1997 and 1996, respectively.
(d) For purposes of this calculation, EBITDA for the three months ended March
31, 1998 has been annualized.
(e) Excludes hotel customers served by the cable television systems to be
acquired in the Las Vegas Acquisition. Giving effect to the Tucson
Acquisition as if it were consummated as of March 31, 1998 (but excluding
hotel customers served by the cable television systems to be acquired in
the Las Vegas Acquisition), homes passed, basic customers, premium service
units and basic penetration would have been 5,798,258, 3,669,098,
2,164,243 and 63.3%, respectively.
S-8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Company's
historical Consolidated Statement of Operations for the three-month period
ended March 31, 1998 and 1997, which have been filed as part of the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1998 and are
incorporated by reference herein and in the accompanying Prospectus.
RECENT ACQUISITIONS AND EXCHANGES
In May 1998, the Company signed a definitive agreement to acquire PSDI for a
combination of Company stock and cash. The transaction values all of the
businesses of PSDI, comprised of 319,000 residential cable television
customers, 105,000 hotel units and interests in various other non-consolidated
operations predominantly in the greater Las Vegas area, at $1.3 billion. The
closing of this transaction is subject to necessary government and regulatory
approvals.
On June 15, 1998, the Company acquired from TCI the cable television systems
serving areas in and around Tucson and Sierra Vista, Arizona, representing
approximately 115,000 cable television customers, for a purchase price of
approximately $250.2 million.
In April 1998, the Company contributed its partnership interests and related
assets and liabilities in PrimeStar Partners, L.P. to PrimeStar, Inc. in
exchange for $74.0 million and 18,939,217 shares of common stock of PrimeStar,
Inc., totaling a 9.43% equity interest in PrimeStar, Inc. The Company will
recognize a gain on this transaction during the second quarter of 1998.
In April 1998, the Company and TCI signed a non-binding letter of intent to
form a joint venture serving approximately 270,000 customers in several key
Oklahoma communities. Under the terms of the proposed transaction, the Company
will contribute its cable television system serving approximately 120,000
customers in the Oklahoma City area along with debt in exchange for a 50%
interest in the joint venture. TCI will contribute its cable television system
serving approximately 150,000 customers in and around Tulsa along with debt in
exchange for a 50% interest in the joint venture. The joint venture will be
managed by the Company.
On May 26, 1998, the Company and the other owners of Sprint Spectrum L.P.
("Sprint PCS"), a wireless joint venture, entered into an agreement whereby
Sprint Corporation ("Sprint") would assume total ownership and control of the
joint venture in exchange for the issuance to the Company and the other owners
(other than Sprint) of a new class of common stock of Sprint that is intended
to track Sprint's domestic wireless mobile telephony operations' performance.
The Company will receive common stock of Sprint and related warrants
representing approximately 11.4% of Sprint's domestic wireless mobile
telephony operations (before giving effect to certain contemplated
transactions, including an initial public offering of the Sprint tracking
stock).
PRO FORMA THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH PRO FORMA THREE
MONTHS ENDED MARCH 31, 1997
The Company sold its Sun City, California and Central Ohio cable television
systems (collectively, the "California and Ohio Sales"), serving an aggregate
of approximately 95,000 customers, on September 15, 1997 and December 19,
1997, respectively. Revenues for the three months ended March 31, 1998 were
$415.8 million, a 12% increase over revenues of $370.9 million for the three
months ended March 31, 1997 calculated on a pro forma basis assuming the
California and Ohio Sales were consummated as of January 1, 1997 (the
"California and Ohio Sales Pro Forma Basis"). Basic customers at March 31,
1998 were 3,256,820, a 2.5% increase over customers on a California and Ohio
Sales Pro Forma Basis at March 31, 1997. Consolidated operating cash flow
increased 10% to $149.1 million for the first quarter of 1998 calculated on a
California and Ohio Sales Pro Forma Basis. Operating cash flow for the core
video business, which excludes revenues and $12.1 million of direct costs
associated with high-speed data and telephony services and satellite
operations, grew 10% to $149.4 million compared to the first quarter of 1997
calculated on a California and Ohio Sales Pro Forma Basis.
S-9
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Revenues for the three months ended March 31, 1998 were $415.8 million, a 9%
increase over revenues of $383.1 million for the three months ended March 31,
1997. Basic customers were 3,256,820, a 2.5% increase over customers at March
31, 1997 after adjusting for the trades and sales of cable television systems
during 1997.
Complete basic revenues for the first quarter of 1998 increased 6% over the
same period in 1997 to $284.4 million due to customer growth and average rate
increases of 6% implemented primarily in the fourth quarter of 1997. These
increases are the result of new channel additions, increased programming costs
and pass-through of inflation adjustments.
Premium service revenues for the current quarter were $45.6 million, down
slightly compared to the comparable period of 1997. Although premium units
decreased to 1,852,077 at March 31, 1998 from 1,999,568 at March 31, 1997, due
to the completion of a premium channel promotion during early 1997, the
average rate and contribution per unit increased in the current quarter.
Advertising revenues increased 17% to $25 million due to growth in local and
national advertising sales during 1998.
Revenues from satellite operations were $33.5 million for the current
quarter, a 29% increase over revenues of $25.9 million for the same quarter in
1997 as PrimeStar customers increased to 183,723 at March 31, 1998 from
145,040 at March 31, 1997. The Company merged its PrimeStar distribution
businesses into Primestar, Inc. on April 1, 1998 in exchange for 9.43% of
PrimeStar, Inc. and $74.0 million. As a result of the merger, the Company's
PrimeStar operations will no longer be reflected in its consolidated operating
cash flow. Other revenues increased to $17.0 million for the first quarter
1998 due to strong growth in high-speed data and telephony services.
Programming costs were $95.0 million for the first quarter of 1998, an
increase of 7% over the same period in 1997 due to customer growth,
programming rate increases and new channel additions. Plant operations
expenses decreased 14% to $32.8 million and included the effect of a revised
cost component factor used to capitalize indirect costs relating to network
construction activity. Marketing costs increased to $22.1 million for the
current quarter due in part to costs associated with rollout of high-speed
data and telephony services. General and administrative expenses for the first
quarter of 1998 increased 17% to $87.4 million due primarily to direct costs
associated with high-speed data and telephony services and annual salary
increases.
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 7% to $149.1 million for the first
quarter of 1998. EBITDA for the core video business, which excludes revenues
and $12.1 million of direct costs associated with high-speed data and
telephony services and satellite operations, grew 7% to $149.4 million
compared to the first quarter of 1997.
The EBITDA margin (EBITDA as a percentage of revenues) for the current
quarter was 35.9%, a decrease from 36.4% for the first quarter of 1997 due to
the increase in the direct costs of high-speed data and telephony services.
The core video business EBITDA margin was 39.9% for the quarter, an increase
from 39.6% for the comparable quarter of 1997.
Depreciation was $87.0 million for the first quarter of 1998, a 19% increase
compared to the same period in 1997 due to the continued upgrade and rebuild
of the broadband network. Operating income for the first quarter of 1998 was
$43.5 million, a decrease of 12% compared to the same period in 1997.
Interest expense increased $6.3 million to $53.1 million for the first
quarter of 1998 due to an increase in debt outstanding. Equity in net losses
of affiliated companies was $141.8 million primarily due to losses of $76.9
million, $32.4 million and $18.9 million associated with Sprint PCS, Cox
Communications PCS, L.P. and Teleport Communications Group Inc., respectively.
Net loss for the current quarter was $101.9 million as compared to net loss
of $37.8 million for the first quarter of 1997.
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LIQUIDITY AND CAPITAL RESOURCES
USES OF CASH
As part of the Company's ongoing strategic plan, the Company 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 1998 are expected to range between $725
million and $775 million. Capital expenditures during the three months ended
March 31, 1998 were $156.8 million.
The Company currently anticipates borrowing approximately $967.5 million
under its credit facilities and commercial paper program to fund the cash
portion of the purchase consideration for, and the refinancing of debt to be
assumed in connection with, the Las Vegas Acquisition.
Funding requirements in 1998 for investments in affiliated companies are
expected to be approximately $70 million, primarily for Sprint PCS.
Investments in affiliated companies during the three months ended March 31,
1998 of $12.8 million consist primarily of additional equity funding to Sprint
PCS.
During the three months ended March 31, 1998, net repayments of $800 million
were made for the revolving credit borrowings.
SOURCES OF CASH
The Company generated $191.5 million from operating activities during the
three months ended March 31, 1998. Proceeds from borrowings of $532.9 million
under the commercial paper program and $199.3 million of medium term notes
under the shelf registration program were used to refinance revolving credit
borrowings mentioned above.
CEI continues to perform day-to-day cash management services for the Company
with settlements of balances between the Company and CEI occurring
periodically at market interest rates. At March 31, 1998, an intercompany
receivable of $14.0 million was due to the Company from CEI.
Concurrently with the offering of the REPS, the Company is also offering the
Notes and Debentures. See "Use of Proceeds."
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DESCRIPTION OF THE REPS
This "Description of the REPS" constitutes and contains a description of
additional terms and provisions applicable to the REPS. The REPS are described
in the Prospectus and herein, and reference is made to the Prospectus for a
detailed summary of additional provisions of the REPS. The description of the
particular terms of the REPS set forth in this Prospectus Supplement
supplements, and to the extent inconsistent therewith replaces, the
description of the terms and provisions of the Debt Securities in the
Prospectus. Capitalized terms used but undefined herein shall have the
meanings given such terms in such Prospectus.
INTEREST RATE AND INTEREST PAYMENT DATES
The REPS will bear interest at the rate of 6.15% from and including July 27,
1998 to, but excluding August 1, 2003 (the "Coupon Reset Date"). Interest on
the REPS will be payable semiannually on February 1 and August 1 of each year,
commencing February 1, 1999 (each, an "Interest Payment Date"). Interest will
be calculated based on a 360-day year consisting of twelve 30-day months. On
each Interest Payment Date, interest will be payable to the persons in whose
name the REPS are registered on the fifteenth calendar day (whether or not a
Business Day) immediately preceding the related Interest Payment Date (each, a
"Record Date"). "Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in The City of New York are authorized
or required by law or regulation to be closed.
MATURITY DATE
The REPS will mature on August 1, 2033 (the "Maturity Date"). The REPS are
subject to automatic purchase or repurchase on the Coupon Reset Date.
Morgan Stanley & Co. Incorporated is acting as Remarketing Dealer (the
"Remarketing Dealer") with respect to the REPS. The Remarketing Dealer may
elect to remarket only the entire aggregate principal amount of the REPS and
may not remarket a portion thereof. If the Remarketing Dealer elects to
remarket the REPS, (i) the REPS will be subject to purchase by the Remarketing
Dealer at 100% of the principal amount thereof (the "Purchase/Repurchase
Price") for remarketing on the Coupon Reset Date, on the terms and subject to
the conditions described herein (interest accrued to but excluding the Coupon
Reset Date will be paid by the Company on such date to the holders of the REPS
on the most recent Record Date), and (ii) on and after the Coupon Reset Date,
the REPS will bear interest at the rate determined by the Remarketing Dealer
in accordance with the procedures set forth below (the "Coupon Reset Rate").
See "--Purchase by the Remarketing Dealer; Remarketing" below.
Under the circumstances described below, the REPS are subject to repurchase
by the Company on the Coupon Reset Date at the Purchase/Repurchase Price plus
accrued and unpaid interest, if any. See "--Optional Repurchase by the
Company" and "--Mandatory Repurchase by the Company" below.
FOR PERSONS HOLDING THE REPS (OR AN INTEREST THEREIN) ON THE COUPON RESET
DATE, THE EFFECT OF THE OPERATION OF THE PURCHASE AND REMARKETING BY THE
REMARKETING DEALER OR THE REPURCHASE BY THE COMPANY WILL BE THAT SUCH HOLDERS
WILL BE ENTITLED TO RECEIVE, AND WILL BE REQUIRED TO ACCEPT, 100% OF THE
PRINCIPAL AMOUNT OF SUCH REPS (PLUS ACCRUED INTEREST) ON THE COUPON RESET DATE
IN SATISFACTION OF THE COMPANY'S OBLIGATIONS TO THE HOLDERS OF THE REPS.
INTEREST ACCRUED TO, BUT EXCLUDING, THE COUPON RESET DATE WILL BE PAID BY THE
COMPANY ON SUCH DATE TO THE HOLDERS OF THE REPS ON THE MOST RECENT RECORD
DATE.
PURCHASE BY THE REMARKETING DEALER; REMARKETING
General. If the Remarketing Dealer gives notice in writing (the "Remarketing
Notification") to the Company and the Trustee on a Business Day (the
"Notification Date") not later than fifteen calendar days prior to the Coupon
Reset Date of its intention to purchase the REPS for remarketing, the REPS
will be automatically purchased, or deemed purchased, by the Remarketing
Dealer at the Purchase/Repurchase Price on the Coupon
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Reset Date, except in the circumstances described below. Interest accrued to
but excluding the Coupon Reset Date will be paid by the Company on such date
to the holders of the REPS on the most recent Record Date. When REPS are
purchased by the Remarketing Dealer for remarketing, the Remarketing Dealer
may remarket the REPS for its own account at varying prices to be determined
by the Remarketing Dealer at the time of each sale. From and after the Coupon
Reset Date, the REPS will bear interest at the Coupon Reset Rate.
The Remarketing Dealer's obligation to purchase the REPS may be terminated
and the Coupon Reset Process will terminate, if any of the following (a
"Termination Event") occurs: (i) an Event of Default under the Indenture; (ii)
on the Bid Date (as defined below), fewer than two Dealers (as defined below)
submit timely Bids (as defined below) substantially as provided below; (iii)
the Company exercises its right to repurchase the Notes as described under "--
Optional Repurchase by the Company" below; (iv) a "legal defeasance" or a
"covenant defeasance" (each as defined in the accompanying Prospectus) has
occurred (see "Description of the Debt Securities--Defeasance"); (v) the
Remarketing Dealer fails to pay the Purchase/Repurchase Price by 2:00 p.m.,
New York time, on the Business Day prior to the Coupon Reset Date; (vi) the
Remarketing Dealer does not give the Remarketing Notification; (vii) the
Remarketing Dealer validly revokes the Remarketing Notification; or (viii)
prior to the Notification Date the Remarketing Dealer resigns and no successor
has been appointed.
The transactions described above will be executed on the Coupon Reset Date
through the Depositary in accordance with the procedures of the Depositary,
and the accounts of participants will be debited and credited and the REPS
delivered by book-entry as necessary to effect the purchases and sales
thereof. For further information with respect to transfers and settlement
through the Depositary, see "Description of the Debt Securities--Global
Securities" in the Prospectus.
Notice to Holders by Trustee. In anticipation of the purchase of the REPS by
the Remarketing Dealer or the repurchase of the REPS by the Company on the
Coupon Reset Date, the Trustee will notify the holders of the REPS, not less
than 30 days nor more than 60 days prior to the Coupon Reset Date, that all
REPS shall be delivered on the Coupon Reset Date through the facilities of the
Depositary against payment of the Purchase/Repurchase Price by the Remarketing
Dealer or the Company.
Coupon Reset Process if REPS Are Remarketed. The following discussion
describes the steps to be taken in order to determine the Coupon Reset Rate in
the event the Remarketing Dealer has elected to remarket the REPS.
If the Remarketing Dealer elects to remarket the REPS, then the following
steps (the "Coupon Reset Process") will be taken in order to determine the
Coupon Reset Rate. The Company and the Remarketing Dealer will use reasonable
efforts to cause the actions contemplated below to be completed in as timely a
manner as possible.
(a) No later than five Business Days prior to the Coupon Reset Date, the
Company will provide the Remarketing Dealer with (i) a list (the "Dealer
List"), containing the names and addresses of three dealers, one of whom
shall be the Remarketing Dealer, from whom the Company desires the
Remarketing Dealer to obtain Bids for the purchase of the REPS and (ii)
such other material as may reasonably be requested by the Remarketing
Dealer to facilitate a successful Coupon Reset Process.
(b) Within one Business Day following receipt by the Remarketing Dealer
of the Dealer List, the Remarketing Dealer will provide to each dealer
("Dealer") on the Dealer List (i) a copy of this Prospectus Supplement
dated July 22, 1998 and the Prospectus dated July 13, 1998, relating to the
offering of the REPS (collectively, the "Pricing Supplement"), (ii) a copy
of the form of REPS and (iii) a written request that each Dealer submit a
Bid to the Remarketing Dealer no later than 3:00 p.m., New York time, on
the third
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Business Day prior to the Coupon Reset Date (the "Bid Date"). "Bid" means
an irrevocable written offer given by a Dealer for the purchase of all of
the REPS, settling on the Coupon Reset Date, and shall be quoted by such
Dealer as a stated yield to maturity on the REPS ("Yield to Maturity").
Each Dealer shall also be provided with (i) the name of the Company, (ii)
an estimate of the Remarketing Purchase Price (which shall be stated as a
U.S. dollar amount and be calculated by the Remarketing Dealer in
accordance with paragraph (c) below), (iii) the principal amount and
maturity of the REPS and (iv) the method by which interest will be
calculated on the REPS.
(c) The amount payable for the REPS in connection with the Coupon Reset
Process (the "Remarketing Purchase Price") shall be equal to (i) the
principal amount of the REPS, plus (ii) a premium (the "REPS Premium")
which shall be equal to the excess, if any, on the Coupon Reset Date of (A)
the discounted present value to the Coupon Reset Date of a bond with a
maturity of August 1, 2033 which has an interest rate of 5.67%, semiannual
interest payments on each February 1 and August 1, commencing February 1,
2004 and a principal amount equal to the principal amount of the REPS, and
assuming a discount rate equal to the Treasury Rate over (B) such principal
amount of REPS. The "Treasury Rate" means the per annum rate equal to the
offer side yield to maturity of the current on-the-run 30 year United
States Treasury Security per Telerate page 500, or any successor page, no
later than 3:00 p.m., New York time, on the Bid Date (or such other time or
date that may be agreed upon by the Company and the Remarketing Dealer) or,
if such rate does not appear on Telerate page 500, or any successor page,
at such time, the rates on GovPX End-of-Day Pricing at 3:00 p.m., New York
time, on the Bid Date (or such other time or date that may be agreed upon
by the Company and the Remarketing Dealer).
(d) The Remarketing Dealer will provide written notice to the Company as
soon as practicable, on the Bid Date, setting forth (i) the names of each
of the Dealers from whom the Remarketing Dealer received Bids on the Bid
Date, (ii) the Bid submitted by each such Dealer and (iii) the Remarketing
Purchase Price as determined pursuant to paragraph (c) above. Except as
provided below, the Remarketing Dealer will thereafter select from the Bids
received the Bid with the lowest Yield to Maturity (the "Selected Bid");
provided, however, that (i) if the Remarketing Dealer has not received a
timely Bid from a Dealer on or before the Bid Date, the Selected Bid shall
be the lowest of all Bids received by such time and (ii) if any two or more
of the lowest Bids submitted are equivalent, the Company shall in its sole
discretion select any of such equivalent Bids (and such selected Bid shall
be the Selected Bid). The Remarketing Dealer will set the Coupon Reset Rate
equal to the interest rate that will amortize the REPS Premium fully over
the term of the REPS at the Yield to Maturity indicated by the Selected
Bid.
(e) Immediately after calculating the Coupon Reset Rate for the REPS, the
Remarketing Dealer will provide written notice to the Company and the
Trustee, setting forth the Coupon Reset Rate. The Coupon Reset Rate for the
REPS will be effective from and including the Coupon Reset Date.
THE REMARKETING DEALER
On or prior to the date of original issuance of the REPS, the Company and
the Remarketing Dealer will enter into a Remarketing Agreement (a "Remarketing
Agreement"). In all cases, Morgan Stanley & Co. Incorporated shall have the
right to match the Bid with the lowest Yield to Maturity in which case Morgan
Stanley & Co. Incorporated's Bid shall be the Selected Bid. No holder or
beneficial owner of any REPS shall have any rights or claims under the
Remarketing Agreement or against the Company or the Remarketing Dealer as a
result of the Remarketing Dealer not purchasing the REPS.
The Remarketing Agreement will provide that the Remarketing Dealer may
resign at any time as the Remarketing Dealer, such resignation to be effective
10 Business Days after the delivery to the Company and the Trustee of notice
of such resignation; provided, however, that the Remarketing Dealer shall
remain subject to the provisions of the Remarketing Agreement during the
period before its resignation becomes effective. In such case, it shall be the
sole obligation of the Company to appoint a successor Remarketing Dealer.
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The Remarketing Dealer, in its individual or any other capacity, may buy,
sell, hold and deal in any of the REPS. The Remarketing Dealer may exercise
any vote or join in any action which any holder or beneficial owner of the
Notes may be entitled to exercise or take with like effect as if such
Remarketing Dealer did not act in any capacity under its respective
Remarketing Agreement. The Remarketing Dealer, in its individual capacity,
either as principal or agent, may also engage in or have an interest in any
financial or other transaction with the Company as freely as if it did not act
in any capacity under the Remarketing Agreement.
MANDATORY REPURCHASE BY THE COMPANY
If any Termination Event occurs, the Company will repurchase the entire
principal amount of the REPS on the Coupon Reset Date at the
Purchase/Repurchase Price plus accrued and unpaid interest, if any, on the
REPS.
OPTIONAL REPURCHASE BY THE COMPANY
If the Remarketing Dealer gives the Remarketing Notification, then, not
later than the fourth Business Day following the Notification Date, the
Company may irrevocably elect, by notice in writing to the Remarketing Dealer
and the Trustee, to terminate the Coupon Reset Process, whereupon the Company
will repurchase the entire principal amount of the REPS on the Coupon Reset
Date at the Purchase/Repurchase Price plus accrued and unpaid interest, if
any, on the REPS.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the material United States federal income,
estate and gift tax consequences of the purchase, ownership and disposition of
the REPS by an initial holder of the REPS who purchases the REPS on the
original issue date at the "issue price" (as defined below) but is not
purported to be a complete analysis of all potential tax effects. This summary
is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed regulations promulgated thereunder, published rulings
and court decisions, all as in effect and existing on the date hereof and all
of which are subject to change at any time, which change may be retroactive or
prospective. Unless otherwise specifically noted, this summary applies only to
those persons that hold the REPS as capital assets within the meaning of
Section 1221 of the Code. This discussion assumes that the REPS will be
treated as indebtedness for United States federal income tax purposes and only
addresses the United States federal income tax considerations of the REPS
until the Coupon Reset Date.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND DOES NOT ADDRESS THE TAX
CONSEQUENCES TO TAXPAYERS WHO ARE SUBJECT TO SPECIAL RULES (SUCH AS FINANCIAL
INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES, S CORPORATIONS,
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, BROKER-DEALERS,
TAXPAYERS SUBJECT TO THE ALTERNATIVE MINIMUM TAX AND PERSONS THAT WILL HOLD
THE REPS AS PART OF A POSITION IN A "STRADDLE" OR AS PART OF A "CONSTRUCTIVE
SALE, " "HEDGING" OR "CONVERSION" TRANSACTION) OR ADDRESS ASPECTS OF FEDERAL
TAXATION THAT MIGHT BE RELEVANT TO A PROSPECTIVE INVESTOR BASED UPON SUCH
INVESTOR'S PARTICULAR TAX SITUATION. THIS SUMMARY DOES NOT ADDRESS ANY TAX
CONSEQUENCES ARISING UNDER ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER
TAXING JURISDICTION. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES OF OWNING AND
DISPOSING OF THE REPS (INCLUDING THE INVESTOR'S STATUS AS A UNITED STATES
HOLDER OR A NON- UNITED STATES HOLDER), AS WELL AS ANY TAX CONSEQUENCES THAT
MAY ARISE UNDER THE LAWS OF ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER
TAXING JURISDICTION.
Prospective investors should note that no rulings have been or are expected
to be sought from the Internal Revenue Service (the "Service") with respect to
any of the tax considerations discussed below, and no assurance can be given
that the Service will not take contrary positions.
UNITED STATES HOLDERS
GENERAL
The following is a general discussion of certain United States federal
income tax consequences of the ownership and sale or other disposition of the
REPS by a beneficial owner that, for United States federal income tax
purposes, is a "United States person" (a "United States Holder"). For purposes
of this discussion, a "United States person" means a citizen or individual
resident (as defined in Section 7701(b) of the Code) of the United States; a
corporation (including any entity treated as a corporation for United States
federal income tax purposes) created or organized under the laws of the United
States, any state thereof or the District of Columbia; an estate the income of
which is subject to United States federal income tax without regard to its
source; or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States persons have the authority to control all substantial decisions
of the trust. Notwithstanding the preceding sentence, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to
such date that elect to continue to be so treated shall also be considered to
be United States persons.
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TREATMENT OF THE REPS
Although there is no authority on point characterizing instruments such as
the REPS, and the matter is not free from doubt, the Company intends to treat
the REPS as fixed rate debt instruments that mature on the Coupon Reset Date
for United States federal income tax purposes. The issue price of the REPS
will be equal to the first price at which a substantial amount of the REPS is
sold for money (excluding sales to bond houses, brokers or similar persons or
organizations acting in the capacity as underwriters, placement agents or
wholesellers).
PAYMENTS OF INTEREST
Payments of interest on the REPS will generally be taxable to a United
States Holder as ordinary interest income at the time such payments are
accrued or received (in accordance with the United States Holder's regular
method of tax accounting).
SALE, EXCHANGE OR REDEMPTION OF THE REPS
Generally, a sale, exchange or redemption of the REPS will result in taxable
gain or loss equal to the difference between the amount of cash or other
property received and the United States Holder's adjusted tax basis in the
REPS. A United States Holder's adjusted tax basis for determining gain or loss
on the sale or other disposition of REPS will initially equal the cost of the
REPS to such Holder and will be increased by any market discount previously
included in income by such United States Holder, and decreased by any
amortized premium previously deducted from income by the United States Holder.
Except as described above with respect to market discount, such gain or loss
will be capital gain or loss. Capital gain or loss will be long-term gain or
loss if the REPS are held by the United States Holder for more than one year,
otherwise such gain or loss will be short-term.
United States Holders that are corporations will generally be taxed on net
capital gains at a maximum rate of 35%. In contrast, United States Holders
that are individuals will generally be taxed on net capital gains at a maximum
rate of (i) 39.6% for property held for one year or less, (ii) 28% for
property held for 18 months or less but more than one year, and (iii) 20% for
property held for more than 18 months. Special rules (and generally lower
maximum rates) apply for individuals in lower tax brackets. Recent legislation
passed by Congress and awaiting the President's signature would reduce the
holding period for capital gains entitled to the 20% maximum rate from a
holding period of more than 18 months to one of more than 12 months effective
retroactively as of January 1, 1998. Any capital losses realized by a United
States Holder that is a corporation generally may be used only to offset
capital gains. Any capital losses realized by a United States Holder that is
an individual generally may be used only to offset capital gains plus $3,000
of other income per year.
ALTERNATIVE CHARACTERIZATION
It is possible that the Service will disagree with or that a court will not
uphold the characterization of the REPS described above in the section
entitled "Certain United States Federal Income Tax Consequences-- United
States Holders--Treatment of the REPS." In particular the Service could seek
to treat the REPS as maturing on the Maturity Date, instead of the Coupon
Reset Date. In such an event, the issue price of the REPS would include the
consideration paid by the Remarketing Dealer to the Company in connection with
the Company's appointment of the Remarketing Dealer to such position, and the
United States Holder of the REPS would be treated as having sold a call option
to the Remarketing Dealer (the "Call Option") for an amount equal to the
consideration paid by the Remarketing Dealer to the Company in connection with
the Company's appointment of the Remarketing Dealer to such position. The
amount deemed received as consideration for the sale of the Call Option would
be treated as an option premium paid to such United States Holder and,
consequently, would not be recognized as income on the writing of the Call
Option.
Because of the Coupon Reset Process, if the REPS were treated as maturing on
the Maturity Date, their United States Holders would be subject to certain
United States Treasury Regulations dealing with contingent payment debt
instruments (the "Contingent Debt Regulations"). Under these regulations, each
United States Holder of the REPS would be required (regardless of the holder's
usual method of accounting) to include in
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gross income original issue discount for each interest accrual period in an
amount equal to the product of the adjusted issue price of the REPS at the
beginning of each interest accrual period and a projected yield to maturity of
the REPS. The projected yield to maturity would be based on the yield at which
the Company would have issued a fixed rate debt instrument maturing on the
Maturity Date with terms and conditions otherwise similar to those of the
REPS. This projected yield could be higher than the stated interest rate on
the REPS prior to the Coupon Reset Date.
In addition, under the Contingent Debt Regulations, the character of any
gain or loss recognized on the sale, exchange, retirement or other disposition
of the REPS would generally differ from that set forth above in the section
entitled "Certain United States Federal Income Tax Considerations--United
States Holders--Sale, Exchange or Redemption of the REPS." For example, any
gain recognized on the sale of the REPS would be treated as ordinary income,
while any loss would generally be treated as ordinary to the extent of
previously accrued original issue discount (which was not previously
reversed), and any excess would be capital loss.
FOREIGN HOLDERS
The following is a general discussion of certain United States federal
income and estate and gift tax consequences of the ownership and sale or other
disposition of the REPS by any beneficial owner of REPS that is not a United
States Holder (a "Non-United States Holder"). Resident alien individuals will
be subject to United States federal income tax with respect to the REPS as if
they were United States Holders.
INTEREST
Under current United States federal income tax law, and subject to the
discussion of backup withholding below, interest paid on the REPS to a Non-
United States Holder will not be subject to the normal 30% United States
federal withholding tax; provided that (i) the interest is "effectively
connected with the conduct of a trade or business in the United States" by the
Non-United States Holder and the Non-United States Holder timely furnishes the
Company with two duly executed copies of Internal Revenue Service Form 4224
(or any successor form), or (ii) all of the following conditions of the
portfolio interest exception (the "Portfolio Interest Exception") are met: (A)
the Non-United States Holder does not, actually or constructively, own 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote, (B) the Non-United States Holder is not a controlled foreign
corporation that is related, directly or indirectly, to the Company through
stock ownership, (C) the Non-United States Holder is not a bank receiving
interest pursuant to a loan agreement entered into in the ordinary course of
its trade or business, and (D) either (1) the Non-United States Holder
certifies to the Company or its agent, under penalties of perjury, that it is
a Non-United States Holder and provides its name and address, or (2) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"Financial Institution"), and holds the REPS in such capacity, certifies to
the Company or its agent, under penalties of perjury, that such statement has
been received from the beneficial owner of the REPS by it or by a Financial
Institution between it and the beneficial owner and furnishes the Company or
its agent with a copy thereof. The foregoing certification may be provided by
the Non-United States Holder on Internal Revenue Service Form W-8 (or any
successor form). Such certificate is effective with respect to payments of
interest made after the issuance of the certificate in the calendar year of
its issuance and the two immediately succeeding calendar years.
On October 14, 1997, the final regulations were published in the Federal
Register (the "1997 Final Regulations") that affect the United States federal
income taxation of Non-United States Holders. The 1997 Final Regulations are
effective for payments after December 31, 1999, regardless of the issue date
of the instrument with respect to which such payments are made, subject to
certain transition rules discussed below. The discussion under this heading
and under "Backup Withholding Tax and Information Reporting," below, is not
intended to be a complete discussion of the provisions of the 1997 Final
Regulations. Prospective Holders of the REPS are urged to consult their tax
advisors concerning the tax consequences of their investment in light of the
1997 Final Regulations.
S-18
<PAGE>
The 1997 Final Regulations provide documentation procedures designed to
simplify compliance by withholding agents. The 1997 Final Regulations
generally do not affect the documentation rules described above, but add other
certification options. Under one such option, a withholding agent will be
allowed to rely on an intermediary withholding certificate furnished by a
"qualified intermediary" (as defined below) on behalf of one or more
beneficial owners (or other intermediaries) without having to obtain the
beneficial owner certificate described above. Qualified intermediaries
include: (i) foreign financial institutions or foreign clearing organizations
(other than a United States branch or United States office of such institution
or organization), or (ii) foreign branches or offices of United States
financial institutions or foreign branches or offices of United States
clearing organizations, which, as to both (i) and (ii), have entered into
withholding agreements with the Service. In addition to certain other
requirements, qualified intermediaries must obtain withholding certificates,
such as revised Internal Revenue Service Form W-8 (discussed below), from each
beneficial owner. Under another option, an authorized foreign agent of a
United States withholding agent will be permitted to act on behalf of the
United States withholding agent (including the receipt of withholding
certificates, the payment of amounts of income subject to withholding and the
deposit of tax withheld); provided that certain conditions are met.
For purposes of the certification requirements, the 1997 Final Regulations
generally treat as the beneficial owners of payments on REPS those persons
that, under United States federal income tax principles, are the taxpayers
with respect to such payments, rather than persons such as nominees or agents
legally entitled to such payments. In the case of payments to an entity
classified as a foreign partnership under United States tax principles, the
partners, rather than the partnership, generally must provide the required
certifications to qualify for the withholding tax exemption described above
(unless the partnership has entered into a special agreement with the
Service). A payment to a United States partnership, however, is treated for
these purposes as payment to a United States payee, even if the partnership
has one or more foreign partners. The 1997 Final Regulations provide certain
presumptions with respect to withholding for Holders not furnishing the
required certifications to qualify for the withholding tax exemption described
above. In addition, the 1997 Final Regulations will replace a number of
current tax certification forms (including Internal Revenue Service Form W-8)
with a single, revised Internal Revenue Service Form W-8 (which, in certain
circumstances, requires information in addition to that previously required).
Under the 1997 Final Regulations, this revised Form W-8 will remain valid
until the last day of the third calendar year following the year in which the
certificate is signed.
The 1997 Final Regulations provide transition rules concerning existing
certificates, such as Internal Revenue Service Form W-8. Valid withholding
certificates that are held on December 31, 1999 will generally remain valid
until the earlier of December 31, 2000 or the date of their expiration.
Existing certificates that expire in 1999 will not be effective after their
expiration. Certificates dated prior to January 1, 1998 will generally remain
valid until the end of 1998, irrespective of the fact that their validity
expires during 1998.
In the event that the interest paid on the REPS is effectively connected
with the conduct of a trade or business within the United States of the Non-
United States Holder, the Non-United States Holder will generally be taxed on
a net income basis (that is, after allowance for applicable deductions) at the
graduated rates that are applicable to United States persons in essentially
the same manner as if the REPS were held by a United States person, as
discussed above. In the case of a Non-United States Holder that is a
corporation, such income may also be subject to the United States federal
branch profits tax (which is generally imposed on a foreign corporation upon
the deemed repatriation from the United States of effectively connected
earnings and profits) at a 30% rate, unless the rate is reduced or eliminated
by an applicable income tax treaty and the Non-United States Holder is a
qualified resident of the treaty country.
If the interest on the REPS is not "effectively connected" and does not
qualify for the Portfolio Interest Exception, then the interest will be
subject to United States federal withholding tax at a flat rate of 30% (or a
lower applicable income tax treaty rate upon delivery of the appropriate
certification of eligibility for treaty benefits).
S-19
<PAGE>
GAIN ON SALE OR OTHER DISPOSITION
Subject to special rules applicable to individuals as described below, a
Non-United States Holder will generally not be subject to regular United
States federal income or withholding tax on gain recognized on a sale or other
disposition of the REPS, unless the gain is effectively connected with the
conduct of a trade or business within the United States of the Non-United
States Holder or of a partnership, trust or estate in which such Non-United
States Holder is a partner or beneficiary.
Gains realized by a Non-United States Holder that are effectively connected
with the conduct of a trade or business within the United States of the Non-
United States Holder will generally be taxed on a net income basis (that is,
after allowance for applicable deductions) at the graduated rates that are
applicable to United States persons, as described above, unless exempt by an
applicable income tax treaty. In the case of a Non-United States Holder that
is a corporation, such income may also be subject to the United States federal
branch profits tax (which is generally imposed on a foreign corporation upon
the deemed repatriation from the United States of effectively connected
earnings and profits) at a 30% rate, unless the rate is reduced or eliminated
by an applicable income tax treaty and the Non-United States Holder is a
qualified resident of the treaty country.
In addition to being subject to the rules described above, an individual
Non-United States Holder who holds the REPS as a capital asset will generally
be subject to tax at a 30% rate on any gain recognized on the sale or other
disposition of such REPS if (i) such gain is not effectively connected with
the conduct of a trade or business within the United States of the Non-United
States Holder, and (ii) such individual is present in the United States for
183 days or more in the taxable year of the sale or other disposition and
either (A) has a "tax home" in the United States (as specially defined for
purposes of the United States federal income tax), or (B) maintains an office
or other fixed place of business in the United States and the gain from the
sale or other disposition of the REPS is attributable to such office or other
fixed place of business. Individual Non-United States Holders may also be
subject to tax pursuant to provisions of United States federal income tax law
applicable to certain United States expatriates (including certain former
long-term residents of the United States).
Under the 1997 Final Regulations, withholding of United States federal
income tax may apply to payments on a taxable sale or other disposition of the
REPS by a Non-United States Holder who does not provide appropriate
certification to the withholding agent with respect to such transaction.
FEDERAL ESTATE AND GIFT TAXES
REPS beneficially owned by an individual who is neither a United States
citizen nor a domiciliary of the United States at the time of death will not
be subject to United States federal estate tax as a result of such
individual's death; provided that any interest thereon would have been
eligible for the Portfolio Interest Exception within the meaning of Section
871(h)(1) of the Code, described above in "Certain United States Federal
Income Tax Consequences--Foreign Holders--Interest," if such interest had been
received by the individual at the time of death.
An individual who is not a United States citizen will not be subject to
United States federal gift tax on a transfer of REPS, unless such person is a
domiciliary of the United States or such person is subject to provisions of
United States federal gift tax law applicable to certain United States
expatriates (including certain former long-term residents of the United
States).
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Under current United States federal income tax law, information reporting
requirements apply to interest paid to, and to the proceeds of sales or other
dispositions before maturity by, certain non-corporate persons. In addition, a
31% backup withholding tax applies if a non-corporate person (i) fails to
furnish such person's Taxpayer Identification Number ("TIN") (which, for an
individual, is his or her Social Security Number) to the payor in the manner
required, (ii) furnishes an incorrect TIN and the payor is so notified by the
Service, (iii) is notified by the Service that such person has failed properly
to report payments of interest and dividends, or
S-20
<PAGE>
(iv) in certain circumstances, fails to certify, under penalties of perjury,
that such person has not been notified by the Service that such person is
subject to backup withholding for failure properly to report interest and
dividend payments. Backup withholding does not apply to payments made to
certain exempt recipients, such as corporations and tax-exempt organizations.
In the case of a Non-United States Holder, under current United States
federal income tax law, backup withholding and information reporting do not
apply to payments of interest with respect to the REPS, or to payments on the
sale or other disposition of REPS, if such Holder has provided to the Company
or its paying agent the certification described in clause (ii)(D) of "Certain
United States Federal Income Tax Consequences--Foreign Holders--Interest" or
has otherwise established an exemption.
Under current United States federal income tax law, (i) interest payments
with respect to REPS collected outside the United States by a foreign office
of a custodian, nominee or broker acting on behalf of a beneficial owner of
REPS, and (ii) payments on the sale or other disposition of REPS to or through
a foreign office of a broker are not generally subject to backup withholding
or information reporting. However, if such custodian, nominee or broker is a
United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% of more of whose gross income is effectively
connected with the conduct of a United States trade or business for a
specified three-year period (a "U.S. Related Person"), such custodian, nominee
or broker may be subject to certain information reporting (but not backup
withholding) requirements with respect to such payments, unless such
custodian, nominee or broker has in its records documentary evidence that the
beneficial owner is not a United States person and certain conditions are met
or the beneficial owner otherwise establishes an exemption. Backup withholding
may apply to any payment that such custodian, nominee or broker is required to
report if such person has actual knowledge that the payee is a United States
person. Payments to or through the United States office of a broker will be
subject to backup withholding and information reporting unless the Holder
certifies, under penalties of perjury, that it is not a United States person
or otherwise establishes an exemption.
The 1997 Final Regulations modify certain of the certification requirements
for backup withholding and expand the group of U.S. Related Persons. It is
possible that the Company or its paying agent may request new withholding
exemption forms from Holders in order to qualify for continued exemption from
backup withholding when the 1997 Final Regulations become effective.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a person under the backup withholding rules are
allowed as a refund or a credit against such person's United States federal
income tax; provided that the required information is furnished to the
Service.
S-21
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Company and the Underwriters named
below, the Company has agreed to sell to each of the Underwriters, and each of
the Underwriters has severally agreed to purchase, the principal amounts of
the REPS set forth opposite its name below:
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT
---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated........................ $ 84,000,000
NationsBanc Montgomery Securities LLC.................... 83,000,000
Suntrust Equitable Securities............................ 83,000,000
------------
Total.................................................. $250,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent. The nature of the underwriting
commitment is such that the Underwriters purchasing the REPS will be obligated
to purchase all of the REPS if any of the REPS are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the REPS to the public initially at the public offering price
set forth on the cover page of this Prospectus Supplement and to certain
dealers at such price less a concession of .35% of the principal amount of the
REPS. The Underwriters and such dealers may reallow a discount of .25% of such
principal amount on sales to certain other dealers. After the initial public
offering of the REPS, the offering price and other selling terms may be
changed by the Underwriters.
The Company does not intend to apply for listing of any of the REPS on a
national securities exchange, but has been advised by the Underwriters that
they presently intend to make a market in the REPS, as permitted by applicable
laws and regulations. The Underwriters are not obligated, however, to make a
market in the REPS and any such market-making may be discontinued at any time
at the sole discretion of the Underwriters. Accordingly, no assurance can be
given as to the liquidity of, or trading markets for, the REPS.
In order to facilitate the offering of the REPS, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the prices of the
REPS. Specifically, the Underwriters may overallot in connection with the
offering, creating a short position in the REPS for their own account. In
addition, to cover overallotments or to stabilize the price of the REPS, the
Underwriters may bid for, and purchase, the REPS in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the REPS in the offering, if the
syndicate repurchases previously distributed REPS in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market prices of the REPS above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
In the ordinary course of their businesses, Morgan Stanley Dean Witter and
certain of the other Underwriters and their affiliates have engaged and may in
the future engage in investment and commercial banking transactions with the
Company and certain of its affiliates.
The Company has agreed to indemnify the several Underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
LEGAL MATTERS
The validity of the REPS offered hereby will be passed upon for the Company
by Dow, Lohnes & Albertson, PLLC, Washington, D.C. The Underwriters have been
represented by Cravath, Swaine & Moore, New York, New York.
S-22
<PAGE>
$1,000,000,000
COX COMMUNICATIONS, INC.
DEBT SECURITIES
----------------
Cox Communications, Inc. (the "Company") may offer and issue from time to
time, together or separately, its unsecured debentures, notes, bonds or other
evidences of indebtedness and forward contracts with respect thereto (the
"Debt Securities") having an aggregate initial public offering price of $1
billion (including the U.S. dollar equivalent thereof for which the initial
public offering price is denominated in one or more foreign currencies,
foreign currency units or composite currencies). The Debt Securities may be
offered as separate series, in amounts, at prices and on terms to be
determined at the time of sale and set forth in one or more supplements to
this Prospectus (each, a "Prospectus Supplement"). Debt Securities may be
issuable in global form or registered form without coupons or in bearer form
with or without coupons attached. The Company will offer Debt Securities to
the public on terms determined by market conditions. Debt Securities may be
sold for U.S. dollars, foreign currency, foreign currency units or composite
currencies; principal of, and any interest on, the Debt Securities may
likewise be payable in U.S. dollars, foreign currencies, foreign currency
units or composite currencies, in each case, as the Company specifically
designates and as set forth in the accompanying Prospectus Supplement. The
Debt Securities in respect of which this Prospectus is being delivered are
hereinafter also referred to collectively as the "Offered Securities."
Unless otherwise specified in the accompanying Prospectus Supplement, the
Offered Securities will be senior securities of the Company. The accompanying
Prospectus Supplement will set forth the specific terms of the Offered
Securities, including, where applicable, the specific designation, aggregate
principal amount, denomination, initial public offering price, maturity (which
may be fixed or extendible), priority, redemption terms, if any, interest rate
(or manner of calculation thereof), if any, time of payment of interest (if
any), terms for any conversion or exchange (including the terms relating to
the adjustment thereof), listing (if any) on a securities exchange, currency,
form (which may be registered or bearer or certificated or global), terms for
any repayment at the option of the holder, terms for any sinking fund
payments, provisions regarding original issue discount securities, additional
covenants and any other specific terms of the Debt Securities. The Prospectus
Supplement will also contain information, where applicable, about certain
United States Federal income tax considerations relating to the Debt
Securities covered thereby. The accompanying Prospectus Supplement will also
set forth the name of, and compensation to, each dealer, underwriter or agent
(if any) involved in the sale of the Offered Securities being offered and the
managing underwriters with respect to each series sold to or through any such
underwriters.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
The Offered Securities may be offered directly, or through dealers,
underwriters or agents designated from time to time, by the Company, as set
forth in the accompanying Prospectus Supplement. Net proceeds to the Company
will be the purchase price in the case of sales to a dealer, the public
offering price less discount in the case of sales to an underwriter or the
purchase price less commission in the case of sales through an agent--in each
case, less other expenses attributable to issuance and distribution. If any
agents, dealers or underwriters are involved in the offering of the Debt
Securities in respect to which this Prospectus is being delivered, the names
of such agents, dealers or underwriters and any applicable commissions or
discounts will be set forth in the accompanying Prospectus Supplement. The net
proceeds to the Company from such sale will also be set forth in such
Prospectus Supplement. See "Plan of Distribution" for possible indemnification
arrangements for dealers, underwriters and agents.
----------------
THE DATE OF THIS PROSPECTUS IS JULY 13, 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEBT SECURITIES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
DEBT SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING OF THE DEBT SECURITIES. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"PLAN OF DISTRIBUTION" IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
DEALER OR AGENT. THIS PROSPECTUS AND ANY APPLICABLE PROSPECTUS SUPPLEMENT DO
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information....................................................... 3
Information Incorporated by Reference....................................... 3
The Company................................................................. 4
Ratio of Earnings to Fixed Charges.......................................... 4
Use of Proceeds............................................................. 5
Description of the Debt Securities.......................................... 6
Plan of Distribution........................................................ 15
Legal Matters............................................................... 15
Experts..................................................................... 16
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York, 10048 and Citicorp Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60601. Copies of such material can be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates, or through the World Wide
Web (http://www.sec.gov). The Company's Class A Common Stock, par value $1.00
per share, is listed on the New York Stock Exchange (Symbol: COX), and
reports, proxy statements and other information concerning the Company may be
inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), which
relates to the Debt Securities (the "Registration Statement"). As permitted by
the rules and regulations of the Commission, this Prospectus does not contain
all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Debt Securities, reference is hereby made to the Registration
Statement, exhibits and schedules filed therewith. The Registration Statement
may be inspected without charge by anyone at the office of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from the Commission upon payment of the prescribed
fees. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein are not necessarily complete,
and in each instance reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in all respects by such
reference.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed with the Commission by the Company
and are incorporated herein by reference and made a part hereof:
(i) the Company's Annual Report on Form 10-K for the year ended December
31, 1997;
(ii) the Company's amended Annual Report on Form 10-K/A for the year
ended December 31, 1997;
(iii) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
(iv) the Company's Current Report on Form 8-K dated May 5, 1998;
(v) the Company's amended Current Report on Form 8-K/A dated May 5, 1998;
and
(vi) the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders dated March 23, 1998.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the Offered
Securities shall be deemed to be incorporated in this Prospectus by reference
and to be a part hereof from the date of filing of such documents. The
Company's Commission file number for Exchange Act documents is 1-6590. The
Company will provide, without charge to any person to whom a copy of this
Prospectus and the accompanying Prospectus Supplement are delivered, upon the
written or oral request of such person, a copy of any document incorporated by
reference herein other than exhibits to such documents unless such exhibits
are specifically incorporated by reference in such document. Requests should
be directed to Dallas S. Clement, Treasurer, Cox Communications, Inc., 1400
Lake Hearn Drive, Atlanta, Georgia 30319 (telephone: (404) 843-5000).
3
<PAGE>
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
THE COMPANY
Cox Communications, Inc. (the "Company") is among the nation's largest
broadband communications companies with (i) U.S. broadband network operations
and (ii) investments in cable television programming, telecommunications and
technology and broadband networks.
The Company is an indirect 75.0% owned subsidiary of Cox Enterprises, Inc.
("CEI"). Prior to the Company's incorporation in May 1994, the Company's
operations and investments were a division of Cox Holdings, Inc., a wholly-
owned subsidiary of CEI. These operations and investments were contributed by
CEI to the Company on May 25, 1994. CEI, a privately-held corporation
headquartered in Atlanta, Georgia, is one of the largest media companies in
the United States with consolidated revenues in 1997 of approximately $4.9
billion. CEI, which has a 100-year history in the media and communications
industry, publishes 16 daily and 11 weekly newspapers and owns or operates 11
television stations in addition to its interest in the Company. Through its
indirect majority-owned subsidiary, Cox Radio, Inc., CEI owns, operates or
provides sales and marketing services for, 59 radio broadcast stations pending
closing of previously announced transactions. Through Manheim Auctions, CEI is
also the world's largest operator of auto auctions.
The Company's principal executive offices are located at 1400 Lake Hearn
Drive, Atlanta, Georgia 30319 (telephone: (404) 843-5000).
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------- ---------------------------
1997 1996 1995 1994(1) 1993 1998(2) 1997
---- ---- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
2.0x 1.5x 2.7x 2.7x 8.7x 0.9x 1.7x
</TABLE>
- --------
(1) The ratio decreased from 1993 to 1994 due to increased interest expense
resulting from debt associated with the Company's acquisition through
merger of the cable television assets of The Times Mirror Company.
(2) Earnings were inadequate to cover fixed charges by $8.3 million for the
three months ended March 31, 1998.
For purposes of this computation, earnings are defined as income before
income taxes (excluding losses and undistributed earnings on equity method
investments), minority interests and fixed charges (excluding capitalized
interest). Fixed charges are the sum of (i) interest cost (including
capitalized interest), (ii) estimated interest component of rent expense and
(iii) dividends on subsidiary preferred stock.
4
<PAGE>
USE OF PROCEEDS
Unless otherwise described in the accompanying Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Offered
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. The Company may borrow
additional funds from time to time from public and private sources on both a
long-term and short-term basis and may sell commercial paper to fund its
future capital and working capital requirements in excess of internally
generated funds. See "Description of the Debt Securities."
5
<PAGE>
DESCRIPTION OF THE DEBT SECURITIES
GENERAL
The Debt Securities will be unsecured senior obligations of the Company.
Most of the assets of the Company are owned by its subsidiaries. Therefore,
the Company's rights and the rights of its creditors, including holders of
Debt Securities, to participate in the assets of any subsidiary upon such
subsidiary's liquidation or recapitalization will be subject to the prior
claims of such subsidiary's creditors, except to the extent that the Company
may itself be a creditor with recognized claims against the subsidiary.
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of any Debt Securities
and the extent, if any, to which such general provisions will not apply to
such Debt Securities will be described in the Prospectus Supplement relating
to such Debt Securities.
Unless otherwise specified in the accompanying Prospectus Supplement, the
Debt Securities will be issued from time to time in series under an Indenture,
dated as of June 27, 1995 (the "Indenture"), between the Company and The Bank
of New York, as Trustee (the "Trustee").
The Indenture does not limit the aggregate principal amount of Debt
Securities that may be issued thereunder, and the Indenture provides that Debt
Securities may be issued thereunder from time to time in one or more series. A
copy of the Indenture is incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summary of certain provisions of the Indenture and the Debt Securities does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act of 1939, as amended. Capitalized terms used in the
following summary and not otherwise defined herein shall have the meanings
ascribed to them in the Indenture.
Reference is made to the Prospectus Supplement for the following terms and
other possible terms of each series of Debt Securities in respect of which
this Prospectus is being delivered (to the extent such terms are applicable to
such Debt Securities): (i) the classification, specific designation, date,
aggregate principal amount, purchase price and denomination of the Debt
Securities; (ii) currency or units based on or relating to currencies in which
such Debt Securities are denominated and/or in which principal, premium, if
any, and/or interest will or may be payable; (iii) any date of maturity (which
may be fixed or extendible); (iv) interest rate or rates (or the method by
which such rate or rates will be determined, if any); (v) the dates on which
any such interest will be payable; (vi) the place or places where the
principal of, premium, if any, and interest on the Debt Securities will be
payable; (vii) any repayment, redemption, prepayment or sinking fund
provisions and any provisions related to the purchase of such Debt Securities
at the option of the holders; (viii) whether the Debt Securities will be
issuable in global form (and, if so, the identity of the depositary with
respect thereto), registered form and/or bearer form ("Bearer Securities")
and, if Bearer Securities are issuable, any restrictions applicable to the
exchange of one form for another and to the offer, sale and delivery of Bearer
Securities; (ix) the terms, if any, on which such Debt Securities may be
converted into or exchanged for stock or other securities of the Company or
other entities, any specific terms relating to the adjustment thereof and the
period during which such Debt Securities may be so converted or exchanged; (x)
any applicable United States federal income tax consequences, including
whether and under what circumstances the Company will pay additional amounts
on Offered Securities held by a person who is not a U.S. person (as defined in
the Prospectus Supplement) in respect of any tax, assessment or governmental
charge withheld or deducted and, if so, whether the Company will have the
option to redeem such Debt Securities rather than pay such additional amounts;
and (xi) any other specific terms of the Debt Securities, including any
additional events of default or covenants provided for with respect to such
Debt Securities, and any terms which may be required by or advisable under
applicable laws or regulations.
Debt Securities may be presented for exchange and registered Debt Securities
may be presented for transfer in the manner, at the places and subject to the
restrictions set forth in the Debt Securities and the Prospectus
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Supplement. Such services will be provided without charge, other than any tax
or other governmental charge payable in connection therewith, but subject to
the limitations provided in the Indenture. Debt Securities in bearer form and
the coupons, if any, appertaining thereto will be transferable by delivery.
Debt Securities will bear interest at a fixed rate (a "Fixed Rate Security")
or a floating rate (a "Floating Rate Security"). Debt Securities bearing no
interest or interest at a rate that at the time of issuance is below the
prevailing market rate will be sold at a discount below their stated principal
amount. Special United States federal income tax considerations applicable to
any such discounted Debt Securities or to certain Debt Securities issued at
par, which are treated as having been issued at a discount for United States
federal income tax purposes, will be described in the accompanying Prospectus
Supplement.
Debt Securities may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on
any interest payment date, to be determined by reference to one or more
currency exchange rates, commodity prices, equity indices or other factors.
Holders of such Debt Securities may receive a payment of principal on any
principal payment date, or a payment of interest on any interest payment date,
that is greater than or less than the amount of principal or interest
otherwise payable on such dates, depending upon the value on such dates of the
applicable currency, commodity, equity index or other factor. Information as
to the methods for determining the amount of principal or interest payable on
any date, the currencies, commodities, equity indices or other factors to
which the amount payable on such date is linked and certain additional tax
considerations will be set forth in the applicable Prospectus Supplement.
Unless otherwise indicated in the accompanying Prospectus Supplement, the
Debt Securities will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiples of $1,000. Unless
otherwise specified in the Prospectus Supplement, the principal amount of the
Debt Securities will be payable at the corporate trust office of the Trustee
in New York, New York. The Debt Securities may be presented for transfer or
exchange at such office unless otherwise specified in the Prospectus
Supplement, subject to the limitations provided in the Indenture, without any
service charge, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charges payable in connection therewith.
RANKING
Unless otherwise specified in a Prospectus Supplement for a particular
series of Debt Securities, all series of Debt Securities will be senior
indebtedness of the Company and will be direct, unsecured obligations of the
Company, ranking on a parity with all other unsecured and unsubordinated
obligations of the Company.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, create, incur or assume any Lien (other than
Permitted Liens) on Restricted Property to secure the payment of Indebtedness
of the Company or any Restricted Subsidiary if, immediately after the
creation, incurrence or assumption of such Lien, the aggregate outstanding
principal amount of all Indebtedness of the Company and the Restricted
Subsidiaries that is secured by Liens (other than Permitted Liens) on
Restricted Property would exceed the greater of (i) $200 million or (ii) 15%
of the aggregate outstanding principal amount of all Indebtedness of the
Company and the Restricted Subsidiaries (whether or not so secured), unless
effective provision is made whereby the Debt Securities (together with, if the
Company shall so determine, any other Indebtedness ranking equally with the
Debt Securities, whether then existing or thereafter created) are secured
equally and ratably with (or prior to) such Indebtedness (but only for so long
as such Indebtedness is so secured).
Limitation on Indebtedness of Restricted Subsidiaries. The Company will not
permit any Restricted Subsidiary to incur any Indebtedness if, immediately
after the incurrence or assumption of such Indebtedness, the aggregate
outstanding principal amount of all Indebtedness of the Restricted
Subsidiaries would exceed the
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greater of (i) $200 million or (ii) 15% of the aggregate outstanding principal
amount of all Indebtedness of the Company and the Restricted Subsidiaries;
provided that, in any event, a Restricted Subsidiary may incur Indebtedness to
extend, renew or replace Indebtedness of such Restricted Subsidiary to the
extent that the principal amount of the Indebtedness so incurred does not
exceed the principal amount of the Indebtedness extended, renewed or replaced
thereby immediately prior to such extension, renewal or replacement plus any
premium, accrued and unpaid interest or capitalized interest payable thereon.
Designation of Subsidiaries. The Company may designate a Restricted
Subsidiary as an Unrestricted Subsidiary or designate an Unrestricted
Subsidiary as a Restricted Subsidiary at any time, provided that (i)
immediately after giving effect to such designation, the Leverage Ratio of the
Restricted Group is not greater than 7:1 and the Company and the Restricted
Subsidiaries are in compliance with the "Limitation on Liens" and "Limitation
on Indebtedness of Restricted Subsidiaries" covenants, and (ii) an Officers'
Certificate with respect to such designation is delivered to the Trustee
within 75 days after the end of the fiscal quarter of the Company in which
such designation is made (or, in the case of a designation made during the
last fiscal quarter of the Company's fiscal year, within 120 days after the
end of such fiscal year), which Officers' Certificate shall state the
effective date of such designation.
Mergers or Sales of Assets. The Indenture provides that the Company may not
merge into or consolidate with another corporation or sell or lease all or
substantially all its assets to another corporation unless (i) either (A) the
Company is the surviving corporation or (B) the resulting, surviving or
transferee corporation is organized under the laws of a state of the United
States or the District of Columbia and agrees to pay promptly when due the
principal of and premium, if any, and interest on the Debt Securities, and to
assume, perform and observe all the covenants and conditions of the Indenture,
and (ii) immediately after and giving effect to such transaction, no Event of
Default has occurred.
The Indenture does not contain any provisions affording holders of Debt
Securities any additional protection in the event that the Company enters into
a highly-leveraged transaction.
DEFINITIONS
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Indebtedness" means, without duplication, with respect to any Person: (i)
any indebtedness of such Person (A) for borrowed money or (B) evidenced by a
note, debenture or similar instrument (including a purchase money obligation)
given in connection with the acquisition of any property or assets, including
securities; (ii) any guarantee by such Person of any indebtedness of others
described in the preceding clause (i); and (iii) any amendment, extension,
renewal or refunding of any such indebtedness or guarantee. The term
"Indebtedness" excludes (i) any indebtedness of the Company or any Restricted
Subsidiary to the Company or another Restricted Subsidiary, (ii) any guarantee
by the Company or any Restricted Subsidiary of indebtedness of the Company or
another Restricted Subsidiary, (iii) trade accounts payable and (iv) letters
of credit, performance bonds and similar obligations issued in favor of
governmental or franchising authorities as a term of cable television
franchise or other governmental franchise, license, permit or authorization
held by such Person or any of its Subsidiaries.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Leverage Ratio" with respect to the Restricted Group means, as of the date
of and after giving effect to any designation of an Unrestricted Subsidiary as
a Restricted Subsidiary or any designation of a Restricted Subsidiary as an
Unrestricted Subsidiary, in each case in accordance with the "Designation of
Subsidiaries" covenant, the ratio of (i) the aggregate outstanding principal
amount of all Indebtedness of the Restricted Group as of such date to (ii) the
product of four times the Restricted Group Cash Flow for the most recent full
fiscal quarter for which financial information is available on such date.
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"Permitted Liens" means: (i) any Lien which arises out of a judgment or
award against the Company or any Restricted Subsidiary with respect to which
the Company or such Restricted Subsidiary at the time shall be prosecuting an
appeal or proceeding for review (or with respect to which the period within
which such appeal or proceeding for review may be initiated shall not have
expired) and with respect to which (a) the Company or such Restricted
Subsidiary shall have secured a stay of execution pending such appeal or
proceeding for review or (b) the Company or such Restricted Subsidiary shall
have posted a bond or established adequate reserves (in accordance with
generally accepted accounting principles) for the payment of such judgment or
award; (ii) any Lien upon any real or personal property or interest therein of
the Company or a Restricted Subsidiary existing at the time of acquisition
thereof or securing the payment of Indebtedness incurred by the Company or
such Restricted Subsidiary to finance some or all of the purchase price of, or
cost of construction of or improvements on, any such property or interest
therein; provided that (A) the outstanding principal amount of the
Indebtedness secured by such Lien does not at any time exceed 100% of the
greater of the purchase price for or the fair value of such real or personal
property or interest therein, (B) such Lien does not encumber or constitute a
charge against any other Restricted Property theretofore owned by the
Restricted Group (except that in the case of construction or improvement, the
Lien may extend to unimproved real property on which the property so
constructed or the improvement is located), and (C) the Indebtedness secured
by such Lien would be permitted to be incurred under the covenant described
under "Limitation on Indebtedness of Restricted Subsidiaries"; and (iii) any
Lien representing the extension, renewal or replacement (or successive
extensions, renewals or replacements) of Liens referred to in clause (ii)
above; provided that the principal of the Indebtedness secured thereby does
not exceed the principal of the Indebtedness secured thereby immediately prior
to such extension, renewal or replacement, plus any accrued and unpaid
interest or capitalized interest payable thereon, and that such extension,
renewal or replacement shall be limited to all or a part of the property (or
interest therein) subject to the Lien so extended, renewed or replaced (plus
improvements and construction on such property). The outstanding principal
amount of Indebtedness secured by a Lien permitted by clause (ii) or (iii)
above or, if less, the fair value of the property or interest therein secured
thereby, shall be included in the calculation pursuant to the covenant
described under "Limitation on Liens" of the aggregate outstanding principal
amount of Indebtedness secured by Liens on Restricted Property for purposes of
determining whether a Lien (other than a Permitted Lien) may be incurred in
compliance with such covenant.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Principal Property" means, as of any date of determination, any property or
assets owned by any Restricted Subsidiary other than (i) any such property
which, in the good faith opinion of the Board of Directors, is not of material
importance to the business conducted by the Company and its Restricted
Subsidiaries taken as a whole and (ii) any shares of any class of stock or any
other security of any Unrestricted Subsidiary.
"Restricted Group" means, as of any date of determination, the Company and
the Restricted Subsidiaries as of such date after giving effect to any
designation being made on such date in accordance with the "Designation of
Subsidiaries" covenant.
"Restricted Group Cash Flow" for any period means the Restricted Group Net
Income for such period, plus (i) the sum (without duplication) of the
aggregate of each of the following items of the Company and the Restricted
Subsidiaries for such period to the extent taken into account as charges to
Restricted Group Net Income for such period: (A) interest expense, (B) income
tax expense, (C) depreciation and amortization expense and other noncash
charges, (D) extraordinary items and (E) after-tax losses on sales of assets
outside of the ordinary course of business not otherwise included in
extraordinary items in accordance with generally accepted accounting
principles, minus (ii) the sum (without duplication) of the aggregate of each
of the following items of the Company and the Restricted Subsidiaries for such
period to the extent taken into account as credits to Restricted Group Net
Income for such period: (A) noncash credits, (B) extraordinary items and (C)
after-tax gains on sales of assets outside of the ordinary course of business
not otherwise included in extraordinary items in accordance with generally
accepted accounting principles.
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For purposes of this definition, (i) "Restricted Group Net Income" for any
period means the aggregate of the net income (loss) for such period of the
Company and the Restricted Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles; provided that the
net income (loss) of any Person accounted for by the equity method of
accounting and the net income (loss) of any Unrestricted Subsidiary shall be
excluded, except that the net income of any such Person or Unrestricted
Subsidiary shall be included to the extent of the amount of dividends or
distributions paid by such Person or Unrestricted Subsidiary to the Company or
a Restricted Subsidiary during such period; and (ii) if the Company or any
Restricted Subsidiary consummated any acquisition or disposition of assets
during the period for which Restricted Group Cash Flow is being calculated, or
consummated any acquisition or disposition of assets subsequent to such period
and on or prior to the date as of which the Leverage Ratio is to be
determined, then, in each such case, the Restricted Group Cash Flow for such
period shall be calculated on a pro forma basis (and not as a pooling of
interests, if applicable) as if such acquisition or disposition had occurred
at the beginning of such period.
"Restricted Property" means, as of any date of determination, any Principal
Property and any shares of stock of a Restricted Subsidiary owned by the
Company or a Restricted Subsidiary.
"Restricted Subsidiary" means each Subsidiary of the Company other than the
Unrestricted Subsidiaries.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i)
such Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that has
been designated as an Unrestricted Subsidiary as permitted by the covenant
described under "Designation of Subsidiaries" and not thereafter redesignated
as a Restricted Subsidiary as permitted thereby and (ii) each Subsidiary of
any Unrestricted Subsidiary.
DEFAULTS
An Event of Default with respect to Debt Securities of any series is defined
in the Indenture as (i) a default in the payment of interest on the Debt
Securities when due, continued for 30 days, (ii) a default in the payment of
principal of any such Debt Security when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under "--
Certain Covenants--Mergers or Sales of Assets" above, (iv) the failure by the
Company to comply within 60 days after notice with any of its other agreements
contained in the Indenture, including its obligations under the covenants
described above in "--Certain Covenants" under "--Limitation on Liens," "--
Limitation on Indebtedness of Restricted Subsidiaries" or "--Designation of
Subsidiaries," (v) Indebtedness of the Company or any Restricted Subsidiary is
not paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total amount
of such Indebtedness unpaid or accelerated exceeds 5% of the aggregate
outstanding principal amount of all Indebtedness of the Company and the
Restricted Subsidiaries (the "cross-acceleration provision") or (vi) certain
events of bankruptcy, insolvency or reorganization of the Company or a
Restricted Subsidiary (the "bankruptcy provisions"). However, a default under
clause (iv) with respect to a series of Debt Securities will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount
of the outstanding Debt Securities of such series notify the Company of the
default and the Company does not cure such default within the time specified
after receipt of such notice.
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If an Event of Default occurs and is continuing with respect to a series of
Debt Securities, the Trustee or the holders of at least 25% in principal
amount of the outstanding Debt Securities of such series may declare the
principal of and accrued but unpaid interest on all the Debt Securities of
such series to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Company
occurs and is continuing, the principal of and interest on all the Debt
Securities will ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders of the
Debt Securities. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Debt Securities of a series may rescind
any such acceleration with respect to the Debt Securities of such series and
its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Debt
Securities of any series unless such holders have offered to the Trustee
reasonable indemnity or security against any loss, liability or expense.
Except to enforce the right to receive payment of principal, premium (if any)
or interest when due, no holder of a Debt Security may pursue any remedy with
respect to the Indenture or the Debt Securities of the same series unless (i)
such holder has previously given the Trustee notice that an Event of Default
is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Debt Securities of such series have requested the Trustee to
pursue the remedy, (iii) such holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense, (iv) the Trustee
has not complied with such request within 60 days after the receipt thereof
and the offer of security or indemnity and (v) the holders of a majority in
principal amount of the outstanding Debt Securities of such series have not
given the Trustee a direction inconsistent with such request within such 60-
day period. Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding Debt Securities of any series are given
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder of a Debt
Security of the same series or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing with
respect to a series of Debt Securities and is known to the Trustee, the
Trustee must mail to each holder of the Debt Securities of such series notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of, premium (if any) or interest on any Debt
Security, the Trustee may withhold notice if and so long as a committee of its
trust officers determines that withholding notice is not opposed to the
interest of the holders of the Debt Securities of such series. In addition,
the Company is required to deliver to the Trustee, within 120 days after the
end of each fiscal year, a certificate indicating whether the signers thereof
know of any Default that occurred during the previous year. The Company also
is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with respect to
a series of Debt Securities with the consent of the holders of a majority in
principal amount of the Debt Securities of such series then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Debt Securities) and any past default or compliance with any provisions
may also be waived with such a consent of the holders of a majority in
principal amount of the Debt Securities of such series then outstanding.
However, without the consent of each holder of an outstanding Debt Security of
such series, no amendment may, among other things, (i) reduce the amount of
Debt Securities of such series whose holders must consent to an amendment,
(ii) reduce the rate of or extend the time for payment of interest on any Debt
Security of such series, (iii) reduce the principal of or extend the Stated
Maturity of any Debt Security of such series, (iv) reduce the premium payable
upon the redemption of any Debt Security of such series or change the time at
which any Debt Security of such series may or shall be redeemed, (v) make any
Debt Securities of such series payable in money other than that stated in the
Debt
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Security of such series, (vi) impair the right of any holder of the Debt
Securities of such series to receive payment of principal of, and interest on,
such holder's Debt Securities of such series on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Debt Securities or (vii) make any change in the
amendment provisions which require each holder's consent or in the waiver
provisions.
Without the consent of any holder of the Debt Securities, the Company and
the Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to provide for uncertificated
Debt Securities in addition to or in place of certificated Debt Securities, to
add guarantees with respect to the Debt Securities, to secure the Debt
Securities, to add to the covenants of the Company for the benefit of the
holders of the Debt Securities or to surrender any right or power conferred
upon the Company, to make any change that does not adversely affect the rights
of any holder of the Debt Securities or to comply with any requirement of the
Commission in connection with the qualification of the Indenture under the
Trust Indenture Act.
The consent of the holders of the Debt Securities is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Debt Securities of the affected series a
notice briefly describing such amendment. However, the failure to give such
notice to all holders of the Debt Securities of such series, or any defect
therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Debt
Securities of a series and the Indenture with respect to such series ("legal
defeasance"), except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
Debt Securities of such series, to replace mutilated, destroyed, lost or
stolen Debt Securities of such series and to maintain a registrar and paying
agent in respect of the Debt Securities of such series. The Company at any
time may terminate its obligations with respect to a series of Debt Securities
under the covenants described under "--Certain Covenants" (other than the
covenants described under "--Mergers or Sales of Assets") and any other
restrictive covenants described in the accompanying Prospectus Supplement
relating to such series, the operation of the cross-acceleration provision and
the bankruptcy provisions described under "--Defaults" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option with respect to a series of Debt Securities, payment
of the Debt Securities of such series may not be accelerated because of an
Event of Default with respect thereto. If the Company exercises its covenant
defeasance option with respect to a series of Debt Securities, payment of the
Debt Securities of such series may not be accelerated because of an Event of
Default specified in clause (iv), (v) or (vi) under "--Defaults" above.
In order to exercise either defeasance option with respect to a series of
Debt Securities, the Company must irrevocably deposit in trust (the
"defeasance trust") with the Trustee money or U.S. Government Obligations,
which through the payment of interest thereon and principal thereof in
accordance with their terms will provide money in an amount sufficient to pay
all the principal (including any mandatory sinking fund payments) of, premium,
if any, on, and interest on, the Debt Securities of such series to redemption
or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Debt Securities of such series will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit and defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of
legal defeasance only, such Opinion of Counsel must be
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based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law) and the creation of the defeasance trust
will not violate the Investment Company Act of 1940, as amended. In addition,
the Company is required to deliver to the trustee an Officers' Certificate
stating that such deposit was not made by the Company with the intent of
preferring the Holders over other creditors of the Company or with the intent
of defeating, hindering, delaying or defrauding creditors of the Company or
others.
TRANSFER
The Debt Securities may be transferred or exchanged in accordance with the
Indenture. Unless otherwise indicated in the applicable Prospectus Supplement,
the Debt Securities will be issued in registered form and will be transferable
only upon the surrender of the Debt Securities being transferred for
registration of transfer. The Company may require payment of a sum sufficient
to cover any tax, assessment or other governmental charge payable in
connection with certain transfers or exchanges. The Company is not required to
transfer or exchange any Debt Security selected for redemption. In addition,
the Company is not required to transfer or exchange any Debt Security for a
period of 15 days before a selection of Debt Securities to be redeemed or
before any interest payment date.
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Debt
Securities.
The Indenture provides that if an Event of Default occurs (and is not cured)
with respect to a series of Debt Securities, the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Debt Securities of such series,
unless such holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
The Trustee is a depository for funds and performs other services for, and
transacts other banking business with, the Company in the normal course of
business.
GOVERNING LAW
The Indenture provides that it and the Debt Securities will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
GLOBAL SECURITIES
The registered Debt Securities of a series may be issued in the form of one
or more fully registered global securities (a "Registered Global Security")
that will be deposited with a depositary (a "Debt Depositary") or with a
nominee for a Debt Depositary identified in the Prospectus Supplement relating
to such series and registered in the name of the Debt Depositary or a nominee
thereof. In such case, one or more Registered Global Securities will be issued
in a denomination or aggregate denominations equal to the portion of the
aggregate principal amount of outstanding registered Debt Securities of the
series to be represented by such Registered Global Securities. Unless and
until it is exchanged in whole for Debt Securities in definitive registered
form, a Registered Global Security may not be transferred except as a whole or
in part by the Debt Depositary for such Registered Global Security to a
nominee of such Debt Depositary or by a nominee of such Debt Depositary to
such Debt Depositary or another nominee of such Debt Depositary or by such
Debt Depositary or any such nominee to a successor of such Debt Depositary or
a nominee of such successor. The specific terms of the depositary arrangement
with respect to any portion of a series of Debt Securities to be represented
by a Registered Global Security will be described in the Prospectus Supplement
relating to such series. The Company anticipates that the following provisions
will apply to all depositary arrangements.
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Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Debt Depositary for such
Registered Global Security ("participants") or persons that may hold interests
through participants. Upon the issuance of a Registered Global Security, the
Debt Depositary for such Registered Global Security will credit, on its book-
entry registration and transfer system, the participants' accounts with the
respective principal amounts of the Debt Securities represented by such
Registered Global Security beneficially owned by such participants. The
accounts to be credited shall be designated by any dealers, underwriters or
agents participating in the distribution of such Debt Securities or by the
Company if such Debt Securities are offered and sold directly by the Company.
Ownership of beneficial interests in such Registered Global Security will be
shown on, and the transfer of such ownership interests will be effected only
through, records maintained by the Debt Depositary for such Registered Global
Security (with respect to interests of participants) and on the records of
participants (with respect to interests of persons holding through
participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Registered Global Securities.
So long as the Debt Depositary for a Registered Global Security or its
nominee is the registered owner of such Registered Global Security, such Debt
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Debt Securities represented by such Registered Global
Security for all purposes under the Indenture. Except as set forth below,
owners of beneficial interests in a Registered Global Security will not be
entitled to have the Debt Securities represented by such Registered Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of such Debt Securities in definitive form and will not be
considered the owners or holders thereof under the Indenture. Accordingly,
each person owning a beneficial interest in a Registered Global Security must
rely on the procedures of the Debt Depositary for such Registered Global
Security and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any
rights of a holder under the Indenture. The Company understands that under
existing industry practices, if the Company requests any action of holders or
if an owner of a beneficial interest in a Registered Global Security desires
to give or take any action which a holder is entitled to give or take under
the Indenture, the Debt Depositary for such Registered Global Security would
authorize the participants holding the relevant beneficial interests to give
or take such action, and such participants would authorize beneficial owners
owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners holding through them.
Principal, premium, if any, and interest payments on Debt Securities
represented by a Registered Global Security registered in the name of a Debt
Depositary or its nominee will be made to such Debt Depositary or its nominee,
as the case may be, as the registered owner of such Registered Global
Security. None of the Company, the Trustee or any other agent of the Company
or agent of the Trustees will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in such Registered Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Debt Depositary for any Debt Securities
represented by a Registered Global Security or its nominee, upon receipt of
any payment of principal, premium or interest in respect of such Registered
Global Security, will immediately credit participants' accounts with payments
in amounts proportionate to their respective beneficial interests in such
Registered Global Security as shown on the records of such Debt Depositary or
its nominee. The Company also expects that payments by participants to owners
of beneficial interests in such Registered Global Security held through such
participants will be governed by standing customer instructions and customary
practices, as is now the case with the securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such participants.
If the Debt Depositary for any Debt Securities represented by a Registered
Global Security is at any time unwilling or unable to continue as Debt
Depositary or ceases to be a clearing agency registered under the
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Exchange Act, and a successor Debt Depositary registered as a clearing agency
under the Exchange Act is not appointed by the Company within 90 days, the
Company will issue such Debt Securities in definitive form in exchange for
such Registered Global Security. In addition, the Company may at any time and
in its sole discretion determine not to have any of the Debt Securities of a
series represented by one or more Registered Global Securities and, in such
event, will issue Debt Securities of such series in definitive form in
exchange for all of the Registered Global Security or Securities representing
such Debt Securities. Any Debt Securities issued in definitive form in
exchange for a Registered Global Security will be registered in such name or
names as the Debt Depositary shall instruct the Trustee. It is expected that
such instructions will be based upon directions received by the Debt
Depositary from participants with respect to ownership of beneficial interests
in such Registered Global Security.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters or
dealers for public offering and sale by them or may sell the Offered
Securities to investors directly or through agents. The accompanying
Prospectus Supplement will set forth the terms of the offering of the of the
Offered Securities and the method of distribution of the Offered Securities
offered thereby and identify any firms acting as underwriters, dealers or
agents in connection therewith, including the name or names of any
underwriters, the purchase price of the Offered Securities and the proceeds to
the Company from the sale, any underwriting discounts and other items
constituting underwriters' compensation, any public offering price, any
discounts or concessions allowed or reallowed or paid to dealers and any
securities exchange or market on which the Offered Securities may be listed.
Only underwriters so named in such Prospectus Supplement are deemed to be
underwriters in connection with the Offered Securities offered thereby.
The Debt Securities may be distributed from time to time in one or more
transactions at a fixed price or prices (which may be changed) or at prices
determined as specified in the Prospectus Supplement. In connection with the
sale of the Debt Securities, underwriters, dealers or agents may be deemed to
have received compensation from the Company in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
the Debt Securities for whom they may act as agent. Underwriters may sell the
Debt Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters or commissions from the purchasers for whom they may act as
agent. Certain of the underwriters, dealers or agents who participate in the
distribution of the Debt Securities may engage in other transactions with, and
perform other services for, the Company and its subsidiaries in the ordinary
course of business.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Debt Securities, and any discounts,
concessions or commissions allowed by underwriters to dealers, are set forth
in the Prospectus Supplement. Underwriters, dealers and agents participating
in the distribution of the Debt Securities may be deemed to be underwriters,
and any discounts and commissions received by them and any profit realized by
them on the resale of the Debt Securities may be deemed to be underwriting
discounts and commissions under the Securities Act. Underwriters and their
controlling persons, dealers and agents may be entitled, under agreements
entered into with the Company, to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities
Act.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Dow, Lohnes & Albertson, PLLC, Washington, D.C.
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EXPERTS
The consolidated financial statements of the Company incorporated in this
Prospectus by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
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