-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RlZA34GF0Pt05Rvprcjkvn9q/K16j5mS+lfYYUUAn35yEbzZpQKLCWxgNbQ/tjBN 2K1wnxjMQ9PdD47EaAbegw== 0000931763-98-002245.txt : 20040701 0000931763-98-002245.hdr.sgml : 20040701 19980819122500 ACCESSION NUMBER: 0000931763-98-002245 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980819 DATE AS OF CHANGE: 20040701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COX COMMUNICATIONS INC /DE/ CENTRAL INDEX KEY: 0000025305 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 582112288 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06590 FILM NUMBER: 98694141 BUSINESS ADDRESS: STREET 1: 1400 LAKE HEARN DR NE CITY: ATLANTA STATE: GA ZIP: 30319 BUSINESS PHONE: 4048435000 MAIL ADDRESS: STREET 1: 1400 LAKE HEARN DRIVE CITY: ATLANTA STATE: GA ZIP: 30319 FORMER COMPANY: FORMER CONFORMED NAME: COX COMMUNICATIONS INC/DE DATE OF NAME CHANGE: 19941123 FORMER COMPANY: FORMER CONFORMED NAME: COX CABLE COMMUNICATIONS INC DATE OF NAME CHANGE: 19940614 10-Q/A 1 FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 1-13576 COX COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) Delaware 58-2112281 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1400 Lake Hearn Drive, Atlanta, Georgia 30319 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (404) 843-5000 _______________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] _______________ Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. There were 257,607,609 shares of Cox Class A Common Stock outstanding as of August 1, 1998. There were 13,798,896 shares of Cox Class C Common Stock outstanding as of August 1, 1998. COX COMMUNICATIONS, INC. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 TABLE OF CONTENTS PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS............................................. 2 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................. 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....... 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS................................................ 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 17 SIGNATURES................................................................ 18
Part I - Financial Information Item 1. Financial Statements Cox Communications, Inc. Consolidated Balance Sheets June 30 December 31 1998 1997 ------------ ------------ (unaudited) (Thousands of Dollars) Assets Cash................................................................................ $ 20,648 $ 28,259 Restricted Cash..................................................................... -- 204,210 Accounts and notes receivable, less allowance for doubtful accounts of $6,930 and $6,955..................................................... 138,311 144,073 Net plant and equipment............................................................. 2,117,980 1,979,063 Investments......................................................................... 2,037,857 1,598,273 Intangible assets................................................................... 2,620,866 2,458,717 Amounts due from Cox Enterprises, Inc ("CEI")....................................... -- 50,856 Other assets........................................................................ 87,166 93,150 ------------ ------------ Total assets................................................................... $ 7,022,828 $ 6,556,601 ============ ============ Liabilities and shareholders' equity Accounts payable and accrued expenses............................................... $ 255,918 $ 217,984 Deferred income..................................................................... 27,377 26,698 Deferred income taxes............................................................... 941,247 721,594 Other liabilities................................................................... 73,359 84,179 Debt................................................................................ 3,071,280 3,148,834 Amounts due to CEI.................................................................. 49,689 -- ------------ ------------ Total liabilities.............................................................. 4,418,870 4,199,289 ------------ ------------ Shareholders' equity Preferred Stock, $1 par value; 5,000,000 shares authorized; none issued.................................................................... -- -- Class A Common Stock, $1 par value; 316,000,000 shares authorized; shares issued and outstanding: 257,562,179 and 257,276,414................................................................ 257,562 257,276 Class C Common Stock, $1 par value; 14,000,000 shares authorized; shares issued and outstanding: 13,798,896.......................... 13,799 13,799 Additional paid-in capital........................................................ 1,796,291 1,790,833 Retained earnings (deficit)....................................................... (34,560) 79,605 Foreign currency translation adjustment........................................... 15,332 13,510 Net unrealized gain on securities................................................. 555,534 202,289 ------------ ------------ Total shareholders' equity..................................................... 2,603,958 2,357,312 ------------ ------------ Total liabilities and shareholders' equity..................................... $ 7,022,828 $ 6,556,601 ============ ============ See notes to consolidated financial statements. 2
COX COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 ----------------------------- ----------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- (UNAUDITED) (THOUSANDS OF DOLLARS, EXCLUDING PER SHARE DATA) Revenues Complete basic......................................... $ 291,016 $ 270,448 $ 575,384 $ 538,337 Premium service........................................ 46,548 47,289 92,195 93,035 Pay-per-view........................................... 7,990 15,703 18,350 26,675 Advertising............................................ 33,432 25,809 58,394 47,082 Data................................................... 4,003 321 6,778 349 Telephony.............................................. 6,607 3,176 11,579 5,761 Satellite.............................................. -- 29,884 33,492 55,750 Other.................................................. 8,699 8,468 17,915 17,219 ----------- ----------- ----------- ----------- Total revenues....................................... 398,295 401,098 814,087 784,208 Costs and expenses Programming costs...................................... 95,692 92,203 190,664 180,732 Plant operations....................................... 30,789 38,190 63,540 76,301 Marketing.............................................. 25,005 17,989 47,115 35,809 General and administrative............................. 94,848 77,213 182,259 151,951 Satellite operating and administrative................. -- 28,264 29,403 52,613 Depreciation........................................... 80,405 85,296 167,445 158,143 Amortization........................................... 17,794 18,977 36,351 36,027 ----------- ----------- ----------- ----------- Operating income.......................................... 53,762 42,966 97,310 92,632 Interest expense.......................................... (51,004) (50,170) (104,128) (96,986) Equity in net losses of affiliated companies.............. (128,907) (81,827) (270,685) (163,108) Gain on exchanges of cable television systems............. -- -- -- 24,642 Gain on sale of affiliated companies...................... 77,150 190,844 77,150 193,780 Gain on sale of businesses................................ 37,274 -- 37,274 -- Other, net................................................ 3,501 (907) 4,784 3,093 ----------- ----------- ----------- ----------- Income (loss) before income taxes......................... (8,224) 100,906 (158,295) 54,053 Income taxes.............................................. 4,022 39,742 (44,130) 30,711 ----------- ----------- ----------- ----------- Net income (loss)......................................... $ (12,246) $ 61,164 $ (114,165) $ 23,342 =========== =========== =========== =========== Per share data Basic and diluted net income (loss) per share........... $ (0.05) $ 0.23 $ (0.42) $ 0.09 Basic weighted-average shares outstanding............... 271,345,485 270,335,907 271,268,152 270,324,395 Diluted weighted-average shares outstanding............. 268,680,816 269,244,961 268,716,498 269,257,497
See notes to consolidated financial statements. 3 COX COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Foreign Net Common Stock Additional Retained currency unrealized Preferred --------------------- paid-in earnings translation gain on Stock Class A Class C capital (deficit) adjustment securities Total -------- --------- ---------- ----------- ---------- ------------ ---------- ------------ (unaudited) (Thousands of Dollars) Balance at December 31, 1997.... -- $257,276 $13,799 $1,790,833 $ 79,605 $13,510 $202,289 $2,357,312 Net loss...................... (114,165) (114,165) Issuance of stock related to stock compensation plans... 286 5,458 5,744 Foreign currency translation adjustment.................. 1,822 1,822 Change in net unrealized gain on securities............... 353,245 353,245 ------- -------- ------- ---------- --------- ------- -------- ---------- Balance at June 30, 1998........ -- $257,562 $13,799 $1,796,291 $ (34,560) $15,332 $555,534 $2,603,958 ======= ======== ======= ========== ========= ======= ======== ==========
See notes to consolidated financial statements. 4 Cox Communications, Inc. Consolidated Statements of Cash Flows
Six Months Ended June 30 ---------------------------- 1998 1997 ---------- ---------- (unaudited) (Thousands of Dollars) Cash flows from operating activities Net income (loss)............................................................ $ (114,165) $ 23,342 Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions: Depreciation............................................................... 167,445 158,143 Amortization............................................................... 36,351 36,027 Equity in net losses of affiliated companies............................... 270,685 163,108 Deferred income taxes...................................................... 14,939 (19,219) Gain on exchanges of cable television systems.............................. -- (24,642) Gain on sale of affiliated companies....................................... (77,150) (193,780) Gain on sale of businesses................................................. (37,274) -- (Increase) decrease in accounts and notes receivable......................... 6,534 (1,672) Increase (decrease) in accounts payable and accrued expenses................. 6,314 (36,811) Increase (decrease) in taxes payable......................................... (1,767) 85,032 Other, net................................................................... (7,577) (11,249) ---------- ---------- Net cash provided by operating activities............................. 264,335 178,279 ---------- ---------- Cash flows from investing activities Capital expenditures......................................................... (357,035) (361,855) Investments in affiliated companies.......................................... (35,036) (251,494) Proceeds from sale of affiliated companies................................... 63,183 6,983 Proceeds from sale of businesses............................................. 73,957 -- Restricted cash invested..................................................... 204,210 -- Payments for purchases of cable television systems........................... (258,067) -- Payments for exchanges of cable television systems........................... -- (53,442) Decrease in amounts due from CEI............................................. 50,856 -- Other, net................................................................... (4,486) (4,058) ---------- ---------- Net cash used in investing activities................................. (262,418) (663,866) ---------- ---------- Cash flows from financing activities Short-term debt borrowings (repayments), net................................. (800,000) 400,000 Commercial paper borrowings (repayments), net................................ 522,009 (20,239) Proceeds from issuance of debt............................................... 199,337 150,000 Repayment of debt............................................................ (9,825) (7,113) Proceeds from exercise of stock options...................................... 5,744 1,311 Increase (decrease) in amounts due to CEI.................................... 49,689 (35,120) Increase in book overdrafts.................................................. 23,518 32,843 ---------- ---------- Net cash provided by (used in) financing activities................... (9,528) 521,682 ---------- ---------- Net increase (decrease) in cash.............................................. (7,611) 36,095 Cash at beginning of period.................................................. 28,259 42,349 ---------- ---------- Cash at end of period........................................................ $ 20,648 $ 78,444 ========= ========= See notes to consolidated financial statements. 5
COX COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30 ------------------------ 1998 1997 ---------- ---------- (UNAUDITED) (THOUSANDS OF DOLLARS) Significant noncash transactions Transfer of PCS license............................... $ -- $ 251,918 Flextech merger stock exchange........................ -- 203,119 Gemstar merger stock exchange......................... -- 19,373 Value of PrimeStar, Inc. shares received.............. 94,696 -- Additional cash flow information Interest paid......................................... $ 99,252 $ 102,403 Income taxes refunded................................. (57,302) (35,101)
See notes to consolidated financial statements. 6 COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 1. BASIS OF PRESENTATION AND OTHER INFORMATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Cox Communications, Inc.'s ("Cox") Annual Report on Form 10-K for the year ended December 31, 1997. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998 or any interim period. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Comprehensive Income During the first quarter of 1998, Cox adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which requires prominent disclosure of comprehensive income. Comprehensive income (loss) was $220.0 million and $50.3 million for the three months ended June 30, 1998 and 1997, respectively, and $240.9 million and $(45.6) million for the six months ended June 30, 1998 and 1997, respectively. Comprehensive income (loss) includes consolidated net income (loss) and the change in the foreign currency translation adjustment and net unrealized gain (loss) on securities for the periods presented. Recently Issued Accounting Pronouncements In June 1997, Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosure about Segments of an Enterprise and Related Information," was issued. This Statement requires that a public company report segment profit or loss, certain specific revenue and expense items, segment assets, and certain descriptive information about the determination of business segments. SFAS No. 131 is effective for Cox's annual 1998 financial statements and interim 1999 financial statements. Management has determined there will be no effect on Cox's financial statements as a result of the adoption of SFAS No. 131. In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities," was issued. This Statement requires that all derivatives be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be designated, reassessed and documented pursuant to the provisions of SFAS No. 133. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The effect on the financial statements upon adoption of SFAS No. 133 has not been determined. 7 Reclassifications Certain amounts in the 1997 financial statements have been reclassified for comparative purposes. 3. ACQUISITIONS AND DISPOSALS OF BUSINESS In June 1998, Cox acquired a cable television system serving approximately 115,000 customers in Tucson, Sierra Vista and portions of Pima County, Arizona from TCI Communications, Inc. ("TCIC"), part of Tele-Communications, Inc.'s TCI Group, for approximately $250.0 million. In May 1998, Cox acquired a cable television system serving approximately 14,000 customers in Douglas County, Nebraska from Advance/Newhouse Partnership for approximately $8.0 million. Cox operates this system as part of its cluster of systems in the Omaha area. In April 1998, Cox contributed its partnership interests and net assets in and operations of PrimeStar Partners, L.P. to a new subsidiary of TCI Satellite Entertainment, Inc., PrimeStar, Inc., in exchange for $74.0 million and 18,939,217 shares of common stock of PrimeStar, Inc. The transaction resulted in recording a 9.43% equity interest in PrimeStar, Inc. and a pre-tax gain of $37.3 million. In May 1998, Cox signed a definitive agreement to acquire Prime South Diversified, Inc. ("PSDI") for a combination of Cox 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 in the greater Las Vegas area, at $1.3 billion. The closing of this transaction is subject to necessary government and regulatory approvals and is expected to occur in fourth quarter 1998. In April 1998, Cox and TCIC signed a non-binding agreement to form a joint venture serving approximately 270,000 customers in several key Oklahoma communities. The partnership will operate TCIC's system serving approximately 150,000 customers in Tulsa and surrounding communities, along with Cox's system in the Oklahoma City area, which serves approximately 120,000 customers. The partnership will be managed by Cox. 4. INVESTMENTS The summarized unaudited financial information presented below for significant equity method investments served as the basis for which Cox recorded its share of equity in net losses:
THREE MONTHS ENDED - ----------------------- (Thousands of Dollars) OUTDOOR GEMS SPRINT PCS COX PCS TCGI LIFE SPEEDVISION TELEVISION ------------------------------------------------------------------------------------------ JUNE 30, 1998 - ------------- REVENUES $ 192,294 $ 24,060 $295,300 $ 5,484 $ 6,729 $ 3,102 OPERATING LOSS (387,457) (54,500) (28,300) (3,870) (9,326) (1,264) NET LOSS (542,205) (80,344) (55,900) (3,743) (9,215) (2,440) JUNE 30, 1997 - ------------- REVENUES 25,386 1,793 115,700 2,841 1,880 2,560 OPERATING LOSS (277,712) (31,217) (28,600) (4,798) (8,113) (1,794) NET LOSS (331,332) (47,512) (51,400) (5,056) (8,454) (2,803)
8
SIX MONTHS ENDED - ----------------------- (THOUSANDS OF DOLLARS) OUTDOOR GEMS SPRINT PCS COX PCS TCGI LIFE SPEEDVISION TELEVISION ------------------------------------------------------------------------------------------ JUNE 30, 1998 REVENUES $ 336,104 $ 45,648 $ 455,400 $10,271 $ 11,630 $ 6,314 OPERATING LOSS (752,901) (96,685) (64,600) (6,852) (13,889) (1,961) NET LOSS (1,040,868) (152,391) (118,100) (8,947) (15,924) (3,941) JUNE 30, 1997 REVENUES 34,853 2,872 212,500 5,358 3,360 5,019 OPERATING LOSS (468,526) (72,488) (52,200) (9,510) (15,186) (3,663) NET LOSS (546,835) (103,157) (96,400) (9,919) (15,732) (5,683)
In July 1998, Cox's equity ownership in Teleport Communications Group ("TCG") was converted into shares of AT&T Corp. ("AT&T") common stock as a result of the consummation of the merger between AT&T and TCG. TCG agreed to a merger with AT&T in January 1998 under which TCG shareholders exchanged each share of TCG for 0.943 of a share of AT&T common stock. Cox will recognize a gain on this transaction during the third quarter. In June 1998, Cox exercised its option to put 20% of its interest in Cox PCS to Sprint PCS, which resulted in a pre-tax gain of $62.2 million. During March 1998, FOX/Liberty Networks acquired a one-third ownership interest in each Speedvision and Outdoor Life Networks. Cox, whose ownership interest was 51.4% and 49.3% as of December 31, 1997, respectively, retained a one-third ownership stake in each network. Cox recognized a minimal gain on this transaction during the second quarter. 5. DEBT
JUNE 30 DECEMBER 31 1998 1997 ----------------------------------------- (THOUSANDS OF DOLLARS) Revolving credit facilities...................................... $ -- $ 799,999 Commercial Paper, net of unamortized discount of $8,966 and $2,191....................................................... 1,198,534 683,300 Medium-term notes, net of unamortized discount of $1,252 and $1,201....................................................... 463,301 263,352 Floating Rate Reset Notes, due June 15, 2009, net of unamortized discount of $2,698 and $2,820..................... 147,302 147,180 6.375% Notes, due June 15, 2000, net of unamortized discount of $469 and $587........................................ 424,531 424,414 6.5% Notes, due November 15, 2002, net of unamortized discount of $386 and $430........................................ 199,614 199,570 6.875% Notes, due June 15, 2005, net of unamortized discount and hedging of $11,833 and $12,462...................... 363,167 362,538 7.25% Debentures, due November 15, 2015, net of unamortized discount of $817 and $840............................ 99,183 99,160 7.625% Debentures, due June 15, 2025, net of unamortized discount and hedging of $17,861 and $17,953...................... 132,139 132,047 Capitalized Lease Obligations.................................... 43,509 37,274 ------------------------------- Total Debt................................................... $3,071,280 $3,148,834 ===============================
9 In July 1998, Cox filed a Form S-3 Registration Statement (The "1998 Shelf Registration") with the Securities and Exchange Commission under which Cox may from time to time offer and issue debentures, notes, bonds or other evidence of indebtedness for a maximum aggregate amount of $1 billion. During July 1998, Cox issued $200 million of 6.4% Notes under the 1998 Shelf Registration maturing August 1, 2008 and $200 million of 6.8% Debentures maturing August 1, 2028. The net proceeds to Cox were approximately $395.4 million. In addition, during July 1998, Cox issued $250 million of 6.15% Reset Put Securities due August 1, 2033 ("REPS") under the 1998 Shelf Registration. The REPS are subject to mandatory redemption from the existing holders on August 1, 2003 through either (i) the exercise by the Remarketing Dealer of its right to purchase the REPS for remarketing, or (ii) the repurchase of the REPS by Cox. If remarketed, the Remarketing Dealer will, based on Cox's then current credit spreads, determine the interest to be paid on the REPS. Upon issuance of the REPS, the Remarketing Dealer paid Cox a premium of $11.4 million for the right to serve as the Remarketing Dealer. Amortization of the premium will be reflected as adjustments to interest expense. The net proceeds to Cox were approximately $259.4 million. In anticipation of the issuance of these debt securities, Cox had entered into a series of transactions under a forward treasury lock agreement in order to hedge its interest rate exposure. Such hedging transactions totaled a notional amount of $50 million for the Notes due August 1, 2008, $50 million for the Debentures due August 1, 2028 and $50 million for the REPS due August 1, 2033. The hedging transactions were settled at a minimal cost which will be reflected as adjustments to interest expense over the life of the debt securities. On January 22, 1998, Cox sold $100 million in medium term notes pursuant to a Form S-3 Registration Statement filed April 1996 (the "1996 Shelf Registration"). The notes are due January 15, 2018 with interest at a fixed rate of 6.85%. The net proceeds to Cox were approximately $98.8 million. In addition, on January 22, 1998 Cox sold a second series of $100 million medium term notes under the 1996 Shelf Registration. The notes are due January 15, 2028 with interest at a fixed rate of 6.95%. The net proceeds to Cox from the second series of notes were approximately $98.8 million. 6. TRANSACTIONS WITH AFFILIATED COMPANIES Cash requirements are funded by internally generated funds, by various external financing transactions and, as needed, through intercompany loans from CEI. CEI performs day-to-day cash management services for Cox, with settlements of credit or debit balances between Cox and CEI occurring periodically with interest at market rates (6.34% at June 30, 1998). Included in the amounts due (to)/from CEI are the following transactions: (THOUSANDS OF DOLLARS) Balance, December 31, 1997.......................... $ 50,856 Cash transferred from CEI........................... (121,518) Net operating expense allocations and reimbursement. 20,973 ---------- Balance, June 30, 1998.............................. $ (49,689) ========== 7. SHAREHOLDERS EQUITY The following table reconciles the numerator and the denominator of the basic and diluted per-share computations for income from operations for the three and six months ended June 30, 1998 and 1997: 10
Three months ended June 30, 1998 ---------------------------------------------------------- Income/(loss) Shares Per-share (Numerator) (Denominator) Amount ----------------- ---------------- --------------- Net loss $(12,246,000) ----------------- BASIC EPS (12,246,000) 271,345,485 $(0.05) =============== EFFECT OF DILUTIVE SECURITIES Options -- (1,657,853) ESPP -- (1,006,816) ----------------- ---------------- DILUTED EPS $(12,246,000) 268,680,816 $(0.05) ================= ================ ===============
Three months ended June 30, 1997 ---------------------------------------------------------- Income/(loss) Shares Per-share (Numerator) (Denominator) Amount ----------------- ---------------- --------------- Net income $61,164,000 ----------------- BASIC EPS 61,164,000 270,335,907 $0.23 =============== EFFECT OF DILUTIVE SECURITIES Options -- (381,000) ESPP -- (709,946) ----------------- ---------------- DILUTED EPS $61,164,000 269,244,961 $0.23 ================= ================ ===============
Six months ended June 30, 1998 ---------------------------------------------------------- Income/(loss) Shares Per-share (Numerator) (Denominator) Amount ----------------- ---------------- --------------- Net loss $(114,165,000) ----------------- BASIC EPS (114,165,000) 271,268,152 $(0.42) =============== EFFECT OF DILUTIVE SECURITIES Options -- (1,563,616) ESPP -- (988,038) ----------------- ---------------- DILUTED EPS $(114,165,000) 268,716,498 $(0.42) ================= ================ ===============
Six months ended June 30, 1997 ---------------------------------------------------------- Income/(loss) Shares Per-share (Numerator) (Denominator) Amount ----------------- ---------------- --------------- Net income $23,342,000 ----------------- BASIC EPS 23,342,000 270,324,395 $0.09 =============== EFFECT OF DILUTIVE SECURITIES Options -- (357,467) ESPP -- (709,431) ----------------- ---------------- DILUTED EPS $23,342,000 269,257,497 $0.09 ================= ================ ===============
8. COMMITMENTS AND CONTINGENCIES Cox is a party to various legal proceedings that are ordinary and incidental to its business. Management does not expect that any legal proceedings currently pending will have a material adverse impact on Cox's 11 consolidated financial position or consolidated results of operations. See "--Part II - Other Information -- Item 1. Legal Proceedings." ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the accompanying historical Consolidated Statements of Income for the three-month period ended June 30, 1998 and 1997. RECENT ACQUISITIONS AND EXCHANGES In July 1998, Cox's equity ownership in Teleport Communications Group ("TCG") was converted into shares of AT&T Corp. ("AT&T") common stock as a result of the consummation of the merger between AT&T and TCG. TCG agreed to a merger with AT&T in January 1998 under which TCG shareholders exchanged each share of TCG for 0.943 of a share of AT&T common stock. Cox will recognize a gain on this transaction during the third quarter. In June 1998, Cox acquired a cable television system serving approximately 115,000 customers in Tucson, Sierra Vista and portions of Pima County, Arizona from TCI Communications, Inc. ("TCIC"), part of Tele-Communications, Inc.'s TCI Group, for approximately $250.0 million. In May 1998, Cox acquired a cable television system serving approximately 14,000 customers in Douglas County, Nebraska from Advance/Newhouse Partnership for approximately $8.0 million. Cox operates this system as part of its cluster of systems in the Omaha area. In April 1998, Cox contributed its partnership interests and net assets in and operations of PrimeStar Partners, L.P. to a new subsidiary of TCI Satellite Entertainment, Inc., PrimeStar, Inc., in exchange for $74.0 million and 18,939,217 shares of common stock of PrimeStar, Inc. The transaction resulted in recording a 9.43% equity interest in PrimeStar, Inc. and a pre-tax gain of $37.3 million. In May 1998, Cox signed a definitive agreement to acquire Prime South Diversified, Inc. ("PSDI") for a combination of Cox 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 in the greater Las Vegas area, at $1.3 billion. The closing of this transaction is subject to necessary government and regulatory approvals. In April 1998, Cox and TCIC signed a non-binding agreement to form a joint venture serving approximately 270,000 customers in several key Oklahoma communities. The partnership will operate TCIC's system serving approximately 150,000 customers in Tulsa and surrounding communities, along with Cox's system in the Oklahoma City area, which serves approximately 120,000 customers. The partnership will be managed by Cox. THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997 Revenues for the three months ended June 30, 1998 were $398.3 million, down 1% from revenues of $401.1 million for the three months ended June 30, 1997. Basic customers were 3,378,749 at June 30, 1998. Excluding the effect of the June 15, 1998 acquisition of the Tucson and Sierra Vista, Arizona cable television systems serving approximately 115,000 customers, customer growth was 2.3% compared to the prior year after adjusting for the cable television system transactions during 1997 and 1998. Complete basic revenues for the second quarter of 1998 increased 8% over the comparable period in 1997 to $291.0 million primarily due to customer growth and average rate increases of 6% implemented primarily during the fourth quarter 12 of 1997. These increases are the result of new channel additions, increased programming costs and the pass-through of inflation adjustments. Pay-per-view revenues for the second quarter of 1998 were $8.0 million, down 49% from the same period in 1997 primarily as a result of the Tyson/Holyfield boxing event in 1997. Advertising revenues increased 30% to $33.4 million due to growth in local, national and political advertising sales during 1998. Data revenues for the second quarter of 1998 were $4.0 million primarily as a result of Cox's residential data service, Cox@Home, which as of June 30, 1998, had launched in seven markets with 1,759,182 "data ready" homes passed and had 34,263 customers. Telephony revenues for the second quarter of 1998 increased to $6.6 million from $3.2 million primarily due to growth in the commercial telephony business. Telephony revenues also included revenues from Cox's residential telephone offering, which had launched in four markets as of June 30, 1998. Programming costs were $95.7 million for the second quarter of 1998, an increase of 4% over the same period in 1997 due to customer growth, programming rate increases and new channel additions. Plant operations expenses decreased 19% to $30.8 million and included the effect of a revised cost component factor used to capitalize indirect costs relating to network construction activity. Marketing costs increased by 39% to $25.0 million for the current quarter due in part to costs associated with the rollout of high-speed data and telephony services. General and administrative expenses for the second quarter of 1998 increased 23% to $94.8 million due primarily to direct costs associated with high-speed data and telephony services. Operating income before depreciation and amortization ("EBITDA") is a commonly used financial analysis tool for measuring and comparing cable television companies in several areas, such as liquidity, operating performance and leverage. EBITDA increased 3% to $152.0 million for the second quarter of 1998. The EBITDA margin (EBITDA as a percentage of revenues) for the current quarter was 38.2%, an increase from 36.7% for the second quarter of 1997 primarily due to the contribution of the partnership interests, net assets and operations in PrimeStar Partners, L.P. to PrimeStar, Inc., partially offset by a continued increase in data and telephony direct costs. Depreciation was $80.4 million for the second quarter of 1998, a 6% decrease compared to the same period in 1997 due to the contribution of the partnership interests, net assets and operations in PrimeStar Partners, L.P. to PrimeStar, Inc. Operating income for the second quarter of 1998 was $53.8 million, an increase of 25% compared to the same period in 1997. Interest expense increased $.8 million to $51.0 million for the second quarter of 1998 primarily due to the increase in total debt outstanding. Equity in net losses of affiliated companies was $128.9 million primarily due to losses of $79.0 million, $26.5 million and $12.4 million associated with Sprint PCS, Cox PCS and Teleport, respectively. In the second quarter of 1998, Cox exercised its option to put 20% of its interest in Cox PCS to Sprint PCS, which resulted in a pre-tax gain of $62.2 million. Also in the second quarter of 1998, Cox contributed its partnership interests, net assets and operations 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. The transaction resulted in recording a 9.43% equity interest in PrimeStar, Inc. and a pre-tax gain of $37.3 million. Net loss for the current quarter was $12.2 million as compared to net income of $61.2 million for the second quarter of 1997. 13 SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997 Revenues for the six months ended June 30, 1998 were $814.1 million, a 4% increase over revenues of $784.2 million for the six months ended June 30, 1997. Basic customers were 3,378,749 at June 30, 1998. Excluding the effect of the June 15, 1998 acquisition of the Tucson and Sierra Vista, Arizona cable television systems serving approximately 115,000 customers, customer growth was 2.3% compared to the prior year after adjusting for the cable television system transactions during 1997 and 1998. Complete basic revenues for the six months ended June 30, 1998 increased 7% over the same period in 1997 to $575.4 million due primarily to customer growth and average rate increases of 6% implemented primarily during the fourth quarter of 1997. These increases are the result of new channel additions, increased programming costs and the pass-through of inflation adjustments. Pay-per-view revenues for the six months ended June 30, 1998 were $18.4 million, down 31% from the same period in 1997 primarily as a result of the Tyson/Holyfield boxing event in 1997. Advertising revenues increased 24% to $58.4 million due to growth in local and national advertising sales during 1998. Data revenues for the first six months of 1998 were $6.8 million primarily as a result of Cox's residential data service, Cox@Home, which as of June 30, 1998, had launched in seven markets with 1,759,182 "data ready" homes passed and had 34,263 customers. Telephony revenues for the first six months of 1998 increased to $11.6 million from $5.8 million primarily due to growth in the commercial telephony business. Telephony revenues also included revenues from Cox's residential telephone offering, which had launched in four markets as of June 30, 1998. Programming costs were $190.7 million for the six months ended June 30, 1998, an increase of 5% over the same period in 1997 due to customer growth, programming rate increases and new channel additions. Plant operations expenses decreased 17% to $63.5 million and included the effect of a revised cost component factor used to capitalize indirect costs relating to network construction activity. Marketing costs increased by 32% to $47.1 million for the six months ended June 30, 1998 due in part to costs associated with the rollout of high-speed data and telephony services. General and administrative expenses for the first six months of 1998 increased 20% to $182.3 million due primarily to direct costs associated with high-speed data and telephony services. Operating income before depreciation and amortization ("EBITDA") is a commonly used financial analysis tool for measuring and comparing cable television companies in several areas, such as liquidity, operating performance and leverage. EBITDA increased 5% to $301.1 million for the six months ended June 30, 1998. The EBITDA margin (EBITDA as a percentage of revenues) for the six months ended June 30, 1998 was 37.0%, a slight increase from 36.6% for the comparable period of 1997. Depreciation was $167.4 million for the first six months of 1998, a 6% increase compared to the same period in 1997 due to the continued upgrade and rebuild of the broadband network. Operating income for the six months ended June 30, 1998 was $97.3 million, an increase of 5% compared to the same period in 1997. Interest expense increased $7.1 million to $104.1 million for the six months ended June 1998 primarily due to the increase in total debt outstanding. Equity in net losses of affiliated companies was $270.7 million primarily due to losses of $155.9 million, $58.9 million and $31.4 million associated with Sprint PCS, Cox PCS and Teleport, respectively. 14 In the first six months of 1998, Cox exercised its option to put 20% of its interest in Cox PCS to Sprint PCS, which resulted in a pre-tax gain of $62.2 million. Also in the first six months of 1998, Cox contributed its partnership interests, net assets and operations 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. The transaction resulted in recording a 9.43% equity interest in PrimeStar, Inc. and a pre-tax gain of $37.3 million. Net loss for the six months ended June 30, 1998 was $114.2 million as compared to net income of $23.3 million for the comparable period of 1997. LIQUIDITY AND CAPITAL RESOURCES Uses of Cash As part of Cox's ongoing strategic plan, Cox has invested, and will continue to invest, significant amounts of capital to enhance the reliability and capacity of its broadband cable network in preparation for the offering of new services and to make investments in affiliated companies primarily focused on telephony, programming and communications-related activities. Capital expenditures are primarily directed at upgrading and rebuilding broadband cable networks in preparation for the delivery of additional services. Capital expenditures for 1998 are expected to range between $725 million and $775 million. Capital expenditures during the six months ended June 30, 1998 were $357.0 million. 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 six months ended June 30, 1998 of $35.0 million consists primarily of additional equity funding to Sprint PCS. During the six months ended June 30, 1998, net repayments of $800 million were made for the revolving credit borrowings. In addition, payments for purchase of cable television systems of $258.1 million were made for purchases which were closed during the second quarter of 1998. Sources of Cash Cox generated $264.3 million from operating activities during the six months ended June 30, 1998. Proceeds from borrowings of $522.0 million under the commercial paper program and $199.3 million of medium term notes under the 1996 Shelf Registration program were used to refinance revolving credit borrowings mentioned above. In July 1998, Cox filed a Form S-3 Registration Statement for the 1998 Shelf Registration program under which Cox may from time to time offer and issue debentures, notes, bonds or other evidence of indebtedness for a maximum aggregate amount of $1 billion. During July 1998, Cox sold $400 million of notes and debentures and $250 million of Reset Put Securities under the 1998 Shelf Registration. Cox Enterprises, Inc. ("CEI") continues to perform day-to-day cash management services for Cox with settlements of balances between Cox and CEI occurring periodically at market interest rates. At June 30, 1998, an intercompany payable of $49.7 million was due to CEI from Cox. OTHER MATTERS Cox is continuing to address the Year 2000 issues to resolve the potential impact of the Year 2000 on the processing of data-sensitive information by Cox's computerized information systems. Testing on certain systems and applications has occurred and will continue on the remainder of the systems and applications throughout the course of the Year 2000 program. Total incremental expenses to bring current systems into compliance are not expected to have a material impact 15 on Cox's financial position, results of operations or cash flows in future periods. However, if Cox, its customers or vendors are unable to resolve such processing issues in a timely manner, it could result in a material financial risk. Accordingly, Cox plans to devote the necessary resources to resolve all significant year 2000 issues in a timely manner. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Cox is exposed to interest rate risk due to its various debt instruments. In accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," Cox estimated the fair value of its debt instruments based on discounted cash flow analyses using Cox's incremental borrowing rate for similar types of borrowing arrangements and dealer quotations. The revolving credit agreements, commercial paper and floating rate reset notes, at June 30, 1998 and 1997, bear interest at current market rates and, thus, approximate fair value. The effect of a hypothetical one percentage point increase in interest rates would decrease the estimated fair value of remaining debt with a carrying amount of $1,766.5 million to $1,658.9 million. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 9, 1997, three individual subscribers filed a putative class action suit in Superior Court of the State of California, County of San Diego against Cox and its cable system subsidiaries in California (the "Cox California Systems") arising out of the manner in which the Cox California Systems sell premium channel cable services. The suit alleges that the Cox California Systems unlawfully require limited basic cable customers to purchase the expanded basic services tier in order to purchase premium channels, i.e., channels sold on an a la carte basis such as Home Box Office and Showtime. The suit asserts causes of action under California antitrust and consumer protection laws. The suit seeks injunctive relief as well as an order awarding the class members compensatory damages, plus statutory damages, punitive damages, interest and attorney's fees. On February 13, 1998, the Court granted Cox's motion to stay the suit and referred it on grounds of Primary Jurisdiction to the Federal Communications Commission for consideration of issues best addressed by the FCC's expertise should the plaintiffs elect to file a complaint with the FCC. On April 14, 1998, plaintiffs filed a petition for a peremptory writ of mandate with the California Court of Appeals. The petition was denied on May 6, 1998. On May 18, 1998, the plaintiffs filed a petition for review in the Supreme Court of California which was denied on July 8, 1998. The outcome of this matter cannot be predicted at this time. Cox and its subsidiaries in Arizona, Oklahoma, Louisiana and Florida are defendants in seven putative subscriber class action suits in the respective state courts initiated between October 17, 1997 and January 26, 1998. The suits all challenge the propriety of late fees charged by the subsidiaries to customers who fail to pay for services in a timely manner. The suits seek injunctive relief and various formulations of damages under various claimed causes of action under various bodies of state law. The actions are being defended vigorously. The outcome of these matters cannot be predicted at this time. On May 12, 1998, the United States Department of Justice filed a three- count antitrust complaint styled United States v. PrimeStar, Inc., et al., in the United States District Court for the District of Columbia, naming Cox as one of twelve defendants. The complaint seeks to enjoin the consummation of a June 11, 1997 Asset Acquisition Agreement by which PrimeStar, Inc. would acquire direct broadcast satellite ("DBS") assets owned by defendants MCI Communications Corp., The News Corporation Limited, and K. Rupert Murdoch. The complaint alleges that PrimeStar Inc. is controlled by its cable shareholders (Tele- Communications, Inc.; Time Warner Entertainment Co., L.P.; MediaOne Group; Comcast Corp.; and Cox) and that the acquisition of the DBS assets would violate Section 7 of the Clayton Act by reducing competition in a "multichannel video 16 programming service market" in which DBS operators compete with locally- franchised cable operators. The complaint also alleges that all of the defendants have violated Section 1 of the Sherman Act by agreeing to purchase and sell the DBS satellite assets, and that defendants PrimeStar and the cable company shareholders (including Cox) have violated Section 2 of the Sherman Act by seeking to acquire the DBS assets. The complaint seeks a preliminary and permanent injunction against the consummation of the Asset Acquisition Agreement, or alternatively that the PrimeStar cable owners be required to divest their ownership interests in PrimeStar, Inc. A February 1999 trial date has been set. The outcome of this matter cannot be determined at this time. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Stockholders on April 24, 1998. Three matters were voted upon at the meeting: (a) the election of a Board of Directors of seven members to serve until the 1999 Annual Meeting or until their successors are duly elected and qualified; (b) ratification of the appointment by the Board of Directors of Deloitte & Touche, LLP, independent auditors for the fiscal year ending December 31, 1998; and (c) approval of the Cox Communications, Inc. Annual Incentive Plan. The following directors were elected and they received the votes indicated: Nominee Votes in Favor Votes Withheld - ------- -------------- -------------- Janet Morrison Clarke 383,514,528 219,822 John R. Dillon 383,463,636 270,714 David E. Easterly 383,465,414 268,936 Robert F. Erburu 383,184,358 549,992 James C. Kennedy 383,436,801 297,549 James O. Robbins 383,467,301 267,049 Andrew J. Young 383,508,477 225,873 Ratification of Deloitte & Touche, LLP, as independent auditors of the fiscal year ending December 31, 1998 was approved with 383,601,801 votes in favor, 19,648 votes opposed to, and 112,901 abstentions. The Cox Communications, Inc. Annual Incentive Plan was approved with 379,332,020 votes in favor, 4,139,380 votes opposed to, and 262,950 abstentions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 -- Financial Data Schedule (b) Reports on Form 8-K filed during the quarter ended June 30, 1998: A Form 8-K dated May 5, 1998 (filed May 28, 1998) reported the proposed acquisition of Prime South Diversified, Inc. in Item 5 Other Events, and filed the Agreement and Plan of Merger associated therewith as Exhibit 2.1 of Item 7(c). The 8-K was amended on July 6, 1998 by the filing of pro forma financial statements reflecting the acquisition as Item 7(b). 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Cox Communications, Inc. /s/ Jimmy W. Hayes Date: August 18, 1998 ------------------ Jimmy W. Hayes Senior Vice President, Finance and Chief Financial Officer (Principal Financial Officer) 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 20,648 0 145,241 (6,838) 0 0 2,976,324 (858,342) 7,022,828 0 0 0 0 (271,361) 0 (7,022,828) 0 (814,087) 0 309,646 203,796 0 (104,128) (158,295) (44,130) 0 0 0 0 (114,165) (0.42) (0.42)
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