Cox Communications Announces Third Quarter Financial Results for 2002; Record Growth in Telephone and High-Speed Internet Services
Atlanta, GA
NYSE:COX

ATLANTA - Cox Communications, Inc. (NYSE: COX) today reported financial results for the three months ended September 30, 2002.

“We had another strong quarter and I'm extremely pleased with the growth that we have achieved thus far in 2002,” said Jim Robbins, President and Chief Executive Officer of Cox Communications.

"We continue to see record demand for our Cox high-speed Internet service," Robbins continued. "We added more than 12,000 new Internet subscribers per week during the third quarter of 2002 and now have nearly 1.3 million high-speed Internet customers."

Robbins continued: "I'm also excited to report our strongest quarter ever for Cox Digital Telephone. We achieved record net adds for phone during August in both Orange County, our most mature telephone market, and Omaha. Furthermore, both markets have now reached 30% telephone penetration to upgraded homes passed.

"We're continuing to drive digital penetration through digital sell-in, which remains strong at 42%. Basic subscribers grew 1.2% over third quarter 2001 on a pro forma basis. We anticipate continuing the solid basic customer growth in the fourth quarter, and expect total year over year growth to be between 1.1% and 1.2%, just under our previous guidance of 1.3% to 1.5%," added Robbins.

"We achieved pro forma revenue growth of 16% and pro forma operating cash flow (OCF) growth of 14% in the third quarter. We expect to meet our previously stated guidance of 14% to 15% pro forma revenue growth, 13% to 14% pro forma OCF growth, and capital expenditures of $2 billion for the full year 2002," Robbins ended.

PRO FORMA OPERATING RESULTS

Cox provides pro forma information as an alternative for understanding our operating results. The pro forma operating results are not necessarily indicative of operating results that would have occurred if the circumstances summarized below had not occurred, and may be different from pro forma measures used by other companies. In addition, the pro forma operating results are not necessarily indicative of the results of our future operations.

The pro forma operating results for the nine months ended September 30, 2002 exclude a one-time non-recurring charge of $9.8 million related to the portion of Cox's December 2001 payment of $160.0 million to Excite@Home for the continuation of high-speed Internet services through February 2002.

The pro forma operating results for the three and nine months ended September 30, 2001 reflect reclassifications of $22.7 million and $59.7 million, respectively, in costs associated with Excite@Home high-speed Internet service which had previously been netted against data revenue and $1.4 million and $4.0 million, respectively, of such costs which had previously been netted against commercial revenue to selling, general and administrative expenses in order to conform to the manner in which the costs associated with Cox High Speed Internet service have been presented for the three and nine months ended September 30, 2002.

Pro forma three months ended September 30, 2002 compared with pro forma three months ended September 30, 2001

Total pro forma revenues for the third quarter of 2002 increased 16% over the third quarter of 2001, and include the effects of:

  • basic and digital video customer growth;
  • residential basic rate increases implemented over the past twelve months resulting from increased programming costs and increased channel availability;
  • residential and commercial high-speed Internet access and telephony customer growth; and
  • a continuing rebound in local and national advertising sales.

Basic customers were 6,263,408 at September 30, 2002, a 1.2% increase over the prior year. High-speed Internet and Cox Digital Telephone customers increased by approximately 157,300 and 73,000, respectively, during the third quarter of 2002, and by approximately 492,800 and 252,400, respectively, over the past twelve months. Cox Digital Cable had net additions of approximately 71,900 customers during the third quarter of 2002, and of approximately 486,400 customers over the past twelve months. It is now available in 96% of the homes in Cox's service areas with penetration of basic customers exceeding 27%. Basic customers and Cox Digital Cable statistics have been adjusted for the sale of certain cable systems in the second quarter of 2002.

Pro forma programming costs were $266.4 million for the third quarter of 2002, an increase of 11% over the same period in 2001, primarily due to programming rate increases implemented over the past twelve months, basic and digital customer growth and channel additions. Pro forma selling, general and administrative expenses for the third quarter of 2002 increased 19% to $555.2 million due to:

  • increased labor costs due to the transition from upgrade construction and new product launches to maintenance and related customer costs directly associated with the growth of new subscribers; and
  • increased bad debt expense due to a $4.9 million reserve established as a result of the July 2002 bankruptcy filing of WorldCom, Inc.

Pro forma operating cash flow increased 14% to $453.4 million for the third quarter of 2002. The pro forma operating cash flow margin (pro forma operating cash flow as a percentage of revenues) for the third quarter of 2002 was 35.6%.

Pro forma nine months ended September 30, 2002 compared with pro forma nine months ended September 30, 2001

Total pro forma revenues for the nine months ended September 30, 2002 increased 16% over the same period in 2001, and include the effects of:

  • basic and digital video customer growth;
  • residential basic rate increases implemented over the past twelve months resulting from increased programming costs and increased channel availability;
  • residential and commercial high-speed Internet access and telephony customer growth;
  • the Tyson/Holyfield boxing event during the second quarter of 2002; and
  • a continuing rebound in local and national advertising sales.

Pro forma programming costs were $800.5 million for the nine months ended September 30, 2002, an increase of 12% over the same period in 2001, primarily due to programming rate increases implemented over the past twelve months, basic and digital customer growth and channel additions. Pro forma selling, general and administrative expenses for the nine months ended September 30, 2002 increased 20% to $1,600.1 million due to:

  • increased labor costs due to the transition from upgrade construction and new product launches to maintenance and related customer costs directly associated with the growth of new subscribers;
  • increased marketing costs in the first half of 2002 as compared to the first half of 2001 aimed at enhancing customer awareness, the promotion of new services and bundling alternatives, and the acquisition of new customers; and
  • increased bad debt expense due to the lagging effect of the general economic slowdown and a $4.9 million reserve for the bankruptcy filing of WorldCom.

Pro forma operating cash flow increased 14% to $1,297.1 million for the nine months ended September 30, 2002. The pro forma operating cash flow margin (pro forma operating cash flow as a percentage of revenues) for the nine months ended September 30, 2002 was 35.1%.

HISTORICAL OPERATING RESULTS

Historical three months ended September 30, 2002 compared with historical three months ended September 30, 2001

Total revenues for the third quarter of 2002 were $1,275.0 million, an 18% increase over revenues of $1,079.5 million for the third quarter of 2001. Operating cash flow increased 14% to $453.4 million for the third quarter of 2002.

Depreciation and amortization decreased to $343.1 million from $368.6 million in the third quarter of 2001 due to a reduction in amortization of intangible assets determined to have an indefinite life, offset by an increase in depreciation from Cox's continuing investments in its broadband network in order to deliver additional programming and services.

For the third quarter of 2002, Cox recorded a $102.7 million pre-tax gain on derivative instruments due to the following:

  • $43.7 million pre-tax gain resulting from the change in the fair value of certain derivative instruments embedded in Cox's exchangeable subordinated debentures and indexed to shares of Sprint PCS common stock that Cox owns;
  • $64.2 million pre-tax gain resulting from the change in the fair value of certain derivative instruments embedded in Cox's zero-coupon debt and indexed to shares of Sprint PCS common stock that Cox owns; and
  • $5.2 million pre-tax loss resulting from the change in the fair value of certain derivative instruments associated with Cox's investments, including Sprint PCS.

Net loss on investments of $157.9 million was primarily due to a $48.9 million pre-tax loss as a result of the change in market value of Cox's investment in Sprint PCS common stock classified as trading and a $127.0 million decline in the fair value of certain investments, primarily Sprint PCS, considered to be other than temporary.

Included in net gain on investments for the comparable period in 2001 were a pre-tax gain associated with Cox's investment in Sprint PCS common stock classified as trading and a pre-tax gain related to the sale of Cox's interests in Outdoor Life, Speedvision and Cable Network Services.

Minority interest of $12.5 million primarily represents distributions on Cox's obligated capital and preferred securities of subsidiary trusts, referred to as FELINE PRIDES and RHINOS. Net loss for the current quarter was $73.1 million compared to net income of $143.0 million for the third quarter of 2001.

Historical nine months ended September 30, 2002 compared with historical nine months ended September 30, 2001

Total revenues for the nine months ended September 30, 2002 were $3,697.7 million, a 19% increase over revenues of $3,119.0 million for the nine months ended September 30, 2001. Operating cash flow increased 13% to $1,287.4 million for the first nine months of 2002.

Depreciation and amortization decreased to $1,006.6 million from $1,076.6 million in the nine months ended September 30, 2001 due to a reduction in amortization of intangible assets determined to have an indefinite life, offset by an increase in depreciation from Cox's continuing investments in its broadband network in order to deliver additional programming and services. During the second quarter of 2002, Cox sold certain cable systems and recognized a pre-tax loss of $3.9 million. Interest expense decreased to $397.8 million, primarily due to decreased interest rates on floating rate debt, interest savings as a result of Cox's interest rate swap agreements and repayment of all commercial paper borrowings.

For the nine months ended September 30, 2002, Cox recorded an $870.4 million pre-tax gain on derivative instruments due to the following:

  • $293.0 million pre-tax gain resulting from the change in the fair value of certain derivative instruments embedded in Cox's exchangeable subordinated debentures and indexed to shares of Sprint PCS common stock that Cox owns;
  • $397.3 million pre-tax gain resulting from the change in the fair value of certain derivative instruments embedded in Cox's zero-coupon debt and indexed to shares of Sprint PCS common stock that Cox owns; and
  • $180.1 million pre-tax gain resulting from the change in the fair value of certain derivative instruments associated with Cox's investments, including Sprint PCS, AT&T and AT&T Wireless.

Net loss on investments of $1.4 billion is primarily due to:

  • $170.4 million pre-tax loss related to the sale of 23.9 million shares of AT&T Wireless common stock;
  • $437.7 million pre-tax loss as a result of the change in market value of Cox's investment in Sprint PCS common stock classified as trading; and
  • $804.4 million decline in the fair value of certain investments, primarily Sprint PCS, considered to be other than temporary.

Included in net gain on investments for the comparable period in 2001 were pre-tax gains associated with Cox's investment in Sprint PCS common stock classified as trading, a pre-tax gain related to the sale of Cox's interests in Outdoor Life, Speedvision and Cable Network Services and a pre-tax gain related to the exercise of Cox's Excite@Home right.

Minority interest of $36.1 million primarily represents distributions on the FELINE PRIDES and RHINOS. Net loss for the nine months ended September 30, 2002 was $453.7 million compared to net income of $860.2 million for the comparable period in 2001.

NEW ACCOUNTING STANDARDS

On January 1, 2002, Cox adopted Statement of Financial Accounting Standards (SFAS) No. 142, which requires that goodwill and certain intangible assets, including those recorded in past business combinations, no longer be amortized through the statement of operations, but instead be tested for impairment at least annually. The adoption and subsequent application of SFAS No. 142 have not resulted in an impairment charge.

Also on January 1, 2002, Cox began applying the guidance prescribed in Emerging Issues Task Force Issue No. 01-14, Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred, whereby the collection and payment of certain fees must be presented on a gross basis, as revenue and expense, rather than on a net basis. Retroactive application of this standard is required. Accordingly, collection and payment of fees, primarily franchise fees, have been reclassified on a gross basis for all historical and pro forma periods presented herein to conform to this new guidance.

LIQUIDITY AND CAPITAL RESOURCES

Cox has included Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 as a means of providing more detail regarding the liquidity and capital resources discussion below. In addition, Cox has included a calculation of free cash flow in the Summary of Operating Statistics to provide an additional measure of liquidity that Cox believes will be useful to investors in evaluating Cox's financial performance. Free cash flow is not a measure of performance calculated in accordance with generally accepted accounting principles. For further details, please refer to the Summary of Operating Statistics.

Significant sources of cash for the nine months ended September 30, 2002 consisted of the following:

  • the sale of 25.2 million shares of Sprint PCS common stock for net proceeds of approximately $238.7 million;
  • the sale of 35.0 million shares of AT&T common stock for net proceeds of approximately $542.6 million;
  • the sale of 23.9 million shares of AT&T Wireless common stock for net proceeds of approximately $248.2 million;
  • the termination of all costless equity collar arrangements with respect to Sprint PCS common stock, AT&T common stock and AT&T Wireless common stock for aggregate proceeds of approximately $264.4 million;
  • the issuance of 7.125% senior notes, which mature in September 2012, for net proceeds of approximately $986.1 million; and
  • the generation of cash from operating activities of approximately $1.2 billion.

Significant uses of cash for the nine months ended September 30, 2002 consisted of the following:

  • the repurchase of $329.1 million aggregate principal amount at maturity of Cox's convertible senior notes due 2021 that had been properly tendered and not withdrawn, for aggregate cash consideration of $232.8 million, which represented the accreted value of the repurchased notes;
  • the repayment of approximately $727.4 million of commercial paper borrowings;
  • the redemption of senior notes held by Cox RHINOS Trust for approximately $502.6 million; and
  • capital expenditures of approximately $1.4 billion. Please refer to the Summary of Operating Statistics for a break out of capital expenditures in accordance with the new industry guidelines.

At September 30, 2002, Cox had approximately $8.0 billion of outstanding indebtedness (net of cumulative derivative adjustments made in accordance with SFAS No. 133 which reduced reported indebtedness by approximately $1.1 billion).

In addition to the redemption of RHINOS discussed above, during the third quarter of 2002 Cox settled its FELINE PRIDES with the issuance of 18.7 million shares of Class A common stock. As a result of these transactions, Cox no longer has any Cox-obligated capital or preferred securities of subsidiary trusts outstanding.

Acerca de Cox Communications

Cox Communications (NYSE: COX), a Fortune 500 company, is a multi-service broadband communications company serving approximately 6.3 million basic customers nationwide. Cox is the nation's fifth-largest cable television provider, and offers both traditional analog video programming under the Cox Cable brand as well as advanced digital video programming under the Cox Digital Cable brand. Cox provides an array of other communications and entertainment services, including local and long distance telephone under the Cox Digital Telephone brand; high-speed Internet access under the brands Cox High Speed Internet and Cox Express; and commercial voice and data services via Cox Business Services. Cox is an investor in programming networks including Discovery Channel. More information about Cox Communications can be accessed on the Internet at www.cox.com/espanol.

Conference Call and Webcast Details

The Cox Communications earnings call will be held Tuesday, October 29, 2002, at 10:30 a.m. Eastern Time. A live webcast of the conference call will be available on the Cox Communications website at www.cox.com/investor. A recording of the third quarter conference call, as well as a document containing highlights, will be available on the company's website following the conclusion of the call.

Información de contacto

Lacey Lewis, Vice President of Investor Relations
(404) 269-7608, lacey.lewis@cox.com

 

Laura Oberhelman, Manager of Corporate Communications
(404) 269-7562, laura.oberhelman@cox.com

 

 

Caution Concerning Forward-Looking Statements

Statements in this release, including statements relating to growth opportunities, revenue and cash flow projections and introduction of new products and services, are "forward-looking" statements, which are statements that relate to Cox's future plans, earnings, objectives, expectations, performance and similar projections, as well as any facts or assumptions underlying these statements or projections. Actual results may differ materially from the results expressed or implied in these forward-looking statements, due to various risks, uncertainties or other factors. These factors include competition within the broadband communications industry, our ability to achieve anticipated subscriber and revenue growth, our success in implementing new services and other operating initiatives, our ability to generate sufficient cash flow to meet our debt service obligations and finance operations, and other risk factors described from time to time in Cox's filings with the Securities and Exchange Commission, including Cox's Annual Report on Form 10-K, as amended, for the year ended December 31, 2001. Cox assumes no responsibility to update any forward-looking statements as a result of new information, future events or otherwise.

Home page contact

For general media and industry analyst inquiries, please visit the media and corporate contacts .