ATLANTA--(BUSINESS WIRE)--Oct. 25, 2001--Cox Communications, Inc. (NYSE: COX) today reported financial results for the three months ended September 30, 2001.
"We had a strong third quarter, achieving solid operating cash flow (OCF) growth of 12%, despite weaker advertising sales than forecasted. Advertising sales have been slow all year due to the uncertain economy, but the business disruption caused by the events of the September 11th national tragedies contributed further to this issue," said Jim Robbins, President and Chief Executive Officer.
"Bundling continues to be a successful strategy for attracting and retaining customers. We now have 956,000 households taking at least two Cox products. We had our highest net-gain in bundled customers this quarter, which is indicative of the increasing popularity of our bundled marketing strategy."
"Run rates and demand for new services in the third quarter of 2001 remained unabated, even in the face of the tragic events that occurred in September. We attribute that partly to a very effective third quarter marketing campaign and to the fact that, even in times of economic uncertainty, our customers receive significant value from Cox services."
Robbins continued: "We now have a total of 2.4 million new-service revenue generating units (RGUs), fueled by the record gain of 322,000 new-service RGUs in the third quarter versus 271,000 and 244,000 new-service RGUs in the first and second quarters of 2001, respectively. Seasonality clearly turned in our favor in the third quarter, as we added 40,000 basic customers versus a loss of 47,000 basic customers in the second quarter of 2001.
Robbins said that although the slower advertising sales and associated impact of September 11th are expected to have a continuing effect on advertising revenues in the fourth quarter, the company expects revenue growth of 14% and OCF growth of 12% for the full year 2001. The OCF guidance does not include undetermined transitional costs related to the restructuring of our high-speed data network pursuant to the bankruptcy of Excite@Home. He added that the company still anticipates strong RGU growth and expects to end the year with over 1.1 million new-service RGU additions, exceeding the previous guidance of 1.0 to 1.1 million additions. He further stated that the company continues to expect basic customer growth of about 1% for the full year 2001.
Historical three months ended September 30, 2001 compared with
historical three months ended September 30, 2000
Total revenues for the three months ended September 30, 2001 were $1,032.0 million, a 14% increase over revenues of $902.2 million for the three months ended September 30, 2000. Total residential revenues for the third quarter of 2001 increased 15% to $905.2 million compared to the same period in 2000. Basic customers were 6,206,737, a 0.7% increase over September 30, 2000.
Residential video revenues increased to $762.6 million, a 7% increase over the comparable period in 2000, primarily due to digital customer growth and rate increases implemented in the fourth quarter of 2000 and the first quarter of 2001. Residential data and residential telephony revenues for the third quarter of 2001 doubled to $75.2 million and $55.9 million, respectively, from $36.3 million and $27.7 million, respectively, in 2000 due to customer growth.
Commercial revenues for the third quarter of 2001 increased to $38.2 million from $27.6 million for the comparable period in 2000 due to growth in both high-speed data and telephony customers. Advertising revenues increased slightly to $88.6 million reflecting a slight increase in national advertising sales, which is offset by a general economic slowdown affecting local and national advertising spending.
Programming costs were $242.3 million for the three months ended September 30, 2001, an increase of 12% over the same period in 2000 due to programming rate increases implemented in October 2000 and January 2001, digital customer growth and channel additions. Selling, general and administrative expenses for the third quarter of 2001 increased 19% to $393.4 million due primarily to increased employee headcount, a national marketing campaign that occured in the third quarter of 2001, and other costs associated with the continued rollout of residential and commercial digital video, high-speed data and telephony services, partially offset by a revised cost component factor used to capitalize indirect costs relating to network construction activity.
Operating cash flow increased 12% to $396.3 million for the third quarter of 2001. The operating cash flow margin (operating cash flow as a percentage of revenues) for the current quarter was 38.4%, a decrease from 39.2% for the third quarter of 2000.
Depreciation and amortization increased to $368.6 million from $319.3 million in the third quarter of 2000 due to Cox continuing to invest significantly in its broadband network in order to deliver additional programming and services. Interest expense increased slightly to $136.3 million primarily due to the issuance of notes and debentures in the fourth quarter of 2000 and the first quarter of 2001.
Income related to indexed debt of $249.9 million for the third quarter of 2000 represents the net change in the contingent settlement amount of the exchangeable subordinated debentures which are indexed to the market value of the underlying Sprint PCS common stock. Upon adoption of Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, on January 1, 2001 income or expense related to indexed debt is classified as a component of loss on derivative instruments, net. For the three months ended September 30, 2001, Cox recorded a $90.3 million pre-tax loss on derivative instruments due to a decrease of approximately $61.8 million in the fair value of certain derivative instruments embedded in the exchangeable subordinated debentures issued by Cox and a decrease of approximately $28.5 million in the fair value of certain derivative instruments associated with Cox's investments.
Net gain on investments of $470.1 million is primarily due to a $436.1 million pre-tax gain related to the sale of Cox's interests in Outdoor Life, Speedvision and Cable Network Services to Fox Sports, and a $41.7 million pre-tax gain as a result of the change in market value of Cox's investment in Sprint PCS common stock - Series 2 classified as trading.
Included in net gain on investments for the comparable period in 2000 are pre-tax gains related to the sale of 4.6 million shares of Sprint PCS - Series 2 and the transaction whereby Cox received a right to put its Excite@Home shares to AT&T.
Minority interest of $14.0 million primarily represents distributions on Cox's obligated capital and preferred securities of subsidiary trusts, referred to as FELINE PRIDES and RHINOS. Net income for the current quarter was $143.0 million, as compared to net income of $838.1 million for the third quarter of 2000.
Historical nine months ended September 30, 2001 compared with pro
forma nine months ended September 30, 2000
The pro forma operating results for the nine months ended September 30, 2000 give effect to the following transactions as though they had occurred on January 1, 2000:
- the January 2000 acquisition of cable systems from Multimedia Cablevision, Inc., a subsidiary of Gannett Co., Inc.; and
- the March 2000 acquisition of cable subsidiaries from AT&T Corp. serving customers in Oklahoma and Louisiana, which also included the acquisition of Peak Cablevision, LLC and the remaining 20% ownership interest in a partnership in which Cox initially acquired an 80% interest through the TCA Cable TV, Inc. merger in August 1999.
Total revenues for the nine months ended September 30, 2001 were $2,981.7 million, a 13% increase over revenues of $2,627.4 million for the nine months ended September 30, 2000. Operating cash flow increased 12% to $1,136.5 million for the first nine months of 2001. Depreciation and amortization increased to $1,076.6 million from $905.6 million for the comparable period in 2000 due to Cox continuing to invest significantly in its broadband network in order to deliver additional programming and services. Interest expense increased to $433.4 million primarily due to the issuance of notes and debentures in the fourth quarter of 2000 and first quarter of 2001.
For the nine months ended September 30, 2001, Cox recorded a $347.9 million pre-tax loss on derivative instruments due to a decrease of approximately $346.5 million in the fair value of certain derivative instruments embedded in the exchangeable subordinated debentures issued by Cox and a decrease of approximately $1.4 million in the fair value of certain derivative instruments associated with Cox's investments.
Net gain on investments of $1,079.8 million is primarily due to the following:
- $239.3 million pre-tax gain associated with a one-time reclassification of 19.5 million shares of Cox's investment in Sprint PCS common stock - Series 2 from available-for-sale securities to trading securities upon adoption of SFAS No. 133;
- $114.1 million pre-tax gain on these shares as a result of the change in market value of Sprint PCS common stock for the nine months ended September 30, 2001;
- $307.4 million pre-tax gain associated with the satisfaction of Cox's Excite@Home right;
- $72.4 million pre-tax gain related to the sale of 4.2 million shares of Sprint PCS common stock - Series 2; and
- $436.1 million pre-tax gain related to the sale of Cox's interests in Outdoor Life, Speedvision and Cable Network Services to Fox Sports;
- partially offset by a $50.9 million decline in the fair value of certain other investments considered to be other than temporary.
Included in net gain on investments for the comparable period in 2000 are pre-tax gains related to the sale of 23.9 million shares of Sprint PCS common stock - Series 2, the sale of Cox's entire equity interest in Flextech plc and the transaction whereby Cox received a right to put its Excite@Home shares to AT&T.
Minority interest of $45.1 million primarily represents distributions on the FELINE PRIDES and RHINOS. On January 1, 2001, Cox adopted SFAS No. 133, as amended, resulting in an after-tax cumulative effect of change in accounting principle which increased earnings by $717.1 million and reduced accumulated other comprehensive income by $194.0 million. Net income for the nine months ended September 30, 2001 was $860.2 million, as compared to net income of $1,225.0 million for the comparable period in 2000.
INVESTING AND FINANCING ACTIVITIES
Significant investing and financing transactions for the nine months ended September 30, 2001 consisted of the following:
- a series of prepaid forward contracts with maturity dates between 2004 and 2006 to sell up to 19.5 million shares of Cox's Sprint PCS common stock for net proceeds of approximately $389.4 million;
- the issuances of convertible senior notes, which are convertible into shares of Cox's Class A common stock or, at Cox's option, cash and mature in February 2021, and 6.75% senior notes, which mature in March 2011, for aggregate net proceeds of approximately $1.0 billion;
- the sale of 4.2 million shares of Sprint PCS common stock - Series 2 for proceeds of approximately $106.8 million;
- the sale of 25.0 million shares of AT&T common stock for proceeds of approximately $525.5 million;
- the sale of Cox's interests in Outdoor Life, Speedvision and Cable Network Services to Fox Sports for aggregate net proceeds of approximately $439.7 million; and
- the sale of 5.0 million shares of AT&T Wireless stock for proceeds of approximately $83.1 million.
In March 2001, Cox exercised its right to put its interests in Outdoor Life Network and Speedvision Network to Fox/Liberty. In July 2001, Cox completed the sale of its equity interests in Outdoor Life, Speedvision and Cable Network Services to Fox Sports for an aggregate cash purchase price of $439.7 million and recognized a pre-tax gain of $436.1 million.
All Sprint PCS share information reflects a two-for-one stock dividend paid by Sprint in February 2000. AT&T Wireless share information reflects the redemption and exchange of AT&T Wireless Group tracking stock for AT&T Wireless common stock as part of the AT&T Wireless split off from AT&T Corp. in July 2001.
Cox Communications, a Fortune 500 company, serves approximately 6.2 million customers nationwide, making it the nation's fifth largest cable company. As a full-service provider of telecommunications products, Cox offers an array of services: Cox Cable; local and long distance telephone services under the Cox Digital Telephone brand; high-speed Internet access under the brands Cox@Home, Road Runner and Cox Express; advanced digital video programming services under the Cox Digital Cable brand; and commercial voice and data services via Cox Business Services. Cox is an investor in telecommunications companies including Sprint PCS and Excite@Home, as well as programming networks including Discovery Channel and The Learning Channel. More information about Cox Communications can be accessed on the Internet at www.cox.com.
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 for the year ended December 31, 2000. Cox assumes no responsibility to update any forward-looking statements as a result of new information, future events or otherwise.
As a reminder, the Cox Communications earnings call will be held Thursday, October 25 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 conference call will remain on the company's website for two weeks following the conclusion of the call.
Cox Communications, Inc.
Consolidated Historical and Pro Forma Statements of Operations
(Unaudited)
(Thousands of Dollars, excluding per share data)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
Pro Forma (a)
2001 2000 Change 2001 2000 Change
---- ---- ------ ---- ---- ------
Revenues
Residential
Video $762,573 $709,774 7% $2,258,227 $2,102,041 7%
Data 75,169 36,298 107% 194,043 94,111 106%
Telephony 55,949 27,718 102% 143,935 72,010 100%
Other 11,496 13,974 (18%) 36,179 41,570 (13%)
-------- -------- ---- -------- -------- ----
Total
residential
revenues 905,187 787,764 15% 2,632,384 2,309,732 14%
Commercial 38,155 27,623 38% 104,027 68,607 52%
Advertising 88,628 86,825 2% 245,301 249,104 (2%)
-------- -------- ---- -------- -------- ----
Total
revenues 1,031,970 902,212 14% 2,981,712 2,627,443 13%
Costs and expenses
Programming
costs 242,296 216,810 12% 721,713 648,658 11%
Selling,
general and
administrative 393,415 331,302 19% 1,123,494 962,124 17%
-------- -------- ---- --------- --------- ----
Total costs
and expenses 635,711 548,112 16% 1,845,207 1,610,782 15%
-------- -------- ---- -------- -------- ----
Operating cash
flow 396,259 354,100 12% 1,136,505 1,016,661 12%
Depreciation 281,724 227,358 24% 811,365 629,146 29%
Amortization 86,905 91,977 (6%) 265,251 276,438 (4%)
-------- -------- ---- -------- -------- ----
Operating income 27,630 34,765 (21%) 59,889 111,077 (46%)
Interest expense (136,347) (136,167) - (433,358) (404,678) 7%
Income related to
indexed debt - 249,886 (100%) - - -
Loss on derivative
instruments, net (90,312) - - (347,890) - -
Equity in net
losses of affiliated
companies (528) (650) (19%) (12,245) (6,538) 87%
Gain on investments,
net 470,084 1,246,434 (62%) 1,079,813 2,414,093 (55%)
Dividend income 415 415 - 1,245 1,245 -
Other, net (2,109) (4,701) (55%) (4,867) (5,152) 6%
-------- -------- ---- -------- -------- ----
Income before
income taxes,
minority interest
and cumulative
effect of change in
accounting
principle 268,833 1,389,982 (81%) 342,587 2,110,047 (84%)
Income tax expense 111,849 534,796 (79%) 154,325 832,348 (81%)
-------- -------- ---- -------- -------- ----
Income before
minority interest
and cumulative
effect of change in
accounting
principle 156,984 855,186 (82%) 188,262 1,277,699 (85%)
Minority interest,
net of tax (14,021) (17,040) (18%) (45,114) (52,713) (14%)
-------- -------- ---- -------- -------- ----
Income before
cumulative effect
of change in
accounting
principle 142,963 838,146 (83%) 143,148 1,224,986 (88%)
Cumulative effect
of change in
accounting
principle, net of tax - - - 717,090 - -
-------- -------- ---- -------- -------- ----
Net income $142,963 $838,146 (83%) $860,238 $1,224,986 (30%)
======== ======== ==== ======== ======== ====
Historical and pro
forma basic net
income per share $0.24 $1.39 $1.43 $2.03
Historical and pro
forma diluted net
income per share 0.23 1.37 1.41 1.99
(a) The pro forma operating results for the nine months ended
September 30, 2000 give effect to both the Multimedia and AT&T
transactions as though they had occurred on January 1, 2000. The
pro forma operating results exclude the March 2000 pre-tax gain of
$775.9 million recognized in connection with the AT&T transaction.
NOTE: Certain amounts in the 2000 financial statements have been
reclassified for comparison purposes.
Cox Communications, Inc.
Consolidated Balance Sheets
(Unaudited)
(Thousands of Dollars)
September 30 December 31
2001 2000
------------ -----------
Assets
Cash $92,592 $78,442
Accounts and notes receivable,
less allowance for doubtful
accounts of $31,611 and $25,636 387,711 358,348
Net plant and equipment 6,823,919 5,916,425
Investments 3,998,321 3,896,412
Intangible assets 13,614,445 13,951,246
Amounts due from Cox Enterprises, Inc. - 5,808
Other assets 345,268 514,143
----------- -----------
Total assets $25,262,256 $24,720,824
=========== ===========
Liabilities and shareholders' equity
Accounts payable and accrued expenses $641,128 $714,191
Deferred income taxes 4,550,330 4,592,655
Other liabilities 921,933 372,085
Debt 7,846,591 8,543,762
Amounts due to Cox Enterprises, Inc. 32,871 -
----------- -----------
Total liabilities 13,992,853 14,222,693
----------- -----------
Minority interest in equity of
consolidated subsidiaries 131,901 126,447
Cox-obligated capital and preferred
securities of subsidiary trusts 1,155,927 1,155,411
Shareholders' equity
Series A preferred stock -
liquidation preference of $22.1375 per
share, $1 par value; 10,000,000 shares
authorized; shares issued and
outstanding: 4,836,372 4,836 4,836
Class A common stock, $1 par value;
671,000,000 shares authorized;
shares issued: 578,350,765 and
577,725,528; shares outstanding:
572,852,365 and 572,227,128 578,351 577,726
Class C common stock, $1 par value;
62,000,000 shares authorized; shares
issued and outstanding: 27,597,792 27,598 27,598
Additional paid-in capital 3,888,775 3,872,726
Retained earnings 5,017,698 4,157,460
Accumulated other comprehensive income 676,206 787,816
Class A common stock in treasury,
at cost: 5,498,400 shares (211,889) (211,889)
----------- -----------
Total shareholders' equity 9,981,575 9,216,273
----------- -----------
Total liabilities and shareholders'
equity $25,262,256 $24,720,824
=========== ===========
Cox Communications, Inc.
Summary of Operating Statistics
Core Video
---------- September 30 June 30 September 30
2000 2001 2001
------------ ------------ ------------
Revenue Generating Units
Basic Customers 6,163,173 6,166,614 6,206,737
New Services 1,287,568 2,083,884 2,406,327
------------ ------------ ------------
Total Revenue Generating Units 7,450,741 8,250,498 8,613,064
Homes Passed 9,734,068 9,866,948 9,936,499
Basic Penetration 63.3% 62.5% 62.5%
----------------------------------------------------------------------
Cox Digital Cable
----------------- September 30 June 30 September 30
2000 2001 2001
------------ ------------ ------------
Digital Cable Ready Homes
Passed 6,367,715 8,590,488 8,996,975
Customers 683,076 1,071,322 1,228,015
Penetration 10.7% 12.5% 13.6%
Average Weekly Run Rate 9,470 8,524 12,053
----------------------------------------------------------------------
High-Speed Internet Access
-------------------------- September 30 June 30 September 30
2000 2001 2001
------------ ------------ ------------
High-Speed Internet Access
Ready
Homes Passed 5,944,937 8,384,737 8,738,507
Customers 398,816 668,038 779,499
Penetration 6.7% 8.0% 8.9%
Average Weekly Run Rate 6,036 6,221 8,574
----------------------------------------------------------------------
Cox Digital Telephone
--------------------- September 30 June 30 September 30
2000 2001 2001
------------ ------------ ------------
Telephony Ready Homes Passed 2,101,422 2,816,649 3,142,393
Customers 205,676 344,524 398,813
Penetration 9.8% 12.2% 12.7%
Average Weekly Run Rate 3,007 4,023 4,176
Lines 288,711 456,084 518,922
Lines Per Customer 1.40 1.32 1.30
----------------------------------------------------------------------
Cox Business Services
--------------------- September 30 June 30 September 30
2000 2001 2001
------------ ------------ ------------
Voice Grade Equivalent Circuits 956,027 1,375,701 1,509,488
----------------------------------------------------------------------
Other Operating Statistics
-------------------------- September 30 June 30 September 30
2000 2001 2001
------------ ------------ ------------
Operating Cash Flow Margins
(for the quarter ended) 39.2% 38.1% 38.4%
Capital Expenditures
(for the quarter ended) $ 591,647 $ 536,744 $ 540,473
CONTACT:
Cox Communications, Atlanta
Analysts and Investors
Frank Loomans, 404/843-5377
o
Medios
Laura Oberhelman, 404/269-7562
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