Cox Communications Announces Fourth Quarter Financial Results for 2002; Strong Demand for Cox's Digital Services Builds Solid Foundation for Continued Growth in 2003.Business Editors ATLANTA--(BUSINESS WIRE)--Feb. 12, 2003 Cox Communications Cox Communications is a privately owned subsidiary of Cox Enterprises providing digital cable television and telecommunications services in the United States. It is the third-largest[2] cable television provider in the United States, serving more than 6. , Inc. (NYSE NYSE See: New York Stock Exchange : COX) today reported financial results for the three months ended December December: see month. 31, 2002. "Cox Communications achieved strong growth in the fourth quarter of 2002, contributing to another year of solid financial and operating performance," said Jim Robbins Rob·bins , Frederick Chapman 1916-2003. American microbiologist. He shared a 1954 Nobel Prize for work on the cultivation of the polio virus. , CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. and President of Cox Communications. "We grew our total customer base more than 2% in 2002, with solid growth in basic subscribers and record growth in high-speed Internet See broadband. and telephone subscriptions. With total RGUs now equal to total homes passed, we continue to prove that the digital bundle To sell hardware and software as a combined product or to combine several software packages for sale as a single unit. Contrast with unbundle. See bundled software and bundling. is the industry's growth engine. Our 2002 growth in bundled bun·dle n. 1. A group of objects held together, as by tying or wrapping. 2. Something wrapped or tied up for carrying; a package. 3. Biology A cluster or strand of closely bound muscle or nerve fibers. customers to 1.7 million, an increase of 53% over the previous year, validates our strategy of a bundled approach to selling and serving our customers." "With this momentum, Cox Communications is well poised to achieve continued strong growth in both operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. and revenue and realize our goal of being free cash flow positive in 2003." FOURTH QUARTER HIGHLIGHTS During the fourth quarter of 2002, Cox: -- Ended the quarter with 6.3 million basic customers, up 1% for the full year 2002. -- Ended the quarter with 10.2 million total RGUs, up 14% for the full year 2002, driven by a 44% growth in new-service RGUs. -- Added approximately 135,650 high-speed Internet customers, ending 2002 with 1.4 million customers, representing year-over-year growth of 59%. -- Added approximately 67,190 Cox Digital Telephone subscribers, ending 2002 with 718,420 customers, representing year-over-year growth of 58%. -- Achieved Cox Digital Cable net additions of approximately 84,410 customers, ending the year with 1.8 million digital cable customers. Cox Digital Cable is now available in 97% of the homes in Cox's service areas with penetration of our basic customer base exceeding 28%. -- Generated $85.6 million in free cash flow. -- Reduced capital expenditures to $500.8 million for the quarter, down 17% from the fourth quarter of 2001. 2003 OUTLOOK For 2003, Cox expects revenue to increase by 14% to 15%, operating cash flow (a non-GAAP measure calculated as operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. before depreciation, amortization and loss on sale of cable systems) to increase by 14% to 15% (excluding the impact of the $9.8 million one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. charge taken in the first quarter of 2002 related to the continuation continuation - continuation passing style of Excite@Home) and capital expenditures to be approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $1.6 billion. Basic video customers are expected to increase approximately 1.0% over 2002 and new-service RGU RGU The Robert Gordon University (Aberdeen, Scotland) RGU Responsible Governmental Unit RGU Revenue-Generating Unit net additions are expected to be between 1.0 to 1.1 million. In addition, Cox expects to be free cash flow positive for the full year 2003. PRO FORMA As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma OPERATING RESULTS Cox provides pro forma information as an alternative for understanding its operating results. The pro forma operating results are not necessarily indicative indicative: see mood. of operating results that would have occurred if the circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or 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 three and twelve months ended December 31, 2001 exclude a one-time non-recurring net charge of $148.0 million related to the continuation of Excite@Home high-speed Internet services. The results also reflect reclassifications of costs associated with Excite@Home high-speed Internet service (which had previously been netted against revenue) to cost of services and selling, general and administrative expenses, which have been estimated in order to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the manner in which the costs associated with Cox High Speed Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the service have been presented for the three and twelve months ended December 31, 2002. Please refer to the attached Reconciliation of Pro Forma Operating Results schedule for additional details. The pro forma operating results for the twelve months ended December 31, 2002 exclude a one-time non-recurring charge of $9.8 million related to the continuation of Excite@Home high-speed Internet services. Pro forma three months ended December 31, 2002 compared with pro forma three months ended December 31, 2001 Total pro forma revenues for the fourth quarter of 2002 increased 16% over the fourth quarter of 2001, primarily due to increased customers in new services (including digital cable, high-speed Internet access and telephony Meaning "sound over distance," it refers to electronically transmitting the human voice. In the beginning, telephony dealt only with analog signals in the circuit-switched networks of the telephone companies. customers), higher basic cable rates and a $5 price increase in high-speed Internet access adopted in certain markets in the fourth quarter of 2002. Also contributing to the increase were an increase in commercial broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). customers and a continuing rebound rebound (rē´bownd), n/v 1. a recovery from illness. n 2. an outbreak of fresh reflex activity after withdrawal of a stimulus rebound adjective in local and national advertising sales. Pro forma cost of services, which includes programming costs, other direct costs and field service costs, was $558.7 million for the fourth quarter of 2002, an increase of 16% over the same period in 2001. This was primarily due to an 11% increase in programming costs reflecting rate increases, channel additions and customer growth. The remaining increase reflects 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. Pro forma selling, general and administrative expenses was $290.4 million for the fourth quarter of 2002, an increase of 18% over the comparable period in 2001. This was due to increased salaries and benefits resulting from an increase in headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. and compensation, and increased property taxes resulting from capital expenditures. Pro forma operating cash flow (operating income before depreciation, amortization and loss on sale of cable systems) increased 14% to $491.9 million for the fourth quarter of 2002. The pro forma operating cash flow margin (pro forma operating cash flow as a percentage of revenues) for the fourth quarter of 2002 was 36.7%. Pro forma twelve months ended December 31, 2002 compared with pro forma twelve months ended December 31, 2001 Total pro forma revenues for the twelve months ended December 31, 2002 increased 16% over the same period in 2001, primarily due to increased customers in new services, including digital cable, high-speed Internet access and telephony customers, and higher basic cable rates. Also contributing to the increase was an increase in commercial broadband customers and a continuing rebound in local and national advertising sales. Pro forma cost of services was $2.1 billion for the twelve months ended December 31, 2002, an increase of 18% over the same period in 2001. This was primarily due to a 12% increase in programming costs reflecting rate increases, channel additions and customer growth. Other costs of services increased 24%, reflecting 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. Pro forma selling, general and administrative expenses for the twelve months ended December 31, 2002 increased 16% to $1.1 billion due to: -- a 19% increase in marketing expense related to the promotion of new services and bundling bundling, courtship custom, thought to have originated in Holland and the British Isles. It was extended to America, particularly to New England, and most widely practiced in the years prior to the Revolution of 1776. alternatives; and -- a 15% increase in general and administrative expenses relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc increased salaries and benefits resulting from an increase in headcount and compensation, and increased property taxes resulting from capital expenditures. Pro forma operating cash flow increased 14% to $1.8 billion for the twelve months ended December 31, 2002. The pro forma operating cash flow margin for the twelve months ended December 31, 2002 was 35.5%. HISTORICAL OPERATING RESULTS Historical three months ended December 31, 2002 compared with historical three months ended December 31, 2001 Total revenues for the fourth quarter of 2002 were $1.3 billion, an 18% increase over revenues of $1.1 billion for the fourth quarter of 2001. Operating cash flow increased 73% to $491.9 million for the fourth quarter of 2002, reflecting the one-time non-recurring net charge of $148.0 million in the fourth quarter of 2001 related to the continuation of Excite@Home high-speed Internet services and transition to Cox High Speed Internet service. Depreciation and amortization decreased to $351.3 million from $462.6 million in the fourth quarter of 2001 due to a reduction in amortization of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. determined to have an indefinite INDEFINITE. That which is undefined; uncertain. INDEFINITE, NUMBER. A number which may be increased or diminished at pleasure. 2. When a corporation is composed of an indefinite number of persons, any number of them consisting of a majority of those life, offset by an increase in depreciation from Cox's continuing investments in its broadband network in order to deliver additional programming and services. Interest expense increased to $152.8 million, primarily due to the issuance of $1.0 billion aggregate principal amount of 7.125% senior notes in September September: see month. 2002. The proceeds from this offering were primarily used to redeem redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. senior notes held by Cox RHINOS Trust, repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. Floating Rate MOPPRS/CHEERS and repay Cox's 6.5% senior notes upon their maturity. For the fourth quarter of 2002, Cox recorded a $255.2 million pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta gain on derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. due to the following: -- $290.1 million pre-tax gain resulting from the change in the fair value of certain derivative instruments embedded Inserted into. See embedded system. in Cox's exchangeable subordinated debentures subordinated debenture An unsecured bond with a claim to assets that is subordinate to all existing and future debt. Thus, in the event that the issuer encounters financial difficulties and must be liquidated, all other claims must be satisfied before and indexed to shares of Sprint PCS (1) (Personal Communications Services) Refers to wireless services that emerged after the U.S. government auctioned commercial licenses in 1994 and 1995. This radio spectrum in the 1. common stock that Cox owns; -- $37.9 million pre-tax loss resulting from the change in the fair value of certain derivative instruments embedded in Cox's zero-coupon ze·ro-cou·pon adj. Paying no interest to the holder until maturity or sale: a zero-coupon bond. debt and indexed to shares of Sprint PCS common stock that Cox owns; and -- $3.0 million pre-tax gain resulting from the change in the fair value of Cox's net settleable warrants. Net gain on investments of $33.9 million for the fourth quarter of 2002 was primarily due to a $47.2 million pre-tax gain as a result of the change in market value of Cox's investment in Sprint PCS common stock classified as trading. Included in net gain on investments for the comparable period in 2001 was a pre-tax gain from the sale of 8.6 million shares of Sprint PCS common stock, offset by a pre-tax loss related to the change in market value of Cox's investment in Sprint PCS common stock classified as trading and a decline in the fair value of certain investments considered to be other than temporary. Net income for the current quarter was $179.6 million compared to net loss of $105.2 million for the fourth quarter of 2001. Historical twelve months ended December 31, 2002 compared with historical twelve months ended December 31, 2001 Total revenues for the twelve months ended December 31, 2002 were $5.0 billion, an 18% increase over revenues of $4.3 billion for the twelve months ended December 31, 2001. Operating cash flow increased 25% to $1.8 billion for the twelve months ended December 31, 2002, reflecting the one-time non-recurring net charge of $148.0 million in the fourth quarter of 2001 related to the continuation of Excite@Home high-speed Internet services and transition to Cox High Speed Internet service. Depreciation and amortization decreased to $1.4 billion from $1.5 billion in the twelve months ended December 31, 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. Interest expense decreased to $550.6 million, primarily due to interest savings as a result of Cox's interest rate swap Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. agreements and repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan of all commercial paper borrowings. For the twelve months ended December 31, 2002, Cox recorded a $1.1 billion pre-tax gain on derivative instruments due to the following: -- $583.1 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; -- $359.3 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 -- $183.2 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 $1.3 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; -- $390.6 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 -- $807.9 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 from the sale of 12.8 million shares of Sprint PCS common stock, 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 deemed satisfaction of Cox's Excite@Home right. Minority interest of $37.3 million primarily represents distributions on Cox's obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. capital and preferred securities of subsidiary trusts, referred to as FELINE feline of, or pertaining to, members of the family Felidae. See also cat. feline agranulocytosis see feline panleukopenia (below). feline actinic dermatitis see solar dermatitis. PRIDES and RHINOS. In the third quarter of 2002, Cox settled the FELINE PRIDES with the issuance of common stock and redeemed re·deem tr.v. re·deemed, re·deem·ing, re·deems 1. To recover ownership of by paying a specified sum. 2. To pay off (a promissory note, for example). 3. the RHINOS with cash. Net loss for the twelve months ended December 31, 2002 was $274.0 million compared to net income of $755.0 million for the comparable period in 2001. NEW ACCOUNTING STANDARDS On January January: see month. 1, 2002, Cox adopted Statement of Financial Accounting Standards (SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System ) No. 142, Goodwill and Other Intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. , which requires that goodwill and certain intangible assets, including those recorded in past business combinations, no longer be amortized through the statement of operations See Income statement. , but instead be tested for impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. at least annually. Also on January 1, 2002, Cox adopted the guidance prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). in Emerging Issues Task Force Issue No. 01-14, Income Statement Characterization A rather long and fancy word for analyzing a system or process and measuring its "characteristics." For example, a Web characterization would yield the number of current sites on the Web, types of sites, annual growth, etc. of Reimbursements Received for "Out-of-Pocket out-of-pock·et adj. 1. Calling for the spending of cash: out-of-pocket expenses. 2. Lacking funds: hungry, cold, and out-of-pocket travelers. Adj. " Expenses Incurred, which specifies that 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 Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a application of this standard was required. Accordingly, collection and payment of fees by Cox, primarily franchise fees, have been reclassified on a gross basis for all periods presented herein to conform to this new guidance. LIQUIDITY AND CAPITAL RESOURCES Cox has included Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Statements of Cash Flows for the twelve months ended December 31, 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 Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . For further details, please refer to the Summary of Operating Statistics. Significant sources of cash for the twelve months ended December 31, 2002 consisted of the following: -- the sale of 25.2 million shares of Sprint PCS common stock for net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). 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 The point where a line, channel or circuit ends. See SCSI termination and hybrid. of all costless equity collar Equity collar The simultaneous purchase of an equity floor and sale of an equity cap. 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 $1.8 billion. Significant uses of cash for the twelve months ended December 31, 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 accreted value The current value of an original-issue discount bond, taking into account imputed interest that has accumulated. of the repurchased notes; -- the repayment of approximately $727.4 million of commercial paper borrowings; -- the redemption The liberation of an estate in real property from a mortgage. Redemption is the process by which land that has been mortgaged or pledged is bought back or reclaimed. It is accomplished through a payment of the debt owed or a fulfillment of the other conditions. of senior notes held by Cox RHINOS Trust for approximately $502.6 million; -- the repurchase of $200.0 million aggregate principal amount of Cox's Floating Rate MOPPRS/CHEERS for cash consideration of $227.2 million; -- the repayment of $200.0 million aggregate principal amount of Cox's 6.5% senior notes upon their maturity; and -- capital expenditures of approximately $1.9 billion. Please refer to the Summary of Operating Statistics for a break out of capital expenditures in accordance with new industry guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. . At December 31, 2002, Cox had approximately $7.3 billion of outstanding indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. (including cumulative derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. adjustments made in accordance with SFAS No. 133 which reduced reported indebtedness by approximately $1.4 billion). About Cox Communications Cox Communications (NYSE: COX), a Fortune 500 company, is a multi-service broadband communications company Communications Company is a communications unit of the United States Marine Corps. They are part of Combat Logistics Regiment 37 , 3rd Marine Logistics Group (3MLG) and III Marine Expeditionary Force (III MEF). The unit is based out of the Marine Corps Base Camp Smedley D. serving approximately 6.3 million basic customers nationwide. Cox is the nation's fourth-largest cable television provider, and offers both traditional analog video The original video recording method that stores continuous waves of red, green and blue intensities. In analog video, the number of rows is fixed. There are no real columns, and the maximum detail is determined by the frequency response of the analog system. 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. Conference Call and Webcast Details The Cox Communications earnings call will be held Wednesday Wednesday: see week. , February February: see month. 12, 2003, 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 fourth quarter conference call, as well as a document containing highlights, will be available on the company's website following the conclusion of the call. Caution Concerning Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Statements in this release, including statements relating to growth opportunities, revenue and cash flow projections A Cash Flow Projection is an attempt to forecast the cash flows that will be generated by an asset, often a company, over a specified time frame. Methodology Projections can be made with varying levels of detail, but any cash flow projection for a business entails and introduction of new products and services, are "forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. " 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 Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. in these forward-looking statements, due to various risks, uncertainties or other factors. These factors include competition within the broadband communications industry communications industry, broadly defined, the business of conveying information. Although communication by means of symbols and gestures dates to the beginning of human history, the term generally refers to mass communications. , our ability to achieve anticipated subscriber subscriber, n the person, usually the employee, who represents the family unit in relation to the prepayment plan. Other family members are dependents. Also called certificate holders or enrollees. 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 The execution of the joint finance mission to provide financial advice and guidance, support of the procurement process, providing pay support, and providing disbursing support.See also financial management. , 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. , 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.
Cox Communications, Inc.
Pro Forma Operating Results
(Unaudited)
(Thousands of Dollars)
Three Months Ended
December 31
----------------------------
2002 2001 (a) Change
---------- ---------- ------
Revenues
Residential
Video $ 883,202 $ 816,479 8%
Data 170,254 118,030 44%
Telephony 100,108 65,594 53%
Other 23,487 25,731 (9%)
---------- ---------- ------
Total residential revenues 1,177,051 1,025,834 15%
Commercial 60,390 41,789 45%
Advertising 103,437 92,278 12%
---------- ---------- ------
Total revenues 1,340,878 1,159,901 16%
Costs and expenses
Cost of services 558,666 480,339 16%
Selling, general and administrative
expenses 290,356 247,098 18%
---------- ---------- ------
Total costs and expenses 849,022 727,437 17%
---------- ---------- ------
Operating cash flow $ 491,856 $ 432,464 14%
========== ========== ======
Twelve Months Ended
December 31
------------------------------
2002 2001 (a) Change
---------- ---------- ------
Revenues
Residential
Video $3,439,755 $3,184,786 8%
Data 575,231 371,809 55%
Telephony 344,171 211,404 63%
Other 82,547 87,230 (5%)
---------- ---------- ------
Total residential revenues 4,441,704 3,855,229 15%
Commercial 218,830 149,818 46%
Advertising 378,064 337,579 12%
---------- ---------- ------
Total revenues 5,038,598 4,342,626 16%
Costs and expenses
Cost of services 2,121,146(b) 1,802,727 18%
Selling, general and administrative
expenses 1,128,452 970,930 16%
---------- ---------- ------
Total costs and expenses 3,249,598 2,773,657 17%
---------- ---------- ------
Operating cash flow $1,789,000 $1,568,969 14%
========== ========== ======
(a) Please refer to the Reconciliation of Pro Forma Operating
Results for details on the nature of the pro forma adjustments.
(b) Pro forma cost of services for the twelve months ended
December 31, 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 attributable to January and February 2002.
NOTE: Certain other amounts in the 2001 financial statements have
been reclassified for comparison purposes.
Cox Communications, Inc.
Reconciliation of Pro Forma Operating Results
(Unaudited)
(Thousands of Dollars)
Three Months Ended
December 31, 2001
---------------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
Revenues
Residential
Video $ 816,479 $ - $ 816,479
Data (a)(b) 83,878 34,152 118,030
Telephony 65,594 - 65,594
Other (c) 35,735 (10,004) 25,731
---------- ----------- ----------
Total residential revenues 1,001,686 24,148 1,025,834
Commercial (b) 40,252 1,537 41,789
Advertising 92,278 - 92,278
---------- ----------- ----------
Total revenues 1,134,216 25,685 1,159,901
Costs and expenses
Cost of services (b)(d) 607,260 (126,921) 480,339
Selling, general and
administrative expenses 242,503 4,595 247,098
---------- ----------- ----------
Total costs and expenses 849,763 (122,326) 727,437
---------- ----------- ----------
Operating cash flow $ 284,453 $ 148,011 $ 432,464
========== =========== ==========
Twelve Months Ended
December 31, 2001
---------------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
Revenues
Residential
Video $3,184,786 $ - $3,184,786
Data (a)(b) 277,921 93,888 371,809
Telephony 211,404 - 211,404
Other (c) 97,234 (10,004) 87,230
---------- ----------- ----------
Total residential revenues 3,771,345 83,884 3,855,229
Commercial (b) 144,279 5,539 149,818
Advertising 337,579 - 337,579
---------- ----------- ----------
Total revenues 4,253,203 89,423 4,342,626
Costs and expenses
Cost of services (b)(d) 1,882,835 (80,108) 1,802,727
Selling, general and
administrative expenses 949,410 21,520 970,930
---------- ----------- ----------
Total costs and expenses 2,832,245 (58,588) 2,773,657
---------- ----------- ----------
Operating cash flow $1,420,958 $ 148,011 $1,568,969
========== =========== ==========
(a) Pro forma data revenues exclude a one-time payment in excess
of Excite@Home's original contractual fees of approximately $7.8
million to Excite@Home for the continuation of high-speed Internet
services for October and November.
(b) Pro forma operating results for the three and twelve months
ended December 31, 2001 reflect reclassifications of Cox's Excite@Home
high-speed Internet costs of $26.4 million and $86.1 million,
respectively, from data revenue and $1.5 million and $5.5 million,
respectively, from commercial revenue to cost of services and selling,
general and administrative expenses, which have been estimated to
conform to the presentation for the three and twelve months ended
December 31, 2002.
(c) Pro forma other revenues exclude a one-time gain of
approximately $10.0 million related to the reversal of certain
deferred amounts resulting from Cox's transition to Cox High Speed
Internet service.
(d) Pro forma cost of services exclude a one-time non-recurring
net charge of $150.2 million, related to Cox's December 2001 payment
of $160.0 million to Excite@Home for the continuation of high-speed
Internet services through February 2002, net of $9.8 million
attributable to services provided in January and February 2002.
Cox Communications, Inc.
Consolidated Historical Statements of Operations
(Unaudited)
(Thousands of Dollars, excluding per share data)
Three Months Ended
December 31
----------------------------
2002 2001 Change
---------- ---------- ------
Revenues
Residential
Video $ 883,202 $ 816,479 8%
Data 170,254 83,878 103%
Telephony 100,108 65,594 53%
Other 23,487 35,735 (34%)
---------- ---------- ------
Total residential revenues 1,177,051 1,001,686 18%
Commercial 60,390 40,252 50%
Advertising 103,437 92,278 12%
---------- ---------- ------
Total revenues 1,340,878 1,134,216 18%
Costs and expenses
Cost of services 558,666 607,260 (8%)
Selling, general and administrative
expenses 290,356 242,503 20%
---------- ---------- ------
Total costs and expenses 849,022 849,763 (0%)
---------- ---------- ------
Operating cash flow 491,856 284,453 73%
Depreciation and amortization 351,332 462,595 (24%)
Loss on sale of cable systems - - -
---------- ---------- ------
Operating income (loss) 140,524 (178,142) -
Interest expense (152,825) (132,576) 15%
Gain (loss) on derivative instruments,
net 255,227 135,927 88%
Gain (loss) on investments, net 33,927 43,561 (22%)
Other, net (5,986) (8,260) (28%)
---------- ---------- ------
Income (loss) before income taxes,
minority interest and cumulative
effect of change in accounting
principle 270,867 (139,490) -
Income tax expense (benefit) 90,096 (60,286) -
---------- ---------- ------
Income (loss) before minority interest
and cumulative effect of
change in accounting principle 180,771 (79,204) -
Minority interest, net of tax (1,128) (26,033) (96%)
---------- ---------- ------
Income (loss) before cumulative effect of
change in accounting principle 179,643 (105,237) -
Cumulative effect of change in accounting
principle, net of tax - - -
---------- ---------- ------
Net income (loss) $ 179,643 $ (105,237) -
========== ========== ======
Basic net income (loss) per share $ 0.29 $ (0.18)
Diluted net income (loss) per share 0.28 (0.18)
Twelve Months Ended
December 31
-----------------------------
2002 2001 Change
----------- ---------- ------
Revenues
Residential
Video $ 3,439,755 $3,184,786 8%
Data 575,231 277,921 107%
Telephony 344,171 211,404 63%
Other 82,547 97,234 (15%)
----------- ---------- ------
Total residential revenues 4,441,704 3,771,345 18%
Commercial 218,830 144,279 52%
Advertising 378,064 337,579 12%
----------- ---------- ------
Total revenues 5,038,598 4,253,203 18%
Costs and expenses
Cost of services 2,130,907 1,882,835 13%
Selling, general and administrative
expenses 1,128,452 949,410 19%
----------- ---------- ------
Total costs and expenses 3,259,359 2,832,245 15%
----------- ---------- ------
Operating cash flow 1,779,239 1,420,958 25%
Depreciation and amortization 1,357,906 1,539,211 (12%)
Loss on sale of cable systems 3,916 - 100%
----------- ---------- ------
Operating income (loss) 417,417 (118,253) -
Interest expense (550,645) (565,934) (3%)
Gain (loss) on derivative instruments,
net 1,125,588 (211,963) -
Gain (loss) on investments, net (1,349,333) 1,111,129 -
Other, net (5,080) (11,882) (57%)
----------- ---------- ------
Income (loss) before income taxes,
minority interest and cumulative
effect of change in accounting
principle (362,053) 203,097 -
Income tax expense (benefit) (125,286) 94,039 -
----------- ---------- ------
Income (loss) before minority interest
and cumulative effect of change in
accounting principle (236,767) 109,058 -
Minority interest, net of tax (37,272) (71,147) (48%)
----------- ---------- ------
Income (loss) before cumulative effect
of change in accounting principle (274,039) 37,911 -
Cumulative effect of change in
accounting
principle, net of tax - 717,090 (100%)
----------- ---------- ------
Net income (loss) $ (274,039)$ 755,001 (136%)
=========== ========== ======
Basic net income (loss) per share $ (0.45)$ 1.26
Diluted net income (loss) per share (0.45) 1.24
NOTE: Certain amounts in the 2001 financial statements have been
reclassified for comparison purposes.
Cox Communications, Inc.
Consolidated Balance Sheets
(Unaudited)
(Thousands of Dollars)
December 31 December 31
2002 2001
----------- -----------
Assets
Current Assets
Cash $ 228,704 $ 86,860
Accounts and notes receivable, less allowance
for doubtful
accounts of $33,607 and $33,514 354,928 421,111
Amounts due from Cox Enterprises, Inc. (CEI) 21,109 13,245
Other current assets 287,041 211,460
----------- -----------
Total current assets 891,782 732,676
----------- -----------
Net plant and equipment 7,793,178 7,127,908
Investments 397,435 3,515,233
Intangible assets 13,513,288 13,510,894
Other noncurrent assets 218,166 174,725
----------- -----------
Total assets $22,813,849 $25,061,436
=========== ===========
Liabilities and shareholders' equity
Current Liabilities
Accounts payable and accrued expenses $ 727,877 $ 674,426
Other current liabilities 236,616 301,954
Current portion of long-term debt 88,833 971,045
----------- -----------
Total current liabilities 1,053,326 1,947,425
----------- -----------
Deferred income taxes 4,538,954 4,536,515
Other noncurrent liabilities 175,907 170,216
Debt, less current portion 7,227,164 7,446,630
----------- -----------
Total liabilities 12,995,351 14,100,786
----------- -----------
Minority interest in equity of consolidated
subsidiaries 133,403 129,121
Cox-obligated capital and preferred securities
of subsidiary trusts - 1,155,738
Shareholders' equity
Series A preferred stock - liquidation
preference of $22.1375 per share, $1 par
value; 10,000,000 shares of preferred stock
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: 598,076,894
and 578,493,107; shares
outstanding: 592,567,757 and 572,994,707 598,077 578,493
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 4,549,029 3,891,157
Retained earnings 4,638,427 4,912,461
Accumulated other comprehensive income 79,465 473,135
Class A common stock in treasury, at cost:
5,509,137 and
5,498,400 shares (212,337) (211,889)
----------- -----------
Total shareholders' equity 9,685,095 9,675,791
----------- -----------
Total liabilities and shareholders'
equity $22,813,849 $25,061,436
=========== ===========
NOTE: Certain amounts in the 2001 financial statements have been
reclassified for comparison purposes.
Cox Communications, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(Thousands of Dollars)
Twelve Months
Ended December 31
-----------------------
2002 2001
----------- -----------
Cash flows from operating activities
Net income (loss) $ (274,039)$ 755,001
Adjustments to reconcile net income (loss) to
net cash provided by
operating activities:
Depreciation and amortization 1,357,906 1,539,211
Loss on sale of cable systems 3,916 -
(Gain) loss on derivative instruments, net (1,125,588) 211,963
Deferred income taxes 276,748 (306,814)
(Gain) loss on investments, net 1,349,333 (1,111,129)
Minority interest, net of tax 37,272 71,147
Cumulative effect of change in accounting
principle, net of tax - (717,090)
Decrease in accounts and notes receivable 52,918 848
(Increase) decrease in other assets 60,502 (40,324)
Increase (decrease) in accounts payable and
accrued expenses 99,805 (30,363)
Increase (decrease) in taxes payable (180,897) 328,541
Other, net 114,963 97,777
----------- -----------
Net cash provided by operating
activities 1,772,839 798,768
----------- -----------
Cash flows from investing activities
Capital expenditures (1,932,416) (2,205,451)
Investments in and returns from affiliated
companies, net (18,800) (53,991)
Proceeds from the sale of investments 1,345,952 1,316,192
Increase in amounts due from CEI, net (7,864) (7,437)
Proceeds (payments) from the sale of cable
systems 12,574 (1,495)
Other, net (7,616) (1,160)
----------- -----------
Net cash used in investing activities (608,170) (953,342)
----------- -----------
Cash flows from financing activities
Commercial paper repayments, net (727,384) (801,385)
Proceeds from issuance of debt, net of debt
issuance costs 985,546 1,405,887
Repayment of debt (704,951) (386,728)
Redemption of preferred securities of
subsidiary trust (502,610) -
Proceeds from exercise of stock options 24,291 10,595
Distributions paid on capital and preferred
securities of
subsidiary trusts (47,764) (75,955)
Premium paid on repurchase of MOPPRS/CHEERS (25,951) -
Other, net (24,002) 10,578
----------- -----------
Net cash provided by (used in)
financing activities (1,022,825) 162,992
----------- -----------
Net increase in cash 141,844 8,418
Cash at beginning of period 86,860 78,442
----------- -----------
Cash at end of period $ 228,704 $ 86,860
=========== ===========
NOTE: Certain amounts in the 2001 financial statements have been
reclassified for comparison purposes.
Cox Communications, Inc.
Summary of Operating Statistics
----------------------------------------------------------------------
Customer Data
----------------------------------
December 31 September 30December 31
2001 (a) 2002 2002
------------------------------------
Customer Relationships
Basic Video Customers (b) 6,221,235 6,263,408 6,280,849
Non-Video Customers (c) 117,754 178,894 199,519
------------------------------------
Total Customer Relationships (d) 6,338,989 6,442,302 6,480,368
Revenue Generating Units
Basic Video Customers (b) 6,221,235 6,263,408 6,280,849
New Services 2,721,157 3,636,488 3,923,734
------------------------------------
Total Revenue Generating Units 8,942,392 9,899,896 10,204,583
Video Homes Passed 9,947,664 10,143,645 10,210,091
Basic Video Penetration 62.5% 61.7% 61.5%
----------------------------------------------------------------------
Cox Digital Cable
----------------------------------
December 31 September 30December 31
2001 (a) 2002 2002
------------------------------------
Digital Cable Ready Homes Passed 9,258,310 9,739,006 9,890,211
Customers 1,384,023 1,712,956 1,797,364
Penetration of Customers to Basic
Customers 22.2% 27.3% 28.6%
Average Weekly Run Rate 12,001 5,528 6,493
----------------------------------------------------------------------
High-Speed Internet Access
----------------------------------
December 31 September 30December 31
2001 2002 2002
------------------------------------
High-Speed Internet Access Ready
Homes Passed 9,057,020 9,618,210 9,759,194
Customers 883,562 1,272,299 1,407,950
Penetration of Customers to High-
Speed Internet Access
Ready Homes Passed 9.8% 13.2% 14.4%
Average Weekly Run Rate 8,005 12,100 10,435
----------------------------------------------------------------------
Cox Digital Telephone
----------------------------------
December 31 September 30December 31
2001 2002 2002
------------------------------------
Telephony Ready Homes Passed 3,338,097 3,831,839 4,101,158
Customers 453,572 651,233 718,420
Penetration of Customers to
Telephony Ready Homes Passed 13.6% 17.0% 17.5%
Average Weekly Run Rate 4,212 5,616 5,168
----------------------------------------------------------------------
Bundled Customers
----------------------------------
December 31 September 30December 31
2001 2002 2002
------------------------------------
Customers subscribing to two or
more services 1,079,421 1,506,708 1,650,709
Penetration of Bundled Customers
to Basic Customers 17.4% 24.1% 26.3%
----------------------------------------------------------------------
(a) Basic Video and Cox Digital Cable operating statistics as of
December 31, 2001 have been adjusted for the sale of certain cable
systems in the second quarter of 2002.
(b) The number of customers who receive primary analog or digital
video service. Additional outlets are not counted.
(c) The number of customers who receive high-speed Internet access
or telephony service, but do not subscribe to video service.
(d) The number of customers who receive at least one level of
service, encompassing video, data and telephony services, without
regard to which service(s) customers purchase.
Cox Communications, Inc.
Summary of Operating Statistics - Continued
----------------------------------------------------------------------
Comparative Operating Statistics
----------------------------------
Three Months Ended Twelve Months Ended
------------------------------------------------
December 31 December 31 December 31 December 31
2001 2002 2001 2002
------------------------------------------------
Pro Forma Operating
Cash Flow Margin (e) 37.3% 36.7% 36.1% 35.5%
Capital Expenditures
(thousands of
dollars) $604,920 $500,772 $2,205,451 $1,932,416
Pro Forma Operating
Cash Flow per Basic
Customer (e)(f) 69.51 78.31 252.20 284.83
Capital Expenditures
per Basic Customer 97.23 79.73 354.50 307.67
----------------------------------------------------------------------
Capital Expenditures
----------------------
Three Months Ended Twelve Months Ended
------------------------------------------------
December 31 December 31 December 31 December 31
2001 2002 2001 2002
------------------------------------------------
Customer premise
equipment $220,350 $153,203 $802,652 $746,046
Commercial spending 49,538 35,686 135,801 112,457
Scalable
infrastructure 98,668 86,705 220,815 286,723
Line extensions 72,309 58,170 281,082 184,574
Upgrade/Rebuild 96,112 65,613 484,836 304,017
Support capital 67,943 101,395 280,265 298,599
------------------------------------------------
Total capital
expenditures $604,920 $500,772 $2,205,451 $1,932,416
================================================
----------------------------------------------------------------------
Free Cash Flow Calculation
----------------------------------
Three Months Ended Twelve Months Ended
------------------------------------------------
December 31 December 31 December 31 December 31
2001 2002 2001 2002
------------------------------------------------
Historical operating
cash flow (g) $284,453 $491,856 $1,420,958 $1,779,239
Less capital
expenditures (604,920) (500,772) (2,205,451) (1,932,416)
Plus cash increase
(decrease) in
working capital (h) 57,175 105,282 (65,893) 201,985
------------------------------------------------
Operating free cash
flow (g) (263,292) 96,366 (850,386) 48,808
Less cash paid for
interest (96,516) (85,426) (476,355) (409,396)
Plus cash refunded
(paid) for taxes (353,103) 74,705 (79,942) 201,011
------------------------------------------------
Free cash flow (g) $(712,911) $85,645 $(1,406,683) $(159,577)
================================================
----------------------------------------------------------------------
(e) Please refer to the Pro Forma Operating Results for details
related to the nature of the pro forma adjustments.
(f) Pro forma operating cash flow per basic customer is calculated
by dividing pro forma operating cash flow for the respective period by
basic customers as of the end of the period.
(g) Historical operating cash flow, operating free cash flow and
free cash flow are not measures of performance calculated in
accordance with generally accepted accounting principles. However, Cox
believes that these measures are useful to investors in evaluating its
performance based on liquidity, operating performance and leverage.
Historical operating cash flow, operating free cash flow and free cash
flow should not be considered as alternatives to net income as an
indicator of Cox's performance and may not be comparable to similarly
titled measures used by other companies.
(h) Cash change in working capital is calculated based on the cash
flow changes in current assets and liabilities, excluding changes
related to interest and taxes.
Cox Communications, Inc.
Quarterly Pro Forma Operating Results
(Unaudited)
(Thousands of Dollars)
Pro Forma
2002 Twelve
------------------------------------------- Months
Pro Forma Three Months Ended Ended
-------------------------------------------- Dec. 31
March 31 June 30 September 30 December 31 2002
-------- ------- ------------ ----------- --------
Revenues
Residential
Video $ 833,859 $ 857,197 $ 865,497 $ 883,202 $3,439,755
Data 121,565 134,863 148,549 170,254 575,231
Telephony 72,752 82,395 88,916 100,108 344,171
Other 20,544 20,000 18,516 23,487 82,547
--------- --------- --------- --------- ----------
Total
residential
revenues 1,048,720 1,094,455 1,121,478 1,177,051 4,441,704
Commercial 49,796 52,058 56,586 60,390 218,830
Advertising 79,526 98,116 96,985 103,437 378,064
--------- --------- --------- --------- ----------
Total
revenues 1,178,042 1,244,629 1,275,049 1,340,878 5,038,598
Costs and expenses
Cost of
services(a) 497,623 523,947 540,910 558,666 2,121,146
Selling, general
and administrative
expenses 278,593 278,807 280,696 290,356 1,128,452
--------- --------- --------- --------- ----------
Total costs and
expenses 776,216 802,754 821,606 849,022 3,249,598
--------- --------- --------- --------- ----------
Operating cash
flow $ 401,826 $ 441,875 $ 453,443 $ 491,856 $1,789,000
========= ========= ========= ========= ==========
(a) Pro forma cost of services for the three months ended March
31, 2002 and the twelve months ended December 31, 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 attributable to
January and February 2002.
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