| FINANCIAL HIGHLIGHTS |
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Recent Cable System Transactions 2000 Acquisitions and Transactions
1999 Acquisitions and Transactions
Investments Excite@Home/AT&T Corp. Excite@Home is both an Internet service provider and supplier of comprehensive Internet navigation services. In August 2000, Cox consummated an agreement with Excite@Home pursuant to which the ownership, voting control and management of Excite@Home were restructured. As a result, Cox's veto rights and representation on the Excite@Home board were terminated. In addition, Cox agreed to extend its distribution of certain Excite@Home services through June 2006. Cox will receive warrants to purchase two shares of Excite@Home Series A common stock for each home its cable systems pass. Cox also has the right, under certain circumstances, to sell its shares in Excite@Home to AT&T, with a maximum amount payable to Cox of $1.4 billion. In connection with the consummation of this agreement, Cox recognized a pre-tax gain of approximately $990.5 million. In January 2001, Cox exercised its right under the agreement with AT&T to transfer the corporation that owns its shares of Excite@Home to AT&T for shares of AT&T stock. Cox anticipates receiving approximately 64.4 million shares of AT&T stock upon consummation of this transaction, which is expected to occur during the first quarter of 2001. Flextech plc. In March 2000, Cox sold its entire interest in Flextech, an English publicly held programming company, for proceeds of $522.3 million and recognized a pre-tax gain of $318.9 million. Sprint PCS. Sprint PCS is a personal communications services provider and an indirect wholly-owned subsidiary of Sprint Corporation. At December 31, 2000, Cox's investment in Sprint PCS was comprised of 104.7 million shares of Sprint PCS common stock - Series 2, and warrants and convertible preferred stock which are exercisable or convertible into 10.3 million shares of Sprint PCS common stock - Series 2. Cox has issued three series of subordinated debentures which are indexed to and settleable based on the trading price of Sprint PCS common stock — Series 1. In November 1999, Cox issued $1.3 billion aggregate principal amount of Exchangeable Subordinated Debentures due 2029, which are referred to as PRIZES and are exchangeable by the holder for cash. In March 2000, Cox issued $275.0 million aggregate principal amount of Exchangeable Subordinated Debentures due 2030, which are referred to as Premium PHONES. Premium PHONES are exchangeable by the holder initially for cash and, beginning in March 2002, at Cox's election, for cash or shares of Sprint PCS common stock. In April 2000, Cox issued $1.8 billion aggregate principal amount at maturity of Exchangeable Subordinated Discount Debentures due 2020, which are referred to as Discount Debentures. Discount Debentures are exchangeable by the holder initially for cash or shares of Sprint PCS common stock and, beginning April 2002, at Cox's election, for cash or Sprint PCS common stock. The Discount Debentures were issued with an original issue discount of $1.1 billion. During the year ended December 31, 2000, Cox sold a total of 28.1 million shares of its Sprint PCS common stock — Series 2 for aggregate proceeds of $1,422.6 million and recognized total pre-tax gains of approximately $1,193.0 million. In January 2001, Cox entered into a series of forward contracts to sell up to 19.5 million shares of Sprint PCS common stock for aggregate proceeds of $389.4 million. These contracts mature at various dates between 2004 and 2006 and, at Cox's election, can be settled in cash or shares of Sprint PCS common stock. Results of Operations 2000 compared with 1999 Total revenues for the year ended December 31, 2000 were $3,506.9 million, a 51% increase over revenues of $2,318.1 million for the year ended December 31, 1999. Of this increase, 36% relates to increased revenues from the 2000 and 1999 transactions. The remaining 15% increase includes the effects of:
Programming costs were $855.8 million for the year ended
December 31, 2000, an increase of 52% over the same period in 1999. Of this
increase, 39% relates to the 2000 and 1999 transactions. The remaining 13%
is due to basic and digital customer growth at existing cable systems, channel
additions and programming rate increases offset by fewer national pay-per-view
events during 2000. Selling, general and administrative expenses for the
year ended December 31, 2000 increased 49% to $1,273.9 million due primarily
to:
Depreciation and amortization increased to $1,236.5 million from $715.7 million for the comparable period in 1999 due to the 2000 and 1999 transactions. Operating income for the year ended December 31, 2000 was $140.8 million, a decrease of 46% compared to 1999. Interest expense increased to $550.8 million primarily due to an increase in the total debt outstanding. Equity in net losses of affiliated companies decreased to $7.3 million from $90.5 million for the comparable period in 1999 primarily due to prior year losses associated with Cox Communications PCS, L.P. Net gain on investments for the year ended December 31,
2000 of $3,282.0 million primarily relates to:
Minority interest of $69.8 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 year ended December 31, 2000 was $1,925.3 million as compared to $881.9 million for the comparable period in 1999. Operating cash flow is not a measure of performance defined in accordance with generally accepted accounting principles. However, Cox believes operating cash flow is useful to investors in evaluating its performance because it is a commonly used financial analysis tool for measuring and comparing cable companies in several areas of liquidity, operating performance and leverage. Cox defines operating cash flow as operating income before depreciation, amortization and gain on sale and exchange of cable systems. Operating cash flow increased 53% to $1,377.3 million for the year ended December 31, 2000. The operating cash flow margin (operating cash flow as a percentage of revenues) for the year ended December 31, 2000 was 39.3%, an increase from 38.9% over the year ended December 31, 1999. Operating cash flow, as Cox defines this term, should not be considered as an alternative to net income as an indicator of Cox's performance or as an alternative to net cash provided by operating activities as a measure of liquidity and may not be comparable to similarly titled measures used by other companies. Liquidity and Capital Resources Uses of Cash During 2000, Cox made capital expenditures of $2.2 billion. These expenditures were primarily directed at upgrading and rebuilding its broadband network to allow for the delivery of advanced broadband communications services, including digital video, high-speed Internet access, telephony and video-on-demand. Capital expenditures for 2001 and 2002 are expected to range between $1.8 billion and $2.0 billion each year. In addition to improvements of existing systems, Cox made strategic investments in businesses focused on cable programming, technology and telecommunications. Investments in affiliated companies of $83.3 million included debt and equity funding. Future funding requirements are expected to total approximately $50.0 million over the next two years. These capital requirements may vary significantly from the amounts stated above and will depend on numerous factors, as many of these affiliates are growing businesses and specific financing requirements will change depending on the evolution of these businesses. Payments for the purchases of cable systems of $2.8 billion primarily represents cash paid in connection with the acquisition of cable systems from Multimedia. During 2000, Cox repaid approximately $1.5 billion of debt, which primarily consisted of floating rate notes due August 15, 2000, 6.375% notes issued in June 1995 and a floating rate bridge loan. Repurchase of Class A common stock represents the aggregate cost of repurchasing 5.5 million shares of Cox's Class A common stock for $211.9 million in connection with a previously announced stock repurchase program, which authorizes Cox to purchase up to $500.0 million of its outstanding Class A common stock on the open market or through private transactions. Distributions paid on capital and preferred securities of subsidiary trusts of $82.3 million consist of quarterly payments on the FELINE PRIDES and RHINOS. Sources of Cash
Net revolving credit and commercial paper borrowings increased $1.0 billion for the year ended December 31, 2000 due to net borrowings on Cox's commercial paper. Proceeds from the issuance of debt and capital and preferred securities of subsidiary trusts of $2.5 billion, net of debt issuance costs, discounts and premiums, primarily consists of the issuances of various indexed subordinated debentures, senior debt securities and a floating rate bridge loan. Other Subsequent to year end, Cox filed a shelf registration statement on Form S-3 in January 2001 with the Securities and Exchange Commission under which Cox may from time to time issue various debt and equity instruments for a maximum aggregate amount up to $2.0 billion. This registration statement was declared effective in February 2001 and increased Cox's total available borrowings to approximately $3.2 billion. In February 2001, Cox issued convertible senior notes due 2021 with an aggregate principal amount at maturity of $685.0 million for proceeds of $476.1 million, net of an original issue discount of $208.9 million. Including semi-annual cash interest payments, the notes yield 2.25% per year to maturity. Holders may elect to convert at any time, upon which Cox may elect to deliver shares of Class A common stock or an equivalent amount of cash. All historical weighted average share, per share and historical balance sheet amounts have been restated to reflect Cox's two-for-one stock split which was effective May 21, 1999.
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