|
Insight Announces Fourth Quarter and Year-End 2003 Results
Business Editors
NEW YORK--(BUSINESS WIRE)--Feb. 26, 2004--Insight Communications Company (Nasdaq: ICCI) today announced financial results for the quarter and year ended December 31, 2003.
Revenue for the year ended December 31, 2003 totaled $902.6 million, an increase of 11% over the prior year, due primarily to customer gains in high-speed Internet and digital services as well as basic rate increases. Operating cash flow increased to $387.1 million for the year ended December 31, 2003 from $355.5 million for the year ended December 31, 2002, an increase of 9%. Operating cash flow reported for the year ended December 31, 2002 includes a $4.1 million charge related to high-speed Internet. When this charge is excluded, the resulting 2003 operating cash flow growth is 8%. A reconciliation of operating cash flow to operating income appears below in the discussion of operating data results.
Revenue for the three months ended December 31, 2003 totaled $236.1 million, an increase of 11% over the prior year, due primarily to customer gains in high-speed Internet and digital services as well as basic rate increases. Operating cash flow increased to $104.1 million for the three months ended December 31, 2003 from $96.1 million for the three months ended December 31, 2002, an increase of 8%.
Revenue generating units, representing the sum of basic, digital, high-speed Internet and telephone customers as defined by the NCTA Standard Reporting Categories, increased by 46,900 during the quarter to 1,981,800. High-speed Internet net additions were 21,600; digital net additions were 19,200; telephone net additions were 6,000; and basic net additions were 100. For the full year, revenue generating units increased by 182,900. After giving effect to the system swap in Q1 2003, revenue generating units increased 170,700 in the year.
"We showed strong unit growth in high-speed Internet and digital service, and maintained our basic customers during the fourth quarter," said Michael S. Willner, President and Chief Executive Officer. "Importantly, operating cash flow growth, as we expected, has increased over the previous two quarters, confirming that we are on a path to double digit operating cash flow growth in 2004."
Capital expenditures totaled $65.5 million in the fourth quarter, a 31% reduction over the prior year's quarter, and resulted in $196.7 million for the full year. Of the total spent in 2003, approximately 51% was for Customer Premise Equipment and 17% was for Upgrade/Rebuild costs, as defined by the NCTA Standard Reporting Categories. Capital was funded through cash generated from operations as well as through bank borrowings. As of December 31, 2003, Insight has substantially completed the rebuild of its systems.
"We added 170,700 revenue generating units in 2003, up from 163,700 additions in 2002," said Dinni Jain, Executive Vice President and Chief Operating Officer. "We are particularly pleased with our full year increase in digital penetration of over 500 basis points and our more than 50% increase in high-speed Internet net additions."
Insight reiterated the guidance it previously announced for the
full year 2004:
-- Total revenue growth of 11.0% to 12.0% over 2003
-- Operating cash flow growth of 10.0% to 11.0% over 2003
-- Capital expenditures of approximately $185 million for the year
-- Free cash flow of approximately $50 million for the year (see discussion of non-GAAP measures below)
Operating results for the year ended December 31, 2003 compared to
the year ended December 31, 2002
Revenue for the year ended December 31, 2003 totaled $902.6 million, an increase of 11% over the prior year, due primarily to customer gains in high-speed Internet and digital services as well as basic rate increases. High-speed Internet service revenue increased 59% over the prior year, primarily due to an increased customer base. Insight added a net 85,200 high-speed Internet customers during the year to end the year at 230,000 customers. Basic cable service revenue increased 6%, primarily due to basic rate increases. The average basic rate increase in 2003 was 6%. In addition, digital service revenue increased 26% over the prior year, primarily due to an increased customer base. Insight added a net 68,200 digital customers during the year to end the year at 402,900 customers.
Revenue generating units were approximately 1,981,800 as of December 31, 2003, compared to approximately 1,798,900 as of December 31, 2002, an increase of 10%.
Average monthly revenue per basic customer, including management fee revenue and SourceSuite revenue, was $58.03 for the year ended December 31, 2003, compared to $52.38 for the year ended December 31, 2002, primarily reflecting the continued successful rollout of new product offerings in all markets. Average monthly revenue per basic customer for high-speed Internet and digital service increased to $11.41 for the year ended December 31, 2003, up from $8.07 for the year ended December 31, 2002.
Programming and other operating costs increased $49.5 million, or 18%. Programming costs increased 10%, primarily attributable to increased programming rates for classic service, an increase in digital customers served, and additional programming in the newly rebuilt systems. These increases were offset by a $3.1 million credit from the settlement of a programming contract. Excluding the settlement of the programming contract, programming costs increased 11%. Other operating costs increased 39%, primarily attributable to increases in high-speed Internet costs driven by the net addition of 85,200 high-speed Internet customers, and labor costs, which increased due to the transition from upgrade activities to maintenance activities.
Selling, general and administrative expenses increased $13.6 million, or 8%, primarily as a result of annual salary increases and payroll related costs for existing employees, some of which are one-time expenses, as well as the addition of new employees. In addition, marketing expenses increased to support the continued rollout of new products. Legal fees also increased related to ongoing litigation. Partially offsetting these increases was an increase in marketing support funds (recorded as a reduction to selling, general and administrative expenses) for the promotion of new channel launches.
High-speed Internet service charges were incurred through February 28, 2002 as a result of payments made to At Home Corporation, the former provider of high-speed Internet services for all of Insight's systems, except in Ohio. On September 28, 2001, @Home filed for protection under Chapter 11 of the Bankruptcy Code. In order to continue providing service to existing customers and to resume the provisioning of service to new customers, Insight entered into an interim service arrangement that required the company to pay $10.0 million to @Home to extend service through February 28, 2002. As a result of this arrangement, Insight incurred approximately $7.9 million in excess of the original agreed-to cost for such services rendered, of which $4.1 million was incurred in 2002.
Depreciation and amortization expense increased $15.3 million, or 7%, primarily as a result of additional capital expenditures through December 31, 2003 to complete the rebuild of the Illinois systems, extend the plant and continue the rollout of digital, high-speed Internet and telephone services to existing and new service areas. Excluding the write-down of obsolete video on demand equipment during the year ended December 31, 2002, depreciation and amortization increased $26.4 million, or 13%.
Operating cash flow increased $31.6 million, or 9%, primarily due to increased basic, digital and high-speed Internet revenue, partially offset by increases in programming and other operating costs and selling, general and administrative costs. The increase in operating cash flow is also attributable to the absence of high-speed Internet service payments to @Home for the year ended December 31, 2003 that were previously included in the adjustments to operating cash flow in the amount of $4.1 million during the year ended December 31, 2002. The following is a reconciliation of operating income to operating cash flow:
-0-
Year Ended
December 31,
------------------
2003 2002
------------------
(in thousands)
Operating income $155,344 $139,002
Adjustment:
Depreciation and amortization 231,760 216,506
------------------
Operating cash flow $387,104 $355,508
------------------
Interest expense remained relatively flat year over year. The increase of $1.3 million, or 1%, is primarily due to the inclusion of $5.0 million of accruals for preferred interests in accordance with SFAS No. 150, effective July 1, 2003. Previously, the accrual was treated as a dividend below net income or loss. Additionally, the increase is related to higher outstanding debt, which averaged $2.7 billion for the year ended December 31, 2003, versus $2.6 billion for the year ended December 31, 2002. These increases were partially offset by a decrease in interest expense due to lower interest rates, which averaged 7.4% for the year ended December 31, 2003, versus 7.9% for the year ended December 31, 2002.
Minority interest decreased $39.0 million, or 126%, to expense of $7.9 million from income of $31.1 million. The decrease is a direct result of the increase in net income attributable to common interests recorded by Insight Midwest, primarily due to the $27.1 million gain recorded on the swap of the Griffin, Ga. system for the managed Shelbyville, Ky. and New Albany, Ind. systems owned by Comcast of Montana/Indiana/Kentucky/Ohio during the first quarter of 2003, the $37.7 million gain on the settlement of a programming contract, and increased operating income partially offset by the $10.9 million loss from the extinguishment of the Coaxial debt.
During the fourth quarter of 2003, the company determined that it had incorrectly accounted for the impact of minority interests related to its interest rate swap agreements, which convert the interest on a portion of the variable rate senior credit facility to a fixed rate. In addition, Insight had not reduced its deferred tax asset and related valuation allowance related to such swaps through other comprehensive income for subsequent changes in its deferred tax position. The company has therefore restated its financial statements for the year ended December 31, 2002. It has not restated its financial statements for the year ended December 31, 2001 since the correction does not have a material impact on them. The restatement does not impact Insight's revenue, operating income, operating cash flow or loss before income taxes. The following table summarizes the impact of the restatement on the consolidated balance sheet and consolidated statement of operations for the year ended December 31, 2002:
-0-
December 31, 2002
As Reported Restated
--------------------
(in thousands, except
per share amounts)
Minority interest $224,803 $215,893
Accumulated deficit (237,956)(232,280)
Accumulated other comprehensive loss (8,490) (14,166)
Net loss (47,992) (42,316)
Net loss applicable to common stockholders (68,099) (62,423)
Basic and diluted loss per share attributable to
common stockholders (1.13) (1.04)
Use of Non-GAAP Measures
This press release contains disclosure of operating cash flow, system cash flow and free cash flow, each of which is a financial measure that is not calculated and presented in accordance with accounting principles generally accepted in the United States ("GAAP"). This release includes tabular reconciliation of operating income, Insight's most directly comparable financial measure calculated and presented in accordance with GAAP, to operating cash flow and system cash flow. This release also includes a reconciliation of net cash provided by operating activities, Insight's most directly comparable financial measure calculated and presented in accordance with GAAP, to free cash flow.
Insight defines operating cash flow as operating income or loss before depreciation and amortization. Insight defines free cash flow as net cash provided by operating activities less capital expenditures and distribution of preferred interests. Operating cash flow and free cash flow are useful to management in measuring the overall operational strength and performance of the company. A limitation of operating cash flow, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating the company's revenues. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures and investment spending. Another limitation of operating cash flow is that it does not reflect income net of interest expense, which is a significant expense of the company because of the substantial debt it incurred to acquire cable television systems and finance the capital expenditures for the upgrade of the cable network. System cash flow is another non-GAAP financial measure, which Insight uses to evaluate the underlying operating performance of its cable systems. Insight defines system cash flow as operating cash flow excluding management fees payable by the company's operating subsidiaries to Insight Communications, and excluding the corporate overhead of Insight Communications. Such management fees are equal to 3% of system revenues, and are eliminated in consolidation. Corporate overhead is a component of Insight's selling, general and administrative expenses. System cash flow is subject to the same limitations as described above for operating cash flow.
Despite the limitations of operating cash flow, system cash flow and free cash flow, management believes that the presentation of each financial measure is relevant and useful for investors because it allows investors to evaluate Insight's performance in a manner similar to the methods used by management. In addition, operating cash flow, system cash flow and free cash flow are commonly used in the cable television industry to analyze and compare cable television companies on the basis of liquidity, operating performance and leverage, although Insight's measures of operating cash flow, system cash flow and free cash flow may not be directly comparable to similar measures used by other companies.
Operating cash flow, system cash flow and free cash flow should not be regarded as an alternative to, or more meaningful than, either operating income or net income as an indicator of operating performance or cash flows as a measure of liquidity, as well as other measures of financial performance reported in accordance with GAAP. Insight is unable to reconcile these non-GAAP measures to their most directly comparable GAAP measures on a forward-looking basis, primarily because it is impractical to project the timing of certain transactions, such as the initiation of depreciation relative to network construction projects.
About Insight Communications
Insight Communications (NASDAQ: ICCI) is the 9th largest cable operator in the United States, serving approximately 1.4 million customers in the four contiguous states of Illinois, Kentucky, Indiana and Ohio. Insight specializes in offering bundled, state-of-the-art services in mid-sized communities, delivering basic and digital video, high-speed Internet and voice telephony in selected markets to its customers.
Any statements in this press release that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words "estimate," "expect," "anticipate" and other expressions that indicate future events and trends identify forward-looking statements. The above forward-looking statements are subject to risks and uncertainties and are subject to change based upon a variety of factors that could cause actual results to differ materially from those Insight Communications anticipates. Factors that could have a material and adverse impact on actual results include competition, increasing programming costs, changes in laws and regulations, our substantial debt and the other risk factors described in Insight Communications' annual report on Form 10-K, as amended, for the year ended December 31, 2002. All forward-looking statements in this press release are qualified by reference to the cautionary statements included in Insight Communications' Form 10-K.
-0-
INSIGHT COMMUNICATIONS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December December
31, 31,
2003 2002
----------- -----------
(Restated)
Assets
Cash and cash equivalents $60,172 $74,850
Investments 4,078 3,666
Trade accounts receivable, net of allowance for
doubtful accounts of $1,123 and $1,296 as of
December 31, 2003 and 2002 29,313 25,725
Launch funds receivable 9,421 5,197
Prepaid expenses and other assets 17,446 16,177
----------- -----------
Total current assets 120,430 125,615
Fixed assets, net 1,216,304 1,220,251
Goodwill 72,430 72,965
Franchise costs 2,361,959 2,331,282
Deferred financing costs, net of accumulated
amortization of $13,676 and $9,030 as December
31, 2003 and 2002 33,288 33,298
Other non-current assets 5,244 5,651
----------- -----------
Total assets $3,809,655 $3,789,062
=========== ===========
Liabilities and stockholders' equity
Accounts payable $30,417 $47,220
Accrued expenses and other liabilities 34,182 23,035
Accrued property taxes 22,954 14,428
Accrued programming costs 43,261 34,922
Deferred revenue 10,061 4,132
Interest payable 23,315 24,685
Debt - current portion 62,250 5,000
Preferred interest distribution payable - 5,250
----------- -----------
Total current liabilities 226,440 158,672
Deferred revenue 4,523 6,533
Debt 2,786,041 2,576,004
Other non-current liabilities 5,742 53,085
Minority interest 229,790 215,893
Preferred interests - 191,820
Stockholders' equity:
Preferred stock; $.01 par value; 100,000,000
shares authorized; no shares issued and
outstanding as of December 31, 2003 and 2002 - -
Common stock; $.01 par value:
Class A - 300,000,000 shares authorized;
50,685,317 and 50,704,390 shares issued and
outstanding as of December 31, 2003 and 2002 507 507
Class B - 100,000,000 shares authorized;
8,879,468 and 9,354,468 shares issued and
outstanding as of December 31, 2003 and 2002 88 93
Additional paid-in-capital 816,600 829,873
Accumulated deficit (246,471) (232,280)
Deferred stock compensation (13,582) (5,882)
Accumulated other comprehensive loss (23) (5,256)
----------- -----------
Total stockholders' equity 557,119 587,055
----------- -----------
Total liabilities and stockholders' equity $3,809,655 $3,789,062
=========== ===========
Certain prior period amounts have been reclassified to conform to the
current period presentation.
INSIGHT COMMUNICATIONS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
2003 2002 2001
--------- ---------- ---------
(Restated)
Revenue $902,592 $811,995 $729,038
Operating costs and expenses:
Programming and other operating costs 328,385 278,866 259,634
Selling, general and administrative 187,103 173,505 153,003
High-speed Internet charges - 4,116 3,785
Depreciation and amortization 231,760 216,506 383,449
--------- ---------- ---------
Total operating costs and expenses 747,248 672,993 799,871
--------- ---------- ---------
Operating income (loss) 155,344 139,002 (70,833)
Other income (expense):
Gain on cable system exchange 27,134 - 34,178
Interest expense (206,031) (204,730) (213,045)
Interest income 1,433 2,126 7,315
Other (31) (502) (2,320)
--------- ---------- ---------
Total other expense, net (177,495) (203,106) (173,872)
Loss before minority interest,
investment activity, extinguishments of
obligations, gain on contract
settlement and income taxes (22,151) (64,104) (244,705)
Minority interest income (expense) (7,936) 31,076 141,314
Equity in losses of investees - - (2,031)
Gain (loss) from early extinguishments
of debt (10,879) 3,560 (10,315)
Loss on settlement of put obligation (12,169) - -
Gain on settlement of programming
contract 37,742 - -
Impairment write-down of investments (1,500) (18,023) (9,899)
--------- ---------- ---------
Loss before income taxes (16,893) (47,491) (125,636)
Income tax benefit 2,702 5,175 50,847
--------- ---------- ---------
Net loss (14,191) (42,316) (74,789)
Accrual of preferred interests (10,353) (20,107) (19,432)
--------- ---------- ---------
Net loss applicable to common
stockholders $(24,544) $(62,423) $(94,221)
========= ========== =========
Basic and diluted loss per share
attributable to common stockholders $(.41) $(1.04) $(1.57)
Basic and diluted weighted average
shares outstanding 59,585 60,284 60,202
Certain prior period amounts have been reclassified to conform to the
current period presentation.
INSIGHT COMMUNICATIONS COMPANY, INC.
FINANCIAL INFORMATION
(in thousands)
Three months ended
December 31,
2003 2002
---------- ----------
(unaudited)
Insight Consolidated
------------------------------------------------
Revenues $236,105 $ystem Cash Flow .. 109,294 100,574
System Cash Flow Margin 46.3% 47.4%
Corporate Overhead (5,825) (5,185)
Management Fee Income 594 683
Operating Cash Flow .. 104,063 96,072
Operating Cash Flow Margin 44.1% 45.2%
Capital Expenditures 65,525 94,900
Reconciliation of Operating Income to
Operating & System Cash Flow
-----------------------------------------------------------
Operating income $44,239 $39,941
Adjustment:
Depreciation and amortization 59,824 56,131
---------- ----------
Operating Cash Flow.. $104,063 $96,072
---------- ----------
Adjustments:
Corporate Overhead 5,825 5,185
Management Fee Income (594) (683)
---------- ----------
System Cash Flow .. $109,294 $100,574
========== ==========
Year ended December
31,
2003 2002
---------- ----------
Insight Consolidated
------------------------------------------------
Revenues $902,592 $811,995
System Cash Flow .. 408,121 372,870
System Cash Flow Margin 45.2% 45.9%
Corporate Overhead (23,454) (20,108)
Management Fee Income 2,437 2,746
Operating Cash Flow .. 387,104 355,508
Operating Cash Flow Margin 42.9% 43.8%
Capital Expenditures 196,658 283,004
Total Debt, including Preferred Interests.... 2,848,291 2,772,824
Reconciliation of Operating Income to
Operating & System Cash Flow
-----------------------------------------------------------
Operating income $155,344 $139,002
Adjustment:
Depreciation and amortization 231,760 216,506
---------- ----------
Operating Cash Flow.. $387,104 $355,508
---------- ----------
Adjustments:
Corporate Overhead 23,454 20,108
Management Fee Income (2,437) (2,746)
---------- ----------
System Cash Flow .. $408,121 $372,870
========== ==========
.. Operating cash flow represents operating income before depreciation
and amortization. System cash flow represents operating cash flow
excluding management fees and corporate overhead.
.... As of December 31, 2003, there were no preferred interests
outstanding.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
INSIGHT COMMUNICATIONS COMPANY, INC.
OPERATING STATISTICS
(in thousands, except per customer and penetration data)
FY FY Q4 Q4
INSIGHT CONSOLIDATED 2003 2002 2003 2002
------------------------------- --------- --------- --------- --------
Customer Relationships 1,327.2 1,309.6 1,327.2 1,309.6
Total Average Monthly Revenue
per Customer $58.03 $52.38 $60.84 $54.92
Basic Cable
-------------------------------
Homes Passed 2,325.7 2,262.5 2,325.7 2,262.5
Basic Cable Customers 1,293.6 1,288.8 1,293.6 1,288.8
Basic Cable Penetration 55.6% 57.0% 55.6% 57.0%
Cable Revenue $537,025 $506,128 $136,720 $130,011
Average Monthly Cable
Revenue per Customer $34.53 $32.65 $35.23 $33.62
High-Speed Data
-------------------------------
"Modem Ready" Homes Passed 2,236.3 1,996.5 2,236.3 1,996.5
Modem Customers 230.0 144.8 230.0 144.8
"Modem Ready" Penetration 10.3% 7.3% 10.3% 7.3%
Modem Revenue $93,937 $58,968 $26,979 $17,748
Average Monthly Modem Revenue
per Customer $6.04 $3.80 $6.95 $4.59
Average Monthly Modem Revenue
per Modem Customer $42.04 $44.24 $41.02 $43.92
Digital Cable
-------------------------------
Digital Universe 1,242.2 1,235.8 1,242.2 1,235.8
Digital Customers 402.9 334.7 402.9 334.7
Digital Cable Penetration 32.4% 27.1% 32.4% 27.1%
Digital Revenue $83,471 $66,123 $22,899 $17,676
Average Monthly Digital
Revenue per Customer $5.37 $4.27 $5.90 $4.57
Average Monthly Digital
Revenue per Digital Customer $18.93 $18.53 $19.41 $18.08
Telephone
-------------------------------
Telephone Universe
(marketable homes) 648.0 439.8 648.0 439.8
Telephone Customers 55.4 30.6 55.4 30.6
Telephone Penetration (to
marketable homes) 8.5% 7.0% 8.5% 7.0%
Telephone Revenue $12,333 $6,274 $3,737 $2,600
Average Monthly Telephone
Revenue per Customer $.79 $.40 $.96 $.67
Advertising Revenue
-------------------------------
Advertising Revenue $58,832 $53,415 $16,567 $15,584
Average Monthly Advertising
Revenue per Customer $3.78 $3.45 $4.27 $4.03
Other Revenue
-------------------------------
Other Revenue $116,994 $121,087 $29,203 $28,760
Average Monthly Other Revenue
per Customer $7.52 $7.81 $7.53 $7.44
.. 2003 customer data includes effects of the swap of our Griffin, GA
system for the managed New Albany, IN and Shelbyville, KY systems.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Note: All "per customer" figures reflect revenue per Basic Cable
Customers.
INSIGHT COMMUNICATIONS COMPANY, INC.
NCTA STANDARD REPORTING CATEGORIES
CAPITAL EXPENDITURES
(unaudited)
(in thousands)
-----------------------------------
Q4 2003 2003 FY 2003 FY 2002 FY
Insight Consolidated Actual Actual Guidance Actual
----------------------------------------------------------------------
Customer Premise Equipment $37,355 $99,347 $107,380 $106,060
Scaleable Infrastructure 4,636 14,707 13,775 32,019
Line Extensions 8,819 23,299 21,254 29,446
Upgrade/Rebuild 7,614 33,692 31,065 87,735
Support Capital 7,101 25,613 26,503 27,744
-----------------------------------
Total Insight Consolidated $65,525 $196,658 $199,977 $283,004
-----------------------------------
INSIGHT COMMUNICATIONS COMPANY, INC.
RECONCILIATION OF OPERATING
INCOME TO FREE CASH FLOW
(unaudited)
(in thousands)
Three Months Ended Year Ended
December 31, December 31,
2003 2002 2003 2002
--------- --------- --------- ----------
Operating income $44,239 $39,941 $155,344 $139,002
Depreciation and
amortization 59,824 56,131 231,760 216,506
--------- --------- --------- ----------
Operating Cash Flow 104,063 96,072 387,104 355,508
Changes in working capital
accounts (1) (16,055) 20,178 (19,164) (11,978)
Cash paid for interest (61,529) (58,300) (169,704) (167,703)
Cash paid for taxes (23) (218) (448) (531)
--------- --------- --------- ----------
Net cash provided by operating
activities 26,456 57,732 197,788 175,296
Capital expenditures (65,525) (94,900) (196,658) (283,004)
Distribution of preferred
interests - - (11,554) (14,000)
--------- --------- --------- ----------
Free cash flow $(39,069) $(37,168) $(10,424) $(121,708)
========= ========= ========= ==========
(1) Changes in working capital accounts is based on the net cash
changes in current assets and current liabilities, excluding
changes related to interest and taxes and other non-cash expenses.
Additionally, the changes in working capital accounts includes the
cash paid for the settlement of a put obligation and cash paid on
the early extinguishment of debt.
CONTACT: Insight Communications
John Abbot,
|
