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2001 ANNUAL REPORT. Strength. Matters

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2001 ANNUAL REPORT Strength Matters James M. Cox, our founder, knew the validity of this simple truth 104 years ago. It was his strength of character that set in motion the expansive organization we know
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2001 ANNUAL REPORT Strength Matters James M. Cox, our founder, knew the validity of this simple truth 104 years ago. It was his strength of character that set in motion the expansive organization we know as Cox Enterprises a company that continues to believe that exceptional employees build exceptional businesses, even in challenging times. BROADBAND AUTO AUCTIONS NEWSPAPERS TELEVISION RADIO INTERACTIVE COX ENTERPRISES is one of the nation s leading media companies and operators of automobile auctions. We are a top 10 national player, based on revenues, in every major business category where we compete. At-a-Glance COX ENTERPRISES COX COMMUNICATIONS MANHEIM AUCTIONS Cox Communications is one of the largest broadband communications companies in the U.S., delivering video, voice and data services to residential and commercial customers. Cox Communications is a publicly traded company (NYSE: COX), of which Cox Enterprises owns approximately 65%. Manheim is the highest-volume operator of wholesale vehicle auctions in the world, and provides paintless dent removal, inspection, reconditioning and floor-plan financing services to dealers and other commercial customers. EXECUTIVE 2001 REVENUES EMPLOYEES James O. Robbins President & Chief Executive Officer $4.07 billion 20,700 Dean H. Eisner President & Chief Executive Officer $2.26 billion 32,500 BY THE NUMBERS Cox Communications provides services to 6.2 million customers in 23 states Manheim Auctions operates 115 auctions worldwide and processed 9.5 million vehicles in North America HIGHLIGHTS OF THE YEAR Increased year-over-year pro forma revenues by 14% and pro-forma operating cash flow by 12%. Added 1.15 million subscriptions or revenue generating units (RGUs) of advanced broadband services: digital cable, telephone and high-speed Internet. More than one million customers now purchase at least two Cox services. Continued to lead the broadband industry in pioneering and providing cable telephone service, becoming the 12th largest phone company in the United States. Built a national Internet Protocol (IP) network, over which Cox High-Speed Internet service was launched in early 2002 and which will provide capacity and power for deployment of new services in the future. Cox Business Services added 20,000 new commercial customers and increased revenues 48% over In North America, sold more than five million used vehicles a 23% increase over 2000 with a total value of $54 billion. Exceeded $100 million in revenues from international markets, and increased the number of vehicles sold to more than 400,000. Won numerous quality and performance awards from clients such as Ford, General Motors, Daimler-Chrysler, Enterprise Rent-A-Car, Bank of America, BankOne, Arcadia Financial, and others. Through Manheim Online, sold 134,000 vehicles worth $2 billion. Deployed more than 300 dealer-dedicated sales reps to auctions to intensify dealer support. Established a formal management development focus and best practices program. Created the Manheim Used Vehicle Value Index, a measure of pricing trends that is quickly becoming the industry standard. 2001 REVENUES: 10-YEAR ANNUAL GROWTH RATE: EMPLOYEES: $8.7 Billion 14% 76,000 COX NEWSPAPERS COX TELEVISION COX RADIO Cox Newspapers is one of the nation s 10 largest newspaper publishing enterprises, with 17 daily papers and 30 nondailies. Cox Newspapers also operates a direct mail business, distributes classified advertising publications, creates customized newsletters and owns one-third of a newsprint manufacturing business. Cox Television operates both networkaffiliated and independent television stations across the country. In addition to its over-the-air broadcasting entities, Cox Television manages a full-service research firm and three television advertising sales rep firms, including TeleRep, which together are number one in this industry segment. Cox Radio is the third largest radio broadcasting company in the United States in terms of net revenues and the largest pure-play radio station operator in the country. The company operates, acquires and develops radio stations that advance its clustering strategy, primarily in the Sun Belt. Cox Radio is a publicly traded company (NYSE: CXR), of which Cox Enterprises owns approximately 62%. Jay R. Smith President $1.35 billion 15,300 Andrew S. Fisher President $617 million 2,900 Robert F. Neil President & Chief Executive Officer $395 million 2,300 Cox Newspapers produces 17 daily newspapers, with a Sunday circulation of 1.6 million Merged the weekday afternoon Atlanta Journal with the morning Atlanta Constitution and held overall circulation. Capitalized on clustering concept in North Carolina and Palm Beach, FL, markets, where multiple Cox publications are selling advertising in tandem. Reduced width of newsprint pages at The Atlanta Journal-Constitution, resulting in cost savings and a more reader-friendly design. Further strengthened the leadership position of the Valpak direct mail coupon brand through packaging redesign and the establishment of common mailing dates among franchisees. Continued to grow revenues for 50%- owned Trader Publishing despite downturn in advertising economy, demonstrating the strength of classified advertising in multiple categories. Cox Television operates 15 stations in 11 markets reaching 30 million viewers Maintained number-one ratings in 90% of our local newscasts, and sales market leadership in nine of our 11 markets. WSB-TV continued its leadership: number one in every news time period in the highly competitive Atlanta market. Advanced Seattle s KIRO-TV news into second place during the early morning and late nighttime slots. Centralized operations in the three-station Pittsburgh regional cluster, including successful joint-selling activity. Attracted 56 new client stations to our advertising sales rep businesses totaling $290 million in annual billings. Enhanced the content focus on all station Web sites to extend our local station brands, and grew Web user statistics dramatically. Cox Radio operates 81 stations in 18 markets reaching 13 million listeners each week Grew revenue and cash flow despite the worst advertising decline in the radio industry in recent history. Increased ratings company-wide during 2001 with 12 of our 18 markets posting ratings share growth. Ended 2001 with 75% of our stations ranked in the top-10 in their target demographic. Remain well-positioned for future growth with a healthy mix of start-up and developing stations. Increased year-over-year non-traditional revenue 24%. Launched Cox Radio Interactive and 76 Web sites to create value for listeners and advertisers online. Raised more than $7 million in response to the September 11 attacks, with particularly strong fundraising in the Long Island, NY market. 1 A Message from Jim Kennedy Chairman and Chief Executive Officer of Cox Enterprises, Inc. D uring more than a century of our company s existence, we have experienced good times and bad, peace and war, prosperity and recession; and the one constant has been that we have always continued to push forward and grow. This year, we faced an extraordinarily tough economy, made worse by the horrible events of September 11, and we were particularly hard hit in our businesses that are primarily supported by advertising. But this isn t the first time Cox has faced an advertising recession, and it won t be the last. We have managed through tough times before and gained valuable experience, and we will manage through tough times again. In spite of the business recession of 2001, our company was able to increase revenues from $7.8 to almost $8.7 billion, and we grew our income before depreciation and amortization by 7%. The diversified nature of our company, coupled with the investments we made in previous years, helped fuel this growth. Our managers can be very proud that they were able to operate in a tough environment with minimal disruptions to our operations. There have been no major staff reductions or dramatic restructurings that often go with difficult business conditions. And we are still on track to achieve our longer-term goal of doubling the size of our company every five years. When we made that commitment back in 1992, Cox was a $2.5 billion business. With a little luck and a stronger economy, I believe we will be a $10 billion business by the end of Although business grew and operations were stable during the year, it required vigilance and fiscal responsibility. Fortunately, our media businesses helped us recognize the early warnings of a recession, and our newspaper, radio and television groups began making contingency plans more than a year ago. All of our businesses did a great job with expense control, but it s important to note that we were able to continue making key investments that will help us grow. That s one of the benefits of being privately owned: We have the flexibility to make those investment decisions and manage our business for the long term. Many factors account for the resiliency of Cox. Great brands such as AutoTrader.com. Great traditions such as the Dayton Daily News. Manheim s superior market position. Cox Communications exemplary customer service. Number one ratings throughout the Cox Radio and Cox Television station groups. The successful evolution of new Internet ventures. But a common thread running through this report is that we have been in business for a long time and we are good at what we do. We execute well. COX ENTERPRISES consolidated revenues (IN MILLIONS) $7,823.6 $8,691.2 $2,314.5 $2,486.3 $2,637.7 $2,844.4 $3,634.8 $4,289.0 $4,791.9 $5,223.5 $6, (Pictured L to R) David Easterly: Vice Chairman Dennis Berry: President and Chief Operating Officer Jim Kennedy: Chairman and Chief Executive Officer bid. We put together a compelling offer that demonstrated confidence in our business and in the power of the broadband platform, as well as a willingness to act opportunistically and take risks that carry a reasonable expectation of return. For example, our cable company continued to transform itself from a single-service provider into a multi-service one. Cox Communications has invested billions in technology upgrades and infrastructure, while continuing to generate cash flow growth that meets the expectations of Wall Street. But it s not just about technology. It s also about fulfilling customer needs, and I can t think of a better example than Manheim Auctions. The depth and breadth of their customer relationships and their market knowledge are simply unmatched in the industry and could serve as a model for virtually any business. And the outstanding performance of our newspapers, radio and TV stations in covering the tragic events of September 11 will stand for years as one of the finest examples of superior execution in this company s history. Taking calculated risks is also part of our history. Consider our Internet ventures. As we ve done with every other major medium that has come along, Cox jumped in early. And we ve made tremendous strides AutoTrader.com, for example, is now the clear leader in the online automotive classifieds category. Still, Internet businesses are works in progress, given the relative infancy of the medium and the pace of changing technology and consumer tastes. As we learn more about how advertisers and viewers use online products and services, we ll need to stay flexible enough to quickly make adjustments and stay ahead of the curve so that Cox can capitalize on all of the opportunities that are available to us. Similarly, Cox took one of the boldest risks in our history during this difficult year making a bid for AT&T Broadband, which represents the largest base of broadband subscribers in the industry. Although we were not successful, I will never regret our decision to Finally, and most importantly, strong execution is a function of good people. We are fortunate to have a powerful workforce of 76,000 employees who make smart decisions every day. I can t predict when the economy will turn or if 2002 will be a markedly better year than But I do know this: We have the people and market position necessary to fully capitalize on a recovery and the opportunities that will come with it. Before closing, I must acknowledge the contributions of one who has personified all Cox strengths for more than 30 years David Easterly, who retired at the end of From his years as a reporter at the Dayton Daily News to his vice chairmanship of Cox Enterprises, David has always been an effective leader for our company. He s a smart operator with an inquisitive nature, always looking over the horizon for the next great opportunity and usually finding it. We will miss David s daily leadership, but he leaves us in good shape and in the very capable hands of Dennis Berry, our new president and chief operating officer. While most of us certainly do not have any desire to repeat a year like 2001, it is important that we not forget it, either. Achieving success under adverse conditions is how we grow smarter and ultimately stronger. We proved our competitive mettle last year, and we can do it again if necessary. I have never been more confident of our future. We have great people, in great businesses, operating in strong local markets, and there are exciting times ahead. My thanks to all Cox employees for an extraordinary effort this year and for doing your part to help us achieve our goals. Jim Kennedy Chairman and Chief Executive Officer Cox Enterprises, Inc. 3 COX COMMUNICATIONS CABLE DIGITAL TELEPHONE HIGH-SPEED INTERNET ACCESS ADVANCED DIGITAL SERVICES ADVERTISING SALES Executional Excellence Strength Matters In six short years, Cox Communications has transformed from a single-service cable television company into a multi-service broadband communications company. This transformation has required investment dollars, new marketing strategies, network upgrades, a unified IT platform, customer service enhancements and other operational initiatives necessary to support a multi-service offering. The dramatic transformation has been accomplished while maintaining strong operational and financial results. There has never been any question that this strategy was the right one to pursue. The challenge was in the execution. Knowing Cox Communications strength the ability to get the job done there also was no question that this challenge could be met and a new standard of excellence set. 4 COMMERCIAL VOICE, INTERNET AND VIDEO SERVICES THE POWER OF BUNDLING Cox Communications is the nation s fifth largest cable television company today in terms of subscribers, but in the minds of many industry analysts, competitors and customers, the company is an industry leader on multiple fronts. Relative to company size, we have developed new broadband services more extensively than any other U.S. broadband company. After 40 years of offering a single service, cable television, over the past few years we have added high-speed Internet access, digital cable, and residential and commercial telecommunications services. The company is successfully bundling these offerings together to increase the penetration of each service. At the end of 2001, more than one million Cox customers enjoyed at least two Cox services in their homes. For them, bundling offers savings and the convenience of onestop shopping for communications and entertainment services. For us, bundling increases customers propensity to remain with Cox, yields operational efficiencies, and provides a competitive advantage over other providers that don t deliver the full bundle of services. At the same time, we have invested heavily in upgrading our delivery network and are farther along than most of our industry peers 90% of homes passed can receive high-speed Internet service from Cox, 93% can receive digital cable, and 33% have access to residential telephone. Advantage: Telephony Telephony, in particular, has distinguished the company from many of its peers. We are one of only two U.S. cable television companies widely offering competitive circuit-switched, facilities-based phone service today. Consider the numbers: Cox is now the nation s 12th largest phone company and 3rd largest in California. We serve more than 453,000 residential customers who have 583,000 lines. Over 17 million calls a day are processed over Cox s switches. Our telephone service is now available in nine markets covering 3.3 million homes. The ultimate in customer service is a deep and sincere commitment to our customers that extends throughout our organization not just in call centers like this one in Phoenix, but into every corner of the company. All employees are trained and empowered to deliver the exceptional customer care that sets Cox apart, says Jim Robbins, President and CEO. Telephony not only represents a new revenue stream for Cox, but is also a critical component of our overall multi-service broadband strategy. With access to multiple services, customers are more likely to rely on Cox for two or more advanced services, which drives incremental penetration. Telephone customers also help to improve customer retention. Homes that subscribe to phone and at least one additional Cox service churn, or turnover, at a rate significantly lower than customers with one service. Marketing new services works hand-in-hand with customer care, for which Cox enjoys the best reputation in the industry. A heavy emphasis on training and a fully integrated back-office billing and customer service platform have helped us elevate our customer care processes along with the dramatic growth in new services. Our 20,000 employees have access to comprehensive training resources and development opportunities to enhance their skills and knowledge, ensuring a long continuation of Cox s standing as a service-oriented, sales-driven and customer-focused organization. That mission is further driven by the company s strength of management. Our local and corporate leadership teams average 15 years of experience with the company, ensuring continuity, consistency and depth of experience and expertise. 5 MANHEIM AUCTIONS WHOLESALE AUCTIONS CYBERLOTS RECONDITIONING PAINTLESS DENT REPAIR VEHICLE CERTIFICATION Strength Matters Deep Customer Relationships For automotive dealers, Manheim is the single largest auction system for buying and selling used vehicles. Eighty-six thousand car dealers in the U.S. that s 90% of the marketplace are Manheim customers. Ninety percent of all dealers across the country attend a Manheim auction at least once a month. We sell vehicles for every significant consign or in the country factories, rental companies, fleet operators, leasing firms and finance organizations who rely on Manheim to have their vehicle inventories warehoused, marketed, transported, titled, reconditioned and more. The breadth and depth of Manheim s relationships with professional used car buyers and sellers is unmatched, making us the de facto stock exchange of the used car industry an industry that keeps America mobile, generates more than $376 billion in sales at the retail level and represents a major portion of our nation s economy. 6 VEHICLE INSPECTION DEALER FINANCIAL SERVICES TITLING THE INDUSTRY S TRADING FLOOR Used car sales outnumber new car sales four to one, and the remarketing of used cars is a $376 billion industry, with more than 42 million used vehicle transactions occurring in At the center of the auto remarketing industry are wholesale auctions large, energetic meeting places where the fast-paced bidding sets the current value of a vehicle each and every time a unit is sold. Auctions today are sophisticated businesses. Car dealers, manufacturers, leasing organizations and rental car companies all look to auctions to help them manage their inventories, and they use the auctions added services and information to help manage their overall businesses more profitably. Manheim stands apart from its
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