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home > letter to shareholders
You're in the Company of Leaders with...
Martin Jones, Winston WarrioR, Leigh Kanour, Ray Starbird
Debbie Stultz, Kay Hughes, Karlia Karpel
STEVE PERRERO, CHRIS CAMPBELL, eduardo herrera, willie randle
ARNOLD RODRIGUEZ, JONATHAN BOWLINg,
SYLVIA DUNBAR, SHOLA ODUMADE,
kirsten sweet, carl brant, brad small,
lam nguyen, Julia Connelly,
tenille pellebon, steve johnson,
laura jones, stephen hammon,
ruth powell, fahad abuljedayal |
Dear Fellow ShareholdersCox Communications had another excellent year in 2003. Operationally and financially, our results were stronger than ever, our strategic focus was laser-sharp, and our competitive position solid. The outlook for 2004 is likewise bright. In this report, we’re pleased to discuss our roadmap for achieving continued growth and to introduce just a few of the more than 22,000 reasons we’re so confident in Cox’s prospects for prosperity – the employees of Cox Communications who make this the Company of Leaders. Financial and Operational HighlightsAlthough Cox’s phenomenal performance in 2002 was a tough act to follow, 2003 was another remarkable year. Revenue grew 14% to $5.8 billion, operating cash flow* increased 19% to $2.1 billion, operating cash flow margin* improved significantly and, for the first time, we generated free cash flow* for the full year, at $306.6 million. Total customer relationships increased 2.3% to 6.6 million, including solid growth in our core video business and the addition of more than 1.2 million revenue generating units (RGUs) of our advanced digital cable, high-speed Internet and telephone services. Customer service scores, based on independently gathered surveys, hit record highs, while J.D. Power and Associates named Cox the top telephone provider in the Western region. PC Magazine awarded Cox High Speed Internet the Readers’ Choice Award, with the only A+ rating among all broadband Internet service providers. These accomplishments underscore Cox’s pledge to be Your Friend in the Digital Age. Our customers also enthusiastically embraced the debut of new services, including high-definition TV (HDTV), digital video recorders (DVRs) and entertainment on demand (EOD), in select markets. These services, which we will continue to roll out in 2004, enhance Cox’s video offering and differentiate it from competitors’ offerings. Despite a continued flat advertising market, advertising sales increased slightly to $384.8 million in 2003. Cox Business Services (CBS) increased revenue 25% to $287.7 million and surpassed the 100,000-customer milestone. CBS continues to successfully leverage Cox’s existing platform and processes to tap the considerable broadband opportunities in the commercial business segment, including notable advances in market segments such as education, healthcare and homeland defense. Also in 2003, a major undertaking, headed by Vice President and Treasurer Susan Coker, vastly simplified Cox’s balance sheet. By reducing leverage and strengthening liquidity, the treasury team’s more than 18 months of hard work helped improve the company’s overall financial flexibility. More Diversified Than EverCox’s core cable video business now accounts for 64% of total revenues, compared to 75% just two years ago. We clearly lead our industry and competitors in the ability to “bundle” multiple communications and entertainment services and deliver them via a single broadband network. At the end of 2003, 2.3 million customers subscribed to two or more of our three major residential services, representing a 37% growth in bundled customers vs. 2002. Cox High Speed Internet, now available throughout 98% of our coverage areas, ended 2003 with just under 2 million customers. Seven out of 10 broadband households in Cox markets use Cox High Speed Internet, not DSL. In select markets, we began offering new Internet packages to appeal to additional segments of customers. The Premier package offers higher speeds ideal for power users who download huge files regularly, while the Value package appeals to occasional Internet users who would otherwise choose dial-up. Our flagship Preferred package, offering 3 mbps downstream/256 kpbs upstream speeds, remains by far the most popular package and Cox’s best value in the high-speed Internet marketplace. Expanding to meet the varying needs of Internet users will increase market share as we introduce the power of broadband to greater numbers of customers. Retail distribution of Cox High Speed Internet continues to fuel growth. We recently signed a deal with Dell to market our service to consumers purchasing Dell computers online and via phone. Continuing to partner with retailers, including Circuit City and Best Buy, we are optimistic about these and other avenues to increase the retail distribution of our products. Cox Digital Telephone is now available to more than 5 million households in 12 markets and, in early 2004, we surpassed the momentous milestone of 1 million phone customers. In Tucson, Arizona, we successfully launched Cox Digital Telephone throughout the entire service area at once, the first full-market launch of phone service in Cox history. Our newest phone market, Roanoke, Virginia, represented our first rollout of phone service via Voice over Internet Protocol (VoIP) technology. The scalability and regional benefits of VoIP could enable us to introduce phone service in smaller markets that don’t justify the cost of a circuit switch, the technology long in place in our larger phone markets. Given our expertise in all aspects of delivering phone service, gained during seven years as a telecommunications provider, we’re excited about the tremendous opportunities to expand phone service, via both VoIP and circuit-switched technology. We are confident that we will continue to maintain our clear industry leadership position in cable telephony. Our Internet Protocol (IP) backbone and network architecture, along with our product quality, reliability, customer service and telecommunications experience, give us a significant edge with VoIP. We know from experience that customers who take the full bundle of cable, Internet and phone service are our most satisfied. VoIP will enable us to expand the full bundle into the bulk of our remaining systems, greatly enhancing growth prospects. Our 2003 accomplishments came despite formidable challenges. We faced devastating natural disasters in several of our markets, a continued weak economy, difficult negotiations with programming suppliers, and increased competitive activity across all product lines. Through it all, Cox employees again demonstrated their ability to focus on serving customers well and executing our business objectives. Throughout the year, we made significant improvement in controlling costs, in large part by increasing the number of Internet and digital cable customer self-installations and reducing truck rolls, as well as aggressive efforts to control the skyrocketing programming costs charged by cable networks. On all major fronts, we face 2004 in a strong competitive position, with great momentum propelling us to continued growth. Continued Growth in 2004Our nine years as a public company have been marked by strong financial growth, industry-leading operational results and considerable competitive assets, including excellent customer service, technological superiority, localism, strong management teams and superior products. For instance, we continue to offer new features and outstanding value that positions our video services favorably versus satellite service, including no large upfront equipment purchases or service contracts. Our HDTV service, now available to 85% of our service areas, is a more robust and powerful offering than customers can receive elsewhere. We’ve launched EOD via a two-way interactive platform and a compelling DVR service. We believe that our bundle of broadband services is the best in the business. We provide video, telephone and Internet services via a completely integrated back office and network platform. Capitalizing on these advantages is at the center of our strategy for continued growth and competitive excellence. In 2004, we will continue to focus on improving productivity. We will expand HDTV, DVR and EOD services to more customers in more markets. We will advance our bundling strategy further by adding new features and more convenience for customers. We will expand phone service aggressively and continue to enhance the features of our Internet and cable services. We will continue to grow our already strong advertising and commercial sales businesses. With our network upgrades essentially complete, we will continue to demonstrate the amazing power and potential of our broadband network. Although we will no doubt encounter continued competitive assaults, we will face them head on, with better products, better service and a better value, delivered by the best employees in the business, via the most powerful platform. In short, we are prepared for the challenges and the opportunities ahead and are extremely confident in our position. We thank you for your support of our company and our vision and look forward to delivering continued growth for you. Sincerely,
March 4, 2004 |
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