##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One)[ X ]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2004[   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
 to
 Commission File Number 1-6590(COX LOGO) Cox Communications, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of incorporation or organization)
    
    58-2112281(I.R.S. Employer Identification No.)
 1400 Lake Hearn Drive, Atlanta, Georgia(Address of principal executive offices)
    
    30319(Zip Code)
 Registrants telephone number, including area code: (404) 843-5000    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ] There were 593,154,457 shares of Class A Common Stock and 27,597,792
shares of Class C Common Stock
outstanding as of March 31, 2004.




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Cox Communications, Inc.
Form 10-Q
For the Quarter Ended March 31, 2004 Table of Contents  
 PagePart I  Financial InformationItem 1. Condensed Consolidated Financial Statements
    
    
    2Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    24Part II  Other InformationItem 1. Legal Proceedings
    
    
    24Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters of a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits and Reports on Form 8-K
    
    
    25EX-21 SUBSIDIARIES OF COX COMMUNICATIONS, INC.EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECT 906 CERTIFICATION OF THE CEO AND CFO
  Preliminary Note This quarterly report on Form 10-Q is for the three-month period ended
March 31, 2004. This quarterly report modifies and supersedes documents filed
prior to this quarterly report. The SEC allows Cox to incorporate by
reference information that Cox files with it, which means that Cox can
disclose important information to you by referring you directly to those
documents. Information incorporated by reference is considered to be part of
this quarterly report. In addition, information that Cox files with the SEC in
the future will automatically update and supersede information contained in
this quarterly report. In this quarterly report, Cox, refers to Cox
Communications, Inc. and its subsidiaries, unless the context requires
otherwise.




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##### Table of Contents



Part I - Financial Information 
 Item 1. Condensed Consolidated Financial Statements Cox Communications, Inc.
Condensed Consolidated Balance Sheets March 31
    
    December 312004
    
    2003(unaudited)(Thousands of Dollars)AssetsCurrent assetsCash
    
    $
    81,035
    
    
    $
    83,841Accounts and notes receivable, less allowance for doubtful
accounts of $23,868 and $26,175
    
    
    347,889
    
    
    
    370,832Other current assets
    
    
    143,182
    
    
    
    131,106Total current assets
    
    
    572,106
    
    
    
    585,779Net plant and equipment
    
    
    7,814,405
    
    
    
    7,907,561Investments
    
    
    46,905
    
    
    
    109,380Intangible assets
    
    
    15,698,939
    
    
    
    15,697,495Other noncurrent assets
    
    
    129,751
    
    
    
    117,361Total assets
    
    $
    24,262,106
    
    
    $
    24,417,576Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued expenses
    
    $
    720,487
    
    
    $
    778,708Other current liabilities
    
    
    447,118
    
    
    
    450,553Current portion of long-term debt
    
    
    49,840
    
    
    
    48,344Amounts due to Cox Enterprises, Inc. (CEI)
    
    
    20,610
    
    
    
    3,980Total current liabilities
    
    
    1,238,055
    
    
    
    1,281,585Deferred income taxes
    
    
    6,401,822
    
    
    
    6,388,970Other noncurrent liabilities
    
    
    160,038
    
    
    
    164,070Long-term debt, less current portion
    
    
    6,793,327
    
    
    
    6,963,456Total liabilities
    
    
    14,593,242
    
    
    
    14,798,081Commitments and contingencies (Note 12)Minority interest in equity of consolidated subsidiaries
    
    
    140,503
    
    
    
    139,519Shareholders equitySeries 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
    
    
    
    4,836Class A common stock, $1 par value; 671,000,000 shares
authorized; shares issued: 598,686,962 and 598,481,602; shares
outstanding: 593,154,457 and 592,958,582
    
    
    598,687
    
    
    
    598,482Class C common stock, $1 par value; 62,000,000 shares
authorized; shares issued and outstanding: 27,597,792
    
    
    27,598
    
    
    
    27,598Additional paid-in capital
    
    
    4,550,498
    
    
    
    4,545,635Retained earnings
    
    
    4,558,324
    
    
    
    4,500,621Accumulated other comprehensive income
    
    
    1,492
    
    
    
    15,548Class A common stock in treasury, at cost: 5,532,505 and 5,523,020
shares
    
    
    (213,074
    )
    
    
    (212,744
    )Total shareholders equity
    
    
    9,528,361
    
    
    
    9,479,976Total liabilities and shareholders equity
    
    $
    24,262,106
    
    
    $
    24,417,576
 See notes to condensed consolidated financial statements. 2




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Cox Communications, Inc.
Condensed Consolidated Statements of Operations Three MonthsEnded March 312004
    
    2003(unaudited)(Thousands of Dollars, excluding share data)Revenues
    
    $
    1,540,357
    
    
    $
    1,366,282Costs and expensesCost of services (excluding depreciation and amortization)
    
    
    635,816
    
    
    
    579,792Selling, general and administrative expenses
    
    
    337,308
    
    
    
    307,036Depreciation and amortization
    
    
    392,066
    
    
    
    384,320Operating income
    
    
    175,167
    
    
    
    95,134Interest expense
    
    
    (96,612
    )
    
    
    (129,824
    )Loss on derivative instruments, net
    
    
    (39
    )
    
    
    (2,503
    )Gain (loss) on investments, net
    
    
    26,809
    
    
    
    (1,751
    )Equity in net income (losses) of affiliated companies
    
    
    972
    
    
    
    (2,164
    )Other, net
    
    
    (1,509
    )
    
    
    (341
    )Income (loss) before income taxes and
minority interest
    
    
    104,788
    
    
    
    (41,449
    )Income tax expense (benefit)
    
    
    46,100
    
    
    
    (14,498
    )Income (loss) before minority interest
    
    
    58,688
    
    
    
    (26,951
    )Minority interest, net of tax
    
    
    (985
    )
    
    
    (2,270
    )Net income (loss)
    
    $
    57,703
    
    
    $
    (29,221
    )Share dataBasic net income (loss) per shareBasic weighted-average shares outstanding
    
    
    620,687,962
    
    
    
    620,223,074Basic net income (loss) per share
    
    $
    0.09
    
    
    $
    (0.05
    )Diluted net income (loss) per shareDiluted weighted-average shares outstanding
    
    
    633,332,317
    
    
    
    620,223,074Diluted net income (loss) per share
    
    $
    0.09
    
    
    $
    (0.05
    )
 See notes to condensed
consolidated financial statements. 3




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Cox Communications, Inc.
Condensed Consolidated Statement of Shareholders Equity Class AAccumulated
    
    CommonSeries A
    
    Common Stock
    
    Additional
    
    
    
    
    
    Other
    
    Stock inPreferred
    
    
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    Treasury,
    
    
    
    
    
    ComprehensiveStock
    
    Class A
    
    Class C
    
    Capital
    
    Earnings
    
    Income
    
    at Cost
    
    Total
    
    Income(unaudited)(Thousands of Dollars)December 31, 2003
    
    $
    4,836
    
    
    $
    598,482
    
    
    $
    27,598
    
    
    $
    4,545,635
    
    
    $
    4,500,621
    
    
    $
    15,548
    
    
    $
    (212,744
    )
    
    $
    9,479,976Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,703
    
    
    
    
    
    
    
    
    
    
    
    57,703
    
    
    $
    57,703Issuance of stock related to
stock compensation plans (including tax
benefit on stock options exercised of $2,111)
    
    
    
    
    
    
    205
    
    
    
    
    
    
    
    4,863
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,068Shares surrendered in connection
with vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (330
    )
    
    
    (330
    )Change in net accumulated unrealized
gain on securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,056
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,056
    )
    
    
    
    
    
    
    (14,056
    )
    
    
    (14,056
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    43,647March 31, 2004
    
    $
    4,836
    
    
    $
    598,687
    
    
    $
    27,598
    
    
    $
    4,550,498
    
    
    $
    4,558,324
    
    
    $
    1,492
    
    
    $
    (213,074
    )
    
    $
    9,528,361
 See notes to condensed
consolidated financial statements. 4




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Cox Communications, Inc.
Condensed Consolidated Statements of Cash Flows Three MonthsEnded March 312004
    
    2003(unaudited)(Thousands of Dollars)Cash flows from operating activitiesNet income (loss)
    
    $
    57,703
    
    
    $
    (29,221
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    392,066
    
    
    
    384,320Deferred income taxes
    
    
    21,651
    
    
    
    21,028Loss on derivative instruments, net
    
    
    39
    
    
    
    2,503(Gain) loss on investments, net
    
    
    (26,809
    )
    
    
    1,751Equity in net (income) losses of affiliated companies
    
    
    (972
    )
    
    
    2,164Minority interest, net of tax
    
    
    985
    
    
    
    2,270Other, net
    
    
    4,473
    
    
    
    34,948Decrease in accounts and notes receivable
    
    
    22,943
    
    
    
    36,575(Increase) decrease in other assets
    
    
    (12,510
    )
    
    
    21,152Decrease in accounts payable and accrued expenses
    
    
    (65,662
    )
    
    
    (84,097
    )Decrease in taxes payable
    
    
    4,500
    
    
    
    (37,549
    )(Decrease) increase in other liabilities
    
    
    (19,585
    )
    
    
    22Net cash provided by operating activities
    
    
    378,822
    
    
    
    355,866Cash flows from investing activitiesCapital expenditures
    
    
    (294,554
    )
    
    
    (325,684
    )Investments in affiliated companies
    
    
    
    
    
    
    (2,949
    )Proceeds from the sale of investments
    
    
    67,247
    
    
    
    Decrease in amounts due from CEI
    
    
    
    
    
    
    21,109Other, net
    
    
    3,578
    
    
    
    (3,218
    )Net cash used in investing activities
    
    
    (223,729
    )
    
    
    (310,742
    )Cash flows from financing activitiesCommercial paper (repayments) borrowings, net
    
    
    (155,016
    )
    
    
    98,210Repayment of debt
    
    
    (37,739
    )
    
    
    (315,739
    )Proceeds from exercise of stock options
    
    
    1,765
    
    
    
    1,286Increase in amounts due to CEI
    
    
    16,630
    
    
    
    49,821Other, net
    
    
    16,461
    
    
    
    13,462Net cash used in financing activities
    
    
    (157,899
    )
    
    
    (152,960
    )Net decrease in cash
    
    
    (2,806
    )
    
    
    (107,836
    )Cash at beginning of period
    
    
    83,841
    
    
    
    228,704Cash at end of period
    
    $
    81,035
    
    
    $
    120,868
 See notes to condensed
consolidated financial statements. 5




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##### Table of Contents



Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) Quarter Ended March 31, 2004 1. Organization and Basis of Presentation Cox Communications, Inc. (Cox), an indirect 63.4% majority-owned
subsidiary of Cox Enterprises, Inc. (CEI), is a multi-service broadband
communications company serving approximately 6.7 million customers nationwide.
Cox is the nations fourth largest cable television provider and offers an
array of broadband products and services to both residential and commercial
customers in its markets. These services primarily include analog and digital
video, high-speed Internet access and local and long-distance telephone. Cox
operates in one operating segment, broadband communications. The accompanying unaudited interim condensed consolidated financial
statements of Cox have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnote
disclosures required by GAAP for complete financial statements. In the opinion
of management, the condensed consolidated financial statements reflect all
adjustments considered necessary for a fair statement of the consolidated
results of operations and financial position for the interim periods presented.
All such adjustments are of a normal recurring nature. These unaudited interim
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto contained in
Coxs Annual Report on Form 10-K for the year ended December 31, 2003. 2. Summary of Significant Accounting Policies The following is a summary of certain significant accounting policies.
For a detailed description of all of Coxs significant accounting policies, see
Note 2. Summary of Significant Accounting Policies and Other Items contained
in Coxs Annual Report on Form 10-K for the year ended December 31, 2003. Use of Estimates The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the year
ending December 31, 2004 or any other interim period. Asset Retirement Obligations On January 1, 2003, Cox adopted Statement of Financial Accounting
Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 requires that a liability be recognized for an
asset retirement obligation in the period in which it is incurred if a
reasonable estimate of fair value can be made. Certain of Coxs franchise
agreements and lease agreements contain provisions requiring Cox to restore
facilities or remove equipment in the event that the franchise or lease
agreement is not renewed. Cox expects to continually renew its franchise
agreements and lease agreements related to the continued operation of its
broadband network, and has concluded that the related franchise right is an
indefinite-lived intangible asset. Accordingly, Cox has concluded that the
timing of the settlement related to any potential asset retirement obligation
is indeterminate. Cox continually monitors the renewal status of its franchise
agreements and its lease 6




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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
 Continued agreements. In the unlikely event that it is anticipated that a franchise
agreement or lease agreement containing such a provision will not be renewed
and Cox is required to remove its equipment (and accordingly the timing of the
settlement related to any potential asset retirement obligation can be
estimated), Cox will record an estimated asset retirement obligation, if
material. Stock Compensation Plans At March 31, 2004, Cox had two stock-based compensation plans for employees, a
Long-Term Incentive Plan (LTIP) and an Employee Stock Purchase Plan (ESPP),
which are more fully described in Coxs Annual Report on Form 10-K for the year
ended December 31, 2003. Cox accounts for these plans under the intrinsic
value method, which follows the recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. All options granted under the LTIP
had an exercise price equal to or greater than the market value of the
underlying common stock on the grant date; therefore, no employee compensation
cost is reflected in net income with respect to options. Further, the ESPP is
a noncompensatory plan under APB Opinion No. 25, and, as such, no compensation
cost was recognized with respect to the ESPP. Cox recognizes compensation cost
related to restricted stock awards granted under the LTIP, as the exercise
price of the awards is less than the market value of the underlying common
stock on the grant date. The following table illustrates the effect on net income (loss) and net
income (loss) per share if Cox had applied the fair value recognition
provisions of SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, and SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation: Three Months EndedMarch 312004
    
    2003(Thousands of Dollars,excluding per share data)Net income (loss), as reported
    
    $
    57,703
    
    
    $
    (29,221
    )Add: Stock-based compensation, as reported
    
    
    1,116
    
    
    
    148Deduct: Total stock-based compensation
determined under fair value based method
for all awards, net of tax
    
    
    (7,191
    )
    
    
    (4,913
    )Pro forma net income (loss)
    
    $
    51,628
    
    
    $
    (33,986
    )Earnings (loss) per share:Basic earnings (loss) per share  as reported
    
    $
    0.09
    
    
    $
    (0.05
    )Basic earnings (loss) per share  pro forma
    
    
    0.08
    
    
    
    (0.05
    )Diluted earnings (loss) per share  as reported
    
    $
    0.09
    
    
    $
    (0.05
    )Diluted earnings (loss) per share  pro forma
    
    
    0.08
    
    
    
    (0.05
    )
 Reclassifications Certain amounts in the 2003 unaudited interim condensed consolidated
financial statements have been reclassified for comparative purposes. 7




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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
 Continued 3. Investments March 31
    
    December 312004
    
    2003(Thousands of Dollars)Investments stated at fair value:Available-for-sale
    
    $
    3,083
    
    
    $
    66,376Derivative instruments
    
    
    1,230
    
    
    
    1,269Equity method investments
    
    
    31,946
    
    
    
    31,088Investments stated at
cost
    
    
    10,646
    
    
    
    10,647Total
investments
    
    $
    46,905
    
    
    $
    109,380
 Investments Stated at Fair Value The aggregate cost of Coxs investments stated at fair value at March 31,
2004 and December 31, 2003 was $2.1 million and $42.5 million, respectively.
Gross unrealized gains on investments were $2.4 million and $25.3 million at
March 31, 2004 and December 31, 2003, respectively. For the three months ended
March 31, 2004, gross realized gains on investments stated at fair value were
$26.8 million. For the three months ended March 31, 2003, gross realized
losses on investments stated at fair value were $1.8 million. Derivative
instruments classified within investments are comprised of certain warrants to
purchase shares of publicly-traded and privately-held entities, as further
described in Note 6. Derivative Instruments and Hedging Activities. Sprint PCS.In March 2004, Cox sold 0.1 million shares of Sprint
Corporations PCS Group (Sprint PCS) preferred stock for aggregate net proceeds
of approximately $56.9 million. Cox recognized a pre-tax gain of $19.5 million
on the sale of these shares. At March 31, 2004, Coxs investment in Sprint PCS was comprised of 0.3
million shares of Sprint PCS common stock. The estimated fair value of Coxs
investment in Sprint PCS was $3.1 million and $59.9 million at March 31, 2004
and December 31, 2003, respectively. Other During the first quarter of 2004, Cox sold certain other non-strategic
investments for aggregate net proceeds of approximately $10.3 million. Cox
recognized a pre-tax gain of $7.3 million on the sale of these investments. Cox has several other fair value, equity and cost method investments that
were not, individually or in the aggregate, significant in relation to the
Condensed Consolidated Balance Sheets at March 31, 2004 and December 31, 2003. 4. Intangible Assets On January 1, 2002, Cox adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which requires that goodwill and certain intangible assets
with indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually. Cox has determined that its franchise value
intangible assets have an indefinite useful life. Cox assesses franchise value
for impairment under SFAS No. 142 by utilizing a residual approach whereby Cox
measures the implied fair value of each franchise value intangible asset
subject to the same unit of accounting by deducting from the fair value of each
cable system cluster the fair value of the cable system clusters other net
assets, including previously unrecognized intangible assets. In performing an
impairment test in accordance with SFAS No. 142, Cox considers the guidance
contained in Emerging Issues Task Force Issue No. 02-17, Recognition of
Customer Relationship Intangible Assets Acquired in a Business Combination,
whereby Cox considers assumptions that marketplace participants 8




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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
 Continued would consider, such as expectations of future contract renewals and other
benefits related to the intangible asset, when measuring the fair value of the
cable system clusters other net assets. The January 2003 impairment test in
accordance with SFAS No. 142 resulted in a non-cash impairment charge of
approximately $25.0 million, which is classified within amortization expense in
Coxs Condensed Consolidated Statement of Operations. Cox completed its next
impairment test in accordance with SFAS No. 142 in August 2003. The August
2003 test indicated no impairment of franchise value. Summarized below are the carrying value and accumulated amortization of
intangible assets that continue to be amortized under SFAS No. 142, as well as
the carrying value of those intangible assets, which are no longer amortized: March 31, 2004
    
    December 31, 2003Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Carrying
    
    Carrying
    
    Accumulated
    
    CarryingValue
    
    Amortization
    
    Value
    
    Value
    
    Amortization
    
    Value(Thousands of Dollars)Intangible assets subject
to amortization
    
    $
    55,792
    
    
    $
    17,676
    
    
    $
    38,116
    
    
    $
    58,526
    
    
    $
    21,855
    
    
    $
    36,671Franchise value
    
    
    
    
    
    
    
    
    
    $
    15,660,823
    
    
    
    
    
    
    
    
    
    
    $
    15,660,824Total intangible assets
    
    
    
    
    
    
    
    
    
    $
    15,698,939
    
    
    
    
    
    
    
    
    
    
    $
    15,697,495
 5. Debt March 31
    
    December 312004
    
    2003(Thousands of Dollars)Revolving credit
facilities
    
    $
    
    
    
    $
    Commercial paper
    
    
    147,993
    
    
    
    302,283Medium-term notes
    
    
    364,375
    
    
    
    364,359Notes and
debentures
    
    
    6,076,716
    
    
    
    6,078,904Exchangeable subordinated debentures
    
    
    26,504
    
    
    
    26,138Capitalized lease
obligations
    
    
    205,555
    
    
    
    217,992Other
    
    
    22,024
    
    
    
    22,1246,843,167
    
    
    
    7,011,800Less current
portion
    
    
    49,840
    
    
    
    48,344Total long-term debt
    
    $
    6,793,327
    
    
    $
    6,963,456
 See Note 6. Derivative Instruments and Hedging Activities for a
discussion of the accounting for certain derivative instruments embedded in the
exchangeable subordinated debentures, which have been classified as a component
of debt in the Condensed Consolidated Balance Sheets at March 31, 2004 and
December 31, 2003. Revolving Credit Facilities Cox has a $900.0 million 364-day credit agreement available through June
26, 2004 and a $900.0 million 5-year credit agreement available through
September 26, 2005. The 364-day credit agreement allows Cox to extend the
agreement for an additional two years at maturity. At Coxs election, the
interest rate on these credit agreements is based on London Interbank Offered
Rate (LIBOR), the certificate of 9




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##### Table of Contents



Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)  Continued deposit rate plus varying percentages or an alternate base rate. These credit
agreements also impose a commitment fee on the unused portion of the total
amount available based on a ratio of debt to operating cash flow, a measure of
performance not calculated in accordance with GAAP, and a utilization fee based
on the level of borrowings. Cox had no borrowings outstanding under either
credit agreement at March 31, 2004 and December 31, 2003. Notes and Debentures In accordance with the terms of the indenture governing Coxs convertible
senior notes due 2021, Cox became obligated to purchase for cash convertible
notes tendered and not withdrawn before the close of business on February 23,
2004. Cox repurchased $19.0 million aggregate principal amount at maturity of
the convertible notes that had been properly tendered and not withdrawn, for
aggregate cash consideration of $13.9 million, which represented the accreted
value of the repurchased notes. As a result, no convertible notes remain
outstanding. Exchangeable Subordinated Debentures Exchangeable subordinated debentures at March 31, 2004 are comprised of:
$14.6 million aggregate original principal amount of exchangeable subordinated
debentures, referred to as PRIZES; $0.1 million aggregate original principal
amount of exchangeable subordinated debentures, referred to as Premium PHONES;
and $62.3 million aggregate principal amount at maturity of exchangeable
subordinated discount debentures, referred to as Discount Debentures. In 2003, Cox purchased approximately 99% of its outstanding PRIZES and
Premium PHONES pursuant to cash tender offers. On April 23, 2004, Cox notified
holders of the PRIZES and Premium PHONES that it would redeem all remaining
outstanding PRIZES and Premium PHONES on June 7, 2004. Interest Rate Swaps Cox utilizes interest rate swap agreements to manage its exposure to
changes in interest rates associated with certain of its fixed-rate debt
obligations whereby these fixed-rate debt obligations are effectively converted
into floating-rate debt obligations. The variable rates with respect to Coxs
interest rate swaps are adjusted quarterly or semi-annually based on LIBOR.
The notional amounts with respect to the interest rate swaps do not quantify
risk, but are used in the determination of cash settlements under the interest
rate swap agreements. Cox is exposed to a credit loss in the event of
nonperformance by the counterparties; however, these counterparties are major
financial institutions, rated investment grade or better. Accordingly, Cox
does not anticipate nonperformance by the counterparties. For a further
discussion regarding Coxs accounting for interest rate swaps, see Note 6.
Derivative Instruments and Hedging Activities. The following table summarizes the notional amounts, weighted average
interest rate data and maturities for Coxs interest rate swap agreements at
March 31, 2004 and December 31, 2003: March 31
    
    December 312004
    
    2003Notional amount (in thousands)
    
    $
    1,750,000
    
    
    $
    1,750,000Weighted average fixed interest rate received
    
    
    7.38
    %
    
    
    7.38
    %Weighted average floating interest rate paid
    
    
    3.28
    %
    
    
    3.27
    %Maturity
    
    
    2004 - 2009
    
    
    
    2004 - 2009
 As a result of the settlements under Coxs interest rate swap agreements,
interest expense was reduced by $18.1 million and $13.8 million, respectively,
during the three months ended March 31, 2004 and 2003. 10




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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)  Continued 6. Derivative Instruments and Hedging Activities Cox accounts for derivative instruments in accordance with SFAS No. 133,
which requires all freestanding and embedded derivative instruments to be
measured at fair value and recognized on the balance sheet as either assets or
liabilities. In addition, all derivative instruments used in hedging
relationships must be designated, reassessed and accounted for as either fair
value hedges or cash flow hedges pursuant to the provisions of SFAS No. 133. Cox does not hold or issue derivative instruments for trading purposes and
is not a party to leveraged instruments. From time to time, however, Cox uses
derivative instruments to manage its exposure to changes in the fair value of
certain of its assets or liabilities or to manage its exposure to changes in
interest rates or equity prices. These derivative instruments are designated
and accounted for by Cox as hedges of the underlying exposure being managed, as
prescribed by SFAS No. 133. In addition, upon adoption of SFAS No. 133,
certain of Coxs debt instruments and investments contained embedded or
freestanding derivatives, as defined. Cox has not designated these embedded
and freestanding derivatives as hedges under SFAS No. 133 and, as such, changes
in their fair value are being recognized in earnings as derivative gains or
losses. Coxs use of derivative instruments may result in short-term gains or
losses and may increase volatility in its earnings. The credit risks associated with Coxs derivative financial instruments
are controlled through the evaluation and monitoring of the creditworthiness of
the counterparties. The counterparties are major financial institutions, rated
investment grade or better. Accordingly, Cox does not anticipate
nonperformance by the counterparties. Cox recorded a nominal pre-tax loss on derivative instruments during the
three months ended March 31, 2004 and a pre-tax loss on derivative instruments
of $2.5 million during the three months ended March 31, 2003. Derivative
adjustments made in accordance with SFAS No. 133 have historically had a
material impact on reported indebtedness. As a result of Coxs purchase of its
exchangeable subordinated debentures, net settlement of its zero-coupon debt
and sale of Sprint PCS stock during 2003, SFAS No. 133 adjustments did not
significantly impact reported indebtedness at March 31, 2004 or December 31,
2003. The following is a detail of Coxs loss on derivative instruments for
the three months ended March 31, 2004 and 2003 followed by a summary of Coxs
derivative instruments. Three Months EndedMarch 312004
    
    2003(Thousands of Dollars)Zero-coupon debt
    
    $
    
    
    
    $
    1,632Exchangeable subordinated debentures
    
    
    
    
    
    
    150Stock purchase warrants
    
    
    (39
    )
    
    
    (4,285
    )Total loss
on derivative instruments, net
    
    $
    (39
    )
    
    $
    (2,503
    )
 Interest Rate Swap Agreements Cox utilizes interest rate swap agreements designed to assist Cox in
maintaining a mix of fixed and floating rate debt by converting a portion of
existing fixed rate debt into a floating rate obligation. Cox has designated
and accounted for its interest rate swap agreements as fair value hedges
whereby the fair value of the related interest rate swap agreements are
classified as a component of other assets with the corresponding fixed-rate
debt obligations being classified as a component of debt in the Condensed
Consolidated Balance Sheets. Cox has assumed no ineffectiveness with regard to
these interest rate swap agreements as the agreements qualify for the short-cut
methodof accounting for fair value hedges of debt instruments, as prescribed
by SFAS No. 133. Coxs interest rate swap agreements approximated a derivative
asset of $73.6 million and $61.2 million at March 31, 2004 and December 31,
2003, respectively. 11




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##### Table of Contents



Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)  Continued Zero-Coupon Debt In August 2003, Cox terminated its series of prepaid forward contracts to
sell up to 19.5 million shares of its Sprint PCS common stock. Prior to the
termination, these contracts met the definition of a hybrid instrument, as
prescribed by SFAS No. 133. These hybrid instruments were comprised of a
zero-coupon debt instrument, as the host contract, and an embedded derivative,
which derived its value, in part, based on the trading price of Sprint PCS
common stock. Cox did not designate these embedded derivatives as a hedge of
its investment in Sprint PCS common stock. As a result, changes in the fair
value of these embedded derivatives were recognized in earnings and classified
within gain (loss) on derivative instruments in Coxs Condensed Consolidated
Statements of Operations. Exchangeable Subordinated Debentures Cox has three series of exchangeable subordinated debentures outstanding,
referred to as PRIZES, Premium PHONES and Discount Debentures. The exchangeable
subordinated debentures meet the definition of a hybrid instrument, as
prescribed by SFAS No. 133. These hybrid instruments are comprised of an
exchangeable subordinated debt instrument, as the host contract, and an
embedded derivative, which derives its value, in part, based on the trading
price of Sprint PCS common stock, U.S. Treasury rates and Coxs credit spreads.
Cox has not designated these embedded derivatives as a hedge of its investment
in Sprint PCS common stock. As a result, changes in the fair value of these
embedded derivatives are recognized in earnings and classified within gain
(loss) on derivative instruments in the Condensed Consolidated Statements of
Operations. The aggregate fair value of these embedded derivatives approximated
a derivative obligation of $0 at March 31, 2004 and December 31, 2003. Stock Purchase Warrants Cox holds warrants to purchase equity securities of certain
publicly-traded and privately-held entities. Warrants that can be exercised
and settled by the delivery of net shares such that Cox pays no cash upon
exercise are deemed freestanding derivative instruments, as prescribed by SFAS
No. 133. Cox has not designated net share warrants as hedging instruments;
accordingly, changes in the fair value of these warrants are recognized in
earnings and classified within gain (loss) on derivative instruments in the
Condensed Consolidated Statements of Operations. The aggregate fair value of
these warrants approximated a derivative asset of $1.2 million and $1.3 million
at March 31, 2004 and December 31, 2003, respectively, and has been classified
as a component of investments in the Condensed Consolidated Balance Sheets. 7. Net Income Per Share The following table reconciles the numerator and the denominator of the
basic and diluted per share computations for net income for the
three months ended March 31, 2004: 12




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##### Table of Contents



Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)  Continued Three MonthsEndedMarch 31, 2004(In Thousands,excluding per share data)Net income (A)
    
    $
    57,703Basic weighted-average shares outstanding (B)
    
    
    620,688Effect of dilutive securities:Employee stock purchase plan
    
    
    75Restricted stock
    
    
    1,357Convertible preferred stock
    
    
    11,212Diluted weighted-average shares outstanding (C)
    
    
    633,332Net income per shareBasic net income per share (A/B)
    
    $
    0.09Diluted net income per share (A/C)
    
    $
    0.09
 For the three months ended March 31, 2004, 19.1 million common shares
related to employee stock-based compensation plans were not included in the
computation of diluted net income per share, because such effects would have
been antidilutive for the period. For the three months ended March 31, 2003, 25.2 million common shares
related to employee stock-based compensation plans, convertible preferred stock
and convertible senior notes were not included in the computation of diluted
net income per share, because such effects would have been antidilutive for the
period. 8. Transactions with Affiliated Companies Cox receives day-to-day cash management services from CEI, with
settlements of outstanding balances between Cox and CEI occurring periodically
at market interest rates. The amounts due to CEI are generally due on demand
and represent the net balance of the intercompany transactions. The amount due
to CEI from Cox was $20.6 million and $4.0 million at March 31, 2004 and
December 31, 2003, respectively. The interest rate was 1.1% and 1.3% at March
31, 2004 and December 31, 2003, respectively. Included in amounts due to CEI
are the following transactions: (Thousands of Dollars)Intercompany due to CEI, December 31, 2003
    
    $
    3,980Cash transferred to CEI
    
    
    (66,839
    )Net operating expense reimbursements
    
    
    83,469Intercompany due to CEI, March 31, 2004
    
    $
    20,610
 9. Retirement Plans The following table provides a detail of the components of net periodic
benefit cost for the three months ended March 31, 2004 and 2003: 13




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##### Table of Contents



Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)  Continued Three Months Ended March 312004
    
    2003Pension
    
    Other
    
    Pension
    
    OtherBenefits
    
    Benefits
    
    Benefits
    
    BenefitsService
cost
    
    $
    7,193
    
    
    $
    1,338
    
    
    $
    6,385
    
    
    $
    1,075Interest
cost
    
    
    5,271
    
    
    
    777
    
    
    
    4,337
    
    
    
    699Expected return on plan
assets
    
    
    (5,791
    )
    
    
    (301
    )
    
    
    (4,855
    )
    
    
    Prior service cost
amortization
    
    
    59
    
    
    
    
    
    
    
    54
    
    
    
    Actuarial (gain) loss amortization
    
    
    895
    
    
    
    75
    
    
    
    392
    
    
    
    (22
    )Net periodic benefit
cost
    
    $
    7,627
    
    
    $
    1,889
    
    
    $
    6,313
    
    
    $
    1,752
 Cox contributed its total planned 2003 plan year contributions for the
funded pension plans during 2003. Due to this accelerated contribution, Cox
does not anticipate additional contributions during 2004 for the funded pension
plans. Cox contributed $2.4 million on January 7, 2004 into its 401(h) account to
fund post-retirement welfare benefits. Additional contributions, if any, will
be determined later in 2004. 10. Financial Instruments with Characteristics of both Liabilities and Equity In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. SFAS No. 150 establishes standards for
classification and measurement by an issuer of certain financial instruments
with characteristics of both liabilities and equity. The statement requires
that an issuer classify a financial instrument that is within its scope as a
liability (or asset in some circumstances); however, the FASB indefinitely
deferred the effective date of this statement as it relates to certain
mandatorily redeemable non-controlling interests in consolidated limited-life
subsidiaries. Cox currently consolidates a 75% majority-owned interest in a
limited-life partnership. The estimated liquidation value of the 25% minority
interest was approximately $184.7 million as of March 31, 2004. 11. Supplemental Financial Information March 31
    
    December 312004
    
    2003(Thousands of Dollars)Other current assetsInventory
    
    $
    59,456
    
    
    $
    49,137Prepaid
assets
    
    
    40,954
    
    
    
    37,600Deferred income tax
asset
    
    
    34,393
    
    
    
    34,393Other
    
    
    8,379
    
    
    
    9,976Total other current
assets
    
    $
    143,182
    
    
    $
    131,106Other current liabilitiesDeposits and
advances
    
    $
    101,499
    
    
    $
    92,008Income tax
payable
    
    
    218,315
    
    
    
    215,926Other
    
    
    127,304
    
    
    
    142,619Total other current
liabilities
    
    $
    447,118
    
    
    $
    450,553
 14




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##### Table of Contents



Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)  Continued Three Months EndedMarch 312004
    
    2003(Thousands of Dollars)Additional cash flow informationCash paid for
interest
    
    $
    69,030
    
    
    $
    93,598Cash paid for income
taxes
    
    
    20,169
    
    
    
    2,477
 12. Commitments and Contingencies In connection with certain of Coxs recent acquisitions and other
transactions, Cox has provided certain indemnities to the respective
counterparties with respect to future claims that may arise from state or
federal taxing authorities. The nature and terms of these indemnities vary by
transaction and generally remain in force through the requisite statutory
review periods. In addition, the events or circumstances that would require
Cox to perform under these indemnities are transaction and circumstance
specific. As of March 31, 2004, Cox believes the likelihood that it will be
required to perform under these indemnities is remote and that the maximum
potential future payments that Cox could be required to make under these
indemnifications are not determinable at this time, as any future payments
would be dependent on the type and extent of the related claims, and all
available defenses, which are not reasonably estimable. Cox has not
historically incurred any material costs related to performance under these
types of indemnities. Coxs subsidiary Cox Communications Louisiana L.L.C. (Cox Louisiana) is a
defendant in a putative subscriber class action suit in Louisiana state court
filed on November 5, 1997. The suit challenges the propriety of late fees
charged by Cox Louisiana in the greater New Orleans area to customers who fail
to pay for services in a timely manner. The suit seeks injunctive relief and
damages under certain claimed state law causes of action. On March 29, 2004,
the parties entered into a settlement agreement, which does not have a material
impact on Coxs operations or liquidity. This settlement has been submitted to
the court for final approval. On November 14, 2000, GTE.NET, L.L.C. d/b/a Verizon Internet Solutions and
Verizon Select Services, Inc. filed suit against Cox in the United States
District Court for the Southern District of California. Verizon alleged that
Cox has violated various sections of the Communications Act of 1934 by
allegedly refusing to provide Verizon with broadband telecommunications service
and interconnection, among other things. On November 29, 2000, Verizon amended
its complaint to add CoxCom, Inc., a subsidiary of Cox, as an additional
defendant. On January 8, 2002, Verizon filed a second amended complaint,
dropping its claims for interconnections and damages. Verizon seeks various
forms of relief, including declaratory and injunctive relief. On January 29,
2002, the Court granted defendants motion to stay the case on primary
jurisdiction grounds. Cox and CoxCom intend to defend this action vigorously.
The outcome cannot be predicted at this time. Cox @Home, Inc., a wholly-owned subsidiary of Cox, is a stockholder of At
Home Corporation, also called Excite@Home, formerly a provider of high-speed
Internet access and content services, which filed for bankruptcy protection in
September 2001. On September 24, 2002, a committee of bondholders of
Excite@Home sued Cox, Cox @Home and Comcast Corporation, among others, in the
United States District Court for the District of Delaware. The suit alleges
the realization of short-swing profits under Section 16(b) of the Securities
Exchange Act of 1934 from purported transactions relating to Excite@Home common
stock involving Cox, Comcast and AT&T Corp., and purported breaches of
fiduciary duty. The suit seeks disgorgement of short-swing profits allegedly
received by the Cox and Comcast defendants totaling at least $600.0 million,
damages for breaches of fiduciary duties in an unspecified amount, attorneys
fees, pre-judgment interest and post-judgment interest. On November 12, 2002,
Cox, Cox @Home, and David Woodrow filed a motion to dismiss or transfer the
action for improper venue or, in the alternative, to transfer the action
pursuant to 28 U.S.C. Sec. 1404. On September 30, 2003, the Delaware District
Court ordered the action transferred to the United States District Court for
the Southern District of 15




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##### Table of Contents



Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)  Continued New York. On December 22, 2003, Cox and Cox@Home filed a motion to
dismiss, or, in the alternative, for judgment on the pleadings, with respect to
the Section 16(b) claim. That motion is pending. Cox and Cox @Home intend to
defend this action vigorously. The outcome cannot be predicted at this time. Jerrold Schaffer and Kevin J. Yourman, on May 26, 2000 and May 30, 2000,
respectively, filed class action lawsuits in the Superior Court of California,
San Mateo County, on behalf of themselves and all other stockholders of
Excite@Home as of March 28, 2000, seeking (a) to enjoin consummation of a March
28, 2000 letter agreement among Excite@Homes principal investors, including
Cox, and (b) unspecified compensatory damages. Cox and David Woodrow, Coxs
former Executive Vice President, Business Development, among others, are named
defendants in both lawsuits. Mr. Woodrow formerly served on the Excite@Home
board of directors. The plaintiffs assert that the defendants breached
purported fiduciary duties of care, candor and loyalty to the plaintiffs by
entering into the letter agreement and/or taking certain actions to facilitate
the consummation of the transactions contemplated by the letter agreement. On
February 26, 2001, the Court stayed both actions, which had been previously
consolidated, on grounds of forum non-conveniens. A related suit styled Linda
Ward, et al. v. At Home Corporation (No. 418233) was filed on September 6,
2001, in the same court. On February 7, 2002, the Court consolidated the Ward
action with the Schaffer/Yourman action, thereby also staying the Ward action.
On June 18, 2002, the court granted plaintiffs motion to lift the stay and
authorized discovery to proceed regarding Coxs pending motion to dismiss for
lack of personal jurisdiction. On September 10, 2002, the United States
Bankruptcy Court for the Northern District of California in the Excite@Home
bankruptcy proceeding held that the claims in the suits were derivative and,
thus, constituted the exclusive property of the Excite@Home bankruptcy estate.
The Bankruptcy Court thereafter ordered the plaintiffs to dismiss the suits.
Plaintiffs subsequently appealed the Bankruptcy Courts decision to the United
States District Court for the Northern District of California. On September
29, 2003, the District Court affirmed the order of the Bankruptcy Court. On
October 27, 2003, plaintiffs filed a notice of appeal of the District Courts
decision to the United States Court of Appeals for the Ninth Circuit. Cox
intends to defend this action vigorously. The outcome cannot be predicted at
this time. On April 26, 2002, Frieda and Michael Eksler filed an amended complaint
naming Cox as a defendant in a putative class action lawsuit in the United
States District Court for the Southern District of New York against AT&T Corp.
and certain former officers and directors of Excite@Home, among others. Cox
was served on May 10, 2002. This case has been consolidated with a related
case captioned Semen Leykin v. AT&T Corp., et al., and another related case,
and an amended complaint in the consolidated case, naming Cox as a defendant,
was filed and served on November 7, 2002. The putative class includes persons
who purchased and held shares of Excite@Home common stock between the time
period March 28, 2000 and September 28, 2001. The sole count against Cox
asserts a claim against Cox as an alleged controlling person of Excite@Home
under Section 20(a) of the Securities Exchange Act for violations of Section
10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The suit seeks
from Cox unspecified monetary damages, statutory compensation and other relief.
In addition, a claim against Coxs former Executive Vice President, David
Woodrow, who formerly served on Excite@Homes board of directors, is asserted
for breach of purported fiduciary duties. The suit seeks from Woodrow
unspecified monetary and punitive damages. On February 11, 2003, Cox and
Woodrow filed a dispositive motion to dismiss on various grounds, including
failure to state a claim. On September 17, 2003, the District Court granted
the motion in part and denied it in part. Specifically, the Court dismissed
several purported statements by Excite@Home as bases for potential liability
because they were merely generalized expressions of confidence and optimism
constituting puffery, dismissed the fiduciary duty claim against Mr. Woodrow
as pre-empted by the federal securities laws, and denied the motions as to the
remaining allegations of the complaint. On October 7, 2003, Cox and Mr.
Woodrow sought reconsideration of a portion of the Courts order. On December
24, 2003, the plaintiffs moved to certify a class of persons who purchased
Excite@Home stock between March 28, 2000 and September 28, 2001, or held such
stock as of April 28, 2000. This motion is pending. On February 17, 2004, the
Court granted plaintiffs leave to file a motion to amend the complaint to add
an additional claim for relief against all defendants under Section 14(a) of
the Securities Exchange Act in connection with an allegedly false or misleading
proxy statement issued by Excite@Home. On February 24, 2004, the Court granted
Coxs and Mr. Woodrows motion for reconsideration and dismissed plaintiffs
allegations that Cox and Mr. Woodrow were control persons 16




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##### Table of Contents



Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)  Continued with respect to primary violations of Rule 10b-5 alleged to have occurred
after August 28, 2000. On April 5, 2004, Cox and certain other defendants
jointly filed a motion to dismiss the Section 14(a) cause of action that was
added in plaintiffs amended complaint, and briefing of that motion is ongoing.
Cox intends to defend this action vigorously. The outcome cannot be predicted
at this time. On July 3, 2003, Leo James filed a putative class action lawsuit against
Cox and David Woodrow, among others, in the United States District Court for
the Southern District of New York. Cox was served on October 27, 2003. Mr.
James is represented by the same attorneys who represent the individuals who
were previously designated lead plaintiffs in the Leykin action described
above. The complaint in the James action asserts claims substantially similar
to the operative allegations in the Leykin action described above.
Accordingly, the sole count against Cox asserts a claim against Cox as an
alleged controlling person of Excite@Home under Section 20(a) of the
Securities Exchange Act for violations of Section 10(b) of the Securities
Exchange Act and Rule 10b-5 thereunder and seeks from Cox unspecified monetary
damages, statutory compensation and other relief. On November 17, 2003, Cox
and certain other defendants jointly filed a motion to dismiss the James action
on the grounds that, among other things, it was duplicative of the Leykin
action. That motion is pending. Cox intends to defend the action vigorously.
The outcome cannot be predicted at this time. Cox and its subsidiaries are parties to various other legal proceedings
that are ordinary and incidental to their businesses. Management does not
expect that any of these other currently pending legal proceedings will have a
material adverse impact on Coxs consolidated financial position, results of
operations or cash flows. 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements for the
three-month periods ended March 31, 2004 and 2003. Results of Operations The following table sets forth summarized consolidated financial
information for the three months ended March 31, 2004 and 2003. Three Months EndedMarch 312004
    
    2003
    
    $ Change
    
    % Change(Thousands of Dollars)Revenues
    
    $
    1,540,357
    
    
    $
    1,366,282
    
    
    $
    174,075
    
    
    
    13
    %Cost of services
    
    
    635,816
    
    
    
    579,792
    
    
    
    56,024
    
    
    
    10
    %Selling, general and administrative
expenses
    
    
    337,308
    
    
    
    307,036
    
    
    
    30,272
    
    
    
    10
    %Depreciation and amortization
    
    
    392,066
    
    
    
    384,320
    
    
    
    7,746
    
    
    
    2
    %Operating income
    
    
    175,167
    
    
    
    95,134
    
    
    
    80,033
    
    
    
    84
    %Interest expense
    
    
    (96,612
    )
    
    
    (129,824
    )
    
    
    (33,212
    )
    
    
    (26
    %)Loss on derivative
instruments,
net
    
    
    (39
    )
    
    
    (2,503
    )
    
    
    (2,464
    )
    
    
    (98
    %)Gain (loss) on investments, net
    
    
    26,809
    
    
    
    (1,751
    )
    
    
    28,560
    
    
    NMEquity in net income (losses) of
affiliated companies
    
    
    972
    
    
    
    (2,164
    )
    
    
    3,136
    
    
    
    145
    %Other, net
    
    
    (1,509
    )
    
    
    (341
    )
    
    
    1,168
    
    
    NMIncome tax expense (benefit)
    
    
    46,100
    
    
    
    (14,498
    )
    
    
    60,598
    
    
    NMMinority interest, net of tax
    
    
    (985
    )
    
    
    (2,270
    )
    
    
    (1,285
    )
    
    
    (57
    %)Net income (loss)
    
    $
    57,703
    
    
    $
    (29,221
    )
    
    $
    86,924
    
    
    NM
 NM denotes percentage is not meaningful Revenues The following table sets forth summarized revenue information for the
three months ended March 31, 2004 and 2003. Three Months Ended March 312004
    
    % of Total
    
    2003
    
    % of Total
    
    $ Change
    
    % Change(Thousands of Dollars)ResidentialVideo
    
    $
    950,631
    
    
    
    62
    %
    
    $
    898,942
    
    
    
    66
    %
    
    $
    51,689
    
    
    
    6
    %Data
    
    
    257,683
    
    
    
    17
    %
    
    
    194,218
    
    
    
    14
    %
    
    
    63,465
    
    
    
    33
    %Telephony
    
    
    133,960
    
    
    
    9
    %
    
    
    106,739
    
    
    
    8
    %
    
    
    27,221
    
    
    
    26
    %Other
    
    
    26,507
    
    
    
    1
    %
    
    
    19,319
    
    
    
    1
    %
    
    
    7,188
    
    
    
    37
    %Total residential
    
    
    1,368,781
    
    
    
    89
    %
    
    
    1,219,218
    
    
    
    89
    %
    
    
    149,563
    
    
    
    12
    %Commercial
    
    
    83,183
    
    
    
    5
    %
    
    
    66,556
    
    
    
    5
    %
    
    
    16,627
    
    
    
    25
    %Advertising
    
    
    88,393
    
    
    
    6
    %
    
    
    80,508
    
    
    
    6
    %
    
    
    7,885
    
    
    
    10
    %Total revenues
    
    $
    1,540,357
    
    
    
    100
    %
    
    $
    1,366,282
    
    
    
    100
    %
    
    $
    174,075
    
    
    
    13
    %
 The 13% increase in total revenues is primarily attributable to: 18




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
    
    a 29% increase in customers for advanced services, including digital
cable, high-speed Internet access and telephony customers;
    
    an increase in basic cable rates resulting from increased programming
costs and inflation, as well as increased channel availability; and
    
    an increase in commercial broadband customers. Cox has experienced solid growth in digital cable, residential high-speed
Internet and telephony customers. For the first quarter of 2004, Cox:  
    
    ended the quarter with approximately 6.4 million basic video
customers, up 0.8% from March 31, 2003.
    
    added 76,813 digital cable customers, which contributed to year-over-year growth of 19%.
    
    added 161,442 high-speed Internet customers, which contributed to year-over-year growth of 38%.
    
    added 78,959 telephony customers, which contributed to year-over-year customer growth of 36%. Cox expects its overall growth trend to continue; however, Cox has
historically experienced slower customer growth in the second quarter, and
management expects this trend to continue in 2004. Cox also anticipates
continued customer demand for its existing portfolio of broadband products, as
well as for new services such as Entertainment On Demand, Home Networking,
high-definition television and digital video recorders. Costs and expenses (cost of services and selling, general and administrative
expenses) The following table sets forth summarized operating expenses for the three
months ended March 31, 2004 and 2003. Three Months Ended March 312004
    
    2003
    
    $ Change
    
    % Change(Thousands of Dollars)Cost of servicesProgramming costs
    
    $
    317,659
    
    
    $
    290,818
    
    
    $
    26,841
    
    
    
    9
    %Other cost of
services
    
    
    318,157
    
    
    
    288,974
    
    
    
    29,183
    
    
    
    10
    %Total cost of
services
    
    
    635,816
    

    
    
    579,792
    
    
    
    56,024
    
    
    
    10
    %Selling, general and administrativeMarketing
    
    
    78,982
    
    
    
    66,262
    
    
    
    12,720
    
    
    
    19
    %General and administrative
    
    
    258,326
    
    
    
    240,774
    
    
    
    17,552
    
    
    
    7
    %Total selling, general and
administrative
    
    
    337,308
    
    
    
    307,036
    
    
    
    30,272
    
    
    
    10
    %Total costs and expenses
    
    $
    973,124
    
    
    $
    886,828
    
    
    $
    86,296
    
    
    
    10
    %
 Cost of services includes cable programming costs, which are costs paid to
programmers for cable content and are generally paid on a per-subscriber basis.
Cost of services also includes other direct costs and field service and call
center costs. Other direct costs include costs that Cox incurs in conjunction
with providing its residential, commercial and advertising services. Field
service costs include costs associated with providing and maintaining Coxs
broadband network and customer care costs necessary to maintain its customer
base. Cost of services increased $56.0 million over the comparable period in
2003 due to a $26.8 million increase in programming costs reflecting
programming rate increases and customer growth. Approximately 7% of the
increase in programming costs was attributable to programming rate increases,
and 2% was related to customer growth. Other cost of services increased $29.2
million, primarily due to 12% growth in 19




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basic video customers and advanced-service customers over the last twelve
months, partially offset by cost savings achieved through successful field
service initiatives. Selling, general and administrative expenses include marketing, salaries
and benefits, commissions and bonuses, travel, facilities, insurance and other
administrative expenses. Selling, general and administrative expenses
increased $30.3 million primarily due to:  
    
    a $17.6 million increase in general and administrative expenses
primarily related to increased salaries and benefits and the cost of
trials of new video and telephony products; and
    
    a $12.7 million increase in marketing expense primarily due to
additional marketing related to new video products and an industry-wide
campaign aimed at satellite competition, as well as a 6% increase in
costs associated with Cox Media, Coxs advertising sales business. Cox expects continued increases in programming costs and will continue to
pass through some portion of these increases to its customers. In addition, Cox
expects to have continued growth in advanced services, which include digital
cable, high-speed Internet access and telephony, both as a result of increased
penetration where these services were available in 2003 and continued roll-out
of these services in new areas during 2004. As a result of these trends, Cox
expects its cost of services and, to a lesser degree, selling, general and
administrative expenses to increase. Depreciation and amortization Depreciation and amortization increased to $392.1 million from $384.3
million in the first quarter of 2003 due to an increase in depreciation from
Coxs continuing investments in its broadband network in order to deliver
additional programming and services. Depreciation and amortization for the
first quarter of 2003 included a $25.0 million non-cash impairment charge
recognized upon completion of an impairment test of franchise value in
accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets.Cox completed its next impairment test in
accordance with SFAS No. 142 in August 2003. The August 2003 test indicated no
impairment of franchise value. Cox will continue to invest in its broadband
network and new services, which management expects will result in increased
revenues to offset increased depreciation expense. Interest expense Interest expense decreased 26% to $96.6 million primarily due to interest
savings as a result of Coxs interest rate swap agreements and a reduction of
outstanding indebtedness. Loss on derivative instruments, net In August 2003, Cox terminated a series of prepaid forward contracts
accounted for as zero-coupon debt. While these contracts were outstanding,
changes in the market value of the Sprint PCS common stock associated with the
contracts impacted the gain (loss) on derivative instruments. As a result of
the termination of the contracts, the pre-tax loss on derivative instruments
for the first quarter of 2004 was insignificant. During the first quarter of 2003, Cox recorded a $2.5 million pre-tax loss
on derivative instruments, which was comprised of the following:  
    
    a $4.3 million pre-tax loss due to a decrease in the fair value of
Coxs stock purchase warrants. The decrease in fair value of these
warrants was primarily attributed to the decrease in the fair value of
the underlying equity security during the quarter; partially offset by
    
    a $1.6 million pre-tax gain due to a decrease in the fair value of
the embedded derivatives contained in Coxs zero-coupon debt. The
decrease in fair value of these embedded derivatives 20




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##### Table of Contents



was primarily attributed to the decrease in the trading price of Sprint
PCS and the change in U.S. Treasury rates and Coxs credit spreads during
the quarter. Gain (loss) on investments, net Net gain on investments of $26.8 million for the first quarter of 2004 was
due to a $19.5 million pre-tax gain on the sale of 0.1 million shares of Sprint
PCS preferred stock and a $7.3 million pre-tax gain on the sale of certain
non-strategic investments. The net loss on investments for the comparable
period in 2003 of $1.8 million is primarily due to a decline in the fair value
of certain investments considered to be other than temporary and a pre-tax loss
as a result of the change in market value of Coxs investment in Sprint PCS
common stock classified as trading. Equity in net income (losses) of affiliated companies Equity in net income of affiliated companies for the first quarter of 2004
was $0.1 million compared to equity in net losses of affiliated companies of
$2.2 million for the first quarter of 2003. Generally, this income (loss) is
attributable to Coxs proportionate share of the investees income or loss.
Although Cox has various levels of ownership and rights with respect to the
companies in which it has equity investments, Cox has little, if any, control
over the financial position of these companies. Therefore, Cox cannot predict
the impact that its equity investments will have on its future operations. Net income (loss) Net income for the first quarter of 2004 was $57.7 million compared to net
loss of $29.2 million for the comparable period in 2003. Liquidity and Capital Resources Uses of Cash As part of Coxs ongoing strategic plan, Cox has invested, and will
continue to invest, capital to enhance the reliability and capacity of its
broadband network in preparation for the offering of new services. Cox believes
it will be able to meet its capital needs for the next twelve months and the
foreseeable future with amounts available under existing revolving credit
facilities and its commercial paper program. During the three months ended March 31, 2004, Cox made capital
expenditures of $294.6 million. These expenditures were primarily directed at
costs related to electronic equipment located on customers premises and costs
associated with network equipment used to enter new service areas. Capital expenditures for the year ending 2004 are expected to be
approximately $1.4 billion. Although management continuously reviews industry
and economic conditions to identify opportunities, Cox does not have any
current plans to make any material acquisitions or enter into any cable systems
exchanges in 2004. Net commercial paper repayments during the three months ended March 31,
2004 were $155.0 million. During the three months ended March 31, 2004, Cox
repaid $37.7 million of debt, which primarily consisted of the repurchase of
its remaining outstanding convertible senior notes. Sources of Cash During the three months ended
March 31, 2004, Cox generated $378.8 million
from operating activities. Proceeds from the sale of investments of $67.2
million included the sale of 0.1 million shares of Sprint PCS preferred stock
for net proceeds of $56.9 million and the sale of certain other non-strategic
investments for proceeds of $10.3 million. 21




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##### Table of Contents



Other At March 31, 2004, Cox had approximately $6.8 billion of outstanding
indebtedness. Derivative adjustments in accordance with SFAS No. 133 have
historically had a material impact on reported indebtedness. For example,
reported indebtedness at March 31, 2003 of approximately $7.1 billion was net
of certain derivative adjustments made in accordance with SFAS No. 133 that
reduced the reported debt balance by approximately $1.4 billion. As a result
of Coxs purchase of substantially all of its exchangeable subordinated
debentures, net settlement of its zero-coupon debt and sales of Sprint PCS
stock during 2003, SFAS No. 133 adjustments did not significantly impact
reported indebtedness at March 31, 2004 and are not expected to be material in
the future. In addition, Cox had approximately $1.7 billion of total available
financing capacity under its revolving credit facilities and commercial paper
program at March 31, 2004. Cox currently expects to replace its existing
364-day and 5-year credit facilities with a new 5-year credit facility in the
second quarter of 2004. Although the replacement facility is subject to
negotiation and execution of definitive agreements, Cox anticipates that the
new facility will provide for up to $1.25 billion of borrowing capacity and
include terms substantially similar to the existing credit agreements. Recent Developments In April 2004, Cox completed the sale of certain small, non-clustered
cable systems in Oklahoma, Kansas, Texas, Missouri and Arkansas for aggregate
cash consideration of approximately $54.6 million. In 2003, Cox purchased approximately 99% of its outstanding PRIZES and
Premium PHONES pursuant to cash tender offers. On April 23, 2004, Cox notified
holders of the PRIZES and Premium PHONES that it would redeem all remaining
outstanding PRIZES and Premium PHONES on June 7, 2004. Cox currently expects
the redemption price it will be required to pay to holders of the PRIZES and
Premium PHONES pursuant to the respective governing instruments will be the
original principal amount for each security, plus accrued and unpaid interest.
Cox anticipates funding the anticipated $14.7 million total cost of such
redemption with commercial paper borrowings or cash generated by operations. Effective as of April 23, 2004, Sprint Corporation eliminated its PCS
tracking stock by mandating the exchange of its PCS shares for shares of its
FON common stock. Cox currently holds certificates representing approximately
330,000 PCS shares and expects to exchange such shares for approximately
165,000 FON shares. Caution Concerning Forward-Looking Statements This Form 10-Q includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements include, among others, 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 in these forward-looking statements due to various
risks, uncertainties or other factors. These factors include competition
within the broadband communications industry, Coxs ability to achieve
anticipated subscriber and revenue growth, Coxs success in implementing new
services and other operating initiatives, and Coxs ability to generate
sufficient cash flow to meet debt service obligations and finance operations.
For a more detailed discussion of these and other risk factors, see the
Caution Concerning Forward-Looking Statements section of Coxs Annual Report
on Form 10-K for the year ended December 31, 2003. Cox assumes no
responsibility to update any forward-looking statements as a result of new
information, future events or otherwise. 22




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk Cox has estimated the fair value of its financial instruments as of March
31, 2004 and December 31, 2003 using available market information or other
appropriate valuation methodologies. Considerable judgment, however, is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that Cox would realize in a current market exchange. The carrying amount of cash, accounts and other receivables, accounts and
other payables and amounts due to CEI approximates fair value because of the
short maturity of those instruments. The fair value of Coxs investments
stated at fair value are estimated and recorded based on quoted market prices.
The fair value of Coxs equity method investments and investments stated at
cost cannot be estimated without incurring excessive costs. Cox is exposed to
market price risk volatility with respect to investments in publicly-traded and
privately-held entities. Additional information pertinent to the value of
Coxs investments is discussed in Note 3. Investments in Part I, Item 1.
Condensed Consolidated Financial Statements. The fair value of interest rate swaps used for hedging purposes was
approximately $73.6 million and $61.2 million at March 31, 2004 and December
31, 2003, respectively, and represents the estimated amount that Cox would
receive upon termination of the swap agreements. Coxs outstanding commercial paper bears interest at current market rates
and, thus, approximates fair value at March 31, 2004 and December 31, 2003.
Cox is exposed to interest rate volatility with respect to these variable-rate
instruments. The estimated fair value of Coxs fixed-rate notes and debentures and
exchangeable subordinated debentures at March 31, 2004 and December 31, 2003
are based on quoted market prices or a discounted cash flow analysis using
Coxs incremental borrowing rate for similar types of borrowing arrangements
and dealer quotations. A summary of the carrying value, estimated fair value
and the effect of a hypothetical one percentage point decrease in interest
rates on the foregoing fixed-rate instruments at March 31, 2004 and December
31, 2003 is as follows: March 31, 2004
    
    December 31, 2003Fair Value
    
    
    
    
    
    
    
    
    
    Fair ValueCarrying
    
    Fair
    
    (1% Decrease
    
    Carrying
    
    Fair
    
    (1% DecreaseValue
    
    Value
    
    in Interest Rates)
    
    Value
    
    Value
    
    in Interest Rates)(Millions of Dollars)Fixed-rate notes and
debentures
    
    $
    6,668.7
    
    
    $
    7,370.6
    
    
    $
    7,802.8
    
    
    $
    6,683.4
    
    
    $
    7,323.0
    
    
    $
    7,760.8Exchangeable subordinated
debentures
    
    
    26.5
    
    
    
    36.2
    
    
    
    39.1
    
    
    
    26.1
    
    
    
    35.6
    
    
    
    38.9
 23




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##### Table of Contents



Item 4. Controls and Procedures The Chief Executive Officer and the Chief Financial Officer of Cox (its
principal executive officer and principal financial officer, respectively) have
concluded, based on their evaluation as of March 31, 2004, that Coxs
disclosure controls and procedures: are effective to ensure that information
required to be disclosed by Cox in the reports filed or submitted by it under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SECs rules
and forms; and include controls and procedures designed to ensure that
information required to be disclosed by Cox in such reports is accumulated and
communicated to Coxs management, including the Chief Executive Officer and the
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. There were no changes in Coxs internal controls over financial reporting
that occurred during the quarter ended March 31, 2004 that have materially
affected, or are reasonably likely to materially affect, Coxs internal control
over financial reporting. Coxs disclosure controls and procedures are designed to provide a
reasonable level of assurance of reaching Coxs desired disclosure control
objectives and are effective in reaching that level of reasonable assurance. 
 Part II - Other Information 
 Item 1. Legal Proceedings For a description of certain legal matters, refer to Note 12. Commitments
and Contingencies in Part I, Item 1. Condensed Consolidated Financial
Statements. Cox is also a party to various legal proceedings that are ordinary and
incidental to its business. Management does not expect that any legal
proceedings currently pending will have a material adverse impact on Coxs
consolidated financial position, consolidated results of operations or
consolidated cash flows. 
 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities In accordance with the terms of the indenture governing Coxs convertible
senior notes due 2021, Cox became obligated to purchase for cash convertible
notes tendered and not withdrawn before the close of business on February 23,
2004. Cox repurchased $19.0 million aggregate principal amount at maturity of
the convertible notes that had been properly tendered and not withdrawn, for
aggregate cash consideration of $13.9 million, which represented the accreted
value of the repurchased notes. As a result, no convertible notes remain
outstanding. Cox has three outstanding series of exchangeable subordinated debentures,
referred to as PRIZES, Premium PHONES and Discount Debentures, that were
associated at issuance with shares of Sprint Corporations PCS tracking stock.
Effective as of April 23, 2004, Sprint eliminated its PCS tracking stock by
mandating the exchange of its PCS shares for shares of its FON common stock.
Following this recombination, the PRIZES are exchangeable by holders for cash
based on the value of one share of FON stock and the Discount Debentures are
exchangeable by holders for, at Coxs option, 3.794 shares of FON stock, cash
based on the market value of such FON shares or a combination of both.
Pursuant to the terms of the supplemental indenture governing the Premium
PHONES, the holders exchange right terminated on April 23, 2004, upon notice
that Cox would redeem all remaining outstanding Premium PHONES for cash. 24




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Item 3. Defaults Upon Senior Securities. None. 
 Item 4. Submission of Matters of a Vote of Security Holders. None. 
 Item 5. Other Information. None. 
 Item 6. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits: 3.1
    
    
    
    Amended Certificate of Incorporation of Cox Communications,
Inc. (Incorporated by reference to Exhibit 3.1 to Coxs
Quarterly Report on Form 10-Q, filed with the Commission on
November 14, 2000.)3.2
    
    
    
    Bylaws of Cox Communications, Inc. (Incorporated by reference
to Exhibit 3.2 to Coxs Registration Statement on Form S-4,
File No. 33-80152, filed with the Commission on December 16,
1994.)21
    
    
    
    Subsidiaries of Cox Communications, Inc.31.1
    
    
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.31.2
    
    
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.32.1
    
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Rule 13a-14(b) of the Securities Exchange
Act of 1934.
  (b)
    
    Reports on Form 8-K filed during the quarter ended March 31, 2004:Form 8-K dated February 12, 2004 (furnished February 12, 2004) announcing
Coxs financial results for the quarter and year ended December 31, 2003
under Item 12 and furnishing a copy of Coxs earnings press release under
Item 7. 25




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Cox Communications, Inc.Date: May 5, 2004
    
    /s/ Jimmy W. HayesJimmy W. HayesExecutive Vice President, Financeand Chief Financial Officer(principal financial officer andduly authorized officer)
 26