<PAGE>   1

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K
(MARK ONE)

    [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
             EXCHANGE ACT OF 1934

               FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

    [  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
              SECURITIES EXCHANGE ACT OF 1934

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                         COMMISSION FILE NUMBER 1-6590

                                   (COX LOGO)

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                    <C>
                      DELAWARE                                              58-2112281
           (State or other jurisdiction of                               (I.R.S. Employer
           incorporation or organization)                               Identification No.)
       1400 LAKE HEARN DRIVE, ATLANTA, GEORGIA                                 30319
      (Address of principal executive offices)                              (Zip Code)
</TABLE>

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (404) 843-5000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                     Class A Common Stock, $1.00 par value
                                 Income PRIDES
                                 Growth PRIDES
                 Exchangeable Subordinated Debentures due 2029
                3% Exchangeable Subordinated Debentures due 2030

          SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
                                      NONE

     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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.  [X]

     As of February 29, 2000, the aggregate market value of the Class A Common
Stock held by non-affiliates of the registrant was $26,120,609,289 based on the
closing price on the New York Stock Exchange on such date.

     There were 577,251,034 shares of Class A Common Stock and 27,597,792 shares
of Class C Common Stock outstanding as of February 29, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the 1999 Summary Annual Report to Stockholders are incorporated
by reference into Part II, and portions of the Proxy Statement for the 2000
Annual Meeting of Stockholders are incorporated by reference into Part III.
<PAGE>   2

                            COX COMMUNICATIONS, INC.

                          1999 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>        <C>                                                           <C>
                                   PART I
Item 1.    Business....................................................    1
Item 2.    Properties..................................................   35
Item 3.    Legal Proceedings...........................................   36
Item 4.    Submission of Matters to a Vote of Security Holders.........   37

                                   PART II
Item 5.    Market for Registrant's Common Equity and Related
             Stockholder Matters.......................................   37
Item 6.    Selected Consolidated Financial Data........................   37
Item 7.    Management's Discussion and Analysis of Financial Condition
             and Results of Operations.................................   39
Item 7a.   Quantitative and Qualitative Disclosures about Market
             Risk......................................................   47
Item 8.    Consolidated Financial Statements and Supplementary Data....   49
Item 9.    Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure..................................   82

                                  PART III
Item 10.   Directors and Executive Officers of the Registrant..........   82
Item 11.   Executive Compensation......................................   82
Item 12.   Security Ownership of Certain Beneficial Owners and
             Management................................................   82
Item 13.   Certain Relationships and Related Transactions..............   82

                                   PART IV
Item 14.   Exhibits, Financial Statement Schedules and Reports on Form
             8-K.......................................................   82

SIGNATURES.............................................................   87
</TABLE>

                                        i
<PAGE>   3

                                     PART I

ITEM 1.  BUSINESS

     Cox Communications, Inc. is one of the nation's largest broadband
communications companies with U.S broadband network operations and investments
in cable television programming networks, telecommunications and technology, and
broadband networks. Cox operates in one operating segment, broadband
communications.

     Cox's business strategy is to utilize the technological capabilities of its
advanced broadband network, its strong locally and regionally clustered cable
television systems and its longstanding commitment to superior customer service
to provide an array of entertainment and communications services to both
residential and commercial customers in its markets. Today, these services
primarily include analog and digital video, high-speed Internet access and local
and long-distance telephone. Additional services could include video on demand,
Internet to the television, targeted advertising and other types of interactive
and e-commerce applications.

     In addition, Cox has sought to utilize its expertise and position as one of
the nation's premier cable television companies to invest in programming and
telecommunications and technology companies which are complementary to Cox's
business strategy. Cox believes that these investments have contributed to the
growth of its broadband communications business and that its leadership position
in broadband communications has facilitated the growth of these investments. Cox
seeks to utilize insights gained from the integrated operations of its cable
television systems and related programming and telecommunications and technology
investments to continue its leadership in the broadband communications industry
by anticipating and capitalizing upon long-term industry trends.

     Cox is an indirect 67.4% owned subsidiary of Cox Enterprises, Inc. ("CEI").
CEI, a privately-held corporation headquartered in Atlanta, Georgia, is one of
the largest diversified media companies in the United States with consolidated
revenues in 1999 of approximately $6.1 billion. CEI, which has a 102-year
history in the media and communications industry, publishes 16 daily newspapers
and owns or operates 13 television stations in addition to its interest in Cox.
Through its indirect majority-owned subsidiary, Cox Radio, Inc., CEI owns or
operates 76 radio broadcast stations pending closing of previously announced
transactions. Through Manheim Auctions, CEI is also the world's largest operator
of wholesale auto auctions.

U.S. BROADBAND NETWORKS

BUSINESS STRATEGY

     Cox believes that aggressive investment in the technological capabilities
of its broadband network, the long-term competitive advantages of clustering and
commitment to customer service will enhance its ability to continue to grow its
cable television operations and offer new services to existing and new
customers.

     TECHNOLOGY AND CAPITAL IMPROVEMENTS.  Cox emphasizes high technical
standards for its cable television systems. Cox continues to deploy fiber optic
cable and to upgrade the technical quality of its hybrid fiber-coaxial broadband
network. The result is a significant increase in network capacity, quality and
reliability, facilitating the delivery of additional programming and services
such as digital video, high-speed Internet access, and local and long-distance
telephone services.

     Cox strives to maintain the highest technological standards in the
industry. Cox's U.S. cable television systems have bandwidth capacities ranging
from 400 MHz to 750 MHz, which permits carriage of 54 to 112 analog channels.
Giving effect to the completion of the acquisition of cable television systems
from both Multimedia Cablevision, Inc., a subsidiary of Gannett Co., Inc., and
AT&T Corp., as if they occurred on December 31, 1999, approximately 70% of Cox's
networks had bandwidth capacity of 550 MHz or 750 MHz. Cox anticipates that
approximately 79% of its networks will have bandwidth capacity of 550 MHz or 750
MHz by the end of 2000. Including the effects of the Multimedia and AT&T cable
television systems acquisitions, Cox anticipates that, of its fifteen largest
systems at the end of 2000, approximately 80% of its customers will have access
to 750 MHz capacity and over 4.5 million customers will be able to receive
two-way services.

                                        1
<PAGE>   4

     In addition to increasing channel capacity, Cox's investment in technology
has improved the reliability of its service. Cox's hybrid fiber-coaxial
broadband networks had a 99.990% reliability rate in 1999, as measured by
average customer minutes of outage per year, which exceeds the BellCore standard
of 99.989% utilized by the Regional Bell Operating Companies. Cox's fiber optic
network design of ring-in-ring architecture provides significant improvements
over existing non-ring network architecture in capability, flexibility, and
reliability, without creating additional cost.

     CLUSTERING.  As an integral part of its broadband communications strategy,
Cox has continually sought the advantages and efficiencies of operating large
local and regional cable television clusters. As of December 31, 1999,
approximately 70% of Cox's customers were served by Cox's 15 largest clusters
which averaged approximately 285,000 customers each. See "-- Cable
Television -- Operating Data." Locally and regionally clustered cable television
systems enable Cox to reduce expenses through the consolidation of marketing and
support functions and to place more experienced management teams at the system
level who are better equipped to meet the new competitive and regulatory
challenges of today's telecommunications industry. Local and regional clusters
will also increase the speed and effectiveness of Cox's new product and services
deployment, enhancing its ability to increase both customers and revenues.

     CUSTOMER AND COMMUNITY SERVICE.  Strong customer service is a key element
of Cox's business strategy to deliver new advanced communications services for
its customers. Cox has always been committed to customer service and has been
recognized by several industry groups as a leader in providing quality customer
service. Cox believes that its high level of customer satisfaction will help it
compete more effectively as it delivers new services such as digital video,
high-speed Internet access, and local and long-distance telephone. Cox places
special emphasis on training its customer contact employees and has developed
customer service standards and programs that exceed national customer service
standards developed by the National Cable Television Association and the FCC.

     A key element of Cox's community service is enhancing education through the
use of cable technology and programming. Cox currently participates in four
major education initiatives:

          1. "Cox Cable in the Classroom," which provides schools with free
             basic cable service and more than 540 hours of commercial-free
             educational television programming each month;

          2. "Cable's High Speed Connection," branded "Cox Line to Learning"
             program, a National Cable Television Association nationwide
             initiative in which major cable companies are providing high-speed
             Internet access, free of charge, to each accredited public and
             private school in their respective communities where digital
             services are available;

          3. Cox Model Technology Schools established by Cox in Chula Vista,
             California; Omaha, Nebraska; Norfolk, Virginia and Phoenix,
             Arizona, where it is testing future broadband services, such as
             interactive fiber optic links to local colleges, to determine their
             value in the classroom; and

          4. The Multimedia Academy established by Cox to train educators,
             students, parents, and community leaders about the use of
             multimedia technology as an educational tool.

     ADVERTISING REVENUE.  In addition to providing entertainment and community
services to its residential and commercial customers, Cox derives revenues from
the sale of advertising time on satellite-delivered networks such as ESPN, MTV
and CNN. Currently, Cox inserts advertising on 40 channels in each of its cable
television systems. Local cable television advertising is often more effective
and less expensive than alternative local advertising sources. As such, Cox
expects continued growth of this revenue source. In addition, Cox participates
in the national and regional cable television advertising market through its
investment in National Cable Communications, L.L.C., a partnership which
represents cable television companies to advertisers. National Cable
Communications is the largest representation firm in spot cable advertising
sales.

                                        2
<PAGE>   5

CABLE TELEVISION

     Cox's cable television operations represent the primary element of its
integrated broadband communications strategy. As of December 31, 1999, these
clusters passed approximately 8.0 million homes and provided service to
approximately 5.1 million customers.

     Cox's cable television systems offer customers packages of basic and cable
programming services consisting of television signals available off-air, a
limited number of television signals from so-called "superstations," numerous
satellite-delivered non-broadcast channels (such as CNN, MTV, USA Network, ESPN,
Arts and Entertainment Channel, The Discovery Channel, The Learning Channel,
Turner Network Television and Nickelodeon), displays of information featuring
news, weather, stock and financial market reports and public, governmental and
educational access channels. Cox's cable television systems also provide premium
television services to their customers for an extra monthly charge. Such
services (including Home Box Office, Showtime, Starz and Cinemax) are
satellite-delivered channels that consist principally of feature motion pictures
presented without commercial interruption, sports events, concerts and other
entertainment programming. Customers generally pay initial connection charges
and fixed monthly fees for cable programming and premium television services,
which constitute the principal sources of revenues to Cox.

     OPERATING DATA.  The following table indicates the growth of Cox's cable
television systems by summarizing basic customers, new services, the number of
homes passed by cable, premium service units and penetration levels as of
December 31 for each of the five years set forth below:

<TABLE>
<CAPTION>
                                      1999        1998        1997        1996        1995
                                    ---------   ---------   ---------   ---------   ---------
<S>                                 <C>         <C>         <C>         <C>         <C>
Basic customers(a)................  5,136,184   3,753,608   3,235,338   3,259,384   3,248,759
New services(b)...................    554,025     169,731      18,941          --          --
                                    ---------   ---------   ---------   ---------   ---------
Revenue Generating Units(c).......  5,690,209   3,923,339   3,254,279   3,259,384   3,248,759
Homes passed(d)...................  8,031,340   5,923,428   5,023,870   5,016,749   5,005,858
Basic penetration(e)..............       64.0%       63.4%       64.4%       65.0%       64.9%
Premium service units(f)..........  3,237,013   2,206,833   1,865,184   2,000,673   1,827,068
</TABLE>

---------------

(a)  A home with one or more television sets connected to a cable television
     system is counted as one basic service customer.
(b)  New services include Cox Digital Television, high-speed Internet access and
     Cox Digital Telephone.
(c)  Each basic customer and each new service is a Revenue Generating Unit. In
     certain locations, a household may purchase more than one new service, each
     of which is counted as a separate Revenue Generating Unit.
(d)  A home is deemed to be "passed" if it can be connected to the distribution
     system without any further extension of the distribution plant.
(e)  Basic customers as a percentage of homes passed.
(f)  Premium service units include single or multi-channel services offered for
     a monthly fee per service.

                                        3
<PAGE>   6

     The following pro forma basic customers give effect to the acquisitions of
cable television systems from both Multimedia Cablevision, Inc., a subsidiary of
Gannett Co., Inc., and AT&T Corp. had occurred on December 31, 1999:

<TABLE>
<CAPTION>
                                                                BASIC
                                                              CUSTOMERS
TOP 15 LOCAL AND REGIONAL CLUSTERS:                           ---------
<S>                                                           <C>
     Phoenix, AZ............................................    617,615
     San Diego, CA..........................................    513,673
     New England............................................    431,871
     Hampton Roads, VA......................................    411,738
     Las Vegas, NV..........................................    339,968
     New Orleans, LA........................................    264,286
     Northern Virginia......................................    261,821
     Oklahoma City, OK......................................    234,827
     Orange County, CA......................................    232,058
     Omaha, NE..............................................    173,010
     Wichita, KS............................................    164,240
     Tulsa, OK..............................................    159,402
     Fort Walton/Pensacola, FL..............................    157,026
     Baton Rouge, LA........................................    150,901
     Tucson, AZ.............................................    132,272
                                                              ---------
          Pro Forma Subtotal -- Top Fifteen Local and
          Regional Clusters.................................  4,244,708
                                                              ---------

OTHER LOCAL AND REGIONAL CLUSTERS:
     Arkansas...............................................    295,729
     California.............................................    156,333
     Florida................................................     89,821
     Georgia................................................     72,478
     Louisiana..............................................    239,396
     Kansas.................................................    143,139
     North Carolina.........................................     95,813
     Ohio...................................................     74,972
     Oklahoma...............................................     86,995
     Texas..................................................    496,073
     Virginia...............................................     57,783
     Idaho..................................................     10,050
     Mississippi............................................     13,206
     Other..................................................     25,923
                                                              ---------
          Pro Forma Subtotal -- Other Local and Regional
          Clusters..........................................  1,857,711
                                                              ---------
PRO FORMA TOTAL BASIC CUSTOMERS.............................  6,102,419
                                                              =========
</TABLE>

     FRANCHISES.  Cable television systems are constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchise agreements typically contain many conditions, such as time limitations
on commencement and completion of system construction, service standards
including number of channels, types of programming and the provision of free
service to schools and certain other public institutions, and the maintenance of
insurance and indemnity bonds. The provisions of local franchise agreements are
subject to federal regulation under the Cable Communications Policy Act of 1984,
as amended by the Cable Television Consumer Protection and Competition Act of
1992 and the Telecommunications Act of 1996.

     As of March 2000, Cox held approximately 600 franchises. These franchises
provide for the payment of fees to the issuing authority. The 1984 Cable Act
prohibits franchising authorities from imposing annual franchise fees in excess
of 5% of gross revenues and also permits the cable television system operator to
seek renegotiation and modification of franchise requirements if warranted by
changed circumstances. For both 1999 and 1998, franchise fee payments made by
Cox averaged approximately 4% of gross revenues.

                                        4
<PAGE>   7

     Cox has never had a franchise revoked. The 1984 Cable Act provides for an
orderly franchise renewal process, and it establishes comprehensive renewal
procedures which require that an incumbent franchisee's renewal application be
assessed on its own merit and not as part of a comparative process with
competing applications. A franchising authority may not unreasonably withhold
the renewal of a franchise. If a franchise renewal is denied and the franchise
authority or a third party acquires the system, then the franchise authority
must pay the operator the "fair market value" for the system covered by the
franchise, but with no value allocated to the franchise itself. Cox believes
that it has satisfactory relationships with its franchising authorities.

     PROGRAMMING SUPPLIERS.  Cox has various contracts to obtain basic and
premium programming from program suppliers whose compensation is typically based
on a fixed fee per customer or a percentage of Cox's gross receipts for the
particular service. Some program suppliers provide volume discount pricing
structures or offer marketing support to Cox. Cox's programming contracts are
generally for a fixed period of time and are subject to negotiated renewal.
Cox's programming costs have increased in recent years and are expected to
continue to increase due to additional programming being provided to Cox's
customers, increased costs to produce or purchase programming, inflationary
increases and other factors. Increases in the cost of programming services have
been offset in part by additional volume discounts as a result of the growth of
Cox and its success in selling such services to its customers. Cox believes that
it will continue to have access to programming services at reasonable cost
levels.

COX DIGITAL TELEVISION

     Digital compression technology currently allows up to 12 digital channels
to be inserted into the space of only one traditional analog channel. Digital
compression enables Cox to increase the channel capacity of its cable television
systems by approximately 200 channels. Cox believes that its cable television
system upgrades, along with the implementation of digital compression
technology, will provide its customers with greater programming diversity,
better picture quality, improved reliability and enhanced service. A Cox Digital
Television customer can currently receive up to 200 channels, including enhanced
pay-per-view service, digital music channels, new networks grouped by genre and
an interactive program guide. Below is a summary of Cox Digital Television
operating statistics as of December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                                              ---------------------
                                                                1999        1998
                                                              ---------   ---------
<S>                                                           <C>         <C>
Digital television ready homes passed.......................  4,247,032   2,028,307
Digital customers...........................................    265,296      74,843
Digital penetration.........................................        6.2%        3.7%
</TABLE>

HIGH-SPEED INTERNET ACCESS

     The use of computers, online services and the Internet has increased
significantly over the last few years. Cox believes in the revenue opportunities
of Internet-related services and is taking advantage of these opportunities by
providing high-speed Internet access and work-at-home services to residential
customers through its residential data service, Cox@Home. Cox@Home delivers
access to the Internet at speeds of up to 100 times faster than traditional
phone modems and provides unique online content that capitalizes on the
substantial capacity of Cox's broadband network. To enhance Cox's cable based
high-speed Internet access market, Cox has an equity interest in Excite@Home.
See "-- Investments -- Telecommunications and Technology
Investments -- Excite@Home." Below is a summary of Cox's high-speed Internet
access operating statistics as of December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                                              ---------------------
                                                                1999        1998
                                                              ---------   ---------
<S>                                                           <C>         <C>
Data ready homes passed.....................................  3,759,229   2,634,515
Customers...................................................    186,918      67,069
Penetration.................................................        5.0%        2.5%
</TABLE>

                                        5
<PAGE>   8

COX DIGITAL TELEPHONE

     Cox utilizes the capacity and reliability of its advanced broadband
network, which will pass virtually all homes and most businesses in its markets,
by providing local telephone services and reselling long distance services. Cox
can thereby access a portion of a revenue market of approximately $180.0 billion
for telephony services. Below is a summary of Cox Digital Telephone operating
statistics as of December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              -------------------
                                                                1999       1998
                                                              ---------   -------
<S>                                                           <C>         <C>
Telephone ready homes passed................................  1,150,367   611,253
Customers...................................................    101,811    27,819
Penetration.................................................        8.9%      4.6%
Lines.......................................................    150,812    42,668
Lines per customer..........................................       1.48      1.53
</TABLE>

COX BUSINESS SERVICES

     Cox delivers telecommunications services to businesses through its
competitive local exchange carrier operation, Cox Business Services. Through its
dedicated fiber optic networks, Cox Business Services provides business
customers video, telephony and high-speed Internet access services. Below is a
summary of Cox Business Services as of December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31
                                                              -----------------
                                                               1999      1998
                                                              -------   -------
<S>                                                           <C>       <C>
Buildings connected on-net..................................    1,513       530
Voice grade equivalent circuits.............................  638,943   322,615
</TABLE>

                                        6
<PAGE>   9

INVESTMENTS

CABLE TELEVISION PROGRAMMING INVESTMENTS

     Cox has made substantial investments in cable television networks as a
means of generating additional interest among consumers in cable television. The
following table summarizes Cox's significant programming investments as of
December 31, 1999:

<TABLE>
<CAPTION>
                                                                             COX
INVESTMENT                         DESCRIPTION                        OWNERSHIP INTEREST
----------                         -----------                        ------------------
<S>                                <C>                                <C>
Discovery Communications, Inc....  The Discovery Channel, The               24.6%
                                     Learning Channel, Animal Planet
                                     Network, retail and other
                                     ancillary businesses
Flextech plc.....................  Cable and satellite television     20,701,084 shares
                                     programming based in the United
                                     Kingdom
GEMS Television..................  Spanish-language service targeted        50.0%
                                   at women
In Demand, L.L.C.................  Pay-per-view programming,                11.1%
                                   formerly Viewer's Choice
Music Choice.....................  Digital audio services                   13.6%
Outdoor Life Network.............  Outdoor recreation-related               33.0%
                                     programming
Product Information Network......  Infomercial distribution                 45.0%
Speedvision Network..............  Automotive, marine and aviation-         32.7%
                                     related programming
</TABLE>

     Discovery Communications, Inc.  The principal businesses of Discovery
Communications, Inc. are the advertiser-supported basic cable networks The
Discovery Channel, The Learning Channel, Animal Planet Network, Discovery Europe
and its retail division consisting primarily of over 100 stores of The Nature
Company. The Discovery Channel provides nature, science and technology, history,
exploration and adventure programming and is distributed to customers in
virtually all cable homes in the United States. The Learning Channel broadcasts
a variety of educational and nonfiction programming. In addition, through
internally generated funding, investments are being made by Discovery in
building a documentary programming library. Cox accounts for its investment in
Discovery under the equity method.

     Flextech plc.  Flextech plc is an English publicly held programming
company. Cox accounted for its investment in Flextech under the fair value
method. In March 2000, Cox sold its entire interest in Flextech and received net
proceeds of approximately $522.3 million. Cox expects to recognize a gain in
connection with this transaction during first quarter 2000.

     GEMS Television.  GEMS Television provides Spanish language television
programming for distribution in the United States, South America and other
Spanish and Portuguese-speaking regions. The programming of GEMS Television is
produced in Venezuela, consists largely of telenovelas (soap operas) and is
targeted primarily to Spanish-speaking women in both Latin America and the
United States. Cox accounts for its investment in GEMS Television under the
equity method.

     In Demand, L.L.C.  In Demand, L.L.C. is a cable operator-controlled buying
cooperative for pay-per-view programming. Cox accounts for its investment in In
Demand under the cost method.

     Music Choice.  Music Choice distributes audio programming in a digital
format via coaxial cable to more than one million customers in the United
States. This service allows cable television customers to receive compact disc
quality sound in diverse music formats. Cox accounts for its investment in Music
Choice under the cost method.

                                        7
<PAGE>   10

     Outdoor Life Network.  Outdoor Life's programming consists primarily of
outdoor recreation, adventure and wildlife themes. Cox accounts for its
investment in Outdoor Life under the equity method.

     Product Information Network.  Product Information Network is a network for
the distribution of multiple direct response television commercials or
"infomercials" through cable television systems and other television programming
outlets. Cox accounts for its investment in Product Information Network under
the equity method.

     Speedvision Network.  Speedvision's programming consists of a broad variety
of material for automobile, boat and airplane enthusiasts. Cox accounts for its
investment in Speedvision under the equity method.

TELECOMMUNICATIONS AND TECHNOLOGY INVESTMENTS

     Cox has made substantial investments in telecommunications and technology.
The following table summarizes Cox's significant telecommunications and
technology investments as of December 31, 1999:

<TABLE>
<CAPTION>
                                                                           COX
INVESTMENT                        DESCRIPTION                       OWNERSHIP INTEREST
----------                        -----------                       ------------------
<S>                               <C>                               <C>
AT&T Corp.(a)...................  Long-distance telephone, cable    50,333,401 shares
                                  television, and other
                                  telecommunications services
Cox Interactive Media Joint       Operates and promotes                   49.0%
  Ventures......................  advertising supported local
                                  Internet content
Excite@Home.....................  Nationwide network providing      29,114,600 shares
                                  high-speed internet access and
                                  unique online content via cable
                                  modems, formerly @Home
                                  Corporation
Liberate Technologies,            Interactive applications           1,041,666 shares
  Ltd.(b).......................  software
National Cable Communications...  Cable television advertising            16.7%
                                  sales
NextLink Nevada.................  Telecommunications services in          37.5%
                                  Las Vegas and other areas of
                                  Nevada
Sprint PCS(c)...................  Wireless telecommunications       132,800,830 shares
TiVo, Inc.......................  Developer of consumer electronic    240,153 shares
                                  device that stores real-time
                                  video on hard disks
</TABLE>

---------------

(a)  In April 1999, AT&T's outstanding shares split three-for-two. Accordingly,
     all shares presented herein reflect the effect of this stock split.
(b)  In January 2000, Liberate's outstanding shares split two-for-one.
     Accordingly, all shares presented herein reflect the effect of this stock
     split.

(c)  Cox also owns warrants to purchase Sprint PCS common stock -- Series 2 and
     convertible preferred stock which are exercisable or convertible into 10.3
     million shares of Sprint PCS common stock -- Series 2. In February 2000,
     Sprint PCS' outstanding shares split two-for-one. Accordingly, all shares
     presented herein reflect the effect of this stock split.

     AT&T Corp.  In March 2000, Cox's 50.3 million shares of AT&T common stock
were exchanged for the stock of AT&T subsidiaries that own cable television
systems serving approximately 495,000 customers and certain other assets and
liabilities, including cash. See "Acquisitions, Transactions and Investments" in
Part II, Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

     Cox Interactive Media Joint Ventures.  Cox has invested in a series of
local joint ventures with Cox Interactive Media, Inc., an indirect, wholly owned
subsidiary of CEI, to develop, operate and promote advertising supported local
Internet content, or City Sites, in the markets where Cox operates cable
television systems featuring high-speed Internet access. Cox Interactive Media
owns the remaining equity interest in the

                                        8
<PAGE>   11

joint ventures and is responsible for the day to day operations of the joint
ventures. Cox accounts for its investment in the Cox Interactive Media joint
ventures under the equity method.

     Excite@Home.  Excite@Home, formerly @Home Corporation, is both an Internet
service and content provider and supplier of comprehensive Internet navigation
services. Excite@Home provides customers high-speed access to the Internet via a
cable modem and the cable television broadband network. In May 1999, @Home
Corporation acquired Excite and changed its name to Excite@Home. Cox accounts
for its investment in Excite@Home under the fair value method.

     Liberate Technologies, Ltd.  Liberate Technologies develops and sells
software that enables the delivery of Internet-enhanced content and applications
to information appliances, such as cable television set-top boxes, game consoles
and personal digital assistants. In May 1999, Cox purchased 1,041,666 shares of
Liberate's common stock for $5.0 million. Liberate completed an initial public
offering of its common stock in July 1999. Cox accounts for its investment in
Liberate Technologies under the fair value method.

     National Cable Communications.  National Cable Communications is the
largest cable advertising representation firm which enables advertisers to place
advertising with selected multiple systems on a regional or national
single-source basis. Cox accounts for its investment in National Cable
Communications under the cost method.

     NextLink Nevada.  NextLink Nevada markets and provides telephony services
in the Las Vegas metropolitan area and elsewhere in Nevada through telephone
networks owned or leased by NextLink Nevada. Cox accounts for its investment in
NextLink Nevada under the equity method.

     Sprint PCS.  Sprint PCS is a personal communications services provider and
an indirect wholly-owned subsidiary of Sprint Corporation. At December 31, 1999,
Cox's investment in Sprint PCS was comprised of 132.8 million shares of Sprint
PCS common stock -- Series 2 and warrants to purchase Sprint PCS common
stock -- Series 2 and convertible preferred stock which are exercisable or
convertible into 10.3 million shares of Sprint PCS common stock -- Series 2. Cox
accounts for its investment in Sprint PCS under the fair value method.

     In November 1999, Cox issued 14,375,000 exchangeable subordinated
debentures due 2029, which are referred to as PRIZES. The PRIZES are indexed to
the trading price of Sprint PCS common stock -- Series 1 and are exchangeable by
the holder for cash. See Note 9, "Debt" in Part II, Item 8 "Consolidated
Financial Statements and Supplementary Data." In December 1999, Cox sold 3.9
million shares of its Sprint PCS common stock -- Series 2 for approximately
$197.3 million and recognized a pre-tax gain of approximately $165.6 million.
Cox sold an additional 16.1 million shares of Sprint PCS common stock -- Series
2 in January and February 2000 and expects to recognize a gain in first quarter
2000. In March 2000, Cox issued $275.0 million aggregate principal amount 3%
Exchangeable Subordinated Debentures due 2030, which are referred to as Premium
PHONES. The Premium PHONES are exchangeable by the holder initially for cash
and, beginning in March 2002, at Cox's election, for cash or Sprint PCS common
stock -- Series 2. See Notes 19, "Subsequent Events," in Part II, Item 8
"Consolidated Financial Statements and Supplementary Data."

     TiVo, Inc.  TiVo, Inc. develops a consumer electronic device that acts like
a digital personal video recorder, storing real-time video on hard disks. Cox
accounts for its investment in TiVo under the fair value method.

     Cox PCS.  In May 1999, Cox exercised its right under the Cox Communications
PCS, L.P. partnership agreement to transfer its remaining 32.0% equity interest
in Cox PCS to Sprint Corporation in exchange for approximately 38.1 million
shares of Sprint PCS Common Stock -- Series 2. As a result of this transaction,
Cox recognized a pre-tax gain of $908.5 million.

     Syntellect, Inc.  Cox sold its investment in Syntellect, Inc. in September
1999 for net proceeds of $2.4 million and recorded a pre-tax loss of $2.9
million.

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<PAGE>   12

BROADBAND NETWORK INVESTMENTS

     Telewest Communications plc.  In January 1999, Cox sold its entire interest
in Telewest for $727.9 million in cash and recognized a pre-tax gain of $433.1
million.

     TWC Cable Partners.  In October 1999, Cox reorganized its partnership with
Time Warner, under which Cox acquired control of the cable television system
serving Fort Walton Beach, Florida and received $104.5 million, and Time Warner
acquired control of the cable television system serving Staten Island, New York.
Cox recognized a pre-tax gain of $94.8 million in connection with this
reorganization.

COMPETITION

     Each of Cox's broadband services faces competition in varying forms. Cable
television faces competition from other providers of video and entertainment.
Telephone services face competition from incumbent and new entrant providers of
landline and wireless communications services. Wireless services face
competition from incumbent and recently-authorized cellular, personal
communications services, specialized mobile radio providers commonly known as
SMR systems, satellite services, as well as from the availability of additional
spectrum the FCC makes available from time to time in spectrum auctions.

CABLE TELEVISION COMPETITION

     Cable television service was first offered as a means of improving
television reception in markets where terrain factors or remoteness from major
cities limited the availability of off-air television. In some of the areas
served by Cox's systems, a substantial variety of television programming can be
received off-air or otherwise. The extent to which cable television service is
competitive depends upon the cable television system's ability to provide a
greater variety of programming than is available off-air. The cable television
systems owned by Cox compete with a number of different sources of news,
information and entertainment, including:

     - local television broadcast stations that provide free off-air programming
       which can be received in many communities by using a roof-top antenna and
       television set;

     - satellite program distributors that transmit satellite signals containing
       video programming, data and other information to receiving dishes of
       varying sizes located on the customer's property;

     - satellite master antenna television systems, commonly known as SMATV or
       satellite TV systems, which serve condominiums, apartment and office
       complexes and private residential developments, but do not use or cross
       public rights-of-way;

     - multichannel, multipoint distribution service operators, commonly known
       as MMDS or wireless cable operators, which use low-power microwave
       frequencies to transmit video programming and other information
       over-the-air to subscribers;

     - interactive online computer services;

     - newspapers, magazines and book stores;

     - movie theaters;

     - live concerts and sporting events; and

     - home video products, including videotape cassette recorders.

     Since Cox's U.S. cable television systems operate under non-exclusive
franchises, other companies commonly known as overbuilders may obtain permission
to build cable television systems in areas where Cox operates. To date, the
extent of actual overbuilding in these areas has been relatively slight, and
fewer than 2% of Cox's total homes passed are overbuilt at this time. While Cox
believes that the current level of overbuilding has not had a material impact on
its operations, it is unable to predict the extent to which adverse effects may
occur in the future as a result of overbuilds.

                                       10
<PAGE>   13

     Satellite TV systems transmit signals by satellite to receiving facilities
located on customers' premises such as condominiums, apartment and office
complexes and other private residential developments. These systems also are
beginning to offer local and long distance telephone service and Internet access
along with video service. A satellite TV or private cable television system
normally is free of the regulatory burdens imposed on franchised cable
television systems. The Telecommunications Act of 1996 broadens the definition
of satellite TV systems not subject to regulation as a franchised cable
communications service. The operators of these private systems often enter into
exclusive agreements with apartment building owners or homeowners' associations
that may preclude operators of franchised cable television systems from serving
residents of such private complexes, although some states have enacted laws to
provide franchised cable systems access to such private complexes. Courts have
reviewed challenges to these laws and have reached varying results. Cox is
unable to predict the extent to which additional competition from these services
will materialize in the future or the impact such competition would have on
Cox's operations. However, Cox is continuing to develop competitive packages of
services (Cox Digital Television, Cox@Home and Cox Digital Telephone) to offer
these residential and commercial developments.

     In recent years, Congress enacted legislation and the FCC has initiated new
policies and authorized new technologies to provide a more favorable operating
environment for new and existing technologies that provide, or have the
potential to provide, substantial additional competition to cable television
systems. These technologies include, among others, direct broadcast satellite
service, commonly known as DBS service, whereby signals are transmitted by
satellite directly to small receiving dishes, commonly called HSDs, located on
the customer's property.

     The availability of reasonably-priced home satellite dish earth stations
enables individual households to receive many of the satellite-delivered program
services formerly available only to cable subscribers. High-powered
direct-to-home satellites have made possible the wide-scale delivery of
programming to individuals throughout the United States using roof-top or
wall-mounted antennas. Furthermore, the Cable Television Consumer Protection Act
of 1992 contains provisions, which the FCC has implemented with regulations, to
enhance the ability of cable competitors to purchase and make available to HSD
owners certain satellite-delivered cable programming at competitive costs. The
1996 Act and FCC regulations implementing that law preempt certain local
restrictions on the use of home satellite dish earth stations and roof-top
antennae to receive satellite programming and over-the-air broadcasting
services. The FCC revised its rules to extend the prohibition on local
restrictions that hamper consumer use of television antennas, small satellite
dishes, and wireless cable antennas to include viewers who rent property and
desire to use antennas in areas where they have "exclusive use," including
balconies, patios, gardens, and yards exclusively used by the renter.

     DBS remains the cable television industry's largest competitor, and DBS
subscribership shows continued growth. According to the FCC's Sixth Annual
Report regarding the status of competition in the video programming market,
high-power satellites provided video programming to over ten million subscribers
as of June 1999.

     DBS providers typically offer to their subscribers more than 200 channels
of programming including:

     - news channels;

     - movies;

     - broadcast stations;

     - live concerts and sporting events; and

     - other program services similar to those program services provided by
       cable television systems, including Internet services.

     To deliver their signals, DBS systems use:

     - video compression technology to increase significantly the channel
       capacity of their systems; and

     - digital technology to improve significantly the technical quality of the
       signals transmitted to subscribers.
                                       11
<PAGE>   14

     Until recently, satellite program providers were only authorized to provide
the signals of television network stations to subscribers who live in areas
where over-the-air reception cannot be received. In November 1999, Congress
passed legislation amending the Satellite Home Viewer Act which governs the
delivery of television broadcast signals by satellite companies. The legislation
authorizes for the first time the satellite delivery of local broadcast signals
to subscribers who reside within a television station's local market. Satellite
carriers may continue to retransmit local broadcast signals for the first six
months that the legislation is effective but then must obtain retransmission
consent from the television station before continuing carriage. Congress also
has imposed on satellite carriers "must-carry" obligations with respect to local
television stations. Beginning January 1, 2002, a satellite carrier delivering
the signal of any local television station also would be required to carry all
stations licensed to the carried station's local market. With respect to the
delivery of out-of-market, or distant, television broadcast signals to unserved
subscribers, the legislation permits satellite carriers to provide the signal of
a distant network affiliate to only those subscribers who cannot receive a
signal of at least Grade B intensity (as defined in the FCC's rules) from the
local network affiliate. The legislation grandfathers for a period of five years
from enactment current subscribers under certain conditions who would otherwise
be ineligible to receive distant network signals. This legislation will likely
improve the competitive position of DBS providers against cable operators.

     Consolidation over the last twelve months in the high-powered DBS industry
has provided DBS companies with additional channel capacity. Two major
companies, DirecTV and EchoStar Communications Corporation, are currently
offering nationwide high-power DBS services. DirecTV and its parent company,
Hughes Network Systems, Inc., last year acquired Primestar's medium-power DBS
business and the high-power DBS business of Tempo, a subsidiary of Primestar,
which was a consortium of cable operators including Cox and a satellite company.
EchoStar recently acquired a high-power DBS license from MCI Telecommunications
Corporation and two DBS satellites currently under construction from News Corp.
DirecTV and EchoStar have significantly enhanced the number of channels on which
they can provide programming to subscribers and will improve significantly their
competitive positions against cable operators. Like cable, the DBS industry is
developing ways to bring advanced services to their customers. For example,
Hughes Network Systems offers a satellite-delivered Internet access service with
a telephone return path. EchoStar plans to offer e-mail, e-commerce, and on-line
banking services in the near future. Cox is unable to predict the impact
DirecTV's and EchoStar's enhanced operations may have on its business and
operations as a result of these transactions. The FCC has initiated a DBS
rulemaking proceeding, which, among other issues, requests comments on whether
the FCC should implement cross-ownership restrictions between DBS and cable
television operators.

     The differences between cable and DBS continue to diminish. The degree to
which DBS service providers will be able to compete with the cable television
industry will depend on, among other factors, the availability of reception
equipment at reasonable prices and the number of local broadcast signals that
DBS provides offer in their program package. The disadvantages of DBS service
compared to cable service currently include a lack of local programming (where
local television stations are not available), local service, and higher upfront
equipment and additional outlet costs. The advantages of DBS include more
programming, greater channel capacity (including the capacity for "Near Video On
Demand" movies on pay-per-view), digital quality picture and CD-quality sound.
The FCC's Annual Report indicates that subscribers continue to report higher
levels of satisfaction over cable television. These advantages may lessen as
cable operators offer digital services that allow them to match DBS service in
number of channels and capacity.

     Programming also is currently available to the owners of home satellite
dish earth stations through conventional, medium-powered satellites. However, in
contrast to the growth of DBS subscribers, the medium-powered or C-Band industry
is experiencing a steady decline in subscribers as customers move to DBS
services with its smaller antennas. Nevertheless, medium powered service is
expected to continue as a viable business for the foreseeable future as a niche
distribution medium serving rural subscribers unserved by cable.

     Cable television systems also compete with wireless program distribution
services such as multichannel, multipoint distribution service commonly known as
MMDS or wireless cable systems, which are licensed to serve specific areas using
low-power microwave frequencies to transmit video programming over-the-air to
                                       12
<PAGE>   15

subscribers. Recent amendments to the FCC's rules will permit reverse path or
two-way transmission over wireless facilities. This development, along with the
use of digital compression technology, will enable wireless cable systems to
deliver more channels and additional services. Currently, a few wireless
operators offer Internet service. One such system in Phoenix, operates under
developmental authority, has over 10,000 customers for its Internet service, and
is competing with Cox's cable system and U S West's DSL offering discussed
below. BellSouth Entertainment, a Bell South-affiliated company, provides
wireless cable service in the New Orleans market using wireless cable technology
and offering a basic package of over 160 local, cable, satellite and CD music
channels. Cox has initiated the introduction of new programming services in
response to the increasing competitive environment in which the New Orleans
system operates. A wireless cable operator is also authorized or has commenced
to provide service in several California communities where Cox operates. The FCC
also has awarded licenses in the 28 GHz band for a new multichannel wireless
video service similar to MMDS called Local Multipoint Distribution Service,
commonly known as LMDS, which is capable of transmitting voice as well as video
transmissions. The FCC imposed cross-ownership restrictions of these frequencies
by cable operators and telephone companies until the year 2000. Cable operators
and telephone companies are precluded from operating on these frequencies in the
same authorized or franchised service areas in which they provide service. The
FCC recently initiated a proceeding to determine whether the cross-ownership
restrictions should be continued past the year 2000. Cox is unable to predict
whether wireless video services will have a material impact on its operations.

     The 1996 Act repeals the cable/television cross-ownership ban adopted in
the Cable Communications Policy Act of 1984 thereby facilitating competition
between incumbent cable operators and telephone companies. The 1996 Act enables
communications carriers or other entrants to provide video programming services
as either cable operators or open video system operators. The 1996 Act also
contains restrictions on telephone companies buying out incumbent cable
operators in a telephone company's service area, especially in suburban and
rural markets. See "-- Legislation and Regulation."

     The 1996 Act directed the FCC to establish, and the FCC has adopted,
regulations and policies for the issuance of licenses for digital television,
commonly known as DTV, to incumbent television broadcast licensees. DTV delivers
high definition television pictures, multiple digital-quality program streams,
as well as CD-quality audio programming and advanced digital services, such as
data transfer or subscription video. The FCC has also authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and to businesses. The FCC also permits commercial and non-commercial
FM stations to use their subcarrier frequencies to provide non-broadcast
services, including data transmissions. The FCC established an over-the-air
Interactive Video and Data Service that will permit two-way interaction with
commercial and educational programming along with informational and data
services. Telephone companies and other common carriers also provide facilities
for the transmission and distribution of data and other non-video services.

     Other new technologies, including Internet-based services, may become
competitive with services that cable television systems can offer. Cox's cable
systems offer interactive online computer services. Cox's cable systems compete
with a number of other companies, many of whom have substantial resources, such
as existing Internet service providers, commonly known as ISPs, as well as local
and long distance telephone companies and DBS providers. Recently, a number of
ISPs have requested local authorities and the FCC to provide access rights to
cable television systems' broadband infrastructure so that they may be able to
deliver their services directly to cable television subscribers. The FCC
believes the marketplace is working and expanding consumer choice for broadband
services, has concluded that alternative means of access are or soon will be
made available to a broad range of ISPs and has declined to take action on ISP
access to broadband cable facilities. The FCC indicated that it would continue
to monitor this issue. Several local jurisdictions also are reviewing this
issue. See "-- Legislation and Regulation."

     Telephone companies are accelerating the deployment of Asymmetric Digital
Subscriber Line Technology commonly known as ADSL. Although wireless and
satellite broadband technologies exist, ADSL-type technology, or xDSL, allow
Internet access to subscribers at peak data transmission speeds equal to or
greater than that of modems over conventional telephone lines and are the most
significant competitors to Internet over cable broadband. xDSL technology has
several advantages over cable broadband technology. Among the
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<PAGE>   16

advantages is the ability to offer customers simultaneous, high speed Internet
and voice or facsimile capabilities over a single telephone line. Dedicated
lines that run from the telephone subscriber's home to the central office of the
telephone company can guarantee the user a constant, high-seed rate of data
transmission and security. This means that there is no decrease in data transfer
speeds as more users get on line, unlike cable's shared network. In Phoenix, US
West uses very high speed digital subscriber line, or VDSL, for distribution of
video, high-speed Internet access and telephone service over existing copper
phone lines. In addition, U S West has announced that it has begun trials of an
interactive service that integrates customers' telephone, Internet access, and
existing television service.

     Several of the Regional Bell Operating Companies have requested the FCC to
fully deregulate packet-switched networks (a type of data communications in
which small blocks of data are independently transmitted and reassembled) to
allow them to provide high-speed broadband services, including interactive
online services, without regard to present service boundaries and other
regulatory restrictions. Cox cannot predict the likelihood of success of the
online services offered by these competitors, ISP attempts to gain access to the
cable industry's broadband facilities, or the impact of those developments on
Cox's business.

TELEPHONY COMPETITION

     LANDLINE TELECOMMUNICATIONS SERVICES.  While the current switched voice and
data telecommunications market is dominated by local telephone companies, also
known as incumbent LECs, the 1996 Act presents new opportunities for new
entrants into these markets. Incumbent LECs provide a wide range of local
telecommunications services and equipment to customers, as well as providing
originating and terminating access to their local networks to long distance
carriers and mobile radio service providers. Because incumbent LECs historically
have had exclusive state franchises by law to provide telephone service, they
have established long-term, exclusive relationships with their customers. Under
the new law, and subject to certain limitations for rural LECs, the FCC is
directed to preempt any state law or regulation that acts to prevent new
competitive entry into incumbent LEC markets.

     The 1996 Act represents the most comprehensive reform of the nation's
telecommunications laws since the Communications Act of 1934. The 1996 Act is
intended to open local exchange markets to competition, which should result in a
substantial increase in Cox's business opportunities to deliver telephony over
its broadband networks. Among its more significant provisions, the 1996 Act:

     - removes legal barriers to entry in local telephone markets;

     - requires incumbent LECs to "interconnect" with competitors, including the
       provision of necessary elements for local competition such as telephone
       number portability;

     - establishes procedures for incumbent LEC entry into new markets such as
       long distance and cable television;

     - allows for the relaxation of regulation of telecommunications services
       provided by incumbent LECs and all other telecommunications service
       providers; and

     - directs the FCC to establish an explicit subsidy mechanism for the
       preservation of universally affordable telephone service.

     Under the 1996 Act, new landline entrants have become subject to additional
federal regulatory requirements for the provision of local exchange service in
any market. The 1996 Act imposes a number of access and interconnection
requirements on all LECs, with additional requirements imposed on incumbent
LECs. Specifically, the 1996 Act required the FCC to implement rules under which
all LECs must provide telephone number portability, dialing parity, reciprocal
compensation for transport and termination of local traffic, resale and access
to rights of way. The 1996 Act also requires state commissions to review and
approve voluntarily negotiated interconnection agreements and to arbitrate
compulsory interconnection negotiations between new entrants and incumbent LECs.
These requirements also place burdens on new entrants that may benefit other
competitors. In particular, the resale requirement means that a company could
seek to resell services using the facilities of a new entrant without making a
similar investment in facilities.

                                       14
<PAGE>   17

     The 1996 Act eliminates the requirement that incumbent LECs obtain FCC
authorization prior to constructing facilities for interstate services. The 1996
Act also limits the FCC's ability to review incumbent LEC tariff filings. These
changes will increase the speed with which the LECs are able to introduce new
service offerings and new pricing of existing services, thereby increasing their
flexibility to respond to new entrants.

     In addition to incumbent LECs and existing competitive access providers,
new entrants potentially capable of offering switched and non-switched services
include individual cable television companies, electric utilities, long-distance
carriers, microwave carriers, terrestrial and satellite wireless service
providers, resellers and private networks built by large end-users or groups of
these entities in combination.

     On August 1, 1996, the FCC adopted a report and order promulgating rules to
implement the 1996 Act's provision that obligates competitive LECs and incumbent
LECs to interconnect their networks. The Local Competition Order adopts a
methodology to establish prices that are consistent with the 1996 Act for
interconnection, compensating carriers for completing local calls, unbundled
elements and resale of incumbent LEC services. The Local Competition Order
adopts a national pro-competitive framework for interconnection but leaves to
the individual state commissions the task of implementing the FCC's rules as
part of their review of proposed interconnection agreements. The states are
required to base rates for interconnection, compensation for completing local
calls and the purchase of incumbent LEC unbundled network elements on an
incremental cost methodology established by the FCC, called Total Element
Long-Run Incremental Cost or TELRIC. Incumbent LECs may present the states with
TELRIC cost studies, while the FCC adopted interim "default" rates which the
states could apply pending state review of TELRIC studies. Additionally, the FCC
interpreted a non-discrimination provision in the 1996 Act to allow carriers to
request that the incumbent LEC make available to them under identical terms and
conditions any interconnection, service or network element contained in an
approved agreement between the incumbent LEC and another carrier (known as the
pick and choose rule).

     The Eighth Circuit Court of Appeals in an opinion in 1997 overturned many
of the interconnection rules affecting LECs, including most aspects of the FCC's
pricing rules, intrastate dialing parity rules, certain rules governing
unbundled elements and the pick and choose rule on the belief that the FCC
lacked the authority to impose rules upon state commissions. The government
appealed the Eighth Circuit's opinion and on January 25, 1999, the Supreme Court
upheld the FCC's interconnection rules in all respects relevant to Cox. The
Court:

     - upheld the FCC's jurisdiction to set the pricing methodology for the
       purchase of unbundled network elements and resale, as well as the FCC's
       right to define unbundled network elements broadly;

     - affirmed the FCC's power to forbid incumbent LECs from separating network
       elements that are normally provisioned together;

     - upheld the FCC's rule which allows carriers to request that the incumbent
       LEC make available to them any interconnection, service or network
       element contained in an approved agreement to which the LEC was a party
       under the same terms and conditions, thereby allowing carriers to adopt
       provisions found in other interconnection agreements; and

     - overturned the FCC criteria governing when proprietary network elements
       must be unbundled by an incumbent LEC.

     Significantly, the Court did not overturn any of the FCC's specific
determinations about unbundled network elements, but only the methodology by
which those determinations were made. On November 5, 1999, the FCC issued an
order that reconsidered the unbundling obligations contained in Section 251 of
the 1996 Act. The FCC eliminated several items from its previous list of
unbundled network elements. The FCC stated that its revised unbundling rules are
designed to advance the development of facilities-based competition and to
provide incentives for incumbent and competitive carriers to invest in their own
facilities and innovate. Because Cox makes use of its existing cable television
network to offer telecommunications services, it does not make extensive use of
ILEC unbundled network elements. This relative lack of

                                       15
<PAGE>   18

dependence upon ILEC network elements provides Cox with additional flexibility
to create innovative services and positions it favorably vis-a-vis
non-facilities-based telecommunications providers.

     The Local Competition Order was the first part in a "trilogy" of orders
intended to reform access pricing and universal service consistent with the 1996
Act's goal of encouraging local competition. As described below, the FCC also
has issued orders that were intended to substantially reduce the prices
incumbent LECs charge for interstate access services in separate proceedings on
reform of the current access charge regime and of universal service procedures.

     In July 1996, the FCC released an Order promulgating rules implementing the
1996 Act's directive for local telephone number portability. Under the number
portability directive and several subsequent orders in that proceeding, the FCC:

     - ordered all LECs to begin phased development of a long-term service
       provider portability method in the 100 largest Metropolitan Statistical
       Areas, or MSAs, no later than October 1, 1997;

     - ordered all LECs to complete deployment in those MSAs by March 31, 1998
       in areas where other carriers have requested the availability of
       portability; and

     - ordered each LEC after March 31, 1998, to make number portability
       available within specified periods, but no longer than six months, after
       receiving a specific request by another telecommunications carrier in
       areas outside the 100 largest area MSAs.

     Several LECs have petitioned the FCC for additional time to implement
portability in certain markets due to difficulties in performing required
equipment upgrades and the failure of a vendor to provide necessary database
services. The FCC granted several of these requests for a limited period of
time.

     In February 1999, the FCC also granted a request to delay implementation of
service provider local number portability for the broadband commercial mobile
radio service until November 24, 2002. Until long-term service provider number
portability is available, all LECs must provide currently available number
portability measures as soon as reasonably possible after a specific request
from another carrier. Because new carriers are at a competitive disadvantage
without telephone number portability, the Number Portability Order should
enhance Cox's ability to offer service in competition with the incumbent LECs.

     On May 12, 1998, the FCC outlined general standards for LECs to use in
determining which costs are carrier specific and directly related to providing
local number portability. The FCC adopted a two-part test that requires carriers
to show the costs:

     - would not have been incurred "but for" the implementation of local number
       portability; and

     - were incurred "for the provision of" number portability services.

     These costs may be recovered either from a carrier's customers or other
carriers that use an incumbent LEC's database to route calls to the correct
carrier. The FCC directed incumbent LECs to file local number portability
tariffs, and the FCC has addressed the type of costs incumbent LECs may recover
from providers as part of the local number portability tariff review. The FCC
has denied incumbent LECs requests for reconsideration of its local number
portability cost recovery rules. The number portability directive is subject to
appeals pending before the Tenth Circuit Court of Appeals.

     Nationwide number portability requires the use of a numbering administrator
and the FCC recovers the costs of number administration by assessing charges on
all telecommunications carriers in proportion to their interstate
telecommunications revenues. Telecommunications carriers with end-user revenues
are required to pay an allocated portion of the shared costs incurred by the
regional database administrator in proportion to that carrier's international,
interstate, and intrastate end-user telecommunications revenues for that region.
The FCC has notified carriers that they must report their revenues by April
2000. Currently, Cox will be required to contribute to the number portability
cost recovery mechanism in the fourth quarter 2000. The LNP Administrator will
use the information collected in the LNP worksheets to determine the allocated
portion of the shared costs incurred by the regional database administrator in
proportion to that carrier's international, interstate, and intrastate end-user
telecommunications revenues for that region.
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<PAGE>   19

     The 1996 Act mandated creation of a Federal-State Joint Board regarding
universal service and subsequent action by the FCC. In the fall of 1996, the
Joint Board proposed a new regime for funding universal telephone service and
for distributing universal service subsidies. The FCC received public comment on
that proposal and adopted a Universal Service Order in the Universal Service
proceeding on May 7, 1997. The recommended decision proposed, and the Universal
Service Order adopted:

     - specific explicit subsidy programs to replace the previous subsidies for
       high cost carriers and for low income consumers;

     - new subsidies for access to telecommunications services; and

     - Internet access services and internal connections for schools and
       libraries and new subsidies for telecommunications services for rural
       health care facilities.

     Under the Universal Service Order, every telecommunications carrier that
provides interstate telecommunications services must contribute to the universal
service mechanisms established by the FCC. Any telecommunications carrier that
provides all of the services that fall within the definition of "universal
service" would be eligible to apply to a state commission to receive subsidies
for providing these services in high cost areas. Entities that provide
telecommunications services, internal connections or Internet services used by
eligible schools and libraries are also able to provide these services on a
discounted basis with repayment from a federal schools and libraries fund. The
1996 Act also directs the FCC to promote affordable telecommunications access
and the FCC adopted a two-track framework to identify necessary universal
service subsidies and provide a mechanism to make them portable. The FCC has put
into place a program to identify subsidies to fund high cost service areas not
served by rural LECs. The program, in the short run, preserves many of the
existing subsidies. The FCC has not announced a timetable for reforming
universal service in rural high cost areas.

     On July 30, 1999, the United States Court of Appeals for the Fifth Circuit
issued an opinion affirming in part, reversing in part, and remanding in part
the FCC's Universal Service Order. Among other things, the Fifth Circuit ruled
on two issues regarding the assessment of universal service contributions.
Specifically, the Fifth Circuit: (1) reversed the FCC's decision to assess
contributions based on the intrastate revenues of universal service
contributors; and (2) reversed and remanded for further consideration the FCC's
decision to assess contributions based on the international revenues of
contributors having interstate revenues. In response to the court's rulings, the
FCC adopted an order in October 1999 that amended its mandatory contribution
rules. Specifically, the FCC removed intrastate revenues from the contribution
base, so that universal service contributions are now calculated using a single
contribution factor based on interstate and international end-user
telecommunications revenues.

     Funding for the federal universal service subsidies will come from
mandatory payments imposed on all telecommunications carriers (with limited
exceptions). Under the proposed contribution factors for the first quarter of
2000, Cox will be required to contribute an amount equal to 5.8% of its
interstate telecommunications revenues to the federal universal service fund. In
addition to the federal universal service plan, it is likely that most or all
states will adopt their own universal service support mechanisms.

     Depending upon how the FCC completes the implementation of its statutory
mandate and how states adjust their existing programs or create new programs,
this subsidy mechanism may provide an additional source of revenue to those LECs
or other carriers willing and able to provide service to those markets that are
less financially desirable, either because of the high cost of providing service
or the limited revenues that might be available from serving a particular subset
of customers in and area, such as residential customers. The prospects, however,
are unclear until the FCC takes action on subsidies for rural high cost areas.

     The FCC submitted a report to Congress in April 1998 stating that some
Internet telephony services previously understood to be exempt from universal
service assessments, because they are classified for regulatory purposes as
information services, should be regulated as telecommunications services and
required to contribute to federal universal service programs. The FCC also
indicated that for the first time it will be exploring ways to assess universal
service contributions on companies which build their own networks. However, the
FCC has not proposed or adopted rules to implement these conclusions, preferring
instead to
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<PAGE>   20

apply these conclusions on a case-by-case basis. Depending upon how these new
policies are applied in particular cases, it could have an impact on the
universal service contributions made by Cox.

     The FCC has also initiated a proceeding to consider whether to adopt rules
governing the manner in which carriers disclose end user charges to recover
their mandatory contributions to universal service programs. On May 11, 1999,
the FCC released Truth-in-Billing order, adopting principles and guidelines to
ensure that telephone bills provide consumers with the information they need to
make informed decisions in the telecommunications marketplace. The FCC's "Truth
in Billing" proceeding impacts the disclosures that all carriers, including Cox,
provide to their customers in their bills whenever they pass through universal
service charges as a bill line item. The FCC has suggested requiring carriers
which choose to place line items on bills use standard labels to identify these
charges but has not formally adopted this requirement.

     While not directly required under the 1996 Act, the FCC also adopted an
order intended to reform interstate access charges that are generally
acknowledged to contain subsidy elements, also known as the Access Reform Order.
The Access Reform Order modified the previous access charge system by shifting
some costs from per-minute charges to flat charges and through other changes.
The FCC also simultaneously adopted an order that reduced access charges under
the existing rate regulation regime. The Access Reform Order also affirmed the
FCC's previous determination that interstate access charges should not be
imposed on enhanced services traffic such as Internet access traffic. The FCC
continues to review and revise its access charge regime. In its August 1999
order, for example, the FCC revised the rules that govern the provision of
interstate access services by price cap LECs. Specifically, the FCC granted
price cap LECs immediate pricing flexibility in the form of streamlined
introduction of new services, geographic deaveraging of rates for certain
services, and removal, upon implementation of toll dialing parity, of certain
interstate interexchange services from price cap regulation. The FCC also
established a framework for granting price cap LECs greater flexibility in the
pricing of all interstate access services once they have satisfied certain
competitive criteria.

     On February 25, 1999, the FCC adopted an order addressing the
jurisdictional nature of dial-up traffic delivered to ISPs. The FCC announced
that dial-up traffic delivered to ISPs is largely interstate. The FCC stated,
however, that its action was not intended to dislodge previous state decisions
interpreting interconnection agreements between incumbent LECs and competitive
LECs to require reciprocal compensation between two local carriers jointly
delivering dial-up traffic to ISPs. This order was appealed to the D. C. Circuit
and that appeal is pending. The FCC also adopted a notice of proposed rulemaking
requesting comment on the approach the FCC should take on a forward-looking
basis toward intercarrier compensation for dial-up traffic delivered to ISPs.

     Enforcement of some of Cox's interconnection agreements may be affected by
this decision. Some incumbent LECs have refused to pay Cox reciprocal
compensation for dial-up traffic delivered to ISPs. Most state commissions have
reconsidered their previous decisions in light of the FCC's findings and are
divided on the enforcement of reciprocal compensation provisions in existing
interconnection agreements. Accordingly, there can be no assurance that Cox will
recover reciprocal compensation for traffic delivered to ISPs that it believes
it is entitled to under some of its existing contracts with incumbent LECs.

     On February 19, 1998, the FCC adopted new rules concerning the privacy of
customer information, referred to as CPNI, maintained by telecommunications
providers. These rules will apply to all telecommunications providers and will
permit carriers to use such information for marketing services within specified
categories, such as local service or long distance service, without specific
customer permission. Use of such information to market services in a different
category of service will require affirmative oral or written customer
permission.

     Some companies argued that these regulations were overly burdensome and
requested that the FCC reconsider, clarify, and/or forbear from enforcing parts
of those regulations. The FCC adopted and order on reconsideration which
lessened the regulatory burden of various CPNI safeguards, while continuing to
require that carriers protect customer privacy. Specifically, the FCC reduced
the restriction on telecommunications companies' use of CPNI to market services
and equipment to their own customers. The FCC allowed wireline telephone
carriers to use CPNI without customer approval to market related information
services. Further, the

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<PAGE>   21

FCC affirmed its decision to exercise its preemption authority on a case-by-case
basis for state rules that conflict with the FCC's rules.

     After the FCC adopted the Order on Reconsideration, but prior to its
release, the Court of Appeals for the Tenth Circuit issued its opinion vacating
the FCC's CPNI rules. The Court held that the FCC's CPNI rules "must fall under
the First Amendment." Although no valid FCC CPNI rules are in effect currently,
the Court did not invalidate Section 222 of the Communications Act, which
requires carriers to obtain customer approval prior to using, disclosing or
granting access to individually identifiable CPNI.

     Other Related Competitive Matters.  In November 1998, AT&T filed a Petition
requesting that the FCC issue a declaratory ruling confirming that long distance
carriers may elect not to purchase switched access service offered under tariff
by competitive local exchange carriers, or CLECs. AT&T's Petition claimed that
several new entrants into the local switched access market have attempted to
charge rates that are substantially higher than those offered by incumbent LECs.
The FCC's decision on this matter could affect the prices that all switched
access providers, including Cox, charge for the switched access services that
they provide to long distance carriers. The FCC denied the petition in August
1999. Specifically, the FCC declined to address AT&T's concerns in a declaratory
ruling; however, determined that AT&T's petition demonstrated a need for the FCC
to revisit the issue of CLEC access rates. The FCC thus initiated a rulemaking
regarding the reasonableness of these charges and whether the FCC might adopt
rules to address, by the least intrusive means, any failure of market forces to
constrain CLEC access charges. That rulemaking is still pending.

     In November 1998, the Idaho Public Utilities Commission filed a Petition
requesting that the FCC find that CTC Telecom, Inc., a competitive local
exchange carrier preparing to provide integrated telecommunications, Internet
and cable service in a new residential development outside of Boise, should have
its telecommunications offerings classified for regulatory purposes as an
incumbent LEC. The Petition further requests that all "similarly situated"
carriers also should be classified as incumbent LECs. Because Cox believes that
such a policy is contrary to the plain language of the 1996 Act and could
adversely affect its regulatory classification when it provides
telecommunications services under similar conditions, Cox filed comments with
the FCC opposing the Idaho Public Utilities Commission Petition. The Petition is
pending at the FCC.

     Other Commercial Mobile Radio Service Providers. Sprint PCS will face
direct competition for personal communications service subscribers from other
licensed personal communications service systems and other commercial mobile
radio service providers within its markets. The FCC has auctioned and continues
to auction blocks of spectrum for PCS and other competing services. In 1999, the
FCC reauctioned 10 MHz D, E and F block licenses and 15 and 30 MHz C block
licenses that were either returned to the FCC or recaptured by the FCC after
licensees defaulted on an FCC license payment obligation. The FCC also has
announced its decision to reauction in July 2000, additional C and F Block
broadband PCS licenses that were returned or reclaimed by the FCC.

     The FCC's rules limit the amount of cellular, broadband PCS and SMR an
entity can accumulate to 45 MHz in a region. Recently, the FCC amended the
spectrum cap rule to allow a licensee to have an attributable interest in up to
55 MHz in rural areas, which are defined as RSAs. The new rule went into effect
on November 8, 1999. While this cap will prevent certain competitors from
consolidating the CMRS spectrum in any one market, the cap will also prevent
Sprint PCS from obtaining over 45 MHz in many of the markets it serves. In May
2000, the FCC is scheduled to auction licenses for fixed, mobile and
broadcasting services in the 747-762 and 777-792 MHZ bands. This spectrum is not
subject to the CMRS spectrum cap.

     Sprint PCS may also face competition from other current or developing
technologies. SMR systems, such as those used by taxicabs, as well as other more
advanced forms of digital mobile communications service, may provide competition
in certain markets. Nextel, which holds a considerable number of SMR licenses
across the nation, is implementing its digital system to use available SMR
spectrum to provide a range of mobile radio communications services. This
service, commonly known as Enhanced Specialized Mobile Radio, or ESMR, service
is regulated in a manner that reflects its potential interchangeability with
cellular and personal communications services services. In 1994, the FCC decided
to license SMR systems in the 800 MHz bands for wide-area use, thus increasing
potential competition with cellular and personal communica-
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<PAGE>   22

tions services. In 1997, the FCC completed the auction of contiguous spectrum
blocks for ESMR. This auction resulted in Nextel winning rights to a significant
number of additional SMR licenses. In June 1999, the FCC completed the auction
of 220 MHz service licenses. Sixteen winning bidders won a total of 222 Phase II
220 MHz licenses.

LEGISLATION AND REGULATION

     The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies may materially affect the cable television
industry. The following is a summary of federal laws and regulations affecting
the growth and operation of the cable television industry and a description of
certain state and local laws.

     A federal law known as the Communications Act of 1934, as amended,
establishes a national policy to guide the development and regulation of cable
television systems. This Act, as it relates to the cable television industry,
was amended by the Cable Communications Policy Act of 1984 and the Cable
Television Consumer Protection and Competition Act of 1992. The 1984 Cable Act
established comprehensive national standards and guidelines for the regulation
of cable television systems and identified the boundaries of permissible
federal, state and local government regulation. The 1992 Cable Act permitted a
greater degree of regulation of the cable industry, and in particular subjected
cable television systems to regulation of the rates charged customers for basic
and certain cable programming services.

     The 1996 Act is intended, in part, to promote substantial competition in
the marketplace for telephone local exchange service and in the delivery of
video and other services and permits cable television operators to enter the
local telephone exchange market. Cox's ability to competitively offer telephone
services will be affected by the degree and form of regulatory flexibility
ultimately afforded to LECs, and in part, will depend upon the FCC
determinations in rulemaking proceedings and other settings that affect the
telecommunications markets generally, including the revision of access charges
and further changes to the universal service program.

     The most far-reaching changes in communications businesses will result from
the telephony provisions of the 1996 Act. These provisions promote local
exchange competition as a national policy by eliminating legal barriers to
competition in the local telephone business and setting standards to govern the
relationships among telecommunications providers, establishing uniform
requirements and standards for entry, competitive carrier interconnection and
unbundling of LEC monopoly services. The statute expressly preempts any legal
barriers to competition under state and local laws. Many of these barriers had
been lifted by state actions during the early 1990s, but the 1996 Act completes
the task. The 1996 Act also establishes new requirements to maintain and enhance
universal telephone service and subjects telecommunications providers to new
obligations to maintain the privacy of customer information.

     Other parts of the 1996 Act also will affect cable operators. The 1996 Act
directs the FCC to revise the current pole attachment rate formula. This will
result in an increase in the rates paid by entities, including cable operators,
that provide telecommunication services. (Cable operators that provide only
cable services are unaffected.) The 1996 Act also contains provisions regulating
the content of video programming and computer services. Specifically, the new
law prohibits the use of computer services to transmit "indecent" and "obscene"
material to minors. The U.S. Supreme Court has held that these computer-related
provisions are unconstitutional to the extent they regulate the transmission of
indecent material. Under the 1996 Act, a franchising authority may not require a
cable operator to provide telecommunications services or facilities, other than
an institutional network, as a condition to a grant, renewal, or transfer of a
cable franchise, and franchising authorities are preempted from regulating
telecommunications services provided by cable operators and from requiring cable
operators to obtain a franchise to provide such services.

     It is premature to predict the effect of the 1996 Act on the cable industry
in general or Cox in particular. The FCC was required to undertake numerous
rulemaking proceedings to interpret and implement the 1996 Act. Most of these
rulemakings have been completed, but are subject to pending petitions for
reconsideration,

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<PAGE>   23

appeals, or both. It is not possible at this time to predict the outcome of
those proceedings or their effect on Cox.

     The Communications Act allocates principal responsibility for enforcing
federal policies between the FCC, state and local governmental authorities. The
FCC and state regulatory agencies regularly conduct administrative proceedings
to adopt or amend regulations implementing the statutory mandate of the
Communications Act. At various times interested parties to these administrative
proceedings have challenged the new or amended regulations and policies in the
courts with varying levels of success. Cox expects that further court actions
and regulatory proceedings will occur and will refine the rights and obligations
of various parties, including the government, under the Communications Act. The
results of these judicial and administrative proceedings may materially affect
the cable industry and Cox's business and operations. In the following
paragraphs, the federal laws and regulations materially affecting the growth and
operation of the cable industry are summarized. A brief description of certain
state and local laws is also provided.

CABLE TELEVISION REGULATION

     The Communications Act and the regulations and policies of the FCC affect
significant aspects of Cox's cable television system operations, including:

     - subscriber rates;

     - the content of the programming Cox offers to subscribers, as well as the
       manner in which Cox markets its program packages to subscribers;

     - the use of Cox's cable systems' facilities by the local franchising
       authorities, the public and other unrelated companies;

     - franchise agreements with local governmental authorities;

     - cable system ownership limitations and prohibitions;

     - the use of utility poles and conduit;

     - compliance with technical standards; and

     - customer service standards.

     The federal laws and regulations relating to these and other areas
materially affecting Cox's cable operations are summarized in the paragraphs
below.

     RATE REGULATION.  The Communications Act limits the ability of cable
television systems to raise rates for basic services and equipment, and
authorizes rate regulation for certain cable services and customer equipment in
communities that are not subject to "effective competition," as defined by
federal law. The rates charged by cable operators for certain non-basic cable
programming tiers were also subject to regulation by the FCC until April 1,
1999, when such regulation became prohibited by the 1996 Act. The Communications
Act and the FCC's regulations prohibit the regulation of cable television
operators' rates where comparable video programming services, other than DBS,
are offered by local telephone companies, or their affiliates, or by third
parties using the local telephone company's facilities, or where "effective
competition" is established as defined by federal law. Under the effective
competition standard implemented by the 1992 Cable Act, most cable television
systems became subject to rate regulation.

     Where there is no effective competition to the cable television operator's
services, the Communications Act gives local franchising authorities the
responsibility to regulate the monthly rates charged by the operator for:

     - the lowest level of programming service offered by the cable television
       operator, typically called basic service, which includes the local
       broadcast channels and any public access or governmental channels that
       are required by the operator's franchise; and

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<PAGE>   24

     - the installation, sale and lease of equipment used by subscribers to
       receive basic service, such as converter boxes and remote control units.

     Local franchising authorities who wish to regulate basic service rates and
related equipment rates must first obtain FCC certification to regulate by:

     - submitting certain general information to the FCC about the community and
       the cable television operator;

     - following a simplified FCC certification procedure; and

     - agreeing to follow established FCC rules and policies when regulating the
       operator's rates.

     Several years ago, the FCC adopted detailed rate regulations, guidelines
and rate forms that Cox and the local franchising authority must use in
connection with the regulation of basic service and equipment rates. The FCC
adopted a benchmark methodology as the principal method of regulating rates.
However, if this methodology produces unacceptable rates, Cox may also justify
its rates using a detailed and complicated cost-of-service methodology, which,
among other things, permits the use of an industry-wide 11.25% after tax rate of
return on Cox's allowable rate base. The FCC's rules also require franchising
authorities to regulate equipment rates on the basis of actual cost plus a
reasonable profit, as defined by the FCC.

     If the local franchising authority concludes that Cox's basic service and
equipment rates are too high under the FCC's rate rules, the local franchising
authority may require Cox to reduce its rates and to refund overcharges to
subscribers with interest. Cox may appeal adverse local rate decisions to the
FCC, and the FCC may reverse any rate decision made by a local franchising
authority if the decision is inconsistent with the FCC's rules and policies.
Approximately 216 communities served by Cox's cable systems representing
approximately 41% of the communities served currently regulate Cox's basic
service and equipment rates.

     The FCC also adopted several years ago comprehensive and restrictive
regulations that allow cable television systems to modify regulated rates on a
quarterly or annual basis using various methodologies that account for changes
in:

     - the number of regulated channels;

     - inflation; and

     - certain external costs, such as franchise and other governmental fees,
       copyright and retransmission consent fees, taxes, programming fees and
       franchise-related obligations.

     Cox cannot predict whether the FCC will modify these rate regulations in
the future.

     The Communications Act also:

     - prohibits the regulation of the rates charged by cable operators for
       programming offered on a per-channel or per-program basis;

     - requires operators to charge uniform rates throughout each franchise area
       that is not subject to effective competition, as defined by federal law;

     - prohibits regulation of non-predatory bulk discount rates offered by
       operators to subscribers in commercial and residential developments; and

     - permits regulated equipment rates to be computed by aggregating costs of
       broad categories of equipment at the franchise, system, regional or
       company level.

     Franchising authorities in a number of communities in which Cox operates
cable television systems initiated basic service rate regulation pursuant to
Section 623 of the Communications Act and corresponding regulations of the FCC
and required Cox to justify its existing basic service rates. In addition,
certain subscribers and franchising authorities filed complaints with the FCC
pursuant to Section 623 of the Communications Act and corresponding FCC
regulations challenging the reasonableness of Cox's rates for cable programming
services under regulations in effect prior to April 1, 1999. Cox submitted rate
justifications

                                       22
<PAGE>   25

to these franchising authorities and filed responses to the rate complaints with
the FCC. Franchising authorities and the FCC issued a number of rate decisions
regarding basic and non-basic cable programming service tier rates, and the FCC
is currently processing several additional rate complaints relating to rate
increases implemented by Cox prior to April 1, 1999.

     CARRIAGE OF BROADCAST TELEVISION SIGNALS.  The Communications Act contains
broadcast signal carriage requirements that allow local commercial television
broadcast stations:

     - to elect once every three years to require a cable system to carry the
       station, subject to certain exceptions, or

     - to negotiate for "retransmission consent" to carry the station on the
       cable system.

     The Communications Act also requires a cable operator to devote up to
one-third of its activated channel capacity for the mandatory carriage of local
commercial television stations. The Communications Act also gives local
non-commercial television stations mandatory carriage rights; however, such
stations are not given the option to negotiate retransmission consent for the
carriage of their signals by cable television systems. Additionally, cable
television systems must obtain retransmission consent for:

     - all "distant" commercial television stations (except for commercial
       satellite-delivered independent "superstations" such as WGN);

     - commercial radio stations; and

     - certain low-power television stations.

     The FCC has also initiated an administrative proceeding to consider the
requirements, if any, for mandatory carriage of digital television signals. Cox
cannot predict the ultimate outcome of this proceeding which could have a
material effect on the number of services that Cox will be required to carry on
its cable television systems.

     USE OF CABLE SYSTEMS BY THE GOVERNMENT AND UNRELATED THIRD PARTIES.  The
Communications Act allows local franchising authorities and unrelated third
parties to have access to cable systems' channel capacity for their own use. For
example

     - permits franchising authorities to require cable operators to set aside
       certain channels for public, educational and governmental access
       programming; and

     - requires a cable system with 36 or more activated channels to designate a
       significant portion of its channel capacity for commercial leased access
       by third parties to provide programming that may compete with services
       offered by the cable operator.

     The FCC also regulates various aspects of third party commercial use of
channel capacity on cable systems, including the rates and certain terms and
conditions of the commercial use.

     The FCC and some local jurisdictions are considering proposals by various
ISPs to deliver their services directly to cable operators' customers through
access to cable operators' broadband communications facilities. In June 1999, an
ISP petitioned the FCC to issue a declaratory ruling that ISPs are entitled to
access to cable system facilities under the commercial use channel provisions of
the Communications Act. This petition was denied in February 2000. Also in June
1999, a federal district court held in connection with Tele-Communications,
Inc.'s application to transfer two franchises to AT&T that a franchising
authority may require access to cable modem services by third party ISPs as a
condition to approval of a franchise transfer. AT&T has appealed the decision.
Although the decision is not binding on other courts and has no legal effect in
other areas of the country, it has supported attempts by other franchising
authorities to require cable operators to provide access to third party ISPs in
other circumstances, including franchise renewal.

     Several local franchising authorities have imposed or attempted to impose
open access conditions in connection with franchise transfers, although the vast
majority of local franchising authorities considering proposals to require open
access to date have declined to impose such open access requirements on cable
operators. In this regard, late in September 1999, the City of Fairfax, Virginia
enacted an ordinance that
                                       23
<PAGE>   26

purported to condition the transfer of a cable television franchise from Media
General, Inc. to a Cox subsidiary on Cox permitting any requesting ISP access to
its cable system on the same basis that it provides access to its affiliated
ISP. Although the City has only 6,000 customers out of a total of 260,000
customers in Fairfax County, the City and County systems are integrated
operationally. Cox accepted the franchise transfer, but rejected the open access
condition and reserved its right to challenge the legality of the purported
requirement. Several state legislatures are also considering legislation which
would require cable operators that provide Internet service over their plant to
open their facilities to third party ISPs.

     The FCC continues to maintain its earlier position to monitor but not
intervene in the "Internet over cable" market, and that broadband policy should
be set at the federal level. Recently, two private antitrust suits have been
filed by open access advocates who are frustrated with the FCC's current policy
not to intervene in the open access issue. In the first, GTE has sued AT&T and
Comcast Cable Communications, Inc. in federal district court in Pittsburgh, PA,
alleging principally that the cable operators have unlawfully "tied" high-speed
Internet transport and their "@Home" product, and, by refusing to sell their
transport service to GTE and others, have engaged in a "per se" violation of
Section I of the Sherman Anti-trust Act. The second suit, a consumer class
action filed in federal district court in Los Angeles against all the major
MSOs, including Cox, with Internet affiliates @Home and RoadRunner, also alleges
unlawful product tying and seeks damages on behalf of consumers unable to access
their ISP of choice through cable systems without paying for both the bundled
cable ISP service and other ISPs' services.

     Legislation is pending in the Congress which would, among other provision,
require cable operators to offer interconnection with the Internet to
unaffiliated ISPs on interconnection terms and conditions that are fair,
reasonable, and non-discriminatory, and would permit the FCC to require cable
operators to offer nondiscriminatory, direct Internet interconnection for
unaffiliated ISPs and set the rates, terms, and conditions of such
interconnection. Cox cannot predict if such proposals will be adopted, the
eventual outcome of such litigation, or whether such proposals or litigation
will have a material impact on the business and operations of Cox.

     POLE ATTACHMENTS.  The Communications Act requires the FCC to regulate the
rates, terms and conditions imposed by public utilities for cable television
systems' use of utility poles and conduit space unless state authorities have
demonstrated to the FCC that they adequately regulate pole attachment rates, as
is the case in certain states in which Cox operates. In the absence of state
regulation, the FCC administers pole attachment rates on a formula basis. In
some cases, utility companies have increased pole attachment fees for cable
television systems that have installed fiber optic cables and that are using
such cables for the distribution of non-video services. The FCC has concluded
that, in the absence of state regulation, it has jurisdiction to determine
whether utility companies have justified their demand for additional rental fees
and that the Communications Act does not permit disparate rates based on the
type of service provided over the equipment attached to the utility's poles.

     The FCC's existing rate formula governs the maximum rate certain utilities
may charge for attachments to their poles and conduit by cable operators
providing only cable services and, until 2001, by certain companies providing
telecommunications services. In a pending administrative rulemaking proceeding,
the FCC is considering whether to modify its existing cable pole attachment rate
formula.

     The 1996 amendments to the Communications Act modified the FCC's pole
attachment regulatory scheme:

     - by requiring the FCC to adopt new regulations that are effective in 2001
       and that govern the charges for pole attachments used by companies,
       including cable operators, that provide telecommunications services;

     - by immediately permitting certain providers of telecommunications
       services to rely upon the protections of the current law until the new
       rate formula becomes effective in 2001; and

     - by requiring that utilities provide cable systems and telecommunications
       carriers with nondiscriminatory access to any pole, conduit or
       right-of-way controlled by the utility.

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<PAGE>   27

     The FCC concluded that a cable operator providing Internet service over its
cable system is not providing a telecommunications service for purposes of the
new rules. The 1996 Act amendments will increase significantly future pole
attachment rates for cable television systems which use pole attachments in
connection with the provision of telecommunications services as a result of a
new rate formula charged to telecommunication carriers for the non-useable space
of each pole. These rates are to be phased in after a five-year period beginning
in 2001. Several parties have filed petitions for reconsideration of the FCC's
new rate formula, which has also been challenged in court. Cox is unable to
predict the outcome of this litigation or the ultimate impact of any revised FCC
rate formula or of any new pole attachment rate regulations on its business and
operations.

     OWNERSHIP.  The FCC rules generally prohibit the direct or indirect common
ownership, operation, control or interest in a cable television system, on the
one hand, and a local television broadcast station whose television signal
(predicted grade B contour as defined under FCC regulations) reaches any portion
of the community served by the cable television system, on the other hand. For
purposes of the cross-ownership rules, "control" of licensee companies is
attributed to all 5% or greater stockholders, except for mutual funds, banks and
insurance companies which may own less than 20% without attribution of control.
This rule prohibits Cox from owning or operating a cable television system in
the same area in which CEI or one of CEI's subsidiaries owns or operates a
television broadcast station. The FCC recently modified its cable television
attribution rules that identify when the ownership or management by Cox or third
parties of other communications businesses, including cable systems, television
broadcast stations and local telephone companies, may be imputed to Cox for
purposes of determining our compliance with the FCC's ownership restrictions.
The 1996 Act eliminated the statutory ban on the cross-ownership of a cable
television system and a television station, and permits the FCC to amend or
revise its own regulations regarding the cross-ownership ban. The FCC has
repealed its broadcast network/cable system cross-ownership ban, and has
initiated a rulemaking proceeding in connection with a review of its
cross-ownership rules to determine whether the cable television/broadcast
cross-ownership ban is necessary and in the public interest or whether it should
be eliminated. The FCC has eliminated its regulatory restriction and
cross-ownership of cable systems and national broadcasting networks. The 1992
Cable Act permits states or local franchising authorities to adopt certain
additional restrictions on the transfer of ownership of cable television
systems.

     The cross-ownership prohibitions would preclude investors from holding
ownership interests in Cox if they simultaneously served as officers or
directors of, or held an attributable ownership interest in, these other
businesses, and would also preclude Cox from acquiring a cable television system
when Cox's officers or directors served as officers or directors of, or held an
attributable ownership in, these other businesses which were located within the
same area as the cable television system which was to be acquired.

     The 1996 Act generally restricts common carriers from holding greater than
a 10% financial interest or any management interest in cable operators which
provide cable television service within the carrier's telephone exchange service
area or from entering joint ventures or partnerships with cable operators in the
same market subject to four general exceptions which include population density
and competitive market tests. The FCC may waive the buyout restrictions if it
determines that, because of the nature of the market served by the cable
television system or the telephone exchange facilities:

     - the cable operator or LEC would be subject to undue economic distress by
       enforcement of the restrictions;

     - the cable television system or LEC facilities would not be economically
       viable if the provisions were enforced;

     - the anticompetitive effects of the proposed transaction clearly would be
       outweighed by the public interest in serving the community; and

     - the local franchising authority approves the waiver.

     GENERAL OWNERSHIP LIMITATIONS.  The Communications Act generally prohibits
Cox from owning and/or operating a satellite TV or wireless cable system in any
area where Cox provides franchised cable service. However, federal law also
provides that the cable/satellite TV and the cable/wireless cable
cross-ownership
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<PAGE>   28

rules do not apply in any franchise area where a cable operator faces "effective
competition," as defined by federal law. The FCC has relaxed its restrictions on
ownership of satellite TV systems to permit a cable operator to acquire
satellite TV systems in the operator's existing franchise area, so long as the
programming services provided through the satellite system are offered according
to the terms and conditions of the cable operator's local franchise agreement.

     The 1992 Act required the FCC to adopt rules establishing a national
subscriber cap and limits on the number of channels that may be occupied on a
cable television system by a video programmer in which the operator has an
attributable interest. Although the FCC did adopt such rules, several years ago
a federal district court held the statutory limitation unconstitutional. In the
interim, the FCC has delayed the effectiveness of its ownership limits. Appeals
of both the district court's decision and the FCC's regulatory ownership
restrictions are pending. In connection with these ownership limitations, the
FCC recently reconsidered and reaffirmed its current 30% nationwide subscriber
ownership limit but revised the manner in which the cap is calculated. Under the
new rule, the cap is calculated by counting nationwide all homes that are
actually served instead of simply passed by cable, DBS, and other multichannel
video programming distributors. As a result of the change in the rule, the
current cap is equivalent to a 35-36% cap under the old rule.

     LOCAL TELEPHONE COMPANY OWNERSHIP OF CABLE SYSTEMS.  Federal
cross-ownership restrictions have previously limited entry into the cable
television business by potentially strong competitors such as telephone
companies. The 1996 amendments to the Communications Act made far-reaching
changes in the regulation of local telephone companies that provide cable
television services. The 1996 amendments:

     - eliminated federal legal barriers to competition in the local telephone
       and cable communications businesses, including eliminating the federal
       statutory telephone company/cable television cross-ownership prohibition,
       thereby allowing local telephone companies to offer video services in
       their local telephone service areas;

     - preempted legal barriers to competition that previously existed in state
       and local laws and regulations;

     - set basic standards for relationships between telecommunications
       providers; and

     - generally limited acquisitions of cable systems by telephone companies
       and prohibited certain joint ventures between local telephone companies
       and cable operators in the same market.

     Local telephone companies and other entrants may provide service as
traditional cable operators with local franchises or they may opt to provide
their programming over "open video systems," subject to certain conditions. A
federal appellate court recently overturned various parts of the FCC's open
video rules, including the FCC's policy which preempted local franchising
requirements for open video operators. The FCC recently modified its open video
rules to conform to the court's decision and upon the request of a local
franchising authority, an open video operator must obtain a franchise.

     Open video system operators are exempt from several of the regulatory
obligations that currently apply to cable operators. However, certain
restrictions and requirements that apply to cable operators will still be
applicable to open video system operations. Those companies that elect to
provide video services over an open video system may do so upon obtaining
certification by the FCC. Among other requirements, the 1996 Act:

     - prohibits open video system operators from discriminating in the
       provision of video programming services; and

     - requires open video system operators to limit carriage of video services
       selected by the open video system operator to one-third of the open video
       system's capacity.

     - Open video system operators must also comply with the FCC's sports
       exclusivity, network nonduplication and syndicated exclusivity
       restrictions, public, educational, and government channel use
       requirements, the "must-carry" requirements of the 1992 Cable Act, and
       regulations that prohibit anticompetitive behavior or discrimination in
       the prices, terms and conditions of providing vertically integrated
       satellite-delivered programming.

                                       26
<PAGE>   29

     The manner in which open video system operators will be treated as cable
operators for purposes of copyright liability has not yet been determined by the
Copyright Office. Upon compliance with such requirements and FCC rules that
mirror statutory requirements, an open video system operator will be exempt from
various statutory restrictions which apply to cable operators, such as
broadcast-cable ownership restrictions, commercial leased access requirements,
rate regulation, and consumer electronics compatibility requirements. Although
open video system operators are not subject to franchise fees, as defined by the
1996 Act, they may be subject to fees charged by local franchising authorities
or other governmental entities in lieu of franchise fees. Such fees may not
exceed the rate at which franchise fees are imposed on cable operators and may
be itemized separately on subscriber bills.

     Under the 1996 Act, common carriers leasing capacity for the provision of
video programming services over cable television systems or open video system
operators are not bound by the interconnection obligations of Title II, which
otherwise would require the carrier to make capacity available on a
nondiscriminatory basis to any other person for the provision of cable
television service directly to subscribers. Additionally, under the 1996 Act,
common carriers providing video programming are not required to obtain a Section
214 certification to establish or operate a video programming delivery system.

     The FCC has ruled that cable operators may elect to operate open video
systems, but only if they are subject to effective competition. Under the FCC's
rules, a cable television operator may not terminate an existing franchise
agreement to become an open video system operator.

     OTHER STATUTORY PROVISIONS.  One of the underlying competitive policy goals
of the Communications Act is to limit the ability of vertically integrated
program suppliers from favoring affiliated cable operators over unaffiliated
program distributors. Consequently, with certain limitations, the federal law
generally:

     - precludes any satellite video programmer affiliated with a cable company,
       or with a common carrier providing video programming directly to its
       subscribers, from favoring an affiliated company over competitors;

     - requires such programmers to sell their programming to other multichannel
       video distributors; and

     - limits the ability of such programmers to offer exclusive programming
       arrangements to their affiliates.

     The Communications Act also contains restrictions on the transmission by
cable operators of obscene or indecent programming. It requires cable operators
to block fully both the video and audio portion of sexually explicit or indecent
programming on channels that are primarily dedicated to sexually oriented
programming, or alternatively, to carry such programming only at "safe harbor"
time periods currently defined by the FCC as the hours between 10 p.m. to 6 a.m.
A three-judge federal district court recently determined that this provision was
unconstitutional, and the United States Supreme Court is currently reviewing the
lower court's ruling.

     The Communications Act also includes provisions, among others, concerning:

     - customer service;

     - subscriber privacy;

     - marketing practices;

     - equal employment opportunity; and

     - regulation of technical standards and equipment compatibility.

     OTHER FCC REGULATIONS.  The FCC has adopted cable inside wiring rules to
provide a more specific procedure for the disposition of residential home wiring
and internal building wiring that belongs to an incumbent cable operator that is
forced by the building owner to terminate its cable services in a building with
multiple dwelling units. The FCC is also considering additional rules relating
to inside wiring that, if adopted, may disadvantage incumbent cable operators.
MDU owners can use these new rules to attempt to force cable operators without
MDU service contracts to either sell, abandon or remove internal wiring which
may carry voice as well as video communications and terminate service to MDU
subscribers unless operators retain rights under common or state law to maintain
ownership rights in the wiring.

                                       27
<PAGE>   30

     CONSUMER EQUIPMENT.  The FCC has adopted regulations to implement the
requirements of the 1992 Cable Act designed to improve the compatibility of
cable television systems and consumer electronics equipment. The 1996 Act
directs the FCC to set only minimal standards to assure compatibility between
television sets, VCRs and cable television systems, and to rely on the
marketplace. Pursuant to this statutory mandate, the FCC has adopted rules to
assure the competitive availability to consumers of customer premises equipment,
such as converters, used to access the services offered by cable television
systems and other multichannel video programming distributors. Pursuant to those
rules, consumers are given the right to attach compatible equipment to Cox's
cable facilities, so long as the equipment does not harm Cox's network, does not
interfere with the services purchased by other subscribers, and is not used to
receive unauthorized services. As of July 1, 2000, cable television operators
are required to separate security from non-security functions in the subscriber
premises equipment which they sell or lease to their subscriber and offer their
subscribers the option of using component security modules obtained from the
cable operator with set-top units purchased or leased from retail outlets. This
requirement to separate security and non-security functions will not apply to
equipment which uses only an analog conditional access mechanism and is
incapable of providing access to any digital transmission or other digital
service. As of January 1, 2005, Cox will be prohibited from selling or leasing
new set-top equipment (e.g., converter box) which integrates both security and
non-security functions. All new equipment provided beginning on that date must
be capable of using separate component security modules. The National Cable
Television Association has appealed this aspect of the FCC's rules. In any
event, Cox will not be required to discontinue the leasing of old converters
that include integrated security functions if those converters were provided to
subscribers before January 1, 2005.

     The FCC actively regulates other parts of Cox's cable operations, involving
such areas as:

     - hiring and promotion of employees and use of outside vendors;

     - consumer protection and customer service standards;

     - technical standards and testing of cable facilities;

     - program carriage and limitations dealing with exclusivity of syndicated
       and network programs, local sports broadcast programming, advertising in
       children's programming, political advertising, origination cablecasting,
       sponsorship identification and closed captioning of video programming;

     - registration of cable systems and the filing of informational reports;

     - maintenance of various records and public inspection files;

     - microwave frequency usage;

     - antenna structure notification, marking and lighting; and

     - emergency alert system requirements.

     The FCC may enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. Local franchising authorities are also permitted to enforce the
FCC's technical and consumer protection standards. The FCC has ongoing
rulemaking proceedings that may change its existing rules or lead to new
regulations. Cox is unable to predict the impact that any further FCC rule
changes may have on its business and operations.

     REGULATORY FEES AND OTHER MATTERS.  Pursuant to the Communications Act, the
FCC has adopted requirements for payment of annual "regulatory fees" by the
various industries it regulates, including the cable television industry.
Currently, cable television systems are required to pay regulatory fees of $0.48
per subscriber per year, which may be passed on to subscribers as "external
cost" adjustments to rates for basic cable service. Fees are also assessed for
other licenses, including licenses for business radio and cable television relay
systems. Those fees, however, may not be collected directly from subscribers.

     In addition, the FCC has adopted regulations pursuant to the 1992 Cable Act
which require cable systems not subject to effective competition to permit
subscribers to purchase video programming on a per-
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<PAGE>   31

channel or a per-event basis without the necessity of subscribing to any tier of
service, other than the basic service tier, unless the cable system is
technically incapable of doing so. Generally cable systems must become
technically capable of complying with the statutory obligation by December 2002.
On October 9, 1997, three individual subscribers filed a putative class action
suit in Superior Court of the State of California, County of San Diego against
Cox and its cable system subsidiaries in California (the "Cox California
Systems") arising out of the manner in which the Cox California Systems sell
premium channel cable services. The suit alleges that the Cox California Systems
unlawfully require limited basic cable subscribers to purchase the expanded
basic services tier in order to purchase premium channels, i.e., channels sold
on an a la carte basis such as Home Box Office and Showtime. The suit asserts
causes of action under California antitrust and consumer protection laws. The
suit seeks injunctive relief as well as an order awarding the class members
compensatory damages, plus statutory damages, punitive damages, interest and
attorney's fees. On October 1, 1998, the plaintiffs filed a "show cause"
petition with the FCC. The petition requested the FCC to require the defendants
to show cause why the California cable systems should not be found in violation
of the "buy-through" provision of the Communications Act and the FCC's rules and
to issue a $0.5 million forfeiture against the defendants' cable systems.
CoxCom, Inc. (successor-in-interest by merger to Cox Communications San Diego,
Inc., Cox Communications Santa Barbara, Inc., Cox Communications Bakersfield,
Inc. and Cox Communications Palos Verdes, Inc.) filed an opposition to the
petition on December 1, 1998, responding to the matters raised in the petition.
On July 19, 1999, the FCC dismissed the Petition. The FCC concluded that Cox was
offering San Diego system subscribers the ability to purchase per-channel and
per-program cable service, and that these subscribers did not have standing to
raise this issue with regard to the other systems. The suit in state court is
now proceeding. The Court has granted Cox and the plaintiffs an extension of
time during which the plaintiffs intend to file an amended complaint. Cox will
urge the court to dismiss the suit based on the FCC's dismissal of the Petition
and the plaintiff's lack of standing to pursue claims against Cox's other
California systems, as well as the failure to allege harm under the California
antitrust consumer protection laws. Cox intends to defend this action
vigorously. The outcome of this matter cannot be predicted at this time.

     The government of Mexico authorized the allocation of a new broadcast
station on channel 3 in Tijuana, Mexico. Although the station recently commenced
operations without causing anticipated interference, the station has requested
permission from the government of Mexico to increase its authorized operating
power. If the station is permitted to increase power, material interference to
cable reception in certain areas served by the San Diego system could result,
and Cox would be required to incur substantial expenses to retune subscribers'
converters to a new channel. The FCC, which is monitoring the situation, has
relayed Cox's concerns to the Mexican government and continues to seek the
cooperation of that government to assure that the transmissions will not cause
unacceptable conditions.

     COPYRIGHT.  Cable systems utilize local and distant television and radio
broadcast signals in their channel line-ups. This programming is protected by
the copyright laws and Cox generally does not obtain a license to use this
programming directly from the owners of the programming. Consequently, Cox must
comply with an alternative federal copyright licensing process covering
television and radio broadcast signals. In exchange for filing certain reports
and contributing a percentage of revenues to a federal copyright royalty pool,
Cox obtains blanket permission to retransmit copyrighted material on broadcast
signals. The nature and amount of future payments for broadcast signal carriage
cannot be predicted at this time.

     In a report to Congress, the Copyright Office recommended that Congress
make major revisions to both the cable television and satellite compulsory
licenses:

     - to make them as simple as possible to administer;

     - to provide copyright owners with full compensation for the use of their
       works; and

     - to treat every multichannel video delivery system the same, except to the
       extent that technological differences or differences in the regulatory
       burdens placed upon the delivery system justify different copyright
       treatment.

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<PAGE>   32

     The possible simplification, modification or elimination of the compulsory
copyright license is the subject of continuing legislative review. The
elimination or substantial modification of the cable compulsory license could
adversely affect Cox's ability to obtain suitable programming and could
substantially increase the cost of programming that remains available for
distribution to Cox's subscribers. Cox cannot predict the outcome of this
legislative activity.

     Cox distributes programming and advertising that use music controlled by
the two principal major music performing rights organizations, the Association
of Songwriters, Composers, Artists and Producers (ASCAP) and Broadcast Music,
Inc. (BMI). In October 1989, the special rate court of the U.S. District Court
for the Southern District of New York imposed interim rates on the cable
industry's use of ASCAP-controlled music. The same federal district court
established a special rate court for BMI. BMI and cable industry representatives
concluded negotiations for a standard licensing agreement covering the
performance of BMI music contained in advertising and other information inserted
by operators into cable programming and on certain local access and origination
channels carried on cable television systems. ASCAP and cable television
industry representatives have also met to develop a standard licensing agreement
covering the use of ASCAP-controlled music in local origination and access
channels and pay-per-view programming. Although Cox cannot predict the ultimate
outcome of these industry negotiations or the amount of any license fees Cox may
be required to pay for past and future use of ASCAP-controlled music, Cox does
not believe such license fees will be significant to its financial position,
results of operations or liquidity.

     FRANCHISE MATTERS.  Because a cable television system uses local streets
and rights-of-way, cable television systems are subject to state and local
regulation, typically imposed through the franchising process. Consistent with
the Communications Act, state and/or local officials are usually involved in
franchise selection, system design and construction, safety, service rates,
consumer relations, billing practices and community related programming and
services. Although franchising matters are normally regulated at the local level
through a franchise agreement and/or a local ordinance, the Communications Act
does provide some oversight and guidelines to govern a cable operator's
relationship with a local franchising authority. For example, the Communications
Act:

     - affirms the right of franchising authorities (state or local, depending
       on the practice in individual states) to award one or more franchises
       within their jurisdictions;

     - generally prohibits a cable television system from operating in
       communities without a franchise, except where a system operated in the
       community without a franchise prior to July 1984 and the franchising
       authority has not required a cable operator to obtain a franchise;

     - encourages competition with existing cable television systems by:

      - allowing municipalities to operate their own cable systems without
        franchises;

      - preventing franchising authorities from granting exclusive franchises or
        from unreasonably refusing to award additional franchises covering an
        existing cable television system's service area; and

      - prohibiting (with limited exceptions) the common ownership of cable
        television systems and co-located wireless cable or satellite TV
        systems.

     - permits local authorities when granting or renewing Cox's franchises to
       establish requirements for cable-related facilities and equipment, but
       prohibits franchising authorities from establishing requirements for
       specific video programming or information services other than in broad
       categories;

     - permits Cox to obtain modification of its franchise requirements from the
       franchise authority or by judicial action if warranted by changed
       circumstances;

     - generally prohibits franchising authorities from:

      - imposing requirements during the initial cable franchising process or
        during franchise renewal that require, prohibit or restrict Cox from
        providing telecommunications services;

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<PAGE>   33

      - imposing franchise fees on revenues Cox derives from providing
        telecommunications services over its cable systems, or

      - restricting Cox's use of any type of subscriber equipment or
        transmission technology; and

     - limits Cox's payment of franchise fees to the local franchising authority
       to 5% of gross revenues derived from providing cable services over Cox's
       cable television systems.

     Cox has franchises covering approximately 849 communities. The franchises
typically require that periodic payment of fees to franchising authorities of up
to 5% of "revenues" (as defined by each franchise agreement). These franchise
fees may be passed on to subscribers and separately itemized on their monthly
bills. In 1997, a federal appellate court overturned an FCC order that had
concluded a cable operator's gross revenue did not include money collected from
subscribers that is allocated by the operator to pay local franchise fees.
Instead, the court concluded that a cable operator's gross revenue includes all
revenue received from subscribers, without deduction. The FCC subsequently
determined that cable operators may "pass through" on subscribers' monthly bills
any additional payments of franchise fees that franchising authorities require
cable operators to make for past periods when they had relied upon the FCC's
earlier decision. Various municipal groups have requested the FCC to reconsider
its decision. Cox is unable to predict the ultimate resolution of this matter,
but does not expect that any additional franchise fees required to pay to
franchising authorities will be material to Cox's business and operations.

     The Communications Act contains renewal procedures designed to protect
cable operators against arbitrary denials of renewal, although recent changes to
the franchise renewal provision could make it easier for a franchising authority
to deny a franchise renewal. Moreover, even if a franchise is renewed, the
franchising authority may seek to impose upon a cable operator new and more
onerous requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Some franchising authorities
may also attempt to impose open access regulations as a condition of renewal.
(See # "Use of Cable Systems by the Government and Unrelated Third Parties.")
Similarly, if a franchising authority's consent is required for the purchase or
sale of a cable system or franchise, the franchising authority may attempt to
impose more burdensome or onerous franchise requirements on Cox in connection
with a request for such consent, including open access conditions. Historically,
cable operators providing satisfactory services to their subscribers and
complying with the terms of their franchises have typically obtained franchise
renewals. Cox believes that it has generally met the terms of its franchises and
has provided quality levels of service. Cox anticipates that its future
franchise renewal prospects generally will be favorable.

     Cable television systems use local streets and rights-of-way. Consequently,
Cox must comply with state and local regulation which is typically imposed
through the franchising process. Cable systems generally are operated pursuant
to non-exclusive franchises, permits or licenses granted by a municipality or
other state or local government entity. Franchises generally are granted for
fixed terms and in many cases are terminable if the franchisee fails to comply
with material provisions. Although the 1984 Cable Act provides for certain
procedural protections, there can be no assurance that renewals will be granted
or that renewals will be made on similar terms and conditions. Franchises
usually call for the payment of fees, often based on a percentage of the
system's gross customer revenues, to the granting authority. Upon receipt of a
franchise, the cable system owner usually is subject to a broad range of
obligations to the issuing authority directly affecting the business of the
system. The terms and conditions of franchises vary materially from jurisdiction
to jurisdiction, and even from city to city within the same state, historically
ranging from reasonable to highly restrictive or burdensome.

     Each franchise generally contains provisions governing:

     - cable service rates;

     - franchise fees;

     - franchise term;

     - system construction and maintenance obligations;

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<PAGE>   34

     - system channel capacity;

     - design and technical performance;

     - customer service standards;

     - franchise renewal;

     - sale or transfer of the franchise;

     - territory of the franchisee;

     - indemnification of the franchising authority;

     - use and occupancy of public streets;

     - types of cable services provided; and

     - public, educational, and governmental access channel capacity.

     The 1984 Cable Act places certain limitations on a franchising authority's
ability to control the operation of a cable television system, and courts have
from time to time reviewed the constitutionality of several general franchise
requirements, including franchise fees and access channel requirements, often
with inconsistent results. On the other hand, the 1992 Cable Act prohibits
exclusive franchises and allows franchising authorities to exercise greater
control over the operation of franchised cable television systems, especially in
the area of customer service and rate regulation. The 1992 Cable Act also allows
franchising authorities to operate their own multichannel video distribution
system without having to obtain a franchise and permits states or local
franchising authorities to adopt certain restrictions on the ownership of cable
television systems. Moreover, franchising authorities have immunity from
monetary damage awards arising from regulation of cable television systems or
decisions made on franchise grants, renewals, transfers and amendments.

     A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Attempts in other states to
regulate cable television systems are continuing and can be expected to
increase. To date, those states in which Cox operates that have enacted such
state level regulation are Connecticut, Massachusetts, and Rhode Island. State
and local franchising jurisdiction is not unlimited, however; and it must be
exercised consistently with federal law.

TELECOMMUNICATIONS REGULATION

     The telecommunications services currently offered by Cox affiliates and
Sprint PCS are subject to varying degrees of federal, state and local
regulation. The FCC exercises jurisdiction over all facilities of, and services
offered by, telecommunications service providers to the extent that those
facilities are used to provide, originate and terminate interstate or
international communications.

     LANDLINE TELECOMMUNICATIONS SERVICES.  While the current switched voice and
data market is dominated by local exchange companies, also known as incumbent
LECs, the 1996 Act presents new opportunities for new carrier entrants into
these markets. The LECs provide a full range of local telecommunications
services and equipment to customers, as well as originating and terminating
access to their local networks to interexchange carriers and commercial mobile
radio service providers. Because LECs historically have had exclusive state
franchises by law to provide telephone services, they have established monopoly
relationships with their customers. Under the new law and subject to certain
limited exemptions for rural telephone companies, the FCC is directed to preempt
any state law or regulation that acts to prevent new competitive entry into
incumbent LEC markets.

     The 1996 Act also eliminates the interexchange (generally referred to as
interLATA) restrictions contained in the Modified Final Judgment and the 1981
consent decree. The 1996 Act establishes procedures under which a Bell Operating
Company, commonly known as a BOC, can enter the market for interLATA services
within its telephone service area. Before a BOC can enter the landline interLATA
market, it must enter into a state-approved interconnection agreement with a
company that provides local exchange service to
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<PAGE>   35

business and residential customers predominantly over its own facilities.
Alternatively, if no such competitor requests interconnection, the BOC can
request authority to provide interLATA services if it offers interconnection
pursuant to state-approved terms and conditions. Unless the interconnecting
carrier agrees, the interconnection provided by the BOC must comply with a
"competitive checklist." Several BOCs have filed applications for authority to
provide interLATA services, on a state-by-state basis. These applications
include SBC in Texas and Bell Atlantic in New York. The FCC has recently granted
Bell Atlantic's application to provide long distance services in New York. SBC's
application to provide long distance or interLATA service in the State of Texas
is under review at the FCC. Other BOC long distance applications can be
expected.

     The 1996 Act also imposes access and interconnection requirements on ILECs
to open their networks to competitors. The FCC adopted rules implementing those
requirements in August 1996. State regulators are responsible for arbitrating
interconnection disputes that arise between ILECs and new entrants. In addition,
the 1996 Act specifies procedures for state commissions to review and approve
interconnection agreements entered into between new entrants and ILECs. The FCC
adopted interconnection rules establishing pricing standards and negotiation and
arbitration guidelines that the states must follow in reviewing interconnection
agreements between ILECs and their competitors. In 1997, the U.S. Court of
Appeals for the Eighth Circuit vacated certain portions of the FCC's rules, but
in January 1999, the Supreme Court reversed the Eighth Circuit and upheld, for
the most part, the FCC's interconnection rules; however, the Supreme Court
instructed the FCC to reconsider its determination regarding the extent to which
ILECs are required to unbundle elements of their networks and provide those
elements to competitors. On November 5, 1999, the FCC issued an order that
reconsidered the unbundling obligations contained in the 1996 Act. The FCC
eliminated items from its previous list of unbundled network elements. The FCC
stated that its revised unbundling rules are designed to advance the development
of facilities-based competition and to provide incentives for incumbent and
competitive carriers to invest in their own facilities and innovate.

     REGULATORY REQUIREMENTS FOR ALL LECS INCLUDING NEW ENTRANTS.  Under the
1996 Act, new landline entrants will become subject to additional federal
regulatory requirements when they provide local exchange service in any market.
The 1996 Act imposes a number of access and interconnection requirements on all
LECs, with additional requirements imposed on incumbent LECs. Specifically, the
1996 Act:

     - requires the FCC to implement rules under which all LECs must provide
       telephone number portability, dialing parity, reciprocal compensation for
       transport and termination of local traffic, resale and access to rights
       of way; and

     - specifies procedures for state commissions to review and approve both
       voluntary and compulsory interconnection agreements entered into between
       new entrants and incumbent LECs.

     These requirements also place burdens on new entrants that may benefit
other competitors. In particular, the resale requirement means that a company
can seek to resell services using the facilities of a new entrant without making
a similar investment in facilities.

     One of the goals of the Communications Act as originally passed was to
extend telephone service to all citizens of the United States. This goal has
been achieved primarily by state commissions maintaining the rates for basic
local exchange service at a reasonable level. It was widely accepted that
incumbent LECs were able to maintain relatively low local rates by subsidizing
them with revenues from business and toll services, and by subsidizing rural
service at the expense of urban customers. The extent of these subsidies has
been widely disputed and the incumbent LECs that possess this information
generally have not made it available for review and verification.

     The 1996 Act continues the goal of preserving and advancing universal
service by requiring the FCC to establish an explicit mechanism for subsidizing
service to those who might otherwise drop off the public switched telephone
network. The rules adopted by the FCC in its Universal Service orders require
telecommunications carriers generally (subject to limited exemptions) to
contribute to funding existing universal service programs for high cost carriers
and low income customers and to new universal service programs for schools,
libraries and rural health care providers. The FCC has put in place a program to
fund high cost service areas not served by rural LECs that, in the short run,
preserves many of the existing

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<PAGE>   36

subsidies. It has not yet proposed a program for universal service funding for
high cost areas served by rural LECs.

     Depending upon how the FCC completes the implementation of its statutory
mandate and how states adjust their existing programs or create new programs,
this subsidy mechanism may provide an additional source of revenue to those LECs
or other carriers, e.g., wireless providers, willing and able to provide service
to those markets that are less financially desirable, either because of the high
cost of providing service or the limited revenues that might be available from
serving a particular subset of customers in an area, such as residential
customers.

     Another goal of the 1996 Act is to increase competition for
telecommunications services, thereby reducing the need for continuing regulation
of these services. To this end the 1996 Act requires the FCC to streamline its
regulation of incumbent LECs and permits the FCC to forbear from regulating
particular classes of telecommunications services or providers, including
through relaxation or potentially eventual termination of FCC service tariffing
requirements. Indeed, in an August 1999 order, the FCC established a framework
for granting price cap LECs relief from the FCC's rate level, rate structure,
and tariffing rules once they satisfy certain competitive criteria. In November,
1999, however, the FCC denied certain BOC petitions for forbearance from
dominant carrier regulation for special access and high capacity transport
services. The FCC concluded that the state of competition in the market for
special access and high capacity dedicated transport services was not
sufficiently developed to support a conclusion that the BOC petitioners lack
market power, and thus qualify for non-dominant treatment in the provision of
these services. An incumbent price cap LEC, however, may file a petition with
the FCC in accordance with the procedures outlined in the August 1999 order,
identifying the relief it seeks and demonstrating that it has satisfied the
certain "triggers." The LEC must demonstrate that sufficient competition has
developed in a market for special access and high capacity dedicated transport
services to warrant relaxation of the FCC rules for that market.

     The 1996 Act eliminates the requirement that incumbent LECs obtain FCC
authorization prior to constructing facilities for interstate services. The 1996
Act also limits the FCC's ability to review incumbent LEC tariff filings. These
changes will increase the speed with which incumbent LECs are able to introduce
new service offerings and new pricing of existing services, thereby increasing
their flexibility to respond to new entrants. The FCC is also examining ways to
further streamline the periodic accounting filings required of large incumbent
LECs.

     In addition to incumbent LECs and existing competitive access providers,
new entrants potentially capable of offering switched and non-switched services
include individual cable television companies, electric utilities, long distance
carriers, microwave carriers, wireless service providers, resellers and private
networks built by large end-users or any combination of these entities.

     BROADBAND PCS AND SPECTRUM AUCTIONS.  In the 1993 Budget Act, Congress gave
the FCC the authority to preempt states from regulating the entry of or the
rates charged by any Commercial Mobile Radio Service provider commonly known as
a CMRS provider, including personal communications services providers. On
February 3, 1994, the FCC adopted rules implementing the 1993 Budget Act and
created the CMRS regulatory classification. The CMRS classification applies to
all mobile services (including personal communications services) that are for
profit and that provide interconnected service to the public or a substantial
portion of the public. At that time, the FCC preempted state regulation and
established a procedure for states to petition the FCC for authority to regulate
CMRS rates. States are permitted under the 1993 Budget Act to regulate "other
terms and conditions" of CMRS, including the siting and zoning of CMRS
equipment.

     The 1993 Budget Act also provided the FCC with the authority to auction
spectrum that satisfied specific criteria. The FCC auctioned and continues to
auction blocks of spectrum for PCS and other competing services. The first
broadband PCS auction (Blocks "A" and "B") was completed in March 1995 and a
Sprint PCS subsidiary acquired a significant number of licenses nationwide. The
second auction was for 30 MHz blocks of broadband spectrum, licensed by BTA
(Block "C" auction). Block C licenses were available only to parties that met
specific FCC eligibility criteria. A 10 MHz BTA spectrum block, Block "F," was
also auctioned only to parties meeting specific eligibility criteria following
the Block "C" auction. The FCC also has licensed two BTA 10 MHz blocks of
spectrum, Blocks "D" and "E," which are not subject to the
                                       34
<PAGE>   37

additional eligibility requirements imposed on Blocks "C" and "F." There is a
history of substantial difficulty with the C Block, with many of the winning
bidders at auction proving unable to get financing to satisfy their license
payment obligations to the FCC.

     On March 23, 1999, through April 15, 1999, the FCC reauctioned 10 MHz D, E
and F block licenses and 15 and 30 MHz C block licenses that were either
returned to the FCC or recaptured by the FCC after licensees defaulted on an FCC
license payment obligation. Upon completion of the auction, this spectrum became
available to competing broadband personal communications services providers.

     The FCC continues to make spectrum available for services that might
compete with Sprint PCS. For example, in May 2000, the FCC is scheduled to
auction licenses for fixed, mobile, and broadcasting services in the 747-762 and
777-792 MHZ bands. The FCC also has announced its decision to reauction in July
2000, C and F Block broadband PCS licenses that were returned or reclaimed by
the FCC.

     STATE TELECOMMUNICATIONS REGULATION.  In addition to federal rules and
regulations that apply to Cox's telephony operations, state commissions
regulate, to varying degrees, the intrastate services of landline
telecommunications providers, including those of Cox's landline affiliates. New
entrants providing local exchange services typically must apply for and receive
state certification and operate in accordance with state commission pricing,
terms and quality of service regulations. Under the 1996 Act, state commissions
also must review interconnection agreements entered into between incumbent LECs
and new entrants, as well as enforce the terms of disputed agreements. States
may also choose to assess universal service funding contributions from new
carriers provided that a state's program is consistent with the FCC's universal
service rules. States are also playing an increasing role in telephone number
assignment and number conservation.

     The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television or telephony industries. Other existing federal regulations,
copyright licensing and, in many jurisdictions, state and local franchise
requirements currently are the subject of a variety of judicial proceedings,
legislative hearings and administrative and legislative proposals which could
change, in varying degrees, the manner in which cable television or telephony
systems operate. Neither the outcome of these proceedings nor their impact upon
the cable television or telephony industries can be predicted at this time.

EMPLOYEES

     At December 31, 1999, Cox had approximately 12,348 full-time-equivalent
employees. Cox considers its relations with its employees to be satisfactory.

ITEM 2.  PROPERTIES

     Cox's principal physical assets consist of cable television operating plant
and equipment, including signal receiving, encoding and decoding devices,
headends and distribution systems and customer house drop equipment for each of
its cable television systems. The signal receiving apparatus typically includes
a tower, antenna, ancillary electronic equipment and earth stations for
reception of satellite signals. Headends, consisting of associated electronic
equipment necessary for the reception, amplification and modulation of signals,
are located near the receiving devices. Cox's distribution system consists
primarily of coaxial and fiber optic cables and related electronic equipment.
Customer devices consist of decoding converters, cable modems and telephone
network interface units. The physical components of cable television systems
require maintenance and periodic upgrading to keep pace with technological
advances.

     Cox's cable distribution plant and related equipment are generally attached
to utility poles under pole rental agreements with local public utilities,
although in some areas the distribution cable is buried in underground ducts or
trenches. Cox owns or leases parcels of real property for signal reception sites
(antenna towers and headends), microwave facilities and business offices in each
of its market areas and leases most of its service vehicles. Cox believes that
its properties, both owned and leased, taken as a whole, are in good operating
condition and are suitable and adequate for Cox's business operations.

                                       35
<PAGE>   38

ITEM 3.  LEGAL PROCEEDINGS

     On October 9, 1997, three individual subscribers filed a putative class
action suit in Superior Court of the State of California, County of San Diego
against Cox and its cable television system subsidiaries in California arising
out of the manner in which such systems sell premium channel cable services. The
suit alleges that Cox's California Systems unlawfully require limited basic
cable customers to purchase the expanded basic services tier in order to
purchase premium channels, i.e., channels sold on an a-la-carte basis such as
Home Box Office and Showtime. The suit asserts causes of action under California
antitrust and consumer protection laws. The suit seeks injunctive relief as well
as an order awarding the class members compensatory damages, plus statutory
damages, punitive damages, interest and attorney's fees. Cox moved to dismiss
the suit on dispositive substantive grounds or in the alternative to stay the
suit on primary jurisdiction grounds. On February 13, 1998, the Court stayed the
suit and referred it on grounds of primary jurisdiction to the FCC for
consideration of issues best addressed by the FCC's expertise should the
plaintiffs elect to file a complaint with the FCC. On October 1, 1998, the
plaintiffs filed a Petition with the FCC which alleged that the Cox California
Systems violated the "buy-through" prohibition of the FCC's rules. Under the
"buy-through" prohibition, cable systems may not require subscribers to purchase
intermediate tiers of cable service as a prerequisite to receiving per-channel
and per-program cable service unless such systems can demonstrate that they are
not technically capable of complying with the buy-through requirement. In July
1999, the FCC dismissed the Petition. The FCC concluded that Cox's San Diego
system is complying with the buy-through rule and that the named plaintiffs lack
standing to raise this issue with regard to Cox's other California systems. The
suit is now proceeding in state court. The court granted Cox and the plaintiffs
an extension of time during which the parties may explore the possibility of a
resolution to the suit. If no resolution is reached, the plaintiffs may file an
amended complaint and Cox may renew its motion to dismiss the suit based on the
grounds raised in its earlier motion and the additional grounds of the FCC's
dismissal of the Petition and the plaintiffs' lack of standing to pursue claims
against Cox's other California systems. The outcome of this matter cannot be
predicted at this time.

     Cox and certain subsidiaries are defendants in four putative subscriber
class action suits in state courts in Louisiana, Indiana, Texas and Nevada
initiated between October 17, 1997 and December 17, 1998. The suits all
challenge the propriety of late fees charged by the subsidiaries to customers
who fail to pay for services in a timely manner. The suits seek injunctive
relief and various formulations of damages under certain claimed causes of
action under various bodies of state law. These actions are in various stages of
defense. Settlement in Nevada is pending final court approval. The remaining
actions are being defended vigorously. The outcome of these matters cannot be
predicted at this time. Three additional suits that have been pending in Arizona
and Florida have been settled; one additional suit that had been pending in
Nebraska was dismissed.

     On November 10, 1999, Fred and Roberta Lipschutz, Arthur Simon and John
Galley III, on behalf of themselves and all persons similarly situated, filed a
putative class action suit against Cox and thirteen other defendants in the
United States District Court for the Central District of California. The action
alleges that a putative class defined as all persons who since November 10,
1995, have purchased broadband Internet data transmission services from a "cable
company defendant" has been injured because alleged agreements among the "cable
company defendants" and/or the "cable company defendants" and defendants @Home
Corporation and RoadRunner have required the putative class to purchase both
Internet data transmission services and interface/content services from @Home or
RoadRunner. The complaint asserts claims under Section 1 of the Sherman
Antitrust Act, the California Cartwright Act, and California unfair competition
law and seeks injunctive relief and compensatory and treble damages. An amended
complaint adding additional named plaintiffs was filed on December 30, 1999 and
Cox filed its answer to the amended complaint on January 19, 2000. Cox intends
to defend this action vigorously. The outcome of this matter cannot be predicted
at this time.

     Cox is a party to various other legal proceedings which are ordinary and
incidental to its business. Management does not expect that any of these other
legal proceedings currently pending will have a material adverse impact on Cox's
consolidated financial position, results of operations or cash flows.

                                       36
<PAGE>   39

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The information required by this Item is incorporated by reference to the
section entitled "Shareholder Information" of Cox's 1999 Summary Annual Report
to Stockholders (see Exhibit 13).

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected historical consolidated financial data for each of
the five years in the period ended December 31, 1999 has been derived from and
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations in Item 7. and the Consolidated
Financial Statements and Supplementary Data and notes thereto in Item 8.

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                        ----------------------------------------------------------
                                          1999         1998         1997         1996       1995
                                        ---------    ---------    ---------    --------   --------
                                               (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                     <C>          <C>          <C>          <C>        <C>
STATEMENTS OF OPERATIONS DATA:
  Revenues............................  $ 2,318.1    $ 1,716.8    $ 1,610.4    $1,460.3   $1,286.2
  Operating income....................      262.9        201.4        257.1       221.7      226.0
  Interest expense....................      305.7        223.3        202.1       146.1      132.3
  Equity in net losses of affiliated
     companies........................       90.5        547.2        404.4       170.4       79.7
  Gain on investments, net............    1,569.4      2,484.2         64.7         4.6      188.8
  Gain on issuance of stock by
     affiliated companies.............         --        165.3         90.8        50.1         --
  Dividend income.....................       44.3         12.2           --          --         --
  Net income (loss)...................      881.9      1,270.7       (136.5)      (51.6)     103.8
  Basic net income (loss) per
     share(a).........................  $    1.54    $    2.33    $   (0.25)   $  (0.10)  $   0.20
  Diluted net income (loss) per
     share(a).........................       1.51         2.30        (0.25)      (0.10)      0.20
OTHER OPERATING AND FINANCIAL DATA:
  Operating cash flow(b)..............  $   901.2    $   659.1    $   609.8    $  556.9   $  493.3
  Operating cash flow margin(b).......       38.9%        38.4%        37.9%       38.1%      38.4%
  Ratio of debt to operating cash
     flow (b).........................        7.1x(c)      6.2x(c)      5.2x(c)     5.2x       5.2x
  Cash flows provided by operating
     activities.......................  $   404.7    $   667.2    $   553.6    $  309.1   $  324.9
  Cash flows (used in) investing
     activities.......................   (3,849.6)    (1,600.4)    (1,108.0)     (522.2)    (865.5)
  Cash flows provided by financing
     activities.......................    3,447.6        935.6        540.3       246.2      576.4
BALANCE SHEET DATA:
December 31
  Total assets........................  $26,614.5    $12,878.1    $ 6,556.6    $5,784.6   $5,555.3
  Total debt (including amounts due to
     CEI).............................    6,375.8      4,090.8      3,148.8     2,881.0    2,575.3
  Total Cox-obligated capital and
     preferred securities of
     subsidiary trusts................    1,150.6           --           --          --         --
</TABLE>

                                       37
<PAGE>   40

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31
                                            ---------------------------------------------------------
                                              1999        1998        1997        1996        1995
                                            ---------   ---------   ---------   ---------   ---------
<S>                                         <C>         <C>         <C>         <C>         <C>
CUSTOMER DATA:
  Basic customers(d)......................  5,136,184   3,753,608   3,235,338   3,259,384   3,248,759
  New services(e).........................    554,025     169,731      18,941          --          --
                                            ---------   ---------   ---------   ---------   ---------
  Revenue Generating Units(f).............  5,690,209   3,923,339   3,254,279   3,259,384   3,248,759
  Homes passed(g).........................  8,031,340   5,923,428   5,023,870   5,016,749   5,005,858
  Basic penetration(h)....................       64.0%       63.4%       64.4%       65.0%       64.9%
  Premium service units(i)................  3,237,013   2,206,833   1,865,184   2,000,673   1,827,068
</TABLE>

---------------

(a)  All historical per share amounts have been restated to reflect Cox's
     two-for-one stock split which was effective on May 21, 1999.
(b)  Operating cash flow (operating income before depreciation, amortization and
     gain on sale and exchange of cable television systems), a non-GAAP measure
     of performance, is a commonly used financial analysis tool for measuring
     and comparing cable television companies in several areas such as
     liquidity, operating performance and leverage. Operating cash flow should
     not be considered as an alternative to net income as an indicator of Cox's
     performance or as an alternative to net cash provided by operating
     activities as a measure of liquidity.
(c)  Using the fourth quarter annualized operating cash flow, the ratio would
     have been 5.5x, 5.1x and 4.6x at December 31, 1999, 1998 and 1997,
     respectively.
(d)  A home with one or more television sets connected to a cable television
     system is counted as one basic service customer.
(e)  New services include Cox Digital Television, high-speed Internet access and
     Cox Digital Telephone.
(f)  Each basic customer and each new service is a Revenue Generating Unit. In
     certain locations, a household may purchase more than one new service, each
     of which is counted as a separate Revenue Generating Unit.
(g)  A home is deemed to be "passed" if it can be connected to the distribution
     system without any further extension of the distribution plant.
(h)  Basic customers as a percentage of homes passed.
(i)  Premium service units include single or multi-channel services offered for
     a monthly fee per service.

                                       38
<PAGE>   41

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

ACQUISITIONS, TRANSACTIONS AND INVESTMENTS

Recent Acquisitions

     In January 2000, Cox completed the acquisition of cable television systems
serving 522,000 customers in Kansas, Oklahoma and North Carolina from Multimedia
Cablevision, Inc., a subsidiary of Gannett Co., Inc., in a cash transaction
valued at $2.7 billion.

     In March 2000, Cox and AT&T Corp. exchanged Cox's 50.3 million shares of
AT&T common stock for the stock of AT&T subsidiaries that own cable television
systems serving approximately 495,000 customers and certain other assets and
liabilities, including cash. In return for its 50.3 million shares of AT&T
common stock, Cox received: cable television systems serving Tulsa, Oklahoma
(160,000 customers) and Baton Rouge, Louisiana (156,000 customers); the
remaining 20% ownership interest in a partnership in which Cox acquired an 80%
interest through its merger with TCA Cable TV, Inc.; Peak Cablevision LLC, which
has 117,000 customers in Oklahoma, Arkansas, Utah and Nevada; and approximately
$750.0 million in other assets, including cash.

1999 Acquisitions and Transactions

     In August 1999, Cox completed its merger with TCA, a cable television
operator serving approximately 883,000 customers in Texas, Arkansas, Louisiana
and four other states for consideration consisting of $1.6 billion in cash, 38.3
million shares of Cox Class A common stock and assumed indebtedness of $540.0
million. Upon completion of the merger, Cox repaid $340.0 million of the assumed
TCA debt. Cox also acquired VPI Communications, Inc., an affiliate of TCA, and
TCA's interest in two majority owned partnerships in connection with the TCA
merger. VPI provides advertising sales and turnkey advertising services to 82
cable television system operators representing more than 3.5 million customers
nationwide.

     Also in August 1999, Cox and MediaOne exchanged selected cable television
systems serving communities in Massachusetts, Rhode Island and Connecticut. In
connection with the transaction, Cox traded its cable television systems in
Massachusetts, serving more than 54,000 customers, for MediaOne properties in
Connecticut and Rhode Island, serving 51,000 customers, and cash. Cox recognized
a pre-tax gain of $77.4 million upon completion of this transaction.

     In October 1999, Cox completed the acquisition of cable television systems
serving more than 260,000 customers in Fairfax County and Fredericksburg,
Virginia from Media General, Inc. in a cash transaction valued at $1.4 billion.

     Also in October 1999, Cox reorganized its partnership with Time Warner
Entertainment Company, L.P., under which Cox acquired control of the cable
television system serving Fort Walton Beach, Florida and received $104.5
million, and Time Warner acquired control of the cable television system serving
Staten Island, New York. Cox recognized a pre-tax gain of $94.8 million in
connection with this reorganization.

1998 Acquisitions and Transactions

     In June 1998, Cox completed the acquisition of a cable television system
serving approximately 115,000 customers in Arizona from Tele-Communications,
Inc. in a cash transaction valued at $250.2 million.

     In October 1998, Cox completed the acquisition of a cable television system
serving approximately 293,000 residential customers and 105,000 hotel units in
the greater Las Vegas area and certain related businesses owned by Prime South
Diversified, Inc. for a combination of common and convertible preferred stock
and cash with an aggregate value of approximately $1.3 billion, including the
refinancing of certain Prime South indebtedness.

                                       39
<PAGE>   42

Investments

     See "Investments" in Part I, Item 1. "Business" and Note 6, "Investments,"
in Part II, Item 8. "Consolidated Financial Statements and Supplementary Data."

RESULTS OF OPERATIONS

     The results of operations discussed below include the effects of the
following as of their acquisition dates:

     - the August 1999 TCA merger;

     - the August 1999 exchange of selected cable television systems with
       MediaOne;

     - the October 1999 acquisition of cable television systems from Media
       General;

     - the October 1999 reorganization of Cox's partnership with Time Warner,
       under which Cox obtained control of the cable television system serving
       Ft. Walton Beach, Florida;

     - the April 1998 disposition of Cox's partnership interests and net assets
       in and operations of PrimeStar Partners, L.P.;

     - the June 1998 acquisition of cable television systems in Tucson and
       Sierra Vista, Arizona; and

     - the October 1998 acquisition of a cable television system in Las Vegas,
       Nevada.

     These transactions are collectively referred to in the discussion below as
the 1999 and 1998 transactions.

1999 COMPARED WITH 1998

     Total revenues for the year ended December 31, 1999 were $2,318.1 million,
a 35% increase over revenues of $1,716.8 million for the year ended December 31,
1998. Of this increase, 23% relates to increased revenues from the 1999 and 1998
transactions. The remaining 12% increase includes the effects of:

     - basic and digital customer growth at existing cable television systems;

     - rate increases, implemented primarily during the fourth quarter 1998,
       resulting from channel additions, increased programming costs and the
       pass-through of inflation adjustments;

     - an increase in pay-per-view revenues due to national boxing events during
       the first and third quarters of 1999 and an increase in digital
       pay-per-view revenues;

     - growth in local and national advertising sales; and

     - growth in data, commercial telephony and residential telephony product
       subscriptions.

     Programming costs were $561.3 million for the year ended December 31, 1999,
an increase of 38% over the same period in 1998. Of this increase, 25% relates
to the 1999 and 1998 transactions. The remaining 13% increase is due to basic
and digital customer growth at existing cable television systems, January 1999
programming rate increases, channel additions and the 1999 pay-per-view events
discussed above. Plant operations expenses increased 31% to $173.5 million. Of
this increase, 19% relates to the 1999 and 1998 transactions. The remaining 12%
increase relates to increased plant maintenance and costs related to significant
growth of new services at existing cable television systems.

     Marketing costs increased 48% to $147.0 million. Of this increase, 29%
relates to the 1999 and 1998 transactions, including the acquisition of VPI as
part of the TCA merger. The remaining 19% increase relates to costs associated
with the rollout of digital video, high-speed data and telephony services.
General and administrative expenses for the year ended December 31, 1999
increased 37% to $535.1 million due to the 1999 and 1998 transactions and costs
associated with digital video, high-speed data and telephony services in newly
launched markets.

     Depreciation increased to $550.7 million for the year ended December 31,
1999 compared to $373.5 million during the year ended December 31, 1998 due to
the 1999 and 1998 transactions and the continued

                                       40
<PAGE>   43

upgrade and rebuild of Cox's broadband network. Amortization increased to $165.0
million for the year ended December 31, 1999 compared to $84.2 million during
1998 due to the 1999 and 1998 transactions. Gain on sale and exchange of cable
television systems reflects the $77.4 million pre-tax gain on the August 1999
exchange of cable television systems with MediaOne. Operating income for the
year ended December 31, 1999 was $262.9 million, an increase of 31% compared to
1998.

     Interest expense increased to $305.7 million for the year ended December
31, 1999 compared to $223.3 million in 1998 primarily due to an increase in the
total debt outstanding. Equity in net losses of affiliated companies was $90.5
million primarily due to losses associated with Cox PCS.

     Net gain on investments of $1,569.4 million primarily includes:

     - $433.1 million pre-tax gain on the sale of Cox's interest in Telewest in
       January 1999;

     - $908.5 million pre-tax gain on the transfer of Cox's remaining interest
       in Cox PCS to Sprint Corporation during May 1999 in exchange for
       approximately 38.1 million shares of Sprint PCS' common stock -- Series
       2;

     - $94.8 million pre-tax gain in connection with the October 1999
       reorganization of Cox's partnership with Time Warner under which Cox
       acquired control of the cable television system serving Ft. Walton Beach,
       Florida and received $104.5 million; and

     - $165.6 million pre-tax gain on the sale of 3.9 million shares of Sprint
       PCS common stock in December 1999.

     Minority interest of $18.6 million primarily represents the coupon
distributions with respect to $650.0 million FELINE PRIDES issued by Cox in
August 1999 and $500.0 million RHINOS issued by Cox in October 1999.

     Net income for the year ended December 31, 1999 was $881.9 million as
compared to $1,270.7 million for the year ended December 31, 1998.

     Operating cash flow (operating income before depreciation, amortization and
gain on sale and exchange of cable television systems), a non-GAAP measure of
performance, is a commonly used financial analysis tool for measuring and
comparing cable television companies in several areas, such as liquidity,
operating performance and leverage. Operating cash flow increased 37% to $901.2
million for the year ended December 31, 1999. The operating cash flow margin
(operating cash flow as a percentage of revenues) for the year ended December
31, 1999 was 38.9%, an increase from 38.4% over the year ended December 31,
1998. Operating cash flows should not be considered as an alternative to net
income as an indicator of Cox's performance or as an alternative to net cash
provided by operating activities as a measure of liquidity.

1998 COMPARED WITH 1997

     Total revenues for the year ended December 31, 1998 were $1,716.8 million,
a 7% increase over revenues of $1,610.4 million for the year ended December 31,
1997. The increase includes the net effects of:

     - basic and digital customer growth at existing cable television systems;

     - rate increases, implemented primarily during the fourth quarter of 1997,
       resulting from channel additions, increased programming costs the
       pass-through of inflation adjustments and the acquisition of the Las
       Vegas cable television system;

     - an increase in pay-per-view revenues contributed by the Las Vegas cable
       television system offset by a decrease in comparative revenues due to the
       1997 Tyson/Holyfield boxing event;

     - growth in local and national advertising sales due to political
       advertising, a robust economy and the acquisition of the Las Vegas cable
       television system;

     - growth in data, commercial telephony and residential telephony product
       offerings; and

                                       41
<PAGE>   44

     - a decrease in revenues from satellite operations during 1998 as a result
       of the restructuring of PrimeStar Partners, L.P. during April 1998 which
       resulted in the exchange of Cox's interest and net assets in and
       operations of PrimeStar Partners for an ownership interest in PrimeStar,
       Inc.

     Programming costs were $406.7 million in 1998, an increase of 14% over 1997
due to basic and digital customer growth, January 1998 programming rate
increases and channel additions and additional programming costs related to the
acquisition of the Las Vegas cable television system. Plant operations expenses
increased 21% to $132.8 million and included the effect of a revised cost
component factor used to capitalize indirect costs relating to network
construction activity beginning in the third quarter of 1997. Marketing costs
increased to $99.5 million in 1998 due in part to costs associated with the
rollout of digital video, high-speed data and telephony services. General and
administrative expenses for the year ended December 31, 1998 increased 11% to
$389.2 million due primarily to costs associated with digital video, high-speed
data and telephony services.

     Depreciation was $373.5 million for the year ended December 31, 1998, a 13%
increase compared to 1997. The continued upgrade and rebuild of the broadband
network and the acquisition of the Las Vegas cable television system are
principal components of this increase. Amortization increased 13% to $84.2
million primarily due to additional franchise value resulting from the
acquisitions of the Las Vegas and the Tucson and Sierra Vista, Arizona cable
television systems. Operating income for 1998 was $201.4 million, a decrease of
22% compared to 1997.

     Interest expense increased $21.2 million to $223.3 million primarily due to
an increase in total debt outstanding. Equity in net losses of affiliated
companies was $547.2 million primarily due to losses of $330.0 million, $107.8
million and $46.6 million associated with Sprint PCS, Cox PCS and Teleport
Communications Group, Inc., respectively.

     Net gain on investments of $2,484.2 million primarily includes:

     - $1,719.3 million pre-tax gain on the conversion of Cox's equity ownership
       of Teleport into AT&T common stock during July 1998; and

     - $769.5 million pre-tax gain related to the reorganization of Sprint PCS
       in November 1998.

     Gain on issuance of stock by affiliated companies of $165.3 million
primarily resulted from a stock acquisition by Teleport. Dividend income of
$12.2 million was from Cox's investment in AT&T.

     Net income for the year ended December 31, 1998 was $1,270.7 million as
compared to net loss of $136.5 million for the year ended December 31, 1997.

     Operating cash flow increased 8% to $659.1 million for the year ended
December 31, 1998. The operating cash flow margin for the year ended December
31, 1998 was 38.4%, an increase from 37.9% for the year ended December 31, 1997.
Operating cash flow should not be considered as an alternative to net income as
an indicator of Cox's performance or as an alternative to net cash flows
provided by operating activities as a measure of liquidity.

LIQUIDITY AND CAPITAL RESOURCES

USES OF CASH

     As part of Cox's ongoing strategic plan, Cox has invested, and will
continue to invest, significant amounts of capital to enhance the reliability
and capacity of its broadband network in preparation for the offering of new
services and to make investments in affiliated companies primarily focused on
telephony, programming and communications-related activities.

     During 1999, Cox made capital expenditures of approximately $1.2 billion.
These expenditures were primarily for upgrading and rebuilding its broadband
network to allow for the delivery of advanced broadband services including
digital video, high-speed Internet access, telephony, video on demand and
Internet to the television. Capital expenditures for 2000 are expected to range
between $1.5 billion and $1.7 billion. Capital

                                       42
<PAGE>   45

expenditures for each of 2001 and 2002 are expected to range between $1.3
billion and $1.5 billion and for each of 2003 and 2004 are expected to range
between $1.0 billion and $1.2 billion.

     In addition to improvements of existing systems, Cox made strategic
investments in businesses focused on telephony, programming and
communications-related activities. Investments in affiliated companies of $31.0
million primarily included debt and equity funding for NextLink Nevada. Future
funding requirements for investments in affiliated companies are expected to
total approximately $20.0 million over the next five years. Actual capital
requirements may vary significantly from the amounts stated above and will
depend on numerous factors as many of these affiliates are growing businesses
and specific financing requirements will change depending on the evolution of
these businesses.

     Payments for the purchases of cable television systems of $3.5 billion
primarily represents cash paid in connection with the TCA merger and the
acquisition of cable television systems from Media General.

     During 1999, Cox paid $350.0 million towards its revolving credit
borrowings and extinguished the remaining balance of $150.0 million on its
Floating Rate Reset Notes. Net repayments on commercial paper were $512.4
million.

SOURCES OF CASH

     During 1999, Cox generated $404.7 million from operations. Proceeds from
the sale of investments of $872.9 million include $727.9 million from the sale
of Cox's interest in Telewest in January 1999 and $130.3 million for the sale of
3.9 million shares of Sprint PCS common stock in December 1999. Proceeds on
exchange of cable television systems of $114.2 million primarily represents cash
received from Time Warner in connection with the reorganization of Cox's
partnership with Time Warner, under which Cox acquired control of the cable
television system in Ft. Walton Beach, Florida.

     Proceeds from the issuance of debt during 1999 was approximately $3.3
billion, net of underwriting discounts, and is composed of the following:

     - the issuance of senior debt securities for aggregate proceeds of $2.0
       billion; and

     - the issuance of 14,375,000 Exchangeable Subordinated Debentures due 2029,
       called PRIZES, for aggregate proceeds of approximately $1.3 billion. The
       PRIZES are indexed to the trading price of Sprint PCS common
       stock -- Series 1 and are exchangeable by the holder for cash based on
       the market value of Sprint PCS common stock -- Series 1. The PRIZES are
       listed on the NYSE under the symbol "PRI."

     Proceeds from the issuance of common stock is from the issuance of 10.1
million shares of Class A common stock for aggregate proceeds of $350.3 million,
net of offering costs of $12.4 million.

     Proceeds from the issuance of Cox-obligated capital and preferred
securities of subsidiary trusts were approximately $1.2 billion, and included
the following:

     - the issuance of FELINE PRIDES for proceeds of $650.0 million; and

     - the issuance of RHINOS by a wholly owned subsidiary trust to an affiliate
       of The Bank of America for aggregate proceeds of $500.0 million. The
       RHINOS are long-term auction rate term preferred securities of Cox RHINOS
       Trust.

     Each FELINE PRIDES consists of a unit comprised of:

      (1) a three-year forward purchase contract under which the holder is
          obligated to purchase from Cox new shares of Cox Class A common stock
          based upon a settlement rate, and

      (2) either:

             (A) beneficial ownership of a 7% capital security having a stated
                 liquidation amount equal to $50, representing a preferred
                 undivided beneficial interest in the assets of Cox Trust II, a
                 wholly owned financing subsidiary of Cox, or

                                       43
<PAGE>   46

             (B) a 5% undivided beneficial ownership in a zero coupon U.S.
                 Treasury Security having a principal amount at maturity equal
                 to $1,000.

     Units comprised of a purchase contract and a beneficial interest in capital
securities are called Income PRIDES and units comprised of a purchase contract
and a beneficial interest in the treasury securities are called Growth PRIDES.
The Income PRIDES and the Growth PRIDES are listed on the NYSE under the symbols
"COXPrI" and "COXPrG," respectively.

OTHER

     At December 31, 1999, Cox had approximately $6.4 billion of outstanding
indebtedness and $1.2 billion of outstanding Cox-obligated capital securities of
subsidiary trusts. In addition, Cox had approximately $5.0 billion available
under its revolving credit facilities, shelf registration statements and
commercial paper program.

     Cox expects that the cost of its network upgrades and investment activity
will exceed Cox's cash flow from operations and, therefore, additional capital
will be necessary. Cox believes it will be able to meet its capital needs for
the next twelve months with unused amounts available under existing revolving
agreements, the shelf registration statements and the commercial paper program.
In addition, Cox is pursuing alternatives to monetize certain unconsolidated
investments.

     Cox believes its operations are not materially affected by inflation.

     All historical weighted average share, per share and historical balance
sheet amounts have been restated to reflect Cox's two-for-one stock split which
was effective on May 21, 1999.

     In January 2000, Cox borrowed $500.0 million under a floating rate bridge
loan which is due and payable on March 31, 2000.

     In March 2000, Cox issued $275.0 million aggregate principal amount of 3%
Exchangeable Subordinated Debentures due 2030, also referred to as Premium
PHONES, for proceeds of $269.5 million, net of underwriting discounts. Prior to
March 14, 2002, the Premium Phones are exchangeable at the holders' option for
cash in an amount based on the trading price of the underlying reference shares,
which are initially shares of Sprint PCS common stock -- Series 1. On or after
that date, the Premium Phones can be exchanged by the holders, at Cox's
election, for cash or the underlying reference shares. The Premium PHONES are
listed on the NYSE under the symbol "COX 30."

     On March 16, 2000, Cox notified the trustee, who then gave notice to the
record holders of Cox's Floating Rate Notes due August 15, 2000, of Cox's
intention to redeem all $525.0 million aggregate principal amount outstanding of
the Floating Rate Notes on March 31, 2000.

     The above description of certain material terms of the FELINE PRIDES, the
PRIZES and the Premium PHONES are summaries and not intended to be comprehensive
descriptions of these securities. Additional terms of the FELINE PRIDES, the
PRIZES and the Premium PHONES can be found in Notes 9, 10 and 19 in Part II,
Item 8."Consolidated Financial Statements and Supplementary Data." For a
complete description of each of these securities, you should read Cox's
prospectus supplement dated August 9, 1999 with respect to the FELINE PRIDES,
Cox's prospectus supplement dated November 29, 1999 with respect to the PRIZES
and Cox's prospectus supplement dated March 8, 2000 with respect to the Premium
PHONES. The disclosure regarding each of these securities in this section is
qualified in its entirety by reference to the respective prospectus supplements.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In 1998, SFAS No. 133, "Accounting for Derivative Financial Instruments and
Hedging Activities," was issued. This statement requires that all derivatives be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be designated,

                                       44
<PAGE>   47

reassessed and documented pursuant to the provisions of SFAS No. 133. SFAS No.
133, as amended by SFAS No. 137, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. Management is in the process of
assessing the impact of SFAS No. 133 on the consolidated financial statements.

OTHER MATTERS

YEAR 2000 READINESS DISCLOSURE

     The Year 2000 issue is the potential impact of computer programs and
embedded computer microprocessors being unable to properly process dates or
date-sensitive calculations beyond December 31, 1999. Computer systems that
process dates or date-sensitive calculations may recognize only the last two
digits to identify the year in a date, or identify digits as an instruction.
Accordingly, the year "00" may be recognized as the year 1900 rather than the
year 2000, which may result in miscalculations or system failures. A computer
system is deemed to be year 2000 compliant when it continues to produce
understandable, accurate and predictable results that conform to the original
functional specifications, regardless of the millennium change.

     The initial discussions of Year 2000 readiness exclude information on
acquisitions, which are discussed separately, below.

     Cox did not experience any material Year 2000 failures subsequent to
December 31, 1999. Although Cox believes it has taken the appropriate steps to
address Year 2000 readiness, there is no guarantee that Cox's efforts will
prevent a material adverse impact on the consolidated results of operations and
financial condition.

Vendors

     Cox's assessment of its vendors included a formal communication program
with Cox's significant vendors to determine the extent to which Cox is
vulnerable should those third parties fail to remediate their own Year 2000
non-compliance. In addition, Cox completed testing with certain key vendors.
With respect to customers, most of Cox's customer base consists of individual
subscribers; thus, vulnerability to a few key customers is not a significant
risk to Cox. Cox is not aware of any Year 2000 non-compliance or failures by its
vendors or customers that could materially affect Cox's business operations;
however, Cox does not control the systems of other companies and cannot assure
that such systems were converted in a timely fashion or, if not converted, would
not have an adverse effect on Cox's business operations.

Costs

     Total costs associated with Year 2000 compliance have not been material to
Cox's financial position. Most of the costs associated with Cox's applications
systems, including subscriber equipment, upgrades and replacements are being
incurred irrespective of the Year 2000 initiative. In addition, the timing of
these upgrades and replacements was not accelerated in order to become Year 2000
compliant. As of December 31, 1999, the total incremental costs expended on the
Year 2000 initiative is approximately $2.7 million. Cox expects that the total
incremental costs of the Year 2000 initiative upon completion will be less than
$3.0 million.

Risks and Reasonably Likely Worst Case Scenarios

     The failure to correct a material Year 2000 problem could result in system
failures leading to a disruption in, or failure of certain normal business
activities or operations. Such failures could materially and adversely affect
Cox's results of operations, liquidity and financial condition. In spite of the
general uncertainty inherent in the Year 2000 problem, resulting in part from
the uncertainty of the Year 2000 readiness of third-party suppliers and
customers, Cox is unaware at this time of any material consequences of Year 2000
failures that would have material impact on Cox's results of operations,
liquidity or financial condition.

Recently Closed Acquisitions

     Cox has completed the TCA merger, as well as the acquisition of certain
cable television systems from Media General, Inc., MediaOne Group, First
Commonwealth Communications, Inc., Cable Plus Holding

                                       45
<PAGE>   48

Company, Multimedia and AT&T. Prior to the acquisition of each of these systems,
their respective owners began implementing their own Year 2000 readiness
initiatives. In connection with each acquisition, the seller either covenanted,
warranted or represented to Cox that the acquired systems either were already
Year 2000 compliant, that such systems would be compliant before the respective
acquisitions' closing dates, or that such systems were on track with their
respective plans to address the Year 2000 problem. Cox is in the process of
verifying the compliance claims, and further, has negotiated certain contractual
rights in connection with the acquisitions providing recourse against the
sellers in the event that covenants, representations, and warranties relating to
Year 2000 readiness are not met. Following the closing of the recent
transactions, Cox has in some cases remediated certain systems and components.
At present, Cox is unaware of any January 1, 2000 or likely material failures.
However, the acquired systems operate on diverse platforms, some of which are
based on older and possibly outdated technologies and in some instances have not
been certified compliant by their vendors.

Contingency and Business Continuation Plan

     The Year 2000 initiative calls for suitable contingency planning for Cox's
at-risk business functions. Cox normally makes contingency plans in order to
avoid interrupted service providing video, voice and data products to Cox's
customers. The normal contingency planning has been revised where appropriate,
to specifically address Year 2000 exposure with respect to service to customers.

     All statements relating to the Year 2000 made in Forms 10-K, 10-Q or
Registration Statements filed by Cox with the SEC after January 1, 1996 are
hereby incorporated by reference and designated as Year 2000 Readiness
Disclosures.

RISK FACTORS

     This Form 10-K 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 concerning our
outlook for the future and information about our strategic plans and objectives,
expectations as to subscriber and revenue growth, anticipated rates of
subscriber penetration, and other statements of expectations, beliefs, future
plans and strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts. Actual results may differ
materially from those in the forward-looking statements, and may be affected by
known and unknown risks, uncertainties and other factors. Many of these risks
and uncertainties have been discussed in our prior filings with the Securities
and Exchange Commission. Factors to consider in connection with any of our
forward-looking statements include, but are not limited to:

     - Our ability to implement successfully our growth strategies and the level
       of success of our operating initiatives, including future expenditures on
       capital projects, terms and availability of capital, the actual level of
       revenue growth, adverse changes in the price of telephony interconnection
       or cable television programming, and disruptions in the supply of
       services and equipment. In addition, material changes in the cost of
       equipment or significant unanticipated capital expenditures could disrupt
       our business plan and adversely affect our business operations.

     - Trends in our businesses, particularly trends in the market for existing
       and new communications services and changes in our business strategy and
       development plans.

     - Our ability to increase penetration in existing markets, as well as those
       we enter through acquisitions or other business combinations, including
       our ability to continue to control costs and maintain high standards of
       customer service, the extent to which consumer demand for voice, video
       and data services increases, subscriber availability and growth,
       subscriber demand and competition.

     - Our ability to generate sufficient cash flow to meet our debt service
       obligations and to finance ongoing operations. Cox has historically
       reported net losses, and we operate with a significant level of
       indebtedness. Cash generated from operating activities and borrowing has
       been sufficient to fund our debt service, working capital obligations and
       capital expenditure requirements. We believe that Cox

                                       46
<PAGE>   49

       will continue to generate cash and obtain financing sufficient to meet
       these requirements. However, if Cox were unable to meet these
       requirements, we would have to consider refinancing our indebtedness or
       obtaining new financing. Although in the past we have been able to
       refinance our indebtedness and obtain new financing, there can be no
       assurance that we will be able to do so in the future or that, if we were
       able to do so, the terms available would be acceptable to us. In
       addition, we must manage exposure to interest rate risk due to variable
       rate debt instruments.

     - Changes in our relationship with, the performance of, and the market
       value of companies in which we have significant investments, especially
       investments in telecommunications and technology, including Sprint PCS
       and Excite@Home.

     - Competition from alternative methods of receiving and distributing
       signals and from other sources of news, information and entertainment,
       such as newspapers, movie theaters, online computer services and home
       video products. Because our franchises are generally non-exclusive, there
       is potential for competition from other operators of cable television
       systems and other distribution systems capable of delivering programming
       to homes or businesses, including direct broadcast satellite systems and
       multichannel, multipoint distribution services. In addition, we face
       general competitive factors, such as the introduction of new technologies
       (such as Internet-based services), changes in prices or demand for our
       products as a result of competitive actions or economic factors, and
       competitive pressures within the broadband communications industry.

     - Our ability to obtain the necessary FCC, as well as state and local,
       authorizations for new services, and our response to adverse regulatory
       changes. The cable television industry is subject to extensive regulation
       by federal, local and, in some instances, state governmental agencies.
       Advances in communications technology as well as changes in the
       marketplace and the regulatory and legislative environment are constantly
       occurring. Thus it is not possible to predict the effect that ongoing
       developments might have on the broadband communications industry or on
       our operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk is the risk that Cox will incur losses due to adverse changes
in equity, interest, commodity or currency exchange rate and prices. Cox's
primary market risk exposure pertains to changes in interest rates.

     With respect to financial instruments, Cox has estimated the fair values of
such instruments using available market information and 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 amounts of cash, accounts receivable, other assets, accounts
payable, deferred income and amounts due to/from Cox Enterprises are reasonable
estimates of their fair value at December 31, 1999 and 1998.

     The estimated fair values of debt instruments are based on discounted cash
flow analyses using Cox's incremental borrowing rate for similar types of
borrowing arrangements and dealer quotations. The commercial paper and floating
rate notes at December 31, 1999 and the revolving credit agreements, commercial
paper and floating rate reset notes at December 31, 1998 bear interest at
current market rates and, thus, approximate fair value. In addition, the RHINOS
at December 31, 1999 bear interest at current market rates and, thus,
approximate fair value. Cox is exposed to interest rate volatility with respect
to the foregoing variable rate debt instruments.

     The estimated fair value of Cox's remaining debt instruments at December
31, 1999 was $3,858.3 million compared to a carrying amount of $4,064.1 million.
The estimated fair value of the remaining debt instruments at December 31, 1998
was $2,385.7 million compared to a carrying amount of $2,393.6 million. In
addition, the effect of a hypothetical one percentage point decrease in interest
rates would increase the estimated fair value of the remaining debt instruments
with a carrying amount of $4,064.1 million to $4,065.3 million at December 31,
1999 and $2,393.6 million to $2,540.6 million at December 31, 1998.
                                       47
<PAGE>   50

     The estimated fair value of the FELINE PRIDES at December 31, 1999 was
$884.0 million compared to a carrying amount of $642.3 million. In addition, the
effect of a hypothetical one percentage point decrease in interest rates would
increase the estimated fair value of the FELINE PRIDES with a carrying amount of
$642.3 million to $886.0 million at December 31, 1999. The estimated fair value
of the PRIZES at December 31, 1999 was $1,400.0 million compared to a carrying
amount of $1,272.2 million. In addition, the effect of a hypothetical one
percentage point decrease in interest rates would increase the estimated fair
value of the PRIZES with a carrying amount of $1,272.2 million to $1,417.0
million at December 31, 1999.

     The fair values of some of Cox's investments are estimated based on quoted
market prices for those or similar investments. For cost method investments for
which there are no quoted market prices, a reasonable estimate of fair value was
not practicable as such estimate could not be made without incurring excessive
costs.

                                       48
<PAGE>   51

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                            COX COMMUNICATIONS, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     DECEMBER 31
                                                              -------------------------
                                                                 1999          1998
                                                              -----------   -----------
                                                               (THOUSANDS OF DOLLARS)
<S>                                                           <C>           <C>
ASSETS
Cash........................................................  $    33,313   $    30,604
Accounts and notes receivable, less allowance for doubtful
  accounts of $14,783 and $7,872............................      260,518       166,052
Net plant and equipment.....................................    4,038,236     2,652,212
Investments.................................................   11,769,610     5,981,057
Intangible assets...........................................   10,174,034     3,959,906
Amounts due from Cox Enterprises, Inc.......................      114,821            --
Other assets................................................      223,965        88,273
                                                              -----------   -----------
          Total assets......................................  $26,614,497   $12,878,104
                                                              ===========   ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses.......................  $   477,134   $   296,950
Deferred income taxes.......................................    6,670,521     2,886,636
Other liabilities...........................................      209,211       227,197
Debt........................................................    6,375,795     3,920,159
Amounts due to Cox Enterprises, Inc.........................           --       170,596
                                                              -----------   -----------
          Total liabilities.................................   13,732,661     7,501,538
                                                              -----------   -----------
Commitments and contingencies (Note 18)

Minority interests in equity of consolidated subsidiaries...      195,616            --

Cox-obligated capital and preferred securities of subsidiary
  trusts....................................................    1,150,636            --

Shareholders' equity
  Series A preferred stock -- liquidation preference of
     $22.1375 per share, $1 par value; 10,000,000 shares
     authorized; shares issued and outstanding: 4,836,372...        4,836         4,836
  Class A common stock, $1 par value; 650,000,000 shares
     authorized; shares issued and outstanding: 576,168,914
     and 527,111,512........................................      576,169       527,112
  Class C common stock, $1 par value; 60,000,000 shares
     authorized; shares issued and outstanding:
     27,597,792.............................................       27,598        27,598
  Additional paid-in capital................................    3,835,639     1,872,477
  Retained earnings.........................................    2,232,205     1,350,277
  Accumulated other comprehensive income....................    4,859,137     1,594,266
                                                              -----------   -----------
          Total shareholders' equity........................   11,535,584     5,376,566
                                                              -----------   -----------
          Total liabilities and shareholders' equity........  $26,614,497   $12,878,104
                                                              ===========   ===========
</TABLE>

                See notes to consolidated financial statements.

                                       49
<PAGE>   52

                            COX COMMUNICATIONS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                       ---------------------------------------------
                                                           1999            1998            1997
                                                       -------------   -------------   -------------
                                                       (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                    <C>             <C>             <C>
REVENUES.............................................  $  2,318,135    $  1,716,757    $  1,610,364
COSTS AND EXPENSES
  Programming costs..................................       561,343         406,748         357,880
  Plant operations...................................       173,515         132,751         110,115
  Marketing..........................................       146,965          99,544          71,122
  General and administrative.........................       535,123         389,234         352,217
  Satellite operating and administrative.............            --          29,404         109,195
  Depreciation.......................................       550,651         373,462         329,951
  Amortization.......................................       165,049          84,209          74,587
  Gain on sale and exchange of cable television
     systems, net....................................       (77,361)             --         (51,835)
                                                       ------------    ------------    ------------
OPERATING INCOME.....................................       262,850         201,405         257,132
Interest expense.....................................      (305,736)       (223,326)       (202,136)
Equity in net losses of affiliated companies.........       (90,477)       (547,202)       (404,440)
Gain on investments, net.............................     1,569,389       2,484,162          64,742
Gain on issuance of stock by affiliated companies....            --         165,342          90,796
Dividend income......................................        44,292          12,164              --
Other, net...........................................           170             942           3,918
                                                       ------------    ------------    ------------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY
  INTEREST...........................................     1,480,488       2,093,487        (189,988)
Income tax expense (benefit).........................       579,965         822,815         (53,496)
                                                       ------------    ------------    ------------
INCOME (LOSS) BEFORE MINORITY INTEREST...............       900,523       1,270,672        (136,492)
Minority interest, net of tax........................       (18,595)             --              --
                                                       ------------    ------------    ------------
NET INCOME (LOSS)....................................  $    881,928    $  1,270,672    $   (136,492)
                                                       ============    ============    ============
PER SHARE DATA
  Basic net income (loss) per share..................  $       1.54    $       2.33    $      (0.25)
  Diluted net income (loss) per share................          1.51            2.30           (0.25)
  Basic weighted-average shares outstanding..........   572,608,878     545,626,528     541,001,582
  Diluted weighted-average shares outstanding........   583,081,565     552,421,730     541,001,582
</TABLE>

                See notes to consolidated financial statements.

                                       50
<PAGE>   53

                            COX COMMUNICATIONS, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                    ACCUMULATED
                        SERIES A       COMMON STOCK      ADDITIONAL                    OTHER
                        PREFERRED   ------------------    PAID-IN      RETAINED    COMPREHENSIVE                 COMPREHENSIVE
                          STOCK     CLASS A    CLASS C    CAPITAL      EARNINGS       INCOME          TOTAL      INCOME (LOSS)
                        ---------   --------   -------   ----------   ----------   -------------   -----------   -------------
                                                                (THOUSANDS OF DOLLARS)
<S>                     <C>         <C>        <C>       <C>          <C>          <C>             <C>           <C>
BALANCE AT DECEMBER
  31, 1996..........         --     $512,928   $27,598   $1,471,858   $  216,097    $   32,831     $ 2,261,312
  Net loss..........                                                    (136,492)                     (136,492)   $  (136,492)
                                                                                                                  -----------
  Issuance of stock
    related to stock
    compensation
    plans (including
    tax benefit on
    stock options
    exercised)......                   1,624                 11,376                                     13,000
  Capital
    contribution by
    CEI.............                                         36,524                                     36,524
  Change in net
    unrealized loss
    on securities,
    net of
    reclassification
    adjustment......                                                                                                  182,968
                                                                                                                  -----------
  Other
    comprehensive
    income..........                                                                   182,968         182,968        182,968
                                                                                                                  -----------
  Comprehensive
    income..........                                                                                              $    46,476
                         ------     --------   -------   ----------   ----------    ----------     -----------    ===========
BALANCE AT DECEMBER
  31, 1997..........         --      514,552    27,598    1,519,758       79,605       215,799       2,357,312
  Net income........                                                   1,270,672                     1,270,672    $ 1,270,672
                                                                                                                  -----------
  Issuance of stock
    related to stock
    compensation
    plans (including
    tax benefit on
    stock options
    exercised)......                   1,224                 10,888                                     12,112
  Issuance of Class
    A common stock
    and series A
    preferred stock
    related to the
    acquisition of
    Prime South.....     $4,836       11,336                341,831                                    358,003
  Change in net
    unrealized gain
    on securities,
    net of
    reclassification
    adjustment......                                                                                                1,378,467
                                                                                                                  -----------
  Other
    comprehensive
    income..........                                                                 1,378,467       1,378,467      1,378,467
                                                                                                                  -----------
  Comprehensive
    income..........                                                                                              $ 2,649,139
                         ------     --------   -------   ----------   ----------    ----------     -----------    ===========
BALANCE AT DECEMBER
  31, 1998..........      4,836      527,112    27,598    1,872,477    1,350,277     1,594,266       5,376,566
  Net income........                                                     881,928                       881,928    $   881,928
                                                                                                                  -----------
  Issuance of stock
    related to stock
    compensation
    plans (including
    tax benefit on
    stock options
    exercised)......                     634                 14,054                                     14,688
  Issuance of stock
    related to the
    TCA merger......                  38,323              1,607,051                                  1,645,374
  Issuance of common
    stock related to
    public
    offering........                  10,100                327,784                                    337,884
  Fair value of
    forward purchase
    contracts, less
    the present
    value of
    contract
    adjustment
    payments, issued
    as a part of
    FELINE PRIDES...                                         14,273                                     14,273
  Change in net
    unrealized gain
    on securities,
    net of
    reclassification
    adjustment......                                                                                                3,264,871
                                                                                                                  -----------
  Other
    comprehensive
    income..........                                                                 3,264,871       3,264,871      3,264,871
                                                                                                                  -----------
  Comprehensive
    income..........                                                                                              $ 4,146,799
                         ------     --------   -------   ----------   ----------    ----------     -----------    ===========
BALANCE AT DECEMBER
  31, 1999..........     $4,836     $576,169   $27,598   $3,835,639   $2,232,205    $4,859,137     $11,535,584
                         ======     ========   =======   ==========   ==========    ==========     ===========
</TABLE>

                See notes to consolidated financial statements.

                                       51
<PAGE>   54

                            COX COMMUNICATIONS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31
                                                              ---------------------------------------
                                                                 1999          1998          1997
                                                              -----------   -----------   -----------
                                                                      (THOUSANDS OF DOLLARS)
<S>                                                           <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...........................................  $   881,928   $ 1,270,672   $  (136,492)
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities, net of effects of
  acquisitions:
  Depreciation..............................................      550,651       373,462       329,951
  Amortization..............................................      165,049        84,209        74,587
  Equity in net losses of affiliated companies..............       90,477       547,202       404,440
  Deferred income taxes.....................................      366,579       972,663       101,821
  Gain on sale and exchange of cable television systems,
    net.....................................................      (77,361)           --       (51,835)
  Gain on investments, net..................................   (1,569,389)   (2,484,162)      (64,742)
  Gain on issuance of stock by affiliated companies.........           --      (165,342)      (90,796)
(Increase) decrease in accounts and notes receivable........       28,719       (17,348)      (29,312)
(Increase) decrease in prepaid assets.......................     (117,076)        8,744        12,894
Increase (decrease) in accounts payable and accrued
  liabilities...............................................      104,864         9,122        (4,350)
Increase (decrease) in other liabilities....................      (43,673)       49,797        (9,310)
Increase in taxes payable...................................       33,436        13,619         7,730
Other, net..................................................       (9,492)        4,534         9,025
                                                              -----------   -----------   -----------
         Net cash provided by operating activities..........      404,712       667,172       553,611
                                                              -----------   -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................   (1,154,527)     (808,902)     (708,089)
Investments in affiliated companies.........................      (30,955)     (169,102)     (388,075)
Proceeds from the sale of investments.......................      872,880       353,159       310,920
Restricted cash invested....................................           --       204,210      (204,210)
Payments for purchases of cable television systems..........   (3,522,412)   (1,230,453)      (66,762)
Proceeds on exchange of cable television systems............      114,204            --            --
(Increase) decrease in amounts due from Cox Enterprises,
  Inc.......................................................     (114,821)       50,856       (50,856)
Other, net..................................................      (13,938)         (187)         (889)
                                                              -----------   -----------   -----------
         Net cash used in investing activities..............   (3,849,569)   (1,600,419)   (1,107,961)
                                                              -----------   -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit borrowings (repayments), net...............     (350,000)     (450,001)      350,000
Commercial paper borrowings (repayments), net...............     (512,443)      343,087       (34,748)
Proceeds from issuance of debt..............................    3,263,513       843,531       246,457
Repayment of debt...........................................     (196,875)      (17,689)      (15,993)
Payment of debt issuance costs and discounts................      (83,190)       (1,639)          926
Proceeds from exercise of stock options.....................        9,356        12,112        13,000
Payment to reacquire minority interest in subsidiary........           --            --       (10,000)
Increase (decrease) in amounts due to Cox Enterprises,
  Inc.......................................................     (170,596)      170,596       (19,359)
Proceeds from issuance of common stock, net of offering
  costs.....................................................      337,884            --            --
Proceeds from issuance of Cox-obligated capital and
  preferred securities of subsidiary trusts.................    1,150,000            --            --
Increase in book overdrafts.................................        2,667        35,595         9,977
Other, net..................................................       (2,750)           --            --
                                                              -----------   -----------   -----------
         Net cash provided by financing activities..........    3,447,566       935,592       540,260
                                                              -----------   -----------   -----------
Net increase (decrease) in cash.............................        2,709         2,345       (14,090)
Cash at beginning of period.................................       30,604        28,259        42,349
                                                              -----------   -----------   -----------
Cash at end of period.......................................  $    33,313   $    30,604   $    28,259
                                                              ===========   ===========   ===========
</TABLE>

                See notes to consolidated financial statements.

                                       52
<PAGE>   55

                            COX COMMUNICATIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

     Cox Communications, Inc. ("Cox"), an indirect 67% owned subsidiary of Cox
Enterprises, Inc.("CEI"), is one of the nation's largest broadband
communications companies, serving more than 5.1 million customers as of December
31, 1999. Cox has interests in U.S. broadband network operations and investments
in cable television programming networks, telecommunications and technology and
broadband networks.

     Cox operates in one operating segment, broadband communications. All
significant intercompany account balances and transactions among consolidated
entities have been eliminated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER ITEMS

Cash and equivalents

     Cash and cash equivalents consist of deposits with banks and financial
institutions which are unrestricted as to withdrawal or use and which have
maturities of three months or less.

Plant and Equipment

     Plant and equipment are stated at cost less accumulated depreciation.
Additions to cable plant generally include material, labor and overhead.
Depreciation is computed using principally the straight-line method over
estimated useful lives as follows: five to 20 years for buildings and building
improvements; five to 12 years for cable television systems; and three to 10
years for other plant and equipment.

     Expenditures for maintenance and repairs are charged to operating expense
as incurred. At the time of retirements, sales or other dispositions of
property, the original cost and related accumulated depreciation are written
off.

Investments

     Investments in affiliated entities are accounted for under the equity
method or cost basis depending upon the level of ownership in the investment
and/or Cox's ability to exercise significant influence over the operating and
financial policies of the investee. Equity method investments are recorded at
original cost and adjusted periodically to recognize Cox's proportionate share
of the investees' net income or losses, additional contributions made and
dividends received. When net losses from an equity method investment exceed its
carrying amount, the investment balance is reduced to zero and additional losses
are not provided for unless Cox is committed to provide further financial
support to the entity. Cox resumes accounting for the investment under the
equity method when the entity subsequently reports net income and Cox's share of
that net income equals the share of net losses not recognized during the period
the equity method was suspended.

     Investments in publicly traded entities are classified as
available-for-sale under Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and
are recorded at their fair value, with unrealized gains and losses resulting
from changes in fair value between measurement dates recorded as a component of
accumulated other comprehensive income. Cox recognizes realized losses for any
decline in market value considered to be other than temporary. Investments in
privately held entities are stated at cost, adjusted for any known diminution in
value determined to be other than temporary in nature.

Deferred Charges

     Franchise and license acquisition costs are amortized using the
straight-line method over their legal or estimated useful lives up to 40 years.
The excess of cost over the fair value of net assets acquired is amortized using
the straight-line method over its estimated useful life up to 40 years.

                                       53
<PAGE>   56
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Cox assesses on an on-going basis the recoverability of certain deferred
charges based on estimates of future undiscounted cash flows for the applicable
business acquired compared to net book value. If the future undiscounted cash
flow estimate is less than net book value, net book value is then reduced to the
undiscounted cash flow estimate. Cox also evaluates the amortization periods of
deferred charges to determine whether events or circumstances warrant revised
estimates of useful lives.

Valuation of Long-Lived Assets

     Cox evaluates the recoverability of long-lived assets, including plant and
equipment and deferred charges, for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, with any impairment losses being reported in the period in which
the recognition criteria are first applied based on the fair value of the asset.
Long-lived assets and certain deferred charges to be disposed of are reported at
the lower of carrying amount or fair value less cost to sell.

Pension, Postretirement and Postemployment Benefits

     Cox generally provides defined pension benefits to all employees based on
years of service and compensation during those years. Cox provides certain
health care and life insurance benefits to substantially all employees and
retirees through certain CEI plans. Expense related to the CEI plans is
allocated to Cox through the intercompany account. The amount of the allocations
is generally based on actuarial determinations of the effects of Cox employees'
participation in the plans.

Stock Compensation Plans

     Cox accounts for employee equity-based compensation using the intrinsic
value method prescribed in APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and discloses the pro forma effect on net income and earnings per
share of using the fair value method as required by SFAS No. 123, "Accounting
for Stock-Based Compensation."

Revenue Recognition

     Revenue is recognized as broadband communications services are provided.
Credit risk is managed by disconnecting services to customers who are
delinquent. Other revenues are recognized as services are provided. Revenues
obtained from the connection of customers to the cable television systems are
less than related direct selling costs; therefore, such revenues are recognized
as received.

Income Taxes

     Prior to October 1998, the accounts of Cox were included in the
consolidated federal income tax return and certain state income tax returns of
CEI. Current federal and state income tax expenses and benefits were allocated
on a separate return basis to Cox based on the current year tax effects of the
inclusion of its income, expenses and credits in the consolidated income tax
returns of CEI or based on separate state income tax returns. In connection with
Cox's acquisition of the Las Vegas, Nevada cable television system in October
1998 (see Note 4), CEI's ownership interest in Cox was reduced. As such,
effective October 1998, Cox is no longer included in the consolidated federal
income tax return of CEI.

     Cox provides for income taxes using the liability method as prescribed by
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires an asset and
liability based approach in accounting for income taxes. Deferred income taxes
reflect the net tax effect on future years of temporary differences between the
carrying amount of assets and liabilities for financial statement and income tax
purposes. Valuation allowances reduce deferred tax assets to an amount that
represents management's best estimate of such deferred tax

                                       54
<PAGE>   57
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets that more likely than not will be realized. The financial effect of
changes in tax laws or rates is accounted for in the period of enactment.

Debt Issuance Costs

     Costs associated with the refinancing and issuance of debt as well as debt
discounts, if any, are deferred and expensed as interest over the appropriate
term of the related debt agreement.

Gain on Issuance of Affiliate Stock

     Gains recognized on the issuance of stock by an affiliated entity to adjust
the underlying net assets "sold" to fair value are recorded as income in the
Consolidated Statements of Operations.

Net Income (Loss) Per Common Share

     Cox computes earnings per share in accordance with SFAS No. 128, "Earnings
per Share." Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share is computed in the same manner, but
also includes the dilutive effect of outstanding forward purchase contracts,
convertible preferred securities and various forms of equity-based employee
compensation.

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles 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.

Recently Issued Accounting Pronouncements

     In 1998, SFAS No. 133, "Accounting for Derivative Financial Instruments and
Hedging Activities," was issued. This statement requires that all derivatives be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be designated, reassessed and documented pursuant to the provisions of SFAS
No. 133. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. Management is in the
process of assessing the impact of SFAS No. 133 on the consolidated financial
statements.

Reclassifications

     Certain amounts in the 1998 and 1997 financial statements have been
reclassified for comparative purposes with 1999.

3. CASH MANAGEMENT SYSTEM

     Cox participates in CEI's cash management program, whereby financial
institutions send daily notification of checks presented for payment. CEI
transfers funds from other sources for remittance of the checks presented for
payment. Book overdrafts of $71.9 million and $69.2 million existed at December
31, 1999 and 1998, respectively, as a result of checks outstanding. These book
overdrafts are reclassified as accounts payable and are considered financing
activities in the Consolidated Statements of Cash Flows.

                                       55
<PAGE>   58
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. ACQUISITIONS, DISPOSITIONS AND EXCHANGES OF BUSINESSES

Recent Acquisitions

     In January 2000, Cox completed the acquisition of cable television systems
serving 522,000 customers in Kansas, Oklahoma and North Carolina from Multimedia
Cablevision, Inc., a subsidiary of Gannett Co., Inc., in a cash transaction
valued at $2.7 billion.

     In March 2000, Cox and AT&T Corp. ("AT&T") exchanged Cox's 50.3 million
shares of AT&T common stock for the stock of AT&T subsidiaries that own cable
television systems serving approximately 495,000 customers and certain other
assets and liabilities, including cash. In return for its 50.3 million shares of
AT&T common stock, Cox will receive: cable television systems serving Tulsa,
Oklahoma (160,000 customers) and Baton Rouge, Louisiana (156,000 customers); the
remaining 20% ownership interest in a partnership in which Cox acquired an 80%
interest through its merger with TCA Cable TV, Inc.; Peak Cablevision LLC, which
has 117,000 customers in Oklahoma, Arkansas, Utah and Nevada; and approximately
$750.0 million in other assets, including cash.

1999 Acquisitions and Transactions

     In August 1999, Cox completed its merger with TCA, a cable television
operator serving approximately 883,000 customers in Texas, Arkansas, Louisiana
and four other states for consideration consisting of $1.6 billion in cash, 38.3
million shares of Cox Class A common stock and assumed indebtedness of $540.0
million. Upon completion of the merger, Cox repaid $340.0 million of the assumed
TCA debt. Cox also acquired VPI Communications, Inc., an affiliate of TCA, and
TCA's interest in two majority owned partnerships in connection with the TCA
merger. VPI provides advertising sales and turnkey advertising services to 82
cable television system operators representing more than 3.5 million customers
nationwide.

     Also in August 1999, Cox and MediaOne exchanged selected cable television
systems serving communities in Massachusetts, Rhode Island and Connecticut. In
connection with the transaction, Cox traded cable television systems in
Massachusetts, serving more than 54,000 customers, for MediaOne properties in
Connecticut and Rhode Island, serving 51,000 customers, and cash. Cox recognized
a pre-tax gain of $77.4 million upon completion of this transaction.

     In October 1999, Cox completed the acquisition of cable television systems
serving more than 260,000 customers in Fairfax County and Fredericksburg,
Virginia from Media General, Inc. in a cash transaction valued at $1.4 billion.

     Also in October 1999, Cox reorganized its partnership with Time Warner
Entertainment Company, L.P., under which Cox acquired control of the cable
television system serving Fort Walton Beach, Florida, and received $104.5
million, and Time Warner acquired control of the cable television system serving
Staten Island, New York. Cox recognized a pre-tax gain of $94.8 million in
connection with this reorganization.

     The consummated acquisitions and exchange of businesses have been accounted
for by Cox under the purchase method of accounting in accordance with APB
Opinion No. 16, "Business Combinations."

1998 Acquisitions and Transactions

     In June 1998, Cox completed the acquisition of a cable television system
serving approximately 115,000 customers in Arizona from Tele-Communications,
Inc. in a cash transaction valued at $250.2 million.

     In October 1998, Cox completed the acquisition of a cable television system
serving approximately 293,000 residential customers and 105,000 hotel units in
the greater Las Vegas area and certain related businesses owned by Prime South
Diversified, Inc. for a combination of common and convertible preferred

                                       56
<PAGE>   59
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock and cash with an aggregate value of approximately $1.3 billion, including
the refinancing of certain Prime South indebtedness.

     The following summarized, unaudited, pro forma consolidated financial
information for the twelve months ended December 31, 1999 and 1998 assumes the
TCA merger and acquisitions of cable television systems from Media General and
Prime South had occurred on January 1 of each year:

<TABLE>
<CAPTION>
                                                          PRO FORMA YEAR ENDED DECEMBER 31
                                                          --------------------------------
                                                              1999                1998
                                                          ------------        ------------
                                                               (THOUSANDS OF DOLLARS,
                                                               EXCEPT PER SHARE DATA)
                                                                    (UNAUDITED)
<S>                                                       <C>                 <C>
Revenue...............................................     $2,708,737          $2,397,752
Operating income......................................        241,049             169,614
Net income............................................        770,479           1,076,341
Earnings per share:
  Basic net income per share..........................     $     1.28          $     1.79
  Diluted net income per share........................           1.25                1.76
</TABLE>

1997 Acquisitions, Dispositions and Transactions

     In January 1997, Cox and TCI exchanged certain cable television systems
owned by Cox serving approximately 319,000 customers for certain cable
television systems owned by TCI serving approximately 296,000 customers. As a
result of the transaction, Cox received TCI's systems in Bellevue/LaVista,
Nebraska and Council Bluffs, Iowa; Chesapeake, Virginia; Scottsdale, Arizona;
North Attleboro/Taunton, Massachusetts; Lincoln, Rhode Island; and St. Bernard,
Louisiana. No significant gain or loss resulted from this transaction.

     In January 1997, Cox exchanged cable television systems in western
Massachusetts and Weymouth, Massachusetts for cable television systems in James
City and York County, Virginia and Pawtucket, Rhode Island. Each of the systems
served approximately 48,000 customers. No gain or loss resulted from this
transaction.

     In March 1997, Cox exchanged its Myrtle Beach, South Carolina cable
television system serving approximately 42,200 customers for Hampton and
Williamsburg, Virginia cable television systems serving approximately 45,300
customers. The transaction included a Texas cable television system serving
approximately 7,000 customers which was purchased and then immediately traded by
Cox. Cox recognized a pre-tax gain of $27.8 million in conjunction with the
exchange.

     In December 1997, Cox exchanged its Lafayette, Indiana cable television
system serving approximately 38,000 customers and the net proceeds from the sale
of a Sun City, California cable television system described below for a suburban
Phoenix cable television system serving approximately 36,000 customers. No gain
or loss resulted from this transaction.

     In September 1997, Cox sold its Sun City cable television system serving
approximately 10,000 customers. An insignificant loss was recognized in
conjunction with the sale. The net proceeds from the sale of Sun City were used
in the Lafayette exchange described above.

     In December 1997, Cox sold its Central Ohio cable television system serving
approximately 85,000 customers for $204.2 million. Cox recognized a pre-tax gain
of $26.4 million in conjunction with the sale.

                                       57
<PAGE>   60
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                     DECEMBER 31
                                                              -------------------------
                                                                 1999          1998
                                                              -----------   -----------
                                                               (THOUSANDS OF DOLLARS)
<S>                                                           <C>           <C>
Land........................................................  $    57,033   $    36,615
Buildings and building improvements.........................      234,757       199,963
Transmission and distribution plant.........................    4,516,654     2,998,328
Miscellaneous equipment.....................................      514,907       347,351
Construction in progress....................................      210,015       120,084
                                                              -----------   -----------
  Plant and equipment, at cost..............................    5,533,366     3,702,341
Less accumulated depreciation...............................   (1,495,130)   (1,050,129)
                                                              -----------   -----------
     Net plant and equipment................................  $ 4,038,236   $ 2,652,212
                                                              ===========   ===========
</TABLE>

6. INVESTMENTS

<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                              ------------------------
                                                                 1999          1998
                                                              -----------   ----------
                                                               (THOUSANDS OF DOLLARS)
<S>                                                           <C>           <C>
Equity method investments...................................  $    77,945   $   90,700
Fair value method investments...............................   11,685,786    5,886,502
Cost method investments.....................................        5,879        3,855
                                                              -----------   ----------
     Total investments......................................  $11,769,610   $5,981,057
                                                              ===========   ==========
</TABLE>

     Summarized combined unaudited financial information for all equity method
investments and Cox's proportionate share (determined based on Cox's ownership
interest in each investment) for 1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                                                    COX'S
                                       COMBINED                              PROPORTIONATE SHARE
                                      YEAR ENDED                                 YEAR ENDED
                                     DECEMBER 31                                 DECEMBER 31
                        --------------------------------------   -------------------------------------------
                           1999         1998          1997         1999             1998             1997
                        ----------   -----------   -----------   ---------   -------------------   ---------
                                                       (THOUSANDS OF DOLLARS)
<S>                     <C>          <C>           <C>           <C>         <C>                   <C>
Revenues..............  $1,732,838   $ 3,358,790   $ 2,589,222   $ 470,331        $ 731,670        $ 541,655
Operating loss........    (350,062)   (2,269,529)   (1,740,697)    (94,911)        (419,453)        (324,465)
Net loss..............    (450,654)   (2,774,548)   (2,243,610)   (121,861)        (516,256)        (421,830)
</TABLE>

<TABLE>
<CAPTION>
                                                                     COMBINED
                                                                    DECEMBER 31
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                           <C>          <C>
Current assets..............................................  $  853,678   $  940,745
Noncurrent assets...........................................   1,566,648    2,036,592
Current liabilities.........................................     398,736      568,068
Noncurrent liabilities......................................   2,236,958    2,058,535
Equity......................................................    (215,368)     350,734
</TABLE>

     Cox's share of the net losses as stated above is not equal to the net
losses from equity method investments reported in the Consolidated Statements of
Operations primarily due to amortization and other expenses. At December 31,
1999, the aggregate unamortized excess of Cox's investments over its equity in
the underlying net assets of the affiliates was approximately $24.0 million and
is being amortized over periods ranging from

                                       58
<PAGE>   61
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

five to 35 years. Amortization included in equity in net losses of affiliates
was $0.9 million for the years ended December 31, 1999 and 1998 and $2.5 million
for the year ended December 31, 1997.

     The investment balances and supplemental financial information above
include the effects of the Cox PCS stock put, AT&T/Teleport merger and the
Sprint PCS reorganization as described below. Additionally, the above balances
include investments in and advances to affiliated companies. The advances are
generally interest-bearing long-term notes receivable, which total $30.8 million
and $14.4 million at December 31, 1999 and 1998, respectively. Interest income
recognized on notes receivable was $3.6 million, $0.4 million and $1.7 million
in 1999, 1998 and 1997, respectively.

     Cox has classified its fair value method investments in publicly traded
entities as available-for-sale securities under SFAS No. 115, which have an
aggregate cost at December 31, 1999 and 1998 of $3,784.8 million and $3,281.2
million, respectively.

EQUITY METHOD INVESTMENTS

     Discovery Communications, Inc.  The principal businesses of Discovery
Communications, Inc. are the advertiser-supported basic cable networks The
Discovery Channel, The Learning Channel, Animal Planet Network, Discovery Europe
and its retail division consisting primarily of over 100 stores of The Nature
Company.

     Cox recorded $11.8 million, $22.0 million and $14.4 million of equity in
net losses in affiliated companies for the years ended December 31, 1999, 1998
and 1997, respectively, related to its investment in Discovery.

     Cox PCS.  In May 1999, Cox exercised its right under the Cox Communications
PCS, L.P. partnership agreement to transfer its remaining 32.0% equity interest
in Cox PCS to Sprint Corporation in exchange for approximately 38.1 million
shares of Sprint PCS common stock -- Series 2. As a result of this transaction,
Cox recognized a pre-tax gain of $908.5 million.

     Cox recorded $65.1 million, $107.8 million and $85.0 million of equity in
net losses in affiliated companies for the years ended December 31, 1999, 1998
and 1997, respectively, related to its investment in Cox PCS.

     TWC Cable Partners.  In October 1999, Cox reorganized its partnership with
Time Warner, under which Cox acquired control of the cable television system
serving Fort Walton Beach, Florida and received $104.5 million, and Time Warner
acquired control of the cable television system serving Staten Island, New York.
Cox recognized a pre-tax gain of $94.8 million in connection with this
reorganization. Cox's share of equity in net losses in affiliated companies were
nominal for the years ended December 31, 1999, 1998 and 1997 with respect to its
investment in TWC Cable Partners.

FAIR VALUE METHOD INVESTMENTS

     Liberate Technologies, Ltd.  Liberate Technologies develops and sells
software that enables the delivery of Internet-enhanced content and applications
to information appliances, such as cable television set-top boxes, game consoles
and personal digital assistants. In May 1999, Cox purchased 1,041,666 shares of
Liberate's common stock for $5.0 million. Liberate completed an initial public
offering of its common stock in July 1999. In January 2000, Liberate's
outstanding shares split two-for-one. Accordingly, all references to the number
of Liberate shares in the Consolidated Financial Statements and notes herein
have been restated to give effect to this split.

     Sprint PCS/Sprint Spectrum.  Sprint PCS is a personal communications
services provider and an indirect wholly-owned subsidiary of Sprint Corporation.
Prior to November 1998, Cox, TCI, Comcast Corporation and Sprint Corporation
engaged in the wireless communications business, primarily personal
communications services, through a limited partnership, Sprint Spectrum L.P., in
which Cox owned a 15.0%
                                       59
<PAGE>   62
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest. Sprint Spectrum was the holder of 29 broadband personal communications
services licenses. Cox recorded $330.0 million and $225.2 million of equity in
net losses in affiliated companies for the years ended December 31, 1998 and
1997, respectively, related to its investment in Sprint Spectrum.

     In addition, subsidiaries of Cox, TCI and Sprint also owned a partnership,
PhillieCo L.P., which held a broadband personal communications services license
for the Philadelphia MTA and was affiliated with the Sprint PCS nationwide
network. Prior to November 1998, Cox owned a 17.6% interest in PhillieCo. Equity
in net losses in affiliated companies for the year ended December 1998 and 1997
related to Cox's investment in PhillieCo were nominal.

     In November 1998, as a result of a reorganization by Sprint Corporation,
both the Sprint Spectrum and PhillieCo partnerships were combined into a new
publicly traded tracking stock of Sprint Corporation, Sprint PCS. Cox's equity
ownership in both Sprint Spectrum and PhillieCo was converted into common
shares, convertible preferred stock and warrants of Sprint PCS. Cox recognized a
$769.5 million pre-tax gain in connection with this reorganization in fourth
quarter 1998 based on the estimated fair market value of the common stock,
convertible preferred stock and warrants received and has accounted for these
instruments under the fair value method.

     At December 31, 1999, Cox's investment in Sprint PCS, including the shares
received from the Cox PCS put described above, was comprised of 132.8 million
shares of Sprint PCS common stock -- Series 2 and warrants to purchase Sprint
PCS common stock -- Series 2 and convertible preferred stock which are
exercisable or convertible into 10.3 million shares of Sprint PCS common
stock -- Series 2.

     In November 1999, Cox issued 14,375,000 exchangeable subordinated
debentures due 2029, which are referred to as PRIZES. The PRIZES are indexed to
the trading price of Sprint PCS common stock -- Series 1 and are exchangeable by
the holder for cash. (See Note 9.) In December 1999, Cox sold 3.9 million shares
of its Sprint PCS common stock -- Series 2 for approximately $197.3 million and
recognized a pre-tax gain of approximately $165.6 million. Cox sold an
additional 16.1 million shares of Sprint PCS common stock -- Series 2 in January
and February 2000 and expects to recognize a gain in first quarter 2000. Also in
February 2000, Sprint PCS' outstanding shares split two-for-one. Accordingly,
all references to the number of Sprint PCS shares in the Consolidated Financial
Statements and notes herein have been restated to give effect to this split.

     AT&T/Teleport.  Prior to April 1998, Cox owned 34.4% of the Class B common
stock of Teleport Communications Group, Inc. ("Teleport"), which represented
22.4% of total shares outstanding and 32.7% of the voting power of Teleport.
Cox's equity ownership interest in Teleport was accounted for using a quarter
lag. In April 1998, Teleport completed the acquisitions of another entity for a
combination of stock and cash consideration. As a result of Teleport's stock
issuance, Cox recognized a pre-tax gain of $150.4 million in September 1998.

     In July 1998, Cox exchanged its interest in Teleport for 55.3 million
shares of AT&T common stock. As a result of the exchange, Cox recognized a
pre-tax gain of $1,719.3 million in September 1998 and accounted for the AT&T
common stock under the fair value method. In addition, Cox sold 5.0 million
shares of AT&T common stock in December 1998 with aggregate proceeds of $215.6
million and recognized a pre-tax gain of $30.4 million.

     In April 1999, AT&T's outstanding shares split three-for-two. Accordingly,
all references to the number of AT&T shares in the Consolidated Financial
Statements and notes herein have been restated to give effect to this split. In
March 2000, Cox's remaining 50.3 million shares of AT&T common stock were
exchanged for the stock of AT&T subsidiaries that own cable television systems
serving approximately 495,000 customers and certain other assets and
liabilities, including cash. See Note 4.

                                       60
<PAGE>   63
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Excite@Home.  Excite@Home, formerly @Home Corporation, is both an Internet
service and content provider and supplier of comprehensive Internet navigation
services. Excite@Home provides customers high-speed access to the Internet via a
cable modem and the cable television broadband network. In May 1999, @Home
Corporation acquired Excite and changed its name to Excite@Home.

     Telewest Communications plc.  Telewest Communications plc ("Telewest") is a
company that operates and constructs cable television and telephony systems in
the United Kingdom. In December 1997, Cox recognized a $183.9 million charge due
to a decline in the fair market value of its investment in Telewest considered
to be other-than-temporary. In January 1999, Cox sold its entire interest in
Telewest for $727.9 million in cash and recognized a pre-tax gain of $433.1
million.

COST METHOD INVESTMENTS

     PrimeStar Partners, L.P.  Prior to April 1998, Cox owned a 10.4% interest
in PrimeStar Partners, L.P., a provider of direct broadcast satellite services.
In April 1998, Cox contributed its 10.4% partnership interest and net assets in
and operations of PrimeStar Partners, L.P. to a newly formed entity, PrimeStar,
Inc., in exchange for a 9.43% interest and $74.0 million in cash. As a result of
this transaction, Cox recorded a $37.3 million pre-tax gain based on the
estimated fair market value of the common stock received.

     During fourth quarter 1998, Cox concluded, after careful analysis, that it
would not recover its investment and recognized $131.4 million in charges
related to its investment in PrimeStar, Inc. In April 1999 PrimeStar, Inc.
completed the sale of its direct broadcast satellite service to Hughes
Electronics Corporation (a division of General Motors Corporation and the parent
company of DirecTV, a direct broadcast satellite service competing with Cox's
cable television systems) for $1.3 billion in cash and stock.

     E! Entertainment Television.  In December 1997, Cox sold its 10.4% interest
in E! Entertainment Television for $57.0 million, resulting in a pre-tax gain of
$44.9 million.

OTHER

     Cox also has other equity method, fair value method and cost method
investments and does not consider these other investments to be individually
significant to its consolidated financial position, results of operations or
liquidity.

7. DEFERRED CHARGES

<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                              ------------------------
                                                                 1999          1998
                                                              -----------   ----------
                                                               (THOUSANDS OF DOLLARS)
<S>                                                           <C>           <C>
Franchise and license acquisition costs and excess cost over
  fair value of net assets acquired.........................  $10,738,101   $4,367,404
Other.......................................................       17,335       10,224
                                                              -----------   ----------
  Total.....................................................   10,755,436    4,377,628
Less accumulated amortization...............................     (581,402)    (417,722)
                                                              -----------   ----------
  Net deferred charges......................................  $10,174,034   $3,959,906
                                                              ===========   ==========
</TABLE>

                                       61
<PAGE>   64
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES

     Current and deferred income tax expenses (benefits) are as follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31
                                                       --------------------------------
                                                         1999       1998        1997
                                                       --------   ---------   ---------
                                                            (THOUSANDS OF DOLLARS)
<S>                                                    <C>        <C>         <C>
Current:
  Federal............................................  $164,338   $(179,684)  $(152,623)
  State..............................................    49,048      29,836      (2,694)
                                                       --------   ---------   ---------
     Total current...................................   213,386    (149,848)   (155,317)
                                                       --------   ---------   ---------
Deferred:
  Federal............................................   318,672     885,064      95,932
  State..............................................    47,907      87,599       5,889
                                                       --------   ---------   ---------
     Total deferred..................................   366,579     972,663     101,821
                                                       --------   ---------   ---------
     Net income tax expense (benefit)................  $579,965   $ 822,815   $ (53,496)
                                                       ========   =========   =========
</TABLE>

     The difference between net income tax expense (benefit) and income taxes
expected at the U.S. statutory federal income tax rate of 35% are as indicated
below:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31
                                                         ------------------------------
                                                           1999       1998       1997
                                                         --------   --------   --------
                                                             (THOUSANDS OF DOLLARS)
<S>                                                      <C>        <C>        <C>
Federal tax expense (benefit) at statutory rates on
  income (loss) before income taxes....................  $518,171   $732,720   $(66,499)
State income taxes, net of federal benefit.............    63,021     76,333     (7,404)
Amortization of acquisition adjustments................    26,104     18,450     18,491
Non-deductible preferred stock dividends of a
  subsidiary...........................................        --         --      1,169
Other, net.............................................   (27,331)    (4,688)       747
                                                         --------   --------   --------
     Net income tax expense (benefit)..................  $579,965   $822,815   $(53,496)
                                                         ========   ========   ========
</TABLE>

     Significant components of Cox's net deferred tax liability are as follows:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31
                                                              -------------------------
                                                                 1999          1998
                                                              -----------   -----------
                                                               (THOUSANDS OF DOLLARS)
<S>                                                           <C>           <C>
Depreciation and amortization...............................  $(2,324,083)  $  (901,682)
Equity in net losses of affiliated companies................   (1,339,886)   (1,000,524)
Unrealized gain on securities...............................   (3,041,343)   (1,006,209)
Net operating losses........................................       27,270         9,447
Other.......................................................        7,521        12,332
                                                              -----------   -----------
     Net deferred tax liability.............................  $(6,670,521)  $(2,886,636)
                                                              ===========   ===========
</TABLE>

     Cox is currently subject to various federal and state income tax return
audits. Cox does not believe that current income tax audits will have a material
impact on its financial statements.

                                       62
<PAGE>   65
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. DEBT

<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                           <C>          <C>
Revolving credit facilities.................................  $       --   $  349,998
Commercial paper............................................     514,516    1,026,164
Medium-term notes...........................................     423,938      423,812
6.4% Notes due August 1, 2008...............................     198,497      198,322
6.8% Debentures due August 1, 2028..........................     197,365      197,273
6.15% Reset Put Securities due August 1, 2033...............     248,203      248,150
6.375% Notes due June 15, 2000..............................     424,883      424,648
6.875% Notes due June 15, 2005..............................     365,196      363,819
7.625% Debentures due June 15, 2025.........................     132,436      132,234
6.5% Notes due November 15, 2002............................     199,745      199,658
7.25% Debentures due November 15, 2015......................      99,253       99,207
Floating Rate Notes due August 15, 2000.....................     525,000           --
7.0% Notes due August 15, 2001..............................     299,728           --
7.5% Notes due August 15, 2004..............................     373,821           --
7.75% Notes due August 15, 2006.............................     399,227           --
7.875% Notes due August 15, 2009............................     399,548           --
6.53% Debentures due February 1, 2028.......................     190,000           --
Exchangeable Subordinated Debentures due November 15,
  2029......................................................   1,272,188           --
Floating Rate Reset Notes due June 15, 2009.................          --      147,425
Capitalized lease obligations...............................      91,176       69,898
Other.......................................................      21,075       39,551
                                                              ----------   ----------
  Total debt................................................  $6,375,795   $3,920,159
                                                              ==========   ==========
</TABLE>

Shelf Registrations

     In April 1996, Cox filed a shelf registration statement on Form S-3 with
the Securities and Exchange Commission ("SEC") under which Cox may from time to
time offer and issue debentures, notes, bonds or other evidences of indebtedness
for a maximum aggregate amount of $750.0 million. As of December 31, 1999, Cox
had issued $425.0 million principal amount of medium-term notes under this shelf
registration.

     In July 1999, Cox and certain wholly-owned Cox financing trusts filed a
shelf registration statement on Form S-3 with the SEC (the "July 1999 shelf
registration") under which Cox may from time to time offer and issue shares of
its Class A common stock and preferred stock, as well as debentures, bonds,
notes and other evidences of indebtedness, stock purchase contracts and stock
purchase units, and the Cox trusts may issue preferred securities and capital
securities for an aggregate offering amount of up to $8.0 billion. Upon filing
of this shelf registration, Cox transferred the $2.0 billion of securities
registered on its April 1999 shelf registration.

     In August 1999, Cox issued $2.0 billion aggregate principal amount of
senior debt securities under the July 1999 shelf registration with maturity
dates ranging from August 15, 2000 to August 15, 2009 and interest rates ranging
from London Interbank Offered Rate ("LIBOR") plus 60 basis points to 7.875%,
less a discount of $2.9 million and offering costs of $9.2 million.

                                       63
<PAGE>   66
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revolving Credit Facilities

     As of December 31, 1999, Cox had a 364-day credit agreement, which matures
on September 26, 2000, and a 5-year credit agreement, which matures on October
9, 2002, providing for borrowings of up to $1.5 billion and $1.2 billion,
respectively. As of December 31, 1999, Cox had no borrowings outstanding under
either credit agreement. These agreements are committed to back outstanding
commercial paper as discussed below.

     At Cox's option, the interest rates on borrowings under the revolving
credit agreements are based on LIBOR, the certificate of deposit rate plus
varying percentages or an alternate base rate. The weighted-average interest
rate for outstanding debt on the revolving credit facilities for both the years
ended December 31, 1999 and 1998 was 6.1%. The credit facilities impose a
commitment fee on the unused portion of the total amount available based on a
ratio of debt to operating cash flow and a utilization fee based on the level of
borrowings.

     Cox's current credit facilities contain certain financial covenants which,
among other provisions, restrict the payment of cash dividends or the repurchase
of capital stock if certain requirements are not met as to the ratio of debt to
operating cash flow. Cox was in compliance with its credit facility covenants at
December 31, 1999.

Commercial Paper

     As of December 31, 1999, Cox had a $2.5 billion commercial paper program.
The commercial paper program is backed by amounts available under the revolving
credit facilities. The weighted-average interest rates for outstanding
commercial paper for the years ended December 31, 1999 and 1998 were 5.4% and
5.8%, respectively.

Medium Term Notes

     At December 31, 1999 and 1998, Cox had outstanding borrowings under several
fixed rate medium term notes due in varying amounts through 2028 and interest is
fixed at rates ranging from 6.7% to 7.2%.

Exchangeable Subordinated Debentures

     In November 1999, Cox issued 14,375,000 Exchangeable Subordinated
Debentures due November 2029, called PRIZES, under the July 1999 shelf
registration, for aggregate proceeds of approximately $1.3 billion, less
offering costs of approximately $35.0 million. The PRIZES are unsecured,
subordinated obligations, ranking junior in right of payment to all of Cox's
existing and future senior indebtedness.

     Upon issuance, each PRIZES had an original principal amount of $88.50. The
original principal amount of each PRIZES is indexed to the trading price of
Sprint Corporation's PCS common stock -- Series 1 (the "Sprint PCS Stock"). The
original principal amount per PRIZES was based on the NYSE closing price of the
Sprint PCS Stock on November 22, 1999. The minimum amount payable upon
redemption or maturity of a PRIZES, which is called the contingent principal
amount, was initially equal to the original principal amount. The contingent
principal amount will be reduced if Sprint Corporation pays a regular cash
dividend or if there are other distributions on or in respect of the Sprint PCS
Stock.

     The maximum number of shares of Sprint PCS Stock attributable to each
PRIZES upon issuance was initially equal to one share, and the minimum number
was initially equal to 0.8621 shares. The number of shares of Sprint PCS Stock
referenced by each PRIZES is subject to dilution adjustments and, therefore, as
a result of Sprint's two-for-one stock split in February 2000, the number of
reference shares attributable to each PRIZES is now two. The maximum and minimum
number of reference shares will be redetermined on

                                       64
<PAGE>   67
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

November 15, 2002, or in the case of a redemption of the PRIZES on a date which
is between November 6 and November 15, 2002, effective on such redemption date.

     Interest on the PRIZES is payable quarterly, subject to deferral at Cox's
option, equal to the sum of $1.7147 per PRIZES, reflecting a basic interest rate
of 7.75% per year on the original principal amount, through November 15, 2002,
and thereafter in an amount equal to $0.4425 per PRIZES, reflecting a basic
interest rate of 2% per year on the original principal amount, in each case plus
an amount equal to any regular cash dividends paid on the Sprint PCS Stock. Cox
will also distribute to holders of the PRIZES, as additional interest, any
property or the cash value of any property distributed on or in respect of the
Sprint PCS Stock other than publically traded equity securities, which will
themselves become reference shares.

     At maturity, holders of the PRIZES are entitled to receive, in cash, an
amount equal to the higher of (a) the then contingent principal amount of the
PRIZES or (b) the sum of the then current market value of the maximum number of
shares of the reference shares attributable to each PRIZES on the maturity date
and any accumulated and unpaid distributions. Prior to maturity, the PRIZES are
exchangeable at the holders' option at any time for an amount of cash equal to
100% of the then market value of the minimum number of shares of the reference
shares attributable to the PRIZES and any accumulated and unpaid distributions.

     The PRIZES are redeemable by Cox at any time at a redemption price equal to
the sum of (a) the higher of (1) the contingent principal amount of the PRIZES
or (2) the sum of the then current market value of the maximum number of shares
of the reference shares attributable to each PRIZES on the redemption date and
any accumulated and unpaid distributions, plus, in the case of (1) or (2), the
final period distribution, and (b) an amount equal to $20.3095 per PRIZES if Cox
redeems the PRIZES prior to February 15, 2000, and that amount as successively
reduced by $1.7147 per PRIZES if redeemed prior to each following quarterly
distribution date through November 15, 2002.

     The PRIZES are being accounted for as an indexed debt instrument pursuant
to EITF Issue No. 86-28, "Accounting Implications of Indexed Debt Instruments,"
since the maturity value of the PRIZES is dependent upon the market value of the
Sprint PCS Stock. Therefore, the carrying value of the PRIZES will be adjusted
through earnings in Cox's consolidated statement of operations as the market
value of the Sprint PCS Stock increases or decreases such that Cox would be
required to pay an amount of contingent principal in excess of the original
principal amount of the PRIZES. No amount of contingent principal for the PRIZES
was owed by Cox as of December 31, 1999.

Other

     In June 1999, Cox called and repaid its $150.0 million principal amount of
Floating Rate Reset Notes prior to their 2009 maturity date and incurred nominal
fees representing the present value of the future interest expense differential
that would have been paid had the debt been held to maturity.

     In August 1999, Cox completed its merger with TCA and assumed indebtedness
of $540.0 million. Upon completion of the merger, Cox extinguished $340.0
million of the TCA debt. The remaining $200.0 million of debentures mature in
February 2028, bearing interest at 6.53% per year. In August 1999, Cox purchased
$10.0 million of these debentures to satisfy certain financial debt covenants.

     In January 2000, Cox borrowed $500.0 million under a floating rate bridge
loan which is due and payable on March 31, 2000.

     Maturities of long-term debt, including debt discount, for each of the five
years following December 31, 1999, are $979.4 million, $362.3 million, $221.6
million, $555.5 million and $483.3 million, respectively. Commercial paper
outstanding at December 31, 1999 is classified as long-term as Cox intends to
refinance these borrowings on a long-term basis, either through continued
commercial paper borrowings or utilization of other available credit facilities.
Included in the maturities of long-term debt are obligations under capital

                                       65
<PAGE>   68
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

leases of $23.3 million, $21.2 million, $18.4 million, $14.1 million and $9.5
million for each of the five years following December 31, 1999, respectively.

10. COX-OBLIGATED CAPITAL AND PREFERRED SECURITIES OF SUBSIDIARY TRUSTS

     In August 1999, Cox Trust II (the "Trust"), a statutory business trust
formed under the laws of the State of Delaware and a wholly-owned consolidated
subsidiary of Cox, issued 13 million FELINE PRIDES and 1.3 million Trust capital
securities, under the July 1999 shelf registration, with net aggregate proceeds
of $650.0 million, less offering costs of $19.5 million. The Trust invested the
proceeds in 7% Senior Debentures due 2004 (the "Debentures") issued by Cox,
which represent the sole assets of the Trust. The Debentures are unsecured, bear
interest at a rate of 7% per year payable in cash on a quarterly basis and
mature in August 2004. The obligations of the Trust related to the FELINE PRIDES
and the Trust capital securities are guaranteed by Cox to the extent Cox makes
payments pursuant to the Debentures. This guarantee, when taken together with
Cox's obligations under the Debentures and the indenture governing the
Debentures and Cox's obligations under the amended and restated declaration of
trust governing the Trust, provides a full and unconditional guarantee of the
Trust's obligation under the capital securities of the Trust. Upon issuance, the
FELINE PRIDES consisted of 11.7 million Income PRIDES and 1.3 million Growth
PRIDES, with a public offering price of $50 and $43.114, respectively. The stand
alone Trust capital securities had a public offering price of $48.844 per
security.

     Each Income PRIDES consists of a capital security of the Trust and a
forward purchase contract under which the holder is required to purchase common
stock from Cox on August 16, 2002. The Trust capital securities forming a part
of the Income PRIDES and the stand alone Trust capital securities bear interest,
in the form of distributions, at an annual rate of 7% payable in cash on a
quarterly basis. On or prior to the fifth business day preceding August 16,
2002, the holders of Income PRIDES may elect to participate in a remarketing of
the Trust capital securities in order to satisfy the holders' obligations under
the related forward purchase contracts forming a part of the Income PRIDES in
lieu of satisfying their obligations in cash. The holders of the stand-alone
Trust capital securities may also elect to participate in this remarketing.

     Each Growth PRIDES consists of a 5% undivided beneficial ownership in a
zero-coupon U.S. Treasury security, having a principal amount at maturity equal
to $1,000, and a forward purchase contract under which the holder is required to
purchase common stock from Cox on August 16, 2002. The forward purchase
contracts forming a part of the Growth PRIDES entitle the holders to unsecured
contract adjustment payments of .25% of $50 per year payable in cash on a
quarterly basis. The zero-coupon U.S. Treasury securities are pledged to Cox to
secure the holders' obligations under the forward purchase contracts forming a
part of the Growth PRIDES.

     The forward purchase contracts require the holder to purchase a minimum of
1.1962 shares and a maximum of 1.4414 shares of Cox Class A common stock per
forward purchase contract depending upon the average closing price per share of
Cox's Class A common stock for a 20 consecutive day period ending on the third
trading day immediately preceding August 16, 2002.

     Interest on the Debentures, and therefore the distribution rate on the
Trust capital securities, will be reset on August 16, 2002 to a rate whereby the
Trust capital securities have an approximate market value of 100.5% of $50 per
security on the third business day immediately preceding August 16, 2002,
subject to a maximum reset rate equal to the two-year benchmark U.S. Treasury
rate plus 200 basis points.

     The Debentures and, thus, the Trust capital securities, are redeemable at
Cox's option upon the occurrence of certain events based on a stated liquidation
equal to the unpaid principal amount plus accumulated and unpaid distributions.
Following any redemption prior to August 16, 2002, holders of the Income PRIDES
will own a portfolio of U.S. Treasury securities as a component of their Income
PRIDES.

                                       66
<PAGE>   69
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Upon issuance of the FELINE PRIDES and the Trust capital securities, Cox
recorded an increase of $15.0 million to shareholders' equity, which is equal to
the fair value of the forward purchase contracts, and a liability of $0.8
million, with a corresponding reduction to shareholders' equity, which is equal
to the present value of the total future contract adjustment payments to be made
under the Growth PRIDES. The FELINE PRIDES are presented as mezzanine equity in
Cox's Consolidated Balance Sheet and the distributions paid by the Trust, as
well as the contract adjustment payments described above, are presented as
minority interest in Cox's Consolidated Statement of Operations. The Income
PRIDES and the Growth PRIDES are listed on the NYSE under the symbols "COXPrI"
and "COXPrG," respectively.

     In October 1999, Cox RHINOS Trust (the "RHINOS Trust"), a statutory
business trust formed under the laws of the State of Delaware and a wholly-owned
consolidated subsidiary of Cox, issued 500,000 Redeemable Hybrid Income
Overnight Shares ("RHINOS") to a special purpose entity organized by The Bank of
America, N.A., for aggregate proceeds of $500.0 million, less offering costs of
$11.3 million. The RHINOS are long-term auction rate reset preferred securities,
representing undivided beneficial interests in the assets of the RHINOS Trust.
The RHINOS Trust invested the proceeds in Senior Notes due 2029 (the "Notes")
issued by Cox, which represent the sole assets of the RHINOS Trust. The Notes
bear interest and, thus, the RHINOS pay distributions, at a floating rate based
on LIBOR plus 75 points per year payable in cash on a quarterly basis and mature
in October 2029. The obligations of the RHINOS Trust related to the RHINOS are
unconditionally guaranteed by Cox to the extent Cox makes payments pursuant to
the Notes.

     The RHINOS are redeemable at Cox's option with the proceeds from one or
more public offerings of its Class A common stock underwritten by Banc of
America Securities LLC. If the RHINOS remain outstanding on or after October 6,
2002 or if the closing price of Cox's Class A common stock falls below $28 per
share, subject to adjustment upon the occurrence of certain events, Cox may be
required to remarket the RHINOS in a private auction to qualified institutional
investors. The interest rate and maturity date of the RHINOS would be reset upon
completion of the remarketing.

     The RHINOS are presented as mezzanine equity in Cox's consolidated balance
sheet and the distributions paid by the RHINOS Trust are presented as minority
interest in Cox's Consolidated Statement of Operations.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

     With respect to financial instruments, Cox has estimated the fair values of
such instruments using available market information and 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 amounts of cash, accounts receivable, other assets, accounts
payable, deferred income and amounts due to/from CEI are reasonable estimates of
their fair value at December 31, 1999 and 1998.

     The estimated fair values of debt instruments are based on discounted cash
flow analyses using Cox's incremental borrowing rate for similar types of
borrowing arrangements and dealer quotations. The commercial paper and floating
rate notes at December 31, 1999 and the revolving credit agreements, commercial
paper and the Reset Notes at December 31, 1998 bear interest at current market
rates and, thus, approximate fair value. In addition, the RHINOS at December 31,
1999 bear interest at current market rates and, thus, approximate fair value.
Cox is exposed to interest rate volatility with respect to the foregoing
variable rate debt instruments.

     The estimated fair value of Cox's remaining debt instruments at December
31, 1999 was $3,858.3 million compared to a carrying amount of $4,064.1 million.
The estimated fair value of the remaining debt instruments at December 31, 1998
was $2,385.7 million compared to a carrying amount of $2,393.6 million. In
                                       67
<PAGE>   70
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

addition, the effect of a hypothetical one percentage point decrease in interest
rates would increase the estimated fair value of the remaining debt instruments
with a carrying amount of $4,064.1 million to $4,065.3 million at December 31,
1999 and $2,393.6 million to $2,540.6 million at December 31, 1998.

     The estimated fair value of the FELINE PRIDES at December 31, 1999 was
$884.0 million compared to a carrying amount of $642.3 million. In addition, the
effect of a hypothetical one percentage point decrease in interest rates would
increase the estimated fair value of the FELINE PRIDES with a carrying amount of
$642.3 million to $886.0 million at December 31, 1999. The estimated fair value
of the PRIZES at December 31, 1999 was $1,400.0 million compared to a carrying
amount of $1,272.2 million. In addition, the effect of a hypothetical one
percentage point decrease in interest rates would increase the estimated fair
value of the PRIZES with a carrying amount of $1,272.2 million to $1,417.0
million at December 31, 1999.

     The fair values of some of Cox's investments are estimated based on quoted
market prices for those or similar investments. For cost method investments for
which there are no quoted market prices, a reasonable estimate of fair value was
not practicable as such estimate could not be made without incurring excessive
costs.

12. RETIREMENT PLANS

Qualified Pension Plan

     Cox maintains a qualified noncontributory defined benefit pension plan.
Plan assets consist primarily of common stock, investment-grade corporate bonds,
cash and cash equivalents and U.S. government obligations. The pension plan
calls for benefits to be paid to eligible employees at retirement based
primarily upon years of service with Cox and compensation rates near retirement.
Current policy is to fund the pension plan in an amount that falls between the
minimum contribution required by ERISA and maximum tax deductible contribution.

     Total pension expense was $5.7 million, $5.3 million and $4.0 million for
the years ended December 31, 1999, 1998 and 1997, respectively.

                                       68
<PAGE>   71
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The changes in the benefit obligations, changes in plan assets and funded
status of the pension plan for the periods ended December 31, 1999 and 1998 were
as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31
                                                               -----------------------
                                                                  1999         1998
                                                               ----------   ----------
                                                               (THOUSANDS OF DOLLARS)
<S>                                                            <C>          <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
  Projected benefit obligation at beginning of year.........    $ 95,219     $ 75,676
  Service cost..............................................      10,215        7,480
  Interest cost.............................................       7,683        6,141
  Plan amendments...........................................          --            1
  Actuarial loss (gain).....................................      (9,457)       7,838
  Benefits paid.............................................      (2,842)      (1,917)
                                                                --------     --------
  Projected benefit obligation at end of the year...........     100,818       95,219
                                                                --------     --------
CHANGE IN PLAN ASSETS
  Fair value of plan assets at beginning of year............    $109,131     $ 95,083
  Actual return on plan assets..............................      16,765       14,612
  Employer contributions....................................      11,820        1,353
  Benefits paid.............................................      (2,842)      (1,917)
                                                                --------     --------
  Fair value of plan assets at end of year..................     134,874      109,131
                                                                --------     --------
Funded status of plan.......................................      34,056       13,912
Unrecognized actuarial losses...............................     (31,138)     (14,205)
Unrecognized prior service cost.............................         577          657
Unrecognized net transition obligation......................        (630)        (869)
                                                                --------     --------
Prepaid (accrued) benefit cost..............................    $  2,865     $   (505)
                                                                ========     ========
</TABLE>

     The components of net periodic benefit cost and the weighted-average
assumptions used in accounting for pension benefits follow:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31
                                                            ---------------------------
                                                             1999      1998      1997
                                                            -------   -------   -------
                                                              (THOUSANDS OF DOLLARS)
<S>                                                         <C>       <C>       <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
  Service cost............................................  $10,215   $ 7,480   $ 5,775
  Interest cost...........................................    7,683     6,141     5,296
  Expected return on plan assets..........................   (9,289)   (7,873)   (7,047)
  Prior service cost amortization.........................       80        80        80
  Actuarial gain..........................................       --        --      (198)
  Transition amount amortization..........................     (239)     (239)     (239)
                                                            -------   -------   -------
  Net periodic total cost.................................  $ 8,450   $ 5,589   $ 3,667
                                                            =======   =======   =======
WEIGHTED-AVERAGE PENSION ASSUMPTIONS
  Discount rate...........................................     8.00%     6.75%     7.25%
  Expected return on plan assets..........................     9.00      9.00      9.00
  Rate of compensation increase...........................     5.75      4.50      5.00
</TABLE>

Nonqualified Pension Plan

     Certain key employees of Cox participate in an unfunded, nonqualified
supplemental pension plan of CEI which has generally the same benefit payout
formula as the pension plan. Total pension expense recorded by

                                       69
<PAGE>   72
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cox for the nonqualified CEI plan was $1.8 million for the years ended December
31, 1999 and 1998, respectively, and $1.5 million for the year ended December
31, 1997.

Other Retirement Plans

     CEI provides certain health care and life insurance benefits to
substantially all retirees of Cox. Post-retirement expense allocated to Cox by
CEI was $1.7 million, $1.6 million and $1.2 million for the years ended December
31, 1999, 1998 and 1997, respectively. The accumulated post-retirement benefit
obligation ("APBO") attributable to Cox employees and retirees was $12.9 million
and $16.5 million at December 31, 1999 and 1998, respectively. The funded status
of the post-retirement plan covering the employees of Cox is not determinable.
The APBO for the post-retirement plan of CEI substantially exceeded the fair
value of assets held in the plan at December 31, 1999 and 1998.

     Actuarial assumptions used to determine the APBO include a discount rate of
8.00%, 6.75%, and 7.25% for the years ended December 31, 1999, 1998 and 1997
respectively, and an expected long-term rate of return on plan assets of 9.0%
for all three years. For the years ended December 31, 1999, 1998 and 1997, the
assumed health care cost trend rate for retirees is 9.5%, 10.0%, and 10.5%,
respectively. For participants prior to age 65, the trend rate gradually
decreases to 5.5% by year 2007 and remains level thereafter. For retirees at age
65 or older, this rate decreases to 5.0% by year 2008. A 1% change in assumed
health care cost trend rates would have the following effects as of December 31,
1999:

<TABLE>
<CAPTION>
                                                              1% INCREASE   1% DECREASE
                                                              -----------   -----------
                                                               (THOUSANDS OF DOLLARS)
<S>                                                           <C>           <C>
Effect on service and interest cost components..............    $  503        $  (479)
Effect on other post-retirement benefit obligations.........     6,208         (5,470)
</TABLE>

     In addition, substantially all of Cox's employees are eligible to
participate in the Savings and Investment plan. Under the terms of the plan, Cox
matches 50.0% of employee contributions up to a maximum of 6.0% of the
employee's base salary. Cox's expense under the plan was $7.6 million, $5.3
million and $4.6 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

13. STOCK COMPENSATION PLANS

     At December 31, 1999, Cox had two stock-based compensation plans: a
Long-Term Incentive Plan (the "LTIP") and an Employee Stock Purchase Plan (the
"ESPP"). Cox applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for its plans and accordingly, since the grant price of
stock compensation awards equals or exceeds the current market price at the
grant date, no compensation cost was recognized in 1999, 1998 and 1997 for these
plans. Had compensation cost for the LTIP and ESPP been determined based on the
fair value at the grant dates for awards in 1999, 1998 and 1997 consistent with
the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," Cox's
net income (loss) and basic and diluted net income (loss) per share would have
been the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31
                                                -----------------------------------------------
                                                    1999             1998             1997
                                                ------------    --------------    -------------
                                                 (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                             <C>             <C>               <C>
As reported:
  Net income (loss).........................     $ 881,928       $ 1,270,672       $ (136,492)
  Basic net income (loss) per share.........     $    1.54       $      2.33       $    (0.25)
  Diluted net income (loss) per share.......          1.51              2.30            (0.25)
Pro forma:
  Net income................................     $ 872,928       $ 1,265,037       $ (146,465)
  Basic net income (loss) per share.........     $    1.52       $      2.32       $    (0.27)
  Diluted net income (loss) per share.......          1.50              2.29            (0.27)
</TABLE>

                                       70
<PAGE>   73
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1999, 1998 and 1997: expected volatility of 32.6%, 30.0% and 28.0%,
respectively, no payment of dividends, expected life of six years for 1999 and
1998 and four years for 1997 after vesting and risk-free interest rates of 5.5%,
5.7% and 6.3%, respectively.

     Under the LTIP, executive officers and selected key employees are eligible
to receive awards of various forms of equity-based incentive compensation,
including stock options, stock appreciation rights, stock bonuses, restricted
stock awards, performance units and phantom stock. Cox has reserved 12,000,000
shares of Class A common stock for issuance under the LTIP. The LTIP is to be
administered by the Compensation Committee of the Cox Board of Directors or its
designee.

     Options granted may be "Incentive Stock Options" or "Nonqualified Stock
Options." The exercise prices of the options are determined by the Compensation
Committee when the options are granted, subject to a minimum price of the fair
market value of the Class A common stock on the date of grant. These options
become exercisable over a period of three to five years from the date of grant
and expire 10 years from the date of grant. During 1998 and 1997, the
acceleration provisions were met based on the market value of the shares,
effectively resulting in all outstanding options becoming fully vested. During
1999, options granted on January 1 and February 1 also met the acceleration
provisions and became fully vested.

     A summary of the status of Cox's stock options granted under the LTIP as of
December 31, 1999, 1998 and 1997 and changes during the years ending on those
dates is presented below:

<TABLE>
<CAPTION>
                                           1999                     1998                    1997
                                   ---------------------   ----------------------   ---------------------
                                               WEIGHTED-                WEIGHTED-               WEIGHTED-
                                                AVERAGE                  AVERAGE                 AVERAGE
                                               EXERCISE                 EXERCISE                EXERCISE
                                    SHARES       PRICE       SHARES       PRICE      SHARES       PRICE
                                   ---------   ---------   ----------   ---------   ---------   ---------
<S>                                <C>         <C>         <C>          <C>         <C>         <C>
Outstanding at beginning of
  year...........................  4,518,156    $12.20      4,624,820    $ 9.79     4,015,390    $ 9.17
  Granted........................  1,144,870     32.91      1,109,134     19.64     1,330,258     11.32
  Exercised......................   (552,361)    13.68     (1,185,906)     9.56      (479,730)     8.94
  Canceled.......................    (76,318)    33.54        (29,892)    19.16      (241,098)     9.63
                                   ---------               ----------               ---------
Outstanding at end of year.......  5,034,347     16.42      4,518,156     12.20     4,624,820      9.79
                                   =========               ==========               =========
Options exercisable at
  year-end.......................  4,810,543    $15.42      4,518,156    $12.20     4,624,820    $ 9.79
Weighted-average grant date fair
  value of options granted
  during the year................     $15.69                    $8.06                   $5.11
</TABLE>

                                       71
<PAGE>   74
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:

<TABLE>
<CAPTION>
                          OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                 -------------------------------------   -------------------------------------
                                WEIGHTED-                               WEIGHTED-
                                 AVERAGE     WEIGHTED-                   AVERAGE     WEIGHTED-
                                REMAINING     AVERAGE                   REMAINING     AVERAGE
   RANGE OF        NUMBER      CONTRACTUAL   EXERCISE      NUMBER      CONTRACTUAL   EXERCISE
EXERCISE PRICES  OUTSTANDING      LIFE         PRICE     EXERCISABLE      LIFE         PRICE
---------------  -----------   -----------   ---------   -----------   -----------   ---------
<C>              <C>           <S>           <C>         <C>           <C>           <C>
$  6.95 --  8.49  1,252,260      5.5 years    $ 8.46      1,252,260      5.5 years    $ 8.46
  10.22 -- 11.31  1,895,262      6.6           10.89      1,895,262      6.6           10.89
      16.05          29,672      9.6           16.05         29,672      9.6           16.05
  19.50 -- 22.05    878,245      8.0           19.64        878,245      8.0           19.64
      28.77          29,672      9.6           28.77         29,672      9.6           28.77
  33.59 -- 37.38    907,024      9.1           34.35        725,432      9.1           33.60
  39.05 -- 42.03     42,212      9.4           40.53             --       --              --
                  ---------                               ---------
                  5,034,347      7.1          $16.42      4,810,543      7.0          $15.42
                  =========                               =========
</TABLE>

     Options to purchase 1,766,329 shares of Class A common stock at $50.94 per
share were granted on January 3, 2000.

     In June 1995, Cox adopted an ESPP (the "1995 ESPP"), under which Cox was
authorized, and did, issue purchase rights totaling 1,500,000 shares of Class A
common stock to substantially all employees who had completed six months of
service. As of August 31, 1997, the 1995 ESPP was completed and 1,114,418 shares
were issued to employees.

     In January 1998, Cox began administering a second ESPP, which had been
adopted by Cox in April 1997 (the "1997 ESPP"), under which Cox was authorized
to issue purchase rights totaling 2,500,000 shares of Class A common stock to
substantially all employees who had completed six months of service. Purchase
rights totaling 1,116,002 shares were issued under the 1997 ESPP. Under the
terms of the 1997 ESPP, the purchase price was 85.0% of the market value of the
Class A common stock on October 31, 1997 and employees were allowed to purchase
the shares via payroll deductions through January 31, 2000, at which time the
shares were issued to the employees. As of January 31, 2000, the 1997 ESPP was
completed and 883,269 shares were issued to employees. During 1999, 49,961
shares were issued to employees due to cancellation of employees' participation
in the 1997 ESPP or termination of employment. The fair value of the employees'
purchase rights granted in 1999 was estimated using the Black-Scholes model with
the following assumptions: expected volatility of 30.0%, no payment of
dividends, expected life of 2.08 years and risk-free interest rate of 5.7%. The
weighted-average fair value of each purchase right granted in 1998 was $8.67.

14. SHAREHOLDERS' EQUITY

     On March 18, 1999, the Cox Board of Directors approved a two-for-one stock
split that was effected on May 21, 1999 with respect to stockholders of record
on May 14, 1999. Cox's certificate of incorporation was amended to increase the
authorized preferred stock from 5,000,000 to 10,000,000 shares, the authorized
Class A common stock from 316,000,000 to 650,000,000 shares and the authorized
Class C common stock from 14,000,000 to 60,000,000 shares. All references to
number of shares and per share information in the consolidated financial
statements and notes therein have been restated to give effect to this stock
split.

                                       72
<PAGE>   75
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Preferred Stock

     During 1998, Cox authorized Series A preferred stock to be issued in
accordance with Cox's certificate of incorporation. During October 1998, in
conjunction with the acquisition of cable television systems from Prime South
(see Note 4), Cox issued 4,836,372 shares of Series A preferred stock. The
following summarizes the material terms of the preferred stock:

     - Dividends.  Holders of preferred stock are entitled to dividends only
       when, and to the extent that, dividends are declared on the preferred
       stock by the Board of Directors of Cox.

     - Voting.  Holders of Series A preferred stock are entitled to one vote per
       share, and such holders vote together with the holders of Class A common
       stock on all matters upon which holders of Class A common stock are
       entitled to vote.

     - Conversion.  Shares of the Series A preferred stock are convertible into
       shares of Class A common stock at the option of the holders only after
       October 1, 2003, a change in control of Cox or notification of
       liquidation, which ever occurs first. Shares of the preferred stock are
       convertible into shares of Class A common stock pursuant to a formula
       based upon 20.0% of the fair value of the Las Vegas, Nevada cable
       television system and the average closing price of the Class A common
       stock over a specified ten-day period. Shares of the preferred stock will
       automatically convert into shares of Class A common stock if the Las
       Vegas, Nevada cable television system makes a distribution on its capital
       stock or upon the sale of all or substantially all of the assets of Cox
       pursuant to the formula as described before. Appreciation realized upon
       the conversion of the Series A preferred stock into Class A common stock
       is anticipated to be accounted for as contingent purchase price in
       accordance with APB Opinion No. 16, "Business Combinations."

Common Stock

     Cox is authorized to issue 650,000,000 shares of Class A common stock and
60,000,000 shares of Class C common stock. Except with respect to voting,
transfer and convertibility, shares of Class A common stock and Class C common
stock are identical in all respects. Holders of Class A common stock are
entitled to one vote per share and holders of Class C common stock are entitled
to ten votes per share. The Class C common stock is subject to significant
transfer restrictions and is convertible on a share for share basis into Class A
common stock at the option of the holder.

     In July 1999, Cox filed a registration statement on Form S-4 with the SEC
to register shares of Class A common stock to be issued to TCA shareholders in
connection with the TCA merger (See Note 4).

     In August 1999, Cox issued 10,100,000 shares of Class A common stock under
the July 1999 shelf registration for aggregate proceeds of $350.3 million, less
offering costs of $12.4 million.

                                       73
<PAGE>   76
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net Income (Loss) Per Common Share

     The following table reconciles the numerator and the denominator of the
basic and diluted per-share computations for income from operations for the year
ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31, 1999
                                                    ----------------------------------------
                                                       INCOME         SHARES       PER-SHARE
                                                    (NUMERATOR)    (DENOMINATOR)    AMOUNT
                                                    ------------   -------------   ---------
<S>                                                 <C>            <C>             <C>
Net income........................................  $881,928,000
                                                    ------------
BASIC EPS.........................................   881,928,000    572,608,878      $1.54
                                                                                     =====
EFFECT OF DILUTIVE SECURITIES:
  Options.........................................            --      2,943,253
  ESPP............................................            --      1,022,560
  Convertible preferred stock.....................            --      4,114,169
  Forward purchase contracts forming a part of the
     FELINE PRIDES................................            --      2,392,705
                                                    ------------    -----------
DILUTED EPS.......................................  $881,928,000    583,081,565      $1.51
                                                    ============    ===========      =====
</TABLE>

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31, 1998
                                                  ------------------------------------------
                                                      INCOME          SHARES       PER-SHARE
                                                   (NUMERATOR)     (DENOMINATOR)    AMOUNT
                                                  --------------   -------------   ---------
<S>                                               <C>              <C>             <C>
Net income......................................  $1,270,672,000
                                                  --------------
BASIC EPS.......................................   1,270,672,000    545,626,528      $2.33
                                                                                     =====
EFFECT OF DILUTIVE SECURITIES:
  Options.......................................              --      2,183,774
  ESPP..........................................              --        768,974
  Convertible preferred stock...................              --      3,842,454
                                                  --------------    -----------
DILUTED EPS.....................................  $1,270,672,000    552,421,730      $2.30
                                                  ==============    ===========      =====
</TABLE>

     As Cox was in a net loss position for the year ended December 31, 1997, all
potentially dilutive securities were anti-dilutive and were not included in the
diluted EPS calculation.

     As of December 31, 1999 and 1998, CEI owned approximately 67.4% and 73.3%,
respectively, of the outstanding shares of Cox common stock and held 76.9% and
81.6%, respectively, of the voting power of Cox.

15. TRANSACTIONS WITH AFFILIATED COMPANIES

     CEI performs day to day cash management services for Cox. In addition, CEI
provides certain other management services to Cox including legal, corporate
secretarial, tax, cash management, internal audit, risk management, benefits
administration, including self-insured health and other insured plans, and other
support services. Cox was allocated expenses for the years ended December 31,
1999, 1998 and 1997 of approximately $3.3 million, $3.0 million and $2.8
million, respectively, related to these services. Cox pays rent and certain
other occupancy costs to CEI for its home office facilities, which amounts
approximated $5.6 million, $5.2 million and $3.8 million for the years ended
December 31, 1999, 1998 and 1997, respectively. Allocated expenses are based on
CEI's estimate of expenses relative to the services provided to Cox in relation
to those provided to other divisions of CEI. Rent and occupancy expense is
allocated based on occupied space. Management believes that these allocations
were made on a reasonable basis. However, the allocations are not necessarily
indicative of the level of expenses that might have been incurred had Cox
contracted directly with third parties. Management has not made a study or any
attempt to obtain quotes from third parties to

                                       74
<PAGE>   77
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

determine what the cost of obtaining such services from third parties would have
been. The fees and expenses to be paid by Cox to CEI are subject to change.

     In March 1997, the formation of Cox PCS and the subsequent transfer to Cox
PCS of the personal communications services license for the Los Angeles-San
Diego MTA and the related obligation to the FCC resulted in a capital
contribution to Cox of $36.5 million from CEI.

     The amounts due to CEI are generally due on demand and represent the net of
various transactions, including those described above. Outstanding amounts due
from CEI bear interest equal to CEI's current commercial paper borrowing rate,
which was 6.81% at December 31, 1999. Outstanding amounts due to CEI bear
interest at fifty basis points above CEI's current commercial paper borrowing
rate. This rate was 6.5% at December 31, 1998.

     Included in amounts due to (from) CEI are the following transactions:

<TABLE>
<CAPTION>
                                                              (THOUSANDS OF DOLLARS)
                                                              ----------------------
<S>                                                           <C>
Intercompany due from CEI, December 31, 1997................        $ (50,856)
  Cash transferred from CEI.................................           52,862
  Net operating expense allocations (reimbursements)........          168,590
                                                                    ---------
Intercompany due to CEI, December 31, 1998..................          170,596
  Cash transferred to CEI...................................         (389,476)
  Net operating expense allocations (reimbursements)........          104,059
                                                                    ---------
Intercompany due from CEI, December 31, 1999................        $(114,821)
                                                                    =========
</TABLE>

     Cox pays fees to certain entities in which it has an ownership interest in
exchange for cable television programming. Programming fees paid to such
affiliates for the years ended December 31, 1999, 1998 and 1997 were
approximately $47.0 million, $34.1 million and $30.2 million, respectively.

                                       75
<PAGE>   78
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. OTHER COMPREHENSIVE INCOME

     The following represents the components of other comprehensive income and
related tax effects for the years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                             TAX
                                                            BEFORE-TAX    (EXPENSE)    NET-OF-TAX
                                                              AMOUNT     OR BENEFIT      AMOUNT
                                                            ----------   -----------   ----------
                                                                   (THOUSANDS OF DOLLARS)
<S>                                                         <C>          <C>           <C>
FOR THE YEAR ENDED DECEMBER 31, 1997
Unrealized gains on securities
  Unrealized holding gains arising during the period......  $  147,450   $   (70,429)  $   77,021
  Add: reclassification adjustment for net losses realized
     in net income........................................     160,956       (55,009)     105,947
                                                            ----------   -----------   ----------
OTHER COMPREHENSIVE INCOME, DECEMBER 31, 1997.............  $  308,406   $  (125,438)  $  182,968
                                                            ==========   ===========   ==========
FOR THE YEAR ENDED DECEMBER 31, 1998
Unrealized gains on securities
  Unrealized holding gains arising during the period......  $2,267,809   $  (870,681)  $1,397,128
  Less: reclassification adjustment for gains realized in
     net income...........................................     (30,343)       11,682      (18,661)
                                                            ----------   -----------   ----------
OTHER COMPREHENSIVE INCOME, DECEMBER 31, 1998.............  $2,237,466   $  (858,999)  $1,378,467
                                                            ==========   ===========   ==========
FOR THE YEAR ENDED DECEMBER 31, 1999
Unrealized gains on securities
  Unrealized holding gains arising during the period......  $6,006,535   $(2,307,149)  $3,699,386
  Less: reclassification adjustment for gains realized in
     net income...........................................    (706,528)      272,013     (434,515)
                                                            ----------   -----------   ----------
OTHER COMPREHENSIVE INCOME, DECEMBER 31, 1999.............  $5,300,007   $(2,035,136)  $3,264,871
                                                            ==========   ===========   ==========
</TABLE>

     Components of accumulated comprehensive income consisted of net unrealized
gain on securities of $7,901.0 million ($4,859.1 million, net of tax) and
$2,601.0 million ($1,594.3 million, net of tax) at December 31, 1999 and 1998,
respectively.

                                       76
<PAGE>   79
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31
                                                     -----------------------------------
                                                        1999         1998        1997
                                                     ----------   ----------   ---------
                                                           (THOUSANDS OF DOLLARS)
<S>                                                  <C>          <C>          <C>
SIGNIFICANT NON-CASH TRANSACTIONS:
  Ft. Walton Beach cable television system
     acquisition...................................  $   79,457   $       --   $      --
  MediaOne cable television system exchange........      93,050           --          --
  TCA merger stock issuance........................   1,645,373           --          --
  Assumed TCA indebtedness.........................     540,000           --          --
  Other assumed TCA liabilities....................      58,369           --          --
  Cox PCS stock exchange...........................     794,546           --          --
  PrimeStar merger stock exchange..................          --       94,696          --
  Teleport stock issuance..........................          --      150,386          --
  Teleport merger stock exchange...................          --    2,076,861          --
  Sprint PCS stock exchange........................          --      899,077          --
  Prime South acquisition:
       Cox Series A preferred stock issued.........          --      107,065          --
       Cox Class A common stock issued.............          --      250,938          --
  Capital contributions by CEI.....................          --           --      36,524
  Transfer of PCS license..........................          --           --    (251,918)
  Capitalized lease obligations....................      50,356       50,313      31,201
ADDITIONAL CASH FLOW INFORMATION:
  Cash paid for interest...........................  $  244,559   $  197,197   $ 206,861
  Cash paid (refunded) for income taxes............     179,950     (163,467)   (151,047)
</TABLE>

18. COMMITMENTS AND CONTINGENCIES

     Cox leases land, office facilities and various items of equipment under
noncancellable operating leases. Rental expense under operating leases amounted
to $9.3 million in 1999, $7.6 million in 1998 and $19.8 million in 1997. Future
minimum lease payments as of December 31, 1999 for all noncancellable operating
leases are as follows:

<TABLE>
<CAPTION>
                                                        (THOUSANDS OF DOLLARS)
                                                        ----------------------
<S>                                                     <C>
2000................................................           $11,616
2001................................................            10,757
2002................................................             8,681
2003................................................             7,700
2004................................................             5,280
Thereafter..........................................            17,928
                                                               -------
          Total.....................................           $61,692
                                                               =======
</TABLE>

     At December 31, 1999, Cox had outstanding purchase commitments totaling
approximately $179.7 million for additions to plant and equipment and $454.7
million to rebuild certain existing cable television systems.

     Cox has guaranteed borrowings of certain affiliates totaling approximately
$2.5 million at December 31, 1999. Cox has unused letters of credit outstanding
totaling $30.5 million at December 31, 1999.

     On October 9, 1997, three individual subscribers filed a putative class
action suit in Superior Court of the State of California, County of San Diego
against Cox and its cable television system subsidiaries in California

                                       77
<PAGE>   80
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

arising out of the manner in which such systems sell premium channel cable
services. The suit alleges that Cox's California Systems unlawfully require
limited basic cable customers to purchase the expanded basic services tier in
order to purchase premium channels, i.e., channels sold on an a-la-carte basis
such as Home Box Office and Showtime. The suit asserts causes of action under
California antitrust and consumer protection laws. The suit seeks injunctive
relief as well as an order awarding the class members compensatory damages, plus
statutory damages, punitive damages, interest and attorney's fees. Cox moved to
dismiss the suit on dispositive substantive grounds or in the alternative to
stay the suit on primary jurisdiction grounds. On February 13, 1998, the Court
stayed the suit and referred it on grounds of primary jurisdiction to the FCC
for consideration of issues best addressed by the FCC's expertise should the
plaintiffs elect to file a complaint with the FCC. On October 1, 1998, the
plaintiffs filed a Petition with the FCC which alleged that the Cox California
Systems violated the "buy-through" prohibition of the FCC's rules. Under the
"buy-through" prohibition, cable systems may not require subscribers to purchase
intermediate tiers of cable service as a prerequisite to receiving per-channel
and per-program cable service unless such systems can demonstrate that they are
not technically capable of complying with the buy-through requirement. In July
1999, the FCC dismissed the Petition. The FCC concluded that Cox's San Diego
system is complying with the buy-through rule and that the named plaintiffs lack
standing to raise this issue with regard to Cox's other California systems. The
suit is now proceeding in state court. The court granted Cox and the plaintiffs
an extension of time during which the parties may explore the possibility of a
resolution to the suit. If no resolution is reached, the plaintiffs may file an
amended complaint and Cox may renew its motion to dismiss the suit based on the
grounds raised in its earlier motion and the additional grounds of the FCC's
dismissal of the Petition and the plaintiffs' lack of standing to pursue claims
against Cox's other California systems. The outcome of this matter cannot be
predicted at this time.

     Cox and certain subsidiaries are defendants in four putative subscriber
class action suits in state courts in Louisiana, Indiana, Texas and Nevada
initiated between October 17, 1997 and December 17, 1998. The suits all
challenge the propriety of late fees charged by the subsidiaries to customers
who fail to pay for services in a timely manner. The suits seek injunctive
relief and various formulations of damages under certain claimed causes of
action under various bodies of state law. These actions are in various stages of
defense. Settlement in Nevada is pending final court approval. The remaining
actions are being defended vigorously. The outcome of these matters cannot be
predicted at this time. Three additional suits that have been pending in Arizona
and Florida have been settled; one additional suit that had been pending in
Nebraska was dismissed.

     On November 10, 1999, Fred and Roberta Lipschutz, Arthur Simon and John
Galley III, on behalf of themselves and all persons similarly situated, filed a
putative class action suit against Cox and thirteen other defendants in the
United States District Court for the Central District of California. The action
alleges that a putative class defined as all persons who since November 10,
1995, have purchased broadband Internet data transmission services from a "cable
company defendant" has been injured because alleged agreements among the "cable
company defendants" and/or the "cable company defendants" and defendants @Home
Corporation and RoadRunner have required the putative class to purchase both
Internet data transmission services and interface/content services from @Home or
RoadRunner. The complaint asserts claims under Section 1 of the Sherman
Antitrust Act, the California Cartwright Act, and California unfair competition
law and seeks injunctive relief and compensatory and treble damages. An amended
complaint adding additional named plaintiffs was filed on December 30, 1999 and
Cox filed its answer to the amended complaint on January 19, 2000. Cox intends
to defend this action vigorously. The outcome of this matter cannot be predicted
at this time.

     Cox is a party to various other legal proceedings which are ordinary and
incidental to its business. Management does not expect that any of these other
legal proceedings currently pending will have a material adverse impact on Cox's
consolidated financial position, results of operations or cash flows.

                                       78
<PAGE>   81
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. SUBSEQUENT EVENTS

     In March 2000, Cox sold its entire interest in Flextech plc, an English
publically held programming company which Cox had accounted for under the fair
value method, and received net proceeds of approximately $522.3 million. Cox
expects to recognize a gain in connection with this transaction in first quarter
2000.

     In March 2000, Cox issued $275.0 million aggregate principal amount of 3%
Exchangeable Subordinated Debentures due 2030 (the "Premium PHONES") under the
July 1999 shelf registration, for proceeds of approximately $269.5 million, net
of underwriting commissions. The Premium PHONES are unsecured, subordinated
obligations, ranking junior in right of payment to all of Cox's existing and
future senior indebtedness.

     Upon issuance, the Premium PHONES had an original principal amount of
$1,000 per Premium PHONES. The original principal amount of each Premium PHONES
is indexed to 16.28 shares of Sprint PCS Stock with an initial value of $61.43
per share. The last reported sales price for the Sprint PCS Stock on March 7,
2000 was $58.50 per share. The minimum amount payable upon redemption or
maturity of a Premium PHONES, which is called the adjusted principal amount, was
initially equal to the original principal amount. The original principal amount
will be reduced if Sprint Corporation pays certain extraordinary distributions
on or in respect of the Sprint PCS Stock.

     Interest on the Premium PHONES is payable semi-annually at a rate of 3% per
year on the original principal amount of the PHONES plus an amount equal to any
regular cash dividends paid on the Sprint PCS Stock or any property or the cash
value of any property distributed on or in respect of the Sprint PCS Stock,
other than publicly traded equity securities.

     Prior to March 14, 2002, the Premium PHONES are exchangeable at the
holders' option initially for cash based on the market value of the shares
underlying each Premium PHONES, plus any accumulated and unpaid distributions.
On and after that date, the Premium PHONES can be exchanged by the holder based
on the market value of the underlying shares for cash, shares of Sprint PCS
Stock or a combination of both. In addition, on or after March 17, 2004, Cox may
redeem the Premium PHONES for cash based on the market value of the underlying
shares, plus any accumulated and unpaid distributions, and any final period
distribution.

     At maturity, holders of the Premium PHONES are entitled to receive, at
Cox's election, cash, equal to the then exchange market value of the underlying
shares plus any accumulated and unpaid distributions, or the underlying shares
themselves.

     The Premium PHONES will be accounted for as an indexed debt instrument
since the maturity value of the Premium PHONES is dependent upon the market
value of the Sprint PCS Stock. Therefore, the carrying value of the Premium
PHONES will be adjusted through earnings in Cox's consolidated statement of
operations as the market value of the Sprint PCS Stock increases or decreases
such that Cox would be required to pay an amount of contingent principal in
excess of the original principal amount of the Premium PHONES. The Premium
PHONES are listed on the NYSE under the symbol "COX 30."

     On March 16, 2000, Cox notified the trustee, who then gave notice to the
record holders of Cox's Floating Rate Notes due August 15, 2000, of Cox's
intention to redeem the $525.0 million aggregate principal amount outstanding of
the Floating Rates Notes on March 31, 2000.

     In April 2000, pending shareholder approval, Cox will begin administering a
third ESPP (the "2000 ESPP"), under which Cox would be authorized to issue
purchase rights totaling 2,000,000 shares of Class A common stock to
substantially all employees who had completed six months of service.

                                       79
<PAGE>   82
                            COX COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20. UNAUDITED QUARTERLY FINANCIAL INFORMATION

     The following table sets forth selected historical quarterly financial
information for Cox. This information is derived from unaudited quarterly
financial statements of Cox and includes, in the opinion of management, only
normal and recurring adjustments that management considers necessary for a fair
presentation of the results for such periods.

<TABLE>
<CAPTION>
                                                                                 1999
                                                             ---------------------------------------------
                                                                1ST         2ND         3RD         4TH
                                                              QUARTER     QUARTER     QUARTER     QUARTER
                                                             ---------   ---------   ---------   ---------
                                                             (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                          <C>         <C>         <C>         <C>
Revenues...................................................    $498.5      $509.9      $587.9      $721.8
Programming costs..........................................     128.8       122.3       141.0       169.2
Plant operations...........................................      39.1        36.2        45.1        53.1
Marketing..................................................      26.6        30.9        40.6        48.9
General and administrative.................................     115.5       124.7       135.5       159.5
Depreciation...............................................      96.6       133.3       148.4       172.3
Amortization...............................................      26.7        26.0        45.4        66.9
Gain on sale and exchange of cable television systems,
  net......................................................        --          --       (77.4)         --
                                                               ------      ------      ------      ------
Operating income...........................................    $ 65.2      $ 36.5      $109.3      $ 51.9
                                                               ======      ======      ======      ======
Net income.................................................    $251.2      $505.8      $ 11.9      $113.0
                                                               ======      ======      ======      ======
Basic net income per share.................................    $ 0.45      $ 0.91      $ 0.02      $ 0.19
                                                               ======      ======      ======      ======
Diluted net income per share...............................    $ 0.45      $ 0.90      $ 0.02      $ 0.18
                                                               ======      ======      ======      ======
</TABLE>

<TABLE>
<CAPTION>
                                                                               1998
                                                          ----------------------------------------------
                                                             1ST         2ND         3RD          4TH
                                                           QUARTER     QUARTER     QUARTER      QUARTER
                                                          ---------   ---------   ----------   ---------
                                                           (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                       <C>         <C>         <C>          <C>
Revenues................................................   $ 415.8      $398.3     $  416.0      $486.7
Programming costs.......................................      95.0        95.7         99.9       116.2
Plant operations........................................      32.8        30.8         35.2        34.0
Marketing...............................................      22.1        25.0         25.9        26.5
General and administrative..............................      87.4        94.8         96.1       110.9
Satellite operating and administrative..................      29.4          --           --          --
Depreciation............................................      87.0        80.4         88.8       117.3
Amortization............................................      18.6        17.8         19.8        28.0
                                                           -------      ------     --------      ------
Operating income........................................   $  43.5      $ 53.8     $   50.3      $ 53.8
                                                           =======      ======     ========      ======
Net income (loss).......................................   $(102.0)     $(12.2)    $1,067.0      $317.9
                                                           =======      ======     ========      ======
Basic net income (loss) per share.......................   $ (0.19)     $(0.02)    $   1.97      $ 0.57
                                                           =======      ======     ========      ======
Diluted net income (loss) per share.....................   $ (0.19)     $(0.02)    $   1.95      $ 0.56
                                                           =======      ======     ========      ======
</TABLE>

                                       80
<PAGE>   83

The Board of Directors and Shareholders
Cox Communications, Inc.

     We have audited the accompanying consolidated balance sheets of Cox
Communications, Inc. (Cox) as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of Cox's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cox
Communications, Inc. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Atlanta, Georgia
February 9, 2000
(March 16, 2000 as to the second paragraph of Note 4 and to Note 19)

                                       81
<PAGE>   84

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item is incorporated by reference to Cox's
Proxy Statement for the 2000 Annual Meeting of Stockholders.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this Item is incorporated by reference to Cox's
Proxy Statement for the 2000 Annual Meeting of Stockholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     The information required by this Item is incorporated by reference to Cox's
Proxy Statement for the 2000 Annual Meeting of Stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated by reference to Cox's
Proxy Statement for the 2000 Annual Meeting of Stockholders.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents incorporated by reference or filed with this Report

     (1) No financial statement schedules are required to be filed by Items 8
         and 14(d) because they are not required or are not applicable, or the
         required information is set forth in the applicable financial
         statements or notes thereto.

     (2) Exhibits required to be filed by Item 601 of Regulation S-K:

Listed below are the exhibits which are filed as part of this report (according
to the number assigned to them in Item 601 of Regulation S-K):

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<C>       <C>  <S>
   1.1    --   Purchase Agreement, dated as of March 8, 2000, between Cox
               Communications, Inc. and Merrill Lynch & Co.
   2.1    --   Agreement and Plan of Merger, dated as of June 5, 1994, by
               and among The Times Mirror Company, New TMC Inc., Cox
               Communications, Inc. and Cox Enterprises, Inc. (Incorporated
               by reference to Exhibit 2.1 to Cox's Registration Statement
               on Form S-4, File No. 33-80152, filed with the Commission on
               December 16, 1994.)
   2.2    --   Amendment No. 1, dated as of December 16, 1994, to Agreement
               and Plan of Merger by and among The Times Mirror Company,
               New TMC Inc., Cox Communications, Inc. and Cox Enterprises,
               Inc. (Incorporated by reference to Exhibit 2.2 to Cox's
               Registration Statement on Form S-4, File No. 33-80152, filed
               with the Commission on December 16, 1994.)
</TABLE>

                                       82
<PAGE>   85

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<C>       <C>  <S>
   2.3    --   Amendment No. 2, dated as of January 30, 1995, to Agreement
               and Plan of Merger by and among The Times Mirror Company,
               New TMC Inc., Cox Communications, Inc., and Cox Enterprises,
               Inc. (Incorporated by reference to Exhibit 2.3 to Cox's
               Current Report on Form 8-K filed with the Commission on
               February 15, 1995.)
   2.4    --   Agreement and Plan of Merger, dated as of February 6, 1998,
               between PrimeStar, Inc. and Cox Satellite, Inc.
               (Incorporated by reference to Exhibit 10.25 to the Annual
               Report on Form 10-K of Cox Communications, Inc., filed with
               the Commission on March 19, 1999.)
   2.5    --   Agreement and Plan of Merger, dated May 4, 1998, among Cox,
               Cox Communications Las Vegas, Prime South Diversified, Inc.
               and certain other persons (Incorporated by reference to
               Exhibit 2.1 to Cox's Form 8-K filed with the Commission on
               May 28, 1998.)
   2.6    --   Purchase Agreement, dated April 22, 1999, by and among Cox
               Communications, Inc. and Media General, Inc. (Incorporated
               by reference to Exhibit 2.1 to Cox's Current Report on Form
               8-K filed with the Commission on April 30, 1999.)
   2.7    --   Agreement and Plan of Merger, dated as of May 11, 1999, by
               and among Cox Communications, Inc., Cox Classic Cable, Inc.
               and TCA Cable TV, Inc. (Incorporated by reference to Exhibit
               2.1 to Cox's Current Report on Form 8-K filed with the
               Commission on May 14, 1999.)
   2.8    --   Amendment No. 1 to Agreement and Plan of Merger, dated as of
               May 11, 1999, by and among Cox Communications, Inc., Cox
               Classic Cable, Inc. and TCA Cable TV, Inc. (Incorporated by
               reference to Exhibit 2.2 to Cox's Current Report on Form 8-K
               filed with the Commission on August 25, 1999.)
   2.9    --   Agreement and Plan of Reorganization among Cox Teleport
               Partners, inc., TCI Holdings, Inc. and United Cable
               Television Corporation, dated as of July 6, 1999.
               (Incorporated by reference to Exhibit 2.1 to Cox's Current
               Report on Form 8-K/A filed with the Commission on July 28,
               1999.)
   3.1    --   Amended Certificate of Incorporation of Cox Communications,
               Inc. (Incorporated by reference to Exhibit 3.1 to Cox's
               Annual Report on Form 10-K for the fiscal year ended
               December 31, 1994.)
   3.2    --   Certificate of Amendment to Certificate of Incorporation of
               Cox Communications, Inc. (Incorporated by reference to
               Exhibit 3.3 to Cox's Form 10-Q filed with the Commission on
               May 14, 1997.)
   3.3    --   Amendment to the Amended Certificate of Incorporation of Cox
               Communications, Inc. (Incorporated by reference to Exhibit
               3.3 to Cox's Registration Statement on Form S-4, File No.
               33-82419, filed with the Commission on July 7, 1999.)
   3.4    --   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.)
   3.5    --   Certificate of Designations of Powers, Preferences and
               Rights of the Series A Convertible Preferred Stock of Cox
               Communications, Inc. (Incorporated by reference to Exhibit
               3.1 to Cox's Form 8-K/A filed with the Commission on October
               15, 1998.)
   4.1    --   Indenture dated as of June 27, 1995 between Cox
               Communications, Inc. and The Bank of New York, as Trustee
               (Incorporated by reference to Exhibit 4.1 to Cox's
               Registration Statement on Form S-1, File No. 33-99116, filed
               with the Commission on November 8, 1995.)
   4.2    --   First Supplemental Indenture, dated as of August 12, 1999,
               between Cox Communications, Inc. and The Bank of New York,
               as Trustee. (Incorporated by reference to Exhibit 4.4 to
               Cox's Current Report on Form 8-K filed with the Commission
               on August 23, 1999.)
</TABLE>

                                       83
<PAGE>   86

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<C>       <C>  <S>
   4.3    --   Form of Preferred Securities Guarantee Agreement.
               (Incorporated by reference to Exhibit 4.5 to Cox's
               Registration Statement on Form S-3, File No. 33-82575, filed
               with the Commission on July 28, 1999.)
   4.4    --   Form of Capital Securities Guarantee Agreement.
               (Incorporated by reference to Exhibit 4.6 to Cox's
               Registration Statement on Form S-3, File No. 33-82575, filed
               with the Commission on August 6, 1999.)
   4.5    --   Indenture, dated as of January 30, 1998, between TCA Cable
               TV, Inc. and Chase Bank of Texas, National Association, as
               Trustee (Incorporated by reference to Exhibit 4(a) of TCA's
               Registration Statement on Form S-3, File No. 333-32015).
   4.6    --   First Supplemental Indenture, dated as of August 12, 1999,
               among TCA Cable TV, Inc., Cox Classic Cable, Inc. and Chase
               Bank of Texas, National Association, as Trustee.
               (Incorporated by reference to Exhibit 4.2 to Cox's Current
               Report on Form 8-K filed with the Commission on August 25,
               1999.)
   4.7    --   Second Supplemental Indenture, dated as of October 6, 1999,
               by and between Cox Communications, Inc., as Issuer and The
               Bank of New York, as Trustee. (Incorporated by reference to
               Exhibit 4.1 to Cox's Quarterly Report on Form 10-Q filed
               with the Commission on November 8, 1999.)
   4.8    --   Guarantee Agreement, dated as of October 6, 1999, by and
               between Cox Communications, Inc., as Guarantor and The Bank
               of New York, as Guarantee Trustee. (Incorporated by
               reference to Exhibit 4.2 to Cox's Quarterly Report on Form
               10-Q filed with the Commission on November 8, 1999.)
   4.9    --   Second Supplemental Indenture, dated as of March 14, 2000,
               between Cox Communications, Inc. and The Bank of New York,
               as Trustee.
  10.1    --   Amended and Restated Agreement of Limited Partnership of
               MajorCo, L.P., dated as of January 31, 1996, among Sprint
               Spectrum, L.P., TCI Network Services, Comcast Telephony
               Services and Cox Telephony Partnership. (Incorporated by
               reference to Exhibit 10.1 to Cox's Current Report on Form
               8-K filed with the Commission on February 9, 1996.)
  10.2    --   Second Amended and Restated Joint Venture Formation
               Agreement, dated as of January 31, 1996, by and between
               Sprint Corporation, Tele-Communications, Inc., Comcast
               Corporation and Cox Communications, Inc. (Incorporated by
               reference to Exhibit 10.2 to Cox's Current Report on Form
               8-K filed with the Commission on February 9, 1996.)
  10.3    --   Parents Agreement, dated as of January 31, 1996 between Cox
               Communications, Inc and Sprint Corporation. (Incorporated by
               reference to Exhibit 10.3 to Cox's Current Report on Form
               8-K filed with the Commission on February 9, 1996.)
  10.4    --   Amended and Restated Agreement of Limited Partnership of
               PhillieCo, L.P., dated as of February 17, 1995, by and among
               Sprint Spectrum, Inc., TCI Network, Inc. and Cox
               Communications Wireless, Inc. (Incorporated by reference to
               Exhibit 10.4 to the Annual Report on Form 10-K of Cox
               Communications, Inc., filed with the Commission on March 31,
               1995.)
  10.5    --   Contribution Agreement, dated as of March 28, 1995, by and
               among TCI Network Services, Comcast Telephony Services, Cox
               Telephony Partnership, MajorCo, L.P. and Newtelco, L.P.
               (Incorporated by reference to Exhibit 10.5 to the Annual
               Report on Form 10-K of Cox Communications, Inc., filed with
               the Commission on March 31, 1995.)
  10.6    --   Registration Rights Agreement, dated as of January 31, 1995,
               by and between Cox Communications, Inc., and Bank of America
               National Trust and Savings Association, Thomas Unterman,
               James F. Guthrie, James R. Simpson, Robert F. Erburu and
               David Laventhol, each as trustees for certain employee
               benefit plans of The Times Mirror Company. (Incorporated by
               reference to Exhibit 10.6 to the Annual Report on Form 10-K
               of Cox Communications, Inc., filed with the Commission on
               March 31, 1995.)
</TABLE>

                                       84
<PAGE>   87

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<C>       <C>  <S>
  10.7    --   Tax Allocation Agreement, dated as of February 1, 1995, by
               and between Cox Enterprises, Inc. and Cox Communications,
               Inc. (Incorporated by reference to Exhibit 10.7 to the
               Annual Report on Form 10-K of Cox Communications, Inc.,
               filed with the Commission on March 31, 1995.)
  10.8    --   Cox Executive Supplemental Plan of Cox Enterprises, Inc.
               (Incorporated by reference to Exhibit 10.5 to Cox's
               Registration Statement on Form S-4, File No. 33-80152, filed
               with the Commission on December 16, 1994.)
  10.9    --   Cox Communications, Inc. Long-Term Incentive Plan.
               (Incorporated by reference to Exhibit 10.8 to Cox's
               Registration Statement on Form S-4, File No. 33-80152, filed
               with the Commission on December 16, 1994.)
  10.10   --   Cox Communications, Inc. Restricted Stock Plan for
               Non-Employee Directors. (Incorporated by reference to
               Exhibit 10.9 to Cox's Registration Statement on Form S-4,
               File No. 33-80152, filed with the Commission on December 16,
               1994.)
  10.11   --   Subscription Agreement, dated March 21, 1997, between Cox
               Communications, Inc. and Flextech plc. (Incorporated by
               reference to Exhibit 10.17 on Form 10-K of Cox
               Communications, Inc., filed with the Commission on March 28,
               1997).
  10.12   --   Merger and Contribution Agreement, dates as of February 6,
               1998, among TCI Satellite Entertainment, Inc., PrimeStar
               Inc., Time Warner Entertainment Company L.P.,
               Advance/Newhouse Partnership, Comcast Corporation, Cox
               Communications, Inc., MediaOne of Delaware, Inc., GE
               American Communications, Inc. (Incorporated by reference to
               Exhibit 10.24 to the Annual Report on Form 10-K of Cox
               Communications, Inc., files with the Commission on March 19,
               1999.)
  10.13   --   Amended and Restated 5-Year Credit Agreement, dated as of
               September 28, 1999, by and among Cox Communications, Inc.,
               The Chase Manhattan Bank, as Documentation Agent, Chase Bank
               of Texas, National Association, as Administrative Agent for
               the Banks, and Chase Securities Inc., as Sole Book Manager
               and Lead Arranger. (Incorporated by reference to Exhibit
               10.3 to Cox's Quarterly Report on Form 10-Q, filed with the
               Commission on November 8, 1999.)
  10.14   --   Amended and Restated 364-Day Credit Agreement, dated
               September 28, 1999, by and among Cox Communications, Inc.,
               Bank of America National Trust and Savings Association, as
               Syndication Agent, The Bank of New York and Wachovia Bank,
               N.A., as Co-Documentation Agents, Chase Bank of Texas,
               National Association, as Administrative Agent for the Banks,
               and Chase Securities Inc., as Sole Book Manager and Lead
               Arranger. (Incorporated by reference to Exhibit 10.2 to
               Cox's Quarterly Report on Form 10-Q, filed with the
               Commission on November 8, 1999.)
  10.15   --   Purchase Contract Agreement, dated as of August 12, 1999,
               between Cox Communications, Inc. and The First National Bank
               of Chicago, as Purchase Contract Agent. (Incorporated by
               reference to Exhibit 4.1 to Cox's Current Report on Form 8-K
               filed with the Commission on August 23, 1999.)
  10.16   --   Remarketing Agreement, dated as of August 12, 1999, among
               Cox Communications, Inc., Cox Trust II, The First National
               Bank of Chicago, as Purchase Contract Agent, and Merrill
               Lynch & Co., Merrill Lunch, Pierce, Fenner & Smith
               Incorporated, as Remarketing Agent. (Incorporated by
               reference to Exhibit 4.2 to Cox's Current Report on Form 8-K
               filed with the Commission on August 23, 1999.)
  10.17   --   Pledge Agreement, dated as of August 12, 1999, among Cox
               Communications, Inc., The Bank of New York, as Collateral
               Agent, Custodial Agent and Securities Intermediary, and The
               First National Bank of Chicago, as Purchase Contract Agent.
               (Incorporated by reference to Exhibit 4.3 to Cox's Current
               Report on Form 8-K filed with the Commission on August 23,
               1999.)
</TABLE>

                                       85
<PAGE>   88

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
-------        -----------
<C>       <C>  <S>
  10.18   --   Remarketing Agreement, dated as of October 6, 1999, by and
               among Cox Communications, Inc., Cox RHINOS Trust and Banc of
               America Securities LLC. (Incorporated by reference to
               Exhibit 10.1 to Cox's Quarterly Report on Form 10-Q, filed
               with the Commission on November 8, 1999.)
  13      --   Portions of the 1999 Annual Report to Stockholders
               (expressly incorporated by reference in Part II, Item 5 of
               this Report).
  21      --   Subsidiaries of Cox Communications, Inc.
  23      --   Consent of Deloitte & Touche LLP.
  24      --   Power of Attorney (included on page 87)
  27      --   Financial Data Schedule (for SEC use only)
</TABLE>

                                       86
<PAGE>   89

                                   SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, COX COMMUNICATIONS, INC. HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                          COX COMMUNICATIONS, INC.

                                          By:    /s/ JAMES O. ROBBINS
                                          --------------------------------------
                                                     James O. Robbins
                                          President and Chief Executive Officer

Date: March 22, 2000

                               POWER OF ATTORNEY

     Cox Communications, Inc., a Delaware corporation, and each person whose
signature appears below, constitutes and appoints James O. Robbins and Jimmy W.
Hayes, and either of them, with full power to act without the other, such
person's true and lawful attorneys-in-fact, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Annual Report on Form 10-K and any and all amendments
to such Annual Report on Form 10-K and other documents in connection therewith,
and to file the same, and all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing necessary or desirable to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, thereby ratifying and confirming all that said attorneys-in-fact, or any
of them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF COX
COMMUNICATIONS, INC. AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                    <S>                              <C>

                /s/ JAMES C. KENNEDY                   Chairman of the Board of         March 22, 2000
-----------------------------------------------------  Directors
                  James C. Kennedy

                /s/ JAMES O. ROBBINS                   President and Chief Executive    March 22, 2000
-----------------------------------------------------  Officer; Director
                  James O. Robbins

                 /s/ JIMMY W. HAYES                    Executive Vice President,        March 22, 2000
-----------------------------------------------------  Finance and Administration
                   Jimmy W. Hayes                      Chief Financial Officer
                                                       (principal financial officer)

               /s/ HOWARD B. TIGERMAN                  Controller                       March 22, 2000
-----------------------------------------------------  Chief Accounting Officer
                 Howard B. Tigerman                    (principal accounting officer)

              /s/ JANET MORRISON CLARKE                Director                         March 22, 2000
-----------------------------------------------------
                Janet Morrison Clarke

                /s/ DAVID E. EASTERLY                  Director                         March 22, 2000
-----------------------------------------------------
                  David E. Easterly
</TABLE>

                                       87
<PAGE>   90

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                    <S>                              <C>

                /s/ ROBERT F. ERUBURU                  Director                         March 22, 2000
-----------------------------------------------------
                  Robert F. Erburu

                /s/ ROBERT C. O'LEARY                  Director                         March 22, 2000
-----------------------------------------------------
                  Robert C. O'Leary

                 /s/ ANDREW J. YOUNG                   Director                         March 22, 2000
-----------------------------------------------------
                   Andrew J. Young
</TABLE>

                                       88
<PAGE>   91

                           (COX COMMUNICATIONS LOGO)