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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004
 OR o
    
    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 
 COMMUNICATIONS
 Cox Communications, Inc.
 (Exact name of
registrant as specified in its charter)
 Delaware
    
    58-2112281(State or other jurisdiction of incorporation or organization )
    
    (I.R.S. Employer Identification No.)1400 Lake Hearn Drive, Atlanta, Georgia
    
    30319(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (404) 843-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
The principal exchange for the following securities is the New York Stock Exchange:
Exchangeable Subordinated Discount Debentures due 2020 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 þ No o 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. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). Yes þ No o As of June 30, 2004, the last business day of the registrants most recently completed second
fiscal quarter, the aggregate market value of the registrants
then outstanding Class A Common
Stock, par value $1.00 per share, held by non-affiliates of
the registrant was $6,604,649,573 based on the closing price on the New York Stock Exchange on such
date. There
were 556,170,238 shares of Class A Common Stock, par value $0.01
per share, and 27,597,792 shares of Class C Common
Stock outstanding as of February 28, 2005.




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COX COMMUNICATIONS, INC.
2004 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS  
 PagePART IItem 1.
    
    Business
    
    
    1Item 2.
    
    Properties
    
    
    24Item 3.
    
    Legal Proceedings
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    28PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    29Item 6.
    
    Selected Consolidated Financial Data
    
    
    29Item 7.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    31Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    51Item 8.
    
    Consolidated Financial Statements and Supplementary DataConsolidated Balance Sheets
    
    
    52Consolidated Statements of Operations
    
    
    53Consolidated Statements of Shareholders Equity
    
    
    54Consolidated Statements of Cash Flows
    
    
    55Notes to Consolidated Financial Statements
    
    
    56Report of Independent Registered Public Accounting Firm
    
    
    95Managements Report on Internal Controls Over Financial Reporting
    
    
    96Report of Independent Registered Public Accounting Firm on Internal
Control Over
Financial Reporting
    
    
    97Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    99Item 9A.
    
    Controls and Procedures
    
    
    99Item 9B.
    
    Other Information
    
    
    99PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    99Item 11.
    
    Executive Compensation
    
    
    104Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    107Item 13.
    
    Certain Relationships and Related Transactions
    
    
    108Item 14.
    
    Principal Accountant Fees and Services
    
    
    110PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    110Signatures
    
    
    114EX-12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-23 CONSENT OF DELOITTE & TOUCHE LLPEX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICEREX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICEREX-32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICEREX-32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER




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Preliminary Note This annual report on Form10-K is for the year ended December 31, 2004. This annual report
modifies and supersedes documents filed prior to this annual report. Information that Cox files
with the SEC in the future will automatically update and supersede information contained in this
annual report. In this annual report, Cox, refers to Cox Communications, Inc. and its
subsidiaries, unless the context requires otherwise.




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PART I 
 ITEM 1. BUSINESS Overview Cox Communications, Inc. is a multi-service broadband communications company serving
approximately 6.6 million customers nationwide. Cox is the nations third-largest cable television
provider and offers an array of broadband products and services to both residential and commercial
customers in its markets. These services primarily include analog and digital video, high-speed
Internet access and local and long-distance telephone. On October 19, 2004, Cox Enterprises, Inc. (CEI), Cox Holdings, Inc. (Holdings), a
wholly-owned subsidiary of CEI, CEI-M Corporation, another whollyowned subsidiary of CEI, and Cox
entered into an Agreement and Plan of Merger. This merger agreement contemplated as an initial
step a joint tender offer by Cox and Holdings for all of Coxs Class A common stock, par value
$1.00 per share (former public stock), not already beneficially owned by CEI. On December 8, 2004,
Holdings purchased the approximately 190.5 million shares of Coxs former public stock properly
tendered and delivered, which represented more than 90% of Coxs outstanding former public stock
when combined with the Cox Class A stock owned by Holdings and Cox DNS, Inc. (DNS), another
wholly-owned subsidiary of CEI. Following that acquisition, Cox was merged with CEI-M in a
short-form merger pursuant to Section 253 of the Delaware General Corporation Law with Cox as the
surviving corporation. In this report, we refer to the short-form merger as the going-private
merger and to the joint tender offer and short-form merger collectively as the going-private
transaction. Cox is now an indirect, wholly-owned subsidiary of CEI. CEI, a privately-held corporation
headquartered in Atlanta, Georgia, is one of the largest diversified media companies in the U.S.
with consolidated revenues in 2004 of approximately $11.6 billion. CEI, which has a 107-year
history in the media and communications industry, also publishes 17 daily newspapers and owns or
operates 15 television stations. Through its indirect, majority-owned subsidiary, Cox Radio, Inc.,
CEI owns, or operates or provides sales and other services for 79 radio stations clustered in 18
markets. CEI is also an operator of wholesale auto auctions through Manheim Auctions, Inc., an
indirect wholly-owned subsidiary, and holds a majority interest in AutoTrader.com, which offers
consumers an online inventory of new and used vehicles. Business Strategy Coxs strategy is to leverage the capacity and capability of its broadband network to deliver
multiple services to consumers and businesses while creating multiple revenue streams. Cox
believes that aggressive investment in the technological capabilities of its broadband network, the
long-term advantages of clustering, the competitive value of bundled services and its commitment to
customer and community service will enhance its ability to continue to grow its cable operations
and offer new services to existing and new customers. Technology and Network Infrastructure.Cox strives to maintain the highest technological
standards in the industry. Available service offerings depend on bandwidth capacity; the greater
the bandwidth, the greater the capacity of the system. Coxs cable systems generally have
bandwidth capacities ranging from 400 to 750 megahertz or greater. At the end of 2004:  
    Cox had upgraded 93% of its networks to a bandwidth capacity of 750 megahertz or
greater;
    digital cable was available to 99% of the homes passed by Coxs broadband network;
    high-speed Internet was available to 99% of homes passed; and
    telephone was available to 62% of homes passed. 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 system clusters.
As of December 1




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31, 2004, approximately 83% of Coxs basic video customers were served by Coxs 12 largest
clusters, which averaged approximately 435,000 customers each. These clusters, represented by
location, are: Hampton Roads
    
    New England
    
    Orange CountyKansas
    
    New Orleans
    
    ArizonaLas Vegas
    
    Northern Virginia
    
    San DiegoMiddle America Cox
    
    Oklahoma
    
    West Texas
 Locally and regionally clustered cable systems enable Cox to reduce expenses through the
consolidation of marketing and support functions and to put in place more experienced management
teams who are better equipped to meet the new competitive and regulatory challenges of todays
communications industry at the system level. Local and regional clusters also increase the speed
and effectiveness of Coxs new product and services deployment, enhancing its ability to increase
both customers and revenues. Bundling.Bundling is a fundamental business strategy for Cox. A bundled customer is one who
subscribes to two or more of Coxs primary services (video, high-speed Internet access and
telephone). Cox offers the full bundle of services supported by a single, integrated back-office
platform. That means customers can make one call regarding any and all of their services, can
receive a single bill for all services and can receive multiple services at a discount. Cox
believes that the bundle increases penetration and operating efficiencies, reduces customer churn
and provides a competitive advantage. In 2004, the number of bundled customers grew by 23% to 2.8
million, and 44% of Coxs basic video customers now subscribe to more than one service. Customer Service.Strong customer service is a key element of Coxs business strategy to
deliver advanced communications services to its customers. Cox has always been committed to
customer service and has been recognized by several industry groups as a leader in providing
excellent customer service. Cox believes that its high level of customer satisfaction helps it
compete more effectively as it delivers its wide range of broadband communications services,
including digital video, high-speed Internet access and local and long-distance telephone, and will
continue to benefit Cox as it offers future services. 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 and Telecommunications
Association and the Federal Communications Commission (FCC). Community Service.A key element of Coxs community service is enhancing education through
the use of cable technology and programming. Cox participates in a wide range of education and
community service initiatives in its communities nationwide. Coxs major company-wide programs
include:  
    Cox Cable in the Classroom, which provides more than 6,000 schools and 3.7 million
students with complimentary basic cable service and more than 540 hours of commercial-free
educational cable programming on a monthly basis.  
    Cox Line to Learning, which provides complimentary high-speed Internet access,
exclusive curricula and distance-learning experiences to students in more than 900
accredited public and private schools in communities where high-speed digital services are
available. Coxs Line to Learning events link students through online video conferencing
to experts in the workplace. These distance-learning events demonstrate the link between
classroom activities and the wider world, enabled by Coxs broadband technology. In addition, to help bridge the digital divide, Cox provides many local Boys and Girls Clubs of
America with free or discounted high-speed Internet access and cable service. Products and Services Cox has one operating segment, broadband communications, and offers video and high-speed
Internet access in almost all of its markets, telephone service in a growing number of markets and
new advanced services in select markets. Cox experiences some seasonality in its business,
primarily as a result of college 2




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students returning to school in the fall and people traveling to warmer climates for the
winter. These factors generally result in increased revenues during the third quarter of the year. Video Coxs cable operations represent the primary element of its integrated broadband
communications strategy. Video revenues represented 60%, 64% and 68% of total revenues in 2004,
2003 and 2002, respectively. Cox offers customers a full range of video services and packages.
Customers generally pay initial connection charges and fixed monthly fees for video service. As of
December 31, 2004, Coxs cable systems provided video service to approximately 6.3 million
customers. Coxs video service offerings consist of the following:  
    Basic Cable. Basic cable includes, for a monthly fee, local broadcast signals available
off-air, a limited number of broadcast signals from so-called superstations, and public,
governmental and educational access channels.
    Expanded Basic. Expanded service includes, for an additional monthly fee,
satellite-delivered non-broadcast programming (such as CNN, MTV, USA, ESPN, A&E, TNT, The
Discovery Channel, The Learning Channel and Nickelodeon).
    Premium Services.Premium services include, for an additional monthly fee,
satellite-delivered programming that consists principally of feature motion pictures
presented without commercial interruption, sports events, concerts and other entertainment
programming (such as Home Box Office, Showtime, Starz and Cinemax).
    Pay-Per-View. Pay-per-view service allows customers to order, for a one-time fee, a
single showing of a recently released movie, sporting event or music concert without
commercial interruption.
    Cox Digital Cable.Digital compression technology currently allows up to 12 digital
channels to be inserted into the space of only one traditional analog channel. A set-top
video terminal converts the digital signal into analog signals that can be viewed on a
television set. A Cox Digital Cable customer can currently receive up to approximately
250 channels, including enhanced pay-per-view service, digital music channels, new
networks grouped by genre and an interactive program guide. Customers pay a monthly fee
for digital cable, which varies based on level of service and number of digital converters
selected by the customer. In addition, Cox has introduced new video services to enhance its competitive position and
generate additional revenues.  
    Entertainment On Demand. Entertainment On Demand (also referred to as video on demand)
is an interactive service that provides access to hundreds of movies and other programming
with full VCR-like functionality, including the ability to pause, rewind and fast forward
programs. Customers can also start a program whenever they like, stop the selection
before it is completed and view a program repeatedly during the 24 hour rental period.
Customers generally pay on a per-selection basis. Cox has already launched Entertainment
On Demand in some markets, and is working with technology vendors and others to make
Entertainment On Demand widely available.  
    High-Definition Television. High definition television is high-resolution digital
television. A high definition television signal has twice the color resolution, provides a
picture that is six times sharper than that provided by a traditional analog television
set and provides enhanced audio, such as Dolby Digital. Cox provides high definition
television service in 93% of its homes passed. 3




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
    Digital Video Recorders. A digital video recorder is a device that allows customers to
store television programming on a hard disk drive so that customers can access this
programming at a later time. The digital video recorder functions like a VCR, except that
there is no videotape and it offers more sophisticated recording options and playback
features. Cox has deployed digital video recorders in all of its markets. High-Speed Internet Access Cox offers several packages of high-speed Internet access services with varying speed,
features and prices. These services are marketed under the brand name of Cox High Speed Internet.
Data revenues represented 17%, 15% and 11% of total revenues in 2004, 2003 and 2002, respectively.
These services deliver access to the Internet at speeds of up to 170 times faster than traditional
phone modems and provide unique online content that capitalizes on the substantial capacity of
Coxs broadband network. Cox uses its own nationwide Internet Protocol network to deliver
high-speed data and Internet services to its customers. This network utilizes Coxs coaxial cable
infrastructure to connect subscribers to the Internet and other online services and includes
standard Internet service provider functionality, such as web page hosting for subscribers, access
to Internet news groups, multiple e-mail accounts and remote access. Additionally, Cox offers a
set of free computer and Internet security software programs designed to help protect its
subscribers online privacy and identities. Cox believes that control of its network and service
will result in better customer service, reduced operating costs and enhanced future services. Cox is also offering home networking as part of its high-speed Internet product. A home
network is a group of personal computers and other devices that communicate with each other through
a common wired or wireless technology. Cox High Speed Internet customers can purchase a home
networking product that includes the necessary wired or wireless equipment, a professional
installation and 24-hour technical support. There is a one-time installation charge and a monthly
fee for ongoing technical support. Cox Digital Telephone Cox utilizes the capacity and reliability of its advanced broadband network by providing local
telephone services and long-distance services. Telephony revenues represented 9%, 8% and 7% of
total revenues in 2004, 2003 and 2002, respectively. In 2004, Cox launched telephone service in
five new markets and now serves seventeen markets in total, representing 62% of its total
footprint. In five of these markets, Cox provides telephone service via the Internet (VOIP). In
the remaining twelve markets, Cox has deployed traditional circuit-based technology. In all
locations, the service is marketed as primary line phone service under the brand, Cox Digital
Telephone. Cox Business Services Through both its dedicated fiber optic networks and its hybrid fiber coaxial cable networks,
Cox Business Services provides a range of advanced communications services, including high-speed
Internet access, local and long distance telephone and advanced voice and data transport solutions
for companies of all sizes. Commercial revenues represented 6% of total revenues in 2004 and 5% of
total revenues in both 2003 and 2002. Cox Media Cox also derives revenues from the sale of advertising time on satellite-delivered networks
and digital networks through its advertising sales division, Cox Media. Advertising revenues,
primarily consisting of local, regional and national sales, represented 6%, 7% and 8% of total
revenues in 2004, 2003 and 2002, respectively. Currently, Cox inserts advertising on up to 67
channels in each of its cable systems. In addition to advertising sales in Cox markets, Cox Media
represents the advertising sales efforts of other cable operators. Viewership to cable networks has continued to increase over the past 15 years showing the
increasing popularity of the medium. Cox expects continued growth of this revenue source as a
result of this audience 4




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shift. In addition, Cox participates in the national cable advertising market through its
investment in National Cable Communications, L.L.C., a partnership that represents cable companies
in connection with the sale of advertising space to advertisers. National Cable Communications is
the nations largest representation firm in spot cable advertising sales. Customer Data The following table presents operating statistics for Coxs primary services as of December
31, 2004 and 2003: December 312004
    
    
    2003 (a)Customer relationshipsBasic video customers (b)
    
    
    6,287,395
    
    
    
    6,285,236Non-video customers (c)
    
    
    348,825
    
    
    
    288,157Total customer relationships (d)
    
    
    6,636,220
    
    
    
    6,573,393Revenue generating unitsBasic video customers (b)
    
    
    6,287,395
    
    
    
    6,285,236Advanced services (e)
    
    
    6,286,827
    
    
    
    5,116,882Total revenue generating units (f)
    
    
    12,574,222
    
    
    
    11,402,118Video homes passed (g)
    
    
    10,567,166
    
    
    
    10,320,817Basic video penetration (h)
    
    
    59.5
    %
    
    
    60.9
    %Cox Digital CableDigital cable ready homes passed
    
    
    10,494,634
    
    
    
    10,170,472Customers
    
    
    2,410,216
    
    
    
    2,141,219Penetration of customers to basic video
customers
    
    
    38.3
    %
    
    
    34.1
    %High-Speed Internet AccessHigh-speed Internet access ready homes passed
    
    
    10,466,947
    
    
    
    10,174,932Customers
    
    
    2,571,246
    
    
    
    1,987,237Penetration of customers to high-speed Internet
access ready homes passed
    
    
    24.6
    %
    
    
    19.5
    %Cox Digital TelephoneTelephone ready homes passed
    
    
    6,537,968
    
    
    
    5,031,401Customers
    
    
    1,305,365
    
    
    
    988,426Penetration of customers to telephone ready homes
passed
    
    
    20.0
    %
    
    
    19.6
    %Bundled CustomersCustomers subscribing to two or more services
    
    
    2,777,588
    
    
    
    2,253,596Penetration of bundled customers to basic video
customers
    
    
    44.2
    %
    
    
    35.9
    %
   (a)
    
    Cox sold certain cable systems in the second quarter 2004. Customer data as of December
31, 2003 has been adjusted to exclude these sold cable systems for purposes of comparability.(b)
    
    A home with one or more television sets connected to a cable system is counted as one basic
video customer.(c)
    
    A customer who receives high-speed Internet or telephone service, but does not subscribe to
video service is counted as a non-video customer.(d)
    
    Total customer relationships represent the number of customers who receive at least one level
of service, encompassing video, high-speed Internet and telephony services, without regard to
which service(s) customers purchase.(e)
    
    Advanced services include Cox Digital Cable, Cox High Speed Internet and Cox Digital
Telephone. 5




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(f)
    Each basic video customer and each advanced service is a revenue generating unit. In certain
locations, a household may purchase more than one advanced 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 video customers as a percentage of video homes passed. Franchises Cable systems are constructed and operated under non-exclusive franchises granted by local
governmental authorities that may choose to award additional franchises to competing companies at
any time. Franchise agreements typically contain many requirements, 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. Local regulation of
cable television operations and franchising matters is subject to federal regulation under the
Communications Act of 1934, as amended (the Communications Act) and the corresponding regulations
of the FCC. See Legislation and Regulation  Cable Franchising Matters. As of December 31, 2004, Cox held approximately 751 cable television franchises. These
franchises generally provide for the payment of fees to the issuing authority. The Communications
Act prohibits franchising authorities from imposing annual franchise fees in excess of 5% of gross
revenues derived from the provision of cable services and also permits the cable system operator
to seek renegotiation and modification of franchise requirements if warranted by changed
circumstances. Cox has never had a franchise revoked, and it has never been denied a franchise renewal.
Although franchises historically have been renewed, renewals may include less favorable terms and
conditions than the existing franchise. The Communications Act provides for an orderly franchise
renewal process and establishes comprehensive renewal procedures designed to protect cable
operators against denials of renewal. 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. Investments Cox has made investments in businesses focused on cable programming, telecommunications and
technology. Discovery Communications, Inc.Discovery provides nature, science and technology, exploration
and adventure programming, and is distributed to customers in virtually all homes receiving cable
television in the U.S. The principal businesses of Discovery are the
advertiser-supported networks: The Discovery Channel, The Learning Channel, Animal Planet Network, The Travel Channel and
Discovery Europe, and 6




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the retail businesses of Discovery.com. In addition, Discovery is building a documentary
programming library. At December 31, 2004, Cox owned a 25.0% interest in Discovery. Sprint PCS.Sprint Corporation offers personal communications services through its PCS Group. In March 2004, Cox sold 0.1 million shares of Sprints PCS Group preferred stock for aggregate
net proceeds of approximately $56.9 million. Cox recognized a pre-tax gain of $19.5 million on the
sale of these shares. In April 2004, Sprint eliminated its PCS tracking stock by mandating the exchange of its PCS
shares for shares of its FON common stock. Cox held certificates representing approximately
330,000 PCS shares and received approximately 165,000 FON shares in exchange for the certificates.
In June 2004, Cox sold the FON shares for net proceeds of approximately $3.0 million. Cox
recognized a pre-tax gain of approximately $2.3 million on the sale of these shares. As a result
of the sale, Cox no longer holds any shares of Sprint stock. Other. At December 31, 2004, Cox also had ownership interests in In Demand, L.L.C. and
National Cable Communications, L.L.C., as well as certain other public and private companies in the
cable programming, telecommunications and technology businesses. Competition Based on reported subscriber numbers of other providers of multi-channel video services, Cox
is the fifth largest provider of multi-channel video services in the country. The following
providers report higher subscriber numbers than Cox: Comcast Corporation, DirecTV (a subsidiary of
Hughes Electronics Corporation which is 34% owned by a subsidiary of News Corporation Limited),
Time Warner and Echostar Communications Corporation. Each of Coxs broadband services operates in a competitive environment. Certain
facilities-based competitors, including local telephone companies and satellite program
distributors, offer cable and/or other communications services in various areas where Cox operates
its cable systems. Cox anticipates that facilities-based competitors will develop in other areas
that Cox serves. Coxs services will likely face competition in the future from other competitors
using additional spectrum the FCC makes available from time to time in spectrum auctions. Cable and Internet Access Competition. Coxs cable systems compete with a variety of news,
information and entertainment providers. Coxs cable systems also face competition from all media
for advertising dollars. In the communities in which Cox operates its cable systems, Cox may
compete with one or more of the following businesses:  
    direct broadcast satellite (commonly known as DBS) and direct-to-home satellite program distributors that transmit
video programming, data and other information by satellite to customers receiving dishes;  
    local exchange carriers (commonly known as LECs), who have partnered with DBS providers to offer video services over
the last year and have recently announced plans to enter the video distribution market with fiber facilities;  
    multichannel multipoint distribution service (also known as MMDS or wireless cable) that uses low-power microwave
frequencies to transmit video programming and other information over-the-air to subscribers receiving dishes;  
    local television broadcast stations providing free off-air programming that can be received using a roof-top antenna
and television set;  
    satellite master antenna television systems (also known as SMATV or private cable systems) that serve condominiums,
apartments, office complexes and private residential developments;  
    competitive cable systems that have been franchised by local governments to provide cable television services in areas
where Cox operates (commonly known as overbuilders); 7




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
    distributors of home video products;  
    interactive online computer and Internet services;  
    movie theaters;  
    live concerts and sporting events; and  
    books, newspapers and magazines.In order to compete effectively, Cox strives to provide, at a reasonable price to its subscribers:  
    new products and services, including digital video and audio programming, high definition video programming, high-speed
Internet access and telephone services;  
    a greater variety of optional video programming packages;  
    superior technical performance; and  
    superior customer service. In recent years the FCC has adopted regulatory policies intended to provide a favorable
operating environment for existing and new technologies that provide, or have the potential to
provide, substantial competition to cable systems. These technologies include direct broadcast
satellite service, among others. Direct broadcast satellite services are available throughout the
country through the installation of a small roof top or side-mounted antenna. Direct broadcast
satellite operators are among the cable industrys largest competitors. The two largest direct
broadcast satellite companies, EchoStar Communications Corporation and DirecTV, are currently
offering nationwide high-power direct broadcast satellite services and are each among the four
largest providers of multichannel video programming services on the basis of reported subscriber
numbers. The de factocontrolling interest in DirecTV held by News Corporation Limited, which
currently controls direct broadcast satellite operations in Europe, Asia and Latin America,
significantly enhances DirecTVs ability to compete with Cox. Direct broadcast satellite service subscribership continues to grow. According to recent
government reports, conventional, medium and high-powered satellites provide video programming to
over 23.49 million subscribers in the U.S., which represents an approximate 25.45% share of the
national multichannel video program distributor market. Direct broadcast satellite providers with
high-power satellites typically offer more than 300 channels of programming, including local
television broadcast stations and other programming services substantially similar to those
provided by Coxs cable systems. Direct broadcast satellite systems use video compression
technology to increase channel capacity and digital technology to improve the quality and quantity
of the signals transmitted to their subscribers. Unlike cable operators, direct broadcast
satellite systems have limited ability to offer locally produced programming in each community
where service is offered and do not have a significant local presence in most communities. Coxs
video service packages, including its digital cable services, are competitive with the programming,
channel capacity and the digital quality of signals delivered to subscribers by direct broadcast
satellite systems. The direct broadcast satellite industry also provides advanced communications services.
Direct broadcast satellite providers currently offer one-way high-speed Internet access services
using a telephone return path. DirecTV also is offering two-way high-speed Internet access
services. DirecTV and Verizon Communications, one of the worlds largest telecommunications
companies, have an agreement to offer bundled communications services, including local and long
distance telephone, broadband Internet, mobile telephone and satellite TV services, in Rhode Island
and in other parts of New England and the mid-Atlantic states. DirecTV also has similar bundled
communications service agreements with BellSouth Corporation and Qwest Communications International
Inc., both of which are among the worlds largest telecommunications companies. EchoStar is
offering its video programming services with the Internet services provided by EarthLink, an
Internet service provider, using digital subscriber line technology, and it also has separate
agreements in which it bundles its satellite video services with the telephone and Internet
services of Sprint Corporation, SBC Communications, Qwest and CenturyTel. Another satellite
company called WildBlue (formerly iSKY) reports that it plans to deliver two-way high-speed
Internet access to residential and small business markets in the contiguous U.S. and portions of
Canada in the second half of 2005 using the Ka-band and spot beam technology. Most of Coxs
cable systems offer high-speed 8




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Internet services that compete with the Internet services offered by these direct broadcast
satellite providers and by existing Internet service providers (also known as ISPs) and local and
long-distance telephone companies. In
addition to entering into joint marketing arrangements with direct
broadcast satellite providers,
some local telephone companies are building fiber optic networks
capable of delivering multiple
communications services to consumers, including video programming,
Internet and telephone services. Federal law allows local telephone companies to provide, directly to subscribers, a wide
variety of services that are competitive with Coxs cable television services, including video and
Internet services, within and outside their telephone service areas. Telephone companies and other
businesses construct and operate communications facilities using various technologies, including
fixed wireless technology, that provide access to the Internet and distribute interactive
computer-based services, data and other non-video services to homes and businesses. Many Internet
service providers offer access to the Internet with dial-up services over ordinary telephone lines.
The deployment of Digital Subscriber Line technology, also known as DSL, allows Internet access to
subscribers at data transmission speeds equal to or greater than that of modems over conventional
telephone lines. Monthly service fees for digital subscriber line services are comparable to
charges for high-speed Internet services offered over cable systems, and dial-up Internet services
often have a pricing advantage. Numerous companies, including telephone companies, have introduced
digital subscriber line service, and certain telephone companies are seeking regulatory changes in
order to provide high-speed broadband services without regard to present service boundaries and
other regulatory restrictions. In Phoenix, Arizona and Omaha, Nebraska, where Cox operates cable
systems, Qwest uses very high-speed digital subscriber line (also known as VDSL) technology to
distribute video, high-speed Internet access and telephone service over existing copper phone
lines. BellSouth and Earthlink have an agreement to provide high-speed digital subscriber line
technology to various markets, including Baton Rouge and New Orleans. Verizon announced that it
will provide broadband communications services to EarthLink and will offer Internet telephony
services to Earthlink customers. As in recent years, Congress may again consider legislation that, if enacted into law, would
eliminate or reduce significantly many of the regulatory restrictions on the offering of high-speed
broadband services by local telephone companies. The FCC also has several rulemaking proceedings
pending that may lead to a reduction or elimination of certain regulatory restrictions currently
imposed on the offering of high-speed broadband services by local telephone companies. Similarly,
the FCC also adopted regulations in October, 2004 to facilitate the development and delivery of
broadband services over electric power lines. See Legislation and Regulation  Cable Television.
Cox is unable to predict the outcome of these legislative or regulatory initiatives or the
likelihood of success of competing video or broadband service ventures by telephone and electric
companies or other businesses. Although Coxs high-speed Internet services are very competitive
with the Internet services delivered by telephone companies, Cox cannot predict the impact these
competitive ventures might have on its business and operations. Real-time (i.e., streaming) and downloadable video accessible over the Internet continues to
improve in quality and is becoming more widely available, although streaming Internet video has yet
to become a significant competitor to traditional video services. As high-speed Internet services
over cable systems become more ubiquitous, programming suppliers, such as the major movie studios,
may bypass cable operators and market their services directly to consumers through video streaming
over the Internet. In 2003, Yahoo Inc. introduced a video subscription service that offers
entertainment and sports content. Cox is unable to predict the impact on its business and
operations from companies providing Internet services or companies using the Internet to gain
direct access to Coxs subscribers. Coxs cable systems also compete for subscribers with satellite master antenna television
systems that receive signals transmitted by satellite at receiving facilities located on private
property such as condominiums, apartments, office complexes and other private residential
developments. These systems also are developing and/or offering high-speed Internet access and
other broadband services along with video services. Satellite master antenna television systems,
which normally are free of many regulatory burdens imposed on franchised cable systems, often enter
into exclusive agreements with property owners or managers that may preclude franchised cable
systems from serving their residents, although some states have enacted laws prohibiting such
exclusive arrangements. Courts reviewing challenges to these laws have reached varying results.
The FCC has ruled that private cable systems can distribute cable programming services across
public rights-of-way to subscribers in multiple buildings over leased video distribution capacity
acquired from local telephone companies without obtaining a franchise from the local 9




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governmental authorities. 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 its
operations. However, Cox is continuing to develop and market competitive packages of services to
offer residential and commercial developments. Cable systems also compete with multichannel multipoint distribution service systems (also
known as MMDS or wireless cable systems), which are licensed by the FCC to serve specific areas
using low-power microwave frequencies. The FCCs regulations allow wireless cable systems the
flexibility to employ digital technology in delivering two-way communications services, including
high-speed Internet access, and along with the use of digital compression technology, wireless
cable systems are able to deliver more channels and additional services, such as Internet service.
Generally, wireless cable operators are now focusing on data transmission rather than video
service. One such system in Phoenix, Arizona has over 10,000 customers subscribing to its
Internet service and is competing with Coxs cable system. A wireless cable operator also is
authorized or has commenced service in several California communities where Cox operates. In addition, the FCC has awarded licenses in the 28 gigahertz band for a new multichannel
wireless video service called Local Multipoint Distribution Service (also known as LMDS), which,
like other wireless cable systems, is capable of transmitting voice and high-speed Internet access
as well as video transmissions. The FCC completed an auction of a 500 megahertz block of spectrum
in the 12.2 to 12.7 gigahertz band (spectrum previously allocated for direct broadcast satellite
system use) in the Multichannel Video Distribution and Data Service (also known as MVDDS); and the
FCC will issue at least 192 geographic area licenses throughout the United States authorizing new
terrestrial digital wireless video, voice, and data transmission services. The FCC requirements
for this new terrestrial digital wireless service requires licensees to operate on a non-harmful
interference basis with the incumbent spectrum user. Based on the reported results of the
spectrum auction, the FCC is expected to issue licenses in several Cox markets, including Las
Vegas, Phoenix and San Diego. Cox is unable to predict whether any of these wireless
communications services will have a material impact on its business and operations. Cox operates its cable systems pursuant to non-exclusive franchises that are issued by a
communitys governing body such as a city council, a county board of supervisors or a state
regulatory agency. Federal law prohibits franchising authorities from unreasonably denying
requests for additional franchises, and it permits franchising authorities to operate cable
systems. Companies that traditionally have not provided cable services and that have substantial
financial resources (such as public utilities that own certain of the poles to which Coxs cables
are attached) may also obtain cable franchises and may provide competing communications services.
The consolidated franchising authority for the City and Parish of Lafayette, Louisiana is currently
attempting to authorize and finance a competing broadband cable system that will be constructed and
operated by the Lafayette Utilities System, a municipal utility. To date, the number of competing
cable systems in Coxs service areas has been relatively slight,
and fewer than 10% of Coxs total
homes passed are overbuilt by other cable operators 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. See
Legislation and Regulation  Cable Franchising Matters. Other new technologies also compete with Coxs cable-delivered services. The FCC has issued
digital television (also known as DTV) licenses to incumbent television broadcast licensees.
Digital television stations are capable of delivering high-definition television pictures, multiple
digital program streams, as well as CD-quality audio programming and advanced digital services such
as data transfer or subscription video. Digital television stations are now operating in many of
Coxs cable television markets. In the markets where Cox is now offering high definition (HD)
digital services, Cox has reached agreements with many of these stations to carry at least their
primary digital broadcast signal on Coxs cable systems. Telephony Competition. Coxs telephone services compete with various providers of both
landline and wireless communications services, including cellular, personal communications services
(also known as PCS), and specialized mobile radio (also known as SMR) systems. The switched voice
and data telecommunications market currently is dominated by incumbent local telephone companies
(also known as 10




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incumbent local exchange carriers or ILECs); however, wireless communications service
providers and long distance carriers also offer competition to Cox in the delivery of both voice
and Internet services. Resellers of the incumbent local telephone companys voice and Internet
services also compete with Coxs communications services. Resellers are typically low-cost
aggregators that serve price conscious market segments; and value-added resellers target customers
with special communications needs. Companies offering VOIP service (also known as IP telephony)
also compete with Coxs telephone services. Subject to certain limitations for rural telephone companies, the FCC may preempt any state or
local law or regulation that prohibits or has the effect of prohibiting any entity from providing
telecommunications services. Federal law facilitates opening local exchange markets to
competition, which has resulted in a substantial increase in Coxs business opportunities to
deliver telecommunications services over its cable broadband networks. On
January 31, 2005, SBC Communications and AT&T announced
that AT&T had agreed to be
acquired by SBC and on February 14, 2005, Verizon
Communications and MCI announced that MCI had
agreed to be acquired by Verizon. Cox is unable to predict the effect
these transactions, if consummated,
will have on Coxs telephone services business. Advances in communications technology, marketplace developments and regulatory and legislative
changes will occur in the future. For further information concerning legislative and regulatory
matters, please see 3⁄4 Legislation and Regulation. New technologies and services may
develop and may compete with services offered by Cox over its communications facilities.
Consequently, Cox is unable to predict the effect that ongoing or future developments might have on
its business and operations. Legislation and Regulation Cable Television The cable industry is regulated to varying degrees by the FCC, certain state governments and
agencies and most local governments. In addition, legislative and regulatory proposals under
consideration from time to time by Congress and various federal, state and local agencies may
materially affect the cable industry. The following is a summary of federal laws and regulations
affecting the growth and operation of the cable industry and a brief description of certain state
and local laws. The Communications Act of 1934, as amended by the Cable Communications Policy Act of 1984 (the
1984 Cable Act), the Cable Television Consumer Protection and Competition Act of 1992 (the 1992
Cable Act), and the Telecommunications Act of 1996 (the 1996 Telecommunications Act), establishes
comprehensive national standards and guidelines for the regulation of cable television systems and
allocates responsibility for enforcing federal regulatory policies among the FCC, state and local
governmental authorities. The courts, especially the federal courts, have an important oversight
role as the statutory and regulatory provisions and policies are interpreted and enforced by
various governmental units. Court actions and regulatory proceedings will continue to refine the
rights and obligations of cable operators and governmental authorities under federal law. The
results of these judicial and administrative proceedings may materially impact Coxs business and
operations. The Communications Act and FCC Regulations The Communications Act and the regulations and policies of the FCC affect significant aspects
of Coxs cable system operations, including:  
    subscriber rates;  
    the content of 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 system facilities by local franchising
authorities, the public and unrelated companies;  
    the use of utility poles and conduits;  
    cable system and program ownership limitations; and  
    franchise agreements with local governmental authorities. 11




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Rate Regulation.The Communications Act and FCC regulations authorize certified local
franchising authorities to regulate rates for basic tier cable services and associated customer
equipment and installations in communities where the cable system is not subject to effective
competition, as defined by federal law. The FCC has detailed rate regulations, guidelines and
rate forms that franchising authorities must use in connection with their regulation of Coxs basic
service and equipment rates. Where its cable system is regulated, Cox may modify its rates on an
annual basis to 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. Additionally, Cox may
modify its rates to account for significant network upgrades. If the franchising authority
determines that Coxs basic service or equipment rates are not in compliance with the FCCs
regulations, it may require Cox to reduce those rates and to refund to subscribers with interest
any overcharges during the prior year. Cox may appeal adverse 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 212 communities served by Coxs cable systems currently regulate Coxs basic
service and equipment rates. These communities represent approximately 25% of total communities
served by Cox and approximately 50% of the total number of equivalent basic subscribers served by
Coxs cable systems. The regulation of Coxs basic service and equipment rates in these
communities has not materially impacted Coxs business and operations and Cox does not believe that
it will do so in the future. The Communications Act and the FCCs regulations also:  
    prohibit regulation of rates for non-basic multi-channel video
service packages and video programming offered on a per channel or
per program basis, as well as regulation of rates by local
franchising authorities for other non-basic communications
services provided over the cable system;  
    require operators to establish a uniform rate structure for cable
services throughout each franchise area that is not subject to
effective competition, subject to certain exceptions allowing
operators to establish reasonable categories of customers and
services;  
    permit operators to offer non-predatory bulk discount rates for
subscribers in commercial and residential developments and to
offer discounted rates to senior citizens and other economically
disadvantaged groups; and  
    permit regulated basic equipment and installation rates to be
computed by aggregating costs of broad categories of equipment at
the franchise, system, regional or company level. In
recent years, Congress has considered imposing new pricing and/or
packaging requirements on the
video programming services offered by cable operators, including
proposals to require cable operators to
offer video programming services on an a la carte basis instead of or
in addition to the current service
packages typically offered by cable operators. Cox cannot predict
whether or when Congress or any
regulatory agency may adopt new regulations on the pricing or
packaging of cable services. Content Requirements and Restrictions.The Communications Act and FCC regulations permit
a local commercial television broadcast station to elect once every three years to require a cable
operator in the stations designated market area either:  
    to carry the station on certain designated channel positions on
the operators cable system (subject to certain exceptions); or  
    to negotiate an agreement for the stations retransmission
consent that permits the operator to carry the station on the
cable system. The Communications Act requires a cable operator to devote as much as 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 systems. Cable systems must negotiate retransmission consent
for any additional distant commercial television stations (except for certain commercial
satellite-delivered independent superstations such as WGN), commercial radio stations and certain
low-power television stations. The FCC has an on-going administrative proceeding in which it has evaluated various proposals
for mandatory carriage of digital television signals. In its initial decision in this proceeding
in January 2001, the FCC: 12




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
    declined to order the carriage of both the analog and digital signals of television stations;  
    implemented technical and operational standards for the carriage of digital television signals;  
    determined that a television broadcast station licensee that is operating only on its authorized digital channel and/or
that has surrendered its analog broadcast channel has mandatory cable carriage rights within the broadcasters local
service area for only the primary video programming stream of the broadcasters digital broadcast channel and does
not have the right to require the cable operator to carry multiple digital programming streams, commonly called
multicasting;  
    authorized the digital-only broadcast station to elect whether the operators cable system will carry the stations
signal in a digital or converted analog format; and  
    authorized broadcasters with both analog and digital signals to tie the carriage of their digital signals with the
carriage of their analog signals as a retransmission consent condition. In February 2005, the FCC reaffirmed its 2001 decision not to impose (i) a dual carriage
regulation which would have required an operator to carry simultaneously a local broadcasters
analog and digital signals, and (ii) a requirement that operators carry more than a single digital
programming stream from any particular broadcaster. The broadcast industry trade association and
several broadcasters have announced that they will challenge the FCCs February, 2005 ruling in
federal court and will lobby Congress for legislative changes to cable operators digital broadcast
signal carriage obligations. The FCC may evaluate additional modifications to its digital
broadcast signal carriage requirements in the future. Cox cannot predict the ultimate outcome of
this proceeding, or the impact any new carriage requirements may have on the operation of its cable
systems. Except in areas where Cox is subject to effective competition, the Communications Act and the
FCCs regulations prohibit operators from requiring subscribers to purchase any tier of service,
other than the basic service tier, as a condition of subscribing to video programming offered on a
per channel or per program basis. In response to a complaint alleging a violation of this tier
buy-through prohibition, the FCC requested Cox to explain the marketing of its digital cable
services in Connecticut wherein subscribers must purchase a Digital Gateway service as a
condition to receiving any digital services, including digital video programming offered on a per
channel or per program basis. Coxs Digital Gateway service consists of an interactive
programming guide and Music Choice, a forty-channel audio service. Although Cox has submitted to
the FCC an explanation justifying its Digital Gateway service charge which also is assessed to
digital subscribers in other Cox systems around the country, it cannot predict how the FCC will
decide the matter. Cox does not believe an adverse FCC decision prohibiting Coxs Digital Gateway
charge will materially impact Coxs business and operations. One of the underlying competitive policy goals of the federal communications laws is to limit
the ability of vertically integrated program suppliers from favoring affiliated cable operators
over unaffiliated program distributors. Consequently, with certain limitations, until 2007,
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 contains restrictions on the transmission by cable operators of obscene
programming. The Communications Act also requires cable operators, upon the request of a
subscriber, to scramble or otherwise fully block any channel that is not included in the
programming package purchased by the subscriber. Cable operators are also required to provide by
sale or lease a lockbox or other device that permits a subscriber to block the viewing of specific
channels during specified periods selected by such subscriber. From
time to time, Congress has considered restrictions on the carriage by
cable operators of indecent, non-obscene programming, such as adult
oriented programming. Cox cannot predict if Congress or any
regulatory agency may adopt restrictions on the carriage of such
programming or the impact of such restrictions on Coxs business
and operations. The FCC actively regulates other aspects of a cable operators programming, including: 13




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
    use of syndicated and network programs and local sports broadcast programming;  
    advertising in childrens programming;  
    political advertising;  
    programming created or controlled by the cable operator (i.e., origination cablecasting);  
    sponsorship identification; and  
    closed captioning of video programming. The FCC has also initiated a regulatory proceeding to evaluate its jurisdiction and regulatory
authority over the distribution of interactive television services, including advanced instant
messaging and interactive menu services. The FCCs attempt to require video programmers, including
cable operators, to provide simultaneous audio description of video activity occurring on certain
programming to assist visually impaired persons has been rejected by a federal appellate court. Use of Coxs 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, in
addition to the mandatory broadcast carriage requirements discussed
earlier (see Legislation and
Regulation  Cable Television  The Communications Act and
FCC Regulations  Content Requirements and Restrictions), the Communications Act:  
    permits franchising authorities to require that cable operators
provide channel capacity for public, educational and governmental
access programming; and  
    requires cable systems with 36 or more activated channels to
designate a significant portion of their channel capacity for
programming provided by unaffiliated third parties under regulated
lease arrangements. The FCC regulates various aspects of third party commercial use of channel capacity on cable
systems, including the rates and certain terms and conditions of such use. Various consumer groups and companies, including telephone companies and Internet service
providers, have lobbied vigorously for local, state and federal governments to mandate that cable
operators provide capacity on their systems so that these companies and others may deliver
high-speed Internet and interactive television services directly to subscribers over cable systems.
Municipal efforts to impose unilaterally so-called open access requirements on cable operators
have not generally been successful and have been rejected by several federal courts, although the
rationale for each decision has varied. The FCC, in connection with its review of the AOL-Time
Warner merger, imposed, together with the Federal Trade Commission, limited multiple access,
technical performance and other requirements related to the merged companys Internet and Instant
Messaging platforms. In 2002, the FCC decided that the provision of broadband Internet services over cable systems
is an interstate information service, and not a cable service or telecommunications service.
The FCC confirmed that cable operators offering integrated high-speed Internet services are not
subject to common carrier requirements to offer the transport functions underlying their Internet
services on a stand-alone basis to unaffiliated Internet service providers. In October 2003, a
three-judge panel for the U.S. Court of Appeals for the Ninth Circuit concluded that broadband
Internet service delivered over a cable system is in part a telecommunications service and
therefore it vacated in part and remanded the FCCs decision for further proceedings at the FCC.
The U.S. Supreme Court has agreed to review the Ninth Circuits decision, which has been stayed
pending a final decision from the Supreme Court. The FCC has a separate rulemaking pending to
assess issues concerning the regulation of broadband Internet services provided over cable systems,
including whether the FCC can and should exercise authority to develop a new regulatory framework
for Internet service provided over cable systems as a facilities-based interstate information
service and the role, if any, of state and local governmental authorities in regulating such
services. Similarly, in a rulemaking proceeding involving regulation of incumbent local exchange
carriers broadband services, the FCC has proposed to classify broadband Internet services provided
by local telephone companies over their own wireline facilities as information services. The
outcome of the pending appeal of the FCCs regulatory classification of high-speed Internet
services provided over cable systems and the pending FCC broadband rulemaking proceedings may
affect significantly Coxs regulatory obligations, including whether Cox will be required to obtain
additional local authority to use the local 14




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rights-of-way for the delivery of high-speed Internet services or to pay local governmental
franchise fees and/or federal and state universal service fees on high-speed Internet service
revenues. Cox cannot predict the ultimate outcome of these judicial and administrative proceedings
or the impact of any new regulatory requirements on Coxs business and operations. In June 2000, the federal appellate court for the Ninth Circuit, which has jurisdiction over
California, Nevada and Arizona (among other states), decided in a dispute between AT&T Broadband
and the City of Portland that the Internet service offered by AT&T Broadband was not a cable
service. As a result, Cox determined that it could incur liability in those states if it continued
to collect and remit franchise fees on revenue derived from its high-speed Internet services.
Additionally, because the FCC ruled in March 2002 that high-speed Internet services provided over
cable systems are not cable services, Cox notified all of its local franchising authorities that it
no longer could collect and remit franchise fees on its high-speed Internet service revenues. Although various local
franchising authorities have objected to the termination of franchise fee payments on the revenues
from Coxs high-speed Internet services, the only franchising authorities that have taken any
formal action against Cox are the City of Los Angeles, California and Jefferson Parish, Louisiana.
Los Angeles has given Cox and other cable operators doing business in the City of Los Angeles a
formal notice of default of their franchise obligations for failure to pay franchise fees on
high-speed Internet service revenues. Jefferson Parish filed a lawsuit claiming, among other
things, that Cox is obligated to pay franchise fees on its high-speed Internet services. In
March 2004, Cox and Jefferson Parish settled the case in a manner which Cox believes is
beneficial to its operations. Cox cannot predict the outcome of the Los Angeles franchise fee
dispute, or the impact of any adverse result in such dispute on its business and operations. As of
December 31, 2004, Cox had approximately 9,400 subscribers in the City of Los Angeles. Legislation has been introduced previously in Congress, which, among other things, would have
required cable operators to offer interconnection to unaffiliated Internet service providers on
terms and conditions regulated by the FCC. Although the legislation was not enacted, Cox cannot
predict if similar proposals will be introduced or adopted in the future or whether such proposals,
administrative proceedings or litigation will have a material impact on its business and
operations. Pole Attachments.The Communications Act requires public utilities to provide cable systems
and telecommunications carriers with nondiscriminatory access to any pole, conduit or right-of-way
controlled by the utility. The Communications Act also requires the FCC to regulate the rates,
terms and conditions imposed by public utilities for use of utility poles and conduit space unless
state authorities have certified to the FCC that they adequately regulate pole attachment rates, as
is the case in certain states where Cox operates. In the absence of state regulation, the FCC will
regulate pole attachment rates, terms and conditions only in response to a formal complaint. The
Communications Act does not regulate municipally owned or cooperatively owned utilities. The FCCs
original rate formula governs the maximum rate certain utilities may charge for attachments to
their poles and conduit by cable operators providing cable services and other
non-telecommunications services. The FCC also adopted a second rate formula that governs the
maximum rate certain utilities may charge for attachments to their poles and conduit by companies
providing telecommunications services, including cable operators. Any resulting increase in
attachment rates due to the FCCs new telecommunications rate formula was phased in over a
five-year period in equal annual increments beginning in February 2001. The U.S. Supreme Court has upheld the FCCs jurisdiction to regulate the rates, terms and
conditions of cable operators pole attachments that are simultaneously used to provide high-speed
Internet access and cable services, and a federal appellate court recently confirmed that the FCCs
rate formulas, as applied in a specific case, provide just compensation under the Federal
Constitution. Several other recent federal appellate court decisions have also upheld various
aspects of the FCCs pole attachment regulations and policies, which decisions will provide more
certainty for Cox in its negotiations with various utilities for the use of space on poles and in
underground conduits. Cox
is involved in two complaint proceedings filed at the FCC by various state cable
associations (Florida and Georgia) challenging certain utilities rate increases and the
unilateral imposition of new contract terms. The utilities in these cases challenged, among other
things, the constitutionality of the 15




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FCCs pole attachment rate formulas. The proceedings involving Coxs Florida and Georgia
cable systems were decided in 2003 by the FCC in favor of the cable operators; however, in the
Florida case the utility involved is seeking further review by the FCC which has ordered an
administrative law judge to conduct limited discovery and, if necessary, to hold evidentiary
hearings to supplement the record for further review. Cox is unable to predict the outcome of the
legal challenges to the FCCs regulations or the ultimate impact any revised FCC rate formula, any
new pole attachment regulations or any modification of the FCCs regulatory authority might have on
Coxs business and operations. Ownership Limitations.The Communications Act authorizes the FCC to impose nationwide limits
on the number of subscribers under the control of a cable operator and on the number of channels
that can be occupied on a cable system by video programmers in which the cable operator has an
attributable ownership interest. The FCC adopted cable ownership regulations and established:  
    subscriber ownership information reporting requirements; and  
    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 Coxs compliance with the FCCs ownership
restrictions. The federal courts rejected constitutional challenges to the statutory ownership limitations;
but a federal appellate court concluded that the FCCs nationwide cable subscriber ownership limit
and its cap on the number of affiliated programming channels an operator may carry on its cable
systems were unconstitutional and that certain of its ownership attribution rules were
unreasonable. The FCC has initiated a rulemaking proceeding to evaluate the feasibility of new
horizontal and vertical cable ownership limitations and revised attribution standards. Cox is
unable to predict the outcome of this FCC proceeding or the impact any new FCC ownership
restrictions or attribution rules might have on its business and operations. The 1996 Act eliminated the statutory prohibition on the common ownership, operation or
control of a cable system and a television broadcast station in the same market. The FCC
eliminated its regulations precluding the cross-ownership of a national broadcasting network and a
cable system, and its regulations prohibiting the common ownership of other broadcasting interests
and cable systems in the same geographical areas. This broadcast-cable cross-ownership rule, when
it was effective, prohibited Cox from owning or operating a cable system in the same area in which
CEI or one of CEIs subsidiaries owns or operates a television broadcast station. Although the FCC
has modified many of its media ownership restrictions, it has not proposed to implement a new
broadcast-cable cross-ownership prohibition. With the FCCs elimination of its cable-broadcast
cross-ownership restriction, Cox may obtain an enhanced degree of flexibility in structuring its
cable operations. Local Telephone Company Ownership of Cable Systems. Federal law permits potentially strong
competitors such as telephone companies to enter into the cable business. Local telephone
companies may offer video services in their local telephone service areas, and legal barriers to
competition that exist in state and local laws and regulations are preempted. Federal law sets
basic standards for relationships between telecommunications providers and significantly limits
acquisitions and joint ventures between cable and local telephone companies operating in the same
market. Local telephone companies and other entities may provide video programming services as
traditional cable operators or, among other things, as open video system (also known as OVS)
operators, subject to certain conditions, including setting aside a portion of their channel
capacity for use by unaffiliated program distributors on a non-discriminatory basis. Open video
system operators are exempt from several of the regulatory obligations that currently apply to
cable operators. However, certain restrictions and requirements remain applicable to open video
system operators, including, without limitation, the obligation to obtain FCC certification for
open video system operations and any necessary local operating authority, and the obligation to
comply with the FCCs sports blackout, network non-duplication, syndicated exclusivity and
mandatory carriage rules. 16




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Local telephone companies providing cable service through cable systems or open video systems
are not bound by common carrier obligations, which otherwise would require a telephone company to
make capacity available on its network on a nondiscriminatory basis for the provision of cable
service directly to subscribers by unaffiliated third parties. Cox may elect to operate open video
systems, but only if it is subject to effective competition as defined by federal law; however, it
may not terminate an existing franchise agreement to become an open video system operator. Cox
does not operate any open video systems, and no open video systems currently operate in any of
Coxs franchise areas. General Ownership Limitations. The Communications Act generally prohibits Cox, with certain
limited exceptions, from owning and/or operating a satellite master antenna television system or a
wireless cable system in any area where Cox provides franchised cable television service. The
FCCs rules, however, permit Cox to offer service through satellite master antenna television
systems in its existing franchise areas so long as the service is offered according to the terms
and conditions of Coxs local franchise agreement. In 1998, the FCC initiated a rulemaking proceeding, which, among other things, sought comments
on whether the FCC should implement cross-ownership restrictions between direct broadcast satellite
operators and cable operators. That proceeding remains pending, and no FCC rule currently
prohibits cross-ownership between direct broadcast satellite providers and cable system operators.
The FCC has stated that it would evaluate cross-ownership issues case-by-case in the context of FCC
license transfer proceedings. Other Regulatory Requirements of the Communications Act and the FCC.The Communications Act
and the FCCs rules also include provisions concerning, among other things:  
    customer service;  
    subscriber privacy;  
    marketing practices;  
    equal employment opportunity;  
    technical standards and equipment compatibility;  
    antenna structure notification, marking, and lighting;  
    emergency alert system requirements; and  
    the collection from cable operators of annual regulatory fees,
which are calculated based on the number of subscribers served and
the types of FCC licenses held. The FCC adopted cable inside wiring rules to provide specific procedures for the disposition
of residential home wiring and internal building wiring where a subscriber terminates service or
where an incumbent cable operator is forced by a building owner to terminate service in a multiple
dwelling unit building. The FCCs inside wiring rules are intended to facilitate the ability of
competitors to access incumbent cable operators internal building distribution plant. The FCC also adopted regulations regarding compatibility between cable systems and consumer
electronics equipment. The FCCs rules assure the competitive availability of customer premises
equipment, such as set-top converters or other navigation devices, which are used to access
services offered by cable systems and other multichannel video programming distributors. Cable
operators are required to separate security from non-security functions in certain customer
premises equipment by making available modular security components that would function in set-top
converters purchased or leased by subscribers from retail outlets. Effective July 1, 2006, Cox
will be prohibited from selling or leasing new navigation devices or set-top converters that
integrate both security and non-security functions. Cox, however, will not be required to
discontinue the leasing of older set-top converters that include integrated security functions if
those converters are provided to subscribers before July 1, 2006. The
FCC also adopted technical rules and standards to implement an
agreement between the cable and
consumer electronics industries aimed at promoting the manufacture of
plug and play set top converter
boxes that would be commercially available to consumers as well as
television sets that can connect
directly to cable operators networks and receive one-way analog
and digital cable services without the
need for a set top converter box. The FCC also initiated a
rulemaking to consider additional plug and
play regulations, including standards for copy protection
technologies that cable operators would need to
support. The cable and consumer electronics industries are currently
negotiating an agreement that will
allow for the manufacture of two-way, interactive plug and
play equipment. Cox cannot predict the
ultimate outcome of these negotiations, any FCC proceeding or court
challenge to the FCCs regulations or
the impact of new technical equipment regulations on Coxs
business and operations. The FCC also actively regulates other aspects of Coxs cable operations and has adopted
regulations implementing its authority and jurisdiction under the Communications Act. The FCC may
enforce its regulations through the imposition of substantial fines, the issuance of cease and
desist orders and the 17




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imposition of other administrative sanctions such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in cable operations. Local franchising
authorities are also permitted to enforce the FCCs technical and consumer protection standards.
Pending FCC proceedings may change 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. Cable Copyright Matters Coxs cable systems utilize local and distant television and radio broadcast signals in their
channel line-ups. This programming is protected by federal copyright law. Cox, however, generally
does not obtain licenses to display this programming directly from its owners. Consequently, Cox
must comply with a federal compulsory licensing process that covers television and radio broadcast
signals. In exchange for contributing a percentage of its revenues to a federal copyright royalty
pool and following certain other requirements, Cox obtains blanket permission to retransmit the
copyrighted material carried on broadcast signals. The nature and amount of future copyright
payments for broadcast signal carriage cannot be predicted at this time. Increases in such
payments may be passed through to subscribers as external costs under the FCCs cable rate
regulations. The Copyright Office has recommended that Congress revise both the cable and satellite
compulsory copyright licenses. Congress modified the satellite compulsory license in a manner that
permits direct broadcast satellite operators to be more competitive with cable operators such as
Cox. The possible simplification, modification or elimination of the cable 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 to subscribers programming that contains music, including local advertising,
local origination programs, access channels and pay-per-view events. The cable industry reached
agreements with the three major music performing rights organizations for a standard license
covering the performance of music in certain programming, including advertising inserted by the
cable operator in programming produced by other parties, and Cox has executed music performance
license agreements with these organizations. Although each of these agreements requires the
periodic payment of music license fees, Cox does not believe such license fees will have a
significant impact on its business and operations. Cable Franchising Matters Because cable systems use local streets and rights-of-way, they are subject to state and local
regulation, which typically is implemented through the franchising process. Consistent with the
Communications Act, state and/or local officials are usually involved in franchisee selection and
in establishing requirements for, among other things, system capabilities and construction,
insurance, basic service rates, consumer relations, billing practices and community-related
programming and services. Upon receipt of a franchise, the cable system owner usually assumes a
broad range of obligations to the issuing authority that directly affect the systems business.
Franchise terms and conditions vary materially from jurisdiction to jurisdiction, and even from
city to city within the same state. Although franchising matters normally are resolved at the
local level through a franchise agreement and/or a local ordinance, the Communications Act and FCC
regulations provide certain guidelines and requirements that govern a cable operators relationship
with its local franchising authority. For example, federal law:  
    generally prohibits a cable operator from operating without a franchise;  
    permits local authorities to regulate basic service and equipment rates, but only in a manner consistent with the FCCs
regulations and decisions;  
    encourages competition with existing cable systems by:  -
    allowing municipalities to operate their own cable systems without franchises; and-
    preventing franchising authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an existing cable systems
service area; 18




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
    permits local authorities, when granting or renewing franchises,
to establish requirements for cable-related facilities and
equipment;  
    permits local authorities, in granting or renewing a cable
franchise, to require the provision of channel capacity for
public, educational and governmental channels, and to require the
construction of institutional networks;  
    prohibits franchising authorities from establishing requirements
for specific video programming or information services other than
in broad categories;  
    permits a cable operator to seek modification of franchise
requirements from the franchising authority or by judicial action
if changed circumstances warrant the modification;  
    generally prohibits franchising authorities from:  -
    imposing requirements in the grant or renewal of a cable franchise that require,
prohibit or restrict the provision of telecommunications services;-
    imposing cable franchise fees on revenues derived from providing telecommunications
services over the cable system; or-
    restricting the use of any type of subscriber equipment or transmission technology;  
    limits franchise fees to 5% of gross revenues derived from providing cable services over the cable system;  
    establishes formal and informal procedures for renewal of cable franchises that are designed to protect cable operators
from arbitrary denials of renewal; and  
    permits state or local franchising authorities to adopt certain additional conditions regarding the transfer of cable
system ownership. Coxs franchises typically require the periodic payment of fees to franchising authorities of
up to 5% of gross revenues, as defined by each franchise agreement. Under the Communications Act
and FCC rules, these franchise fees may be passed on to subscribers and separately itemized on
subscriber bills. Franchise fees paid by cable operators on non-subscriber related revenue
generated from such things as cable advertising and home shopping commissions also may be passed
through to subscribers and itemized on subscriber bills regardless of the source of the revenues on
which they were assessed. In connection with its March 2002 decision classifying high-speed
Internet services provided over a cable system as interstate information services, the FCC stated
that revenues derived from cable operators Internet services should not be included in the revenue
base from which franchise fees are calculated. In October 2003, the U.S. Court of Appeals for the
Ninth Circuit vacated the FCCs decision classifying cable operators Internet services as an
interstate information service and not a telecommunications service; however, the U.S. Supreme
Court has agreed to review this Ninth Circuit decision which has been stayed pending final action
by the Supreme Court. Because of the FCCs decision, Cox notified all of its local franchising
authorities that it no longer could collect and remit franchise fees on its high-speed Internet
service revenues. For a discussion of this and other related matters, see Legislation and
Regulation  Cable Television  Use of Coxs Cable Systems by the Government and Unrelated Third
Parties. Cox is unable to predict the ultimate resolution of these matters, but does not expect
that any additional franchise fees it may be required to pay will be material to Coxs business and
operations. The Communications Act contains franchise renewal procedures designed to protect cable
operators against arbitrary denials of renewal. Even if a franchise is renewed, however, the
franchising authority may seek to impose as a condition of renewal new requirements, such as
upgrades in facilities and services or increased franchise fees. 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 additional franchise requirements as a condition for
such consent. Historically, cable operators providing satisfactory services to their subscribers and
complying with the terms of their franchises typically have obtained franchise renewals. Cox
believes it generally has met the terms of its franchises and has provided high-quality service.
Cox therefore anticipates that its future franchise renewal prospects generally will be favorable.
Nevertheless, although the Communications Act provides certain franchise renewal protections, no
assurance can be given that franchise renewals will be granted or that renewals will be made on
similar terms and conditions. 19




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The Communications Act places certain limitations on a franchising authoritys ability to
control cable system operations, 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. Federal law immunizes franchising authorities from
monetary damage awards arising from their regulation of cable systems or decisions regarding
franchise grants, renewals, transfers and amendments. A number of states subject cable systems to the jurisdiction of centralized state governmental
agencies, some of which impose public utility-type regulation on cable operators. Attempts in
other states to regulate cable systems are continuing and can be expected to increase. To date, the
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 must be exercised in accordance with federal law. Telecommunications The telecommunications services currently offered by Cox are subject to varying degrees of
federal, state and local regulation. The FCC exercises jurisdiction over all aspects of interstate
and international telecommunications services and the facilities used to provide those services.
The 1996 Telecommunications Act established a national policy of promoting local exchange
competition and set standards to govern relationships among telecommunications providers,
including, among others, the interconnection of competitive carriers and the unbundling of monopoly
incumbent local telephone company services. The statute expressly preempted legal barriers to
telecommunications competition under state and local laws. The 1996 Telecommunications Act also
established new requirements for the maintenance of universal telephone service and imposed
obligations on telecommunications providers to maintain customer privacy. Coxs ability to offer
telephone services in competition with incumbent local telephone companies and others will be
affected by the degree and form of regulatory flexibility ultimately afforded by the FCC to
incumbent local telephone companies and other companies, and will depend, in part, upon FCC
determinations regarding telecommunications markets. Local Telephone Competition Rules.While the current switched voice and data market is
dominated by incumbent local telephone companies (also known as incumbent local exchange carriers
or ILECs), the 1996 Telecommunications Act created unprecedented opportunities for newer entrants
into these markets, such as Cox. Because incumbent local telephone companies historically had
exclusive state franchises to provide telephone services, they established monopoly relationships
with their customers. Subject to certain limited exemptions for rural telephone companies, the FCC
may preempt any state law or regulation that prohibits or has the effect of prohibiting any entity
from providing telecommunications services. The 1996 Telecommunications Act also imposed access and interconnection requirements on
incumbent local telephone companies to open their networks to competitors. State regulators
generally are responsible for arbitrating interconnection disputes that arise between incumbent
local telephone companies and new entrants and for reviewing and approving interconnection
agreements entered into between new entrants and incumbent local telephone companies. Carriers can
appeal state commission decisions concerning interconnection agreements to United States district
courts. The FCC adopted pricing standards and negotiation and arbitration guidelines that the states
must follow in reviewing interconnection agreements between incumbent local telephone companies and
their competitors. Although these rules initially were adopted in 1996, many of the rules
governing the extent to which incumbent local telephone companies must provide unbundled elements
of their networks to competitors never became final. Most recently, in response to a 2004 decision
by the U.S. Court of Appeals for the District of Columbia Circuit, the FCC adopted modified
unbundling rules in December 2004. These rules limit the access of competitive carriers to high
capacity transport facilities, including connections from the customer location to the ILECs
switch, and eliminate competitive carriers access to unbundled local switching provided by ILECs. Incumbent telephone companies have appealed aspects of this decision, and it is likely that
competitive local exchange carriers (known as CLECs) will do so as well. The new rules are
expected to disadvantage 20




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competitive carriers, such as AT&T, MCI and Birch Telecom, that make significant use of
unbundled elements of the networks of other carriers to provide local telephone services. In a related proceeding, in July 2004 the FCC adopted an order modifying its rules governing
the ability of CLECs to adopt the terms of existing interconnection agreements, rather than
negotiating or arbitrating terms of their own. The new rule requires CLECs that wish to adopt
existing terms to adopt an entire agreement, rather than permitting them to take individual terms
from agreements of their choice. Cox and other CLECs have appealed this decision to the U.S. Court
of Appeals for the Ninth Circuit, and briefing is complete, but no date has been set for oral
argument and the date of any decision is uncertain. The FCCs pricing rules for incumbent local telephone companies pricing of unbundled network
elements and interconnection were upheld in May 2002 by the U.S. Supreme Court. However, the FCC is
considering modifying its rules governing intercarrier compensation
and on March 3, 2005
released a notice of proposed rulemaking on the overall pricing framework. If the FCC modifies the
intercarrier compensation rules, Coxs costs for interconnection could decrease, but Cox also may
lose revenues it now receives for providing interconnection to other local telephone companies,
including incumbent local telephone companies. If the FCC modifies its overall pricing rules,
Coxs costs for interconnection and for use of unbundled elements of ILEC networks could increase. The terms of intercarrier compensation for local calls to Internet service providers have been
the subject of ongoing disputes between CLECs and ILECs at state commissions and the FCC. In
particular, CLECs, including Cox, have had repeated disputes with incumbent local telephone
companies concerning the ILECs refusal to pay reciprocal compensation for Internet-bound traffic.
Although most states have ruled otherwise, the FCC has twice held that such traffic is not subject
to the standard compensation for termination of local calls and adopted rules that decreased
compensation for carrying such traffic. Both FCC decisions were overturned by the U.S. Court of
Appeals for the District of Columbia Circuit, but the FCCs second order was not vacated. Instead,
it was remanded for the FCC to consider whether it could find a proper legal basis for its
authority to regulate such traffic. This remand remains pending. Cox cannot be assured that it
will recover reciprocal compensation for traffic delivered to Internet service providers to which
Cox believes it is entitled under its existing interconnection agreements. Under the 1996 Telecommunications Act, competitive wireline entrants such as Cox are subject
to federal regulatory requirements for the provision of local exchange service in any market. All
local telephone companies must provide telephone number portability, dialing parity, reciprocal
compensation for transport and termination of local traffic, resale, and access to rights-of-way.
These requirements also place burdens on new entrants that may benefit their competitors. In
particular, the resale requirement means that a company could seek to resell services using the
facilities of a new entrant such as Cox without making a similar investment in facilities. In
addition to incumbent local telephone companies and existing competitive access providers, new
entrants potentially capable of offering telecommunications services include cable 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 November 10, 2003, the FCC issued an order facilitating the transfer
of telephone numbers between landline and wireless carriers, which will make it easier for wireless
providers to compete with Cox and other landline carriers. On March
11, 2005, the U.S. Court of Appeals for the District of Columbia
Circuit issued a decision remanding this order and staying its
applicability to carriers that qualify as small entities
under the Regulatory Flexibility Act until such time as the FCC
conducts an analysis of the impact of the order on such entities. It
is unclear what entities would be subject to this stay, but it is
likely to include certain rural carriers that compete with Cox. Access Charges.The FCC has adopted an order implementing requirements designed to cause the
access charge rates of competitive local telephone companies to decrease over time until they reach
the rates charged by incumbent local telephone companies. This transition was completed in June
2004. The FCC also held that a long distance carriers refusal to serve the customers of a
competitive local telephone company whose access charges comply with the FCCs benchmarks generally
would constitute a violation of the duty of all common carriers to provide service upon reasonable
request. Consequently, while the access charges collected by competitive local telephone
companies, including Cox, have declined under the FCCs order, the order also will ensure that the
competitive local telephone companys customers have access to a fully interconnected
telecommunications network. The FCC also is considering access charge issues in the intercarrier
compensation proceeding described above. For further information, please see Local Telephone
Competition Rules. 21




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Bell Company Long Distance Service.The 1996 Telecommunications Act included provisions to
allow Bell companies to provide long distance service after meeting a series of statutory tests.
During 2003, the Bell companies completed the process of obtaining long distance authority in every
jurisdiction where they had been subject to the prohibition on providing long distance service,
including all of the states where Cox provides local telephone service. Universal Service.One of the goals of the Communications Act is to extend telephone service
to all citizens of the United States, that is, to provide universal service. Prior to the 1996
Telecommunications Act, this goal was achieved primarily by state commissions maintaining the rates
for basic local exchange service at an affordable level. The 1996 Telecommunications Act required the FCC to establish an explicit mechanism for
subsidizing service to high cost areas and low-income customers, the traditional subjects of
universal service rules, and to create programs to subsidize service to schools, libraries and
rural health care providers. Telecommunications carriers (subject to limited exemptions) must
contribute to funding these universal service programs. On October 27, 2003, the FCC released an
order modifying the ways in which rural and non-rural high-cost support is calculated. The new
rules could reduce the amounts required to be contributed by carriers to the high-cost fund in the
future. However, on February 23, 2005, the U.S. Court of Appeals for the 10th Circuit
granted an appeal of this order and remanded it to the FCC for further consideration, so it is
possible that the FCC may conclude that it must increase the amounts contributed to the high-cost
fund. Moreover, the FCCs 2002 tentative conclusion that broadband Internet services provided by
telephone companies should be classified as information services under the Communications Act has
led to questions regarding whether similar services provided by cable operators should be subject
to universal service fund contributions. Under
the contribution factors for 2004, Cox contributed approximately
$17.3 million of its
interstate telecommunications revenues to the federal Universal Service Fund. In addition to the
federal universal service plan, most or all states likely will adopt their own universal service
support mechanisms. The universal service subsidy mechanism may provide an additional source of revenue to those
local telephone companies or other carriers (e.g., wireless providers) willing and able to provide
service to markets that are less financially desirable either due to 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. Cox may be a beneficiary of such programs,
but its universal service contribution obligations also may increase to the extent that other
providers obtain subsidies. On February 7, 2003, the FCC adopted a notice of proposed rulemaking
to consider whether there should be additional limits on the ability of wireless providers and
other competitive carriers, including Cox, to be eligible for universal service funding. Regulatory Forbearance.Another goal of the 1996 Telecommunications Act is to increase
competition in the telecommunications services market, thereby reducing the need for continuing
regulation of these services. To this end, the 1996 Telecommunications Act requires the FCC to
streamline its regulation of incumbent local telephone companies and permits the FCC to refrain
from regulating particular classes of telecommunications services or providers. The FCC has
established a framework for granting certain local telephone companies relief from the FCCs rate
level, rate structure and tariffing rules once these local telephone companies satisfy certain
competitive criteria. To obtain relief, an incumbent must demonstrate that sufficient competition
has developed in the incumbents market for high-speed dedicated connections and certain related
services to warrant relaxation of the FCC rules for that market. There continues to be activity at
the FCC, state public service commissions and the courts by incumbent local telephone companies
requesting increased pricing flexibility, local exchange service, special access and high-capacity
transport service. While the FCC has granted requests for regulatory forbearance from competitive
local telephone companies, it has not granted any significant requests from incumbent local
telephone companies. To the extent that ILECs and other providers competing with Cox obtain
forbearance, Cox may be competitively disadvantaged. 22




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Telephone Numbers.Local telephone companies must have telephone numbers to provide service
to their customers and access to and use of telephone numbers is governed by FCC rules. The most
significant numbering rules require carriers to meet specified number usage thresholds before they
can obtain additional telephone numbers; to share blocks of telephone numbers, a requirement known
as number pooling; and to provide detailed reports on their number usage, which will be subject
to third-party audits. The FCC also has adopted rules and orders that delegate to certain states a
larger role in conserving telephone numbers, including expanded rights to ration access to numbers.
Several states served by Cox, including California, Connecticut, Louisiana and Oklahoma, have
sought number conservation authority from the FCC. Voice over Internet Protocol Services.Regulatory issues concerning voice services offered
via Internet Protocol are being considered at both the federal and state level. Providers of these
services, such as Vonage and 8x8, argue that they are not subject to state regulation because their
offerings constitute interstate information services, regulated only by the FCC. State regulators
in several states, including California, where Cox provides competitive telephone service, and New
York have begun inquiries into the extent to which voice over Internet Protocol services should be
regulated. Among the issues raised by these services is the extent to which they can or should be
required to comply with state 911 laws and how to ensure universal telephone service if voice over
Internet Protocol services are not regulated. In February 2004, the FCC adopted a notice of
proposed rulemaking to address these issues and asked for comment on a petition seeking forbearance
from regulation of voice over Internet Protocol services. In addition, the FCC, in August 2004,
opened a separate proceeding on how Internet Protocol-based services will comply with laws
permitting surveillance of communications by law enforcement agencies. The FCC also issued several
orders addressing issues relating to voice services offered via Internet Protocol, including an
order in October 2004 preempting state regulation of the service offered by Vonage and similar
services. The Vonage order is the subject of pending appeals. While nearly all of Coxs telephone
services are provided using traditional circuit-switched technology, Cox is offering voice over
Internet Protocol services in Roanoke, Virginia and plans to expand its use of Internet Protocol
technologies. To the extent that providers of such services ultimately are deemed to be exempt
from state regulation, providers of circuit-switched services, including Cox, could be
disadvantaged in the marketplace. In addition, the resolution of issues relating to how Internet
Protocol-based services will interconnect with and otherwise interact with traditional
circuit-switched services, including the extent to which such services will be subject to access
charges and universal service contributions, could have a significant effect on the development of
those services and the ability of those services to compete with circuit-switched services in the
long run. 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 telecommunications providers including those provided by Cox. 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
Telecommunications Act, state commissions also must review interconnection agreements entered into
between incumbent local telephone companies and new entrants, as well as enforce the terms of
disputed agreements. If a state commission refuses to fulfill these responsibilities, carriers may
seek relief from the FCC. Cox and several other carriers have been required to seek such relief
for matters arising in Virginia because the Virginia State Corporation Commission had determined
that it would not consider matters brought under the 1996 Telecommunications Act. The
Virginia-related matters now pending before the FCC include the arbitration of the terms of
interconnection agreements between Verizon and three competitive local telephone companies,
including Cox. The Virginia legislature has passed legislation that requires the State Corporation
Commission to consider matters brought before it pursuant to the 1996 Telecommunications Act. State commissions also may 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,
which could increase Coxs costs. State commissions also are playing an increasing role in
telephone number assignment and number conservation policies and state numbering policies
potentially could limit access to numbers by carriers that need additional telephone numbers,
including Cox. 23




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The foregoing summary does not purport to describe all present and proposed federal, state and
local regulations and legislation affecting the cable 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 that could alter, in varying degrees, the manner in
which cable or telephony systems operate. Cox cannot predict at this time the outcome of these
proceedings or their impact upon the cable or telecommunications industries or upon Coxs business
and operations. Employees At December 31, 2004, Cox had approximately 22,350 full-time-equivalent employees. Cox
considers its relations with its employees to be satisfactory. Available Information Coxs
website address is http://www.cox.com. You may obtain on or through this website, free
of charge, copies of Coxs annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act. These reports are available on Coxs website as soon as
reasonably possible after they are electronically filed with the SEC. 
  ITEM 2. PROPERTIES Coxs principal physical assets consist of cable 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 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 premise equipment consists of decoding converters, cable modems and telephone
network interface units. The physical components of cable 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 markets 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. 
  ITEM 3. LEGAL PROCEEDINGS Coxs subsidiary Cox Communications Louisiana L.L.C. (Cox Louisiana) was a defendant in a
putative subscriber class action suit in Louisiana state court filed on November 5, 1997. The suit
challenged the propriety of late fees charged by Cox Louisiana in the greater New Orleans area to
customers who fail to pay for services in a timely manner. The suit sought injunctive relief and
damages under certain claimed state law causes of action. On March 29, 2004, the parties entered
into a settlement agreement. This settlement was approved by the court and became final in August
2004. The settlement has now been fully implemented and all class consideration disbursed. The
settlement did not have a material impact on Coxs operations or liquidity. On November 14, 2000, GTE.NET, L.L.C. d/b/a Verizon Internet Solutions and Verizon Select
Services, Inc. filed suit against Cox in the United States District Court for the Southern District
of California. Verizon alleged that Cox has violated various sections of the Communications Act of
1934 by allegedly refusing to provide Verizon with broadband telecommunications service and
interconnection, among other things. On November 29, 2000, Verizon amended its complaint to add
CoxCom, Inc. 24




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(CoxCom), a subsidiary of Cox, as an additional defendant. On January 8, 2002, Verizon filed
a second amended complaint, dropping its claims for interconnections and damages. Verizon seeks
various forms of relief, including declaratory and injunctive relief. On January 29, 2002, the
Court granted defendants motion to stay the case on primary jurisdiction grounds. Cox and CoxCom
intend to defend this action vigorously. The outcome cannot be predicted at this time. Cox @Home, Inc., a wholly-owned subsidiary of Cox, is a stockholder of At Home Corporation,
also called Excite@Home, formerly a provider of high-speed Internet access and content services,
which filed for bankruptcy protection in September 2001. On September 24, 2002, a committee of
bondholders of Excite@Home sued Cox, Cox @Home and Comcast Corporation, among others, in the United
States District Court for the District of Delaware. The suit alleged the realization of
short-swing profits under Section 16(b) of the Securities Exchange Act of 1934 from purported
transactions relating to Excite@Home common stock involving Cox, Comcast and AT&T Corp., and
purported breaches of fiduciary duty. The suit seeks disgorgement of short-swing profits allegedly
received by the Cox and Comcast defendants totaling at least $600.0 million, damages for breaches
of fiduciary duties in an unspecified amount, attorneys fees, pre-judgment interest and
post-judgment interest. On November 12, 2002, Cox, Cox @Home, and David Woodrow filed a motion to
dismiss or transfer the action for improper venue or, in the alternative, to transfer the action
pursuant to 28 U.S.C. Sec. 1404. On September 30, 2003, the Delaware District Court ordered the
action transferred to the United States District Court for the Southern District of New York. On
December 22, 2003, Cox and Cox@Home filed a motion to dismiss, or, in the alternative, for judgment
on the pleadings, with respect to the Section 16(b) claim. On August 12, 2004, the court granted
Coxs and Cox @Homes motion and dismissed the Section 16(b) claim. Cox and Cox @Home,
among others, subsequently entered into an agreement with Excite@Home tolling the statute of
limitations on the remaining claim for purported breach of fiduciary duty, and on December 3, 2004,
the court dismissed that claim without prejudice. On January 4, 2005, plaintiff noticed its appeal
of the dismissal of the Section 16(b) claim to the United States Court of the Appeals for the
Second Circuit. Cox and Cox @Home intend to defend this action vigorously. The outcome cannot be
predicted at this time. Jerrold Schaffer and Kevin J. Yourman, on May 26, 2000 and May 30, 2000, respectively, filed
class action lawsuits in the Superior Court of California, San Mateo County, on behalf of
themselves and all other stockholders of Excite@Home as of March 28, 2000, seeking (a) to enjoin
consummation of a March 28, 2000 letter agreement among Excite@Homes principal investors,
including Cox, and (b) unspecified compensatory damages. Cox and David Woodrow, Coxs former
Executive Vice President, Business Development, among others, are named defendants in both
lawsuits. Mr. Woodrow formerly served on the Excite@Home board of directors. The plaintiffs
assert that the defendants breached purported fiduciary duties of care, candor and loyalty to the
plaintiffs by entering into the letter agreement and/or taking certain actions to facilitate the
consummation of the transactions contemplated by the letter agreement. On February 26, 2001, the
Court stayed both actions, which had been previously consolidated, on grounds of forum
non-conveniens. A related suit styled Linda Ward, et al. v. At Home Corporation (No. 418233) was
filed on September 6, 2001, in the same court. On February 7, 2002, the Court consolidated the
Ward action with the Schaffer/Yourman action, thereby also staying the Ward action. On June 18,
2002, the court granted plaintiffs motion to lift the stay and authorized discovery to proceed
regarding Coxs pending motion to dismiss for lack of personal jurisdiction. On September 10,
2002, the United States Bankruptcy Court for the Northern District of California in the Excite@Home
bankruptcy proceeding held that the claims in the suits were derivative and, thus, constituted the
exclusive property of the Excite@Home bankruptcy estate. The Bankruptcy Court thereafter ordered
the plaintiffs to dismiss the suits. Plaintiffs subsequently appealed the Bankruptcy Courts
decision to the United States District Court for the Northern District of California. On September
29, 2003, the District Court affirmed the order of the Bankruptcy Court. On October 27, 2003,
plaintiffs filed a notice of appeal of the District Courts decision to the United States Court of
Appeals for the Ninth Circuit, and briefing of the appeal has concluded. Cox intends to defend
this action vigorously. The outcome cannot be predicted at this time. On April 26, 2002, Frieda and Michael Eksler filed an amended complaint naming Cox as a
defendant in a putative class action lawsuit in the United States District Court for the Southern
District of New York against AT&T Corp. and certain former officers and directors of Excite@Home,
among others. Cox was served on May 10, 2002. This case has been consolidated with a related case
captioned Semen Leykin v. 25




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##### Table of Contents



AT&T Corp., et al., and another related case, and an amended complaint in the consolidated
case, naming Cox as a defendant, was filed and served on
November 7, 2002. On March 10, 2005, the Court issued an order
certifying a class of all persons and entities who purchased the
publicly traded common stock of Excite@Home during the period March
28, 2000 through September 28, 2001, and directing that notice of the
certification be given to the class.  The class excludes the
defendants in the action and certain of their related persons. The complaint asserts a claim against Cox as an alleged
controlling person of Excite@Home under Section 20(a) of the Securities Exchange Act for
violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The suit
seeks from Cox unspecified monetary damages, statutory compensation and other relief. In addition,
a claim against Coxs former Executive Vice President, David Woodrow, who formerly served on
Excite@Homes board of directors, is asserted for breach of purported fiduciary duties. The suit
seeks from Woodrow unspecified monetary and punitive damages. On February 11, 2003, Cox and
Woodrow filed a dispositive motion to dismiss on various grounds, including failure to state a
claim. On September 17, 2003, the District Court granted the motion in part and denied it in part.
Specifically, the Court dismissed several purported statements by Excite@Home as bases for
potential liability because they were merely generalized expressions of confidence and optimism
constituting puffery, dismissed the fiduciary duty claim against Mr. Woodrow as pre-empted by the
federal securities laws, and denied the motions as to the remaining allegations of the complaint.
On October 7, 2003, Cox and Mr. Woodrow sought reconsideration of a portion of the Courts order.
On February 17, 2004, the Court granted plaintiffs leave to file a motion to
amend the complaint to add an additional claim for relief against all defendants under Section
14(a) of the Securities Exchange Act in connection with an allegedly false or misleading proxy
statement issued by Excite@Home. On February 24, 2004, the Court granted Coxs and Mr. Woodrows
motion for reconsideration and dismissed plaintiffs allegations that Cox and Mr. Woodrow were
control persons with respect to primary violations of Rule 10b-5 alleged to have occurred after
August 28, 2000. On April 5, 2004, Cox and certain other defendants jointly filed a motion to
dismiss the Section 14(a) cause of action that was added in plaintiffs amended complaint. On
August 9, 2004, the District Court granted defendants motion, and dismissed the Section 14(a)
cause of action. Cox intends to defend this action vigorously. The outcome cannot be predicted at
this time. On June 14, 2004, Acacia Media Technologies Corporation filed a lawsuit against Cox and
Hospitality Network, Inc., (a wholly-owned subsidiary of Cox) among others, in the United States
District Court for the Northern District of California asserting claims for patent infringement.
The complaint seeks preliminary and permanent injunctive relief and damages in an unspecified
amount. On July 7, 2004, Acacia Media filed an amended complaint to its lawsuit to add CoxCom as a
defendant and to remove Cox as a defendant. CoxCom and Hospitality Network timely filed their
answer to the amended complaint on October 21, 2004. On November 11, 2004, Acacia Media filed a
motion before the Multi-District Litigation panel to transfer related patent actions under 28
U.S.C. § 1407. That motion sought to transfer several related cases brought by Acacia in other
jurisdictions to a single court. All of the defendants opposed that motion. On February 24, 2005,
the Multi-District Litigation Panel transferred all of the Acacia litigation to Judge Ware in the Northern District of
California. CoxCom and Hospitality Network intend to defend the action vigorously. The outcome
cannot be predicted at this time. Eighteen putative class action lawsuits were filed, purportedly on behalf of the public
stockholders of Cox, challenging CEIs August 2, 2004 proposal to acquire all of the issued and
outstanding shares of Cox Class A common stock not beneficially owned by CEI, for $32.00 in cash
per share. Fifteen of the lawsuits were filed in the Court of Chancery of the State of Delaware.
Following a hearing held on August 24, 2004, the Delaware court consolidated the actions under the
caption In re Cox Communications, Inc. Shareholders Litigation, Consolidated C.A. No. 613-N. The
Delaware complaint names as defendants Cox, CEI, Cox Holdings,
Barbara Cox, Anthony and Anne Cox
Chambers, and the members of the Cox Board of Directors. The Delaware complaint alleges, among
other things, that the price proposed to be paid in the proposed transaction was unfairly low, that
the initiation and timing of the proposed transaction were in breach of the defendants purported
duties of loyalty and constituted unfair dealing, that the structure of the proposed transaction
was inequitably coercive, that defendants caused materially misleading and incomplete information
to be disseminated to the public holders of the Cox shares, and that the Board defendants would
breach their duty of care and good faith by approving the proposed transaction and by purportedly
attempting to disenfranchise the holders of the Cox shares by circumventing certain 26




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##### Table of Contents



alleged contractual voting rights. The Delaware complaint seeks an injunction against the
proposed transaction, or, if it is consummated, rescission of the transaction and imposition of a
constructive trust, as well as money damages, an accounting, attorneys fees, expenses and other
relief. The remaining three putative class action lawsuits were filed in the Superior Court of Fulton
County, Georgia, styled Brody v. Cox Communications, Inc., et al., 2004CV89198, Golombuski v. Cox
Communications, Inc., et al., 2004CV89216, and Durgin v. Cox Communications, Inc., et al.,
2004CV89301. The Georgia actions were purportedly brought on behalf of the public holders of
shares of Cox Class A common stock against Cox, CEI and the Cox Board, although four counts of the
Golombuski complaint were brought derivatively on behalf of Cox against the Cox Board and CEI.
With the exception of the Durgin action, which did not assert claims against CEI, the Georgia
actions each allege that CEI and the Cox Board breached their fiduciary duties in connection with
the proposed transaction, which plaintiffs allege proposed a purchase price which was below the
fair value of the Cox shares. On August 18, 2004, plaintiffs in the Georgia actions moved for
entry of a case management order to consolidate the Georgia Actions under the caption In re Cox
Communications, Inc. Shareholder Litigation, C.A. No. 2004-CV-89198. On October 19, 2004, CEI and Cox publicly announced that they had entered into a Merger
Agreement pursuant to which the shares of Cox Class A common stock not beneficially owned by CEI
would be proposed to be acquired for $34.75 per share by means of a tender offer and follow-on
merger. On October 18, 2004, prior to the announcement of the Merger Agreement, the parties to the
Delaware action agreed upon and executed a memorandum of understanding. Pursuant to the Delaware
memorandum of understanding, the parties to the Delaware action agreed, subject to the conditions
set forth therein, to enter into a stipulation of settlement, to cooperate in public disclosures
related to the Merger Agreement, and to use their best efforts to gain approval of the proposed
settlement terms by the Delaware court. Also on October 18, 2004, the parties to the Georgia actions entered into a memorandum of
understanding which set forth the agreement by the parties for the dismissal of the Georgia
actions. The Georgia memorandum of understanding provides, among other things, that if the
Delaware actions are dismissed in accordance with the Delaware memorandum of understanding and the
dismissal becomes non-appealable, the parties to the Georgia actions will jointly seek, within two
business days thereof, to effect the dismissal with prejudice of the Georgia actions without
further notice to holders of the Cox shares. Pursuant to the Delaware memorandum of understanding and the Georgia memorandum of
understanding, defendants provided plaintiffs counsel in the Delaware action and the Georgia
actions with confirmatory discovery relating to the Merger Agreement, including additional document
production and depositions, and that the parties agreed to suspend all other proceedings in the
actions, except any settlement related proceedings in Delaware and Georgia. On November 18, 2004, the court entered a scheduling order in the Delaware action. The
scheduling order preliminarily certified the Delaware action as a class action on behalf of a class
consisting of all record and beneficial holders of Cox shares (other than CEI and its
subsidiaries), from and including August 2, 2004 through and including the date of the consummation
of the merger, and certain persons related to the class members. The defendants in the Delaware
action are excluded from the class. The scheduling order also initially set a settlement hearing
for January 26, 2005 to consider, among other things, whether (i) the Settlement embodied in the
Stipulation is fair to the class, (ii) the Delaware action should be dismissed with prejudice, and
the claims that were settled in the Stipulation of Settlement released, (iii) the class should be
finally certified, and (iv) the attorneys fees sought by plaintiffs counsel in the Delaware
action should be awarded. On January 13, 2005, an individual shareholder and several mutual funds who purportedly were
members of the plaintiff class filed a joint objection to the requested attorneys fees sought by
plaintiffs counsel, but did not object to the proposed settlement itself. The court subsequently
determined to postpone consideration of the objection to the request for attorneys fees, and, at
the January 26, 2005 settlement hearing, the court continued consideration of the settlement to
March 16, 2005, at which time the request for attorneys fees also was to be considered. However,
on February 23, 2005, at the request of the 27




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##### Table of Contents



plaintiffs, among others, the court again continued consideration of the request for
attorneys fees (but not the settlement itself) until May 9, 2005. If the Settlement ultimately is not approved by the Delaware court, the Delaware action and
the Georgia actions could proceed and the plaintiffs in those actions could seek the relief sought
in their respective complaints. Accordingly, there can be no assurance that the Settlement, or the
dismissal of the Delaware action and the Georgia actions, will be completed on the terms described
above. If the Settlement is not approved or if the Delaware action or any of the Georgia actions
are not dismissed, the Company intends to continue to defend these actions vigorously. The outcome
of this matter cannot be predicted at this time. Cox and its subsidiaries are parties to various other legal proceedings that are ordinary and
incidental to their businesses. Management does not expect that any of these other currently
pending legal proceedings will have a material adverse impact on Coxs consolidated financial
position, results of operations or cash flows. 
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 28




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##### Table of Contents



PART II 
  ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS In connection with the going-private merger, all shares of Coxs former public stock were
cancelled, and new shares of Class A common stock, par value $0.01 per share (private stock), were
issued to Holdings and DNS on a share-for-share basis. Accordingly, there are now two holders of
the private stock. The former public stock was listed on the New York Stock Exchange, but as a result of the
going-private transaction, the former public stock was de-listed from the New York Stock Exchange
as of December 9, 2004. Cox filed a Form 15 to deregister the former public stock on December 9,
2004. The private stock is not listed on any stock exchange and is not quoted on any automated
quotation system. The following table summarizes information about Coxs equity compensation plans as of
December 31, 2004. All outstanding awards relate to the private stock. A
    
    


    
    
    CNumber of
    
    
    
    
    
    
    Number of securitiessecurities to be
    
    
    
    
    
    
    remaining available forissued upon
    
    
    B
    
    
    future issuance underexercise of
    
    
    Weighted-average
    
    
    equity compensationoutstanding
    
    
    exercise
    
    
    plansoptions,
    
    
    price of outstanding
    
    
    (excluding securitieswarrants and
    
    
    options,
    
    
    reflectedPlan Category
    
    rights
    
    
    warrants and rights
    
    
    in column A)Equity compensation
plans approved by
security holders
    
    
    15,989,939
    (a)
    
    $
    36.46
    (a)
    
    
    
    (b)Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    N/A
    
    
    
    
    (c)Total
    
    
    15,989,939
    
    
    $
    36.46
    
    
    
    
   (a)
    
    Consists of stock options outstanding under the Cox Communications, Inc. Amended and Restated
Long-Term Incentive Plan.(b)
    
    On December 29, 2004, Cox filed a post-effective amendment on Form S-8 to deregister all
shares not issued prior to the going-private merger.(c)
    
    On December 29, 2004, Cox filed a post-effective amendment on Form S-8 to deregister all
shares not issued prior to the going-private merger under the Cox Communications, Inc. Stock
Option Plan for Non-Employees, which was adopted by the Compensation
Committee on August 11, 1999 in connection with the merger between Cox and TCA Cable TV, Inc. 
  ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Please see Managements Discussion and Analysis of Financial Condition and Results of
Operations in Item 7. for a discussion of events that affect the comparability of the information
reflected in the selected consolidated financial data for each of the years in the three-year
period ended December 31, 2004. Year Ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Millions of Dollars)Statement of Operations DataRevenues
    
    $
    6,425.0
    
    
    $
    5,758.9

    
    
    $
    5,038.6
    
    
    $
    4,253.2
    
    
    $
    3,673.7Operating (loss) income
    
    
    (1,660.2
    )
    
    
    586.9
    
    
    
    417.4
    
    
    
    (118.3
    )
    
    
    140.8
 29




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##### Table of Contents



Year Ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Millions of Dollars)Interest
expense
    
    
    429.1
    
    
    
    467.8
    
    
    
    549.9
    
    
    
    565.9
    
    
    
    550.8(Loss) gain on derivative instruments,
net
    
    
    (0.1
    )
    
    
    (22.6
    )
    
    
    1,125.6
    
    
    
    (212.0
    )
    
    
    Gain (loss) on investments, net
    
    
    28.4
    
    
    
    165.2
    
    
    
    (1,317.2
    )
    
    
    1,151.2
    
    
    
    3,282.0Loss on extinguishment of debt
    
    
    (7.0
    )
    
    
    (450.1
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    (Loss) income before cumulative effect of
change in accounting principle
    
    
    (1,165.1
    )
    
    
    (137.8
    )
    
    
    (274.0
    )
    
    
    37.9
    
    
    
    1,925.3Cumulative effect of change in accounting
principle, net of tax
    
    
    (1,210.2
    )
    
    
    
    
    
    
    
    
    
    
    717.1
    
    
    
    Net (loss) income
    
    
    (2,375.3
    )
    
    
    (137.8
    )
    
    
    (274.0
    )
    
    
    755.0
    
    
    
    1,925.3Balance Sheet Data *As of December 31Total assets
    
    $
    29,253.7
    
    
    $
    24,417.6
    
    
    $
    25,015.3
    
    
    $
    25,061.4
    
    
    $
    24,720.8Debt (including amounts due to CEI)
    
    
    13,031.3
    
    
    
    7,015.8
    
    
    
    7,316.0
    
    
    
    8,417.7
    
    
    
    8,543.8Cox-obligated capital and preferred
securities of subsidiary trusts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,155.7
    
    
    
    1,155.4Cash Flow DataCash flows provided by operating activities
    
    $
    1,978.5
    
    
    $
    1,868.0
    
    
    $
    1,772.8
    
    
    $
    798.8
    
    
    $
    306.2Cash flows used in investing activities
    
    
    (1,393.6
    )
    
    
    (1,319.1
    )
    
    
    (608.2
    )
    
    
    (953.3
    )
    
    
    (2,077.0
    )Cash flows (used in) provided by
financing activities
    
    
    (592.4
    )
    
    
    (693.7
    )
    
    
    (1,022.8
    )
    
    
    163.0
    
    
    
    1,815.9
 As of December 312004
    
    
    2003
    
    
    2002
    
    
    2001 (c)
    
    
    2000 (c)Customer Data (a)Basic video customers (b)
    
    
    6,287,395
    
    
    
    6,285,236
    
    
    
    6,223,949
    
    
    
    6,156,652
    
    
    
    6,110,337Advanced-services (d)
    
    
    6,286,827
    
    
    
    5,116,882
    
    
    
    3,915,068
    
    
    
    2,716,090
    
    
    
    1,562,162Revenue generating units (e)
    
    
    12,574,222
    
    
    
    11,402,118
    
    
    
    10,139,017
    
    
    
    8,872,742
    
    
    
    7,672,499Video homes passed (f)
    
    
    10,567,166
    
    
    
    10,320,817
    
    
    
    10,105,077
    
    
    
    9,842,917
    
    
    
    9,576,172Basic video penetration (g)
    
    
    59.5
    %
    
    
    60.9
    %
    
    
    61.6
    %
    
    
    62.5
    %
    
    
    63.8
    %
     (a)
    
    Cox sold certain cable systems in the second quarter 2004. Customer data as of December 31,
2003, 2002, 2001 and 2000 has been adjusted to exclude these sold cable systems for purposes
of comparability.(b)
    
    A home with one or more television sets connected to a cable system is counted as one basic
video customer.(c)
    
    Cox sold certain cable systems in 2002. Customer data as of December 31, 2001 and 2000 has
been adjusted to exclude these sold cable systems for purposes of comparability.(d)
    
    Advanced services include Cox Digital Cable, Cox High Speed Internet and Cox Digital
Telephone.(e)
    
    Each basic video customer and each advanced service is a revenue generating unit. In certain
locations, a household may purchase more than one advanced service, each of which is counted
as a separate revenue generating unit.(f)
    
    A home is deemed to be passed if it can be connected to the distribution system without any
further extension of the distribution plant.(g)
    
    Basic video customers as a percentage of video homes passed. 30




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##### Table of Contents



ITEM 7.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS The following Managements Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Consolidated Financial Statements and
Supplementary Data in Item 8. Executive Overview Cox Communications, Inc., an indirect, wholly-owned subsidiary of Cox Enterprises, Inc. (CEI),
is a multi-service broadband communications company serving approximately 6.6 million customers nationwide. Cox is the nations third-largest cable television provider
and offers an array of broadband products and services including analog and digital video,
high-speed Internet access and local and long-distance telephone. In
December 2004, CEI completed the tender offer to purchase all of the common stock associated with the
minority interest of Cox and the subsequent short-form merger and Cox
became a wholly-owned subsidiary of CEI. The decision to buy out the
stock of the minority shareholders reflected
CEIs faith in the management of Cox as well as their confidence in its growth prospects. These growth prospects stem from Coxs business strategy, which is to leverage the capacity
and capability of its broadband network to deliver multiple services to consumers and businesses
while creating multiple revenue streams for Cox. Cox believes that its investments in the
technological capabilities of its broadband network, the long-term advantages of clustering, the
competitive value of bundled services and its commitment to customer care and community service
will enhance its ability to increase revenues in an increasingly competitive environment. Coxs management primarily focuses on continued growth and profitability of all of its lines
of business and effective execution of its bundling strategy and other product lines in a
heightened competitive landscape. Cox concentrates on bundling, integrating and differentiating
its products and services to compete effectively against its primary competitors, which include
direct broadcast satellite operators and regional bell operating companies, in its large local and
regional clusters. Cox is committed to providing new and enhanced services that cater to the
evolving needs of its customers. Cox has introduced high-definition television, digital video
recorder services, Entertainment on Demand and several tiers of high-speed Internet service in many
of its markets to enhance its current product offerings and further differentiate its products from
its competitors. Cox expects that its bundling strategy and advanced product offerings will help
it maintain current customers and attract new customer relationships. Cox ended 2004 with more
than 2.7 million bundled customers. In addition, during 2004, Cox continued to rollout telephone
service to additional markets using voice over Internet Protocol. This technology allows Cox to
enhance its bundled offerings by making Coxs digital telephone service available in its smaller
markets and allows Cox to leverage its experience and expertise as a telephone service provider.
During 2004, Cox continued its launch of Cox Digital Telephone into new markets, ending 2004 with
over 1.3 million telephone customers. Cox also leverages the capacity of its broadband network and
its residential experience to grow its Cox Business Services division. Coxs management also continues to monitor the regulatory landscape. The industry-wide
introduction of voice over Internet Protocol technology has raised many regulatory questions. Cox
continues to analyze new and proposed regulatory changes and their potential impact on its products
and services. Coxs management will continue to monitor and develop new advanced service offerings and adapt to
the competitive and legal framework to deliver compelling and competitive services to consumers and
businesses. Coxs management believes that operating as a wholly-owned subsidiary
will allow Cox to make the right decisions and take the most decisive actions as it faces an
increasingly competitive environment. 31




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##### Table of Contents



Results of Operations 2004 compared with 2003 The following table sets forth summarized consolidated financial information for each of the
two years in the period ended December 31, 2004. Year Ended December 312004
    
    
    2003
    
    
    $ Change
    
    
    % Change(Thousands of Dollars)Revenues
    
    $
    6,424,990
    
    
    $
    5,758,868
    
    
    $
    666,122
    
    
    
    12
    %Cost of services (excluding
depreciation and
amortization)
    
    
    2,609,788
    
    
    
    2,391,310
    
    
    
    218,478
    
    
    
    9
    %Selling, general and
administrative
expenses (excluding
depreciation and
amortization)
    
    
    1,427,391
    
    
    
    1,250,686
    
    
    
    176,705
    
    
    
    14
    %Depreciation and
amortization
    
    
    1,627,064
    
    
    
    1,505,475
    
    
    
    121,589
    
    
    
    8
    %Impairment of intangible
assets
    
    
    2,415,889
    
    
    
    25,000
    
    
    
    2,390,889
    
    
    NMLoss (gain) on sale of cable
systems
    
    
    5,021
    
    
    
    (469
    )
    
    
    5,490
    
    
    NMOperating (loss) income
    
    
    (1,660,163
    )
    
    
    586,866
    
    
    
    (2,247,029
    )
    
    NMInterest expense
    
    
    (429,058
    )
    
    
    (467,753
    )
    
    
    38,695
    
    
    
    8
    %(Loss) on derivative
instruments, net
    
    
    (127
    )
    
    
    (22,567
    )
    
    
    22,440
    
    
    
    99
    %Gain on investments, net
    
    
    28,364
    
    
    
    165,194
    
    
    
    (136,830
    )
    
    
    (83
    )%Loss on extinguishment of
debt
    
    
    (7,006
    )
    
    
    (450,069
    )
    
    
    443,063
    
    
    
    98
    %Other, net
    
    
    (8,923
    )
    
    
    (3,557
    )
    
    
    (5,366
    )
    
    NMIncome tax benefit
    
    
    916,510
    
    
    
    68,299
    
    
    
    848,211
    
    
    NMMinority interest, net of tax
    
    
    (1,203
    )
    
    
    (6,116
    )
    
    
    4,913
    
    
    
    80
    %Equity in net losses of
affiliated companies, net of
tax
    
    
    (3,509
    )
    
    
    (8,098
    )
    
    
    4,589
    
    
    
    57
    %Cumulative effect of change
in accounting principle, net
of tax
    
    
    (1,210,190
    )
    
    
    
    
    
    
    (1,210,190
    )
    
    NMNet
loss
    
    $
    (2,375,305
    )
    
    $
    (137,801
    )
    
    $
    (2,237,504
    )
    
    NM
    Revenues The following table sets forth summarized revenue information for each of the two years in the
period ended December 31, 2004. Year Ended December 31% of
    
    
    
    
    
    
    % of2004
    
    
    Total
    
    
    2003
    
    
    Total
    
    
    $ Change
    
    
    % Change(Thousands of Dollars)ResidentialVideo
    
    $
    3,849,628
    
    
    
    60
    %
    
    $
    3,658,917
    
    
    
    64
    %
    
    $
    190,711
    
    
    
    5
    %Data
    
    
    1,111,268
    
    
    
    17
    %
    
    
    870,628
    
    
    
    15
    %
    
    
    240,640
    
    
    
    28
    %Telephony
    
    
    579,857
    
    
    
    9
    %
    
    
    469,920
    
    
    
    8
    %
    
    
    109,937
    
    
    
    23
    %Other
    
    
    106,020
    
    
    
    2
    %
    
    
    86,903
    
    
    
    1
    %
    
    
    19,117
    
    
    
    22
    %Total
residential
revenue
    
    
    5,646,773
    
    
    
    88
    %
    
    
    5,086,368
    
    
    
    88
    %
    
    
    560,405
    
    
    
    11
    %Commercial
    
    
    354,331
    
    
    
    6
    %
    
    
    287,676
    
    
    
    5
    %
    
    
    66,655
    
    
    
    23
    %Advertising
    
    
    423,886
    
    
    
    6
    %
    
    
    384,824
    
    
    
    7
    %
    
    
    39,062
    
    
    
    10
    %Total revenues
    
    $
    6,424,990
    
    
    
    100
    %
    
    $
    5,758,868
    
    
    
    100
    %
    
    $
    666,122
    
    
    
    12
    %
 32




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##### Table of Contents



The 12% increase in total revenues was primarily attributable to:  
    a 23% increase in customers for advanced services (digital cable, high-speed Internet
access and telephony);
    an increase in basic cable rates resulting from increased programming costs , as well
as increased channel availability; and
    an increase in commercial broadband customers. Cox has experienced solid growth in digital cable, residential high-speed Internet and
telephony customers. Cox expects this trend to continue and anticipates continued consumer demand
for its existing portfolio of broadband products, as well as for new services such as Entertainment
On Demand, Home Networking and high-definition television and digital video recorders. Costs and expenses (Costs of services and Selling, general and administrative expenses) The following table sets forth summarized operating expenses for each of the two years in the
period ended December 31, 2004. Year Ended December 312004
    
    
    2003
    
    
    $ Change
    
    
    % Change(Thousands of Dollars)Cost of servicesProgramming costs
    
    $
    1,288,218
    
    
    $
    1,158,519
    
    
    $
    129,699
    
    
    
    11
    %Other cost of services
    
    
    1,321,570
    
    
    
    1,232,791
    
    
    
    88,779
    
    
    
    7
    %Total cost of services
    
    
    2,609,788
    
    
    
    2,391,310
    
    
    
    218,478
    
    
    
    9
    %Selling, general and administrative
Marketing
    
    
    338,095
    
    
    
    297,945
    
    
    
    40,150
    
    
    
    13
    %General and administrative
    
    
    1,089,296
    
    
    
    952,741
    
    
    
    136,555
    
    
    
    14
    %Total selling, general and
administrative
    
    
    1,427,391
    
    
    
    1,250,686
    
    
    
    176,705
    
    
    
    14
    %Total costs and expenses
    
    $
    4,037,179
    
    
    $
    3,641,996
    
    
    $
    395,183
    
    
    
    11
    %
 Cost of services includes cable programming costs, which are costs paid to programmers
for cable content and are generally paid on a per-subscriber basis. Cost of services also includes
other direct costs and field service and call center costs. Other direct costs include costs that
Cox incurs in conjunction with providing its residential, commercial and advertising services.
Field service costs include costs associated with providing and maintaining Coxs broadband network
and customer care costs necessary to maintain its customer base. Cost of services increased $218.5 million over 2003 partially due to a $129.7 million increase
in programming costs. Approximately 10% of the increase was attributable to programming rate
increases, and the remaining 1% was related to basic and digital customer growth. Other cost of
services increased $88.8 million, primarily due to:  
    1.2 million in net additions of advanced-service customers over the last twelve months;
and
    increased labor costs due to maintenance and related customer costs directly associated
with the growth of new subscribers. Selling, general and administrative expenses include marketing, salaries and benefits,
commissions and bonuses, travel, facilities, insurance and other administrative expenses. Selling,
general and administrative expenses increased $176.7 million primarily due to:  
    a $136.6 million increase in general and administrative expenses relating to increased
salaries and benefits and costs related to the going-private transaction; and 33




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##### Table of Contents




    a $40.2 million increase in marketing expense primarily due to the launch of faster
high-speed Internet service, new high-speed Internet tiers and new video products, as well
as an 10% increase in costs associated with Coxs advertising sales business, Cox Media. Cox expects continued increases in programming costs and will continue to pass through some
portion of these increases to its customers. In addition, Cox expects continued growth in advanced
services, which include digital cable, high-speed Internet access and telephony, both as a result
of increased penetration where these services were available in 2004 and continued roll-out of
these services in new areas during 2005. As a result of these trends, Cox expects its cost of
services and, to a lesser degree, selling, general and administrative expenses to increase. Depreciation and amortization Depreciation and amortization for the year ended December 31, 2004 increased to $1.6 billion
from $1.5 billion for the comparable period in 2003. This was due to an increase in depreciation
from Coxs continuing investment in its broadband network in order to deliver additional services. Impairment of intangible assets As a result of the goingprivate transaction, Cox revised its marketplace assumption
surrounding its estimated cost of capital. In accordance with SFAS No. 142, Cox performed
an impairment test, which along with the revised estimated cost of
capital, included a revised long-range operating forecast. As a
result of the impairment test, Cox recognized an impairment charge of
approximately $2.4 billion related to its cable franchise rights,
as calculated using a direct value method. This impairment charge is
reflected as Impairment on intangible assets within the consolidated
statement of operations. Interest expense Interest expense decreased 8% to $429.1 million primarily due to interest savings as a result
of the full-year impact of Coxs interest rate swap agreements and a reduction of outstanding
indebtedness for the first eleven months of the year. Loss on derivative instruments, net Cox does not hold or issue derivative instruments for trading purposes and is not a party to
leveraged instruments. From time to time, however, Cox uses derivative instruments to manage its
exposure to changes in the fair value of certain of its assets or liabilities or to manage its
exposure to changes in interest rates or equity prices. These derivative instruments are
designated and accounted for by Cox as hedges of the underlying exposure being managed, as
prescribed by SFAS No. 133. During 2004 and 2003, Cox used interest rate swap agreements with an
aggregate principal amount of $1.4 billion as of December 31, 2004, that are designated and
accounted for as fair value hedges. Cox has assumed no ineffectiveness with regard to these
interest rate swap agreements as the agreements qualify for the short-cut methodof accounting for
fair value hedges of debt instruments, as prescribed by SFAS No. 133. These interest rate swaps
are designed to assist Cox in maintaining a mix of fixed and floating rate debt by converting a
portion of existing fixed-rate debt into a floating-rate obligation. These interest rate swaps
derive their value primarily based on changes in interest rates. Coxs expectations with respect
to its hedging strategy underlying these interest rate swaps have been met since the swap
agreements have resulted in Cox increasing its proportion of floating rate debt. In addition to the interest rate swap agreements, upon adoption of SFAS No. 133, certain of
Coxs debt instruments contained embedded derivatives, as defined, and certain investments met the
definition of freestanding derivatives. Cox has not designated these embedded and freestanding
derivatives as hedges under SFAS No. 133 and, as such, changes in their fair value are being
recognized in earnings as derivative gains or losses. During 2004 and 2003, Cox had the following
embedded derivatives or freestanding derivatives outstanding that have not been designated as
hedges: 34




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##### Table of Contents




    embedded derivatives contained in Coxs three series of exchangeable subordinated
debentures, referred to as the PRIZES, the Premium PHONES and the Discount Debentures.
These debentures were exchangeable for the cash value of shares of Sprint PCS common stock
or, in the case of the Discount Debentures, at Coxs option, the related shares. These
embedded derivatives derived their value primarily based on changes in the fair value of
Sprint PCS common stock, U.S. Treasury rates and Coxs credit spreads.
    stock purchase warrants to purchase equity securities of certain publicly-traded or
privately-held companies that can be exercised and settled by delivery of net shares, such
that Cox pays no cash upon exercise. These warrants meet the definition of a freestanding
derivative, as prescribed by SFAS No. 133, and derive their value primarily based on the
change in the fair value of the underlying equity security. Cox redeemed all remaining outstanding PRIZES and Premium PHONES in June 2004 and expects to
redeem the Discount Debentures in April 2005. During 2003, Cox had the following embedded derivatives outstanding that were not designated
as hedges:  
    embedded derivatives contained in Coxs series of prepaid variable forward contracts
secured by 19.5 million shares of Sprint PCS common stock and accounted for as zero-coupon
debt. These embedded derivatives also derived their value primarily based on changes in
the fair value of Sprint PCS common stock, U.S. Treasury rates and Coxs credit spreads. For a more detailed description of Coxs exchangeable subordinated debentures, zero-coupon
debt and their corresponding embedded derivatives, please refer to Note 8. Debt and Note 9.
Derivative Instruments and Hedging Activities in Part II, Item 8. Consolidated Financial
Statements and Supplementary Data. Gain on investments, net Gain on investments, net for the year ended December 31, 2004 of $28.4 million includes:  
    $2.3 million pre-tax gain on the sale of all remaining shares of Sprint stock held
by Cox;
    $19.5 million pre-tax gain on the sale of 0.1 million shares of Sprint PCS
preferred stock; and
    $7.3 million pre-tax gain on the sale of certain other non-strategic investments. In determining whether a decline in the fair value of Coxs investments is other than
temporary, Cox considers the factors prescribed by Securities and Exchange Commission (SEC) Staff
Accounting Bulletin Topic 5-M, Other Than Temporary Impairment of Certain Investments in Debt and
Equity SecuritiesEmerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. These factors include
the length of time and extent to which the fair market value has been less than cost, the financial
condition and near term prospects of the investee and Coxs intent and ability to retain its
investment. Loss on extinguishment of debt During the year ended December 31, 2004, Cox recorded a $7.0 million pre-tax loss on
extinguishment of debt due to the redemption of $14.6 million aggregate principal amount of the
PRIZES and $0.1 million aggregate principal amount of the Premium PHONES, which represented all
remaining outstanding PRIZES and Premium PHONES. Income tax benefit Income tax benefit was $916.5 million for the year ended December 31, 2004. The effective tax
rate for 2004 was 44.1% compared to 35.6% for 2003. The change in the effective tax rate was
primarily due 35




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##### Table of Contents



to the recognition of a tax benefit due to the favorable resolution of federal income tax
audits for the years 1995-2001 and an adjustment to reduce state deferred taxes. Other factors
affecting the tax rate include the impact of varying state tax rates across Coxs operations, along
with current year investing and financing transactions. Equity in net losses of affiliated companies, net of tax Equity in net losses of affiliated companies decreased 57% to $3.5 million. Generally, these
losses are attributable to Coxs proportionate share of the investees income or loss. Although
Cox has various levels of ownership and rights with respect to the companies in which it has equity
investments, Cox has no control over the financial position of these companies. Therefore, Cox
cannot predict the impact that its equity investments will have on its future operations. Cumulative effect of change in accounting principle, net of tax On September 29, 2004, the SEC announced that a direct value method should be used to
determine the fair value of all intangible assets required to be recognized under SFAS No. 141,
Business Combinations, and that registrants should apply a direct value method to such assets
acquired in business combinations completed after September 29, 2004. Further, registrants who
have applied the residual method to the valuation of intangible assets for purposes of impairment
testing shall perform a transition impairment test using a direct value method on all intangible
assets that were previously valued using the residual method under SFAS No. 142, no later than the
beginning of their first fiscal year beginning after December 15, 2004. Impairments of intangible
assets recognized upon application of a direct value method by entities previously applying the
residual method, including the related deferred tax effects, should be reported as a cumulative
effect of a change in accounting principle. Consistent with this SEC position as codified on EITFD-108, Use of
the Residual Method to Value Acquired Assets other than Goodwill, Cox began applying a direct value method to determine the
fair value of its indefinite-lived intangible assets comprised of cable franchise rights, acquired
prior to September 29, 2004. During the fourth quarter of 2004, Cox performed a transition
impairment test, which resulted in a charge of approximately
$2.0 billion ($1.2 billion, net of tax). Net loss Net loss for the year ended December 31, 2004 was $2.4 billion compared to $137.8 million for
the comparable period in 2003. 2003 compared with 2002 The following table sets forth summarized consolidated financial information for each of the
two years in the period ended December 31, 2003. Year Ended December 312003
    
    
    2002
    
    
    $ Change
    
    
    % Change(Thousands of Dollars)Revenues
    
    $
    5,758,868
    
    
    $
    5,038,598
    
    
    $
    720,270
    
    
    
    14
    %Cost of
services (excluding depreciation and
amortization)
    
    
    2,391,310
    
    
    
    2,112,155
    
    
    
    279,155
    
    
    
    13
    %Selling, general and
administrative expenses (excluding depreciation and amortization)
    
    
    1,250,686
    
    
    
    1,147,204
    
    
    
    103,482
    
    
    
    9
    %Depreciation and amortization
    
    
    1,505,475
    
    
    
    1,357,906
    
    
    
    147,569
    
    
    
    11
    %Impairment of intangible
assets
    
    
    25,000
    
    
    
    
    
    
    
    25,000
    
    
    NM(Gain) loss on sale of cable
systems
    
    
    (469
    )
    
    
    3,916
    
    
    
    (4,385
    )
    
    
    (112
    %)Operating income
    
    
    586,866
    
    
    
    417,417
    
    
    
    169,449
    
    
    
    41
    %Interest expense
    
    
    (467,753
    )
    
    
    (549,858
    )
    
    
    (82,105

    )
    
    
    15
    %
 36




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##### Table of Contents



Year Ended December 312003
    
    
    2002
    
    
    $ Change
    
    

% Change(Thousands of Dollars)(Loss) gain on derivative
instruments, net
    
    
    (22,567
    )
    
    
    1,125,588
    
    
    
    (1,148,155
    )
    
    
    (102
    %)Gain (loss) on investments, net
    
    
    165,194
    
    
    
    (1,317,158
    )
    
    
    1,482,352
    
    
    
    (113
    %)Loss on extinguishment of debt
    
    
    (450,069
    )
    
    
    (787
    )
    
    
    (449,282
    )
    
    NMOther, net
    
    
    (3,557
    )
    
    
    (5,080
    )
    
    
    1,523
    
    
    
    (30
    %)Income tax benefit
    
    
    68,299
    
    
    
    113,001
    
    
    
    (55,288
    )
    
    
    (45
    %)Minority interest, net of tax
    
    
    (6,116
    )
    
    
    (37,272
    )
    
    
    31,156
    
    
    
    (84
    %)Equity in net losses of
affiliated companies, net of
tax
    
    
    (8,098
    )
    
    
    (19,890
    )
    
    
    11,792
    
    
    
    (59
    %)Net loss
    
    $
    (137,801
    )
    
    $
    (274,039
    )
    
    $
    136,238
    
    
    
    (50
    %)
    Revenues The following table sets forth summarized revenue information for each of the two years in the
period ended December 31, 2003. Year Ended December 31% of
    
    
    
    
    
    
    % of2003
    
    
    Total
    
    
    2002
    
    
    Total
    
    
    $ Change
    
    
    % Change(Thousands of Dollars)ResidentialVideo
    
    $
    3,658,917
    
    
    
    64
    %
    
    $
    3,439,755
    
    
    
    68
    %
    
    $
    219,162
    
    
    
    6
    %Data
    
    
    870,628
    
    
    
    15
    %
    
    
    575,231
    
    
    
    11
    %
    
    
    295,397
    
    
    
    51
    %Telephony
    
    
    469,920
    
    
    
    8
    %
    
    
    343,227
    
    
    
    7
    %
    
    
    126,693
    
    
    
    37
    %Other
    
    
    86,903
    
    
    
    1
    %
    
    
    72,254
    
    
    
    1
    %
    
    
    14,649
    
    
    
    20
    %Total
residential
revenue
    
    
    5,086,368
    
    
    
    88
    %
    
    
    4,430,467
    
    
    
    87
    %
    
    
    655,901
    
    
    
    15
    %Commercial
    
    
    287,676
    
    
    
    5
    %
    
    
    230,067
    
    
    
    5
    %
    
    
    57,609
    
    
    
    25
    %Advertising
    
    
    384,824
    
    
    
    7
    %
    
    
    378,064
    
    
    
    8
    %
    
    
    6,760
    
    
    
    2
    %Total revenues
    
    $
    5,758,868
    
    
    
    100
    %
    
    $
    5,038,598
    
    
    
    100
    %
    
    $
    720,270
    
    
    
    14
    %
 The 14% increase in total revenues was primarily attributable to:  
    a 31% increase in customers for advanced services (digital cable, high-speed Internet
access and telephony);
    an increase in basic cable rates resulting from increased programming costs , as well
as increased channel availability;
    a $5 price increase on monthly high-speed Internet access adopted in select markets in
the fourth quarter of 2002 and in most of Coxs remaining markets in the first quarter of
2003; and
    an increase in commercial broadband customers. Costs and expenses (Costs of services and Selling, general and administrative expenses) The following table sets forth summarized operating expenses for each of the two years in the
period ended December 31, 2003. Year Ended December 312003
    
    
    2002
    
    
    $ Change
    
    
    % Change(Thousands of Dollars)Cost of servicesProgramming costs
    
    $
    1,158,519
    
    
    $
    1,036,552
    
    
    $
    121,967
    
    
    
    12
    %Other cost of services
    
    
    1,232,791
    
    
    
    1,075,603
    
    
    
    157,188
    
    
    
    15
    %Total cost of services
    
    
    2,391,310
    
    
    
    2,112,155
    
    
    
    279,155
    
    
    
    13
    %Selling, general and administrativeMarketing
    
    
    297,945
    
    
    
    284,651
    
    
    
    13,294
    
    
    
    5
    %General and administrative
    
    
    952,741
    
    
    
    862,553
    
    
    
    90,188
    
    
    
    10
    %Total selling, general and
administrative
    
    
    1,250,686
    
    
    
    1,147,204
    
    
    
    103,482
    
    
    
    9
    %Total costs and expenses
    
    $
    3,641,996
    
    
    $
    3,259,359
    
    
    $
    382,637
    
    
    
    12
    %
 37




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##### Table of Contents



Cost of services increased $279.2 million over 2002 partially due to a $122.0 million
increase in programming costs. Approximately 10% of the increase was attributable to programming
rate increases, and the remaining 2% was related to basic and digital customer growth. Other cost
of services increased $157.2 million, primarily due to:  
    1.2 million in net additions of advanced-service customers over the last twelve months;
and
    increased labor costs due to the transition from upgrade construction and new product
launches to maintenance and related customer costs directly associated with the growth of
new subscribers. Cox recorded a one-time non-recurring charge of approximately $9.8 million in 2002 associated with
the continuation of Excite@Home high-speed Internet service following the bankruptcy of
Excite@Home, and excluding this one-time charge, other cost of services increased 16% in 2003. Selling, general and administrative expenses include marketing, salaries and benefits,
commissions and bonuses, travel, facilities, insurance and other administrative expenses. Selling,
general and administrative expenses increased $103.5 million primarily due to:  
    a $90.2 million increase in general and administrative expenses relating to increased
labor costs, expenses related to trials of new video and telephony products, and public
relations expenses related to our campaign aimed at the rising costs of programming; and
    a $13.3 million increase in marketing expense relating to the promotion of new services
and bundling alternatives, partially offset by an 8% decrease in costs associated with
Coxs advertising sales business, Cox Media. Depreciation and amortization Depreciation and amortization for the year ended December 31, 2003 increased to $1.5 billion
from $1.4 billion for the comparable period in 2002. This was due to an increase in depreciation
from Coxs continuing investment in its broadband network in order to deliver additional services. Impairment of intangible assets Impairment
of intangible assets represents a non-cash impairment charge of
approximately $25.0 million recognized in the
first quarter of 2003, upon completion of an impairment test of franchise value in accordance with
SFAS No. 142. Cox completed its next impairment test in accordance with SFAS No. 142 in August
2003. The August 2003 test indicated no impairment of franchise value. Interest expense Interest expense decreased 15% to $467.8 million primarily due to interest savings as a result
of Coxs interest rate swap agreements and a reduction of outstanding indebtedness. Loss on derivative instruments, net Cox does not hold or issue derivative instruments for trading purposes and is not a party to
leveraged instruments. From time to time, however, Cox uses derivative instruments to manage its
exposure to changes in the fair value of certain of its assets or liabilities or to manage its
exposure to changes in interest rates or equity prices. These derivative instruments are
designated and accounted for by Cox as hedges of the underlying exposure being managed, as
prescribed by SFAS No. 133. During 2003 and 2002, Cox used the following derivative instruments in
its hedging activities: 38




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##### Table of Contents




    twelve interest rate swap agreements with an aggregate principal amount of $1.8 billion
that are designated and accounted for as fair value hedges.
    a series of costless equity collar arrangements that were designated and accounted for
as fair value hedges to manage Coxs exposure to changes in the fair value of 15.8
million shares of Sprint PCS common stock, 22.5 million shares of AT&T common stock and
17.2 million shares of AT&T Wireless common stock held by Cox. These equity collar
arrangements derived their value primarily based on changes in the fair value of the
underlying equity security. As described in Note 6. Investments in Part II, Item 8.
Consolidated Financial Statements and Supplementary Data, Cox terminated all of these
equity collar arrangements and sold the underlying shares of common stock during the first
quarter of 2002. Hence, there were no active hedging activities with respect to Coxs
investments at December 31, 2002, and Cox did not undertake any hedging activity with
respect to investments in 2003 or 2004. In addition to the foregoing derivatives, upon adoption of SFAS No. 133, certain of Coxs debt
instruments contained embedded derivatives, as defined, and certain investments met the definition
of freestanding derivatives. Cox has not designated these embedded and freestanding derivatives as
hedges under SFAS No. 133 and, as such, changes in their fair value are being recognized in
earnings as derivative gains or losses. During 2003 and 2002, Cox had the following embedded
derivatives or freestanding derivatives outstanding that have not been designated as hedges:  
    embedded derivatives contained in the PRIZES, the Premium PHONES and the Discount
Debentures.
    embedded derivatives contained in Coxs series of prepaid variable forward contracts
secured by 19.5 million shares of Sprint PCS common stock and accounted for as zero-coupon
debt. These embedded derivatives derived their value primarily based on changes in the
fair value of Sprint PCS common stock, U.S. Treasury rates and Coxs credit spreads.
    stock purchase warrants to purchase equity securities of certain publicly-traded or
privately-held companies that can be exercised and settled by delivery of net shares, such
that Cox pays no cash upon exercise. For a more detailed description of Coxs exchangeable subordinated debentures, zero-coupon
debt and their corresponding embedded derivatives, please refer to Note 8. Debt and Note 9.
Derivative Instruments and Hedging Activities in Part II, Item 8. Consolidated Financial
Statements and Supplementary Data. For the year ended December 31, 2003, Cox recorded a $22.6 million pre-tax loss on derivative
instruments primarily due to a $4.4 million pre-tax loss resulting from the change in the fair
value of Coxs net settleable warrants and an $18.7 million pre-tax loss resulting from the change
in the fair value of certain derivative instruments embedded in Coxs zero-coupon debt, as
described above. Gain on investments, net Net gain on investments for the year ended December 31, 2003 of $165.2 million includes:  
    $154.5 million pre-tax gain related to the sale of 46.8 million shares of Sprint PCS
common stock;
    $21.8 million pre-tax gain as a result of the change in market value of Coxs
investment in Sprint PCS common stock classified as trading; partially offset by
    $10.5 million pre-tax decline considered to be other than temporary in the fair value
of certain investments. Loss on extinguishment of debt During the year ended December 31, 2003, Cox recorded a $450.1 million pre-tax loss on
extinguishment of debt consisting of: 39




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
    $412.8 million pre-tax loss resulting from the purchase of $1.8 billion aggregate
principal amount at maturity of the Discount Debentures pursuant to Coxs offer to
purchase any and all Discount Debentures. The pre-tax loss was primarily attributable
to the reversal of discounts associated with the embedded derivatives and other costs
that were recorded at issuance and were being amortized over the original term of
these securities.
    $29.5 million pre-tax loss resulting from the termination of Coxs series of
prepaid forward contracts to sell up to 19.5 million shares of Sprint PCS common
stock, described above and accounted for as zero-coupon debt;
    $10.2 million pre-tax loss resulting from the purchase of $422.7 million aggregate
principal amount at maturity of Coxs convertible senior notes due 2021 pursuant to
the holders right to require Cox to purchase the convertible notes;
    $1.5 million pre-tax loss resulting from the purchase of $250.0 million aggregate
principal amount of its 6.15% Reset Put Securities due 2033 (REPS); partially offset
by
    $3.9 million pre-tax gain resulting from the purchase of $1.3 billion aggregate
principal amount of the PRIZES and $274.9 million aggregate principal amount of the
Premium PHONES pursuant to Coxs offer to purchase any and all PRIZES and Premium
PHONES. Income tax benefit Income tax benefit was $68.3 million for the year ended December 31, 2003. The effective tax
rate for 2003 was 35.6% compared to 34.3% for 2002. The change in the effective tax rate was
primarily due to the impact of varying effective state tax rates across Coxs operations, along
with the effects of current year investing and financing transactions. Equity in net losses of
affiliated companies, net of tax Equity in net losses decreased 59% to $8.1 million. Generally, these losses are attributable
to Coxs proportionate share of the investees income or loss. Although Cox has various levels of
ownership and rights with respect to the companies in which it has equity investments, Cox has no
control over the financial position of these companies. Therefore, Cox cannot predict the impact
that its equity investments will have on its future operations. Net loss Net loss for the year ended December 31, 2003 was $137.8 million compared to net loss of
$274.0 million for the comparable period in 2002. Liquidity and Capital Resources 2004 Uses and Sources 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. Cox believes it will be able to meet its capital
needs over the next twelve months and the foreseeable future with amounts available under existing
revolving credit facilities and its commercial paper program. During 2004, Cox made capital expenditures of $1.4 billion. These expenditures were primarily
directed at costs related to electronic equipment located on customers premises, costs to upgrade
and rebuild Coxs broadband network to allow for the delivery of advanced broadband services and
costs associated with network equipment used to enter new service areas. Capital expenditures for 2005 are expected to be less than capital expenditures made in 2004.
Although management continuously reviews industry and economic conditions to identify
opportunities, Cox does not have any current plans to make any material acquisitions or enter into
any material cable system 40




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exchanges in 2005. In March 2005, Cox announced it is exploring a sale of four cable operations
serving approximately 900,000 subscribers. In addition to improvement of its own networks, Cox has made strategic investments in
businesses focused on cable programming, technology and telecommunications. Investments in these
companies of $17.8 million in 2004 included debt and equity funding. Future funding requirements
are expected to total approximately $33.8 million over the next year. These capital requirements
may vary significantly from the amounts stated above and will depend on numerous factors as many of
these companies are growing businesses and specific financing requirements will change depending on
the evolution of these businesses. During 2004, Cox repaid $3.6 billion of debt, which included:  
    the repurchase of its remaining outstanding convertible senior notes, PRIZES and
Premium PHONES;
    the repayment of its $375 million 7.5% notes and its $100 million 6.69% medium-term
notes, each at their maturity; and
    the repayment of its 18-month, $3.0 billion term loan (Bridge Loan). During 2004, Cox purchased the minority interest in TCA Cable Partners for cash consideration
of approximately $153.0 million. Net revolving credit and commercial paper borrowings during 2004 were $1.4 billion. Proceeds
from bank borrowings and the issuance of debt securities, net of debt issuance costs, underwriting
commissions and discounts, included the following:  
    the Bridge Loan for net proceeds of approximately $3.0 billion;
    a term loan due 2009 for net proceeds of approximately $2.0 billion;
    floating rate notes due 2007 for net proceeds of approximately $498.7 million;
    4.625% notes due 2010 for net proceeds of approximately $1.2 billion; and
    5.450% notes due 2014 for net proceeds of approximately $1.2 billion. The proceeds from the Bridge Loan and the term loan were used to fund the going-private
transaction. Proceeds from the notes offerings were used to repay the Bridge Loan. In connection
with the notes offerings, Cox agreed to offer holders of the notes the opportunity to exchange
their outstanding notes for registered notes with substantially identical terms. Cox filed an
exchange offer registration statement on January 14, 2005 and expects to commence the exchange
offer as soon as practicable. This report should not be construed as an offer to exchange or
solicitation of an offer to exchange outstanding notes. Cox exchange offer will only be made
through a prospectus that will be available after the SEC declares the exchange offer registration
statement effective. Cox has agreed to use commercially reasonable efforts to have the exchange
offer registration statement declared effective on or before June 13, 2005 and the consummate the
exchange offer within 25 business days after the effective date, and if Cox fails to meet these
deadlines or under certain other circumstances (each a registration default), holders will receive
additional interest until the applicable registration default is cured. Cox currently does not
expect a registration default will occur. During 2004, Cox generated $2.0 billion from operations. Proceeds from the sale of investments
of $70.2 million included the sale of 0.1 million shares of Sprint PCS preferred stock for net
proceeds of $56.9 million, the sale of certain other non-strategic investments for proceeds of
$10.3 million and the sale of all remaining Sprint stock for proceeds of $3.0 million. Cox also
received net proceeds of approximately $53.1 million from the sale of certain small, non-clustered
cable systems in Oklahoma, Kansas, Texas and Arkansas. 2003 Uses and Sources of Cash 41




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During 2003, Cox made capital expenditures of $1.6 billion. These expenditures were primarily
directed at costs related to electronic equipment located on customers premises, costs to upgrade
and rebuild Coxs broadband network to allow for the delivery of advanced broadband services and
costs associated with network equipment used to enter new service areas. In addition to improvement of its own networks, Cox has made strategic investments in
businesses focused on cable programming, technology and telecommunications. Investments in these
companies of $22.3 million in 2003 included debt and equity funding. Future funding requirements
are expected to total approximately $20.0 million over the next two years. These capital
requirements may vary significantly from the amounts stated above and will depend on numerous
factors as many of these companies are growing businesses and specific financing requirements will
change depending on the evolution of these businesses. During 2003, Cox repaid $2.3 billion of debt, which primarily consisted of the purchase of a
portion of its convertible senior notes, the purchase of the majority of all three series of its
exchangeable subordinated debentures, pursuant to offers to purchase any and all PRIZES, Premium
PHONES and Discount Debentures, and the purchase of its REPS. Net commercial paper borrowings during 2003 were $300.9 million. Proceeds from the issuance
of other debt, net of debt issuance costs, underwriting commissions and discounts, included the
issuances of:  
    4.625% senior notes due 2013 for net proceeds of approximately $596.2 million;
    3.875% senior notes due 2008 for net proceeds of $248.8 million; and
    5.5% senior notes due 2015 for net proceeds of $496.5 million. The proceeds from these offerings were primarily used to purchase the tendered PRIZES, Premium
PHONES and Discount Debentures and the REPS. During 2003, Cox generated $1.9 billion from operations. Proceeds from the sale and exchange
of investments of $246.4 million consisted of proceeds from the sale of 46.8 million shares of
Sprint PCS common stock. 2002 Uses and Sources of Cash During 2002, Cox made capital expenditures of $1.9 billion. These expenditures were primarily
directed at costs related to electronic equipment located on customers premises, costs to upgrade
and rebuild Coxs broadband network to allow for the delivery of advanced broadband services and
costs associated with network equipment used to enter new service areas. Net commercial paper repayments during 2002 were $727.4 million. As a result, Cox had no
outstanding commercial paper borrowings at December 31, 2002. During 2002, Cox repaid $705.0
million of other debt, which primarily consisted of the repurchase of a portion of its convertible
senior notes, the repurchase of its Floating Rate MOPPRS/CHEERS and the repayment of its 6.5%
senior notes upon their maturity. During 2002, Cox redeemed the senior notes held by the Cox RHINOS Trust for approximately
$502.6 million, and the Cox RHINOS Trust, in turn, redeemed its preferred securities, the RHINOS.
Distributions paid on capital and preferred securities of subsidiary trusts of $47.8 million
consisted of quarterly interest payments on the FELINE PRIDES and RHINOS. During 2002, Cox generated $1.8 billion from operations. Proceeds from the sale and exchange
of investments of $1.3 billion primarily included:  
    the sale of 25.2 million shares of Sprint PCS common stock for aggregate net proceeds
of approximately $238.7 million;
    the sale of 35.0 million shares of AT&T common stock for aggregate net proceeds of
approximately $542.6 million; 42




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
    the sale of 23.9 million shares of AT&T Wireless common stock for aggregate net
proceeds of approximately $248.2 million; and
    the termination of all costless equity collar arrangements with respect to Sprint PCS
common stock, AT&T common stock and AT&T Wireless common stock for aggregate proceeds of
approximately $264.4 million. Proceeds from the issuance of debt, net of debt issuance costs, underwriting commissions and
discounts, included the issuance of 7.125% notes due 2012 for net proceeds of approximately $986.1
million. The proceeds from this offering were primarily used to redeem the senior notes held by
the Cox RHINOS Trust, repurchase the Floating Rate MOPPRS/CHEERS and repay the 6.5% senior notes. Off-Balance Sheet Arrangements In the normal course of business, Cox issues standby letters of credit to local franchise
authorities. The unused letters of credit outstanding totaled $5.1 million at December 31, 2004.
Cox does not have any material off-balance sheet arrangements. Contractual Obligations and Commitments The following table contains information relating to Coxs contractual obligations and
commitments for the five years subsequent to December 31, 2004 and thereafter. The amounts
represent the maximum future contractual obligations (some of which may be settled by delivering
equity securities) and are reported without giving effect to any related discounts, premiums and
other adjustments necessary to comply with accounting principles generally accepted in the U.S. Payments Due by PeriodLessthan 1
    
    
    1  3
    
    
    4  5
    
    
    After 5Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    Years(Millions of Dollars)Debt maturities and
pay-off obligations
(a)
    
    $
    12,663.0
    
    
    $
    437.5
    (b)(c)
    
    $
    965.0
    
    
    $
    4,511.6
    
    
    $
    6,748.9
    (d)Interest on aggregate
debt (e)
    
    
    5,118.2
    
    
    
    665.4
    
    
    
    1,442.7
    
    
    
    1,202.3
    
    
    
    1,807.8Capital leases
    
    
    201.0
    
    
    
    49.8
    
    
    
    50.5
    
    
    
    30.2
    
    
    
    70.5Operating leases
    
    
    67.0
    
    
    
    19.1
    
    
    
    26.2
    
    
    
    10.5
    
    
    
    11.2Nonbinding purchase and
other commitments (f)
    
    
    1,506.7
    
    
    
    459.5
    
    
    
    400.2
    
    
    
    370.8
    
    
    
    276.2Total contractual cash
obligations
    
    $
    19,555.9
    
    
    $
    1,631.3
    
    
    $
    2,884.6
    
    
    $
    6,125.4
    
    
    $
    8,914.6
   (a)
    
    Excludes $96.1 million of commercial paper borrowings outstanding as of December 31,
2004.(b)
    
    Cox has classified approximately $375.0 million of outstanding debt obligations
scheduled to mature in the next twelve months in the noncurrent portion of long-term debt
in its Consolidated Balance Sheet because it intends to refinance these obligations on a
long-term basis. Cox has the ability to refinance these obligations under its existing
revolving credit facilities.(c)
    
    Includes Coxs Discount Debentures due in 2020 representing $62.3 million aggregate
principal amount at maturity. Cox has the right to redeem the Discount Debentures after
April 19, 2005, and Cox intends to exercise this right and redeem the Discount Debentures
in April 2005 for an estimated aggregate redemption price of approximately $32.5 million,
plus accrued and unpaid cash interest. 43




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(d)
    
    The holders of Coxs $200.0 million aggregate principal amount 6.53% debentures due
2028, which were issued by TCA Cable TV prior to Coxs acquisition of TCA, have the right
to require the Cox subsidiary that assumed TCAs obligations under the debentures to
repurchase the debentures on February 1, 2008 at a purchase price equal to 100% of the
principal amount of such debentures, plus any accrued but unpaid cash interest.(e)
    
    Coxs estimate of its cash requirement for interest payments is based on known future
cash interest payments related to its debt instruments as of December 31, 2004. These
estimates also assume that (i) debt is repaid and not refinanced at maturity, (ii) the
holders of Coxs Discount Debentures and the holders of the former TCA bonds do not
exercise their rights to require Cox to repurchase such securities as described in
footnotes (c) and (d) above, respectively, and (iii) no future impact is recognized from
Coxs interest rate swap agreements, which effectively convert $1.4 billion of Coxs
fixed-rate debt into floating-rate obligations and have resulted in significant interest
savings in both 2004 and 2003. Coxs future interest payments could differ materially
from amounts indicated in the table due to Coxs future operational and financing needs,
changing market conditions and other currently unanticipated events.(f)
    
    Includes unfulfilled purchase orders, construction commitments and various other
commitments arising in the normal course of business. Cox identified other cash requirements related to the funding of pension and other
postretirement benefits. Cox accelerated its total 2003 plan year contributions for the funded
pension plans into 2003. In December 2004, Cox contributed $10.0 million of its overall $38.8
million 2004 minimum required contribution; the remaining $28.8 million will be contributed during
2005. Cox expects to contribute $6.0 million to its other postretirement benefit plans during 2005.
The assumptions related to pension and other postretirement benefits are described under the
heading Pension and Postretirement Benefits under Critical Accounting Policies and Estimates.
For additional information regarding pension and other postretirement benefits see Note 12.
Retirement Plans in Part II, Item 8. Consolidated Financial Statements and Supplementary Data. Credit Facilities On December 2, 2004, Cox entered into new credit agreements, dated as of December 3, 2004,
providing Cox with a five-year unsecured $1.5 billion revolving credit facility, a five-year
unsecured $2.0 billion term loan and the Bridge Loan. On December 2, 2004, Cox also amended and
restated its existing credit agreement, dated as of December 3, 2004, to conform certain of the
provisions of that agreement to the provisions of the new credit agreements. Coxs existing credit
agreement, as amended and restated, provides for an unsecured $1.25 billion revolving credit
facility with availability through June 4, 2009. Through December 8, 2004, Cox borrowed
approximately $5.3 billion in the aggregate under these facilities to fund the going-private
transaction. Cox repaid the Bridge Loan in December 2004, primarily with the proceeds of the
senior notes offering described previously. Borrowings under the new revolving credit facility and
the amended and restated credit facility may be used for general corporate purposes. At December
31, 2004, Cox had outstanding borrowings of approximately $1.7 billion under its credit facilities.
Upon termination of any credit agreement, Cox must repay all outstanding loans under the
terminated credit agreement. Borrowings under both the new and the amended and restated credit agreements will bear
interest at a rate selected by Cox from three alternatives. The interest rate may be based on the
London Interbank Offered Rate (LIBOR), the Federal funds rate or an alternate base rate. The
alternate base rate will be based on the greater of the prime rate or the Federal funds rate plus
0.50%. In each case, the applicable interest rate will be increased by a margin imposed by the
credit agreements. The applicable margin for any date will depend upon Coxs corporate credit
ratings. The credit agreements also establish a mechanism under which individual lenders with
commitments under Coxs revolving credit facilities may make discretionary loans in lieu of loans
committed under the revolving credit facilities at rates agreed upon from time to time with Cox. 44




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Cox will pay a commitment fee on the unused portion of the total amount available under its
credit facilities based on Coxs corporate credit ratings. Each of Coxs credit agreements requires Cox to maintain a ratio of debt to operating cash
flow of not more than 5.5 to 1.0 prior to December 31, 2005 and 5.0 to 1.0 at December 31, 2005 and
thereafter and a ratio of operating cash flow to interest expense of not less than 2.0 to 1.0.
Additionally, Each of Coxs credit agreements contains customary affirmative and negative covenants
concerning the conduct of Coxs business operations, such as limitations on the granting of liens,
mergers, consolidations and dispositions of assets, investments in unrestricted subsidiaries and
transactions with affiliates. Subject to certain exceptions, Cox will not be permitted to pay or
declare any dividend or redeem or acquire any of its stock in excess of a specified amount unless
its ratio of debt to operating cash flow would not exceed a specified level after taking into
account the dividend, redemption or acquisition. Each of Coxs credit agreements also contains customary events of default, including, but not
limited to, failure to pay principal or interest, failure to pay or acceleration of other debt,
misrepresentation or breach of warranty, violation of certain covenants and change of control.
Upon the occurrence of an event of default under one of the credit agreements, Coxs obligations
under that credit agreement may be accelerated and the lending commitments under that credit
agreement terminated. Ratio of Earnings to
Fixed charges The following table sets
forth Cox's ratio of earnings to fixed charges for the periods
indicated: Year Ended December 31,2004
    
    

2003
    
    

2002(a)
    
    

(b)
    
    

(c)
  (a) For the year ended
December 31, 2004, Cox's fixed charges exceeded its earnings by
approximately $2.0 billion due primarily to impairment of intangible
assets of $2.4 billion offset by net gains on investments of $28.4
million. The impairment of intangible assets was related to cable
franchise rights and was recognized based on an impairment test
calculated in accordance with SFAS 142. The gain on investments included a $21.9 million
gain on the sale of Sprint PCS common stock.(b) For the year ended December 31, 2003, Cox's
fixed charges exceeded its earnings by approximately $191.9 million
due primarily to loss on extinguishment of debt of $450.1 million and
next loss on derivative instruments of $22.6 million offset by net
gain on investments of $165.2 million. The loss on extinguishment of
debt was primarily due to a $412.8 million pre-tax loss resulting
from the purchase of $1.8 billion aggregate principal amount of Cox's
exchangeable subordinated discount debentures due 2020. The net loss
on derivative instruments included an $18.7 million loss resulting
from the change in the fair value of certain derivative instruments
embedded in Cox's zero-coupon debt. The gain on investments included a
$154.5 million gain on the sale of Sprint PCS common stock.(c) For the year ended December 31, 2002, Cox's
fixed charges exceeded its earnings by approximately $329.9 million
due primarily to net losses on investments of $1.3 billion offset by
net gains on derivative instruments of $1.1 billion. The loss on
investments included an $807.9 million decline in the fair value of
certain investments, primarily Sprint PCS common stock, cons. Credit Ratings Coxs credit ratings impact our ability to obtain short and long-term financing and the cost
of such financing. In determining Coxs credit ratings, the rating agencies consider a number of
factors, including our profitability, operating cash flow, total debt outstanding, interest
requirements, liquidity needs and availability of liquidity. Other factors considered may include
our business strategy, the condition of our industry and our position within the industry. Although
we understand that these are among the factors considered by the rating agencies, each agency might
calculate and weigh each factor differently. A rating is not a recommendation to buy, sell or hold
a security, and ratings are subject to revision at any time by the assigning agency. Senior UnsecuredRating Agency
    
    
    Debt Rating
    
    
    OutlookMoodys
    
    
    Baa3
    
    
    StableStandard & Poors
    
    
    BBB-
    
    
    StableFitch Ratings
    
    
    BBB-
    
    
    Stable
 More information about Moodys, Fitch Ratings and Standard and Poors ratings generally can
be found at their respective websites at
http://www.moodys.com, http://www.fitchratings.com and
http://www.standardandpoors.com. The information at these websites is not part of this annual
report, has not been reviewed or verified by us and is referenced for information purposes only. Other Cox had approximately $1.0 billion of total available financing capacity under its revolving
credit facilities and commercial paper program at December 31, 2004. In September 2004, Cox purchased DR Partners 25% interest in TCA Cable Partners, pursuant to
the partnership agreement, for cash consideration of approximately $153.0 million. TCA Cable
Partners was a general partnership owned 75% by Cox (indirectly through subsidiaries) and 25% by DR
Partners, operating cable systems in the Southwest, mainly Arkansas, serving approximately 260,000
customers. Certain of Coxs debt instruments and credit agreements contain covenants which, among other
provisions, contain certain restrictions on liens, mergers and the disposition of assets. None of
the covenants contained in Coxs debt instruments and credit agreements contain a covenant to
maintain a 45




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specific debt rating that would impact the maturity of the instruments and agreements in the event
that Coxs debt rating was downgraded. The credit agreements contain financial covenants that
require certain leverage ratios and interest coverage (as defined in the covenants) be maintained.
Compliance with these ratios limits Coxs ability to incur unlimited indebtedness; however, these
covenants have not posed a significant limitation on Coxs ability to finance its capital
requirements in the past. Cox was in compliance with all covenants for both its credit facilities
and debt instruments for all periods presented. Historically, Cox has not paid dividends and
currently intends to reinvest future earnings, consistent with its business strategy. For
a description of investments, see Investments in Part I, Item 1. Business and Note 6. Investments in Part II, Item 8.
Consolidated Financial Statements and Supplementary Data. For a description of Coxs transactions with affiliated companies, see Part III, Item 13.
Certain Relationships and Related Transactions. Recent Development On March 7, 2005, Cox announced that it is exploring a sale of four cable operations serving
approximately 900,000 subscribers. This is one of a number of strategic options being considered
to reduce debt and accelerate growth. Systems under consideration for sale include West Texas, serving the Lubbock, Midland, Amarillo,
San Angelo and Abilene areas; North Carolina, serving the Greenville, Rocky Mount, New Bern and
Kinston areas; Humboldt County, California; and much of Middle America Cox (MAC), primarily
comprised of operations in Texas, Louisiana and Arkansas. MAC also includes certain systems in
Oklahoma, Mississippi and Missouri. Excluded from the potential sale are some operations serving
the Northwest Arkansas and Lafayette, Louisiana areas. Critical Accounting Policies and Estimates The accompanying consolidated financial statements and notes to consolidated financial
statements contain information that is pertinent to managements discussion and analysis of
financial condition and results of operations. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, and the related disclosure of contingent assets and liabilities. Estimates are
evaluated based on available information and experience. Actual results could differ from those
estimates under different assumptions or conditions. Cox believes that the critical accounting
policies and estimates discussed below involve additional management judgment due to the
sensitivity of the methods and assumptions necessary in determining the related asset, liability,
revenue and expense amounts. For a detailed description of Coxs significant accounting policies,
see Note 2. Summary of Significant Accounting Policies and Other Items in Part II, Item 8.
Consolidated Financial Statements and Supplementary Data. Plant and equipment The costs associated with the construction of cable transmission and distribution facilities
and new cable service installations are capitalized. Capitalized costs include all direct labor
and materials as well as certain indirect costs. The amount of indirect costs that are
capitalized, which include employee benefits, warehousing and transportation costs, are estimated
based on historical construction costs. Cox performs semi-annual evaluations of these estimates
and any changes to the estimates, which may be significant, are included prospectively in the
period in which the evaluations are completed. Derivative Instruments Cox accounts for derivative financial instruments in accordance with SFAS No. 133, which
requires that an entity recognize all derivatives as either assets or liabilities measured at fair
value. From time to time, Cox uses derivative instruments, such as interest rate swaps and equity
collar arrangements, to manage its exposure to changes in the fair value of certain of its assets
or liabilities or to manage its exposure to changes in interest rates or equity prices. In
addition, upon adoption of SFAS No. 133, certain 46




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of Coxs debt instruments and investments contained embedded or freestanding derivatives, as
defined. Assumptions are made regarding the valuation of derivative instruments, including U.S.
Treasury rates, Coxs credit spreads, volatility rates and other market indices. Should actual
rates differ from Coxs estimates, revisions to the fair value of Coxs derivative financial
instruments may be required. Intangible Assets On January 1, 2002, Cox adopted SFAS No. 142, which requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at
least annually. Coxs indefinite lived intangible assets are comprised of cable franchise value,
which Cox obtained through acquisitions of cable systems. Based on the guidance prescribed in EITF Issue No. 02-7, Unit of Accounting for Testing of
Impairment of Indefinite-Lived Intangible Assets,Cox determined that the unit of accounting for
testing franchise value for impairment resides at the cable system cluster level, consistent with
Coxs management of its business as geographic clusters. Prior to September 2004, Cox assessed franchise value for impairment under SFAS No. 142 by
utilizing a residual approach whereby Cox measured the implied fair value of each franchise value
intangible asset subject to the same unit of accounting by deducting from the fair value of each
cable system cluster the fair value of the cable system clusters other net assets, including
previously unrecognized intangible assets. Upon adoption of SFAS No. 142, Cox determined that no
impairment of franchise value intangible assets existed as of January 1, 2002. In completing
subsequent impairment tests in accordance with SFAS No. 142, Cox considers the guidance in EITF
Issue No. 02-17, which was issued in October 2002. When applying the guidance in EITF Issue No.
02-17, Cox considers assumptions that marketplace participants would consider, such as expectations
of future contract renewals and other benefits related to the intangible asset, when measuring the
fair value of the cable system clusters other net assets. The January 2003 impairment test in
accordance with SFAS No. 142, utilizing the residual approach, resulted in a non-cash impairment
charge of approximately $25.0 million, which is classified
within Impairment of intangible assets in Coxs
Consolidated Statement of Operations for the year ended December 31, 2003. Cox completed its next
impairment test in accordance with SFAS No. 142, utilizing the residual approach in August 2003.
The August 2003 test indicated no impairment of franchise value. In September 2004, the SEC announced that a direct value method should be used to
determine the fair value of all intangible assets required to be recognized under SFAS No. 141 and
that registrants should apply a direct value method to such assets acquired in business
combinations completed after September 29, 2004. Further, registrants who have applied the
residual method to the valuation of intangible assets for purposes of impairment testing shall
perform a transition impairment test using a direct value method on all intangible assets that were
previously valued using the residual method under SFAS No. 142 no later than the beginning of their
first fiscal year beginning after December 15, 2004. Impairments of intangible assets recognized
upon application of a direct value method by entities previously applying the residual method,
including the related deferred tax effects, should be reported as a cumulative effect of a change
in accounting principle. Consistent with this SEC position, Cox began applying a direct value
method to determine the fair value of its indefinite-lived intangible assets comprised of cable
franchise rights, acquired prior to September 29, 2004. During the fourth quarter of 2004, Cox
performed a transition impairment test, which resulted in a charge of
approximately $2.0 billion ($1.2 billion, net of tax), which is reported within Cumulative effect of change in accounting
principle, net of tax, in the Consolidated Statements of Operations. Additionally,
as a result of the going-private transaction, Cox revised its marketplace
assumption surrounding its estimated cost of capital. In accordance with SFAS No. 142, Cox
performed an impairment test, which along with the revised estimated
cost of capital, included a revised long-range operating forecast.
As a result of the impairment test, Cox recognized an impairment
charge of approximately $2.4 billion related to its cable franchise
rights, as calculated using a direct value method.
This impairment charge is reflected as Impairment on intangible assets in the accompanying
Consolidated Statements of Operations. In determining the fair value of each cable system cluster, Cox performs discounted cash flow
analyses, which require the use of assumptions and estimates. Cox believes that its assumptions and 47




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estimates are consistent with those that marketplace participants would use in their estimates of
fair value. The determination of fair value is critical to assessing impairment of intangible
assets with indefinite useful lives under SFAS No. 142. If these estimates or their related
assumptions change in the future, significant impairment in value, and hence impairment charges,
may result. Income Tax Estimates The provision for income taxes is based on Coxs current period income, changes in deferred
income tax assets and liabilities, changes in its operations in various jurisdictions, income tax
rates and tax positions taken on returns. Cox prepares and files tax returns based on its
interpretation of tax laws and regulations and records estimates based on these judgments and
interpretations. Significant judgment is required in assessing and estimating the application and
interpretation of complex tax laws and regulations. In the normal course of business, Coxs filed
tax returns are subject to examination by taxing authorities. These examinations could result in
challenges to tax positions that Cox has taken. These challenges could arise from a variety of tax issues such as the deductibility of certain
expenses, allocations of income and expense between states, the tax basis of certain assets and the
state taxation of acquisitions and disposals. Ultimately, the results of these challenges could
require Cox to pay additional tax and could also require the payment of interest assessments. A
liability is accrued when Cox believes that an assessment is probable. Cox has concluded a federal
income tax audit for the years 1998-2001 and expects to pay
approximately $4.0 million related to certain cable system
acquisitions and certain financing arrangements completed during the
audit period. In addition, Cox expects to file amended tax returns,
and receive refunds of approximately $3.0 million, for the effect of
these adjustments in later years. Cox believes that the majority of
the payments and the refunds will occur during 2005. Cox has also concluded the
field examination phase of a federal income tax audit for the years
1995-1997. Because Cox was a member of an affiliated group filing a
consolidated U.S. federal income tax return during the audit period,
Cox will not be able to fully conclude the audit until issues
associated with all affiliated members have been resolved. Cox
received refunds of approximately $3.0 million for various adjustments
that were concluded during the field examination. Cox does not expect
that any unresolved issues will result in significant payments or
refunds. In 2004, as a result of the
favorable resolution of the 1995-1997 and 1998-2001 audits, Cox has
reversed previously accrued taxes, reducing the tax provision by $6.0 million. Pension and Postretirement Benefits Cox follows the guidance of SFAS No. 87, Employers Accounting for Pensions, and SFAS No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions, when accounting for pension
and postretirement benefits. Under these accounting standards, assumptions are made regarding the
valuation of benefit obligations and the performance of plan assets. Delayed recognition of
differences between actual results and expected or estimated results is a guiding principle of
these standards. This delayed recognition of actual results allows for a smoothed recognition of
changes in benefit obligations and plan performance over the working lives of the employees who
benefit under the plans. The primary assumptions, which are reviewed annually by Cox, include the
discount rate, expected return on plan assets, rate of compensation increase and the rate of
increase in the per capita cost of covered health care benefits. During 2004, Cox made changes to its assumptions related to the discount rate and the rate of
compensation increase for salary-related plans. Cox consults with its independent actuaries when
selecting each of these assumptions. In selecting the discount rate, Cox considers fixed-income security yields, specifically
AA-rated corporate bonds, as rated by Moodys Investor Services. At December 31, 2004, Cox
decreased the discount rate for its pension plan from 6.25% to 6.00% and its postretirement welfare
plan from 6.25% to 5.75% as a result of decreased yields for AA-rated corporate bonds. In projecting the rate of compensation increase, Cox considers past experience in light of
movements in inflation rates. At December 31, 2004, Cox increased the rate of compensation increase
from 4.0% to 4.25% for its plans. In estimating the expected return on plan assets, Cox considers past performance and future
expectations for the types of investments held by the plan, as well as the expected long-term
allocation of plan assets to these investments. At December 31, 2004, Cox made no change in the
expected 9.0% return on plan assets, as historical returns continue to support a 9.0% expected
return. In selecting the rate of increase in the per capita cost of covered health care benefits, Cox
considers past performance and forecasts of future health care cost trends. At December 31, 2004,
Cox made no change in the expected weighted-average annual assumed rate of increase in the per
capita cost of covered health care benefits (i.e., health care cost trend rate) for retirees, which
is 10.0% in 2005, gradually decreasing to 5.0% by the year 2010, and remaining level thereafter. 48




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A variance in the assumptions discussed above would have an impact on the projected benefit
obligations, the accrued other postretirement benefit liabilities, and the annual net periodic
pension and other postretirement benefit cost. For additional information regarding pension and
other postretirement benefits see Note 12. Retirement Plans in Part II, Item 8. Consolidated
Financial Statements and Supplementary Data. Recently Issued Accounting Pronouncements In March 2004, the EITF ratified its consensus related to the application guidance within EITF
Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. EITF Issue No. 03-1 applies to investments in debt and equity securities within the
scope of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and
equity securities that are not subject to the scope of SFAS No. 115 and not accounted for under the
equity method under APB Opinion 18 and related interpretations. EITF Issue No. 03-1 requires that a
three-step model be applied in determining when an investment is considered impaired, whether that
impairment is other than temporary and the measurement of an
impairment loss. EITF Issue No. 03-1 originally required that
adoption of the recognition provisions prospectively to all current
and future investments during the quarter ended September 30, 2004.
However, on September 30, 2004, the Financial Accounting Standards
Board (FASB) issued FASB Staff Position (FSP) EITF No. 03-1-1,
Effective Date of Paragraph 16 of EITF Issue No. 03-1, which
delayed the effective date of the recognition provisions of EITF
Issue No. 03-1 until the issuance of the final FSP EITF Issue 03-1-a,
Implementation Guidance for the Application of Paragraph 16 of
EITF Issue No. 03-1. Until the final FSP is issued, Cox is not able to
evaluate whether the adoption of the recognition provisions under such
guidance will have a material effect on its results of operations or
financial position. In May 2004, the FASB issued FSP
106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003(the Act). FSP 106-2 requires measures of the
accumulated postretirement benefit obligation and net periodic postretirement benefit costs to
reflect the effects of the Act and became effective for Cox on July 1, 2004. The adoption of FSP
106-2 did not have a material impact on Coxs financial position or results of operations. As previously described, in September 2004, the SEC announced that a direct value method
should be used to determine the fair value of all intangible assets required to be recognized under
SFAS No. 141, and that registrants who have applied the residual method to the valuation of
intangible assets for purposes of impairment testing shall perform a transition test using a direct
value method on all intangible assets that were previously valued using the residual method under
SFAS No. 142 no later than the beginning of their first fiscal year beginning after December 15,
2004. In December 2004, the FASB issued SFAS No. 123(Revised), Share-Based Payment. This statement
replaces SFAS No. 123, Accounting for Stock-Based Compensationand supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. SFAS 123(R) requires companies to apply a
fair-value-based measurement method in accounting for share-based payment transactions with
employees and to record compensation cost for all stock awards granted after the required effective
date and to awards modified, repurchased, or cancelled after that date. In addition, Cox is
required to record compensation expense (as previous awards continue to vest) for the unvested
portion of previously granted awards that remain outstanding at the
date of adoption. SFAS 123(R)
will be effective for quarterly periods beginning after June 15, 2005. Cox is currently assessing
the impact of this statement on its consolidated financial statements. Inflation Cox believes its operations are not materially affected by inflation. Caution Concerning Forward-Looking Statements 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 Coxs outlook for the future and information about Coxs strategic
plans and objectives, expectations as to subscriber and revenue growth, anticipated rates of
subscriber penetration, capital expenditures and other statements of expectations, beliefs, future
plans and strategies, anticipated 49




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events or trends and similar projections, as well as any facts or assumptions underlying these
statements or projections. 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 Coxs prior filings with the SEC. Factors
to consider in connection with any of Coxs forward-looking statements include, but are not limited
to:  
    Coxs ability to implement successfully Coxs growth strategies
and the level of success of Coxs 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 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 Coxs business
plan and adversely affect Coxs business operations.
    Trends in Coxs businesses, particularly trends in the market for
existing and new communications services and changes in Coxs
business strategy and development plans.
    Coxs ability to increase penetration in existing markets, as well
as those Cox enters through acquisitions or other business
combinations, including Coxs ability to control costs and
maintain high standards of customer service, the extent to which
consumer demand for video, data and telephony services increases,
subscriber availability, retention and growth, subscriber demand
and competition.
    Coxs ability to generate sufficient cash flow to meet its debt
service obligations and to finance ongoing operations. Cox
operates with a significant level of indebtedness. Cash generated
from operating activities and borrowing has been sufficient to
fund Coxs debt service, working capital obligations and capital
expenditure requirements. Cox believes that it will continue to
generate cash and obtain financing sufficient to meet these
requirements. However, if Cox were unable to meet these
requirements, Cox would have to consider refinancing its
indebtedness or obtaining new financing. Although in the past Cox
has been able to refinance its indebtedness and obtain new
financing, there can be no assurance that Cox will be able to do
so in the future or that, if Cox were able to do so, the terms
available would be acceptable to Cox. In addition, Cox must
manage exposure to interest rate risk due to variable rate debt
instruments.
    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 Coxs franchises are
generally non-exclusive, there is potential for competition from
other operators of cable 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, Cox faces general
competitive factors, such as the introduction of new technologies
(such as Internet-based services), changes in prices or demand for
Coxs products as a result of competitive actions or economic
factors and competitive pressures within the broadband
communications industry.
    Coxs ability to obtain the necessary FCC, as well as state and
local, authorizations for new services, and Coxs response to
adverse regulatory changes. The cable 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.
As a result, it is not possible to predict the effect that ongoing
developments might have on the broadband communications industry
or on Coxs operations.
    Coxs ability to limit the increases in its programming costs and
maintain successful relationships with its programmers. In recent
years the cable industry has experienced a rapid escalation in the
cost of programming. Coxs cable programming services are
dependent upon its ability to procure programming that is
attractive to Coxs customers at reasonable rates. Programming
costs may continue to escalate and Cox may not be able to pass
programming cost increases on to its customers. 50




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Cox has estimated the fair value of its financial instruments as of December 31, 2004 and 2003
using available market information or other appropriate valuation methodologies. Considerable
judgment, however, is required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of the amounts that Cox
would realize in a current market exchange. Please refer to Note 2. Summary of Significant
Accounting Policies and Note 9. Derivative Instruments and Hedging Activities in Part II, Item
8. Consolidated Financial Statements and Supplementary Data for detailed disclosures regarding
Coxs objectives, general strategy and the nature of derivative financial instruments that Cox uses
to manage its exposure to market risk. The carrying amount of cash, accounts and other receivables, accounts and other payables and
amounts due to/from CEI approximates fair value because of the short maturity of those instruments.
The fair value of Coxs investments stated at fair value are estimated and recorded based on
quoted market prices. The fair value of Coxs equity method investments and investments stated at
cost cannot be estimated without incurring excessive costs. Cox is exposed to market price risk
volatility with respect to investments in publicly traded and privately held entities. Additional
information pertinent to the value of the foregoing investments is discussed in Note 6.
Investments in Part II, Item 8. Consolidated Financial Statements and Supplementary Data. The fair value of interest rate swaps used for hedging purposes was approximately $16.4
million and $61.2 million at December 31, 2004 and 2003, respectively, and represents the estimated
amount that Cox would receive upon termination of the swap agreements on those respective dates.
Cox is exposed to interest rate volatility with respect to these variable-rate instruments when
they are issued and outstanding. The estimated fair value of Coxs fixed-rate notes and debentures and exchangeable
subordinated debentures at December 31, 2004 and 2003 are based on quoted market prices or a
discounted cash flow analysis using Coxs incremental borrowing rate for similar types of borrowing
arrangements and dealer quotations. A summary of the carrying value, estimated fair value and the
effect of a hypothetical one percentage point decrease in interest rates on the foregoing
fixed-rate instruments at December 31, 2004 and 2003 are as follows: December 31, 2004
    
    
    December 31, 2003Fair Value
    
    
    
    
    
    
    
    
    
    
    Fair ValueCarrying
    
    
    Fair
    
    
    (1% Decrease
    
    
    Carrying
    
    
    Fair
    
    
    (1% DecreaseValue
    
    
    Value
    
    
    in Interest Rates)
    
    
    Value
    
    
    Value
    
    
    in Interest Rates)(Millions of Dollars)Fixed-rate notes and
debentures
    
    $
    8,760.0
    
    
    $
    9,092.6
    
    
    $
    8,636.8
    
    
    $
    6,683.4
    
    
    $
    7,323.0
    
    
    $
    7,760.8Exchangeable
subordinated
debentures
    
    
    19.5
    
    
    
    31.4
    
    
    
    31.6
    
    
    
    26.1
    
    
    
    35.6
    
    
    
    38.9
 51




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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA COX COMMUNICATIONS, INC. 
 CONSOLIDATED BALANCE SHEETS
 December 312004
    
    
    2003(Thousands of Dollars)AssetsCurrent assetsCash
    
    $
    76,339
    
    
    $
    83,841Accounts and notes receivable, less allowance for doubtful
accounts of $26,482 and $26,175
    
    
    394,540
    
    
    
    370,832Other current assets
    
    
    136,386
    
    
    
    131,106Total current assets
    
    
    607,265
    
    
    
    585,779Net plant and equipment
    
    
    7,942,699
    
    
    
    7,907,561Investments
    
    
    1,171,647
    
    
    
    109,380Intangible assets
    
    
    19,369,452
    
    
    
    15,697,495Goodwill
    
    
    106,889
    
    
    
    Other noncurrent assets
    
    
    95,789
    
    
    
    117,361Total assets
    
    $
    29,293,741
    
    
    $
    24,417,576Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued expenses
    
    $
    797,553
    
    
    $
    778,708Other current liabilities
    
    
    339,742
    
    
    
    450,553Cash obligation to untendered shareholders
    
    
    483,603
    
    
    
    Current portion of long-term debt
    
    
    59,962
    
    
    
    48,344Amounts due to CEI
    
    
    5,573
    
    
    
    3,980Total current liabilities
    
    
    1,686,433
    
    
    
    1,281,585Deferred income taxes
    
    
    8,326,574
    
    
    
    6,388,970Other noncurrent liabilities
    
    
    148,733
    
    
    
    164,070Long-term debt, less current portion
    
    
    12,965,773
    
    
    
    6,963,456Total liabilities
    
    
    23,127,513
    
    
    
    14,798,081Commitments and contingencies (Note 18)Minority interest in equity of consolidated subsidiaries
    
    
    
    
    
    
    139,519Shareholders equitySeries A preferred stock -  liquidation preference of $22.1375 per
share, $1 par value; 10,000,000 shares of preferred stock
authorized; shares issued and outstanding: 0 and 4,836,372
    
    
    
    
    
    
    4,836Class A common stock, $1 par value; 671,000,000 shares
authorized; shares issued: 0 and 598,481,602; shares
outstanding: 0 and 592,958,582
    
    
    
    
    
    
    598,482Class A common stock, $0.01 par value; 671,000,000 shares
authorized; shares issued and outstanding: 556,170,238 and 0
    
    
    5,562
    
    
    
    Class C common stock, $1 par value; 62,000,000 shares
authorized; shares issued and outstanding: 0 and 27,597,792
    
    
    
    
    
    
    27,598Class C common stock, $0.01 par value; 62,000,000 shares
authorized; shares issued and outstanding: 27,597,792 and 0
    
    
    276
    
    
    
    Additional paid-in capital
    
    
    4,802,117
    
    
    
    4,545,635Retained earnings.
    
    
    1,318,218
    
    
    
    4,500,621Accumulated other comprehensive income
    
    
    55
    
    
    
    15,548Class A common stock in treasury, at cost: 0 and
5,523,020 shares
    
    
    
    
    
    
    (212,744
    )Total shareholders equity
    
    
    6,126,228
    
    
    
    9,479,976Total liabilities and shareholders equity
    
    $
    29,253,741
    
    
    $
    24,417,576
 See notes to consolidated financial statements. 52




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COX COMMUNICATIONS, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 312004
    
    
    2003
    
    
    2002(Thousands of Dollars)Revenues
    
    $
    6,424,990
    
    
    $
    5,758,868
    
    
    $
    5,038,598Costs and expensesCost of services (excluding depreciation and amortization)
    
    
    2,609,788
    
    
    
    2,391,310
    
    
    
    2,112,155Selling, general and administrative expenses (excluding
depreciation and amortization)
    
    
    1,427,391
    
    
    
    1,250,686
    
    
    
    1,147,204Depreciation and amortization
    
    
    1,627,064
    
    
    
    1,505,475
    
    
    
    1,357,906Impairment of intangible assets
    
    
    2,415,889
    
    
    
    25,000
    
    
    
    Loss (gain) on sale and exchange of cable systems
    
    
    5,021
    
    
    
    (469
    )
    
    
    3,916Operating (loss) income
    
    
    (1,660,163
    )
    
    
    586,866
    
    
    
    417,417Interest expense
    
    
    (429,058
    )
    
    
    (467,753
    )
    
    
    (549,858
    )(Loss) gain on derivative instruments, net
    
    
    (127
    )
    
    
    (22,567
    )
    
    
    1,125,588Gain (loss) on investments, net
    
    
    28,364
    
    
    
    165,194
    
    
    
    (1,317,158
    )Loss on extinguishment of debt
    
    
    (7,006
    )
    
    
    (450,069
    )
    
    
    (787
    )Other, net
    
    
    (8,923
    )
    
    
    (3,557
    )
    
    
    (5,080
    )Loss before income taxes, minority interest, equity in net
losses of affiliated companies, and cumulative
effect of change in accounting principle
    
    
    (2,076,913
    )
    
    
    (191,886
    )
    
    
    (329,878
    )Income tax benefit
    
    
    (916,510
    )
    
    
    (68,299
    )
    
    
    (113,001
    )Loss before minority interest, equity in net losses of
affiliated companies, and cumulative effect
of change in accounting principle
    
    
    (1,160,403
    )
    
    
    (123,587
    )
    
    
    (216,877
    )Minority interest
    
    
    (1,203
    )
    
    
    (6,116
    )
    
    
    (37,272
    )Equity in
net losses of affiliated companies, net of tax of $2,073, $4,975 and
$12,285, respectively
    
    
    (3,509
    )
    
    
    (8,098
    )
    
    
    (19,890
    )Loss before cumulative effect of change in
accounting principle
    
    
    (1,165,115
    )
    
    
    (137,801
    )
    
    
    (274,039
    )Cumulative
effect of change in accounting principle, net of tax of 813,130
    
    
    (1,210,190
    )
    
    
    
    
    

    
    Net loss
    
    $
    (2,375,305
    )
    
    $
    (137,801
    )
    
    $
    (274,039
    )
 See notes to consolidated financial statements. 53




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COX COMMUNICATIONS, INC. 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Class AAccumulated
    
    
    CommonSeries A
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    Stock inPreferred
    
    
    Common Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury,
    
    
    
    
    
    
    
    ComprehensiveStock
    
    
    Class A
    
    
    Class C
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    at Cost
    
    
    Total
    
    
    
    Loss(Thousands of Dollars)December 31, 2001...
    
    
    4,836
    
    
    
    578,493
    
    
    
    27,598
    
    
    
    3,891,157
    
    
    
    4,912,461
    
    
    
    473,135
    
    
    
    (211,889
    )
    
    
    9,675,791Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (274,039
    )
    
    
    
    
    
    
    
    
    
    
    (274,039
    )
    
    
    $
    (274,039
    )Issuance of stock related to stock compensation plans (including tax benefit
on stock options exercised)
    
    
    
    
    
    
    846
    
    
    
    
    
    
    
    26,611
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,457Issuance of stock for settlement of FELINE PRIDES
    
    
    
    
    
    
    18,738
    
    
    
    
    
    
    
    631,261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    649,999Shares surrendered in connection with vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (448
    )
    
    
    (448
    )Change in net accumulated unrealized gain on securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (393,670
    )
    
    
    
    
    
    
    (393,670
    )
    
    
    
    (393,670
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (393,670
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (667,709
    )December 31, 2002
    
    
    4,836
    
    
    
    598,077
    
    
    
    27,598
    
    
    
    4,549,029
    
    
    
    4,638,422
    
    
    
    79,465
    
    
    
    (212,337
    )
    
    
    9,685,090Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (137,801
    )
    
    
    
    
    
    
    
    
    
    
    (137,801
    )
    
    
    $
    (137,801
    )Issuance of stock related to stock compensation plans (including tax benefit
on stock options exercised)
    
    
    
    
    
    
    405
    
    
    
    
    
    
    
    8,381
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,786Shares surrendered in connection with vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (407
    )
    
    
    (407
    )Assumption of post-retirement medical plan obligation from CEI, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,775
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,775
    )Change in net accumulated unrealized gain on securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63,917
    )
    
    
    
    
    
    
    (63,917
    )
    
    
    
    (63,917
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63,917
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (201,718
    )December 31, 2003
    
    $
    4,836
    
    
    $
    598,482
    
    
    $
    27,598
    
    
    $
    4,545,635
    
    
    $
    4,500,621
    
    
    $
    15,548
    
    
    $
    (212,744
    )
    
    $
    9,479,976Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,375,305
    )
    
    
    
    
    
    
    
    
    
    
    (2,375,305
    )
    
    
    $
    (2,375,305
    )Issuance of stock related to stock compensation plans (including tax benefit
on stock options exercised)
    
    
    
    
    
    
    2,157
    
    
    
    
    
    
    
    69,319
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,476Shares surrendered in connection with vesting of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (330
    )
    
    
    (330
    )Conversion of Series A Preferred Stock to Class A Common Stock
    
    
    (4,836
    )
    
    
    11,212
    
    
    
    
    
    
    
    225,243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    231,619Cancellation of Class A Common Stock, in treasury
    
    
    
    
    
    
    (5,533
    )
    
    
    
    
    
    
    (207,541
    )
    
    
    
    
    
    
    
    
    
    
    213,074
    
    
    
    Cancellation of $1 par Class A Common Stock and $1 par value Class C
Common Stock and Issuance of $0.01 par value Class A Common Stock
and $0.01 par value Class C Common Stock
    
    
    
    
    
    
    (600,756
    )
    
    
    (27,322
    )
    
    
    628,078Elimination of 37.96% of Cox shareholders equity pursuant to the
going-private transaction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,981,919
    )
    
    
    (807,098
    )
    
    
    
    
    
    
    
    
    
    
    (2,789,017
    )Funding and expenses incurred pursuant to the going-private transaction
paid by CEI on behalf of Cox
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,523,302
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,523,302Change in net accumulated unrealized gain on securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,493
    )
    
    
    
    
    
    
    (15,493
    )
    
    
    
    (15,493
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,493
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,390,798
    )December 31, 2004
    
    $
    
    
    
    $
    5,562
    
    
    $
    276
    
    
    $
    4,802,117
    
    
    $
    1,318,218
    
    
    $
    55
    
    
    $
    
    
    
    $
    6,126,228
 See notes to consolidated financial statements. 54




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##### Table of Contents



COX COMMUNICATIONS, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 312004
    
    
    2003
    
    
    2002(Thousands of Dollars)Cash flows from operating activitiesNet loss
    
    $
    (2,375,305
    )
    
    $
    (137,801
    )
    
    $
    (274,039
    )Adjustments to reconcile net loss to net cash provided
by operating activities:Depreciation and amortization
    
    
    1,627,064
    
    
    
    1,505,475
    
    
    
    1,357,906Impairment of intangible assets
    
    
    2,415,889
    
    
    
    25,000
    
    
    
    Loss
(gain) on sale and exchange of cable systems
    
    
    5,021
    
    
    
    (469
    )
    
    
    3,916Deferred income taxes
    
    
    (827,650
    )
    
    
    (327,668
    )
    
    
    205,373Loss (gain) on derivative instruments, net
    
    
    127
    
    
    
    22,567
    
    
    
    (1,125,588
    )(Gain) loss on investments, net
    
    
    (28,364
    )
    
    
    (165,194
    )
    
    
    1,317,158Equity in net losses of affiliated companies
    
    
    3,509
    
    
    
    8,098
    
    
    
    19,890Loss on extinguishment of debt
    
    
    7,006
    
    
    
    450,069
    
    
    
    787Minority interest, net of tax
    
    
    1,203
    
    
    
    6,116
    
    
    
    37,272Other, net
    
    
    (994
    )
    
    
    108,698
    
    
    
    182,321Cumulative effect of change in accounting principle, net of tax
    
    
    1,210,190
    
    
    
    
    
    
    
    (Increase) decrease in accounts and notes receivable
    
    
    (14,661
    )
    
    
    (15,922
    )
    
    
    52,918Decrease in other assets
    
    
    532
    
    
    
    41,328
    
    
    
    60,502Increase in
accounts payable and accrued expenses
    
    
    54,247
    
    
    
    22,650
    
    
    
    99,805(Decrease) increase in taxes payable
    
    
    (68,729
    )
    
    
    331,439
    
    
    
    (159,915
    )Decrease in other liabilities
    
    
    (30,569
    )
    
    
    (6,415
    )
    
    
    (5,467
    )Net cash provided by operating activities
    
    
    1,978,516
    
    
    
    1,867,971
    
    
    
    1,772,839Cash flows from investing activitiesCapital expenditures
    
    
    (1,389,931
    )
    
    
    (1,561,331
    )
    
    
    (1,932,416
    )Investments in affiliated companies
    
    
    (17,805
    )
    
    
    (22,270
    )
    
    
    (18,800
    )Proceeds from the sale and exchange of investments
    
    
    70,230
    
    
    
    246,417
    
    
    
    1,345,952Decrease (increase) in amounts due from CEI
    
    
    
    
    
    
    21,109
    
    
    
    (7,864
    )Proceeds for the sale of cable systems
    
    
    53,076
    
    
    
    822
    
    
    
    12,574Acquisition of minority interest
    
    
    (153,016
    )
    
    
    
    
    
    
    Other, net
    
    
    43,813
    
    
    
    (3,883
    )
    
    
    (7,616
    )Net cash used in investing activities
    
    
    (1,393,633
    )
    
    
    (1,319,136
    )
    
    
    (608,170
    )Cash flows from financing activitiesRevolving credit facilities borrowings, net
    
    
    1,650,000
    
    
    
    
    
    
    
    Commercial paper (repayments) borrowings, net
    
    
    (209,228
    )
    
    
    300,941
    
    
    
    (727,384
    )Proceeds from issuance of debt, net of debt issuance costs
    
    
    7,968,724
    
    
    
    1,330,750
    
    
    
    985,546Repayment of debt
    
    
    (3,566,148
    )
    
    
    (2,310,074
    )
    
    
    (704,951
    )Payment to acquire Coxs former public stock not beneficially owned by CEI
    
    
    (6,422,908
    )
    
    
    
    
    
    
    Redemption of preferred securities of subsidiary trust
    
    
    
    
    
    
    
    
    
    
    (502,610
    )Proceeds from the exercise of stock options
    
    
    5,219
    
    
    
    6,768
    
    
    
    24,291Increase in amounts due to CEI, net
    
    
    1,593
    
    
    
    3,980
    
    
    
    Distributions paid on capital and preferred securities of subsidiary trusts
    
    
    
    
    
    
    
    
    
    
    (47,764
    )Payment to repurchase remarketing option
    
    
    
    
    
    
    (43,734
    )
    
    
    (25,951
    )Other, net
    
    
    (19,637
    )
    
    
    17,671
    
    
    
    (24,002
    )Net cash used in financing activities
    
    
    (592,385
    )
    
    
    (693,698
    )
    
    
    (1,022,825
    )Net (decrease) increase in cash
    
    
    (7,502
    )
    
    
    (144,863
    )
    
    
    141,844Cash at beginning of period
    
    
    83,841
    
    
    
    228,704
    
    
    
    86,860Cash at end of period
    
    $
    76,339
    
    
    $
    83,841
    
    
    $
    228,704
 See notes to consolidated financial statements. 55




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COX COMMUNICATIONS, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization and Basis of Presentation Cox
is a multi-service broadband communications company serving
approximately 6.6 million
customers nationwide. Cox is the nations third-largest cable
television provider and offers an array of
broadband products and services to both residential and commercial
customers in its markets. These
services primarily include analog and digital video, high-speed
Internet access and local and long-distance
telephone. Cox operates in one operating segment, broadband
communications. Prior
to December 2004, Cox Communications, Inc. was an indirect, majority-owned subsidiary of
Cox Enterprises, Inc. (CEI). In October 2004, CEI and two of its
wholly-owned subsidiaries entered into an Agreement and Plan of Merger with Cox. Pursuant to this merger
agreement, Cox and one of the CEI subsidiaries commenced a joint tender offer to purchase all of
the shares of Cox Class A common stock not beneficially owned by CEI.
On December 8, 2004, CEI completed the tender offer to purchase
all of the common stock associated with the 37.96% minority interest
of Cox. Following the purchase, Cox was merged with a CEI subsidiary, with Cox as the surviving corporation.
Accordingly, at December 31, 2004, Cox was a wholly-owned subsidiary of CEI. 2. Summary of Significant Accounting Policies and Other Items Basis of Consolidation The consolidated financial statements include the accounts of Cox and all wholly-owned,
majority-owned or controlled subsidiaries. All intercompany accounts and transactions among
consolidated entities have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States 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. Allowance for Doubtful Accounts The allowance for doubtful accounts represents Coxs best estimate of probable losses in the
accounts and notes receivable balance. The allowance is based on known troubled accounts,
historical experience and other currently available evidence. Activity in the allowance for
doubtful accounts is as follows: Balance atBeginning of
    
    
    Charged to Costs
    
    
    Write-offs,Net of
    
    
    Balance atEnd ofPeriod
    
    
    and Expenses
    
    
    Recoveries
    
    
    Period(Thousands of Dollars)Year Ended December 312002
    
    $
    33,514
    
    
    $
    87,447
    
    
    $
    87,354
    
    
    $
    33,6072003
    
    
    33,607
    
    
    
    74,150
    
    
    
    81,582
    
    
    
    26,1752004
    
    
    26,175
    
    
    
    80,732
    
    
    
    80,425
    
    
    
    26,482
 Plant and Equipment Plant and equipment are stated at cost less accumulated depreciation. Additions to cable
plant generally include material, labor and indirect costs. Depreciation is computed using the
straight-line method over estimated useful lives as follows: 20 years for buildings and building
improvements; three to 12 years for cable systems; and three to 10 years for other plant and
equipment. Depreciation expense was $1.6 billion, $1.5 billion, and $1.4 billion for the years
ended December 31, 2004, 2003 and 2002, respectively. Cox evaluates the depreciation periods of
plant and equipment to determine whether events or circumstances warrant revised estimates of
useful lives. The costs associated with the construction of cable transmission and distribution facilities
and new cable service installations are capitalized. Costs include all direct labor and materials
as well as certain indirect 56




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS costs. The amount of indirect costs that are capitalized, which include employee benefits,
warehousing and transportation costs, are estimated based on historical construction costs. Cox
performs semi-annual evaluations of these estimates and any changes to the estimates, which may be
significant, are included prospectively in the period in which the evaluations are completed.
Costs associated with subsequent installations of additional services are capitalized to the extent
that they are incremental and directly attributable to the installation of expanded services; costs
associated with subsequent disconnection and reconnecting services to existing customers are
charged to operating expense as incurred. 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 removed from the respective accounts, and the gains and losses are
presented as a component of depreciation expense. Investments Investments in affiliated entities are accounted for either under the equity method or are
stated at cost. Investments in which Cox is deemed to have the ability to exercise significant
influence over the operating and financial policies of the investee or where Coxs investment is
deemed to be more than minor are accounted for under the equity method. Equity method investments
are recorded at cost and adjusted periodically to recognize Coxs proportionate share of the
investees income or loss, additional contributions made and dividends received. When Coxs
cumulative proportionate share of loss exceeds the carrying amount of the equity method investment,
application of the equity method is suspended and Coxs proportionate share of the investees loss
is not recognized unless Cox is committed to provide further financial support to the investee,
including advances from Cox. Cox will resume application of the equity method when the investee
becomes profitable and Coxs proportionate share of the investees earnings equals its cumulative
proportionate share of losses that were not recognized during the period the application of the
equity method was suspended. Investments stated at cost are adjusted for any known diminution in
value determined to be other than temporary. Investments in publicly traded entities are classified as available-for-sale or trading 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 of available-for-sale securities between measurement dates
recognized as a component of accumulated other comprehensive income. Realized losses for any
decline in market value of available-for-sale securities considered to be other than temporary are
recognized in earnings. Realized gains and losses on investments sold or impaired are recognized
using the first-in first-out method. Unrealized gains and losses resulting from changes in fair
value of trading securities are recognized in earnings. See Note 6. Investments. In determining whether a decline in the fair value of Coxs investments is other than
temporary, Cox considers the factors prescribed by SEC Staff Accounting Bulletin Topic 5-M, Other
Than Temporary Impairment of Certain Investments in Debt and Equity Securitiesand Emerging Issues
Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. These factors include the length of time and extent to which
the fair market value has been less than cost, the financial condition and near term prospects of
the investee and Coxs intent and ability to retain its investment. Intangible Assets On January 1, 2002, Cox adopted SFAS No. 142, Goodwill and Other Intangible Assets, which
requires that goodwill and intangible assets with indefinite useful lives, including those recorded
in past business combinations, no longer be amortized through the statement of operations, but
instead be tested for impairment at least annually. Other intangible assets continue to be
amortized over their useful lives. Cox evaluated its intangible assets and determined certain
intangible assets to have indefinite useful lives. Accordingly, on January 1, 2002 Cox
discontinued the amortization of intangible assets with indefinite 57




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS lives, which consist primarily of franchise value. At December 31, 2004, the weighted-average
remaining useful life of intangible assets that are being amortized is six years. See Note 5.
Intangible Assets. Valuation of Long-Lived Assets On January 1, 2002, Cox adopted SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets,which addresses financial accounting and reporting for the impairment and
disposition of long-lived assets.Cox evaluates the recoverability of long-lived assets, other
than indefinite lived intangible assets, for impairment when events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Conditions that would
necessitate an impairment assessment include a significant decline in the observable market value
of an asset, a significant change in the extent or manner in which an asset is used, or a
significant adverse change that would indicate that the carrying amount of an asset or group of
assets is not recoverable. For long-lived assets to be held and used, Cox recognizes an impairment
loss only if its carrying amount is not recoverable through its undiscounted cash flows and
measures the impairment loss based on the difference between the carrying amount and fair value.
Long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell. Income Taxes Cox provides for income taxes using the liability method in accordance with 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 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. See Note 7. Income Taxes. 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 term of the related debt agreement. Revenue Cox accounts for the revenue, costs and expense related to residential cable services (i.e.
video, data and telephony) as the related services are performed in accordance with SFAS No. 51,
Financial Reporting by Cable Television Companies. Installation revenue for residential cable
services is recognized to the extent of direct selling costs incurred. Direct selling costs have
exceeded installation revenue in all reported periods. Credit risk is managed by disconnecting
services to customers who are delinquent. All other revenue is accounted for in accordance with Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition. In accordance with SAB No. 104, revenue from advertising sales is recognized
as the advertising is transmitted over Coxs broadband network. Revenue derived from other
sources, including commercial data and telephony, is recognized as services are provided, as
persuasive evidence of an arrangement exists, the price to the customer is fixed and determinable
and collectability is reasonably assured. Revenue by product and service was as follows: For the year endingDecember 312004
    
    
    2003
    
    
    2002Video
    
    
    60
    %
    
    
    64
    %
    
    
    68
    %Data
    
    
    17
    %
    
    
    15
    %
    
    
    11
    %
 58




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##### Table of Contents



COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the year endingDecember 312004
    
    
    2003
    
    
    2002Telephony
    
    
    9
    %
    
    
    8
    %
    
    
    7
    %Other
    
    
    2
    %
    
    
    1
    %
    
    
    1
    %Commercial
    
    
    6
    %
    
    
    5
    %
    
    
    5
    %Advertising
    
    
    6
    %
    
    
    7
    %
    
    
    8
    %
 Cost of Services Cost of services includes cable programming costs, other direct costs and field service costs.
Other direct costs include costs that Cox incurs in conjunction with providing its residential,
commercial and advertising services. Field service costs include costs associated with providing
and maintaining Coxs broadband network and customer care costs necessary to maintain its customer
base. Pension, Postretirement and Postemployment Benefits Cox provides defined pension benefits to substantially all employees based on years of service
and compensation during those years. Prior to January 2003, Cox provided certain health care and
life insurance benefits to substantially all eligible retirees through certain CEI plans. In
January 2003, Cox adopted its own post-retirement medical plan to provide benefits to substantially
all eligible Cox retirees. No change was made to the CEI program that has provided, and continues
to provide, life insurance coverage to eligible Cox retirees. Expense related to the CEI plans is
allocated to Cox through the intercompany account. The amount of the allocations is based on
actuarial determinations of the effect of Cox employees participation in the plans. See Note 12.
Retirements Plans. Stock Compensation Plans At December 31, 2004 and 2003, Cox had one stock-based compensation plan for employees, a
Long-Term Incentive Plan (LTIP), and at December 31, 2003, Cox also had an Employee Stock Purchase
Plan (ESPP). Both of these plans are more fully described in Note 13. Stock Compensation Plans.
Cox accounts for these plans under the intrinsic value method, which follows the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. All options granted under the LTIP had an
exercise price equal to or greater than the market value of the underlying Class A common stock,
par value $1.00 per share (former public stock), on the grant date; therefore, no employee
compensation cost is reflected in net income with respect to options. Further, the ESPP qualifies
as a noncompensatory plan under APB Opinion No. 25, and, as such, no compensation cost was
recognized for ESPP awards. The following table illustrates the effect on net income (loss) if Cox had applied the fair
value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants made in 2004, 2003 and 2002: weighted average expected volatilities
at each grant date averaging 22.9%, 30.3% and 27.6%, respectively, no payment of
dividends, expected life of six years and weighted average risk-free interest
rates calculated at each grant date and averaging 3.2%, 3.2% and 5.0%,
respectively. Year Ended December 312004
    
    
    2003
    
    
    2002(Thousands of Dollars)Net loss, as reported
    
    $
    (2,375,305
    )
    
    $
    (137,801
    )
    
    $
    (274,039
    )Add: Stock-based compensation, as
reported, net of tax
    
    
    24,361
    
    
    
    
    
    
    
    Deduct: Total stock based compensation
determined under fair value based method
for all awards, net of tax
    
    
    (51,351
    )
    
    
    (22,859
    )
    
    
    (18,902
    )Pro forma net loss
    
    $
    (2,402,295
    )
    
    $
    (160,660
    )
    
    $
    (292,941
    )
 Derivative Financial Instruments 59




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cox accounts for derivative financial instruments in accordance with SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended, which became effective for Cox on
January 1, 2001. SFAS No. 133 requires that an entity recognize all derivatives, as defined, as
either assets or liabilities measured at fair value. In addition, all derivatives used in hedging
relationships must be designated, reassessed and documented pursuant to the provisions of SFAS No.
133. See Note 9. Derivative Instruments and Hedging Activities. Cox does not hold or issue derivative instruments for trading purposes and is not a party to
leveraged instruments. From time to time, however, Cox uses derivative instruments to manage its
exposure to changes in the fair value of certain of its assets or liabilities or to manage its
exposure to changes in interest rates or equity prices. These derivative instruments are
designated and accounted for by Cox as hedges of the underlying exposure being managed, as
prescribed by SFAS No. 133. In addition, upon adoption of SFAS No. 133, certain of Coxs debt
instruments and investments contained embedded or freestanding derivatives, as defined. Cox has
not designated these embedded and freestanding derivatives as hedges under SFAS No. 133 and, as
such, changes in their fair value are being recognized in earnings as derivative gains or losses. The credit risks associated with Coxs derivative financial instruments are controlled through
the evaluation and monitoring of the creditworthiness of the counterparties. Although Cox may be
exposed to losses in the event of nonperformance by the counterparties, Cox does not expect such
losses, if any, to be significant. Recently Issued Accounting Pronouncements In March 2004, the EITF ratified its consensus related to the application guidance within EITF
Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. EITF Issue No. 03-1 applies to investments in debt and equity securities within the
scope of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and
equity securities that are not subject to the scope of SFAS No. 115 and not accounted for under the
equity method under APB Opinion 18 and related interpretations. EITF Issue No. 03-1 requires that a
three-step model be applied in determining when an investment is considered impaired, whether that
impairment is other than temporary and the measurement of an
impairment loss. EITF Issue No. 03-1 originally required that
adoption of the recognition provisions prospectively to all
current and future investments during the quarter ended
September 30, 2004. However, on September 30,
2004, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position (FSP) EITF No. 03-1-1, Effective Date of
Paragraph 16 of EITF Issue No. 03-1, which delayed the
effective date of the
recognition provisions of EITF Issue No. 03-1 until the issuance
of the final FSP EITF Issue 03-1-a,
Implementation Guidance for the Application of Paragraph 16 of EITF
Issue No. 03-1. Until the final FSP
is issued, Cox is not able to evaluate whether the adoption of the
recognition provisions under such
guidance will have a material effect on its results of operations or
financial position. In May 2004, the Financial Accounting Standards Board issued FASB Staff Position (FSP) 106-2,
Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003(the Medicare Act). FSP 106-2 requires measures of the accumulated
postretirement benefit obligation and net periodic postretirement benefit costs to reflect the
effects of the Medicare Act and became effective for Cox on July 1, 2004. The adoption of FSP
106-2 did not have a material impact on Coxs financial position or results of operations. In September 2004, the Securities and Exchange Commission (SEC) announced that a direct value
method should be used to determine the fair value of all intangible assets required to be
recognized under SFAS No. 141, Business Combinations,and that registrants should apply a direct
value method to such assets acquired in business combinations completed after September 29, 2004.
Further, registrants who have applied the residual method to the valuation of intangible assets for
purposes of impairment testing shall perform a transition impairment test using a direct value
method on all intangible assets that were previously valued using the residual method under SFAS
No. 142 no later than the beginning of their first fiscal year beginning after December 15, 2004.
Impairments of intangible assets recognized upon application of a direct value method by entities
previously applying the residual method, including the related deferred tax effects, should be
reported as a cumulative effect of a change in accounting principle. 60




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consistent with this SEC position
as codified in EITFD-108,Use of the Residual Method to Value
Acquired Assets Other Than Goodwill,
Cox began applying a direct value method to determine the
fair value of its indefinite-lived intangible assets comprised of cable franchise rights, acquired
prior to September 29, 2004. During the fourth quarter of 2004, Cox performed a transition
impairment test, which resulted in a charge of approximately
$2.0 billion ($1.2 billion, net of tax), which is reported within Cumulative effect of change in accounting principle, net of tax
in the accompanying Consolidated Statements of Operations.
The pro forma effects of retroactively applying a direct value method to
determine the fair value of cable franchise rights can not be computed or
reasonably estimated for the prior periods presented, primarily due to the
inability to develop the assumptions necessary to execute a direct value
methodology. In December 2004, the
FASB issued SFAS No.
123(Revised), Share-Based Payment. This statement replaces SFAS No. 123, Accounting for Stock-Based
Compensationand supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS
123(R) requires companies to apply a fair-value-based measurement method in accounting for
share-based payment transactions with employees and to record compensation cost for all stock
awards granted after the required effective date and to awards modified, repurchased, or cancelled
after that date. In addition, Cox is required to record compensation expense (as previous awards
continue to vest) for the unvested portion of previously granted awards that remain outstanding at
the date of adoption. SFAS 123(R) will be effective for quarterly periods beginning after June 15,
2005. Cox is currently assessing the impact of this statement on its consolidated financial
statements. Reclassifications Certain amounts in the 2003 and 2002 consolidated financial statements have been reclassified
for comparative purposes with 2004. 3. Cash Management System Cox participates in CEIs cash management program, whereby CEI transfers funds from Coxs
depository accounts and transfers funds to financial institutions upon daily notification of checks
presented for payment. Book overdrafts of $65.5 million and $84.5 million existed at December 31,
2004 and 2003, respectively, as a result of checks outstanding. These book overdrafts are
included in as accounts payable and are considered financing activities in the Consolidated
Statements of Cash Flows. 4. Going-Private Transaction On December 8, 2004, CEI completed the tender offer to purchase all of the common stock
associated with the 37.96% minority interest of Cox and the subsequent short-form merger and Cox became a
wholly owned subsidiary of CEI. The aggregate purchase price (exclusive of estimated fees and
expenses) approximated $8.4 billion. The purchase price was funded by both CEI and Cox. Of the
total $8.4 billion, CEI paid approximately $1.5 billion, with Cox paying the remaining approximate
$6.9 billion, which was funded primarily through a term loan and various issuances of senior notes
of varying maturities. Approximately
50.2 million shares of common stock were not validly tendered in the
tender offer. These shares were converted into the right to receive
$34.75 per share in cash, without interest, and cancelled as part of the short-form
merger. As of December 31, 2004, Cox had a remaining cash obligation to purchase the untendered shares of approximately $483.6 million, which is reflected as Cash obligation to untendered
shareholders in the accompanying balance sheet. CET elected to apply push-down basis accounting with respect to shares acquired in the
going-private transaction. Accordingly, the aggregate $8.4 billion purchase price has been
pushed-down to the consolidated financial statements of Cox. Accordingly, the net
tangible and intangible assets of Cox at December 31, 2004 have been stepped-up to fair value
to the extent of the 37.96% minority interest acquired in the going-private transaction pursuant to
the purchase method of accounting for business combinations. The aggregate purchase price was as follows: (Thousands of Dollars)Cash consideration to acquire Coxs former public stock at $34.75 per share and to settle
the outstanding vested. in-the-money Cox employee stock options
    
    $
    8,405,713Transaction fees and expenses
    
    
    23,336Total purchase price
    
    
    8,429,049Less: Carrying value of net assets acquired at historical cost
    
    
    (2,789,017
    )Aggregate purchase price in excess of historical cost of net assets acquired
    
    $
    5,640,032
 The aggregate purchase price in excess of historical cost of net assets acquired
was allocated based on preliminary estimated fair values of the net tangible and intangible assets
as of the acquisition date. These initial purchase price allocations may be adjusted within one
year of the purchase date for changes in estimates of the fair value of assets acquired and
liabilities assumed based on the results of an independent appraisal process expected to be
completed during 2005. The following represents the preliminary allocation of the purchase price: (Thousands of Dollars)Current assets
    
    $
    247,718Net plant and equipment
    
    
    3,165,983Intangible assets:Customer relationships (estimated useful life of 6 years)
    
    
    583,781Trade name (indefinite useful life)
    
    
    380,844Franchise value (indefinite useful life)
    
    
    11,343,927Goodwill
    
    
    106,889Other assets
    
    
    1,171,853Total assets required
    
    
    17,000,995
    (a)Current liabilities
    
    
    564,106Long-term debt
    
    
    2,523,080Deferred income taxes
    
    
    5,481,394Other liabilities
    
    
    3,368Total liabilities assumed
    
    
    8,571,947
    (b)Aggregate purchase price
    
    $
    8,429,049
    (a)-(b)
 The following summarizes unaudited pro forma financial information for the years ending
December 31, 2004 and 2003, assuming the acquisition of the minority interest had occurred on
January 1, 2003. The majority of the increase in net loss is due to depreciation, amortization and
interest expense associated with the amortization of the fair value step-up of the net assets.
This unaudited pro forma financial information does not necessarily represent the operating results
that would have occurred had the transaction been consummated at the beginning of the period, as
the acquisition has been given effect below, or results that should be expected in future periods,
as follows: Year Ended December 312004
    
    
    2003(Thousands of Dollars)Revenues
    
    $
    6,424,990
    
    
    $
    5,758,868Loss before cumulative effect of change in accounting principle
    
    
    (1,279,715
    )
    
    
    (252,401
    )Cumulative effect of change in accounting principle
    
    
    (1,210,190
    )
    
    
    Net loss
    
    $
    (2,489,905
    )
    
    $
    (252,401
    )
 This unaudited pro forma financial information does not reflect any operating efficiencies and
cost savings that Cox may achieve.




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5. Intangible Assets Cox constructs and operates its cable systems under non-exclusive cable franchises that are
granted by state or local governmental authorities for varying lengths of time. As of December 31,
2004, Cox held 751 franchises in areas located throughout the United States. Cox obtained these
franchises primarily through acquisitions of cable systems accounted for as purchase business
combinations. These acquisitions have primarily been for the purpose of acquiring existing
franchises and related infrastructure and, as such, the primary asset acquired by Cox has
historically been cable franchises. On January 1, 2002, Cox adopted SFAS No. 142, which requires that goodwill and certain
intangible assets with indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually. The standard also requires the completion of a transitional
impairment test with any resulting impairment identified treated as a cumulative effect of a change
in accounting principle. Prior to the adoption of SFAS No. 142, Cox described the excess purchase price over the fair
value of the identified net assets acquired associated with its acquisitions as either goodwill or
franchise value and amortized these assets over 40 years. Cox believes that the franchises,
although contractually non-exclusive, provide economic exclusivity for broadband video services to
an incumbent cable operator. Accordingly, in connection with the adoption of SFAS No. 142, Cox did
not believe it had any goodwill separate and distinct from the value of its cable franchises, and,
as such, the nature of the recorded excess purchase price associated with Coxs acquisitions prior
to 2002 was more appropriately characterized as franchise value. Therefore, in connection with the
adoption of SFAS No. 142, Cox reclassified the net carrying value of its goodwill of $3.7 billion
to franchise value in order to eliminate the distinction between 62




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS these two assets. In connection with this reclassification, Cox recorded an additional
deferred tax liability and a corresponding increase to franchise value of $2.2 billion, in
accordance with the provisions of SFAS No. 109, Accounting for Income Taxes,related to the
difference in the tax basis compared to the book basis of franchise value. The reclassification
and the related deferred tax effects had no impact on Coxs consolidated statements of operations. In addition, Cox assessed the expected useful life of each of its cable franchises upon
adoption of SFAS No. 142, and concluded that all of its cable franchises have an indefinite useful
life. Accordingly, Cox ceased amortizing its franchise value effective January 1, 2002. Cox
reached its conclusion regarding the indefinite useful life of its cable franchises principally
because (i) there are no legal, regulatory, contractual, competitive, economic, or other factors
limiting the period over which these rights will continue to contribute to Coxs cash flows (ii)
Cox has never had a cable franchise right revoked, and has never been denied a franchise renewal
(iii) as an incumbent franchisee, Coxs renewal applications are granted by the local franchising
authority on their own merits and not as part of a comparative process with competing applications
and (iv) under the 1984 Cable Act, a local franchising authority may not unreasonably withhold the
renewal of a cable system franchise. Cox will continue to reevaluate the expected life of its
cable franchise rights each reporting period to determine whether events and circumstances continue
to support an indefinite useful life. In connection with the adoption of SFAS No. 142, Cox completed a transitional impairment test
of its franchise value as of January 1, 2002. Based on the guidance prescribed in EITF Issue No.
02-7, Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets,Cox
determined that the unit of accounting for testing franchise value for impairment resides at the
cable system cluster level, consistent with Coxs management of its business as geographic
clusters. Prior to September 2004, Cox assessed franchise value for impairment under SFAS No. 142
by utilizing a residual approach whereby Cox measured the implied fair value of each franchise
value intangible asset subject to the same unit of accounting by deducting from the fair value of
each cable system cluster the fair value of the cable system clusters other net assets, including
previously unrecognized intangible assets. Upon adoption of SFAS No. 142, Cox determined that no
impairment of franchise value intangible assets existed as of January 1, 2002. In completing subsequent impairment tests in accordance with SFAS No. 142, Cox considers the
guidance in EITF Issue No. 02-17, Recognition of Customer Relationship Intangible Assets Acquired
in a Business Combination, which was issued in October 2002. When applying the guidance in EITF
Issue No. 02-17, Cox considers assumptions that marketplace participants would consider, such as
expectations of future contract renewals and other benefits related to the intangible asset, when
measuring the fair value of the cable system clusters other net assets. The January 2003
impairment test in accordance with SFAS No. 142 resulted in a non-cash impairment charge of
approximately $25.0 million, which is classified within amortization expense in Coxs Consolidated
Statement of Operations. Cox completed its subsequent impairment tests in accordance with SFAS No.
142 in August 2003 and August 2004. The subsequent impairment tests indicated no impairment of
franchise value. In September 2004, the SEC announced that a direct value method should be used to determine
the fair value of all intangible assets required to be recognized under SFAS No. 141, and that
registrants should apply a direct value method to such assets acquired in business combinations
completed after September 29, 2004. Further, registrants who have applied the residual method to
the valuation of intangible assets for purposes of impairment testing shall perform an impairment
test, the transition test, using a direct value method on all intangible assets that were
previously valued using the residual method under SFAS No. 142 no later than the beginning of their
first fiscal year beginning after December 15, 2004. Impairments of intangible assets recognized
upon application of a direct value method by entities previously applying the residual method,
including the related deferred tax effects, should be reported as a cumulative effect of a change
in accounting principle. Consistent with this SEC position, Cox began applying a direct value method to determine the
fair value of its indefinite-lived intangible assets comprised of cable franchise rights, acquired
prior to September 29, 2004. During the fourth quarter of 2004, Cox performed a transition
impairment test, which 63




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS resulted in a charge of
approximately $2.0 billion ($1.2 billion, net of tax), which is reported within Cumulative effect of change in accounting principle, net of tax
in the accompanying Consolidated Statements of Operations. Additionally,
as a result of the going-private transaction, Cox revised its marketplace
assumption surrounding its estimated cost of capital. In accordance with SFAS No. 142, Cox
performed an impairment test, which along with the revised estimated
cost of capital, included a revised long-range operating forecast. As
a result of the impairment test, Cox recognized an impairment charge
of approximately $2.4 billion related to its cable franchise
rights, as calculated using a direct value method. This impairment
charge is reflected as Impairment on intangible assets in the
accompanying Consolidated Statement of Operations. As discussed in Note 4. Going-private transaction, Cox
recorded both customer relationship
trade name intangibles and goodwill. The trade name intangible asset, which represent the value associated
with the Cox name, are deemed to have an indefinite useful life. Customer relationship intangible assets, which represent the value attributable to Cox
customers, are deemed to have a finite useful life of six years. Coxs other intangible assets that have a
finite useful life are comprised primarily of non-compete agreements, contractual rights and cable
franchise renewal costs. These intangible assets are amortized on a straight-line basis over the
term of the related agreement. Cox evaluates the useful lives of its finite lived intangible
assets each reporting period to determine whether events or circumstances warrant revised estimates
of useful lives. Summarized below are the carrying value and accumulated amortization of intangible assets that
will continue to be amortized under SFAS No. 142, as well as the carrying value of those intangible
assets, which will no longer be amortized: December 31, 2004
    
    
    December 31, 2003Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingValue
    
    
    Amortization
    
    
    Value
    
    
    Value
    
    
    Amortization
    
    
    Value(Thousands of Dollars)Intangible
assets subject
to amortization
    
    $
    659,967
    
    
    $
    30,743
    
    
    $
    629,224
    
    
    $
    58,526
    
    
    $
    21,855
    
    
    $
    36,671Trade name
    
    
    
    
    
    
    
    
    
    
    380,844
    
    
    
    
    
    
    
    
    
    
    
    Franchise value
    
    
    
    
    
    
    
    
    
    
    18,319,384
    
    
    
    
    
    
    
    
    
    
    
    15,660,824Goodwill
    
    
    
    
    
    
    
    
    
    
    106,889
    
    
    
    
    
    
    
    
    
    
    
    Total
intangible assets
    
    
    
    
    
    
    
    
    
    $
    19,436,341
    
    
    
    
    
    
    
    
    
    
    $
    15,697,495
 Aggregate intangible asset amortization expense was $15.1 million for the year ended
December 31, 2004. Cox estimates amortization expense to be $87.0 million in 2005, $86.2 million
in 2006, $85.4 million in 2007, $85.1 million in 2008 and $85.0 million in 2009, primarily related
to customer relationships. Actual amortization expense to be reported in future periods could
differ from these estimates as a result of new intangible asset acquisitions, changes in useful
lives and other relevant factors. 6. Investments 64




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 312004
    
    
    2003(Thousands of Dollars)Investments stated at fair value:Available-for-sale
    
    $
    339
    
    
    $
    66,376Derivative instruments
    
    
    939
    
    
    
    1,269Equity method investments
    
    
    1,159,290
    
    
    
    31,088Investments stated at cost
    
    
    11,079
    
    
    
    10,647Total
investments
    
    $
    1,171,647
    
    
    $
    109,380
 Investments Stated at Fair Value The aggregate cost of Coxs investments stated at fair value at December 31, 2004 and 2003 was
$1.6 million and $42.5 million, respectively. Gross unrealized gains on investments were $0.1
million and $25.3 million at December 31, 2004 and 2003, respectively. Gross realized gains and losses on investments are as follows: Year Ended December 312004
    
    
    2003
    
    
    2002(Millions of Dollars)Realized gains
    
    $
    29.1
    
    
    $
    181.8
    
    
    $
    112.0Realized losses
    
    $
    0.8
    
    
    
    16.7
    
    
    
    1,400.0
 Sprint PCS.Sprint Corporation offers personal communications services through its PCS group. In February and March 2002, Cox terminated its series of costless equity collar arrangements,
which managed its exposure to market price fluctuations of 15.8 million shares of Sprint PCS common
stock, for aggregate proceeds of approximately $151.6 million and recognized an aggregate pre-tax
derivative gain of approximately $168.9 million. In connection with the terminations, Cox also
sold the 15.8 million shares of Sprint PCS common stock covered by the collar arrangements for
aggregate net proceeds of approximately $155.9 million. In addition, Cox sold 9.4 million shares
of Sprint PCS common stock that were not covered by the collar arrangements for aggregate net
proceeds of approximately $82.8 million. Cox recognized an aggregate pre-tax gain of $32.8 million
on the sale of these shares. Cox recognized an aggregate pre-tax investment loss of $390.6 million during 2002 and an
aggregate pre-tax investment gain of $77.4 million during 2001 as a result of the change in market
value of its investment in shares of Sprint PCS common stock classified as trading. In addition,
during 2002, Cox recorded an aggregate pre-tax impairment charge of approximately $795.7 million on
its investment in shares of Sprint PCS common stock classified as available-for-sale as a result of
a decline in market value that was considered other than temporary. This charge is included in net
gain (loss) on investments in Coxs Consolidated Statement of Operations. In April 2003, Cox sold its Sprint PCS warrants, which were exercisable for approximately 6.3
million shares of Sprint PCS common stock, for nominal consideration. Cox recognized a pre-tax
loss of $0.4 million as a result of the sale. In June 2003, Cox sold 32.9 million shares of Sprint PCS common stock for aggregate net
proceeds of approximately $161.7 million. Cox recognized an aggregate pre-tax gain of $97.2 million
on the sale of these shares. In August 2003, Cox terminated its series of prepaid forward contracts to sell up to 19.5
million shares of its Sprint PCS common stock. These prepaid forward contracts were hybrid
instruments, comprised of a zero-coupon debt instrument, as the host contract, and an embedded
derivative. In connection with the termination, Cox sold the 19.5 million shares of Sprint PCS
common stock, which had been pledged to secure its obligations pursuant to these prepaid forward
contracts and were classified as trading. Cox 65




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS recognized a pre-tax loss of approximately $29.5
million as a result of this termination. See Note 8. Debt for a discussion of the accounting for
the termination of these prepaid forward contracts. In September 2003, Cox sold 13.9 million shares of Sprint PCS common stock for aggregate net
proceeds of approximately $84.7 million. Cox recognized an aggregate pre-tax gain of $57.3 million
on the sale of these shares. In March 2004, Cox sold 0.1 million shares of Sprints PCS Group preferred stock for aggregate
net proceeds of approximately $56.9 million. Cox recognized a pre-tax gain of $19.5 million on the
sale of these shares. In April 2004, Sprint eliminated its PCS tracking stock by mandating the exchange of its PCS
shares for shares of its FON common stock. Cox held approximately 330,000 PCS shares and received
approximately 165,000 FON shares in the mandatory exchange. In June 2004, Cox sold the FON shares
for net proceeds of approximately $3.0 million. Cox recognized a pre-tax gain of approximately
$2.3 million on the sale of these shares. As a result of the sale, Cox no longer holds any shares
of Sprint stock. AT&T and AT&T Wireless Services, Inc.AT&T provides voice, video and data communications to
businesses, consumers and government agencies. AT&T Wireless provides wireless voice and data
services to consumers and businesses. In February and March 2002, Cox terminated its costless
equity collar arrangements which managed its exposure to market price fluctuations of 22.5 million
shares of AT&T common stock and 17.2 million shares of AT&T Wireless common stock for aggregate
proceeds of approximately $112.8 million and recognized an aggregate pre-tax derivative gain of
$99.9 million. In connection with the terminations, Cox also sold the 22.5 million shares of AT&T
common stock and 17.2 million shares of AT&T Wireless common stock covered by these collar
arrangements for aggregate net proceeds of approximately $527.0 million. In addition, Cox sold
12.5 million shares of AT&T common stock and 6.7 million shares of AT&T Wireless common stock that
were not covered by collar arrangements for aggregate net proceeds of approximately $263.8 million.
Cox recognized an aggregate pre-tax loss of $170.1 million on the sale of these shares. As a result of these transactions, Cox no longer holds any shares of AT&T common stock or AT&T
Wireless common stock. Cox had accounted for its interests in AT&T and AT&T Wireless common stock
at fair value as available-for-sale securities. Motorola, Inc. Motorola provides integrated communications solutions and embedded electronic
solutions, including end-to-end systems for the delivery of interactive digital video, voice and
high-speed data solutions for broadband operators. In June 2002, Cox sold 1.7 million shares of
Motorola common stock for aggregate net proceeds of approximately $24.5 million and recognized
aggregate pre-tax loss of $1.5 million. Cox no longer holds any shares of Motorola common stock. Equity Method Investments Discovery Communications, Inc.The principal businesses of Discovery are the
advertiser-supported basic cable networks The Discovery Channel, The Learning Channel, Animal
Planet Network, The Travel Channel and Discovery Europe and the retail businesses of Discovery.com.
In 2000, Cox ceased applying the equity method on its investment in Discovery as Coxs cumulative
proportionate share of equity in net losses exceeded the carrying amount of the investment. In
2001, Cox funded Discovery with an additional contribution of $23.9 million, however, since
previously unrecognized equity in net losses exceeded the amount of the additional funding, Cox
recognized equity in net losses on its investment in Discovery of $23.9 million. In September
2002, Cox received a $27.1 million partial return on its investment from Discovery. Since Coxs
carrying value of its investment in Discovery had been reduced to zero, this resulted in a pre-tax
gain of $27.1 million. As of December 31, 2004, Cox has not resumed applying the equity method on
its investment in Discovery, as Coxs proportionate share of equity in net income has not exceeded
its share of net losses not recognized during the period in which the equity method has been
suspended. 66




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As part of the going-private transaction and the related push-down basis accounting pursuant
to the purchase method of accounting for business combinations, as further described in Note. 4,
Going-private transaction, Coxs investment in Discovery was stepped-up to fair value to the
extent of the 37.96% minority interest acquired in the going-private transaction. Accordingly, a
purchase price adjustment of approximately $1.1 billion is reflected in the accompanying
consolidated balance sheet as of December 31, 2004. Summarized combined financial information for all equity method investments and Coxs
proportionate share (determined using Coxs ownership interest in each investment) for 2004, 2003
and 2002 is as follows: Combined Financial Information
    
    
    Coxs Proportionate ShareYear Ended December 31
    
    
    Year Ended December 312004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002(Thousands of Dollars)Revenues
    
    $
    3,338,217
    
    
    $
    2,291,103
    
    
    $
    2,069,282
    
    
    $
    769,917
    
    
    $
    547,304
    
    
    $
    477,294Operating income (loss)
    
    
    482,828
    
    
    
    278,283
    
    
    
    (182,194
    )
    
    
    119,458
    
    
    
    71,971
    
    
    
    (48,967
    )Net income (loss)
    
    
    145,319
    
    
    
    18,309
    
    
    
    (196,479
    )
    
    
    36,629
    
    
    
    7,450
    
    
    
    (49,341
    )
 Combined Financial InformationDecember 312004
    
    
    2003(Thousands of Dollars)Current assets
    
    $
    1,287,914
    
    
    $
    1,001,136Noncurrent assets
    
    
    2,667,590
    
    
    
    2,351,827Current liabilities
    
    
    1,159,360
    
    
    
    1,644,316Noncurrent liabilities
    
    
    3,093,036
    
    
    
    2,052,011
 Coxs proportionate share of the net losses stated above is not equal to the equity in net
losses of affiliated companies as reported in the Consolidated Statements of Operations primarily
due to discontinuing the application of equity method accounting for certain investments when
aggregate net losses from the investments have exceeded their carrying value and amortization of
other expenses. Other Cox has several other fair value, equity and cost method investments that are not,
individually or in the aggregate, significant in relation to the Consolidated Balance Sheets at
December 31, 2004 and 2003. 7. Income Taxes Current and deferred income tax (benefits) expenses are as follows: Year Ended December 312004
    
    
    2003
    
    
    2002(Thousands of Dollars)CurrentFederal
    
    $
    (96,395
    )
    
    $
    263,658
    
    
    $
    (292,716
    )State
    
    
    7,535
    
    
    
    (4,289
    )
    
    
    (25,658
    )Total current
    
    
    (88,860
    )
    
    
    259,369
    
    
    
    (318,374
    )
 67




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 312004
    
    
    2003
    
    
    2002(Thousands of Dollars)DeferredFederal
    
    
    (590,702
    )
    
    
    (318,475
    )
    
    
    192,621State
    
    
    (236,948
    )
    
    
    (9,193
    )
    
    
    12,752Total deferred
    
    
    (827,650
    )
    
    
    (327,668
    )
    
    
    205,373Net income tax (benefit) expense
    
    $
    (916,510
    )
    
    $
    (68,299
    )
    
    $
    (113,001
    )
 The difference between net income tax expense and income taxes expected at the U.S. statutory
federal income tax rate of 35% are as indicated below: Year Ended December 312004
    
    
    2003
    
    
    2002(Thousands of Dollars)Federal tax (benefit) expense at statutory rates on
income before income taxes
    
    $
    (726,920
    )
    
    $
    (67,159
    )
    
    $
    (115,458
    )State income (benefit) taxes, net of federal
benefit
    
    
    (89,187
    )
    
    
    (21,744
    )
    
    
    4,645Change in state tax rate, net
    
    
    (59,931
    )
    
    
    12,981
    
    
    
    (13,033
    )Adjustments and settlements, net
    
    
    (48,259
    )
    
    
    5,400
    
    
    
    19,700Tax basis adjustment in equity investment
    
    
    
    
    
    
    6,648
    
    
    
    Dividends received deduction
    
    
    (204
    )
    
    
    (407
    )
    
    
    (7,083
    )Other,
net
    
    
    7,991
    
    
    
    (4,018
    )
    
    
    (1,772
    )Net income tax (benefit) expense
    
    $
    (916,510
    )
    
    $
    (68,299
    )
    
    $
    (113,001
    )
 Significant components of Coxs net deferred tax liability are as follows: December 312004
    
    
    2003(Thousands of Dollars)Plant and equipment
    
    $
    (1,551,003
    )
    
    $
    (1,363,762
    )Intangible assets
    
    
    (5,774,475
    )
    
    
    (4,759,863
    )Investments
    
    
    (501,509
    )
    
    
    (285,579
    )Other, net
    
    
    84,757
    
    
    
    54,627(8,292,586
    )
    
    
    (6,354,577
    )Less current portion
    
    
    33,988
    
    
    
    34,393Net deferred tax liability
    
    $
    (8,326,574
    )
    
    $
    (6,388,970
    )
 Income tax benefit was $916.5 million for the year ended December 31, 2004. The effective tax
rate for 2004 was 44.1% compared to 35.6% for 2003. The change in the effective tax rate was
primarily due to the recognition of a tax benefit due to the favorable resolution of federal income
tax audits for the years 1995-2001 and an adjustment to reduce state deferred taxes. Other factors
affecting the tax rate include the impact of varying state tax rates across Coxs operations, along
with current year investing and financing transactions. Gross deferred tax assets as of December 31, 2004 include $117.5 million of state net
operating loss and credit carryforwards. A valuation allowance has
been recorded on $93.0 million of
these state carryforwards due to the uncertainty that future taxable income will be realized in the
appropriate jurisdiction. The remaining state carryforwards expire beginning in 2022. Cox has concluded a federal income tax audit for the years 1998  2001 and expects to pay
approximately $40.0 million related to certain cable system acquisitions and certain financing
arrangements completed during the audit period. In addition, Cox expects to file amended tax
returns, and receive 68




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS refunds of approximately $30.0 million, for the effect of these adjustments in
later years. Cox believes that the majority of the payments and the refunds will occur during
2005. Cox has also concluded the field examination phase of a federal income tax audit for the years
1995-1997. Because Cox was a member of an affiliated group filing a consolidated U.S. federal
income tax return during the audit period, Cox will not be able to fully conclude the audit until
issues associated with all affiliated members have been resolved. Cox received refunds of
approximately $3.0 million for various adjustments that were concluded during the field examination.
Cox does not expect that any unresolved issues will result in significant payments or refunds. In
2004, as a result of the favorable resolution of the 1995-1997 and
1998-2001 audits, Cox
has reversed previously accrued taxes, reducing the tax provision by $64.0 million. In
the normal course of business, Coxs tax returns are subject to examination by various taxing
authorities. Such examinations may result in future tax and interest assessments by these taxing
authorities, and liability is accrued when Cox believes that an
assessment is probable. 8. Debt December 312004
    
    
    2003(Thousands of Dollars)Revolving credit facilities
    
    $
    1,650,000
    
    
    $
    Commercial paper
    
    
    96,142
    
    
    
    302,283Term loan
    
    
    2,000,000
    
    
    
    Medium-term notes
    
    
    264,429
    
    
    
    364,359Notes and debentures
    
    
    8,765,359
    
    
    
    6,078,904Exchangeable Subordinated Debentures due November 15, 2029
    
    
    
    
    
    
    7,846Exchangeable Subordinated Debentures due March 14, 2030
    
    
    
    
    
    
    107Exchangeable Subordinated Discount Debentures due April 19, 2020
    
    
    19,546
    
    
    
    18,185Capitalized lease obligations
    
    
    209,576
    
    
    
    217,992Other
    
    
    20,683
    
    
    
    22,12413,025,735
    
    
    
    7,011,800Less current portion
    
    
    59,962
    
    
    
    48,344Total long-term debt
    
    $
    12,965,773
    
    
    $
    6,963,456
 The exchangeable subordinated debentures and zero-coupon debt are presented net of certain
embedded derivative instruments. See Note 9. Derivative Instruments and Hedging Activities for a
more detailed discussion. As part of the going-private transaction and the related push-down basis accounting pursuant
to the purchase method of accounting for business combinations, as further described in Note. 4,
Going-private transaction, the fixed-rate long-term debt instruments that are not reflected at
fair value on an on-going basis were stepped-up to fair value to the extent of the 37.96% minority
interest acquired in the going-private transaction. Accordingly, the table above reflects an
aggregate purchase price adjustment to increase debt by approximately $126.2 million, classified within Notes and
debentures. The adjustment will be amortized over the remaining lives of the debt instruments as a
component of interest expense. Revolving Credit Agreements In June 2004, Cox entered into a new five-year, unsecured revolving bank credit facility with
a capacity of $1.25 billion which will be available through June 4, 2009. This credit facility
replaced Coxs $900.0 million 364-day and $900.0 million five-year revolving bank credit
facilities. In December 2004, Cox 69




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS entered into a second five-year, unsecured revolving bank credit
facility with a capacity of $1.5 billion. Also in December 2004, Cox amended and restated its June
2004 facility to conform the terms with the new facility. At Coxs election, the interest rate on
the credit agreements is based on London Interbank Offered Rate (LIBOR), the Federal funds rate or
an alternate base rate. The credit agreements also impose commitment fees on the unused portion of
the total amounts available based on Coxs corporate credit ratings. At December 31, 2004, Cox had
outstanding borrowings of $907.5 million and $742.5 million under the $1.5 billion facility and the
$1.25 billion facility, respectively. Cox had no borrowings outstanding under any of its credit
agreements at December 31, 2003. Commercial Paper Cox had approximately $96.1 million and $302.3 million commercial paper outstanding at
December 31, 2004 and 2003, respectively. The weighted-average interest rate for outstanding
commercial paper was 1.2% and 1.3% for the years ended December 31, 2004 and 2003, respectively.
Coxs commercial paper is backed by amounts available under its revolving credit agreements. Bridge Loan Credit Facility In December 2004, Cox entered into and
drew down upon an 18-month, $3.0 billion term loan
(Bridge Loan) to finance a portion of Coxs going-private transaction. Cox incurred
offering costs of approximately $10.1 million related to the Bridge Loan. During the same month,
the net proceeds from an offering of three series of senior notes were used to repay the borrowing
under the Bridge Loan (see 2004 Issuances and Repaymentsunder the heading Notes and Debentures).
All unamortized offering costs were expensed in conjunction with the repayment. These amounts are
included within Interest expense in the accompanying consolidated statement of operations. Term Loan In December 2004, Cox entered into a new credit agreement for a five-year, $2.0 billion term
loan (Term Loan) to finance the going-private transaction. At Coxs election, the interest rate on
the Term Loan is based on LIBOR, the Federal funds rate or an alternate base rate. Cox incurred
offering costs of approximately $6.0 million related to the Term Loan. At December 31, 2004, $2.0
billion was outstanding under the Term Loan. Medium-Term Notes At December 31, 2004 and 2003, Cox had outstanding borrowings of $264.4 million and $364.4
million, respectively, under several fixed rate medium-term notes due in varying amounts through
2028 that pay interest in cash at fixed rates ranging from 6.9% to 7.2% per annum. Notes and Debentures Cox had outstanding borrowings under several fixed-rate notes and debentures of approximately
$8.8 billion and $6.1 billion at December 31, 2004 and 2003, respectively. The fixed-rate notes
and debentures are due in varying amounts through 2028 and pay interest in cash at rates ranging
from 3.9% to 7.9% per annum. Also included in notes and debentures is Coxs convertible senior
notes due 2021, as described below. 2004 Issuances and Repayments.In December 2004, Cox issued $3.0 billion aggregate principal
amount of senior notes in order to repay the Bridge Loan, which funded a portion of the tender
offer to purchase all of the former public stock that CEI did not beneficially own. Included in
the issuance were: (i) a series of floating rate senior notes due 2007 with an aggregate principal
amount of $500.0 million; (ii) a series of 4.625% senior notes due 2010 with an aggregate principal
amount of $1.25 billion; and, (iii) a series of 5.450% senior notes due 2014 with an aggregate
principal amount of $1.25 billion. After 70




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS underwriting discounts and commissions, estimated
offering costs and other fees of $15.8 million in aggregate, Cox received net proceeds of
approximately $2.98 billion. The floating rate senior notes mature on December 14, 2007; the
4.625% senior notes mature on January 15, 2010; and, the 5.450% senior notes mature on December 15,
2014. All three series of senior notes are unsecured and rank equally with Coxs other senior
unsecured indebtedness. In addition, both series of fixed-rate senior notes may be redeemed by
Cox, in whole or in part, at any time prior to maturity at the greater of: (x) 100% of the
principal amount of the fixed-rate notes, or (y) the present value of the principal amount and the
remaining scheduled interest payments on the fixed-rate notes plus a make-whole premium, plus in
either case (x) or (y), accrued and unpaid interest. Interest on both series of fixed-rate notes
is payable on a semi-annual basis. Cox may not redeem the floating rate notes prior to maturity. In September 2004, Cox repaid its $100 million principal amount of 6.69% medium-term notes due
September 20, 2004 upon their maturity. In August 2004, Cox repaid its $375 million principal
amount of 7.5% notes due August 15, 2004 upon their maturity. In accordance with the terms of the indenture governing Coxs convertible senior notes due
2021, Cox became obligated to purchase for cash convertible notes tendered and not withdrawn before
the close of business on February 23, 2004. Cox repurchased $19.0 million aggregate principal
amount at maturity of the convertible notes that had been properly tendered and not withdrawn, for
aggregate cash consideration of $13.9 million, which represented the accreted value of the
repurchased notes. As a result, no convertible notes remain outstanding. Cox used commercial paper
borrowings to fund the repurchase of the tendered convertible notes. 2003 Issuances and Repayments. In accordance with the terms of the indenture governing Coxs
convertible senior notes due 2021, Cox became obligated to purchase for cash convertible notes
tendered and not withdrawn before the close of business on February 24, 2003. Cox repurchased
$422.7 million aggregate principal amount at maturity of the convertible notes that had been
properly tendered and not withdrawn, for aggregate cash consideration of $304.2 million, which
represented the accreted value of the repurchased notes. In May 2003, Cox issued a series of 4.625% senior notes due 2013 with an aggregate principal
amount of $600.0 million, less underwriting discounts and commissions and estimated offering costs
of $7.7 million. The 4.625% senior notes mature on June 1, 2013, are unsecured and rank equally
with Coxs other senior unsecured indebtedness. In addition, the 4.625% senior notes may be
redeemed by Cox, in whole or in part, at any time prior to maturity at the greater of (x) 100% of
the principal amount and (y) the present value of the principal amount and the remaining scheduled
interest payments plus a make-whole premium, plus in either case (x) or (y), accrued and unpaid
interest. Interest is payable on a semi-annual basis. On August 1, 2003, Coxs $250.0 million aggregate principal amount of 6.15% Reset Put
Securities due 2033 (REPS) was subject to mandatory tender to the remarketing dealer. However, the
remarketing dealer and Cox mutually agreed to terminate the remarketing dealers right to remarket
the REPS and, in accordance with the terms of the REPS, Cox repurchased the REPS on August 1, 2003.
The total aggregate consideration paid to repurchase the REPS was $301.4 million, which amount
included $257.7 million principal amount and accrued interest paid to the holders and $43.7 million
remarketing option value paid to the remarketing dealers. Cox recognized a pre-tax loss of
approximately $1.5 million in connection with the repurchase of the REPS. In September 2003, Cox issued $750.0 million aggregate principal amount of senior notes,
including a series of 3.875% senior notes due 2008 with an aggregate principal amount of $250.0
million and a series of 5.5% senior notes due 2015 with an aggregate principal amount of $500.0
million. After underwriting discount and commissions and estimated offering costs of $9.6 million
in aggregate, Cox received net proceeds of approximately $740.4 million. The 3.875% senior notes
mature on October 1, 2008 and the 5.5% senior notes mature on October 1, 2015. Both series of
senior notes are unsecured and rank equally with Coxs other senior unsecured indebtedness. In
addition, both series of senior notes may be redeemed by Cox, in whole or in part, at any time
prior to maturity at the greater of (x) 100% of the principal amount 71




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and (y) the present value of
the principal amount and the remaining scheduled interest payments plus a make-whole premium, plus
in either case (x) or (y), accrued and unpaid interest. Interest on both series is payable on a
semi-annual basis. In October 2003, Cox repaid its $27.0 million 7.17% medium-term notes due October 1, 2003 upon
their maturity. Exchangeable Subordinated Debentures Exchangeable Subordinated Debentures due November 15, 2029.In November 1999, Cox issued
14,375,000 PRIZES in a registered public offering for aggregate net proceeds of approximately $1.3
billion, less offering costs and underwriting commissions of approximately $35.0 million. Interest
on the PRIZES was paid quarterly, and at November 15, 2002, the rate decreased from 7.75% to 2% per
year on the original principal amount in accordance with the terms of the PRIZES. The original
principal amount of each PRIZES was indexed to the trading price of Sprint PCS common stock. Upon
issuance, the number of shares of Sprint PCS common stock attributable to each PRIZES was two
shares. In June 2004, Sprint eliminated its PCS tracking stock by mandating the exchange of its PCS
shares for shares of its FON common stock. Subsequently, one share of FON common stock was
attributable to each PRIZES. The payment upon maturity of the PRIZES was to be the maximum of either the aggregate
principal amount or the current market value of the number of reference shares attributable to each
PRIZES, plus a final period distribution premium, as defined. Prior to maturity, the PRIZES were
exchangeable at the holders option at any time for an amount of cash equal to the current market
value of the number of reference shares attributable to each PRIZES, subject to adjustment under
certain circumstances. Exchangeable Subordinated Debentures due March 14, 2030.In March 2000, Cox issued $275.0
million aggregate principal amount of Premium PHONES in a registered public offering for net
proceeds of approximately $269.5 million. Interest on the Premium PHONES was payable semi-annually
at a rate of 3% per year on the original principal amount. Upon issuance, each Premium PHONES was
indexed to the trading price of 16.28 shares of Sprint PCS common stock. Subsequent to the
elimination of Sprint PCS common stock discussed above, each Premium PHONES was indexed to the
trading price of 8.14 shares of FON common stock. The Premium PHONES, as amended, could be exchanged by the holder based on the market value of
the underlying shares for cash. In addition, on or after March 17, 2004, Cox had the option to
redeem the Premium PHONES for cash based on the maximum of either the aggregate principal amount or
the current market value of the underlying shares, plus accrued and unpaid interest and a final
period distribution premium, as defined. At maturity, holders of the Premium PHONES were entitled to receive cash equal to the maximum
of either the aggregate principal amount or the then exchange market value of the underlying shares
plus accrued and unpaid interest and a final period distribution, as defined. Exchangeable Subordinated Discount Debentures due April 19, 2020.In April 2000, Cox issued
$1.8 billion aggregate principal amount at maturity of Discount Debentures in a registered public
offering for proceeds of approximately $764.0 million, net of offering costs and underwriting
commissions of $18.7 million and original issue discount of $1.1 billion. Interest on the Discount
Debentures is payable semi-annually at a rate of 1% per annum on the original issue price of each
debenture. The accretion of the original issue discount plus the 1% interest payments result in an
annualized yield to maturity of 5%. Upon issuance, each Discount Debenture was indexed to the
trading price of shares of Sprint common stock. Subsequent to the elimination of Sprint PCS common
stock discussed above, each Discount Debenture is indexed to the trading price of 3.7954 shares of
FON common stock. The Discount Debentures can be exchanged by the holder based on the market value of the
underlying shares for, at Coxs election, cash, shares of Sprint FON common stock or a combination
of both. The 72




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS holders may also require Cox to repurchase these securities on April 19, 2005, April
19, 2010 and April 19, 2015 at a purchase price equal to the adjusted principal amount, as defined,
plus any accrued and unpaid cash interest. Cox may pay in cash, shares of Sprint PCS common stock
or a combination of both. After April 19, 2005, Cox may redeem some or all of the Discount Debentures for cash at a
redemption price per debenture equal to the adjusted principal amount, plus any accrued and unpaid
cash interest. 2004 Purchases. In June 2004, Cox redeemed all of the remaining outstanding PRIZES and
Premium PHONES for aggregate cash consideration of $14.7 million. The redemption resulted in a
$7.0 million pre-tax loss, which is reflected as Loss on extinguishment of debt in the accompanying
consolidated statements of operations. Exchangeable subordinated debentures at December 31, 2004
were comprised of $62.3 million aggregate principal amount at maturity of Discount Debentures. 2003 Purchases.In June 2003, Cox purchased $1.3 billion original principal amount of PRIZES
and $274.9 million original principal amount of Premium PHONES pursuant to Coxs tender offers for
such securities for aggregate cash consideration of $755.1 million, representing the tender offer
consideration plus accrued and unpaid interest for each security. Cox recognized a pre-tax gain of
approximately $3.9 million in connection with the purchase of the PRIZES and Premium PHONES. In September 2003, Cox purchased $1.8 billion original principal amount at maturity of
Discount Debentures pursuant to Coxs tender offer for such securities for aggregate cash
consideration of $908.8 million, representing the tender offer consideration and, as applicable,
the early tender premium, plus accrued and unpaid interest. Cox recognized a pre-tax loss of
approximately $412.8 million in connection with the purchase of the Discount Debentures. The Discount Debentures are unsecured, subordinated obligations, ranking junior in right of
payment to all of Coxs existing and future senior indebtedness. These instruments are accounted
for as derivative instruments pursuant to SFAS No. 133. See Note 9. Derivative Instruments and
Hedging Activities. Zero-Coupon Debt In January 2001, Cox entered into a series of prepaid forward contracts to sell up to 19.5
million shares of its Sprint PCS common stock with an aggregate fair value as of the respective
trade dates of $502.0 million for proceeds of $389.4 million, which was net of an original issue
discount of $112.6 million. These contracts matured at various dates between 2004 and 2006 and, at
Coxs election, could be settled in cash or shares of Sprint PCS common stock. Cox accounted for
these contracts as zero-coupon debt instruments and was accreting the $112.6 million original issue
discount through the respective contract maturity dates using the effective interest method. In
August 2003, Cox terminated its series of prepaid forward contracts and the zero-coupon debt was
extinguished upon the termination. In connection with the termination, Cox sold the 19.5 million
shares of Sprint PCS common stock, which had been pledged to secure its obligations pursuant to the
series of prepaid forward contracts and were classified as trading. Proceeds from this sale, net
of the payment made to the prepaid forward contracts counterparty and customary fees, were
approximately $0.1 million. Cox recognized a pre-tax loss of approximately $29.5 million in
connection with the net settlement of the zero-coupon debt instruments. Embedded in each of the contracts was an equity collar agreement, which allowed Cox to manage
its exposure to fluctuations in the fair value of the Sprint PCS common stock through the contract
maturity dates. The equity collar agreements embedded in the contracts were accounted for as
derivative instruments in accordance with the requirements of SFAS No. 133, and the change in fair
value of these derivatives between measurement dates was recognized through earnings. See Note 9.
Derivative Instruments and Hedging Activities. Interest Rate Swaps Cox utilizes interest rate swap agreements to manage its exposure to changes in interest rates
associated with certain of its fixed-rate debt obligations whereby these fixed-rate debt
obligations are effectively 73




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS converted into floating-rate debt obligations. The variable rates with
respect to Coxs interest rate swaps are adjusted quarterly or semi-annually based on LIBOR. The
notional amounts with respect
to the interest rate swaps do not quantify risk, but are used in the determination of cash
settlements under the interest rate swap agreements. Cox is exposed to a credit loss in the event
of nonperformance by the counterparties; however, these counterparties are major financial
institutions, rated investment grade or better. Accordingly, Cox does not anticipate
nonperformance by the counterparties. For a further discussion regarding Coxs accounting for
interest rate swaps, see Note 9. Derivative Instruments and Hedging Activities. In June and July 2003, Cox entered into a series of interest rate swap agreements with an
aggregate notional amount of $400.0 million. These swaps have been designated as fair value hedges
of the underlying debt, as defined in SFAS No. 133, and relate to debt maturing in 2009. In March 2003, Cox entered into two interest rate swap agreements with an aggregate notional
amount of $200.0 million. The swaps have been designated as fair value hedges of the underlying
debt, as defined in SFAS No. 133, and relate to debt maturing in 2008. The following table summarizes the notional amounts, weighted average interest rate data and
maturities for Coxs interest rate swaps at December 31, 2004 and 2003: December 312004
    
    
    2003Notional amount (in thousands)
    
    $
    1,375,000
    
    
    $
    1,750,000Weighted-average fixed interest rate received
    
    
    7.35
    %
    
    
    7.38
    %Weighted-average floating interest rate paid
    
    
    4.37
    %
    
    
    3.27
    %Maturity
    
    
    2005 - 2009
    
    
    
    2004 - 2009
 As a result of the settlements under these agreements, interest expense was reduced by $57.0
million and $64.0 million during the years ended December 31, 2004 and 2003, respectively. Maturities Excluding commercial paper, maturities of long-term debt for each of the five years subsequent
to December 31, 2004 and thereafter, are $437.5 million, $465.0 million, $500.0 million, $450.0
million, $4.1 billion, and $6.7 billion, respectively. Maturities of obligations under capital
leases are $49.8 million, $28.9 million, $21.6 million, $17.0 million, $13.2 million for each of
the five years subsequent to December 31, 2004, respectively, and $70.5 million thereafter. The
maturities of long-term debt represent future contractual obligations and are reported gross of any
related discounts, premiums and other adjustments, such as embedded derivatives, necessary to
comply with accounting principles generally accepted in the U.S. Cox
has the ability to refinance the long-term debt instruments maturing
in the twelve months subsequent to December 31, 2004 under its
revolving credit facilities. These amounts are classified as a
contra account within debt and were approximately $69.3 million and $31.6 million at December 31,
2004 and 2003, respectively. Certain debt obligations are subject to repurchase prior to maturity
or may be settled with shares of Sprint PCS common stock upon exchange. Debt Covenants Certain of Coxs debt instruments and credit agreements contain covenants which, among other
provisions, contain certain restrictions on liens, mergers, the
payment of dividends and the disposition of assets. The
credit agreements contain financial covenants that require certain leverage ratios and interest
coverage (as defined in the covenants) be maintained. Compliance with these ratios limits Coxs
ability to incur unlimited indebtedness. Cox was in compliance with all covenants for both its
credit facilities and debt instruments for all periods presented. 9. Derivative Instruments and Hedging Activities 74




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cox accounts for derivative instruments in accordance with SFAS No. 133, which requires all
freestanding and embedded derivative instruments to be measured at fair value and recognized on the
balance sheet as either assets or liabilities. In addition, all derivative instruments used in
hedging relationships must be designated, reassessed and accounted for as either fair value hedges
or cash flow hedges pursuant to the provisions of SFAS No. 133. Cox does not hold or issue derivative instruments for trading purposes and is not a party to
leveraged instruments. From time to time, however, Cox uses derivative instruments to manage its
exposure to changes in the fair value of certain of its assets or liabilities or to manage its
exposure to changes in interest rates or equity prices. These derivative instruments are
designated and accounted for by Cox as hedges of the underlying exposure being managed, as
prescribed by SFAS No. 133. In addition, upon adoption of SFAS No. 133, certain of Coxs debt
instruments and investments contained embedded or freestanding derivatives, as defined. Cox has
not designated these embedded and freestanding derivatives as hedges under SFAS No. 133 and, as
such, changes in their fair value are being recognized in earnings as derivative gains or losses.
Coxs use of derivative instruments may result in short-term gains or losses and may increase
volatility in its earnings. The credit risks associated with Coxs derivative financial instruments are controlled through
the evaluation and monitoring of the creditworthiness of the counterparties. Although Cox may be
exposed to losses in the event of nonperformance by the counterparties, Cox does not expect such
losses, if any, to be significant. Cox recorded a pre-tax loss on derivative instruments of $0.1 million for the year ended
December 31, 2004, a pre-tax loss on derivative instruments of $22.6 million for the year ended
December 31, 2003, and a pre-tax gain on derivative instruments of $1.1 billion for the year ended
December 31, 2002. The following is a detail of Coxs (loss) gain on derivative instruments for
the years ended December 31, 2004, 2003 and 2002 followed by a summary of Coxs derivative
instruments. Year Ended December 312004
    2003
    2002(Millions of Dollars)Equity collar arrangements
    
    $
    
    
    
    $
    
    
    
    $
    268.8Zero-coupon debt
    
    
    
    
    
    
    (18.7
    )
    
    
    359.3Exchangeable subordinated debentures
    
    
    
    
    
    
    0.5
    
    
    
    583.1Stock purchase warrants
    
    
    (0.1
    )
    
    
    (4.4
    )
    
    
    (85.6
    )Total derivative (loss) gain
    
    $
    (0.1
    )
    
    $
    (22.6
    )
    
    $
    1,125.6
 Interest Rate Swap Agreements Cox utilizes interest rate swap agreements designed to assist Cox in maintaining a mix of
fixed and floating rate debt by converting a portion of existing fixed rate debt into a floating
rate obligation. Cox has designated and accounted for its interest rate swap agreements as fair
value hedges whereby the fair value of the related interest rate swap agreements are classified as
a component of other assets with the corresponding fixed-rate debt obligations being classified as
a component of debt in the Consolidated Balance Sheets. Cox has assumed no ineffectiveness with
regard to these interest rate swap agreements as the agreements qualify for the short-cut methodof
accounting for fair value hedges of debt instruments, as prescribed by SFAS No. 133. Coxs
interest rate swap agreements approximated a derivative asset of $16.4 million and $61.2 million at
December 31, 2004 and 2003, respectively. Equity Collar Arrangements Cox had a series of costless equity collar arrangements to manage its exposure to market price
fluctuations of approximately 15.8 million shares of its Sprint PCS common stock. Cox also had
costless 75




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS equity collar arrangements to manage its exposure to market price fluctuations of 17.2 million
shares of its AT&T Wireless common stock and of 22.5 million shares of its AT&T common stock. Cox
had designated and accounted for all of these costless equity collars as fair value hedges. During
the first quarter of 2002, Cox terminated these equity collar arrangements for aggregate proceeds
of $264.4 million and recognized a pre-tax derivative gain of approximately $268.8 million. For a
further discussion of these transactions, see Note 6. Investments. Zero-Coupon Debt As discussed in Note 8. Debt, Cox terminated its series of prepaid forward contracts to sell
up to 19.5 million shares of its Sprint PCS common stock. Prior to the termination, these
contracts met the definition of a hybrid instrument, as prescribed by SFAS No. 133. These hybrid
instruments were comprised of a zero-coupon debt instrument, as the host contract, and an embedded
derivative, which derived its value, in part, based on the trading price of Sprint PCS common
stock. Cox did not designate these embedded derivatives as a hedge of its investment in Sprint PCS
common stock. As a result, changes in the fair value of these embedded derivatives were recognized
in earnings and classified within gain (loss) on derivative instruments in the Consolidated
Statements of Operations. Exchangeable Subordinated Debentures Cox had three series of exchangeable subordinated debentures outstanding, referred to as
PRIZES, Premium PHONES and Discount Debentures, as further described in Note 8. Debt. In June
2004, Cox redeemed all of its remaining PRIZES and Premium PHONES; therefore, all remaining
exchangeable subordinated debentures outstanding at December 31, 2004 were comprised of Discount
Debentures. The exchangeable subordinated debentures meet the definition of a hybrid instrument,
as prescribed by SFAS No. 133. These hybrid instruments are comprised of an exchangeable
subordinated debt instrument, as the host contract, and an embedded derivative, which derives its
value, in part, based on the trading price of Sprint PCS common stock, U.S. Treasury rates and
Coxs credit spreads. Cox has not designated these embedded derivatives as a hedge of its
investment in Sprint PCS common stock. As a result, changes in the fair value of these embedded
derivatives are recognized in earnings and classified within gain (loss) on derivative instruments
in the Consolidated Statements of Operations. The aggregate fair value of these embedded
derivatives approximated a derivative obligation of $0 at December 31, 2004 and 2003. As a result
of Coxs purchase of PRIZES, Premium PHONES and Discount Debentures pursuant to its tender offers
described in Note 8. Debt, $62.3 million aggregate principal amount at maturity of Discount
Debentures remain outstanding at December 31, 2004. Stock Purchase Warrants Cox holds warrants to purchase equity securities of certain publicly-traded and privately-held
entities. Warrants that can be exercised and settled by the delivery of net shares such that Cox
pays no cash upon exercise are deemed freestanding derivative instruments, as prescribed by SFAS
No. 133. Cox has not designated net share warrants as hedging instruments; accordingly, changes in
the fair value of these warrants are recognized in earnings and classified within gain (loss) on
derivative instruments in the Consolidated Statements of Operations. The aggregate fair value of
these warrants approximated a derivative asset of $0.9 million and $1.3 million at December 31,
2004 and 2003, respectively, and have been classified as a component of investments in the
Consolidated Balance Sheets. 10. Fair Value of Financial Instruments Cox has estimated the fair value of its financial instruments as of December 31, 2004 and 2003
using available market information or other appropriate valuation methodologies. Considerable
judgment, however, is required in interpreting market data to develop the estimates of fair value.
Accordingly, the 76




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS estimates presented herein are not necessarily indicative of the amounts that Cox would
realize in a current market exchange. The carrying amount of cash, accounts and other receivables, accounts and other payables and
amounts due to/from CEI approximates fair value because of the short maturity of those instruments.
The fair value of Coxs investments stated at fair value is estimated and recorded based on quoted
market prices as discussed in Note 6. Investments. Except as discussed in Note 6. Investments,
the fair value of Coxs equity method investments and investments stated at cost cannot be
estimated without incurring excessive costs. Cox is exposed to market price risk volatility with
respect to investments in publicly traded and privately held entities. Additional information
pertinent to the value of those investments is discussed in Note 6. Investments. The fair value of interest rate swaps used for hedging purposes was approximately $16.4
million and $61.2 million at December 31, 2004 and 2003, respectively, and represents the estimated
amount that Cox would receive upon termination of the swap agreements. The estimated fair value of Coxs fixed-rate notes and debentures and exchangeable
subordinated debentures at December 31, 2004 and 2003 are based on quoted market prices or a
discounted cash flow analysis using Coxs incremental borrowing rate for similar types of borrowing
arrangements and dealer quotations. A summary of the carrying value and fair value of the
fixed-rate instruments at December 31, 2004 and 2003 is as follows: December 312004
    
    
    2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(Millions of Dollars)Fixed-rate notes and
debentures
    
    $
    8,765.8
    
    
    $
    9,098.3
    
    
    $
    6,683.4
    
    
    $
    7,323.0Exchangeable subordinated
debentures
    
    
    19.5
    
    
    
    31.4
    
    
    
    26.1
    
    
    
    35.6
 11. Financial Instruments with Characteristics of both Liabilities and Equity In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for
classification and measurement by an issuer of certain financial instruments with characteristics
of both liabilities and equity. The statement requires that an issuer classify a financial
instrument that is within its scope as a liability (or asset in some circumstances); however, the
FASB indefinitely deferred the effective date of this statement as it relates to certain
mandatorily redeemable non-controlling interests in consolidated limited-life subsidiaries. As of
December 31, 2003, Cox consolidated a 75% majority-owned interest in a limited-life partnership.
The estimated liquidation value of the 25% minority interest was approximately $229.0 million as of
December 31, 2003. On September 17, 2004, Cox purchased the 25% minority interest in the limited-life partnership
for total cash consideration of approximately $153.0 million. This acquisition was accounted for
as a purchase business combination, consistent with the provisions of SFAS No. 141. After giving
effect to the minority interests share of the partnership net assets at historical cost, Cox
recorded $12.6 million of customer relationship intangibles in conjunction with the purchase. 12. Retirement Plans 77




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cox maintains a funded, qualified defined benefit pension plan covering substantially all
employees (under the heading Pension Benefits in the table below). In addition, certain key
employees of Cox participate in an unfunded, nonqualified supplemental pension plan of CEI. The
plans call for benefits to be paid to eligible employees at retirement based primarily upon years
of service with Cox and compensation rates near retirement. Coxs current policy is to fund its
qualified retirement plan in an amount that falls between the minimum contribution required by
ERISA and the maximum tax deductible contribution. Prior to 2003, CEI provided certain health care and life insurance benefits (under the heading
Other Benefits in the table below) to substantially all retirees of Cox. Post-retirement expense
allocated to Cox by CEI was $3.9 million for the year ended December 31, 2002. The funded status
of the post-retirement plan covering the employees of Cox was not determinable. In January 2003,
Cox adopted its own post-retirement medical plan to provide benefits to substantially all retirees
of Cox. Previously, Cox had participated in the postretirement medical plan sponsored by CEI, and
in January 2003 the CEI plan was split and Cox assumed its share of the plan obligations. In
conjunction with this transaction, Cox received a payment of $15.1 million from CEI representing
previous payments from Cox to CEI associated with Coxs participation in the CEI plan. Upon
assumption of the plan, Cox recorded a postretirement benefit liability of $37.7 million, and a
net-of-tax reduction in equity to the extent this amount exceeded the cash received from CEI.
Coxs policy is to fund benefits to the extent contributions are tax deductible. In general,
retiree health benefits are paid as covered expenses are incurred. Cox uses a measurement date of December 31 for its pension and postretirement benefit plans. Obligations and Funded Status Year Ended December 31Pension Benefits
    
    
    Other Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003(Thousands of Dollars)Change in Benefit ObligationBenefit obligation at beginning of year
    
    $
    293,392
    
    
    $
    216,243
    
    
    $
    46,568
    
    
    $
    Plan initiation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,685Service cost
    
    
    31,797
    
    
    
    25,540
    
    
    
    5,484
    
    
    
    4,301Interest cost
    
    
    20,823
    
    
    
    17,348
    
    
    
    3,381
    
    
    
    2,794Actuarial loss
    
    
    33,175
    
    
    
    37,316
    
    
    
    6,455
    
    
    
    2,555Benefits paid
    
    
    (3,742
    )
    
    
    (3,055
    )
    
    
    (1,326
    )
    
    
    (767
    )Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    Benefit obligation at end of the year
    
    
    375,445
    
    
    
    293,392
    
    
    
    60,604
    
    
    
    46,568Change in Plan AssetsFair value of plan assets at beginning of year
    
    
    274,705
    
    
    
    176,571
    
    
    
    14,087
    
    
    
    Actual return on plan assets
    
    
    31,947
    
    
    
    45,274
    
    
    
    1,943
    
    
    
    1,279Employer contributions
    
    
    10,000
    
    
    
    55,915
    
    
    
    3,725
    
    
    
    13,575Benefits paid
    
    
    (3,742
    )
    
    
    (3,055
    )
    
    
    (1,326
    )
    
    
    (767
    )Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    Fair value of plan assets at end of year
    
    
    312,910
    
    
    
    274,705
    
    
    
    18,471
    
    
    
    14,087Funded status of plan
    
    
    (62,535
    )
    
    
    (18,687
    )
    
    
    (42,133
    )
    
    
    (32,481
    )Unrecognized actuarial losses
    
    
    46,555
    
    
    
    58,386
    
    
    
    6,560
    
    
    
    5,258Unrecognized prior service cost
    
    
    822
    
    
    
    1,590
    
    
    
    
    
    
    
    Prepaid (accrued) benefit cost
    
    $
    (15,158
    )
    
    $
    41,289
    
    
    $
    (35,573
    )
    
    $
    (27,223
    )
 78




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31Pension Benefits
    
    
    Other Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003(Thousands of Dollars)Amounts recognized in the Consolidated
Balance Sheets consist of:Prepaid benefit cost
    
    $
    
    
    
    $
    41,289
    
    
    $
    
    
    
    $
    Accrued benefit cost
    
    
    (15,158
    )
    
    
    
    
    
    
    (35,573
    )
    
    
    (27,223
    )Net amount recognized
    
    $
    (15,158
    )
    
    $
    41,289
    
    
    $
    (35,573
    )
    
    $
    (27,223
    )
 As part of the going-private transaction and the related push-down basis accounting pursuant
to the purchase method of accounting for business combinations, as further described in Note. 4,
Going-private transaction, the retirement plans obligations were stepped-up to fair value to the
extent of the 37.96% minority interest acquired in the going-private transaction. Accordingly, the
table above reflects adjustments of $33.0 million and $4.3 million to Pension Benefits and Other
Benefits, respectively. The adjustments were made to the plans unrecognized actuarial losses and
unrecognized prior service costs. The accumulated benefit obligation for the pension plans was $290.8 million and $229.4 million
at December 31, 2004 and 2003, respectively. There were no pension plans with an accumulated
benefit obligation in excess of plan assets. Components of Net Periodic Benefit Cost Year Ended December 312004
    2003
    2002Pension Benefits
    
    
    Other Benefits
    
    
    Pension Benefits
    
    
    Other Benefits
    
    
    Pension Benefits
    
    
    Other Benefits(Thousands of Dollars)Service
cost
    
    $
    31,797
    
    
    $
    5,484
    
    
    $
    25,540
    
    
    $
    4,301
    
    
    $
    20,073
    
    
    $
    N/AInterest
cost
    
    
    20,823
    
    
    
    3,381
    
    
    
    17,348
    
    
    
    2,794
    
    
    
    13,739
    
    
    
    N/AExpected return on
plan assets
    
    
    (24,758
    )
    
    
    (1,493
    )
    
    
    (19,418
    )
    
    
    
    
    
    
    (16,287
    )
    
    
    N/APrior service cost
amortization
    
    
    215
    
    
    
    
    
    
    
    215
    
    
    
    
    
    
    
    215
    
    
    
    N/AActuarial (gain)
loss amortization
    
    
    3,862
    
    
    
    198
    
    
    
    1,567
    
    
    
    (89
    )
    
    
    
    
    
    
    N/ATransition amount
amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153
    )
    
    
    N/ANet periodic
benefit cost
    
    $
    31,939
    
    
    $
    7,570
    
    
    $
    25,252
    
    
    $
    7,006
    
    
    $
    17,587
    
    
    $
    N/A
 N/A denotes not applicable, as benefits were provided by CEI prior to 2003. Weighted-Average Assumptions The following table sets forth the weighted-average assumptions used to determine benefit
obligations: At December 312004
    
    
    2003Pension
    
    
    Other
    
    
    Pension
    
    
    OtherBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    BenefitsDiscount rate
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    6.25
    %
    
    
    6.25
    %Rate of compensation increase
    
    
    4.25
    %
    
    
    N/A
    
    
    
    4.00
    %
    
    
    4.00
    %
 79




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the weighted-average assumptions used to determine net periodic
benefit cost: Year Ended December 312004
    
    
    2003
    
    
    2002Pension
    
    
    Other
    
    
    Pension
    
    
    Other
    
    
    Pension
    
    
    OtherBenefits
    
    
    Benefits
    
    
    Benefits
    
    
    Benefits
    
    
    Benefits
    
    
    BenefitsDiscount rate
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.75
    %
    
    
    6.75
    %
    
    
    7.25
    %
    
    
    N/ARate of compensation increase
    
    
    4.00
    %
    
    
    N/A
    
    
    
    4.50
    %
    
    
    N/A
    
    
    
    5.00
    %
    
    
    N/AExpected long-term return on plan
assets
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    N/A
 The 9.0% expected long-term return on plan assets (ROA) assumption was developed with the use
of an efficient frontier model (a model utilized to determine the most efficient mix of assets),
using risk (defined as standard deviation), return and correlation expectations. The return
expectations are created using long-term historical return premiums with adjustments based on
levels and forecasts of inflation, interest rates and economic growth. The models return
expectations do not include a premium for active investment management versus passive, indexed
investments. Therefore, when an appropriate premium is added for active investment management and
for asset rebalancing (as more fully described below), a range of ROA expectations is produced, the
bottom of which contains the 9.0% assumption. This 9.0% expectation is consistent with the
historical long-term rates of return achieved on plan assets. The weighted-average annual assumed rate of increase in the per capita cost of covered health
care benefits (i.e., health care cost trend rate) for retirees is 10.0% in 2005, gradually
decreasing to 5.0% by the year 2010, and remaining level thereafter. Assumed health care cost trend
rates have a significant effect on the amounts reported for the health care plans. A one-percent
change in the assumed health care cost trend rate would have the following effects as of December
31, 2004: 1% Increase
    
    
    1% Decrease(Thousands of Dollars)Effect on service and interest cost
components
    
    $
    14
    
    
    $
    (12
    )Effect on postretirement benefit
obligations
    
    
    271
    
    
    
    (237
    )
 Expected Benefits Payments Pension
    
    
    OtherBenefits
    
    
    Benefits(Thousands of Dollars)2005
    
    $
    3,832
    
    
    $
    1,5392006
    
    
    4,696
    
    
    
    1,6462007
    
    
    5,740
    
    
    
    1,9122008
    
    
    7,081
    
    
    
    2,8032009
    
    
    8,849
    
    
    
    3,6622010-2014
    
    
    79,352
    
    
    
    30,979
 Plan Assets The contributions made to the pension plans and other postretirement benefit plans are held in
the CEI Master Trust. The following table sets forth the weighted-average asset allocations at
December 31, 2004 and 2003, and long-term target allocations for 2005: 80




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Percentage of Plan Assets
    
    
    TargetAt December 31
    
    
    Allocations2004
    
    
    2003
    
    
    2005Equity Securities
    
    
    62
    %
    
    
    63
    %
    
    
    62
    %Debt Securities
    
    
    36
    %
    
    
    36
    %
    
    
    36
    %Other
    
    
    2
    %
    
    
    1
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 The long-term strategy for setting target allocations is to develop a combination of assets
which best serves the plan participants at the overall lowest cost to CEI. Utilizing the efficient
frontier model described above, incorporating the same return, risk and correlation expectations,
the resulting range of asset combinations is examined. The selection of the desired targeted mix
is made by analyzing the range of asset combinations in conjunction with the plans benefit
obligations and costs. Once long-term target ranges are established, they are maintained by
rebalancing at the individual investment manager level (liquidating investments that have
appreciated above their targets to buy investments that are below their targets). In an effort to
minimize trading costs, rebalancing is generally performed only when there have been meaningful
market movements and large cash inflows. Market timing is not an element of the investment policy
or strategy, and derivative instruments are not deployed to gain exposure away from the long-term
targets at the overall fund level. Investment risk is mitigated through prudent diversification of
the investment mix, and additional return is provided through the actions of active investment
managers. Active investment managers are allowed, on a limited basis, to invest in
return-enhancing investments, such as emerging market debt and equity and lower rated corporate
securities. The active investment managers are prohibited from investing in Cox securities. The plan
assets are indirectly exposed to the performance of Cox through the investment in CEI private
stock, whose returns are impacted by the financial performance of Cox, as well as the performance
of the other diversified CEI entities. The plan assets include CEI stock in the amounts of $85.1
million (5.7% of total plan assets) and $85.3 million (6.4% of total plan assets) at December 31,
2004 and 2003, respectively. Contributions Cox accelerated its total 2003 plan year contributions for the funded pension plans into 2003. In
December 2004, Cox contributed $10.0 million of its overall 2004 minimum required contribution; the
remaining $28.8 million will be contributed during 2005. Cox expects to contribute $6.0 million to
its other postretirement benefit plans during 2005. Other In December 2003,
the Medicare Act was enacted. The Medicare Act established a prescription
drug benefit under Medicare, known as Medicare Part D, and a federal subsidy to sponsors of
retiree health care benefit plans that provide a prescription drug benefit that is at least
actuarially equivalent to Medicare Part D. Cox anticipates that benefits provided to some groups
of plan participants will be actuarially equivalent to Medicare Part D and, therefore, entitle Cox
to a federal subsidy. In May 2004,
the FASB issued FSP 106-2. FSP 106-2 provides definitive
guidance on the recognition of the effects of the Medicare Act and related disclosure requirements
for the
employers that sponsor prescription drug benefit plans for retirees. In the quarter beginning
July 1, 2004, Cox adopted FSP 106-2 retroactively to January 1, 2004. The expected subsidy reduced
the accumulated postretirement benefit obligation (APBO) as of January 1, 2004 by $0.1 million and
the net periodic cost for 2004 by a nominal amount, as compared to the amount calculated without
considering the effects of the subsidy. 81




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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% of employee contributions up to a maximum of 6%
of the employees base salary. Coxs expense under the plan was $18.3 million, $17.3 million and
$16.2 million for the years ended December 31, 2004, 2003 and 2002, respectively. Cox provides eligible employees the opportunity to defer a percentage of annual compensation
under the Cox Communications, Inc. Savings Plus Restoration Plan. Cox matches each dollar of
compensation deferred by the employee by 50%, up to 6%, the maximum being $6,000, reduced by the
amount matched by Cox under its 401(k) plan. The amounts due each participant represent the
deferred compensation and Coxs matching deferral, plus an annual rate of return on such amounts
determined by Cox which in no event shall be less than an annual rate of 5%. Amounts payable under
this plan represent unsecured general obligations of Cox. Prior to
July 1, 2004, the Savings Plus Restoration Plan was
administered by CEI. During 2004, Cox recorded $1.2 million of expense related to the plan. 13. Stock Compensation Plans At December 31, 2004, Cox had one
stock-based compensation plan for employees, a LTIP. Cox
does not expect to issue additional awards under the LTIP. During 2004, Cox also had an ESPP
that ended on June 30, 2004. Long-Term Incentive Plan Under the LTIP, executive officers and selected key employees received 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. The LTIP is administered by
the Compensation Committee of the Board of Directors or its designee. Options granted were Incentive Stock Options or Nonqualified Stock Options. The exercise
prices of the options were determined by the Compensation Committee when the options were granted,
subject to a minimum price of the fair market value of the former public stock on the date of
grant. Options vest over a period of three to five years from the date of grant and expire 10
years from the date of grant. The fair value of each option grant was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for grants made in 2004, 2003 and 2002:
weighted average expected volatilities at each grant date averaging 22.9%, 30.3% and 27.6%,
respectively, no payment of dividends, expected life of six years and weighted average risk-free
interest rates calculated at each grant date and averaging 3.2%, 3.2% and 5.0%, respectively. A summary of the status of Coxs stock options granted under the LTIP as of December 31, 2004,
2003 and 2002 and changes during the years then ended is presented below: 2004
    
    
    2003
    
    
    2002Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning
of year
    
    
    14,994,603
    
    
    
    34.26
    
    
    
    10,860,838
    
    
    $
    36.09
    
    
    
    7,541,036
    
    
    $
    33.66Granted
    
    
    4,589,898
    
    
    
    31.29
    
    
    
    5,177,530
    
    
    
    30.18
    
    
    
    4,043,053
    
    
    
    41.23Exercised
    
    
    (2,865,840
    )
    
    
    16.38
    
    
    
    (268,455
    )
    
    
    12.44
    
    
    
    (157,520
    )
    
    
    17.71Canceled
    

    
    (728,722
    )
    
    
    37.64
    
    
    
    (775,310
    )
    
    
    40.29
    
    
    
    (565,731
    )
    
    
    45.51
 82




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2004
    
    
    2003
    
    
    2002Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at end of year
    
    
    15,989,939
    
    
    
    $36.46
    
    
    
    14,994,603
    
    
    
    34.26
    
    
    
    10,860,838
    
    
    
    36.09Options exercisable at
year-end
    
    
    2,341,343
    
    
    
    47.33
    
    
    
    3,881,550
    
    
    $
    24.72
    
    
    
    3,310,409
    
    
    $
    17.35Weighted-average grant date
fair value of options
granted
during the year
    
    $
    9.33
    
    
    
    
    
    
    $
    10.81
    
    
    
    
    
    
    $
    15.61
 The following table summarizes information about stock options outstanding and exercisable at
December 31, 2004: Options Outstanding
    
    
    Options ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Average
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    Remaining
    
    
    AverageRange of
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    Contractual
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Life
    
    
    Price$25.19
 $31.27
    
    
    9,114,452
    
    
    
    8.7
    
    
    $
    30.68
    
    
    
    0
    
    
    
    0.0
    
    
    $
    0.0032.13  39.66
    
    
    345,380
    
    
    
    6.9
    
    
    
    35.18
    
    
    
    133,656
    
    
    
    4.6
    
    
    
    37.3840.06  43.45
    
    
    3,425,799
    
    
    
    7.0
    
    
    
    41.56
    
    
    
    101,539
    
    
    
    5.6
    
    
    
    41.5745.31  51.44
    
    
    3,104,308
    
    
    
    5.6
    
    
    
    47.93
    
    
    
    2,106,148
    
    
    
    5.6
    
    
    
    48.2415,989,939
    
    
    
    7.7
    
    
    
    36.46
    
    
    
    2,341,343
    
    
    
    5.5
    
    
    
    47.33
 Employee Stock Purchase Plan In July 2002, Cox began administering its fourth ESPP (the 2002 ESPP), under which Cox is
authorized to issue purchase rights totaling 3,000,000 shares of former public stock. The 2002
ESPP had four alternate entry dates: July 1, 2002, January 1, 2003, July 1, 2003, and January 1,
2004. Employees were eligible to participate in the 2002 ESPP as of the first entry date on which
they were employed and were regularly scheduled to work at least 20 hours per week and were
employed as of the grant date corresponding to one of the entry dates. Under the terms of the 2002
ESPP, the purchase price for each entry date was the lower of 85% of the fair market value of the
former public stock on the grant date (the initial purchase price) or 90% of the fair market value
of the former public stock on June 30, 2004 ($25.86), the end of the 2002 ESPP. The initial
purchase price was set at $29.80, $24.19, $27.89, and $28.24 for the first, second, third and
fourth entry date, respectively. Purchase rights totaling 647,155 shares, 33,695 shares, 17,959
shares, and 9,054 shares were issued in 2002, 2003 and 2004 for the first, second, third, and
fourth entry dates, respectively. Employees were allowed to purchase the shares via payroll
deductions through June 30, 2004, at which time 482,025 shares were issued to the remaining 2002
ESPP participants. During 2002, 2003 and 2004, 263 shares, 5,183 shares and 7,838 shares,
respectively, were issued under the 2002 ESPP due to cancellation of employees participation or
termination of employment. The weighted average fair value of each purchase right granted in 2002,
2003 and 2004 was $7.44, $8.26, $7.92, and $7.28 for the first, second, third, and fourth entry
dates, respectively. The fair value of the employees purchase rights granted in 2002, 2003 and
2004 was determined using the Black-Scholes model with the following assumptions for the first,
second, third and fourth entry dates: expected volatility of 28.76%, 30.95%, 29.77%, and 25.38%,
respectively, no payment of dividends, expected life of
2.04 years, 1.54 years, 1.05 years, and .55 years, respectively, and risk-free interest rate
of 2.83%, 1.60%, .72%, and 1.13%, respectively. 14. Shareholders Equity Cox is authorized to issue 10,000,000 shares of preferred stock, 671,000,000 shares of Class A
common stock and 62,000,000 shares of Class C common stock. 83




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Convertible Preferred Stock In June 2004, all 4,836,372 issued and outstanding shares of Coxs Series A convertible
preferred stock were converted into 11,212,121 shares of Coxs Class A common stock, in accordance
with the terms of the Series A convertible preferred stock. Cox issued the Series A convertible
preferred stock in October 1998 in conjunction with its acquisition of a cable system located in
Las Vegas, Nevada. In accordance with SFAS No. 141, Cox recorded additional franchise value of
$365.6 million, which includes the related deferred tax effects, representing the appreciation
realized upon conversion of the Series A convertible preferred stock as contingent purchase price
related to the acquisition. Upon conversion, all of the issued and outstanding shares of Series A
convertible preferred stock were retired. Prior to June 2004, the holders of Series A convertible
preferred stock were entitled to one vote per share on all matters upon which holders of Class A
common stock were entitled to vote and pay dividends to the extent declared by Coxs Board of
Directors. Common Stock As a part of the going-private transaction, all shares of Coxs former public stock and Class
C common stock, par value $1.00 per share were cancelled. Also as a part of the going-private
transaction, Cox issued 556,170,238 shares of Class A common stock, $0.01 par value per share, and
27,597,792 shares of Class C common stock, $0.01 par value per share. Coxs Class A common stock
and Class C common stock are identical except with respect to certain voting, transfer and
conversion rights. 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. On August 16, 2002, Cox issued approximately 18.7 million shares of Coxs former public stock
to holders of its Income PRIDES and Growth PRIDES in settlement of such holders underlying
obligation to purchase Coxs former public stock. In April 2000, Cox approved a stock repurchase program whereby Cox was authorized to purchase
up to $500.0 million of its outstanding Class A common stock on the open market or through private
transactions. During 2004, 2003 and 2002, Cox did not repurchase any shares of its Class A common
stock under the stock repurchase program. As a result of the going-private transaction, no further
shares will be repurchased under the stock repurchase program. Other At December 31, 2004, CEI owned 100% of the outstanding shares of Cox common stock. At
December 31, 2003, CEI owned approximately 63.4% of the outstanding shares of Cox common stock and
held 73.9% of the voting power of Cox. 15. Transactions with Affiliated Companies Cox receives certain services from, and has entered into certain transactions with, CEI.
Costs of the services that are allocated to Cox are based on actual direct costs incurred or on
CEIs estimate of expenses relative to the services provided to other subsidiaries of CEI. Cox
believes that these allocations were made on a reasonable basis, and that receiving these services
from CEI creates cost efficiencies; however, there
has been no study or any attempt to obtain quotes from third parties to determine what the
cost of obtaining such services from third parties would have been. The services and transactions
described below have been reviewed by Coxs Audit Committee (or, in the case of the going-private
transaction, a special committee comprised of the members of the Audit Committee), which has
determined that such services and transactions are or were fair and in the best interests of Cox. 84




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
    Cox receives day-to-day cash management services from CEI, with settlements of
outstanding balances between Cox and CEI occurring periodically at market interest
rates. The amounts due to CEI are generally due on demand and represent the net balance
of the intercompany transactions. Prior to May 2, 2003, outstanding amounts due from
CEI bore interest equal to CEIs current commercial paper borrowing rate and
outstanding amounts due to CEI bore interest at 50 basis points above CEIs current
commercial borrowing rate as payment for the services provided. From and after May 2,
2003, both outstanding amounts due from and to CEI bear interest equal to CEIs current
commercial paper borrowing rate as payment for the services provided. Amounts due to
CEI from Cox were approximately $5.6 million and $4.0 million at December 31, 2004 and
2003, respectively; and, and the associated interest rate was 2.4% and 1.3% at December
31, 2004 and 2003, respectively. Included in amounts due from CEI are the following
transactions: (Thousands of Dollars)Intercompany due from CEI, December 31, 2001
    
    $
    13,245Cash transferred to
CEI
    
    
    92,061Net operating expense allocations and reimbursements
    
    
    (84,197
    )Intercompany due from CEI, December 31, 2002
    
    
    21,109Cash transferred to CEI
    
    
    221,117Net operating expense allocations and reimbursements
    
    
    (246,206
    )Intercompany due to CEI, December 31, 2003
    
    
    (3,980
    )Cash transferred to CEI
    
    
    288,821Net operating expense allocations and reimbursements
    
    
    (290,414
    )Intercompany due to CEI, December 31, 2004
    
    $
    (5,573
    )
  
    
    Cox receives certain management services from CEI including legal, corporate
secretarial, tax, internal audit, risk management, employee benefit (including pension
plan) administration, fleet and other support services. Cox was allocated expenses for the
year ended December 31, 2004, 2003 and 2002 of approximately $7.4 million, $6.0 million
and $6.2 million, respectively, related to these services.
    
    In connection with these management services, Cox reimburses CEI for payments made to
third-party vendors for certain goods and services provided to Cox under arrangements made
by CEI on behalf of CEI and its affiliates, including Cox. Cox believes such arrangements
result in Cox receiving such goods and services at more attractive pricing than Cox would
be able to secure separately. Such reimbursed expenditures include insurance premiums for
coverage through the CEI insurance program, which provides coverage for all of its
affiliates, including Cox. Rather than self-insuring these risks, CEI purchases insurance
for a fixed-premium cost from several
insurance companies, including an insurance company indirectly owned by descendants of
Governor James M. Cox, the founder of CEI, including James C. Kennedy, Chairman of Coxs
Board of Directors, and his sister, who each own 25%. This insurance company is an insurer
and reinsurer on various insurance policies purchased by CEI, and it employs an independent
consulting actuary to calculate the annual premiums for general/auto liability and workers
compensation insurance based on Coxs loss experience, consistent with insurance industry
practice. Coxs portion of these insurance costs was
approximately $32.0 million, $32.0 million and $27.2 million for 2004, 2003 and 2002, respectively. 85




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
    Coxs employees participate in certain CEI employee benefit plans, and Cox made
payments to CEI in 2004, 2003 and 2002 for the costs incurred by reason of such
participation, including self-insured employee medical insurance costs of approximately
$110.4 million, $86.7 million and $77.5 million, respectively; postemployment benefits of
$10.2 million, $8.4 million and $7.3 million, respectively; and executive pension plan
payments of approximately $6.4 million in 2004 and 2003 and $2.8 million in 2002. In
January 2003, Cox adopted its own post-retirement medical plan to provide benefits to
substantially all eligible Cox retirees. Prior to January 2003, all eligible retirees of
Cox participated in the CEI post-retirement medical plan. Cox made payments to CEI in 2002
of approximately $3.9 million for the costs incurred by reason of such participation.
    Cox and CEI share resources relating to aircraft owned by each company. Depending on
need, each occasionally uses aircraft owned by the other, paying a cost-based hourly rate.
CEI also operates and maintains two airplanes owned by Cox. Cox pays CEI on a quarterly
basis for fixed and variable operations and maintenance costs relating to these two
airplanes. Cox paid approximately $1.2 million during 2004 and 2003 and $0.7 million
during 2002 for use of CEIs aircraft and maintenance of Coxs aircraft by CEI, net of
aircraft costs paid by CEI to Cox for use of Coxs aircraft.
    Cox pays rent and certain other occupancy costs to CEI for its corporate headquarters
building. CEI holds the long-term lease of the Cox headquarters building and prior to
2002, Cox and CEI and its other affiliates shared occupancy of the headquarters building.
During 2002, CEI and its other affiliates moved to a new facility and Cox purchased from
CEI business equipment located in the headquarters building at its depreciated net book
value of approximately $7.2 million, which is believed to approximate fair value. Cox is
now the sole occupant of its headquarters building. Rent was $9.9 and $11.2 million for
the years ended December 31, 2004 and 2003, respectively. Prior to 2003, related rent and
occupancy expense was allocated based on occupied space, and for the year ended December
31, 2002, was approximately $7.4 million.
    From 1997 through 2002, Cox entered into 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
contributed approximately $41.1 million in the aggregate to the joint ventures for the
period from inception through May 31, 2002 to fund its share of operating costs. During
2002, Cox and Cox Interactive Media agreed to terminate the relationship and entered into
a transition services agreement under which Cox paid Cox Interactive Media approximately
$7.0 million to continue to operate Coxs city sites during a transition period. The joint
venture entities were dissolved as of December 31, 2002, and pursuant to a separate
agreement dated December 31, 2002, Cox purchased certain assets used in the operation of
the City Sites for insignificant cash consideration. Cox will use those assets to develop
the City Sites as part of Cox High Speed Internet service. Cox Interactive Media agreed
to reimburse Cox approximately $0.2 million for certain expenses incurred in connection
with obtaining certain software licenses related to the City Sites.
    In connection with CEIs sale of shares of Cox Class A common stock to two private
investors in 2001, Cox entered into agreements providing the two private investors with
certain demand and
piggyback registration rights. CEI had agreed to pay all fees and expenses associated with
Coxs performance under these registration rights agreements. These registration rights
agreements have terminated in accordance with their terms. Cox pays fees to certain entities in which it has an ownership interest in exchange for cable
programming. Programming fees paid to such affiliates for the years ended December 31, 2004, 2003
and 2002 were approximately $92.9 million, $86.2 million
and $78.8 million, respectively, the majority of which were paid
to Discovery Communications, Inc. 86




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CEI and two of its wholly-owned subsidiaries entered into an Agreement and Plan of Merger with
Cox in October 2004. Pursuant to this merger agreement, Cox and one of the CEI subsidiaries
commenced a joint tender offer to purchase the shares of Cox Class A common stock not beneficially
owned by CEI, and in December 2004, the CEI subsidiary acquired approximately 190.5 million shares
of Class A common stock in accordance with the terms of the tender offer. Following that purchase,
Cox was merged with a CEI subsidiary, with Cox as the surviving corporation. Accordingly, at
December 31, 2004, Cox was a wholly-owned subsidiary of CEI. 16. Other Comprehensive Loss The following represents the components of other comprehensive loss and related tax effects
for the years ended December 31, 2004, 2003 and 2002: Year Ended December 312004
    
    
    2003
    
    
    2002(Thousands of Dollars)Unrealized gains (losses), net of taxes of $(498), $(19,301) and
$611,326 in 2004, 2003 and 2002, respectively
    
    $
    796
    
    
    $
    30,831
    
    
    $
    (976,533
    )Recognition of previously unrealized (gains) losses on available-
for-sale securities, net of taxes of $10,197, $59,314 and
$(364,880) in 2004, 2003 and 2002, respectively
    
    
    (16,289
    )
    
    
    (94,748
    )
    
    
    582,863Total other comprehensive loss
    
    $
    (15,493
    )
    
    $
    (63,917
    )
    
    $
    (393,670
    )
 Components of accumulated other comprehensive income consisted of net unrealized gain on
securities of $0.1 million ($0.1 million, net of tax) and $25.3 million ($15.5 million, net of tax)
at December 31, 2004 and 2003, respectively. 17. Supplemental Financial Statement Information Supplemental Consolidated Balance Sheet Information December 312004
    
    
    2003(Thousands of Dollars)Plant and equipmentLand
    
    $
    114,529
    
    
    $
    107,677Buildings and building improvements
    
    
    647,197
    
    
    
    590,658Transmission and distribution plant
    
    
    11,899,827
    
    
    
    11,032,896Other equipment
    
    
    1,009,771
    
    
    
    919,055Capital leases
    
    
    455,209
    
    
    
    423,565Construction in progress
    
    
    154,180
    
    
    
    159,575Plant and equipment, at cost
    
    
    14,280,713
    
    
    
    13,233,426Less accumulated depreciation
    
    
    (6,338,014
    )
    
    
    (5,325,865
    )Net plant and equipment
    
    $
    7,942,699
    
    
    $
    7,907,561
 87




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 312004
    
    
    2003(Thousands of Dollars)Other current assetsInventory
    
    $
    68,221
    
    
    $
    49,137Prepaid assets
    
    
    31,974
    
    
    
    37,600Deferred income tax asset
    

    
    33,988
    
    
    
    34,393Other
    
    
    2,203
    
    
    
    9,976Total other current assets
    
    $
    136,386
    
    
    $
    131,106Other current liabilitiesDeposits and advances
    
    
    103,800
    
    
    
    92,008Income tax payable
    
    
    121,269
    
    
    
    215,926Other
    
    
    114,673
    
    
    
    142,619Total other current
liabilities
    
    $
    339,742
    
    
    $
    450,553
 Supplemental Disclosure of Non-cash Investing and Financing Activities Year Ended December 312004
    
    
    2003
    
    
    2002(Thousands of Dollars)Significant non-cash transactionsSettlement of FELINE PRIDES
    
    $
    
    
    
    $
    
    
    
    $
    649,999Conversion of Series A preferred
stock to Class A common
stock
    
    
    365,635
    
    
    
    
    
    
    
    Additional cash flow informationCash paid for interest
    
    $
    379,090
    
    
    $
    374,030
    
    
    $
    409,396Cash received for income
taxes
    
    
    19,663
    
    
    
    69,875
    
    
    
    201,011
 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 $21.4 million, $21.9 million
and $21.8 million in 2004, 2003 and 2002, respectively. Future minimum lease payments for each of
the five years
subsequent to December 31, 2004 are $19.1 million, $15.2 million, $11.0 million, $6.9 million
and $3.6 million, respectively, and $11.2 million thereafter for all noncancellable operating
leases. At December 31, 2004, Cox had outstanding purchase commitments totaling approximately $133.8
million for additions to plant and equipment and $997.4 million to rebuild certain existing cable
systems. In addition, Cox had unused letters of credit outstanding totaling $5.1 million at
December 31, 2004. In connection with certain of Coxs acquisitions and other transactions, Cox has provided
certain indemnities to the respective counterparties with respect to future claims that may arise
from state or federal taxing authorities. The nature and terms of these indemnities vary by
transaction and generally remain in force through the requisite statutory review periods. In
addition, the events or circumstances that would require Cox to perform under these indemnities are
transaction and circumstance specific. As of September 30, 2004, Cox believes the likelihood that
it will be required to perform under these indemnities is remote and that the maximum potential
future payments that Cox could be required to make under these indemnifications are not
determinable at this time, as any future payments would be dependent on the type 88




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and extent of the
related claims, and all available defenses, which are not reasonably estimable. Cox has not
historically incurred any material costs related to performance under these types of indemnities. Coxs subsidiary Cox Communications Louisiana L.L.C. (Cox Louisiana) was a defendant in a
putative subscriber class action suit in Louisiana state court filed on November 5, 1997. The suit
challenged the propriety of late fees charged by Cox Louisiana in the greater New Orleans area to
customers who fail to pay for services in a timely manner. The suit sought injunctive relief and
damages under certain claimed state law causes of action. On March 29, 2004, the parties entered
into a settlement agreement. This settlement was approved by the court and became final in August
2004. The settlement has now been fully implemented and all class consideration disbursed. The
settlement did not have a material impact on Coxs operations or liquidity. On November 14, 2000, GTE.NET, L.L.C. d/b/a Verizon Internet Solutions and Verizon Select
Services, Inc. filed suit against Cox in the United States District Court for the Southern District
of California. Verizon alleged that Cox has violated various sections of the Communications Act of
1934 by allegedly refusing to provide Verizon with broadband telecommunications service and
interconnection, among other things. On November 29, 2000, Verizon amended its complaint to add
CoxCom, Inc. (CoxCom), a subsidiary of Cox, as an additional defendant. On January 8, 2002,
Verizon filed a second amended complaint, dropping its claims for interconnections and damages.
Verizon seeks various forms of relief, including declaratory and injunctive relief. On January 29,
2002, the Court granted defendants motion to stay the case on primary jurisdiction grounds. Cox
and CoxCom intend to defend this action vigorously. The outcome cannot be predicted at this time. Cox @Home, Inc., a wholly-owned subsidiary of Cox, is a stockholder of At Home Corporation,
also called Excite@Home, formerly a provider of high-speed Internet access and content services,
which filed for bankruptcy protection in September 2001. On September 24, 2002, a committee of
bondholders of Excite@Home sued Cox, Cox @Home and Comcast Corporation, among others, in the United
States District Court for the District of Delaware. The suit alleged the realization of
short-swing profits under Section 16(b) of the Securities Exchange Act of 1934 from purported
transactions relating to Excite@Home common stock involving Cox, Comcast and AT&T Corp., and
purported breaches of fiduciary duty. The suit seeks disgorgement of short-swing profits allegedly
received by the Cox and Comcast defendants totaling at least $600.0 million, damages for breaches
of fiduciary duties in an unspecified amount, attorneys fees, pre-judgment interest and
post-judgment interest. On November 12, 2002, Cox, Cox @Home, and David Woodrow filed a motion to
dismiss or transfer the action for improper venue or, in the alternative, to transfer the action
pursuant to 28 U.S.C. Sec. 1404. On September 30, 2003, the Delaware District Court ordered the
action transferred to the United States District Court for the Southern District of New York. On
December 22, 2003, Cox and Cox@Home filed a motion to dismiss, or, in the alternative, for judgment
on the pleadings, with respect to the Section 16(b) claim. On August 12, 2004, the court granted
Coxs and Cox @Homes motion and dismissed the Section 16(b) claim. Cox and Cox @Home, among
others, subsequently entered into an agreement with Excite@Home tolling the
statute of limitations on the remaining claim for purported breach of fiduciary duty, and on
December 3, 2004, the court dismissed that claim without prejudice. On January 4, 2005, plaintiff
noticed its appeal of the dismissal of the Section 16(b) claim to the United States Court of the
Appeals for the Second Circuit. Cox and Cox @Home intend to defend this action vigorously. The
outcome cannot be predicted at this time. Jerrold Schaffer and Kevin J. Yourman, on May 26, 2000 and May 30, 2000, respectively, filed
class action lawsuits in the Superior Court of California, San Mateo County, on behalf of
themselves and all other stockholders of Excite@Home as of March 28, 2000, seeking (a) to enjoin
consummation of a March 28, 2000 letter agreement among Excite@Homes principal investors,
including Cox, and (b) unspecified compensatory damages. Cox and David Woodrow, Coxs former
Executive Vice President, Business Development, among others, are named defendants in both
lawsuits. Mr. Woodrow formerly served on the Excite@Home board of directors. The plaintiffs
assert that the defendants breached purported fiduciary duties of care, candor and loyalty to the
plaintiffs by entering into the letter agreement and/or taking certain actions to facilitate the
consummation of the transactions contemplated by the letter agreement. On February 26, 2001, the
Court stayed both actions, which had been previously consolidated, on grounds of 89




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS forum
non-conveniens. A related suit styled Linda Ward, et al. v. At Home Corporation (No. 418233) was
filed on September 6, 2001, in the same court. On February 7, 2002, the Court consolidated the
Ward action with the Schaffer/Yourman action, thereby also staying the Ward action. On June 18,
2002, the court granted plaintiffs motion to lift the stay and authorized discovery to proceed
regarding Coxs pending motion to dismiss for lack of personal jurisdiction. On September 10,
2002, the United States Bankruptcy Court for the Northern District of California in the Excite@Home
bankruptcy proceeding held that the claims in the suits were derivative and, thus, constituted the
exclusive property of the Excite@Home bankruptcy estate. The Bankruptcy Court thereafter ordered
the plaintiffs to dismiss the suits. Plaintiffs subsequently appealed the Bankruptcy Courts
decision to the United States District Court for the Northern District of California. On September
29, 2003, the District Court affirmed the order of the Bankruptcy Court. On October 27, 2003,
plaintiffs filed a notice of appeal of the District Courts decision to the United States Court of
Appeals for the Ninth Circuit, and briefing of the appeal has concluded. Cox intends to defend
this action vigorously. The outcome cannot be predicted at this time. On April 26, 2002, Frieda and Michael Eksler filed an amended complaint naming Cox as a
defendant in a class action lawsuit in the United States District Court for the Southern
District of New York against AT&T Corp. and certain former officers and directors of Excite@Home,
among others. Cox was served on May 10, 2002. This case
subsequently was consolidated with a related case
captioned Semen Leykin v. AT&T Corp., et al., and another related case, and an amended complaint in
the consolidated case, naming Cox as a defendant, was filed and
served on November 7, 2002. On March 10, 2005, the Court
issued an order certifying a class of all persons and entities who
purchased
the publicly traded common stock of Excite@Home during the period
March 28, 2000 through September 28, 2001, and directing
that notice of the certification be given to the class. The class
excludes the
defendants in the action and certain of their related persons.
 The complaint asserts a claim against Cox
as an alleged controlling person of Excite@Home under Section 20(a) of the Securities Exchange
Act for violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The
suit seeks from Cox unspecified monetary damages, statutory compensation and other relief. In
addition, a claim against Coxs former Executive Vice President, David Woodrow, who formerly served
on Excite@Homes board of directors, is asserted for breach of purported fiduciary duties. The
suit seeks from Woodrow unspecified monetary and punitive damages. On February 11, 2003, Cox and
Woodrow filed a dispositive motion to dismiss on various grounds, including failure to state a
claim. On September 17, 2003, the District Court granted the motion in part and denied it in part.
Specifically, the Court dismissed several purported statements by Excite@Home as bases for
potential liability because they were merely generalized expressions of confidence and optimism
constituting puffery, dismissed the fiduciary duty claim against Mr. Woodrow as pre-empted by the
federal securities laws, and denied the motions as to the remaining allegations of the complaint.
On October 7, 2003, Cox and Mr. Woodrow sought reconsideration of a portion of the Courts order.
On February 17, 2004, the Court granted plaintiffs leave to file a motion to
amend the complaint to add an additional claim for relief against all defendants under Section
14(a) of the Securities Exchange Act in connection with an allegedly false or misleading proxy
statement issued by
Excite@Home. On February 24, 2004, the Court granted Coxs and Mr. Woodrows motion for
reconsideration and dismissed plaintiffs allegations that Cox and Mr. Woodrow were control
persons with respect to primary violations of Rule 10b-5 alleged to have occurred after August 28,
2000. On April 5, 2004, Cox and certain other defendants jointly filed a motion to dismiss the
Section 14(a) cause of action that was added in plaintiffs amended complaint. On August 9, 2004,
the District Court granted defendants motion, and dismissed the Section 14(a) cause of action.
Cox intends to defend this action vigorously. The outcome cannot be predicted at this time. On June 14, 2004, Acacia Media Technologies Corporation filed a lawsuit against Cox and
Hospitality Network, Inc., (a wholly-owned subsidiary of Cox) among others, in the United States
District Court for the Northern District of California asserting claims for patent infringement.
The complaint seeks preliminary and permanent injunctive relief and damages in an unspecified
amount. On July 7, 2004, Acacia Media filed an amended complaint to its lawsuit to add CoxCom as a
defendant. Cox and CoxCom timely filed their answer to the amended complaint on October 21, 2004.
On November 11, 2004, Acacia Media filed a motion before the Multi-District Litigation Panel to
transfer related patent actions under 28 U.S.C. § 1407. That motion sought to transfer several
related cases brought by Acacia in other jurisdictions to a 90




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS single court. All of the defendants
opposed that motion. A hearing on the motion was held on January 27, 2005. On February 24, 2005,
the Multi-District Litigation Panel transferred all of the Acacia litigation to Judge Ware in the Northern District of
California. CoxCom and Hospitality Network intend to defend the action vigorously. The outcome
cannot be predicted at this time. Eighteen putative class action lawsuits were filed, purportedly on behalf of the public
stockholders of Cox, challenging CEIs August 2, 2004 proposal to acquire all of the issued and
outstanding shares of Cox Class A common stock not beneficially owned by CEI, for $32.00 in cash
per share. Fifteen of the lawsuits were filed in the Court of Chancery of the State of Delaware.
Following a hearing held on August 24, 2004, the Delaware court consolidated the actions under the
caption In re Cox Communications, Inc. Shareholders Litigation, Consolidated C.A. No. 613-N. The
Delaware complaint names as defendants Cox, CEI, Cox Holdings, Barbara Cox Anthony and Anne Cox
Chambers, and the members of the Cox Board of Directors. The Delaware complaint alleges, among
other things, that the price proposed to be paid in the proposed transaction was unfairly low, that
the initiation and timing of the proposed transaction were in breach of the defendants purported
duties of loyalty and constituted unfair dealing, that the structure of the proposed transaction
was inequitably coercive, that defendants caused materially misleading and incomplete information
to be disseminated to the public holders of the Cox shares, and that the Board defendants would
breach their duty of care and good faith by approving the proposed transaction and by purportedly
attempting to disenfranchise the holders of the Cox shares by circumventing certain alleged
contractual voting rights. The Delaware complaint seeks an injunction against the proposed
transaction, or, if it is consummated, rescission of the transaction and imposition of a
constructive trust, as well as money damages, an accounting, attorneys fees, expenses and other
relief. The remaining three putative class action lawsuits were filed in the Superior Court of Fulton
County, Georgia, styled Brody v. Cox Communications, Inc., et al., 2004CV89198, Golombuski v. Cox
Communications, Inc., et al., 2004CV89216, and Durgin v. Cox Communications, Inc., et al.,
2004CV89301. The Georgia actions were purportedly brought on behalf of the public holders of
shares of Cox Class A common stock against Cox, CEI and the Cox Board, although four counts of the
Golombuski complaint were brought derivatively on behalf of Cox against the Cox Board and CEI.
With the exception of the Durgin action, which did not assert claims against CEI, the Georgia
actions each allege that CEI and the Cox Board breached their fiduciary duties in connection with
the proposed transaction, which plaintiffs allege proposed a purchase price which was below the
fair value of the Cox shares. On August 18, 2004, plaintiffs in the Georgia actions moved for
entry of a case management order to consolidate the Georgia Actions under the caption In re Cox
Communication, Inc. Shareholder Litigation, C.A. No. 2004-CV-89198. On October 19, 2004, CEI and Cox publicly announced that they had entered into a Merger
Agreement pursuant to which the shares of Cox Class A common stock not beneficially owned by CEI
would be proposed to be acquired for $34.75 per share by means of a tender offer and follow-on
merger. On October 18, 2004, prior to the announcement of the Merger Agreement, the parties to the
Delaware action agreed upon and executed a memorandum of understanding. Pursuant to the Delaware
memorandum of understanding, the parties to the Delaware action agreed, subject to the conditions
set forth therein, to enter into a stipulation of settlement, to cooperate in public disclosures
related to the Merger Agreement, and to use their best efforts to gain approval of the proposed
settlement terms by the Delaware court. Also on October 18, 2004, the parties to the Georgia actions entered into a memorandum of
understanding which set forth the agreement by the parties for the dismissal of the Georgia
actions. The Georgia memorandum of understanding provides, among other things, that if the
Delaware actions are dismissed in accordance with the Delaware memorandum of understanding and the
dismissal becomes non-appealable, the parties to the Georgia actions will jointly seek, within two
business days thereof, to effect the dismissal with prejudice of the Georgia actions without
further notice to holders of the Cox shares. Pursuant to the Delaware memorandum of understanding and the Georgia memorandum of
understanding, defendants provided plaintiffs counsel in the Delaware action and the Georgia
actions with confirmatory discovery relating to the Merger Agreement, including additional document
production and 91




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS depositions, and that the parties agreed to suspend all other proceedings in the
actions except any settlement related proceedings in Delaware and Georgia. On November 18, 2004, the court entered a scheduling order in the Delaware action. The
scheduling order preliminarily certified the Delaware action as a class action on behalf of a class
consisting of all record and beneficial holders of Cox shares (other than CEI and its
subsidiaries), from and including August 2, 2004 through and including the date of the consummation
of the merger, and certain persons related to the class members. The defendants in the Delaware
action are excluded from the class. The scheduling order also initially set a settlement hearing
for January 26, 2005 to consider, among other things, whether (i) the Settlement embodied in the
Stipulation is fair to the class, (ii) the Delaware action should be dismissed with prejudice, and
the claims that were settled in the Stipulation of Settlement released, (iii) the class should be
finally certified, and (iv) the attorneys fees sought by plaintiffs counsel in the Delaware
action should be awarded. On January 13, 2005, an individual shareholder and several mutual funds who purportedly were
members of the plaintiff class filed a joint objection to the requested attorneys fees sought by
plaintiffs counsel, but did not object to the proposed settlement itself. The court subsequently
determined to postpone consideration of the objection to the request for attorneys fees, and, at
the January 26, 2005 settlement hearing, the court continued consideration of the settlement to
March 16, 2005, at which time the request for attorneys fees also was to be considered. However,
on February 23, 2005, at the request of the plaintiffs, among others, the court again continued
consideration of the request for attorneys fees (but not the settlement itself) until May 9, 2005. If the Settlement ultimately is not approved by the Delaware court, the Delaware action and
the Georgia actions could proceed and the plaintiffs in those actions could seek the relief sought
in their respective complaints. Accordingly, there can be no assurance that the Settlement, or the
dismissal of the Delaware action and the Georgia actions, will be completed on the terms described
above. If the Settlement is not approved or if the Delaware action or any of the Georgia actions
are not dismissed, the Company intends to continue to defend these actions vigorously. The outcome
of this matter cannot be predicted at this time. Cox and its subsidiaries are parties to various other legal proceedings that are ordinary and
incidental to their businesses. Management does not expect that any of these other currently
pending legal proceedings will have a material adverse impact on Coxs consolidated financial
position, results of operations or cash flows. 92




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19. 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. 20041st
    
    
    2nd
    
    
    3rd
    
    
    4thQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(Millions of Dollars)Revenues
    
    $
    1,540.4
    
    
    $
    1,595.2
    
    
    $
    1,618.1
    
    
    $
    1,671.3Cost of services (excluding
depreciation and amortization)
    
    
    635.8
    
    
    
    644.6
    
    
    
    667.0
    
    
    
    662.4Selling, general and administrative (excluding depreciation and amortization
    
    
    337.3
    
    
    
    334.6
    
    
    
    366.4
    
    
    
    389.1Depreciation and amortization
    
    
    392.1
    
    
    
    397.1
    
    
    
    400.9
    
    
    
    437.0Impairment
on intangible assets

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,415.9Loss on sale of cable system
    
    
    
    
    
    
    5.0
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    175.2
    
    
    
    213.9
    
    
    
    183.8
    
    
    
    (2,233.1
    )Net income (loss) before
cumulative effect of change in
accounting principle
    
    
    57.7
    
    
    
    62.7
    
    
    
    42.0
    
    
    
    (1,327.5
    )Cumulative effect of change in
accounting principle, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,210.2
    )Net (loss) income
    
    $
    57.7
    
    
    $
    62.7
    
    
    $
    42.0
    
    
    $
    (2,537.7
    )
 20031st
    
    
    2nd
    
    
    3rd
    
    
    4thQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(Millions of Dollars)Revenues
    
    $
    1,366.3
    
    
    $
    1,423.9
    
    
    $
    1,460.2
    
    
    $
    1,508.5Cost of services (excluding
depreciation and amortization)
    
    
    579.8
    
    
    
    590.1
    
    
    
    617.0
    
    
    
    604.4Selling, general and administrative (excluding depreciation and amortization)
    
    
    307.1
    
    
    
    301.7
    
    
    
    299.7
    
    
    
    342.2Depreciation and amortization
    
    
    359.3
    
    
    
    364.3
    
    
    
    382.1
    
    
    
    399.8Impairment
on intangible assets
    
    
    25.0
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale of cable system
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    Operating income
    
    
    95.1
    
    
    
    168.3
    
    
    
    161.4
    
    
    
    162.1Net (loss) income
    
    $
    (29.2
    )
    
    $
    117.7
    
    
    $
    (215.1
    ) (a)
    
    $
    (11.2
    )
 93




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COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (a) Net loss for the third quarter of 2003 includes a $450.1 million pre-tax loss on extinguishment
of debt primarily related to a $412.8 million pre-tax loss resulting from the purchase of $1.8
billion aggregate principal amount at maturity of the Discount Debentures pursuant to Coxs offer
to purchase any and all Discount Debentures. 20. Subsequent Events In October 2004, a verdict in the case of Gardner v. Cox Communications, Inc. and Cox
Classic Cable, Inc. in the Probate Court of Galveston County, Texas, assessed damages against
Cox in the amount of $16.4 million, plus pre-judgment interest and attorneys fees totaling
approximately $5.6 million, which arose out of an acquisition by TCA Cable of three cable systems
formerly owned by the plaintiffs. Cox is successor to TCA Cable as a result of Coxs 1999
acquisition of TCA Cable. Coxs motion for a new trial was granted and on February 4, 2005, a
settlement was reached between the parties. A final judgment was entered in the case on February
23, 2005, pursuant to which Cox paid an undisclosed amount to the plaintiffs. Through December 31,
2004, Cox had incurred legal expenses of approximately $2.5 million in defending this action. The
payment pursuant to the judgment and the legal expenses are recorded within Selling, general and
administrative expenses in the accompanying consolidated statements of operations. On March 7, 2005, Cox announced it is exploring a sale of four cable operations serving
approximately 900,000 subscribers. Systems under consideration for sale include West Texas; North
Carolina; Humboldt County, California; and much of Middle America Cox (MAC). 94




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of
Cox Communications, Inc.: We
have audited the accompanying consolidated balance sheets of Cox
Communications, Inc. (Cox) as of December 31, 2004 and 2003, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three years in the period ended December 31,
2004. These consolidated financial statements are the responsibility
of Coxs management.
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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, such consolidated financial statements present fairly, in all material
respects, the financial position of Cox as of December 31, 2004 and 2003, and the
consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally accepted in the United
States of America. As
discussed in Note 5 to the consolidated financial statements,
effective in 2002, Cox changed its method of accounting for goodwill and other intangible assets to conform with
Statement of Financial Accounting Standards No. 142. As discussed in Note 5 to the consolidated
financial statements, effective in 2004, Cox changed its method of
valuing indefinite lived intangible assets other than goodwill to conform with Emerging Issues Task
Force Task Force Topic No. D-108. We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Coxs internal control over financial
reporting as of December 31, 2004, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 16, 2005 expressed an unqualified opinion on managements assessment of the
effectiveness of Coxs internal control over financial reporting and an unqualified opinion
on the effectiveness of Coxs internal control over financial reporting. Atlanta, Georgia
March 16, 2005 95




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Management Report on Internal Control Over Financial Reporting

Cox Communications, Inc.s management is responsible for establishing and maintaining adequate
internal control over financial reporting. Pursuant to the rules and regulations of the Securities
and Exchange Commission, internal control over financial reporting is a process designed by, or
under the supervision of, Coxs principal executive and principal financial officers and effected
by Coxs board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles and includes those
policies and procedures that:



| |  | Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of Cox;                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of Cox are being made only in accordance
with authorizations of management and directors of Cox; and
|
| |  | Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of Coxs assets that could have a material effect on the
financial statements.                                                                                                                       

Management has evaluated the effectiveness of its internal control over financial reporting as of
December 31, 2004 based on the control criteria established in a report entitled Internal
ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on such evaluation, we have concluded that Coxs internal control over financial
reporting is effective as of December 31, 2004.

The registered independent public accounting firm of Deloitte & Touche LLP, as auditors of Coxs
consolidated financial statements, has issued an attestation report on managements assessment of
Coxs internal control over financial reporting, which report is included herein.

/s/
James O. Robbins
James O. Robbins
President and Chief Executive Officer
    
    

/s/
Jimmy W. Hayes
Jimmy W. Hayes
Executive Vice President, Finance
Chief Financial Officer


96



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of
Cox Communications, Inc. We have audited managements assessment, included in the accompanying Management Report on
Internal Control Over Financial Reporting, that Cox Communications,
Inc. (the Cox) maintained
effective internal control over financial reporting as of December 31, 2004, based on the Internal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission. Coxs management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on managements assessment and an
opinion on the effectiveness of Coxs internal control over financial reporting based on
our audit. We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions. A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that Cox maintained effective internal control
over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based
on the criteria established in Internal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our opinion, Cox maintained,
in all material respects, effective internal control over financial reporting as of December 31,
2004, based on the criteria established in Internal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial
statements as of and for the year ended December 31, 2004 of Cox and our report dated
March 16, 2005 97




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##### Table of Contents



expresses an unqualified opinion on those consolidated financial statements and includes an
explanatory paragraph relating to the adoption, effective in 2004, of Emerging Issues Task Force
Topic No. D-108. Atlanta, Georgia
March 16, 2005 98




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. DISCLOSURE CONTROLS AND PROCEDURES Evaluation of Controls and Procedures The Chief Executive Officer and the Chief Financial Officer of Cox (its principal executive
officer and principal financial officer, respectively) have concluded, based on their evaluation as
of December 31, 2004, that Coxs disclosure controls and procedures: are effective to ensure that
information required to be disclosed by Cox in the reports filed or submitted by it under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms; and include controls and procedures
designed to ensure that information required to be disclosed by Cox in such reports is accumulated
and communicated to Coxs management, including the Chief Executive Officer and the Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. Coxs disclosure controls and procedures are designed to provide a reasonable level of
assurance of reaching Coxs desired disclosure control objectives and are effective in reaching
that level of reasonable assurance. Changes in Internal Control.     There
have been no significant changes in Coxs internal controls or
in other factors that could significantly affect internal controls subsequent to the date the Chief Executive
Officer and the Chief Financial Officer carried out their evaluation, other than the migration to a new
financial system that began as of January 1, 2005. The migration, which represents a culmination of more than a year of preparation, testing and training,
is scheduled to take place in planned stages over the course 2005. Implementation of the new
financial system necessarily involves changes to our procedures for control over financial
reporting. Coxs Chief Executive Officer and Chief Financial Officer believe that throughout this
migration process, Cox has maintained internal financial controls sufficient to ensure appropriate
internal control over financial reporting for the year ended December 31, 2004. Managements Report on Internal Control Over Financial Reporting.Managements report on
internal control over financial reporting and the attestation report of Coxs independent auditors
are included in Part II, Item 8. Consolidated Financial Statements and Supplementary Data of this
report under the captions entitled Managements Report on Internal Control Over Financial
Reporting and Report of Independent Registered Public Accounting Firm and are incorporated
herein by this reference. 
 ITEM 9B. OTHER INFORMATION None. 
 Part III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following information regarding the directors and executive officers of Cox, their
principal occupations, employment history and directorships in certain companies is as reported by
the respective director or executive officer. Directors and executive officers of Cox are elected
to serve until they resign or are removed, or are otherwise disqualified to serve, or until their
successors are elected and qualified. Directors 99




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James C. Kennedy, 57, has served as Chairman of the Board of Directors of Cox since May 1994.
Mr. Kennedy has served as Chairman of the Board of Directors and Chief Executive Officer of Cox
Enterprises since January 1988, and prior to that time was Cox Enterprises President and Chief
Operating Officer. Mr. Kennedy joined Cox Enterprises in 1972, and initially worked with Cox
Enterprises Atlanta Newspapers. Mr. Kennedy is Chairman of the Board of Directors of Cox Radio,
Inc., a majority-owned subsidiary of Cox Enterprises, and a director of Flagler Systems, Inc. Mr.
Kennedy holds a B.A. from the University of Denver. G. Dennis Berry, 60, has served as a director of Cox since January 2003. Mr. Berry has served
as President and Chief Operating Officer of Cox Enterprises since October 2000. Previously, he
served as President and Chief Executive Officer of Manheim Auctions, Inc., a wholly-owned
subsidiary of Cox Enterprises, from 1995 through October 2000. Prior to that, Mr. Berry was
publisher of the Atlanta Journal-Constitution, where he held several positions spanning more than
twenty years, including President, Vice President and General Manager, and Advertising Director.
Mr. Berry also serves as a director of Cox Enterprises and Cox Radio, Inc., a majority-owned
subsidiary of Cox Enterprises. Mr. Berry holds a B.A. in journalism from the University of Georgia. Janet M. Clarke, 52, has served as a director of Cox since March 1995. Ms. Clarke is president
of Clarke Littlefield LLC. Previously, she served as Chief Marketing Officer of DealerTrack, Inc.,
where she was employed beginning September, 2002. Prior to that, she served as Executive Vice
President of Young & Rubicam, Inc. and Chairman and Chief Executive Officer, KnowledgeBase
Marketing, Inc., a subsidiary of Young & Rubicam, from 2000 to 2001. Previously, she served as the
Managing Director  Global Database Marketing of Citibank. Prior to joining Citibank in 1997, Ms.
Clarke was Senior Vice President of Information Technology Sector of R.R. Donnelley & Sons Company,
which she joined in 1978. Ms. Clarke is a director of ExpressJet Holdings Inc., eFunds Corporation
and Forbes.com Inc. She is also a Charter Trustee of Princeton University. Ms. Clarke earned a B.A.
from Princeton University and completed the Advanced Management Program at the Harvard Business
School. Robert C. OLeary, 66, has served as a director of Cox since May 1999. Mr. OLeary has served
as Executive Vice President and Chief Financial Officer of Cox Enterprises since December 1999. He
joined Cox in 1982 as Vice President of Finance and later that year was promoted to Senior Vice
President of Finance. He was promoted to Senior Vice President of Finance and Administration of Cox
in 1986, and to Senior Vice President of Operations, Western Group, in 1989. In August 1996, he
transferred to Cox Enterprises, becoming its Senior Vice President and Chief Financial Officer.
Prior to joining Cox, Mr. OLeary was employed by the General Electric Company. Mr. OLeary serves
as a member of the Board of Directors of Cox Enterprises and the Georgia Chapter of the National
Multiple Sclerosis Society, and as a trustee of the Woodruff Arts Center. Mr. OLeary holds a B.A.
and an M.B.A. from Boston College. James O. Robbins, 62, has served as a director of Cox since May 1994. Mr. Robbins has served
as President of Cox since September 1985, and as President and Chief Executive Officer since May
1994. Mr. Robbins joined Cox in September 1983 and has served as Vice President, Cox Cable New York
City and as Senior Vice President, Operations of Cox. Prior to joining Cox, he held management and
executive positions with Viacom Communications, Inc. and Continental Cablevision. Mr. Robbins holds
a B.A. from the University of Pennsylvania and an M.B.A. from the Harvard Business School. Mr.
Robbins serves on the executive committee of C-SPAN, and as a trustee of STI Classic Funds and STI
Classic Variable Trust. Rodney W. Schrock, 45, has served as a director of Cox since July 2000. Mr. Schrock is a
general partner of D-Rock Financial Services, LLC. Previously, he served as President and Chief
Executive Officer of Panasas, Inc. from February 2001 until December 2003. Prior to that, he was
President and Chief Executive Officer of AltaVista Company from January 1999 until October 2000.
Previously, he served as Senior Vice President and Group General Manager of Compaq Computer
Corporations
Consumer Products Group beginning in 1995, and in other management and executive positions
with Compaq beginning in 1987. Mr. Schrock earned a B.S. degree in industrial management from
Purdue University and an M.B.A. from Harvard University. 100




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Andrew J. Young, 72, has served as a director of Cox since March 1995. Mr. Young has served as
Chairman of GoodWorks International L.L.C. since 1998, and was Co-Chairman from January 1997 until
1998. He was Vice Chairman of Law Companies Group, Inc., an engineering and environmental
consulting company, from February 1993 to January 1997, and was Chairman of one if its
subsidiaries, Law International, Inc., from 1989 to February 1993. From 1981 to 1989, Mr. Young was
Mayor of Atlanta, Georgia, and prior to that he served as U.S. Ambassador to the United Nations
under President Jimmy Carter and as a member of the U.S. House of Representatives. Mr. Young was
Co-Chairman of the Atlanta Committee for the Olympic Games for the 1996 Summer Olympics. Mr. Young
holds degrees from Howard University and Hartford Theological Seminary. Executive Officers Christopher J. Bowick, 49, has served as Senior Vice President, Engineering and Chief
Technical Officer since January 2001. Mr. Bowick joined Cox in April 1998 as Vice President,
Technology Development, and was promoted to Senior Vice President, Technology Development in
October 2000. Prior to joining Cox, Mr. Bowick served as Group Vice President and Chief Technology
Officer of Jones Intercable starting September 1991. Before joining Jones Intercable, Mr. Bowick
served in various engineering and technology capacities with Scientific Atlanta since January 1981,
leaving the company as Vice President of Engineering for the Transmission Systems Business
Division. Mr. Bowick is a past director of the Society of Cable Telecommunications Engineers. Mr.
Bowick holds a B.E.E. from the Georgia Institute of Technology and an M.B.A. from the University of
Colorado. Jill Campbell, 45, has served as Senior Vice President, Operations since April 2002. Prior to
that, she served as Vice President, Operations beginning April 2001 and as Vice President and
General Manager of Coxs system in Las Vegas, Nevada from September 1998 to March 2001. Ms.
Campbell joined Cox in 1982 as Director of Communications for Coxs Oklahoma City, Oklahoma system,
where she was promoted to acting General Manager in 1992. She served as Vice President and General
Manager of Coxs Bakersfield, California system from 1992 to 1996, and of Coxs Bakersfield and
Santa Barbara, California systems from 1996 to April 1997, and was Vice President of Customer
Operations of Coxs Phoenix, Arizona system from April 1997 to September 1998. Ms. Campbell holds a
B.A. from the University of Nevada and an M.B.A. from Oklahoma City University. Dallas S. Clement, 39, has served as Senior Vice President, Strategy and Development since
August 2000. Prior to that, he served as Vice President and Treasurer from January 1999 to July
2000. Mr. Clement joined Cox in 1990 as a Policy Analyst and was promoted to Manager of Investment
Planning in January 1993, Director of Finance in August 1994, and Treasurer in December 1996. From
April 1995 to December 1996, Mr. Clement served as Assistant Treasurer for Cox Enterprises and Cox.
Prior to joining Cox, Mr. Clement held analyst positions with Merrill Lynch and the Program on
Information Resources Policy. Mr. Clement is a member of the Board of Directors of Simtrol, Inc.
Mr. Clement holds an A.B. from Harvard College and an M.S. from Stanford University. Susan W. Coker, 42, has served as Vice President and Treasurer since January 2004. Previously
she served as Treasurer beginning January 2002, and prior to that, she served as Assistant
Treasurer beginning December 1999. Ms. Coker joined Cox in 1995 as Director of Financial Planning
for Broadband Services, and was promoted to Director of Financial Planning & Analysis in 1999. Ms.
Coker holds a B.A. in economics from Vanderbilt University and an M.B.A. from Duke University. Mae A. Douglas, 53, has served as Senior Vice President and Chief People Officer since January
2002. Prior to that, she served as Vice President and Chief People Officer beginning May 2000, and
as Regional Vice President of Advertising Sales for CableRep (now Cox Media, Inc.) from 1999 to
2000. Ms. Douglas joined Cox in 1995 as Manager of Employee Relations for CableRep, and was
promoted to
Director of Employee Relations in 1998. Ms. Douglas holds a B.A. from the University of North
Carolina. John M. Dyer, 51, has served as Senior Vice President, Operations since September 1999 and was
previously Senior Vice President, Mergers & Acquisitions and Chief Accounting Officer. Prior to
that, he served as Vice President of Accounting and Financial Planning beginning April 1997. Mr.
Dyer joined Cox 101




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Enterprises in 1977 as an internal auditor and moved to the former Cox Cable
Communications, Inc. in 1980 as a financial analyst, later serving as Manager of Capital Asset
Planning, and Director of Operations before being recruited by Times Mirror Cable as a Regional
Vice President of Operations, later serving as Vice President of Operations. Mr. Dyer rejoined Cox
as Vice President of Financial Planning and Analysis when Cox acquired Times Mirror in 1995. Mr.
Dyer holds a B.B.A. in accounting from West Georgia College, and an M.B.A. from Georgia State
University. Patrick J. Esser, 48, has served as Executive Vice President and Chief Operating Officer since
January 2004. Previously he served as Executive Vice President, Operations since February 2001.
Prior to that, he served as Senior Vice President, Operations beginning January 2000, and as Vice
President of Operations beginning May 1999. Previously, he served as Vice President, Advertising
Sales from 1991 to 1999. Mr. Esser joined Cox in 1979 as Director of Programming for Coxs Hampton
Roads, Virginia cable system and in 1981 was part of a management team that launched Coxs local
advertising sales subsidiary, CableRep (now Cox Media, Inc.). A graduate of the University of
Northern Iowa, Mr. Esser holds a B.A. and an M.A. in communications media. William J. Fitzsimmons, 52, has served as Vice President of Accounting and Financial Planning
and Analysis, and Chief Accounting Officer, since April 2001. Prior to that, he served as Vice
President of Financial Operations for Coxs system in San Diego, California from 1995 to March
2001. Mr. Fitzsimmons joined Cox in 1993 as Director of Finance for Coxs Pensacola, Florida
system, and was promoted to Director of Finance in San Diego, 1995. Prior to joining Cox, he served
in various finance and executive positions with Time Warner Cable beginning in 1982. Mr.
Fitzsimmons is a director of the Broadcast Cable Financial Management Association and a member of
the National Cable & Telecommunications Association accounting committee. Mr. Fitzsimmons holds a
B.S. in Business Administration from Merrimack College and an M.B.A. from the University of
Colorado. James A. Hatcher, 53, has served as Senior Vice President, Legal and Regulatory Affairs since
July 1999. Prior to that, he served as Vice President, Legal and Regulatory Affairs beginning
January 1995. Mr. Hatcher was named Vice President and General Counsel of Cox in 1992. He joined
Cox in 1979 and held various positions, including Secretary and General Counsel for Cox and Cox
Enterprises prior to 1992. Mr. Hatcher also serves as Coxs Chief Compliance Officer. Mr. Hatcher
holds a B.A. from Furman University and a J.D. from the South Carolina School of Law. Scott A. Hatfield, 40, has served as Senior Vice President and Chief Information Officer since
July 1999. Mr. Hatfield joined Cox in 1995 as Vice President and Chief Information Officer. Prior
to joining Cox, Mr. Hatfield served as Vice President and Chief Information Officer of Ohmeda, Inc.
since 1994. Before joining Ohmeda, Mr. Hatfield served in various advanced information technology
positions with General Dynamics, Ford Motor Company and Xerox Corporation. Mr. Hatfield holds a
B.S. in computer science from Western Michigan University and an M.S. in computer science from
Oakland University. Jimmy W. Hayes, 52, has served as Executive Vice President, Finance and Chief Financial
Officer of Cox since July 1999. Mr. Hayes was named Senior Vice President, Finance and
Administration and Chief Financial Officer in January 1999. Prior to that time, he served as Senior
Vice President, Finance and Chief Financial Officer of Cox beginning January 1992. Mr. Hayes joined
Cox Enterprises in 1980 as Accounting Manager, was promoted to Assistant Controller in May 1981,
and Controller in January 1982. Mr. Hayes was named Vice President, Finance of Cox in September
1989. Prior to joining Cox Enterprises, Mr. Hayes was an Audit Manager with Price Waterhouse &
Company. Mr. Hayes holds
a B.A. and an M.A.C.C. from the University of Georgia and has completed the Program for
Management Development (PMD) at the Harvard Business School. Claus F. Kroeger, 53, has served as Senior Vice President, Operations since July 1999. Prior
to that, he served as Vice President, Operations beginning October 1994. Mr. Kroeger joined Cox in
1976 as a manager trainee. He has held various positions in the field and served as Director of
Operations and Director of Business Development of Cox. From 1990 to 1994, he served as Vice
President and General Manager of Cox Cable Middle Georgia. Mr. Kroeger holds a B.A. from the
University of Alabama and an M.S. in telecommunications from the University of Colorado. 102




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Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, referred to as the Exchange Act,
requires Coxs executive officers and directors, and persons who own more than 10% of the Class A
Common Stock, to file reports of ownership and changes in ownership of the Class A Common Stock
with the Securities and Exchange Commission and the New York Stock Exchange. Based solely on a
review of copies of such reports and written representations from the reporting persons, Cox
believes that during the year ended December 31, 2004 its executive officers, directors and greater
than 10% stockholders filed on a timely basis all reports due under Section 16(a). Audit Committee The Board of Directors has a separately-designated Audit Committee. The members of the Audit
Committee are Janet M. Clarke (Chair), Rodney W. Schrock, and Andrew J. Young. The Board of
Directors has affirmatively determined that the members of the Audit Committee are independent
for purposes of Section 303A of the Corporate Governance Standards of the New York Stock Exchange,
or the NYSE, and Section 10A(m)(3) of the Exchange Act. The Board based these determinations
primarily on the basis of information provided by these directors in response to questionnaires
regarding employment and compensation history, business affiliations, and family and other
relationships. In addition, the Board has determined that the Committee meets the financial
expertise standards set forth in the Corporate Governance Standards and has determined that Janet
M. Clarke and Rodney W. Schrock each qualify as an audit committee financial expert as defined by
the SEC. Compensation of Directors The directors who are not employed by Cox or its affiliates, Janet M. Clarke, Rodney W.
Schrock and Andrew J. Young, are paid an annual retainer fee of $75,000, which recognizes the
overall level of commitment required for service on the Board of Directors. In addition, these
directors are reimbursed for expenses and receive a meeting fee of $1,000 for every board meeting
and committee meeting attended. For 2004, the annual retainer fee was paid one half in cash, and
one half in shares of Class A Common Stock pursuant to the Cox Communications, Inc. Restricted
Stock Plan for Non-Employee Directors. In connection with the December 2004 going-private merger,
all shares of outstanding under the plan were cancelled and converted into the right to receive the
merger consideration of $34.75 per share. Those non-employee directors who reside in a Cox market
also receive free broadband communications services from Cox, consistent with the free service
provided by Cox to its employees at its operating locations. The directors of Cox who are employees
of Cox or its affiliates do not receive any compensation for serving on the Board of Directors. Code of Conduct Cox has adopted a Code of Ethics for Senior Financial Officers, which applies to Coxs chief
executive officer, chief financial officer, chief accounting officer, and controller. A copy of
this Code of Ethics is available on Coxs website, at http://www.cox.com. You can obtain a printed
copy by writing to the Corporate Secretary, Cox Communications, Inc., 6205 Peachtree Dunwoody Road,
Atlanta, Georgia 30328. Any amendments to this Code of Ethics, as well as any waivers that are
required to be disclosed
under applicable rules of the Securities and Exchange Commission or the New York Stock
Exchange, will be posted on Coxs website. NYSE Certification Coxs Class A Common Stock was listed on the NYSE prior to the December 2004 going-private
merger, and its Exchangeable Subordinated Discount Debentures due 2020 are currently listed on the
NYSE. For years beginning with 2004, the NYSE revised its listing standards to include
comprehensive corporate governance standards. As part of these revised listing standards, the NYSE
requires the Chief Executive Officer of each listed company to certify to the NYSE annually, after
the companys annual 103




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##### Table of Contents



meeting of stockholders, that his or her company is in compliance with the
NYSEs corporate governance listing standards. In accordance with the NYSEs procedures, shortly
after Coxs 2004 annual meeting of stockholders, James O. Robbins, Coxs President and Chief
Executive Officer, certified to the NYSE that he was unaware of any violation of the NYSEs
corporate governance listing standards. 
 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information for the years ended December 31, 2002,
2003, and 2004 concerning the cash and non-cash compensation earned by or awarded to the Chief
Executive Officer and the other four most highly compensated executive officers of Cox who were
executive officers as of December 31, 2004. Summary Compensation Table Long-Term CompensationAwardsName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted
    
    
    Securities
    
    
    All OtherPrincipal
    
    
    
    
    
    Annual Compensation
    
    
    Stock
    
    
    Underlying
    
    
    CompensationPosition
    
    Year
    
    
    Salary
    
    
    Bonus
    
    
    Awards (b)
    
    
    Options
    
    
    (a)James O. RobbinsPresident & Chief Executive Officer2004
    
    
    $
    1,272,000
    
    
    $
    813,226
    
    
    $
    2,383,504
    
    
    
    284,470
    
    
    $
    6,0002003
    
    
    
    1,200,000
    
    
    
    1,680,000
    
    
    
    2,592,297
    
    
    
    298,210
    
    
    
    6,0002002
    
    
    
    1,117,900
    
    
    
    1,126,657
    
    
    
    
    
    
    
    400,620
    
    
    
    6,000Patrick J. EsserExecutive Vice President and Chief Operating
Officer2004
    
    
    $
    700,000
    
    
    $
    383,597
    
    
    $
    1,047,137
    
    
    
    130,000
    
    
    $
    6,0002003
    
    
    
    615,060
    
    
    
    738,072
    
    
    
    1,034,748
    
    
    
    118,800
    
    
    
    6,0002002
    
    
    
    540,000
    
    
    
    594,000
    
    
    
    
    
    
    
    105,000
    
    
    
    6,000Jimmy W. HayesExecutive Vice President, Finance and Chief
Financial Officer2004
    
    
    $
    600,000
    
    
    $
    273,998
    
    
    $
    815,442
    
    
    
    100,000
    
    
    $
    2003
    
    
    
    574,750
    
    
    
    574,750
    
    
    
    878,571
    
    
    
    101,310
    
    
    
    2002
    
    
    
    550,000
    
    
    
    550,000
    
    
    
    
    
    
    
    105,000
    
    
    
    John M. DyerSenior Vice President, Operations2004
    
    
    $
    475,000
    
    
    $
    228,000
    
    
    $
    499,466
    
    
    
    68,000
    
    
    $
    6,0002003
    
    
    
    439,930
    
    
    
    439,930
    
    
    
    524,007
    
    
    
    71,670
    
    
    
    6,0002002
    
    
    
    410,000
    
    
    
    410,000
    
    
    
    
    
    
    
    65,000
    
    
    
    6,000Claus F. KroegerSenior Vice President, Operations2004
    
    
    $
    465,000
    
    
    $
    223,200
    
    
    $
    488,270
    
    
    
    68,000
    
    
    $
    6,0002003
    
    
    
    430,000
    
    
    
    430,000
    
    
    
    498,078
    
    
    
    71,670
    
    
    
    6,0002002
    
    
    
    390,000
    
    
    
    390,000
    
    
    
    
    
    
    
    55,000
    
    
    
    6,000
   (a)
    Reflects amounts contributed pursuant to the Cox Communications, Inc. Savings and
Investment Plan and amounts credited under the Cox Communications, Inc. Executive Savings Plus
Restoration Plan.  (b)
    All shares of restricted stock were converted into the right to receive $34.75 per share as
part of the December 2004 going-private merger. Long-Term Incentives 104




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In general, Cox provided long-term incentives to the named executive officers through awards
under the LTIP. As a result of the December 2004 going-private transaction, Cox does not expect to
issue additional awards under the LTIP. The following table discloses for the named executive
officers information regarding options granted under the LTIP during the fiscal year ended December
31, 2004. Number of
    
    
    Percent ofSecurities
    
    
    Total OptionsUnderlying
    
    
    Granted to
    
    
    
    
    
    
    
    
    
    
    Present ValueOptions
    
    
    Employees in
    
    
    Exercise Price
    
    
    Expiration
    
    
    as of GrantName
    
    Granted (a)
    
    
    2004
    
    
    Per Share
    
    
    Date
    
    
    Date (b)James O. Robbins
    
    
    284,470
    
    
    
    6.20
    %
    
    $
    31.27
    
    
    
    3/15/2014
    
    
    $
    2,648,416Patrick J. Esser
    
    
    130,000
    
    
    
    2.83
    %
    
    
    31.27
    
    
    
    3/15/2014
    
    
    
    1,210,300Jimmy W. Hayes
    
    
    100,000
    
    
    
    2.18
    %
    
    
    31.27
    
    
    
    3/15/2014
    
    
    
    931,000John M. Dyer
    
    
    68,000
    
    
    
    1.48
    %
    
    
    31.27
    
    
    
    3/15/2014
    
    
    
    633,080Claus F. Kroeger
    
    
    68,000
    
    
    
    1.48
    %
    
    
    31.27
    
    
    
    3/15/2014
    
    
    
    633,080
   (a)
    Stock options have a ten-year term and become exercisable over a five-year period, with 60%
becoming exercisable three years from the date of grant and an additional 20% becoming
exercisable in each of the next two years thereafter.  (b)
    The present value of the options granted during 2004 is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: expected volatility of
22.90%, no dividend yield, risk-free interest rate of 3.15% and expected life of 6 years. The following table sets forth information related to the number and values of options held at
December 31, 2004 by the named executive officers, one of whom exercised options in 2004. 2004 Option Exercises and Year-End Option Values Value of Unexercised In-The-Number of Securities Underlying
    
    
    Money Options/SARs atShares
    
    
    
    
    
    
    Unexercised Options at
    
    
    December 31, 2004Acquired on on
    
    
    Value
    
    
    December 31, 2004
    
    
    
    
    
    
    
    UnexercisableName
    
    Exercise (a)
    
    
    Realized (a)
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    (b)James O.
Robbins
    
    
    1,150,000
    
    
    $
    24,993,910
    
    
    
    167,782
    
    
    
    1,058,488
    
    
    $
    
    
    
    $
    2,361,722Patrick J. Esser
    
    
    47,000
    
    
    
    751,687
    
    
    
    60,300
    
    
    
    380,800
    
    
    
    
    
    
    
    998,880Jimmy W. Hayes
    
    
    99,000
    
    
    
    1,525,748
    
    
    
    79,000
    
    
    
    338,310
    
    
    
    
    
    
    
    814,026John M. Dyer
    
    
    24,000
    
    
    
    278,921
    
    
    
    50,600
    
    
    
    225,070
    
    
    
    
    
    
    
    566,322Claus F. Kroeger
    
    
    76,000
    
    
    
    1,137,264
    
    
    
    49,200
    
    
    
    215,470
    
    
    
    
    
    
    
    566,322
   (a)
    The shares acquired on exercise and value realized includes vested in-the-money options
that were cancelled in connection with the December 2004 going-private merger in
exchange for a gross cash payment equal to the difference between the merger price of $34.75
per share and the exercise price for each such option, multiplied by the number of such
options. The aggregate number of non-qualified options cancelled and the aggregate value of
such non-qualified options, based on the merger price of $34.75, are as follows: James O.
Robbins 1,050,000 shares ($22,237,320); Patrick J. Esser 47,000 shares ($751,687); Jimmy W.
Hayes 99,000 shares ($1,525,748); John M. Dyer 24,000 shares ($278,921); and Claus F. Kroeger
76,000 shares ($1,137,264).  (b)
    The unexercisable value represents the number of shares of Class A common stock subject to
unvested options, times the difference between the $34.75 price paid for all issued and
outstanding shares of Class A common stock tendered and cancelled as part of the December
2004 going-private transaction 105




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and the exercise price for such unvested options: March 17,
2003 ($30.15 per share); and March 15, 2004 options ($31.27 per share). Retirement Plans Cox Communications, Inc. Pension Plan. The Cox Communications, Inc. Pension Plan is a tax
qualified, defined benefit pension plan. The Pension Plan covers all eligible employees of Cox and
any of its affiliates who have adopted the Pension Plan, including the named executive officers.
The Pension Plan is funded through a tax exempt trust, into which contributions are made as
necessary based on an actuarial funding analysis. The Pension Plan provides for the payment of benefits upon retirement, early retirement,
death, disability and termination of employment. Participants become vested in their benefits under
the Pension Plan after completing five years of vesting service. Generally, the Pension Plan
benefit is determined under a formula based on a participants compensation and years of benefit
accrual service. Participants may elect from several optional forms of benefit distribution. Cox Executive Supplemental Plan. The Cox Executive Supplemental Plan is a non-qualified
defined benefit pension plan providing supplemental retirement benefits to certain management
employees of CEI and certain of its affiliates, including the named executive officers. The
Executive Supplemental Plan is administered by the Management Committee of CEI, whose members are
appointed by the CEI Board of Directors. This committee designates management employees to
participate in the Executive Supplemental Plan. The Executive Supplemental Plan monthly benefit formula, payable at normal retirement, is 2.5%
of a participants average compensation, as calculated in the Executive Supplemental Plan,
multiplied by the participants years of benefit accrual service credited under the Executive
Supplemental Plan. The normal retirement benefit will not exceed 50% of a participants average
compensation at retirement. Benefits payable with respect to early retirement are reduced to
reflect an earlier commencement date. Special disability, termination of employment and death
benefits also are provided. All benefits payable under the Executive Supplemental Plan are reduced
by benefits payable to the participant under the Pension Plan. Participants may elect among several
forms of benefit distributions. The Executive Supplemental Plan is not funded currently by CEI. Cox will make annual payments
to CEI arising from its employees participation in this plan as benefits are paid to these
employees. However, such benefits will be paid from the general funds of Cox Enterprises. The following table provides estimates of annual retirement income payable to certain
executives under the Pension Plan and the Executive Supplemental Plan. Pension Plan And Executive Supplemental Plan Table Years of ServiceFinal Average
    
    
    
    
    
    
    
    
    
    
    
    
    
    20 orCompensation (5 years)
    
    5
    
    
    10
    
    
    15
    
    
    more$150,000
    
    $
    18,750
    
    
    $
    37,500
    
    
    $
    56,250
    
    
    $
    75,000250,000
    
    
    31,250
    
    
    
    62,500
    
    
    
    93,750
    
    
    
    125,000350,000
    
    
    43,750
    
    
    
    87,500
    
    
    
    131,250
    
    
    
    175,000450,000
    
    
    56,250
    
    
    
    112,500
    
    
    
    168,750
    
    
    
    225,000550,000
    
    
    68,750
    
    
    
    137,500
    
    
    
    206,250
    
    
    
    275,000650,000
    
    
    81,250
    
    
    
    162,500
    
    
    
    243,750
    
    
    
    325,000750,000
    
    
    93,750
    
    
    
    187,500
    
    
    
    281,250
    
    
    
    375,000
 The named executive officers have been credited with the following years of service: Mr.
Robbins, 21 years; Mr. Esser, 23 years; Mr. Kroeger, 28 years; Mr. Hayes, 24 years; and Mr. Dyer,
27 years. The Pension Plan and the Executive Supplemental Plan define compensation generally to
include all 106




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remuneration to an employee for services rendered, including base pay, bonuses, special
forms of pay and certain employee deferrals. Certain forms of additional compensation, including
severance, moving expenses, extraordinary bonuses, long-term incentive compensation and
contributions to employee benefit plans, are excluded from the definition of compensation. The
Pension Plan credits compensation only up to the limit of covered compensation under Section
401(a)(17) of the Internal Revenue Code; the Executive Supplemental Plan does not impose this limit
on covered compensation. The definition of covered compensation under the Pension Plan and the
Executive Supplemental Plan, in the aggregate, is not substantially different from the amounts
reflected in the Annual Compensation columns of the Summary Compensation Table. The estimates of
annual retirement benefits reflected in the Pension Plan and Executive Supplemental Plan Table are
based on payment in the form of a straight-life annuity and are determined after offsetting
benefits payable from Social Security, as provided under the terms of the Pension Plan and the
Executive Supplemental Plan. Compensation Committee Interlocks and Insider Participation The Members of the Compensation Committee during 2004 were Rodney W. Schrock (Chair), Janet M.
Clarke and Andrew J. Young. Each member of the Compensation Committee is independent for
purposes of Section 303A of the Corporate Governance Standards of the NYSE. In
February 2005, the Compensation Committee was reconstituted, and
James C. Kennedy, G. Dennis Berry
and Robert C. OLeary were appointed as the members of the
Compensation Committee. Each
Messrs. Kennedy, Berry and OLeary are executive officers of
CEI, and Mr. Kennedys aunt and mother, as trustees, control
substantially all of the common stock of CEI. 
  Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Security Ownership of Certain Beneficial Owners The following table provides information as of January 31, 2005 with respect to the shares of
Class A Common Stock and Class C Common Stock beneficially owned by each person known by Cox to own
more than 5% of any class of the outstanding voting securities of Cox. Percent ofClass A
    
    
    
    
    
    
    Class C
    
    
    
    
    
    
    Vote of AllName of
    
    Common
    
    
    Percent of
    
    
    Common
    
    
    Percent of
    
    
    Classes ofBeneficial Owner
    
    Stock
    
    
    Class
    
    
    Stock
    
    
    Class
    
    
    Voting StockCox Enterprises,
Inc. (a)(b)(c)
    
    
    556,170,238
    
    
    
    100
    %
    
    
    27,597,792
    
    
    
    100
    %
    
    
    100
    %
   (a)
    The business address for Cox Enterprises is 6205 Peachtree Dunwoody Road, Atlanta, Georgia
30328.  (b)
    Of the shares of common stock of Cox that are beneficially owned by Cox Enterprises,
531,189,708 shares of Class A Common Stock and 25,696,470 shares of Class C Common Stock are
held of record by Cox Holdings, Inc. The remaining 24,980,530 shares of Class A Common Stock
and 1,901,322 shares of Class C Common Stock beneficially owned by Cox Enterprises are held of
record by Cox DNS, Inc. All of the outstanding capital stock of Cox Holdings and of Cox DNS is
beneficially owned by Cox Enterprises. The beneficial ownership of the outstanding capital
stock of Cox Enterprises is described in footnote (c) below. The Class C Common Stock is
convertible on a share for share basis into Class A Common Stock at the option of the holder.  (c)
    There are 604,231,338 shares of common stock of Cox Enterprises outstanding, with respect to
which (i) Barbara Cox Anthony, as trustee of the Anne Cox Chambers Atlanta Trust, exercises
beneficial ownership over 174,949,266 shares (29.0%); (ii) Anne Cox Chambers, as trustee of
the Barbara Cox Anthony Atlanta Trust, exercises beneficial ownership over 174,949,266 shares
(29.0%); (iii) Barbara Cox Anthony, Anne Cox Chambers and Richard L. Braunstein, as trustees
of the Dayton Cox Trust A, exercise beneficial ownership over 248,237,055 shares (41.0%); and
(iv) 269 individuals and other trusts exercise beneficial ownership over the remaining
6,095,751 shares (1.0%), including 43,734 shares held beneficially and of record by Garner
Anthony, the husband of Barbara Cox Anthony (as to which Barbara Cox Anthony disclaims
beneficial ownership). Thus, Barbara Cox Anthony and Anne Cox Chambers, who are sisters,
together exercise sole or shared beneficial ownership over 598,135,587 shares (99.0%) of the
common stock of Cox Enterprises. Barbara Cox Anthony and Anne Cox 107




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Chambers are the mother and aunt, respectively, of James C. Kennedy, the Chairman of the Board of Directors and Chief
Executive Officer of Cox Enterprises and the Chairman of the Board of Directors of Cox. Security Ownership of Management Beneficial ownership of the Class A Common Stock of Cox and the common stock of Cox
Enterprises by Coxs directors and the executive officers named in the Summary Compensation Table
below, and by all directors and executive officers as a group as of January 31, 2005, is shown in
the following table. None of such persons, individually or in the aggregate, owns 1% or more of the
Class A Common Stock of Cox or the outstanding common stock of Cox Enterprises. Number of Shares ofNumber of Shares of
    
    
    Cox EnterprisesName of Beneficial Owner
    
    Class A Common Stock
    
    
    Common StockJames C. Kennedy
    
    
    
    
    
    
    546,813
    (a)G. Dennis Berry
    
    
    
    
    
    
    131,293Janet M. Clarke
    
    
    
    
    
    
    John M. Dyer
    
    
    102,500
    (b)
    
    
    Patrick J. Esser
    
    
    136,800
    (c)
    
    
    546Jimmy W. Hayes
    
    
    163,000
    (d)
    
    
    13,245Claus F. Kroeger
    
    
    95,400
    (e)
    
    
    4,329Robert C. OLeary
    
    
    
    
    
    
    147,682James O. Robbins
    
    
    456,748
    (f)
    
    
    91,212Rodney W. Schrock
    
    
    
    
    
    
    Andrew J. Young
    
    
    
    
    
    
    All directors and
executive officers as a
group (19 persons,
including those named
above)
    
    
    _954,448
    (g)
    
    
    939,974
   (a)
    Mr. Kennedy owns of record 546,813 shares of the common stock of Cox Enterprises. Sarah K.
Kennedy, Mr. Kennedys wife and trustee of the Kennedy Trusts, exercises beneficial ownership
over an aggregate of 22,140 shares of the common stock of Cox Enterprises. In addition, as
described above, Barbara Cox Anthony and Anne Cox Chambers, the mother and aunt, respectively,
of Mr. Kennedy, together exercise sole or shared beneficial ownership over 598,135,587 shares
of the common stock of Cox Enterprises, and both are members of the Board of Directors of Cox
Enterprises. Also, Mr. Kennedys children are the beneficiaries of a trust, of which R. Dale
Hughes and Mr. Kennedy are co-trustees, that beneficially owns 16,155 shares of the common
stock of Cox Enterprises. Mr. Kennedy disclaims beneficial ownership of all such shares, other
than the 546,813 shares included in the table.  (b)
    Consists of shares subject to stock options that are exercisable within 60 days.(c)
    Consists of shares subject to stock options that are exercisable within 60 days.(d)
    Consists of shares subject to stock options that are exercisable within 60 days.(e)
    Consists of shares subject to stock options that are exercisable within 60 days.(f)
    Consists of shares subject to stock options that are exercisable within 60 days.(g)
    Consists of shares subject to stock options that are exercisable within 60 days. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The
information required by this Item is incorporated by reference to
Note 15. Transactions with Affiliated Companies in
Part II, Item 8, Consolidated Financial Statements
and Supplementary Data. 108




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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table summarizes the fees billed by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively referred to as Deloitte &
Touche) for professional services during fiscal year 2004 and fiscal year 2003: 2004
    
    
    2003Audit Fees
    
    $
    4,374,825
    
    
    $
    3,239,475Audit-related fees
    
    
    279,575
    
    
    
    2,173,545Tax fees
    
    
    1,471,410
    
    
    
    2,897,359All other fees
    
    
    
    
    
    
    262,167
 The amounts shown for audit fees were for the audit of Coxs consolidated financial
statements, quarterly reviews of interim financial information, and comfort letters, statutory and
regulatory audits, consents, reports, and other services related to SEC matters. The amounts shown for
audit-related fees were for SEC advisory services not connected with the audit or quarterly
reviews, Sarbanes-Oxley Section 404 assistance, and employee benefit plan audits. The amounts shown
for tax fees were for assistance with tax compliance matters and tax provision review, consultation
on income tax and transaction tax matters, tax review of fixed asset matters, and planning related
to cost recovery and property tax matters. The amounts shown for other fees were for process review
of accounting policies and manual procedures. The Audit Committee utilizes a policy pursuant to which the audit, audit-related, and
permissible non-audit services to be performed by the independent auditor are pre-approved prior to
the engagement to perform such services. Pre-approval is generally provided annually, and any
pre-approval is detailed as to the particular service or category of services and is generally
limited by a maximum fee amount. The independent auditor and management are required to
periodically report to the Audit Committee regarding the extent of services provided by the
independent auditor in accordance with this pre-approval, and the fees for the services performed
to date. The Audit Committee may delegate its pre-approval authority to the Chairman or any other
member of the Audit Committee, and any approvals made pursuant to this delegated authority normally
will be reported to the Audit Committee at its next meeting. None of the services described in the
preceding paragraph were pre-approved pursuant to the de minimis exception provided in Section
10A(i)(1)(B) of the Exchange Act. 
 PART IV 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES  (a)
    Documents incorporated by reference or filed with this Report  (1)
    Listed below are the financial statements which are filed as part of this
report:  
    Consolidated Balance Sheets at December 31, 2004 and 2003;
    Consolidated Statements of Operations for the Years Ended December 31, 2004,
2003 and 2002;
    Consolidated Statements of Shareholders Equity for the Years Ended December
31, 2004, 2003 and 2002; 110




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
    Consolidated Statements of Cash Flows for the Years Ended December 31, 2004,
2003 and 2002; and
    Notes to Consolidated Financial Statements.  (2)
    No financial statement schedules are required to be filed by Items 8 and
14(d) of this report because they are not required or are not applicable, or the
required information is set forth in the applicable financial statements or notes
thereto.(3)
    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): ExhibitNumber
    
    Description3.1 
    
    Certificate of Incorporation of Cox Communications, Inc., as
amended (incorporated by reference to exhibit 3.1 to Coxs
Registration Statement on Form S-4, file no. 333-122050, filed on
January 14, 2005).3.2 
    
    Bylaws of Cox Communications, Inc. (incorporated by reference to
exhibit 3.2 to Coxs Registration Statement on Form S-4, file no.
333-122050, filed on January 14, 2005).4.1 
    
    Indenture, dated as of June 27, 1995, between Cox Communications,
Inc. and The Bank of New York, as Trustee, relating to the debt
securities (incorporated by reference to exhibit 4.1 to Coxs
Registration Statement on Form S-1, file no. 33-99116, filed on
November 8, 1995) (global notes representing Coxs senior unsecured
non-convertible debt have not been filed or incorporated by
reference in accordance with Item 601(b)(4)(iii) of Regulation S-K,
and Cox agrees to furnish copies of such instruments to the
Securities and Exchange Commission upon request).4.2 
    
    Third Supplemental Indenture, dated as of April 19, 2000, by and
between Cox Communications, Inc. and The Bank of New York, as
Trustee (incorporated by reference to exhibit 4.1 to Coxs Current
Report on Form 8-K, filed on April 24, 2000).4.3 
    
    Seventh Supplemental Indenture, dated as of December 15, 2004,
between Cox Communications, Inc. and The Bank of New York Trust
Company, N.A., as Trustee (incorporated by reference to exhibit 4.1
to Coxs Current Report on Form 8-K, filed on December 16, 2004).4.4 
    
    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) to TCAs Registration
Statement on Form S-3, file no. 333-32015, filed on July 24, 1997).4.5 
    
    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 on August
25, 1999).4.6 
    
    Second Supplemental Indenture, dated as of December 1, 2003,
between Cox Classic Cable, Inc., CoxCom, Inc. and JPMorgan Chase
Bank (as successor to Chase Bank of Texas, National Association),
as Trustee (incorporated by reference to exhibit 4.10 to Coxs
Annual Report on Form 10-K, filed on February 27, 2004).4.7 
    
    Registration Rights Agreement, dated as of December 15, 2004, by
and among Cox Communications, Inc. and Citigroup Global Markets,
J.P. Morgan Securities Inc., Lehman Brothers Inc. and Wachovia
Capital Markets, LLC, as representatives of the Initial Purchasers
for Coxs Floating Rate Notes due 2007 (incorporated by reference
to exhibit 4.2 to Coxs Current Report on Form 8-K, filed on
December 16, 2004).4.8 
    
    Registration Rights Agreement, dated as of December 15, 2004, by
and among Cox Communications, Inc. and Citigroup Global Markets,
J.P. Morgan Securities Inc., Lehman Brothers Inc. and Wachovia
Capital Markets, LLC, as representatives of the Initial Purchasers
for Coxs 4.625% Notes due 2010 (incorporated by reference to
exhibit 4.3 to Coxs Current Report on Form 8-K, filed on December
16, 2004).
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ExhibitNumber
    
    Description4.9 
    
    Registration Rights Agreement, dated as of December 15, 2004, by
and among Cox Communications, Inc. and Citigroup Global Markets,
J.P. Morgan Securities Inc., Lehman Brothers Inc. and Banc of
America Securities LLC, as representatives of the Initial
Purchasers for Coxs 5.450% Notes due 2014 (incorporated by
reference to exhibit 4.4 to Coxs Current Report on Form 8-K, filed
on December 16, 2004).10.1 
    
    Amended and Restated Five-Year Credit Agreement, dated as of June
4, 2004 and amended and restated as of December 3, 2004, among Cox
Communications, Inc., the lenders party thereto and JPMorgan Chase
Bank, N.A., as administrative agent for the lenders, Bank of
America, N.A., as co-syndication agent, Wachovia Bank, National
Association, as co-syndication agent, J.P. Morgan Securities Inc.,
as co-lead arranger and joint bookrunner, and Banc Of America
Securities, LLC, as co-lead arranger and joint bookrunner
(incorporated by reference to exhibit 10.2 to Coxs Current Report
on Form 8-K, filed on December 3, 2004).10.2 
    
    Credit Agreement, dated December 3, 2004, among Cox Communications,
Inc., the lenders party thereto and JPMorgan Chase Bank, N.A., as
administrative agent for the lenders, Citicorp North America, Inc.
and Lehman Commercial Paper Inc., as syndication agents, and
Citigroup Global Markets Inc., Lehman Brothers Inc. and J.P. Morgan
Securities Inc., as joint lead arrangers and joint bookrunners
(incorporated by reference to exhibit 10.1 to Coxs Current Report
on Form 8-K, filed on December 3, 2004).10.3 
    
    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) (management contract or compensatory plan).10.4 
    
    Cox Communications, Inc. Second Amended and Restated Long-Term
Incentive Plan (incorporated by reference to Appendix B of Coxs
Definitive Proxy Statement on Schedule 14A, filed with the
Commission on April 4, 2003) (management contract or compensatory
plan).10.5 
    
    Cox Communications, Inc. Stock Option Plan for Non-Employees
(management contract or compensatory plan) (incorporated by
reference to exhibit 10.15 to Coxs Annual Report on Form 10-K,
filed March 31, 2003).10.6 
    
    Revolving Promissory Notes, dated as of May 2, 2003 (incorporated
by reference to exhibit 10.1 to Coxs Quarterly Report on Form
10-Q, filed August 8, 2003).10.7 
    
    Cox Communications, Inc. Savings Plus Restoration Plan (management
contract or compensatory plan) (incorporated by reference to
exhibit 10.6 to Coxs Registration Statement on Form S-4, file no.
333-122050, filed on January 14, 2005).10.8 
    
    Amendment No. 1 to Cox Communications, Inc. Savings Plus
Restoration Plan (management contract or compensatory plan)
(incorporated by reference to exhibit 10.7 to Coxs Registration
Statement on Form S-4, file no. 333-122050, filed on January 14,
2005).10.9 
    
    Share Conversion Agreement, dated as of June 23, 2004, by and among
(1) Brian L. Greenspun, Trustee of the Unified Credit Trust of the
Declaration of Trust for the Greenspun Family, dated December 6,
1988, G.C. Investments, LLC (f/k/a G.C. Investments, a Limited
Liability Company), Greenspun Legacy Limited Partnership, and 3G
Capital, LLC, and (2) Cox Communications, Inc. (incorporated by
reference to exhibit 10.2 to Coxs Current Report on Form 8-K,
filed on June 23, 2004).12 
    
    Computation of Ratio of Earnings to
Fixed Changes21 
    
    Subsidiaries of Cox Communications, Inc. (incorporated by reference
to exhibit 21.1 to Coxs Registration Statement on Form S-4, file
no. 333-122050, filed on January 14, 2005).23 
    
    Consent of Deloitte & Touche LLP.24 
    
    Powers of Attorney (included on the signatures page to this report).31.1 
    
    Certification of Chief Executive Officer, pursuant to Rule 13a-14
of the Securities Exchange Act of 1934, as amended.31.2 
    
    Certification of Chief Financial Officer, pursuant to Rule 13a-14
of the Securities Exchange Act of 1934, as amended.32.1 
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2 
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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SIGNATURES Pursuant to the requirements of Section 13 or15(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. ROBBINSJames O. RobbinsPresident and Chief Executive OfficerDate: March 16, 2005 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. Signature
    
    Title
    
    Date/s/   JAMES C. KENNEDY

James C. Kennedy
    
    Chairman of the Board of
Directors
    
    March 16, 2005/s/   JAMES O. ROBBINS

James O. Robbins
    
    President and Chief Executive
Officer; Director
(principal executive officer)
    
    March 16, 2005/s/   JIMMY W. HAYES

Jimmy W. Hayes
    
    Executive Vice President, Finance
Chief Financial Officer
(principal financial officer)
    
    March 16, 2005/s/   WILLIAM J. FITZSIMMONS

William J. Fitzsimmons
    
    Vice President of Accounting
& Financial Planning
(principal accounting officer)
    
    March 15, 2005/s/   JANET M. CLARKE

Janet M. Clarke
    
    Director
    
    March 14, 2005/s/   G. DENNIS BERRY

G. Dennis Berry
    
    Director
    
    March 14, 2005/s/  RODNEY W. SCHROCK

Rodney W. Schrock
    
    Director
    
    March 14, 2005/s/   ROBERT C. OLEARY

Robert C. OLeary
    
    Director
    
    March 16, 2005/s/   ANDREW J. YOUNG

Andrew J. Young
    
    Director
    
    March 16, 2005
 113




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(COX LOGO)COMMUNICATIONS
www.cox.com 114