COX COMMUNICATIONS, INC.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

(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


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.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

COX COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS


	December 31
	2004		2003
	(Thousands of Dollars)
Assets
Current assets
Cash	$	76,339	$	83,841
Accounts and notes receivable, less allowance for doubtful accounts of $26,482 and $26,175		394,540		370,832
Other current assets		136,386		131,106

Total current assets		607,265		585,779


Net plant and equipment		7,942,699		7,907,561
Investments		1,171,647		109,380
Intangible assets		19,329,452		15,697,495
Goodwill		106,889		—
Other noncurrent assets		95,789		117,361


Total assets	$	29,253,741	$	24,417,576


Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued expenses	$	797,553	$	778,708
Other current liabilities		339,742		450,553
Cash obligation to untendered shareholders		483,603		—
Current portion of long-term debt		59,962		48,344
Amounts due to CEI		5,573		3,980

Total current liabilities		1,686,433		1,281,585


Deferred income taxes		8,326,574		6,388,970
Other noncurrent liabilities		148,733		164,070
Long-term debt, less current portion		12,965,773		6,963,456

Total liabilities		23,127,513		14,798,081


Commitments and contingencies (Note 18)

Minority interest in equity of consolidated subsidiaries		—		139,519

Shareholders’ equity
Series 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		—		4,836
Class 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		—		598,482
Class 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		—		27,598
Class 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		4,545,635
Retained earnings.		1,318,218		4,500,621
Accumulated other comprehensive income		55		15,548
Class A common stock in treasury, at cost: 0 and 5,523,020 shares		—		(212,744	)

Total shareholders’ equity		6,126,228		9,479,976


Total liabilities and shareholders’ equity	$	29,253,741	$	24,417,576

See notes to consolidated financial statements.

COX COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31
	2004			2003			2002
	(Thousands of Dollars)
Revenues	$	6,424,990		$	5,758,868		$	5,038,598
Costs and expenses
Cost of services (excluding depreciation and amortization)		2,609,788			2,391,310			2,112,155
Selling, general and administrative expenses (excluding depreciation and amortization)		1,427,391			1,250,686			1,147,204
Depreciation and amortization		1,627,064			1,505,475			1,357,906
Impairment of intangible assets		2,415,889			25,000			—
Loss (gain) on sale and exchange of cable systems		5,021			(469	)		3,916

Operating (loss) income		(1,660,163	)		586,866			417,417
Interest expense		(429,058	)		(467,753	)		(549,858	)
(Loss) gain on derivative instruments, net		(127	)		(22,567	)		1,125,588
Gain (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.

COX COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


																			Class A
																Accumulated			Common
	Series A									Additional						Other			Stock in
	Preferred			Common Stock						Paid-in			Retained			Comprehensive			Treasury,						Comprehensive
	Stock			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	)		9,675,791


Net 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												27,457
Issuance of stock for settlement of FELINE PRIDES					18,738						631,261												649,999
Shares 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	)		9,685,090


Net 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												8,786
Shares 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	)	$	9,479,976


Net 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												71,476
Shares 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												231,619
Cancellation 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	)		628,078
Elimination 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												1,523,302
Change 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.

COX COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31
	2004			2003			2002
	(Thousands of Dollars)
Cash flows from operating activities
Net 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			1,357,906
Impairment of intangible assets		2,415,889			25,000			—
Loss (gain) on sale and exchange of cable systems		5,021			(469	)		3,916
Deferred income taxes		(827,650	)		(327,668	)		205,373
Loss (gain) on derivative instruments, net		127			22,567			(1,125,588	)
(Gain) loss on investments, net		(28,364	)		(165,194	)		1,317,158
Equity in net losses of affiliated companies		3,509			8,098			19,890
Loss on extinguishment of debt		7,006			450,069			787
Minority interest, net of tax		1,203			6,116			37,272
Other, net		(994	)		108,698			182,321
Cumulative effect of change in accounting principle, net of tax		1,210,190			—			—
(Increase) decrease in accounts and notes receivable		(14,661	)		(15,922	)		52,918
Decrease in other assets		532			41,328			60,502
Increase 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			1,772,839


Cash flows from investing activities
Capital 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			1,345,952
Decrease (increase) in amounts due from CEI		—			21,109			(7,864	)
Proceeds for the sale of cable systems		53,076			822			12,574
Acquisition 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 activities
Revolving 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			985,546
Repayment 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			24,291
Increase 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	)		141,844
Cash at beginning of period		83,841			228,704			86,860

Cash at end of period	$	76,339		$	83,841		$	228,704

See notes to consolidated financial statements.

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 at Beginning of		Charged to Costs		Write-offs, Net of		Balance at End of
	Period		and Expenses		Recoveries		Period

			(Thousands of Dollars)
Year Ended December 31
2002	$	33,514	$	87,447	$	87,354	$	33,607
2003		33,607		74,150		81,582		26,175
2004		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

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 Securities and 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

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 ending
	December 31
	2004			2003			2002
Video		60	%		64	%		68	%
Data		17	%		15	%		11	%

COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	For the year ending
	December 31
	2004			2003			2002
Telephony		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 31
	2004			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

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.

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 Compensation and 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	$	8,405,713
Transaction fees and expenses		23,336

Total purchase price		8,429,049
Less: 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:

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:

This unaudited pro forma financial information does not reflect any operating efficiencies and cost savings that Cox may achieve.

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

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

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, 2003
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Value		Amortization		Value		Value		Amortization		Value
					(Thousands of Dollars)
Intangible assets subject to amortization	$	659,967	$	30,743	$	629,224	$	58,526	$	21,855	$	36,671
Trade name						380,844						—
Franchise value						18,319,384						15,660,824
Goodwill						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

COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31
	2004		2003
	(Thousands of Dollars)
Investments stated at fair value:
Available-for-sale	$	339	$	66,376
Derivative instruments		939		1,269
Equity method investments		1,159,290		31,088
Investments stated at cost		11,079		10,647


Total 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 31
	2004		2003		2002
	(Millions of Dollars)
Realized gains	$	29.1	$	181.8	$	112.0
Realized 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

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.

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 Share
	Year Ended December 31							Year Ended December 31
	2004		2003		2002			2004		2003		2002
					(Thousands of Dollars)
Revenues	$	3,338,217	$	2,291,103	$	2,069,282		$	769,917	$	547,304	$	477,294
Operating 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 Information
	December 31
	2004		2003
	(Thousands of Dollars)
Current assets	$	1,287,914	$	1,001,136
Noncurrent assets		2,667,590		2,351,827
Current liabilities		1,159,360		1,644,316
Noncurrent 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 31
	2004			2003			2002
	(Thousands of Dollars)
Current
Federal	$	(96,395	)	$	263,658		$	(292,716	)
State		7,535			(4,289	)		(25,658	)

Total current		(88,860	)		259,369			(318,374	)

COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Year Ended December 31
	2004			2003			2002
	(Thousands of Dollars)
Deferred
Federal		(590,702	)		(318,475	)		192,621
State		(236,948	)		(9,193	)		12,752

Total deferred		(827,650	)		(327,668	)		205,373

Net 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 31
	2004			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	)		4,645
Change in state tax rate, net		(59,931	)		12,981			(13,033	)
Adjustments and settlements, net		(48,259	)		5,400			19,700
Tax 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 31
	2004			2003
	(Thousands of Dollars)
Plant and equipment	$	(1,551,003	)	$	(1,363,762	)
Intangible assets		(6,324,831	)		(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			34,393


Net 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

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 31
	2004		2003
	(Thousands of Dollars)
Revolving credit facilities	$	1,650,000	$	—
Commercial paper		96,142		302,283
Term loan		2,000,000		—
Medium-term notes		264,429		364,359
Notes and debentures		8,765,359		6,078,904
Exchangeable Subordinated Debentures due November 15, 2029		—		7,846
Exchangeable Subordinated Debentures due March 14, 2030		—		107
Exchangeable Subordinated Discount Debentures due April 19, 2020		19,546		18,185
Capitalized lease obligations		209,576		217,992
Other		20,683		22,124

		13,025,735		7,011,800
Less current portion		59,962		48,344


Total 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

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 Repayments under 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

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

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

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

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 31
	2004			2003
Notional amount (in thousands)	$	1,375,000		$	1,750,000
Weighted-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

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 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 31
	2004			2003			2002
	(Millions of Dollars)
Equity collar arrangements	$	—		$	—		$	268.8
Zero-coupon debt		—			(18.7	)		359.3
Exchangeable subordinated debentures		—			0.5			583.1
Stock 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 method of 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

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

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 31
	2004				2003
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
			(Millions of Dollars)
Fixed-rate notes and debentures	$	8,760.0	$	9,092.6	$	6,683.4	$	7,323.0
Exchangeable 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

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 31
	Pension Benefits						Other Benefits
	2004			2003			2004			2003
				(Thousands of Dollars)
Change in Benefit Obligation
Benefit obligation at beginning of year	$	293,392		$	216,243		$	46,568		$	—
Plan initiation		—			—			—			37,685
Service cost		31,797			25,540			5,484			4,301
Interest cost		20,823			17,348			3,381			2,794
Actuarial loss		33,175			37,316			6,455			2,555
Benefits 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			46,568


Change in Plan Assets
Fair 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			1,279
Employer contributions		10,000			55,915			3,725			13,575
Benefits 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			14,087


Funded status of plan		(62,535	)		(18,687	)		(42,133	)		(32,481	)
Unrecognized actuarial losses		46,555			58,386			6,560			5,258
Unrecognized prior service cost		822			1,590			—			—


Prepaid (accrued) benefit cost	$	(15,158	)	$	41,289		$	(35,573	)	$	(27,223	)

COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Year Ended December 31
	Pension Benefits					Other Benefits
	2004			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 31
	2004						2003						2002
	Pension 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/A
Interest cost		20,823			3,381			17,348			2,794			13,739			N/A
Expected return on plan assets		(24,758	)		(1,493	)		(19,418	)		—			(16,287	)		N/A
Prior service cost amortization		215			—			215			—			215			N/A
Actuarial (gain) loss amortization		3,862			198			1,567			(89	)		—			N/A
Transition amount amortization		—			—			—			—			(153	)		N/A


Net 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 31
	2004						2003
	Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits
Discount rate		6.00	%		5.75	%		6.25	%		6.25	%
Rate of compensation increase		4.25	%		N/A			4.00	%		4.00	%

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 31
	2004						2003						2002
	Pension			Other			Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits			Benefits			Benefits
Discount rate		6.25	%		6.25	%		6.75	%		6.75	%		7.25	%		N/A
Rate of compensation increase		4.00	%		N/A			4.50	%		N/A			5.00	%		N/A
Expected 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		Other
	Benefits		Benefits
	(Thousands of Dollars)
2005	$	3,832	$	1,539
2006		4,696		1,646
2007		5,740		1,912
2008		7,081		2,803
2009		8,849		3,662
2010-2014		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:

COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Percentage of Plan Assets						Target
	At December 31						Allocations
	2004			2003			2005
Equity 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.

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					2002
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding at beginning of year		14,994,603			34.26		10,860,838		$	36.09		7,541,036		$	33.66
Granted		4,589,898			31.29		5,177,530			30.18		4,043,053			41.23
Exercised		(2,865,840	)		16.38		(268,455	)		12.44		(157,520	)		17.71
Canceled		(728,722	)		37.64		(775,310	)		40.29		(565,731	)		45.51

COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	2004				2003				2002
			Weighted-				Weighted-				Weighted-
			Average				Average				Average
			Exercise				Exercise				Exercise
	Shares		Price		Shares		Price		Shares		Price
Outstanding at end of year		15,989,939		$36.46		14,994,603		34.26		10,860,838		36.09


Options exercisable at year-end		2,341,343		47.33		3,881,550	$	24.72		3,310,409	$	17.35

Weighted-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 Exercisable
			Weighted-						Weighted-
			Average		Weighted-				Average		Weighted-
			Remaining		Average				Remaining		Average
Range of	Number		Contractual		Exercise		Number		Contractual		Exercise
Exercise Prices	Outstanding		Life		Price		Exercisable		Life		Price
$25.19 – $31.27		9,114,452		8.7	$	30.68		0		0.0	$	0.00
32.13 – 39.66		345,380		6.9		35.18		133,656		4.6		37.38
40.06 – 43.45		3,425,799		7.0		41.56		101,539		5.6		41.57
45.31 – 51.44		3,104,308		5.6		47.93		2,106,148		5.6		48.24


		15,989,939		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.

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.

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	$	13,245

Cash transferred to CEI		92,061
Net operating expense allocations and reimbursements		(84,197	)


Intercompany due from CEI, December 31, 2002		21,109

Cash transferred to CEI		221,117
Net operating expense allocations and reimbursements		(246,206	)


Intercompany due to CEI, December 31, 2003		(3,980	)

Cash transferred to CEI		288,821
Net 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.

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.

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 31
	2004			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	)		582,863

Total 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 31
	2004			2003
	(Thousands of Dollars)
Plant and equipment
Land	$	114,529		$	107,677
Buildings and building improvements		647,197			590,658
Transmission and distribution plant		11,899,827			11,032,896
Other equipment		1,009,771			919,055
Capital leases		455,209			423,565
Construction in progress		154,180			159,575

Plant and equipment, at cost		14,280,713			13,233,426
Less accumulated depreciation		(6,338,014	)		(5,325,865	)

Net plant and equipment	$	7,942,699		$	7,907,561

COX COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31
	2004		2003
	(Thousands of Dollars)
Other current assets
Inventory	$	68,221	$	49,137
Prepaid assets		31,974		37,600
Deferred income tax asset		33,988		34,393
Other		2,203		9,976

Total other current assets	$	136,386	$	131,106


Other current liabilities
Deposits and advances		103,800		92,008
Income tax payable		121,269		215,926
Other		114,673		142,619

Total other current liabilities	$	339,742	$	450,553

Supplemental Disclosure of Non-cash Investing and Financing Activities


	Year Ended December 31
	2004		2003		2002
	(Thousands of Dollars)
Significant non-cash transactions
Settlement of FELINE PRIDES	$	—	$	—	$	649,999
Conversion of Series A preferred stock to Class A common stock		365,635		—		—

Additional cash flow information
Cash paid for interest	$	379,090	$	374,030	$	409,396
Cash 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 December 31, 2004, Cox believes the likelihood that it will be required to perform under these indemnities is remote and that the maximum potential future payments that Cox could be required to make under these indemnifications are not determinable at this time, as any future payments would be dependent on the type

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

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

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

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.

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.


	2004
	1^st		2^nd		3^rd		4^th
	Quarter		Quarter		Quarter		Quarter
			(Millions of Dollars)
Revenues	$	1,540.4	$	1,595.2	$	1,618.1	$	1,671.3

Cost of services (excluding depreciation and amortization)		635.8		644.6		667.0		662.4
Selling, general and administrative (excluding depreciation and amortization		337.3		334.6		366.4		389.1
Depreciation and amortization		392.1		397.1		400.9		437.0
Impairment on intangible assets		—		—		—		2,415.9
Loss 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	)


	2003
	1^st			2^nd		3^rd			4^th
	Quarter			Quarter		Quarter			Quarter
	(Millions of Dollars)
Revenues	$	1,366.3		$	1,423.9	$	1,460.2		$	1,508.5

Cost of services (excluding depreciation and amortization)		579.8			590.1		617.0			604.4
Selling, general and administrative (excluding depreciation and amortization)		307.1			301.7		299.7			342.2
Depreciation and amortization		359.3			364.3		382.1			399.8
Impairment on intangible assets		25.0			—		—			—
Gain on sale of cable system		—			0.5		—			—

Operating income		95.1			168.3		161.4			162.1


Net (loss) income	$	(29.2	)	$	117.7	$	(215.1	) (a)	$	(11.2	)

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).

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 Framework issued 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.

/s/ Deloitte & Touche LLP

Atlanta, Georgia
March 16, 2005

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.

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 Framework issued 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 Framework issued 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 Framework issued 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

• 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):


Exhibit
Number		Description
3.1 —		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).


Exhibit
Number		Description
4.9 —		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 Charges (incorporated by reference to exhibit 12 to Cox’s Annual Report on Form 10-K, filed March 16, 2005).

21 —		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 of the original Form 10-K).

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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Cox Communications, Inc. has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.

COX COMMUNICATIONS, INC.

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

Date: March 17, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this amended 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

*	Chairman of the Board of Directors	March 17, 2005
James C. Kennedy

	President and Chief Executive	March 17, 2005
/s/ James O. Robbins	Officer; Director
James O. Robbins	(principal executive officer)

	Executive Vice President, Finance	March 17, 2005
/s/ Jimmy W. Hayes	Chief Financial Officer
Jimmy W. Hayes	(principal financial officer)

	Vice President of Accounting	March 17, 2005
/s/ William J. Fitzsimmons	& Financial Planning
William J. Fitzsimmons	(principal accounting officer)

*	Director	March 17, 2005
Janet M. Clarke

*	Director	March 17, 2005
G. Dennis Berry

*	Director	March 17, 2005
Rodney W. Schrock

*	Director	March 17, 2005
Robert C. O’Leary

*	Director	March 17, 2004
Andrew J. Young

* POWER OF ATTORNEY

Jimmy W. Hayes, by signing his name hereto, does sign this document on behalf of each of the persons indicated above for whom he is attorney-in-fact pursuant to a power of attorney duly executed by such person and filed with the Securities and Exchange Commission.

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


	Page
PART I

Consolidated Balance Sheets		1
Consolidated Statements of Operations		2
Consolidated Statements of Shareholders’ Equity		3
Consolidated Statements of Cash Flows		4
Notes to Consolidated Financial Statements		5
Report of Independent Registered Public Accounting Firm		44
Management’s Report on Internal Controls Over Financial Reporting		45
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting		46

PART IV

Exhibits and Financial Statement Schedules		48

Signatures		51
EX-23 CONSENT OF DELOITTE & TOUCHE LLP
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO


	(Thousands of Dollars)
Current assets	$	247,718
Net plant and equipment		3,165,983
Intangible assets:
Customer relationships (estimated useful life of 6 years)		583,781
Trade name (indefinite useful life)		380,844
Franchise value (indefinite useful life)		11,343,927
Goodwill		106,889
Other assets		1,171,853

Total assets required		17,000,995	(a)

Current liabilities		564,104
Long-term debt		2,523,080
Deferred income taxes		5,481,394
Other liabilities		3,368

Total liabilities assumed		8,571,946	(b)

Aggregate purchase price	$	8,429,049	(a)-(b)

•		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.

	•	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.


	/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

	•	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;

	•	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:



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