COX COMMUNICATIONS, INC.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005


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

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 whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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, par value $0.01 per share, outstanding as of October 31, 2005.

Cox Communications, Inc.

Form 10-Q
For the Three and Nine Months Ended September 30, 2005

Table of Contents


		Page
	Part I — Financial Information

Item 1.	Condensed Consolidated Financial Statements		2

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of perations		21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		30

Item 4.	Controls and Procedures		31

	Part II — Other Information

Item 1.	Legal Proceedings		31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		31

Item 3.	Defaults Upon Senior Securities		32

Item 4.	Submission of Matters to a Vote of Security Holders		32

Item 5.	Other Information		32

Item 6.	Exhibits		32
EX-21 SUBSIDIARIES OF COX COMMUNICATIONS, INC.
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

Preliminary Note

This quarterly report on Form 10-Q is for the three and nine month periods ended September 30, 2005. This quarterly report modifies and supersedes documents filed prior to this quarterly report. The SEC allows Cox to “incorporate by reference” information that Cox files with it, which means that Cox can disclose important information to you by referring you directly to those documents. Information incorporated by reference is considered to be part of this quarterly report. In addition, information that Cox files with the SEC in the future will automatically update and supersede information contained in this quarterly report. In this quarterly report, “Cox,” refers to Cox Communications, Inc. and its subsidiaries, unless the context requires otherwise.

Part I — Financial Information

Item 1. Condensed Consolidated Financial Statements

Cox Communications, Inc.

Condensed Consolidated Balance Sheets


	September 30		December 31
	2005		2004
	*(unaudited)*
	(Thousands of Dollars)
Assets
Current assets
Cash	$	67,989	$	76,339
Accounts and notes receivable, less allowance for doubtful accounts of $26,928 and $26,482		466,603		394,540
Other current assets		194,829		136,386

Total current assets		729,421		607,265


Net plant and equipment		7,700,822		7,942,699
Investments		1,196,917		1,171,647
Intangible assets		18,645,133		19,329,452
Goodwill		106,889		106,889
Other noncurrent assets		63,366		95,789


Total assets	$	28,442,548	$	29,253,741


Liabilities and shareholder’s equity
Current liabilities
Accounts payable and accrued expenses	$	890,882	$	797,553
Other current liabilities		302,027		339,742
Cash obligation to untendered shareholders		9,895		483,603
Current portion of long-term debt		47,107		59,962
Amounts due to CEI		36,735		5,573

Total current liabilities		1,286,646		1,686,433


Deferred income taxes		8,048,651		8,326,574
Other noncurrent liabilities		151,586		148,733
Long-term debt, less current portion		13,129,263		12,965,773

Total liabilities		22,616,146		23,127,513


Commitments and contingencies (Note 11)

Shareholder’s equity
Class A common stock, $0.01 par value; 671,000,000 shares authorized; shares issued and outstanding: 556,170,238		5,562		5,562
Class C common stock, $0.01 par value; 62,000,000 shares authorized; shares issued and outstanding: 27,597,792		276		276
Additional paid-in capital		4,807,643		4,802,117
Retained earnings		1,012,809		1,318,218
Accumulated other comprehensive income		112		55

Total shareholder’s equity		5,826,402		6,126,228


Total liabilities and shareholder’s equity	$	28,442,548	$	29,253,741

See notes to condensed consolidated financial statements.

Cox Communications, Inc.

Condensed Consolidated Statements of Operations


	Three Months						Nine Months
	Ended September 30						Ended September 30
	2005			2004			2005			2004
				*(unaudited)*
				(Thousands of Dollars)
Revenues	$	1,755,174		$	1,618,059		$	5,235,887		$	4,753,656
Costs and expenses
Cost of services (excluding depreciation and amortization)		703,296			666,924			2,094,680			1,947,367
Selling, general and administrative expenses (excluding depreciation and amortization)		370,484			366,452			1,114,104			1,038,336
Depreciation and amortization		424,203			400,871			1,321,603			1,190,051
Impairment of intangible assets		614,111			—			614,111			—
Loss on sale of cable systems		—			—			—			5,021

Operating (loss) income		(356,920	)		183,812			91,389			572,881
Interest expense		(177,642	)		(96,998	)		(512,791	)		(289,201	)
(Loss) gain on investments, net		(6,406	)		(204	)		(9,127	)		28,931
Loss on extinguishment of debt		—			—			(13,019	)		(7,006	)
Other, net		3,514			(1,474	)		3,068			(3,295	)

(Loss) income before income taxes, minority interest and equity in net losses of affiliated companies		(537,454	)		85,136			(440,480	)		302,310
Income tax (benefit) expense		(189,211	)		41,813			(139,836	)		137,878

(Loss) income before minority interest and equity in net		(348,243	)		43,323			(300,644	)		164,432
losses of affiliated companies
Minority interest, net of tax		—			(631	)		—			(1,203	)
Equity in net losses of affiliated companies, net of tax of $1,574, $398, $3,097 and $441, respectively		(1,952	)		(732	)		(4,765	)		(884	)

Net (loss) income	$	(350,195	)	$	41,960		$	(305,409	)	$	162,345

See notes to condensed consolidated financial statements.

Cox Communications, Inc.

Condensed Consolidated Statements of Cash Flows


	Nine Months
	Ended September 30
	2005			2004
	*(unaudited)*
	(Thousands of Dollars)
Cash flows from operating activities
Net (loss) income	$	(305,409	)	$	162,345
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,321,603			1,190,051
Impairment of intangible assets		614,111			—
Loss on sale of cable system		—			5,021
Deferred income taxes		(273,773	)		121,478
Loss on extinguishment of debt		13,019			7,006
Loss (gain) on investments, net		9,127			(28,931	)
Minority interest, net of tax		—			1,203
Equity in net losses of affiliated companies, net of tax		4,765			884
Other, net		(384	)		11,350
Increase in accounts and notes receivable		(47,397	)		(14,343	)
(Increase) decrease in other assets		(45,214	)		4,595
Increase in accounts payable and accrued expenses		23,787			6,108
Decrease in taxes payable		(35,962	)		(16,108	)
Decrease in other liabilities		(43,262	)		(26,925	)

Net cash provided by operating activities		1,235,011			1,423,734


Cash flows from investing activities
Capital expenditures		(1,027,001	)		(1,008,745	)
Investments in affiliated companies		(44,003	)		(17,356	)
Proceeds from the sale and exchange of investments		—			70,230
Proceeds from the sale of cable systems		—			53,076
Acquisition of minority interest		—			(153,016	)
Other, net		45,222			43,766

Net cash used in investing activities		(1,025,782	)		(1,012,045	)


Cash flows from financing activities
Revolving credit facilities borrowings, net		350,000			—
Commercial paper borrowings, net		269,337			203,732
Repayment of debt		(479,941	)		(562,664	)
Payments to acquire Cox’s former public stock		(473,708	)		—
Proceeds from exercise of stock options		—			3,347
Increase in amounts due to CEI		31,162			8,601
Other, net		85,571			(11,233	)

Net cash used in financing activities		(217,579	)		(358,217	)


Net (decrease) increase in cash		(8,350	)		53,472
Cash at beginning of period		76,339			83,841

Cash at end of period	$	67,989		$	137,313

See notes to condensed consolidated financial statements.

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2005

1. Organization and Basis of Presentation

Cox Communications, Inc. (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 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. In connection with the consummation of the joint tender offer and related follow-on merger, Cox was merged with a CEI subsidiary, with Cox as the surviving corporation. Accordingly, at December 31, 2004 and September 30, 2005, Cox was a wholly-owned subsidiary of CEI. In this report, the going-private transaction refers to the joint tender offer and the follow-on merger collectively.

The accompanying unaudited interim condensed consolidated financial statements of Cox have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments considered necessary for the fair presentation of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Cox’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2004.

2. Summary of Significant Accounting Policies

The following is a summary of certain significant accounting policies. For a detailed description of all of Cox’s significant accounting policies, see Note 2. “Summary of Significant Accounting Policies and Other Items” contained in Cox’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2004.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2005 or any other interim period.

Stock Compensation Plans

At September 30, 2005, Cox had one stock-based compensation plan for employees, a Long-Term Incentive Plan (LTIP). Cox has not made any awards under the LTIP in 2005 and does not expect to make awards under the LTIP in the future. At September 30, 2004, Cox had the LTIP and an Employee Stock Purchase Plan (ESPP). Both of these plans are more fully described in Cox’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2004. Cox accounted for these plans under the intrinsic value method, which follows the

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

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 was reflected in net income with respect to options. Further, the ESPP was a noncompensatory plan under APB Opinion No. 25, and, as such, no compensation cost was recognized with respect to the ESPP. Cox recognized compensation cost related to restricted stock awards granted under the LTIP, as the exercise price of the awards was less than the market value of the underlying former public stock on the grant date. There were no restricted stock awards outstanding during the nine months ended September 30, 2005.

The following table illustrates the effect on net income if Cox had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, and SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. 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: weighted average expected volatilities at each grant date averaging 22.9%, 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%.


	Three Months Ended
	September 30
	2005			2004
Net (loss) income, as reported	$	(350,195	)	$	41,960
Add: Stock-based compensation, as reported		—			1,306
Deduct: Total stock-based compensation determined under fair value based method for all awards, net of tax		(42	)		(8,131	)

Pro forma net (loss) income	$	(350,237	)	$	35,135


	Nine Months Ended
	June 30
	2005			2004
Net (loss) income, as reported	$	(305,409	)	$	162,345
Add: Stock-based compensation, as reported		—			3,330
Deduct: Total stock-based compensation determined under fair value based method for all awards, net of tax		(5,896	)		(23,232	)

Pro forma net (loss) income	$	(311,305	)	$	142,443

Other Compensation Plans

On March 17, 2005, Cox adopted the Cox Communications, Inc. 2005 Performance Plan. Each participant in the Performance Plan has been assigned a target award under the Performance Plan. The performance goal for the Performance Plan is the amount of Cox’s cumulative operating cash flow in excess of its cumulative capital expenditures measured over the measurement period. For this purpose, the measurement period generally covers the period from January 1, 2005 through December 31, 2009. Cox recognizes the related expense ratably over the service period. The maximum award payable under the Performance Plan is equal to 200% of a participant’s target award, and the maximum award payable under the Performance Plan to any participant who terminates employment other than for reason of retirement, disability,

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

death or involuntary termination of employment solely as a result of the consummation of certain transactions in which assets are sold by Cox or its affiliates is equal to 100% of a participant’s target award. The minimum award payable under the Performance Plan is zero. The earned award then is multiplied by the participant’s vested percentage in the award based on continual employment with Cox and its affiliates to determine the actual amount of the payment. If a participant’s employment is terminated on account of cause, then no benefit shall be paid under the Performance Plan. All distributions of awards under the Performance Plan will be in the form of a lump sum cash payment.

The cost of awards made under the Performance Plan is charged to selling, general and administrative expense over the applicable vesting periods. Amounts charged to expense by Cox under the Performance Plan were $10.6 million and $21.2 million for the three and nine months ended September 30, 2005, respectively.

During the second quarter of 2005, certain Cox executives and key employees became participants in the Cox Enterprises, Inc. Unit Appreciation Plan (CEI UAP). The CEI UAP provides for payment of benefits in the form of cash to certain executives and key employees generally five years after the date of award. Unit benefits are based upon the excess, if any, of the fair value of a share of Cox Enterprises’ common stock on the date five years after the effective date of award over a base amount as of the effective date of such award. Management determines fair values by utilizing the services of independent appraisers. The CEI UAP provides for a maximum unit benefit of 150% of the base amount and benefits vest over the five-year period following the date of award.

The cost of awards made under the CEI UAP is charged to selling, general and administrative expense over the applicable vesting periods. Amounts charged by Cox to expense under the CEI UAP were $0.3 million and $3.0 million for the three and nine months ended September 30, 2005, respectively.

Recently Issued Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS No. 154). This Statement replaces APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in an accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and error corrections occurring in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not anticipated to have a material effect on Cox’s financial position or results of operations.

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

conditional on a future event that may or may not be within the control of the entity. Such an obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 is effective for Cox no later than December 31, 2005. Cox is currently assessing the impact of FIN 47 on its consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29 (SFAS No. 153). The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions (APB No. 29), is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB Opinion No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 is effective for such exchange transactions occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not anticipated to have a material effect on Cox’s financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123 (Revised), Share-Based Payment (SFAS 123 (R)). This statement replaces SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 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. As issued, SFAS No. 123 (R) would have been effective for interim periods beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission (SEC) amended the compliance date for SFAS No. 123 (R) to the beginning of the next fiscal year that begins after June 15, 2005. Cox is currently assessing the impact of this statement on its consolidated financial statements.

3. Going-Private Transaction

On December 8, 2004, the going-private transaction was completed, and Cox became a wholly owned subsidiary of CEI. The aggregate purchase price (exclusive of fees and expenses) was approximately $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 borrowings under lines of credit and the issuance of senior notes of varying maturities.

Approximately 50.2 million shares of common stock were not tendered and, consequently, were converted into the right to receive $34.75 per share in cash, without interest, and cancelled as part of the merger that followed the closing of the tender offer. As of September 30, 2005, Cox had a remaining cash obligation to purchase the untendered shares of approximately $9.9 million, which is reflected as Cash obligation to untendered shareholders in the accompanying condensed consolidated balance sheet.

CEI 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 condensed consolidated financial statements of Cox. As a result, the net tangible and intangible assets of Cox at September 30, 2005 and 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. These initial purchase price allocations were based on preliminary estimated fair values of the net tangible and intangible assets as of the acquisition date and may be adjusted within one year of the purchase date for changes in estimates of the fair value of assets acquired and

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

liabilities assumed based on the results of an ongoing independent appraisal process expected to be completed during 2005.

4. Investments


	September 30		December 31
	2005		2004
	(Thousands of Dollars)
Investments stated at fair value:
Available-for-sale	$	428	$	339
Derivative instruments		—		939
Equity method investments		1,191,355		1,159,290
Investments stated at cost		5,134		11,079


Total investments	$	1,196,917	$	1,171,647

Investments Stated at Fair Value

The aggregate cost of Cox’s investments stated at fair value at September 30, 2005 and December 31, 2004 was $0.3 million and $1.6 million. Gross unrealized gains on investments were $0.1 million at September 30, 2005 and December 31, 2004.

Gross realized gains and losses on investments were as follows:


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2005		2004		2005		2004
			(Thousands of Dollars)
Realized gains	$	—	$	—	$	2	$	29,135
Realized losses		6,406		204		9,129		204

Derivative instruments classified within investments are comprised of certain warrants to purchase shares of publicly-traded and privately-held entities, as further described in Note 7. “Derivative Instruments and Hedging Activities.”

Sprint Corporation. In March 2004, Cox sold 0.1 million shares of Sprint Corporation’s PCS Group (Sprint PCS) preferred stock for aggregate net proceeds of approximately $56.9 million. Cox recognized a pre-tax gain of $19.5 million on the sale of these shares.

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.

Equity Method Investments

TV Works, LLC (formerly known as Double C Technologies, LLC). During the second quarter of 2005, Cox contributed $43.0 million to TV Works, an entity in which Cox holds a 33% ownership interest and which is majority owned and controlled by Comcast Corporation. TV Works has completed its purchase of substantially all of the North American assets of Liberate Technologies as well as assets from other strategic companies.

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

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. As of September 30, 2005, 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.

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 3. “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 Condensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004.

Other

During the first quarter of 2004, Cox sold certain other non-strategic investments for aggregate net proceeds of approximately $10.3 million. Cox recognized a pre-tax gain of $7.3 million on the sale of these investments.

Cox has several other fair value, equity and cost method investments that were not, individually or in the aggregate, significant in relation to the Condensed Consolidated Balance Sheets at September 30, 2005 and December 31, 2004.

5. Intangible Assets and Goodwill

On January 1, 2002, Cox adopted SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and certain intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. Cox has determined that its franchise value intangible assets have an indefinite useful life.

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. In performing an impairment test in accordance with SFAS No. 142, Cox considers the guidance contained in Emerging Issues Task Force Issue No. 02-17, Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination, whereby Cox considers assumptions that marketplace participants 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.

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, 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 had applied the residual method to the valuation of intangible assets for purposes of impairment testing were required to perform a transition impairment test using a direct value method on all intangible assets that had been 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, were to be reported as a cumulative effect of a change in accounting principle.

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

Consistent with this SEC position, Cox began applying a direct value method to determine the fair value of its indefinite-lived intangible assets comprised of cable franchise rights, acquired prior to September 29, 2004. During the fourth quarter of 2004, Cox performed a transition impairment test, which resulted in a charge of approximately $2.0 billion ($1.2 billion, net of tax).

Also during the fourth quarter of 2004, Cox revised its marketplace assumption surrounding its estimated cost of capital as a result of the going-private transaction. Accordingly, in accordance with SFAS No. 142 and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, respectively, Cox performed an interim impairment test of its long-lived assets and indefinite-lived intangible assets. The interim impairment test was necessary due to the revised estimated cost of capital as well as a revision in Cox’s long-range operating forecast. As a result of this impairment test, Cox recognized a pre-tax non-cash impairment charge of approximately $2.4 billion related to its franchise value, as calculated using a direct value method.

In August 2005, Cox completed its annual impairment test of its indefinite-lived intangible assets and goodwill in accordance with SFAS No. 142. This test resulted in a pre-tax non-cash impairment charge of franchise value for certain cable systems of approximately $104.2 million, which was classified within impairment of intangible assets in the Condensed Consolidated Statements of Operations.

As discussed further in Note 12. “Other”, as of October 31, 2005, Cox entered into a definitive agreement to sell certain Cox cable systems serving approximately 940,000 basic cable subscribers. As a result of the definitive agreement, Cox performed an interim impairment test as of September 30, 2005 of the long-lived assets, indefinite-lived intangible assets and goodwill that will be included in the sale in accordance with SFAS No. 144, and SFAS No. 142, respectively. This impairment test resulted in a pre-tax non-cash impairment charge of franchise value of approximately $509.9 million, which was classified within impairment of intangible assets in the Condensed Consolidated Statements of Operations.

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 3. “Going-Private Transaction,” Cox recorded customer relationship, trade name and goodwill intangibles. The trade name intangible asset, which represents the value associated with the Cox name, is 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 continue to be amortized under SFAS No. 142, as well as the carrying value of those intangible assets, which are no longer amortized:

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued


	September 30, 2005						December 31, 2004
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Value		Amortization		Value		Value		Amortization		Value
					(Thousands of Dollars)
Intangible assets subject to amortization	$	673,733	$	114,717	$	559,016	$	659,967	$	30,743	$	629,224
Trade name						380,844						380,844
Franchise value						17,705,273						18,319,384

Intangible assets					$	18,645,133					$	19,329,452


Goodwill					$	106,889					$	106,889

Amortization expense for the three months ended September 30, 2005 and 2004 was $29.3 million and $2.0 million, respectively.

6. Debt


	September 30		December 31
	2005		2004
	(Thousands of Dollars)
Revolving credit facilities	$	2,000,000	$	1,650,000
Commercial paper		371,470		96,142
Term loan		2,000,000		2,000,000
Medium-term notes		264,480		264,429
Notes and debentures		8,353,581		8,765,359
Exchangeable subordinated debentures		—		19,546
Capitalized lease obligations		166,489		209,576
Other		20,350		20,683

		13,176,370		13,025,735
Less current portion		47,107		59,962


Total long-term debt	$	13,129,263	$	12,965,773

See Note 7. “Derivative Instruments and Hedging Activities” for a discussion of the accounting for certain derivative instruments embedded in the exchangeable subordinated debentures, which have been classified as a component of debt in the Condensed Consolidated Balance Sheets at December 31, 2004.

Revolving Credit Facilities

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 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 September 30, 2005, Cox had outstanding borrowings of $1.1 billion and $900 million under the $1.5 billion facility and the $1.25 billion facility, respectively. 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. At September 30, 2005 and December 31, 2004, Cox was in compliance with the covenants of its credit facilities.

Exchangeable Subordinated Debentures

On April 20, 2005, Cox redeemed all remaining outstanding exchangeable subordinated discount debentures, referred to as Discount Debentures, for aggregate cash consideration of $32.5 million; as a result, Cox had no remaining exchangeable subordinated debentures outstanding at September 30, 2005.

Interest Rate Swaps

Cox utilizes interest rate swap agreements to manage its exposure to changes in interest rates associated with certain of its fixed-rate debt obligations whereby these fixed-rate debt obligations are effectively converted into floating-rate debt obligations. The variable rates

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

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 7. “Derivative Instruments and Hedging Activities.”

The following table summarizes the notional amounts, weighted average interest rate data and maturities for Cox’s interest rate swap agreements at September 30, 2005 and December 31, 2004:


	September 30			December 31
	2005			2004
Notional amount (in thousands)	$	1,000,000		$	1,375,000
Weighted average fixed interest rate received		7.53	%		7.35	%
Weighted average floating interest rate paid		6.88	%		4.37	%
Maturity		2006 - 2009			2005 - 2009

As a result of the settlements under Cox’s interest rate swap agreements, interest expense was reduced (as compared to Cox’s fixed rate obligations absent the swap agreements) by $0.6 million and $14.6 million, respectively, during the three and nine months ended September 30, 2005, and by $13.3 million and $47.1 million, respectively, during the same periods in the prior year.

7. 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. The counterparties are major financial institutions, rated investment grade or better. Accordingly, Cox does not anticipate nonperformance by the counterparties.

As of September 30, 2005, Cox’s derivative financial instruments were primarily comprised of interest rate swap agreements. Cox utilizes these interest rate swaps 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 as of September 30, 2005 and December 31, 2004 with the corresponding fixed-rate debt obligations being classified as a component of debt in the condensed consolidated balance sheets. Cox has assumed no ineffectiveness with regard to these interest rate swap agreements as the agreements qualify for the short-cut 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 liability of $11.4 million at September 30, 2005 and derivative asset of $16.4 million at December 31, 2004.

8. Transactions with Affiliated Companies

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

Cox receives day-to-day cash management services from CEI, with settlements of outstanding balances between Cox and CEI occurring periodically at market interest rates. The amounts due to CEI are generally due on demand and represent the net balance of the intercompany transactions. The amount due to CEI from Cox was $36.7 million and $5.6 million at September 30, 2005 and December 31, 2004, respectively. The interest rate was 4.0% and 2.4% at September 30, 2005 and December 31, 2004, respectively. Included in amounts due from CEI are the following transactions:


	(Thousands of Dollars)
Intercompany due to CEI, December 31, 2004	$	(5,573	)
Cash transferred to CEI		367,085
Net operating expense reimbursements from CEI	$	(398,247	)


Intercompany due to CEI, September 30, 2005	$	(36,735	)

9. Retirement Plans

The following table provides a detail of the components of net periodic benefit cost for the three and nine months ended September 30, 2005 and 2004:


	Three Months Ended September 30
	2005						2004
	Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits
				(Thousands of Dollars)
Service cost	$	10,600		$	2,053		$	7,954		$	1,371
Interest cost		6,908			1,154			5,461			842
Expected return on plan assets		(7,122	)		(558	)		(6,600	)		(373	)
Prior service cost amortization		34			—			59			—
Actuarial loss amortization		1,479			196			966			47

Net periodic benefit cost	$	11,899		$	2,845		$	7,840		$	1,887


	Nine Months Ended September 30
	2005						2004
	Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits
				(Thousands of Dollars)
Service cost	$	28,544		$	5,205		$	23,861		$	4,113
Interest cost		19,191			3,056			16,382			2,535
Expected return on plan assets		(21,297	)		(1,389	)		(19,799	)		(1,119	)
Prior service cost amortization		102			—			177			—
Actuarial loss amortization		2,274			223			2,898			149

Net periodic benefit cost	$	28,814		$	7,095		$	23,519		$	5,678

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.

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

10. Supplemental Financial Information


	September 30		December 31
	2005		2004
	(Thousands of Dollars)
Other current assets
Inventory	$	98,774	$	68,221
Prepaid assets		59,595		31,974
Deferred income tax asset		33,999		33,988
Other		2,461		2,203

Total other current assets	$	194,829	$	136,386


Other current liabilities
Deposits and advances	$	123,685	$	103,800
Income tax payable		86,307		121,269
Other		92,035		114,673

Total other current liabilities	$	302,027	$	339,742


	Nine Months Ended
	September 30
	2005		2004
	(Thousands of Dollars)
Significant non-cash transactions
Conversion of Series A preferred stock to Class A common stock	$	—	$	367,648
Additional cash flow information
Cash paid for interest	$	454,592	$	259,015
Cash paid for income taxes		171,523		33,153

11. Commitments and Contingencies

In connection with certain of Cox’s acquisitions and other transactions, Cox has provided certain indemnities to the respective counterparties with respect to future claims that may arise from state or federal taxing authorities. The nature and terms of these indemnities vary by transaction and generally remain in force through the requisite statutory review periods. In addition, the events or circumstances that would require Cox to perform under these indemnities are transaction and circumstance specific. As of September 30, 2005, Cox believes the likelihood that it will be required to perform under these indemnities is remote and that the maximum potential future payments that Cox could be required to make under these indemnifications are not determinable at this time, as any future payments would be dependent on the type and extent of the related claims, and all available defenses, which are not reasonably estimable. Cox has not historically incurred any material costs related to performance under these types of indemnities.

On September 24, 2002, a committee of bondholders 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, 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

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

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. Briefing on the appeal has been completed, and oral argument was held on October 17, 2005. On October 21, 2005, the Court requested that the Securities and Exchange Commission provide an amicus curiae brief addressing certain issues related to the appeal. On July 25, 2005, Excite@Home provided Cox and Cox @Home notice of termination of the tolling agreement applicable to Excite@Home’s claim for purported breach of fiduciary duty against Cox and Cox @Home.

On September 22, 2005, Richard A. Williamson, on behalf of and as trustee for, the Bondholders’ Liquidating Trust of At Home Corporation, filed a one count complaint for breach of fiduciary duty against the same defendants named in the action described above. The action alleges that in connection with a March 28, 2000 letter agreement between Cox, Comcast, AT&T Corp., and Excite@Home, the defendants breached fiduciary duties purportedly owed to Excite@Home. The complaint seeks compensatory and rescissory damages, disgorgement of profits, an alleged $850 million “control premium” purportedly paid to Cox and Comcast by AT&T, and other relief. Cox and Cox @Home intend to defend these actions vigorously. The outcome cannot be predicted at this time.

Jerrold Schaffer and Kevin J. Yourman, on May 26, 2000 and May 30, 2000, respectively, filed class action lawsuits in the Superior Court of California, San Mateo County, on behalf of themselves and all other stockholders of Excite@Home as of March 28, 2000, seeking (a) to enjoin consummation of a March 28, 2000 letter agreement among Excite@Home’s principal investors, including Cox, and (b) unspecified compensatory damages. Cox and David Woodrow, Cox’s former Executive Vice President, Business Development, among others, are named defendants in both lawsuits. Mr. Woodrow formerly served on the Excite@Home board of directors. The plaintiffs assert that the defendants breached purported fiduciary duties of care, candor and loyalty to the plaintiffs by entering into the letter agreement and/or taking certain actions to facilitate the consummation of the transactions contemplated by the letter agreement. On February 26, 2001, the Court stayed both actions, which had been previously consolidated, on grounds of forum non-conveniens. A related suit styled Linda Ward, et al. v. At Home Corporation (No. 418233) was filed on September 6, 2001, in the same court. On February 7, 2002, the Court consolidated the Ward action with the Schaffer/Yourman action, thereby also staying the Ward action. On June 18, 2002, the court granted plaintiffs’ motion to lift the stay and authorized discovery to proceed regarding Cox’s pending motion to dismiss for lack of personal jurisdiction. On September 10, 2002, the United States Bankruptcy Court for the Northern District of California in the Excite@Home bankruptcy proceeding held that the claims in the suits were derivative and, thus, constituted the exclusive property of the Excite@Home bankruptcy estate. The Bankruptcy Court thereafter ordered the plaintiffs to dismiss the suits. Plaintiffs subsequently appealed the Bankruptcy Court’s decision to the United States District Court for the Northern District of California. On September 29, 2003, the District Court affirmed the order of the Bankruptcy Court. On October 27, 2003, plaintiffs filed a notice of appeal of the District Court’s decision to the United States Court of Appeals for the Ninth Circuit, and oral argument is scheduled for November 14, 2005. 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

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

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. On May 31, 2005, the plaintiffs requested permission from the Court to move to amend their complaint to expand the class period to include the period from November 9, 1999 to March 28, 2000, the beginning of the current class period. On July 8, 2005, the court orally issued a stay of discovery and ordered the plaintiffs to file a proposed amended complaint, which plaintiffs submitted on August 5, 2005. On September 2, 2005, Cox opposed the amendment and moved to dismiss the existing complaint. Cox intends to defend this action vigorously. The outcome cannot be predicted at this time.

On June 21, 2005, Ronald Ventura filed a lawsuit against Cox and David Woodrow, among others, in the United States District Court for the Southern District of New York. Cox was served on August 25, 2005. By stipulation of the parties and as signed by the court on September 12, 2005, the time for defendants to answer or otherwise respond to the complaint has been extended until thirty days following the court’s decision in the related Leykin case on plaintiffs’ motion to file a third amended complaint and Cox’s motion to dismiss the existing complaint. The complaint in the Ventura action asserts claims substantially similar to the operative allegations in the Leykin action described above. Accordingly, the Ventura complaint asserts a claim against Cox as an alleged “controlling person” of Excite@Home under Section 20(a) of the Securities Exchange Act for purported violations by At Home of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. In addition, the Ventura complaint asserts a claim for unjust enrichment against Cox, which asserts that Cox should be required to disgorge an amount equal to the value of the 75 million shares of AT&T stock that Cox received from AT&T in 2001. No other claims are asserted against Cox. The Complaint seeks from Cox unspecified monetary and punitive damages, statutory compensation, disgorgement, and other relief. 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.

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

That motion sought to transfer several related cases brought by Acacia in other jurisdictions to a single court. All of the defendants opposed that motion. 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 Communications, Inc. Shareholder Litigation, C.A. No. 2004-CV-89198.

On October 19, 2004, CEI and Cox publicly announced that they had entered into a Merger Agreement pursuant to which the shares of Cox Class A common stock not beneficially owned by CEI would be proposed to be acquired for $34.75 per share by means of a tender offer and follow-on merger. On October 18, 2004, prior to the announcement of the Merger Agreement, the parties to the Delaware action agreed upon and executed a memorandum of understanding. Pursuant to the Delaware memorandum of understanding, the parties to the Delaware action agreed, subject to the conditions set forth therein, to enter into a stipulation of settlement, to cooperate in public disclosures related to the Merger Agreement, and to use their best efforts to gain approval of the proposed settlement terms by the Delaware court.

Also on October 18, 2004, the parties to the Georgia actions entered into a memorandum of understanding which set forth the agreement by the parties for the dismissal of the Georgia actions.

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.

Cox Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — Continued

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. On March 18, 2005, the Delaware court entered a final order approving the proposed settlement, certifying the requested class, and dismissing the claims asserted against the defendants with prejudice. The time to appeal this order has expired, and no appeal was taken. On June 6, 2005, the Delaware court issued an opinion ordering Cox to pay $1.275 million of the $4.95 million in fees and expenses that the Delaware plaintiffs’ attorneys had sought and Cox previously had agreed not to oppose, pursuant to the terms of the stipulation of settlement. Plaintiffs and the shareholders who objected to the award of fees filed an appeal and cross-appeal, respectively, to the Delaware court’s decision on attorneys’ fees. The appeal and cross-appeal were dismissed on August 19, 2005 pursuant to an agreement between the appealing parties, and payment of the fee award subsequently was made. The Delaware court’s judgments approving the settlement and awarding fees to the plaintiffs’ attorneys are final and no court action remains to be taken with respect to them.

On September 6, 2005, the shareholders who objected to plaintiffs’ counsel’s fee application filed a petition seeking an award of attorneys’ fees to their own counsel in an unspecified amount. Cox has reached an agreement in principle with those shareholders resolving the fee application in exchange for a payment of attorneys’ fees and other consideration.

On June 27, 2005, the Georgia court granted a joint motion to dismiss the Georgia actions with prejudice filed by the Georgia plaintiffs and defendants and also ordered Cox to pay plaintiffs’ counsel $1.25 million in fees and expenses, which amount Cox previously had agreed not to oppose. The time for appeal of the Georgia court’s decisions has expired without appeal, and payment of the fee award has been made. Accordingly, the Georgia actions are concluded.

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.

12. Other

During the third quarter of 2005, Hurricane Katrina caused damage to Cox’s cable system operations in Louisiana. Cox’s cable systems in the New Orleans area experienced significant damage, business interruption and an indeterminate loss of customers. Cox is insured related to these losses, subject to a $6 million deductible amount. Cox believes a significant portion of these losses in excess of the deductible will be recoverable under its insurance policies, and as of September 30, 2005, Cox had met the overall deductible amount and wrote off the estimated net book value of property, plant and equipment destroyed by the hurricane, which approximated $24 million. Cox expects this amount to be fully recoverable under its insurance coverage and, as such, has recorded a corresponding insurance receivable which is classified within Accounts and notes receivable in the Condensed Consolidated Balance Sheet. Additionally, in accordance with SFAS No. 144 and SFAS No. 142, respectively, Cox performed an impairment test of the long-lived assets and indefinite-lived intangible assets related to its Louisiana cable systems. This impairment test resulted in no impairment charge.

As of October 31, 2005, Cox and Cebridge Connections, Inc., a company managed by Cequel III, LLC, entered into a definitive agreement for the sale of Cox cable systems serving approximately 940,000 basic cable subscribers for approximately $2.5 billion in cash. The agreement includes cable systems in West Texas (serving Lubbock, Midland, Amarillo, San Angelo and Abilene areas), North Carolina (serving Greenville, Rocky Mount, New Bern and Kinston areas), Humboldt County and Bakersfield, California and much of Middle America Cox (MAC) (primarily comprised of operations in Texas, Louisiana and Arkansas). MAC also includes certain systems in Oklahoma, Mississippi and Missouri. Excluded from the sale are some MAC operations serving Northwest Arkansas and Lafayette, Louisiana areas. Cox expects the sale to close during the second quarter of 2006.

On November 1, 2005, Cox entered into a strategic relationship with two Comcast Corporation subsidiaries, Time Warner Cable Inc., Advance/Newhouse Partnership and Sprint Spectrum L.P. for the purpose of jointly developing, marketing and selling bundled offerings that include Sprint Nextel wireless services and wireline services (i.e., video, high speed broadband access and cable home phone service) of the cable companies (including Cox) to residential and business customers in the respective franchise territories of the cable companies.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements for the three and nine-month periods ended September, 2005 and 2004.

Results of Operations

Three Months Ended September 30, 2005 Compared with Three Months Ended September 30, 2004

The following table sets forth summarized consolidated financial information for the three months ended September 30, 2005 and 2004.


	Three Months Ended
	September 30
	2005			2004			$ Change			% Change
	(Thousands of Dollars)
Revenues	$	1,755,174		$	1,618,059		$	137,115			8	%
Cost of services		703,296			666,924			36,372			5	%
Selling, general and administrative expenses		370,484			366,452			4,032			1	%
Depreciation and amortization		424,203			400,871			23,332			6	%
Impairment of intangible assets		614,111			—			614,111			NM

Operating income		(356,920)			183,812			(540,732)			NM
Interest expense		(177,642	)		(96,998	)		(80,644	)		83	%
Loss on investments, net		(6,406	)		(204	)		(6,202	)	NM
Other, net		3,514			(1,474	)		4,988		NM
Income tax benefit (expense)		189,211			(41,813	)		231,024		NM
Minority interest, net of tax		—			(631	)		631			(100	%)
Equity in net losses of affiliated companies, net of tax		(1,952	)		(732	)		(1,220	)		NM
Net (loss) income	$	(350,195	)	$	41,960		$	(392,155	)	NM

NM denotes percentage is not meaningful

Revenues

The following table sets forth summarized revenue information for the three months ended September 30, 2005 and 2004.

Three Months Ended September 30


			% of					% of			$			%
	2005		Total			2004		Total			Change			Change
			(Thousands of Dollars)
Residential
Video	$	994,123		57	%	$	964,067		60	%	$	34,056			3	%
Data		341,226		19	%		283,941		18	%		57,285			20	%
Telephony		188,556		11	%		147,344		9	%		41,212			28	%
Other		28,978		2	%		24,176		1	%		4,802			20	%

Total residential		1,552,883		89	%		1,419,528		88	%		133,355			9	%
Commercial		109,171		6	%		90,605		6	%		18,565			20	%
Advertising		93,120		5	%		107,926		6	%		(14,806	)		(14)	%

Total revenues	$	1,755,174		100	%	$	1,618,059		100	%	$	137,115			8	%

The 8% increase in total revenues is primarily attributable to:

	•		an increase in customers for advanced services, including digital cable, high-speed Internet access and telephony customers;

	•		an increase in basic cable rates resulting from increased programming costs and inflation, as well as increased channel availability; and

	•		an increase in commercial broadband customers; partially offset by

	•		a decrease in revenues due to revenues lost as a result of Hurricane Katrina.

Costs and expenses (cost of services and selling, general and administrative expenses)

The following table sets forth summarized operating expenses for the three months ended September 30, 2005 and 2004.


	Three Months Ended
	September 30
					$			%
	2005		2004		Change			Change
	(Thousands of Dollars)
Cost of services
Programming costs	$	347,554	$	324,824	$	22,730			7	%
Other cost of services		355,742		342,100		13,642			4	%

Total cost of services		703,296		666,924		36,372			5	%

Selling, general and administrative
Marketing		93,367		88,832		4,535			5	%
General and administrative		277,117		277,620		(503	)		—

Total selling, general and administrative		370,484		366,452		4,032			—
Total costs and expenses	$	1,073,780	$	1,033,376	$	40,404			4	%

Cost of services includes cable programming costs, which are costs paid to programmers for cable content and are generally paid on a per-subscriber basis. Costs of services also include other direct costs and field service and call center costs. Other direct costs include costs that Cox incurs in conjunction with providing its residential, commercial and advertising services. Field service costs include costs associated with providing and maintaining Cox’s broadband network and customer care costs necessary to maintain its customer base.

Cost of services increased $36.4 million over the comparable period in 2004 due to a $22.7 million increase in programming costs primarily reflecting programming rate increases. Other cost of services increased $13.6 million, primarily due to growth in total RGU’s over the last twelve months, partially offset by cost savings achieved through successful field service initiatives.

Selling, general and administrative expenses include marketing, salaries and benefits, commissions and bonuses, travel, facilities, insurance and other administrative expenses. Selling, general and administrative expenses decreased $4.0 million due to:

	•		a $0.5 million decrease in general and administrative expenses primarily related to the inclusion of an estimated settlement and expenses related to a legal claim in the three months ended September 30, 2004; partially offset by,

	•		a $4.5 million increase in marketing expense primarily due to a 6% increase in costs associated with Cox Media, Cox’s advertising sales business.

Cox expects continued increases in programming costs and will continue to pass through some portion of these increases to its customers. In addition, Cox expects to have continued growth in advanced services, which include digital cable, high-speed Internet access and telephony, both as a result of increased penetration where these services were available in 2004 and continued roll-out of these services in new areas during 2005. As a result of these trends, Cox expects its cost of services and, to a lesser degree, selling, general and administrative expenses to continue to increase.

Depreciation and amortization

Depreciation and amortization increased to $424.2 million from $400.9 million in the third quarter of 2005. This was primarily due to the amortization of finite-lived intangible assets that resulted from the push-down basis accounting applied as a result of the December 2004 going-private transaction. Cox will continue to invest in its broadband network and new services, which management expects will result in increased revenues to offset increased depreciation expense.

Impairment of intangible assets

In August 2005, Cox completed its annual impairment test of franchise value and goodwill in accordance with SFAS No. 142. In connection with preparing Cox’s financial statements for the quarter ended September 30, 2005, management concluded that a non-cash impairment charge of approximately $104.2 million, was appropriate, and this charge is classified within impairment of intangible assets in the condensed consolidated statements of operations.

As discussed further in Note 12. “Other” in Part 1, Item 1. “Condensed Consolidated Financial Statements”, as of October 31, 2005, Cox entered into a definitive agreement for the sale of Cox cable systems serving approximately 940,000 basic cable subscribers. As a result of the definitive agreement, Cox completed an interim impairment test as of September 30, 2005 of its long-lived assets, indefinite-lived intangible assets and goodwill that will be included in the sale in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and SFAS No. 142, respectively. This test resulted in an additional pre-tax non-cash impairment charge of franchise value of approximately $509.9 million, which has been classified within impairment of intangible assets in the Condensed Consolidated Statements of Operations.

Interest expense

Interest expense increased 83% to $177.6 million primarily due to increased outstanding indebtedness incurred in December 2004 as a result of the going-private transaction discussed further in Note 3. “Going- Private Transaction” in Part 1, Item 1. “Condensed Consolidated Financial Statements.”

(Loss) gain on investments, net

Net loss on investments of $6.4 million for the third quarter of 2005 was due to a pre-tax decline considered to be other than temporary in the fair value of certain investments. The net loss on investments for the comparable period in 2004 was nominal.

Income tax expense

Income tax (benefit) expense was $ (189.2) million, for the third quarter of 2005 compared to $41.8 million for the same period in 2004. The change in income tax expense was primarily due to the change in pre-tax income, varying effective state tax rates across Cox’s operations between 2004 and 2005, and the effect of on-going income tax audits. Cox’s effective tax rates for 2005 and 2004 were 35.2% and 49.1%, respectively.

Equity in net losses of affiliated companies, net of tax

Equity in net losses of affiliated companies, net of tax, for the third quarter of 2005 was $2.0 million compared to $0.7 million for the third quarter of 2004. Generally, this loss is attributable to Cox’s proportionate share of the investee’s income or loss. Although Cox has various levels of ownership and rights with respect to the companies in which it has equity investments, Cox has little, if any, control over

the financial position of these companies. Therefore, Cox cannot predict the impact that its equity investments will have on its future operations.

Net income

Net income (loss) for the third quarter of 2005 was ($350.1) million compared to $42.0 million for the comparable period in 2004.

Nine Months Ended September 30, 2005 Compared with Nine Months Ended September 30, 2004

The following table sets forth summarized consolidated financial information for the nine months ended September 30, 2005 and 2004.


	Nine Months Ended
	September 30
										%
	2005			2004			$ Change			Change
	(Thousands of Dollars)
Revenues	$	5,235,887		$	4,753,656		$	482,231			10	%
Cost of services		2,094,680			1,947,367			147,313			8	%
Selling, general and administrative expenses		1,114,104			1,038,336			75,768			7	%
Depreciation and amortization		1,321,603			1,190,051			131,552			11	%
Impairment of intangible assets		614,111			—			614,111		NM
Loss on sale of cable system		—			5,021			(5,021	)		(100	%)

Operating income		91,389			572,881			(481,492	)		(84	%)
Interest expense		(512,791	)		(289,201	)		(223,590	)		77	%
(Loss) gain on investments, net		(9,127	)		28,931			(38,058	)		(132	%)
Loss on extinguishment of debt		(13,019	)		(7,006	)		(6,013	)		86	%
Other, net		3,068			(3,295	)		6,363		NM
Income tax benefit (expense)		139,836			(137,878	)		277,714		NM
Minority interest, net of tax		—			(1,203	)		1,203			100	%
Equity in net losses income of affiliated companies, net of tax		(4,765	)		(884	)		(3,881	)	NM

Net (loss) income	$	(305,409)		$	162,345		$	(467,754	)	NM

NM denotes percentage is not meaningful.

Revenues

The following table sets forth summarized revenue information for the nine months ended September 30, 2005 and 2004.


	Nine Months Ended September 30
			% of					% of			$		%
	2005		Total			2004		Total			Change		Change
			(Thousands of Dollars)
Residential
Video	$	2,994,948		57	%	$	2,875,612		60	%	$	119,336		4	%
Data		996,867		19	%		812,169		17	%		184,698		23	%
Telephony		541,508		10	%		425,415		9	%		116,093		27	%
Other		79,451		2	%		77,019		2	%		2,432		3	%

Total residential		4,612,774		88	%		4,190,215		88	%		422,559		10	%
Commercial		313,596		6	%		260,126		6	%		53,470		21	%
Advertising		309,517		6	%		303,315		6	%		6,202		2	%

Total revenues	$	5,235,887		100	%	$	4,753,656		100	%	$	482,231		10	%

The 10% increase in total revenues is primarily attributable to:

	•		an increase in customers for advanced services, including digital cable, high-speed Internet access and telephony customers;

	•		an increase in basic cable rates resulting from increased programming costs and inflation, as well as increased channel availability; and

	•		an increase in commercial broadband customers.

Cox expects its overall growth trend to continue. Cox also anticipates continued customer demand for its existing portfolio of broadband products, as well as for new services such as Entertainment On Demand, Home Networking, high-definition television and digital video recorders.

Costs and expenses (cost of services and selling, general and administrative expenses)

The following table sets forth summarized operating expenses for the nine months ended September 30, 2005 and 2004.


	Nine Months Ended
	September 30
					$		%
	2005		2004		Change		Change
	(Thousands of Dollars)
Cost of services
Programming costs	$	1,047,288	$	963,208	$	84,080		9	%
Other cost of services		1,047,392		984,159		63,233		6	%

Total cost of services		2,094,680		1,947,367		147,313		8	%

Selling, general and administrative Marketing		271,238		251,244		19,994		8	%
General and administrative		842,866		787,092		55,774		7	%

Total selling, general and administrative		1,114,104		1,038,336		75,768		7	%
Total costs and expenses	$	3,208,784	$	2,985,703	$	223,082		7	%

Cost of services includes cable programming costs, which are costs paid to programmers for cable content and are generally paid on a per-subscriber basis. Cost of services also includes other direct costs and field service and call center costs. Other direct costs include costs that Cox incurs in conjunction with providing its residential, commercial and advertising services. Field service costs include costs associated with providing and maintaining Cox’s broadband network and customer care costs necessary to maintain its customer base.

Cost of services increased $147.3 million over the comparable period in 2004 due to $84.1 million increase in programming costs primarily reflecting programming rate increases. Other cost of services increased $63.2 million, primarily due to growth in total RGU’s over the last twelve months, partially offset by cost savings achieved through successful field service initiatives.

	•		a $55.8 million increase in general and administrative expenses primarily related to increased salaries and benefits, as well as an increase in the cost of providing healthcare benefits; and,

	•		a $20.0 million increase in marketing expense primarily due to a 10% increase in costs associated with Cox Media, Cox’s advertising sales business.

Depreciation and amortization

Depreciation and amortization increased to $1.3 billion from $1.2 billion in the nine months ended September 30, 2004. This was primarily due to the amortization of finite-lived intangible assets that resulted from the push-down basis accounting applied as a result of the December 2004 going-private transaction. Cox will continue to invest in its broadband network and new services, which management expects will result in increased revenues to offset increased depreciation expense.

Loss on sale of cable systems

During the nine months ended September 30, 2004, Cox recorded a $5.0 million pre-tax loss on the sale of certain small, non-clustered cable systems in Oklahoma, Kansas, Texas and Arkansas, which in the aggregate consisted of approximately 53,000 basic cable subscribers.

Interest expense

Interest expense increased 77% to $512.8 million primarily due to increased outstanding indebtedness incurred in December 2004 as a result of the going-private transaction discussed further in Note 3. “Going- Private Transaction” in Part 1, Item 1. “Condensed Consolidated Financial Statements.”

(Loss) gain on investments, net

Net loss on investments of $9.1 million for the nine months ended September 30, 2005 was due to a pre-tax decline considered to be other than temporary in the fair value of certain investments. Net gain on investments for the comparable period in 2004 of $28.9 million was due to: (i) a $19.5 million pre-tax gain on the sale of 0.1 million shares of Sprint PCS preferred stock, (ii) a $7.3 million pre-tax gain on the sale of certain other non-strategic investments, and (iii) a $2.3 million pre-tax gain on the sale of all remaining shares of Sprint stock then held by Cox.

Loss on extinguishment of debt

During the nine months ended September 30, 2005, Cox recorded a $13.0 million pre-tax loss on extinguishment of debt due to the redemption of $62.3 million original principal amount at maturity of Discount Debentures for aggregate cash consideration of $32.5 million, which represented all remaining outstanding Discount Debentures. During the comparable period in 2004, Cox recorded a $7.0 million pre- tax loss on extinguishment of debt due to the redemption of $14.6 million aggregate principal amount of Cox’s exchangeable subordinated debentures due 2029 (PRIZES) and $0.1 million aggregate principal amount of Cox’s 3% exchangeable subordinated debentures due 2030 (Premium PHONES), which represented all remaining outstanding PRIZES and Premium PHONES. As a result of these redemptions, Cox no longer has any outstanding exchangeable subordinated debentures.

Income tax expense

Income tax expense (benefit) was ($139.8) million for the nine months ended September 30, 2005 compared to $137.9 million for the same period in 2004. The change in income tax expense was primarily due to the change in pre-tax income, varying effective state tax rates across Cox’s operations between 2004 and 2005, and the effect of on-going income tax audits. Cox’s effective tax rates for 2005 and 2004 were 31.7% and 45.6%, respectively.

Equity in net losses of affiliated companies, net of tax

Equity in net losses of affiliated companies, net of tax, for the nine months ended September 30, 2005 was $4.8 million compared to $0.9 million for the same period in 2004. Generally, this loss is attributable to Cox’s proportionate share of the investee’s income or loss. Although Cox has various levels of ownership and rights with respect to the companies in which it has equity investments, Cox has little, if any, control over the financial position of these companies. Therefore, Cox cannot predict the impact that its equity investments will have on its future operations.

Net income

Net (loss) income for the nine months ended September 30, 2005 was ($305.4) million compared to $162.3 million for the comparable period in 2004.

Hurricane Katrina

During the third quarter of 2005, Hurricane Katrina caused damage to Cox’s operations in Louisiana. Cox’s cable systems in the New Orleans area experienced significant damage, business interruption and an indeterminate loss of customers. Cox believes that a significant portion of these losses in excess of the deductible will be covered by insurance, and as of September 30, 2005, Cox had met the overall deductible amount. While Cox awaits payment under its insurance policies, Cox anticipates capital expenditures to rebuild infrastructure in the New Orleans area to be approximately $45.5 million in the fourth quarter of 2005, and lost revenues attributable to Katrina are expected to be approximately $44.9 million for the fourth quarter of 2005. Cox does expect to remain in compliance with the covenants under its revolving credit facilities. The long-term effect of Hurricane Katrina on the population of New Orleans, and therefore Cox’s cable systems in New Orleans, remains uncertain.

Recent Developments

As of October 31, 2005, Cox and certain of its subsidiaries, on the one hand, and Cebridge Acquisition Co. LLC, a Delaware limited liability company, on the other hand, entered into a definitive asset purchase agreement, pursuant to which Cox will sell certain cable television systems with approximately 940,000 basic cable subscribers to the Cebridge for $2.55 billion in cash, subject to certain adjustments and prorations. The cable systems being sold include certain of Cox’s Middle America systems, all of Cox’s West Texas systems, all of Cox’s North Carolina systems and Cox’s Humboldt and Bakersfield, California systems. Cebridge has delivered a deposit in the amount of $35 million into escrow in order to secure the timely performance and fulfillment of its obligations to close under the purchase agreement, which deposit will be applied against the aggregate purchase price at closing. The transaction is subject to customary closing conditions and various regulatory approvals and is expected to close in the second quarter of 2006.

On November 1, 2005, Cox entered into a strategic relationship with Comcast Corporation, Time Warner Cable Inc., Advance/Newhouse Partnership and Sprint Nextel Corporation for the purpose of jointly developing, marketing and selling bundled offerings that include Sprint Nextel wireless services and wireline services (i.e., video, high speed broadband access and cable home phone service) of the cable companies (including Cox) to residential and business customers in the respective franchise territories of the cable companies. The cable companies, collectively, have agreed to make an initial investment in the venture of $100 million, and Cox expects that its portion of this initial investment will be approximately $10.8 million.

Liquidity and Capital Resources

Uses of Cash

As part of Cox’s ongoing strategic plan, Cox has invested, and will continue to invest, capital to enhance the reliability and capacity of its broadband network in preparation for the offering of new services. Cox believes it will be able to meet its capital needs for the next twelve months and the foreseeable future with cash flows from operation and amounts available under existing revolving credit facilities and its commercial paper program.

During the nine months ended September 30, 2005, Cox made capital expenditures of $1.0 billion. These expenditures were primarily directed at costs related to electronic equipment located on customers’ premises and costs associated with network equipment used to enter new service areas.

Excluding capital expenditures related to the rebuild of the New Orleans cable system as a result of Hurricane Katrina discussed above, Cox expects total capital expenditures for 2005 to be slightly greater than its 2004 level of capital spending, primarily as a result of the robust demand for new products and services. Although management continuously reviews industry and economic conditions to identify opportunities, Cox does not have any current plans to make any material acquisitions or enter into any cable systems exchanges in 2005 or 2006.

Repayments of debt during the nine months ended September 30, 2005 of $479.9 million primarily consisted of the purchase of all remaining outstanding Discount Debentures and the repayment of its $375 million 6.9% notes due June 15, 2005 upon their maturity.

During the nine months ended September 30, 2005, Cox made payments to acquire its former public stock that was converted into the right to receive cash as part of the going-private transaction in December 2004 of approximately $473.7 million, with such payments being made as holders of the former public stock surrender their certificates and otherwise claim their going-private merger consideration.

During the nine months ended September 30, 2005, Cox contributed $43.0 million to TV Works, LLC (formerly known as Double C Technologies, LLC), an entity in which Cox holds a 33% ownership interest.

Sources of Cash

During the nine months ended September 30, 2005, Cox generated $1.2 billion from operating activities. Net revolving credit and commercial paper borrowings during the nine months ended September 30, 2004 were $619.3 million and were used primarily to fund the purchase of untendered shares of former public stock that were converted into the right to receive cash as part of the follow-on merger, as well as the repayments of debt.

Recently Issued Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS No. 154). This Statement replaces APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in an accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and error corrections occurring in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not anticipated to have a material effect on our financial position or results of operations.

In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation of an entity to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Such an obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 is effective for Cox no later than December 31, 2005. Cox is currently assessing the impact of FIN 47 on its consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29 (SFAS No. 153). The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions (APB No. 29), is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB Opinion No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 is effective for such exchange transactions occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not anticipated to have a material effect on our financial position or results of operations.

Caution Concerning Forward-Looking Statements

This Form 10-Q includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, among others, statements that relate to Cox’s future plans, earnings, objectives, expectations, performance, and similar projections, as well as any facts or assumptions underlying these statements or projections. Actual results may differ materially from the results expressed or implied in these forward-looking statements due to various risks, uncertainties or other factors. These factors include Cox’s ability to collect on insurance policies covering Cox’s New Orleans systems and the ability to rebuild Cox’s cable plant and subscriber base in the impacted areas, competition within the broadband communications industry, Cox’s ability to achieve

anticipated subscriber and revenue growth, Cox’s success in implementing new services and other operating initiatives, and Cox’s ability to generate sufficient cash flow to meet debt service obligations and finance operations. For a more detailed discussion of these and other risk factors, see the “Caution Concerning Forward-Looking Statements” section of Cox’s Annual Report on Form 10-K for the year ended December 31, 2004. Cox assumes no responsibility to update any forward-looking statements as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Cox has estimated the fair value of its financial instruments as of September 30, 2005 and December 31, 2004 using available market information or other appropriate valuation methodologies. Considerable judgment, however, is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that Cox would realize in a current market exchange.

The carrying amount of cash, accounts and other receivables, accounts and other payables and amounts due to/from CEI approximates fair value because of the short maturity of those instruments. The fair value of Cox’s investments stated at fair value are estimated and recorded based on quoted market prices. The fair value of Cox’s equity method investments and investments stated at cost cannot be estimated without incurring excessive costs. Cox is exposed to market price risk volatility with respect to investments in publicly-traded and privately-held entities. Additional information pertinent to the value of Cox’s investments is discussed in Note 4. “Investments” in Part I, Item 1. “Condensed Consolidated Financial Statements.”

The fair value of interest rate swaps used for hedging purposes was approximately ($11.4 million) and $16.4 million at September 30, 2005 and December 31, 2004, respectively, and represents the estimated amount that Cox would (pay) receive upon termination of the swap agreements.

Cox’s outstanding commercial paper and borrowings under its revolving credit facilities and term loan bear interest at current market rates and, thus, approximates fair value at September 30, 2005 and December 31, 2004. Cox is exposed to interest rate volatility with respect to these variable-rate instruments.

The estimated fair value of Cox’s fixed-rate notes and debentures and exchangeable subordinated debentures at September 30, 2005 and December 31, 2004 was based on quoted market prices or a discounted cash flow analysis using Cox’s incremental borrowing rate for similar types of borrowing arrangements and dealer quotations. A summary of the carrying value, estimated fair value and the effect of a hypothetical one percentage point decrease in interest rates on the foregoing fixed-rate instruments at September 30, 2005 and December 31, 2004 is as follows:


	September 30, 2005						December 31, 2004
					Fair Value						Fair Value
					(1% Decrease						(1% Decrease
	Carrying		Fair		in Interest		Carrying		Fair		in Interest
	Value		Value		Rates)		Value		Value		Rates)
					(Millions of Dollars)
Fixed-rate notes and Debentures	$	7,019.9	$	7,255.4	$	7,713.7	$	8,760.0	$	9,092.6	$	9,593.0
Exchangeable subordinated Debentures		—		—		—		19.5		31.4		31.6

Item 4. Controls and Procedures

Evaluation of Controls and Procedures. The Principal Executive Officer and the Principal Financial Officer of Cox have concluded, based on their evaluation as of September 30, 2005, that Cox’s disclosure controls and procedures: are effective to ensure that information required to be disclosed by Cox in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and include controls and procedures designed to ensure that information required to be disclosed by Cox in such reports is accumulated and communicated to Cox’s management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Cox’s disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching Cox’s desired disclosure control objectives and are effective in reaching that level of reasonable assurance.

Changes in Internal Controls. There have been no changes in Cox’s internal controls or in other factors that has materially affected, or are reasonably likely to materially affect Cox’s internal controls, other than the migration to a new financial system that began as of January 1, 2005. The migration, which represents a culmination of more than a year of preparation, testing and training, is scheduled to take place in stages over the course of 2005. Implementation of the new financial system necessarily involves changes to Cox’s procedures for control over financial reporting. Cox’s Principal Executive Officer and Principal Financial Officer believe that throughout the migration process to date, Cox has maintained internal financial controls sufficient to ensure appropriate internal control over financial reporting.

Part II — Other Information

Item 1. Legal Proceedings

For a description of certain legal matters, refer to Note 11. “Commitments and Contingencies” in Part I, Item 1. “Condensed Consolidated Financial Statements.”

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters of a Vote of Security Holders

None.

Item 5. Other Information

As previously disclosed, on July 26, 2005, Cox announced that Jimmy W. Hayes, the then Executive Vice President and Chief Financial Officer of Cox, had been appointed Executive Vice President of Cox Enterprises effective immediately. On November 1, 2005, Cox announced the appointment of John M. Dyer as Chief Financial Officer of Cox.

Item 6. Exhibits


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. 33-80152, filed with the Commission on December 16, 1994.)

21	—	Subsidiaries of Cox Communications, Inc.

31.1	—	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2	—	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1	—	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Cox Communications, Inc.
Date: November 9, 2005	/s/ John M. Dyer
	John M. Dyer
	Chief Financial Officer (principal financial officer and duly authorized officer)


NAME OF SUBSIDIARY		STATE OF INCORPORATION
Arizona NewsChannel, L.L.C.		Delaware
Cox @Home, Inc.		Delaware
Cox Animal Planet, Inc.		Delaware
Cox Arizona Telcom, L.L.C.		Delaware
Cox Arkansas Telcom, L.L.C.		Delaware
Cox Business Services, Inc.		Delaware
Cox Business Services, L.L.C.		Delaware
Cox California Telcom, L.L.C. (formerly Cox
California Telcom II, L.L.C.)		Delaware
Cox Colorado Telcom, L.L.C.		Delaware
Cox Communications EBD Holdings, Inc.		Delaware
Cox Communications E.T.E., Inc.		Delaware
Cox Communications Florida (Partnership)
(formerly Cox Cable New York)		New York
Cox Communications Gulf Coast, L.L.C.		Delaware
Cox Communications Hampton Roads, L.L.C.		Delaware
Cox Communications Holdings, Inc.		Delaware
Cox Communications Kansas, L.L.C.		Delaware
Cox Communications Las Vegas, Inc.		Delaware
Cox Communications LLC Management, Inc.		Delaware
Cox Communications Louisiana, L.L.C.		Delaware
Cox Communications NCC, Inc.		Delaware
Cox Communications New York City, Inc.		New York
Cox Communications Omaha, L.L.C.		Delaware
Cox Communications Payroll, Inc.		California
Cox Communications Pensacola, L.L.C.		Delaware


NAME OF SUBSIDIARY		STATE OF INCORPORATION
Cox Communications Shopping Services, Inc.		Delaware
Cox Communications Technology, L.L.C.		Delaware
Cox Communications Telecom, Inc.		Virginia
Cox Connecticut Telcom, L.L.C.		Delaware
Cox Consumer Information Network, Inc.		Delaware
Cox DC Radio, Inc.		Delaware
Cox District of Columbia Telcom, L.L.C.		Delaware
Cox Fibernet Oklahoma, L.L.C.		Delaware
Cox Fibernet Virginia, Inc.		Delaware
Cox Florida Cable Partners		Florida
Cox Florida Telcom, L.P. (1% Member — Cox Telcom Partners, Inc.,
general partner; 99% Member — CoxCom, Inc., limited partner)		Delaware
Cox Georgia Telcom, L.L.C.		Delaware
Cox Government Services, Inc.		Delaware
Cox Idaho Telcom, L.L.C.		Delaware
Cox Iowa Telcom, L.L.C.		Delaware
Cox Kansas Telcom, L.L.C.		Delaware
Cox Louisiana Telcom, L.L.C.		Delaware
Cox Maryland Telcom, L.L.C.		Delaware
Cox Media, L.L.C.		Delaware
Cox Mississippi Telcom, L.L.C.		Delaware
Cox Missouri Telcom, L.L.C.		Delaware
Cox Nebraska Telcom, L.L.C.		Delaware
Cox Nevada Telcom, L.L.C.		Delaware
Cox New Mexico Telcom, L.L.C.		Delaware
Cox North Carolina Telcom, L.L.C.		Delaware
Cox Ohio Telcom, L.L.C.		Delaware
Cox Oklahoma Telcom, L.L.C.		Delaware
Cox Rhode Island Telcom, L.L.C.		Delaware


NAME OF SUBSIDIARY		STATE OF INCORPORATION
Cox San Diego SPE, L.L.C.		Delaware
Cox Southwest Holdings, L.P.		Texas
Cox Southwest Interests, L.L.C.		Texas
Cox Southwest Partner Holdings, L.L.C.		Delaware
Cox Telcom Partners, Inc.		Delaware
Cox Texas Telcom, L.P. (1% Member — Cox Telcom Partners, Inc.,
general partner; 99% Member — CoxCom, Inc., limited partner)		Delaware
Cox Trust I		Delaware
Cox Virginia Telcom, Inc.		Virginia
Cox/TWC Master Cable Advertising Interconnect, L.L.C.		Delaware
CP Arizona I, LLC		Delaware
CP Arizona II, LLC		Delaware
CP Nevada, LLC		Delaware
Hospitality Network, Inc.		Nevada
Kansas NewsChannel, L.L.C.		Delaware
Local News on Cable, L.L.C.		Virginia
MAS ARIZONA, L.L.C.		Delaware
Mid-Kansas, Inc.		Kansas
News Channel 15, L.L.C.		Delaware
News Channel, L.L.C.		Oklahoma
PrimeTel of Nevada		Nevada
Rhode Island News Channel, L.L.C.		Delaware
TCA Communications, L.L.C.		Texas
TMJV, LLC		Delaware
Tulsa Cable News, L.L.C.		Oklahoma
WOWT/Cox News Channel, L.L.C.		Delaware
CoxCom, Inc.		Delaware


		/s/ James O. Robbins


		Name:		James O. Robbins
		Title:		Chief Executive Officer
		Date:		November 9, 2005


										Accumulated
					Additional					Other
	Common Stock				Paid-in		Retained			Comprehensive					Comprehensive
	Class A		Class C		Capital		Earnings			Income		Total			(Loss) Income
							*(unaudited)*
							(Thousands of Dollars)
December 31, 2004	$	5,562	$	276	$	4,802,117	$	1,318,218		$	55	$	6,126,228
Net loss								(305,409	)				(305,409	)	$	(305,409	)

Expenses incurred pursuant to the going-private transaction paid by CEI on behalf of Cox						5,526							5,526

Other comprehensive income											57		57			57

Comprehensive loss															$	(305,352	)


September 30, 2005	$	5,562	$	276	$	4,807,643	$	1,012,809		$	112	$	5,826,402


/s/ James O. Robbins


James O. Robbins
President and Chief Executive Officer