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

FORM 10-Q

Commission File Number 1-6590

Cox Communications, Inc.
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (404) 843-5000

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   x    No   o

     There were 573,752,944 shares of Class A Common Stock and 27,597,792 shares of Class C Common Stock outstanding as of July 31, 2002.

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Cox Communications, Inc.
Form 10-Q
For the Quarter Ended June 30, 2002

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Part I — Financial Information

Item 1. Condensed Consolidated Financial Statements

Cox Communications, Inc.
Condensed Consolidated Balance Sheets

See notes to condensed consolidated financial statements.

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Cox Communications, Inc.
Condensed Consolidated Statements of Operations

See notes to condensed consolidated financial statements.

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Cox Communications, Inc.
Condensed Consolidated Statement of Shareholders’ Equity

See notes to condensed consolidated financial statements.

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Cox Communications, Inc.
Condensed Consolidated Statements of Cash Flows

See notes to condensed consolidated financial statements.

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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

Quarter Ended June 30, 2002

1. Basis of Presentation and Other Information

     The accompanying unaudited condensed consolidated financial statements of Cox Communications, Inc. (Cox), a 65.4% majority-owned subsidiary of Cox Enterprises, Inc. (CEI), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments considered necessary for a fair statement of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Cox’s Annual Report on Form 10-K for the year ended December 31, 2001, as amended.

     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 three months ended June 30, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002 or any other interim period.

2. Summary of Significant Accounting Policies

Recently Issued Accounting Pronouncements

     On January 1, 2002, Cox adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and certain intangible assets, including those recorded in past business combinations, no longer be amortized through the statement of operations, but instead be tested for impairment at least annually. The adoption of SFAS No. 142 did not result in an impairment charge. For a further discussion, see Note 4. “Goodwill and Intangible Assets.”

     Effective January 1, 2003, Cox will adopt SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of SFAS No. 143 is not expected to have a material impact on Cox’s financial position or results of operations.

     Also on January 1, 2002, Cox adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment and disposition of long-lived assets. The adoption of SFAS No. 144 did not have a material impact on Cox’s financial position or results of operations.

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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements — Continued (Unaudited)

     Also on January 1, 2002, Cox adopted the guidance prescribed in Emerging Issues Task Force Issue No. 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred, which specifies that the collection and payment of certain fees must be presented on a gross basis, as revenue and expense, rather than on a net basis. Retroactive application of this announcement is required. Accordingly, collection and payment of fees by Cox, primarily franchise fees, have been reclassified on a gross basis for all periods presented herein to conform to this new guidance. Approximately $47.9 million and $96.7 million were reclassified from operating expenses to revenues for the three and six months ended June 30, 2002, respectively, and approximately $46.2 million and $89.7 million were reclassified from operating expenses to revenues for the three and six months ended June 30, 2001, respectively.

     In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, which provides for the rescission of several previously issued accounting standards, new accounting guidance for the accounting of certain lease modifications and various technical corrections that are not substantive in nature to existing pronouncements. Cox will adopt SFAS No. 145 on January 1, 2003, except for the provisions relating to the amendment of SFAS No. 13, which was adopted for transactions occurring subsequent to May 15, 2002. Cox is currently assessing the impact of SFAS No. 145 on its financial position and results of operations.

     In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Cox is currently assessing the impact of SFAS No. 146 on its financial position and results of operations.

Reclassifications

     Certain amounts in the 2001 condensed consolidated financial statements have been reclassified for comparative purposes.

3. Investments

Investments Stated at Fair Value

     The aggregate cost of Cox’s investments stated at fair value at June 30, 2002 and December 31, 2001 was $363.5 million and $2,326.0 million, respectively. Gross unrealized gains and losses on investments were $0.3 million and $3.0 million, respectively, at June 30, 2002 and $843.3 million and $76.6 million, respectively, at December 31, 2001. For the three and six months ended June 30, 2002, gross

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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements — Continued (Unaudited)

realized gains and losses on investments stated at fair value were $0.2 million and $793.1 million, respectively, and $37.2 million and $1,238.9 million, respectively. For the three and six months ended June 30, 2001, gross realized gains and losses on investments stated at fair value were $475.6 million and $24.8 million, respectively, and $714.9 million and $105.2 million, respectively. Derivative instruments classified within investments are comprised of certain warrants to purchase shares of publicly-traded and privately-held entities, as further described in Note 6. “Derivative Instruments and Hedging Activities.”

     Sprint PCS.   At June 30, 2002, Cox’s investment in Sprint Corporation’s PCS Group (Sprint PCS) was comprised of 66.7 million shares of Sprint PCS common stock, and warrants and convertible preferred stock, which are exercisable for or convertible into approximately 10.3 million shares of Sprint PCS common stock. The estimated fair value of Cox’s investment in Sprint PCS was $346.0 million and $2,444.3 million at June 30, 2002 and December 31, 2001, respectively.

     In February and March 2002, Cox terminated its series of costless equity collar arrangements that managed its exposure to market price fluctuations of 15.8 million shares of Sprint PCS common stock for aggregate proceeds of approximately $151.6 million and recognized an aggregate pre-tax derivative gain of approximately $168.9 million. In connection with the terminations, Cox also sold the 15.8 million shares of Sprint PCS common stock covered by the collar arrangements for aggregate net proceeds of approximately $155.9 million. In addition, Cox sold 9.4 million shares of Sprint PCS common stock that were not covered by the collar arrangements for aggregate net proceeds of approximately $82.8 million. Cox recognized an aggregate pre-tax gain of $32.8 million on the sale of these shares.

     AT&T/AT&T Wireless.   In February and March 2002, Cox terminated its costless equity collar arrangements which managed its exposure to market price fluctuations of 22.5 million shares of AT&T Corp. common stock and 17.2 million shares of AT&T Wireless Services, Inc. common stock for aggregate proceeds of approximately $112.8 million and recognized an aggregate pre-tax derivative gain of $99.9 million. In connection with the terminations, Cox also sold the 22.5 million shares of AT&T common stock and 17.2 million shares of AT&T Wireless common stock covered by these collar arrangements for aggregate net proceeds of approximately $527.0 million. In addition, Cox sold 12.5 million shares of AT&T common stock and 6.7 million shares of AT&T Wireless common stock that were not covered by collar arrangements for aggregate net proceeds of approximately $263.8 million. Cox recognized an aggregate pre-tax loss of $170.1 million on the sale of these shares. As a result of these transactions, Cox no longer holds any shares of AT&T common stock or AT&T Wireless common stock.

     Motorola.   In June 2002, Cox sold its remaining 1.7 million shares of Motorola, Inc. common stock for aggregate net proceeds of approximately $24.5 million and recognized aggregate pre-tax loss of $1.5 million. Cox acquired the shares of Motorola common stock through the exercise of warrants in June 2000 and June 2001.

Other

     During second quarter 2002, Cox recorded an aggregate pre-tax loss of $677.4 million on certain of its investments, primarily Sprint PCS, as a result of a decline in fair value that was considered other than temporary. During the three and six months ended June 30, 2001, Cox recorded aggregate pre-tax losses of $13.8 and $49.3 million, respectively, as a result of such declines. These losses are included in net gain (loss) on investments in the Condensed Consolidated Statement of Operations. Cox assesses the recoverability of all of its investments on an ongoing basis.

     Cox has several other fair value, equity and cost method investments which were not, individually or in the aggregate, significant in relation to the Condensed Consolidated Balance Sheets at June 30, 2002 and December 31, 2001.

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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements — Continued (Unaudited)

4. Goodwill and Intangible Assets

     On January 1, 2002, Cox adopted SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and certain intangible assets, including those recorded in past business combinations, no longer be amortized through the statement of operations, but instead be tested for impairment at least annually. The standard also requires the completion of a transition impairment test within six months of adoption, with any impairments identified treated as a cumulative effect of change in accounting principle. The adoption of SFAS No. 142 did not result in an impairment charge.

     Cox’s intangible assets, which are primarily made up of franchise value, have been determined to have indefinite useful lives. Accordingly, Cox discontinued the amortization of intangible assets with indefinite lives, which consist primarily of franchise value effective January 1, 2002. Had Cox been accounting for intangible assets under SFAS No. 142 for all periods presented, Cox’s net income and net income per share would have been as follows:

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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements — Continued (Unaudited)

5. Debt

     See Note 6. “Derivative Instruments and Hedging Activities” for a discussion of the accounting for certain derivatives embedded in the exchangeable subordinated debentures and zero coupon debt, which have been classified as a component of debt in the Condensed Consolidated Balance Sheets at June 30, 2002 and December 31, 2001.

Revolving Credit Facilities

     In June 2002, Cox amended and restated its 364-day facility to, among other things, extend the facility for another 364 days, which will now terminate on June 27, 2003. The size of the facility was also changed from $1.5 billion to $1.1 billion. As of June 30, 2002, Cox had no borrowings outstanding under this credit agreement or its existing 5-year $0.9 billion credit facility, which terminates in 2005.

Notes and Debentures

     In accordance with the terms of the indenture governing Cox’s convertible senior notes due 2021, Cox became obligated to purchase for cash convertible notes tendered and not withdrawn before the close of business on February 22, 2002. Cox repurchased $329.1 million aggregate principal amount at maturity of the convertible notes that had been properly tendered and not withdrawn, for aggregate cash consideration of $232.8 million, which represented the accreted value of the repurchased notes. As a result, $441.7 million aggregate principal amount at maturity of Cox’s convertible notes remain outstanding. In addition, Cox made an aggregate cash payment of $7.5 million to the remaining holders of the convertible notes who elected not to require Cox to repurchase their notes.

Exchangeable Subordinated Debentures

     Exchangeable subordinated debentures at June 30, 2002 are comprised of: $1.3 billion aggregate original principal amount of exchangeable subordinated debentures, referred to as PRIZES, which were issued in November 1999 and are due November 2029; $275.0 million aggregate original principal amount of exchangeable subordinated debentures, referred to as Premium PHONES, which were issued in March 2000 and are due March 2030; and $1.8 billion aggregate principal amount at maturity of exchangeable subordinated discount debentures, referred to as Discount Debentures, which were issued in April 2000 and are due April 2020. The Discount Debentures were issued at an aggregate original issue discount of $1.1 billion.

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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements — Continued (Unaudited)

     The original principal amount of the PRIZES, Premium PHONES and Discount Debentures are indexed to the trading price of Sprint PCS common stock. Accordingly, if the fair value of the Sprint PCS common stock rises above the market price at the time of issuance, Cox may be obligated to pay an additional amount in excess of the original principal at maturity or upon the holders’ exchange of the PRIZES, Premium PHONES and Discount Debentures. The Premium PHONES and Discount Debentures are exchangeable for shares of Sprint PCS common stock held by Cox or cash based on the value of such shares. The PRIZES are exchangeable for cash based on the value of shares of Sprint PCS common stock. With respect to the Discount Debentures, the holders may also require Cox to repurchase these securities on certain dates prior to maturity at a purchase price equal to the adjusted principal amount plus any accrued and unpaid interest. See Note 6. “Derivative Instruments and Hedging Activities” for more information regarding the accounting for the exchangeable subordinated debentures.

Interest Rate Swaps

     Cox utilizes four interest rate swap agreements to manage its exposure to changes in interest rates associated with certain of its fixed-rate debt obligations whereby these fixed-rate debt obligations are effectively converted into floating-rate debt obligations. The variable rates with respect to Cox’s interest rate swaps are adjusted quarterly based on London Interbank Offered Rates. 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, Cox does not anticipate nonperformance by the counterparties, and no material loss would be expected in the event of the counterparties’ nonperformance. For a further discussion regarding Cox’s accounting for interest rate swaps, see Note 6. “Derivative Instruments and Hedging Activities.”

     The following table summarizes the notional amounts, weighted average interest rate data and maturities for Cox’s interest rate swap agreements at June 30, 2002 and December 31, 2001:

     As a result of the settlements under Cox’s interest rate swap agreements, interest expense was reduced by $10.5 million and $23.4 million, respectively, during the three and six months ended June 30, 2002 and $5.2 million and $7.0 million, respectively, during the three and six months ended June 30, 2001.

6. Derivative Instruments and Hedging Activities

     Cox is exposed to fluctuations in interest rates and equity market prices associated with certain of its assets, liabilities, equity instruments and forecasted transactions. Cox actively monitors these fluctuations and uses derivative instruments from time to time to manage its exposure. In accordance with its risk management strategy, Cox uses derivative instruments only for the purpose of managing risk associated with fluctuations in the fair value of the underlying exposures identified by management. Cox does not hold or issue derivative instruments with the objective of earning financial gains on interest rates or equity market price fluctuations alone, nor does it use leveraged instruments or instruments where there are no underlying exposures identified. Cox’s use of derivative instruments may result in short-term gains or losses and may increase volatility in its earnings.

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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements — Continued (Unaudited)

     Cox accounts for derivative instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which requires all freestanding and embedded derivative instruments to be measured at fair value and recognized on the balance sheet as either assets or liabilities. In addition, all derivative instruments used in hedging relationships must be designated, reassessed and accounted for as either fair value hedges or cash flow hedges pursuant to the provisions of SFAS No. 133.

     Cox recorded pre-tax gains on derivative instruments of $47.9 million and $767.6 million during the three and six months ended June 30, 2002, respectively, and pre-tax losses on derivative instruments of $250.6 million and $257.6 million during the three months and six months ended June 30, 2001, respectively. In addition, cumulative derivative adjustments made in accordance with SFAS No. 133, which are classified as a component of debt in the Condensed Consolidated Balance Sheets, reduced reported indebtedness by approximately $1.1 billion and $0.5 billion at June 30, 2002 and December 31, 2001, respectively. The following is a detail of Cox’s gain (loss) on derivative instruments for the three and six months ended June 30, 2002 and 2001 followed by a summary of Cox’s derivative instruments.

Interest Rate Swap Agreements

     Cox has designated and accounted for its four interest rate swap agreements as fair value hedges whereby the fair value of the related interest rate swap agreements are classified as a component of other assets with the corresponding fixed-rate debt obligations being classified as a component of debt in the Condensed Consolidated Balance Sheets. Cox has assumed no ineffectiveness with regard to these interest rate swap agreements as the agreements qualify for the short-cut method of accounting for fair value hedges of debt instruments, as prescribed by SFAS No. 133. Cox’s interest rate swap agreements approximated a derivative asset of $69.4 million and $53.4 million at June 30, 2002 and December 31, 2001, respectively.

Equity Collar Arrangements

     Cox had a series of costless equity collar arrangements to manage its exposure to market price fluctuations of approximately 15.8 million shares of its Sprint PCS common stock. Cox also had costless equity collar arrangements to manage its exposure to market price fluctuations of 17.2 million shares of its AT&T Wireless common stock and of 22.5 million shares of its AT&T common stock. Cox had designated and accounted for all of these costless equity collars as fair value hedges. During the first quarter of 2002, Cox terminated these equity collar arrangements for aggregate proceeds of $264.4 million and recognized a pre-tax derivative gain of approximately $268.8 million. For a further discussion of these transactions, see Note 3. “Investments.”

Zero-Coupon Debt

     In January 2001, Cox issued a series of prepaid forward contracts to sell up to 19.5 million shares of its Sprint PCS common stock with an aggregate fair value as of the respective trade dates of $502.0 million for aggregate proceeds of $389.4 million, which was net of an original issue discount of $112.6 million. These

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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements — Continued (Unaudited)

contracts mature at various dates between 2004 and 2006, and at Cox’s election, may be settled in cash or shares of Sprint PCS common stock. These contracts meet the definition of a hybrid instrument, as prescribed by SFAS No. 133. These hybrid instruments are comprised of a zero-coupon debt instrument, as the host contract, and an embedded derivative, which derives its value, in part, based on the trading price of Sprint PCS common stock. Cox has not designated these embedded derivatives as a hedge of its investment in Sprint PCS common stock. As a result, changes in the fair value of these embedded derivatives are recognized in earnings and classified within gain (loss) on derivative instruments in the Condensed Consolidated Statements of Operations. The aggregate fair value of these embedded derivatives approximated a derivative asset of $373.8 million and $40.8 million at June 30, 2002 and December 31, 2001, respectively, and have been classified as a component of the zero-coupon debt instruments. Accordingly, the carrying value of the zero-coupon debt instruments, net of the embedded derivative assets, amounted to $53.8 million and $373.5 million at June 30, 2002 and December 31, 2001, respectively, and have been classified within debt in the Condensed Consolidated Balance Sheets.

Exchangeable Subordinated Debentures

     Cox has three series of exchangeable subordinated debentures outstanding, referred to as PRIZES, Premium PHONES and Discount Debentures, as further described in Note 5. “Debt.” The exchangeable subordinated debentures meet the definition of a hybrid instrument, as prescribed by SFAS No. 133. These hybrid instruments are comprised of an exchangeable subordinated debt instrument, as the host contract, and an embedded derivative, which derives, in part, its value based on the trading price of Sprint PCS common stock. Cox has not designated these embedded derivatives as a hedge of its investment in Sprint PCS common stock. As a result, changes in the fair value of these embedded derivatives are recognized in earnings and classified within gain (loss) on derivative instruments in the Condensed Consolidated Statements of Operations. The aggregate fair value of these embedded derivatives approximated a derivative obligation of $334.5 million and $583.7 million at June 30, 2002 and December 31, 2001, respectively, and have been classified as a component of the corresponding exchangeable subordinated debt instruments. Accordingly, the aggregate carrying value of the exchangeable subordinated debt instruments, including the embedded derivative obligations, amounted to $1,604.7 million and $1,829.5 million at June 30, 2002 and December 31, 2001, respectively, and have been classified within debt in the Condensed Consolidated Balance Sheets.

Stock Purchase Warrants

     Cox holds strategic investments in warrants to purchase equity securities of certain publicly-traded and privately-held entities that meet the definition of a freestanding derivative instrument, as prescribed by SFAS No. 133, and have not been designated by Cox as hedging instruments. As a result, changes in the fair value of these warrants are recognized in earnings and classified within gain (loss) on derivative instruments in the Condensed Consolidated Statements of Operations. The aggregate fair value of these warrants approximated a derivative asset of $7.1 million and $90.5 million at June 30, 2002 and December 31, 2001, respectively, and have been classified as a component of investments in the Condensed Consolidated Balance Sheets.

7.  Earnings Per Share

     For the three and six months ended June 30, 2002, 55.4 million and 54.8 million Class A common shares, respectively, related to employee stock-based compensation plans, convertible preferred stock and notes, and the effect of Cox-obligated capital and preferred securities of subsidiary trusts were not included in the computation of diluted EPS, because such effects would have been antidilutive for the periods.

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Cox Communications, Inc.
Notes to Condensed Consolidated Financial Statements — Continued (Unaudited)

     The following table reconciles the numerator and the denominator of the basic and diluted per share computations for income from operations for the three and six months ended June 30, 2001: