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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number 1-6590

Cox Communications, Inc.

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes x   No o

      There were 592,657,908 shares of Class A Common Stock and 27,597,792 shares of Class C Common Stock outstanding as of May 1, 2003.

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Cox Communications, Inc.
Form 10-Q
For the Quarter Ended March 31, 2003

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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 March 31, 2003

1.     Organization and Basis of Presentation

      Cox Communications, Inc. (Cox), an indirect 63.4% majority-owned subsidiary of Cox Enterprises, Inc. (CEI), is a multi-service broadband communications company serving approximately 6.5 million customers nationwide. Cox is the nation’s fourth 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.

      The accompanying unaudited 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 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, 2002.

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 for the year ended December 31, 2002.

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, 2003 or any other interim period.

Stock Compensation Plans

      At March 31, 2003, Cox had two stock-based compensation plans for employees, a Long-Term Incentive Plan (LTIP) and an Employee Stock Purchase Plan (ESPP), which are more fully described in Cox’s Annual Report on Form 10-K for the year ended December 31, 2002. Cox accounts for those plans under the intrinsic value method, which follows the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the LTIP had an exercise price equal to or greater than the market value of the underlying common stock on the grant date. Further, the ESPP is a noncompensatory plan under APB Opinion No. 25, and, as such, no compensation cost was recognized with respect to the ESPP.

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

      The following table illustrates the effect on net income (loss) and net income (loss) per share if Cox had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:

Recently Issued Accounting Pronouncements

      In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities. Interpretation No. 46 addresses consolidation by business enterprises of variable interest entities, which are entities that either (a) do not have equity investors with vesting rights or (b) have equity investors that do not provide sufficient financial resources for the entity to support its activities. The interpretation is effective for the first interim or annual reporting period beginning after June 15, 2003 for existing variable interest entities and is effective immediately for variable interest entities created after January 31, 2003. Cox does not currently hold any interest in variable interest entities.

Reclassifications

      Certain amounts in the 2002 condensed consolidated financial statements have been reclassified for comparative purposes.

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

3.     Investments

Investments Stated at Fair Value

      The aggregate cost of Cox’s investments stated at fair value at March 31, 2003 and December 31, 2002 was $174.2 million and $175.0 million, respectively. Gross unrealized gains on investments were $166.3 million at March 31, 2003, and gross unrealized gains and losses on investments were $129.6 million and $0.4 million, respectively, at December 31, 2002. For the three months ended March 31, 2003, gross realized losses on investments stated at fair value were $1.8 million. For the three months ended March 31, 2002, gross realized gains and losses on investments stated at fair value were $37.0 million and $445.7 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 March 31, 2003, 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 $345.4 million and $349.2 million at March 31, 2003 and December 31, 2002, respectively.

      In April 2003, Cox sold its Sprint PCS warrants, which were exercisable for approximately 6.3 million shares of Sprint PCS common stock, for nominal consideration. Cox expects to recognize a nominal loss in the second quarter of 2003 as a result of this sale.

Other

      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 March 31, 2003 and December 31, 2002.

4.     Intangible Assets

      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. Cox assesses franchise value for impairment under SFAS No. 142 by utilizing a residual approach whereby Cox measures 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 its January 1, 2003 annual impairment test, Cox considered the guidance contained in Emerging Issues Task Force

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

Issue No. 02-17, Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination, whereby Cox considered assumptions that marketplace participants would consider, such as expectations of future contract renewals and other benefits related to the intangible asset, when measuring the fair value of the cable system cluster’s other net assets. The January 1, 2003 impairment test resulted in a non-cash impairment charge of approximately $25.0 million, which is classified within amortization expense in Cox’s Condensed Consolidated Statement of Operations.

      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 be amortized:

5.     Debt

      See Note 6. “Derivative Instruments and Hedging Activities” for a discussion of the accounting for certain derivative instruments 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 March 31, 2003 and December 31, 2002.

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

Revolving Credit Facilities

      Cox has a $1.1 billion 364-day credit agreement available through June 27, 2003 and a $0.9 billion 5-year credit agreement available through September 26, 2005. The 364-day credit agreement has a “term-out” feature that allows Cox to extend the maturity of its 364-day credit agreement for an additional two years at maturity. At Cox’s election, the interest rate on these credit agreements is based on London Interbank Offered Rate (LIBOR), the certificate of deposit rate plus varying percentages or an alternate base rate. These credit agreements also impose a commitment fee on the unused portion of the total amount available based on a ratio of debt to operating cash flow, a measure of performance not calculated in accordance with accounting principles generally accepted in the United States of America, and a utilization fee based on the level of borrowings. Cox had no borrowings outstanding under either credit agreement at March 31, 2003 and December 31, 2002.

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 24, 2003. Cox repurchased $422.7 million aggregate principal amount at maturity of the convertible notes that had been properly tendered and not withdrawn, for aggregate cash consideration of $304.2 million, which represented the accreted value of the repurchased notes. As a result, $19.0 million of the original $770.8 million aggregate principal amount at maturity of Cox’s convertible notes remain outstanding.

      A series of Cox’s outstanding debt securities due 2033, representing $250.0 million aggregate principal amount, is subject to remarketing in July 2003. If the remarketing occurs, the maturity date on these debt securities will remain August 1, 2033. If the remarketing does not occur, Cox will be required to redeem such securities, and may pay a premium to the remarketing dealer. Cox intends to refinance such securities with the issuance of new debt or use of capacity from existing credit facilities. As a result, these debt securities are classified as long-term debt on Cox’s Condensed Consolidated Balance Sheet at March 31, 2003.

Exchangeable Subordinated Debentures

      Exchangeable subordinated debentures at March 31, 2003 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 with an aggregate original issue discount of $1.1 billion.

      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. As of May 5, 2003, Cox and the trustee under the indenture governing the terms of the Premium PHONES executed the Sixth Supplemental Indenture pursuant to which Cox’s right to deliver Sprint PCS common stock to a holder upon settlement of such holder’s exchange of Premium PHONES was terminated. The Discount Debentures are exchangeable at the holders’ option for cash

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

based on the value of shares of Sprint PCS common stock, and Cox, may elect, in its sole discretion, to deliver shares of Sprint PCS common stock to a holder upon a settlement of such holder’s exchange. The PRIZES and Premium Phones are exchangeable at the holders’ option 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.

      On May 6, 2003, Cox launched tender offers to purchase any and all of its outstanding PRIZES and any and all of its outstanding Premium PHONES for cash. Each PRIZES will be purchased at a price of $39.50 for each $88.50 original principal amount of the PRIZES, and each Premium PHONES will be purchased at a price of $581.25 for each $1,000 original principal amount of the Premium PHONES, if validly tendered before 5:00 p.m., New York City time, on May 19, 2003. After May 19, 2003, but before the expiration of the offers at 5:00 p.m., New York City time, on June 4, 2003, unless extended by Cox, each validly tendered PRIZES will be purchased at a price of $37.50 per PRIZES, and each validly tendered Premium PHONES will be purchased at a price of $561.25 per Premium PHONES. In either case, holders of the PRIZES and Premium PHONES that validly tender their securities will receive accrued and unpaid interest up to but excluding the settlement date.

      Cox cannot predict how many holders will tender their securities pursuant to the tender offers. Cox may terminate either or both tender offers at any time in its sole discretion. Cox’s obligation to accept for purchase, and pay for, either PRIZES or Premium PHONES is not, however, conditioned upon the acceptance for purchase of and payment for the other series or upon a minimum principal amount of PRIZES or Premium PHONES being tendered.

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 with respect to Cox’s interest rate swaps are adjusted quarterly or semi-annually 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. For a further discussion regarding Cox’s accounting for interest rate swaps, see Note 6. “Derivative Instruments and Hedging Activities.”

      In March 2003, Cox entered into two new interest rate swap agreements expiring on August 1, 2008 with a notional amount of $100.0 million each to convert $200.0 million of fixed rate senior debt securities to a floating rate. The swaps have been designated as fair value hedges of the underlying debt securities, as defined in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended.

      The following table summarizes the notional amounts, weighted average interest rate data and maturities for Cox’s interest rate swap agreements at March 31, 2003 and December 31, 2002:

      As a result of the settlements under Cox’s interest rate swap agreements, interest expense was reduced by $13.8 million and $12.9 million, respectively, during the three months ended March 31, 2003 and 2002.

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

6.     Derivative Instruments and Hedging Activities

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

      Cox does not hold or issue derivative instruments for trading purposes and is not a party to leveraged instruments. From time to time, however, Cox uses derivative instruments to manage its exposure to changes in the fair value of certain of its assets or liabilities or to manage its exposure to changes in interest rates or equity prices. These derivative instruments are designated and accounted for by Cox as hedges of the underlying exposure being managed, as prescribed by SFAS No. 133. In addition, upon adoption of SFAS No. 133, certain of Cox’s debt instruments and investments contained embedded or freestanding derivatives, as defined. Cox has not designated these embedded and freestanding derivatives as hedges under SFAS No. 133 and, as such, changes in their fair value are being recognized in earnings as derivative gains or losses. Cox’s use of derivative instruments may result in short-term gains or losses and may increase volatility in its earnings.

      The credit risks associated with Cox’s derivative financial instruments are controlled through the evaluation and monitoring of the creditworthiness of the counterparties. Although Cox may be exposed to losses in the event of nonperformance by the counterparties, Cox does not expect such losses, if any, to be significant.

      Cox recorded pre-tax loss on derivative instruments of $2.5 million during the three months ended March 31, 2003 and a pre-tax gain on derivative instruments of $719.8 million during the three months ended March 31, 2002. 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 $1.4 billion at March 31, 2003 and December 31, 2002. The following is a detail of Cox’s gain (loss) on derivative instruments for the three months ended March 31, 2003 and 2002 followed by a summary of Cox’s derivative instruments.

Interest Rate Swap Agreements

      Cox utilizes interest rate swap agreements designed to assist Cox in maintaining a mix of fixed and floating rate debt by converting a portion of existing fixed rate debt into a floating rate obligation. Cox has designated and accounted for its interest rate swap agreements as fair value hedges whereby the fair value of the related interest rate swap agreements are classified as a component of other assets with the corresponding fixed-rate debt obligations being classified as a component of debt in the 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 $113.4 million and $112.1 million at March 31, 2003 and December 31, 2002, respectively.

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

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.

Zero-Coupon Debt

      Cox has a series of prepaid forward contracts to sell up to 19.5 million shares of its Sprint PCS common stock. These 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 $401.7 million and $400.1 million at March 31, 2003 and December 31, 2002, 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 a net liability of $46.7 million and $41.4 million at March 31, 2003 and December 31, 2002, 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, U.S. Treasury rates and Cox’s credit spreads. Cox has not designated these embedded derivatives as a hedge of its investment in Sprint PCS common stock. As a result, changes in the fair value of these embedded derivatives are recognized in earnings and classified within gain (loss) on derivative instruments in the Condensed Consolidated Statements of Operations. The aggregate fair value of these embedded derivatives approximated a derivative obligation of $0.4 million and $0.6 million at March 31, 2003 and December 31, 2002, 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 $1,308.8 million and $1,296.1 million at March 31, 2003 and December 31, 2002, respectively, and have been classified within debt in the Condensed Consolidated Balance Sheets.

Stock Purchase Warrants

      Cox holds warrants to purchase equity securities of certain publicly-traded and privately-held entities. Warrants that can be exercised and settled by the delivery of net shares such that Cox pays no cash upon exercise are deemed freestanding derivative instruments, as prescribed by SFAS No. 133. Cox has not designated net share warrants as hedging instruments; accordingly, changes in the fair value of these

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

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 $1.9 million and $6.1 million at March 31, 2003 and December 31, 2002, respectively, and has been classified as a component of investments in the Condensed Consolidated Balance Sheets.

7.     Earnings Per Share

      For the three months ended March 31, 2003, 25.2 million Class A common shares related to employee stock-based compensation plans, convertible senior notes and convertible preferred stock were not included in the computation of diluted earnings per share, because such effects would have been antidilutive for the period.

      The following table reconciles the numerator and the denominator of the basic and diluted per share computations for income from operations for the three months ended March 31, 2002:

      For the three months ended March 31, 2002, 44.4 million common shares related to employee stock-based compensation plans, convertible senior notes and the effect of Cox-obligated capital and preferred securities of subsidiary trusts were not included in the computation of diluted earnings per share, because such effects would have been antidilutive for the period.

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

8.     Transactions with Affiliated Companies

      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 $49.8 million at March 31,2003, and the amount due from CEI to Cox was approximately $21.1 million at December 31, 2002. The interest rate was 1.5% and 1.8% at March 31, 2003 and December 31, 2002, respectively. Included in amounts due from (to) CEI are the following transactions:

9.     Supplemental Financial Information

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

10.     Commitments and Contingencies

      In connection with certain of Cox’s recent 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 March 31, 2003, 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.

      Cox’s subsidiary Cox Communications Louisiana L.L.C. (Cox Louisiana) is a defendant in a putative subscriber class action suit in Louisiana state court filed on November 5, 1997. The suit challenges the propriety of late fees charged by Cox Louisiana in the greater New Orleans area to customers who fail to pay for services in a timely manner. The suit seeks injunctive relief and damages under certain claimed state law causes of action. The action is being defended vigorously. The outcome of this matter cannot be predicted at this time. A related suit filed in Texas was voluntarily dismissed on September 19, 2002.

      On November 14, 2000, GTE.NET, L.L.C. d/b/a Verizon Internet Solutions and Verizon Select Services, Inc. filed suit against Cox in the United States District Court for the Southern District of California. Verizon alleged that Cox has violated various sections of the Communications Act of 1934 by allegedly refusing to provide Verizon with broadband telecommunications service and interconnection, among other things. On November 29, 2000, Verizon amended its complaint to add CoxCom, Inc., a subsidiary of Cox, as an additional defendant. On January 8, 2002, Verizon filed a second amended complaint, dropping its claims for interconnections and damages. Verizon seeks various forms of relief, including declaratory and injunctive relief. On January 29, 2002, the Court granted defendants’ motion to stay the case on primary jurisdiction grounds. Cox and CoxCom intend to defend this action vigorously. The outcome cannot be predicted at this time.

      On August 23, 2002, plaintiff Redefining Progress, on behalf of itself and all others similarly situated, sued Fax.com, Inc., Cox Business Services, L.L.C. and others in United States District Court for the Northern District of California, alleging that Fax.com has sent numerous unsolicited advertisements by facsimile in violation of a federal statute. The complaint alleges that Cox Business Services, which provides telecommunications services to Fax.com, is also liable for the facsimiles in violation of the Telephone Consumer Protection Act of 1991 (TCPA), Sections 206 and 207 of the Telecommunications Act of 1996 and certain state laws. The suit seeks an award of statutory damages in the amount of $500 for each violation of the TCPA, treble damages, injunctive relief, the establishment of a constructive trust and other relief. On October 11, 2002, Cox Business Services moved to dismiss for lack of subject matter jurisdiction, for failure to state a claim, and based on the primary jurisdiction of the FCC. On March 3, 2003, the court granted Cox Business Services’ motion to dismiss for lack of subject matter jurisdiction. The time for appeal has expired. A nearly identical federal court suit was filed in the United States District Court for the Northern District of California on September 4, 2002 by plaintiff Daniel David, on behalf of himself and all others similarly situated, against Fax.com, Cox Business Services, and others, but was not served until December 4, 2002. The David suit was reassigned to the same judge presiding over the suit filed by Redefining Progress, and it asserts substantially the same claims and seeks substantially the same relief. The David suit was stayed pending the outcome of Cox Business Services’ motion to dismiss the Redefining Progress suit. Cox Business Services intends to defend these actions vigorously. Their outcomes cannot be predicted at this time.

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

      In addition, on September 8, 2002, plaintiff Daniel David, on behalf of himself and all others similarly situated, filed a nearly identical case against Fax.com, Cox Business Services and others in the Superior Court of California, Alameda County. The complaint asserts various causes of action including violation of the TCPA, trespass to chattels, violation of Section 17-200 of the California Business and Professions Code and unjust enrichment. The suit seeks damages and injunctive relief similar to that sought in the related federal suits. This action has been stayed until July 8, 2003 pending FCC action on its on-going TCPA rule-making. Cox Business Services intends to defend this action vigorously. The outcome cannot be predicted at this time.

      Cox @Home, Inc., a wholly-owned subsidiary of Cox, is a stockholder of At Home Corporation, also called Excite@Home, formerly a provider of high-speed Internet access and content services, which filed for bankruptcy protection in September 2001. On September 24, 2002, a committee of bondholders of Excite@Home sued Cox, Cox @Home and Comcast Corporation, among others, in the United States District Court for the District of Delaware. The suit alleges the realization of short-swing profits under Section 16(b) of the Securities Exchange Act of 1934 from purported transactions relating to Excite@Home common stock involving Cox, Comcast and AT&T Corp., and purported breaches of fiduciary duty. The suit seeks disgorgement of short-swing profits allegedly received by the Cox and Comcast defendants totaling at least $600.0 million, damages for breaches of fiduciary duties in an unspecified amount, attorney’s fees, pre-judgment interest and post-judgment interest. On November 12, 2002, Cox, Cox @Home, and David Woodrow filed a motion to dismiss or transfer the action for improper venue or, in the alternative, to transfer the action pursuant to 28 U.S.C. Sec. 1404. Briefing is completed. The Court has not yet decided the motion. Cox and Cox @Home intend to defend this action vigorously. The outcome cannot be predicted at this time.

      Jerrold Schaffer and Kevin J. Yourman, on May 26, 2000 and May 30, 2000, respectively, filed class action lawsuits in the Superior Court of the State of California for the County of San Mateo, 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 have appealed the Bankruptcy Court’s decision to the United States District Court for the Northern District of California. Cox intends to defend these actions vigorously. The outcome cannot be predicted at this time.

      On April 26, 2002, Frieda and Michael Eksler filed an amended complaint naming Cox as a defendant in a putative class action lawsuit in the United States District Court for the Southern District of New York against AT&T Corp. and certain former officers of Excite@Home, among others. Cox was served on May 10, 2002. This case has been consolidated with a related case captioned Semen Leykin v. AT&T Corp., et al., and another related case, and an amended complaint in that case, naming Cox as a defendant, was filed and served on November 7, 2002. The putative class includes persons who purchased shares of Excite@Home common stock between the time period March 28, 2000 and September 28, 2001. The sole count against Cox asserts a claim against Cox as a “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

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

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. Cox intends to defend this action vigorously. The outcome cannot be predicted at this time.

      Cox and its subsidiaries are parties to various other legal proceedings that are ordinary and incidental to their businesses. Management does not expect that any of these other currently pending legal proceedings will have a material adverse impact on Cox’s consolidated financial position, results of operations or cash flows.

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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 month periods ended March 31, 2003 and 2002.

Overview

      Cox Communications, Inc., an indirect 63.4% majority-owned subsidiary of Cox Enterprises, Inc., is a multi-service broadband communications company serving approximately 6.5 million customers nationwide. Cox is the nation’s fourth 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’s business strategy is to leverage the capacity and capability of its broadband network to deliver multiple services to consumers and businesses while creating multiple revenue streams for Cox. Cox believes that aggressive investment in the technological capabilities of its broadband network, the long-term advantages of clustering, the competitive value of bundled services and its commitment to customer and community service will enhance its ability to continue to grow its cable operations and offer new services to existing and new customers.

      Based on reported subscriber numbers of other providers of multi-channel video services, Cox is the sixth largest provider of multi-channel video services in the county. The following providers report higher subscriber numbers than Cox: Comcast Corporation, Echostar Communications Corporation, DirecTV (a subsidiary of Hughes Electronics), AOL-Time Warner and Charter Communications.

Results of Operations

      The following table sets forth summarized consolidated financial information for the three months ended March 31, 2003 and 2002.