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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

 (Mark One)

Commission File Number 1-6590

COMMUNICATIONS

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 592,697,329 shares of Class A Common Stock and 27,597,792 shares of Class C Common Stock outstanding as of July 31, 2003.

Cox Communications, Inc.
Form 10-Q
For the Quarter Ended June 30, 2003

Table of Contents

Preliminary Note

     This Quarterly Report on Form 10-Q is for the three and six-month periods ended June 30, 2003. 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

See notes to condensed consolidated financial statements.

2

Cox Communications, Inc.
Condensed Consolidated Statements of Operations

See notes to condensed consolidated financial statements.

3

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

See notes to condensed consolidated financial statements.

4

Cox Communications, Inc.
Condensed Consolidated Statements of Cash Flows

See notes to condensed consolidated financial statements.

5

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

Quarter Ended June 30, 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, including 6.3 million basic cable subscribers. 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 June 30, 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 Class A 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 tables illustrate 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. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, and 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. The adoption of Interpretation No. 46 is not expected to have a material impact on Cox’s results of operations or financial position.

7

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

     In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 requires that contracts with comparable characteristics be accounted for similarly. The statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The provisions of SFAS No. 149 generally are to be applied prospectively only. The adoption of SFAS No. 149 is not expected to have a material effect on Cox’s results of operations or financial position.

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The statement requires that an issuer classify a financial instrument that is within its scope as a liability (or asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 requires that financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption, be reported through a cumulative effect of a change in accounting principle. The adoption of SFAS No. 150 will not have a material effect on Cox’s results of operations or financial position.

Reclassifications

     Certain amounts in the 2002 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, 2003 and December 31, 2002 was $108.1 million and $175.0 million, respectively. Gross unrealized gains on investments were $78.5 million at June 30, 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 and six months ended June 30, 2003, gross realized gains and losses on investments stated at fair value were $124.5 million and $0.4 million, respectively, and $124.5 million and $2.1 million, respectively. For the three and six months ended June 30, 2002, gross realized gains and losses on investments stated at fair value were $0.2 million and $793.1 million, respectively, and $37.2 million and $1.2 billion, 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.”

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

     Sprint PCS. In April 2003, Cox sold its Sprint Corporation’s PCS Group (Sprint PCS) warrants, which were exercisable for approximately 6.3 million shares of Sprint PCS common stock, for nominal consideration. Cox recognized a pre-tax loss of $0.4 million as a result of this sale.

     In June 2003, Cox sold 32.9 million shares of Sprint PCS common stock for aggregate net proceeds of approximately $161.7 million. Cox recognized an aggregate pre-tax gain of $97.2 million on the sale of these shares.

     At June 30, 2003, Cox’s remaining investment in Sprint PCS was comprised of 33.8 million shares of Sprint PCS common stock and convertible preferred stock, which is convertible into approximately 4.0 million shares of Sprint PCS common stock. Of the 33.8 million shares of Sprint PCS common stock, 19.5 million shares were classified as trading securities and have been pledged in connection with Cox’s zero-coupon debt and the remaining shares were classified as available-for-sale securities and were associated with Cox’s remaining outstanding exchangeable subordinated debentures. For more information regarding Cox’s zero-coupon debt and exchangeable subordinated debentures, refer to Note 5. “Debt”. The estimated fair value of Cox’s investment in Sprint PCS was $252.3 million and $349.2 million at June 30, 2003 and December 31, 2002, respectively.

Other

     Cox has several other fair value, equity and cost method investments that were not, individually or in the aggregate, significant in relation to Cox’s Condensed Consolidated Balance Sheets at June 30, 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 annual impairment test as of January 1, 2003, Cox considered the guidance contained in Emerging Issues Task Force (EITF) 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.

9

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

     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 that are no longer 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 Cox’s Condensed Consolidated Balance Sheets at June 30, 2003 and December 31, 2002.

Revolving Credit Facilities

     In June 2003, Cox renewed its 364-day credit agreement, which is now available through June 26, 2004. The 364-day credit agreement also allows Cox to extend the agreement for an additional two years at maturity. The capacity of this credit agreement was reduced from $1.1 billion to $900.0 million. Cox also has a $900.0 million 5-year credit agreement available through September 26, 2005. 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 GAAP, and a utilization fee based

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

on the level of borrowings. Cox had no borrowings outstanding under either credit agreement at June 30, 2003 and December 31, 2002.

Notes and Debentures

     In May 2003, Cox issued a series of 4.625% senior notes due 2013 with an aggregate principal amount of $600.0 million, less offering costs and underwriting commissions of $7.7 million. The 4.625% senior notes mature on June 1, 2013, are unsecured and rank equally with Cox’s other senior unsecured indebtedness. In addition, the 4.625% senior notes may be redeemed by Cox, in whole or in part, at any time prior to maturity at the greater of (x) 100% of the principal amount and (y) the present value of the principal amount and the remaining scheduled interest payments plus a make-whole premium, plus in either case (x) or (y), accrued and unpaid interest. Interest is payable on a semi-annual basis beginning December 1, 2003.

     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 at June 30, 2003.

     On August 1, 2003, Cox’s $250.0 million aggregate principal amount of 6.15% REset Put Securities due 2033 (REPS) was subject to mandatory tender to the remarketing dealer. However, the remarketing dealer and Cox mutually agreed to terminate the remarketing dealer’s right to remarket the REPS and, in accordance with the terms of the REPS, Cox repurchased the REPS on August 1, 2003. The total aggregate consideration paid to repurchase the REPS was $301.4 million, which amount included the remarketing option value paid to the remarketing dealer and accrued interest paid to the holders.

Exchangeable Subordinated Debentures

     In June 2003, Cox repurchased $1.3 billion original principal amount of its 2% Exchangeable Subordinated Debentures due 2029 (PRIZES) and $274.9 million original principal amount of its 3% Exchangeable Subordinated Debentures due 2030 (Premium PHONES) pursuant to Cox’s tender offers for such securities for aggregate cash consideration of $755.1 million, representing the tender offer consideration plus accrued and unpaid interest for each security. As a result of Cox’s repurchase pursuant to the tender offers, on June 30, 2003, the Premium PHONES were de-listed from the New York Stock Exchange and registration of the Premium PHONES under Section 12 of the Securities Exchange Act of 1934 was terminated.

     Exchangeable subordinated debentures at June 30, 2003 are comprised of: $14.6 million aggregate original principal amount of PRIZES, which were issued in November 1999 and are due November 2029; $0.1 million aggregate original principal amount of 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 due 2020 (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 aggregate carrying value of the exchangeable subordinated debentures, which is adjusted for the embedded derivative obligations, amounted to $527.1 million and $1.3 billion at June 30, 2003 and December 31, 2002, respectively, and has been classified within debt in the Condensed Consolidated Balance Sheets.

     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; however, Cox is obligated to pay the full principal amount at maturity of each security. The PRIZES and Premium Phones are exchangeable at the holders’

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

option for cash based on the value of shares of Sprint PCS common stock. The Discount Debentures are exchangeable at the holders’ option for cash 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. Holders of the Discount Debentures also may 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 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 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, 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 interest rate swap agreements with an aggregate notional amount of $200.0 million. The swaps have been designated as fair value hedges of the underlying debt, as defined in SFAS No. 133, and relate to debt maturing in 2008.

     In June and July 2003, Cox entered into a series of interest rate swap agreements with an aggregate notional amount of $400.0 million. These swaps have been designated as fair value hedges of the underlying debt, as defined in SFAS No. 133, and relate to debt maturing in 2009.

     The following table summarizes the notional amounts, weighted average interest rate data and maturities for Cox’s interest rate swap agreements at June 30, 2003 and December 31, 2002:

     As a result of the settlements under Cox’s interest rate swap agreements, interest expense was reduced by $15.2 million and $29.0 million, respectively, during the three and six months ended June 30, 2003, and $10.5 million and $23.4 million, respectively, during the same periods in the prior year.

6.     Derivative Instruments and Hedging Activities

     Cox accounts for derivative instruments in accordance with SFAS No. 149 and SFAS No. 133, which require 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.

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

     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 losses on derivative instruments of $24.2 million and $26.7 million during the three and six months ended June 30, 2003, respectively, and 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. In addition, cumulative derivative adjustments made in accordance with SFAS No. 133, which are classified as a component of debt in Cox’s Condensed Consolidated Balance Sheets, reduced reported indebtedness by approximately $611.2 million at June 30, 2003 and approximately $1.4 billion at December 31, 2002. The following is a detail of Cox’s gain (loss) on derivative instruments for the three and six months ended June 30, 2003 and 2002 followed by a summary of Cox’s derivative instruments.