UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

OR

Commission File Number 1-6590

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
The principal exchange for the following securities is the New York Stock Exchange:
Exchangeable Subordinated Discount Debentures due 2020

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. þ

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

     As of June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s then outstanding Class A Common Stock, par value $1.00 per share, held by non-affiliates of the registrant was $6,604,649,573 based on the closing price on the New York Stock Exchange on such date.

     There were 556,170,238 shares of Class A Common Stock, par value $0.01 per share, and 27,597,792 shares of Class C Common Stock outstanding as of February 28, 2005.

COX COMMUNICATIONS, INC.
2004 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

Preliminary Note

This annual report on Form10-K is for the year ended December 31, 2004. This annual report modifies and supersedes documents filed prior to this annual report. Information that Cox files with the SEC in the future will automatically update and supersede information contained in this annual report. In this annual report, “Cox,” refers to Cox Communications, Inc. and its subsidiaries, unless the context requires otherwise.

PART I

ITEM 1. BUSINESS

Overview

     Cox Communications, Inc. is a multi-service broadband communications company serving approximately 6.6 million customers nationwide. Cox is the nation’s third-largest cable television provider and offers an array of broadband products and services to both residential and commercial customers in its markets. These services primarily include analog and digital video, high-speed Internet access and local and long-distance telephone.

     On October 19, 2004, Cox Enterprises, Inc. (CEI), Cox Holdings, Inc. (Holdings), a wholly-owned subsidiary of CEI, CEI-M Corporation, another wholly–owned subsidiary of CEI, and Cox entered into an Agreement and Plan of Merger. This merger agreement contemplated as an initial step a joint tender offer by Cox and Holdings for all of Cox’s Class A common stock, par value $1.00 per share (former public stock), not already beneficially owned by CEI. On December 8, 2004, Holdings purchased the approximately 190.5 million shares of Cox’s former public stock properly tendered and delivered, which represented more than 90% of Cox’s outstanding former public stock when combined with the Cox Class A stock owned by Holdings and Cox DNS, Inc. (DNS), another wholly-owned subsidiary of CEI. Following that acquisition, Cox was merged with CEI-M in a short-form merger pursuant to Section 253 of the Delaware General Corporation Law with Cox as the surviving corporation. In this report, we refer to the short-form merger as the going-private merger and to the joint tender offer and short-form merger collectively as the going-private transaction.

     Cox is now an indirect, wholly-owned subsidiary of CEI. CEI, a privately-held corporation headquartered in Atlanta, Georgia, is one of the largest diversified media companies in the U.S. with consolidated revenues in 2004 of approximately $11.6 billion. CEI, which has a 107-year history in the media and communications industry, also publishes 17 daily newspapers and owns or operates 15 television stations. Through its indirect, majority-owned subsidiary, Cox Radio, Inc., CEI owns, or operates or provides sales and other services for 79 radio stations clustered in 18 markets. CEI is also an operator of wholesale auto auctions through Manheim Auctions, Inc., an indirect wholly-owned subsidiary, and holds a majority interest in AutoTrader.com, which offers consumers an online inventory of new and used vehicles.

Business Strategy

     Cox’s 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. 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.

     Technology and Network Infrastructure. Cox strives to maintain the highest technological standards in the industry. Available service offerings depend on bandwidth capacity; the greater the bandwidth, the greater the capacity of the system. Cox’s cable systems generally have bandwidth capacities ranging from 400 to 750 megahertz or greater. At the end of 2004:

	•	Cox had upgraded 93% of its networks to a bandwidth capacity of 750 megahertz or greater;
	•	digital cable was available to 99% of the homes passed by Cox’s broadband network;
	•	high-speed Internet was available to 99% of homes passed; and
	•	telephone was available to 62% of homes passed.

     Clustering. As an integral part of its broadband communications strategy, Cox has continually sought the advantages and efficiencies of operating large local and regional cable system clusters. As of December

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31, 2004, approximately 83% of Cox’s basic video customers were served by Cox’s 12 largest clusters, which averaged approximately 435,000 customers each. These clusters, represented by location, are:

     Locally and regionally clustered cable systems enable Cox to reduce expenses through the consolidation of marketing and support functions and to put in place more experienced management teams who are better equipped to meet the new competitive and regulatory challenges of today’s communications industry at the system level. Local and regional clusters also increase the speed and effectiveness of Cox’s new product and services deployment, enhancing its ability to increase both customers and revenues.

     Bundling. Bundling is a fundamental business strategy for Cox. A bundled customer is one who subscribes to two or more of Cox’s primary services (video, high-speed Internet access and telephone). Cox offers the full bundle of services supported by a single, integrated back-office platform. That means customers can make one call regarding any and all of their services, can receive a single bill for all services and can receive multiple services at a discount. Cox believes that the bundle increases penetration and operating efficiencies, reduces customer churn and provides a competitive advantage. In 2004, the number of bundled customers grew by 23% to 2.8 million, and 44% of Cox’s basic video customers now subscribe to more than one service.

     Customer Service. Strong customer service is a key element of Cox’s business strategy to deliver advanced communications services to its customers. Cox has always been committed to customer service and has been recognized by several industry groups as a leader in providing excellent customer service. Cox believes that its high level of customer satisfaction helps it compete more effectively as it delivers its wide range of broadband communications services, including digital video, high-speed Internet access and local and long-distance telephone, and will continue to benefit Cox as it offers future services. Cox places special emphasis on training its customer contact employees and has developed customer service standards and programs that exceed national customer service standards developed by the National Cable and Telecommunications Association and the Federal Communications Commission (FCC).

     Community Service. A key element of Cox’s community service is enhancing education through the use of cable technology and programming. Cox participates in a wide range of education and community service initiatives in its communities nationwide. Cox’s major company-wide programs include:

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“Cox Cable in the Classroom,” which provides more than 6,000 schools and 3.7 million students with complimentary basic cable service and more than 540 hours of commercial-free educational cable programming on a monthly basis.

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“Cox Line to Learning,” which provides complimentary high-speed Internet access, exclusive curricula and distance-learning experiences to students in more than 900 accredited public and private schools in communities where high-speed digital services are available. Cox’s Line to Learning events link students through online video conferencing to experts in the workplace. These distance-learning events demonstrate the link between classroom activities and the wider world, enabled by Cox’s broadband technology.

In addition, to help bridge the digital divide, Cox provides many local Boys and Girls Clubs of America with free or discounted high-speed Internet access and cable service.

Products and Services

     Cox has one operating segment, broadband communications, and offers video and high-speed Internet access in almost all of its markets, telephone service in a growing number of markets and new advanced services in select markets. Cox experiences some seasonality in its business, primarily as a result of college

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students returning to school in the fall and people traveling to warmer climates for the winter. These factors generally result in increased revenues during the third quarter of the year.

Video

     Cox’s cable operations represent the primary element of its integrated broadband communications strategy. Video revenues represented 60%, 64% and 68% of total revenues in 2004, 2003 and 2002, respectively. Cox offers customers a full range of video services and packages. Customers generally pay initial connection charges and fixed monthly fees for video service. As of December 31, 2004, Cox’s cable systems provided video service to approximately 6.3 million customers.

     Cox’s video service offerings consist of the following:

	•	Basic Cable. Basic cable includes, for a monthly fee, local broadcast signals available off-air, a limited number of broadcast signals from so-called “superstations,” and public, governmental and educational access channels.
	•	Expanded Basic. Expanded service includes, for an additional monthly fee, satellite-delivered non-broadcast programming (such as CNN, MTV, USA, ESPN, A&E, TNT, The Discovery Channel, The Learning Channel and Nickelodeon).
	•	Premium Services. Premium services include, for an additional monthly fee, satellite-delivered programming that consists principally of feature motion pictures presented without commercial interruption, sports events, concerts and other entertainment programming (such as Home Box Office, Showtime, Starz and Cinemax).
	•	Pay-Per-View. Pay-per-view service allows customers to order, for a one-time fee, a single showing of a recently released movie, sporting event or music concert without commercial interruption.
	•	Cox Digital Cable. Digital compression technology currently allows up to 12 digital channels to be inserted into the space of only one traditional analog channel. A set-top video terminal converts the digital signal into analog signals that can be viewed on a television set. A Cox Digital Cable customer can currently receive up to approximately 250 channels, including enhanced pay-per-view service, digital music channels, new networks grouped by genre and an interactive program guide. Customers pay a monthly fee for digital cable, which varies based on level of service and number of digital converters selected by the customer.

     In addition, Cox has introduced new video services to enhance its competitive position and generate additional revenues.

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Entertainment On Demand. Entertainment On Demand (also referred to as video on demand) is an interactive service that provides access to hundreds of movies and other programming with full VCR-like functionality, including the ability to pause, rewind and fast forward programs. Customers can also start a program whenever they like, stop the selection before it is completed and view a program repeatedly during the 24 hour rental period. Customers generally pay on a per-selection basis. Cox has already launched Entertainment On Demand in some markets, and is working with technology vendors and others to make Entertainment On Demand widely available.

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High-Definition Television. High definition television is high-resolution digital television. A high definition television signal has twice the color resolution, provides a picture that is six times sharper than that provided by a traditional analog television set and provides enhanced audio, such as Dolby Digital™. Cox provides high definition television service in 93% of its homes passed.

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Digital Video Recorders. A digital video recorder is a device that allows customers to store television programming on a hard disk drive so that customers can access this programming at a later time. The digital video recorder functions like a VCR, except that there is no videotape and it offers more sophisticated recording options and playback features. Cox has deployed digital video recorders in all of its markets.

High-Speed Internet Access

     Cox offers several packages of high-speed Internet access services with varying speed, features and prices. These services are marketed under the brand name of Cox High Speed Internet. Data revenues represented 17%, 15% and 11% of total revenues in 2004, 2003 and 2002, respectively. These services deliver access to the Internet at speeds of up to 170 times faster than traditional phone modems and provide unique online content that capitalizes on the substantial capacity of Cox’s broadband network. Cox uses its own nationwide Internet Protocol network to deliver high-speed data and Internet services to its customers. This network utilizes Cox’s coaxial cable infrastructure to connect subscribers to the Internet and other online services and includes standard Internet service provider functionality, such as web page hosting for subscribers, access to Internet news groups, multiple e-mail accounts and remote access. Additionally, Cox offers a set of free computer and Internet security software programs designed to help protect its subscriber’s online privacy and identities. Cox believes that control of its network and service will result in better customer service, reduced operating costs and enhanced future services.

     Cox is also offering home networking as part of its high-speed Internet product. A home network is a group of personal computers and other devices that communicate with each other through a common wired or wireless technology. Cox High Speed Internet customers can purchase a home networking product that includes the necessary wired or wireless equipment, a professional installation and 24-hour technical support. There is a one-time installation charge and a monthly fee for ongoing technical support.

Cox Digital Telephone

     Cox utilizes the capacity and reliability of its advanced broadband network by providing local telephone services and long-distance services. Telephony revenues represented 9%, 8% and 7% of total revenues in 2004, 2003 and 2002, respectively. In 2004, Cox launched telephone service in five new markets and now serves seventeen markets in total, representing 62% of its total footprint. In five of these markets, Cox provides telephone service via the Internet (VOIP). In the remaining twelve markets, Cox has deployed traditional circuit-based technology. In all locations, the service is marketed as primary line phone service under the brand, Cox Digital Telephone.

Cox Business Services

     Through both its dedicated fiber optic networks and its hybrid fiber coaxial cable networks, Cox Business Services provides a range of advanced communications services, including high-speed Internet access, local and long distance telephone and advanced voice and data transport solutions for companies of all sizes. Commercial revenues represented 6% of total revenues in 2004 and 5% of total revenues in both 2003 and 2002.

Cox Media

     Cox also derives revenues from the sale of advertising time on satellite-delivered networks and digital networks through its advertising sales division, Cox Media. Advertising revenues, primarily consisting of local, regional and national sales, represented 6%, 7% and 8% of total revenues in 2004, 2003 and 2002, respectively. Currently, Cox inserts advertising on up to 67 channels in each of its cable systems. In addition to advertising sales in Cox markets, Cox Media represents the advertising sales efforts of other cable operators.

     Viewership to cable networks has continued to increase over the past 15 years showing the increasing popularity of the medium. Cox expects continued growth of this revenue source as a result of this audience

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shift. In addition, Cox participates in the national cable advertising market through its investment in National Cable Communications, L.L.C., a partnership that represents cable companies in connection with the sale of advertising space to advertisers. National Cable Communications is the nation’s largest representation firm in spot cable advertising sales.

Customer Data

     The following table presents operating statistics for Cox’s primary services as of December 31, 2004 and 2003:

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(f)	Each basic video customer and each advanced service is a revenue generating unit. In certain locations, a household may purchase more than one advanced service, each of which is counted as a separate revenue generating unit.
(g)	A home is deemed to be “passed” if it can be connected to the distribution system without any further extension of the distribution plant.
(h)	Basic video customers as a percentage of video homes passed.

Franchises

     Cable systems are constructed and operated under non-exclusive franchises granted by local governmental authorities that may choose to award additional franchises to competing companies at any time. Franchise agreements typically contain many requirements, such as time limitations on commencement and completion of system construction, service standards, including number of channels, types of programming and the provision of free service to schools and certain other public institutions, and the maintenance of insurance and indemnity bonds. Local regulation of cable television operations and franchising matters is subject to federal regulation under the Communications Act of 1934, as amended (the Communications Act) and the corresponding regulations of the FCC. See “Legislation and Regulation – Cable Franchising Matters.”

     As of December 31, 2004, Cox held approximately 751 cable television franchises. These franchises generally provide for the payment of fees to the issuing authority. The Communications Act prohibits franchising authorities from imposing annual franchise fees in excess of 5% of “gross revenues” derived from the provision of cable services and also permits the cable system operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances.

     Cox has never had a franchise revoked, and it has never been denied a franchise renewal. Although franchises historically have been renewed, renewals may include less favorable terms and conditions than the existing franchise. The Communications Act provides for an orderly franchise renewal process and establishes comprehensive renewal procedures designed to protect cable operators against denials of renewal. A franchising authority may not unreasonably withhold the renewal of a franchise. If a franchise renewal is denied, and the franchise authority or a third party acquires the system, then the franchise authority must pay the operator the “fair market value” for the system covered by the franchise, but with no value allocated to the franchise itself. Cox believes that it has satisfactory relationships with its franchising authorities.

Programming Suppliers

     Cox has various contracts to obtain basic and premium programming from program suppliers whose compensation is typically based on a fixed fee per customer or a percentage of Cox’s gross receipts for the particular service. Some program suppliers provide volume discount pricing structures or offer marketing support to Cox. Cox’s programming contracts are generally for a fixed period of time and are subject to negotiated renewal. Cox’s programming costs have increased in recent years and are expected to continue to increase due to additional programming being provided to Cox’s customers, increased costs to produce or purchase programming, inflationary increases and other factors. Increases in the cost of programming services have been offset in part by additional volume discounts as a result of the growth of Cox and its success in selling such services to its customers.

Investments

     Cox has made investments in businesses focused on cable programming, telecommunications and technology.

     Discovery Communications, Inc. Discovery provides nature, science and technology, exploration and adventure programming, and is distributed to customers in virtually all homes receiving cable television in the U.S. The principal businesses of Discovery are the advertiser-supported networks: The Discovery Channel, The Learning Channel, Animal Planet Network, The Travel Channel and Discovery Europe, and

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the retail businesses of Discovery.com. In addition, Discovery is building a documentary programming library. At December 31, 2004, Cox owned a 25.0% interest in Discovery.

     Sprint PCS. Sprint Corporation offers personal communications services through its PCS Group.

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

     In April 2004, Sprint eliminated its PCS tracking stock by mandating the exchange of its PCS shares for shares of its FON common stock. Cox held certificates representing approximately 330,000 PCS shares and received approximately 165,000 FON shares in exchange for the certificates. In June 2004, Cox sold the FON shares for net proceeds of approximately $3.0 million. Cox recognized a pre-tax gain of approximately $2.3 million on the sale of these shares. As a result of the sale, Cox no longer holds any shares of Sprint stock.

     Other. At December 31, 2004, Cox also had ownership interests in In Demand, L.L.C. and National Cable Communications, L.L.C., as well as certain other public and private companies in the cable programming, telecommunications and technology businesses.

Competition

     Based on reported subscriber numbers of other providers of multi-channel video services, Cox is the fifth largest provider of multi-channel video services in the country. The following providers report higher subscriber numbers than Cox: Comcast Corporation, DirecTV (a subsidiary of Hughes Electronics Corporation which is 34% owned by a subsidiary of News Corporation Limited), Time Warner and Echostar Communications Corporation.

     Each of Cox’s broadband services operates in a competitive environment. Certain facilities-based competitors, including local telephone companies and satellite program distributors, offer cable and/or other communications services in various areas where Cox operates its cable systems. Cox anticipates that facilities-based competitors will develop in other areas that Cox serves. Cox’s services will likely face competition in the future from other competitors using additional spectrum the FCC makes available from time to time in spectrum auctions.

Cable and Internet Access Competition. Cox’s cable systems compete with a variety of news, information and entertainment providers. Cox’s cable systems also face competition from all media for advertising dollars. In the communities in which Cox operates its cable systems, Cox may compete with one or more of the following businesses:

•	direct broadcast satellite (commonly known as DBS) and direct-to-home satellite program distributors that transmit video programming, data and other information by satellite to customers’ receiving dishes;

•	local exchange carriers (commonly known as LECs), who have partnered with DBS providers to offer video services over the last year and have recently announced plans to enter the video distribution market with fiber facilities;

•	multichannel multipoint distribution service (also known as MMDS or wireless cable) that uses low-power microwave frequencies to transmit video programming and other information over-the-air to subscribers’ receiving dishes;

•	local television broadcast stations providing free off-air programming that can be received using a roof-top antenna and television set;

•	satellite master antenna television systems (also known as SMATV or private cable systems) that serve condominiums, apartments, office complexes and private residential developments;

•	competitive cable systems that have been franchised by local governments to provide cable television services in areas where Cox operates (commonly known as overbuilders);

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•	distributors of home video products;

•	interactive online computer and Internet services;

•	movie theaters;

•	live concerts and sporting events; and

•	books, newspapers and magazines.
	In order to compete effectively, Cox strives to provide, at a reasonable price to its subscribers:

•	new products and services, including digital video and audio programming, high definition video programming, high-speed Internet access and telephone services;

•	a greater variety of optional video programming packages;

•	superior technical performance; and

•	superior customer service.

     In recent years the FCC has adopted regulatory policies intended to provide a favorable operating environment for existing and new technologies that provide, or have the potential to provide, substantial competition to cable systems. These technologies include direct broadcast satellite service, among others. Direct broadcast satellite services are available throughout the country through the installation of a small roof top or side-mounted antenna. Direct broadcast satellite operators are among the cable industry’s largest competitors. The two largest direct broadcast satellite companies, EchoStar Communications Corporation and DirecTV, are currently offering nationwide high-power direct broadcast satellite services and are each among the four largest providers of multichannel video programming services on the basis of reported subscriber numbers. The de facto controlling interest in DirecTV held by News Corporation Limited, which currently controls direct broadcast satellite operations in Europe, Asia and Latin America, significantly enhances DirecTV’s ability to compete with Cox.

     Direct broadcast satellite service subscribership continues to grow. According to recent government reports, conventional, medium and high-powered satellites provide video programming to over 23.49 million subscribers in the U.S., which represents an approximate 25.45% share of the national multichannel video program distributor market. Direct broadcast satellite providers with high-power satellites typically offer more than 300 channels of programming, including local television broadcast stations and other programming services substantially similar to those provided by Cox’s cable systems. Direct broadcast satellite systems use video compression technology to increase channel capacity and digital technology to improve the quality and quantity of the signals transmitted to their subscribers. Unlike cable operators, direct broadcast satellite systems have limited ability to offer locally produced programming in each community where service is offered and do not have a significant local presence in most communities. Cox’s video service packages, including its digital cable services, are competitive with the programming, channel capacity and the digital quality of signals delivered to subscribers by direct broadcast satellite systems.

     The direct broadcast satellite industry also provides advanced communications services. Direct broadcast satellite providers currently offer one-way high-speed Internet access services using a telephone return path. DirecTV also is offering two-way high-speed Internet access services. DirecTV and Verizon Communications, one of the world’s largest telecommunications companies, have an agreement to offer bundled communications services, including local and long distance telephone, broadband Internet, mobile telephone and satellite TV services, in Rhode Island and in other parts of New England and the mid-Atlantic states. DirecTV also has similar bundled communications service agreements with BellSouth Corporation and Qwest Communications International Inc., both of which are among the world’s largest telecommunications companies. EchoStar is offering its video programming services with the Internet services provided by EarthLink, an Internet service provider, using digital subscriber line technology, and it also has separate agreements in which it bundles its satellite video services with the telephone and Internet services of Sprint Corporation, SBC Communications, Qwest and CenturyTel. Another satellite company called WildBlue (formerly iSKY) reports that it plans to deliver two-way high-speed Internet access to residential and small business markets in the contiguous U.S. and portions of Canada in the second half of 2005 using the Ka-band and spot beam technology. Most of Cox’s cable systems offer high-speed

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Internet services that compete with the Internet services offered by these direct broadcast satellite providers and by existing Internet service providers (also known as ISPs) and local and long-distance telephone companies.

     In addition to entering into joint marketing arrangements with direct broadcast satellite providers, some local telephone companies are building fiber optic networks capable of delivering multiple communications services to consumers, including video programming, Internet and telephone services. Federal law allows local telephone companies to provide, directly to subscribers, a wide variety of services that are competitive with Cox’s cable television services, including video and Internet services, within and outside their telephone service areas. Telephone companies and other businesses construct and operate communications facilities using various technologies, including fixed wireless technology, that provide access to the Internet and distribute interactive computer-based services, data and other non-video services to homes and businesses. Many Internet service providers offer access to the Internet with dial-up services over ordinary telephone lines. The deployment of Digital Subscriber Line technology, also known as DSL, allows Internet access to subscribers at data transmission speeds equal to or greater than that of modems over conventional telephone lines. Monthly service fees for digital subscriber line services are comparable to charges for high-speed Internet services offered over cable systems, and dial-up Internet services often have a pricing advantage. Numerous companies, including telephone companies, have introduced digital subscriber line service, and certain telephone companies are seeking regulatory changes in order to provide high-speed broadband services without regard to present service boundaries and other regulatory restrictions. In Phoenix, Arizona and Omaha, Nebraska, where Cox operates cable systems, Qwest uses very high-speed digital subscriber line (also known as VDSL) technology to distribute video, high-speed Internet access and telephone service over existing copper phone lines. BellSouth and Earthlink have an agreement to provide high-speed digital subscriber line technology to various markets, including Baton Rouge and New Orleans. Verizon announced that it will provide broadband communications services to EarthLink and will offer Internet telephony services to Earthlink customers.

     As in recent years, Congress may again consider legislation that, if enacted into law, would eliminate or reduce significantly many of the regulatory restrictions on the offering of high-speed broadband services by local telephone companies. The FCC also has several rulemaking proceedings pending that may lead to a reduction or elimination of certain regulatory restrictions currently imposed on the offering of high-speed broadband services by local telephone companies. Similarly, the FCC also adopted regulations in October, 2004 to facilitate the development and delivery of broadband services over electric power lines. See “Legislation and Regulation – Cable Television.” Cox is unable to predict the outcome of these legislative or regulatory initiatives or the likelihood of success of competing video or broadband service ventures by telephone and electric companies or other businesses. Although Cox’s high-speed Internet services are very competitive with the Internet services delivered by telephone companies, Cox cannot predict the impact these competitive ventures might have on its business and operations.

     Real-time (i.e., streaming) and downloadable video accessible over the Internet continues to improve in quality and is becoming more widely available, although streaming Internet video has yet to become a significant competitor to traditional video services. As high-speed Internet services over cable systems become more ubiquitous, programming suppliers, such as the major movie studios, may bypass cable operators and market their services directly to consumers through video streaming over the Internet. In 2003, Yahoo Inc. introduced a video subscription service that offers entertainment and sports content. Cox is unable to predict the impact on its business and operations from companies providing Internet services or companies using the Internet to gain direct access to Cox’s subscribers.

     Cox’s cable systems also compete for subscribers with satellite master antenna television systems that receive signals transmitted by satellite at receiving facilities located on private property such as condominiums, apartments, office complexes and other private residential developments. These systems also are developing and/or offering high-speed Internet access and other broadband services along with video services. Satellite master antenna television systems, which normally are free of many regulatory burdens imposed on franchised cable systems, often enter into exclusive agreements with property owners or managers that may preclude franchised cable systems from serving their residents, although some states have enacted laws prohibiting such exclusive arrangements. Courts reviewing challenges to these laws have reached varying results. The FCC has ruled that private cable systems can distribute cable programming services across public rights-of-way to subscribers in multiple buildings over leased video distribution capacity acquired from local telephone companies without obtaining a franchise from the local

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governmental authorities. Cox is unable to predict the extent to which additional competition from these services will materialize in the future or the impact such competition would have on its operations. However, Cox is continuing to develop and market competitive packages of services to offer residential and commercial developments.

     Cable systems also compete with multichannel multipoint distribution service systems (also known as MMDS or wireless cable systems), which are licensed by the FCC to serve specific areas using low-power microwave frequencies. The FCC’s regulations allow wireless cable systems the flexibility to employ digital technology in delivering two-way communications services, including high-speed Internet access, and along with the use of digital compression technology, wireless cable systems are able to deliver more channels and additional services, such as Internet service. Generally, wireless cable operators are now focusing on data transmission rather than video service. One such system in Phoenix, Arizona has over 10,000 customers subscribing to its Internet service and is competing with Cox’s cable system. A wireless cable operator also is authorized or has commenced service in several California communities where Cox operates.

     In addition, the FCC has awarded licenses in the 28 gigahertz band for a new multichannel wireless video service called Local Multipoint Distribution Service (also known as LMDS), which, like other wireless cable systems, is capable of transmitting voice and high-speed Internet access as well as video transmissions. The FCC completed an auction of a 500 megahertz block of spectrum in the 12.2 to 12.7 gigahertz band (spectrum previously allocated for direct broadcast satellite system use) in the Multichannel Video Distribution and Data Service (also known as MVDDS); and the FCC will issue at least 192 geographic area licenses throughout the United States authorizing new terrestrial digital wireless video, voice, and data transmission services. The FCC requirements for this new terrestrial digital wireless service requires licensees to operate on a “non-harmful interference” basis with the incumbent spectrum user. Based on the reported results of the spectrum auction, the FCC is expected to issue licenses in several Cox markets, including Las Vegas, Phoenix and San Diego. Cox is unable to predict whether any of these wireless communications services will have a material impact on its business and operations.

     Cox operates its cable systems pursuant to non-exclusive franchises that are issued by a community’s governing body such as a city council, a county board of supervisors or a state regulatory agency. Federal law prohibits franchising authorities from unreasonably denying requests for additional franchises, and it permits franchising authorities to operate cable systems. Companies that traditionally have not provided cable services and that have substantial financial resources (such as public utilities that own certain of the poles to which Cox’s cables are attached) may also obtain cable franchises and may provide competing communications services. The consolidated franchising authority for the City and Parish of Lafayette, Louisiana is currently attempting to authorize and finance a competing broadband cable system that will be constructed and operated by the Lafayette Utilities System, a municipal utility. To date, the number of competing cable systems in Cox’s service areas has been relatively slight, and fewer than 10% of Cox’s total homes passed are overbuilt by other cable operators at this time. While Cox believes that the current level of overbuilding has not had a material impact on its operations, it is unable to predict the extent to which adverse effects may occur in the future as a result of overbuilds. See “Legislation and Regulation – Cable Franchising Matters.”

     Other new technologies also compete with Cox’s cable-delivered services. The FCC has issued digital television (also known as DTV) licenses to incumbent television broadcast licensees. Digital television stations are capable of delivering high-definition television pictures, multiple digital program streams, as well as CD-quality audio programming and advanced digital services such as data transfer or subscription video. Digital television stations are now operating in many of Cox’s cable television markets. In the markets where Cox is now offering high definition (HD) digital services, Cox has reached agreements with many of these stations to carry at least their primary digital broadcast signal on Cox’s cable systems.

     Telephony Competition. Cox’s telephone services compete with various providers of both landline and wireless communications services, including cellular, personal communications services (also known as PCS), and specialized mobile radio (also known as SMR) systems. The switched voice and data telecommunications market currently is dominated by incumbent local telephone companies (also known as

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incumbent local exchange carriers or ILECs); however, wireless communications service providers and long distance carriers also offer competition to Cox in the delivery of both voice and Internet services. Resellers of the incumbent local telephone company’s voice and Internet services also compete with Cox’s communications services. Resellers are typically low-cost aggregators that serve price conscious market segments; and value-added resellers target customers with special communications needs. Companies offering VOIP service (also known as IP telephony) also compete with Cox’s telephone services.

     Subject to certain limitations for rural telephone companies, the FCC may preempt any state or local law or regulation that prohibits or has the effect of prohibiting any entity from providing telecommunications services. Federal law facilitates opening local exchange markets to competition, which has resulted in a substantial increase in Cox’s business opportunities to deliver telecommunications services over its cable broadband networks.

     On January 31, 2005, SBC Communications and AT&T announced that AT&T had agreed to be acquired by SBC and on February 14, 2005, Verizon Communications and MCI announced that MCI had agreed to be acquired by Verizon. Cox is unable to predict the effect these transactions, if consummated, will have on Cox’s telephone services business.

     Advances in communications technology, marketplace developments and regulatory and legislative changes will occur in the future. For further information concerning legislative and regulatory matters, please see “¾ Legislation and Regulation.” New technologies and services may develop and may compete with services offered by Cox over its communications facilities. Consequently, Cox is unable to predict the effect that ongoing or future developments might have on its business and operations.

Legislation and Regulation

Cable Television

     The cable industry is regulated to varying degrees by the FCC, certain state governments and agencies and most local governments. In addition, legislative and regulatory proposals under consideration from time to time by Congress and various federal, state and local agencies may materially affect the cable industry. The following is a summary of federal laws and regulations affecting the growth and operation of the cable industry and a brief description of certain state and local laws.

     The Communications Act of 1934, as amended by the Cable Communications Policy Act of 1984 (the 1984 Cable Act), the Cable Television Consumer Protection and Competition Act of 1992 (the 1992 Cable Act), and the Telecommunications Act of 1996 (the 1996 Telecommunications Act), establishes comprehensive national standards and guidelines for the regulation of cable television systems and allocates responsibility for enforcing federal regulatory policies among the FCC, state and local governmental authorities. The courts, especially the federal courts, have an important oversight role as the statutory and regulatory provisions and policies are interpreted and enforced by various governmental units. Court actions and regulatory proceedings will continue to refine the rights and obligations of cable operators and governmental authorities under federal law. The results of these judicial and administrative proceedings may materially impact Cox’s business and operations.

     The Communications Act and FCC Regulations

     The Communications Act and the regulations and policies of the FCC affect significant aspects of Cox’s cable system operations, including:

•	subscriber rates;

•	the content of programming Cox offers to subscribers, as well as the manner in which Cox markets its program packages to subscribers;

•	the use of Cox’s cable system facilities by local franchising authorities, the public and unrelated companies;

•	the use of utility poles and conduits;

•	cable system and program ownership limitations; and

•	franchise agreements with local governmental authorities.

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     Rate Regulation. The Communications Act and FCC regulations authorize certified local franchising authorities to regulate rates for basic tier cable services and associated customer equipment and installations in communities where the cable system is not subject to “effective competition,” as defined by federal law. The FCC has detailed rate regulations, guidelines and rate forms that franchising authorities must use in connection with their regulation of Cox’s basic service and equipment rates. Where its cable system is regulated, Cox may modify its rates on an annual basis to account for changes in the number of regulated channels, inflation and certain “external” costs such as franchise and other governmental fees, copyright and retransmission consent fees, taxes, programming fees and franchise-related obligations. Additionally, Cox may modify its rates to account for significant network upgrades. If the franchising authority determines that Cox’s basic service or equipment rates are not in compliance with the FCC’s regulations, it may require Cox to reduce those rates and to refund to subscribers with interest any overcharges during the prior year. Cox may appeal adverse rate decisions to the FCC and the FCC may reverse any rate decision made by a local franchising authority if the decision is inconsistent with the FCC’s rules and policies.

     Approximately 212 communities served by Cox’s cable systems currently regulate Cox’s basic service and equipment rates. These communities represent approximately 25% of total communities served by Cox and approximately 50% of the total number of equivalent basic subscribers served by Cox’s cable systems. The regulation of Cox’s basic service and equipment rates in these communities has not materially impacted Cox’s business and operations and Cox does not believe that it will do so in the future.

     The Communications Act and the FCC’s regulations also:

•	prohibit regulation of rates for non-basic multi-channel video service packages and video programming offered on a per channel or per program basis, as well as regulation of rates by local franchising authorities for other non-basic communications services provided over the cable system;

•	require operators to establish a uniform rate structure for cable services throughout each franchise area that is not subject to effective competition, subject to certain exceptions allowing operators to establish reasonable categories of customers and services;

•	permit operators to offer non-predatory bulk discount rates for subscribers in commercial and residential developments and to offer discounted rates to senior citizens and other economically disadvantaged groups; and

•	permit regulated basic equipment and installation rates to be computed by aggregating costs of broad categories of equipment at the franchise, system, regional or company level.

     In recent years, Congress has considered imposing new pricing and/or packaging requirements on the video programming services offered by cable operators, including proposals to require cable operators to offer video programming services on an a la carte basis instead of or in addition to the current service packages typically offered by cable operators. Cox cannot predict whether or when Congress or any regulatory agency may adopt new regulations on the pricing or packaging of cable services.

     Content Requirements and Restrictions. The Communications Act and FCC regulations permit a local commercial television broadcast station to elect once every three years to require a cable operator in the station’s designated market area either:

•	to carry the station on certain designated channel positions on the operator’s cable system (subject to certain exceptions); or

•	to negotiate an agreement for the station’s “retransmission consent” that permits the operator to carry the station on the cable system.

     The Communications Act requires a cable operator to devote as much as one-third of its activated channel capacity for the mandatory carriage of local commercial television stations. The Communications Act also gives local non-commercial television stations mandatory carriage rights; however, such stations are not given the option to negotiate retransmission consent for the carriage of their signals by cable systems. Cable systems must negotiate retransmission consent for any additional “distant” commercial television stations (except for certain commercial satellite-delivered independent “superstations” such as WGN), commercial radio stations and certain low-power television stations.

     The FCC has an on-going administrative proceeding in which it has evaluated various proposals for mandatory carriage of digital television signals. In its initial decision in this proceeding in January 2001, the FCC:

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•	declined to order the carriage of both the analog and digital signals of television stations;

•	implemented technical and operational standards for the carriage of digital television signals;

•

determined that a television broadcast station licensee that is operating only on its authorized digital channel and/or that has surrendered its analog broadcast channel has mandatory cable carriage rights within the broadcaster’s local service area for only the “primary video” programming stream of the broadcaster’s digital broadcast channel and does not have the right to require the cable operator to carry multiple digital programming streams, commonly called multicasting;

•	authorized the digital-only broadcast station to elect whether the operator’s cable system will carry the station’s signal in a digital or converted analog format; and

•	authorized broadcasters with both analog and digital signals to tie the carriage of their digital signals with the carriage of their analog signals as a retransmission consent condition.

     In February 2005, the FCC reaffirmed its 2001 decision not to impose (i) a dual carriage regulation which would have required an operator to carry simultaneously a local broadcaster’s analog and digital signals, and (ii) a requirement that operators carry more than a single digital programming stream from any particular broadcaster. The broadcast industry trade association and several broadcasters have announced that they will challenge the FCC’s February, 2005 ruling in federal court and will lobby Congress for legislative changes to cable operator’s digital broadcast signal carriage obligations. The FCC may evaluate additional modifications to its digital broadcast signal carriage requirements in the future. Cox cannot predict the ultimate outcome of this proceeding, or the impact any new carriage requirements may have on the operation of its cable systems.

     Except in areas where Cox is subject to effective competition, the Communications Act and the FCC’s regulations prohibit operators from requiring subscribers to purchase any tier of service, other than the basic service tier, as a condition of subscribing to video programming offered on a per channel or per program basis. In response to a complaint alleging a violation of this tier buy-through prohibition, the FCC requested Cox to explain the marketing of its digital cable services in Connecticut wherein subscribers must purchase a “Digital Gateway” service as a condition to receiving any digital services, including digital video programming offered on a per channel or per program basis. Cox’s “Digital Gateway” service consists of an interactive programming guide and Music Choice, a forty-channel audio service. Although Cox has submitted to the FCC an explanation justifying its Digital Gateway service charge which also is assessed to digital subscribers in other Cox systems around the country, it cannot predict how the FCC will decide the matter. Cox does not believe an adverse FCC decision prohibiting Cox’s Digital Gateway charge will materially impact Cox’s business and operations.

     One of the underlying competitive policy goals of the federal communications laws is to limit the ability of vertically integrated program suppliers from favoring affiliated cable operators over unaffiliated program distributors. Consequently, with certain limitations, until 2007, federal law generally:

•	precludes any satellite video programmer affiliated with a cable company, or with a common carrier providing video programming directly to its subscribers, from favoring an affiliated company over competitors;

•	requires such programmers to sell their programming to other multichannel video distributors; and

•	limits the ability of such programmers to offer exclusive programming arrangements to their affiliates.

     The Communications Act contains restrictions on the transmission by cable operators of obscene programming. The Communications Act also requires cable operators, upon the request of a subscriber, to scramble or otherwise fully block any channel that is not included in the programming package purchased by the subscriber. Cable operators are also required to provide by sale or lease a lockbox or other device that permits a subscriber to block the viewing of specific channels during specified periods selected by such subscriber. From time to time, Congress has considered restrictions on the carriage by cable operators of indecent, non-obscene programming, such as adult oriented programming. Cox cannot predict if Congress or any regulatory agency may adopt restrictions on the carriage of such programming or the impact of such restrictions on Cox’s business and operations.

     The FCC actively regulates other aspects of a cable operator’s programming, including:

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•	use of syndicated and network programs and local sports broadcast programming;

•	advertising in children’s programming;

•	political advertising;

•	programming created or controlled by the cable operator (i.e., origination cablecasting);

•	sponsorship identification; and

•	closed captioning of video programming.

     The FCC has also initiated a regulatory proceeding to evaluate its jurisdiction and regulatory authority over the distribution of interactive television services, including advanced instant messaging and interactive menu services. The FCC’s attempt to require video programmers, including cable operators, to provide simultaneous audio description of video activity occurring on certain programming to assist visually impaired persons has been rejected by a federal appellate court.

     Use of Cox’s Cable Systems by the Government and Unrelated Third Parties. The Communications Act allows local franchising authorities and unrelated third parties to have access to cable systems’ channel capacity for their own use. For example, in addition to the mandatory broadcast carriage requirements discussed earlier (see “Legislation and Regulation – Cable Television – The Communications Act and FCC Regulations – Content Requirements and Restrictions), the Communications Act:

•	permits franchising authorities to require that cable operators provide channel capacity for public, educational and governmental access programming; and

•	requires cable systems with 36 or more activated channels to designate a significant portion of their channel capacity for programming provided by unaffiliated third parties under regulated lease arrangements.

     The FCC regulates various aspects of third party commercial use of channel capacity on cable systems, including the rates and certain terms and conditions of such use.

     Various consumer groups and companies, including telephone companies and Internet service providers, have lobbied vigorously for local, state and federal governments to mandate that cable operators provide capacity on their systems so that these companies and others may deliver high-speed Internet and interactive television services directly to subscribers over cable systems. Municipal efforts to impose unilaterally so-called ‘‘open access’’ requirements on cable operators have not generally been successful and have been rejected by several federal courts, although the rationale for each decision has varied. The FCC, in connection with its review of the AOL-Time Warner merger, imposed, together with the Federal Trade Commission, limited multiple access, technical performance and other requirements related to the merged company’s Internet and Instant Messaging platforms.

     In 2002, the FCC decided that the provision of broadband Internet services over cable systems is an interstate “information service,” and not a “cable service” or “telecommunications service.” The FCC confirmed that cable operators offering integrated high-speed Internet services are not subject to common carrier requirements to offer the transport functions underlying their Internet services on a stand-alone basis to unaffiliated Internet service providers. In October 2003, a three-judge panel for the U.S. Court of Appeals for the Ninth Circuit concluded that broadband Internet service delivered over a cable system is in part a telecommunications service and therefore it vacated in part and remanded the FCC’s decision for further proceedings at the FCC. The U.S. Supreme Court has agreed to review the Ninth Circuit’s decision, which has been stayed pending a final decision from the Supreme Court. The FCC has a separate rulemaking pending to assess issues concerning the regulation of broadband Internet services provided over cable systems, including whether the FCC can and should exercise authority to develop a new regulatory framework for Internet service provided over cable systems as a facilities-based interstate information service and the role, if any, of state and local governmental authorities in regulating such services. Similarly, in a rulemaking proceeding involving regulation of incumbent local exchange carriers’ broadband services, the FCC has proposed to classify broadband Internet services provided by local telephone companies over their own wireline facilities as “information services.” The outcome of the pending appeal of the FCC’s regulatory classification of high-speed Internet services provided over cable systems and the pending FCC broadband rulemaking proceedings may affect significantly Cox’s regulatory obligations, including whether Cox will be required to obtain additional local authority to use the local

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rights-of-way for the delivery of high-speed Internet services or to pay local governmental franchise fees and/or federal and state universal service fees on high-speed Internet service revenues. Cox cannot predict the ultimate outcome of these judicial and administrative proceedings or the impact of any new regulatory requirements on Cox’s business and operations.

     In June 2000, the federal appellate court for the Ninth Circuit, which has jurisdiction over California, Nevada and Arizona (among other states), decided in a dispute between AT&T Broadband and the City of Portland that the Internet service offered by AT&T Broadband was not a cable service. As a result, Cox determined that it could incur liability in those states if it continued to collect and remit franchise fees on revenue derived from its high-speed Internet services. Additionally, because the FCC ruled in March 2002 that high-speed Internet services provided over cable systems are not cable services, Cox notified all of its local franchising authorities that it no longer could collect and remit franchise fees on its high-speed Internet service revenues. Although various local franchising authorities have objected to the termination of franchise fee payments on the revenues from Cox’s high-speed Internet services, the only franchising authorities that have taken any formal action against Cox are the City of Los Angeles, California and Jefferson Parish, Louisiana. Los Angeles has given Cox and other cable operators doing business in the City of Los Angeles a formal notice of default of their franchise obligations for failure to pay franchise fees on high-speed Internet service revenues. Jefferson Parish filed a lawsuit claiming, among other things, that Cox is obligated to pay franchise fees on its high-speed Internet services. In March 2004, Cox and Jefferson Parish settled the case in a manner which Cox believes is beneficial to its operations. Cox cannot predict the outcome of the Los Angeles franchise fee dispute, or the impact of any adverse result in such dispute on its business and operations. As of December 31, 2004, Cox had approximately 9,400 subscribers in the City of Los Angeles.

     Legislation has been introduced previously in Congress, which, among other things, would have required cable operators to offer interconnection to unaffiliated Internet service providers on terms and conditions regulated by the FCC. Although the legislation was not enacted, Cox cannot predict if similar proposals will be introduced or adopted in the future or whether such proposals, administrative proceedings or litigation will have a material impact on its business and operations.

     Pole Attachments. The Communications Act requires public utilities to provide cable systems and telecommunications carriers with nondiscriminatory access to any pole, conduit or right-of-way controlled by the utility. The Communications Act also requires the FCC to regulate the rates, terms and conditions imposed by public utilities for use of utility poles and conduit space unless state authorities have certified to the FCC that they adequately regulate pole attachment rates, as is the case in certain states where Cox operates. In the absence of state regulation, the FCC will regulate pole attachment rates, terms and conditions only in response to a formal complaint. The Communications Act does not regulate municipally owned or cooperatively owned utilities. The FCC’s original rate formula governs the maximum rate certain utilities may charge for attachments to their poles and conduit by cable operators providing cable services and other non-telecommunications services. The FCC also adopted a second rate formula that governs the maximum rate certain utilities may charge for attachments to their poles and conduit by companies providing telecommunications services, including cable operators. Any resulting increase in attachment rates due to the FCC’s new telecommunications rate formula was phased in over a five-year period in equal annual increments beginning in February 2001.

     The U.S. Supreme Court has upheld the FCC’s jurisdiction to regulate the rates, terms and conditions of cable operators’ pole attachments that are simultaneously used to provide high-speed Internet access and cable services, and a federal appellate court recently confirmed that the FCC’s rate formulas, as applied in a specific case, provide “just compensation” under the Federal Constitution. Several other recent federal appellate court decisions have also upheld various aspects of the FCC’s pole attachment regulations and policies, which decisions will provide more certainty for Cox in its negotiations with various utilities for the use of space on poles and in underground conduits.

     Cox is involved in two complaint proceedings filed at the FCC by various state cable associations (Florida and Georgia) challenging certain utilities’ rate increases and the unilateral imposition of new contract terms. The utilities in these cases challenged, among other things, the constitutionality of the

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FCC’s pole attachment rate formulas. The proceedings involving Cox’s Florida and Georgia cable systems were decided in 2003 by the FCC in favor of the cable operators; however, in the Florida case the utility involved is seeking further review by the FCC which has ordered an administrative law judge to conduct limited discovery and, if necessary, to hold evidentiary hearings to supplement the record for further review. Cox is unable to predict the outcome of the legal challenges to the FCC’s regulations or the ultimate impact any revised FCC rate formula, any new pole attachment regulations or any modification of the FCC’s regulatory authority might have on Cox’s business and operations.

     Ownership Limitations. The Communications Act authorizes the FCC to impose nationwide limits on the number of subscribers under the control of a cable operator and on the number of channels that can be occupied on a cable system by video programmers in which the cable operator has an attributable ownership interest. The FCC adopted cable ownership regulations and established:

•	subscriber ownership information reporting requirements; and

•

attribution rules that identify when the ownership or management by Cox or third parties of other communications businesses, including cable systems, television broadcast stations and local telephone companies, may be imputed to Cox for purposes of determining Cox’s compliance with the FCC’s ownership restrictions.

     The federal courts rejected constitutional challenges to the statutory ownership limitations; but a federal appellate court concluded that the FCC’s nationwide cable subscriber ownership limit and its cap on the number of affiliated programming channels an operator may carry on its cable systems were unconstitutional and that certain of its ownership attribution rules were unreasonable. The FCC has initiated a rulemaking proceeding to evaluate the feasibility of new horizontal and vertical cable ownership limitations and revised attribution standards. Cox is unable to predict the outcome of this FCC proceeding or the impact any new FCC ownership restrictions or attribution rules might have on its business and operations.

     The 1996 Act eliminated the statutory prohibition on the common ownership, operation or control of a cable system and a television broadcast station in the same market. The FCC eliminated its regulations precluding the cross-ownership of a national broadcasting network and a cable system, and its regulations prohibiting the common ownership of other broadcasting interests and cable systems in the same geographical areas. This broadcast-cable cross-ownership rule, when it was effective, prohibited Cox from owning or operating a cable system in the same area in which CEI or one of CEI’s subsidiaries owns or operates a television broadcast station. Although the FCC has modified many of its media ownership restrictions, it has not proposed to implement a new broadcast-cable cross-ownership prohibition. With the FCC’s elimination of its cable-broadcast cross-ownership restriction, Cox may obtain an enhanced degree of flexibility in structuring its cable operations.

     Local Telephone Company Ownership of Cable Systems. Federal law permits potentially strong competitors such as telephone companies to enter into the cable business. Local telephone companies may offer video services in their local telephone service areas, and legal barriers to competition that exist in state and local laws and regulations are preempted. Federal law sets basic standards for relationships between telecommunications providers and significantly limits acquisitions and joint ventures between cable and local telephone companies operating in the same market.

     Local telephone companies and other entities may provide video programming services as traditional cable operators or, among other things, as open video system (also known as OVS) operators, subject to certain conditions, including setting aside a portion of their channel capacity for use by unaffiliated program distributors on a non-discriminatory basis. Open video system operators are exempt from several of the regulatory obligations that currently apply to cable operators. However, certain restrictions and requirements remain applicable to open video system operators, including, without limitation, the obligation to obtain FCC certification for open video system operations and any necessary local operating authority, and the obligation to comply with the FCC’s sports blackout, network non-duplication, syndicated exclusivity and mandatory carriage rules.

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     Local telephone companies providing cable service through cable systems or open video systems are not bound by common carrier obligations, which otherwise would require a telephone company to make capacity available on its network on a nondiscriminatory basis for the provision of cable service directly to subscribers by unaffiliated third parties. Cox may elect to operate open video systems, but only if it is subject to effective competition as defined by federal law; however, it may not terminate an existing franchise agreement to become an open video system operator. Cox does not operate any open video systems, and no open video systems currently operate in any of Cox’s franchise areas.

     General Ownership Limitations. The Communications Act generally prohibits Cox, with certain limited exceptions, from owning and/or operating a satellite master antenna television system or a wireless cable system in any area where Cox provides franchised cable television service. The FCC’s rules, however, permit Cox to offer service through satellite master antenna television systems in its existing franchise areas so long as the service is offered according to the terms and conditions of Cox’s local franchise agreement.

     In 1998, the FCC initiated a rulemaking proceeding, which, among other things, sought comments on whether the FCC should implement cross-ownership restrictions between direct broadcast satellite operators and cable operators. That proceeding remains pending, and no FCC rule currently prohibits cross-ownership between direct broadcast satellite providers and cable system operators. The FCC has stated that it would evaluate cross-ownership issues case-by-case in the context of FCC license transfer proceedings.

     Other Regulatory Requirements of the Communications Act and the FCC. The Communications Act and the FCC’s rules also include provisions concerning, among other things:

•	customer service;

•	subscriber privacy;

•	marketing practices;

•	equal employment opportunity;

•	technical standards and equipment compatibility;

•	antenna structure notification, marking, and lighting;

•	emergency alert system requirements; and

•	the collection from cable operators of annual regulatory fees, which are calculated based on the number of subscribers served and the types of FCC licenses held.

     The FCC adopted cable inside wiring rules to provide specific procedures for the disposition of residential home wiring and internal building wiring where a subscriber terminates service or where an incumbent cable operator is forced by a building owner to terminate service in a multiple dwelling unit building. The FCC’s inside wiring rules are intended to facilitate the ability of competitors to access incumbent cable operators’ internal building distribution plant.

     The FCC also adopted regulations regarding compatibility between cable systems and consumer electronics equipment. The FCC’s rules assure the competitive availability of customer premises equipment, such as set-top converters or other navigation devices, which are used to access services offered by cable systems and other multichannel video programming distributors. Cable operators are required to separate security from non-security functions in certain customer premises equipment by making available modular security components that would function in set-top converters purchased or leased by subscribers from retail outlets. Effective July 1, 2006, Cox will be prohibited from selling or leasing new navigation devices or set-top converters that integrate both security and non-security functions. Cox, however, will not be required to discontinue the leasing of older set-top converters that include integrated security functions if those converters are provided to subscribers before July 1, 2006.

     The FCC also adopted technical rules and standards to implement an agreement between the cable and consumer electronics industries aimed at promoting the manufacture of “plug and play” set top converter boxes that would be commercially available to consumers as well as television sets that can connect directly to cable operators’ networks and receive one-way analog and digital cable services without the need for a set top converter box. The FCC also initiated a rulemaking to consider additional “plug and play” regulations, including standards for copy protection technologies that cable operators would need to support. The cable and consumer electronics industries are currently negotiating an agreement that will allow for the manufacture of two-way, interactive “plug and play” equipment. Cox cannot predict the ultimate outcome of these negotiations, any FCC proceeding or court challenge to the FCC’s regulations or the impact of new technical equipment regulations on Cox’s business and operations.

     The FCC also actively regulates other aspects of Cox’s cable operations and has adopted regulations implementing its authority and jurisdiction under the Communications Act. The FCC may enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and the

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imposition of other administrative sanctions such as the revocation of FCC licenses needed to operate certain transmission facilities often used in cable operations. Local franchising authorities are also permitted to enforce the FCC’s technical and consumer protection standards. Pending FCC proceedings may change existing rules or lead to new regulations. Cox is unable to predict the impact that any further FCC rule changes may have on its business and operations.

     Cable Copyright Matters

     Cox’s cable systems utilize local and distant television and radio broadcast signals in their channel line-ups. This programming is protected by federal copyright law. Cox, however, generally does not obtain licenses to display this programming directly from its owners. Consequently, Cox must comply with a federal compulsory licensing process that covers television and radio broadcast signals. In exchange for contributing a percentage of its revenues to a federal copyright royalty pool and following certain other requirements, Cox obtains blanket permission to retransmit the copyrighted material carried on broadcast signals. The nature and amount of future copyright payments for broadcast signal carriage cannot be predicted at this time. Increases in such payments may be passed through to subscribers as external costs under the FCC’s cable rate regulations.

     The Copyright Office has recommended that Congress revise both the cable and satellite compulsory copyright licenses. Congress modified the satellite compulsory license in a manner that permits direct broadcast satellite operators to be more competitive with cable operators such as Cox. The possible simplification, modification or elimination of the cable compulsory copyright license is the subject of continuing legislative review. The elimination or substantial modification of the cable compulsory license could adversely affect Cox’s ability to obtain suitable programming and could substantially increase the cost of programming that remains available for distribution to Cox’s subscribers. Cox cannot predict the outcome of this legislative activity.

     Cox distributes to subscribers programming that contains music, including local advertising, local origination programs, access channels and pay-per-view events. The cable industry reached agreements with the three major music performing rights organizations for a standard license covering the performance of music in certain programming, including advertising inserted by the cable operator in programming produced by other parties, and Cox has executed music performance license agreements with these organizations. Although each of these agreements requires the periodic payment of music license fees, Cox does not believe such license fees will have a significant impact on its business and operations.

     Cable Franchising Matters

     Because cable systems use local streets and rights-of-way, they are subject to state and local regulation, which typically is implemented through the franchising process. Consistent with the Communications Act, state and/or local officials are usually involved in franchisee selection and in establishing requirements for, among other things, system capabilities and construction, insurance, basic service rates, consumer relations, billing practices and community-related programming and services. Upon receipt of a franchise, the cable system owner usually assumes a broad range of obligations to the issuing authority that directly affect the system’s business. Franchise terms and conditions vary materially from jurisdiction to jurisdiction, and even from city to city within the same state. Although franchising matters normally are resolved at the local level through a franchise agreement and/or a local ordinance, the Communications Act and FCC regulations provide certain guidelines and requirements that govern a cable operator’s relationship with its local franchising authority. For example, federal law:

•	generally prohibits a cable operator from operating without a franchise;

•	permits local authorities to regulate basic service and equipment rates, but only in a manner consistent with the FCC’s regulations and decisions;

•	encourages competition with existing cable systems by:

	-	allowing municipalities to operate their own cable systems without franchises; and
	-	preventing franchising authorities from granting exclusive franchises or from unreasonably refusing to award additional franchises covering an existing cable system’s service area;

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•	permits local authorities, when granting or renewing franchises, to establish requirements for cable-related facilities and equipment;

•	permits local authorities, in granting or renewing a cable franchise, to require the provision of channel capacity for public, educational and governmental channels, and to require the construction of institutional networks;

•	prohibits franchising authorities from establishing requirements for specific video programming or information services other than in broad categories;

•	permits a cable operator to seek modification of franchise requirements from the franchising authority or by judicial action if changed circumstances warrant the modification;

•	generally prohibits franchising authorities from:

	-	imposing requirements in the grant or renewal of a cable franchise that require, prohibit or restrict the provision of telecommunications services;
	-	imposing cable franchise fees on revenues derived from providing telecommunications services over the cable system; or
	-	restricting the use of any type of subscriber equipment or transmission technology;

•	limits franchise fees to 5% of gross revenues derived from providing cable services over the cable system;

•	establishes formal and informal procedures for renewal of cable franchises that are designed to protect cable operators from arbitrary denials of renewal; and

•	permits state or local franchising authorities to adopt certain additional conditions regarding the transfer of cable system ownership.

     Cox’s franchises typically require the periodic payment of fees to franchising authorities of up to 5% of “gross revenues,” as defined by each franchise agreement. Under the Communications Act and FCC rules, these franchise fees may be passed on to subscribers and separately itemized on subscriber bills. Franchise fees paid by cable operators on non-subscriber related revenue generated from such things as cable advertising and home shopping commissions also may be passed through to subscribers and itemized on subscriber bills regardless of the source of the revenues on which they were assessed. In connection with its March 2002 decision classifying high-speed Internet services provided over a cable system as interstate information services, the FCC stated that revenues derived from cable operators’ Internet services should not be included in the revenue base from which franchise fees are calculated. In October 2003, the U.S. Court of Appeals for the Ninth Circuit vacated the FCC’s decision classifying cable operators’ Internet services as an interstate “information service” and not a “telecommunications service; however, the U.S. Supreme Court has agreed to review this Ninth Circuit decision which has been stayed pending final action by the Supreme Court. Because of the FCC’s decision, Cox notified all of its local franchising authorities that it no longer could collect and remit franchise fees on its high-speed Internet service revenues. For a discussion of this and other related matters, see “Legislation and Regulation – Cable Television — Use of Cox’s Cable Systems by the Government and Unrelated Third Parties.” Cox is unable to predict the ultimate resolution of these matters, but does not expect that any additional franchise fees it may be required to pay will be material to Cox’s business and operations.

     The Communications Act contains franchise renewal procedures designed to protect cable operators against arbitrary denials of renewal. Even if a franchise is renewed, however, the franchising authority may seek to impose as a condition of renewal new requirements, such as upgrades in facilities and services or increased franchise fees. Similarly, if a franchising authority’s consent is required for the purchase or sale of a cable system or franchise, the franchising authority may attempt to impose additional franchise requirements as a condition for such consent.

     Historically, cable operators providing satisfactory services to their subscribers and complying with the terms of their franchises typically have obtained franchise renewals. Cox believes it generally has met the terms of its franchises and has provided high-quality service. Cox therefore anticipates that its future franchise renewal prospects generally will be favorable. Nevertheless, although the Communications Act provides certain franchise renewal protections, no assurance can be given that franchise renewals will be granted or that renewals will be made on similar terms and conditions.

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     The Communications Act places certain limitations on a franchising authority’s ability to control cable system operations, and courts have from time to time reviewed the constitutionality of several general franchise requirements, including franchise fees and access channel requirements, often with inconsistent results. Federal law immunizes franchising authorities from monetary damage awards arising from their regulation of cable systems or decisions regarding franchise grants, renewals, transfers and amendments.

     A number of states subject cable systems to the jurisdiction of centralized state governmental agencies, some of which impose public utility-type regulation on cable operators. Attempts in other states to regulate cable systems are continuing and can be expected to increase. To date, the states in which Cox operates that have enacted such state level regulation are Connecticut, Massachusetts and Rhode Island. State and local franchising jurisdiction is not unlimited, however, and must be exercised in accordance with federal law.

Telecommunications

     The telecommunications services currently offered by Cox are subject to varying degrees of federal, state and local regulation. The FCC exercises jurisdiction over all aspects of interstate and international telecommunications services and the facilities used to provide those services. The 1996 Telecommunications Act established a national policy of promoting local exchange competition and set standards to govern relationships among telecommunications providers, including, among others, the interconnection of competitive carriers and the unbundling of monopoly incumbent local telephone company services. The statute expressly preempted legal barriers to telecommunications competition under state and local laws. The 1996 Telecommunications Act also established new requirements for the maintenance of universal telephone service and imposed obligations on telecommunications providers to maintain customer privacy. Cox’s ability to offer telephone services in competition with incumbent local telephone companies and others will be affected by the degree and form of regulatory flexibility ultimately afforded by the FCC to incumbent local telephone companies and other companies, and will depend, in part, upon FCC determinations regarding telecommunications markets.

     Local Telephone Competition Rules. While the current switched voice and data market is dominated by incumbent local telephone companies (also known as incumbent local exchange carriers or ILECs), the 1996 Telecommunications Act created unprecedented opportunities for newer entrants into these markets, such as Cox. Because incumbent local telephone companies historically had exclusive state franchises to provide telephone services, they established monopoly relationships with their customers. Subject to certain limited exemptions for rural telephone companies, the FCC may preempt any state law or regulation that prohibits or has the effect of prohibiting any entity from providing telecommunications services.

     The 1996 Telecommunications Act also imposed access and interconnection requirements on incumbent local telephone companies to open their networks to competitors. State regulators generally are responsible for arbitrating interconnection disputes that arise between incumbent local telephone companies and new entrants and for reviewing and approving interconnection agreements entered into between new entrants and incumbent local telephone companies. Carriers can appeal state commission decisions concerning interconnection agreements to United States district courts.

     The FCC adopted pricing standards and negotiation and arbitration guidelines that the states must follow in reviewing interconnection agreements between incumbent local telephone companies and their competitors. Although these rules initially were adopted in 1996, many of the rules governing the extent to which incumbent local telephone companies must provide unbundled elements of their networks to competitors never became final. Most recently, in response to a 2004 decision by the U.S. Court of Appeals for the District of Columbia Circuit, the FCC adopted modified unbundling rules in December 2004. These rules limit the access of competitive carriers to high capacity transport facilities, including connections from the customer location to the ILEC’s switch, and eliminate competitive carriers’ access to unbundled local switching provided by ILECs.

     Incumbent telephone companies have appealed aspects of this decision, and it is likely that competitive local exchange carriers (known as CLECs) will do so as well. The new rules are expected to disadvantage

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competitive carriers, such as AT&T, MCI and Birch Telecom, that make significant use of unbundled elements of the networks of other carriers to provide local telephone services.

     In a related proceeding, in July 2004 the FCC adopted an order modifying its rules governing the ability of CLECs to adopt the terms of existing interconnection agreements, rather than negotiating or arbitrating terms of their own. The new rule requires CLECs that wish to adopt existing terms to adopt an entire agreement, rather than permitting them to take individual terms from agreements of their choice. Cox and other CLECs have appealed this decision to the U.S. Court of Appeals for the Ninth Circuit, and briefing is complete, but no date has been set for oral argument and the date of any decision is uncertain.

     The FCC’s pricing rules for incumbent local telephone companies pricing of unbundled network elements and interconnection were upheld in May 2002 by the U.S. Supreme Court. However, the FCC is considering modifying its rules governing intercarrier compensation and on March 3, 2005 released a notice of proposed rulemaking on the overall pricing framework. If the FCC modifies the intercarrier compensation rules, Cox’s costs for interconnection could decrease, but Cox also may lose revenues it now receives for providing interconnection to other local telephone companies, including incumbent local telephone companies. If the FCC modifies its overall pricing rules, Cox’s costs for interconnection and for use of unbundled elements of ILEC networks could increase.

     The terms of intercarrier compensation for local calls to Internet service providers have been the subject of ongoing disputes between CLECs and ILECs at state commissions and the FCC. In particular, CLECs, including Cox, have had repeated disputes with incumbent local telephone companies concerning the ILECs’ refusal to pay reciprocal compensation for Internet-bound traffic. Although most states have ruled otherwise, the FCC has twice held that such traffic is not subject to the standard compensation for termination of local calls and adopted rules that decreased compensation for carrying such traffic. Both FCC decisions were overturned by the U.S. Court of Appeals for the District of Columbia Circuit, but the FCC’s second order was not vacated. Instead, it was remanded for the FCC to consider whether it could find a proper legal basis for its authority to regulate such traffic. This remand remains pending. Cox cannot be assured that it will recover reciprocal compensation for traffic delivered to Internet service providers to which Cox believes it is entitled under its existing interconnection agreements.

     Under the 1996 Telecommunications Act, competitive wireline entrants such as Cox are subject to federal regulatory requirements for the provision of local exchange service in any market. All local telephone companies must provide telephone number portability, dialing parity, reciprocal compensation for transport and termination of local traffic, resale, and access to rights-of-way. These requirements also place burdens on new entrants that may benefit their competitors. In particular, the resale requirement means that a company could seek to resell services using the facilities of a new entrant such as Cox without making a similar investment in facilities. In addition to incumbent local telephone companies and existing competitive access providers, new entrants potentially capable of offering telecommunications services include cable companies, electric utilities, long-distance carriers, microwave carriers, terrestrial and satellite wireless service providers, resellers and private networks built by large end-users or groups of these entities in combination. On November 10, 2003, the FCC issued an order facilitating the transfer of telephone numbers between landline and wireless carriers, which will make it easier for wireless providers to compete with Cox and other landline carriers. On March 11, 2005, the U.S. Court of Appeals for the District of Columbia Circuit issued a decision remanding this order and staying its applicability to carriers that qualify as “small entities” under the Regulatory Flexibility Act until such time as the FCC conducts an analysis of the impact of the order on such entities. It is unclear what entities would be subject to this stay, but it is likely to include certain rural carriers that compete with Cox.

     Access Charges. The FCC has adopted an order implementing requirements designed to cause the access charge rates of competitive local telephone companies to decrease over time until they reach the rates charged by incumbent local telephone companies. This transition was completed in June 2004. The FCC also held that a long distance carrier’s refusal to serve the customers of a competitive local telephone company whose access charges comply with the FCC’s benchmarks generally would constitute a violation of the duty of all common carriers to provide service upon reasonable request. Consequently, while the access charges collected by competitive local telephone companies, including Cox, have declined under the FCC’s order, the order also will ensure that the competitive local telephone company’s customers have access to a fully interconnected telecommunications network. The FCC also is considering access charge issues in the intercarrier compensation proceeding described above. For further information, please see “–Local Telephone Competition Rules.”

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     Bell Company Long Distance Service. The 1996 Telecommunications Act included provisions to allow Bell companies to provide long distance service after meeting a series of statutory tests. During 2003, the Bell companies completed the process of obtaining long distance authority in every jurisdiction where they had been subject to the prohibition on providing long distance service, including all of the states where Cox provides local telephone service.

     Universal Service. One of the goals of the Communications Act is to extend telephone service to all citizens of the United States, that is, to provide universal service. Prior to the 1996 Telecommunications Act, this goal was achieved primarily by state commissions maintaining the rates for basic local exchange service at an affordable level.

     The 1996 Telecommunications Act required the FCC to establish an explicit mechanism for subsidizing service to high cost areas and low-income customers, the traditional subjects of universal service rules, and to create programs to subsidize service to schools, libraries and rural health care providers. Telecommunications carriers (subject to limited exemptions) must contribute to funding these universal service programs. On October 27, 2003, the FCC released an order modifying the ways in which rural and non-rural high-cost support is calculated. The new rules could reduce the amounts required to be contributed by carriers to the high-cost fund in the future. However, on February 23, 2005, the U.S. Court of Appeals for the 10^th Circuit granted an appeal of this order and remanded it to the FCC for further consideration, so it is possible that the FCC may conclude that it must increase the amounts contributed to the high-cost fund. Moreover, the FCC’s 2002 tentative conclusion that broadband Internet services provided by telephone companies should be classified as information services under the Communications Act has led to questions regarding whether similar services provided by cable operators should be subject to universal service fund contributions.

     Under the contribution factors for 2004, Cox contributed approximately $17.3 million of its interstate telecommunications revenues to the federal Universal Service Fund. In addition to the federal universal service plan, most or all states likely will adopt their own universal service support mechanisms.

     The universal service subsidy mechanism may provide an additional source of revenue to those local telephone companies or other carriers (e.g., wireless providers) willing and able to provide service to markets that are less financially desirable either due to the high cost of providing service or the limited revenues that might be available from serving a particular subset of customers in an area, such as residential customers. Cox may be a beneficiary of such programs, but its universal service contribution obligations also may increase to the extent that other providers obtain subsidies. On February 7, 2003, the FCC adopted a notice of proposed rulemaking to consider whether there should be additional limits on the ability of wireless providers and other competitive carriers, including Cox, to be eligible for universal service funding.

     Regulatory Forbearance. Another goal of the 1996 Telecommunications Act is to increase competition in the telecommunications services market, thereby reducing the need for continuing regulation of these services. To this end, the 1996 Telecommunications Act requires the FCC to streamline its regulation of incumbent local telephone companies and permits the FCC to refrain from regulating particular classes of telecommunications services or providers. The FCC has established a framework for granting certain local telephone companies relief from the FCC’s rate level, rate structure and tariffing rules once these local telephone companies satisfy certain competitive criteria. To obtain relief, an incumbent must demonstrate that sufficient competition has developed in the incumbent’s market for high-speed dedicated connections and certain related services to warrant relaxation of the FCC rules for that market. There continues to be activity at the FCC, state public service commissions and the courts by incumbent local telephone companies requesting increased pricing flexibility, local exchange service, special access and high-capacity transport service. While the FCC has granted requests for regulatory forbearance from competitive local telephone companies, it has not granted any significant requests from incumbent local telephone companies. To the extent that ILECs and other providers competing with Cox obtain forbearance, Cox may be competitively disadvantaged.

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     Telephone Numbers. Local telephone companies must have telephone numbers to provide service to their customers and access to and use of telephone numbers is governed by FCC rules. The most significant numbering rules require carriers to meet specified number usage thresholds before they can obtain additional telephone numbers; to share blocks of telephone numbers, a requirement known as “number pooling”; and to provide detailed reports on their number usage, which will be subject to third-party audits. The FCC also has adopted rules and orders that delegate to certain states a larger role in conserving telephone numbers, including expanded rights to ration access to numbers. Several states served by Cox, including California, Connecticut, Louisiana and Oklahoma, have sought number conservation authority from the FCC.

     Voice over Internet Protocol Services. Regulatory issues concerning voice services offered via Internet Protocol are being considered at both the federal and state level. Providers of these services, such as Vonage and 8x8, argue that they are not subject to state regulation because their offerings constitute interstate information services, regulated only by the FCC. State regulators in several states, including California, where Cox provides competitive telephone service, and New York have begun inquiries into the extent to which voice over Internet Protocol services should be regulated. Among the issues raised by these services is the extent to which they can or should be required to comply with state 911 laws and how to ensure universal telephone service if voice over Internet Protocol services are not regulated. In February 2004, the FCC adopted a notice of proposed rulemaking to address these issues and asked for comment on a petition seeking forbearance from regulation of voice over Internet Protocol services. In addition, the FCC, in August 2004, opened a separate proceeding on how Internet Protocol-based services will comply with laws permitting surveillance of communications by law enforcement agencies. The FCC also issued several orders addressing issues relating to voice services offered via Internet Protocol, including an order in October 2004 preempting state regulation of the service offered by Vonage and similar services. The Vonage order is the subject of pending appeals. While nearly all of Cox’s telephone services are provided using traditional circuit-switched technology, Cox is offering voice over Internet Protocol services in Roanoke, Virginia and plans to expand its use of Internet Protocol technologies. To the extent that providers of such services ultimately are deemed to be exempt from state regulation, providers of circuit-switched services, including Cox, could be disadvantaged in the marketplace. In addition, the resolution of issues relating to how Internet Protocol-based services will interconnect with and otherwise interact with traditional circuit-switched services, including the extent to which such services will be subject to access charges and universal service contributions, could have a significant effect on the development of those services and the ability of those services to compete with circuit-switched services in the long run.

     State Telecommunications Regulation. In addition to federal rules and regulations that apply to Cox’s telephony operations, state commissions regulate, to varying degrees, the intrastate services of telecommunications providers including those provided by Cox. New entrants providing local exchange services typically must apply for and receive state certification and operate in accordance with state commission pricing, terms and quality-of-service regulations. Under the 1996 Telecommunications Act, state commissions also must review interconnection agreements entered into between incumbent local telephone companies and new entrants, as well as enforce the terms of disputed agreements. If a state commission refuses to fulfill these responsibilities, carriers may seek relief from the FCC. Cox and several other carriers have been required to seek such relief for matters arising in Virginia because the Virginia State Corporation Commission had determined that it would not consider matters brought under the 1996 Telecommunications Act. The Virginia-related matters now pending before the FCC include the arbitration of the terms of interconnection agreements between Verizon and three competitive local telephone companies, including Cox. The Virginia legislature has passed legislation that requires the State Corporation Commission to consider matters brought before it pursuant to the 1996 Telecommunications Act.

     State commissions also may choose to assess universal service funding contributions from new carriers provided that a state’s program is consistent with the FCC’s universal service rules, which could increase Cox’s costs. State commissions also are playing an increasing role in telephone number assignment and number conservation policies and state numbering policies potentially could limit access to numbers by carriers that need additional telephone numbers, including Cox.

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     The foregoing summary does not purport to describe all present and proposed federal, state and local regulations and legislation affecting the cable or telephony industries. Other existing federal regulations, copyright licensing and, in many jurisdictions, state and local franchise requirements currently are the subject of a variety of judicial proceedings, legislative hearings, and administrative and legislative proposals that could alter, in varying degrees, the manner in which cable or telephony systems operate. Cox cannot predict at this time the outcome of these proceedings or their impact upon the cable or telecommunications industries or upon Cox’s business and operations.

Employees

     At December 31, 2004, Cox had approximately 22,350 full-time-equivalent employees. Cox considers its relations with its employees to be satisfactory.

Available Information

     Cox’s website address is http://www.cox.com. You may obtain on or through this website, free of charge, copies of Cox’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports are available on Cox’s website as soon as reasonably possible after they are electronically filed with the SEC.

ITEM 2. PROPERTIES

     Cox’s principal physical assets consist of cable operating plant and equipment, including signal receiving, encoding and decoding devices, headends and distribution systems and customer house drop equipment for each of its cable systems. The signal receiving apparatus typically includes a tower, antenna, ancillary electronic equipment and earth stations for reception of satellite signals. Headends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, are located near the receiving devices. Cox’s distribution system consists primarily of coaxial and fiber optic cables and related electronic equipment. Customer premise equipment consists of decoding converters, cable modems and telephone network interface units. The physical components of cable systems require maintenance and periodic upgrading to keep pace with technological advances.

     Cox’s cable distribution plant and related equipment are generally attached to utility poles under pole rental agreements with local public utilities, although in some areas the distribution cable is buried in underground ducts or trenches. Cox owns or leases parcels of real property for signal reception sites (antenna towers and headends), microwave facilities and business offices in each of its markets and leases most of its service vehicles. Cox believes that its properties, both owned and leased, taken as a whole, are in good operating condition and are suitable and adequate for Cox’s business operations.

ITEM 3. LEGAL PROCEEDINGS

     Cox’s subsidiary Cox Communications Louisiana L.L.C. (Cox Louisiana) was a defendant in a putative subscriber class action suit in Louisiana state court filed on November 5, 1997. The suit challenged the propriety of late fees charged by Cox Louisiana in the greater New Orleans area to customers who fail to pay for services in a timely manner. The suit sought injunctive relief and damages under certain claimed state law causes of action. On March 29, 2004, the parties entered into a settlement agreement. This settlement was approved by the court and became final in August 2004. The settlement has now been fully implemented and all class consideration disbursed. The settlement did not have a material impact on Cox’s operations or liquidity.

     On November 14, 2000, GTE.NET, L.L.C. d/b/a Verizon Internet Solutions and Verizon Select Services, Inc. filed suit against Cox in the United States District Court for the Southern District of California. Verizon alleged that Cox has violated various sections of the Communications Act of 1934 by allegedly refusing to provide Verizon with broadband telecommunications service and interconnection, among other things. On November 29, 2000, Verizon amended its complaint to add CoxCom, Inc.

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(CoxCom), a subsidiary of Cox, as an additional defendant. On January 8, 2002, Verizon filed a second amended complaint, dropping its claims for interconnections and damages. Verizon seeks various forms of relief, including declaratory and injunctive relief. On January 29, 2002, the Court granted defendants’ motion to stay the case on primary jurisdiction grounds. Cox and CoxCom intend to defend this action vigorously. The outcome cannot be predicted at this time.

     Cox @Home, Inc., a wholly-owned subsidiary of Cox, is a stockholder of At Home Corporation, also called Excite@Home, formerly a provider of high-speed Internet access and content services, which filed for bankruptcy protection in September 2001. On September 24, 2002, a committee of bondholders of Excite@Home sued Cox, Cox @Home and Comcast Corporation, among others, in the United States District Court for the District of Delaware. The suit alleged the realization of short-swing profits under Section 16(b) of the Securities Exchange Act of 1934 from purported transactions relating to Excite@Home common stock involving Cox, Comcast and AT&T Corp., and purported breaches of fiduciary duty. The suit seeks disgorgement of short-swing profits allegedly received by the Cox and Comcast defendants totaling at least $600.0 million, damages for breaches of fiduciary duties in an unspecified amount, attorney’s fees, pre-judgment interest and post-judgment interest. On November 12, 2002, Cox, Cox @Home, and David Woodrow filed a motion to dismiss or transfer the action for improper venue or, in the alternative, to transfer the action pursuant to 28 U.S.C. Sec. 1404. On September 30, 2003, the Delaware District Court ordered the action transferred to the United States District Court for the Southern District of New York. On December 22, 2003, Cox and Cox@Home filed a motion to dismiss, or, in the alternative, for judgment on the pleadings, with respect to the Section 16(b) claim. On August 12, 2004, the court granted Cox’s and Cox @Home’s motion and dismissed the Section 16(b) claim. Cox and Cox @Home, among others, subsequently entered into an agreement with Excite@Home tolling the statute of limitations on the remaining claim for purported breach of fiduciary duty, and on December 3, 2004, the court dismissed that claim without prejudice. On January 4, 2005, plaintiff noticed its appeal of the dismissal of the Section 16(b) claim to the United States Court of the Appeals for the Second Circuit. Cox and Cox @Home intend to defend this action vigorously. The outcome cannot be predicted at this time.

     Jerrold Schaffer and Kevin J. Yourman, on May 26, 2000 and May 30, 2000, respectively, filed class action lawsuits in the Superior Court of California, San Mateo County, on behalf of themselves and all other stockholders of Excite@Home as of March 28, 2000, seeking (a) to enjoin consummation of a March 28, 2000 letter agreement among Excite@Home’s principal investors, including Cox, and (b) unspecified compensatory damages. Cox and David Woodrow, Cox’s former Executive Vice President, Business Development, among others, are named defendants in both lawsuits. Mr. Woodrow formerly served on the Excite@Home board of directors. The plaintiffs assert that the defendants breached purported fiduciary duties of care, candor and loyalty to the plaintiffs by entering into the letter agreement and/or taking certain actions to facilitate the consummation of the transactions contemplated by the letter agreement. On February 26, 2001, the Court stayed both actions, which had been previously consolidated, on grounds of forum non-conveniens. A related suit styled Linda Ward, et al. v. At Home Corporation (No. 418233) was filed on September 6, 2001, in the same court. On February 7, 2002, the Court consolidated the Ward action with the Schaffer/Yourman action, thereby also staying the Ward action. On June 18, 2002, the court granted plaintiffs’ motion to lift the stay and authorized discovery to proceed regarding Cox’s pending motion to dismiss for lack of personal jurisdiction. On September 10, 2002, the United States Bankruptcy Court for the Northern District of California in the Excite@Home bankruptcy proceeding held that the claims in the suits were derivative and, thus, constituted the exclusive property of the Excite@Home bankruptcy estate. The Bankruptcy Court thereafter ordered the plaintiffs to dismiss the suits. Plaintiffs subsequently appealed the Bankruptcy Court’s decision to the United States District Court for the Northern District of California. On September 29, 2003, the District Court affirmed the order of the Bankruptcy Court. On October 27, 2003, plaintiffs filed a notice of appeal of the District Court’s decision to the United States Court of Appeals for the Ninth Circuit, and briefing of the appeal has concluded. Cox intends to defend this action vigorously. The outcome cannot be predicted at this time.

     On April 26, 2002, Frieda and Michael Eksler filed an amended complaint naming Cox as a defendant in a 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 and directors 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.

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AT&T Corp., et al., and another related case, and an amended complaint in the consolidated case, naming Cox as a defendant, was filed and served on November 7, 2002. On March 10, 2005, the Court issued an order certifying a class of all persons and entities who purchased the publicly traded common stock of Excite@Home during the period March 28, 2000 through September 28, 2001, and directing that notice of the certification be given to the class. The class excludes the defendants in the action and certain of their related persons. The complaint asserts a claim against Cox as an alleged “controlling person” of Excite@Home under Section 20(a) of the Securities Exchange Act for violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The suit seeks from Cox unspecified monetary damages, statutory compensation and other relief. In addition, a claim against Cox’s former Executive Vice President, David Woodrow, who formerly served on Excite@Home’s board of directors, is asserted for breach of purported fiduciary duties. The suit seeks from Woodrow unspecified monetary and punitive damages. On February 11, 2003, Cox and Woodrow filed a dispositive motion to dismiss on various grounds, including failure to state a claim. On September 17, 2003, the District Court granted the motion in part and denied it in part. Specifically, the Court dismissed several purported statements by Excite@Home as bases for potential liability because they were merely generalized expressions of confidence and optimism constituting “puffery,” dismissed the fiduciary duty claim against Mr. Woodrow as pre-empted by the federal securities laws, and denied the motions as to the remaining allegations of the complaint. On October 7, 2003, Cox and Mr. Woodrow sought reconsideration of a portion of the Court’s order. On February 17, 2004, the Court granted plaintiffs leave to file a motion to amend the complaint to add an additional claim for relief against all defendants under Section 14(a) of the Securities Exchange Act in connection with an allegedly false or misleading proxy statement issued by Excite@Home. On February 24, 2004, the Court granted Cox’s and Mr. Woodrow’s motion for reconsideration and dismissed plaintiffs’ allegations that Cox and Mr. Woodrow were “control persons” with respect to primary violations of Rule 10b-5 alleged to have occurred after August 28, 2000. On April 5, 2004, Cox and certain other defendants jointly filed a motion to dismiss the Section 14(a) cause of action that was added in plaintiffs’ amended complaint. On August 9, 2004, the District Court granted defendants’ motion, and dismissed the Section 14(a) cause of action. Cox intends to defend this action vigorously. The outcome cannot be predicted at this time.

     On June 14, 2004, Acacia Media Technologies Corporation filed a lawsuit against Cox and Hospitality Network, Inc., (a wholly-owned subsidiary of Cox) among others, in the United States District Court for the Northern District of California asserting claims for patent infringement. The complaint seeks preliminary and permanent injunctive relief and damages in an unspecified amount. On July 7, 2004, Acacia Media filed an amended complaint to its lawsuit to add CoxCom as a defendant and to remove Cox as a defendant. CoxCom and Hospitality Network timely filed their answer to the amended complaint on October 21, 2004. On November 11, 2004, Acacia Media filed a motion before the Multi-District Litigation panel to transfer related patent actions under 28 U.S.C. § 1407. That motion sought to transfer several related cases brought by Acacia in other jurisdictions to a single court. All of the defendants opposed that motion. On February 24, 2005, the Multi-District Litigation Panel transferred all of the Acacia litigation to Judge Ware in the Northern District of California. CoxCom and Hospitality Network intend to defend the action vigorously. The outcome cannot be predicted at this time.

     Eighteen putative class action lawsuits were filed, purportedly on behalf of the public stockholders of Cox, challenging CEI’s August 2, 2004 proposal to acquire all of the issued and outstanding shares of Cox Class A common stock not beneficially owned by CEI, for $32.00 in cash per share. Fifteen of the lawsuits were filed in the Court of Chancery of the State of Delaware. Following a hearing held on August 24, 2004, the Delaware court consolidated the actions under the caption In re Cox Communications, Inc. Shareholders’ Litigation, Consolidated C.A. No. 613-N. The Delaware complaint names as defendants Cox, CEI, Cox Holdings, Barbara Cox, Anthony and Anne Cox Chambers, and the members of the Cox Board of Directors. The Delaware complaint alleges, among other things, that the price proposed to be paid in the proposed transaction was unfairly low, that the initiation and timing of the proposed transaction were in breach of the defendants’ purported duties of loyalty and constituted unfair dealing, that the structure of the proposed transaction was inequitably coercive, that defendants caused materially misleading and incomplete information to be disseminated to the public holders of the Cox shares, and that the Board defendants would breach their duty of care and good faith by approving the proposed transaction and by purportedly attempting to disenfranchise the holders of the Cox shares by circumventing certain

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alleged contractual voting rights. The Delaware complaint seeks an injunction against the proposed transaction, or, if it is consummated, rescission of the transaction and imposition of a constructive trust, as well as money damages, an accounting, attorneys’ fees, expenses and other relief.

     The remaining three putative class action lawsuits were filed in the Superior Court of Fulton County, Georgia, styled Brody v. Cox Communications, Inc., et al., 2004CV89198, Golombuski v. Cox Communications, Inc., et al., 2004CV89216, and Durgin v. Cox Communications, Inc., et al., 2004CV89301. The Georgia actions were purportedly brought on behalf of the public holders of shares of Cox Class A common stock against Cox, CEI and the Cox Board, although four counts of the Golombuski complaint were brought derivatively on behalf of Cox against the Cox Board and CEI. With the exception of the Durgin action, which did not assert claims against CEI, the Georgia actions each allege that CEI and the Cox Board breached their fiduciary duties in connection with the proposed transaction, which plaintiffs allege proposed a purchase price which was below the fair value of the Cox shares. On August 18, 2004, plaintiffs in the Georgia actions moved for entry of a case management order to consolidate the Georgia Actions under the caption In re Cox Communications, Inc. Shareholder Litigation, C.A. No. 2004-CV-89198.

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

     Also on October 18, 2004, the parties to the Georgia actions entered into a memorandum of understanding which set forth the agreement by the parties for the dismissal of the Georgia actions. The Georgia memorandum of understanding provides, among other things, that if the Delaware actions are dismissed in accordance with the Delaware memorandum of understanding and the dismissal becomes non-appealable, the parties to the Georgia actions will jointly seek, within two business days thereof, to effect the dismissal with prejudice of the Georgia actions without further notice to holders of the Cox shares.

     Pursuant to the Delaware memorandum of understanding and the Georgia memorandum of understanding, defendants provided plaintiffs’ counsel in the Delaware action and the Georgia actions with confirmatory discovery relating to the Merger Agreement, including additional document production and depositions, and that the parties agreed to suspend all other proceedings in the actions, except any settlement related proceedings in Delaware and Georgia.

     On November 18, 2004, the court entered a scheduling order in the Delaware action. The scheduling order preliminarily certified the Delaware action as a class action on behalf of a class consisting of all record and beneficial holders of Cox shares (other than CEI and its subsidiaries), from and including August 2, 2004 through and including the date of the consummation of the merger, and certain persons related to the class members. The defendants in the Delaware action are excluded from the class. The scheduling order also initially set a settlement hearing for January 26, 2005 to consider, among other things, whether (i) the Settlement embodied in the Stipulation is fair to the class, (ii) the Delaware action should be dismissed with prejudice, and the claims that were settled in the Stipulation of Settlement released, (iii) the class should be finally certified, and (iv) the attorneys’ fees sought by plaintiffs’ counsel in the Delaware action should be awarded.

     On January 13, 2005, an individual shareholder and several mutual funds who purportedly were members of the plaintiff class filed a joint objection to the requested attorneys’ fees sought by plaintiffs’ counsel, but did not object to the proposed settlement itself. The court subsequently determined to postpone consideration of the objection to the request for attorneys’ fees, and, at the January 26, 2005 settlement hearing, the court continued consideration of the settlement to March 16, 2005, at which time the request for attorneys’ fees also was to be considered. However, on February 23, 2005, at the request of the

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plaintiffs, among others, the court again continued consideration of the request for attorneys’ fees (but not the settlement itself) until May 9, 2005.

     If the Settlement ultimately is not approved by the Delaware court, the Delaware action and the Georgia actions could proceed and the plaintiffs in those actions could seek the relief sought in their respective complaints. Accordingly, there can be no assurance that the Settlement, or the dismissal of the Delaware action and the Georgia actions, will be completed on the terms described above. If the Settlement is not approved or if the Delaware action or any of the Georgia actions are not dismissed, the Company intends to continue to defend these actions vigorously. The outcome of this matter cannot be predicted at this time.

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     In connection with the going-private merger, all shares of Cox’s former public stock were cancelled, and new shares of Class A common stock, par value $0.01 per share (private stock), were issued to Holdings and DNS on a share-for-share basis. Accordingly, there are now two holders of the private stock.

     The former public stock was listed on the New York Stock Exchange, but as a result of the going-private transaction, the former public stock was de-listed from the New York Stock Exchange as of December 9, 2004. Cox filed a Form 15 to deregister the former public stock on December 9, 2004. The private stock is not listed on any stock exchange and is not quoted on any automated quotation system.

     The following table summarizes information about Cox’s equity compensation plans as of December 31, 2004. All outstanding awards relate to the private stock.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7. for a discussion of events that affect the comparability of the information reflected in the selected consolidated financial data for each of the years in the three-year period ended December 31, 2004.

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(a)		Cox sold certain cable systems in the second quarter 2004. Customer data as of December 31, 2003, 2002, 2001 and 2000 has been adjusted to exclude these sold cable systems for purposes of comparability.
(b)		A home with one or more television sets connected to a cable system is counted as one basic video customer.
(c)		Cox sold certain cable systems in 2002. Customer data as of December 31, 2001 and 2000 has been adjusted to exclude these sold cable systems for purposes of comparability.
(d)		Advanced services include Cox Digital Cable, Cox High Speed Internet and Cox Digital Telephone.
(e)		Each basic video customer and each advanced service is a revenue generating unit. In certain locations, a household may purchase more than one advanced service, each of which is counted as a separate revenue generating unit.
(f)		A home is deemed to be “passed” if it can be connected to the distribution system without any further extension of the distribution plant.
(g)		Basic video customers as a percentage of video homes passed.

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ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the “Consolidated Financial Statements and Supplementary Data” in Item 8.

Executive Overview

     Cox Communications, Inc., an indirect, wholly-owned subsidiary of Cox Enterprises, Inc. (CEI), is a multi-service broadband communications company serving approximately 6.6 million customers nationwide. Cox is the nation’s third-largest cable television provider and offers an array of broadband products and services including analog and digital video, high-speed Internet access and local and long-distance telephone.

     In December 2004, CEI completed the tender offer to purchase all of the common stock associated with the minority interest of Cox and the subsequent short-form merger and Cox became a wholly-owned subsidiary of CEI. The decision to buy out the stock of the minority shareholders reflected CEI’s faith in the management of Cox as well as their confidence in its growth prospects.

     These growth prospects stem from Cox’s business strategy, which 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 its investments 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 care and community service will enhance its ability to increase revenues in an increasingly competitive environment.

     Cox’s management primarily focuses on continued growth and profitability of all of its lines of business and effective execution of its bundling strategy and other product lines in a heightened competitive landscape. Cox concentrates on bundling, integrating and differentiating its products and services to compete effectively against its primary competitors, which include direct broadcast satellite operators and regional bell operating companies, in its large local and regional clusters. Cox is committed to providing new and enhanced services that cater to the evolving needs of its customers. Cox has introduced high-definition television, digital video recorder services, Entertainment on Demand and several tiers of high-speed Internet service in many of its markets to enhance its current product offerings and further differentiate its products from its competitors. Cox expects that its bundling strategy and advanced product offerings will help it maintain current customers and attract new customer relationships. Cox ended 2004 with more than 2.7 million “bundled” customers. In addition, during 2004, Cox continued to rollout telephone service to additional markets using voice over Internet Protocol. This technology allows Cox to enhance its bundled offerings by making Cox’s digital telephone service available in its smaller markets and allows Cox to leverage its experience and expertise as a telephone service provider. During 2004, Cox continued its launch of Cox Digital Telephone into new markets, ending 2004 with over 1.3 million telephone customers. Cox also leverages the capacity of its broadband network and its residential experience to grow its Cox Business Services division.

     Cox’s management also continues to monitor the regulatory landscape. The industry-wide introduction of voice over Internet Protocol technology has raised many regulatory questions. Cox continues to analyze new and proposed regulatory changes and their potential impact on its products and services.

     Cox’s management will continue to monitor and develop new advanced service offerings and adapt to the competitive and legal framework to deliver compelling and competitive services to consumers and businesses. Cox’s management believes that operating as a wholly-owned subsidiary will allow Cox to make the right decisions and take the most decisive actions as it faces an increasingly competitive environment.

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Results of Operations

2004 compared with 2003

     The following table sets forth summarized consolidated financial information for each of the two years in the period ended December 31, 2004.

Revenues

     The following table sets forth summarized revenue information for each of the two years in the period ended December 31, 2004.

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     The 12% increase in total revenues was primarily attributable to:

	•	a 23% increase in customers for advanced services (digital cable, high-speed Internet access and telephony);
	•	an increase in basic cable rates resulting from increased programming costs , as well as increased channel availability; and
	•	an increase in commercial broadband customers.

     Cox has experienced solid growth in digital cable, residential high-speed Internet and telephony customers. Cox expects this trend to continue and anticipates continued consumer demand for its existing portfolio of broadband products, as well as for new services such as Entertainment On Demand, Home Networking and high-definition television and digital video recorders.

     Costs and expenses (Costs of services and Selling, general and administrative expenses)

     The following table sets forth summarized operating expenses for each of the two years in the period ended December 31, 2004.

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

     Cost of services increased $218.5 million over 2003 partially due to a $129.7 million increase in programming costs. Approximately 10% of the increase was attributable to programming rate increases, and the remaining 1% was related to basic and digital customer growth. Other cost of services increased $88.8 million, primarily due to:

	•	1.2 million in net additions of advanced-service customers over the last twelve months; and
	•	increased labor costs due to maintenance and related customer costs directly associated with the growth of new subscribers.

     Selling, general and administrative expenses include marketing, salaries and benefits, commissions and bonuses, travel, facilities, insurance and other administrative expenses. Selling, general and administrative expenses increased $176.7 million primarily due to:

•

a $136.6 million increase in general and administrative expenses relating to increased salaries and benefits and costs related to the going-private transaction; and

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•

a $40.2 million increase in marketing expense primarily due to the launch of faster high-speed Internet service, new high-speed Internet tiers and new video products, as well as an 10% increase in costs associated with Cox’s advertising sales business, Cox Media.

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

Depreciation and amortization

     Depreciation and amortization for the year ended December 31, 2004 increased to $1.6 billion from $1.5 billion for the comparable period in 2003. This was due to an increase in depreciation from Cox’s continuing investment in its broadband network in order to deliver additional services.

Impairment of intangible assets

      As a result of the going–private transaction, Cox revised its marketplace assumption surrounding its estimated cost of capital. In accordance with SFAS No. 142, Cox performed an impairment test, which along with the revised estimated cost of capital, included a revised long-range operating forecast. As a result of the impairment test, Cox recognized an impairment charge of approximately $2.4 billion related to its cable franchise rights, as calculated using a direct value method. This impairment charge is reflected as Impairment on intangible assets within the consolidated statement of operations.

Interest expense

     Interest expense decreased 8% to $429.1 million primarily due to interest savings as a result of the full-year impact of Cox’s interest rate swap agreements and a reduction of outstanding indebtedness for the first eleven months of the year.

Loss on derivative instruments, net

     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. During 2004 and 2003, Cox used interest rate swap agreements with an aggregate principal amount of $1.4 billion as of December 31, 2004, that are designated and accounted for as fair value hedges. 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. These interest rate swaps are 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. These interest rate swaps derive their value primarily based on changes in interest rates. Cox’s expectations with respect to its hedging strategy underlying these interest rate swaps have been met since the swap agreements have resulted in Cox increasing its proportion of floating rate debt.

     In addition to the interest rate swap agreements, upon adoption of SFAS No. 133, certain of Cox’s debt instruments contained embedded derivatives, as defined, and certain investments met the definition of freestanding derivatives. 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. During 2004 and 2003, Cox had the following embedded derivatives or freestanding derivatives outstanding that have not been designated as hedges:

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	•	embedded derivatives contained in Cox’s three series of exchangeable subordinated debentures, referred to as the PRIZES, the Premium PHONES and the Discount Debentures. These debentures were exchangeable for the cash value of shares of Sprint PCS common stock or, in the case of the Discount Debentures, at Cox’s option, the related shares. These embedded derivatives derived their value primarily based on changes in the fair value of Sprint PCS common stock, U.S. Treasury rates and Cox’s credit spreads.
	•	stock purchase warrants to purchase equity securities of certain publicly-traded or privately-held companies that can be exercised and settled by delivery of net shares, such that Cox pays no cash upon exercise. These warrants meet the definition of a freestanding derivative, as prescribed by SFAS No. 133, and derive their value primarily based on the change in the fair value of the underlying equity security.

     Cox redeemed all remaining outstanding PRIZES and Premium PHONES in June 2004 and expects to redeem the Discount Debentures in April 2005.

     During 2003, Cox had the following embedded derivatives outstanding that were not designated as hedges:

•

embedded derivatives contained in Cox’s series of prepaid variable forward contracts secured by 19.5 million shares of Sprint PCS common stock and accounted for as zero-coupon debt. These embedded derivatives also derived their value primarily based on changes in the fair value of Sprint PCS common stock, U.S. Treasury rates and Cox’s credit spreads.

     For a more detailed description of Cox’s exchangeable subordinated debentures, zero-coupon debt and their corresponding embedded derivatives, please refer to Note 8. “Debt” and Note 9. “Derivative Instruments and Hedging Activities” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”

Gain on investments, net

     Gain on investments, net for the year ended December 31, 2004 of $28.4 million includes:

	•	$2.3 million pre-tax gain on the sale of all remaining shares of Sprint stock held by Cox;
	•	$19.5 million pre-tax gain on the sale of 0.1 million shares of Sprint PCS preferred stock; and
	•	$7.3 million pre-tax gain on the sale of certain other non-strategic investments.

     In determining whether a decline in the fair value of Cox’s investments is other than temporary, Cox considers the factors prescribed by Securities and Exchange Commission (SEC) Staff Accounting Bulletin Topic 5-M, Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities Emerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. These factors include the length of time and extent to which the fair market value has been less than cost, the financial condition and near term prospects of the investee and Cox’s intent and ability to retain its investment.

Loss on extinguishment of debt

     During the year ended December 31, 2004, Cox recorded a $7.0 million pre-tax loss on extinguishment of debt due to the redemption of $14.6 million aggregate principal amount of the PRIZES and $0.1 million aggregate principal amount of the Premium PHONES, which represented all remaining outstanding PRIZES and Premium PHONES.

Income tax benefit

     Income tax benefit was $916.5 million for the year ended December 31, 2004. The effective tax rate for 2004 was 44.1% compared to 35.6% for 2003. The change in the effective tax rate was primarily due

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to the recognition of a tax benefit due to the favorable resolution of federal income tax audits for the years 1995-2001 and an adjustment to reduce state deferred taxes. Other factors affecting the tax rate include the impact of varying state tax rates across Cox’s operations, along with current year investing and financing transactions.

Equity in net losses of affiliated companies, net of tax

     Equity in net losses of affiliated companies decreased 57% to $3.5 million. Generally, these losses are attributable to Cox’s proportionate share of the investee’s income or loss. Although Cox has various levels of ownership and rights with respect to the companies in which it has equity investments, Cox has no control over the financial position of these companies. Therefore, Cox cannot predict the impact that its equity investments will have on its future operations.

Cumulative effect of change in accounting principle, net of tax

     On September 29, 2004, the SEC announced that a direct value method should be used to determine the fair value of all intangible assets required to be recognized under SFAS No. 141, Business Combinations, and that registrants should apply a direct value method to such assets acquired in business combinations completed after September 29, 2004. Further, registrants who have applied the residual method to the valuation of intangible assets for purposes of impairment testing shall perform a transition impairment test using a direct value method on all intangible assets that were previously valued using the residual method under SFAS No. 142, no later than the beginning of their first fiscal year beginning after December 15, 2004. Impairments of intangible assets recognized upon application of a direct value method by entities previously applying the residual method, including the related deferred tax effects, should be reported as a cumulative effect of a change in accounting principle.

      Consistent with this SEC position as codified on EITFD-108, Use of the Residual Method to Value Acquired Assets other than Goodwill, Cox began applying a direct value method to determine the fair value of its indefinite-lived intangible assets comprised of cable franchise rights, acquired prior to September 29, 2004. During the fourth quarter of 2004, Cox performed a transition impairment test, which resulted in a charge of approximately $2.0 billion ($1.2 billion, net of tax).

Net loss

     Net loss for the year ended December 31, 2004 was $2.4 billion compared to $137.8 million for the comparable period in 2003.

2003 compared with 2002

     The following table sets forth summarized consolidated financial information for each of the two years in the period ended December 31, 2003.

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Revenues

     The following table sets forth summarized revenue information for each of the two years in the period ended December 31, 2003.

     The 14% increase in total revenues was primarily attributable to:

	•	a 31% increase in customers for advanced services (digital cable, high-speed Internet access and telephony);
	•	an increase in basic cable rates resulting from increased programming costs , as well as increased channel availability;
	•	a $5 price increase on monthly high-speed Internet access adopted in select markets in the fourth quarter of 2002 and in most of Cox’s remaining markets in the first quarter of 2003; and
	•	an increase in commercial broadband customers.

     Costs and expenses (Costs of services and Selling, general and administrative expenses)

     The following table sets forth summarized operating expenses for each of the two years in the period ended December 31, 2003.

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     Cost of services increased $279.2 million over 2002 partially due to a $122.0 million increase in programming costs. Approximately 10% of the increase was attributable to programming rate increases, and the remaining 2% was related to basic and digital customer growth. Other cost of services increased $157.2 million, primarily due to:

	•	1.2 million in net additions of advanced-service customers over the last twelve months; and
	•	increased labor costs due to the transition from upgrade construction and new product launches to maintenance and related customer costs directly associated with the growth of new subscribers.

Cox recorded a one-time non-recurring charge of approximately $9.8 million in 2002 associated with the continuation of Excite@Home high-speed Internet service following the bankruptcy of Excite@Home, and excluding this one-time charge, other cost of services increased 16% in 2003.

     Selling, general and administrative expenses include marketing, salaries and benefits, commissions and bonuses, travel, facilities, insurance and other administrative expenses. Selling, general and administrative expenses increased $103.5 million primarily due to:

	•	a $90.2 million increase in general and administrative expenses relating to increased labor costs, expenses related to trials of new video and telephony products, and public relations expenses related to our campaign aimed at the rising costs of programming; and
	•	a $13.3 million increase in marketing expense relating to the promotion of new services and bundling alternatives, partially offset by an 8% decrease in costs associated with Cox’s advertising sales business, Cox Media.

Depreciation and amortization

     Depreciation and amortization for the year ended December 31, 2003 increased to $1.5 billion from $1.4 billion for the comparable period in 2002. This was due to an increase in depreciation from Cox’s continuing investment in its broadband network in order to deliver additional services.

Impairment of intangible assets

     Impairment of intangible assets represents a non-cash impairment charge of approximately $25.0 million recognized in the first quarter of 2003, upon completion of an impairment test of franchise value in accordance with SFAS No. 142. Cox completed its next impairment test in accordance with SFAS No. 142 in August 2003. The August 2003 test indicated no impairment of franchise value.

Interest expense

     Interest expense decreased 15% to $467.8 million primarily due to interest savings as a result of Cox’s interest rate swap agreements and a reduction of outstanding indebtedness.

Loss on derivative instruments, net

     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. During 2003 and 2002, Cox used the following derivative instruments in its hedging activities:

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	•	twelve interest rate swap agreements with an aggregate principal amount of $1.8 billion that are designated and accounted for as fair value hedges.
	•	a series of costless equity collar arrangements that were designated and accounted for as fair value hedges to manage Cox’s exposure to changes in the fair value of 15.8 million shares of Sprint PCS common stock, 22.5 million shares of AT&T common stock and 17.2 million shares of AT&T Wireless common stock held by Cox. These equity collar arrangements derived their value primarily based on changes in the fair value of the underlying equity security. As described in Note 6. “Investments” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data,” Cox terminated all of these equity collar arrangements and sold the underlying shares of common stock during the first quarter of 2002. Hence, there were no active hedging activities with respect to Cox’s investments at December 31, 2002, and Cox did not undertake any hedging activity with respect to investments in 2003 or 2004.

     In addition to the foregoing derivatives, upon adoption of SFAS No. 133, certain of Cox’s debt instruments contained embedded derivatives, as defined, and certain investments met the definition of freestanding derivatives. 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. During 2003 and 2002, Cox had the following embedded derivatives or freestanding derivatives outstanding that have not been designated as hedges:

	•	embedded derivatives contained in the PRIZES, the Premium PHONES and the Discount Debentures.
	•	embedded derivatives contained in Cox’s series of prepaid variable forward contracts secured by 19.5 million shares of Sprint PCS common stock and accounted for as zero-coupon debt. These embedded derivatives derived their value primarily based on changes in the fair value of Sprint PCS common stock, U.S. Treasury rates and Cox’s credit spreads.
	•	stock purchase warrants to purchase equity securities of certain publicly-traded or privately-held companies that can be exercised and settled by delivery of net shares, such that Cox pays no cash upon exercise.

     For a more detailed description of Cox’s exchangeable subordinated debentures, zero-coupon debt and their corresponding embedded derivatives, please refer to Note 8. “Debt” and Note 9. “Derivative Instruments and Hedging Activities” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”

     For the year ended December 31, 2003, Cox recorded a $22.6 million pre-tax loss on derivative instruments primarily due to a $4.4 million pre-tax loss resulting from the change in the fair value of Cox’s net settleable warrants and an $18.7 million pre-tax loss resulting from the change in the fair value of certain derivative instruments embedded in Cox’s zero-coupon debt, as described above.

Gain on investments, net

     Net gain on investments for the year ended December 31, 2003 of $165.2 million includes:

	•	$154.5 million pre-tax gain related to the sale of 46.8 million shares of Sprint PCS common stock;
	•	$21.8 million pre-tax gain as a result of the change in market value of Cox’s investment in Sprint PCS common stock classified as trading; partially offset by
	•	$10.5 million pre-tax decline considered to be other than temporary in the fair value of certain investments.

Loss on extinguishment of debt

     During the year ended December 31, 2003, Cox recorded a $450.1 million pre-tax loss on extinguishment of debt consisting of:

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	•	$412.8 million pre-tax loss resulting from the purchase of $1.8 billion aggregate principal amount at maturity of the Discount Debentures pursuant to Cox’s offer to purchase any and all Discount Debentures. The pre-tax loss was primarily attributable to the reversal of discounts associated with the embedded derivatives and other costs that were recorded at issuance and were being amortized over the original term of these securities.
	•	$29.5 million pre-tax loss resulting from the termination of Cox’s series of prepaid forward contracts to sell up to 19.5 million shares of Sprint PCS common stock, described above and accounted for as zero-coupon debt;
	•	$10.2 million pre-tax loss resulting from the purchase of $422.7 million aggregate principal amount at maturity of Cox’s convertible senior notes due 2021 pursuant to the holders’ right to require Cox to purchase the convertible notes;
	•	$1.5 million pre-tax loss resulting from the purchase of $250.0 million aggregate principal amount of its 6.15% Reset Put Securities due 2033 (REPS); partially offset by
	•	$3.9 million pre-tax gain resulting from the purchase of $1.3 billion aggregate principal amount of the PRIZES and $274.9 million aggregate principal amount of the Premium PHONES pursuant to Cox’s offer to purchase any and all PRIZES and Premium PHONES.

Income tax benefit

     Income tax benefit was $68.3 million for the year ended December 31, 2003. The effective tax rate for 2003 was 35.6% compared to 34.3% for 2002. The change in the effective tax rate was primarily due to the impact of varying effective state tax rates across Cox’s operations, along with the effects of current year investing and financing transactions.

Equity in net losses of affiliated companies, net of tax

     Equity in net losses decreased 59% to $8.1 million. Generally, these losses are attributable to Cox’s proportionate share of the investee’s income or loss. Although Cox has various levels of ownership and rights with respect to the companies in which it has equity investments, Cox has no control over the financial position of these companies. Therefore, Cox cannot predict the impact that its equity investments will have on its future operations.

Net loss

     Net loss for the year ended December 31, 2003 was $137.8 million compared to net loss of $274.0 million for the comparable period in 2002.

Liquidity and Capital Resources

2004 Uses and Sources of Cash

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

     During 2004, Cox made capital expenditures of $1.4 billion. These expenditures were primarily directed at costs related to electronic equipment located on customers’ premises, costs to upgrade and rebuild Cox’s broadband network to allow for the delivery of advanced broadband services and costs associated with network equipment used to enter new service areas.

     Capital expenditures for 2005 are expected to be less than capital expenditures made in 2004. Although management continuously reviews industry and economic conditions to identify opportunities, Cox does not have any current plans to make any material acquisitions or enter into any material cable system

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exchanges in 2005. In March 2005, Cox announced it is exploring a sale of four cable operations serving approximately 900,000 subscribers.

     In addition to improvement of its own networks, Cox has made strategic investments in businesses focused on cable programming, technology and telecommunications. Investments in these companies of $17.8 million in 2004 included debt and equity funding. Future funding requirements are expected to total approximately $33.8 million over the next year. These capital requirements may vary significantly from the amounts stated above and will depend on numerous factors as many of these companies are growing businesses and specific financing requirements will change depending on the evolution of these businesses.

     During 2004, Cox repaid $3.6 billion of debt, which included:

	•	the repurchase of its remaining outstanding convertible senior notes, PRIZES and Premium PHONES;
	•	the repayment of its $375 million 7.5% notes and its $100 million 6.69% medium-term notes, each at their maturity; and
	•	the repayment of its 18-month, $3.0 billion term loan (Bridge Loan).

     During 2004, Cox purchased the minority interest in TCA Cable Partners for cash consideration of approximately $153.0 million.

     Net revolving credit and commercial paper borrowings during 2004 were $1.4 billion. Proceeds from bank borrowings and the issuance of debt securities, net of debt issuance costs, underwriting commissions and discounts, included the following:

	•	the Bridge Loan for net proceeds of approximately $3.0 billion;
	•	a term loan due 2009 for net proceeds of approximately $2.0 billion;
	•	floating rate notes due 2007 for net proceeds of approximately $498.7 million;
	•	4.625% notes due 2010 for net proceeds of approximately $1.2 billion; and
	•	5.450% notes due 2014 for net proceeds of approximately $1.2 billion.

     The proceeds from the Bridge Loan and the term loan were used to fund the going-private transaction. Proceeds from the notes offerings were used to repay the Bridge Loan. In connection with the notes offerings, Cox agreed to offer holders of the notes the opportunity to exchange their outstanding notes for registered notes with substantially identical terms. Cox filed an exchange offer registration statement on January 14, 2005 and expects to commence the exchange offer as soon as practicable. This report should not be construed as an offer to exchange or solicitation of an offer to exchange outstanding notes. Cox exchange offer will only be made through a prospectus that will be available after the SEC declares the exchange offer registration statement effective. Cox has agreed to use commercially reasonable efforts to have the exchange offer registration statement declared effective on or before June 13, 2005 and the consummate the exchange offer within 25 business days after the effective date, and if Cox fails to meet these deadlines or under certain other circumstances (each a registration default), holders will receive additional interest until the applicable registration default is cured. Cox currently does not expect a registration default will occur.

     During 2004, Cox generated $2.0 billion from operations. Proceeds from the sale of investments of $70.2 million included the sale of 0.1 million shares of Sprint PCS preferred stock for net proceeds of $56.9 million, the sale of certain other non-strategic investments for proceeds of $10.3 million and the sale of all remaining Sprint stock for proceeds of $3.0 million. Cox also received net proceeds of approximately $53.1 million from the sale of certain small, non-clustered cable systems in Oklahoma, Kansas, Texas and Arkansas.

2003 Uses and Sources of Cash

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     During 2003, Cox made capital expenditures of $1.6 billion. These expenditures were primarily directed at costs related to electronic equipment located on customers’ premises, costs to upgrade and rebuild Cox’s broadband network to allow for the delivery of advanced broadband services and costs associated with network equipment used to enter new service areas.

     In addition to improvement of its own networks, Cox has made strategic investments in businesses focused on cable programming, technology and telecommunications. Investments in these companies of $22.3 million in 2003 included debt and equity funding. Future funding requirements are expected to total approximately $20.0 million over the next two years. These capital requirements may vary significantly from the amounts stated above and will depend on numerous factors as many of these companies are growing businesses and specific financing requirements will change depending on the evolution of these businesses.

     During 2003, Cox repaid $2.3 billion of debt, which primarily consisted of the purchase of a portion of its convertible senior notes, the purchase of the majority of all three series of its exchangeable subordinated debentures, pursuant to offers to purchase any and all PRIZES, Premium PHONES and Discount Debentures, and the purchase of its REPS.

     Net commercial paper borrowings during 2003 were $300.9 million. Proceeds from the issuance of other debt, net of debt issuance costs, underwriting commissions and discounts, included the issuances of:

	•	4.625% senior notes due 2013 for net proceeds of approximately $596.2 million;
	•	3.875% senior notes due 2008 for net proceeds of $248.8 million; and
	•	5.5% senior notes due 2015 for net proceeds of $496.5 million.

     The proceeds from these offerings were primarily used to purchase the tendered PRIZES, Premium PHONES and Discount Debentures and the REPS.

     During 2003, Cox generated $1.9 billion from operations. Proceeds from the sale and exchange of investments of $246.4 million consisted of proceeds from the sale of 46.8 million shares of Sprint PCS common stock.

2002 Uses and Sources of Cash

     During 2002, Cox made capital expenditures of $1.9 billion. These expenditures were primarily directed at costs related to electronic equipment located on customers’ premises, costs to upgrade and rebuild Cox’s broadband network to allow for the delivery of advanced broadband services and costs associated with network equipment used to enter new service areas.

     Net commercial paper repayments during 2002 were $727.4 million. As a result, Cox had no outstanding commercial paper borrowings at December 31, 2002. During 2002, Cox repaid $705.0 million of other debt, which primarily consisted of the repurchase of a portion of its convertible senior notes, the repurchase of its Floating Rate MOPPRS/CHEERS and the repayment of its 6.5% senior notes upon their maturity.

     During 2002, Cox redeemed the senior notes held by the Cox RHINOS Trust for approximately $502.6 million, and the Cox RHINOS Trust, in turn, redeemed its preferred securities, the RHINOS. Distributions paid on capital and preferred securities of subsidiary trusts of $47.8 million consisted of quarterly interest payments on the FELINE PRIDES and RHINOS.

     During 2002, Cox generated $1.8 billion from operations. Proceeds from the sale and exchange of investments of $1.3 billion primarily included:

	•	the sale of 25.2 million shares of Sprint PCS common stock for aggregate net proceeds of approximately $238.7 million;
	•	the sale of 35.0 million shares of AT&T common stock for aggregate net proceeds of approximately $542.6 million;

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	•	the sale of 23.9 million shares of AT&T Wireless common stock for aggregate net proceeds of approximately $248.2 million; and
	•	the termination of all costless equity collar arrangements with respect to Sprint PCS common stock, AT&T common stock and AT&T Wireless common stock for aggregate proceeds of approximately $264.4 million.

     Proceeds from the issuance of debt, net of debt issuance costs, underwriting commissions and discounts, included the issuance of 7.125% notes due 2012 for net proceeds of approximately $986.1 million. The proceeds from this offering were primarily used to redeem the senior notes held by the Cox RHINOS Trust, repurchase the Floating Rate MOPPRS/CHEERS and repay the 6.5% senior notes.

Off-Balance Sheet Arrangements

     In the normal course of business, Cox issues standby letters of credit to local franchise authorities. The unused letters of credit outstanding totaled $5.1 million at December 31, 2004. Cox does not have any material off-balance sheet arrangements.

Contractual Obligations and Commitments

     The following table contains information relating to Cox’s contractual obligations and commitments for the five years subsequent to December 31, 2004 and thereafter. The amounts represent the maximum future contractual obligations (some of which may be settled by delivering equity securities) and are reported without giving effect to any related discounts, premiums and other adjustments necessary to comply with accounting principles generally accepted in the U.S.

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     Cox identified other cash requirements related to the funding of pension and other postretirement benefits. Cox accelerated its total 2003 plan year contributions for the funded pension plans into 2003. In December 2004, Cox contributed $10.0 million of its overall $38.8 million 2004 minimum required contribution; the remaining $28.8 million will be contributed during 2005. Cox expects to contribute $6.0 million to its other postretirement benefit plans during 2005. The assumptions related to pension and other postretirement benefits are described under the heading “Pension and Postretirement Benefits” under “Critical Accounting Policies and Estimates.” For additional information regarding pension and other postretirement benefits see Note 12. “Retirement Plans” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”

Credit Facilities

     On December 2, 2004, Cox entered into new credit agreements, dated as of December 3, 2004, providing Cox with a five-year unsecured $1.5 billion revolving credit facility, a five-year unsecured $2.0 billion term loan and the Bridge Loan. On December 2, 2004, Cox also amended and restated its existing credit agreement, dated as of December 3, 2004, to conform certain of the provisions of that agreement to the provisions of the new credit agreements. Cox’s existing credit agreement, as amended and restated, provides for an unsecured $1.25 billion revolving credit facility with availability through June 4, 2009. Through December 8, 2004, Cox borrowed approximately $5.3 billion in the aggregate under these facilities to fund the going-private transaction. Cox repaid the Bridge Loan in December 2004, primarily with the proceeds of the senior notes offering described previously. Borrowings under the new revolving credit facility and the amended and restated credit facility may be used for general corporate purposes. At December 31, 2004, Cox had outstanding borrowings of approximately $1.7 billion under its credit facilities. Upon termination of any credit agreement, Cox must repay all outstanding loans under the terminated credit agreement.

     Borrowings under both the new and the amended and restated credit agreements will bear interest at a rate selected by Cox from three alternatives. The interest rate may be based on the London Interbank Offered Rate (LIBOR), the Federal funds rate or an alternate base rate. The alternate base rate will be based on the greater of the prime rate or the Federal funds rate plus 0.50%. In each case, the applicable interest rate will be increased by a margin imposed by the credit agreements. The applicable margin for any date will depend upon Cox’s corporate credit ratings. The credit agreements also establish a mechanism under which individual lenders with commitments under Cox’s revolving credit facilities may make discretionary loans in lieu of loans committed under the revolving credit facilities at rates agreed upon from time to time with Cox.

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     Cox will pay a commitment fee on the unused portion of the total amount available under its credit facilities based on Cox’s corporate credit ratings.

     Each of Cox’s credit agreements requires Cox to maintain a ratio of debt to operating cash flow of not more than 5.5 to 1.0 prior to December 31, 2005 and 5.0 to 1.0 at December 31, 2005 and thereafter and a ratio of operating cash flow to interest expense of not less than 2.0 to 1.0. Additionally, Each of Cox’s credit agreements contains customary affirmative and negative covenants concerning the conduct of Cox’s business operations, such as limitations on the granting of liens, mergers, consolidations and dispositions of assets, investments in unrestricted subsidiaries and transactions with affiliates. Subject to certain exceptions, Cox will not be permitted to pay or declare any dividend or redeem or acquire any of its stock in excess of a specified amount unless its ratio of debt to operating cash flow would not exceed a specified level after taking into account the dividend, redemption or acquisition.

     Each of Cox’s credit agreements also contains customary events of default, including, but not limited to, failure to pay principal or interest, failure to pay or acceleration of other debt, misrepresentation or breach of warranty, violation of certain covenants and change of control. Upon the occurrence of an event of default under one of the credit agreements, Cox’s obligations under that credit agreement may be accelerated and the lending commitments under that credit agreement terminated.

Ratio of Earnings to Fixed charges

The following table sets forth Cox's ratio of earnings to fixed charges for the periods indicated:

		(a) For the year ended December 31, 2004, Cox's fixed charges exceeded its earnings by approximately $2.0 billion due primarily to impairment of intangible assets of $2.4 billion offset by net gains on investments of $28.4 million. The impairment of intangible assets was related to cable franchise rights and was recognized based on an impairment test calculated in accordance with SFAS 142. The gain on investments included a $21.9 million gain on the sale of Sprint PCS common stock.
		(b) For the year ended December 31, 2003, Cox's fixed charges exceeded its earnings by approximately $191.9 million due primarily to loss on extinguishment of debt of $450.1 million and next loss on derivative instruments of $22.6 million offset by net gain on investments of $165.2 million. The loss on extinguishment of debt was primarily due to a $412.8 million pre-tax loss resulting from the purchase of $1.8 billion aggregate principal amount of Cox's exchangeable subordinated discount debentures due 2020. The net loss on derivative instruments included an $18.7 million loss resulting from the change in the fair value of certain derivative instruments embedded in Cox's zero-coupon debt. The gain on investments included a $154.5 million gain on the sale of Sprint PCS common stock.
		(c) For the year ended December 31, 2002, Cox's fixed charges exceeded its earnings by approximately $329.9 million due primarily to net losses on investments of $1.3 billion offset by net gains on derivative instruments of $1.1 billion. The loss on investments included an $807.9 million decline in the fair value of certain investments, primarily Sprint PCS common stock, cons.

Credit Ratings

     Cox’s credit ratings impact our ability to obtain short and long-term financing and the cost of such financing. In determining Cox’s credit ratings, the rating agencies consider a number of factors, including our profitability, operating cash flow, total debt outstanding, interest requirements, liquidity needs and availability of liquidity. Other factors considered may include our business strategy, the condition of our industry and our position within the industry. Although we understand that these are among the factors considered by the rating agencies, each agency might calculate and weigh each factor differently. A rating is not a recommendation to buy, sell or hold a security, and ratings are subject to revision at any time by the assigning agency.

     More information about Moody’s, Fitch Ratings’ and Standard and Poor’s ratings generally can be found at their respective websites at http://www.moodys.com, http://www.fitchratings.com and http://www.standardandpoors.com. The information at these websites is not part of this annual report, has not been reviewed or verified by us and is referenced for information purposes only.

Other

     Cox had approximately $1.0 billion of total available financing capacity under its revolving credit facilities and commercial paper program at December 31, 2004.

     In September 2004, Cox purchased DR Partners’ 25% interest in TCA Cable Partners, pursuant to the partnership agreement, for cash consideration of approximately $153.0 million. TCA Cable Partners was a general partnership owned 75% by Cox (indirectly through subsidiaries) and 25% by DR Partners, operating cable systems in the Southwest, mainly Arkansas, serving approximately 260,000 customers.

     Certain of Cox’s debt instruments and credit agreements contain covenants which, among other provisions, contain certain restrictions on liens, mergers and the disposition of assets. None of the covenants contained in Cox’s debt instruments and credit agreements contain a covenant to maintain a

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specific debt rating that would impact the maturity of the instruments and agreements in the event that Cox’s debt rating was downgraded. The credit agreements contain financial covenants that require certain leverage ratios and interest coverage (as defined in the covenants) be maintained. Compliance with these ratios limits Cox’s ability to incur unlimited indebtedness; however, these covenants have not posed a significant limitation on Cox’s ability to finance its capital requirements in the past. Cox was in compliance with all covenants for both its credit facilities and debt instruments for all periods presented. Historically, Cox has not paid dividends and currently intends to reinvest future earnings, consistent with its business strategy.

     For a description of investments, see “Investments” in Part I, Item 1. “Business” and Note 6. “Investments” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”

     For a description of Cox’s transactions with affiliated companies, see Part III, Item 13. “Certain Relationships and Related Transactions.”

Recent Development

     On March 7, 2005, Cox announced that it is exploring a sale of four cable operations serving approximately 900,000 subscribers. This is one of a number of strategic options being considered to reduce debt and accelerate growth. Systems under consideration for sale include West Texas, serving the Lubbock, Midland, Amarillo, San Angelo and Abilene areas; North Carolina, serving the Greenville, Rocky Mount, New Bern and Kinston areas; Humboldt County, California; and much of Middle America Cox (MAC), primarily comprised of operations in Texas, Louisiana and Arkansas. MAC also includes certain systems in Oklahoma, Mississippi and Missouri. Excluded from the potential sale are some operations serving the Northwest Arkansas and Lafayette, Louisiana areas.

Critical Accounting Policies and Estimates

     The accompanying consolidated financial statements and notes to consolidated financial statements contain information that is pertinent to management’s discussion and analysis of financial condition and results of operations. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. Estimates are evaluated based on available information and experience. Actual results could differ from those estimates under different assumptions or conditions. Cox believes that the critical accounting policies and estimates discussed below involve additional management judgment due to the sensitivity of the methods and assumptions necessary in determining the related asset, liability, revenue and expense amounts. For a detailed description of Cox’s significant accounting policies, see Note 2. “Summary of Significant Accounting Policies and Other Items” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”

Plant and equipment

     The costs associated with the construction of cable transmission and distribution facilities and new cable service installations are capitalized. Capitalized costs include all direct labor and materials as well as certain indirect costs. The amount of indirect costs that are capitalized, which include employee benefits, warehousing and transportation costs, are estimated based on historical construction costs. Cox performs semi-annual evaluations of these estimates and any changes to the estimates, which may be significant, are included prospectively in the period in which the evaluations are completed.

Derivative Instruments

     Cox accounts for derivative financial instruments in accordance with SFAS No. 133, which requires that an entity recognize all derivatives as either assets or liabilities measured at fair value. From time to time, Cox uses derivative instruments, such as interest rate swaps and equity collar arrangements, 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. In addition, upon adoption of SFAS No. 133, certain

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of Cox’s debt instruments and investments contained embedded or freestanding derivatives, as defined. Assumptions are made regarding the valuation of derivative instruments, including U.S. Treasury rates, Cox’s credit spreads, volatility rates and other market indices. Should actual rates differ from Cox’s estimates, revisions to the fair value of Cox’s derivative financial instruments may be required.

Intangible Assets

     On January 1, 2002, Cox adopted SFAS No. 142, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. Cox’s indefinite lived intangible assets are comprised of cable franchise value, which Cox obtained through acquisitions of cable systems.

     Based on the guidance prescribed in EITF Issue No. 02-7, Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets, Cox determined that the unit of accounting for testing franchise value for impairment resides at the cable system cluster level, consistent with Cox’s management of its business as geographic clusters.

     Prior to September 2004, Cox assessed franchise value for impairment under SFAS No. 142 by utilizing a residual approach whereby Cox measured the implied fair value of each franchise value intangible asset subject to the same unit of accounting by deducting from the fair value of each cable system cluster the fair value of the cable system cluster’s other net assets, including previously unrecognized intangible assets. Upon adoption of SFAS No. 142, Cox determined that no impairment of franchise value intangible assets existed as of January 1, 2002. In completing subsequent impairment tests in accordance with SFAS No. 142, Cox considers the guidance in EITF Issue No. 02-17, which was issued in October 2002. When applying the guidance in EITF Issue No. 02-17, Cox considers assumptions that marketplace participants would consider, such as expectations of future contract renewals and other benefits related to the intangible asset, when measuring the fair value of the cable system cluster’s other net assets. The January 2003 impairment test in accordance with SFAS No. 142, utilizing the residual approach, resulted in a non-cash impairment charge of approximately $25.0 million, which is classified within Impairment of intangible assets in Cox’s Consolidated Statement of Operations for the year ended December 31, 2003. Cox completed its next impairment test in accordance with SFAS No. 142, utilizing the residual approach in August 2003. The August 2003 test indicated no impairment of franchise value.

     In September 2004, the SEC announced that a direct value method should be used to determine the fair value of all intangible assets required to be recognized under SFAS No. 141 and that registrants should apply a direct value method to such assets acquired in business combinations completed after September 29, 2004. Further, registrants who have applied the residual method to the valuation of intangible assets for purposes of impairment testing shall perform a transition impairment test using a direct value method on all intangible assets that were previously valued using the residual method under SFAS No. 142 no later than the beginning of their first fiscal year beginning after December 15, 2004. Impairments of intangible assets recognized upon application of a direct value method by entities previously applying the residual method, including the related deferred tax effects, should be reported as a cumulative effect of a change in accounting principle. Consistent with this SEC position, Cox began applying a direct value method to determine the fair value of its indefinite-lived intangible assets comprised of cable franchise rights, acquired prior to September 29, 2004. During the fourth quarter of 2004, Cox performed a transition impairment test, which resulted in a charge of approximately $2.0 billion ($1.2 billion, net of tax), which is reported within Cumulative effect of change in accounting principle, net of tax, in the Consolidated Statements of Operations.

     Additionally, as a result of the going-private transaction, Cox revised its marketplace assumption surrounding its estimated cost of capital. In accordance with SFAS No. 142, Cox performed an impairment test, which along with the revised estimated cost of capital, included a revised long-range operating forecast. As a result of the impairment test, Cox recognized an impairment charge of approximately $2.4 billion related to its cable franchise rights, as calculated using a direct value method. This impairment charge is reflected as Impairment on intangible assets in the accompanying Consolidated Statements of Operations.

     In determining the fair value of each cable system cluster, Cox performs discounted cash flow analyses, which require the use of assumptions and estimates. Cox believes that its assumptions and

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estimates are consistent with those that marketplace participants would use in their estimates of fair value. The determination of fair value is critical to assessing impairment of intangible assets with indefinite useful lives under SFAS No. 142. If these estimates or their related assumptions change in the future, significant impairment in value, and hence impairment charges, may result.

Income Tax Estimates

     The provision for income taxes is based on Cox’s current period income, changes in deferred income tax assets and liabilities, changes in its operations in various jurisdictions, income tax rates and tax positions taken on returns. Cox prepares and files tax returns based on its interpretation of tax laws and regulations and records estimates based on these judgments and interpretations. Significant judgment is required in assessing and estimating the application and interpretation of complex tax laws and regulations. In the normal course of business, Cox’s filed tax returns are subject to examination by taxing authorities. These examinations could result in challenges to tax positions that Cox has taken. These challenges could arise from a variety of tax issues such as the deductibility of certain expenses, allocations of income and expense between states, the tax basis of certain assets and the state taxation of acquisitions and disposals. Ultimately, the results of these challenges could require Cox to pay additional tax and could also require the payment of interest assessments. A liability is accrued when Cox believes that an assessment is probable.

     Cox has concluded a federal income tax audit for the years 1998-2001 and expects to pay approximately $4.0 million related to certain cable system acquisitions and certain financing arrangements completed during the audit period. In addition, Cox expects to file amended tax returns, and receive refunds of approximately $3.0 million, for the effect of these adjustments in later years. Cox believes that the majority of the payments and the refunds will occur during 2005.

     Cox has also concluded the field examination phase of a federal income tax audit for the years 1995-1997. Because Cox was a member of an affiliated group filing a consolidated U.S. federal income tax return during the audit period, Cox will not be able to fully conclude the audit until issues associated with all affiliated members have been resolved. Cox received refunds of approximately $3.0 million for various adjustments that were concluded during the field examination. Cox does not expect that any unresolved issues will result in significant payments or refunds.

     In 2004, as a result of the favorable resolution of the 1995-1997 and 1998-2001 audits, Cox has reversed previously accrued taxes, reducing the tax provision by $6.0 million.

Pension and Postretirement Benefits

     Cox follows the guidance of SFAS No. 87, Employers’ Accounting for Pensions, and SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, when accounting for pension and postretirement benefits. Under these accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. Delayed recognition of differences between actual results and expected or estimated results is a guiding principle of these standards. This delayed recognition of actual results allows for a smoothed recognition of changes in benefit obligations and plan performance over the working lives of the employees who benefit under the plans. The primary assumptions, which are reviewed annually by Cox, include the discount rate, expected return on plan assets, rate of compensation increase and the rate of increase in the per capita cost of covered health care benefits.

     During 2004, Cox made changes to its assumptions related to the discount rate and the rate of compensation increase for salary-related plans. Cox consults with its independent actuaries when selecting each of these assumptions.

     In selecting the discount rate, Cox considers fixed-income security yields, specifically AA-rated corporate bonds, as rated by Moody’s Investor Services. At December 31, 2004, Cox decreased the discount rate for its pension plan from 6.25% to 6.00% and its postretirement welfare plan from 6.25% to 5.75% as a result of decreased yields for AA-rated corporate bonds.

     In projecting the rate of compensation increase, Cox considers past experience in light of movements in inflation rates. At December 31, 2004, Cox increased the rate of compensation increase from 4.0% to 4.25% for its plans.

     In estimating the expected return on plan assets, Cox considers past performance and future expectations for the types of investments held by the plan, as well as the expected long-term allocation of plan assets to these investments. At December 31, 2004, Cox made no change in the expected 9.0% return on plan assets, as historical returns continue to support a 9.0% expected return.

     In selecting the rate of increase in the per capita cost of covered health care benefits, Cox considers past performance and forecasts of future health care cost trends. At December 31, 2004, Cox made no change in the expected weighted-average annual assumed rate of increase in the per capita cost of covered health care benefits (i.e., health care cost trend rate) for retirees, which is 10.0% in 2005, gradually decreasing to 5.0% by the year 2010, and remaining level thereafter.

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     A variance in the assumptions discussed above would have an impact on the projected benefit obligations, the accrued other postretirement benefit liabilities, and the annual net periodic pension and other postretirement benefit cost. For additional information regarding pension and other postretirement benefits see Note 12. “Retirement Plans” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”

Recently Issued Accounting Pronouncements

     In March 2004, the EITF ratified its consensus related to the application guidance within EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF Issue No. 03-1 applies to investments in debt and equity securities within the scope of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and equity securities that are not subject to the scope of SFAS No. 115 and not accounted for under the equity method under APB Opinion 18 and related interpretations. EITF Issue No. 03-1 requires that a three-step model be applied in determining when an investment is considered impaired, whether that impairment is other than temporary and the measurement of an impairment loss. EITF Issue No. 03-1 originally required that adoption of the recognition provisions prospectively to all current and future investments during the quarter ended September 30, 2004. However, on September 30, 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) EITF No. 03-1-1, Effective Date of Paragraph 16 of EITF Issue No. 03-1, which delayed the effective date of the recognition provisions of EITF Issue No. 03-1 until the issuance of the final FSP EITF Issue 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1. Until the final FSP is issued, Cox is not able to evaluate whether the adoption of the recognition provisions under such guidance will have a material effect on its results of operations or financial position.

     In May 2004, the FASB issued FSP 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). FSP 106-2 requires measures of the accumulated postretirement benefit obligation and net periodic postretirement benefit costs to reflect the effects of the Act and became effective for Cox on July 1, 2004. The adoption of FSP 106-2 did not have a material impact on Cox’s financial position or results of operations.

     As previously described, in September 2004, the SEC announced that a direct value method should be used to determine the fair value of all intangible assets required to be recognized under SFAS No. 141, and that registrants who have applied the residual method to the valuation of intangible assets for purposes of impairment testing shall perform a transition test using a direct value method on all intangible assets that were previously valued using the residual method under SFAS No. 142 no later than the beginning of their first fiscal year beginning after December 15, 2004.

     In December 2004, the FASB issued SFAS No. 123(Revised), Share-Based Payment. This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires companies to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees and to record compensation cost for all stock awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. In addition, Cox is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. SFAS 123(R) will be effective for quarterly periods beginning after June 15, 2005. Cox is currently assessing the impact of this statement on its consolidated financial statements.

Inflation

     Cox believes its operations are not materially affected by inflation.

Caution Concerning Forward-Looking Statements

     This Form 10-K includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, among others, statements concerning Cox’s outlook for the future and information about Cox’s strategic plans and objectives, expectations as to subscriber and revenue growth, anticipated rates of subscriber penetration, capital expenditures and other statements of expectations, beliefs, future plans and strategies, anticipated

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events or trends and similar projections, as well as any facts or assumptions underlying these statements or projections. Actual results may differ materially from those in the forward-looking statements, and may be affected by known and unknown risks, uncertainties and other factors. Many of these risks and uncertainties have been discussed in Cox’s prior filings with the SEC. Factors to consider in connection with any of Cox’s forward-looking statements include, but are not limited to:

•	Cox’s ability to implement successfully Cox’s growth strategies and the level of success of Cox’s operating initiatives, including future expenditures on capital projects, terms and availability of capital, the actual level of revenue growth, adverse changes in the price of telephony interconnection or cable programming and disruptions in the supply of services and equipment. In addition, material changes in the cost of equipment or significant unanticipated capital expenditures could disrupt Cox’s business plan and adversely affect Cox’s business operations.
•	Trends in Cox’s businesses, particularly trends in the market for existing and new communications services and changes in Cox’s business strategy and development plans.
•	Cox’s ability to increase penetration in existing markets, as well as those Cox enters through acquisitions or other business combinations, including Cox’s ability to control costs and maintain high standards of customer service, the extent to which consumer demand for video, data and telephony services increases, subscriber availability, retention and growth, subscriber demand and competition.
•	Cox’s ability to generate sufficient cash flow to meet its debt service obligations and to finance ongoing operations. Cox operates with a significant level of indebtedness. Cash generated from operating activities and borrowing has been sufficient to fund Cox’s debt service, working capital obligations and capital expenditure requirements. Cox believes that it will continue to generate cash and obtain financing sufficient to meet these requirements. However, if Cox were unable to meet these requirements, Cox would have to consider refinancing its indebtedness or obtaining new financing. Although in the past Cox has been able to refinance its indebtedness and obtain new financing, there can be no assurance that Cox will be able to do so in the future or that, if Cox were able to do so, the terms available would be acceptable to Cox. In addition, Cox must manage exposure to interest rate risk due to variable rate debt instruments.
•	Competition from alternative methods of receiving and distributing signals and from other sources of news, information and entertainment, such as newspapers, movie theaters, online computer services and home video products. Because Cox’s franchises are generally non-exclusive, there is potential for competition from other operators of cable systems and other distribution systems capable of delivering programming to homes or businesses, including direct broadcast satellite systems and multichannel multipoint distribution services. In addition, Cox faces general competitive factors, such as the introduction of new technologies (such as Internet-based services), changes in prices or demand for Cox’s products as a result of competitive actions or economic factors and competitive pressures within the broadband communications industry.
•	Cox’s ability to obtain the necessary FCC, as well as state and local, authorizations for new services, and Cox’s response to adverse regulatory changes. The cable industry is subject to extensive regulation by federal, local and, in some instances, state governmental agencies. Advances in communications technology as well as changes in the marketplace and the regulatory and legislative environment are constantly occurring. As a result, it is not possible to predict the effect that ongoing developments might have on the broadband communications industry or on Cox’s operations.
•	Cox’s ability to limit the increases in its programming costs and maintain successful relationships with its programmers. In recent years the cable industry has experienced a rapid escalation in the cost of programming. Cox’s cable programming services are dependent upon its ability to procure programming that is attractive to Cox’s customers at reasonable rates. Programming costs may continue to escalate and Cox may not be able to pass programming cost increases on to its customers.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Cox has estimated the fair value of its financial instruments as of December 31, 2004 and 2003 using available market information or other appropriate valuation methodologies. Considerable judgment, however, is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that Cox would realize in a current market exchange. Please refer to Note 2. “Summary of Significant Accounting Policies” and Note 9. “Derivative Instruments and Hedging Activities” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data” for detailed disclosures regarding Cox’s objectives, general strategy and the nature of derivative financial instruments that Cox uses to manage its exposure to market risk.

     The carrying amount of cash, accounts and other receivables, accounts and other payables and amounts due to/from CEI approximates fair value because of the short maturity of those instruments. The fair value of Cox’s investments stated at fair value are estimated and recorded based on quoted market prices. The fair value of Cox’s equity method investments and investments stated at cost cannot be estimated without incurring excessive costs. Cox is exposed to market price risk volatility with respect to investments in publicly traded and privately held entities. Additional information pertinent to the value of the foregoing investments is discussed in Note 6. “Investments” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”

     The fair value of interest rate swaps used for hedging purposes was approximately $16.4 million and $61.2 million at December 31, 2004 and 2003, respectively, and represents the estimated amount that Cox would receive upon termination of the swap agreements on those respective dates. Cox is exposed to interest rate volatility with respect to these variable-rate instruments when they are issued and outstanding.

     The estimated fair value of Cox’s fixed-rate notes and debentures and exchangeable subordinated debentures at December 31, 2004 and 2003 are based on quoted market prices or a discounted cash flow analysis using Cox’s incremental borrowing rate for similar types of borrowing arrangements and dealer quotations. A summary of the carrying value, estimated fair value and the effect of a hypothetical one percentage point decrease in interest rates on the foregoing fixed-rate instruments at December 31, 2004 and 2003 are as follows:

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

COX COMMUNICATIONS, INC.

See notes to consolidated financial statements.

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COX COMMUNICATIONS, INC.