Cox Q2 Revenues Increase

ATLANTA -- Cox Communications, Inc. (NYSE: COX) today reported financial results for the three months ended June 30, 2003.

"Cox Communications is pleased to share results from another outstanding quarter, marked by operating cash flow (OCF) growth of 20%, operating income growth of 68% and revenue growth of 14%," said Jim Robbins, President and CEO of Cox Communications. "Due to our consistent OCF growth year to date, which has been positively impacted by the success we have had with our innovative productivity initiatives, we have increased historical OCF guidance to 17% to 18% growth for the full year 2003."

Robbins continued: "Despite the traditionally seasonal nature of the second quarter, we delivered 237,722 advanced service revenue generating units (RGUs) and are on track to achieve our guidance of 1.0 to 1.1 million new service net additions for the year. A driving factor in our success continues to be our bundling strategy. Today nearly one third of our customers buy multiple services from Cox, further demonstrating the value of our superior bundle of digital services, which was confirmed last week when Cox received the highest honor in J.D. Power and Associates' 2003 Residential Local Telephone Customer Satisfaction Study," Robbins added. "Cox's local telephone service ranked the highest in overall customer satisfaction in the Western Region - strong evidence of our success in bringing choice in local and long distance telephone service at a great value to Cox communities."

SECOND QUARTER HIGHLIGHTS

During the second quarter of 2003, Cox:

2003 OUTLOOK

For the full year 2003, Cox expects year-over-year growth in basic video subscribers of just under 1%. The company expects to add 1.0 million to 1.1 million advanced-service RGUs in 2003 driven by bundled offerings, excellent customer service and increased product availability. Cox expects to achieve revenue growth of 14% to 15%. Cox is increasing its guidance on operating cash flow (operating income before depreciation and amortization and gains or losses on the sale of cable systems) growth to 17% to 18% (16% to 17% excluding the impact of the $9.8 million one-time charge taken in 2002 related to the continuation of Excite@Home high-speed Internet service). Capital expenditures for the full year are now anticipated to be $1.5 billion, which is below the previously announced expectation of $1.6 billion. In addition, Cox expects to be free cash flow positive for the full year 2003.

OPERATING RESULTS

Three months ended June 30, 2003 compared with three months ended June 30, 2002

Total revenues for the second quarter of 2003 were $1.4 billion, an increase of 14% over the second quarter of 2002. This was primarily due to increased customers for advanced services (including digital cable, high-speed Internet access and telephony), higher basic cable rates and a $5 price increase on monthly high-speed Internet access adopted in certain markets in the fourth quarter of 2002 and in most of Cox's remaining markets in the first quarter of 2003. Also contributing to the increase was an increase in commercial broadband customers.

Cost of services, which includes programming costs, other direct costs and field service costs, was $594.9 million for the second quarter of 2003, an increase of 14% over the same period in 2002. Programming costs increased 10% to $291.5 million, reflecting rate increases and customer growth. Other cost of services increased 17% to $303.4 million, reflecting 1.2 million in net additions of basic and advanced-service RGUs over the last twelve months, as well as 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 customers.

Selling, general and administrative expenses were $296.9 million for the second quarter of 2003, an increase of 6% over the comparable period in 2002. This was due to an 8% increase in general and administrative expenses primarily related to increased salaries and benefits and increased headcount and a 1% net increase in marketing expense primarily due to an increase related to the promotion of new services and bundling alternatives, partially offset by a decrease in costs associated with Cox Media, Cox's advertising business.

Operating income increased 68% to $168.3 million for the second quarter of 2003, and operating cash flow increased 20% to $532.1 million. Operating income margin (operating income as a percentage of revenues) for the second quarter of 2003 was 12%, and operating cash flow margin (operating cash flow as a percentage of revenues) for the second quarter of 2003 was 37%.

Depreciation and amortization increased to $364.3 million from $337.7 million in the second quarter of 2002. This was due to an increase in depreciation from Cox's continuing investment in its broadband network in order to deliver additional programming and services.

For the second quarter of 2003, Cox recorded a $24.2 million pre-tax loss on derivative instruments primarily resulting from the change in the fair value of certain derivative instruments embedded in Cox's zero-coupon debt that is indexed to shares of Sprint PCS common stock that Cox owns.

Net gain on investments of $124.1 million for the second quarter of 2003 was primarily due to a $97.2 million pre-tax gain on the sale of 32.9 million shares of Sprint PCS common stock and a $27.1 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. The net loss on investments for the comparable period in 2002 was primarily due to a $113.5 million pre-tax loss as a result of the change in market value of Cox's investment in Sprint PCS common stock classified as trading and a $677.4 million decline in the fair value of certain investments, primarily Sprint PCS, considered to be other than temporary.

Net income for the current quarter was $117.7 million compared to a net loss of $516.2 million for the second quarter of 2002.

Six months ended June 30, 2003 compared with six months ended June 30, 2002

Total revenues for the six months ended June 30, 2003 were $2.8 billion, an increase of 15% over the six months ended June 30, 2002. This was primarily due to increased customers for advanced services (including digital cable, high-speed Internet access and telephony), higher basic cable rates and a $5 price increase on monthly high-speed Internet access adopted in certain markets in the fourth quarter of 2002 and in most of Cox's remaining markets in the first quarter of 2003. Also contributing to the increase was an increase in commercial broadband customers.

Cost of services was $1.2 billion for the six months ended June 30, 2003, an increase of 14% over the same period in 2002. Programming costs increased 12% to $586.1 million, reflecting rate increases and customer growth. Other cost of services increased 17% to $592.5 million, reflecting 1.2 million in net additions of basic and advanced-service RGUs over the last twelve months, as well as 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 customers.

Selling, general and administrative expenses were $600.1 million for the six months ended June 30, 2003, an increase of 8% over the comparable period in 2002. This was due to an 11% increase in general and administrative expenses primarily related to increased salaries and benefits and increased headcount, partially offset by a 2% decrease in marketing expense primarily due to a decrease in costs associated with Cox Media, Cox's advertising business.

Operating income increased 58% to $263.4 million for the six months ended June 30, 2003, and operating cash flow increased 21% to $1.0 billion, reflecting the one-time non-recurring charge of $9.8 million in the first quarter of 2002 related to the continuation of Excite@Home high-speed Internet service. Excluding this charge, operating cash flow increased 20% compared to the six months ended June 30, 2002. Operating income margin (operating income as a percentage of revenues) for the six months ended June 30, 2003 was 9%, and operating cash flow margin (operating cash flow as a percentage of revenues) for the six months ended June 30, 2003 was 36%.

Depreciation and amortization increased to $748.6 million from $663.5 million in the six months ended June 30, 2002. This was due to an increase in amortization resulting from a non-cash impairment charge of $25.0 million recognized in the first quarter, upon completion of Cox's annual impairment test of franchise value in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, and an increase in depreciation from Cox's continuing investment in its broadband network in order to deliver additional programming and services.

For the six months ended June 30, 2003, Cox recorded a $26.7 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 a $22.9 million pre-tax loss resulting from the change in the fair value of certain derivative instruments embedded in Cox's zero-coupon debt that is indexed to shares of Sprint PCS common stock that Cox owns.

Net gain on investments of $122.4 million for the six months ended June 30, 2003 was primarily due to a $97.2 million pre-tax gain on the sale of 32.9 million shares of Sprint PCS common stock and a $27.1 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. The net loss on investments for the comparable period in 2002 was primarily due to a $170.4 million pre-tax loss related to the sale of 23.9 million shares of AT&T Wireless common stock, a $388.8 million pre-tax loss as a result of the change in market value of Cox's investment in Sprint PCS common stock classified as trading and a $677.4 million decline in the fair value of certain investments, primarily Sprint PCS, considered to be other than temporary.

Net income for the six months ended June 30, 2003 was $88.5 million compared to a net loss of $380.6 million for the six months ended June 30, 2002.

LIQUIDITY AND CAPITAL RESOURCES

Cox has included Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 as a means of providing more detail regarding the liquidity and capital resources discussion below. In addition, Cox has included a calculation of free cash flow in the Summary of Operating Statistics to provide additional detail regarding a measure of liquidity that Cox believes will be useful to investors in evaluating Cox's financial performance. For further details, please refer to the Summary of Operating Statistics and discussion under the heading of Use of Operating Cash Flow and Free Cash Flow.

Significant sources of cash for the six months ended June 30, 2003 consisted of the following:

Significant uses of cash for the six months ended June 30, 2003 consisted of the following:

At June 30 2003, Cox had approximately $7.0 billion of outstanding indebtedness (including cumulative derivative adjustments made in accordance with SFAS No. 133 which reduced reported indebtedness by approximately $611.2 million).

In June 2003, Cox renewed its 364-day revolving bank credit facility for a reduced capacity of $900.0 million.

Cox Communications Inc.