ATLANTA--(BUSINESS WIRE)--July 29, 2004--Cox Communications, Inc. (NYSE: COX) today reported financial results for the three and six months ended June 30, 2004.

"Cox's continued commitment to customer growth and improving profitability resulted in strong revenue growth of 12%, operating income growth of 27%, operating cash flow growth of 16% and the company's 6th consecutive quarter of year-over-year operating cash flow margin improvement," said Jim Robbins, Cox Communications' President and CEO.

"This quarter we achieved record sell-in of digital video, high-speed Internet and digital telephone to new basic customers. Our year-over-year growth in customer relationships and advanced-service RGUs is a testament to strong consumer demand for quality customer care and the overall value of our product offerings."

"During the second quarter, sell-in of our bundled offering of video, telephone and high-speed Internet service hit a record high of 21% in our telephone markets. Customers further validated their satisfaction with Cox digital telephone this quarter when Cox received top honors in two J.D. Power and Associates telephone satisfaction surveys."

"We're on track to deliver excellent operating performance in 2004, including positive free cash flow for the second consecutive year, as we successfully continue to execute Cox's triple play bundle strategy."

    SECOND QUARTER HIGHLIGHTS

    For the second quarter of 2004, Cox:

    --  Ended the quarter with approximately 6.3 million basic video
        customers, up 0.6% from June 30, 2003.

    --  Ended the quarter with approximately 6.6 million total
        customer relationships, up 1.8% from June 30, 2003.

    --  Ended the quarter with over 11.9 million total RGUs, up 12%
        from June 30, 2003, driven by 27% growth in advanced-service
        RGUs.

    --  Added 60,351 Cox Digital Cable customers, ending the quarter
        with approximately 2.3 million digital cable customers,
        representing year-over-year customer growth of 18%. Cox
        Digital Cable is now available to 99% of the homes in Cox's
        service areas with 36% penetration of our basic video customer
        base.

    --  Added 97,517 high-speed Internet customers, ending the quarter
        with over 2.2 million high-speed Internet customers,
        representing year-over-year customer growth of 34%.

    --  Added 66,265 Cox Digital Telephone customers, ending the
        quarter with over 1.1 million telephone customers,
        representing year-over-year customer growth of 35%.

    --  Generated $478.6 million in cash flows provided by operating
        activities and $155.3 million in free cash flow (cash flows
        provided by operating activities less capital expenditures).

    --  Reduced capital expenditures to $323.3 million for the
        quarter, down 4% from the second quarter of 2003.

    --  Generated 12% revenue growth during the quarter and six months
        ended June 30, 2004, compared with the same periods in 2003.

    --  Generated 27% operating income growth and 16% operating cash
        flow growth (operating income before depreciation and
        amortization and gains or losses on the sale of cable systems)
        during the quarter ended June 30, 2004 and 48% operating
        income growth and 17% operating cash flow growth during the
        six months ended June 30, 2004, compared with the same periods
        in 2003.

2004 OUTLOOK

Cox continues to expect revenue growth of 11.5% to 12.5% over 2003, operating cash flow growth of 14% to 15% over 2003, and capital expenditures of approximately $1.35 billion to $1.40 billion, which is consistent with its previously stated 2004 financial guidance. Basic video customer growth over 2003 is expected to be just under 1% and advanced-service RGU net additions are expected to be between 1.0 and 1.1 million. In addition, Cox expects to be free cash flow positive for the full year 2004. Operating cash flow and free cash flow are not financial measures calculated in accordance with accounting principles generally accepted in the United States (GAAP). For more information regarding these non-GAAP financial measures, please refer to the discussion under the heading Use of Operating Cash Flow and Free Cash Flow.

OPERATING RESULTS

Three months ended June 30, 2004 compared with three months ended June 30, 2003

Total revenues for the second quarter of 2004 were $1.6 billion, an increase of 12% over the second quarter of 2003. This was primarily due to growth in advanced-service subscriptions (which include digital cable, high-speed Internet access and telephony) and higher basic cable rates. An increase in Cox Business Services customers, as well as an increase in advertising sales, also contributed to overall revenue growth.

Cost of services, which includes programming costs, other direct costs and field service costs, was $644.6 million for the second quarter of 2004, an increase of 9% over the same period in 2003. Programming costs increased 12% to $320.7 million, reflecting rate increases and customer growth. Other direct costs and field service costs in the aggregate increased 7% to $323.9 million, reflecting 27% growth in advanced-service RGUs over the last twelve months, partially offset by cost savings achieved through successful field service initiatives.

Selling, general and administrative expenses were $334.6 million for the second quarter of 2004, an increase of 11% over the comparable period in 2003. This was due to an 11% increase in general and administrative expenses and a 12% increase in marketing expense. The increase in general and administrative expenses was primarily due to increased salaries and benefits and costs related to trials of new video and telephony products. Marketing expense increased primarily due to additional marketing related to new video products and an industry-wide campaign aimed at satellite competition, as well as a 9% increase in costs associated with Cox Media, Cox's advertising sales business.

Operating income increased 27% to $213.9 million for the second quarter of 2004, and operating cash flow increased 16% to $616.0 million for that same period. Operating income margin (operating income as a percentage of revenues) for the second quarter of 2004 was 13%, compared to 12% for the same period in 2003. Operating cash flow margin (operating cash flow as a percentage of revenues) was 39% for the second quarter of 2004, compared to 37% for the same period in 2003.

Depreciation and amortization increased to $397.1 million from $364.3 million in the second quarter of 2003. This was mainly due to an increase in depreciation from Cox's continuing investment in its broadband network in order to deliver additional services.

In the second quarter of 2004, Cox recorded a $5.0 million pre-tax loss on the sale of certain small, non-clustered cable systems in Oklahoma, Kansas, Texas and Arkansas, which in the aggregate consisted of approximately 53,000 basic cable subscribers. Certain subscriber data in the Summary of Operating Statistics table as of March 31, 2004 and June 30, 2003 has been adjusted for this disposition, as further described in footnote (a) to the table.

In August 2003, Cox terminated a series of prepaid forward contracts accounted for as zero-coupon debt. While these contracts were outstanding, changes in the market value of the Sprint PCS common stock associated with the contracts impacted the gain (loss) on derivative instruments. As a result of the termination of the contracts, the pre-tax loss on derivative instruments for the second quarter of 2004 was insignificant. 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 were indexed to shares of Sprint PCS common stock that Cox owned.

Net gain on investments of $2.3 million for the second quarter of 2004 was due to the sale of all remaining shares of Sprint stock held by Cox. The net gain on investments for the comparable period in 2003 of $124.1 million 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.

During the second quarter of 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 Cox's exchangeable subordinated debentures due 2029 (PRIZES) and $0.1 million aggregate principal amount of Cox's 3% exchangeable subordinated debentures due 2030 (Premium PHONES), which represented all remaining outstanding PRIZES and Premium PHONES. During the comparable period in 2003, Cox recorded a $3.9 million pre-tax gain on extinguishment of debt 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.

Net income for the second quarter of 2004 was $62.7 million compared to $117.7 million for the second quarter of 2003.

Six months ended June 30, 2004 compared with six months ended June 30, 2003

Total revenues for the six months ended June 30, 2004 were $3.1 billion, an increase of 12% over the six months ended June 30, 2003. This was primarily due to growth in advanced-service subscriptions (which include digital cable, high-speed Internet access and telephony) and higher basic cable rates. Also contributing to overall revenue growth was an increase in Cox Business Services customers, as well as an increase in advertising sales.

Cost of services was $1.3 billion for the six months ended June 30, 2004, an increase of 9% over the same period in 2003. Programming costs increased 11% to $638.4 million, reflecting rate increases and customer growth. Other direct costs and field service costs in the aggregate increased 8% to $642.1 million, reflecting 27% growth in advanced-service RGUs over the last twelve months, partially offset by cost savings achieved through successful field service initiatives.

Selling, general and administrative expenses were $671.9 million for the six months ended June 30, 2004, an increase of 10% over the comparable period in 2003. This was due to a 9% increase in general and administrative expenses and a 15% increase in marketing expense. The increase in general and administrative expenses was primarily due to increased salaries and benefits and costs related to trials of new video and telephony products. Marketing expense increased primarily due to additional marketing related to new video products and an industry-wide campaign aimed at satellite competition, as well as an 8% increase in costs associated with Cox Media, Cox's advertising sales business.

Operating income increased 48% to $389.1 million for the six months ended June 30, 2004, and operating cash flow increased 17% to $1.2 billion for that same period. Operating income margin for the six months ended June 30, 2004 was 12%, compared to 9% for the same period in 2003. Operating cash flow margin for the six months ended June 30, 2004 was 38%, compared to 36% for the same period in 2003.

Depreciation and amortization increased to $789.2 million from $748.6 million in the six months ended June 30, 2003. This was mainly due to an increase in depreciation from Cox's continuing investment in its broadband network in order to deliver additional services.

In August 2003, Cox terminated a series of prepaid forward contracts accounted for as zero-coupon debt. While these contracts were outstanding, changes in the market value of the Sprint PCS common stock associated with the contracts impacted the gain (loss) on derivative instruments. As a result of the termination of the contracts, the pre-tax loss on derivative instruments for the six months ended June 30, 2004 was insignificant. For the six months ended June 30, 2003, Cox recorded a $26.7 million pre-tax loss on derivative instruments primarily due to 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 were indexed to shares of Sprint PCS common stock and a $4.4 million pre-tax loss resulting from the change in the fair value of Cox's net settleable warrants.

Net gain on investments of $29.1 million for the six months ended June 30, 2004 was due to a $2.3 million pre-tax gain on the sale of all remaining shares of Sprint stock held by Cox, a $19.5 million pre-tax gain on the sale of 0.1 million shares of Sprint PCS preferred stock and a $7.3 million pre-tax gain on the sale of certain other non-strategic investments. Net gain on investments for the comparable period in 2003 of $122.4 million 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.

Net income for the six months ended June 30, 2004 was $120.4 million compared with $88.5 million for the comparable period in 2003.

LIQUIDITY AND CAPITAL RESOURCES

Cox has included Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003 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 Use of Operating Cash Flow and Free Cash Flow.

Significant sources of cash for the six months ended June 30, 2004 consisted primarily of the following:

    --  the generation of net cash provided by operating activities of
        approximately $857.4 million;

    --  the sale of 0.1 million shares of Sprint PCS preferred stock
        for net proceeds of approximately $56.9 million;

    --  the sale of certain small, non-clustered cable systems in
        Oklahoma, Kansas, Texas and Arkansas for net proceeds of
        approximately $53.1 million;

    --  the sale of certain other non-strategic investments for
        proceeds of approximately $10.3 million; and

    --  the sale of all remaining shares of Sprint stock for net
        proceeds of approximately $3.0 million.

Significant uses of cash for the six months ended June 30, 2004 consisted of the following:

    --  net commercial paper repayments of approximately $266.3
        million;

    --  the purchase of $19.0 million aggregate principal amount at
        maturity of Cox's convertible senior notes due 2021 that had
        been properly tendered and not withdrawn, for aggregate cash
        consideration of $13.9 million, which represented the accreted
        value of the purchased notes and all remaining outstanding
        convertible notes;

    --  the purchase 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, for aggregate cash consideration of
        $14.7 million; and

    --  capital expenditures of $617.9 million. Please refer to the
        Summary of Operating Statistics for a break out of capital
        expenditures in accordance with industry guidelines.

At June 30, 2004, Cox had approximately $6.7 billion of outstanding indebtedness. Derivative adjustments in accordance with Statement of Financial Accounting Standards (SFAS) No. 133 reduced the reported debt balance at June 30, 2003 by approximately $611.2 million to approximately $7.0 billion. As a result of Cox's purchase of its exchangeable subordinated debentures, net settlement of its zero-coupon debt and sales of Sprint PCS stock during 2003, SFAS No. 133 adjustments did not significantly impact reported indebtedness at June 30, 2004 and are not expected to be material in the future.

In June 2004, Cox entered into a new five-year revolving bank credit facility with a capacity of $1.25 billion. This new credit facility replaces Cox's 364-day and five-year revolving bank credit facilities.

In June 2004, all 4,836,372 issued and outstanding shares of Cox's Series A preferred stock were converted into 11,212,121 shares of Cox's Class A common stock, in accordance with the terms of the Series A preferred stock. Upon conversion, all of the issued and outstanding Series A preferred shares were retired.

USE OF OPERATING CASH FLOW AND FREE CASH FLOW

Operating cash flow and free cash flow are not measures of performance calculated in accordance with GAAP. Operating cash flow is defined as operating income before depreciation and amortization and gain (loss) on the sale of cable systems. Free cash flow is defined as cash provided by operating activities less capital expenditures.

Cox's management believes that presentation of these financial measures provides useful information to investors regarding Cox's financial position and results of operations. Cox believes that operating cash flow and free cash flow are useful to investors in evaluating its performance because they are commonly used financial analysis tools for measuring and comparing media companies in several areas of liquidity, operating performance and leverage. Both operating cash flow and free cash flow are used to gauge Cox's ability to service long-term debt and other fixed obligations and to fund continued growth with internally generated funds. In addition, management uses operating cash flow to monitor compliance with certain financial covenants in Cox's credit agreements. Additionally, it is used as a factor in determining executive compensation.

Operating cash flow and free cash flow should not be considered as alternatives to net income as indicators of Cox's aggregate performance or as alternatives to net cash provided by operating activities as measures of liquidity and may not be comparable to similarly titled measures used by other companies. Reconciliations of these non-GAAP measures to the most comparable GAAP measures on a historical basis are presented under the headings Reconciliation of Operating Cash Flow to Operating Income and Reconciliation of Free Cash Flow to Cash Provided by Operating Activities in the attached financial tables. Cox is unable to reconcile these non-GAAP measures on a forward-looking basis primarily because it is impractical to project the timing of certain transactions, such as the initiation of depreciation relative to network construction projects.

Acerca de Cox Communications

Cox Communications (NYSE: COX), a Fortune 500 company, is a multi-service broadband communications company with approximately 6.6 million total customers, including approximately 6.3 million basic cable subscribers. The nation's third-largest cable television provider, Cox offers both analog cable television under the Cox Cable brand as well as advanced digital video service under the Cox Digital Cable brand. Cox provides an array of other communications and entertainment services, including local and long distance telephone under the Cox Digital Telephone brand; high-speed Internet access under the Cox High Speed Internet brand; and commercial voice and data services via Cox Business Services. Local cable advertising, promotional opportunities and production services are sold under the Cox Media(SM) brand. Cox is an investor in programming networks including Discovery Channel. More information about Cox Communications can be accessed on the Internet at www.cox.com/espanol.

Conference Call and Webcast Details

The Cox Communications earnings call will be held Thursday, July 29, 2004, at 10:30 a.m. Eastern Time. The conference call and an accompanying slide presentation will be webcast simultaneously via the Cox Communications website at www.cox.com/investor. The webcast and accompanying slide presentation, as well as a document containing highlights, will be archived on Cox's website following the conclusion of the call.

Caution Concerning Forward-Looking Statements

Statements in this release, including statements relating to growth opportunities, revenue and cash flow projections and introduction of new products and services, are "forward-looking statements", as defined by the Private Securities Litigation Reform Act of 1995. These statements relate to Cox's future plans, earnings, objectives, expectations, performance and similar projections, as well as any facts or assumptions underlying these statements or projections. Actual results may differ materially from the results expressed or implied in these forward-looking statements, due to various risks, uncertainties or other factors. These factors include competition within the broadband communications industry, our ability to achieve anticipated subscriber and revenue growth, our success in implementing new services and other operating initiatives, our ability to generate sufficient cash flow to meet our debt service obligations and finance operations, and other risk factors described from time to time in Cox's filings with the Securities and Exchange Commission, including Cox's Annual Report on Form 10-K for the year ended December 31, 2003. Cox assumes no responsibility to update any forward-looking statements as a result of new information, future events or otherwise.

    CONTACT: Cox Communications, Atlanta
             Investor Relations
             Lacey Lewis, 404-269-7608
             lacey.lewis@cox.com
             or
             Director of Media Relations
             Bobby Amirshahi, 404-843-7872
             bobby.amirshahi@cox.com

    SOURCE: Cox Communications, Inc.