ATLANTA, Jul 31, 2002 (BUSINESS WIRE) -- Cox Communications, Inc. (NYSE: COX) today reported financial results for the three months ended June 30, 2002.

"We had a terrific second quarter, fueled by strong basic subscriber growth of 1.6% from the second quarter of 2001," commented Jim Robbins, President and Chief Executive Officer. "Despite the seasonal nature of the second quarter, we also delivered over 277,000 new service revenue generating units and are on track to meet our guidance of 1.15 million new service net additions for the full year 2002."

Robbins continued: "Our outlook for the year continues to be positive, as we achieved pro forma operating cash flow (OCF) growth of 16% and pro forma revenue growth of 16% in the second quarter and expect to meet our previously stated guidance of 13% to 14% operating cash flow growth, 14% to 15% revenue growth and capital expenditures of $2 billion for the full year.

"We are frustrated with the volatility in the stock market," Robbins added. "However, I want to reiterate that we continue to fire on all eight cylinders and to deliver excellent operating results. In fact, the strong basic subscriber growth in the first half of 2002 has led us to increase basic subscriber guidance to a range of 1.3% to 1.5% for the full year 2002. We have strong business fundamentals and our balance sheet is solid. I am confident that Cox is well-positioned for the future and I believe we are the leading broadband company in our industry," Robbins added.

PRO FORMA OPERATING RESULTS

Cox provides pro forma information as an alternative for understanding our operating results. The pro forma operating results are not necessarily indicative of operating results that would have occurred if the circumstances summarized below had not occurred, and may be different from pro forma measures used by other companies. In addition, the pro forma operating results are not necessarily indicative of the results of our future operations.

The pro forma operating results for the six months ended June 30, 2002 exclude a one-time non-recurring charge of $9.8 million related to the portion of Cox's December 2001 payment of $160.0 million to Excite@Home for the continuation of high-speed Internet services through February 2002.

The pro forma operating results for the three and six months ended June 30, 2001 reflect reclassifications of $19.8 million and $37.0 million, respectively, in costs associated with Excite@Home high-speed Internet service which had previously been netted against data revenue and $1.5 million and $2.6 million, respectively, of such costs which had previously been netted against commercial revenue to selling, general and administrative expenses in order to conform to the manner in which the costs associated with Cox High Speed Internet service have been presented for the three and six months ended June 30, 2002.

Pro forma three months ended June 30, 2002 compared with pro forma three months ended June 30, 2001

Total pro forma revenues for the second quarter of 2002 increased 16% over the second quarter of 2001, and include the effects of:

• basic and digital video customer growth;
• residential basic rate increases implemented over the past twelve months resulting from increased programming costs and increased channel availability;
• residential and commercial high-speed Internet access and telephony customer growth;
• national boxing events during the second quarter of 2002; and
• a continuing rebound in local and national advertising sales.

Basic customers were 6,250,036 at June 30, 2002, a 1.6% increase over the prior year. Cox Digital Cable had net additions of approximately 101,800 customers in the second quarter of 2002, and is now available in 96% of the homes in Cox's service areas with penetration of total-basic customers of 26%. High-speed Internet and Cox Digital Telephone customers increased by approximately 113,700 and 61,900, respectively, in the second quarter of 2002, and by approximately 447,000 and 233,700, respectively, as compared to June 30, 2001.

Pro forma programming costs were $270.2 million for the second quarter of 2002, an increase of 13% over the same period in 2001, primarily due to programming rate increases implemented over the past twelve months, basic and digital customer growth and channel additions. Pro forma selling, general and administrative expenses for the second quarter of 2002 increased 19% to $532.6 million due to:

• marketing costs related to campaigns commencing in the third quarter of 2001 aimed at enhancing customer awareness, the promotion of new services and bundling alternatives, and the acquisition of new customers; and
• labor costs due to the transition from upgrade construction and new product launches to increased maintenance and related customer transaction costs directly associated with the growth in new service subscribers.

Pro forma operating cash flow increased 16% to $441.9 million for the second quarter of 2002. The pro forma operating cash flow margin (pro forma operating cash flow as a percentage of revenues) for the second quarter of 2002 was 35.5%.

Pro forma six months ended June 30, 2002 compared with pro forma six months ended June 30, 2001

Total pro forma revenues for the six months ended June 30, 2002 increased 17% over the same period in 2001, and include the effects of:

• basic and digital video customer growth;
• residential basic rate increases implemented over the past twelve months resulting from increased programming costs and increased channel availability;
• residential and commercial high-speed Internet access and telephony customer growth;
• national boxing events during the second quarter of 2002; and
• a continuing rebound in local and national advertising sales.

Pro forma programming costs were $534.1 million for the six months ended June 30, 2002, an increase of 13% over the same period in 2001, primarily due to programming rate increases implemented over the past twelve months, basic and digital customer growth and channel additions. Pro forma selling, general and administrative expenses for the six months ended June 30, 2002 increased 21% to $1,044.9 million due to:

• marketing costs related to campaigns commencing in the third quarter of 2001 aimed at enhancing customer awareness, the promotion of new services and bundling alternatives, and the acquisition of new customers;
• labor costs due to the transition from upgrade construction and new product launches to increased maintenance and related customer transaction costs directly associated with the growth in new service subscribers; and
• bad debt expense due to the lagging effects of the general economic slowdown.

Pro forma operating cash flow increased 14% to $843.7 million for the six months ended June 30, 2002. The pro forma operating cash flow margin (pro forma operating cash flow as a percentage of revenues) for the six months ended June 30, 2002 was 34.8%.

HISTORICAL OPERATING RESULTS

Historical three months ended June 30, 2002 compared with historical three months ended June 30, 2001

Total revenues for the second quarter of 2002 were $1,244.6 million, a 19% increase over revenues of $1,048.0 million for the second quarter of 2001. Operating cash flow increased 16% to $441.9 million for the second quarter of 2002.

Depreciation and amortization decreased to $337.7 million from $355.8 million in the second quarter of 2001 due to a reduction in amortization of intangible assets determined to have an indefinite life, offset by an increase in depreciation from Cox's continuing investments in its broadband network in order to deliver additional programming and services. During the second quarter of 2002, Cox sold certain cable systems and recognized a pre-tax loss of $3.9 million. Interest expense decreased to $128.4 million, primarily due to decreased interest rates on floating rate debt, interest savings as a result of Cox's interest rate swap agreements and repayment of all commercial paper borrowings.

For the second quarter of 2002, Cox recorded a $47.9 million pre-tax gain on derivative instruments due to the following:

• $38.0 million pre-tax loss resulting from the change in the fair value of certain derivative instruments embedded in Cox's exchangeable subordinated debentures and indexed to shares of Sprint PCS common stock that Cox owns;
• $106.7 million pre-tax gain resulting from the change in the fair value of certain derivative instruments embedded in Cox's zero-coupon debt and indexed to shares of Sprint PCS common stock that Cox owns; and
• $20.8 million pre-tax loss resulting from the change in the fair value of certain derivative instruments associated with Cox's investments, including Sprint PCS.

Net loss on investments of $813.8 million is 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.

Included in net gain on investments for the comparable period in 2001 are a pre-tax gain related to the exercise of Cox's Excite@Home right, a pre-tax gain related to the change in market value of Cox's investment in Sprint PCS common stock classified as trading and a pre-tax gain from the sale of 3.0 million shares of Sprint PCS common stock.

Minority interest of $11.6 million primarily represents distributions on Cox's obligated capital and preferred securities of subsidiary trusts, referred to as FELINE PRIDES and RHINOS. Net loss for the current quarter was $516.2 million compared to net income of $30.7 million for the second quarter of 2001.

Historical six months ended June 30, 2002 compared with historical six months ended June 30, 2001

Total revenues for the six months ended June 30, 2002 were $2,422.7 million, a 19% increase over revenues of $2,039.5 million for the six months ended June 30, 2001. Operating cash flow increased 13% to $833.9 million for the first six months of 2002.

Depreciation and amortization decreased to $663.5 million from $708.0 million in the six months ended June 30, 2001 due to a reduction in amortization of intangible assets determined to have an indefinite life, offset by an increase in depreciation from Cox's continuing investments in its broadband network in order to deliver additional programming and services. During the second quarter of 2002, Cox sold certain cable systems and recognized a pre-tax loss of $3.9 million. Interest expense decreased to $256.0 million, primarily due to decreased interest rates on floating rate debt, interest savings as a result of Cox's interest rate swap agreements and repayment of all commercial paper borrowings.

For the six months ended June 30, 2002, Cox recorded a $767.6 million pre-tax gain on derivative instruments due to the following:

• $249.2 million pre-tax gain resulting from the change in the fair value of certain derivative instruments embedded in Cox's exchangeable subordinated debentures and indexed to shares of Sprint PCS common stock that Cox owns;
• $333.0 million pre-tax gain resulting from the change in the fair value of certain derivative instruments embedded in Cox's zero-coupon debt and indexed to shares of Sprint PCS common stock that Cox owns; and
• $185.4 million pre-tax gain resulting from the change in the fair value of certain derivative instruments associated with Cox's investments, including Sprint PCS, AT&T and AT&T Wireless.

Net loss on investments of $1.2 billion is primarily due to:

• $170.4 million pre-tax loss related to the sale of 23.9 million shares of AT&T Wireless common stock;
• $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
• $677.4 million decline in the fair value of certain investments, primarily Sprint PCS, considered to be other than temporary.

Included in net gain on investments for the comparable period in 2001 are a pre-tax gain related to the exercise of Cox's Excite@Home right, a pre-tax gain associated with a one-time reclassification of 19.5 million shares of Cox's investment in Sprint PCS common stock from available-for-sale securities to trading securities upon adoption of Statement of Financial Accounting Standards (SFAS) No. 133, and a pre-tax gain from these shares as a result of the change in market value of Sprint PCS common stock.

Minority interest of $23.6 million primarily represents distributions on the FELINE PRIDES and RHINOS. Net loss for the six months ended June 30, 2002 was $380.6 million compared to net income of $717.3 million for the comparable period in 2001.

NEW ACCOUNTING STANDARDS

On January 1, 2002, Cox adopted SFAS No. 142, which requires that goodwill and certain intangible assets, including those recorded in past business combinations, no longer be amortized through the statement of operations, but instead be tested for impairment at least annually. The adoption and subsequent application of SFAS No. 142 have not resulted in an impairment charge.

Also on January 1, 2002, Cox began applying the guidance prescribed in Emerging Issues Task Force Issue No. 01-14, whereby the collection and payment of certain fees must be presented on a gross basis, as revenue and expense, rather than on a net basis. Retroactive application of this announcement is required. Accordingly, collection and payment of fees, primarily franchise fees, have been reclassified on a gross basis for all historical and pro forma periods presented herein to conform to this new guidance.

LIQUIDITY AND CAPITAL RESOURCES

Cox has included Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 as a means of providing more details 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 an additional measure of liquidity that Cox believes will be useful to investors in evaluating Cox's financial performance. Free cash flow is not a measure of performance calculated in accordance with generally accepted accounting principles. For further details, please refer to the Summary of Operating Statistics.

Significant sources of cash for the first six months of 2002 consisted of the following:

• the sale of 25.2 million shares of Sprint PCS common stock for net proceeds of approximately $238.7 million;
• the sale of 35.0 million shares of AT&T common stock for net proceeds of approximately $542.6 million;
• the sale of 23.9 million shares of AT&T Wireless common stock for net proceeds of approximately $248.2 million;
• 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; and
• the generation of cash from operating activities of approximately $750.2 million.

As a result of Cox's first quarter sales described above, Cox no longer owns any shares of AT&T common stock or AT&T Wireless common stock.

Significant uses of cash for the first six months of 2002 consisted of the following:

• the repurchase of $329.1 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 $232.8 million, which represented the accreted value of the repurchased notes;
• the repayment of approximately $727.4 million of commercial paper borrowings; and
• capital expenditures of approximately $1.0 billion to upgrade and rebuild Cox's broadband network.

At June 30, 2002, Cox had approximately $7.0 billion of outstanding indebtedness (net of cumulative derivative adjustments made in accordance with SFAS No. 133 which reduced reported indebtedness by approximately $1.1 billion) and $1.2 billion of Cox-obligated capital and preferred securities of subsidiary trusts.

TRANSACTIONS WITH AFFILIATED COMPANIES

For the last several years, Cox has had a number of local partnerships with Cox Interactive Media (CIM), an indirect wholly owned subsidiary of Cox Enterprises, Inc., for the development and maintenance of Internet sites based on local advertising and content. While Cox believes local content is important, this Internet city site business has not developed as planned. Cox has entered into an agreement pursuant to which CIM will continue to develop and operate these local content city sites for Cox through the remainder of 2002. The previously formed partnerships will be dissolved. This transition time provides Cox the opportunity to assess and then implement a more cost effective strategy for Cox's home page. The charge to Cox for the local content services is not significant.

About Cox Communications

Cox Communications (NYSE: COX), a Fortune 500 company, is a multi-service broadband communications company serving approximately 6.3 million customers nationwide. Cox is the nation's fifth-largest cable television provider, and offers both traditional analog video programming under the Cox Cable brand as well as advanced digital video programming 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 brands Cox High Speed Internet and Cox Express; and commercial voice and data services via Cox Business Services. 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.

Conference Call and Webcast Details

The Cox Communications earnings call will be held Wednesday, July 31, 2002, at 10:30 a.m. Eastern Time. A live webcast of the conference call will be available on the Cox Communications website at www.cox.com/investor. A recording of the conference call will remain on the company's website following the conclusion of the call. A document containing highlights from the first quarter can be found in the press room on our website at www.cox.com.

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 "fo Commission, including Cox's Annual Report on Form 10-K, as amended, for the year ended December 31, 2001. Cox assumes no responsibility to update any forward-looking statements as a result of new information, future events or otherwise.

CONTACT: Cox Communications, Inc. Investor Relations Lacey Lewis, 404/269-7608 lacey.lewis@cox.com or Corporate Communications Laura Oberhelman, 404/269-7562 laura.oberhelman@cox.com