COX COMMUNICATIONS INC /DE/
Overview       Cox Communications, Inc. is a multi-service broadband communications company serving approximately 6.7 million customers nationwide, of which approximately 0.9 million customers are subscribers of cable systems Cox has agreed to sell. 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.       In October 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 then-outstanding 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 former public stock owned by Holdings and Cox DNS, Inc. (DNS), another wholly-owned subsidiary of CEI. Following that acquisition of validly tendered shares, 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, and the remaining outstanding shares of former public stock (other than those beneficially owned by CEI and those for which appraisal rights had been demanded) were converted into the right to receive $34.75 in cash. 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 2005 of approximately $12.0 billion. CEI, which has a 108-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.       In October 2005, Cox and Cebridge Acquisition Co. LLC (Cebridge) entered into a definitive asset purchase agreement, pursuant to which Cox has agreed to sell cable television systems with approximately 940,000 basic cable subscribers for approximately $2.55 billion in cash. The cable television systems being sold include certain of Middle America Cox systems (Sale MAC), all of Cox’s West Texas systems, all of Cox’s North Carolina systems, all of Cox’s Greater Oklahoma systems and all of Cox’s Humboldt and Bakersfield, California systems (collectively referred to as the Sale Systems). Cox expects to consummate this transaction during the second quarter of 2006. Customer data discussed in this report is generally as of December 31, 2005 and includes the Sale Systems, unless the context requires or indicates otherwise, revenue and other financial data in this report generally excludes the results of operations for the Sale Systems other than Sale MAC (collectively referred to as the Discontinued Operations Systems), unless the context requires or indicates otherwise. Sale MAC served approximately 500,000 basic cable subscribers, which constituted approximately 54% of the Sale Systems’ basic cable subscribers as of that date. For more information regarding the Discontinued Operations Systems, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Discontinued Operations” in Item 7 of this report.  Business Strategy  1    Table of Contents       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 270 to 860 megahertz or greater. At the end of 2005:       •   Cox had upgraded 94% 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 73% 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 31, 2005, approximately 81% of Cox’s basic video customers were served by Cox’s 12 largest clusters, which averaged approximately 425,000 customers each. These clusters, represented by location, are:                    Hampton Roads    New England    Orange County   Kansas    New Orleans    Arizona   Las Vegas    Northern Virginia    San Diego   Middle America Cox    Oklahoma    West Texas          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 2005, the number of bundled customers grew by 20% to 3.3 million, and 61% 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:  2    Table of Contents       •   “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.        •   “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 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 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 a key element of its integrated broadband communications strategy. 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, 2005, 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.    3    Table of Contents          In addition, Cox has introduced new video services to enhance its competitive position and generate additional revenues.       •   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 nine markets, and is working with technology vendors and others to make Entertainment On Demand available in additional markets.        •   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 offers high definition television service in over 90% of its homes passed.        •   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. 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. In 2005, Cox launched telephone service in five new markets and now serves twenty-two markets in total, representing 73% of its total footprint. In ten of these markets, Cox provides telephone service using VOIP technology. 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  4    Table of Contents       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.  Cox Media       Cox also derives revenues from the sale of advertising time on cable networks and digital networks through its advertising sales division, Cox Media. Currently, Cox inserts advertising on up to 73 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 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, 2005 and 2004:                              December 31         2005*†     2004*       Customer relationships                   Customer relationships                   Basic video customers (a)     6,300,432       6,287,395     Non-video customers (b)     446,573       348,825                     Total customer relationships (c)     6,747,005       6,636,220                         Revenue generating units                    Basic video customers (a)     6,300,432       6,287,395     Advanced services (d)     7,531,110       6,286,827                     Total revenue generating units (e)     13,831,542       12,574,222                         Video homes passed (f)     10,788,522       10,567,166     Basic video penetration (g)     58.4 %     59.5 %                       Cox Digital Cable                   Digital cable ready homes passed     10,715,294       10,494,634     Customers     2,704,161       2,410,216     Penetration of customers to basic video customers     42.9 %     38.3 %                       High-Speed Internet Access                   High-speed Internet access ready homes passed     10,697,174       10,466,947     Customers     3,143,313       2,571,246     Penetration of customers to high-speed Internet access ready homes passed     29.4 %     24.6 %                       Cox Digital Telephone                   Telephone ready homes passed     7,875,402       6,537,968     Customers     1,683,636       1,305,365       5    Table of Contents                              December 31         2005* †     2004*       Penetration of customers to telephone ready homes Passed     21.4 %     20.0 %                       Bundled Customers                   Customers subscribing to two or more services     3,325,306       2,777,588     Penetration of bundled customers to basic video customers     52.8 %     44.2 %                *   Operating statistics for 2005 and 2004 include the Sales Systems, which at December 31, 2005, had approximately: 963,000 total customer relationships; 1,501,000 total revenue generating units; 1,612,000 video homes passed; 1,592,000 digital cable ready homes passed; 1,564,000 high-speed Internet access ready homes passed; 364,000 telephone ready homes passed; and 274,000 customers subscribing to two or more services.     †   Cox is continuing to assess the impact of Hurricane Katrina on its cable systems in New Orleans, and although all of Cox’s New Orleans network where commercial power has been restored is serving customers, the precise and long-term impact of Hurricane Katrina on the population of New Orleans and, therefore, Cox’s cable systems in New Orleans, remains uncertain. For more information, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—2005 Compared to 2004—Hurricane Katrina.”     (a)   A home with one or more television sets connected to a cable system is counted as one basic video customer.     (b)   A customer who receives high-speed Internet or telephone service, but does not subscribe to video service is counted as a non-video customer.     (c)   Total customer relationships represent the number of customers who receive at least one level of service, encompassing video, high-speed Internet and telephony services, without regard to which service(s) customers purchase.     (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.   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, 2005, Cox held approximately 749 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.  6    Table of Contents  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 the retail businesses of Discovery.com. In addition, Discovery is building a documentary programming library. At December 31, 2005, Cox had a 25.0% ownership interest in Discovery.       TV Works. TV Works (formerly known as Double C Technologies) is a provider of software for digital cable systems. During 2005, Cox contributed $45.0 million to TV Works, an entity in which Cox holds a 33% ownership interest and which is majority owned and controlled by Comcast Corporation. TV Works has acquired substantially all of the North American assets of Liberate Technologies as well as assets from other strategic companies.       Other. At December 31, 2005, 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, among other things, additional spectrum the FCC makes available from time to time in spectrum auctions and streamlined franchising or licensing procedures adopted by governmental authorities to facilitate the development of competition in the delivery of facilities-based broadband services to the public.  Cable and Internet Access Competition. Cox’s cable systems compete with a variety of different sources that provide news, information and entertainment programming to consumers. Cox’s cable systems also  7    Table of Contents  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 businesses including:     •   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) that have partnered with DBS providers to offer video services or that are constructing and are operating fiber optic networks to offer video and other communications services or that have announced plans to enter the video distribution market using fiber optic 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);      •   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 Congress has considered various legislative proposals and the FCC has reviewed and in some cases adopted or modified regulatory policies intended to create a more 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  8    Table of Contents  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 26.3 million subscribers in the U.S., which represents an approximate 27.93% 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. EchoStar also has separate agreements in which it bundles its satellite video services with the telephone and Internet services of Sprint Corporation, SBC Communications and CenturyTel. Another satellite company called WildBlue (formerly iSKY) began offering high-speed Internet access to residential and small business markets in the contiguous U.S. in the second half of 2005 using the Ka-band and spot beam technology. Most of Cox’s cable systems offer high-speed 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 aggressively building fiber optic networks capable of delivering multiple communications services to consumers, including video programming, high speed data 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 generally equivalent to charges for comparable levels of 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  9    Table of Contents  to various markets, including Baton Rouge and New Orleans. Verizon provides broadband communications services to EarthLink and offers Internet telephony services to Earthlink customers in several Cox markets including portions of California, Connecticut, Rhode Island and Virginia.       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 video and high-speed broadband services by local telephone companies and other competitors. The FCC also has adopted policies that reduce certain regulatory restrictions imposed on the offering of high-speed broadband services by local telephone companies and is considering other regulatory actions that may lead to a further reduction or elimination of restrictions on the delivery of video and high-speed broadband services. Similarly, the FCC 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. Cox expects competition for high-speed Internet service subscribers to remain intense, with companies competing on service availability, price, transmission speed and bundled service packages. 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. For example, Yahoo, Inc., Time Warner’s America Online and Microsoft Corp.’s MSN reportedly offer competitive subscription services available over the Internet that provide news, sports and entertainment programming, some of which is exclusive to these services. As high-speed Internet services over cable systems and competitors’ broadband platforms 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. 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 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 broadband radio service systems (also known as BRS or wireless cable systems and formerly known as multichannel multipoint distribution service or MMDS). 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 currently serves approximately 1,500 Internet service customers and competes with Cox’s cable system. A wireless cable operator also is authorized to provide or is providing Internet service in several California communities where Cox operates, but Cox cannot determine the number of customers it is serving. 10    Table of Contents       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 issued approximately 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 require 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 issued licenses in several Cox markets, including Gainesville, Florida; Las Vegas, Nevada; New Orleans, Louisiana; Norfolk, Virginia; Oklahoma City, Oklahoma; Omaha, Nebraska; Phoenix, Arizona; Roanoke, Virginia; San Diego, California; Tucson, Arizona; and Tulsa, Oklahoma. 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. Local telephone companies, however, have taken various positions on whether they need a local cable television franchise to provide video services; some have applied for and received local franchises, some have sought and (in certain states) have achieved state-wide franchises, and some have claimed that video services can be provided without a cable television franchise. 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 8% 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. Several leading television broadcast station groups have announced that they are providing funding for U.S. Digital Television, Inc., an entity that currently offers digital subscription services in several markets as a low cost alternative to cable television service. Other broadcasters are considering similar plans. 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.       Cox’s cable systems compete against a wide variety of media outlets for the sale of advertising, including local broadcast stations, national television and radio broadcast networks, national and regional cable networks, newspapers, magazines and Internet websites. The competition from existing media outlets and the growth of new media outlets that offer advertising opportunities may have a negative impact on the growth of Cox’s advertising business.       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 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.  11    Table of Contents  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; however, the competitive nature of the telephone business may negatively affect demand for and pricing of Cox’s telephone services.       Cox’s telephone services compete with telephone companies that have substantial financial and technical resources, and some of these companies recently have become substantially larger in size and scope of operations. SBC Communications recently acquired AT&T Corp. and changed its name to AT&T, Inc. AT&T also recently announced that it will acquire BellSouth Corporation, one of the former Bell Operating companies. Verizon Communications recently acquired MCI; and Sprint Corp. recently completed its merger with Nextel Communications to form Sprint Nextel Corp. AT&T and Verizon are also aggressively building fiber optic networks in substantial portions of their service areas so that they can provide a variety of communications services to their customers, including video, high-speed data and VOIP services. Cox is unable to predict the effect these transactions will have on Cox’s telephone service 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:  12    Table of Contents     •   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.         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.       As of March 1, 2006, approximately 176 communities served by Cox’s cable systems were regulating Cox’s basic service and equipment rates. These communities represent approximately 21% of total communities served by Cox and approximately 45% of the total number of equivalent basic subscribers served by Cox’s cable systems. In addition to 76 communities the FCC determined were subject to effective competition following earlier Cox petitions, Cox has requested similar FCC rulings for 69 other communities served by Cox’s cable systems. Cox expects the FCC will grant these pending requests shortly, and Cox therefore should not be subject to rate regulation in these communities. The regulation of Cox’s basic service and equipment rates in the communities that are actively regulating such rates 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 multichannel 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; and      •   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.         In recent years, Congress and the FCC have 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 or themed-tier 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 or how such requirements, if adopted would affect Cox’s cable operations and business.  13    Table of Contents       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:     •   declined to order the carriage of both the analog and digital signals of television stations;      •   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 requested the FCC to reconsider its recent ruling and are actively lobbying Congress for legislative changes to cable operator’s digital broadcast signal carriage obligations. Although it has ruled consistently against such expanded carriage requirements, the FCC may reconsider its decision and evaluate additional modifications to its digital broadcast signal carriage requirements in the future. Cox cannot predict whether expanded carriage requirements may result from additional FCC proceedings, judicial proceedings or legislation. If expanded carriage requirements were imposed on cable operators, Cox would have less freedom to allocate usable spectrum on its cable systems to provide the services Cox believes will be of greatest interest to its subscribers.       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, where subscribers must purchase a “Digital Gateway” service as a condition of 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  14    Table of Contents  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 October 5, 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:     •   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);      •   lottery programming;      •   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.    15    Table of Contents       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 generally were unsuccessful and were rejected by several federal courts, although the rationale for each decision 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. The FCC rescinded its requirement for instant messaging platforms in 2003, and the Federal Trade Commission’s requirements expired by their terms in December 2005.       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 June 2005, the United States Supreme Court confirmed that the FCC’s decision was reasonable and supported by the Communications Act. In August 2005, the FCC decided to have consistent regulatory treatment of competing broadband platforms and to classify incumbent local exchange carriers’ broadband services as interstate information services. Therefore, after a short transition period, incumbent local exchange carriers do not have to offer their broadband services or share their broadband facilities with third parties on a common carrier basis. 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. The outcome of the pending FCC broadband rulemaking proceeding may affect significantly Cox’s regulatory obligations, including whether Cox will be required to obtain additional local authority to use the local 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.       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. Congress and the FCC are considering additional proposals regarding the regulation of high-speed Internet services, including proposals to establish the rights of end users of high-speed Internet services and regulate or restrict commercial agreements between providers of high-speed Internet services and content providers. Adopting a policy commonly referred to as “network neutrality,” the FCC issued a non-binding policy statement in August, 2005 establishing four basic principles to guide its ongoing policymaking activities regarding high-speed Internet and other broadband-related services. Those principles state that: (1) consumers are entitled to access the lawful Internet content of their choice; (2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; (3) consumers are entitled to connect to legal devices of their choosing provided that they do not harm the network; and (4) consumers are entitled to competition among network providers, application and service providers and content providers. The FCC required Verizon and AT&T to abide by these principles for a two-year period as a condition to the Verizon/MCI and SBC/AT&T mergers. Congress is also considering legislation to codify these or related principles, subject to various conditions. Any such rules or statutes could limit the ability of high-speed Internet providers to manage their networks (including their use for other services), to obtain market-based value for the use of their networks, or to respond to competitive conditions. Cox cannot predict either the ultimate outcome of any Congressional initiatives and administrative proceedings or their impact on Cox’s business and operations.       In August 2005, the FCC adopted rules generally requiring providers of high-speed Internet service (including cable operators) to  16    Table of Contents  comply with the Communications Assistance for Law Enforcement Act (“CALEA”). Under these new rules, high-speed Internet service providers must implement certain network capabilities to assist law enforcement in conducting surveillance of persons suspected of criminal activity. The rules are scheduled to go into effect in 2007, but are now subject to court challenge. Cox anticipates that its high-speed Internet services will comply with these new requirements.       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; this newer telecommunications rate formula generally produces higher pole attachment rates.       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 confirmed that the FCC’s rate formulas, as applied in a specific case, provide “just compensation” under the Federal Constitution. Several other federal appellate court decisions have also upheld various aspects of the FCC’s pole attachment regulations and policies, and have provided more certainty for Cox in its negotiations with various utilities for the use of space on poles and in underground conduits. Nevertheless, the applicability of and method for calculating these pole attachment rates under the newer telecommunications attachment rate formula remain unsettled, and there is a risk that the rates Cox pays for its pole attachment will increase substantially as it expands its telephone business.       Cox is involved in three complaint proceedings filed at the FCC by various state cable associations (Arkansas, Florida and Georgia) challenging, among other things, certain utilities’ rate increases, the unilateral imposition of new contract terms and reimbursement by cable operators for a utility’s engineering fees, pole inspections and costs incurred in making the pole ready for the operator’s attachment. The utilities in these cases challenged, among other things, the constitutionality of the 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.    17    Table of Contents          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, but are required, among other things, to obtain FCC and any necessary local operating authority, and to comply with the FCC’s sports blackout, network non-duplication, syndicated exclusivity and mandatory carriage rules. 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.       Local telephone companies have taken various positions on whether they need a local cable television franchise to provide video services; some have applied for and received local franchises, some have sought and (in certain states) have achieved state-level regulation only, and some have claimed that video services can be provided without a cable television franchise. Some states in which Cox operates cable television systems, such as Texas and Virginia, have enacted, and other states like California are considering, state-wide franchising or franchise standards that may allow or have allowed telephone companies and other competitors to construct and operate cable systems with fewer regulatory and contractual requirements, or to avoid negotiating individual franchises with each community as Cox has been required to do. Various bills also have been introduced in Congress that may either provide for national franchising of video services provided by telephone companies or eliminate franchise requirements for telephone companies and other competitors providing video services. The FCC similarly is considering rules proposed by Verizon and other telephone companies that would address claimed franchising burdens for those entities. Cox cannot predict the ultimate outcome of any Congressional initiatives and administrative proceedings or the impact of any new regulatory standards on Cox’s business and operations. If competitors were permitted to enter Cox’s markets on terms and conditions more favorable than those applied to Cox, however, Cox’s ability to compete in a fair environment would be diminished.       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,  18    Table of Contents  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. Cox also is permitted to provide Internet services in its franchise areas using a wireless cable system (also known as the broadband radio service or BRS) and may provide video services using a BRS system in any franchise area that is subject to effective competition. In addition, Cox may be able to offer service using direct broadcast satellites. Although the FCC began a rulemaking proceeding in 1998 to consider whether cross-ownership restrictions between direct broadcast satellite providers and cable television should be established, the FCC has taken no action in that proceeding and has stated it would evaluate related issues case-by-case in the context of associated FCC license transfer applications.       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, 2007, 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, 2007. Certain cable companies have challenged the FCC’s regulations in federal court, but it is uncertain how the court will rule on this appeal. If the court does not reverse the FCC’s decision, or the FCC does not substantially modify its regulations, extend the July, 2007 deadline or waive the rules for low-cost, limited function set-top boxes, Cox will be forced to incur added costs in purchasing new set-top boxes that comply with the FCC’s regulations.       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.  19    Table of Contents       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 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. Instead 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, and decreases must 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 cable operators 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;    20    Table of Contents        •   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;       •   permits local authorities, when granting or renewing franchises, to establish requirements for cable-related facilities and equipment;       •   permits local authorities, when granting or renewing franchises, to require the provision of channel capacity for public, educational and governmental channels, including capacity on 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 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 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. Because the FCC has classified high-speed Internet services provided over a cable system as interstate information services, the revenues derived from cable operators’ Internet services are not included in the revenue base from which franchise fees are calculated. Cox 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.       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  21    Table of Contents  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.       In order to promote competition in the delivery of video programming services, some states in which Cox operates cable television systems, such as Texas and Virginia, have enacted, and other states like California are considering, state-wide franchising or franchise standards that may allow or have allowed competitors, including telephone companies, to construct and operate cable systems with fewer regulatory and contractual requirements, or to avoid negotiating individual franchises with each community as Cox has been required to do. In Texas, for example, where Cox has agreed to sell its cable systems to Cebridge Connections Holdings, LLC, cable operators must continue to comply with existing franchises with individual communities until each franchise expires, at which time the cable operator will be eligible to obtain a state franchise covering its operations in the community. 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.       Various bills also have been introduced in Congress that may either provide for national franchising of video services provided by telephone companies or eliminate franchise requirements for telephone companies and other competitors providing video services. The FCC similarly is considering rules proposed by Verizon and other telephone companies that would address claimed franchising burdens for those entities. Cox cannot predict the ultimate outcome of any Congressional initiatives and administrative proceedings or the impact of any new regulatory standards on Cox’s business and operations. If competitors were permitted to enter Cox’s markets on terms and conditions more favorable than those applied to Cox, however, Cox’s ability to compete in a fair environment could be diminished.  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.       Although telephone competition currently is governed by the requirements of the 1996 Telecommunications Act, the relevant Congressional committees are considering potential changes to the regulatory regime created by that legislation. Although it is not clear whether agreement will be reached on any of these issues, the areas under consideration include interconnection, universal service and licensing requirements for providers of telephone and broadband services.       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  22    Table of Contents  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. The rules are expected to disadvantage competitive carriers, such as CBeyond and Birch Telecom, that make significant use of unbundled elements of the networks of other carriers to provide local telephone services and that are active in Cox service areas such as New Orleans, Louisiana and Los Angeles and Orange County, California. The FCC decision is subject to pending appeals in the United States Court of Appeals for the District of Columbia Circuit, but no date has been set for oral argument and the date of any decision is uncertain.       In a related proceeding, in 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 2002 by the U.S. Supreme Court. However, the FCC is considering modifying these rules in a proceeding that has been pending since 2003. If the FCC modifies its overall pricing rules, Cox’s costs for interconnection and for use of unbundled elements of ILEC networks could increase.       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. In 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. The U.S. Court of Appeals for the District of Columbia Circuit remanded this order to the FCC in March 2005. The court also prevented the FCC from applying the order, to carriers that qualify as “small entities” under the Regulatory Flexibility Act until the FCC conducts an analysis of the impact of the order on such entities. The FCC issued a public notice seeking comment on this issue a short time later, but no order has been released. It is unclear what entities are subject to this stay, but it covers some carriers that compete with Cox in rural areas.       Intercarrier Compensation. The FCC is considering a series of issues related to the system for compensating carriers for originating and completing calls on behalf of other carriers. Under the current system, carriers charge cost-based rates for termination of local calls (known as reciprocal compensation) and higher rates for origination and termination of long distance calls (known as access charges). In 2005, the FCC released a further notice of proposed rulemaking in which it sought comment on potential changes to the intercarrier compensation regime, including proposals that would reduce compensation significantly. Depending on the specific rules adopted by the FCC, changes in the intercarrier compensation requirement could reduce Cox’s costs and revenues for reciprocal compensation and access charges. The date of FCC action in this proceeding is uncertain.       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,  23    Table of Contents  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 and the current rules could be superseded by any rules the FCC adopts in its broader intercarrier compensation proceeding. 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.       Wireline Broadband Services. In 2005, the FCC released an order reclassifying most local telephone company broadband services for consumers as information services. As a consequence of this decision, these services no longer are subject to common carrier regulation, although telephone companies do have the option to treat the transmission component of wireline broadband services as common carrier services if they so choose. The additional flexibility afforded by this decision will make it easier for telephone companies to compete with Cox and other providers of high-speed Internet and other broadband services.       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. In 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. In February 2005, however, the U.S. Court of Appeals for the Tenth 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 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. The FCC is considering these questions in a proceeding on the mechanisms for determining contributions to the universal service fund, which has been pending since 2002.       Under the FCC contribution factors in effect for 2005, Cox contributed approximately $20.7 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. In 2004, the FCC adopted a notice of proposed rulemaking to consider issues relating to the availability of universal service subsidies in high-cost areas, including carrier eligibility for subsidies and the number of lines to support for each subscriber.       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  24    Table of Contents  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, and forbearance requests are deemed granted if the FCC fails to act within certain statutory deadlines. 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. To the extent that ILECs and other providers competing with Cox obtain forbearance, Cox may be competitively disadvantaged.       On September 16, 2005, the FCC adopted an order in the first proceeding involving an incumbent local telephone company’s efforts to seek relief from its obligations in light of competition in a specific market. In that proceeding, the FCC granted forbearance to Qwest for its remaining unbundling obligations under Section 251 of the Communications Act in a portion of the Omaha, Nebraska market that had the highest level of coverage of competitive facilities constructed by Cox and also granted Qwest’s request to be treated as a non-dominant carrier in that market for interstate services. The FCC denied the remaining portions of the petition, including requests to eliminate the obligation to interconnect at any point and the obligation to provide collocation. This decision has been appealed by Qwest and several competitive local telephone companies to the United States Court of Appeals for the District of Columbia Circuit, and the date of any decision is uncertain. In addition, on March 19, 2006, a forbearance request made by Verizon was granted by operation of law when the FCC failed to adopt an order on the request within the statutory deadline. Verizon had sought forbearance from common carrier regulation of most of its services with transmission speeds in excess of 200 kilobits per second. Among other things, Verizon consequently will no longer be required to unbundle these services for sale to competitors, will not be required to offer these services at regulated rates, and will not be subject to non-discrimination requirements. The FCC’s failure to adopt an order, however, also raises many unanswered questions regarding the scope of the relief provided to Verizon, including, for example, whether Verizon will be subject to interconnection requirements if it offers these services as non-common carrier services and whether Verizon will have a legal obligation to offer these services to unaffiliated wireless providers that compete with its own wireless service.       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, Nebraska and Oklahoma, have sought number conservation authority from the FCC. In a notice of proposed rulemaking released on February 24, 2006, the FCC is considering adopting new rules that would give all states additional authority to require number pooling in less-populated areas, including certain areas where Cox provides telephone service.       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 that may be regulated only by the FCC. Among the issues raised by these services is how to ensure universal telephone service if voice over Internet Protocol services are not regulated, how interconnection between these services and traditional telephone services will be regulated and the extent to which intercarrier compensation rules will be applied to these services. In 2004, the FCC adopted a notice of proposed rulemaking to address these issues and asked for comment on a petition by SBC seeking forbearance from regulation of voice over Internet Protocol services. The FCC also issued several orders in 2004 and 2005 that addressed issues relating to voice services offered via Internet Protocol, including an order preempting state regulation of the service offered by Vonage and similar services; giving an order requiring voice over Internet Protocol providers to provide enhanced 911 service and an order giving voice over Internet Protocol providers 18 months to have the capability to provide surveillance of communications to law enforcement agencies. Each of these orders is the subject of pending appeals. Many issues remain pending at the FCC. Further, on March 6, 2006, the FCC sought comment on two petitions filed by Time Warner Cable seeking declaratory rulings concerning the rights of providers of voice over Internet Protocol services to obtain interconnection. While the vast majority of Cox’s telephone services are provided using traditional circuit-switched technology, Cox is offering voice over Internet Protocol services in Gainesville, Fort Walton Beach and Pensacola, Florida; Macon, Georgia; Las Vegas, Nevada; parts of Louisiana; parts of western Texas; and 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.       Customer Privacy. Under Section 222 of the Communications Act and the FCC’s implementing regulations, carriers are required to protect the privacy of information concerning the services customers purchase and use, including call records. Starting in late 2005, the FCC became aware that call records and other customer information have been made available to the public through web sites and other mechanisms. In response to these activities, the FCC has sought information from carriers concerning how they protect the privacy of customer information, required carriers to file copies of their annual certifications of compliance with privacy requirements, and proposed to fine AT&T and Alltel $100,000 each for failure to comply with the certification requirement. In addition, on February 10, 2006, the FCC adopted a notice of proposed rulemaking in which it is considering whether to adopt new regulations governing customer privacy. These regulations could include requirements for customer passwords, creation of audit trails for access to customer information, encryption of customer records, limits on retention of customer record information and notices to customers when the security of their records has been breached. It is unknown whether or when the FCC will adopt any of these requirements.  25    Table of Contents       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.       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, 2005, Cox had approximately 22,530 full-time-equivalent employees. Cox considers its relations with its employees to be satisfactory.     Item 1A. RISK FACTORS       You should carefully consider each of the risks described in this report, and the other information in this report. While these are the risks and uncertainties Cox believes are most important for you to consider, you should know that they are not the only risks or uncertainties facing Cox or which may adversely affect Cox’s business. If any of the following risks or uncertainties actually occurs, Cox’s business, financial condition or results of operations would likely suffer.  Cox has significant debt.       Cox has a significant amount of debt. As of December 31, 2005, Cox had total long-term obligations of approximately $13.0 billion. Cox’s credit ratings are currently lower than its historical credit ratings due to its incurrence of debt to finance the going-private transaction in December 2004. 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  26    Table of Contents  variable rate debt instruments.  Cox faces a wide range of competition in areas served by Cox’s cable systems, which could adversely affect Cox’s future results of operations.       Cox’s cable systems compete with a number of different sources which provide news, information and entertainment programming to consumers. Cox competes directly with program distributors, telephone companies and other companies that use satellites, operate competing cable systems in the same communities Cox serves or otherwise offer programming and other communications services to Cox’s subscribers and potential subscribers. Some local telephone companies provide, or have announced plans to provide, video services within and outside their telephone service areas. Additionally, Cox is subject to competition from telecommunications providers and Internet service providers, in connection with offerings of new and advanced services, including high-speed Internet services and VOIP service. This competition may materially adversely affect Cox’s business and operations in the future.       Numerous companies, including telephone companies, have introduced DSL, which provides Internet access to subscribers at data transmission speeds substantially greater than that of conventional analog modems. Cox expects other advances in communications technology, as well as changes in the marketplace, to occur in the future. Other new technologies and services may develop and may compete with services that cable systems offer. In recent years, Congress has enacted legislation and the FCC has adopted regulatory policies intended to provide a favorable operating environment for existing competitors and for potential new competitors to Cox’s cable systems. Similarly, some states in which Cox operates cable television systems, such as Texas and Virginia, have enacted, and other states like California are considering, state-wide franchising that will allow telephone companies and other competitors to construct and operate cable systems with fewer regulatory and contractual requirements and without negotiating individual franchises with each community as Cox has been required to do. These ongoing and future technological, legislative and regulatory developments could have a negative impact on Cox’s business operations.  Programming costs are increasing and Cox may not have the ability to pass these increases on to Cox’s subscribers, which would materially adversely affect Cox’s cash flow and operating margins.       Programming costs are a significant expense item and will continue to be significant in the foreseeable future. In recent years, the cable and satellite video industries have experienced a rapid increase in the cost of programming, particularly sports programming. Increases are expected to continue, and Cox may not be able to pass a portion of these programming cost increases on to Cox’s subscribers. The inability to pass a portion of these programming cost increases on to Cox’s subscribers would have a material adverse impact on Cox’s operating results. In addition, as Cox upgrades the channel capacity of Cox’s systems and adds programming to Cox’s basic, expanded basic and digital programming tiers, Cox may face increased programming costs, which, in conjunction with the additional market constraints on Cox’s ability to pass programming costs on to Cox’s subscribers, may reduce operating margins.       Cox also expects to be subject to increasing demands by broadcasters to obtain their consent, where required, for the retransmission of broadcast programming to Cox’s subscribers. Cox cannot predict the impact of these negotiations or the effect on Cox’s business and operations should Cox fail to obtain any required broadcasters’ retransmission consents.  27    Table of Contents  Cox is subject to regulation by federal, state and local governments which may impose costs and restrictions.       Cox’s cable television operations are regulated extensively by federal and local governments and by some state governments. Cox expects that legislative enactments, court actions and regulatory proceedings will continue to clarify and in some cases change the rights and obligations of cable companies and the cable industry’s current and future competitors under the Communications Act and other laws, possibly in ways that Cox has not foreseen. Congress considers new legislative requirements potentially affecting our businesses virtually every year, and a significant initiative to update the Communications Act began in 2005 and is expected to continue in 2006. Additionally, some states have adopted, and other states, the U.S. Congress and the FCC are actively considering, changes in franchising requirements that will allow competitors to construct and operate cable systems and to compete with incumbent cable operators like Cox more effectively and with fewer regulatory requirements. The results of these legislative, judicial and administrative actions may materially adversely affect Cox’s business operations. Local authorities grant Cox franchises that permit Cox to operate its cable systems. Cox will have to renew or renegotiate these franchises from time to time. Local franchising authorities often demand concessions or other commitments as a condition to renewal or transfer, which concessions or other commitments could be costly to Cox in the future.  Cox is subject to additional regulatory burdens in connection with the provision of phone services, which could cause Cox to incur additional costs.       Cox is subject to risks associated with the regulation of Cox’s circuit-switched phone services by the FCC and state public utility commissions. Telecommunications companies generally are subject to significant common-carrier regulation. This regulation could materially adversely affect Cox’s business operations.       Cox has launched VOIP phone service in certain markets. The FCC has initiated a rulemaking to consider whether and how to regulate VOIP services. VOIP services may also be subject to potential regulation at the state level, and several states have attempted to impose traditional common-carrier regulation on such services. It is unclear how these VOIP-related proceedings at the federal and state levels, and related judicial proceedings that will ensue, might affect Cox’s planned VOIP service.  Cox may face new regulatory requirements because of technological advances, which could adversely affect Cox’s future results of operations.       Ever since high-speed cable Internet service was introduced, some local governments and various competitors have sought to impose regulatory requirements on how Cox deals with Internet service providers. Thus far, only a few local governments have imposed such requirements, and the courts have invalidated all of them. The FCC has refused to treat Cox’s high speed Internet service as a common carrier “telecommunications service,” and instead has classified it as an “interstate information service,” which has historically resulted in significantly reduced regulatory obligations. However, the FCC is still considering whether it should impose any regulatory requirements on high speed broadband services and also whether local franchising authorities should be permitted to impose fees or other requirements, such as service quality or customer service standards on such services. Some franchising authorities may attempt to impose such requirements and make them a condition of Cox’s franchises. Also, some franchising authorities have requested payment of franchise fees on high-speed broadband service revenues. Cox cannot now predict whether these or similar regulations will be adopted; however, such requirements, if adopted, could adversely affect the results of Cox’s operations.  Cox is controlled by a principal stockholder whose interests may be different than your interest.       Cox Enterprises owns 100% of the outstanding equity and holds 100% of the voting power of Cox. Cox Enterprises therefore controls all actions to be taken by Cox stockholders, and CEI’s interests as a stockholder may differ from those of Cox’s debt security holders.     Item 1B. UNRESOLVED STAFF COMMENTS  28    Table of Contents           None.
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.
On September 24, 2002, a committee of bondholders 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, 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. Briefing on the appeal has been completed, and oral argument was held on October 17, 2005. On October 21, 2005, the Court requested that the Securities and Exchange Commission (“SEC”) provide an amicus curiae brief addressing certain issues related to the appeal. On February 13, 2006, the SEC filed its amicus curiae brief with the court, in which the SEC supported the ruling of the district court below. The parties were then given the opportunity to file supplemental letter briefs in response to the SEC’s brief. On March 3, 2006, the parties filed their supplemental briefs. The appeal is pending and the outcome cannot be predicted at this time.       On July 25, 2005, Excite@Home provided Cox and Cox @Home notice of termination of the tolling agreement applicable to Excite@Home’s claim for purported breach of fiduciary duty against Cox and Cox @Home. On September 22, 2005, Richard A. Williamson, on behalf of and as trustee for, the Bondholders’ Liquidating Trust of At Home Corporation, filed a one count complaint for breach of fiduciary duty against the same defendants named in the action described above. The action alleges that in connection with a  29    Table of Contents  March 28, 2000 letter agreement between Cox, Comcast, AT&T Corp., and Excite@Home, the defendants breached fiduciary duties purportedly owed to Excite@Home. The complaint seeks compensatory and rescissory damages, disgorgement of profits, an alleged $850 million “control premium” purportedly paid to Cox and Comcast by AT&T, and other relief. Cox and Cox @Home intend to defend this action vigorously. On November 22, 2005, Cox and Cox@Home filed a motion to dismiss the action, which is pending. 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 that court affirmed the district court’s decision on November 23, 2005. On December 14, 2005, the plaintiffs filed a petition for rehearing, which was denied on December 21, 2005. Under Supreme Court Rules, plaintiffs have 90 days from the denial of their petition for rehearing to petition the Supreme Court for a writ of certiorari. 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 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 subsequently was consolidated with a related case captioned Semen Leykin v. 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  30    Table of Contents  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. On May 31, 2005, the plaintiffs requested permission from the Court to move to amend their complaint to expand the class period to include the period from November 9, 1999 to March 28, 2000, the beginning of the current class period. On July 8, 2005, the court orally issued a stay of discovery and ordered the plaintiffs to file a proposed amended complaint, which plaintiffs submitted on August 5, 2005. On September 2, 2005, Cox opposed the amendment and moved to dismiss the existing complaint. On March 23, 2006, the court signed an order granting defendants’ motions to dismiss the first amended complaint, denying plaintiffs’ motion for leave to file a second amended complaint and denying plaintiff’s motion for leave to file a third amended complaint. The court further directed entry of judgment dismissing all the complaints in this and the consolidated and related actions, with costs and disbursements to defendants, according to law. Should the plaintiffs appeal, Cox intends to defend this action vigorously. The outcome cannot be predicted at this time.       On June 21, 2005, Ronald Ventura filed a lawsuit against Cox and David Woodrow, among others, in the United States District Court for the Southern District of New York. Cox was served on August 25, 2005. By stipulation of the parties, the time for defendants to answer or otherwise respond to the complaint has been extended until thirty days following the court’s decision in the related Leykin case on plaintiffs’ motion to file a third amended complaint and Cox’s motion to dismiss the existing complaint. The complaint in the Ventura action asserts claims substantially similar to the operative allegations in the Leykin action described above. Accordingly, the Ventura complaint asserts a claim against Cox as an alleged “controlling person” of Excite@Home under Section 20(a) of the Securities Exchange Act for purported violations by At Home of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. In addition, the Ventura complaint asserts a claim for unjust enrichment against Cox, which asserts that Cox should be required to disgorge an amount equal to the value of the 75 million shares of AT&T stock that Cox received from AT&T in 2001. No other claims are asserted against Cox. The Complaint seeks from Cox unspecified monetary and punitive damages, statutory compensation, disgorgement, and other relief. By virtue of the order in the Leykin case entered above on March 24, the Ventura case has also been dismissed.       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. Cox and CoxCom 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. A hearing on the motion was held on January 27, 2005. On February 24, 2005, the Multi-District Litigation panel transferred all of the Acacia litigation to Judge Ware in the Northern District of California. On December 7, 2005 the court issued its Markman ruling relating to certain claims in the ‘702 patent, concluded that the terms “sequence encoder” and “indentification encoder” are indefinite and rendered claims 1, 17, 27 and 32 invalid. The hearing on claims construction for the ‘992 and ‘275 patents is set for June 2, 2006 and the claims construction hearing for the ‘863 and ‘720 patents is set for August 11, 2006. CoxCom and Hospitality Network intend to defend the action vigorously. The outcome 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.  31    Table of Contents
None.  32    Table of Contents     PART II
On December 9, 2004, Cox terminated the Securities Exchange Act registration of the former public stock, and as a result there is no public market for any class of Cox’s equity securities.       The following table summarizes information about Cox’s equity compensation plans as of December 31, 2005. All outstanding awards relate to the Class A common stock, par value $.01 per share.                                      A   B   C                       Number of securities                       remaining available for       Number of securities to be           future issuance under equity       issued upon exercise of   Weighted-average exercise   compensation plans       outstanding options,   price of outstanding options,   (excluding securities reflected   Plan Category   warrants and rights   warrants and rights   in column A)     Equity compensation plans approved by security holders     165,878 (a)   $ 37.50 (a)     -0-  (b)   Equity compensation plans not approved by security holders     0       N/A       -0-  (c)                               Total     165,878     $ 37.50       -0-                  (a)   Consists of stock options outstanding under the Cox Communications, Inc. Amended and Restated Long-Term Incentive Plan (referred to as the LTIP).     (b)   On December 29, 2004, Cox filed a post-effective amendment on Form S-8 to deregister all shares of Class A Common Stock not issued prior to the going-private merger.     (c)   On December 29, 2004, Cox filed a post-effective amendment on Form S-8 to deregister all shares of Class A Common Stock not issued prior to the going-private merger under the Cox Communications, Inc. Stock Option Plan for Non-Employees (the Non-Employee Plan), which was adopted by the Compensation Committee on August 11, 1999 in connection with the merger between Cox and TCA Cable TV, Inc.
The data presented below includes the results of operations for Sale MAC but does not include the results of operations for the Discontinued Operations Systems. Please see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Discontinued Operations” for more information.                                                      Year Ended December 31       2005   2004   2003   2002   2001       (Millions of Dollars)     Statement of Operations Data                                           Revenues   $ 6,722.3     $ 6,106.1     $ 5,458.8     $ 4,767.7     $ 4,017.9     Operating income (loss)     736.5       (1,530.5 )     569.9       390.6       (153.8 )   Interest expense     697.4       428.6       467.3       549.5       565.6     (Loss) gain on derivative instruments, net     (0.1 )     (0.1 )     (22.6 )     1,125.6       (212.0 )   (Loss) gain on investments, net     (9.5 )     28.4       165.2       (1,317.2 )     1,151.2     Loss on extinguishment of debt     (13.0 )     (7.0 )     (450.1 )     (0.8 )     —     Loss from continuing operations     (0.1 )     (1,085.1 )     (147.9 )     (290.2 )     733.9     (Loss) income from discontinued operations, net of tax     (230.6 )     (80.0 )     10.1       16.2       21.1       33    Table of Contents                                                      Year Ended December 31       2005   2004   2003   2002   2001       (Millions of Dollars)     (Loss) income before cumulative effect of change in accounting principle     (230.7 )     (1,165.1 )     (137.8 )     (274.0 )     755.0     Cumulative effect of change in accounting principle, net of tax     —       (1,210.2 )     —       —       —     Net (loss) income     (230.7 )     (2,375.3 )     (137.8 )     (274.0 )     755.0       Balance Sheet Data *                                           As of December 31                                           Total assets   $ 28,377.7     $ 29,253.7     $ 24,417.6     $ 25,015.3     $ 25,061.4     Debt (including amounts due to CEI)     13,017.3       12,995.6       7,015.8       7,316.0       8,417.7     Cox-obligated capital and preferred securities of subsidiary trusts     —       —       —       —       1,155.7                  *   CEI elected to apply push-down basis accounting with respect to shares acquired in the going-private transaction. Accordingly, the aggregate $8.4 billion purchase price (exclusive of estimated fees and expenses), which amount includes approximately $1.5 billion paid by CEI to purchase shares of Cox’s former public stock pursuant to the going-private transaction, has been “pushed-down” to the consolidated financial statements of Cox. Accordingly, the net tangible and intangible assets of Cox at December 31, 2005 and 2004 have been stepped-up to fair value to the extent of the 37.96% minority interest acquired in the going-private transaction pursuant to the purchase method of accounting for business combinations.   34    Table of Contents
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 currently serving approximately 6.7 million customers nationwide, of which approximately 0.9 million customers are subscribers of cable systems Cox has agreed to sell. 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 then-outstanding 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 its confidence in Cox’s 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 maintain current customers and attract new customer relationships. Cox ended 2005 with more than 3.3 million “bundled” customers, of which approximately 0.3 million are customers of cable systems Cox has agreed to sell. In addition, during 2005, 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 2005, Cox continued its launch of Cox Digital Telephone into new markets, ending 2005 with over 1.6 million telephone customers. Cox also leverages the capacity of its broadband network and its residential experience to grow its Cox Business Services division.       In November 2005, Cox entered into a strategic relationship with Comcast Corporation, Time Warner Cable Inc., Advance/Newhouse Partnership and Sprint Nextel Corporation for the purpose of jointly developing, marketing and selling bundled offerings that include Sprint Nextel wireless services and the wireline services (i.e., video, high speed broadband access and cable home phone service) of the cable companies (including Cox) to residential and business customers in the respective franchise territories of the cable companies. The companies will work to develop converged next generation products for consumers that combine the best of cable’s core products and interactive features with the vast potential of wireless technology to deliver services.  35    Table of Contents       Cox’s management monitors the regulatory landscape. The industry-wide introduction of voice over Internet Protocol technology has raised many regulatory questions. Cox analyzes 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.  Discontinued Operations       In October 2005, Cox entered into a definitive agreement to sell cable television systems with approximately 940,000 basic cable subscribers for approximately $2.55 billion in cash. Cox expects to consummate this transaction during the second quarter of 2006.       For accounting purposes, Cox has determined that each Sale System represents a disposal group. Consistent with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, Cox has classified the Systems’ assets and liabilities that are subject to transfer under the definitive agreement with Cebridge as “held for sale” at December 31, 2005 and 2004. Additionally, Cox has determined that the Discontinued Operations Systems comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of Cox. Accordingly, the results of operations for Sale MAC are included within continuing operations within the consolidated financial information presented for each of the years ended December 31, 2005, 2004 and 2003. Revenues attributable to Sale MAC for the years ended December 31, 2005, 2004 and 2003 were approximately $366.9 million, $355.3 million and $336.3 million, respectively. The results of operations for all of the Discontinued Operations Systems have been presented as discontinued operations, net of tax, for the twelve months ended December 31, 2005. In addition, the results of operations for the Discontinued Operations Systems for the three years ended December 31, 2005 have been reclassified to conform to the current year presentation. As of October 31, 2005, Cox determined that the estimated fair value less costs to sell attributable to the Sale Systems was in excess of the carrying value of their related net assets held for sale.  Results of Operations  2005 compared with 2004       The following table sets forth summarized consolidated financial information for each of the two years in the period ended December 31, 2005.                                              Year Ended December 31                     2005     2004     $ Change     % Change         (Thousands of Dollars)                       Revenues   $ 6,722,293     $ 6,106,105     $ 616,188       10 %   Cost of services (excluding depreciation and amortization)     2,672,873       2,482,149       190,724       8 %   Selling, general and administrative expenses (excluding depreciation and amortization)     1,467,982       1,365,256       102,726       8 %   Depreciation and amortization     1,663,037       1,548,160       114,877       7 %   Impairment of intangible assets     181,896       2,235,973       (2,054,077 )   NM    Loss on sale of cable systems     —       5,021       (4,884 )   NM                                  Operating income (loss)     736,505       (1,530,454 )     2,266,959     NM     Interest expense     (697,436 )     (428,556 )     (268,880 )     63 %   Loss on derivative instruments, net     (74 )     (127 )     53       42 %   (Loss) gain on investments, net     (9,547 )     28,364       (37,911 )   NM      36    Table of Contents                                              Year Ended December 31                     2005     2004     $ Change     % Change         (Thousands of Dollars)                       Loss on extinguishment of debt     (13,019 )     (7,006 )     (6,013 )   NM   Other, net     3,631       (8,903 )     12,534     NM   Income tax (expense) benefit     (13,492 )     866,316       (879,808 )   NM   Minority interest, net of tax     —       (1,203 )     1,203     NM   Equity in net losses of affiliated companies, net of tax     (6,689 )     (3,509 )     (4,432 )   NM                                 Loss from continuing operations     (121 )     (1,085,078 )     1,084,957     NM   Discontinued operations, net of tax     (230,555 )     (80,037 )     (150,518 )   NM   Cumulative effect of change in accounting principle, net of tax     —       (1,210,190 )     1,210,190     NM   Net loss     (230,676 )     (2,375,305 )     2,144,629       90%      NM denotes percentage is not meaningful.  Revenues       The following table sets forth summarized revenue information for each of the two years in the period ended December 31, 2005.                                                                      Year Ended December 31                                   % of             % of                     2005     Total     2004     Total     $ Change     % Change                 (Thousands of Dollars)                               Residential                                                   Video   $ 3,765,071       56 %   $ 3,609,557       59 %   $ 155,514       4 %   Data     1,295,785       19 %     1,066,105       17 %     229,680       22 %   Telephony     732,140       11 %     579,752       9 %     152,388       26 %   Other     105,185       2 %     100,617       2 %     4,568       5 %                                             Total residential revenue     5,898,181       88 %     5,356,031       87 %     542,150       10 %   Commercial     420,952       6 %     347,873       7 %     73,079       21 %   Advertising     403,160       6 %     402,201       6 %     959       —                                               Total revenues   $ 6,722,293       100 %   $ 6,106,105       100 %   $ 616,188       10 %                                                    The 10% increase in total revenues was primarily attributable to:       •   an 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; partially offset by        •   a decrease in revenues due to revenues lost as a result of Hurricane Katrina. See the discussion under the heading Hurricane Katrina below.         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, 2005.  37    Table of Contents                                              Year Ended December 31                     2005     2004     $ Change     % Change         (Thousands of Dollars)                       Cost of services                                   Programming costs   $ 1,317,809     $ 1,211,369     $ 106,440       9 %   Other cost of services     1,355,064       1,270,780       84,284       7 %                                 Total cost of services     2,672,873       2,482,149       190,724       8 %   Selling, general and administrative                                   Marketing     348,021       323,053       24,968       8 %   General and administrative     1,119,961       1,042,203       77,758       7 %                                 Total selling, general and administrative     1,467,982       1,365,256       102,726       8 %                                   Total costs and expenses   $ 4,140,855     $ 3,847,405     $ 293,450       8 %                                        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 include 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 $190.7 million over 2004 primarily due to a $106.4 million increase in programming costs. Approximately 8% 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 $84.3 million, primarily due to:       •   net additions of advanced-service customers over the last twelve months; and        •   increased labor costs due to maintenance, higher fuel costs during the second half of 2005 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 $102.7 million primarily due to:       •   a $77.8 million increase in general and administrative expenses primarily relating to increased compensation expense from certain long-term compensation plans adopted during 2005; and        •   a $25.0 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 a 9% 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. As a result of these trends, Cox expects its cost of services and, to a lesser degree, selling, general and administrative expenses to continue to increase.  Depreciation and amortization       Depreciation and amortization for the year ended December 31, 2005 increased to $1.7 billion from $1.5 billion for the comparable period in 2004. This was primarily due to the amortization of finite-lived intangible assets that resulted from the push-down basis accounting applied as a result of the December 2004 going-private transaction.  Impairment of intangible assets       As a result of entering into the Definitive Agreement to sell the Systems, Cox performed an interim impairment test of the Systems’ long-lived assets, indefinite-lived intangible assets and goodwill in October 2005 based on the anticipated selling price of approximately $2.55 billion, as prescribed by SFAS No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144. This interim impairment test resulted in a pre-tax impairment charge of approximately $181.9 million attributable to Sale MAC cable franchise value,  38    Table of Contents  which was classified within Impairment of intangible assets within the consolidated statement of operations. For more information, see “–Critical Accounting Policies and Estimates – Intangible Assets.”  Interest expense       Interest expense increased 63% to $697.4 million primarily due to increased outstanding indebtedness incurred in December 2004 as a result of the going-private transaction discussed further in Note 4. “Going- Private Transaction” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”  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 2005 and 2004, Cox used interest rate swap agreements with an aggregate principal amount of $1.0 billion and $1.4 billion as of December 31, 2005 and 2004, respectively, 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, Accounting for Derivative Instruments and Hedging Activities, 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 2005 and 2004, Cox had the following embedded derivatives or freestanding derivatives outstanding that have not been designated as hedges:       •   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 PCS common stock of Sprint Corp. (now Sprint Nextel Corp.) (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 the Discount Debentures in April 2005.       For a more detailed description of Cox’s exchangeable subordinated debentures and their corresponding embedded derivatives, please refer to Note 9. “Debt” and Note 10. “Derivative Instruments and Hedging Activities” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”  Loss on investments, net  39    Table of Contents       Loss on investments, net for the year ended December 31, 2005 of $9.5 million was due to a pre-tax decline considered to be other than temporary in the fair value of certain investments.       In determining whether a decline in the fair value of Cox’s investments is other than temporary, Cox considers the factors prescribed by 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, 2005, Cox recorded a $13.0 million pre-tax loss on extinguishment of debt due to the redemption of $62.3 million original principal amount at maturity of Discount Debentures for aggregate cash consideration of $32.5 million, which represented all remaining outstanding Discount Debentures.  Income tax (expense) benefit       Income tax expense was $13.15 million for the year ended December 31, 2005 compared to an income tax benefit of $866.3 million for the comparable period in 2004. This change was primarily due to the change in pre-tax income, varying effective state tax rates across Cox’s operations between 2004 and 2005 and the effect of on-going income tax audits. The effective tax rate for 2005 was 67.3% compared to 44.5% for 2004. The tax expense in 2005 reflects an effective income tax rate significantly higher than the federal statutory rate due in part to the impact of adjustments and settlements with the Internal Revenue Service and the relatively nominal pre-tax income.  Equity in net losses of affiliated companies, net of tax       Equity in net losses of affiliated companies, net of tax increased to $6.7 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.  Discontinued operations, net of tax       Discontinued operations, net of tax, was $(230.6) million and $(80.0) million for the year ended December 31, 2005 and 2004, respectively. The increased net loss was primarily due to a pretax, noncash impairment charge of $432.2 million related to impairments of Cox’s indefinite-lived cable franchise value intangible asset, as determined in accordance with SFAS No. 142.  Hurricane Katrina       During the third quarter of 2005, Hurricane Katrina caused damage to Cox’s operations in Louisiana. Cox’s cable system in the New Orleans area experienced significant damage, business interruption and an indeterminate loss of customers. Cox believes a significant portion of these losses will be covered by insurance, subject to a deductible amount and as of December 31, 2005, Cox had met the overall deductible amount. While Cox awaits payment under its insurance policies, Cox continues to rebuild infrastructure in the New Orleans area. The long-term effect of Hurricane Katrina on the population of New Orleans, and therefore Cox’s cable systems in New Orleans, remains uncertain.  2004 compared with 2003  40    Table of Contents       The following table sets forth summarized consolidated financial information for each of the two years in the period ended December 31, 2004.                                              Year Ended December 31                     2004     2003     $ Change     % Change         (Thousands of Dollars)                       Revenues   $ 6,106,105     $ 5,458,815     $ 647,290       12 %   Cost of services (excluding depreciation and amortization)     2,482,149       2,270,891       211,258       9 %   Selling, general and administrative expenses (excluding depreciation and amortization)     1,365,256       1,193,227       172,029       14 %   Depreciation and amortization     1,548,160       1,425,256       122,904       9 %   Impairment of intangible assets     2,235,973       —       2,235,973     NM     Loss (gain) on sale of cable systems     5,021       (469 )     5,490     NM                                  Operating (loss) income     (1,530,454 )     569,910       (2,100,364 )   NM    Interest expense     (428,556 )     (467,288 )     38,732       8 %   Loss on derivative instruments, net     (127 )     (22,567 )     22,440       99 %   Gain on investments, net     28,364       165,194       (136,830 )     (83 )%   Loss on extinguishment of debt     (7,006 )     (450,068 )     443,062       98 %   Other, net     (8,903 )     (3,522 )     (5,381 )   NM    Income tax benefit     866,316       74,703       791,613     NM       Minority interest, net of tax      (1,203 )     (6,116 )     4,913       80 %   Equity in net losses of affiliated companies, net of tax     (3,509 )     (8,098 )     4,589       57 %                                 Loss from continuing operations     (1,085,078 )     (147,852 )     (937,226 )   NM    Discontinued operations, net of tax     (80,037 )     10,051       90,088     NM    Cumulative effect of change in accounting principle, net of tax     (1,210,190 )     —       (1,210,190 )   NM                                  Net loss    $ (2,375,305 )   $ (137,801 )   $ (2,237,504 )   NM                                    NM denotes percentage is not meaningful.  Revenues       The following table sets forth summarized revenue information for each of the two years in the period ended December 31, 2004.                                                                      Year Ended December 31                                   % of             % of                     2004     Total     2003     Total     $ Change     % Change                 (Thousands of Dollars)                               Residential                                                   Video   $ 3,609,557       59 %   $ 3,420,303       63 %   $ 189,254       5 %   Data     1,066,105       17 %     837,199       15 %     228,906       28 %   Telephony     579,752       9 %     469,920       8 %     109,832       23 %   Other     100,617       2 %     82,343       2 %     18,274       22 %                                             Total residential revenue     5,356,031       87 %     4,809,765       88 %     546,266       11 %   Commercial     347,873       7 %     282,984       5 %     64,889       23 %   Advertising     402,201       6 %     366,066       7 %     36,135       10 %                                             Total revenues   $ 6,106,105       100 %   $ 5,458,815       100 %   $ 647,290       12 %                                               The 12% increase in total revenues was primarily attributable to:     •   an 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    41    Table of Contents       •   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, 2004.                                              Year Ended December 31                     2004     2003     $ Change     % Change         (Thousands of Dollars)                       Cost of services                                   Programming costs   $ 1,211,369     $ 1,085,041     $ 126,328       12 %   Other cost of services     1,270,780       1,185,850       84,930       7 %                                 Total cost of services     2,482,149       2,270,891       211,258       9 %                                       Selling, general and administrative                                   Marketing     323,053       285,535       37,518       13 %   General and administrative     1,042,203       907,692       134,511       15 %                                 Total selling, general and administrative     1,365,256       1,193,227       172,029       14 %                                 Total costs and expenses   $ 3,847,405     $ 3,464,118     $ 383,287       11 %                                        Cost of services increased $211.3 million over 2003 partially due to a $126.3 million increase in programming costs. Approximately 11% 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 $84.9 million, primarily due to:       •   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 $172.0 million primarily due to:       •   a $134.5 million increase in general and administrative expenses relating to increased salaries and benefits and costs related to the going-private transaction; and        •   a $37.5 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 a 10% increase in costs associated with Cox’s advertising sales business, Cox Media.    Depreciation and amortization       Depreciation and amortization for the year ended December 31, 2004 increased to $1.5 billion from $1.4 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 $2.2 billion related to its cable franchise rights, as calculated using a direct value method. This impairment charge was classified as Impairment of intangible assets within the consolidated statement of operations.  42    Table of Contents  Interest expense       Interest expense decreased 8% to $428.6 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       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:       •   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 redeemed 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.    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    43    Table of Contents          •   $7.3 million pre-tax gain on the sale of certain other non-strategic investments.    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 $866.3 million for the year ended December 31, 2004 compared to an income tax benefit of $74.7 million for the comparable period in 2003. The change in income tax benefit was primarily due to the change in pre-tax loss, 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 benefit include the impact of varying state tax rates across Cox’s operations, along with current year investing and financing transactions. The effective tax rate for 2004 was 44.5% compared to 35.9% for 2003.  Equity in net losses of affiliated companies, net of tax       Equity in net losses 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.  Discontinued operations, net of tax       Discontinued operations, net of tax, was $(80.0) million and $10.1 million for the year ended December 31, 2004 and 2003, respectively. As a result of the going-private transaction, Cox revised its marketplace assumptions and in accordance with SFAS No. 142, performed an interim impairment test. The net loss attributable to the Discontinued Operations Systems for the year ended December 31, 2004 was primarily due to this pretax, noncash impairment charge of $179.9 million related to the impairment of Cox’s indefinite-lived cable franchise value intangible asset.  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 in the EITF D-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).  Liquidity and Capital Resources  44    Table of Contents  2005 Uses and Sources of Cash            As part of Cox’s ongoing strategic plan, Cox has invested, and will continue to invest 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 cash flows from operations and amounts available under existing revolving credit facilities and its commercial paper program.            During 2005, Cox made capital expenditures of approximately $1.5 billion. These expenditures were primarily directed at costs related to electronic equipment located on customers’ premises and costs associated with network equipment used to enter new service areas.            Capital expenditures for 2006 are likely to be somewhat greater than capital expenditures made in 2005 driven by customer demand and investment in plant technology, including a rebuild of the New Orleans cable system. 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 exchanges in 2006 other than the acquisition discussed in Recent Development in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”            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 $45.9 million in 2005 included debt and equity funding. Future funding requirements are expected to total approximately $19.7 million in 2006. 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.            Repayments of debt during 2005 of $491.6 million primarily consisted of the purchase of all remaining outstanding Discount Debentures and the repayment of Cox’s $375.0 million 6.9% notes due June 15, 2005 upon their maturity.            During 2005, Cox made payments to acquire its former public stock that was converted into the right to receive cash as part of the going-private transaction in December 2004 of approximately $474.5 million, with such payments being made as holders of the former public stock surrendered their certificates and otherwise claimed their going-private merger consideration.            During 2005, Cox generated $2.0 billion from operations. Net revolving credit and commercial paper borrowings during 2005 were $469.3 million and were used primarily to fund the purchase of untendered shares of former public stock that were converted into the right to receive cash as part of the follow-on merger, as well as the repayments of debt.  2004 Uses and Sources of Cash       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.       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.       During 2004, Cox repaid $3.6 billion of debt, which included:       •   the repurchase of its remaining outstanding convertible senior notes, PRIZES and Premium PHONES;    45    Table of Contents          •   the repayment of its $375.0 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 exchanged the outstanding notes for registered notes with substantially identical terms.       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       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.       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 Cox’s 6.15% Reset Put Securities due 2033 (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 issuance 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.  46    Table of Contents       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.  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 $5.2 million at December 31, 2005. 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, 2005 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.                                                      Payments Due by Period                 Less                                   than 1     1 – 3     4 – 5     After 5         Total     Year     Years     Years     Years         (Millions of Dollars)       Debt maturities and pay-off obligations (a)   $ 12,575.2     $ 465.2       (b)   $ 950.0     $ 6,461.4     $ 4,698.6  (c)   Interest on aggregate debt (d)     4,480.5       712.6       1,267.7       940.1       1,560.1     Capital leases     206.7       47.5       63.4       35.4       60.4     Operating leases     70.2       17.4       24.3       12.9       15.6     Nonbinding purchase and other commitments (e)     679.2       437.7       89.4       75.1       77.0                                       Total contractual cash obligations   $ 18,011.8     $ 1,680.4     $ 2,394.7     $ 7,524.9     $ 6,411.8                                                    (a)   Excludes $224.6 million of commercial paper borrowings outstanding as of December 31, 2005.     (b)   Cox has classified approximately $465.0 million of outstanding debt obligations scheduled to mature in the next twelve months in the noncurrent portion of long-term debt in its Consolidated Balance Sheet because it intends to refinance these obligations on a long-term basis. Cox has the ability to refinance these obligations under its existing revolving credit facilities.     (c)   The holders of Cox’s $200.0 million aggregate principal amount 6.53% debentures due 2028, which were issued by TCA Cable TV prior to Cox’s acquisition of TCA, have the right to require the Cox subsidiary that assumed TCA’s obligations under the debentures to repurchase the debentures on February 1, 2008 at a purchase price equal to 100% of the principal amount of such debentures, plus any accrued but unpaid cash interest.     (d)   Cox’s estimate of its cash requirement for interest payments is based on future cash interest payments related to known debt instruments as of December 31, 2005. These estimates also assume that (i) debt is repaid and not refinanced at maturity, (ii) the holders of the former TCA bonds do not exercise their rights to require Cox to repurchase such securities as described in footnote (c) above and (iii) no future impact is recognized from Cox’s interest rate swap agreements, which effectively convert $1.0 billion of Cox’s fixed-rate debt into floating-rate obligations and have resulted in significant interest savings in both 2005 and 2004. Cox’s future interest payments could differ materially from amounts indicated in the table due to Cox’s future    47    Table of Contents            operational and financing needs, changing market conditions and other currently unanticipated events.      (e)   Includes unfulfilled purchase orders, construction commitments and various other commitments arising in the normal course of business.         Cox identified other cash requirements related to the funding of pension and other postretirement benefits. In December 2005, Cox contributed $25.0 million of its overall $48.0 million minimum required contribution for 2005; the remaining $23.0 million will be contributed during 2006. Cox expects to contribute $9.6 million to its other postretirement benefit plans during 2006. 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 13. “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, 2005, Cox had outstanding borrowings of approximately $2.0 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.       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 required 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 requires Cox to maintain a ratio of debt to operating cash flow of not more than 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. In March 2006, Cox amended the definition of “Consolidated Operating Cash Flow” in its credit agreements (i) to include operating cash  48    Table of Contents  flow attributable to businesses presented as discontinued operations that had not yet been sold and (ii) to exclude certain incentive compensation plan expense.      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.  Credit Ratings       Cox’s credit ratings impact Cox’s 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 Cox’s profitability, operating cash flow, total debt outstanding, interest requirements, liquidity needs and availability of liquidity. Other factors considered may include Cox’s business strategy, the condition of Cox’s industry and Cox’s position within the industry. Although Cox understands 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.  Cox’s credit ratings as of December 31, 2005 were as follows:                             Senior Unsecured       Rating Agency   Debt Rating   Outlook     Moody’s   Baa3   Stable   Standard & Poor’s   BBB-   Stable   Fitch Ratings   BBB-   Stable          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 $525.4 million of total available financing capacity under its revolving credit facilities and commercial paper program at December 31, 2005.       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 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 is in compliance with all covenants for both its credit facilities and debt instruments.       For a description of investments, see “Investments” in Part I, Item 1. “Business” and Note 7. “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  49    Table of Contents       On January 10, 2006, Cox announced the signing of a definitive agreement to acquire the Arizona operations of Cable America Corporation serving approximately 35,000 basic subscribers. The sale is expected to be completed by mid-2006. The cable systems are contiguous to Cox’s Arizona cable operation, which currently services more than two million customer relationships in 37 communities in Phoenix and Southern Arizona. The agreement provides for the acquisition of  cable television systems in Mesa, Florence, Wickenburg, Queen Creek, Coolidge and Gila Bend, as well as Maricopa and Pinal Counties.  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 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, trade name and goodwill, 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.  50    Table of Contents       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 2003 annual 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 Discontinued operations, net of tax, in the accompanying consolidated statements of operations for the year ended December 31, 2003. The 2004 annual impairment 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 had applied the residual method to the valuation of intangible assets for purposes of impairment testing were required to perform a transitional impairment test using a direct value method on all intangible assets that had been 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 have been 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 transitional impairment test, which resulted in a charge to franchise value 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 accompanying consolidated statements of operations.       Also during the fourth quarter 2004, Cox revised its marketplace assumption surrounding its estimated cost of capital as a result of the going-private transaction. Accordingly, in accordance with SFAS No. 142 and SFAS No. 144, respectively, Cox performed an impairment test of its long-lived assets and indefinite-lived intangible assets. The interim impairment test was necessary due to the revised estimated cost of capital as well as a revision in Cox’s long-range operating forecast. As a result of the impairment test, Cox recognized a pre-tax impairment charge of approximately $2.4 billion related to its franchise value, as calculated using a direct value method. Approximately $2.2 billion of this impairment charge is reflected as Impairment on intangible assets within the accompanying consolidated statements of operations and approximately $179.9 million is reflected within Discontinued operations, net of tax, within the accompanying consolidated statements of operations.            In August 2005, Cox completed its annual impairment test of its indefinite-lived intangible assets and goodwill in accordance with SFAS No. 142. The test resulted in a pre-tax non-cash impairment charge of franchise value for certain cable systems of approximately $104.2 million, which was classified within Discontinued operations, net of tax within the accompanying consolidated statement of operations.            As a result of entering into the definitive agreement to sell the Sale Systems, Cox performed an interim impairment test of the Sale Systems’ long-lived assets, indefinite-lived intangible assets and goodwill in October 2005 based on the anticipated selling price of approximately $2.55 billion, as prescribed by SFAS No. 142 and SFAS No. 144. This interim impairment test resulted in a pre-tax impairment charge of franchise value for certain cable systems of approximately $509.9 million. Approximately $181.9 million of this impairment charge was attributable to Sale MAC and is reflected as  51    Table of Contents  Impairment of intangible assets within the accompanying consolidated statements of operations, and approximately $328.0 million was attributable to the Discontinued Operations Systems and is reflected within Discontinued operations, net of tax, within 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 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 current period income, changes in deferred income tax assets and liabilities, changes in Cox’s 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, the timing of income and expense recognition, income and expense allocation between states, the tax basis of certain assets and the taxation of acquisitions and dispositions. Ultimately, the results of these challenges could require Cox to pay additional taxes and could also require the payment of interest assessments. Cox accrues a liability when it believes that an assessment is probable.       During 2004, Cox 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, it was not able to fully conclude the audit because issues associated with all affiliated members were not resolved. Cox expects to fully conclude these issues during 2006, but does not expect that the conclusion will result in significant payments or refunds.       Also during 2004, Cox concluded a federal income tax audit for the years 1998-2001. Cox paid approximately $40 million related to certain cable system acquisitions and certain financing arrangements completed during the audit period. Cox expects to receive refunds of approximately $30 million for the effects of these adjustments in later years.       The Internal Revenue Service is currently conducting the field examination phase of a federal income tax audit for the years 2002-2003. Cox believes that the audit will conclude by the end of 2006 and has accrued a liability for the assessments it believes are probable.  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.  52    Table of Contents       During 2005, 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, 2005, 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, 2005, Cox decreased the rate of compensation increase from 4.25% to 4.00% 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, 2005, 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, 2005, 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.       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 13. “Retirement Plans” in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.”  Recently Issued Accounting Pronouncements            In November 2005, the FASB issued FASB Staff Position FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments” (FSP 115-1), which provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that impairment is other-than-temporary, and on measuring such impairment loss, FSP 115-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. FSP 115-1 is required to be applied to reporting periods beginning after December 2005. The adoption of FSP 115-1 is not expected to have a material impact on Cox’s consolidated financial position or results of operations.       In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation of an entity to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Such an obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 was effective for Cox on December 15, 2005. The adoption of FIN 47 did not have a material impact on Cox’s financial position or results of operations.       In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, (SFAS No. 123R) which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (Statement 123). SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends  53    Table of Contents  SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123R became effective for Cox as of January 1, 2006.      SFAS No. 123R requires public companies, as well as nonpublic companies that used the fair value method of accounting prescribed by SFAS No. 123 for either recognition or pro forma disclosure purposes, to adopt its requirements using one of two methods: (i) a “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date, or (ii) a “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate, based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures, either (a) all prior periods presented or (b) prior interim periods of the year of adoption. Cox plans to adopted SFAS No. 123R using the modified prospective method.       As permitted by SFAS No. 123, Cox has historically accounted for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally recognized no compensation cost for share-based payment awards. Accordingly, the adoption of SFAS No. 123R’s fair value method could potentially have a significant impact on Cox’s results of operations, although it will have no impact on Cox’s overall financial position. The total impact of adoption of SFAS No. 123R cannot be predicted at this time because it will depend on levels of share-based payment awards granted in the future. Had Cox adopted SFAS No. 123R in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income in Note 2. “Summary of Significant Accounting Policies and Other Items” in Part II. Item 8. “Consolidated Financial Statements and Supplementary Data.” Upon transitioning to SFAS No. 123R in January 2006 using the “modified prospective” method, Cox does not anticipate recognizing a cumulative effect of a change in accounting principle. In addition, compensation expense in 2006 and future periods for those share-based payment awards granted prior to January 1, 2006 that remain outstanding as of January 1, 2006 is not expected to be significant. Refer to Note 14. “Stock and Other Compensation Plans” in Part II. Item 8. “Consolidated Financial Statements and Supplementary Data” for a discussion of the types and amounts of stock and other compensation plan awards that are outstanding as of December 31, 2005.  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 that relate to Cox’s future plans, earnings, objectives, expectations, performance 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 and other factors. These risks and uncertainties have been discussed in Item 1A of this report. Factors to consider in connection with any of Cox’s forward-looking statements include, but are not limited to:     •   Cox’s ability to collect on insurance policies covering Cox’s New Orleans systems and the ability to rebuild Cox’s cable plant and subscriber base in the impacted areas, and competition within the broadband communications industry.       •   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,    54    Table of Contents            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 success in implementing new services and other operating initiatives 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 DBS, 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.
Cox has estimated the fair value of its financial instruments as of December 31, 2005 and 2004 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 Other Items”  55    Table of Contents  and Note 10. “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 7. “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 $(15.9) million and $16.4 million at December 31, 2005 and 2004, respectively, and represents the estimated amount that Cox would (pay) 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 credit risks associated with Cox’s derivative financial instruments are controlled through the evaluation and monitoring of the creditworthiness of the counterparties. The counterparties are major institutions, rated investment grade or better. Accordingly, Cox does not anticipate non-performance by the counterparties.       The estimated fair value of Cox’s fixed-rate notes and debentures and exchangeable subordinated debentures at December 31, 2005 and 2004 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, 2005 and 2004 are as follows:                                                              December 31, 2005     December 31, 2004                         Fair Value                     Fair Value           Carrying     Fair     (1% Decrease     Carrying     Fair     (1% Decrease         Value     Value     in Interest Rates)     Value     Value     in Interest Rates)         (Millions of Dollars)       Fixed-rate notes and debentures   $ 8,292.7     $ 8,411.7     $ 8,847.4     $ 8,724.4     $ 9,056.9     $ 9,557.3     Exchangeable subordinated debentures     —       —       —       19.5       31.4       31.6       56    Table of Contents
COX COMMUNICATIONS, INC.     CONSOLIDATED BALANCE SHEETS                             December 31         2005     2004         (Thousands of Dollars)       Assets                   Current assets                    Cash   $ 81,132     $ 76,339     Accounts and notes receivable, less allowance for doubtful accounts of $23,675 and $24,461     417,407       363,310     Amounts due from CEI     18,784       —     Other current assets     192,835       127,010     Assets held for sale     2,474,872       2,965,787                     Total current assets     3,185,030       3,532,446                                         Net plant and equipment     6,739,624       7,043,401     Investments     1,273,054       1,171,647     Intangible assets     17,044,193       17,315,361     Goodwill     75,621       96,657     Other noncurrent assets     60,213       94,229                 Total assets   $ 28,377,735     $ 29,253,741                                         Liabilities and shareholders’ equity                   Current liabilities                    Accounts payable and accrued expenses   $ 906,341     $ 759,374     Other current liabilities     348,291       319,275     Cash obligation to untendered shareholders     9,152       483,603     Current portion of long-term debt     45,453       51,581     Amounts due to CEI     —       5,573     Liabilities related to assets held for sale     107,573       95,017                     Total current liabilities     1,416,810       1,714,423                                         Deferred income taxes     7,900,343       8,326,574     Other noncurrent liabilities     187,610       148,050     Long-term debt, less current portion     12,971,821       12,938,466                     Total liabilities     22,476,584       23,127,513                                         Commitments and contingencies (Note 19)                                       Shareholders’ equity                   Class A common stock, $0.01 par value; 671,000,000 shares authorized; shares issued and outstanding: 556,170,238     5,562       5,562     Class C common stock, $0.01 par value; 62,000,000 shares authorized; shares issued and outstanding: 27,597,792     276       276     Additional paid-in capital     4,807,720       4,802,117     Retained earnings     1,087,542       1,318,218     Accumulated other comprehensive income     51       55                     Total shareholders’ equity     5,901,151       6,126,228                                         Total liabilities and shareholders’ equity   $ 28,377,735     $ 29,253,741                       See notes to consolidated financial statements.  57    Table of Contents  COX COMMUNICATIONS, INC.     CONSOLIDATED STATEMENTS OF OPERATIONS                                     Year Ended December 31         2005     2004     2003         (Thousands of Dollars)       Revenues   $ 6,722,293     $ 6,106,105     $ 5,458,815     Costs and expenses                           Cost of services (excluding depreciation and amortization)     2,672,873       2,482,149       2,270,891     Selling, general and administrative expenses (excluding depreciation and amortization)     1,467,982       1,365,256       1,193,227     Depreciation and amortization     1,663,037       1,548,160       1,425,256     Impairment of intangible assets     181,896       2,235,973       —     Loss (gain) on sale and exchange of cable systems     —       5,021       (469 )                         Operating income (loss)     736,505       (1,530,454 )     569,910     Interest expense     (697,436 )     (428,556 )     (467,288 )   Loss on derivative instruments, net     (74 )     (127 )     (22,567 )   (Loss) gain on investments, net     (9,547 )     28,364       165,194     Loss on extinguishment of debt     (13,019 )     (7,006 )     (450,068 )   Other, net     3,631       (8,903 )     (3,522 )                         Income (loss) from continuing operations before income taxes     20,060       (1,946,682 )     (208,341 )   Income tax (expense) benefit     (13,492 )     866,316       74,703     Minority interest     —       (1,203 )     (6,116 )   Equity in net losses of affiliated companies, net of tax of $4,349, $2,073 and $4,975, respectively     (6,689 )     (3,509 )     (8,098 )                         Loss from continuing operations     (121 )     (1,085,078 )     (147,852 )   Discontinued operations                           (Loss) income from discontinued operations     (375,248 )     (130,231 )     16,455     Income tax benefit (expense)     144,693       50,194       (6,404 )                 Discontinued operations, net of tax     (230,555 )     (80,037 )     10,051                   Loss before cumulative effect of change in accounting principle     (230,676 )     (1,165,115 )     (137,801 )   Cumulative effect of change in accounting principle, net of tax of $813,130     —       (1,210,190 )     —                           Net loss   $ (230,676 )   $ (2,375,305 )   $ (137,801 )                           See notes to consolidated financial statements.  58    Table of Contents  COX COMMUNICATIONS, INC.     CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY                                                                                                                                         Class A                                                                   Accumulated     Common                           Series A                     Additional             Other     Stock in                           Preferred     Common Stock     Paid-in     Retained     Comprehensive     Treasury,               Comprehensive           Stock     Class A     Class C     Capital     Earnings     Income     at Cost     Total       Loss           (Thousands of Dollars)         December 31, 2002     4,836       598,077       27,598       4,549,029       4,638,422       79,465       (212,337 )     9,685,090                                                                                                                                                                           Net loss                                     (137,801 )                     (137,801 )     $ (137,801 )                                                                               Issuance of stock related to stock compensation plans (including tax benefit on stock options exercised)             405               8,381                               8,786                 Shares surrendered in connection with vesting of restricted stock                                                     (407 )     (407 )               Assumption of post-retirement medical plan obligation from CEI, net of tax                             (11,775 )                             (11,775 )               Change in net accumulated unrealized gain on securities, net of tax                                             (63,917 )             (63,917 )       (63,917 )                                                                               Other comprehensive loss                                                                       (63,917 )                                                                               Comprehensive loss                                                                     $ (201,718 )                                                               December 31, 2003   $ 4,836     $ 598,482     $ 27,598     $ 4,545,635     $ 4,500,621     $ 15,548     $ (212,744 )   $ 9,479,976                                                                                                                                                                           Net loss                                     (2,375,305 )                     (2,375,305 )     $ (2,375,305 )                                                                               Issuance of stock related to stock compensation plans (including tax benefit on stock options exercised)             2,157               69,319                               71,476                 Shares surrendered in connection with vesting of restricted stock                                                     (330 )     (330 )               Conversion of Series A Preferred Stock to Class A Common Stock     (4,836 )     11,212               225,243                               231,619                 Cancellation of Class A Common Stock, in treasury             (5,533 )             (207,541 )                     213,074       —                  Cancellation of $1 par Class A Common Stock and $1 par value Class C Common Stock and Issuance of $0.01 par value Class A Common Stock and $0.01 par value Class C Common Stock             (600,756 )     (27,322 )     628,078                               —                  Elimination of 37.96% of Cox shareholder’s equity pursuant to the going-private transaction                             (1,981,919 )     (807,098 )                     (2,789,017 )               Funding and expenses incurred pursuant to the going-private transaction paid by CEI on behalf of Cox                             1,523,302                               1,523,302                 Change in net accumulated unrealized gain on securities, net of tax                                             (15,493 )             (15,493 )       (15,493 )                                                                               Other comprehensive loss                                                                       (15,493 )                                                                               Comprehensive loss                                                                     $ (2,390,798 )                                                                               December 31, 2004   $ —     $ 5,562     $ 276     $ 4,802,117     $ 1,318,218     $ 55     $ —     $ 6,126,228                                                                                                                                                                                                                                           Net loss                                     (230,676 )                     (230,676 )     $ (230,676 )                                                                               Funding and expenses incurred pursuant to the going-private transaction paid by CEI on behalf of Cox                             5,603                               5,603                 Change in net accumulated unrealized gain on securities, net of tax                                             (4 )             (4 )       (4 )                                                                                   Other comprehensive loss                                                                       (4 )                                                                                   Comprehensive loss                                                                     $ (230,680 )                                                                               December 31, 2005   $ —     $ 5,562     $ 276     $ 4,807,720     $ 1,087,542     $ 51     $ —     $ 5,901,151                                                                             See notes to consolidated financial statements.  59    Table of Contents  COX COMMUNICATIONS, INC.     CONSOLIDATED STATEMENTS OF CASH FLOWS                                     Year Ended December 31         2005     2004     2003         (Thousands of Dollars)       Cash flows from operating activities                           Net loss   $ (230,676 )   $ (2,375,305 )   $ (137,801 )   Adjustments to reconcile net loss to net cash provided by operating activities:                           Depreciation and amortization     1,741,380       1,627,064       1,505,475     Impairment of intangible assets     614,111       2,415,889       25,000     Loss (gain) on sale of cable systems     —       5,021       (469 )   Deferred income taxes     (241,226 )     (827,650 )     (327,668 )   Loss on derivative instruments, net     74       127       22,567     Loss (gain) on investments, net     9,547       (28,364 )     (165,194 )   Equity in net losses of affiliated companies     6,689       3,509       8,098     Loss on extinguishment of debt     13,019       7,006       450,069     Minority interest, net of tax     —       1,203       6,116     Other, net     (3,363 )     (994 )     108,698     Cumulative effect of change in accounting principle, net of tax     —       1,210,190       —     Increase in accounts and notes receivable     (56,761 )     (14,661 )     (15,922 )   (Increase) decrease in other assets     (47,627 )     532       41,328     Increase in accounts payable and accrued expenses     201,727       54,247       22,650     Increase (decrease) in taxes payable     39,419       (68,729 )     331,439     Decrease in other liabilities     (47,497 )     (30,569 )     (6,415 )                         Net cash provided by operating activities     1,998,816       1,978,516       1,867,971                                                       Cash flows from investing activities                           Capital expenditures     (1,478,617 )     (1,389,931 )     (1,561,331 )   Investments in affiliated companies     (45,932 )     (17,805 )     (22,270 )   Proceeds from the sale and exchange of investments     —       70,230       246,417     (Increase) decrease in amounts due from CEI     (18,784 )     —       21,109     Proceeds from the sale of cable systems     —       53,076       822     Acquisition of minority interest     —       (153,016 )     —     Other, net     47,548       43,813       (3,883 )                         Net cash used in investing activities     (1,495,785 )     (1,393,633 )     (1,319,136 )                                                     Cash flows from financing activities                           Revolving credit facilities borrowings, net     350,000       1,650,000       —     Commercial paper borrowings (repayments), net     119,348       (209,228 )     300,941     Proceeds from issuance of debt, net of debt issuance costs     —       7,968,724       1,330,750     Repayment of debt     (491,593 )     (3,566,148 )     (2,310,074 )   Payment to acquire publicly held shares of Cox pursuant to the going-private transaction     (474,451 )     (6,422,908 )     —     Proceeds from the exercise of stock options     —       5,219       6,768     (Decrease) increase in amounts due to CEI, net     (5,573 )     1,593       3,980     Payment to repurchase remarketing option     —       —       (43,734 )   Other, net     4,031       (19,637 )     17,671                           Net cash used in financing activities     (498,238 )     (592,385 )     (693,698 )                         Net increase (decrease) in cash     4,793       (7,502 )     (144,863 )   Cash at beginning of period     76,339       83,841       228,704                           Cash at end of period   $ 81,132     $ 76,339     $ 83,841                             See notes to consolidated financial statements.  60    Table of Contents  COX COMMUNICATIONS, INC.     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation       Cox is a multi-service broadband communications company serving approximately 6.7 million customers nationwide, of which approximately 0.9 million customers are subscribers of cable systems Cox has agreed to sell. 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. Cox operates in one operating segment, broadband communications.       Prior to December 2004, Cox Communications, Inc. was an indirect majority-owned subsidiary of Cox Enterprises, Inc. (CEI). In October 2004, CEI and two of its wholly-owned subsidiaries entered into an Agreement and Plan of Merger with Cox. Pursuant to this merger agreement, Cox and one of the CEI subsidiaries commenced a joint tender offer to purchase all of the shares of then-outstanding Cox Class A common stock, par value $1.00 per share (former public stock) not beneficially owned by CEI. On December 8, 2004, CEI completed the tender offer to purchase the former public stock associated with the 37.96% minority interest of Cox. Following the purchase, Cox was merged with a CEI subsidiary, with Cox as the surviving corporation, and remaining outstanding shares of former public stock (other than shares beneficially owned by CEI and those for which appraisal had been demanded) were converted into the right to receive $34.75 in cash. Accordingly, at December 31, 2004, Cox was a wholly-owned subsidiary of CEI. In this report, the going-private transaction refers to the joint tender offer and the follow-on merger collectively.  2. Summary of Significant Accounting Policies and Other Items  Basis of Consolidation       The consolidated financial statements include the accounts of Cox and all wholly-owned, majority-owned or controlled subsidiaries. All intercompany accounts and transactions among consolidated entities have been eliminated.  Discontinued Operations and Assets Held for Sale       In October 2005, Cox and Cebridge Acquisition Co. LLC (Cebridge) entered into a definitive asset purchase agreement, pursuant to which Cox has agreed to sell cable television systems with approximately 940,000 basic cable subscribers for approximately $2.55 billion in cash. Cox expects to consummate this transaction during the second quarter of 2006.       The cable television systems being sold include certain of Cox’s Middle America systems, primarily comprised of operations in Texas, Louisiana, Arkansas, Oklahoma, Mississippi and Missouri (Sale MAC), all of Cox’s West Texas systems, all of Cox’s North Carolina systems, all of Cox’s Humboldt and Bakersfield, California systems and all of Cox’s Greater Oklahoma systems (collectively referred to as the Sale Systems).       Cox has determined that each of the Sale Systems represent a disposal group. Consistent with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, Cox has classified the Sale Systems’ assets and liabilities that are subject to transfer under the definitive agreement with Cebridge as “held for sale” at December 31, 2005 and 2004. Additionally, Cox has determined that all of the Sale Systems other than Sale MAC (collectively, Discontinued Operations Systems) comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of Cox. Accordingly, the results of operations for the Discontinued Operations Systems have been presented as discontinued operations, net of tax for the year ended December 31, 2005. In addition, the results of operations for the Discontinued Operations Systems for all prior periods presented herein have been reclassified to conform to the current year presentation. As of October 31, 2005, Cox determined that the estimated fair value less costs to sell attributable to the Sale Systems was in excess of the carrying value of their related net assets held for sale.  61    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  Use of Estimates  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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  Allowance for Doubtful Accounts  The allowance for doubtful accounts represents Cox’s best estimate of probable losses in the accounts and notes receivable balance. The allowance is based on known troubled accounts, historical experience and other currently available evidence. Activity in the allowance for doubtful accounts is as follows:                                              Balance at           Write-offs,   Balance at       Beginning of   Charged to Costs   Net of   End of       Period   and Expenses   Recoveries   Period       (Thousands of Dollars)     Year Ended December 31                                   2003   $ 30,442     $ 66,116     $ 73,135     $ 23,423     2004     23,423       72,484       71,446       24,461     2005     24,461       74,628       75,414       23,675       Plant and Equipment       Plant and equipment are stated at cost less accumulated depreciation. Additions to cable plant generally include material, labor and indirect costs. Depreciation is computed using the straight-line method over estimated useful lives as follows: 20 years for buildings and building improvements; three to 12 years for cable systems; and three to 10 years for other plant and equipment. Depreciation expense from continuing operations was $1.5 billion for the years ended December 31, 2005 and 2004 and $1.4 billion for the year ended December 31, 2003. Cox evaluates the depreciation periods of plant and equipment to determine whether events or circumstances warrant revised estimates of useful lives.       The costs associated with the construction of cable transmission and distribution facilities and new cable service installations are 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. Costs associated with subsequent installations of additional services are capitalized to the extent that they are incremental and directly attributable to the installation of expanded services; costs associated with subsequent disconnection and reconnecting services to existing customers are charged to operating expense as incurred.       Expenditures for maintenance and repairs are charged to operating expense as incurred. At the time of retirements, sales or other dispositions of property, the original cost and related accumulated depreciation are removed from the respective accounts, and the gains and losses are presented as a component of depreciation expense.  Investments       Investments in affiliated entities are accounted for either under the equity method or are stated at cost. Investments in which Cox is deemed to have the ability to exercise significant influence over the operating and financial policies of the investee or where Cox’s investment is deemed to be more than minor are accounted for under the equity method. Equity method investments are recorded at cost and adjusted  62    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  periodically to recognize Cox’s proportionate share of the investee’s income or loss, additional contributions made and dividends received. When Cox’s cumulative proportionate share of loss exceeds the carrying amount of the equity method investment, application of the equity method is suspended and Cox’s proportionate share of the investees’ loss is not recognized unless Cox is committed to provide further financial support to the investee, including advances from Cox. Cox will resume application of the equity method when the investee becomes profitable and Cox’s proportionate share of the investees’ earnings equals its cumulative proportionate share of losses that were not recognized during the period the application of the equity method was suspended. Equity method investments and investments stated at cost are adjusted for any known diminution in value determined to be other than temporary.       Investments in publicly traded entities are classified as available-for-sale or trading under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and are recorded at their fair value, with unrealized gains and losses resulting from changes in fair value of available-for-sale securities between measurement dates recognized as a component of accumulated other comprehensive income. Realized losses for any decline in market value of available-for-sale securities considered to be other than temporary are recognized in earnings. Realized gains and losses on investments sold or impaired are recognized using the first-in first-out method. Unrealized gains and losses resulting from changes in fair value of trading securities are recognized in earnings. See Note 7. “Investments.”       In determining whether a decline in the fair value of Cox’s investments is other than temporary, Cox considers the factors prescribed by SEC Staff Accounting Bulletin (SAB) Topic 5-M, Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities and 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.  Asset Retirement Obligations       Cox has certain franchise agreements and leases that contain provisions requiring Cox to restore facilities or remove equipment in the event that the franchise or lease agreement is not renewed. Cox expects to continually renew its franchise agreements and has concluded that the related franchise right is an indefinite-lived intangible asset. Accordingly, the possibility is remote that Cox would be required to incur significant restoration or removal costs in the foreseeable future. SFAS No. 143, Accounting for Asset Retirement Obligations, requires that a liability be recognized for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. Cox would record an estimated liability in the unlikely event a franchise agreement containing such a provision were no longer expected to be renewed. Cox also expects to renew many of its lease agreements related to the continued operation of its cable business in the franchise areas. The liabilities related to the removal provisions in the lease agreements, if any, are either not estimable or are not material to Cox’s consolidated financial statements.            Cox also has certain legal obligations related to the disposal of certain electronic equipment. Consistent with the provisions of SFAS No. 143, Cox has accrued a liability for this asset retirement obligation at its fair value and has capitalized such amount as part of the book value of the electronic equipment. The amount accrued as a liability by Cox for this asset retirement obligation as of December 31, 2005 and 2004 was not significant.  Intangible Assets       On January 1, 2002, Cox adopted SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets with indefinite useful lives, 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. Other intangible assets are amortized over their useful lives. Cox evaluated its intangible assets and determined certain intangible assets to have indefinite useful lives. Accordingly, on  63    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  January 1, 2002, Cox discontinued the amortization of intangible assets with indefinite lives, which consisted primarily of franchise value. At December 31, 2005, the weighted-average remaining useful life of intangible assets that are being amortized is five years. See Note 6. “Intangible Assets.”  Valuation of Long-Lived Assets       In accordance with SFAS No. 144, which addresses financial accounting and reporting for the impairment and disposition of long-lived assets, Cox evaluates the recoverability of long-lived assets, other than indefinite lived intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, Cox recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value. Long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell.  Income Taxes       Cox and its subsidiaries join with CEI in filing a consolidated U.S. federal income tax return and certain state income tax returns. Current federal and state income tax expenses and benefits have been allocated on a separate return basis to Cox based on the current year tax effects of the inclusion of its income, expenses and credits in the consolidated income tax returns of CEI or based on separate state income tax returns.       Cox provides for income taxes using the liability method in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires an asset and liability based approach in accounting for income taxes. Deferred income taxes reflect the net tax effect on future years of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes. Cox evaluates its effective tax rates regularly and adjusts them when appropriate based on currently available information relative to statutory rates, apportionment factors and the applicable taxable income in the jurisdictions in which Cox operates, among other factors.  Debt Issuance Costs       Costs associated with the refinancing and issuance of debt as well as debt discounts, if any, are deferred and expensed as interest over the term of the related debt agreement.  Revenue       Cox accounts for the revenue, costs and expense related to residential cable services (i.e., video, data and telephony) as the related services are performed in accordance with SFAS No. 51, Financial Reporting by Cable Television Companies. Installation revenue for residential cable services is recognized to the extent of direct selling costs incurred. Direct selling costs have exceeded installation revenue in all reported periods. Generally, credit risk is managed by disconnecting services to customers who are delinquent.       All other revenue is accounted for in accordance with Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. In accordance with SAB No. 104, revenue from advertising sales is recognized as the advertising is transmitted over Cox’s broadband network. Revenue derived from other sources, including commercial data and telephony, is recognized as services are provided, as persuasive evidence of an arrangement exists, the price to the customer is fixed and determinable and collectability is reasonably assured.  Revenue by product and service was as follows:  64    Table of Contents   COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued                                      For the year ended December 31       2005   2004   2003     Video     56 %     59 %     63 %   Data     19 %     17 %     15 %   Telephony     11 %     9 %     8 %   Commercial     6 %     7 %     5 %   Advertising     6 %     6 %     7 %   Other     2 %     2 %     2 %     Cost of Services       Cost of services includes cable programming costs, other direct costs and field service 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.  Pension, Postretirement and Postemployment Benefits       Cox provides defined pension benefits to substantially all employees based on years of service and compensation during those years. Prior to January 2003, Cox provided certain health care and life insurance benefits to substantially all eligible retirees through certain CEI plans. In January 2003, Cox adopted its own post-retirement medical plan to provide benefits to substantially all eligible Cox retirees. No change was made to the CEI program that has provided, and continues to provide, life insurance coverage to eligible Cox retirees. Expense related to the CEI plans is allocated to Cox through the intercompany account. The amount of the allocations is based on actuarial determinations of the effect of Cox employees’ participation in the plans. See Note 13. “Retirement Plans.”  Stock Compensation Plans       At December 31, 2005 and 2004, Cox had one stock-based compensation plan for employees, a Long-Term Incentive Plan (LTIP). Cox has not made any awards under the LTIP in 2005 and does not expect to make awards under the LTIP in the future. At December 31, 2004, Cox also had an Employee Stock Purchase Plan (ESPP). Both of these plans are more fully described in Note 14. “Stock Compensation Plans.” Cox accounted for these plans under the intrinsic value method, which follows the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. All options granted under the LTIP had an exercise price equal to or greater than the market value of the underlying former public stock on the grant date; therefore, no employee compensation cost is reflected in net income with respect to options. Further, the ESPP qualified as a noncompensatory plan under APB Opinion No. 25, and, as such, no compensation cost was recognized for ESPP awards.       The following table illustrates the effect on net loss if Cox had applied the fair value recognition provisions of SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, and SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants made in 2004 and 2003: weighted average expected volatilities at each grant date averaging 22.9% and 30.3%, respectively, no payment of dividends, expected life of six years and weighted average risk-free interest rates calculated at each grant date and averaging 3.2% for both years.  65    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued                                      Year Ended December 31         2005     2004     2003         (Thousands of Dollars)       Net loss, as reported   $ (230,676 )   $ (2,375,305 )   $ (137,801 )   Add: Stock-based compensation, as reported, net of tax     —       24,361       —     Deduct: Total stock based compensation determined under fair value based method for all awards, net of tax     (5,934 )     (51,351 )     (22,859 )                         Pro forma net loss   $ (236,610 )   $ (2,402,295 )   $ (160,660 )                           Other Compensation Plans       In March 2005, Cox adopted the Cox Communications, Inc. 2005 Performance Plan. Each participant in the Performance Plan was assigned a target award under the Performance Plan. The performance goal for the Performance Plan is the amount of Cox’s cumulative operating cash flow, as defined, in excess of its cumulative capital expenditures measured over the measurement period. For this purpose, the measurement period generally covers the period from January 1, 2005 through December 31, 2009. Cox recognizes the related expense ratably over the service period. The maximum award payable under the Performance Plan is equal to 200% of a participant’s target award, and the maximum award payable under the Performance Plan to any participant who terminates employment other than for reason of retirement, disability, death or involuntary termination of employment solely as a result of the consummation of certain transactions in which assets are sold by Cox or its affiliates is equal to 100% of a participant’s target award. The minimum award payable under the Performance Plan is zero. The earned award then is multiplied by the participant’s vested percentage in the award based on continual employment with Cox and its affiliates to determine the actual amount of the payment. If a participant’s employment is terminated on account of cause, then no benefit shall be paid under the Performance Plan. All distributions of awards under the Performance Plan will be in the form of lump sum cash payment.       The cost of awards made under the Performance Plan is charged to selling, general and administrative expense over the applicable vesting periods. The amount charged to expense by Cox under the Performance Plan was approximately $35.0 million for the year ended December 31, 2005.       During the second quarter of 2005, certain Cox executives and key employees became participants in the Cox Enterprises, Inc. Unit Appreciation Plan (CEI UAP). The CEI UAP provides for payment of benefits in the form of cash to certain executives and key employees generally five years after the date of award. A portion of the awards granted to key managers may be applied towards the purchase of CEI common stock. Unit benefits are based upon the excess, if any, of the fair value of a share of Cox Enterprises’ common stock on the date five years after the effective date of award over a base amount as of the effective date of such award. Management determines fair values by utilizing the services of appraisers. The CEI UAP provides for a maximum unit benefit of 150% of the base amount and benefits vest over the five-year period following the date of award.       The cost of awards made under the CEI UAP is charged to selling, general and administrative expense over the applicable vesting periods. The amount charged by Cox to expense under the CEI UAP was approximately $5.3 million for the year ended December 31, 2005.  Derivative Financial Instruments       Cox accounts for derivative financial instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which became effective for Cox on January 1, 2001. SFAS No. 133 requires that an entity recognize all derivatives, as defined, as either assets or liabilities measured at fair value. In addition, all derivatives used in hedging relationships must be designated, reassessed and documented pursuant to the provisions of SFAS No. 133. See Note 10. “Derivative Instruments and Hedging Activities.”  66    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       Cox does not hold or issue derivative instruments for trading purposes and is not a party to leveraged instruments. From time to time, however, Cox uses derivative instruments to manage its exposure to changes in the fair value of certain of its assets or liabilities or to manage its exposure to changes in interest rates or equity prices. These derivative instruments are designated and accounted for by Cox as hedges of the underlying exposure being managed, as prescribed by SFAS No. 133. In addition, upon adoption of SFAS No. 133, certain of Cox’s debt instruments and investments contained embedded or freestanding derivatives, as defined. Cox has not designated these embedded and freestanding derivatives as hedges under SFAS No. 133 and, as such, changes in their fair value are being recognized in earnings as derivative gains or losses.       The credit risks associated with Cox’s derivative financial instruments are controlled through the evaluation and monitoring of the creditworthiness of the counterparties. Although Cox may be exposed to losses in the event of nonperformance by the counterparties, Cox does not expect such losses, if any, to be significant.  Recently Issued Accounting Pronouncements       In November 2005, the FASB issued FASB Staff Position FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (FSP 115-1), which provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that impairment is other-than-temporary, and on measuring such impairment loss. FSP 115-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. FSP 115-1 is required to be applied to reporting periods beginning after December 2005. The adoption of FSP 115-1 is not expected to have a material impact on Cox’s consolidated financial position or results of operations.       In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations. FIN 47 clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation of an entity to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Such an obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 was effective for Cox on December 15, 2005. The adoption of FIN 47 did not have a material impact on Cox’s financial position or results of operations.       In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123R became effective for Cox as of January 1, 2006.       SFAS No. 123R requires public companies, as well as nonpublic companies that used the fair value method of accounting prescribed by SFAS No. 123 for either recognition or pro forma disclosure purposes, to adopt its requirements using one of two methods: (i) a “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date, or (ii) a “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate, based  67    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures, either (a) all prior periods presented or (b) prior interim periods of the year of adoption. Cox adopted SFAS No. 123R using the modified prospective method.       As permitted by SFAS No. 123, Cox has historically accounted for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally recognized no compensation cost for share-based payment awards. Accordingly, the adoption of SFAS No. 123R’s fair value method could potentially have a significant impact on Cox’s results of operations, although it will have no impact on Cox’s overall financial position. The total impact of adoption of SFAS No. 123R cannot be predicted at this time because it will depend on levels of share-based payment awards granted in the future. Had Cox adopted SFAS No. 123R in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income above. Upon transitioning to SFAS No. 123R in January 2006 using the “modified prospective” method, Cox does not anticipate recognizing a cumulative effect of a change in accounting principle. In addition, compensation expense for those share-based payment awards granted prior to January 1, 2006 that remain outstanding as of January 1, 2006 is not expected to be significant.  3. Cash Management System       Cox participates in CEI’s cash management program, whereby CEI transfers funds from Cox’s depository accounts and transfers funds to financial institutions upon daily notification of checks presented for payment. Book overdrafts of $74.9 million and $65.5 million existed at December 31, 2005 and 2004, respectively, as a result of checks outstanding. These book overdrafts are included in accounts payable and are considered financing activities in the accompanying consolidated statements of cash flows.  4. Going-Private Transaction       In December 2004, CEI completed the tender offer to purchase the former public stock and the subsequent short-form merger, and as a result, Cox became a wholly owned subsidiary of CEI. The aggregate purchase price (exclusive of fees and expenses) approximated $8.4 billion. The purchase price was funded by both CEI and Cox. Of the total $8.4 billion, CEI paid approximately $1.5 billion, with Cox paying the remaining approximate $6.9 billion, which was funded primarily through a term loan and the issuance of senior notes of varying maturities.       The aggregate purchase price was as follows:                      (Thousands of         Dollars)       Cash consideration to acquire Cox’s former public stock at $34.75 per share and to settle the outstanding vested, in-the-money Cox employee stock options   $ 8,405,713     Transaction fees and expenses     31,134               Total purchase price     8,436,847     Less: Carrying value of net assets acquired at historical cost     (2,789,017 )             Aggregate purchase price in excess of historical cost of net assets acquired   $ 5,647,830                      Approximately 50.2 million shares of common stock were not validly tendered in the tender offer. These shares were converted into the right to receive $34.75 per share in cash, without interest, and cancelled as part of the short-form merger. As of December 31, 2005 and 2004, Cox had a remaining cash obligation to purchase the untendered shares of approximately $9.2 million and $483.6 million, respectively, which is reflected as Cash obligation to untendered shareholders in the accompanying consolidated balance sheets.       CEI applied push-down basis accounting with respect to shares acquired in the going-private transaction. Accordingly, the aggregate $8.4 billion purchase price was “pushed-down” to the consolidated financial statements of Cox and, as such, the historical cost basis of the net tangible and intangible assets of Cox were stepped-up to fair value to the extent of the 37.96% minority interest acquired pursuant to the  68    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  purchase method of accounting for business combinations, as prescribed by SFAS No. 141, Business Combinations. Furthermore, as prescribed by EITF Topic No. D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill, the direct method was used to estimate the fair value of the intangible assets acquired.       As of December 31, 2004, the aggregate purchase price in excess of historical cost of net assets acquired was allocated based on preliminary estimated fair values of the net tangible and intangible assets as of the acquisition date. During 2005, Cox obtained an appraisal of its net tangible and intangible assets as of the acquisition date, the results of which were used to finalize its preliminary purchase price allocation. Changes from the preliminary purchase price allocation were primarily related to the step-up of customer relationship intangible assets and net plant and equipment. The final allocation of the purchase price is as follows:                      (Thousands of Dollars)       Current assets   $ 247,718     Net plant and equipment      3,002,005     Intangible assets:           Customer relationships (estimated useful life of 6 years)     680,397     Trade name (indefinite useful life)      375,439     Telephony technology (estimated useful life of 3 years)     14,987     Franchise value (indefinite useful life)     11,165,706     Goodwill      81,803     Other assets     1,249,776           Total assets acquired     16,817,831  (a)         Current liabilities     548,030     Long-term debt     2,523,080     Deferred income taxes     5,299,271     Other liabilities     10,603           Total liabilities assumed     8,380,984  (b)         Aggregate purchase price   $ 8,436,847  (a) - (b)                    The following summarized unaudited pro forma financial information for the years ended December 31, 2004 and 2003, assumes the acquisition of the minority interest had occurred on January 1, 2003. The majority of the increase in net loss is due to depreciation and amortization of the fair value step-up of the net assets. This unaudited pro forma financial information does not necessarily represent the operating results that would have occurred had the transaction been consummated at January 1, 2003, as the acquisition has been given effect below, as follows:                              Year Ended December 31       2004   2003       (Thousands of Dollars)     Revenues from continuing operations   $ 6,106,105     $ 5,458,815     Loss before cumulative effect of change in accounting principle     (1,268,651 )     (241,337 )   Cumulative effect of change in accounting principle     (1,210,190 )     —             Net loss   $ (2,478,841 )   $ (241,337 )             5. Discontinued Operations and Assets Held for Sale       In October 2005, Cox entered into a definitive agreement to sell cable television systems with approximately 940,000 basic cable subscribers for approximately $2.55 billion in cash. Cox expects the sale to close during the second quarter of 2006.       Cox has determined that each of the Sale Systems represents a disposal group. Consistent with the provisions of SFAS No. 144, Cox has classified the Sale Systems’ assets and liabilities that are subject to transfer under the Definitive Agreement as “held for sale” at December 31, 2005 and 2004. Accordingly, depreciation and amortization associated with the Sale Systems’ assets was discontinued as of October 31, 2005. Additionally, Cox has determined that the Discontinued Operations Systems comprise operations and  69    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of Cox. Accordingly, the results of operations for the Discontinued Operations Systems have been presented as discontinued operations, net of tax for the twelve months ended December 31, 2005. In addition, the results of operations for the Discontinued Operations Systems for all prior periods presented herein have been reclassified to conform to the current year presentation. As of October 31, 2005, Cox determined that the estimated fair value less costs to sell attributable to the Sale Systems was in excess of the carrying value of their related net assets held for sale.       Net (loss) income from Discontinued Operations Systems is as follows:                                      Year Ended December 31         2005     2004     2003         (Thousands of Dollars)       Revenues from Discontinued Operations Systems   $ 331,970     $ 318,885     $ 300,052     (Loss) income from Discontinued Operations Systems     (375,248 )     (130,231 )     16,455     Income tax benefit (provision)     144,693       50,194       (6,404 )                         Net (loss) income from Discontinued Operations Systems   $ (230,555 )   $ (80,037 )   $ 10,051                                  Assets held for sale and liabilities associated with assets held for sale are as follows:                              December 31         2005     2004         (Thousands of Dollars)       Current assets   $ 42,973     $ 40,606     Net plant and equipment     921,478       899,297     Intangible assets     1,502,937       2,014,091     Goodwill     6,183       10,232     Other noncurrent assets     1,301       1,561                     Total assets held for sale   $ 2,474,872     $ 2,965,787                                         Accounts payable and accrued expenses   $ 49,886     $ 38,179     Other current liabilities     29,607       28,847     Other noncurrent liabilities     28,080       27,991                     Total liabilities held for sale   $ 107,573     $ 95,017                       6. Intangible Assets       Cox constructs and operates its cable systems under non-exclusive cable franchises that are granted by state or local governmental authorities for varying lengths of time. As of December 31, 2005, Cox held 749 franchises in areas located throughout the United States. Cox obtained these franchises primarily through acquisitions of cable systems accounted for as purchase business combinations. These acquisitions have primarily been for the purpose of acquiring existing franchises and related infrastructure and, as such, the primary asset acquired by Cox has historically been cable franchises.       On January 1, 2002, Cox adopted SFAS No. 142, which requires that goodwill and certain intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. The standard also requires the completion of a transitional impairment test with any resulting impairment identified treated as a cumulative effect of a change in accounting principle.  70    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       Prior to the adoption of SFAS No. 142, Cox described the excess purchase price over the fair value of the identified net assets acquired associated with its acquisitions as either goodwill or franchise value and amortized these assets over 40 years. Cox believes that the franchises, although contractually non-exclusive, provide economic exclusivity for broadband video services to an incumbent cable operator. Accordingly, in connection with the adoption of SFAS No. 142, Cox did not believe it had any goodwill separate and distinct from the value of its cable franchises, and, as such, the nature of the recorded excess purchase price associated with Cox’s acquisitions prior to 2002 was more appropriately characterized as franchise value. Therefore, in connection with the adoption of SFAS No. 142, Cox reclassified the net carrying value of its goodwill of $3.7 billion to franchise value in order to eliminate the distinction between these two assets. In connection with this reclassification, Cox recorded an additional deferred tax liability and a corresponding increase to franchise value of $2.2 billion, in accordance with the provisions of SFAS No. 109 related to the difference in the tax basis compared to the book basis of franchise value. The reclassification and the related deferred tax effects had no impact on Cox’s consolidated statements of operations.       In addition, Cox assessed the expected useful life of each of its cable franchises upon adoption of SFAS No. 142, and concluded that all of its cable franchises have an indefinite useful life. Accordingly, Cox ceased amortizing its franchise value effective January 1, 2002. Cox reached its conclusion regarding the indefinite useful life of its cable franchises principally because: (i) there are no legal, regulatory, contractual, competitive, economic, or other factors limiting the period over which these rights will continue to contribute to Cox’s cash flows; (ii) Cox has never had a cable franchise right revoked, and has never been denied a franchise renewal; (iii) as an incumbent franchisee, Cox’s renewal applications are granted by the local franchising authority on their own merits and not as part of a comparative process with competing applications; and (iv) under the 1984 Cable Act, a local franchising authority may not unreasonably withhold the renewal of a cable system franchise. Cox will continue to reevaluate the expected life of its cable franchise rights each reporting period to determine whether events and circumstances continue to support an indefinite useful life.       In connection with the adoption of SFAS No. 142, Cox completed a transitional impairment test of its franchise value as of January 1, 2002. 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, Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination, 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 2003 annual impairment test in accordance with SFAS No. 142 resulted in a non-cash impairment charge of approximately $25.0 million, which is classified within Discontinued operations, net of tax in the accompanying consolidated statements of operations. The 2004 annual impairment test indicated no impairment of franchise value.       In September 2004, the SEC announced, through EITF Topic No. D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill, 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 had applied the residual method to the valuation of intangible assets for purposes of impairment testing were required to perform a transitional impairment test using a direct value  71    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  method on all intangible assets that had been 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 that had previously applied the residual method, including the related deferred tax effects, were required to be reported as a cumulative effect of a change in accounting principle.       Consistent with EITF Topic No. D-108, 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 transitional impairment test, which resulted in a charge to franchise value 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 accompanying consolidated statements of operations.       Also during the fourth quarter 2004, Cox revised its marketplace assumption surrounding its estimated cost of capital as a result of the going-private transaction. Accordingly, in accordance with SFAS No. 142 and SFAS No. 144, respectively, Cox performed an impairment test of its long-lived assets and indefinite-lived intangible assets. The interim impairment test was necessary due to the revised estimated cost of capital as well as a revision in Cox’s long-range operating forecast. As a result of the impairment test, Cox recognized a pre-tax impairment charge of approximately $2.4 billion related to its franchise value, as calculated using a direct value method. Approximately $2.2 billion of this impairment charge is reflected as Impairment of intangible assets within the accompanying consolidated statements of operations and approximately $179.9 million is reflected within Discontinued operations, net of tax within the accompanying consolidated statements of operations.       In August 2005, Cox completed its annual impairment test of its indefinite-lived intangible assets and goodwill in accordance with SFAS No. 142. The test resulted in a pre-tax non-cash impairment charge of franchise value for certain cable systems of approximately $104.2 million, which is classified within Discontinued operations, net of tax in the accompanying consolidated statement of operations.       As a result of entering into the definitive agreement with Cebridge to sell the Sale Systems, as discussed in Note 2. “Summary of Significant Accounting Policies and Other Items,” Cox performed an interim impairment test of the Systems’ long-lived assets, indefinite-lived intangible assets and goodwill in October 2005 based on the anticipated selling price of approximately $2.55 billion, as prescribed by SFAS No. 142 and SFAS No. 144. This interim impairment test resulted in a pre-tax impairment charge of franchise value for certain cable systems of approximately $509.9 million. Approximately $181.9 million of this impairment charge is reflected as Impairment of intangible assets within the accompanying consolidated statements of operations and approximately $328.0 million is reflected within Discontinued operations, net of tax within the accompanying consolidated statements of operations.       As part of the going-private transaction and the related push-down basis accounting pursuant to the purchase method of accounting for business combinations, as further described in Note 4. “Going-Private Transaction,” Cox recorded customer relationship, trade name and goodwill intangibles. The trade name intangible asset, which represents the value associated with the Cox name, was deemed to have an indefinite useful life. Goodwill decreased from December 31, 2004 to December 31, 2005 by $25.1 million related to the finalization of the purchase price allocations related to the going-private transaction.       As a result of entering into the definitive agreement with Cebridge and pursuant to the provisions of SFAS No. 142, Cox reevaluated whether the current circumstances continued to support an indefinite useful life of the trade name intangible asset allocated to the Sale Systems. As a result of this reevaluation, Cox determined that the useful life of the trade name intangible asset allocated to the Sale Systems, previously determined to have an indefinite life, was approximately six months, from the date of the definitive agreement through the anticipated date of consummation of the Sale Systems transaction, which is expected to occur during the second quarter of 2006.  72    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       Customer relationship intangible assets, which represent the value attributable to Cox customers, are deemed to have a finite useful life of six years. Cox’s other intangible assets that have a finite useful life are comprised primarily of non-compete agreements, contractual rights and cable franchise renewal costs. These intangible assets are amortized on a straight-line basis over the term of the related agreement. Cox evaluates the useful lives of its finite lived intangible assets each reporting period to determine whether events or circumstances warrant revised estimates of useful lives.       Summarized below are the carrying value and accumulated amortization of intangible assets that continue to be amortized under SFAS No. 142, as well as the carrying value of those intangible assets, which will no longer be amortized:                                                              December 31, 2005     December 31, 2004         Gross             Net     Gross             Net         Carrying     Accumulated     Carrying     Carrying     Accumulated     Carrying         Value     Amortization     Value     Value     Amortization     Value                         (Thousands of Dollars)                       Intangible assets subject                                                   to amortization   $ 736,176     $ 144,470     $ 591,706     $ 616,483     $ 29,844     $ 586,639     Trade name     375,778       9,641       366,137                       380,844     Franchise value                     16,086,350                       16,347,878                                                     Total intangible assets                   $ 17,044,193                     $ 17,315,361                                                                                                         Goodwill                   $ 75,621                     $ 96,657                                                            Aggregate intangible asset amortization expense from continuing operations was $120.2 million for the year ended December 31, 2005. Cox estimates amortization expense to be $144.1 million in 2006, $123.0 million in 2007, $117.9 million in 2008, $117.1 million in 2009 and $93.3 million in 2010, primarily related to the amortization of customer relationships. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives and other relevant factors.  7. Investments                              December 31         2005     2004         (Thousands of Dollars)       Investments stated at fair value:                   Available-for-sale   $ 332     $ 339     Derivative instruments     —       939     Equity method investments     1,268,222       1,159,290     Investments stated at cost     4,500       11,079                         Total investments   $ 1,273,054     $ 1,171,647                       Investments Stated at Fair Value  73    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       The aggregate cost of Cox’s investments stated at fair value at December 31, 2005 and 2004 was $0.3 million and $1.6 million, respectively. Gross unrealized gains on investments were $0.1 million at December 31, 2005 and 2004.       Gross realized gains and losses on investments are as follows:                                      Year Ended December 31       2005   2004   2003       (Millions of Dollars)     Realized gains   $ —     $ 29.1     $ 181.8     Realized losses     9.6       0.8       16.7            Derivative instruments classified within investments are comprised of certain warrants to purchase shares of publicly-traded and privately-held entities, as further described in Note 10. “Derivative Instruments and Hedging Activities.”       Sprint PCS. Sprint Corporation (now Sprint Nextel Corporation) offered personal communications services through its PCS group.       In April 2003, Cox sold its Sprint PCS warrants, which were exercisable for approximately 6.3 million shares of Sprint PCS common stock, for nominal consideration. Cox recognized a pre-tax loss of $0.4 million as a result of the sale.       In June 2003, Cox sold 32.9 million shares of Sprint PCS common stock for aggregate net proceeds of approximately $161.7 million. Cox recognized an aggregate pre-tax gain of $97.2 million on the sale of these shares.       In August 2003, Cox terminated its series of prepaid forward contracts to sell up to 19.5 million shares of its Sprint PCS common stock. These prepaid forward contracts were hybrid instruments, comprised of a zero-coupon debt instrument, as the host contract, and an embedded derivative. In connection with the termination, Cox sold the 19.5 million shares of Sprint PCS common stock, which had been pledged to secure its obligations pursuant to these prepaid forward contracts and were classified as trading. Cox recognized a pre-tax loss of approximately $29.5 million as a result of this termination. See Note 9. “Debt” for a discussion of the accounting for the termination of these prepaid forward contracts.       In September 2003, Cox sold 13.9 million shares of Sprint PCS common stock for aggregate net proceeds of approximately $84.7 million. Cox recognized an aggregate pre-tax gain of $57.3 million on the sale of these shares.       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 approximately 330,000 PCS shares and received approximately 165,000 FON shares in the mandatory exchange. 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.  Equity Method Investments       Discovery Communications, Inc. The principal businesses of Discovery are the advertiser-supported basic cable networks The Discovery Channel, The Learning Channel, Animal Planet Network, The Travel Channel and Discovery Europe and the retail businesses of Discovery.com. In 2000, Cox ceased applying the equity method on its investment in Discovery as Cox’s cumulative proportionate share of equity in net  74    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  losses exceeded the carrying amount of the investment. As of December 31, 2005, Cox has not resumed applying the equity method on its investment in Discovery, as Cox’s proportionate share of equity in net income has not exceeded its share of net losses not recognized during the period in which the equity method has been suspended.       As part of the going-private transaction and the related push-down basis accounting pursuant to the purchase method of accounting for business combinations, as further described in Note. 4, “Going-Private Transaction,” Cox’s investment in Discovery was stepped-up to fair value to the extent of the 37.96% minority interest acquired in the going-private transaction. Accordingly, a preliminary purchase price adjustment of approximately $1.1 billion is reflected in the accompanying consolidated balance sheets as of December 31, 2004 and a final purchase price adjustment of approximately $1.2 billion is reflected in the accompanying consolidated balance sheets as of December 31, 2005.       TV Works, LLC (formerly known as Double C Technologies, LLC). During 2005, Cox contributed $45.0 million to TV Works, an entity in which Cox holds a 33% ownership interest and which is majority-owned and controlled by Comcast Corporation. TV Works has acquired substantially all of the North American assets of Liberate Technologies as well as assets from other strategic companies.       Summarized combined financial information for all equity method investments and Cox’s proportionate share (determined using Cox’s ownership interest in each investment) for 2005, 2004 and 2003 is as follows:                                                              Combined Financial Information   Cox’s Proportionate Share       Year Ended December 31   Year Ended December 31       2005   2004   2003   2005   2004   2003       (Thousands of Dollars)     Revenues   $ 3,842,458     $ 3,338,217     $ 2,291,103     $ 868,585     $ 769,917     $ 547,304     Operating income     539,517       482,828       278,283       131,221       119,458       71,971     Net income     153,648       145,319       18,309       34,895       36,629       7,450                                   Combined Financial Information       December 31       2005   2004       (Thousands of Dollars)     Current assets   $ 1,315,868     $ 1,287,914     Noncurrent assets     2,747,664       2,667,590     Current liabilities     1,141,124       1,159,360     Noncurrent liabilities     3,167,517       3,093,036            Cox’s proportionate share of the net losses stated above is not equal to the equity in net losses of affiliated companies as reported in the consolidated statements of operations primarily due to discontinuing the application of equity method accounting for certain investments when aggregate net losses from the investments have exceeded their carrying value.  Other       Cox has several other fair value, equity and cost method investments that are not, individually or in the aggregate, significant in relation to the consolidated balance sheets at December 31, 2005 and 2004.  8. Income Taxes  75    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       Current and deferred income tax expenses (benefits) are as follows:                                      Year Ended December 31         2005     2004     2003         (Thousands of Dollars)       Current                           Federal   $ 128,438     $ (95,416 )   $ 273,941     State     4,774       7,535       (4,289 )                         Total current     133,212       (87,881 )     269,652                           Deferred                           Federal     (115,820 )     (548,646 )     (334,193 )   State     (3,900 )     (229,789 )     (10,162 )                         Total deferred     (119,720 )     (778,435 )     (344,355 )                         Net income tax expense (benefit) from continuing operations   $ 13,492     $ (866,316 )   $ (74,703 )                                The differences between net income tax expense and income taxes expected at the U.S. statutory federal income tax rate of 35% are as indicated below:                                      Year Ended December 31         2005     2004     2003         (Thousands of Dollars)       Federal tax expense (benefit) at statutory rates on income before income taxes   $ 7,021     $ (681,339 )   $ (72,919 )   State income tax benefit, net of federal impact     (8,990 )     (84,534 )     (22,374 )   Change in state tax rate, net     9,559       (59,931 )     12,981     Adjustments and settlements, net     9,843       (48,259 )     5,400     Tax basis adjustment in equity investment     —       —       6,648     Other,net     (3,941 )     7,747       (4,439 )                         Net income tax expense (benefit) from continuing operations   $ 13,492     $ (866,316 )   $ (74,703 )                                Significant components of Cox’s net deferred tax liability are as follows:                              December 31         2005     2004         (Thousands of Dollars)       Plant and equipment   $ (1,490,624 )   $ (1,551,003 )   Intangible assets     (5,960,542 )     (6,324,831 )   Investments     (539,774 )     (501,509 )   Deferred financing costs     45,238       9,081     Other, net     78,787       75,676                           (7,866,915 )     (8,292,586 )   Less current portion     33,428       33,988                         Net deferred tax liability   $ (7,900,343 )   $ (8,326,574 )                          Income tax expense was $13.5 million for the year ended December 31, 2005 compared to an income tax benefit of $866.3 million for the year ended December 31, 2004. The change in income tax expense was primarily due to the change in pre-tax income, varying effective state tax rates across Cox’s operations between 2004 and 2005, and the effect of on-going income tax audits. The effective tax rate for 2005 was  76    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  67.3% compared to 44.5% for 2004. The tax expense in 2005 reflects an effective income tax rate significantly higher than the federal statutory rate due in part to the impact of adjustments and settlements and the relatively nominal pre-tax income.       Gross deferred tax assets include $142.2 million and $117.5 million of state net operating loss and credit carryforwards for the years ended December 31, 2005 and 2004, respectively. A valuation allowance of $124.4 million and $93.0 million has been recorded on these state carryforwards as of December 31, 2005 and 2004, respectively, due to the uncertainty that future taxable income will be realized in the appropriate jurisdiction. The remaining state carryforwards expire beginning in 2025.       During 2004, Cox 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, it was not able to fully conclude the audit because issues associated with all affiliated members were not resolved. Cox expects to fully conclude these issues during 2006, but does not expect that the conclusion will result in significant payments or refunds.       Also during 2004, Cox concluded a federal income tax audit for the years 1998-2001. Cox paid approximately $40 million related to certain cable system acquisitions and certain financing arrangements completed during the audit period. Cox expects to receive refunds of approximately $30.0 million for the effects of these adjustments in later years.       The Internal Revenue Service is currently conducting the field examination phase of a federal income tax audit for the years 2002-2003. Cox believes that the audit will conclude by the end of 2006 and has accrued a liability for the assessments it believes are probable.       In the normal course of business, Cox’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities, and a liability is accrued when Cox believes that an assessment is probable.  9. Debt                              December 31         2005     2004         (Thousands of Dollars)       Revolving credit facilities   $ 2,000,000     $ 1,650,000     Commercial paper     224,611       96,142     Term loan     2,000,000       2,000,000     Medium-term notes     264,498       264,429     Notes and debentures     8,346,017       8,765,359     Exchangeable Subordinated Discount Debentures due April 19, 2020     —       19,546     Capitalized lease obligations     161,912       173,888     Other     20,236       20,683                           13,017,274       12,990,047     Less current portion     45,453       51,581                                         Total long-term debt   $ 12,971,821     $ 12,938,466                            See Note 10. “Derivative Instruments and Hedging Activities” for a discussion of the accounting for certain derivative instruments embedded in the exchangeable subordinated debentures, which have been classified as a component of debt in the accompanying consolidated balance sheet at December 31, 2004.       As part of the going-private transaction and the related push-down basis accounting pursuant to the purchase method of accounting for business combinations, as further described in Note. 4, “Going-Private Transaction,” the fixed-rate long-term debt instruments that are not reflected at fair value on an on-going  77    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  basis were stepped-up to fair value to the extent of the 37.96% minority interest acquired in the going-private transaction based on the actual fair value of the related instruments as of the acquisition date. Accordingly, the table above reflects an aggregate purchase price adjustment to increase debt by approximately $126.2 million, classified within Notes and debentures, at December 31, 2004. The finalization of the purchase price allocation completed during 2005 did not result in a change to the purchase price adjustment allocated to the fixed-rate long-term debt instruments that are not reflected at fair value on an on-going basis. This adjustment will be amortized over the remaining lives of the debt instruments as a component of interest expense.  Revolving Credit Agreements       In June 2004, Cox entered into a new five-year, unsecured revolving bank credit facility with a capacity of $1.25 billion which will be available through June 4, 2009. In December 2004, Cox entered into a second five-year, unsecured revolving bank credit facility with a capacity of $1.5 billion. Also in December 2004, Cox amended and restated its June 2004 facility to conform the terms with the new facility. At Cox’s election, the interest rate on the credit agreements is based on London Interbank Offered Rate (LIBOR), the Federal funds rate or an alternate base rate. The credit agreements also impose commitment fees on the unused portion of the total amounts available based on Cox’s corporate credit ratings. In March 2006, Cox amended the credit agreements to provide for the inclusion of operating cash flow attributable to businesses presented as discontinued operations within the calculation of certain of its financial covenants beginning with the year ended December 31, 2005. At December 31, 2005, Cox had outstanding borrowings of $1.1 billion and $900.0 million under the $1.5 billion facility and the $1.25 billion facility, respectively. At December 31, 2004, Cox had outstanding borrowings of $907.5 million and $742.5 million under the $1.5 billion facility and the $1.25 billion facility, respectively.  Commercial Paper       Cox had approximately $224.6 million and $96.1 million commercial paper outstanding at December 31, 2005 and 2004, respectively. The weighted-average interest rate for outstanding commercial paper was 3.8% and 1.2% for the years ended December 31, 2005 and 2004, respectively. Cox’s commercial paper is backed by amounts available under its revolving credit agreements.  Bridge Loan Credit Facility       In December 2004, Cox entered into and drew down upon an 18-month, $3.0 billion term loan (Bridge Loan) to finance a portion of Cox’s going-private transaction. Cox incurred offering costs of approximately $10.1 million related to the Bridge Loan. During the same month, the net proceeds from an offering of three series of senior notes were used to repay the borrowing under the Bridge Loan (see 2004 Issuances and Repayments under the heading Notes and Debentures). All unamortized offering costs were expensed in conjunction with the repayment. These amounts are included within Interest expense in the accompanying consolidated statements of operations.  Term Loan       In December 2004, Cox entered into a new credit agreement for a five-year, $2.0 billion term loan to finance the going-private transaction. At Cox’s election, the interest rate on the term loan is based on LIBOR, the Federal funds rate or an alternate base rate. Cox incurred offering costs of approximately $6.0 million related to the term loan. At December 31, 2005 and 2004, $2.0 billion was outstanding under the term loan.  Medium-Term Notes  78    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       At December 31, 2005 and 2004, Cox had outstanding borrowings of $264.5 million and $264.4 million, respectively, under several fixed-rate medium-term notes due in varying amounts through 2028 that pay interest in cash at fixed rates ranging from 6.9% to 7.2% per annum.  Notes and Debentures       Cox had outstanding borrowings under several fixed-rate notes and debentures of approximately $8.3 billion and $8.8 billion at December 31, 2005 and 2004, respectively. The fixed-rate notes and debentures are due in varying amounts through 2028 and pay interest in cash at rates ranging from 3.9% to 7.9% per annum. Also included in notes and debentures is Cox’s convertible senior notes due 2021, as described below.       2005 Repayments. In June 2005, Cox repaid its $375.0 million principal amount of 6.875% notes due June 15, 2005 upon their maturity.       2004 Issuances and Repayments. In December 2004, Cox issued $3.0 billion aggregate principal amount of senior notes in order to repay the Bridge Loan, which funded a portion of the tender offer to purchase all of the former public stock that CEI did not beneficially own. Included in the issuance were: (i) a series of floating rate senior notes due 2007 with an aggregate principal amount of $500.0 million; (ii) a series of 4.625% senior notes due 2010 with an aggregate principal amount of $1.25 billion; and, (iii) a series of 5.450% senior notes due 2014 with an aggregate principal amount of $1.25 billion. After underwriting discounts and commissions, estimated offering costs and other fees of $15.8 million in aggregate, Cox received net proceeds of approximately $2.98 billion. The floating rate senior notes mature on December 14, 2007; the 4.625% senior notes mature on January 15, 2010; and, the 5.450% senior notes mature on December 15, 2014. All three series of senior notes are unsecured and rank equally with Cox’s other senior unsecured indebtedness. In addition, both series of fixed-rate senior notes may be redeemed by Cox, in whole or in part, at any time prior to maturity at the greater of: (x) 100% of the principal amount of the fixed-rate notes, or (y) the present value of the principal amount and the remaining scheduled interest payments on the fixed-rate notes plus a make-whole premium, plus in either case (x) or (y), accrued and unpaid interest. Interest on both series of fixed-rate notes is payable on a semi-annual basis. Cox may not redeem the floating rate notes prior to maturity.       In September 2004, Cox repaid its $100.0 million principal amount of 6.69% medium-term notes due September 20, 2004 upon their maturity. In August 2004, Cox repaid its $375.0 million principal amount of 7.5% notes due August 15, 2004 upon their maturity.       In accordance with the terms of the indenture governing Cox’s convertible senior notes due 2021, Cox became obligated to purchase for cash convertible notes tendered and not withdrawn before the close of business on February 23, 2004. Cox repurchased $19.0 million aggregate principal amount at maturity of the convertible notes that had been properly tendered and not withdrawn, for aggregate cash consideration of $13.9 million, which represented the accreted value of the repurchased notes. As a result, no convertible notes remain outstanding. Cox used commercial paper borrowings to fund the repurchase of the tendered convertible notes.  Exchangeable Subordinated Debentures       Exchangeable Subordinated Debentures due November 15, 2029 (PRIZES). In November 1999, Cox issued 14,375,000 PRIZES in a registered public offering for aggregate net proceeds of approximately $1.3 billion, less offering costs and underwriting commissions of approximately $35.0 million. Interest on the PRIZES was paid quarterly, and at November 15, 2002, the rate decreased from 7.75% to 2% per year on the original principal amount in accordance with the terms of the PRIZES. The original principal amount of each PRIZES was indexed to the trading price of Sprint PCS common stock. Upon issuance, the number of shares of Sprint PCS common stock attributable to each PRIZES was two shares. In June 2004, Sprint eliminated its PCS tracking stock by mandating the exchange of its PCS shares for shares of its FON common stock. Subsequently, one share of FON common stock was attributable to each PRIZES.  79    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       The payment upon maturity of the PRIZES was to be the maximum of either the aggregate principal amount or the current market value of the number of reference shares attributable to each PRIZES, plus a final period distribution premium, as defined. Prior to maturity, the PRIZES were exchangeable at the holders’ option at any time for an amount of cash equal to the current market value of the number of reference shares attributable to each PRIZES, subject to adjustment under certain circumstances.       Exchangeable Subordinated Debentures due March 14, 2030 (Premium PHONES). In March 2000, Cox issued $275.0 million aggregate principal amount of Premium PHONES in a registered public offering for net proceeds of approximately $269.5 million. Interest on the Premium PHONES was payable semi-annually at a rate of 3% per year on the original principal amount. Upon issuance, each Premium PHONES was indexed to the trading price of 16.28 shares of Sprint PCS common stock. Subsequent to the elimination of Sprint PCS common stock discussed above, each Premium PHONES was indexed to the trading price of 8.14 shares of FON common stock.       The Premium PHONES, as amended, could be exchanged by the holder based on the market value of the underlying shares for cash. In addition, on or after March 17, 2004, Cox had the option to redeem the Premium PHONES for cash based on the maximum of either the aggregate principal amount or the current market value of the underlying shares, plus accrued and unpaid interest and a final period distribution premium, as defined.       At maturity, holders of the Premium PHONES were entitled to receive cash equal to the maximum of either the aggregate principal amount or the then exchange market value of the underlying shares plus accrued and unpaid interest and a final period distribution, as defined.       Exchangeable Subordinated Discount Debentures due April 19, 2020 (Discount Debentures). In April 2000, Cox issued $1.8 billion aggregate principal amount at maturity of Discount Debentures in a registered public offering for proceeds of approximately $764.0 million, net of offering costs and underwriting commissions of $18.7 million and original issue discount of $1.1 billion. Interest on the Discount Debentures was payable semi-annually at a rate of 1% per annum on the original issue price of each debenture. The accretion of the original issue discount plus the 1% interest payments resulted in an annualized yield to maturity of 5%. Upon issuance, each Discount Debenture was indexed to the trading price of shares of Sprint common stock. Subsequent to the elimination of Sprint PCS common stock discussed above, each Discount Debenture was indexed to the trading price of 3.7954 shares of FON common stock.       The Discount Debentures could be exchanged by the holder based on the market value of the underlying shares for, at Cox’s election, cash, shares of Sprint FON common stock or a combination of both. The holders had the option to require Cox to repurchase these securities on April 19, 2005, April 19, 2010 and April 19, 2015 at a purchase price equal to the adjusted principal amount, as defined, plus any accrued and unpaid cash interest. Cox had the option to pay in cash, shares of Sprint PCS common stock or a combination of both.       2005 Purchases. In April 2005, Cox redeemed all remaining outstanding Discount Debentures for aggregate cash consideration of $32.5 million. The redemption resulted in a $13.0 million pre-tax loss, which is reflected as Loss on extinguishment of debt in the accompanying consolidated statement of operations. As a result, Cox had no remaining exchangeable subordinated debentures outstanding at December 31, 2005.       2004 Purchases. In June 2004, Cox redeemed all of the remaining outstanding PRIZES and Premium PHONES for aggregate cash consideration of $14.7 million. The redemption resulted in a $7.0 million pre-tax loss, which is reflected as Loss on extinguishment of debt in the accompanying consolidated statements of operations. Exchangeable subordinated debentures at December 31, 2004 were comprised of $62.3 million aggregate principal amount at maturity of Discount Debentures.  80    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  Capital Leases       Cox leases office facilities, transmission and distribution plant and automobiles under its capital leases. Recorded debt under these lease arrangements from continuing operations was $161.9 million and $173.9 million as of December 31 2005 and 2004, respectively.  Interest Rate Swaps       Cox utilizes interest rate swap agreements to manage its exposure to changes in interest rates associated with certain of its fixed-rate debt obligations whereby these fixed-rate debt obligations are effectively converted into floating-rate debt obligations. The variable rates with respect to Cox’s interest rate swaps are adjusted quarterly or semi-annually based on LIBOR. The notional amounts with respect to the interest rate swaps do not quantify risk, but are used in the determination of cash settlements under the interest rate swap agreements. Cox is exposed to a credit loss in the event of nonperformance by the counterparties; however, these counterparties are major financial institutions, rated investment grade or better. Accordingly, Cox does not anticipate nonperformance by the counterparties. For a further discussion regarding Cox’s accounting for interest rate swaps, see Note 10. “Derivative Instruments and Hedging Activities.”       The following table summarizes the notional amounts, weighted average interest rate data and maturities for Cox’s interest rate swaps at December 31, 2005 and 2004:                              December 31       2005   2004     Notional amount (in thousands)   $ 1,000,000     $ 1,375,000     Weighted-average fixed interest rate received     7.53 %     7.35 %   Weighted-average floating interest rate paid     7.37 %     4.37 %   Maturity     2006 - 2009       2005 - 2009            As a result of the settlements under these agreements, interest expense was reduced (as compared to Cox’s fixed rate obligations absent the swap agreements) by $15.6 million and $57.0 million during the years ended December 31, 2005 and 2004, respectively.  Maturities       Excluding commercial paper, maturities of long-term debt and revolving credit facilities for each of the five years subsequent to December 31, 2005 and thereafter, are $465.2 million, $500.0 million, $450.0 million, $4.4 billion, $2.1 billion, respectively, and $4.7 billion thereafter. Maturities of obligations under capital leases from continuing operations are $39.1 million, $29.3 million, $22.4 million, $17.2 million and $11.0 million for each of the five years subsequent to December 31, 2005, respectively, and $45.4 million thereafter. The maturities of long-term debt represent future contractual obligations and are reported gross of any related discounts, premiums and other adjustments, such as embedded derivatives, necessary to comply with accounting principles generally accepted in the U.S. These amounts are classified as a contra account within debt and were approximately $53.9 million and $69.3 million at December 31, 2005 and 2004, respectively. Cox has the ability to refinance the long-term debt instruments maturing in the twelve months subsequent to December 31, 2005 under its revolving credit facilities.  Debt Covenants       Certain of Cox’s debt instruments and credit agreements contain covenants which, among other provisions, contain certain restrictions on liens, mergers, the payment of dividends and the disposition of assets. 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  81    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  incur unlimited indebtedness. Cox is in compliance with all covenants for both of its credit facilities and all debt instruments.  10. Derivative Instruments and Hedging Activities       Cox accounts for derivative instruments in accordance with SFAS No. 133, which requires all freestanding and embedded derivative instruments to be measured at fair value and recognized on the balance sheet as either assets or liabilities. In addition, all derivative instruments used in hedging relationships must be designated, reassessed and accounted for as either fair value hedges or cash flow hedges pursuant to the provisions of SFAS No. 133.       Cox does not hold or issue derivative instruments for trading purposes and is not a party to leveraged instruments. From time to time, however, Cox uses derivative instruments to manage its exposure to changes in the fair value of certain of its assets or liabilities or to manage its exposure to changes in interest rates or equity prices. These derivative instruments are designated and accounted for by Cox as hedges of the underlying exposure being managed, as prescribed by SFAS No. 133. In addition, upon adoption of SFAS No. 133, certain of Cox’s debt instruments and investments contained embedded or freestanding derivatives, as defined. Cox has not designated these embedded and freestanding derivatives as hedges under SFAS No. 133 and, as such, changes in their fair value are being recognized in earnings as derivative gains or losses. Cox’s use of derivative instruments may result in short-term gains or losses.       The credit risks associated with Cox’s derivative financial instruments are controlled through the evaluation and monitoring of the creditworthiness of the counterparties. Although Cox may be exposed to losses in the event of nonperformance by the counterparties, Cox does not expect such losses, if any, to be significant.       Cox recorded a pre-tax loss on derivative instruments of $0.1 million for each of the years ended December 31, 2005 and 2004, and $22.6 million for the year ended December 31, 2003.  Interest Rate Swap Agreements       Cox utilizes interest rate swaps 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. Cox has designated and accounted for its interest rate swap agreements as fair value hedges whereby the fair value of the related interest rate swap agreements are classified as a component of other assets with the corresponding fixed-rate debt obligations being classified as a component of debt in the consolidated balance sheets. 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. Cox’s interest rate swap agreements approximated a derivative liability of $15.9 million at December 31, 2005 and a derivative asset of $16.4 million at December 31, 2004.  Exchangeable Subordinated Debentures       Cox had three series of exchangeable subordinated debentures outstanding, referred to as PRIZES, Premium PHONES and Discount Debentures, as further described in Note 9. “Debt.” In June 2004, Cox redeemed all of its remaining PRIZES and Premium PHONES, and in 2005, Cox redeemed all of its remaining Discount Debentures. Prior to their redemption, the exchangeable subordinated debentures met the definition of a hybrid instrument, as prescribed by SFAS No. 133. These hybrid instruments were comprised of an exchangeable subordinated debt instrument, as the host contract, and an embedded derivative, which derived its value, in part, based on the trading price of Sprint PCS common stock, U.S. Treasury rates and Cox’s credit spreads. Cox did not designate these embedded derivatives as a hedge of its investment in Sprint PCS common stock. As a result, changes in the fair value of these embedded derivatives were recognized in earnings and classified within gain (loss) on derivative instruments in the consolidated statements of operations. As a result of Cox’s purchase of PRIZES, Premium PHONES and  82    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  Discount Debentures pursuant to its tender offers and subsequent repayments described in Note 9. “Debt,” there were no remaining exchangeable subordinated debentures outstanding at December 31, 2005.  Stock Purchase Warrants       Cox holds warrants to purchase equity securities of certain publicly-traded and privately-held entities. Warrants that can be exercised and settled by the delivery of net shares such that Cox pays no cash upon exercise are deemed freestanding derivative instruments, as prescribed by SFAS No. 133. Cox has not designated net share warrants as hedging instruments; accordingly, changes in the fair value of these warrants are recognized in earnings and classified within gain (loss) on derivative instruments in the consolidated statements of operations. The aggregate fair value of these warrants approximated a derivative asset of $0 and $0.9 million at December 31, 2005 and 2004, respectively, and has been classified as a component of investments in the accompanying consolidated balance sheets.  11. Fair Value of Financial Instruments       Cox has estimated the fair value of its financial instruments as of December 31, 2005 and 2004 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.       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 is estimated and recorded based on quoted market prices as discussed in Note 7. “Investments.” Except as discussed in Note 7. “Investments,” 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 those investments is discussed in Note 7. “Investments.”       The fair value of interest rate swaps used for hedging purposes was approximately $(15.9) million and $16.4 million at December 31, 2005 and 2004, respectively, and represents the estimated amount that Cox would (pay) receive upon termination of the swap agreements.       The estimated fair value of Cox’s fixed-rate notes and debentures and exchangeable subordinated debentures at December 31, 2005 and 2004 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 and fair value of the fixed-rate instruments at December 31, 2005 and 2004 is as follows:                                              December 31       2005   2004       Carrying   Fair   Carrying   Fair       Value   Value   Value   Value       (Millions of Dollars)     Fixed-rate notes and debentures   $ 8,292.7     $ 8,411.7     $ 8,724.4     $ 9,056.9     Exchangeable subordinated debentures     —       —       19.5       31.4       12. Financial Instruments with Characteristics of both Liabilities and Equity  83    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for classification and measurement by an issuer of certain financial instruments with characteristics of both liabilities and equity. The statement requires that an issuer classify a financial instrument that is within its scope as a liability (or asset in some circumstances); however, the FASB indefinitely deferred the effective date of this statement as it relates to certain mandatorily redeemable non-controlling interests in consolidated limited-life subsidiaries. As of December 31, 2003, Cox consolidated a 75% majority-owned interest in a limited-life partnership.       On September 17, 2004, Cox purchased the 25% minority interest in the limited-life partnership for total cash consideration of approximately $153.0 million. This acquisition was accounted for as a purchase business combination, consistent with the provisions of SFAS No. 141. After giving effect to the minority interest’s share of the partnership net assets at historical cost, Cox recorded $12.6 million of customer relationship intangibles in conjunction with the purchase.  13. Retirement Plans       Cox maintains a funded, qualified defined benefit pension plan covering substantially all employees (under the heading Pension Benefits in the table below). In addition, certain key employees of Cox participate in an unfunded, nonqualified supplemental pension plan of CEI. The plans call for benefits to be paid to eligible employees at retirement based primarily upon years of service with Cox and compensation amounts near retirement. Cox’s current policy is to fund its qualified retirement plan in an amount that falls between the minimum contribution required by ERISA and the maximum tax deductible contribution.       Prior to 2003, CEI provided certain health care and life insurance benefits (under the heading Other Benefits in the table below) to substantially all retirees of Cox. The funded status of the post-retirement plan covering the employees of Cox was not determinable. In January 2003, Cox adopted its own post-retirement medical plan to provide benefits to substantially all retirees of Cox. Previously, Cox had participated in the postretirement medical plan sponsored by CEI, and in January 2003 the CEI plan was split and Cox assumed its share of the plan obligations. In conjunction with this transaction, Cox received a payment of $15.1 million from CEI representing previous payments from Cox to CEI associated with Cox’s participation in the CEI plan. Upon assumption of the plan, Cox recorded a postretirement benefit liability of $37.7 million, and a net-of-tax reduction in equity to the extent this amount exceeded the cash received from CEI. Cox’s policy is to fund benefits to the extent contributions are tax deductible. In general, retiree health benefits are paid as covered expenses are incurred.       Cox uses a measurement date of December 31 for its pension and postretirement benefit plans.  Obligations and Funded Status                                              Year Ended December 31         Pension Benefits     Other Benefits         2005     2004     2005     2004         (Thousands of Dollars)       Change in Benefit Obligation                                   Benefit obligation at beginning of year   $ 375,445     $ 293,392     $ 60,604     $ 46,568     Service cost     38,058       31,797       6,941       5,484     Interest cost     25,589       20,823       4,075       3,381     Actuarial loss     59,509       33,175       9,681       6,455     Benefits paid     (4,319 )     (3,742 )     (1,669 )     (1,326 )   Plan participants’ contributions     —       —       62       42                                   84    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued                                              Year Ended December 31         Pension Benefits     Other Benefits         2005     2004     2005     2004         (Thousands of Dollars)       Benefit obligation at end of the year     494,282       375,445       79,694       60,604                                                                     Change in Plan Assets                                   Fair value of plan assets at beginning of year     312,910       274,705       18,471       14,087     Actual return on plan assets     28,031       31,947       1,885       1,943     Employer contributions     53,805       10,000       7,566       3,725     Benefits paid     (4,319 )     (3,742 )     (1,669 )     (1,326 )   Plan participants’ contributions     —       —       62       42     Other     9       —       —       —                                                                     Fair value of plan assets at end of year     390,436       312,910       26,315       18,471                                     Funded status of plan     (103,846 )     (62,535 )     (53,378 )     (42,133 )   Unrecognized actuarial losses     104,877       46,555       16,108       6,560     Unrecognized prior service cost     710       822       —       —                                                                                                     Prepaid (accrued) benefit cost   $ 1,741     $ (15,158 )   $ (37,270 )   $ (35,573 )                                   Amounts recognized in the Consolidated Balance Sheets consist of:                                   Prepaid benefit cost   $ 1,741     $ —     $ —     $ —     Accrued benefit cost     —       (15,158 )     (37,270 )     (35,573 )                                   Net amount recognized   $ 1,741     $ (15,158 )   $ (37,270 )   $ (35,573 )                                      As part of the going-private transaction and the related push-down basis accounting pursuant to the purchase method of accounting for business combinations, as further described in Note. 4, “Going-Private Transaction,” the retirement plans’ obligations were stepped-up to fair value to the extent of the 37.96% minority interest acquired in the going-private transaction. Accordingly, the table above reflects adjustments at December 31, 2005 and 2004 of $33.0 million and $4.3 million to Pension Benefits and Other Benefits, respectively. The adjustments were made to the plans’ unrecognized actuarial losses and unrecognized prior service costs.       The accumulated benefit obligation for the pension plans was $384.5 million and $290.8 million at December 31, 2005 and 2004, respectively. There were no pension plans with an accumulated benefit obligation in excess of plan assets.       Components of Net Periodic Benefit Cost                                                              Year Ended December 31         2005     2004     2003         Pension     Other     Pension     Other     Pension     Other         Benefits     Benefits     Benefits     Benefits     Benefits     Benefits         (Thousands of Dollars)       Service cost   $ 38,058     $ 6,940     $ 31,797     $ 5,484     $ 25,540     $ 4,301     Interest cost     25,589       4,075       20,823       3,381       17,348       2,794     Expected return on plan assets     (28,396 )     (1,853 )     (24,758 )     (1,493 )     (19,418 )     —     Prior service cost amortization     136       —       215       —       215       —     Actuarial loss (gain) amortization     3,032       298       3,862       198       1,567       (89 )                                               Net periodic benefit cost   $ 38,419     $ 9,460     $ 31,939     $ 7,570     $ 25,252     $ 7,006                                               Weighted-Average Assumptions  85    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       The following table sets forth the weighted-average assumptions used to determine benefit obligations:                                              At December 31       2005   2004       Pension   Other   Pension   Other       Benefits   Benefits   Benefits   Benefits     Discount rate     5.75 %     5.75 %     6.00 %     5.75 %   Rate of compensation increase     4.00 %     4.00 %     4.25 %     4.00 %          The following table sets forth the weighted-average assumptions used to determine net periodic benefit cost:                                                              Year Ended December 31       2005   2004   2003       Pension   Other   Pension   Other   Pension   Other       Benefits   Benefits   Benefits   Benefits   Benefits   Benefits     Discount rate     6.00 %     5.75 %     6.25 %     6.25 %     6.75 %     6.75 %   Rate of compensation increase     4.25 %     4.00 %     4.00 %     4.00 %     4.50 %     5.00 %   Expected long-term return on plan assets     9.00 %     9.00 %     9.00 %     9.00 %     9.00 %     9.00 %          The 9.0% expected long-term return on plan assets assumption was developed with the use of an efficient frontier model (a model utilized to determine the most efficient mix of assets), using risk (defined as standard deviation), return and correlation expectations, and weights these assumptions by the weighting found in the target allocations below. The return expectations are created using long-term historical return premiums with adjustments based on levels and forecasts of inflation, interest rates and economic growth. The model’s return expectations do not include a premium for active investment management versus passive, indexed investments. Therefore, when an appropriate premium is added for active investment management and for asset rebalancing (as more fully described below), a range of return on plan assets expectations is produced; 9% falls at the lower end of the analysis. This 9.0% expectation is consistent with the historical long-term rates of return achieved on plan assets.       The 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 is 10.0% in 2005, gradually decreasing to 5.0% by the year 2011, and remaining level thereafter. Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. A one-percent change in the assumed health care cost trend rate would have the following effects as of December 31, 2005:                              1% Increase   1% Decrease       (Thousands of Dollars)     Effect on service and interest cost components    $ 14     $ (12 )   Effect on postretirement benefit obligations      218       (191 )     Expected Benefits Payments  86    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued                              Pension   Other       Benefits   Benefits       (Thousands of Dollars)     2006   $ 4,870     $ 2,442     2007     5,955       2,307     2008     7,324       2,842     2009     9,158       3,541     2010     11,178       4,586     2011-2015     98,435       42,827       Expected Medicare subsidy receipts                      Other       Benefits       (Thousands of       Dollars)     2006   $ 25     2007     23     2008     21     2009     19     2010     18     2011-2015     43       Plan Assets       The contributions made to the pension plans and other postretirement benefit plans are held within the CEI Master Trust. The following table sets forth the weighted-average asset allocations at December 31, 2005 and 2004, and long-term target allocations for 2006:                                      Percentage of Plan Assets     Target         At December 31     Allocations         2005     2004     2006       Equity Securities     62 %     62 %     62 %   Debt Securities     34 %     36 %     38 %   Other     4 %     2 %     0 %                         Total     100 %     100 %     100 %          The long-term strategy for setting target allocations is to develop a combination of investments which best serves the plan participants at the overall lowest cost to CEI. Utilizing the efficient frontier model described above, incorporating the same return, risk and correlation expectations, the resulting range of asset combinations is examined. The selection of the desired targeted mix is made by analyzing the range of asset combinations in conjunction with the plans’ benefit obligations and costs. Once long-term target ranges are established, they are maintained by rebalancing at the individual investment manager level (liquidating investments that have appreciated above their targets to buy investments that are below their targets). In an effort to minimize trading costs, rebalancing is generally performed only when there have been meaningful market movements and large cash inflows. Market timing is not an element of the investment policy or strategy, and derivative instruments are not deployed to gain exposure away from the long-term targets at the overall fund level. Investment risk is mitigated through prudent diversification of the investment mix, and additional return is provided through the actions of active investment managers. Active investment managers are allowed, on a limited basis, to invest in return-enhancing investments, such as emerging market debt and equity and lower-rated corporate securities.       The active investment managers are prohibited from investing in Cox securities. The plan assets are indirectly exposed to the performance of Cox through the investment in CEI stock, the returns on which are impacted by the financial performance of Cox, as well as the performance of all of the other diversified CEI entities. The plan assets include CEI stock in the amounts of $92.8 million (5.4% of total plan assets) and $85.1 million (5.7% of total plan assets) at December 31, 2005 and 2004, respectively.  87    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  Contributions       In December 2004, Cox contributed $10.0 million of its overall 2004 plan year minimum required contribution; the remaining $28.8 million was contributed in August 2005. In December 2005, Cox contributed $25.0 million of its overall 2005 plan year contributions; the remaining $23.0 million will be contributed during 2006. Cox expects to contribute $9.6 million to its other postretirement benefit plans during 2006.  Restoration Plans       Cox provides eligible employees the opportunity to defer a percentage of annual compensation under the Cox Communications, Inc. Savings Plus Restoration Plan and Cox Communications, Inc. Executive Savings Plus Restoration Plan. Cox matches each dollar of compensation deferred by the employee by 50%, up to 6%, the maximum being $6,000, reduced by the amount matched by Cox under its 401(k) plan. The amounts due each participant represent the deferred compensation and Cox’s matching deferral, plus an annual rate of return on such amounts determined by Cox which in no event shall be less than an annual rate of 5%. Amounts payable under these plans represent unsecured general obligations of Cox. Prior to July 1, 2004, the Savings Plus Restoration Plan was administered by CEI. During 2005, Cox recorded $3.5 million of expense related to the plans.  Other       In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Medicare Act) was enacted. The Medicare Act established a prescription drug benefit under Medicare, known as “Medicare Part D,” and a federal subsidy to sponsors of retiree health care benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare Part D. Cox anticipates that benefits provided to some groups of plan participants will be actuarially equivalent to Medicare Part D and, therefore, entitle Cox to a federal subsidy.       In May 2004, the FASB issued FASB Staff Position (FSP) 106-2. FSP 106-2 provides definitive guidance on the recognition of the effects of the Medicare Act and related disclosure requirements for the employers that sponsor prescription drug benefit plans for retirees. In the quarter beginning July 1, 2004, Cox adopted FSP 106-2 retroactively to January 1, 2004. The expected subsidy reduced the accumulated postretirement benefit obligation (APBO) as of January 1, 2004 by $0.1 million and the net periodic cost for 2004 by a nominal amount, as compared to the amount calculated without considering the effects of the subsidy.       Substantially all of Cox’s employees are eligible to participate in the Savings and Investment plan. Under the terms of the plan, Cox matches 50% of employee contributions up to a maximum of 6% of the employee’s base salary. Cox’s expense under the plan was $24.7 million, $18.3 million and $17.3 million for the years ended December 31, 2005, 2004 and 2003, respectively.  14. Stock and Other Compensation Plans       At December 31, 2005, Cox had one stock-based compensation plan for employees, a Long-Term Incentive Plan (LTIP). Cox did not issue awards under the LTIP during 2005 and does not expect to issue awards under the LTIP in the future. During 2004, Cox also had an ESPP that ended on June 30, 2004.  Long-Term Incentive Plan       Under the LTIP, executive officers and selected key employees received awards of various forms of equity-based incentive compensation, including stock options, stock appreciation rights, stock bonuses, restricted stock awards, performance units and phantom stock. The LTIP is administered by the Compensation Committee of the Board of Directors or its designee.  88    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       Options granted were “Incentive Stock Options” or “Nonqualified Stock Options.” The exercise prices of the options were determined by the Compensation Committee when the options were granted, subject to a minimum price of the fair market value of the former public stock on the date of grant. Options vest over a period of three to five years from the date of grant and expire 10 years from the date of grant. Following the completion of the going-private transaction, in March 2005 Cox offered each holder of outstanding employee stock options the right to cancel each of its outstanding options in exchange for a new award to be granted under Cox’s 2005 Performance Plan (see “Other Compensation Plans” below). Substantially all affected employees elected to participate in the exchange, resulting in the cancellation of approximately 15.8 million outstanding employee stock options.       The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants made in 2004 and 2003: weighted average expected volatilities at each grant date averaging 22.9% and 30.3%, respectively, no payment of dividends, expected life of six years and weighted average risk-free interest rates calculated at each grant date and averaging 3.2% and 3.2%, respectively.       A summary of the status of Cox’s stock options granted under the LTIP as of December 31, 2005, 2004 and 2003 and changes during the years then ended is presented below:                                                              2005     2004     2003                 Weighted-             Weighted-             Weighted-                 Average             Average             Average                 Exercise             Exercise             Exercise         Shares     Price     Shares     Price     Shares     Price       Outstanding at beginning of year     15,989,939       36.46       14,994,603     $ 34.26       10,860,838     $ 36.09     Granted     —       —       4,589,898       31.29       5,177,530       30.18     Exercised     —       —       (2,865,840 )     16.38       (268,455 )     12.44     Canceled     (15,824,061 )     36.50       (728,722 )     37.64       (775,310 )     40.29                                                                                                       Outstanding at end of year     165,878     $ 37.50       15,989,939       36.46       14,994,603       34.26                                                     Options exercisable at year-end     60,848       45.63       2,341,343     $ 47.33       3,881,550     $ 24.72       Weighted-average grant date fair value of options granted during the year   $ —             $ 9.33             $ 10.81                    The following table summarizes information about stock options outstanding and exercisable at December 31, 2005:                                                              Options Outstanding   Options Exercisable               Weighted-                   Weighted-                   Average   Weighted-           Average   Weighted-               Remaining   Average           Remaining   Average   Range of   Number   Contractual   Exercise   Number   Contractual   Exercise   Exercise Prices   Outstanding   Life   Price   Exercisable   Life   Price     $30.15 – $31.27      87,040       7.7     $ 30.71       0       N/A       N/A       41.55 –  46.22      61,690       5.6       43.66       43,700       5.5       44.00       47.06 –  50.94      17,148       4.1       49.81       17,148       4.1       49.81                                                                 165,878       6.5       37.50       60,848       5.1       45.63                                                            89    Table of Contents  Employee Stock Purchase Plan       In July 2002, Cox began administering its fourth ESPP (the 2002 ESPP), under which Cox was authorized to issue purchase rights totaling 3,000,000 shares of former public stock. The 2002 ESPP had four alternate entry dates: July 1, 2002, January 1, 2003, July 1, 2003, and January 1, 2004. Employees were eligible to participate in the 2002 ESPP as of the first entry date on which they were employed and were regularly scheduled to work at least 20 hours per week and were employed as of the grant date corresponding to one of the entry dates. Under the terms of the 2002 ESPP, the purchase price for each entry date was the lower of 85% of the fair market value of the former public stock on the grant date (the initial purchase price) or 90% of the fair market value of the former public stock on June 30, 2004 ($25.86), the end of the 2002 ESPP. The initial purchase price was set at $29.80, $24.19, $27.89, and $28.24 for the first, second, third and fourth entry date, respectively. Purchase rights totaling 647,155 shares, 33,695 shares, 17,959 shares, and 9,054 shares were issued in 2002, 2003 and 2004 for the first, second, third, and fourth entry dates, respectively. Employees were allowed to purchase the shares via payroll deductions through June 30, 2004, at which time 482,025 shares were issued to the remaining 2002 ESPP participants. During 2003 and 2004, 5,183 shares and 7,838 shares, respectively, were issued under the 2002 ESPP due to cancellation of employees’ participation or termination of employment. The weighted average fair value of each purchase right granted in 2002, 2003 and 2004 was $7.44, $8.26, $7.92, and $7.28 for the first, second, third, and fourth entry dates, respectively. The fair value of the employees’ purchase rights granted in 2003 and 2004 was determined using the Black-Scholes model with the following assumptions for the first, second, third and fourth entry dates: expected volatility of 28.76%, 30.95%, 29.77%, and 25.38%, respectively, no payment of dividends, expected life of 2.04 years, 1.54 years, 1.05 years, and .55 years, respectively, and risk-free interest rate of 2.83%, 1.60%, .72%, and 1.13%, respectively. In conjunction with the going-private transaction, as further described in Note 4. “Going-Private Transaction,” all outstanding shares under this plan were required to be tendered and the plan was terminated.  Other Compensation Plans                 In March 2005, Cox adopted the Cox Communications, Inc. 2005 Performance Plan. Each participant in the Performance Plan has been assigned a target award under the Performance Plan. The performance goal for the Performance Plan is the amount of Cox’s cumulative operating cash flow, as defined, in excess of its cumulative capital expenditures measured over the measurement period. For this purpose, the measurement period generally covers the period from January 1, 2005 through December 31, 2009. Cox recognizes the related expense ratably over the service period. The maximum award payable under the Performance Plan is equal to 200% of a participant’s target award, and the maximum award payable under the Performance Plan to any participant who terminates employment other than for reason of retirement, disability, death or involuntary termination of employment solely as a result of the consummation of certain transactions in which assets are sold by Cox or its affiliates is equal to 100% of a participant’s target award. The minimum award payable under the Performance Plan is zero. The earned award then is multiplied by the participant’s vested percentage in the award based on continual employment with Cox and its affiliates to determine the actual amount of the payment. If a participant’s employment is terminated on account of cause, then no benefit shall be paid under the Performance Plan. All distributions of awards under the Performance Plan will be in the form of lump sum cash payment.       The cost of awards made under the Performance Plan is charged to selling, general and administrative expense over the applicable vesting periods. The amount charged to expense by Cox under the Performance Plan was approximately $31.2 million for the year ended December 31, 2005.                 During the second quarter of 2005, certain Cox executives and key employees became participants in the CEI UAP. The CEI UAP provides for payment of benefits in the form of cash to certain Cox executives and key employees generally five years after the date of award. A portion of the awards granted  90    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  to key managers are applied towards the purchase of CEI common stock. Unit benefits are based upon the excess, if any, over a base amount of the fair value of a share of CEI’s common stock five years after the effective date of award. CEI management determines fair values by utilizing the services of appraisers. The CEI UAP provides for a maximum unit benefit of 150% of the base amount and benefits vest over the five-year period following the date of award. The cost of awards made under the CEI UAP is charged to selling, general and administrative expense over the applicable vesting periods. For the year ended December 31, 2005, $5.3 million was charged to expense under the CEI UAP. There were no payments of benefits under the CEI UAP in 2005.  15. Shareholders’ Equity       Cox is authorized to issue 10,000,000 shares of preferred stock, 671,000,000 shares of Class A common stock and 62,000,000 shares of Class C common stock.  Convertible Preferred Stock       In June 2004, all 4,836,372 issued and outstanding shares of Cox’s Series A convertible preferred stock were converted into 11,212,121 shares of Cox’s former public stock, in accordance with the terms of the Series A convertible preferred stock. Cox issued the Series A convertible preferred stock in October 1998 in conjunction with its acquisition of a cable system located in Las Vegas, Nevada. In accordance with SFAS No. 141, Cox recorded additional franchise value of $365.6 million, which includes the related deferred tax effects, representing the appreciation realized upon conversion of the Series A convertible preferred stock as contingent purchase price related to the acquisition. Upon conversion, all of the issued and outstanding shares of Series A convertible preferred stock were retired. Prior to June 2004, the holders of Series A convertible preferred stock were entitled to one vote per share on all matters upon which holders of the former public stock were entitled to vote and receive dividends to the extent declared by Cox’s Board of Directors.  Common Stock       As a part of the going-private transaction, further described in Note 4. “Going-Private Transaction,” all shares of Cox’s former public stock and Class C common stock, par value $1.00 per share, were cancelled. Also as a part of the going-private transaction, Cox issued 556,170,238 shares of Class A common stock, $0.01 par value per share, and 27,597,792 shares of Class C common stock, $0.01 par value per share. Cox’s Class A common stock and Class C common stock are identical except with respect to certain voting, transfer and conversion rights. Holders of Class A common stock are entitled to one vote per share and holders of Class C common stock are entitled to ten votes per share. The Class C common stock is subject to significant transfer restrictions and is convertible on a share for share basis into Class A common stock at the option of the holder.  Other       At December 31, 2005 and 2004, CEI owned 100% of the outstanding shares of Cox’s common stock.  16. Transactions with Affiliated Companies       Cox receives certain services from, and has entered into certain transactions with, CEI. Costs of the services that are allocated to Cox are based on actual direct costs incurred or on CEI’s estimate of expenses relative to the services provided to other subsidiaries of CEI. Cox believes that these allocations were made on a reasonable basis, and that receiving these services from CEI creates cost efficiencies; however, there has been no study or any attempt to obtain quotes from third parties to determine what the cost of obtaining such services from third parties would have been. The services and transactions described below have been reviewed by Cox’s Audit Committee (or, in the case of the going-private transaction, a special committee comprised of the members of the Audit Committee), which has determined that such services and transactions are or were fair and in the best interests of Cox.  91    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued     •   Cox receives day-to-day cash management services from CEI, with settlements of outstanding balances between Cox and CEI occurring periodically at market interest rates. The amounts due to CEI are generally due on demand and represent the net balance of the intercompany transactions. Prior to May 2, 2003, outstanding amounts due from CEI bore interest equal to CEI’s current commercial paper borrowing rate and outstanding amounts due to CEI bore interest at 50 basis points above CEI’s current commercial borrowing rate as payment for services provided. From and after May 2, 2003, both outstanding amounts due from and to CEI bear interest equal to CEI’s current commercial paper borrowing rate as payment for the services provided. Amounts due from (to) CEI to (from) Cox were approximately $18.8 million, $(5.6) million and $(4.0) million at December 31, 2005, 2004 and 2003, respectively; and the associated interest rate was 4.7%, 2.4% and 1.3% at December 31, 2005, 2004 and 2003, respectively. Included in amounts due from CEI are the following transactions:                        (Thousands of Dollars)       Intercompany due from CEI, December 31, 2002   $ 21,109                 Cash transferred to CEI     221,117     Net operating expense allocations and reimbursements     (246,206 )                         Intercompany due to CEI, December 31, 2003     (3,980 )               Cash transferred to CEI     288,821     Net operating expense allocations and reimbursements     (290,414 )                         Intercompany due to CEI, December 31, 2004     (5,573 )               Cash transferred to CEI     460,111     Net operating expense allocations and reimbursements      (435,754 )                         Intercompany due from CEI, December 31, 2005   $ 18,784                    •   Cox receives certain management services from CEI including legal, corporate secretarial, tax, internal audit, risk management, employee benefit (including pension plan) administration, fleet and other support services. Cox was allocated expenses for the year ended December 31, 2005, 2004 and 2003 of approximately $8.3 million, $7.4 million and $6.0 million, respectively, related to these services.      •   In connection with these management services, Cox reimburses CEI for payments made to third-party vendors for certain goods and services provided to Cox under arrangements made by CEI on behalf of CEI and its affiliates, including Cox. Cox believes such arrangements result in Cox receiving such goods and services at more attractive pricing than Cox would be able to secure separately. Such reimbursed expenditures include insurance premiums for coverage through the CEI insurance program, which provides coverage for all of its affiliates, including Cox. Rather than self-insuring these risks, CEI purchases insurance for a fixed-premium cost from several insurance companies, including an insurance company indirectly owned by descendants of Governor James M. Cox, the founder of CEI, including James C. Kennedy, Chairman of Cox’s Board of Directors, and his sister, who each own 25%. This insurance company is an insurer and reinsurer on various insurance policies purchased by CEI, and it employs a consulting actuary to calculate the annual premiums for general/auto liability and workers compensation insurance based on Cox’s loss experience, consistent with insurance industry practice. Cox’s portion of these insurance costs was approximately $34.6 million, $32.0 million and $33.0 million for 2005, 2004 and 2003, respectively.    92    Table of Contents     COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       •   Cox’s employees participate in certain CEI employee benefit plans, and Cox made payments to CEI in 2005, 2004 and 2003 for the costs incurred by reason of such participation, including self-insured employee medical insurance costs of approximately $127.2 million, $110.4 million and $86.7 million, respectively; postemployment benefits of $11.4 million, $10.2 million and $8.4 million, respectively; and executive pension plan payments of approximately $7.5 million in 2005 and $6.4 million in 2004 and 2003. In January 2003, Cox adopted its own post-retirement medical plan to provide benefits to substantially all eligible Cox retirees. Prior to January 2003, all eligible retirees of Cox participated in the CEI post-retirement medical plan.        •   Cox and CEI share resources relating to aircraft owned by each company. Depending on need, each occasionally uses aircraft owned by the other, paying a cost-based hourly rate. CEI also operates and maintains two airplanes owned by Cox. Cox pays CEI on a quarterly basis for fixed and variable operations and maintenance costs relating to these two airplanes. Cox paid approximately $1.1 million during 2005 and $1.2 million during 2004 and 2003 for use of CEI’s aircraft and maintenance of Cox’s aircraft by CEI, net of aircraft costs paid by CEI to Cox for use of Cox’s aircraft.        •   Cox pays rent and certain other occupancy costs to CEI for its corporate headquarters building. CEI holds the long-term lease of the Cox headquarters building of which Cox is the sole occupant. Rent was $9.2 million, $9.9 million and $11.2 million for the years ended December 31, 2005, 2004 and 2003, respectively.         Cox pays fees to certain entities in which it has an ownership interest in exchange for cable programming. Programming fees paid to such affiliates for the years ended December 31, 2005, 2004 and 2003 were approximately $102.0 million, $92.9 million and $86.2 million, respectively, the majority of which were paid to Discovery Communications, Inc.  17. Other Comprehensive Loss       The following represents the components of other comprehensive loss and related tax effects for the years ended December 31, 2005, 2004 and 2003:                                      Year Ended December 31         2005     2004     2003         (Thousands of Dollars)       Unrealized gains (losses), net of taxes of $(3), $(498) and $(19,301) in 2005, 2004 and 2003, respectively   $ (4 )   $ 796     $ 30,831     Recognition of previously unrealized gains (losses) on available- for-sale securities, net of taxes of $0, $10,197 and $59,314 in 2005, 2004 and 2003, respectively      —       (16,289 )     (94,748 )   Total other comprehensive loss    $ (4 )   $ (15,493 )   $ (63,917 )                                Components of accumulated other comprehensive income consisted of net unrealized gain on securities of $0.1 million ($0.1 million, net of tax) and $0.1 million ($0.1 million, net of tax) at December 31, 2005 and 2004, respectively.  93    Table of Contents  18. Supplemental Financial Statement Information  Supplemental Consolidated Balance Sheet Information                              December 31         2005     2004         (Thousands of Dollars)       Plant and equipment                   Land   $ 96,294     $ 95,721     Buildings and building improvements     624,199       608,914     Transmission and distribution plant     10,916,889       10,486,189     Other equipment     1,101,537       992,990     Capital leases     449,632       394,925     Construction in progress     243,042       116,212                     Plant and equipment, at cost     13,431,593       12,694,951     Less accumulated depreciation     (6,691,969 )     (5,651,550 )                   Net plant and equipment   $ 6,739,624     $ 7,043,401                                                   December 31         2005     2004         (Thousands of Dollars)       Other current assets                   Inventory   $ 114,613     $ 60,288     Prepaid assets     43,396       30,531     Deferred income tax asset     33,428       33,988     Other     1,398       2,203                     Total other current assets   $ 192,835     $ 127,010                     Other current liabilities                   Deposits and advances   $ 105,110     $ 90,938     Income tax payable     158,307       121,269     Other     84,874       107,068                     Total other current liabilities   $ 348,291     $ 319,275                       Supplemental Disclosure of Non-cash Investing and Financing Activities                                      Year Ended December 31         2005     2004     2003         (Thousands of Dollars)       Significant non-cash transactions                           Conversion of Series A preferred stock to former public stock     —       365,635       —                                 Additional cash flow information                           Cash paid for interest   $ 661,023     $ 379,090     $ 374,030     Cash paid (received) for income taxes     72,262       (19,663 )     (69,875 )     19. Commitments and Contingencies       Cox leases land, office facilities and various items of equipment under noncancellable operating leases. Rental expense under operating leases amounted to $19.2 million, $21.4 million and $21.9 million in 2005, 2004 and 2003, respectively. Future minimum lease payments for each of the five years subsequent to December 31, 2005 are $17.4 million, $14.8 million, $9.6 million, $7.3 million and $5.5 million, respectively, and $15.6 million thereafter for all noncancellable operating leases.       At December 31, 2005, Cox had outstanding purchase commitments totaling approximately $198.6 million for additions to plant and equipment and $93.4 million to rebuild certain existing cable systems. In addition, Cox had unused letters of credit outstanding totaling $5.2 million at December 31, 2005.  94    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued       In connection with certain of Cox’s acquisitions and other transactions, Cox has provided certain indemnities to the respective counterparties with respect to future claims that may arise from state or federal taxing authorities. The nature and terms of these indemnities vary by transaction and generally remain in force through the requisite statutory review periods. In addition, the events or circumstances that would require Cox to perform under these indemnities are transaction and circumstance specific. As of December 31, 2005, Cox believes the likelihood that it will be required to perform under these indemnities is remote and that the maximum potential future payments that Cox could be required to make under these indemnifications are not determinable at this time, as any future payments would be dependent on the type and extent of the related claims, and all available defenses, which are not reasonably estimable. Cox has not historically incurred any material costs related to performance under these types of indemnities.       On September 24, 2002, a committee of bondholders 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, 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. Briefing on the appeal has been completed, and oral argument was held on October 17, 2005. On October 21, 2005, the Court requested that the Securities and Exchange Commission (“SEC”) provide an amicus curiae brief addressing certain issues related to the appeal. On February 13, 2006, the SEC filed its amicus curiae brief with the court, in which the SEC supported the ruling of the district court below. The parties were then given the opportunity to file supplemental letter briefs in response to the SEC’s brief. On March 3, 2006, the parties filed their supplemental briefs. The appeal is pending and the outcome cannot be predicted at this time.       On July 25, 2005, Excite@Home provided Cox and Cox @Home notice of termination of the tolling agreement applicable to Excite@Home’s claim for purported breach of fiduciary duty against Cox and Cox @Home. On September 22, 2005, Richard A. Williamson, on behalf of and as trustee for, the Bondholders’ Liquidating Trust of At Home Corporation, filed a one count complaint for breach of fiduciary duty against the same defendants named in the action described above. The action alleges that in connection with a March 28, 2000 letter agreement between Cox, Comcast, AT&T Corp., and Excite@Home, the defendants breached fiduciary duties purportedly owed to Excite@Home. The complaint seeks compensatory and rescissory damages, disgorgement of profits, an alleged $850 million “control premium” purportedly paid to Cox and Comcast by AT&T, and other relief. Cox and Cox @Home intend to defend these actions vigorously. On November 22, 2005, Cox and Cox@Home filed a motion to dismiss the action, which is pending. 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  95    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  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 that court affirmed the district court’s decision on November 23, 2005. On December 14, 2005, the plaintiffs filed a petition for rehearing, which was denied on December 21, 2005. Under Supreme Court Rules, plaintiffs have 90 days from the denial of their petition for rehearing to petition the Supreme Court for a writ of certiorari. 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 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 subsequently was consolidated with a related case captioned Semen Leykin v. 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. On May 31, 2005, the plaintiffs requested permission from the Court to move to amend their complaint to expand the class period to include the period from November 9, 1999 to March 28, 2000, the beginning of the current class period. On July 8, 2005, the court orally issued a stay of discovery and ordered the plaintiffs to file a proposed amended complaint, which plaintiffs submitted on  96    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  August 5, 2005. On September 2, 2005, Cox opposed the amendment and moved to dismiss the existing complaint. On March 23, 2006, the court signed an order granting defendants’ motions to dismiss the first amended complaint, denying plaintiffs’ motion for leave to file a second amended complaint and denying plaintiff’s motion for leave to file a third amended complaint. The court further directed entry of judgment dismissing all the complaints in this and the consolidated and related actions, with costs and disbursements to defendants according to law. Should the plaintiffs appeal, Cox intends to defend this action vigorously. The outcome cannot be predicted at this time.       On June 21, 2005, Ronald Ventura filed a lawsuit against Cox and David Woodrow, among others, in the United States District Court for the Southern District of New York. Cox was served on August 25, 2005. By stipulation of the parties and as signed by the court on September 12, 2005, the time for defendants to answer or otherwise respond to the complaint has been extended until thirty days following the court’s decision in the related Leykin case on plaintiffs’ motion to file a third amended complaint and Cox’s motion to dismiss the existing complaint. The complaint in the Ventura action asserts claims substantially similar to the operative allegations in the Leykin action described above. Accordingly, the Ventura complaint asserts a claim against Cox as an alleged “controlling person” of Excite@Home under Section 20(a) of the Securities Exchange Act for purported violations by At Home of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. In addition, the Ventura complaint asserts a claim for unjust enrichment against Cox, which asserts that Cox should be required to disgorge an amount equal to the value of the 75 million shares of AT&T stock that Cox received from AT&T in 2001. No other claims are asserted against Cox. The Complaint seeks from Cox unspecified monetary and punitive damages, statutory compensation, disgorgement, and other relief. By virtue of the order in the Leykin case entered above on March 24, the Ventura case has also been dismissed.       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. Cox and CoxCom 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. A hearing on the motion was held on January 27, 2005. On February 24, 2005, the Multi-District Litigation panel transferred all of the Acacia litigation to Judge Ware in the Northern District of California. On December 7, 2005 the court issued its Markman ruling relating to certain claims in the ‘702 patent, concluded that the terms “sequence encoder” and “indentification encoder” are indefinite and rendered claims 1, 17, 27 and 32 invalid. The hearing on claims construction for the ‘992 and ‘275 patents is set for June 2, 2006 and the claims construction hearing for the ‘863 and ‘720 patents is set for August 11, 2006. CoxCom and Hospitality Network intend to defend the action vigorously. The outcome 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.  20. Unaudited Quarterly Financial Information       The following table sets forth selected historical quarterly financial information for Cox. This information is derived from unaudited quarterly financial statements of Cox and includes, in the opinion of management, only normal and recurring adjustments that management considers necessary for a fair presentation of the results for such periods. Previously reported quarters have been revised to reflect the results of discontinued operations.  97    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued                                              2005         1st     2nd     3rd     4th         Quarter     Quarter     Quarter     Quarter                 (Millions of Dollars)               Revenues   $ 1,622.4     $ 1,694.7     $ 1,672.3     $ 1,732.9                                         Cost of services (excluding depreciation and amortization)     649.8       676.1       668.2       678.8     Selling, general and administrative (excluding depreciation and amortization)     352.5       359.7       355.9       399.9     Depreciation and amortization     412.8       441.9       402.8       405.5     Impairment of intangible assets     —       —       181.9       —                                 Operating income     207.3       217.0       63.5       248.7                                 Net income (loss) from continuing operations     19.7       11.0       (91.8 )     61.0                                 Net income (loss) from discontinued operations, net of tax     7.3       7.3       (258.4 )     13.2                                 Net income (loss)   $ 27.0     $ 18.3     $ (350.2 )   $ 74.2                                                                               2004         1st     2nd     3rd     4th         Quarter     Quarter     Quarter     Quarter                 (Millions of Dollars)               Revenues   $ 1,461.1     $ 1,516.1     $ 1,539.3     $ 1,589.6                                         Cost of services (excluding depreciation and amortization)     604.4       614.0       634.3       629.4     Selling, general and administrative (excluding depreciation and amortization)     322.4       319.0       351.2       372.7     Depreciation and amortization     371.8       377.4       381.5       417.5     Impairment of intangible assets     —       —       —       2,236.0     Loss on sale of cable systems     —       5.0       —       —                                 Operating income (loss)     162.5       200.7       172.3       (2,066.0 )                               Net income (loss) from continuing operations     50.0       54.7       34.9       (1,224.7 )                               Net income (loss) from discontinued operations, net of tax     7.7       8.0       7.0       (102.7 )                               Cumulative effect of change in accounting principle, net of tax     —       —       —       (1,210.2 )                               Net income (loss)   $ 57.7     $ 62.7     $ 41.9     $ (2,537.6 )                                 21. Subsequent Event       On January 10, 2006, Cox announced the signing of a definitive agreement to acquire the Arizona operations of Cable America Corporation serving approximately 35,000 basic subscribers. The sale is expected to  98    Table of Contents  COX COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued  be completed by mid-2006. The cable systems are contiguous to Cox’s Arizona cable operation, which currently services more than two million customer relationships in 37 communities in Phoenix and Southern Arizona. The agreement provides for the acquisition of cable television systems in Mesa, Florence, Wickenburg, Queen Creek, Coolidge and Gila Bend, as well as Maricopa and Pinal Counties.  99    Table of Contents     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  To the Board of Directors and Stockholders of Cox Communications, Inc.        We have audited the accompanying consolidated balance sheets of Cox Communications, Inc. and subsidiaries (“Cox”) as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These consolidated financial statements are the responsibility of Cox’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.       We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Cox’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.       In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cox as of December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.       As discussed in Note 6 to the consolidated financial statements, effective in 2004, Cox changed its method of valuing indefinite lived intangible assets to conform with Emerging Issues Task Force Topic No. D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill.  /s/ DELOITTE & TOUCHE LLP  Atlanta, Georgia March 28, 2006   100    Table of Contents
None.
Evaluation of Controls and Procedures       The Chief Executive Officer and the Chief Financial Officer of Cox (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of December 31, 2005, that Cox’s disclosure controls and procedures: are effective to ensure that information required to be disclosed by Cox in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and include controls and procedures designed to ensure that information required to be disclosed by Cox in such reports is accumulated and communicated to Cox’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.       Cox’s disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching Cox’s desired disclosure control objectives and are effective in reaching that level of reasonable assurance.       Changes in Internal Controls. There have been no changes in Cox’s internal controls or in other factors that have materially affected, or are reasonably likely to materially affect Cox’s internal controls, other that the migration to a new financial system that took place over the course of 2005.
Effective December 31, 2005, James O. Robbins retired as the President and Chief Executive Officer of Cox. Patrick J. Esser was promoted to President of Cox effective December 31, 2005. For more information about Mr. Esser’s background, see “Executive Officers” in Part III, Item 10. “Directors And Executive Officers of the Registrant.”       On July 26, 2005, Cox announced that Jimmy W. Hayes, the then Executive Vice President and Chief Financial Officer of Cox, had been appointed Executive Vice President of Cox Enterprises effective immediately. Effective November 1, 2005, John M. Dyer was named Chief Financial Officer of Cox. For more information about Mr. Dyer’s background, see “Executive Officers” in Item 10 of this report.     Part III
The following information regarding the directors and executive officers of Cox, their principal occupations, employment history and directorships in certain companies is as reported by the respective director or executive officer. Directors and executive officers of Cox are elected to serve until they resign or are removed, or are otherwise disqualified to serve, or until their successors are elected and qualified.       Directors  James C. Kennedy, 58, has served as Chairman of the Board of Directors of Cox since May 1994. Mr. Kennedy has served as Chairman of the Board of Directors and Chief Executive Officer of Cox Enterprises since January 1988, and prior to that time was Cox Enterprises’ President and Chief Operating Officer. Mr. Kennedy joined Cox Enterprises in 1972, and initially worked with Cox Enterprises’ Atlanta Newspapers. Mr. Kennedy is Chairman of the Board of Directors of Cox Radio, Inc., a majority-owned subsidiary of Cox Enterprises, and a director of Flagler Systems, Inc. Mr. Kennedy holds a B.A. from the University of Denver.  G. Dennis Berry, 61, has served as a director of Cox since January 2003. Mr. Berry has served as Vice Chairman of Cox Enterprises since December 2005. Previously, he served as President and Chief Operating  101    Table of Contents  Officer of Cox Enterprises beginning October 2000, and was President and Chief Executive Officer of Manheim Auctions, Inc., a subsidiary of Cox Enterprises, from 1995 through October 2000. Prior to that, Mr. Berry was publisher of the Atlanta Journal-Constitution, where he held several positions spanning more than twenty years, including President, Vice President and General Manager, and Advertising Director. Mr. Berry also serves as a director of Cox Enterprises and Cox Radio, Inc., a subsidiary of Cox Enterprises. Mr. Berry holds a B.A. in journalism from the University of Georgia.  Janet M. Clarke, 53, has served as a director of Cox since March 1995. Ms. Clarke is president of Clarke Littlefield LLC. Previously, she served as Chief Marketing Officer of DealerTrack, Inc., where she was employed beginning September 2002. Prior to that, she served as Executive Vice President of Young & Rubicam, Inc. and Chairman and Chief Exective Officer, KnowledgeBase Marketing, Inc., a subsidiary of Young & Rubicam, from 2000 to 2001. Previously, she served as the Managing Director – Global Database Marketing of Citibank. Prior to joining Citibank in 1997, Ms. Clarke was Senior Vice President of Information Technology Sector of R.R. Donnelley & Sons Company, which she joined in 1978. Ms. Clarke is a director of Asbury Automotive Group, Inc., ExpressJet Holdings Inc., eFunds Corporation and Gateway, Inc. She is also a Charter Trustee of Princeton University. Ms. Clarke earned a B.A. from Princeton University and completed the Advanced Management Program at the Harvard Business School.       Robert C. O’Leary, 67, has served as a director of Cox since May 1999. Mr. O’Leary has served as Executive Vice President and Chief Financial Officer of Cox Enterprises since December 1999. He joined Cox in 1982 as Vice President of Finance and later that year was promoted to Senior Vice President of Finance. He was promoted to Senior Vice President of Finance and Administration of Cox in 1986, and to Senior Vice President of Operations, Western Group, in 1989. In August 1996, he transferred to Cox Enterprises, becoming its Senior Vice President and Chief Financial Officer. Prior to joining Cox, Mr. O’Leary was employed by the General Electric Company. Mr. O’Leary serves as a member of the Board of Directors of Cox Enterprises and the Georgia Chapter of the National Multiple Sclerosis Society, and as a trustee of the Woodruff Arts Center. Mr. O’Leary holds a B.A. and an M.B.A. from Boston College.  James O. Robbins, 63, has served as a director of Cox since May 1994. Mr. Robbins served as President of Cox from September 1985 to May 1994 and as President and Chief Executive Officer from May 1994 until his retirement in December 2005. Mr. Robbins joined Cox in September 1983 and has served as Vice President, Cox Cable New York City and as Senior Vice President, Operations of Cox. Prior to joining Cox, he held management and executive positions with Viacom Communications, Inc. and Continental Cablevision. Mr. Robbins holds a B.A. from the University of Pennsylvania and an M.B.A. from the Harvard Business School. Mr. Robbins serves as a director of Humana Inc., as a trustee of STI Classic Funds and STI Classic Variable Trust, and as a director of Bessemer Securities Corporation, Inc.  Rodney W. Schrock, 46, has served as a director of Cox since July 2000. Mr. Schrock is a general partner of D-Rock Financial Services, LLC. Previously, he served as President and Chief Executive Officer of Panasas, Inc. from February 2001 until December 2003. Prior to that, he served as President and Chief Executive Officer of AltaVista Company from January 1999 until October 2000. Previously, he served as Senior Vice President and Group General Manager of Compaq Computer Corporation’s Consumer Products Group beginning in 1995, and in other management and executive positions with Compaq beginning in 1987. Mr. Schrock earned a B.S. degree in industrial management from Purdue University and an M.B.A. from Harvard University.  Andrew J. Young, 73, has served as a director of Cox since March 1995. Mr. Young has served as Chairman of GoodWorks International L.L.C. since 1998, and was Co-Chairman from January 1997 until 1998. He was Vice Chairman of Law Companies Group, Inc., an engineering and environmental consulting company, from February 1993 to January 1997, and was Chairman of one if its subsidiaries, Law International, Inc., from 1989 to February 1993. From 1981 to 1989, Mr. Young was Mayor of Atlanta, Georgia, and prior to that he served as U.S. Ambassador to the United Nations under President Jimmy Carter and as a member of the U.S. House of Representatives. Mr. Young was Co-Chairman of the Atlanta Committee for the Olympic Games for the 1996 Summer Olympics. Mr. Young holds degrees from Howard University and Hartford Theological Seminary.  102    Table of Contents  Executive Officers  Christopher J. Bowick, 50, has served as Senior Vice President, Engineering and Chief Technical Officer since January 2001. Mr. Bowick joined Cox in April 1998 as Vice President, Technology Development, and was promoted to Senior Vice President, Technology Development in October 2000. Prior to joining Cox, Mr. Bowick served as Group Vice President and Chief Technology Officer of Jones Intercable since September 1991. Before joining Jones Intercable, Mr. Bowick served in various engineering and technology capacities with Scientific Atlanta since January 1981, leaving the company as Vice President of Engineering for the Transmission Systems Business Division. Mr. Bowick is a past director of the Society of Cable Telecommunications Engineers. Mr. Bowick holds a B.E.E. from the Georgia Institute of Technology and an M.B.A. from the University of Colorado.  Jill Campbell, 46, has served as Senior Vice President, Operations since April 2002. Prior to that, she served as Vice President, Operations beginning April 2001, and as Vice President and General Manager of Cox’s system in Las Vegas, Nevada from September 1998 to March 2001. Ms. Campbell joined Cox in 1982 as Director of Communications for Cox’s Oklahoma City, Oklahoma system, where she was promoted to acting General Manager in 1992. She served as Vice President and General Manager of Cox’s Bakersfield, California system from 1992 to 1996, and of Cox’s Bakersfield and Santa Barbara, California systems from 1996 to April 1997, and was Vice President of Customer Operations of Cox’s Phoenix, Arizona system from April 1997 to September 1998. Ms. Campbell holds a B.A. from the University of Nevada and an M.B.A. from Oklahoma City University.  Dallas S. Clement, 40, has served as Senior Vice President, Strategy and Development since August 2000. Prior to that, he served as Vice President and Treasurer from January 1999 to July 2000. Mr. Clement joined Cox in 1990 as a Policy Analyst and was promoted to Manager of Investment Planning in January 1993, Director of Finance in August 1994, and Treasurer in December 1996. From April 1995 to December 1996, Mr. Clement served as Assistant Treasurer for Cox Enterprises and Cox. Prior to joining Cox, Mr. Clement held analyst positions with Merrill Lynch and the Program on Information Resources Policy. Mr. Clement is a member of the Board of Directors of Simtrol, Inc. and Santa Monica Media Corporation. Mr. Clement holds an A.B. from Harvard College and an M.S. from Stanford University.  Susan W. Coker, 43, has served as Vice President and Treasurer of Cox since January 2004 and also has served as Vice President and Treasurer of Cox Enterprises since October 2005. Previously she served as Treasurer of Cox since January 2002, and prior to that, she served as Assistant Treasurer beginning December 1999. Ms. Coker joined Cox in 1995 as Director of Financial Planning for Broadband Services, and was promoted to Director of Financial Planning & Analysis in 1999. Ms. Coker holds a B.A. in economics from Vanderbilt University and an M.B.A. from Duke University.  Mae A. Douglas, 54 , has served as Senior Vice President and Chief People Officer since January 2002. Prior to that, she served as Vice President and Chief People Officer beginning May 2000, and as Regional Vice President of Advertising Sales for CableRep (now Cox Media, Inc.) from 1999 to 2000. Ms. Douglas joined Cox in 1995 as Manager of Employee Relations for CableRep, and was promoted to Director of Employee Relations in 1998. Ms. Douglas holds a B.A. from the University of North Carolina.  John M. Dyer, 52, has served as Senior Vice President and Chief Financial Officer since October 2005. Prior to that, he served as Senior Vice President, Operations from September 1999 to October 2005, as Senior Vice President, Mergers & Acquisitions and Chief Accounting Officer from 1998 to 1999, and as Vice President of Accounting and Financial Planning from 1997 to 1998. Mr. Dyer joined Cox Enterprises in 1977 as an internal auditor and moved to the former Cox Cable Communications, Inc. in 1980 as a financial analyst, later serving as Manager of Capital Asset Planning, and Director of Operations before being recruited by Times Mirror Cable as a Regional Vice President of Operations, later serving as Vice President of Operations. Mr. Dyer rejoined Cox as Vice President of Financial Planning and Analysis when Cox acquired Times Mirror in 1995. Mr. Dyer holds a B.B.A. in accounting from West Georgia College, and an M.B.A. from Georgia State University.  103    Table of Contents  Patrick J. Esser, 49, has served as President since January 2006. Prior to that, he served as Executive Vice President and Chief Operating Officer from January 2004 to December 2005, as Executive Vice President, Operations from February 2001 to January 2004, as Senior Vice President, Operations from January 2000 to February 2001, and as Vice President, Operations from May 1999 to January 2000. Previously, he served as Vice President, Advertising Sales from 1991 to 1999. Mr. Esser joined Cox in 1979 as Director of Programming for Cox’s Hampton Roads, Virginia cable system and in 1981 was part of a management team that launched Cox’s local advertising sales subsidiary, CableRep (now Cox Media, Inc.). A graduate of the University of Northern Iowa, Mr. Esser holds a B.A. and an M.A. in communications media.  William J. Fitzsimmons, 53, has served as Vice President of Accounting and Financial Planning and Analysis and Chief Accounting Officer since April 2001. Prior to that, he served as Vice President of Financial Operations for Cox’s system in San Diego, California from 1995 to March 2001. Mr. Fitzsimmons joined Cox in 1993 as Director of Finance for Cox’s Pensacola, Florida system, and was promoted to Director of Finance in San Diego in 1995. Prior to joining Cox, he served in various finance and executive positions with Time Warner Cable beginning in 1982. Mr. Fitzsimmons is a director of the Broadcast Cable Financial Management Association and a member of the National Cable & Telecommunications Association accounting committee. Mr. Fitzsimmons holds a B.S. in Business Administration from Merrimack College and an M.B.A. from the University of Colorado.  James A. Hatcher, 54, has served as Senior Vice President, Legal and Regulatory Affairs since July 1999. Prior to that, he served as Vice President, Legal and Regulatory Affairs beginning January 1995. Mr. Hatcher was named Vice President and General Counsel of Cox in 1992. He joined Cox in 1979 and held various positions, including Secretary and General Counsel for Cox and Cox Enterprises prior to 1992. Mr. Hatcher also serves as Cox’s Chief Compliance Officer. Mr. Hatcher holds a B.A. from Furman University and a J.D. from the South Carolina School of Law.  Scott A. Hatfield, 41, has served as Senior Vice President and Chief Information Officer since July 1999. Mr. Hatfield joined Cox in 1995 as Vice President and Chief Information Officer. Prior to joining Cox, Mr. Hatfield served as Vice President and Chief Information Officer of Ohmeda, Inc. since 1994. Before joining Ohmeda, Mr. Hatfield served in various advanced information technology positions with General Dynamics, Ford Motor Company and Xerox Corporation. Mr. Hatfield holds a B.S. in computer science from Western Michigan University and an M.S. in computer science from Oakland University.  Claus F. Kroeger, 54, has served as Senior Vice President, Operations since July 1999. Prior to that, he served as Vice President, Operations beginning October 1994. Mr. Kroeger joined Cox in 1976 as a manager trainee. He has held various positions in the field and served as Director of Operations and Director of Business Development of Cox. From 1990 to 1994, he served as Vice President and General Manager of Cox Cable Middle Georgia. Mr. Kroeger holds a B.A. from the University of Alabama and an M.S. in telecommunications from the University of Colorado.  Audit Committee       The Board of Directors has a separately-designated Audit Committee. The members of the Audit Committee are Janet M. Clarke (Chair), Rodney W. Schrock, and Andrew J. Young. The Board of Directors has affirmatively determined that the members of the Audit Committee meet the independence and financial expertise criteria set forth in Cox’s Audit Committee charter, and that Janet M. Clarke and Rodney W. Schrock each qualify as an “audit committee financial expert” as defined by the SEC.  Compensation of Directors       For 2005, the directors who were not employed by Cox or its affiliates, Janet M. Clarke, Rodney W. Schrock and Andrew J. Young, were paid an annual retainer fee of $75,000, which recognizes the overall level of commitment required for service on the Board of Directors. In addition, these directors were reimbursed for expenses and received a meeting fee of $1,000 for every board meeting and committee  104    Table of Contents  meeting attended. Those non-employee directors who reside in a Cox market also receive free broadband communications services from Cox, consistent with the free service provided by Cox to its employees at its operating locations. The directors of Cox who are employees of Cox or its affiliates do not receive any compensation for serving on the Board of Directors.  Code of Conduct       Cox has adopted a Code of Ethics for Senior Financial Officers, which applies to Cox’s chief executive officer, chief financial officer, and chief accounting officer. You can obtain a printed copy by writing to the Corporate Secretary, Cox Communications, Inc., 6205 Peachtree Dunwoody Road, Atlanta, Georgia 30328.     Item 11. Executive Compensation  The following table sets forth certain information for the years ended December 31, 2003, 2004, and 2005 concerning the cash and non-cash compensation earned by or awarded to the individual serving as chief executive officer as of December 31, 2005, and the four other most highly compensated executive officers of Cox serving as of December 31, 2005.  Summary Compensation Table                                                                                                                      Long-Term Compensation Awards                                               Restricted   Securities           Name           Annual Compensation   Stock   Underlying   LTIP   All other   Principal Position   Year   Salary   Bonus   Other (a)   Awards (b)   Options (c)   Payouts   Compensation (d)         James O. Robbis     2005     $ 1,322,900     $ 1,166,798     $ 86,627                     $ 6,325,789     $ 6,000     Former President & Chief     2004       1,272,000       813,226       —       2,383,504       284,470       —       6,000     Executive Officer (e)     2003       1,200,000       1,680,000       —       2,592,297       298,210       —       6,000                                                                         Patrick J. Esser     2005     $ 760,000     $ 574,560       —       —       —       —     $ 6,000     President     2004       700,000       383,597       —       1,047,137       130,000       —       6,000           2003       615,060       736,072       —       1,034,748       118,800       —       6,000         John M. Dyer     2005     $ 505,000     $ 318,150       —       —       —       —     $ 6,000     Senior Vice President     2004       475,000       228,000       —       499,466       68,000       —       6,000     and Chief Financial Officer     2003       439,930       439,930       —       524,007       71,670       —       6,000                                                                         Claus F. Kroeger     2005     $ 495,000     $ 311,850       —       —       —       —     $ 6,000     Senior Vice President,     2004       465,000       223,200       —       488,270       68,000       —       6,000     Operations     2003       430,000       430,000       —       498,078       71,670       —       6,000         Jill Cambell     2005     $ 485,000     $ 305,550       —       —       —       —     $ 6,000     Senior Vice President,     2004       450,000       216,000       —       453,749       68,000       —       6,000     Operations     2003       399,790       399,970       —       472,752       71,670       —       6,000                  (a)   The amount shown for Mr. Robbins in 2005 includes $73,826 related to personal use of Cox aircraft.     (b)   All shares of restricted stock were converted into the right to receive $34.75 per share as a part of the December 2004 going-private merger and no restricted stock was granted in 2005.     (c)   The outstanding stock options were surrendered in exchange for awards under the Cox Communications 2005 Performance Plan (referred to as the Performance Plan) in April 2005, and no stock options were granted in 2005.     (d)   Consists of amounts contributed pursuant to the Cox Communications, Inc. Savings and Investment Plan and credited under the Cox Communications, Inc. Executive Savings Plus Restoration Plan.     (e)   Mr. Robbins retired as of December 31, 2005.   105    Table of Contents   Long-Term Incentives        In general, Cox provides long-term incentives to the named executive officers through awards under the Cox Enterprises, Inc. Unit Appreciation Plan (referred to as the UAP), which provides incentive compensation to key employees of Cox Enterprises and its subsidiaries and affiliates, including Cox, and the Performance Plan, which was awarded in exchange for unexercised options to purchase Cox Class A common stock, par value $.01 per share.        The following table discloses for the named executive officers information regarding UAP and Performance Plan awards made during the fiscal year ended December 31, 2005.   Long-Term Incentive Plans – Awards in 2005                                                                                      Number of units   Performance           Name   awarded   period   Target   Maximum         James O. Robbins                                   UAP(1)     201,060       5 years     $ 4,987,588     $ 23,910,055     Performance Plan(2)(3)(4)     —       5 years       15,279,684     $ 30,559,368                                         Patrick J. Esser                                   UAP(1)     90,000       5 years     $ 2,232,582       10,702,800     Performance Plan(2)(3)     —       5 years       5,777,398       11,554,796                                         John M. Dyer                                   UAP(1)     46,450       5 years     $ 1,152,260       5,523,834     Performance Plan(2)(3)     —       5 years       3,436,191       6,872,382                                         Claus F. Kroeger                                   UAP(1)     46,450       5 years     $ 1,152,260       5,523,834     Performance Plan(2)(3)     —       5 years       3,322,671       6,645,342                                         Jill Campbell                                   UAP(1)     46,450       5 years     $ 1,152,260       5,523,834     Performance Plan(2)(3)     —       5 years       3,076,113       6,152,226                  (1)   The payout value of UAP units is based on appreciation in the equity value of CEI generally determined over the five-year period after grant of the award. The target award is not determinable until the time of payment and, therefore, the amount presented assumes appreciation in CEI’s equity value for 2004 and 2005 applied uniformly over the five-year period and operating cash flow growth consistent with 2004 and 2005 over that same period. The payout value of units is subject to a maximum limit on appreciation in CEI’s equity value under the UAP, which serves as the basis for the amounts disclosed in the “Maximum” column. Additionally, the payout value of awards would be reduced by 50% if the annual operating cash flow growth of Cox averages less than 5% over the five-year vesting period. Units are settled in cash at the end of the five-year period or earlier upon termination of employment for certain reasons. Awarded units are subject to a five-year vesting schedule, with no vesting rights earned in the first two years, 60% vesting earned after completion of the third year and 20% additional vesting earned in each of the final two years. A participant who retires, becomes disabled or dies becomes fully vested in all outstanding units awarded to the participant upon the occurrence of any such event.     (2)   The performance goal for the Performance Plan is the amount of Cox’s cumulative operating cash flow in excess of its cumulative capital expenditures measured over the measurement period. For this purpose, the measurement period generally covers the period from January 1, 2005 through December 31, 2009, except that the measurement period for any participant who terminates with Cox and any of its affiliates shall end as of the last day of the year ending just before the year in   106    Table of Contents           which that termination occurs. At the end of the relevant measurement period, the participant’s earned award will be valued by determining the performance result actually achieved in that period as a percentage of the performance goal set by Cox’s Compensation Committee and will be paid in cash. The maximum award payable under the Performance Plan is equal to 200% of a participant’s target award, and the maximum award payable under the Performance Plan to a participant who terminates employment other than for reason of retirement, disability, death or involuntary termination of employment solely as a result of the consummation of certain transactions in which assets are sold by Cox or its affiliates is equal to 100% of a participant’s target award. The minimum award payable under the Performance Plan is zero.        (3)   Awards under the Performance Plan were granted in exchange for the surrender of stock options outstanding under the LTIP. Vested options with an exercise price of less than $34.75 were valued based on the difference between the exercise price and $34.75, and all other options were valued using the Black-Scholes option pricing model. The aggregate value of the individual’s options became the target amount of the Performance Plan award. For each of the named executive officers, the following number of options were surrendered: James O. Robbins 1,226,270 options; Patrick J. Esser 441,100 options; John M. Dyer 275,670 options; Claus F. Kroeger 264,670 options; Jill Campbell 231,670 options.        (4)   Mr. Robbins retired as of December 31, 2005 and received a payout under the Performance Plan, as reported in the Summary Compensation Table.    Retirement Plans       Cox Communications, Inc. Pension Plan. The Cox Communications, Inc. Pension Plan is a tax qualified, defined benefit pension plan. The Pension Plan covers all eligible employees of Cox and any of its affiliates who have adopted the Pension Plan, including the named executive officers. The Pension Plan is funded through a tax exempt trust, into which contributions are made as necessary based on an actuarial funding analysis.       The Pension Plan provides for the payment of benefits upon retirement, early retirement, death, disability and termination of employment. Participants become vested in their benefits under the Pension Plan after completing five years of vesting service. Generally, the Pension Plan benefit is determined under a formula based on a participant’s compensation and years of benefit accrual service. Participants may elect from several optional forms of benefit distribution.       Cox Executive Supplemental Plan. The Cox Executive Supplemental Plan is a non-qualified defined benefit pension plan providing supplemental retirement benefits to certain management employees of Cox Enterprises and certain of its affiliates, including the named executive officers. The Executive Supplemental Plan is administered by the Management Committee of Cox Enterprises, whose members are appointed by the Cox Enterprises Board of Directors. This committee designates management employees to participate in the Executive Supplemental Plan.       The Executive Supplemental Plan monthly benefit formula, payable at normal retirement, is 2.5% of a participant’s average compensation, as calculated in the Executive Supplemental Plan, multiplied by the participant’s years of benefit accrual service credited under the Executive Supplemental Plan. The normal retirement benefit will not exceed 50% of a participant’s average compensation at retirement. Benefits payable with respect to early retirement are reduced to reflect an earlier commencement date. Special disability, termination of employment and death benefits also are provided. All benefits payable under the Executive Supplemental Plan are reduced by benefits payable to the participant under the Pension Plan. Participants may elect among several forms of benefit distributions.       The Executive Supplemental Plan is not funded currently by Cox Enterprises. Cox will make annual payments to Cox Enterprises arising from its employees’ participation in this plan as benefits are paid to these employees. However, such benefits will be paid from the general funds of Cox Enterprises.  107    Table of Contents       The following table provides estimates of annual retirement income payable to certain executives under the Pension Plan and the Executive Supplemental Plan.  PENSION PLAN AND EXECUTIVE SUPPLEMENTAL PLAN TABLE                                              Years of Service                               20 or   Final Average Compensation (5 years)   5   10   15   more     $150,000   $ 18,750     $ 37,500     $ 56,250     $ 75,000                                         250,000     31,250       62,500       93,750       125,000                                         350,000     43,750       87,500       131,250       175,000                                         450,000     56,250       112,500       168,750       225,000                                         550,000     68,750       137,500       206,250       275,000                                         650,000     81,250       162,500       243,750       325,000                                         750,000     93,750       187,500       281,250       375,000            The named executive officers have been credited with the following years of service: Mr. Robbins, 22 years; Mr. Esser, 24 years; Mr. Kroeger, 29 years; Mr. Dyer, 28 years and Ms. Campbell, 21 years. The Pension Plan and the Executive Supplemental Plan define “compensation” generally to include; all remuneration to an employee for services rendered, including base pay, bonuses, special forms of pay and certain employee deferrals. Certain forms of additional compensation, including severance, moving expenses, extraordinary bonuses, long-term incentive compensation and contributions to employee benefit plans, are excluded from the definition of compensation. The Pension Plan credits compensation only up to the limit of covered compensation under Section 401(a)(17) of the Internal Revenue Code; the Executive Supplemental Plan does not impose this limit on covered compensation. The definition of “covered compensation” under the Pension Plan and the Executive Supplemental Plan, in the aggregate, is not substantially different from the amounts reflected in the Annual Compensation columns of the Summary Compensation Table. The estimates of annual retirement benefits reflected in the Pension Plan and Executive Supplemental Plan Table are based on payment in the form of a straight-life annuity and are determined after offsetting benefits payable from Social Security, as provided under the terms of the Pension Plan and the Executive Supplemental Plan.       In connection with his retirement, Cox has awarded to Mr. Robbins 325,000 Recognitions Units, each with a per unit base price of $10.00. Under this arrangement, the value of the Recognition Units granted to Mr. Robbins will increase in proportion to the cumulative increase in Cox’s operating free cash flow over a three year period ending as of December 31, 2008. As of December 31, 2008, Mr. Robbins will be entitled to receive a cash payout from Cox equal to the increase in the per unit value of the Recognition Units over that three-year period multiplied by the number of Recognition Units granted to him. If Cox fails to achieve a pre-determined cumulative level of growth in operating free cash flow through the three-year period ending on December 31, 2008, then no payment shall be payable by Cox to Mr. Robbins with respect to the Recognition Units. In addition, CEI and Mr. Robbins have entered into an agreement that extends for a period of three years after the date of retirement his right to participate in the UAP with respect to any awards granted under that plan that were outstanding as of the date of his retirement.  Compensation Committee Interlocks and Insider Participation  108    Table of Contents       Prior to February 2005, the members of the Compensation Committee were Rodney W. Schrock (Chair), Janet M. Clarke and Andrew J. Young. In February 2005, the Compensation Committee was reconstituted, and James C. Kennedy, G. Dennis Berry and Robert C. O’Leary were appointed as the members of the Compensation Committee. Each of Messrs. Kennedy, Berry and O’Leary are executive officers of CEI, and Mr. Kennedy’s aunt and mother, as trustees, control substantially all of the common stock of CEI.
Security Ownership of Certain Beneficial Owners       The following table provides information as of January 31, 2006 with respect to the shares of Class A Common Stock and Class C Common Stock beneficially owned by each person known by Cox to own more than 5% of any class of the outstanding voting securities of Cox.                                                                                      Percent of       Class A           Class C           Vote of All       Common   Percent   Common   Percent   Classes of   Name of Beneficial Owner   Stock   of Class   Stock   of Class   Voting Stock     Cox Enterprises, Inc.(a)(b)(c)     556,170,238       100 %     27,597,792       100.0 %     100 %                (a)   The business address for Cox Enterprises is 6205 Peachtree Dunwoody Road, Atlanta, Georgia 30328.     (b)   Of the shares of common stock of Cox that are beneficially owned by Cox Enterprises, 531,189,708 shares of Class A Common Stock and 25,696,470 shares of Class C Common Stock are held of record by Cox Holdings, Inc. The remaining 24,980,530 shares of Class A Common Stock and 1,901,322 shares of Class C Common Stock beneficially owned by Cox Enterprises are held of record by Cox DNS, Inc. All of the outstanding capital stock of Cox Holdings and of Cox DNS is beneficially owned by Cox Enterprises. The beneficial ownership of the outstanding capital stock of Cox Enterprises is described in footnote (c) below. The Class C Common Stock is convertible on a share for share basis into Class A Common Stock at the option of the holder.     (c)   There are 604,078,787 shares of common stock of Cox Enterprises outstanding, with respect to which (i) Barbara Cox Anthony, as trustee of the Anne Cox Chambers Atlanta Trust, exercises beneficial ownership over 174,949,266 shares (29.0%); (ii) Anne Cox Chambers, as trustee of the Barbara Cox Anthony Atlanta Trust, exercises beneficial ownership over 174,949,266 shares (29.0%); (iii) Barbara Cox Anthony, Anne Cox Chambers and Richard L. Braunstein, as trustees of the Dayton Cox Trust A, exercise beneficial ownership over 248,237,055 shares (41.0%); and (iv) 280 individuals and other trusts exercise beneficial ownership over the remaining 5,943,200 shares (1.0%), including 43,734 shares held beneficially and of record by Garner Anthony, the husband of Barbara Cox Anthony (as to which Barbara Cox Anthony disclaims beneficial ownership). Thus, Barbara Cox Anthony and Anne Cox Chambers, who are sisters, together exercise sole or shared beneficial ownership over 598,135,587 shares (99.0%) of the common stock of Cox Enterprises. Barbara Cox Anthony and Anne Cox Chambers are the mother and aunt, respectively, of James C. Kennedy, the Chairman of the Board of Directors and Chief Executive Officer of Cox Enterprises and the Chairman of the Board of Directors of Cox.   Security Ownership of Management       Beneficial ownership of the Class A Common Stock of Cox and the common stock of Cox Enterprises by Cox’s directors and the executive officers named in the Summary Compensation Table, and by all directors and executive officers as a group as of January 31, 2006, is shown in the following table.  109    Table of Contents  None of such persons, individually or in the aggregate, owns any shares of the Class A common stock, $.01 par value, of Cox or owns 1% or more of the outstanding common stock of Cox Enterprises.                              Number of Shares of   Number of Shares of   Name of Beneficial Owner   Class A Common Stock   Cox Enterprises Common Stock     James C. Kennedy     —       546,813 (a)                       G. Dennis Berry     —       105,015                         Jill Campbell     —       279                         Janet M. Clarke     —       —                         John M. Dyer     —       —                         Patrick J. Esser     —       546                         Claus F. Kroeger     —       4,329                         Robert C. O’Leary     —       147,682                         James O. Robbins     —       50,000                         Rodney W. Schrock     —       —                         Andrew J. Young     —       —                         All directors and executive officers as a group (18 persons, including those named above)     —       854,664                  (a)   Mr. Kennedy owns of record 546,813 shares of the common stock of Cox Enterprises. Sarah K. Kennedy, Mr. Kennedy’s wife and trustee of the Kennedy Trusts, exercises beneficial ownership over an aggregate of 22,140 shares of the common stock of Cox Enterprises. In addition, as described above, Barbara Cox Anthony and Anne Cox Chambers, the mother and aunt, respectively, of Mr. Kennedy, together exercise sole or shared beneficial ownership over 598,135,587 shares of the common stock of Cox Enterprises, and both are members of the Board of Directors of Cox Enterprises. Also, Mr. Kennedy’s children are the beneficiaries of a trust, of which R. Dale Hughes and Mr. Kennedy are co-trustees, that beneficially owns 16,155 shares of the common stock of Cox Enterprises. Mr. Kennedy disclaims beneficial ownership of all such shares, other than the 546,813 shares included in the table.      Item 13. Certain Relationships and Related Transactions       Cox receives certain services from, and has entered into certain transactions with, Enterprises. Costs of the services that are allocated to Cox are based on actual direct costs incurred or on Enterprises’ estimate of expenses relative to the services provided to other subsidiaries of Enterprises. Cox believes that these allocations were made on a reasonable basis, and that receiving these services from Enterprises creates cost efficiencies; however, there has been no study or any attempt to obtain quotes from third parties to determine what the cost of obtaining such services from third parties would have been. The services and transactions described below have been reviewed by Cox’s Audit Committee, which has determined that such services and transactions are fair and in the best interest of Cox.       Cox receives day-to-day cash management services from Enterprises, with settlements of outstanding balances between Cox and Enterprises occurring periodically at market interest rates. The amounts due to  110    Table of Contents  Enterprises are generally due on demand and represent the net balance of intercompany transactions. Both outstanding amounts due from and those due to Enterprises bear interest equal to Enterprises’ current commercial paper borrowing rate. As of December 31, 2005, the amount due to Enterprises from Cox was approximately $26.7 million, and the associated interest rate was 4.7 percent.       Cox receives certain management services from Enterprises including legal, corporate secretarial, tax, internal audit, insurance, employee benefit (including pension plan) administration, fleet and other support services. Cox was allocated expenses related to these services of approximately $8.3 million for the year ended December 31, 2005.       In connection with these management services, Cox reimburses Enterprises for payments made to third-party vendors for certain goods and services provided to Cox under arrangements made by Enterprises on behalf of Enterprises and its affiliates, including Cox. Cox believes such arrangements result in Cox receiving such goods and services at more attractive pricing than Cox would be able to secure separately. Such reimbursed expenditures include insurance premiums for coverage through Enterprises’ insurance program, which provides coverage for all of its affiliates, including Cox. Rather than self-insuring these risks, Enterprises purchases insurance for a fixed-premium cost from several insurance companies, including an insurance company owned indirectly by descendants of Governor James M. Cox, the founder of Enterprises, including James C. Kennedy, Chairman of the Cox Board, and his sister, who each own 25%. This insurance company is an insurer and reinsurer on various insurance policies purchased by Enterprises, and it employs an independent consulting actuary to calculate the annual premiums for general/auto liability and workers compensation insurance based on Cox’s loss experience, consistent with insurance industry practice. Cox’s portion of these insurance costs was approximately $34.6 million for the year ended December 31, 2005.       Cox’s employees participate in certain Enterprises employee benefit plans, and Cox made payments to Enterprises in 2005 for the costs incurred by reason of such participation, including self-insured employee medical insurance costs of approximately $127.2 million, post-employment benefits of $11.4 million, and executive pension plan payments of approximately $7.5 million.       Cox and Enterprises share resources relating to aircraft owned by each company. Depending on need, each occasionally uses aircraft owned by the other, paying a cost-based hourly rate. Enterprises also operates and maintains two airplanes owned by Cox. Cox pays Enterprises on a quarterly basis for fixed and variable operations and maintenance costs relating to these two airplanes. Cox paid approximately $1.1 million during the year ended December 31, 2005.       Cox pays rent and certain other occupancy costs to Enterprises for use of space in its corporate headquarters building. Enterprises holds the long-term lease of the Cox headquarters building. Related rent and occupancy expense is allocated based on occupied space and for the year ended December 31, 2005 was approximately $9.2 million.
The following table summarizes the fees billed by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively referred to as Deloitte & Touche) for professional services during fiscal year 2005 and fiscal year 2004:                              2005   2004     Audit Fees   $ 14,214,250     $ 4,374,825                         Audit-related fees     419,505       279,575                         Tax fees     2,076,167       1,471,410                         All other fees     —       —       111    Table of Contents       The amounts shown for audit fees were for the audit of Cox’s consolidated financial statements, quarterly reviews of interim financial information, and comfort letters, statutory and regulatory audits, consents, reports, and other services related to SEC matters. The amounts shown for audit-related fees were for SEC advisory services not connected with the audit or quarterly reviews, and employee benefit plan audits. The amounts shown for tax fees were for assistance with tax compliance matters and tax provision review, consultation on income tax and transaction tax matters, tax review of fixed asset matters, and planning related to cost recovery and property tax matters.       The Audit Committee utilizes a policy pursuant to which the audit, audit-related, and permissible non-audit services to be performed by the independent auditor are pre-approved prior to the engagement to perform such services. Pre-approval is generally provided annually, and any pre-approval is detailed as to the particular service or category of services and is generally limited by a maximum fee amount. The independent auditor and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditor in accordance with this pre-approval, and the fees for the services performed to date. The policy sets forth limited circumstances in which the Committee delegated or may delegate its pre-approval authority to the Chairman or any other member of the Audit Committee, and any approvals made pursuant to this delegated authority normally will be reported to the Audit Committee at its next meeting. None of the services described in the preceding paragraph were pre-approved pursuant to the de minimis exception provided in Section 10A(i)(1)(B) of the Exchange Act.     PART IV
(a) Documents incorporated by reference or filed with this Report       (1)   Listed below are the financial statements which are filed as part of this report:         •   Consolidated Balance Sheets at December 31, 2005 and 2004;        •   Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003;        •   Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003;        •   Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003; and        •   Notes to Consolidated Financial Statements.         (2)   No financial statement schedules are required to be filed by Items 8 and 14(d) of this report because they are not required or are not applicable, or the required information is set forth in the applicable financial statements or notes thereto.        (3)   Exhibits required to be filed by Item 601 of Regulation S-K:         Listed below are the exhibits which are filed as part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):              Exhibit       Number   Description     2.1    Asset Purchase Agreement, dated as of October 31, 2005, by and among TCA Cable Partners, Cox Southwest Holdings, L.P., Cox Communications Louisiana, L.L.C., CoxCom, Inc., and Cox Telcom     112    Table of Contents              Exhibit       Number   Description          Partners, Inc., and Cox Communications, Inc., on the one hand, and Cebridge Acquisition Co. LLC, on the other hand.           3.1    Certificate of Incorporation of Cox Communications, Inc., as amended (incorporated by reference to exhibit 3.1 to Cox’s Registration Statement on Form S-4, file no. 333-122050, filed on January 14, 2005).           3.2    Bylaws of Cox Communications, Inc. (Incorporated by reference to Exhibit 3.2 to Cox’s Registration Statement on Form S-4, File No. 33-80152, filed with the Commission on December 16, 1994.)           4.1    Indenture, dated as of June 27, 1995, between Cox Communications, Inc. and The Bank of New York, as Trustee (incorporated by reference to exhibit 4.1 to Cox’s Registration Statement on Form S-1, file no. 33-99116, filed on November 8, 1995).           4.2    Seventh Supplemental Indenture, dated as of December 15, 2004, between Cox Communications, Inc. and The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to exhibit 4.1 to Cox’s Current Report on Form 8-K, filed on December 16, 2004).           4.3    Agreement of Resignation, Appointment and Acceptance, effective as of April 27, 2005, by and among Cox Communications, Inc., The Bank of New York and The Bank of New York Trust Company (incorporated by reference to exhibit 4.3 to Cox’s Quarterly Report on Form 10-Q, filed May 9, 2006).           4.4    Indenture, dated as of January 30, 1998, between TCA Cable TV, Inc. and Chase Bank of Texas, National Association, as Trustee (incorporated by reference to exhibit 4(a) to TCA’s Registration Statement on Form S-3, file no. 333-32015, filed on July 24, 1997).           4.5    First Supplemental Indenture, dated as of August 12, 1999, among TCA Cable TV, Inc., Cox Classic Cable, Inc. and Chase Bank of Texas, National Association, as Trustee (incorporated by reference to exhibit 4.2 to Cox’s Current Report on Form 8-K, filed on August 25, 1999).           4.6    Second Supplemental Indenture, dated as of December 1, 2003, between Cox Classic Cable, Inc., CoxCom, Inc. and JPMorgan Chase Bank (as successor to Chase Bank of Texas, National Association), as Trustee (incorporated by reference to exhibit 4.10 to Cox’s Annual Report on Form 10-K, filed on February 27, 2004).           10.1    Credit Agreement, dated December 3, 2004, among Cox Communications, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders, Citicorp North America, Inc. and Lehman Commercial Paper Inc., as syndication agents, and Citigroup Global Markets Inc., Lehman Brothers Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and joint bookrunners (incorporated by reference to exhibit 10.1 to Cox’s Current Report on Form 8-K, filed on December 3, 2004).           10.2    Amended and Restated Five-Year Credit Agreement, dated as of the June 4, 2004 and amended and restated as of December 3, 2004, among Cox Communications, Inc. the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders, Bank of America, N.A., as co-syndication agent, Wachovia Bank, National Association, as co-syndication agent, J.P. Morgan Securities Inc., as co-lead arranger and joint bookrunner, and Banc Of America Securities, LLC, as co-lead arranger and joint bookrunner (incorporated by reference to exhibit 10.2 to Cox’s Current Report on Form 8-K, filed on December 3, 2004).           10.3    First Amendment, dated as of March 17, 2006, to the Credit Agreement dated as of December 3, 2004, among Cox Communications, Inc., the lenders, syndication agents and arrangers and bookrunners party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.     113    Table of Contents              Exhibit       Number   Description     10.4    First Amendment, dated as of March 17, 2006, to the Amended and Restated Five-Year Credit Agreement dated as of June 4, 2004 and amended and restated as of December 3, 2004, among Cox Communications, Inc., the lenders, syndication agents and arrangers and bookrunners party thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent.           10.5    Revolving Promissory Notes, dated as of May 2, 2003 (incorporated by reference to exhibit 10.1 to Cox’s Quarterly Report on Form 10-Q, filed August 8, 2003).           10.6    Cox Executive Supplemental Plan of Cox Enterprises, Inc. (incorporated by reference to exhibit 10.5 to Cox’s Registration Statement on Form S-4, File No. 33-80152, filed with the Commission on December 16, 1994) (management contract or compensatory plan) (incorporated by reference to exhibit 10.5 to Cox’s Registration Statement on Form S-4, file no. 333-122050, filed on January 14, 2005).           10.7    Cox Communications, Inc. Executive Savings Plus Restoration Plan (management contract or compensatory plan) (incorporated by reference to exhibit 10.1 to Cox’s Current Report on Form 8-K, filed on December 14, 2005).           10.8    Cox Enterprises, Inc. 2005 Unit Appreciation Plan (management contract or compensatory plan) (incorporated by reference to exhibit 10.1 to Cox’s Quarterly Report on Form 10-Q, filed May 9, 2005).           10.9    Form of Unit Appreciation Plan Summary Statement (management contract or compensatory plan) (incorporated by reference to exhibit 10.2 to Cox’s Quarterly Report on Form 10-Q, filed May 9, 2006).           10.10    Cox Communications, Inc. 2005 Performance Plan (management contract or compensatory plan) (incorporated by reference to exhibit 10.2 to Cox’s Quarterly Report on Form 10-Q, filed May 9, 2006).           10.11    Cox Communications, Inc. 2005 Performance Plan Form of Performance Award Statement (management contract or compensatory plan) (incorporated by reference to exhibit 10.2 to Cox’s Quarterly Report on Form 10-Q, filed May 9, 2006).           10.12    Letter Agreement, dated as of December 31, 2005, with James O. Robbins with respect to Recognition Unit award (management contract or compensatory plan).           21.1    Subsidiaries of Cox Communications, Inc.           24.1    Powers of Attorney (included on the signatures page to this report).           31.1    Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.           31.2    Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.           32.1    Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.           32.2    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     114    Table of Contents     SIGNATURES       Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Cox Communications, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.                            COX COMMUNICATIONS, INC.                            By:    /s/ PATRICK J. ESSER   Patrick J. Esser                 President       Date: March 28, 2006                 POWER OF ATTORNEY       Cox Communications, Inc., a Delaware corporation, and each person whose signature appears below, constitutes and appoints Patrick J. Esser and John M. Dyer, and either of them, with full power to act without the other, such person’s true and lawful attorneys-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign this Annual Report on Form 10-K and any and all amendments to such Annual Report on Form 10-K and other documents in connection therewith, and to file the same, and all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorneys-in-fact, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.       Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Cox Communications, Inc. and in the capacities and on the dates indicated.                  Signature   Title   Date       /s/ JAMES C. KENNEDY   James C. Kennedy    Chairman of the Board of Directors    March 28, 2006     /s/ PATRICK J. ESSER   Patrick J. Esser    President (principal executive officer)    March 28, 2006     /s/ JOHN M. DYER   John M. Dyer    Senior Vice President and Chief Financial Officer (principal financial officer)    March 28, 2006     /s/ WILLIAM J. FITZSIMMONS   William J. Fitzsimmons    Vice President of Accounting & Financial Planning (principal accounting officer)    March 28, 2006     /s/ JANET M. CLARKE   Janet M. Clarke    Director     March 28, 2006     /s/ RODNEY W. SCHROCK   Rodney W. Schrock    Director     March 28, 2006     /s/ ROBERT C. O’LEARY   Robert C. O’Leary    Director     March 28, 2006     /s/ ANDREW J. YOUNG   Andrew J. Young    Director     March 28, 2006     115       EX-2.1 2 g00421exv2w1.txt EX-2.1 ASSET PURCHASE AGREEMENT                                                                         EXHIBIT 2.1                              ASSET PURCHASE AGREEMENT                                       BETWEEN                                 TCA CABLE PARTNERS,                            COX SOUTHWEST HOLDINGS, L.P.,                        COX COMMUNICATIONS LOUISIANA, L.L.C.,                                    COXCOM, INC.,                             COX TELCOM PARTNERS, INC.,                              COX COMMUNICATIONS, INC.                                         AND                            CEBRIDGE ACQUISITION CO. LLC                                        DATED                                  OCTOBER 31, 2005                                    TABLE OF CONTENTS                                                                                                                      PAGE                                                                                                                   ----   1.    DEFINED TERMS.........................................................................................        2  2.    SALE AND PURCHASE OF TRANSFERRED ASSETS................................................................      17        2.1      Agreement to Sell and Purchase................................................................      17        2.2      Excluded Assets...............................................................................      18        2.3      Deposit Escrow................................................................................      20        2.4      Purchase Price................................................................................      20        2.5      Allocation of Purchase Price..................................................................      20        2.6      Adjustments to the Purchase Price.............................................................      21        2.7      Assumption of Assumed Liabilities.............................................................      25        2.8      Cox Name; Affiliated Services.................................................................      25        2.9      Rights of First Refusal.......................................................................      26  3.    REPRESENTATIONS AND WARRANTIES OF SELLERS..............................................................      26        3.1      Organization, Standing and Authority..........................................................      26        3.2      Authorization and Binding Obligation..........................................................      27        3.3      Absence of Conflicting Terms; Consents........................................................      27        3.4      Governmental Permits..........................................................................      28        3.5      Financial Statements..........................................................................      29        3.6      Personal Property.............................................................................      29        3.7      Real Property.................................................................................      30        3.8      Contracts.....................................................................................      30        3.9      Certain Information on Systems................................................................      32        3.10     Taxes, Returns and Reports....................................................................      32        3.11     Employee Benefit Plans........................................................................      33        3.12     Labor Relations...............................................................................      33        3.13     Legal Proceedings/Compliance with Laws........................................................      33        3.14     Environmental Matters.........................................................................      34        3.15     FCC and Copyright Compliance..................................................................      34        3.16     Intellectual Property.........................................................................      35        3.17     Conduct of Business in Ordinary Course........................................................      36        3.18     Transactions with Affiliates..................................................................      36                                         -i-                                    TABLE OF CONTENTS                                    (continued)                                                                                                                      PAGE                                                                                                                   ----         3.19     Bonds; Letters of Credit......................................................................      36        3.20     Brokers of Sellers............................................................................      36        3.21     Acquired Companies............................................................................      36        3.22     Sufficiency of Transferred Assets.............................................................      38        3.23     Accounts Receivable...........................................................................      38        3.24     Overbuilds....................................................................................      38  4.    REPRESENTATIONS AND WARRANTIES OF BUYER................................................................      38        4.1      Organization, Standing and Authority..........................................................      38        4.2      Authorization and Binding Obligation..........................................................      38        4.3      Absence of Conflicting Agreements.............................................................      39        4.4      Buyer Qualification...........................................................................      39        4.5      Availability of Funds.........................................................................      39        4.6      Brokers of Buyer..............................................................................      40  5.    SPECIAL COVENANTS OF THE PARTIES.......................................................................      40        5.1      Conduct of the Business of the Systems Prior to Closing.......................................      40        5.2      Financial and Operational Information.........................................................      43        5.3      Consents and Replacement Agreements...........................................................      44        5.4      HSR Act Filing................................................................................      47        5.5      Transfer Taxes, Etc...........................................................................      47        5.6      Bonds, Letters of Credit, Etc.................................................................      48        5.7      Transition Services; Intellectual Property....................................................      48        5.8      Covenants Regarding Employee Matters..........................................................      48        5.9      Environmental Investigations..................................................................      50        5.10     Risk of Loss..................................................................................      52        5.11     Subscriber Information........................................................................      52        5.12     Cure..........................................................................................      53        5.13     Disclosure....................................................................................      53        5.14     No Other Representations or Warranties........................................................      53        5.15     Access to Books and Records...................................................................      54        5.16     Programming Agreements........................................................................      55                                         -ii-                                    TABLE OF CONTENTS                                    (continued)                                                                                                                      PAGE                                                                                                                   ----         5.17     Cooperation; Commercially Reasonable Efforts..................................................      56        5.18     Non-Competition, Non-Solicitation.............................................................      56        5.19     No Shop.......................................................................................      57        5.20     Cooperation with Financing....................................................................      57        5.21     Title Commitments; Surveys; Lien Searches.....................................................      58        5.22     Inventory.....................................................................................      58        5.23     Assets Owned by Parent's Affiliates other than Sellers........................................      58        5.24     Update of Certain Schedules...................................................................      58        5.25     Transition Planning...........................................................................      59  6.    CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND SELLERS TO CLOSE......................................      59        6.1      Conditions Precedent to Obligations of Buyer to Close.........................................      59        6.2      Conditions Precedent to Obligations of Sellers to Close.......................................      60  7.    CLOSING AND CLOSING DELIVERIES.........................................................................      61        7.1      Closing.......................................................................................      61        7.2      Deliveries by Sellers.........................................................................      62        7.3      Deliveries by Buyer...........................................................................      63  8.    TERMINATION............................................................................................      64        8.1      Method of Termination.........................................................................      64        8.2      Rights Upon Termination.......................................................................      65        8.3      Other Termination Provisions..................................................................      66  9.    SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION.........................................      67        9.1      Representations, Warranties and Covenants.....................................................      67        9.2      Indemnification by Sellers....................................................................      67        9.3      Indemnification by Buyer......................................................................      68        9.4      Procedure for Indemnification.................................................................      68        9.5      Limitation on Indemnification; Exclusive Remedy; Time Period..................................      69  10.   MISCELLANEOUS..........................................................................................      70        10.1     Primary and Secondary Transfers...............................................................      70        10.2     Notices.......................................................................................      72                                        -iii-                                    TABLE OF CONTENTS                                    (continued)                                                                                                                      PAGE                                                                                                                   ----         10.3     No Assignment; Benefit and Binding Effect.....................................................      73        10.4     Bulk Transfer.................................................................................      73        10.5     Governing Law.................................................................................      73        10.6     Waiver of Jury Trial..........................................................................      73        10.7     Submission to Jurisdiction; Venue.............................................................      73        10.8     Headings......................................................................................      74        10.9     Gender and Number.............................................................................      74        10.10    Entire Agreement..............................................................................      74        10.11    Further Assurances............................................................................      74        10.12    Waiver of Compliance; Consents................................................................      74        10.13    Severability..................................................................................      74        10.14    Counterparts..................................................................................      75        10.15    No Third Party Beneficiaries..................................................................      75        10.16    Construction..................................................................................      75        10.17    Public Announcements..........................................................................      75        10.18    No Personal Liability.........................................................................      75        10.19    Expenses......................................................................................      75        10.20    Guarantee.....................................................................................      75                                         -iv-                                 EXHIBITS AND SCHEDULES  The following exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Commission upon request.     Exhibit A                  Required Programming Agreement Exhibit B                  Deposit Escrow Agreement Exhibit C                  Transition Services Agreement Exhibit D                  Intellectual Property License Agreement Exhibit E                  Bill of Sale Exhibit F                  Assumption Agreement Exhibit G                  Management Agreement Exhibit H                  Outsourcing Agreement  Schedule A-1               California System Schedule A-2               MAC System Schedule A-3               North Carolina System Schedule A-4               West Texas System Schedule C                 CNC Governmental Permits Schedule E                 TCAC Governmental Permits Schedule G                 CTT Governmental Permits Schedule 1.51(a)           Seller Knowledgeable Individuals Schedule 1.51(b)           Buyer Knowledgeable Individuals Schedule 1.56              Master Carrier Agreements Schedule 1.57              Master CBI Agreements Schedule 1.64              Certain Advertising Sales Representation Agreements Schedule 1.65              Non-Exclusive Pole Attachment Agreements Schedule 1.66              Non-Exclusive Retransmission Agreements Schedule 1.75(a)           Programmer Optional Programming Agreements Schedule 1.75(b)           Certain Programmer Optional Programming Agreements Schedule 1.86              Severance Maximum Schedule 1.100             Non-Exclusive Contracts Schedule 1.101             Transferred Domain Names Schedule 1.102             Transferred Motor Vehicles Schedule 1.103             2005 Operating Cash Flow Methodology Schedule 2.1.8             Certain Transferred Assets Schedule 2.2               Certain Excluded Assets Schedule 2.6.1(i)          Budgeted Capital Expenditures Schedule 2.6.1(ii)(E)      Real Property Capitalized Leases Schedule 2.7.5             Other Assumed Liabilities Schedule 2.8.2             Affiliate Services Schedule 2.8.3             Retained Telecommunications Authorizations Schedule 2.9               The RGU Adjustment Factor Schedule 3.3               Certain Sellers' Consents Schedule 3.4(a)            All Governmental Permits Schedule 3.4(b)            Exceptions to Governmental Permits Schedule 3.4(c)            Non-exclusive and excluded Governmental Permits Schedule 3.7               Real Property Schedule 3.8.1             Binding Effect of Material Transferred Contracts Schedule 3.8.2             Real Property Leases                                          v      Schedule 3.8.3             Material Exclusive Retransmission Consent Agreements Schedule 3.8.4             Material Exclusive Pole Attachment Agreements Schedule 3.8.5             Material Exclusive Programming Agreements Schedule 3.8.6             Material Exclusive Cox Media Agreements Schedule 3.8.7             Certain Other Transferred Contracts Schedule 3.8.8             Certain Included Contracts Schedule 3.8.9             Material Non-Exclusive Retransmission Consent Agreements Schedule 3.8.10            Non-Exclusive Cox Media Agreements Schedule 3.8.11            Material Master CBI Agreements Schedule 3.8.12            Master Carrier Agreements Schedule 3.9(a)            Systems Information (Plant Miles) Schedule 3.9(b)            Systems Information (Bandwidth) Schedule 3.9(c)            Systems Information (Subscribers) Schedule 3.11              Employee Benefit Plans Schedule 3.13.1            Legal Proceedings Schedule 3.13.2            Compliance with Legal Rules Schedule 3.15.1            FCC Compliance Schedule 3.15.2            Certain Franchising Authorities Matters Schedule 3.16.1            Intellectual Property Schedule 3.16.3            Intellectual Property Licenses Schedule 3.17              Conduct of Systems Schedule 3.18              Affiliate Transactions Schedule 3.19              Bonds; Letters of Credit Schedule 3.21.3            Capitalization of Acquired Companies Schedule 3.21.5            Assets and Liabilities Schedule 3.22              Sufficiency of Assets Schedule 3.24              Overbuilds Schedule 4.4               Buyer Qualification Schedule 4.6               Brokers of Buyers Schedule 5.1               Conduct of Systems prior to Closing Schedule 5.1.2(viii)       Rate Increases Schedule 5.3               Consents Schedule 5.8.5             Sellers' Severance Benefits Plan Schedule 5.22              Minimum Inventory Commitment Schedule 6.1.5             Required Consents                                          vi                                ASSET PURCHASE AGREEMENT        THIS ASSET PURCHASE AGREEMENT is dated October 31, 2005, by and among TCA Cable Partners, a Delaware general partnership ("TCAP"), Cox Southwest Holdings, L.P., a Texas limited partnership ("CSWH"), Cox Communications Louisiana, L.L.C., a Delaware limited liability company ("CCL"), CoxCom, Inc., a Delaware corporation ("COXCOM"), and Cox Telcom Partners, Inc., a Delaware corporation ("CTP") (TCAP, CSWH, CCL, CoxCom and CTP each a "SELLER" and collectively, the "SELLERS"), and Cox Communications, Inc., a Delaware corporation ("PARENT"), on the one hand, and Cebridge Acquisition Co. LLC, a Delaware limited liability company ("BUYER"), on the other hand.                                      RECITALS:        A. Sellers own and operate the cable television systems serving the communities identified on SCHEDULE A-1 (the "CALIFORNIA SYSTEM"), SCHEDULE A-2 (the "MAC SYSTEM"), SCHEDULE A-3 (the "NORTH CAROLINA System") and SCHEDULE A-4 (the "WEST TEXAS SYSTEM") (the California System, the MAC System, the North Carolina System and the West Texas System, each, a "SYSTEM" and collectively, the "SYSTEMS").        B. Sellers desire to sell, and Buyer desires to buy, certain of the Sellers' assets used exclusively in the operation of the Systems for the price and on the terms and conditions hereinafter set forth.        C. Cox North Carolina Telcom, L.L.C., a Delaware limited liability company ("CNC"), holds the Governmental Permits set forth on SCHEDULE C hereto.        D. CoxCom holds all the issued and outstanding membership interests of CNC (the "CNC INTERESTS").        E. TCA Communications, L.L.C., a Texas limited liability company ("TCAC"), holds the Governmental Permits set forth on SCHEDULE E hereto.        F. CoxCom holds all the issued and outstanding membership interests of TCAC (the "TCAC INTERESTS").        G. Cox Texas Telcom, L.P., a Delaware limited partnership ("CTT"), holds the Governmental Permits set forth on SCHEDULE G hereto.        H. CoxCom holds all the issued and outstanding limited partnership interests of CTT and CTP holds all the issued and outstanding general partnership interests of CTT (collectively, the "CTT INTERESTS").        I. CoxCom and CTP desire to sell, and Buyer desires to buy from CoxCom and CTP all of the CNC Interests, TCAC Interests and CTT Interests as part of the Transferred Assets hereunder and on the terms and conditions hereinafter set forth.        J. As further inducement for Buyer to enter into this Agreement, pursuant to Section 10.20, Parent is guaranteeing all of the obligations of Sellers under this Agreement.                                       AGREEMENTS:        In consideration of the above recitals and the covenants and agreements contained herein, Buyer and Sellers agree as follows:  1.    DEFINED TERMS        The following terms shall have the following meanings in this Agreement:        1.1 "ACCOUNTS RECEIVABLE" means the sum of (a) Advertising Accounts Receivable, (b) Cable Accounts Receivable, (c) Commercial Accounts Receivable and (d) National Advertising Accounts Receivable.        1.2 "ACCRUED VACATION" means with respect to any Sellers Employee who becomes a Transferred Employee, the accrued vacation and personal days to which such Transferred Employee is entitled under the plans or policies of Sellers or Sellers' Affiliates as of the Adjustment Time.        1.3 "ACQUIRED COMPANY" means CNC, CTT or TCAC, as the case may be.        1.4 "ADJUSTMENT TIME" means 11:59 p.m. on the day prior to the Closing Date.        1.5 "ADVERTISING ACCOUNTS RECEIVABLE" means the rights of a Seller or Acquired Company to payment relating to the Systems for advertising time relating to the Systems for local or regional accounts provided by such Seller or Acquired Company prior to the Adjustment Time.        1.6 "AFFILIATE" means with respect to a Person, any Person directly or indirectly controlling, controlled by or under common control with such other Person. For purposes of this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or partnership interests, by contract or otherwise.        1.7 "AGREEMENT" means this Asset Purchase Agreement.        1.8 "BASIC CABLE TELEVISION SERVICE" means the lowest tier of video programming offered by a System consistent with Section 76.901(a) of the FCC's regulations, 47 C.F.R. Section 76.901(a).        1.9 "BASIC SUBSCRIBER" means (a) with respect to residential single unit accounts, each customer with a subscription to Basic Cable Television Service, (b) with respect to residential bulk accounts, each customer with a primary outlet served pursuant to a subscription to Basic Cable Television Service and (c) with respect to commercial accounts, each customer with a subscription to Basic Cable Television Service, in each case excluding Delinquent Accounts and Excluded Subscribers.                                         2          1.10 "BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which national banking institutions in either Atlanta, Georgia or New York, New York are authorized or obligated by law or executive order to be closed.        1.11 "CABLE ACCOUNTS RECEIVABLE" means the rights of a Seller or Acquired Company to payment relating to the Systems for residential and commercial video services, residential telephony services and residential high speed internet services provided by such Seller or Acquired Company prior to the Adjustment Time.        1.12 "CLOSING" means the consummation of the transactions contemplated by this Agreement in accordance with the provisions of Article 7.        1.13 "CLOSING DATE" means the date on which the Closing occurs.        1.14 "CODE" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder, or any subsequent legislative enactment thereof, each as in effect from time to time.        1.15 "COMMERCIAL ACCOUNTS RECEIVABLE" means the rights of a Seller or Acquired Company to payment relating to the Systems for commercial telephony services and commercial high speed internet services provided by such Seller or Acquired Company prior to the Adjustment Time.        1.16 "COMMUNICATIONS ACT" means the Communications Act of 1934, including the Cable Communications Policy Act of 1984, the Cable Television Consumer Protection and Competition Act of 1992 and the Telecommunications Act of 1996, each as amended, and the FCC's rules, regulations and published policies and decisions thereunder, each as in effect from time to time.        1.17 "CONSENT" means any consent, permit, waiver, authorization, approval or filing of, to or with any Governmental Authorities or other Persons that Sellers or Buyer is required to obtain for Buyer to own and operate the Transferred Assets, the Systems and the Acquired Companies on and after the Closing Date.        1.18 "CONTRACT" means any contract, agreement, indenture, note, bond, mortgage, loan, instrument, lease or license (other than a Franchise or Governmental Permit).        1.19 "DELINQUENT ACCOUNT" means a customer account that (a) has physically been disconnected or (b) has a past due balance in excess of $25 (excluding late charges and amounts subject to a bona fide dispute) for more than ninety (90) days from the first day of the billing period for which the bill relates.        1.20 "DIGITAL SUBSCRIBER" means (a) with respect to residential single unit accounts, each customer with a subscription to any digital tier offered by a System, (b) with respect to residential bulk accounts, each customer with a primary outlet served pursuant to a subscription to digital video programming offered by a System and (c) with respect to commercial accounts, each customer with a subscription to digital video programming offered by a System, in each case excluding Delinquent Accounts and Excluded Subscribers.                                         3          1.21 "EMPLOYEE BENEFIT PLAN" means any employee benefit plan, within the meaning of Section 3(3) of ERISA, and each written stock option, stock appreciation right, restricted stock, stock purchase, stock unit, incentive, bonus, profit-sharing, savings, deferred compensation, health, medical, dental, life insurance, disability, accident, supplemental unemployment or retirement, severance or benefits continuation or fringe benefit plan, program or agreement that provides benefits to Sellers Employees, including any Multiemployer Plan.        1.22 "ENCUMBRANCE" means any lien, encumbrance, pledge, mortgage, deed of trust, security interest, charge, option, right of first refusal, easement, proxy, voting trust or agreement or transfer restriction under any shareholder or similar agreement.        1.23 "ENVIRONMENTAL LAW" means any Legal Rule relating to the handling, treatment, transportation or disposal of Hazardous Substances, the protection of the environment, natural resources or human health and safety as it relates to environmental protection, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act, the Natural Environmental Policy Act and any and all analogous state and local laws.        1.24 "EQUIPMENT" means all electronic and optical devices, trunk and distribution, service drop, coaxial and optical fiber cable, amplifiers, power supplies, conduit, vaults and pedestals, grounding and pole hardware, customer devices (including converters, encoders, transformers behind television sets and fittings), headend hardware and electronics (including, without limitation, origination, earth stations, antenna equipment transmission and distribution systems located on the premises of any of the Real Property, in vehicles or at repair facilities or on loan to any other system (other than the Systems) of Sellers and their Affiliates), test and measurement equipment, tools, construction equipment, vehicles, construction trailers, splicing tools, fiber splicing trailers, analog and digital studio equipment, computers, monitoring equipment of any kind, generators, equipment associated with the provisioning and routing of VoIP and high speed internet, office machines, TV sets and spares of any of the foregoing located at any of the Systems or in any vehicles, with respect to each of the foregoing listed items, owned, leased or held for use by a Seller or Acquired Company and used exclusively in connection with the ownership and operation of one or more of the Systems, plus such additions thereto and deletions therefrom between the date of this Agreement and the Closing Date as permitted by this Agreement.        1.25 "EQUITY INTERESTS" mean any and all shares, interests, or other equivalent interests (however designated) in the equity of any Person, including capital stock, partnership interests and membership interests, and including any rights, options or warrants with respect thereto.        1.26 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder, as in effect from time to time.        1.27 "EXCLUDED SUBSCRIBER" means, with respect to any residential single unit account, residential bulk unit account or commercial account, an account that both has not passed Sellers' credit scoring in accordance with Sellers' customary policies and has not made at least one (1) monthly payment in full.                                         4          1.28 "EXCLUSIVE COX BUSINESS SERVICES AGREEMENT" means any agreement of any Seller or any Seller's Affiliate for the provision of video, data and/or telephony services sold to a commercial customer in connection with the operation of one or more of the Systems which does not also apply to the operation of any other cable television system that is not being sold pursuant to the terms of this Agreement and that is owned or operated by any Seller or Seller's Affiliate.        1.29 "EXCLUSIVE COX MEDIA AGREEMENT" means any agreement of any Seller or any Seller's Affiliate for the provision of advertising sales and services or advertising sales representation in connection with the operation of one or more of the Systems which does not also apply to the operation of any other cable television system that is not being sold pursuant to the terms of this Agreement and that is owned or operated by any Seller or Seller's Affiliate.        1.30 "EXCLUSIVE FCC LICENSE" means any FCC License that is used in the operation of one or more of the Systems, that is not used in connection with the operation of any other cable system that is not being sold pursuant to the terms of this Agreement and that is owned or operated by any Seller or Seller's Affiliate; provided, however, the term "Exclusive FCC License" shall not include any Telecommunications Authorization.        1.31 "EXCLUSIVE GOVERNMENTAL PERMIT" means any Franchise, Exclusive FCC License and Exclusive Telecommunications Authorization and any other material license, permit or authorization used exclusively in the operation of one or more of the Systems granted or issued to any Seller or Acquired Company by any Governmental Authority, including all amendments thereto and renewals or modifications thereof.        1.32 "EXCLUSIVE POLE ATTACHMENT AGREEMENT" means any pole attachment agreement, conduit agreement or similar license or right of any Seller or Acquired Company to use utility poles related to the operation of one or more of the Systems which does not also apply to the operation of any other cable television system that is not being sold pursuant to the terms of this Agreement and that is owned or operated by any Seller or Seller's Affiliate.        1.33 "EXCLUSIVE PROGRAMMING AGREEMENT" means any programming agreement or programming carriage obligation of any Seller or Acquired Company related to the operation of one or more of the Systems which does not also apply to the operation of any other cable television system that is not being sold pursuant to the terms of this Agreement and that is owned or operated by any Seller or Seller's Affiliate.        1.34 "EXCLUSIVE RETRANSMISSION CONSENT AGREEMENT" means any retransmission consent agreement, must carry notice or other related broadcast right or obligation of any Seller or Acquired Company related to the operation of one or more of the Systems which does not also apply to the operation of any other cable television system that is not being sold pursuant to the terms of this Agreement and is owned or operated by any Seller or Seller's Affiliate.        1.35 "EXCLUSIVE TELECOMMUNICATIONS AUTHORIZATION" means any FCC Telecommunications Authorization or State Telecommunications Authorization that authorizes any Seller or Seller's Affiliate to provide international, interstate or intrastate Telecommunications Services over a System, that is not being used in connection with the                                         5    operation of any other cable system that is not being sold pursuant to the terms of this Agreement and that is owned or operated by any Seller or Seller's Affiliate; provided, however, the term "Exclusive Telecommunications Authorization" shall not include any Franchise or FCC License.        1.36 "FCC" means the Federal Communications Commission.        1.37 "FCC LICENSE" means any license, permit, registration or authorization granted or issued by the FCC to any Seller or Acquired Company and used in the operation of one or more of the Systems, including all amendments thereto and renewals or modifications thereof; provided, however, the term "FCC License" shall not include any Franchise or Telecommunications Authorization.        1.38 "FCC TELECOMMUNICATIONS AUTHORIZATION" means an authorization granted or issued by the FCC to provide Telecommunications Services.        1.39 "FRANCHISE" means any franchise, permit, license, resolution, contract, certificate, agreement or similar authorization, or any renewal thereof, issued by a Franchising Authority authorizing the construction and operation of a System; provided, however, the term "Franchise" shall not include any FCC License or Telecommunications Authorization.        1.40 "FRANCHISING AUTHORITY" means any Governmental Authority which has issued a Franchise.        1.41 "GAAP" means United States generally accepted accounting principles and practices as in effect from time to time.        1.42 "GOVERNMENTAL AUTHORITY" means the United States government or any state, or other political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions on their behalf.        1.43 "GOVERNMENTAL PERMIT" means any Franchise, FCC License and Telecommunications Authorization used in the operation of one or more of the Systems granted or issued to any Seller or Acquired Company by any Governmental Authority and any other material license, permit or authorization used in the operation of one or more of the Systems granted or issued to any Seller or Acquired Company by any Governmental Authority, including all amendments thereto and renewals or modifications thereof.        1.44 "HAZARDOUS SUBSTANCE" means any pollutant, contaminant, waste, hazardous or toxic substance, constituent, or material, including petroleum products and their derivatives, or other substances regulated under or pursuant to Environmental Law.        1.45 "HIGH SPEED DATA SUBSCRIBER" means a residential primary outlet served pursuant to a subscription to any level of residential high speed data service, excluding Delinquent Accounts and Excluded Subscribers.        1.46 "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the regulations promulgated by the Federal Trade Commission with respect thereto, as amended and in effect from time to time.                                         6          1.47 [INTENTIONALLY OMITTED]        1.48 "INDEPENDENT ACCOUNTING FIRM" means (a) an independent certified public accounting firm in the United States of national recognition (other than a firm which then serves as the independent auditor for any of Sellers or Buyer or any of their respective Affiliates) mutually acceptable to Sellers and Buyer or (b) if Sellers and Buyer are unable to agree upon such a firm, then Sellers, collectively, and Buyer shall each select a representative from one such firm and those two individuals shall select a third firm, in which event "Independent Accounting Firm" shall mean such third firm.        1.49 "INITIAL ADJUSTMENT STATEMENT" means the unaudited statement of the Current Adjustment and the Operating Cash Flow Adjustment, delivered by Sellers to Buyer pursuant to Section 2.6.3.        1.50 "INTELLECTUAL PROPERTY" means all right, title and interest in or relating to intellectual property, whether protected, created or arising under the laws of the United States or any other jurisdiction, including: (i) all patents and applications therefor, including all continuations, divisionals, and continuations-in-part thereof and patents issuing thereon, along with all reissues, reexaminations and extensions thereof (collectively, "PATENTS"); (ii) all trademarks, service marks, trade names, service names, brand names, trade dress rights, logos, corporate names, trade styles, logos and other source or business identifiers and general intangibles of a like nature, together with the goodwill associated with any of the foregoing, along with all applications, registrations, renewals and extensions thereof; (iii) all Internet domain names; (iv) all copyrights and all mask work, database and design rights, whether or not registered or published, all registrations and recordations thereof and all applications in connection therewith, along with all reversions, extensions and renewals thereof (collectively, "COPYRIGHTS"); (iv) trade secrets ("TRADE SECRETS") and (v) all other intellectual property rights arising from or relating to Technology.        1.51 "KNOWLEDGE" means, with respect to Sellers, the actual knowledge, after due inquiry, of the individuals set forth on SCHEDULE 1.51(a), and with respect to Buyer, the actual knowledge, after due inquiry, of the individuals set forth on SCHEDULE 1.51(b).        1.52 "LEGAL RULES" mean any applicable statute, ordinance, code or other law, rule, regulation, order, or other written standard, requirement, policy or procedure enacted, adopted, promulgated, applied or followed, by any Governmental Authority applicable to the Transferred Assets or any of the Systems.        1.53 "LEASED REAL PROPERTY" means leasehold interests in real estate held by any Seller or Acquired Company and used exclusively in connection with the ownership and operation of one or more of the Systems as of the date of this Agreement, plus such additions thereto and deletions therefrom between the date of this Agreement and the Closing Date as permitted by this Agreement.        1.54 "LIABILITY" means debts, losses, Taxes, fines, penalties or obligations (whether direct or indirect, known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, matured or unmatured, determined or undeterminable, disputed or undisputed,                                         7    liquidated or unliquidated, or due or to become due, and whether in contract, tort, strict liability or otherwise) and all costs, expenses, damages, liabilities, losses, claims, judgments or settlements, including, without limitation, reasonable attorney and professional fees, imposed on or otherwise suffered by a Person related to the foregoing.        1.55 "LICENSED INTELLECTUAL PROPERTY" means all Intellectual Property used in connection with the business or operations of one or more of the Systems, other than Transferred Intellectual Property.        1.56 "MASTER CARRIER AGREEMENT" means (a) a master carrier agreement pursuant to which one or more Sellers or Seller's Affiliates lease network capacity (either as a lessor or lessee) and/or provide or use related Telecommunications Services listed on SCHEDULE 1.56 or (b) such other agreement listed on SCHEDULE 1.56.        1.57 "MASTER CBI AGREEMENT" means a master Cox Business Internet agreement listed on SCHEDULE 1.57.        1.58 "MATERIAL ADVERSE EFFECT" means any change, event or effect (1) that has been or would reasonably be likely to be materially adverse to the business, properties, liabilities, operations, assets or condition (financial or otherwise) of the Systems, taken as a whole, other than any of the following: (a) matters affecting the cable television industry generally (including, without limitation, (i) any federal or state governmental actions, including without limitation, proposed or enacted legislation or regulations or (ii) accounting or litigation matters) that do not affect the Systems disproportionately from similarly situated participants in the cable industry; (b) matters relating to or arising from local, regional or national economic conditions (including, without limitation, financial and capital markets) that do not affect the Systems disproportionately from similarly situated participants in the cable industry; (c) matters relating to or arising from the announcement or pendency of the transaction contemplated by this Agreement; (d) actions taken by Buyer or its Affiliates; (e) any changes in competition affecting the Systems; and (f) consequences of the taking of any action contemplated or required by this Agreement; or (2) that would prevent Sellers from performing their obligations hereunder and consummating the transactions contemplated hereby.        1.59 "MATERIAL LEASED REAL PROPERTY" means the Leased Real Property that is the subject of a Material Real Property Lease.        1.60 "MATERIAL REAL PROPERTY LEASE" means a Real Property Lease (a) that requires rent or other payments annually in excess of $50,000, (b) the subject of which is a headend, or (c) the subject of which is a call center.        1.61 "MATERIAL TRANSFERRED CONTRACT" means each (a) Material Real Property Lease, (b) material Exclusive Pole Attachment Agreement, (c) material Exclusive Programming Agreement, (d) material Exclusive Retransmission Consent Agreement and (e) any other Contract that requires payment annually in excess of $250,000 and has a remaining stated term of longer than twelve (12) months from the date of this Agreement and which cannot be terminated on sixty (60) days' notice or less without the payment of any penalty.                                         8          1.62 "MULTIEMPLOYER PLAN" means a plan, as defined in ERISA Section 3(37) or 4001(a)(3), to which Sellers or any trade or business which would be considered a single employer with Sellers under Section 4001(b)(1) of ERISA or part of the same "controlled group" as the Sellers under Section 302(d)(8)(C) of ERISA, contributed, contributes or is required to contribute that provides benefits to Sellers Employees.        1.63 "NATIONAL ADVERTISING ACCOUNTS RECEIVABLE" means the rights of a Seller or Acquired Company to payment relating to the Systems for advertising time for accounts established or managed through National Cable Communications, KMAY (NBC), Cabletyme or CTV provided by such Seller or Acquired Company prior to the Adjustment Time.        1.64 "NON-EXCLUSIVE COX MEDIA AGREEMENT" means (a) an agreement that applies to advertising sales for advertising both on cable television systems that are included within the Systems and on cable television systems that are not being sold pursuant to the terms of this Agreement and which are owned or operated by any Seller or Seller's Affiliate and (b) an advertising sales representation agreement or other agreement listed on SCHEDULE 1.64.        1.65 "NON-EXCLUSIVE POLE ATTACHMENT AGREEMENT" means a pole attachment agreement granting rights to both cable television systems included within the Systems and cable television systems that are not being sold pursuant to the terms of this Agreement and which are owned or operated by any Seller or Seller's Affiliate and that are listed on SCHEDULE 1.65.        1.66 "NON-EXCLUSIVE RETRANSMISSION CONSENT AGREEMENT" means a retransmission consent agreement granting rights to both cable television systems included within the Systems and cable television systems that are not being sold pursuant to the terms of this Agreement and which are owned or operated by any Seller or Seller's Affiliate and that are listed on SCHEDULE 1.66.        1.67 "OTHER REAL PROPERTY INTEREST" means any interest in real property (other than Owned Real Property, Leased Real Property or Excluded Real Property) held by any Seller or Acquired Company and used exclusively in connection with the ownership and operation of one or more of the Systems as of the date of this Agreement, including easements, licenses, rights to access and rights-of-way, plus such additions thereto and deletions therefrom between the date of this Agreement and the Closing Date as permitted under this Agreement.        1.68 "OWNED REAL PROPERTY" means fee simple interests in a parcel of real estate and the buildings and improvements thereon (other than Excluded Real Property) owned by any Seller or Acquired Company and used exclusively in connection with the ownership and operation of one or more of the Systems as of the date of this Agreement, plus such additions thereto and deletions therefrom between the date of this Agreement and the Closing Date as permitted under this Agreement. The term "Owned Real Property" does not include any Other Real Property Interests or Leased Real Property.        1.69 "PERMITTED ENCUMBRANCES" mean any of the following liens or encumbrances: (a) landlord's liens for sums not yet due or being diligently contested in good faith; (b) liens for current Taxes, assessments and governmental charges not yet due or being contested in good faith by appropriate proceedings; (c) liens arising out of judgments or awards against a Seller or                                         9    Acquired Company with respect to which at the time there shall be a prosecution for appeal or there shall be a proceeding to review or the time limit has not yet run for such an appeal or review with respect to such judgment or award; (d) liens of carriers, warehousemen, mechanics, laborers, and materialmen and other similar statutory liens incurred in the ordinary course of business for sums not yet due or being diligently contested in good faith; (e) liens (other than Encumbrances imposed by ERISA) incurred in the ordinary course of business in connection with worker's compensation and unemployment insurance or similar laws; (f) with respect to Real Property, leases, easements, rights to access, rights-of-way, mineral rights or other similar reservations, restrictions or defects of title, in each such instance any of which either individually or in the aggregate, do not materially affect the operations of any System as currently operated; (g) liens, liabilities or encumbrances which are, or are related to, Assumed Liabilities including, without limitation, liens on leased Personal Property and Leased Real Property; (h) leasehold interests in real property leased to third parties by a Seller; and (i) restrictions set forth in, or rights granted to Franchising Authorities or other Governmental Authorities as set forth in, the Franchises, Governmental Permits or Legal Rules.        1.70 "PERSON" means any individual, corporation, limited liability company, partnership, company, sole proprietorship, joint venture, trust, estate, association, organization, Governmental Authority or other entity.        1.71 "PERSONAL PROPERTY" means all of the tangible and intangible personal property (other than personal property specifically listed on SCHEDULE 2.2) owned or leased by a Seller or Acquired Company and used exclusively in connection with the ownership and operation of one or more of the Systems as of the date of this Agreement, including, without limitation, Exclusive Governmental Permits, Transferred Contracts, Petty Cash, Accounts Receivable, Equipment, Subscriber Information, customer lists and billing records for the Systems, Transferred Intellectual Property, Transferred Motor Vehicles, office furnishings and office equipment, plus such additions thereto and deletions therefrom between the date of this Agreement and the Closing Date as permitted under this Agreement.        1.72 "PETTY CASH" means petty cash at locations in the Systems in an amount not to exceed $100,000.00 in the aggregate.        1.73 "POST-CLOSING ADJUSTMENT STATEMENT" means the unaudited statement of the Current Adjustment and the Operating Cash Flow Adjustment delivered by Buyer to Sellers pursuant to Section 2.6.3(ii).        1.74 "PROGRAMMER" means the party to the Programmer Optional Programming Agreements, other than one of the Sellers or an Affiliate of one of the Sellers.        1.75 "PROGRAMMER OPTIONAL PROGRAMMING AGREEMENTS" mean those programming agreements for the programming networks listed on SCHEDULE 1.75(a) and SCHEDULE 1.75(b) unless a Programmer who is a party to a Programmer Optional Programming Agreement elects not to exercise its option to require Buyer to assume such programming agreement.        1.76 "PURCHASED INTERESTS" mean the CNC Interests, CTT Interests and TCAC Interests.                                         10          1.77 "REAL PROPERTY" means the Owned Real Property, Leased Real Property and Other Real Property Interests.        1.78 "REAL PROPERTY LEASE" means a lease agreement the subject of which is Leased Real Property.        1.79 "REQUIRED PROGRAMMING AGREEMENT" means an affiliation agreement with Cox Communications Louisiana, LLC substantially in the form attached hereto as EXHIBIT A.        1.80 "REVENUE GENERATING UNITS" or "RGUS" mean the sum of (a) Basic Subscribers, (b) Digital Subscribers, (c) High Speed Data Subscribers and (d) Telephony Subscribers.        1.81 "SELLERS EMPLOYEES" mean those employees of any Seller or any Acquired Company who work primarily at or for one or more of the Systems or any Acquired Company.        1.82 "SEPARATED ADVERTISING SALES RIGHTS" mean those rights and obligations relating to one or more of the Systems which arise under a Non-Exclusive Cox Media Agreement, subject to the terms and conditions of such Non-Exclusive Cox Media Agreement.        1.83 "SEPARATED CARRIER RIGHTS" mean those rights and obligations relating to one or more of the Systems which arise under a Master Carrier Agreement, subject to the terms and conditions of such Master Carrier Agreement.        1.84 "SEPARATED CBI RIGHTS" mean those rights and obligations relating to one or more of the Systems which arise under a Master CBI Agreement, subject to the terms and conditions of such Master CBI Agreement.        1.85 "SEPARATED RETRANSMISSION RIGHTS" mean those retransmission consent rights and obligations relating to one or more of the Systems which arise under a Non-Exclusive Retransmission Consent Agreement, subject to the terms and conditions of such Non-Exclusive Retransmission Consent Agreement.        1.86 "SEVERANCE MAXIMUM" means the amount set forth on SCHEDULE 1.86.        1.87 "SOFTWARE" means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code; (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise; (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons; and (iv) all documentation, including user manuals and other training documentation related to any of the foregoing, in each case used in connection with the business or operations of one or more of the Systems, other than Transferred Intellectual Property, but including, without limitation, the proprietary software set forth on schedule A to the Intellectual Property License Agreement.        1.88 "STATE CONSENT" means any Consent of a State Regulatory Authority required for (a) the sale of any Transferred Asset (including without limitation a State Telecommunications Authorization) used in the provision of Telecommunications Services by any of the Systems or                                         11    (b) the replacement by Buyer of the Telecommunications Authorizations set forth on SCHEDULE 2.8.3, as contemplated in Section 5.3.1(iii) of this Agreement.        1.89 "STATE REGULATORY AUTHORITY" means any state Governmental Authority with authority over the provision of Telecommunications Service.        1.90 "STATE TELECOMMUNICATIONS AUTHORIZATION" means an authorization granted or issued by a State Regulatory Authority to provide Telecommunications Services.        1.91 "SUBSCRIBER INFORMATION" means personally identifiable information pertaining to customers, including, without limitation (a) names, (b) telephone numbers, (c) e-mail addresses, where available (d) billing addresses, (e) credit card numbers and expiration dates (for those subscribers who currently pay their monthly bills through automatic credit card payments) and (f) bank account numbers and routing numbers (for those subscribers who currently pay their monthly bills through automatic withdrawals from their bank accounts).        1.92 "TAX RETURN" means any return, report or statement required to be filed with respect to any Tax (including any schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required, combined, consolidated or unitary returns for any group of entities that includes Sellers, any of their subsidiaries, or any of their Affiliates.        1.93 "TAXES" mean all federal, state, local or foreign income, franchise, sales, use, ad valorem, value added, net or gross proceeds, gains, profits, capital, withholding, payroll, employment, unemployment, social security, workers' compensation, license, excise or real or personal property taxes, customs, duties, fees and charges or levies of any kind, together with any interest thereon and any penalties, additions to tax or additional amounts applicable thereto, and any liability in respect of any items described above payable by reason of contract, assumption, transferee liability, operation of law, Treasury Regulations Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under law) or otherwise.        1.94 "TAXING AUTHORITY" means the Internal Revenue Service of the United States and any other Governmental Authority responsible for the administration of any Tax.        1.95 "TECHNOLOGY" means, collectively, all Software, information, designs, formulae, algorithms, procedures, methods, techniques, ideas, know-how, research and development, technical data, programs, subroutines, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship and other similar materials, and all recordings, graphs, drawings, reports, analyses, and other writings, and other tangible embodiments of the foregoing, in any form whether or not specifically listed herein, and all related technology, that are used in, incorporated in, embodied in, displayed by or relate to, or are used in connection with the foregoing.        1.96 "TELECOMMUNICATIONS AUTHORIZATION" means any FCC Telecommunications Authorization or State Telecommunications Authorization that authorizes any Seller or a Seller's Affiliate to provide international, interstate or intrastate Telecommunications Services over a                                         12    System; provided, however, the term "Telecommunications Authorization" shall not include any Franchise or FCC License.        1.97 "TELECOMMUNICATIONS SERVICE" shall have the meaning set forth in Section 3(46) of the Communications Act as of the date of this Agreement, 47 U.S.C. Section 153(46).        1.98 "TELEPHONY SUBSCRIBER" means a residential primary outlet served pursuant to a subscription to any level of circuit-switched or VoIP telephony service, excluding Delinquent Accounts and Excluded Subscribers.        1.99 "TRANSFERRED ASSETS" mean such tangible and intangible assets owned or leased by any Seller which are to be sold and transferred to Buyer pursuant to Section 2.1.        1.100 "TRANSFERRED CONTRACTS" mean any of the following Contracts (other than any Contracts that are Excluded Assets) that are either (a) in effect on the date of this Agreement (other than those that expire by their terms and are not renewed prior to the Closing) or (b) entered into by either any Seller or any Acquired Company between the date of this Agreement and the Closing Date as permitted under this Agreement:              i. Exclusive Pole Attachment Agreements;              ii. Exclusive Retransmission Consent Agreements;              iii. Exclusive Programming Agreements;              iv. Exclusive Cox Media Agreements;              v. Exclusive Cox Business Services Agreements; and              vi. any of the following Contracts to which any Seller or Acquired Company is a party and which relates exclusively to either the Transferred Assets or the business or operations of one or more of the Systems:                    A. personal property leases;                    B. Real Property Leases;                    C. tower leases (for which a Seller is a lessor or lessee);                    D. subscription agreements with customers for cable, internet and telephony services provided by the Systems (other than Exclusive Cox Business Services Agreements);                    E. maintenance agreements;                    F. railroad crossing agreements;                    G. Other Real Property Interest agreements; and                                         13                      H. other agreements              vii. non-exclusive Contracts listed on SCHEDULE 1.100.        1.101 "TRANSFERRED INTELLECTUAL PROPERTY" means (i) all Seller-owned internet domain names set forth on SCHEDULE 1.101 that are used exclusively in connection with the business or operations of one or more of the Systems and (ii) the right to use the company name "TCA Communications, L.L.C." in full, but not any abbreviation or derivation thereof.        1.102 "TRANSFERRED MOTOR VEHICLES" means the motor vehicles used exclusively in connection with the ownership and operation of one or more of the Systems (it being understood that at or prior to Closing, Sellers shall, at their expense, discharge any operating or capitalized master lease agreements or lease agreements relating to vehicles used exclusively in connection with the business or operations of one or more of the Systems), including those motor vehicles described in SCHEDULE 1.102, except as the vehicles listed thereon may be changed, replaced, or disposed of from time to time in the ordinary course of business consistent with past practices after the date hereof.        1.103 "2005 OPERATING CASH FLOW" shall mean for the period from January 1 through December 31, 2005, an amount equal to the following:              i. As such amounts are set forth in the December 31, 2005 Audited Financial Statement (as defined in Section 5.2.1 below), the revenues of the Systems less cost of services (excluding depreciation and amortization) and selling, general and administrative expenses (excluding depreciation and amortization); plus              ii. The sum of the following items:                    A. general corporate overhead expense, allocated to the Systems;                    B. local overhead expense from regional offices of the Sellers or their Affiliates, for services provided to one or more of the Systems;                    C. non-recurring items of an unusual nature and amounts in connection with: (1) the transactions contemplated by this Agreement, including, without limitation, incentive bonuses and like items and the restructuring in the MAC System; (2) Hurricane Rita and other natural disasters; and (3) amounts incurred in respect of long-term incentive plans, unit appreciation plans and like items; and                    D. amounts associated with:                          (1) adjustments to reflect the difference between the programming rates allocated to the Systems by Parent and the actual effective contractual rates associated with premium programming services provided by the Systems;                          (2) up to Five Million Dollars ($5,000,000.00) of the sum of:                                         14                                  (aa) adjustments to reflect the amount of indirect costs capitalized in connection with the construction of cable transmission and distribution facilities and capitalized installation services based on a change from the rate applicable to Parent and its subsidiaries, taken as a whole, to that applicable to the Systems considered as a stand-alone entity; and                                (bb) adjustments for recognition of changes in the materiality standard in respect of recognition of programming incentives, taking into account the difference in size between the Systems considered as a stand-alone entity compared to Parent and its subsidiaries, taken as a whole.  With respect to the foregoing allocations, adjustments and the like in clause (ii) (A) - (D) above, such allocations, adjustments and the like shall be made in a manner consistent with the methodology and practices used in determining similar allocations, adjustments and the like for 2004, as illustrated in SCHEDULE 1.103 attached hereto.  With respect to the foregoing, any reference to a System or Systems shall include any cable system included in such System to the extent relevant.        1.104 "2005 OPERATING CASH FLOW TARGET" shall mean Two Hundred Fifty-Seven Million Nine Hundred Thousand Dollars ($257,900,000.00).        1.105 "WARN ACT" means the Worker Adjustment and Retraining Notification Act, as amended and as in effect from time to time.        1.106 List of Additional Definitions. The following is a list of additional terms used in this Agreement and a reference to the Section hereof in which such term is defined:    Term                                                          Section - ----                                                          -------   Acquisition Transaction                                       5.19.1 Additional New Court TV Analog Subscribers                    5.16.4 Antitrust Division                                            5.4 Audited Financial Statements                                  3.5 Assumed Liabilities                                           2.7.1 Assumption Agreement                                          7.2.2 Bill of Sale                                                  7.2.1 Brokerage Services                                            3.20 Buyer                                                         Preamble Buyer Indemnified Parties                                     9.2 California System                                             Recitals Cap                                                           9.5.2 CCL                                                           Preamble Claimant                                                      9.4.1 CNC                                                           Recitals CNC Interests                                                 Recitals COBRA                                                         5.8.3                                          15      Copyright Act                                                 3.15.3 Copyright Filings                                             3.15.3 Copyrights                                                    1.50 Court TV Minimum                                              5.16.4 CoxCom                                                        Preamble CSWH                                                          Preamble CTT                                                           Recitals CTT Interests                                                 Recitals CTP                                                           Preamble Current Adjustment                                            2.6.1 Current New Court TV Analog Subscribers                       5.16.4 December 31, 2005 Audited Financial Statements                5.2.1 Deductible                                                    9.5.1 Deposit                                                       2.3 Deposits                                                      2.6.1 Deposit Escrow Agreement                                      2.3 Designated Area                                               5.18.1 Direct Claim                                                  9.4.1 Eligible Employees                                            5.8.1 End Date                                                      8.1.3 Environmental Firm                                            5.9.1 Escrow Agent                                                  2.3 Excluded Assets                                               2.2 Excluded Real Property                                        2.2.15 Exclusion Notice                                              5.8.1 Financial Statements                                          3.5 Financing Commitments                                         4.5 Franchise Right of First Refusal                              2.9 FTC                                                           5.4 Indemnifying Party                                            9.4.1 Intellectual Property License Agreement                       5.7 MAC System                                                    Recitals Management Agreement                                          10.1.3 North Carolina System                                         Recital Operating Cash Flow Adjustment                                2.6.2 Outsourcing Agreement                                         10.1.4 Patents                                                       1.50 Pre-Closing Covenants                                         9.1 Prepaid Expenses                                              2.6.1 Programming Assumption Agreements                             5.16.1 Projections                                                   5.14.1 Purchase Price                                                2.4 Real Property Capitalized Leases                              2.6.1(ii)(E) Related Agreements                                            3.2 Related Franchise Assets                                      10.1.1 Related Telecommunications Assets                             10.1.1                                          16      Reorganization Plan                                           5.8.7 Representatives                                               5.19.1 Required Action                                               5.9.1 Required Consents                                             6.1.5 Resale Certificates                                           5.5.3 Restricted Business                                           5.18.1 Retained Franchises                                           10.1.1 Retained Taxes                                                9.2.4 Retained Telecommunications Operation                         10.1.1 Sellers                                                       Preamble Sellers Indemnified Parties                                   9.3 Severance Excess                                              5.8.7 Intellectual Property License Agreement                       5.7 SEC                                                           3.5 Subsequent Transfer                                           10.1.2 Survival Period                                               9.1 Systems                                                       Recitals TCAC                                                          Recitals TCAC Interests                                                Recitals TCAP                                                          Preamble Third Party Claim                                             9.4.1 Telcom Entities                                               3.4.1(ii) Trade Secrets                                                 1.50 Transfer Taxes                                                5.5.1 Transferred Employees                                         5.8.1 Transition Services Agreement                                 5.7 Unaudited Financial Statements                                3.5 West Texas System                                             Recitals   2.    SALE AND PURCHASE OF TRANSFERRED ASSETS        2.1 Agreement to Sell and Purchase. Subject to the terms and conditions set forth in this Agreement, Sellers hereby agree to sell, transfer and deliver to Buyer at Closing, and Buyer agrees to purchase from Sellers at Closing, all of the Transferred Assets listed below, free and clear of any Encumbrances, other than Permitted Encumbrances:              2.1.1 The Personal Property;              2.1.2 The Exclusive Governmental Permits (other than any Exclusive Governmental Permit set forth on SCHEDULE 2.2);              2.1.3 The Real Property;              2.1.4 Subject to Section 2.2.2, all books and records relating to the operation of the Systems and the Transferred Assets, including without limitation copies of the Transferred Contracts and all correspondence and memoranda relating thereto, Subscriber Information, customer records and all records required by the Franchising Authorities to be kept by the                                         17    Systems and the minute books and similar company records of the Acquired Companies (provided that Sellers may retain copies of company records of the Acquired Companies);              2.1.5 Prepaid Expenses and Deposits;              2.1.6 In accordance with and subject to the terms and conditions set forth in Section 5.16, the Required Programming Agreement and the Programmer Optional Programming Agreements, each solely with respect to the Systems;              2.1.7 In accordance with and subject to the terms and conditions set forth in Section 5.3, the Separated Retransmission Rights, the Separated Carrier Rights, the Separated CBI Rights and the Separated Advertising Sales Rights;              2.1.8 The assets listed in SCHEDULE 2.1.8;              2.1.9 The Purchased Interests;              2.1.10 The right to use the company name "TCA Communications, L.L.C." in full, but not any abbreviation or derivation thereof; and              2.1.11 The goodwill and going concern value generated by Sellers with respect to the Systems; and              2.1.12 Such other assets owned by Sellers and not specifically set forth above, used exclusively in the conduct of the business and operations of the Systems as conducted as of the date hereof by Sellers, other than Excluded Assets or those assets set forth on or described in SCHEDULE 3.22.        2.2 Excluded Assets. Notwithstanding anything set forth in this Agreement to the contrary, the Transferred Assets shall exclude the following assets (collectively, the "EXCLUDED ASSETS"):              2.2.1 Except for any Petty Cash, any Seller's cash on hand as of the Adjustment Time and all other cash, checks, drafts or cash equivalents in any Seller's bank, savings or lockbox accounts, including, without limitation, customer advance payments and deposits; any and all bonds, surety instruments, insurance policies and all rights and claims thereunder (except as specifically provided herein), letters of credit or other similar items, including, without limitation those listed on SCHEDULE 3.19, and any cash surrender value in regard thereto, and any stocks, bonds, certificates of deposit and similar investments (other than the Purchased Interests);              2.2.2 Any books and records that any Seller is required by law to retain (provided that copies of such books and records will be made available to Buyer) or is otherwise prohibited by law to disclose and any correspondence, memoranda, books of account, Tax reports and Tax Returns (other than Tax reports and Tax Returns filed by the Acquired Companies and in possession of a Seller or an Affiliate of Seller) and the like related to the Systems and all files related to the Systems that are located at Parent's headquarters in Atlanta, Georgia, and Sellers' corporate minute books and other books and records related to internal company matters and financial relationships with Sellers' lenders and Affiliates;                                         18                2.2.3 Any claims, rights and interest in and to any refunds of federal, state or local franchise, income or other Taxes or fees of any nature whatsoever for periods prior to the Adjustment Time including, without limitation, fees paid to the United States Copyright Office or any choses in action owned by Sellers relating to such refunds;              2.2.4 All programming agreements (other than the Required Programming Agreement, the Exclusive Programming Agreements and, if applicable, the Programmer Optional Programming Agreements) of any Seller or any Affiliate of any Seller, including those relating to or benefiting the Systems;              2.2.5 All retransmission consent agreements (other than Exclusive Retransmission Consent Agreements) of any Seller or any Affiliate of any Seller, including those relating to or benefiting the Systems including, without limitation, all rights under Non-Exclusive Retransmission Agreements (other than Separated Retransmission Rights);              2.2.6 All pole attachment agreements (other than Exclusive Pole Attachment Agreements) of any Seller or any Affiliate of any Seller, including those relating to or benefiting the Systems;              2.2.7 All corporate names, trademarks, trade names, domain names, service marks, service names, logos and similar proprietary rights of any Seller (including, without limitation, any use of the names "Cox" or "TCA" or any derivations thereof) whether or not used in the business or operations of the Systems (other than the company name "TCA Communications, L.L.C."), except for the Transferred Intellectual Property;              2.2.8 Any and all assets and rights of any Seller that are not used exclusively in connection with, or do not relate exclusively to, the ownership and operation of one or more of the Systems, except for those assets or rights specifically set forth on SCHEDULE 2.1.8;              2.2.9 All rights to receive fees or services from any Seller or any Affiliate of any Seller and any contracts, agreements or other arrangements between any Seller and an Affiliate of any Seller, other than pursuant to Transferred Contracts, Accounts Receivable or the Related Agreements;              2.2.10 All equipment, Software and agreements related to any Seller's customer billing systems whether or not used exclusively or otherwise in the business of one or more of the Systems;              2.2.11 Any Employee Benefit Plan and its related assets;              2.2.12 All rights and licenses to Software, including without limitation, the Software owned, developed or used by Cox Media, L.L.C. used in connection with the operation of the Systems, other than pursuant to and in accordance with the terms and conditions set forth in the Intellectual Property License Agreement;              2.2.13 All Governmental Permits (other than Exclusive Governmental Permits) of any Seller or any Seller's Affiliate, including those relating to or benefiting the Systems; and                                         19                2.2.14 Licensed Intellectual Property.              2.2.15 The (i) real property (the "Excluded Real Property") and (ii) other assets listed on SCHEDULE 2.2.        2.3 Deposit Escrow. Within three Business Days of the execution and delivery of this Agreement by Sellers and Buyer, Buyer shall deliver a cash deposit in U.S. Dollars in an amount equal to Thirty-Five Million Dollars ($35,000,000.00) (the "DEPOSIT") to an escrow agent selected by Sellers and reasonably acceptable to Buyer ("ESCROW AGENT") to secure the timely performance and fulfillment of Buyer's obligations under this Agreement. The Deposit shall be held in an account and applied pursuant to the terms of that certain Deposit Escrow Agreement, substantially in the form attached hereto as EXHIBIT B (the "DEPOSIT ESCROW AGREEMENT"), with such changes requested by Escrow Agent and mutually acceptable to Buyer and Sellers, each acting reasonably, to be executed by Buyer, Sellers and Escrow Agent concurrently with the delivery of the Deposit. Notwithstanding anything to the contrary set forth herein, Sellers shall have the right to terminate this Agreement if Buyer fails to deliver the Deposit timely as provided for herein. The Deposit will be invested as provided in the Deposit Escrow Agreement. At the Closing, the amount of the Deposit, together with interest thereon, shall be delivered to Sellers and credited against the Purchase Price. In the event the transactions contemplated hereby are not consummated or in the event of a termination of this Agreement, the Deposit, together with interest thereon, shall be paid in accordance with Section 8.2 hereof.        2.4 Purchase Price. The purchase price for the Transferred Assets shall be Two Billion Five Hundred Fifty Million Dollars ($2,550,000,000.00) (the "PURCHASE PRICE"), which amount shall be adjusted as provided in Section 2.6 below. At the Closing, Buyer shall deliver to Sellers, via wire transfer(s) of immediately available funds in U.S. Dollars in accordance with Sellers' written instructions provided at least two (2) Business Days prior to the Closing, the Purchase Price (a) reduced by the amount of the Deposit, together with interest thereon, delivered to Sellers on the Closing Date pursuant to Section 2.3, above, and (b) subject to adjustment on the Closing Date as provided in Section 2.6, below.        2.5 Allocation of Purchase Price. Sellers and Buyer agree to use good faith efforts to agree to an allocation of the aggregate purchase consideration among the Transferred Assets (and among the assets of each of CNC and TCAC and the Purchased Interests in CTT) in a manner consistent with Section 1060 of the Code and the United States Treasury Regulations promulgated thereunder within sixty (60) days after the Closing Date and, if Sellers and Buyer reach such agreement, then Sellers and Buyer agree (i) to file all income Tax forms and returns (including IRS Form 8594 or any successor form) in accordance with such allocation, (ii) to update such Tax forms or returns in accordance with the methods used in making the allocation to the extent necessary to reflect purchase price adjustments, and (iii) not to take any position before any taxing authority that is inconsistent with such allocation. If Sellers and Buyer shall not have agreed on such allocation by the sixtieth (60th) day following the Closing Date, then Sellers and Buyer shall have no further obligations pursuant to this Section 2.5, and each of Sellers and Buyer shall make its own determination of such allocation for financial and tax reporting purposes. For purposes of this Section 2.5, the Transferred Assets shall include the covenant not to compete in Section 5.18.                                         20          2.6 Adjustments to the Purchase Price. The Purchase Price shall be subject to adjustment, as of the Adjustment Time, as follows:              2.6.1 The Purchase Price shall be subject to:                    (i) an increase in the Purchase Price by an amount equal to the sum of:                          (A) 100% of the face amount of all Cable Accounts Receivable that are outstanding as of the Adjustment Time, no part of which is outstanding more than thirty (30) days from the first day of the period to which any outstanding bill relates;                          (B) 91% of the face amount of all Cable Accounts Receivable that, as of the Adjustment Time, any part of which is outstanding more than thirty (30) days from the first day of the period to which any outstanding bill relates but no part of which is outstanding more than sixty (60) days from the first day of the period to which any outstanding bill relates;                          (C) 55% of the face amount of all Cable Accounts Receivable that, as of the Adjustment Time, any part of which is outstanding more than sixty (60) days from the first day of the period to which any outstanding bill relates but no part of which is outstanding more than ninety (90) days from the first day of the period to which any outstanding bill relates;                          (D) 100% of the face amount of all Commercial Accounts Receivable that are outstanding as of the Adjustment Time, no part of which is outstanding more than sixty (60) days from the first day of the period to which any outstanding bill relates;                          (E) 75% of the face amount of all Commercial Accounts Receivable that, as of the Adjustment Time, any part of which is outstanding more than sixty (60) days from the first day of the period to which any outstanding bill relates but no part of which is outstanding more than ninety (90) days from the first day of the period to which any outstanding bill relates;                          (F) 50% of the face amount of all Commercial Accounts Receivable that, as of the Adjustment Time, any part of which is outstanding more than ninety (90) days from the first day of the period to which any outstanding bill relates but no part of which is outstanding more than one hundred twenty (120) days from the first day of the period to which any outstanding bill relates;                          (G) 100% of the face amount of all Advertising Accounts Receivable that are outstanding, as of the Adjustment Time, no part of which is outstanding more than one hundred twenty (120) days from the first day of the period to which any outstanding bill relates;                          (H) 10% of the face amount of all Advertising Accounts Receivable that, as of the Adjustment Time, no part of which is outstanding more than one hundred twenty (120) days from the first day of the period to which any outstanding bill relates;                                         21                            (I) 100% of the face amount of all National Advertising Accounts Receivable that are, as of the Adjustment Time, outstanding;                          (J) all normal and customary prepaid expenses relating to the ownership or operation of any of the Transferred Assets or Acquired Companies, and for which it is reasonably expected that Buyer will receive a benefit within twelve (12) months following the Closing, which prepaid expenses shall be prorated between Sellers and Buyer as of the Adjustment Time in accordance with GAAP, and which prepaid expenses, by way of example, shall include: real and personal property taxes and assessments levied against the Transferred Assets; real and personal property rentals (other than capitalized leases); pole rentals; power and utility charges; applicable franchise, copyright or other business and license fees, sales and service charges; and similar items (such expenses, the "PREPAID EXPENSES");                          (K) the outstanding amount of all deposits relating to the Systems paid by any Seller or Affiliate of any Seller prior to the Adjustment Time (the "DEPOSITS");                          (L) an amount equal to the excess of capital expenditures (excluding customer premise equipment) made with respect to the Systems during the portion of the applicable period set forth on SCHEDULE 2.6.1(i) that occurs before the Adjustment Time, in the aggregate, over the amount of the aggregate budgeted capital expenditures (excluding customer premise equipment) for the Systems set forth on SCHEDULE 2.6.1(i) for such portion of said period, on a prorated basis, but only to the extent that Buyer has approved such excess expenditures; provided, however, in the event that Buyer does not approve such expenditure, Sellers, notwithstanding anything to the contrary set forth in this Agreement, shall not be obligated to make any such expenditure;                          (M) Petty Cash; and                          (N) an amount equal to the Severance Excess, if any;                    (ii) a decrease in the Purchase Price by an amount equal to the sum of:                          (A) all customer advance payments and deposits from customers relating to the Systems paid to any Seller and retained by any Seller subsequent to the Closing;                          (B) all normal and customary accrued and unpaid expenses of the kind itemized in Section 2.6.1(i)(J) above relating to the ownership or operation of any of the Transferred Assets or Acquired Companies, which accrued and unpaid expenses shall be prorated between Sellers and Buyer as of the Adjustment Time in accordance with GAAP;                          (C) an amount, if any, equal to the monetary amount of the type of Permitted Encumbrance contemplated in clause (d) of the definition of Permitted Encumbrance;                          (D) all Accrued Vacation of the Transferred Employees as of the Adjustment Time; and                                         22                            (E) An amount equal to the net book value of the liability, as of the Adjustment Time, under the real property capitalized leases listed on SCHEDULE 2.6.1(ii)(E) (the "REAL PROPERTY CAPITALIZED LEASES"), determined in accordance with GAAP (it being understood and agreed that Buyer shall assume all obligations under such leases relating to the period after the Adjustment Time); and                          (F) an amount equal to the deficit of capital expenditures (excluding customer premise equipment) made with respect to the Systems during the portion of the applicable period set forth on SCHEDULE 2.6.1(i) that occurs before the Adjustment Time, in the aggregate, below the amount of the aggregate budgeted capital expenditures (excluding customer premise equipment) for the Systems set forth on Schedule 2.6.1(i) for such portion of said period, on a prorated basis;                          (G) the amount set forth in Section 2.9, if applicable.  The adjustment provided for in this Section 2.6.1 is referred to herein as the "CURRENT ADJUSTMENT."              2.6.2 If the 2005 Operating Cash Flow is less than the 2005 Operating Cash Flow Target, then the Purchase Price shall be reduced by an amount equal to ten (10) times the amount of the difference between the 2005 Operating Cash Flow Target and the 2005 Operating Cash Flow. If 2005 Operating Cash Flow equals or exceeds the 2005 Operating Cash Flow Target, there shall be no adjustment hereunder. The adjustment, if any, provided for herein shall be referred to as the "OPERATING CASH FLOW ADJUSTMENT."              2.6.3 For purposes of determining the adjustments to the Purchase Price to be made as of the Adjustment Time pursuant to Sections 2.6.1 and 2.6.2 above, Sellers and Buyer shall proceed as follows:                    (i) At least seven (7) Business Days prior to the Closing, Sellers will deliver to Buyer the Initial Adjustment Statement, showing in reasonable detail a preliminary good faith estimate of the Current Adjustment and the Operating Cash Flow Adjustment, together with such documentation as may reasonably support Sellers' calculations set forth therein. Not less than five (5) Business Days prior to the Closing Date, Buyer shall provide Sellers with any good faith objections to the Initial Adjustment Statement in writing, together with such documentation as may reasonably support Buyer's good faith objections. After considering Buyer's objections, Sellers shall make such revisions to the Initial Adjustment Statement as are mutually acceptable to the parties and shall deliver a revised Initial Adjustment Statement not less than one (1) day prior to the Closing Date, and the Purchase Price shall be adjusted on the Closing Date in accordance with such revised Initial Adjustment Statement. Any disagreements that may continue to exist with respect to the Initial Adjustment Statement shall be resolved in connection with the Post-Closing Adjustment Statement pursuant to Section 2.6.3(iv) below. Notwithstanding the foregoing, in the event Buyer disputes in good faith the amount of the Operating Cash Flow Adjustment, and the amount in dispute exceeds Five Million Dollars ($5,000,000.00), the amount in dispute shall be excluded from the Initial Adjustment Statement and the disputed amount shall be resolved pursuant to and in accordance with the provisions set forth in Section 2.6.3(iv) below; which procedures shall commence immediately                                         23    following Closing. In the event any portion of such disputed amount is resolved in favor of Sellers pursuant to Section 2.6.3(iv), in addition to paying such amount resolved in favor of Sellers, Buyer shall pay interest to Sellers on the amount of such disputed amount resolved in favor of Sellers at the rate of 12% per annum accruing from the Closing Date until the amount is paid to Sellers. In the event any portion of an amount included in the Initial Adjustment Statement is ultimately resolved in favor of Buyer pursuant to Section 2.6.3(iv), in addition to paying such amount resolved in favor of Buyer, Sellers shall pay interest to Buyer on the amount of such disputed amount resolved in favor of Buyer at the rate of 12% per annum accruing from the Closing Date until the amount is paid to Buyer. Such amounts shall be paid within three (3) Business Days of receipt of the determination under Section 2.6.3(iv) below.                    (ii) Within ninety (90) days after the Closing Date, Buyer shall deliver to Sellers the Post-Closing Adjustment Statement which shall set forth Buyer's determination of the Current Adjustment and the Operating Cash Flow Adjustment, together with such documentation as may reasonably support Buyer's calculations set forth therein and such other documentation relating to such Post-Closing Adjustment Statement as Sellers may reasonably request.                    (iii) If Sellers shall in good faith conclude that the Post-Closing Adjustment Statement does not accurately reflect the adjustments to be made to the Purchase Price as of the Adjustment Time pursuant to Sections 2.6.1 and 2.6.2, Sellers shall, within sixty (60) days after their receipt of the Post-Closing Adjustment Statement, provide to Buyer a written statement of any discrepancies believed in good faith to exist, together with such documentation as may reasonably support Sellers' calculations set forth therein and such other documentation relating to such statement as Buyer may reasonably request.                    (iv) Buyer and Sellers shall use good faith efforts to jointly resolve the discrepancies within thirty (30) days of Buyer's receipt of Sellers' written statement of discrepancies, which resolution, if achieved, shall be in writing and binding upon all parties to this Agreement and not subject to dispute or judicial review. If Buyer and Sellers do not resolve the discrepancies to their mutual satisfaction within such 30-day period, Buyer and Sellers shall, within the following ten (10) days, jointly engage the Independent Accounting Firm to review the Post-Closing Adjustment Statement, together with Sellers' discrepancy statement and any other relevant documents requested by the Independent Accounting Firm. The Independent Accounting Firm shall report its conclusions as to the adjustments to be made to the Purchase Price as of the Adjustment Time pursuant to Sections 2.6.1 and 2.6.2, which report shall be in writing, conclusive, final and binding on all parties to this Agreement and not subject to dispute or judicial review. After final resolution of all disputes with respect to the Post-Closing Adjustment Statement pursuant to the procedures set forth above, no party shall have the right to raise further adjustments or make any other claim in its favor. If, after adjustment as appropriate with respect to the amount of the aforesaid adjustments paid or credited at the Closing, Buyer, on the one hand, or Sellers, on the other hand, are determined to owe an amount to the other pursuant to the terms of this Section 2.6.3(iv), the appropriate party shall pay such amount to the other within three (3) Business Days after receipt of such determination. The cost of retaining the Independent Accounting Firm shall be borne one-half by Buyer and one-half by Sellers.                                         24          2.7 Assumption of Assumed Liabilities. Pursuant to the Assumption Agreement, Buyer shall assume, and shall pay, perform and discharge when due, the following Liabilities (the "ASSUMED LIABILITIES"):              2.7.1 Accrued Vacation to the extent such Liabilities are taken into account in the determination of the Current Adjustment;              2.7.2 all severance obligations, if any, to Transferred Employees arising out of the termination of employment after the Closing as set forth in Section 5.8.5;              2.7.3 Liabilities accrued or relating to periods from and after the Adjustment Time arising out of Buyer's ownership, leasing or use of the Transferred Assets, the Acquired Companies or operation of the Systems, including, without limitation, those Liabilities arising under any Transferred Contract or Exclusive Governmental Permit accrued or relating to periods from and after the Adjustment Time;              2.7.4 all Liabilities of Sellers taken into account in the determination of the Current Adjustment; and              2.7.5 the Liabilities set forth on SCHEDULE 2.7.5.  Except as expressly set forth in this Agreement, Buyer will not assume any other Liabilities of Sellers or related to the Systems or the Transferred Assets. The Acquired Companies shall have no Liabilities other than Liabilities accruing or arising after the Adjustment Time under the Contracts set forth on SCHEDULE 3.21.5. For the avoidance of doubt, no Retained Taxes shall be Assumed Liabilities.              2.8 Cox Name; Affiliated Services.                    2.8.1 Buyer acknowledges and agrees that the names "Cox," "TCA" and any derivations thereof are Excluded Assets, other than the name "TCA Communications, L.L.C." After Closing, Buyer shall remove or delete the names "Cox," "TCA" and any derivations thereof from the Transferred Assets as soon as reasonably practicable, but in any event, by the one hundred eightieth (180th) day following Closing. Until such removal or deletion in accordance with the preceding sentence, in order to facilitate the transition of ownership of the Systems pursuant to the transactions contemplated by this Agreement, said names and derivations thereof may remain on the tangible assets included in the Transferred Assets. As soon as reasonably practicable following the Closing, Buyer shall cause the company name of each of the Acquired Companies other than TCA Communications, L.L.C. to be changed to a name which is not confusingly similar with, and which does not use as part of its name, the name "Cox" or "TCA" or any variation, abbreviation or derivation thereof; provided, however, Buyer may continue to use the name "TCA Communications, L.L.C." as the company name of said Acquired Company. Notwithstanding the foregoing, Buyer shall not be required to remove or discontinue using said names and derivations thereof as same may appear on identification tags or on converters, modems or similar items while in customers' homes or properties making such removal or discontinuation impracticable for Buyer.                                         25                      2.8.2 Buyer acknowledges and agrees that (a) the services currently provided for the Systems by Sellers and their Affiliates, including, without limitation, customary corporate overhead services provided by the corporate, division or regional offices of Parent or any Affiliate thereof and those described on SCHEDULE 2.8.2, shall cease to be provided to the Systems or Buyer effective as of the Closing by Sellers and their Affiliates and (b) after Closing, Sellers and their Affiliates shall no longer provide such services for the Systems other than pursuant to and in accordance with the terms and conditions set forth in the Transition Services Agreement and the Exclusive Cox Media Agreements.                    2.8.3 Buyer acknowledges and agrees that Sellers will not be assigning or transferring any of their Telecommunications Authorizations listed in SCHEDULE 2.8.3 that authorize (i) interstate and international telecommunications services; and (ii) the telecommunications operations of Sellers or their Affiliates in the States of Louisiana, Oklahoma, California, Missouri, Mississippi and New Mexico.        2.9 Rights of First Refusal. In the event any Franchising Authority or other Person deriving rights from or through such Franchising Authority exercises any right of first refusal, option or similar right to acquire such Franchise and the related assets pursuant to and in accordance with such Franchise (a "FRANCHISE RIGHT OF FIRST REFUSAL"), then (a) such Franchise and related assets shall not constitute Transferred Assets; (b) Buyer shall cooperate with Sellers in dealing with the applicable Franchising Authority or other Person exercising the Franchise Right of First Refusal; (c) the Purchase Price shall be reduced by an amount equal to the number of RGUs covered by the underlying Franchise that was subject to the Franchise Right of First Refusal, multiplied by the amount per RGU set forth on SCHEDULE 2.9; and (d) Sellers shall be entitled to proceeds received as a result of such Franchise Right of First Refusal and if Buyer shall receive such proceeds, it shall immediately remit the same to Sellers.  3.    REPRESENTATIONS AND WARRANTIES OF SELLERS        Sellers, jointly and severally, represent and warrant to Buyer as follows:        3.1 Organization, Standing and Authority.              3.1.1 TCAP is a general partnership validly existing under the laws of the State of Delaware. CSWH is a limited partnership validly existing and in good standing under the laws of the State of Texas. CCL is a limited liability company validly existing and in good standing under the laws of the State of Delaware. CoxCom is a corporation validly existing and in good standing under the laws of the State of Delaware. CTP is a corporation validly existing and in good standing under the laws of the State of Delaware. Each Seller is qualified to conduct business in each jurisdiction in which the property related to the Systems owned, leased or operated by it requires it to be so qualified except where its failure to be so qualified has not had and would not reasonably be expected to have a material adverse effect on such operations. Each Seller has the requisite partnership, limited liability company or corporate, as applicable, power and authority (a) to own, lease and use the Transferred Assets as currently owned, leased and used by it and (b) to conduct the business and operations of the Systems as currently conducted by it.                                         26                3.1.2 Parent is a corporation validly existing and in good standing under the laws of the State of Delaware. Parent is qualified to conduct its business in each jurisdiction in which it is required it to be so qualified except where its failure to be so qualified has not had and would not reasonably be expected to have a material adverse effect on such operations. Parent has the corporate power and authority (a) to own, lease and use its properties and assets as currently owned, leased and used by it and (b) to conduct its business and operations as currently conducted by it.        3.2 Authorization and Binding Obligation. Each Seller and Parent has the partnership, limited liability company or corporate, as applicable, power and authority to execute and deliver this Agreement and all other agreements, instruments and certificates contemplated by this Agreement (collectively, the "RELATED AGREEMENTS") and to carry out and perform all of its other obligations under the terms of this Agreement and the Related Agreements. The execution and delivery of, and performance of the obligations contained in, this Agreement and the Related Agreements and the transactions contemplated hereby and thereby have been, or solely with respect to the Related Agreements as of the Closing will be, duly authorized by all necessary partnership, limited liability company or corporate, as applicable, action on the part of each Seller and Parent and their respective directors, partners, managers, members or stockholders. This Agreement has been, and all Related Agreements as of the Closing will be, duly executed and delivered by each Seller and Parent, and this Agreement constitutes, and the Related Agreements will, as of the Closing, constitute, the valid and legally binding obligation of each Seller and Parent, enforceable against each of them in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally, and as the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding thereunder may be brought.        3.3 Absence of Conflicting Terms; Consents. Except for the expiration or termination of any applicable waiting period under the HSR Act or as set forth on SCHEDULE 3.3 or as would not impair the ability of each Seller to perform its obligations under this Agreement and the Related Agreements, the execution, delivery and performance by each Seller of this Agreement and by each Seller of the Related Agreements to which it is a party (with or without the giving of notice, the lapse of time, or both): (a) do not require the Consent of, notice to, or filing with, any Governmental Authority or with respect to any Exclusive Governmental Permit; (b) will not conflict with any provision of the certificate of formation, certificate of limited partnership or certificate of incorporation of any Seller or Acquired Company, as applicable, or the limited liability company operating agreement, partnership agreement or bylaws of any Seller or Acquired Company, as applicable; (c) assuming receipt of all Consents listed in SCHEDULE 3.3, will not in any material way conflict with, result in a material breach or violation of, or constitute a material default under any material Legal Rule applicable to Sellers or to the Systems with respect to the Transferred Assets or to the Acquired Companies; (d) assuming receipt of all Consents listed in SCHEDULE 3.3, will not conflict in any material way with, constitute grounds for termination of, result in a material breach of, result in loss of a material benefit of, constitute a material default under, or accelerate or permit the acceleration of any performance required by the terms of any Exclusive Governmental Permit; (e) assuming receipt of all Consents listed in SCHEDULE 5.3, will not result in the creation upon the Transferred Assets or the assets of any of the Acquired Companies of any Encumbrances other than Permitted Encumbrances; and (f)                                         27    assuming receipt of all Consents listed in SCHEDULE 5.3, will not constitute grounds for termination of, result in a material breach of, constitute a material default under, or accelerate or permit the acceleration of any performance required by the terms of any Material Transferred Contract. Notwithstanding the foregoing, Sellers make no representation or warranty regarding any of the foregoing that may result from the specific legal or regulatory status of Buyer or any of its Affiliates or as a result of any other facts that specifically relate to the business or activities in which Buyer or any of its Affiliates is or proposes to be engaged. Except as set forth in SCHEDULE 3.3, no Person has any right to acquire any interest in any of the Systems or the Transferred Assets (including any right of first refusal, option to buy or similar right) as a result of Sellers' execution, delivery or performance of this Agreement or any of the transactions contemplated hereby.        3.4 Governmental Permits.              3.4.1 With respect to Governmental Permits:                    (i) SCHEDULE 3.4(a) lists all Governmental Permits in existence as of the date of this Agreement that (a) are held by a Seller, Acquired Company or an Affiliate of any Seller or Acquired Company for use in connection with the operation of the Systems and (b) except as set forth on SCHEDULE 3.4(b), are necessary for Sellers or any Acquired Company to provide the services now provided by Sellers or any Acquired Company in the geographic areas served by the Systems. Sellers have delivered or made available true and complete copies of all Governmental Permits that are or are required to be set forth on SCHEDULE 3.4(a), except for such Governmental Permits that are issued or granted by virtue of publication of official notice of the issuing Governmental Authority.                    (ii) CNC, CTT, TCAC, Cox Louisiana Telcom LLC, Cox Missouri Telcom LLC and Cox Oklahoma Telecom LLC (collectively, the "TELCOM ENTITIES") hold all State Telecommunications Authorizations necessary to provide the Telecommunications Services now provided in the geographic areas served by the Systems. Sellers and their Affiliates do not provide any services in the geographic areas served by the Systems that require State Telecommunications Authorization in California, New Mexico and Mississippi.                    (iii) SCHEDULE 3.4(c) identifies all of the Governmental Permits that are not Exclusive Governmental Permits or that are otherwise Excluded Assets.              3.4.2 Each of the Governmental Permits is in full force and effect in accordance with its terms. No legal action or other formal proceeding or investigation is pending or, to Sellers' Knowledge, threatened, to revoke, terminate, suspend, or cancel any of the Governmental Permits or to impose any material forfeiture or penalty with respect to any of the Governmental Permits. The applicable Seller and the operation of the Systems by such Seller and the applicable Telecom Entities are in material compliance with the terms and conditions of the Governmental Permits.              3.4.3 During the two (2) year period preceding the date hereof, no Seller has received written correspondence from any Governmental Authority stating that any of the Governmental Permits will not be renewed in the ordinary course; however, Sellers make no                                         28    representation or warranty that an Exclusive Governmental Permit will be renewed or that a particular Governmental Authority will not impose significant conditions upon any renewal. A valid request for renewal has been duly and timely filed by Sellers under Section 626 of the Communications Act with the proper Franchising Authority with respect to any Franchise that has expired prior to, or will expire within thirty (30) months after, the date of this Agreement.        3.5 Financial Statements. Sellers have delivered or made available to Buyer a copy of the (a) audited combined balance sheets with respect to the Systems in the aggregate, as of December 31, 2004 and 2003, and the related combined statements of operations, invested equity, and cash flows for each of the two years in the period ended December 31, 2004 (collectively, the "AUDITED FINANCIAL STATEMENTS"), and (b) unaudited combined balance sheets with respect to the Systems in the aggregate, as of June 30, 2005, and the related combined statement of operations for the six months then ended (the "UNAUDITED FINANCIAL STATEMENTS")(the Audited Financial Statements and the Unaudited Financial Statements, collectively, the "FINANCIAL STATEMENTS"). The Audited Financial Statements (y) have been prepared based on the separate accounting records maintained by the Sellers and applicable Affiliates of Sellers and (z) fairly present, in all material respects, the combined financial position of the Systems in the aggregate as of December 31, 2004 and 2003, and the combined results of their operations and their cash flows for each of the two years in the period ended December 31, 2004, in conformity with GAAP consistently applied and comply with the requirements of Regulations S-X of the Securities and Exchange Commission (the "SEC"). The Unaudited Financial Statements (aa) have been prepared based on the separate accounting records maintained by the Sellers and applicable Affiliates of Sellers, (bb) fairly present, in all material respects, the combined financial position of the Systems in the aggregate as of June 30, 2005, and the combined results of their operations for the six months then ended prepared in accordance with GAAP on a basis consistent with the most recent Audited Financial Statements, which does not include a combined statement of invested equity, a combined statement of cash flows or additional information and footnote disclosures required by GAAP for complete financial statements. In the opinion of the Sellers (yy) all adjustments considered necessary for the fair presentation of the Unaudited Financial Statements have been made and (zz) all such adjustments are of a normal recurring nature. To Sellers' Knowledge, the revenues of the Systems less direct expenses (excluding depreciation and amortization) and operating expenses (excluding depreciation and amortization) of the Systems for the period January 1 through September 30, 2005 was at least $188,000,000.00, calculated based upon Sellers' consistent application of the internal policies, procedures and methodologies as applied in calculating the historical data contained in the Confidential Descriptive Memorandum delivered to Buyer in June 2005 and in preparing the Long Range Plan referenced in the Confidential Descriptive Memorandum made available to Buyer in the data room established by Sellers in connection with the transaction contemplated by this Agreement.        3.6 Personal Property. Each Seller (a) that owns any material item of tangible personal property has good and valid title thereto and (b) that leases any material item of tangible personal property has a valid leasehold interest therein (subject to expiration of such lease in accordance with its terms), in each case of clause (a) and (b) above, free and clear of all Encumbrances, other than Permitted Encumbrances. All material items of Equipment and other tangible personal property included in the Transferred Assets are, in the aggregate (and with due consideration for reasonable wear and tear and the age of each specific item of Equipment or                                         29    other tangible personal property), in good operating condition and repair. Each Seller has the valid and enforceable right to use all material intangible personal property included in the Transferred Assets as it is currently used.        3.7 Real Property. SCHEDULE 3.7 lists the street address or other means of identification for all Owned Real Property in existence as of the date of this Agreement. Each Seller (a) that owns a fee estate in an Owned Real Property parcel has good and indefeasible title thereto and (b) that leases Material Leased Real Property has a valid leasehold interest therein (subject to expiration of such lease in accordance with its terms), in each case of clause (a) and (b) above, free and clear of all encumbrances, other than Permitted Encumbrances.        3.8 Contracts.              3.8.1 Except as set forth on SCHEDULE 3.8.1, all of the Material Transferred Contracts are valid and binding on the Seller or Acquired Company that is a party thereto, and are in full force and effect and legally enforceable in accordance with their terms upon the Seller or Acquired Company which is a party thereto, and to Sellers' Knowledge, upon the other parties thereto, except to the extent such enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the rights of creditors generally, and as the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding thereof may be brought. No Seller or Acquired Company is in material default under any Material Transferred Contract nor, to Sellers' Knowledge, is any other party thereto in material default under any Material Transferred Contract. Except as set forth on SCHEDULES 3.8.1 through 3.8.7, as of the date hereof there is no Material Transferred Contract.              3.8.2 SCHEDULE 3.8.2 lists all Material Real Property Leases.              3.8.3 SCHEDULE 3.8.3 lists all material Exclusive Retransmission Consent Agreements.              3.8.4 SCHEDULE 3.8.4 lists all material Exclusive Pole Attachment Agreements.              3.8.5 SCHEDULE 3.8.5 lists all material Exclusive Programming Agreements.              3.8.6 SCHEDULE 3.8.6 lists all material Exclusive Cox Media Agreements.              3.8.7 SCHEDULE 3.8.7 lists certain other Transferred Contracts.              3.8.8 Except as set forth on SCHEDULE 3.8.8, the Transferred Contracts do not include:                    (i) any Contract with a labor union or association representing any Sellers Employee;                    (ii) any Contract for the sale of any Transferred Assets (other than in the ordinary course of business consistent with past practices) or the Purchased Interests or for                                         30    the grant to any Person of any right of first refusal, preferential or similar rights to purchase any of the Transferred Assets or Equity Interests;                    (iii) any Contract for joint ventures, strategic alliances, partnerships, or sharing of profits or proprietary information;                    (iv) any Contract that contains covenants of any Seller or Acquired Company not to compete in any line of business or with any Person in any geographical area or not to solicit or hire any Person with respect to employment or covenants of any other Person not to compete with Sellers or the Acquired Companies in any line of business or in any geographical area or not to solicit or hire any Person with respect to employment;                    (v) any Contract that relates to the acquisition (by merger, purchase of stock or assets or otherwise) of any operating business or material assets or the capital stock of any other Person, except to the extent any such Contract relates to rights of any Seller or Acquired Company with respect to any transaction that was consummated prior to the date hereof, to the extent assignable without the consent of any Person;                    (vi) any Contract that relates to the incurrence, assumption or guarantee of any indebtedness or imposing an Encumbrance on any of the Transferred Assets, the assets of any of the Acquired Companies or any Purchased Interests, including indentures, guarantees, loan or credit agreements, sale and leaseback agreements, incurred in connection with the acquisition of property, mortgages, pledge agreements, security agreements for borrowed money, or conditional sale or title retention agreements, other than Permitted Encumbrances or security agreements encumbering Transferred Assets that are not material to the operation of any System;                    (vii) any Contract that provides for advances or loans to any other Person by any Seller or Acquired Company;                    (viii) any Contract of guaranty, surety or indemnification, direct or indirect, by any Seller or Acquired Company other than Contracts pursuant to which the bonds and letters of credit set forth on SCHEDULE 3.19 were obtained;                    (ix) any Contract that provides for severance, retention, change in control or other similar payments;                    (x) any Contract of employment; or                    (xi) any Contract with independent contractors or consultants (or similar arrangements) that is not terminable without penalty or further payment and without more than 30 days' notice or that has a remaining term of more than one (1) year.              3.8.9 SCHEDULE 3.8.9 lists all material Non-Exclusive Retransmission Consent Agreements under which Separated Retransmission Rights are to be provided.              3.8.10 SCHEDULE 3.8.10 lists all Non-Exclusive Cox Media Agreements under which Separated Advertising Sales Rights are to be provided.                                         31                3.8.11 SCHEDULE 3.8.11 lists all material Master CBI Agreements under which Separated CBI Rights are to be provided.              3.8.12 SCHEDULES 3.8.12 lists all Master Carrier Agreements under which Separated Carrier Rights are to be provided.              3.8.13 Except as set forth on SCHEDULES 3.8.1 through 3.8.8, there is no Transferred Contract, and except with as set forth on SCHEDULES 3.8.9 through 3.8.12, there is no master or non-exclusive agreement in effect under which separated rights are provided, that has a material non-monetary obligation that would be binding on Buyer. Sellers have delivered or made available to Buyer true and complete copies of all Contracts required to be set forth on SCHEDULES 3.8.1 through 3.8.8 and all material non-exclusive or master agreements set forth on SCHEDULES 3.8.9 through 3.8.12.        3.9 Certain Information on Systems. (a) SCHEDULE 3.9(a) lists, as of June 30, 2005, the approximate number of miles of energized cable plant for each System; (b) each System is capable of delivering the bandwidth in MHz as described on SCHEDULE 3.9(b); and (c) SCHEDULE 3.9(c) lists, as of June 30, 2005, the approximate number, as set forth in the billing records of Sellers, of Basic Subscribers, Digital Subscribers, High Speed Data Subscribers and Telephony Subscribers for each System.        3.10 Taxes, Returns and Reports. All material Tax Returns required to be filed by Sellers or the Acquired Companies in connection with the operation of the Systems or the business or assets of the Acquired Companies have been filed. Except for Permitted Encumbrances, there are no liens for Taxes on any of the Transferred Assets or on the assets of the Acquired Companies. Except where the failure to do so would not have a material adverse effect on the Systems, all Taxes which are due and payable in connection with the operation of the Systems have been timely and properly paid and all such Taxes which are not yet due and payable have been properly accrued on the books and records of the Sellers of the Acquired Companies. For federal income tax purposes: (a) each of CNC and TCAC is and always has been classified as a disregarded entity pursuant to Treasury Regulations Section 301.7701-3(b), and (b) CTT is and always has been classified as a partnership. There is no deficiency, assessment or audit, or proposed deficiency, assessment or audit from any Taxing Authority that could materially affect Sellers or the Acquired Companies or that could result in the imposition of any Encumbrances upon the Transferred Assets or any assets of the Acquired Companies or that could result in the imposition of any liability upon Buyer. There are no proposed reassessments of any property owned by any of the Sellers or the Acquired Companies that would or would reasonably be expected to materially affect the Taxes of the Sellers or the Acquired Companies. Sellers have withheld from Sellers Employees, creditors, independent contractors and any other relevant third parties and timely paid to the appropriate Taxing Authorities, proper and accurate amounts in all material respects for all taxable periods, or portions thereof, ending on or before the Closing in compliance with all tax withholding and remitting Legal Rules. No Tax Authority in a jurisdiction in which any of Sellers or the Acquired Companies do not file Tax Returns has made a claim, assertion of threat that any of Sellers or the Acquired Companies is or may be subject to Tax in such jurisdiction.                                         32          3.11 Employee Benefit Plans.              3.11.1 Set forth in SCHEDULE 3.11 is a complete list of each Employee Benefit Plan. Except as disclosed in SCHEDULE 3.11, there is not now in effect or to become effective after the date of this Agreement and until the Closing Date, any new Employee Benefit Plan or any amendment to an existing Employee Benefit Plan which will materially affect the benefits of Sellers Employees (other than customary merit and performance pay increases and other than as required by law) that will on or after the Closing Date impose liability on the Buyer.              3.11.2 Each of Sellers' Employee Benefit Plans has been administered without material exception in compliance with its own terms and, where applicable, with ERISA, the Code, the Age Discrimination in Employment Act and any other applicable Legal Rule.              3.11.3 Each Employee Benefit Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service and, to Sellers' Knowledge, no event has occurred and no condition exists which would reasonably be expected to result in the revocation of any such determination.              3.11.4 Within the past six (6) years, no Seller or Acquired Company has contributed to or is required to contribute to any Multiemployer Plan with respect to Sellers Employees.        3.12 Labor Relations. As of the date hereof, no Seller or Acquired Company is a party to or subject to any collective bargaining or other labor union agreements applicable to Sellers Employees and no collective bargaining agreement is being negotiated by Sellers or Acquired Company with respect to Sellers Employees. As of the date hereof, to Sellers' Knowledge, there is no effort by or on behalf of any labor union to organize any Sellers Employee nor has any, to Sellers' Knowledge, been threatened in writing which would reasonably be expected to interfere in any material respect with the Systems, taken as a whole. As of the date hereof, there is no labor dispute or strike pending against any Seller or Acquired Company, or to Sellers' Knowledge threatened, which would reasonably be expected to interfere in any material respect with the Systems, taken as a whole.        3.13 Legal Proceedings/Compliance with Laws.              3.13.1 Except for investigations and rule-making proceedings affecting the cable or telecommunications industry generally (in each case on a national or state basis), or as set forth on SCHEDULE 3.13.1, as of the date of this Agreement, there are not any suits, claims, actions, arbitrations, judgments, orders, injunctions, decrees, awards and investigations pending, or to Sellers' Knowledge, threatened, against any Seller or any Acquired Company or involving any of the Systems which (i) would individually, or in the aggregate, reasonably be expected to materially and adversely affect any System or the Transferred Assets or Acquired Companies or materially impair Sellers' ability to consummate the transactions contemplated hereby or (ii) relates to this Agreement, the Related Agreements or the transactions contemplated.              3.13.2 Except as disclosed in SCHEDULE 3.13.2, Sellers (with respect to the Systems) and the Acquired Companies are in material compliance with all Legal Rules.                                         33          3.14 Environmental Matters.              3.14.1 Each Seller's operation of the Systems, Owned Real Property and Leased Real Property is in compliance in all material respects with all applicable Environmental Laws as in effect on the date of this Agreement; and no Seller, and to Sellers' Knowledge no other Person, has used the Owned Real Property or Leased Real Property for the manufacture, transportation, treatment, storage or disposal of Hazardous Substances except for the use (and not the storage and disposal), of gasoline, diesel fuel and other Hazardous Substances customary in the construction, maintenance and operation of a cable communications system and in amounts or under circumstances that would not reasonably be expected to give rise to material liability to Buyer for remediation.              3.14.2 As of the date of this Agreement, no Seller has received written notice from any Governmental Authority of any material violation of any Environmental Laws by any Seller or any other Person with respect to any System which violation has not been remedied or cured on or prior to the date of this Agreement.              3.14.3 To Sellers' knowledge, as of the date of this Agreement, Sellers, with respect to the Systems, the Owned Real Property or, to Sellers' Knowledge, the Leased Real Property, are not subject to any pending or threatened claim, action, proceeding or other written assertion alleging material non-compliance with or material liability under Environmental Laws. To Sellers' Knowledge, no investigation by a Governmental Authority pursuant to Environmental Laws is pending against the Seller with respect to the Systems, the Owned Real Property or the Leased Real Property with respect to any of the foregoing that would reasonably be expected to result in material liability to Buyer under Environmental Laws.              3.14.4 Notwithstanding any other provision of this Agreement, the parties to this Agreement acknowledge and agree that the representations and warranties contained in this Section 3.14 are the only representations and warranties given by the Sellers with respect to environmental matters or compliance with Environmental Laws and no other provision of this Agreement shall be interpreted as containing any representation or warranty with respect thereto.        3.15 FCC and Copyright Compliance.              3.15.1 The Sellers are permitted under the Communications Act to retransmit the television broadcast signals carried by the Systems and to utilize all FCC restricted carrier frequencies (i.e., 108-136 Mhz and 225-400 Mhz) generated by the operations of the Systems. Except for nonduplication and blackout notices received in the ordinary course of business, as of the date hereof, none of the Sellers has received any FCC order requiring any System to carry a television broadcast signal or to terminate carriage of a television broadcast signal with which it has not complied, and except as disclosed in SCHEDULE 3.15.1, each Seller has complied in all material respects with all written and bona fide requests or demands received from television broadcast stations to carry or to terminate carriage of a television broadcast signal on a System.              3.15.2 SCHEDULE 3.15.2 sets forth a list of all Franchising Authorities that are certified by the FCC to regulate the Basic Cable Television Service and equipment rates of the Systems pursuant to Section 623 of the Communications Act as of the date of this Agreement.                                         34    Sellers have made available to Buyer complete and correct copies of all FCC Basic Cable Television Service and equipment rate forms filed by Sellers with any Franchising Authority with respect to the Systems. Except as disclosed in SCHEDULE 3.15.2, Sellers' Basic Cable Television Service and equipment rates are in compliance in all material respects with the Communications Act and any authoritative interpretation thereof. As of the date hereof, none of the Sellers has received any written notice from any Franchising Authority that it has any unresolved obligation or liability to refund to subscribers of the Systems any portion of the cable television service revenue received by the Sellers from cable television subscribers of the Systems (excluding revenue with respect to deposits for converters, encoders, decoders and related equipment and other prepaid items).              3.15.3 Sellers, with respect to their operation of the Systems, are in compliance in all material respects with Section 111 of the Copyright Act of 1976, as amended, and the applicable rules and regulations of the United States Copyright Office (collectively, the "COPYRIGHT ACT"). Sellers have filed with the United States Copyright Office all statements of account and have made all payments to the United States Copyright Office required under Section 111 of the Copyright Act with respect to each of the Systems for all accounting periods beginning on or after July 1, 2002 (the "COPYRIGHT FILINGS") to obtain, hold and maintain the compulsory copyright license for cable television systems prescribed in Section 111 of the Copyright Act. No Seller has been notified in writing of any adverse material inquiry, claim, action or demand pending before the United States Copyright Office which questions the Copyright Filings or related payments made by Sellers with respect to any of the Systems.        3.16 Intellectual Property.              3.16.1 Except (a) as disclosed in SCHEDULE 3.16.1, (b) with respect to music licensing for which Sellers make no representation or warranty, and (c) for matters relating to Section 111 of the Copyright Act as to which Seller's representations and warranties are contained exclusively in Section 3.15.3 above, to the Knowledge of the Sellers: (i) the Transferred Intellectual Property owned, used, practiced, licensed or otherwise exploited by Sellers or the Acquired Companies; (ii) the use, marketing, licensing, offering for sale or sale of the products or services by Sellers or the Acquired Companies with respect to the operation of the Systems; or (iii) the operation of the Systems by Sellers, as of the date of this Agreement, does not materially infringe, violate or constitute an unauthorized use or misappropriation of any Intellectual Property of any Person.              3.16.2 To the Knowledge of Sellers, there is no material infringement, misappropriation, violation or unauthorized use by any Person of any Transferred Intellectual Property, and no such claims have been made against any Person by Seller or its Affiliates.              3.16.3 Except as set forth in SCHEDULE 3.16.3, (i) Sellers are the sole and exclusive owners of, or have valid rights under the Transferred Intellectual Property Licenses to use, sell, license and otherwise exploit, as the case may be, all Intellectual Property included in Transferred Intellectual Property, free and clear of all Encumbrances (other than Permitted Encumbrances); (ii) to the Knowledge of the Sellers, all of the Transferred Intellectual Property is valid and enforceable; (iii) there are no material licenses by any Seller or any of their Affiliates granting to any Person any rights in any Transferred Intellectual Property; (iv) no Seller or                                         35    Acquired Company is a party to any claim, suit or other action; and (v) to the Knowledge of the Sellers, no claim, suit or other action is threatened, that challenges the validity, enforceability, ownership, or right to use, sell, license or otherwise exploit any Transferred Intellectual Property.              3.16.4 The rights to Transferred Intellectual Property granted by this Agreement and the rights to Intellectual Property granted by the License Agreement constitute all material rights (except for rights to Licensed Intellectual Property owned by a third party) reasonably necessary for the operation of the Systems and the Transferred Assets as currently operated by Sellers and the Acquired Companies.        3.17 Conduct of Business in Ordinary Course. Except as set forth on SCHEDULE 3.17, since June 30, 2005, through the date of this Agreement, (i) Sellers and the Acquired Companies have conducted the business and operations of the Systems in the ordinary and usual course consistent with Sellers' and Acquired Companies' past practices and (ii) there has not been any change, event or effect that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect.        3.18 Transactions with Affiliates. Except as disclosed on SCHEDULE 3.18 and except with respect to customary corporate overhead services provided by the corporate, division or regional offices of Parent, no Seller is a party to any business arrangement or business relationship with any of its Affiliates with respect to the Transferred Assets or operation of the Systems, and none of its Affiliates (other than the Acquired Companies) owns any property or right, tangible or intangible, that is material to any Sellers' or Acquired Company's operations or used primarily in any Seller's operation of the Systems or Acquired Company's operations (other than in its capacity as a direct or indirect holder of its equity or debt).        3.19 Bonds; Letters of Credit. Except as set forth in SCHEDULE 3.19, as of the date hereof there are no material franchise, construction, fidelity, performance, or other bonds, guaranties in lieu of bonds or letters of credit or indemnity agreement posted by a Seller or Acquired Company in connection with the operation or ownership of any of the Systems or Acquired Company's operations.        3.20 Brokers of Sellers. No Seller or Affiliate of any Seller or any Person acting on their behalf has incurred any liability for any finders' or brokers' fees or commissions, and no investment banker, finder, broker or other intermediary has been retained, in connection with the transaction contemplated by this Agreement, except that an Affiliate of Sellers has retained Citigroup Global Markets Inc., Lehman Brothers Inc., J.P. Morgan Securities Inc. to provide M&A services in connection with the transaction contemplated by this Agreement and Daniels & Associates to provide consulting services in connection with the transaction contemplated by this Agreement (said M&A services and consulting services referred to herein as "BROKERAGE SERVICES"), each of whose fees for Brokerage Services shall be paid by Sellers.        3.21 Acquired Companies.              3.21.1 CNC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. TCAC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Texas. CTT                                         36    is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. Each Acquired Company is qualified to conduct business and is in good standing in each jurisdiction in which the property related to the Systems owned, leased or operated by it requires it to be so qualified except where its failure to be so qualified would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on such operations. Each Acquired Company has the requisite partnership or limited liability company, as applicable, power and authority (i) to own, lease and use its assets as currently owned, leased and used by it, and (ii) to conduct its business and operations as currently conducted by it.              3.21.2 None of the Acquired Companies owns directly or indirectly, of record or beneficially, any outstanding Equity Interests or other interest in any Person or has the right or obligation to acquire, any Equity Interests or other interest in any Person.              3.21.3 SCHEDULE 3.21.3 sets forth each of the Acquired Companies' authorized, issued and outstanding Equity Interests and the record and beneficial owner of each issued and outstanding Equity Interest of each of them. All of such issued and outstanding Equity Interests of the Acquired Companies have been validly issued and fully paid and have not been issued in violation of any federal or state securities laws or such entity's constituent documents. The owner of the Equity Interests of each of the Acquired Companies owns such Equity Interest free and clear of all Encumbrances other than Permitted Encumbrances. There are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which any of the Acquired Companies is a party or by which any of the Acquired Companies is bound obligating any of the Acquired Companies to issue, deliver or sell, or cause to be issued, delivered or sold, any additional Equity Interests of any of the Acquired Companies or obligating any of the Acquired Companies to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. The outstanding Equity Interests of the Acquired Companies are not subject to any voting trust agreement or other contract, agreement or arrangement restricting or otherwise relating to the voting, dividend rights or disposition of such Equity Interests. Sellers have delivered or made available to Buyer complete and correct copies of the organizational documents, minutes and other corporate records of each of the Acquired Companies as in effect on the date hereof.              3.21.4 CoxCom and CTP, as their interests may appear, hold all legal and beneficial right and have good and valid title to the Purchased Interests, free and clear of all Encumbrances other than Permitted Encumbrances and upon transfer to Buyer of the Purchased Interests at Closing, good and valid title to the Purchased Interests, free and clear of all Encumbrances other than Permitted Encumbrances and those resulting from Buyer's ownership, will pass to Buyer. All of the Purchased Interests have been validly issued and fully paid, and no class of Equity Interest of any of the Acquired Companies is entitled to preemptive rights.              3.21.5 None of the Acquired Companies holds any Governmental Permit other than those set forth on SCHEDULE C, SCHEDULE E and SCHEDULE G, respectively. None of the Acquired Companies has any liabilities other than those arising in the ordinary course of business relating to the provision of Telecommunications Services provided in the geographic areas served by a System. As of the Closing, none of the Acquired Companies will have any                                         37    employees, assets, properties, Contracts or material Liabilities, other than those described in SCHEDULE 3.21.5.        3.22 Sufficiency of Transferred Assets. Except as described on SCHEDULE 3.22, the Transferred Assets comprise all the assets necessary for the Sellers and their Affiliates to conduct, in all material respects, the business and operations of the Systems as conducted as of the date hereof.        3.23 Accounts Receivable. All Accounts Receivable of Sellers and the Acquired Companies have arisen from bona fide transactions in the ordinary course of business consistent with past practice.        3.24 Overbuilds. As of the date hereof, except for any satellite providers or as set forth on SCHEDULE 3.24, there are no material competing activated wired video cable television or data services offered by other cable television operators, or, to the Knowledge of Sellers, any local competing "wireless cable" video system or "open video" system, in the areas actually served by the Systems. To the Knowledge of Sellers, as of the date hereof, except as set forth on SCHEDULE 3.24, no competing franchises have been issued to other Persons to operate cable television systems in the areas served by the Franchises and, to the Knowledge of Sellers, no formal applications to obtain such competing franchises are pending.  4.    REPRESENTATIONS AND WARRANTIES OF BUYER        Buyer represents and warrants to Sellers as follows:        4.1 Organization, Standing and Authority. Buyer is a limited liability company validly existing and in good standing under the laws of the State of Delaware. Buyer has the requisite limited liability company power and authority to execute and deliver this Agreement and to perform and comply with all of the terms, covenants and conditions to be performed and complied with by Buyer hereunder.        4.2 Authorization and Binding Obligation. Buyer has the limited liability company power and authority to execute and deliver this Agreement and all Related Agreements and to carry out and perform all of its other obligations under the terms of this Agreement and the Related Agreements. The execution and delivery of, and performance of the obligations contained in, this Agreement and the Related Agreements by Buyer and the transactions contemplated hereby and thereby have been, or solely with respect to the Related Agreements as of the Closing will be, duly authorized by all necessary limited liability company action on the part of Buyer and their respective members. This Agreement has been, and all Related Agreements as of the Closing will be, duly executed and delivered by Buyer, and this Agreement constitutes, and the Related Agreements will, as of the Closing, constitute, the valid and legally binding obligation of Buyer, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally, and as the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding thereof may be brought.                                         38          4.3 Absence of Conflicting Agreements. Except for the expiration or termination of any applicable waiting period under the HSR Act, and assuming the receipt of all required consents from Governmental Authorities with respect to the transfer to Buyer of the Exclusive Governmental Permits, the execution, delivery and performance by Buyer of this Agreement and of the Related Agreements (with or without the giving of notice, the lapse of time, or both): (a) do not require the consent of, notice to, or filing with, any Governmental Authority, or any other third party; (b) will not conflict with any provision of the certificate of formation of Buyer, or the limited liability company operating agreement of Buyer; (c) will not violate any material Legal Rule applicable to Buyer in any material respect; or (d) will not conflict with, constitute grounds for termination of, result in a material breach of, constitute a default under, or accelerate or permit the acceleration of any performance required by the terms of, any material agreement, instrument, license or permit to which Buyer is a party or by which Buyer may be bound, such that Buyer could not perform hereunder and acquire or operate the Transferred Assets.        4.4 Buyer Qualification. Buyer is legally and, subject to the receipt of the financing contemplated in the Financing Commitments, will be at Closing, financially qualified to acquire, own and operate the Systems and be the transferee and holder of the Exclusive Governmental Permits that are either acquired from Sellers pursuant to the terms of this Agreement or the other governmental authorizations, licenses and permits that are required to be obtained by Buyer as contemplated in Section 5.3.1(iii) hereof. Buyer has no Knowledge of any fact that would, under any Legal Rule including without limitation, any rule or policy of any Governmental Authority, including, without limitation, any Franchising Authority, the FCC or any State Regulatory Authority, (a) disqualify Buyer as a transferee and holder of the Exclusive Governmental Permits, as applicable, or as the owner and operator of the Systems; (b) be reasonably likely to cause any Governmental Authority, including, without limitation, any Franchising Authority, the FCC or any State Regulatory Authority, to fail to approve in a timely fashion any of the applications for Consent relating to the Exclusive Governmental Permits; or (c) be reasonably likely to cause any Governmental Authority, including, without limitation, the FCC or any State Regulatory Authority, to fail to approve in a timely fashion any of the applications for issuance to Buyer of any other governmental authorizations, licenses or permits as contemplated in Section 5.3.1(iii). Except as set forth on SCHEDULE 4.4, no waiver of any Legal Rule, including without limitation, any rule or policy of any Governmental Authority, including, without limitation, any Franchising Authority, the FCC or any State Regulatory Authority, is necessary to be obtained for the grant of the applications for the transfer of the Exclusive Governmental Permits to Buyer, nor will processing pursuant to any exception to a rule of general applicability be requested or required in connection with the consummation of the transactions contemplated hereby. Buyer has no Knowledge of any fact that would, under existing law and the existing rules, regulations, policies and procedures of the Federal Trade Commission or the Department of Justice be reasonably likely to impede or delay the early termination or expiration of the waiting period under the HSR Act.        4.5 Availability of Funds. Subject to the receipt of the financing contemplated in the Financing Commitments, Buyer has the financial capability to consummate the transactions contemplated by this Agreement, and Buyer understands that under the terms of this Agreement Buyer's consummation of those transactions is not in any way contingent upon or otherwise subject to (i) Buyer's consummation of any financing arrangements or Buyer's obtaining of any financing or (ii) the availability, grant, provision or extension of any financing to Buyer. Buyer                                         39    has received commitments from sources of equity and debt financing in amounts sufficient to enable Buyer to consummate the transactions contemplated hereby ("FINANCING COMMITMENTS") and, on the Closing Date, subject to the receipt of the financing contemplated in the Financing Commitments, Buyer will have available sufficient unrestricted funds to enable it to consummate the transactions contemplated hereby. Prior to the date hereof, Buyer has delivered true and accurate copies of all Financing Commitments to Sellers. Buyer acknowledges and agrees that it shall be Buyer's obligation to have funds on hand at the Closing sufficient to enable Buyer to pay the Purchase Price.        4.6 Brokers of Buyer. Except as set forth on SCHEDULE 4.6, neither Buyer nor any Affiliate of Buyer nor any Person acting on either of their behalf has incurred any liability for any finders' or brokers' fees or commissions in connection with the transaction contemplated by this Agreement.  5.    SPECIAL COVENANTS OF THE PARTIES        5.1 Conduct of the Business of the Systems Prior to Closing. Except (a) as required by applicable Legal Rules, (b) as contemplated by this Agreement or SCHEDULE 5.1 or (c) as consented to by Buyer (which consent shall not be unreasonably withheld or delayed), between the date hereof and the Closing Date, Sellers will, and will cause the Acquired Companies to, operate the Systems in the ordinary course of business consistent with past practice (subject to, and except as modified by, compliance with the following negative and affirmative covenants):              5.1.1 Negative Covenants. The Sellers shall not, and shall not permit the Acquired Companies to, do any of the following between the date hereof and the Closing Date:                    (i) Fail to timely file a valid request for renewal in accordance with Section 626(a) of the Communications Act, or fail to use commercially reasonable efforts to renew on substantially the same or on other commercially reasonable terms any Franchise that will expire after the date hereof and prior to the date which is thirty (30) months after the Closing Date in accordance with its terms (it being understood that the Sellers shall not be required to take any steps necessary to obtain a renewal of any Franchise earlier than such steps are required to be taken by applicable FCC regulations, and obtaining a renewal of any Franchise shall not be a condition precedent to Buyer's obligations hereunder). Sellers shall not agree to any material modifications to, or in connection with, or the imposition of any material condition, to the renewal of, any of the Franchises that are not reasonably acceptable to Buyer and Buyer agrees that it shall not unreasonably withhold or delay its consent; provided, however, nothing set forth in this sentence shall limit or reduce the obligations of Buyer set forth in Section 5.3.2. Sellers will notify Buyer of all meetings, hearings and other discussions with Governmental Authorities in connection with renewal or extension of any Franchise or Governmental Authority relating to a Franchise.                    (ii) Enter into any new Contracts with respect to the Systems that would be included in Transferred Assets, except: (A) Contracts for the provision of services to customers on customary terms and conditions consistent with Sellers' past practice; (B) the renewal or extension of any existing Contract on its existing terms, in all material respects, in the ordinary course of business or consistent with Sellers' past practice; (C) with respect to utility                                         40    pole attachment agreements, Contracts with terms as customarily required by the utility whose poles are utilized; or (D) Contracts or commitments entered into in the ordinary course of business that are terminable on not more than sixty (60) days' prior notice without the payment of any penalty or that do not involve post-Closing obligations in excess of One Hundred Thousand Dollars ($100,000) per annum in any one case. Sellers shall not agree to any material modifications to, or in connection with, or the imposition of any material condition, to the renewal of, any of the Exclusive Retransmission Consent Agreements that are not reasonably acceptable to Buyer and Buyer agrees that it shall not unreasonably withhold or delay its consent; provided, however, nothing set forth in this sentence shall limit or reduce the obligations of Buyer set forth in Section 5.3.2.                    (iii) Modify or amend in any material respect, any existing Contract that would be included in Transferred Assets, except in the ordinary course of business and consistent with Sellers' past practice and except to the extent that any such modified or amended Contract would be permitted under Section 5.1.1(ii).                    (iv) Acquire any asset except in the ordinary course of business or sell, assign, lease, swap or otherwise transfer or dispose of any asset that would otherwise constitute part of the Transferred Assets, except for such assets consumed or disposed of in the ordinary course of business and consistent with Sellers' past practice.                    (v) Create, assume or permit to exist any Encumbrance upon the Transferred Assets or any of the Purchased Interests other than Permitted Encumbrances.                    (vi) Increase annually recurring compensation by more than 5%, on average and in the aggregate, for Sellers Employees, except for customary merit or time-in-grade increases for qualifying employees or otherwise in accordance with the employee policies of Sellers or Sellers' Affiliates, and in each case, consistent with past practices.                    (vii) Relocate (a) any employees of the Systems with exempt status under the Fair Labor Standards Act without the consent of Buyer; or (b) any other Eligible Employees other than in the ordinary course and consistent with Sellers' past practice.                    (viii) Effect any rate decrease or change any programming or programming packages, except as may be required under applicable Legal Rules, except in the ordinary course of business and consistent with Sellers' past practice.                    (ix) Make or rescind or permit any Acquired Company to make or rescind any election relating to Taxes or make or permit any Acquired Company to make any change in any method of Tax accounting or reporting unless required by GAAP or applicable Legal Rules.                    (x) Waive, release or assign any material right relating to the Systems or the Transferred Assets.                    (xi) Enter into any commitment for capital expenditures with respect to the systems in excess of the budgeted capital expenditures set forth on SCHEDULE 2.6.1(i).                                         41                      (xii) Enter into, modify or terminate any labor or collective bargaining agreement or, through negotiation or otherwise, make any commitment or incur any Liability that will become an Assumed Liability at Closing to any labor organization, with respect to any Sellers Employee.                    (xiii) Except in the ordinary course consistent with past practice, change or modify its credit, collection or payment policies, procedures or practices, including acceleration of collections or receivables (whether or not past due) or fail to pay or delay payment of payables or other Liabilities, with respect to the Systems.                    (xiv) Amend the constituent documents of any Acquired Company.                    (xv) Except in the ordinary course consistent with past practice: enter into any Contracts, whether as a marketing promotion or otherwise, providing for (A) free cable, digital, high speed data or telephony by the Systems or at rates less than the rates in effect on the date of this Agreement; or (B) free installations or for installations at less than the applicable Seller's standard installation charges.                    (xvi) Authorize or enter into any agreement or commitment with respect to any of the foregoing.              5.1.2 Affirmative Covenants. Sellers shall do the following between the date hereof and the Closing Date:                    (i) Subject to Buyer's obligations under Section 5.15.1 and under the Confidentiality and Nondisclosure Agreement, dated June 2, 2005, between Parent and Buyer, allow Buyer and its authorized representatives reasonable access during normal business hours and upon reasonable notice to the Systems, the Transferred Assets and the physical plant, offices, properties and records of the Sellers and the Acquired Companies with respect to the Systems and the Acquired Companies for the purpose of inspection, and furnish or cause to be furnished to Buyer or its authorized representatives all information with respect to the Transferred Assets, the Systems or the Acquired Companies that Buyer may reasonably request.                    (ii) Maintain the existing insurance policies on the Systems and the Transferred Assets (or comparable replacement policies).                    (iii) Comply in all material respects with all Legal Rules applicable to Sellers, the Acquired Companies and the Transferred Assets and the operation of the Systems.                    (iv) Use commercially reasonable efforts to make capital expenditures in the amounts set forth on SCHEDULE 2.6.1(i) during the period from the date hereof until the Closing Date; provided that it is understood and agreed that other than for any adjustment to the Purchase Price pursuant to Section 2.6.1(ii)(F), Buyer shall have no claim under this Agreement against Sellers for any failure to make capital expenditures; provided, further, that Sellers shall consult with Buyer, in good faith, with respect to how funds related to capital expenditures will be used.                                         42                      (v) In the event that Licensed Intellectual Property is owned by a third-party licensor and is used exclusively in connection with the business or operations of one or more of the Systems, use commercially reasonable efforts to assist Buyer in obtaining the right to use Licensed Intellectual Property.                    (vi) Use commercially reasonable efforts to keep all Transferred Contracts and Exclusive Governmental Permits (subject to expiration of such Transferred Contracts and Exclusive Governmental Permits in accordance with their respective terms) in full force and effect without default or event of default thereunder except for such defaults or events of default that (i) would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the operations of a System or (ii) have not and will not materially impair the ability of Sellers to perform their respective obligations under this Agreement or any Related Agreement or to consummate the transactions contemplated hereunder or thereunder.                    (vii) Promptly advise Buyer of any union organizing activities with respect to any of the Sellers Employees and consult with Buyer regarding negotiations with respect to any such activities.                    (viii) Implement the increases described in SCHEDULE 5.1.2(viii), in the amounts, and at the times, set forth in SCHEDULE 5.1.2(viii); provided that, in Sellers' discretion, without the consent of Buyer, Sellers may increase the amount of each proposed rate increase by not more than ten percent (10%) of such proposed rate increase. If requested by Buyer, Sellers shall not implement, or implement in a lesser amount, the proposed rate increase for the West Texas System for April 2006 set forth in SCHEDULE 5.1.2(viii).        5.2 Financial and Operational Information. Sellers shall use commercially reasonable efforts to furnish to Buyer:              5.2.1 on or before March 31, 2006, a copy of the audited combined balance sheets with respect to the Systems in the aggregate, as of December 31, 2005, and the related combined statements of operations, invested equity, and cash flows for the year then ended (the "DECEMBER 31, 2005 AUDITED FINANCIAL STATEMENTS") which (a) shall have been prepared based on the separate accounting records maintained by the Sellers and applicable Affiliates of Sellers, (b) will fairly present, in all material respects, the combined financial position of the Systems in the aggregate as of December 31, 2005, and the combined results of their operations and their cash flows for the year then ended, in conformity with GAAP, consistently applied (c) shall have been audited by Deloitte & Touche or another Big 4 accounting firm and include an unqualified opinion of such firm and (d) shall have been prepared to comply with the requirements of Regulations S-X of the SEC.              5.2.2 on or before May 15, 2006, a copy of the unaudited combined balance sheet with respect to the Systems in the aggregate, as of March 31, 2006 and 2005, and the related combined statements of operations and cash flows for the three months ended March 31, 2006, and 2005 which (a) shall have been prepared based on the separate accounting records maintained by the Sellers and applicable Affiliates of Sellers and (b) will fairly present, in all material respects, the combined financial position of the Systems in the aggregate as of March 31, 2006 and 2005, and the combined results of their operations for the three months ended                                         43    March 31, 2006 and 2005, in accordance with GAAP for interim financial information, which will include all of the information and footnote disclosures required by GAAP for interim financial information, (c) shall have been reviewed in accordance with SAS 100 by Deloitte & Touche or another Big 4 accounting firm, and (d) shall have been prepared to comply with the requirements of Regulations S-X of the SEC. In the event the Closing occurs more than 135 days after (A) March 31, 2006 or (B) the date of any later calendar quarter end, financial information related to such quarterly period in accordance with this Section 5.2.2, shall be furnished to Buyer promptly after the 135th day after the date of the applicable calendar quarter end; provided that the out-of-pocket expenses incurred in connection with the preparation of the financial statements pursuant to this sentence shall be shared equally by Buyer and Sellers.              5.2.3 within forty-five (45) days (or sooner if available) after the end of each month between the date hereof and the Closing Date, such monthly financial and operating reports as are routinely prepared for internal use for management of the Sellers.        5.3 Consents and Replacement Agreements.              5.3.1 Sellers and Buyer covenant and agree as follows:                    (i) Following the execution hereof, until the Closing, Sellers and Buyer shall each use its commercially reasonable efforts to obtain as expeditiously as possible the Consents listed on SCHEDULE 5.3, including without limitation, reasonable replacement or separated Contracts and reasonably comparable replacement or separated authorizations (including any Telecommunications Authorizations).                    (ii) As soon as practicable after the execution of this Agreement, but in any event no later than thirty (30) days after such execution (subject to extension for a period of up to an additional ten (10) days, if reasonably necessary for a party to complete its application), Sellers and Buyer shall prepare and file or deliver, or cause to be prepared and filed or delivered, all applications (including FCC Forms 394 or other appropriate forms) or requests required to be filed with or delivered to the FCC, any State Regulatory Authority, any Franchising Authority or any other Person that are that are necessary to obtain the Consents for the transfer of the Exclusive Governmental Permits and any other Consents of the FCC or any State Regulatory Authority listed on SCHEDULE 5.3, which applications shall include, where applicable, a request that Sellers and their Affiliates be unconditionally released from or under any obligation of Sellers thereunder or any of Sellers' or their Affiliates' guarantee or surety of any of the Sellers' obligations or performance thereunder. Buyer and Sellers shall each be responsible for and pay one half of all Governmental Permit transfer fees, including fees and expenses of counsel, accountants, agents and other representatives, related thereto.                    (iii) As soon as practicable after the execution of this Agreement, but in any event no later than thirty (30) days after such execution (subject to extension for a period of up to an additional ten (10) days, if reasonably necessary for Buyer to complete its application) Buyer shall prepare and file, or cause to be prepared and filed, all applications required to be filed with the FCC and any State Regulatory Authority that are necessary to obtain replacement authorizations for the Telecommunications Authorizations set forth on SCHEDULE 2.8.3. Buyer                                         44    and Sellers shall each be responsible for and pay one half of all fees, including fees and expenses of counsel, accountants, agents and other representatives, of related thereto.                    (iv) As soon as practicable after the execution of this Agreement, but in any event no later than thirty (30) days after such execution (subject to extension for a period of up to an additional ten (10) days, if reasonably necessary for a party to complete its requests for Consent), the parties shall make appropriate requests for any Consents required under the Contracts set forth on SCHEDULE 5.3, which requests shall include a request that Sellers and their Affiliates be unconditionally released of any guarantee or surety of any of the Sellers' obligations or performance thereunder in connection therewith. If any Transferred Contract, Non-Exclusive Retransmission Consent Agreement, Master Carrier Agreement or Master CBI Agreement requires Buyer to assume such Transferred Contract or the obligations of any of the Sellers thereunder (or with respect to such Non-Exclusive Retransmission Consent Agreement, Separated Retransmission Rights, or with respect to such Master Carrier Agreement, Separated Carrier Rights, or with respect to such Master CBI Agreement, Separated CBI Rights, or with respect to Non-Exclusive Cox Media Agreements, Separated Advertising Sales Rights) in connection with the consummation of the transactions contemplated by this Agreement, Buyer shall, effective as of Closing, assume any such Transferred Contract and obligations (or with respect to such Non-Exclusive Retransmission Consent Agreement, Separated Retransmission Rights, or with respect to such Master Carrier Agreement, Separated Carrier Rights, or with respect to such Master CBI Agreement, Separated CBI Rights, or with respect to Non-Exclusive Cox Media Agreements, Separated Advertising Sales Rights) pursuant to an instrument reasonably acceptable to all parties thereto. Buyer and Sellers shall each be responsible for and pay one half of all administrative or other fees imposed by a Person as a condition to processing or giving any Consent or as a condition to entering into a new replacement agreement with Buyer in lieu of giving Consent to assignment of such Transferred Contract (or with respect to such Non-Exclusive Retransmission Consent Agreement, Separated Retransmission Rights, or with respect to such Master Carrier Agreement, Separated Carrier Rights, or with respect to such Master CBI Agreement, Separated CBI Rights, or with respect to Non-Exclusive Cox Media Agreements, Separated Advertising Sales Rights) to Buyer, including fees and expenses of counsel, accountants, agents and other representatives related thereto.                    (v) If, notwithstanding their commercially reasonable efforts, Sellers are unable to obtain one or more of the Consents, (a) Buyer and the applicable Seller shall enter into the Management Agreement with respect to affected Franchises as contemplated in Section 10.1.3, (b) Buyer and the applicable Seller shall enter into the Outsourcing Agreement with respect to affected State Telecommunications Authorizations as contemplated in Section 10.1.4, (c) as to a Consent involving a Transferred Contract, Sellers shall transfer the affected Transferred Contract to Buyer notwithstanding the absence of any such Consent and (d) as to a Consent involving Separated Retransmission Rights, Separated Carrier Rights, Separated CBI Rights or Separated Advertising Sales Rights, Sellers, at their sole option, may elect to either transfer or not transfer such Separated Retransmission Rights, Separated Carrier Rights, Separated CBI Rights or Separated Advertising Sales Rights and, in any case of clause (a), (b), (c) or (d), above, none of the Sellers shall be liable to Buyer for any breach of covenant under this Section 5.3.1, and, for the avoidance of doubt, after the Closing, Sellers shall not have any obligation with respect to obtaining any Consents or any liability for the failure of such Consents to be obtained. Except as expressly set forth in Section 5.3.2 below, nothing in this Section 5.3.1                                         45    shall require the expenditure or payment of any funds (other than in respect of normal and usual attorneys fees, filing fees or other normal costs of doing business) or the giving of any other consideration by Buyer or Sellers or any adjustment to the Purchase Price.                    (vi) Sellers will use their commercially reasonable efforts to assist Buyer in connection with Buyer's efforts to obtain replacement assets for any Excluded Assets and to obtain Separated Retransmission Rights, Separated Carrier Rights, Separated CBI Rights and Separated Advertising Sales Rights. In the event a replacement Contract or a replacement asset for an Excluded Asset is not obtained, Sellers will, if and to the extent Buyer shall request, reasonably assist Buyer in obtaining the benefits to which Sellers are entitled under their Contracts or with respect to the Excluded Assets; provided, however, that the obligations required to procure such benefits would be Buyer's, and Sellers will reasonably assist with any transfer or assignment to Buyer by Sellers of any right or benefit arising thereunder or resulting therefrom.              5.3.2 Except as otherwise agreed by Sellers and Buyer, Buyer shall not be required to accept any Consent from any Governmental Authority or other Person which contains any adverse condition, change or additional or different adverse terms to an Exclusive Governmental Permit, Transferred Contract, Separated Retransmission Rights, Separated Carrier Rights, Separated CBI Rights or Separated Advertising Sales Rights to which such Consent relates as a requirement for such Governmental Authority or other Person granting its Consent; provided, however, that any conditions, changes or additional or different terms that are customary in the industry for cable system operators similarly situated to Buyer in terms of size and financial and operating qualifications, giving effect to the transaction contemplated by this Agreement, shall be accepted by Buyer. Buyer agrees that any of such conditions, changes or additional or different terms falling within the proviso of the previous sentence shall be deemed commercially reasonable for purposes hereof.              5.3.3 Buyer shall promptly furnish to any Governmental Authority or other Person from whom a Consent is requested such accurate and complete information regarding Buyer and its Affiliates, including financial information concerning Buyer and other information relating to the cable and other media operations of Buyer, as a Governmental Authority or other Person may reasonably require in connection with obtaining any Consent, and Buyer shall promptly furnish to Sellers a copy of any such information provided to a Governmental Authority or other Person, and any other information concerning Buyer as Sellers may reasonably request in connection with obtaining any Consent.              5.3.4 Each of Buyer and Sellers shall use their commercially reasonable efforts to keep one another apprised of any request by Governmental Authorities or other Persons of any conditions, changes or additional or different terms to an Exclusive Governmental Permit, Transferred Contract, Separated Retransmission Rights, Separated Carrier Rights, Separated CBI Rights or Separated Advertising Sales Rights for which a Consent is sought.              5.3.5 Buyer agrees that if any Consent related to an Exclusive Governmental Permit, Transferred Contract, Separated Retransmission Right, Separated Carrier Right, Separated CBI Right or Separated Advertising Sales Right that includes a guarantee (including any continuing obligation as assignor) or surety by any Seller or any of its Affiliates of any of the                                         46    Sellers' or Sellers' Affiliates' obligations or performance thereunder does not include an unconditional release thereof, from and after Closing Buyer shall indemnify and hold harmless Sellers and their Affiliates from and against any and all Losses arising out of any such guarantee or surety.        5.4 HSR Act Filing. As soon as practicable after the execution of this Agreement, but in any event no later than thirty (30) days after such execution (subject to extension for a period of up to an additional ten (10) days, if reasonably necessary for a party to complete its notification and report if not filed by the expiration of such thirty (30) day period), the parties will each complete and file, or cause to be completed and filed, any notification and report required to be filed under the HSR Act. The parties shall use commercially reasonable efforts to respond as promptly as reasonably practicable to any inquiries received from the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION") for additional information or documentation and to respond as promptly as reasonably practicable to all inquiries and requests received from any other Governmental Authority in connection with antitrust matters. The parties shall use commercially reasonable efforts to overcome any objections which may be raised by the FTC, the Antitrust Division or any other Governmental Authority having jurisdiction over antitrust matters. Buyer, on the one hand, and Sellers, on the other hand, shall share equally the cost of the filing fee required under the HSR Act.        5.5 Transfer Taxes, Etc.              5.5.1 Buyer and Sellers shall each be responsible for and pay one half of all sales, use, transfer, documentary and purchase Taxes and fees, filing fees (except as expressly set forth in Section 5.4), recordation fees and application fees (collectively, the "TRANSFER TAXES"), if any, arising out of the transactions contemplated herein, and Buyer shall be responsible for, and Sellers shall cooperate with Buyer in connection with, the timely filing of all necessary documents (including all Tax Returns), subject to Sellers right , in advance, to review, comment on and approve, which approval shall not be unreasonably withheld, such documents with respect to Transfer Taxes.              5.5.2 All real property taxes, personal property taxes, or ad valorem obligations and similar recurring taxes and fees on the Transferred Assets and the assets of the Acquired Companies and all Taxes of the Acquired Companies shall be prorated between Buyer and Sellers as of the Adjustment Time. Sellers shall be responsible for all such taxes and fees on the Transferred Assets and assets of the Acquired Companies and the Taxes of the Acquired Companies to the extent attributable to any period up to and including the Adjustment Time. Buyer shall be responsible for all such taxes and fees on the Transferred Assets and the assets of the Acquired Companies to the extent attributable to any period after the Adjustment Time. With respect to Taxes described in this Section 5.5, Sellers shall timely file all Tax Returns due before the Closing Date with respect to such Taxes and Buyer shall prepare and timely file all Tax Returns due after the Closing Date with respect to such Taxes. If one party remits to the appropriate Taxing Authority payment for Taxes, which are subject to proration under this Section 5.5 and such payment includes the other party's share of such Taxes, such other party shall promptly reimburse the remitting party for its share of such Taxes.                                         47                5.5.3 Buyer and Sellers shall cooperate, as and to the extent reasonably requested by the other party, to obtain from any Taxing Authority, or to provide to the other party hereto, any certificate or other document as may be necessary or helpful to mitigate, reduce or eliminate any Transfer Tax that could be imposed with respect to the transactions contemplated by this Agreement. Without limiting the foregoing, at Closing, Buyer shall deliver to the appropriate Seller a properly completed resale certificate (or an acceptable substitute therefor) for each state in which Buyer is purchasing the Transferred Assets for resale, in order to qualify such purchase for the applicable resale exemption under the sales Tax (or similar) laws of each applicable state (collectively, the "RESALE CERTIFICATES").        5.6 Bonds, Letters of Credit, Etc. Subject to the provisions of Section 5.3.2 hereof, Buyer shall take all steps and execute and deliver all documents to ensure that, on the Closing Date, or such other later date not to exceed thirty (30) days following the Closing, Buyer has delivered such bonds, letters of credit, indemnity agreements and similar instruments in such amounts and in favor of such Franchising Authorities and other persons requiring the same in connection with the Exclusive Governmental Permits, the Transferred Contracts and the bonds, letters of credit and similar instruments set forth on SCHEDULE 3.19.        5.7 Transition Services; Intellectual Property. At Closing, Buyer and Sellers will (and, if applicable, Sellers will cause certain of their Affiliates to) execute and deliver (a) an agreement in the form attached hereto as EXHIBIT C (the "TRANSITION SERVICES AGREEMENT"), pursuant to which Sellers or Sellers' Affiliates or agents will agree to perform certain transitional services for Buyer with respect to the Systems pursuant to the terms therein, and (b) a license agreement in the form attached hereto as EXHIBIT D (the "INTELLECTUAL PROPERTY LICENSE AGREEMENT"), pursuant to which Sellers or Acquired Companies or any Affiliate thereof will license to Buyer the right to use certain Licensed Intellectual Property and Software owned by Sellers or Acquired Companies or any Affiliate thereof solely in connection with the operation of the Systems.        5.8 Covenants Regarding Employee Matters.              5.8.1 Within seven (7) days from the date hereof, Sellers shall provide Buyer with a list of all Eligible Employees (defined below) including their names, dates of hire and current salary initialed by the parties with reference to this Section. Effective as of the Closing Date, Buyer shall offer employment to each of the Eligible Employees except those Eligible Employees identified by Buyer by notice (the "EXCLUSION NOTICE") to Sellers not later than ninety (90) days after the date of this Agreement, except as otherwise provided in this Section 5.8. For purposes of this Agreement, "ELIGIBLE EMPLOYEES" mean all Sellers Employees with the exception of those individuals set forth in notice by Sellers to Buyer heretofore delivered to Buyer. Except as otherwise provided in this Section 5.8, Buyer shall offer employment to the Eligible Employees (other than those Eligible Employees identified by Buyer in the Exclusion Notice to Sellers provided for above) on terms and conditions that are substantially similar in the aggregate to the terms and conditions of employment applicable to other employees of Buyer who are similarly situated (such Eligible Employees whom Buyer hires as of Closing Date, collectively the "TRANSFERRED EMPLOYEES"). Buyer and Sellers shall cooperate reasonably from and after the date hereof to communicate with Eligible Employees regarding the offers of employment to be made by Buyer hereunder and otherwise to give effect to this Section 5.8.                                         48                5.8.2 Sellers shall be responsible for and shall cause to be discharged and satisfied in full amounts owed to any Transferred Employee in respect of wages, salaries, any employment, incentive, compensation or bonus agreements or payments on account of termination or other benefits, in each case accrued prior to the Adjustment Time (other than Accrued Vacation, which Buyer will honor pursuant to Section 5.8.4).              5.8.3 Buyer shall waive all preexisting condition limitations under Buyer's health plan for Transferred Employees covered by Sellers' health care plan as of the Adjustment Time and shall provide such health care coverage effective as of the Adjustment Time without the application of any eligibility period for coverage. In addition, Buyer shall cause Buyer's health care plan to credit all employee payments toward deductible and co-payment obligations limits under Sellers' health care plan for the plan year that includes the Adjustment Time as if such payments had been made for similar purposes under Buyer's health care plan during the plan year that includes the Adjustment Time, with respect to Transferred Employees. Buyer shall offer no inducement to any person to elect continuation coverage pursuant to Part 6 of Subtitle B of Title I of ERISA ("COBRA") with respect to any of Sellers' "group health plan" (as such term is defined in Section 607(1) of ERISA or Section 5000(b)(1) of the Code).              5.8.4 For each Transferred Employee, Buyer shall give past service credit for eligibility and vesting crediting purposes (but not for benefit accrual purposes) under each of its employee benefit plans that, on or after the Adjustment Time, provides coverage to Transferred Employees to the same extent such employment service was credited for similar purposes under Sellers' employee benefit plans prior to the Adjustment Time. Buyer shall permit Transferred Employees to use and shall grant Transferred Employees credit for and shall assume and be responsible for Accrued Vacation, but only to the extent taken into account in the determination of the Current Adjustment.              5.8.5 Buyer shall be responsible for and pay severance to any Transferred Employees discharged by Buyer without cause within six (6) months after the Closing in an amount to which such Transferred Employees would have been entitled to severance payments pursuant to Sellers' severance benefits plan if such Transferred Employees had been discharged without cause by Sellers immediately prior to Closing and had not been hired by Buyer as of the Closing. A description of Sellers' severance benefits plan as of the date hereof is attached hereto as SCHEDULE 5.8.5.              5.8.6 Subsequent to the Closing, the account balances of the Transferred Employees under the Sellers' 401(k) plan shall be payable to such Transferred Employees in accordance with the terms of the plan. Upon evidence reasonably satisfactory to Buyer of the qualified status of Seller's 401(k) plan, Buyer will permit rollovers to Buyer's 401(k) plan of cash and of promissory notes that relate to outstanding loans made to participants from Sellers' 401(k) plan, if any, with respect to any Transferred Employee that elects to make such a rollover. Buyer's 401(k) plan shall be substituted as the obligee of such promissory notes, and, except as permitted by applicable Legal Rules, no other changes shall be made with respect to the terms of the notes. Buyer shall effect such rollovers in a manner intended not to result in the recognition of taxable income by the Transferred Employees, and shall take, or shall cause its 401(k) plan to take, any actions that are necessary to effect such rollovers.                                         49                5.8.7 Sellers and Buyer shall in good faith negotiate an employee reorganization plan by December 31, 2005 (the "REORGANIZATION PLAN"). Sellers and Buyer further agree to negotiate in good faith to timing and content of any notice of termination, and any separation and release agreement, to be provided to any employees who, under the Reorganization Plan, will not be offered employment by Buyer in an effort to mitigate any liability under the WARN Act. Any severance payment obligations, including for this purposes of this Section 5.8.7 any severance pay amounts and any amounts required or agreed to be paid to resolve any potential liability arising under the WARN Act, arising from the termination of any Eligible Employee by Sellers prior to Closing pursuant to the Reorganization Plan and paid by Sellers shall be applied against the Severance Maximum. In addition, any such severance payment obligations arising from the failure by Buyer to offer employment to Eligible Employees in accordance with the Reorganization Plan and paid by Sellers shall be applied against the Severance Maximum. In the event the parties fail to reach agreement on the Reorganization Plan, Sellers obligation for severance shall remain subject to the Severance Maximum. The amount of any severance payment obligations, including for this purpose any severance pay amounts and any amounts required or agreed to be paid to resolve any potential liability arising under the WARN Act, paid by Sellers in excess of the Severance Maximum (the "Severance Excess") shall be treated as an adjustment to the Purchase Price pursuant to Section 2.6.1(i)(P). Buyer shall be solely responsible for and shall pay any payment obligations required or agreed to be paid to resolve any potential liability arising under the WARN Act by virtue of the failure on the part of Buyer to make a sufficient number offers of employment to Eligible Employees pursuant to this Section 5.8.1 or as a result of Buyer's termination of the employment of any Transferred Employees after Closing.              5.8.8 This Section 5.8 shall operate exclusively for the benefit of the parties to this Agreement and not for the benefit of any other Person, including, without limitation, any current, former or retired employee of the Sellers, Sellers' Affiliates or spouse or dependents of such other Person.        5.9 Environmental Investigations.              5.9.1 After the date of this Agreement, Buyer may elect, at its own expense, to order a Phase I environmental site assessment of any Owned Real Property or Leased Real Property to the extent expressly permitted by the applicable lease as Buyer may determine, to be performed by a nationally recognized environmental firm selected by Buyer, and approved by Sellers, which approval shall not be unreasonably withheld, conditioned or delayed (the "ENVIRONMENTAL FIRM"), which Phase I environmental site assessments must be completed within ninety (90) days after the date of this Agreement. If the Environmental Firm reasonably determines as a result of those assessments that further investigation or testing is necessary, Buyer may cause to be performed, at its expense, Phase II environmental site assessments at the Owned Real Property and the Leased Real Property except to the extent expressly prohibited by the applicable lease, as soon as reasonably practicable by the Environmental Firm. Following their completion, Buyer will promptly deliver copies of such Phase I and Phase II environmental site assessment reports to Sellers. Sellers will comply with any reasonable request for information made by Buyer or the Environmental Firm in connection with any such investigation and shall afford Buyer and the Environmental Firm access to all areas of the Owned Real Property, at reasonable times and in a reasonable manner in connection with any such                                         50    investigation. In the event that as a result of Phase II environmental assessments, the Environmental Firm reasonably determines that remedial action is required by Environmental Law (a "Required Action"), Buyer shall promptly notify Sellers and provide Sellers with copies of the relevant report.              5.9.2 If the estimated cost required to complete the Required Action (as provided by the Environmental Firm) is equal to or less than the current amount of the then Unutilized Deductible (as hereafter defined), Buyer shall accept the Transferred Assets in their then condition and an amount equal to Buyer's actual cost to complete the Required Action shall reduce the amount of the Unutilized Deductible provided for in Section 9.5.1 (it being understood and agreed that no Liabilities arising out of or relating to such Required Action shall serve as the basis for a claim for indemnification by Buyer pursuant to Article 9 but the amount of the Unutilized Deductible shall be reduced as provided in this Section 5.9.2), but not below zero. For purposes of this Agreement, "Unutilized Deductible" means the Deductible amount net of any prior reductions resulting from the application of the provisions of either this Section 5.9 or Section 5.10.              5.9.3 If the estimated cost required to complete the Required Action (as provided by the Environmental Firm) is greater than the Unutilized Deductible, then notwithstanding any other provisions set forth in this Agreement, Sellers shall have the following options:                    (i) Sellers may elect to cause such Required Action, at Sellers' cost, to be performed in accordance with applicable Environmental Laws, including without limitation, by virtue of Sellers' agreement to complete such Required Action or be responsible therefor after Closing to the extent such Required Action has not been completed prior to Closing;                    (ii) Sellers may substitute the Owned Real Property which is the subject of the Required Action with a parcel that shall be acceptable to Buyer in Buyer's reasonable discretion, and relocate and construct any improvements constituting Transferred Assets thereon, including the headend, plant and facilities at Sellers' cost. In this case, the replacement property shall become a Transferred Asset and the Owned Real Property which is the subject of the Required Action shall become an Excluded Asset; or                    (iii) Sellers may, upon twenty (20) days' prior written notice to Buyer, terminate this Agreement pursuant to Section 8.1.6 without any further Liability of Buyer or Sellers, unless within said 20-day period Buyer notifies Sellers of Buyer's election to consummate this Agreement and accept the Transferred Assets in their then condition, in which event (A) this Agreement shall not be terminated as provided in this Section 5.9.3(iii) and (B) an amount equal to Buyer's actual cost to complete the Required Action shall reduce the amount of the Unutilized Deductible provided for in Section 9.5.1 (it being understood and agreed that no Liabilities arising out of or relating to such Required Action shall serve as the basis for a claim for indemnification by Buyer pursuant to Article 9 but the amount of the Unutilized Deductible shall be reduced as provided in clause (B) of this Section 5.9.3(iii)), but not below zero.                                         51          5.10 Risk of Loss.              5.10.1 The risk of loss, damage or destruction to the Systems from fire, theft or other casualty or cause shall be borne by Sellers at all times up to the Closing. It is expressly understood and agreed that in the event of any material loss or damage to any material portion of the Transferred Assets from fire, casualty or other cause prior to the Closing, Sellers shall promptly notify Buyer of same in writing. Such notice shall report the loss or damage incurred, the cause thereof, if known, and the insurance coverage, if any, related thereto.              5.10.2 Notwithstanding any other provision contained in this Agreement:                    (i) If the amount of damage sustained not covered by insurance is less than the Unutilized Deductible, this Agreement shall remain in full force and effect, the Closing shall be consummated and Buyer shall accept such Transferred Assets in their then condition; Sellers shall pay or assign to Buyer all proceeds of insurance from third party insurers theretofore received or to be received covering the Transferred Assets involved, together with an amount equal to the applicable deductible under such insurance policies; there shall be no reduction to the Purchase Price or any claim for indemnification by Buyer pursuant to Article 9; the actual amount of damage not covered by insurance shall reduce the amount of the Unutilized Deductible provided for in Section 9.5.1 (it being understood and agreed that no Liabilities arising out of or relating to such casualty shall serve as the basis for a claim for indemnification by Buyer pursuant to Article 9, but the amount of the Unutilized Deductible shall be reduced as provided in this Section 5.10.2(i)), but not below zero.                    (ii) If the amount of damage sustained not covered by insurance exceeds the Unutilized Deductible and which is not repaired, replaced or restored prior to the Closing, Sellers may, upon twenty (20) days' prior written notice to Buyer, terminate this Agreement pursuant to Section 8.1.7 without any further Liability of Buyer or Sellers, unless within said 20-day period Buyer notifies Sellers of Buyer's election to consummate this Agreement and accept such Transferred Assets in their then condition, in which event this Agreement shall not be terminated as provided in this Section 5.10.2(ii); Sellers shall pay or assign to Buyer all proceeds of insurance from third party insurers theretofore received or to be received covering the Transferred Assets involved, together with an amount equal to the applicable deductible under such insurance policies; there shall be no reduction to the Purchase Price or any claim for indemnification by Buyer pursuant to Article 9; the actual amount of damage not covered by insurance shall reduce the amount of the Unutilized Deductible provided for in Section 9.5.1 (it being understood and agreed that no Liabilities arising out of or relating to such casualty shall serve as the basis for a claim for indemnification by Buyer pursuant to Article 9, but the amount of the Unutilized Deductible shall be reduced as provided in this Section 5.10.2(ii)), but not below zero.        5.11 Subscriber Information. Buyer shall use all Subscriber Information obtained from Sellers pursuant to the transaction contemplated by this Agreement in compliance with Sections 222 and 631 of the Communications Act and all other Legal Rules governing the use, collection, disclosure and storage of such information.                                         52          5.12 Cure. For all purposes under this Agreement, the existence or occurrence of any events or circumstances which constitute or cause a breach of a representation or warranty of any of the Sellers or Buyer, as the case may be, on the date such representation or warranty is made shall be deemed not to constitute a breach of such representation or warranty if such event or circumstance is cured, including without limitation, by virtue of Sellers' agreement to cure or be responsible for such matter after Closing to the extent such cure cannot be completed prior to Closing; provided, however, that neither Sellers nor Buyer, as the case may be, shall be permitted to effectuate any such cure by amendment to, or addition of, any schedule to this Agreement without the consent of the other party.        5.13 Disclosure. Disclosure of information in any portion of a schedule shall be deemed disclosure in all other relevant portions of the schedules to the extent that the relevance of such disclosure to such other portion of the schedules would be reasonably apparent in light of the circumstances. In addition, (a) the fact that any disclosure on any schedule is not required to be disclosed in order to render the applicable representation or warranty to which it relates true, or that the absence of such disclosure on any schedule would not constitute a breach of such representation or warranty, shall not be deemed or construed to expand the scope of any representation or warranty hereunder or to establish a standard of disclosure in respect of any representation or warranty and (b) disclosure of a particular matter on any schedule shall not in any circumstance be construed to mean that such matter is material or has not had or would be reasonably expected to have a Material Adverse Effect.        5.14 No Other Representations or Warranties.              5.14.1 Buyer acknowledges and agrees that it (a) has made its own inquiry and investigation into, and, based thereon, has formed an independent judgment concerning, the Transferred Assets, the Assumed Liabilities and the Systems and (b) has been furnished with or has been given adequate access to such information about the Transferred Assets, the Assumed Liabilities and the Systems as it has requested. In connection with Buyer's investigation of the Transferred Assets, the Assumed Liabilities and the Systems, Buyer may have received and may hereafter receive from the Sellers or its representatives estimates, projections and other forecasts relating to the Transferred Assets, the Assumed Liabilities and the Systems, and plan and budget information with respect thereto (collectively, "PROJECTIONS"). Buyer acknowledges that there are uncertainties inherent in attempting to make Projections, that Buyer is familiar with such uncertainties, and that Buyer is taking full responsibility for making its own evaluation of the adequacy and accuracy of any Projections and Sellers shall have no liability or obligation with respect thereto.              5.14.2 Buyer acknowledges and agrees that, except for the representations and warranties made by the Sellers and expressly set forth in Article 3 of this Agreement, none of the Sellers or any Affiliate or representative of the Sellers has made and shall not be construed as having made to Buyer or to any representative or Affiliate thereof, and neither Buyer nor any Affiliate nor any representative thereof has relied upon, any representation or warranty of any kind. Without limiting the generality of the foregoing, and notwithstanding any express representation and warranty made by the Sellers in Article 3 hereof, Buyer agrees that none of the Sellers or any Affiliate or any representative of the Sellers makes or has made any representation or warranty to Buyer or to any representative or Affiliate thereof with respect to                                         53    any Projections or, except to the extent and as expressly covered by a representation and warranty of the Sellers contained in Article 3 hereof, with respect to any other statements, documents or other information heretofore or hereafter delivered to or made available to Buyer or to any representative or Affiliate thereof (including without limitation, the Confidential Descriptive Memorandum dated June 2005), and that Buyer will not assert any claim against the Sellers or any of their Affiliates or any of their directors, officers, employees, agents, stockholders, or representatives, or hold the Sellers or any such Persons liable with respect to any such Projections or other statements, documents or other information heretofore or hereafter delivered to or made available to Buyer or to any representative or Affiliate thereof (including without limitation, the Confidential Descriptive Memorandum dated June 2005) except to the extent and as expressly covered by a representation and warranty of the Sellers contained in Article 3 hereof.        5.15 Access to Books and Records.              5.15.1 Sellers agree that on and after the date hereof, during normal business hours, it shall permit Buyer and its auditors and attorneys, through their authorized representatives, to have access to and to examine all books and records of Sellers reasonably related to the Systems. Any examination or request for information shall be conducted in such a manner so as not to interfere with the business or operations of Sellers or any of their Affiliates.              5.15.2 Buyer agrees that on and after the Closing, during normal business hours, it shall permit Sellers and their auditors and attorneys, through their authorized representatives, to have access to and to examine all books and records provided by Sellers to Buyer in connection with the transactions contemplated by this Agreement and reasonably related to events occurring prior to the Closing. Any examination or request for information shall be conducted in such a manner so as not to interfere with the business or operations of Buyer or any of its Affiliates.              5.15.3 Buyer and Sellers shall furnish or cause to be furnished to each other, as promptly as practicable, such information and assistance relating to the Transferred Assets, the Systems and the Assumed Liabilities as is reasonably necessary for the preparation and filing of any Tax Return, claim for refund or other filings relating to Tax matters, for the preparation for any Tax audit, for the preparation for any Tax protest, for the prosecution or defense of any suit or other proceeding relating to Tax matters. For the avoidance of doubt, Sellers shall prepare and file, or cause to be prepared and filed, the income Tax Returns of CTT for any short taxable period ending as of the Closing Date.              5.15.4 Each party shall direct its representatives to render any assistance which the other party may reasonably request in examining or utilizing records referred to in this Section 5.15. Each party agrees to preserve all files and records which are subject to this Section 5.15 for a period of seven (7) years after the Closing Date, provided, however, each party may destroy or otherwise dispose of any such records during such seven (7) year period after first giving thirty (30) days' notice thereof to the other party, and within thirty (30) days of receipt of such notice, such other party may cause to be delivered to it the records intended to be destroyed, at such other party's expense.                                         54          5.16 Programming Agreements.              5.16.1 Sellers have notified each Programmer that is a party to a Programmer Optional Programming Agreement listed on SCHEDULE 1.75(a) of the transactions contemplated by this Agreement. Sellers shall notify Buyer upon receipt of any notice from such Programmer. If any such Programmer so elects, Buyer hereby agrees to execute and deliver an assignment and assumption agreement for Buyer's assumption of a particular Seller's or Seller's Affiliate's obligations with respect to the Systems and containing other customary terms for a transaction of such nature (a "Programming Assumption Agreement") with respect to such Programmer Optional Programming Agreement at Closing.              5.16.2 Within fifteen (15) days of the date hereof, Sellers shall notify each Programmer that is a party to a Programmer Optional Programming Agreement listed on SCHEDULE 1.75(b) of the transactions contemplated by this Agreement. Sellers shall notify Buyer upon receipt of any notice from such Programmer. If any such Programmer so elects, Buyer hereby agrees to execute and deliver a Programming Assumption Agreement with respect to such Programmer Optional Programming Agreement at Closing. Buyer agrees that to the extent that the Programmer that is a party to the Programmer Optional Programmer Agreement marked with an asterisk on SCHEDULE 1.75(b) elects to require Buyer to assume the obligation to distribute its programming under the terms of Buyer's programming agreement with such Programmer (to the extent Buyer has such programming agreement with such Programmer in force), Buyer hereby agrees to assume such obligation under its terms. Buyer agrees that to the extent that the Programmer that is a party to the Programmer Optional Programming Agreement marked with an asterisk on SCHEDULE 1.75(b) elects to require Buyer to negotiate a new programming agreement with such Programmer, Buyer hereby agrees to negotiate with such Programmer in good faith the terms of a new programming agreement with respect to the Systems.              5.16.3 To the extent that a Programmer that is a party to a Programmer Optional Programming Agreement does not elect to require the Buyer to assume the particular Seller's or Seller's Affiliate's obligations thereunder, then such programming agreement shall no longer be deemed a Programmer Optional Programming Agreement.              5.16.4 As of the date hereof, Sellers have launched the CourtTV service to certain incremental, full-time, expanded basic subscribers in the Systems either through new analog launches or migrations from digital to analog resulting in new incremental analog subscribers (the "Current New CourtTV Analog Subscribers"). From the date hereof until the Closing Date, Sellers will continue to launch the CourtTV service to additional incremental, full-time, expanded basic subscribers in the Systems either through new analog launches or additional migrations from digital to analog resulting in new incremental analog subscribers (the "ADDITIONAL NEW COURTTV ANALOG SUBSCRIBERS"); provided that Sellers will cease such launches when Sellers have at least 150,000 in the aggregate (the "COURTTV MINIMUM") Current New CourtTV Analog Subscribers and Additional New CourtTV Analog Subscribers in the Systems. After Closing, Buyer hereby agrees: (i) in the event that Sellers have not achieved the CourtTV Minimum, to launch, as promptly as reasonably practicable, but in any event prior to December 31, 2006, the CourtTV service to additional incremental, full-time, expanded basic subscribers in the Systems either through, subsequent to the Closing, new analog launches or                                         55    additional migrations from digital to analog resulting in new incremental analog subscribers until Buyer has achieved the CourtTV Minimum in the Systems; (ii) to report to Sellers within thirty (30) days of achieving the CourtTV Minimum; and (iii) to maintain the CourtTV service as a full-time, analog expanded basic service to at least the Court TV Minimum through December 31, 2009.        5.17 Cooperation; Commercially Reasonable Efforts. Without limiting or expanding any of the express obligations of the parties hereunder, the parties shall cooperate with each other and their respective counsel, accountants, agents and other representatives in all commercially reasonable respects in connection with any actions required to be taken as part of their respective obligations under this Agreement, and otherwise use their commercially reasonable efforts to consummate the transactions contemplated hereby and to fulfill their obligations hereunder as expeditiously as practicable. In addition, Sellers will cooperate with Buyer in providing to Buyer information reasonably requested by Buyer with respect to the Transferred Assets as well as to the Excluded Assets (insofar as the Excluded Assets relate to any System).        5.18 Non-Competition, Non-Solicitation.              5.18.1 For a period from the Closing Date until the third anniversary of the Closing Date, Parent shall not, and shall cause its Affiliates not to, directly or indirectly, own, manage, control or participate in the ownership, management, or control of any business, whether in corporate, proprietorship or partnership form or otherwise, engaged in the distribution business by wireline of video, internet access or telephony operating within the Designated Area (a "RESTRICTED BUSINESS"); provided, however, that the restrictions contained in this Section 5.18.1 shall not restrict the acquisition by Parent, directly or indirectly, of (i) less than 10% of the outstanding capital stock of any publicly traded company engaged in a Restricted Business, (ii) a non-controlling passive interest in any Person whose stock is not publicly traded and which is engaged in the Restricted Business (iii) a Person (through a merger, asset or stock acquisition) that directly or indirectly is engaged in the Restricted Business if such Restricted Business in the Designated Area is not a predominate portion of such Person's business or operations. For purposes of this Section 5.18.1, "DESIGNATED AREA" means the portion of the municipalities and areas currently served by the Systems.              5.18.2 For a period from the Closing Date hereof to the first anniversary of the Closing Date, Parent shall not, and shall cause its directors, officers, employees and Affiliates not to, (a) cause, solicit, induce or encourage any employees of the Systems to leave such employment, including any such individual who did not accept Buyer's offer of employment made to such individual pursuant to Section 5.8.1, or (b) hire, employ or otherwise engage any employees of the Systems with exempt status under the Fair Labor Standards Act, including any such individual who did not accept Buyer's offer of employment made to such individual pursuant to Section 5.8.1; provided, however, that it shall not be a violation of this Section 5.18.2 for Parent or Sellers (y) to hire employees that did not receive an offer of employment from Buyer pursuant to section 5.8.1 or that have been terminated by Buyer and those set forth in the notice delivered pursuant to Section 5.8.1 by Sellers or (z) to advertise employment opportunities in newspapers, trade publications, electronic media or other media not targeted specifically at the employees of the Systems.                                         56                5.18.3 The covenants and undertakings contained in this Section 5.18 relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of this Section 5.18 will cause irreparable injury to Buyer, the amount of which will be impossible to estimate or determine and which cannot be adequately compensated. Accordingly, the remedy at law for any breach of this Section 5.18 will be inadequate. Therefore, Buyer will be entitled to an injunction, restraining order or other equitable relief from any court of competent jurisdiction in the event of any breach of this Section 5.18 without the necessity of proving actual damages or posting any bond whatsoever. The rights and remedies provided by this Section 5.18 are cumulative and in addition to any other rights and remedies which Buyer may have hereunder or at law or in equity.              5.18.4 The parties hereto agree that, if any court of competent jurisdiction in a final nonappealable judgment determines that a specified time period, a specified geographical area, a specified business limitation or any other relevant feature of this Section 5.18 is unreasonable, arbitrary or against public policy, then a lesser time period, geographical area, business limitation or other relevant feature which is determined by such court to be reasonable, not arbitrary and not against public policy may be enforced against the applicable party.        5.19 No Shop.              5.19.1 Parent shall not, and shall not permit any of the Affiliates, directors, officers, Employees, representatives or agents of Parent or Sellers (collectively, the "REPRESENTATIVES") to, directly or indirectly, (i) discuss, encourage, negotiate, undertake, initiate, authorize, recommend, propose or enter into, either as the proposed surviving, merged, acquiring or acquired corporation, any transaction involving a merger, consolidation, business combination, purchase or disposition of any material amount of the Systems, the Transferred Assets or any capital stock of a Seller other than the transactions contemplated by this Agreement (an "ACQUISITION TRANSACTION"), (ii) facilitate, encourage, solicit or initiate discussions, negotiations or submissions of proposals or offers in respect of an Acquisition Transaction, (iii) furnish or cause to be furnished, to any Person, any information concerning the business, operations, properties or assets of any Seller or the Subsidiaries in connection with an Acquisition Transaction, or (iv) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing.              5.19.2 Parent shall, (and shall cause its Representatives to), immediately cease and cause to be terminated any existing discussions or negotiations with any Persons (other than Buyer) conducted heretofore with respect to any Acquisition Transaction. Parent agrees not to release any third party from the confidentiality and standstill provisions of any agreement to which Parent or its Representatives are a party and which were entered into in connection with the transactions contemplated by this Agreement.        5.20 Cooperation with Financing. Sellers shall provide, and shall cause the Acquired Companies to provide, reasonable assistance to Buyer's efforts to obtain the funds contemplated by the Financing Commitments, including provision of financial statements for prior periods, facilitating customary due diligence and arranging for members of System management to meet with prospective lenders in customary presentations or to participate in customary road shows, in                                         57    each case upon Buyer's request with reasonable prior notice and at Buyer's sole cost and expense. At Buyer's sole cost and expense, the Sellers shall, and shall cause the Acquired Companies to, use commercially reasonable efforts to cause their respective accountants to provide customary assistance in such financing. In the event of a public offering or an offering in accordance with Rule 144A under the Securities Act of 1933 of the debt or equity securities of Buyer or its Affiliates, Sellers will, upon Buyer's request with reasonable prior notice, use their commercially reasonable efforts to cause Sellers' accountants to deliver to Buyer and its Affiliates and the underwriters in any such offering a letter covering such matters as are reasonably requested by Buyer or its Affiliates or such underwriters, as the case may be, and as are customarily addressed in accountants' "comfort letters," and to provide their consent to the references to them as experts and the inclusion in any applicable filings of their auditor's reports. Buyer acknowledges that (i) the assistance provided by the Sellers, their Affiliates, officers, employees and representatives are being provided at the request of Buyer, and (ii) none of the Sellers shall have any liability to lenders or prospective lenders in connection with the activities contemplated by this Section 5.20. Buyer shall indemnify and hold harmless Sellers and their Affiliates from and against any Liabilities resulting from any assistance or activities provided pursuant to this Section 5.20, except that this clause (ii) shall not apply to any liability of the Sellers, their Affiliates, officers, employees or representatives that is determined by a court in a final, non-appealable judgment to have resulted from the gross negligence or willful misconduct of the Sellers, their Affiliates, officers, employees or representatives. Sellers shall also provide, Buyer with reasonable assistance in gathering information, reasonably available to Sellers, relating to the past operations of the Systems, including information allowing conversion of subscriber numbers to equivalent billing units. Buyer shall reimburse Sellers and their Affiliates for any and all out-of-pocket expenses incurred by Sellers or any of their Affiliates in connection with their assistance provided to Buyer pursuant to this Section.        5.21 Title Commitments; Surveys; Lien Searches. Buyer may order, at Buyer's sole cost and expense, title commitments, surveys and lien searches on each parcel of Owned Real Property. Sellers agree to cooperate with Buyer in obtaining such items.        5.22 Inventory. Sellers covenant and agree that the Transferred Assets shall include at a minimum the quantity of inventory set forth on SCHEDULE 5.22.        5.23 Assets Owned by Parent's Affiliates other than Sellers. To the extent any assets that are used exclusively in the Systems are owned by an Affiliate of Parent that is not a party to this Agreement, Parent shall cause such Affiliate to effect a transfer of all of such assets to Sellers prior to Closing.        5.24 Update of Certain Schedules. Within thirty (30) days of the date hereof, Sellers shall deliver to Buyer (i) updated SCHEDULE 3.8.1. through SCHEDULE 3.8.12, which updated Schedules shall set forth (in addition to those Transferred Contracts previously listed on said Schedules pursuant to Section 3.8 above) a true and complete list of each Transferred Contract (other than Real Property Leases and Other Real Property Interests), that fall within any of the following categories (A) agreements that provide for annual payments to or by Sellers or their Affiliates in excess of $100,000, (B) any partnership, joint venture or other similar agreement or arrangement of Sellers or the Acquired Companies, (C) any agreement relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise) that                                         58    has any remaining indemnity obligations, and (D) a brief summary of the material terms of any oral Transferred Contract that falls into any of the foregoing categories and (ii) true and complete copies of all Transferred Contracts (including all amendments, modifications and supplements thereto) that have not already been delivered or made available to Buyer pursuant to Section 3.8.1 and that are set forth on SCHEDULE 3.8.1 as updated. Within thirty (30) days of the date hereof, Sellers shall deliver an updated SCHEDULE 3.19, which updated SCHEDULE 3.19 shall include a description of any franchise construction, fidelity performance or other bonds, guaranties in lieu of bonds or letters of credit posted by a Seller or any Acquired Company in connection with the operation or ownership of any of the Systems.        5.25 Transition Planning. Sellers shall reasonably cooperate with Buyer with respect to transition planning for migration of activities from Sellers to Buyer in connection with the operation of the Systems; provided, however, Sellers shall be under no obligation to provide any data other than with respect to payroll, benefits and employee information.  6.    CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND SELLERS TO CLOSE        6.1 Conditions Precedent to Obligations of Buyer to Close. The obligations of Buyer to consummate the transactions contemplated by this Agreement to occur at the Closing shall be subject to the satisfaction, on or before the Closing Date, of each and every one of the following conditions, all or any of which may be waived in writing, in whole or in part, by Buyer:              6.1.1 Representations and Warranties of Sellers. Except as affected by actions taken by Sellers in compliance with this Agreement, each of the representations and warranties of Sellers set forth in this Agreement, without giving effect to any materiality qualifier, shall be true and correct as of the Closing Date, as though made on the Closing Date (except for representations or warranties which expressly relate to an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date), in each case except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.              6.1.2 Sellers' Covenants and Conditions. Sellers shall have in all material respects performed and complied with the covenants and agreements required by this Agreement to be performed or complied with by them prior to or on the Closing Date.              6.1.3 No Governmental Proceeding or Injunction. No suit, action or administrative proceeding by any Governmental Authority shall have been instituted seeking to restrain or prohibit the transactions contemplated by this Agreement (which has not been subsequently dismissed, settled or otherwise terminated); provided, however, in the case of any such proceeding(s) brought by one or more Governmental Authorities contesting or questioning the validity or legality of the transactions contemplated by this Agreement whose consent is not required as a condition to the obligations of Buyer pursuant to Section 6.1.5, the condition set forth in this Section 6.1.3 shall be deemed to have been satisfied. On the Closing Date there shall be no effective injunction, preliminary restraining order or any other order of any nature issued by a court of competent jurisdiction directing that the Closing not be consummated.                                         59                6.1.4 Hart-Scott-Rodino. The waiting period under the HSR Act shall have expired or been terminated.              6.1.5 Consents. (a) The aggregate number of the Systems' Basic Subscribers covered by (i) Franchises as to which Consents shall have been obtained and (ii) Franchises that do not require Consent, shall equal at least 90% of the total number of the Systems' Basic Subscribers as of the Adjustment Time and (b) the Consents listed on SCHEDULE 6.1.5 (the "Required Consents") shall have been obtained.              6.1.6 December 31, 2005 Audited Financial Statements. Buyer shall have received the December 31, 2005 Audited Financial Statements and, if applicable, the financial statements referred to in Section 5.2.2 to the extent that such financial statements are then due as of the Closing Date pursuant to and in accordance with the terms and conditions set forth in Section 5.2.2.              6.1.7 Deliveries. Sellers shall have made or stand willing and able to make all the deliveries to Buyer set forth in Section 7.2.              6.1.8 Operating Cash Flow Adjustment. The Operating Cash Flow Adjustment (without giving effect to any amounts in dispute with respect thereto) shall not be more than $130,000,000.00.              6.1.9 No Material Adverse Effect. No event, change, circumstance or occurrence shall have occurred that, individually or in the aggregate with any such events, changes, circumstances or occurrences, has had or would reasonably be expected to have a Material Adverse Effect since December 31, 2004, except as set forth on SCHEDULE 3.17.        6.2 Conditions Precedent to Obligations of Sellers to Close. The obligations of Sellers to consummate the transactions contemplated by this Agreement to occur at the Closing shall be subject to the satisfaction, on or before the Closing Date, of each and every one of the following conditions, all or any of which may be waived in writing, in whole or in part, by Sellers:              6.2.1 Representations and Warranties of Buyer. Except as affected by actions taken by Buyer in compliance with this Agreement, each of the representations and warranties of Buyer set forth in this Agreement that is qualified by "materiality" shall be true and correct as of the Closing Date, as though made on the Closing Date (except for representations or warranties which expressly relate to an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date), and each of the representations and warranties of Buyer set forth in this Agreement that is not qualified by "materiality" shall be true and correct in all material respects as of the Closing, as though made on the Closing Date (except for representations or warranties which expressly relate to an earlier date, in which case such representation and warranty shall be true and correct in all material respects as of such earlier date).              6.2.2 Buyer's Covenants and Conditions. Buyer shall have in all material respects performed and complied with the covenants and agreements required by this Agreement to be performed or complied with by it prior to or on the Closing Date.                                         60                6.2.3 No Governmental Proceeding or Injunction. No suit, action or administrative proceeding by any Governmental Authority shall have been instituted seeking to restrain or prohibit the transactions contemplated by this Agreement (which has not been subsequently dismissed, settled or otherwise terminated); provided, however, in the case of any such proceeding(s) brought by one or more Governmental Authorities contesting or questioning the validity or legality of the transactions contemplated by this Agreement whose consent is not required as a condition to the obligations of Buyer pursuant to Section 6.1.5, the condition set forth in this Section 6.2.3 shall be deemed to have been satisfied. On the Closing Date there shall be no effective injunction, preliminary restraining order or any other order of any nature issued by a court of competent jurisdiction directing that the Closing not be consummated.              6.2.4 Hart-Scott-Rodino. The waiting period under the HSR Act shall have expired or been terminated.              6.2.5 Consents. The Required Consents shall have been obtained.              6.2.6 Deliveries. Buyer shall have made or stand willing and able to make all the deliveries set forth in Section 7.3.              6.2.7 Operating Cash Flow Adjustment. The Operating Cash Flow Adjustment (without giving effect to any amounts in dispute with respect thereto) shall not be more than $130,000,000.00.  7.    CLOSING AND CLOSING DELIVERIES        7.1 Closing.              7.1.1 Closing Date.                    (i) The Closing shall take place on the date specified by Sellers by notice to Buyer, which specified date shall be no earlier than seven (7) Business Days and no later than ten (10) Business Days after the conditions set forth in Sections 6.1 and 6.2 have been satisfied or waived (or will be satisfied at or upon Closing) or on such earlier or later date as Sellers and Buyer shall mutually agree; provided, that, notwithstanding the foregoing, Buyer shall have the right, by serving notice to Sellers, to extend the date on which the Closing shall take place to a date not later than 30 days following the receipt by Buyer of the December 31, 2005 Audited Financial Statements (and, if more than 135 days after December 31, 2005, within 30 days after receipt of the financial statements for March 31, 2006 described in Section 5.2.2, and if more than 135 days after March 31, 2006, within 30 days after receipt of the financial statements decscribed in Section 5.2.2 for the quarter ended June 30, 2006). Notwithstanding anything in this Agreement to the contrary, if such extension referred to above would cause the Closing to take place on a date after the End Date, the End Date shall be extended to the date that is one day after such extended Closing Date.                    (ii) If the End Date occurs during the period any notice period under this Section 7.1 is pending, the End Date shall be extended until one (1) Business Day after the lapse of such period and Sellers and Buyer agree to close one (1) Business Day after the End Date.                                         61                7.1.2 Closing Place. The Closing shall be held at the offices of Dow, Lohnes & Albertson, PLLC, One Ravinia Drive, Suite 1600, Atlanta, Georgia 30346, commencing at 9:00 a.m. or at such other location or time as the parties may mutually agree.        7.2 Deliveries by Sellers. Prior to or on the Closing Date, Sellers shall deliver to Buyer the following, in form and substance reasonably satisfactory to Buyer and its counsel:              7.2.1 Transfer Documents. Duly executed bill of sale and assignment, substantially in the form attached hereto as EXHIBIT E (the "BILL OF SALE"), limited or special (but not general) warranty deeds (subject to Permitted Encumbrances), FIRPTA Certificates, motor vehicle titles and assignments providing for the transfer of the Purchased Interests;              7.2.2 Assumption Agreement. A duly executed assumption agreement, substantially in the form attached hereto as EXHIBIT F (the "ASSUMPTION AGREEMENT");              7.2.3 Consents. The original or copy of the Required Consents and any other Consents received on or before the Closing Date;              7.2.4 Secretary's Certificate. A certificate, dated as of the Closing Date, executed by the secretary (or appropriate Person) of each Seller without personal liability, certifying that the resolutions, as attached to such certificate, were duly adopted by such Seller's board of directors (or applicable Person), authorizing and approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby and that such resolutions were duly adopted and remain in full force and effect;              7.2.5 Officer's Certificate. A certificate, dated as of the Closing Date, executed by a duly authorized officer (or appropriate Person) of each Seller, certifying to his knowledge, without personal liability, that the conditions set forth in Sections 6.1.1 and 6.1.2 are satisfied;              7.2.6 Resignations. The resignations, effective as of the Closing, of each of the officers and directors or managers of each of the Acquired Companies;              7.2.7 Transition Services Agreement. An original of the Transition Services Agreement, duly executed by TCAP;              7.2.8 Intellectual Property License Agreement. An original of the Intellectual Property License Agreement, duly executed by the appropriate Seller or Affiliate of a Seller;              7.2.9 Management Agreement. An original of the Management Agreement, duly executed by the applicable Sellers, to the extent required under Section 10.1.3;              7.2.10 Outsourcing Agreement. An original of the Outsourcing Agreement, duly executed by the applicable Sellers, to the extent required under Section 10.1.4;              7.2.11 Required Programming Agreement. An original of the Required Programming Agreement, duly executed by Cox Communications Louisiana, LLC; and                                         62                7.2.12 Programming Assumption Agreements. The Programming Assumption Agreements each duly executed by the applicable Seller or Affiliate of Seller and the applicable Programmer.        7.3 Deliveries by Buyer. Prior to or on the Closing Date, Buyer shall deliver to Sellers the following, in form and substance reasonably satisfactory to Sellers and their counsel:              7.3.1 Purchase Price. The Purchase Price (a) reduced by the amount of the Deposit, together with interest thereon (which shall be delivered to Sellers by Escrow Agent as provided in Section 2.3), and (b) subject to adjustment on the Closing Date as provided in Section 2.6;              7.3.2 Assumption Agreement. A duly executed Assumption Agreement, pursuant to which Buyer shall assume and undertake to perform the Assumed Liabilities;              7.3.3 Secretary's Certificate. A certificate, dated as of the Closing Date, executed by Buyer's secretary (or appropriate Person), without personal liability, certifying that the resolutions, as attached to such certificate, were duly adopted by Buyer's board of directors (or applicable Person), authorizing and approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby and that such resolutions were duly adopted and remain in full force and effect;              7.3.4 Officer's Certificate. A certificate, dated as of the Closing Date, executed by a duly authorized officer (or appropriate Person) of Buyer, certifying to his knowledge, without personal liability, that the conditions set forth in Sections 6.2.1 and 6.2.2 are satisfied;              7.3.5 Required Programming Agreement. An original of the Required Programming Agreement, duly executed by Buyer;              7.3.6 Programming Assumption Agreements. The Programming Assumption Agreements, each duly executed by Buyer and the applicable Programmer;              7.3.7 Transition Services Agreement. An original of the Transition Services Agreement, duly executed by Buyer;              7.3.8 Intellectual License Agreement. An original of the Intellectual License Agreement, duly executed by Buyer;              7.3.9 Management Agreement. An original of the Management Agreement, duly executed by Buyer, to the extent required under Section 10.1.3; and              7.3.10 Outsourcing Agreement. An original of the Outsourcing Agreement, duly executed by Buyer, to the extent required under Section 10.1.4.              7.3.11 Resale Certificates. An original of each Resale Certificate duly executed by Buyer, to the extent required under Section 5.5.3.                                         63    8.    TERMINATION        8.1 Method of Termination. This Agreement may be terminated prior to the Closing only as follows:              8.1.1 By the mutual written consent of Buyer and Sellers;              8.1.2 By Buyer anytime after the date determined for the Closing in accordance with Section 7.1 if each of the conditions set forth in Section 6.2 has been satisfied (or will be satisfied by the wire transfer of the Purchase Price, as adjusted pursuant to the terms of this Agreement, and delivery of documents at the Closing) or waived in writing by Sellers on such date (provided, however, any condition set forth in Section 6.2 shall be deemed satisfied for purposes of this Section 8.1.2 if the failure of any said condition to be satisfied was caused by any Seller's breach of or failure to perform any of its representations, warranties, covenants or other obligations in accordance with the terms of this Agreement) and Sellers have nonetheless refused to consummate the Closing;              8.1.3 Subject to the terms and conditions set forth in Section 7.1, by Buyer anytime after the first (1st) anniversary of the date of this Agreement (the "END DATE"), if the Closing has not been consummated, provided that the failure to close is not a result of a breach of warranty or nonfulfillment of any covenant or agreement by Buyer or Buyer's failure to perform hereunder;              8.1.4 By Sellers anytime after the date determined for the Closing in accordance with Section 7.1 if each of the conditions set forth in Section 6.1 has been satisfied (or will be satisfied by the delivery of documents at the Closing) or waived in writing by Buyer on such date (provided, however, any condition set forth in Section 6.1 shall be deemed satisfied for purposes of this Section 8.1.4 if the failure of any said condition to be satisfied was caused by Buyer's breach of or failure to perform any of its representations, warranties, covenants or other obligations in accordance with the terms of this Agreement) and Buyer has nonetheless refused to consummate the Closing;              8.1.5 Subject to the terms and conditions set forth in Section 7.1, by Sellers anytime after the End Date, if the Closing has not been consummated, provided that the failure to close is not a result of a breach of warranty or nonfulfillment of any covenant or agreement by any Seller or Seller's failure to perform hereunder;              8.1.6 By Sellers pursuant to Section 5.9.3;              8.1.7 By Sellers pursuant to Section 5.10.2;              8.1.8 By Sellers or Buyer, if there shall be in effect a final nonappealable injunction or other final nonappealable order of a Governmental Authority of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; provided, however, that the right to terminate this Agreement under this Section 8.1.8 shall not be available to a party if such injunction or order was primarily due to the failure of such party to perform any of its obligations under this Agreement;                                         64                8.1.9 By Sellers at anytime prior to Closing, if there has been a breach of any representation, warranty, covenant or agreement made by Buyer in this Agreement such that an officer of Buyer would be unable to deliver the certificate to Sellers required under Section 7.3.4 regarding Buyer's representations and warranties and Buyer's performance of its obligations as required pursuant to Section 6.2.1 and Section 6.2.2, respectively, and such breach or condition is not curable; or              8.1.10 By Buyer at anytime prior to Closing, if there has been a breach of any representation, warranty, covenant or agreement made by Sellers in this Agreement such that an officer of any Seller would be unable to deliver the certificate to Buyer required under Section 7.2.5 regarding Sellers' representations and warranties and Sellers' performance of their obligations as required pursuant to Section 6.1.1 and Section 6.1.2, respectively, and such breach or condition is not curable.        8.2 Rights Upon Termination.              8.2.1 In the event of a termination of this Agreement pursuant to Sections 8.1.1, 8.1.6, 8.1.7 or 8.1.8 (as long as the injunction or order referred to in Section 8.1.8 causing the termination was not caused, in whole or in part, by the failure of Buyer to perform any of its obligations under this Agreement) hereof, Buyer shall be entitled to the return of the Deposit and all interest accrued thereon, each party shall pay the costs and expenses incurred by it in connection with this Agreement, and no party (or any of its officers, directors, employees, agents, representatives or stockholders) shall be liable to any other party for any Losses hereunder.              8.2.2 In the event of a termination of this Agreement pursuant to Section 8.1.2 or 8.1.8 (as long as the injunction or order referred to in Section 8.1.8 causing the termination was not caused, in whole or in part, by the failure of Buyer to perform any of its obligations under this Agreement), if any Seller is in breach of this Agreement, Buyer shall be entitled to the return of the Deposit and all interest accrued thereon and Buyer shall have the further right to pursue all legal or equitable remedies for breach of contract or otherwise.              8.2.3 In the event of a termination of this Agreement pursuant to Section 8.1.3, Buyer shall be entitled to the return of the Deposit and all interest accrued thereon and, if any Seller is in breach of this Agreement, Buyer shall have the further right to pursue all legal or equitable remedies for breach of contract or otherwise.              8.2.4 In the event of a termination of this Agreement pursuant to Section 8.1.10, Buyer shall be entitled to the return of the Deposit and all interest accrued thereon and, Buyer shall have the further right to pursue all legal or equitable remedies for breach of contract or otherwise.              8.2.5 In the event of a termination of this Agreement pursuant to Section 8.1.4 or 8.1.8 (as long as the injunction or order referred to in Section 8.1.8 causing the termination was not caused, in whole or in part, by any Seller's failure to perform any of its obligations under this Agreement and the injunction or order referenced in Section 8.1.8 causing the termination was caused, in whole or in part, by Buyer's failure to perform any of its obligations under this                                         65    Agreement), if the Closing has not been consummated solely as a result of a breach of warranty or nonfulfillment of any covenant or agreement by Buyer or Buyer's failure to perform hereunder, Sellers shall be entitled to receive the Deposit and all interest accrued thereon as liquidated damages for the damages suffered by Sellers (which amount the parties agree is a reasonable estimate of the damages that will be suffered by Sellers and does not constitute a penalty).              8.2.6 In the event of a termination of this Agreement pursuant to Section 8.1.5, if the Closing has not been consummated solely as a result of a breach of warranty or nonfulfillment of any covenant or agreement by Buyer or Buyer's failure to perform hereunder, Sellers shall be entitled to receive the Deposit and all interest accrued thereon as liquidated damages for the damages suffered by Sellers (which amount the parties agree is a reasonable estimate of the damages that will be suffered by Sellers and does not constitute a penalty). Buyer shall be entitled to the return of the Deposit and all interest accrued thereon in the event of a termination of this Agreement pursuant to Section 8.1.5 under any other circumstances.              8.2.7 In the event of a termination of this Agreement pursuant to Section 8.1.9, Sellers shall be entitled to receive the Deposit and all interest accrued thereon as liquidated damages for the damages suffered by Sellers (which amount the parties agree is a reasonable estimate of the damages that will be suffered by Sellers and does not constitute a penalty).        8.3 Other Termination Provisions.              8.3.1 Notwithstanding the foregoing, a party may not rely on the failure of any condition set forth in Article 6 to be satisfied if such failure was caused by such party's breach of or failure to perform any of its representations, warranties, covenants or other obligations in accordance with the terms of this Agreement.              8.3.2 Sellers and Buyer acknowledge and agree that if the Closing does not occur , Buyer's maximum liability under this Agreement shall be the amount of the Deposit, together with all interest accrued thereon. Buyer shall be liable for such amount if the Closing does not occur solely by reason of the breach by Buyer of any of its obligations hereunder or if Sellers validly terminate this Agreement pursuant to Section 8.2.5, 8.2.6 or 8.2.7, and such payment is intended to be liquidated damages, it being agreed that said amount shall constitute full payment to Sellers for any claim by Sellers for any and all damages suffered by the Sellers by reason of any such breach by Buyer of any of its obligations under this Agreement (other than for attorneys fees provided in Section 8.3.3, below) or by reason of any such termination. Buyer and Sellers agree in advance that actual damages would be difficult to ascertain and that the amount of the Deposit and all interest accrued thereon is a fair and equitable amount to reimburse the Sellers for damages sustained due to Buyer's breach of any of its obligations under this Agreement and that said amount does not constitute a penalty or forfeiture and neither Seller nor Buyer will seek to assert that the provisions of this Section 8.3.2 are unenforceable in any way.              8.3.3 Notwithstanding any provision in this Agreement that may limit or qualify a party's remedies, in the event of a breach or default by any party that results in a lawsuit or other proceeding for any remedy available under this Agreement, the prevailing party                                         66    shall be entitled to reimbursement from the breaching or defaulting party of its reasonable legal fees and expenses (whether incurred at trial or on appeal).              8.3.4 The obligations of the parties described in Sections10.2 through 10.19 (and all other provisions of this Agreement relating to expenses) will survive any termination of this Agreement.  9.    SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION        9.1 Representations, Warranties and Covenants. All representations, warranties, covenants and agreements contained in this Agreement or instruments delivered pursuant hereto shall be deemed continuing representations, warranties, covenants and agreements, and in the case of representations, warranties and covenants and agreements to be performed prior to Closing (said covenants and agreements, collectively, "PRE-CLOSING COVENANTS") shall survive for a period ending twelve (12) months after the Closing Date; provided, however, that Section 3.10 (Taxes) and Section 3.11 (Employee Benefit Plans) shall survive the Closing until ninety (90) days after the expiration of the applicable statute of limitations with respect to the particular matter that is the subject thereof; Section 3.14 (Environmental Matters) shall survive the Closing for five (5) years; and Section 3.1 (Organization, Standing, Authority); Section 3.6 (Personal Property, solely with respect to title); Section 3.7 (Real Property, solely with respect to title); Section 3.20 (Brokers of Sellers); Section 4.1 (Organization, Standing, Authority); and Section 4.6 (Brokers of Buyer) shall survive the Closing indefinitely (each such period a "SURVIVAL PERIOD"). All covenants and agreements contained in this Agreement or instruments delivered pursuant hereto (except for Pre-Closing Covenants) shall survive until performed and discharged in full.        9.2 Indemnification by Sellers. After Closing, Sellers, jointly and severally, shall indemnify and hold Buyer and its Affiliates and their respective officers, directors, employees stockholders, members, partners, agents, attorneys, representatives, successors and assigns (collectively, the "BUYER INDEMNIFIED Parties") harmless against and with respect to, and shall reimburse Buyer Indemnified Parties for:              9.2.1 Liabilities resulting from any untrue representation, breach of warranty or breach of any Pre-Closing Covenant by Sellers or Parent contained herein;              9.2.2 Liabilities resulting from any claims made by (i) any of Citigroup Global Markets Inc., Lehman Brothers Inc., J.P. Morgan Securities Inc., Daniels & Associates arising from the Brokerage Services and (ii) any broker, finder, agent, financial advisor or other intermediary employed or alleged to have been employed by Sellers or any of Sellers' Affiliates;              9.2.3 Liabilities resulting from any breach by Sellers or Parent of any covenants and agreements contained in this Agreement (other than Pre-Closing Covenants which are the subject of Section 9.2.1);              9.2.4 Liabilities arising out of or relating to (i) Taxes now or hereafter owed by Sellers, Parent or any Affiliate of Sellers and (ii) Taxes that relate to the Acquired Companies, the Transferred Assets or the Systems for taxable periods (or portions thereof) ending at or                                         67    before the Adjustment Time, including, without limitation, Taxes allocable to Sellers pursuant to Section 5.5 (collectively, "RETAINED TAXES");              9.2.5 Liabilities arising out of or related to the ownership by Sellers of the Transferred Assets or their conduct of the business of the Systems, in each case, prior to the Adjustment Time, and the Excluded Assets, whether prior to or after the Adjustment Time; and              9.2.6 Liabilities of the Acquired Companies (i) arising or relating to periods prior to the Adjustment Time that are not Assumed Liabilities and (ii) other than those accruing or arising after the Adjustment Time under Contracts set forth in SCHEDULE 3.21.5.        9.3 Indemnification by Buyer. After Closing, Buyer shall indemnify and hold Sellers and their Affiliates and their respective officers, directors, employees stockholders, members, partners, agents, attorneys, representatives, successors and assigns (collectively, the "SELLERS INDEMNIFIED PARTIES") harmless against and with respect to, and shall reimburse the Sellers Indemnified Parties for:              9.3.1 Liabilities resulting from any untrue representation, breach of warranty or breach of any Pre-Closing Covenant by Buyer contained herein;              9.3.2 Liabilities resulting from any claim by any broker, finder, agent, financial advisor or other intermediary employed or alleged to have been employed by Buyer or any of Buyer's Affiliates;              9.3.3 Liabilities resulting from any breach by Buyer of any covenants and agreements contained in this Agreement (other than Pre-Closing Covenants which are the subject of Section 9.3.1);              9.3.4 Liabilities resulting from the Assumed Liabilities; and              9.3.5 Liabilities resulting from the operation or ownership by Buyer of the Transferred Assets or its conduct of the business of the Systems after the Adjustment Time.        9.4 Procedure for Indemnification. The procedure for indemnification shall be as follows:              9.4.1 The party claiming indemnification (the "CLAIMANT") shall promptly give notice to the party from whom indemnification is claimed (the "INDEMNIFYING PARTY") of any claim, whether between the parties (a "DIRECT CLAIM") or brought by a third party, specifying (i) the factual basis for such claim; and (ii) the estimated amount of the claim. If the claim relates to an action, suit or proceeding filed by a third party against Claimant (a "Third Party Claim"), such notice shall be given promptly by Claimant to the Indemnifying Party after written notice of such Third Party Claim is received by Claimant; provided, however, that the failure of the Claimant to give timely notice hereunder shall not relieve the Indemnifying Party of its obligations under this Article 9 unless, and only to the extent that, the Indemnifying Party has been materially prejudiced thereby.                                         68                9.4.2 Following receipt of notice from the Claimant of a claim, the Indemnifying Party shall have thirty (30) days to make such investigation of the claim as the Indemnifying Party deems necessary or desirable. For the purposes of such investigation, the Claimant agrees to make available to the Indemnifying Party and its authorized representative(s) the information relied upon by the Claimant to substantiate the claim. If the Claimant and the Indemnifying Party agree at or prior to the expiration of said 30-day period (or any mutually agreed upon extension thereof) to the validity and amount of such claim, the Indemnifying Party shall immediately pay to the Claimant the full amount of the claim, subject to the terms and in accordance with the procedures set forth herein. If the Claimant and the Indemnifying Party do not agree within said period (or any mutually agreed upon extension thereof), the Claimant may seek appropriate legal remedy.              9.4.3 With respect to any Third Party Claim as to which the Claimant is entitled to indemnification hereunder, the Indemnifying Party shall have the right at its own expense, to participate in or assume control of the defense of such claim, and the Claimant shall cooperate fully with the Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses incurred by the Claimant as the result of a request by the Indemnifying Party. If the Indemnifying Party elects to assume control of the defense of any Third Party Claim, the Claimant shall have the right to participate in the defense of such claim at its own expense.              9.4.4 In the event the Indemnifying Party does not elect to assume control or otherwise participate in the defense of any Third Party Claim the Indemnifying Party shall be bound by the results obtained by the Claimant with respect to such claim; provided, however, the Claimant shall not have the right to consent or otherwise agree to any non-monetary settlement or relief, including, without limitation, injunctive relief or other equitable remedies, without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld or delayed. In the event that the Indemnifying Party assumes control of the defense of any Third Party Claim, the Claimant shall be bound by the results obtained by the Indemnifying Party with respect to such claim and the Indemnifying Party shall have the right to consent or otherwise agree to any monetary settlement for which the Indemnifying Party is responsible in full, but shall not have the right to consent or otherwise agree to any other monetary or non-monetary settlement or relief, including, without limitation, injunctive relief or other equitable remedies, without the prior written consent of the Claimant, which consent will not be unreasonably withheld or delayed. Notwithstanding the foregoing, neither the Indemnifying Party nor the Claimant shall settle or compromise any such claim or demand unless the Claimant or the Indemnifying Party, as the case may be, is given a full and complete release of any and all liability by all relevant parties relating thereto.              9.4.5 If a claim, whether a Direct Claim or a Third Party Claim, requires immediate action, the parties will work in good faith to reach a decision with respect thereto as expeditiously as possible.        9.5 Limitation on Indemnification; Exclusive Remedy; Time Period.              9.5.1 Neither party will have an obligation to indemnify the other party under Section 9.2.1 or Section 9.3.1, as the case may be, until the aggregate amount of such other party's Liabilities exceeds Ten Million Dollars $10,000,000 (the "DEDUCTIBLE"), and then Buyer                                         69    or Sellers, as the case may be, shall only be liable for Liabilities exceeding the Deductible; provided, however, that the Deductible shall not apply to (a) claims for breach of warranty under Section 3.1 (Organization, Standing and Authority); Section 3.6 (Personal Property, solely with respect to title); Section 3.7 (Real Property, solely with respect to title); Section 3.10 (Taxes); Section 3.20 (Brokers of Sellers); Section 3.22 (Sufficiency of Assets); Section 4.1 (Organization, Standing and Authority); and Section 4.6 (Brokers of Buyer) or (b) claims for breach of any Pre-Closing Covenant.              9.5.2 Notwithstanding anything to the contrary contained in this Agreement, the aggregate maximum liability of either party to the other party under Section 9.2.1 or Section 9.3.1, as the case may be, shall be limited to (in the aggregate) an amount equal to three percent (3%) of the Purchase Price (the "CAP"); provided, however, that the Cap shall not apply to claims made for breach of warranty under Section 3.1 (Organization, Standing and Authority); Sections 3.6 (Personal Property, solely with respect to title); 3.7 (Real Property, solely with respect to title); Section 3.10 (Taxes); Section 3.20 (Brokers of Sellers); Section 4.1 (Organization, Standing and Authority); and Section 4.6 (Brokers of Buyer).              9.5.3 The amount payable by either party with respect to Article 9 shall be reduced by the amount of any insurance proceeds received by the Claimant with respect to Liabilities, and each of the parties hereby agrees to use reasonable efforts to collect any and all insurance proceeds to which it may be entitled in respect to any such Liabilities. To the extent that insurance proceeds are received after payment has been made by either party, the Claimant shall promptly pay an amount equal to such proceeds to the Indemnifying Party. Nothing in this Section 9.5.3 shall be interpreted to require the Claimant to seek such insurance proceeds prior to proceeding for indemnity under this Article 9.              9.5.4 After the Closing, the sole and exclusive remedy of any party for any misrepresentation or breach of a warranty, covenant or agreement set forth in or made pursuant to this Agreement shall be a claim for indemnification under and pursuant to this Article 9.              9.5.5 Any claim for indemnification pursuant to Section 9.2.1 or Section 9.3.1 must be brought within the applicable Survival Period; provided, however, if prior to the close of business on the last day of said Survival Period, an Indemnifying Party shall have been properly notified of a claim for indemnity hereunder and such claim shall not have been finally resolved or disposed of at such date, such claim shall continue to survive and shall remain a basis for indemnity hereunder until such claim is finally resolved or disposed of in accordance with the terms hereof.              9.5.6 Notwithstanding any provision contained herein to the contrary, neither Buyer nor Sellers shall be liable to the other under Article 9 of this Agreement for any lost profits, punitive, incidental, consequential or special damages of any nature whatsoever.  10.   MISCELLANEOUS        10.1 Primary and Secondary Transfers.              10.1.1 Primary Transfer. If the conditions set forth in Article 6 have been satisfied, yet not all of the Franchise Consents have been obtained or not all of the State Consents                                         70    have been obtained, then Buyer and Sellers shall consummate the Closing, excluding (a) those Franchises as to which Consents have not been obtained (each such Franchise referred to herein as a "RETAINED FRANCHISE") and any related assets prohibited from being transferred to Buyer pursuant to applicable Legal Rules and such Retained Franchise, as determined in the reasonable discretion of Sellers (the "RELATED FRANCHISE ASSETS") and (b) those telecommunications operations as to which a State Consent has not been obtained (each such telecommunications operation referred to herein as a "RETAINED TELECOMMUNICATIONS OPERATION") and any related assets prohibited from being transferred to Buyer pursuant to any applicable Legal Rule, as determined in the reasonable discretion of Sellers ("RELATED TELECOMMUNICATIONS ASSETS").              10.1.2 Subsequent Transfers. Following the Closing, the parties shall continue to use commercially reasonable efforts (consistent with and subject to the provisions of Section 5.3 hereof) to obtain Consents for the transfer of the Retained Franchises or Retained Telecommunications Operations. Within ten (10) Business Days of obtaining a Consent for a Retained Franchise or a Retained Telecommunications Operation, Sellers shall assign and transfer such Retained Franchise and any Related Franchise Assets or such Retained Telecommunications Operation and any Related Telecommunications Assets to Buyer (a "SUBSEQUENT TRANSFER"). At the time of a Subsequent Transfer of any Retained Telecommunications Operation, Sellers shall remit to Buyer an amount equal to one-half the net operating cash flow (taking into account said ordinary course operating expenses) for the Retained Telecommunications Operation between the Adjustment Time and the effective date of the Subsequent Transfer of such Retained Telecommunications Operation.              10.1.3 Management Agreement for Retained Franchises. Concurrent with the Closing, the parties shall enter into a management agreement substantially in the form attached hereto as EXHIBIT G with respect to each area served by a Retained Franchise (the "MANAGEMENT AGREEMENT").              10.1.4 Outsourcing Agreement for Retained Telecommunications Operations. Concurrent with the Closing, the parties shall enter into an outsourcing agreement substantially in the form attached hereto as EXHIBIT H with respect to each area served by a Retained Telecommunications Operation (the "OUTSOURCING AGREEMENT").              10.1.5 Facilities Sharing Arrangement for FCC Business Radio Licenses. If the conditions set forth in Article 6 have been satisfied, but not all of the FCC's Consents for the assignment of FCC business radio licenses listed in SCHEDULE 3.4(a) have been obtained, then Buyer and Sellers shall consummate the Closing, excluding such FCC business radio licenses and any related assets prohibited from being transferred to Buyer pursuant to applicable Legal Rules, as determined in the reasonable discretion of Sellers. Buyer and Sellers shall enter into a reasonable facilities sharing agreement, consistent with applicable Legal Rules, to permit Buyer to communicate over the facilities covered by such FCC business radio licenses until the Consents for the assignment of such FCC business radio licenses are obtained and the licenses have been assigned. Within ten (10) Business Days of obtaining the FCC's Consent for the assignment of the FCC business radio licenses, Sellers shall assign and transfer such FCC business radio licenses to Buyer.                                         71                10.1.6 Construction. All provisions contained in this Agreement shall be applied with respect to the Transferred Assets and Systems conveyed at Closing and at any Subsequent Transfer in the same manner as if all of the Transferred Assets and Systems had been transferred at Closing.        10.2 Notices. All notices, demands and requests which may be or are required or permitted to be given, served, sent or delivered under the provisions of this Agreement shall be (a) in writing, (b) delivered by personal delivery, facsimile transmission (to be followed promptly by written confirmation mailed by certified mail as provided below) or sent by overnight courier service or certified mail, return receipt requested, (c) deemed to have been given on the earliest of: the date of personal delivery, the date of transmission and receipt of facsimile transmissions, or the date set forth in the records of the delivery service or on the return receipt and (d) addressed as follows:        If to Sellers:    c/o Cox Communications, Inc.                         1400 Lake Hearn Drive, N.E.                         Atlanta, Georgia  30319                         Attn: Robert N. Redella, Vice President, Mergers and                               Acquisitions                         Facsimile No.: (404) 847-6336        With a copy to:   Cox Communications, Inc.                         1400 Lake Hearn Drive, N.E.                         Atlanta, Georgia 30319                         Attn: General Counsel                         Facsimile No.: (404) 843-5845        If to Buyer:      Cebridge Connections                         12444 Powerscourt Drive, Suite 450                         St. Louis, Missouri  63131                         Attention: Heather Wood, Senior Vice President,                                    Corporate Development                         Facsimile: (314) 965-0500                         and                         Attn: Craig L. Rosenthal, Vice President and General                               Counsel                         Facsimile: (314) 315-9322        With copies to:   Cequel III, LLC                         12444 Powerscourt Drive, Suite 450                         St. Louis, Missouri  63131                         Attention: Wendy Knudsen, Executive Vice President and                                    General Counsel                         Facsimile: (314) 965-0500                          Brown Raysman Millstein Felder & Steiner LLP                         900 Third Avenue                         New York, New York  10022                         Attention: Stanley E. Bloch                                         72                            Facsimile: (212) 895-2900  or to any such other persons or addresses as the parties may from time to time designate in a writing delivered in accordance with this Section 10.2. Rejection or other refusal to accept or inability to deliver because of a change of address of which no notice was given shall be deemed to be receipt of the notice.        10.3 No Assignment; Benefit and Binding Effect. Any Seller may assign its rights and obligations under this Agreement without Buyer's consent to an Affiliate of such Seller; provided that such assignment shall not relieve or release the assignor of its obligations under this Agreement or the Related Agreements and Sellers shall provide Buyer with prompt notice of any such assignment. Buyer shall not assign this Agreement (or its rights or obligations hereunder) without the prior written consent of Sellers, which consent shall be in Sellers' discretion; provided, however, that (i) Buyer may assign (in whole or in part) any of its rights and delegate (in whole or in part) any of its obligations under this Agreement to (A) any Affiliate of Buyer, (B) Cequel III, LLC (which is an Affiliate of Buyer), (C) any Affiliate of Cequel III, LLC or (D) any entity with respect to which Cequel III, LLC or an Affiliate of Cequel III, LLC is the manager, provided that such assignment shall not relieve or release Buyer of its obligations under this Agreement and provided further that such assignment shall not materially delay or impair the consummation of the transactions contemplated hereby or the transfer or Consent process with respect to any Franchise or Governmental Permit and (ii) at or following the Closing, Buyer may collaterally assign (in whole or in part) its rights hereunder to any bank or other financing institution in connection with Buyer's financing arrangements and Buyer shall provide Sellers with prompt notice of any such assignment. Subject to the foregoing, this Agreement and the Related Agreements shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.        10.4 Bulk Transfer. Buyer acknowledges that Sellers have not filed, and will not file, any bulk transfer notice or otherwise comply with applicable bulk transfer laws, and the parties agree to waive compliance with same; provided, however, this Section 10.4 shall not limit the obligations of Sellers under Section 9.2.4.        10.5 Governing Law. This Agreement shall be governed, construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the choice of law provisions or conflicts of law principles of such state.        10.6 Waiver of Jury Trial. Each of the parties hereto hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of any party in the negotiation, performance or enforcement hereof.        10.7 Submission to Jurisdiction; Venue. Each of the parties hereto agrees to submit to the jurisdiction of any court of the State of Delaware or the United States District Court for the District of Delaware in any action or proceeding arising out of or relating to this Agreement or any of the matters contemplated hereby. Each party hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this                                         73    Agreement in any such Delaware state or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each of the parties hereto agrees not to bring any action or proceeding arising out of or relating to this Agreement or any of the matters contemplated hereby other than in any such Delaware state or federal court.        10.8 Headings. The headings herein and in the schedules hereto are included for ease of reference only and shall not control or affect the meaning or construction of the provisions of this Agreement.        10.9 Gender and Number. Words used herein, regardless of the gender and number specifically used, shall be deemed and construed to include any other gender, masculine, feminine or neuter, and any other number, singular or plural, as the context requires.        10.10 Entire Agreement. This Agreement and the Related Agreements represent the entire understanding and agreement between Buyer and Sellers with respect to the subject matter hereof. All schedules and exhibits attached to this Agreement shall be deemed part of this Agreement and incorporated herein, as if fully set forth herein. This Agreement supersedes all prior negotiations between Buyer and Sellers with respect to the transactions contemplated hereby, and all letters of intent and other writings relating to such negotiations, and cannot be amended, supplemented or modified except by an agreement in writing which makes specific reference to this Agreement or an agreement delivered pursuant hereto, as the case may be, and which is executed by the party against which enforcement of any such amendment, supplement or modification is sought.        10.11 Further Assurances. Each party covenants that at any time, and from time to time, after the Closing Date, but subject to the express provisions of this Agreement and without expanding any party's express obligations hereunder, it will execute such additional instruments and take such actions as may be reasonably requested by the other party to confirm or perfect or otherwise to carry out the intent and purposes of this Agreement.        10.12 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, representation, warranty, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof, but such waiver or failure to insist upon strict compliance with such obligation, representation, warranty, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure not so specifically waived.        10.13 Severability. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law; provided, however, that the economic and legal substance of the transactions contemplated by this Agreement is not affected in any manner that is materially adverse to any party affected by such invalidity or unenforceability.                                         74          10.14 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signature on each such counterpart were upon the same instrument, and a facsimile transmission shall be deemed to be an original signature.        10.15 No Third Party Beneficiaries. This Agreement constitutes an agreement solely among the parties hereto, and, except with respect to the Buyer Indemnified Parties or the Sellers Indemnified Parties, is not intended to and will not confer any rights, remedies or Liabilities, legal or equitable on any Person other than the parties hereto and their respective successors or assigns, or otherwise constitute any person a third party beneficiary under or by reason of this Agreement.        10.16 Construction. This Agreement has been negotiated by Buyer and Sellers and their respective legal counsel, and legal or equitable principles that might require the construction of this Agreement or any provision of this Agreement against the party drafting this Agreement shall not apply in any construction or interpretation of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.        10.17 Public Announcements. Each party shall consult with the other before issuing any press release or otherwise making any public statements with respect to this Agreement and shall not issue any such press release or make any such public statement without the prior written approval of the other. Notwithstanding the foregoing, the parties hereto acknowledge and agree that they may, without each other's prior consent, issue such press releases or make such public statements as may be compelled by applicable law, in which case the issuing party shall consult with the other party and use all commercially reasonable efforts to agree upon the nature, content and form of such press release or public statement.        10.18 No Personal Liability. Notwithstanding any other provision set forth in this Agreement, no holder of an Equity Interest, director, officer, employee or individual representative of any Seller or any Affiliate of any Seller, on the one hand, or of Buyer or any Affiliate of Buyer, on the other hand, shall have any personal liability as a result of any breach by any Seller or any Affiliate of any Seller, on the one hand, or by Buyer or any Affiliate of Buyer, on the other hand, of their respective representations, warranties, covenants or agreements contained herein.        10.19 Expenses. Except as set forth elsewhere in this Agreement, Sellers and Buyer shall bear their own costs and expenses incurred in connection with the negotiation, preparation execution or consummation of this Agreement (including, but not limited to, fees and expenses of attorneys, accountants, consultants, finders and investment bankers) whether or not any Closing occurs.        10.20 Guarantee. Parent hereby unconditionally, irrevocably and absolutely guarantees to Buyer the due and punctual performance and discharge of all of each Seller's obligations under this Agreement existing on the date hereof or hereafter of any kind or nature whatsoever, including, without limitation, the due and punctual payment of any amount that such Seller is                                         75    or may become obligated to pay pursuant to this Agreement. The guarantee under this Section 10.20 is a guarantee of timely payment and performance and not merely of collection.                         [Signatures on the following page]                                         76          IN WITNESS WHEREOF, this Agreement has been executed by Buyer, Sellers and Parent as of the date first above written.                                       BUYER:                                       CEBRIDGE ACQUISITION CO. LLC                                          By Cequel III, LLC, its manager                                          By: /s/ Jerald L. Kent                                             ----------------------------------                                         Name: Jerald L. Kent                                         Title: CEO                                       SELLERS:                                       TCA CABLE PARTNERS                                       By: /s/ Robert N. Redella                                          ---------------------------------------                                      Name: Robert N. Redella                                      Title: Vice President                                       COX SOUTHWEST HOLDINGS, L.P.                                       By: /s/ Robert N. Redella                                          ---------------------------------------                                      Name: Robert N. Redella                                      Title: Vice President                                       COX COMMUNICATIONS LOUISIANA, L.L.C.                                       By: /s/ Robert N. Redella                                          ---------------------------------------                                      Name: Robert N. Redella                                      Title: Vice President                                         COXCOM, INC.                                       By: /s/ Robert N. Redella                                          ----------------------------------                                      Name: Robert N. Redella                                      Title: Vice President                                       COX TELCOM PARTNERS, INC.                                       By: /s/ Robert N. Redella                                          -----------------------------------                                      Name: Robert N. Redella                                      Title: Vice President                                       PARENT:                                       COX COMMUNICATIONS, INC.                                       By: /s/ Robert N. Redella                                          -----------------------------------                                      Name: Robert N. Redella                                      Title: Vice President - Mergers and                                             Acquisitions    EX-10.3 3 g00421exv10w3.txt EX-10.3 FIRST AMENDMENT TO THE CREDIT AGREEMENT DATED AS OF DECEMBER 3, 2004                                                                        Exhibit 10.3              FIRST AMENDMENT, dated as of March 17, 2006 (this "Amendment"), to the Credit Agreement dated as of December 3, 2004 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among COX COMMUNICATIONS, INC., a Delaware corporation, the lenders, syndication agents and arrangers and bookrunners party thereto, and JPMORGAN CHASE BANK, N.A., as Administrative Agent.              The parties hereto hereby agree as follows:              1. Defined Terms. Capitalized terms which are defined in the Credit Agreement and not otherwise defined herein have the meanings given in the Credit Agreement.              2. Amendment. Section 1.01 of the Credit Agreement is amended:                    (a) By deleting the definition of "Unit Appreciation Plan       Expense" and adding the following new definition in proper alphabetical       order:                    "Incentive Compensation Plan Expense" shall mean charges for                   expenses, whether accrued or paid, under long-term incentive                   compensation plans and unit appreciation plans, in effect on                   March 1, 2006, as amended thereafter from time to time.                    (b) By amending and restating the definition of "Consolidated       Operating Cash Flow" to read as follows:                    "Consolidated Operating Cash Flow" shall mean, as of the last                   day of any fiscal quarter of the Company for the period of                   four fiscal quarters then ended, the sum of (i) operating                   income of the Company and its Restricted Subsidiaries (less                   cash dividends and other cash distributions to the holders of                   minority interests in the Company's Restricted Subsidiaries),                   to the extent otherwise reflected in operating income before                   giving effect to depreciation, amortization, other non-cash                   charges and equity in earnings (losses) of unconsolidated                   investees on a consolidated basis and non-recurring one-time                   charges, all calculated as if any Restricted Subsidiary or                   business that has been presented as discontinued operations in                   the Company's consolidated financial statements but that has                   not been sold or disposed of as of the last day of such four                   fiscal quarter period had been presented as part of continuing                   operations, and (ii) cash dividends and cash distributions,                   other than extraordinary distributions, for such period from                   unconsolidated investees of the Company and its Restricted                   Subsidiaries, on a consolidated basis, minus, without                   duplication, (iii) the amount of cash payments in respect of                   items that were originally reflected in operating income                   (whether in such period or any earlier period) as non-cash                   charges; provided that Incentive Compensation Plan Expense                   shall not be included in the calculation of Consolidated                   Operating Cash Flow.                3. Waiver. Any Events of Default that may have arisen on December 31, 2005, under Section 8.01 of the Credit Agreement that would not have occurred if this Amendment had been effective on that date, and any Defaults and Events of Default that may have arisen that are related to or a consequence of any of the foregoing described Events of Default, and any Defaults and Events of Defaults arising out of the failure to take any action or comply with or perform any obligation as a result of any of the foregoing described Defaults or Events of Default, and any Defaults or Events of Default arising out of any misstatements as to the absence of any such Default or Event of Default, are hereby waived.              4. Effectiveness. This Amendment will become effective when the Administrative Agent has received this Amendment executed and delivered by the Company and the Majority Lenders.              5. Representation and Warranties. The Company represents and warrants that, after giving effect to the provisions of this Amendment, (a) each of the representations and warranties made by the Company in Article VI of the Credit Agreement are true in all material respects on and as of the date hereof as if made on and as of such date, except to the extent that such representations and warranties refer to an earlier date, in which case they are true in all material respects as of such earlier date and except that for this purpose only the date "December 31, 2003" in the last sentence of Section 6.02 of the Credit Agreement shall be changed to "December 31, 2004", and (b) no Default or Event of Default has occurred and is continuing.              6. Continuing Effect of the Credit Agreement. This Amendment is limited solely to the matters expressly set forth herein and does not constitute a waiver of any Default or Event of Default, except as expressly set forth in paragraph 3 above, or a consent to any future action or event. As expressly amended hereby, the Credit Agreement remains in full force and effect.              7. Miscellaneous. The provisions of Sections 13.06, 13.07(a), 13.08, 13.09, 13.10 13.12 and 13.13 shall apply with like effect to this Amendment.                    [remainder of page intentionally left blank]                                         2                IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.                                           COX COMMUNICATIONS, INC.                                           By: /s/ Susan W. Coker                                              -----------------------------------                                              Name:                                              Title:                                           JP MORGAN CHASE BANK, N.A., as                                          Administrative Agent and as Lender                                           By: /s/ Christophe M. Vohmann                                              -----------------------------------                                              Name: Christophe M. Vohmann                                              Title: Vice President                                           BANK OF AMERICA, N.A.                                           By: /s/ Christopher T. Ray                                              -----------------------------------                                              Name: Christopher T. Ray                                              Title: Vice President                                           THE BANK OF NEW YORK                                           By: /s/ Laura Neenan                                              -----------------------------------                                              Name: Laura Neenan                                              Title: Vice President                                           THE BANK OF NOVA SCOTIA                                           By: /s/ Jose Carlos                                              -----------------------------------                                              Name: Jose B. Carlos                                              Title: Authorized Signatory                                         3                                             BANK OF OKLAHOMA, N.A.                                           By: /s/ Kenton R. Owens                                              -----------------------------------                                              Name: Kenton R. Owens                                              Title: Assistant Vice President                                           THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,                                          NEW YORK BRANCH (formerly known as THE                                          BANK OF TOKYO-MITSUBISHI, LTD., NEW                                          YORK BRANCH)                                           By: /s/ Karen Ossolinski                                              -----------------------------------                                              Name: Karen Ossolinski                                              Title: Authorized Signatory                                           THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,                                          NEW YORK BRANCH (as successor-by-merger                                          to UFJ BANK LIMITED)                                           By: /s/ Karen Ossolinski                                              -----------------------------------                                              Name: Karen Ossolinski                                              Title: Authorized Signatory                                           BARCLAYS BANK PLC                                           By: /s/ David Barton                                              -----------------------------------                                              Name: David Barton                                              Title: Associate Director                                             BAYERISCHE LANDESBANK, Cayman Islands                                          Branch                                           By: /s/ Nikolai von Mengden                                              -----------------------------------                                              Name: Nikolai von Mengden                                              Title: Senior Vice President                                           By: /s/ Norman McClave                                              -----------------------------------                                              Name: Norman McClave                                              Title: First Vice President                                           BNP-PARIBAS                                           By: /s/ Nuala Marley                                              -----------------------------------                                              Name: Nuala Marley                                              Title: Managing Director                                           BNP-PARIBAS                                           By: /s/ Todd Rogers                                              -----------------------------------                                              Name: Todd Rodgers                                              Title: Vice President                                           CALYON, NEW YORK BRANCH                                           By: /s/ Douglas Roper                                              -----------------------------------                                              Name: Douglas Roper                                              Title: Managing Director                                           By: /s/ John McCloskey                                              -----------------------------------                                              Name: John McCloskey                                              Title: Managing Director                                             CITICORP NORTH AMERICA, INC.                                           By: /s/ Maureen Maroney                                              -----------------------------------                                              Name: Maureen Maroney                                              Title: Director                                           COBANK                                           By: /s/ Kevin A. Oliver                                              -----------------------------------                                              Name: Kevin A. Oliver                                              Title: Assistant Vice President                                           CREDIT SUISSE, CAYMAN ISLANDS BRANCH                                           By: /s/ Doreen Barr                                              -----------------------------------                                              Name: Doreen Barr                                              Title: Vice President                                           By: /s/ Denise Alvarez                                              -----------------------------------                                              Name: Denise Alvarez                                              Title: Associate                                           DEUTSCHE BANK AG NEW YORK BRANCH                                           By: /s/ David Dickinson                                              -----------------------------------                                              Name: David Dickinson                                              Title: Director                                           By: /s/ Andreas Neumeier                                              -----------------------------------                                              Name: Andreas Neumeier                                              Title: Director                                             DRESDNER BANK AG, NEW YORK AND GRAND                                          CAYMAN BRANCHES                                           By: /s/ Mark McGuigan                                              -----------------------------------                                              Name: Mark McGuigan                                              Title: Vice President                                           DRESDNER BANK AG, NEW YORK AND GRAND                                          CAYMAN BRANCHES                                           By: /s/ Brian Smith                                              -----------------------------------                                              Name: Brian Smith                                              Title: Managing Director                                           E.SUN COMMERCIAL BANK, LTD., LOS                                          ANGELES BRANCH                                           By: /s/ Benjamin Lin                                              -----------------------------------                                              Name: Benjamin Lin                                              Title: EVP & General Manager                                           FIFTH THIRD BANK                                           By: /s/ Brian J. Blomeke                                              -----------------------------------                                              Name: Brian J. Blomeke                                              Title: Assistant Vice President                                           HSBC BANK USA, N.A.                                           By: /s/ Darren Pinsker                                              -----------------------------------                                              Name: Darren Pinsker                                              Title: Senior Vice President                                             ING CAPITAL LLC                                           By: /s/ Loring Guessous                                              -----------------------------------                                              Name: Loring Guessous                                              Title: Managing Director                                           LEHMAN BROTHERS BANK, FSB                                           By: /s/ Janine M. Shugan                                              -----------------------------------                                              Name: Janine M. Shugan                                              Title: Authorized Signatory                                           LLOYDS TSB BANK, PLC                                           By: /s/ Windsor R. Davies                                              -----------------------------------                                              Name: Windsor R. Davies                                              Title: Director, Corporate Banking,                                                     USA D061                                           By: /s/ Deborah Carlson                                              -----------------------------------                                              Name: Deborah Carlson                                              Title: VP & Manager - Business                                                     Development C.B. C103                                           MERRILL LYNCH BANK USA                                           By: /s/ Louis Alder                                              -----------------------------------                                              Name: Louis Alder                                              Title: Director                                             MIZUHO CORPORATE BANK, LTD                                           By: /s/ Raymond Ventura                                              -----------------------------------                                              Name: Raymond Ventura                                              Title: Deputy General Manager                                           MORGAN STANLEY BANK                                           By: /s/ Daniel Twenge                                              -----------------------------------                                              Name: Daniel Twenge                                              Title: Vice President                                           NATIONAL AUSTRALIZ BANK LTD.                                           By: /s/ Eduardo Salazar                                              -----------------------------------                                              Name: Eduardo Salazar                                              Title: SVP - Head of Corporate                                                     Banking                                           REGIONS BANK                                           By: /s/ J. Timothy Toler                                              -----------------------------------                                              Name: J. Timothy Toler                                              Title: Vice President                                           THE ROYAL BANK OF SCOTLAND PLC                                           By: /s/ Andrew Wynn                                              -----------------------------------                                              Name: Andrew Wynn                                              Title: Managing Director                                             SCOTIABANC INC.                                           By: /s/ William E. Zarrett                                              -----------------------------------                                              Name: William E. Zarrett                                              Title: Managing Director                                           SOCIETE GENERALE                                           By: /s/ Elaine Khalil                                              -----------------------------------                                              Name: Elaine Khalil                                              Title: Director                                           SUMITOMO MITSUI BANKING CORPORATION                                           By: /s/ Yoshihiro Hyakutome                                              -----------------------------------                                              Name: Yoshihiro Hyakutome                                              Title: Joint General Manager                                           SUNTRUST BANK                                           By: /s/ Thomas C. Palmer                                              -----------------------------------                                              Name: Thomas C. Palmer                                              Title: Managing Director                                           U.S. BANK NATIONAL ASSOCIATION                                           By: /s/ Gail F. Scannell                                              -----------------------------------                                              Name: Gail F. Scannell                                              Title: Vice President                                             UBS LOAN FINANCE LLC, Lender                                           By: /s/ Richard L. Tavrow                                              -----------------------------------                                              Name: Richard L. Tavrow                                              Title: Director                                           By: /s/ Irja R. Otsa                                              -----------------------------------                                              Name: Irja R. Otsa                                              Title: Associate Director                                           WACHOVIA BANK, NATIONAL ASSOCIATION                                           By: /s/ John D. Brady                                              -----------------------------------                                              Name: John D. Brady                                              Title: Director    EX-10.4 4 g00421exv10w4.txt EX-10.4 FIRST AMENDMENT TO THE CREDIT AGREEMENT DATED AS OF JUNE 4, 2004                                                                        Exhibit 10.4              FIRST AMENDMENT, dated as of March 17, 2006 (this "Amendment"), to the Amended and Restated Five-Year Credit Agreement dated as of June 4, 2004 and amended and restated as of December 3, 2004 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among COX COMMUNICATIONS, INC., a Delaware corporation, the lenders, syndication agents and arrangers and bookrunners party thereto, and JPMORGAN CHASE BANK, N.A., as Administrative Agent.              The parties hereto hereby agree as follows:              1. Defined Terms. Capitalized terms which are defined in the Credit Agreement and not otherwise defined herein have the meanings given in the Credit Agreement.              2. Amendment. Section 1.01 of the Credit Agreement is amended:                    (a) By deleting the definition of "Unit Appreciation Plan       Expense" and adding the following new definition in proper alphabetical       order:                    "Incentive Compensation Plan Expense" shall mean charges for                   expenses, whether accrued or paid, under long-term incentive                   compensation plans and unit appreciation plans, in effect on                   March 1, 2006, as amended thereafter from time to time.                    (b) By amending and restating the definition of "Consolidated       Operating Cash Flow" to read as follows:                    "Consolidated Operating Cash Flow" shall mean, as of the last                   day of any fiscal quarter of the Company for the period of                   four fiscal quarters then ended, the sum of (i) operating                   income of the Company and its Restricted Subsidiaries (less                   cash dividends and other cash distributions to the holders of                   minority interests in the Company's Restricted Subsidiaries),                   to the extent otherwise reflected in operating income before                   giving effect to depreciation, amortization, other non-cash                   charges and equity in earnings (losses) of unconsolidated                   investees on a consolidated basis and non-recurring one-time                   charges, all calculated as if any Restricted Subsidiary or                   business that has been presented as discontinued operations in                   the Company's consolidated financial statements but that has                   not been sold or disposed of as of the last day of such four                   fiscal quarter period had been presented as part of continuing                   operations, and (ii) cash dividends and cash distributions,                   other than extraordinary distributions, for such period from                   unconsolidated investees of the Company and its Restricted                   Subsidiaries, on a consolidated basis, minus, without                   duplication, (iii) the amount of cash payments in respect of                   items that were originally reflected in operating income                   (whether in such period or any earlier period) as non-cash                   charges; provided that Incentive Compensation Plan Expense                   shall not be included in the calculation of Consolidated                   Operating Cash Flow.                3. Waiver. Any Events of Default that may have arisen on December 31, 2005, under Section 8.01 of the Credit Agreement that would not have occurred if this Amendment had been effective on that date, and any Defaults and Events of Default that may have arisen that are related to or a consequence of any of the foregoing described Events of Default, and any Defaults and Events of Defaults arising out of the failure to take any action or comply with or perform any obligation as a result of any of the foregoing described Defaults or Events of Default, and any Defaults or Events of Default arising out of any misstatements as to the absence of any such Default or Event of Default, are hereby waived.              4. Effectiveness. This Amendment will become effective when the Administrative Agent has received this Amendment executed and delivered by the Company and the Majority Lenders.              5. Representation and Warranties. The Company represents and warrants that, after giving effect to the provisions of this Amendment, (a) each of the representations and warranties made by the Company in Article VI of the Credit Agreement are true in all material respects on and as of the date hereof as if made on and as of such date, except to the extent that such representations and warranties refer to an earlier date, in which case they are true in all material respects as of such earlier date and except that for this purpose only the date "December 31, 2003" in the last sentence of Section 6.02 of the Credit Agreement shall be changed to "December 31, 2004", and (b) no Default or Event of Default has occurred and is continuing.              6. Continuing Effect of the Credit Agreement. This Amendment is limited solely to the matters expressly set forth herein and does not constitute a waiver of any Default or Event of Default, except as expressly set forth in paragraph 3 above, or a consent to any future action or event. As expressly amended hereby, the Credit Agreement remains in full force and effect.              7. Miscellaneous. The provisions of Sections 13.06, 13.07(a), 13.08, 13.09, 13.10 13.12 and 13.13 shall apply with like effect to this Amendment.                    [remainder of page intentionally left blank]                                         2                IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.                                               COX COMMUNICATIONS, INC.                                               By: /s/ Susan W. Coker                                                  -------------------------------                                                  Name:                                                  Title:                                               JP MORGAN CHASE BANK, N.A., as                                              Administrative Agent and as Lender                                               By: /s/ Christophe M. Vohmann                                                  -------------------------------                                                  Name: Christophe M. Vohmann                                                  Title: Vice President                                               BANK OF AMERICA, N.A.                                               By: /s/ Christopher T. Ray                                                  -------------------------------                                                  Name: Christopher T. Ray                                                  Title: Vice President                                               THE BANK OF NEW YORK                                               By: /s/ Laura Neenan                                                  -------------------------------                                                  Name: Laura Neenan                                                  Title: Vice President                                               THE BANK OF NOVA SCOTIA                                               By: /s/ Jose Carlos                                                  -------------------------------                                                  Name: Jose B. Carlos                                                  Title: Authorized Signatory                                         3                                                 BANK OF OKLAHOMA, N.A.                                               By: /s/ Kenton R. Owens                                                  -------------------------------                                                  Name: Kenton R. Owens                                                  Title: Assistant Vice President                                               BANK OF TOKYO-MITSUBISHI UFJ TRUST                                              COMPANY (formerly known as BANK OF                                              TOKYO-MITSUBISHI TRUST COMPANY)                                               By: /s/ Karen Ossolinski                                                  -------------------------------                                                  Name: Karen Ossolinski                                                  Title: Vice President                                               THE BANK OF TOKYO-MITSUBISHI UFJ,                                              LTD., NEW YORK BRANCH (as                                              successor-by-merger to UFJ BANK                                              LIMITED)                                               By: /s/ Karen Ossolinski                                                  -------------------------------                                                  Name: Karen Ossolinski                                                  Title: Authorized Signatory                                               BARCLAYS BANK PLC                                               By: /s/ David Barton                                                  -------------------------------                                                  Name: David Barton                                                  Title: Associate Director                                               CITIBANK, N.A.                                               By: /s/ Maureen Maroney                                                  -------------------------------                                                  Name: Maureen Maroney                                                  Title: Director                                                 CREDIT SUISSE, CAYMAN ISLANDS                                              BRANCH                                               By: /s/ Doreen Barr                                                  -------------------------------                                                  Name: Doreen Barr                                                  Title: Vice President                                               By: /s/ Denise Alvarez                                                  -------------------------------                                                  Name: Denise Alvarez                                                  Title: Associate                                               DRESDNER BANK AG, NEW YORK AND                                              GRAND CAYMAN BRANCHES                                               By: /s/ Mark McGuigan                                                  -------------------------------                                                  Name: Mark McGuigan                                                  Title: Vice President                                               DRESDNER BANK AG, NEW YORK AND                                              GRAND CAYMAN BRANCHES                                               By: /s/ Brian Smith                                                  -------------------------------                                                  Name: Brian Smith                                                  Title: Managing Director                                               FIRST HAWAIIAN BANK                                               By: /s/ Jeffrey N. Higashi                                                  -------------------------------                                                  Name: Jeffrey N. Higashi                                                  Title: Vice President                                                 LEHMAN BROTHERS BANK, FSB                                               By: /s/ Janine M. Shugan                                                  -------------------------------                                                  Name: Janine M. Shugan                                                  Title: Authorized Signatory                                               MERRILL LYNCH BANK USA                                               By: /s/ Louis Alder                                                  -------------------------------                                                  Name: Louis Alder                                                  Title: Director                                               MIZUHO CORPORATE BANK, LTD                                               By: /s/ Raymond Ventura                                                  -------------------------------                                                  Name: Raymond Ventura                                                  Title: Deputy General Manager                                               MORGAN STANLEY BANK                                               By: /s/ Daniel Twenge                                                  -------------------------------                                                  Name: Daniel Twenge                                                  Title: Vice President                                               PNC BANK N.A.                                               By: /s/ Louis K. McLinden                                                  -------------------------------                                                  Name: Louis K. McLinden                                                  Title: Vice President                                                 THE ROYAL BANK OF SCOTLAND PLC                                               By: /s/ Andrew Wynn                                                  -------------------------------                                                  Name: Andrew Wynn                                                  Title: Managing Director                                               SCOTIABANC INC.                                               By: /s/ William E. Zarrett                                                  -------------------------------                                                  Name: William E. Zarrett                                                  Title: Managing Director                                               SOCIETE GENERALE                                               By: /s/ Elaine Khalil                                                  -------------------------------                                                  Name: Elaine Khalil                                                  Title: Director                                               SUMITOMO MITSUI BANKING CORPORATION                                               By: /s/ Yoshihiro Hyakutome                                                  -------------------------------                                                  Name: Yoshihiro Hyakutome                                                  Title: Joint General Manager                                               SUNTRUST BANK                                               By: /s/ Thomas C. Palmer                                                  -------------------------------                                                  Name: Thomas C. Palmer                                                  Title: Managing Director                                                 U.S. BANK NATIONAL ASSOCIATION                                               By: /s/ Gail F. Scannell                                                  -------------------------------                                                  Name: Gail F. Scannell                                                  Title: Vice President                                               UBS LOAN FINANCE LLC, Lender                                               By: /s/ Richard L. Tavrow                                                  -------------------------------                                                  Name: Richard L. Tavrow                                                  Title: Director                                               By: /s/ Irja R. Otsa                                                  -------------------------------                                                  Name: Irja R. Otsa                                                  Title: Associate Director                                               WACHOVIA BANK, NATIONAL ASSOCIATION                                               By: /s/ John D. Brady                                                  -------------------------------                                                  Name: John D. Brady                                                  Title: Director                                               WELLS FARGO BANK, N.A.                                               By: /s/ Sharon L. Prince                                                  -------------------------------                                                  Name: Sharon L. Prince                                                  Title: Vice President                                               By: /s/ Horace S. Jennings                                                  -------------------------------                                                  Name: Horace S. Jennings                                                  Title: Vice President                                                 WILLIAM STREET COMMITMENT                                              CORPORATION                                              (Recourse only to assets of William                                              Street Commitment Corporation)                                               By: /s/ Mark Walton                                                  -------------------------------                                                  Name: Mark Walton                                                  Title: Assistant Vice President    EX-10.12 5 g00421exv10w12.txt EX-10.12 LETTER AGREEMENT DATED DECEMBER 31, 2005                                                                       Exhibit 10.12  March 15, 2006  Mr. James O. Robbins 3185 Nancy Creek Road, N.W. Atlanta, Georgia 30327  Dear Jim:  I am pleased to inform you that effective December 31, 2005, the Compensation Committee of the Board of Directors of Cox Communications, Inc. (CCI) has approved a special award to you of 325,000 Recognition Units ("Units") to recognize the continuing legacy of your past contributions to the growth and success of CCI. This letter agreement ("Agreement") will describe the terms and conditions of your award.  Each Unit will have a beginning Unit price of $10.00 per Unit. The payment, if any, to you under this Agreement will be based on the increase in the value of the Units over a three-year measurement period beginning January 1, 2006 and ending December 31, 2008 (the "Measurement Period"). To determine the increase in the value of the Units over the Measurement Period, the beginning Unit price will be multiplied by a compound annual growth rate (the "Growth Rate") in order to calculate the Unit price at the end of the Measurement Period. The Growth Rate will be expressed as a percentage and will be equal to CCI's cumulative operating free cash flow ("OFCF") over the Measurement Period, divided by a 2005 base year OFCF, multiplied to the 2.5 power as a growth multiplier.  Once the Unit price at the end of the Measurement Period is calculated as set forth above, the beginning Unit price will be subtracted from the ending Unit price to determine the appreciation in the value of each Unit (the "Unit Appreciation Amount"). The Unit Appreciation Amount will be multiplied by the 325,000 Units awarded to determine the final benefit amount payable to you. Any benefit will be payable to you or, in the event of your death prior to the date of such payment, to your estate in a lump sum cash payment as soon as practicable following the end of the Measurement Period.  Notwithstanding any other provisions of this Agreement to the contrary, if a Growth Rate of fifteen percent (15%) is not achieved over the Measurement Period, then no benefit will be payable under this Agreement.  The Compensation Committee of CCI will have the sole discretion to amend or modify your award or any feature of your award, including without limitation the components used in calculating OFCF, the beginning or ending Unit price, the Measurement Period, or the amount of any payout, to reflect acquisitions, spin-offs, other significant corporate or accounting events, or any other factor deemed appropriate in the Committee's sole discretion; provided that no such amendment or modification may result in a change in the timing or form of any payment due to you under this Agreement.  By signing below, you agree that you have read this Agreement and understand its terms, that you have not relied on any representation or statement not set forth in this Agreement, that this Agreement shall be governed by the laws of the State of Delaware, and that this Agreement shall be binding upon you and your heirs, executors, administrators, representatives, successors and assigns.  Very truly yours,  /s/ Marybeath Leamer - ---------------------------- Marybeth Leamer  Agreed and accepted:  /s/ James O. Robbins - ---------------------------- James O. Robbins    EX-21.1 6 g00421exv21w1.txt EX-21.1 SUBSIDIARIES OF COX COMMUNICATIONS, INC.                                                                                  .                                                                                .                                                                                .                                                                        EXHIBIT 21                             SUBSIDIARIES OF REGISTRANT                                                  STATE OF INCORPORATION OR              NAME OF SUBSIDIARY                       FORMATION - -------------------------------------------   -------------------------   Arizona NewsChannel, L.L.C.                   Delaware Cox @Home, Inc.                               Delaware Cox Animal Planet, Inc.                       Delaware Cox Arizona Telcom, L.L.C.                    Delaware Cox Arkansas Telcom, L.L.C.                   Delaware Cox Business Services, Inc.                   Delaware Cox Business Services, L.L.C.                 Delaware Cox California Telcom, L.L.C. (formerly Cox      California Telcom II, L.L.C.)            Delaware Cox Colorado Telcom, L.L.C.                   Delaware Cox Communications EBD Holdings, Inc.         Delaware Cox Communications E.T.E., Inc.               Delaware Cox Communications Florida (Partnership)      (formerly Cox Cable New York)            New York Cox Communications Gulf Coast, L.L.C.         Delaware Cox Communications Hampton Roads, L.L.C.      Delaware Cox Communications Holdings, Inc.             Delaware Cox Communications Kansas, L.L.C.             Delaware Cox Communications Las Vegas, Inc.            Delaware Cox Communications LLC Management, Inc.       Delaware Cox Communications Louisiana, L.L.C.          Delaware Cox Communications NCC, Inc.                  Delaware Cox Communications New York City, Inc.        New York Cox Communications Omaha, L.L.C.              Delaware Cox Communications Payroll, Inc.              California Cox Communications Pensacola, L.L.C.          Delaware                                                                            STATE OF INCORPORATION OR                         NAME OF SUBSIDIARY                                      FORMATION - ------------------------------------------------------------------     -------------------------   Cox Communications Shopping Services, Inc.                             Delaware Cox Communications Technology, L.L.C.                                  Delaware Cox Communications Telecom, Inc.                                       Virginia Cox Connecticut Telcom, L.L.C.                                         Delaware Cox Consumer Information Network, Inc.                                 Delaware Cox DC Radio, Inc.                                                     Delaware Cox District of Columbia Telcom, L.L.C.                                Delaware Cox Fibernet Oklahoma, L.L.C.                                          Delaware Cox Fibernet Virginia, Inc.                                            Delaware Cox Florida Cable Partners                                             Florida Cox Florida Telcom, L.P. (1% Member -- Cox Telcom Partners, Inc.,      general partner; 99% Member -- CoxCom, Inc., limited partner)     Delaware Cox Georgia Telcom, L.L.C.                                             Delaware Cox Government Services, Inc.                                          Delaware Cox Idaho Telcom, L.L.C.                                               Delaware Cox Iowa Telcom, L.L.C.                                                Delaware Cox Kansas Telcom, L.L.C.                                              Delaware Cox Louisiana Telcom, L.L.C.                                           Delaware Cox Maryland Telcom, L.L.C.                                            Delaware Cox Media, L.L.C.                                                      Delaware Cox Mississippi Telcom, L.L.C.                                         Delaware Cox Missouri Telcom, L.L.C.                                            Delaware Cox Nebraska Telcom, L.L.C.                                            Delaware Cox Nevada Telcom, L.L.C.                                              Delaware Cox New Mexico Telcom, L.L.C.                                          Delaware Cox North Carolina Telcom, L.L.C.                                      Delaware Cox Ohio Telcom, L.L.C.                                                Delaware Cox Oklahoma Telcom, L.L.C.                                            Delaware Cox Rhode Island Telcom, L.L.C.                                        Delaware                                                                            STATE OF INCORPORATION OR                         NAME OF SUBSIDIARY                                      FORMATION - ------------------------------------------------------------------     -------------------------   Cox San Diego SPE, L.L.C.                                              Delaware Cox Southwest Holdings, L.P.                                           Texas Cox Southwest Interests, L.L.C.                                        Texas Cox Southwest Partner Holdings, L.L.C.                                 Delaware Cox Telcom Partners, Inc.                                              Delaware Cox Texas Telcom, L.P. (1% Member -- Cox Telcom Partners, Inc.,      general partner; 99% Member -- CoxCom, Inc., limited partner)     Delaware Cox Trust I                                                            Delaware Cox Virginia Telcom, Inc.                                              Virginia CP Arizona I, LLC                                                      Delaware CP Arizona II, LLC                                                     Delaware CP Nevada, LLC                                                         Delaware Hospitality Network, Inc.                                              Nevada Kansas NewsChannel, L.L.C.                                             Delaware Local News on Cable, L.L.C.                                            Virginia MAS ARIZONA, L.L.C.                                                    Delaware Mid-Kansas, Inc.                                                       Kansas News Channel 15, L.L.C.                                                Delaware News Channel, L.L.C.                                                   Oklahoma PrimeTel of Nevada                                                     Nevada Rhode Island News Channel, L.L.C.                                      Delaware TCA Communications, L.L.C.                                             Texas TMJV, LLC                                                              Delaware Tulsa Cable News, L.L.C.                                               Oklahoma WOWT/Cox News Channel, L.L.C.                                          Delaware CoxCom, Inc.                                                           Delaware Double C Technologies, LLC (Membership Interest, Cox                   Delaware          Communications Technology, L.L.C. - 33.3%;Comcast          STB  Software LIB, L.L.C. - 66.67%, managing member) TCA Cable Partners (Cox Southwest Holdings, L.P. - 75% interest;       Delaware          Cox Southwest Interests, L.L.C. - 25% interest)    CoxCom, Inc., a Delaware corporation, operates and owns the assets relating to the cable television systems and other businesses doing business under the following names:                             d/b/a Cox Business Services                                      Arizona                                    California                                    Connecticut                                      Florida                                       Idaho                                     Louisiana                                     Missouri                              d/b/a Cox Communications                                      Arizona                                    California                                    Connecticut                                       Idaho                                     Missouri                       d/b/a Cox Communications Middle America                                     Arkansas                                       Idaho                                     Missouri                                     Oklahoma                          d/b/a Cox Communications Arizona                       d/b/a Cox Communications Bakersfield                      d/b/a Cox Communications Cleveland Area                      d/b/a Cox Communications Central Coast                      d/b/a Cox Communications Desert Valley                    d/b/a Cox Communications Gainesville/Ocala                         d/b/a Cox Communications Humboldt                        d/b/a Cox Communications Louisiana                       d/b/a Cox Communications New England                      d/b/a Cox Communications North Carolina                    d/b/a Cox Communications Northern Virginia                      d/b/a Cox Communications Oklahoma City                          d/b/a Cox Communications Omaha                      d/b/a Cox Communications Orange County                       d/b/a Cox Communications Palos Verdes                         d/b/a Cox Communications Phoenix                         d/b/a Cox Communications Roanoke                        d/b/a Cox Communications San Diego                      d/b/a Cox Communications Santa Barbara                       d/b/a Cox Communications Sierra Vista                          d/b/a Cox Communications Tucson                          d/b/a Cox Communications Tulsa    EX-31.1 7 g00421exv31w1.txt EX-31.1 SECTION 302 CERTIFICATION OF THE PEO                                                                        Exhibit 31.1  CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934  I, Patrick J. Esser, certify that:  1. I have reviewed this annual report on Form 10-K of Cox Communications, Inc.;  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:           (a) designed such disclosure controls and procedures, or caused such          disclosure controls and procedures to be designed under our          supervision, to ensure that material information relating to the          registrant, including its consolidated subsidiaries, is made known to          us by others within those entities, particularly during the period in          which this report is being prepared;           (b) designed such internal control over financial reporting, or caused          such internal control over financial reporting to be designed under our          supervision, to provide reasonable assurance regarding the reliability          of financial reporting and the preparation of financial statements for          external purposes in accordance with generally accepted accounting          principles;           (c) evaluated the effectiveness of the registrant's disclosure controls          and procedures and presented in this report our conclusions about the          effectiveness of the disclosure controls and procedures as of the end          of the period covered by this report based on such evaluation; and           (d) disclosed in this report any change in the registrant's internal          control over financial reporting that occurred during the registrant's          most recent fiscal quarter (the registrant's fourth fiscal quarter in          the case of an annual report) that has materially affected, or is          reasonably likely to materially affect, the registrant's internal          control over financial reporting; and  5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):           (a) all significant deficiencies and material weaknesses in the design          or operation of internal control over financial reporting which are          reasonably likely to adversely affect the registrant's ability to          record, process, summarize and report financial information; and           (b) any fraud, whether or not material, that involves management or          other employees who have a significant role in the registrant's          internal control over financial reporting.  Date: March 28, 2006  /s/  Patrick J. Esser - ----------------------- Patrick J. Esser Chief Executive Officer    EX-31.2 8 g00421exv31w2.txt EX-31.2 SECTION 302 CERTIFICATION OF THE PFO                                                                        Exhibit 31.2  CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934  I, John M. Dyer, certify that:  1. I have reviewed this annual report on Form 10-K of Cox Communications, Inc.;  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:           (a) designed such disclosure controls and procedures, or caused such          disclosure controls and procedures to be designed under our          supervision, to ensure that material information relating to the          registrant, including its consolidated subsidiaries, is made known to          us by others within those entities, particularly during the period in          which this report is being prepared;           (b) designed such internal control over financial reporting, or caused          such internal control over financial reporting to be designed under our          supervision, to provide reasonable assurance regarding the reliability          of financial reporting and the preparation of financial statements for          external purposes in accordance with generally accepted accounting          principles;           (c) evaluated the effectiveness of the registrant's disclosure controls          and procedures and presented in this report our conclusions about the          effectiveness of the disclosure controls and procedures as of the end          of the period covered by this report based on such evaluation; and           (d) disclosed in this report any change in the registrant's internal          control over financial reporting that occurred during the registrant's          most recent fiscal quarter (the registrant's fourth fiscal quarter in          the case of an annual report) that has materially affected, or is          reasonably likely to materially affect, the registrant's internal          control over financial reporting; and  5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):           (a) all significant deficiencies and material weaknesses in the design          or operation of internal control over financial reporting which are          reasonably likely to adversely affect the registrant's ability to          record, process, summarize and report financial information; and           (b) any fraud, whether or not material, that involves management or          other employees who have a significant role in the registrant's          internal control over financial reporting.  Date: March 28, 2006  /s/ John M. Dyer - ------------------------ John M. Dyer Chief Financial Officer     EX-32.1 9 g00421exv32w1.txt EX-32.1 SECTION 906 CERTIFICATION OF THE PEO AND PFO                                                                        EXHIBIT 32.1                      CERTIFICATION OF CHIEF EXECUTIVE OFFICER            PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO                   SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002           In connection with the annual report on Form 10-K of Cox Communications, Inc. (the "Company") for the period ended December 31, 2005, as filed with the Securities and Exchange Commission as of the date hereof, I, Patrick J. Esser, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:           (1) the Report fully complies with the requirements of Section 13(a) or 15(d)of the Securities Exchange Act of 1934, as amended; and           (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.                                     /s/ Patrick J. Esser                                    ---------------------------------------------                                    Name: Patrick J. Esser                                    Title: (Chief Executive Officer)                                    Date: March 28, 2006  A signed original of this written statement required by Section 906 or other documentation authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cox Communications, Inc. and will be retained by Cox Communications, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.  This certification "accompanies" the annual report on Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission, and is not to be incorporated by reference into any filing of Cox Communications, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the amended annual report on Form 10-K, irrespective of any general incorporation language contained in such filing).                                                                        EXHIBIT 32.2                      CERTIFICATION OF CHIEF FINANCIAL OFFICER            PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO                   SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002           In connection with the annual report on Form 10-K of Cox Communications, Inc. (the "Company") for the period ended December 31, 2005, as filed with the Securities and Exchange Commission as of the date hereof, I, John M. Dyer, hereby certify, pursuant to 18 U.S.C. Section 1350, that to the best of my knowledge:           (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and           (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.                                              /s/ John M. Dyer                                             ----------------------------------                                             Name: John M. Dyer                                             Title: Senior Vice President                                             (Chief Financial Officer)                                             Date: March 28, 2006  A signed original of this written statement required by Section 906 or other documentation authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cox Communications, Inc. and will be retained by Cox Communications, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.  This certification "accompanies" the annual report on Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission, and is not to be incorporated by reference into any filing of Cox Communications, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the amended annual report on Form 10-K, irrespective of any general incorporation language contained in such filing).    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