================================================================================
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
Commission File Numbers: 333-64449-02
333-64449-01
333-64449
Coaxial LLC
Coaxial Financing Corp.
Insight Communications of Central Ohio, LLC
(Exact name of registrants as specified in their charters)
Delaware 13-4080422
Delaware 13-4061992
Delaware 13-4017803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Numbers)
c/o Insight Communications Company, Inc.
810 7th Avenue
New York, New York 10019
(Address of principal executive offices, including zip code)
(917) 286-2300
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. [X] Yes [__] No
Indicate the number of shares outstanding of each of the registrants' classes of
common stock, as of the latest practicable date.
Coaxial LLC Not Applicable
Coaxial Financing Corp. Not Applicable
Insight Communications of Central Ohio, LLC Not Applicable
================================================================================
COAXIAL LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2001 2000
------------------------------
(unaudited) (Note 2)
Assets
Investments $ 21,200 $ 18,800
Dividends receivable 1,750 5,250
------------------------------
Total current assets 22,950 24,050
Intangible assets, net 1,828 1,899
Investment in affiliate 181,547 180,281
Note receivable - Coaxial DJM LLC 6,750 6,750
Note receivable - Coaxial DSM LLC 3,000 3,000
Due from related parties 3,896 3,466
------------------------------
Total assets $219,971 $219,446
==============================
Liabilities and members' equity
Accounts payable and accrued expenses $ 430 $ 1,291
------------------------------
Total current liabilities 430 1,291
Senior discount notes 41,547 40,281
Senior notes 34,435 34,435
------------------------------
Total liabilities 76,412 76,007
Commitments and contingencies
Members' equity:
Members' equity 139,859 142,139
Accumulated other comprehensive income 3,700 1,300
------------------------------
Total members' equity 143,559 143,439
------------------------------
Total liabilities and members' equity $219,971 $219,446
==============================
See accompanying notes
1
COAXIAL LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months ended March 31,
2001 2000
--------------------------
Revenue $ - $ 11,535
Operating costs and expenses:
Selling, general and administrative - 7,443
Depreciation and amortization 71 2,299
--------------------------
Total operating costs and expenses 71 9,742
Operating income (loss) (71) 1,793
Other income (expense):
Interest income - related parties 430 366
Interest income - 18
Interest expense (2,127) (2,309)
Dividend on preferred interests 4,766 -
Other - 29
--------------------------
Total other income, net 3,069 1,896
Net income (loss) 2,998 (103)
Unrealized gain on investments 2,400 -
--------------------------
Total comprehensive income $ 5,398 $ (103)
==========================
See accompanying notes
2
COAXIAL LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended March 31,
2001 2000
--------------------------------
Operating activities:
Net income (loss) $ 2,998 $ (103)
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 71 2,299
Dividend on preferred interest (4,766) -
Accretion of original issue discount on Senior Discount Notes 1,266 1,127
Changes in operating assets and liabilities:
Trade accounts receivable - 502
Prepaid expenses and other assets - 84
Accounts payable and accrued expenses (861) 1,022
Due from related parties (430) (174)
--------------------------------
Net cash (used in) provided by operating activities (1,722) 4,757
--------------------------------
Investing activities:
Purchase of property and equipment - (6,892)
Purchase of intangible assets - (3)
--------------------------------
Net cash used in investing activities - (6,895)
--------------------------------
Financing activities:
Principal payments on capital lease obligations - (24)
Capital distributions (5,278) (5,278)
Capital contributions 7,000 -
Borrowings under senior credit facility - 9,000
--------------------------------
Net cash provided by financing activities 1,722 3,698
--------------------------------
Net increase in cash and cash equivalents - 1,560
Cash and cash equivalents, beginning of period - 882
--------------------------------
Cash and cash equivalents, end of period $ - $ 2,442
================================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,722 $ 1,722
See accompanying notes
3
COAXIAL LLC
COAXIAL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Coaxial LLC (the "Company"), a Delaware limited liability company, was formed on
July 24, 1998 in order to own and hold 67 1/2% of the common stock of Coaxial
Communications of Central Ohio, Inc. ("Coaxial"). The Company has one individual
as its sole member.
Coaxial, an Ohio corporation, through its ownership of preferred interests, has
a 30% voting interest in Insight Communications of Central Ohio, LLC ("Insight
Ohio"). Insight Ohio operates a cable television system that provides basic and
expanded cable television services to homes in the eastern parts of Columbus,
Ohio and surrounding areas. Prior to August 8, 2000, Coaxial owned 100% of the
voting interest in Insight Ohio and therefore consolidated the financial
statements of Insight Ohio for periods prior to such date. In connection with
the contribution of Coaxial's cable system (the "System"), the issuance of the
Senior Notes by Coaxial and the Senior Discount Notes by the Company, during
1998 the three individuals who previously owned the outstanding stock of Coaxial
contributed their stock to three separate limited liability companies.
Accordingly, Coaxial is a subsidiary of the Company.
Other related entities affiliated with the Company in addition to Coaxial,
include Coaxial DJM LLC, Coaxial DSM LLC, (collectively, the "Coaxial
Entities"), Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial
Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial
Associates of Columbus II, Paxton Cable Television, Inc. and Paxton
Communications, Inc.
The Company and Coaxial Financing Corp. are co-issuers of the Senior Discount
Notes. Coaxial and Phoenix are co-issuers of the Senior Notes. The ability of
Coaxial Financing Corp., the Company, Coaxial and Phoenix to make scheduled
payments with respect to the Senior Discount Notes and Senior Notes is dependent
on the financial and operating performance of Insight Ohio. The required
distributions on the Series A preferred equity interest and Series B preferred
equity interest to Coaxial are designed to provide the cash flow necessary to
service the debt requirements on the Senior Discount Notes and Senior Notes.
2. Responsibility for Interim Financial Statements
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnote disclosures required by accounting principles
generally accepted in the United States for complete financial statements.
In management's opinion, the consolidated financial statements reflect all
adjustments considered necessary for a fair statement of the consolidated
results of operations and
4
COAXIAL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Responsibility for Interim Financial Statements (continued)
financial position for the interim periods presented. All such adjustments are
of a normal recurring nature. These unaudited interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes to consolidated financial statements contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company 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. The results
of operations for the three months ended March 31, 2001 are not necessarily
indicative of the results to be expected for the year ending December 31, 2001
or any other interim period.
3. Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"), sets forth rules for the reporting and display of
comprehensive income (net income plus all other changes in net assets from
non-owner sources) and its components in the financial statements. For the three
months ended March 31, 2001, components of other comprehensive income consisted
of a net unrealized gain on investments of $2.4 million. For the three months
ended March 31, 2000, there were no components of other comprehensive income.
5
COAXIAL FINANCING CORP.
BALANCE SHEETS
March 31, December 31,
2001 2000
----------------------------
(unaudited)
Assets
Cash $1,000 $1,000
-------------------------
Total assets $1,000 $1,000
=========================
Liabilities and shareholders' equity
Senior discount notes (to be paid by Coaxial LLC - Note 3) $ - $ -
Shareholders' equity:
Common stock; $.01 par value; 1,000 shares authorized,
issued and outstanding
10 10
Additional paid in capital 990 990
-------------------------
Total liabilities and shareholders' equity $1,000 $1,000
=========================
See accompanying notes
6
COAXIAL FINANCING CORP.
NOTES TO BALANCE SHEETS (CONTINUED)
1. Organization
Coaxial Financing Corp. (the "Company"), a Delaware corporation, was formed on
July 24, 1998, for the sole purpose of being a co-issuer of the discount notes
described in Note 3, which allows certain investors the ability to be holders of
the debt. The Company has no operations. Three individuals own the outstanding
shares of the Company.
2. Responsibility for Interim Financial Statements
The accompanying unaudited financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnote disclosures required by accounting principles
generally accepted in the United States for complete financial statements.
In management's opinion, the financial statements reflect all adjustments
considered necessary for a fair statement of the financial position as of the
interim dates presented. These unaudited interim financial statements should be
read in conjunction with the audited financial statements and notes to financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company 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. Actual results could differ from those estimates.
3. Notes Payable
On August 21, 1998, the Company and Coaxial LLC, a related entity, issued Senior
Discount Notes ("Senior Discount Notes") due 2008. The Senior Discount Notes
have a maturity value of $55.9 million and $30.0 million of gross proceeds were
received upon issuance. Of the gross proceeds, $19.5 million was contributed by
the sole member of Coaxial LLC to certain related entities to repay
indebtedness. In addition, $9.8 million was loaned to two related entities
("Coaxial DJM LLC" and "Coaxial DSM LLC") by Coaxial LLC, which then contributed
that amount to certain other related entities to repay indebtedness. The debt
discount of $25.9 million is being amortized over five years through August 15,
2003. Thereafter, interest on the Senior Discount Notes accrues at 127/8% per
annum and is payable semi-annually. All of the Senior Discount Notes were
allocated to Coaxial LLC.
The Senior Discount Notes are non-recourse, secured by all of the common stock
of
7
COAXIAL FINANCING CORP.
NOTES TO BALANCE SHEETS (CONTINUED)
Coaxial Communications of Central Ohio, Inc. ("Coaxial") and the notes issued by
Coaxial DJM LLC and Coaxial DSM LLC to Coaxial LLC and conditionally guaranteed
by Insight Communications of Central Ohio, LLC ("Insight Ohio"), an affiliate of
Coaxial.
Among other covenants, the borrowers must comply with restrictive covenants
relating to incurrence of additional debt, payment of dividends and
distributions, and the transfer or sale of assets.
The ability of the Company and Coaxial LLC to make scheduled payments with
respect to the Senior Discount Notes will depend on the financial and operating
performance of Insight Ohio.
8
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
BALANCE SHEETS
(in thousands)
March 31, December 31,
2001 2000
-----------------------------
(unaudited) (Note 2)
Assets
Investments $ 21,200 $ 18,800
Dividends receivable 1,750 5,250
-------------------------
Total current assets 22,950 24,050
Intangible assets, net 826 864
Investment in affiliate 181,547 180,281
-------------------------
Total assets $ 205,323 $ 205,195
=========================
Liabilities and shareholders' equity
Accounts payable and accrued expenses $ 430 $ 1,291
-------------------------
Total current liabilities 430 1,291
Senior notes 34,435 34,435
-------------------------
Total liabilities 34,865 35,726
Commitments and contingencies
Shareholders' equity:
Common stock; $1 par value; 2,000 shares authorized; 1,080 shares
issued and outstanding as of March 31, 2001 and December 31, 2000 1 1
Paid-in-capital 11,501 11,501
Retained earnings 155,256 156,667
Accumulated other comprehensive income 3,700 1,300
-------------------------
Total shareholders' equity 170,458 169,469
-------------------------
Total liabilities and shareholders' equity $ 205,323 $ 205,195
=========================
See accompanying notes
9
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months ended March 31,
2001 2000
----------------------------
Revenue $ - $11,535
Operating costs and expenses:
Selling, general and administrative - 7,443
Depreciation and amortization 38 2,273
------------------------
Total operating costs and expenses 38 9,716
Operating (loss) income (38) 1,819
Other income (expense):
Interest income - 18
Interest expense (861) (1,182)
Dividend on preferred interests 4,766 -
Other - 29
------------------------
Total other income (expense), net 3,905 (1,135)
Net income 3,867 684
Unrealized gain on investments 2,400 -
------------------------
Total comprehensive income $6,267 $ 684
========================
See accompanying notes
10
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended March 31,
2001 2000
-------------------------------
Operating activities:
Net income $ 3,867 $ 684
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 38 2,273
Dividend on preferred interest (4,766) -
Changes in operating assets and liabilities:
Trade accounts receivable - 502
Prepaid expenses and other current assets - 84
Accounts payable and accrued expenses (861) 1,022
Due from related parties - 192
--------------------------
Net cash (used in) provided by operating activities (1,722) 4,757
--------------------------
Investing activities:
Purchase of property and equipment - (6,892)
Increase in intangible assets - (3)
--------------------------
Net cash used in investing activities - (6,895)
--------------------------
Financing activities:
Principal payments on capital lease obligations - (24)
Capital distributions (5,278) (5,278)
Capital contributions 7,000 -
Borrowings under senior credit facility - 9,000
--------------------------
Net cash provided by financing activities 1,722 3,698
--------------------------
Net increase in cash and cash equivalents - 1,560
Cash and cash equivalents, beginning of period - 882
--------------------------
Cash and cash equivalents, end of period $ - $ 2,442
==========================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,722 $ 1,722
See accompanying notes
11
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Coaxial Communications of Central Ohio, Inc. (the "Company"), an Ohio
corporation, through its ownership of preferred interests, has a 30% voting
interest in Insight Communications of Central Ohio, LLC ("Insight Ohio").
Insight Ohio operates a cable television system that provides basic and expanded
cable television services to homes in the eastern parts of Columbus, Ohio and
surrounding areas. Prior to August 8, 2000, Coaxial owned 100% of the voting
interest in Insight Ohio and therefore consolidated the financial statements of
Insight Ohio for periods prior to such date. In connection with the contribution
of the Company's cable system (the "System"), the issuance of the Senior Notes
and the issuance of the Senior Discount Notes by the Company's majority
shareholder, Coaxial LLC, during 1998 the three individuals who previously owned
the outstanding stock of the Company contributed their stock to three separate
limited liability companies. Accordingly, the Company is a subsidiary of Coaxial
LLC, which owns 67 1/2% of its outstanding stock.
Other related entities affiliated with the Company in addition to Coaxial LLC,
include Coaxial DJM LLC, Coaxial DSM LLC, (collectively, the "Coaxial
Entities"), Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial
Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial
Associates of Columbus II, Paxton Cable Television, Inc. and Paxton
Communications, Inc.
The Company and Phoenix are co-issuers of the Senior Notes. The ability of the
Company and Phoenix to make scheduled payments with respect to the Senior Notes
is dependant on the financial and operating performance of Insight Ohio. The
required distributions on the Series B preferred equity interest to the Company
is designed to provide the cash flow necessary to service the debt requirements
on the Senior Notes.
2. Responsibility for Interim Financial Statements
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnote disclosures required by accounting principles
generally accepted in the United States for complete financial statements.
In management's opinion, the consolidated financial statements reflect all
adjustments considered necessary for a fair statement of the consolidated
results of operations and financial position for the interim periods presented.
All such adjustments are of a normal recurring nature. These unaudited interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes to consolidated financial statements
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
12
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Responsibility for Interim Financial Statements (continued)
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company 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. The results
of operations for the three months ended March 31, 2001 are not necessarily
indicative of the results to be expected for the year ending December 31, 2001
or any other interim period.
3. Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"), sets forth rules for the reporting and display of
comprehensive income (net income plus all other changes in net assets from
non-owner sources) and its components in the financial statements. For the three
months ended March 31, 2001, components of other comprehensive income consisted
of a net unrealized gain on investments of $2.4 million. For the three months
ended March 31, 2000, there were no components of other comprehensive income.
13
PHOENIX ASSOCIATES
BALANCE SHEETS
(in thousands)
March 31, December 31,
2001 2000
-----------------------------------
(unaudited) (Note 2)
Assets
Interest Receivable $ 412 $ 373
-----------------------------
Total current assets 412 373
Due from related parties 406 406
Notes receivable - related parties 550 550
Deferred financing fees, net of accumulated amortization of
$1,241 and $1,122 as of March 31, 2001 and December 31,
2000, respectively 2,560 2,679
-----------------------------
Total assets $ 3,928 $ 4,008
=============================
Liabilities and partners' deficit
Interest payable $ 1,319 $ 3,959
-----------------------------
Total current liabilities 1,319 3,959
Notes payable 105,565 105,565
-----------------------------
Total liabilities 106,884 109,524
Commitments and contingencies
Partners' deficit (102,956) (105,516)
-----------------------------
Total liabilities and partners' deficit $ 3,928 $ 4,008
=============================
See accompanying notes
14
PHOENIX ASSOCIATES
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months ended March 31,
2001 2000
----------------------------
Expenses:
Amortization $ 119 $ 119
Interest income (expense):
Interest income-related parties 39 39
Interest expense (2,639) (2,639)
----------------------------
Total interest expense, net (2,600) (2,600)
----------------------------
Net loss $ (2,719) $ (2,719)
============================
See accompanying notes
15
PHOENIX ASSOCIATES
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended March 31,
2001 2000
----------------------------
Operating activities:
Net loss $(2,719) $(2,719)
Adjustments to reconcile net loss to net cash used in
operating
activities:
Amortization of deferred financing fees 119 119
Changes in operating assets and liabilities:
Interest receivable (39) (39)
Interest payable (2,639) (2,639)
-----------------------
Net cash used in operating activities (5,278) (5,278)
-----------------------
Financing activities:
Capital contributions 5,278 5,278
-----------------------
Net cash provided by financing activities 5,278 5,278
-----------------------
Net decrease in cash - -
Cash, beginning of period - -
-----------------------
Cash, end of period $ - $ -
=======================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,278 $ 5,278
See accompanying notes
16
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Organization and Purpose
Phoenix Associates (the "Company") is a Florida general partnership organized
for the primary purpose of purchasing promissory notes, mortgages, deeds of
trust, debt securities and other types of securities and purchasing and
acquiring rights in any loan agreements or other documents relating to those
securities. The Company has no operations.
The Company consists of three separate LLC's whose sole members are individual
partners who share profits and losses in the ratio of 67 1/2%, 22 1/2% and 10%,
respectively.
Other related entities affiliated with the Company include Coaxial LLC, Coaxial
Financing Corp., Coaxial Communications of Central Ohio, Inc. ("Coaxial"),
Insight Communications of Central Ohio, LLC ("Insight Ohio"), Coaxial
Communications of Southern Ohio, Inc. ("Southern Ohio"), Coaxial Associates of
Columbus I ("Columbus I"), Coaxial Associates of Columbus II ("Columbus II"),
Paxton Cable Television, Inc. ("Paxton Cable") and Paxton Communications, Inc.
("Paxton Communications").
The Company and Coaxial are co-issuers of the Senior Notes. The ability of the
Company and Coaxial to make scheduled payments with respect to the Senior Notes
is dependant on the financial and operating performance of Insight Ohio. The
required distributions on the Series B preferred equity interest to the Company
is designed to provide the cash flow necessary to service the debt requirements
on the Senior Notes.
2. Responsibility for Interim Financial Statements
The accompanying unaudited financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnote disclosures required by accounting principles
generally accepted in the United States for complete financial statements.
In management's opinion, the financial statements reflect all adjustments
considered necessary for a fair statement of the results of operations and
financial position for the interim periods presented. All such adjustments are
of a normal recurring nature. These unaudited interim financial statements
should be read in conjunction with the audited financial statements and notes to
financial statements contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company 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
17
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Responsibility for Interim Financial Statements (continued)
differ from those estimates. The results of operations for the three months
ended March 31, 2001 are not necessarily indicative of the results to be
expected for the year ending December 31, 2001 or any other interim period.
Certain 2000 amounts have been reclassified to conform to the 2001 presentation
18
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
BALANCE SHEETS
(in thousands)
March 31, December 31,
2001 2000
------------------------------------
(unaudited) (Note 2)
Assets
Cash and cash equivalents $ 1,466 $ 1,169
Trade accounts receivable, net of allowance for doubtful accounts of
$318 and $390 as of March 31, 2001 and December 31, 2000,
respectively 1,914 2,782
Launch funds receivable 1,670 1,936
Prepaid expenses and other assets 601 437
------------------------------------
Total current assets 5,651 6,324
Fixed assets, net 77,505 76,587
Intangible assets, net 315 448
------------------------------------
Total assets $ 83,471 $ 83,359
====================================
Liabilities and members' deficit
Accounts payable $ 1,346 $ 5,679
Accrued expenses and other liabilities 1,427 1,364
Accrued property taxes 229 19
Accrued programming costs 3,612 3,014
Deferred revenue 489 545
Interest payable 351 786
Preferred interest distribution payable 1,750 5,250
Due to affiliates 2,405 1,502
------------------------------------
Total current liabilities 11,609 18,159
Deferred revenue 1,871 2,005
Preferred interests 181,547 180,281
Debt 25,000 25,000
------------------------------------
Total liabilities and preferred interests 220,027 225,445
Members' deficit (136,556) (142,086)
------------------------------------
Total liabilities and members' deficit $ 83,471 $ 83,359
====================================
19
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months ended March 31,
2001 2000
----------------------------
Revenue $13,111 $11,535
Operating costs and expenses:
Programming and other operating costs 5,091 4,912
Selling, general and administrative 2,527 2,179
Management fees 396 352
Depreciation and amortization 2,720 2,234
------------------------
Total operating costs and expenses 10,734 9,677
Operating income 2,377 1,858
Other income (expense):
Interest expense (502) (321)
Interest income 15 18
Other 24 29
------------------------
Total other expense, net (463) (274)
Net income 1,914 1,584
Accrual of preferred interests (4,766) (4,627)
------------------------
Loss attributable to common interests $(2,852) $(3,043)
========================
20
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended March 31,
2001 2000
----------------------------
Operating activities:
Net income $ 1,914 $ 1,584
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,720 2,234
Provision for losses on trade accounts receivable 306 116
Changes in operating assets and liabilities:
Trade accounts receivable 562 386
Launch funds receivable 266 -
Prepaid expenses and other assets (164) 84
Accounts payable (4,333) 1,883
Accrued expenses and other liabilities 1,149 192
---------------------------
Net cash provided by operating activities 2,420 6,479
---------------------------
Investing activities:
Purchase of property and equipment (3,505) (6,916)
Purchase of intangible assets - (3)
---------------------------
Net cash used in investing activities (3,505) (6,919)
---------------------------
Financing activities:
Capital contributions 8,382 -
Preferred interest distribution (7,000) (7,000)
Borrowings under senior credit facility - 9,000
---------------------------
Net cash provided by financing activities 1,382 2,000
---------------------------
Net increase in cash and cash equivalents 297 1,560
Cash and cash equivalents, beginning of period 1,169 882
---------------------------
Cash and cash equivalents, end of period $ 1,466 $ 2,442
===========================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 937 $ 154
21
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Organization
Insight Communications of Central Ohio, LLC (the "Company") provides basic and
expanded cable television services to homes in the eastern parts of Columbus,
Ohio and surrounding areas.
2. Responsibility for Interim Financial Statements
The accompanying unaudited financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnote disclosures required by accounting principles
generally accepted in the United States for complete financial statements.
In management's opinion, the financial statements reflect all adjustments
considered necessary for a fair statement of the results of operations and
financial position for the interim periods presented. All such adjustments are
of a normal recurring nature. These unaudited interim financial statements
should be read in conjunction with the audited financial statements and notes to
financial statements contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company 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.
The results of operations for the three months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2001 or any other interim period.
Certain 2000 amounts have been reclassified to conform to the 2001 presentation.
22
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Cable System Transactions
On January 5, 2001, Insight Midwest, L.P. ("Insight Midwest"), a 50-50
partnership between Insight LP and an indirect subsidiary of AT&T Broadband,
LLC, completed a series of transactions with Insight LP and certain subsidiaries
of AT&T Corp. (the "AT&T Subsidiaries") for the acquisition of additional cable
television systems valued at approximately $2.2 billion, including the common
equity of the Company (the "AT&T Transactions"). As a result of the AT&T
Transactions, Insight Midwest acquired all of Insight LP's wholly-owned systems
serving approximately 280,000 customers, including the approximately 84,200
customers served by the Company and including systems which Insight LP purchased
from the AT&T Subsidiaries. At the same time, Insight Midwest acquired from the
AT&T Subsidiaries systems serving approximately 250,000 customers.
The Company is prohibited by the terms of its indebtedness from making
distributions to Insight Midwest. Insight Midwest remains equally owned by
Insight LP and AT&T Broadband, and Insight LP continues to serve as the general
partner of Insight Midwest and manages and operates the Insight Midwest systems.
Although the financial results of the Company will be consolidated into Insight
Midwest as a result of the AT&T Transactions, for financing purposes, the
Company is an unrestricted subsidiary under the indentures of Insight Midwest
and Insight Inc. The Company's conditional guarantee of the Senior Notes and the
Senior Discount Notes remains in place.
23
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Commitments and Contingencies
Litigation
The Company is party in or may be affected by various matters under litigation.
Management believes that the ultimate outcome of these matters will not have a
significant adverse effect on either the Company's future results of operations
or financial position.
24
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the financial
statements and related notes which are included elsewhere in this report.
Forward-Looking Statements
This report contains "forward-looking statements," including statements
containing the words "believes," "anticipates," "expects" and words of similar
import, which concern, among other things, the operations, economic performance
and financial condition of Insight Communications of Central Ohio, LLC ("Insight
Ohio" or the "System"). All statements other than statements of historical fact
included in this report regarding Coaxial LLC, Coaxial Financing Corp. and
Insight Ohio or any of the transactions described in this report, including the
timing, financing, strategies and effects of such transactions, are
forward-looking statements. Such forward-looking statements are based upon a
number of assumptions and estimates, which are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of Coaxial
LLC, Coaxial Financing Corp. and Insight Ohio, and reflect future business
decisions which are subject to change. Although Coaxial LLC, Coaxial Financing
Corp. and Insight Ohio believe that the expectations reflected in such
forward-looking statements are reasonable, they can give no assurance that such
expectations will prove to be correct. Important factors that could cause actual
results to differ materially from expectations include, without limitation:
o the ability of Coaxial LLC and Coaxial Financing Corp. to make
scheduled payments with respect to the Senior Discount Notes (as
defined below) which is dependent upon the financial and operating
performance of the System;
o the fact that a substantial portion of the System's cash flow from
operations is required to be dedicated to the payment of principal and
interest on its indebtedness and the required distributions with
respect to its Series A Preferred Interest and its Series B Preferred
Interest, thereby reducing the funds available to the System for its
operations and future business opportunities;
o the fact that Coaxial LLC and Coaxial Financing Corp. have no
significant assets other than the common equity of Coaxial
Communications of Central Ohio, Inc. ("Coaxial") owned by Coaxial LLC
and notes issued by Coaxial DJM LLC (an owner of 22.5% of the common
equity of Coaxial) and Coaxial DSM LLC (an owner of 10% of the common
equity of Coaxial) to Coaxial LLC; and
o the fact that the indenture governing the terms of the Senior Discount
Notes imposes restrictions on Coaxial LLC, Coaxial Financing Corp. and
Insight Ohio and the Senior Credit Facility of the System imposes
restrictions on Insight Ohio.
Coaxial LLC, Coaxial Financing Corp. and Insight Ohio do not intend to update
these forward-looking statements.
25
Coaxial LLC and Coaxial Financing Corp. do not conduct any business and are
dependent upon the cash flow of the System to meet their obligations under the
Senior Discount Notes. Insight Communications Company, LP ("Insight LP") serves
as the manager of the System.
The following discussion relates to the operations of the System for the three
months ended March 31, 2001 compared to the three months ended March 31, 2000.
The financial statements of Insight Ohio are included in the consolidated
financial statements of Coaxial through August 8, 2000. Coaxial is deemed to be
a subsidiary of Coaxial LLC and, as such, the financial statements of Coaxial
are included in the consolidated financial statements of Coaxial LLC. Therefore,
the historical operating results of Coaxial LLC reflect the actual results of
the System through August 8, 2000 in addition to certain financing activities
unrelated to the operation of the System. These financing activities relate
primarily to the offering of the Senior Discount Notes and Senior Notes
discussed above as well as certain borrowings and repayments of debt with
affiliated companies. These activities resulted in related financing and
interest costs. The historical results of Coaxial LLC appear elsewhere in this
report under the heading "Coaxial LLC."
Overview
The System relies on Insight LP, for all of its strategic, managerial, financial
and operational oversight and advice. Insight also centrally purchases
programming and equipment and provides the associated discount to the System. In
exchange for all such services provided to the System and subject to certain
restrictions contained in the covenants with respect to Insight Ohio's Senior
Credit Facility, the Senior Notes and the Senior Discount Notes, Insight LP is
entitled to receive management fees of 3.0% of gross operating revenues of the
System. Such management fee is payable only after distributions have been made
in respect of the Preferred Interests and only to the extent that such payment
would be permitted by an exception to the restricted payments covenants of the
Senior Notes and the Senior Discount Notes as well as Insight Ohio's Senior
Credit Facility. Such management fee is included in selling, general and
administrative expenses.
Recent Developments
On January 5, 2001, Insight Midwest completed a series of transactions with
Insight LP and certain subsidiaries of AT&T Corp. (the "AT&T Subsidiaries") for
the acquisition of additional cable television systems, primarily located in the
state of Illinois, valued at approximately $2.2 billion (the "AT&T
Transactions"), inclusive of systems valued at approximately $775.8 million,
contributed by Insight LP. The AT&T Transactions were financed through a credit
facility established on January 5, 2001, the Midwest Holdings Credit Facility.
As a result of the AT&T Transactions, Insight Midwest acquired all of Insight
LP's wholly-owned systems serving approximately 280,000 customers, including
approximately 84,200 customers served by the System and including systems which
Insight LP purchased from the AT&T Subsidiaries. At the same time, Insight
Midwest acquired from the AT&T Subsidiaries systems serving approximately
250,000 customers.
Although the financial results of Insight Ohio are consolidated into Insight
Midwest as a result of the AT&T Transactions, as noted above, for financing
purposes, Insight Ohio is an unrestricted
26
subsidiary under the indentures of Insight Midwest. Insight Ohio's conditional
guarantee of the Senior Notes and the Senior Discount Notes remains in place.
Results of Operations
Substantially all of the Systems revenues were earned from customer fees for
cable television programming services including premium and pay-per-view
services and ancillary services, such as rental of converters and remote control
devices, installations and from selling advertising. In addition, we earn
revenues from commissions for products sold through home shopping networks.
The following table is derived for the periods presented from the System's
financial statements that are included in this report and sets forth certain
statement of operations data for the System.
Three Months Ended March 31,
2001 2000
------------------------------------
(in thousands)
Revenue $ 13,111 $ 11,535
Operating costs and expenses:
Programming and other operating costs 5,091 4,912
Selling, general and administrative 2,527 2,179
Management fees 396 352
Depreciation and amortization 2,720 2,234
------------------------------------
Total operating costs and expenses 10,734 9,677
------------------------------------
Operating income 2,377 1,858
Interest expense 502 321
Net income 1,914 1,584
Net cash provided by operating activities 2,420 6,479
Net cash used in investing activities 3,505 6,919
Net cash provided by financing activities 1,382 2,000
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000.
Revenues for the three months ended March 31, 2001 increased $1.6 million or
13.7% to $13.1 million compared with $11.5 million for the three months ended
March 31, 2000. For the three months ended March 31, 2001, customers served
averaged 85,674 compared with 84,253 during the three months ended March 31,
2000. The increase in revenues is primarily attributable to revenues generated
from new product launches, specifically digital services and high speed data
services. Partially offsetting these increases was a decrease in pay-per-view
revenues.
As of March 31, 2001, there were approximately 17,900 digital customers
representing a 28.7% penetration (digital customers as a percentage of total
customers with access to digital service). Digital revenue for the three months
ended March 31, 2001 was approximately $897,000, (including approximately
$329,000 for video on demand service) compared to $116,000 for the three months
ended March 31, 2000. High-speed data services were launched during the three
months ended June 30, 2000. As of March 31, 2001, there were approximately 7,500
cable
27
modem customers, a penetration of 5.2% (modem customers as a percentage of homes
passed with access to high-speed data services). Revenues from high-speed data
services were approximately $725,000 for the three months ended March 31, 2001.
The service had not been launched as of March 31, 2000.
Average monthly revenue per customer for the three months ended March 31, 2001
was $51.01 compared to $45.64 for the three months ended March 31, 2000. The
combined average monthly revenue per basic customer for digital and high-speed
data services totaled $6.31 for the three months ended March 31, 2001 versus
$.46 for the three months ended March 31, 2000.
Programming and other operating costs increased $179,000 or 3.6% to $5.1 million
for the three months ended March 31, 2001 as compared to $4.9 million for the
three months ended March 31, 2000. The increase was primarily attributable to
increased programming rates associated with the digital services.
Selling, general and administrative expenses increased $348,000 or 16.0% to $2.5
million for the three months ended March 31, 2001 as compared to $2.2 million
for the three months ended March 31, 2000. The increase was primarily
attributable to increased payroll and administrative costs associated with
advertising.
Depreciation and amortization expense for the three months ended March 31, 2001
increased $486,000 or 21.8% to $2.7 million as compared to $2.2 million for the
three months ended March 31, 2000. This increase was primarily attributable to
increased capital expenditures associated with the rebuild over past quarters.
Interest expense for the three months ended March 31, 2001 increased $181,000 or
56.4% to $502,000 as compared to $321,000 for the three months ended March 31,
2000. This increase was primarily attributable to increased borrowings under the
Senior Credit Facility. The outstanding borrowings increased to $25.0 million as
of March 31, 2001 compared to $11.0 million as of March 31, 2000.
Liquidity and Capital Resources
The cable television business is a capital-intensive business that generally
requires financing for the upgrade, expansion and maintenance of the technical
infrastructure. Capital expenditures totaled $3.5 million for the three months
ended March 31, 2001. These expenditures were primarily for the rebuild of cable
plant and for serving new homes. Capital expenditures were financed by cash
flows from operations and capital contributions.
Insight continues to further enhance the technical platform of the System by
upgrading the plant serving the majority of customers. The capability for
high-speed data transmission, impulse pay-per-view, digital tiers of service and
additional analog channels is intended to be provided by further deployment of
fiber optics, an increase in the bandwidth to 870 MHz, activation of the reverse
plant to allow two-way communications and the installation of digital equipment.
Capital expenditures are expected to approximate $23.1 million during the year
ending
28
December 31, 2001 to support not only ongoing plant extensions, new customer
additions and capital replacement, but also to fund the plant upgrade to 870 MHz
and to activate plant for 2-way transmission, which is necessary to facilitate
the deployment of interactive services.
Cash provided by operations for the three months ended March 31, 2001 and 2000
was $2.4 million and $6.5 million, respectively. The decrease was primarily
attributable to the timing of payments against accounts payable balances.
Cash used in investing activities for the three months ended March 31, 2001 and
2000 was $3.5 million and $6.9 million, respectively, reflecting capital
expenditures to upgrade the System and build plant expansions.
Cash provided by financing activities for the three months ended March 31, 2001
was $1.4 million. This was comprised primarily of capital contributions of $8.4
million, less distributions on preferred interests of $7.0 million. Cash
provided by financing activities for the three months ended March 31, 2000 was
$2.0 million consisting primarily of borrowings under the Senior Credit Facility
of $9.0 million, less distributions on preferred interests of $7.0 million. The
$25.0 million Senior Credit Facility was fully borrowed as of March 31, 2001.
Due to the increased rebuild costs, management had determined that amounts
available under the Senior Credit Facility and cash flows from operations may
not be sufficient to finance the operating and capital requirements of the
System, debt service requirements and distributions on the Preferred Interests
over the next year. As such, Insight Midwest has committed to provide capital
contributions to fund cash requirements through the year ending December 31,
2001. Insight Midwest contributed $8.4 million to Insight Ohio during the three
months ended March 31, 2001.
29
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Coaxial LLC, Coaxial Financing Corp. and Insight Ohio do not engage in trading
market risk sensitive instruments and do not purchase hedging instruments or
"other than trading" instruments that are likely to expose any of them to market
risk, whether interest rate, foreign currency exchange, commodity price or
equity price risk. Coaxial LLC, Coaxial Financing Corp. and Insight Ohio have
not entered into forward or future contracts, purchased options or entered into
swaps.
Insight Ohio's senior credit facility bears interest at floating rates.
Accordingly, Insight Ohio is exposed to potential losses related to changes in
interest rates. A hypothetical 100 basis point increase in interest rates along
the entire interest rate yield curve would increase our projected annual
interest expense by approximately $250,000 for the year ending December 31,
2001. The Senior Discount Notes issued by Coaxial LLC and Coaxial Financing
Corp. and the Senior Notes issued by Coaxial and Phoenix bears interest at fixed
rates.
The fair value of borrowings under Insight Ohio's senior credit facility
approximates carrying value as it bears interest at floating rates. The fair
value and carrying value of the Senior Discount Notes as of March 31, 2001 was
$40.4 million and $41.6 million, respectively. The fair value and carrying value
of the Senior Notes applicable to Coaxial as of March 31, 2001 was $34.2 million
and $34.4 million, respectively. The fair value and carrying value of the Senior
Notes applicable to Phoenix as of March 31, 2001 was $104.8 million and $105.6
million, respectively.
30
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
We filed the following reports on Form 8-K during the three months ended March
31, 2001:
Date Report
Date of Report Filed with SEC Items Reported
- ---------------- ----------------- ---------------------------------------------
January 5, 2001 January 22, 2001 Item 2 - Acquisition or Disposition of Assets
Item 7 - Financial Statements, Pro Forma
Financial Information and Exhibits
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Coaxial LLC
(Registrant)
Dated: May ___, 2001
By: /s/ Michael S. Willner
--------------------------
Michael S. Willner
President and Chief Executive Officer
Insight Communications Company, Inc.
(Principal Executive Officer)
By: /s/ Kim D. Kelly
--------------------
Kim D. Kelly
Executive Vice President, Chief Financial
and Operating Officer
Insight Communications Company, Inc.
(Principal Financial and Accounting Officer)
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Coaxial Financing Corp.
(Registrant)
Dated: May ___, 2001
By: /s/ Michael S. Willner
--------------------------
Michael S. Willner
President and Chief Executive Officer
Insight Communications Company, Inc.
(Principal Executive Officer)
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Insight Communications of Central Ohio, LLC
(Registrant)
Dated: May ___, 2001
By: /s/ Michael S. Willner
--------------------------
Michael S. Willner
President and Chief Executive Officer
Insight Communications Company, Inc.
(Principal Executive Officer)
By: /s/ Kim D. Kelly
--------------------
Kim D. Kelly
Executive Vice President, Chief Financial
and Operating Officer
Insight Communications Company, Inc.
Principal Financial and Accounting Officer)
34