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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 September 30, 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 No.)
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 registrant (1) has 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
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
---
Indicate the number of shares outstanding of each of the issuer's
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
================================================================================
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the requirements of Form 10-Q and, therefore, do not include
all information and footnotes required by accounting principles generally
accepted in the United States. However, in our opinion, all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the results of operations for the relevant periods have been made. Results for
the interim periods are not necessarily indicative of the results to be expected
for the year. These financial statements should be read in conjunction with the
summary of significant accounting policies and the notes to the consolidated
financial statements included in our Annual Report on Form 10-K as amended for
the year ended December 31, 2000.
1
COAXIAL LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2001 2000
-------------- -------------
(unaudited) (Note 2)
Assets
Investments $ 14,720 $ 18,800
Dividends receivable 1,750 5,250
------------- -------------
Total current assets 16,470 24,050
Intangible assets, net 4,005 4,578
Investment in affiliate 184,201 180,281
Note receivable - Coaxial DJM LLC 6,750 6,750
Note receivable - Coaxial DSM LLC 3,000 3,000
Due from related parties 4,794 3,466
------------- -------------
Total assets $ 219,220 $ 222,125
============= =============
Liabilities and members' equity
Accrued interest $ 1,750 $ 5,250
------------- -------------
Total current liabilities 1,750 5,250
Senior discount notes 44,201 40,281
Senior notes 140,000 140,000
------------- -------------
Total liabilities 185,951 185,531
Commitments and contingencies
Members' equity:
In-substance distribution of proceeds related to senior notes to be
paid by Phoenix Associates (70,263) (80,819)
Members' accumulated equity 106,312 116,113
Accumulated other comprehensive income (loss) (2,780) 1,300
------------- -------------
Total members' equity 33,269 36,594
------------- -------------
Total liabilities and members' equity $ 219,220 $ 222,125
============= =============
2
COAXIAL LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months Nine months
ended September 30, ended September 30,
2001 2000 2001 2000
--------- -------- --------- ---------
Revenue $ -- $ 4,150 $ -- $ 28,096
Operating costs and expenses:
Selling, general and administrative -- 2,613 -- 17,431
Depreciation and amortization 191 1,114 573 6,375
--------- --------- --------- ---------
Total operating costs and expenses 191 3,727 573 23,806
Operating income (loss) (191) 423 (573) 4,290
Other income (expense):
Interest income - related parties 456 390 1,328 1,134
Interest income -- 6 -- 50
Interest expense (4,848) (4,898) (14,420) (14,935)
Dividend on preferred interests 4,848 3,131 14,420 3,131
Other -- (9) -- 31
--------- --------- --------- ---------
Total other income (expense), net 456 (1,380) 1,328 (10,589)
Gain on sale of common equity interest -- 164,360 -- 164,360
--------- --------- --------- ---------
Net income $ 265 $ 163,403 $ 755 $ 158,061
========= ========= ========= =========
See accompanying notes
3
COAXIAL LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine months
ended September 30,
2001 2000
---------------------- ---------------------
Operating activities:
Net income $ 755 $ 158,061
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Gain on sale of common equity interest -- (164,360)
Provision for losses on trade accounts receivable -- 367
Depreciation and amortization 573 6,375
Interest expense paid by affiliate 7,917 7,917
Dividend on preferred interest (14,420) (3,131)
Accretion of original issue discount on Senior Discount Notes 3,920 3,488
Changes in operating assets and liabilities:
Trade accounts receivable -- (516)
Prepaid expenses and other assets -- 113
Accounts payable and accrued expenses (861) (258)
Due from related parties (1,328) (832)
---------------------- ---------------------
Net cash provided by (used in) operating activities (3,444) 7,224
---------------------- ---------------------
Investing activities:
Purchase of property and equipment -- (19,943)
Decrease in cash upon sale of common equity interest -- (3,604)
Purchase of intangible assets -- (3)
---------------------- ---------------------
Net cash used in investing activities -- (23,550)
---------------------- ---------------------
Financing activities:
Capital distributions (10,556) (10,556)
Proceeds from dividend on preferred interests 14,000 12,000
Borrowings under senior credit facility -- 14,000
---------------------- ---------------------
Net cash provided by financing activities 3,444 15,444
---------------------- ---------------------
Net increase in cash and cash equivalents -- (882)
Cash and cash equivalents, beginning of period -- 882
---------------------- ---------------------
Cash and cash equivalents, end of period $ -- $ --
====================== =====================
See accompanying notes
4
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 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 as amended for the year
ended December 31, 2000.
5
COAXIAL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and nine months ended September 30, 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 Loss
Comprehensive loss totaled $5.8 million and $3.3 million for the three months
and nine months ended September 30, 2001. The Company owns common stock that is
classified as available-for-sale and reported at market value, with unrealized
gains and losses recorded as accumulated other comprehensive income or loss in
the accompanying balance sheets.
6
COAXIAL FINANCING CORP.
BALANCE SHEETS
(in thousands)
September 30, December 31,
2001 2000
---------------------- ----------------------
(unaudited) (Note 2)
Assets
Cash $ 1 $ 1
Deferred financing costs, net 932 1,034
---------------------- ----------------------
Total assets $ 933 $ 1,035
====================== ======================
Liabilities and shareholders' deficit
Senior discount notes $ 44,201 $ 40,281
Shareholders' deficit:
Common stock; $.01 par value; 1,000 shares authorized, issued and
outstanding - -
Paid-in-capital 1 1
In-substance distribution of proceeds related to senior discount notes
to be paid by Coaxial LLC (28,646) (28,646)
Accumulated deficit (14,623) (10,601)
---------------------- ----------------------
Total shareholders' deficit (43,268) (39,246)
---------------------- ----------------------
Total liabilities and shareholders' deficit $ 933 $ 1,035
====================== ======================
See accompanying notes
7
COAXIAL FINANCING CORP.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months Nine months
ended September 30, ended September 30,
2001 2000 2001 2000
----------------- ------------------ ------------------ ------------------
Expenses:
Amortization $ (34) $ (34) $ (102) $ (102)
Interest (1,348) (1,190) (3,920) (3,462)
----------------- ------------------ ------------------ ------------------
Net loss $ (1,382) $ (1,224) $ (4,022) $ (3,564)
================= ================== ================== ==================
See accompanying notes
8
COAXIAL FINANCING CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine months
ended September 30,
2001 2000
----------------------- -----------------------
Cash flows from operating activities:
Net loss $ (4,022) $ (3,564)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of deferred financing costs 102 102
Accretion of original issue discount on senior discount notes
assumed by affiliate 3,920 3,462
----------------------- -----------------------
Net cash provided by operating activities - -
----------------------- -----------------------
Net increase in cash - -
Cash, beginning of period 1 1
----------------------- -----------------------
Cash, end of period $ 1 $ 1
======================= =======================
See accompanying notes
9
COAXIAL FINANCING CORP.
NOTES TO FINANCIAL STATEMENTS
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 as amended 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 12 7/8% per
annum and is payable semi-annually.
The Senior Discount Notes are non-recourse, secured by all of the common stock
of 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.
10
COAXIAL FINANCING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Notes Payable (continued)
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. Although the Company is a co-issuer of the Senior
Discount Notes, it has no substantial assets or any operations and will not have
access to additional sources of cash flow to make any payments on such debt.
11
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
BALANCE SHEETS
(in thousands)
September 30, December 31,
2001 2000
----------------------- -----------------------
(unaudited) (Note 2)
Assets
Investments $ 14,720 $ 18,800
Dividends receivable 1,750 5,250
----------------------- -----------------------
Total current assets 16,470 24,050
Intangible assets, net 3,072 3,543
Investment in affiliate 184,201 180,281
----------------------- -----------------------
Total assets $ 203,743 $ 207,874
======================= =======================
Liabilities and shareholders' equity
Accounts payable and accrued expenses $ 1,750 $ 5,250
----------------------- -----------------------
Total current liabilities 1,750 5,250
Senior notes 140,000 140,000
----------------------- -----------------------
Total liabilities 141,750 145,250
Commitments and contingencies
Shareholders' equity:
Common stock; $1 par value; 2,000 shares authorized; 1,080 shares issued
and outstanding as of September 30, 2001 and December 31, 2000 1 1
Paid-in-capital 11,501 11,501
In-substance distribution of proceeds related to senior notes to be
paid by Phoenix Associates (70,263) (80,819)
Retained earnings 123,534 130,641
Accumulated other comprehensive income (loss) (2,780) 1,300
----------------------- -----------------------
Total shareholders' equity 61,993 62,624
----------------------- -----------------------
Total liabilities and shareholders' equity $ 203,743 $ 207,874
======================= =======================
See accompanying notes
12
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months Nine months
ended September 30, ended September 30,
2001 2000 2001 2000
---------------- ---------------- ---------------- ----------------
Revenue $ - $ 4,150 $ - $ 28,096
Operating costs and expenses:
Selling, general and administrative - 2,613 - 17,431
Depreciation and amortization 157 1,088 471 6,297
---------------- ---------------- ---------------- ----------------
Total operating costs and expenses 157 3,701 471 23,728
Operating income (loss) (157) 449 (471) 4,368
Other income (expense):
Interest income - 6 - 50
Interest expense (3,500) (3,699) (10,500) (11,447)
Dividend on preferred interests 4,848 3,131 14,420 3,131
Other - (9) - 31
---------------- ---------------- ---------------- ----------------
Total other income (expense), net 1,348 (571) 3,920 (8,235)
Gain on sale of common equity interest - 164,360 - 164,360
---------------- ---------------- ---------------- ----------------
Net income $ 1,191 $ 164,238 $ 3,449 $ 160,493
================ ================ ================ ================
See accompanying notes
13
Nine months
ended September 30,
2001 2000
----------------- -----------------
Operating activities:
Net income $ 3,449 $ 160,493
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Gain on sale of common equity interest - (164,360)
Provision for losses on trade accounts receivable - 367
Depreciation and amortization 471 6,297
Interest expense paid by affiliate 7,917 7,917
Dividend on preferred interest (14,420) (3,131)
Changes in operating assets and liabilities:
Trade accounts receivable - (516)
Prepaid expenses and other current assets - 113
Accounts payable and accrued expenses (861) (258)
Due from related parties - 302
----------------- -----------------
Net cash provided by (used in) operating activities (3,444) 7,224
----------------- -----------------
Investing activities:
Purchase of property and equipment - (19,943)
Decrease in cash upon sale of common equity interest - (3,604)
Increase in intangible assets - (3)
----------------- -----------------
Net cash used in investing activities - (23,550)
----------------- -----------------
Financing activities:
Capital distributions (10,556) (10,556)
Proceeds from dividend on preferred interests 14,000 12,000
Borrowings under senior credit facility - 14,000
----------------- -----------------
Net cash provided by financing activities 3,444 15,444
----------------- -----------------
Net decrease in cash and cash equivalents - (882)
Cash and cash equivalents, beginning of period - 882
----------------- -----------------
Cash and cash equivalents, end of period $ - $ -
================= =================
See accompanying notes
14
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, the Company 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 dependent 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 as amended for the year
ended December 31, 2000.
15
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 and nine months ended September 30, 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 Loss
Comprehensive loss totaled $4.8 million and $631,000 for the three and nine
months ended September 30, 2001. There were no components of comprehensive loss
for the three and nine months ended September 30, 2000. The Company owns common
stock that is classified as available-for-sale and reported at market value,
with unrealized gains and losses recorded as accumulated other comprehensive
income or loss in the accompanying balance sheets.
16
PHOENIX ASSOCIATES
BALANCE SHEETS
(in thousands)
September 30, December 31,
2001 2000
------------- --------------
unaudited) (Note 2)
Assets
Interest receivable $ 490 $ 373
--------- ---------
Total current assets 490 373
Due from related parties 406 406
Notes receivable - related parties 550 550
Deferred financing costs, net 3,072 3,543
--------- ---------
Total assets $ 4,518 $ 4,872
========= =========
Liabilities and partners' deficit
Interest payable $ 1,750 $ 5,250
--------- ---------
Total current liabilities 1,750 5,250
Notes payable 140,000 140,000
--------- ---------
Total liabilities 141,750 145,250
Commitments and contingencies
Partners' deficit:
In-substance distribution of proceeds related to senior notes to
be paid by Coaxial Communications of Central Ohio, Inc. (22,877) (26,321)
Partners' accumulated deficit (114,355) (114,057)
--------- ---------
Total partners' deficit (137,232) (140,378)
--------- ---------
Total liabilities and partners' deficit $ 4,518 $ 4,872
========= =========
See accompanying notes
17
PHOENIX ASSOCIATES
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months Nine months
ended September 30, ended September 30,
2001 2000 2001 2000
-------- -------- -------- --------
Expenses:
Amortization $ (157) $ (157) $ (471) $ (471)
Interest income (expense):
Interest income-related parties 39 39 117 117
Interest expense (3,500) (3,500) (10,500) (10,500)
-------- -------- -------- --------
Total interest expense, net (3,461) (3,461) (10,383) (10,383)
-------- -------- -------- --------
Net loss $ (3,618) $ (3,618) $(10,854) $(10,854)
======== ======== ======== ========
See accompanying notes
18
PHOENIX ASSOCIATES
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine months
ended September 30,
2001 2000
-------- --------
Operating activities:
Net loss $(10,854) $(10,854)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of deferred financing fees 471 471
Interest expense paid by affiliate 3,444 3,444
Changes in operating assets and liabilities:
Interest receivable (117) (117)
Interest payable (3,500) (3,500)
-------- --------
Net cash used in operating activities (10,556) (10,556)
-------- --------
Financing activities:
Capital contributions 10,556 10,556
-------- --------
Net cash provided by financing activities 10,556 10,556
-------- --------
Net change in cash -- --
Cash, beginning of period -- --
-------- --------
Cash, end of period $ -- $ --
======== ========
See accompanying notes
19
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 dependent on the financial and operating performance of Insight Ohio. The
required distributions on the Series B preferred equity interest to Coaxial and
ultimately 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 as
amended 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 and nine months ended September 30, 2001 are
not necessarily indicative of the results to be expected for the year ending
December 31, 2001 or any other interim period.
20
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
BALANCE SHEETS
(in thousands)
September 30, December 31,
2001 2000
------------- -------------
(unaudited) (Note 2)
Assets
Cash and cash equivalents $ 869 $ 1,169
Trade accounts receivable, net of allowance for
doubtful accounts of $105 and $390 as of September
30, 2001 and December 31, 2000, respectively 2,929 2,782
Launch funds receivable 544 1,936
Prepaid expenses and other assets 1,142 437
--------- ---------
Total current assets 5,484 6,324
Fixed assets, net 87,636 76,587
Intangible assets, net 496 448
--------- ---------
Total assets $ 93,616 $ 83,359
========= =========
Liabilities and members' deficit
Accounts payable $ 4,823 $ 5,679
Accrued expenses and other liabilities 1,794 1,383
Accrued programming costs 2,806 3,014
Deferred revenue 437 545
Interest payable 230 786
Debt 1,875 --
Preferred interest distribution payable 1,750 5,250
Due to affiliates 4,077 1,502
--------- ---------
Total current liabilities 17,792 18,159
Deferred revenue 1,871 2,005
Debt 23,125 25,000
--------- ---------
Total liabilities 42,788 45,164
Commitments and contingencies
Preferred interests 184,201 180,281
Members' deficit (133,373) (142,086)
--------- ---------
Total liabilities and members' deficit $ 93,616 $ 83,359
========= =========
See accompanying notes
21
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months Nine months
ended September 30, ended September 30,
2001 2000 2001 2000
------------------ ------------------ ----------------- ----------------
Revenue $ 13,891 $ 12,435 $ 40,992 $ 36,381
Operating costs and expenses:
Programming and other operating costs 6,021 4,963 16,700 14,603
Selling, general and administrative 2,653 2,466 7,937 6,915
Management fees 415 374 1,229 1,103
Depreciation and amortization 3,317 2,863 9,027 7,756
------------------ ------------------ ----------------- ----------------
Total operating costs and expenses 12,406 10,666 34,893 30,377
Operating income 1,485 1,769 6,099 6,004
Other income (expense):
Interest expense (430) (633) (1,350) (1,381)
Interest income 6 27 47 71
Other 18 (5) (162) 35
------------------ ------------------ ----------------- ----------------
Total other expense, net (406) (611) (1,465) (1,275)
Net income 1,079 1,158 4,634 4,729
Accrual of preferred interests (4,848) (4,699) (14,421) (13,988)
------------------ ------------------ ----------------- ----------------
Net loss attributable to common interests $ (3,769) $ (3,541) $ (9,787) $ (9,259)
================== ================== ================= ================
See accompanying notes
22
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine months
ended September 30,
2001 2000
---------------- ----------------
Operating activities:
Net income $ 4,634 $ 4,729
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 9,027 7,756
Provision for losses on trade accounts receivable 1,017 588
Changes in operating assets and liabilities:
Trade accounts receivable (1,164) (978)
Launch funds receivable 1,392 228
Prepaid expenses and other assets (705) (118)
Accounts payable (856) 1,085
Accrued expenses and other liabilities 1,980 (30)
---------------- ----------------
Net cash provided by operating activities 15,325 13,260
---------------- ----------------
Investing activities:
Purchase of property and equipment (20,125) (27,851)
Purchase of intangible assets - (47)
---------------- ----------------
Net cash used in investing activities (20,125) (27,898)
---------------- ----------------
Financing activities:
Principal payments on capital lease obligations - (53)
Capital contributions 18,500 19,400
Preferred interest distribution (14,000) (14,000)
Borrowings under senior credit facility - 14,000
---------------- ----------------
Net cash provided by financing activities 4,500 19,347
---------------- ----------------
Net increase in cash and cash equivalents (300) 4,709
Cash and cash equivalents, beginning of period 1,169 882
---------------- ----------------
Cash and cash equivalents, end of period $ 869 $ 5,591
================ ================
See accompanying notes
23
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS
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 as
amended 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 and nine months ended September
30, 2001 are not necessarily indicative of the results to be expected for the
year ending December 31, 2001 or any other interim period.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
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 cable 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 85,400
customers served by the Company and including systems which Insight LP purchased
from the AT&T cable subsidiaries. At the same time, Insight Midwest acquired
from the AT&T cable subsidiaries systems serving approximately 250,000
customers.
24
3. Cable System Transactions (continued)
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.
4. Commitments and Contingencies
Litigation
The Company is subject to various legal proceedings that arise in the ordinary
course of business. While it is impossible to determine with certainty the
ultimate outcome of these matters, it is management's opinion that the
resolution of these matters will not have a material adverse affect on the
Company's consolidated financial condition.
5. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Other intangible assets will continue to be
amortized over their useful lives. The Company is currently reviewing the impact
of these standards and will be performing a fair value analysis at a later date
in connection with the adoption of SFAS No. 142 on January 1, 2002.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
effective for fiscal years beginning after December 15, 2001. SFAS No. 144
supersedes SFAS No. 121 and identifies the methods to be used in determining
fair value. We are currently reviewing the impact of this standard and will be
performing an analysis at a later date in connection with the adoption of SFAS
No. 144 on January 1, 2002.
25
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 the management of Coaxial LLC,
Coaxial Financing Corp. and Insight Ohio believes 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:
. 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;
. 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 Preferred Interests, thereby reducing the funds
available to the System for its operations and future business
opportunities;
. 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
. 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.
Management of Coaxial LLC, Coaxial Financing Corp. and Insight Ohio does not
intend to update these forward-looking statements.
26
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 and nine months ended September 30, 2001 compared to the three months and
nine months ended September 30, 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 LP 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 and the Senior Notes, Insight LP is entitled to receive
management fees of 3.0% of gross operating revenues of the System. Such
management fees are payable only after distributions have been made with respect
to the Preferred Interests and only to the extent that such payments 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.
Recent Developments
On January 5, 2001, Insight Midwest, L.P., a partnership 50% owned by Insight LP
and 50% by an indirect subsidiary of AT&T Broadband, LLC, which is a subsidiary
of AT&T Corp., through a series of transactions acquired all of Insight LP's
wholly-owned systems serving approximately 280,000 customers, including the
approximately 85,400 customers served by Insight Ohio and including systems
which Insight LP purchased from the AT&T cable subsidiaries. At the same time,
Insight Midwest acquired from the AT&T cable subsidiaries systems serving
approximately 250,000 customers. Insight Ohio is an unrestricted subsidiary
under the indentures governing Insight LP's and Insight Midwest's senior notes
and 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 and manages
and operates the Insight Midwest systems, including Insight Ohio.
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 subsidiary under the indentures of
Insight Midwest. Insight Ohio's conditional guarantee of the Senior Notes
remains in place.
27
Results of Operations
Substantially all of the System's revenue was 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, the System
earns revenue 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 Nine months
ended September 30, ended September 30,
2001 2000 2001 2000
-------------- ------------- --------------- -------------
(in thousands) (in thousands)
Revenue $ 13,891 $ 12,435 $ 40,992 $ 36,381
Operating costs and expenses:
Programming and other operating costs 6,021 4,963 16,700 14,603
Selling, general and administrative 2,653 2,466 7,937 6,915
Management fees 415 374 1,229 1,103
Depreciation and amortization 3,317 2,863 9,027 7,756
-------------- ------------- --------------- -------------
Total operating costs and expenses 12,406 10,666 34,893 30,377
-------------- ------------- --------------- -------------
Operating income 1,485 1,769 6,099 6,004
Interest expense (430) (633) (1,350) (1,381)
Net income 1,079 1,158 4,634 4,729
Net cash provided by operating activities 2,507 4,600 15,325 13,260
Net cash used in investing activities 7,380 12,167 20,125 27,898
Net cash provided by financing activities 3,118 7,388 4,500 19,347
28
Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000
Revenue for the three months ended September 30, 2001 increased $1.5 million or
11.7% to $13.9 million from $12.4 million for the three months ended September
30, 2000. For the three months ended September 30, 2001, customers served
averaged approximately 85,800 compared to approximately 84,500 during the three
months ended September 30, 2000. The increase in revenue was primarily
attributable to new product launches, specifically digital services and
high-speed data services.
Revenue by service offering was as follows for the three months ended September
30 (in thousands):
2001 2000
Revenue Revenue
by by
Service % of Total by Service % of Total
Offering Revenue Offering Revenue
---------- ---------- ----------- -----------
Basic $ 7,271 52.4% $ 6,891 55.4%
Premium 1,636 11.8% 1,725 13.9%
Pay-per-view 267 1.9% 363 2.9%
Digital 985 7.1% 505 4.1%
Advertising sales 1,024 7.4% 1,067 8.6%
Data services 1,256 9.0% 312 2.5%
Other 1,452 10.4% 1,572 12.6%
---------- ---------- ----------- -----------
Total $ 13,891 100.0% $ 12,435 100.0%
========== ========== =========== ===========
RGUs (Revenue Generating Units) were approximately 117,100 as of September 30,
2001 compared to approximately 97,300 as of September 30, 2000. This represents
an annualized growth rate of 20.3%. RGUs represent the sum of basic and digital
video, high-speed data and telephone customers.
Average monthly revenue per basic customer for the three months ended September
30, 2001 was $53.94 compared to $49.07 for the three months ended September 30,
2000. Average monthly revenue per basic customer for digital and high-speed data
services was $8.70 for the three months ended September 30, 2001 compared to
$3.22 for the three months ended September 30, 2000. As of September 30, 2001,
there were approximately 21,200 digital customers representing a 33.4%
penetration (digital customers as a percentage of total customers with access to
digital service). High-speed data services were launched during the three months
ended September 30, 2000. As of September 30, 2001, there were approximately
10,100 cable modem customers compared to 2,900 cable modem customers as of
September 30, 2000, respectively, representing a penetration (modem customers as
a percentage of homes passed with access to high-speed data services) of 6.8%
and 4.0%, respectively.
Programming and other operating costs increased $1.1 million or 21.3% to $6.0
million for the three months ended September 30, 2001 from $5.0 million for the
three months ended September 30, 2000. The increase was primarily attributable
to increased programming rates associated with digital services.
Selling, general and administrative expenses increased $187,000 or 7.6% to $2.7
million for the three months ended September 30, 2001 from $2.5 million for the
three months ended September 30, 2000.
29
The increase was primarily attributable to increased marketing activity and
corporate expenses associated with advertising sales.
Depreciation and amortization expense for the three months ended September 30,
2001 increased $454,000 or 15.9% to $3.3 million from $2.9 million for the three
months ended September 30, 2000. This increase was primarily attributable to
increased capital expenditures associated with the rebuild of systems from
earlier in the year.
Interest expense for the three months ended September 30, 2001 decreased
$203,000 or 32.1% to $430,000 from $633,000 for the three months ended September
30, 2000. This decrease was primarily attributable to lower interest rates on
outstanding borrowings.
30
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000
Revenue for the nine months ended September 30, 2001 increased $4.6 million or
12.7% to $41.0 million compared to $36.4 million for the nine months ended
September 30, 2000. For the nine months ended September 30, 2001, customers
served averaged approximately 85,800 compared to approximately 84,400 during the
nine months ended September 30, 2000. The increase in revenue was primarily
attributable to new product launches, specifically digital services and
high-speed data services.
Revenue by service offering was as follows for the nine months ended September
30 (in thousands):
2001 2000
Revenue Revenue
by by
Service % of Total Service % of Total
Offering Revenue Offering Revenue
-----------------------------------------------
Basic $ 21,616 52.7% $ 20,475 56.3%
Premium 5,109 12.5% 5,190 14.3%
Pay-per-view 900 2.2% 1,325 3.6%
Digital 2,840 6.9% 950 2.6%
Advertising sales 3,059 7.5% 3,338 9.2%
Data services 3,057 7.4% 408 1.1%
Other 4,411 10.8% 4,695 12.9%
----------------------------------------------
Total $ 40,992 100.0% $ 36,381 100.0%
===============================================
RGUs were approximately 117,100 as of September 30, 2001 compared to
approximately 97,300 as of September 30, 2000. This represents an annualized
growth rate of 20.3%.
Average monthly revenue per basic customer for the nine months ended September
30, 2001 was $53.11 compared to $47.85 for the nine months ended September 30,
2000. Average monthly revenue per basic customer for digital and high-speed data
services was $7.64 for the nine months ended September 30, 2001 compared to
$1.79 for the nine months ended September 30, 2000. As of September 30, 2001,
there were approximately 21,200 digital customers representing a 33.4%
penetration. High-speed data services were launched during the three months
ended September 30, 2000. As of September 30, 2001, there were approximately
10,100 cable modem customers compared to 2,900 cable modem customers as of
September 30, 2000, respectively, representing a penetration (modem customers as
a percentage of homes passed with access to high-speed data services) of 6.8%
and 4.0%, respectively.
Programming and other operating costs increased $2.1 million or 14.4% to $16.7
million for the nine months ended September 30, 2001 from $14.6 million for the
nine months ended September 30, 2000. The increase was primarily attributable to
increased programming rates associated with the digital services.
Selling, general and administrative expenses increased $1.0 million or 14.8% to
$7.9 million for the nine months ended September 30, 2001 from $6.9 million for
the nine months ended September 30, 2000. The increase was primarily
attributable to increased marketing activity and corporate expenses
31
associated with advertising sales.
Depreciation and amortization expense for the nine months ended September 30,
2001 increased $1.3 million or 16.4% to $9.0 million from $7.8 million for the
nine months ended September 30, 2000. This increase was primarily attributable
to increased capital expenditures associated with the rebuild of systems from
earlier in the year.
Interest expense of $1.4 million for the nine months ended September 30, 2001
remained relatively flat compared to September 30, 2000. This was primarily
attributable to lower interest rates on outstanding borrowings offset by a
higher average outstanding borrowings balance.
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 $20.1 million for the nine months
ended September 30, 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 plant to
allow two-way transmission and the installation of digital equipment.
Capital expenditures are expected to approximate $25.5 million during the year
ending 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 two-way transmission, which is necessary to
facilitate the deployment of interactive services.
Cash provided by operations for the nine months ended September 30, 2001 and
2000 was $15.3 million and $13.3 million, respectively. The increase was
primarily attributable to timing changes in working capital accounts.
Cash used in investing activities for the nine months ended September 30, 2001
and 2000 was $20.1 million and $27.9 million, respectively, reflecting capital
expenditures to upgrade the System and build plant expansions.
Cash provided by financing activities for the nine months ended September 30,
2001 was $4.5 million. This was comprised of capital contributions of $18.5
million, less distributions on preferred interests of $14.0 million. Cash
provided by financing activities for the nine months ended September 30, 2000
was $19.3 million consisting of borrowings under the Senior Credit Facility of
$14.0 million and capital contributions of $19.4 million, less distributions on
preferred interests of $14.0 million. The $25.0 million Senior Credit Facility
was fully borrowed as of September 30, 2001.
32
Due to the increased rebuild costs, management determined that 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 $18.5 million to Insight
Ohio during the nine months ended September 30, 2001.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Other intangible assets will continue to be
amortized over their useful lives. The Company is currently reviewing the impact
of these standards and will be performing a fair value analysis at a later date
in connection with the adoption of SFAS No. 142 on January 1, 2002.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
effective for fiscal years beginning after December 15, 2001. SFAS No. 144
supersedes SFAS No. 121 and identifies the methods to be used in determining
fair value. We are currently reviewing the impact of this standard and will be
performing an analysis at a later date in connection with the adoption of SFAS
No. 144 on January 1, 2002.
33
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 September 30, 2001
was $41.7 million and $44.2 million, respectively. The fair value and carrying
value of the Senior Notes as of September 30, 2001 was $137.0 million and $140.0
million, respectively.
34
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
35
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.
Dated: November 13, 2001 Coaxial LLC
(Registrant)
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)
36
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.
Dated: November 13, 2001 Coaxial Financing Corp.
(Registrant)
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)
37
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.
Dated: November 13, 2001 Insight Communications of Central Ohio, LLC
(Registrant)
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)
38