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, 2002
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 for the year
ended December 31, 2001.
1
COAXIAL LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2002 2001
---------- ----------
(unaudited)
Assets
Investments $ 16,760 $ 19,328
Dividends receivable 1,750 5,250
---------- ----------
Total current assets 18,510 24,578
Deferred financing costs, net 3,623 3,814
Investment in affiliate 187,168 185,713
Note receivable - Coaxial DJM LLC 6,750 6,750
Note receivable - Coaxial DSM LLC 3,000 3,000
Interest receivable on notes 5,760 5,272
---------- ----------
Total assets $ 224,811 $ 229,127
========== ==========
Liabilities and members' equity
Accrued interest $ 1,750 $ 5,250
---------- ----------
Total current liabilities 1,750 5,250
Senior discount notes 47,168 45,713
Senior notes, including $105.6 million to be paid by
Phoenix Associates 140,000 140,000
---------- ----------
Total liabilities 188,918 190,963
Commitments and contingencies
Members' equity:
In-substance allocation of proceeds related to senior notes
to be paid by Phoenix Associates (64,985) (70,263)
Members' accumulated equity 101,618 106,599
Accumulated other comprehensive income (loss) (740) 1,828
---------- ----------
Total members' equity 35,893 38,164
---------- ----------
Total liabilities and members' equity $ 224,811 $ 229,127
========== ==========
See accompanying notes
2
COAXIAL LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months ended March 31,
2002 2001
---------- ----------
Expenses:
Amortization $ 191 $ 191
Other income (expense):
Interest income - related parties 488 430
Interest expense (4,955) (4,766)
Dividend on preferred interests 4,955 4,766
---------- ----------
Total other income, net 488 430
---------- ----------
Net income $ 297 $ 239
========== ==========
See accompanying notes
3
COAXIAL LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended March 31,
2002 2001
------------- -----------
Operating activities:
Net income $ 297 $ 239
Adjustments to reconcile net income to net cash used in
operating activities:
Amortization 191 191
Interest expense paid by affiliate 2,639 2,639
Dividend on preferred interest (4,955) (4,766)
Accretion of original issue discount on Senior Discount
Notes 1,455 1,266
Changes in operating assets and liabilities:
Accrued interest (861) (861)
Due from related parties (488) (430)
----------- -----------
Net cash used in operating activities (1,722) (1,722)
----------- -----------
Financing activities:
Capital distributions (5,278) (5,278)
Proceeds from dividend on preferred interests 7,000 7,000
----------- -----------
Net cash provided by financing activities 1,722 1,722
----------- -----------
Net change in cash and cash equivalents - -
Cash and cash equivalents, beginning of period - -
----------- -----------
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.
In connection with the contribution of Coaxial's cable system ("the System")
described below and with the issuance of the Senior Notes and Senior Discount
Notes by Coaxial and 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, which owns 67 1/2% of Coaxial's outstanding stock.
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 Notes and Senior Discount Notes,
respectively.
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, 2001.
5
COAXIAL LLC
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, 2002 are not necessarily
indicative of the results to be expected for the year ending December 31, 2002
or any other interim period.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Senior Discount Notes was $46.2 million and $42.6 million
as of March 31, 2002 and December 31, 2001, respectively. The fair value of the
Senior Notes was $141.9 million and $143.5 million as of March 31, 2002 and
December 31, 2001, respectively.
4. COMPREHENSIVE INCOME AND LOSS
Comprehensive income (loss) totaled ($2.3) million and $2.6 million for the
three months ended March 31, 2002 and 2001, respectively. 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)
March 31, December 31,
2002 2001
---------- -----------
(unaudited)
Assets
Cash $ 1 $ 1
Deferred financing costs, net 864 898
--------- ----------
Total assets $ 865 $ 899
========= ==========
Liabilities and shareholders' deficit
Senior discount notes, to be paid by Coaxial LLC $ 47,168 $ 45,713
Shareholders' deficit:
Common stock; $.01 par value; 1,000 shares authorized,
issued and outstanding - -
Paid-in-capital 1 1
In-substance allocation of proceeds related to senior
discount notes to be paid by Coaxial LLC (28,646) (28,646)
Accumulated deficit (17,658) (16,169)
--------- ----------
Total shareholders' deficit (46,303) (44,814)
--------- ----------
Total liabilities and shareholders' deficit $ 865 $ 899
========= ==========
See accompanying notes
7
COAXIAL FINANCING CORP.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months ended March 31,
2002 2001
---- ----
Expenses:
Amortization $ (34) $ (34)
Interest (1,455) (1,266)
---------- ----------
Net loss $ (1,489) $ (1,300)
========== ==========
See accompanying notes
8
COAXIAL FINANCING CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended March 31,
2002 2001
---- ----
Cash flows from operating activities:
Net loss $ (1,489) $ (1,300)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization of deferred financing costs 34 34
Accretion of original issue discount on senior
discount notes assumed by affiliate 1,455 1,266
--------- ---------
Net cash provided by operating activities - -
--------- ---------
Net change 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 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 with Coaxial LLC, a
related entity, of discount notes 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, 2001.
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. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Senior Discount Notes was $46.2 million and $42.6 million
as of March 31, 2002 and December 31, 2001, respectively.
10
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
BALANCE SHEETS
(in thousands)
March 31, December 31,
2002 2001
---------------------------------
(unaudited)
Assets
Investments $ 16,760 $ 19,328
Dividend receivable 1,750 5,250
---------------------------------
Total current assets 18,510 24,578
Deferred financing costs, net 2,758 2,915
Investment in affiliate 187,168 185,713
---------------------------------
Total assets $ 208,436 $ 213,206
=================================
Liabilities and shareholders' equity
Accrued interest $ 1,750 $ 5,250
---------------------------------
Total current liabilities 1,750 5,250
Senior notes, including $105.6 million to be paid by Phoenix Associates 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 March 31, 2002 and December 31, 2001 1 1
Paid in capital 11,501 11,501
In-substance allocation of proceeds related to senior notes to be paid by
Phoenix Associates (64,985) (70,263)
Retained earnings 120,909 124,889
Accumulated other comprehensive income (loss) (740) 1,828
---------------------------------
Total shareholders' equity 66,686 67,956
---------------------------------
Total liabilities and shareholders' equity $ 208,436 $ 213,206
=================================
See accompanying notes
11
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months ended March 31,
2002 2001
--------------------------------------
Expenses:
Amortization $ 157 $ 157
Other income (expense):
Interest expense (3,500) (3,500)
Dividend on preferred interests 4,955 4,766
--------------------------------------
Total other income, net 1,455 1,266
--------------------------------------
Net income $ 1,298 $ 1,109
======================================
See accompanying notes
12
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended March 31,
2002 2001
----------------------------
Operating activities:
Net income $ 1,298 $ 1,109
Adjustments to reconcile net income to net cash used in operating
activities:
Amortization 157 157
Interest expense paid by affiliate 2,639 2,639
Dividend on preferred interest (4,955) (4,766)
Changes in operating assets and liabilities:
Accrued interest (861) (861)
----------------------------
Net cash used in operating activities (1,722) (1,722)
----------------------------
Financing activities:
Capital distributions (5,278) (5,278)
Proceeds from dividend on preferred interest 7,000 7,000
----------------------------
Net cash provided by financing activities 1,722 1,722
----------------------------
Net change in cash and cash equivalents - -
Cash and cash equivalents, beginning of period - -
----------------------------
Cash and cash equivalents, end of period $ - $ -
============================
See accompanying notes
13
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO 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 A 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 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, 2001.
14
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO 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, 2002 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2002 or any other interim period.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Senior Notes was $141.9 million and $143.5 million as of
March 31, 2002 and December 31, 2001, respectively.
4. COMPREHENSIVE INCOME AND LOSS
Comprehensive income (loss) totaled ($1.3) million and $3.5 million for the
three months ended March 31, 2002 and 2001, respectively. 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.
15
PHOENIX ASSOCIATES
BALANCE SHEETS
(in thousands)
March 31, December 31,
2002 2001
-----------------------------
(unaudited)
Assets
Interest receivable $ 570 $ 531
Notes receivable - related parties 550 550
-----------------------------
Total current assets 1,120 1,081
Due from related party 406 406
Deferred financing costs, net 2,758 2,915
-----------------------------
Total assets $ 4,284 $ 4,402
=============================
Liabilities and partners' deficit
Interest payable $ 1,750 $ 5,250
-----------------------------
Total current liabilities 1,750 5,250
Senior notes, including $34.4 million to be paid by
Coaxial Communications of Central Ohio, Inc. 140,000 140,000
-----------------------------
Total liabilities 141,750 145,250
Commitments and contingencies
Partners' deficit:
In-substance allocation of proceeds related to senior
notes to be paid by Coaxial Communications of Central Ohio, Inc. (21,155) (22,877)
Partners' accumulated deficit (116,311) (117,971)
-----------------------------
Total partners' deficit (137,466) (140,848)
-----------------------------
Total liabilities and partners' deficit $ 4,284 $ 4,402
=============================
See accompanying notes
16
PHOENIX ASSOCIATES
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months ended March 31,
2002 2001
---------- ----------
Expenses:
Amortization $ (157) $ (157)
Interest income (expense):
Interest income-related parties 39 39
Interest expense (3,500) (3,500)
---------- ----------
Total interest expense, net (3,461) (3,461)
---------- ----------
Net loss $ (3,618) $ (3,618)
========== ==========
See accompanying notes
17
PHOENIX ASSOCIATES
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended March 31,
2002 2001
----------- ------------
Operating activities:
Net loss $ (3,618) $ (3,618)
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization 157 157
Interest expense assumed by affiliate 861 861
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 change in cash - -
Cash, beginning of period - -
----------- ------------
Cash, end of period $ - $ -
=========== ============
See accompanying notes
18
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 A 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
for the year ended December 31, 2001.
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, 2002 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2002 or any other interim period.
19
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (continued)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Senior Notes was $141.9 million and $143.5 million as of
March 31, 2002 and December 31, 2001, respectively.
20
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
BALANCE SHEETS
(in thousands)
March 31, December 31,
2002 2001
--------------------------------
(unaudited)
Assets
Cash and cash equivalents $ 5,249 $ 2,158
Trade accounts receivable, net of allowance for doubtful
accounts of $177 and $158 as of March 31, 2002 and
December 31, 2001, respectively 2,105 2,599
Launch funds receivable 1,181 1,327
Prepaid expenses and other assets 428 401
-----------------------------
Total current assets 8,963 6,485
Fixed assets, net 92,787 91,673
Intangible assets, net 529 499
-----------------------------
Total assets $ 102,279 $ 98,657
=============================
Liabilities and members' deficit
Accounts payable $ 4,306 $ 5,689
Accrued expenses and other liabilities 1,771 1,321
Accrued property taxes 437 10
Accrued programming costs 2,192 2,194
Deferred revenue 1,054 1,219
Debt, current portion 1,250 -
Interest payable 170 232
Preferred interest distribution payable 1,750 5,250
Due to affiliates 5,807 5,890
-----------------------------
Total current liabilities 18,737 21,805
Deferred revenue 928 1,559
Debt 23,750 25,000
-----------------------------
Total liabilities 43,415 48,364
Commitments and contingencies
Preferred interests 187,168 185,713
Members' deficit (128,304) (135,420)
-----------------------------
Total liabilities and members' deficit $ 102,279 $ 98,657
=============================
See accompanying notes
21
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months ended March 31,
2002 2001
------------- --------------
Revenue $ 15,040 $ 13,491
Operating costs and expenses:
Programming and other operating costs 5,680 5,096
Selling, general and administrative 2,989 2,902
Management fees 439 396
Depreciation and amortization 3,680 2,720
------------- --------------
Total operating costs and expenses 12,788 11,114
Operating income 2,252 2,377
Other income (expense):
Interest expense (211) (502)
Interest income 2 15
Other 28 24
-------------- --------------
Total other expense, net (181) (463)
Net income 2,071 1,914
Accrual of preferred interests (4,955) (4,766)
-------------- --------------
Net loss attributable to common interests $ (2,884) $ (2,852)
============== ==============
See accompanying notes
22
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended March 31,
2002 2001
----------- ------------
Operating activities:
Net income $ 2,071 $ 1,914
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,680 2,720
Provision for losses on trade accounts receivable 303 306
Changes in operating assets and liabilities:
Trade accounts receivable 191 562
Launch funds receivable 146 266
Prepaid expenses and other assets (27) (164)
Accounts payable and accrued expenses (1,449) (3,184)
------------ ------------
Net cash provided by operating activities 4,915 2,420
------------ ------------
Investing activities:
Purchase of property and equipment (4,784) (3,505)
Purchase of intangible assets (40) -
------------ ------------
Net cash used in investing activities (4,824) (3,505)
------------ ------------
Financing activities:
Capital contributions 10,000 8,382
Preferred interest distribution (7,000) (7,000)
------------ ------------
Net cash provided by financing activities 3,000 1,382
------------ ------------
Net increase in cash and cash equivalents 3,091 297
Cash and cash equivalents, beginning of period 2,158 1,169
------------ ------------
Cash and cash equivalents, end of period $ 5,249 $ 1,466
============ ============
See accompanying notes
23
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS CONTINUED
1. BUSINESS ORGANIZATION AND PURPOSE
Insight Communications of Central Ohio, LLC (the "Company") is a subsidiary of
Insight Holdings of Ohio, LLC which owns 100% of its common equity, which is a
wholly owned subsidiary of Insight Midwest, L.P. ("Insight Midwest"). Insight
Midwest is equally owned by Insight Communications Company L.P. ("Insight LP")
and AT&T Broadband. Insight LP, as general partner and manager of Insight
Midwest, manages and operates the Company's systems. 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, 2001.
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, 2002 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2002 or any other interim period.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
3. ACCOUNTING FOR FRANCHISE FEES
The Company has historically recorded reimbursements of franchise fees from
customers as an offset to franchise fee expense included as a component of
selling, general and administrative expense. In November 2001, the Financial
Accounting Standards Board concluded that reimbursements received by a vendor
from a customer should be reflected as revenues and not as a reduction of
expenses. On March 12, 2002, the Securities Exchange Commission staff concluded
that as a result of this guidance, it expected all cable television companies
to present franchise fees in their statements of operations in this manner.
Consequently, beginning January 1, 2002, the Company has presented
reimbursements of
24
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS CONTINUED
3. ACCOUNTING FOR FRANCHISE FEES (continued)
franchise fees as revenues and franchise fee payments as expenses in the
accompanying statements of operations. Additionally, the Company has adjusted
the prior period amounts to reflect such presentation. The effect on the prior
period statement of operations was to increase both revenue and selling,
general and administrative costs by $379,000.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which became effective for the Company
beginning January 1, 2002. SFAS No. 144 supersedes FASB Statement No. 121,
"Accounting for the Impairment or Disposal of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions relating to the disposal of a segment of a business of Accounting
Principles Board Opinion No. 30. The adoption of SFAS No. 144 had no impact on
the Company's consolidated financial position or results of operations.
5. COMMITMENTS AND CONTINGENCIES
PROGRAMMING CONTRACTS
The Company enters into long-term contracts with third parties who provide
programming for distribution over the Company's cable television systems. These
programming contracts are a significant part of our business and represent a
substantial portion of our operating costs. Since future fees under such
contracts are based on numerous variables, including number and type of
customers, the Company has not recorded any liabilities with respect to such
contracts.
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 the Company's future results of operations or
financial position.
25
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS CONTINUED
6. RELATED PARTY TRANSACTIONS
MANAGEMENT FEES
The Company pays Insight LP management fees of approximately 3% of its revenue
to serve as manager of the Company's cable systems. Fees under this operating
agreement were $439,000 and $396,000 for the three months ended March 31, 2002
and 2001, respectively.
PROGAMMING
The Company purchases substantially all of its pay television and other
programming from affiliates of AT&T Broadband. Charges for such programming
were $1.7 million and $1.9 million for the three months ended March 31, 2002
and 2001. As of March 31, 2002 and December 31, 2001, $1.1 million and $1.6
million of accrued programming costs were due to affiliates of AT&T Broadband.
The Company believes that the programming rates charged by the affiliates of
AT&T Broadband are lower than those available from independent parties.
26
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 that 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"), Coaxial Financing
Corp. and Insight Ohio (collectively, the "Companies") 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 the Companies, and
reflect future business decisions that are subject to change. Although the
management of the Companies 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 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 and Coaxial Financing Corp. have no significant
assets other than Coaxial's ownership of the common equity of Coaxial
Communications of Central Ohio, Inc. ("Coaxial Inc.") and notes issued by
Coaxial DJM LLC (an owner of 22.5% of the common equity of Coaxial Inc.)
and Coaxial DSM LLC (an owner of 10% of the common equity of Coaxial Inc.)
to Coaxial; and
... the fact that the indenture governing the terms of the Senior Discount Notes
imposes restrictions on Coaxial, Coaxial Financing Corp. and Insight Ohio and
the Senior Credit Facility of the System imposes restrictions on Insight
Ohio.
Management of the Companies does not intend to update these forward-looking
statements.
Coaxial 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.
27
The following discussion relates to the operations of the System for the three
months ended March 31, 2002 compared to the three months ended March 31, 2001.
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 and Senior Discount Notes, Insight LP
receives management fees of approximately 3.0% of gross operating revenue 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 Senior Discount Notes as well as Insight Ohio's Senior
Credit Facility.
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 Company has historically recorded reimbursements of franchise fees from
customers as an offset to franchise fee expense included as a component of
selling, general and administrative expense. In November 2001, the Financial
Accounting Standards Board concluded that reimbursements received by a vendor
from a customer should be reflected as revenues and not as a reduction of
expenses. On March 12, 2002, the Securities Exchange Commission staff concluded
that as a result of this guidance, it expected all cable television companies
to present franchise fees in their statements of operations in this manner.
Consequently, beginning January 1, 2002, the Company has presented
reimbursements of franchise fees as revenues and franchise fee payments as
expenses in the accompanying statements of operations. Additionally, the
Company has adjusted the prior period amounts to reflect such presentation. The
effect on the prior period statement of operations was to increase both revenue
and selling, general and administrative costs by $379,000.
28
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,
2002 2001
------------- --------------
(in thousands)
Revenue $ 15,040 $ 13,491
Operating costs and expenses:
Programming and other operating costs 5,680 5,096
Selling, general and administrative 2,989 2,902
Management fees 439 396
Depreciation and amortization 3,680 2,720
------------- --------------
Total operating costs and expenses 12,788 11,114
------------- --------------
Operating income 2,252 2,377
EBITDA 5,960 5,121
Interest expense 211 502
Net income 2,071 1,914
Net cash provided by operating activities 4,915 2,420
Net cash used in investing activities 4,824 3,505
Net cash provided by financing activities 3,000 1,382
EBITDA represents earnings before interest, taxes, depreciation and
amortization. Our management believes that EBITDA is commonly used in the cable
television industry to analyze and compare cable television companies on the
basis of operating performance, leverage and liquidity. However, EBITDA is not
intended to be a performance measure that should be regarded as an alternative
to, or more meaningful than, either operating income or net income as an
indicator of operating performance or cash flows as a measure of liquidity, as
determined in accordance with accounting principles generally accepted in the
United States. EBITDA, as computed by management, is not necessarily comparable
to similarly titled amounts of other companies. Refer to our financial
statements, including our statements of cash flows, which appear elsewhere in
this report.
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Revenue for the three months ended March 31, 2002 increased $1.5 million or
11.5% to $15.0 million from $13.5 million for the three months ended March 31,
2001. For the three months ended March 31, 2002, customers served averaged
approximately 86,800 compared to approximately 85,700 during the three months
ended March 31, 2001. The increase in revenue was primarily attributable to
gains in our high-speed and digital services with revenue increases quarter
over quarter of 120.0% and 33.7%. In addition, our basic cable service
increased $382,000 or 5.4% primarily due to basic cable rate increases that
took effect in the second quarter of 2001 and continued customer growth during
the quarter.
29
Revenue by service offering was as follows for the three months ended March 31,
(in thousands):
2002 Revenue 2001 Revenue
by Service % of Total by Service % of Total
Offering Revenue Offering Revenue
----------- ------------ --------------- ----------
Basic $ 7,519 50.0% $ 7,137 52.9%
Premium 1,607 10.7% 1,732 12.8%
Pay-per-view 162 1.1% 292 2.2%
Digital 1,190 7.9% 890 6.6%
Advertising sales 1,071 7.1% 831 6.2%
Data services 1,594 10.6% 725 5.4%
Franchise fees 399 2.7% 379 2.8%
Other 1,498 9.9% 1,505 11.1%
----------- ------------ ------------- ----------
Total $ 15,040 100.0% $ 13,491 100.0%
=========== ============ ============= ==========
RGUs (Revenue Generating Units) were approximately 127,800 as of March 31, 2002
compared to approximately 111,300 as of March 31, 2001. This represents an
annual growth rate of 14.8%. 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 March 31,
2002 was $57.76 compared to $52.49 for the three months ended March 31, 2001.
Average monthly revenue per basic customer for digital and high-speed data
services was $10.69 for the three months ended March 31, 2002 compared to $6.28
for the three months ended March 31, 2001. As of March 31, 2002, there were
approximately 26,000 digital customers compared to approximately 17,900 digital
customers as of March 31, 2001, representing a penetration of 33.9% and 28.7%,
respectively. As of March 31, 2002, there were approximately 14,100 high-speed
data customers compared to approximately 7,500 high-speed data customers as of
March 31, 2001, representing a penetration of 8.3% and 5.2%, respectively.
Programming and other operating costs increased $584,000 or 11.5% to $5.7
million for the three months ended March 31, 2002 from $5.1 million for the
three months ended March 31, 2001. The increase was primarily attributable to
increased programming rates associated with the Company's classic service and
an increase in property taxes offset by decreases in costs related to digital
and high-speed data services.
Selling, general and administrative expenses remained relatively flat from the
prior year quarter. The increase of $87,000 or 3.0% to $3.0 million for the
three months ended March 31, 2002 from $2.9 million for the three months ended
March 31, 2001 was primarily attributable to increased corporate overhead
expenses during the quarter.
Management fees are directly related to revenue as these fees are calculated as
approximately 3% of gross revenues.
30
Depreciation and amortization expense for the three months ended March 31, 2002
increased $960,000 or 35.3% to $3.7 million from $2.7 million for the three
months ended March 31, 2001. This increase was primarily attributable to
increased capital expenditures associated with the rebuild of plant and launch
of new services.
EBITDA increased 16.4% to $6.0 million for the three months ended March 31,
2002 from $5.1 million for the three months ended March 31, 2001. This increase
was primarily due to the 11.5% increase in revenue.
Interest expense for the three months ended March 31, 2002 decreased $291,000
or 58.0% to $211,000 from $502,000 for the three months ended March 31, 2001.
This decrease was primarily attributable to lower interest rates.
For the three months ended March 31, 2002, the net income was $2.1 million
primarily for the reasons set forth above.
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 $4.8 million for the three months
ended March 31, 2002. These expenditures were primarily for the upgrade of the
System and plant expansions. Capital expenditures were financed by cash flows
from operations and capital contributions.
Cash provided by operations for the three months ended March 31, 2002 and 2001
was $4.9 million and $2.4 million, respectively. The increase was primarily
attributable to the timing of cash receipts and payments related to working
capital accounts.
Cash used in investing activities for the three months ended March 31, 2002 and
2001 was $4.8 million and $3.5 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, 2002
was $3.0 million. This was comprised of capital contributions from Insight
Midwest of $10.0 million offset by distributions on preferred interests of $7.0
million. Cash provided by financing activities for the three months ended March
31, 2001 was $1.4 million consisting of capital contributions of $8.4 million,
less distributions on preferred interests of $7.0 million.
The Senior Credit Facility contains covenants restricting, among other things,
the Company's ability to make capital expenditures, acquire or dispose of
assets, make investments and engage in transactions with related parties. The
facility also requires compliance with certain financial ratios and contains
customary events of default. Given current operating conditions and projected
results of operations, we anticipate full compliance with this credit facility
agreement for the foreseeable future.
31
The following summarizes our contractual obligations as of March 31, 2002,
including periods in which the related payments are due:
2003 2005
2002 to 2004 to 2006 Thereafter Total
----------------------------------------------------------------
Long-term debt $ - $ 25,000 $ - $ - $ 25,000
Operating leases 48 25 16 193 282
Preferred interests 7,000 35,193 175,387 66,659 284,239
----------------------------------------------------------------
Total cash obligations $ 7,048 $ 60,218 $ 175,403 $ 66,852 $ 309,521
================================================================
Due to the increased capital expenditures, management determined that cash
flows from operations will 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, 2002. Insight Midwest contributed $10.0 million to
Insight Ohio during the three months ended March 31, 2002.
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companies 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 them to market risk, interest rate, foreign currency exchange,
commodity price or equity price risk. The Companies have not entered into
forward or future contracts, purchased options or entered into swap agreements.
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 projected annual interest
expense by $250,000. The Senior Notes and Senior Discount Notes bear 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 Notes and Senior Discount Notes as of
March 31, 2002 was $141.9 million and $140.0 million and $46.2 million and
$47.2 million, respectively.
33
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 First Amendment, dated as of June 30, 2000, to the Revolving
Credit Agreement
10.2 Second Amendment, dated as of June 30, 2000, to the Revolving
Credit Agreement
10.3 Third Amendment, dated as of March 4, 2002, to the Revolving
Credit Agreement
(b) Reports on Form 8-K:
None
34
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: May 15, 2002 Coaxial LLC
(Registrant)
By: /s/ Dinesh C. Jain
----------------------
Dinesh C. Jain
Senior Vice President and Chief
Financial Officer
Insight Communications Company, Inc.
(Principal Financial Officer)
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: May 15, 2002 Coaxial Financing Corp.
(Registrant)
By: /s/ Dinesh C. Jain
----------------------
Dinesh C. Jain
Senior Vice President and Chief
Financial Officer
Insight Communications Company, Inc.
(Principal Financial 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: May 15, 2002 Insight Communications of Central Ohio, LLC
(Registrant)
By: /s/ Dinesh C Jain
---------------------
Dinesh C Jain
Senior Vice President and Chief
Financial Officer
Insight Communications Company, Inc.
(Principal Financial Officer)
37