================================================================================
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 June 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
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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)
June 30, December 31,
2001 2000
--------------- ----------------
(unaudited) (restated)
(Notes 2 and 3)
Assets
Investments $ 20,760 $ 18,800
Dividends receivable 5,250 5,250
-------- --------
Total current assets 26,010 24,050
Intangible assets, net 4,196 4,578
Investment in affiliate 182,853 180,281
Note receivable - Coaxial DJM LLC 6,750 6,750
Note receivable - Coaxial DSM LLC 3,000 3,000
Due from related parties 4,338 3,466
-------- --------
Total assets $227,147 $222,125
======== ========
Liabilities and members' equity
Accrued interest $ 5,250 $ 5,250
-------- --------
Total current liabilities 5,250 5,250
Senior discount notes 42,853 40,281
Senior notes 140,000 140,000
-------- --------
Total liabilities 188,103 185,531
Commitments and contingencies
Members' equity:
In-substance distribution of proceeds related to senior
notes to be paid by Phoenix Associates (75,541) (80,819)
Members' accumulated equity 111,325 116,113
Accumulated other comprehensive income 3,260 1,300
-------- --------
Total members' equity 39,044 36,594
-------- --------
Total liabilities and members' equity $227,147 $222,125
======== ========
See accompanying notes
2
COAXIAL LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months Six months
ended June 30, ended June 30,
2001 2000 2001 2000
------------- -------------- ----------- --------------
(restated) (restated)
Revenue $ - $12,411 $ - $ 23,946
Operating costs and expenses:
Selling, general and administrative - 7,375 - 14,818
Depreciation and amortization 191 2,843 382 5,261
------- ------- ------- --------
Total operating costs and expenses 191 10,218 382 20,079
Operating income (loss) (191) 2,193 (382) 3,867
Other income (expense):
Interest income related parties 442 378 872 744
Interest income - 26 - 44
Interest expense (4,806) (5,089) (9,572) (10,037)
Dividend on preferred interests 4,806 - 9,572 -
Other - 11 - 40
------- ------- ------- --------
Total other income (expense), net 442 (4,674) 872 (9,209)
------- ------- ------- --------
Net income (loss) $ 251 $(2,481) $ 490 $ (5,342)
======= ======= ======= ========
See accompanying notes
3
COAXIAL LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six months
ended June 30,
2001 2000
----------- ------------
(restated)
Operating activities:
Net income (loss) $ 490 $ (5,342)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Provision for losses on trade accounts receivable - 255
Depreciation and amortization 382 5,261
Interest expense paid by affiliate 5,278 5,278
Dividend on preferred interest (9,572) -
Accretion of original issue discount on Senior Discount Notes 2,572 2,289
Changes in operating assets and liabilities:
Trade accounts receivable - (344)
Prepaid expenses and other assets - (37)
Accounts payable and accrued expenses - (150)
Due from related parties (872) (272)
----------- ----------
Net cash provided by (used in) operating activities (1,722) 6,938
----------- ----------
Investing activities:
Purchase of property and equipment - (15,728)
Purchase of intangible assets - (3)
----------- ----------
Net cash used in investing activities - (15,731)
----------- ----------
Financing activities:
Principal payments on capital lease obligations - (41)
Capital distributions (5,278) (5,278)
Capital contributions - 5,000
Proceeds from dividend on preferred interests 7,000 -
Borrowings under senior credit facility - 14,000
----------- ----------
Net cash provided by financing activities 1,722 13,681
----------- ----------
Net increase in cash and cash equivalents - 4,888
Cash and cash equivalents, beginning of period - 882
----------- ----------
Cash and cash equivalents, end of period $ - $ 5,770
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,722 $ 2,313
Supplemental disclosure of significant non-cash financing
activities:
In-substance contribution related to senior notes $ 5,278 $ 5,278
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. Restatement
The accompanying 2000 financial statements have been adjusted to reflect the
full amount of the Senior Notes, deferred financing costs and related interest
expense for all periods presented. The effect of the restatement was to
increase total assets by $2.7 million, to increase total liabilities by $109.6
million and to decrease equity by $106.8 million, representing the net in-
substance distribution related to the Senior Notes which were received by
Phoenix, as of December 31, 2000. Additionally, this restatement decreased net
income by $2.8 million and $5.6 million for the three months and six months
ended June 30, 2000, respectively.
5
COAXIAL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. 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.
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 six months ended June 30, 2001 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2001 or any other interim period.
4. Comprehensive Income
Comprehensive income (loss) totaled $(189,000) and $2.5 million for the three
and six months ended June 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)
June 30, December 31,
2001 2000
----------------- --------------
(unaudited) (restated)
(Notes 2 and 3)
Assets
Cash $ 1 $ 1
Deferred financing costs, net 966 1,034
-------- --------
Total assets $ 967 $ 1,035
======== ========
Liabilities and shareholders' deficit
Senior discount notes $ 42,853 $ 40,281
Shareholders' deficit:
Common stock; $.01 par value; 1,000 shares authorized,
issued and outstanding - -
Additional 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 (13,241) (10,601)
-------- --------
Total shareholders' deficit (41,886) (39,246)
-------- --------
Total liabilities and shareholders' deficit $ 967 $ 1,035
======== ========
7
COAXIAL FINANCING CORP.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months Six months
ended June 30, ended June 30,
2001 2000 2001 2000
---------- ------------ ----------- ------------
(restated) (restated)
Expenses:
Amortization $ (34) $ (34) $ (68) $ (68)
Interest expense (1,306) (1,154) (2,572) (2,272)
------- ------- ------- -------
Net loss $(1,340) $(1,188) $(2,640) $(2,340)
======= ======= ======= =======
See accompanying notes
8
COAXIAL FINANCING CORP.
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six months
ended June 30,
2001 2000
------------------ -------------------
(restated)
Cash flows from operating activities:
Net loss $ (2,640) $ (2,340)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization of deferred financing costs 68 68
Accretion of original issue discount on senior
discount notes assumed by affiliate 2,572 2,272
-------------------- -------------------
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 4, 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. Restatement
The accompanying 2000 financial statements have been adjusted to reflect the
full amount of the Senior Discount Notes, the proceeds of which were received by
Coaxial LLC in 1998 (Note 4), deferred financing costs and related interest
expense for all periods presented. The effect of the restatement was to
increase total assets by $1.0 million, to increase total liabilities by $40.3
million and to decrease equity by $39.2 million, representing the net in-
substance distribution related to the Senior Discount Notes, as of December 31,
2000. Additionally, as a result of the restatement, the Company recorded a net
loss of $1.2 million and $2.3 million for the three months and six months ended
June 30, 2001, respectively. Prior to the restatement, no statements of
operations were presented.
3. 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.
10
COAXIAL FINANCING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. 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.
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)
June 30, December 31,
2001 2000
-------------- --------------
(unaudited) (restated)
(Notes 2 and 3)
Assets
Investments $ 20,760 $ 18,800
Dividends receivable 5,250 5,250
-------------- --------------
Total current assets 26,010 24,050
Intangible assets, net 3,229 3,543
Investment in affiliate 182,853 180,281
------------- --------------
Total assets $ 212,092 $ 207,874
============== ==============
Liabilities and shareholders' equity
Accounts payable and accrued expenses $ 5,250 $ 5,250
-------------- --------------
Total current liabilities 5,250 5,250
Senior notes 140,000 140,000
-------------- --------------
Total liabilities 145,250 145,250
Commitments and contingencies
Shareholders' equity:
Common stock; $1 par value; 2,000 shares authorized;
1,080 shares issued and outstanding as of March 31,
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 (75,541) (80,819)
Retained earnings 127,621 130,641
Accumulated other comprehensive income 3,260 1,300
-------------- --------------
Total shareholders' equity 66,842 62,624
-------------- --------------
Total liabilities and shareholders' equity $ 212,092 $ 207,874
============== ==============
See accompanying notes
12
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months Six months
ended June 30, ended June 30,
2001 2000 2001 2000
------------- ------------- ------------ --------------
(restated) (restated)
Revenue $ - $ 12,411 $ - $ 23,946
Operating costs and expenses:
Selling, general and administrative - 7,375 - 14,818
Depreciation and amortization 157 2,817 314 5,209
------------- ------------- ------------ --------------
Total operating costs and expenses 157 10,192 314 20,027
Operating (loss) income (157) 2,219 (314) 3,919
Other income (expense):
Interest income - 26 - 44
Interest expense (3,500) (3,927) (7,000) (7,748)
Dividend on preferred interests 4,806 - 9,572 -
Other - 11 - 40
------------- ------------- ------------ --------------
Total other income (expense), net 1,306 (3,890) 2,572 (7,664)
------------- ------------- ------------ --------------
Net income (loss) $ 1,149 $ (1,671) $ 2,258 $ (3,745)
============= ============= ============ ==============
See accompanying notes
13
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six months
ended June 30,
2001 2000
------------ -------------
(restated)
Operating activities:
Net income (loss) $ 2,258 $ (3,745)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for losses on trade accounts receivable - 255
Depreciation and amortization 314 5,209
Interest expense paid by affiliate 5,278 5,278
Dividend on preferred interest (9,572) -
Changes in operating assets and liabilities:
Trade accounts receivable - (344)
Prepaid expenses and other current assets - (37)
Accounts payable and accrued expenses - (150)
Due from related parties - 472
------------ -------------
Net cash provided by (used in) operating activities (1,722) 6,938
------------ -------------
Investing activities:
Purchase of property and equipment - (15,728)
Increase in intangible assets - (3)
------------ -------------
Net cash used in investing activities - (15,731)
------------ -------------
Financing activities:
Principal payments on capital lease obligations - (41)
Capital distributions (5,278) (5,278)
Capital contributions - 5,000
Proceeds from dividend on preferred interests 7,000 -
Borrowings under senior credit facility - 14,000
------------ -------------
Net cash provided by financing activities 1,722 13,681
------------ -------------
Net increase in cash and cash equivalents - 4,888
Cash and cash equivalents, beginning of period - 882
------------ -------------
Cash and cash equivalents, end of period $ - $ 5,770
============ =============
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 1,722 $ 2,313
Supplemental disclosure of significant non-cash
financing activities:
In-substance contribution related to senior notes $ 5,278 $ 5,278
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, Coaxial owned 100% of the voting
interest in Insight Ohio and therefore consolidated the financial statements of
Insight Ohio for periods prior to such date. In connection with the
contribution of the Company's cable system (the "System"), the issuance of the
Senior Notes and the issuance of the Senior Discount Notes by the Company's
majority shareholder, Coaxial LLC, during 1998 the three individuals who
previously owned the outstanding stock of the Company contributed their stock to
three separate limited liability companies. Accordingly, the Company is a
subsidiary of Coaxial LLC, which owns 67 1/2% of its outstanding stock.
Other related entities affiliated with the Company in addition to Coaxial LLC,
include Coaxial DJM LLC, Coaxial DSM LLC, (collectively, the "Coaxial
Entities"), Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial
Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial
Associates of Columbus II, Paxton Cable Television, Inc. and Paxton
Communications, Inc.
The Company and Phoenix are co-issuers of the Senior Notes. The ability of the
Company and Phoenix to make scheduled payments with respect to the Senior Notes
is 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. Restatement
The accompanying 2000 financial statements have been adjusted to reflect the
full amount of the Senior Notes, deferred financing costs and related interest
expense for all periods presented. The effect of the restatement was to
increase total assets by $2.7 million, to increase total liabilities by $109.5
million and to decrease equity by $106.8 million, representing the net in-
substance distribution related to the Senior Notes which were received by
Phoenix, as of December 31, 2000. Additionally, this restatement decreased net
income by $2.8 million and $5.6 million for the three months and six months
ended June 30, 2000, respectively.
15
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. 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.
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 six months ended June 30, 2001 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2001 or any other interim period.
4. Comprehensive Income
Comprehensive income totaled $709,000 and $4.2 million for the three and six
months ended June 30, 2001. There were no components of comprehensive income
for the three and six months ended June 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)
June 30, December 31,
2001 2000
----------------- -----------------
(unaudited) (restated)
(Notes 2 and 3)
Assets
Interest receivable $ 451 $ 373
----------------- ----------------
Total current assets 451 373
Due from related parties 406 406
Notes receivable - related parties 550 550
Deferred financing costs, net 3,229 3,543
----------------- ----------------
Total assets $ 4,636 $ 4,872
================= ================
Liabilities and partners' deficit
Interest payable $ 5,250 $ 5,250
----------------- ----------------
Total current liabilities 5,250 5,250
Notes payable 140,000 140,000
----------------- ----------------
Total liabilities 145,250 145,250
Commitments and contingencies
Partners' deficit:
In-substance distribution of proceeds related to
senior notes to be paid by Coaxial Communications of
Central Ohio, Inc. (24,599) (26,321)
Partners' accumulated deficit (116,015) (114,057)
----------------- ----------------
Total partners' deficit (140,614) (140,378)
----------------- ----------------
Total liabilities and partners' deficit $ 4,636 $ 4,872
================= ================
See accompanying notes
17
PHOENIX ASSOCIATES
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months Six months
ended June 30, ended June 30,
2001 2000 2001 2000
-------- ---------- ---------- ----------
(restated) (restated)
Expenses:
Amortization $ (157) $ (157) $ (314) $ (314)
Interest income (expense):
Interest income-related parties 39 39 78 78
Interest expense (3,500) (3,500) (7,000) (7,000)
-------- --------- ---------- ----------
Total interest expense, net (3,461) (3,461) (6,922) (6,922)
-------- --------- ---------- ----------
Net loss $ (3,618) $ (3,618) $ (7,236) $ (7,236)
======== ========= ========== ==========
See accompanying notes
18
PHOENIX ASSOCIATES
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six months
ended June 30,
2001 2000
---------- ----------
(restated)
Operating activities:
Net loss $(7,236) $(7,236)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred financing fees 314 314
Interest expense paid by affiliate 1,722 1,722
Changes in operating assets and liabilities:
Interest receivable (78) (78)
Interest payable - -
-------- --------
Net cash used in operating activities (5,278) (5,278)
-------- --------
Financing activities:
Capital contributions 5,278 5,278
-------- --------
Net cash provided by financing activities 5,278 5,278
-------- --------
Net decrease in cash - -
Cash, beginning of period - -
-------- --------
Cash, end of period $ - $ -
-------- --------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,278 $ 5,278
Supplemental disclosure of significant non-cash
financing activities:
In-substance contribution related to senior notes $ 1,722 $ 1,722
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. Restatement
The accompanying 2000 financial statements have been adjusted to reflect the
full amount of the Senior Notes, deferred financing costs and related interest
expense for all periods presented. The effect of the restatement was to
increase total assets by $864,000, to increase total liabilities by $35.7
million and to decrease equity by $34.9 million, representing the net in-
substance distribution related to the Senior Notes received by Coaxial, as of
December 31, 2000. Additionally, this restatement increased the net loss by
$900,000 and $1.8 million for the three months and six months ended June 30,
2000, respectively.
20
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. 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 six months ended June 30, 2001
are not necessarily indicative of the results to be expected for the year ending
December 31, 2001 or any other interim period.
21
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
BALANCE SHEETS
(in thousands)
June 30, December 31,
2001 2000
----------------- -----------------
(unaudited) (Note 2)
Assets
Cash and cash equivalents $ 2,624 $ 1,169
Trade accounts receivable, net of allowance for doubtful
accounts of $163 and $390 as of June 30, 2001 and
December 31, 2000, respectively 2,378 2,782
Launch funds receivable 778 1,936
Prepaid expenses and other assets 514 437
---------- ----------
Total current assets 6,294 6,324
Fixed assets, net 83,616 76,587
Intangible assets, net 454 448
---------- ----------
Total assets $ 90,364 $ 83,359
========== ==========
Liabilities and members' deficit
Accounts payable $ 1,643 $ 5,679
Accrued expenses and other liabilities 1,489 1,364
Due to bank 3,334 -
Accrued property taxes 438 19
Accrued programming costs 3,188 3,014
Deferred revenue 530 545
Interest payable 205 786
Preferred interest distribution payable 5,250 5,250
Due to affiliates 4,284 1,502
--------- ---------
Total current liabilities 20,361 18,159
Deferred revenue 1,871 2,005
Debt 25,000 25,000
--------- ---------
Total liabilities 47,232 45,164
Commitments and contingencies
Preferred interests 182,854 180,281
Members' deficit (139,722) (142,086)
--------- ---------
Total liabilities and members' deficit $ 90,364 $ 83,359
========= =========
See accompanying notes
22
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
Three months Six months
ended June 30, ended June 30,
2001 2000 2001 2000
---------------- ---------------- ---------------- --------------------
Revenue $ 13,990 $ 12,411 $ 27,101 $ 23,946
Operating costs and expenses:
Programming and other operating costs 4,794 4,323 9,885 8,858
Selling, general and administrative 3,551 2,675 6,078 5,231
Management fees 418 377 814 729
Depreciation and amortization 2,990 2,659 5,710 4,893
----------- ---------- ----------- ----------
Total operating costs and expenses 11,753 10,034 22,487 19,711
Operating income 2,237 2,377 4,614 4,235
Other income (expense):
Interest expense (418) (427) (920) (748)
Interest income 26 26 41 44
Other (204) 11 (180) 40
----------- ---------- ----------- ----------
Total other expense, net (596) (390) (1,059) (664)
Net income 1,641 1,987 3,555 3,571
Accrual of preferred interests (4,807) (4,662) (9,573) (9,289)
----------- ---------- ----------- ----------
Net loss attributable to common interests $ (3,166) $ (2,675) $ (6,018) $ (5,718)
=========== ========== =========== ==========
See accompanying notes
23
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six months
ended June 30,
2001 2000
---------------- ----------------
Operating activities:
Net income $ 3,555 $ 3,571
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,710 4,893
Provision for losses on trade accounts receivable 530 255
Changes in operating assets and liabilities:
Trade accounts receivable (126) (344)
Launch funds receivable 1,158 64
Prepaid expenses and other assets (77) (101)
Accounts payable (4,036) 283
Accrued expenses and other liabilities 6,104 39
---------------- ----------------
Net cash provided by operating activities 12,818 8,660
---------------- ----------------
Investing activities:
Purchase of property and equipment (12,745) (15,728)
Purchase of intangible assets - (3)
---------------- ----------------
Net cash used in investing activities (12,745) (15,731)
---------------- ----------------
Financing activities:
Principal payments on capital lease obligations - (41)
Capital contributions 8,382 5,000
Preferred interest distribution (7,000) (7,000)
Borrowings under senior credit facility - 14,000
---------------- ----------------
Net cash provided by financing activities 1,382 11,959
---------------- ----------------
Net increase in cash and cash equivalents 1,455 4,888
Cash and cash equivalents, beginning of period 1,169 882
---------------- ----------------
Cash and cash equivalents, end of period $ 2,624 $ 5,770
================ ================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,502 $ 591
Cash paid for income taxes - 93
See accompanying notes
24
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 six months ended June 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 2000 amounts have been reclassified to conform to the 2001 presentation.
25
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
3. Cable System Transactions
On January 5, 2001, Insight Midwest, L.P. ("Insight Midwest"), a 50-50
partnership between Insight LP and an indirect subsidiary of AT&T Broadband,
LLC, completed a series of transactions with Insight LP and certain subsidiaries
of AT&T Corp. (the .AT&T 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.
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.
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 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.
27
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 six months ended June 30, 2001 compared to the three months and six
months ended June 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, the Senior Notes and the Senior Discount Notes, Insight LP is
entitled to receive management fees of 3.0% of gross operating revenues of the
System. Such management 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.
28
Insight Ohio's conditional guarantee of the Senior Notes and the Senior Discount
Notes remains in place. If at any time the Senior Notes or the Senior Discount
Notes are repaid or significantly modified, or in any case after August 15,
2008, the principals of the Coaxial Entities may require Insight to purchase
their preferred interests for a purchase price equal to the difference, if any,
of $32.6 million less the then market value of the 800,000 shares of Insight
common stock issued on August 8, 2000.
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 Six months
ended June 30, ended June 30,
2001 2000 2001 2000
-------------- -------------- -------------- --------------
(in thousands) (in thousands)
Revenue $13,990 $12,411 $27,101 $23,946
Operating costs and expenses:
Programming and other operating costs 4,794 4,323 9,885 8,858
Selling, general and administrative 3,551 2,675 6,078 5,231
Management fees 418 377 814 729
Depreciation and amortization 2,990 2,659 5,710 4,893
-------------- -------------- -------------- --------------
Total operating costs and expenses 11,753 10,034 22,487 19,711
-------------- -------------- -------------- --------------
Operating income 2,237 2,377 4,614 4,235
Interest expense (418) (427) (920) (748)
Net income 1,641 1,987 3,555 3,571
Net cash provided by operating activities 10,398 2,181 12,818 8,660
Net cash used in investing activities 9,240 8,812 12,745 15,731
Net cash provided by financing activities - 9,959 1,382 11,959
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
Revenue for the three months ended June 30, 2001 increased $1.6 million or 12.7%
to $14.0 million from $12.4 million for the three months ended June 30, 2000.
For the three months ended June 30, 2001, customers served averaged
approximately 85,900 compared to approximately 84,200 during the three months
ended June 30, 2000. The increase in revenue was primarily attributable to new
product launches, specifically digital services and high-speed data services.
As of June 30, 2001, there were approximately 19,700 digital customers
representing a 31.3% penetration (digital customers as a percentage of total
customers with access to digital service). Digital
29
revenue for the three months ended June 30, 2001 was approximately $978,000,
(including approximately $449,000 for video on demand service) compared to
$334,000 for the three months ended June 30, 2000. High-speed data services were
launched during the three months ended June 30, 2000. As of June 30, 2001, there
were approximately 9,000 cable modem customers, a penetration of 6.1% (modem
customers as a percentage of homes passed with access to high-speed data
services). Revenue from high-speed data services was approximately $1.1 million
for the three months ended June 30, 2001 compared to $96,000 for the three
months ended June 30, 2000. Revenue by service offering was as follows for the
three months ended June 30 (in thousands):
2001 2000
Revenue Revenue
by % of by % of
Service Total Service Total
Offering Revenue Offering Revenue
---------- --------- ---------- ---------
Basic $ 7,208 51.5% $ 6,876 55.4%
Premium 1,741 12.4% 1,771 14.3%
Pay-per-view 341 2.4% 532 4.3%
Digital 978 7.0% 334 2.7%
Advertising sales 1,204 8.6% 1,238 10.0%
Data services 1,075 7.7% 96 0.8%
Other 1,443 10.4% 1,564 12.5%
---------- --------- ---------- ---------
Total $13,990 100% $12,411 100%
========== ========= ========== =========
RGUs (Revenue Generating Units) were approximately 114,500 as of June 30, 2001
compared to approximately 93,500 as of June 30, 2000. This represents an
annualized growth rate of 22.5%. 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 June 30,
2001 was $54.30 compared to $49.11 for the three months ended June 30, 2000.
Average monthly revenue per basic customer for digital and high-speed data
services was $7.97 for the three months ended June 30, 2001 compared to $1.70
for the three months ended June 30, 2000. The number of high-speed data service
customers increased to approximately 9,000 as of June 30, 2001 from
approximately 1,900 as of June 30, 2000, while digital customers increased to
approximately 19,700 as of June 30, 2001 from approximately 7,400 as of June 30,
2000.
Programming and other operating costs increased $471,000 or 10.9% to $4.8
million for the three months ended June 30, 2001 from $4.3 million for the three
months ended June 30, 2000. The increase was primarily attributable to increased
programming rates associated with digital services.
Selling, general and administrative expenses increased $876,000 or 32.7% to $3.6
million for the three months ended June 30, 2001 from $2.7 million for the three
months ended June 30, 2000. The increase was primarily attributable to
increased payroll and administrative costs associated with advertising.
Depreciation and amortization expense for the three months ended June 30, 2001
increased $331,000 or 12.4% to $3.0 million from $2.7 million for the three
months ended June 30, 2000. This increase was
30
primarily attributable to increased capital expenditures associated with the
rebuild over past quarters.
Interest expense for the three months ended June 30, 2001 decreased $9,000 or
2.1% to $418,000 from $427,000 for the three months ended June 30, 2000. This
decrease was primarily attributable to lower interest rates on outstanding
borrowings partially offset by a higher average outstanding borrowings balance.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Revenue for the six months ended June 30, 2001 increased $3.2 million or 13.2%
to $27.1 million compared to $23.9 million for the six months ended June 30,
2000. For the six months ended June 30, 2001, customers served averaged
approximately 85,700 compared to approximately 84,200 during the six months
ended June 30, 2000. The increase in revenue was primarily attributable to new
product launches, specifically digital services and high-speed data services.
As of June 30, 2001, there were approximately 19,700 digital customers
representing a 31.3% penetration (digital customers as a percentage of total
customers with access to digital service). Digital revenue for the six months
ended June 30, 2001 was approximately $1.9 million, (including approximately
$814,000 for video on demand service) compared to $450,000 for the six months
ended June 30, 2000. High-speed data services were launched during the six
months ended June 30, 2000. As of June 30, 2001, there were approximately 9,000
cable modem customers, a penetration of 6.1% (modem customers as a percentage of
homes passed with access to high-speed data services). Revenue from high-speed
data services was approximately $1.8 million for the six months ended June 30,
2001 compared to $96,000 for the six months ended June 30, 2000. Revenue by
service offering was as follows for the six months ended June 30 (in thousands):
2001 2000
Revenue Revenue
by % of by % of
Service Total Service Total
Offering Revenue Offering Revenue
---------- --------- ---------- ---------
Basic $14,345 52.9% $13,584 56.7%
Premium 3,473 12.8% 3,465 14.5%
Pay-per-view 633 2.3% 962 4.0%
Digital 1,868 6.9% 450 1.9%
Advertising sales 2,035 7.5% 2,271 9.5%
Data services 1,800 6.6% 96 0.4%
Other 2,947 11.0% 3,118 13.0%
---------- --------- ---------- ---------
Total $27,101 100% $23,946 100%
========== ========= ========== ==========
RGUs were approximately 114,500 as of June 30, 2001 compared to approximately
93,500 as of June 30, 2000. This represents an annualized growth rate of 22.5%.
31
Average monthly revenue per basic customer for the six months ended June 30,
2001 was $52.69 compared to $47.39 for the six months ended June 30, 2000.
Average monthly revenue per basic customer for digital and high-speed data
services was $7.13 for the six months ended June 30, 2001 compared to $1.08 for
the six months ended June 30, 2000. The number of high-speed data service
customers increased to approximately 9,000 as of June 30, 2001 from
approximately 1,900 as of June 30, 2000, while digital customers increased to
approximately 19,700 as of June 30, 2001 from approximately 7,400 as of June 30,
2000.
Programming and other operating costs increased $1.0 million or 11.6% to $9.9
million for the six months ended June 30, 2001 from $8.9 million for the six
months ended June 30, 2000. The increase was primarily attributable to increased
programming rates associated with the digital services.
Selling, general and administrative expenses increased $847,000 or 16.2% to $6.1
million for the six months ended June 30, 2001 from $5.2 million for the six
months ended June 30, 2000. The increase was primarily attributable to
increased payroll and administrative costs associated with advertising.
Depreciation and amortization expense for the six months ended June 30, 2001
increased $817,000 or 16.7% to $5.7 million from $4.9 million for the six months
ended June 30, 2000. This increase was primarily attributable to increased
capital expenditures associated with the rebuild over past quarters.
Interest expense for the six months ended June 30, 2001 increased $172,000 or
23.0% to $920,000 from $748,000 for the six months ended June 30, 2000. This
increase was primarily attributable to increased borrowings under the Senior
Credit Facility partially offset by lower interest rates on outstanding
borrowings.
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 $9.2 million and $12.7 million for
the three months and six months ended June 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 $23.1 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 six months ended June 30, 2001 and 2000 was
$12.8 million and
32
$8.7 million, respectively. The increase was primarily attributable to the
timing of payments against accrued expense balances and an increase in receipts
of launch funds from programmers partially offset by the timing of payments
against accounts payable.
Cash used in investing activities for the six months ended June 30, 2001 and
2000 was $12.7 million and $15.7 million, respectively, reflecting capital
expenditures to upgrade the System and build plant expansions.
Cash provided by financing activities for the six months ended June 30, 2001 was
$1.4 million. This was comprised of capital contributions of $8.4 million, less
distributions on preferred interests of $7.0 million. Cash provided by
financing activities for the six months ended June 30, 2000 was $12.0 million
consisting of borrowings under the Senior Credit Facility of $14.0 million and
capital contributions of $5.0 million, less distributions on preferred interests
of $7.0 million. The $25.0 million Senior Credit Facility was fully borrowed as
of June 30, 2001.
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 $8.4 million to Insight
Ohio during the six months ended June 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.
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 June 30, 2001 was
$41.2 million and $42.9 million, respectively. The fair value and carrying value
of the Senior Notes as of June 30, 2001 was $140.0 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.
Coaxial LLC
(Registrant)
Dated: August 10, 2001
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.
Coaxial Financing Corp.
(Registrant)
Dated: August 10, 2001
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.
Insight Communications of Central Ohio, LLC
(Registrant)
Dated: August 10, 2001
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