-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fwl/G4EqawJwlKxqQ2ojyvU/FDxxK8xR57KjhksRGDQZ8sqsM6W/cBDBriHyjkKO GjxzJQDTMMwbhsyz+/wvgQ== 0000940180-00-000619.txt : 20000517 0000940180-00-000619.hdr.sgml : 20000517 ACCESSION NUMBER: 0000940180-00-000619 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COAXIAL LLC CENTRAL INDEX KEY: 0001071003 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 310975825 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-64449-02 FILM NUMBER: 636988 BUSINESS ADDRESS: STREET 1: C/O INSIGHT COMMUNICATIONS STREET 2: 126 E 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 MAIL ADDRESS: STREET 1: C/O INSIGHT COMMUNICATIONS STREET 2: 126 E 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT COMMUNICATIONS OF CENTRAL OHIO LLC CENTRAL INDEX KEY: 0001070242 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-63677-02 FILM NUMBER: 636989 BUSINESS ADDRESS: STREET 1: C/O INSIGHT COMMUNICATIONS STREET 2: 126 E 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 MAIL ADDRESS: STREET 1: C/O INSIGHT COMMUNICATIONS STREET 2: 126 E 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COAXIAL FINANCING CORP CENTRAL INDEX KEY: 0001071001 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 310975825 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-64449-01 FILM NUMBER: 636990 BUSINESS ADDRESS: STREET 1: C/O INSIGHT COMMUNICATIONS STREET 2: 126 E 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 MAIL ADDRESS: STREET 1: C/O INSIGHT COMMUNICATIONS STREET 2: 126 E 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 FORM 10-Q ================================================================================ 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, 2000 Commission File Numbers: 333-64449-02 333-64449-01 333-64449 Coaxial LLC Coaxial Financing Corp. Insight Communications of Central Ohio, LLC (Exact name of registrants as specified in their charters) Delaware 13-4080422 Delaware 13-4061992 Delaware 13-4017803 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Numbers) c/o Insight Communications Company, Inc. 126 East 56th Street New York, New York 10022 (Address of principal executive offices, including zip code) (212) 371-2266 (Registrants' telephone number, including area code) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. [X] Yes [_] No Indicate the number of shares outstanding of each of the registrants' classes of common stock, as of the latest practicable date. Coaxial LLC Not Applicable Coaxial Financing Corp. Not Applicable Insight Communications of Central Ohio, LLC Not Applicable INDEX
Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Coaxial LLC Consolidated Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 1 Consolidated Statements of Operations and Changes in Member's Deficit for the three months ended March 31, 2000 and 1999 (unaudited) 2 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 (unaudited) 3 Notes to Consolidated Financial Statements (unaudited) 4 Coaxial Financing Corp. Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 8 Notes to Balance Sheets (unaudited) 9 Coaxial Communications of Central Ohio, Inc. Consolidated Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 10 Consolidated Statements of Operations and Changes in Shareholders' Deficit for the three months ended March 31, 2000 and 1999 (unaudited) 11 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 (unaudited) 12 Notes to Consolidated Financial Statements (unaudited) 13 Phoenix Associates Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 16 Statements of Operations and Changes in Partners' Deficit for the three months ended March 31, 2000 and 1999 (unaudited) 17 Statements of Cash Flows for the three months ended March 31, 2000 and 1999 (unaudited) 18 Notes to Financial Statements (unaudited) 19
Insight Communications of Central Ohio, LLC Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 21 Statements of Operations and Changes in Members' Deficit for the three months ended March 31, 2000 and 1999 (unaudited) 22 Statements of Cash Flows for the three months ended March 31, 2000 and 1999 (unaudited) 23 Notes to Financial Statements (unaudited) 24 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Item 3. Quantitative and Qualitative Disclosures about Market Risk 30 PART II OTHER INFORMATION Item 1. Legal Proceedings - Not Applicable Item 2. Changes in Securities and Use of Proceeds - Not Applicable Item 3. Defaults Upon Senior Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on Form 8-K 31
COAXIAL LLC CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, 2000 December 31, 1999 ------------------ ------------------- (Unaudited) (Note 2) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,442 $ 882 Subscriber receivables, less allowance for doubtful accounts of $323 and $383 in 2000 and 1999, respectively 288 790 Other accounts receivable, less allowance for doubtful accounts of $139 and $175 in 2000 and 1999, respectively 2,737 3,136 Prepaid expenses and other current assets 470 155 ------------------ ------------------- Total current assets 5,937 4,963 Property and equipment, net of accumulated depreciation of $56,188 and $53,999 in 2000 and 1999, respectively 56,158 51,455 Intangible assets, net of accumulated amortization of $7,850 and $7,738 in 2000 and 1999, respectively 2,561 2,670 Note receivable Coaxial DJM LLC 6,750 6,750 Note receivable Coaxial DSM LLC 3,000 3,000 Due from related parties 2,332 2,023 ------------------ ------------------- Total other assets 14,643 14,443 ------------------ ------------------- Total assets $ 76,738 $ 70,861 ================== =================== LIABILITIES AND MEMBER'S DEFICIT CURRENT LIABILITIES: Current portion of capital lease obligations $ 49 $ 74 Accounts payable 7,661 4,963 Accrued interest 897 1,519 Accrued liabilities 2,664 5,061 Accrued programming 3,358 1,890 ------------------ ------------------- Total current liabilities 14,629 13,507 NOTES PAYABLE: Senior Discount Notes 36,683 35,556 Senior Notes 34,435 34,435 Senior Credit Facility 20,000 11,000 ------------------ ------------------- Total notes payable 91,118 80,991 Capital lease obligations 43 43 Other liabilities 2,282 2,408 Due to related parties 135 - ------------------ ------------------- Total liabilities 108,207 96,949 COMMITMENTS AND CONTINGENCIES MEMBER'S DEFICIT (31,469) (26,088) ------------------ ------------------- Total liabilities and member's deficit $ 76,738 $ 70,861 ================== ===================
See accompanying notes 1 COAXIAL LLC CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER'S DEFICIT (Unaudited) (in thousands)
Three months ended March 31, 2000 1999 ------------------- ------------------- REVENUES $ 11,535 $ 11,696 OPERATING EXPENSES: Service and administrative 7,443 6,681 Depreciation and amortization 2,299 1,600 ------------------- ------------------- Total operating expenses 9,742 8,281 ------------------- ------------------- OPERATING INCOME 1,793 3,415 OTHER INCOME 29 - INTEREST INCOME (EXPENSE): Interest income--related parties 366 415 Interest income 18 - Interest expense (2,309) (1,967) ------------------- ------------------- Total interest expense, net (1,925) (1,552) ------------------- ------------------- NET (LOSS) INCOME (103) 1,863 Member's deficit, beginning of period (26,088) (20,701) Member distributions (5,278) (5,106) ------------------- ------------------- Member's deficit, end of period $ (31,469) $ (23,944) =================== ===================
See accompanying notes 2 COAXIAL LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three months ended March 31, 2000 1999 -------------------- --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (Loss) Income $ (103) $ 1,863 Adjustments to reconcile Net (Loss) Income to Net cash provided by operating activities: Depreciation and amortization 2,299 1,668 Accretion of original issue discount on Senior Discount Notes 1,127 1,041 Changes in certain assets and liabilities: Subscriber receivables 502 270 Other accounts receivable, prepaid expenses and other current assets 84 126 Accounts payable and accrued liabilities 1,644 3,649 Accrued interest (622) (804) Due to related parties (174) (631) -------------------- --------------------- Net cash provided by operating activities $ 4,757 $ 7,182 -------------------- --------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property and equipment (6,892) (6,122) Increase in intangible assets (3) (25) Due from related parties - (338) -------------------- --------------------- Net cash used in investing activities $ (6,895) $ (6,485) -------------------- --------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on capital lease obligations (24) (29) Capital distributions (5,278) (5,106) Borrowings under senior credit facility 9,000 - -------------------- --------------------- Net cash provided by (used in) financing activities $ 3,698 $ (5,135) -------------------- --------------------- NET INCREASE (DECREASE) IN CASH 1,560 (4,438) CASH AND CASH EQUIVALENTS, beginning of period 882 8,709 -------------------- --------------------- CASH AND CASH EQUIVALENTS, end of period $ 2,442 $ 4,271 ==================== =====================
See accompanying notes 3 COAXIAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Business Organization And Purpose 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 an individual as its sole member. Coaxial, an Ohio corporation, through its controlling voting interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"), operates a cable television system in Columbus, Ohio and surrounding areas. Insight Ohio operates in one business segment. In connection with the contribution of Coaxial's cable system to Insight Ohio described below, the issuance of the senior notes and the senior discount notes described in Note 4, during 1998, the three individuals who previously owned the outstanding stock of Coaxial contributed their stock to three separate limited liability companies including the Company. Accordingly, effective August 21, 1998, the Company owns 67 1/2% of the outstanding stock of Coaxial. Other related entities owned or controlled by the majority shareholder of the Company include Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial DJM LLC, Coaxial DSM LLC, Coaxial Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton Communications, Inc. On June 30, 1998, as amended on July 15, 1998 and August 21, 1998, Coaxial and Insight Communications Company, L.P. ("Insight") entered into a contribution agreement (the "Contribution Agreement") pursuant to which on August 21, 1998, Coaxial contributed substantially all of the assets and liabilities comprising its cable system to a newly formed subsidiary, Insight Ohio. In connection therewith, Insight Holdings of Ohio, LLC ("IHO"), a wholly owned subsidiary of Insight, contributed $10 million in cash to Insight Ohio. As a result of the Contribution Agreement, Coaxial owns 25% of the non-voting common equity and IHO owns 75% of the non-voting common equity of Insight Ohio. Coaxial also owns a $140 million Series A preferred equity interest and a $30 million Series B preferred equity interest of Insight Ohio (the "Series A Preferred Interest" and "Series B Preferred Interest", respectively). The voting preferred equity interests provide for distributions to Coaxial and indirectly to Phoenix and the Company in amounts equal to the payments required on the senior notes and senior discount notes described in Note 4. IHO serves as the manager of Insight Ohio. The Company and Coaxial Financing Corp. are co-issuers of the senior discount notes described in Note 4(b). Coaxial and Phoenix are co-issuers of the senior notes described in Note 4(a). The ability of Coaxial Financing Corp., the Company, Coaxial, and Phoenix to make scheduled payments with respect to the senior notes and senior discount notes is dependent on the financial and operating performance of Insight Ohio. The required distributions on the Series A Preferred Interest and Series B Preferred Interest to Coaxial are designed to provide the cash flow necessary to service the debt service requirements on the senior notes and senior discount notes. 2. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 4 COAXIAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. Basis of Presentation (continued) The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. 3. Summary of Significant Accounting Policies Principles of Consolidation The accompanying financial statements include the accounts of the Company, Coaxial, and Insight Ohio. All intercompany balances have been eliminated in consolidation. At March 31, 2000 and December 31, 1999, Coaxial had a shareholders' deficiency and Insight Ohio had a members' deficiency. Accordingly, the accompanying financial statements do not include any minority interest liabilities. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, which was amended by SFAS No. 137, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133 is effective for all quarters of fiscal years beginning after June 15, 2000. The Company does not anticipate the adoption of SFAS No. 133 to have a material impact on its financial statements. 4. Notes Payable Notes payable consisted of:
March 31, 2000 December 31, 1999 --------------------- ---------------------- Senior Notes(a) $ 34,435,000 $ 34,435,000 Senior Discount Notes(b) 36,683,000 35,556,000 Senior Credit Facility(c) 20,000,000 11,000,000 --------------------- ---------------------- Total notes payable $ 91,118,000 $ 80,991,000 ===================== ======================
5 COAXIAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Notes Payable (continued) (a) On August 21, 1998, Coaxial and Phoenix Associates completed an offering of $140 million 10% Senior Notes ("Senior Notes") due 2006 of which $105.6 million was allocated to Phoenix and $34.4 million was allocated to Coaxial. Interest is payable in cash semi-annually on each February 15 and August 15. Interest payments commenced on February 15, 1999. The Senior Notes are secured by the outstanding Series A Preferred Interest in Insight Ohio and conditionally guaranteed by Insight Ohio. The Series A Preferred Interest has a liquidation preference of $140 million and pays distributions in an amount equal to the payments on the Senior Notes. The Series A Preferred Interest is owned by Coaxial and is pledged to Bank of Montreal Trust Company, as trustee, for the benefit of the holders of the Senior Notes. Coaxial will utilize cash distributions made by Insight Ohio on the Series A Preferred Interest to make payments on the Senior Notes. The Senior Notes contain covenants that, among other things, restrict the ability of Coaxial, Phoenix, Insight Ohio and any of their Restricted Subsidiaries to: incur additional indebtedness; pay dividends and make distributions; issue stock of subsidiaries to third parties; make certain investments; repurchase stock; create liens; enter into transactions with affiliates; enter into sale and leaseback transactions; create dividend or other payment restrictions affecting Restricted Subsidiaries; merge or consolidate in a transaction involving all or substantially all of the assets of Coaxial, Phoenix and their Restricted Subsidiaries, taken as a whole; transfer or sell assets; use distributions on the Series A Preferred Interest or Series B Preferred Interest for any purpose other than required payments of interest and principal on the Senior Notes or Senior Discount Notes, respectively; and swap assets. Coaxial, as joint and several issuer, with Phoenix, of the Senior Notes, provides the funding that will allow Phoenix to repay its share of the notes payable, as Phoenix has no operations. (b) On August 21, 1998, the Company and Coaxial Financing Corp. issued senior discount notes ("Senior Discount Notes") due 2008. The Senior Discount Notes have a face amount of $55,869,000 and approximately $30,000,000 of gross proceeds were received upon issuance. Approximately $19,500,000 of the gross proceeds were contributed by the sole member of the Company to certain related entities to repay indebtedness. Approximately $9,750,000 was loaned to two related entities (Coaxial DJM LLC and Coaxial DSM LLC) by the Company, which then contributed that amount to certain other related entities to repay indebtedness. The debt discount of $25,869,000 is being amortized over five years through August 15, 2003. Thereafter, interest on the Senior Discount Notes accrues at 12 7/8% and is payable semi-annually. All of the Senior Discount Notes were allocated to the Company. The Senior Discount Notes are non-recourse, secured by all of the common stock of Coaxial and the notes issued by Coaxial DJM LLC and Coaxial DSM LLC to the Company and conditionally guaranteed by Insight Ohio. 6 COAXIAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Notes Payable (continued) (b) (continued) Among other covenants, the borrowers must comply with restrictive covenants relating to incurrence of additional debt, payment of dividends and distributions, and the transfer or sale of assets. Coaxial Financing Corp. and the Company were in compliance with these covenants as of March 31, 2000. The ability of Coaxial Financing Corp. and the Company to make scheduled payments with respect to the Senior Discount Notes will depend on the financial and operating performance of Insight Ohio. The required payments on the Series B Preferred Interest equals the distributions to be made by Coaxial to the Company to service the Senior Discount Notes. (c) Insight Ohio has a Senior Credit Facility ("Senior Credit Facility") which provides for revolving credit loans of $25 million to finance capital expenditures and for working capital and general purposes, including the upgrade the System's cable plant and for the introduction of new video services. The Senior Credit Facility has a six-year maturity, with reductions to the amount of the commitment commencing after three years. The amount available for borrowing is reduced by any outstanding letter of credit obligations. Insight Ohio's obligations under the Senior Credit Facility are secured by substantially all the tangible and intangible assets of Insight Ohio. Loans under the Senior Credit Facility bear interest, at Insight Ohio's option, at the prime rate or at a Eurodollar rate. In addition to the index rates, Insight Ohio pays an additional margin percentage tied to its ratio of total debt to adjusted annualized operating cash flow. The Senior Credit Facility contains a number of covenants that, among other trestricts the ability of Insight Ohio and its subsidiaries to make capital expenditures, dispose of assets, incur additional indebtedness, incur guaranty obligations, pay dividends or make capital distributions, including, in the event of a payment default under the Senior Credit Facility, distributions on the Series A Preferred Interest and Series B Preferred Interest that are required to pay the Senior Notes and the Senior Discount Notes, create liens on assets, make investments, make acquisitions, engage in mergers or consolidations, engage in certain transactions with subsidiaries and affiliates and otherwise restrict certain activities. In addition, the Senior Credit Facility requires compliance with certain financial ratios, including total leverage, interest coverage and pro forma debt service coverage ratios. Management does not expect that such covenants will materially impact the ability of Insight Ohio to operate its business. 5. Commitments and Contingencies The Company is a party to or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either the Company's future results of operations or financial position. 7 COAXIAL FINANCING CORP. BALANCE SHEETS
March 31, 2000 December 31, 1999 -------------- ----------------- (Unaudited) (Note 2) ASSETS: Cash $1,000 $1,000 -------------- ----------------- Total assets $1,000 $1,000 ============== ================= LIABILITIES AND SHAREHOLDERS' EQUITY: Senior Discount Notes (to be paid by Coaxial LLC-SeeNote 3) $ - $ - -------------- ----------------- Total liabilities - - Common stock, $.01 par value; 1,000 shares authorized, 1,000 shares issued and outstanding 10 10 Additional paid-in capital 990 990 -------------- ----------------- Total liabilities and shareholders' equity $1,000 $1,000 ============== =================
See accompanying notes 8 COAXIAL FINANCIAL CORP. NOTES TO BALANCE SHEETS (UNAUDITED) 1. Nature of Business Coaxial Financing Corp. (the "Company"), a Delaware corporation, was formed on July 24, 1998 for the sole purpose of being a co-issuer of the discount notes described in Note 3, which allows certain investors the ability to be holders of the debt. The Company has no operations. Three individuals own the outstanding shares of the Company. 2. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles 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 footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. 3. Notes Payable On August 21, 1998, the Company and Coaxial LLC, a related entity, issued Senior Discount Notes ("Discount Notes") due 2008. The Discount Notes have a face amount of $55,869,000 and approximately $30 million of gross proceeds were received upon issuance. Approximately $19.5 million of the gross proceeds were contributed by the sole member of Coaxial LLC to certain related entities to repay indebtedness. Approximately $9,750,000 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 $25,869,000 is being amortized over five years (until August 15, 2003). Thereafter, interest on the Discount Notes accrues at 12 7/8% and is payable semi-annually. All of the Discount Notes were allocated to Coaxial LLC. The 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"), a subsidiary 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 Company and Coaxial LLC were in compliance with these covenants as of March 31, 2000. The ability of the Company and Coaxial LLC to make scheduled payments with respect to the Discount Notes will depend on the financial and operating performance of Insight Ohio. 4. Commitments and Contingencies The Company is a party to or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either the Company's future results of operations or financial position. 9 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands)
March 31, 2000 December 31, 1999 ----------------------- --------------------------- (Unaudited) (Note 2) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,442 $ 882 Subscriber receivables, less allowance for doubtful accounts of $323 and $383 in 2000 and 1999, respectively 288 790 Other accounts receivable, less allowance for doubtful accounts of $139 and $175 in 2000 and 1999, respectively 2,737 3,136 Prepaid expenses and other current assets 470 155 ----------------------- --------------------------- Total current assets 5,937 4,963 Property and equipment, net of accumulated depreciation of $56,188 and $53,999 in 2000 and 1999, respectively 56,158 51,455 Intangible assets, net of accumulated amortization of $7,685 and $7,600 in 2000 and 1999, respectively 1,326 1,408 Due from related parties 101 158 ----------------------- --------------------------- Total assets $ 63,522 $ 57,984 ======================= =========================== LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Current portion of capital lease obligations $ 49 $ 73 Accounts payable 7,661 4,963 Accrued interest 897 1,519 Accrued liabilities 2,664 5,061 Accrued programming 3,358 1,890 ----------------------- --------------------------- Total current liabilities 14,629 13,506 NOTES PAYABLE: Senior notes 34,435 34,435 Senior credit facility 20,000 11,000 ----------------------- --------------------------- Total notes payable 54,435 45,435 Capital lease obligations 43 43 Other liabilities 2,282 2,408 Due to related parties 135 - ----------------------- --------------------------- Total liabilities 71,524 61,392 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT: Common stock--authorized 2,000 shares, 1,080 shares issued and outstanding in 2000 and 1999 1 1 Paid-in capital 11,501 11,501 Accumulated deficit (19,504) (14,910) ----------------------- --------------------------- Total shareholders' deficit (8,002) (3,408) ----------------------- --------------------------- Total liabilities and shareholders' deficit $ 63,522 $ 57,984 ======================= ===========================
See accompanying notes 10 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN SHAREHOLDERS' DEFICIT (Unaudited) (in thousands)
Three months ended March 31. 2000 1999 ------------------ ------------------ REVENUES $ 11,535 $ 11,696 OPERATING EXPENSES: Service and administrative 7,443 6,681 Depreciation and amortization 2,273 1,600 ------------------ ------------------ Total operating expenses 9,716 8,281 ------------------ ------------------ OPERATING INCOME 1,819 3,415 OTHER INCOME 29 - INTEREST INCOME (EXPENSE): Interest income 18 77 Interest expense (1,182) (904) ------------------ ------------------ Total interest expense, net (1,164) (827) ------------------ ------------------ NET INCOME 684 2,588 Shareholders' deficit, beginning of period (3,408) (660) Capital distributions (5,278) (5,106) ------------------ ------------------- Shareholders' deficit, end of period $ (8,002) $ (3,178) ================== ===================
See accompanying notes 11 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three months ended March 31, 2000 1999 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 684 $ 2,588 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,273 1,646 Changes in operating assets and liabilities: Subscriber receivables 502 270 Other accounts receivable, prepaid expenses and other current assets 84 126 Accounts payable, accrued liabilities and other 1,644 3,649 Accrued interest (622) (804) Due to related parties 192 (631) ------------------- ----------------- Net cash provided by operating activities $ 4,757 $ 6,844 ------------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property and equipment (6,892) (6,122) Increase in intangible assets (3) (25) ------------------- ----------------- Net cash used in investing activities $ (6,895) $ (6,147) ------------------- ------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on capital lease obligations (24) (29) Capital distributions (5,278) (5,106) Borrowings under senior credit facility 9,000 - ------------------- ----------------- Net cash provided by (used in) financing activities $ 3,698 $ (5,135) ------------------- ----------------- NET INCREASE (DECREASE) IN CASH 1,560 (4,438) CASH AND CASH EQUIVALENTS, beginning of period 882 8,709 ------------------- ------------------- CASH AND CASH EQUIVALENTS, end of period $ 2,442 $ 4,271 =================== ===================
See accompanying notes 12 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Business Organization And Purpose Coaxial Communications of Central Ohio, Inc. ("Coaxial" or the "Company"), an Ohio corporation, through its controlling voting interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"), operates a cable television system which provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. Insight Ohio operates in one business segment. In connection with the contribution of the Company's cable system described below, the issuance of the senior notes described in Note 4, and the issuance of the senior discount notes by the Company's majority shareholder, 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 Coaxial include Coaxial Financing Corp., Coaxial DJM LLC, Coaxial DSM LLC, Phoenix Associates ("Phoenix"), Coaxial Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton Communications, Inc. On June 30, 1998, as amended on July 15, 1998 and August 21, 1998, Coaxial and Insight Communications Company, L.P. ("Insight") entered into a contribution agreement (the "Contribution Agreement") pursuant to which on August 21, 1998, Coaxial contributed substantially all of the assets and liabilities comprising its cable system to a newly formed subsidiary, Insight Ohio. In connection therewith, Insight Holdings of Ohio, LLC ("IHO"), a wholly owned subsidiary of Insight, contributed $10 million in cash to Insight Ohio. As a result of the Contribution Agreement, Coaxial owns 25% of the non-voting common equity and IHO owns 75% of the non-voting common equity of Insight Ohio. Coaxial also owns a $140 million Series A preferred equity interest and a $30 million Series B preferred equity interest of Insight Ohio (the "Series A Preferred Interest" and "Series B Preferred Interest", respectively). The voting preferred equity interests provide for distributions to Coaxial and indirectly to Phoenix and Coaxial LLC in amounts equal to the payments required on the senior and senior discount notes described in Note 4. IHO serves as the manager of Insight Ohio. 2. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. 13 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. Summary of Significant Accounting Policies Principles of Consolidation As a result of Coaxial's ownership of all of the voting equity of Insight Ohio, the accompanying financial statements include the accounts of Insight Ohio. All intercompany balances have been eliminated in consolidation. At March 31, 2000, Insight Ohio had a members' deficiency, accordingly, the accompanying financial statements do not include a minority interest liability for Insight's 75% common equity interest in Insight Ohio. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, which was amended by SFAS No. 137, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133 is effective for all quarters of fiscal years beginning after June 15, 2000. The Company does not anticipate the adoption of SFAS No. 133 to have a material impact on its financial statements. 4. Notes Payable Notes payable at March 31, 2000 and December 31, 1999 consisted of Senior Notes with an outstanding principal balance of $34,435,092 and borrowings under a Senior Credit Facility of $20,000,000 at March 31, 2000 and $11,000,000 at December 31, 1999. On August 21, 1998, Coaxial and Phoenix Associates completed an offering of $140 million 10% Senior Notes ("Senior Notes") due 2006 of which $105.6 million was allocated to Phoenix and $34.4 million was allocated to Coaxial. Interest is payable in cash semi-annually on each February 15 and August 15. Interest payments commenced on February 15, 1999. The Senior Notes are secured by the outstanding Series A Preferred Interest in Insight Ohio and conditionally guaranteed by Insight Ohio. The Series A Preferred Interest has a liquidation preference of $140 million and pays distributions in an amount equal to the payments on the Senior Notes. The Series A Preferred Interest is owned by Coaxial and is pledged to Bank of Montreal Trust Company, as trustee, for the benefit of the holders of the Senior Notes. Coaxial will utilize cash distributions made by Insight Ohio on the Series A Preferred Interest to make payments on the Senior Notes. The Senior Notes contain covenants that, among other things, restrict the ability of Coaxial, Phoenix, Insight Ohio and any of their Restricted Subsidiaries to: incur additional indebtedness; pay dividends and make distributions; issue stock of subsidiaries to third parties; make certain investments; repurchase stock; create liens; enter into transactions with affiliates; enter into sale and leaseback transactions; create dividend or other payment restrictions affecting Restricted Subsidiaries; merge or consolidate in a transaction involving all or substantially all of the assets of Coaxial, Phoenix and their Restricted Subsidiaries, taken as a whole; transfer or sell assets; use distributions on the Series A Preferred Interest or Series B Preferred Interest for any purpose other than required payments of interest and principal on the Senior Notes or Senior Discount Notes, respectively; and swap assets. Coaxial, as joint and several issuer, with Phoenix, of the Senior Notes, provides the funding that will allow Phoenix to repay its share of the notes payable, as Phoenix has no operations. 14 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Notes Payable (continued) Insight Ohio has a Senior Credit Facility ("Senior Credit Facility") which provides for revolving credit loans of $25 million to finance capital expenditures and for working capital and general purposes, including the upgrade of the System's cable plant and for the introduction of new video services. The Senior Credit Facility has a six-year maturity, with reductions to the amount of the commitment commencing after three years. The amount available for borrowing is reduced by any outstanding letter of credit obligations. Insight Ohio's obligations under the Senior Credit Facility are secured by substantially all the tangible and intangible assets of Insight Ohio. Loans under the Senior Credit Facility bear interest, at Insight Ohio's option, at the prime rate or at a Eurodollar rate. In addition to the index rates, Insight Ohio pays an additional margin percentage tied to its ratio of total debt to adjusted annualized operating cash flow. The Senior Credit Facility contains a number of covenants that, among other things, restricts the ability of Insight Ohio and its subsidiaries to make capital expenditures, dispose of assets, incur additional indebtedness, incur guaranty obligations, pay dividends or make capital distributions, including, in the event of a payment default under the Senior Credit Facility, distributions on the Series A Preferred Interest and Series B Preferred Interest that are required to pay the Senior Notes and the Senior Discount Notes create liens on assets, make investments, make acquisitions, engage in mergers or consolidations, engage in certain transactions with subsidiaries and affiliates and otherwise restrict certain activities. In addition, the Senior Credit Facility requires compliance with certain financial ratios, including total leverage, interest coverage and pro forma debt service coverage ratios. 5. Commitments and Contingencies The Company is a party to or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either the Company's results of operations or financial position. 15 PHOENIX ASSOCIATES BALANCE SHEETS (in thousands)
March 31, 2000 December 31, 1999 -------------------- ---------------------- (Unaudited) (Note 2) ASSETS CURRENT ASSETS: Cash $ - $ - Interest receivable 254 215 -------------- ------------- Total current assets 254 215 OTHER ASSETS: Due from related parties 406 406 Notes receivable--related parties 550 550 Deferred financing fees, net of accumulated amortization of $746 and $627 in 2000 and 1999, respectively 3,054 3,173 -------------- ------------- Total other assets 4,010 4,129 -------------- ------------- Total assets $ 4,264 $ 4,344 ============== ============= LIABILITIES AND PARTNERS' DEFICIT CURRENT LIABILITIES: Interest payable $ 1,378 $ 4,017 -------------- ------------- Total current liabilities 1,378 4,017 NOTES PAYABLE 105,565 105,565 -------------- ------------ Total liabilities 106,943 109,582 -------------- ------------ COMMITMENTS AND CONTINGENCIES PARTNERS' DEFICIT (102,679) (105,238) -------------- ------------- Total liabilities and partners' deficit $ 4,264 $ 4,344 ============== =============
See accompanying notes 16 PHOENIX ASSOCIATES STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands)
Three months ended March 31, 2000 1999 ------------------ ------------------ EXPENSES $ - $ - INTEREST EXPENSE (INCOME) Interest income--related parties 39 - Interest expense (2,758) (2,750) ----------------- ----------------- Total interest expense, net (2,719) (2,750) ----------------- ----------------- NET LOSS (2,719) (2,750) PARTNERS' DEFICIT, beginning of period (105,238) (104,993) CAPITAL CONTRIBUTIONS 5,278 5,102 ----------------- ----------------- PARTNERS' DEFICIT, end of period $ (102,679) $ (102,641) ================= =================
See accompanying notes 17 PHOENIX ASSOCIATES STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three months ended March 31, 2000 1999 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,719) $ (2,750) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred financing fees 119 111 Changes in operating assets and liabilities: Interest receivable (39) - Accrued interest (2,639) (2,463) ----------------- ----------------- Net cash used in operating activities (5,278) (5,102) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions 5,278 5,102 ----------------- ----------------- Net cash provided by financing activities 5,278 5,102 ----------------- ----------------- NET INCREASE (DECREASE) IN CASH - - CASH, beginning of period - - ----------------- ----------------- CASH, end of period $ - $ - ================= =================
See accompanying notes 18 PHOENIX ASSOCIATES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. Business Organization and Purpose Phoenix Associates ("Phoenix") 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. Phoenix has no operations. Its ability to satisfy debt and other obligations is dependent upon funding from related entities, which are under the common control of the owners of Phoenix. Phoenix is a co-issuer and joint and several obligor of the debt described in Note 4, along with an affiliate, Coaxial Communications of Central Ohio, Inc. ("Coaxial"). Phoenix is owned by 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 Phoenix include Coaxial LLC, Coaxial Financing Corp., Insight Communications of Central Ohio, LLC ("Insight Ohio"), Coaxial Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton Communications, Inc. On June 30, 1998, as amended on July 15, 1998 and August 21, 1998, Coaxial and Insight Communications Company, L.P. ("Insight") entered into a contribution agreement (the "Contribution Agreement") pursuant to which on August 21, 1998, Coaxial contributed substantially all of the assets and liabilities comprising its cable system to a newly formed subsidiary, Insight Ohio. In connection therewith, Insight Holdings of Ohio, LLC ("IHO"), a wholly owned subsidiary of Insight, contributed $10 million in cash to Insight Ohio. As a result of the Contribution Agreement, Coaxial owns 25% of the non-voting common equity and IHO owns 75% of the non-voting common equity of Insight Ohio. Coaxial also owns a $140 million Series A preferred equity interest and a $30 million Series B preferred equity interest of Insight Ohio (the "Series A Preferred Interest" and "Series B Preferred Interest", respectively). The voting preferred equity interests provide for distributions to Coaxial equal to the payments required on the senior and senior discount notes described in Note 4. Coaxial will make distributions that will enable Phoenix to fund the required payments on the senior notes. 2. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles 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 footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. 19 PHOENIX ASSOCIATES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 3. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, which was amended by SFAS No. 137, established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133 is effective for all quarters of fiscal years beginning after June 15, 2000. Phoenix does not anticipate that the adoption of SFAS No. 133 will have a material impact on its financial statements. 4. Notes Payable Notes payable at March 31, 2000 and December 31, 1999 consisted of Senior Notes with an outstanding principal balance of $105,565,000. On August 21, 1998, Coaxial and Phoenix Associates completed an offering of $140 million 10% Senior Notes ("Senior Notes") due 2006 of which $105.6 million was allocated to Phoenix and $34.4 million was allocated to Coaxial. Interest is payable in cash semi-annually on each February 15 and August 15. Interest payments commenced on February 15, 1999. The Senior Notes are secured by the outstanding Series A Preferred Interest in Insight Ohio. The Series A Preferred Interest has a liquidation preference of $140 million and pays distributions in an amount equal to the payments on the Senior Notes. The Series A Preferred Interest is owned by Coaxial and is pledged to Bank of Montreal Trust Company, as trustee, for the benefit of the holders of the Senior Notes. Coaxial will utilize cash distributions made by Insight Ohio on the Series A Preferred Interest to make payments on the Senior Notes. The Senior Notes contain covenants that, among other things, restrict the ability of Coaxial, Phoenix, Insight Ohio and any of their Restricted Subsidiaries to: incur additional indebtedness; pay dividends and make distributions; issue stock of subsidiaries to third parties; make certain investments; repurchase stock; create liens; enter into transactions with affiliates; enter into sale and leaseback transactions; create dividend or other payment restrictions affecting Restricted Subsidiaries; merge or consolidate in a transaction involving all or substantially all of the assets of Coaxial, Phoenix and their Restricted Subsidiaries, taken as a whole; transfer or sell assets; use distributions on the Series A Preferred Interest or Series B Preferred Interest for any purpose other than required payments of interest and principal on the Senior Notes or Senior Discount Notes, respectively; and swap assets. Phoenix is a co-issuer and joint and several obligor of the debt, along with an affiliate, Coaxial. 5. Commitments and Contingencies The Company is a party to or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either the Company's future results of operations or financial position. 20 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC BALANCE SHEETS (in thousands)
March 31, 2000 December 31, 1999 ------------------- --------------------- (Unaudited) (Note 2) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,442 $ 882 Subscriber receivables, less allowance for doubtful accounts of $323 and $383 in 2000 and 1999, respectively 288 790 Other accounts receivable, less allowance for doubtful accounts of $139 and $175 in 2000 and 1999, respectively 2,737 3,136 Prepaid expenses and other current assets 470 155 ---------------- -------------- Total current assets 5,937 4,963 Property and equipment, net of accumulated depreciation of $56,188 and $53,999 in 2000 and 1999, respectively 56,158 51,455 Intangible assets, net of accumulated amortization of $7,440 and $7,395 in 2000 and 1999, respectively 346 388 Due from related parties 101 158 ---------------- -------------- Total assets $ 62,542 $ 56,964 ================ ============== LIABILITIES AND MEMBERS' DEFICIT CURRENT LIABILITIES: Current portion of capital lease obligations $ 49 $ 73 Accounts payable 7,661 4,963 Accrued interest 451 212 Accrued liabilities 2,664 5,060 Series A Preferred Dividend Payable 1,750 5,250 Accrued programming 3,358 1,890 ---------------- -------------- Total current liabilities 15,933 17,448 Capital lease obligations 43 43 Other deferred credits 2,282 2,408 Due to related parties 135 -- Series A Preferred Interest 140,000 140,000 Series B Preferred Interest 36,683 35,556 Senior credit facility 20,000 11,000 ---------------- -------------- Total liabilities and preferred interests 215,076 206,455 Members' deficit (152,534) (149,491) ---------------- -------------- Total liabilities and members' deficit $ 62,542 $ 56,964 ================ ==============
See accompanying notes 21 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC STATEMENTS OF OPERATIONS AND CHANGES IN MEMBERS' DEFICIT (Unaudited) (in thousands)
Three months ended March 31, 2000 1999 ----------------------- --------------------- REVENUES $ 11,535 $ 11,696 OPERATING EXPENSES: Service and administrative 7,443 6,681 Depreciation and amortization 2,234 1,599 ----------------------- --------------------- Total operating expenses 9,677 8,280 ----------------------- --------------------- OPERATING INCOME 1,858 3,416 Other income 29 -- Interest expense (321) (7) Interest income 18 77 ----------------------- --------------------- INTEREST (EXPENSE) INCOME, NET (303) 70 ----------------------- --------------------- NET INCOME 1,584 3,486 Accrual of preferred interests (4,627) (4,222) ----------------------- --------------------- Loss attributable to common interests (3,043) (736) Members' deficit, beginning of period (149,491) (144,718) ----------------------- --------------------- Members' deficit, end of period $ (152,534) $ (145,454) ======================= =====================
See accompanying notes 22 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three months ended March 31, 2000 1999 ----------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,584 $ 3,486 Adjustments to reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 2,234 1,599 Changes in certain assets and liabilities: Subscriber receivables 502 271 Other accounts receivable, prepaid expenses and other current assets 84 126 Accounts payable, accrued liabilities and other 1,644 3,655 Accrued interest 239 - Due to/from related parties 192 (631) ----------------- --------------- Net cash provided by operating activities $ 6,479 $ 8,506 ----------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property and equipment (6,892) (6,122) Increase in other intangible assets (3) (26) ----------------- --------------- Net cash used in investing activities $ (6,895) $ (6,148) ----------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on capital lease obligations (24) (29) Preferred interest distributions (7,000) (6,767) Borrowings under senior credit facility 9,000 - ----------------- --------------- Net cash provided by (used in) financing activities $ 1,976 $ (6,796) ----------------- --------------- NET INCREASE (DECREASE) IN CASH 1,560 (4,438) CASH AND CASH EQUIVALENTS, beginning of period 882 6,709 ----------------- --------------- CASH AND CASH EQUIVALENTS, end of period $ 2,442 $ 2,271 ================= ===============
See accompanying notes 23 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. Business Organization and Purpose Insight Communications of Central Ohio, LLC ("Insight Ohio" or the "Company") was formed on July 23, 1998 in order to acquire substantially all of the assets and liabilities comprising the cable television system of Coaxial Communications of Central Ohio, Inc. ("Coaxial"). On August 21, 1998, Coaxial contributed to Insight Ohio all of the assets and liabilities comprising Coaxial's cable television system (the "System") for which Coaxial received a 25% non-voting common membership interest in Insight Ohio as well as 100% of the voting preferred membership interests of Insight Ohio ("Series A Preferred Interest" and "Series B Preferred Interest"). In conjunction therewith, Insight Holdings of Ohio, LLC ("IHO") contributed $10 million in cash to Insight Ohio for which it received a 75% non-voting common membership interest in Insight Ohio. Insight Ohio provides basic and expanded cable services to homes in Columbus, Ohio and surrounding areas. The company operates in one business segment. Insight Ohio cannot redeem the Voting Preferred Interests without the permission of Coaxial; however, Insight Ohio will be required to redeem the Series A Preferred Interest in August 2006 and the Series B Preferred Interest on August 21, 2008 at their respective fair values. In addition, Insight Ohio is required to pay dividends on the Series A Preferred Interest and the Series B Preferred Interest, in amounts equal to the interest requirements on the Senior Notes and the Senior Discount Notes. On August 21, 1998, Coaxial and Phoenix Associates, a related entity, issued $140 million of 10% Senior Notes ("Senior Notes") due in 2006. The Senior Notes are non-recourse and are secured by all issued and outstanding Series A Preferred Interest in Insight Ohio and are conditionally guaranteed by Insight Ohio. On August 21, 1998, Coaxial Financing Corp. and Coaxial LLC, related entities, issued 12 7/8% senior discount notes due 2008 ("Senior Discount Notes"). The Senior Discount Notes have a face amount of $55,869,000 and approximately $30,000,000 of gross proceeds were received upon issuance. The Senior Discount Notes are non-recourse, secured by the issued and outstanding Series B Preferred Interest in Insight Ohio and 100% of the common stock of Coaxial and the notes issued by Coaxial DJM LLC and Coaxial DSM LLC to Coaxial LLC, and conditionally guaranteed by Insight Ohio. 2. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles 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 footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. 24 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 3. Summary of Significant Accounting Policies Recent Accounting Pronouncements In June 1998, The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, which was amended by SFAS No. 137, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133 is effective for all quarters of fiscal years beginning after June 15, 2000. The Company does not anticipate the adoption of SFAS No. 133 to have a material impact on its financial statements. 4. Credit Facility Insight Ohio has a Senior Credit Facility ("Senior Credit Facility") with a bank which provides for revolving credit loans of $25 million to finance capital expenditures and for working capital and general purposes, including the upgrade of the Company's cable plant and for the introduction of new video services. The Senior Credit Facility has a six-year maturity, with reductions to the amount of the commitment commencing after three years. The amount available for borrowing is reduced by any outstanding letter of credit obligations. Insight Ohio's obligations under the Senior Credit Facility are secured by substantially all the tangible and intangible assets of Insight Ohio. Loans under the Senior Credit Facility bear interest, at Insight Ohio's option, at the prime rate or at a Eurodollar rate. In addition to the index rates, Insight Ohio pays an additional margin percentage tied to its ratio of total debt to adjusted annualized operating cash flow. The Senior Credit Facility contains a number of covenants that, among other things, restricts the ability of Insight Ohio and its subsidiaries to make capital expenditures, dispose of assets, incur additional indebtedness, incur guaranty obligations, pay dividends or make capital distributions, including distributions on the Preferred Interests that are required to pay the Senior Notes and the Senior Discount Notes in the event of a payment default under the Senior Credit Facility, create liens on assets, make investments, make acquisitions, engage in mergers or consolidations, engage in certain transactions with subsidiaries and affiliates and otherwise restrict certain activities. In addition, the Senior Credit Facility requires compliance with certain financial ratios, including total leverage, interest coverage and pro forma debt service coverage ratios. As of March 31, 2000, $20,000,000 was drawn on the Senior Credit Facility. 5. Commitments and Contingencies Insight Ohio is party in or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either Insight Ohio's future results of operations or financial position. 25 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and related notes which are included elsewhere in this report. Forward-Looking Statements This report contains "forward-looking statements," including statements containing the words "believes," "anticipates," "expects" and words of similar import, which concern, among other things, the operations, economic performance and financial condition of the System (as defined below). All statements other than statements of historical fact included in this report regarding Coaxial LLC, Coaxial Financing Corp. and Insight Communications of Central Ohio, LLC ("Insight Ohio") or any of the transactions described in this report, including the timing, financing, strategies and effects of such transactions, are forward- looking statements. Such forward-looking statements are based upon a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of Coaxial LLC, Coaxial Financing Corp. and Insight Ohio, and reflect future business decisions which are subject to change. Although Coaxial LLC, Coaxial Financing Corp. and Insight Ohio believe that the expectations reflected in such forward- looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include, without limitation: . the ability of Coaxial LLC and Coaxial Financing Corp. to make scheduled payments with respect to the Senior Discount Notes (as defined below) will depend on the financial and operating performance of Insight Ohio; . a substantial portion of Insight Ohio's cash flow from operations is required to be dedicated to the payment of principal and interest on its indebtedness and the required distributions with respect to its Series A Preferred Interest and its Series B Preferred Interest, thereby reducing the funds available to Insight Ohio for its operations and future business opportunities; . 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 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 Insight Ohio imposes restrictions on Insight Ohio. Coaxial LLC, Coaxial Financing Corp. and Insight Ohio do not intend to update these forward-looking statements. Private Offering of Senior Discount Notes, Senior Notes and Acquisition of System by Insight Ohio Coaxial LLC and Coaxial Financing Corp. completed on August 21, 1998 a private offering (the "Senior Discount Notes Offering") of $55,869,000 aggregate principal amount at maturity of their 12 7/8% Senior Discount Notes due in 2008 (the "Senior Discount Notes") in connection with the Financing Plan discussed under "Liquidity and Capital Resources," which included the contribution of Coaxial's cable television system (the "System") to Insight Ohio. On February 16, 1999, Coaxial LLC and Coaxial Financing Corp. consummated an exchange of registered Senior Discount Notes for their privately issued Senior Discount Notes. Coaxial LLC and Coaxial Financing Corp. have only nominal assets except for Coaxial LLC's ownership of 67.5% of the common stock of Coaxial and notes of Coaxial DJM LLC and Coaxial DSM LLC (the other two owners of Coaxial), which notes are secured by the remaining 32.5% of the common stock of Coaxial. The Senior Discount Notes are guaranteed on a conditional basis by Insight Ohio. The limited liability companies that own Coaxial are referred to herein as the "Individual LLCs". 26 As part of the Financing Plan, Coaxial and Phoenix Associates, an affiliated general partnership, completed a private offering (the "Senior Notes Offering") of $140,000,000 aggregate principal amount of their 10% Senior Notes due in 2006 (the "Senior Notes"). On February 16, 1999, Coaxial and Phoenix consumated an exchange of registered Senior Notes for their privately issued Senior Notes. The Senior Notes are also guaranteed on a conditional basis by Insight Ohio. The conditional guarantee of the Senior Discount Notes is subordinated to the conditional guarantee of the Senior Notes. As a result of the Financing Plan, Coaxial has only nominal assets except for its ownership of 25% of the non- voting common membership interests in Insight Ohio and 100% of the voting Series A Preferred Interest and the Series B Preferred Interest of Insight Ohio (together the "Preferred Interests"). IHO, a wholly owned subsidiary of Insight Communications L.P. ("Insight") holds the remaining 75% non-voting common membership interests in Insight Ohio. The Preferred Interests have distribution priorities that provide for distributions to Coaxial. The distributions from the Series B Preferred Interest will be used to pay dividends to the Individual LLCs, which dividends will be used to pay interest and principal on the Senior Discount Notes and the distributions from the Series A Preferred Interest will be used to pay interest and principal on the Senior Notes. Distributions by Insight Ohio will be subject to certain financial covenants and other conditions set forth in its Senior Credit Facility. Coaxial LLC and Coaxial Financing Corp. do not conduct any business and are dependent upon the cash flow of Insight Ohio to meet their obligations under the Senior Discount Notes. IHO serves as the manager of the System. Overview Revenues generated by the System are primarily attributable to monthly subscription fees charged to basic customers for basic and premium cable television programming services. Basic revenues consist of monthly subscription fees for all services (other than premium programming) as well as monthly charges for customer equipment rental. Premium revenues primarily consist of monthly subscription fees for programming provided on a per channel basis. In addition, other revenues are derived from installation and reconnection fees charged to basic customers to commence or discontinue service, pay-per-view charges, late payment fees, advertising revenues and commissions related to the sale of goods by home shopping services. System operating expenses consist of service and administrative expenses, home office expenses and depreciation and amortization. Service and administrative expenses include direct costs, such as fees paid to programming suppliers, expenses related to copyright fees, bad debt expense, and use fees. Programming fees have historically increased at rates in excess of inflation due to increases in the number of programming services offered by the System and improvements in the quality of programming. Service and administrative expenses also include costs attributable to the operation of the System, including wages and salaries and other expenses related to plant operating activities, customer service operations, marketing, billing, advertising sales and video production. 27 The System relies on IHO for all of its strategic, managerial, financial and operational oversight and advice. IHO 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, IHO is entitled to receive management fees of 3.0% of gross operating revenues of the System. Such management fee is payable only after distributions have been made in respect of the Preferred Interests and only to the extent that such payment would be permitted by an exception to the restricted payments covenants of the Senior Notes and the Senior Discount Notes as well as Insight Ohio's Senior Credit Facility. Such management fee is included in service and administrative expenses. Results of Operations Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Revenues for the three months ended March 31, 2000 were $11.5 million compared to $11.7 million for the three months ended March 31, 1999. For the three months ended March 31, 2000, subscribers served averaged 84,253 compared with 87,129 during the same time period in 1999. Revenues for the three months ended March 31, 2000 were 1.4% lower than the same period for the prior year despite a 3.3% decrease in customers served on average as Insight Ohio ended previous management's program of deeply discounting subscriber rates. Average revenue per customer per month for the three months ended March 31, 2000 totaled $45.64 versus $44.75 for the three months ended March 31, 1999. Effective November 1, 1999, the System began activating nodes in rebuilt areas, increasing the rate for classic service by $1.75 from $14.93 to $16.68. As of March 31, 2000, there were approximately 19,300 customers receiving this enhanced service which offers six more channels on the classic service tier. In addition, customers in rebuilt areas have the opportunity to receive new products including Insight's digital gateway service, video on demand and high speed data access. As of March 31, 2000, Insight Ohio has realized revenues of approximately $24.00 per month per digital home. In addition, Insight has realized approximately $34.00 per month per high speed data customer in other markets where these products have been launched during the past year. A high speed data service will be launched by Insight Ohio in the second quarter of 2000. Service and administrative expenses increased to $7.4 million for the three months ended March 31, 2000 compared to $6.7 million for the three months ended March 31, 1999, an increase of $0.7 million or 11.4%. An increase of 28.6% in basic programming expenses from $1.8 million for the three months ended March 31, 1999 to $2.3 million for the same time period in 2000 reflects increased programming rates as discounts previously realized through Insight Ohio's affiliation with Media One expired in November 1999. Similarly, pay programming expenses increased 13.4% during the three months ended March 31, 2000 versus the three months ended March 31, 1999, to $1.1 million. The increased basic and pay programming rates accounted for approximately $.7 million or 100% of the total increase in expenses. In addition, programming costs increased due to additional channels added in rebuilt areas. Depreciation and amortization expense for the three months ended March 31, 2000 increased by 43.7% over the three months ended March 31, 1999 to approximately $2.3 million reflecting additional capital expenditures resulting from upgrades to the System's network. Operating income for the three months ended March 31, 2000 totaled $1.8 million versus $3.4 million reflecting increased expenses and depreciation. Net interest expense for the three months ended March 31, 2000 totaled approximately $1.9 million versus approximately $1.6 million for the three months ended March 31, 1999, primarily resulting from interest on the Senior Discount Notes issued on August 21, 1998 and from increased borrowings under the Senior Credit Facility. A net loss of $.1 million was realized for the three months ended March 31, 2000 compared to net income of $1.9 million for the three months ended March 31, 1999 for the reasons set forth above. 28 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 $6.9 million for the three months ended March 31, 2000. These expenditures were primarily for the rebuild of cable plant and for serving new homes. Capital expenditures are financed by cash flows from operations and borrowings under the Senior Credit Facility. IHO continues to further enhance the technical platform of the System by upgrading the plant serving the majority of customers. The capability for high- speed data transmission, impulse pay-per-view, digital tiers of service and additional analog channels is intended to be provided by further deployment of fiber optics, an increase in the bandwidth to 870 MHz, activation of the reverse plant to allow two-way communications and the installation of digital equipment. Capital expenditures are expected to approximate $34.6 million during the year 2000 to support not only ongoing plant extensions, new customer additions and capital replacement, but also to fund the plant upgrade to 870 MHz and to activate plant for 2-way transmission, which is necessary to facilitate the deployment of interactive services. It costs approximately $1,500/mile to activate 2-way or reverse plant. IHO expects to complete the upgrade of the plant with 2-way activation by the end of 2000. IHO had originally planned to rebuild the plant to 750 MHz, but upon further review, decided to expand the plant capacity to 870 MHz. In addition, IHO decided to enlarge the upgrade by approximately 400 miles. The combination of these changes will result in incremental capital costs of approximately $8.0 million. Cash provided by operations for the three months ended March 31, 2000 was $4.7 million compared to $7.2 million for the same period in 1999. The decrease is primarily attributable to net loss generated for the three months ended March 31, 2000 compared to net income for the three months ended March 31, 1999. Cash used in investing activities for the three months ended March 31, 2000 and 1999 was $6.9 million and $6.5 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, 2000 was $3.7 million as capital distributions of $5.3 million were offset by $9.0 million in borrowings under the Senior Credit Facility required to support capital expenditures and changes in working capital. Cash used in financing activities for the three months ended March 31, 1999 was $5.1 million consisting primarily of capital distributions. In addition to cash flow from operations, Insight Ohio has a $25 million Senior Credit Facility which was fully borrowed at May 15, 2000. Due to the increased rebuild costs, management had determined that amounts available under the Senior Credit Facility and cash flows from operations may not be sufficient to finance the operating and capital requirements of the System, debt service requirements and distributions on the Preferred Interests over the next year. As such, IHO has provided a commitment letter to Insight Ohio to fund any operating shortfall through the year 2000. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133, which was amended by SFAS No. 137, is effective for all quarters of fiscal years beginning after June 15, 2000. Coaxial LLC, Coaxial Financing Corp. and Insight Ohio do not anticipate the adoption of this statement to have a material impact on their respective financial statements. 29 Item 3. Quantitative and Qualitative Disclosures About Market Risk Coaxial LLC, Coaxial Financing Corp. and Insight Ohio do not engage in trading market risk sensitive instruments and do not purchase hedging instruments or "other than trading" instruments that are likely to expose any of them to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. Coaxial LLC, Coaxial Financing Corp. and Insight Ohio have not entered into forward or future contracts, purchased options or entered into swaps. 30 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 - Financial Data Schedule of Coaxial LLC 27.2 - Financial Data Schedule of Coaxial Financing Corp. 27.3 - Financial Data Schedule of Insight Communications of Central Ohio, LLC (b) Reports on Form 8-K None 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Coaxial LLC (Registrant) Dated: May 15, 2000 By: /s/ Michael S. Willner _________________________ Michael S. Willner President and Chief Executive Officer (Principal Executive Officer) By: /s/ Kim D. Kelly _________________________ Kim D. Kelly Executive Vice President, Chief Financial and Operating Officer and Treasurer (Principal Financial and Accounting Officer) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Coaxial Financing Corp. (Registrant) Dated: May 15, 2000 By: /s/ Michael S. Willner _________________________ Michael S. Willner President and Chief Executive Officer (Principal Executive Officer) By: /s/ Kim D. Kelly _________________________ Kim D. Kelly Executive Vice President, Chief Financial and Operating Officer and Treasurer (Principal Financial and Accounting Officer) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Insight Communications of Central Ohio, LLC (Registrant) Dated: May 15, 2000 By: /s/ Michael S. Willner _________________________ Michael S. Willner President and Chief Executive Officer (Principal Executive Officer) By: /s/ Kim D. Kelly _________________________ Kim D. Kelly Executive Vice President, Chief Financial and Operating Officer and Treasurer (Principal Financial and Accounting Officer) EX-27.1 2 FINANCIAL DATA SCHEDULE
5 0001071003 COAXIAL LLC 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 2,442 0 3,487 462 0 5,937 112,346 56,188 76,738 14,629 0 0 0 0 (31,469) 76,738 11,535 11,535 9,742 9,742 0 0 1,925 (103) 0 (103) 0 0 0 (103) 0.00 0.00
EX-27.2 3 FINANCIAL DATA SCHEDULE
5 0001071001 COAXIAL FINANCING CORP. 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1,000 0 0 0 0 1,000 0 0 1,000 0 0 0 0 10 990 1,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.00 0.00
EX-27.3 4 FINANCIAL DATA SCHEDULE
5 0001070242 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 2,442 0 3,487 462 0 5,937 112,346 56,188 62,542 15,933 0 0 0 0 (152,534) 62,542 11,535 11,535 9,677 9,677 0 0 303 1,584 0 1,584 0 0 0 1,584 0.00 0.00
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