-----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, RUEBDjYBuDPYLmA2WeehnT8vSwjRVctLIFJaNbrHnpl/Xh5FvRk7xidzISMzrKlN zBwBJ5pXMKcykP30d3zDdg== 0000950130-01-505285.txt : 20020410 0000950130-01-505285.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950130-01-505285 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COAXIAL LLC CENTRAL INDEX KEY: 0001071003 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 134080422 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-64449-02 FILM NUMBER: 1782838 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: 1934 Act SEC FILE NUMBER: 333-63677-02 FILM NUMBER: 1782839 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: 1934 Act SEC FILE NUMBER: 333-64449-01 FILM NUMBER: 1782840 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 d10q.txt FROM 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 September 30, 2001 Commission File Numbers: 333-64449-02 333-64449-01 333-64449 ----------------------- Coaxial LLC Coaxial Financing Corp. Insight Communications of Central Ohio, LLC (Exact name of registrants as specified in their charters) Delaware 13-4080422 Delaware 13-4061992 Delaware 13-4017803 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) c/o Insight Communications Company, Inc. 810 7th Avenue New York, New York 10019 (Address of principal executive offices, including zip code) (917) 286-2300 (Registrants' telephone number, including area code) ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Coaxial LLC Not Applicable Coaxial Financing Corp. Not Applicable Insight Communications of Central Ohio, LLC Not Applicable ================================================================================ PART I. FINANCIAL INFORMATION Item 1. Financial Statements The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes required by accounting principles generally accepted in the United States. However, in our opinion, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the relevant periods have been made. Results for the interim periods are not necessarily indicative of the results to be expected for the year. These financial statements should be read in conjunction with the summary of significant accounting policies and the notes to the consolidated financial statements included in our Annual Report on Form 10-K as amended for the year ended December 31, 2000. 1 COAXIAL LLC CONSOLIDATED BALANCE SHEETS (in thousands)
September 30, December 31, 2001 2000 -------------- ------------- (unaudited) (Note 2) Assets Investments $ 14,720 $ 18,800 Dividends receivable 1,750 5,250 ------------- ------------- Total current assets 16,470 24,050 Intangible assets, net 4,005 4,578 Investment in affiliate 184,201 180,281 Note receivable - Coaxial DJM LLC 6,750 6,750 Note receivable - Coaxial DSM LLC 3,000 3,000 Due from related parties 4,794 3,466 ------------- ------------- Total assets $ 219,220 $ 222,125 ============= ============= Liabilities and members' equity Accrued interest $ 1,750 $ 5,250 ------------- ------------- Total current liabilities 1,750 5,250 Senior discount notes 44,201 40,281 Senior notes 140,000 140,000 ------------- ------------- Total liabilities 185,951 185,531 Commitments and contingencies Members' equity: In-substance distribution of proceeds related to senior notes to be paid by Phoenix Associates (70,263) (80,819) Members' accumulated equity 106,312 116,113 Accumulated other comprehensive income (loss) (2,780) 1,300 ------------- ------------- Total members' equity 33,269 36,594 ------------- ------------- Total liabilities and members' equity $ 219,220 $ 222,125 ============= =============
2 COAXIAL LLC CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Three months Nine months ended September 30, ended September 30, 2001 2000 2001 2000 --------- -------- --------- --------- Revenue $ -- $ 4,150 $ -- $ 28,096 Operating costs and expenses: Selling, general and administrative -- 2,613 -- 17,431 Depreciation and amortization 191 1,114 573 6,375 --------- --------- --------- --------- Total operating costs and expenses 191 3,727 573 23,806 Operating income (loss) (191) 423 (573) 4,290 Other income (expense): Interest income - related parties 456 390 1,328 1,134 Interest income -- 6 -- 50 Interest expense (4,848) (4,898) (14,420) (14,935) Dividend on preferred interests 4,848 3,131 14,420 3,131 Other -- (9) -- 31 --------- --------- --------- --------- Total other income (expense), net 456 (1,380) 1,328 (10,589) Gain on sale of common equity interest -- 164,360 -- 164,360 --------- --------- --------- --------- Net income $ 265 $ 163,403 $ 755 $ 158,061 ========= ========= ========= =========
See accompanying notes 3 COAXIAL LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Nine months ended September 30, 2001 2000 ---------------------- --------------------- Operating activities: Net income $ 755 $ 158,061 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Gain on sale of common equity interest -- (164,360) Provision for losses on trade accounts receivable -- 367 Depreciation and amortization 573 6,375 Interest expense paid by affiliate 7,917 7,917 Dividend on preferred interest (14,420) (3,131) Accretion of original issue discount on Senior Discount Notes 3,920 3,488 Changes in operating assets and liabilities: Trade accounts receivable -- (516) Prepaid expenses and other assets -- 113 Accounts payable and accrued expenses (861) (258) Due from related parties (1,328) (832) ---------------------- --------------------- Net cash provided by (used in) operating activities (3,444) 7,224 ---------------------- --------------------- Investing activities: Purchase of property and equipment -- (19,943) Decrease in cash upon sale of common equity interest -- (3,604) Purchase of intangible assets -- (3) ---------------------- --------------------- Net cash used in investing activities -- (23,550) ---------------------- --------------------- Financing activities: Capital distributions (10,556) (10,556) Proceeds from dividend on preferred interests 14,000 12,000 Borrowings under senior credit facility -- 14,000 ---------------------- --------------------- Net cash provided by financing activities 3,444 15,444 ---------------------- --------------------- Net increase in cash and cash equivalents -- (882) Cash and cash equivalents, beginning of period -- 882 ---------------------- --------------------- Cash and cash equivalents, end of period $ -- $ -- ====================== =====================
See accompanying notes 4 COAXIAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation Coaxial LLC (the "Company"), a Delaware limited liability company, was formed on July 24, 1998 in order to own and hold 67 1/2% of the common stock of Coaxial Communications of Central Ohio, Inc. ("Coaxial"). The Company has one individual as its sole member. Coaxial, an Ohio corporation, through its ownership of preferred interests, has a 30% voting interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"). Insight Ohio operates a cable television system that provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. Prior to August 8, 2000, Coaxial owned 100% of the voting interest in Insight Ohio and therefore consolidated the financial statements of Insight Ohio for periods prior to such date. In connection with the contribution of Coaxial's cable system (the "System"), the issuance of the Senior Notes by Coaxial and the Senior Discount Notes by the Company, during 1998 the three individuals who previously owned the outstanding stock of Coaxial contributed their stock to three separate limited liability companies. Accordingly, Coaxial is a subsidiary of the Company. Other related entities affiliated with the Company in addition to Coaxial, include Coaxial DJM LLC, Coaxial DSM LLC, (collectively, the "Coaxial Entities"), Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton Communications, Inc. The Company and Coaxial Financing Corp. are co-issuers of the Senior Discount Notes. Coaxial and Phoenix are co-issuers of the Senior Notes. The ability of Coaxial Financing Corp., the Company, Coaxial and Phoenix to make scheduled payments with respect to the Senior Discount Notes and Senior Notes is dependent on the financial and operating performance of Insight Ohio. The required distributions on the Series A preferred equity interest and Series B preferred equity interest to Coaxial are designed to provide the cash flow necessary to service the debt requirements on the Senior Discount Notes and Senior Notes. 2. Responsibility for Interim Financial Statements The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the consolidated financial statements reflect all adjustments considered necessary for a fair statement of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements contained in the Company's Annual Report on Form 10-K as amended for the year ended December 31, 2000. 5 COAXIAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Responsibility for Interim Financial Statements (continued) The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months and nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. 3. Comprehensive Loss Comprehensive loss totaled $5.8 million and $3.3 million for the three months and nine months ended September 30, 2001. The Company owns common stock that is classified as available-for-sale and reported at market value, with unrealized gains and losses recorded as accumulated other comprehensive income or loss in the accompanying balance sheets. 6 COAXIAL FINANCING CORP. BALANCE SHEETS (in thousands)
September 30, December 31, 2001 2000 ---------------------- ---------------------- (unaudited) (Note 2) Assets Cash $ 1 $ 1 Deferred financing costs, net 932 1,034 ---------------------- ---------------------- Total assets $ 933 $ 1,035 ====================== ====================== Liabilities and shareholders' deficit Senior discount notes $ 44,201 $ 40,281 Shareholders' deficit: Common stock; $.01 par value; 1,000 shares authorized, issued and outstanding - - Paid-in-capital 1 1 In-substance distribution of proceeds related to senior discount notes to be paid by Coaxial LLC (28,646) (28,646) Accumulated deficit (14,623) (10,601) ---------------------- ---------------------- Total shareholders' deficit (43,268) (39,246) ---------------------- ---------------------- Total liabilities and shareholders' deficit $ 933 $ 1,035 ====================== ======================
See accompanying notes 7 COAXIAL FINANCING CORP. STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Three months Nine months ended September 30, ended September 30, 2001 2000 2001 2000 ----------------- ------------------ ------------------ ------------------ Expenses: Amortization $ (34) $ (34) $ (102) $ (102) Interest (1,348) (1,190) (3,920) (3,462) ----------------- ------------------ ------------------ ------------------ Net loss $ (1,382) $ (1,224) $ (4,022) $ (3,564) ================= ================== ================== ==================
See accompanying notes 8 COAXIAL FINANCING CORP. STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Nine months ended September 30, 2001 2000 ----------------------- ----------------------- Cash flows from operating activities: Net loss $ (4,022) $ (3,564) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred financing costs 102 102 Accretion of original issue discount on senior discount notes assumed by affiliate 3,920 3,462 ----------------------- ----------------------- Net cash provided by operating activities - - ----------------------- ----------------------- Net increase in cash - - Cash, beginning of period 1 1 ----------------------- ----------------------- Cash, end of period $ 1 $ 1 ======================= =======================
See accompanying notes 9 COAXIAL FINANCING CORP. NOTES TO FINANCIAL STATEMENTS 1. Organization Coaxial Financing Corp. (the "Company"), a Delaware corporation, was formed on July 24, 1998, for the sole purpose of being a co-issuer of the discount notes described in Note 3, which allows certain investors the ability to be holders of the debt. The Company has no operations. Three individuals own the outstanding shares of the Company. 2. Responsibility for Interim Financial Statements The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the financial position as of the interim dates presented. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements contained in the Company's Annual Report on Form 10-K as amended for the year ended December 31, 2000. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. 3. Notes Payable On August 21, 1998, the Company and Coaxial LLC, a related entity, issued Senior Discount Notes ("Senior Discount Notes") due 2008. The Senior Discount Notes have a maturity value of $55.9 million and $30.0 million of gross proceeds were received upon issuance. Of the gross proceeds, $19.5 million was contributed by the sole member of Coaxial LLC to certain related entities to repay indebtedness. In addition, $9.8 million was loaned to two related entities ("Coaxial DJM LLC" and "Coaxial DSM LLC") by Coaxial LLC, which then contributed that amount to certain other related entities to repay indebtedness. The debt discount of $25.9 million is being amortized over five years through August 15, 2003. Thereafter, interest on the Senior Discount Notes accrues at 12 7/8% per annum and is payable semi-annually. The Senior Discount Notes are non-recourse, secured by all of the common stock of Coaxial Communications of Central Ohio, Inc. ("Coaxial") and the notes issued by Coaxial DJM LLC and Coaxial DSM LLC to Coaxial LLC and conditionally guaranteed by Insight Communications of Central Ohio, LLC ("Insight Ohio"), an affiliate of Coaxial. 10 COAXIAL FINANCING CORP. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. Notes Payable (continued) Among other covenants, the borrowers must comply with restrictive covenants relating to incurrence of additional debt, payment of dividends and distributions, and the transfer or sale of assets. The ability of the Company and Coaxial LLC to make scheduled payments with respect to the Senior Discount Notes will depend on the financial and operating performance of Insight Ohio. Although the Company is a co-issuer of the Senior Discount Notes, it has no substantial assets or any operations and will not have access to additional sources of cash flow to make any payments on such debt. 11 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. BALANCE SHEETS (in thousands)
September 30, December 31, 2001 2000 ----------------------- ----------------------- (unaudited) (Note 2) Assets Investments $ 14,720 $ 18,800 Dividends receivable 1,750 5,250 ----------------------- ----------------------- Total current assets 16,470 24,050 Intangible assets, net 3,072 3,543 Investment in affiliate 184,201 180,281 ----------------------- ----------------------- Total assets $ 203,743 $ 207,874 ======================= ======================= Liabilities and shareholders' equity Accounts payable and accrued expenses $ 1,750 $ 5,250 ----------------------- ----------------------- Total current liabilities 1,750 5,250 Senior notes 140,000 140,000 ----------------------- ----------------------- Total liabilities 141,750 145,250 Commitments and contingencies Shareholders' equity: Common stock; $1 par value; 2,000 shares authorized; 1,080 shares issued and outstanding as of September 30, 2001 and December 31, 2000 1 1 Paid-in-capital 11,501 11,501 In-substance distribution of proceeds related to senior notes to be paid by Phoenix Associates (70,263) (80,819) Retained earnings 123,534 130,641 Accumulated other comprehensive income (loss) (2,780) 1,300 ----------------------- ----------------------- Total shareholders' equity 61,993 62,624 ----------------------- ----------------------- Total liabilities and shareholders' equity $ 203,743 $ 207,874 ======================= =======================
See accompanying notes 12 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Three months Nine months ended September 30, ended September 30, 2001 2000 2001 2000 ---------------- ---------------- ---------------- ---------------- Revenue $ - $ 4,150 $ - $ 28,096 Operating costs and expenses: Selling, general and administrative - 2,613 - 17,431 Depreciation and amortization 157 1,088 471 6,297 ---------------- ---------------- ---------------- ---------------- Total operating costs and expenses 157 3,701 471 23,728 Operating income (loss) (157) 449 (471) 4,368 Other income (expense): Interest income - 6 - 50 Interest expense (3,500) (3,699) (10,500) (11,447) Dividend on preferred interests 4,848 3,131 14,420 3,131 Other - (9) - 31 ---------------- ---------------- ---------------- ---------------- Total other income (expense), net 1,348 (571) 3,920 (8,235) Gain on sale of common equity interest - 164,360 - 164,360 ---------------- ---------------- ---------------- ---------------- Net income $ 1,191 $ 164,238 $ 3,449 $ 160,493 ================ ================ ================ ================
See accompanying notes 13
Nine months ended September 30, 2001 2000 ----------------- ----------------- Operating activities: Net income $ 3,449 $ 160,493 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Gain on sale of common equity interest - (164,360) Provision for losses on trade accounts receivable - 367 Depreciation and amortization 471 6,297 Interest expense paid by affiliate 7,917 7,917 Dividend on preferred interest (14,420) (3,131) Changes in operating assets and liabilities: Trade accounts receivable - (516) Prepaid expenses and other current assets - 113 Accounts payable and accrued expenses (861) (258) Due from related parties - 302 ----------------- ----------------- Net cash provided by (used in) operating activities (3,444) 7,224 ----------------- ----------------- Investing activities: Purchase of property and equipment - (19,943) Decrease in cash upon sale of common equity interest - (3,604) Increase in intangible assets - (3) ----------------- ----------------- Net cash used in investing activities - (23,550) ----------------- ----------------- Financing activities: Capital distributions (10,556) (10,556) Proceeds from dividend on preferred interests 14,000 12,000 Borrowings under senior credit facility - 14,000 ----------------- ----------------- Net cash provided by financing activities 3,444 15,444 ----------------- ----------------- Net decrease in cash and cash equivalents - (882) Cash and cash equivalents, beginning of period - 882 ----------------- ----------------- Cash and cash equivalents, end of period $ - $ - ================= =================
See accompanying notes 14 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation Coaxial Communications of Central Ohio, Inc. (the "Company"), an Ohio corporation, through its ownership of preferred interests, has a 30% voting interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"). Insight Ohio operates a cable television system that provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. Prior to August 8, 2000, the Company owned 100% of the voting interest in Insight Ohio and therefore consolidated the financial statements of Insight Ohio for periods prior to such date. In connection with the contribution of the Company's cable system (the "System"), the issuance of the Senior Notes and the issuance of the Senior Discount Notes by the Company's majority shareholder, Coaxial LLC, during 1998 the three individuals who previously owned the outstanding stock of the Company contributed their stock to three separate limited liability companies. Accordingly, the Company is a subsidiary of Coaxial LLC, which owns 67 1/2% of its outstanding stock. Other related entities affiliated with the Company in addition to Coaxial LLC, include Coaxial DJM LLC, Coaxial DSM LLC, (collectively, the "Coaxial Entities"), Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton Communications, Inc. The Company and Phoenix are co-issuers of the Senior Notes. The ability of the Company and Phoenix to make scheduled payments with respect to the Senior Notes is dependent on the financial and operating performance of Insight Ohio. The required distributions on the Series B preferred equity interest to the Company is designed to provide the cash flow necessary to service the debt requirements on the Senior Notes. 2. Responsibility for Interim Financial Statements The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the consolidated financial statements reflect all adjustments considered necessary for a fair statement of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements contained in the Company's Annual Report on Form 10-K as amended for the year ended December 31, 2000. 15 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Responsibility for Interim Financial Statements (continued) The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months and nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. 3. Comprehensive Loss Comprehensive loss totaled $4.8 million and $631,000 for the three and nine months ended September 30, 2001. There were no components of comprehensive loss for the three and nine months ended September 30, 2000. The Company owns common stock that is classified as available-for-sale and reported at market value, with unrealized gains and losses recorded as accumulated other comprehensive income or loss in the accompanying balance sheets. 16 PHOENIX ASSOCIATES BALANCE SHEETS (in thousands)
September 30, December 31, 2001 2000 ------------- -------------- unaudited) (Note 2) Assets Interest receivable $ 490 $ 373 --------- --------- Total current assets 490 373 Due from related parties 406 406 Notes receivable - related parties 550 550 Deferred financing costs, net 3,072 3,543 --------- --------- Total assets $ 4,518 $ 4,872 ========= ========= Liabilities and partners' deficit Interest payable $ 1,750 $ 5,250 --------- --------- Total current liabilities 1,750 5,250 Notes payable 140,000 140,000 --------- --------- Total liabilities 141,750 145,250 Commitments and contingencies Partners' deficit: In-substance distribution of proceeds related to senior notes to be paid by Coaxial Communications of Central Ohio, Inc. (22,877) (26,321) Partners' accumulated deficit (114,355) (114,057) --------- --------- Total partners' deficit (137,232) (140,378) --------- --------- Total liabilities and partners' deficit $ 4,518 $ 4,872 ========= =========
See accompanying notes 17 PHOENIX ASSOCIATES STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Three months Nine months ended September 30, ended September 30, 2001 2000 2001 2000 -------- -------- -------- -------- Expenses: Amortization $ (157) $ (157) $ (471) $ (471) Interest income (expense): Interest income-related parties 39 39 117 117 Interest expense (3,500) (3,500) (10,500) (10,500) -------- -------- -------- -------- Total interest expense, net (3,461) (3,461) (10,383) (10,383) -------- -------- -------- -------- Net loss $ (3,618) $ (3,618) $(10,854) $(10,854) ======== ======== ======== ========
See accompanying notes 18 PHOENIX ASSOCIATES STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Nine months ended September 30, 2001 2000 -------- -------- Operating activities: Net loss $(10,854) $(10,854) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred financing fees 471 471 Interest expense paid by affiliate 3,444 3,444 Changes in operating assets and liabilities: Interest receivable (117) (117) Interest payable (3,500) (3,500) -------- -------- Net cash used in operating activities (10,556) (10,556) -------- -------- Financing activities: Capital contributions 10,556 10,556 -------- -------- Net cash provided by financing activities 10,556 10,556 -------- -------- Net change in cash -- -- Cash, beginning of period -- -- -------- -------- Cash, end of period $ -- $ -- ======== ======== See accompanying notes 19 PHOENIX ASSOCIATES NOTES TO FINANCIAL STATEMENTS 1. Business Organization and Purpose Phoenix Associates (the "Company") is a Florida general partnership organized for the primary purpose of purchasing promissory notes, mortgages, deeds of trust, debt securities and other types of securities and purchasing and acquiring rights in any loan agreements or other documents relating to those securities. The Company has no operations. The Company consists of three separate LLC's whose sole members are individual partners who share profits and losses in the ratio of 67 1/2%, 22 1/2% and 10%, respectively. Other related entities affiliated with the Company include Coaxial LLC, Coaxial Financing Corp., Coaxial Communications of Central Ohio, Inc. ("Coaxial"), Insight Communications of Central Ohio, LLC ("Insight Ohio"), Coaxial Communications of Southern Ohio, Inc. ("Southern Ohio"), Coaxial Associates of Columbus I ("Columbus I"), Coaxial Associates of Columbus II ("Columbus II"), Paxton Cable Television, Inc. ("Paxton Cable") and Paxton Communications, Inc. ("Paxton Communications"). The Company and Coaxial are co-issuers of the Senior Notes. The ability of the Company and Coaxial to make scheduled payments with respect to the Senior Notes is dependent on the financial and operating performance of Insight Ohio. The required distributions on the Series B preferred equity interest to Coaxial and ultimately the Company is designed to provide the cash flow necessary to service the debt requirements on the Senior Notes. 2. Responsibility for Interim Financial Statements The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements contained in the Company's Annual Report on Form 10-K as amended for the year ended December 31, 2000. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months and nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. 20 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC BALANCE SHEETS (in thousands)
September 30, December 31, 2001 2000 ------------- ------------- (unaudited) (Note 2) Assets Cash and cash equivalents $ 869 $ 1,169 Trade accounts receivable, net of allowance for doubtful accounts of $105 and $390 as of September 30, 2001 and December 31, 2000, respectively 2,929 2,782 Launch funds receivable 544 1,936 Prepaid expenses and other assets 1,142 437 --------- --------- Total current assets 5,484 6,324 Fixed assets, net 87,636 76,587 Intangible assets, net 496 448 --------- --------- Total assets $ 93,616 $ 83,359 ========= ========= Liabilities and members' deficit Accounts payable $ 4,823 $ 5,679 Accrued expenses and other liabilities 1,794 1,383 Accrued programming costs 2,806 3,014 Deferred revenue 437 545 Interest payable 230 786 Debt 1,875 -- Preferred interest distribution payable 1,750 5,250 Due to affiliates 4,077 1,502 --------- --------- Total current liabilities 17,792 18,159 Deferred revenue 1,871 2,005 Debt 23,125 25,000 --------- --------- Total liabilities 42,788 45,164 Commitments and contingencies Preferred interests 184,201 180,281 Members' deficit (133,373) (142,086) --------- --------- Total liabilities and members' deficit $ 93,616 $ 83,359 ========= =========
See accompanying notes 21 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Three months Nine months ended September 30, ended September 30, 2001 2000 2001 2000 ------------------ ------------------ ----------------- ---------------- Revenue $ 13,891 $ 12,435 $ 40,992 $ 36,381 Operating costs and expenses: Programming and other operating costs 6,021 4,963 16,700 14,603 Selling, general and administrative 2,653 2,466 7,937 6,915 Management fees 415 374 1,229 1,103 Depreciation and amortization 3,317 2,863 9,027 7,756 ------------------ ------------------ ----------------- ---------------- Total operating costs and expenses 12,406 10,666 34,893 30,377 Operating income 1,485 1,769 6,099 6,004 Other income (expense): Interest expense (430) (633) (1,350) (1,381) Interest income 6 27 47 71 Other 18 (5) (162) 35 ------------------ ------------------ ----------------- ---------------- Total other expense, net (406) (611) (1,465) (1,275) Net income 1,079 1,158 4,634 4,729 Accrual of preferred interests (4,848) (4,699) (14,421) (13,988) ------------------ ------------------ ----------------- ---------------- Net loss attributable to common interests $ (3,769) $ (3,541) $ (9,787) $ (9,259) ================== ================== ================= ================
See accompanying notes 22 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Nine months ended September 30, 2001 2000 ---------------- ---------------- Operating activities: Net income $ 4,634 $ 4,729 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,027 7,756 Provision for losses on trade accounts receivable 1,017 588 Changes in operating assets and liabilities: Trade accounts receivable (1,164) (978) Launch funds receivable 1,392 228 Prepaid expenses and other assets (705) (118) Accounts payable (856) 1,085 Accrued expenses and other liabilities 1,980 (30) ---------------- ---------------- Net cash provided by operating activities 15,325 13,260 ---------------- ---------------- Investing activities: Purchase of property and equipment (20,125) (27,851) Purchase of intangible assets - (47) ---------------- ---------------- Net cash used in investing activities (20,125) (27,898) ---------------- ---------------- Financing activities: Principal payments on capital lease obligations - (53) Capital contributions 18,500 19,400 Preferred interest distribution (14,000) (14,000) Borrowings under senior credit facility - 14,000 ---------------- ---------------- Net cash provided by financing activities 4,500 19,347 ---------------- ---------------- Net increase in cash and cash equivalents (300) 4,709 Cash and cash equivalents, beginning of period 1,169 882 ---------------- ---------------- Cash and cash equivalents, end of period $ 869 $ 5,591 ================ ================
See accompanying notes 23 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS 1. Organization Insight Communications of Central Ohio, LLC (the "Company") provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. 2. Responsibility for Interim Financial Statements The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements contained in the Company's Annual Report on Form 10-K as amended for the year ended December 31, 2000. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months and nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. Certain prior period amounts have been reclassified to conform to the current period presentation. 3. Cable System Transactions On January 5, 2001, Insight Midwest, L.P. ("Insight Midwest"), a 50-50 partnership between Insight LP and an indirect subsidiary of AT&T Broadband, LLC, completed a series of transactions with Insight LP and certain subsidiaries of AT&T Corp. (the "AT&T cable subsidiaries") for the acquisition of additional cable television systems valued at approximately $2.2 billion, including the common equity of the Company (the "AT&T transactions"). As a result of the AT&T transactions, Insight Midwest acquired all of Insight LP's wholly-owned systems serving approximately 280,000 customers, including the approximately 85,400 customers served by the Company and including systems which Insight LP purchased from the AT&T cable subsidiaries. At the same time, Insight Midwest acquired from the AT&T cable subsidiaries systems serving approximately 250,000 customers. 24 3. Cable System Transactions (continued) The Company is prohibited by the terms of its indebtedness from making distributions to Insight Midwest. Insight Midwest remains equally owned by Insight LP and AT&T Broadband, and Insight LP continues to serve as the general partner of Insight Midwest and manages and operates the Insight Midwest systems. Although the financial results of the Company will be consolidated into Insight Midwest as a result of the AT&T transactions, for financing purposes, the Company is an unrestricted subsidiary under the indentures of Insight Midwest and Insight Inc. The Company's conditional guarantee of the Senior Notes and the Senior Discount Notes remains in place. 4. Commitments and Contingencies Litigation The Company is subject to various legal proceedings that arise in the ordinary course of business. While it is impossible to determine with certainty the ultimate outcome of these matters, it is management's opinion that the resolution of these matters will not have a material adverse affect on the Company's consolidated financial condition. 5. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The Company is currently reviewing the impact of these standards and will be performing a fair value analysis at a later date in connection with the adoption of SFAS No. 142 on January 1, 2002. In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," effective for fiscal years beginning after December 15, 2001. SFAS No. 144 supersedes SFAS No. 121 and identifies the methods to be used in determining fair value. We are currently reviewing the impact of this standard and will be performing an analysis at a later date in connection with the adoption of SFAS No. 144 on January 1, 2002. 25 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and related notes which are included elsewhere in this report. Forward-Looking Statements This report contains "forward-looking statements," including statements containing the words "believes," "anticipates," "expects" and words of similar import, which concern, among other things, the operations, economic performance and financial condition of Insight Communications of Central Ohio, LLC ("Insight Ohio" or the "System"). All statements other than statements of historical fact included in this report regarding Coaxial LLC, Coaxial Financing Corp. and Insight Ohio or any of the transactions described in this report, including the timing, financing, strategies and effects of such transactions, are forward-looking statements. Such forward-looking statements are based upon a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of Coaxial LLC, Coaxial Financing Corp. and Insight Ohio, and reflect future business decisions which are subject to change. Although the management of Coaxial LLC, Coaxial Financing Corp. and Insight Ohio believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include, without limitation: . the ability of Coaxial LLC and Coaxial Financing Corp. to make scheduled payments with respect to the Senior Discount Notes (as defined below) which is dependent upon the financial and operating performance of the System; . the fact that a substantial portion of the System's cash flow from operations is required to be dedicated to the payment of principal and interest on its indebtedness and the required distributions with respect to its Preferred Interests, thereby reducing the funds available to the System for its operations and future business opportunities; . the fact that Coaxial LLC and Coaxial Financing Corp. have no significant assets other than the common equity of Coaxial Communications of Central Ohio, Inc. ("Coaxial") owned by Coaxial LLC and notes issued by Coaxial DJM LLC (an owner of 22.5% of the common equity of Coaxial) and Coaxial DSM LLC (an owner of 10% of the common equity of Coaxial) to Coaxial LLC; and . the fact that the indenture governing the terms of the Senior Discount Notes imposes restrictions on Coaxial LLC, Coaxial Financing Corp. and Insight Ohio and the Senior Credit Facility of the System imposes restrictions on Insight Ohio. Management of Coaxial LLC, Coaxial Financing Corp. and Insight Ohio does not intend to update these forward-looking statements. 26 Coaxial LLC and Coaxial Financing Corp. do not conduct any business and are dependent upon the cash flow of the System to meet their obligations under the Senior Discount Notes. Insight Communications Company, LP ("Insight LP") serves as the manager of the System. The following discussion relates to the operations of the System for the three months and nine months ended September 30, 2001 compared to the three months and nine months ended September 30, 2000. The financial statements of Insight Ohio are included in the consolidated financial statements of Coaxial through August 8, 2000. Coaxial is deemed to be a subsidiary of Coaxial LLC and, as such, the financial statements of Coaxial are included in the consolidated financial statements of Coaxial LLC. Therefore, the historical operating results of Coaxial LLC reflect the actual results of the System through August 8, 2000 in addition to certain financing activities unrelated to the operation of the System. These financing activities relate primarily to the offering of the Senior Discount Notes and Senior Notes discussed above as well as certain borrowings and repayments of debt with affiliated companies. These activities resulted in related financing and interest costs. The historical results of Coaxial LLC appear elsewhere in this report under the heading "Coaxial LLC." Overview The System relies on Insight LP, for all of its strategic, managerial, financial and operational oversight and advice. Insight LP also centrally purchases programming and equipment and provides the associated discount to the System. In exchange for all such services provided to the System and subject to certain restrictions contained in the covenants with respect to Insight Ohio's Senior Credit Facility and the Senior Notes, Insight LP is entitled to receive management fees of 3.0% of gross operating revenues of the System. Such management fees are payable only after distributions have been made with respect to the Preferred Interests and only to the extent that such payments would be permitted by an exception to the restricted payments covenants of the Senior Notes and the Senior Discount Notes as well as Insight Ohio's Senior Credit Facility. Recent Developments On January 5, 2001, Insight Midwest, L.P., a partnership 50% owned by Insight LP and 50% by an indirect subsidiary of AT&T Broadband, LLC, which is a subsidiary of AT&T Corp., through a series of transactions acquired all of Insight LP's wholly-owned systems serving approximately 280,000 customers, including the approximately 85,400 customers served by Insight Ohio and including systems which Insight LP purchased from the AT&T cable subsidiaries. At the same time, Insight Midwest acquired from the AT&T cable subsidiaries systems serving approximately 250,000 customers. Insight Ohio is an unrestricted subsidiary under the indentures governing Insight LP's and Insight Midwest's senior notes and is prohibited by the terms of its indebtedness from making distributions to Insight Midwest. Insight Midwest remains equally owned by Insight LP and AT&T Broadband, and Insight LP continues to serve as the general partner and manages and operates the Insight Midwest systems, including Insight Ohio. Although the financial results of Insight Ohio are consolidated into Insight Midwest as a result of the AT&T transactions, as noted above, for financing purposes, Insight Ohio is an unrestricted subsidiary under the indentures of Insight Midwest. Insight Ohio's conditional guarantee of the Senior Notes remains in place. 27 Results of Operations Substantially all of the System's revenue was earned from customer fees for cable television programming services including premium and pay-per-view services and ancillary services, such as rental of converters and remote control devices, installations and from selling advertising. In addition, the System earns revenue from commissions for products sold through home shopping networks. The following table is derived for the periods presented from the System's financial statements that are included in this report and sets forth certain statement of operations data for the System:
Three months Nine months ended September 30, ended September 30, 2001 2000 2001 2000 -------------- ------------- --------------- ------------- (in thousands) (in thousands) Revenue $ 13,891 $ 12,435 $ 40,992 $ 36,381 Operating costs and expenses: Programming and other operating costs 6,021 4,963 16,700 14,603 Selling, general and administrative 2,653 2,466 7,937 6,915 Management fees 415 374 1,229 1,103 Depreciation and amortization 3,317 2,863 9,027 7,756 -------------- ------------- --------------- ------------- Total operating costs and expenses 12,406 10,666 34,893 30,377 -------------- ------------- --------------- ------------- Operating income 1,485 1,769 6,099 6,004 Interest expense (430) (633) (1,350) (1,381) Net income 1,079 1,158 4,634 4,729 Net cash provided by operating activities 2,507 4,600 15,325 13,260 Net cash used in investing activities 7,380 12,167 20,125 27,898 Net cash provided by financing activities 3,118 7,388 4,500 19,347
28 Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Revenue for the three months ended September 30, 2001 increased $1.5 million or 11.7% to $13.9 million from $12.4 million for the three months ended September 30, 2000. For the three months ended September 30, 2001, customers served averaged approximately 85,800 compared to approximately 84,500 during the three months ended September 30, 2000. The increase in revenue was primarily attributable to new product launches, specifically digital services and high-speed data services. Revenue by service offering was as follows for the three months ended September 30 (in thousands): 2001 2000 Revenue Revenue by by Service % of Total by Service % of Total Offering Revenue Offering Revenue ---------- ---------- ----------- ----------- Basic $ 7,271 52.4% $ 6,891 55.4% Premium 1,636 11.8% 1,725 13.9% Pay-per-view 267 1.9% 363 2.9% Digital 985 7.1% 505 4.1% Advertising sales 1,024 7.4% 1,067 8.6% Data services 1,256 9.0% 312 2.5% Other 1,452 10.4% 1,572 12.6% ---------- ---------- ----------- ----------- Total $ 13,891 100.0% $ 12,435 100.0% ========== ========== =========== =========== RGUs (Revenue Generating Units) were approximately 117,100 as of September 30, 2001 compared to approximately 97,300 as of September 30, 2000. This represents an annualized growth rate of 20.3%. RGUs represent the sum of basic and digital video, high-speed data and telephone customers. Average monthly revenue per basic customer for the three months ended September 30, 2001 was $53.94 compared to $49.07 for the three months ended September 30, 2000. Average monthly revenue per basic customer for digital and high-speed data services was $8.70 for the three months ended September 30, 2001 compared to $3.22 for the three months ended September 30, 2000. As of September 30, 2001, there were approximately 21,200 digital customers representing a 33.4% penetration (digital customers as a percentage of total customers with access to digital service). High-speed data services were launched during the three months ended September 30, 2000. As of September 30, 2001, there were approximately 10,100 cable modem customers compared to 2,900 cable modem customers as of September 30, 2000, respectively, representing a penetration (modem customers as a percentage of homes passed with access to high-speed data services) of 6.8% and 4.0%, respectively. Programming and other operating costs increased $1.1 million or 21.3% to $6.0 million for the three months ended September 30, 2001 from $5.0 million for the three months ended September 30, 2000. The increase was primarily attributable to increased programming rates associated with digital services. Selling, general and administrative expenses increased $187,000 or 7.6% to $2.7 million for the three months ended September 30, 2001 from $2.5 million for the three months ended September 30, 2000. 29 The increase was primarily attributable to increased marketing activity and corporate expenses associated with advertising sales. Depreciation and amortization expense for the three months ended September 30, 2001 increased $454,000 or 15.9% to $3.3 million from $2.9 million for the three months ended September 30, 2000. This increase was primarily attributable to increased capital expenditures associated with the rebuild of systems from earlier in the year. Interest expense for the three months ended September 30, 2001 decreased $203,000 or 32.1% to $430,000 from $633,000 for the three months ended September 30, 2000. This decrease was primarily attributable to lower interest rates on outstanding borrowings. 30 Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Revenue for the nine months ended September 30, 2001 increased $4.6 million or 12.7% to $41.0 million compared to $36.4 million for the nine months ended September 30, 2000. For the nine months ended September 30, 2001, customers served averaged approximately 85,800 compared to approximately 84,400 during the nine months ended September 30, 2000. The increase in revenue was primarily attributable to new product launches, specifically digital services and high-speed data services. Revenue by service offering was as follows for the nine months ended September 30 (in thousands): 2001 2000 Revenue Revenue by by Service % of Total Service % of Total Offering Revenue Offering Revenue ----------------------------------------------- Basic $ 21,616 52.7% $ 20,475 56.3% Premium 5,109 12.5% 5,190 14.3% Pay-per-view 900 2.2% 1,325 3.6% Digital 2,840 6.9% 950 2.6% Advertising sales 3,059 7.5% 3,338 9.2% Data services 3,057 7.4% 408 1.1% Other 4,411 10.8% 4,695 12.9% ---------------------------------------------- Total $ 40,992 100.0% $ 36,381 100.0% =============================================== RGUs were approximately 117,100 as of September 30, 2001 compared to approximately 97,300 as of September 30, 2000. This represents an annualized growth rate of 20.3%. Average monthly revenue per basic customer for the nine months ended September 30, 2001 was $53.11 compared to $47.85 for the nine months ended September 30, 2000. Average monthly revenue per basic customer for digital and high-speed data services was $7.64 for the nine months ended September 30, 2001 compared to $1.79 for the nine months ended September 30, 2000. As of September 30, 2001, there were approximately 21,200 digital customers representing a 33.4% penetration. High-speed data services were launched during the three months ended September 30, 2000. As of September 30, 2001, there were approximately 10,100 cable modem customers compared to 2,900 cable modem customers as of September 30, 2000, respectively, representing a penetration (modem customers as a percentage of homes passed with access to high-speed data services) of 6.8% and 4.0%, respectively. Programming and other operating costs increased $2.1 million or 14.4% to $16.7 million for the nine months ended September 30, 2001 from $14.6 million for the nine months ended September 30, 2000. The increase was primarily attributable to increased programming rates associated with the digital services. Selling, general and administrative expenses increased $1.0 million or 14.8% to $7.9 million for the nine months ended September 30, 2001 from $6.9 million for the nine months ended September 30, 2000. The increase was primarily attributable to increased marketing activity and corporate expenses 31 associated with advertising sales. Depreciation and amortization expense for the nine months ended September 30, 2001 increased $1.3 million or 16.4% to $9.0 million from $7.8 million for the nine months ended September 30, 2000. This increase was primarily attributable to increased capital expenditures associated with the rebuild of systems from earlier in the year. Interest expense of $1.4 million for the nine months ended September 30, 2001 remained relatively flat compared to September 30, 2000. This was primarily attributable to lower interest rates on outstanding borrowings offset by a higher average outstanding borrowings balance. Liquidity and Capital Resources The cable television business is a capital-intensive business that generally requires financing for the upgrade, expansion and maintenance of the technical infrastructure. Capital expenditures totaled $20.1 million for the nine months ended September 30, 2001. These expenditures were primarily for the rebuild of cable plant and for serving new homes. Capital expenditures were financed by cash flows from operations and capital contributions. Insight continues to further enhance the technical platform of the System by upgrading the plant serving the majority of customers. The capability for high-speed data transmission, impulse pay-per-view, digital tiers of service and additional analog channels is intended to be provided by further deployment of fiber optics, an increase in the bandwidth to 870 MHz, activation of plant to allow two-way transmission and the installation of digital equipment. Capital expenditures are expected to approximate $25.5 million during the year ending December 31, 2001 to support not only ongoing plant extensions, new customer additions and capital replacement, but also to fund the plant upgrade to 870 MHz and to activate plant for two-way transmission, which is necessary to facilitate the deployment of interactive services. Cash provided by operations for the nine months ended September 30, 2001 and 2000 was $15.3 million and $13.3 million, respectively. The increase was primarily attributable to timing changes in working capital accounts. Cash used in investing activities for the nine months ended September 30, 2001 and 2000 was $20.1 million and $27.9 million, respectively, reflecting capital expenditures to upgrade the System and build plant expansions. Cash provided by financing activities for the nine months ended September 30, 2001 was $4.5 million. This was comprised of capital contributions of $18.5 million, less distributions on preferred interests of $14.0 million. Cash provided by financing activities for the nine months ended September 30, 2000 was $19.3 million consisting of borrowings under the Senior Credit Facility of $14.0 million and capital contributions of $19.4 million, less distributions on preferred interests of $14.0 million. The $25.0 million Senior Credit Facility was fully borrowed as of September 30, 2001. 32 Due to the increased rebuild costs, management determined that cash flows from operations may not be sufficient to finance the operating and capital requirements of the System, debt service requirements and distributions on the Preferred Interests over the next year. As such, Insight Midwest has committed to provide capital contributions to fund cash requirements through the year ending December 31, 2001. Insight Midwest contributed $18.5 million to Insight Ohio during the nine months ended September 30, 2001. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The Company is currently reviewing the impact of these standards and will be performing a fair value analysis at a later date in connection with the adoption of SFAS No. 142 on January 1, 2002. In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," effective for fiscal years beginning after December 15, 2001. SFAS No. 144 supersedes SFAS No. 121 and identifies the methods to be used in determining fair value. We are currently reviewing the impact of this standard and will be performing an analysis at a later date in connection with the adoption of SFAS No. 144 on January 1, 2002. 33 Item 3. Quantitative and Qualitative Disclosures About Market Risk Coaxial LLC, Coaxial Financing Corp. and Insight Ohio do not engage in trading market risk sensitive instruments and do not purchase hedging instruments or "other than trading" instruments that are likely to expose any of them to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. Coaxial LLC, Coaxial Financing Corp. and Insight Ohio have not entered into forward or future contracts, purchased options or entered into swaps. Insight Ohio's senior credit facility bears interest at floating rates. Accordingly, Insight Ohio is exposed to potential losses related to changes in interest rates. A hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase our projected annual interest expense by approximately $250,000 for the year ending December 31, 2001. The Senior Discount Notes issued by Coaxial LLC and Coaxial Financing Corp. and the Senior Notes issued by Coaxial and Phoenix bears interest at fixed rates. The fair value of borrowings under Insight Ohio's senior credit facility approximates carrying value as it bears interest at floating rates. The fair value and carrying value of the Senior Discount Notes as of September 30, 2001 was $41.7 million and $44.2 million, respectively. The fair value and carrying value of the Senior Notes as of September 30, 2001 was $137.0 million and $140.0 million, respectively. 34 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: None 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 13, 2001 Coaxial LLC (Registrant) By: /s/ Kim D. Kelly -------------------- Kim D. Kelly Executive Vice President, Chief Financial and Operating Officer Insight Communications Company, Inc. (Principal Financial and Accounting Officer) 36 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 13, 2001 Coaxial Financing Corp. (Registrant) By: /s/ Kim D. Kelly -------------------- Kim D. Kelly Executive Vice President, Chief Financial and Operating Officer Insight Communications Company, Inc. (Principal Financial and Accounting Officer) 37 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 13, 2001 Insight Communications of Central Ohio, LLC (Registrant) By: /s/ Kim D. Kelly -------------------- Kim D. Kelly Executive Vice President, Chief Financial and Operating Officer Insight Communications Company, Inc. (Principal Financial and Accounting Officer) 38 -----END PRIVACY-ENHANCED MESSAGE-----