10-Q 1 d10q.txt 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, 2002 COMMISSION FILE NUMBERS: 333-64449-02 333-64449-01 333-64449 ----------------------- COAXIAL LLC COAXIAL FINANCING CORP. INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC (Exact name of registrants as specified in their charters) DELAWARE 13-4080422 DELAWARE 13-4061992 DELAWARE 13-4017803 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) C/O INSIGHT COMMUNICATIONS COMPANY, INC. 810 7TH AVENUE NEW YORK, NEW YORK 10019 (Address of principal executive offices, including zip code) (917) 286-2300 (Registrants' telephone number, including area code) ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Coaxial LLC Not Applicable Coaxial Financing Corp. Not Applicable Insight Communications of Central Ohio, LLC Not Applicable =============================================================================== PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes required by accounting principles generally accepted in the United States. However, in our opinion, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the relevant periods have been made. Results for the interim periods are not necessarily indicative of the results to be expected for the year. These financial statements should be read in conjunction with the summary of significant accounting policies and the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2001. 1 COAXIAL LLC CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, December 31, 2002 2001 ---------- ---------- (unaudited) Assets Investments $ 16,760 $ 19,328 Dividends receivable 1,750 5,250 ---------- ---------- Total current assets 18,510 24,578 Deferred financing costs, net 3,623 3,814 Investment in affiliate 187,168 185,713 Note receivable - Coaxial DJM LLC 6,750 6,750 Note receivable - Coaxial DSM LLC 3,000 3,000 Interest receivable on notes 5,760 5,272 ---------- ---------- Total assets $ 224,811 $ 229,127 ========== ========== Liabilities and members' equity Accrued interest $ 1,750 $ 5,250 ---------- ---------- Total current liabilities 1,750 5,250 Senior discount notes 47,168 45,713 Senior notes, including $105.6 million to be paid by Phoenix Associates 140,000 140,000 ---------- ---------- Total liabilities 188,918 190,963 Commitments and contingencies Members' equity: In-substance allocation of proceeds related to senior notes to be paid by Phoenix Associates (64,985) (70,263) Members' accumulated equity 101,618 106,599 Accumulated other comprehensive income (loss) (740) 1,828 ---------- ---------- Total members' equity 35,893 38,164 ---------- ---------- Total liabilities and members' equity $ 224,811 $ 229,127 ========== ==========
See accompanying notes 2 COAXIAL LLC CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands) Three months ended March 31, 2002 2001 ---------- ---------- Expenses: Amortization $ 191 $ 191 Other income (expense): Interest income - related parties 488 430 Interest expense (4,955) (4,766) Dividend on preferred interests 4,955 4,766 ---------- ---------- Total other income, net 488 430 ---------- ---------- Net income $ 297 $ 239 ========== ========== See accompanying notes 3 COAXIAL LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three months ended March 31, 2002 2001 ------------- ----------- Operating activities: Net income $ 297 $ 239 Adjustments to reconcile net income to net cash used in operating activities: Amortization 191 191 Interest expense paid by affiliate 2,639 2,639 Dividend on preferred interest (4,955) (4,766) Accretion of original issue discount on Senior Discount Notes 1,455 1,266 Changes in operating assets and liabilities: Accrued interest (861) (861) Due from related parties (488) (430) ----------- ----------- Net cash used in operating activities (1,722) (1,722) ----------- ----------- Financing activities: Capital distributions (5,278) (5,278) Proceeds from dividend on preferred interests 7,000 7,000 ----------- ----------- Net cash provided by financing activities 1,722 1,722 ----------- ----------- Net change in cash and cash equivalents - - Cash and cash equivalents, beginning of period - - ----------- ----------- Cash and cash equivalents, end of period $ - $ - =========== ===========
See accompanying notes 4 COAXIAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Coaxial LLC (the "Company"), a Delaware limited liability company, was formed on July 24, 1998 in order to own and hold 67 1/2% of the common stock of Coaxial Communications of Central Ohio, Inc. ("Coaxial"). The Company has one individual as its sole member. Coaxial, an Ohio corporation, through its ownership of preferred interests, has a 30% voting interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"). Insight Ohio operates a cable television system that provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. In connection with the contribution of Coaxial's cable system ("the System") described below and with the issuance of the Senior Notes and Senior Discount Notes by Coaxial and the Company during 1998, the three individuals who previously owned the outstanding stock of Coaxial contributed their stock to three separate limited liability companies. Accordingly, Coaxial is a subsidiary of the Company, which owns 67 1/2% of Coaxial's outstanding stock. Other related entities affiliated with the Company in addition to Coaxial, include Coaxial DJM LLC, Coaxial DSM LLC, (collectively, the "Coaxial Entities"), Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton Communications, Inc. The Company and Coaxial Financing Corp. are co-issuers of the Senior Discount Notes. Coaxial and Phoenix are co-issuers of the Senior Notes. The ability of Coaxial Financing Corp., the Company, Coaxial and Phoenix to make scheduled payments with respect to the Senior Discount Notes and Senior Notes is dependent on the financial and operating performance of Insight Ohio. The required distributions on the Series A preferred equity interest and Series B preferred equity interest to Coaxial are designed to provide the cash flow necessary to service the debt requirements on the Senior Notes and Senior Discount Notes, respectively. 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the consolidated financial statements reflect all adjustments considered necessary for a fair statement of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. 5 COAXIAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS (continued) The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002 or any other interim period. 3. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Senior Discount Notes was $46.2 million and $42.6 million as of March 31, 2002 and December 31, 2001, respectively. The fair value of the Senior Notes was $141.9 million and $143.5 million as of March 31, 2002 and December 31, 2001, respectively. 4. COMPREHENSIVE INCOME AND LOSS Comprehensive income (loss) totaled ($2.3) million and $2.6 million for the three months ended March 31, 2002 and 2001, respectively. The Company owns common stock that is classified as available-for-sale and reported at market value, with unrealized gains and losses recorded as accumulated other comprehensive income or loss in the accompanying balance sheets. 6 COAXIAL FINANCING CORP. BALANCE SHEETS (in thousands)
March 31, December 31, 2002 2001 ---------- ----------- (unaudited) Assets Cash $ 1 $ 1 Deferred financing costs, net 864 898 --------- ---------- Total assets $ 865 $ 899 ========= ========== Liabilities and shareholders' deficit Senior discount notes, to be paid by Coaxial LLC $ 47,168 $ 45,713 Shareholders' deficit: Common stock; $.01 par value; 1,000 shares authorized, issued and outstanding - - Paid-in-capital 1 1 In-substance allocation of proceeds related to senior discount notes to be paid by Coaxial LLC (28,646) (28,646) Accumulated deficit (17,658) (16,169) --------- ---------- Total shareholders' deficit (46,303) (44,814) --------- ---------- Total liabilities and shareholders' deficit $ 865 $ 899 ========= ==========
See accompanying notes 7 COAXIAL FINANCING CORP. STATEMENTS OF OPERATIONS (unaudited) (in thousands) Three months ended March 31, 2002 2001 ---- ---- Expenses: Amortization $ (34) $ (34) Interest (1,455) (1,266) ---------- ---------- Net loss $ (1,489) $ (1,300) ========== ========== See accompanying notes 8 COAXIAL FINANCING CORP. STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three months ended March 31, 2002 2001 ---- ---- Cash flows from operating activities: Net loss $ (1,489) $ (1,300) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred financing costs 34 34 Accretion of original issue discount on senior discount notes assumed by affiliate 1,455 1,266 --------- --------- Net cash provided by operating activities - - --------- --------- Net change in cash - - Cash, beginning of period 1 1 --------- --------- Cash, end of period $ 1 $ 1 ========= ========= See accompanying notes 9 COAXIAL FINANCING CORP. NOTES TO FINANCIAL STATEMENTS CONTINUED 1. ORGANIZATION Coaxial Financing Corp. (the "Company"), a Delaware corporation, was formed on July 24, 1998, for the sole purpose of being a co-issuer with Coaxial LLC, a related entity, of discount notes which allows certain investors the ability to be holders of the debt. The Company has no operations. Three individuals own the outstanding shares of the Company. 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the financial position as of the interim dates presented. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. 3. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Senior Discount Notes was $46.2 million and $42.6 million as of March 31, 2002 and December 31, 2001, respectively. 10 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. BALANCE SHEETS (in thousands)
March 31, December 31, 2002 2001 --------------------------------- (unaudited) Assets Investments $ 16,760 $ 19,328 Dividend receivable 1,750 5,250 --------------------------------- Total current assets 18,510 24,578 Deferred financing costs, net 2,758 2,915 Investment in affiliate 187,168 185,713 --------------------------------- Total assets $ 208,436 $ 213,206 ================================= Liabilities and shareholders' equity Accrued interest $ 1,750 $ 5,250 --------------------------------- Total current liabilities 1,750 5,250 Senior notes, including $105.6 million to be paid by Phoenix Associates 140,000 140,000 --------------------------------- Total liabilities 141,750 145,250 Commitments and contingencies Shareholders' equity: Common stock; $1 par value; 2,000 shares authorized; 1,080 shares issued and outstanding as of March 31, 2002 and December 31, 2001 1 1 Paid in capital 11,501 11,501 In-substance allocation of proceeds related to senior notes to be paid by Phoenix Associates (64,985) (70,263) Retained earnings 120,909 124,889 Accumulated other comprehensive income (loss) (740) 1,828 --------------------------------- Total shareholders' equity 66,686 67,956 --------------------------------- Total liabilities and shareholders' equity $ 208,436 $ 213,206 =================================
See accompanying notes 11 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Three months ended March 31, 2002 2001 -------------------------------------- Expenses: Amortization $ 157 $ 157 Other income (expense): Interest expense (3,500) (3,500) Dividend on preferred interests 4,955 4,766 -------------------------------------- Total other income, net 1,455 1,266 -------------------------------------- Net income $ 1,298 $ 1,109 ======================================
See accompanying notes 12 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three months ended March 31, 2002 2001 ---------------------------- Operating activities: Net income $ 1,298 $ 1,109 Adjustments to reconcile net income to net cash used in operating activities: Amortization 157 157 Interest expense paid by affiliate 2,639 2,639 Dividend on preferred interest (4,955) (4,766) Changes in operating assets and liabilities: Accrued interest (861) (861) ---------------------------- Net cash used in operating activities (1,722) (1,722) ---------------------------- Financing activities: Capital distributions (5,278) (5,278) Proceeds from dividend on preferred interest 7,000 7,000 ---------------------------- Net cash provided by financing activities 1,722 1,722 ---------------------------- Net change in cash and cash equivalents - - Cash and cash equivalents, beginning of period - - ---------------------------- Cash and cash equivalents, end of period $ - $ - ============================
See accompanying notes 13 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Coaxial Communications of Central Ohio, Inc. (the "Company"), an Ohio corporation, through its ownership of preferred interests, has a 30% voting interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"). Insight Ohio operates a cable television system that provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. Prior to August 8, 2000, the Company owned 100% of the voting interest in Insight Ohio and therefore consolidated the financial statements of Insight Ohio for periods prior to such date. In connection with the contribution of the Company's cable system (the "System"), the issuance of the Senior Notes and the issuance of the Senior Discount Notes by the Company's majority shareholder, Coaxial LLC, during 1998 the three individuals who previously owned the outstanding stock of the Company contributed their stock to three separate limited liability companies. Accordingly, the Company is a subsidiary of Coaxial LLC, which owns 67 1/2% of its outstanding stock. Other related entities affiliated with the Company in addition to Coaxial LLC, include Coaxial DJM LLC, Coaxial DSM LLC, (collectively, the "Coaxial Entities"), Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton Communications, Inc. The Company and Phoenix are co-issuers of the Senior Notes. The ability of the Company and Phoenix to make scheduled payments with respect to the Senior Notes is dependent on the financial and operating performance of Insight Ohio. The required distributions on the Series A preferred equity interest to the Company is designed to provide the cash flow necessary to service the debt requirements on the Senior Notes. 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. 14 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. NOTES TO FINANCIAL STATEMENTS (continued) 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS (continued) The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002 or any other interim period. 3. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Senior Notes was $141.9 million and $143.5 million as of March 31, 2002 and December 31, 2001, respectively. 4. COMPREHENSIVE INCOME AND LOSS Comprehensive income (loss) totaled ($1.3) million and $3.5 million for the three months ended March 31, 2002 and 2001, respectively. The Company owns common stock that is classified as available-for-sale and reported at market value, with unrealized gains and losses recorded as accumulated other comprehensive income or loss in the accompanying balance sheets. 15 PHOENIX ASSOCIATES BALANCE SHEETS (in thousands)
March 31, December 31, 2002 2001 ----------------------------- (unaudited) Assets Interest receivable $ 570 $ 531 Notes receivable - related parties 550 550 ----------------------------- Total current assets 1,120 1,081 Due from related party 406 406 Deferred financing costs, net 2,758 2,915 ----------------------------- Total assets $ 4,284 $ 4,402 ============================= Liabilities and partners' deficit Interest payable $ 1,750 $ 5,250 ----------------------------- Total current liabilities 1,750 5,250 Senior notes, including $34.4 million to be paid by Coaxial Communications of Central Ohio, Inc. 140,000 140,000 ----------------------------- Total liabilities 141,750 145,250 Commitments and contingencies Partners' deficit: In-substance allocation of proceeds related to senior notes to be paid by Coaxial Communications of Central Ohio, Inc. (21,155) (22,877) Partners' accumulated deficit (116,311) (117,971) ----------------------------- Total partners' deficit (137,466) (140,848) ----------------------------- Total liabilities and partners' deficit $ 4,284 $ 4,402 =============================
See accompanying notes 16 PHOENIX ASSOCIATES STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Three months ended March 31, 2002 2001 ---------- ---------- Expenses: Amortization $ (157) $ (157) Interest income (expense): Interest income-related parties 39 39 Interest expense (3,500) (3,500) ---------- ---------- Total interest expense, net (3,461) (3,461) ---------- ---------- Net loss $ (3,618) $ (3,618) ========== ==========
See accompanying notes 17 PHOENIX ASSOCIATES STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three months ended March 31, 2002 2001 ----------- ------------ Operating activities: Net loss $ (3,618) $ (3,618) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 157 157 Interest expense assumed by affiliate 861 861 Changes in operating assets and liabilities: Interest receivable (39) (39) Interest payable (2,639) (2,639) ----------- ------------ Net cash used in operating activities (5,278) (5,278) ----------- ------------ Financing activities: Capital contributions 5,278 5,278 ----------- ------------ Net cash provided by financing activities 5,278 5,278 ----------- ------------ Net change in cash - - Cash, beginning of period - - ----------- ------------ Cash, end of period $ - $ - =========== ============
See accompanying notes 18 PHOENIX ASSOCIATES NOTES TO FINANCIAL STATEMENTS 1. BUSINESS ORGANIZATION AND PURPOSE Phoenix Associates (the "Company") is a Florida general partnership organized for the primary purpose of purchasing promissory notes, mortgages, deeds of trust, debt securities and other types of securities and purchasing and acquiring rights in any loan agreements or other documents relating to those securities. The Company has no operations. The Company consists of three separate LLC's whose sole members are individual partners who share profits and losses in the ratio of 67 1/2%, 22 1/2% and 10%, respectively. Other related entities affiliated with the Company include Coaxial LLC, Coaxial Financing Corp., Coaxial Communications of Central Ohio, Inc. ("Coaxial"), Insight Communications of Central Ohio, LLC ("Insight Ohio"), Coaxial Communications of Southern Ohio, Inc. ("Southern Ohio"), Coaxial Associates of Columbus I ("Columbus I"), Coaxial Associates of Columbus II ("Columbus II"), Paxton Cable Television, Inc. ("Paxton Cable") and Paxton Communications, Inc. ("Paxton Communications"). The Company and Coaxial are co-issuers of the Senior Notes. The ability of the Company and Coaxial to make scheduled payments with respect to the Senior Notes is dependent on the financial and operating performance of Insight Ohio. The required distributions on the Series A preferred equity interest to Coaxial and ultimately the Company is designed to provide the cash flow necessary to service the debt requirements on the Senior Notes. 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002 or any other interim period. 19 PHOENIX ASSOCIATES NOTES TO FINANCIAL STATEMENTS (continued) 3. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Senior Notes was $141.9 million and $143.5 million as of March 31, 2002 and December 31, 2001, respectively. 20 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC BALANCE SHEETS (in thousands)
March 31, December 31, 2002 2001 -------------------------------- (unaudited) Assets Cash and cash equivalents $ 5,249 $ 2,158 Trade accounts receivable, net of allowance for doubtful accounts of $177 and $158 as of March 31, 2002 and December 31, 2001, respectively 2,105 2,599 Launch funds receivable 1,181 1,327 Prepaid expenses and other assets 428 401 ----------------------------- Total current assets 8,963 6,485 Fixed assets, net 92,787 91,673 Intangible assets, net 529 499 ----------------------------- Total assets $ 102,279 $ 98,657 ============================= Liabilities and members' deficit Accounts payable $ 4,306 $ 5,689 Accrued expenses and other liabilities 1,771 1,321 Accrued property taxes 437 10 Accrued programming costs 2,192 2,194 Deferred revenue 1,054 1,219 Debt, current portion 1,250 - Interest payable 170 232 Preferred interest distribution payable 1,750 5,250 Due to affiliates 5,807 5,890 ----------------------------- Total current liabilities 18,737 21,805 Deferred revenue 928 1,559 Debt 23,750 25,000 ----------------------------- Total liabilities 43,415 48,364 Commitments and contingencies Preferred interests 187,168 185,713 Members' deficit (128,304) (135,420) ----------------------------- Total liabilities and members' deficit $ 102,279 $ 98,657 =============================
See accompanying notes 21 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC STATEMENTS OF OPERATIONS (unaudited) (in thousands)
Three months ended March 31, 2002 2001 ------------- -------------- Revenue $ 15,040 $ 13,491 Operating costs and expenses: Programming and other operating costs 5,680 5,096 Selling, general and administrative 2,989 2,902 Management fees 439 396 Depreciation and amortization 3,680 2,720 ------------- -------------- Total operating costs and expenses 12,788 11,114 Operating income 2,252 2,377 Other income (expense): Interest expense (211) (502) Interest income 2 15 Other 28 24 -------------- -------------- Total other expense, net (181) (463) Net income 2,071 1,914 Accrual of preferred interests (4,955) (4,766) -------------- -------------- Net loss attributable to common interests $ (2,884) $ (2,852) ============== ==============
See accompanying notes 22 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three months ended March 31, 2002 2001 ----------- ------------ Operating activities: Net income $ 2,071 $ 1,914 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,680 2,720 Provision for losses on trade accounts receivable 303 306 Changes in operating assets and liabilities: Trade accounts receivable 191 562 Launch funds receivable 146 266 Prepaid expenses and other assets (27) (164) Accounts payable and accrued expenses (1,449) (3,184) ------------ ------------ Net cash provided by operating activities 4,915 2,420 ------------ ------------ Investing activities: Purchase of property and equipment (4,784) (3,505) Purchase of intangible assets (40) - ------------ ------------ Net cash used in investing activities (4,824) (3,505) ------------ ------------ Financing activities: Capital contributions 10,000 8,382 Preferred interest distribution (7,000) (7,000) ------------ ------------ Net cash provided by financing activities 3,000 1,382 ------------ ------------ Net increase in cash and cash equivalents 3,091 297 Cash and cash equivalents, beginning of period 2,158 1,169 ------------ ------------ Cash and cash equivalents, end of period $ 5,249 $ 1,466 ============ ============
See accompanying notes 23 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS CONTINUED 1. BUSINESS ORGANIZATION AND PURPOSE Insight Communications of Central Ohio, LLC (the "Company") is a subsidiary of Insight Holdings of Ohio, LLC which owns 100% of its common equity, which is a wholly owned subsidiary of Insight Midwest, L.P. ("Insight Midwest"). Insight Midwest is equally owned by Insight Communications Company L.P. ("Insight LP") and AT&T Broadband. Insight LP, as general partner and manager of Insight Midwest, manages and operates the Company's systems. The Company provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002 or any other interim period. Certain prior period amounts have been reclassified to conform to the current period presentation. 3. ACCOUNTING FOR FRANCHISE FEES The Company has historically recorded reimbursements of franchise fees from customers as an offset to franchise fee expense included as a component of selling, general and administrative expense. In November 2001, the Financial Accounting Standards Board concluded that reimbursements received by a vendor from a customer should be reflected as revenues and not as a reduction of expenses. On March 12, 2002, the Securities Exchange Commission staff concluded that as a result of this guidance, it expected all cable television companies to present franchise fees in their statements of operations in this manner. Consequently, beginning January 1, 2002, the Company has presented reimbursements of 24 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS CONTINUED 3. ACCOUNTING FOR FRANCHISE FEES (continued) franchise fees as revenues and franchise fee payments as expenses in the accompanying statements of operations. Additionally, the Company has adjusted the prior period amounts to reflect such presentation. The effect on the prior period statement of operations was to increase both revenue and selling, general and administrative costs by $379,000. 4. RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which became effective for the Company beginning January 1, 2002. SFAS No. 144 supersedes FASB Statement No. 121, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions relating to the disposal of a segment of a business of Accounting Principles Board Opinion No. 30. The adoption of SFAS No. 144 had no impact on the Company's consolidated financial position or results of operations. 5. COMMITMENTS AND CONTINGENCIES PROGRAMMING CONTRACTS The Company enters into long-term contracts with third parties who provide programming for distribution over the Company's cable television systems. These programming contracts are a significant part of our business and represent a substantial portion of our operating costs. Since future fees under such contracts are based on numerous variables, including number and type of customers, the Company has not recorded any liabilities with respect to such contracts. LITIGATION The Company is party in or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on the Company's future results of operations or financial position. 25 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS CONTINUED 6. RELATED PARTY TRANSACTIONS MANAGEMENT FEES The Company pays Insight LP management fees of approximately 3% of its revenue to serve as manager of the Company's cable systems. Fees under this operating agreement were $439,000 and $396,000 for the three months ended March 31, 2002 and 2001, respectively. PROGAMMING The Company purchases substantially all of its pay television and other programming from affiliates of AT&T Broadband. Charges for such programming were $1.7 million and $1.9 million for the three months ended March 31, 2002 and 2001. As of March 31, 2002 and December 31, 2001, $1.1 million and $1.6 million of accrued programming costs were due to affiliates of AT&T Broadband. The Company believes that the programming rates charged by the affiliates of AT&T Broadband are lower than those available from independent parties. 26 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and related notes that are included elsewhere in this report. FORWARD-LOOKING STATEMENTS This report contains "forward-looking statements," including statements containing the words "believes," "anticipates," "expects" and words of similar import, which concern, among other things, the operations, economic performance and financial condition of Insight Communications of Central Ohio, LLC ("Insight Ohio" or the "System"). All statements other than statements of historical fact included in this report regarding Coaxial LLC ("Coaxial"), Coaxial Financing Corp. and Insight Ohio (collectively, the "Companies") or any of the transactions described in this report, including the timing, financing, strategies and effects of such transactions, are forward-looking statements. Such forward-looking statements are based upon a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Companies, and reflect future business decisions that are subject to change. Although the management of the Companies believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include, without limitation: .. the ability of Coaxial and Coaxial Financing Corp. to make scheduled payments with respect to the Senior Discount Notes (as defined below) which is dependent upon the financial and operating performance of the System; .. the fact that a substantial portion of the System's cash flow from operations is required to be dedicated to the payment of principal and interest on its indebtedness and the required distributions with respect to its Preferred Interests, thereby reducing the funds available to the System for its operations and future business opportunities; .. the fact that Coaxial and Coaxial Financing Corp. have no significant assets other than Coaxial's ownership of the common equity of Coaxial Communications of Central Ohio, Inc. ("Coaxial Inc.") and notes issued by Coaxial DJM LLC (an owner of 22.5% of the common equity of Coaxial Inc.) and Coaxial DSM LLC (an owner of 10% of the common equity of Coaxial Inc.) to Coaxial; and .. the fact that the indenture governing the terms of the Senior Discount Notes imposes restrictions on Coaxial, Coaxial Financing Corp. and Insight Ohio and the Senior Credit Facility of the System imposes restrictions on Insight Ohio. Management of the Companies does not intend to update these forward-looking statements. Coaxial and Coaxial Financing Corp. do not conduct any business and are dependent upon the cash flow of the System to meet their obligations under the Senior Discount Notes. Insight Communications Company, LP ("Insight LP") serves as the manager of the System. 27 The following discussion relates to the operations of the System for the three months ended March 31, 2002 compared to the three months ended March 31, 2001. OVERVIEW The System relies on Insight LP, for all of its strategic, managerial, financial and operational oversight and advice. Insight LP also centrally purchases programming and equipment and provides the associated discount to the System. In exchange for all such services provided to the System and subject to certain restrictions contained in the covenants with respect to Insight Ohio's Senior Credit Facility and the Senior Notes and Senior Discount Notes, Insight LP receives management fees of approximately 3.0% of gross operating revenue of the System. Such management fees are payable only after distributions have been made with respect to the Preferred Interests and only to the extent that such payments would be permitted by an exception to the restricted payments covenants of the Senior Notes and Senior Discount Notes as well as Insight Ohio's Senior Credit Facility. RESULTS OF OPERATIONS Substantially all of the System's revenue was earned from customer fees for cable television programming services including premium and pay-per-view services and ancillary services, such as rental of converters and remote control devices, installations and from selling advertising. In addition, the System earns revenue from commissions for products sold through home shopping networks. The Company has historically recorded reimbursements of franchise fees from customers as an offset to franchise fee expense included as a component of selling, general and administrative expense. In November 2001, the Financial Accounting Standards Board concluded that reimbursements received by a vendor from a customer should be reflected as revenues and not as a reduction of expenses. On March 12, 2002, the Securities Exchange Commission staff concluded that as a result of this guidance, it expected all cable television companies to present franchise fees in their statements of operations in this manner. Consequently, beginning January 1, 2002, the Company has presented reimbursements of franchise fees as revenues and franchise fee payments as expenses in the accompanying statements of operations. Additionally, the Company has adjusted the prior period amounts to reflect such presentation. The effect on the prior period statement of operations was to increase both revenue and selling, general and administrative costs by $379,000. 28 The following table is derived for the periods presented from the System's financial statements that are included in this report and sets forth certain statement of operations data for the System: Three months ended March 31, 2002 2001 ------------- -------------- (in thousands) Revenue $ 15,040 $ 13,491 Operating costs and expenses: Programming and other operating costs 5,680 5,096 Selling, general and administrative 2,989 2,902 Management fees 439 396 Depreciation and amortization 3,680 2,720 ------------- -------------- Total operating costs and expenses 12,788 11,114 ------------- -------------- Operating income 2,252 2,377 EBITDA 5,960 5,121 Interest expense 211 502 Net income 2,071 1,914 Net cash provided by operating activities 4,915 2,420 Net cash used in investing activities 4,824 3,505 Net cash provided by financing activities 3,000 1,382 EBITDA represents earnings before interest, taxes, depreciation and amortization. Our management believes that EBITDA is commonly used in the cable television industry to analyze and compare cable television companies on the basis of operating performance, leverage and liquidity. However, EBITDA is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either operating income or net income as an indicator of operating performance or cash flows as a measure of liquidity, as determined in accordance with accounting principles generally accepted in the United States. EBITDA, as computed by management, is not necessarily comparable to similarly titled amounts of other companies. Refer to our financial statements, including our statements of cash flows, which appear elsewhere in this report. THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 Revenue for the three months ended March 31, 2002 increased $1.5 million or 11.5% to $15.0 million from $13.5 million for the three months ended March 31, 2001. For the three months ended March 31, 2002, customers served averaged approximately 86,800 compared to approximately 85,700 during the three months ended March 31, 2001. The increase in revenue was primarily attributable to gains in our high-speed and digital services with revenue increases quarter over quarter of 120.0% and 33.7%. In addition, our basic cable service increased $382,000 or 5.4% primarily due to basic cable rate increases that took effect in the second quarter of 2001 and continued customer growth during the quarter. 29 Revenue by service offering was as follows for the three months ended March 31, (in thousands): 2002 Revenue 2001 Revenue by Service % of Total by Service % of Total Offering Revenue Offering Revenue ----------- ------------ --------------- ---------- Basic $ 7,519 50.0% $ 7,137 52.9% Premium 1,607 10.7% 1,732 12.8% Pay-per-view 162 1.1% 292 2.2% Digital 1,190 7.9% 890 6.6% Advertising sales 1,071 7.1% 831 6.2% Data services 1,594 10.6% 725 5.4% Franchise fees 399 2.7% 379 2.8% Other 1,498 9.9% 1,505 11.1% ----------- ------------ ------------- ---------- Total $ 15,040 100.0% $ 13,491 100.0% =========== ============ ============= ========== RGUs (Revenue Generating Units) were approximately 127,800 as of March 31, 2002 compared to approximately 111,300 as of March 31, 2001. This represents an annual growth rate of 14.8%. RGUs represent the sum of basic and digital video, high-speed data and telephone customers. Average monthly revenue per basic customer for the three months ended March 31, 2002 was $57.76 compared to $52.49 for the three months ended March 31, 2001. Average monthly revenue per basic customer for digital and high-speed data services was $10.69 for the three months ended March 31, 2002 compared to $6.28 for the three months ended March 31, 2001. As of March 31, 2002, there were approximately 26,000 digital customers compared to approximately 17,900 digital customers as of March 31, 2001, representing a penetration of 33.9% and 28.7%, respectively. As of March 31, 2002, there were approximately 14,100 high-speed data customers compared to approximately 7,500 high-speed data customers as of March 31, 2001, representing a penetration of 8.3% and 5.2%, respectively. Programming and other operating costs increased $584,000 or 11.5% to $5.7 million for the three months ended March 31, 2002 from $5.1 million for the three months ended March 31, 2001. The increase was primarily attributable to increased programming rates associated with the Company's classic service and an increase in property taxes offset by decreases in costs related to digital and high-speed data services. Selling, general and administrative expenses remained relatively flat from the prior year quarter. The increase of $87,000 or 3.0% to $3.0 million for the three months ended March 31, 2002 from $2.9 million for the three months ended March 31, 2001 was primarily attributable to increased corporate overhead expenses during the quarter. Management fees are directly related to revenue as these fees are calculated as approximately 3% of gross revenues. 30 Depreciation and amortization expense for the three months ended March 31, 2002 increased $960,000 or 35.3% to $3.7 million from $2.7 million for the three months ended March 31, 2001. This increase was primarily attributable to increased capital expenditures associated with the rebuild of plant and launch of new services. EBITDA increased 16.4% to $6.0 million for the three months ended March 31, 2002 from $5.1 million for the three months ended March 31, 2001. This increase was primarily due to the 11.5% increase in revenue. Interest expense for the three months ended March 31, 2002 decreased $291,000 or 58.0% to $211,000 from $502,000 for the three months ended March 31, 2001. This decrease was primarily attributable to lower interest rates. For the three months ended March 31, 2002, the net income was $2.1 million primarily for the reasons set forth above. LIQUIDITY AND CAPITAL RESOURCES The cable television business is a capital-intensive business that generally requires financing for the upgrade, expansion and maintenance of the technical infrastructure. Capital expenditures totaled $4.8 million for the three months ended March 31, 2002. These expenditures were primarily for the upgrade of the System and plant expansions. Capital expenditures were financed by cash flows from operations and capital contributions. Cash provided by operations for the three months ended March 31, 2002 and 2001 was $4.9 million and $2.4 million, respectively. The increase was primarily attributable to the timing of cash receipts and payments related to working capital accounts. Cash used in investing activities for the three months ended March 31, 2002 and 2001 was $4.8 million and $3.5 million, respectively, reflecting capital expenditures to upgrade the System and build plant expansions. Cash provided by financing activities for the three months ended March 31, 2002 was $3.0 million. This was comprised of capital contributions from Insight Midwest of $10.0 million offset by distributions on preferred interests of $7.0 million. Cash provided by financing activities for the three months ended March 31, 2001 was $1.4 million consisting of capital contributions of $8.4 million, less distributions on preferred interests of $7.0 million. The Senior Credit Facility contains covenants restricting, among other things, the Company's ability to make capital expenditures, acquire or dispose of assets, make investments and engage in transactions with related parties. The facility also requires compliance with certain financial ratios and contains customary events of default. Given current operating conditions and projected results of operations, we anticipate full compliance with this credit facility agreement for the foreseeable future. 31 The following summarizes our contractual obligations as of March 31, 2002, including periods in which the related payments are due:
2003 2005 2002 to 2004 to 2006 Thereafter Total ---------------------------------------------------------------- Long-term debt $ - $ 25,000 $ - $ - $ 25,000 Operating leases 48 25 16 193 282 Preferred interests 7,000 35,193 175,387 66,659 284,239 ---------------------------------------------------------------- Total cash obligations $ 7,048 $ 60,218 $ 175,403 $ 66,852 $ 309,521 ================================================================
Due to the increased capital expenditures, management determined that cash flows from operations will not be sufficient to finance the operating and capital requirements of the System, debt service requirements and distributions on the Preferred Interests over the next year. As such, Insight Midwest has committed to provide capital contributions to fund cash requirements through the year ending December 31, 2002. Insight Midwest contributed $10.0 million to Insight Ohio during the three months ended March 31, 2002. 32 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Companies do not engage in trading market risk sensitive instruments and do not purchase hedging instruments or "other than trading" instruments that are likely to expose them to market risk, interest rate, foreign currency exchange, commodity price or equity price risk. The Companies have not entered into forward or future contracts, purchased options or entered into swap agreements. Insight Ohio's Senior Credit Facility bears interest at floating rates. Accordingly, Insight Ohio is exposed to potential losses related to changes in interest rates. A hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase projected annual interest expense by $250,000. The Senior Notes and Senior Discount Notes bear interest at fixed rates. The fair value of borrowings under Insight Ohio's senior credit facility approximates carrying value as it bears interest at floating rates. The fair value and carrying value of the Senior Notes and Senior Discount Notes as of March 31, 2002 was $141.9 million and $140.0 million and $46.2 million and $47.2 million, respectively. 33 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1 First Amendment, dated as of June 30, 2000, to the Revolving Credit Agreement 10.2 Second Amendment, dated as of June 30, 2000, to the Revolving Credit Agreement 10.3 Third Amendment, dated as of March 4, 2002, to the Revolving Credit Agreement (b) Reports on Form 8-K: None 34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 15, 2002 Coaxial LLC (Registrant) By: /s/ Dinesh C. Jain ---------------------- Dinesh C. Jain Senior Vice President and Chief Financial Officer Insight Communications Company, Inc. (Principal Financial Officer) 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 15, 2002 Coaxial Financing Corp. (Registrant) By: /s/ Dinesh C. Jain ---------------------- Dinesh C. Jain Senior Vice President and Chief Financial Officer Insight Communications Company, Inc. (Principal Financial Officer) 36 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 15, 2002 Insight Communications of Central Ohio, LLC (Registrant) By: /s/ Dinesh C Jain --------------------- Dinesh C Jain Senior Vice President and Chief Financial Officer Insight Communications Company, Inc. (Principal Financial Officer) 37