10-Q 1 d10q.txt 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, 2001 Commission File Numbers: 333-63677-02 333-63677-01 333-63677 Coaxial Communications of Central Ohio, Inc. Phoenix Associates Insight Communications of Central Ohio, LLC (Exact name of registrants as specified in their charters) Ohio 31-0975825 Florida 59-1798351 Delaware 13-4017803 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Numbers) 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 registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. [X] Yes [__] No Indicate the number of shares outstanding of each of the registrants' classes of common stock, as of the latest practicable date. Coaxial Communications of Central Ohio, Inc. Not Applicable Phoenix Associates Not Applicable Insight Communications of Central Ohio, LLC Not Applicable ================================================================================ COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. BALANCE SHEETS (in thousands)
March 31, December 31, 2001 2000 ----------------------------- (unaudited) (Note 2) Assets Investments $ 21,200 $ 18,800 Dividends receivable 1,750 5,250 ------------------------- Total current assets 22,950 24,050 Intangible assets, net 826 864 Investment in affiliate 181,547 180,281 ------------------------- Total assets $ 205,323 $ 205,195 ========================= Liabilities and shareholders' equity Accounts payable and accrued expenses $ 430 $ 1,291 ------------------------- Total current liabilities 430 1,291 Senior notes 34,435 34,435 ------------------------- Total liabilities 34,865 35,726 Commitments and contingencies Shareholders' equity: Common stock; $1 par value; 2,000 shares authorized; 1,080 shares issued and outstanding as of March 31, 2001 and December 31, 2000 1 1 Paid-in-capital 11,501 11,501 Retained earnings 155,256 156,667 Accumulated other comprehensive income 3,700 1,300 ------------------------- Total shareholders' equity 170,458 169,469 ------------------------- Total liabilities and shareholders' equity $ 205,323 $ 205,195 =========================
See accompanying notes 1 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands) Three months ended March 31, 2001 2000 ---------------------------- Revenue $ - $11,535 Operating costs and expenses: Selling, general and administrative - 7,443 Depreciation and amortization 38 2,273 ------------------------ Total operating costs and expenses 38 9,716 Operating (loss) income (38) 1,819 Other income (expense): Interest income - 18 Interest expense (861) (1,182) Dividend on preferred interests 4,766 - Other - 29 ------------------------ Total other income, net 3,905 1,135 Net income 3,867 684 Unrealized gain on investments 2,400 - ------------------------ Total comprehensive income $6,267 $ 684 ======================== See accompanying notes 2 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three months ended March 31, 2001 2000 ------------------------------- Operating activities: Net income $ 3,867 $ 684 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 38 2,273 Dividend on preferred interest (4,766) - Changes in operating assets and liabilities: Trade accounts receivable - 502 Prepaid expenses and other current assets - 84 Accounts payable and accrued expenses (861) 1,022 Due from related parties - 192 -------------------------- Net cash (used in) provided by operating activities (1,722) 4,757 -------------------------- Investing activities: Purchase of property and equipment - (6,892) Increase in intangible assets - (3) -------------------------- Net cash used in investing activities - (6,895) -------------------------- Financing activities: Principal payments on capital lease obligations - (24) Capital distributions (5,278) (5,278) Capital contributions 7,000 - Borrowings under senior credit facility - 9,000 -------------------------- Net cash provided by financing activities 1,722 3,698 -------------------------- Net increase in cash and cash equivalents - 1,560 Cash and cash equivalents, beginning of period - 882 -------------------------- Cash and cash equivalents, end of period $ - $ 2,442 ========================== Supplemental disclosures of cash flow information: Cash paid for interest $ 1,722 $ 1,722
See accompanying notes 3 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation Coaxial Communications of Central Ohio, Inc. (the "Company"), an Ohio corporation, through its ownership of preferred interests, has a 30% voting interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"). Insight Ohio operates a cable television system that provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. Prior to August 8, 2000, Coaxial owned 100% of the voting interest in Insight Ohio and therefore consolidated the financial statements of Insight Ohio for periods prior to such date. In connection with the contribution of the Company's cable system (the "System"), the issuance of the Senior Notes and the issuance of the Senior Discount Notes by the Company's majority shareholder, Coaxial LLC, during 1998 the three individuals who previously owned the outstanding stock of the Company contributed their stock to three separate limited liability companies. Accordingly, the Company is a subsidiary of Coaxial LLC, which owns 67 1/2% of its outstanding stock. Other related entities affiliated with the Company in addition to Coaxial LLC, include Coaxial DJM LLC, Coaxial DSM LLC, (collectively, the "Coaxial Entities"), Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton Communications, Inc. The Company and Phoenix are co-issuers of the Senior Notes. The ability of the Company and Phoenix to make scheduled payments with respect to the Senior Notes is dependant 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 for the year ended December 31, 2000. 4 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 ended March 31, 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 Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), sets forth rules for the reporting and display of comprehensive income (net income plus all other changes in net assets from non-owner sources) and its components in the financial statements. For the three months ended March 31, 2001, components of other comprehensive income consisted of a net unrealized gain on investments of $2.4 million. For the three months ended March 31, 2000, there were no components of other comprehensive income. 5 PHOENIX ASSOCIATES BALANCE SHEETS (in thousands)
March 31, December 31, 2001 2000 ----------------------------------- (unaudited) (Note 2) Assets Interest Receivable $ 412 $ 373 ----------------------------- Total current assets 412 373 Due from related parties 406 406 Notes receivable - related parties 550 550 Deferred financing fees, net of accumulated amortization of $1,241 and $1,122 as of March 31, 2001 and December 31, 2000, respectively 2,560 2,679 ----------------------------- Total assets $ 3,928 $ 4,008 ============================= Liabilities and partners' deficit Interest payable $ 1,319 $ 3,959 ----------------------------- Total current liabilities 1,319 3,959 Notes payable 105,565 105,565 ----------------------------- Total liabilities 106,884 109,524 Commitments and contingencies Partners' deficit (102,956) (105,516) ----------------------------- Total liabilities and partners' deficit $ 3,928 $ 4,008 =============================
See accompanying notes 6 PHOENIX ASSOCIATES STATEMENTS OF OPERATIONS (unaudited) (in thousands) Three months ended March 31, 2001 2000 ---------------------------- Expenses: Amortization $ 119 $ 119 Interest income (expense): Interest income-related parties 39 39 Interest expense (2,639) (2,639) ---------------------------- Total interest expense, net (2,600) (2,600) ---------------------------- Net loss $ (2,719) $ (2,719) ============================ See accompanying notes 7 PHOENIX ASSOCIATES STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three months ended March 31, 2001 2000 ---------------------------- Operating activities: Net loss $(2,719) $(2,719) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred financing fees 119 119 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 decrease in cash - - Cash, beginning of period - - ----------------------- Cash, end of period $ - $ - ======================= Supplemental disclosure of cash flow information: Cash paid for interest $ 5,278 $ 5,278
See accompanying notes 8 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 dependant 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 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, 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 9 PHOENIX ASSOCIATES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. Responsibility for Interim Financial Statements (continued) differ from those estimates. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. Certain 2000 amounts have been reclassified to conform to the 2001 presentation 10 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC BALANCE SHEETS (in thousands)
March 31, December 31, 2001 2000 ------------------------------------ (unaudited) (Note 2) Assets Cash and cash equivalents $ 1,466 $ 1,169 Trade accounts receivable, net of allowance for doubtful accounts of $318 and $390 as of March 31, 2001 and December 31, 2000, respectively 1,914 2,782 Launch funds receivable 1,670 1,936 Prepaid expenses and other assets 601 437 ------------------------------------ Total current assets 5,651 6,324 Fixed assets, net 77,505 76,587 Intangible assets, net 315 448 ------------------------------------ Total assets $ 83,471 $ 83,359 ==================================== Liabilities and members' deficit Accounts payable $ 1,346 $ 5,679 Accrued expenses and other liabilities 1,427 1,364 Accrued property taxes 229 19 Accrued programming costs 3,612 3,014 Deferred revenue 489 545 Interest payable 351 786 Preferred interest distribution payable 1,750 5,250 Due to affiliates 2,405 1,502 ------------------------------------ Total current liabilities 11,609 18,159 Deferred revenue 1,871 2,005 Preferred interests 181,547 180,281 Debt 25,000 25,000 ------------------------------------ Total liabilities and preferred interests 220,027 225,445 Members' deficit (136,556) (142,086) ------------------------------------ Total liabilities and members' deficit $ 83,471 $ 83,359 ====================================
11 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC STATEMENTS OF OPERATIONS (unaudited) (in thousands) Three months ended March 31, 2001 2000 ---------------------------- Revenue $13,111 $11,535 Operating costs and expenses: Programming and other operating costs 5,091 4,912 Selling, general and administrative 2,527 2,179 Management fees 396 352 Depreciation and amortization 2,720 2,234 ------------------------ Total operating costs and expenses 10,734 9,677 Operating income 2,377 1,858 Other income (expense): Interest expense (502) (321) Interest income 15 18 Other 24 29 ------------------------ Total other expense, net (463) (274) Net income 1,914 1,584 Accrual of preferred interests (4,766) (4,627) ------------------------ Loss attributable to common interests $(2,852) $(3,043) ======================== 12 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three months ended March 31, 2001 2000 ---------------------------- Operating activities: Net income $ 1,914 $ 1,584 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,720 2,234 Provision for losses on trade accounts receivable 306 116 Changes in operating assets and liabilities: Trade accounts receivable 562 386 Launch funds receivable 266 - Prepaid expenses and other assets (164) 84 Accounts payable (4,333) 1,883 Accrued expenses and other liabilities 1,149 192 --------------------------- Net cash provided by operating activities 2,420 6,479 --------------------------- Investing activities: Purchase of property and equipment (3,505) (6,916) Purchase of intangible assets - (3) --------------------------- Net cash used in investing activities (3,505) (6,919) --------------------------- Financing activities: Capital contributions 8,382 - Preferred interest distribution (7,000) (7,000) Borrowings under senior credit facility - 9,000 --------------------------- Net cash provided by financing activities 1,382 2,000 --------------------------- Net increase in cash and cash equivalents 297 1,560 Cash and cash equivalents, beginning of period 1,169 882 --------------------------- Cash and cash equivalents, end of period $ 1,466 $ 2,442 =========================== Supplemental disclosures of cash flow information: Cash paid for interest $ 937 $ 154
13 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 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 ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. Certain 2000 amounts have been reclassified to conform to the 2001 presentation. 14 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. Cable System Transactions On January 5, 2001, Insight Midwest, L.P. ("Insight Midwest"), a 50-50 partnership between Insight LP and an indirect subsidiary of AT&T Broadband, LLC, completed a series of transactions with Insight LP and certain subsidiaries of AT&T Corp. (the "AT&T 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 84,200 customers served by the Company and including systems which Insight LP purchased from the AT&T Subsidiaries. At the same time, Insight Midwest acquired from the AT&T Subsidiaries systems serving approximately 250,000 customers. The Company is prohibited by the terms of its indebtedness from making distributions to Insight Midwest. Insight Midwest remains equally owned by Insight LP and AT&T Broadband, and Insight LP continues to serve as the general partner of Insight Midwest and manages and operates the Insight Midwest systems. Although the financial results of the Company will be consolidated into Insight Midwest as a result of the AT&T Transactions, for financing purposes, the Company is an unrestricted subsidiary under the indentures of Insight Midwest and Insight Inc. The Company's conditional guarantee of the Senior Notes and the Senior Discount Notes remains in place. 15 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. Commitments and Contingencies 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 either the Company's future results of operations or financial position. 16 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 Communications of Central Ohio, Inc. ("Coaxial"), Phoenix Associates ("Phoenix") 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, Phoenix and Insight Ohio, and reflect future business decisions which are subject to change. Although Coaxial, Phoenix, and Insight Ohio believe that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include, without limitation: o the ability of Coaxial and Phoenix to make scheduled payments with respect to the Senior Notes (as defined below) which is dependent upon the financial and operating performance of the System; o 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 Series B Preferred Interest, thereby reducing the funds available to the System for its operations and future business opportunities; o the fact that Coaxial and Phoenix have no significant assets other than Coaxial's ownership of the Series B Preferred Interest in Insight Ohio; and o the fact that the indenture governing the terms of the Senior Notes imposes restrictions on Coaxial, Phoenix and Insight Ohio and the Senior Credit Facility of the System imposes restrictions on Insight Ohio. Coaxial, Phoenix and Insight Ohio do not intend to update these forward-looking statements. 17 Coaxial and Phoenix do not conduct any business and are dependent upon the cash flow of the System to meet their obligations under the Senior 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 ended March 31, 2001 compared to the three months ended March 31, 2000. The financial statements of Insight Ohio are included in the consolidated financial statements of Coaxial through August 8, 2000. Therefore, the historical operating results of Coaxial 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 Notes discussed above. These activities resulted in related financing and interest costs. The historical results of Coaxial appear elsewhere in this report under the heading "Coaxial Communications of Central Ohio, Inc." Overview The System relies on Insight LP, for all of its strategic, managerial, financial and operational oversight and advice. Insight 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 fee is payable only after distributions have been made in respect of the Preferred Interests and only to the extent that such payment would be permitted by an exception to the restricted payments covenants of the Senior Notes as well as Insight Ohio's Senior Credit Facility. Such management fee is included in selling, general and administrative expenses. Recent Developments On January 5, 2001, Insight Midwest completed a series of transactions with Insight LP and certain subsidiaries of AT&T Corp. (the "AT&T Subsidiaries") for the acquisition of additional cable television systems, primarily located in the state of Illinois, valued at approximately $2.2 billion (the "AT&T Transactions"), inclusive of systems valued at approximately $775.8 million, contributed by Insight LP. The AT&T Transactions were financed through a credit facility established on January 5, 2001, the Midwest Holdings Credit Facility. 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 approximately 84,200 customers served by the System and including systems which Insight LP purchased from the AT&T Subsidiaries. At the same time, Insight Midwest acquired from the AT&T Subsidiaries systems serving approximately 250,000 customers. 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 18 subsidiary under the indentures of Insight Midwest. Insight Ohio's conditional guarantee of the Senior Notes and the Senior Discount Notes remains in place. Results of Operations Substantially all of the Systems revenues were 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, we earn revenues 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 Ended March 31, 2001 2000 ------------------------------------ (in thousands) Revenue $ 13,111 $ 11,535 Operating costs and expenses: Programming and other operating costs 5,091 4,912 Selling, general and administrative 2,527 2,179 Management fees 396 352 Depreciation and amortization 2,720 2,234 ------------------------------------ Total operating costs and expenses 10,734 9,677 ------------------------------------ Operating income 2,377 1,858 Interest expense 502 321 Net income 1,914 1,584 Net cash provided by operating activities 2,420 6,479 Net cash used in investing activities 3,505 6,919 Net cash provided by financing activities 1,382 2,000 Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000. Revenues for the three months ended March 31, 2001 increased $1.6 million or 13.7% to $13.1 million compared with $11.5 million for the three months ended March 31, 2000. For the three months ended March 31, 2001, customers served averaged 85,674 compared with 84,253 during the three months ended March 31, 2000. The increase in revenues is primarily attributable to revenues generated from new product launches, specifically digital services and high speed data services. Partially offsetting these increases was a decrease in pay-per-view revenues. As of March 31, 2001, there were approximately 17,900 digital customers representing a 28.7% penetration (digital customers as a percentage of total customers with access to digital service). Digital revenue for the three months ended March 31, 2001 was approximately $897,000, (including approximately $329,000 for video on demand service) compared to $116,000 for the three months ended March 31, 2000. High-speed data services were launched during the three months ended June 30, 2000. As of March 31, 2001, there were approximately 7,500 cable 19 modem customers, a penetration of 5.2% (modem customers as a percentage of homes passed with access to high-speed data services). Revenues from high-speed data services were approximately $725,000 for the three months ended March 31, 2001. The service had not been launched as of March 31, 2000. Average monthly revenue per customer for the three months ended March 31, 2001 was $51.01 compared to $45.64 for the three months ended March 31, 2000. The combined average monthly revenue per basic customer for digital and high-speed data services totaled $6.31 for the three months ended March 31, 2001 versus $.46 for the three months ended March 31, 2000. Programming and other operating costs increased $179,000 or 3.6% to $5.1 million for the three months ended March 31, 2001 as compared to $4.9 million for the three months ended March 31, 2000. The increase was primarily attributable to increased programming rates associated with the digital services. Selling, general and administrative expenses increased $348,000 or 16.0% to $2.5 million for the three months ended March 31, 2001 as compared to $2.2 million for the three months ended March 31, 2000. The increase was primarily attributable to increased payroll and administrative costs associated with advertising. Depreciation and amortization expense for the three months ended March 31, 2001 increased $486,000 or 21.8% to $2.7 million as compared to $2.2 million for the three months ended March 31, 2000. This increase was primarily attributable to increased capital expenditures associated with the rebuild over past quarters. Interest expense for the three months ended March 31, 2001 increased $181,000 or 56.4% to $502,000 as compared to $321,000 for the three months ended March 31, 2000. This increase was primarily attributable to increased borrowings under the Senior Credit Facility. The outstanding borrowings increased to $25.0 million as of March 31, 2001 compared to $11.0 million as of March 31, 2000. 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 $3.5 million for the three months ended March 31, 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 the reverse plant to allow two-way communications and the installation of digital equipment. Capital expenditures are expected to approximate $23.1 million during the year ending 20