-----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, WS7DjADTrDOeKLu43judOK/SLtQhxjGzxUdJUY48wkV/p7mB3FsjmoYI8d6ny9by MDy5hCdBuzFs3yRTpuFaeQ== 0000950130-99-006509.txt : 19991117 0000950130-99-006509.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950130-99-006509 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COAXIAL COMMUNICATIONS OF CENTRAL OHIO INC CENTRAL INDEX KEY: 0001070241 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-63677 FILM NUMBER: 99755854 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: PHOENIX ASSOCIATES CENTRAL INDEX KEY: 0000724332 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 591798351 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-63677-01 FILM NUMBER: 99755855 BUSINESS ADDRESS: STREET 1: C/O COAXIAL COMMUNICATIONS STREET 2: 5111 OCEAN BLVD SUITE C CITY: SARASOTA STATE: FL ZIP: 34242 MAIL ADDRESS: STREET 1: C/O COAXIAL COMMUNICATIONS STREET 2: 5111 OCEAN BLVD SUITE C CITY: SARASOTA STATE: FL ZIP: 34242 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT COMMUNICATIONS OF CENTRAL OHIO LLC CENTRAL INDEX KEY: 0001070242 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-63677-02 FILM NUMBER: 99755856 BUSINESS ADDRESS: STREET 1: C/O INSIGHT COMMUNICATIONS STREET 2: 126 E 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 MAIL ADDRESS: STREET 1: C/O INSIGHT COMMUNICATIONS STREET 2: 126 E 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 FORM 10-Q Securities and Exchange Commission Washington, D.C. 20549 Form 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1999 Commission File Numbers: 333-63677 333-63677-01 333-63677-02 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. 126 East 56th Street New York, New York 10022 (Address of principal executive offices, including zip code) (212) 371-2266 (Registrants' telephone number, including area code) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was 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 INDEX Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Coaxial Communications of Central Ohio, Inc. Consolidated Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 1 Consolidated Statements of Operations and Changes in Shareholders' Deficit for the three months ended September 30, 1999 and 1998 and for the nine months ended September 30, 1999 and 1998 (unaudited) 2 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and September 30,1998 (unaudited) 3 Notes to Interim Consolidated Financial Statements (unaudited) 4 Phoenix Associates Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 8 Statements of Operations and Changes in Partners' Deficit for the three months ended September 30, 1999 and 1998 and for the nine months ended September 30, 1999 and 1998 (unaudited) 9 Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 (unaudited) 10 Notes to Interim Financial Statements (unaudited) 11 Insight Communications of Central Ohio, LLC Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 14 Statements of Operations and Changes in Members' Deficit for the three months ended September 30, 1999, for the nine months ended September 30, 1999 and for the period August 21, 1998 to September 30, 1998 (unaudited) 15 Statements of Cash Flows for the nine months ended September 30, 1999 and for the period August 21, 1998 to September 30, 1998 (unaudited) 16 Notes to Interim Financial Statements (unaudited) 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 3. Quantitative and Qualitative Disclosures about Market Risk 25 PART II. OTHER INFORMATION Item 1. Legal Proceedings - Not Applicable Item 2. Changes in Securities and Use of Proceeds - Not Applicable Item 3. Defaults Upon Senior Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable Item 5. Other Information - Not Applicable Item 6. Exhibits and Reports on Form 8-K 26 Coaxial Communications of Central Ohio, Inc. Consolidated Balance Sheets (dollars in thousands)
September 30, 1999 December 31, 1998 -------------------------------------------- (Unaudited) (Note 2) ASSETS Cash $ 4,342 $ 8,709 Subscriber receivables, less allowance for doubtful accounts of $409 and $306 in 1999 and 1998 911 1,186 Other accounts receivable, less allowance for doubtful accounts of $145 in 1999 and 1998 2,722 1,520 Prepaid expenses and other current assets 161 166 -------------------------------------------- Total current assets 8,136 11,581 PROPERTY AND EQUIPMENT, at cost: Land and land improvements 260 260 CATV systems 86,199 71,032 Equipment 7,918 7,102 Furniture 359 333 Leasehold improvement 71 71 -------------------------------------------- 94,807 78,798 Less-Accumulated depreciation and amortization (51,956) (46,898) -------------------------------------------- Total property and equipment, net 42,851 31,900 INTANGIBLE ASSETS, at cost: Franchise costs 7,404 7,385 Deferred financing costs and other 1,586 1,447 -------------------------------------------- 8,990 8,832 Less-Accumulated amortization (7,548) (7,399) -------------------------------------------- Total intangible assets, net 1,442 1,433 Due from related parties 139 149 -------------------------------------------- Total assets $ 52,568 $ 45,063 ============================================ LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Current portion of capital lease obligations $ 27 $ 123 Accounts payable 3,470 3,230 Accrued interest 573 1,250 Accrued liabilities 4,674 4,404 -------------------------------------------- Total current liabilities 8,744 9,007 Senior notes payable 34,435 34,435 Senior credit facility 11,000 - Capital lease obligations 105 105 Other liabilities 1,711 1,146 Due to related parties 1,130 1,030 -------------------------------------------- Total liabilities 57,125 45,723 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT: Common stock--authorized 2,000 shares, 1,080 shares issued and outstanding in 1999 and 1998 1 1 Paid-in capital 27,777 11,501 Accumulated deficit (32,335) (12,162) -------------------------------------------- Total shareholders' deficit (4,557) (660) Total liabilities and shareholders' deficit $ 52,568 $ 45,063 ============================================
See accompanying notes 1 Coaxial Communications of Central Ohio, Inc. Consolidated Statements of Operations and Changes in Shareholders' Deficit (Unaudited) (in thousands)
Three months ended Nine months ended September 30, September 30, ----------------------------- -------------------------- 1999 1998 1999 1998 ------ ------ ------- ------- TOTAL REVENUES $11,802 $ 11,769 $ 35,195 $ 35,037 OPERATING EXPENSES: Service and administrative 7,282 7,298 20,523 22,164 Depreciation and amortization 1,846 1,137 5,093 3,825 Severance and transaction structure costs - 4,822 - 4,822 ---------------------------------------------------------- Total operating expenses 9,128 13,257 25,616 30,811 ---------------------------------------------------------- OPERATING INCOME 2,674 (1,488) 9,579 4,226 Other income (expense) 5 (318) 84 (43) INTEREST INCOME (EXPENSE), net: Interest income--related parties - 640 - 2,823 Interest income 23 - 109 23 Interest expense--related parties - (227) - (1,019) Interest expense (1,035) (903) (2,844) (2,583) ----------------------------------------------------------- (1,012) (490) (2,735) (756) ----------------------------------------------------------- Net Income (Loss) Before Extraordinary Item 1,667 (2,296) 6,928 3,037 Extraordinary Item - debt retirement - (847) - (847) ----------------------------------------------------------- NET INCOME (LOSS) 1,667 (3,143) 6,928 2,190 SHAREHOLDERS' (DEFICIT) EQUITY, beginning of period (946) 58,516 (660) 54,327 CAPITAL DISTRIBUTIONS (5,278) (81,246) (10,825) (82,390) SHAREHOLDER CONTRIBUTIONS - 20,563 - 20,563 ----------------------------------------------------------- SHAREHOLDERS' DEFICIT, end of period $(4,557) $ (5,310) $ (4,557) $ (5,310) ===========================================================
See accompanying notes 2
Coaxial Communications of Central Ohio, Inc. Consolidated Statements of Cash Flows (Unaudited) (in thousands) Nine months ended September 30, 1999 1998 ------------------ ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,928 $ 2,190 Adjustments to reconcile net income to Net cash provided by operating activities: Depreciation and amortization 5,207 4,268 Extraordinary item - 846 Changes in operating assets and liabilities: Subscriber receivables 275 (1,882) Other accounts receivable, prepaid expenses and other Current assets (1,197) 55 Accounts payable, accrued liabilities and other 1,076 2,458 Accrued interest (678) - Due to related parties 110 - --------------------- ------------------------- Net cash provided by operating activities 11,721 7,935 --------------------- ------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property and equipment (16,009) (4,214) Increase in intangible assets (158) - --------------------- ------------------------ Net cash used in investing activities (16,167) (4,214) --------------------- ------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable - 34,435 Principal payments on notes payable - (26,808) Increase in deferred financing fees - (1,340) Contributions from shareholders - 5,673 Principal payments on capital lease obligations (96) (148) Capital distributions (10,825) - Senior credit facility 11,000 - Increase in amounts due to/from related parties - (11,259) --------------------- ------------------------ Net cash provided by financing activities 79 553 --------------------- ------------------------ NET (DECREASE) INCREASE IN CASH (4,367) 4,274 CASH, beginning of period 8,709 574 --------------------- ------------------------ CASH, end of period $ 4,342 $ 4,848 ===================== ========================
See accompanying notes 3 COAXIAL COMMUNICATIONS OF CENTRAL OHIO,INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1999 1. Business Organization And Purpose Coaxial Communications of Central Ohio, Inc. ("Coaxial" or the "Company"), an Ohio corporation, through its controlling voting interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"), operates a cable television system which provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. In connection with the contribution of the Company's cable system described below, the issuance of the Senior Notes described in Note 4, and the issuance of the Discount Notes by the Company's majority shareholder and an affiliate during 1998, the three individuals who previously owned the outstanding stock of the Company contributed their stock to three separate limited liability companies. Accordingly, at September 30, 1999, the Company was a subsidiary of Coaxial LLC, which owns 67 1/2% of its outstanding stock. Other related entities affiliated with Coaxial include Coaxial Financing Corp., Coaxial DJM LLC, Coaxial DSM LLC, Phoenix Associates ("Phoenix"), Coaxial Communications of Southern Ohio, Inc. ("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"). On June 30, 1998, amended on July 15, 1998 and August 21, 1998, Coaxial and Insight Communications Company, L.P. ("Insight") entered into a contribution agreement (the "Contribution Agreement") pursuant to which on August 21, 1998, Coaxial contributed substantially all of the assets and liabilities comprising its cable system to Insight Ohio, a newly formed subsidiary. In connection therewith, Insight Holdings of Ohio, LLC ("IHO"), a wholly owned subsidiary of Insight, contributed $10 million in cash to Insight Ohio. As a result of the Contribution Agreement, Coaxial owns 25% of the non-voting common equity and IHO owns 75% of the non-voting common equity of Insight Ohio. Coaxial also owns two separate series of voting preferred equity (a $140 million preferred equity interest and a $30 million preferred equity interest) of Insight Ohio. The voting preferred equity interest will provide for distributions to Coaxial and indirectly to Phoenix and Coaxial LLC in amounts equal to the payments required on the senior and senior discount notes. IHO serves as the manager of Insight Ohio. In connection with the Contribution Agreement, the Company incurred severance costs and transaction structuring costs totaling $4,822,078, which have been reflected in the accompanying statements of operations. 2. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. 4 COAXIAL COMMUNICATIONS OF CENTRAL OHIO,INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. Summary of significant Accounting Policies Principles of Consolidation As a result of Coaxial's ownership of all of the voting equity of Insight Ohio at September 30, 1999, the accompanying financial statements includes the accounts of Insight Ohio. All intercompany balances have been eliminated in consolidation. At September 30, 1999, Insight Ohio had a members' deficiency, accordingly, the accompanying financial statements do not include a minority interest liability for Insight's 75% common equity interest is Insight Ohio. Home Office Expenses Home office expenses of approximately $400,000 and $1,131,000 for the three and nine months ended September 30, 1998 (included in selling and administrative expense) include billings for legal fees, management fees, salaries, travel and other management expenses for services provided by an affiliated services company. Effective August 21, 1998, IHO provides such services for which it earns a management fee which approximated $364,000 and $1,092,000 for the three and nine months ended September 30, 1998 and $142,000 for the period from August 21, 1998 to September 30, 1998. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal years beginning after June 15, 2000. The Company does not anticipate the adoption of SFAS No. 133 to have a material impact on its financial statements. During 1999, the Company adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires that companies capitalize qualifying costs incurred during the application development stage of a software project. All other costs incurred in connection with an internal use software project are to be expensed as incurred. The adoption of SOP 98-1 did not have a material impact on the Company's financial statements. Reclassifications Certain prior period amounts have been reclassified to conform to the current period's presentation. 4. Notes Payable Notes payable at September 30, 1999 and December 31, 1998 consisted of Senior Notes with an outstanding principal balance of $34,435,092 and borrowings under a Senior Credit Facility of $11,000,000. On August 21, 1998, Coaxial and Phoenix completed an offering of $140 million 10% Senior Notes ("Senior Notes") due 2006 of which $105.6 million was allocated to Phoenix and $34.4 million was allocated to Coaxial. Interest accrues on the Senior Notes from August 21, 1998 and is payable in cash semi-annually on each February 15 and August 15, commencing on February 15, 1999. The Senior Notes are secured by the outstanding Series A Preferred Interests in Insight Ohio. The Series A Preferred Interests have a liquidation preference of $140 million and pay distributions in an amount equal to the interest payments on the Senior Notes. All Series A Preferred Interests are 5 COAXIAL COMMUNICATIONS OF CENTRAL OHIO,INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Notes Payable (continued) owned by Coaxial and are pledged to Bank of Montreal Trust Company, as trustee, for the benefit of the holders of the Senior Notes. Coaxial will utilize cash distributions made by Insight Ohio on the Series A Preferred Interests to make payments on the Senior Notes. The Senior Notes contain covenants that, among other things, restrict the ability of Coaxial, Phoenix, Insight Ohio and any of their Restricted Subsidiaries to: incur additional indebtedness; pay dividends and make distributions; issue stock of subsidiaries to third parties; make certain investments; repurchase stock; create liens; enter into transactions with affiliates; enter into sale and leaseback transactions; create dividend or other payment restrictions affecting Restricted Subsidiaries; merge or consolidate in a transaction involving all or substantially all of the assets of Coaxial, Phoenix and their Restricted Subsidiaries, taken as a whole; transfer or sell assets; use distributions on the Series A Preferred Interests or Series B Preferred Interests for any purpose other than required payments of interest and principal on the Senior Notes or Discount Notes, respectively; and swap assets. In connection with the issuance of the Senior Notes, the Company repaid all outstanding loan balances under a 1994 loan agreement between Coaxial, Phoenix, Southern Ohio, Columbus I and Columbus II and a lead bank and several other financial institutions. An extraordinary loss of $846,641 was recorded upon this refinancing of debt. Also, in connection with the issuance of the Senior Notes, the Company incurred financing fees of approximately $1,226,000 that are being amortized over the life of the Senior Notes. Coaxial, as joint and several issuer, with Phoenix, of the Senior Notes, provides the funding that will allow Phoenix to repay its share of the notes payable, as Phoenix has no operations. Amortization expense for deferred financing costs related to the Senior Notes for the three and nine months ended September 30, 1999 was approximately $39,000 and $114,000 and approximately $17,000 for the three and nine months ended September 30, 1998. Interest expense on Coaxial's portion of the Senior Notes excluding amortization of deferred financing costs was approximately $861,000 and $2,583,000 for the three and nine months ended September 30, 1999 and approximately $389,000 for the three and nine months ended September 30, 1998. Insight Ohio has a Senior Credit Facility ("Senior Credit Facility") with a bank which provides for revolving credit loans of $25 million to finance capital expenditures and for working capital and general purposes, including the upgrade of the cable system's plant and for the introduction of new video services. The Senior Credit Facility has a nine-year maturity, with reductions to the amount of the commitment commencing after three years. The amount available for borrowing is reduced by any outstanding letter of credit obligations. Insight Ohio's obligations under the Senior Credit Facility are secured by substantially all the tangible and intangible assets of Insight Ohio. Loans under the Senior Credit Facility bear interest, at Insight Ohio's option, at the prime rate or at a Eurodollar rate. In addition to the index rates, Insight Ohio pays an additional margin percentage tied to its ratio of total debt to adjusted annualized operating cash flow. The Senior Credit Facility contains a number of covenants that, among other things, restricts the ability of Insight Ohio and its subsidiaries to make capital expenditures, dispose of assets, incur additional indebtedness, incur guaranty obligations, pay dividends or make capital distributions, including distributions on the Preferred Interests that are required to pay the Senior Notes and the Discount Notes in the event of a payment default under the Senior Credit Facility, create liens on assets, make investments, make acquisitions, engage in mergers or consolidations, engage in certain transactions with subsidiaries and affiliates and otherwise restrict certain activities. In addition, the Senior Credit Facility requires compliance with certain financial ratios, including with respect to total leverage, interest coverage and pro forma debt service coverage. Management does not expect that such covenants will materially impact the ability of Insight Ohio to operate its business. As of September 30, 1999, $11,000,000 was drawn on the Senior Credit Facility. Interest expense on the Senior Credit Facility was approximately $126,000 for the three and nine months ended September 30, 1999. 6 COAXIAL COMMUNICATIONS OF CENTRAL OHIO,INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. Commitments and Contingencies The Company is a party to or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either the Company's results of operation or financial position. 7 Phoenix Associates Balance Sheets (in thousands) September 30, 1999 December 31, 1998 -------------------------------------- (Unaudited) (Note 2) ASSETS CURRENT ASSETS: Cash $ __ $ __ Interest receivable 57 57 ------------------------------------- Total current assets 57 57 OTHER ASSETS: Due from related parties 406 406 Notes receivable--related parties 550 550 Deferred financing fees, net 3,292 3,400 ------------------------------------- Total other assets 4,248 4,356 ------------------------------------- Total assets $ 4,305 $ 4,413 ===================================== LIABILITIES AND PARTNERS' DEFICIT CURRENT LIABILITIES: INTEREST PAYABLE $ 1,378 $ 3,841 NOTES PAYABLE 105,565 105,565 ------------------------------------- Total liabilities 106,943 109,406 ------------------------------------- COMMITMENTS AND CONTINGENCIES PARTNERS' DEFICIT (102,638) (104,993) ------------------------------------- Total liabilities and partners' deficit $ 4,305 $ 4,413 ===================================== See accompanying notes 8
Phoenix Associates Statements of Operations and Changes in Partners' Deficit (Unaudited) (in thousands) Three months ended Nine months ended September 30, September 30, --------------------------------- ------------------------------- 1999 1998 1999 1998 ------ ------ ------ ------- EXPENSES $ - $ 11 $ - $ 63 INTEREST EXPENSE (INCOME) Interest income--related parties - (186) - (641) Interest expense--related parties - 605 - 2,666 Interest expense 2,757 2,680 8,266 7,580 --------------------------------- ------------------------------ Total interest expense, net 2,757 3,099 8,266 9,605 --------------------------------- ------------------------------ Net Loss Before Extraordinary Item 2,757 3,110 8,266 9,668 Extraordinary Item - gain on settlement of Columbus II note receivable - (100) - (100) --------------------------------- ------------------------------ NET LOSS 2,757 3,010 8,266 9,568 PARTNERS' DEFICIT, beginning of period 105,159 176,969 104,993 170,411 PARTNERS' CONTRIBUTIONS - (78,358) - (78,358) CAPITAL CONTRIBUTIONS (5,278) 768 (10,621) 768 --------------------------------- ------------------------------ PARTNERS' DEFICIT, end of period $102,638 $102,389 $102,638 $102,389 ================================= ==============================
See accompanying notes 9 Phoenix Associates Statements of Cash Flows (Unaudited) (in thousands)
Nine months ended September 30, ----------------------------------------------- 1999 1998 -------------------- ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (8,266) $ (9,567) Adjustments to reconcile net loss to Net cash used in operating activities: Amortization of deferred financing fees 349 52 Changes in operating assets and liabilities: Other accounts receivable, prepaid expenses, and other - 1,102 current assets Accrued interest (2,463) - --------------------- ----------------- Net cash provided by activities (10,380) (8,413) -------------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Increase in amounts due from related parties - 7,039 --------------------- ------------------- Net cash provided by investing activities - 7,039 -------------------- -------------------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes payable - (105,926) Payment of deferred financing fees (241) (3,416) Proceeds from issuance of notes payable - 105,565 Capital contributions 10,621 77,590 Increase in amounts due to related parties - (72,439) -------------------- -------------------- Net cash provided by financing activities 10,380 1,374 -------------------- ------------------- NET INCREASE (DECREASE) IN CASH - - CASH, beginning of period - - -------------------- ---------------------- CASH, end of period $ - $ - ==================== ======================
See accompanying notes 10 PHOENIX ASSOCIATES NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1999 1. Business Organization and Purpose Phoenix Associates ("Phoenix") is a Florida general partnership organized for the primary purpose of purchasing promissory notes, mortgages, deeds of trust, debt securities and other types of securities, and purchasing and acquiring rights in any loan agreements or other documents relating to those securities. Phoenix has no operations. Its ability to satisfy debt and other obligations is dependent upon funding from related entities, which are under the common control of the owners of Phoenix. Phoenix is a co-issuer and joint and several obligor of the debt described in Note 4, along with an affiliate, Coaxial Communications of Central Ohio, Inc ("Coaxial"). Phoenix is owned by three separate LLC's whose sole members are individual partners who share profits and losses in the ratio of 67 1/2%, 22 1/2% and 10%, respectively. Other related entities affiliated with Phoenix include Coaxial LLC, Coaxial Financing Corp., Insight Communications of Central Ohio, LLC ("Insight Ohio"), Coaxial Communications of Southern Ohio, Inc. ("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"). On June 30, 1998, amended on July 15, 1998 and August 21, 1998, Coaxial and Insight Communications Company, L.P. ("Insight") entered into a Contribution Agreement (the "Contribution Agreement") pursuant to which Coaxial contributed substantially all of the assets and liabilities comprising its cable system to a newly formed subsidiary, Insight Ohio, and Insight Holdings of Ohio, LLC ("IHO"), a wholly owned subsidiary of Insight, contributed $10 million in cash to Insight Ohio. As a result of this Contribution Agreement, Coaxial owns 25% of the non-voting common equity and IHO owns 75% of the non-voting common equity of Insight Ohio. Coaxial also owns two separate series (a $140 million preferred equity interest and a $30 million preferred equity interest of voting preferred equity) of Insight Ohio. The voting preferred equity interest provides for distributions to Coaxial equal in amount to the payments on the Senior Notes and senior discount notes. Coaxial will make distributions which will enable Phoenix to fund the required payments on the Senior Notes. 2. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. 11 PHOENIX ASSOCIATES NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) 3. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Phoenix does not anticipate that the adoption of SFAS No. 133 will have a material impact on its financial statements. During 1999, the Company adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires that companies capitalize qualifying costs incurred during the application development stage of a software project. All other costs incurred in connection with an internal use software project are to be expensed as incurred. The adoption of SOP 98-1 did not have a material impact on the Company's financial statements. 4. Notes Payable Notes payable at September 30, 1999 and December 31, 1998 consisted of Senior Notes with an outstanding principal balance of $105,565,00. On August 21, 1998 Coaxial and Phoenix completed an offering of $140 million 10% Senior Notes ("Senior Notes") due 2006. The proceeds of the Senior Notes were allocated $105.6 million to Phoenix and $34.4 million to Coaxial. Interest accrues on the Senior Notes from August 21, 1998 and is payable in cash semi-annually on each February 15 and August 15, commencing on February 15, 1999. The Senior Notes are secured by the outstanding Series A Preferred Interests in Insight Ohio. The Series A Preferred Interests have a liquidation preference of $140 million and pay distributions in an amount equal to the interest payments on the Senior Notes. All Series A Preferred Interests are owned by Coaxial and are pledged to Bank of Montreal Trust Company, as trustee, for the benefit of the holders of the Senior Notes. Coaxial will utilize cash distributions on the Series A Preferred Interests to make payments on the Senior Notes including distributions to Phoenix. The Senior Notes contain covenants that, among other things, restrict the ability of Coaxial, Phoenix, Insight Ohio and any of their Restricted Subsidiaries to: incur additional indebtedness; pay dividends and make distributions; issue stock of subsidiaries to third parties; make certain investments; repurchase stock; create liens; enter into transactions with affiliates; enter into sale and leaseback transactions; create dividend or other payment restrictions affecting Restricted Subsidiaries; merge or consolidate in a transaction involving all or substantially all of the assets of Coaxial, Phoenix and their Restricted Subsidiaries, taken as a whole; transfer or sell assets; use distributions on the Series A Preferred Interest or Series B Preferred Interests for any purpose other than required payments of interest and principal on the notes or Discount Notes, respectively; and swap assets. In connection with the issuance of the Senior Notes, Phoenix incurred financing fees of approximately $3,800,000 that are being amortized over the life of the Senior Notes. Amortization expense related to the deferred financing costs was approximately $119,000 and $349,000 for the three and nine months ended September 30, 1999 and approximately $52,000 for the three and nine months ended September 30, 1998. Interest expense incurred on the Senior Notes excluding amortization of deferred financing costs was approximately $2,638,000 and $7,917,000 for the three and nine months ended September 30, 1999 and approximately $1,202,000 for the three and nine months ended September 30, 1998. Phoenix is a co-issuer and joint and several obligor of the debt, along with an affiliate, Coaxial. 12 PHOENIX ASSOCIATES NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) 5. Commitments and Contingencies The Company is a party to or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either the Company's future results of operations of financial position. 13
Insight Communications of Central Ohio, LLC Balance Sheets (in thousands) September 30, 1999 December 31, 1998 ------------------------- -------------------------- (Unaudited) (Note 2) ASSETS CURRENT ASSETS: Cash $ 2,342 $ 6,709 Subscriber receivables, less allowance for doubtful Accounts of $409 and $306 in 1999 and 1998 911 1,186 Other accounts receivable, less allowance for doubtful Accounts of $145 in 1999 and 1998 2,722 1,520 Prepaid expenses and other current assets 161 166 ------------------------- -------------------------- Total current assets 6,136 9,581 PROPERTY AND EQUIPMENT, at cost: Land and land improvements 260 260 CATV systems 86,199 71,032 Equipment 7,918 7,102 Furniture 359 333 Leasehold improvements 71 71 ------------------------- -------------------------- 94,807 78,798 Less-Accumulated depreciation and amortization (51,956) (46,898) ------------------------- -------------------------- Total property and equipment, net 42,851 31,900 INTANGIBLE ASSETS, at cost: Franchise costs 7,404 7,385 Other intangible assets 360 300 Less-Accumulated amortization (7,382) (7,348) ------------------------- -------------------------- Total intangible assets, net 382 337 DUE FROM RELATED PARTIES 139 149 ------------------------- -------------------------- Total assets $ 49,508 $ 41,967 ========================= ========================== LIABILITIES AND MEMBERS' DEFICIT CURRENT LIABILITIES: Current portion of capital lease obligations $ 27 $ 123 Accounts payable 3,470 3,230 Accrued interest 126 - Accrued liabilities 4,674 4,404 Series preferred A dividend payable 1,750 5,211 Series preferred B dividend payable 4,420 1,438 ------------------------- -------------------------- Total current liabilities 14,467 14,406 Capital lease obligations 105 105 Other deferred credits 1,711 1,146 Due to related parties 1,130 1,029 Preferred A interest 140,000 140,000 Preferred B interest 30,000 30,000 Senior credit facility 11,000 - ------------------------- -------------------------- Total liabilities and preferred interests 198,413 186,686 Members' deficit (148,905) (144,719) ------------------------- -------------------------- Total liabilities and members' deficit $ 49,508 $ 41,967 ========================= ==========================
see accompanying notes 14 Insight Communications of Central Ohio, LLC Statements of Operations and Changes in Members' Deficit (Unaudited) (in thousands)
For the period from Three months ended Nine months ended August 21, 1998 September 30, 1999 September 30, 1999 September 30, 1998 --------------------- ------------------- ------------------- REVENUE $ 11,802 $ 35,195 $ 5,225 OPERATING EXPENSES: Service and administrative 7,282 20,523 2,755 Depreciation and amortization 1,846 5,093 413 --------------------- ------------------- ------------------- Total operating expenses 9,128 25,616 3,168 --------------------- ------------------- ------------------- OPERATING INCOME 2,674 9,579 2,057 Other income 5 84 - Interest expense (135) (147) (5) Interest income 23 109 - --------------------- ------------------- ------------------- INTEREST EXPENSE, net (112) (38) (5) --------------------- ------------------- ------------------- NET INCOME 2,567 9,625 2,052 Accrual of preferred interests (4,571) (13,291) (2,034) Members' deficit, beginning of period (146,901) (144,719) - Members' contributions - - 34,457 Preferred membership interest - - (170,000) Capital distributions - (520) (8,079) --------------------- ----------------- ------------------ Members' deficit, end of period $(148,905) $(148,905) $(143,604) ==================== ==================== ====================
See accompanying notes 15
Insight Communications of Central Ohio, LLC Statements of Cash Flows (Unaudited) (in thousands) For the period from Nine months ended August 21, 1998 September 30, 1999 September 30, 1998 --------------------- --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 9,625 $ 2,052 Adjustments to reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 5,093 413 Changes in certain assets and liabilities: Subscriber receivables 275 (2,571) Other accounts receivable, prepaid expenses and other current assets (1,197) 135 Accounts payable, accrued liabilities and other 1,075 3,066 Accrued interest 126 - Due to/from related parties 111 - ----------------------- -------------------- Net cash provided by operating activities 15,108 3,095 ----------------------- -------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property and equipment (16,009) (472) Increase in other intangible assets (79) - ----------------------- -------------------- Net cash used in investing activities (16,088) (472) ----------------------- -------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital distributions (520) (8,079) Principal payments on capital lease obligations (96) (22) Capital contributions - 10,000 Contributed cash - 326 Preferred interest distributions (13,771) - Senior credit facility 11,000 - ----------------------- -------------------- Net cash (used in) provided by financing activities (3,387) 2,225 NET (DECREASE) INCREASE IN CASH (4,367) 4,848 CASH, beginning of period 6,709 - ======================= ==================== CASH, end of period $ 2,342 $ 4,848 ======================= ====================
see accompanying notes 16 INSIGHT COMMUNICATIONS OF CENTRAL OHIO,LLC NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1999 1. Business Organization and Purpose Insight Communications of Central Ohio, LLC ("Insight Ohio" or the "Company") was formed on July 23, 1998 in order to acquire substantially all of the assets and liabilities comprising the cable television system of Coaxial Communications of Central Ohio, Inc. ("Coaxial"). On August 21, 1998, Coaxial contributed to Insight Ohio all of the assets and liabilities comprising Coaxial's cable television system for which Coaxial received a 25% non-voting common membership interest in Insight Ohio as well as 100% of the voting preferred membership interests of Insight Ohio ("Series A and Series B Preferred Interests"). In conjunction therewith, Insight Holdings of Ohio, LLC ("IHO") contributed $10 million in cash to Insight Ohio for which it received a 75% non-voting common membership interest in Insight Ohio. Insight Ohio provides basic and expanded cable services to homes in Columbus, Ohio and surrounding areas. On August 21, 1998, Coaxial and Phoenix Associates, a related entity, issued $140 million of 10% Senior Notes ("Senior Notes") due in 2006. The Senior Notes are non-recourse and are secured by all issued and outstanding Series A Preferred Interest in Insight Ohio and are conditionally guaranteed by Insight Ohio. On August 21, 1998, Coaxial Financing Corp. and Coaxial LLC, related entities, issued 12 7/8% Senior Discount Notes due 2008 ("Discount Notes"). The Discount Notes have a face amount of $55,869,000 and approximately $30 million of gross proceeds were received upon issuance. The Discount Notes are non- recourse, secured by 100% of the common stock of Coaxial, and conditionally guaranteed by Insight Ohio. 2. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. 3. Summary of Significant Accounting Policies Home Office Expenses Effective August 21, 1998, the Company entered into a management agreement with IHO, which allows IHO to manage the operations of Insight Ohio. IHO earns a management fee equivalent to 3% of Insight Ohio's gross operating revenues. Fees under this management agreement aggregated $364,000 and $1,092,000 for the three and nine months ended September 30, 1999 and $142,000 for the period from August 21, 1998 to September 30, 1998. 17 INSIGHT COMMUNICATIONS OF CENTRAL OHIO,LLC NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) Recent Accounting Pronouncements In June 1998, The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal years beginning after June 15, 2000. The Company does not anticipate the adoption of SFAS No. 133 to have a material impact on its financial statements. During 1999, the Company adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires that companies capitalize qualifying costs incurred during the application development stage of a software project. All other costs incurred in connection with an internal use software project are to be expensed as incurred. The adoption of SOP 98-1 did not have a material impact on the Company's financial statements. 4. Credit Facility Insight Ohio has a Senior Credit Facility ("Senior Credit Facility") with a bank which provides for revolving credit loans of $25 million to finance capital expenditures and for working capital and general purposes, including the upgrade of the Company's cable plant and for the introduction of new video services. The Senior Credit Facility has a nine-year maturity, with reductions to the amount of the commitment commencing after three years. The amount available for borrowing is reduced by any outstanding letter of credit obligations. Insight Ohio's obligations under the Senior Credit Facility are secured by substantially all the tangible and intangible assets of Insight Ohio. Loans under the Senior Credit Facility bear interest, at Insight Ohio's option, at the prime rate or at a Eurodollar rate. In addition to the index rates, Insight Ohio pays an additional margin percentage tied to its ratio of total debt to adjusted annualized operating cash flow. The Senior Credit Facility contains a number of covenants that, among other things, restricts the ability of Insight Ohio and its subsidiaries to make capital expenditures, dispose of assets, incur additional indebtedness, incur guaranty obligations, pay dividends or make capital distributions, including distributions on the Preferred Interests that are required to pay the Senior Notes and the Discount Notes in the event of a payment default under the Senior Credit Facility, create liens on assets, make investments, make acquisitions, engage in mergers or consolidations, engage in certain transactions with subsidiaries and affiliates and otherwise restrict certain activities. As of September 30, 1999, $11,000,000 was drawn on the Senior Credit Facility. Interest expense on the Senior Credit Facility was approximately $126,000 for the three and nine months ended September 30, 1999. 5. Commitments and Contingencies Insight Ohio is party in or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either Insight Ohio's future results of operations or financial position. 18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and related notes which are included elsewhere in this report. Forward-Looking Statements This report contains "forward-looking statements," including statements containing the words "believes," "anticipates," "expects" and words of similar import, which concern, among other things, the operations, economic performance and financial condition of the System (as defined below), including, in particular, the likelihood of the System's success given its new management by Insight Holdings of Ohio, LLC ("IHO"). 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 Communications of Central Ohio, LLC ("Insight Ohio") or any of the transactions described in this report, including the timing, financing, strategies and effects of such transactions, are forward-looking statements. Such forward- looking statements are based upon a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of Coaxial, 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, (i) the ability of Coaxial and Phoenix to make scheduled payments with respect to the Senior Notes (as defined below) will depend on the financial and operating performance of Insight Ohio; (ii) a substantial portion of Insight Ohio's cash flow from operations is required to be dedicated to the payment of principal and interest on its indebtedness and the required distributions with respect to the Series A Preferred Interests (as defined below) and the Series B Preferred Interests (as defined below), thereby reducing the funds available to Insight Ohio for its operations and future business opportunities; (iii) Coaxial and Phoenix have no significant assets other than Coaxial's ownership of common membership interests, Series A Preferred Interests and Series B Preferred Interests in Insight Ohio; and (iv) the indenture governing the terms of the Senior Notes imposes restrictions on Coaxial, Phoenix and Insight Ohio and the Senior Credit Facility of Insight Ohio imposes restrictions on Insight Ohio. Coaxial, Phoenix and Insight Ohio do not intend to update these forward-looking statements. Private Offering of Senior Notes and Acquisition of System by Insight Ohio Coaxial and Phoenix completed on August 21, 1998 a private offering (the "Senior Notes Offering") of $140,000,000 aggregate principal amount of their Senior Notes in connection with the Financing Plan discussed below which included the contribution of Coaxial's cable television system (the "System") to Insight Ohio. As a result of this transaction, Coaxial and Phoenix have only nominal assets except for Coaxial's ownership of 25% of the non-voting common membership interests in Insight Ohio and 100% of the voting Series A Preferred Interest and Series B Preferred Interest of Insight Ohio (together the "Preferred Interests"). The Senior Notes are guaranteed on a conditional basis by Insight Ohio. On August 21, 1998, a financing plan was implemented to facilitate the organization of Insight Ohio, the acquisition of the System by Insight Ohio and to provide for the System's liquidity and operational and financial flexibility (the "Financing Plan"). Pursuant to the Financing Plan: . Coaxial contributed to Insight Ohio substantially all of the assets comprising the System for which Coaxial received a 25% non-voting common membership interest in Insight Ohio as well as the voting Preferred Interests in Insight Ohio, which provide for distributions to Coaxial that will be used to pay interest and principal on the Senior Notes and to pay dividends to the Individual LLCs that will be used to pay interest and principal on the Senior Discount Notes; . IHO contributed $10.0 million in cash to Insight Ohio for which it received a 75% non-voting common membership interest in Insight Ohio; . Coaxial and Phoenix effected the Senior Notes Offering; 19 . Coaxial LLC and Coaxial Financing Corp. effected the Senior Discount Notes Offering; and a portion of the existing bank indebtedness of Coaxial and Phoenix and certain of their affiliates was repaid and the balance was purchased by CIBC Oppenheimer Corp. ("CIBC") and restructured in accordance with an agreement among the parties. As part of the Financing Plan, one of the owners of Coaxial ("Coaxial LLC") and an affiliated corporation ("Coaxial Financing Corp.") completed a private offering (the "Senior Discount Notes Offering") of $55,869,000 aggregate principal amount at maturity of their Senior Discount Notes. The Senior Discount Notes are also guaranteed on a conditional basis by Insight Ohio, subordinated to the conditional guarantee of the Senior Notes. The three limited liability companies that own Coaxial, which includes Coaxial LLC, are referred to herein as the "Individual LLCs." The gross proceeds received by Coaxial LLC and Coaxial Financing Corp. from the Senior Discount Notes Offering were approximately $30.0 million. Proceeds from such private offering were used for the repayment of outstanding indebtedness (approximately $28.9 million). CIBC purchased certain outstanding indebtedness (approximately $136.4 million) of Coaxial and Phoenix and restructured that debt in accordance with the Financing Plan. CIBC funded such purchase with proceeds from the Senior Notes Offering. The remaining proceeds from the Senior Notes Offering and the Senior Discount Notes Offering and the $10.0 million cash contribution from IHO were used for working capital (approximately $2.9 million), deferred compensation and severance payments (approximately $3.0 million) and fees and expenses (approximately $8.8 million). The Preferred Interests have distribution priorities that provide for distributions to Coaxial. The distributions from the Series A Preferred Interests will be used to pay interest and principal on the Senior Notes and the distributions from the Series B Preferred Interests will be used to pay dividends to the Individual LLCs, which dividends will be used to pay interest and principal on the Senior Discount Notes. Distributions by Insight Ohio will be subject to certain financial covenants and other conditions set forth in its Senior Credit Facility. Coaxial and Phoenix do not conduct any business and are dependent upon the cash flow of Insight Ohio to meet their obligations under the Senior Notes. IHO, a wholly-owned subsidiary of Insight, serves as the manager of the Insight Ohio. The following discussion relates to the historical operations of Coaxial for the periods presented. On August 21, 1998, substantially all of the assets and liabilities comprising the System were contributed to Insight Ohio. Subsequent to the consummation of the Financing Plan, Insight Ohio was deemed to be a subsidiary of Coaxial and, as such, the financial statements of Insight Ohio are consolidated into the financial statements of Coaxial. Financial results related to historical information reflect the operation and management of the System by Coaxial through August 21, 1998 and by IHO from August 21, 1998 to September 30, 1999. The historical operating results of Coaxial presented below reflect the actual results of the System 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 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 presented below appear elsewhere in this report under the heading "Coaxial Communications of Central Ohio, Inc." Overview Revenues generated by the System are primarily attributable to monthly subscription fees charged to basic customers for basic and premium cable television programming services. Basic revenues consist of monthly subscription fees for all services (other than premium programming) as well as monthly charges for customer equipment rental. Premium revenues primarily consist of monthly subscription fees for programming provided on a per channel basis. In addition, other revenues are derived from installation and reconnection fees charged to basic customers to commence or discontinue service, pay-per-view charges, late payment fees, franchise fees, advertising revenues and commissions related to the sale of goods by home shopping services. System operating expenses consist of service and administrative expenses, home office expenses and depreciation and amortization. Service and administrative expenses include direct costs, such as fees paid to 20 programming suppliers, expenses related to copyright fees, bad debt expense, and franchise and use fees. Programming fees have historically increased at rates in excess of inflation due to increases in the number of programming services offered by the System and improvements in the quality of programming. Service and administrative expenses also include costs attributable to the operation of the System, including wages and salaries and other expenses related to plant operating activities, customer service operations, marketing, billing, advertising sales and video production. Prior to August 21, 1998, service and administrative expenses also included costs attributable to finance and accounting, human resources and other administrative functions. Upon consummation of the Financing Plan, such expenses were replaced by the management fee arrangement with IHO. The System relies on IHO for all of its strategic, managerial, financial and operational oversight and advice. IHO also centrally purchases programming and equipment and provides the associated discount to the System. In exchange for all such services provided to the System and subject to certain restrictions contained in the covenants with respect to Insight Ohio's Senior Credit Facility, the Senior Notes and the Senior Discount Notes, IHO is entitled to receive management fees of 3.0% of gross operating revenues of the System. Such management fee is payable only after distributions have been made in respect of the Preferred Interests and only to the extent that such payment would be permitted by an exception to the restricted payments covenants of the Senior Notes and the Senior Discount Notes as well as Insight Ohio's Senior Credit Facility. Such management fee is included in service and administrative expenses. Results of Operations Three Months Ended September 30, 1999 Compared to Three Months Ended September 30, 1998 Revenues for the three months ended September 30, 1999 and 1998 were $11.8 million. For the three months ended September 30, 1999, subscribers served averaged 84,989 compared with 90,701 during the same time period in 1998. Revenues remained flat despite a 6.3% decrease in customers as Insight Ohio ended previous management's program of deeply discounting subscriber rates. Average revenue per customer per month for the three months ended September 30, 1999 totaled $46.29 versus $43.25 for the three months ended September 30, 1998. Service and administrative expenses remained flat at $7.3 million for the three months ended September 30, 1999 and 1998. A decrease of 6.6% in basic programming expenses from $2.0 million in 1998 to $1.9 million in 1999, reflects savings realized through Insight's purchasing discounts. Similarly, pay programming expenses dropped 11.2% during the three months ended September 30, 1999 versus the three months ended September 30, 1998 to $990,000. Prior to the consummation of the Financing Plan, the System was charged home office expenses that included costs incurred by the owners of Coaxial and their direct employees relating to the System including salaries, benefits, legal fees, travel and entertainment, accounting fees and other office expenses. For the three months ended September 30, 1998, such expenses totaled approximately $400,000. Upon consummation of the Financing Plan, IHO commenced providing management services to the System for which it receives a management fee, which totaled approximately $364,000 for the three months ended September 30, 1999. Personnel costs for the three months ended September 30, 1999 totaled approximately $1.5 million, a decrease of 25.5% from the three months ended September 30, 1998 as Insight Ohio eliminated duplicative positions upon consummation of the Financing Plan. Offsetting the expense decreases described above, marketing expenses increased 186.7% from approximately $244,000 for the three months ended September 30, 1998 to approximately $698,000 for the three months ended September 30, 1999. The Company significantly increased its marketing activity over the prior period in connection with efforts directed at customer awareness of the Company's upcoming launch of its new products and activation of its new network. Severance and transaction structure costs totaling $4.8 million were incurred during the three months ended September 30, 1998 as a result of the Financing Plan and the System acquisition. These costs consisted of severance costs of $960,000 and professional fees of $3.8 million. Depreciation and amortization expense for the three months ended September 30, 1999 increased by 62.4% over the three months ended September 30, 1998 to approximately $1.8 million reflecting additional capital expenditures resulting from upgrades to the System's network. 21 Operating income for the three months ended September 30, 1999 totaled $2.7 million versus a loss of $1.5 million for the three months ended September 30,1998. The loss reported for the three months ended September 30, 1998 was primarily due to the severance and transaction structure costs described above. Net interest expense totaled approximately $1.0 million for the three months ended September 30, 1999 primarily resulting from interest on the Senior Notes issued on August 21, 1998. An extraordinary loss of $846,641 was recorded during the three months ended September 30, 1998 as a result of the refinancing of outstanding loan balances in connection with the Financing Plan. Net income increased to $1.7 million for the three months ended September 30, 1999 from a net loss of $3.1 million for the three months ended September 30, 1998 for the reasons set forth above. Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30, 1998 Revenues for the nine months ended September 30, 1999 were $35.2 million, compared to $35.0 million for the nine months ended September 30, 1998. For the nine months ended September 30, 1999, subscribers served averaged 86,123, as compared with 91,094 during the same time period in 1998. Revenues remained essentially flat despite a 5.5% decrease in customers as Insight Ohio ended previous management's program of deeply discounting its rates. Average revenue per customer per month for the nine months ended September 30, 1999 totaled $45.41 versus $42.74 for the nine months ended September 30, 1998. Service and administrative expenses decreased to $20.5 million for the nine months ended September 30, 1999, compared to $22.2 million for the nine months ended September 30, 1998, a decrease of $1.7 million or 7.4%. Basic programming expenses decreased by 10.3%, from $6.0 million in 1998 to $5.4 million in 1999, reflecting savings realized through Insight's purchasing discounts. Similarly, pay programming expenses dropped 13.4% during the nine months ended September 30, 1999 versus the nine months ended September 30, 1998 to $2.9 million. Prior to the consummation of the Financing Plan, the System was charged home office expenses that included costs incurred by the owners of Coaxial and their direct employees relating to the System including salaries, benefits, legal fees, travel and entertainment, accounting fees and other office expenses. For the nine months ended September 30, 1998, such expenses totaled approximately $1.1 million. Upon consummation of the Financing Plan, IHO commenced providing management services to the System for which it receives a management fee, which totaled approximately $1.1 million for the nine months ended September 30, 1999. Personnel costs for the nine months ended September 30, 1999 totaled approximately $4.3 million, a decrease of 20.1% from the nine months ended September 30, 1998 as Insight Ohio eliminated duplicative positions upon consummation of the Financing Plan. Offsetting these expense decreases was an increase in marketing expenses in connection with increased marketing activity over the prior period in connection with efforts directed at customer awareness of the Company's upcoming launch of its new products and activation of its new network. Severance and transaction structure costs totaling $4.8 million were incurred during the nine months ended September 30, 1998 as a result of the Financing Plan and the System acquisition. These costs consisted of severance costs of $960,000 and professional fees of $3.8 million. Depreciation and amortization expense for the nine months ended September 30, 1999 increased by 33.2% over the nine months ended September 30, 1998 to approximately $5.1 million reflecting additional capital expenditures resulting from upgrades to the System's network. Operating income for the nine months ended September 30, 1999 totaled $9.6 million, a 126.7% increase over operating income of $4.2 million reported for the nine months ended September 30, 1998. Net interest expense totaled approximately $2.7 million for the nine months ended September 30, 1999 primarily resulting from interest on the Senior Notes issued on August 21, 1998. An extraordinary loss of $846,641 was recorded during the nine months ended September 30, 1998 as a result of the refinancing of outstanding loan balances in connection with the Financing Plan. Net income increased to $6.9 million for the nine months ended September 30, 1999 from net income of $2.2 million for the nine months ended September 30, 1998 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 relating to Coaxial totaled $5.7 million and $16.0 million for the three and nine months ended September 30, 1999. These expenditures were primarily for the rebuild of cable plant and for serving new homes. Capital expenditures are financed by cash received from the Financing Plan and cash flows from operations. 22 IHO is rebuilding 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. In addition to cash flow from operations, Insight Ohio has available a $25 million Senior Credit facility to support its upgrade. As of September 30, 1999, $11 million has been drawn under the Senior Credit Facility and $14 million remains available for borrowing. Inflation and Changing Prices Coaxial LLC's costs and expenses are subject to inflation and price fluctuations. Although changes in costs can be passed through to customers, such changes may be constrained by competition. Management does not expect inflation to have a material effect on Coaxial LLC's results of operations. Year 2000 The Year 2000 will pose a unique set of challenges to those industries reliant on information technology. As a result of the methods employed by early programmers, many software applications and operational programs may be unable to distinguish the Year 2000 from the Year 1900. If not effectively addressed, this problem could result in the production of inaccurate data, or, in the worst cases, the inability of the systems to continue to function altogether. Insight Ohio and other companies in the same business are vulnerable to their dependence on distribution and communications systems. Insight Ohio's greatest Year 2000 exposure is presented by its third party billing system which is responsible for mailing monthly bills to customers and maintaining customer data. Insight Ohio has recently engaged Convergys as its billing service provider. Convergys has informed Insight Ohio that testing of the billing system, for Year 2000 compliance, was completed by the first quarter of 1999. Management believes that the remaining systems of Insight Ohio will be fully Year 2000 compliant by the end of the fourth quarter of 1999. Insight Ohio has completed an inventory of all areas which are at risk and has replaced and upgraded all critical equipment and software as needed. Due to Insight's affiliation with AT&T Broadband & Internet Services ("AT&T BIS"), Insight Ohio is a member of AT&T BIS's Year 2000 task force. This allows Insight Ohio access to AT&T BIS's extensive database which details various vendors', suppliers' and programmers' Year 2000 compliance. Management estimates that the total cumulative costs relating to its efforts to make its systems Year 2000 compliant will be approximately $35,000, of which approximately $20,000 has been incurred as of September 30, 1999. Management believes that the expenditures required to bring Insight Ohio's systems into compliance will not have a materially adverse effect on Insight Ohio's performance. However, the Year 2000 problem is pervasive and complex and can potentially affect any computer process. Accordingly, no assurance can be given that Year 2000 compliance can be achieved without additional unanticipated expenditures and uncertainties that might affect future financial results. Moreover, to operate its business, Insight Ohio relies on governmental agencies, utility companies, telecommunications companies, shipping companies, suppliers and other third party service providers over which it can assert little control. Insight Ohio's ability to conduct its business is dependent upon the ability of these third parties to avoid Year 2000 related disruptions. Insight Ohio has contacted and received compliance statements from its third party service providers about their Year 2000 readiness. If Insight Ohio's key third party service providers do not adequately address their Year 2000 issues, Insight Ohio's business may be materially affected, which could result in a materially adverse effect on Insight Ohio's results of operations and financial condition. Insight Ohio is developing contingency plans, which will be in place by November 30, 1999, in the event Insight Ohio or any key third party providers should fail to become Year 2000 compliant. 23 Recent Accounting Pronouncements In September 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. Coaxial LLC, Coaxial Financing Corp. and Insight Ohio do not anticipate the adoption of this statement to have a material impact on their respective financial statements. During 1999, the Company adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98- 1). SOP 98-1 requires that companies capitalize qualifying costs incurred during the application development stage of a software project. All other costs incurred in connection with an internal use software project are to be expensed as incurred. The adoption of SOP 98-1 did not have a material impact on the Company's financial statements. 24 Item 3. Quantitative and Qualitative Disclosure About Market Risk Coaxial, Phoenix 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, Phoenix and Insight Ohio have not entered into forward or future contracts, purchased options or entered into swaps. 25 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 - Financial Data Schedule of Coaxial Communications of Central Ohio,Inc. 27.2 - Financial Data Schedule of Phoenix Associates 27.3 - Financial Data Schedule of Insight Communications of Central Ohio,LLC (b) Reports on Form 8-K None 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Coaxial Communications of Central Ohio, Inc. (Registrant) Dated: November 15, 1999 By: /s/ Michael S. Willner _____________________________ Michael S. Willner President and Chief Executive Officer (Principal Executive Officer) By: /s/ Kim D. Kelly _____________________________ Kim D. Kelly Executive Vice President, Chief Financial and Operating Officer and Treasurer (Principal Financial and Accounting Officer) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Phoenix Associates (Registrant) Dated: November 15, 1999 By: /s/ Dennis J. McGillicuddy ____________________________ Dennis J. McGillicuddy Sole Member of Phoenix DJM LLC, a general partner of Phoenix Associates (Principal Executive, Financial and Accounting Officer) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Insight Communications of Central Ohio, LLC (Registrant) Dated: November 15, 1999 By: /s/ Michael S. Willner _____________________________ Michael S. Willner President and Chief Executive Officer (Principal Executive Officer) By: /s/ Kim D. Kelly _____________________________ Kim D. Kelly Executive Vice President, Chief Financial and Operating Officer and Treasurer (Principal Financial and Accounting Officer) EX-27.1 2 FINANCIAL DATA SCHEDULE OF COAXIAL COMMUNICATIONS
5 This schedule contains summary information extracted from the Registrant Company Consolidated Balance Sheet (Unaudited) for September 30, 1999 and Consolidated Statement of Operations (Unaudited) for the Nine Months ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 0001070241 COAXIAL COMMUNICATIONS OF CENTRAL OHIO 1,000 9-MOS DEC-31-1999 SEP-30-1999 4,342 0 1,320 409 0 8,136 94,807 51,956 52,568 8,744 0 0 0 1 (4,557) 52,568 35,195 35,195 25,616 25,616 0 0 2,735 6,928 0 6,928 0 0 0 6,928 0 0
EX-27.2 3 FINANCIAL DATA SCHEDULE OF PHOENIX ASSOCIATES
5 This schedule contains summary information extracted from the Registrant Company Consolidated Balance Sheet (Unaudited) for September 30, 1999 and Consolidated Statement of Operations (Unaudited) for the Nine Months ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000724332 Phoenix Associates 1,000 9-MOS DEC-31-1999 SEP-30-1999 0 0 57 0 0 57 0 0 4,305 1,378 0 0 0 0 (102,638) 4,305 0 0 0 0 0 0 8,266 (8,266) 0 (8,266) 0 0 0 (8,266) 0 0
EX-27.3 4 FINANCIAL DATA SCHEDULE OF INSIGHT COMMUNICATIONS
5 This schedule contains summary information extracted from the Registrant Company Consolidated Balance Sheet (Unaudited) for September 30, 1999 and Consolidated Statement of Operations (Unaudited) for the Nine Months ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 0001070242 Insight Communications Of Central Ohio 1,000 9-MOS DEC-31-1999 SEP-30-1999 2,342 0 1,320 409 0 6,136 94,807 51,956 49,508 14,467 0 0 0 0 (148,905) 49,508 35,195 35,195 25,616 25,616 0 0 38 9,625 0 9,625 0 0 0 9,625 0 0
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