FORM 10Q

10-Q 1 d10q.htm FORM 10Q FORM 10Q

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 June 30, 2003

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 incorporation or organization)		(I.R.S. Employer Identification No.)

c/o Insight Communications Company, Inc.

810 7th Avenue

New York, New York 10019

(Address of principal executive offices, including zip code)

(917) 286-2300

(Registrants’ telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrants are accelerated filers (as defined in Exchange Act Rule 12b-2). Yes ¨ No x.

Indicate the number of shares outstanding of each of the issuer’s 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

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes required by accounting principles generally accepted in the United States. However, in our opinion, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the relevant periods have been made. Results for the interim periods are not necessarily indicative of the results to be expected for the year. These financial statements should be read in conjunction with the summary of significant accounting policies and the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2002.

COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.

BALANCE SHEETS

(in thousands)

	June 30, 2003			December 31, 2002
	unaudited
Assets
Investments	$	10,672		$	9,904
Dividend receivable		5,250			5,250

Total current assets		15,922			15,154
Deferred financing costs, net of accumulated amortization of $3,054 and $2,740 as of June 30, 2003 and December 31, 2002, respectively		1,973			2,287
Investment in affiliate		195,173			191,820

Total assets	$	213,068		$	209,261

Liabilities and shareholders’ equity
Accrued interest	$	5,250		$	5,250

Total current liabilities		5,250			5,250
Senior notes, including $105.6 million to be paid by Phoenix Associates		140,000			140,000

Total liabilities		145,250			145,250
Commitments and contingencies
Shareholders’ equity:
Common stock; $1 par value; 2,000 shares authorized; 1,080 shares issued and outstanding as of June 30, 2003 and December 31, 2002, respectively		1			1
Paid in capital		11,501			11,501
In-substance allocation of proceeds related to senior notes to be paid by Phoenix Associates		(54,429	)		(59,707	)
Retained earnings		117,573			119,812
Accumulated other comprehensive loss		(6,828	)		(7,596	)

Total shareholders’ equity		67,818			64,011

Total liabilities and shareholders’ equity	$	213,068		$	209,261

See accompanying notes

COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.

STATEMENTS OF OPERATIONS

(unaudited)

(in thousands)

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
Expenses:
Amortization	$	(157	)	$	(157	)	$	(314	)	$	(314	)
Other income (expense):
Interest expense		(3,500	)		(3,500	)		(7,000	)		(7,000	)
Dividend on preferred interests		5,203			5,002			10,353			9,957

Total other income, net		1,703			1,502			3,353			2,957

Net income	$	1,546		$	1,345		$	3,039		$	2,643

See accompanying notes

COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.

STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Six months ended June 30,
	2003			2002
Operating activities:
Net income	$	3,039		$	2,643
Adjustments to reconcile net income to net cash used in operating activities:
Amortization		314			314
Interest expense assumed by affiliate		5,278			5,278
Dividend on preferred interest		(10,353	)		(9,957	)

Net cash used in operating activities		(1,722	)		(1,722	)

Financing activities:
Capital distributions		(5,278	)		(5,278	)
Proceeds from dividend on preferred interest		7,000			7,000

Net cash provided by financing activities		1,722			1,722

Net change in cash		—			—
Cash, beginning of period		—			—

Cash, end of period	$	—		$	—

See accompanying notes

COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.

NOTES TO FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

Coaxial Communications of Central Ohio, Inc. (the “Company” or “Coaxial Inc.”), an Ohio corporation, through its ownership of preferred interests, has a 30% voting interest in Insight Communications of Central Ohio, LLC (“Insight Ohio”). Insight Ohio operates a cable television system that provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. Prior to August 8, 2000, the Company owned 100% of the voting interest in Insight Ohio and therefore consolidated the financial statements of Insight Ohio for periods prior to such date. In connection with the contribution of the Company’s cable system (the “System”), the issuance of the Senior Notes and the issuance of the Senior Discount Notes by the Company’s majority shareholder, Coaxial LLC, during 1998 the three individuals who previously owned the outstanding stock of the Company contributed their stock to three separate limited liability companies. Accordingly, the Company is a subsidiary of Coaxial LLC, which owns 67½% 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 Associates of Columbus I and Coaxial Associates of Columbus II.

The Company and Phoenix are co-issuers of the Senior Notes. The ability of the Company and Phoenix to make scheduled payments with respect to the Senior Notes is dependent on the financial and operating performance of Insight Ohio. The required distributions on the Series A preferred equity interest to the Company is designed to provide the cash flow necessary to service the debt requirements on the Senior Notes.

2. Responsibility for Interim Financial Statements

The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements.

In management’s opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

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 and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003 or any other interim period.

COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.

NOTES TO FINANCIAL STATEMENTS

3. Fair Value of Financial Instruments

The fair value of the Senior Notes was $144.2 million and $122.8 million as of June 30, 2003 and December 31, 2002, respectively.

4. Comprehensive Income (Loss)

Comprehensive income (loss) totaled $2.7 million and $3.8 million for the three and six months ended June 30, 2003 and ($6.0) million and ($7.3) million for the three and six months ended June 30, 2002, respectively. The Company owns common stock that is classified as available-for-sale and reported at market value, with unrealized gains and losses recorded as accumulated other comprehensive income or loss in the accompanying balance sheets.

5. Subsequent Event

On July 22, 2003, Insight Communications Company, Inc. (“Insight Inc.”) issued a press release announcing it anticipates that it will have the opportunity, using approximately $30.0 million of its existing cash on hand, to purchase the equity interests of the limited liability companies that own Coaxial Inc. (together, with the limited liability companies that own Coaxial Inc., the “Coaxial Entities”). As a consequence of this purchase, Insight Inc. will beneficially own 800,000 shares of its outstanding common stock, which it expects to retire. Insight Inc. also announced plans to refinance the obligations of Insight Ohio and those of the Coaxial Entities it acquires. As of June 30, 2003, these obligations were comprised of Insight Ohio’s credit facility ($22.5 million principal amount), and the 10% senior notes due 2006 ($140.0 million principal amount) and 12⁷/8% senior discount notes due 2008 ($55.9 million principal amount at maturity) conditionally guaranteed by Insight Ohio and for which Insight Ohio is obligated to make distributions in respect of the Series A and Series B preferred interests held by Coaxial Inc. The transactions will be accomplished through a refinancing of the $900 million term loan under the Insight Midwest Holdings credit facility into a new $1.125 billion term loan, increasing the total credit facility size to $1.975 billion from $1.750 billion.

The proposed transactions are subject to the completion of definitive documents and customary closing conditions. Closing is expected to occur during the third quarter of 2003. If the foregoing refinancing transactions are completed, we would no longer file reports with the Securities and Exchange Commission.

PHOENIX ASSOCIATES

BALANCE SHEETS

(in thousands)

	June 30, 2003			December 31, 2002
	unaudited
Assets
Deferred financing costs, net of accumulated amortization of $3,054 and $2,740 as of June 30, 2003 and December 31, 2002, respectively	$	1,973		$	2,287

Total assets	$	1,973		$	2,287

Liabilities and partners’ deficit
Accrued interest	$	5,250		$	5,250

Total current liabilities		5,250			5,250
Senior notes, including $34.4 million to be paid by Coaxial Communications of Central Ohio, Inc.		140,000			140,000

Total liabilities		145,250			145,250
Commitments and contingencies
Partners’ deficit:
In-substance allocation of proceeds related to senior notes to be paid by Coaxial Communications of Central Ohio, Inc.		(17,711	)		(19,433	)
Partners’ accumulated deficit		(125,566	)		(123,530	)

Total partners’ deficit		(143,277	)		(142,963	)

Total liabilities and partners’ deficit	$	1,973		$	2,287

See accompanying notes

PHOENIX ASSOCIATES

STATEMENTS OF OPERATIONS

(unaudited)

(in thousands)

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
Expenses:
Amortization	$	(157	)	$	(157	)	$	(314	)	$	(314	)
Interest income (expense):
Interest income–related parties		—			39			—			78
Interest expense		(3,500	)		(3,500	)		(7,000	)		(7,000	)

Total interest expense, net		(3,500	)		(3,461	)		(7,000	)		(6,922	)

Net loss	$	(3,657	)	$	(3,618	)	$	(7,314	)	$	(7,236	)

See accompanying notes

PHOENIX ASSOCIATES

STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Six months ended June 30,
	2003			2002
Operating activities:
Net loss	$	(7,314	)	$	(7,236	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred financing fees		314			314
Interest expense assumed by affiliate		1,722			1,722
Changes in operating assets and liabilities:
Interest receivable		—			(78	)

Net cash used in operating activities		(5,278	)		(5,278	)

Financing activities:
Capital contributions		5,278			5,278

Net cash provided by financing activities		5,278			5,278

Net change in cash		—			—
Cash, beginning of period		—			—

Cash, end of period	$	—		$	—

See accompanying notes

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 is owned by three separate LLC’s whose sole members are individual partners who share profits and losses in the ratio of 67½%, 22½% and 10%, respectively.

Other related entities affiliated with the Company include Coaxial LLC, Coaxial Financing Corp., Coaxial Communications of Central Ohio, Inc. (“Coaxial Inc.”), Insight Communications of Central Ohio, LLC (“Insight Ohio”), Coaxial Associates of Columbus I (“Columbus I”) and Coaxial Associates of Columbus II (“Columbus II”).

The Company and Coaxial Inc. are co-issuers of the Senior Notes. The ability of the Company and Coaxial Inc. to make scheduled payments with respect to the Senior Notes is dependent on the financial and operating performance of Insight Ohio. The required distributions on the Series A preferred equity interest to Coaxial Inc. and ultimately the Company is designed to provide the cash flow necessary to service the debt requirements on the Senior Notes.

2. Responsibility for Interim Financial Statements

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, 2002.

PHOENIX ASSOCIATES

NOTES TO FINANCIAL STATEMENTS

3. Fair Value of Financial Instruments

The fair value of the Senior Notes was $144.2 million and $122.8 million as of June 30, 2003 and December 31, 2002, respectively.

4. Subsequent Event

INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC

BALANCE SHEETS

(in thousands)

	June 30, 2003			December 31, 2002
	unaudited
Assets
Cash and cash equivalents	$	7,790		$	994
Trade accounts receivable, net of allowance for doubtful accounts of $58 and $50 as of June 30, 2003 and December 31, 2002, respectively		1,806			2,360
Launch funds receivable		—			72
Prepaid expenses and other assets		969			813

Total current assets		10,565			4,239
Fixed assets, net		102,580			107,399
Intangible assets, net		573			676

Total assets	$	113,718		$	112,314

Liabilities and members’ deficit
Accounts payable	$	1,059		$	4,091
Accrued expenses and other liabilities		2,521			1,495
Accrued programming costs		4,536			2,631
Deferred revenue		636			518
Debt—current portion		15,834			5,000
Interest payable		99			171
Preferred interest distribution payable		5,250			5,250
Due to affiliates		7,248			5,927

Total current liabilities		37,183			25,083
Deferred revenue		529			662
Debt		6,666			20,000

Total liabilities		44,378			45,745
Commitments and contingencies
Preferred interests		195,173			191,820
Members’ deficit		(125,833	)		(125,251	)

Total liabilities and members’ deficit	$	113,718		$	112,314

See accompanying notes

INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC

STATEMENTS OF OPERATIONS

(unaudited)

(in thousands)

	Three months Ended June 30,						Six months Ended June 30,
	2003			2002			2003			2002
Revenue	$	17,052		$	15,655		$	33,843		$	30,695

Operating costs and expenses:
Programming and other operating costs		6,865			5,428			13,403			11,108
Selling, general and administrative		3,112			3,084			6,386			6,073
Management fees		514			458			1,016			897
Depreciation and amortization		5,158			3,924			9,911			7,604

Total operating costs and expenses		15,649			12,894			30,716			25,682
Operating income		1,403			2,761			3,127			5,013

Other income (expense):
Interest expense		(185	)		(247	)		(411	)		(458	)
Interest income		13			17			16			19
Other		21			17			39			45

Total other expense, net		(151	)		(213	)		(356	)		(394	)

Net income		1,252			2,548			2,771			4,619
Accrual of preferred interests		(5,203	)		(5,002	)		(10,353	)		(9,957	)

Net loss attributable to common interests	$	(3,951	)	$	(2,454	)	$	(7,582	)	$	(5,338	)

See accompanying notes

INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC

STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Six months ended June 30,
	2003			2002
Operating activities:
Net income	$	2,771		$	4,619
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,911			7,604
Provision for losses on trade accounts receivable		415			719
Changes in operating assets and liabilities:
Trade accounts receivable		139			(168	)
Launch funds receivable		72			564
Prepaid expenses and other assets		(156	)		(392	)
Accounts payable		(3,032	)		(3,318	)
Accrued expenses and other liabilities		4,238			1,323

Net cash provided by operating activities		14,358			10,951

Investing activities:
Purchase of property and equipment		(5,062	)		(12,964	)
Purchase of intangible assets		—			(125	)

Net cash used in investing activities		(5,062	)		(13,089	)

Financing activities:
Capital contributions		7,000			10,000
Preferred interest distribution		(7,000	)		(7,000	)
Repayment of credit facility		(2,500	)		—

Net cash provided by (used in) financing activities		(2,500	)		3,000

Net change in cash and cash equivalents		6,796			862
Cash and cash equivalents, beginning of period		994			2,158

Cash and cash equivalents, end of period	$	7,790		$	3,020

See accompanying notes

INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC

NOTES TO FINANCIAL STATEMENTS

1. Business Organization and Purpose

Insight Communications of Central Ohio, LLC (the “Company”) is a subsidiary of Insight Holdings of Ohio, LLC which owns 100% of its common equity, which is a wholly owned subsidiary of Insight Midwest, L.P. (“Insight Midwest”). Insight Midwest is equally owned by Insight Communications Company L.P. (“Insight LP”) and an affiliate of Comcast Cable Holdings, LLC (“Comcast Cable”) (formerly known as AT&T Broadband, LLC). Insight LP, as general partner and manager of Insight Midwest, manages and operates the Company’s systems. The Company provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas.

2. Responsibility for Interim Financial Statements

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, 2002.

3. Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company adopted SFAS No. 143 on January 1, 2003, in accordance with the new statement. The adoption of SFAS No. 143 had no impact on its financial condition or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Disposal Obligations”, which became effective for the Company beginning January 1, 2003. SFAS No. 146 supersedes EITF Issue No. 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity

INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC

NOTES TO FINANCIAL STATEMENTS

3. Recent Accounting Pronouncements (continued)

(including Certain Costs Incurred in a Restructuring)”. SFAS No. 146 addresses the accounting for and disclosure of costs to terminate an existing contractual obligation (including but not limited to operating leases), incremental direct and other costs associated with the related disposal activity and termination benefits (severance pay) provided to employees pursuant to a one-time benefit arrangement that does not constitute a preexisting or newly-created ongoing benefit plan. The adoption of SFAS No. 146 had no impact on the Company’s consolidated financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which requires variable interest entities (commonly referred to as SPEs) to be consolidated by the primary beneficiary of the entity if certain criteria are met. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 become effective during the third quarter of 2003. For variable interest entities acquired prior to February 1, 2003, any difference between the net amount added to the balance sheet and the amount of any previously recognized interest in the variable interest entity will be recognized as a cumulative effect of an accounting change. The Company is currently evaluating the provisions of FIN 46 but does not believe the adoption of FIN 46 will have a significant impact on its consolidated financial position or results of operations.

4. Related Party Transactions

Management Fees

The Company pays Insight LP management fees of approximately 3% of its revenue to serve as manager of the Company’s cable systems.

Programming

The Company purchases the majority of its programming through affiliates of Comcast Cable. Charges for such programming, including a 1½% administrative fee, were $2.1 million and $4.3 million for the three and six months ended June 30, 2003 and $1.7 million and $3.4 million for the three and six months ended June 30, 2002, respectively. As of June 30, 2003 and December 31, 2002, $3.0 million and $1.4 million of accrued programming costs were due to affiliates of Comcast Cable. The company believes that the programming rates charged through these affiliates are lower than those available from independent parties.

Telephone Agreements

In July 2000, to facilitate delivery of telephone services Insight Midwest entered into a ten-year agreement with AT&T Broadband (now known as Comcast Cable) that allows the Company to deliver local telephone service. Under the terms of the agreement, the Company leases certain capacity on its local network to Comcast Cable. Revenue earned from leased network capacity used in the provision of

INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC

NOTES TO FINANCIAL STATEMENTS

4. Related Party Transactions (continued)

telephone services was $77,000 and $131,000 for the three and six months ended June 30, 2003 and $10,000 and $13,000 for the three and six months ended June 30, 2002.

In addition, the Company provides certain services and support for which it receives additional payments related to installations, marketing and billing support. Fee revenue earned in connection with installations is deferred and amortized over the expected term a telephone customer maintains their telephone service, currently estimated to be three years. Marketing and billing support revenue is recognized in the period such services are performed.

5. Commitments and Contingencies

Programming Contracts

The Company enters into long-term contracts with third parties who provide programming for distribution over the Company’s cable television systems. These programming contracts are a significant part of its business and represent a substantial portion of its operating costs. Since future fees under such contracts are based on numerous variables, including number and type of customers, the Company has not recorded any liabilities with respect to such contracts.

Litigation

The Company is party in or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on the Company’s future results of operations or financial position.

6. Subsequent Event

On July 22, 2003, Insight Communications Company, Inc. (“Insight Inc.”), the parent of Insight LP, issued a press release announcing it anticipates that it will have the opportunity, using approximately $30.0 million of its existing cash on hand, to purchase the equity interests of the limited liability companies that own Coaxial Communications of Central Ohio, Inc. (“Coaxial” and together with the limited liability companies that own Coaxial, the “Coaxial Entities”). As a consequence of this purchase, Insight Inc. will beneficially own 800,000 shares of its outstanding common stock, which it expects to retire. Insight Inc. also announced plans to refinance the obligations of the Company and those of the Coaxial Entities it acquires. As of June 30, 2003, these obligations were comprised of the Company’s credit facility ($22.5 million principal amount), and the 10% senior notes due 2006 ($140.0 million principal amount) and 12⁷/8% senior discount notes due 2008 ($55.9 million principal amount at maturity) conditionally guaranteed by the Company and for which the Company is obligated to make distributions in respect of the Series A and Series B preferred interests held by Coaxial. The transactions will be accomplished through a refinancing of the $900 million term loan under the Insight Midwest Holdings credit facility into a new $1.125 billion term loan, increasing the total credit facility size to $1.975 billion from $1.750 billion.

INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC

NOTES TO FINANCIAL STATEMENTS

6. Subsequent Event (continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the financial statements and related notes that are included elsewhere in this report.

Forward-Looking Statements

This report contains “forward-looking statements,” including statements containing the words “believes,” “anticipates,” “expects” and words of similar import, which concern, among other things, the operations, economic performance and financial condition of Insight Communications of Central Ohio, LLC (“Insight Ohio” or the “System”). All statements other than statements of historical fact included in this report regarding Coaxial Communications of Central Ohio, Inc. (“Coaxial Inc.”), Phoenix Associates (“Phoenix”) and Insight Ohio (collectively, the “Companies”) or any of the transactions described in this report, including the timing, financing, strategies and effects of such transactions, are forward-looking statements. Such forward-looking statements are based upon a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Companies, and reflect future business decisions that are subject to change. Although the management of the Companies believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include, without limitation:

•

the ability of Coaxial Inc. 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;

•

the fact that a substantial portion of the System’s cash flow from operations is required to be dedicated to the payment of principal and interest on its indebtedness and the required distributions with respect to its Preferred Interests, thereby reducing the funds available to the System for its operations and future business opportunities;

•

the fact that Coaxial Inc. and Phoenix have no significant assets other than Coaxial Inc.’s ownership of the Preferred Interest in Insight Ohio and equity investments; and

•

the fact that the indenture governing the terms of the Senior Notes imposes restrictions on Coaxial Inc., Phoenix and Insight Ohio and the Senior Credit Facility of the System imposes restrictions on Insight Ohio.

Management of the Companies does not intend to update these forward-looking statements.

Coaxial Inc. 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 and six months ended June 30, 2003 compared to the three and six months ended June 30, 2002.

Overview

The System relies on Insight LP, for all of its strategic, managerial, financial and operational oversight and advice. Insight LP also centrally purchases programming and equipment and provides the associated discount to the System. In exchange for all such services provided to the System and subject to certain restrictions contained in the covenants with respect to Insight Ohio’s Senior Credit Facility and the Senior Notes, Insight LP receives management fees of approximately 3.0% of gross operating revenue of the System. Such management fees are payable only after distributions have been made with respect to the Preferred Interests and only to the extent that such payments would be permitted by an exception to the restricted payments covenants of the Senior Notes as well as Insight Ohio’s Senior Credit Facility.

Results of Operations

Revenues are earned from customer fees for cable television programming services including premium, digital and pay-per-view services and ancillary services, such as rental of converters and remote control devices, installations and from selling advertising. In addition, the System earns revenues from providing high-speed data and from facilitating the delivery of telephone services as well as 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 June 30,						Six months Ended June 30,
	2003			2002			2003			2002
	(in thousands)
Revenue	$	17,052		$	15,655		$	33,843		$	30,695
Operating costs and expenses:
Programming and other operating costs		6,865			5,428			13,403			11,108
Selling, general and administrative		3,112			3,084			6,386			6,073
Management fees		514			458			1,016			897
Depreciation and amortization		5,158			3,924			9,911			7,604

Total operating costs and expenses		15,649			12,894			30,716			25,682

Operating income		1,403			2,761			3,127			5,013
Operating cash flow		6,561			6,685			13,038			12,617
Interest expense		(185	)		(247	)		(411	)		(458	)
Net income		1,252			2,548			2,771			4,619
Net cash provided by operating activities		7,202			6,036			14,358			10,951
Net cash used in investing activities		2,807			8,265			5,062			13,089
Net cash provided by (used in) financing activities		(1,250	)		—			(2,500	)		3,000

Operating cash flow is a financial measure that is not calculated and presented in accordance with accounting principles generally accepted in the United States. Insight Ohio defines operating cash flow as operating income or loss before depreciation and amortization. Operating cash flow eliminates the uneven effect on operating income of non-cash depreciation of tangible assets and amortization of certain intangible assets and, therefore, is useful to management in measuring the overall operational strength and performance of Insight Ohio. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating Insight Ohio’s revenues. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures and investment spending. Another limitation of operating cash flow is that it does not reflect income net of interest expense, which is a significant expense of Insight Ohio because of the substantial debt it incurred to acquire its cable television systems and finance the capital expenditures for the upgrade of its cable network.

Despite the limitations of operating cash flow, management believes that the presentation of this financial measure is relevant and useful for investors because it allows investors to evaluate Insight Ohio’s performance in a manner similar to the method used by management. In addition, operating cash flow is commonly used in the cable television industry to analyze and compare cable television companies on the basis of operating performance, although Insight Ohio’s measure of operating cash flow may not be directly comparable to similar measures used by other companies. Operating cash flow should not be regarded as an alternative to, or more meaningful than, either operating income or net income as an indicator of operating performance or cash flows as a measure of liquidity, as well as other measures of financial performance reported in accordance with accounting principles generally accepted in the United States.

The following calculations of operating cash flow are not necessarily comparable to similarly titled amounts of other companies:

	Three Months Ended June 30,				Six Months Ended June 30,
	2003		2002		2003		2002
	(in thousands)
Operating income	$	1,403	$	2,761	$	3,127	$	5,013
Adjustment:
Depreciation and amortization		5,158		3,924		9,911		7,604

Operating cash flow	$	6,561	$	6,685	$	13,038	$	12,617

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002

Revenue increased $1.4 million or 9% primarily as a result of gains in the System’s high-speed data and digital services, which increased 35% and 16% over the prior year’s quarter, respectively. In addition, the System’s basic cable service revenue increased 5% primarily due to basic cable rate increases implemented in July 2002. For the three months ended June 30, 2003, customers served averaged approximately 87,000 compared to approximately 87,700 during the three months ended June 30, 2002.

Revenue by service offering was as follows for the three months ended June 30, (in thousands):

	2003 Revenue by Service Offering		% of Total Revenue		2002 Revenue by Service Offering		% of Total Revenue
Basic	$	7,965	46.7	%	$	7,554	48.2	%
Digital		1,594	9.3	%		1,369	8.7	%
High-speed data		2,761	16.2	%		2,048	13.1	%
Premium / analog pay-per-view		1,528	8.9	%		1,711	10.9	%
Advertising		1,322	7.8	%		1,154	7.4	%
Franchise fees		389	2.3	%		385	2.5	%
Other		1,493	8.8	%		1,434	9.2	%

Total	$	17,052	100.0	%	$	15,655	100.0	%

Revenue Generating Units (“RGUs”) were approximately 141,300 as of June 30, 2003 compared to approximately 131,100 as of June 30, 2002. This represents an annual growth rate of 8%. RGUs represent the sum of basic and digital video, high-speed data and telephone customers.

Average monthly revenue per basic customer for the three months ended June 30, 2003 was $65.29 compared to $59.52 for the three months ended June 30, 2002. Average monthly revenue per basic customer for digital and high-speed data services was $16.67 for the three months ended June 30, 2003 compared to $12.99 for the three months ended June 30, 2002.

Programming and other operating costs increased $1.4 million or 26%. The increase was primarily attributable to other operating costs, which increased as a result of a decrease in the amount of technical employee salaries capitalized and increases in plant maintenance costs. Additionally, the increase was also attributable to a 30% increase in our high-speed data costs due to increased customers served and a 4% increase in our programming costs due to increased programming and customers served.

Selling, general and administrative expenses remained relatively flat quarter over quarter. The 1% increase is primarily attributable to annual salary increases and increases in payroll related costs for existing employees as well as the addition of new employees and increases in customer collection fees. These increases were partially offset by a decrease in bad debt expense.

Management fees are directly related to revenue as these fees are calculated as approximately 3% of gross revenues.

Depreciation and amortization expense increased $1.2 million or 31% primarily as a result of additional capital expenditures through June 30, 2003 to extend our plant and continue the rollout of digital, high-speed data and telephone services to existing and new service areas.

Operating cash flow decreased 2% to $6.6 million for the three months ended June 30, 2003 down from $6.7 million for the three months ended June 30, 2002. This decrease was primarily due to the $1.5

million or 17% increase in programming and other operating costs, selling, general and administrative expenses and management fees offset by the $1.4 million or 9% increase in revenue.

Interest expense decreased $62,000 or 25% primarily as a result of a decrease in the average interest rate and average debt outstanding quarter over quarter.

For the three months ended June 30, 2003, net income was $1.3 million.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Revenue increased $3.1 million or 10% primarily as a result of gains in the System’s high-speed data and digital services, which increased 46% and 23% over the prior year’s quarter, respectively. In addition, the System’s basic cable service revenue increased 6% primarily due to basic cable rate increases implemented in July 2002. For the six months ended June 30, 2003, customers served averaged approximately 87,400 compared to approximately 87,100 during the six months ended June 30, 2002.

Revenue by service offering was as follows for the six months ended June 30, (in thousands):

	2003 Revenue by Service Offering		% of Total Revenue		2002 Revenue by Service Offering		% of Total Revenue
Basic	$	16,019	47.3	%	$	15,074	49.1	%
Digital		3,139	9.3	%		2,558	8.3	%
High-speed data		5,305	15.7	%		3,642	11.9	%
Premium / analog pay-per-view		3,135	9.3	%		3,480	11.3	%
Advertising		2,510	7.4	%		2,225	7.2	%
Franchise fees		783	2.3	%		785	2.6	%
Other		2,952	8.7	%		2,931	9.6	%

Total	$	33,843	100.0	%	$	30,695	100.0	%

Average monthly revenue per basic customer for the six months ended June 30, 2003 was $64.57 compared to $58.71 for the six months ended June 30, 2002. Average monthly revenue per basic customer for digital and high-speed data services was $16.11 for the six months ended June 30, 2003 compared to $11.86 for the six months ended June 30, 2002.

Programming and other operating costs increased $2.3 million or 21%. The increase was primarily attributable to a 42% increase in our high-speed data costs due to increased customers served and an 8% increase in our programming costs due to increased programming and customers served. Additionally, the increase was also attributable to other operating costs, which increased as a result of a decrease in the amount of technical employee salaries capitalized and increases in plant maintenance costs.

Selling, general and administrative expenses increased $313,000 or 5% period over period. The increase is primarily attributable to annual salary increases and increases in payroll related costs for existing employees as well as the addition of new employees and an increase in customer collection fees. These increases were partially offset by a decrease in bad debt expense.

Management fees are directly related to revenue as these fees are calculated as approximately 3% of gross revenues.

Depreciation and amortization expense increased $2.3 million or 30% primarily as a result of additional capital expenditures through June 30, 2003 to extend our plant and continue the rollout of digital, high-speed data and telephone services to existing and new service areas.

Operating cash flow increased 3% to $13.0 million for the six months ended June 30, 2003 up from $12.6 million for the six months ended June 30, 2002. This increase was primarily due to the $3.1 million or 10% increase in revenue offset by the $2.7 million or 15% increase in programming and other operating costs, selling, general and administrative expenses, and management fees.

Interest expense decreased $47,000 or 10% primarily as a result of a decrease in the average interest rate and average debt outstanding quarter over quarter.

For the six months ended June 30, 2003, net income was $2.8 million.

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 $5.1 million for the six months ended June 30, 2003. These expenditures were primarily for the upgrade of the System to support the telephone rollout, the purchase of customer premise equipment and plant expansions. Capital expenditures were financed by cash flows from operations and capital contributions.

Cash provided by operations for the six months ended June 30, 2003 and 2002 was $14.4 million and $11.0 million, respectively. The increase was primarily attributable to the timing of cash receipts and payments related to working capital accounts.

Cash used in investing activities for the six months ended June 30, 2003 and 2002 was $5.1 million and $13.1 million, respectively, reflecting capital expenditures to upgrade the System for the continued rollout of telephone, the purchase of customer premise equipment and to build plant extensions.

Cash used in financing activities for the six months ended June 30, 2003 was $2.5 million. This was comprised of capital contributions from Insight Midwest of $7.0 million offset by distributions on preferred interests of $7.0 million and a repayment of the Ohio credit facility of $2.5 million. Cash provided by financing activities for the six months ended June 30, 2002 was $3.0 million consisting of capital contributions of $10.0 million, less distributions on preferred interests of $7.0 million.

The Senior Credit Facility contains covenants restricting, among other things, the Company’s ability to make capital expenditures, acquire or dispose of assets, make investments and engage in transactions with related parties. The facility also requires compliance with certain financial ratios and contains customary events of default. Given current operating conditions and projected results of operations, we anticipate full compliance with this credit facility agreement, as amended, for the foreseeable future.

The following table summarizes our contractual obligations and commitments, excluding interest, preferred dividends and commitments for programming, as of June 30, 2003, including periods in which the related payments are due (in thousands):

	Long-Term Debt		Preferred Interests		Operating Leases		Total
2003	$	2,500	$	—	$	12	$	2,512
2004		20,000		—		7		20,007
2005		—		—		7		7
2006		—		140,000		7		140,007
2007		—		—		7		7
Thereafter		—		55,869		91		55,960

Total cash obligations	$	22,500	$	195,869	$	131	$	218,500

Management has determined that cash flows from operations will not be sufficient to finance the operating and capital requirements of the System, debt service requirements and distributions on the Preferred Interests for the current year. As such, Insight Midwest has committed to provide capital contributions to fund cash requirements through the year ending December 31, 2003.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Companies do not engage in trading market risk sensitive instruments and do not purchase hedging instruments or “other than trading” instruments that are likely to expose them to market risk, interest rate, foreign currency exchange, commodity price or equity price risk. The Companies have not entered into forward or future contracts, purchased options or entered into swap agreements.

Insight Ohio’s Senior Credit Facility bears interest at floating rates. Accordingly, Insight Ohio is exposed to potential losses related to changes in interest rates. A hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase projected annual interest expense by $225,000. The Senior Notes issued by Coaxial Inc. and Phoenix bear interest at fixed rates.

The fair value of borrowings under Insight Ohio’s senior credit facility approximates carrying value as it bears interest at floating rates. The fair value and carrying value of the Senior Notes as of June 30, 2003 was $144.2 million and $140.0 million, respectively.

Item 4. Controls and Procedures

Coaxial Inc.’s management carried out an evaluation, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of Coaxial Inc.’s disclosure controls and procedures as of June 30, 2003. Based upon that evaluation, Coaxial Inc.’s Chief Executive Officer and Chief Financial Officer concluded that Coaxial Inc.’s disclosure controls and procedures were effective to ensure that information required to be disclosed by Coaxial Inc. in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There has not been any change in Coaxial Inc.’s internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

Phoenix’s management carried out an evaluation, with the participation of its principal executive officer and principal financial officer, of the effectiveness of Phoenix’s disclosure controls and procedures as of June 30, 2003. Based upon that evaluation, Phoenix’s principal executive officer and principal financial officer concluded that Phoenix’s disclosure controls and procedures were effective to ensure that information required to be disclosed by Phoenix in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There has not been any change in Phoenix’s internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

Insight Ohio’s management carried out an evaluation, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of Insight Ohio’s disclosure controls and procedures as of June 30, 2003. Based upon that evaluation, Insight Ohio’s Chief Executive Officer and Chief Financial Officer concluded that Insight Ohio’s disclosure controls and procedures were effective to ensure that information required to be disclosed by Insight Ohio in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There has not been any change in Insight Ohio’s internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

31.1

Rule 13a-14(a)/15d-14(a) Certifications

31.2

Rule 13a-14(a)/15d-14(a) Certifications

31.3

Rule 13a-14(a)/15d-14(a) Certifications

31.4

Rule 13a-14(a)/15d-14(a) Certifications

31.5

Rule 13a-14(a)/15d-14(a) Certifications

Section 1350 Certifications

(b) Reports on Form 8-K:

None

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.

August 6, 2003		Coaxial Communications of Central Ohio, Inc.

		/s/ Dinesh C. Jain
		Dinesh C. Jain
		Senior Vice President and Chief Financial Officer (principal financial officer)

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.

August 6, 2003		Phoenix Associates

		/s/ Dennis J. McGillicuddy
		Dennis J. McGillicuddy
		Managing Member (principal financial officer)

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.

August 6, 2003		Insight Communications of Central Ohio, LLC

		/s/ Dinesh C. Jain
		Dinesh C. Jain
		Senior Vice President and Chief Financial Officer (principal financial officer)