<PAGE>
================================================================================
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2000
Commission File Numbers: 333-64449-02
333-64449-01
333-64449
Coaxial LLC
Coaxial Financing Corp.
Insight Communications of Central Ohio, LLC
(Exact name of registrants as specified in their charters)
Delaware 13-4080422
Delaware 13-4061992
Delaware 13-4017803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. [X] Yes [_] No
Indicate the number of shares outstanding of each of the registrants'
classes of common stock, as of the latest practicable date.
Coaxial LLC Not Applicable
Coaxial Financing Corp. Not Applicable
Insight Communications of Central Ohio, LLC Not Applicable
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Coaxial LLC
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999 1
Consolidated Statements of Operations and Changes in Member's Deficit
for the three months ended March 31, 2000 and 1999 (unaudited) 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 (unaudited) 3
Notes to Consolidated Financial Statements (unaudited) 4
Coaxial Financing Corp.
Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 8
Notes to Balance Sheets (unaudited) 9
Coaxial Communications of Central Ohio, Inc.
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999 10
Consolidated Statements of Operations and Changes in Shareholders' Deficit
for the three months ended March 31, 2000 and 1999 (unaudited) 11
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 (unaudited) 12
Notes to Consolidated Financial Statements (unaudited) 13
Phoenix Associates
Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 16
Statements of Operations and Changes in Partners' Deficit for the three months
ended March 31, 2000 and 1999 (unaudited) 17
Statements of Cash Flows for the three months ended March 31, 2000
and 1999 (unaudited) 18
Notes to Financial Statements (unaudited) 19
</TABLE>
<PAGE>
<TABLE>
Insight Communications of Central Ohio, LLC
<S> <C>
Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 21
Statements of Operations and Changes in Members' Deficit
for the three months ended March 31, 2000 and 1999 (unaudited) 22
Statements of Cash Flows for the three months ended March
31, 2000 and 1999 (unaudited) 23
Notes to Financial Statements (unaudited) 24
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 26
Item 3. Quantitative and Qualitative Disclosures about Market Risk 30
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 31
</TABLE>
<PAGE>
COAXIAL LLC
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------ -------------------
(Unaudited) (Note 2)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,442 $ 882
Subscriber receivables, less allowance for doubtful accounts
of $323 and $383 in 2000 and 1999, respectively 288 790
Other accounts receivable, less allowance for doubtful accounts
of $139 and $175 in 2000 and 1999, respectively 2,737 3,136
Prepaid expenses and other current assets 470 155
------------------ -------------------
Total current assets 5,937 4,963
Property and equipment, net of accumulated depreciation of
$56,188 and $53,999 in 2000 and 1999, respectively 56,158 51,455
Intangible assets, net of accumulated amortization of
$7,850 and $7,738 in 2000 and 1999, respectively 2,561 2,670
Note receivable Coaxial DJM LLC 6,750 6,750
Note receivable Coaxial DSM LLC 3,000 3,000
Due from related parties 2,332 2,023
------------------ -------------------
Total other assets 14,643 14,443
------------------ -------------------
Total assets $ 76,738 $ 70,861
================== ===================
LIABILITIES AND MEMBER'S DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 49 $ 74
Accounts payable 7,661 4,963
Accrued interest 897 1,519
Accrued liabilities 2,664 5,061
Accrued programming 3,358 1,890
------------------ -------------------
Total current liabilities 14,629 13,507
NOTES PAYABLE:
Senior Discount Notes 36,683 35,556
Senior Notes 34,435 34,435
Senior Credit Facility 20,000 11,000
------------------ -------------------
Total notes payable 91,118 80,991
Capital lease obligations 43 43
Other liabilities 2,282 2,408
Due to related parties 135 -
------------------ -------------------
Total liabilities 108,207 96,949
COMMITMENTS AND CONTINGENCIES
MEMBER'S DEFICIT (31,469) (26,088)
------------------ -------------------
Total liabilities and member's deficit $ 76,738 $ 70,861
================== ===================
</TABLE>
See accompanying notes
1
<PAGE>
COAXIAL LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER'S DEFICIT
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
------------------- -------------------
<S> <C> <C>
REVENUES $ 11,535 $ 11,696
OPERATING EXPENSES:
Service and administrative 7,443 6,681
Depreciation and amortization 2,299 1,600
------------------- -------------------
Total operating expenses 9,742 8,281
------------------- -------------------
OPERATING INCOME 1,793 3,415
OTHER INCOME 29 -
INTEREST INCOME (EXPENSE):
Interest income--related parties 366 415
Interest income 18 -
Interest expense (2,309) (1,967)
------------------- -------------------
Total interest expense, net (1,925) (1,552)
------------------- -------------------
NET (LOSS) INCOME (103) 1,863
Member's deficit, beginning of period (26,088) (20,701)
Member distributions (5,278) (5,106)
------------------- -------------------
Member's deficit, end of period $ (31,469) $ (23,944)
=================== ===================
</TABLE>
See accompanying notes
2
<PAGE>
COAXIAL LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
-------------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (103) $ 1,863
Adjustments to reconcile Net (Loss) Income to
Net cash provided by operating activities:
Depreciation and amortization 2,299 1,668
Accretion of original issue discount on Senior Discount Notes 1,127 1,041
Changes in certain assets and liabilities:
Subscriber receivables 502 270
Other accounts receivable, prepaid expenses and other
current assets 84 126
Accounts payable and accrued liabilities 1,644 3,649
Accrued interest (622) (804)
Due to related parties (174) (631)
-------------------- ---------------------
Net cash provided by operating activities $ 4,757 $ 7,182
-------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (6,892) (6,122)
Increase in intangible assets (3) (25)
Due from related parties - (338)
-------------------- ---------------------
Net cash used in investing activities $ (6,895) $ (6,485)
-------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (24) (29)
Capital distributions (5,278) (5,106)
Borrowings under senior credit facility 9,000 -
-------------------- ---------------------
Net cash provided by (used in) financing activities $ 3,698 $ (5,135)
-------------------- ---------------------
NET INCREASE (DECREASE) IN CASH 1,560 (4,438)
CASH AND CASH EQUIVALENTS, beginning of period 882 8,709
-------------------- ---------------------
CASH AND CASH EQUIVALENTS, end of period $ 2,442 $ 4,271
==================== =====================
</TABLE>
See accompanying notes
3
<PAGE>
COAXIAL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Business Organization And Purpose
Coaxial LLC (the "Company"), a Delaware limited liability company, was formed on
July 24, 1998 in order to own and hold 67 1/2% of the common stock of Coaxial
Communications of Central Ohio, Inc. ("Coaxial"). The Company has an individual
as its sole member.
Coaxial, an Ohio corporation, through its controlling voting interest in Insight
Communications of Central Ohio, LLC ("Insight Ohio"), operates a cable
television system in Columbus, Ohio and surrounding areas. Insight Ohio
operates in one business segment. In connection with the contribution of
Coaxial's cable system to Insight Ohio described below, the issuance of the
senior notes and the senior discount notes described in Note 4, during 1998, the
three individuals who previously owned the outstanding stock of Coaxial
contributed their stock to three separate limited liability companies including
the Company. Accordingly, effective August 21, 1998, the Company owns 67 1/2%
of the outstanding stock of Coaxial.
Other related entities owned or controlled by the majority shareholder of the
Company include Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial
DJM LLC, Coaxial DSM LLC, Coaxial Communications of Southern Ohio, Inc., Coaxial
Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable
Television, Inc. and Paxton Communications, Inc.
On June 30, 1998, as 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 a newly formed subsidiary, Insight Ohio. 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 a
$140 million Series A preferred equity interest and a $30 million Series B
preferred equity interest of Insight Ohio (the "Series A Preferred Interest" and
"Series B Preferred Interest", respectively). The voting preferred equity
interests provide for distributions to Coaxial and indirectly to Phoenix and the
Company in amounts equal to the payments required on the senior notes and senior
discount notes described in Note 4. IHO serves as the manager of Insight Ohio.
The Company and Coaxial Financing Corp. are co-issuers of the senior discount
notes described in Note 4(b). Coaxial and Phoenix are co-issuers of the senior
notes described in Note 4(a). The ability of Coaxial Financing Corp., the
Company, Coaxial, and Phoenix to make scheduled payments with respect to the
senior notes and senior discount notes is dependent on the financial and
operating performance of Insight Ohio. The required distributions on the Series
A Preferred Interest and Series B Preferred Interest to Coaxial are designed to
provide the cash flow necessary to service the debt service requirements on the
senior notes and senior discount notes.
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 months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
4
<PAGE>
COAXIAL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Basis of Presentation (continued)
The balance sheet at December 31, 1999 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, 1999.
3. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying financial statements include the accounts of the Company,
Coaxial, and Insight Ohio. All intercompany balances have been eliminated in
consolidation. At March 31, 2000 and December 31, 1999, Coaxial had a
shareholders' deficiency and Insight Ohio had a members' deficiency.
Accordingly, the accompanying financial statements do not include any minority
interest liabilities.
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, which was amended by SFAS No. 137, 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 quarters of 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.
4. Notes Payable
Notes payable consisted of:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
--------------------- ----------------------
<S> <C> <C>
Senior Notes(a) $ 34,435,000 $ 34,435,000
Senior Discount Notes(b) 36,683,000 35,556,000
Senior Credit Facility(c) 20,000,000 11,000,000
--------------------- ----------------------
Total notes payable $ 91,118,000 $ 80,991,000
===================== ======================
</TABLE>
5
<PAGE>
COAXIAL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Notes Payable (continued)
(a) On August 21, 1998, Coaxial and Phoenix Associates 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 is payable in cash semi-annually on each February 15 and
August 15. Interest payments commenced on February 15, 1999. The Senior
Notes are secured by the outstanding Series A Preferred Interest in Insight
Ohio and conditionally guaranteed by Insight Ohio. The Series A Preferred
Interest has a liquidation preference of $140 million and pays
distributions in an amount equal to the payments on the Senior Notes. The
Series A Preferred Interest is owned by Coaxial and is 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 Interest 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
Interest or Series B Preferred Interest for any purpose other than required
payments of interest and principal on the Senior Notes or Senior Discount
Notes, respectively; and swap assets. 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.
(b) On August 21, 1998, the Company and Coaxial Financing Corp. issued senior
discount notes ("Senior Discount Notes") due 2008. The Senior Discount
Notes have a face amount of $55,869,000 and approximately $30,000,000 of
gross proceeds were received upon issuance. Approximately $19,500,000 of
the gross proceeds were contributed by the sole member of the Company to
certain related entities to repay indebtedness. Approximately $9,750,000
was loaned to two related entities (Coaxial DJM LLC and Coaxial DSM LLC) by
the Company, which then contributed that amount to certain other related
entities to repay indebtedness. The debt discount of $25,869,000 is being
amortized over five years through August 15, 2003. Thereafter, interest on
the Senior Discount Notes accrues at 12 7/8% and is payable semi-annually.
All of the Senior Discount Notes were allocated to the Company.
The Senior Discount Notes are non-recourse, secured by all of the common
stock of Coaxial and the notes issued by Coaxial DJM LLC and Coaxial DSM
LLC to the Company and conditionally guaranteed by Insight Ohio.
6
<PAGE>
COAXIAL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Notes Payable (continued)
(b) (continued)
Among other covenants, the borrowers must comply with restrictive covenants
relating to incurrence of additional debt, payment of dividends and
distributions, and the transfer or sale of assets. Coaxial Financing Corp.
and the Company were in compliance with these covenants as of March 31,
2000.
The ability of Coaxial Financing Corp. and the Company to make scheduled
payments with respect to the Senior Discount Notes will depend on the
financial and operating performance of Insight Ohio. The required payments
on the Series B Preferred Interest equals the distributions to be made by
Coaxial to the Company to service the Senior Discount Notes.
(c) Insight Ohio has a Senior Credit Facility ("Senior Credit Facility") which
provides for revolving credit loans of $25 million to finance capital
expenditures and for working capital and general purposes, including the
upgrade the System's cable plant and for the introduction of new video
services. The Senior Credit Facility has a six-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
trestricts 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, in the event of a payment default under the Senior Credit
Facility, distributions on the Series A Preferred Interest and Series B
Preferred Interest that are required to pay the Senior Notes and the Senior
Discount Notes, 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 total leverage,
interest coverage and pro forma debt service coverage ratios. Management
does not expect that such covenants will materially impact the ability of
Insight Ohio to operate its business.
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 or financial position.
7
<PAGE>
COAXIAL FINANCING CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited) (Note 2)
<S> <C> <C>
ASSETS:
Cash $1,000 $1,000
-------------- -----------------
Total assets $1,000 $1,000
============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Senior Discount Notes (to be paid by Coaxial LLC-SeeNote 3) $ - $ -
-------------- -----------------
Total liabilities - -
Common stock, $.01 par value; 1,000 shares authorized, 1,000
shares issued and outstanding 10 10
Additional paid-in capital 990 990
-------------- -----------------
Total liabilities and shareholders' equity $1,000 $1,000
============== =================
</TABLE>
See accompanying notes
8
<PAGE>
COAXIAL FINANCIAL CORP.
NOTES TO BALANCE SHEETS
(UNAUDITED)
1. Nature of Business
Coaxial Financing Corp. (the "Company"), a Delaware corporation, was formed on
July 24, 1998 for the sole purpose of being a co-issuer of the discount notes
described in Note 3, which allows certain investors the ability to be holders of
the debt. The Company has no operations. Three individuals own the outstanding
shares of the Company.
2. 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.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1999.
3. Notes Payable
On August 21, 1998, the Company and Coaxial LLC, a related entity, issued Senior
Discount Notes ("Discount Notes") due 2008. The Discount Notes have a face
amount of $55,869,000 and approximately $30 million of gross proceeds were
received upon issuance. Approximately $19.5 million of the gross proceeds were
contributed by the sole member of Coaxial LLC to certain related entities to
repay indebtedness. Approximately $9,750,000 was loaned to two related entities
(Coaxial DJM LLC and Coaxial DSM LLC) by Coaxial LLC, which then contributed
that amount to certain other related entities to repay indebtedness. The debt
discount of $25,869,000 is being amortized over five years (until August 15,
2003). Thereafter, interest on the Discount Notes accrues at 12 7/8% and is
payable semi-annually. All of the Discount Notes were allocated to Coaxial LLC.
The Discount Notes are non-recourse, secured by all of the common stock of
Coaxial Communications of Central Ohio, Inc. ("Coaxial") and the notes issued by
Coaxial DJM LLC and Coaxial DSM LLC to Coaxial LLC and conditionally guaranteed
by Insight Communications of Central Ohio, LLC ("Insight Ohio"), a subsidiary of
Coaxial.
Among other covenants, the borrowers must comply with restrictive covenants
relating to incurrence of additional debt, payment of dividends and
distributions, and the transfer or sale of assets. The Company and Coaxial LLC
were in compliance with these covenants as of March 31, 2000.
The ability of the Company and Coaxial LLC to make scheduled payments with
respect to the Discount Notes will depend on the financial and operating
performance of Insight Ohio.
4. 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 or financial position.
9
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
----------------------- ---------------------------
(Unaudited) (Note 2)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,442 $ 882
Subscriber receivables, less allowance for doubtful accounts
of $323 and $383 in 2000 and 1999, respectively 288 790
Other accounts receivable, less allowance for doubtful accounts
of $139 and $175 in 2000 and 1999, respectively 2,737 3,136
Prepaid expenses and other current assets 470 155
----------------------- ---------------------------
Total current assets 5,937 4,963
Property and equipment, net of accumulated depreciation of
$56,188 and $53,999 in 2000 and 1999, respectively 56,158 51,455
Intangible assets, net of accumulated amortization of
$7,685 and $7,600 in 2000 and 1999, respectively 1,326 1,408
Due from related parties 101 158
----------------------- ---------------------------
Total assets $ 63,522 $ 57,984
======================= ===========================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 49 $ 73
Accounts payable 7,661 4,963
Accrued interest 897 1,519
Accrued liabilities 2,664 5,061
Accrued programming 3,358 1,890
----------------------- ---------------------------
Total current liabilities 14,629 13,506
NOTES PAYABLE:
Senior notes 34,435 34,435
Senior credit facility 20,000 11,000
----------------------- ---------------------------
Total notes payable 54,435 45,435
Capital lease obligations 43 43
Other liabilities 2,282 2,408
Due to related parties 135 -
----------------------- ---------------------------
Total liabilities 71,524 61,392
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock--authorized 2,000 shares, 1,080 shares
issued and outstanding in 2000 and 1999 1 1
Paid-in capital 11,501 11,501
Accumulated deficit (19,504) (14,910)
----------------------- ---------------------------
Total shareholders' deficit (8,002) (3,408)
----------------------- ---------------------------
Total liabilities and shareholders' deficit $ 63,522 $ 57,984
======================= ===========================
</TABLE>
See accompanying notes
10
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN SHAREHOLDERS' DEFICIT
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31.
2000 1999
------------------ ------------------
<S> <C> <C>
REVENUES $ 11,535 $ 11,696
OPERATING EXPENSES:
Service and administrative 7,443 6,681
Depreciation and amortization 2,273 1,600
------------------ ------------------
Total operating expenses 9,716 8,281
------------------ ------------------
OPERATING INCOME 1,819 3,415
OTHER INCOME 29 -
INTEREST INCOME (EXPENSE):
Interest income 18 77
Interest expense (1,182) (904)
------------------ ------------------
Total interest expense, net (1,164) (827)
------------------ ------------------
NET INCOME 684 2,588
Shareholders' deficit, beginning of period (3,408) (660)
Capital distributions (5,278) (5,106)
------------------ -------------------
Shareholders' deficit, end of period $ (8,002) $ (3,178)
================== ===================
</TABLE>
See accompanying notes
11
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 684 $ 2,588
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,273 1,646
Changes in operating assets and liabilities:
Subscriber receivables 502 270
Other accounts receivable, prepaid expenses and other
current assets 84 126
Accounts payable, accrued liabilities and other 1,644 3,649
Accrued interest (622) (804)
Due to related parties 192 (631)
------------------- -----------------
Net cash provided by operating activities $ 4,757 $ 6,844
------------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (6,892) (6,122)
Increase in intangible assets (3) (25)
------------------- -----------------
Net cash used in investing activities $ (6,895) $ (6,147)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (24) (29)
Capital distributions (5,278) (5,106)
Borrowings under senior credit facility 9,000 -
------------------- -----------------
Net cash provided by (used in) financing activities $ 3,698 $ (5,135)
------------------- -----------------
NET INCREASE (DECREASE) IN CASH 1,560 (4,438)
CASH AND CASH EQUIVALENTS, beginning of period 882 8,709
------------------- -------------------
CASH AND CASH EQUIVALENTS, end of period $ 2,442 $ 4,271
=================== ===================
</TABLE>
See accompanying notes
12
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. Insight
Ohio operates in one business segment. 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 senior discount notes by the
Company's majority shareholder, during 1998 the three individuals who previously
owned the outstanding stock of the Company contributed their stock to three
separate limited liability companies. Accordingly, the Company is a subsidiary
of Coaxial LLC, which owns 67 1/2% of its outstanding stock.
Other related entities affiliated with Coaxial include Coaxial Financing Corp.,
Coaxial DJM LLC, Coaxial DSM LLC, Phoenix Associates ("Phoenix"), Coaxial
Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial
Associates of Columbus II, Paxton Cable Television, Inc. and Paxton
Communications, Inc.
On June 30, 1998, as 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 a newly formed subsidiary, Insight Ohio. 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 a
$140 million Series A preferred equity interest and a $30 million Series B
preferred equity interest of Insight Ohio (the "Series A Preferred Interest" and
"Series B Preferred Interest", respectively). The voting preferred equity
interests 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 described in Note 4. IHO serves as the manager of Insight Ohio.
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 months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
The balance sheet at December 31, 1999 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, 1999.
13
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO 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,
the accompanying financial statements include the accounts of Insight Ohio. All
intercompany balances have been eliminated in consolidation. At March 31, 2000,
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 in Insight Ohio.
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, which was amended by SFAS No. 137, 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 quarters of 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.
4. Notes Payable
Notes payable at March 31, 2000 and December 31, 1999 consisted of Senior Notes
with an outstanding principal balance of $34,435,092 and borrowings under a
Senior Credit Facility of $20,000,000 at March 31, 2000 and $11,000,000 at
December 31, 1999.
On August 21, 1998, Coaxial and Phoenix Associates 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
is payable in cash semi-annually on each February 15 and August 15. Interest
payments commenced on February 15, 1999. The Senior Notes are secured by the
outstanding Series A Preferred Interest in Insight Ohio and conditionally
guaranteed by Insight Ohio. The Series A Preferred Interest has a liquidation
preference of $140 million and pays distributions in an amount equal to the
payments on the Senior Notes. The Series A Preferred Interest is owned by
Coaxial and is 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 Interest 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 Interest or Series B
Preferred Interest for any purpose other than required payments of interest and
principal on the Senior Notes or Senior Discount Notes, respectively; and swap
assets. 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.
14
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Notes Payable (continued)
Insight Ohio has a Senior Credit Facility ("Senior Credit Facility") 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 System's cable plant and for the introduction of new video
services. The Senior Credit Facility has a six-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,
in the event of a payment default under the Senior Credit Facility,
distributions on the Series A Preferred Interest and Series B Preferred
Interest that are required to pay the Senior Notes and the Senior Discount
Notes 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 total leverage, interest coverage and pro forma debt service
coverage ratios.
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
operations or financial position.
15
<PAGE>
PHOENIX ASSOCIATES
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------------- ----------------------
(Unaudited) (Note 2)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ - $ -
Interest receivable 254 215
-------------- -------------
Total current assets 254 215
OTHER ASSETS:
Due from related parties 406 406
Notes receivable--related parties 550 550
Deferred financing fees, net of accumulated
amortization of $746 and $627 in 2000 and 1999, respectively 3,054 3,173
-------------- -------------
Total other assets 4,010 4,129
-------------- -------------
Total assets $ 4,264 $ 4,344
============== =============
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Interest payable $ 1,378 $ 4,017
-------------- -------------
Total current liabilities 1,378 4,017
NOTES PAYABLE 105,565 105,565
-------------- ------------
Total liabilities 106,943 109,582
-------------- ------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT (102,679) (105,238)
-------------- -------------
Total liabilities and partners' deficit $ 4,264 $ 4,344
============== =============
</TABLE>
See accompanying notes
16
<PAGE>
PHOENIX ASSOCIATES
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
------------------ ------------------
<S> <C> <C>
EXPENSES $ - $ -
INTEREST EXPENSE (INCOME)
Interest income--related parties 39 -
Interest expense (2,758) (2,750)
----------------- -----------------
Total interest expense, net (2,719) (2,750)
----------------- -----------------
NET LOSS (2,719) (2,750)
PARTNERS' DEFICIT, beginning of period (105,238) (104,993)
CAPITAL CONTRIBUTIONS 5,278 5,102
----------------- -----------------
PARTNERS' DEFICIT, end of period $ (102,679) $ (102,641)
================= =================
</TABLE>
See accompanying notes
17
<PAGE>
PHOENIX ASSOCIATES
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,719) $ (2,750)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of deferred financing fees 119 111
Changes in operating assets and liabilities:
Interest receivable (39) -
Accrued interest (2,639) (2,463)
----------------- -----------------
Net cash used in operating activities (5,278) (5,102)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 5,278 5,102
----------------- -----------------
Net cash provided by financing activities 5,278 5,102
----------------- -----------------
NET INCREASE (DECREASE) IN CASH - -
CASH, beginning of period - -
----------------- -----------------
CASH, end of period $ - $ -
================= =================
</TABLE>
See accompanying notes
18
<PAGE>
PHOENIX ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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., Coaxial Associates of Columbus I,
Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton
Communications, Inc.
On June 30, 1998, as 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 a newly formed subsidiary, Insight Ohio. 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 a
$140 million Series A preferred equity interest and a $30 million Series B
preferred equity interest of Insight Ohio (the "Series A Preferred Interest" and
"Series B Preferred Interest", respectively). The voting preferred equity
interests provide for distributions to Coaxial equal to the payments required on
the senior and senior discount notes described in Note 4. Coaxial will make
distributions that 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 months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
The balance sheet at December 31, 1999 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, 1999.
19
<PAGE>
PHOENIX ASSOCIATES
NOTES TO 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, which was amended by SFAS No. 137, 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 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.
4. Notes Payable
Notes payable at March 31, 2000 and December 31, 1999 consisted of Senior Notes
with an outstanding principal balance of $105,565,000.
On August 21, 1998, Coaxial and Phoenix Associates 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
is payable in cash semi-annually on each February 15 and August 15. Interest
payments commenced on February 15, 1999. The Senior Notes are secured by the
outstanding Series A Preferred Interest in Insight Ohio. The Series A Preferred
Interest has a liquidation preference of $140 million and pays distributions in
an amount equal to the payments on the Senior Notes. The Series A Preferred
Interest is owned by Coaxial and is 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
Interest 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 Interest or Series B Preferred Interest for any purpose
other than required payments of interest and principal on the Senior Notes or
Senior Discount Notes, respectively; and swap assets. Phoenix is a co-issuer and
joint and several obligor of the debt, along with an affiliate, Coaxial.
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 or financial position.
20
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------- ---------------------
(Unaudited) (Note 2)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,442 $ 882
Subscriber receivables, less allowance for doubtful accounts
of $323 and $383 in 2000 and 1999, respectively 288 790
Other accounts receivable, less allowance for doubtful accounts
of $139 and $175 in 2000 and 1999, respectively 2,737 3,136
Prepaid expenses and other current assets 470 155
---------------- --------------
Total current assets 5,937 4,963
Property and equipment, net of accumulated depreciation of
$56,188 and $53,999 in 2000 and 1999, respectively 56,158 51,455
Intangible assets, net of accumulated amortization of
$7,440 and $7,395 in 2000 and 1999, respectively 346 388
Due from related parties 101 158
---------------- --------------
Total assets $ 62,542 $ 56,964
================ ==============
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 49 $ 73
Accounts payable 7,661 4,963
Accrued interest 451 212
Accrued liabilities 2,664 5,060
Series A Preferred Dividend Payable 1,750 5,250
Accrued programming 3,358 1,890
---------------- --------------
Total current liabilities 15,933 17,448
Capital lease obligations 43 43
Other deferred credits 2,282 2,408
Due to related parties 135 --
Series A Preferred Interest 140,000 140,000
Series B Preferred Interest 36,683 35,556
Senior credit facility 20,000 11,000
---------------- --------------
Total liabilities and preferred interests 215,076 206,455
Members' deficit (152,534) (149,491)
---------------- --------------
Total liabilities and members' deficit $ 62,542 $ 56,964
================ ==============
</TABLE>
See accompanying notes
21
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENTS OF OPERATIONS AND CHANGES IN MEMBERS' DEFICIT
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
----------------------- ---------------------
<S> <C> <C>
REVENUES $ 11,535 $ 11,696
OPERATING EXPENSES:
Service and administrative 7,443 6,681
Depreciation and amortization 2,234 1,599
----------------------- ---------------------
Total operating expenses 9,677 8,280
----------------------- ---------------------
OPERATING INCOME 1,858 3,416
Other income 29 --
Interest expense (321) (7)
Interest income 18 77
----------------------- ---------------------
INTEREST (EXPENSE) INCOME, NET (303) 70
----------------------- ---------------------
NET INCOME 1,584 3,486
Accrual of preferred interests (4,627) (4,222)
----------------------- ---------------------
Loss attributable to common interests (3,043) (736)
Members' deficit, beginning of period (149,491) (144,718)
----------------------- ---------------------
Members' deficit, end of period $ (152,534) $ (145,454)
======================= =====================
</TABLE>
See accompanying notes
22
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,584 $ 3,486
Adjustments to reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 2,234 1,599
Changes in certain assets and liabilities:
Subscriber receivables 502 271
Other accounts receivable, prepaid expenses and other current assets 84 126
Accounts payable, accrued liabilities and other 1,644 3,655
Accrued interest 239 -
Due to/from related parties 192 (631)
----------------- ---------------
Net cash provided by operating activities $ 6,479 $ 8,506
----------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (6,892) (6,122)
Increase in other intangible assets (3) (26)
----------------- ---------------
Net cash used in investing activities $ (6,895) $ (6,148)
----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (24) (29)
Preferred interest distributions (7,000) (6,767)
Borrowings under senior credit facility 9,000 -
----------------- ---------------
Net cash provided by (used in) financing activities $ 1,976 $ (6,796)
----------------- ---------------
NET INCREASE (DECREASE) IN CASH 1,560 (4,438)
CASH AND CASH EQUIVALENTS, beginning of period 882 6,709
----------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 2,442 $ 2,271
================= ===============
</TABLE>
See accompanying notes
23
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 (the "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 Preferred Interest"
and "Series B Preferred Interest"). 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. The company operates in one business segment. Insight Ohio
cannot redeem the Voting Preferred Interests without the permission of Coaxial;
however, Insight Ohio will be required to redeem the Series A Preferred Interest
in August 2006 and the Series B Preferred Interest on August 21, 2008 at their
respective fair values. In addition, Insight Ohio is required to pay dividends
on the Series A Preferred Interest and the Series B Preferred Interest, in
amounts equal to the interest requirements on the Senior Notes and the Senior
Discount Notes.
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 ("Senior Discount
Notes"). The Senior Discount Notes have a face amount of $55,869,000 and
approximately $30,000,000 of gross proceeds were received upon issuance. The
Senior Discount Notes are non-recourse, secured by the issued and outstanding
Series B Preferred Interest in Insight Ohio and 100% of the common stock of
Coaxial and the notes issued by Coaxial DJM LLC and Coaxial DSM LLC to Coaxial
LLC, 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 months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
The balance sheet at December 31, 1999 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, 1999.
24
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
3. Summary of Significant Accounting Policies
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, which was amended by SFAS No. 137, 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 quarters of 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.
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 six-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 Senior 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 total leverage, interest coverage and pro
forma debt service coverage ratios. As of March 31, 2000, $20,000,000 was drawn
on the Senior Credit Facility.
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.
25
<PAGE>
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). All statements other
than statements of historical fact included in this report regarding Coaxial
LLC, Coaxial Financing Corp. 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
LLC, Coaxial Financing Corp. and Insight Ohio, and reflect future business
decisions which are subject to change. Although Coaxial LLC, Coaxial Financing
Corp. 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:
. the ability of Coaxial LLC and Coaxial Financing Corp. to make scheduled
payments with respect to the Senior Discount Notes (as defined below) will
depend on the financial and operating performance of Insight Ohio;
. 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 its Series A
Preferred Interest and its Series B Preferred Interest, thereby reducing
the funds available to Insight Ohio for its operations and future business
opportunities;
. Coaxial LLC and Coaxial Financing Corp. have no significant assets other
than the common equity of Coaxial Communications of Central Ohio, Inc.
("Coaxial") owned by Coaxial LLC and notes issued by Coaxial DJM LLC (an
owner of 22.5% of the common equity of Coaxial) and Coaxial DSM LLC (an
owner of 10% of the common equity of Coaxial) to Coaxial LLC; and
. the indenture governing the terms of the Senior Discount Notes imposes
restrictions on Coaxial LLC, Coaxial Financing Corp. and Insight Ohio and
the Senior Credit Facility of Insight Ohio imposes restrictions on Insight
Ohio.
Coaxial LLC, Coaxial Financing Corp. and Insight Ohio do not intend to update
these forward-looking statements.
Private Offering of Senior Discount Notes, Senior Notes and Acquisition of
System by Insight Ohio
Coaxial LLC and Coaxial Financing Corp. completed on August 21, 1998 a
private offering (the "Senior Discount Notes Offering") of $55,869,000 aggregate
principal amount at maturity of their 12 7/8% Senior Discount Notes due in 2008
(the "Senior Discount Notes") in connection with the Financing Plan discussed
under "Liquidity and Capital Resources," which included the contribution of
Coaxial's cable television system (the "System") to Insight Ohio. On February
16, 1999, Coaxial LLC and Coaxial Financing Corp. consummated an exchange of
registered Senior Discount Notes for their privately issued Senior Discount
Notes. Coaxial LLC and Coaxial Financing Corp. have only nominal assets except
for Coaxial LLC's ownership of 67.5% of the common stock of Coaxial and notes of
Coaxial DJM LLC and Coaxial DSM LLC (the other two owners of Coaxial), which
notes are secured by the remaining 32.5% of the common stock of Coaxial. The
Senior Discount Notes are guaranteed on a conditional basis by Insight Ohio. The
limited liability companies that own Coaxial are referred to herein as the
"Individual LLCs".
26
<PAGE>
As part of the Financing Plan, Coaxial and Phoenix Associates, an affiliated
general partnership, completed a private offering (the "Senior Notes Offering")
of $140,000,000 aggregate principal amount of their 10% Senior Notes due in 2006
(the "Senior Notes"). On February 16, 1999, Coaxial and Phoenix consumated an
exchange of registered Senior Notes for their privately issued Senior Notes. The
Senior Notes are also guaranteed on a conditional basis by Insight Ohio. The
conditional guarantee of the Senior Discount Notes is subordinated to the
conditional guarantee of the Senior Notes. As a result of the Financing Plan,
Coaxial has only nominal assets except for its ownership of 25% of the non-
voting common membership interests in Insight Ohio and 100% of the voting Series
A Preferred Interest and the Series B Preferred Interest of Insight Ohio
(together the "Preferred Interests"). IHO, a wholly owned subsidiary of Insight
Communications L.P. ("Insight") holds the remaining 75% non-voting common
membership interests in Insight Ohio.
The Preferred Interests have distribution priorities that provide for
distributions to Coaxial. The distributions from the Series B Preferred Interest
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 and the
distributions from the Series A Preferred Interest will be used to pay interest
and principal on the Senior Notes. Distributions by Insight Ohio will be subject
to certain financial covenants and other conditions set forth in its Senior
Credit Facility.
Coaxial LLC and Coaxial Financing Corp. do not conduct any business and are
dependent upon the cash flow of Insight Ohio to meet their obligations under the
Senior Discount Notes. IHO serves as the manager of the System.
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, 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 programming suppliers,
expenses related to copyright fees, bad debt expense, 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.
27
<PAGE>
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 March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues for the three months ended March 31, 2000 were $11.5 million compared
to $11.7 million for the three months ended March 31, 1999. For the three
months ended March 31, 2000, subscribers served averaged 84,253 compared with
87,129 during the same time period in 1999. Revenues for the three months ended
March 31, 2000 were 1.4% lower than the same period for the prior year despite a
3.3% decrease in customers served on average as Insight Ohio ended previous
management's program of deeply discounting subscriber rates. Average revenue per
customer per month for the three months ended March 31, 2000 totaled $45.64
versus $44.75 for the three months ended March 31, 1999.
Effective November 1, 1999, the System began activating nodes in rebuilt
areas, increasing the rate for classic service by $1.75 from $14.93 to $16.68.
As of March 31, 2000, there were approximately 19,300 customers receiving this
enhanced service which offers six more channels on the classic service tier. In
addition, customers in rebuilt areas have the opportunity to receive new
products including Insight's digital gateway service, video on demand and high
speed data access. As of March 31, 2000, Insight Ohio has realized revenues of
approximately $24.00 per month per digital home. In addition, Insight has
realized approximately $34.00 per month per high speed data customer in other
markets where these products have been launched during the past year. A high
speed data service will be launched by Insight Ohio in the second quarter of
2000.
Service and administrative expenses increased to $7.4 million for the three
months ended March 31, 2000 compared to $6.7 million for the three months ended
March 31, 1999, an increase of $0.7 million or 11.4%. An increase of 28.6% in
basic programming expenses from $1.8 million for the three months ended March
31, 1999 to $2.3 million for the same time period in 2000 reflects increased
programming rates as discounts previously realized through Insight Ohio's
affiliation with Media One expired in November 1999. Similarly, pay programming
expenses increased 13.4% during the three months ended March 31, 2000 versus the
three months ended March 31, 1999, to $1.1 million. The increased basic and pay
programming rates accounted for approximately $.7 million or 100% of the total
increase in expenses. In addition, programming costs increased due to
additional channels added in rebuilt areas.
Depreciation and amortization expense for the three months ended March 31,
2000 increased by 43.7% over the three months ended March 31, 1999 to
approximately $2.3 million reflecting additional capital expenditures resulting
from upgrades to the System's network.
Operating income for the three months ended March 31, 2000 totaled $1.8
million versus $3.4 million reflecting increased expenses and depreciation.
Net interest expense for the three months ended March 31, 2000 totaled
approximately $1.9 million versus approximately $1.6 million for the three
months ended March 31, 1999, primarily resulting from interest on the Senior
Discount Notes issued on August 21, 1998 and from increased borrowings under the
Senior Credit Facility.
A net loss of $.1 million was realized for the three months ended March 31,
2000 compared to net income of $1.9 million for the three months ended March 31,
1999 for the reasons set forth above.
28
<PAGE>
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 $6.9 million for the three months
ended March 31, 2000. These expenditures were primarily for the rebuild of
cable plant and for serving new homes. Capital expenditures are financed by cash
flows from operations and borrowings under the Senior Credit Facility.
IHO continues to further enhance the technical platform of the System by
upgrading the plant serving the majority of customers. The capability for high-
speed data transmission, impulse pay-per-view, digital tiers of service and
additional analog channels is intended to be provided by further deployment of
fiber optics, an increase in the bandwidth to 870 MHz, activation of the reverse
plant to allow two-way communications and the installation of digital equipment.
Capital expenditures are expected to approximate $34.6 million during the year
2000 to support not only ongoing plant extensions, new customer additions and
capital replacement, but also to fund the plant upgrade to 870 MHz and to
activate plant for 2-way transmission, which is necessary to facilitate the
deployment of interactive services. It costs approximately $1,500/mile to
activate 2-way or reverse plant.
IHO expects to complete the upgrade of the plant with 2-way activation by the
end of 2000. IHO had originally planned to rebuild the plant to 750 MHz, but
upon further review, decided to expand the plant capacity to 870 MHz. In
addition, IHO decided to enlarge the upgrade by approximately 400 miles. The
combination of these changes will result in incremental capital costs of
approximately $8.0 million.
Cash provided by operations for the three months ended March 31, 2000 was $4.7
million compared to $7.2 million for the same period in 1999. The decrease is
primarily attributable to net loss generated for the three months ended March
31, 2000 compared to net income for the three months ended March 31, 1999.
Cash used in investing activities for the three months ended March 31, 2000
and 1999 was $6.9 million and $6.5 million, respectively reflecting capital
expenditures to upgrade the system and build plant expansions.
Cash provided by financing activities for the three months ended March 31,
2000 was $3.7 million as capital distributions of $5.3 million were offset by
$9.0 million in borrowings under the Senior Credit Facility required to support
capital expenditures and changes in working capital. Cash used in financing
activities for the three months ended March 31, 1999 was $5.1 million consisting
primarily of capital distributions.
In addition to cash flow from operations, Insight Ohio has a $25 million
Senior Credit Facility which was fully borrowed at May 15, 2000.
Due to the increased rebuild costs, management had determined that amounts
available under the Senior Credit Facility and cash flows from operations may
not be sufficient to finance the operating and capital requirements of the
System, debt service requirements and distributions on the Preferred Interests
over the next year. As such, IHO has provided a commitment letter to Insight
Ohio to fund any operating shortfall through the year 2000.
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 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, which was amended by SFAS No.
137, is effective for all quarters of 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.
29
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Coaxial LLC, Coaxial Financing Corp. and Insight Ohio do not engage in trading
market risk sensitive instruments and do not purchase hedging instruments or
"other than trading" instruments that are likely to expose any of them to market
risk, whether interest rate, foreign currency exchange, commodity price or
equity price risk. Coaxial LLC, Coaxial Financing Corp. and Insight Ohio have
not entered into forward or future contracts, purchased options or entered into
swaps.
30
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 - Financial Data Schedule of Coaxial LLC
27.2 - Financial Data Schedule of Coaxial Financing Corp.
27.3 - Financial Data Schedule of Insight Communications of Central Ohio,
LLC
(b) Reports on Form 8-K
None
31
<PAGE>
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 LLC
(Registrant)
Dated: May 15, 2000
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.
Coaxial Financing Corp.
(Registrant)
Dated: May 15, 2000
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)
<PAGE>
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: May 15, 2000
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)
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