<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, 1999
Commission File Numbers: 333-63677
333-63677-01
333-63677-02
Coaxial Communications of Central Ohio, Inc.
Phoenix Associates
Insight Communications of Central Ohio, LLC
(Exact name of registrants as specified in their charters)
Ohio 31-0975825
Florida 59-1798351
Delaware 13-4017803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Numbers)
c/o Insight Communications Company, L.P.
126 East 56th Street
New York, New York 10022
(Address of principal executive offices, including zip code)
(212) 371-2266
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the registrants'
classes of common stock, as of the latest practicable date.
Coaxial Communications of Central Ohio, Inc. Not Applicable
Phoenix Associates Not Applicable
Insight Communications of Central Ohio, LLC Not Applicable
<PAGE>
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Coaxial Communications of Central Ohio, Inc.
Consolidated Balance Sheets as of
March 31, 1999 (unaudited) and December 31, 1998 1
Consolidated Statements of Operations and Changes in
Shareholders' Equity (Deficit) for the three months ended March 31,
1999 and 1998 (unaudited) 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and March 31, 1998 (unaudited) 3
Notes to Interim Consolidated Financial Statements (unaudited) 4
Phoenix Associates
Balance Sheets as of
March 31, 1999 (unaudited) and December 31, 1998 10
Statements of Operations and Partners' Deficit
for the three months ended March 31, 1999 and 1998 (unaudited) 11
Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (unaudited) 12
Notes to Interim Financial Statements (unaudited) 13
Insight Communications of Central Ohio, LLC
Balance Sheets as of
March 31, 1999 (unaudited) and December 31, 1998 16
Statements of Operations and Members' Deficit for
for the three months ended March 31, 1999 (unaudited) 17
Statement of Cash Flows for the Three Months
Ended March 31, 1999 (unaudited) 18
Notes to Interim Financial Statements (unaudited) 19
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures about Market Risk 28
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 29
<PAGE>
<TABLE>
<CAPTION>
Coaxial Communications of Central Ohio, Inc.
Consolidated Balance Sheets
(in thousands)
March 31, 1999 December 31, 1998
-------------------------------- ---------------------------
(Unaudited) (Note 2)
<S> <C> <C>
ASSETS
Cash......... $ 4,271 $ 8,709
Subscriber receivables, less allowance for doubtful accounts
of $530 and $306 in 1999 and 1998 915 1,186
Other accounts receivable, less allowance for doubtful accounts
of $145 in 1999 and 1998 1,401 1,520
Prepaid expenses and other current assets 160 166
-------------------------------- ---------------------------
Total current assets 6,747 11,581
PROPERTY AND EQUIPMENT, at cost:
Land and Land Improvements 260 260
CATV systems 76,880 71,032
Equipment 7,371 7,102
Furniture 338 333
Leasehold improvement 71 71
-------------------------------- ---------------------------
84,920 78,798
Less-Accumulated depreciation and amortization (48,488) (46,898)
-------------------------------- ---------------------------
Total property and equipment, net 36,432 31,900
INTANGIBLE ASSETS, at cost:
Franchise costs 7,385 7,385
Deferred financing costs and other 1,473 1,447
-------------------------------- ---------------------------
8,858 8,832
Less-Accumulated amortization (7,446) (7,399)
-------------------------------- ---------------------------
Total intangible assets, net 1,412 1,433
DUE FROM RELATED PARTIES 149 149
-------------------------------- ---------------------------
Total assets $ 44,740 $ 45,063
================================ ===========================
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 94 $ 123
Accounts payable 4,723 3,230
Accrued interest 446 1,250
Accrued liabilities 6,639 4,404
-------------------------------- ---------------------------
Total current liabilities 11,902 9,007
Senior Notes Payable 34,435 34,435
Capital Lease Obligations 105 105
Other Liabilities 1,078 1,146
Due to related parties 398 1,030
-------------------------------- ---------------------------
Total liabilities 47,918 45,723
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' (DEFICIT):
Common stock--authorized 2,000 shares, 1,080 shares
issued and outstanding in 1999 and 1998 1 1
Paid-in capital 27,777 11,501
Accumulated (deficit) (30,956) (12,162)
-------------------------------- ---------------------------
Total shareholders' (deficit) (3,178) (660)
-------------------------------- ---------------------------
Total liabilities and shareholders' (deficit) $ 44,740 $ 45,063
================================ ===========================
</TABLE>
See accompanying notes
1
<PAGE>
<TABLE>
<CAPTION>
Coaxial Communications of Central Ohio, Inc.
Consolidated Statements of Operations and Changes in Shareholder's (Deficit) Equity
(Unaudited)
(in thousands)
Three months ended
March 31,
1999 1998
-------------------- -----------------------
<S> <C> <C>
TOTAL REVENUES $11,696 $11,472
OPERATING EXPENSES:
Service and administrative 6,681 7,470
Depreciation and amortization 1,600 1,458
-------------------- -----------------------
Total operating expenses 8,281 8,928
-------------------- -----------------------
OPERATING INCOME 3,415 2,544
OTHER EXPENSES - 72
INTEREST INCOME (EXPENSE), net
Interest income--related parties - 1,068
Interest income 77 23
Interest expense--related parties - (389)
Interest expense (904) (649)
-------------------- -----------------------
Total interest income (expense), net (827) 53
-------------------- -----------------------
NET INCOME 2,588 2,525
SHAREHOLDERS' (DEFICIT) EQUITY, beginning
of year (660) 54,327
CAPITAL DISTRIBUTIONS (5,106) (1,143)
-------------------- -----------------------
SHAREHOLDERS' (DEFICIT) EQUITY, end of year $(3,178) $55,709
==================== =======================
</TABLE>
See accompanying notes
2
<PAGE>
<TABLE>
<CAPTION>
Coaxial Communications of Central Ohio, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three months ended
March 31,
1999 1998
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 2,588 $ 2,525
Adjustments to reconcile Net income to
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 1,646 1,458
Loss on disposals of property and equipment -
Changes in operating assets and liabilities
Subscriber receivables 270 700
Other accounts receivable, prepaid expenses and other
current assets 126 223
Accounts payable and accrued liabilities 3,649 (881)
Accrued interest (804) (67)
Due to related parties (631) -
------------------ --------------------
Net cash provided by operating activities 6,844 3,958
------------------ --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (6,122) (1,194)
Increase in intangible assets (25)
Due from related parties - (3,686)
------------------ --------------------
Net cash used in investing activities (6,147) (4,880)
------------------ --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable - 1,000
Principal payments on notes payable - (29)
Principal payments on deferred compensation - (64)
Principal payments on capital lease obligations (29) (70)
Capital distributions (5,106) (1,143)
(Decrease) Increase in amounts due to related parties - 1,537
------------------ --------------------
Net cash used in financing activities (5,135) 1,231
------------------ --------------------
NET INCREASE (DECREASE) IN CASH (4,438) 309
CASH, beginning of period 8,709 574
------------------ --------------------
CASH, end of period $ 4,271 $ 883
================== ====================
</TABLE>
See accompanying notes
3
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
1. Business Organization And Purpose
Coaxial Communications of Central Ohio, Inc. ("Coaxial" or the "Company"), an
Ohio corporation, through its controlling voting interest in Insight
Communications of Central Ohio LLC ("Insight Ohio"), operates a cable television
system which provides basic and expanded cable television services to homes in
the eastern parts of Columbus, Ohio and surrounding areas. In connection with
the contribution of the Company's cable system described below, the issuance of
the Senior Notes described in Note 4(a), and the issuance of the Discount Notes
by the Company's majority shareholder and an affiliate during 1998, the three
individuals who previously owned the outstanding stock of the Company
contributed their stock to three separate limited liability companies.
Accordingly, at March 31, 1999, the Company was a subsidiary of Coaxial LLC,
which owns 67 1/2% of its outstanding stock.
Other related entities affiliated with Coaxial include Coaxial LLC, Coaxial
Financing Corp., Coaxial DJM LLC, Coaxial DSM LLC, Phoenix Associates
("Phoenix"), Coaxial Communications of Southern Ohio, Inc. ("Southern Ohio"),
Coaxial Associates of Columbus I ("Columbus I"), Coaxial Associates of Columbus
II ("Columbus II"), Paxton Cable Television, Inc. ("Paxton Cable") and Paxton
Communications, Inc. ("Paxton Communications").
On June 30, 1998, amended on July 15, 1998 and August 21, 1998, Coaxial and
Insight Communications Company, L.P. ("Insight") entered into a contribution
agreement (the "Contribution Agreement") pursuant to which on August 21, 1998,
Coaxial contributed substantially all of the assets and liabilities comprising
its cable system to Insight Ohio, a newly formed subsidiary. In connection
therewith, Insight Holdings of Ohio, LLC ("IHO"), a wholly owned subsidiary of
Insight, contributed $10 million in cash to Insight Ohio. As a result of the
Contribution Agreement, Coaxial owns 25% of the non-voting common equity and IHO
owns 75% of the non-voting common equity of Insight Ohio. Coaxial also owns two
separate series of voting preferred equity (a $140 million preferred equity
interest and a $30 million preferred equity interest) of Insight Ohio. The
voting preferred equity interest will provide for distributions to Coaxial and
indirectly to Phoenix and Coaxial LLC in amounts equal to the payments required
on the senior and senior discount notes. IHO serves as the manager of Insight
Ohio.
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 month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
4
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Summary of Significant Accounting Policies
Principles of Consolidation
As a result of Coaxial's ownership of all of the voting equity of Insight Ohio
at March 31, 1999, the accompanying financial statements include the accounts of
Insight Ohio. All intercompany balances have been eliminated in consolidation.
At March 31, 1999, Insight Ohio had a members' deficiency, accordingly, the
accompanying financial statements do not include a minority interest liability
for Insight's 75% common equity interest in Insight Ohio.
Cash
The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management 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.
Fair Values
In December 1991, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires disclosure of fair value information
about both on and off balance sheet financial instruments for which it is
practicable to estimate that value. The carrying amounts of current asset and
liabilities approximate their fair market value because of the immediate or
short term maturity of these financial instruments.
At March 31, 1999, the carrying value of the Senior Notes approximate their fair
value.
Revenue Recognition
Service fees are recorded in the month cable television and pay television
services are provided to subscribers. Connection fees are charges for the hook-
up of new customers and are recognized as current revenues to the extent of
direct selling costs incurred. Any fees in excess of such costs are deferred and
amortized to income over the estimated average period that subscribers are
expected to remain connected to the system. Subscriber advance billings are
netted within accounts receivable in the accompanying financial statements.
Collections on subscriber advance billings at March 31, 1999 were not
significant.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. The Company's
customer base consists of a number of homes concentrated in the central Ohio
area. The Company continually monitors the exposure for credit losses and
maintains allowances for anticipated losses. As of March 31, 1999, the Company
had no significant concentrations of credit risk.
5
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost, while maintenance and repairs are
expensed as incurred. Upon retirement or disposal of assets, the cost and
related accumulated depreciation and amortization are removed from the balance
sheet, and any gain or loss is reflected in earnings. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets as follows:
CATV systems 10 to 15 years
Equipment 5 years
Furniture 5 years
Leasehold improvements Life of lease
At March 31, 1999 the Company had net assets held under capital leases of
$199,000.
The Company internally constructs certain CATV systems. Construction costs
capitalized include payroll, fringe benefits and other overhead costs associated
with construction activity.
The Company reviews its property and equipment and other long term assets when
events or changes in circumstances indicate the carrying amounts may not be
recoverable. When such conditions exist, management estimates the future cash
flows from operations or disposition. If the estimated undiscounted future cash
flows are less than the carrying amount of the asset, an adjustment to reduce
the carrying amount would be recorded, and an impairment loss would be
recognized. The Company does not believe that there is an impairment of such
assets.
Intangible Assets
Intangible assets are amortized using the straight-line method over the
estimated useful lives of the related assets as follows:
Franchise costs 7 to 15 years
Deferred financing costs Term of related debt
Deferred financing costs relate to costs, primarily legal fees and bank facility
fees incurred to negotiate and secure long term financing (see note 4). These
costs are being amortized on a straight-line basis over the life of the
applicable loans. In connection with the issuance of the Senior Notes (see note
4), the Company repaid the outstanding indebtedness under its prior debt
facility. The Company amortized to interest expense deferred financing costs of
approximately $36,000 and $142,000 for the three months ended March 31, 1999 and
March 31, 1998, respectively.
Home Office Expenses
Home office expenses of approximately $470,000 for the three months ended March
31, 1998 (included in selling and administrative expenses) include billings for
legal fees, management fees, salaries, travel and other management expenses for
services provided by an affiliated services company. Effective August 21, 1998,
IHO provides such services for which it earns a management fee which
approximated $376,000 for the three months ended March 31, 1999.
6
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Summary of Significant Accounting Policies (continued)
Earnings Per Share
In 1998, the Company adopted SFAS No. 128, "Earnings per Share" ("SFAS No.
128"), which established new standards for computing and presenting earnings per
share was effective for financial statements issued for periods ending after
December 15, 1997. Prior periods have been restated to reflect the adoption of
SFAS No. 128 which did not have a significant impact upon the Company's earnings
per share.
Recent Accounting Pronouncements
In June 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 is effective for all fiscal years
beginning after June 15, 1999. The Company does not anticipate the adoption of
this Statement to have a material impact on its financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
period's presentation.
4. Notes Payable
Notes payable at March 31, 1999 and December 31, 1998 consisted of:
Lender March 31, 1999 December 31, 1998
------ -------------------- -----------------------
Senior Notes(a) $34,435,092 $34,435,092
-------------------- -----------------------
Total $34,435,092 $34,435,092
==================== =======================
Notes payable at March 31, 1999, will mature on August 15, 2006.
7
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO INTERIM 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 accrues on the Senior Notes from August 21, 1998 and is
payable in cash semi-annually on each February 15 and August 15, commencing
on February 15, 1999. The Senior Notes are secured by the outstanding
Series A Preferred Interests in Insight Ohio. The Series A Preferred
Interests have a liquidation preference of $140.0 million and pay
distributions in an amount equal to the interest payments on the Senior
Notes. All Series A Preferred Interests are owned by Coaxial and are
pledged to Bank of Montreal Trust Company, as trustee, for the benefit of
the holders of the Senior Notes. Coaxial will utilize cash distributions
made by Insight Ohio on the Series A Preferred Interests to make payments
on the Senior Notes. The Senior Notes contain covenants that, among other
things, restrict the ability of Coaxial, Phoenix, Insight Ohio and any of
their Restricted Subsidiaries to: incur additional indebtedness; pay
dividends and make distributions; issue stock of subsidiaries to third
parties; make certain investments; repurchase stock; create liens; enter
into transactions with affiliates; enter into sale and leaseback
transactions; create dividend or other payment restrictions affecting
Restricted Subsidiaries; merge or consolidate in a transaction involving
all or substantially all of the assets of Coaxial, Phoenix and their
Restricted Subsidiaries, taken as a whole; transfer or sell assets; use
distributions on the Series A Preferred Interests or Series B Preferred
Interests for any purpose other than required payments of interest and
principal on the Senior Notes or Discount Notes, respectively; and swap
assets. In connection with the issuance of the Senior Notes, the Company
incurred financing fees of $1,147,193 that are being amortized over the
life of the Senior Notes. Coaxial, as joint and several issuer, with
Phoenix, of the Senior Notes, provides the funding that will allow Phoenix
to repay its share of the notes payable, as Phoenix has no operations.
Amortization expense for deferred financing costs related to the Senior
Notes for the three months ended March 31, 1999 was approximately $36,000.
Interest expense on Coaxial's portion of the Senior Notes was approximately
$861,000 for the three months ended March 31, 1999.
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 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 distributions on the Preferred Interests that are required to pay
the Senior Notes and the Discount Notes in the event of a payment default
under the Senior Credit Facility, create liens on assets, make investments,
make acquisitions, engage in mergers or consolidations, engage in certain
transactions with subsidiaries and affiliates and otherwise restrict
certain activities. In addition, the Senior Credit Facility requires
compliance with certain financial ratios, including with respect to total
leverage, interest coverage and pro forma debt service coverage. Management
does not expect that such covenants will materially impact the ability of
Insight Ohio to operate its business. As of March 31, 1999, no amounts were
drawn on the Senior Credit Facility.
8
<PAGE>
COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Commitments and Contingencies
The Company is party in or may be affected by various matters under litigation.
Management believes that the ultimate outcome of these matters will not have a
significant adverse effect on either the Company's results of operation or
financial position.
9
<PAGE>
<TABLE>
<CAPTION>
Phoenix Associates
Balance Sheets
(in thousands)
March 31, 1999 December 31, 1998
------------------- ----------------------
(Unaudited) (Note 2)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ - $ -
Interest receivable 57 57
------------------- ----------------------
Total current assets 57 57
OTHER ASSETS:
Due from related parties 406 406
Notes receivable--related parties 550 550
Deferred financing fees, 3,289 3,400
------------------- ----------------------
Total other assets 4,245 4,356
------------------- ----------------------
Total assets $ 4,302 $ 4,413
=================== ======================
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
INTEREST PAYABLE $ 1,378 $ 3,841
NOTES PAYABLE 105,565 105,565
------------------- ----------------------
Total liabilities 106,943 109,406
------------------- ----------------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT (102,641) (104,993)
------------------- ----------------------
Total liabilities and partners' deficit $ 4,302 $ 4,413
=================== ======================
</TABLE>
See accompanying notes
10
<PAGE>
<TABLE>
<CAPTION>
Phoenix Associates
Statements of Operations and Change in Partners' Deficit
(Unaudited)
(in thousands)
Three months ended
March 31,
1999 1998
-------------------- -----------------------
<S> <C> <C>
EXPENSES $ - $ 19
INTEREST EXPENSE (INCOME)
Interest income--related parties - (228)
Interest expense--related parties - 1,008
Interest expense 2,750 2,449
-------------------- -----------------------
Total interest expense, net 2,750 3,229
-------------------- -----------------------
NET LOSS 2,750 3,248
PARTNERS' DEFICIT, beginning of year 104,993 170,411
CAPITAL CONTRIBUTIONS (5,102) -
-------------------- -----------------------
PARTNERS' DEFICIT, end of year $102,641 $173,659
==================== =======================
</TABLE>
See accompanying notes
11
<PAGE>
<TABLE>
<CAPTION>
Phoenix Associates
Statements of Cash Flows
(Unaudited)
(in thousands)
Three months ended
March 31,
1999 1998
-------------------------- ---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(2,750) $(3,248)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
Amortization of deferred financing fees 111 -
Changes in operating assets and liabilities:
Other accounts receivable, prepaid expenses, and
other current assets - 1
Accrued Interest (2,463) -
Accounts payable - (1)
-------------------------- ---------------------------
Net cash used in operating activities (5,102) (3,248)
-------------------------- ---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in amounts due from related
parties - (88)
-------------------------- ---------------------------
Net cash provided by (used in) investing activities - (88)
-------------------------- ---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable - (180)
Capital Contributions 5,102 -
(Decrease) increase in amounts due to related parties - 3,516
-------------------------- ---------------------------
Net cash provided by (used in) financing activities 5,102 3,336
-------------------------- ---------------------------
NET INCREASE (DECREASE) IN CASH - -
CASH, beginning of period - -
-------------------------- ---------------------------
CASH, end of period $ - $ -
========================== ===========================
</TABLE>
See accompanying notes
12
<PAGE>
PHOENIX ASSOCIATES
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
1. Business Organization and Purpose
Phoenix Associates ("Phoenix") is a Florida general partnership organized for
the primary purpose of purchasing promissory notes, mortgages, deeds of trust,
debt securities and other types of securities, and purchasing and acquiring
rights in any loan agreements or other documents relating to those securities.
Phoenix has no operations. Its ability to satisfy debt and other obligations is
dependent upon funding from related entities, which are under the common control
of the owners of Phoenix. Phoenix is a co-issuer and joint and several obligor
of the debt described in Note 4, along with an affiliate, Coaxial
Communications of Central Ohio, Inc.
Phoenix consists of three separate LLC's whose sole members are individual
partners who share profits and losses in the ratio of 67 1/2%, 22 1/2% and 10%,
respectively.
Other related entities affiliated with Phoenix include Coaxial LLC, Coaxial
Financing Corp., Coaxial Communications of Central Ohio, Inc. ("Coaxial"),
Insight Communications of Central Ohio, LLC ("Insight Ohio"), Coaxial
Communications of Southern Ohio, Inc. ("Southern Ohio"), Coaxial Associates of
Columbus I ("Columbus I"), Coaxial Associates of Columbus II ("Columbus II"),
Paxton Cable Television, Inc. ("Paxton Cable") and Paxton Communications, Inc.
("Paxton Communications").
On June 30, 1998, amended on July 15, 1998 and August 21, 1998, Coaxial and
Insight Communications Company, L.P. ("Insight") entered into a Contribution
Agreement (the "Contribution Agreement") pursuant to which Coaxial contributed
substantially all of the assets and liabilities comprising its cable system to a
newly formed subsidiary, Insight Ohio, and Insight Holdings of Ohio, LLC
("IHO"), a wholly owned subsidiary of Insight, contributed $10 million in cash
to Insight Ohio. As a result of this Contribution Agreement, Coaxial owns 25% of
the non-voting common equity and IHO owns 75% of the non-voting common equity of
Insight Ohio. Coaxial also owns two separate series (a $140 million preferred
equity interest and a $30 million preferred equity interest of voting preferred
equity) of Insight Ohio. The voting preferred equity interest provides for
distributions to Coaxial equal in amount to the payments on the Senior Notes and
senior discount notes. Coaxial will make distributions which will enable Phoenix
to fund the required payments on the Senior Notes.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
13
<PAGE>
PHOENIX ASSOCIATES
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management 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.
Fair Value of Financial Instruments
In December 1991, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires disclosure of fair value information
about both on- and off- balance sheet financial instruments for which it is
practicable to estimate that value. At March 31, 1999, the carrying value of
Phoenix's financial instruments approximate fair value.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivatives Instruments and Hedging Activities." Statement 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. Statement No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Phoenix does not anticipate that the
adoption of this Statement will have a material impact on its financial
statements.
4. Notes Payable
Notes payable at March 31, 1999 and December 31, 1998 consisted of:
Lender March 31, 1999 December 31, 1998
- ------ --------------------- -----------------------
Senior Notes (a) $105,565,000 $105,565,000
--------------------- -----------------------
Total $105,565,000 $105,565,000
===================== =======================
Notes payable at March 31, 1999, will mature on August 15, 2006.
14
<PAGE>
PHOENIX ASSOCIATES
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
4. Notes Payable (continued)
(a) On August 21, 1998 Coaxial and Phoenix completed an offering of $140
million 10% Senior Notes ("Senior Notes") due 2006. The proceeds of the
Senior Notes were allocated $105.6 million to Phoenix and $34.4 million
to Coaxial. Interest accrues on the Senior Notes from August 21, 1998 and
is payable in cash semi-annually on each February 15 and August 15,
commencing on February 15, 1999. The Senior Notes are secured by the
outstanding Series A Preferred Interests in Insight Ohio. The Series A
Preferred Interests have a liquidation preference of $140.0 million and
pay distributions in an amount equal to the interest payments on the
Senior Notes. All Series A Preferred Interests are owned by Coaxial and
are pledged to Bank of Montreal Trust Company, as trustee, for the
benefit of the holders of the Senior Notes. Coaxial will utilize cash
distributions on the Series A Preferred Interests to make payments on the
Senior Notes including distributions to Phoenix. The Senior Notes contain
covenants that, among other things, restrict the ability of Coaxial,
Phoenix, Insight Ohio and any of their Restricted Subsidiaries to: incur
additional indebtedness; pay dividends and make distributions; issue
stock of subsidiaries to third parties; make certain investments;
repurchase stock; create liens; enter into transactions with affiliates;
enter into sale and leaseback transactions; create dividend or other
payment restrictions affecting Restricted Subsidiaries; merge or
consolidate in a transaction involving all or substantially all of the
assets of Coaxial, Phoenix and their Restricted Subsidiaries, taken as a
whole; transfer or sell assets; use distributions on the Series A
Preferred Interest or Series B Preferred Interests for any purpose other
than required payments of interest and principal on the notes or Discount
Notes, respectively; and swap assets. In connection with the issuance of
the Senior Notes, Phoenix incurred financing fees of $3,559,231 that are
being amortized over the life of the Senior Notes. Amortization expense
related to the deferred financing costs was approximately $111,000 for
the three months ended March 31, 1999. Interest expense incurred on the
Senior Notes excluding amortization of deferred financing costs was
approximately $2,639,000 for the three months ended March 31, 1999.
Phoenix is a co-issuer and joint and several obligor of the debt, along
with an affiliate, Coaxial.
At March 31, 1999 the carrying value of the Senior Notes payable approximate
fair value.
5. Commitments and Contingencies
The Company is party to or may be affected by various matters under litigation.
Management believes that the ultimate outcome of these matters will not have a
significant adverse effect on either the Company's future results of operations
of financial position.
15
<PAGE>
Insight Communications of Central Ohio, LLC
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
------------------------ ----------------------------
(Unaudited) (Note 2)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 2,271 $ 6,709
Subscriber receivables, less allowance for doubtful
accounts of $530 and $306 in 1999 and 1998 915 1,186
Other accounts receivable, less allowance for doubtful
accounts of $145 in 1999 and 1998 1,401 1,520
Prepaid expenses and other current assets 160 166
------------------------ ----------------------------
Total current assets 4,747 9,581
PROPERTY AND EQUIPMENT, at cost:
Land and Land Improvements 260 260
CATV systems 76,880 71,032
Equipment 7,371 7,102
Furniture 338 333
Leasehold improvements 71 71
------------------------ ----------------------------
84,920 78,798
Less-Accumulated depreciation and amortization (48,488) (46,898)
------------------------ ----------------------------
Total property and equipment, net 36,432 31,900
INTANGIBLE ASSETS, at cost:
Franchise costs 7,385 7,385
Other Intangible Assets 326 300
Less-Accumulated amortization (7,358) (7,348)
------------------------ ----------------------------
Total intangible assets, net 353 337
DUE FROM RELATED PARTIES 149 149
------------------------ ----------------------------
Total assets $ 41,681 $ 41,967
======================== ============================
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 94 $ 123
Accounts payable 4,722 3,230
Accrued Liabilities 6,639 4,404
Series Preferred A Dividend Payable 1,750 5,211
Series Preferred B Dividend Payable 2,350 1,438
------------------------ ----------------------------
Total Current Liabilities 15,555 14,406
Capital Lease Obligations 105 105
Other Deferred Credits 1,077 1,146
Due to related parties 398 1,029
Preferred A Interest 140,000 140,000
Preferred B Interest 30,000 30,000
------------------------ ----------------------------
Total liabilities and preferred interests 187,135 186,686
Members' deficit (145,454) (144,719)
------------------------ ----------------------------
Total liabilities and members' deficit $ 41,681 $ 41,967
======================== ============================
</TABLE>
see accompanying notes
16
<PAGE>
Insight Communications of Central Ohio, LLC
Statements of Operations and Changes in Members' Deficit
For the Three Months Ended March 31, 1999
(Unaudited)
(in thousands)
REVENUE $ 11,696
OPERATING EXPENSES:
Service and administrative 6,681
Depreciation and Amortization 1,599
-------------------------
Total operating expenses 8,280
-------------------------
OPERATING INCOME 3,416
OTHER INCOME
Interest Expense (7)
Interest Income 77
-------------------------
INTEREST INCOME (EXPENSE), net 70
-------------------------
NET INCOME 3,486
Accrual of preferred interests (4,222)
-------------------------
Loss on common interests (736)
MEMBERS' EQUITY, beginning of period (144,718)
-------------------------
Members' Deficit at December 31, 1998 $(145,454)
=========================
see accompanying notes
17
<PAGE>
Insight Communications of Central Ohio, LLC
Statement of Cash Flows
Three Months Ended March 31, 1999
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
March 31, 1999
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $ 3,486
Adjustments to reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation and amortization 1,599
Changes in certain assets and liabilities
Subscriber receivables 271
Other accounts receivable, prepaid expenses and other 126
current assets
Accounts payable, accrued liabilities and other 3,655
Due to affiliated companies (631)
--------------------------
Net cash provided by operating activities 8,506
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (6,122)
Increase in other intangible assets (26)
--------------------------
Net cash used in investing activities (6,148)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (29)
Preferred interest distributions (6,767)
--------------------------
Net cash used in financing activities (6,796)
--------------------------
NET INCREASE IN CASH (4,438)
CASH, beginning of period 6,709
--------------------------
CASH, end of period $ 2,271
==========================
</TABLE>
see accompanying notes
18
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
1. Business Organization and Purpose
Insight Communications of Central Ohio, LLC ("Insight Ohio" or the "Company")
was formed on July 23, 1998 in order to acquire substantially all of the
assets and liabilities comprising the cable television system of Coaxial
Communications of Central Ohio, Inc. ("Coaxial"). On August 21, 1998, Coaxial
contributed to Insight Ohio all of the assets and liabilities comprising
Coaxial's cable television system for which Coaxial received a 25% non-voting
common membership interest in Insight Ohio as well as 100% of the voting
preferred membership interests of Insight Ohio ("Series A and Series B Preferred
Interests"). In conjunction therewith, Insight Holdings of Ohio, LLC ("IHO")
contributed $10 million in cash to Insight Ohio for which it received a 75% non-
voting common membership interest in Insight Ohio. Insight Ohio provides basic
and expanded cable services to homes in Columbus, Ohio and surrounding areas.
On August 21, 1998, Coaxial and Phoenix Associates, a related entity, issued
$140 million of 10% Senior Notes ("Senior Notes") due in 2006. The Senior Notes
are non-recourse and are secured by all issued and outstanding Series A
Preferred Interest in Insight Ohio and are conditionally guaranteed by Insight
Ohio. On August 21, 1998, Coaxial Financing Corp. and Coaxial LLC, related
entities, issued 12 7/8% Senior Discount Notes due 2008 ("Discount Notes"). The
Discount Notes have a face amount of $55,869,000 and approximately $30 million
of gross proceeds were received upon issuance. The Discount Notes are non-
recourse, secured by 100% of the common stock of Coaxial, and conditionally
guaranteed by Insight Ohio.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
3. Summary of Significant Accounting Policies
Cash
Insight Ohio considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management 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.
19
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Service fees are recorded in the month cable television and pay television
services are provided to subscribers. Connection fees are charges for the hook-
up of new customers and are recognized as current revenues to the extent of
direct selling costs incurred. Any fees in excess of such costs are deferred and
amortized to income over the estimated average period that subscribers are
expected to remain connected to the system. Subscriber advance billings are
netted within accounts receivable in the accompanying financial statements.
Collections on subscriber advance billings at March 31, 1999 were not
significant.
Concentration of Credit Risk
Financial instruments that potentially subject Insight Ohio to concentrations of
credit risk consist principally of trade accounts receivable. Insight Ohio's
customer base consists of a number of homes concentrated in the central Ohio
area. Insight Ohio continually monitors the exposure for credit losses and
maintains allowances for anticipated losses. As of March 31, 1999, Insight Ohio
had no significant concentrations of credit risk.
Property and Equipment
Property and equipment are stated at cost, while maintenance and repairs are
expensed as incurred. Upon retirement or disposal of assets, the cost and
related accumulated depreciation and amortization are removed from the balance
sheet, and any gain or loss is reflected in earnings. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets as follows:
CATV systems 10 to 15 years
Equipment 5 years
Furniture 5 years
Leasehold improvements Life of lease
Assets held under capital leases at March 31, 1999 were $199,000.
Insight Ohio internally constructs certain CATV systems. Construction costs
capitalized include payroll, fringe benefits and other overhead costs associated
with construction activity.
Insight Ohio reviews its property, plant and equipment and other long term
assets when events or changes in circumstances indicate the carrying amounts may
not be recoverable. When such conditions exist, management estimates the future
cash flows from operations or disposition. If the estimated undiscounted future
cash flows are less than the carrying amount of the asset, an adjustment to
reduce the carrying amount would be recorded, and an impairment loss would be
recognized. Insight Ohio does not believe that there is an impairment of such
assets.
Franchise Costs
Franchise costs are amortized using the straight-line method over the lives of
the related franchises which range from 7 to 15 years.
20
<PAGE>
INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Summary of Significant Accounting Policies (continued)
Home Office Expenses
Effective August 21, 1998, the Company entered into a management agreement with
IHO, which allows IHO to manage the operations of Insight Ohio. IHO earns a
management fee of equivalent to 3% of Insight Ohio's gross operating revenues.
Fees under this management agreement aggregated $376,000 for the three months
ended March 31, 1999.
Recent Accounting Pronouncements
In June 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 is effective for all fiscal years
beginning after June 15, 1999. The Company does not anticipate the adoption of
this Statement 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 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
distributions on the Preferred Interests that are required to pay the Senior
Notes and the Discount Notes in the event of a payment default under the Senior
Credit Facility, create liens on assets, make investments, make acquisitions,
engage in mergers or consolidations, engage in certain transactions with
subsidiaries and affiliates and otherwise restrict certain activities.
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.
21
<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), including, in
particular, the likelihood of the System's success given its new management by
Insight Holdings of Ohio, LLC ("IHO"). All statements other than statements of
historical fact included in this report regarding Coaxial Communications of
Central Ohio, Inc. ("Coaxial"), Phoenix Associates ("Phoenix") and Insight
Communications of Central Ohio, LLC ("Insight Ohio") or any of the transactions
described in this report, including the timing, financing, strategies and
effects of such transactions, are forward-looking statements. Such forward-
looking statements are based upon a number of assumptions and estimates, which
are inherently subject to significant uncertainties and contingencies, many of
which are beyond the control of Coaxial, Phoenix and Insight Ohio, and reflect
future business decisions which are subject to change. Although Coaxial, Phoenix
and Insight Ohio believe that the expectations reflected in such forward-looking
statements are reasonable, they can give no assurance that such expectations
will prove to be correct. Important factors that could cause actual results to
differ materially from expectations include, without limitation, (i) the ability
of Coaxial and Phoenix to make scheduled payments with respect to the Senior
Notes (as defined below) will depend on the financial and operating performance
of Insight Ohio; (ii) a substantial portion of Insight Ohio's cash flow from
operations is required to be dedicated to the payment of principal and interest
on its indebtedness and the required distributions with respect to the Series A
Preferred Interests (as defined below) and the Series B Preferred Interests (as
defined below), thereby reducing the funds available to Insight Ohio for its
operations and future business opportunities; (iii) Coaxial and Phoenix have no
significant assets other than Coaxial's ownership of common membership
interests, Series A Preferred Interests and Series B Preferred Interests in
Insight Ohio; and (iv) the indenture governing the terms of the Senior Notes
imposes restrictions on Coaxial, Phoenix and Insight Ohio and the Senior Credit
Facility of Insight Ohio imposes restrictions on Insight Ohio. Coaxial, Phoenix
and Insight Ohio do not intend to update these forward-looking statements.
Private Offering of Senior Notes and Acquisition of System by Insight Ohio
Coaxial and Phoenix completed on August 21, 1998 a private offering
(the "Senior Notes Offering") of $140,000,000 aggregate principal amount of
their Senior Notes in connection with the Financing Plan discussed below which
included the contribution of Coaxial's cable television system (the "System") to
Insight Ohio. As a result of this transaction, Coaxial and Phoenix have only
nominal assets except for Coaxial's ownership of 25% of the non-voting common
membership interests in Insight Ohio and 100% of the voting Series A Preferred
Interest and Series B Preferred Interest of Insight Ohio (together the
"Preferred Interests"). The Senior Notes are guaranteed on a conditional basis
by Insight Ohio.
On August 21, 1998, a Financing Plan was implemented to facilitate the
organization of Insight Ohio, the acquisition of the System by Insight Ohio and
to provide for the System's liquidity and operational and financial flexibility.
Pursuant to the Financing Plan:
. Coaxial contributed to Insight Ohio substantially all of the assets
comprising the System for which Coaxial received a 25% non-voting common
membership interest in Insight Ohio as well as the voting Preferred Interests
in Insight Ohio, which provide for distributions to Coaxial that will be used
to pay interest and principal on the Senior Notes and to pay dividends to the
Individual LLCs that will be used to pay interest and principal on the Senior
Discount Notes;
. IHO contributed $10.0 million in cash to Insight Ohio for which it received a
75% non-voting common membership interest in Insight Ohio;
. Coaxial and Phoenix effected the Senior Notes Offering;
. Coaxial LLC and Coaxial Financing Corp. effected the Senior Discount Notes
Offering; and
. a portion of the existing bank indebtedness of Coaxial and Phoenix and
certain of their affiliates was repaid and the balance was purchased by CIBC
Oppenheimer Corp. ("CIBC") and restructured in accordance with an agreement
among the parties.
22
<PAGE>
As part of the Financing Plan, one of the owners of Coaxial ("Coaxial LLC")
and an affiliated corporation ("Coaxial Financing Corp.") completed a private
offering (the "Senior Discount Notes Offering") of $55,869,000 aggregate
principal amount at maturity of their Senior Discount Notes. The Senior Discount
Notes are also guaranteed on a conditional basis by Insight Ohio, subordinated
to the conditional guarantee of the Senior Notes. The three limited liability
companies that own Coaxial, which includes Coaxial LLC, are referred to herein
as the "Individual LLCs."
The gross proceeds received by Coaxial LLC and Coaxial Financing Corp. from
the Senior Discount Notes Offering were approximately $30.0 million. Proceeds
from such private offering were used for the repayment of outstanding
indebtedness (approximately $28.9 million). CIBC purchased certain outstanding
indebtedness (approximately $136.4 million) of Coaxial and Phoenix and
restructured that debt in accordance with the Financing Plan. CIBC funded such
purchase with proceeds from the Senior Notes Offering. The remaining proceeds
from the Senior Notes Offering and the Senior Discount Notes Offering and the
$10.0 million cash contribution from IHO were used for working capital
(approximately $2.9 million), deferred compensation and severance payments
(approximately $3.0 million) and fees and expenses (approximately $8.8 million).
The Preferred Interests have distribution priorities that provide for
distributions to Coaxial. The distributions from the Series A Preferred
Interests will be used to pay interest and principal on the Senior Notes and the
distributions from the Series B Preferred Interests will be used to pay
dividends to the Individual LLCs, which dividends will be used to pay interest
and principal on the Senior Discount Notes. Distributions by Insight Ohio will
be subject to certain financial covenants and other conditions set forth in its
Senior Credit Facility.
Coaxial and Phoenix do not conduct any business and are dependent upon the
cash flow of Insight Ohio to meet their obligations under the Senior Notes. IHO,
a wholly-owned subsidiary of Insight, serves as the manager of the Insight Ohio.
The following discussion relates to the historical operations of Coaxial
for the periods presented. On August 21, 1998, substantially all of the
assets and liabilities comprising the System were contributed to Insight Ohio.
Subsequent to the consummation of the Financing Plan, Insight Ohio was deemed to
be a subsidiary of Coaxial and, as such, the financial statements of Insight
Ohio are consolidated into the financial statements of Coaxial. Financial
results related to historical information reflect the operation and management
of the System by Coaxial through August 21, 1998 and by IHO from August 21, 1998
to March 31, 1999. The historical operating results of Coaxial presented below
reflect the actual results of the System in addition to certain financing
activities unrelated to the operation of the System. These financing activities
relate primarily to the offering of the Senior Notes discussed above as well as
certain borrowings and repayments of debt with affiliated companies. These
activities resulted in related financing and interest costs. The historical
results of Coaxial presented below appear elsewhere in this report under the
heading "Coaxial Communications of Central Ohio, Inc."
Overview
Revenues generated by the System are primarily attributable to monthly
subscription fees charged to basic customers for basic and premium cable
television programming services. Basic revenues consist of monthly subscription
fees for all services (other than premium programming) as well as monthly
charges for customer equipment rental. Premium revenues primarily consist of
monthly subscription fees for programming provided on a
23
<PAGE>
per channel basis. In addition, other revenues are derived from installation and
reconnection fees charged to basic customers to commence or discontinue service,
pay-per-view charges, late payment fees, franchise fees, advertising revenues
and commissions related to the sale of goods by home shopping services.
System operating expenses consist of service and administrative expenses,
home office expenses and depreciation and amortization. Service and
administrative expenses include direct costs, such as fees paid to programming
suppliers, expenses related to copyright fees, bad debt expense, and franchise
and use fees. Programming fees have historically increased at rates in excess of
inflation due to increases in the number of programming services offered by the
System and improvements in the quality of programming. Service and
administrative expenses also include costs attributable to the operation of the
System, including wages and salaries and other expenses related to plant
operating activities, customer service operations, marketing, billing,
advertising sales and video production. Prior to August 21, 1998, service and
administrative expenses also included costs attributable to finance and
accounting, human resources and other administrative functions. Upon
consummation of the Financing Plan, such expenses were replaced by the
management fee arrangement with IHO.
The System relies on IHO for all of its strategic, managerial, financial
and operational oversight and advice. IHO also centrally purchases programming
and equipment and provides the associated discount to the System. In exchange
for all such services provided to the System and subject to certain restrictions
contained in the covenants with respect to Insight Ohio's Senior Credit
Facility, the Senior Notes and the Senior Discount Notes, IHO is entitled to
receive management fees of 3.0% of gross operating revenues of the System. Such
management fee is payable only after distributions have been made in respect of
the Preferred Interests and only to the extent that such payment would be
permitted by an exception to the restricted payments covenants of the Senior
Notes and the Senior Discount Notes as well as Insight Ohio's Senior Credit
Facility. Such management fee is included in service and administrative
expenses.
Results of Operations
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
Revenues for the quarter ended March 31, 1999 were $11.7 million, compared
to $11.5 million for the quarter March 31, 1998. For the quarter ended March 31,
1999, subscribers served averaged 87,129, as compared with 91,868 in 1998.
Revenues increased 1.8% despite a 5.2% decrease in customers as Insight Ohio
ended previous management's program of deeply discounting its rates. Average
revenue per customer per month for the quarter ended March 31, 1999 totaled
$44.75 versus $41.67 for the quarter ended March 31, 1998.
Service and administrative expenses decreased to $6.7 million for the
quarter
24
<PAGE>
ended March 31, 1999, compared to $7.5 million for the quarter ended March 31,
1998 a decrease of approximately $789,000, or 10.6%. Basic programming expenses
decreased by 13.9%, from $2.0 million in 1998 to $1.8 million in 1999,
reflecting savings realized through Insight's purchasing discounts. Similarly,
pay programming expenses dropped 10.3% during the quarter ended March 31, 1999
versus the quarter ended March 31, 1998 to $990,000. The System was charged home
office expenses that included costs incurred by the owners of Coaxial and their
direct employees relating to the System including salaries, benefits, legal
fees, travel and entertainment, accounting fees and other office expenses. For
the quarter ended March 31, March 31, 1998, such expenses totaled approximately
$424,000. Upon consummation of the Financing Plan, IHO commenced management
services to the System for which it receives a management fee, which totaled
approximately $376,000 for the quarter ended March 31, 1999. Personnel costs for
the quarter ended March 31, 1999 totaled approximately $1.4 million, a decrease
of 16.8% from the quarter ended March 31, 1998 as Insight Ohio eliminated
duplicative positions upon consummation of the Financing Plan.
Depreciation and amortization expenses for the quarter ended March 31, 1999
increased by 9.7% over the quarter ended March 31, 1998 to approximately $1.6
million reflecting additional capital expenditures incurred associated with the
rebuild of the System's network. Operating Income for the quarter ended March
31, 1999 totaled $3.4 million, a 34.3% increase over operating income of $2.5
million reported for the quarter ended March 31, 1998.
Net interest expense totaled approximately $827,000 for the quarter ended
March 31, 1999 reflecting interest on the Senior Notes issued August 21, 1998.
Net income increased to $2.6 million for the quarter ended March 31, 1999
from net income of $ 2.5 million for the quarter ended March 31, 1998 for the
reasons set forth above.
Liquidity and Capital Resources
The cable television business is a capital-intensive business that
generally requires financing for the upgrade, expansion and maintenance of the
technical infrastructure. The capital expenditures relating to Coaxial totaled
$6.1 million for the quarter ended March 31, 1999. These expenditures were
primarily for the rebuild of cable plant and for serving new homes. Capital
expenditures are financed by cash received from the Financing Plan and cash
flows from operations.
IHO is rebuilding the technical platform of the System by upgrading the
plant serving the majority of customers. The capability for high-speed data
transmission, impulse pay-per-view, digital tiers of service and additional
analog channels is intended to be provided by further deployment of fiber
optics, an increase in the bandwidth to 870 MHz, activation of the reverse plant
to allow two-way communications and the installation of digital equipment.
In addition to cash flow from operations, Insight Ohio has available a $25
million Senior Credit facility to support their rebuild program. As of March
31, 1999, no borrowings had been made under the Senior Credit Facility and $25
million remains available for borrowing.
25
<PAGE>
Inflation and Changing Prices
Coaxial's costs and expenses are subject to inflation and price
fluctuations. Although changes in costs can be passed through to customers, such
changes may be constrained by competition. Management does not expect inflation
to have a material effect on Coaxial's results of operations.
Year 2000
The Year 2000 will pose a unique set of challenges to those industries
reliant on information technology. As a result of the methods employed by early
programmers, many software applications and operational programs may be unable
to distinguish the Year 2000 from the Year 1900. If not effectively addressed,
this problem could result in the production of inaccurate data, or, in the worst
cases, the inability of the systems to continue to function altogether. Insight
Ohio and other companies in the same business are vulnerable to their dependence
on distribution and communications systems.
Insight Ohio's greatest Year 2000 exposure is presented by its third party
billing system which is responsible for mailing monthly bills to customers and
maintaining customer data. Insight Ohio has recently implemented the Convergys
billing system. Convergys has informed Insight Ohio that testing of the billing
system was completed by the first quarter of 1999.
Management believes that the remaining systems of Insight Ohio will be
fully Y2K compliant by the end of the third quarter of 1999. Insight Ohio has
completed an inventory of all areas which are at risk and is in the process of
replacing and upgrading all equipment and software as needed. Due to Insight's
affiliation with TCI, Insight Ohio is a member of TCI's Year 2000 task force.
This allows Insight Ohio access to TCI's extensive database which details
various vendors', suppliers' and programmers' Year 2000 compliance. Management
estimates that the total cumulative costs relating to its efforts to make its
systems Y2K compliant will be approximately $120,000, of which approximately
$20,000 has been incurred as of March 31, 1999.
Management believes that the expenditures required to bring Insight Ohio's
systems into compliance will not have a materially adverse effect on Insight
Ohio's performance. However, the Year 2000 problem is pervasive and complex and
can potentially affect any computer process. Accordingly, no assurance can be
given that Year 2000 compliance can be achieved without additional unanticipated
expenditures and uncertainties that might affect future financial results.
Moreover, to operate its business, Insight Ohio relies on governmental
agencies, utility companies, telecommunications companies, shipping companies,
suppliers and other third party service providers over which it can assert
little control. Insight Ohio's ability to conduct its business is dependent upon
the ability of these third parties to avoid Year 2000 related disruptions.
Insight Ohio is in the process of contacting its third party service providers
about their Year 2000 readiness, but Insight Ohio has not yet received any
assurances from any such third parties about their Year 2000 compliance. If
Insight Ohio's key third party service providers do not adequately address their
Year 2000 issues, Insight Ohio's business may be materially
26
<PAGE>
affected, which could result in a materially adverse effect on Insight Ohio's
results of operations and financial condition.
Insight Ohio has not, as of yet, developed any contingency plans, as such
plans will depend on the responses from its third party service providers, in
the event Insight Ohio or any key third party providers should fail to become
Year 2000 compliant.
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
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Coaxial, Phoenix and Insight Ohio do not
anticipate the adoption of this statement to have a material impact on their
respective financial statements.
27
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Coaxial, Phoenix and Insight Ohio do not engage in trading market risk
sensitive instruments and do not purchase hedging instruments or "other than
trading" instruments that are likely to expose any of them to market risk,
whether interest rate, foreign currency exchange, commodity price or equity
price risk. Coaxial, Phoenix and Insight Ohio have not entered into forward or
future contracts, purchased options or entered into swaps.
28
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 - Financial Data Schedule of Coaxial Communications of Central Ohio,
Inc.
27.2 - Financial Data Schedule of Phoenix Associates
27.3 - Financial Data Schedule of Insight Communications of Central Ohio,
LLC
(b) Reports on Form 8-K
None
29
<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 Communications of Central Ohio, Inc.
(Registrant)
Dated: May 17, 1999
By: /s/ Michael S. Willner
----------------------------
Michael S. Willner
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Kim D. Kelly
----------------------------
Kim D. Kelly
Executive Vice President, Chief Financial
and Operating Officer and Treasurer
(Principal Financial and Accounting Officer)
<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.
Phoenix Associates
(Registrant)
Dated: May 17, 1999
By: /s/ Dennis J. McGillicuddy
----------------------------------
Dennis J. McGillicuddy
Sole Member of Phoenix DJM LLC,
a general partner of Phoenix Associates
(Principal Executive, Financial and
Accounting Officer)
<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 17, 1999
By: /s/ Michael S. Willner
-----------------------------
Michael S. Willner
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Kim D. Kelly
---------------------------
Kim D. Kelly
Executive Vice President, Chief Financial
and Operating Officer and Treasurer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED) FOR MARCH 31, 1999 AND CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001070241
<NAME> COAXIAL COMMUNICATIONS OF CENTRAL OHIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,271
<SECURITIES> 0
<RECEIVABLES> 2,991
<ALLOWANCES> 675
<INVENTORY> 0
<CURRENT-ASSETS> 6,747
<PP&E> 84,920
<DEPRECIATION> 48,488
<TOTAL-ASSETS> 44,741
<CURRENT-LIABILITIES> 11,902
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 3,178
<TOTAL-LIABILITY-AND-EQUITY> 44,741
<SALES> 11,696
<TOTAL-REVENUES> 11,696
<CGS> 8,281
<TOTAL-COSTS> 8,281
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 827
<INCOME-PRETAX> 2,588
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,588
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,588
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED) FOR MARCH 31, 1999 AND CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000724332
<NAME> PHOENIX ASSOCIATES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 57
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 57
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,302
<CURRENT-LIABILITIES> 1,378
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (102,641)
<TOTAL-LIABILITY-AND-EQUITY> 4,302
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,750
<INCOME-PRETAX> (2,750)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,750)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT COMPANY
CONSOLIDATED BALANCE SHEET (UNAUDITED) FOR MARCH 31, 1999 AND CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001070242
<NAME> INSIGHT COMMUNICATIONS OF CENTRAL OHIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,271
<SECURITIES> 0
<RECEIVABLES> 2,991
<ALLOWANCES> 675
<INVENTORY> 0
<CURRENT-ASSETS> 4,747
<PP&E> 84,920
<DEPRECIATION> 48,488
<TOTAL-ASSETS> 41,681
<CURRENT-LIABILITIES> 15,555
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (145,454)
<TOTAL-LIABILITY-AND-EQUITY> 41,681
<SALES> 11,696
<TOTAL-REVENUES> 11,696
<CGS> 8,280
<TOTAL-COSTS> 8,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (70)
<INCOME-PRETAX> 3,486
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,486
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
