10-Q 1 d10q.txt FORM 10-Q ================================================================================ Securities and Exchange Commission Washington, D.C. 20549 Form 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2001 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. 810 7th Avenue New York, New York 10019 (Address of principal executive offices, including zip code) (917) 286-2300 (Registrants' telephone number, including area code) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. [X] Yes [__] No Indicate the number of shares outstanding of each of the registrants' classes of common stock, as of the latest practicable date. Coaxial LLC Not Applicable Coaxial Financing Corp. Not Applicable Insight Communications of Central Ohio, LLC Not Applicable ================================================================================ COAXIAL LLC CONSOLIDATED BALANCE SHEETS (in thousands) March 31, December 31, 2001 2000 ------------------------------ (unaudited) (Note 2) Assets Investments $ 21,200 $ 18,800 Dividends receivable 1,750 5,250 ------------------------------ Total current assets 22,950 24,050 Intangible assets, net 1,828 1,899 Investment in affiliate 181,547 180,281 Note receivable - Coaxial DJM LLC 6,750 6,750 Note receivable - Coaxial DSM LLC 3,000 3,000 Due from related parties 3,896 3,466 ------------------------------ Total assets $219,971 $219,446 ============================== Liabilities and members' equity Accounts payable and accrued expenses $ 430 $ 1,291 ------------------------------ Total current liabilities 430 1,291 Senior discount notes 41,547 40,281 Senior notes 34,435 34,435 ------------------------------ Total liabilities 76,412 76,007 Commitments and contingencies Members' equity: Members' equity 139,859 142,139 Accumulated other comprehensive income 3,700 1,300 ------------------------------ Total members' equity 143,559 143,439 ------------------------------ Total liabilities and members' equity $219,971 $219,446 ============================== See accompanying notes 1 COAXIAL LLC CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands) Three months ended March 31, 2001 2000 -------------------------- Revenue $ - $ 11,535 Operating costs and expenses: Selling, general and administrative - 7,443 Depreciation and amortization 71 2,299 -------------------------- Total operating costs and expenses 71 9,742 Operating income (loss) (71) 1,793 Other income (expense): Interest income - related parties 430 366 Interest income - 18 Interest expense (2,127) (2,309) Dividend on preferred interests 4,766 - Other - 29 -------------------------- Total other income, net 3,069 1,896 Net income (loss) 2,998 (103) Unrealized gain on investments 2,400 - -------------------------- Total comprehensive income $ 5,398 $ (103) ========================== See accompanying notes 2 COAXIAL LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)

See accompanying notes 3 COAXIAL LLC COAXIAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation 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 one individual as its sole member. Coaxial, an Ohio corporation, through its ownership of preferred interests, has a 30% voting interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"). Insight Ohio operates a cable television system that provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. Prior to August 8, 2000, Coaxial owned 100% of the voting interest in Insight Ohio and therefore consolidated the financial statements of Insight Ohio for periods prior to such date. In connection with the contribution of Coaxial's cable system (the "System"), the issuance of the Senior Notes by Coaxial and the Senior Discount Notes by the Company, during 1998 the three individuals who previously owned the outstanding stock of Coaxial contributed their stock to three separate limited liability companies. Accordingly, Coaxial is a subsidiary of the Company. Other related entities affiliated with the Company in addition to Coaxial, include Coaxial DJM LLC, Coaxial DSM LLC, (collectively, the "Coaxial Entities"), Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton Communications, Inc. The Company and Coaxial Financing Corp. are co-issuers of the Senior Discount Notes. Coaxial and Phoenix are co-issuers of the Senior Notes. The ability of Coaxial Financing Corp., the Company, Coaxial and Phoenix to make scheduled payments with respect to the Senior Discount Notes and Senior Notes is dependent on the financial and operating performance of Insight Ohio. The required distributions on the Series A preferred equity interest and Series B preferred equity interest to Coaxial are designed to provide the cash flow necessary to service the debt requirements on the Senior Discount Notes and Senior Notes. 2. Responsibility for Interim Financial Statements The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the consolidated financial statements reflect all adjustments considered necessary for a fair statement of the consolidated results of operations and 4 COAXIAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Responsibility for Interim Financial Statements (continued) financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. 3. Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), sets forth rules for the reporting and display of comprehensive income (net income plus all other changes in net assets from non-owner sources) and its components in the financial statements. For the three months ended March 31, 2001, components of other comprehensive income consisted of a net unrealized gain on investments of $2.4 million. For the three months ended March 31, 2000, there were no components of other comprehensive income. 5 COAXIAL FINANCING CORP. BALANCE SHEETS

See accompanying notes 6 COAXIAL FINANCING CORP. NOTES TO BALANCE SHEETS (CONTINUED) 1. Organization 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. Responsibility for Interim Financial Statements The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the financial position as of the interim dates presented. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. 3. Notes Payable On August 21, 1998, the Company and Coaxial LLC, a related entity, issued Senior Discount Notes ("Senior Discount Notes") due 2008. The Senior Discount Notes have a maturity value of $55.9 million and $30.0 million of gross proceeds were received upon issuance. Of the gross proceeds, $19.5 million was contributed by the sole member of Coaxial LLC to certain related entities to repay indebtedness. In addition, $9.8 million 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 $25.9 million is being amortized over five years through August 15, 2003. Thereafter, interest on the Senior Discount Notes accrues at 127/8% per annum and is payable semi-annually. All of the Senior Discount Notes were allocated to Coaxial LLC. The Senior Discount Notes are non-recourse, secured by all of the common stock of 7 COAXIAL FINANCING CORP. NOTES TO BALANCE SHEETS (CONTINUED) 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"), an affiliate 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 ability of the Company and Coaxial LLC to make scheduled payments with respect to the Senior Discount Notes will depend on the financial and operating performance of Insight Ohio. 8 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. BALANCE SHEETS (in thousands)

See accompanying notes 9 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands) Three months ended March 31, 2001 2000 ---------------------------- Revenue $ - $11,535 Operating costs and expenses: Selling, general and administrative - 7,443 Depreciation and amortization 38 2,273 ------------------------ Total operating costs and expenses 38 9,716 Operating (loss) income (38) 1,819 Other income (expense): Interest income - 18 Interest expense (861) (1,182) Dividend on preferred interests 4,766 - Other - 29 ------------------------ Total other income (expense), net 3,905 (1,135) Net income 3,867 684 Unrealized gain on investments 2,400 - ------------------------ Total comprehensive income $6,267 $ 684 ======================== See accompanying notes 10 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)

See accompanying notes 11 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation Coaxial Communications of Central Ohio, Inc. (the "Company"), an Ohio corporation, through its ownership of preferred interests, has a 30% voting interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"). Insight Ohio operates a cable television system that provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. Prior to August 8, 2000, Coaxial owned 100% of the voting interest in Insight Ohio and therefore consolidated the financial statements of Insight Ohio for periods prior to such date. In connection with the contribution of the Company's cable system (the "System"), the issuance of the Senior Notes and the issuance of the Senior Discount Notes by the Company's majority shareholder, Coaxial LLC, during 1998 the three individuals who previously owned the outstanding stock of the Company contributed their stock to three separate limited liability companies. Accordingly, the Company is a subsidiary of Coaxial LLC, which owns 67 1/2% of its outstanding stock. Other related entities affiliated with the Company in addition to Coaxial LLC, include Coaxial DJM LLC, Coaxial DSM LLC, (collectively, the "Coaxial Entities"), Phoenix Associates ("Phoenix"), Coaxial Financing Corp., Coaxial Communications of Southern Ohio, Inc., Coaxial Associates of Columbus I, Coaxial Associates of Columbus II, Paxton Cable Television, Inc. and Paxton Communications, Inc. The Company and Phoenix are co-issuers of the Senior Notes. The ability of the Company and Phoenix to make scheduled payments with respect to the Senior Notes is dependant on the financial and operating performance of Insight Ohio. The required distributions on the Series B preferred equity interest to the Company is designed to provide the cash flow necessary to service the debt requirements on the Senior Notes. 2. Responsibility for Interim Financial Statements The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the consolidated financial statements reflect all adjustments considered necessary for a fair statement of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 12 COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Responsibility for Interim Financial Statements (continued) The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. 3. Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), sets forth rules for the reporting and display of comprehensive income (net income plus all other changes in net assets from non-owner sources) and its components in the financial statements. For the three months ended March 31, 2001, components of other comprehensive income consisted of a net unrealized gain on investments of $2.4 million. For the three months ended March 31, 2000, there were no components of other comprehensive income. 13 PHOENIX ASSOCIATES BALANCE SHEETS (in thousands)

See accompanying notes 14 PHOENIX ASSOCIATES STATEMENTS OF OPERATIONS (unaudited) (in thousands) Three months ended March 31, 2001 2000 ---------------------------- Expenses: Amortization $ 119 $ 119 Interest income (expense): Interest income-related parties 39 39 Interest expense (2,639) (2,639) ---------------------------- Total interest expense, net (2,600) (2,600) ---------------------------- Net loss $ (2,719) $ (2,719) ============================ See accompanying notes 15 PHOENIX ASSOCIATES STATEMENTS OF CASH FLOWS (unaudited) (in thousands)

See accompanying notes 16 PHOENIX ASSOCIATES NOTES TO FINANCIAL STATEMENTS 1. Business Organization and Purpose Phoenix Associates (the "Company") is a Florida general partnership organized for the primary purpose of purchasing promissory notes, mortgages, deeds of trust, debt securities and other types of securities and purchasing and acquiring rights in any loan agreements or other documents relating to those securities. The Company has no operations. The Company consists of three separate LLC's whose sole members are individual partners who share profits and losses in the ratio of 67 1/2%, 22 1/2% and 10%, respectively. Other related entities affiliated with the Company include Coaxial LLC, Coaxial Financing Corp., Coaxial Communications of Central Ohio, Inc. ("Coaxial"), Insight Communications of Central Ohio, LLC ("Insight Ohio"), Coaxial Communications of Southern Ohio, Inc. ("Southern Ohio"), Coaxial Associates of Columbus I ("Columbus I"), Coaxial Associates of Columbus II ("Columbus II"), Paxton Cable Television, Inc. ("Paxton Cable") and Paxton Communications, Inc. ("Paxton Communications"). The Company and Coaxial are co-issuers of the Senior Notes. The ability of the Company and Coaxial to make scheduled payments with respect to the Senior Notes is dependant on the financial and operating performance of Insight Ohio. The required distributions on the Series B preferred equity interest to the Company is designed to provide the cash flow necessary to service the debt requirements on the Senior Notes. 2. Responsibility for Interim Financial Statements The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could 17 PHOENIX ASSOCIATES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. Responsibility for Interim Financial Statements (continued) differ from those estimates. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. Certain 2000 amounts have been reclassified to conform to the 2001 presentation 18 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC BALANCE SHEETS (in thousands)

19 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC STATEMENTS OF OPERATIONS (unaudited) (in thousands) Three months ended March 31, 2001 2000 ---------------------------- Revenue $13,111 $11,535 Operating costs and expenses: Programming and other operating costs 5,091 4,912 Selling, general and administrative 2,527 2,179 Management fees 396 352 Depreciation and amortization 2,720 2,234 ------------------------ Total operating costs and expenses 10,734 9,677 Operating income 2,377 1,858 Other income (expense): Interest expense (502) (321) Interest income 15 18 Other 24 29 ------------------------ Total other expense, net (463) (274) Net income 1,914 1,584 Accrual of preferred interests (4,766) (4,627) ------------------------ Loss attributable to common interests $(2,852) $(3,043) ======================== 20 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC STATEMENTS OF CASH FLOWS (unaudited) (in thousands)

21 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. Organization Insight Communications of Central Ohio, LLC (the "Company") provides basic and expanded cable television services to homes in the eastern parts of Columbus, Ohio and surrounding areas. 2. Responsibility for Interim Financial Statements The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In management's opinion, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. Certain 2000 amounts have been reclassified to conform to the 2001 presentation. 22 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. Cable System Transactions On January 5, 2001, Insight Midwest, L.P. ("Insight Midwest"), a 50-50 partnership between Insight LP and an indirect subsidiary of AT&T Broadband, LLC, completed a series of transactions with Insight LP and certain subsidiaries of AT&T Corp. (the "AT&T Subsidiaries") for the acquisition of additional cable television systems valued at approximately $2.2 billion, including the common equity of the Company (the "AT&T Transactions"). As a result of the AT&T Transactions, Insight Midwest acquired all of Insight LP's wholly-owned systems serving approximately 280,000 customers, including the approximately 84,200 customers served by the Company and including systems which Insight LP purchased from the AT&T Subsidiaries. At the same time, Insight Midwest acquired from the AT&T Subsidiaries systems serving approximately 250,000 customers. The Company is prohibited by the terms of its indebtedness from making distributions to Insight Midwest. Insight Midwest remains equally owned by Insight LP and AT&T Broadband, and Insight LP continues to serve as the general partner of Insight Midwest and manages and operates the Insight Midwest systems. Although the financial results of the Company will be consolidated into Insight Midwest as a result of the AT&T Transactions, for financing purposes, the Company is an unrestricted subsidiary under the indentures of Insight Midwest and Insight Inc. The Company's conditional guarantee of the Senior Notes and the Senior Discount Notes remains in place. 23 INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. Commitments and Contingencies Litigation The Company is party in or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either the Company's future results of operations or financial position. 24 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and related notes which are included elsewhere in this report. Forward-Looking Statements This report contains "forward-looking statements," including statements containing the words "believes," "anticipates," "expects" and words of similar import, which concern, among other things, the operations, economic performance and financial condition of Insight Communications of Central Ohio, LLC ("Insight Ohio" or the "System"). All statements other than statements of historical fact included in this report regarding Coaxial LLC, Coaxial Financing Corp. and Insight Ohio or any of the transactions described in this report, including the timing, financing, strategies and effects of such transactions, are forward-looking statements. Such forward-looking statements are based upon a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of Coaxial 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: o the ability of Coaxial LLC and Coaxial Financing Corp. to make scheduled payments with respect to the Senior Discount Notes (as defined below) which is dependent upon the financial and operating performance of the System; o the fact that a substantial portion of the System's cash flow from operations is required to be dedicated to the payment of principal and interest on its indebtedness and the required distributions with respect to its Series A Preferred Interest and its Series B Preferred Interest, thereby reducing the funds available to the System for its operations and future business opportunities; o the fact that Coaxial 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 o the fact that 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 the System imposes restrictions on Insight Ohio. Coaxial LLC, Coaxial Financing Corp. and Insight Ohio do not intend to update these forward-looking statements. 25 Coaxial LLC and Coaxial Financing Corp. do not conduct any business and are dependent upon the cash flow of the System to meet their obligations under the Senior Discount Notes. Insight Communications Company, LP ("Insight LP") serves as the manager of the System. The following discussion relates to the operations of the System for the three months ended March 31, 2001 compared to the three months ended March 31, 2000. The financial statements of Insight Ohio are included in the consolidated financial statements of Coaxial through August 8, 2000. Coaxial is deemed to be a subsidiary of Coaxial LLC and, as such, the financial statements of Coaxial are included in the consolidated financial statements of Coaxial LLC. Therefore, the historical operating results of Coaxial LLC reflect the actual results of the System through August 8, 2000 in addition to certain financing activities unrelated to the operation of the System. These financing activities relate primarily to the offering of the Senior Discount Notes and 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 LLC appear elsewhere in this report under the heading "Coaxial LLC." Overview The System relies on Insight LP, for all of its strategic, managerial, financial and operational oversight and advice. Insight also centrally purchases programming and equipment and provides the associated discount to the System. In exchange for all such services provided to the System and subject to certain restrictions contained in the covenants with respect to Insight Ohio's Senior Credit Facility, the Senior Notes and the Senior Discount Notes, Insight LP is entitled to receive management fees of 3.0% of gross operating revenues of the System. Such management fee is payable only after distributions have been made in respect of the Preferred Interests and only to the extent that such payment would be permitted by an exception to the restricted payments covenants of the Senior Notes and the Senior Discount Notes as well as Insight Ohio's Senior Credit Facility. Such management fee is included in selling, general and administrative expenses. Recent Developments On January 5, 2001, Insight Midwest completed a series of transactions with Insight LP and certain subsidiaries of AT&T Corp. (the "AT&T Subsidiaries") for the acquisition of additional cable television systems, primarily located in the state of Illinois, valued at approximately $2.2 billion (the "AT&T Transactions"), inclusive of systems valued at approximately $775.8 million, contributed by Insight LP. The AT&T Transactions were financed through a credit facility established on January 5, 2001, the Midwest Holdings Credit Facility. As a result of the AT&T Transactions, Insight Midwest acquired all of Insight LP's wholly-owned systems serving approximately 280,000 customers, including approximately 84,200 customers served by the System and including systems which Insight LP purchased from the AT&T Subsidiaries. At the same time, Insight Midwest acquired from the AT&T Subsidiaries systems serving approximately 250,000 customers. Although the financial results of Insight Ohio are consolidated into Insight Midwest as a result of the AT&T Transactions, as noted above, for financing purposes, Insight Ohio is an unrestricted 26 subsidiary under the indentures of Insight Midwest. Insight Ohio's conditional guarantee of the Senior Notes and the Senior Discount Notes remains in place. Results of Operations Substantially all of the Systems revenues were earned from customer fees for cable television programming services including premium and pay-per-view services and ancillary services, such as rental of converters and remote control devices, installations and from selling advertising. In addition, we earn revenues from commissions for products sold through home shopping networks. The following table is derived for the periods presented from the System's financial statements that are included in this report and sets forth certain statement of operations data for the System. Three Months Ended March 31, 2001 2000 ------------------------------------ (in thousands) Revenue $ 13,111 $ 11,535 Operating costs and expenses: Programming and other operating costs 5,091 4,912 Selling, general and administrative 2,527 2,179 Management fees 396 352 Depreciation and amortization 2,720 2,234 ------------------------------------ Total operating costs and expenses 10,734 9,677 ------------------------------------ Operating income 2,377 1,858 Interest expense 502 321 Net income 1,914 1,584 Net cash provided by operating activities 2,420 6,479 Net cash used in investing activities 3,505 6,919 Net cash provided by financing activities 1,382 2,000 Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000. Revenues for the three months ended March 31, 2001 increased $1.6 million or 13.7% to $13.1 million compared with $11.5 million for the three months ended March 31, 2000. For the three months ended March 31, 2001, customers served averaged 85,674 compared with 84,253 during the three months ended March 31, 2000. The increase in revenues is primarily attributable to revenues generated from new product launches, specifically digital services and high speed data services. Partially offsetting these increases was a decrease in pay-per-view revenues. As of March 31, 2001, there were approximately 17,900 digital customers representing a 28.7% penetration (digital customers as a percentage of total customers with access to digital service). Digital revenue for the three months ended March 31, 2001 was approximately $897,000, (including approximately $329,000 for video on demand service) compared to $116,000 for the three months ended March 31, 2000. High-speed data services were launched during the three months ended June 30, 2000. As of March 31, 2001, there were approximately 7,500 cable 27 modem customers, a penetration of 5.2% (modem customers as a percentage of homes passed with access to high-speed data services). Revenues from high-speed data services were approximately $725,000 for the three months ended March 31, 2001. The service had not been launched as of March 31, 2000. Average monthly revenue per customer for the three months ended March 31, 2001 was $51.01 compared to $45.64 for the three months ended March 31, 2000. The combined average monthly revenue per basic customer for digital and high-speed data services totaled $6.31 for the three months ended March 31, 2001 versus $.46 for the three months ended March 31, 2000. Programming and other operating costs increased $179,000 or 3.6% to $5.1 million for the three months ended March 31, 2001 as compared to $4.9 million for the three months ended March 31, 2000. The increase was primarily attributable to increased programming rates associated with the digital services. Selling, general and administrative expenses increased $348,000 or 16.0% to $2.5 million for the three months ended March 31, 2001 as compared to $2.2 million for the three months ended March 31, 2000. The increase was primarily attributable to increased payroll and administrative costs associated with advertising. Depreciation and amortization expense for the three months ended March 31, 2001 increased $486,000 or 21.8% to $2.7 million as compared to $2.2 million for the three months ended March 31, 2000. This increase was primarily attributable to increased capital expenditures associated with the rebuild over past quarters. Interest expense for the three months ended March 31, 2001 increased $181,000 or 56.4% to $502,000 as compared to $321,000 for the three months ended March 31, 2000. This increase was primarily attributable to increased borrowings under the Senior Credit Facility. The outstanding borrowings increased to $25.0 million as of March 31, 2001 compared to $11.0 million as of March 31, 2000. Liquidity and Capital Resources The cable television business is a capital-intensive business that generally requires financing for the upgrade, expansion and maintenance of the technical infrastructure. Capital expenditures totaled $3.5 million for the three months ended March 31, 2001. These expenditures were primarily for the rebuild of cable plant and for serving new homes. Capital expenditures were financed by cash flows from operations and capital contributions. Insight continues to further enhance the technical platform of the System by upgrading the plant serving the majority of customers. The capability for high-speed data transmission, impulse pay-per-view, digital tiers of service and additional analog channels is intended to be provided by further deployment of fiber optics, an increase in the bandwidth to 870 MHz, activation of the reverse plant to allow two-way communications and the installation of digital equipment. Capital expenditures are expected to approximate $23.1 million during the year ending 28 December 31, 2001 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. Cash provided by operations for the three months ended March 31, 2001 and 2000 was $2.4 million and $6.5 million, respectively. The decrease was primarily attributable to the timing of payments against accounts payable balances. Cash used in investing activities for the three months ended March 31, 2001 and 2000 was $3.5 million and $6.9 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, 2001 was $1.4 million. This was comprised primarily of capital contributions of $8.4 million, less distributions on preferred interests of $7.0 million. Cash provided by financing activities for the three months ended March 31, 2000 was $2.0 million consisting primarily of borrowings under the Senior Credit Facility of $9.0 million, less distributions on preferred interests of $7.0 million. The $25.0 million Senior Credit Facility was fully borrowed as of March 31, 2001. 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, Insight Midwest has committed to provide capital contributions to fund cash requirements through the year ending December 31, 2001. Insight Midwest contributed $8.4 million to Insight Ohio during the three months ended March 31, 2001. 29 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. Insight Ohio's senior credit facility bears interest at floating rates. Accordingly, Insight Ohio is exposed to potential losses related to changes in interest rates. A hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase our projected annual interest expense by approximately $250,000 for the year ending December 31, 2001. The Senior Discount Notes issued by Coaxial LLC and Coaxial Financing Corp. and the Senior Notes issued by Coaxial and Phoenix bears interest at fixed rates. The fair value of borrowings under Insight Ohio's senior credit facility approximates carrying value as it bears interest at floating rates. The fair value and carrying value of the Senior Discount Notes as of March 31, 2001 was $40.4 million and $41.6 million, respectively. The fair value and carrying value of the Senior Notes applicable to Coaxial as of March 31, 2001 was $34.2 million and $34.4 million, respectively. The fair value and carrying value of the Senior Notes applicable to Phoenix as of March 31, 2001 was $104.8 million and $105.6 million, respectively. 30 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: We filed the following reports on Form 8-K during the three months ended March 31, 2001: Date Report Date of Report Filed with SEC Items Reported ---------------- ----------------- --------------------------------------------- January 5, 2001 January 22, 2001 Item 2 - Acquisition or Disposition of Assets Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits 31 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 ___, 2001 By: /s/ Michael S. Willner -------------------------- Michael S. Willner President and Chief Executive Officer Insight Communications Company, Inc. (Principal Executive Officer) By: /s/ Kim D. Kelly -------------------- Kim D. Kelly Executive Vice President, Chief Financial and Operating Officer Insight Communications Company, Inc. (Principal Financial and Accounting Officer) 32 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 ___, 2001 By: /s/ Michael S. Willner -------------------------- Michael S. Willner President and Chief Executive Officer Insight Communications Company, Inc. (Principal Executive Officer) 33 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 ___, 2001 By: /s/ Michael S. Willner -------------------------- Michael S. Willner President and Chief Executive Officer Insight Communications Company, Inc. (Principal Executive Officer) By: /s/ Kim D. Kelly -------------------- Kim D. Kelly Executive Vice President, Chief Financial and Operating Officer Insight Communications Company, Inc. Principal Financial and Accounting Officer) 34

COAXIAL LLC 10-Q