**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-K**

**AnnualReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934For the fiscal year ended December 31, 2006**

| **Commission file numbers**                                 | ** 333-33540** |
|-------------------------------------------------------------|---------------------|
| ** **                                                  |                | ** 333-33540-1** |
| **Insight Midwest, L.P.**                                   |
| **Insight  Capital, Inc.**                             |
| (Exact name of  registrants as specified in their charters) |
| **Delaware**                                                |                | **13-4079232** |
| **Delaware**                                                |                | **13-4079679** |
| (State or other  jurisdiction of                            |                | (I.R.S. Employer |
| incorporation or  organization)                             |                | Identification  Nos.) |
| **c/o Insight Communications Company, Inc.**           |
| **810  Seventh Avenue**                                     |
| **New  York, New York, 10019**                              |
| (Address of  principal executive offices)                   |

 

Registrants’ telephone number, including area code:  **(917) 286-2300**Securities registered pursuant to Section 12(b) of theExchange Act:  **None**Securities registered pursuant to Section 12(g) of theExchange Act:  **None**

Indicate by check mark ifany registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes  o  No  x

Indicate by check mark ifeach registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Exchange Act. Yes  x  No  o

Indicate by check markwhether each registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the preceding 12months (or for such shorter period that the registrants were required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes  o  No  x

(Note: As a voluntaryfiler, not subject to the filing requirements, the registrants filed allreports under Section 13 or 15(d) of the Exchange Act during thepreceding 12 months.)

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrants’knowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. Not Applicable

Indicateby check mark whether each registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

| Large accelerated filer  o | Accelerated  filer  o | Non-accelerated  filer  x |
|--------------------------------------|---------------------------------|-------------------------------------|

 

Indicate by check markwhether any registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes  o  No  x

State the aggregate marketvalue of the voting and non-voting common equity held by non-affiliates of theregistrants:  Not Applicable

Indicate the number ofshares outstanding of the registrants’ common stock:  Not Applicable

 

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**Table of Contents**

|                | ** ** | ** **                                                                                                          | ** ** | **Page** | ** ** |
|----------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
|           | ** ** | **PART I**                                                                                                     |       |     |       |   |   |
| Item 1.        |       | Business                                                                                                            |       |     | 1          |   |   |
| Item 1A.       |       | Risk Factors                                                                                                        |       |     | 27         |   |   |
| Item 1B        |       | Unresolved Staff  Comments                                                                                          |       |     | 30         |   |   |
| Item 2.        |       | Properties                                                                                                          |       |     | 30         |   |   |
| Item 3.        |       | Legal Proceedings                                                                                                   |       |     | 30         |   |   |
| Item 4.        |       | Submission of  Matters to a Vote of Security Holders                                                                |       |     | 31         |   |   |
|           | ** ** | **PART II**                                                                                                    |       |     |       |   |   |
| Item 5.        |       | Market for  Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |       |     | 32         |   |   |
| Item 6.        |       | Selected Financial  Data                                                                                            |       |     | 32         |   |   |
| Item 7.        |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       |     | 34         |   |   |
| Item 7A.       |       | Quantitative  and Qualitative Disclosures About Market Risk                                                         |       |     | 43         |   |   |
| Item 8.        |       | Financial  Statements and Supplementary Data                                                                        |       |     | 44         |   |   |
| Item 9.        |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               |       |     | 44         |   |   |
| Item 9A.       |       | Controls and  Procedures                                                                                            |       |     | 44         |   |   |
| Item 9B.       |       | Other Information                                                                                                   |       |     | 44         |   |   |
|           | ** ** | **PART III**                                                                                                   |       |     |       |   |   |
| Item 10.       |       | Directors,  Executive Officers and Corporate Governance                                                             |       |     | 45         |   |   |
| Item 11.       |       | Executive  Compensation                                                                                             |       |     | 47         |   |   |
| Item 12.       |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |       |     | 47         |   |   |
| Item 13.       |       | Certain  Relationships and Related Transactions, and Director Independence                                          |       |     | 48         |   |   |
| Item 14.       |       | Principal  Accountant Fees and Services                                                                             |       |     | 49         |   |   |
|           | ** ** | **PART IV**                                                                                                    |       |     |       |   |   |
| Item 15.       |       | Exhibits and  Financial Statement Schedules                                                                         |       |     | 50         |   |   |
| **SIGNATURES** |       |                                                                                                                |       |     |       |

 

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**CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING INFORMATION**

This annual reporton Form 10-K contains certain forward-looking statements withrespect to the financial condition, results of operations, plans, objectives,future performance and business of our company, including, without limitation,statements preceded by, followed by or that include the words “believes,” “expects,”“anticipates,” “estimates” or similar expressions. We believe it is importantto communicate management’s expectations. However, there may be events in thefuture that we are not able to accurately predict or over which we have nocontrol. The risk factors listed in this annual report under Item 1A, as wellas any other cautionary language in this report, provide examples of risks, uncertaintiesand events that may cause our actual results to differ materially from theexpectations we describe in our forward-looking statements. You should be awarethat the occurrence of the events described in these risk factors and elsewherein this report could have a material adverse effect on our business, operatingresults and financial condition. Examples of these risks include:

·       Allof the services offered by our company face a wide range of competition thatcould adversely affect our future results of operations;

·       Wehave substantial debt and have significant interest payment requirements, whichmay adversely affect our ability to obtain financing in the future to financeour operations and our ability to react to changes in our business;

·       Thereis uncertainty surrounding our potential dissolution, the process for which maybe triggered by either of our partners;

·       Theterms of Insight Midwest Holdings’ credit facility may limit our ability toaccess the cash flow of our subsidiaries;

·       Ourprogramming costs are substantial, and they are expected to increase; and

·       Generalbusiness conditions, economic uncertainty or slowdown, and the effects ofgovernmental regulation could adversely affect our future results ofoperations.

We do not undertakeany obligation to publicly update or release any revisions to theseforward-looking statements to reflect events or circumstances after the datethat this report is filed with the SEC or to reflect the occurrence ofunanticipated events, except as required by law.

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**PART I**

**Item 1.**                        Business

In this report, we rely onand refer to information and statistics regarding the cable television industryand our market share in the sectors in which we compete. We obtained thisinformation and statistics from various third-party sources, discussions withour customers and our own internal estimates. We believe that these sources andestimates are reliable, but we have not independently verified them and cannotguarantee their accuracy or completeness.

**Our Manager**

Our manager, InsightCommunications Company, Inc., is the ninth largest cable operator in theUnited States based on customers served. As of December 31, 2006, InsightCommunications had over 1.4 million customer relationships. InsightCommunications’ customers are concentrated in the four contiguous states ofIndiana, Kentucky, Illinois and Ohio. Our manager offers its customers bundled,state-of-the-art video, voice and data services, including high-definitiontelevision, digital video recorders, video-on-demand, subscriptionvideo-on-demand, two tiers of high-speed Internet access service, and voicetelephony.

**Insight Midwest**

We are a limited partnership owned 50% by our managerand 50% by an indirect subsidiary of Comcast Cable Holdings, LLC, which is asubsidiary of Comcast Corporation, the largest cable operator in the UnitedStates. Our partnershipagreement provides that  either partnerhas the right to commence a split-up process with respect to the partnership bygiving notice to the other partner. To date, neither partner has delivered suchnotice.

Our principal offices arelocated at c/o Insight Communications Company, Inc., 810 Seventh Avenue,New York, New York 10019, and our telephone number is (917) 286-2300.

**Insight Capital, Inc.**

Insight Capital, Inc.,a Delaware corporation, was formed on September 23, 1999, for the solepurpose of being a co-issuer with Insight Midwest of senior notes which allowscertain investors the ability to be holders of the debt. Insight Capital has nooperations. The outstanding shares of Insight Capital are owned by InsightMidwest.

**Strategy**

Our strategy is to be afull-service provider of entertainment, information and communicationsservices. This strategy is centered on offering attractive products andservices that will be valued by our customers, and providing the highest levelof customer service. We focus on building strong relationships within thecommunities in which we operate. We believe that our local presence andrelationships with our communities and customers distinguishes us from ourcompetitors and results in higher customer satisfaction. In addition, we intendto continue to leverage the capacity and capability of our upgraded broadbandnetwork to develop new and enhanced products and services for our customers.

***Deliver excellent customer service and enhancecommunity relations***

We seek to secure a high level of customersatisfaction by managing local customer care units, staffed by professionalsfamiliar with the communities they serve; using market research to determinecustomer needs and priorities and by providing customers with an attractivelypriced product offering. A significant number of our customers visit theirlocal office on a monthly basis, providing us the opportunity to 

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demonstrate and sell ournew and enhanced products and services. We believe that these distinctmarketing and promotion opportunities are effective sales channels, providing acompetitive advantage as well as building customer loyalty.

We believe that ourcommitment to the communities in which we operate enhances our ability toattract and retain customers and fosters excellent franchise relationships. Weare dedicated to building and sustaining strong community relations byproviding valuable in-kind services and promotional opportunities to an arrayof local charities and organizations. We also support the cable industry’sCable in the Classroom initiative and provide free cable and high-speedInternet access to local schools. To further strengthen our bond with ourcommunities and differentiate ourselves from other multichannel videoproviders, we provide locally produced and oriented programming.

***Focus on operating large, tightly-grouped clusters ofcable systems in markets with attractive demographic profiles***

In addition to its geographic concentration, ourcommunications network is tightly-grouped, or “clustered”. As a result,the amount of capital necessary to deploy new and enhanced products andservices is significantly reduced on a per home basis. We believe that thehighly clustered nature of our systems also enables us to more efficientlydeploy our marketing dollars and maximizes our ability to enhance customerawareness, increase use of our products and services and build brand support.

Our geographic concentration enables our localmanagement teams to focus on the customer experience within their communities.We believe that the deployment of these local resources and our local expertiseprovides us with an advantage over our competitors, and is a key component ofour operating strategy.

Many communities we serveare characterized by good housing growth, higher than average household incomeand low unemployment, and many are home to large universities and majorcommercial enterprises. We believe that the demographic profile of our communitiesmake them attractive markets for our existing and new products.

***Leverage advanced broadband network to offer bundledservices and introduce new and enhanced products***

Our advanced broadband network provides significantcapacity and the flexibility to offer our customers an array of products andservices. The capacity ofa cable system to offer products and services is determined by its bandwidth. Asof December 31, 2006, we estimate that over 98% of our customers werepassed by our upgraded network, with abandwidth capacity of 750 megahertz (MHz) or greater. At the end of 2006,digital cable was available to 95% of basic customers passed by our broadbandnetwork, high-speed Internet was available to 99% of homes passed and telephoneservice was available to 56% of homes passed.

Our marketing strategy isto offer our customers an array of entertainment, information andcommunications services on a bundled basis. A bundled customer is one who subscribes totwo or more of our primary services (video, high-speed Internet access andtelephone). Where available, all of our services are offered on a bundledbasis, supported by a single, integrated back-office platform, which allows ourcustomers to make one call to a single customer service representative regardingany and all of their services and to receive a single bill for all services ifthey choose. By bundling our products and services, we provide ourcustomers with increased choice in value-added packages, which we believeresults in higher customer satisfaction, increased use of our services andgreater customer retention.

**Technical Overview**

We believe that in order to achieve consistently highlevels of customer service, reduce operating costs, maintain a strongcompetitive position and deploy important new technologies, we need to maintain

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a state-of-the-arttechnical platform. The deployment of fiber optic cable which has a capacityfor a very large number of channels, the increase in the bandwidth to 750 MHzor higher, the activation of a two-way communications network and theinstallation of digital equipment allows us to deliver new and enhancedproducts and services, including interactive digital video, high-speed Internetservices and telephone services.

As of December 31, 2006, our systems werecomprised of approximately 31,300 network miles serving over 1.3 million basicvideo customers and passing approximately 2.5 million homes resulting in adensity of approximately 79 homes per mile. As of that date, our systems weremade up of an aggregate of 23 headends. As of December 31, 2006, weestimate that approximately 98% of our customers were passed by our upgradednetwork.

Our network design calls for an analog and digitaltwo-way active network with fiber optic cable carrying signals from the headendto the distribution point within our customers’ neighborhoods. The signals aretransferred to our coaxial cable network at the node for delivery to ourcustomers. We have designed the fiber system to be capable of subdividing thenodes if traffic on the network requires additional capacity.

We believe that active use of fiber optic technologyas a supplement to coaxial cable plays a major role in expanding channelcapacity and improving the performance of our systems. Fiber optic strands arecapable of carrying hundreds of video, data and voice channels over extendeddistances without the extensive signal amplification typically required forcoaxial cable. We will continue to deploy fiber optic cable to further reduceamplifier cascades while improving picture quality and system reliability.

A direct result of this extensive use of fiber opticsis an improvement in picture quality and a reduction of outages because systemfailures will be both significantly reduced and will impact far fewer customerswhen they do occur. Our design allows our systems to have the capability to runmultiple separate channel line-ups from a single headend and to insert targetedadvertisements into specific neighborhoods.

We are improving thereliability of telephone services by implementing standby powering and statusmonitoring on our local network as telephone services are deployed in oursystems. The existing commercial power structure deployed in cable networks issubject to potential disruptions in local power utility service. Standby powerprovides battery back-up for a limited duration, thereby making both telephoneservices and other products and services delivered over our local network morereliable. Status monitoring will enable us to monitor key components of ourlocal network so that we can help reduce and diagnose problems affecting theperformance of our local network.

**Products andServices**

We offer our customers a full array of traditionalcable television services and programming offerings. We tailor both our basicline-up and our additional channel offerings to each regional system inresponse to demographics, programming preferences, competition and localregulation. We offer a basic level of service which includes up to 33 channelsof television programming. As of December 31, 2006, approximately 91% ofour basic customers chose to pay an additional amount to receive additionalchannels under our “Classic” or “expanded” service.

As network upgrades wereactivated, we deployed new and enhanced products and services in substantiallyall of our markets, including interactive digital video and high-speed Internetservices. In addition, we are offering telephone services to our customers in amajority of our markets.

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***Analog Video***

Our analog cabletelevision service offering includes the following:

·                    *Basic Service.* All of our video customersreceive the basic level of service, which generally consists of over-the-airlocal broadcast television and local community programming, includinggovernment and public access, and may include a limited number ofsatellite-delivered channels.

·                    *Classic Service or Expanded Service.* Thisexpanded level of service includes a group of satellite-delivered ornon-broadcast channels such as ESPN, CNN, Discovery Channel and Lifetime.

***Interactive Digital Video***

The implementation of interactive digital technologysignificantly enhances and expands the video and service offerings we provideto our customers. Because of the significantly increased bandwidth and two-waytransmission capability of our state-of-the-art technical platform, we havedesigned a more extensive digital product that is rich in attractive featuresand provides customers with a high degree of interactive capability. Ourinteractive digital service is designed to exploit the advantages of abroadband network using the existing generation of set-top devices.

We are packagingour digital service under the “Insight Digital” brand, which includes thefollowing features:

·                    adigital set-top box and remote control

·                    a40-channel digital audio music service

·                    aninteractive program guide for all analog and digital channels andvideo-on-demand programming

·                    accessto a significant number of additional programming channels in various packagessold for an additional charge

·                    accessto extensive video-on-demand programming, including movies and free programmingfrom a number of cable networks

·                    accessto high-definition programming content from local broadcasters and certaincable programmers (which may require an upgrade to a high-definition digitalset-top box and an additional charge for certain programming)

·                    digitalvideo recorder capability (which requires an upgrade to a digital videorecorder set-top box and an additional charge)

·                    accessto multichannel premium services, including in many cases subscriptionvideo-on-demand, for customers who separately subscribe to premium channelssuch as HBO and Showtime

In the fall of 2006, we launched “Insight Digital 2.0,”the first in a planned series of upgrades to our Insight Digital service. Thisupgrade introduced a comprehensive theme-based lineup of digital channels,organizing channels in a manner that makes it easier for customers to find whatthey want to watch. Grouping channels with the same theme also introduces ourcustomers to new channels they may not have previously noticed and allowscustomers to recognize the robust nature of our digital offering. As part ofthe upgrade, we added a significant number of new digital channels in newlyrepackaged digital programming offerings.

We offer a high-definition programming serviceconsisting of broadcast networks and premium channels. We expanded our offeringof high-definition premium channels in connection with our launch of Insight Digital 2.0. Digital customers withhigh-definition television (HDTV) sets can receive any 

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high-definitionprogramming that is available from local broadcasters. HDTV customers who haveHBO or Showtime would receive any HDTV programs available from these networksas well. We believe that offering HDTV programming from local broadcasters putsus in a favorable competitive position with the direct broadcast satellitetelevision distributors which have limited HDTV programming due to capacityrestrictions.

For an additional monthly charge over our InsightDigital price, we offer a single digital set-top box which integrates ourexisting HDTV programming and video-on-demand services with a new digital videorecorder (DVR) service. These advanced services are supported by Gemstar-TVGuide’s interactive program guide.

Our digital customers areserved by a video-on-demand (VOD) infrastructure provided by SeaChangeInternational, Inc. Customers receive the movies electronically over thenetwork and have full VCR functionality, including pause, play, fast forwardand rewind. The movies are delivered with a high quality digital picture anddigital sound. Our video-on-demand product is designed to provide movies atprices comparable to those charged for videotape rentals, pay-per-view and nearvideo-on-demand movies, but with far greater convenience and functionality.Additionally, customers who subscribe to premium services, such as HBO andShowtime, can access selected movies and original programming from thesenetworks at no additional cost to their regular monthly premium channel feeutilizing our video-on-demand system. Insight’s video-on-demand system alsoprovides free content from certain cable networks including the NFL Network,Food Network, DIY Network and the National Geographic Channel to any digitalcustomer with VOD access.As part of the upgrade of our digital service to Insight Digital 2.0, we addeda significant number of new video-on-demand titles, many of which are free. Asof December 31, 2006, digital service was available to 95% of basiccustomers passed by our broadband network, with nearly 100% of our digitalcustomer base having access to video-on-demand services.

***High-Speed Internet***

We offer high-speed Internet service for all of ourupgraded systems through our own regional network branded “Insight Broadband,”except for our Columbus, Ohio system, which utilizes the RoadRunner service.During the second quarter of 2006, we undertook an upgrade of our Internetservice which required us to migrate all of our Insight Broadband customers toa new, in-house network. In connection with the transition, we have acquiredand established our own technical platform to independently provision newcustomers, manage IP addresses, provide e-mail and personal web pages, as wellas manage IP transit and peering with other Internet service providers. Thistransition has enabled us to more efficiently provision and manage our Internetservice and deliver a more reliable product with enhanced features andfunctions to our customers.  As of December 31,2006, high-speed Internet services were available to approximately 2.4 millionof our homes passed and served approximately 611,200 of our customers.

The broad bandwidth of ourcable network enables data to be transmitted significantly faster thantraditional telephone-based modem technologies, and the cable connection doesnot interfere with normal telephone activity or usage. For example, cable’son-line customers can download large files from the Internet in a fraction ofthe time it takes when using any widely available telephone modem technology.Moreover, surfing the Internet on a high-speed network removes the long delaysfor Web pages to fully appear on the computer screen, allowing theexperience to more closely approximate the responsiveness of changing channelson a television set. In addition, the cable modem is always on and does notrequire the customer to dial into an Internet service provider and awaitauthorization. In November 2006, Insight Broadband was enhanced to deliverdownstream speeds of up to ten megabits per second and upstream speeds of up toone megabit per second. We have rebranded our service to reflect the enhancedspeed as “Insight Broadband 10.0.”

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***Telephone Services***

Under the “Insight Phone”and “Insight Phone 2.0” brands, as of December 31, 2006, telephoneservices were available in a majority of our markets, with a total ofapproximately 1,392,700 marketable homes passed, and approximately 123,400customers. Our telephone services enable us to offer our customers a bundle ofvideo, high-speed data and voice services. With our telephone offerings, weprovide unlimited local and long distance calling as well as popular callingfeatures such as voice mail, caller ID, *69, call waiting, three-way callingand call forwarding.

**Business Backgroundof Our Manager**

Insight Communications was co-founded in 1985 as alimited partnership under the name Insight Communications Company, L.P. bySidney R. Knafel and Michael S. Willner after a previous association with oneanother at Vision Cable Communications where Mr. Knafel was co-founder andChairman and Mr. Willner held various operating positions, ultimatelyholding the position of Executive Vice President and Chief Operating Officer.Vision Cable was sold to The Newhouse Group Inc. in 1981 and Mr. Willner remainedthere to run the cable operations until 1985 when he and Mr. Knafel formedInsight Communications.

In addition to many years of conventional cabletelevision experience, Insight Communications’ management team has beeninvolved in the development and deployment of full service communicationsnetworks since 1989. Through a then related entity, Insight CommunicationsCompany UK, L.P., Insight Communications’ management and related partiesentered the cable television market in the United Kingdom, where today modernnetworks are widely deployed.

As a result of its management’s British experience,Insight Communications recognized that the technology and products developed inthe United Kingdom would migrate to the United States in similar form. InsightCommunications focused on planning to upgrade our network promptly after itbecame clear that the 1996 Telecom Act would encourage competition in thecommunications industries. Insight Communications understood, however, that thenew products and services available with new technology were best deployed inmarkets which provided for efficiencies for branding and technical investment.Insight Communications’ original acquisition strategy, which focused oncustomer growth, was very successful. However, Insight Communications’management team recognized the opportunity to evolve from our role as a cabletelevision operator providing only home video entertainment into a full servicealternative communications network providing not only standard video services, butalso interactive digital video, high-speed Internet access and communicationsproducts and services.

Recognizing the opportunities presented by newlyavailable products and services and favorable changes in the regulatoryenvironment, Insight Communications executed a series of asset swaps,acquisitions and entered into several joint ventures that resulted in itscurrent composition. The largest of these transactions were the 50/50 jointventures formed with Comcast Cable (formerly known as AT&T Broadband) andits affiliates in October 1998 with respect to the Indiana systems, in October 1999with respect to the Kentucky systems and on January 5, 2001 with respectto the Illinois systems. As of December 31, 1997, Insight Communications’systems had approximately 180,000 customers with the two largest concentrationsin Utah and Indiana, which together represented less than half of itscustomers. Insight Communications believes that it has successfully transformedits assets so that it currently owns, operates and manages a cable televisionnetwork with over 1.4 million customer relationships, all of which areclustered in the contiguous states of Indiana, Kentucky, Illinois and Ohio.Insight Communications’ current assets are reflective of its strategy to ownsystems that have high ratios of customers to headends.

In July 1999, InsightCommunications consummated an initial public offering of 26,450,000 shares ofits Class A common stock, raising an aggregate of approximately $650.0million. In December 2005,Insight Communications completed a going-private merger with InsightAcquisition Corp., an entity organized by 

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certain affiliates of The Carlyle Group. Thetransaction resulted in Insight Communications becoming a privately-heldcorporation.

**Our Systems**

As of December 31, 2006, we had over 1.4 millioncustomer relationships. Our customers are concentrated in the four contiguousstates of Indiana, Kentucky, Illinois and Ohio. Our systems form three regionalclusters: the East Region, the West Region and the South Region. We are thelargest operator of cable systems in Kentucky and the second-largest in bothIndiana and Illinois.

We are able to realize significant operationalsynergies due to the size of the clusters in these states and the geographicproximity of all of our systems. In all of our systems, we have substantiallycompleted upgrading our system infrastructure to enable us to deliver newtechnologies, products and services to provide our customers with greater valueand choices in the face of growing competition. As network upgrades wereactivated, we deployed new and enhanced products and services in substantiallyall of our markets, including interactive digital video and high-speed Internetservices. In addition, we are offering telephone services to our customers in amajority of our markets.

Our highly clusteredsystems enable us to (a) more efficiently invest our marketing dollars andmaximize our brand awareness, (b) more economically introduce new andenhanced services, (c) more effectively manage our operations; and (d) reduceour overall operating and maintenance costs as a result of our ability todeploy fiber and reduce the number of headends we use throughout our systems.As a result, we believe we are able to achieve improved operating performanceon both a combined and system-wide basis. Our relationship with Comcast Cableprovides us with substantial purchasing economies for both our programming andhardware needs.

***The East Region***

As of December 31,2006, the East Region passed approximately 854,400 homes and servedapproximately 436,100 customers. The East Region, comprised of systems locatedwithin the States of Indiana, Kentucky and Ohio, is organized in six managementdistricts:

*The CentralDistrict*

As of December 31,2006, the Central District passed approximately 151,500 homes and servedapproximately 82,500 customers, principally in the community of Bloomington.The City of Bloomington, located 45 miles south of Indianapolis, is the home ofIndiana University. Besides the University, major employers include BaxterPharmaceutical, Bloomington Hospital, Cook Incorporated and General Electric.

*The SouthwestDistrict*

As of December 31, 2006, the Southwest Districtpassed approximately 130,100 homes and served approximately 61,000 customers,principally in the communities of Evansville, Boonville, Mt. Vernon, Princetonand Jasper, Indiana, as well as Henderson, Kentucky. Major employers includeAlcoa, Whirlpool and Bristol-Myers Squibb.

WideOpenWest overbuilds our cable network in the Cityof Evansville, providing cable television, high-speed Internet and telephoneservices in the City of Evansville and neighboring areas.

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*The LexingtonDistrict*

As of December 31,2006, the Lexington District passed approximately 147,700 homes and servedapproximately 87,200 customers from a single headend. Lexington is Kentucky’ssecond largest city, located in the central part of the state. Major employersin the Lexington area include the University of Kentucky, Toyota and LexmarkInternational.

*The NorthernKentucky District*

As of December 31,2006, the Northern Kentucky District passed approximately 160,000 homes andserved approximately 85,000 customers from a single headend primarily in theCity of Edgewood. Covington is Kentucky’s fifth largest city. Major employersin the Covington area include Delta Airlines, Toyota, Citicorp, Ashland, Inc.,Fidelity Investments, BICC General Cable Corporation, Omnicare, COMAIR, LevisStrauss, Gap, Inc., Mazak Corp., R.A. Jones, Inc. and Ticona.

*The Bowling GreenDistrict*

As of December 31,2006, the Bowling Green District passed approximately 40,200 homes and servedapproximately 26,000 customers from a single headend. Bowling Green is located120 miles south of Louisville, 110 miles southwest of Lexington and 70 milesnorth of Nashville, Tennessee. Bowling Green is the fourth largest city inKentucky and is the home of Western Kentucky University. Major employers in theBowling Green area include General Motors, Fruit of the Loom, CommonwealthHealth Corporation, DESA International and Houchens Industries.

*The ColumbusDistrict*

As of December 31, 2006, the Columbus Districtpassed approximately 224,900 homes and served approximately 94,400 customersfrom a single headend. The District serves the eastern portion of the City ofColumbus and adjacent suburban communities within eastern Franklin County andthe contiguous counties of Delaware, Licking, Fairfield and Pickaway. The Cityof Columbus is the 34th largest designated market area, the capital of Ohio andthe home of Ohio State University. In addition to the state government anduniversity, the Columbus economy is well diversified with the significantpresence of prominent companies such as The Limited, Merck, Wendy’s, NationwideInsurance, JP Morgan Chase Bank and Worthington Industries. In addition, theColumbus District provides exclusive local sports and entertainmentprogramming, featuring a variety of sporting events from area high schools andthe Ohio State University to Columbus Clippers baseball and Columbus Crew majorleague soccer.

In 1996, Ameritechobtained a citywide cable television franchise for the City of Columbus andmost other suburban communities in Franklin County. WideOpenWest acquired theassets of Ameritech in December 2001, and has built its system, both inour service area and in the Time Warner service area on the west side ofColumbus.

***The West Region***

As of December 31,2006, the West Region passed approximately 1,041,400 homes and servedapproximately 601,000 customers. The West Region, comprised of systems locatedwithin the States of Indiana and Illinois, is organized in seven managementdistricts:

*The NorthwestDistrict*

As of December 31,2006, the Northwest District passed approximately 110,200 homes and servedapproximately 69,500 customers, principally in the communities of Lafayette andKokomo. The City of Lafayette is the home of Purdue University. Besides PurdueUniversity, major employers for Lafayette and 

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Kokomoinclude Eli Lilly, Subaru, Caterpillar, Great Lakes Chemical, Lafayette LifeInsurance, Delphi Electronics and Chrysler.

*The NortheastDistrict*

As of December 31,2006, the Northeast District passed approximately 215,400 homes and servedapproximately 119,700 customers in Richmond as well as in the suburbancommunities near Indianapolis, including Noblesville, and extending north toAnderson and east to Richmond, Indiana. Indianapolis is the state capital of Indianaand is the twelfth largest city in the United States. Major employers includeGeneral Motors, Eli Lilly, Sallie Mae, Roche, Bridgestone/Firestone andAnderson University.

*The NorthernIllinois District*

As of December 31,2006, the Northern Illinois District, which is comprised of Rockford and Dixon,Illinois, passed approximately 210,200 homes and served approximately 118,800customers. Rockford is Illinois’ second largest city. Major employers in theRockford metropolitan area include Chrysler Corporation, Rockford HealthSystem, Sundstrand Corporation and Swedish American Health Systems. Dixoncustomers are principally in the communities of Rock Falls, Peru and Dixon.Dixon is located in the north/central part of the State of Illinois. Major employersin the Dixon area include the State of Illinois, Raynor Manufacturing Companyand Borg Warner Automotive.

*The Peoria District*

As of December 31,2006, the Peoria District passed approximately 209,200 homes and servedapproximately 126,500 customers, principally in the communities of Bloomingtonand Peoria, Illinois. Bloomington is located in the north central part of thestate. The Bloomington system is home to Illinois State University with closeto 20,500 students and Illinois Wesleyan University with over 2,100 students.The major employers in Bloomington are State Farm Insurance and MitsubishiMotor Company of America. Peoria is the fifth largest city in Illinois, locatedin the north central part of the state. The Peoria system is home to Bradley University.Major employers in the Peoria area include the world headquarters ofCaterpillar. Peoria is the regional medical center in the State of Illinoisoutside Chicago. With the University of Illinois College of Medicine and fourrecognized hospitals within the city limits, Peoria ranks high on the list ofthose cities offering superior health care.

*The SpringfieldDistrict*

As of December 31,2006, the Springfield District passed approximately 148,400 homes and servedapproximately 88,300 customers, principally in the communities of Decatur andSpringfield. Springfield is the capital of Illinois and the sixth largest cityin the state, located in the central part of the state. The major employer inthe Springfield area is the State of Illinois.

*The Quincy District*

As of December 31,2006, the Quincy District passed approximately 45,400 homes and servedapproximately 24,200 customers. spread out over a rural four-county area in farWestern Illinois, including Canton and Macomb. Quincy major employers includeHarris Broadcast Corporation, ADM Corporation, Knapheide, Blessing Hospital andQuincy University. Macomb is the home of Western Illinois University with about12,000 students. Other major employers in Macomb include NTN Bower, McDonoughDistrict Hospital and Pella. Canton has one major employer, Graham Hospital,and is a bedroom community to Peoria, Illinois.

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*The ChampaignDistrict*

As of December 31,2006, the Champaign District passed approximately 102,600 homes and servedapproximately 54,000 customers. Champaign/Urbana is located in the easterncentral part of the state. The Champaign District is home to the University ofIllinois with approximately 43,000 students. Major employers in the Champaignand Urbana areas include the University of Illinois, Kraft Foods and the CarleClinic Association.

***The South Region***

As of December 31,2006, the South Region passed approximately 569,400 homes and servedapproximately 285,700 customers, principally in the City of Louisville,Kentucky. This region includes approximately 95,400 homes passed andapproximately 43,700 customers served by the Scottsburg, Jeffersonville and NewAlbany, Indiana systems which are operated by the management of the Louisville,Kentucky system. Louisville is the 16th largest city in the United States and isKentucky’s largest city. It is located in the northern region of the state,bordering Indiana. Louisville is located within a day’s drive of nearly 50% ofthe United States population, which makes it an important crossroads for tradeand business. Major employers in the Louisville metropolitan area includeHumana, UPS, General Electric and Ford.

**Sales and Marketing**

Our strategy is to improve customer satisfaction andreduce churn in addition to selling video, high-speed Internet and telephoneservices to our customers and potential customers, thereby increasing marketshare. Customers who purchase more than one service may, in some cases, beeligible for a bundled discount. We regularly use targeted campaigns to sellthe appropriate services to both our existing and our potential customer base.Our customer service representatives are trained and given the support to usetheir daily contacts with customers as opportunities to sell them additionalservices.

Due to the nature of the communities we serve, we areable to market our services in ways not typically used by urban cableoperators. We can market products and services to our customers at our localoffices where many of our customers pay their monthly cable bills in person.Examples of our in-store marketing include the promotion of premium services aswell as point-of-purchase demonstrations that will allow customers toexperience our high-speed Internet service and interactive digital products. Weaggressively promote our services utilizing both broad and targeted marketingtactics, including outdoor billboards, retail partnerships, including Best Buyand H.H. Gregg, direct mail, cross-channel promotion, print and broadcast. Wealso employ other marketing tactics such as door-to-door sales and outboundmarketing.

We build awareness of the “Insight”brand through advertising campaigns and strong community relations. As a resultof our branding efforts and consistent service standards, we believe we havedeveloped a reputation for quality and reliability. We also believe that ourmarketing strategies are particularly effective due to our regional clusteringand market significance, which enables us to reach a greater number of bothcurrent and potential customers in an efficient, uniform manner.

**ProgrammingSuppliers**

Most cable companies purchase their programmingproduct directly from the program networks by entering into a contractualrelationship with the program supplier. The vast majority of these programsuppliers offer the cable operator license fee rate cards with size-basedvolume discounts and other financial incentives, such as launch and marketingsupport.

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Currently there are over 180 cable networks competingfor carriage on our analog and digital platforms. We have continued to leverageboth our systems’ channel capacity and newly deployed digital servicesincluding video-on-demand as an incentive to our suppliers to secure long termprogramming deals with reasonable price structures to offset license feeincreases.

Because of our relationship with Comcast Cable, wehave the right to purchase certain programming services for our systemsdirectly through Comcast Cable’s programming supplier Satellite Services, Inc.We believe that Satellite Services has attractive programming costs.

Under the terms of ourpartnership agreement, our manager and Comcast Cable are each required to usecommercially reasonable efforts to extend to us all of the programmingdiscounts available to them. Accordingly, we should benefit from both theexisting Satellite Services arrangement as well as additional discountsavailable to Comcast Cable. However, we cannot predict with certainty whenthese benefits will occur, or the extent to which they actually will beachieved.

**Commitment toCommunity Relations**

We believe that maintaining strong community relationswill continue to be an important factor in ensuring our long-term success. Ourcommunity-oriented initiatives include educational programs and the sponsorshipof programs and events recognizing local citizens and supporting localcharitable organizations. In addition, members of our management team hostcommunity events for political and business leaders as well as representativesof the local media, where they discuss our operations, recent enhancements toour service and recent developments in the telecommunications industry. We havereceived numerous awards recognizing our ongoing community relations, and webelieve that such initiatives result in consumer and governmental goodwill andname recognition, increasing customer loyalty and likely facilitating anyfuture efforts to provide new communications services.

We encourage all of our local management teams to takeleadership roles in community and civic activities. Over the years, our systemshave received various forms of recognition for their support of local causesand charities as well as their sponsorship of programs that improve the qualityof life in the communities they serve.

We provide ongoing support for Cable in the Classroom,an industry initiative that earns recognition both locally and nationally forits efforts in furthering the education of students. We further underscore ourcommitment to education by offering high-speed Internet access to accreditedschools in our service area, building upon the cable industry’s pledge toprovide free high-speed Internet access to eligible local schools and publiclibraries. We offer students and teachers the resources of broadband contentand robust cable programming to enrich the learning experience.

One of the advantages alocal cable operator has over nationally distributed competitors is its abilityto develop local programming. To further strengthen community relations anddifferentiate us from direct broadcast satellite television systems and othermultichannel video providers, we provide locally produced and orientedprogramming. Several of our systems have full production capabilities, within-house and/or studios to create local content. We offer a broad range oflocal programming alternatives, including community information, localgovernment proceedings and local specialty interest shows. In some of ourmarkets, we are the exclusive broadcaster of local college and high schoolsporting events, which we believe provides unique programming and buildscustomer loyalty. We believe that our emphasis on local programming createssignificant opportunities for increased advertising revenues.

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**Franchises**

Cable televisionsystems are constructed and operated under fixed-term non-exclusive franchisesor other types of operating authorizations that are granted by either localgovernmental or centralized state authorities. These franchises typicallycontain many conditions, such as:

·                    Timelimitations on commencement and completion of construction of the cablenetwork;

·                    Conditionsof service, including the number of channels, the provision of free service toschools and other public institutions;

·                    Themaintenance of insurance and indemnity bonds; and

·                    Thepayment of fees to communities.

As of December 31, 2006, we held authorizationsto provide cable service to 547 local governmental entities in the aggregate,consisting of 201 in Indiana, 192 in Kentucky, 125 in Illinois and 29 in Ohio.Many of these authorizations require the payment of fees to a designatedauthority of 3% to 5% of gross revenues, as defined by each authorization, fromthe related local government area. We operate our Indiana cable televisionsystems pursuant to authorization under a state-issued franchise.

The Communications Act of 1934 prohibits franchisingauthorities from imposing annual franchise fees in excess of 5% of gross annualrevenues from the provision of cable services and also permits the cabletelevision system operator to seek renegotiation and modification of franchiserequirements if warranted by changed circumstances that render performancecommercially impracticable.

Thefollowing table summarizes information relating to the year of expiration ofour franchises, as of December 31, 2006:

| **Year of Franchise Expiration** | ** ** | ** ** | ** ** | **Number of  Franchises** | ** ** | **Percentage of  Total Franchises** | ** ** | **Estimated  Number of  Basic Customers** | ** ** | **Percentage Total  Basic Customers  Under Franchises** | ** ** |
|-------------------------------------------------|------------|------------|------------|--------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| Expired*                                        |       |       | 91         |                           |       |                                          | 26.2       | %                                                   |       |                                                                   | 195,502    |   |   |   | 26.6 | % |   |
| 2007                                            |       |       | 8          |                           |       |                                          | 2.3        | %                                                   |       |                                                                   | 89,919     |   |   |   | 12.2 | % |   |
| 2008                                            |       |       | 19         |                           |       |                                          | 5.4        | %                                                   |       |                                                                   | 26,496     |   |   |   | 3.6 | % |   |
| 2009                                            |       |       | 29         |                           |       |                                          | 8.4        | %                                                   |       |                                                                   | 90,295     |   |   |   | 12.3 | % |   |
| 2010                                            |       |       | 35         |                           |       |                                          | 10.1       | %                                                   |       |                                                                   | 56,969     |   |   |   | 7.7 | % |   |
| After 2010                                      |       |       | 165        |                           |       |                                          | 47.6       | %                                                   |       |                                                                   | 276,867    |   |   |   | 37.6 | % |   |

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*                    Suchfranchises are operated on a month-to-month basis and are in the process ofbeing renewed. The foregoing table excludes our authorization issued pursuantto the Indiana state-issued franchise because such authorization is not limitedto a fixed term.

The Communications Act provides, among other things,for an orderly franchise renewal process which limits a franchising authority’sability to deny a franchise renewal if the incumbent operator followsprescribed statutory criteria. In addition, the Communications Act includescomprehensive renewal procedures which require, when properly elected by anoperator, that an incumbent franchisee’s renewal application be assessed on itsown merits and not as part of a comparative process with competingapplications.

We believe that our cablesystems generally have good relationships with their respective franchise authorities.We have never had a franchise revoked or failed to have a franchise renewed.

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**Competition**

Cable systems face increasing competition fromalternative methods of receiving and distributing their core video business.Both wireline and wireless competitors have made inroads in competing againstincumbent cable operators. The extent to which a cable operator is competitivedepends, in part, upon its ability to provide to customers, at a reasonableprice, a greater variety of programming and other communications services thanare available off-air or through alternative delivery sources and upon superiortechnical performance and customer service.

Congress has enacted legislation and the FCC hasadopted regulatory policies providing a more favorable operating environmentfor new and existing technologies, in particular direct broadcast satellitetelevision system operators, that continue to provide increased competition tocable systems. Congress has also enacted legislation which permits directbroadcast satellite companies to retransmit local television signals,eliminating one of the objections of consumers about switching to satellites.Moreover, the FCC recently adopted rules that limit the ability of localfranchising authorities to impose certain “unreasonable” requirements, such aspublic, governmental and educational access, institutional networks andbuild-out requirements, when issuing competitive franchises. These rules effectivelypermit competitors with existing authority to use the rights-of-ways to beginoperation of cable systems no later than 90 days, and all others 180 days,after filing a franchise application and preempt conflicting existing locallaws, regulations and requirements including level-playing field provisions.

The 1996 Telecom Act contains provisions designed toencourage local exchange telephone companies and others to provide a widevariety of video services competitive with services provided by cable systems.Local exchange telephone companies in various states have either announcedplans, obtained local franchise authorizations or are currently competing withour cable communications systems. Certain telephone companies are carrying outannounced plans to deploy broadband services, including video programmingservices, using a switched Internet protocol platform or other technologies insome cases designed to avoid certain regulatory burdens imposed on our business.Legislation recentlypassed in several states, including Indiana, and similar legislation ispending, or has been proposed in certain other states and in Congress, thatwould allow local telephone companies to deliver services in competition withour cable service, without obtaining equivalent local franchises. Such alegislatively granted advantage to our competitors could adversely affect ourbusiness. Indiana, the state in which we had the greatest number oflocal franchises, recently passed legislation under which the Indiana UtilityRegulatory Commission became the state’s sole video franchising authority on July 1,2006. Some franchise obligations under these state-issued franchises are tiedto a pro-rata application of the obligations imposed on the incumbent under itslocally-issued franchise issued prior to July 1, 2006. This legislationmay significantly speed the ability to fulfill the regulatory prerequisites tonew entrants seeking to provide video service in Indiana. Local exchangetelephone companies and other companies also provide facilities for thetransmission and distribution to homes and businesses of interactivecomputer-based services, including the Internet, as well as data and othernon-video services. The ability of local exchange telephone companies tocross-subsidize video, data and telecommunication services also poses somethreat to cable operators.

Franchised cable systems compete with private cablesystems for the right to service condominiums, apartment complexes and othermultiple unit residential developments. The operators of these private systems,also known as satellite master antenna television systems, often enter intoexclusive agreements with apartment building owners or homeowners’ associationsthat preclude franchised cable television operators from serving residents ofsuch private complexes. However several states, including Illinois and Ohiowhere we operate, have adopted legislation granting cable operators the rightto serve residents of such private complexes under certain conditions andIndiana has passed legislation that provides the right to all communicationservice providers to access all multi-tenant properties used for businesspurposes.

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The 1984 Cable Act gives franchised cable operatorsthe right to use existing compatible easements within their franchise areas onnondiscriminatory terms and conditions. Accordingly, where there arepreexisting compatible easements, cable operators may not be unfairly deniedaccess or discriminated against with respect to access to those easements.Conflicting judicial decisions have been issued interpreting the scope of theaccess right granted by the 1984 Cable Act, particularly with respect toprivate easements granted to a specific utility and not “dedicated” to thepublic. Moreover, this statutory easement access right does not appear to allowa cable operator to install facilities within a building without permissionfrom the property owner.

The 1996 Telecom Act may exempt some of ourcompetitors from regulation as cable systems. The 1996 Telecom Act amends thedefinition of a “cable system” such that providers of competitive videoprogramming are only regulated and franchised as “cable systems” if they usepublic rights-of-way. Thus, a broader class of entities providing videoprogramming, including operators of satellite master antenna televisionsystems, may be exempt from regulation as cable television systems under the1996 Telecom Act. This exemption may give these entities a competitiveadvantage over us. The 1996 Telecom Act also exempts telephone companyfacilities that provide video services exclusively on an “interactiveon-demand” basis from the definition of a “cable system,” which some telephonecompanies argue exempts them from local franchising and other requirementsapplicable to cable operators.

Cable television systems are operated undernon-exclusive franchises granted by local or state authorities thereby allowingmore than one cable system to be built in the same area. Although the number ofmunicipal and commercial overbuild cable systems is small, the potentialprofitability of a cable system is adversely affected if the local customerbase is divided among multiple systems. Additionally, constructing a competingcable system is a capital intensive process which involves a high degree ofrisk. We believe that in order to be successful, a competitor’s overbuild wouldneed to be able to serve the homes in the overbuilt area on a more cost-effectivebasis than we can. Any such overbuild operation would require eithersignificant access to capital or access to facilities already in place that arecapable of delivering cable television programming. As of December 31,2006, our Evansville, Indiana and Columbus, Ohio systems were overbuilt. As aresult, approximately 9% of the total homes passed by our systems wereoverbuilt as of such date.

Direct broadcast satellite television systems usedigital video compression technology to increase the channel capacity of theirsystems. Direct broadcast satellite service is currently being provided byDIRECTV, Inc. and EchoStar Communications Corporation. Direct broadcastsatellite television systems have some advantages over cable systems that havenot been upgraded, such as greater channel capacity and digital picturequality. The 2003 acquisition of DIRECTV by News Corp. provided it with accessto financial, programming and other resources that could enhance itscompetitive potential. On December 22, 2006, Liberty Media Corporation, anentity that owns or operates several of the cable programming services that weoffer, announced that it had entered into a definitive agreement to acquireNews Corporation’s ownership interest in DirecTV. On January 8, 2007,DirecTV announced that it planned to offer more than 100 channels of highdefinition beginning in the third quarter of 2007 and is adding the capacity tooffer 150 such channels in the future. On February 1, 2007, EchoStarannounced that it would begin offering more than thirty channels of highdefinition programming.  Although directbroadcast satellite television systems are statutorily permitted to retransmitthe signals of local television stations in their local markets, directbroadcast satellite television systems have a limited ability to offer locallyproduced programming, and do not have a significant local presence in thecommunity. In addition, direct broadcast satellite television system packagescan be more expensive than cable, especially if the subscriber intends to viewthe service on more than one television in the household. Finally, directbroadcast satellite television systems do not have the same full two-waycapability (such as video-on-demand), which we believe will limit their abilityto compete in a meaningful way in interactive television, high-speed Internetand voice communications. According to the most recent video competition report

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released by the FCC onMarch 3, 2006, direct broadcast satellite has enjoyed a 27.7% averagepenetration nationwide, and we believe that satellite penetration in ourvarious markets generally is at or below such average.

The digital subscriber line technology (“DSL”) offeredby telephone companies allows Internet access over traditional phone lines atdata transmission speeds typically greater than those available by a standardtelephone modem. Although these transmission speeds are not as great as thetransmission speed of a cable modem, we believe that the transmission speed ofDSL technology is sufficiently high that such technology competes with cablemodem technology. The FCC is currently considering its authority to promulgaterules to facilitate the deployment of these services and regulate areasincluding high-speed Internet and interactive Internet services. We cannotpredict the outcome of any FCC proceedings, or the impact of that outcome onthe success of our Internet access services or on our operations. Majortelephone companies are carrying out their announced plans to construct new fibernetworks over the next several years and to offer high-speed data and videoservices over these fiber networks. In addition, other technologies areentering the marketplace such as broadband wireless networks. InDecember 2006, one major provider, AT&T, acquired BellSouth Corp.which could give it access to greater resources and economies of scale as wellas increase its geographic footprint. In addition, the FCC has approved theprovision of broadband Internet service to consumers over electric power lines.

As we continue to expand our offerings to includetelephone services, such services will be subject to competition from existingproviders, including both local exchange telephone companies and long-distancecarriers as well as competing providers using alternative technologies such asvoice over Internet protocol (“VoIP”). The telecommunications industry ishighly competitive and many telephone service providers may have greaterfinancial resources than we have, or have established relationships withregulatory authorities. In addition, new technologies such as VoIP may allowcompeting telephone providers to offer service in competition with us over anexisting broadband connection (e.g., cable modem or DSL), thereby avoidingsignificant capital expenditures for a local distribution infrastructure. Wecannot predict the extent to which the presence of these competitors willinfluence customer penetration in our telephone service areas.

Other new technologies may become competitive withservices that cable communications systems can offer. Advances incommunications technology, as well as changes in the marketplace and theregulatory and legislative environment are constantly occurring. Thus, wecannot predict the effect of ongoing or future developments on the cablecommunications industry or on our operations.

**Legislation andRegulation**

The cable televisionindustry is regulated by the FCC, some state governments and the applicablelocal governments. In addition, various legislative and regulatory proposalsunder consideration from time to time by Congress and various federal agencieshave in the past, and may in the future, materially affect us. The following isa summary of federal laws and regulations materially affecting the growth andoperation of the cable television industry and a description of certain stateand local laws. We believe that the regulation of the cable television industryremains a matter of interest to Congress, the FCC and other regulatoryauthorities. There can be no assurance as to what, if any, future actions suchlegislative and regulatory authorities may take or the effect thereof on us.

**Federal Legislation**

The principal federalstatute governing the cable television industry is the Communications Act. Asit affects the cable television industry, the Communications Act has beensignificantly amended on three occasions, by the 1984 Cable Act, the 1992 CableAct and the 1996 Telecom Act. The 1996 Telecom Act altered the regulatorystructure governing the nation’s telecommunications providers. It reducedbarriers 

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tocompetition in both the cable television market and the local telephone market.Among other things, it also reduced the scope of cable rate regulation.

**Federal Regulation**

The FCC, the principalfederal regulatory agency with jurisdiction over cable television, has adoptedregulations covering such areas as cross-ownership between cable televisionsystems and other communications businesses, carriage of television broadcastprogramming, cable rates, consumer protection and customer service, leasedaccess, obscene and indecent programming, programmer access to cable televisionsystems, programming agreements, technical standards, consumer electronicsequipment compatibility and consumer education, ownership of home wiring,availability of programming to competitors, equal employment opportunity,availability of devices to block objectionable programming, originationcablecasting, sponsorship identification, closed captioning, politicaladvertising, advertising limits for children’s programming, issuance ofcompetitive franchises, signal leakage and frequency use, maintenance ofvarious records as well as antenna structure notification, marking andlighting. The FCC has the authority to enforce these regulations through the impositionof substantial fines, the issuance of cease and desist orders and/or theimposition of other administrative sanctions, such as the revocation of FCClicenses needed to operate certain transmission facilities often used inconnection with cable operations. A brief summary of certain of these federalregulations as adopted to date follows.

*Rate Regulation*

The 1984 Cable Act codified existing FCC preemption ofrate regulation for premium channels and optional non-basic program tiers. The1984 Cable Act also deregulated basic cable rates for cable television systemsdetermined by the FCC to be subject to effective competition. The 1992 CableAct substantially changed the previous statutory and FCC rate regulationstandards. The 1992 Cable Act replaced the FCC’s old standard for determiningeffective competition, under which most cable television systems were notsubject to rate regulation, with a statutory provision that resulted in nearlyall cable television systems becoming subject to rate regulation of basic andcable programming service (expanded basic) tiers. The 1992 Cable Act allowscable operators to obtain deregulation of all rates upon demonstratingeffective competition based on cable system penetration of less than 30%,aggregate penetration by competing providers in excess of 15%, or competitionfrom a municipally-owned provider available to at least 50% of the community.

For cable systems not subject to effectivecompetition, the 1992 Cable Act required the FCC to adopt a formula for franchisingauthorities to assure that basic cable rates are reasonable; allowed the FCC toreview rates for cable programming service tiers, other than per-channel orper-program services, in response to complaints filed by franchisingauthorities and/or cable customers; prohibited cable television systems fromrequiring basic customers to purchase service tiers above basic service inorder to purchase premium services if the system is technically capable ofcompliance; required the FCC to adopt regulations to establish, on the basis ofactual costs, the price for installation of cable service, remote controls,converter boxes and additional outlets; and allowed the FCC to imposerestrictions on the retiering and rearrangement of cable services under certainlimited circumstances. The 1996 Telecom Act limited the class of complainantsregarding cable programming service tier rates to franchising authorities only,and ended FCC regulation of cable programming service tier rates on March 31,1999. The 1996 Telecom Act also relaxed existing uniform rate requirements byspecifying that such requirements do not apply where the operator faceseffective competition, and by exempting bulk discounts to multiple dwellingunits, although complaints about predatory pricing may be lodged with the FCC.In addition, the 1996 Telecom Act expanded the definition of effectivecompetition to cover situations where a local telephone company or itsaffiliate, or any multichannel video provider using telephone companyfacilities, offers comparable video service by any means except directbroadcast satellite television systems.

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The FCC’s implementingregulations contain standards for the regulation of basic service rates. Localfranchising authorities are empowered to order a reduction of existing rateswhich exceed the maximum permitted level for basic services and associatedequipment, and refunds can be required. The FCC adopted a benchmark price capsystem for measuring the reasonableness of existing basic service rates. The rules alsorequire that charges for cable-related equipment, converter boxes and remotecontrol devices, for example, and installation services be unbundled from theprovision of cable service and based upon actual costs plus a reasonableprofit. The regulations also provide that future rate increases may not exceedan inflation-indexed amount, plus increases in certain costs beyond the cableoperator’s control, such as taxes, franchise fees and increased programmingcosts. Cost-based adjustments to these capped rates can also be made in theevent a cable television operator adds or deletes channels. Alternatively,cable operators have the opportunity to make cost-of-service showings which, insome cases, may justify rates above the applicable benchmarks. There is also astreamlined cost-of-service methodology available to justify a rate increase onthe basic tier for “significant” system upgrades.

*Carriage ofBroadcast Television Signals*

The 1992 Cable Actcontains signal carriage requirements which allow commercial televisionbroadcast stations that are “local” to a cable television system, that is tosay that the system is located in the station’s Nielsen “designated marketarea,” to elect every three years whether to require the cable televisionsystem to carry the station, subject to certain exceptions, or whether thecable television system will have to negotiate for “retransmission consent” tocarry the station. The last election between must-carry and retransmissionconsent was October 1, 2005. Both broadcasters electing to requireretransmission consent and affected cable operators are subject to FCC rules thatimpose reciprocal requirements on each party to negotiate in good faith oversuch consent. These rules do not require, however, that an agreement beactually reached. A January 2007 Order from the FCC’s Media Bureau statedthat it was not unreasonable for a broadcaster to use the cost of traditionalcable programming services as a measure of the reasonableness of the amount abroadcaster seeks in exchange for the grant of retransmission consent. A cabletelevision system is generally required to devote up to one-third of itsactivated channel capacity for the carriage of local commercial televisionstations whether pursuant to mandatory carriage requirements or theretransmission consent requirements of the 1992 Cable Act. Local non-commercialtelevision stations are also given mandatory carriage rights, subject tocertain exceptions, within the larger of:  (i) a 50 mile radius fromthe station’s city of license; or (ii) the station’s Grade B contour, ameasure of signal strength. Unlike commercial stations, noncommercial stationsare not given the option to negotiate retransmission consent for the carriageof their signal. In addition, cable television systems have to obtainretransmission consent for the carriage of all “distant” commercial broadcaststations, except for certain “superstations,” which are commercialsatellite-delivered independent stations such as WGN. To date, compliance withthe “retransmission consent” and “must carry” provisions of the 1992 Cable Acthas not had a material effect on us, although this result may change in thefuture depending on such factors as market conditions, channel capacity andsimilar matters when such arrangements are renegotiated. FCC rules requirecarriage of local television broadcast stations that transmit solely in adigital format. In addition, the FCC has reaffirmed that a station transmittingin both analog and digital formats during the current transition period whichwill end on February 17, 2009, is entitled to carriage of only its analogsignal and that the mandatory carriage obligation extends only to the primaryvideo signal, not to multiple services transmitted by a station over itsdigital channel. No later than February 18, 2009, all televisionbroadcasts must be solely in digital format.

*Packaging ofCertain Programming*

Reversing the findings ofa November 2004 report, the FCC released a report in February 2006finding that consumers could benefit under certain a la carte models fordelivery of video programming. The staff-level report did not specificallyrecommend or propose the adoption of any specific rules by the 

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FCC andit did not endorse a pure a la carte model where subscribers could purchase specificchannels without restriction. Instead, it favored tiers plus individualchannels or smaller theme-based tiers. Shortly after release of the report, theFCC voted to seek additional information as to whether cable systems with atleast 36 channels are available to at least 70 percent of U.S. homes andwhether 70 percent of households served by those systems subscribe. If so, theFCC may have additional discretion under the Cable Act to promulgate additionalrules necessary to promote diversity of information sources. The FCC didnot specify what rules it would seek to promulgate; however, the Chairmanof the FCC has expressed support for family-friendly tiers of programming andavailability of programming on an a la carte basis. Certain cable operators,including us, have responded by announcing the intent to offer “family-friendly”programming tiers. It is not certain whether those efforts will ultimately beregarded as a sufficient response. Congress may also consider legislationregarding programming packaging, bundling or a la carte delivery ofprogramming. Any such requirements could fundamentally change the way in whichwe package and price our services. We cannot predict the outcome of any currentor future FCC proceedings or legislation in this area, or the impact of suchproceedings on our business at this time.

*Deletion of CertainProgramming*

Cable television systemsthat have 1,000 or more customers must, upon the appropriate request of a localtelevision station, delete the simultaneous or nonsimultaneous networkprogramming of distant stations when such programming has also been contractedfor by the local station on an exclusive basis. FCC regulations also enabletelevision stations that have obtained exclusive distribution rights for syndicatedprogramming in their market to require a cable television system to delete or “blackout” such programming from other television stations which are carried by thecable television system. In addition, the rights holder to a local sports eventcan prohibit a cable operator from carrying that event on a distant station ifthe event is not broadcast live by a local station.

*Franchising*

In March 2007, theFCC released an order adopting rules that limit the ability of localfranchising authorities to impose certain “unreasonable” requirements, such aspublic, governmental and educational access, institutional networks andbuild-out obligations, when issuing competitive franchises. The rules effectivelypermit competitors with existing authority to use the rights-of-ways to beginoperation of cable systems no later than 90 days, and all others 180 days,after filing a franchise application and preempt conflicting existing locallaws, regulations and requirements including level-playing field provisions. Wecannot determine the outcome of any potential new rules on our business;however, any change that would lessen the local franchising burdens andrequirements imposed on our competitors relative to those that are or have beenimposed on us could harm our business.

*Franchise Fees*

Although franchisingauthorities may impose franchise fees under the 1984 Cable Act, such paymentscannot exceed 5% of a cable television system’s annual gross revenues from theprovision of cable services. Under the 1996 Telecom Act, franchisingauthorities may not exact franchise fees from revenues derived fromtelecommunications services, although they may be able to exact some additionalcompensation for the use of public rights-of-way. The FCC has ruled thatfranchise fees may not be imposed on revenue from cable modem service.Franchising authorities are also empowered, in awarding new franchises orrenewing existing franchises, to require cable television operators to providecable-related facilities and equipment and to enforce compliance with voluntarycommitments. In the case of franchises in effect prior to the effective date ofthe 1984 Cable Act, franchising authorities may enforce requirements containedin the franchise relating to facilities, equipment and services, whether or notcable-related. The 1984 Cable 

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Act,under certain limited circumstances, permits a cable operator to obtainmodifications of franchise obligations.

*Renewal ofFranchises*

The 1984 Cable Act and the 1992 Cable Act establishrenewal procedures and criteria designed to protect incumbent franchiseesagainst arbitrary denials of renewal and to provide specific grounds forfranchising authorities to consider in making renewal decisions, including afranchisee’s performance under the franchise and community needs. Even afterthe formal renewal procedures are invoked, franchising authorities and cabletelevision operators remain free to negotiate a renewal outside the formalprocess. Nevertheless, renewal is by no means assured, as the franchisee mustmeet certain statutory standards. Even if a franchise is renewed, a franchisingauthority may impose new and more onerous requirements such as upgradingfacilities and equipment, although the municipality must take into account thecost of meeting such requirements. Similarly, if a franchising authority’sconsent is required for the purchase or sale of a cable television system orfranchise, such authority may attempt to impose burdensome or onerous franchiserequirements in connection with a request for such consent. Historically,franchises have been renewed for cable television operators that have providedsatisfactory services and have complied with the terms of their franchises. Atthis time, we are not aware of any current or past material failure on our partto comply with our franchise agreements. The City of Decatur, Illinois hasdenied our franchise renewal on the basis that our proposal under the formalprocess set forth under federal law does not meet the communities’ needs inlight of their costs. An administrative hearing is scheduled for April 2007and final disposition will be made by the City Council thereafter. We wouldhave the right to appeal any decision to the United States District Court forreview and potential remand back to the City Council. Should we receive anunfavorable action from the City of Decatur, we intend to exercise this right. We believe that we have generallycomplied with the terms of our franchises and have provided quality levels ofservice.

The 1992 Cable Act makes several changes to theprocess under which a cable television operator seeks to enforce its renewalrights which could make it easier in some cases for a franchising authority todeny renewal. Franchising authorities may consider the “level” of programmingservice provided by a cable television operator in deciding whether to renew.For alleged franchise violations occurring after December 29, 1984,franchising authorities are no longer precluded from denying renewal based onfailure to substantially comply with the material terms of the franchise wherethe franchising authority has “effectively acquiesced” to such past violations.Rather, the franchising authority is estopped if, after giving the cabletelevision operator notice and opportunity to cure, it fails to respond to awritten notice from the cable television operator of its failure or inabilityto cure. Courts may not reverse a denial of renewal based on proceduralviolations found to be “harmless error.”

Effective July 1,2006, pursuant to Indiana law, cable franchises that are not authorizedpursuant to the state-issued franchise may be renewed by submitting anapplication to the Indiana Utilities Regulatory Commission which is required toissue an authorization within 15 days of receipt of a complete application.

*Channel Set-Asides*

The 1984 Cable Act permitslocal franchising authorities to require cable television operators to setaside certain television channels for public, educational and governmentalaccess programming. The 1984 Cable Act further requires cable televisionsystems with thirty-six or more activated channels to designate a portion oftheir channel capacity for commercial leased access by unaffiliated thirdparties to provide programming that may compete with services offered by thecable television operator. The 1992 Cable Act requires leased access rates tobe set according to a formula determined by the FCC.

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*Ownership*

The 1996 Telecom Act repealed the statutory banagainst local exchange carriers providing video programming directly tocustomers within their local exchange telephone service areas. Consequently,the 1996 Telecom Act permits telephone companies to compete directly withoperations of cable television systems. Under the 1996 Telecom Act andimplementing rules adopted by the FCC local exchange carriers may providevideo service as broadcasters, common carriers, or cable operators. Inaddition, local exchange carriers and others may also provide video servicethrough “open video systems,” a regulatory regime that may give them moreflexibility than traditional cable television systems. Open video systemoperators (including local exchange carriers) can, however, be required toobtain a local franchise, and they can be required to make payments to localgovernmental bodies in lieu of cable franchise fees. In general, open videosystem operators must make up to two-thirds of the channels on their systemsavailable to programming providers (other than the incumbent cable operator) onrates, terms and conditions that are reasonable and nondiscriminatory.

The 1996 Telecom Act generally prohibits localexchange carriers from purchasing a greater than 10% ownership interest in acable television system located within the local exchange carrier’s telephoneservice area, prohibits cable operators from purchasing local exchange carrierswhose service areas are located within the cable operator’s franchise area, andprohibits joint ventures between operators of cable television systems andlocal exchange carriers operating in overlapping markets. There are somestatutory exceptions, including a rural exemption that permits buyouts in whichthe purchased cable television system or local exchange carrier serves anon-urban area with fewer than 35,000 inhabitants, and exemptions for thepurchase of small cable television systems located in non-urban areas. Also,the FCC may grant waivers of the buyout provisions in certain circumstances.

The 1996 Telecom Act made several other changes torelax ownership restrictions and regulations of cable television systems. The1996 Telecom Act repealed the 1992 Cable Act’s three-year holding requirementpertaining to sales of cable television systems. The statutory broadcast/cablecross-ownership restrictions imposed under the 1984 Cable Act were eliminatedin 1996, although the parallel FCC regulations prohibiting broadcast/cablecommon-ownership remained in effect. The U.S. Court of Appeals for the Districtof Columbia circuit struck down these rules. The FCC’s rules alsogenerally prohibit cable operators from offering satellite master antennaservice separate from their franchised systems in the same franchise area,unless the cable operator is subject to “effective competition” there.

The 1996 Telecom Act amended the definition of a “cablesystem” under the Communications Act so that competitive providers of videoservices will be regulated and franchised as “cable systems” only if they usepublic rights-of-way. Thus, a broader class of entities providing videoprogramming may be exempt from regulation as cable television systems under theCommunications Act.

The 1996 Telecom Actprovides that registered utility holding companies and subsidiaries may providetelecommunications services, including cable television, notwithstanding thePublic Utilities Holding Company Act of 1935, as amended. Electric utilitiesmust establish separate subsidiaries known as “exempt telecommunications companies”and must apply to the FCC for operating authority. Certain electric power providers areexploring the provision of broadband service over power lines. In 2004, the FCCadopted rules: 1) that affirmed the ability of electric service providers to providebroadband Internet access services over their distribution systems; and 2) thatseek to avoid interference with existing services. Due to theirresources, electric utilities could be formidable competitors to traditionalcable television systems.

*Access toProgramming*

The 1992 Cable Act imposedrestrictions on the dealings between cable operators and cable programmers. Ofspecial significance from a competitive business posture, the 1992 Cable Actprecludes video programmers affiliated with cable companies from favoring theiraffiliated cable operators and 

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requiressuch programmers to sell their programming to other multichannel videodistributors. This provision limits the ability of vertically integrated cableprogrammers to offer exclusive programming arrangements to cable companies. Theprohibition on certain types of exclusive programming arrangements was set toexpire on October 5, 2002, but the FCC has determined that a five-yearextension of the prohibition is necessary to preserve and protect competitionin video programming distribution.

*Privacy*

The 1984 Cable Act imposesa number of restrictions on the manner in which cable television operators cancollect and disclose data about individual system customers. The statute alsorequires that the system operator periodically provide all customers withwritten information about its policies regarding the collection and handling ofdata about customers, their privacy rights under federal law and theirenforcement rights. In the event that a cable television operator was found tohave violated the customer privacy provisions of the 1984 Cable Act, it couldbe required to pay damages, attorneys’ fees and other costs. Under the 1992Cable Act, the privacy requirements were strengthened to require that cabletelevision operators take such actions as are necessary to prevent unauthorizedaccess to personally identifiable information. Certain of these requirementswere modified by the Electronic Communications Privacy Act of 2001.Additionally, certain states have enacted laws that require disclosure toresidents of those states if certain personal information held about them isaccessed or is reasonably believed to have been accessed without authorization.

*Franchise Transfers*

The 1992 Cable Actrequires franchising authorities to act on any franchise transfer requestsubmitted after December 4, 1992 within 120 days after receipt of allinformation required by FCC regulations and by the franchising authority.Approval is deemed to be granted if the franchising authority fails to actwithin such period. All communities and counties covered by the Indiana StateIssued Video Franchise Certificate may be transferred to another operatorwithout affirmative action on the part of the State or its political subdivisions.

*TechnicalRequirements*

The FCC has imposed technical standards applicable toall classes of channels which carry downstream National Television SystemCommittee video programming. The FCC also has adopted additional standardsapplicable to cable television systems using frequencies in the 108 to 137 MHzand 225 to 400 MHz bands in order to prevent harmful interference withaeronautical navigation and safety radio services and has also establishedlimits on cable television system signal leakage. Periodic testing by cabletelevision operators for compliance with the technical standards and signalleakage limits is required and an annual filing of the results of thesemeasurements is required. The 1992 Cable Act requires the FCC to periodicallyupdate its technical standards to take into account changes in technology.Under the 1996 Telecom Act, local franchising authorities may not prohibit,condition or restrict a cable television system’s use of any type of customerequipment or transmission technology.

The FCC has adoptedregulations to implement the requirements of the 1992 Cable Act designed toimprove the compatibility of cable television systems and consumer electronicsequipment. These regulations, among other things, generally prohibit cabletelevision operators from scrambling their basic service tier. The 1996 TelecomAct directs the FCC to set only minimal standards to assure compatibilitybetween television sets, VCRs and cable television systems, and otherwise torely on the marketplace. Pursuant to the 1992 Cable Act, the FCC has adopted rules toassure the competitive availability to consumers of customer premisesequipment, such as converters, used to access the services offered by cabletelevision systems and other multichannel video programming distributors.Pursuant to those rules, consumers are given the right to attach compatibleequipment to the facilities of their multichannel video 

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programmingdistributors so long as the equipment does not harm the network, does notinterfere with the services purchased by other customers and is not used toreceive unauthorized services. As of July 1, 2000, multichannel videoprogramming distributors, other than operators of direct broadcast satellitetelevision systems, were required to separate security from non-securityfunctions in the customer premises equipment which they sell or lease to theircustomers and offer their customers the option of using component securitymodules obtained from the multichannel video programming distributors withset-top units purchased or leased from retail outlets. As of July 1, 2007,multichannel video programming distributors will be prohibited fromdistributing new set-top equipment integrating both security and non-securityfunctions to their customers. In January 2007, the FCC acted on certainrequests seeking waiver of these rules. The FCC denied a waiver request byComcast while granting waivers for a small cable operator and CablevisionSystems Corporation. On behalf of all cable operators, the National Cable andTelecommunications Association (“NCTA”) filed a request to waive the rules untila downloadable security solution is available or the 2009 digital transition,whichever is earlier. Based on the FCC’s decision, it appears likely that theNCTA’s general waiver petition will be denied as will any other waivers thatare not limited in time or based on a date-certain changeover to all digitalservices. It is possible that our vendors will be unable to deliver to us thenecessary quantities of set-top boxes to enable us to comply in the future withthe applicable rules. In addition, the design and manufacture of the new boxesmay result in significantly higher costs to us, the amount of which cannot bedetermined.

*Inside Wiring;Customer Access*

FCC rules require anincumbent cable operator upon expiration of a multiple dwelling unit servicecontract to sell, abandon, or remove “home run” wiring that was installed bythe cable operator in a multiple dwelling unit building. These inside wiring rules assistbuilding owners in their attempts to replace existing cable operators with newprogramming providers who are willing to pay the building owner a higher fee,where such a fee is permissible. The FCC has also issued an order preemptingstate, local and private restrictions on over-the-air reception antennas placedon rental properties in areas where a tenant has exclusive use of the property,such as balconies or patios. However, tenants may not install such antennas onthe common areas of multiple dwelling units, such as on roofs. This orderlimits the extent to which multiple dwelling unit owners may enforce certainaspects of multiple dwelling unit agreements which otherwise would prohibit,for example, placement of direct broadcast satellite television systems televisionreceiving antennae in multiple dwelling unit areas, such as apartment balconiesor patios, under the exclusive occupancy of a renter.

*Pole Attachments*

The FCC currentlyregulates the rates and conditions imposed by certain public utilities for useof their poles unless state public service commissions are able to demonstratethat they adequately regulate the rates, terms and conditions of cabletelevision pole attachments. A number of states and the District of Columbiahave certified to the FCC that they adequately regulate the rates, terms andconditions for pole attachments. Illinois, Ohio, and Kentucky, states in whichwe operate, have made such a certification. In the absence of state regulation,the FCC administers such pole attachment and conduit use rates through use of aformula which it has devised. Pursuant to the 1996 Telecom Act, the FCC hasadopted a new rate formula for any attaching party, including cable televisionsystems, which offers telecommunications services. This new formula will resultin higher attachment rates that will apply only to cable television systemswhich elect to offer telecommunications services. Any increases pursuant tothis new formula began in 2001, and will be phased in by equal increments overthe five ensuing years. The FCC ruled that the provision of Internet serviceswill not, in and of itself, trigger use of the new formula. The Supreme Courtaffirmed this decision and also held that the FCC’s authority to regulate ratesfor attachments to utility poles extended to attachments by cable operators andtelecommunications carriers that are used to provide Internet service or forwireless telecommunications service. This development benefits our 

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businessand will place a constraint on the prices that utilities can charge with regardto the cable facilities over which we also provide Internet access service.

*InteractiveTelevision*

In January 2001, theFCC issued a Notice of Inquiry covering a wide range of issues relating toInteractive Television (“ITV”). Examples of ITV services are interactiveelectronic program guides and access to a graphic interface that providessupplementary information related to the video display. In the near term, cablesystems are likely to be the platform of choice for the distribution of ITVservices. The FCC has posed a series of questions including the definition ofITV, the potential for discrimination by cable systems in favor of affiliatedITV providers, enforcement mechanisms, and the proper regulatory classificationof ITV service.

*Copyright*

Cable television systems are subject to federalcopyright licensing covering carriage of broadcast signals. In exchange formaking semi-annual payments to a federal copyright royalty pool and meetingcertain other obligations, cable television operators obtain a statutorylicense to retransmit broadcast signals. The amount of this royalty paymentvaries, depending on the amount of system revenues from certain sources, thenumber of distant signals carried, and the location of the cable televisionsystem with respect to over-the-air television stations. Adjustment to thecopyright royalty rates are done through an arbitration process supervised bythe U.S. Copyright Office. Cable television operators are liable for intereston underpaid and unpaid royalty fees, but are not entitled to collect intereston refunds received for overpayment of copyright fees.

Various bills have been introduced into Congress overthe past several years that would eliminate or modify the cable televisioncompulsory license. Without the compulsory license, cable television operatorswould have to negotiate rights from the copyright owners for all of theprogramming on the broadcast stations carried by cable television systems. Suchnegotiated agreements would likely increase the cost to cable televisionoperators of carrying broadcast signals. The 1992 Cable Act’s retransmissionconsent provisions expressly provide that retransmission consent agreementsbetween television broadcast stations and cable television operators do notobviate the need for cable operators to obtain a copyright license for theprogramming carried on each broadcaster’s signal.

The Copyright Office has opened two proceedings inresponse to several petitions seeking revisions to certain compulsory copyrightlicense reporting requirements and clarification of certain issues relating tothe application of the compulsory license to the carriage of digital broadcaststations. We cannot predict the outcome of any such rulemakings; however, it ispossible that certain changes in the rules or copyright compulsory licensefee computations could have an adverse affect on our business by increasing ourcopyright compulsory license fee costs or by causing us to reduce ordiscontinue carriage of certain broadcast signals that we currently carry on adiscretionary basis.

In February 2006, the Copyright Office reportedto Congress regarding certain aspects of the satellite compulsory license asrequired by the Satellite Home Viewer Extension and Reauthorization Act (“SHVERA”).The Copyright Office concluded that: (i) the current DBS compulsorylicense royalty fee for distant signals did not reflect fair market value; (ii) copyrightowners should have the right to audit the statements of account submitted byDBS providers; and (iii) the cost of administering the compulsory licensesystem be paid by those using the copyrighted material. Neither the outcome ofthose proceedings, their impact on cable television operators, nor their impacton subsequent legislation, regulations, the cable industry, or our business andoperations can be predicted at this time.

In 1999, Congress modified the satellite compulsorylicense in a manner that permits DBS providers to become more competitive withcable operators. In 2004, Congress adopted legislation extending this 

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authority through 2009.The 2004 legislation also directed the Copyright Office to submit a report toCongress by June 2008 recommending any changes to the cable and satellitelicenses that the Office deems necessary. The elimination or substantialmodification of the cable compulsory license could adversely affect our abilityto obtain suitable programming and could substantially increase the cost ofprogramming that remains available for distribution to our subscribers. We areunable to predict the outcome of any legislative or agency activity related toeither the cable compulsory license or the right of direct broadcast satelliteproviders to deliver local or distant broadcast signals.

Copyrighted music performed in programming supplied tocable television systems by pay cable networks, such as HBO, and basic cablenetworks, such as USA Network, is licensed by the networks through privateagreements with performing rights organizations such as the American Society ofComposers and Publishers, generally known as ASCAP, BMI, Inc. and SESAC, Inc.ASCAP and BMI offer “through to the viewer” licenses to the cable networkswhich cover the retransmission of the cable networks’ programming by cabletelevision systems to their customers.

Licenses to performcopyrighted music by cable television systems themselves, including on localorigination channels, in advertisements inserted locally on cable televisionnetworks, and in cross-promotional announcements, must be obtained by the cabletelevision operator from the appropriate performing rights organization.

*State and LocalRegulation*

Cable television systems generally are operatedpursuant to nonexclusive franchises, permits or licenses granted by amunicipality or other state or local government entity. The terms andconditions of franchises vary materially from jurisdiction to jurisdiction, andeven from city to city within the same state, historically ranging fromreasonable to highly restrictive or burdensome. Franchises generally containprovisions governing fees to be paid to the franchising authority, length ofthe franchise term, renewal, sale or transfer of the franchise, territory ofthe franchise, design and technical performance of the system, use andoccupancy of public streets and number and types of cable television servicesprovided. The terms and conditions of each franchise and the laws andregulations under which it was granted directly affect the profitability of thecable television system. The 1984 Cable Act places certain limitations on afranchising authority’s ability to control the operation of a cable televisionsystem. The 1992 Cable Act prohibits exclusive franchises, and allowsfranchising authorities to exercise greater control over the operation offranchised cable television systems, especially in the area of customer serviceand rate regulation. The 1992 Cable Act also allows franchising authorities tooperate their own multichannel video distribution system without having toobtain a franchise and permits states or local franchising authorities to adoptcertain restrictions on the ownership of cable television systems. Moreover,franchising authorities are immunized from monetary damage awards arising fromregulation of cable television systems or decisions made on franchise grants,renewals, transfers and amendments. The 1996 Telecom Act restricts afranchising authority from either requiring or limiting a cable televisionoperator’s provision of telecommunications services.

Various proposals have been introduced at the stateand local levels with regard to the regulation of cable television systems, anda number of states have adopted legislation subjecting cable television systemsto the jurisdiction of centralized state governmental agencies, some of whichimpose regulation of a character similar to that of a public utility. A newKentucky statute enacted in 2005 replaces the fees established by individualfranchise with a 3% excise tax and a 2.4% gross receipts tax which is alsoimposed on other providers of video programming service, such as DBS. A newIndiana statute effective in 2006 shifts the authority to grant new or renewalfranchises from local franchising authorities to the state’s UtilitiesRegulatory Commission. We have elected to be governed by the state-levelfranchise law with respect to all our cable systems in Indiana. Our Indianastate-issued franchises provide for certain obligations similar to our previouslocal franchises, such as franchise fee payments and public, educational 

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and governmental accesschannel requirements, but have certain advantages such as free transferabilityand no renewal obligations. This statute also will likely greatly speed theability for new entrants  to providevideo service in Indiana. A few other states have either passed similarlegislation while others have similar legislation pending.

Several states have recently passed legislation andsimilar legislation is pending, or has been proposed in certain other statesand in Congress, that would allow local telephone companies to deliver servicesthat would compete with our cable service, without obtaining equivalent localfranchise. To the extent that incumbents have made prior payments, includingcapital grants, incumbents would still remain at a competitive disadvantageunder the legislation. Another proposal in Congress would also limit ourability to maintain competitive prices. Any such legislatively grantedadvantages to our competitors could adversely affect our business. The effectof such initiatives, if any, on our obligation to obtain local franchises, manyof which have years remaining in the terms, cannot be predicted.

The foregoing summarizescertain material present and proposed federal, state and local regulations andlegislation relating to the cable television industry. Other existing federalregulations, copyright licensing and, in many jurisdictions, state and localfranchise requirements, currently are the subject of a variety of judicialproceedings, legislative hearings and administrative and legislative proposalswhich could change, in varying degrees, the manner in which cable televisionsystems operate. Neither the outcome of these proceedings nor their impact uponthe cable television industry or us can be predicted at this time.

**Internet AccessService**

We offer a service which enables consumers to accessthe Internet at high speeds via high capacity broadband transmission facilitiesand cable modems. We compete with many other providers of Internet accessservices which are known as Internet service providers (“ISPs”). ISPs includesuch companies as America Online, MSN and Earthlink as well as majortelecommunications providers, including AT&T, Verizon and other localexchange telephone companies. The FCC has decided and the United States SupremeCourt has affirmed that cable Internet service should be classified forregulatory purposes as an “information service” rather than either a “cableservice” or a “telecommunications service.” Concurrently, the FCC has initiateda wide-ranging rulemaking proceeding in which it seeks comment on theregulatory ramifications of this classification. Among the issues to be decidedare whether the FCC should permit local authorities to impose an accessrequirement, whether local authorities should be prohibited from imposing feeson cable Internet service revenues, and what regulatory role local authoritiesshould be permitted to play. We cannot predict the outcome of the current FCCproceeding or its impact on our business.

Congress and the FCC have been urged to adopt certainrights for users of Internet access services, and to regulate or restrictcertain types of commercial agreements between service providers and providersof Internet content. These proposals are generally referred to as “networkneutrality.”  In August 2005, theFCC issued a non-binding policy statement stating four principles to guide itspolicymaking regarding such services. These principles state that consumers areentitled to: (1) access the lawful Internet content of their choice; (2) runapplications and services of their choice, subject to the needs of lawenforcement; (3) connect their choice of legal devices that do not harmthe network; and (4) enjoy competition among network providers,application and service providers, and content providers. The FCC recentlyimposed conditions on its approval of the AT&T-BellSouth merger beyond thescope of these four principles, requiring the merged company to maintain a “neutralnetwork and neutral routing” of internet traffic between the customer’s home oroffice and the Internet peering point where traffic hits the Internet backbone,and prohibiting the merged company from privileging, degrading, or prioritizingany packets along this route regardless of their source, ownership, ordestination. There is a possibility that the FCC could adopt the fourprinciples, or even the requirements of the AT&T-BellSouth merger, asformal rules which could impose additional costs and regulatory burdens onus.

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There are currently fewlaws or regulations which specifically regulate communications or commerce overthe Internet. Section 230 of the Communications Act, added to that act bythe 1996 Telecom Act, declares it to be the policy of the United States topromote the continued development of the Internet and other interactivecomputer services and interactive media, and to preserve the vibrant andcompetitive free market that presently exists for the Internet and otherinteractive computer services, unfettered by federal or state regulation. Onearea in which Congress did attempt to regulate content over the Internetinvolved the dissemination of obscene or indecent materials. The provisions ofthe 1996 Telecom Act, generally referred to as the Communications Decency Act,were found to be unconstitutional, in part, by the United States Supreme Courtin 1997. In response, Congress passed the Child Online Protection Act. Theconstitutionality of this act is currently being challenged in the courts. Mostrecently, the United States Supreme Court upheld a ruling by the Third CircuitCourt of Appeals that enjoined enforcement of the statute pending a trial onthe merits because the statute likely violated the First Amendment. Finally,disclosure of customer communications or records is governed by the ElectronicCommunications Privacy Act of 2001 and the Cable Act, both of which wereamended by the USA Patriot Act.

**LocalTelecommunications Services**

The 1996 Telecom Act provides that no state or locallaws or regulations may prohibit or have the effect of prohibiting any entityfrom providing any interstate or intrastate telecommunications service. Statesare authorized, however, to impose “competitively neutral” requirementsregarding universal service, public safety and welfare, service quality andconsumer protection. State and local governments also retain their authority tomanage the public rights-of-way and may require fair and reasonable,competitively neutral and non-discriminatory compensation for management of thepublic rights-of-way when cable operators or others provide telecommunicationsservice using public rights-of-way. State and local governments must publiclydisclose required compensation from telecommunications providers for use ofpublic rights-of-way.

Local telecommunications services are subject toregulation by state utility commissions. Use of local telecommunicationsfacilities to originate and terminate long distance services, a servicecommonly referred to as “exchange access,” is subject to regulation both by theFCC and by state utility commissions. As providers of local exchange service,we are subject to the requirements imposed upon competitive local exchangecompanies by the 1996 Telecom Act. These include requirements governing resale,telephone number portability, dialing parity, access to rights-of-way andreciprocal compensation, among others. Although we cannot predict whether andthe extent to which a state may seek to regulate us, increased regulation wouldlikely increase our cost of doing business.

We now offer voice over Internet protocol (“VoIP”)service under our “Insight Phone 2.0” brand as a competitive alternative totraditional circuit-switched telephone service. Various states, includingstates where we operate, have adopted or are considering differing regulatorytreatment for VoIP, ranging from minimal or no regulation to full-blown commoncarrier status. The FCC decided that alternative voice technologies, likecertain types of VoIP telephony, should be regulated only at the federal level,rather than by individual states. However, many implementation details remainunresolved, and there are substantial regulatory changes being considered thatcould either benefit or harm VoIP telephony as a business operation. While thefinal outcome of the FCC proceedings cannot be predicted, it is generallybelieved that the FCC favors a “light touch” regulatory approach for VoIPtelephony, which might include preemption of certain state or local regulation.

In June 2006, theUnited States Court of Appeals for the District of Columbia Circuit remandedthe FCC’s denial of SBC’s (now AT&T) petition seeking forbearance fromTitle II common carrier regulation of its Internet Protocol services. AT&Thas widely announced its intent to provide IP video, voice and data. Theoutcome of this proceeding or its impact on our business cannot be predicted.

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**Employees**

As of December 31,2006, we employed approximately 3,900 full-time employees and 35 part-timeemployees. We consider our relations with our employees to be good.

**Item 1A.**                RiskFactors

Our business faces manyrisks. The risks described below may not be the only risks we face. Additionalrisks that we do not yet know of, or that we currently think are immaterial,may also impair our business operations or financial results. If any of theevents or circumstances described in the following risks actually occurs, ourbusiness, financial condition or results of operations could suffer.

***We have substantial debt and significant interestpayment requirements, which may adversely affect our ability to obtainfinancing in the future, to finance our operations and to react to changes inour business.***

Wehave a substantial amount of debt. The following table shows certain importantcredit statistics about us. 

| ** **             | ** ** | **As of  December 31, 2006** | ** ** |
|------------------------|------------|---------------------------------------------|------------|
| ** **             | ** ** | **(dollars in thousands)**        | ** ** |
| Total debt        |       |                                        | $          | 2,555,722 |   |   |
| Partners’ capital |       |                                        | 830,178    |   |   |
| Debt to equity ratio   |       |                                        | 3.08x      |   |   |

 

Our high level ofcombined debt could have important consequences for you, including thefollowing:

·                    Ourability to obtain additional financing in the future for capital expenditures,acquisitions, working capital or other purposes may be limited;

·                    Wewill need to use a large portion of our revenues to pay interest on ourborrowings, which will reduce the amount of money available to finance ouroperations, capital expenditures and other activities;

·                    Someof our debt has a variable rate of interest, which exposes us to the risk ofincreased interest rates; and

·                    Ourindebtedness may limit our ability to withstand competitive pressures andreduce our flexibility in responding to changing business and economic conditions.

***We depend upon our operating subsidiaries for cash tofund our obligations.***

As a holding company, wedo not hold any assets other than our investments in our subsidiaries.Consequently, our subsidiaries conduct all of our consolidated operations andown substantially all of our consolidated assets. The only source of the cashwe have to pay interest and principal on our indebtedness is the cash that oursubsidiaries generate from their operations and their borrowings. The abilityof our operating subsidiaries to generate cash is subject to general economic,financial, competitive, legislative, regulatory and other factors that arebeyond our control. Furthermore, our subsidiaries must make payments to InsightCommunications Company, L.P. under their management agreements. Accordingly, wecannot assure you that our subsidiaries will generate cash flow from operationsin amounts sufficient to enable us to pay the principal and interest on ourindebtedness.

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***Our partnership agreement provides for a split-upprocess that may be initiated by either partner.***

Our partnership agreementprovides that either Comcast Cable or our manager, Insight LP (a wholly-ownedsubsidiary of Insight Communications) has the right to cause a split-up of thepartnership. To date, neither partner has commenced the split-up process. Thesplit-up would reduce the cash flow from operations that we need to repay ourdebt, and could require us to make a change of control offer which we may beunable to finance.

***The terms of the Insight Midwest Holdings creditfacility and any inability to refinance any borrowings under such facility maylimit our ability to access the cash flow of our subsidiaries.***

Our ability to receivecash from our subsidiaries is restricted by the terms of the Insight MidwestHoldings credit facility. Insight Midwest Holdings’ credit facility permits itto distribute cash to us, subject to certain limitations, provided that thereis no default under such credit facility. If there is a default under theMidwest Holdings credit facility, we would not have any cash to pay interest onour obligations.

***The Insight Midwest Holdings credit facility requiresus to comply with various financial and operating restrictions which couldlimit our ability to compete as well as our ability to expand.***

The Insight MidwestHoldings credit facility contains covenants that restrict Insight MidwestHoldings’ subsidiaries ability to:

·                    distributefunds or pay dividends to us;

·                    incuradditional indebtedness or issue additional equity;

·                    repurchaseor redeem equity interests and indebtedness;

·                    pledgeor sell assets or merge with another entity;

·                    createliens; and

·                    makecertain capital expenditures, investments or acquisitions.

Such restriction couldlimit our ability to compete as well as our ability to expand. The ability ofInsight Midwest Holdings’ subsidiaries to comply with these provisions may beaffected by events beyond our control. If they were to breach any of thesecovenants, they would be in default under the credit facility and they would beprohibited from making distributions to us.

***Our manager may in the future manage cable systemsother than our cable systems, which may divert management resources from themanagement of our systems and could give rise to conflicts of interest.***

Our manager may in thefuture manage cable systems other than the cable systems we own. Management ofother cable systems would require our manager to devote a significant portionof its personnel and other resources to the management of such other cablesystems. As a result, the attention of our manager’s senior executive officersand key personnel may be diverted from the management of our cable systems andthe allocation of management resources between our cable systems and such newsystems could give rise to conflicts of interest.

***Our programming costs are substantial and they mayincrease, which could result in a decrease in profitability if we are unable topass that increase on to our customers.***

In recent years, the cable and satellite video industrieshave experienced an escalation in the cost of programming, and sportsprogramming in particular. Our cable programming services are dependent uponour ability to procure programming that is attractive to our customers atreasonable rates. Programming costs will continue to escalate, and we may notbe able to pass programming cost increases on to our 

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customers. We expect to besubject to increasing financial demands by broadcasters to obtain consent toretransmit their programming in the future. Our financial condition and resultsof operations could be negatively affected by further increases in programmingcosts. Programming has been and is expected to continue to be our largestsingle expense item and accounted for approximately 37% of the total programmingand other operating costs and selling, general and administrative expenses forour systems for the year ended December 31, 2006.

Because of ourrelationship with Comcast Cable, we currently have the right to purchasecertain programming services for our systems directly through Comcast Cable’sprogramming supplier Satellite Services, Inc. In addition, under the termsof our partnership agreement, our manager and Comcast Cable are each requiredto use commercially reasonable efforts to extend to us all of the programmingdiscounts available to them. If a split-up of the partnership were to occur, wemay no longer be able to benefit from the favorable programming costs availablethrough Comcast Cable.

***The competition we face from other cable networks andalternative service providers may cause us to lose market share.***

The impact from competition, particularly from directbroadcast satellite television systems and companies that overbuild in ourmarket areas, has resulted in a decrease in customer growth rates as well as aloss of customers. This growing competition has negatively impacted ourfinancial performance. Increased competition may continue to impact ourfinancial performance. Many of our potential competitors have substantiallygreater resources than we do, and we cannot predict the market share ourcompetitors will eventually achieve, nor can we predict their ability todevelop products which will compete with our planned new and enhanced productsand services such as high-speed Internet access, video-on-demand and telephoneservices.

Direct broadcast satellite service consists oftelevision programming transmitted via high-powered satellites to individualhomes, each served by a small satellite dish. Legislation permitting directbroadcast satellite operators to transmit local broadcast signals was enactedon November 29, 1999. This eliminated a significant competitive advantagethat cable system operators have had over direct broadcast satellite operators.Direct broadcast satellite operators currently deliver local broadcast signalsin the largest markets and continue to expand such carriage to additionalmarkets. Moreover, both major direct broadcast satellite operators announced inearly 2007 the planned addition this year of a number of high definitionprogramming services and in the case of DirecTV, a significant number of suchchannels.

The 1996 Telecom Act contains provisions designed toencourage local exchange telephone companies and others to provide a widevariety of video services competitive with services provided by cable systems.Local exchange telephone companies in various states have either announcedplans, obtained local franchise authorizations or are currently competing withour cable communications systems. Certain telephone companies are deployingfiber more extensively in their networks and are deploying broadband services,including video programming services, using a switched Internet protocolplatform or other technologies in some cases designed to avoid the same regulatoryburdens imposed on our business. The FCC’s new rules permitting suchtelephone companies to obtain local franchises on an expedited basis as well asany ability of local telephone companies to provide their services withoutobtaining state or local cable franchises comparable to those under which weoperate would be adverse to our business.

Since our cable systemsare operated under non-exclusive franchises, competing operators of cablesystems and other potential competitors, such as municipalities and municipalutility providers, may be granted franchises to build cable systems in marketswhere we hold franchises. Competition in geographic areas where a secondaryfranchise is obtained and a cable network is constructed is called “overbuilding.”WideOpenWest overbuilds our Evansville, Indiana system and our Columbus, Ohiosystem. We cannot predict what effect competition from these or futurecompetitors will have on our business and operations.

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***We  facecompetition from providers of alternatives to our Internet and telephoneservices.***

Several telephone companies are offering digitalsubscriber line technology (also known as DSL services), which allows Internetaccess over traditional phone lines at data transmission speeds greater thanthose available by a standard telephone modem. Although these transmissionspeeds generally have not been as fast as the transmission speeds of a cablemodem, coupled with its discounted pricing, we believe that the transmissionspeeds of digital subscriber line technology are sufficiently high that suchtechnology is competitive to our cable modem technology.

As we continue to expand our offerings to includetelephone services in additional markets, the telephone services we deliverwill be subject to competition from existing providers, including both localexchange telephone companies and long-distance carriers as well as competingproviders using alternative technologies such as wireless and voice overInternet protocol (“VoIP”). We cannot predict the extent to which the presenceof these competitors will influence customer penetration in our telephoneservice areas.

We expect that the mostsignificant competitors for our Internet access and telephone service offeringswill be the existing local exchange telephone companies (currently thepredominant providers of Internet and telephone services in our markets), aswell as resellers using the local exchange telephone companies’ networks, although the FCC no longer requiresfacilities-based wireline Internet access service providers to unbundle andresell DSL services as a stand alone product.

***Our business has been and continues to be subject toextensive governmental legislation and regulation, and changes in thislegislation and regulation could increase our costs of compliance and reducethe profitability of our business.***

The cable televisionindustry is subject to extensive legislation and regulation at the federal andlocal levels, and, in some instances, at the state level, and many aspects ofsuch regulation are currently the subject of judicial proceedings andadministrative or legislative proposals. Operating in a regulated industryincreases the cost of doing business generally. We may also become subject toadditional regulatory burdens and related increased costs. As we continue tointroduce additional communications services, we may be required to obtainfederal, state and local licenses or other authorizations to offer suchservices. We may not be able to obtain such licenses or authorizations in atimely manner, or at all, or conditions could be imposed upon such licenses andauthorizations that may not be favorable to us.

**Item 1B.**               UnresolvedStaff Comments

Not applicable.

**Item 2.**                        Properties

We own and lease parcelsof real property for signal reception sites which house our antenna towers andheadends, microwave complexes and business offices. In addition, we own our cablesystems’ distribution networks, various office fixtures, test equipment andservice vehicles. The physical components of our cable systems requiremaintenance and periodic upgrading to keep pace with technological advances. Webelieve that our properties, both owned and leased, are in good condition andare suitable and adequate for our business operations as presently conductedand as proposed to be conducted.

**Item 3.**                        LegalProceedings

In April 2005, Acacia Media TechnologiesCorporation filed a lawsuit against Insight Communications and others in theUnited States District Court for the Southern District of New York. Thecomplaint alleges, among other things, infringement of certain United Statespatents that allegedly 

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relate to systems andmethods for transmitting and/or receiving digital audio and video content. Thecomplaint seeks injunctive relief and damages in an unspecified amount. In theevent that a court ultimately determines that we infringe on any of thepatents, we may be subject to substantial damages, which may include trebledamages and/or an injunction that could require us to materially modify certainproducts and services that we currently offer to customers. We believe that theclaims are without merit and intend to defend the action vigorously. The finaldisposition of this claim is not expected to have a material adverse effect onour consolidated financial position but could possibly be material to ourconsolidated results of operations of any one period. Further, at this time theoutcome of the litigation is impossible to predict, and no assurance can begiven that any adverse outcome would not be material to our consolidatedfinancial position.

We believe there are noother pending or threatened legal proceedings that, if adversely determined,would have a material adverse effect on us.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders

Not applicable.

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**PART II**

**Item 5.**                        Marketfor Registrants’ Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities

There is no public tradingmarket for our equity, all of which is held equally by our manager, throughInsight LP, and Comcast Cable (formerly known as AT&T Broadband), throughTCI of Indiana Holdings.

**Item 6.**                        SelectedFinancial Data

In thefollowing table, we provide you with our selected consolidated historicalfinancial and other data as of and for the five years ended December 31,2006. When you read this selected consolidated historical financial and otherdata, it is important that you read along with it the historical financialstatements and related notes in our consolidated financial statements includedin this report, as well as “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” also included in this report. Certainother prior year amounts have been reclassified to conform to the current year’spresentation.

| ** **                                           | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                           | ** ** | **(dollars in thousands)**       | ** ** |
| **Statement of Operations Data:**                    |       |                                       |       |   |   |   |   |   |   |   |   |
| Revenue                                              |       | $                                          | 1,262,557  |   | $ | 1,117,680 |   | $ | 1,000,814 |   | $ | 899,797 |   | $ | 808,925 |   |
| Total operating  costs and expenses                  |       | 1,052,635                                  |       | 909,216 |   | 809,869 |   | 743,311 |   | 670,493 |   |
| Operating income                                     |       | 209,922                                    |       | 208,464 |   | 190,945 |   | 156,486 |   | 138,432 |   |
| Total other  expense, net                            |       | (220,676                                   | )          | (195,165 | ) | (178,524 | ) | (130,262 | ) | (180,476 | ) |
| Income (loss)  before extraordinary  item            |       | (10,754                                    | )          | 13,299 |   | 12,421 |   | 26,224 |   | (42,044 | ) |
| Extraordinary  item                                  |       | —                                     |       | — |   | 15,627 |   | — |   | — |   |
| Net income (loss)                                    |       | (10,754                                    | )          | 13,299 |   | 28,048 |   | 26,224 |   | (42,044 | ) |
| Accrual of  preferred interests(1)                   |       | —                                     |       | — |   | — |   | (10,353 | ) | (20,107 | ) |
| Net income (loss)  applicable to common interests    |       | $                                          | (10,754    | ) | $ | 13,299 |   | $ | 28,048 |   | $ | 15,871 |   | $ | (62,151 | ) |
| **Other Financial Data:**                            |       |                                       |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                |       | $                                          | 284,427    |   | $ | 215,083 |   | $ | 164,720 |   | $ | 193,487 |   | $ | 280,027 |   |
| Net cash provided  by operating activities           |       | 263,044                                    |       | 252,185 |   | 280,972 |   | 211,483 |   | 170,179 |   |
| Net cash used in  investing activities               |       | 284,670                                    |       | 214,575 |   | 162,913 |   | 220,851 |   | 290,165 |   |
| Net cash (used  in) provided by financing activities |       | 36,008                                     |       | (85,233 | ) | (68,262 | ) | 22,110 |   | 117,777 |   |
| **Balance  Sheet Data:**                             |       |                                       |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                           |       | $                                          | 39,235     |   | $ | 24,853 |   | $ | 72,476 |   | $ | 22,679 |   | $ | 9,937 |   |
| Fixed assets, net                                    |       | 1,138,186                                  |       | 1,107,571 |   | 1,130,600 |   | 1,198,830 |   | 1,202,003 |   |
| Total assets                                         |       | 3,612,422                                  |       | 3,567,903 |   | 3,647,415 |   | 3,677,353 |   | 3,626,246 |   |
| Total debt,  including preferred  interests(1)       |       | 2,555,722                                  |       | 2,516,311 |   | 2,602,379 |   | 2,669,600 |   | 2,625,416 |   |
| Partner’s capital                               |       | 830,178                                    |       | 840,386 |   | 827,622 |   | 796,152 |   | 763,406 |   |

 

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| ** **                         | ** ** | **As of December 31, 2006** | ** ** |
|------------------------------------|------------|-------------------------------------------------|------------|
| ** **                         | ** ** | **South  Region**                               | ** ** | **East  Region** | ** ** | **West  Region** | ** ** | **Total** | ** ** |
| **Technical Data:**                | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Network miles                      |       | 7,000                                           |       | 11,200 |   | 13,100 |   | 31,300 |   |
| Number of headends                 |       | 2                                               |       | 8 |   | 13 |   | 23 |   |
| **Operating Data:**                | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Homes passed(2)                    |       | 569,400                                         |       | 854,400 |   | 1,041,400 |   | 2,465,200 |   |
| Basic customers(3)                 |       | 285,700                                         |       | 436,100 |   | 601,000 |   | 1,322,800 |   |
| Basic penetration(4)               |       | 50.2                                            | %          | 51.0 | % | 57.7 | % | 53.7 | % |
| Digital ready homes(5)             |       | 274,300                                         |       | 413,600 |   | 571,700 |   | 1,259,600 |   |
| Digital customers(6)               |       | 135,700                                         |       | 230,300 |   | 255,600 |   | 621,600 |   |
| Digital penetration(7)             |       | 49.5                                            | %          | 55.7 | % | 44.7 | % | 49.3 | % |
| Premium units(8)                   |       | 139,600                                         |       | 181,400 |   | 208,300 |   | 529,300 |   |
| Premium penetration(9)             |       | 48.9                                            | %          | 41.6 | % | 34.7 | % | 40.0 | % |
| High-Speed  Internet customers(10) |       | 134,000                                         |       | 210,600 |   | 266,600 |   | 611,200 |   |

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       (1) The preferred interests were converted to common interests as of September 26,2003.

       (2) Homes passed are the number of single residence homes, apartmentsand condominium units passed by the cable distribution network in a cablesystem’s service area.

       (3) Basic customers are customers of a cable television system whoreceive a package of over-the-air broadcast stations, local access channels andcertain satellite-delivered cable television services, other than premiumservices, and who are usually charged a flat monthly rate for a number ofchannels.

       (4) Basic penetration means basic customers as a percentage of totalnumber of homes passed.

       (5) Digital ready homes means the total number of homes passed to whichdigital service is available.

       (6) Customers with a digital converter box.

       (7) Digital penetration means digital service units as a percentage ofdigital ready homes.

       (8) Premium units mean the number of subscriptions to premium services,which are paid for on an individual unit basis.

       (9) Premium penetration means premium service units as a percentage ofthe total number of basic customers. A customer may purchase more than onepremium service, each of which is counted as a separate premium service unit.This ratio may be greater than 100% if the average customer subscribes to morethan one premium service unit.

(10) Customers receiving high-speed Internet service.

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**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

**Introduction**

Our revenues areearned from customer fees for cable television video services including basic,classic, digital, premium, video-on-demand and ancillary services, such asrental of converters and remote control devices and installations. In addition,we earn revenues from providing high-speed Internet services, sellingadvertising, providing telephone services and commissions for products soldthrough home shopping networks.

Wehave generated increases in revenues for each of the past three fiscal years,primarily through a combination of selling additional services to new andexisting customers including high-speed Internet access, digital video and telephoneservices, internal basic video customer growth, increases in monthly revenueper customer and growth in advertising revenue.

**Use of AdjustedOperating Income before Depreciation and Amortization and Free Cash Flow**

We utilize Adjusted Operating Income beforeDepreciation and Amortization, (defined as operating income beforedepreciation, amortization and non-cash stock-based compensation) among othermeasures, to evaluate the performance of our businesses. Adjusted OperatingIncome before Depreciation and Amortization is considered an importantindicator of the operational strength of our businesses and is a component ofour annual compensation programs. In addition, our debt agreements use AdjustedOperating Income before Depreciation and Amortization, adjusted for certainnon-recurring items, in their leverage and other covenant calculations. We alsouse this measure to determine how we will allocate resources and capital. Ourmanagement finds this measure helpful because it captures all of the revenueand ongoing operating expenses of our businesses and therefore provides a meansto directly evaluate the ability of our business operations to generate returnsand to compare operating capabilities across our businesses. This measure isalso used by equity and fixed income research analysts in their reports toinvestors evaluating our businesses and other companies in the cable televisionindustry. We believe Adjusted Operating Income before Depreciation andAmortization is useful to investors because it enables them to assess ourperformance in a manner similar to the methods used by our management andprovides a measure that can be used to analyze, value and compare companies inthe cable television industry, which may have different depreciation, amortizationand stock-based compensation policies.

A limitation of Adjusted Operating Income beforeDepreciation and Amortization, however, is that it does not reflect theperiodic costs of certain capitalized tangible and intangible assets used ingenerating revenues in our businesses. Management evaluates the costs of suchtangible and intangible assets through other financial measures such as capitalexpenditures, investment spending and Free Cash Flow. Management also evaluatesthe costs of capitalized tangible and intangible assets by analyzing returnsprovided on the capital dollars deployed. Another limitation of AdjustedOperating Income before Depreciation and Amortization is that it does notreflect income net of interest expense, which is a significant expense for usbecause of the substantial debt we incurred to acquire cable television systemsand finance capital expenditures to upgrade our cable network. Managementevaluates the impact of interest expense through measures including interestexpense itself, Free Cash Flow, the returns analysis discussed above and debtservice covenant ratios under our credit facility.

Free Cash Flow is net cash provided by operatingactivities (as defined by accounting principles generally accepted in theUnited States) less capital expenditures. Free Cash Flow is considered to be animportant indicator of our liquidity, including our ability to repayindebtedness. We believe Free Cash Flow is useful for investors because itenables them to assess our ability to service our debt and to fund continuedgrowth with internally generated funds in a manner similar to the methods usedby our management, and provides a measure that can be used to analyze, valueand compare companies in the cable television industry.

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Both Adjusted OperatingIncome before Depreciation and Amortization and Free Cash Flow should beconsidered in addition to, not as a substitute for, Operating Income, NetIncome and various cash flow measures (e.g., Net Cash Provided by OperatingActivities), as well as other measures of financial performance and liquidityreported in accordance with accounting principles generally accepted in theUnited States.

***Reconciliation of Net Income (Loss) to AdjustedOperating Income before Depreciation and Amortization***

The followingtable reconciles Net Income (Loss) to Adjusted Operating Income beforeDepreciation and Amortization. In addition, the table provides the componentsfrom Net Income (Loss) to Operating Income for purposes of the discussions thatfollow.

| ** **                                                      | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                    | ** ** |
| Net income (loss)                                               |       | $                                          | (10,754    | ) | $ | 13,299 |   | $ | 28,048 |   |
| Extraordinary  item, net of tax                                 |       | —                                     |       | — |   | (15,627 | ) |
| Income (loss)  before extraordinary item                        |       | (10,754                                    | )          | 13,299 |   | 12,421 |   |
| Other income  (expense):                                        |       |                                       |       |   |   |   |   |
| Other (income) expense, net                                     |       | 2,248                                      |       | (3,083 | ) | 1,368 |   |
| Interest income                                                 |       | (1,430                                     | )          | (1,993 | ) | (368 | ) |
| Interest expense                                                |       | 219,858                                    |       | 200,241 |   | 177,524 |   |
| Total other  expense, net                                       |       | 220,676                                    |       | 195,165 |   | 178,524 |   |
| Operating income                                                |       | 209,922                                    |       | 208,464 |   | 190,945 |   |
| Depreciation and  amortization                                  |       | 265,455                                    |       | 241,695 |   | 235,105 |   |
| Stock-based  compensation                                       |       | 147                                        |       | 6,342 |   | — |   |
| Adjusted Operating  Income before Depreciation and Amortization |       | $                                          | 475,524    |   | $ | 456,501 |   | $ | 426,050 |   |

 

***Reconciliation of Net Cash Provided by OperatingActivities to Free Cash Flow***

Thefollowing table provides a reconciliation from net cash provided by operatingactivities to Free Cash Flow. In addition, the table provides the componentsfrom net cash provided by operating activities to operating income for purposesof the discussions that follow.

| ** **                                                      | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                    | ** ** |
| Operating income                                                |       | $                                          | 209,922    |   | $ | 208,464 |   |
| Depreciation and amortization                                   |       | 265,455                                    |       | 241,695 |   |
| Stock-based compensation                                        |       | 147                                        |       | 6,342 |   |
| Adjusted  Operating Income before Depreciation and Amortization |       | 475,524                                    |       | 456,501 |   |
| Changes  in working capital accounts(1)                         |       | (19,214                                    | )          | (16,100 | ) |
| Cash paid  for interest                                         |       | (193,266                                   | )          | (188,216 | ) |
| Net cash provided  by operating activities                      |       | 263,044                                    |       | 252,185 |   |
| Capital  expenditures                                           |       | (284,427                                   | )          | (215,083 | ) |
| Free Cash Flow                                                  |       | $                                          | (21,383    | ) | $ | 37,102 |   |

 

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(1)          Changes in workingcapital accounts are based on the net cash changes in current assets andcurrent liabilities, excluding changes related to interest and taxes and othernon-cash expenses.

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**Results ofOperations**

***Year Ended December 31, 2006 Compared to YearEnded December 31, 2005***

Revenue for the year ended December 31, 2006 totaled $1.3 billion, an increase of 13%over the prior year, due primarily to customer gains in all services, as wellas video rate increases. High-speed Internet service revenue increased 26% overthe prior year, which was attributable to an increased customer base and waspartially offset by lower average revenue per customer due to promotionaldiscounts. We added a net 140,800 high-speed Internet customers during the yearto end the year at 611,200 customers.

Basic cable service revenue increased 7% due to anincreased customer base and video rate increases, partially offset bypromotional discounts. We added a net 41,200 basic cable customers during theyear to end the year at 1,322,800 customers. In addition, digital servicerevenue increased 24% over the prior year due to an increased customer base. Weadded a net 102,800 digital customers during the year to end the year at621,600 customers.

We have been increasing our customer retention effortsby increasing spending on sales and marketing efforts, emphasizing bundling andenhancing and differentiating our video services by providing video-on-demand,high definition television and digital video recorders. To increase ourbundling opportunities and extend our growth potential in future years, we,during the second half of 2006 and in January 2007, successfully rolledout our telephone product in eight previously unserved markets. We are alsocontinuing to focus on improving customer satisfaction through higher servicelevels and increased customer education of our product offerings.

Revenueby service offering was as follows for the year ended December 31 (dollarsin thousands):

| ** **           | ** ** | **Revenue by Service Offering** | ** ** |
|----------------------|------------|------------------------------------------------|------------|
| ** **           | ** ** | **2006**                                       | ** ** | **% of Total  Revenue** | ** ** | **2005** | ** ** | **% of Total  Revenue** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       | $                                              | 640,474    |   |   | 50.7 | % |   | $ | 596,321 |   |   | 53.4 | % |   |   | 7.4 | % |   |
| High-speed  Internet |       | 240,717                                        |       |   | 19.1 | % |   | 190,820 |   |   | 17.1 | % |   |   | 26.1 | % |   |
| Digital              |       | 138,172                                        |       |   | 10.9 | % |   | 111,202 |   |   | 9.9 | % |   |   | 24.3 | % |   |
| Advertising          |       | 83,729                                         |       |   | 6.6 | % |   | 76,004 |   |   | 6.8 | % |   |   | 10.2 | % |   |
| Premium              |       | 55,160                                         |       |   | 4.4 | % |   | 54,414 |   |   | 4.9 | % |   |   | 1.4 | % |   |
| Telephone            |       | 50,893                                         |       |   | 4.0 | % |   | 35,502 |   |   | 3.2 | % |   |   | 43.4 | % |   |
| Franchise fees       |       | 29,817                                         |       |   | 2.4 | % |   | 30,721 |   |   | 2.7 | % |   |   | (2.9 | )% |   |
| Other                |       | 23,595                                         |       |   | 1.9 | % |   | 22,696 |   |   | 2.0 | % |   |   | 4.0 | % |   |
| Total                |       | $                                              | 1,262,557  |   |   | 100.0 | % |   | $ | 1,117,680 |   |   | 100.0 | % |   |   | 13.0 | % |   |

 

Total Customer Relationships were 1,401,800 as of December 31,2006, an increase of 54,300 from 1,347,500 as of December 31, 2005. TotalCustomer Relationships represent the number of customers who receive one ormore of our products (i.e. basic cable, high-speed Internet or telephone)without regard to which product they purchase. In the year ended December 31,2006, we added 318,300 Revenue Generating Units (“RGUs”), which represent thesum of basic, digital, high-speed Internet and telephone customers, and as of December 31,2006 had 2,679,000 RGUs, an increase of 13% as compared to December 31,2005.

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RGUsby category were as follows (in thousands):

| ** **           | ** ** | **December 31**,  2006 | ** ** | **December 31**,  2005 | ** ** |
|----------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Basic                |       |                        | 1,322.8    |                        |       |   | 1,281.6 |   |   |
| Digital              |       |                        | 621.6      |                        |       |   | 518.8 |   |   |
| High-speed  Internet |       |                        | 611.2      |                        |       |   | 470.4 |   |   |
| Telephone            |       |                        | 123.4      |                        |       |   | 89.9 |   |   |
| Total RGUs           |       |                        | 2,679.0    |                        |       |   | 2,360.7 |   |   |

 

Average monthly revenue per basic customer was $80.53for the year ended December 31, 2006, compared to $73.30 for the yearended December 31, 2005. This primarily reflects the continued growth ofhigh-speed Internet and digital product offerings in all markets as well asbasic and classic video rate increases.

Programming and other operating costs increased $68.5million, or 18%. Increases in programming rates, customers, and the addition ofnew programming content were significant drivers of the cost increase for theyear ended December 31, 2006. For the year ended December 31, 2005,our programming costs reflected certain programming credits and a one-timesettlement for a disputed claim with a vendor. These credits resulted fromfavorable resolution of pricing negotiations related to certain prior periodprogramming costs that were accrued at a higher rate than the amount actuallypaid. Programming credits for the year ended December 31, 2006 weresignificantly lower, causing our overall programming cost increases to be greater.Direct operating costs increased due to an increase in telephone cost of salesas we continue to invest and roll out this product partially offset bydecreases in our high-speed Internet services costs as we, in 2006,transitioned our Internet services in-house and realized both cost savings andoperational benefits from this investment. Other operating costs increasedprimarily as a result of increases in technical salaries for new and existingemployees; increases in repair, maintenance and warranty costs; an increase intaxes due to a change in the tax law in Kentucky; and an increase in outsideinstallation labor due to increased customer activity.

Selling, general and administrative expenses increased$46.6 million, or 18%, primarily due to increased payroll, payroll-relatedcosts and temporary help associated with an increase in the number of employeesand salary increases for existing employees. The increase in the number ofemployees represents investments in sales and marketing, customer care andinformation technology personnel to continue to upgrade and enhance our productofferings, manage our increasingly complex network, and increase customersatisfaction. A portion of the information technology personnel increases weredirectly related to the transition of our Internet services in-house. Marketingexpenses increased over the prior year to support the continued rollout ofhigh-speed Internet, digital and telephone products, and to grow our core videocustomer base. Customer billing, collection fees and bad debt expense increasedprimarily due to the increase in our customer base.

Management fees increased $4.6 million or 14% to $38.1million for the year ended December 31, 2006 from $33.5 million for theyear ended December 31, 2005. Management fees, equal to approximately 3%of revenues, are paid to Insight LP.

Depreciation and amortization expense increased $23.8million, or 10%, primarily as a result of an increased level of capitalexpenditures through December 31, 2006. These expenditures were primarilyfor purchases of customer premise equipment, installation materials,capitalized labor, headend equipment, network extensions and network capacityand bandwidth increases, all of which we consider necessary in order tocontinue to maintain and grow our customer base and expand our serviceofferings. Partially offsetting this increase was a decrease in depreciationexpense related to certain assets that have become fully depreciated since December 31,2005.

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As a result of the factors discussed above, AdjustedOperating Income before Depreciation and Amortization increased $19.0 millionto $475.5 million, an increase of 4%.

Interest expense increased$19.6 million, or 10%, due to i) higher interest rates, which averaged 8.6% forthe year ended December 31, 2006, as compared to 7.8% for the year ended December 31,2005, and ii) the termination of an interest rate swap agreement during theyear ended December 31, 2006.

***Year Ended December 31, 2005 Compared to YearEnded December 31, 2004***

Revenue for the year ended December 31, 2005 totaled $1.1 billion, an increase of 12%over the prior year, due primarily to customer gains in all services, as wellas basic and classic video rate increases. High-speed Internet service revenueincreased 45% over the prior year, which is mainly attributable to an increasedcustomer base. We added a net 139,900 high-speed Internet customers during theyear to end the year at 470,400 customers. In addition, digital service revenueincreased 13% over the prior year due to an increased customer base. We added anet 67,500 digital customers during the year to end the year at 518,800customers.

Basic cable service revenue increased 4% primarily dueto basic and classic video rate increases, partially offset by promotionaldiscounts. Although the number of basic video customers was higher at December 31,2005 than December 31, 2004, the average number of customers during theyear declined slightly.

Revenueby service offering was as follows for the year ended December 31 (dollarsin thousands):

| ** **           | ** ** | **Revenue by Service Offering** | ** ** |
|----------------------|------------|------------------------------------------------|------------|
| ** **           | ** ** | **2005**                                       | ** ** | **% of Total  Revenue** | ** ** | **2004** | ** ** | **% of Total  Revenue** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       | $                                              | 596,321    |   |   | 53.4 | % |   | $ | 573,650 |   |   | 57.3 | % |   |   | 4.0 | % |   |
| High-speed  Internet |       | 190,820                                        |       |   | 17.1 | % |   | 132,011 |   |   | 13.2 | % |   |   | 44.5 | % |   |
| Digital              |       | 111,202                                        |       |   | 9.9 | % |   | 98,797 |   |   | 9.9 | % |   |   | 12.6 | % |   |
| Advertising          |       | 76,004                                         |       |   | 6.8 | % |   | 68,415 |   |   | 6.8 | % |   |   | 11.1 | % |   |
| Premium              |       | 54,414                                         |       |   | 4.9 | % |   | 57,054 |   |   | 5.7 | % |   |   | (4.6 | )% |   |
| Telephone            |       | 35,502                                         |       |   | 3.2 | % |   | 15,254 |   |   | 1.5 | % |   |   | 132.7 | % |   |
| Franchise fees       |       | 30,721                                         |       |   | 2.7 | % |   | 28,721 |   |   | 2.9 | % |   |   | 7.0 | % |   |
| Other                |       | 22,696                                         |       |   | 2.0 | % |   | 26,912 |   |   | 2.7 | % |   |   | (15.7 | )% |   |
| Total                |       | $                                              | 1,117,680  |   |   | 100.0 | % |   | $ | 1,000,814 |   |   | 100.0 | % |   |   | 11.7 | % |   |

 

TotalCustomer Relationships were approximately 1,347,500 as of December 31,2005, an increase of 24,800 from 1,322,700 as of December 31, 2004. TotalCustomer Relationships represent the number of customers who receive one ormore of our products (i.e. basic cable, high-speed Internet or telephone)without regard to which product they purchase. Revenue Generating Units (“RGUs”),which represent the sum of basic, digital, high-speed Internet and telephonecustomers, as of December 31, 2005 increased 11% as compared to December 31,2004. RGUs by category were as follows (in thousands):

| ** **           | ** ** | **December 31**,  2005 | ** ** | **December 31**,  2004 | ** ** |
|----------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Basic                |       |                        | 1,281.6    |                        |       |   | 1,272.5 |   |   |
| Digital              |       |                        | 518.8      |                        |       |   | 451.3 |   |   |
| High-speed  Internet |       |                        | 470.4      |                        |       |   | 330.5 |   |   |
| Telephone            |       |                        | 89.9       |                        |       |   | 64.3 |   |   |
| Total RGUs           |       |                        | 2,360.7    |                        |       |   | 2,118.6 |   |   |

 

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Average monthly revenue per basic customer was $73.30for the year ended December 31, 2005, compared to $64.85 for the yearended December 31, 2004. This primarily reflects the continued growth ofhigh-speed Internet and digital product offerings in all markets as well asbasic and classic video rate increases. In addition, telephone revenues for theyear ended December 31, 2005, reflect service revenues earned directlyfrom customers compared to the year ended December 31, 2004, whichreflected revenues billed to Comcast under a previous contractual agreementthat was terminated effective December 31, 2004. Also included intelephone revenue for the year ended December 31, 2005 is the continuedamortization of installation revenue under the previous arrangement withComcast in the amount of $3.3 million.

Programming and other operating costs increased $38.9million, or 11%. Total programming costs for our video products decreased forthe year ended December 31, 2005 compared to the year ended December 31,2004. The substantial increases in programming rates were offset by programmingcredits. The credits resulted from favorable resolution of pricing negotiationsrelated to certain prior period programming costs that were accrued at a higherrate than the amount actually paid and a settlement of disputed claims with avendor. In addition, direct operating costs increased due to an increasedvolume of modems sold and cost of sales associated with telephone that werepreviously paid by Comcast. Other operating costs increased primarily as aresult of increases in technical salaries for new and existing employees, inaddition to decreased capitalized labor costs due to the continued transitionfrom upgrade and new connect activities to maintenance and reconnectactivities. Other operating costs also increased as a result of increases inrepairs and maintenance costs due to increased repair costs for customerpremise equipment, an increase in drop materials due to customer growth andincreased property taxes due to a favorable reversal of accrued property taxesrecorded in 2004.

Selling, general and administrative expenses increased$50.4 million, or 25%, primarily due to increased payroll and payroll relatedcosts, including an increase in the number of employees and salary increasesfor existing employees. Marketing support funds (recorded as a reduction toselling, general and administrative expenses) decreased from the prior year.Marketing expenses increased over the prior year to support the continuedrollout of high-speed Internet, digital and telephone products, and to maintainthe company’s core video customer base. A decrease in expenses previouslyallocated to Comcast under our prior agreement to manage certain Comcastsystems also contributed to the increase in selling, general and administrativeexpenses. As this agreement was terminated effective July 31, 2004, theyear ended December 31, 2005 does not include any of these expenseallocations, and the year ended December 31, 2004 includes seven months ofthese expense allocations. Some cost savings have been realized upon terminationof the management agreement, and the impact of certain of these savings isreflected in programming and other operating costs.

Management fees increased $3.5 million or 12% to $33.5million for the year ended December 31, 2005 from $30.0 million for theyear ended December 31, 2004. Management fees, equal to approximately 3%of revenues, are paid to Insight LP.

Depreciation and amortization expense increased $6.6million, or 3%, primarily as a result of additional capital expendituresthrough December 31, 2005. These expenditures were primarily for telephoneequipment, purchases of customer premise equipment and drop materials andnetwork extensions, all of which we consider necessary in order to continue tomaintain and grow our customer base and expand our service offerings. Partiallyoffsetting this increase was a decrease in depreciation expense related tocertain assets that have become fully depreciated since December 31, 2004.

As a result of the factors discussed above, Adjusted OperatingIncome before Depreciation and Amortization increased $30.5 million, or 7%.

Interest expense increased$22.7 million, or 13%, due to higher interest rates, which averaged 7.8% forthe year ended December 31, 2005, as compared to 6.7% for the year ended December 31,2004.

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**Liquidity and Capital Resources**

Our business requires cashfor operations, debt service and capital expenditures. The cable televisionbusiness has substantial ongoing capital requirements for the provision of newservices and the construction, expansion and maintenance of its broadbandnetworks. In the past, expenditures have been made for various purposesincluding the upgrade of our existing cable network, and will continue to bemade for customer premise equipment (e.g., set-top boxes), installation anddeployment of new product and service offerings, capitalized payroll, networkcapacity, bandwidth increases, network extensions, and, to a lesser extent,network upgrades. Historically, we have been able to meet our cash requirementswith cash flow from operations, borrowings under our credit facilities andissuances of private and public debt and equity.

Cash provided byoperations for the years ended December 31, 2006 and 2005 was $263.0million and $252.2 million. The increase was primarily attributable to thetiming of cash receipts and payments related to our working capital accountsand the affect of non-cash items partially offset by our net loss for the yearended December 31, 2006.

Cash used in investingactivities for the years ended December 31, 2006 and 2005 was $284.7million and $214.6 million. For the years ended December 31, 2006 and2005, we spent $284.4 million and $215.1 million in capital expenditures. Theseexpenditures principally constituted purchases of customer premise equipment,capitalized labor, installation materials, headend equipment, network capacityand bandwidth increases and system upgrades and rebuilds, all of which arenecessary to maintain our existing network, grow our customer base and expandour service offerings.

The increasein capital expenditures was driven primarily by increases in:

·       Customerpremise equipment required to support our digital customer growth; and

·       Networkcapacity and bandwidth equipment for the transition of our Internet servicesin-house in 2006.

Cash provided by financingactivities for the year ended December 31, 2006 was $36.0 million comparedto $85.2 million of cash used in financing activities for the year endedDecember 31, 2005. This source of cash was due to the financing of our$2.445 billion senior secured credit facility during the fourth quarter of2006.

FreeCash Flow for the year ended December 31, 2006 totaled ($21.4) million,compared to $37.1 million for the year ended December 31, 2005. Thisdecrease in Free Cash Flow from the year ended December 31, 2005, to theyear ended December 31, 2006, of $58.5 million was primarily driven by thefollowing:

·       A$69.3 million increase in capital expenditures;

·       A$5.1 million increase in cash interest expense paid driven by an increase in interestrates; and

·       Anadditional $3.1 million use of Free Cash Flow over the same period in the prioryear from changes in working capital accounts.

These uses of cash wereoffset by a $19.0 million increase in Adjusted Operating Income beforeDepreciation and Amortization.

We have concluded a numberof financing transactions, which fully support our operating plan. Thesetransactions are detailed as follows:

On October 1, 1999,in connection with the formation of Insight Midwest and the acquisition of a 50%interest in the Kentucky systems, Insight Midwest completed an offering of$200.0 million principal amount of its 93⁄4% senior notes due 2009. The netproceeds of the offering were used to repay certain outstanding debt of theKentucky systems. Interest on the Insight Midwest 93⁄4% senior notes is payableon April 1 and October 1 of each year. The indentures relating tothese senior notes impose certain limitations on the ability of Insight Midwestto, among other things, incur debt, make distributions, make investments andsell assets.

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On December 17, 2002Insight Midwest completed a $185.0 million add-on offering under the 93⁄4% seniornotes indenture. Insight Midwest received proceeds of $176.9 million. Theproceeds of this offering were used to repay a portion of the outstandingrevolving loans under the Midwest Holdings credit facility.

On November 6, 2000,Insight Midwest completed an offering of $500.0 million principal amountof its 101¤2 %senior notes due 2010. The net proceeds of the offering of $486.0 millionwere used to repay a portion of the then existing Indiana and Kentucky creditfacilities. On December 9, 2003, Insight Midwest completed a $130.0 millionadd-on offering under the 101¤2 %senior notes indenture. Insight Midwest received proceeds of$140.9 million. The proceeds of this offering were used to repay a portionof the outstanding revolving loans under the Insight Midwest Holdings creditfacility. All of these 101¤2 %senior notes and $185.0 million principal amount of Insight Midwest’s 93¤4 seniornotes were retired with proceeds from our new $2.445 billion seniorsecured credit facility on November 7, 2006 as described below.

On March 28, 2002, weborrowed $100.0 million from our manager. Insight Midwest Holdings is permittedto make distributions to us for the purpose of repaying this loan provided thatthere are no defaults existing under the credit facility. This loan bearsannual interest of 9%, compoundedsemi-annually, has a scheduled maturity date of January 31, 2011 andpermits prepayments. During the third and fourth quarters of 2006, we repaid atotal of $15.5 million of the loan balance. As of December 31, 2006 and 2005, the balance of the $100.0million loan, including accrued interest, was $136.1 and $139.1 million.

On October 6, 2006,we entered into a new $2.445 billion senior secured credit facility for thepurpose of reducing our interest expense and near term debt amortizations. Thefacility is comprised of a $385.0 million A Term Loan scheduled to mature on October 6,2013, a $1.8 billion B Term Loan scheduled to mature on April 6, 2014 and$260.0 million in revolving commitments scheduled to terminate on October 6,2012. The proceeds were used to refinance our existing senior credit facilityand to redeem all $630.0 million outstanding principal amount of our 101⁄2%Senior Notes due November 1, 2010 at a redemption price of 103.5% of theprincipal amount and $185.0 million principal amount of our total outstanding$385.0 million of the 93⁄4% Senior Notes due October 1, 2009 at a redemptionprice of 101.625% of the principal amount redeemed, plus accrued and unpaidinterest. We recorded $1.7 million in other expenses in these transactions. Asof December 31, 2006, $110.3 million of the $260.0 revolving commitmentswere drawn, including $9.3 million in letters of credit.

On February 12, 2007,we amended the credit facility to reduce the applicable margin with respect tothe $1.8 billion B Term Loan facility by 25 basis points, or 0.25%.

Obligations under the newcredit facility are secured by a pledge of the outstanding equity interests ofInsight Midwest Holdings and its subsidiaries. Borrowings under the creditfacility will bear interest at a base rate selected by Insight Midwest Holdingsplus an interest margin. The applicable interest margin may be increased orreduced based on Insight Midwest Holdings’ then current leverage ratio. Thecredit facility requires Insight Midwest Holdings to maintain an interestcoverage ratio (as defined in the credit agreement) initially not to be lessthan 1.50:1.00 and a leverage ratio (as defined in the credit agreement)initially not to exceed 6.25:1.00. The interest coverage ratio steps up and theleverage ratio steps down incrementally over the term of the credit facility. Additionally,the credit agreement contains customary affirmative and negative covenantsconcerning the conduct of Insight Midwest Holdings’ business operations, suchas limitations on the incurrence of indebtedness, the granting of liens,mergers, consolidations and disposition of assets, restricted payments, paymentof dividends, investments, hedging arrangements, transactions with affiliatesand the entry into certain restrictive agreements.

The credit agreement alsocontains customary events of default, including, but not limited to, failure topay principal or interest, failure to pay or default under other material debt,misrepresentations or breach of warranty, violation of certain covenants, achange of control, the commencement of bankruptcy proceeding, the insolvency ofInsight Midwest Holdings or certain of its affiliates and the rendering of ajudgment in excess of $25.0 million against Insight Midwest Holdings or certainof its affiliates. Upon the 

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occurrenceof an event of default under the credit agreement, Insight Midwest Holdingsobligations under the credit facility may be accelerated and the lendingcommitments under the credit facility terminated.

As of December 31,2006, we were in compliance with the credit facility’s covenant requirements.Given current operating conditions and projected results of operations, weanticipate continued compliance under this credit facility for the foreseeablefuture.

The creditfacility has been structured to survive an “Exit Event” (i.e., a division ofassets of Insight Midwest in accordance with its partnership agreement or analternative exit agreed to by us and Comcast Cable), subject to certainconditions, including:

·       proforma financial covenant compliance upon consummation of the Exit Event

·       compliancewith the financial covenants for the remaining life of the credit facility

·       thereshall not have occurred and be continuing any event of default that wouldcontinue after giving effect to the Exit Event.

Subject to pro formafinancial covenant compliance, any cash received as a result of the Exit Eventmay be applied, at our option, to: (a) repay the remaining 9 3⁄4% SeniorNotes, (b) repay the Insight Inc. 12 1⁄4% senior discount notes, (c) repaythe $100.0 million intercompany note, (d) prepay the Term Loans on a prorata basis, (e) repay other debt and/or (f) for general corporatepurposes. After the occurrence of the Exit Event, the margin with respect tothe Term Loan B will increase by 50 basis points, or 0.50%, if and for so longas the Insight Midwest Holdings’ leverage ratio exceeds 6.50:1.00. Upon theoccurrence of the Exit Event, the maximum leverage permitted will increase by0.50:1.00.

We have a substantial amountof debt. Our high level of debt could have important consequences for you. Ourinvestments in our operating subsidiaries, including Insight Midwest,constitute substantially all of our operating assets. Consequently, oursubsidiaries conduct all of our consolidated operations and own substantiallyall of our operating assets. Our principal source of cash we need to pay ourobligations and to repay the principal amount of our debt obligations is thecash that our subsidiaries generate from their operations and their borrowings.Our subsidiaries are not obligated to make funds available to us and arerestricted by the terms of their indebtedness from doing so. Because of suchrestrictions, our ability to access the cash flow of our subsidiaries may be contingentupon our ability to refinance the debt of our subsidiaries.

We believe that theInsight Midwest Holdings credit facility, cash on-hand and our cash flow fromoperations are sufficient to support our current operating plan. As of December 31,2006, we had the ability to draw upon $149.7 million of unused availabilityunder the Insight Midwest Holdings credit facility to fund any shortfallresulting from the inability of Insight Midwest’s cash from operations to fundits capital expenditures, meet its debt service requirements or otherwise fundits operations. We expect to use any available Free Cash Flow to repay ourindebtedness.

Thefollowing table summarizes our contractual obligations and commitments,excluding interest and commitments for programming, as of December 31,2006, including periods in which the related payments are due (in thousands):

| ** **              | ** ** | **Contractual Obligations** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **Long-Term  Debt**              | ** ** | **Operating  Leases** | ** ** | **Total** | ** ** |
| 2007                    |       | $                                | —     |   |   | $ | 2,481 |   |   | $ | 2,481 |   |
| 2008                    |       | 9,313                            |       |   | 1,783 |   |   | 11,096 |   |
| 2009                    |       | 243,062                          |       |   | 1,347 |   |   | 344,409 |   |
| 2010                    |       | 61,313                           |       |   | 682 |   |   | 61,995 |   |
| 2011                    |       | 180,561                          |       |   | 221 |   |   | 180,782 |   |
| Thereafter              |       | 2,091,751                        |       |   | 1,218 |   |   | 1,992,969 |   |
| Total cash  obligations |       | $                                | 2,586,000  |   |   | $ | 7,732 |   |   | $ | 2,593,732 |   |

 

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**Critical Accounting Policies**

The methods, estimates andjudgments we use in applying our most critical accounting policies have asignificant impact on the results we report in our consolidated financialstatements. We evaluate our estimates and judgments on an on-going basis. Webase our estimates on historical experience and on assumptions that we believeto be reasonable under the circumstances. Our experience and assumptions formthe basis for our judgments about the carrying value of assets and liabilitiesthat are not readily apparent from other sources. Actual results may vary fromwhat we anticipate and different assumptions or estimates about the futurecould change our reported results. We believe the following accounting policiesare the most critical to us, in that they are important to the portrayal of ourfinancial statements and they require our most difficult, subjective or complexjudgments in the preparation of our consolidated financial statements.

**Goodwill and Other Identifiable Intangibles**

Weassess the impairment of goodwill and other indefinite-lived intangible assetsannually and on an interim basis whenever events or changes in circumstancesindicate that the carrying value may not be recoverable. Some factors weconsider important which could trigger an impairment review include the following:

·       Significantunderperformance relative to historical performance;

·       Significantchanges in the manner of our use of the acquired assets or the strategy for ouroverall business; and

·       Significantnegative industry or economic trends.

When we determine that thecarrying value of goodwill and other indefinite-lived intangibles may not berecoverable based upon the existence of one or more of the above indicators ofimpairment, we measure any impairment based on a projected discounted cash flowmethod using a discount rate determined by our management to be commensuratewith the risk inherent in our current business model. With the adoption of SFASNo. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002we ceased amortizing goodwill and franchise costs arising from acquisitions. Inlieu of amortization, we perform an annual impairment analysis. If we determinethrough the impairment review process that goodwill or other indefinite-livedintangibles have been impaired, we would record an impairment charge in ourstatement of operations.

**Fixed Assets**

Fixed assets are stated atcost and include costs capitalized for labor and overhead incurred inconnection with the construction of cable system infrastructures, includingthose providing high-speed Internet and the delivery of telephone services. Inaddition, we capitalize labor, material costs and overhead associated withinstallations related to new services on customer premises. Depreciation forbuildings, cable system equipment, furniture, fixtures and office equipment iscalculated using the straight-line method over estimated useful lives rangingfrom 2 to 30 years. Leasehold improvements are amortized using thestraight-line method over the shorter of the remaining terms of the leases orthe estimated lives of the improvements.

**Item7A.**                Quantitativeand Qualitative Disclosure About Market Risk

Our revolving credit andterm loan agreements bear interest at floating rates. Accordingly, we areexposed to potential losses related to changes in interest rates. In order tomanage our exposure to interest rate risk, we enter into derivative financialinstruments, typically interest rate swaps. The counter-parties to 

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our swapagreements are major financial institutions. We do not enter into derivativesor other financial instruments for trading or speculative purposes. As of December 31,2006, $450.0 million of our interest rate swap agreements expire in December 2007and $400.0 million expire in 2008.

The fair market value ofour 93⁄4% senior notes was $203.0 million and the carrying value of our 93⁄4%senior notes was $200.0 million as of December 31, 2006. The fair marketvalue of our credit facility borrowings approximates its carrying value as thecredit facility borrowings bear interest at floating rates of interest. As of December 31,2006 and 2005, the estimated fair value, (cost, if terminated), of our interestrate swap agreements were $306,000 and ($2.4) million and are reflected in ourfinancial statements as other non-current assets or liabilities. Changes in thefair value of our interest rate derivative financial instruments are eitherrecognized in income or in stockholders’ equity as a component of othercomprehensive income depending on whether the derivative financial instrumentsqualify for hedge accounting.

**Item8.**                        FinancialStatements and Supplementary Data

Reference is made to ourconsolidated financial statements beginning on page F-1 of thisreport.

**Item9.**                        Changesin and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

**Item9A.**                Controlsand Procedures

Under the supervision andwith the participation of Insight Midwest’s management, including its ChiefExecutive Officer and Chief Financial Officer, Insight Midwest evaluated theeffectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934) as of December 31,2006. Based upon that evaluation, its Chief Executive Officer and Chief FinancialOfficer concluded that its disclosure controls and procedures were effective.

There has not been anychange in Insight Midwest’s internal control over financial reporting (asdefined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the quarter ended December 31, 2006 that hasmaterially affected, or is reasonably likely to materially affect, its internalcontrol over financial reporting.

Under the supervision andwith the participation of Insight Capital’s management, including its ChiefExecutive Officer and Chief Financial Officer, Insight Capital evaluated theeffectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934) as of December 31,2006. Based upon that evaluation, its Chief Executive Officer and ChiefFinancial Officer concluded that its disclosure controls and procedures wereeffective.

There has not been anychange in Insight Capital’s internal control over financial reporting (asdefined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the quarter ended December 31, 2006 that hasmaterially affected, or is reasonably likely to materially affect, its internalcontrol over financial reporting.

**Item 9**B.               Other Information

**NotApplicable**

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**PART III**

**Item 10.**                 Directors,Executive Officers andCorporate Governance

InsightLP is our sole general partner. Insight Communications is the sole generalpartner of Insight LP. The following table sets forth certain information with respectto the executive officers of us, Insight Capital and Insight Communications.Insight Communications, through Insight LP, serves as our manager.

| **Name**             | ** ** | ** ** | ** ** | **Age**                                                                                                                                                                                       | ** ** | **Position** |
|----------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|
| Sidney R. Knafel     |       | 76         |       | Chairman of the Board of  Insight Communications and Member of the Advisory Committee                                                                                                         |
| Michael S. Willner   |       | 54         |       | Chairman and Chief  Executive Officer of Insight Midwest and Insight Capital and Vice Chairman  and Chief Executive Officer of Insight Communications and Chairman of the  Advisory Committee |
| Dinni Jain           |       | 43         |       | President and Chief  Operating Officer of Insight Midwest, Insight Capital and Insight  Communications and Member of the Advisory Committee                                                   |
| John Abbot           |       | 44         |       | Executive Vice President  and Chief Financial Officer of Insight Midwest, Insight Capital and Insight  Communications                                                                         |
| Hamid Heidary        |       | 50         |       | Executive Vice  President, Central Operations of Insight Midwest, Insight Capital and Insight  Communications                                                                                 |
| Christopher Slattery |       | 39         |       | Executive  Vice President, Field Operations of Insight Midwest, Insight Capital and  Insight Communications                                                                                   |
| Elliot Brecher       |       | 41         |       | Senior Vice President and General Counsel of Insight  Midwest, Insight Capital and Insight Communications                                                                                     |

 

*Sidney R. Knafel,* a directorof Insight Communications, has been Chairman of the Board of Insight Communicationssince 1985. He was the founder, Chairman and an equity holder of Vision CableCommunications, Inc. from 1971 until its sale in 1981. Mr. Knafel ispresently the managing partner of SRK Management Company, a private investmentcompany. He is a director of General American Investors Company, Inc.,IGENE Biotechnology, Inc. and VirtualScopics, Inc., as well asseveral private companies. Mr. Knafel is a graduate of Harvard College andHarvard Business School.

*Michael S. Willner,* adirector of Insight Communications, co-founded and has served as ChiefExecutive Officer since 1985. Mr. Willner has also served as Vice Chairmanof Insight Communications since August 2002 and as President from 1985 to August 2002and from August 2003 to February 2006. Since August 2002, he hasserved as Chairman of Insight Midwest and Insight Capital. Mr. Willnerserved as Executive Vice President and Chief Operating Officer of Vision Cablefrom 1979 through 1985, Vice President of Marketing for Vision Cable from 1977to 1979 and General Manager of Vision Cable’s Bergen County, New Jersey cabletelevision system from 1975 to 1977. Hecurrently serves on the Board of Directors and Executive Committee of theNational Cable & Telecommunications Association. He also serveson the boards of C-SPAN, Women in Cable and Telecommunications, the CableCenter and the Walter Kaitz Foundation, as well as the Executive Committee ofCableLabs. Mr. Willner is a graduate of Boston University’s College ofCommunication and serves on the school’s Executive Committee.

*Dinni Jain*has served asPresident since February 2006 and as Chief Operating Officer since October 2003.Mr. Jain served as Executive Vice President between October 2003 and February 2006.He joined Insight Communications in January 2002 as Senior Vice Presidentand Chief Financial Officer. From 1994 through 2002, he served in a number ofroles in sales, marketing, customer service, strategy, corporate developmentand general management at NTL Incorporated, one of Europe’s leading cable and 

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telecommunicationscompanies. He ultimately served as Deputy Managing Director of NTL’s ConsumerDivision, overseeing customer and new business growth, as well as the qualityof customer satisfaction. He also managed the operations of NTL’s Cable andWireless Consumer Group from 2000 to 2001. He currently serves on the Board ofDirectors of the Cable & Telecommunication Association for MarketingFoundation. Mr. Jain attended Princeton University.

*John Abbot*has served as Executive Vice President since February 2006and as Chief Financial Officer since January 2004. Mr. Abbot servedas Senior Vice President between January 2004 and February 2006.Prior to joining Insight Communications, Mr. Abbot was a Managing Directorat Morgan Stanley, where he had been in the Global Media and CommunicationsGroup of the Investment Banking Division from January 1995 to January 2004.Prior to joining Morgan Stanley, Mr. Abbot was an associate at Goldman,Sachs & Co., and he also served six years as a Surface Warfare Officerin the U.S. Navy. Mr. Abbot received a bachelor’s degree in SystemsEngineering from the U.S. Naval Academy, an ME in Industrial Engineering fromPennsylvania State University and an MBA from Harvard Business School.

*Hamid Heidary*has served as Executive Vice President, CentralOperations since April 2006. Previously, Mr. Heidary served as ChiefOperating Officer of Iesy Hessen GmbH, a cable television operator in Hessen,Germany, and Chief Technology Officer of NTL:Europe. Mr. Heidary has alsoheld various executive technical and management positions with NTL UK, C-CorElectronics, Inc. and Allen Bradley. Mr. Heidary received a BSEE andMSEE from Southern Illinois University, an MBA from California Coast Universityand a certificate of corporate directorship from the Institute of Directors inLondon.

*Christopher Slattery* hasserved as Executive Vice President, Field Operations since February 2006.He joined Insight Communications in October 2004 as Senior Vice President,Sales, then served as Senior Vice President, Growth from April 2005 until January 2006when he was named Senior Vice President, Field Operations. Prior to joiningInsight Communications, from September 2002, Mr. Slattery served as aManaging Director of NTL’s London operations, responsible for the management of1.5 million cable network homes, and with responsibility in the areas of sales,growth strategy, reduction of churn and customer experience. Prior thereto,from September 2001, he served as Sales Director for NTL’s European operations,responsible for designing, developing and implementing customer growthstrategies across NTL’s then newly-acquired European assets. From August 2000to August 2001, Mr. Slattery served as a General Manager of NTL’sUnited Kingdom operations, with overall responsibility for sales and marketing,customer retention, customer care and network maintenance, as well as budgetstrategy, planning and implementation. Prior thereto, from January 1990, Mr. Slatteryserved in a number of sales-related roles at NTL and its predecessors.

*Elliot Brecher* has served asSenior Vice President and General Counsel of Insight Communications since January 2000.Previously, he was associated with the law firm Cooperman Levitt WinikoffLester & Newman, P.C., which served as Insight Communications’ legalcounsel until July 2000 when it merged with Sonnenschein Nath &Rosenthal, LLP which continues to serve as our legal counsel. He joined thatfirm in February 1994 and served as a partner from January 1996 untiljoining Insight Communications. Prior to that, he was an associate of the lawfirm Rosenman & Colin from October 1988. Mr. Brecherreceived his law degree from Fordham University.

Except as described in this report, there are noarrangements or understandings between any Member of the Advisory Committee orexecutive officer and any other person pursuant to which that person waselected or appointed to his or her position.

Since we are not a listed company, we are not requiredto establish an audit committee. Rather, the functions of an audit committeefor our company are performed by the audit committee of our manager. Thecurrent members of the audit committee are Michael J. Connelly (Chairman),Stephen C. Gray and 

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Geraldine B. Laybourne.The board of directors of our manager has determined that each of Messrs. Connellyand Gray meets the SEC definition of an audit committee financial expert.

The board of directors ofour manager has adopted a code of ethics applicable to all of our employees,including our chief executive officer, chief financial officer and chiefaccounting officer. This code of ethics has been filed as an exhibit to thisannual report and can be found on the website of Insight Communications atwww.insightcom.com.

**Advisory Committee**

The Partnership Agreementof Insight Midwest provides for a five member Advisory Committee. InsightCommunications, through Insight LP, is entitled to designate three of themembers of the Advisory Committee. The remaining members are designated by anaffiliate of Comcast Cable. The Advisory Committee serves in an advisorycapacity only. Insight LP is our general partner and has the exclusiveauthority to manage our business, operations and affairs, subject to certainapproval rights of Comcast Cable.

**Item 11.**                 Executive Compensation

See compensationdisclosure regarding Named Executive Officers of our manager, InsightCommunications, set forth in its Annual Report on Form 10-K for theyear ended December 31, 2006 under “Item 11. Executive Compensation.”None of the members of the Advisory Committee of Insight Midwest arecompensated for their services as such members, but are entitled toreimbursement for travel expenses.

**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters

Insight Capital is a wholly-owned subsidiary ofInsight Midwest.

Thefollowing table sets forth information with respect to the beneficial ownershipof Insight Midwest’s partnership interests:

| **Name and Address of Beneficial Owner**                                                    | ** ** | ** **      | ** ** | **Type of Interest** | ** ** | **Percent of  Partnership Interest** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|--------------------------------|------------|------------------------------------------------|------------|
| Insight  Communications Company, L.P.(1)   810 Seventh Avenue, New York, NY 10019                                    |       | General Partner |       |                           | 50         | %                                              |       |
| TCI of Indiana Holdings,  LLC (2)  c/o Comcast Cable Holdings, LLC, 1500 Market Street, Philadelphia,  PA 19102 |       | Limited Partner |       |                           | 50         | %                                              |       |

----

(1)          Insight LP is awholly-owned subsidiary of Insight Communications. Sidney R. Knafel, hischildren and trusts for their benefit, and Michael S. Willner, through theirownership of Insight Communications’ Series A voting preferred stock haveapproximately 62.1% of Insight Communications’ voting power.

(2)          TCIof Indiana Holdings is an indirect wholly-owned subsidiary of Comcast Cable.

**PartnershipSplit-Up Provisions**

Our manager, InsightCommunications, owns 50% of our outstanding partnership interests. The other50% is owned by an indirect subsidiary of Comcast Corporation. Our partnershipagreement provides that either partner has the right to commence a split-upprocess with respect to the partnership. To date, neither partner has commencedthe split-up process.

47

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**Item 13.**                 CertainRelationships and Related Transactions, and Director Independence

**Insight Interactive**

Our manager is currentlyproviding the interactive services of its wholly-owned subsidiary, InsightInteractive, LLC, including an interactive program guide and interactive localinformation and community guides, to customers in some of our systems. For theyears ended December 31, 2006, 2005 and 2004, fees for such servicestotaled $2.2 million, $2.8 million and $2.5 million.

**Insight LP**

Our manager, throughInsight LP, receives a management fee for each twelve-month period equal to 3%of substantially all revenue arising out of or in connection with theoperations of our systems. For the years ended December 31, 2006, 2005 and2004, Insight LP earned management fees of $38.1 million, $33.5 million and$30.0 million. Our manager, through Insight LP, owns 50% of the partnershipinterests in us, and we own 100% of the common stock of Insight Capital. Inaddition, Sidney Knafel, Michael Willner and Dinni Jain, who are each executiveofficers of our manager, are members of and collectively constitute a majorityof our advisory committee.

**Insight MidwestHoldings**

Insight Midwest Holdingsis party to a $2.445 billion senior secured credit facility. On March 28,2002, we borrowed $100.0 million from our manager, $97.0 million of which wascontributed to Insight Midwest Holdings in April 2002 for use in payingdown the credit facility balance and in funding financing costs associated withamendments to the facility, and $3.0 million of which was contributed toInsight Ohio as of March 28, 2002. Insight Midwest Holdings is permittedto make distributions to us for the purpose of repaying the $100.0 million loanso long as no default exists under the credit facility. This loan, whichremained outstanding as of December 31, 2006, bears annual interest of 9%,compounded semi-annually, has a scheduled maturity date of January 31,2011 and permits prepayments.

**Comcast Cable**

We purchase the majority of our programming throughaffiliates of Comcast Cable. Charges for such programming, including a 11⁄2%administrative fee, were $181.6 million for the year ended December 31,2006. As of December 31, 2006, $30.7 million of accrued programming costswere due to affiliates of Comcast Cable. We believe that the programming ratescharged through these affiliates are lower than those available fromindependent parties.

In October 1999, to facilitate the administrationof our advertising services in our Kentucky Systems, we entered into anagreement with Comcast Cable, which provided for this affiliate to perform allof our Kentucky advertising sales and related administrative services.Effective September 26, 2004, this agreement was terminated by mutualagreement. We earned advertising revenues from this affiliate of $13.5 millionfor the year ended December 31, 2004.

Prior to December 31, 2004, to facilitatedelivery of telephone services, we were party to a joint operating agreementwith Comcast Cable that allowed us to deliver to our residential customers, incertain of our service areas, local telephone service provided by ComcastCable. Under the terms of the agreement, we leased certain capacity on ourlocal network to Comcast Cable. Revenue earned from leased network capacityused in the provision of telephone services was $8.5 million for the year endedDecember 31, 2004. In addition, we received additional payments related tocertain services and support, including installations, marketing and billing.

On December 31, 2004, we acquired the telephonebusiness conducted by Comcast Cable in the markets served under our jointoperating agreement and terminated the joint operating agreement. 

48

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Subsequent to December 31,2004, we no longer earn revenue from the services described above, but ratherwe record the continued amortization of installation fee revenue and revenuesearned directly from our customers for providing telephone and telephonerelated services. Comcast Cable paid us approximately $13 million in cash andtransferred to us certain assets and liabilities related to the telephonebusiness.

On March 17, 2000,Insight LP entered into a management agreement with Comcast ofMontana/Indiana/Kentucky/Ohio (“Comcast”) (formerly known as InterMedia PartnersSoutheast), an affiliate of Comcast Cable, to provide management services tocable television systems owned by Comcast. These systems served approximately89,400 customers in the state of Indiana. Certain of our employees operatedthese managed systems. Overhead costs we incurred were allocated ratably andcharged to Comcast on a monthly basis. Effective July 31, 2004, themanagement agreement was terminated by mutual agreement.

**Policies andProcedures**

**Our manager’s audit committeereviews and discusses with management and our independent auditors any relatedparty transactions. Our manager’s audit committee has the ultimate authority toapprove all related party transactions.**

**Item 14.**                 PrincipalAccountant Fees and Services

Feesfor professional services provided by our independent auditors in each of thelast two fiscal years, in each of the following categories are as follows:

| ** **          | ** ** | **2006**                | ** ** | **2005** | ** ** |
|---------------------|------------|-------------------------|------------|----------|------------|
| ** **          | ** ** | **(in thousands)** | ** ** |
| Audit fees          |       | $                       | 295        |     | $          | 302 |   |
| Audit-related  fees |       | —                  |       | —   |       |
| Tax fees            |       | 237                     |       | —   |       |
| All other fees      |       | —                  |       | —   |       |
| Total               |       | $                       | 532        |     | $          | 302 |   |

 

Audit fees include fees associated with the annualaudit, the reviews of our quarterly reports on Form 10-Q andassistance with and review of documents filed with the Securities and ExchangeCommission. Tax fees include tax compliance and tax consultations.

The audit committee of our manager has adopted apolicy that requires advance approval of all audit, audit-related, tax andother services performed by our independent auditor. The policy provides forpre-approval by the audit committee of specifically defined audit and non-auditservices. Unless the specific service has been previously pre-approved withrespect to that year, the audit committee must approve the permitted servicebefore the independent auditor is engaged to perform it.

49

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**PART IV**

**Item 15.**                 Exhibitsand Financial Statement Schedules

**(a) FinancialStatements:**

Our financial statements,as indicated by the Index to Consolidated Financial Statements set forth below,begin on page F-1 of this Form 10-K, and are herebyincorporated by reference. Financial statement schedules have been omittedbecause they are not applicable or the required information is included in thefinancial statements or notes thereto.

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                                                                         | ** ** | **Page** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| **Insight Midwest, L.P.**                                                                                               |       |     |       |
| Report of Independent Auditors—Ernst & Young  LLP                                                         |       | F-1      |       |
| Consolidated Balance  Sheets as of December 31, 2006 and 2005                                                      |       | F-2      |       |
| Consolidated  Statements of Operations for the years ended December 31, 2006, 2005 and  2004                       |       | F-3      |       |
| Consolidated Statements of Changes in Partners’  Capital for the years ended December 31, 2006, 2005 and 2004 |       | F-4      |       |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2006, 2005 and  2004                       |       | F-5      |       |
| Notes to  Consolidated Financial Statements                                                                             |       | F-6      |       |
| **Insight  Capital, Inc.**                                                                                         |       |     |       |
| Report of  Independent Auditors—Ernst & Young LLP                                                         |       | F-20     |       |
| Balance  Sheets as of December 31, 2006 and 2005                                                                   |       | F-21     |       |
| Statements  of Operations for the years ended December 31, 2006, 2005 and 2004                                     |       | F-22     |       |
| Statements of Changes in Shareholders Deficit for the  years ended December 31, 2006, 2005 and 2004                |       | F-23     |       |
| Statements  of Cash Flows for the years ended December 31, 2006, 2005 and 2004                                     |       | F-24     |       |
| Notes to Financial  Statements                                                                                          |       | F-25     |       |

 

50

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**(b)   Exhibits:**

| Exhibit   Number | ** ** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
|------------------|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 3.1              |       |       | Certificate of Limited Partnership of Insight  Midwest, L.P.(1)                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 3.2              |       |       | Amended and Restated  Limited Partnership Agreement of Insight Midwest, L.P., dated January 5,  2001(2)                                                                                                                                                                                                                                                                                                                                                                               |
| 3.2              | A          |       | First Amendment to  Amended and Restated Limited Partnership Agreement of Insight Midwest, L.P.,  dated September 30, 2002(3)                                                                                                                                                                                                                                                                                                                                                         |
| 3.3              |       |       | Restated Certificate of  Incorporation of Insight Capital, Inc.(1)                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.4              |       |       | By-laws of Insight  Capital, Inc.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.1             |       |       | Credit Agreement, dated  as of October 6, 2006, among Insight Midwest Holdings, LLC, as Borrower,  J.P. Morgan Securities Inc. and Bank of America, N.A., as Co-Syndication  Agents, Morgan Stanley Senior Funding, Inc., General Electric Capital  Corporation, Wachovia Bank, National Association and The Royal Bank of  Scotland plc, as Co-Documentation Agents, and The Bank of New York, as  Administrative Agent, and the other agents and lenders party thereto(4) |
| 10.1             | A          |       | Guarantee Agreement,  dated as of October 6, 2006, among Insight Midwest Holdings, LLC,  Insight Midwest, L.P., each of the subsidiaries of Insight Midwest Holdings,  LLC signatory thereto, and The Bank of New York (4)                                                                                                                                                                                                                                                            |
| 10.1             | B          |       | Security Agreement,  dated as of October 6, 2006, among Insight Midwest Holdings, LLC,  Insight Midwest, L.P., each of the subsidiaries of Insight Midwest Holdings,  LLC signatory thereto, and The Bank of New York(4)                                                                                                                                                                                                                                                              |
| 10.2             |       |       | Second Amended and  Restated Operating Agreement of Insight Communications Midwest, LLC, dated as  of January 5, 2001(5)                                                                                                                                                                                                                                                                                                                                                              |
| 10.3             |       |       | Amended and Restated  Management Agreement by and between Insight Communications of Indiana, LLC  (now known as Insight Communications Midwest, LLC) and Insight Communications  Company, L.P., dated as of October 1, 1999(1)                                                                                                                                                                                                                                                        |
| 10.4             |       |       | First Amendment to  Amended and Restated Management Agreement dated as of January 5, 2001,  by and between Insight Communications Midwest, LLC and Insight Communications  Company, L.P.(5)                                                                                                                                                                                                                                                                                           |
| 10.5             |       |       | Amended and Restated  Limited Partnership Agreement of Insight Kentucky Partners II, L.P., dated as  of October 1, 1999(5)                                                                                                                                                                                                                                                                                                                                                            |
| 10.6             |       |       | First Amendment to  Amended and Restated Limited Partnership Agreement of Insight Kentucky  Partners II, L.P., dated as of January 5, 2001(5)                                                                                                                                                                                                                                                                                                                                         |
| 10.7             |       |       | Management Agreement by  and between Insight Kentucky Partners II, L.P. and Insight Communications  Company, L.P., dated as of October 1, 1999(1)                                                                                                                                                                                                                                                                                                                                     |
| 10.8             |       |       | Amended and Restated  Operating Agreement of Insight Communications of Central Ohio, LLC, dated as  of September 29, 2003(6)                                                                                                                                                                                                                                                                                                                                                          |
| 10.9             |       |       | Management Agreement by  and between Insight Communications of Central Ohio, LLC and Insight  Communications Company, L.P., dated as of September 29, 2003(6)                                                                                                                                                                                                                                                                                                                         |
| 10.10            |       |       | Indenture relating to  93⁄4% senior notes of Registrants, dated as of October 1, 1999(7)                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.10            | A          |       | First Supplemental  Indenture, dated as of January 14, 2004, relating to 93⁄4% senior notes(8)                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.11            |       |       | Promissory Note, dated  March 28, 2002, made by Insight Midwest, L.P. to Insight Communications  Company, Inc.(9)                                                                                                                                                                                                                                                                                                                                                                |

----

 

| 10.12 |   |   | Purchase Agreement,  dated July 2, 2004, between Insight Midwest Holdings, LLC and Comcast  Cable Holdings, LLC and certain of its affiliates(10)               |
|-------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.13 |   |   | Transition and  Termination Agreement, dated as of July 22, 2004, between Comcast of  Montana/Indiana/Kentucky/Utah and Insight Communication Company, L.P.(11) |
| 14    |   |   | Code of Ethics(8)                                                                                                                                                    |
| 21    |   |   | Subsidiaries of  Registrants(12)                                                                                                                                     |
| 31.1  |   |   | Rule 13a-14/15d-14(a) Certification  of the Chief Executive Officer of Insight Midwest, L.P.                                                               |
| 31.2  |   |   | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Financial Officer of Insight Midwest, L.P.                                                            |
| 31.3  |   |   | Rule 13a-14/15d-14(a) Certification  of the Chief Executive Officer of Insight Capital, Inc.                                                          |
| 31.4  |   |   | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Financial Officer of Insight Capital, Inc.                                                       |
| 32.1  |   |   | Section 1350  Certifications of Insight Midwest, L.P.                                                                                                           |
| 32.2  |   |   | Section 1350  Certifications of Insight Capital, Inc.                                                                                                      |

 

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       (1) Filed as an exhibit to Registrants’ Registration Statement on Form S-4(Registration No. 333- 33540) and incorporated herein by reference.

       (2) Filed as an exhibit to the Current Report on Form 8-K,dated January 5, 2001, of Insight Communications Company, Inc. andincorporated herein by reference.

       (3) Filed as an exhibit to the Quarterly Report on Form 10-Qfor the quarterly period ended September 30, 2002 of InsightCommunications Company, Inc. and incorporated herein by reference.

       (4) Filed as an exhibit to the Current Report on Form 8-K,dated October 6, 2006, of Insight Communications Company, Inc. andincorporated herein by reference.

       (5) Filed as an exhibit to the Annual Report on Form 10-K forthe year ended December 31, 2000 of Insight Communications Company, Inc.and incorporated herein by reference.

       (6) Filed as an exhibit to the Quarterly Report on Form 10-Qfor the quarterly period ended September 30, 2003 of InsightCommunications Company, Inc. and incorporated herein by reference.

       (7) Filed as an exhibit to the Annual Report on Form 10-K forthe year ended December 31, 1999 of Insight Communications Company, Inc.and incorporated herein by reference.

       (8) Filed as an exhibit to the Annual Report on Form 10-K forthe year ended December 31, 2003 of Insight Communications Company, Inc.and incorporated herein by reference.

       (9) Filed as an exhibit to the Annual Report on Form 10-K forthe year ended December 31, 2004 of Insight Communications Company, Inc.and incorporated herein by reference.

(10) Filed as an exhibit to the Quarterly Report on Form 10-Qfor the quarterly period ended June 30, 2004 of Insight CommunicationsCompany, Inc. and incorporated herein by reference.

(11) Filed as an exhibit to the Quarterly Report on Form 10-Qfor the quarterly period ended September 30, 2004 of InsightCommunications Company, Inc. and incorporated herein by reference.

(12) Filed as an exhibit to the Annual Report on Form 10-K forthe year ended December 31, 2004 of Registrants and incorporated herein byreference.

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**Report ofIndependent Registered Public Accounting Firm**

The Partners ofInsight Midwest, LP

We have audited the accompanying consolidated balancesheets of Insight Midwest, LP (the “Company”) as of December 31, 2006 and2005, and the related consolidated statements of operations, changes inpartners’ capital, and cash flows for each of the three years in the periodended December 31, 2006. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting*.*Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of Insight Midwest, LP at December 31, 2006 and 2005, and theconsolidated results of their operations and their cash flows for each of thethree years in the period ended December 31, 2006, in conformity with U.S.generally accepted accounting principles.

As discussed in Note 2 tothe consolidated financial statements, the Company adopted Statement ofFinancial Accounting Standards No. 123(R), “Share Based Payment,”effective Janaury 1, 2006.
|                    |   | /s/ Ernst & Young LLP |
|--------------------|--------|--------------------------------|
| New York, New York |   |                           |
| March 6, 2007 |   |                           |

 

F-1

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**INSIGHT MIDWEST, LPCONSOLIDATED BALANCE SHEETS*(*dollars in thousands)**

| ** **                                                                                                                     | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                     | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| **Assets**                                                                                                                     | ** ** |                  | ** ** | ** **            |       |   | ** ** | ** ** |   |
| Cash and cash  equivalents                                                                                                     |       |                  | $          | 39,235                | ** ** |   |   | $ | 24,853 |   |   |
| Investments                                                                                                                    |       |                  | 5,800      | ** **            |       |   | 4,701 |   |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $1,148 and $1,079 as of  December 31, 2006 and 2005 |       |                  | 31,060     | ** **            |       |   | 27,233 |   |   |
| Launch funds  receivable                                                                                                       |       |                  | 355        | ** **            |       |   | 974 |   |   |
| Prepaid expenses  and other current assets                                                                                     |       |                  | 7,748      | ** **            |       |   | 8,860 |   |   |
| Total current assets                                                                                                           |       |                  | 84,198     | ** **            |       |   | 66,621 |   |   |
| Fixed assets, net                                                                                                              |       |                  | 1,138,186  | ** **            |       |   | 1,107,571 |   |   |
| Goodwill                                                                                                                       |       |                  | 14,684     | ** **            |       |   | 14,684 |   |   |
| Franchise costs                                                                                                                |       |                  | 2,357,535  | ** **            |       |   | 2,357,535 |   |   |
| Deferred  financing costs, net of accumulated amortization of $24,129 and $19,769 as of  December 31, 2006 and 2005       |       |                  | 15,554     | ** **            |       |   | 19,910 |   |   |
| Other non-current  assets                                                                                                      |       |                  | 2,265      | ** **            |       |   | 1,582 |   |   |
| Total assets                                                                                                                   |       |                  | $          | 3,612,422             | ** ** |   |   | $ | 3,567,903 |   |   |
| **Liabilities  and partners’ capital**                                                                                    | ** ** |                  | ** ** | ** **            |       |   | ** ** | ** ** |   |
| Accounts payable                                                                                                               |       |                  | $          | 43,484                | ** ** |   |   | $ | 40,843 |   |   |
| Accrued expenses  and other liabilities                                                                                        |       |                  | 40,101     | ** **            |       |   | 38,535 |   |   |
| Accrued property  taxes                                                                                                        |       |                  | 13,446     | ** **            |       |   | 12,792 |   |   |
| Accrued  programming costs (inclusive of $30,677 and $29,878 due to related parties as  of December 31, 2006 and 2005)    |       |                  | 45,880     | ** **            |       |   | 43,705 |   |   |
| Deferred revenue                                                                                                               |       |                  | 2,076      | ** **            |       |   | 4,978 |   |   |
| Interest payable                                                                                                               |       |                  | 33,440     | ** **            |       |   | 20,459 |   |   |
| Debt—current  portion                                                                                                     |       |                  | —     | ** **            |       |   | 83,500 |   |   |
| Due to affiliates                                                                                                              |       |                  | 47,412     | ** **            |       |   | 46,013 |   |   |
| Total current liabilities                                                                                                      |       |                  | 225,839    | ** **            |       |   | 290,825 |   |   |
| Deferred revenue                                                                                                               |       |                  | 683        | ** **            |       |   | 1,499 |   |   |
| Debt                                                                                                                           |       |                  | 2,555,722  | ** **            |       |   | 2,432,811 |   |   |
| Other non-current  liabilities                                                                                                 |       |                  | —     | ** **            |       |   | 2,382 |   |   |
| Partners’  capital:                                                                                                       |       |                  |       | ** **            |       |   |   |   |   |
| Deferred stock  compensation                                                                                                   |       |                  | —     | ** **            |       |   | (535 | ) |   |
| Partners’  accumulated capital                                                                                            |       |                  | 829,872    | ** **            |       |   | 840,921 |   |   |
| Accumulated other  comprehensive income                                                                                        |       |                  | 306        | ** **            |       |   | — |   |   |
| Total partners’  capital                                                                                                  |       |                  | 830,178    | ** **            |       |   | 840,386 |   |   |
| Total liabilities  and partners’ capital                                                                                  |       |                  | $          | 3,612,422             | ** ** |   |   | $ | 3,567,903 |   |   |

 

See accompanying notes

F-2

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**INSIGHT MIDWEST, LPCONSOLIDATED STATEMENTS OF OPERATIONS(dollars in thousands)**

| ** **                                                                                                                                                                                                              | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                                              | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenue                                                                                                                                                                                                                 |       | $                                          | 1,262,557  |   | $ | 1,117,680 |   | $ | 1,000,814 |   |
| Operating costs  and expenses:                                                                                                                                                                                          |       |                                       |       |   |   |   |   |
| Programming and other operating costs (exclusive of  depreciation and amortization) (inclusive of $181,560, $157,643 and $150,956  of programming expense incurred through related parties during 2006, 2005 and  2004) |       | 448,359                                    |       | 379,840 |   | 340,990 |   |
| Selling, general and administrative (inclusive of $147,  $6,342 and $0 of stock-based compensation for the years ended  December 31, 2006, 2005 and 2004                                                           |       | 300,727                                    |       | 254,147 |   | 203,787 |   |
| Management fees                                                                                                                                                                                                         |       | 38,094                                     |       | 33,534 |   | 29,987 |   |
| Depreciation and amortization                                                                                                                                                                                           |       | 265,455                                    |       | 241,695 |   | 235,105 |   |
| Total operating  costs and expenses                                                                                                                                                                                     |       | 1,052,635                                  |       | 909,216 |   | 809,869 |   |
| Operating income                                                                                                                                                                                                        |       | 209,922                                    |       | 208,464 |   | 190,945 |   |
| Other income  (expense):                                                                                                                                                                                                |       |                                       |       |   |   |   |   |
| Interest expense                                                                                                                                                                                                        |       | (219,858                                   | )          | (200,241 | ) | (177,524 | ) |
| Interest income                                                                                                                                                                                                         |       | 1,430                                      |       | 1,993 |   | 368 |   |
| Other income (expense), net                                                                                                                                                                                             |       | (2,248                                     | )          | 3,083 |   | (1,368 | ) |
| Total other  expense, net                                                                                                                                                                                               |       | (220,676                                   | )          | (195,165 | ) | (178,524 | ) |
| Income (loss)  before extraordinary item                                                                                                                                                                                |       | (10,754                                    | )          | 13,299 |   | 12,421 |   |
| Extraordinary  item                                                                                                                                                                                                     |       | —                                     |       | — |   | 15,627 |   |
| Net income (loss)  applicable to common interests                                                                                                                                                                       |       | $                                          | (10,754    | ) | $ | 13,299 |   | $ | 28,048 |   |

 

See accompanying notes

F-3

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**INSIGHT MIDWEST, LPCONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL(dollars in thousands)**

| ** **                                                      | ** ** | **Partners’  Accumulated  Capital** | ** ** | **Deferred Stock  Compensation** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Partners’  Capital** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------|------------|
| Balance at  December 31, 2003                              |       |                                     | $          | 799,574                               |       |                                                      |       | $                           | —     |   |   |   | $ | (3,422 | ) |   | $ | 796,152 |   |
| Net income                                                      |       |                                     | 28,048     |                                  |       |                                                      |       |                        |       |   |   |   |   | 28,048 |   |
| Unrealized income on interest rate swaps                        |       |                                     |       |                                  |       |                                                      |       |                        |       |   | 3,422 |   |   | 3,422 |   |
| Total comprehensive income                                      |       |                                     |       |                                  |       |                                                      |       |                        |       |   |   |   |   | 31,470 |   |
| Balance at  December 31, 2004                              |       |                                     | 827,622    |                                  | ** ** | ** **                                                | **—** |                        | ** ** | ** ** | **—** |   |   | 827,622 |   |
| Issuance of deferred stock                                      |       |                                     |       |                                  |       |                                                      | (535       | )                           |       |   |   |   |   | (535 | ) |
| Net income                                                      |       |                                     | 13,299     |                                  |       |                                                      |       |                        |       |   |   |   |   | 13,299 |   |
| Balance at  December 31, 2005                              |       |                                     | 840,921    |                                  |       |                                                      | (535       | )                           |       |   | — |   |   | 840,386 |   |
| Net loss                                                        |       |                                     | (10,754    | )                                     |       |                                                      |       |                        |       |   |   |   |   | (10,754 | ) |
| Unrealized income on interest rate swaps                        |       |                                     |       |                                  |       |                                                      |       |                        |       |   | 306 |   |   | 306 |   |
| Total comprehensive loss                                        |       |                                     |       |                                  |       |                                                      |       |                        |       |   |   |   |   | (10,448 | ) |
| Reversal of deferred compensation upon adoption of  SFAS 123(R) |       |                                     | (535       | )                                     |       |                                                      | 535        |                        |       |   |   |   | ** ** | **—** | ** ** |
| Amortization of non-cash compensation                           |       |                                     | 240        |                                  |       |                                                      |       |                        |       |   |   |   |   | 240 |   |
| Balance at  December 31, 2006                              |       |                                     | $          | 829,872                               |       |                                                      |       | $                           | —     |   |   |   | $ | 306 |   |   | $ | 830,178 |   |

 

See accompanying notes

F-4

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**INSIGHT MIDWEST, LPCONSOLIDATED STATEMENTS OF CASH FLOWS(dollars in thousands)**

| ** **                                                                                | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Operating  activities:**                                                                |       |                                       |       |   |   |   |   |
| Net income (loss)                                                                         |       | $                                          | (10,754    | ) | $ | 13,299 |   | $ | 28,048 |   |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |       |                                       |       |   |   |   |   |
| Depreciation and amortization                                                             |       | 265,455                                    |       | 241,695 |   | 235,105 |   |
| Stock-based compensation                                                                  |       | 147                                        |       | 6,342 |   | — |   |
| Provision for losses on trade accounts receivable                                         |       | 18,554                                     |       | 17,613 |   | 18,301 |   |
| Amortization of note discount                                                             |       | 557                                        |       | 333 |   | 304 |   |
| Gain on interest rate swaps                                                               |       | —                                     |       | (2,078 | ) | (36 | ) |
| Changes in operating assets and liabilities:                                              |       |                                       |       |   |   |   |   |
| Trade accounts receivable                                                                 |       | (22,381                                    | )          | (13,494 | ) | (20,382 | ) |
| Launch funds receivable                                                                   |       | 619                                        |       | 1,775 |   | 6,672 |   |
| Prepaid expenses and other assets                                                         |       | 655                                        |       | 608 |   | 3,483 |   |
| Accounts payable                                                                          |       | 2,641                                      |       | 13,696 |   | (2,280 | ) |
| Interest payable                                                                          |       | 12,981                                     |       | (184 | ) | (2,672 | ) |
| Accrued expenses and other liabilities                                                    |       | (5,430                                     | )          | (27,420 | ) | 14,429 |   |
| Net cash provided  by operating activities                                                |       | 263,044                                    |       | 252,185 |   | 280,972 |   |
| **Investing activities:**                                                                 |       |                                       |       |   |   |   |   |
| Purchase of fixed assets                                                                  |       | (284,427                                   | )          | (215,083 | ) | (162,806 | ) |
| Purchase of intangible assets                                                             |       | —                                     |       | — |   | (107 | ) |
| Purchase of investments                                                                   |       | (1,099                                     | )          | (601 | ) | — |   |
| Sale of fixed assets                                                                      |       | 856                                        |       | 1,109 |   | — |   |
| Net cash used in investing activities                                                     |       | (284,670                                   | )          | (214,575 | ) | (162,913 | ) |
| **Financing activities:**                                                                 |       |                                       |       |   |   |   |   |
| Proceeds from borrowings under old credit facilities                                      |       | 85,000                                     |       | — |   | — |   |
| Proceeds from borrowings under new credit facilities                                      |       | 2,286,000                                  |       | — |   | — |   |
| Repayment of old credit facilities                                                        |       | (1,489,250                                 | )          | (83,500 | ) | (68,250 | ) |
| Repayment of notes                                                                        |       | (815,000                                   | )          | — |   | — |   |
| Debt refinancing costs                                                                    |       | (30,742                                    | )          | (1,733 | ) | (12 | ) |
| Net cash (used in) provided by financing activities                                       |       | 36,008                                     |       | (85,233 | ) | (68,262 | ) |
| Net change in cash and cash equivalents                                                   |       | 14,382                                     |       | (47,623 | ) | 49,797 |   |
| Cash and cash  equivalents, beginning of year                                             |       | 24,853                                     |       | 72,476 |   | 22,679 |   |
| Cash and cash  equivalents, end of year                                                   |       | $                                          | 39,235     |   | $ | 24,853 |   | $ | 72,476 |   |

 

See accompanying notes

F-5

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1. Organizationand Basis of Presentation**

We were formed in September 1999to serve as the holding company and a financing vehicle for InsightCommunications Company, Inc.’s (“Insight Inc.”) cable television systemjoint venture with AT&T Broadband, LLC (now known as Comcast CableHoldings, LLC (“Comcast Cable”)). We are owned 50% by Insight CommunicationsCompany, L.P. (“Insight LP”), which is wholly owned by Insight Inc., and 50% byan indirect subsidiary of Comcast Cable. Insight LP serves as our generalpartner and manages and operates our systems.

Through our wholly ownedoperating subsidiaries, Insight Communications Midwest, LLC (“InsightCommunications Midwest”), Insight Communications of Central Ohio, LLC (“InsightOhio”) and Insight Kentucky Partners II, L.P. (“Insight Kentucky”), we own andoperate cable television systems in Illinois, Indiana, Kentucky and Ohio whichpassed approximately 2.5 million homes and has approximately 1.4 millioncustomer relationships as of December 31, 2006.

On July 28, 2005,Insight Inc. entered into a definitive merger agreement (“the merger”) withInsight Acquisition Corp., an entity organized by affiliates of The CarlyleGroup in order to effect the transactions contemplated by the merger agreement.Pursuant to the terms of the merger agreement, on December 16, 2005,Insight Acquisition Corp. merged with and into Insight Inc., and Insight Inc.is the surviving entity. As of the effective time of the merger, Insight Inc.’spublic shareholders (other than stockholders that continued as investors in thesurviving corporation and stockholders who demanded appraisal rights) had nofurther ownership interest in Insight Inc. Instead, the shares of common stockof such holders were converted into the right to receive $11.75 in cash pershare. As a result of the merger, Insight Inc.’s common stock is no longerpublicly traded.

***Indiana Systems***

On October 31, 1998,Insight LP and AT&T Broadband contributed certain of their cable televisionsystems located in Indiana and Northern Kentucky to form Insight Communicationsof Indiana, LLC (“Insight Indiana”) in exchange for a 50% equity interest. On October 1,1999, as part of a joint venture restructuring involving the Kentucky Systems(discussed below), Insight Indiana became our wholly owned subsidiary. Pursuantto the terms of our respective operating agreements, we and Insight Indianawill continue until October 1, 2011, unless extended or terminated soonerby Insight LP and Comcast Cable.

***Kentucky Systems***

On October 1, 1999,Insight LP acquired a combined 50% interest in InterMedia Capital Partners VI,LP (the “IPVI Partnership”) from related parties of Blackstone CableAcquisition Company, LLC, InterMedia Capital Management VI, LLC and asubsidiary and related party of AT&T Broadband, for $341.5 million(inclusive of expenses). Concurrently with this acquisition, the KentuckySystems were contributed to us and we assumed debt of $742.1 million (the totaldebt of the IPVI Partnership) in connection with this transaction. Pursuant tothe terms of our operating agreement, we and Insight Kentucky will continueuntil October 1, 2011, unless extended or terminated sooner by Insight LPand Comcast Cable.

***Illinois Systems***

Effective January 1,2001, we completed a series of transactions with Insight LP and AT&TBroadband for the acquisition of additional cable television systems, primarilylocated in the state of Illinois, valued at approximately $2.2 billion (the “AT&Ttransactions”), inclusive of systems valued at approximately $775.8 million,contributed by Insight LP.

F-6

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**1. Organization and Basis ofPresentation (Continued)**

Concurrently with thecompletion of Insight LP’s purchase of systems from AT&T Broadband, InsightLP contributed such systems to us, along with all of its wholly owned systemsserving approximately 175,000 customers. The total value of such contributedsystems was $1.2 billion. We recorded the respective assets and liabilities,including debt assumed, of the contributed systems’ at their respectivecarrying values with the net difference recorded as an addition to partners’capital.

Concurrently, AT&TBroadband contributed directly to us certain Illinois systems servingapproximately 250,000 customers. The total value of such contributed systemswas $983.3 million. We recorded 100% of the assets and liabilities of thesystems contributed at fair value with an addition to partners’ capital of$659.9 million equal to the total fair value of the net assets contributed. Thefair value of $983.3 million was allocated to the cable television assetsacquired in relation to their fair values as increases in fixed assets of$116.1 million and franchise costs of $867.2 million.

Both Insight LP andAT&T Broadband contributed their respective systems to us subject to anamount of indebtedness such that we remain equally owned by Insight LP andAT&T Broadband. The total debt assumed by us of $654.5 million was financedwith the proceeds from the Midwest Holdings Credit Facility. Upon completion ofthe transactions, Insight Indiana changed its name to Insight CommunicationsMidwest.

***Ohio Systems***

On August 21, 1998,Insight LP and Coaxial Communications of Central Ohio, Inc. (“Coaxial”)entered into a contribution agreement pursuant to which Coaxial contributed toInsight Ohio substantially all of the assets and liabilities of its cabletelevision systems located in Columbus, Ohio and Insight LP contributed $10.0million in cash to Insight Ohio.

On September 29,2003, we retired all remaining Ohio obligations, comprised of the Senior Notesand Senior Discount Notes, through our refinancing of the Insight MidwestHoldings Credit Facility. Insight Ohio is now a restricted subsidiary under theterms of our indentures. We recorded a loss of $10.9 million on theextinguishment of these obligations as a result of call premiums and thewrite-off of deferred financing costs.

Pursuant to the terms ofour operating agreement, we and Insight Ohio will continue until October 1,2011, unless extended or terminated sooner by Insight LP and Comcast Cable.

**2. SignificantAccounting Policies**

***Basis ofConsolidation***

The accompanyingconsolidated financial statements include the accounts of Insight MidwestHoldings, LLC, our wholly-owned subsidiary which owns 100% of the outstandingequity of our operating subsidiaries. Intercompany balances and transactionshave been eliminated in consolidation.

***Revenue Recognition***

Revenue is earned from customer fees for cabletelevision video services including basic, classic, digital, premium,video-on-demand and ancillary services, such as rental of converters, remotecontrol devices, and installations. Installation revenues obtained from theconnection of customers to our cable systems are less than related directinstallation costs. Therefore, such revenues are recognized as connections arecompleted. In addition, we earn revenues from providing high-speed Internetservices, selling advertising, providing telephone services and commissions forproducts sold through home shopping networks. Revenue is recorded in the monththe related services are rendered. Fees received 

F-7

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**2. Significant Accounting Policies(Continued)**

during 2004 for activation of telephone services areamortized over the customer relationship period, generally three years (seeNote 10 “Related Party Transactions”).

***Use of Estimates***

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

***Cash Equivalents***

We consider all highlyliquid investments with original maturities of three months or less to be cashequivalents. The carrying amounts of our cash equivalents approximate theirfair values.

***Investments***

All marketable equityinvestments are classified as available-for-sale under Statement of FinancialAccounting Standards (“SFAS”) No. 115, *Accountingfor Certain Investments in Debt and Equity Securities*. In accordancewith SFAS No. 115, available-for-sale securities are carried at fairvalue, with unrealized gains and losses, net of income taxes, reported as aseparate component of partners’ capital. Fair value is based on quoted marketprices. All other equity investments for which a quoted market price isunavailable are carried at cost and periodically reviewed for impairment.

***Fixed Assets***

Fixed assets are stated atcost and include costs capitalized for labor and overhead incurred inconnection with the construction of cable system infrastructures, includingthose providing high-speed Internet and the delivery of telephone services. Inaddition, we capitalize labor, material costs and overhead associated withinstallations related to new services on customer premises. Depreciation forbuildings, cable system equipment, furniture, fixtures and office equipment is calculatedusing the straight-line method over estimated useful lives ranging from 2 to 30years. Leasehold improvements are amortized using the straight-line method overthe shorter of the remaining terms of the leases or the estimated life of theimprovements.

The carrying value offixed assets is reviewed if facts and circumstances suggest that they may beimpaired. If this review indicates that the carrying value of the fixed assetswill not be recovered from undiscounted future cash flows generated from suchassets, an impairment loss would be recognized for the amount that the asset’scarrying value exceeds its fair value. We believe that no impairment of fixedassets existed as of December 31, 2006 or 2005.

***Franchise Costs and Goodwill***

On January 1, 2002, we adopted SFAS No. 142,*Goodwill and Other Intangible Assets.*In accordance with SFAS No. 142, we discontinued the amortization ofindefinite-lived intangible assets, including our franchise costs and goodwill.SFAS No. 142 requires goodwill and indefinite-lived intangible assets betested for impairment annually, or more frequently as warranted by events orchanges in circumstances.

According to guidance prescribed in Emerging IssuesTask Force (“EITF”) Issue No. 02-7, *Unitof Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets*,single units of accounting 

F-8

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**2.Significant Accounting Policies (Continued)**

operated as a single assetand essentially inseparable from each other, should be combined as a singleasset group for purposes of impairment testing. Management has identified threeasset groups based on cable system management, geographic clustering andmanagement’s belief that such grouping represents the best use of those assets.

Additionally, during September 2004,the SEC staff issued Topic D-108, *Useof the Residual Method to Value Acquired Assets Other than Goodwill*,which requires the direct method of separately valuing all non-goodwillintangible assets and does not permit goodwill to be included in franchiseassets. In connection with adopting SFAS No. 142 and Topic D-108 andbased on guidance from EITF Issue No. 02-7, we performed animpairment assessment using an independent third-party appraiser for the threeasset groups identified. The Company determined that, as of October 1,2006 and 2005, there had been no impairment to our franchise costs.

***Deferred Financing Costs***

Deferred financing costsrelate to costs, primarily legal and bank facility fees, incurred in securingbank loans and other sources of financing. These costs are amortized over thelife of the applicable debt. For the years ended December 31, 2006, 2005and 2004, we recorded amortization expense of $4.4 million, $4.7 million and$4.5 million.

***Stock-Based Compensation***

Prior to January 1, 2006, we accounted for ourshare-based compensation plans in accordance with the provisions of AccountingPrinciples Board (“APB”) Opinion No. 25, *Accountingfor Stock Issued to Employees*(“APB No. 25”), as permitted bySFAS No. 123, *Accounting for Stock-BasedCompensation*(“SFAS No. 123”), and accordingly did notrecognize compensation expense for stock options with an exercise price equalto or greater than the market price of the underlying stock at the date ofgrant.

Effective January 1,2006, we adopted SFAS No. 123(R), *Share-Based Payment*(“SFASNo. 123(R)”), using the modified prospective transition method to recordstock-based compensation expense; therefore, prior period results were notrestated. SFAS 123(R) requires all share-based payments to employees to be recognizedas compensation expense over the service period (generally the vesting period)in the consolidated financial statements based on their fair values (see Note 8“Stock Option Plan and Other Stock Based Compensation”).

In connection with theadoption of SFAS 123(R) we reclassified our deferred stock compensation balancewithin parthers’ capital to partners’ accumulated capital. The adoption of SFAS123(R) did not materially impact our statement of operations.

***Comprehensive Income***

We record the effectiveportion of certain derivatives’ net unrealized gains as components ofcomprehensive income.

F-9

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**2.Significant Accounting Policies (Continued)**

***Income Taxes***

No provision has been madein the accompanying financial statements for federal, state or local incometaxes since our income or loss is reportable by the individual partners intheir respective tax returns.

***Marketing and Promotional***

Marketing and promotionalcosts are expensed as incurred. Marketing and promotional expenses, net ofmarketing support (recorded as a reduction to marketing expense), for the yearsended December 31, 2006, 2005 and 2004 were $46.9 million, $31.2 millionand $18.1 million.

***Recent Accounting Pronouncements***

In February 2006, FASB issued SFAS No. 155, *Accounting for Certain Hybrid Financial Instruments—an Amendment ofFASB Statements No. 133 and 140*(“SFAS No. 155”). SFAS No. 155allows financial instruments that contain an embedded derivative and thatotherwise would require bifurcation to be accounted for as a whole on a fair valuebasis, at the holders’ election. SFAS No. 155 also clarifies and amendscertain other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155is effective for fiscal years ending after September 15, 2006 or calendaryear 2006 for us. Upon completing our evaluation of the requirements of SFAS No. 155,we determined it did not affect our consolidated financial statements.

In September, 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*(“SFAS No. 157”).SFAS No. 157 defines fair value, establishing a framework for measuringfair value and expands disclosure about fair value measurements. SFAS No. 157is effective for fiscal years beginning after November 15, 2007 orcalendar year 2008 for us. We do not expect SFAS No. 157 to have amaterial impact on the Company’s consolidated financial statements.

In June 2006, the Emerging Issues Task Force (“EITF”)reached a consensus on EITF Issue No. 06-3, How Taxes Collected fromCustomers and Remitted to Governmental Authorities Should Be Presented in theIncome Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). EITF06-3 provides that the presentation of taxes assessed by a governmentalauthority that is directly imposed on a revenue-producing transaction between aseller and a customer on either a gross basis (included in revenues and costs)or on a net basis (excluded from revenues) is an accounting policy decisionthat should be disclosed. The provisions of EITF 06-3 will be effectivefor us as of January 1, 2007. We do not expect EITF 06-3 to have amaterial impact on the Company’s consolidated financial statements.

In July 2006, FASB issued FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109*, (“FIN 48”). FIN 48clarifies the accounting for uncertainty in income taxes recognized infinancial statements in accordance with FASB Statement No. 109, *Accounting for Income Taxes*. FIN 48 prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return. FIN48 also provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition. FIN 48 iseffective for fiscal years beginning after December 15, 2006 or calendaryear 2006 for us. Upon completing our evaluation of the requirements of FIN 48,we determined it did not affect our consolidated financial statements.

F-10

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**2.Significant Accounting Policies (Continued)**

In September 2006,the SEC staff issued Staff Accounting Bulletin No. 108, *Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in the Current Year Financial Statements*, (“SAB No. 108”).SAB No. 108 requires that registrants quantify errors using both a balancesheet and income statement approach and evaluate whether either approachresults in a misstated amount that, when all relevant quantitative andqualitative factors are considered, is material. SAB No. 108 is effectivefor fiscal years ending after November 15, 2006 or calendar year 2006 forus. Upon completing our evaluation of the requirements of SAB No. 108, wedetermined it did not affect our consolidated financial statements.

***Reclassifications***

Reclassifications have beenmade to the prior years’ financial statements to conform to thoseclassifications used in 2006.

**3. Fixed Assets**

| ** **                                       | ** ** | **December 31,**   | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2006**                | ** ** | **2005**              | ** ** |
| ** **                                       | ** ** | **(in thousands)** | ** ** |
| Land, buildings  and improvements                |       | $                       | 42,058     |                  | $          | 36,768 |   |
| Cable system  equipment                          |       | 2,654,416               |       | 2,365,956             |       |
| Furniture,  fixtures and office equipment        |       | 20,990                  |       | 19,079                |       |
|                                             |       | 2,717,464               |       | 2,421,803             |       |
| Less: accumulated  depreciation and amortization |       | (1,579,278              | )          | (1,314,232            | )          |
| Total fixed assets, net                          |       | $                       | 1,138,186  |                  | $          | 1,107,571 |   |

 

Depreciation expense forthe years ended December 31, 2006, 2005 and 2004 was $261.0 million,$237.0 million and $230.6 million.

**4. Investments**

***Oxygen Cable, LLC***

Oxygen Cable, LLC (“Oxygen”)is an independent cable television network with programming tailored to theinterests of women. On July 9, 2002 we entered into a carriage agreementwith Oxygen, whereby we agreed to carry programming content from Oxygen. In October 2006,we agreed to extend the term of the carriage agreement through December 31,2008. For the years ended December 31, 2006, 2005 and 2004, we paid Oxygenapproximately $1.2 million, $440,000 and $0 for programming content. Inaddition, Oxygen paid us marketing support fees, which we record as a reductionof marketing expense, of approximately $68,000, $40,000 and $440,000 for theyears ended December 31, 2006, 2005 and 2004.

Concurrently with thecarriage agreement, we entered into an equity issuance agreement with Oxygen.The agreement called for Oxygen to deliver to us shares having an aggregatefair market value as of December 31, 2005 of $3.8 million, and by December 1,2006 deliver to us additional shares having an aggregate fair market value asof the December 31, 2005 valuation of $2.0 million. Pursuant to the equityissuance agreement, a portion of the monthly programming fees represent ourequity investment in Oxygen. In October 2006, in connection with theextension of the carriage term, Oxygen issued shares to us of common stockrepresenting a value as of December 31, 2005 of $5.8 million in fullsatisfaction of its 

F-11

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**4.Investments (Continued)**

obligation to issue equity to us under the equityissuance agreement. As of December 31, 2006 and December 31, 2005,our carrying value in this investment was $5.8 million and $4.7 million.

**5. Debt**

Debtconsisted of:

| ** **                                 | ** ** | **December 31,**   | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2006**                | ** ** | **2005**              | ** ** |
| ** **                                 | ** ** | **(in thousands)** | ** ** |
| Note payable to  Insight Inc.              |       |                    | $          | 100,000               |       |   |   | $ | 100,000 |   |   |
| Insight Midwest  Holdings Credit Facility  |       |                    | 2,286,000  |                  |       |   | 1,404,250 |   |   |
| Insight Midwest 93¤4%  Senior Notes   |       |                    | 200,000    |                  |       |   | 385,000 |   |   |
| Insight Midwest  101¤2%  Senior Notes |       |                    | —     |                  |       |   | 630,000 |   |   |
|                                       |       |                    | 2,586,000  |                  |       |   | 2,519,250 |   |   |
| Net unamortized  discount on notes         |       |                    | (30,278    | )                     |       |   | (557 | ) |   |
| Market value of  interest rate swaps       |       |                    | —     |                  |       |   | (2,382 | ) |   |
| Total debt                                 |       |                    | $          | 2,555,722             |       |   |   | $ | 2,516,311 |   |   |

 

***Insight Midwest Holdings $2.445 Billion CreditFacility***

Our wholly owned subsidiary, Insight Midwest Holdings,LLC serves as a borrower under a $2.445 billion senior secured credit facility.Obligations under this credit facility are secured by a pledge of theoutstanding equity interests of Insight Midwest Holdings and its subsidiaries.

On October 6, 2006, we entered into a new $2.445billion senior secured credit facility. The facility is comprised of a $385.0million A Term Loan scheduled to mature on October 6, 2013, a $1.8 billionB Term Loan scheduled to mature on April 6, 2014 and $260.0 million inrevolving commitments scheduled to terminate on October 6, 2012. InsightMidwest Holdings used the proceeds to refinance the existing senior creditfacility and to redeem a portion of the outstanding Senior Notes (see below).

On March 28,2002, we borrowed $100.0 million from Insight Inc. The loan bears annualinterest of 9%, compounded semi-annually, has a scheduled maturity date of January 31,2011 and permits prepayments. Insight Midwest Holdings is permitted under thecredit facility to make distributions to us for the purpose of repaying thisloan, including accrued interest, provided that there are no defaults existingunder the credit facility. During the third and fourth quarters of 2006, werepaid a total of $15.5 million of the loan balance. As of December 31,2006 and 2005, the balance of the $100.0 million loan, including accruedinterest, was $136.1 million and $139.1 million.

***Insight Midwest Senior Notes***

On October 1, 1999 simultaneously with theclosing of the purchase of Insight Kentucky, we completed a $200.0 millionoffering of 93⁄4% senior notes due in October 2009. Interest payments onthese Senior Notes, which commenced on April 1, 2000, are payablesemi-annually on April 1 and October 1.

F-12

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**5. Debt (Continued)**

On December 17, 2002, we completed a $185.0million add-on offering under the 93⁄4% Senior Notes indenture. We receivedproceeds of $176.9 million. The proceeds of this offering were used to repay aportion of the outstanding revolving loans under the Midwest Holdings CreditFacility.

On November 6, 2000, we completed a $500.0million offering of 101⁄2% senior notes due in November 2010. We receivedproceeds of $486.0 million. The proceeds of the offering were used to repay aportion of the outstanding debt under the then existing Insight Indiana andInsight Kentucky credit facilities. On December 9, 2003, we completed a$130.0 million add-on offering under the 101⁄2% Senior Notes indenture. Wereceived proceeds of $140.9 million. The proceeds of this offering were used torepay a portion of the outstanding revolving loans under the Midwest HoldingsCredit Facility. All of these 101⁄2% senior notes and $185.0 million principalamount of Insight Midwest’s 9 3⁄4% senior notes were retired with proceeds fromour new $2.445 billion senior secured credit facility on November 7, 2006as described below.

On November 7, 2006, Insight Midwest Holdingsused a portion of the proceeds from the new $2.445 billion senior securedcredit facility to redeem all $630.0 million outstanding principal amount ofInsight Midwest’s 101⁄2% Senior Notes due November 1, 2010 at a redemptionprice of 103.5% of the principal amount, plus accrued and unpaid interest, and$185.0 million principal amount of Insight Midwest’s total outstanding $385.0million of the 93⁄4% Senior Notes due October 1, 2009 at a redemption priceof 101.625% of the principal amount redeemed, plus accrued and unpaid interest.We recorded $1.7 million in other expenses in these transactions.

The Senior Notes aregeneral unsecured obligations and are subordinate to all of our otherliabilities, the amounts of which were $2.5 billion and $1.6 billion as of December 31,2006 and 2005. The Senior Notes contain certain financial and other debtcovenants. As of December 31, 2006 we were in compliance with all covenantrequirements.

***Debt Principal Payments***

As of December 31,2006, the remaining principal payments required on our debt were as follows (inthousands):

| 2007       |   | $         | —    |   |
|------------|--------|-----------|-----------|--------|
| 2008       |   | 9,313     |      |
| 2009       |   | 243,062   |      |
| 2010       |   | 61,313    |      |
| 2011       |   | 180,561   |      |
| Thereafter |   | 2,091,751 |      |
| Total      |   | $         | 2,586,000 |   |

 

**6. Derivative Instruments**

We enter into derivative instruments, typicallyinterest-rate swap agreements, to modify the interest characteristics of ouroutstanding debt to either a floating or fixed rate basis. These agreementsinvolve fixed rate interest payments in exchange for floating rate interestreceipts, known as cash flow hedges, and floating rate interest payments inexchange for fixed rate interest receipts, known as fair value hedges, over 

F-13

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**6.Derivative Instruments (Continued)**

the life of the agreementwithout an exchange of the underlying principal amount. The differential to bepaid or received is accrued as interest rates change and is recognized as anadjustment to interest expense related to the debt. The related amount payableor receivable is included in other non-current liabilities or assets.

Gains and losses relatedto cash flow hedges that are determined to be effective hedges are recorded asaccumulated other comprehensive income or loss in the accompanying consolidatedbalance sheets. Gains and losses related to fair value hedges that aredetermined to be effective hedges are recorded in the consolidated statementsof operations as an adjustment to the swap instrument and an equal andoffsetting adjustment to the carrying value of the underlying debt. Gains andlosses related to interest rate swaps that are determined not to be effectivehedges and do not qualify for hedge accounting are recorded in our consolidatedstatements of operations as other income or expense.

***Fair Value Hedges***

In July 2003, we entered into three interest rateswap agreements whereby we swapped fixed rates under a tranche of our 101⁄2%senior notes due in December 2010 for variable rates equal to six-monthLIBOR, plus the applicable margin of approximately 8.3%, on $185.0 millionnotional value of debt. These agreements expired on November 1, 2005. Werecorded a gain on these swaps of $2.1 million and $36,000 for the years ended December 31,2005 and 2004, which is included in other income (expense), net.

In December 2003, weentered into an interest rate swap agreement whereby we swapped fixed ratesunder a different tranche of our 101⁄2% senior notes due in December 2010for variable rates equal to six-month LIBOR, plus the applicable margin ofapproximately 5.9%, on $130.0 million notional value of debt. We terminatedthis agreement as of September 30, 2006 and the cost of termination wasincluded in interest expense. This swap was determined to be perfectlyeffective in hedging against fluctuations in the fair value of the underlyingdebt. As such, changes in the fair value of the underlying debt equally offsetchanges in the value of the interest rate swap in our consolidated balancesheets. The cost of this swap if terminated as of December 31, 2005 was$2.4 million and was recorded in other non-current liabilities and as anadjustment to the carrying value of debt.

**Cash Flow Hedges**

In October 2006,we entered into two interest rate swap agreements whereby we swapped floatingrates for:

·       afixed rate of 5.240% on $450.0 million notional value of debt which expires in December 2007;and

·       afixed rate of 5.148% on $400.0 notional million value of debt which expires in December 2008.

At December 31, 2006we recorded $87,000 of interest receivable related to these agreements. At December 31,2006, the estimated fair value of these interest rate swap agreements wasapproximately $306,000.

F-14

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**7. Supplemental Cash FlowInformation**

Thefollowing amounts were paid in cash during the years ended December 31:

| ** ** | ** ** | **2006**                | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** ** | ** ** | **(in thousands)** | ** ** |
| Interest   |       | $                       | 193,266    |     | $          | 188,216  |       | $ | 167,602 |   |
|            |            |                         |            |          |            |          |            |  |  |  |

 

**8. Stock Option Plan andOther Stock Based Compensation**

***1999 Equity Incentive Plan***

The Insight Inc. 1999Equity Incentive Plan (the “Plan”) provided for the grant of incentive stockoptions, nonqualified stock options and restricted stock, as well as otherawards such as performance units, performance shares, deferred stock, dividendequivalents and other stock-based awards. The Plan remains in effect, with onlydeferred stock units remaining outstanding. At December 31, 2006 and 2005,we have recorded $147,000 and $535,000 of deferred compensation for Midwestemployees that are eligible to participate in this Plan.

***2005 Stock Incentive Plan***

On December 16, 2005,concurrently with the going-private merger, the Insight Inc. Board of Directorsadopted the 2005 Stock Incentive Plan (the “2005 Plan”). Under the 2005 Planthe Board has the authority to grant awards of shares of its non-voting commonstock to officers, directors and employees of Midwest. A total of 3,666,887shares of Series E Non-Voting Common Stock and 100,000 shares of Series FNon-Voting Common Stock are authorized for issuance under the 2005 Plan. Sharesgranted under the 2005 Plan require the execution of a subscription agreement.

***Stock Options***

As of the effective time of the merger, each option topurchase Insight common stock (whether vested or unvested) outstandingimmediately prior to the effective time of the merger was canceled in exchangefor the right to receive a cash payment equal to the product of (A) theexcess, if any, of (i) $11.75, over (ii) the per share exercise priceof the stock option, multiplied by (B) the number of shares of Insightcommon stock covered by the stock option. For the year ended December 31,2005 we recorded stock based compensation expense of $3.5 million which wasbeing amortized on a straight-line basis over the vesting term.

We have excluded all disclosures of option activity,options outstanding, options exercisable and weighted average exercise pricesas we believe that the presentation of this information would not be meaningfulto the reader of the financial statements because as of the effective time ofthe merger Insight Inc.’s common stock was no longer publicly traded, all ofour options were canceled and other equity interests were converted into equityin the surviving corporation.

Pursuant to SFAS No. 123,we had, prior to the merger, elected to continue to account for employeestock-based compensation under APB Opinion No. 25, using an intrinsicvalue approach to measure compensation expense. Accordingly, no compensationexpense was recognized for options granted to 

F-15

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**8. StockOption Plan and Other Stock Based Compensation (Continued)**

employeesunder the Plan since all such options were granted at exercise prices equal toor greater than fair market value on the date of grant.

***Other Stock Based Compensation***

**Restricted Stock**

In 2005 we issued to employees 249,437 shares ofInsight common stock in the form of restricted stock. The restricted stockprovided for vesting over a five-year period and were issued in the name of theemployee on the date of grant and held by us until the shares vested. Werecorded stock based compensation expense of $2.4 million which was beingamortized on a straight-line basis over the vesting term.

At the effective time ofthe merger, pursuant to the merger agreement, we waived the transferabilityrestrictions and/or the vesting conditions applicable to all restricted shares,and except for such shares that continued as shares of the survivingcorporation, such shares became entitled to receive $11.75 in cash per share.

**Deferred StockUnits**

In 2005 we have issued to employees 65,000 shares ofdeferred stock units. The deferred stock units vest over a five-year period andwere issued in the name of the employee on the date of grant. For the yearended December 31, 2005 we recorded stock based compensation expense of$400,000 which was being amortized on a straight-line basis over the vesting term.

At the effective time ofthe merger, we adjusted each of the deferred stock unit agreements so that,upon delivery at the end of the deferral period, the holder of each deferredstock unit will be entitled to receive one share of Series C Non-Voting PreferredStock of the surviving corporation for each share of Insight Class Acommon stock that the holder otherwise would have been entitled to receiveprior to the adjustment. We also amended the agreements evidencing the deferredstock units to provide that the deferral period will end on the earlier of i) achange of control or ii) prior thereto upon the later to occur of December 16,2010 or the employee’s termination of employment. Any deferred stock units thatremained unvested at the effective time of the merger will continue to vestaccording to the schedule set forth in the applicable agreement evidencing thegrant of such deferred stock units.

**9.**FinancialInstruments

***Concentrations of Credit Risk***

Financial instruments thatpotentially subject us to concentrations of credit risk consist principally ofcash and cash equivalents and accounts receivable. We maintain cash and cashequivalents with various financial institutions and we consider their creditworthiness as a factor in our decision to hold deposits at these institutions. Concentrationsof credit risk with respect to accounts receivable are limited due to the largenumber of customers comprising our customer base.

F-16

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**9.Financial Instruments (Continued)**

***Fair Value***

We used the following methods and assumptions inestimating our fair value disclosures for financial instruments:

*Cashequivalents and accounts receivable:**  *The carrying amount reported in the consolidatedbalance sheets for cash equivalents and accounts receivable approximates fairvalue.

*Debt:**  *The carrying amounts of our borrowings under ourcredit arrangements approximate fair value as they bear interest at floatingrates. The fair value of our Senior Notes and Senior Discount Notes are basedon quoted market prices and are listed in the following table:

| ** **                                | ** ** | **Fair Value at** | ** ** | **Fair Value at** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                | ** ** | **December 31,**       | ** ** | **December 31,**       | ** ** |
| ** **                                | ** ** | **2006**                    | ** ** | **2005**                    | ** ** |
| ** **                                | ** ** | **(in thousands)**     | ** ** |
| Insight Midwest 93¤4%  Senior Notes  |       |                        | $          | 203,000                     |       |   |   | $ | 394,600 |   |   |
| Insight Midwest 101¤2%  Senior Notes |       |                        | —     |                        |       |   | 659,100 |   |   |

 

*Interest rate swapagreements:**  *Interestrate swap agreements are recorded in our financial statements at fair value.The fair value, (cost, if terminated) of such swap agreements was $306,000 and$(2.4) million as of December 31, 2006 and 2005.

**10. Related PartyTransactions**

***Managed Systems***

On March 17, 2000, weentered into a management agreement with Comcast ofMontana/Indiana/Kentucky/Ohio (“Comcast”) (formerly known as InterMediaPartners Southeast), an affiliate of Comcast Cable, to provide managementservices to cable television systems owned by Comcast. Effective July 31,2004, the management agreement was terminated by mutual agreement. Werecognized management fees in connection with this agreement of $1.4 millionfor the year ended December 31, 2004.

***Programming***

We purchase the majorityof our programming through affiliates of Comcast Cable. Charges for suchprogramming, including a 11⁄2% administrative fee, were $181.6 million, $157.6million and $151.0 million for the years ended December 31, 2006, 2005 and2004. As of December 31, 2006 and 2005, $30.7 million and$29.9 million of accrued programming costs were due to affiliates ofComcast Cable. We believe that the programming rates charged through theseaffiliates are lower than those available from independent parties.

***Telephone Agreements***

Prior to December 31, 2004, to facilitatedelivery of telephone services, we were party to a joint operating agreementwith Comcast Cable that allowed Insight Midwest to deliver to its residentialcustomers, in certain of its service areas, local telephone service provided byComcast Cable. Under the terms of the agreement, Insight Midwest leased certaincapacity on our local network to Comcast Cable. Revenue earned from leasednetwork capacity used in the provision of telephone services was $8.5 million

F-17

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**10.Related Party Transactions (Continued)**

for the year ended December 31,2004. In addition, Insight Midwest received additional payments related tocertain services and support, including installations, marketing and billing.Fee revenue earned in connection with installations was deferred and amortizedover the expected term a telephone customer was expected to maintain theirtelephone service, then estimated to be three years. Marketing and billingsupport revenue was recognized in the period such services were performed.

On December 31, 2004,we acquired the telephone business conducted by Comcast Cable in the marketsserved under our joint operating agreement and terminated the joint operatingagreement. Subsequent to December 31, 2004, we no longer earn revenue fromthe services described above, but rather we record the continued amortizationof installation fee revenue and revenues earned directly from our customers forproviding telephone and telephone related services. Comcast Cable paid usapproximately $13 million in cash and transferred to us certain assets andliabilities related to the telephone business. We recorded an extraordinarygain of $15.6 million in connection with the acquisition and settled amountswith Comcast Cable under our pre-existing joint operating agreement for $2.6million, representing the net current liabilities owed to Comcast Cable. Theacquisition was accounted for under the purchase method of accounting.

***Advertising Services***

In October 1999, tofacilitate the administration of our advertising services in our KentuckySystems, we entered into an agreement with Comcast Cable, which provided forthis affiliate to perform all of our Kentucky advertising sales and relatedadministrative services. Effective September 26, 2004, this agreement wasterminated by mutual agreement. We earned advertising revenues from thisaffiliate of $13.5 million for the year ended December 31, 2004.

***Insight Interactive***

Effective November 17,1999, Insight Cable Services entered into a Contribution Agreement with SourceMedia, Inc., providing for the creation of a joint venture, InsightInteractive LLC. Under the terms of the Contribution Agreement, Source Mediacontributed its Virtual Modem 2.5 software and the Interactive Channel productsand services, including SourceGuide and LocalSource television content. On March 14,2002, Insight Cable Services purchased the remaining 50% equity interest inInsight Interactive that it did not already own from Source Media. We arecurrently providing Insight Interactive’s services to customers in some of oursystems. For the years ended December 31, 2006, 2005 and 2004, fees forsuch services totaled $2.2 million, $2.8 million and $2.5 million.

***Due to Affiliates***

As of December 31,2006 and 2005, we had amounts owed to Insight LP, our manager, primarilycomprised of accrued interest related to our $100.0 million note payableto Insight Inc., incurred but unpaid management fees, calculated asapproximately 3% of revenues and other operational expenses.

F-18

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**11.**Commitments and Contingencies

***ProgrammingContracts***

We enter into long-termcontracts with third parties who provide us with programming for distributionover our cable television systems. These programming contracts are asignificant part of our business and represent a substantial portion of ouroperating costs. Since future fees under such contracts are based on numerousvariables, including number and type of customers, we have not recorded anyliabilities with respect to such contracts.

***Lease Agreements***

Welease equipment and office space under various operating lease arrangementsexpiring through February 24, 2101. Future minimum rental paymentsrequired under such operating leases as of December 31, 2006 were (inthousands):

| 2007       |   | $     | 2,481  |   |
|------------|--------|-------|--------|--------|
| 2008       |   | 1,783 |   |
| 2009       |   | 1,347 |   |
| 2010       |   | 682   |   |
| 2011       |   | 221   |   |
| Thereafter |   | 1,218 |   |
| Total      |   | $     | 7,732  |   |

 

Rental expense onoperating leases for the years ended December 31, 2006, 2005 and 2004 was$4.9 million, $4.8 million and $3.6 million.

***Litigation***

In April 2005, AcaciaMedia Technologies Corporation filed a lawsuit against us and others in theUnited States District Court for the Southern District of New York. Thecomplaint alleges, among other things, infringement of certain United Statespatents that allegedly relate to systems and methods for transmitting and/orreceiving digital audio and video content. The complaint seeks injunctiverelief and damages in an unspecified amount. In the event that a courtultimately determines that we infringe on any of the patents, we may be subjectto substantial damages, which may include treble damages and/or an injunctionthat could require us to materially modify certain products and services thatwe currently offer to subscribers. We believe that the claims are without meritand intend to defend the action vigorously. The final disposition of this claimis not expected to have a material adverse effect on our consolidated financialposition but could possibly be material to our consolidated results ofoperations of any one period. Further, at this time the outcome of thelitigation is impossible to predict, and no assurance can be given that anyadverse outcome would not be material to our consolidated financial position.

We are subject to variouslegal proceedings that arise in the ordinary course of business. While it isimpossible to determine with certainty the ultimate outcome of these matters,it is our opinion that the resolution of these matters will not have a materialadverse affect on our consolidated financial condition.

**12.**Subsequent Event

On February 12, 2007,the Insight Midwest Holdings credit agreement was amended to reduce theapplicable margin with respect to the $1.8 billion B Term Loan facility by 25basis points, or 0.25%.

F-19

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**Report ofIndependent Registered Public Accounting Firm**

The Shareholder ofInsight Capital, Inc.

We have audited the accompanying balance sheets ofInsight Capital, Inc. (the “Company”) as of December 31, 2006 and2005 and the related statements of operations, changes in shareholder’s deficitand cash flows for each of the three years in the period endedDecember 31, 2006. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

As indicated in Note 1, Insight Capital, Inc. hasno operations. Its ability to satisfy debt and other obligations is dependentupon funding from related entities, which are under the common control of theowners of the Company.

In ouropinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of Insight Capital, Inc. atDecember 31, 2006 and 2005 and the results of its operations and its cashflows for each of the three years in the period ended December 31, 2006 inconformity with U.S. generally accepted accounting principles.
|                    | /s/  ERNST & YOUNG LLP |   |
|--------------------|---------------------------------|--------|
| New York, New York |                            |   |
| March 6, 2007 |                            |   |

 

F-20

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**INSIGHT CAPITAL, INC.BALANCE SHEETS(dollars in thousands, except share amounts)**

| ** **                                                                                                               | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                               | ** ** |                        | ** ** | ** **                  |       | ** ** | ** ** |
| Cash                                                                                                                     |       |                        | $          | 1                           |       |   | $ | 1 |   |
| Deferred  financing costs, net of accumulated amortization of $14,149 and $11,689 as of  December 31, 2006 and 2005 |       |                        | 8,637      |                        |       | 11,092 |   |
| Total assets                                                                                                             |       |                        | $          | 8,638                       |       |   | $ | 11,093 |   |
| **Liabilities  and shareholder’s deficit**                                                                          |       |                        |       |                        |       |   |   |
| Accrued interest                                                                                                         |       |                        | $          | 4,875                       |       |   | $ | 20,409 |   |
| Total current liabilities                                                                                                |       |                        | 4,875      |                        |       | 20,409 |   |
| Senior notes, to  be paid by Insight Midwest, LP                                                                         |       |                        | 175,675    |                        |       | 1,014,443 |   |
| Total liabilities                                                                                                        |       |                        | 180,550    |                        |       | 1,034,852 |   |
| Shareholder’s deficit:                                                                                              |       |                        |       |                        |       |   |   |
| Common stock;  $.01 par value; 1,000 shares authorized, issued and outstanding                                           |       |                        | —     |                        |       | — |   |
| Paid-in-capital                                                                                                          |       |                        | 1          |                        |       | 1 |   |
| In-substance  allocation of proceeds related to senior notes to be paid by Insight Midwest                               |       |                        | 427,631    |                        |       | (531,616 | ) |
| Accumulated  deficit                                                                                                     |       |                        | (599,544   | )                           |       | (492,144 | ) |
| Total shareholder’s deficit                                                                                         |       |                        | (171,912   | )                           |       | (1,023,759 | ) |
| Total liabilities  and shareholder’s deficit                                                                        |       |                        | $          | 8,638                       |       |   | $ | 11,093 |   |

 

See accompanying notes

F-21

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**INSIGHT CAPITAL, INC.STATEMENTS OF OPERATIONS(dollars in thousands)**

| ** **       | ** ** | **Year Ended December 31,** | ** ** |
|------------------|------------|--------------------------------------------|------------|
| ** **       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Expenses:**    |       |                                       |       |   |   |   |   |
| Amortization     |       | $                                          | (2,455     | ) | $ | (2,608 | ) | $ | (2,608 | ) |
| Interest expense |       | (104,945                                   | )          | (104,021 | ) | (103,991 | ) |
| Net loss         |       | $                                          | (107,400   | ) | $ | (106,629 | ) | $ | (106,599 | ) |

 

See accompanying notes

F-22

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**INSIGHT CAPITAL, INC.STATEMENTS OF CHANGES IN SHAREHOLDER’S DEFICIT(dollars in thousands)**

| ** **                                                 | ** ** | **Additional  paid-in-  capital** | ** ** | **In-substance  contributions  (allocations)  related to  senior notes** | ** ** | **Accumulated  deficit** | ** ** | **Total  shareholder’s  deficit** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------|------------|------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|
| Balance, January 1,  2004                             |       |                              | $          | 1                                                                                  |       |                     |       | $                                      | (738,992   | ) |   |   | $ | (278,916 | ) |   | $ | (1,017,907 | ) |
| Interest payments made by Insight Midwest on senior  notes |       |                              | —     |                                                                               |       |                     | 103,688    |                                   |       |   | — |   |   | 103,688 |   |
| Net loss                                                   |       |                              | —     |                                                                               |       |                     | —     |                                   |       |   | (106,599 | ) |   | (106,599 | ) |
| Balance,  December 31, 2004                           |       |                              | 1          |                                                                               |       |                     | (635,304   | )                                      |       |   | (385,515 | ) |   | (1,020,818 | ) |
| Interest payments made by Insight Midwest on senior  notes |       |                              | —     |                                                                               |       |                     | 103,688    |                                   |       |   | — |   |   | 103,688 |   |
| Net loss                                                   |       |                              | —     |                                                                               |       |                     | —     |                                   |       |   | (106,629 | ) |   | (106,629 | ) |
| Balance,  December 31, 2005                           |       |                              | 1          |                                                                               |       |                     | (531,616   | )                                      |       |   | (492,144 | ) |   | (1,023,759 | ) |
| Interest payments made by Insight Midwest on senior  notes |       |                              | —     |                                                                               |       |                     | 103,688    |                                   |       |   | — |   |   | 103,688 |   |
| Repayments of senior notes, net                            |       |                              | —     |                                                                               |       |                     | 855,559    |                                   |       |   | — |   |   | 855,559 |   |
| Net loss                                                   |       |                              | —     |                                                                               |       |                     | —     |                                   |       |   | (107,400 | ) |   | (107,400 | ) |
| Balance,  December 31, 2006                           |       |                              | $          | 1                                                                                  |       |                     |       | $                                      | 427,631    |   |   |   | $ | (599,544 | ) |   | $ | (171,912 | ) |

 

See accompanying notes

F-23

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**INSIGHTCAPITAL, INC.STATEMENTS OF CASH FLOWS(dollars in thousands)**

| ** **                                                                       | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Cash flows from operating  activities:**                                       |       |                                       |       |   |   |   |   |
| Net loss                                                                         |       | $                                          | (107,400   | ) | $ | (106,629 | ) | $ | (106,599 | ) |
| Adjustments to reconcile  net loss to net cash provided by operating activities: |       |                                       |       |   |   |   |   |
| Accretion of discount on notes                                                   |       | 270                                        |       | 333 |   | 303 |   |
| Amortization                                                                     |       | 2,455                                      |       | 2,608 |   | 2,608 |   |
| Interest expense assumed by affiliate                                            |       | 104,675                                    |       | 103,688 |   | 103,688 |   |
| Net cash provided  by operating activities                                       |       | —                                     |       | — |   | — |   |
| Net increase in  cash                                                            |       | —                                     |       | — |   | — |   |
| Cash, beginning  of year                                                         |       | 1                                          |       | 1 |   | 1 |   |
| Cash, end of year                                                                |       | $                                          | 1          |   | $ | 1 |   | $ | 1 |   |
| **Supplemental  non-cash financing activity:**                                   |       |                                       |       |   |   |   |   |
| Interest payments made  by Insight Midwest                                       |       | 103,688                                    |       | 103,688 |   | 103,688 |   |

 

 

See accompanying notes

F-24

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**INSIGHT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS**

**1. Nature of Business**

Insight Capital, Inc.(the “Company”), a Delaware corporation, was formed on September 23, 1999,for the sole purpose of being a co-issuer with Insight Midwest, L.P. (“InsightMidwest”) of senior notes which allows certain investors the ability to beholders of the debt. The Company has no operations. The outstanding shares ofthe Company are owned by Insight Midwest.

**2. Summary of SignificantAccounting Policies**

***Deferred Financing Costs***

Deferred financing costsrelate to costs, primarily underwriting and professional fees, associated withthe issuance of the senior notes, which are amortized over the life of thesenior notes.

***Fair Value of Financial Instruments***

The fair value of the 93¤4%Senior Notes as of December 31, 2006 and 2005 was $203.0 million and$394.6 million, respectively. The fair value of the 101¤2% Senior Notesas of December 31, 2006 and 2005 was $0 and $659.1 million, respectively.

***In-Substance Allocation of Note Proceeds***

Since both Insight Midwestand the Company are severally and jointly liable, the senior notes, deferredfinancing costs and associated interest expense are reflected in the Company’sfinancial statements as well as a charge to the equity section representing anin-substance allocation of the proceeds from the senior notes. The Company hasaccrued interest on the outstanding balance. When Insight Midwest makesinterest payments, the Company reduces accrued interest payable and records anin-substance contribution to equity.

***Income Taxes***

The Company has preparedits income tax provision using the liability method in accordance withFinancial Accounting Standards Board Statement No.109, “Accounting for IncomeTaxes.”  Under this method, deferred taxassets and liabilities are determined based on the difference between thefinancial reporting and tax bases of assets and liabilities and are measuredusing tax rates that will be in effect when the differences are expected toreverse. As of December 31, 2006 and 2005 the Company had no deferred taxassets or liabilities and no tax provision to record.

***Use of Estimates***

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires us to make estimates and assumptionsthat affect the amounts reported in the financial statements and accompanyingnotes. Actual results could differ from those estimates.

F-25

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**INSIGHT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS (Continued)**

**3. Notes Payable**

Debtconsisted of:

| ** **                                | ** **   | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------|--------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                | *** *** | **(in thousands)**     | ** ** |
| Insight Midwest 93¤4%  Senior Notes  |         |                        | $          | 200,000                     |       |   |   | $ | 385,000 |   |   |
| Insight Midwest 101¤2%  Senior Notes |         |                        | —     |                        |       |   | 630,000 |   |   |
|                                      |         |                        | 200,000    |                        |       |   | 1,015,000 |   |   |
| Net unamortized  discount on notes        |         |                        | (24,325    | )                           |       |   | (557 | ) |   |
| Total debt                                |         |                        | $          | 175,675                     |       |   |   | $ | 1,014,443 |   |   |

 

On October 1, 1999, the Company and InsightMidwest completed a $200.0 million offering of 93¤4% Senior Notesdue in October 2009. The proceeds of the offering were used to repaycertain debt of Insight Midwest. Interest payments on these Senior Notes, whichcommenced on April 1, 2000, are payable semi-annually on April 1 and October 1.

On November 6, 2000, the Company and InsightMidwest completed a $500.0 million offering of 101¤2% Senior Notesdue in November 2010. Insight Midwest received proceeds of $486.0 million.The proceeds of the offering were used to repay certain debt of Insight Midwest.On December 9, 2003, the Company and Insight Midwest completed a $130.0million add-on offering under the 101¤2%Senior Notes indenture. Insight Midwest received proceeds of $140.9 million. Theproceeds of this offering were used to repay all of the outstanding revolvingloans under the Midwest Holdings Credit Facility. All of these 101¤2% senior notesand $185.0 million principal amount of Insight Midwest’s 93¤4% senior noteswere retired with proceeds from our new $2.445 billion senior secured credit facilityon November 7, 2006 as described below.

On November 7, 2006, Insight Midwest Holdingsused a portion of the proceeds from the new $2.445 billion senior securedcredit facility to redeem all $630.0 million outstanding principal amount ofInsight Midwest’s 101⁄2% Senior Notes due November 1, 2010 at a redemptionprice of 103.5% of the principal amount, plus accrued and unpaid interest, and$185.0 million principal amount of Insight Midwest’s total outstanding $385.0million of the 93⁄4% Senior Notes due October 1, 2009 at a redemption priceof 101.625% of the principal amount redeemed, plus accrued and unpaid interest.We recorded $1.7 million in other expenses in these transactions.

The Senior Notes are general unsecured obligations andare subordinate to all of our other liabilities, the amounts of which were $2.5billion and $1.6 billion as of December 31, 2006 and 2005. The SeniorNotes contain certain financial and other debt covenants. As of December 31,2006 we were in compliance with all covenant requirements.

F-26

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this Report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                            | **INSIGHT MIDWEST, L.P.** |
|----------------------------|---------------------------|
| Date: March 29,  2007 | By:                       | /s/ MICHAEL S. WILLNER |
|                       |                      | Michael S. Willner, Chairman and |
|                       |                      | Chief Executive Officer |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this Report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.
|                                  | **Signatures** | ** **                                                                                                                         | ** ** | ** **          | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|----------------------------------|----------------|------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|-----------|------------|------------|------------|----------|------------|
| /s/ SIDNEY  R. KNAFEL            |           | Chairman of the  Board of Insight                                                                                                  |       | March 29, 2007 |
| Sidney  R. Knafel                |           | Communications Company, Inc.                                                                                                  |       |                |
| /s/ MICHAEL S.  WILLNER          |           | Chairman and  Chief Executive Officer of                                                                                           |       | March 29, 2007 |
| Michael  S. Willner              |           | Registrant, Vice  Chairman and Chief Executive Officer of Insight Communications  Company, Inc. (Principal Executive Officer) |       |                |
| /s/ DINNI  JAIN                  |           | President and  Chief Operating Officer of                                                                                          |       | March 29, 2007 |
| Dinni  Jain                      |           | Registrant and  Insight Communications Company, Inc.                                                                          |       |                |
| /s/ JOHN  ABBOT                  |           | Executive Vice  President and Chief Financial                                                                                      |       | March 29, 2007 |
| John  Abbot                      |           | Officer of  Registrant and Insight Communications Company, Inc. (Principal Financial  Officer)                                |       |                |
| /s/ DANIEL  MANNINO              |           | Senior Vice  President and Controller of                                                                                           |       | March 29, 2007 |
| Daniel  Mannino                  |           | Registrant and  Insight Communications Company, Inc. (Principal Accounting Officer)                                           |       |                |
| /s/ JAMES  A. ATTWOOD, Jr.  |           | Director of  Insight Communications                                                                                                |       | March 29, 2007 |
| James  A. Attwood, Jr.      |           | Company, Inc.                                                                                                                 |       |                |
| /s/ MICHAEL J.  CONNELLY         |           | Director of  Insight Communications                                                                                                |       | March 29, 2007 |
| Michael  J. Connelly             |           | Company, Inc.                                                                                                                 |       |                |
| /s/ STEPHEN  C. GRAY             |           | Director of  Insight Communications                                                                                                |       | March 29, 2007 |
| Stephen  C. Gray                 |           | Company, Inc.                                                                                                                 |       |                |
| /s/ AMOS  B. HOSTETTER, Jr. |           | Director of  Insight Communications                                                                                                |       | March 29, 2007 |
| Amos  B. Hostetter, Jr.     |           | Company, Inc.                                                                                                                 |       |                |
| /s/ WILLIAM E.  KENNARD          |           | Director of  Insight Communications                                                                                                |       | March 29, 2007 |
| William  E. Kennard              |           | Company, Inc.                                                                                                                 |       |                |
| /s/ GERALDINE  B. LAYBOURNE      |           | Director of  Insight Communications                                                                                                |       | March 29, 2007 |
| Geraldine B.  Laybourne          |           | Company, Inc.                                                                                                                 |       |                |

 

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this Report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                            | **INSIGHT CAPITAL, INC.** |
|----------------------------|---------------------------|
| Date: March 29,  2007 | By:                       | /s/ MICHAEL S. WILLNER |
|                       |                      | Michael S. Willner, Chairman and |
|                       |                      | Chief Executive Officer |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this Report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.
|                         | **Signatures** | ** **                                      | ** ** | ** **           | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|-------------------------|----------------|-------------------------------------------------|------------|----------------------|-----------|------------|------------|------------|----------|------------|
| /s/ SIDNEY  R. KNAFEL   |           | Director                                        |       | March 29, 2007  |
| Sidney  R. Knafel       |           |                                            |       |                 |
| /s/ MICHAEL S.  WILLNER |           | Chairman, Chief  Executive Officer and Director |       |                 |
| Michael  S. Willner     |           | (Principal Executive Officer)                   |       | March 29,  2007 |
| /s/ JOHN ABBOT          |           | Executive Vice  President and Chief Financial   |       | March 29, 2007  |
| John  Abbot             |           | Officer (Principal Financial Officer)           |       |                 |
| /s/ DANIEL  MANNINO     |           | Senior Vice  President and Controller           |       | March 29, 2007  |
| Daniel Mannino          |           | (Principal  Accounting Officer)                 |       |                 |

 

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