**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

**QUARTERLY REPORT PURSUANT TO SECTION 13or 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**For the Quarterly Period Ended September 30,2005**

**Commissionfile number 0-26677**

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**INSIGHT COMMUNICATIONS COMPANY, INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     |   | **13-4053502**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
| **810 7th Avenue  New York, New York**                           |   | **10019**                             |
| (Address of  principal executive offices)                        |   | (Zip code)                            |

Registrant’s telephone number, including area code:  **917-286-2300**

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

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes   x   No   o

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

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.

| **Class**                                  | ** ** | **Outstanding  at October 31, 2005** |
|--------------------------------------------|------------|-------------------------------------------|
| Class A  Common Stock, $.01 Par Value |       | 51,841,390                                |
| Class B Common  Stock, $.01 Par Value |       | 8,489,454                                 |

 

 

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**PART I.   FINANCIAL INFORMATION**

**Item 1.**                        FinancialStatements

The accompanying unaudited consolidated financialstatements have been prepared in accordance with the requirements of Form 10-Qand, therefore, do not include all information and footnotes required byaccounting principles generally accepted in the United States. However, in ouropinion, all adjustments, consisting of normal recurring accruals, necessaryfor a fair presentation of the results of operations for the relevant periodshave been made. Results for the interim periods are not necessarily indicativeof the results to be expected for the year. These financial statements shouldbe read in conjunction with the summary of significant accounting policies andthe notes to the consolidated financial statements included in our AnnualReport on Form 10-K for the year ended December 31, 2004.

1

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**INSIGHTCOMMUNICATIONS COMPANY, INC.CONSOLIDATED BALANCE SHEETS(dollars in thousands)**

| ** **                                                                                                                                                               | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                               | ** ** | **unaudited**                | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                               | * *   |                         | * *   | ** **                  |       |   | * * | * * |   |
| Cash and cash  equivalents                                                                                                                                               |       |                         | $          | 117,782                     | ** ** |   |   | $ | 100,144 | * * |   |
| Investments                                                                                                                                                              |       |                         | 5,736      | ** **                  |       |   | 5,053 | * * |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $1,291 and $1,050 as of  September 30, 2005 and December 31, 2004                        |       |                         | 22,629     | ** **                  |       |   | 31,355 | * * |   |
| Launch funds  receivable                                                                                                                                                 |       |                         | 517        | ** **                  |       |   | 2,749 | * * |   |
| Prepaid expenses  and other current assets                                                                                                                               |       |                         | 19,532     | ** **                  |       |   | 11,343 | * * |   |
| Total current assets                                                                                                                                                     |       |                         | 166,196    | ** **                  |       |   | 150,644 | * * |   |
| Fixed assets, net                                                                                                                                                        |       |                         | 1,117,526  | ** **                  |       |   | 1,154,251 | * * |   |
| Goodwill                                                                                                                                                                 |       |                         | 72,430     | ** **                  |       |   | 72,430 | * * |   |
| Franchise costs                                                                                                                                                          |       |                         | 2,361,959  | ** **                  |       |   | 2,361,959 | * * |   |
| Deferred financing  costs, net of accumulated amortization of $22,894 and $18,892 as of  September 30, 2005 and December 31, 2004                              |       |                         | 25,606     | ** **                  |       |   | 27,896 | * * |   |
| Other non-current  assets                                                                                                                                                |       |                         | 2,053      | ** **                  |       |   | 2,692 | * * |   |
| Total assets                                                                                                                                                             |       |                         | $          | 3,745,770                   | ** ** |   |   | $ | 3,769,872 | * * |   |
| **Liabilities and stockholders’ equity**                                                                                                                            |       |                         |       | ** **                  |       |   |   | * * |   |
| Accounts payable                                                                                                                                                         |       |                         | $          | 22,645                      | ** ** |   |   | $ | 31,886 | * * |   |
| Accrued expenses  and other current liabilities                                                                                                                          |       |                         | 37,224     | ** **                  |       |   | 40,838 | * * |   |
| Accrued property  taxes                                                                                                                                                  |       |                         | 12,830     | ** **                  |       |   | 13,049 | * * |   |
| Accrued  programming costs (inclusive of $37,743 and $36,838 due to related parties as  of September 30, 2005 and December 31, 2004)                           |       |                         | 53,478     | ** **                  |       |   | 51,329 | * * |   |
| Deferred revenue                                                                                                                                                         |       |                         | 5,744      | ** **                  |       |   | 8,996 | * * |   |
| Interest payable                                                                                                                                                         |       |                         | 48,131     | ** **                  |       |   | 20,643 | * * |   |
| Debt—current  portion                                                                                                                                               |       |                         | 83,500     | ** **                  |       |   | 83,500 | * * |   |
| Total current liabilities                                                                                                                                                |       |                         | 263,552    | ** **                  |       |   | 250,241 | * * |   |
| Deferred revenue                                                                                                                                                         |       |                         | 1,835      | ** **                  |       |   | 2,904 | * * |   |
| Debt                                                                                                                                                                     |       |                         | 2,687,935  | ** **                  |       |   | 2,724,063 | * * |   |
| Other non-current  liabilities                                                                                                                                           |       |                         | 2,008      | ** **                  |       |   | 1,331 | * * |   |
| Minority interest                                                                                                                                                        |       |                         | 251,592    | ** **                  |       |   | 245,523 | * * |   |
| Stockholders’ equity:                                                                                                                                               |       |                         |       | ** **                  |       |   |   | * * |   |
| Preferred stock;  $.01 par value; 100,000,000 shares authorized; no shares issued and  outstanding as of September 30, 2005 and December 31, 2004    |       |                         | —     | ** **                  |       |   | — | * * |   |
| Common stock; $.01 par value:                                                                                                                                            |       |                         |       | ** **                  |       |   |   | * * |   |
| Class A—300,000,000  shares authorized; 51,841,390 and 50,912,910 shares issued and  outstanding as of September 30, 2005 and December 31, 2004 |       |                         | 517        | ** **                  |       |   | 509 | * * |   |
| Class B—100,000,000  shares authorized; 8,489,454 shares issued and outstanding as of  September 30, 2005 and December 31, 2004                      |       |                         | 85         | ** **                  |       |   | 85 | * * |   |
| Additional  paid-in-capital                                                                                                                                              |       |                         | 828,409    | ** **                  |       |   | 813,853 | * * |   |
| Accumulated  deficit                                                                                                                                                     |       |                         | (276,715   | )                           |       |   | (260,270 | ) |   |
| Deferred stock  compensation                                                                                                                                             |       |                         | (13,893    | )                           |       |   | (8,689 | ) |   |
| Accumulated other  comprehensive income                                                                                                                                  |       |                         | 445        | ** **                  |       |   | 322 | * * |   |
| Total stockholders’  equity                                                                                                                                         |       |                         | 538,848    | ** **                  |       |   | 545,810 | * * |   |
| Total liabilities and stockholders’ equity                                                                                                                          |       |                         | $          | 3,745,770                   | ** ** |   |   | $ | 3,769,872 | * * |   |

 

See accompanying notes

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**INSIGHTCOMMUNICATIONS COMPANY, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)(in thousands, except share and per share amounts)**

| ** **                                                                                                                                                                                                                                                                      | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                      | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenue                                                                                                                                                                                                                                                                         |       | $                                                    | 278,986    |                                                | $          | 250,516 |   | $ | 827,624 |   | $ | 739,910 |   |
| Operating costs  and expenses:                                                                                                                                                                                                                                                  |       |                                                 |       |                                                |       |   |   |   |   |
| Programming and other operating costs (exclusive of  depreciation and amortization) (inclusive of $39,438 and $120,114 and $37,490  and $110,968 of programming expense incurred through related parties for the  three and nine months ended September 30, 2005 and 2004) |       | 94,872                                               |       | 87,522                                              |       | 287,005 |   | 264,277 |   |
| Selling, general and administrative                                                                                                                                                                                                                                             |       | 68,106                                               |       | 57,920                                              |       | 194,621 |   | 163,049 |   |
| Depreciation and amortization                                                                                                                                                                                                                                                   |       | 64,930                                               |       | 60,360                                              |       | 190,599 |   | 180,381 |   |
| Total operating  costs and expenses                                                                                                                                                                                                                                             |       | 227,908                                              |       | 205,802                                             |       | 672,225 |   | 607,707 |   |
| Operating income                                                                                                                                                                                                                                                                |       | 51,078                                               |       | 44,714                                              |       | 155,399 |   | 132,203 |   |
| Other income  (expense):                                                                                                                                                                                                                                                        |       |                                                 |       |                                                |       |   |   |   |   |
| Interest expense                                                                                                                                                                                                                                                                |       | (57,773                                              | )          | (49,228                                             | )          | (168,781 | ) | (150,165 | ) |
| Interest income                                                                                                                                                                                                                                                                 |       | 853                                                  |       | 174                                                 |       | 1,876 |   | 423 |   |
| Other income (expense)                                                                                                                                                                                                                                                          |       | 834                                                  |       | 475                                                 |       | 1,505 |   | (1,701 | ) |
| Total other  expense, net                                                                                                                                                                                                                                                       |       | (56,086                                              | )          | (48,579                                             | )          | (165,400 | ) | (151,443 | ) |
| Loss before minority interest and income taxes                                                                                                                                                                                                                             |       | (5,008                                               | )          | (3,865                                              | )          | (10,001 | ) | (19,240 | ) |
| Minority interest  expense                                                                                                                                                                                                                                                      |       | (2,242                                               | )          | (1,597                                              | )          | (6,069 | ) | (877 | ) |
| Loss before income taxes                                                                                                                                                                                                                                                        |       | (7,250                                               | )          | (5,462                                              | )          | (16,070 | ) | (20,117 | ) |
| Benefit  (provision) for income taxes                                                                                                                                                                                                                                           |       | (125                                                 | )          | 15                                                  |       | (375 | ) | 326 |   |
| Net loss  applicable to common stockholders                                                                                                                                                                                                                                     |       | $                                                    | (7,375     | )                                                   | $          | (5,447 | ) | $ | (16,445 | ) | $ | (19,791 | ) |
| Basic and diluted loss per share attributable to  common stockholders                                                                                                                                                                                                           |       | $                                                    | (.12       | )                                                   | $          | (.09 | ) | $ | (.27 | ) | $ | (.33 | ) |
| Basic and diluted  weighted-average shares outstanding                                                                                                                                                                                                                          |       | 60,300,352                                           |       | 59,757,557                                          |       | 59,880,754 |   | 59,711,272 |   |

 

See accompanying notes

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**INSIGHT COMMUNICATIONS COMPANY, INC.CONSOLIDATED STATEMENTSOF CASH FLOWS(unaudited)(in thousands)**

| ** **                                                                        | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| **Operating activities:**                                                         | * *   | * *                                            | * *   | * * | * * |
| Net loss                                                                          |       | $                                                   | (16,445    | ) | $ | (19,791 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating  activities: |       |                                                |       |   |   |
| Depreciation and amortization                                                     |       | 190,599                                             |       | 180,381 |   |
| Non-cash consulting expense                                                       |       | 45                                                  |       | 45 |   |
| Gain on interest rate swaps                                                       |       | (1,684                                              | )          | (249 | ) |
| Realized gain on sale of Liberate                                                 |       | —                                              |       | (386 | ) |
| Loss on early extinguishments of debt                                             |       | —                                              |       | 127 |   |
| Minority interest                                                                 |       | 6,069                                               |       | 877 |   |
| Provision for losses on trade accounts receivable                                 |       | 13,196                                              |       | 13,803 |   |
| Contribution of stock to 401(k) Plan                                         |       | 1,990                                               |       | 1,309 |   |
| Amortization of note discount                                                     |       | 28,630                                              |       | 25,942 |   |
| Benefit for income taxes                                                          |       | —                                              |       | (326 | ) |
| Changes in  operating assets and liabilities, net of the effect of  acquisitions: |       |                                                |       |   |   |
| Trade accounts receivable                                                         |       | (4,470                                              | )          | (10,296 | ) |
| Launch funds receivable                                                           |       | 2,232                                               |       | 6,712 |   |
| Prepaid expenses and other assets                                                 |       | (7,392                                              | )          | 2,620 |   |
| Accounts payable                                                                  |       | (9,241                                              | )          | (7,146 | ) |
| Accrued expenses and other liabilities                                            |       | 21,483                                              |       | 34,097 |   |
| Net cash provided by operating activities                                         |       | 225,012                                             |       | 227,719 |   |
| **Investing  activities:**                                                        |       |                                                |       |   |   |
| Purchase of fixed assets                                                          |       | (144,622                                            | )          | (130,895 | ) |
| Sale of fixed assets                                                              |       | 2,145                                               |       | 952 |   |
| Purchase of intangible assets                                                     |       | —                                              |       | (107 | ) |
| Purchase of investments                                                           |       | (1,551                                              | )          | (1,481 | ) |
| Sale of investments                                                               |       | 991                                                 |       | 602 |   |
| Net cash used in investing activities                                             |       | (143,037                                            | )          | (130,929 | ) |
| **Financing  activities:**                                                        |       |                                                |       |   |   |
| Net repayment of credit facilities                                                |       | (62,625                                             | )          | (52,688 | ) |
| Repurchase of senior discount notes                                               |       | —                                              |       | (8,134 | ) |
| Debt issuance costs                                                               |       | (1,712                                              | )          | (10 | ) |
| Net cash used in financing activities                                             |       | (64,337                                             | )          | (60,832 | ) |
| Net increase in  cash and cash equivalents                                        |       | 17,638                                              |       | 35,958 |   |
| Cash and cash  equivalents, beginning of period                                   |       | 100,144                                             |       | 60,172 |   |
| Cash and cash  equivalents, end of period                                         |       | $                                                   | 117,782    |   | $ | 96,130 |   |

 

See accompanying notes

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**INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.**   Organization andBasis of Presentation

Through our wholly owned subsidiary, InsightCommunications Company, L.P. (“Insight LP”), we own a 50% interest in InsightMidwest, L.P. (“Insight Midwest”), which through its operating subsidiaries,Insight Communications Midwest, LLC (“Insight Communications Midwest”), InsightKentucky Partners II, L.P. (“Insight Kentucky”) and Insight Communicationsof Central Ohio, LLC (“Insight Ohio”), owns and operates cable televisionsystems in Indiana, Kentucky, Ohio, and Illinois which passed approximately 2.4million homes and served approximately 1.3 million customers as of September 30,2005.

Insight LP is the general partner of Insight Midwest.Through Insight LP, we manage all of Insight Midwest’s systems and, through July 31,2004, managed certain systems owned by an affiliate of Comcast Cable Holdings,LLC (“Comcast Cable”) (formerly known as AT&T Broadband, LLC), the owner ofthe remaining 50% interest in Insight Midwest.

The accompanying consolidated financial statementsinclude our accounts and those of our wholly owned subsidiaries, Insight LP andInsight Cable Services, LLC.

On July 28, 2005, weentered into a definitive merger agreement providing for Insight AcquisitionCorp. to acquire all of our publicly held shares. Under the terms of theagreement, our public shareholders (other than stockholders that will continueas investors in the surviving corporation) would receive $11.75 per sharein cash. Insight Acquisition Corp. was organized by affiliates of The CarlyleGroup in order to effect the transactions contemplated by the merger agreement.Consummation of the transaction is subject to certain conditions, includingapproval of the merger agreement and merger by unaffiliated holders of amajority of the outstanding shares of our Class A common stock.

**2.**   Responsibility forInterim Financial Statements

Our accompanying unaudited consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States for interim financial information andwith the instructions to Form 10-Q and Article 10 of RegulationS-X. Accordingly, they do not include all of the information and footnotedisclosures required by accounting principles generally accepted in the UnitedStates for complete financial statements.

In our opinion, the consolidated financial statementsreflect all adjustments considered necessary for a fair presentation of theconsolidated results of operations and financial position for the interimperiods presented. All such adjustments are of a normal recurring nature. Theseunaudited interim consolidated financial statements should be read inconjunction with the audited consolidated financial statements and notes toconsolidated financial statements contained in our Annual Report on Form 10-Kfor the year ended December 31, 2004.

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires us to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates. The results of operations forthe three and nine months ended September 30, 2005 are not necessarilyindicative of the results to be expected for the year ending December 31,2005 or any other interim period.

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**INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**3.   Stock-BasedCompensation**

Pursuant to Statement of Financial AccountingStandards (“SFAS”) No. 148, *Accounting for Stock-BasedCompensation—Transition and Disclosure*, we have elected to continueto account for employee stock-based compensation under Accounting PrinciplesBoard (“APB”) Opinion No. 25, *Accounting for StockIssued to Employees*, using an intrinsic value approach to measurecompensation expense. Accordingly, no compensation expense has been recognizedfor options granted to employees under our stock option plan since all suchoptions were granted at exercise prices equal to the fair market value on thedate of grant.

Thefollowing table summarizes relevant information as to our reported resultsunder the intrinsic value method of accounting for stock awards, withsupplemental information, as if the fair value recognition provisions of SFAS No. 123,*Accounting for Stock-Based Compensation*,had been applied to each of the three and nine month periods ended September 30,2005 and 2004 (in thousands, except per share data):

| ** **                                                                                                                      | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                      | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net loss  attributable to common stockholders                                                                                   |       | $                                                    | (7,375     | )                                                   | $          | (5,447 | ) | $ | (16,445 | ) | $ | (19,791 | ) |
| Add: Stock-based  compensation as reported, net of tax                                                                          |       | 3,891                                                |       | 959                                                 |       | 7,367 |   | 3,204 |   |
| Deduct:  Stock-based compensation determined under fair value based method for all  awards (SFAS No. 123), net of tax |       | (5,712                                               | )          | (2,466                                              | )          | (12,922 | ) | (6,823 | ) |
| Adjusted net loss  attributable to common stockholders                                                                          |       | $                                                    | (9,196     | )                                                   | $          | (6,954 | ) | $ | (22,000 | ) | $ | (23,410 | ) |
| Basic and diluted net loss per share, as reported                                                                               |       | $                                                    | (.12       | )                                                   | $          | (.09 | ) | $ | (.27 | ) | $ | (.33 | ) |
| Basic and diluted net  loss per share, SFAS 123 adjusted                                                                        |       | $                                                    | (.15       | )                                                   | $          | (.12 | ) | $ | (.37 | ) | $ | (.39 | ) |

 

**4.**   Loss Per Share

Basic loss per share iscomputed using the weighted-average shares outstanding during the period.Diluted loss per share is equal to basic loss per share as we generated netlosses for the three and nine months ended September 30, 2005 and 2004,thereby making the potential effects of dilutive securities anti-dilutive.Securities that could potentially dilute basic earnings per share in the futureinclude stock options and deferred stock units.

**5.**   RecentAccounting Pronouncements

On December 16, 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 123 (revised 2004), *Share-Based Payment* (“SFAS No. 123(R)”), which is arevision of SFAS No. 123, and supersedes APB Opinion No. 25. SFAS No. 123(R) requiresall share-based payments to employees, including grants of employee stockoptions, to be recognized in the financial statements based on their fairvalues, beginning with the next fiscal year that begins after June 15,2005. In addition, SFAS No. 123(R) will cause unrecognized expenserelated to previously issued options vesting after the date of initial adoptionto be recognized as a charge to results of operations over the remainingvesting period. We are required to adopt SFAS No. 123(R) in our firstquarter of 2006. The FASBhas concluded that companies may adopt the new standard in one of two ways: themodified prospective transition method and the modified retrospectivetransition method. Under the modified retrospective transition method, 

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**INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**5.**   Recent Accounting Pronouncements (Continued)

priorperiods may be retroactively adjusted either as of the beginning of the year ofadoption or for all periods presented. The modified prospective transitionmethod requires that compensation expense be recorded for all unvested stockoptions and share awards at the beginning of the fiscal period of adoption ofSFAS No. 123R, while the retrospective method would record compensationexpense for all unvested stock options and share awards beginning with thefiscal period retroactively adjusted. The Company is still evaluating whichtransition method it will adopt and the impact of the adoption of SFAS No. 123Ron its consolidated financial statements.

In May 2005, FASBissued SFAS No. 154, *Accounting**Changes and Error Corrections*. SFAS No. 154 replacesAPB Opinion No. 20, *Accounting Changes*,and SFAS No. 3, *Reporting AccountingChanges in Interim Financial Statements* and changes the requirementsfor the accounting for and reporting of a change in accounting principles. SFASNo. 154 applies to all voluntary changes in an accounting principle. Italso applies to changes required by an accounting pronouncement in the unusualinstance that the pronouncement does not include specific transitionprovisions. When a pronouncement includes specific provisions, those provisionsshould be followed. The Company does not anticipate that the adoption of thisstandard will have a material impact on its consolidated financial statements.SFAS 154 is effective for accounting changes and corrections of errors made infiscal years beginning in 2006.

**6.**   Investments

*LiberateTechnologies*

In July and April 2005, we received specialdividends of $0.15 and $2.10 per share on our 441,000 shares of LiberateTechnologies (“Liberate”) stock. The total dividends received of $66,150 and$926,000 have been recorded as a decrease in our investment in Liberate. As of September 30,2005 and December 31, 2004, we had 441,000 shares available for sale witha fair value of $84,000 and $953,000.

During January and February 2004,we sold a total of 150,000 shares of Liberate common stock. We received netproceeds of $595,000 and recorded a net gain on the sale of $381,000 that hasbeen included in other income in our consolidated statements of operations forthe nine months ended September 30, 2004.

*AgileTV*

AgileTV Corporation is aprivately owned company that develops voice navigation services for television.On May 11, 2005, we made an additional investment in AgileTV by purchasingshares of AgileTV’s Series B1 preferred stock and common stock for anaggregate purchase price of (i) approximately $900,000 in cash and (ii) approximately$300,000 in the form of conversion of an outstanding promissory note. We areaccounting for our investment in AgileTV under the cost method. As of September 30, 2005 and December 31,2004, our carrying value in this investment was $1.2 million and $300,000.

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**INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**7.   FixedAssets**

| ** **                                      | ** ** | **September 30,**  | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2005**                | ** ** | **2004**              | ** ** |
| ** **                                      | ** ** | **(in thousands)** | ** ** |
| Land, buildings  and improvements               |       |                    | $          | 39,760                |       |   | $ | 41,131 |   |
| Cable system  equipment                         |       |                    | 2,324,954  |                  |       | 2,182,800 |   |
| Furniture,  fixtures and office equipment       |       |                    | 20,945     |                  |       | 20,073 |   |
|                                            |       |                    | 2,385,659  |                  |       | 2,244,004 |   |
| Less accumulated  depreciation and amortization |       |                    | (1,268,133 | )                     |       | (1,089,753 | ) |
| Total fixed  assets, net                        |       |                    | $          | 1,117,526             |       |   | $ | 1,154,251 |   |

 

We recorded depreciationexpense of $59.6 million and $179.2 million for the three and nine months endedSeptember 30, 2005 and $58.1 million and $173.2 million for the three andnine months ended September 30, 2004.

**8.   Debt**

| ** **                                      | ** **   | **September 30,**  | ** **   | **December 31,** | ** ** |
|-------------------------------------------------|--------------|-------------------------|--------------|-----------------------|------------|
| ** **                                      | ** **   | **2005**                | ** **   | **2004**              | ** ** |
| ** **                                      | *** *** | **(in thousands)** | *** *** |
| Insight Midwest  Holdings Credit Facility       |         |                    | $            | 1,425,125             |       |   |   | $ | 1,487,750 |   |   |
| Insight Midwest 93¤4%  Senior Notes        |         |                    | 385,000      |                  |       |   | 385,000 |   |   |
| Insight Midwest 101¤2%  Senior Notes       |         |                    | 630,000      |                  |       |   | 630,000 |   |   |
| Insight Inc. 121¤4%  Senior Discount Notes |         |                    | 350,000      |                  |       |   | 350,000 |   |   |
|                                            |         |                    | 2,790,125    |                  |       |   | 2,852,750 |   |   |
| Net unamortized  discount/premium on notes      |         |                    | (17,076      | )                     |       |   | (45,706 | ) |   |
| Market value of  interest rate swaps            |         |                    | (1,614       | )                     |       |   | 519 |   |   |
| Total debt                                      |         |                    | $            | 2,771,435             |       |   |   | $ | 2,807,563 |   |   |

 

***Insight MidwestHoldings $1.975 Billion Credit Facility***

Insight Midwest Holdings,LLC, a wholly owned subsidiary of Insight Midwest, holds all of the outstandingequity of each of our operating subsidiaries and serves as borrower under a$1.975 billion credit facility. On March 28, 2002, we loaned $100.0million to Insight Midwest. The loan to Insight Midwest bears annual interestof 9%, compounded semi-annually, has a scheduled maturity date ofJanuary 31, 2011 and permits prepayments. Insight Midwest Holdings ispermitted under the credit facility to make distributions to Insight Midwestfor the purpose of repaying our loan, including accrued interest, provided thatthere are no defaults existing under the credit facility. As of September 30,2005 and December 31, 2004, the balance of the $100.0 million loan,including accrued interest, was $136.1 million and $127.0 million.

On July 21, 2005 wecompleted a refinancing of the existing $1.1 billion Term B loan facility underthe Insight Midwest Credit Agreement. This refinancing reduced the applicablemargins for LIBOR rate borrowings from LIBOR plus 275 basis points to LIBORplus 200 basis points and the applicable margin will be reduced an additional25 basis points when the Midwest Holdings leverage ratio drops below 2.75. Themaximum total leverage ratio covenant was reset from 3.75 to 4.50 onJuly 1, 2005 with additional step downs to 4.25 on July 1, 2006 andto 4.00 on July 1, 2007. The facility was also amended to provide certainflexibility to refinance senior notes at Insight Midwest.

8

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**INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**8.   Debt (Continued)**

***Senior Notes and Senior Discount Notes***

In June 2004, werepurchased $10.0 million face amount of the 121⁄4% Senior Discount Notes at thethen accreted value of $8.1 million for $8.9 million, resulting in a loss of$843,000, which includes the write-off of unamortized deferred financing costsof $127,000.

***Debt Principal Payments***

As of September 30,2005, the remaining principal payments required on our debt were as follows (inthousands):

| 2005       |   | $         | 20,875    |   |
|------------|--------|-----------|-----------|--------|
| 2006       |   | 83,500    |      |
| 2007       |   | 83,500    |      |
| 2008       |   | 104,750   |      |
| 2009       |   | 1,517,500 |      |
| Thereafter |   | 980,000   |      |
| Total      |   | $         | 2,790,125 |   |

 

**9.   DerivativeInstruments**

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 thelife of the agreement without an exchange of the underlying principal amount.The differential to be paid or received is accrued as interest rates change andis recognized as an adjustment to interest expense related to the debt. Therelated amount payable or receivable is included in other non-current liabilitiesor 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 our 101⁄2% senior notes duein December 2010 for variable rates equal to six-month LIBOR, plus theapplicable margin of approximately 8.3%, on $185.0 million notional value ofdebt. These agreements expire November 1, 2005. We recorded a gain onthese swaps of $872,000 and $1.7 million for the three and nine months ended September 30,2005 and $1.5 million and $250,000 for the three and nine months ended September 30,2004, which is included in other income (expense). As of September 30,2005 and 

9

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**INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**9.**   Derivative Instruments (Continued)

December 31, 2004, werecorded $1.7 million and $364,000 of interest payable related to theseagreements. The cost, if terminated, of these agreements was $394,000 and $2.1million as of September 30, 2005 and December 31, 2004.

In December 2003, weentered into an interest rate swap agreement whereby we swapped fixed ratesunder our 101¤2%senior notes due in December 2010 for variable rates equal to six-monthLIBOR, plus the applicable margin of approximately 5.9%, on $130.0 millionnotional value of debt. This agreement expires November 1, 2010. This swaphas been determined to be perfectly effective in hedging against fluctuationsin the fair value of the underlying debt. As such, changes in the fair value ofthe underlying debt equally offset changes in the value of the interest rateswap in our consolidated statements of operations. The fair value (cost ifterminated) of this swap as of September 30, 2005 and December 31,2004 was $(1.6) million and $519,000 and has been recorded in other non-currentassets (liabilities) and as an adjustment to the carrying value of debt.

**10.   ComprehensiveLoss**

We ownequity securities that are classified as available-for-sale and reported atmarket value, with unrealized gains and losses recorded as accumulated othercomprehensive income or loss in the accompanying consolidated balance sheets.In addition, we record the effective portion of certain derivatives’ gains orlosses as accumulated other comprehensive income or loss in the accompanyingconsolidated balance sheets. The following is a reconciliation of net loss tocomprehensive loss (in thousands):

| ** **                                                     | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                     | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net loss                                                       |       | $                                                    | (7,375     | )                                                   | $          | (5,447 | ) | $ | (16,445 | ) | $ | (19,791 | ) |
| Unrealized gain  (loss) on securities available-for-sale  |       | (5                                                   | )          | (5                                                  | )          | 123 |   | (107 | ) |
| Realized gain on  securities available-for-sale                |       | —                                               |       | —                                              |       | — |   | (386 | ) |
| Unrealized gain  on interest rate swaps, net of tax            |       | —                                               |       | 168                                                 |       | — |   | 1,010 |   |
| Comprehensive loss                                             |       | $                                                    | (7,380     | )                                                   | $          | (5,284 | ) | $ | (16,322 | ) | $ | (19,274 | ) |

 

**11.   Minority andPreferred Interests**

As of September 30, 2005 we had $251.6 million ofminority interests recorded in our balance sheet as temporary equity related toInsight Midwest.

The Insight Midwest partnership was formed in September 1999to serve as the holding company and a financing vehicle for our cabletelevision system 50/50 joint venture with an indirect subsidiary of AT&T Broadband(now known as Comcast Cable). The results of the partnership are included inour consolidated financial statements since we as general partner effectivelycontrol Insight Midwest’s operating and financial decisions. The partnershipwill continue until October 1, 2011 unless terminated earlier inaccordance with the provisions of the Insight Midwest partnership agreement.

Depending on the nature ofdissolution of the partnership, Insight Midwest will be required in accordancewith the partnership agreement to either distribute to Comcast Cable some ofits cable systems 

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**INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**11.**   Minority and Preferred Interests(Continued)

andliabilities equal to 50% of the net market value of the partnership or, in theevent of a liquidation, an amount in cash equal to 50% of the net proceedsreceived.

**12.   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 certain 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 $200,000 and$1.4 million for the three and nine month period ended September 30, 2004.

***Programming***

We purchase the majorityof our programming through affiliates of Comcast Cable. Charges for suchprogramming, including a 11⁄2% administrative fee, were $39.4 million and $120.1million for the three and nine months ended September 30, 2005 and $37.5million and $111.0 million for the three and nine months ended September 30,2004. As of September 30, 2005 and December 31, 2004, $37.7 millionand $36.8 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. In addition, Insight Midwestreceived additional payments related to certain services and support, includinginstallations, marketing and billing. Fee revenue earned in connection withinstallations was deferred and amortized over the expected term a telephonecustomer was expected to maintain their telephone service, then estimated to bethree years. Marketing and billing support revenue was recognized in the periodsuch 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.

***Advertising Services***

In October 1999, to facilitate the administrationof our advertising services in our Kentucky Systems, we entered into anagreement with an affiliate of AT&T Broadband (now known as Comcast Cable),

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**INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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

which provided for thisaffiliate to perform all of our Kentucky advertising sales and relatedadministrative services. Effective September 26, 2004, this agreement wasterminated by mutual agreement.

We earned advertisingrevenues through this affiliate of $4.6 million and $13.7 million for theperiod from July 1, 2004 through September 26, 2004 and January 1,2004 through September 26, 2004. Through September 26, 2004 we paidthis affiliate a fixed and variable fee for providing this service based onadvertising sales cash flow growth.

***Employee Loans***

In October 1999 and April 2000, we madeloans to certain of our employees that were used to satisfy their individualincome tax withholding obligations resulting from their receipt of shares inconnection with our initial public offering. Between December 8 and 31,2004, we made an offer to each of the individuals with a loan obligation to (i) cancelsuch individual’s loan (including accrued interest) upon the surrender to us ofsuch individual’s pledged shares and (ii) issue restricted shares of our Class Acommon stock as an incentive to surrender the pledged shares and, in the caseof current employees, to encourage the employee’s long-term future performance,and in the case of former employees, to reward such former employees for theirpast service to us.

As of December 31,2004, each of the individuals with a loan obligation accepted the offer andsurrendered an aggregate of 395,210 shares of common stock in repayment of $3.7million (based on the closing price of our Class A common stock on suchdate of $9.27 per share) of the aggregate $4.3 million of loans and accruedinterest. The remaining balance of the loans were cancelled and recorded ascompensation expense during the fourth quarter of 2004. On May 3, 2005,following shareholder approval of an amendment to our 1999 Equity IncentivePlan to increase the number of shares available thereunder for issuance, theemployees and former employees were issued an aggregate of 825,641 shares ofrestricted stock. This restricted stock was recorded during the three monthsended June 30, 2005.

**13.   Commitments andContingencies**

***Programming Contracts***

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.

***Litigation***

In November 2000, we filed a state court actionagainst the City of Louisville for its grant, in September 2000, of a morefavorable franchise to Knology of Louisville, Inc. Upon commencement ofthis action, the City pursuant to a provision in its franchise agreement withKnology, automatically suspended Knology’s franchise pending a final,non-appealable court determination as to whether Knology’s franchise was morefavorable than the franchise under which we operated. In November 2000,Knology filed a federal court action against us seeking monetary damages andother relief for alleged violations of federal laws arising out of our havingfiled, pursuant to the provisions of our own franchise agreement with the 

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**INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**13.**   Commitments and Contingencies(Continued)

City, the state courtaction. In March 2001, the federal court preliminarily set aside thesuspension of Knology’s franchise. In March 2002, a state circuit courtruled against our claim that Knology’s franchise was more favorable. Weappealed the circuit court’s order to the state court of appeals which, in June 2003,upheld the lower court ruling. We filed a motion for discretionary review ofthe appeals court’s ruling which was denied by the Kentucky Supreme Court.

In May 2003, the federal court granted us summaryjudgment and dismissed six of Knology’s 11 claims. The court grantedsummary judgment to Knology on three claims, two of which resulted inpermanently enjoining enforcement of the automatic suspension provision ofKnology’s franchise agreement and did not involve damages. The third such claimwas for violation of Knology’s first amendment rights, which was to proceed totrial solely on the issue of damages, and could have resulted in an award oflegal fees and court costs specific to such claim if upheld. The remainingundecided claims related to allegations of anticompetitive conduct arising fromthe state court lawsuit and were to proceed to trial on the merits. In August 2003,the court agreed, in part, with our Motion for Reconsideration, that the stayprovision provides no justification for an injunction since the language wassevered. Further, the court granted our Motion to Certify Questions for anImmediate Appeal to the Sixth Circuit Court of Appeals. The Sixth Circuit Courtof Appeals granted our Motion to Certify, and ruled in our favor overturningthe trial court’s rulings in favor of Knology. The Sixth Circuit found that ourright to file the state court lawsuit against the City was protected and thuswe were immune from liability arising from that lawsuit. Knology filed a motionfor an en banc review by the Sixth Circuit which was denied in March 2005.The matter was returned to the trial court for final rulings consistent withthe Sixth Circuit opinion. On August 19, 2005, the trial court dismissedthe action with prejudice and with each party bearing its own costs. We arecontinuing to pursue an award of costs and attorneys fees.

Between March 7 and March 15, 2005, fivepurported class action lawsuits were filed in the Delaware Court of Chancerynaming Insight Communications Company, Inc. and each of its directors asdefendants. Three of the lawsuits also named The Carlyle Group as a defendant.The cases were subsequently consolidated under the caption*In Re Insight Communications Company, Inc.Shareholders Litigation* (Civil Action No. 1154-N), and,on April 11, 2005, a Consolidated Amended Complaint (“Complaint”) wasfiled against each director and The Carlyle Group. The Complaint alleges, amongother things, that the defendant directors breached their fiduciary duties toour stockholders in connection with a proposal from Sidney R. Knafel, MichaelWillner, together with certain related and other parties, and The Carlyle Groupto acquire all of our outstanding, publicly-held Class A common stock. TheComplaint also alleges that the proposed transaction violates our Charter andthat The Carlyle Group has aided and abetted the alleged fiduciary dutybreaches. The Complaint seeks the certification of a class of our stockholders;a declaration that the proposed transaction violates our Charter; an injunctionprohibiting the defendants from proceeding with the proposed transaction;rescission or other damages in the event the proposed transaction isconsummated; an award of costs and disbursements including attorneys’fees; and other relief. On April 15, 2005, the plaintiffs filed a Motionfor Preliminary Injunction seeking an order enjoining the defendants fromtaking any steps or acts in furtherance of the proposed transaction, except incompliance with the duties set forth in*Revlon v. MacAndrews & Forbes Holdings, Inc.*, 506 A.2d173 (Del. 1976). On April 25, 2005, the Court refused to schedule ahearing on plaintiffs’ Motion for a Preliminary Injunction and entered an orderdenying that motion, without prejudice to plaintiffs’ ability to re-file themotion, if appropriate, once the special committee makes a recommendation.

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**INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**13.**   Commitments and Contingencies (Continued)

On July 28, 2005, the parties to the actionentered into a memorandum of understanding setting forth the terms of aproposed settlement of the litigation which, among other things, provides thatthe buyers shall proceed with the merger, subject to the terms and conditionsof the merger agreement including the “majority of the minority” stockholdervoting condition, and under which the defendants admit to no wrongdoing orfault. The memorandum of understanding contemplates certification of aplaintiff class consisting of all record and beneficial owners of our Class Acommon stock, other than the buyers, during the period beginning on andincluding March 6, 2005, through and including the date of theconsummation of the merger, a dismissal of all claims with prejudice, and arelease in favor of all defendants of any and all claims related to the merger.The proposed settlement is subject to a number of conditions, includingconsummation of the merger, the plaintiffs’ approval of a definitive settlementagreement and final court approval of the settlement.

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.

**14.   Subsequent Event**

On October 13, 2005, we announced the successfulcompletion of a consent solicitation of holders of our outstanding 121¤4%senior discount notes due 2011 for the waiver of an indenture provision thatcould be deemed to apply to our merger agreement with Insight Acquisition Corp.and related transactions. The concurrent consent solicitations by InsightMidwest and Insight Capital, Inc. in respect of their 93¤4% senior notesdue 2009 and 101⁄2% senior notes due 2010, with respect to the waiver of asubstantially similar provision in each indenture governing those notes, alsowere successfully completed.

On the consent payment date, we will pay consentingholders 0.125% of the accreted value of their 121¤4% notes and0.125% of the principal amount of their Insight Midwest notes, subject to theterms and conditions of the consent solicitations, which conditions includeconsummation of the merger with Insight Acquisition Corp.

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**Item 2.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

**CautionaryStatement Regarding Forward-Looking Information**

This quarterlyreport on Form 10-Q 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 to our stockholders. However, theremay be events in the future that we are not able to accurately predict or overwhich we have no control. The risk factors listed in our Annual Report on Form 10-Kfor the year ended December 31, 2004, as well as any other cautionarylanguage in this quarterly report, provide examples of risks, uncertainties andevents that may cause our actual results to differ materially from the expectationswe describe in our forward-looking statements. You should be aware that theoccurrence of the events described in these risk factors and elsewhere in thisquarterly report could have a material adverse effect on our business,operating results 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 the potential dissolution of our joint venture witha subsidiary of Comcast Corporation;

·       Theterms of Insight Midwest’s indebtedness limits our ability to access the cashflow of Insight Midwest’s subsidiaries for debt service and any other purpose;

·       Wehave a history of net losses and may not be profitable in the future;

·       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 of operations.

In addition, actualresults could differ materially from the forward-looking statements containedin this quarterly report as a result of the timing of the completion of theproposed going private transaction or the impact of the transaction on our operatingresults, capital resources, profitability, cash requirements, managementresources and liquidity. We do not undertake any obligation to publicly updateor release any revisions to these forward-looking statements to reflect eventsor circumstances after the date that this quarterly report is filed with theSEC or to reflect the occurrence of unanticipated events, except as required bylaw.

**Overview**

Our revenues are earned from customer fees for cabletelevision video services including basic, premium, digital and pay-per-viewservices and ancillary services, such as rental of converters and remotecontrol devices and installations. In addition, we earn revenues from providinghigh-speed Internet services, selling advertising, providing telephone services,commissions for products sold through home shopping networks, and, through July 31,2004, as management fees for managing cable systems.

Some of the principal reasons for our net lossesthrough September 30, 2005 include i) depreciation and amortizationassociated with capital expenditures for the construction, expansion andmaintenance of our systems, and, ii) interest costs on borrowed money. Weexpect to continue to report net losses for the 

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foreseeable future. Wecannot predict what impact, if any, continued losses will have on our abilityto finance our operations in the future.

Thefollowing table is derived from our consolidated financial statements and setsforth certain statement of operations data for our consolidated operations:

| ** **                                 | ** ** | **Three Months  Ended September 30,** | ** ** | **Nine Months  Ended September 30,** | ** ** |
|--------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                 | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                 | ** ** | **(in thousands)**                              | ** ** |
| Revenue                                    |       | $                                                    | 278,986    |                                                | $          | 250,516 |   | $ | 827,624 |   | $ | 739,910 |   |
| Operating costs and  expenses:             |       |                                                 |       |                                                |       |   |   |   |   |
| Programming and other operating costs      |       | 94,872                                               |       | 87,522                                              |       | 287,005 |   | 264,277 |   |
| Selling, general and administrative        |       | 68,106                                               |       | 57,920                                              |       | 194,621 |   | 163,049 |   |
| Depreciation and amortization              |       | 64,930                                               |       | 60,360                                              |       | 190,599 |   | 180,381 |   |
| Total operating  costs and expenses        |       | 227,908                                              |       | 205,802                                             |       | 672,225 |   | 607,707 |   |
| Operating income                           |       | 51,078                                               |       | 44,714                                              |       | 155,399 |   | 132,203 |   |
| Interest expense                           |       | 57,773                                               |       | 49,228                                              |       | 168,781 |   | 150,165 |   |
| Minority interest  expense                 |       | (2,242                                               | )          | (1,597                                              | )          | (6,069 | ) | (877 | ) |
| Net loss                                   |       | (7,375                                               | )          | (5,447                                              | )          | (16,445 | ) | (19,791 | ) |
| Net cash provided  by operating activities |       | 81,785                                               |       | 93,333                                              |       | 225,012 |   | 227,719 |   |
| Net cash used in  investing activities     |       | 50,100                                               |       | 48,046                                              |       | 143,037 |   | 130,929 |   |
| Net cash used in  financing activities     |       | 22,587                                               |       | 15,563                                              |       | 64,337 |   | 60,832 |   |
| Capital expenditures                       |       | 51,109                                               |       | 47,308                                              |       | 144,622 |   | 130,895 |   |
|                                            |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

**Useof Operating Income before Depreciation and Amortization and Free Cash Flow**

We utilize Operating Income before Depreciation andAmortization, among other measures, to evaluate the performance of ourbusinesses. Operating Income before Depreciation and Amortization is consideredan important indicator of the operational strength of our businesses and is acomponent of our annual compensation programs. In addition, our debt agreementsuse Operating Income before Depreciation and Amortization, adjusted for certainnon-recurring items, in our 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 Operating Income before Depreciation and Amortization isuseful to investors because it enables them to assess our performance in amanner similar to the methods used by our management and provides a measurethat can be used to analyze, value and compare companies in the cabletelevision industry, which may have different depreciation and amortizationpolicies.

A limitation of Operating Income before Depreciationand Amortization, however, is that it does not reflect the periodic costs ofcertain capitalized tangible and intangible assets used in generating revenuesin our businesses. Management evaluates the costs of such tangible and intangibleassets through other financial measures such as capital expenditures,investment spending and Free Cash Flow. Management also evaluates the costs ofcapitalized tangible and intangible assets by analyzing returns provided on thecapital dollars deployed. Another limitation of Operating Income beforeDepreciation and Amortization is that it does not reflect income net ofinterest expense, which is a significant expense for us because of thesubstantial debt we incurred to acquire cable television systems and financecapital expenditures to upgrade our cable network. Management evaluates theimpact of interest expense through measures 

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including interestexpense, Free Cash Flow, the returns analysis discussed above and debt servicecovenant 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.

Both Operating Incomebefore Depreciation and Amortization and Free Cash Flow should be considered inaddition to, not as a substitute for, Operating Income, Net Income and variouscash flow measures (e.g., Net Cash Provided by Operating Activities), as wellas other measures of financial performance and liquidity reported in accordancewith accounting principles generally accepted in the United States.

***Reconciliation of Net Loss to Operating Income beforeDepreciation and Amortization***

Thefollowing table reconciles Net Loss to Operating Income before Depreciation andAmortization. In addition, the table provides the componentsfrom Net Loss to Operating Income for purposes of the discussions that follow.

| ** **                                             | ** ** | **Three Months  Ended September 30,** | ** ** | **Nine Months  Ended September 30,** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                             | ** ** | **(in thousands)**                              | ** ** |
| Net loss                                               |       | $                                                    | 7,375      |                                                | $          | 5,447 |   | $ | 16,445 |   | $ | 19,791 |   |
| Income tax  benefit (provision)                        |       | (125                                                 | )          | 15                                                  |       | (375 | ) | 326 |   |
| Loss before  income taxes                              |       | 7,250                                                |       | 5,462                                               |       | 16,070 |   | 20,117 |   |
| Minority interest expense                              |       | (2,242                                               | )          | (1,597                                              | )          | (6,069 | ) | (877 | ) |
| Loss before  minority interest and income taxes        |       | 5,008                                                |       | 3,865                                               |       | 10,001 |   | 19,240 |   |
| Other income (expense):                                |       |                                                 |       |                                                |       |   |   |   |   |
| Other                                                  |       | (834                                                 | )          | (475                                                | )          | (1,505 | ) | 1,701 |   |
| Interest income                                        |       | (853                                                 | )          | (174                                                | )          | (1,876 | ) | (423 | ) |
| Interest expense                                       |       | 57,773                                               |       | 49,228                                              |       | 168,781 |   | 150,165 |   |
| Total other  expense, net                              |       | 56,086                                               |       | 48,579                                              |       | 165,400 |   | 151,443 |   |
| Operating income                                       |       | 51,078                                               |       | 44,714                                              |       | 155,399 |   | 132,203 |   |
| Depreciation and  amortization                         |       | 64,930                                               |       | 60,360                                              |       | 190,599 |   | 180,381 |   |
| Operating Income before  Depreciation and Amortization |       | $                                                    | 116,008    |                                                | $          | 105,074 |   | $ | 345,998 |   | $ | 312,584 |   |

 

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***Reconciliation of Net Cash Provided by Operating Activitiesto Free Cash Flow***

Thefollowing table provides 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.

| ** **                                                  | ** ** | **Three Months  Ended September 30,** | ** ** | **Nine Months  Ended September 30,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                  | ** ** | **(in thousands)**                              | ** ** |
| Operating income                                            |       | $                                                    | 51,078     |                                                | $          | 44,714 |   | $ | 155,399 |   | $ | 132,203 |   |
| Depreciation and amortization                               |       | 64,930                                               |       | 60,360                                              |       | 190,599 |   | 180,381 |   |
| Operating Income  before Depreciation and Amortization |       | 116,008                                              |       | 105,074                                             |       | 345,998 |   | 312,584 |   |
| Changes in working capital accounts(1)                      |       | (13,713                                              | )          | 4,083                                               |       | (8,136 | ) | 13,470 |   |
| Cash paid for interest                                      |       | (20,480                                              | )          | (15,778                                             | )          | (112,598 | ) | (98,093 | ) |
| Cash paid for taxes                                         |       | (30                                                  | )          | (46                                                 | )          | (252 | ) | (242 | ) |
| Net cash provided  by operating activities                  |       | 81,785                                               |       | 93,333                                              |       | 225,012 |   | 227,719 |   |
| Capital expenditures                                        |       | (51,109                                              | )          | (47,308                                             | )          | (144,622 | ) | (130,895 | ) |
| Free Cash Flow                                              |       | $                                                    | 30,676     |                                                | $          | 46,025 |   | $ | 80,390 |   | $ | 96,824 |   |

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(1)          Changesin working capital accounts are based on the net cash changes in current assetsand current liabilities, excluding charges related to interest and taxes andother non-cash expenses.

**Results of Operations**

***Three Months Ended September 30, 2005 Compared toThree Months Ended September 30, 2004***

Revenue for the three months ended September 30,2005 totaled $279.0 million, an 11% increase over the prior year, due primarilyto customer gains in high-speed Internet and digital services, as well as basicrate increases. High-speed Internet service revenue increased 46% over theprior year, primarily due to an increased customer base. We added a net 47,900high-speed Internet customers during the quarter to end at 439,200 customers.In addition, digital service revenue increased 10% over the prior year due toan increased customer base. We added a net 29,100 digital customers during thequarter to end at 489,900 customers.

Basic cable service revenue increased 3%, due to basicrate increases partially offset by customer losses over the last twelve months.We are increasing our customer retention efforts by emphasizing bundling,enhancing and differentiating our video services and providing video-on-demand,high definition television and digital video recorders. We are also continuingour focus on improving customer service through higher service levels,increased education of our product offerings and spending on marketing andsales efforts.

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Revenue by serviceoffering was as follows for the three months ended September 30, (inthousands):

| ** **           | ** ** | **Revenue by Service Offering**       | ** ** | ** **                    | ** ** | ** **                                           |
|----------------------|------------|------------------------------------------------------|------------|-------------------------------|------------|------------------------------------------------------|
| ** **           | ** ** | **Three Months  Ended  September 30,2005** | ** ** | **% of  Total  Revenue** | ** ** | **Three Months  Ended  September 30,2004** | ** ** | **% of  Total  Revenue** | ** ** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       |                                                 | $          | 148,393                       |       |                                                 |   | 53.2 | % |   |   | $ | 143,918 |   |   |   | 57.4 | % |   |   |   | 3.1 | % |   |
| High-speed  Internet |       |                                                 | 49,677     |                          |       |                                                 | 17.8 | % |   |   | 33,955 |   |   |   | 13.5 | % |   |   |   | 46.3 | % |   |
| Digital              |       |                                                 | 27,300     |                          |       |                                                 | 9.8 | % |   |   | 24,872 |   |   |   | 9.9 | % |   |   |   | 9.8 | % |   |
| Advertising          |       |                                                 | 18,416     |                          |       |                                                 | 6.6 | % |   |   | 15,725 |   |   |   | 6.3 | % |   |   |   | 17.1 | % |   |
| Premium              |       |                                                 | 13,215     |                          |       |                                                 | 4.7 | % |   |   | 13,694 |   |   |   | 5.5 | % |   |   |   | (3.5 | )% |   |
| Telephone            |       |                                                 | 9,020      |                          |       |                                                 | 3.2 | % |   |   | 3,829 |   |   |   | 1.5 | % |   |   |   | 135.6 | % |   |
| Franchise fees       |       |                                                 | 7,681      |                          |       |                                                 | 2.8 | % |   |   | 7,183 |   |   |   | 2.9 | % |   |   |   | 6.9 | % |   |
| Other                |       |                                                 | 5,284      |                          |       |                                                 | 1.9 | % |   |   | 7,340 |   |   |   | 3.0 | % |   |   |   | (28.0 | )% |   |
| Total                |       |                                                 | $          | 278,986                       |       |                                                 |   | 100.0 | % |   |   | $ | 250,516 |   |   |   | 100.0 | % |   |   |   | 11.4 | % |   |

 

Total Customer Relationships were approximately1,334,200 as of September 30, 2005 compared to 1,330,300 as of September 30,2004. Total Customer Relationships represent the number of customers whoreceive one or more of our products (i.e., basic cable, high-speed Internet ortelephone) without regard to which product they purchase. Revenue GeneratingUnits (“RGUs”), which represent the sum of basic, digital, high-speed Internet,and telephone customers, as of September 30, 2005 increased approximately9% as compared to September 30, 2004.

RGUsby type were as follows (in thousands):

| ** **           | ** ** | **September **30,  2005 | ** ** | **September **30,  2004 | ** ** |
|----------------------|------------|------------------------------|------------|------------------------------|------------|
| Basic                |       |                         | 1,271.0    |                         |       |   | 1,283.6 |   |   |
| Digital              |       |                         | 489.9      |                         |       |   | 439.4 |   |   |
| High-speed  Internet |       |                         | 439.2      |                         |       |   | 311.5 |   |   |
| Telephone            |       |                         | 80.9       |                         |       |   | 62.8 |   |   |
| Total RGUs           |       |                         | 2,281.0    |                         |       |   | 2,097.3 |   |   |

 

Average monthly revenue per basic customer was $73.57for the three months ended September 30, 2005, compared to $65.08 for the three months ended September 30, 2004 primarily reflecting thecontinued growth of our high-speed Internet and digital product offerings inall markets as well as basic rate increases. In addition, telephone revenuesfor the three months ended September 30, 2005 reflect service revenuesearned directly from our customers compared to the three months ended September 30,2004 which reflected revenues billed to Comcast under our previous contractualarrangement that was terminated effective December 31, 2004. Also includedin telephone revenue for the three months ended September 30, 2005 is thecontinued amortization of installation revenues under our previous arrangementwith Comcast in the amount of $833,000.

Programming and other operating costs increased $7.4million or 8%. Total programming costs for our video products increasedprimarily as a result of increases in programming rates offset by a credit ofapproximately $3.4 million resulting from favorable resolution of pricingnegotiations related to certain prior period programming costs that wereaccrued at a higher rate than the amount actually paid and $1.7 millionfor a settlement of disputed claims with a vendor. Other operating costsincreased primarily as a result of increases in technical salaries for new andexisting employees, in addition to decreased capitalized labor costs due to thecontinued transition from upgrade and new connect activities to maintenance andreconnect activities. Other operating costs also increased as a result of costof sales 

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associated with telephonethat were previously paid by Comcast, increases in repairs and maintenancecosts due to increased repairs on customer premise equipment and increasedsoftware maintenance costs and increased property taxes due to a favorablereversal of accrued property taxes recorded for the quarter ended September 30,2004.

Selling, general and administrative expenses increased$10.2 million or 18%, primarily due to increased payroll and payroll relatedcosts, including salary increases for existing employees. Marketing supportfunds (recorded as a reduction to selling, general and administrative expenses)decreased over the prior year’s quarter. Marketing expenses increased over theprior year’s quarter to support the continued roll out of high-speed Internet,digital and telephone products, and to maintain our core video customer base. Adecrease in expenses previously allocated to Comcast, under our prior agreementto manage certain Comcast systems, also contributed to the increase in selling,general and administrative expenses. As this agreement was terminated effectiveJuly 31, 2004, the period ended September 30, 2005 does not includeany of these expense allocations and the quarter ended September 30, 2004includes one month of these expense allocations. Some cost savings have beenrealized upon termination of the management agreement, and the impact ofcertain of these savings is reflected in programming and other operating costs.An increase in other miscellaneous selling, general and administrative expensewas partially offset by a decrease in bad debt expense over the prior year’squarter.

Depreciation and amortization expense increased $4.6million or 8% primarily as a result of additional capital expenditures throughSeptember 30, 2005. Theseexpenditures were primarily for network extensions, capitalized payroll,telephone equipment and purchases of customer premise equipment, all of whichwe consider necessary in order to continue to maintain and grow our customerbase and expand our service offerings. Partially offsetting this increase was adecrease in depreciation expense related to certain assets that have becomefully depreciated since September 30, 2004.

As a result of the factors discussed above, OperatingIncome before Depreciation and Amortization increased $10.9 million, or 10%.

Interest expense increased$8.5 million or 17% due to higher interest rates, which averaged 8.3% for thethree months ended September 30,2005 as compared to 7.0% for the three months ended September 30, 2004, and anincrease in the accreted value of the 121⁄4% Senior Discount Notes.

***Nine Months Ended September 30, 2005 Compared toNine Months Ended September 30, 2004***

Revenue for the nine months ended September 30,2005 totaled $827.6 million, an increase of 12% over the prior year, dueprimarily to customer gains in high-speed Internet and digital services, aswell as basic rate increases. High-speed Internet service revenue increased 47%over the prior year, primarily due to an increased customer base. We added anet 108,700 high-speed Internet customers during the nine months endedSeptember 30, 2005 to end at 439,200 customers. In addition, digitalservice revenue increased 12% over the prior year primarily due to an increasedcustomer base. We added a net 38,600 digital customers during the nine monthsended September 30, 2005 to end at 489,900 customers. Basic cable servicerevenue increased 4%, due to basic rate increases partially offset by customerlosses.

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Revenueby service offering was as follows for the nine months ended September 30(in thousands):

| ** **           | ** ** | **Revenue by Service Offering**      | ** ** | ** **                    | ** ** | ** **                                          |
|----------------------|------------|-----------------------------------------------------|------------|-------------------------------|------------|-----------------------------------------------------|
| ** **           | ** ** | **Nine Months  Ended  September 30,2005** | ** ** | **% of  Total  Revenue** | ** ** | **Nine Months  Ended  September 30,2004** | ** ** | **% of  Total  Revenue** | ** ** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       |                                                | $          | 446,096                       |       |                                                |   | 53.9 | % |   |   | $ | 428,369 |   |   |   | 57.9 | % |   |   |   | 4.1 | % |   |
| High-speed  Internet |       |                                                | 138,108    |                          |       |                                                | 16.7 | % |   |   | 93,990 |   |   |   | 12.7 | % |   |   |   | 46.9 | % |   |
| Digital              |       |                                                | 81,899     |                          |       |                                                | 9.9 | % |   |   | 73,272 |   |   |   | 9.9 | % |   |   |   | 11.8 | % |   |
| Advertising          |       |                                                | 55,153     |                          |       |                                                | 6.7 | % |   |   | 46,595 |   |   |   | 6.3 | % |   |   |   | 18.4 | % |   |
| Premium              |       |                                                | 41,305     |                          |       |                                                | 5.0 | % |   |   | 43,212 |   |   |   | 5.9 | % |   |   |   | (4.4 | )% |   |
| Telephone            |       |                                                | 25,139     |                          |       |                                                | 3.0 | % |   |   | 11,389 |   |   |   | 1.5 | % |   |   |   | 120.7 | % |   |
| Franchise fees       |       |                                                | 22,884     |                          |       |                                                | 2.8 | % |   |   | 21,455 |   |   |   | 2.9 | % |   |   |   | 6.7 | % |   |
| Other                |       |                                                | 17,040     |                          |       |                                                | 2.0 | % |   |   | 21,628 |   |   |   | 2.9 | % |   |   |   | (21.2 | )% |   |
| Total                |       |                                                | $          | 827,624                       |       |                                                |   | 100.0 | % |   |   | $ | 739,910 |   |   |   | 100.0 | % |   |   |   | 11.9 | % |   |

 

Average monthly revenueper basic customer was $72.52 for the nine months ended September 30, 2005, compared to $63.76 for the nine monthsended September 30, 2004primarily reflecting the continued growth of our high-speed Internet anddigital product offerings in all markets as well as basic rate increases.

Programming and otheroperating costs increased $22.7 million or 9%. Total programming costs for ourvideo products increased primarily as a result of increased programming ratesoffset by a credit of $9.4 million resulting from favorable resolution ofpricing negotiations related to certain prior period programming costs thatwere accrued at a higher rate than the amount actually paid and $1.7 millionfor a settlement of disputed claims with a vendor. Other operating costsincreased primarily as a result of increases in technical salaries for new andexisting employees; in addition to decreased capitalized labor costs due to thecontinued transition from upgrade and new connect activities to maintenance andreconnect activities. Other operating costs also increased as a result of costof sales associated with telephone that were previously paid by Comcast.Despite an increase of approximately 108,700 high-speed Internet customers,high-speed Internet service provider costs decreased due to more favorable percustomer charges under an agreement with our Internet service provider enteredinto in the third quarter of 2004. However, as we continue to add high-speedInternet customers, our Internet service provider costs have started toincrease in the third quarter ended September 30, 2005 and we expect themto continue to increase throughout the remainder of 2005. Increases in repairsand maintenance costs due to increased repairs on customer premise equipmentand increased software maintenance costs and materials used in reconnectactivities are partially offset by a decrease in property and other taxes dueto a decrease in property taxes for 2005.

Selling, general and administrative expenses increased$31.6 million or 19%, primarily due to increased payroll, including salaryincreases for existing employees and increases in health insurance and otherpayroll related costs. Marketing support funds (recorded as a reduction toselling, general and administrative expenses) decreased over the prior year.Marketing expenses increased over the prior year to support the continued rollout of high-speed Internet, digital and telephone products, and to maintain ourcore video customer base. A decrease in expenses previously allocated toComcast, under our prior agreement to manage certain Comcast systems, alsocontributed to the increase in selling, general and administrative expenses. Asthis agreement was terminated effective July 31, 2004, the period ended September 30,2005 does not include any of these expense allocations and the period ended September 30,2004 only includes seven months of expense allocations. Some cost savings havebeen realized upon termination of the management agreement, and the impact ofcertain of these savings is reflected in programming and other operating costs.Increases in other selling, general and administrative expenses and franchiseand copyright fees were partially offset by a decrease in bad debt expense.

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Depreciation andamortization expense increased $10.2 million or 6% primarily as a result ofadditional capital expenditures through September 30, 2005. These expenditures were primarily for network extensionsand purchases of customer premise equipment, all of which we consider necessaryin order to continue to 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 September 30,2004.

As a result of the factorsdiscussed above, Operating Income before Depreciation and Amortizationincreased $33.4 million, or 11%.

Interest expense increased$18.6 million or 12% due to higher interest rates, which averaged 8.1% for thenine months ended September 30,2005 as compared to 7.1% for the nine months ended September 30, 2004, and an increase in the accretedvalue of the 121¤4% Senior Discount Notes.

**Liquidityand Capital Resources**

Our business requires cashfor operations, debt service, capital expenditures and acquisitions. The cabletelevision business has substantial on-going capital requirements for theconstruction, expansion and maintenance of its broadband networks and provisionof new services. In the past, expenditures have been made for various purposesincluding the upgrade of our existing cable network, and in the future will bemade for network extensions, installation of new services, customer premiseequipment (e.g., set-top boxes), deployment of new product and serviceofferings, and, to a lesser extent, network upgrades. Historically, we havebeen able to meet our cash requirements with cash flow from operations,borrowings under our credit facilities and issuances of private and public debtand equity.

Cash provided byoperations for the nine months ended September 30,2005 and 2004 was $225.0 million and $227.7 million. The decrease wasprimarily attributable to the timing of cash receipts and payments related toour working capital accounts partially offset by increased operating income andthe affect of non-cash items.

Cash used in investingactivities for the nine months ended September 30,2005 and 2004 was $143.0 million and $130.9 million. The increaseprimarily was due to capital expenditures for the build out of our telephoneproduct.

Cash used in financingactivities for the nine months ended September 30,2005 and 2004 was $64.3 million and $60.8 million. The increase isprimarily due to debt issuance costs paid for the refinancing of the Term Bloan facility and increased amortization payments of our credit facility in2005.

For the nine months ended September 30, 2005 and 2004 wespent $144.6 million and $130.9 million in capital expenditures. Theseexpenditures principally constituted telephone equipment, purchases of customerpremise equipment, capitalized labor, headend equipment and system upgrades andrebuilds, all of which is considered necessary in order to maintain ourexisting network, to grow our customer base and expand our service offerings.

FreeCash Flow for the nine months ended September 30, 2005 totaled $80.4million compared to $96.8 million for the nine months ended September 30,2004. The decrease was primarily driven by the following:

·       A$8.1 million use of Free Cash Flow for the nine months ended September 30,2005 compared to a $13.5 million source for the nine months ended September 30,2004 from changes in working capital accounts;

·       A$14.5 million increase in cash interest expense paid primarily driven by anincrease in interest rates; and

·       A$13.7 million increase in capital expenditures.

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The above fluctuations reduced Free Cash Flow by $49.8million and were largely offset by an increase in operating income beforedepreciation and amortization of $33.4 million.

While we expect to continue to use Free Cash Flow torepay our indebtedness, as interest rates continue to increase, we expect ourinterest costs will also be higher. On July 21, 2005 we completed arefinancing of the existing $1.1 billion Term B loan facility under the InsightMidwest Credit Agreement. This refinancing reduced the applicable margins forLIBOR rate borrowings from LIBOR plus 275 basis points to LIBOR plus 200 basispoints and the applicable margin will be reduced an additional 25 basis pointswhen the Midwest Holdings leverage ratio drops below 2.75. The maximum totalleverage ratio covenant was reset from 3.75 to 4.50 on July 1, 2005 withadditional step downs to 4.25 on July 1, 2006 and to 4.00 on July 1,2007. The facility was also amended to provide certain flexibility to refinancethe senior notes at Insight Midwest.

We have a substantial amount of debt. Our high levelof debt could have important consequences for you. Our investments in ouroperating subsidiaries, including Insight Midwest, constitute substantially allof our operating assets. Consequently, our subsidiaries conduct all of ourconsolidated operations and own substantially all of our operating assets. Ourprincipal source of cash we need to pay our obligations and to repay theprincipal amount of our debt obligations is the cash that our subsidiariesgenerate from their operations and their borrowings. Our subsidiaries are notobligated to make funds available to us and may be restricted by the terms of theirindebtedness from doing so. Because of such restrictions, our ability to accessthe cash flow of our subsidiaries may be contingent upon our ability torefinance the debt of our subsidiaries.

We believe that the Insight Midwest Holdings creditfacility, cash on-hand and our cash flow from operations are sufficient tosupport our current operating plan. For the three and nine months ended September 30,2005 we had positive Free Cash Flow. We had the ability to draw upon $320.0million of unused availability under the Insight Midwest Holdings creditfacility as of September 30, 2005 tofund any shortfall resulting from the inability of Insight Midwest’s cash fromoperations to fund its capital expenditures, meet its debt service requirementsor otherwise fund its operations.

Thefollowing table summarizes our contractual obligations and commitments,excluding interest and commitments for programming, as of September 30, 2005, includingperiods in which the related payments are due (in thousands):

| ** **              | ** ** | **Contractual Obligations** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **Long-Term  Debt**              | ** ** | **Operating  Leases** | ** ** | **Total** | ** ** |
| 2005                    |       | $                                | 20,875     |   |   | $ | 1,280 |   |   | $ | 22,155 |   |
| 2006                    |       | 83,500                           |       |   | 4,315 |   |   | 87,815 |   |
| 2007                    |       | 83,500                           |       |   | 3,306 |   |   | 86,806 |   |
| 2008                    |       | 104,750                          |       |   | 2,855 |   |   | 107,605 |   |
| 2009                    |       | 1,517,500                        |       |   | 1,984 |   |   | 1,519,484 |   |
| Thereafter              |       | 980,000                          |       |   | 1,457 |   |   | 981,457 |   |
| Total cash  obligations |       | $                                | 2,790,125  |   |   | $ | 15,197 |   |   | $ | 2,805,322 |   |

 

**Item 3.**                        Quantitativeand Qualitative Disclosure About Market Risk

Our revolving credit and term loan agreements bearinterest at floating rates. Accordingly, we are exposed to potential lossesrelated to changes in interest rates. In order to manage our exposure tointerest rate risk, we enter into derivative financial instruments, typicallyinterest rate swaps. The counter-parties to our swap agreements are major financialinstitutions. We do not enter into derivatives or other financial instrumentsfor trading or speculative purposes.

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In July 2003, we entered into three interest rateswap agreements whereby we swapped fixed rates under 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 expire November 1, 2005. Werecorded a gain on these swaps of $872,000 and $1.7 million for the three andnine months ended September 30,2005 and $1.5 million and $250,000 for the three and nine months ended September 30,2004, which is included in other income (expense). As of September 30,2005 and December 31, 2004, we recorded $1.7 million and $364,000 ofinterest payable related to these agreements. The cost, if terminated, of theseagreements was $394,000 and $2.1 million as of September 30, 2005 and December 31,2004. A hypothetical 100 basis point increase in interest rates along theentire interest rate yield curve would increase our annual interest expense forthese three swaps by approximately $1.9 million.

In December 2003, we entered into an interestrate swap agreement whereby we swapped fixed rates under our 101¤2%senior notes due in December 2010 for variable rates equal to six-monthLIBOR, plus the applicable margin of approximately 5.9%, on $130.0 millionnotional value of debt. This agreement expires November 1, 2010. This swaphas been determined to be perfectly effective in hedging against fluctuationsin the fair value of the underlying debt. As such, changes in the fair value ofthe underlying debt equally offset changes in the value of the interest rateswap in our consolidated statements of operations. The fair value (cost ifterminated) of this swap as of September 30,2005 and December 31, 2004 was $(1.6) million and $519,000 and has beenrecorded in other non-current assets (liabilities) and as an adjustment to thecarrying value of debt. A hypothetical 100 basis point increase in interestrates along the entire interest rate yield curve would increase our annualinterest expense for this swap by approximately $1.3 million.

The aggregate fair marketvalue and aggregate carrying value of our 93¤4% and 101¤2%senior notes and 121¤4%senior discount notes was $1.4 billion and $1.3 billion as of September 30, 2005. The fairmarket value of our credit facility borrowings approximates its carrying valueas the credit facility borrowings bear interest at floating rates of interest.As of September 30, 2005 and December 31,2004, the estimated cost, if terminated, of our interest rate swapagreements was $2.0 million and $1.6 million and is reflected in our financialstatements as other non-current liabilities. Changes in the fair value of ourinterest rate swaps are either recognized in income or in stockholders’ equityas a component of accumulated other comprehensive income (loss), depending uponthe type of swap and whether it qualifies for hedge accounting.

**Item 4.**                        Controlsand Procedures

Our management carried out an evaluation, with theparticipation of our Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of our disclosure controls and procedures as of September 30, 2005. Based uponthat evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that (i) our disclosure controls and procedures were effectiveto ensure that information required to be disclosed by us in reports that wefile or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported, within the time periods specified in the rules andforms of the Securities and Exchange Commission, and (ii) our disclosurecontrols and procedures were designed to ensure that information required to bedisclosed by us in reports that we file or submit under the Securities ExchangeAct of 1934 is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure.

There has not been any change in our internal controlover financial reporting in connection with the evaluation required by Rule 13a-15(d) underthe Exchange Act that occurred during the quarter ended September 30, 2005 that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

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**PART II. OTHER INFORMATION**

**Item 1.**                        LegalProceedings

See Note 13 in Item 1 of PART I,Notes to Consolidated Financial Statements, and incorporated herein byreference.

**Item 2.**                        Changesin Securities, Use of Proceeds and Issuer Purchases of Equity Securities

During the three monthsended September 30, 2005,we issued 50,245 shares of Class A common stock in connection with ourmatching contributions to our 401(k) plan, granted stock options tocertain of our employees to purchase an aggregate of 145,000 shares of Class Acommon stock and granted 10,000 deferred stock units to certain of ouremployees. The issuances of common stock, grants of stock options and deferredstock units were not registered under the Securities Act of 1933 because suchissuances and grants either (i) did not involve an offer or sale forpurposes of Section 2(a)(3) of the Securities Act of 1933, inreliance on the fact that the matching contributions and stock options wereissued and granted for no consideration, or (ii) were offered and sold intransactions not involving a public offering, and therefore exempt fromregistration under the Securities Act of 1933 pursuant to Section 4(2).

**Item 6.**                        Exhibits
| Exhibits: | ** ** | ** **                                                                                                                     |
|-----------|------------|--------------------------------------------------------------------------------------------------------------------------------|
| 31.1      |       | Rule 13a-14(a)/15d-14(a) Certifications  of the Chief Executive Officer of Insight Communications Company, Inc. |
| 31.2      |       | Rule 13a-14(a)/15d-14(a) Certifications  of the Chief Financial Officer of Insight Communications Company, Inc. |
| 32        | ** ** | Section 1350 Certifications                                                                                               |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

| Date: November 7, 2005 | INSIGHT  COMMUNICATIONS COMPANY, INC.               |
|-----------------------------|-----------------------------------------------------|
|                        | By:                                                 | /s/ JOHN ABBOT |
|                        | John Abbot                                          |
|                        | *Senior Vice President and Chief Financial Officer* |
|                        | *(Principal Financial Officer)*                     |

 

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