**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

----

**FORM 10-Q**

**QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

**Forthe Quarterly Period Ended June 30, 2006**

**Commissionfile number 0-26677**

----

**INSIGHT COMMUNICATIONS COMPANY, INC.**

(Exact name of registrantas specified in its charter)

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

 

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

----

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 a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):  

Large accelerated filer   o   Acceleratedfiler   x   Non-accelerated filer    o

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

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.    Not Applicable

 

----

**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, 2005.

1

----

**INSIGHT COMMUNICATIONS COMPANY, INC.CONSOLIDATED BALANCE SHEETS(dollars in thousands, except share and per share amounts)**

| ** **                                                                                                                                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                 | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                 | ** ** | **unaudited**     | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                 | * *   | * *          | ** ** |                  | ** ** | * * |   |
| Cash and cash  equivalents                                                                                                                 |       | $                 | 4,586      |                  |       | $ | 29,782 | * * |   |
| Investments                                                                                                                                |       | 6,419             |       |                  | 5,901      | * * |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $813 and $1,079 as of  June 30, 2006 and December 31, 2005 |       | 24,839            |       |                  | 27,261     | * * |   |
| Launch funds  receivable                                                                                                                   |       | 470               |       |                  | 974        | * * |   |
| Prepaid expenses  and other current assets                                                                                                 |       | 12,252            |       |                  | 9,645      | * * |   |
| Total current assets                                                                                                                       |       | 48,566            |       |                  | 73,563     | * * |   |
| Fixed assets, net                                                                                                                          |       | 1,143,174         |       |                  | 1,130,705  | * * |   |
| Goodwill                                                                                                                                   |       | 72,430            |       |                  | 72,430     | * * |   |
| Franchise costs                                                                                                                            |       | 2,361,959         |       |                  | 2,361,959  | * * |   |
| Deferred  financing costs, net of accumulated amortization of $27,119 and $24,302 as of  June 30, 2006 and December 31, 2005     |       | 21,406            |       |                  | 24,220     | * * |   |
| Other non-current  assets                                                                                                                  |       | 2,836             |       |                  | 2,287      | * * |   |
| Total assets                                                                                                                               |       | $                 | 3,650,371  |                  |       | $ | 3,665,164 | * * |   |
| **Liabilities  and stockholders’ equity**                                                                                             |       |              |       |                  |       | * * |   |
| Accounts payable                                                                                                                           |       | $                 | 42,370     |                  |       | $ | 42,333 | * * |   |
| Accrued expenses  and other current liabilities                                                                                            |       | 47,132            |       |                  | 45,413     | * * |   |
| Accrued property  taxes                                                                                                                    |       | 13,428            |       |                  | 12,921     | * * |   |
| Accrued  programming costs (inclusive of $30,245 and $29,878 due to related parties as  of June 30, 2006 and December 31, 2005)  |       | 46,654            |       |                  | 43,705     | * * |   |
| Deferred revenue                                                                                                                           |       | 2,804             |       |                  | 4,978      | * * |   |
| Interest payable                                                                                                                           |       | 36,679            |       |                  | 20,459     | * * |   |
| Debt—current  portion                                                                                                                 |       | 83,500            |       |                  | 83,500     | * * |   |
| Total current liabilities                                                                                                                  |       | 272,567           |       |                  | 253,309    | * * |   |
| Deferred revenue                                                                                                                           |       | 1,067             |       |                  | 1,499      | * * |   |
| Debt                                                                                                                                       |       | 2,663,414         |       |                  | 2,676,418  | * * |   |
| Other non-current  liabilities                                                                                                             |       | 5,207             |       |                  | 2,382      | * * |   |
| Minority interest                                                                                                                          |       | 246,396           |       |                  | 251,011    | * * |   |

 

See accompanying notes

2

----

**INSIGHT COMMUNICATIONS COMPANY, INC. CONSOLIDATED BALANCE SHEETS (Continued) (dollars in thousands, except share and per share amounts)**

| ** **                                                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                          | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                          | ** ** | **unaudited**     | ** ** | ** **            | ** ** |
| Stockholders’ equity:                                                                                                                          |       |              |       |                  |       |   |   |
| Voting preferred stock,  $.01 par value:                                                                                                            |       |              |       |                  |       |   |   |
| Series A—1,000,000 shares authorized; 848,945  shares issued and outstanding as of June 30, 2006 and December 31,  2005         |       | 8                 |       |                  | 8          |   |   |
| Series B—1,000,000 shares authorized; 517,836  shares issued and outstanding as of June 30, 2006 and December 31,  2005         |       | 5                 |       |                  | 5          |   |   |
| Non-voting preferred  stock, $.01 par value:                                                                                                        |       |              |       |                  |       |   |   |
| Series C—15,000,000 shares authorized;  13,364,693 shares issued and outstanding as of June 30, 2006 and  December 31, 2005     |       | 134               |       |                  | 134        |   |   |
| Series D—50,000,000 shares authorized;  47,015,659 shares issued and outstanding as of June 30, 2006 and  December 31, 2005     |       | 470               |       |                  | 470        |   |   |
| Non-voting common stock,  $.01 par value:                                                                                                           |       |              |       |                  |       |   |   |
| Series E—5,000,000 shares authorized; 3,665,747  and 0 shares issued and outstanding as of June 30, 2006 and  December 31, 2005 |       | 37                |       |                  | —     |   |   |
| Series F—100,000 shares authorized; 92,470 and  0 shares issued and outstanding as of June 30, 2006 and  December 31, 2005      |       | 1                 |       |                  | —     |   |   |
| Voting common stock,  $.01 par value:                                                                                                               |       |              |       |                  |       |   |   |
| Series G—10,000,000 shares authorized; 0 shares  issued and outstanding as of June 30, 2006 and December 31, 2005               |       | —            |       |                  | —     |   |   |
| Additional  paid-in-capital                                                                                                                         |       | 829,342           |       |                  | 829,337    |   |   |
| Accumulated  deficit                                                                                                                                |       | (364,913          | )          |                  | (345,199   | ) |   |
| Deferred stock  compensation                                                                                                                        |       | (3,364            | )          |                  | (4,210     | ) |   |
| Total stockholders’ equity                                                                                                                     |       | 461,720           |       |                  | 480,545    |   |   |
| Total liabilities  and stockholders’ equity                                                                                                    |       | $                 | 3,650,371  |                  |       | $ | 3,665,164 |   |   |
|                                                                                                                                                     |            |                   |            |                       |            |  |  |  |  |

 

See accompanying notes

3

----

**INSIGHT COMMUNICATIONS COMPANY, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)(dollars in thousands)**

| ** **                                                                                                                                                                                                                                                               | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                               | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenue                                                                                                                                                                                                                                                                  |       |                                                | $          | 311,717                                           |       |   |   | $ | 279,311 |   |   | $ | 612,998 |   | $ | 548,638 |   |
| Operating costs and  expenses:                                                                                                                                                                                                                                           |       |                                                |       |                                              |       |   |   |   |   |   |   |   |   |
| Programming and other operating costs (exclusive of  depreciation and amortization) (inclusive of $44,257 and $87,338, and $39,176  and $80,675 of programming expense incurred through related parties for the  three and six months ended June 30, 2006 and 2005) |       |                                                | 112,660    |                                              |       |   | 92,172 |   |   | 222,245 |   | 190,755 |   |
| Selling, general and administrative (inclusive of  $334 and $884, and $1,543 and $3,450 of stock-based compensation for the  three and six months ended June 30, 2006 and 2005)                                                                                     |       |                                                | 81,820     |                                              |       |   | 66,262 |   |   | 161,815 |   | 131,343 |   |
| Depreciation and amortization                                                                                                                                                                                                                                            |       |                                                | 67,343     |                                              |       |   | 61,266 |   |   | 131,655 |   | 122,219 |   |
| Total operating  costs and expenses                                                                                                                                                                                                                                      |       |                                                | 261,823    |                                              |       |   | 219,700 |   |   | 515,715 |   | 444,317 |   |
| Operating income                                                                                                                                                                                                                                                         |       |                                                | 49,894     |                                              |       |   | 59,611 |   |   | 97,283 |   | 104,321 |   |
| Other income  (expense):                                                                                                                                                                                                                                                 |       |                                                |       |                                              |       |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                                                                                                                                                                         |       |                                                | (61,208    | )                                                 |       |   | (56,291 | ) |   | (122,283 | ) | (111,008 | ) |
| Interest income                                                                                                                                                                                                                                                          |       |                                                | 369        |                                              |       |   | 761 |   |   | 881 |   | 1,023 |   |
| Other income (expense)                                                                                                                                                                                                                                                   |       |                                                | 20         |                                              |       |   | 543 |   |   | (50 | ) | 671 |   |
| Total other  expense, net                                                                                                                                                                                                                                                |       |                                                | (60,819    | )                                                 |       |   | (54,987 | ) |   | (121,452 | ) | (109,314 | ) |
| Income (loss) before minority interest and income  taxes                                                                                                                                                                                                                 |       |                                                | (10,925    | )                                                 |       |   | 4,624 |   |   | (24,169 | ) | (4,993 | ) |
| Minority interest  income (expense)                                                                                                                                                                                                                                      |       |                                                | 2,110      |                                              |       |   | (5,227 | ) |   | 4,615 |   | (3,827 | ) |
| Loss before income taxes                                                                                                                                                                                                                                                 |       |                                                | (8,815     | )                                                 |       |   | (603 | ) |   | (19,554 | ) | (8,820 | ) |
| Provision for  income taxes                                                                                                                                                                                                                                              |       |                                                | (80        | )                                                 |       |   | (125 | ) |   | (160 | ) | (250 | ) |
| Net loss                                                                                                                                                                                                                                                                 |       |                                                | $          | (8,895                                            | )          |   |   | $ | (728 | ) |   | $ | (19,714 | ) | $ | (9,070 | ) |

 

See accompanying notes

4

----

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

| ** **                                                                       | ** ** | **Six months ended June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| **Operating activities:**                                                        | * *   | * *                                          | * *   | * * | * * |
| Net loss                                                                         |       | $                                                 | (19,714    | ) | $ | (9,070 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities: |       |                                              |       |   |   |
| Depreciation and amortization                                                    |       | 131,655                                           |       | 122,219 |   |
| Stock-based compensation                                                         |       | 884                                               |       | 3,450 |   |
| Non-cash consulting expense                                                      |       | —                                            |       | 30 |   |
| Gain on interest rate swaps                                                      |       | —                                            |       | (812 | ) |
| Minority interest                                                                |       | (4,615                                            | )          | 3,827 |   |
| Provision for losses on trade accounts receivable                                |       | 7,026                                             |       | 8,221 |   |
| Contribution of stock to 401(k) Plan                                        |       | —                                            |       | 1,434 |   |
| Amortization of note discount                                                    |       | 6,571                                             |       | 18,801 |   |
| Changes in  operating assets and liabilities:                                    |       |                                              |       |   |   |
| Trade accounts receivable                                                        |       | (4,604                                            | )          | (1,065 | ) |
| Launch funds receivable                                                          |       | 504                                               |       | 2,194 |   |
| Prepaid expenses and other assets                                                |       | (3,201                                            | )          | (8,206 | ) |
| Accounts payable                                                                 |       | 37                                                |       | 7,889 |   |
| Interest payable                                                                 |       | 16,220                                            |       | 42 |   |
| Accrued expenses and other liabilities                                           |       | 2,569                                             |       | (5,727 | ) |
| Net cash provided by operating activities                                        |       | 133,332                                           |       | 143,227 |   |
| **Investing  activities:**                                                       |       |                                              |       |   |   |
| Purchase of fixed assets                                                         |       | (141,765                                          | )          | (93,513 | ) |
| Sale of fixed assets                                                             |       | 504                                               |       | 957 |   |
| Purchase of investments                                                          |       | (518                                              | )          | (1,307 | ) |
| Sale of investments                                                              |       | —                                            |       | 926 |   |
| Net cash used in investing activities                                            |       | (141,779                                          | )          | (92,937 | ) |
| **Financing  activities:**                                                       |       |                                              |       |   |   |
| Repayment of credit facilities                                                   |       | (41,750                                           | )          | (41,750 | ) |
| Net proceeds from borrowings under credit facility                               |       | 25,000                                            |       | — |   |
| Other                                                                            |       | 1                                                 |       | — |   |
| Net cash used in financing activities                                            |       | (16,749                                           | )          | (41,750 | ) |
| Net increase (decrease)  in cash and cash equivalents                            |       | (25,196                                           | )          | 8,540 |   |
| Cash and cash  equivalents, beginning of period                                  |       | 29,782                                            |       | 100,144 |   |
| Cash and cash  equivalents, end of period                                        |       | $                                                 | 4,586      |   | $ | 108,684 |   |

 

 

See accompanying notes

5

----

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

**1. Organization and Basisof 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 Communications ofCentral Ohio, LLC (“Insight Ohio”), owns and operates cable television systemsin Indiana, Kentucky, Ohio, and Illinois which passed approximately 2.4 millionhomes and served approximately 1.3 million customers as of June 30, 2006.

Insight LP is the general partner of Insight Midwest. ThroughInsight LP, we manage all of Insight Midwest’s systems.

The accompanying consolidatedfinancial statements include our accounts and those of our wholly ownedsubsidiaries, Insight LP and Insight Cable Services, LLC. Reclassificationshave been made to the prior year’s financial statements to conform to thoseclassifications used in 2006.

**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, 2005.

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. Actualresults could differ from those estimates. The results of operations for thethree and six months ended June 30, 2006 are not necessarily indicative ofthe results to be expected for the year ending December 31, 2006 or anyother interim period.

**3. Recent AccountingPronouncements**

InDecember 2004, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. 123 (revised 2004),*Share-Based Payment*, (“SFAS 123R”). SFAS 123Restablishes the accounting for transactions in which an entity pays foremployee services in share-based payment transactions. SFAS 123R requirescompanies to recognize the cost of employee services received in exchange forawards of equity instruments, based on the grant date fair value of thoseawards, in the financial statements. The Company adopted SFAS 123R effective January 1,2006 using the modified-prospective transition method. Under this methodstock-based compensation is recognized for 

6

----

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

**3. RecentAccounting Pronouncements (Continued)**

awards granted in theperiod after adoption. Prior year financial statements are not restated. Theadoption of this standard did not have a material impact on our consolidatedfinancial statements.

In May 2005, FASB issued SFAS No. 154, *Accounting**Changes and ErrorCorrections*. SFAS No. 154 replaces APB Opinion No. 20, *Accounting Changes*, and SFAS No. 3, *Reporting Accounting Changes in Interim Financial Statements*and changes the requirements for the accounting for and reporting of a changein accounting principles. SFAS No. 154 applies to all voluntary changes inan accounting principle. It also applies to changes required by an accountingpronouncement in the unusual instance that the pronouncement does not includespecific transition provisions. When a pronouncement includes specificprovisions, those provisions should be followed. SFAS 154 is effective foraccounting changes and corrections of errors made in fiscal years beginning in2006.

In July 2006, FASBissued FASB Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes—an interpretation of FASB Statement No. 109,* (“FIN48”). FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in financial statements in accordance with FASB Statement No. 109,*Accounting for Income Taxes*. FIN 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure, and transition. The Company is required to adopt the provisions ofFIN 48 during the first fiscal year beginning after December 15, 2006. TheCompany is currently evaluating the impact of FIN 48 on our consolidated financialstatements.

**4. Stock-BasedCompensation**

For the three months ended June 30, 2006, theCompany recorded $334,000 of stock-based compensation expense for the vestingof deferred shares.  For the six monthsended June 30, 2006, the Company recorded $884,000 of stock-basedcompensation expense for the vesting of deferred shares and the issuance of Series Eand F non-voting common stock. These expenses are included in selling, generaland administrative expense on our consolidated statements of operations.

Forthe three and six months ended June 30, 2005, the Company accounted forstock-based compensation under Accounting Principles Board (“APB”) Opinion No. 25,*Accounting for Stock Issued to Employees.*Compensationcost related to stock awards issued to employees was recorded only if thegrant-date market price of the underlying stock exceeded the exercise price. Thefollowing table summarizes relevant information as to our reported resultsunder the intrinsic value method of accounting for stock awards, withsupplemental information, as if a fair value method had been applied to allawards.

| ** **                                                                                     | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2005**                                        | ** ** | **2005**                                      | ** ** |
| ** **                                                                                     | ** ** | **(in thousands)**                         | ** ** |
| Net loss                                                                                       |       |                                            | $          | (728                                          | )          |   |   | $ | (9,070 | ) |   |
| Stock-based  compensation as reported                                                          |       |                                            | 1,543      |                                          |       |   | 3,450 |   |   |
| Stock-based  compensation determined under fair value based method for all awards, net of  tax |       |                                            | (3,434     | )                                             |       |   | (7,210 | ) |   |
| Adjusted net loss                                                                              |       |                                            | $          | (2,619                                        | )          |   |   | $ | (12,830 | ) |   |

 

7

----

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

**5. Investments**

***Promptu***

Promptu (formerly AgileTVCorporation) is a privately owned company that develops voice navigationservices for television and mobile devices. On May 11, 2005, we made anadditional investment in Promptu by purchasing shares of Promptu’s Series B1preferred stock and common stock for an aggregate purchase price of (i) approximately$900,000 in cash and (ii) approximately $300,000 in the form of conversionof an outstanding promissory note. We are accounting for our investment inPromptu under the cost method. As of June 30, 2006 and December 31, 2005, our carrying valuein this investment was $1.2 million.

***Oxygen Cable, LLC***

Oxygen Cable, LLC (“Oxygen”) is an independent cabletelevision network with programming tailored to the interests of women. On July 9,2002 we entered into a carriage agreement with Oxygen, whereby we agreed tocarry programming content from Oxygen. The term of the carriage agreementexpires on December 31, 2006.

Concurrently with thecarriage agreement, we entered into an equity issuance agreement with Oxygen.The agreement calls for Oxygen to deliver to us shares having an aggregate fairmarket value as of December 31, 2005 of $3.8 million, and by December 1,2006 deliver to us additional shares having an aggregate fair market value asof the December 31, 2005 valuation of $2.0 million. Pursuant to the equityissuance agreement, a portion of the monthly programming fees represent ourequity investment in Oxygen. As of June 30, 2006 and December 31,2005, our carrying value in this investment was $5.2 million and $4.7 million. Weand Oxygen are currently in the process of negotiating the fair market value ofOxygen which will be used to determine the number of shares we will receive. Asof June 30, 2006, no shares have been delivered to us.

**6.Fixed Assets**

| ** **                                       | ** ** | **June 30,**       | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2006**                | ** ** | **2005**              | ** ** |
| ** **                                       | ** ** | **(in thousands)** | ** ** |
| Land, buildings  and improvements                |       | $                       | 42,674     |                  | $          | 41,042 |   |
| Cable system  equipment                          |       | 2,536,449               |       | 2,398,364             |       |
| Furniture,  fixtures and office equipment        |       | 22,698                  |       | 21,352                |       |
|                                             |       | 2,601,821               |       | 2,460,758             |       |
| Less: accumulated  depreciation and amortization |       | (1,458,647              | )          | (1,330,053            | )          |
| Total fixed  assets, net                         |       | $                       | 1,143,174  |                  | $          | 1,130,705 |   |

 

We recorded depreciationexpense of $65.9 million and $128.8 million for the three and six months ended June 30,2006 and $59.9 million and $119.6 million for the three and six months ended June 30,2005.

8

----

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

**7.Debt**

| ** **                                    | ** ** | **June 30,**       | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **2006**                | ** ** | **2005**              | ** ** |
| ** **                                    | ** ** | **(in thousands)** | ** ** |
| Insight Midwest  Holdings Credit Facility     |       | $                       | 1,387,500  |                  |       | $ | 1,404,250 |   |   |
| 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    |   |   |
|                                          |       | 2,752,500               |       |                  | 2,769,250  |   |   |
| Net unamortized  discount/premium on notes    |       | (379                    | )          |                  | (6,950     | ) |   |
| Market value of  interest rate swaps          |       | (5,207                  | )          |                  | (2,382     | ) |   |
| Total debt                                    |       | $                       | 2,746,914  |                  |       | $ | 2,759,918 |   |   |

 

***Insight Midwest Holdings 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 acredit facility. On March 28, 2002, we loaned $100.0 million to InsightMidwest. The loan to Insight Midwest bears annual interest of 9%, compoundedsemi-annually, has a scheduled maturity date of January 31, 2011 andpermits prepayments.  Insight MidwestHoldings is permitted under the credit facility to make distributions toInsight Midwest for the purpose of repaying our loan, including accruedinterest, provided that there are no defaults existing under the creditfacility. As of June 30, 2006 and December 31, 2005, the balance ofthe $100.0 million loan, including accrued interest, was $145.4 million and$139.1 million.

***Insight Inc. 12***1¤4 % Senior Discount Notes

No cash interest on thediscount notes accrued prior to February 15, 2006. Thereafter, cashinterest on the discount notes began to accrue and is payable on February 15and August 15 of each year, commencing August 15, 2006. The initialaccreted value of the discount notes increased until February 15, 2006such that the accreted value equaled the revised outstanding principal amountof $350.0 million on February 15, 2006.

***Debt Principal Payments***

As of June 30,2006, the remaining principal payments required on our debt were as follows (inthousands):

| 2006       |   | $         | 41,750    |   |
|------------|--------|-----------|-----------|--------|
| 2007       |   | 83,500    |      |
| 2008       |   | 104,750   |      |
| 2009       |   | 1,542,500 |      |
| 2010       |   | 630,000   |      |
| Thereafter |   | 350,000   |      |
| Total      |   | $         | 2,752,500 |   |

 

9

----

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

**8.Derivative Instruments**

We enter into derivativeinstruments, typically interest-rate swap agreements, to modify the interestcharacteristics of our outstanding debt to either a floating or fixed ratebasis. These agreements involve fixed rate interest payments in exchange forfloating rate interest receipts, known as cash flow hedges, and floating rateinterest payments in exchange for fixed rate interest receipts, known as fairvalue hedges, over the life of the agreement without an exchange of the underlyingprincipal amount. The differential to be paid or received is accrued asinterest rates change and is recognized as an adjustment to interest expenserelated to the debt. The related amount payable or receivable is included inother non-current liabilities or assets.

Gains and losses relatedto fair value hedges that are determined to be effective hedges are recorded inthe consolidated statements of operations as an adjustment to the swapinstrument and an offsetting adjustment to the carrying value of the underlyingdebt. Gains and losses related to interest rate swaps that are determined notto be effective hedges and do not qualify for hedge accounting are recorded inour consolidated statements of operations as other income or expense.

***Fair Value Hedges***

In July 2003, weentered into three interest rate swap agreements whereby we swapped fixed ratesunder a tranche of our 101⁄2% senior notes due in December 2010 for variablerates equal to six-month LIBOR, plus the applicable margin of approximately8.3%, on $185.0 million notional value of debt. These agreements expiredon November 1, 2005. We recorded a gain on these swaps of $1.1 millionand $812,000 for the three and six months ended June 30, 2005, which isincluded in other income (expense).

In December 2003, weentered into an interest rate swap agreement whereby we swapped fixed ratesunder a different tranche of our 101⁄2% senior notes due in December 2010for variable rates equal to six-month LIBOR, plus the applicable margin ofapproximately 5.9%, on $130.0 million notional value of debt. Thisagreement expires November 1, 2010. This swap has been determined to beperfectly effective in hedging against fluctuations in the fair value of theunderlying debt. As such, changes in the fair value of the underlying debtequally offset changes in the value of the interest rate swap in ourconsolidated balance sheets. The cost, if terminated, of this swap as of June 30,2006 and December 31, 2005 was $5.2 million and $2.4 million andhas been recorded in other non-current liabilities and as an adjustment to thecarrying value of debt.

**9.Minority Interest**

As of June 30, 2006and December 31, 2005 we had $246.4 million and $251.0 millionof minority interest recorded in our consolidated balance sheets as temporaryequity related to Insight Midwest.

The Insight Midwestpartnership was formed in September 1999 to serve as the holding companyand a financing vehicle for our cable television system 50/50 joint venturewith an indirect subsidiary of AT&T Broadband (now known as Comcast Cable).The results of the partnership are included in our consolidated financialstatements since we as general partner effectively control Insight Midwest’soperating and financial decisions. The partnership will continue until October 1,2011 unless extended or terminated earlier in accordance with the provisions ofthe Insight Midwest partnership agreement.

Depending on the nature ofa dissolution of the partnership, Insight Midwest will be required, inaccordance with the partnership agreement, to either distribute to ComcastCable some of its cable systems and liabilities equal to 50% of the net marketvalue of the partnership or, in the event of a liquidation, an amount in cashequal to 50% of the net proceeds received.

10

----

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

**10. Related PartyTransactions**

We purchase the majorityof our programming through affiliates of Comcast Cable. Charges for suchprogramming, including a 11⁄2% administrative fee, were $44.3 million and$87.3 million for the three and six months ended June 30, 2006 and$39.2 million and $80.7 for the three and six months ended June 30, 2005. Asof June 30, 2006 and December 31, 2005, $30.2 million and$29.9 million of accrued programming costs were due to affiliates ofComcast Cable. We believe that the programming rates charged through theseaffiliates are lower than those available from independent parties.

**11. 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***

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 violated our Charter andthat The Carlyle Group aided and abetted the alleged fiduciary duty breaches.The Complaint seeks the certification of a class of our stockholders; adeclaration 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 is consummated;an award of costs and disbursements including attorneys’ fees; and otherrelief.

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 or fault.The memorandum of understanding contemplates certification of a plaintiff classconsisting of all record and beneficial owners of our Class A commonstock, other than the buyers, during the period beginning on and including March 6,2005, through and including the date of the consummation of the merger, adismissal of all claims with prejudice, and a release in favor of alldefendants of any and all claims related to the merger. The proposed settlementis subject to a number of conditions, including consummation of the mergerwhich closed on December 16, 2005, the plaintiffs’ approval of adefinitive settlement agreement and final court approval of the settlement.

11

----

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

**11. Commitmentsand Contingencies (Continued)**

On May 11, 2006, the parties to the action fileda stipulation of settlement with the court. On May 19, 2006, the courtentered a scheduling order setting a hearing on the proposed settlement for July 13,2006. On or before June 6, 2006, the Notice of Pendency of Class Action,Proposed Settlement of Class Action and Settlement Hearing was mailed toour stockholders. On June 28, 2006, Kim D. Kelly, a former employee andofficer, filed an objection to the proposed settlement. On July 13, 2006,the court convened the settlement hearing, and with the agreement of all of theparties to the action, the court adjourned the settlement hearing until September 25,2006 to permit Ms. Kelly to review the existing discovery materials andconduct additional analysis.

In April 2005, Acacia Media TechnologiesCorporation filed a lawsuit against us and others in the United States DistrictCourt for the Southern District of New York. The complaint alleges, among otherthings, infringement of certain United States patents that allegedly relate tosystems and methods for transmitting and/or receiving digital audio and videocontent. The complaint seeks injunctive relief and damages in an unspecifiedamount. In the event that a court ultimately determines that we infringe on anyof the patents, we may be subject to substantial damages, which may includetreble damages and/or an injunction that could require us to materially modifycertain products and services that we currently offer to subscribers. Webelieve that the claims are without merit and intend to defend the actionvigorously. The final disposition of this claim is not expected to have amaterial adverse effect on our consolidated financial position but couldpossibly be material to our consolidated results of operations of any oneperiod. Further, at this time the outcome of the litigation is impossible topredict, and no assurance can be given that any adverse outcome would not bematerial to our consolidated financial position.

We are subject to various legal proceedings that arisein the ordinary course of business. While it is impossible to determine withcertainty the ultimate outcome of these matters, it is our opinion that theresolution of these matters will not have a material adverse affect on ourconsolidated financial condition.

12

----

**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 investors. However, there maybe 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, 2005, 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 theexpectations we describe in our forward-looking statements. You should be awarethat the occurrence of the events described in these risk factors and elsewherein this quarterly 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.

We do not undertake anyobligation to publicly update or release any revisions to these forward-lookingstatements to reflect events or circumstances after the date that thisquarterly report is filed with the SEC or to reflect the occurrence of unanticipatedevents, except as required by law.

**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 remote controldevices and installations. In addition, we earn revenues from providinghigh-speed Internet services, selling advertising, providing telephone servicesand commissions for products sold through home shopping networks.

Some of the principal reasons for our net lossesthrough June 30, 2006 include i) depreciation and amortization associatedwith capital expenditures for the construction, expansion and maintenance ofour systems, and, ii) interest costs on borrowed money. We expect to continueto report net losses for the foreseeable future. We cannot predict what impact,if any, continued losses will have on our ability to finance our operations inthe future.

13

----

Thefollowing table is derived from our consolidated financial statements that areincluded in this report and sets forth certain statement of operations data forour consolidated operations:

| ** **                                           | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                           | ** ** | **(in thousands)**                         | ** ** |
| Revenue                                              |       | $                                               | 311,717    |                                          | $          | 279,311 |   | $ | 612,998 |   | $ | 548,638 |   |
| Operating costs and  expenses:                       |       |                                            |       |                                          |       |   |   |   |   |
| Programming and other operating costs                |       | 112,660                                         |       | 92,172                                        |       | 222,245 |   | 190,755 |   |
| Selling, general and administrative                  |       | 81,820                                          |       | 66,262                                        |       | 161,815 |   | 131,343 |   |
| Depreciation and amortization                        |       | 67,343                                          |       | 61,266                                        |       | 131,655 |   | 122,219 |   |
| Total operating  costs and expenses                  |       | 261,823                                         |       | 219,700                                       |       | 515,715 |   | 444,317 |   |
| Operating income                                     |       | 49,894                                          |       | 59,611                                        |       | 97,283 |   | 104,321 |   |
| Interest expense                                     |       | 61,208                                          |       | 56,291                                        |       | 122,283 |   | 111,008 |   |
| Minority interest  income (expense)                  |       | 2,110                                           |       | (5,227                                        | )          | 4,615 |   | (3,827 | ) |
| Net loss                                             |       | (8,895                                          | )          | (728                                          | )          | (19,714 | ) | (9,070 | ) |
| Net cash provided  by operating activities           |       | 46,807                                          |       | 67,148                                        |       | 133,332 |   | 143,227 |   |
| Net cash used in  investing activities               |       | 84,229                                          |       | 54,049                                        |       | 141,779 |   | 92,937 |   |
| Net cash used in  (provided by) financing activities |       | (4,125                                          | )          | 20,875                                        |       | 16,749 |   | 41,750 |   |
| Capital expenditures                                 |       | 84,136                                          |       | 54,788                                        |       | 141,765 |   | 93,513 |   |
|                                                      |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

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

We utilize Adjusted Operating Income beforeDepreciation and Amortization, (defined as operating income beforedepreciation, amortization and non-cash stock-based compensation) among othermeasures, to evaluate the performance of our businesses. Adjusted OperatingIncome before Depreciation and Amortization is considered an important indicatorof the operational strength of our businesses and is a component of our annualcompensation programs. In addition, our debt agreements use Adjusted OperatingIncome before Depreciation and Amortization, adjusted for certain non-recurringitems, in our leverage and other covenant calculations. We also use thismeasure to determine how we will allocate resources and capital. Our managementfinds this measure helpful because it captures all of the revenue and ongoingoperating expenses of our businesses and therefore provides a means to directlyevaluate the ability of our business operations to generate returns and tocompare operating capabilities across our businesses. This measure is also usedby equity and fixed income research analysts in their reports to investorsevaluating our businesses and other companies in the cable television industry.We believe Adjusted Operating Income before Depreciation and Amortization isuseful to investors because it enables them to assess our performance in a mannersimilar to the methods used by our management and provides a measure that canbe used to analyze, value and compare companies in the cable televisionindustry, which may have different depreciation, amortization and stock-basedcompensation policies.

A limitation of Adjusted Operating Income beforeDepreciation and Amortization, however, is that it does not reflect theperiodic costs of certain capitalized tangible and intangible assets used ingenerating revenues in our businesses. Management evaluates the costs of suchtangible and intangible assets through other financial measures such as capitalexpenditures, investment spending and Free Cash Flow. Management also evaluatesthe costs of capitalized tangible and intangible assets by analyzing returns providedon the capital dollars deployed. Another limitation of Adjusted OperatingIncome before Depreciation and Amortization is that it does not reflect incomenet of interest 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 including interest expense, FreeCash Flow, the returns analysis discussed above and debt service covenantratios under our credit facility.

14

----

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

***Reconciliation of Net Loss to Adjusted OperatingIncome before Depreciation and Amortization***

Thefollowing table reconciles Net Loss to Adjusted Operating Income beforeDepreciation and Amortization. In addition, the table provides the componentsfrom Net Loss to Operating Income.

| ** **                                                      | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                         | ** ** |
| Net loss                                                        |       | $                                               | (8,895     | )                                             | $          | (728 | ) | $ | (19,714 | ) | $ | (9,070 | ) |
| Provision for  income taxes                                     |       | 80                                              |       | 125                                           |       | 160 |   | 250 |   |
| Loss before  income taxes                                       |       | (8,815                                          | )          | (603                                          | )          | (19,554 | ) | (8,820 | ) |
| Minority interest  income (expense)                             |       | (2,110                                          | )          | 5,227                                         |       | (4,615 | ) | 3,827 |   |
| Income (loss)  before minority interest and income taxes        |       | (10,925                                         | )          | 4,624                                         |       | (24,169 | ) | (4,993 | ) |
| Other (income) expense:                                         |       |                                            |       |                                          |       |   |   |   |   |
| Other                                                           |       | (20                                             | )          | (543                                          | )          | 50 |   | (671 | ) |
| Interest income                                                 |       | (369                                            | )          | (761                                          | )          | (881 | ) | (1,023 | ) |
| Interest expense                                                |       | 61,208                                          |       | 56,291                                        |       | 122,283 |   | 111,008 |   |
| Total other  expense, net                                       |       | 60,819                                          |       | 54,987                                        |       | 121,452 |   | 109,314 |   |
| Operating income                                                |       | 49,894                                          |       | 59,611                                        |       | 97,283 |   | 104,321 |   |
| Depreciation and  amortization                                  |       | 67,343                                          |       | 61,266                                        |       | 131,655 |   | 122,219 |   |
| Stock-based  compensation                                       |       | 334                                             |       | 1,543                                         |       | 884 |   | 3,450 |   |
| Adjusted Operating  Income before Depreciation and Amortization |       | $                                               | 117,571    |                                          | $          | 122,420 |   | $ | 229,822 |   | $ | 229,990 |   |

 

15

----

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

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

| ** **                                                      | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                         | ** ** |
| Operating income                                                |       |                                            | $          | 49,894                                        |       |   | $ | 59,611 |   | $ | 97,283 |   | $ | 104,321 |   |
| Depreciation and amortization                                   |       |                                            | 67,343     |                                          |       | 61,266 |   | 131,655 |   | 122,219 |   |
| Stock-based compensation                                        |       |                                            | 334        |                                          |       | 1,543 |   | 884 |   | 3,450 |   |
| Adjusted  Operating Income before Depreciation and Amortization |       |                                            | 117,571    |                                          |       | 122,420 |   | 229,822 |   | 229,990 |   |
| Changes in working capital accounts(1)                          |       |                                            | 5,758      |                                          |       | (1,151 | ) | 3,672 |   | 5,577 |   |
| Cash paid for interest                                          |       |                                            | (76,384    | )                                             |       | (54,036 | )(2) | (99,471 | ) | (92,118 | ) |
| Cash paid for taxes                                             |       |                                            | (138       | )                                             |       | (85 | ) | (691 | ) | (222 | ) |
| Net cash provided  by operating activities                      |       |                                            | 46,807     |                                          |       | 67,148 |   | 133,332 |   | 143,227 |   |
| Capital expenditures                                            |       |                                            | (84,136    | )                                             |       | (54,788 | ) | (141,765 | ) | (93,513 | ) |
| Free Cash Flow                                                  |       |                                            | $          | (37,329                                       | )          |   | $ | 12,360 |   | $ | (8,433 | ) | $ | 49,714 |   |

----

(1)***         ***Changes inworking 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.

(2)***         ***Excludes bondinterest payments due April 1, 2005 that were made on March 31, 2005.Had the payments been made on April 1, 2005, Free Cash Flow for the threemonths ended June 30, 2005 would have been ($6,409).

**Results ofOperations**

***Three Months Ended June 30, 2006 Compared toThree Months Ended June 30, 2005***

Revenue for the three months ended June 30, 2006totaled $311.7 million, an increase of 12% over the prior year, due primarilyto customer gains in all services, as well as video rate increases. High-speedInternet service revenue increased 27% over the prior year, which wasattributable to an increased customer base and was partially offset by loweraverage revenue per customer due to promotional discounts. We added a net19,700 high-speed Internet customers during the quarter to end at 534,500customers.

Basic cable service revenue increased 7% due to anincreased customer base and video rate increases, partially offset bypromotional discounts. Historically, we have experienced a seasonal decline inbasic customers during the second quarter primarily as a result of studentsleaving the university communities we serve. In addition, digital servicerevenue increased 23% over the prior year due to an increased customer base. Weadded a net 11,700 digital customers during the quarter to end at 572,200customers.

We are increasing our customer growth and retentionefforts by increasing spending on sales and marketing efforts, emphasizingbundling and enhancing and differentiating our video services by providingvideo-on-demand, high definition television and digital video recorders. We arealso continuing to focus on improving customer satisfaction through higherservice levels and increased education of product offerings.

16

----

Revenueby service offering was as follows for the three months ended June 30(dollars in thousands):

| ** **           | ** ** | **Revenue by Service Offering**  | ** ** | ** **                        | ** ** | ** **                                      | ** ** |
|----------------------|------------|-------------------------------------------------|------------|-----------------------------------|------------|-------------------------------------------------|------------|
| ** **           | ** ** | **Three Months  Ended  June 30,2006** | ** ** | **% of Total  Revenue** | ** ** | **Three Months  Ended  June 30,2005** | ** ** | **% of Total  Revenue** | ** ** | ** ** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       |                                            | $          | 160,328                           |       |                                            |       | 51.5 | % |   |   | $ | 150,071 |   |   |   | 53.7 | % |   |   |   |   | 6.8 | % |   |
| High-Speed  Internet |       |                                            | 58,616     |                              |       |                                            | 18.8       | % |   |   | 46,318 |   |   |   | 16.6 | % |   |   |   |   | 26.6 | % |   |
| Digital              |       |                                            | 34,307     |                              |       |                                            | 11.0       | % |   |   | 27,838 |   |   |   | 10.0 | % |   |   |   |   | 23.2 | % |   |
| Advertising          |       |                                            | 20,020     |                              |       |                                            | 6.4        | % |   |   | 19,749 |   |   |   | 7.1 | % |   |   |   |   | 1.4 | % |   |
| Premium              |       |                                            | 13,852     |                              |       |                                            | 4.4        | % |   |   | 13,746 |   |   |   | 4.9 | % |   |   |   |   | 0.8 | % |   |
| Telephone            |       |                                            | 12,528     |                              |       |                                            | 4.0        | % |   |   | 8,387 |   |   |   | 3.0 | % |   |   |   |   | 49.4 | % |   |
| Franchise fees       |       |                                            | 7,384      |                              |       |                                            | 2.4        | % |   |   | 7,782 |   |   |   | 2.8 | % |   |   |   |   | -5.1 | % |   |
| Other                |       |                                            | 4,682      |                              |       |                                            | 1.5        | % |   |   | 5,420 |   |   |   | 1.9 | % |   |   |   |   | -13.6 | % |   |
| Total                |       |                                            | $          | 311,717                           |       |                                            |       | 100.0 | % |   |   | $ | 279,311 |   |   |   | 100.0 | % |   |   |   |   | 11.6 | % |   |

 

TotalCustomer Relationships were 1,375,100 as of June 30, 2006, an increase of59,700 from 1,315,400 as of June 30, 2005. Total Customer Relationshipsrepresent the number of customers who receive one or more of our products(i.e., basic cable, high-speed Internet or telephone) without regard to whichproduct they purchase. Total Revenue Generating Units (“RGUs”) which representthe sum of basic, digital, high-speed Internet and telephone customers, as of June 30,2006 increased 15% as compared to June 30, 2005. RGUs by category were asfollows (in thousands):

| ** **           | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
|----------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Basic                |       |                        | 1,302.4    |                        |       |   | 1,257.2 |   |   |
| Digital              |       |                        | 572.2      |                        |       |   | 460.8 |   |   |
| High-Speed  Internet |       |                        | 534.5      |                        |       |   | 391.3 |   |   |
| Telephone            |       |                        | 107.2      |                        |       |   | 73.5 |   |   |
| Total RGUs           |       |                        | 2,516.3    |                        |       |   | 2,182.8 |   |   |

 

Average monthly revenue per basic customer was $79.65for the three months ended June 30, 2006 compared to $73.64 for the threemonths ended June 30, 2005. This primarily reflects the continued growthof high-speed Internet and digital product offerings in all markets, as well asvideo rate increases.

Programming and other operating costs increased $20.5million, or 22%. Increases in customers and substantial increases inprogramming rates were significant drivers of the cost increase for the threemonths ended June 30, 2006. For the three months ended June 30, 2005our programming costs reflected certain programming credits. These creditsresulted from favorable resolution of pricing negotiations related to certainprior period programming costs that were accrued at a higher rate than theamount actually paid. Programming credits for the three months ended June 30,2006, were significantly lower, causing our overall programming cost increasesto be greater. In addition, direct operating costs increased due to an increasein our high-speed Internet service costs as we continued to transition ourInternet services in-house. Other operating costs increased primarily as aresult of increases in repair, maintenance and warranty costs; an increase intaxes due to a change in the tax law in Kentucky; and an increase ininstallation labor due to increased customer activity.

Selling, general and administrative expenses increased$15.6 million, or 23%, primarily due to increased payroll, payroll relatedcosts and temporary help associated with an increase in the number of employeesand salary increases for existing employees. Marketing expenses increased overthe prior year to support the continued rollout of high-speed Internet, digitaland telephone products, and to grow our core video customer base. Customerbilling and collection fees increased due to the increase in our customer 

17

----

base. Professional feesalso increased due to increased legal activity for the three months ended June 30,2006.

Depreciation and amortization expense increased $6.1million, or 10%, primarily as a result of additional capital expendituresthrough June 30, 2006. Theseexpenditures were primarily for purchases of customer premise equipment,installation materials, capitalized labor, headend equipment and network extensions,all of which we consider necessary in order to continue to maintain and growour customer base and expand our service offerings. Partially offsetting thisincrease was a decrease in depreciation expense related to certain assets thathave become fully depreciated since June 30, 2005.

As a result of the factors discussed above, AdjustedOperating Income before Depreciation and Amortization decreased $4.8 million to$117.6 million, a decrease of 4% over the prior year’s second quarter.

Interest expense increased$4.9 million, or 9%, due to i) higher interest rates, which averaged 8.9% forthe three months ended June 30,2006, as compared to 8.1% for the three months ended June 30, 2005, and ii) additional interestexpense on the now fully accreted 121⁄4% Senior Discount Notes.

***Six Months Ended June 30, 2006 Compared to SixMonths Ended June 30, 2005***

Revenue for the six months ended June 30, 2006 totaled $613.0 million, anincrease of 12% over the prior year, due primarily to customer gains in allservices, as well as video rate increases. High-speed Internet service revenueincreased 30% over the prior year, which was attributable to an increasedcustomer base and was partially offset by lower average revenue per customerdue to promotional discounts. We added a net 64,100 high-speed Internetcustomers during the six months ended June 30, 2006 to end at 534,500customers.

Basic cable service revenue increased 7% due to anincreased customer base and video rate increases, partially offset bypromotional discounts. In addition, digital service revenue increased 21% overthe prior year due to an increased customer base. We added a net 53,400 digitalcustomers during the six months ended June 30, 2006 to end at 572,200customers.

Revenueby service offering was as follows for the six months ended June 30(dollars in thousands):

| ** **           | ** ** | **Revenue by Service Offering** | ** ** | ** **               | ** ** | ** **          | ** ** |
|----------------------|------------|------------------------------------------------|------------|--------------------------|------------|---------------------|------------|
| ** **           | ** ** | **Six Months**                            | ** ** | ** **               | ** ** | **Six Months** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **           | ** ** | **Ended**                                      | ** ** | ** **               | ** ** | **Ended**           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **           | ** ** | **June 30,**                              | ** ** | **% of Total** | ** ** | **June 30,**   | ** ** | **% of Total** | ** ** | ** ** | ** ** | **% Change** | ** ** |
| ** **           | ** ** | **2006**                                       | ** ** | **Revenue**              | ** ** | **2005**            | ** ** | **Revenue** | ** ** | ** ** | ** ** | **in Revenue** | ** ** |
| Basic                |       |                                           | $          | 318,535                  |       |                |       | 52.0 | % |   |   | $ | 297,703 |   |   |   | 54.3 | % |   |   |   |   | 7.0 | % |   |
| High-Speed  Internet |       |                                           | 115,113    |                     |       |                | 18.8       | % |   |   | 88,431 |   |   |   | 16.1 | % |   |   |   |   | 30.2 | % |   |
| Digital              |       |                                           | 66,030     |                     |       |                | 10.8       | % |   |   | 54,599 |   |   |   | 10.0 | % |   |   |   |   | 20.9 | % |   |
| Advertising          |       |                                           | 37,717     |                     |       |                | 6.2        | % |   |   | 36,737 |   |   |   | 6.7 | % |   |   |   |   | 2.7 | % |   |
| Premium              |       |                                           | 27,246     |                     |       |                | 4.4        | % |   |   | 28,090 |   |   |   | 5.1 | % |   |   |   |   | -3.0 | % |   |
| Telephone            |       |                                           | 23,883     |                     |       |                | 3.9        | % |   |   | 16,119 |   |   |   | 2.9 | % |   |   |   |   | 48.2 | % |   |
| Franchise fees       |       |                                           | 14,738     |                     |       |                | 2.4        | % |   |   | 15,202 |   |   |   | 2.8 | % |   |   |   |   | -3.1 | % |   |
| Other                |       |                                           | 9,736      |                     |       |                | 1.5        | % |   |   | 11,757 |   |   |   | 2.1 | % |   |   |   |   | -17.2 | % |   |
| Total                |       |                                           | $          | 612,998                  |       |                |       | 100.0 | % |   |   | $ | 548,638 |   |   |   | 100.0 | % |   |   |   |   | 11.7 | % |   |

 

Average monthly revenue per basic customer was $78.77for the six months ended June 30, 2006 compared to $72.17 for the sixmonths ended June 30, 2005. This primarily reflects the continued growthof high-speed Internet and digital product offerings in all markets, as well asvideo rate increases.

18

----

Programming and other operating costs increased $31.5million, or 17%. Increases in customers and substantial increases inprogramming rates were significant drivers of the cost increase for the sixmonths ended June 30, 2006. In addition, direct operating costs increaseddue to an increase in our high-speed Internet service costs. This increase isprimarily attributable to the growth in our high-speed Internet customer base andthe payment of contractually obligated and other one-time transition costs tobring Internet services in-house. Other operating costs increased primarily asa result of increases in repair, maintenance and warranty costs; an increase intaxes due to a change in the tax law in Kentucky; an increase in utilityrelated expenses; and an increase in installation labor due to increasedcustomer activity.

Selling, general and administrative expenses increased$30.5 million, or 23%, primarily due to increased payroll, payroll relatedcosts, temporary help and travel and entertainment expenses associated with anincrease in the number of employees and salary increases for existing employees.Marketing expenses increased over the prior year to support the continued rolloutof high-speed Internet, digital and telephone products, and to grow our corevideo customer base. Customer billing and collection fees increased due to theincrease in our customer base. Professional fees also increased due toincreased legal activity for the six months ended June 30, 2006.

Depreciation and amortization expense increased $9.4million, or 8.0%, primarily as a result of additional capital expendituresthrough June 30, 2006. Theseexpenditures were primarily for purchases of customer premise equipment,installation materials, capitalized labor, headend equipment and networkextensions, all of which we consider necessary in order to continue to maintainand grow our customer base and expand our service offerings. Partiallyoffsetting this increase was a decrease in depreciation expense related tocertain assets that have become fully depreciated since June 30, 2005.

As a result of the factors discussed above, AdjustedOperating Income before Depreciation and Amortization decreased $200,000 to$229.8 million.

Interest expense increased$11.3 million, or 10%, due to i) higher interest rates, which averaged 8.9% forthe six months ended June 30,2006, as compared to 7.9% for the six months ended June 30, 2005, and ii) additional interestexpense on the now fully accreted 12 1⁄4%Senior Discount Notes.

**Liquidity andCapital Resources**

Our business requires cash for operations, debtservice and capital expenditures. The cable television business has substantialongoing capital requirements for the construction, expansion and maintenance ofits broadband networks and provision of new services. In the past, expenditureshave been made for various purposes, including the upgrade of the existingcable network, and will continue to be made for network extensions,installation of new services, customer premise equipment (e.g., set-top boxes),deployment of new product and service offerings, and, to a lesser extent,network upgrades. Historically, we have been able to meet our cash requirementswith cash flow from operations, borrowings under our credit facilities andissuances of private and public debt and equity.

Cash provided by operations for the six months ended June 30,2006 and 2005 was $133.3 million and $143.2 million. The decrease was primarilyattributable to an increase in our net loss partially offset by the timing ofcash receipts and payments related to our working capital accounts.

Cash used in investing activities for the six monthsended June 30, 2006 and 2005 was $141.8 million and $92.9 million. Theincrease primarily was due to increases in capital expenditures. For the sixmonths ended June 30, 2006 and 2005, Insight spent $141.8 million and$93.5 million in capital expenditures. These expenditures principallyconstituted purchases of customer premise equipment, capitalized labor,installation materials, headend equipment and system upgrades and rebuilds, allof which are necessary to maintain Insight’s existing network, grow itscustomer base and expand its service offerings.

19

----

Cash used in financing activities for the six monthsended June 30, 2006 and 2005 was $16.7 million and $41.8 million. Thedecrease was due to $25.0 million in net proceeds from borrowings under ourcredit facility for the three months ended June 30, 2006.

Free Cash Flow forthe six months ended June 30, 2006 totaled ($8.4) million, compared to$49.7 million for the six months ended June 30, 2005. This decreasein Free Cash Flow of $58.1 million was primarily driven by the following:

·       A$48.3 million increase in capital expenditures;

·       A$7.4 million increase in cash interest expense paid primarily driven by anincrease in interest rates;

·       A$3.7 million source of Free Cash Flow for the six months ended June 30,2006 compared to a $5.6 million source for the six months ended June 30,2005 from changes in working capital accounts; and

·       A$500,000 increase in cash taxes paid.

We believe that the Insight Midwest Holdings creditfacility, cash on-hand and our cash flow from operations are sufficient tosupport our current operating plan. We had the ability to draw upon $231.4 millionof unused availability under the Insight Midwest Holdings credit facility as ofJune 30, 2006 to fund anyshortfall resulting from the inability of Insight Midwest’s cash fromoperations to fund its capital expenditures, meet its debt servicerequirements, including mandatory redemptions, or otherwise fund its operations.We expect to use anyavailable Free Cash Flow to repay our indebtedness.

We have a substantial amount of debt. Our high level ofdebt 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 are restricted by the terms oftheir indebtedness from doing so. Because of such restrictions, our ability toaccess the cash flow of our subsidiaries may be contingent upon our ability torefinance the debt of our subsidiaries. As of June 30, 2006 we were incompliance with all covenants under our credit agreement.

Thefollowing table summarizes our contractual obligations and commitments,excluding interest and commitments for programming, as of June 30, 2006 (in thousands):

| ** **              | ** ** | **Contractual Obligations** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **Long-Term**                    | ** ** | **Operating** | ** ** | ** ** | ** ** |
| ** **              | ** ** | **Debt**                         | ** ** | **Leases** | ** ** | **Total** | ** ** |
| 2006                    |       | $                                | 41,750     |   |   | $ | 2,592 |   |   | $ | 44,342 |   |
| 2007                    |       | 83,500                           |       |   | 3,976 |   |   | 87,476 |   |
| 2008                    |       | 104,750                          |       |   | 3,364 |   |   | 108,114 |   |
| 2009                    |       | 1,542,500                        |       |   | 2,407 |   |   | 1,544,907 |   |
| 2010                    |       | 630,000                          |       |   | 621 |   |   | 630,621 |   |
| Thereafter              |       | 350,000                          |       |   | 1,408 |   |   | 351,408 |   |
| Total cash  obligations |       | $                                | 2,752,500  |   |   | $ | 14,368 |   |   | $ | 2,766,868 |   |

 

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

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

20

----

swap agreements are majorfinancial institutions. We do not enter into derivatives or other financialinstruments for trading or speculative purposes.

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 as of June 30, 2006. The fair market value of ourcredit facility borrowings approximates its carrying value as the creditfacility borrowings bear interest at floating rates of interest. As of June 30, 2006 and December 31, 2005, thecost, if terminated, of our interest rate swap agreement was $5.2 million and$2.4 million and is reflected in our financial statements as an other non-currentliability.

**Item 4.**                        Controlsand Procedures

Our management carried outan evaluation, with the participation of our Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of our disclosure controls andprocedures as of June 30, 2006. Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that (i) ourdisclosure controls and procedures were effective to ensure that informationrequired to be disclosed by us in reports that we file or submit under theSecurities Exchange Act of 1934 is recorded, processed, summarized andreported, within the time periods specified in the rules and forms of theSecurities and Exchange Commission, and (ii) our disclosure controls andprocedures were designed to ensure that information required to be disclosed byus in reports that we file or submit under the Securities Exchange Act of 1934is accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions 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) or15d-15(d) under the Exchange Act that occurred during the quarterended June 30, 2006 that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

21

----

**PART II.    OTHERINFORMATION**

**Item 1.**                        LegalProceedings

See Note 11 in Item 1 of PART I,Notes to Consolidated Financial Statements.

**Item 1A.**                RiskFactors

There have been nomaterial changes in our risk factors from those disclosed in our annual reporton Form 10-K for the year ended December 31, 2005.

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

On May 2, 2006, theholders of all of the outstanding shares of our Series A voting preferredstock and Series B voting preferred stock took action by written consentto elect Michael S. Willner, Dinni Jain and James A. Atwood, Jr. as Class Idirectors to serve for a term that will expire upon the annual election ofdirectors in 2009.

**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                                                                                              |

 

22

----

**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:    August 9,  2006 |   | INSIGHT COMMUNICATIONS COMPANY, INC. |
|---------------------------------------------------|--------|--------------------------------------|
|                                              |   | By:                                  | /s/ JOHN ABBOT |
|                                              |   |                                 | John Abbot |
|                                              |   |                                 | Executive Vice  President and Chief Financial Officer |
|                                              |   |                                 | (Principal  Financial Officer) |

 

23

----