**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

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

**SECURITIES EXCHANGE ACT OF 1934**

**For the Quarterly Period Ended March 31, 2007**

**Commission file number 0-26677**

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**INSIGHT COMMUNICATIONS COMPANY, INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                     |   |   |   | **13-4053502**       |
|----------------------------------|--------|--------|--------|----------------------|
| (State or other  jurisdiction of |   |   |   | (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**

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports) and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes  o  No  x

(Note: As avoluntary filer, not subject to the filing requirements, the registrant filedall reports under Section 13 or 15(d) of the Exchange Act during thepreceding 12 months.)

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):  Largeaccelerated filer  o   Accelerated filer  o   Non-accelerated filer  x

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

Indicatethe number of shares outstanding of each of the registrant’s classes of commonstock, as of the latest practicable date. Not Applicable

 

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**PART I. FINANCIALINFORMATION**

**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, 2006.

1

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

| ** **                                                                                                                                    | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                    | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                                                                                                                    | ** ** | **unaudited**      | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                    | * *   | * *           | * *   |                  | * *   | * * |   |
| Cash and cash  equivalents                                                                                                                    |       | $                  | 34,975     |                  |       | $ | 43,573 | * * |   |
| Investments                                                                                                                                   |       | 7,000              |       |                  | 7,000      | * * |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $1,002 and $1,148 as of  March 31, 2007 and December 31, 2006 |       | 19,703             |       |                  | 31,060     | * * |   |
| Launch funds  receivable                                                                                                                      |       | 220                |       |                  | 355        | * * |   |
| Prepaid expenses  and other current assets                                                                                                    |       | 7,993              |       |                  | 8,473      | * * |   |
| Total current assets                                                                                                                          |       | 69,891             |       |                  | 90,461     | * * |   |
| Fixed assets, net                                                                                                                             |       | 1,159,784          |       |                  | 1,151,260  | * * |   |
| Goodwill                                                                                                                                      |       | 72,430             |       |                  | 72,430     | * * |   |
| Franchise costs                                                                                                                               |       | 2,361,959          |       |                  | 2,361,959  | * * |   |
| Deferred  financing costs, net of accumulated amortization of $30,354 and $29,473 as of  March 31, 2007 and December 31, 2006       |       | 18,584             |       |                  | 19,053     | * * |   |
| Other non-current  assets                                                                                                                     |       | 2,454              |       |                  | 2,941      | * * |   |
| Total assets                                                                                                                                  |       | $                  | 3,685,102  |                  |       | $ | 3,698,104 | * * |   |

 

See accompanying notes

2

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

| ** **                                                                                                                                                | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                                                                                                                                | ** ** | **unaudited**      | ** ** | ** **            | ** ** |
| **Liabilities and stockholders’  equity**                                                                                                            |       |               |       |                  |       |   |   |
| Accounts payable                                                                                                                                          |       | $                  | 45,071     |                  |       | $ | 43,772 |   |   |
| Accrued expenses  and other current liabilities                                                                                                           |       | 40,772             |       |                  | 45,521     |   |   |
| Accrued property  taxes                                                                                                                                   |       | 17,027             |       |                  | 13,595     |   |   |
| Accrued  programming costs (inclusive of $33,964 and $30,677 due to related parties as  of March 31, 2007 and December 31, 2006)                |       | 51,663             |       |                  | 45,880     |   |   |
| Deferred revenue                                                                                                                                          |       | 1,457              |       |                  | 2,076      |   |   |
| Interest payable                                                                                                                                          |       | 53,069             |       |                  | 49,518     |   |   |
| Total current liabilities                                                                                                                                 |       | 209,059            |       |                  | 200,362    |   |   |
| Deferred revenue                                                                                                                                          |       | 493                |       |                  | 683        |   |   |
| Debt                                                                                                                                                      |       | 2,781,772          |       |                  | 2,805,722  |   |   |
| Other non-current  liabilities                                                                                                                            |       | 317                |       |                  | —     |   |   |
| Minority interest                                                                                                                                         |       | 246,187            |       |                  | 245,634    |   |   |
| Stockholders’  equity:                                                                                                                               |       |               |       |                  |       |   |   |
| Voting preferred stock,  $.01 par value:                                                                                                                  |       |               |       |                  |       |   |   |
| Series A - 1,000,000 shares authorized; 848,945  shares issued and outstanding as of March 31, 2007 and December 31,  2006                 |       | 8                  |       |                  | 8          |   |   |
| Series B - 1,000,000 shares authorized; 517,836  shares issued and outstanding as of March 31, 2007 and December 31,  2006                 |       | 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 March 31, 2007 and  December 31, 2006             |       | 134                |       |                  | 134        |   |   |
| Series D - 50,000,000 shares authorized;  47,015,659 shares issued and outstanding as of March 31, 2007 and  December 31, 2006             |       | 470                |       |                  | 470        |   |   |
| Non-voting common stock,  $.01 par value:                                                                                                                 |       |               |       |                  |       |   |   |
| Series E - 5,000,000 shares authorized;  3,516,997 and 3,536,247 shares issued and outstanding as of March 31,  2007 and December 31, 2006 |       | 35                 |       |                  | 35         |   |   |
| Series F - 100,000 shares authorized; 95,180  and 93,250 shares issued and outstanding as of March 31, 2007 and  December 31, 2006         |       | 1                  |       |                  | 1          |   |   |
| Voting common stock,  $.01 par value:                                                                                                                     |       |               |       |                  |       |   |   |
| Series G - 10,000,000 shares authorized; 0  shares issued and outstanding as of March 31, 2007 and December 31,  2006                      |       | —             |       |                  | —     |   |   |
| Additional  paid-in-capital                                                                                                                               |       | 826,899            |       |                  | 826,509    |   |   |
| Accumulated  deficit                                                                                                                                      |       | (379,961           | )          |                  | (381,765   | ) |   |
| Accumulated other  comprehensive income (loss)                                                                                                            |       | (317               | )          |                  | 306        |   |   |
| Total stockholders’ equity                                                                                                                           |       | 447,274            |       |                  | 445,703    |   |   |
| Total liabilities  and stockholders’ equity                                                                                                          |       | $                  | 3,685,102  |                  |       | $ | 3,698,104 |   |   |

 

See accompanying notes

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

| ** **                                                                                                                                                                                                                               | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                               | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Revenue                                                                                                                                                                                                                                  |       | $                                                | 339,469    |   | $ | 301,281 |   |
| Operating costs  and expenses:                                                                                                                                                                                                           |       |                                             |       |   |   |
| Programming and other operating costs (exclusive of  depreciation and amortization) (inclusive of $51,393 and $43,081 of  programming expense incurred through related parties for the three months  ended March 31, 2007 and 2006) |       | 119,855                                          |       | 111,415 |   |
| Selling, general and administrative (inclusive of  $391 and $550 of stock-based compensation for the three months ended  March 31, 2007 and 2006)                                                                                   |       | 90,673                                           |       | 78,165 |   |
| Depreciation and amortization                                                                                                                                                                                                            |       | 69,279                                           |       | 64,312 |   |
| Total operating  costs and expenses                                                                                                                                                                                                      |       | 279,807                                          |       | 253,892 |   |
| Operating income                                                                                                                                                                                                                         |       | 59,662                                           |       | 47,389 |   |
| Other income  (expense):                                                                                                                                                                                                                 |       |                                             |       |   |   |
| Interest expense                                                                                                                                                                                                                         |       | (57,897                                          | )          | (61,075 | ) |
| Interest income                                                                                                                                                                                                                          |       | 320                                              |       | 512 |   |
| Other income (expense)                                                                                                                                                                                                                   |       | 393                                              |       | (70 | ) |
| Total other  expense, net                                                                                                                                                                                                                |       | (57,184                                          | )          | (60,633 | ) |
| Income (loss) before minority interest and income  taxes                                                                                                                                                                                 |       | 2,478                                            |       | (13,244 | ) |
| Minority interest  income (expense)                                                                                                                                                                                                      |       | (553                                             | )          | 2,505 |   |
| Income (loss) before income taxes                                                                                                                                                                                                        |       | 1,925                                            |       | (10,739 | ) |
| Provision for  income taxes                                                                                                                                                                                                              |       | (121                                             | )          | (80 | ) |
| Net income (loss)                                                                                                                                                                                                                        |       | $                                                | 1,804      |   | $ | (10,819 | ) |

 

See accompanying notes

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**INSIGHTCOMMUNICATIONS COMPANY, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS***(unaudited)**(dollars inthousands)*

| ** **                                                                                | ** ** | **Three months ended**

**March 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| **Operating activities:**                                                                 | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net income (loss)                                                                         |       | $                                                    | 1,804      |   | $ | (10,819 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                                 |       |   |   |
| Depreciation and amortization                                                             |       | 69,279                                               |       | 64,312 |   |
| Stock-based compensation                                                                  |       | 391                                                  |       | 550 |   |
| Loss on interest rate swaps                                                               |       | —                                               |       | 1,665 |   |
| Minority interest                                                                         |       | 553                                                  |       | (2,505 | ) |
| Provision for losses on trade accounts receivable                                         |       | 2,559                                                |       | 2,904 |   |
| Amortization of note discount                                                             |       | 1,050                                                |       | 4,816 |   |
| Changes in  operating assets and liabilities:                                             |       |                                                 |       |   |   |
| Trade accounts receivable                                                                 |       | 8,798                                                |       | 6,780 |   |
| Launch funds receivable                                                                   |       | 135                                                  |       | 387 |   |
| Prepaid expenses and other assets                                                         |       | 949                                                  |       | (2,710 | ) |
| Accounts payable                                                                          |       | 1,299                                                |       | (8,092 | ) |
| Interest payable                                                                          |       | 3,551                                                |       | 31,485 |   |
| Accrued expenses and other liabilities                                                    |       | 3,351                                                |       | (2,248 | ) |
| Net cash provided by operating activities                                                 |       | 93,719                                               |       | 86,525 |   |
| **Investing  activities:**                                                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Purchase of fixed assets                                                                  |       | (76,927                                              | )          | (57,629 | ) |
| Sale of fixed assets                                                                      |       | 23                                                   |       | 336 |   |
| Purchase of investments                                                                   |       | —                                               |       | (257 | ) |
| Net cash used in investing activities                                                     |       | (76,904                                              | )          | (57,550 | ) |
| **Financing  activities:**                                                                |       |                                                 |       |   |   |
| Repayment of credit facilities                                                            |       | (25,000                                              | )          | (20,875 | ) |
| Debt issuance costs                                                                       |       | (412                                                 | )          | — |   |
| Other                                                                                     |       | (1                                                   | )          | 1 |   |
| Net cash used in financing activities                                                     |       | (25,413                                              | )          | (20,874 | ) |
| Net increase  (decrease) in cash and cash equivalents                                     |       | (8,598                                               | )          | 8,101 |   |
| Cash and cash  equivalents, beginning of period                                           |       | 43,573                                               |       | 29,782 |   |
| Cash and cash  equivalents, end of period                                                 |       | $                                                    | 34,975     |   | $ | 37,883 |   |

 

See accompanying notes

5

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

**1.**Organization**and Basis ofPresentation**

Through our wholly ownedsubsidiary, Insight Communications Company, L.P. (“Insight LP”), we own a 50%interest in Insight Midwest, L.P. (“Insight Midwest”), which through itsoperating subsidiaries, Insight Communications Midwest, LLC (“InsightCommunications Midwest”), Insight Kentucky Partners II, L.P. (“Insight Kentucky”)and Insight Communications of Central Ohio, LLC (“Insight Ohio”), owns andoperates cable systems in Illinois, Indiana, Kentucky and Ohio which passedapproximately 2.5 million homes and had approximately 1.4 million customerrelationships as of March 31, 2007.

Insight LP is the generalpartner of Insight Midwest. Through Insight LP, we manage all of InsightMidwest’s systems. An indirect subsidiary of Comcast Corporation (“Comcast”)owns a 50% limited partner interest in Insight Midwest.

The accompanyingconsolidated financial statements include our accounts and those of our whollyowned subsidiaries, Insight LP and Insight Cable Services, LLC. Reclassificationshave been made to the prior year’s financial statements to conform to thoseclassifications used in 2007.

On April 1, 2007,Insight Midwest’s partnership agreement was amended, and we agreed with Comcaston a division of Insight Midwest’s assets and liabilities. Upon completion ofthe transaction, we will own 100% of Insight Midwest’s cable systems servingcustomers in Louisville, Lexington, Bowling Green and Covington, Kentucky, inEvansville, Indiana, and in Columbus, Ohio, and Comcast will own 100% of InsightMidwest’s cable systems serving customers in Rockford/Dixon, Quincy/Macomb,Springfield, Peoria and Champaign/Urbana, Illinois and in Bloomington, Anderson,Lafayette and Kokomo, Indiana. Pending completion of the transaction, we willcontinue to serve as general partner and control and manage all of the cablesystems of Insight Midwest and will continue to include the results of InsightMidwest in our consolidated financial statements. In conjunction with thedivision of assets and liabilities, the Insight systems group was initiallyallocated approximately $1,259.6 billion of the partnership’s debt and theComcast systems group was initially allocated approximately $1,335.4 billion ofthe partnership’s debt. The closing is subject to closing conditions, includinglocal governmental approvals and regulatory approvals, and is expected to becompleted by the end of 2007 (see Note 8 “Minority and Preferred Interests”).

**2. Responsibilityfor Interim Financial Statements**

Our accompanying unauditedconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States for interimfinancial information and with the instructions to Form 10-Q and Article 10of Regulation S-X. Accordingly, they do not include all of the information andfootnote disclosures required by accounting principles generally accepted inthe United States for complete financial statements.

In our opinion, theconsolidated financial statements reflect all adjustments considered necessaryfor a fair presentation of the consolidated results of operations and financialposition for the interim periods presented. All such adjustments are of anormal recurring nature. These unaudited interim consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements and notes to consolidated financial statements containedin our Annual Report on Form 10-K for the year ended December 31,2006.

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 and 

6

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

**2.Responsibility for Interim Financial Statements (Continued)**

thereported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates. The results of operations for thethree months ended March 31, 2007 are not necessarily indicative of theresults to be expected for the year ending December 31, 2007 or any otherinterim period.

**3. Recent AccountingPronouncements**

In February 2007, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”)No. 159, *The Fair Value Option for Financial Assetsand Liabilities*(“SFAS No. 159”). SFAS No. 159 providesthe option to report certain financial assets and liabilities at fair value,with the intent to mitigate volatility in financial reporting that can occurwhen related assets and liabilities are recorded on different bases. Thisstatement is effective for us beginning January 1, 2008. We do not expectSFAS No. 159 to have a material impact on our consolidated financialstatements.

In June 2006, the FASB issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*(“FIN 48”). FIN48 clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statement in accordance with SFAS No. 109, *Accounting for Income Taxes*(“SFAS 109”). Thisinterpretation prescribes a comprehensive model for the financial statementrecognition, measurement, presentation and disclosure of uncertain tax positionstaken or expected to be taken in an income tax return. FIN 48 also providesguidance on derecognition of tax benefits, classification on the balance sheet,interest and penalties, accounting in interim periods, disclosure andtransition.

The Company adopted FIN 48effective January 1, 2007 and had no material unrecognized tax benefits as ofthe adoption date and as of March 31, 2007. The Company is subject to taxationin the U.S. and various state jurisdictions. The company’s tax returns for 2003through 2006 tax years remain subject to examination.

**4. 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 aninvestment 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 March 31, 2007 and December 31, 2006, our carryingvalue in 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. In October 2006, we agreed toextend the term of the carriage agreement through December 31, 2008.

Concurrently with thecarriage agreement, we entered into an equity issuance agreement with Oxygen.The agreement called for Oxygen to deliver to us shares having an aggregatefair market value as of 

7

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

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

December 31,2005 of $3.8 million, and by December 1, 2006 deliver to usadditional shares having an aggregate fair market value as of the December 31,2005 valuation of $2.0 million. Pursuant to the equity issuance agreement,a portion of the monthly programming fees represent our equity investment inOxygen. In October 2006, in connection with the extension of the carriageterm, Oxygen issued shares to us of common stock representing a value as of December 31,2005 of $5.8 million in full satisfaction of its obligation to issueequity to us under the equity issuance agreement. We are accounting for ourinvestment in Oxygen under the cost method. As of March 31, 2007 and December 31,2006, our carrying value in this investment was $5.8 million.

**5. FixedAssets**

| ** **                                       | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| ** **                                       | ** ** | **(in thousands)**  | ** ** |
| Land, buildings  and improvements                |       | $                        | 46,093     |                        | $          | 45,777 |   |
| Cable system  equipment                          |       | 2,750,916                |       | 2,676,108                   |       |
| Furniture,  fixtures and office equipment        |       | 23,389                   |       | 23,197                      |       |
|                                             |       | 2,820,398                |       | 2,745,082                   |       |
| Less: accumulated  depreciation and amortization |       | (1,660,614               | )          | (1,593,822                  | )          |
| Total fixed  assets, net                         |       | $                        | 1,159,784  |                        | $          | 1,151,260 |   |

 

We recorded depreciationexpense of $68.4 million and $62.9 million for the three months ended March 31,2007 and 2006.

**6. Debt**

| ** **                                    | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                    | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| ** **                                    | ** ** | **(in thousands)**  | ** ** |
| Insight Midwest  Holdings Credit Facility     |       | $                        | 2,261,000  |                        |       | $ | 2,286,000 |   |   |
| Insight Midwest  93⁄4% Senior Notes        |       | 200,000                  |       |                        | 200,000    |   |   |
| Insight Inc. 121⁄4%  Senior Discount Notes |       | 350,000                  |       |                        | 350,000    |   |   |
|                                          |       | 2,811,000                |       |                        | 2,836,000  |   |   |
| Net unamortized  discount on notes            |       | (29,228                  | )          |                        | (30,278    | ) |   |
| Total debt                                    |       | $                        | 2,781,772  |                        |       | $ | 2,805,722 |   |   |

 

8

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

**6. Debt(Continued)**

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

Insight Midwest Holdings, LLC, a wholly ownedsubsidiary of Insight Midwest, holds all of the outstanding equity of each ofour operating subsidiaries, and on October 6, 2006, entered into a new $2.445 billionsenior secured credit facility. The facility is comprised of a $385.0 million ATerm Loan scheduled to mature on October 6, 2013, a $1.8 billion B TermLoan scheduled to mature on April 6, 2014 and $260.0 million inrevolving commitments scheduled to terminate on October 6, 2012. InsightMidwest Holdings used the proceeds to refinance its existing senior creditfacility and to redeem a portion of the outstanding Senior Notes of InsightMidwest. As of March 31, 2007 we were in compliance with the creditfacility’s covenant requirements.

On March 28, 2002, weloaned $100.0 million to Insight Midwest. The loan to Insight Midwest bearsannual interest of 9%, compounded semi-annually, has a scheduled maturity dateof January 31, 2011 and permits prepayments. Insight Midwest Holdings ispermitted under the credit facility to make distributions to Insight Midwestfor the purpose of repaying our loan, including accrued interest, provided thatthere are no defaults existing under the credit facility. During the three months ended March 31,2007, Insight Midwest repaid a total of $4.5 million of the loan balance. Asof March 31, 2007 and December 31, 2006, the balance of the $100.0million loan, including accrued interest was $134.6 million and $136.1 million.

***Insight Inc. 12***1¤4% SeniorDiscount 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. The initial accreted value of the discountnotes increased until February 15, 2006 such that the accreted valueequaled the revised outstanding principal amount of $350.0 million on December 31,2006. The Insight Inc. 121¤4% Senior DiscountNotes are scheduled to mature in February 2011 and contain certain financialand other debt covenants. As of March 31, 2007, we were in compliance withall covenant requirements.

***Debt Principal Payments***

As of March 31,2007, the remaining principal payments required on our debt were as follows (inthousands):

| 2007       |   | $         | —    |   |
|------------|--------|-----------|-----------|--------|
| 2008       |   | 9,312     |      |
| 2009       |   | 242,063   |      |
| 2010       |   | 61,313    |      |
| 2011       |   | 430,562   |      |
| Thereafter |   | 2,067,750 |      |
| Total      |   | $         | 2,811,000 |   |

 

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

**7. Derivative Instruments**

We enter into derivative instruments, typicallyinterest-rate swap agreements, to modify the interest characteristics of ouroutstanding debt to either a floating or fixed rate basis. These agreementsinvolve fixed rate interest payments in exchange for floating rate interestreceipts, known as cash flow hedges, and floating rate interest payments inexchange for fixed rate interest receipts, known as fair value hedges, over thelife of the agreement without an exchange of the underlying principal amount. Thedifferential to be paid or received is accrued as interest rates change and isrecognized as an adjustment to interest expense related to the debt. Therelated amount payable or receivable is included in other non-currentliabilities or assets.

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

**Cash Flow Hedges**

In October 2006,we entered into two interest rate swap agreements that were determined to beeffective cash flow hedges whereby we swapped floating rates for:

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

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

At March 31, 2007 andDecember 31, 2006 the estimated fair value (cost if terminated) of theseinterest rate swap agreements were approximately ($317,000) and $306,000.

**8. Minority and PreferredInterests**

As of March 31, 2007 and December 31, 2006we had $246.2 million and $245.6 million of minority interests recorded in ourbalance sheet as temporary equity related to Insight Midwest.

The Insight Midwest partnership was formed in September 1999to serve as the holding company and a financing vehicle for our cabletelevision system 50/50 joint venture with an indirect subsidiary of AT&TBroadband (now known as Comcast Cable). The results of the partnership areincluded in our consolidated financial statements since we as general partnereffectively control Insight Midwest’s operating and financial decisions. (SeeNote 1—“Organization and Basis of Presentation” for additional disclosure inconnection with the proposed division of assets and liabilities of thepartnership).

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

**9. Related PartyTransactions**

**Programming**

We purchase the majorityof our programming through affiliates of Comcast Cable. Charges for suchprogramming, including a 11⁄2% administrative fee, were $51.4 million and $43.1million for the three months ended March 31, 2007 and 2006. As ofMarch 31, 2007 and December 31, 2006, $34.0 million and $30.7 millionof accrued programming costs were due to affiliates of Comcast Cable. Webelieve that the programming rates charged through these affiliates are lowerthan those available from independent parties. Upon the completion of thedivision of assets and liabilities of Insight Midwest described in Note 1, wewill no longer have the right to purchase programming services for our systemsthrough this affiliate arrangement.

**10. Commitments andContingencies**

**ProgrammingContracts**

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

**Litigation**

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.

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

**CautionaryStatement Regarding Forward-Looking Information**

This quarterly report on Form 10-Q containscertain forward-looking statements with respect to the financial condition,results of operations, plans, objectives, future performance and business ofour company, including, without limitation, statements preceded by, followed byor that include the words “believes,” “expects,” “anticipates,” “estimates” orsimilar expressions. We believe it is important to communicate management’sexpectations. However, there may be events in the future that we are not ableto accurately predict or over which we have no control. The risk factors listedin our Annual Report on Form 10-K for the year ended December 31,2006, as well as any other cautionary language in this quarterly report,provide examples of risks, uncertainties and events that may cause our actualresults to differ materially from the expectations we describe in ourforward-looking statements. You should be aware that the occurrence of theevents described in these risk factors and elsewhere in this quarterly reportcould have a material adverse effect on our business, operating results andfinancial 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 fund ouroperations and our ability to react to changes in our business;

·       Uponcompletion of the division of our joint venture with a subsidiary of ComcastCorporation, we will face new challenges as a smaller company, includingoperating at lower margins;

·       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,particularly as a result of the pending division of our joint venture withComcast; and

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

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 ofunanticipated events, except as required by law.

**Overview**

Our revenues are earned from customer fees for cabletelevision video services including basic, classic, digital, premium,video-on-demand and ancillary services, such as rental of converters and remotecontrol devices and installations. In addition, we earn revenues from providinghigh-speed Internet services, selling advertising, providing telephone servicesand commissions for products sold through home shopping networks.

Some of the principal reasons for our net lossesthrough March 31, 2007 include i) depreciation associated with our capitalexpenditures for the construction, expansion and maintenance of our systems,and, ii) interest costs on borrowed money. We expect to continue to report netlosses for the foreseeable future. We cannot predict what impact, if any,continued losses will have on our ability to finance our operations in thefuture.

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The following table isderived from our consolidated financial statements that are included in thisreport and sets forth certain statement of operations data for our consolidatedoperations:

| ** **                                 | ** ** | **Three Months  Ended March 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                 | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                 | ** ** | **(unaudited)**                                  | ** ** |
| ** **                                 | ** ** | **(in thousands)**                          | ** ** |
| Revenue                                    |       | $                                                | 339,469    |   | $ | 301,281 |   |
| Operating costs  and expenses:             |       |                                             |       |   |   |
| Programming and other operating costs      |       | 119,855                                          |       | 111,415 |   |
| Selling, general and administrative        |       | 90,673                                           |       | 78,165 |   |
| Depreciation and amortization              |       | 69,279                                           |       | 64,312 |   |
| Total operating  costs and expenses        |       | 279,807                                          |       | 253,892 |   |
| Operating income                           |       | 59,662                                           |       | 47,389 |   |
| Interest expense                           |       | 57,897                                           |       | 61,075 |   |
| Minority interest  income (expense)        |       | (553                                             | )          | 2,505 |   |
| Net income (loss)                          |       | 1,804                                            |       | (10,819 | ) |
| Net cash provided  by operating activities |       | 93,719                                           |       | 86,525 |   |
| Net cash used in  investing activities     |       | 76,904                                           |       | 57,550 |   |
| Net cash used in  financing activities     |       | 25,413                                           |       | 20,874 |   |
| Capital expenditures                       |       | 76,927                                           |       | 57,629 |   |
|                                            |            |                                                  |            |  |  |  |  |

 

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

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

A limitation of Adjusted Operating Income beforeDepreciation and Amortization, however, is that it does not reflect the periodiccosts of certain capitalized tangible and intangible assets used in generatingrevenues in our businesses. Management evaluates the costs of such tangible andintangible assets through other financial measures such as capitalexpenditures, investment spending and Free Cash Flow. Management also evaluatesthe costs of capitalized tangible and intangible assets by analyzing returnsprovided on the capital dollars deployed. Another limitation of AdjustedOperating Income before Depreciation and Amortization is that it does notreflect income net of interest expense, which is a significant expense for usbecause of the substantial debt we incurred to acquire cable television systemsand finance capital expenditures to upgrade our cable network. Management evaluatesthe impact of 

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interest expense throughmeasures including interest expense, Free Cash Flow, the returns analysisdiscussed above and debt service covenant ratios under our credit facility.

Free Cash Flow is net cash provided by operatingactivities (as defined by accounting principles generally accepted in theUnited States) less capital expenditures. Free Cash Flow is considered to be animportant indicator of our liquidity, including our ability to repayindebtedness. We believe Free Cash Flow is useful for investors and bondholdersbecause it enables them to assess our ability to service our debt and to fundcontinued growth with internally generated funds in a manner similar to themethods used by our management, and provides a measure that can be used toanalyze, value and 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 Income (Loss) to AdjustedOperating Income before Depreciation and Amortization***

Thefollowing table reconciles Net Income (Loss) to Adjusted Operating Incomebefore Depreciation and Amortization. In addition, the table provides thecomponents from Net Income (Loss) to Operating Income for purposes of thediscussions that follow.

| ** **                                                      | ** ** | **Three Months  Ended March 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                      | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                      | ** ** | **(unaudited)**                                  | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                          | ** ** |
| Net income (loss)                                               |       | $                                                | 1,804      |   | $ | (10,819 | ) |
| Provision for  income taxes                                     |       | 121                                              |       | 80 |   |
| Income (loss)  before income taxes                              |       | 1,925                                            |       | (10,739 | ) |
| Minority interest  (income) expense                             |       | 553                                              |       | (2,505 | ) |
| Income (loss)  before minority interest and income taxes        |       | 2,478                                            |       | (13,244 | ) |
| Other (income)  expense:                                        |       |                                             |       |   |   |
| Other                                                           |       | (393                                             | )          | 70 |   |
| Interest income                                                 |       | (320                                             | )          | (512 | ) |
| Interest expense                                                |       | 57,897                                           |       | 61,075 |   |
| Total other  expense, net                                       |       | 57,184                                           |       | 60,633 |   |
| Operating income                                                |       | 59,662                                           |       | 47,389 |   |
| Depreciation and  amortization                                  |       | 69,279                                           |       | 64,312 |   |
| Stock-based  compensation                                       |       | 391                                              |       | 550 |   |
| Adjusted Operating  Income before Depreciation and Amortization |       | $                                                | 129,332    |   | $ | 112,251 |   |

 

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

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

| ** **                                                      | ** ** | **Three Months  Ended March 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                      | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                      | ** ** | **(unaudited)**                                  | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                          | ** ** |
| Operating income                                                |       | $                                                | 59,662     |   | $ | 47,389 |   |
| Depreciation and  amortization                                  |       | 69,279                                           |       | 64,312 |   |
| Stock-based  compensation                                       |       | 391                                              |       | 550 |   |
| Adjusted  Operating Income before Depreciation and Amortization |       | 129,332                                          |       | 112,251 |   |
| Changes in  working capital accounts(1)                         |       | 18,371                                           |       | (2,086 | ) |
| Cash paid for  interest                                         |       | (53,742                                          | )          | (23,087 | ) |
| Cash paid for  taxes                                            |       | (242                                             | )          | (553 | ) |
| Net cash provided  by operating activities                      |       | 93,719                                           |       | 86,525 |   |
| Capital  expenditures                                           |       | (76,927                                          | )          | (57,629 | ) |
| Free Cash Flow                                                  |       | $                                                | 16,792     |   | $ | 28,896 |   |

 

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

**Results ofOperations**

***Three Months Ended March 31, 2007 Compared toThree Months Ended March 31, 2006***

Revenue for the three months ended March 31,2007, totaled $339.5 million, an increase of 13% over the prior year, dueprimarily to Revenue Generating Unit (“RGU”) growth across all of our services,as well as video rate increases. High-speed Internet service revenue increased23% over the prior year, which was attributable to an increased customer baseand was partially offset by lower average revenue per customer due topromotional discounts. We added a net 44,800 high-speed Internet customersduring the quarter to end at 656,000 customers.

Basic cable service revenue increased 6% due to anincreased customer base and video rate increases, partially offset bypromotional discounts. We added a net 21,200 basic customers during the quarterto end at 1,344,000 customers. In addition, digital service revenue increased28% over the prior year due to an increased customer base and a $1.60 increasein digital average revenue per customer. We added a net 32,200 digitalcustomers during the quarter to end at 653,800 customers.

We have been increasing our customer growth andretention efforts by increasing spending on sales and marketing efforts,emphasizing bundling and enhancing and differentiating our video services withvideo-on-demand, high definition television and digital video recorders. We arealso continuing to focus on improving customer satisfaction through higherservice levels and increased customer education of product offerings.

To increase our bundling opportunities and extend ourgrowth potential in future years, we, during the second half of 2006 and in January 2007,successfully rolled out our telephone product in eight previously unserveddistricts. As a result, we added a net 24,400 telephone customers during thequarter to end at 147,800 customers.

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Revenue by service offering was as follows for thethree months ended March 31 (dollars in thousands):

| ** **           | ** ** | **Revenue by Service Offering**       | ** ** |
|----------------------|------------|------------------------------------------------------|------------|
| ** **           | ** ** | **Three Months**

**Ended  March 31,2007** | ** ** | **% of Total  Revenue** | ** ** | **Three Months  Ended  March 31,2006** | ** ** | **% of Total  Revenue** | ** ** | ** ** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       |                                                 | $          | 168,151 |   |   |   | 49.5 | % |   |   | $ | 158,207 |   |   |   | 52.5 | % |   |   |   |   | 6.3 | % |   |
| High-Speed  Internet |       |                                                 | 69,531     |   |   |   | 20.5 | % |   |   | 56,497 |   |   |   | 18.8 | % |   |   |   |   | 23.1 | % |   |
| Digital              |       |                                                 | 40,540     |   |   |   | 11.9 | % |   |   | 31,723 |   |   |   | 10.5 | % |   |   |   |   | 27.8 | % |   |
| Advertising          |       |                                                 | 17,385     |   |   |   | 5.1 | % |   |   | 17,697 |   |   |   | 5.9 | % |   |   |   |   | -1.8 | % |   |
| Telephone            |       |                                                 | 15,803     |   |   |   | 4.7 | % |   |   | 11,355 |   |   |   | 3.8 | % |   |   |   |   | 39.2 | % |   |
| Premium              |       |                                                 | 14,195     |   |   |   | 4.2 | % |   |   | 13,394 |   |   |   | 4.4 | % |   |   |   |   | 6.0 | % |   |
| Franchise fees       |       |                                                 | 7,998      |   |   |   | 2.4 | % |   |   | 7,354 |   |   |   | 2.4 | % |   |   |   |   | 8.8 | % |   |
| Other                |       |                                                 | 5,866      |   |   |   | 1.7 | % |   |   | 5,054 |   |   |   | 1.7 | % |   |   |   |   | 16.1 | % |   |
| Total                |       |                                                 | $          | 339,469 |   |   |   | 100.0 | % |   |   | $ | 301,281 |   |   |   | 100.0 | % |   |   |   |   | 12.7 | % |   |

 

Total CustomerRelationships were 1,426,300 as of March 31, 2007, an increase of 49,500from 1,376,800 as of March 31, 2006. 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. 

In thequarter ended March 31, 2007, we added 122,600 RGUs, which represent thesum of basic, digital, high-speed Internet and telephone customers, and as of March 31,2007, had 2,801,600 RGUs, an increase of 13% from March 31, 2006. RGUs bycategory were as follows (in thousands):

| ** **           | ** ** | **March 31, 2007** | ** ** | **March 31, 2006** | ** ** |
|----------------------|------------|------------------------------|------------|------------------------------|------------|
| Basic                |       |                         | 1,344.0    |                         |       |   | 1,306.7 |   |   |
| High-speed  Internet |       |                         | 656.0      |                         |       |   | 514.8 |   |   |
| Digital              |       |                         | 653.8      |                         |       |   | 560.5 |   |   |
| Telephone            |       |                         | 147.8      |                         |       |   | 99.7 |   |   |
| Total RGUs           |       |                         | 2,801.6    |                         |       |   | 2,481.7 |   |   |

 

Average monthly revenue per basic customer was $84.86for the three months ended March 31, 2007, compared to $77.60 for thethree months ended March 31, 2006. This primarily reflects the continuedgrowth of high-speed Internet and video product offerings in all markets, aswell as video rate increases.

Programming and other operating costs increased $8.4 million,or 8%. Increases in programming rates, customers and the addition of newprogramming content were significant drivers of the cost increase for thequarter ended March 31, 2007. For the quarter ended March 31, 2006,programming costs reflected certain programming credits resulting fromfavorable resolution of pricing negotiations related to certain prior periodprogramming costs that were accrued at a higher rate than the amount actuallypaid. Programming credits for the quarter ended March 31, 2007 weresignificantly lower, causing overall programming cost increases to be greater. Directoperating costs decreased due to decreases in our high-speed Internet servicescosts as the company, in 2006, transitioned its Internet services in-house andrealized both cost savings and operational benefits from this investment evenwhile increasing our customer base. These decreases were partially offset by anincrease in telephone cost of service as we successfully rolled out thisproduct in eight previously unserved districts during the second half of 2006and in January 2007.

Selling, general and administrative expenses increased$12.5 million, or 16%, primarily due to increased payroll, payroll-relatedcosts and temporary help associated with an increase in the number of 

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employees and salaryincreases for existing employees. The increase in the number of employeesrepresents investments in sales and marketing, customer care and informationtechnology personnel to continue to upgrade and enhance our product offerings,manage our increasingly complex network and increase customer satisfaction. Aportion of the information technology personnel increases were directly relatedto the transition of our Internet services in-house. Marketing expensesincreased over the prior year to support the continued rollout of high-speedInternet, digital and telephone products, and to grow our core video customerbase. Franchise fees, customer billing and collection fees increased primarilydue to the increase in our revenues and our customer base.

Depreciation and amortization expense increased $5.0 million,or 8%, primarily as a result of an increased level of capital expendituresthrough March 31, 2007. Theseexpenditures were primarily for purchases of customer premise equipment,installation labor and materials, capitalized labor, headend equipment, networkextensions and network capacity and bandwidth increases, all of which weconsider necessary in order to continue to maintain and grow our customer baseand expand our service offerings. Partially offsetting this increase was adecrease in depreciation expense related to certain assets that have becomefully depreciated since March 31, 2006.

As a result of the factors discussed above, AdjustedOperating Income before Depreciation and Amortization increased $17.1 millionto $129.3 million, an increase of 15% over the prior year’s quarter.

Interest expense decreased$3.2 million, or 5%, because of lower interest rates, which averaged 8.3%for the three months ended March 31,2007, as compared to 8.9% for the three months ended March 31, 2006, and as a result of the redemptionof our 101⁄2% senior notes and a portion of our 93⁄4% senior notes with theproceeds from our new credit facility in the fourth quarter of 2006.

**Liquidity andCapital Resources**

Our business requires cash for operations, debtservice and capital expenditures. The cable television business has substantialongoing capital requirements for the provision of new services and theconstruction, expansion and maintenance of its broadband networks. In the past,expenditures have been made for various purposes including the upgrade of theexisting cable network, and will continue to be made for customer premiseequipment (e.g., set-top boxes), installation and deployment of new product andservice offerings, capitalized payroll, network capacity, bandwidth increases,network extensions, and, to a lesser extent, network upgrades. Historically, wehave been able to meet our cash requirements with cash flow from operations,borrowings under our credit facilities and issuances of private and public debtand equity.

Cash provided by operations for the three months endedMarch 31, 2007 and 2006 was $93.7 million and $86.5 million. Theincrease was primarily attributable to the timing of cash receipts and paymentsrelated to our working capital accounts and a decrease in our net loss. Theseincreases were partially offset by a decrease in interest payable because ofthe redemption of our 101⁄2% senior notes and a portion of our 93⁄4% senior notesand the refinancing of our credit facility in the fourth quarter of 2006.

Cash used in investing activities for the three monthsended March 31, 2007 and 2006 was $76.9 million and $57.6 millionand was primarily for capital expenditures. These expenditures principallyconstituted purchases of customer premise equipment, installation labor andmaterials and capitalized labor, all of which are necessary to grow ourcustomer base and expand our service offerings. The increase in capitalexpenditures was driven primarily by increases in customer premise equipmentpurchases and installation labor and material expenditures.

Cash used in financing activities for the three monthsended March 31, 2007 and 2006 was $25.4 million and $20.9 million.These expenditures were primarily for the repayment of our credit facility.

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Free Cash Flow forthe three months ended March 31, 2007 totaled $16.8 million, comparedto $28.9 million for the three months ended March 31, 2006. Thisdecrease in Free Cash Flow from March 31, 2006 to March 31, 2007 of$12.1 million was primarily driven by the following:

·       A$30.7 million increase in cash interest expense paid primarily driven bythe refinancing of our credit facility in the fourth quarter of 2006. We payinterest quarterly on the new credit facility and paid interest semi-annually(in Q2 and Q4) on the bonds it refinanced. Additionally, in February 2007,interest on the 121⁄4% Senior Discount Notes was paid in cash whereas in February 2006it was paid-in-kind; and

·       A$19.3 million increase in capital expenditures.

These increaseduses of cash were offset by:

·       A$20.5 million increase in the generation of Free Cash Flow over the sameperiod in the prior year from changes in working capital accounts; and

·       A$17.1 million increase in Adjusted Operating Income before Depreciationand Amortization.

We believe that the Insight Midwest Holdings creditfacility, cash on-hand and our cash flow from operations are sufficient tosupport our current operating plan. For the three months ended March 31,2007 and 2006 we had positive Free Cash Flow. As of March 31, 2007 we hadthe ability to draw upon $174.7 million of unused availability under theInsight Midwest Holdings credit facility to fund any shortfall resulting fromthe inability of Insight Midwest’s cash from operations to fund its capitalexpenditures, meet its debt service requirements or otherwise fund itsoperations. We expect to use any available Free Cash Flow to repay ourindebtedness.

On October 6, 2006, Insight Midwest Holdingsentered into a new $2.445 billion senior secured credit facility for thepurpose of reducing its interest expense and near term debt amortizations. Thefacility is comprised of a $385.0 million A Term Loan scheduled to matureon October 6, 2013, a $1.8 billion B Term Loan scheduled to mature onApril 6, 2014 and $260.0 million in revolving commitments scheduledto terminate on October 6, 2012. The proceeds were used to refinanceInsight Midwest Holdings’ existing senior credit facility and to redeem all$630.0 million outstanding principal amount of Insight Midwest’s 101⁄2%Senior Notes due November 1, 2010 at a redemption price of 103.5% of theprincipal amount and $185.0 million principal amount of Insight Midwest’s total outstanding $385.0 millionof the 93⁄4% Senior Notes due October 1, 2009 at a redemption price of101.625% of the principal amount redeemed, plus accrued and unpaid interest.

On February 12, 2007, the Insight MidwestHoldings credit facility was amended to reduce the applicable margin withrespect to the $1.8 billion B Term Loan facility by 25 basis points,or 0.25%.

On April 1, 2007, Insight Midwest’s partnershipagreement was amended, and we agreed with Comcast on a division of InsightMidwest’s assets and liabilities. Upon completion of the transaction, we willown 100% of Insight Midwest’s cable systems serving customers in Louisville,Lexington, Bowling Green and Covington, Kentucky, in Evansville, Indiana, and inColumbus, Ohio, and Comcast will own 100% of Insight Midwest’s cable systemsserving customers in Rockford/Dixon, Quincy/Macomb, Springfield, Peoria andChampaign/Urbana, Illinois and in Bloomington, Anderson, Lafayette and Kokomo,Indiana. Pending completion of the transaction, we will continue to serve asgeneral partner and control and manage all of the cable systems of InsightMidwest and will continue to include the results of Insight Midwest in ourconsolidated financial statements. In conjunction with the division of assetsand liabilities, the Insight systems group was initially allocatedapproximately $1,259.6 billion of the partnership’s debt and the Comcastsystems group was initially allocated approximately $1,335.4 billion ofthe partnership’s debt. The closing is subject to closing conditions, includinglocal governmental approvals and regulatory approvals, and is expected to becompleted by the end of 2007.

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The credit facilityhas been structured to survive the division of Insight Midwest, subject tocertain conditions, including:

·       proforma financial covenant compliance upon consummation of the division;

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

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

Subject to pro forma financial covenant compliance, anycash received as a result of the division may be applied, at our option, to: (a) repaythe remaining 93⁄4% senior notes, (b) repay the 121⁄4% senior discount notes, (c) repaythe $100.0 million intercompany note, (d) prepay the Term Loans on apro rata basis, (e) repay other debt and/or (f) for general corporatepurposes. After the occurrence of the division, the margin with respect to theTerm Loan B will increase by 50 basis points, or 0.50%, if and for so long asthe Insight Midwest Holdings’ leverage ratio exceeds 6.50:1.00. Upon theoccurrence of the division, the maximum leverage permitted will increase by0.50:1.00.

We have a substantial amount of debt. Our high levelof debt could have important consequences. Our investments in our operatingsubsidiaries, including Insight Midwest, constitute substantially all of ouroperating 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 March 31, 2007 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 March 31, 2007, including periods in which therelated payments are due (unaudited, in thousands):

| ** **              | ** ** | **Contractual Obligations** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **Long-Term Debt**          | ** ** | **Operating Leases** | ** ** | **Total** | ** ** |
| 2007                    |       |                             | $          | — |   |   |   | $ | 3,391 |   |   | $ | 3,391 |   |
| 2008                    |       |                             | 9,312      |   |   |   | 3,787 |   |   | 13,099 |   |
| 2009                    |       |                             | 242,063    |   |   |   | 2,782 |   |   | 244,845 |   |
| 2010                    |       |                             | 61,313     |   |   |   | 843 |   |   | 62,156 |   |
| 2011                    |       |                             | 430,562    |   |   |   | 374 |   |   | 430,936 |   |
| Thereafter              |       |                             | 2,067,750  |   |   |   | 2,019 |   |   | 2,069,769 |   |
| Total cash  obligations |       |                             | $          | 2,811,000 |   |   |   | $ | 13,196 |   |   | $ | 2,824,196 |   |

 

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

Our revolving credit and term loan agreements bearinterest at floating rates. Accordingly, we are exposed to potential lossesrelated to changes in interest rates. In order to manage our exposure tointerest rate risk, we enter into derivative financial instruments, typicallyinterest rate swaps. The counter-parties to our swap agreements are 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% senior notes and 121⁄4% seniordiscount notes was $567.8 million and $550.0 million as of March 31, 2007. 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 March 31, 2007, the cost, if terminated, ofour interest rate swap 

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agreementswas $317,000 and is reflected in our financial statements as other non-currentliabilities. Changes in the fair value of our interest rate derivativefinancial instruments are either recognized in income or in stockholders’equity as a component of other comprehensive income (loss) depending on whetherthe derivative financial instruments qualify for hedge accounting.

**Item 4. Controlsand Procedures**

Under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief FinancialOfficer, we evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934) as of March 31, 2007. Based upon thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures were effective as of March 31,2007.

There has not been any change in our internal controlover financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)under the Exchange Act) during the quarter ended March 31, 2007 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

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**PART II. OTHERINFORMATION**

**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, 2006.

**Item 2. UnregisteredSales of Equity Securities and Use of Proceeds**

During the three monthsended March 31, 2007, weissued 107,500 shares of Series E Non-voting common stock and 3,420 sharesof Series F Non-voting common stock to certain of our employees. Theissuances of non-voting common stock were not registered under the SecuritiesAct of 1933 because such issuances were offered and sold in transactions notinvolving a public offering, and therefore exempt from registration under theSecurities Act of 1933 pursuant to Section 4(2).

**Item 6. Exhibits**

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

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
| Date:  May 15,  2007 |   | INSIGHT COMMUNICATIONS COMPANY, INC. |
|--------------------------------|--------|--------------------------------------|
|                           |   | By:                                  |   |  /s/ JOHN  ABBOT |   |
|                           |   |                                 |   | John Abbot |
|                           |   |                                 |   | Executive Vice President and Chief Financial Officer |
|                           |   |                                 |   | (Principal Financial Officer) |

 

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