**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

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**FORM 10-Q/A**

**(Amendment No. 1)**

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

**F****or the Quarterly Period EndedMarch 31, 2007**

**Commissionfilenumber 0-26677**

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**INSIGHT COMMUNICATIONS COMPANY, INC.**(Exact name of registrant as specified in its charter)

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

 

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

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

(Note: As a voluntaryfiler, not subject to the filing requirements, the registrant filed all reportsunder Section 13 or 15(d) of the Exchange Act during the preceding 12months.)

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   Accelerated filer o   Non-accelerated filer x

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

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

 

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**TABLEOF CONTENTS**
| Explanatory Note                                                                                                                        |       | 2  |       |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|----|------------|
| PART I                                                                                                                             | ** ** | 3  | ** ** |
| ITEM  1. Financial Statements                                                                                                           |       | 3  |       |
| ITEM 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations       |       | 15 |       |
| ITEM 4. Controls and Procedures                                                                                                         |       | 22 |       |
| PART II                                                                                                                            | ** ** | 24 | ** ** |
| ITEM 6. Exhibits                                                                                                                        |       | 24 |       |
| SIGNATURES                                                                                                                              |       | 25 |       |

 

1

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**Explanatory Note**

We are filing this Amendment No. 1 to ourquarterly report on Form 10-Q for the period ended March 31,2007, originally filed with the Securities and Exchange Commission on May 15,2007, to amend and restate our consolidated financial statements for the threemonth periods ended March 31, 2007 and 2006.

We identified an error in our accounting for non-cashincome tax expense and deferred income taxes. The correction relates to the taximpact of intangible assets arising from certain business combinations,primarily tax-deductible franchise costs, which is amortized as an expense fortax purposes over 15 years but has not been amortized for financial reportingpurposes since the adoption of SFAS No. 142 “Goodwill and Other IntangibleAssets,” on January 1, 2002. We record deferred income tax expense and adeferred tax liability related to the tax-deductible franchise costs. However,in preparing our financial statements, we historically had netted the deferredtax liability related to franchise costs against deferred tax assets (primarilyrelating to our net operating loss carryforwards) and provided a valuationallowance on the net deferred tax asset balance. Because the deferred taxliability related to franchise costs could have an indefinite life, it shouldnot have been netted against deferred tax assets when determining the requiredvaluation allowance. As a result, we did not record the appropriate valuationallowance and related deferred income tax expense. The deferred tax liabilitydescribed above should have remained on our balance sheet indefinitely unlessthere were an impairment of franchise costs for financial reporting purposes orthe related business entity were disposed of through a sale or otherwise.

Our prior accounting treatment resulted in anunderstatement of deferred income tax expense, the related deferred taxliability and goodwill. This resulted in our understatement of net loss in theamount of $1.9 million for each of the three months ended March 31,2007 and 2006, in our consolidated financial statements. In addition, goodwillshould have been higher by $115.6 million as of March 31, 2007. Thecorrection had no effect on our revenues, operating income, cash flows orliquidity for any period.

A summary of the effects of this change on ourconsolidated balance sheets as of March 31, 2007 and December 31,2006, and our consolidated statements of operations and cash flows for thethree months ended March 31, 2007 and 2006 is included in Note 2, “Restatementof Consolidated Financial Statements,” located in the notes to our consolidatedfinancial statements elsewhere in this quarterly report amendment.

The following informationhas been updated to give effect to the restatement. In accordance with Rule 12b-15under the Securities Exchange Act of 1934, as amended, the complete text ofeach amended item is set forth in this report, even though much of thedisclosure in the restated items has not changed. The disclosure in thisquarterly report amendment supersedes and replaces the correspondingdisclosures in our quarterly report on Form 10-Q for the three monthperiods ended March 31, 2007 and 2006.

**Part I**

**Item 1—*Financial Statements***

**Item 2—*Management’s Discussionand Analysis of Financial Condition and Results of Operations***

**Item 4—*Controls and Procedures***

2

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**PART I.    FINANCIAL INFORMATION**

**Item 1.**                        FinancialStatements

The accompanying unaudited consolidated financialstatements have been prepared in accordance with the requirements of Form 10-Qand, therefore, do not include all information and footnotes required byaccounting principles generally accepted in the United States. However, in ouropinion, all adjustments, consisting of normal recurring accruals, necessaryfor a fair presentation of the results of operations for the relevant periodshave been made. Results for the interim periods are not necessarily indicativeof the results to be expected for the year. These financial statements shouldbe read in conjunction with the summary of significant accounting policies andthe notes to the restated consolidated financial statements included in ourannual report on Form 10-K/A for the year ended December 31,2006, which reflects the restatement discussed in the “Explanatory Note” aboveand was filed August 15, 2007.

3

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**INSIGHT COMMUNICATIONSCOMPANY, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(dollarsin thousands, except share and per share amounts)**
|                                                                                                                                               | ** ** | **March 31,**   | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                                                                                                                                    | ** ** | **2007**             | ** ** | **2006**              | ** ** |
| ** **                                                                                                                                    | ** ** | **As restated** | ** ** | **As restated**  | ** ** |
| ** **                                                                                                                                    | ** ** | **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                                                                                                                                      |       | 187,982              |       |                  | 187,982    |   |   |
| 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                                                                                                                                  |       | $                    | 3,800,654  |                  |       | $ | 3,813,656 |   |   |

 

See accompanying notes

4

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

| ** **                                                                                                                                                   | ** ** | **March 31,**   | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                   | ** ** | **2007**             | ** ** | **2006**              | ** ** |
| ** **                                                                                                                                                   | ** ** | **As restated** | ** ** | **As restated**  | ** ** |
| ** **                                                                                                                                                   | ** ** | **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  |   |   |
| Deferred tax  liability                                                                                                                                      |       | 214,557              |       |                  | 212,648    |   |   |
| 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                                                                                                                                         |       | (478,966             | )          |                  | (478,861   | ) |   |
| Accumulated other  comprehensive income (loss)                                                                                                               |       | (317                 | )          |                  | 306        |   |   |
| Total stockholders’ equity                                                                                                                              |       | 348,269              |       |                  | 348,607    |   |   |
| Total liabilities  and stockholders’ equity                                                                                                             |       | $                    | 3,800,654  |                  |       | $ | 3,813,656 |   |   |

 

See accompanying notes

5

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**INSIGHTCOMMUNICATIONS COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(unaudited)**

**(dollarsin thousands)**

| ** **                                                                                                                                                                                                                               | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                               | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                                                                                                                                                                                               | ** ** | **As restated**                             | ** ** | **As restated** | ** ** |
| 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                                                                                                                                                                                                              |       |                                             | (2,030     | ) |   |   | (1,989 | ) |   |
| Net loss                                                                                                                                                                                                                                 |       |                                             | $          | (105 | ) |   |   | $ | (12,728 | ) |   |

 

See accompanying notes

6

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**INSIGHT COMMUNICATIONSCOMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(unaudited)**

**(dollarsin thousands)**

| ** **                                                                       | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                                       | ** ** | **As restated**                             | ** ** | **As restated** | ** ** |
| **Operating activities:**                                                        | ** ** |                                             | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net loss                                                                         |       |                                             | $          | (105 | ) |   |   | $ | (12,728 | ) |   |
| Adjustments to  reconcile net 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 |   |   |
| Deferred income taxes                                                            |       |                                             | 1,909      |   |   |   | 1,909 |   |   |
| 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

7

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

**1.   Organizationand Basis of Presentation**

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.

Our consolidated financialstatements have been restated to correct the previously reported income taxprovision which is more fully described in Note 2, “Restatement of ConsolidatedFinancial Statements”.

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% ofInsight Midwest’s cable systems serving customers in Rockford/Dixon,Quincy/Macomb, Springfield, Peoria and Champaign/Urbana, Illinois and inBloomington, Anderson, Lafayette and Kokomo, Indiana. Pending completion of thetransaction, we will continue to serve as general partner and control andmanage all of the cable systems of Insight Midwest and will continue to includethe results of Insight Midwest in our consolidated financial statements. Inconjunction with the division of assets and liabilities, the Insight systemsgroup was initially allocated approximately $1,259.6 billion of thepartnership’s debt and the Comcast systems group was initially allocatedapproximately $1,335.4 billion of the partnership’s debt. The closing issubject to closing conditions, including local governmental approvals andregulatory approvals, and is expected to be completed by the end of 2007 (seeNote 9 “Minority and Preferred Interests”).

**2.   Restatementof Consolidated Financial Statements**

We identified an error inour accounting for non-cash income tax expense and deferred taxes. Thecorrection relates to the tax impact of intangible assets arising from certainbusiness combinations, primarily tax-deductible franchise costs, which isamortized as an expense for tax purposes over 15 years but has not beenamortized for financial reporting purposes since the adoption of SFAS No. 142“Goodwill and Other Intangible Assets,” on January 1, 2002. We recorddeferred income tax expense and a deferred tax liability related to thetax-deductible franchise costs. However, in preparing the financial statements,we historically had netted the deferred tax liability related to franchise costsagainst deferred tax assets (primarily related to our net operating losscarryforwards) and provided a valuation allowance on the net deferred tax assetbalance. Because the deferred tax liability related to franchise costs couldhave an indefinite life, it should not have been netted against deferred taxassets when determining the required valuation allowance.

As a result, we did notrecord the appropriate valuation allowance and related deferred income taxexpense. The deferred tax liability described above should have remained on ourbalance sheet indefinitely 

8

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

**2.**   Restatement of Consolidated Financial Statements(Continued)

unlessthere were an impairment of franchise costs for financial reporting purposes orthe related business entity were disposed of through a sale or otherwise.

Our prior accounting treatment resulted in anunderstatement of deferred income tax expense, the related deferred taxliability and goodwill. This resulted in our understatement of net loss in theamount of $1.9 million for each of the three months ended March 31,2007 and 2006, in our consolidated financial statements. In addition, goodwillshould have been higher by $115.6 million as of March 31, 2007. Thecorrection had no effect on our revenues, operating income, cash flows orliquidity for any period.

Theeffects of this change on the consolidated balance sheets as of March 31,2007 and December 31, 2006, and the consolidated statements of operationsand cash flows for the three months ended March 31, 2007 and 2006 aresummarized as follows (in thousands).

| ** **                       | ** ** | **Consolidated Balance Sheets** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| ** **                       | ** ** | **As Previously  Reported**          | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| As of  March 31, 2007       |       |                                      |       |   |   |   |   |   |   |   |   |
| Goodwill                         |       |                                      | $          | 72,430 |   |   |   | $ | 115,552 |   |   | $ | 187,982 |   |
| Deferred tax liability           |       |                                      | —     |   |   |   | 214,557 |   |   | 214,557 |   |
| Accumulated deficit              |       |                                      | (379,961   | ) |   |   | (99,005 | ) |   | (478,966 | ) |
| Total stockholders’ equity  |       |                                      | 447,274    |   |   |   | (99,005 | ) |   | 348,269 |   |
| As of  December 31, 2006    |       |                                      |       |   |   |   |   |   |   |   |   |
| Goodwill                         |       |                                      | $          | 72,430 |   |   |   | $ | 115,552 |   |   | $ | 187,982 |   |
| Deferred tax liability           |       |                                      | —     |   |   |   | 212,648 |   |   | 212,648 |   |
| Accumulated deficit              |       |                                      | (381,765   | ) |   |   | (97,096 | ) |   | (478,861 | ) |
| Total  stockholders’ equity |       |                                      | 445,703    |   |   |   | (97,096 | ) |   | 348,607 |   |

 

| ** **                              | ** ** | **Consolidated Statements of Operations** | ** ** |
|-----------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                              | ** ** | **As Previously  Reported**                         | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Three Months  Ended March 31, 2007 |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes              |       |                                                     | $          | (121 | ) |   |   | $ | (1,909 | ) |   |   | $ | (2,030 | ) |   |
| Net income (loss)                       |       |                                                     | 1,804      |   |   |   | (1,909 | ) |   |   | (105 | ) |   |
| Three Months  Ended March 31, 2006 |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes              |       |                                                     | $          | (80 | ) |   |   | $ | (1,909 | ) |   |   | $ | (1,989 | ) |   |
| Net loss                                |       |                                                     | (10,819    | ) |   |   | (1,909 | ) |   |   | (12,728 | ) |   |

 

| ** **                              | ** ** | **Consolidated Statements of Cash Flows** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                              | ** ** | **As Previously  Reported**                              | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Three Months  Ended March 31, 2007 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                       |       |                                                          | $          | 1,804 |   |   |   | $ | (1,909 | ) |   |   | $ | (105 | ) |   |
| Deferred income taxes                   |       |                                                          | —     |   |   |   | 1,909 |   |   |   | 1,909 |   |   |
| Three Months  Ended March 31, 2006 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                                |       |                                                          | $          | (10,819 | ) |   |   | $ | (1,909 | ) |   |   | $ | (12,728 | ) |   |
| Deferred income  taxes                  |       |                                                          | —     |   |   |   | 1,909 |   |   |   | 1,909 |   |   |

 

9

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

**3.   Responsibilityfor Interim 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 restated consolidated financial statements andnotes to consolidated financial statements contained in our annual report on Form 10-K/Afor the year ended December 31, 2006, which reflects the restatementdiscussed above and was filed August 15, 2007.

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 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.

**4.   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**Uncertaintyin Income Taxes* (“FIN 48”). FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementin accordance with SFAS No. 109, *Accounting for IncomeTaxes* (“SFAS 109”). This interpretation prescribes a comprehensivemodel for the financial statement recognition, measurement, presentation anddisclosure of uncertain tax positions taken or expected to be taken in anincome tax return. FIN 48 also provides guidance on derecognition of taxbenefits, classification on the balance sheet, interest and penalties,accounting in interim periods, disclosure and transition.

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

10

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**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 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 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 theequity issuance agreement, a portion of the monthly programming fees representour equity investment in Oxygen. In October 2006, in connection with theextension of the carriage term, Oxygen issued shares to us of common stockrepresenting a value as of December 31, 2005 of $5.8 million in fullsatisfaction of its obligation to issue equity to us under the equity issuanceagreement. We are accounting for our investment in Oxygen under the cost method.As of March 31, 2007 and December 31, 2006, our carrying value inthis investment was $5.8 million.

**6.   FixedAssets**

| ** **                                       | ** ** | **March 31,**      | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2007**                | ** ** | **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 depreciation expense of $68.4 millionand $62.9 million for the three months ended March 31, 2007 and 2006.

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

**7.   Debt**

| ** **                                    | ** ** | **March 31,**      | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **2007**                | ** ** | **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 |   |   |

 

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

Insight Midwest Holdings, LLC, a wholly owned subsidiaryof Insight Midwest, holds all of the outstanding equity of each of ouroperating subsidiaries, and on October 6, 2006, entered into a new$2.445 billion senior secured credit facility. The facility is comprisedof a $385.0 million A Term Loan scheduled to mature on October 6,2013, a $1.8 billion B Term Loan scheduled to mature on April 6,2014 and $260.0 million in revolving commitments scheduled to terminate onOctober 6, 2012. Insight Midwest Holdings used the proceeds to refinanceits existing senior credit facility and to redeem a portion of the outstandingSenior Notes of Insight Midwest. As of March 31, 2007 we were incompliance with the credit facility’s covenant requirements.

On March 28, 2002, weloaned $100.0 million to Insight Midwest. The loan to Insight Midwestbears annual interest of 9%, compounded semi-annually, has a scheduled maturitydate of January 31, 2011 and permits prepayments. Insight Midwest Holdingsis permitted 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$100.0 million loan, including accrued interest was $134.6 millionand $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 Discount Notes are scheduled to mature in February 2001and contain certain financial and other debt covenants. As of March 31,2007, we were in compliance with all covenant requirements.

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

**7.**   Debt (Continued)

***Debt Principal Payments***

As of March 31, 2007, the remaining principalpayments required on our debt were as follows (in thousands):

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

 

**8.   DerivativeInstruments**

We enter into derivative instruments, typicallyinterest-rate swap agreements, to modify the interest characteristics of ouroutstanding debt to either a floating or fixed rate basis. These agreementsinvolve fixed rate interest payments in exchange for floating rate interestreceipts, known as cash flow hedges, and floating rate interest payments inexchange for fixed rate interest receipts, known as fair value hedges, over thelife of the agreement without an exchange of the underlying principal amount. 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 related to cash flow hedges that aredetermined to be effective hedges are recorded as accumulated othercomprehensive income or loss in the accompanying consolidated balance sheets. Gainsand losses related to fair value hedges that are determined to be effectivehedges are recorded in the consolidated statements of operations as anadjustment to the swap instrument and an equal and offsetting adjustment to thecarrying value of the underlying debt. Gains and losses related to interestrate swaps that are determined not to be effective hedges and do not qualifyfor hedge accounting are recorded in our consolidated statements of operationsas other income or expense.

**Cash Flow Hedges**

In October 2006, we enteredinto two interest rate swap agreements that were determined to be effectivecash 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 and December 31, 2006 theestimated fair value (cost if terminated) of these interest rate swapagreements were approximately ($317,000) and $306,000.

**9.**   Minorityand Preferred Interests

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

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

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

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 disclosurein connection with the proposed division of assets and liabilities of thepartnership).

**10.   RelatedParty Transactions**

***Programming***

We purchase the majority of our programming throughaffiliates of Comcast Cable. Charges for such programming, including a 11⁄2%administrative fee, were $51.4 million and $43.1 million for thethree months ended March 31, 2007 and 2006. As of March 31, 2007 and December 31,2006, $34.0 million and $30.7 million of accrued programming costswere due to affiliates of Comcast Cable. We believe that the programming ratescharged through these affiliates are lower than those available fromindependent parties. Upon the completion of the division of assets andliabilities of Insight Midwest described in Note 1, we will no longer havethe right to purchase programming services for our systems through thisaffiliate arrangement.

**11.   Commitmentsand Contingencies**

***Programming Contracts***

We enter into long-term contracts with third partieswho provide us with programming for distribution over our cable televisionsystems. These programming contracts are a significant part of our business andrepresent a substantial portion of our operating costs. Since future fees undersuch contracts are based on numerous variables, including number and type ofcustomers, we have not recorded any liabilities 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

The following discussionand analysis has been revised only to reflect and update disclosures for therestatement of our historical consolidated financial results, as more fullydescribed in the “Explanatory Note” and Note 2, “Restatement of ConsolidatedFinancial Statements,” located in the notes to our consolidated financialstatements included with this amended report. Accordingly, the only changes areto the Net income (loss) line under “Overview”, the Net income (loss) andProvision for income taxes line items in the table under “Reconciliation of NetLoss to Adjusted Operating Income before Depreciation and Amortization” and anadditional disclosure on our income tax provision.

**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. However, there may be events in thefuture that we are not able to accurately predict or over which we have nocontrol. The risk factors listed in our Annual Report on Form 10-Kfor the year ended December 31, 2006, 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 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 

15

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advertising, providingtelephone services and commissions for products sold through home shoppingnetworks.

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.

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 (in thousands):

| ** **                                 | ** ** | **Three Months  Ended March 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                 | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                 | ** ** | **(unaudited)**                                  | ** ** |
| ** **                                 | ** ** | **As restated**                             | ** ** | **As restated** | ** ** |
| 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 loss                                   |       |                                             | (105       | ) |   |   | (12,728 | ) |   |
| 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.

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

Free Cash Flow is net cash provided by operatingactivities (as defined by accounting principles generally accepted in theUnited States) less capital expenditures. Free Cash Flow is considered to be animportant indicator of our liquidity, including our ability to repayindebtedness. We believe Free Cash Flow is useful for investors 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 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 for purposes of the discussions that follow(in thousands).

| ** **                                                      | ** ** | **Three Months  Ended March 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                      | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                      | ** ** | **(unaudited)**                                  | ** ** |
| ** **                                                      | ** ** | **As restated**                             | ** ** | **As restated** | ** ** |
| Net loss                                                        |       |                                             | $          | (105 | ) |   |   | $ | (12,728 | ) |   |
| Provision for  income taxes                                     |       |                                             | 2,030      |   |   |   | 1,989 |   |   |
| 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)          Changesin working capital accounts are based on the net cash changes in current assetsand current liabilities, excluding charges related to interest and taxes andother non-cash expenses.

**Results 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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Revenueby service offering was as follows for the three 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 Customer Relationships were 1,426,300 as of March 31,2007, an increase of 49,500 from 1,376,800 as of March 31, 2006. TotalCustomer Relationships represent the number of customers who receive one ormore of our products (i.e., basic cable, high-speed Internet or telephone)without regard to which product they purchase.

In 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 revenueper basic customer was $84.86 for the three months ended March 31, 2007,compared to $77.60 for the three months ended March 31, 2006. Thisprimarily reflects the continued growth of high-speed Internet and videoproduct offerings in all markets, as well as video rate increases.

Programming and otheroperating costs increased $8.4 million, or 8%. Increases in programming rates,customers and the addition of new programming content were significant driversof the cost increase for the quarter ended March 31, 2007. For the quarterended March 31, 2006, programming costs reflected certain programmingcredits resulting from favorable resolution of pricing negotiations related tocertain prior period programming costs that were accrued at a higher rate thanthe amount actually paid. Programming credits for the quarter ended March 31,2007 were significantly lower, causing overall programming cost increases to begreater. Direct operating costs decreased due to decreases in our high-speedInternet services costs as the company, in 2006, transitioned its Internetservices in-house and realized both cost savings and operational benefits fromthis investment even while increasing our customer base. These decreases werepartially offset by an increase in telephone cost of service as we successfullyrolled out this product in eight previously unserved districts during thesecond half of 2006 and in January 2007.

Selling, general andadministrative expenses increased $12.5 million, or 16%, primarily due toincreased payroll, payroll-related costs and temporary help associated with anincrease in the number of 

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employeesand salary increases for existing employees. The increase in the number ofemployees represents investments in sales and marketing, customer care andinformation technology personnel to continue to upgrade and enhance our productofferings, manage our increasingly complex network and increase customersatisfaction. A portion of the information technology personnel increases weredirectly related to the transition of our Internet services in-house. Marketingexpenses increased over the prior year to support the continued rollout ofhigh-speed Internet, digital and telephone products, and to grow our core videocustomer base. Franchise fees, customer billing and collection fees increasedprimarily due to the increase in our revenues and our customer base.

Depreciation andamortization expense increased $5.0 million, or 8%, primarily as a result of anincreased level of capital expenditures through March 31, 2007. These expenditures wereprimarily for purchases of customer premise equipment, installation labor andmaterials, capitalized labor, headend equipment, network extensions and networkcapacity and bandwidth increases, all of which we consider necessary in orderto continue to maintain and grow our customer base and expand our serviceofferings. Partially offsetting this increase was a decrease in depreciationexpense related to certain assets that have become fully depreciated since March 31,2006.

As a result of the factorsdiscussed above, Adjusted Operating Income before Depreciation and Amortizationincreased $17.1 million to $129.3 million, an increase of 15% over the prioryear’s quarter.

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

The provision for incometaxes relates to franchise costs which are amortized as an expense for taxpurposes over 15 years but has not been amortized for financial reportingpurposes. The $41,000 increase relates to the change in non-income based statetaxes.

**Liquidity and Capital Resources**

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

Cash provided byoperations for the three months ended March 31, 2007 and 2006 was$93.7 million and $86.5 million. The increase was primarilyattributable to the timing of cash receipts and payments related to our workingcapital accounts and a decrease in our net loss. These increases were partiallyoffset by a decrease in interest payable because of the redemption of our 101¤2%senior notes and a portion of our 93¤4%senior notes and the refinancing of our credit facility in the fourth quarterof 2006.

Cash used in investingactivities for the three months ended March 31, 2007 and 2006 was$76.9 million and $57.6 million and was primarily for capital expenditures.These expenditures principally constituted purchases of customer premiseequipment, installation labor and materials and capitalized labor, all of whichare necessary to grow our customer base and expand our service offerings. Theincrease in capital expenditures was driven primarily by increases in customerpremise equipment purchases and installation labor and material expenditures.

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Cash used in financingactivities for the three months ended March 31, 2007 and 2006 was$25.4 million and $20.9 million. These expenditures were primarilyfor the repayment of our credit facility.

FreeCash Flow for the three months ended March 31, 2007 totaled $16.8 million,compared to $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 2006 it waspaid-in-kind; and

·       A$19.3 million increase in capital expenditures.

Theseincreased uses 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 theInsight Midwest Holdings credit facility, cash on-hand and our cash flow fromoperations are sufficient to support our current operating plan. For the threemonths ended March 31, 2007 and 2006 we had positive Free Cash Flow. As ofMarch 31, 2007 we had the ability to draw upon $174.7 million ofunused availability under the Insight Midwest Holdings credit facility to fundany shortfall resulting from the inability of Insight Midwest’s cash fromoperations to fund its capital expenditures, meet its debt service requirementsor otherwise fund its operations. We expect to use any available Free Cash Flowto repay our indebtedness.

On October 6, 2006,Insight Midwest Holdings entered into a new $2.445 billion senior securedcredit facility for the purpose of reducing its interest expense and near termdebt amortizations. The facility is comprised of a $385.0 million A TermLoan 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. Theproceeds were used to refinance Insight Midwest Holdings’ existing seniorcredit facility and to redeem all $630.0 million outstanding principalamount of Insight Midwest’s 101¤2% Senior Notesdue November 1, 2010 at a redemption price of 103.5% of the principalamount and $185.0 million principal amount of Insight Midwest’s total outstanding $385.0 million of the 93¤4% Senior Notes due October 1, 2009 at aredemption price of 101.625% of the principal amount redeemed, plus accrued andunpaid interest.

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

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% ofInsight Midwest’s cable systems serving customers in Rockford/Dixon,Quincy/Macomb, Springfield, Peoria and Champaign/Urbana, Illinois and inBloomington, Anderson, Lafayette and Kokomo, Indiana. Pending completion of thetransaction, we will continue to serve as general partner and control andmanage all of the cable systems of Insight Midwest and will continue to includethe results of Insight Midwest in our consolidated financial statements. Inconjunction with the division of assets and liabilities, the Insight systemsgroup was initially allocated approximately $1,259.6 billion of thepartnership’s debt and the Comcast systems group was initially allocatedapproximately $1,335.4 billion of the partnership’s debt. The closing issubject to closing conditions, including local governmental approvals andregulatory approvals, and is expected to be completed 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,any cash received as a result of the division may be applied, at our option,to: (a) repay the remaining 93¤4% seniornotes, (b) repay the 121¤4%senior discount notes, (c) repay the $100.0 million intercompany note, (d) prepaythe Term Loans on a pro rata basis, (e) repay other debt and/or (f) forgeneral corporate purposes. After the occurrence of the division, the marginwith respect to the Term Loan B will increase by 50 basis points, or 0.50%, ifand for so long as the Insight Midwest Holdings’ leverage ratio exceeds6.50:1.00. Upon the occurrence of the division, the maximum leverage permittedwill increase by 0.50:1.00.

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 4.**                        Controlsand Procedures

We have established disclosure controls and proceduresto ensure that information required to be disclosed in reports filed under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,processed, summarized and reported within time periods specified in theSecurities and Exchange Commission rules and forms and that informationrequired to be disclosed by us in the reports we file or submit under theExchange Act is accumulated and communicated to the officers who certify ourfinancial reports and to other members of senior management and the board ofdirectors to allow timely decisions regarding required disclosure.

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In connection with the restatement of our financialresults, which is more fully described in the “Explanatory Note” on page 2of this report and in Note 2 to our consolidated financial statements, under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer, we reevaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act) as of March 31, 2007. Based upon that reevaluation andparticularly in light of the restatement of our financial results, weidentified a material weakness in our internal control over financial reportingwith respect to accounting for income taxes relating to the treatment of taxdeductible franchise costs in the determination of the deferred tax assetvaluation allowance.

Solely as a result of this material weakness, weconcluded that our disclosure controls and procedures were not effective as of March 31,2007. Management hasdiscussed the circumstances leading up to the restatement with the AuditCommittee of our board of directors, and management and the Audit Committeehave concluded that the error was inadvertent and unintentional.

We are in the process of designing and implementingimprovements in our internal control over financial reporting to address thematerial weakness in accounting for income taxes. These improvements include,among other things, improved documentation and analysis regarding the temporarydifferences between financial and tax reporting, training individuals involvedin accounting and reporting for income taxes regarding these issues, andenhancing the documentation around conclusions reached in the implementation ofthe applicable generally accepted accounting principles.

There were not any changesin our internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended March 31,2007 that materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

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**PART II.   OTHERINFORMATION**

**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: August 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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