**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

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

**SECURITIES EXCHANGE ACT OF1934**

**For the Quarterly Period Ended March 31, 2006**

**CommissionFile Number 0-26677**

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**INSIGHT COMMUNICATIONS COMPANY, INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                     |   | **13-4053502**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (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 telephonenumber, including area code: **917-286-2300**

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

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

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

 

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

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

 

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**PART I.   FINANCIALINFORMATION**

**Item 1.   FinancialStatements**

The accompanying unaudited consolidated financialstatements have been prepared in accordance with the requirements of Form 10-Qand, therefore, do not include all information and footnotes required byaccounting principles generally accepted in the United States. However, in ouropinion, all adjustments, consisting of normal recurring accruals, necessaryfor a fair presentation of the results of operations for the relevant periodshave been made. Results for the interim periods are not necessarily indicativeof the results to be expected for the year. These financial statements shouldbe read in conjunction with the summary of significant accounting policies andthe notes to the consolidated financial statements included in our AnnualReport on Form 10-K for the year ended December 31, 2005.

1

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

| ** **                                                                                                                                        | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                        | ** ** | ***unaudited***          | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                        | * *   | * *                 | ** ** |                        | * *   | * * |   |
| Cash and cash equivalents                                                                                                                         |       | $                        | 37,883     |                        |       | $ | 29,782 | * * |   |
| Investments                                                                                                                                       |       | 6,158                    |       |                        | 5,901      | * * |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $998 and $1,079 as of  March 31, 2006 and December 31, 2005       |       | 17,577                   |       |                        | 27,261     | * * |   |
| Launch funds receivable                                                                                                                           |       | 587                      |       |                        | 974        | * * |   |
| Prepaid expenses and  other current assets                                                                                                        |       | 12,131                   |       |                        | 9,645      | * * |   |
| Total current assets                                                                                                                              |       | 74,336                   |       |                        | 73,563     | * * |   |
| Fixed assets, net                                                                                                                                 |       | 1,125,118                |       |                        | 1,130,705  | * * |   |
| Goodwill                                                                                                                                          |       | 72,430                   |       |                        | 72,430     | * * |   |
| Franchise costs                                                                                                                                   |       | 2,361,959                |       |                        | 2,361,959  | * * |   |
| Deferred financing costs,  net of accumulated amortization of $25,711 and $24,302 as of March 31,  2006 and December 31, 2005           |       | 22,815                   |       |                        | 24,220     | * * |   |
| Other non-current assets                                                                                                                          |       | 2,488                    |       |                        | 2,287      | * * |   |
| Total assets                                                                                                                                      |       | $                        | 3,659,146  |                        |       | $ | 3,665,164 | * * |   |
| **Liabilities and stockholders’ equity**                                                                                                     |       |                     |       |                        |       | * * |   |
| Accounts payable                                                                                                                                  |       | $                        | 34,241     |                        |       | $ | 42,333 | * * |   |
| Accrued expenses and  other current liabilities                                                                                                   |       | 39,472                   |       |                        | 45,413     | * * |   |
| Accrued property taxes                                                                                                                            |       | 16,188                   |       |                        | 12,921     | * * |   |
| Accrued programming costs  (inclusive of $29,877 and $29,878 due to related parties as of March 31,  2006 and December 31, 2005)        |       | 45,613                   |       |                        | 43,705     | * * |   |
| Deferred revenue                                                                                                                                  |       | 3,714                    |       |                        | 4,978      | * * |   |
| Interest payable                                                                                                                                  |       | 51,944                   |       |                        | 20,459     | * * |   |
| Debt—current portion                                                                                                                         |       | 83,500                   |       |                        | 83,500     | * * |   |
| Total current liabilities                                                                                                                         |       | 274,672                  |       |                        | 253,309    | * * |   |
| Deferred revenue                                                                                                                                  |       | 1,281                    |       |                        | 1,499      | * * |   |
| Debt                                                                                                                                              |       | 2,660,359                |       |                        | 2,676,418  | * * |   |
| Other non-current  liabilities                                                                                                                    |       | 4,047                    |       |                        | 2,382      | * * |   |
| Minority interest                                                                                                                                 |       | 248,506                  |       |                        | 251,011    | * * |   |
| 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,  2006 and December 31, 2005         |       | 8                        |       |                        | 8          | * * |   |
| Series B - 1,000,000  shares authorized; 517,836 shares issued and outstanding as of March 31,  2006 and December 31, 2005         |       | 5                        |       |                        | 5          | * * |   |
| Non-voting preferred stock, $.01 par value:                                                                                                       |       |                     |       |                        |       | * * |   |
| Series C -  15,000,000 shares authorized; 13,364,693 shares issued and outstanding as of  March 31, 2006 and December 31, 2005     |       | 134                      |       |                        | 134        | * * |   |
| Series D -  50,000,000 shares authorized; 47,015,659 shares issued and outstanding as of  March 31, 2006 and December 31, 2005     |       | 470                      |       |                        | 470        | * * |   |
| Non-voting common stock, $.01 par value:                                                                                                          |       |                     |       |                        |       | * * |   |
| Series E - 5,000,000  shares authorized; 3,665,747 and 0 shares issued and outstanding as of  March 31, 2006 and December 31, 2005 |       | 37                       |       |                        | -          | * * |   |
| Series F - 100,000  shares authorized; 92,470 and 0 shares issued and outstanding as of  March 31, 2006 and December 31, 2005      |       | 1                        |       |                        | -          | * * |   |
| Voting common stock, $.01 par value:                                                                                                              |       |                     |       |                        |       | * * |   |
| Series G -  10,000,000 shares authorized; 0 shares issued and outstanding as of  March 31, 2006 and December 31, 2005              |       | -                        |       |                        | -          | * * |   |
| Additional  paid-in-capital                                                                                                                       |       | 829,342                  |       |                        | 829,337    | * * |   |
| Accumulated deficit                                                                                                                               |       | (356,018                 | )          |                        | (345,199   | *)* |   |
| Deferred stock  compensation                                                                                                                      |       | (3,698                   | )          |                        | (4,210     | *)* |   |
| Total stockholders’  equity                                                                                                                  |       | 470,281                  |       |                        | 480,545    | * * |   |
| Total liabilities and stockholders’ equity                                                                                                   |       | $                        | 3,659,146  |                        |       | $ | 3,665,164 | * * |   |

 

See accompanying notes

2

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

| ** **                                                                                                                                                                                                                               | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                               | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Revenue                                                                                                                                                                                                                                  |       | $                                                | 301,281    |   | $ | 269,327 |   |
| Operating costs  and expenses:                                                                                                                                                                                                           |       |                                             |       |   |   |
| Programming and other operating costs (exclusive of  depreciation and amortization) (inclusive of $43,081 and $41,499 of  programming expense incurred through related parties for the three months  ended March 31, 2006 and 2005) |       | 109,585                                          |       | 98,583 |   |
| Selling, general and administrative (inclusive of  $550 and $1,907 of stock-based compensation as of March 31, 2006 and  December 31, 2005)                                                                                    |       | 79,995                                           |       | 65,081 |   |
| Depreciation and amortization                                                                                                                                                                                                            |       | 64,312                                           |       | 60,953 |   |
| Total operating  costs and expenses                                                                                                                                                                                                      |       | 253,892                                          |       | 224,617 |   |
| Operating income                                                                                                                                                                                                                         |       | 47,389                                           |       | 44,710 |   |
| Other income  (expense):                                                                                                                                                                                                                 |       |                                             |       |   |   |
| Interest expense                                                                                                                                                                                                                         |       | (61,075                                          | )          | (54,717 | ) |
| Interest income                                                                                                                                                                                                                          |       | 512                                              |       | 262 |   |
| Other income (expense)                                                                                                                                                                                                                   |       | (70                                              | )          | 128 |   |
| Total other  expense, net                                                                                                                                                                                                                |       | (60,633                                          | )          | (54,327 | ) |
| Loss before minority interest and income taxes                                                                                                                                                                                           |       | (13,244                                          | )          | (9,617 | ) |
| Minority interest  income                                                                                                                                                                                                                |       | 2,505                                            |       | 1,400 |   |
| Loss before income taxes                                                                                                                                                                                                                 |       | (10,739                                          | )          | (8,217 | ) |
| Provision for  income taxes                                                                                                                                                                                                              |       | (80                                              | )          | (125 | ) |
| Net loss                                                                                                                                                                                                                                 |       | $                                                | (10,819    | ) | $ | (8,342 | ) |

 

See accompanying notes

3

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

| ** **                                                                       | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| **Operating activities:**                                                        | * *   | * *                                         | * *   | * * | * * |
| Net loss                                                                         |       | $                                                | (10,819    | ) | $ | (8,342 | ) |
| Adjustments to reconcile  net loss to net cash provided by operating activities: |       |                                             |       |   |   |
| Depreciation and amortization                                                    |       | 64,312                                           |       | 60,953 |   |
| Stock-based compensation                                                         |       | 550                                              |       | 1,907 |   |
| Non-cash consulting expense                                                      |       | —                                           |       | 15 |   |
| Loss on interest rate swaps                                                      |       | 1,665                                            |       | 233 |   |
| Minority interest                                                                |       | (2,505                                           | )          | (1,400 | ) |
| Provision for losses on trade accounts receivable                                |       | 2,904                                            |       | 3,994 |   |
| Contribution of stock to 401(k) Plan                                        |       | —                                           |       | 956 |   |
| Amortization of note discount                                                    |       | 4,816                                            |       | 9,260 |   |
| Changes in  operating assets and liabilities:                                    |       |                                             |       |   |   |
| Trade accounts receivable                                                        |       | 6,780                                            |       | 8,446 |   |
| Launch funds receivable                                                          |       | 387                                              |       | 2,156 |   |
| Prepaid expenses and other assets                                                |       | (2,710                                           | )          | (4,623 | ) |
| Accounts payable                                                                 |       | (8,092                                           | )          | (6,818 | ) |
| Interest payable                                                                 |       | 31,485                                           |       | 7,375 |   |
| Accrued expenses and other liabilities                                           |       | (2,248                                           | )          | 1,967 |   |
| Net cash provided  by operating activities                                       |       | 86,525                                           |       | 76,079 |   |
| **Investing activities:**                                                        |       |                                             |       |   |   |
| Purchase of fixed assets                                                         |       | (57,629                                          | )          | (38,725 | ) |
| Sale of fixed assets                                                             |       | 336                                              |       | — |   |
| Purchase of investments                                                          |       | (257                                             | )          | (163 | ) |
| Net cash used in investing activities                                            |       | (57,550                                          | )          | (38,888 | ) |
| **Financing activities:**                                                        |       |                                             |       |   |   |
| Repayment of credit facilities                                                   |       | (20,875                                          | )          | (20,875 | ) |
| Other                                                                            |       | 1                                                |       | — |   |
| Net cash used in financing activities                                            |       | (20,874                                          | )          | (20,875 | ) |
| Net increase in  cash and cash equivalents                                       |       | 8,101                                            |       | 16,316 |   |
| Cash and cash  equivalents, beginning of period                                  |       | 29,782                                           |       | 100,144 |   |
| Cash and cash  equivalents, end of period                                        |       | $                                                | 37,883     |   | $ | 116,460 |   |

 

See accompanying notes

4

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

**1. Organization and Basisof Presentation**

Through our wholly owned subsidiary, InsightCommunications Company, L.P. (“Insight LP”), we own a 50% interest in InsightMidwest, L.P. (“Insight Midwest”), which through its operating subsidiaries,Insight Communications Midwest, LLC (“Insight Communications Midwest”), InsightKentucky Partners II, L.P. (“Insight Kentucky”) and Insight Communications ofCentral Ohio, LLC (“Insight Ohio”), owns and operates cable television systemsin Indiana, Kentucky, Ohio, and Illinois which passed approximately 2.4 millionhomes and served approximately 1.3 million customers as of March 31, 2006.

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

The accompanying consolidated financial statementsinclude our accounts and those of our wholly owned subsidiaries, Insight LP andInsight Cable Services, LLC. Reclassifications have been made to the prior year’sfinancial statements to conform to those classifications used in 2006.

**2. Responsibility forInterim Financial Statements**

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

In our opinion, the consolidated financial statementsreflect all adjustments considered necessary for a fair presentation of theconsolidated results of operations and financial position for the interimperiods presented. All such adjustments are of a normal recurring nature. Theseunaudited interim consolidated financial statements should be read inconjunction with the audited consolidated financial statements and notes toconsolidated financial statements contained in our Annual Report on Form 10-Kfor the year ended December 31, 2005.

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requires usto make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.The results of operations for the three months ended March 31, 2006 arenot necessarily indicative of the results to be expected for the year ending December 31,2006 or any other interim period.

**3. Recent AccountingPronouncements**

InDecember 2004, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. 123 (revised 2004),*Share-Based Payment*, (“SFAS 123R”). SFAS123R establishes the accounting for transactions in which an entity pays foremployee services in share-based payment transactions. SFAS 123R requirescompanies to recognize the cost of employee services received in exchange forawards of equity instruments, based on the grant date fair value of thoseawards, in the financial statements. The Company adopted SFAS 123R effective January 1,2006 using the modified-prospective transition method. Under this methodstock-based compensation is recognized for awards granted in the period afteradoption. Prior year financial statements are not restated. The adoption ofthis standard did not have a material impact on our consolidated financialstatements.

5

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

**3. RecentAccounting Pronouncements (Continued)**

In May 2005, FASB issued SFAS No. 154, *Accounting**Changes and ErrorCorrections*. SFAS No. 154 replaces Accounting Principles Board(“APB’’) Opinion No. 20, *Accounting Changes*,and SFAS No. 3, *Reporting AccountingChanges in Interim Financial Statements* and changes the requirementsfor the accounting for and reporting of a change in accounting principles. SFASNo. 154 applies to all voluntary changes in an accounting principle. Italso applies to changes required by an accounting pronouncement in the unusualinstance that the pronouncement does not include specific transitionprovisions. When a pronouncement includes specific provisions, those provisionsshould be followed. SFAS 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning in 2006.

**4. Stock-BasedCompensation**

For the threemonths ended March 31, 2006, the Company recorded $550,000 of stock-basedcompensation expense, which is included in selling, general and administrativeexpense, for the vesting of deferred shares and the issuance of Series E and Fnon-voting common stock.

Forthe three months ended March 31, 2005, the Company accounted forstock-based compensation under APB Opinion No. 25, *Accountingfor Stock Issued to Employees. *Compensationcost related to stock awards issued to employees was recorded only if thegrant-date market price of the underlying stock exceeded the exercise price. Thefollowing table summarizes relevant information as to our reported resultsunder the intrinsic value method of accounting for stock awards, withsupplemental information, as if a fair value method had been applied to allawards.

| ** **                                                                                     | ** ** | **Three Months  Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2005**                                         | ** ** |
| ** **                                                                                     | ** ** | **(in thousands)**                               | ** ** |
| Net loss                                                                                       |       |                                             | $          | (8,342 | ) |   |
| Stock-based  compensation as reported, net of tax                                              |       |                                             | 1,907      |   |   |
| Stock-based  compensation determined under fair value based method for all awards, net of  tax |       |                                             | (3,776     | ) |   |
| Adjusted net loss                                                                              |       |                                             | $          | (10,211 | ) |   |

 

**5. Investments**

***Promptu***

Promptu (formerly AgileTV Corporation) is a privatelyowned company that develops voice navigation services for television. On May 11,2005, we made an additional investment in Promptu by purchasing shares ofPromptu’s Series B1 preferred stock and common stock for an aggregatepurchase price of (i) approximately $900,000 in cash and (ii) approximately$300,000 in the form of conversion of an outstanding promissory note. We areaccounting for our investment in Promptu under the cost method. As of March 31, 2006 and December 31,2005, our carrying value 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. The term of the carriage agreementexpires on December 31, 2006.

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

**5. Investments (Continued)**

Concurrently with thecarriage agreement, we entered into an equity issuance agreement with Oxygen.The agreement calls for Oxygen to deliver to us shares having an aggregate fairmarket value as of December 31, 2005 of $3.8 million, and byDecember 1, 2006 deliver to us additional shares having an aggregate fairmarket value as of the December 31, 2005 valuation of $2.0 million. Pursuantto the equity issuance agreement, a portion of the monthly programming feesrepresent our equity investment in Oxygen. As of March 31, 2006 andDecember 31, 2005, our carrying value in this investment was $5.0 millionand $4.7 million. We and Oxygen are currently in the process of negotiating thefair market value of Oxygen which will be used to determine the number of sharesthat we will receive. As of March 31, 2006, no shares have been deliveredto us.

**6.Fixed Assets**

| ** **                                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| ** **                                       | ** ** | **(in thousands)** | ** ** |
| Land, buildings  and improvements                |       | $                  | 42,090     |                  | $          | 41,042 |   |
| Cable system  equipment                          |       | 2,453,723          |       | 2,398,364             |       |
| Furniture,  fixtures and office equipment        |       | 22,332             |       | 21,352                |       |
|                                             |       | 2,518,145          |       | 2,460,758             |       |
| Less: accumulated  depreciation and amortization |       | (1,393,027         | )          | (1,330,053            | )          |
| Total fixed  assets, net                         |       | $                  | 1,125,118  |                  | $          | 1,130,705 |   |

 

We recorded depreciationexpense of $62.9 million and $59.6 million for the three months endedMarch 31, 2006 and 2005.

**7. Debt**

| ** **                                    | ** ** | **March 31,**   | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **2006**             | ** ** | **2005**              | ** ** |
| ** **                                    | ** ** | ***(in thousands)*** | ** ** |
| Insight Midwest  Holdings Credit Facility     |       |                 | $          | 1,383,375             |       |   |   | $ | 1,404,250 |   |   |   |
| Insight Midwest  93⁄4% Senior Notes        |       |                 | 385,000    |                  |       |   | 385,000 |   |   |   |
| Insight Midwest  101⁄2% Senior Notes       |       |                 | 630,000    |                  |       |   | 630,000 |   |   |   |
| Insight Inc. 121⁄4%  Senior Discount Notes |       |                 | 350,000    |                  |       |   | 350,000 |   |   |   |
|                                          |       |                 | 2,748,375  |                  |       |   | 2,769,250 |   |   |   |
| Net unamortized  discount/premium on notes    |       |                 | (469       | )                     |       |   | (6,950 | ) |   |   |
| Market value of  interest rate swaps          |       |                 | (4,047     | )                     |       |   | (2,382 | ) |   |   |
| Total debt                               |       |                 | $          | 2,743,859             |       |   |   | $ | 2,759,918 |   |   |   |

 

***Insight Midwest Holdings $1.975 Billion Credit Facility***

Insight Midwest Holdings, LLC, a wholly ownedsubsidiary of Insight Midwest, holds all of the outstanding equity of each ofour operating subsidiaries and serves as borrower under a $1.975 billion creditfacility. On March 28, 2002, we loaned $100.0 million to Insight Midwest.The loan to Insight Midwest bears annual interest of 9%, compoundedsemi-annually, has a scheduled maturity date of January 31, 2011 andpermits prepayments.  Insight MidwestHoldings is permitted under the credit facility 

7

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

**7. Debt(Continued)**

to make distributions toInsight Midwest for the purpose of repaying our loan, including accruedinterest, provided that there are no defaults existing under the creditfacility. As of March 31, 2006 and December 31, 2005, the balance ofthe $100.0 million loan, including accrued interest was $142.2 million and$139.1 million.

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

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

***DebtPrincipal Payments***

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

| 2006       |   | $         | 62,625    |   |
|------------|--------|-----------|-----------|--------|
| 2007       |   | 83,500    |      |
| 2008       |   | 104,750   |      |
| 2009       |   | 1,517,500 |      |
| 2010       |   | 630,000   |      |
| Thereafter |   | 350,000   |      |
| Total      |   | $         | 2,748,375 |   |

 

**8. Derivative Instruments**

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

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

8

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

**8. DerivativeInstruments (Continued)**

***Fair Value Hedges***

In July 2003, we entered into three interest rateswap agreements whereby we swapped fixed rates under a tranche of our 101⁄2%senior notes due in December 2010 for variable rates equal to six-monthLIBOR, plus the applicable margin of approximately 8.3%, on $185.0 millionnotional value of debt. These agreements expired on November 1, 2005. Werecorded a loss on these swaps of $233,000 for the three months ended March 31,2005, which is included in other income (expense).

In December 2003, weentered into an interest rate swap agreement whereby we swapped fixed ratesunder a different tranche of our 101⁄2% senior notes due in December 2010for variable rates equal to six-month LIBOR, plus the applicable margin ofapproximately 5.9%, on $130.0 million notional value of debt. This agreementexpires November 1, 2010. This swap has been determined to be perfectlyeffective in hedging against fluctuations in the fair value of the underlyingdebt. As such, changes in the fair value of the underlying debt equally offsetchanges in the value of the interest rate swap in our consolidated statementsof operations. The cost, if terminated, of this swap as of March 31, 2006and December 31, 2005 was $4.0 million and $2.4 million and has beenrecorded in other non-current liabilities and as an adjustment to the carryingvalue of debt.

**9. Minority and PreferredInterests**

As of March 31, 2006 and December 31, 2005we had $248.5 million and $251.0 million of minority interests recorded in ourbalance sheet as temporary equity related to Insight Midwest.

The Insight Midwest partnership was formed in September 1999to serve as the holding company and a financing vehicle for our cabletelevision system 50/50 joint venture with an indirect subsidiary of AT&TBroadband (now known as Comcast Cable). The results of the partnership areincluded in our consolidated financial statements since we as general partnereffectively control Insight Midwest’s operating and financial decisions. Thepartnership will continue until October 1, 2011 unless extended orterminated earlier in accordance with the provisions of the Insight Midwestpartnership agreement.

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

**10. Related PartyTransactions**

***Programming***

We purchase the majorityof our programming through affiliates of Comcast Cable. Charges for suchprogramming, including a 11⁄2% administrative fee, were $43.1 million and $41.5million for the three months ended March 31, 2006 and 2005. As of March 31,2006 and December 31, 2005, $29.9 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.

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

**11. Commitments andContingencies**

***Programming Contracts***

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

***Litigation***

Between March 7 and March 15, 2005, fivepurported class action lawsuits were filed in the Delaware Court of Chancerynaming Insight Communications Company, Inc. and each of its directors asdefendants. Three of the lawsuits also named The Carlyle Group as a defendant.The cases were subsequently consolidated under the caption*In Re Insight Communications Company, Inc.Shareholders Litigation* (Civil Action No. 1154-N), and,on April 11, 2005, a Consolidated Amended Complaint (“Complaint”) wasfiled against each director and The Carlyle Group. The Complaint alleges, amongother things, that the defendant directors breached their fiduciary duties toour stockholders in connection with a proposal from Sidney R. Knafel, MichaelWillner, together with certain related and other parties, and The Carlyle Groupto acquire all of our outstanding, publicly-held Class A common stock. TheComplaint also alleges that the proposed transaction violated our Charter andthat The Carlyle Group aided and abetted the alleged fiduciary duty breaches.The Complaint seeks the certification of a class of our stockholders; adeclaration that the proposed transaction violates our Charter; an injunctionprohibiting the defendants from proceeding with the proposed transaction;rescission or other damages in theevent the proposed transaction isconsummated; an award of costs and disbursements including attorneys’fees; and other relief.

On July 28, 2005, the parties to the actionentered into a memorandum of understanding setting forth the terms of aproposed settlement of the litigation which, among other things, provides thatthe buyers shall proceed with the merger, subject to the terms and conditionsof the merger agreement including the “majority of the minority” stockholdervoting condition, and under which the defendants admit to no wrongdoing orfault. The memorandum of understanding contemplates certification of aplaintiff class consisting of all record and beneficial owners of our Class Acommon stock, other than the buyers, during the period beginning on andincluding March 6, 2005, through and including the date of theconsummation of the merger, a dismissal of all claims with prejudice, and arelease in favor of all defendants of any and all claims related to the merger.The proposed settlement is subject to a number of conditions, includingconsummation of the merger which closed on December 16, 2005, theplaintiffs’ approval of a definitive settlement agreement and final courtapproval of the settlement.

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. 

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

**11. Commitmentsand Contingencies (Continued)**

The final disposition ofthis claim is not expected to have a material adverse effect on ourconsolidated financial position but could possibly be material to ourconsolidated results of operations of any one period. Further, at this time theoutcome of the litigation is impossible to predict, and no assurance can begiven that any adverse outcome would not be material to our consolidatedfinancial position.

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

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

**CautionaryStatement Regarding Forward-Looking Information**

This quarterlyreport on Form 10-Q contains certain forward-looking statements withrespect to the financial condition, results of operations, plans, objectives,future performance and business of our company, including, without limitation,statements preceded by, followed by or that include the words “believes,” “expects,”“anticipates,” “estimates” or similar expressions. We believe it is importantto communicate management’s expectations to our investors. However, there maybe events in the future that we are not able to accurately predict or overwhich we have no control. The risk factors listed in our Annual Report on Form 10-Kfor the year ended December 31, 2005, as well as any other cautionarylanguage in this quarterly report, provide examples of risks, uncertainties andevents that may cause our actual results to differ materially from theexpectations we describe in our forward-looking statements. You should be awarethat the occurrence of the events described in these risk factors and elsewherein this quarterly report could have a material adverse effect on our business,operating results and financial condition. Examples of these risks include:

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

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

·       Thereis uncertainty surrounding the potential dissolution of our joint venture witha subsidiary of Comcast Corporation;

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

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

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

·       Generalbusiness conditions, economic uncertainty or slowdown, and the effects ofgovernmental regulation could adversely affect our future results 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, premium, digital and pay-per-viewservices and ancillary services, such as rental of converters and remotecontrol devices and installations. In addition, we earn revenues from providinghigh-speed Internet services, selling advertising, providing telephone servicesand commissions for products sold through home shopping networks.

Some of the principal reasons for our net lossesthrough March 31, 2006 include i) depreciation and amortization associatedwith capital expenditures for the construction, expansion and maintenance ofour systems, and, ii) interest costs on borrowed money. We expect to continueto report net losses for the foreseeable future. We cannot predict what impact,if any, continued losses will have on our ability to finance our operations inthe future.

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

| ** **                                 | ** ** | **Three Months  Ended March 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Revenue                                    |       | $                                                | 301,281    |   | $ | 269,327 |   |
| Operating costs  and expenses:             |       |                                             |       |   |   |
| Programming and other operating costs      |       | 109,585                                          |       | 98,583 |   |
| Selling, general and administrative        |       | 79,995                                           |       | 65,081 |   |
| Depreciation and amortization              |       | 64,312                                           |       | 60,953 |   |
| Total operating  costs and expenses        |       | 253,892                                          |       | 224,617 |   |
| Operating income                           |       | 47,389                                           |       | 44,710 |   |
| Interest expense                           |       | 61,075                                           |       | 54,717 |   |
| Minority interest  income                  |       | 2,505                                            |       | 1,400 |   |
| Net loss                                   |       | (10,819                                          | )          | (8,342 | ) |
| Net cash provided  by operating activities |       | 86,525                                           |       | 76,079 |   |
| Net cash used in  investing activities     |       | 57,550                                           |       | 38,888 |   |
| Net cash used in  financing activities     |       | 20,874                                           |       | 20,875 |   |
| Capital expenditures                       |       | 57,629                                           |       | 38,725 |   |
|                                            |            |                                                  |            |  |  |  |  |

 

**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 because it enables them to assess ourperformance in a manner similar to the methods used by our management andprovides a measure that can be used to analyze, value and compare companies inthe cable television industry, which may have different depreciation,amortization and stock-based compensation policies.

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

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

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

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

Thefollowing table reconciles Net Loss to Adjusted Operating Income beforeDepreciation and Amortization. In addition, the tableprovidesthe components from Net Loss to Operating Income for purposes of thediscussions that follow.

| ** **                                                      | ** ** | **Three Months  Ended March 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Net loss                                                        |       | $                                                | (10,819    | ) | $ | (8,342 | ) |
| Provision for  income taxes                                     |       | 80                                               |       | 125 |   |
| Loss before  income taxes                                       |       | (10,739                                          | )          | (8,217 | ) |
| Minority interest  income                                       |       | (2,505                                           | )          | (1,400 | ) |
| Loss before  minority interest and income taxes                 |       | (13,244                                          | )          | (9,617 | ) |
| Other (income) expense:                                         |       |                                             |       |   |   |
| Other                                                           |       | 70                                               |       | (128 | ) |
| Interest income                                                 |       | (512                                             | )          | (262 | ) |
| Interest expense                                                |       | 61,075                                           |       | 54,717 |   |
| Total other  expense, net                                       |       | 60,633                                           |       | 54,327 |   |
| Operating income                                                |       | 47,389                                           |       | 44,710 |   |
| Depreciation and  amortization                                  |       | 64,312                                           |       | 60,953 |   |
| Stock-based  compensation                                       |       | 550                                              |       | 1,907 |   |
| Adjusted Operating  Income before Depreciation and Amortization |       | $                                                | 112,251    |   | $ | 107,570 |   |

 

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

The following tableprovides a reconciliation from net cash provided by operating activities toFree Cash Flow. In addition, the table provides the components from net cashprovided by operating activities to operating income for purposes of thediscussions that follow.

| ** **                                                      | ** ** | **Three Months  Ended March 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Operating income                                                |       | $                                                | 47,389     |   | $ | 44,710 |   |
| Depreciation and amortization                                   |       | 64,312                                           |       | 60,953 |   |
| Stock-based compensation                                        |       | 550                                              |       | 1,907 |   |
| Adjusted  Operating Income before Depreciation and Amortization |       | 112,251                                          |       | 107,570 |   |
| Changes in working capital accounts(1)                          |       | (2,086                                           | )          | 6,728 |   |
| Cash paid for interest(2)                                       |       | (23,087                                          | )          | (38,082 | ) |
| Cash paid for taxes                                             |       | (553                                             | )          | (137 | ) |
| Net cash provided  by operating activities                      |       | 86,525                                           |       | 76,079 |   |
| Capital expenditures                                            |       | (57,629                                          | )          | (38,725 | ) |
| Free Cash Flow                                                  |       | $                                                | 28,896     |   | $ | 37,354 |   |

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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.

(2**)**          Interest for the first quarter of 2005 included bond interestpayments due April 1, 2005 that were made on March 31, 2005.  Had the payments been made on April 1, 2005,Free Cash Flow for the three months ended March 31, 2005 would have been$56,123.

**Results ofOperations**

***Three Months Ended March 31, 2006 Compared toThree Months Ended March 31, 2005***

Revenue for the three months ended March 31, 2006 totaled $301.3 million, anincrease of 12% over the prior year, due primarily to customer gains in allservices, as well as video rate increases. High-speed Internet service revenueincreased 34% over the prior year, which was attributable to an increasedcustomer base and was partially offset by lower average revenue per customerdue to promotional discounts. We added a net 44,400 high-speed Internetcustomers during the quarter to end at 514,800 customers. In addition, digitalservice revenue increased 19% over the prior year due to an increased customerbase. We added a net 41,700 digital customers during the quarter to end at560,500 customers.

Basic cable service revenue increased 7% due to anincreased customer base and video rate increases, partially offset bypromotional discounts. We are increasing customer growth and retention effortsby increasing spending on sales and marketing efforts, emphasizing bundling andenhancing and differentiating our video services by providing video-on-demand,high definition television and digital video recorders. We are also continuingto focus on improving customer satisfaction through higher service levels andincreased education of product offerings.

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

| ** **           | ** ** | **Revenue by Service Offering**   | ** ** | ** **                        | ** ** | ** **                                       | ** ** |
|----------------------|------------|--------------------------------------------------|------------|-----------------------------------|------------|--------------------------------------------------|------------|
| ** **           | ** ** | **Three Months  Ended  March 31,2006** | ** ** | **% of Total  Revenue** | ** ** | **Three Months  Ended  March 31,2005** | ** ** | **% of  Total  Revenue** | ** ** | ** ** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       |                                             | $          | 158,207                           |       |                                             |       | 52.5 | % |   |   | $ | 147,632 |   |   |   | 54.8 | % |   |   |   |   | 7.2 | % |   |
| High-Speed  Internet |       |                                             | 56,497     |                              |       |                                             | 18.8       | % |   |   | 42,113 |   |   |   | 15.6 | % |   |   |   |   | 34.2 | % |   |
| Digital              |       |                                             | 31,723     |                              |       |                                             | 10.5       | % |   |   | 26,761 |   |   |   | 9.9 | % |   |   |   |   | 18.5 | % |   |
| Advertising          |       |                                             | 17,697     |                              |       |                                             | 5.9        | % |   |   | 16,988 |   |   |   | 6.3 | % |   |   |   |   | 4.2 | % |   |
| Premium              |       |                                             | 13,394     |                              |       |                                             | 4.4        | % |   |   | 14,344 |   |   |   | 5.3 | % |   |   |   |   | -6.6 | % |   |
| Telephone            |       |                                             | 11,355     |                              |       |                                             | 3.8        | % |   |   | 7,732 |   |   |   | 2.9 | % |   |   |   |   | 46.9 | % |   |
| Franchise fees       |       |                                             | 7,354      |                              |       |                                             | 2.4        | % |   |   | 7,420 |   |   |   | 2.8 | % |   |   |   |   | -0.8 | % |   |
| Other                |       |                                             | 5,054      |                              |       |                                             | 1.7        | % |   |   | 6,337 |   |   |   | 2.4 | % |   |   |   |   | -20.2 | % |   |
| Total                |       |                                             | $          | 301,281                           |       |                                             |       | 100.0 | % |   |   | $ | 269,327 |   |   |   | 100.0 | % |   |   |   |   | 11.9 | % |   |

 

TotalCustomer Relationships were 1,376,800 as of March 31, 2006, an increase of49,700 from 1,327,100 as of March 31, 2005. Total Customer Relationshipsrepresent the number of customers who receive one or more of our products(i.e., basic cable, high-speed Internet or telephone) without regard to whichproduct they purchase. Total Revenue Generating Units (“RGUs”) which representthe sum of basic, digital, high-speed Internet and telephone customers, as of March 31,2006 increased 15% as compared to March 31, 2005. RGUs by category were asfollows (in thousands):

| ** **           | ** ** | **March 31, 2006** | ** ** | **March 31, 2005** | ** ** |
|----------------------|------------|------------------------------|------------|------------------------------|------------|
| Basic                |       |                         | 1,306.7    |                         |       |   | 1,271.4 |   |   |
| Digital              |       |                         | 560.5      |                         |       |   | 459.0 |   |   |
| High-speed  Internet |       |                         | 514.8      |                         |       |   | 367.8 |   |   |
| Telephone            |       |                         | 99.7       |                         |       |   | 68.6 |   |   |
| Total RGUs           |       |                         | 2,481.7    |                         |       |   | 2,166.8 |   |   |

 

Average monthly revenue per basic customer was $77.60for the three months ended March 31, 2006 compared to $70.58 for the threemonths ended March 31, 2005. This primarily reflects the continued growthof high-speed Internet and digital product offerings in all markets, as well asvideo rate increases.

Programming and other operating costs increased $11.0million, or 11%. Increases in customers and substantial increases inprogramming rates were partially offset by programming credits. The creditsresulted from favorable resolution of pricing negotiations related to certainprior period programming costs that were accrued at a higher rate than theamount actually paid. In addition, direct operating costs increased due to anincrease in our high-speed Internet service provider costs. This increase isprimarily attributable to the addition of 44,400 high-speed Internet customersand the payment of contractually obligated and other one-time transition coststo bring Internet services in house. Other operating costs increased primarilyas a result of increases in repair, maintenance and warranty costs; an increasein taxes due to a change in the tax law in Kentucky; and an increase ininstallation labor due to increased customer activity.

Selling, general and administrative expenses increased$14.9 million, or 23%, primarily due to increased payroll, payroll relatedcosts and temporary help, including an increase in the number of employees andsalary increases for existing employees. Marketing expenses increased over theprior year to support the continued rollout of high-speed Internet, digital andtelephone products, and to grow our core video customer base.

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Depreciation and amortization expense increased $3.4million, or 6%, primarily as a result of additional capital expendituresthrough March 31, 2006. Theseexpenditures were primarily for purchases of customer premise equipment, dropmaterials, capitalized labor and network extensions, all of which we considernecessary in order to continue to maintain and grow our customer base andexpand our service offerings. Partially offsetting this increase was a decreasein depreciation expense related to certain assets that have become fullydepreciated since March 31, 2005.

As a result of the factors discussed above, AdjustedOperating Income before Depreciation and Amortization increased $4.7 million to$112.3 million, an increase of 4% over the prior year’s quarter.

Interest expense increased$6.4 million, or 12%, due to higher interest rates, which averaged 8.88% forthe three months ended March 31,2006, as compared to 7.82% for the three months ended March 31, 2005, and an increase in theaccreted value of the 12 1⁄4% SeniorDiscount Notes.

**Liquidity andCapital Resources**

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

Cash provided by operations for the three months endedMarch 31, 2006 and 2005 was $86.5 million and $76.1 million. The increasewas primarily attributable to the timing of cash receipts and payments relatedto our working capital accounts and was partially offset by the effect ofnon-cash items and an increase in our net loss.

Cash used in investing activities for the three monthsended March 31, 2006 and 2005 was $57.6 million and $38.9 million. Theincrease primarily was due to increases in capital expenditures. For the threemonths ended March 31, 2006 and 2005, we spent $57.6 million and $38.7million in capital expenditures. These expenditures principally constitutedpurchases of customer premise equipment, capitalized labor, installationmaterials, headend equipment and system upgrades and rebuilds, all of which arenecessary to maintain our existing network, grow our customer base and expandour service offerings.

Cash used in financing activities for the three monthsended March 31, 2006 and 2005 was $20.9 million for the amortizationpayments on the credit facility.

Free Cash Flow forthe three months ended March 31, 2006 totaled $28.9 million compared to$37.4 million for the three months ended March 31, 2005. The decrease inFree Cash Flow from March 31, 2005 to March 31, 2006 of $8.5 millionwas primarily driven by the following:

·       An$18.9 million increase in capital expenditures;

·       A$2.1 million use of Free Cash Flow for the three months ended March 31,2006 compared to a $6.7 million source for the three months endedMarch 31, 2005 from changes in working capital accounts; and

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

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These uses of cashwere offset by:

·       A$15.0 million decrease in cash interest expense paid due to a timing differencein the bond interest payments; and

·       A$4.7 million increase in Adjusted Operating Income before Depreciation and Amortization.

While we expect to continue to use Free Cash Flow torepay our indebtedness, as interest rates continue to increase, we expect ourinterest costs will also be higher, thus reducing Free Cash Flow.

On July 21, 2005 we completed a refinancing ofthe existing $1.1 billion Term B loan facility under the Insight Midwest CreditAgreement. This refinancing reduced the applicable margins for LIBOR rateborrowings from LIBOR plus 275 basis points to LIBOR plus 200 basis points andthe applicable margin will be reduced an additional 25 basis points if theMidwest Holdings leverage ratio drops below 2.75. The maximum total leverageratio covenant was reset from 3.75 to 4.50 on July 1, 2005 with step downsto 4.25 on July 1, 2006 and to 4.00 on July 1, 2007. The facility wasalso amended to provide certain flexibility to refinance the senior notes atInsight Midwest.

We have a substantial amount of debt. Our high levelof debt could have important consequences for you. Our investments in ouroperating subsidiaries, including Insight Midwest, constitute substantially allof our operating assets. Consequently, our subsidiaries conduct all of ourconsolidated operations and own substantially all of our operating assets. Ourprincipal source of cash we need to pay our obligations and to repay theprincipal amount of our debt obligations is the cash that our subsidiariesgenerate from their operations and their borrowings. Our subsidiaries are notobligated to make funds available to us and 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.

We believe that the Insight Midwest Holdings creditfacility, cash on-hand and our cash flow from operations are sufficient tosupport our current operating plan. For the three months ended March 31,2006 and 2005 we had positive Free Cash Flow. We had the ability to draw upon$283.7 million of unused availability under the Insight Midwest Holdings creditfacility as of March 31, 2006 tofund any shortfall resulting from the inability of Insight Midwest’s cash fromoperations to fund its capital expenditures, meet its debt service requirementsor otherwise fund its operations.

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

| ** **              | ** ** | **Contractual Obligations** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **Long-Term  Debt**              | ** ** | **Operating  Leases** | ** ** | **Total** | ** ** |
| 2006                    |       | $                                | 62,625     |   |   | $ | 3,689 |   |   | $ | 66,314 |   |
| 2007                    |       | 83,500                           |       |   | 3,776 |   |   | 87,276 |   |
| 2008                    |       | 104,750                          |       |   | 3,188 |   |   | 107,938 |   |
| 2009                    |       | 1,517,500                        |       |   | 2,280 |   |   | 1,519,780 |   |
| 2010                    |       | 630,000                          |       |   | 539 |   |   | 630,539 |   |
| Thereafter              |       | 350,000                          |       |   | 976 |   |   | 350,976 |   |
| Total cash  obligations |       | $                                | 2,748,375  |   |   | $ | 14,448 |   |   | $ | 2,762,823 |   |

 

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

Our revolving credit andterm loan agreements bear interest at floating rates. Accordingly, we areexposed to potential losses related to changes in interest rates. In order tomanage our exposure to interest 

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raterisk, we enter into derivative financial instruments, typically interest rateswaps. The counter-parties to our swap agreements are major financialinstitutions. We do not enter into derivatives or other financial instrumentsfor trading or speculative purposes.

The aggregate fair marketvalue and aggregate carrying value of our 93⁄4% and 101⁄2% senior notes and 121⁄4%senior discount notes was $1.4 billion as of March 31, 2006. The fair market value of ourcredit facility borrowings approximates its carrying value as the creditfacility borrowings bear interest at floating rates of interest. As of March 31, 2006 and December 31, 2005, thecost, if terminated, of our interest rate swap agreement was $4.0 million and$2.4 million and is reflected in our financial statements as an othernon-current liability. Changes in the fair value of our interest ratederivative financial instruments are either recognized in income or instockholders’ equity as a component of other comprehensive income depending onwhether the derivative financial instruments qualify for hedge accounting.

**Item 4.**                        Controlsand Procedures

Our management carried out an evaluation, with theparticipation of our Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of our disclosure controls and procedures as of March 31,2006. Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that (i) our disclosure controls andprocedures were effective to ensure that information required to be disclosedby us in reports that we file or submit under the Securities Exchange Act of1934 is recorded, processed, summarized and reported, within the time periodsspecified in the rules and forms of the Securities and ExchangeCommission, and (ii) our disclosure controls and procedures were designedto ensure that information required to be disclosed by us in reports that wefile or submit under the Securities Exchange Act of 1934 is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.

There has not been any change in our internal controlover financial reporting in connection with the evaluation required by Rule 13a-15(d) or15d-15(d) under the Exchange Act that occurred during the quarterended March 31, 2006 that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

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**PART II. OTHERINFORMATION**

**Item 1.**                        LegalProceedings

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

**Item 1A.**                RiskFactors

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

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

During the three monthsended March 31, 2006, weissued 3,665,747 shares of Series E Non-voting common stock and 92,470shares of Series F Non-voting common stock to certain of our employees anddirectors. The issuances of non-voting common stock were not registered underthe Securities Act of 1933 because such issuances either (i) did notinvolve an offer or sale for purposes of Section 2(a)(3) of theSecurities Act of 1933, in reliance on the fact that the non-voting commonstock was issued for no consideration, or (ii) were offered and sold intransactions not involving a public offering, and therefore exempt fromregistration under the Securities Act of 1933 pursuant to Section 4(2).

**Item 6.**                        Exhibits

Exhibits:

10                   Employmentletter agreement effective March 27, 2006 between Registrant and HamidHeidary

31.1         Rule 13a-14(a)/15d-14(a) Certificationsof the Chief Executive Officer of Insight Communications Company, Inc.

31.2         Rule 13a-14(a)/15d-14(a) Certificationsof the Chief Financial Officer of Insight Communications Company, Inc.

32                   Section 1350Certifications

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
| Date: May 10, 2006 |   | INSIGHT COMMUNICATIONS COMPANY, INC.                 |
|-------------------------|--------|------------------------------------------------------|
|                    | By:    | /s/ John Abbot                                       |   |
|                    |   | John Abbot                                           |   |
|                    |   | Executive Vice President and Chief Financial Officer |
|                    |   | (Principal Financial Officer)                        |

 

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