**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

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

**Forthe Quarterly Period Ended June 30, 2007**

| **Commission file numbers** |   | **333-33540**   |
|-----------------------------|--------|-----------------|
| ** **                  |   | **333-33540-1** |

 

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**INSIGHT MIDWEST, L.P.INSIGHT CAPITAL, INC.**

(Exact name of registrantsas specified in their charters)

| **Delaware**                                                     |   | **13-4079232**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| **Delaware**                                                     |   | **13-4079679**                        |
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
| **810 7****th Avenue**                                      |   |                                  |
| **New  York, New York**                                          |   | **10019**                             |
| (Address of  principal executive offices)                        |   | (Zip code)                            |

 

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

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Indicate by check markwhether the registrants (1) have filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrants wererequired to file such reports) and (2) have been subject to such filingrequirements for the past 90 days.  Yes  o  No  x

(Note: As voluntaryfilers, not subject to the filing requirements, the registrants filed allreports under Section 13 or 15(d) of the Exchange Act during thepreceding 12 months.)

Indicate by check markwhether each registrant is a large accelerated filer, an accelerated filer, ora non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Largeaccelerated filer  o  Acceleratedfiler  o  Non-acceleratedfiler  x

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

Indicate the number ofshares outstanding of each of the registrants’ classes of common stock, as ofthe latest practicable date.

| Insight Midwest, L.P.      |   | - Not Applicable |
|----------------------------|--------|------------------|
| Insight Capital, Inc. |   | - Not Applicable |

 

 

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**PART I.**   FINANCIALINFORMATION

**Item 1.**                        FinancialStatements

The accompanying unaudited consolidated financialstatements have been prepared in accordance with the requirements of Form 10-Qand, therefore, do not include all information and footnotes required byaccounting principles generally accepted in the United States. However, in ouropinion, all adjustments, consisting of normal recurring accruals, necessaryfor a fair presentation of the results of operations for the relevant periodshave been made. Results for the interim periods are not necessarily indicativeof the results to be expected for the year. These financial statements shouldbe read in conjunction with the summary of significant accounting policies andthe notes to the consolidated financial statements included in our AnnualReport on Form 10-K for the year ended December 31, 2006.

1

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**INSIGHT MIDWEST, LPCONSOLIDATED BALANCE SHEETS(dollars in thousands)**

| ** **                                                                                                                                        | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                        | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| ** **                                                                                                                                        | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                        | * *   | * *          |       |                  |       |   |   |
| Cash and cash  equivalents                                                                                                                        |       | $                 | 36,934     |                  |       | $ | 39,235 |   |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $1,171 and $1,148  as of June 30, 2007 and December 31, 2006 |       | 30,414            |       |                  | 31,060     |   |   |
| Prepaid expenses  and other current assets                                                                                                        |       | 8,580             |       |                  | 8,103      |   |   |
| Total current assets                                                                                                                              |       | 75,928            |       |                  | 78,398     |   |   |
| Fixed assets, net                                                                                                                                 |       | 1,132,047         |       |                  | 1,138,186  |   |   |
| Goodwill                                                                                                                                          |       | 14,684            |       |                  | 14,684     |   |   |
| Franchise costs                                                                                                                                   |       | 2,357,535         |       |                  | 2,357,535  |   |   |
| Deferred  financing costs, net of accumulated amortization of $25,490 and $24,129 as of  June 30, 2007 and December 31, 2006            |       | 14,605            |       |                  | 15,554     |   |   |
| Investments                                                                                                                                       |       | 5,800             |       |                  | 5,800      |   |   |
| Other non-current  assets                                                                                                                         |       | 2,697             |       |                  | 2,265      |   |   |
| Total assets                                                                                                                                      |       | $                 | 3,603,296  |                  |       | $ | 3,612,422 |   |   |
| **Liabilities  and partners’ capital**                                                                                                       |       |              |       |                  |       |   |   |
| Accounts payable                                                                                                                                  |       | $                 | 36,796     |                  |       | $ | 43,484 |   |   |
| Accrued expenses  and other current liabilities                                                                                                   |       | 49,123            |       |                  | 40,101     |   |   |
| Accrued property  taxes                                                                                                                           |       | 19,551            |       |                  | 13,446     |   |   |
| Accrued  programming costs (inclusive of $34,614 and $30,677 due to related parties  as of June 30, 2007 and December 31, 2006)    |       | 52,668            |       |                  | 45,880     |   |   |
| Deferred revenue                                                                                                                                  |       | 991               |       |                  | 2,076      |   |   |
| Interest payable                                                                                                                                  |       | 43,874            |       |                  | 33,440     |   |   |
| Due to affiliates                                                                                                                                 |       | 41,604            |       |                  | 47,412     |   |   |
| Total current liabilities                                                                                                                         |       | 244,607           |       |                  | 225,839    |   |   |
| Deferred revenue                                                                                                                                  |       | 291               |       |                  | 683        |   |   |
| Debt                                                                                                                                              |       | 2,512,825         |       |                  | 2,555,722  |   |   |
| Partners’  capital:                                                                                                                          |       |              |       |                  |       |   |   |
| Accumulated other  comprehensive income                                                                                                           |       | —            |       |                  | 306        |   |   |
| Partners’  accumulated capital                                                                                                               |       | 845,573           |       |                  | 829,872    |   |   |
| Total partners’ capital                                                                                                                      |       | 845,573           |       |                  | 830,178    |   |   |
| Total liabilities  and partners’ capital                                                                                                     |       | $                 | 3,603,296  |                  |       | $ | 3,612,422 |   |   |

 

See accompanying notes

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**InsightMIDWEST, LPConsolidated statements of operations(unaudited)(dollars in thousands)**

| ** **                                                                                                                                                                                                                                                                               | ** ** | **Three months ended June 30,**                                          | ** ** | **Six months ended June 30,**                                            | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                               | ** ** | **       2007       ** | ** ** | **       2006       ** | ** ** | **       2007       ** | ** ** | **       2006       ** | ** ** |
| Revenue                                                                                                                                                                                                                                                                                  |       |                                                                                         | $          | 355,503                                                                                      |       |   |   | $ | 311,717 |   |   |   | $ | 694,972 |   |   |   | $ | 612,998 |   |   |
| Operating costs and  expenses:                                                                                                                                                                                                                                                           |       |                                                                                         |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Programming and other operating costs (exclusive of  depreciation and amortization) (inclusive of $51,638 and $102,927, and  $44,257 and $87,338 of programming expense incurred through related parties  for the three and six months ended June 30, 2007 and 2006) |       |                                                                                         | 122,545    |                                                                                         |       |   | 113,613 |   |   |   | 242,713 |   |   |   | 225,697 |   |   |
| Selling, general and administrative (inclusive of $27  and $98, and $38 and $76 of stock-based compensation for the three and six  months ended June 30, 2007 and 2006)                                                                                                        |       |                                                                                         | 88,443     |                                                                                         |       |   | 73,517 |   |   |   | 170,576 |   |   |   | 143,824 |   |   |
| Management fees                                                                                                                                                                                                                                                                          |       |                                                                                         | 10,612     |                                                                                         |       |   | 9,345 |   |   |   | 20,794 |   |   |   | 18,383 |   |   |
| Depreciation and amortization                                                                                                                                                                                                                                                            |       |                                                                                         | 71,257     |                                                                                         |       |   | 66,016 |   |   |   | 147,304 |   |   |   | 128,969 |   |   |
| Total operating  costs and expenses                                                                                                                                                                                                                                                      |       |                                                                                         | 292,857    |                                                                                         |       |   | 262,491 |   |   |   | 581,387 |   |   |   | 516,873 |   |   |
| Operating income                                                                                                                                                                                                                                                                         |       |                                                                                         | 62,646     |                                                                                         |       |   | 49,226 |   |   |   | 113,585 |   |   |   | 96,125 |   |   |
| Other income  (expense):                                                                                                                                                                                                                                                                 |       |                                                                                         |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                                                                                                                                                                                         |       |                                                                                         | (48,832    | )                                                                                            |       |   | (53,689 | ) |   |   | (99,028 | ) |   |   | (106,052 | ) |   |
| Interest income                                                                                                                                                                                                                                                                          |       |                                                                                         | 250        |                                                                                         |       |   | 154 |   |   |   | 564 |   |   |   | 667 |   |   |
| Other income                                                                                                                                                                                                                                                                             |       |                                                                                         | 434        |                                                                                         |       |   | 89 |   |   |   | 482 |   |   |   | 30 |   |   |
| Total other  expense, net                                                                                                                                                                                                                                                                |       |                                                                                         | (48,148    | )                                                                                            |       |   | (53,446 | ) |   |   | (97,982 | ) |   |   | (105,355 | ) |   |
| Net income (loss)                                                                                                                                                                                                                                                                        |       |                                                                                         | $          | 14,498                                                                                       |       |   |   | $ | (4,220 | ) |   |   | $ | 15,603 |   |   |   | $ | (9,230 | ) |   |

 

See accompanying notes

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**INSIGHT MIDWEST, LP CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands)**

| ** **                                                                                     | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| **Operating activities:**                                                                      |       |                                              |       |   |   |
| Net income (loss)                                                                              |       | $                                                 | 15,603     |   | $ | (9,230 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                              |       |   |   |
| Depreciation and amortization                                                                  |       | 147,304                                           |       | 128,969 |   |
| Stock-based compensation                                                                       |       | 98                                                |       | 76 |   |
| Provision for losses on trade accounts receivable                                              |       | 6,906                                             |       | 7,026 |   |
| Amortization of note discount                                                                  |       | 2,103                                             |       | 178 |   |
| Changes in  operating assets and liabilities:                                                  |       |                                              |       |   |   |
| Trade accounts receivable                                                                      |       | (6,260                                            | )          | (4,617 | ) |
| Prepaid expenses and other assets                                                              |       | (915                                              | )          | (2,922 | ) |
| Accounts payable                                                                               |       | (6,688                                            | )          | 1,160 |   |
| Interest payable                                                                               |       | 10,434                                            |       | 142 |   |
| Accrued expenses and other liabilities                                                         |       | 6,564                                             |       | 14,247 |   |
| Net cash provided by operating activities                                                      |       | 175,149                                           |       | 135,029 |   |
| **Investing  activities:**                                                                     |       |                                              |       |   |   |
| Purchase of fixed assets                                                                       |       | (132,077                                          | )          | (140,687 | ) |
| Sale of fixed assets                                                                           |       | 39                                                |       | 503 |   |
| Purchase of investments                                                                        |       | —                                            |       | (518 | ) |
| Net cash used in investing activities                                                          |       | (132,038                                          | )          | (140,702 | ) |
| **Financing  activities:**                                                                     |       |                                              |       |   |   |
| Repayment of credit facilities                                                                 |       | (55,000                                           | )          | (41,750 | ) |
| Net proceeds from borrowings under credit facilities                                           |       | 10,000                                            |       | 25,000 |   |
| Debt issuance costs                                                                            |       | (412                                              | )          | — |   |
| Other                                                                                          |       | —                                            |       | (4 | ) |
| Net cash used in financing activities                                                          |       | (45,412                                           | )          | (16,754 | ) |
| Net decrease in cash and cash equivalents                                                      |       | (2,301                                            | )          | (22,427 | ) |
| Cash and cash  equivalents, beginning of period                                                |       | 39,235                                            |       | 24,853 |   |
| Cash and cash  equivalents, end of period                                                      |       | $                                                 | 36,934     |   | $ | 2,426 |   |

 

See accompanying notes

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.   Organization andBasis of Presentation**

We were formed in September 1999 to serve as theholding company and a financing vehicle for Insight Communications Company, Inc.’s(“Insight Inc.”) cable television system joint venture with AT&T Broadband,LLC (now known as Comcast Cable Holdings, LLC (“Comcast Cable”)). We are owned50% by Insight Communications Company, L.P. (“Insight LP”), which iswholly owned by Insight Inc., and 50% by an indirect subsidiary of ComcastCable. Insight LP serves as our general partner and manages and operates oursystems.

Through our wholly owned operating subsidiaries,Insight Communications Midwest, LLC (“Insight Communications Midwest”), InsightCommunications of Central Ohio, LLC (“Insight Ohio”) and Insight KentuckyPartners II, L.P. (“Insight Kentucky”), we own and operate cable televisionsystems in Illinois, Indiana, Kentucky and Ohio which passed approximately 2.5million homes and had approximately 1.4 million customer relationships asof June 30, 2007.

The accompanying consolidated financial statementsinclude the accounts of Insight Midwest Holdings, LLC, our wholly-ownedsubsidiary which owns 100% of the outstanding equity of our operatingsubsidiaries, and Insight Capital, Inc., our wholly-owned subsidiaryformed for the sole purpose of being the co-issuer of our senior notes, whichallows certain investors the ability to be holders of the debt.

On April 1, 2007, ourpartnership agreement was amended, and Insight LP agreed with Comcast Cable ona division of our assets and liabilities. Upon completion of the transaction,we will own 100% of the cable systems serving customers in Louisville,Lexington, Bowling Green and Covington, Kentucky, in Evansville, Indiana, andin Columbus, Ohio, (the “Insight Systems Group”) and Comcast Cable will own100% of the cable systems serving customers in Rockford/Dixon, Quincy/Macomb,Springfield, Peoria and Champaign/Urbana, Illinois and in Bloomington,Anderson, Lafayette and Kokomo, Indiana (the “Comcast Systems Group”). Pendingcompletion of the transaction, Insight LP will continue to serve as our generalpartner and control and manage all of our cable systems. Insight LP willcontinue to include the results of our operations in its consolidated financialstatements. In conjunction with the division of assets and liabilities, theInsight Systems Group was initially allocated approximately $1,259.6 billion ofour debt and the Comcast Systems Group was initially allocated approximately$1,335.4 billion of our debt. The closing is subject to closing conditions,including local governmental approvals and regulatory approvals, and isexpected to be completed by the end of 2007. Subsequent to April 1, 2007,earnings and losses accrue to the respective partner’s based on the actualresults of the Insight Systems Group and the Comcast Systems Group.

**2.   Responsibilityfor Interim Financial Statements**

The 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 management’s opinion, the consolidated financialstatements reflect all adjustments considered necessary for a fair presentationof the consolidated results of operations and financial position for theinterim periods presented. All such adjustments are of a normal recurringnature. These unaudited interim consolidated financial statements should beread in conjunction with the audited consolidated financial 

5

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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

statements and notes toconsolidated financial statements contained in our Annual Report on Form 10-Kfor the year ended December 31, 2006.

The preparation offinancial statements in conformity with accounting principles generally acceptedin the United States requires us to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates. The results of operations for the three andsix months ended June 30, 2007 are not necessarily indicative of theresults to be expected for the year ending December 31, 2007 or any otherinterim period.

**3.   RecentAccounting Pronouncements**

In September 2006, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157, *Fair Value Measurements*(“SFAS No. 157”). SFAS No. 157 defines fair value, establishing aframework for measuring fair value and expands disclosure about fair valuemeasurements. SFAS No. 157 is effective for fiscal years beginning afterNovember 15, 2007 or calendar year 2008 for us. We do not expect SFASNo. 157 to have a material impact on our consolidated financialstatements.

In February 2007, FASBissued SFAS No. 159, *The Fair Value Option forFinancial Assets and Liabilities*(“SFAS No. 159”). SFAS No. 159provides the option to report certain financial assets and liabilities at fairvalue, with the intent to mitigate volatility in financial reporting that canoccur when 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.

**4.   Investments**

***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.Pursuant to the equity issuance agreement, a portion of the monthly programmingfees through December 31, 2006 represented our equity investment in Oxygen.We are accounting for our investment in Oxygen under the cost method. As of June 30,2007 and December 31, 2006, our carrying value of this investment was $5.8million.

6

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**5.   Fixed Assets**

Fixedassets consisted of:

| ** **                                       | ** ** | **June 30,**       | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2007**                | ** ** | **2006**              | ** ** |
| ** **                                       | ** ** | **(unaudited)**         | ** ** | ** **            | ** ** |
| ** **                                       | ** ** | **(in thousands)** | ** ** |
| Land, buildings  and improvements                |       | $                       | 42,948     |                  | $          | 42,058 |   |
| Cable system  equipment                          |       | 2,784,967               |       | 2,654,416             |       |
| Furniture,  fixtures and office equipment        |       | 21,397                  |       | 20,990                |       |
|                                             |       | 2,849,312               |       | 2,717,464             |       |
| Less: accumulated  depreciation and amortization |       | (1,717,265              | )          | (1,579,278            | )          |
| Total fixed  assets, net                         |       | $                       | 1,132,047  |                  | $          | 1,138,186 |   |

 

We recorded depreciationexpense of $70.6 million and $145.9 million for the three and six months ended June 30,2007 and $64.8 million and $126.5 million for the three and six months ended June 30, 2006.

**6.   Debt**

Debtconsisted of:

| ** **                                | ** ** | **June 30,**       | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **2007**                | ** ** | **2006**              | ** ** |
| ** **                                | ** ** | **(unaudited)**         | ** ** | ** **            | ** ** |
| ** **                                | ** ** | **(in thousands)** | ** ** |
| Note payable to  Insight Inc.             |       | $                       | 100,000    |                  |       | $ | 100,000 |   |   |
| Insight Midwest  Holdings Credit Facility |       | 2,241,000               |       |                  | 2,286,000  |   |   |
| Insight Midwest 93¤4%  Senior Notes  |       | 200,000                 |       |                  | 200,000    |   |   |
|                                      |       | 2,541,000               |       |                  | 2,586,000  |   |   |
| Net unamortized  discount                 |       | (28,175                 | )          |                  | (30,278    | ) |   |
| Total debt                                |       | $                       | 2,512,825  |                  |       | $ | 2,555,722 |   |   |

 

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

Our wholly owned subsidiary, Insight Midwest Holdings,LLC, serves as borrower under a $2.445 billion senior secured creditfacility. Obligations under this credit facility are secured by a pledge of theoutstanding equity interests of Insight Midwest Holdings and its subsidiaries. Thefacility is comprised of 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 on October 6,2012. Insight Midwest Holdings used the proceeds to refinance the existingsenior credit facility and to redeem a portion of the outstanding Senior Notes.The weighted average interest rate for debt outstanding under the creditfacility was 7.20% at June 30, 2007. As of June 30, 2007 we were incompliance with the credit facility’s covenant requirements.

On March 28, 2002, weborrowed $100.0 million from Insight Inc. The loan bears annual interest of 9%,compounded semi-annually, has a scheduled maturity date of January 31,2011 and permits prepayments. Insight Midwest Holdings is permitted under thecredit facility to make distributions to us for the purpose of repaying thisloan, including accrued interest, provided that there are no defaults 

7

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**6.**   Debt (Continued)

existingunder the credit facility. During the three and six months ended June 30,2007, we repaid a total of $0 and $4.5 million of the loan balance. As of June 30,2007 and December 31, 2006, the balance of the $100.0 million loan, includingaccrued interest, was $137.6 million and $136.1 million.

***Debt Principal Payments***

As of June 30,2007, the remaining principal payments required on our debt were as follows (in thousands):

| 2007       |   | $         | —    |   |
|------------|--------|-----------|-----------|--------|
| 2008       |   | 9,312     |      |
| 2009       |   | 242,063   |      |
| 2010       |   | 61,313    |      |
| 2011       |   | 180,562   |      |
| Thereafter |   | 2,047,750 |      |
| Total      |   | $         | 2,541,000 |   |

 

**7.   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. Theestimated fair value is included in other current or non-current liabilities orassets.

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

**Cash Flow Hedges**

In October 2006,we entered into two interest rate swap agreements to hedge our exposure tofluctuations in the base rate for our Term Loan B whereby we swapped floatingrates for:

·       afixed rate of 5.240% on $450.0 million notional value of our Term Loan B debtwhich expires in December 2007; and

·       afixed rate of 5.148% on $400.0 million notional value of our Term Loan B debtwhich expires in December 2008.

8

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**7.**   Derivative Instruments (Continued)

In the second quarterthese swaps offset movements in the base rate for our Term Loan B by101.2% and 101.8%, respectively. During the second quarter of 2007, these swapagreements were determined to be ineffective cash flow hedges for the purposesof SFAS No. 133, *Accounting for DerivativeInstruments and Hedging Activities*. At June 30, 2007 and December 31,2006, the estimated fair value of these interest rate swap agreements wasapproximately $1.1 million and $306,000 and were recorded in other current ornon-current assets on the accompanying consolidated balance sheets depending onthe expiration date of the underlying swap agreement.

**8.   Related PartyTransactions**

***Programming***

We purchase the majorityof our programming through affiliates of Comcast Cable. Charges for suchprogramming, including a 11¤2% administrativefee, were $51.6 million and $102.9 million for the three and six months ended June 30,2007 and $44.3 million and $87.3 million for the three and six months ended June 30,2006. As of June 30, 2007 and December 31, 2006, $34.6 million and$30.7 million of accrued programming costs were due to affiliates of ComcastCable. We believe that the programming rates charged through these affiliatesare lower than those available from independent parties. Upon the completion ofthe division of assets and liabilities described in Note 1, we will no longerhave the right to purchase programming services for our systems through thisaffiliate arrangement.

***Insight Interactive***

Effective November 17,1999, Insight Cable Services entered into a Contribution Agreement with SourceMedia, Inc., providing for the creation of a joint venture, InsightInteractive LLC. Under the terms of the Contribution Agreement, Source Mediacontributed its Virtual Modem 2.5 software and the Interactive Channel productsand services, including SourceGuide and LocalSource television content. On March 14,2002, Insight Cable Services purchased the remaining 50% equity interest inInsight Interactive that it did not already own from Source Media. We arecurrently providing Insight Interactive’s services to customers in some of oursystems. Fees for such services totaled $525,000 and $1.1 million for the threeand six months ended June 30, 2007 and $879,000 and $1.7 million for thethree and six months ended June 30, 2006.

***Due To Affiliates***

As of June 30, 2007and December 31, 2006, we had amounts owed to Insight LP, our manager,primarily comprised of accrued interest related to our $100.0 million notepayable to Insight Inc., incurred but unpaid management fees, calculated asapproximately 3% of revenues, capital expenditures and other operationalexpenses.

**9.   PartnershipSplit-Up Costs**

During the second quarterof 2007, we recorded $2.5 million in employee retention benefits, in accordancewith SFAS No. 146, *Accounting for CostsAssociated with Exit or Disposal Activities*, and $497,000 in legalfees in connection with matters related to our agreement with Comcast to divideour assets and liabilities. The closing is subject to closing conditions,including local governmental approvals and regulatory approvals, and isexpected to be completed by the end of 2007. The Company has 

9

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**INSIGHT MIDWEST, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**9.**   Partnership Split-Up Costs (Continued)

establisheda plan to provide one-time retention benefits for certain employees related tothe split-up. The total approved plan is $10.2 million which will be modifiedas circumstances warrant. These one-time retention benefits and legal fees areincluded in selling, general and administrative expenses in the accompanyingconsolidated statements of operations.

**10.**   Commitmentsand Contingencies

***Programming Contracts***

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

***Litigation***

In April 2005, Acacia Media Technologies Corporationfiled a lawsuit against us and others in the United States District Court forthe Southern District of New York. The complaint alleges, among other things,infringement of certain United States patents that allegedly relate to systemsand methods for transmitting and/or receiving digital audio and video content.The complaint seeks injunctive relief and damages in an unspecified amount. Inthe event that a Court ultimately determines that we infringe on any of thepatents, we may be subject to substantial damages, which may include treble damagesand/or an injunction that could require us to materially modify certainproducts and services that we currently offer to subscribers. We believe thatthe claims are without merit and intend to defend the action vigorously. Thefinal disposition of this claim is not expected to have a material adverseeffect on our consolidated financial position but could possibly be material toour consolidated results of operations of any one period. Further, at this timethe outcome 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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**INSIGHT CAPITAL,INC.BALANCE SHEETS(dollars in thousands, except share and per share amounts)**

| ** **                                                                                                                             | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                             | ** ** | **unaudited**           | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                             |       |                    |       |                        |       |   |   |
| Cash                                                                                                                                   |       | $                       | 1          |                        |       | $ | 1 |   |   |
| Deferred  financing costs, net of accumulated amortization of $15,009 and $14,149 as of  June 30, 2007 and December 31, 2006 |       | 7,777                   |       |                        | 8,637      |   |   |
| Total assets                                                                                                                           |       | $                       | 7,778      |                        |       | $ | 8,638 |   |   |
| **Liabilities  and shareholder’s deficit**                                                                                        | ** ** | ** **              | ** ** |                        |       |   |   |
| Accrued interest                                                                                                                       |       | $                       | 4,875      |                        |       | $ | 4,875 |   |   |
| Total current liabilities                                                                                                              |       | 4,875                   |       |                        | 4,875      |   |   |
| Senior notes, to be paid by Insight Midwest, LP                                                                                        |       | 177,775                 |       |                        | 175,675    |   |   |
| Total liabilities                                                                                                                      |       | 182,650                 |       |                        | 180,550    |   |   |
| Shareholder’s  deficit:                                                                                                           |       |                    |       |                        |       |   |   |
| Common stock;  $.01 par value; 1,000 shares authorized, issued and  outstanding                                                        |       | —                  |       |                        | —     |   |   |
| Paid-in-capital                                                                                                                        |       | 1                       |       |                        | 1          |   |   |
| In-substance allocation  of proceeds related to senior notes to be paid by Insight Midwest                                        |       | 437,381                 |       |                        | 427,631    |   |   |
| Accumulated  deficit                                                                                                                   |       | (612,254                | )          |                        | (599,544   | ) |   |
| Total shareholder’s deficit                                                                                                       |       | (174,872                | )          |                        | (171,912   | ) |   |
| Total liabilities  and shareholder’s deficit                                                                                      |       | $                       | 7,778      |                        |       | $ | 8,638 |   |   |

 

 

See accompanying notes

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**INSIGHT CAPITAL, INC.STATEMENTS OF OPERATIONS (unaudited) (dollars in thousands)**

| ** **    | ** ** | **Three months  Ended June 30,** | ** ** | **Six months  Ended June 30,** | ** ** |
|---------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **    | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Expenses:** |       |                                            |       |                                          |       |   |   |   |   |
| Amortization  |       | $                                               | (430       | )                                             | $          | (652 | ) | $ | (860 | ) | $ | (1,304 | ) |
| Interest      |       | (5,925                                          | )          | (26,012                                       | )          | (11,850 | ) | (52,022 | ) |
| Net loss      |       | $                                               | (6,355     | )                                             | $          | (26,664 | ) | $ | (12,710 | ) | $ | (53,326 | ) |

 

See accompanying notes

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**INSIGHT CAPITAL, INC.STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands)**

| ** **                                                                       | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| **Cash  flows from operating activities:**                                       | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Net loss                                                                         |       | $                                             | (12,710    | ) | $ | (53,326 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities: |       |                                          |       |   |   |
| Accretion of discount on notes                                                   |       | 2,100                                         |       | 178 |   |
| Amortization                                                                     |       | 860                                           |       | 1,304 |   |
| Interest expense assumed by affiliate                                            |       | 9,750                                         |       | 51,844 |   |
| Net cash provided by operating activities                                        |       | —                                        |       | — |   |
| Net increase in cash                                                             |       | —                                        |       | — |   |
| Cash, beginning  of period                                                       |       | 1                                             |       | 1 |   |
| Cash, end of period                                                              |       | $                                             | 1          |   | $ | 1 |   |

 

See accompanying notes

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**INSIGHT CAPITAL,INC.NOTES TO FINANCIAL STATEMENTS**

**1.**                 Natureof Business

Insight Capital, Inc.(the “Company”), a Delaware corporation, was formed on September 23, 1999,for the sole purpose of being a co-issuer with Insight Midwest, L.P. (“InsightMidwest”) of senior notes which allows certain investors the ability to beholders of the debt. The Company has no operations. The outstanding shares ofthe Company are owned by Insight Midwest.

**2.**                 Responsibilityfor Interim Financial Statements

The accompanying unaudited financial statements of theCompany have been prepared in accordance with accounting principles generallyaccepted in the United States for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,they do not include all of the information and footnote disclosures required byaccounting principles generally accepted in the United States for completefinancial statements.

In management’s opinion, the financial statementsreflect all adjustments considered necessary for a fair presentation of thestatement of financial position as of the interim dates presented. Theseunaudited interim financial statements should be read in conjunction with theaudited financial statements and notes to financial statements contained in theCompany’s Annual Report on Form 10-K for the year ended December 31,2006.

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requires theCompany to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements. Actual results could differ from thoseestimates.

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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 isimportant to communicate management’s expectations. However, there may beevents in the future that we are not able to accurately predict or over whichwe have no control. 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 transfer to a subsidiary of Comcast Corporation of the assetscomprising its systems group, we will face new challenges as a smaller company,including operating at lower margins;

·       Theterms of Insight Midwest Holdings’ credit facility may limit our ability toaccess the cash flow of our subsidiaries;

·       Ourprogramming costs are substantial, and they are expected to increase,particularly as a result of the pending transfer to Comcast of the assetscomprising its systems group; 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 this reportis filed with the SEC or to reflect the occurrence of unanticipated 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, remotecontrol devices and installations. In addition, we earn revenues from providinghigh-speed Internet services, selling advertising, providing telephoneservices, and commissions for products sold through home shopping networks.

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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 June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                           | ** ** | **(in thousands)**                         | ** ** |
| Revenue                                              |       | $                                               | 355,503    |                                          | $          | 311,717 |   | $ | 694,972 |   | $ | 612,998 |   |
| Operating costs  and expenses:                       |       |                                            |       |                                          |       |   |   |   |   |
| Programming and other operating costs                |       | 122,545                                         |       | 113,613                                       |       | 242,713 |   | 225,697 |   |
| Selling, general and administrative                  |       | 88,443                                          |       | 73,517                                        |       | 170,576 |   | 143,824 |   |
| Management fees                                      |       | 10,612                                          |       | 9,345                                         |       | 20,794 |   | 18,383 |   |
| Depreciation and amortization                        |       | 71,257                                          |       | 66,016                                        |       | 147,304 |   | 128,969 |   |
| Total operating  costs and expenses                  |       | 292,857                                         |       | 262,491                                       |       | 581,387 |   | 516,873 |   |
| Operating income                                     |       | 62,646                                          |       | 49,226                                        |       | 113,585 |   | 96,125 |   |
| Interest expense                                     |       | 48,832                                          |       | 53,689                                        |       | 99,028 |   | 106,052 |   |
| Net income (loss)                                    |       | 14,498                                          |       | (4,220                                        | )          | 15,603 |   | (9,230 | ) |
| Net cash provided  by operating activities           |       | 80,553                                          |       | 47,720                                        |       | 175,149 |   | 135,029 |   |
| Net cash used in investing  activities               |       | 55,408                                          |       | 83,680                                        |       | 132,038 |   | 140,702 |   |
| Net cash used in  (provided by) financing activities |       | 20,000                                          |       | (4,125                                        | )          | 45,412 |   | 16,754 |   |
| Capital expenditures                                 |       | 55,438                                          |       | 83,587                                        |       | 132,077 |   | 140,687 |   |
|                                                      |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

**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, non-cash stock-based compensation and partnershipdissolution costs) among other measures, to evaluate the performance of ourbusinesses. Adjusted Operating Income before Depreciation and Amortization isconsidered an important indicator of the operational strength of our businessesand is a component of our annual compensation programs. In addition, our debtagreements use Adjusted Operating Income before Depreciation and Amortization,adjusted for certain non-recurring items, in our leverage and other covenantcalculations. We also use this measure to determine how we will allocate resourcesand capital. Our management finds this measure helpful because it captures allof the revenue and ongoing operating expenses of our businesses and thereforeprovides a means to directly evaluate the ability of our business operations togenerate returns and to compare operating capabilities across our businesses.This measure is also used by equity and fixed income research analysts in theirreports to investors evaluating our businesses and other companies in the cabletelevision industry. We believe Adjusted Operating Income before Depreciationand Amortization is useful to investors and bondholders because it enables themto assess our performance in a manner similar to the methods used by ourmanagement and provides a measure that can be used to analyze, value andcompare companies in the cable television industry, which may have differentdepreciation, amortization and stock-based compensation policies.

A limitation of Adjusted Operating Income beforeDepreciation and Amortization, however, is that it does not reflect 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 

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

Free Cash Flow is net cash provided by operatingactivities (as defined by accounting principles generally accepted in theUnited States) less capital expenditures. Free Cash Flow is considered to be animportant indicator of our liquidity, including our ability to repay indebtedness.We believe Free Cash Flow is useful for investors and bondholders 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 Income (Loss) to AdjustedOperating Income before Depreciation and Amortization***

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

| ** **                                                       | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                       | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                       | ** ** | **(in thousands)**                         | ** ** |
| Net income (loss)                                                |       | $                                               | 14,498     |                                          | $          | (4,220 | ) | $ | 15,603 |   | $ | (9,230 | ) |
| Other (income) expense:                                          |       |                                            |       |                                          |       |   |   |   |   |
| Other income                                                     |       | (434                                            | )          | (89                                           | )          | (482 | ) | (30 | ) |
| Interest income                                                  |       | (250                                            | )          | (154                                          | )          | (564 | ) | (667 | ) |
| Interest expense                                                 |       | 48,832                                          |       | 53,689                                        |       | 99,028 |   | 106,052 |   |
| Total other  expense, net                                        |       | 48,148                                          |       | 53,446                                        |       | 97,982 |   | 105,355 |   |
| Operating income                                                 |       | 62,646                                          |       | 49,226                                        |       | 113,585 |   | 96,125 |   |
| Depreciation and  amortization                                   |       | 71,257                                          |       | 66,016                                        |       | 147,304 |   | 128,969 |   |
| Partnership  dissolution costs                                   |       | 3,042                                           |       | —                                        |       | 3,042 |   | — |   |
| Stock-based  compensation                                        |       | 27                                              |       | 38                                            |       | 98 |   | 76 |   |
| Adjusted Operating  Income before  Depreciation and Amortization |       | $                                               | 136,972    |                                          | $          | 115,280 |   | $ | 264,029 |   | $ | 225,170 |   |

 

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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 June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                      | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                         | ** ** |
| Operating income                                                |       | $                                               | 62,646     |                                          | $          | 49,226 |   | $ | 113,585 |   | $ | 96,125 |   |
| Depreciation and amortization                                   |       | 71,257                                          |       | 66,016                                        |       | 147,304 |   | 128,969 |   |
| Partnership dissolution costs                                   |       | 3,042                                           |       | —                                        |       | 3,042 |   | — |   |
| Stock-based compensation                                        |       | 27                                              |       | 38                                            |       | 98 |   | 76 |   |
| Adjusted  Operating Income before Depreciation and Amortization |       | 136,972                                         |       | 115,280                                       |       | 264,029 |   | 225,170 |   |
| Changes in working capital accounts(1)                          |       | (6,768                                          | )          | 8,824                                         |       | (7,284 | ) | 9,330 |   |
| Cash paid for interest                                          |       | (49,651                                         | )          | (76,384                                       | )          | (81,596 | ) | (99,471 | ) |
| Net cash provided  by operating activities                      |       | 80,553                                          |       | 47,720                                        |       | 175,149 |   | 135,029 |   |
| Capital expenditures                                            |       | (55,438                                         | )          | (83,587                                       | )          | (132,077 | ) | (140,687 | ) |
| Free Cash Flow                                                  |       | $                                               | 25,115     |                                          | $          | (35,867 | ) | $ | 43,072 |   | $ | (5,658 | ) |

----

(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 June 30, 2007 Compared toThree Months Ended June 30, 2006***

Revenue for the three months ended June 30, 2007 totaled $355.5 million, anincrease of 14% over the prior year, due primarily to Revenue Generating Unit(“RGU”) growth across all of our services, as well as video rate increases.High-speed Internet service revenue increased 25% over the prior year, whichwas attributable to an increased customer base and was partially offset bylower average revenue per customer (“ARPU”) due to promotional discounts. Weadded a net 18,900 high-speed Internet customers during the quarter to end at674,900 customers.

Basic cable service revenue increased 6% due to anincreased customer base and video rate increases, partially offset bypromotional discounts. Historically, we have experienced a seasonal decline inbasic customers during the second quarter primarily as a result of studentsleaving the university communities we serve. In addition, digital servicerevenue increased 25% over the prior year due to an increased customer base anda $1.58 increase in digital ARPU. We added a net 7,700 digital customers duringthe quarter to end at 661,500 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 our product offerings.

To increase our bundling opportunities and extend ourgrowth potential in future years, we, during the second half of 2006 and inJanuary 2007, successfully rolled out our telephone product in eightpreviously unserved districts. As a result, we added a net 29,400 telephonecustomers during the quarter to end at 177,200 customers.

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

| ** **           | ** ** | **Revenue by Service Offering**    | ** ** | ** **                    | ** ** | ** **                                        | ** ** |
|----------------------|------------|---------------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------|------------|
| ** **           | ** ** | **Three Months  Ended  June 30,  2007** | ** ** | **% of  Total  Revenue** | ** ** | **Three Months  Ended  June 30,  2006** | ** ** | **% of  Total  Revenue** | ** ** | ** ** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       |                                              | $          | 169,891                       |       |                                              |       | 47.8 | % |   |   | $ | 160,328 |   |   |   | 51.5 | % |   |   |   |   | 6.0 | % |   |
| High-Speed  Internet |       |                                              | 73,260     |                          |       |                                              | 20.6       | % |   |   | 58,616 |   |   |   | 18.8 | % |   |   |   |   | 25.0 | % |   |
| Digital              |       |                                              | 42,954     |                          |       |                                              | 12.1       | % |   |   | 34,307 |   |   |   | 11.0 | % |   |   |   |   | 25.2 | % |   |
| Advertising          |       |                                              | 21,674     |                          |       |                                              | 6.1        | % |   |   | 20,020 |   |   |   | 6.4 | % |   |   |   |   | 8.3 | % |   |
| Telephone            |       |                                              | 20,083     |                          |       |                                              | 5.6        | % |   |   | 12,528 |   |   |   | 4.0 | % |   |   |   |   | 60.3 | % |   |
| Premium              |       |                                              | 13,953     |                          |       |                                              | 3.9        | % |   |   | 13,852 |   |   |   | 4.4 | % |   |   |   |   | 0.7 | % |   |
| Franchise fees       |       |                                              | 8,114      |                          |       |                                              | 2.3        | % |   |   | 7,384 |   |   |   | 2.4 | % |   |   |   |   | 9.9 | % |   |
| Other                |       |                                              | 5,574      |                          |       |                                              | 1.6        | % |   |   | 4,682 |   |   |   | 1.5 | % |   |   |   |   | 19.1 | % |   |
| Total                |       |                                              | $          | 355,503                       |       |                                              |       | 100.0 | % |   |   | $ | 311,717 |   |   |   | 100.0 | % |   |   |   |   | 14.0 | % |   |

 

Total Customer Relationships were 1,424,100 as of June 30,2007, an increase of 49,000 from 1,375,100 as of June 30, 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 June 30, 2007, we added 53,000 RGUs which represent the sumof basic, digital, high-speed Internet and telephone customers, and as of June 30,2007 had 2,854,600 RGUs, an increase of 13% from June 30, 2006. RGUs bycategory were as follows (in thousands):

| ** **           | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
|----------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Basic                |       |                        | 1,341.0    |                        |       |   | 1,302.4 |   |   |
| High-speed  Internet |       |                        | 674.9      |                        |       |   | 534.5 |   |   |
| Digital              |       |                        | 661.5      |                        |       |   | 572.2 |   |   |
| Telephone            |       |                        | 177.2      |                        |       |   | 107.2 |   |   |
| Total RGUs           |       |                        | 2,854.6    |                        |       |   | 2,516.3 |   |   |

 

Average monthly revenue per basic customer was $88.27for the three months ended June 30, 2007, compared to $79.65 for the threemonths ended June 30, 2006. This primarily reflects the continued growthof high-speed Internet, video and telephone product offerings in all markets,as well as video rate increases.

Programming and other operating costs increased $8.9million, or 8%. Increases in programming rates, customers and the addition ofnew programming content were significant drivers of the cost increase for thequarter ended June 30, 2007. Other direct operating costs increased due tothe increase in telephone cost of service as we successfully rolled out thisproduct in eight previously unserved districts during the second half of 2006and in January 2007. This increase was partially offset by decreases inour high-speed Internet service costs as the company, in 2006, transitioned itsInternet services in-house and realized both cost savings and operationalbenefits from this investment even while increasing our customer base.

Selling, general and administrative expenses increased$14.9 million, or 20%, primarily due to increased payroll, payroll-related costsand temporary help associated with an increase in the number of employees andsalary increases for existing employees. The increase in the number ofemployees represents investments in sales and marketing, customer care andnetwork operations personnel to continue to upgrade and enhance our productofferings, manage our increasingly complex network and increase customersatisfaction. A portion of the network operations personnel increases weredirectly 

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related to the transitionof our Internet services in-house. $3.0 million of partnership dissolutioncosts recorded in the second quarter of 2007 related to our planned division ofthe partnership with Comcast significantly contributed to the increase inselling, general and administrative expenses. Franchise fees, customer billingand collection fees increased primarily due to the increase in our revenues andour customer base. Marketing expenses increased over the prior year to supportthe continued rollout of high-speed Internet, digital and telephone products,and to grow our core video customer base.

Management fees increased $1.3 million or 14% to $10.6million for the three months ended June 30, 2007 from $9.3 million for thethree months ended June 30, 2006. Management fees, equal to approximately3% of revenues, are paid to Insight LP.

Depreciation and amortization expense increased $5.2million or 8% primarily as a result of a continued high level of capitalexpenditures through June 30, 2007. These expenditures were primarily forpurchases of customer premise equipment, installation labor and materials,capitalized labor, headend equipment, network extensions and network capacityand bandwidth increases, all of which we consider necessary in order tocontinue 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 June 30,2006.

As a result of the factors discussed above, AdjustedOperating Income before Depreciation and Amortization increased $21.7 millionto $137.0 million, an increase of 19% over the prior year’s quarter.

Interest expense decreased$4.9 million, or 9%, because of lower interest rates, which averaged 7.9% forthe three months ended June 30, 2007, as compared to 8.6% for the threemonths ended June 30, 2006. 

***Six Months Ended June 30, 2007 Compared to SixMonths Ended June 30, 2006***

Revenue for the six months ended June 30, 2007,totaled $695.0 million, an increase of 13% over the prior year, due primarilyto RGU growth across all of our services, as well as video rate increases.High-speed Internet service revenue increased 24% over the prior year, whichwas attributable to an increased customer base and was partially offset bylower average revenue per customer due to promotional discounts. We added a net63,700 high-speed Internet customers during the six months to end at 674,900 customers.

Basic cable service revenue increased 6% due to anincreased customer base and video rate increases, partially offset bypromotional discounts. We added a net 18,200 basic customers during the sixmonths to end at 1,341,000 customers. In addition, digital service revenueincreased 26% over the prior year due to an increased customer base and a $1.56increase in digital ARPU. We added a net 39,900 digital customers during thesix months to end at 661,500 customers.

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 53,800 telephone customers during thesix months to end at 177,200 customers.

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

| ** **           | ** ** | **Revenue by Service Offering**  | ** ** | ** **                    | ** ** | ** **                                      | ** ** |
|----------------------|------------|-------------------------------------------------|------------|-------------------------------|------------|-------------------------------------------------|------------|
| ** **           | ** ** | **Six Months  Ended  June 30,  2007** | ** ** | **% of  Total  Revenue** | ** ** | **Six Months  Ended  June 30,  2006** | ** ** | **% of  Total  Revenue** | ** ** | ** ** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       |                                            | $          | 338,042                       |       |                                            |       | 48.6 | % |   |   | $ | 318,535 |   |   |   | 52.0 | % |   |   |   |   | 6.1 | % |   |
| High-Speed  Internet |       |                                            | 142,791    |                          |       |                                            | 20.5       | % |   |   | 115,113 |   |   |   | 18.8 | % |   |   |   |   | 24.0 | % |   |
| Digital              |       |                                            | 83,494     |                          |       |                                            | 12.0       | % |   |   | 66,030 |   |   |   | 10.8 | % |   |   |   |   | 26.4 | % |   |
| Advertising          |       |                                            | 39,059     |                          |       |                                            | 5.6        | % |   |   | 37,717 |   |   |   | 6.2 | % |   |   |   |   | 3.6 | % |   |
| Telephone            |       |                                            | 35,886     |                          |       |                                            | 5.2        | % |   |   | 23,883 |   |   |   | 3.9 | % |   |   |   |   | 50.3 | % |   |
| Premium              |       |                                            | 28,148     |                          |       |                                            | 4.1        | % |   |   | 27,246 |   |   |   | 4.4 | % |   |   |   |   | 3.3 | % |   |
| Franchise fees       |       |                                            | 16,112     |                          |       |                                            | 2.3        | % |   |   | 14,738 |   |   |   | 2.4 | % |   |   |   |   | 9.3 | % |   |
| Other                |       |                                            | 11,440     |                          |       |                                            | 1.7        | % |   |   | 9,736 |   |   |   | 1.5 | % |   |   |   |   | 17.5 | % |   |
| Total                |       |                                            | $          | 694,972                       |       |                                            |       | 100.0 | % |   |   | $ | 612,998 |   |   |   | 100.0 | % |   |   |   |   | 13.4 | % |   |

 

Average monthly revenue per basic customer was $86.70for the six months ended June 30, 2007, compared to $78.77 for the sixmonths ended June 30, 2006. This primarily reflects the continued growthof high-speed Internet, video and telephone product offerings in all markets,as well as video rate increases.

Programming and other operating costs increased $17.0million, or 8%. Increases in programming rates, customers and the addition ofnew programming content were significant drivers of the cost increase for the sixmonths ended June 30, 2007. For the six months ended June 30, 2006,programming costs reflected certain programming credits resulting fromfavorable resolution of pricing negotiations related to certain prior periodprogramming costs that were accrued at a higher rate than the amount actuallypaid. Programming credits for the six months ended June 30, 2007 weresignificantly lower, causing overall programming cost increases to be greater. Otherdirect operating costs decreased due to decreases in our high-speed Internetservice costs as the company, in 2006, transitioned its Internet servicesin-house and realized both cost savings and operational benefits from thisinvestment 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 and administrative expenses increased$26.8 million, or 19%, primarily due to increased payroll, payroll-relatedcosts and temporary help associated with an increase in the number of employeesand salary increases for existing employees. The increase in the number ofemployees represents investments in sales and marketing, customer care andnetwork operations personnel to continue to upgrade and enhance our productofferings, manage our increasingly complex network and increase customersatisfaction. A portion of the network operations personnel increases weredirectly related to the transition of our Internet services in-house. Franchisefees, customer billing and collection fees increased primarily due to theincrease in our revenues and our customer base. $3.0 million of partnership dissolutioncosts recorded in the second quarter of 2007 related to our planned division ofthe partnership with Comcast significantly contributed to the increase inselling, general and administrative expenses. Marketing expenses increased overthe prior year to support the continued rollout of high-speed Internet, digitaland telephone products, and to grow our core video customer base.

Management fees increased $2.4 million or 13% to $20.8million for the six months ended June 30, 2007 from $18.4 million for thesix months ended June 30, 2006. Management fees, equal to approximately 3%of revenues, are paid to Insight LP.

Depreciation and amortization expense increased $18.3million, or 14%, primarily as a result of a continued high level of capitalexpenditures through June 30, 2007. These expenditures were primarily for 

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purchases of customerpremise equipment, installation labor and materials, capitalized labor, headendequipment, network extensions and network capacity and bandwidth increases, allof which we consider necessary in order to continue to maintain and grow ourcustomer base and expand our service offerings. Partially offsetting thisincrease was a decrease in depreciation expense related to certain assets thathave become fully depreciated since June 30, 2006.

As a result of the factors discussed above, AdjustedOperating Income before Depreciation and Amortization increased $38.9 millionto $264.0 million, an increase of 17%.

Interest expense decreased$7.0 million, or 7%, because of lower interest rates, which averaged 7.9% forthe six months ended June 30, 2007, as compared to 8.5% for the six monthsended June 30, 2006.

**Liquidity andCapital Resources**

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

Cash provided by operations for the six months ended June 30,2007 and 2006 was $175.1 million and $135.0 million. The increase was primarilyattributable to the decrease in our net loss and an increase in non-cash items,specifically depreciation and amortization. These increases were partiallyoffset by a decrease in the timing of cash receipts and payments related to ourworking capital accounts.

Cash used in investing activities for the six monthsended June 30, 2007 and 2006 was $132.0 million and $140.7 million and wasprimarily for capital expenditures. These expenditures principally constitutedpurchases of customer premise equipment, installation labor and materials andcapitalized labor, all of which are necessary to grow our customer base andexpand our service offerings.

Cash used in financing activities for the six monthsended June 30, 2007 and 2006 was $45.4 million and $16.8 million. Theseexpenditures were primarily for the repayment of our credit facility.

Free Cash Flow forthe six months ended June 30, 2007 totaled $43.1 million compared to($5.7) million for the six months ended June 30, 2006. This increase inFree Cash Flow from June 30, 2006 to June 30, 2007 of $48.8 millionwas primarily driven by the following:

·       A$38.9 million increase in Adjusted Operating Income before Depreciation andAmortization;

·       A$17.9 million decrease in cash interest expense paid primarily driven by therefinancing 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; and

·       An$8.6 million decrease in capital expenditures.

These increases incash flow were offset by:

·       A$16.6 million decrease in the generation of Free Cash Flow over the same periodin the prior year from changes in working capital accounts.

We have a substantial amount of debt. Our high levelof debt could have important consequences. Our principal source of cash we needto pay our obligations and to repay the principal amount of our debt 

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obligations is the cashthat our subsidiaries generate from their operations and their borrowings. Webelieve that the Insight Midwest Holdings credit facility, cash on-hand and ourcash flow from operations are sufficient to support our current operating plan.As of June 30, 2007 we had the ability to draw upon $194.3 million ofunused availability under the Insight Midwest Holdings credit facility to fundany shortfall resulting from the inability of our cash from operations to fundour capital expenditures, meet our debt service requirements or otherwise fundour operations. As of June 30, 2007 we were in compliance with allcovenants under our credit agreement.

On April 1, 2007, our partnership agreement wasamended, and our manager agreed with Comcast on a division of our assets andliabilities. Upon completion of the transaction, we will own 100% of the cablesystems serving customers in Louisville, Lexington, Bowling Green andCovington, Kentucky, in Evansville, Indiana, and in Columbus, Ohio, and Comcastwill own 100% of the 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, our manager will continue to serve as our general partner andcontrol and manage all of our cable systems. Our manager will continue toinclude the results of our operations in its consolidated financial statements.In conjunction with the division of assets and liabilities, the Insight SystemsGroup was initially allocated approximately $1,259.6 billion of our debt andthe Comcast Systems Group was initially allocated approximately $1,335.4billion of our debt. The closing is subject to closing conditions, includinglocal governmental approvals and regulatory approvals, and is expected to becompleted by the end of 2007.

The credit facilityhas been structured to survive the division, subject to certain 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 would continueafter 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 manager’soption, to: (a) repay the remaining 93⁄4% senior notes, (b) repay theInsight Inc. 121⁄4% senior discount notes, (c) repay the $100.0 millionintercompany note, (d) prepay the Term Loans on a pro rata basis, (e) repayother debt and/or (f) for general corporate purposes. After the occurrenceof the division, the margin with respect to the Term Loan B will increase by 50basis points, or 0.50%, if and for so long as the Insight Midwest Holdings’leverage ratio exceeds 6.50:1.00. Upon the occurrence of the division, themaximum leverage permitted will increase by 0.50:1.00.

Thefollowing table summarizes our contractual obligations and commitments,excluding interest and commitments for programming, as of June 30, 2007,including periods in which the related payments are due (unaudited, inthousands):

| ** **              | ** ** | **Contractual Obligations** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **Long-Term  Debt**              | ** ** | **Operating  Leases** | ** ** | **Total** | ** ** |
| 2007                    |       | $                                | —     |   |   | $ | 1,606 |   |   | $ | 1,606 |   |
| 2008                    |       | 9,312                            |       |   | 2,372 |   |   | 11,684 |   |
| 2009                    |       | 242,063                          |       |   | 1,948 |   |   | 244,011 |   |
| 2010                    |       | 61,313                           |       |   | 1,281 |   |   | 62,594 |   |
| 2011                    |       | 180,562                          |       |   | 729 |   |   | 181,291 |   |
| Thereafter              |       | 2,047,750                        |       |   | 2,966 |   |   | 2,050,716 |   |
| Total cash  obligations |       | $                                | 2,541,000  |   |   | $ | 10,902 |   |   | $ | 2,551,902 |   |

 

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

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

The aggregate fair marketvalue and aggregate carrying value of our 93⁄4% senior notes was $201.0 millionand $200.0 million as of June 30, 2007. The fair market value of ourcredit facility borrowings approximates its carrying value as the creditfacility borrowings bear interest at floating rates of interest. As of June 30,2007, the fair value, if terminated, of our interest rate swap agreements was$1.1 million and is reflected in our financial statements as other current or non-currentassets. Changes in the fair value of our interest rate derivative financialinstruments are either recognized in income or in stockholders’ equity as acomponent of other comprehensive income depending on whether the derivativefinancial instruments qualify for hedge accounting.

**Item 4.**                        Controlsand Procedures

Under the supervision and with the participation ofInsight Midwest’s management, including its Chief Executive Officer and ChiefFinancial Officer, Insight Midwest evaluated the effectiveness of itsdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934) as of June 30,2007. Based upon that evaluation, its Chief Executive Officer and ChiefFinancial Officer concluded that its disclosure controls and procedures wereeffective.

There has not been any change in Insight Midwest’sinternal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended June 30,2007 that has materially affected, or is reasonably likely to materiallyaffect, its internal control over financial reporting.

Under the supervision and with the participation ofInsight Capital’s management, including its Chief Executive Officer and ChiefFinancial Officer, Insight Capital evaluated the effectiveness of itsdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934) as of June 30,2007. Based upon that evaluation, its Chief Executive Officer and ChiefFinancial Officer concluded that its disclosure controls and procedures wereeffective.

There has not been any change in Insight Capital’sinternal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended June 30,2007 that has materially affected, or is reasonably likely to materiallyaffect, its internal control over financial reporting.

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**PART II.**              OTHERINFORMATION

**Item 1A.**                RiskFactors

There have been nomaterial changes in our risk factors from those disclosed in our annual reporton Form 10-K for the year ended December 31, 2006.

**Item 6.**                        Exhibits

**Exhibits:**
| 31.1 |   | Rule 13a-14(a)/15d-14(a) Certifications  of the Chief Executive Officer of Insight Midwest, L.P.                  |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Rule 13a-14(a)/15d-14(a) Certifications  of the Chief Financial Officer of Insight Midwest, L.P.                  |
| 31.3 |   | Rule 13a-14(a)/15d-14(a) Certifications  of the Chief Executive Officer of Insight Capital, Inc.             |
| 31.4 |   | Rule 13a-14(a)/15d-14(a) Certifications  of the Chief Financial Officer of Insight Capital, Inc.             |
| 32.1 |   | Section 1350  Certifications of the Chief Executive Officer and Chief Financial Officer of  Insight Midwest, L.P.      |
| 32.2 |   | Section 1350  Certifications of the Chief Executive Officer and Chief Financial Officer of  Insight Capital, Inc. |

 

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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 14, 2007 | INSIGHT MIDWEST, L.P.                                   |
|----------------------------|---------------------------------------------------------|
|                       | By:                                                     | /s/ JOHN  ABBOT |
|                       | John Abbot                                              |
|                       | *Executive Vice President and Chief Financial  Officer* |
|                       | *(Principal Financial Officer)*                         |

 

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 14, 2007 | INSIGHT CAPITAL, INC.                                   |
|----------------------------|---------------------------------------------------------|
|                       | By:                                                     | /s/ JOHN  ABBOT |
|                       | John Abbot                                              |
|                       | *Executive Vice President and Chief Financial  Officer* |
|                       | *(Principal Financial Officer)*                         |

 

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