---




SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---







FORM 10-Q





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


SECURITIES EXCHANGE ACT OF 1934


For the Quarterly Period Ended June 30, 2002








Commission file numbers

333-33540 333-33540-1





---




INSIGHT MIDWEST, L.P.


INSIGHT CAPITAL, INC.


(Exact name of registrants as specified in their charters)








Delaware



13-4079232Delaware



13-4079679(State or other jurisdiction of incorporation or organization)



(I.R.S. Employer Identification Nos.)810 7thAvenue New York, New York



10019(Address of principal executive offices)



(Zip code)





Registrants telephone number, including area code:
917-286-2300





---







Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes x No  ̈





Indicate the number of shares
outstanding of each of the registrants classes of common stock, as of the latest practicable date.





Insight
Midwest, L.P.      Not Applicable


Insight Capital, Inc.         Not Applicable





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PART I.    FINANCIAL INFORMATION





Item 1.    Financial Statements





The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes required by accounting principles
generally accepted in the United States. However, in our opinion, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the relevant periods have been made. Results for the
interim periods are not necessarily indicative of the results to be expected for the year. These financial statements should be read in conjunction with the summary of significant accounting policies and the notes to the consolidated financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2001.




1




---

INSIGHT MIDWEST, L.P.


CONSOLIDATED BALANCE SHEETS


(in thousands)





June 30, 2002


December 31, 2001(unaudited)AssetsCash and cash equivalents

$
1,421


$
12,146Trade accounts receivable, net of allowance for doubtful accounts of $2,543 and $2,818 as of June 30, 2002 and December
31, 2001


21,722



22,918Launch funds receivable


7,263



12,980Prepaid expenses and other assets


14,609



20,647Total current assets


45,015



68,691Fixed assets, net


1,162,268



1,133,627Goodwill


15,198



15,198Franchise costs


2,285,545



2,278,465Other intangible assets, net of accumulated amortization of $3,403 and $2,260 as of June 30, 2002 and December 31,
2001


40,272



41,223Deferred financing costs, net of accumulated amortization of $5,334 and $3,885 as of June 30, 2002 and December 31,
2001


24,315



23,876Total assets

$
3,572,613


$
3,561,080Liabilities and partners capitalAccounts payable

$
27,927


$
66,712Accrued expenses and other liabilities


19,570



21,225Accrued property taxes


17,573



11,030Accrued programming costs


25,532



24,287Deferred revenue


6,023



8,673Interest payable


21,279



21,940Debt  current portion


2,500



Preferred interest distribution payable


5,250



5,250Due to affiliates


16,259



22,040Total current liabilities


141,913



181,157Deferred revenue


9,330



12,262Debt


2,377,232



2,298,362Other non-current liabilities


58,122



62,964Total liabilities


2,586,597



2,554,745Commitments and contingenciesPreferred interests


188,670



185,713Partners capital:Partners accumulated capital


815,200



843,377Accumulated other comprehensive loss


(17,854
)


(22,755
)Total partners capital


797,346



820,622Total liabilities and partners capital

$
3,572,613


$
3,561,080





See accompanying notes




2




---

INSIGHT MIDWEST, L.P.


CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited)


(in thousands)





Three months ended June
30,


Six months ended June
30,2002


2001


2002


2001Revenue

$
198,885


$
180,840


$
390,004


$
354,679Operating costs and expenses:Programming and other operating costs


68,423



65,036



136,971



127,028Selling, general and administrative


36,600



34,781



72,706



67,306Management fees


5,650



5,152



11,070



10,091Non-recurring high-speed data service charges










4,116



Depreciation and amortization


48,337



89,300



95,638



175,070Total operating costs and expenses


159,010



194,269



320,501



379,495Operating income (loss)


39,875



(13,429
)


69,503



(24,816
)Other income (expense):Interest expense


(43,259
)


(46,889
)


(87,845
)


(94,644
)Interest income


48



136



98



554Other


21



(306
)


24



(536
)Total other expense, net


(43,190
)


(47,059
)


(87,723
)


(94,626
)Net loss before extraordinary item


(3,315
)


(60,488
)


(18,220
)


(119,442
)Extraordinary loss from early extinguishment of debt














(10,315
)Net loss


(3,315
)


(60,488
)


(18,220
)


(129,757
)Accrual of preferred interests


(5,002
)


(4,807
)


(9,957
)


(9,573
)Net loss attributable to common interests

$
(8,317
)

$
(65,295
)

$
(28,177
)

$
(139,330
)





See accompanying notes




3




---

INSIGHT MIDWEST, L.P.


CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited)


(in thousands)





Six months ended June 30,2002


2001Operating activities:Net loss

$
(18,220
)

$
(129,757
)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization


95,638



175,070Extraordinary loss from early extinguishments of debt






10,315Provision for losses on trade accounts receivable


6,120



5,146Amortization of note discount


370



369Changes in operating assets and liabilities, net of the effects of acquisitions:Trade accounts receivable


(4,815
)


(6,137
)Launch fund receivable


5,717



7,156Prepaid expenses and other assets


6,067



2,816Accounts payable


(38,785
)


(14,409
)Accrued expenses and other liabilities


(5,415
)


27,723Net cash provided by operating activities


46,677



78,292Investing activities:Purchase of fixed assets


(119,365
)


(145,462
)Purchase of intangible assets


(877
)


Purchase of cable television systems, net of cash acquired


(8,822
)


(61,982
)Net cash used in investing activities


(129,064
)


(207,444
)Financing activities:Distributions of preferred interests


(7,000
)


(7,000
)Proceeds from borrowings under credit facilities


76,000



1,467,000Repayments of credit facilities


(95,000
)


(654,900
)Borrowings from parent under inter-company loan


100,000



Repayment of debt in connection with cable system transactions






(659,165
)Principal payments on capital leases and other non-current liabilities


(450
)


Debt issuance costs


(1,888
)


(11,202
)Net cash provided by financing activities


71,662



134,733Net increase (decrease) in cash and cash equivalents


(10,725
)


5,581Cash and cash equivalents, beginning of period


12,146



5,735Cash and cash equivalents, end of period

$
1,421


$
11,316





See accompanying notes




4




---



INSIGHT MIDWEST, L.P.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







1.    Organization and Basis of Presentation





We were formed in September 1999 to serve as the holding company and a financing vehicle for Insight Communications Company, Inc.s
(Insight Inc.) cable television system joint venture with AT&T Broadband, LLC (AT&T Broadband). We are owned 50% by Insight Communications Company, L.P. (Insight LP), which is wholly owned by Insight Inc.,
and 50% by AT&T Broadband, through its indirect subsidiary TCI of Indiana Holdings, LLC (TCI).





Through our wholly owned
subsidiaries Insight Communications of Central Ohio, LLC (Insight Ohio) and Insight Midwest Holdings, LLC (Insight Midwest Holdings), which wholly owns Insight Communications Midwest, LLC (Insight Communications
Midwest) and Insight Communications of Kentucky, L.P. (Insight Kentucky), we own and operate cable television systems in Indiana, Kentucky, Ohio, Illinois and Georgia which passed approximately 2.2 million homes and served
approximately 1.3 million customers as of June 30, 2002. Insight LP is our general partner and effectively controls all our operating and financial decisions.





The accompanying consolidated financial statements include the accounts of Insight Ohio and Insight Midwest Holdings.





2.    Responsibility for Interim Financial Statements





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





In our opinion, the consolidated financial statements reflect all adjustments considered necessary for a fair statement of the consolidated results of operations
and financial position for the interim periods presented. All such adjustments are of a normal recurring nature, except as described in Note 9. These unaudited interim consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes to consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2001.





The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002 or any other interim period.




5




---



INSIGHT MIDWEST, L.P.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)







3.    Recent Accounting Pronouncements





In May 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of
FASB Statement No. 13, and Technical Corrections. SFAS No. 145 eliminates the requirement under SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, to report gains and losses from extinguishments of debt as
extraordinary items in the income statement. Accordingly, gains or losses from extinguishments of debt for fiscal years beginning after May 15, 2002 shall not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary
item under the provisions of APB Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Upon
adoption of this pronouncement, any gain or loss on extinguishment of debt previously classified as an extraordinary item in prior periods presented that does not meet the criteria of Opinion 30 for such classification should be reclassified to
conform with the provisions of SFAS No. 145. Accordingly, upon adoption of this pronouncement, we expect to reclassify a loss from early extinguishment of debt of $10.3 million recorded during the three months ended March 31, 2001, to results from
continuing operations.





4.    Accounting for Franchise Fees





Under our franchise agreements, we are obligated to pay to local franchising authorities up to 5% of our gross revenue derived from providing cable and other
services the majority of which are passed through to customers. We have historically recorded revenue net of franchise fees charged to our customers. Staff announcement D-103, issued by the Financial Accounting Standards Board staff in November
2001, specifies that reimbursements received from a customer should be reflected as revenues and not as a reduction of expenses. This staff announcement applies to financial reporting periods beginning after December 15, 2001. Upon application of
this staff announcement, comparative financial statements for prior periods are required to be reclassified to comply with the guidance in this staff announcement. Consequently, we have reclassified the amounts in the accompanying consolidated
statements of operations to reflect franchise fees on a gross basis for all periods presented with reimbursements as revenue and payments as expense. The effect on the prior period statement of operations for the three and six months ended June 30,
2001 was to increase both revenue and selling, general and administrative costs by $5.9 million and $11.6 million.





In addition, certain
other prior period amounts have been reclassified to conform to the current period presentation.




6




---



INSIGHT MIDWEST, L.P.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)







5.    Long-Lived Assets





Fixed assets consisted of:





June 30, 2002


December 31, 2001(in thousands)Land, buildings and improvements

$
31,938


$
31,233Cable system equipment


1,675,918



1,555,244Furniture, fixtures and office equipment


14,203



13,8931,722,059



1,600,370Less accumulated depreciation and amortization


(559,791
)


(466,743
)Total fixed assets, net

$
1,162,268


$
1,133,627





In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, which became effective for us beginning January 1, 2002 and changes the accounting for goodwill and franchise costs from an amortization method to an impairment only approach. In addition, the standard includes provisions, upon
adoption, for the reclassification of certain existing recognized intangibles as goodwill and franchise costs, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported
goodwill and franchise costs and the testing for impairment of existing goodwill and franchise costs.





SFAS No. 142 requires that
goodwill and franchise costs be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. The second step of
the impairment test measures the amount of the impairment loss, if any, measured as of the beginning of the year of adoption, and must be completed by the end of our fiscal year. Based on our analysis, there was no impairment of goodwill or
franchise costs upon the adoption of SFAS No. 142 on January 1, 2002.





Applying the effects of the adoption of SFAS No. 142 to the three
and six month period ended June 30, 2001, would have resulted in loss before extraordinary items of $(12.7) million and $(23.9) million and net loss of $(12.7) million and $(34.2) million. The reconciliation of reported net loss to pro forma net
loss adjusted for the effects of SFAS No. 142 for the three and six months ended June 30, 2001 is as follows (in thousands):





Three Months Ended June 30, 2001


Six Months Ended June 30, 2001Net loss as reported

$
(60,488
)

$
(129,757
)Less amortization for:Franchise costs


42,111



84,222Goodwill


5,664



11,328Pro forma net loss

$
(12,713
)

$
(34,207
)




7




---



INSIGHT MIDWEST, L.P.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)







5.    Long-Lived Assets (continued)





We recorded amortization expense of $1.3 million and $2.6 million for the three and six months ended June 30, 2002 and $48.8 million and $96.9 million
for the three and six months ended June 30, 2001. We estimate aggregate amortization expense to be approximately $5.2 million for each of the five succeeding fiscal years.





6.    Debt





Debt consisted of:





June 30,   2002


December 31,   2001(in thousands)Insight Ohio Credit Facility

$
25,000


$
25,000Note Payable to Insight LP


100,000



Insight Midwest Holdings Credit Facility


1,561,000



1,580,000Insight Midwest 93⁄4% Senior Notes


200,000



200,000Insight Midwest 101⁄2% Senior Notes


500,000



500,0002,386,000



2,305,000Less unamortized discount on notes


(6,268
)


(6,638
)Total debt

$
2,379,732


$
2,298,362





Insight Midwest Holdings Credit Facility





Insight Midwest Holdings is party to a $1.75 billion credit facility. On March 25, 2002, we formally requested approval from the lenders of amendments to the
leverage ratio covenant to allow Insight Midwest Holdings more flexibility and to increase the aggregate amount that can be distributed to us for the purpose of making investments in Insight Ohio. In addition, on March 28, 2002, we borrowed $100.0
million from Insight Inc. to lower its effective interest rates, $97.0 million of which was contributed to Insight Midwest Holdings in April 2002 for use in paying down the credit facility balance and in funding financing costs associated with the
amendments, and $3.0 million of which was contributed to Insight Ohio on March 28, 2002. Pursuant to the credit facility amendments, Insight Midwest Holdings is permitted to make distributions to us for the purpose of repaying this loan provided
that the leverage ratio is less than 4.25 to 1.0 and there are no defaults existing under the credit facility. This loan bears annual interest of 9%, has a scheduled maturity date of January 31, 2011 and permits prepayments. On April 18, 2002, the
lenders approved these amendments to the credit facility.





On June 6, 2002, a further amendment to the credit facility was entered into
which permits distributions by Insight Midwest Holdings to us for the purpose of repaying the $100.0 million loan from Insight Inc., without regard to the minimum leverage ratio requirement. This amendment will become effective upon the completion
of a debt offering by us of at least $175.0 million and the contribution of the proceeds to Insight Midwest Holdings. In the event we do not complete the debt offering by December 31, 2002, this amendment will not become effective.




8




---



INSIGHT MIDWEST, L.P.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)







6.    Debt (continued)





Debt Principal Payments





As of June
30, 2002, principal payments required on our debt were as follows (in thousands):





2002

$
2003


5,0002004


80,0002005


81,2502006


87,750Thereafter


2,132,000Total

$
2,386,000





Interest Rate Swap and Collar Agreements





We enter into interest-rate swap agreements to modify the interest characteristics of our outstanding debt from a floating rate to a fixed rate basis. These
agreements involve the payment of fixed rate amounts in exchange for floating rate interest receipts over the life of the agreement without an exchange of the underlying principal amount. The differential to be paid or received is accrued as
interest rates change and is recognized as an adjustment to interest expense related to the debt. The related amount payable or receivable is included in other liabilities or assets.





As of June 30, 2002 and December 31, 2001, we had entered into various interest rate swap and collar agreements included in other liabilities of $17.9 million and $22.8 million, effectively fixing
interest rates between 4.7% and 5.9%, plus the applicable margin, on $435.0 million and $500.0 million notional value of debt. The agreements outstanding as of June 30, 2002 expire in July 2003. As of June 30, 2002, we had $2.6 million of accrued
interest related to these agreements.





7.    Comprehensive Loss





Comprehensive loss totaled $4.4 million and $13.3 million for the three and six months ended June 30, 2002 and $63.3 million and $144.2 million for the three and
six months ended June 30, 2001. Comprehensive loss for the six months ended June 30, 2001 included a $1.9 million transition adjustment loss representing the cumulative effect of adopting Statement of Financial Accounting Standards No. 133. We
record the effective portion of interest rate swaps gains or losses as accumulated other comprehensive income or loss in the accompanying consolidated balance sheets.




9




---



INSIGHT MIDWEST, L.P.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)







8.    Related Party Transactions





Programming





We purchase
substantially all of our pay television and other programming from affiliates of AT&T Broadband. Charges for such programming, including a 11⁄2% administrative fee, were $33.2 million and $64.2 million for the three and six months ended
June 30, 2002 and $28.1 million and $55.1 million for the three and six months ended June 30, 2001. As of June 30, 2002 and December 31, 2001, $10.6 million and $10.3 million of accrued programming costs were due to affiliates of
AT&T Broadband. We believe that the programming rates charged by the affiliates of AT&T Broadband are lower than those available from independent parties.





Telephony Agreements





In July 2000, to facilitate delivery of telephone
services, we entered into a ten-year agreement with AT&T Broadband that allows us to deliver to our customers local telephone service under the AT&T Digital Phone brand. Under the terms of the agreement, we lease for a fee certain capacity
on our network to AT&T Broadband. We provide certain services and support for which we receive additional payments. We began providing telephony services to a limited number of our customers in 2001. Revenue related to telephony services was
$339,000 and $581,000 for the three and six months ended June 30, 2002 and $4,000 and $5,000 for the three and six months ended June 30, 2001. The capital required to deploy telephone services over our networks is shared, with AT&T
Broadband responsible for switching and transport facilities. AT&T also pays us for installations, marketing and billing support that amounted to $1.6 million and $2.8 million for the three and six months ended June 30, 2002 and $173,000 for the
three and six months ended June 30, 2001.





Advertising Services





In October 1999, to facilitate the administration of our advertising services in our Kentucky Systems, we entered into an agreement expiring on January 1, 2004 with TCI Media Services LLC
(TCI Media Services), a subsidiary of AT&T Corp., which provides for TCI Media Services to perform all of our Kentucky advertising sale and related administrative services. We recorded advertising revenues from TCI Media Services
derived from our Kentucky Systems of $3.8 million and $7.1 million for the three and six months ended June 30, 2002 and $3.2 million and $5.5 million for the three and six months ended June 30, 2001. As of June 30, 2002 and
December 31, 2001, we had $6.4 million and $6.9 million recorded as a receivable due from TCI Media Services included in prepaid and other current assets. We pay TCI Media Services a fixed and variable fee based on advertising sales cash flow
growth for providing this service. As of June 30, 2002 and December 31, 2001, we had $245,000 and $666,000 recorded as payables to TCI Media Services related to such services.




10




---



INSIGHT MIDWEST, L.P.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







|9. |  | At Home Corporation
|-- |  | -------------------




Non-recurring high-speed data service charges were incurred through February 28, 2002 as a result of payments made to At Home Corporation (@Home), the former provider of high-speed data services for all of our systems,
except for those located in Ohio. On September 28, 2001, @Home filed for protection under Chapter 11 of the Bankruptcy Code. For the purpose of continuing service to existing customers and to resume the provisioning of service to new customers, we
entered into an interim service arrangement that required that we pay $10.0 million to @Home to extend service for three months through February 28, 2002. As a result of this arrangement we incurred approximately $4.1 million in excess of our
original agreed-to cost for such services rendered from January 1, 2002 through February 28, 2002.








|10. |  | Commitments and Contingencies
|--- |  | -----------------------------




Programming Contracts





We enter into long-term contracts with third parties who provide us with programming
for distribution over our cable television systems. These programming contracts are a significant part of our business and represent a substantial portion of our operating costs. Since future fees under such contracts are based on numerous
variables, including number and type of customers, we have not recorded any liabilities with respect to such contracts.





Litigation





The prior owners of the Kentucky systems have named Insight Kentucky and certain prior owners
of the Kentucky Systems in class actions regarding the pass-through of state and local property tax charges to approximately 320,000 customers. The plaintiffs seek monetary damages and the enjoinment of the collection of such taxes. We have entered
into agreements with the plaintiffs to settle these lawsuits. Such settlement agreements have been preliminarily approved by the courts and are subject to a determination of fairness and final court approval. The settlements will not have a material
effect on our results of operations or cash flows.








We are subject to various legal proceedings
that arise in the ordinary course of business. While it is impossible to determine with certainty the ultimate outcome of these matters, it is our opinion that the




11




---



INSIGHT MIDWEST, L.P.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)







|10. |  | Commitments and Contingencies (continued)
|--- |  | -----------------------------------------




resolution of these matters will not have a material adverse affect on our consolidated financial condition.







12




---



INSIGHT CAPITAL, INC.





BALANCE SHEETS


(in thousands)







June 30, 2002


December 31, 2001(unaudited)AssetsCash

$
1


$
1Deferred financing costs, net


11,272



12,004Total assets

$
11,273


$
12,005Liabilities and shareholders deficitAccrued interest

$
13,625


$
13,625Total current liabilities


13,625



13,625Senior notes, to be paid by Insight Midwest, LP


693,732



693,362Total liabilities


707,357



706,987Shareholders deficit:Common stock; $.01 par value; 1,000 shares authorized, issued and outstanding






Paid-in-capital


1



1In-substance allocation of proceeds related to senior notes to be paid by Insight Midwest


(550,430
)


(586,430
)Accumulated deficit


(145,655
)


(108,553
)Total shareholders deficit


(696,084
)


(694,982
)Total liabilities and shareholders deficit

$
11,273


$
12,005





See accompanying notes




13




---




INSIGHT CAPITAL, INC.





STATEMENTS OF OPERATIONS


(unaudited)


(in thousands)





Three months endedJune 30,


Six months endedJune 30,2002


2001


2002


2001Expenses:Amortization

$
(366
)

$
(366
)

$
(732
)

$
(732
)Interest expense


(18,185
)


(18,185
)


(36,370
)


(36,370
)Net loss

$
(18,551
)

$
(18,551
)

$
(37,102
)

$
(37,102
)














See accompanying notes




14




---




INSIGHT CAPITAL, INC.





STATEMENTS OF OPERATIONS


(unaudited)


(in thousands)





Six months ended June 30,2002


2001Cash flows from operating activities:Net loss

$
(37,102
)

$
(37,102
)Adjustments to reconcile net loss to net cash provided by operating activities:Amortization


732



732Interest expense assumed by affiliate


36,370



36,370Net cash provided by operating activities






Net increase in cash






Cash, beginning of period


1



1Cash, end of period

$
1


$
1

















See accompanying notes




15




---



INSIGHT CAPITAL, INC.





NOTES TO FINANCIAL STATEMENTS(CONTINUED)







1.    Nature of 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. (Insight Midwest) of senior notes which allows certain investors the ability to be holders of the debt. The Company has no operations. The outstanding shares of the Company are owned by Insight Midwest.





2.    Responsibility for Interim Financial Statements





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





In managements opinion, the financial statements reflect all adjustments considered necessary for a
fair statement of the financial position as of the interim dates presented. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes to financial statements contained in the
Companys Annual Report on Form 10-K for the year ended December 31, 2001.





The preparation of financial statements in
conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements. Actual results could differ from those estimates.




16




---




Item 2.    Managements Discussion and Analysis of Financial Condition and
Results of Operations





Forward-Looking Statements





Some of the information in this quarterly report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as
may, will, expect, anticipate, believe, estimate and continue or similar words. You should read statements that contain these words carefully because they:





| | · |  | discuss our future expectations;
| | - |  | --------------------------------




| | · |  | contain projections of our future results of operations or of our financial condition; or
| | - |  | -----------------------------------------------------------------------------------------




| | · |  | state other forward-looking information.
| | - |  | ------------------------------------------




We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors listed in
our Annual Report on Form 10-K for the year ended December 31, 2001, as well as any cautionary language in this quarterly report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. Examples of these risks include our history and expectation of future net losses, our substantial debt, increasing programming costs and competition. You should be aware that the occurrence
of the events described in these risk factors and elsewhere in this quarterly report could have a material adverse effect on our business, operating results and financial condition.





Results of Operations





A substantial portion of our revenues are earned from
customer fees for cable television programming services including premium, digital and pay-per-view services and ancillary services, such as rental of converters and remote control devices, installations and from selling advertising. In addition, we
earn revenues from providing high-speed data and telephone services as well as from commissions for products sold through home shopping networks.





Under our franchise agreements, we are obligated to pay to local franchising authorities up to 5% of our gross revenue derived from providing cable and other services the majority of which are passed through to our customers. We have
historically recorded revenue net of franchise fees charged to our customers. Staff announcement D-103, issued by the Financial Accounting Standards Board staff in November 2001, specifies that reimbursements received from a customer should be
reflected as revenues and not as a reduction of expenses. This staff announcement applies to financial reporting periods beginning after December 15, 2001. Upon application of this staff announcement, comparative financial statements for prior
periods are required to be reclassified to comply with the guidance in this staff announcement. Consequently, we have reclassified the amounts in the accompanying consolidated statements of operations to reflect franchise fees on a gross basis for
all periods presented with reimbursements as revenue and payments as expense. The effect on the prior period statement of operations for the three and six months ended June 30, 2001 was to increase both revenue and selling, general and
administrative costs by $5.9 million and $11.6 million.




17




---




Some of the principal reasons for our net losses through December 31, 2001 include depreciation and
amortization associated with our acquisitions and capital expenditures related to construction and upgrading of our systems, and interest costs on borrowed money. Beginning January 1, 2002, we no longer record amortization expense associated with
goodwill and franchise costs; however, we expect to continue to report net losses for the foreseeable future. We cannot predict what impact, if any, continued losses will have on our ability to finance our operations in the future.





The following table is derived for the periods presented from our consolidated financial statements that are included in this report and sets forth
certain statement of operations data for our consolidated operations (in thousands):





Three MonthsEnded June 30,


Six MonthsEnded June 30,2002


2001


2002


2001Revenue

$
198,885


$
180,840


$
390,004


$
354,679Operating costs and expenses:Programming and other operating costs


68,423



65,036



136,971



127,028Selling, general and administrative


36,600



34,781



72,706



67,306Management fees


5,650



5,152



11,070



10,091Non-recurring high-speed data charges










4,116



Depreciation and amortization


48,337



89,300



95,638



175,070Total operating costs and expenses


159,010



194,269



320,501



379,495Operating income (loss)


39,875



(13,429
)


69,503



(24,816
)Operating cash flow


88,212



75,871



169,257



150,254Interest expense


(43,259
)


(46,889
)


(87,845
)


(94,644
)Net loss


(3,315
)


(60,488
)


(18,220
)


(129,757
)Net cash provided by operating activities


8,844



3,515



46,677



78,292Net cash used in investing activities


74,759



82,239



129,064



207,444Net cash provided by financing activities


51,003



88,000



71,662



134,733





Operating Cash Flow (OCF) represents earnings before interest, taxes,
depreciation and amortization, other income and expense, non-recurring high-speed data costs and extraordinary items. We believe that OCF is commonly used in the cable television industry to analyze and compare cable television companies on the
basis of operating performance, leverage and liquidity. However, OCF is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either operating income or net income as an indicator of
operating performance or cash flows as a measure of liquidity, as determined in accordance with accounting principles generally accepted in the United States. Refer to our consolidated financial statements, including our consolidated statements of
cash flows, which appear elsewhere in this report.




18




---




The following calculations of OCF (in thousands) are not necessarily comparable to similarly titled
amounts of other companies:





Three Months Ended June
30,


Six Months Ended June
30,2002


2001


2002


2001Net loss

$
(3,315
)

$
(60,488
)

$
(18,220
)

$
(129,757
)Adjustments:Interest expense


43,259



46,889



87,845



94,644Interest income


(48
)


(136
)


(98
)


(554
)Depreciation and amortization


48,337



89,300



95,638



175,070Other expense


(21
)


306



(24
)


536Non-recurring high-speed data costs










4,116



Extraordinary loss from early extinguishment of debt














10,315Operating cash flow

$
88,212


$
75,871


$
169,257


$
150,254





Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001





Revenue increased $18.0 million or 10.0% to $198.9 million for the three months ended June 30, 2002 from $180.8 million for the
three months ended June 30, 2001. The increase in revenue was primarily the result of gains in our high-speed data and digital services with revenue increases over the prior year quarter of 66.2% and 43.2%. In addition, our basic cable service
revenue increased primarily due to basic cable rate increases.





Revenue by service offering were as follows for the three months ended
June 30 (in thousands):





2002



2001Revenue by Service Offering

% of Total   Revenue

Revenue by Service Offering

% of Total   RevenueBasic

$
125,034

62.9%

$
118,155

65.3%Digital


16,550

8.3%


11,555

6.4%High-speed data


14,080

7.1%


8,471

4.7%Premium


15,215

7.6%


14,401

8.0%Analog pay-per-view


422

0.2%


1,245

0.7%Advertising


13,292

6.7%


12,130

6.7%Franchise fees


6,163

3.1%


5,937

3.3%Other


8,129

4.1%


8,946

4.9%Total

$
198,885

100.0%

$
180,840

100.0%




19




---




RGUs (Revenue Generating Units) were approximately 1,707,000 as of June 30, 2002 compared to
approximately 1,555,200 as of June 30, 2001 on a same-store basis. This represents an annualized growth rate of 9.8%. RGUs represent the sum of basic, digital, high-speed data, and telephone customers.





Average monthly revenue per basic customer was $51.13 for the three months ended June 30, 2002 compared to $47.19 for the three months ended June 30, 2001,
primarily reflecting the continued successful rollout of new product offerings in the Indiana, Kentucky and Ohio markets. Average monthly revenue per basic customer for high-speed data and interactive digital video increased to $7.87 for the three
months ended June 30, 2002 up from $5.22 for the three months ended June 30, 2001.





Programming and other operating costs increased $3.4
million or 5.2% to $68.4 million for the three months ended June 30, 2002 from $65.0 million for the three months ended June 30, 2001. The increase in programming and other operating costs was primarily the result of increased programming rates
for our classic and digital service as well as for additional programming added in rebuilt systems. Programming costs increased 11.9% for the three months ended June 30, 2002 from the three months ended June 30, 2001.





Selling, general and administrative expenses increased $1.8 million or 5.2% to $36.6 million for the three months ended June 30, 2002 from $34.8 million for
the three months ended June 30, 2001. The increase in selling, general and administrative expense was primarily the result of increased employee compensation and employment levels associated with new services partially offset by a decrease in
marketing costs.





Depreciation and amortization expense decreased $41.0 million or 45.9% to $48.3 million for the three months ended
June 30, 2002 from $89.3 million for the three months ended June 30, 2001. The decrease in depreciation and amortization expense was primarily the result of ceasing the amortization of goodwill and indefinite lived intangible assets associated
with the adoption of SFAS No. 142, effective January 1, 2002, partially offset by depreciation of capital expenditures purchased subsequent to June 30, 2001.





OCF increased $12.3 million or 16.3% to $88.2 million for the three months ended June 30, 2002 from $75.9 million for the three months ended June 30, 2001, primarily due to increased digital and
high-speed data revenue partially offset by increases in programming and other operating costs and selling, general and administrative costs.





Interest expense decreased $3.6 million or 7.7% to $43.3 million for the three months ended June 30, 2002 from $46.9 million for the three months ended June 30, 2001. The decrease is the result of lower average interest rates of 7.4%
for the three months ended June 30, 2002 from 8.8% for the three months ended June 30, 2001 partially offset by higher outstanding debt of $2.4 billion during the three months ended June 30, 2002 from $2.1 billion during the three months ended
June 30, 2001, resulting from the funding of capital expenditures.





For the three months ended June 30, 2002, the net loss was $3.3
million.




20




---




Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001





Revenue increased $35.3 million or 10.0% to $390.0 million for the six months ended June 30, 2002 from $354.7 million for the six months ended June
30, 2001. The increase in revenue was primarily the result of gains in our high-speed data and digital services with revenue increases over the prior year period of 72.2% and 51.8%. In addition, our basic cable service revenue increased primarily
due to basic cable rate increases.





Revenue by service offering were as follows for the six months ended June 30 (in thousands):





2002 Revenue by Service Offering

% of Total   Revenue

2001 Revenue by Service Offering

% of Total   RevenueBasic

$
247,340

63.4%

$
234,943

66.2%Digital


31,982

8.2%


21,074

6.0%High-speed data


25,732

6.6%


14,947

4.2%Premium


30,053

7.7%


29,406

8.3%Analog pay-per-view


961

0.2%


2,531

0.7%Advertising


24,823

6.4%


21,729

6.1%Franchise fees


12,552

3.2%


11,626

3.3%Other


16,561

4.3%


18,423

5.2%Total

$
390,004

100.0%

$
354,679

100.0%





Average monthly revenue per basic customer was $50.24 for the six months ended June 30,
2002 compared to $46.29 for the six months ended June 30, 2001, primarily reflecting the continued successful rollout of new product offerings in the Indiana, Kentucky and Ohio markets. Average monthly revenue per basic customer for high-speed data
and interactive digital video increased to $7.43 for the six months ended June 30, 2002 up from $4.70 for the six months ended June 30, 2001.





Programming and other operating costs increased $9.9 million or 7.8% to $137.0 million for the six months ended June 30, 2002 from $127.0 million for the six months ended June 30, 2001. The increase in programming and other operating
costs was primarily the result of increased programming rates for our classic and digital service as well as for additional programming added in rebuilt systems. Programming costs increased 13.7% for the six months ended June 30, 2002 from the six
months ended June 30, 2001.





Selling, general and administrative expenses increased $5.4 million or 8.0% to $72.7 million for the six
months ended June 30, 2002 from $67.3 million for the six months ended June 30, 2001. The increase in selling, general and administrative expense was primarily the result of increased employee compensation and employment levels associated with new
services partially offset by a decrease in marketing costs.





Non-recurring high-speed data service charges were incurred through February
28, 2002 as a result of payments made to At Home Corporation (@Home), the former provider of high-speed data services




21




---




for all of our systems, except for those located in Ohio. On September 28, 2001, @Home filed for
protection under Chapter 11 of the Bankruptcy Code. For the purpose of continuing service to existing customers and to resume the provisioning of service to new customers, we entered into an interim service arrangement that required us to pay $10.0
million to @Home to extend service for three months through February 28, 2002. As a result of this arrangement we incurred approximately $4.1 million in excess of our original agreed-to cost for such services rendered through February 28, 2002.





Depreciation and amortization expense decreased $79.4 million or 45.4% to $95.6 million for the six months ended June 30, 2002 from
$175.1 million for the six months ended June 30, 2001. The decrease in depreciation and amortization expense was primarily the result of ceasing the amortization of goodwill and indefinite lived intangible assets associated with the adoption of
SFAS No. 142, effective January 1, 2002, partially offset by capital expenditures made to rebuild the existing cable equipment.





OCF increased $19.0 million or 12.6% to $169.3 million for the six months ended June 30, 2002 from $150.3 million for the six months ended June 30, 2001, primarily due to increased digital and high-speed data revenue partially offset
by increases in programming and other operating costs and selling, general and administrative costs.





Interest expense decreased $6.8
million or 7.2% to $87.8 million for the six months ended June 30, 2002 from $94.6 million for the six months ended June 30, 2001. The decrease is the result of lower average interest rates of 7.5% for the six months ended June 30, 2002
from 10.1% for the six months ended June 30, 2001 partially offset by higher outstanding debt of $2.3 billion during the six months ended June 30, 2002 from $1.9 billion during the six months ended June 30, 2001, resulting from the funding of
capital expenditures subsequent to June 30, 2001.





For the six months ended June 30, 2002, the net loss was $18.2 million.




22




---




Liquidity and Capital Resources





Our business requires cash for operations, debt service, capital expenditures and acquisitions. The cable television business has substantial on-going capital requirements for the construction,
expansion and maintenance of its broadband networks. Expenditures have primarily been used to upgrade our existing cable network, and in the future will be used for network extensions, new services, converters and network upgrades. Historically, we
have been able to meet our cash requirements with cash flow from operations, borrowings under our credit facilities and issuances of private and public debt.





Cash provided by operations for the six months ended June 30, 2002 and 2001 was $46.7 million and $78.3 million. The decrease was primarily attributable to decrease in depreciation and amortization expense.





Cash used in investing activities for the six months ended June 30, 2002 and 2001 was $129.1 million and $207.4 million. The decrease was primarily
attributable to no significant acquisitions of cable television systems and reduced capital expenditures in 2002.





Cash provided by
financing activities for the six months ended June 30, 2002 and 2001 was $71.7 million and $134.7 million. The decrease was primarily attributable to lower borrowings on our credit facilities offset by an inter-company loan of $100.0 million from
Insight Inc. made on March 28, 2002.





For the six months ended June 30, 2002 and 2001, we spent $119.4 million and $145.5 million in
capital expenditures largely to support our plant rebuild in Illinois which is estimated to be substantially completed by year-end, telephone deployment and success-based capital including interactive digital and high-speed data expansion.





On April 18, 2002, we entered into an amendment to the Insight Midwest Holdings credit facility which delayed by six months the
scheduled reduction to the leverage ratio covenant to allow Insight Midwest Holdings more financing flexibility, and increased the aggregate amount that can be distributed to us for the purpose of making investments in Insight Ohio. Previously, on
March 28, 2002, Insight Inc. loaned $100.0 million to us to lower its effective interest rates, $97.0 million of which was contributed to Insight Midwest Holdings on April 18, 2002 for use in paying down the credit facility balance and in funding
financing costs associated with the amendments, and $3.0 million of which was contributed to Insight Ohio on March 28, 2002. Pursuant to the credit facility amendments, Insight Midwest Holdings is permitted to make distributions to us for the
purpose of repaying this loan provided that the leverage ratio is less than 4.25 to 1.0 and there are no defaults existing under the credit facility. This loan bears annual interest of 9%, has a scheduled maturity date of January 31, 2011 and
permits prepayments.





On June 6, 2002, a further amendment to the credit facility was entered into which permits distributions by Insight
Midwest Holdings to us for the purpose of repaying the $100.0 million loan from Insight Inc., without regard to the minimum leverage ratio requirement. This amendment will become effective upon the completion of a debt offering by us of at least
$175.0 million and the contribution of the proceeds to Insight Midwest Holdings.





We have a substantial amount of debt. Our high level of
debt could have important consequences for you. Our principal source of cash we need to pay our obligations and to repay the principal amount of our debt obligations is the cash that our subsidiaries generate from their operations and their
borrowings.




23




---




We believe that the Midwest Holdings Credit Facility, cash on-hand and our cash flow from operations are
sufficient to support our current operating plan. We have the ability to draw upon the $189.0 million of unused availability under the Midwest Holdings Credit Facility as of June 30, 2002 to fund any shortfall resulting from the inability of our
cash from operations to fund capital expenditures, meet our debt service requirements or otherwise fund our operations.





The following
table summarizes our contractual obligations and commitments, excluding interest, preferred dividends and commitments for programming, as of June 30, 2002, including periods in which the related payments are due (in thousands):





LONG-TERM DEBT

PREFERRED INTERESTS

OPERATING LEASES

CAPITAL LEASES

Total2002

$


$


$
1,402

$
369

$
1,7712003


5,000





2,361


738


8,0992004


80,000





1,911


738


82,6492005


81,250





1,171


738


83,1592006


87,750


140,000


864


838


229,452Thereafter


2,132,000


55,869


1,404


4,672


2,193,945Total cash obligations

$
2,386,000

$
195,869

$
9,113

$
8,093

$
2,599,075





The following tables summarize our capital expenditures for the year ended December 31,
2001 and projected capital expenditures for the year ending December 31, 2002, both including and excluding capitalized labor allocations by category (in thousands):





2001 Actual

2002 ProjectedSuccess-based (1)

$
112,033

$
83,789Upgrades (2)


90,934


78,623Telephone (3)


60,412


66,922Line extensions (4)


31,514


37,789Maintenance (5)


25,064


25,687Total capital expenditures

$
319,957

$
292,810




24




---




2001 Actual

2002 ProjectedSuccess-based (1)

$
91,990

$
62,276Upgrades (2)


89,314


73,901Telephone (3)


57,114


59,576Line extensions (4)


8,891


18,899Maintenance (5)


25,532


25,687Capitalized labor and overhead (6)


47,116


52,471Total capital expenditures

$
319,957

$
292,810





|(1) |  | Success-based consists primarily of costs for converters, remotes, modems and other high-speed data equipment, in addition to materials and contract labor for
new customer connections. Excludes success-based capital expenditures for telephone.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Upgrades consist primarily of costs to rebuild and/or upgrade distribution systems, head-end towers, antennas and related equipment, in addition to contract
labor.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Telephone consists primarily of costs to construct telephone service infrastructures, as well as costs to upgrade headends with host digital terminals, plant
and billing systems to accommodate telephone services and all success-based capital expenditures.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | Line extensions consist primarily of costs associated with entering new service areas including costs of fiber, coaxial cable, amplifiers and electronic
equipment.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(5) |  | Maintenance consists primarily of costs of buildings, building improvements, computer and office equipment, vehicles, tools and other equipment.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------




|(6) |  | Capitalized labor and overhead consists primarily of internal payroll and overhead costs capitalized based on the percentage of time technical employees work
directly on capital projects including construction, rebuilds and new customer connections. The allocation of capitalized labor to the capital expenditure categories in the above table is based on the composite percentage of time incurred on such
respective categories.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



25




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Item 3.    Quantitative and Qualitative Disclosure About Market Risk





Our revolving credit and term loan agreements bear interest at floating rates. Accordingly, we are exposed to potential losses
related to changes in interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. In order to manage our exposure to interest rate risk, we enter into derivative financial instruments,
typically interest rate swaps and collars. The counter-parties to our swap and collar agreements are major financial institutions. As of June 30, 2002, our interest rate swap and collar agreements expire in July 2003.





The fair market value and carrying value of our 93⁄4% and 101⁄2% senior notes was $650.6 million and $693.7 million as of June 30, 2002. The fair
market value of our credit facility borrowings approximates its carrying value as the credit facility borrowings bear interest at floating rates of interest. As of June 30, 2002, the estimated fair value (cost if terminated) of our interest rate
swap and collar agreements was approximately $(17.9) million, which represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices and is reflected in our financial statements as
other non-current liabilities. Changes in the fair value of derivative financial instruments are either recognized in income or in stockholders equity as a component of other comprehensive loss depending on whether the derivative financial
instruments qualify for hedge accounting.





As of June 30, 2002, we had entered into interest rate swaps that approximated $435.0 million,
or 27.4%, of our borrowings under all of our credit facilities. A hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase our annual interest expense by approximately $11.5 million.




26




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PART II.    OTHER INFORMATION





Item 6.    Exhibits and Reports on Form 8-K





(a)  Exhibits:





| | 10.1 |  | Amendment No. 2 to Credit Agreement and Amendment No. 2 to Guarantee Agreement, dated as of June 6, 2002, among Insight Midwest Holdings, LLC, several banks and
financial institutions or entities, and The Bank of New York, as Administrative Agent. (Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 of Insight Communications Company, Inc. and incorporated
herein by reference.)
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 99.1 |  | Certification by Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | --------------------------------------------------------------------------------------------




| | 99.2 |  | Certification by Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | --------------------------------------------------------------------------------------------




(b)  Reports on Form 8-K:





None




27




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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.








Date: August 8, 2002



INSIGHT MIDWEST, L.P.By: /s/ Dinesh C. JainDinesh C. JainSenior Vice President and ChiefFinancial Officer(Principal Financial Officer)INSIGHT CAPITAL, INC.By: /s/ Dinesh C. JainDinesh C. JainSenior Vice President and ChiefFinancial Officer(Principal Financial Officer)




28