**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-K**

**Annual Report Pursuant to Section 13 or15(d) of the Securities Exchange Act of 1934**

**Forthe fiscal year ended December 31, 2006**

**Commissionfile number 0-26677**

**Insight Communications Company, Inc.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     |   | **13-4053502**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction  of incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

**810 Seventh Avenue**

**New York, New York 10019**

(Address of principalexecutive offices)

Registrant’s telephonenumber, including area code:**(917) 286-2300**

Securities registeredpursuant to Section 12(b) of the Exchange Act:**None**

Securities registeredpursuant to Section 12(g) of the Exchange Act: **None**

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes  o  No  x

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Exchange Act. Yes  x  No  o

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theExchange Act during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes  o  No  x

(Note: As a voluntary filer, not subject to the filingrequirements, the registrant filed all reports under Section 13 or 15(d) ofthe Exchange Act during the preceding 12 months.)

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. Not Applicable

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

Large acceleratedfiler o         Acceleratedfiler o         Non-acceleratedfiler x

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

State the aggregate market value of the common equityheld by non-affiliates of the registrant. Not Applicable

Indicate the number of shares outstanding of theregistrant’s common stock. Not Applicable

 

----

**Table of Contents**

|                | ** **                                                                                                         | **Page** |
|----------------|--------------------------------------------------------------------------------------------------------------------|----------|
|           | **PART I**                                                                                                    |     |
| Item 1.        | Business                                                                                                           | 1        |
| Item 1A        | Risk Factors                                                                                                       | 27       |
| Item 1B        | Unresolved Staff Comments                                                                                          | 31       |
| Item 2.        | Properties                                                                                                         | 31       |
| Item  3.       | Legal Proceedings                                                                                                  | 31       |
| Item 4.        | Submission of Matters to a Vote of Security Holders                                                                | 32       |
|           | **PART II**                                                                                                   |     |
| Item 5.        | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities | 33       |
| Item  6.       | Selected  Financial Data                                                                                           | 33       |
| Item 7.        | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                        | 35       |
| Item 7A.       | Quantitative and Qualitative Disclosures About Market  Risk                                                        | 46       |
| Item 8.        | Financial Statements and Supplementary Data                                                                        | 46       |
| Item 9.        | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                              | 46       |
| Item 9A.       | Controls and Procedures                                                                                            | 47       |
| Item  9B.      | Other  Information                                                                                                 | 47       |
| ** **     | **PART III**                                                                                                  |     |
| Item 10.       | Directors, Executive Officers and Corporate Governance                                                             | 48       |
| Item 11.       | Executive Compensation                                                                                             | 51       |
| Item 12.       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters                    | 61       |
| Item 13.       | Certain Relationships and Related Transactions, and  Director Independence                                         | 63       |
| Item 14.       | Principal Accountant Fees and Services                                                                             | 64       |
| ** **     | **PART IV**                                                                                                   |     |
| Item 15.       | Exhibits and Financial Statement Schedules                                                                         | 65       |
| **SIGNATURES** |                                                                                                               |

 

ii

----

 

**CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING INFORMATION**

This annual report on Form 10-K containscertain forward-looking statements with respect to the financial condition,results of operations, plans, objectives, future performance and business ofour company, including, without limitation, statements preceded by, followed byor that include the words “believes,” “expects,” “anticipates,” “estimates” orsimilar expressions. We believe it is important to communicate management’sexpectations. However, there may be events in the future that we are not ableto accurately predict or over which we have no control. The risk factors listedin this annual report under Item 1A, as well as any other cautionary languagein this report, provide examples of risks, uncertainties and events that maycause our actual results to differ materially from the expectations we describein our forward-looking statements. You should be aware that the occurrence ofthe events described in these risk factors and elsewhere in this report couldhave a material adverse effect on our business, operating results and financialcondition. Examples of these risks include:

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

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

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

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

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

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

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

We do not undertake any obligation to publicly updateor release any revisions to these forward-looking statements to reflect eventsor circumstances after the date that this report is filed with the SEC or toreflect the occurrence of unanticipated events, except as required by law.

iii

----

**PART I**

**Item 1.**                        Business

In this report, we rely onand refer to information and statistics regarding the cable television industryand our market share in the sectors in which we compete. We obtained thisinformation and statistics from various third-party sources, discussions withour customers and our own internal estimates. We believe that these sources andestimates are reliable, but we have not independently verified them and cannotguarantee their accuracy or completeness.

**General**

Insight Communications Company, Inc. is the ninthlargest cable operator in the United States based on customers served. As of December 31,2006, we had over 1.4 million customer relationships. Our customers areconcentrated in the four contiguous states of Indiana, Kentucky, Illinois andOhio. We offer our customers bundled, state-of-the-art video, voice and dataservices, including high-definition television, digital video recorders,video-on-demand, subscription video-on-demand, two tiers of high-speed Internetaccess service, and voice telephony.

Insight Midwest, L.P. is a partnership owned 50% by usand 50% by an indirect subsidiary of Comcast Cable Holdings, LLC, which is asubsidiary of Comcast Corporation, the largest cable operator in the UnitedStates. Insight Midwest is the owner of the systems serving all of ourcustomers, and our 50% interest in Insight Midwest constitutes substantiallyall of our operating assets. The Insight Midwest partnership agreement providesthat either partner has the right to commence a split-up process with respectto Insight Midwest by giving notice to the other partner. To date, neitherpartner has delivered such notice.

Our principal offices arelocated at 810 Seventh Avenue, New York, New York 10019, and our telephonenumber is (917) 286-2300.

**Strategy**

Our strategy is to be afull-service provider of entertainment, information and communicationsservices. This strategy is centered on offering attractive products andservices that will be valued by our customers, and providing the highest levelof customer service. We focus on building strong relationships within thecommunities in which we operate. We believe that our local presence andrelationships with our communities and customers distinguishes us from ourcompetitors and results in higher customer satisfaction. In addition, we intendto continue to leverage the capacity and capability of our upgraded broadbandnetwork to develop new and enhanced products and services for our customers.

***Deliver excellent customer service and enhance communityrelations***

We seek to secure a high level of customersatisfaction by managing local customer care units, staffed by professionalsfamiliar with the communities they serve; using market research to determinecustomer needs and priorities and by providing customers with an attractivelypriced product offering. A significant number of our customers visit theirlocal office on a monthly basis, providing us the opportunity to demonstrateand sell our new and enhanced products and services. We believe that thesedistinct marketing and promotion opportunities are effective sales channels,providing a competitive advantage as well as building customer loyalty.

We believe that ourcommitment to the communities in which we operate enhances our ability to attractand retain customers and fosters excellent franchise relationships. We arededicated to building and sustaining strong community relations by providingvaluable in-kind services and promotional opportunities to an array of localcharities and organizations. We also support the cable industry’s Cable in 

1

----

theClassroom initiative and provide free cable and high-speed Internet access tolocal schools. To further strengthen our bond with our communities anddifferentiate ourselves from other multichannel video providers, we providelocally produced and oriented programming.

***Focus on operating large, tightly-grouped clusters ofcable systems in markets with attractive demographic profiles***

In addition to its geographic concentration, ourcommunications network is tightly-grouped, or “clustered.” As a result,the amount of capital necessary to deploy new and enhanced products andservices is significantly reduced on a per home basis. We believe that thehighly clustered nature of our systems also enables us to more efficientlydeploy our marketing dollars and maximizes our ability to enhance customerawareness, increase use of our products and services and build brand support.

Our geographic concentration enables our localmanagement teams to focus on the customer experience within their communities.We believe that the deployment of these local resources and our local expertiseprovides us with an advantage over our competitors, and is a key component ofour operating strategy.

Many communities we serveare characterized by good housing growth, higher than average household incomeand low unemployment, and many are home to large universities and majorcommercial enterprises. We believe that the demographic profile of ourcommunities make them attractive markets for our existing and new products.

***Leverage advanced broadband network to offer bundled services and introduce newand enhanced products***

Our advanced broadband network provides significantcapacity and the flexibility to offer our customers an array of products andservices. The capacity ofa cable system to offer products and services is determined by its bandwidth. Asof December 31, 2006, we estimate that over 98% of our customers werepassed by our upgraded network, with abandwidth capacity of 750 megahertz (MHz) or greater. At the end of 2006,digital cable was available to 95% of basic customers passed by our broadbandnetwork, high-speed Internet was available to 99% of homes passed and telephoneservice was available to 56% of homes passed.

Our marketing strategy isto offer our customers an array of entertainment, information andcommunications services on a bundled basis. A bundled customer is one who subscribes totwo or more of our primary services (video, high-speed Internet access andtelephone). Where available, all of our services are offered on a bundledbasis, supported by a single, integrated back-office platform, which allows ourcustomers to make one call to a single customer service representativeregarding any and all of their services and to receive a single bill for allservices if they choose. By bundling our products and services, weprovide our customers with increased choice in value-added packages, which webelieve results in higher customer satisfaction, increased use of our servicesand greater customer retention.

**Technical Overview**

We believe that in order to achieve consistently highlevels of customer service, reduce operating costs, maintain a strongcompetitive position and deploy important new technologies, we need to maintaina state-of-the-art technical platform. The deployment of fiber optic cablewhich has a capacity for a very large number of channels, the increase in thebandwidth to 750 MHz or higher, the activation of a two-way communicationsnetwork and the installation of digital equipment allows us to deliver new andenhanced products and services, including interactive digital video, high-speedInternet services and telephone services.

As of December 31, 2006, our systems werecomprised of approximately 31,300 network miles serving over 1.3 million basicvideo customers and passing approximately 2.5 million homes resulting in adensity 

2

----

of approximately 79 homesper mile. As of that date, our systems were made up of an aggregate of 23headends. As of December 31, 2006, we estimate that approximately 98% ofour customers were passed by our upgraded network.

Our network design calls for an analog and digitaltwo-way active network with fiber optic cable carrying signals from the headendto the distribution point within our customers’ neighborhoods. The signals aretransferred to our coaxial cable network at the node for delivery to ourcustomers. We have designed the fiber system to be capable of subdividing thenodes if traffic on the network requires additional capacity.

We believe that active use of fiber optic technologyas a supplement to coaxial cable plays a major role in expanding channelcapacity and improving the performance of our systems. Fiber optic strands arecapable of carrying hundreds of video, data and voice channels over extendeddistances without the extensive signal amplification typically required forcoaxial cable. We will continue to deploy fiber optic cable to further reduceamplifier cascades while improving picture quality and system reliability.

A direct result of this extensive use of fiber opticsis an improvement in picture quality and a reduction of outages because systemfailures will be both significantly reduced and will impact far fewer customerswhen they do occur. Our design allows our systems to have the capability to runmultiple separate channel line-ups from a single headend and to insert targetedadvertisements into specific neighborhoods.

We are improving thereliability of telephone services by implementing standby powering and statusmonitoring on our local network as telephone services are deployed in oursystems. The existing commercial power structure deployed in cable networks issubject to potential disruptions in local power utility service. Standby powerprovides battery back-up for a limited duration, thereby making both telephoneservices and other products and services delivered over our local network morereliable. Status monitoring will enable us to monitor key components of ourlocal network so that we can help reduce and diagnose problems affecting theperformance of our local network.

**Products andServices**

We offer our customers a full array of traditionalcable television services and programming offerings. We tailor both our basicline-up and our additional channel offerings to each regional system inresponse to demographics, programming preferences, competition and localregulation. We offer a basic level of service which includes up to 33 channelsof television programming. As of December 31, 2006, approximately 91% ofour basic customers chose to pay an additional amount to receive additionalchannels under our “Classic” or “expanded” service.

As network upgrades wereactivated, we deployed new and enhanced products and services in substantiallyall of our markets, including interactive digital video and high-speed Internetservices. In addition, we are offering telephone services to our customers in amajority of our markets.

***Analog Video***

Our analog cabletelevision service offering includes the following:

·       *Basic Service.* All of our video customersreceive the basic level of service, which generally consists of over-the-airlocal broadcast television and local community programming, includinggovernment and public access, and may include a limited number of satellite-deliveredchannels.

·       *Classic Service or Expanded Service.* This expanded level ofservice includes a group of satellite-delivered or non-broadcast channels suchas ESPN, CNN, Discovery Channel and Lifetime.

3

----

***Interactive Digital Video***

The implementation of interactive digital technologysignificantly enhances and expands the video and service offerings we provideto our customers. Because of the significantly increased bandwidth and two-waytransmission capability of our state-of-the-art technical platform, we havedesigned a more extensive digital product that is rich in attractive featuresand provides customers with a high degree of interactive capability. Ourinteractive digital service is designed to exploit the advantages of abroadband network using the existing generation of set-top devices.

We are packagingour digital service under the “Insight Digital” brand, which includes thefollowing features:

·       adigital set-top box and remote control

·       a40-channel digital audio music service

·       aninteractive program guide for all analog and digital channels andvideo-on-demand programming

·       accessto a significant number of additional programming channels in various packagessold for an additional charge

·       accessto extensive video-on-demand programming, including movies and free programmingfrom a number of cable networks

·       accessto high-definition programming content from local broadcasters and certaincable programmers (which may require an upgrade to a high-definition digitalset-top box and an additional charge for certain programming)

·       digitalvideo recorder capability (which requires an upgrade to a digital videorecorder set-top box and an additional charge)

·       accessto multichannel premium services, including in many cases subscriptionvideo-on-demand, for customers who separately subscribe to premium channelssuch as HBO and Showtime

In the fall of 2006, we launched “Insight Digital 2.0,”the first in a planned series of upgrades to our Insight Digital service. Thisupgrade introduced a comprehensive theme-based lineup of digital channels,organizing channels in a manner that makes it easier for customers to find whatthey want to watch. Grouping channels with the same theme also introduces ourcustomers to new channels they may not have previously noticed and allowscustomers to recognize the robust nature of our digital offering. As part ofthe upgrade, we added a significant number of new digital channels in newlyrepackaged digital programming offerings.

We offer a high-definition programming serviceconsisting of broadcast networks and premium channels. We expanded our offeringof high-definition premium channels in connection with our launch of InsightDigital 2.0. Digital customers with high-definition television (HDTV) sets canreceive any high-definition programming that is available from localbroadcasters. HDTV customers who have HBO or Showtime would receive any HDTVprograms available from these networks as well. We believe that offering HDTVprogramming from local broadcasters puts us in a favorable competitive positionwith the direct broadcast satellite television distributors which have limitedHDTV programming due to capacity restrictions.

For an additional monthly charge over our InsightDigital price, we offer a single digital set-top box which integrates ourexisting HDTV programming and video-on-demand services with a new digital videorecorder (DVR) service. These advanced services are supported by Gemstar-TVGuide’s interactive program guide.

4

----

Our digital customers areserved by a video-on-demand (VOD) infrastructure provided by SeaChangeInternational, Inc. Customers receive the movies electronically over thenetwork and have full VCR functionality, including pause, play, fast forwardand rewind. The movies are delivered with a high quality digital picture anddigital sound. Our video-on-demand product is designed to provide movies atprices comparable to those charged for videotape rentals, pay-per-view and nearvideo-on-demand movies, but with far greater convenience and functionality.Additionally, customers who subscribe to premium services, such as HBO andShowtime, can access selected movies and original programming from thesenetworks at no additional cost to their regular monthly premium channel feeutilizing our video-on-demand system. Insight’s video-on-demand system alsoprovides free content from certain cable networks including the NFL Network,Food Network, DIY Network and the National Geographic Channel to any digitalcustomer with VOD access.As part of the upgrade of our digital service to Insight Digital 2.0, we addeda significant number of new video-on-demand titles, many of which are free. Asof December 31, 2006, digital service was available to 95% of basiccustomers passed by our broadband network, with nearly 100% of our digital customer base having access tovideo-on-demand services.

***High-Speed Internet***

We offer high-speed Internet service for all of ourupgraded systems through our own regional network branded “Insight Broadband,”except for our Columbus, Ohio system, which utilizes the RoadRunner service.During the second quarter of 2006, we undertook an upgrade of our Internetservice which required us to migrate all of our Insight Broadband customers toa new, in-house network. In connection with the transition, we have acquiredand established our own technical platform to independently provision newcustomers, manage IP addresses, provide e-mail and personal web pages, as wellas manage IP transit and peering with other Internet service providers. This transitionhas enabled us to more efficiently provision and manage our Internet serviceand deliver a more reliable product with enhanced features and functions to ourcustomers.  As of December 31, 2006,high-speed Internet services were available to approximately 2.4 million of ourhomes passed and served approximately 611,200 of our customers.

The broad bandwidth of ourcable network enables data to be transmitted significantly faster thantraditional telephone-based modem technologies, and the cable connection doesnot interfere with normal telephone activity or usage. For example, cable’son-line customers can download large files from the Internet in a fraction ofthe time it takes when using any widely available telephone modem technology.Moreover, surfing the Internet on a high-speed network removes the long delaysfor Web pages to fully appear on the computer screen, allowing theexperience to more closely approximate the responsiveness of changing channelson a television set. In addition, the cable modem is always on and does notrequire the customer to dial into an Internet service provider and awaitauthorization. In November 2006, Insight Broadband was enhanced to deliverdownstream speeds of up to ten megabits per second and upstream speeds of up toone megabit per second. We have rebranded our service to reflect the enhancedspeed as “Insight Broadband 10.0.”

***Telephone Services***

Under the “Insight Phone”and “Insight Phone 2.0” brands, as of December 31, 2006, telephoneservices were available in a majority of our markets, with a total ofapproximately 1,392,700 marketable homes passed, and approximately 123,400customers. Our telephone services enable us to offer our customers a bundle ofvideo, high-speed data and voice services. With our telephone offerings, weprovide unlimited local and long distance calling as well as popular callingfeatures such as voice mail, caller ID, *69, call waiting, three-way callingand call forwarding.

5

----

**Business Background**

We were co-founded in 1985 as a limited partnershipunder the name Insight Communications Company, L.P. by Sidney R. Knafel andMichael S. Willner after a previous association with one another at VisionCable Communications where Mr. Knafel was co-founder and Chairman and Mr. Willnerheld various operating positions, ultimately holding the position of ExecutiveVice President and Chief Operating Officer. Vision Cable was sold to TheNewhouse Group Inc. in 1981 and Mr. Willner remained there to run thecable operations until 1985 when he and Mr. Knafel formed InsightCommunications.

In addition to many years of conventional cabletelevision experience, our management team has been involved in the developmentand deployment of full service communications networks since 1989. Through athen related entity, Insight Communications Company UK, L.P., our managementand related parties entered the cable television market in the United Kingdom,where today modern networks are widely deployed.

As a result of our management’s British experience, werecognized that the technology and products developed in the United Kingdomwould migrate to the United States in similar form. We focused on planning toupgrade our network promptly after it became clear that the 1996 Telecom Actwould encourage competition in the communications industries. We understood,however, that the new products and services available with new technology werebest deployed in markets which provided for efficiencies for branding andtechnical investment. Our original acquisition strategy, which focused oncustomer growth, was very successful. However, our management team recognizedthe opportunity to evolve from our role as a cable television operatorproviding only home video entertainment into a full service alternativecommunications network providing not only standard video services, but alsointeractive digital video, high-speed Internet access and communicationsproducts and services.

Recognizing the opportunities presented by newlyavailable products and services and favorable changes in the regulatoryenvironment, we executed a series of asset swaps, acquisitions and entered intoseveral joint ventures that resulted in our current composition. The largest ofthese transactions were the 50/50 joint ventures formed with Comcast Cable(formerly known as AT&T Broadband) and its affiliates in October 1998with respect to the Indiana systems, in October 1999 with respect to theKentucky systems and in January 2001 with respect to the Illinois systems.As of December 31, 1997, our systems had approximately 180,000 customerswith the two largest concentrations in Utah and Indiana, which togetherrepresented less than half of our customers. We believe that we havesuccessfully transformed our assets so that we currently own, operate andmanage a cable television network with over 1.4 million customer relationships,all of which are clustered in the contiguous states of Indiana, Kentucky,Illinois and Ohio. Our current assets are reflective of our strategy to ownsystems that have high ratios of customers to headends.

In July 1999, wecompleted an initial public offering of 26,450,000 shares of our Class Acommon stock, raising an aggregate of approximately $650.0 million. In December 2005,we completed a going-private merger with Insight Acquisition Corp., an entityorganized by certain affiliates of The Carlyle Group. As a result of thetransaction, all shares of our then outstanding Class A common stock,other than those shares held by certain stockholders who elected to maintaintheir investment in us, were converted into the right to receive $11.75 pershare in cash, and we were recapitalized with new classes of capital stock. Thetransaction resulted in our becoming a privately-held corporation.

**Our Systems**

As of December 31, 2006, we had over 1.4 millioncustomer relationships. Our customers are concentrated in the four contiguousstates of Indiana, Kentucky, Illinois and Ohio. Our systems form three regionalclusters: the East Region, the West Region and the South Region. We are thelargest operator of cable systems in Kentucky and the second-largest in bothIndiana and Illinois.

6

----

We are able to realize significant operationalsynergies due to the size of the clusters in these states and the geographicproximity of all of our systems. In all of our systems, we have substantiallycompleted upgrading our system infrastructure to enable us to deliver newtechnologies, products and services to provide our customers with greater valueand choices in the face of growing competition. As network upgrades were activated,we deployed new and enhanced products and services in substantially all of ourmarkets, including interactive digital video and high-speed Internet services.In addition, we are offering telephone services to our customers in a majorityof our markets.

Our highly clusteredsystems enable us to (a) more efficiently invest our marketing dollars andmaximize our brand awareness, (b) more economically introduce new andenhanced services, (c) more effectively manage our operations; and (d) reduceour overall operating and maintenance costs as a result of our ability todeploy fiber and reduce the number of headends we use throughout our systems.As a result, we believe we are able to achieve improved operating performanceon both a combined and system-wide basis. Our relationship with Comcast Cableprovides us with substantial purchasing economies for both our programming andhardware needs.

***The East Region***

As of December 31,2006, the East Region passed approximately 854,400 homes and servedapproximately 436,100 customers. The East Region, comprised of systems locatedwithin the States of Indiana, Kentucky and Ohio, is organized in six managementdistricts:

*The CentralDistrict*

As of December 31,2006, the Central District passed approximately 151,500 homes and servedapproximately 82,500 customers, principally in the community of Bloomington.The City of Bloomington, located 45 miles south of Indianapolis, is the home ofIndiana University. Besides the University, major employers include BaxterPharmaceutical, Bloomington Hospital, Cook Incorporated and General Electric.

*The SouthwestDistrict*

As of December 31, 2006, the Southwest Districtpassed approximately 130,100 homes and served approximately 61,000 customers,principally in the communities of Evansville, Boonville, Mt. Vernon, Princetonand Jasper, Indiana, as well as Henderson, Kentucky. Major employers includeAlcoa, Whirlpool and Bristol-Myers Squibb.

WideOpenWest overbuilds our cable network in the Cityof Evansville, providing cable television, high-speed Internet and telephoneservices in the City of Evansville and neighboring areas.

7

----

*The LexingtonDistrict*

As of December 31,2006, the Lexington District passed approximately 147,700 homes and servedapproximately 87,200 customers from a single headend. Lexington is Kentucky’ssecond largest city, located in the central part of the state. Major employersin the Lexington area include the University of Kentucky, Toyota and LexmarkInternational.

*The NorthernKentucky District*

As of December 31,2006, the Northern Kentucky District passed approximately 160,000 homes andserved approximately 85,000 customers from a single headend primarily in theCity of Edgewood. Covington is Kentucky’s fifth largest city. Major employersin the Covington area include Delta Airlines, Toyota, Citicorp, Ashland, Inc.,Fidelity Investments, BICC General Cable Corporation, Omnicare, COMAIR, LevisStrauss, Gap, Inc., Mazak Corp., R.A. Jones, Inc. and Ticona.

*The Bowling GreenDistrict*

As of December 31,2006, the Bowling Green District passed approximately 40,200 homes and servedapproximately 26,000 customers from a single headend. Bowling Green is located120 miles south of Louisville, 110 miles southwest of Lexington and 70 milesnorth of Nashville, Tennessee. Bowling Green is the fourth largest city inKentucky and is the home of Western Kentucky University. Major employers in theBowling Green area include General Motors, Fruit of the Loom, CommonwealthHealth Corporation, DESA International and Houchens Industries.

*The ColumbusDistrict*

As of December 31, 2006, the Columbus Districtpassed approximately 224,900 homes and served approximately 94,400 customersfrom a single headend. The District serves the eastern portion of the City ofColumbus and adjacent suburban communities within eastern Franklin County andthe contiguous counties of Delaware, Licking, Fairfield and Pickaway. The Cityof Columbus is the 34th largest designated market area, the capital of Ohio andthe home of Ohio State University. In addition to the state government anduniversity, the Columbus economy is well diversified with the significantpresence of prominent companies such as The Limited, Merck, Wendy’s, NationwideInsurance, JP Morgan Chase Bank and Worthington Industries. In addition, theColumbus District provides exclusive local sports and entertainmentprogramming, featuring a variety of sporting events from area high schools andthe Ohio State University to Columbus Clippers baseball and Columbus Crew majorleague soccer.

In 1996, Ameritechobtained a citywide cable television franchise for the City of Columbus andmost other suburban communities in Franklin County. WideOpenWest acquired theassets of Ameritech in December 2001, and has built its system, both inour service area and in the Time Warner service area on the west side ofColumbus.

***The West Region***

As of December 31,2006, the West Region passed approximately 1,041,400 homes and servedapproximately 601,000 customers. The West Region, comprised of systems locatedwithin the States of Indiana and Illinois, is organized in seven managementdistricts:

*The NorthwestDistrict*

As of December 31,2006, the Northwest District passed approximately 110,200 homes and servedapproximately 69,500 customers, principally in the communities of Lafayette andKokomo. The City of Lafayette is the home of Purdue University. Besides PurdueUniversity, major employers for Lafayette and 

8

----

Kokomoinclude Eli Lilly, Subaru, Caterpillar, Great Lakes Chemical, Lafayette LifeInsurance, Delphi Electronics and Chrysler.

*The NortheastDistrict*

As of December 31,2006, the Northeast District passed approximately 215,400 homes and servedapproximately 119,700 customers in Richmond as well as in the suburbancommunities near Indianapolis, including Noblesville, and extending north toAnderson and east to Richmond, Indiana. Indianapolis is the state capital ofIndiana and is the twelfth largest city in the United States. Major employersinclude General Motors, Eli Lilly, Sallie Mae, Roche, Bridgestone/Firestone andAnderson University.

*The NorthernIllinois District*

As of December 31,2006, the Northern Illinois District, which is comprised of Rockford and Dixon,Illinois, passed approximately 210,200 homes and served approximately 118,800customers. Rockford is Illinois’ second largest city. Major employers in theRockford metropolitan area include Chrysler Corporation, Rockford HealthSystem, Sundstrand Corporation and Swedish American Health Systems. Dixoncustomers are principally in the communities of Rock Falls, Peru and Dixon.Dixon is located in the north/central part of the State of Illinois. Majoremployers in the Dixon area include the State of Illinois, Raynor ManufacturingCompany and Borg Warner Automotive.

*The Peoria District*

As of December 31,2006, the Peoria District passed approximately 209,200 homes and servedapproximately 126,500 customers, principally in the communities of Bloomingtonand Peoria, Illinois. Bloomington is located in the north central part of thestate. The Bloomington system is home to Illinois State University with closeto 20,500 students and Illinois Wesleyan University with over 2,100 students.The major employers in Bloomington are State Farm Insurance and MitsubishiMotor Company of America. Peoria is the fifth largest city in Illinois, locatedin the north central part of the state. The Peoria system is home to BradleyUniversity. Major employers in the Peoria area include the world headquartersof Caterpillar. Peoria is the regional medical center in the State of Illinoisoutside Chicago. With the University of Illinois College of Medicine and fourrecognized hospitals within the city limits, Peoria ranks high on the list ofthose cities offering superior health care.

*The SpringfieldDistrict*

As of December 31,2006, the Springfield District passed approximately 148,400 homes and servedapproximately 88,300 customers, principally in the communities of Decatur andSpringfield. Springfield is the capital of Illinois and the sixth largest cityin the state, located in the central part of the state. The major employer inthe Springfield area is the State of Illinois.

*The Quincy District*

As of December 31,2006, the Quincy District passed approximately 45,400 homes and servedapproximately 24,200 customers, spread out over a rural four-county area in farWestern Illinois, including Canton and Macomb. Quincy major employers includeHarris Broadcast Corporation, ADM Corporation, Knapheide, Blessing Hospital andQuincy University. Macomb is the home of Western Illinois University with about12,000 students. Other major employers in Macomb include NTN Bower, McDonoughDistrict Hospital and Pella. Canton has one major employer, Graham Hospital andis a bedroom community to Peoria, Illinois.

9

----

*The ChampaignDistrict*

As of December 31,2006, the Champaign District passed approximately 102,600 homes and servedapproximately 54,000 customers. Champaign/Urbana is located in the easterncentral part of the state. The Champaign District is home to the University ofIllinois with approximately 43,000 students. Major employers in the Champaignand Urbana areas include the University of Illinois, Kraft Foods and the CarleClinic Association.

***The South Region***

As of December 31,2006, the South Region passed approximately 569,400 homes and servedapproximately 285,700 customers, principally in the City of Louisville,Kentucky. This region includes approximately 95,400 homes passed andapproximately 43,700 customers served by the Scottsburg, Jeffersonville and NewAlbany, Indiana systems which are operated by the management of the Louisville,Kentucky system. Louisville is the 16th largest city in the United States and isKentucky’s largest city. It is located in the northern region of the state,bordering Indiana. Louisville is located within a day’s drive of nearly 50% ofthe United States population, which makes it an important crossroads for tradeand business. Major employers in the Louisville metropolitan area includeHumana, UPS, General Electric and Ford.

**Sales and Marketing**

Our strategy is to improve customer satisfaction andreduce churn in addition to selling video, high-speed Internet and telephoneservices to our customers and potential customers, thereby increasing marketshare. Customers who purchase more than one service may, in some cases, beeligible for a bundled discount. We regularly use targeted campaigns to sellthe appropriate services to both our existing and our potential customer base.Our customer service representatives are trained and given the support to usetheir daily contacts with customers as opportunities to sell them additionalservices.

Due to the nature of the communities we serve, we areable to market our services in ways not typically used by urban cableoperators. We can market products and services to our customers at our localoffices where many of our customers pay their monthly cable bills in person.Examples of our in-store marketing include the promotion of premium services aswell as point-of-purchase demonstrations that will allow customers toexperience our high-speed Internet service and interactive digital products. Weaggressively promote our services utilizing both broad and targeted marketingtactics, including outdoor billboards, retail partnerships, including Best Buyand H.H. Gregg, direct mail, cross-channel promotion, print and broadcast. Wealso employ other marketing tactics such as door-to-door sales and outboundmarketing.

We build awareness of the “Insight”brand through advertising campaigns and strong community relations. As a resultof our branding efforts and consistent service standards, we believe we havedeveloped a reputation for quality and reliability. We also believe that ourmarketing strategies are particularly effective due to our regional clusteringand market significance, which enables us to reach a greater number of bothcurrent and potential customers in an efficient, uniform manner.

**ProgrammingSuppliers**

Most cable companies purchase their programmingproduct directly from the program networks by entering into a contractualrelationship with the program supplier. The vast majority of these programsuppliers offer the cable operator license fee rate cards with size-basedvolume discounts and other financial incentives, such as launch and marketingsupport.

10

----

Currently there are over 180 cable networks competingfor carriage on our analog and digital platforms. We have continued to leverageboth our systems’ channel capacity and newly deployed digital servicesincluding video-on-demand as an incentive to our suppliers to secure long termprogramming deals with reasonable price structures to offset license feeincreases.

Because of our relationship with Comcast Cable, wehave the right to purchase certain programming services for our systemsdirectly through Comcast Cable’s programming supplier Satellite Services, Inc.We believe that Satellite Services has attractive programming costs.

Under the terms of InsightMidwest’s partnership agreement, we and Comcast Cable are each required to usecommercially reasonable efforts to extend to Insight Midwest all of theprogramming discounts available to us. Accordingly, we should benefit from boththe existing Satellite Services arrangement as well as additional discountsavailable to Comcast Cable. However, we cannot predict with certainty whenthese benefits will occur, or the extent to which they actually will beachieved.

**Commitment toCommunity Relations**

We believe that maintaining strong community relationswill continue to be an important factor in ensuring our long-term success. Ourcommunity-oriented initiatives include educational programs and the sponsorshipof programs and events recognizing local citizens and supporting localcharitable organizations. In addition, members of our management team hostcommunity events for political and business leaders as well as representativesof the local media, where they discuss our operations, recent enhancements toour service and recent developments in the telecommunications industry. We havereceived numerous awards recognizing our ongoing community relations, and webelieve that such initiatives result in consumer and governmental goodwill andname recognition, increasing customer loyalty and likely facilitating anyfuture efforts to provide new communications services.

We encourage all of our local management teams to takeleadership roles in community and civic activities. Over the years, our systemshave received various forms of recognition for their support of local causesand charities as well as their sponsorship of programs that improve the qualityof life in the communities they serve.

We provide ongoing support for Cable in the Classroom,an industry initiative that earns recognition both locally and nationally forits efforts in furthering the education of students. We further underscore ourcommitment to education by offering high-speed Internet access to accreditedschools in our service area, building upon the cable industry’s pledge toprovide free high-speed Internet access to eligible local schools and publiclibraries. We offer students and teachers the resources of broadband contentand robust cable programming to enrich the learning experience.

One of the advantages alocal cable operator has over nationally distributed competitors is its abilityto develop local programming. To further strengthen community relations anddifferentiate us from direct broadcast satellite television systems and othermultichannel video providers, we provide locally produced and orientedprogramming. Several of our systems have full production capabilities, within-house and/or studios to create local content. We offer a broad range oflocal programming alternatives, including community information, localgovernment proceedings and local specialty interest shows. In some of ourmarkets, we are the exclusive broadcaster of local college and high schoolsporting events, which we believe provides unique programming and buildscustomer loyalty. We believe that our emphasis on local programming createssignificant opportunities for increased advertising revenues.

11

----

**Franchises**

Cable televisionsystems are constructed and operated under fixed-term non-exclusive franchisesor other types of operating authorizations that are granted by either localgovernmental or centralized state authorities. These franchises typicallycontain many conditions, such as:

·       Timelimitations on commencement and completion of construction of the cablenetwork;

·       Conditionsof service, including the number of channels, the provision of free service toschools and other public institutions;

·       Themaintenance of insurance and indemnity bonds; and

·       Thepayment of fees to communities.

As of December 31, 2006, we held authorizationsto provide cable service to 547 jurisdictions in the aggregate, consisting of201 in Indiana, 192 in Kentucky, 125 in Illinois and 29 in Ohio. Many of theseauthorizations require the payment of fees to a designated authority of 3% to5% of gross revenues, as defined by each authorization, from the related localgovernment area. We operate our Indiana cable television systems pursuant toauthorization under a state-issued franchise.

The Communications Act of 1934 prohibits franchisingauthorities from imposing annual franchise fees in excess of 5% of gross annualrevenues from the provision of cable services and also permits the cabletelevision system operator to seek renegotiation and modification of franchiserequirements if warranted by changed circumstances that render performancecommercially impracticable.

Thefollowing table summarizes information relating to the year of expiration ofour franchises, as of December 31, 2006:

| **Year of Franchise Expiration** | ** ** | ** ** | ** ** | **Number of  Franchises** | ** ** | **Percentage of  Total Franchises** | ** ** | **Estimated  Number of  Basic Customers** | ** ** | **Percentage Total  Basic Customers  Under Franchises** | ** ** |
|-------------------------------------------------|------------|------------|------------|--------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| Expired*                                        |       |       | 91         |                           |       |                                          | 26.2       | %                                                   |       |                                                                   | 195,502    |   |   |   | 26.6 | % |   |
| 2007                                            |       |       | 8          |                           |       |                                          | 2.3        | %                                                   |       |                                                                   | 89,919     |   |   |   | 12.2 | % |   |
| 2008                                            |       |       | 19         |                           |       |                                          | 5.4        | %                                                   |       |                                                                   | 26,496     |   |   |   | 3.6 | % |   |
| 2009                                            |       |       | 29         |                           |       |                                          | 8.4        | %                                                   |       |                                                                   | 90,295     |   |   |   | 12.3 | % |   |
| 2010                                            |       |       | 35         |                           |       |                                          | 10.1       | %                                                   |       |                                                                   | 56,969     |   |   |   | 7.7 | % |   |
| After 2010                                      |       |       | 165        |                           |       |                                          | 47.6       | %                                                   |       |                                                                   | 276,867    |   |   |   | 37.6 | % |   |

----

*                    Suchfranchises are operated on a month-to-month basis and are in the process ofbeing renewed. The foregoing table excludes our authorization issued pursuantto the Indiana state-issued franchise because such authorization is not limitedto a fixed term.

The Communications Act provides, among other things,for an orderly franchise renewal process which limits a franchising authority’sability to deny a franchise renewal if the incumbent operator followsprescribed statutory criteria. In addition, the Communications Act includescomprehensive renewal procedures which require, when properly elected by anoperator, that an incumbent franchisee’s renewal application be assessed on itsown merits and not as part of a comparative process with competingapplications.

We believe that our cablesystems generally have good relationships with their respective franchiseauthorities. We have never had a franchise revoked or failed to have afranchise renewed.

12

----

**Competition**

Cable systems face increasing competition fromalternative methods of receiving and distributing their core video business.Both wireline and wireless competitors have made inroads in competing againstincumbent cable operators. The extent to which a cable operator is competitivedepends, in part, upon its ability to provide to customers, at a reasonableprice, a greater variety of programming and other communications services thanare available off-air or through alternative delivery sources and upon superiortechnical performance and customer service.

Congress has enacted legislation and the FCC hasadopted regulatory policies providing a more favorable operating environmentfor new and existing technologies, in particular direct broadcast satellitetelevision system operators, that continue to provide increased competition tocable systems. Congress has also enacted legislation which permits directbroadcast satellite companies to retransmit local television signals,eliminating one of the objections of consumers about switching to satellites.Moreover, the FCC recently adopted rules that limit the ability of localfranchising authorities to impose certain “unreasonable” requirements, such aspublic, governmental and educational access, institutional networks andbuild-out requirements, when issuing competitive franchises. These rules effectivelypermit competitors with existing authority to use the rights-of-ways to beginoperation of cable systems no later than 90 days, and all others 180 days,after filing a franchise application and preempt conflicting existing locallaws, regulations and requirements including level-playing field provisions.

The 1996 Telecom Act contains provisions designed toencourage local exchange telephone companies and others to provide a widevariety of video services competitive with services provided by cable systems.Local exchange telephone companies in various states have either announcedplans, obtained local franchise authorizations or are currently competing withour cable communications systems. Certain telephone companies are carrying outannounced plans to deploy broadband services, including video programmingservices, using a switched Internet protocol platform or other technologies insome cases designed to avoid certain regulatory burdens imposed on our business.Legislation recentlypassed in several states, including Indiana, and similar legislation ispending, or has been proposed in certain other states and in Congress, thatwould allow local telephone companies to deliver services in competition withour cable service, without obtaining equivalent local franchises. Such alegislatively granted advantage to our competitors could adversely affect ourbusiness. Indiana, the state in which we had the greatest number oflocal franchises, recently passed legislation under which the Indiana UtilityRegulatory Commission became the state’s sole video franchising authority on July 1,2006. Some franchise obligations under these state-issued franchises are tiedto a pro-rata application of the obligations imposed on the incumbent under itslocally-issued franchise issued prior to July 1, 2006. This legislationmay significantly speed the ability to fulfill the regulatory prerequisites tonew entrants seeking to provide video service in Indiana. Local exchangetelephone companies and other companies also provide facilities for thetransmission and distribution to homes and businesses of interactivecomputer-based services, including the Internet, as well as data and othernon-video services. The ability of local exchange telephone companies tocross-subsidize video, data and telecommunication services also poses somethreat to cable operators.

Franchised cable systems compete with private cablesystems for the right to service condominiums, apartment complexes and othermultiple unit residential developments. The operators of these private systems,also known as satellite master antenna television systems, often enter intoexclusive agreements with apartment building owners or homeowners’ associationsthat preclude franchised cable television operators from serving residents ofsuch private complexes. However several states, including Illinois and Ohiowhere we operate, have adopted legislation granting cable operators the rightto serve residents of such private complexes under certain conditions andIndiana has passed legislation that provides the right to all communicationservice providers to access all multi-tenant properties used for businesspurposes.

13

----

The 1984 Cable Act gives franchised cable operatorsthe right to use existing compatible easements within their franchise areas onnondiscriminatory terms and conditions. Accordingly, where there arepreexisting compatible easements, cable operators may not be unfairly deniedaccess or discriminated against with respect to access to those easements.Conflicting judicial decisions have been issued interpreting the scope of theaccess right granted by the 1984 Cable Act, particularly with respect toprivate easements granted to a specific utility and not “dedicated” to thepublic. Moreover, this statutory easement access right does not appear to allowa cable operator to install facilities within a building without permissionfrom the property owner.

The 1996 Telecom Act may exempt some of ourcompetitors from regulation as cable systems. The 1996 Telecom Act amends thedefinition of a “cable system” such that providers of competitive videoprogramming are only regulated and franchised as “cable systems” if they usepublic rights-of-way. Thus, a broader class of entities providing videoprogramming, including operators of satellite master antenna televisionsystems, may be exempt from regulation as cable television systems under the1996 Telecom Act. This exemption may give these entities a competitiveadvantage over us. The 1996 Telecom Act also exempts telephone companyfacilities that provide video services exclusively on an “interactive on-demand”basis from the definition of a “cable system,” which some telephone companiesargue exempts them from local franchising and other requirements applicable tocable operators.

Cable television systems are operated undernon-exclusive franchises granted by local or state authorities thereby allowingmore than one cable system to be built in the same area. Although the number ofmunicipal and commercial overbuild cable systems is small, the potentialprofitability of a cable system is adversely affected if the local customerbase is divided among multiple systems. Additionally, constructing a competingcable system is a capital intensive process which involves a high degree ofrisk. We believe that in order to be successful, a competitor’s overbuild wouldneed to be able to serve the homes in the overbuilt area on a morecost-effective basis than we can. Any such overbuild operation would requireeither significant access to capital or access to facilities already in placethat are capable of delivering cable television programming. As of December 31,2006, our Evansville, Indiana and Columbus, Ohio systems were overbuilt. As aresult, approximately 9% of the total homes passed by our systems wereoverbuilt as of such date.

Direct broadcast satellite television systems usedigital video compression technology to increase the channel capacity of theirsystems. Direct broadcast satellite service is currently being provided byDIRECTV, Inc and EchoStar Communications Corporation. Direct broadcastsatellite television systems have some advantages over cable systems that havenot been upgraded, such as greater channel capacity and digital picture quality.The 2003 acquisition of DIRECTV by News Corp. provided it with access tofinancial, programming and other resources that could enhance its competitivepotential. On December 22, 2006, Liberty Media Corporation, an entity thatowns or operates several of the cable programming services that we offer,announced that it had entered into a definitive agreement to acquire NewsCorporation’s ownership interest in DirecTV. On January 8, 2007, DirecTV announcedthat it planned to offer more than 100 channels of high definition beginning inthe third quarter of 2007 and is adding the capacity to offer 150 such channelsin the future. On February 1, 2007, EchoStar announced that it would beginoffering more than thirty channels of high definition programming.  Although direct broadcast satellite televisionsystems are statutorily permitted to retransmit the signals of local televisionstations in their local markets, direct broadcast satellite television systemshave a limited ability to offer locally produced programming, and do not have asignificant local presence in the community. In addition, direct broadcastsatellite television system packages can be more expensive than cable,especially if the subscriber intends to view the service on more than onetelevision in the household. Finally, direct broadcast satellite televisionsystems do not have the same full two-way capability (such as video-on-demand),which we believe will limit their ability to compete in a meaningful way ininteractive television, high-speed Internet and voice communications. Accordingto the most recent video competition report 

14

----

released by the FCC on March 3,2006, direct broadcast satellite has enjoyed a 27.7% average penetration nationwide,and we believe that satellite penetration in our various markets generally isat or below such average.

The digital subscriber line technology (“DSL”) offeredby telephone companies allows Internet access over traditional phone lines atdata transmission speeds typically greater than those available by a standardtelephone modem. Although these transmission speeds are not as great as thetransmission speed of a cable modem, we believe that the transmission speed ofDSL technology is sufficiently high that such technology competes with cablemodem technology. The FCC is currently considering its authority to promulgate rules tofacilitate the deployment of these services and regulate areas includinghigh-speed Internet and interactive Internet services. We cannot predict theoutcome of any FCC proceedings, or the impact of that outcome on the success ofour Internet access services or on our operations. Major telephone companiesare carrying out their announced plans to construct new fiber networks over thenext several years and to offer high-speed data and video services over thesefiber networks. In addition, other technologies are entering the marketplacesuch as broadband wireless networks. In December 2006, one major provider,AT&T, acquired BellSouth Corp. which could give it access to greaterresources and economies of scale as well as increase its geographic footprint.In addition, the FCC has approved the provision of broadband Internet serviceto consumers over electric power lines.

As we continue to expand our offerings to includetelephone services, such services will be subject to competition from existingproviders, including both local exchange telephone companies and long-distancecarriers as well as competing providers using alternative technologies such asvoice over Internet protocol (“VoIP”). The telecommunications industry ishighly competitive and many telephone service providers may have greaterfinancial resources than we have, or have established relationships withregulatory authorities. In addition, new technologies such as VoIP may allowcompeting telephone providers to offer service in competition with us over anexisting broadband connection (e.g., cable modem or DSL), thereby avoidingsignificant capital expenditures for a local distribution infrastructure. Wecannot predict the extent to which the presence of these competitors willinfluence customer penetration in our telephone service areas.

Other new technologies maybecome competitive with services that cable communications systems can offer.Advances in communications technology, as well as changes in the marketplaceand the regulatory and legislative environment are constantly occurring. Thus,we cannot predict the effect of ongoing or future developments on the cablecommunications industry or on our operations.

**Legislation andRegulation**

The cable televisionindustry is regulated by the FCC, some state governments and the applicablelocal governments. In addition, various legislative and regulatory proposalsunder consideration from time to time by Congress and various federal agencieshave in the past, and may in the future, materially affect us. The following isa summary of federal laws and regulations materially affecting the growth andoperation of the cable television industry and a description of certain stateand local laws. We believe that the regulation of the cable television industryremains a matter of interest to Congress, the FCC and other regulatoryauthorities. There can be no assurance as to what, if any, future actions suchlegislative and regulatory authorities may take or the effect thereof on us.

**Federal Legislation**

The principal federalstatute governing the cable television industry is the Communications Act. Asit affects the cable television industry, the Communications Act has beensignificantly amended on three occasions, by the 1984 Cable Act, the 1992 CableAct and the 1996 Telecom Act. The 1996 Telecom Act altered the regulatorystructure governing the nation’s telecommunications providers. It reducedbarriers 

15

----

tocompetition in both the cable television market and the local telephone market.Among other things, it also reduced the scope of cable rate regulation.

**Federal Regulation**

The FCC, the principalfederal regulatory agency with jurisdiction over cable television, has adoptedregulations covering such areas as cross-ownership between cable televisionsystems and other communications businesses, carriage of television broadcastprogramming, cable rates, consumer protection and customer service, leasedaccess, obscene and indecent programming, programmer access to cable televisionsystems, programming agreements, technical standards, consumer electronicsequipment compatibility and consumer education, ownership of home wiring,availability of programming to competitors, equal employment opportunity,availability of devices to block objectionable programming, originationcablecasting, sponsorship identification, closed captioning, politicaladvertising, advertising limits for children’s programming, issuance ofcompetitive franchises, signal leakage and frequency use, maintenance ofvarious records as well as antenna structure notification, marking andlighting. The FCC has the authority to enforce these regulations through theimposition of substantial fines, the issuance of cease and desist orders and/orthe imposition of other administrative sanctions, such as the revocation of FCClicenses needed to operate certain transmission facilities often used inconnection with cable operations. A brief summary of certain of these federalregulations as adopted to date follows.

*Rate Regulation*

The 1984 Cable Act codified existing FCC preemption ofrate regulation for premium channels and optional non-basic program tiers. The1984 Cable Act also deregulated basic cable rates for cable television systemsdetermined by the FCC to be subject to effective competition. The 1992 CableAct substantially changed the previous statutory and FCC rate regulationstandards. The 1992 Cable Act replaced the FCC’s old standard for determiningeffective competition, under which most cable television systems were notsubject to rate regulation, with a statutory provision that resulted in nearlyall cable television systems becoming subject to rate regulation of basic andcable programming service (expanded basic) tiers. The 1992 Cable Act allowscable operators to obtain deregulation of all rates upon demonstratingeffective competition based on cable system penetration of less than 30%,aggregate penetration by competing providers in excess of 15%, or competitionfrom a municipally-owned provider available to at least 50% of the community.

For cable systems not subject to effectivecompetition, the 1992 Cable Act required the FCC to adopt a formula forfranchising authorities to assure that basic cable rates are reasonable;allowed the FCC to review rates for cable programming service tiers, other thanper-channel or per-program services, in response to complaints filed byfranchising authorities and/or cable customers; prohibited cable televisionsystems from requiring basic customers to purchase service tiers above basicservice in order to purchase premium services if the system is technicallycapable of compliance; required the FCC to adopt regulations to establish, on thebasis of actual costs, the price for installation of cable service, remotecontrols, converter boxes and additional outlets; and allowed the FCC to imposerestrictions on the retiering and rearrangement of cable services under certainlimited circumstances. The 1996 Telecom Act limited the class of complainantsregarding cable programming service tier rates to franchising authorities only,and ended FCC regulation of cable programming service tier rates on March 31,1999. The 1996 Telecom Act also relaxed existing uniform rate requirements byspecifying that such requirements do not apply where the operator faceseffective competition, and by exempting bulk discounts to multiple dwellingunits, although complaints about predatory pricing may be lodged with the FCC.In addition, the 1996 Telecom Act expanded the definition of effectivecompetition to cover situations where a local telephone company or itsaffiliate, or any multichannel video provider using telephone companyfacilities, offers comparable video service by any means except directbroadcast satellite television systems.

16

----

The FCC’s implementingregulations contain standards for the regulation of basic service rates. Localfranchising authorities are empowered to order a reduction of existing rateswhich exceed the maximum permitted level for basic services and associatedequipment, and refunds can be required. The FCC adopted a benchmark price capsystem for measuring the reasonableness of existing basic service rates. The rules alsorequire that charges for cable-related equipment, converter boxes and remotecontrol devices, for example, and installation services be unbundled from theprovision of cable service and based upon actual costs plus a reasonableprofit. The regulations also provide that future rate increases may not exceedan inflation-indexed amount, plus increases in certain costs beyond the cableoperator’s control, such as taxes, franchise fees and increased programmingcosts. Cost-based adjustments to these capped rates can also be made in theevent a cable television operator adds or deletes channels. Alternatively,cable operators have the opportunity to make cost-of-service showings which, insome cases, may justify rates above the applicable benchmarks. There is also astreamlined cost-of-service methodology available to justify a rate increase onthe basic tier for “significant” system upgrades.

*Carriage ofBroadcast Television Signals*

The 1992 Cable Actcontains signal carriage requirements which allow commercial television broadcaststations that are “local” to a cable television system, that is to say that thesystem is located in the station’s Nielsen “designated market area,” to electevery three years whether to require the cable television system to carry thestation, subject to certain exceptions, or whether the cable television systemwill have to negotiate for “retransmission consent” to carry the station. Thelast election between must-carry and retransmission consent was October 1,2005. Both broadcasters electing to require retransmission consent and affectedcable operators are subject to FCC rules that impose reciprocalrequirements on each party to negotiate in good faith over such consent. These rules donot require, however, that an agreement be actually reached. A January 2007Order from the FCC’s Media Bureau stated that it was not unreasonable for abroadcaster to use the cost of traditional cable programming services as ameasure of the reasonableness of the amount a broadcaster seeks in exchange forthe grant of retransmission consent. A cable television system is generallyrequired to devote up to one-third of its activated channel capacity for thecarriage of local commercial television stations whether pursuant to mandatorycarriage requirements or the retransmission consent requirements of the 1992Cable Act. Local non-commercial television stations are also given mandatorycarriage rights, subject to certain exceptions, within the larger of:  (i) a50 mile radius from the station’ city of license; or (ii) the station’Grade B contour, a measure of signal strength. Unlike commercial stations,noncommercial stations are not given the option to negotiate retransmissionconsent for the carriage of their signal. In addition, cable television systemshave to obtain retransmission consent for the carriage of all “distant”commercial broadcast stations, except for certain “superstations,” which arecommercial satellite-delivered independent stations such as WGN. To date,compliance with the “retransmission consent” and “must carry” provisions of the1992 Cable Act has not had a material effect on us, although this result maychange in the future depending on such factors as market conditions, channelcapacity and similar matters when such arrangements are renegotiated. FCC rules requirecarriage of local television broadcast stations that transmit solely in adigital format. In addition, the FCC has reaffirmed that a station transmittingin both analog and digital formats during the current transition period whichwill end on February 17, 2009, is entitled to carriage of only its analogsignal and that the mandatory carriage obligation extends only to the primaryvideo signal, not to multiple services transmitted by a station over itsdigital channel. No later than February 18, 2009, all televisionbroadcasts must be solely in digital format.

*Packaging ofCertain Programming*

Reversing the findings ofa November 2004 report, the FCC released a report in February 2006finding that consumers could benefit under certain a la carte models fordelivery of video programming. The staff-level report did not specificallyrecommend or propose the adoption of any specific rules by the 

17

----

FCC andit did not endorse a pure a la carte model where subscribers could purchasespecific channels without restriction. Instead, it favored tiers plusindividual channels or smaller theme-based tiers. Shortly after release of thereport, the FCC voted to seek additional information as to whether cablesystems with at least 36 channels are available to at least 70 percent of U.S.homes and whether 70 percent of households served by those systems subscribe.If so, the FCC may have additional discretion under the Cable Act to promulgateadditional rules necessary to promote diversity of information sources.The FCC did not specify what rules it would seek to promulgate; however,the Chairman of the FCC has expressed support for family-friendly tiers ofprogramming and availability of programming on an a la carte basis. Certaincable operators, including us, have responded by announcing the intent to offer“family-friendly” programming tiers. It is not certain whether those effortswill ultimately be regarded as a sufficient response. Congress may alsoconsider legislation regarding programming packaging, bundling or a la cartedelivery of programming. Any such requirements could fundamentally change theway in which we package and price our services. We cannot predict the outcomeof any current or future FCC proceedings or legislation in this area, or the impactof such proceedings on our business at this time.

*Deletion of CertainProgramming*

Cable television systems that have 1,000 or morecustomers must, upon the appropriate request of a local television station,delete the simultaneous or nonsimultaneous network programming of distantstations when such programming has also been contracted for by the localstation on an exclusive basis. FCC regulations also enable television stationsthat have obtained exclusive distribution rights for syndicated programming intheir market to require a cable television system to delete or “black out” suchprogramming from other television stations which are carried by the cabletelevision system. In addition, the rights holder to a local sports event canprohibit a cable operator from carrying that event on a distant station if theevent is not broadcast live by a local station.

*Franchising*

In March 2007, theFCC released an order adopting rules that limit the ability of localfranchising authorities to impose certain “unreasonable” requirements, such aspublic, governmental and educational access, institutional networks andbuild-out obligations, when issuing competitive franchises. Therules effectively permit competitors with existing authority to use therights-of-ways to begin operation of cable systems no later than 90 days, andall others 180 days, after filing a franchise application and preemptconflicting existing local laws, regulations and requirements includinglevel-playing field provisions. We cannot determine the outcome of anypotential new rules on our business; however, any change that would lessenthe local franchising burdens and requirements imposed on our competitorsrelative to those that are or have been imposed on us could harm our business.

*Franchise Fees*

Although franchisingauthorities may impose franchise fees under the 1984 Cable Act, such paymentscannot exceed 5% of a cable television system’s annual gross revenues from theprovision of cable services. Under the 1996 Telecom Act, franchising authoritiesmay not exact franchise fees from revenues derived from telecommunicationsservices, although they may be able to exact some additional compensation forthe use of public rights-of-way. The FCC has ruled that franchise fees may notbe imposed on revenue from cable modem service. Franchising authorities arealso empowered, in awarding new franchises or renewing existing franchises, torequire cable television operators to provide cable-related facilities andequipment and to enforce compliance with voluntary commitments. In the case offranchises in effect prior to the effective date of the 1984 Cable Act,franchising authorities may enforce requirements contained in the franchiserelating to facilities, equipment and services, whether or not cable-related.The 1984 Cable Act, under certain limited circumstances, permits a cableoperator to obtain modifications of franchise obligations.

18

----

*Renewal ofFranchises*

The 1984 Cable Act and the 1992 Cable Act establishrenewal procedures and criteria designed to protect incumbent franchiseesagainst arbitrary denials of renewal and to provide specific grounds forfranchising authorities to consider in making renewal decisions, including afranchisee’s performance under the franchise and community needs. Even afterthe formal renewal procedures are invoked, franchising authorities and cabletelevision operators remain free to negotiate a renewal outside the formalprocess. Nevertheless, renewal is by no means assured, as the franchisee mustmeet certain statutory standards. Even if a franchise is renewed, a franchisingauthority may impose new and more onerous requirements such as upgradingfacilities and equipment, although the municipality must take into account thecost of meeting such requirements. Similarly, if a franchising authority’sconsent is required for the purchase or sale of a cable television system orfranchise, such authority may attempt to impose burdensome or onerous franchiserequirements in connection with a request for such consent. Historically,franchises have been renewed for cable television operators that have providedsatisfactory services and have complied with the terms of their franchises. Atthis time, we are not aware of any current or past material failure on our partto comply with our franchise agreements. The City of Decatur, Illinois hasdenied our franchise renewal on the basis that our proposal under the formal processset forth under federal law does not meet the communities’ needs in light oftheir costs. An administrative hearing is scheduled for April 2007 andfinal disposition will be made by the City Council thereafter. We would havethe right to appeal any decision to the United States District Court for reviewand potential remand back to the City Council. Should we receive an unfavorableaction from the City of Decatur, we intend to exercise this right. We believe that we have generallycomplied with the terms of our franchises and have provided quality levels ofservice.

The 1992 Cable Act makes several changes to theprocess under which a cable television operator seeks to enforce its renewalrights which could make it easier in some cases for a franchising authority todeny renewal. Franchising authorities may consider the “level” of programmingservice provided by a cable television operator in deciding whether to renew.For alleged franchise violations occurring after December 29, 1984,franchising authorities are no longer precluded from denying renewal based onfailure to substantially comply with the material terms of the franchise wherethe franchising authority has “effectively acquiesced” to such past violations.Rather, the franchising authority is estopped if, after giving the cabletelevision operator notice and opportunity to cure, it fails to respond to awritten notice from the cable television operator of its failure or inabilityto cure. Courts may not reverse a denial of renewal based on proceduralviolations found to be “harmless error.”

Effective July 1,2006, pursuant to Indiana law, cable franchises that are not authorizedpursuant to the state-issued franchise may be renewed by submitting anapplication to the Indiana Utilities Regulatory Commission which is required toissue an authorization within 15 days of receipt of a complete application.

*Channel Set-Asides*

The 1984 Cable Act permitslocal franchising authorities to require cable television operators to setaside certain television channels for public, educational and governmentalaccess programming. The 1984 Cable Act further requires cable televisionsystems with thirty-six or more activated channels to designate a portion oftheir channel capacity for commercial leased access by unaffiliated thirdparties to provide programming that may compete with services offered by thecable television operator. The 1992 Cable Act requires leased access rates tobe set according to a formula determined by the FCC.

*Ownership*

The 1996 Telecom Act repealed the statutory banagainst local exchange carriers providing video programming directly tocustomers within their local exchange telephone service areas. Consequently,the 

19

----

1996 Telecom Act permitstelephone companies to compete directly with operations of cable televisionsystems. Under the 1996 Telecom Act and implementing rules adopted by theFCC local exchange carriers may provide video service as broadcasters, commoncarriers, or cable operators. In addition, local exchange carriers and othersmay also provide video service through “open video systems,” a regulatoryregime that may give them more flexibility than traditional cable televisionsystems. Open video system operators (including local exchange carriers) can,however, be required to obtain a local franchise, and they can be required tomake payments to local governmental bodies in lieu of cable franchise fees. Ingeneral, open video system operators must make up to two-thirds of the channelson their systems available to programming providers (other than the incumbentcable operator) on rates, terms and conditions that are reasonable andnondiscriminatory.

The 1996 Telecom Act generally prohibits localexchange carriers from purchasing a greater than 10% ownership interest in acable television system located within the local exchange carrier’s telephoneservice area, prohibits cable operators from purchasing local exchange carrierswhose service areas are located within the cable operator’s franchise area, andprohibits joint ventures between operators of cable television systems andlocal exchange carriers operating in overlapping markets. There are somestatutory exceptions, including a rural exemption that permits buyouts in whichthe purchased cable television system or local exchange carrier serves anon-urban area with fewer than 35,000 inhabitants, and exemptions for thepurchase of small cable television systems located in non-urban areas. Also,the FCC may grant waivers of the buyout provisions in certain circumstances.

The 1996 Telecom Act made several other changes torelax ownership restrictions and regulations of cable television systems. The1996 Telecom Act repealed the 1992 Cable Act’s three-year holding requirementpertaining to sales of cable television systems. The statutory broadcast/cablecross-ownership restrictions imposed under the 1984 Cable Act were eliminatedin 1996, although the parallel FCC regulations prohibiting broadcast/cablecommon-ownership remained in effect. The U.S. Court of Appeals for the Districtof Columbia circuit struck down these rules. The FCC’s rules alsogenerally prohibit cable operators from offering satellite master antennaservice separate from their franchised systems in the same franchise area,unless the cable operator is subject to “effective competition” there.

The 1996 Telecom Act amended the definition of a “cablesystem” under the Communications Act so that competitive providers of videoservices will be regulated and franchised as “cable systems” only if they usepublic rights-of-way. Thus, a broader class of entities providing videoprogramming may be exempt from regulation as cable television systems under theCommunications Act.

The 1996 Telecom Actprovides that registered utility holding companies and subsidiaries may providetelecommunications services, including cable television, notwithstanding thePublic Utilities Holding Company Act of 1935, as amended. Electric utilitiesmust establish separate subsidiaries known as “exempt telecommunicationscompanies” and must apply to the FCC for operating authority. Certain electric power providers areexploring the provision of broadband service over power lines. In 2004, the FCCadopted rules: 1) that affirmed the ability of electric service providers toprovide broadband Internet access services over their distribution systems; and2) that seek to avoid interference with existing services. Due to theirresources, electric utilities could be formidable competitors to traditionalcable television systems.

*Access toProgramming*

The 1992 Cable Act imposedrestrictions on the dealings between cable operators and cable programmers. Ofspecial significance from a competitive business posture, the 1992 Cable Actprecludes video programmers affiliated with cable companies from favoring theiraffiliated cable operators and requires such programmers to sell theirprogramming to other multichannel video distributors. This provision limits theability of vertically integrated cable programmers to offer exclusiveprogramming arrangements to cable companies. The prohibition on certain typesof exclusive programming 

20

----

arrangementswas set to expire on October 5, 2002, but the FCC has determined that afive-year extension of the prohibition is necessary to preserve and protectcompetition in video programming distribution.

*Privacy*

The 1984 Cable Act imposesa number of restrictions on the manner in which cable television operators cancollect and disclose data about individual system customers. The statute alsorequires that the system operator periodically provide all customers withwritten information about its policies regarding the collection and handling ofdata about customers, their privacy rights under federal law and theirenforcement rights. In the event that a cable television operator was found tohave violated the customer privacy provisions of the 1984 Cable Act, it couldbe required to pay damages, attorneys’ fees and other costs. Under the 1992Cable Act, the privacy requirements were strengthened to require that cabletelevision operators take such actions as are necessary to prevent unauthorizedaccess to personally identifiable information. Certain of these requirementswere modified by the Electronic Communications Privacy Act of 2001.Additionally, certain states have enacted laws that require disclosure toresidents of those states if certain personal information held about them isaccessed or is reasonably believed to have been accessed without authorization.

*Franchise Transfers*

The 1992 Cable Actrequires franchising authorities to act on any franchise transfer requestsubmitted after December 4, 1992 within 120 days after receipt of allinformation required by FCC regulations and by the franchising authority.Approval is deemed to be granted if the franchising authority fails to actwithin such period. All communities and counties covered by the Indiana StateIssued Video Franchise Certificate may be transferred to another operatorwithout affirmative action on the part of the State or its politicalsubdivisions.

*Technical Requirements*

The FCC has imposed technical standards applicable toall classes of channels which carry downstream National Television SystemCommittee video programming. The FCC also has adopted additional standardsapplicable to cable television systems using frequencies in the 108 to 137 MHzand 225 to 400 MHz bands in order to prevent harmful interference withaeronautical navigation and safety radio services and has also establishedlimits on cable television system signal leakage. Periodic testing by cable televisionoperators for compliance with the technical standards and signal leakage limitsis required and an annual filing of the results of these measurements isrequired. The 1992 Cable Act requires the FCC to periodically update itstechnical standards to take into account changes in technology. Under the 1996Telecom Act, local franchising authorities may not prohibit, condition orrestrict a cable television system’s use of any type of customer equipment ortransmission technology.

The FCC has adopted regulationsto implement the requirements of the 1992 Cable Act designed to improve thecompatibility of cable television systems and consumer electronics equipment.These regulations, among other things, generally prohibit cable televisionoperators from scrambling their basic service tier. The 1996 Telecom Actdirects the FCC to set only minimal standards to assure compatibility betweentelevision sets, VCRs and cable television systems, and otherwise to rely onthe marketplace. Pursuant to the 1992 Cable Act, the FCC has adopted rules toassure the competitive availability to consumers of customer premisesequipment, such as converters, used to access the services offered by cabletelevision systems and other multichannel video programming distributors. Pursuantto those rules, consumers are given the right to attach compatible equipment tothe facilities of their multichannel video programming distributors so long asthe equipment does not harm the network, does not interfere with the servicespurchased by other customers and is not used to receive unauthorized services.As of July 1, 2000, multichannel video programming distributors, otherthan operators of direct broadcast satellite television 

21

----

systems,were required to separate security from non-security functions in the customerpremises equipment which they sell or lease to their customers and offer theircustomers the option of using component security modules obtained from themultichannel video programming distributors with set-top units purchased orleased from retail outlets. As of July 1, 2007, multichannel videoprogramming distributors will be prohibited from distributing new set-topequipment integrating both security and non-security functions to theircustomers. InJanuary 2007, the FCC acted on certain requests seeking waiver of theserules. The FCC denied a waiver request by Comcast while granting waivers for asmall cable operator and Cablevision Systems Corporation. On behalf of allcable operators, the National Cable and Telecommunications Association (“NCTA”)filed a request to waive the rules until a downloadable security solutionis available or the 2009 digital transition, whichever is earlier. Based on theFCC’s decision, it appears likely that the NCTA’s general waiver petition willbe denied as will any other waivers that are not limited in time or based on adate-certain changeover to all digital services. It is possible that ourvendors will be unable to deliver to us the necessary quantities of set-topboxes to enable us to comply in the future with the applicable rules. Inaddition, the design and manufacture of the new boxes may result insignificantly higher costs to us, the amount of which cannot be determined.

*Inside Wiring;Customer Access*

FCC rules require anincumbent cable operator upon expiration of a multiple dwelling unit servicecontract to sell, abandon, or remove “home run” wiring that was installed bythe cable operator in a multiple dwelling unit building. These inside wiring rules assistbuilding owners in their attempts to replace existing cable operators with newprogramming providers who are willing to pay the building owner a higher fee,where such a fee is permissible. The FCC has also issued an order preemptingstate, local and private restrictions on over-the-air reception antennas placedon rental properties in areas where a tenant has exclusive use of the property,such as balconies or patios. However, tenants may not install such antennas onthe common areas of multiple dwelling units, such as on roofs. This orderlimits the extent to which multiple dwelling unit owners may enforce certainaspects of multiple dwelling unit agreements which otherwise would prohibit,for example, placement of direct broadcast satellite television systemstelevision receiving antennae in multiple dwelling unit areas, such asapartment balconies or patios, under the exclusive occupancy of a renter.

*Pole Attachments*

The FCC currentlyregulates the rates and conditions imposed by certain public utilities for useof their poles unless state public service commissions are able to demonstratethat they adequately regulate the rates, terms and conditions of cabletelevision pole attachments. A number of states and the District of Columbiahave certified to the FCC that they adequately regulate the rates, terms andconditions for pole attachments. Illinois, Ohio, and Kentucky, states in whichwe operate, have made such a certification. In the absence of state regulation,the FCC administers such pole attachment and conduit use rates through use of aformula which it has devised. Pursuant to the 1996 Telecom Act, the FCC hasadopted a new rate formula for any attaching party, including cable televisionsystems, which offers telecommunications services. This new formula will resultin higher attachment rates that will apply only to cable television systemswhich elect to offer telecommunications services. Any increases pursuant tothis new formula began in 2001, and will be phased in by equal increments overthe five ensuing years. The FCC ruled that the provision of Internet serviceswill not, in and of itself, trigger use of the new formula. The Supreme Courtaffirmed this decision and also held that the FCC’s authority to regulate ratesfor attachments to utility poles extended to attachments by cable operators andtelecommunications carriers that are used to provide Internet service or forwireless telecommunications service. This development benefits our business andwill place a constraint on the prices that utilities can charge with regard tothe cable facilities over which we also provide Internet access service.

22

----

*InteractiveTelevision*

In January 2001, theFCC issued a Notice of Inquiry covering a wide range of issues relating toInteractive Television (“ITV”). Examples of ITV services are interactiveelectronic program guides and access to a graphic interface that providessupplementary information related to the video display. In the near term, cablesystems are likely to be the platform of choice for the distribution of ITVservices. The FCC has posed a series of questions including the definition ofITV, the potential for discrimination by cable systems in favor of affiliatedITV providers, enforcement mechanisms, and the proper regulatory classificationof ITV service.

*Copyright*

Cable television systemsare subject to federal copyright licensing covering carriage of broadcastsignals. In exchange for making semi-annual payments to a federal copyrightroyalty pool and meeting certain other obligations, cable television operatorsobtain a statutory license to retransmit broadcast signals. The amount of thisroyalty payment varies, depending on the amount of system revenues from certainsources, the number of distant signals carried, and the location of the cabletelevision system with respect to over-the-air television stations. Adjustmentto the copyright royalty rates are done through an arbitration processsupervised by the U.S. Copyright Office. Cable television operators are liablefor interest on underpaid and unpaid royalty fees, but are not entitled tocollect interest on refunds received for overpayment of copyright fees.

Various bills have beenintroduced into Congress over the past several years that would eliminate ormodify the cable television compulsory license. Without the compulsory license,cable television operators would have to negotiate rights from the copyrightowners for all of the programming on the broadcast stations carried by cabletelevision systems. Such negotiated agreements would likely increase the costto cable television operators of carrying broadcast signals. The 1992 Cable Act’sretransmission consent provisions expressly provide that retransmission consentagreements between television broadcast stations and cable television operatorsdo not obviate the need for cable operators to obtain a copyright license forthe programming carried on each broadcaster’s signal.

The Copyright Office hasopened two proceedings in response to several petitions seeking revisions tocertain compulsory copyright license reporting requirements and clarificationof certain issues relating to the application of the compulsory license to thecarriage of digital broadcast stations. We cannot predict the outcome of anysuch rulemakings; however, it is possible that certain changes in the rules orcopyright compulsory license fee computations could have an adverse affect onour business by increasing our copyright compulsory license fee costs or bycausing us to reduce or discontinue carriage of certain broadcast signals thatwe currently carry on a discretionary basis.

In February 2006, theCopyright Office reported to Congress regarding certain aspects of thesatellite compulsory license as required by the Satellite Home Viewer Extensionand Reauthorization Act (“SHVERA”). The Copyright Office concluded that: (i) thecurrent DBS compulsory license royalty fee for distant signals did not reflectfair market value; (ii) copyright owners should have the right to auditthe statements of account submitted by DBS providers; and (iii) the costof administering the compulsory license system be paid by those using the copyrightedmaterial. Neither the outcome of those proceedings, their impact on cabletelevision operators, nor their impact on subsequent legislation, regulations,the cable industry, or our business and operations can be predicted at thistime.

In 1999, Congress modifiedthe satellite compulsory license in a manner that permits DBS providers tobecome more competitive with cable operators. In 2004, Congress adoptedlegislation extending this authority through 2009. The 2004 legislation alsodirected the Copyright Office to submit a report to Congress by June 2008recommending any changes to the cable and satellite licenses that the Officedeems necessary. The elimination or substantial modification of the cablecompulsory license could adversely affect our ability to obtain suitableprogramming and could substantially increase the cost of programming 

23

----

thatremains available for distribution to our subscribers. We are unable to predictthe outcome of any legislative or agency activity related to either the cablecompulsory license or the right of direct broadcast satellite providers todeliver local or distant broadcast signals.

Copyrighted musicperformed in programming supplied to cable television systems by pay cablenetworks, such as HBO, and basic cable networks, such as USA Network, islicensed by the networks through private agreements with performing rightsorganizations such as the American Society of Composers and Publishers,generally known as ASCAP, BMI, Inc. and SESAC, Inc. ASCAP and BMIoffer “through to the viewer” licenses to the cable networks which cover theretransmission of the cable networks’ programming by cable television systemsto their customers.

Licenses to performcopyrighted music by cable television systems themselves, including on localorigination channels, in advertisements inserted locally on cable televisionnetworks, and in cross-promotional announcements, must be obtained by the cabletelevision operator from the appropriate performing rights organization.

*State and Local Regulation*

Cable television systemsgenerally are operated pursuant to nonexclusive franchises, permits or licensesgranted by a municipality or other state or local government entity. The termsand conditions of franchises vary materially from jurisdiction to jurisdiction,and even from city to city within the same state, historically ranging fromreasonable to highly restrictive or burdensome. Franchises generally containprovisions governing fees to be paid to the franchising authority, length ofthe franchise term, renewal, sale or transfer of the franchise, territory ofthe franchise, design and technical performance of the system, use andoccupancy of public streets and number and types of cable television servicesprovided. The terms and conditions of each franchise and the laws andregulations under which it was granted directly affect the profitability of thecable television system. The 1984 Cable Act places certain limitations on afranchising authority’s ability to control the operation of a cable televisionsystem. The 1992 Cable Act prohibits exclusive franchises, and allowsfranchising authorities to exercise greater control over the operation offranchised cable television systems, especially in the area of customer serviceand rate regulation. The 1992 Cable Act also allows franchising authorities tooperate their own multichannel video distribution system without having toobtain a franchise and permits states or local franchising authorities to adoptcertain restrictions on the ownership of cable television systems. Moreover,franchising authorities are immunized from monetary damage awards arising fromregulation of cable television systems or decisions made on franchise grants,renewals, transfers and amendments. The 1996 Telecom Act restricts a franchisingauthority from either requiring or limiting a cable television operator’sprovision of telecommunications services.

Various proposals havebeen introduced at the state and local levels with regard to the regulation ofcable television systems, and a number of states have adopted legislationsubjecting cable television systems to the jurisdiction of centralized stategovernmental agencies, some of which impose regulation of a character similarto that of a public utility. A new Kentucky statute enacted in 2005 replacesthe fees established by individual franchise with a 3% excise tax and a 2.4%gross receipts tax which is also imposed on other providers of videoprogramming service, such as DBS. A new Indiana statute effective in 2006shifts the authority to grant new or renewal franchises from local franchisingauthorities to the state’s Utilities Regulatory Commission. We have elected tobe governed by the state-level franchise law with respect to all our cablesystems in Indiana. Our Indiana state-issued franchises provide for certainobligations similar to our previous local franchises, such as franchise feepayments and public, educational and governmental access channel requirements,but have certain advantages such as free transferability and no renewalobligations. This statute also will likely greatly speed the ability for newentrants  to provide video service inIndiana. A few other states have either passed similar legislation while othershave similar legislation pending.

24

----

Several states haverecently passed legislation and similar legislation is pending, or has beenproposed in certain other states and in Congress, that would allow localtelephone companies to deliver services that would compete with our cableservice, without obtaining equivalent local franchise. To the extent thatincumbents have made prior payments, including capital grants, incumbents wouldstill remain at a competitive disadvantage under the legislation. Anotherproposal in Congress would also limit our ability to maintain competitiveprices. Any such legislatively granted advantages to our competitors couldadversely affect our business. The effect of such initiatives, if any, on ourobligation to obtain local franchises, many of which have years remaining inthe terms, cannot be predicted.

The foregoing summarizescertain material present and proposed federal, state and local regulations andlegislation relating to the cable television industry. Other existing federalregulations, copyright licensing and, in many jurisdictions, state and localfranchise requirements, currently are the subject of a variety of judicialproceedings, legislative hearings and administrative and legislative proposalswhich could change, in varying degrees, the manner in which cable televisionsystems operate. Neither the outcome of these proceedings nor their impact uponthe cable television industry or us can be predicted at this time.

**Internet Access Service**

We offer a service whichenables consumers to access the Internet at high speeds via high capacitybroadband transmission facilities and cable modems. We compete with many otherproviders of Internet access services which are known as Internet serviceproviders (“ISPs”). ISPs include such companies as America Online, MSN andEarthlink as well as major telecommunications providers, including AT&T,Verizon and other local exchange telephone companies. The FCC has decided andthe United States Supreme Court has affirmed that cable Internet service shouldbe classified for regulatory purposes as an “information service” rather thaneither a “cable service” or a “telecommunications service.” Concurrently, theFCC has initiated a wide-ranging rulemaking proceeding in which it seekscomment on the regulatory ramifications of this classification. Among theissues to be decided are whether the FCC should permit local authorities toimpose an access requirement, whether local authorities should be prohibitedfrom imposing fees on cable Internet service revenues, and what regulatory rolelocal authorities should be permitted to play. We cannot predict the outcome ofthe current FCC proceeding or its impact on our business.

Congress and the FCC havebeen urged to adopt certain rights for users of Internet access services, andto regulate or restrict certain types of commercial agreements between serviceproviders and providers of Internet content. These proposals are generallyreferred to as “network neutrality.”  In August 2005,the FCC issued a non-binding policy statement stating four principles to guideits policymaking regarding such services. These principles state that consumersare entitled to: (1) access the lawful Internet content of their choice; (2) runapplications and services of their choice, subject to the needs of lawenforcement; (3) connect their choice of legal devices that do not harmthe network; and (4) enjoy competition among network providers,application and service providers, and content providers. The FCC recentlyimposed conditions on its approval of the AT&T-BellSouth merger beyond thescope of these four principles, requiring the merged company to maintain a “neutralnetwork and neutral routing” of internet traffic between the customer’s home oroffice and the Internet peering point where traffic hits the Internet backbone,and prohibiting the merged company from privileging, degrading, or prioritizingany packets along this route regardless of their source, ownership, ordestination. There is a possibility that the FCC could adopt the fourprinciples, or even the requirements of the AT&T-BellSouth merger, asformal rules which could impose additional costs and regulatory burdens onus.

There are currently fewlaws or regulations which specifically regulate communications or commerce overthe Internet. Section 230 of the Communications Act, added to that act bythe 1996 Telecom Act, declares it to be the policy of the United States topromote the continued development of the Internet and other interactivecomputer services and interactive media, and to preserve the vibrant and competitivefree 

25

----

marketthat presently exists for the Internet and other interactive computer services,unfettered by federal or state regulation. One area in which Congress didattempt to regulate content over the Internet involved the dissemination ofobscene or indecent materials. The provisions of the 1996 Telecom Act,generally referred to as the Communications Decency Act, were found to beunconstitutional, in part, by the United States Supreme Court in 1997. Inresponse, Congress passed the Child Online Protection Act. Theconstitutionality of this act is currently being challenged in the courts. Mostrecently, the United States Supreme Court upheld a ruling by the Third CircuitCourt of Appeals that enjoined enforcement of the statute pending a trial onthe merits because the statute likely violated the First Amendment. Finally,disclosure of customer communications or records is governed by the ElectronicCommunications Privacy Act of 2001 and the Cable Act, both of which wereamended by the USA Patriot Act.

**Local Telecommunications Services**

The 1996 Telecom Actprovides that no state or local laws or regulations may prohibit or have theeffect of prohibiting any entity from providing any interstate or intrastatetelecommunications service. States are authorized, however, to impose “competitivelyneutral” requirements regarding universal service, public safety and welfare,service quality and consumer protection. State and local governments alsoretain their authority to manage the public rights-of-way and may require fairand reasonable, competitively neutral and non-discriminatory compensation formanagement of the public rights-of-way when cable operators or others providetelecommunications service using public rights-of-way. State and local governmentsmust publicly disclose required compensation from telecommunications providersfor use of public rights-of-way.

Local telecommunicationsservices are subject to regulation by state utility commissions. Use of localtelecommunications facilities to originate and terminate long distanceservices, a service commonly referred to as “exchange access,” is subject toregulation both by the FCC and by state utility commissions. As providers oflocal exchange service, we are subject to the requirements imposed uponcompetitive local exchange companies by the 1996 Telecom Act. These includerequirements governing resale, telephone number portability, dialing parity,access to rights-of-way and reciprocal compensation, among others. Although wecannot predict whether and the extent to which a state may seek to regulate us,increased regulation would likely increase our cost of doing business.

We now offer voice overInternet protocol (“VoIP”) service under our “Insight Phone 2.0” brand as acompetitive alternative to traditional circuit-switched telephone service.Various states, including states where we operate, have adopted or areconsidering differing regulatory treatment for VoIP, ranging from minimal or noregulation to full-blown common carrier status. The FCC decided thatalternative voice technologies, like certain types of VoIP telephony, should beregulated only at the federal level, rather than by individual states. However,many implementation details remain unresolved, and there are substantialregulatory changes being considered that could either benefit or harm VoIPtelephony as a business operation. While the final outcome of the FCCproceedings cannot be predicted, it is generally believed that the FCC favors a“light touch” regulatory approach for VoIP telephony, which might includepreemption of certain state or local regulation.

In June 2006, theUnited States Court of Appeals for the District of Columbia Circuit remandedthe FCC’s denial of SBC’s (now AT&T) petition seeking forbearance fromTitle II common carrier regulation of its Internet Protocol services. AT&Thas widely announced its intent to provide IP video, voice and data. Theoutcome of this proceeding or its impact on our business cannot be predicted.

**Employees**

As of December 31,2006, we employed approximately 4,000 full-time employees and 35 part-timeemployees. We consider our relations with our employees to be good.

26

----

**Item1A.**                Risk Factors

Our business faces manyrisks. The risks described below may not be the only risks we face. Additionalrisks that we do not yet know of, or that we currently think are immaterial,may also impair our business operations or financial results. If any of theevents or circumstances described in the following risks actually occurs, ourbusiness, financial condition or results of operations could suffer.

***We have substantialdebt and significant interest payment requirements, which may adversely affectour ability to obtain financing in the future, to finance our operationsand  to react to changes in our business.***

Wehave a substantial amount of debt. The following table shows certain importantcredit statistics about us.

| ** **                  | ** ** | **As of  December 31, 2006** | ** ** |
|-----------------------------|------------|---------------------------------------------|------------|
| ** **                  | ** ** | **(dollars in thousands)**        | ** ** |
| Total debt.                 |       |                                        | $          | 2,805,722 |   |   |
| Stockholders’  equity. |       |                                        | 445,703    |   |   |
| Debt to equity ratio.       |       |                                        | 6.3x       |   |   |

 

Ourhigh level of combined debt could have important consequences for you,including the following:

·       Ourability to obtain additional financing in the future for capital expenditures,acquisitions, working capital or other purposes may be limited;

·       Wewill need to use a large portion of our revenues to pay interest on ourborrowings, which will reduce the amount of money available to fund ouroperations, capital expenditures and other activities;

·       Someof our debt has a variable rate of interest, which exposes us to the risk ofincreased interest rates; and

·       Ourindebtedness may limit our ability to withstand competitive pressures andreduce our flexibility in responding to changing business and economicconditions.

***Our 50% stake inInsight Midwest constitutes substantially all of our operating assets, and oursole business is the management of Insight Midwest’s cable television systems.We may be forced to liquidate Insight Midwest before our 121⁄4% senior discountnotes mature.***

Although our financialstatements consolidate the results of Insight Midwest, we own only 50% of theoutstanding partnership interests in Insight Midwest. The other 50% of InsightMidwest is owned by an indirect subsidiary of Comcast Corporation, an entity overwhich we have no control. As a result, although our financial statementsinclude 100% of the revenues of Insight Midwest, we are only entitled to sharein the results and assets of Insight Midwest to the extent of our partnershipinterest. Insight Midwest accounted for substantially all of our 2006 revenues.Our 50% interest in Insight Midwest constitutes substantially all of ouroperating assets. The only cash we receive directly from Insight Midwest is amanagement fee of 3% based on revenues of the cable television systems andreimbursement of expenses.

The Insight Midwestpartnership agreement provides that either Comcast Cable or Insight LP (ourwholly-owned subsidiary that owns our 50% interest in Insight Midwest) has theright to cause a split-up of Insight Midwest. To date, neither partner hascommenced the split-up process. The split-up would reduce the cash flow fromoperations that we need to repay our debt, and could require us to make achange of control offer which we may be unable to finance.

27

----

***We depend upon ouroperating subsidiaries for cash to fund our obligations.***

***Our investments in our operatingsubsidiaries, including Insight Midwest, constitute substantially all of ouroperating assets. Consequently, our subsidiaries conduct all of our consolidatedoperations and own substantially all of our consolidated assets. The onlysource of the cash we have to pay interest and principal on our indebtedness isthe cash that our subsidiaries generate from their operations and theirborrowings. The ability of our operating subsidiaries to generate cash issubject to general economic, financial, competitive, legislative, regulatoryand other factors that are beyond our control. Accordingly, we cannot assureyou that our subsidiaries will generate cash flow from operations in amountssufficient to enable us to pay the principal and interest on our indebtedness.***

***The terms of the Insight Midwest Holdings creditfacility and any inability to refinance any borrowings under such facility maylimit our ability to access the cash flow of our subsidiaries.***

Insight Midwest’s ability to receive cash from itssubsidiaries is restricted by the terms of the Insight Midwest Holdings creditfacility. Insight Midwest Holdings’ credit facility permits it to distributecash to Insight Midwest, subject to certain limitations, provided that there isno default under such credit facility. If there is a default under the InsightMidwest Holdings credit facility, Insight Midwest would not have any cash topay interest on its obligations.

Cash interest on our 121⁄4% senior discount notes beganto accrue on February 15, 2006, and cash interest on the 121⁄4% notes becamepayable semiannually in arrears beginning on August 15, 2006. Even ifInsight Midwest receives funds from its subsidiaries, there can be no assurancethat Insight Midwest can or would distribute cash to us to make payments on ouroutstanding 121⁄4% notes due to restrictions imposed by the indentures governingInsight Midwest’s outstanding senior notes and the Insight Midwest partnershipagreement. The indentures governing Insight Midwest’s outstanding  93⁄4% senior notes limit Insight Midwest’sability to distribute cash to us for any purpose. Furthermore, because we onlyown a 50% equity interest in Insight Midwest, the Insight Midwest partnershipagreement provides that Insight Midwest may not pay dividends or make otherdistributions to us without the consent of our partner, Comcast Cable. As aresult, even if the creditors of Insight Midwest and its subsidiaries were topermit distributions to us, Comcast Cable could prohibit any such distribution.As a result, if we are unable to refinance the indebtedness of Insight Midwestand its subsidiaries on terms that provide Insight Midwest with a greaterability to provide us with funds, we may not be able to make payments requiredunder the 121⁄4% senior discount notes.

***The Insight Midwest Holdings credit facility requiresus to comply with various financial and operating restrictions which couldlimit our ability to compete as well as our ability to expand.***

The Insight MidwestHoldings credit facility contains covenants that restrict Insight MidwestHoldings and its subsidiaries’ ability to:

·                    distributefunds or pay dividends to Insight Midwest;

·                    incuradditional indebtedness or issue additional equity;

·                    repurchaseor redeem equity interests and indebtedness;

·                    pledgeor sell assets or merge with another entity;

·                    createliens; and

·                    makecertain capital expenditures, investments or acquisitions.

Such restrictions could limit our ability to competeas well as our ability to expand. The ability of Insight Midwest Holdings’subsidiaries to comply with these provisions may be affected by events beyond 

28

----

our control. If they wereto breach any of these covenants, they would be in default under the creditfacility and they would be prohibited from making distributions to InsightMidwest.

***We have a history of net losses, and may not beprofitable in the future.***

We have a history of net losses and expect to incuradditional net losses in the future. We incurred a net loss before accruals ofpreferred interests of $42.3 million for the year ended December 31,2002, $14.2 million for the year ended December 31, 2003,$13.8 million for the year ended December 31, 2004,  $84.9 million for the year ended December 31,2005 and $36.6 million for the year ended December 31, 2006.

We have and will continue to have a substantial amountof interest expense in respect of debt incurred and depreciation expenserelating to acquisitions of cable systems as well as expansion and upgradeprograms. Such expenses have contributed to the net losses we experienced.

***Our programming costs are substantial and they mayincrease, which could result in a decrease in profitability if we are unable topass that increase on to our customers.***

In recent years, the cable and satellite videoindustries have experienced an escalation in the cost of programming, andsports programming in particular. Our cable programming services are dependentupon our ability to procure programming that is attractive to our customers atreasonable rates. Programming costs will continue to escalate, and we may notbe able to pass programming cost increases on to our customers. We expect to besubject to increasing financial demands by broadcasters to obtain consent toretransmit their programming in the future. Our financial condition and resultsof operations could be negatively affected by further increases in programmingcosts. Programming has been and is expected to continue to be our largest singleexpense item and accounted for approximately 37% of the total programming andother operating costs and selling, general and administrative expenses for oursystems for the year ended December 31, 2006.

Because of our relationship with Comcast Cable, wecurrently have the right to purchase certain programming services for oursystems directly through Comcast Cable’s programming supplier SatelliteServices, Inc. In addition, under the terms of Insight Midwest’spartnership agreement, we and Comcast Cable are each required to usecommercially reasonable efforts to extend to Insight Midwest all of theprogramming discounts available to us. If a split-up of the Insight Midwestpartnership were to occur, we may no longer be able to benefit from thefavorable programming costs available through Comcast Cable.

***The competition we face from other cable networks andalternative service providers may cause us to lose market share.***

The impact from competition, particularly from directbroadcast satellite television systems and companies that overbuild in ourmarket areas, has resulted in a decrease in customer growth rates as well as aloss of customers. This growing competition has negatively impacted ourfinancial performance. Increased competition may continue to impact ourfinancial performance. Many of our potential competitors have substantiallygreater resources than we do, and we cannot predict the market share ourcompetitors will eventually achieve, nor can we predict their ability todevelop products which will compete with our planned new and enhanced productsand services such as high-speed Internet access, video-on-demand and telephoneservices.

Direct broadcast satellite service consists oftelevision programming transmitted via high-powered satellites to individualhomes, each served by a small satellite dish. Legislation permitting directbroadcast satellite operators to transmit local broadcast signals was enactedon November 29, 1999. This eliminated a significant competitive advantagethat cable system operators have had over direct broadcast satellite operators.Direct broadcast satellite operators currently deliver local broadcast signalsin the largest markets and continue to expand such carriage to additionalmarkets. Moreover, both major direct 

29

----

broadcast satelliteoperators announced in early 2007 the planned addition this year of a number ofhigh definition programming services and in the case of DirecTV, a significantnumber of such channels.

The 1996 Telecom Act contains provisions designed to encouragelocal exchange telephone companies and others to provide a wide variety ofvideo services competitive with services provided by cable systems. Localexchange telephone companies in various states have either announced plans,obtained local franchise authorizations or are currently competing with ourcable communications systems. Certain telephone companies are deploying fibermore extensively in their networks and are deploying broadband services,including video programming services, using a switched Internet protocolplatform or other technologies in some cases designed to avoid the sameregulatory burdens imposed on our business. The FCC’s new rules permittingsuch telephone companies to obtain local franchises on an expedited basis aswell as any ability of local telephone companies to provide their serviceswithout obtaining state or local cable franchises comparable to those underwhich we operate would be adverse to our business.

Since our cable systems are operated undernon-exclusive franchises, competing operators of cable systems and otherpotential competitors, such as municipalities and municipal utility providers,may be granted franchises to build cable systems in markets where we holdfranchises. Competition in geographic areas where a secondary franchise isobtained and a cable network is constructed is called “overbuilding.” WideOpenWestoverbuilds our Evansville, Indiana system and our Columbus, Ohio system. Wecannot predict what effect competition from these or future competitors willhave on our business and operations.

***We  facecompetition from providers of alternatives to our Internet and telephoneservices.***

Several telephone companies are offering digitalsubscriber line technology (also known as DSL services), which allows Internetaccess over traditional phone lines at data transmission speeds greater thanthose available by a standard telephone modem. Although these transmissionspeeds generally have not been as fast as the transmission speeds of a cablemodem, coupled with its discounted pricing, we believe that the transmissionspeeds of digital subscriber line technology are sufficiently high that suchtechnology is competitive to our cable modem technology.

As we continue to expand our offerings to includetelephone services in additional markets, the telephone services we deliverwill be subject to competition from existing providers, including both localexchange telephone companies and long-distance carriers as well as competingproviders using alternative technologies such as wireless and voice overInternet protocol (“VoIP”). We cannot predict the extent to which the presenceof these competitors will influence customer penetration in our telephoneservice areas.

We expect that the most significant competitors forour Internet access and telephone service offerings will be the existing localexchange telephone companies (currently the predominant providers of Internetand telephone services in our markets), as well as resellers using the localexchange telephone companies’ networks, although the FCC no longer requires facilities-based wireline Internetaccess service providers to unbundle and resell DSL services as a stand aloneproduct.

***Our business has been and continues to be subject toextensive governmental legislation and regulation, and changes in thislegislation and regulation could increase our costs of compliance and reducethe profitability of our business.***

The cable televisionindustry is subject to extensive legislation and regulation at the federal andlocal levels, and, in some instances, at the state level, and many aspects ofsuch regulation are currently the subject of judicial proceedings andadministrative or legislative proposals. Operating in a regulated industryincreases the cost of doing business generally. We may also become subject toadditional regulatory burdens and related increased costs. As we continue tointroduce additional communications services, we may be required to obtainfederal, state and local licenses or other authorizations to offer such 

30

----

services.We may not be able to obtain such licenses or authorizations in a timelymanner, or at all, or conditions could be imposed upon such licenses andauthorizations that may not be favorable to us.

**Item 1B. UnresolvedStaff Comments**

Not applicable.

**Item 2. Properties**

We own and lease parcelsof real property for signal reception sites which house our antenna towers andheadends, microwave complexes and business offices which includes our principalexecutive offices. In addition, we own our cable systems’ distributionnetworks, various office fixtures, test equipment and service vehicles. Thephysical components of our cable systems require maintenance and periodicupgrading to keep pace with technological advances. We believe that ourproperties, both owned and leased, are in good condition and are suitable andadequate for our business operations as presently conducted and as proposed tobe conducted.

**Item 3. LegalProceedings**

Between March 7 and March 15, 2005, fivepurported class action lawsuits were filed in the Delaware Court of Chancerynaming, among others, Insight Communications Company, Inc. and each of itsdirectors as defendants. The cases were subsequently consolidated under the caption*In Re Insight Communications Company, Inc.Shareholders Litigation* (Civil Action No. 1154-N), and,on April 11, 2005, a Consolidated Amended Complaint (“Complaint”) wasfiled. The Complaint alleged, among other things, that the defendant directors breachedtheir fiduciary duties to our stockholders in connection with a proposal fromSidney R. Knafel, Michael Willner, together with certain related and otherparties, and The Carlyle Group to acquire all of our then-outstanding,publicly-held Class A common stock.

On July 28, 2005, the parties to the actionentered into a memorandum of understanding setting forth the terms of aproposed settlement of the litigation, and, on May 11, 2006, filed astipulation of settlement with the Court. Kim D. Kelly, a former employee andofficer, subsequently objected to the proposed settlement. In a separateaction, filed April 14, 2006, Ms. Kelly sought a statutory appraisalof, among other things, shares of our Class A common stock she held priorto the going-private merger, and on August 3, 2006, Ms. Kelly sentour board of directors a claim letter alleging that the company and certainaffiliated entities breached certain purported commitments relating to certainequity interests and options that she held. On November 28, 2006, Insightand certain officers and affiliates entered into a settlement agreement with Ms. Kelly.Under the agreement, in consideration of certain covenants and agreements,including the exchange of general releases, Ms. Kelly agreed to withdraw herappraisal petition and objection to the settlement of the class actionlitigation.

On December 1, 2006, the Court ruled that (i) theaction should be certified as a class action; (ii) the settlement of thelitigation be approved as fair, reasonable and adequate; (iii) plaintiffs’request for attorneys’ fees and expenses of $1.2 million should be granted; and(iv) the withdrawn objection was not meritorious. On the same day, theCourt also entered an order and final judgment, which, among other things, approvedthe settlement of the litigation, dismissed the litigation with prejudice, andreleased the claims asserted in the litigation. The time for appeal of theCourt’s decision has expired.

In April 2005, Acacia Media TechnologiesCorporation filed a lawsuit against us and others in the United States DistrictCourt for the Southern District of New York. The complaint alleges, among otherthings, infringement of certain United States patents that allegedly relate tosystems and methods for transmitting and/or receiving digital audio and videocontent. The complaint seeks injunctive relief and damages in an unspecifiedamount. In the event that a court ultimately determines that we infringe on anyof the patents, we may be subject to substantial damages, which may includetreble damages and/or an 

31

----

injunction that couldrequire us to materially modify certain products and services that we currentlyoffer to subscribers. We believe that the claims are without merit and intendto defend the action vigorously. The final disposition of this claim is notexpected to have a material adverse effect on our consolidated financialposition but could possibly be material to our consolidated results ofoperations of any one period. Further, at this time the outcome of the litigationis impossible to predict, and no assurance can be given that any adverseoutcome would not be material to our consolidated financial position.

We believe there are noother pending or threatened legal proceedings that, if adversely determined, wouldhave a material adverse effect on us.

**Item 4. Submissionof Matters to a Vote of Security Holders**

Not applicable.

32

----

**PART II**

**Item 5.**                        Marketfor Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchasesof Equity Securities

Not applicable.

**Item 6.**                        SelectedFinancial Data

In thefollowing table, we provide you with our selected consolidated historical financialand other data. We have prepared the consolidated selected financialinformation using our consolidated financial statements for the five yearsended December 31, 2006. When you read this selected consolidatedhistorical financial and other data, it is important that you read along withit the historical financial statements and related notes in our consolidatedfinancial statements included in this report, as well as “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,” alsoincluded in this report. Certain prior year amounts have been reclassified toconform to the current year’s presentation.

| ** **                                                                                                                       | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                                                       | ** ** | **(dollars in thousands)**       | ** ** |
| **Statement of Operations Data:**                                                                                                |       |                                       |       |   |   |   |   |   |   |   |   |
| Revenue                                                                                                                          |       | $                                          | 1,262,557  |   | $ | 1,117,681 |   | $ | 1,002,456 |   | $ | 902,592 |   | $ | 811,995 |   |
| Total operating costs and expenses                                                                                               |       | 1,044,005                                  |       | 976,102 |   | 813,971 |   | 747,248 |   | 672,993 |   |
| Operating income                                                                                                                 |       | 218,552                                    |       | 141,579 |   | 188,485 |   | 155,344 |   | 139,002 |   |
| Total other expense, net                                                                                                         |       | (260,336                                   | )          | (220,520 | ) | (204,089 | ) | (177,495 | ) | (203,106 | ) |
| Loss before minority interest, extinguishments of  obligations, gain on contract settlement, income taxes and extraordinary item |       | (41,784                                    | )          | (78,941 | ) | (15,604 | ) | (22,151 | ) | (64,104 | ) |
| Minority interest income (expense)                                                                                               |       | 5,377                                      |       | (5,488 | ) | (14,023 | ) | (7,936 | ) | 31,076 |   |
| Gain (loss) from early extinguishment of debt(1)                                                                                 |       | —                                     |       | — |   | — |   | (10,879 | ) | 3,560 |   |
| Loss on settlement of put obligation                                                                                             |       | —                                     |       | — |   | — |   | (12,169 | ) | — |   |
| Gain on settlement of programming contract                                                                                       |       | —                                     |       | — |   | — |   | 37,742 |   | — |   |
| Impairment write-down of investments                                                                                             |       | —                                     |       | — |   | — |   | (1,500 | ) | (18,023 | ) |
| Loss before income taxes and extraordinary item                                                                                  |       | (36,407                                    | )          | (84,429 | ) | (29,627 | ) | (16,893 | ) | (47,491 | ) |
| Benefit (provision) for income taxes                                                                                             |       | (159                                       | )          | (500 | ) | 201 |   | 2,702 |   | 5,175 |   |
| Loss before extraordinary item                                                                                                   |       | (36,566                                    | )          | (84,929 | ) | (29,426 | ) | (14,191 | ) | (42,316 | ) |
| Extraordinary item, net of tax                                                                                                   |       | —                                     |       | — |   | 15,627 |   | — |   | — |   |
| Loss before preferred interests                                                                                                  |       | (36,566                                    | )          | (84,929 | ) | (13,799 | ) | (14,191 | ) | (42,316 | ) |
| Accrual of preferred interests(2)                                                                                                |       | —                                     |       | — |   | — |   | (10,353 | ) | (20,107 | ) |
| Net loss                                                                                                                         |       | $                                          | (36,566    | ) | $ | (84,929 | ) | $ | (13,799 | ) | $ | (24,544 | ) | $ | (62,423 | ) |

 

33

----

 

| ** **                                          | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                          | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                          | ** ** | **(dollars in thousands)**       | ** ** |
| **Other  Financial Data:**                          |       |                                       |       |   |   |   |   |   |   |   |   |
| Capital expenditures                                |       | $                                          | 286,389    |   | $ | 220,102 |   | $ | 174,096 |   | $ | 196,658 |   | $ | 283,004 |   |
| Net cash provided by operating activities           |       | 263,949                                    |       | 233,573 |   | 289,914 |   | 197,788 |   | 175,296 |   |
| Net cash used in investing activities               |       | 286,631                                    |       | 218,711 |   | 173,544 |   | 234,691 |   | 293,390 |   |
| Net cash provided by (used in) financing activities |       | 36,473                                     |       | (85,224 | ) | (76,398 | ) | 22,225 |   | (5,604 | ) |
| **Balance  Sheet Data:**                            |       |                                       |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                           |       | $                                          | 43,573     |   | $ | 29,782 |   | $ | 100,144 |   | $ | 60,172 |   | $ | 74,850 |   |
| Fixed assets, net                                   |       | 1,151,260                                  |       | 1,130,705 |   | 1,154,251 |   | 1,216,304 |   | 1,220,251 |   |
| Total assets                                        |       | 3,698,104                                  |       | 3,665,164 |   | 3,769,872 |   | 3,809,655 |   | 3,789,062 |   |
| Total debt, including preferred interests(2)        |       | 2,805,722                                  |       | 2,759,918 |   | 2,807,563 |   | 2,848,291 |   | 2,772,824 |   |
| Stockholders’ equity                           |       | 445,703                                    |       | 480,545 |   | 545,810 |   | 557,119 |   | 587,055 |   |

 

| ** **                         | ** ** | **As of December 31, 2006** | ** ** |
|------------------------------------|------------|-------------------------------------------------|------------|
| ** **                         | ** ** | **South  Region**                               | ** ** | **East  Region** | ** ** | **West  Region** | ** ** | **Total** | ** ** |
| **Technical  Data:**               | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Network miles                      |       | 7,000                                           |       | 11,200 |   | 13,100 |   | 31,300 |   |
| Number of headends                 |       | 2                                               |       | 8 |   | 13 |   | 23 |   |
| **Operating  Data:**               | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Homes passed(3)                    |       | 569,400                                         |       | 854,400 |   | 1,041,400 |   | 2,465,200 |   |
| Basic customers(4)                 |       | 285,700                                         |       | 436,100 |   | 601,000 |   | 1,322,800 |   |
| Basic penetration(5)               |       | 50.2                                            | %          | 51.0 | % | 57.7 | % | 53.7 | % |
| Digital ready homes(6)             |       | 274,300                                         |       | 413,600 |   | 571,700 |   | 1,259,600 |   |
| Digital customers(7)               |       | 135,700                                         |       | 230,300 |   | 255,600 |   | 621,600 |   |
| Digital penetration(8)             |       | 49.5                                            | %          | 55.7 | % | 44.7 | % | 49.3 | % |
| Premium units(9)                   |       | 139,600                                         |       | 181,400 |   | 208,300 |   | 529,300 |   |
| Premium penetration(10)            |       | 48.9                                            | %          | 41.6 | % | 34.7 | % | 40.0 | % |
| High-Speed  Internet customers(11) |       | 134,000                                         |       | 210,600 |   | 266,600 |   | 611,200 |   |

----

       (1) The Financial AccountingStandards Board has issued SFAS No. 145 which is effective for fiscalyears beginning after May 15, 2002 and generally eliminates theclassification of gains and losses from the early extinguishment of debt asextraordinary items.

       (2) The preferred interestswere converted to common interests as of September 26, 2003.

       (3) Homes passed are the number of single residence homes, apartmentsand condominium units passed by the cable distribution network in a cablesystem’s service area.

       (4) Basic customers are customers of a cable television system whoreceive a package of over-the-air broadcast stations, local access channels andcertain satellite-delivered cable television services, other than premiumservices, and who are usually charged a flat monthly rate for a number ofchannels.

       (5) Basic penetration means basic customers as a percentage of totalnumber of homes passed.

       (6) Digital ready homes means the total number of basic customers towhom digital service is available.

       (7) Customers with a digital converter box.

34

----

       (8) Digital penetration means digital service units as a percentage ofdigital ready homes.

       (9) Premium units mean the total number of subscriptions to premiumservices, which are paid for on an individual unit basis.

(10) Premium penetration means premium service units as a percentage ofthe total number of basic customers. A customer may purchase more than onepremium service, each of which is counted as a separate premium service unit.This ratio may be greater than 100% if the average customer subscribes to morethan one premium service unit.

(11) Customers receiving high-speed Internetservice.

**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

**Introduction**

Our revenues areearned from customer fees for cable television video services including basic,classic, digital, premium, video on demand and ancillary services, such asrental of converters and remote control devices and installations. In addition,we earn revenues from providing high-speed Internet services, sellingadvertising, providing telephone services, commissions for products soldthrough home shopping networks and, through July 31, 2004, management feesfor managing cable systems.

We have generated increases inrevenues for each of the past three fiscal years, primarily through acombination of selling additional services to new and existing customers,including high-speed Internet access, digital video and telephone services,internal customer growth, increases in monthly revenue per customer and growthin advertising revenue.

Wehave historically recorded net losses through December 31, 2006. Some ofthe principal reasons for these net losses include i) depreciation associatedwith our capital expenditures for the construction, expansion and maintenanceof our systems, and ii) interest costs on borrowed money. We expect to continueto report net losses for the foreseeable future. We cannot predict what impact,if any, continued losses will have on our ability to finance our operations inthe future.

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

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

35

----

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

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

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

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

Thefollowing table reconciles Net Loss to Adjusted Operating Income beforeDepreciation and Amortization. In addition, the table provides the componentsfrom Net Loss to Operating Income for purposes of the discussions that follow.

| ** **                                                          | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                          | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                          | ** ** | **(in thousands)**                    | ** ** |
| Net loss                                                            |       | $                                          | (36,566    | ) | $ | (84,929 | ) | $ | (13,799 | ) |
| Extraordinary item, net of tax                                      |       | —                                     |       | — |   | (15,627 | ) |
| Loss before extraordinary item                                      |       | (36,566                                    | )          | (84,929 | ) | (29,426 | ) |
| (Benefit)  provision for income taxes                               |       | 159                                        |       | 500 |   | (201 | ) |
| Loss before  income taxes and extraordinary item                    |       | (36,407                                    | )          | (84,429 | ) | (29,627 | ) |
| Minority interest  (income) expense                                 |       | (5,377                                     | )          | 5,488 |   | 14,023 |   |
| Loss before  minority interest, income taxes and extraordinary item |       | (41,784                                    | )          | (78,941 | ) | (15,604 | ) |
| Other (income) expense:                                             |       |                                       |       |   |   |   |   |
| Other                                                               |       | 10,719                                     |       | (3,541 | ) | 3,388 |   |
| Interest income                                                     |       | (1,787                                     | )          | (2,895 | ) | (749 | ) |
| Interest expense                                                    |       | 251,404                                    |       | 226,956 |   | 201,450 |   |
| Total other  expense, net                                           |       | 260,336                                    |       | 220,520 |   | 204,089 |   |
| Operating income                                                    |       | 218,552                                    |       | 141,579 |   | 188,485 |   |
| Depreciation and  amortization                                      |       | 270,231                                    |       | 247,039 |   | 239,123 |   |
| Stock-based  compensation                                           |       | 1,413                                      |       | 17,368 |   | 4,438 |   |
| Adjusted Operating  Income before Depreciation and Amortization     |       | $                                          | 490,196    |   | $ | 405,986 |   | $ | 432,046 |   |

 

36

----

***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.

| ** **                                                      | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                    | ** ** |
| Operating income                                                |       | $                                          | 218,552    |   | $ | 141,579 |   |
| Depreciation and amortization                                   |       | 270,231                                    |       | 247,039 |   |
| Stock-based compensation                                        |       | 1,413                                      |       | 17,368 |   |
| Adjusted  Operating Income before Depreciation and Amortization |       | 490,196                                    |       | 405,986 |   |
| Changes  in working capital accounts (1)                        |       | (10,718                                    | )          | 16,069 |   |
| Cash paid  for interest                                         |       | (214,702                                   | )          | (188,216 | ) |
| Cash paid  for taxes                                            |       | (827                                       | )          | (266 | ) |
| Net cash provided  by operating activities                      |       | 263,949                                    |       | 233,573 |   |
| Capital  expenditures                                           |       | (286,389                                   | )          | (220,102 | ) |
| Free Cash Flow                                                  |       | $                                          | (22,440    | ) | $ | 13,471 |   |

----

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

**Results ofOperations**

***Year Ended December 31, 2006 Compared to YearEnded December 31, 2005***

Revenue for the year ended December 31, 2006 totaled $1.3 billion, an increase of 13%over the prior year, due primarily to customer gains in all services, as wellas video rate increases. High-speed Internet service revenue increased 26% overthe prior year, which was attributable to an increased customer base and waspartially offset by lower average revenue per customer due to promotionaldiscounts. We added a net 140,800 high-speed Internet customers during the yearto end the year at 611,200 customers.

Basic cable service revenue increased 7% due to anincreased customer base and video rate increases, partially offset bypromotional discounts. We added a net 41,200 basic cable customers during theyear to end the year at 1,322,800 customers. In addition, digital servicerevenue increased 24% over the prior year due to an increased customer base. Weadded a net 102,800 digital customers during the year to end the year at621,600 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 byproviding video-on-demand, high definition television and digital videorecorders. To increase our bundling opportunities and extend our growthpotential in future years, we, during the second half of 2006 and in January 2007,successfully rolled out our telephone product in eight previously unservedmarkets. We are also continuing to focus on improving customer satisfactionthrough higher service levels and increased customer education of our productofferings.

37

----

Revenueby service offering was as follows for the year ended December 31 (in thousands):

| ** **           | ** ** | **Revenue by Service Offering** | ** ** |
|----------------------|------------|------------------------------------------------|------------|
| ** **           | ** ** | **2006**                                       | ** ** | **% of Total  Revenue** | ** ** | **2005** | ** ** | **% of Total  Revenue** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       | $                                              | 640,474    |   |   | 50.7 | % |   | $ | 596,321 |   |   | 53.4 | % |   |   | 7.4 | % |   |
| High-speed  Internet |       | 240,717                                        |       |   | 19.1 | % |   | 190,820 |   |   | 17.1 | % |   |   | 26.1 | % |   |
| Digital              |       | 138,172                                        |       |   | 10.9 | % |   | 111,202 |   |   | 9.9 | % |   |   | 24.3 | % |   |
| Advertising          |       | 83,729                                         |       |   | 6.6 | % |   | 76,004 |   |   | 6.8 | % |   |   | 10.2 | % |   |
| Premium              |       | 55,160                                         |       |   | 4.4 | % |   | 54,414 |   |   | 4.9 | % |   |   | 1.4 | % |   |
| Telephone            |       | 50,893                                         |       |   | 4.0 | % |   | 35,502 |   |   | 3.2 | % |   |   | 43.4 | % |   |
| Franchise fees       |       | 29,817                                         |       |   | 2.4 | % |   | 30,721 |   |   | 2.7 | % |   |   | (2.9 | )% |   |
| Other                |       | 23,595                                         |       |   | 1.9 | % |   | 22,697 |   |   | 2.0 | % |   |   | 4.0 | % |   |
| Total                |       | $                                              | 1,262,557  |   |   | 100.0 | % |   | $ | 1,117,681 |   |   | 100.0 | % |   |   | 13.0 | % |   |

 

Total Customer Relationships were 1,401,800 as of December 31,2006, an increase of 54,300 from 1,347,500 as of December 31, 2005. 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 the year ended December 31,2006, we added 318,300 Revenue Generating Units (“RGUs”), which represent thesum of basic, digital, high-speed Internet and telephone customers, and as of December 31,2006, had 2,679,000 RGUs, an increase of 13% as compared to December 31,2005.

RGUsby category were as follows (in thousands):

| ** **           | ** ** | **December 31**, 2006 | ** ** | **December 31**, 2005 | ** ** |
|----------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Basic                |       |                            | 1,322.8    |                            |       |   | 1,281.6 |   |   |
| Digital              |       |                            | 621.6      |                            |       |   | 518.8 |   |   |
| High-speed  Internet |       |                            | 611.2      |                            |       |   | 470.4 |   |   |
| Telephone            |       |                            | 123.4      |                            |       |   | 89.9 |   |   |
| Total RGUs           |       |                            | 2,679.0    |                            |       |   | 2,360.7 |   |   |

 

Average monthly revenue per basic customer was $80.53for the year ended December 31, 2006, compared to $73.30 for the yearended December 31, 2005. This primarily reflects the continued growth ofhigh-speed Internet and digital product offerings in all markets, as well asvideo rate increases.

Programming and other operating costs increased $68.2million, or 18%. Increases in programming rates, customers, and the addition ofnew programming content were significant drivers of the cost increase for theyear ended December 31, 2006. For the year ended December 31, 2005,our programming costs reflected certain programming credits and a one-timesettlement for a disputed claim with a vendor. These credits resulted 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 year ended December 31, 2006 weresignificantly lower, causing our overall programming cost increases to begreater. Direct operating costs increased due to an increase in telephone costof sales as we continue to invest and roll out this product partially offset bydecreases in our high-speed Internet services costs as we, in 2006,transitioned our Internet services in-house and realized both costs savings andoperational benefits from this investment. Other operating costs increasedprimarily as a result of increases in technical salaries for new and existingemployees; increases in repair, maintenance and warranty costs; an increase intaxes due to a change in the tax law in Kentucky; and an increase in outsideinstallation labor due to increased customer activity.

38

----

Selling, general and administrative expenses increased$38.5 million, or 13%, 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 andinformation technology personnel to continue to upgrade and enhance our productofferings, manage our increasingly complex network, and increase customersatisfaction. A portion of the information technology personnel increases weredirectly related to the transition of our Internet services in-house. Marketingexpenses increased over the prior year to support the continued rollout ofhigh-speed Internet, digital and telephone products, and to grow our core videocustomer base. Customer billing, collection fees and bad debt expense increasedprimarily due to the increase in our customer base.

Transaction-related costs of $62.0 million wererecorded for the year ended December 31, 2005. These costs were comprisedof sponsor and investment fees, legal and accounting fees, financial advisorfees, the cancellation of in-the-money stock options, printing and mailing andother miscellaneous expenses related to the going-private transaction. Therewere no transaction-related costs recorded for the year ended December 31,2006.

Depreciation and amortization expense increased $23.2million, or 9%, primarily as a result of an increased level of capitalexpenditures through December 31,2006. These expenditures were primarily for purchases of customer premiseequipment, installation materials, capitalized labor, headend equipment,network extensions and network capacity and bandwidth increases, all of whichwe consider necessary in order to continue to maintain and grow our customerbase and expand our service offerings. Partially offsetting this increase was adecrease in depreciation expense related to certain assets that have becomefully depreciated since December 31, 2005.

As a result of the factors discussed above, AdjustedOperating Income before Depreciation and Amortization increased $84.2 millionto $490.2 million, an increase of 21%. After adjusting for the going-privatetransaction-related costs of $62.0 million in 2005, Adjusted Operating Incomebefore Depreciation and Amortization increased $22.2 million, an increase of 5%over 2005.

Interest expenseincreased $24.4 million, or 11%, due to:

·       higherinterest rates, which averaged 9.0% for the year ended December 31, 2006, as compared to 8.2% for the year ended December 31, 2005;

·       thetermination of an interest rate swap agreement during the year ended December 31,2006; and

·       additional interest expenseon the now fully accreted 12 1⁄4% Senior Discount Notes.

***Year Ended December 31, 2005 Compared to YearEnded December 31, 2004***

Revenue for the year ended December 31, 2005 totaled $1.1 billion, an increase of 12%over the prior year, due primarily to customer gains in all services, as wellas video rate increases. High-speed Internet service revenue increased 45% overthe prior year, which was attributable to an increased customer base. We addeda net 139,900 high-speed Internet customers during the year to end the year at470,400 customers. In addition, digital service revenue increased 13% over theprior year due to an increased customer base. We added a net 67,500 digitalcustomers during the year to end the year at 518,800 customers.

Basic cable service revenue increased 4% primarily dueto video rate increases, partially offset by promotional discounts. Althoughthe number of basic video customers was higher at December 31, 2005 than December 31,2004, the average number of customers during the year declined slightly.

39

----

Revenueby service offering was as follows for the year ended December 31 (inthousands):

| ** **           | ** ** | **Revenue by Service Offering** | ** ** |
|----------------------|------------|------------------------------------------------|------------|
| ** **           | ** ** | **2005**                                       | ** ** | **% of Total  Revenue** | ** ** | **2004** | ** ** | **% of Total  Revenue** | ** ** | **% Change  in Revenue** | ** ** |
| Basic                |       | $                                              | 596,321    |   |   | 53.4 | % |   | $ | 573,650 |   |   | 57.2 | % |   |   | 4.0 | % |   |
| High-speed  Internet |       | 190,820                                        |       |   | 17.1 | % |   | 132,011 |   |   | 13.2 | % |   |   | 44.5 | % |   |
| Digital              |       | 111,202                                        |       |   | 9.9 | % |   | 98,797 |   |   | 9.9 | % |   |   | 12.6 | % |   |
| Advertising          |       | 76,004                                         |       |   | 6.8 | % |   | 68,415 |   |   | 6.8 | % |   |   | 11.1 | % |   |
| Premium              |       | 54,414                                         |       |   | 4.9 | % |   | 57,054 |   |   | 5.7 | % |   |   | (4.6 | )% |   |
| Telephone            |       | 35,502                                         |       |   | 3.2 | % |   | 15,254 |   |   | 1.5 | % |   |   | 132.7 | % |   |
| Franchise fees       |       | 30,721                                         |       |   | 2.7 | % |   | 28,721 |   |   | 2.9 | % |   |   | 7.0 | % |   |
| Other                |       | 22,697                                         |       |   | 2.0 | % |   | 28,554 |   |   | 2.8 | % |   |   | (20.5 | )% |   |
| Total                |       | $                                              | 1,117,681  |   |   | 100.0 | % |   | $ | 1,002,456 |   |   | 100.0 | % |   |   | 11.5 | % |   |

 

Total Customer Relationships were 1,347,500 as of December 31,2005, an increase of 24,800 from 1,322,700 as of December 31, 2004. In theyear ending December 31, 2005, we added 242,100 RGUs, and as of December 31,2005 had 2,360,700 RGUs, an increase of 11% from December 31, 2004.

RGUsby category were as follows (in thousands):

| ** **           | ** ** | **December 31**, 2005 | ** ** | **December 31**, 2004 | ** ** |
|----------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Basic                |       |                            | 1,281.6    |                            |       |   | 1,272.5 |   |   |
| Digital              |       |                            | 518.8      |                            |       |   | 451.3 |   |   |
| High-speed  Internet |       |                            | 470.4      |                            |       |   | 330.5 |   |   |
| Telephone            |       |                            | 89.9       |                            |       |   | 64.3 |   |   |
| Total RGUs           |       |                            | 2,360.7    |                            |       |   | 2,118.6 |   |   |

 

Average monthly revenue per basic customer was $73.30for the year ended December 31, 2005, compared to $64.96 for the yearended December 31, 2004. This primarily reflects the continued growth ofhigh-speed Internet and digital product offerings in all markets as well asbasic and classic video rate increases. In addition, telephone revenues for theyear ended December 31, 2005 reflect service revenues earned directly fromcustomers compared to the year ended December 31, 2004, which reflectedrevenues billed to Comcast under a previous contractual agreement that wasterminated effective December 31, 2004. Also included in telephone revenuefor the year ended December 31, 2005 is the continued amortization ofinstallation revenue under the previous arrangement with Comcast in the amountof $3.3 million.

Programming and other operating costs increased $36.2million, or 11%. Total programming costs for our video products decreased forthe year ended December 31, 2005 compared to the year ended December 31,2004. The substantial increases in programming rates were offset by programmingcredits. The credits resulted from favorable resolution of pricing negotiationsrelated to certain prior period programming costs that were accrued at a higherrate than the amount actually paid and a settlement of disputed claims with avendor. In addition, direct operating costs increased due to an increasedvolume of modems sold and cost of sales associated with telephone that werepreviously paid by Comcast. Other operating costs increased primarily as aresult of increases in technical salaries for new and existing employees, inaddition to decreased capitalized labor costs due to the continued transitionfrom upgrade and new connect activities to maintenance and reconnectactivities. Other operating costs also increased as a result of increases inrepairs and maintenance costs due to increased repair costs for customerpremise equipment, an increase in drop materials due to customer growth andincreased property taxes due to a favorable reversal of accrued property taxesrecorded in 2004.

40

----

Selling, general and administrative expenses increased$56.0 million, or 24%, primarily due to increased payroll and payroll relatedcosts, including an increase in the number of employees and salary increasesfor existing employees. Marketing support funds (recorded as a reduction toselling, general and administrative expenses) decreased from the prior year.Marketing expenses increased over the prior year to support the continuedrollout of high-speed Internet, digital and telephone products, and to maintainthe company’s core video customer base. A decrease in expenses previouslyallocated to Comcast under our prior agreement to manage certain Comcastsystems also contributed to the increase in selling, general and administrativeexpenses. As this agreement was terminated effective July 31, 2004, theyear ended December 31, 2005 does not include any of these expenseallocations, and the year ended December 31, 2004 includes seven months ofthese expense allocations. Some cost savings have been realized upon terminationof the management agreement, and the impact of certain of these savings isreflected in programming and other operating costs.

Transaction-related costs of $62.0 million wererecorded for the year ended December 31, 2005. These costs were comprisedof sponsor and investment fees, legal and accounting fees, financial advisorfees, the cancellation of in-the-money stock options, printing and mailing andother miscellaneous expenses related to the going-private transaction.

Depreciation and amortization expense increased $7.9million, or 3%, primarily as a result of additional capital expendituresthrough December 31, 2005.These expenditures were primarily for telephone equipment, purchases ofcustomer premise equipment and drop materials and network extensions, all ofwhich 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 December 31, 2004.

As a result of the factors discussed above, AdjustedOperating Income before Depreciation and Amortization decreased $26.0 million.After adjusting for going-private transaction-related costs of$62.0 million, Operating Income before Depreciation and Amortizationincreased $36.0 million to $468.0 million, an increase of 8% over 2004.

Interest expense increased$25.5 million, or 13%, due to higher interest rates, which averaged 8.2% forthe year ended December 31,2005, as compared to 7.1% for the year ended December 31, 2004, and an increase in the accreted value ofthe 12 1⁄4% Senior Discount Notes.

**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 years ended December 31,2006 and 2005 was $263.9 million and $233.6 million. The increase was primarilyattributable to the decrease in our net loss due to the affect of thetransaction-related costs in 2005 and the timing of cash receipts and paymentsrelated to our working capital accounts. This increase was partially offset bythe decrease in amortization of the note discount because cash interestpayments on the 12 1⁄4% notes commenced in February 2006.

41

----

Cash used in investing activities for the years ended December 31,2006 and 2005 was $286.6 million and $218.7 million. For the years ended December 31,2006 and 2005, we spent $286.4 million and $220.1 million in capitalexpenditures. These expenditures principally constituted purchases of customerpremise equipment, capitalized labor, installation materials, headendequipment, network capacity and bandwidth increases and system upgrades andrebuilds, all of which are necessary to maintain our existing network, grow ourcustomer base and expand our service offerings.

The increase incapital expenditures was driven primarily by increases in:

·                    Customerpremise equipment required to support our digital customer growth; and

·                    Networkcapacity and bandwidth equipment for the transition of our Internet servicesin-house in 2006.

Cash provided by financing activities for the yearended December 31, 2006 was $36.5 million compared to $85.2 million ofcash used in financing activities for the year ended December 31, 2005. Thissource of cash was due to the financing of our $2.445 billion senior securedcredit facility during the fourth quarter of 2006.

Free Cash Flow forthe year ended December 31, 2006 totaled ($22.4) million, compared to$13.5 million for the year ended December 31, 2005. This decrease inFree Cash Flow from the year ended December 31, 2005, to the year ended December 31,2006, of $35.9 million was primarily driven by the following:

·                    A$66.3 million increase in capital expenditures;

·                    A$26.8 million decrease in the generation of Free Cash Flow over the same periodin the prior year from changes in working capital accounts; and

·                    A$26.5 million increase in cash interest expense paid primarily driven by theinitial cash interest payment on the 12 1⁄4% Senior Discount Notes and anincrease in interest rates.

These uses of cash were offset by an $84.2 millionincrease in Adjusted Operating Income before Depreciation and Amortization.

We have concluded a number of financing transactions,which fully support our operating plan. These transactions are detailed asfollows:

On October 1, 1999, in connection with theformation of Insight Midwest and our acquisition of a 50% interest in theKentucky systems, Insight Midwest completed an offering of $200.0 millionprincipal amount of its 93¤4% senior notesdue 2009. The net proceeds of the offering were used to repay certainoutstanding debt of the Kentucky systems. Interest on the Insight Midwest 93¤4%senior notes is payable on April 1 and October 1 of each year. Theindentures relating to these senior notes impose certain limitations on theability of Insight Midwest to, among other things, incur debt, makedistributions, make investments and sell assets.

On December 17, 2002 Insight Midwest completed a$185.0 million add-on offering under the 93¤4% senior notesindenture. Insight Midwest received proceeds of $176.9 million. The proceeds ofthis offering were used to repay a portion of the outstanding revolving loansunder the credit facility of Insight Midwest Holdings, LLC.

On November 6, 2000, Insight Midwest completed anoffering of $500.0 million principal amount of its 101¤2%senior notes due 2010. The net proceeds of the offering of $486.0 million wereused to repay a portion of the then existing Indiana and Kentucky creditfacilities. On December 9, 2003, Insight Midwest completed a $130.0million add-on offering under the 101¤2%senior notes indenture. Insight Midwest received proceeds of $140.9 million. Theproceeds of this offering were used to repay a portion of the 

42

----

outstanding revolvingloans under the Insight Midwest Holdings credit facility. All of these 101⁄2%senior notes and $185.0 million principal amount of Insight Midwest’s 93⁄4%senior notes were retired with proceeds from our new $2.445 billion seniorsecured credit facility on November 7, 2006, as described below.

On February 6, 2001, we completed an offering of$400.0 million principal amount at maturity of 121¤4% seniordiscount notes due 2011. These notes were issued at a discount to theirprincipal amount at maturity resulting in gross proceeds to us of approximately$220.1 million. We utilized approximately $20.2 million of the proceeds torepay the outstanding amount of our inter-company loan from Insight Midwest,which we incurred in connection with the financing of the AT&T Broadbandtransactions. No cash interest on the discount notes accrued prior to February 15,2006. Cash interest began to accrue on the discount notes beginning on February 15,2006 and is payable on February 15 and August 15 of each year, withthe first such payment having been made on August 15, 2006.

On December 18, 2002 we repurchased $40.0 millionface amount of the 121¤4%senior discount notes at the then accreted value of $27.4 million for $23.2million, resulting in a gain of $3.6 million, net of the write-off ofunamortized deferred financing costs of $616,000. In June 2004, werepurchased $10.0 million face amount of the 121¤4% SeniorDiscount Notes at the then accreted value of $8.1 million for $8.9 million,resulting in a loss of $843,000, which includes the write-off of unamortizeddeferred financing costs of $127,000. As of December 31, 2006 and 2005,the outstanding principal and accreted amounts of these notes were $350.0million and $343.6 million.

On March 28, 2002, we loaned $100.0 million toInsight Midwest. The loan to Insight Midwest 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 Insight Midwest for the purpose ofrepaying our loan, including accrued interest, provided that there are nodefaults existing under the credit facility. During the third and fourthquarters of 2006, Insight Midwest repaid a total of $15.5 million of the loanbalance. As of December 31, 2006 and 2005, the balance of the $100.0million loan, including accrued interest, was $136.1 and $139.1 million.

On October 6, 2006, Insight Midwest Holdingsentered into a new $2.445 billion senior secured credit facility for thepurpose of reducing its interest expense and near term debt amortizations. Thefacility is comprised of a $385.0 million A Term Loan scheduled to 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. The proceeds were used to refinance Insight Midwest Holdings’ existingsenior credit facility and to redeem all $630.0 million outstanding principalamount of Insight Midwest’s 101⁄2% Senior Notes due November 1, 2010 at aredemption price of 103.5% of the principal amount and $185.0 million principalamount of Insight Midwest’s total outstanding $385.0 million of the 93⁄4% SeniorNotes due October 1, 2009 at a redemption price of 101.625% of theprincipal amount redeemed, plus accrued and unpaid interest. We recorded $1.7million in other expenses in these transactions. As of December 31, 2006,$110.3 million of the revolving commitments were drawn, including $9.3 millionin letters of credit.

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

43

----

Obligations under the new credit facility are securedby a pledge of the outstanding equity interests of Insight Midwest Holdings andits subsidiaries. Borrowings under the credit facility will bear interest at abase rate selected by Insight Midwest Holdings plus an interest margin. Theapplicable interest margin may be increased or reduced based on Insight MidwestHoldings’ then current leverage ratio. The credit facility requires InsightMidwest Holdings to maintain an interest coverage ratio (as defined in thecredit agreement) initially not to be less than 1.50:1.00 and a leverage ratio(as defined in the credit agreement) initially not to exceed 6.25:1.00. Theinterest coverage ratio steps up and the leverage ratio steps downincrementally over the term of the credit facility. Additionally, the creditagreement contains customary affirmative and negative covenants concerning theconduct of Insight Midwest Holdings’ business operations, such as limitationson the incurrence of indebtedness, the granting of liens, mergers,consolidations and disposition of assets, restricted payments, payment ofdividends, investments, hedging arrangements, transactions with affiliates andthe entry into certain restrictive agreements.

The credit agreement also contains customary events ofdefault, including, but not limited to, failure to pay principal or interest,failure to pay or default under other material debt, misrepresentations orbreach of warranty, violation of certain covenants, a change of control, thecommencement of bankruptcy proceeding, the insolvency of Insight MidwestHoldings or certain of its affiliates and the rendering of a judgment in excessof $25.0 million against Insight Midwest Holdings or certain of its affiliates.Upon the occurrence of an event of default under the credit agreement, InsightMidwest Holdings obligations under the credit facility may be accelerated andthe lending commitments under the credit facility terminated.

As of December 31, 2006, we were in compliancewith the credit facility’s covenant requirements. Given current operatingconditions and projected results of operations, we anticipate continuedcompliance under this credit facility for the foreseeable future.

The credit facilityhas been structured to survive an “Exit Event” (i.e., a division of assets ofInsight Midwest in accordance with its partnership agreement or an alternativeexit agreed to by us and Comcast Cable), subject to certain conditions,including:

·       proforma financial covenant compliance upon consummation of the Exit Event

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

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

Subject to pro forma financial covenant compliance,any cash received as a result of the Exit Event may be applied, at our option,to: (a) repay the remaining 9 3⁄4% Senior Notes, (b) repay the 12 1⁄4%senior discount notes, (c) repay the $100.0 million intercompany note, (d) prepaythe Term Loans on a pro rata basis, (e) repay other debt and/or (f) forgeneral corporate purposes. After the occurrence of the Exit Event, the marginwith respect to the Term Loan B will increase by 50 basis points, or 0.50%, ifand for so long as the Insight Midwest Holdings’ leverage ratio exceeds6.50:1.00. Upon the occurrence of the Exit Event, the maximum leveragepermitted will increase by 0.50:1.00.

We have a substantial amount of debt. Our high levelof debt could have important consequences for you. Our investments in ouroperating subsidiaries, including Insight Midwest, constitute substantially allof our operating assets. Consequently, our subsidiaries conduct all of ourconsolidated operations and own substantially all of our operating assets. Ourprincipal source of cash we need to pay our obligations and to repay theprincipal amount of our debt obligations is the cash that our subsidiariesgenerate from their operations and their borrowings. Our subsidiaries are notobligated to make funds available to us and are restricted by the terms oftheir indebtedness from doing so. Because of such restrictions, our ability toaccess the cash flow of our subsidiaries may be contingent upon our ability torefinance the debt of our subsidiaries.

44

----

We believe that the Insight Midwest Holdings creditfacility, cash on-hand and our cash flow from operations are sufficient tosupport our current operating plan. As of December 31, 2006, we had theability to draw upon $149.7 million of unused availability under the InsightMidwest Holdings credit facility to fund any shortfall resulting from theinability of Insight Midwest’s cash from operations to fund its capitalexpenditures, meet its debt service requirements or otherwise fund itsoperations. We expect to use any available Free Cash Flow to repay ourindebtedness.

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

| ** **              | ** ** | **Contractual Obligations** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **Long-Term  Debt**              | ** ** | **Operating  Leases** | ** ** | **Total** | ** ** |
| 2007                    |       | $                                | —     |   |   | $ | 4,381 |   |   | $ | 4,381 |   |
| 2008                    |       | 9,313                            |       |   | 3,616 |   |   | 12,929 |   |
| 2009                    |       | 243,062                          |       |   | 2,603 |   |   | 344,723 |   |
| 2010                    |       | 61,313                           |       |   | 682 |   |   | 56,906 |   |
| 2011                    |       | 430,563                          |       |   | 221 |   |   | 416,449 |   |
| Thereafter              |       | 2,091,749                        |       |   | 1,218 |   |   | 2,013,333 |   |
| Total cash  obligations |       | $                                | 2,836,000  |   |   | $ | 12,721 |   |   | $ | 2,848,721 |   |

 

**Critical AccountingPolicies**

The methods, estimates andjudgments we use in applying our most critical accounting policies have a significantimpact on the results we report in our consolidated financial statements. Weevaluate our estimates and judgments on an on-going basis. We base ourestimates on historical experience and on assumptions that we believe to bereasonable under the circumstances. Our experience and assumptions form thebasis for our judgments about the carrying value of assets and liabilities thatare not readily apparent from other sources. Actual results may vary from whatwe anticipate and different assumptions or estimates about the future couldchange our reported results. We believe the following accounting policies arethe most critical to us, in that they are important to the portrayal of ourfinancial statements and they require our most difficult, subjective or complexjudgments in the preparation of our consolidated financial statements.

**Goodwill and OtherIdentifiable Intangibles**

We assess theimpairment of goodwill and other indefinite-lived intangible assets annuallyand on an interim basis whenever events or changes in circumstances indicatethat the carrying value may not be recoverable. Some factors we considerimportant which could trigger an impairment review include the following:

·                    Significantunderperformance relative to historical performance or

·                    Projectedfuture operating results;

·                    Significantchanges in the manner of our use of the acquired assets or the strategy for ouroverall business; and

·                    Significantnegative industry or economic trends.

When we determine that thecarrying value of goodwill and other indefinite-lived intangibles may not berecoverable based upon the existence of one or more of the above indicators ofimpairment, we measure any impairment based on a projected discounted cash flowmethod using a discount rate 

45

----

determinedby our management to be commensurate with the risk inherent in our currentbusiness model. With the adoption of SFAS No. 142, “Goodwill and OtherIntangible Assets,” on January 1, 2002 we ceased amortizing goodwill andfranchise costs arising from acquisitions. In lieu of amortization, we performan annual impairment analysis. If we determine through the impairment reviewprocess that goodwill or other indefinite-lived intangibles have been impaired,we would record an impairment charge in our statement of operations.

**Fixed Assets**

Fixed assets are stated at cost and include costscapitalized for labor and overhead incurred in connection with the constructionof cable system infrastructures, including those providing high-speed Internetand the delivery of telephone services. In addition, we capitalize labor,material costs and overhead associated with installations related to newservices on customer premises. Depreciation for buildings, cable systemequipment, furniture, fixtures and office equipment is calculated using thestraight-line method over estimated useful lives ranging from 2 to 30 years.Leasehold improvements are amortized using the straight-line method over theshorter of the remaining terms of the leases or the estimated lives of theimprovements.

Refer to Note 2 to ourconsolidated financial statements included in Item 8 for a discussion of ouraccounting policies with respect to these and other items.

**Item 7A. Quantitativeand Qualitative Disclosure About Market Risk**

Our revolving credit and term loan agreements bearinterest at floating rates. Accordingly, we are exposed to potential lossesrelated to changes in interest rates. In order to manage our exposure tointerest rate risk, we enter into derivative financial instruments, typicallyinterest rate swaps. The counter-parties to our swap agreements are majorfinancial institutions. We do not enter into derivatives or other financialinstruments for trading or speculative purposes. As of December 31, 2006,$450.0 million of our interest rate swap agreements expire in December 2007and $400.0 million expire in 2008.

The aggregate fair marketvalue and aggregate carrying value of our 93⁄4% senior notes and 121⁄4 seniordiscount notes was $569.6 million and $550.0 million as of December 31,2006. The fair market value of our credit facility borrowings approximates itscarrying value as the credit facility borrowings bear interest at floatingrates of interest. As of December 31, 2006 and 2005, the estimated fairvalue, (cost, if terminated), of our interest rate swap agreements were$306,000 and $(2.4) million and are reflected in our financial statements asother non-current assets or liabilities. Changes in the fair value of ourinterest rate derivative financial instruments are either recognized in incomeor in stockholders’ equity as a component of other comprehensive incomedepending on whether the derivative financial instruments qualify for hedgeaccounting.

**Item 8. FinancialStatements and Supplementary Data**

Reference is made to ourconsolidated financial statements beginning on page F-1 of thisreport.

**Item 9. Changes inand Disagreements with Accountants on Accounting and Financial Disclosure**

Not applicable.

46

----

**Item 9A. Controlsand Procedures**

Under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief FinancialOfficer, we evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934) as of December 31, 2006. Based uponthat evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective as of December 31,2006.

There has not been anychange in our internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended December 31,2006 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

**Management Reporton Internal Control Over Financial Reporting**

Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934 as a processdesigned by, or under the supervision of, a company’s principal executive andprincipal financial officers and effected by the company’s board of directors,management and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples and includes those policies and procedures that:

·                    pertainto the maintenance of records that in reasonable detail accurately and fairlyreflect the transactions and dispositions of the assets of the company;

·                    providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and

·                    providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of the company’s assets that could have amaterial effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Projectionsof any evaluation of effectiveness to future periods are subject to the risksthat controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internalcontrol over financial reporting as of December 31, 2006. In making thisassessment, management used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in *Internal Control-Integrated Framework*.

Based on our assessment, management concluded that, asof December 31, 2006, our internal control over financial reporting waseffective.

Our independent auditorshave issued an audit report on our assessment of our internal control overfinancial reporting. This report appears on page F-1.

**Item 9B. OtherInformation**

Not applicable.

47

----

**PART III**

**Item 10.**                 Directors,Executive Officers and Corporate Governance

Ourexecutive officers and directors are as follows: 

| **Name**                     | ** ** | ** ** | ** ** | **Age**                                               | ** ** | **Position** |
|------------------------------|------------|------------|------------|-------------------------------------------------------|------------|--------------|
| Sidney R. Knafel             |       | 76         |       | Chairman of the Board  and Director                   |
| Michael S. Willner           |       | 54         |       | Vice Chairman, Chief Executive  Officer and Director  |
| Dinni Jain                   |       | 43         |       | President, Chief  Operating Officer and Director      |
| John Abbot                   |       | 44         |       | Executive Vice President  and Chief Financial Officer |
| Hamid Heidary                |       | 50         |       | Executive Vice  President, Central Operations         |
| Christopher Slattery         |       | 39         |       | Executive Vice  President, Field Operations           |
| Elliot Brecher               |       | 41         |       | Senior Vice President,  General Counsel and Secretary |
| James A.  Attwood, Jr.  |       | 48         |       | Director                                              |
| Michael J. Connelly          |       | 55         |       | Director                                              |
| Stephen C. Gray              |       | 48         |       | Director                                              |
| Amos B.  Hostetter, Jr. |       | 70         |       | Director                                              |
| William E. Kennard           |       | 50         |       | Director                                              |
| Geraldine B. Laybourne       |       | 59         |       | Director                                              |

 

*SidneyR. Knafel* has served as Chairman of the Board since1985. He serves as chairman of the governance committee. Mr. Knafelwas the founder, Chairman and an equity holder of Vision Cable Communications, Inc.from 1971 until its sale in 1981. Mr. Knafel is presently the managingpartner of SRK Management Company, a private investment company. He is adirector of General American Investors Company, Inc., IGENE Biotechnology, Inc.and VirtualScopics, Inc., as well as several private companies. Mr. Knafelis a graduate of Harvard College and Harvard Business School.

*MichaelS. Willner*has served as Chief Executive Officer since1985. Mr. Willner has also served as Vice Chairman since August 2002,and as President from 1985 to August 2002 and from August 2003 to February 2006.Mr. Willner served as Executive Vice President and Chief Operating Officerof Vision Cable from 1979 through 1985, Vice President of Marketing for VisionCable from 1977 to 1979 and General Manager of Vision Cable’s Bergen County,New Jersey cable television system from 1975 to 1977. He currently serves onthe board of directors and Executive Committee of the National Cable &Telecommunications Association. He also serves on the boards of C-SPAN, Womenin Cable and Telecommunications, the Cable Center and the Walter KaitzFoundation, as well as the Executive Committee of CableLabs. Mr. Willneris a graduate of Boston University’s College of Communication and serves on theschool’s Executive Committee.

*DinniJain*has served as President since February 2006and as Chief Operating Officer since October 2003. Mr. Jain served asExecutive Vice President between October 2003 and February 2006. Hejoined our company in January 2002 as Senior Vice President and ChiefFinancial Officer. From 1994 through 2002, he served in a number of roles insales, marketing, customer service, strategy, corporate development and generalmanagement at NTL Incorporated, one of Europe’s leading cable andtelecommunications companies. He ultimately served as Deputy Managing Directorof NTL’s Consumer Division, overseeing customer and new business growth, aswell as the quality of customer satisfaction. He also managed the operations ofNTL’s Cable and Wireless Consumer Group from 2000 to 2001. He currently serveson the board of directors of The Cable & Telecommunication Associationfor Marketing Foundation. Mr. Jain attended Princeton University.

*JohnAbbot*has served as Executive Vice President since February 2006and as Chief Financial Officer since January 2004. Mr. Abbot servedas Senior Vice President between January 2004 and February 2006. 

48

----

Prior to joining ourcompany, Mr. Abbot was a Managing Director at Morgan Stanley, where he hadbeen in the Global Media and Communications Group of the Investment BankingDivision from January 1995 to January 2004. Prior to joining MorganStanley, Mr. Abbot was an associate at Goldman, Sachs & Co., andhe also served six years as a Surface Warfare Officer in the U.S. Navy. Mr. Abbotreceived a bachelor’s degree in Systems Engineering from the U.S. NavalAcademy, an ME in Industrial Engineering from Pennsylvania State University andan MBA from Harvard Business School.

*HamidHeidary*   has served as Executive Vice President,Central Operations since April 2006. Previously, Mr. Heidary servedas Chief Operating Officer of Iesy Hessen GmbH, a cable television operator inHessen, Germany, and Chief Technology Officer of NTL:Europe. Mr. Heidaryhas also held various executive technical and management positions with NTL UK,C-Cor Electronics, Inc. and Allen Bradley. Mr. Heidary received aBSEE and MSEE from Southern Illinois University, an MBA from California CoastUniversity and a certificate of corporate directorship from the Institute ofDirectors in London.

*ChristopherSlattery*has served as Executive Vice President, FieldOperations since February 2006. He joined our company in October 2004as Senior Vice President, Sales, then served as Senior Vice President, Growthfrom April 2005 until January 2006 when he was named Senior VicePresident, Field Operations. Prior to joining our company, from September 2002,Mr. Slattery served as a Managing Director of NTL’s London operations,responsible for the management of 1.5 million cable network homes, and withresponsibility in the areas of sales, growth strategy, reduction of churn andcustomer experience. Prior thereto, from September 2001, he served asSales Director for NTL’s European operations, responsible for designing,developing and implementing customer growth strategies across NTL’s thennewly-acquired European assets. From August 2000 to August 2001, Mr. Slatteryserved as a General Manager of NTL’s United Kingdom operations, with overallresponsibility for sales and marketing, customer retention, customer care andnetwork maintenance, as well as budget strategy, planning and implementation.Prior thereto, from January 1990, Mr. Slattery served in a number ofsales-related roles at NTL and its predecessors.

*ElliotBrecher* has served as Senior Vice President andGeneral Counsel since January 2000. Previously, he was associated with thelaw firm Cooperman Levitt Winikoff Lester & Newman, P.C., which servedas Insight’s legal counsel until July 2000 when it merged withSonnenschein Nath & Rosenthal LLP, which continues to serve as Insight’slegal counsel. He joined that firm in February 1994 and served as apartner from January 1996 until joining Insight Communications. Prior tothat, he was an associate of the law firm Rosenman & Colin from October 1988.Mr. Brecher received his law degree from Fordham University.

*JamesA. Attwood, Jr.* was elected as a directorimmediately prior to the effective time of the going-private transaction on December 16,2005. He serves as a member of the governance committee. Mr. Attwoodhas served as a managing director of The Carlyle Group since November 2000.Prior to joining Carlyle, he served as Executive Vice President-Strategy,Development and Planning for Verizon Communications. Prior thereto, he servedas Executive Vice President-Strategic Development and Planning at GTECorporation. Mr. Attwood joined GTE Corporation in 1996 as VicePresident-Corporate Planning and Development after more than ten years in theinvestment banking division of Goldman, Sachs & Co. Mr. Attwoodcurrently also serves as a director of The Nielsen Company, Hawaiian TelecomCommunications, Inc. and WILLCOM, Inc.

*MichaelJ. Connelly*was elected as a director immediatelyprior to the effective time of the going-private transaction. He serves aschairman of the audit committee. Since December 2002, Mr. Connellyhas served as a managing director of Carlyle. Before joining Carlyle, Mr. Connellyserved as a managing director of Credit Suisse First Boston. Mr. Connellyis also a member of the board of directors of AMC Entertainment Corporation andPanAmSat.

49

----

*StephenC. Gray* was elected as a director immediately prior tothe effective time of the going-private transaction. He serves as a member ofthe audit and compensation committees. Mr. Gray has served as theExecutive Chairman of Security Coverage, Inc. since October 2005.Since January 2007, he has served as Executive Chairman of ImOnCommunications, LLC, a cable and telecommunications operator in Cedar Rapids,Iowa. From 1994 through 2004, Mr. Gray served as the President ofMcLeodUSA Incorporated. Mr. Gray joined McLeodUSA in 1992 as its ChiefOperating Officer. Mr. Gray was also a member of the board of directors ofMcLeodUSA Incorporated from 1992 to 2004 and a member of the executivecommittee from 2001 to 2004. On January 31, 2002, McLeodUSA Incorporatedfiled a voluntary petition for relief under Chapter 11 of the United StatesBankruptcy Code. On April 16, 2002, McLeodUSA Incorporated emerged fromthe Bankruptcy Court proceedings pursuant to the terms of its amended plan ofreorganization, which became effective on that date. From August 1990 to September 1992,Mr. Gray served as Vice President of Business Services at MCICommunications Corp., where he was responsible for MCI’s local access strategyand for marketing and sales support of the Business Markets division. From February 1988to August 1990, he served as Senior Vice President of National Accountsand Carrier Services for Telecom*USA, Inc., where his responsibilitiesincluded sales, marketing, key contract negotiations and strategic acquisitionsand combinations. From September 1986 to February 1988 Mr. Grayheld a variety of management positions with Williams TelecommunicationsCompany. Mr. Gray currently serves as a director of Hawaiian TelecomCommunications, Inc. Mr. Gray is a graduate of the University ofTennessee.

*AmosB. Hostetter, Jr.*waselected as a director immediately prior to the effective time of thegoing-private transaction. He serves as a member of the compensationcommittee. Mr. Hostetter has served as the chairman of Pilot HouseAssociates, LLC since its formation in August 1997. Prior to joining PilotHouse Associates, Mr. Hostetter was the chief executive officer ofMediaOne, the domestic cable arm of MediaOne Group, formerly the nation’sthird-largest broadband communications provider, serving more than4.8 million subscribers in 19 states and employing 11,000 people. Mr. Hostetterco-founded Continental Cablevision in 1963 and served as its chief financialofficer from 1963 until 1980 and as its chairman and chief executive officerfrom 1980 until its merger with MediaOne Group in November of 1996. Mr. Hostetterwas the chairman of the board of the National Cable &Telecommunications Association from 1973 to 1974 and served on that association’sboard from 1968 to 1998. He was a founding member and past chairman of theCable-Satellite Public Affairs Network (C-SPAN) and Cable in the Classroom.President Gerald Ford appointed Mr. Hostetter a director of theCorporation for Public Broadcasting, and he is a former member of the Children’sTelevision Workshop. Mr. Hostetter is currently the Chair Emeritus of theboard of trustees of Amherst College, a trustee of the Museum of Fine Arts inBoston and Chairman of the board of trustees of WGBH-TV. Mr. Hostetterearned a bachelor’s degree from Amherst College in 1958 and earned an MBA fromHarvard Business School in 1961.

*WilliamE. Kennard* was elected as a director immediately priorto the effective time of the going-private transaction. He serves as chairmanof the compensation committee. Since May 2001, Mr. Kennard has servedas a managing director of Carlyle. Before joining Carlyle, Mr. Kennardserved as the Chairman of the Federal Communications Commission from November 1997to January 2001. Mr. Kennard is also a member of the board ofdirectors of The New York Times Company, Sprint Nextel Corporation and HawaiianTelecom Communications, Inc.

*GeraldineB. Laybourne* has served as a director of Insight sinceFebruary 2004. She serves as a member of the audit and governancecommittees. In 1998, Ms. Laybourne founded Oxygen Media, LLC, anindependent cable television network with programming tailored to the interestsof women, and has served as its Chairman and Chief Executive Officer since itsinception. She is most notably known for her work at Nickelodeon, a programmingaffiliate of MTV Networks, having served in a number of roles from 1980 to1995, including as its President from 1989. From 1993 to 1995, she also servedas the Vice Chairman of MTV Networks. From 1996 to 1998, she served as thePresident of Disney ABC Cable 

50

----

Networks. She currentlyserves on the boards of the National Cable & TelecommunicationsAssociation and the National Council for Families and Television, and on theAdvisory Board of New York Women in Film & Television. Ms. Laybournereceived a bachelor’s degree in Art History from Vassar College and serves onits board of trustees, and received an MS in Elementary Education from theUniversity of Pennsylvania.

Each executive officer serves until a successor iselected by the board of directors or until the earlier of his or herresignation or removal.

Sidney Knafel, MichaelWillner and certain trusts for the benefit of Mr. Knafel’s children,through ownership of our Series A voting preferred stock, have the rightto designate five directors, two of whom must be independent. Affiliates of TheCarlyle Group, through ownership of our Series B voting preferred stock,have the right to designate four directors, one of whom must be independent. Messrs. Knafel,Willner, Jain and Hostetter and Ms. Laybourne are designees of the holdersof Series A voting preferred stock, and the remaining four directors aredesignees of the holders of Series B voting preferred stock.

Thedirectors are divided into three classes consisting of three members each, andthe terms for the directors are staggered. Each class has at least one Series Adirector and one Series B director. The respective terms of office expireat the annual election held in the year specified below. At each annualelection, the directors chosen to succeed those whose terms then expire will beelected for that same class for a three-year term. Each of the directors willserve until his or her successor is duly elected or appointed and qualified oruntil his or her death, resignation or removal.

·       Class IDirectors—Term expires in 2009: Michael Willner, Dinni Jain and James Attwood.

·       Class IIDirectors—Term expires in 2007: Sidney Knafel, William Kennard and MichaelConnelly

·       Class IIIDirectors—Term expires in 2008: Geraldine Laybourne, Amos Hostetter and StephenGray

Our Board of Directors hasdetermined that Michael Connelly and Stephen Gray meet the Securities andExchange Commission definition of “audit committee financial expert.”

**Code of Ethics**

We have adopted a code ofethics for our directors, chief executive officer, chief financial officer andchief accounting officer, as well as other employees and the employees of oursubsidiaries. A copy of the code was filed as an exhibit to our annual reporton Form 10-K for the year ended December 31, 2003.

**Item 11.**                 ExecutiveCompensation

**CompensationDiscussion and Analysis**

The compensation committee of Insight CommunicationsCompany, Inc. (the “Committee”) represents the Board of Directors withrespect to compensation matters for Insight’s directors and executive officers.As set forth in the Committee’s charter, “executive officers” is defined asofficers with a rank of senior vice president or higher, which would includeeach of the Named Executive Officers in the Summary Compensation Table below.The Committee is also responsible for reviewing and approving compensationguidelines for all other officers, with its specific approval required forcompensation that exceeds the parameters set forth in the guidelines withrespect to any officer with aggregate annual compensation of $250,000 orhigher.

The Committee is comprised of three directors,including two independent directors and one Series B director who is notan independent director. Our certificate of incorporation defines an “independentdirector” as one (x) who a majority of the independent directorsdetermines has no material relationship 

51

----

with the company and hasno current or prior relationship with management, the company or the holders ofInsight’s Series A voting preferred stock or Series B votingpreferred stock that might cause such director to act other than entirelyindependently with respect to all issues that come before the Board, and (y) whosatisfies the independence requirements under Rule 303A.02 of the ListedCompany Manual of the New York Stock Exchange. Amos B. Hostetter, Jr. and Stephen C. Gray serve as the Committee’sindependent directors, and William E. Kennard is the Committee chairman andserves as the director designated by the holders of Insight’s Series Bvoting preferred stock.

*ExecutiveCompensation Philosophy*

Insight’s compensation program is designed to attract,motivate and retain highly skilled and effective executives who can achievelong-term success in an increasingly competitive business environment and whoseservices Insight needs to maximize Insight’s return to stockholders. TheCommittee’s compensation philosophy is premised on the belief that an executive’scompensation should reflect both overall company performance and his or herindividual performance, with an appropriate balance maintained among theweightings of these potentially disparate performance levels and objectives.

The Committee determines the level of compensation foreach of Insight’s executive officers based upon its consideration of variousfactors, including an individual’s unique and special skills, performance andexperience, Insight’s need to attract and retain highly-qualified executives,changes in economic and business conditions, and such other factors as theCommittee determines to be an appropriate basis for establishing the executive’scompensation. While the Committee does not apply specific weighting ratios tothe various factors it considers in setting executive compensation levels, therelative emphasis on various factors depends upon the Committee’s view of therelevance of each to the particular position and individual senior executives.

The Committee reviews the compensation of eachexecutive officer annually, and relies heavily upon the recommendations ofInsight management. The Committee’s annual performance evaluation of eachexecutive officer is based on the company’s performance and is somewhatsubjective, reflecting the executive’s individual performance. There is neitheran exact formula for determining the relative importance of each of the factorsconsidered, nor is there a precise measure of how each of the individualfactors relates to each executive officer’s ultimate annual compensation. TheCommittee does not rely upon or retain outside compensation consultants indischarging its duties.

*Management Bonus*

All executive officers are eligible for a year-enddiscretionary performance-based bonus of 50% of base salary. It is theunderstanding of employees that this bonus potential is the payout that wouldoccur if Insight and the individual largely met all major goals for the year.

A “target payoutpercentage” to be applied to the bonus potential is then determined for theentire Insight management group. The determinations are based on Insight’soverall performance and specific goals and priorities, and individual payoutsare decided by supervisors/managers, in consultation with the senior managementteam, and based on individual performance and contribution. For 2006, uponrecommendation of management, the Committee set forth goals and priorities formeasurement against Insight’s performance in determining the overall targetpayout percentage. In determining the target payout percentage for 2006, theCommittee reviewed Insight’s performance against such goals and priorities andthe full-year operating and financial results. Based on these factors,management recommended and the Committee approved a target payout percentagefor the company ranging from 80% to 100% of bonus potential, with individualpayments to be within this range and determined based on individualcontribution and performance against goals and objectives during the year.Based upon the foregoing as well as taking into account any guaranteed bonusamounts agreed to as part of employment terms, the target payout percentagewith respect to the Named Executive Officers ranged from 90% to 

52

----

110%, asset forth in the Summary Compensation Table below. Insight also made availableto each of the Named Executive Officers its standard employee benefits, namelyparticipation in its 401(k) plan, eligibility for matching contributionsto the 401(k) plan as well as the payment of life and group term lifeinsurance premiums, as indicated in the Summary Compensation Table.

*Base Salary*

Base salary increases forexecutive officers are determined with reference to Insight’s performance forthe prior fiscal year, as well as each individual officer’s contribution tosuch performance based upon a subjective evaluation by the Committee and takingmanagement recommendations into consideration. Base salaries company-wide for2006 were increased by an average of 3.5%. This increase took into accountcompetitive market factors and was consistent with the national average, aswell as being consistent with Insight’s past practices. The normal adjustmentfor satisfactory performance was set at 3.25%, with the vast majority of theincreases being in the range of 2% - 4%. Based on recommendations ofmanagement, the Committee approved base salary increases for executiveofficers, including the Named Executive Officers, consistent with thesecriteria.

*Additional BonusPool*

The Securityholders Agreement entered into inconnection with our going-private transaction provides for the annual award ofup to an additional $3.0 million of bonus payments, with the first portionfixed at $1.5 million and the second portion equal to $1.5 million subject toreduction for shortfalls in actual versus budgeted EBITDA (earnings beforeinterest, taxes, depreciation and amortization). The Securityholders Agreementprovides that the first part of the additional bonus pool is to be allocatedamong certain managers and employees in accordance with the recommendations ofSidney Knafel, Insight’s chairman, and Michael Willner, Insight’s vice chairmanand chief executive officer, in consultation with the Committee. The secondpart is to be allocated among certain managers and employees in accordance withthe recommendations of Messrs. Knafel and Willner, subject to the approvalof the Committee.

Based on actual resultsfor 2006, the second part of the additional bonus pool was determined to be thefull $1.5 million and, accordingly, the 2006 additional bonus pool was a totalof $3.0 million. Based on management’s recommendation, $1.1 million of theadditional bonus pool was paid to non-management employees, and the $1.9million balance was not paid.

*2005 StockIncentive Plan*

Each of the Named Executive Officers, as well as allother executive and other officers and certain other employees, have receivedgrants of equity under Insight’s 2005 Stock Incentive Plan. The Plan wasestablished by the Board in connection with the going-private transaction forthe purpose of fostering and promoting Insight’s long-term financial successand to materially increase stockholder value by (a) motivating superiorperformance, (b) encouraging and providing for the acquisition of anownership interest in the company and (c) enabling us to attract andretain the services of an outstanding management team upon whose judgment,interest and special effort the successful conduct of our operations is largelydependent.

In connection with the going-private transaction, eachof our then outstanding stock options were canceled in exchange for a grosscash payment equal to the excess, if any, of the $11.75 merger price over theexercise price for such option, multiplied by the number of shares covered bythe option. The option holder also received a number of shares of Series Enon-voting common stock corresponding to the number of cancelled options, witha participation level equal to the higher of the $11.75 merger price and theexercise price of the canceled option. The number of Series E sharesgranted to each of the Named 

53

----

Executive Officers is setforth in the Grants of Plan-Based Awards Table below. In addition, each of theNamed Executive Officers as well as certain other employees received a grant ofSeries F non-voting common stock following the going-private transaction.The number of Series F shares granted to each of the Named ExecutiveOfficers is set forth in the Grants of Plan-Based Awards Table below.

The Series E shares will share in a liquidationof Insight to the extent the cash and other assets available for distributionto Insight’s stockholders exceed the participation levels of their shares. The Series Fshares begin to share in such distributions based upon the internal rate ofreturn on capital of the holders of Insight’s Series D non-votingpreferred stock, beginning upon achievement of a 10% return. Unless otherwiseprovided in the applicable subscription agreement, the Series E and Series Fshares are subject to a five-year vesting schedule, with 20% vesting on eachanniversary of the effective date of the going-private transaction. Mr. Willner’ssubscription agreements provide for an immediate vesting of 10%, vesting of 20%on each of the four anniversaries of the going-private effective date andvesting of the remaining 10% on the fifth anniversary of such effective date.

*Policy on TaxDeductibility.*Section 162(m) of theInternal Revenue Code limits deduction for certain executive compensation inexcess of $1.0 million. Certain types of compensation in excess of $1.0 millionare deductible only if (i) performance goals are specified in detail by acommittee comprised solely of two or more “outside directors” within themeaning of the regulations promulgated under section 162(m), (ii) paymentsare approved by a majority vote of the stockholders prior to payment of suchcompensation, (iii) the material terms of the compensation are disclosedto the stockholders and (iv) the committee of outside directors certifiesthat the performance goals were in fact satisfied. While the Committee willgive due consideration to the deductibility of compensation payments on futurecompensation arrangements with Insight’s executive officers, the Committee willmake its compensation decisions based upon an overall determination of what itbelieves to be in the best interests of the company and its stockholders, anddeductibility will be only one among a number of factors used by the Committeein making its compensation decisions.

**CompensationCommittee Report**

The Compensation Committeeof the Board of Directors has reviewed and discussed the CompensationDiscussion and Analysis required by Item 402(b) of Regulation S-K withmanagement and, based on such review and discussions, the CompensationCommittee recommended to the Board that the Compensation Discussion andAnalysis be included in this Form 10-K.

| ** ** | **Compensation Committee of the Board of Directors** |
|------------|------------------------------------------------------|
| ** ** | ** **                                           |
|       | William E. Kennard, Chairman                         |
|       | Stephen C. Gray                                      |
|       | Amos B. Hostetter, Jr.                          |

 

54

----

The following tablesummarizes the total compensation paid to the Chief Executive Officer, theChief Financial Officer and the other three most highly compensated executiveofficers  (collectively, the “NamedExecutive Officers”).

**SummaryCompensation Table**

| Name and Principal Position            | ** ** | ** ** | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Stock Awards(1)** | ** ** | **All Other  Compensation(2)** | ** ** | **Total** | ** ** |
|-------------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|-----------|------------|--------------------------|------------|-------------------------------------|------------|-----------|------------|
| Michael S. Willner                                    |       | 2006       |       | $        | 733,600    |       | $          | 367,500   |       |                     | $          | 405,900                             |       |      |       | $ | 17,959 |   |   | $ | 1,524,959 |   |
| Vice Chairman and Chief  Executive Officer            |       |       |       |     |       |       |       |      |       |                     |       |                                |       |      |       |   |   |
| Dinni Jain                                            |       | 2006       |       | $        | 597,100    |       | $          | 300,000   |       |                     | $          | 343,200                             |       |      |       | $ | 18,849 |   |   | $ | 1,259,149 |   |
| President  and Chief

Operating  Officer              |       |       |       |     |       |       |       |      |       |                     |       |                                |       |      |       |   |   |
| John Abbot                                            |       | 2006       |       | $        | 414,200    |       | $          | 207,500   |       |                     | $          | 179,200                             |       |      |       | $ | 15,084 |   |   | $ | 815,984 |   |
| Executive Vice President  and Chief Financial Officer |       |       |       |     |       |       |       |      |       |                     |       |                                |       |      |       |   |   |
| Christopher Slattery                                  |       | 2006       |       | $        | 344,400    |       | $          | 190,600   |       |                     | $          | 35,600                              |       |      |       | $ | 14,146 |   |   | $ | 584,746 |   |
| Executive Vice  President,  Field Operations          |       |       |       |     |       |       |       |      |       |                     |       |                                |       |      |       |   |   |
| Elliot Brecher                                        |       | 2006       |       | $        | 341,100    |       | $          | 153,700   |       |                     | $          | 24,500                              |       |      |       | $ | 14,385 |   |   | $ | 533,685 |   |
| Senior Vice President  and General Counsel            |       |       |       |     |       |       |       |      |       |                     |       |                                |       |      |       |   |   |

----

(1)          On December 16, 2005,we completed our going-private merger transaction pursuant to which the sharesof our public stockholders, other than certain continuing investors, wereconverted into the right to receive $11.75 per share in cash. The stock awardsreflected in the table represent shares of Series E and Series Fnon-voting common stock and Series C deferred stock units. The tablereflects all of the Series E and Series F shares awarded to the NamedExecutive Officers in 2006 (and not only the portion of the awards that vestedin 2006), and such shares are valued in the table at $.01 per share. The tablereflects only the portion of the Series C deferred stock units held by theNamed Executive Officers that vested in 2006, and the underlying shares of suchunits are valued in the table at $11.75 per share.

(2)          Amountsinclude: (i) matching contributions made by us on behalf of the NamedExecutive Officers to our 401(k) plan (Michael Willner: $11,000; DinniJain: $11,000; John Abbot: $11,000 and Elliot Brecher: $11,000); (ii) lifeinsurance premiums and group term life insurance premiums paid by us on behalfof the Named Executive Officers (Michael Willner: $6,959; Dinni Jain: $7,849;John Abbot: $4,084; Christopher Slattery: $2,746; and Elliot Brecher: $3,385);and (iii) $11,400 paid to Christopher Slattery as an automobile allowance.

55

----

**Grantsof Plan-Based Awards Table**

| **Name**             | ** ** | ** **             | ** ** | **Grant Date** | ** ** | **All Other Stock  Awards: Number of  Shares of Stock or Units** | ** ** | **Grant Date Fair  Value of Stock and  Option Awards(1)** | ** ** |
|----------------------|------------|------------------------|------------|---------------------|------------|----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| Michael S.  Willner  |       | January 20, 2006  |       |                | 621,875    | (2)                                                                                                      |       |                                                                                    | $          | 6,220 |   |   |
|                 |       | January 20, 2006  |       |                | 22,500     | (3)                                                                                                      |       |                                                                                    | $          | 225 |   |   |
| Dinni Jain           |       | January 20,  2006 |       |                | 237,500    | (2)                                                                                                      |       |                                                                                    | $          | 2,375 |   |   |
|                 |       | March 20, 2006    |       |                | 9,000      | (3)                                                                                                      |       |                                                                                    | $          | 90 |   |   |
| John Abbot           |       | January 20,  2006 |       |                | 290,000    | (2)                                                                                                      |       |                                                                                    | $          | 2,900 |   |   |
|                 |       | March 20, 2006    |       |                | 4,500      | (3)                                                                                                      |       |                                                                                    | $          | 45 |   |   |
| Christopher Slattery |       | January 20, 2006  |       |                | 25,000     | (2)                                                                                                      |       |                                                                                    | $          | 250 |   |   |
|                 |       | March 20, 2006    |       |                | 2,700      | (3)                                                                                                      |       |                                                                                    | $          | 27 |   |   |
| Elliot Brecher       |       | January 20, 2006  |       |                | 101,250    | (2)                                                                                                      |       |                                                                                    | $          | 1,010 |   |   |
|                 |       | March 20, 2006    |       |                | 1,800      | (3)                                                                                                      |       |                                                                                    | $          | 18 |   |   |

----

(1)          The value of the stockawards are as described in Note (1) to the Summary Compensation Table.

(2)          Represents sharesof  Series E non-voting commonstock. Each of the shares of Series E non-voting common stock above have aparticipation level of $11.75.

(3)          Represents shares of Series Fnon-voting common stock.

56

----

**OutstandingEquity Awards at Fiscal Year-End Table**

| ** **           | ** ** | **STOCK AWARDS** | ** ** |
|----------------------|------------|-----------------------|------------|
| **Name**             | ** ** | ** **            | ** ** | **Number of Shares or  Units of Stock That  Have Not Vested** | ** ** | **Market Value of Shares or  Units of Stock That  Have Not Vested(1)** | ** ** |
| Michael S.  Willner  |       |                  | 435,313(2) |   |   |   | $ | 4,350 |   |   |
|                 |       |                  | 15,750(3)  |   |   |   | $ | 160 |   |   |
|                 |       |                  | 68,000(4)  |   |   |   | $ | 799,000 |   |   |
| Dinni Jain           |       |                  | 190,000(2) |   |   |   | $ | 1,900 |   |   |
|                 |       |                  | 7,200(3)   |   |   |   | $ | 72 |   |   |
|                 |       |                  | 50,000(4)  |   |   |   | $ | 587,500 |   |   |
| John Abbot           |       |                  | 232,000(2) |   |   |   | $ | 2,320 |   |   |
|                 |       |                  | 3,600(3)   |   |   |   | $ | 36 |   |   |
|                 |       |                  | 45,000(4)  |   |   |   | $ | 528,750 |   |   |
| Christopher Slattery |       |                  | 20,000(2)  |   |   |   | $ | 200 |   |   |
|                 |       |                  | 2,160(3)   |   |   |   | $ | 22 |   |   |
|                 |       |                  | 9,000(4)   |   |   |   | $ | 105,750 |   |   |
| Elliot Brecher       |       |                  | 81,000(2)  |   |   |   | $ | 810 |   |   |
|                 |       |                  | 1,440(3)   |   |   |   | $ | 14 |   |   |
|                 |       |                  | 4,000(4)   |   |   |   | $ | 47,000 |   |   |
|                      |            |                       |            |  |  |  |  |  |  |  |  |  |

----

(1)          The value of the stockawards are as described in Note (1) to the Summary Compensation Table.

(2)          Represents shares of Series Enon-voting common stock. Each of the shares of Series E non-voting commonstock above have a participation level of $11.75.

(3)          Represents shares of Series Fnon-voting common stock.

(4)          RepresentsSeries C deferred stock units. The shares underlying the Series Cdeferred stock units are deliverable in settlement upon a change in control (asdefined in the respective award agreements) or prior thereto upon the later tooccur of December 16, 2010 or termination of employment.

57

----

**OptionExercises and Stock Vested Table**

| ** **            | ** ** | **STOCK AWARDS** | ** **     |
|-----------------------|------------|-----------------------|----------------|
| **Name**              | ** ** | ** **            | ** **     | **Number of Shares  Acquired on Vesting** | ** ** | **Value Realized on  Vesting(1)** | ** ** |
| Michael S.  Willner   |       |                  | 186,562(2)     |   |   |   | $  | 1,865  |   |   |
|                  |       |                  |  6,750(3) |   |   |   | $ | 67 |   |   |
|                  |       |                  | 34,000(4)      |   |   |   | $ | 399,500 |   |   |
| Dinni Jain            |       |                  | 47,500(2)      |   |   |   | $  | 475 |   |   |
|                  |       |                  | 1,800(3)       |   |   |   | $  | 18 |   |   |
|                  |       |                  | 27,000(4)      |   |   |   | $ | 317,250 |   |   |
| John Abbot            |       |                  | 58,000(2)      |   |   |   | $  | 580 |   |   |
|                  |       |                  |  900(3)   |   |   |   | $  | 9 |   |   |
|                  |       |                  | 15,000(4)      |   |   |   | $ | 176,250 |   |   |
| Christopher  Slattery |       |                  | 5,000(2)       |   |   |   | $  | 50 |   |   |
|                  |       |                  | 540(3)         |   |   |   | $  | 5 |   |   |
|                  |       |                  | 3,000(4)       |   |   |   | $ | 35,250 |   |   |
| Elliot Brecher        |       |                  | 20,250(2)      |   |   |   | $ | 202 |   |   |
|                  |       |                  |  360(3)   |   |   |   | $  | 4 |   |   |
|                  |       |                  | 2,000(4)       |   |   |   | $ | 23,500 |   |   |
|                       |            |                       |                |  |  |  |  |  |  |  |  |  |

----

(1)          The value of the stockawards are as described in Note (1) to the Summary Compensation Table.

(2)          Represents shares of Series Enon-voting common stock. Each of the shares of Series E non-voting commonstock above have a participation level of $11.75.

(3)          Represents shares of Series Fnon-voting common stock.

(4)          Represents Series Cdeferred stock units. The shares underlying the Series C deferred stockunits are deliverable in settlement upon a change in control (as defined in therespective award agreements) or prior thereto upon the later to occur of December 16,2010 or termination of employment.

58

----

Only our independentdirectors receive compensation for their services as directors, consisting ofan annual retainer fee of $50,000, payable quarterly in cash. In addition, eachof our current independent directors in 2006 received a grant of 10,370 sharesof our Series E non-voting common stock, subject to a five-year vestingschedule, with 20% of the shares vesting at the end of each completed year ofservice. Independent directors also are entitled to receive reimbursement ofout-of-pocket expenses incurred in connection with their Board service. Thefollowing table does not include directors who are Named Executive Officers,for whom all compensation is disclosed in the Summary Compensation Table.

**DirectorCompensation Table**

| **Name**                        | ** ** | ** ** | ** ** | **Fees Earned  or Paid in  Cash(1)** | ** ** | **Stock Awards(2)** | ** ** | **Total**  | ** ** |
|---------------------------------|------------|------------|------------|-----------------------------------------------------|------------|--------------------------|------------|------------|------------|
| James A.  Attwood, Jr. (3) | ** ** |       | **—** | ** **                                          |       |                     | **—** | ** ** |       | **—** | ** ** |
| Michael J.  Connelly (3)        | ** ** |       | **—** | ** **                                          |       |                     | **—** | ** ** |       | **—** | ** ** |
| Stephen C. Gray                 |       |       | $          | 50,000                                              | ** ** |                     |       | $          | 100        | ** ** |   | $ | 50,100 |   |
| Amos B.  Hostetter, Jr.    |       |       | $          | 50,000                                              | ** ** |                     |       | $          | 100        | ** ** |   | $ | 50,100 |   |
| William E.  Kennard (3)         | ** ** |       | **—** | ** **                                          |       |                     | **—** | ** ** |       | **—** | ** ** |
| Sidney R. Knafel (4)            | ** ** |       | **—** | ** **                                          |       |                     | **—** | ** ** |       | **—** | ** ** |
| Geraldine B. Laybourne          |       |       | $          | 50,000                                              | ** ** |                     |       | $          | 100        | ** ** |   | $ | 50,100 |   |

----

(1)          Annual retainer fee,payable quarterly in cash.

(2)          Represents shares of Series Enon-voting common stock. The shares vest 20% per year of service on   the anniversary of the effective date of thegoing-private transaction. The table reflects all of the stock awarded to thenamed directors in 2006 (and not only the portion of the awards that vested in2006). The value of the stock awards are as described in Note (1) to the Summary Compensation Table. Each ofthe shares indicated in the table have a participation level of $11.75.

(3)          James A. Attwood, Jr.,Michael J. Connelly and William E. Kennard are affiliates of The Carlyle Group,and are not compensated for their services as directors. On December 16, 2005,in connection with our going-private transaction, we entered into a consultingagreement with affiliates of Carlyle for the payment to such affiliates of $1.5million per year in the aggregate.

(4)          Mr. Knafel is anemployee director and is not included as a Named Executive Officer in theSummary Compensation Table. He received compensation in 2006 in the form ofsalary, and was not compensated for his services as a director.

59

----

**Employment Agreements**

*Michael Willner.**  *In connection with the completion of thegoing-private transaction on December 16, 2005, we entered into anemployment agreement with Michael Willner, our chief executive officer. Underthe terms of the employment agreement, Mr. Willner serves as our presidentand chief executive officer for a three-year term ending on December 16,2008, which will be automatically extended for additional one-year periodsunless notice has been provided by either party that such extension will nottake effect. He will receive a base salary of $698,500 during the term, subjectto an annual review by our compensation committee in which it may, in its solediscretion, increase such base salary. Mr. Willner also will be entitledto an annual cash bonus opportunity for each of our fiscal years, subject toand based on the attainment by Mr. Willner and us of individual andfinancial performance targets to be determined by the compensation committeeupon the recommendations of Mr. Willner and Sidney Knafel, our chairman ofthe board. For each fiscal year, Mr. Willner will have a minimum cashbonus opportunity of up to 50% of his base salary. In addition to the annualcash bonus, Mr. Willner will be entitled to participate in the additionalmanagement bonus pool established as provided in the securityholders agreemententered into in connection with the going-private transaction.

If Mr. Willner’semployment is terminated without Cause (as defined in the employment agreement)or Mr. Willner terminates his employment with Good Reason (as defined inthe employment agreement), and in each case Mr. Willner executes a generalrelease of all claims against us, we will pay Mr. Willner as liquidateddamages:

·       anamount equal to the product of Mr. Willner’s annual cash bonuses for thefiscal year in which the termination occurred and a fraction, the numerator ofwhich is equal to the number of days in such fiscal year that precede the dateof termination and the denominator of which is equal to 365, plus

·       continuedpayment of his base salary for the greater of the balance of the initial threeyear term or 12 months, plus

·       paymentsduring each fiscal year of the severance period equal to the annual cashbonuses for each such fiscal year as if Mr. Willner were employed and asif the performance targets were satisfied to the same extent as in the yearprior to termination.

Accordingly, assuming forillustrative purposes that such termination occurred on December 31, 2006,in addition to the $367,500 bonus amount for 2006 as set forth in the SummaryCompensation Table, Mr. Willner would receive the annual base salaryamount of $733,600 for each of 2007 and 2008, payable in installments on theregular payroll dates. Mr. Willner would also receive with respect to eachof 2007 and 2008 a bonus in the amount of $367,500 at the same time as otherexecutives receive their annual bonuses. However, if such termination occurswithin one year after a sale (as defined in the employment agreement), all suchpayments would be made in a lump sum within seven days after termination.

If Mr. Willner’semployment is terminated due to death or disability, we will pay Mr. Willner,in one lump sum within 30 days of termination, an amount equal to the productof his annual cash bonuses for the fiscal year in which the terminationoccurred as if all performance targets had been satisfied and as if employmenthad continued through the end of the fiscal year, and a fraction, the numeratorof which is equal to the number of days in such fiscal year that precede thedate of termination and the denominator of which is equal to 365. Accordingly,assuming for illustrative purposes that such termination occurred on December 31,2006, Mr. Willner would receive the $367,500 bonus amount for 2006.

The employment agreementalso contains covenants relating to non-competition and non-solicitation of ouremployees, customers or suppliers from the date of the agreement through theseverance period and protection of our confidential information.

Pursuant to the Principals’Agreement dated July 28, 2005 entered into in connection with thegoing-private transaction, Sidney Knafel, Michael Willner and entitiesaffiliated with The Carlyle Group have agreed to negotiate in good faith toreach agreement on mutually satisfactory employment agreements with Dinni Jainand John Abbot. To date, such agreements have not been entered into.

60

----

**CompensationCommittee Interlocks and Insider Participation**

William Kennard(chairman), Stephen Gray and Amos Hostetter are the members of the compensationcommittee. None of the current compensation committee members is an officer oremployee of our company.

**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters

Thefollowing table sets forth as of March 1, 2007 information with respect tothe beneficial ownership of our voting securities by:

·       eachperson who is known by us to beneficially own more than 5% of our votingsecurities;

·       eachof our directors;

·       eachof our executive officers, including the Named Executive Officers in theSummary Compensation Table; and

·       all of our directors andexecutive officers as a group.

Unless otherwiseindicated, the address of each person named in the table below is InsightCommunications Company, Inc., 810 7th Avenue, New York, New York 10019,and each beneficial owner named in the table has sole voting and soleinvestment power with respect to all shares beneficially owned. The amounts andpercentage of voting securities beneficially owned are reported on the basis ofregulations of the SEC governing the determination of beneficial ownership ofsecurities. Under the rules of the SEC, a person is deemed to be a “beneficialowner” of a security if that person has or shares “voting power,” whichincludes the power to vote or to direct the voting of such security, or “investmentpower,” which includes the power to dispose of or to direct the disposition ofsuch security. A person is also deemed to be a beneficial owner of anysecurities of which that person has a right to acquire beneficial ownershipwithin 60 days. Under these rules, more than one person may be deemed abeneficial owner of the same securities and a person may be deemed to be abeneficial owner of securities as to which such person has no economicinterest.

| ** **                                                                                                                 | ** ** | **Series A**

**Voting Preferred Stock** | ** ** | **Series B**

**Voting Preferred Stock** | ** ** | **Percent of**

**Vote as a **                            | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| **Beneficial Owner**                                                                                                  | ** ** | ** **                                              | ** ** | **Number**                                              | ** ** | **      %      ** | ** ** | **Number** | ** ** | **     %    ** | ** ** | **Single Class(1)** | ** ** |
| Sidney R. Knafel                                                                                                           |       | 398,591                                                 |       |                                                    | 47.0       |                                                                          |       | — |   |   | — |   |   |   | 29.1 |   |   |
| Michael S. Willner                                                                                                         |       | 110,652                                                 |       |                                                    | 13.0       |                                                                          |       | — |   |   | — |   |   |   | 8.1 |   |   |
| Dinni Jain                                                                                                                 |       | —                                                  |       |                                                    | —     |                                                                          |       | — |   |   | — |   |   |   | — |   |   |
| John Abbot                                                                                                                 |       | —                                                  |       |                                                    | —     |                                                                          |       | — |   |   | — |   |   |   | — |   |   |
| Hamid Heidary                                                                                                              |       | —                                                  |       |                                                    | —     |                                                                          |       | — |   |   | — |   |   |   | — |   |   |
| Christopher Slattery                                                                                                       |       | —                                                  |       |                                                    | —     |                                                                          |       | — |   |   | — |   |   |   | — |   |   |
| Elliot Brecher                                                                                                             |       | —                                                  |       |                                                    | —     |                                                                          |       | — |   |   | — |   |   |   | — |   |   |
| James A.  Attwood, Jr.(2)                                                                                             |       | —                                                  |       |                                                    | —     |                                                                          |       | 517,836 |   |   | 100.0 |   |   |   | 37.9 |   |   |
| Michael J. Connelly(2)                                                                                                     |       | —                                                  |       |                                                    | —     |                                                                          |       | 517,836 |   |   | 100.0 |   |   |   | 37.9 |   |   |
| Stephen C. Gray                                                                                                            |       | —                                                  |       |                                                    | —     |                                                                          |       | — |   |   | — |   |   |   | — |   |   |
| Amos B.  Hostetter, Jr.                                                                                               |       | —                                                  |       |                                                    | —     |                                                                          |       | — |   |   | — |   |   |   | — |   |   |
| William E. Kennard(2)                                                                                                      |       | —                                                  |       |                                                    | —     |                                                                          |       | 517,836 |   |   | 100.0 |   |   |   | 37.9 |   |   |
| Geraldine B. Laybourne                                                                                                     |       | —                                                  |       |                                                    | —     |                                                                          |       | — |   |   | — |   |   |   | — |   |   |
| The Carlyle Group  affiliates(2)                                                                                           |       | —                                                  |       |                                                    | —     |                                                                          |       | 517,836 |   |   | 100.0 |   |   |   | 37.9 |   |   |
| Andrew G. Knafel, Joshua  Rubenstein and William L. Scherlis, as trustees under Trusts F/B/O children  of Sidney R. Knafel |       | 339,702                                                 |       |                                                    | 40.0       |                                                                          |       | — |   |   | — |   |   |   | 24.9 |   |   |
| All directors and  executive officers as a group (13 persons)                                                              |       | 509,243                                                 |       |                                                    | 60.0       |                                                                          |       | 517,836 |   |   | 100.0 |   |   |   | 75.1 |   |   |
|                                                                                                                            |            |                                                         |            |                                                         |            |                                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)          Holdersof Series A voting preferred stock and holders of Series B votingpreferred stock are entitled to one vote per share. Holders of both series ofpreferred stock vote together as a single class on all 

61

----

matters presentedfor a vote, except as set forth in our amended and restated certificate ofincorporation or as otherwise required by law.

(2)          Eachof Messrs. Attwood, Connelly and Kennard is a managing director of TheCarlyle Group, and as such may be deemed to beneficially own the shares held byits affiliates. Carlyle’s address is 520 Madison Avenue, New York, NY 10022.

Thefollowing table sets forth as of March 1, 2007 information with respect tothe beneficial ownership of our non-voting equity securities by:

·       eachof our directors;

·       eachof our executive officers, including the Named Executive Officers in theSummary Compensation Table; and

·       allof our directors and executive officers as a group.

The Series Eand Series F non-voting common stock are subject to the vesting schedulesand participation levels set forth in the respective award agreements.

| ** **                                                    | ** ** | **Series C  Non-Voting  Preferred Stock(1)** | ** ** | **Series D  Non-Voting  Preferred Stock** | ** ** | **Series E  Non-Voting  Common Stock** | ** ** | **Series F  Non-Voting  Common Stock** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| **Beneficial Owner**                                     | ** ** | ** **                                             | ** ** | **Number**                                          | ** ** | **%**                                            | ** ** | **Number**                                       | ** ** | **%** | ** ** | **Number** | ** ** | **%** | ** ** | **Number** | ** ** | **%** | ** ** |
| Sidney  R. Knafel                                             |       | 3,903,132                                              |       | 29.2                                                |       | —                                           |       | —                                           |       | 281,250 |   | 8.0 |   |   | 22,500 |   |   | 24.1 |   |
| Michael  S. Willner                                           |       | 738,000                                                |       | 5.5                                                 |       | —                                           |       | —                                           |       | 621,875 |   | 17.6 |   |   | 22,500 |   |   | 24.1 |   |
| Dinni  Jain                                                   |       | —                                                 |       | —                                              |       | —                                           |       | —                                           |       | 237,500 |   | 6.7 |   |   | 9,000 |   |   | 9.7 |   |
| John  Abbot                                                   |       | 6,000                                                  |       | *                                                   |       | —                                           |       | —                                           |       | 290,000 |   | 8.2 |   |   | 4,500 |   |   | 4.8 |   |
| Hamid  Heidary                                                |       | —                                                 |       | —                                              |       | —                                           |       | —                                           |       | — |   | — |   |   | 1,850 |   |   | 2.0 |   |
| Christopher  Slattery                                         |       | —                                                 |       | —                                              |       | —                                           |       | —                                           |       | 25,000 |   | * |   |   | 3,500 |   |   | 3.8 |   |
| Elliot  Brecher                                               |       | 1,000                                                  |       | *                                                   |       | —                                           |       | —                                           |       | 101,250 |   | 2.9 |   |   | 1,800 |   |   | 1.9 |   |
| James  A. Attwood, Jr.(2)                                |       | —                                                 |       | —                                              |       | 47,015,659                                       |       | 100.0                                            |       | — |   | — |   |   | — |   |   | — |   |
| Michael  J. Connelly(2)                                       |       | —                                                 |       | —                                              |       | 47,015,659                                       |       | 100.0                                            |       | — |   | — |   |   | — |   |   | — |   |
| Stephen  C. Gray                                              |       | —                                                 |       | —                                              |       | —                                           |       | —                                           |       | 10,370 |   | * |   |   | — |   |   | — |   |
| Amos  B. Hostetter, Jr.(3)                               |       | 3,404,255                                              |       | 25.5                                                |       | —                                           |       | —                                           |       | 10,370 |   | * |   |   | — |   |   | — |   |
| William  E. Kennard (2)                                       |       | —                                                 |       | —                                              |       | 47,015,659                                       |       | 100.0                                            |       | — |   | — |   |   | — |   |   | — |   |
| Geraldine  B. Laybourne                                       |       | —                                                 |       | —                                              |       | —                                           |       | —                                           |       | 10,370 |   | * |   |   | — |   |   | — |   |
| All directors and executive  officers as a group (13 persons) |       | 8,052,387                                              |       | 60.2                                                |       | 47,015,659                                       |       | 100.0                                            |       | 1,587,985 |   | 44.9 |   |   | 65,650 |   |   | 70.4 |   |
|                                                               |            |                                                        |            |                                                     |            |                                                  |            |                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |

----

*                    Lessthan 1%.

(1)          Doesnot include shares issuable under deferred stock units to the extent they maynot be settled within 60 days.

(2)          Representsshares held by affiliates of The Carlyle Group. Each of Messrs. Attwood,Connelly and Kennard is a managing director of Carlyle, and as such may bedeemed to beneficially own the shares held by Carlyle’s affiliates.

(3)          Representsshares held by PH Investments, LLC, an entity affiliated with Mr. Hostetter.

**Insight MidwestPartnership Split-Up Provisions**

We own 50% of the outstanding partnership interests inInsight Midwest, L.P. The other 50% of Insight Midwest is owned by an indirectsubsidiary of Comcast Corporation, an entity over which we have no control. Our50% interest in Insight Midwest constitutes substantially all of our operatingassets. The Insight Midwest partnership agreement provides that either partnerhas the right to commence a split-up process with respect to Insight Midwest. Todate, neither partner has commenced the split-up process.

62

----

**EQUITYCOMPENSATION PLAN INFORMATION**

| **Plan category**                                           | ** ** | **Number of  securities to  be issued upon  exercise of outstanding  options, warrants  and rights** | ** ** | **Weighted-average  exercise price  of outstanding  options, warrants  and rights** | ** ** | **Number of  securities remaining  available for future  issuance under  equity compensation  plans** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders     |       |                                                                                                 | —     |                                                                                |       |                                                                                                  | —     |   |   |   | — |   |   |
| Equity  compensation plans not approved by security holders |       |                                                                                                 |       |                                                                                |       |                                                                                                  |       |   |   |   |   |   |   |
| Series E non-voting common stock                       |       |                                                                                                 | —     |                                                                                |       |                                                                                                  | —     |   |   |   | 130,640 | (1) |   |
| Series F non-voting common stock                       |       |                                                                                                 | —     |                                                                                |       |                                                                                                  | —     |   |   |   | 6,750 | (1) |   |
| Total                                                       |       |                                                                                                 |       |                                                                                |       |                                                                                                  |       |   |   |   |   |   |   |
| Series E non-voting common stock                       |       |                                                                                                 | —     |                                                                                |       |                                                                                                  | —     |   |   |   | 130,640 | (1) |   |
| Series F  non-voting common stock                      |       |                                                                                                 | —     |                                                                                |       |                                                                                                  | —     |   |   |   | 6,750 | (1) |   |

 

----

(1)          Represents sharesavailable for future awards under our 2005 Stock Incentive Plan as ofDecember 31, 2006.

**Item 13.**                 CertainRelationships and Related Transactions, and Director Independence

Insight Communications Company, L.P. (our wholly-ownedsubsidiary) owns 50% of the outstanding partnership interests in InsightMidwest, L.P. The other 50% of Insight Midwest is owned by an indirectsubsidiary of Comcast Cable Holdings, LLC, which is a subsidiary of ComcastCorporation. Sidney Knafel, Michael Willner and Dinni Jain, who are each executiveofficers and directors of our company, are members of and collectivelyconstitute a majority of Insight Midwest’s advisory committee. Our 50% interestin Insight Midwest constitutes substantially all of our operating assets.

We purchase the majority of our programming throughaffiliates of Comcast Cable. Charges for such programming, including a 11⁄2%administrative fee, were $181.6 million for the year ended December 31,2006. As of December 31, 2006, $30.7 million of accrued programming costswere due to affiliates of Comcast Cable. We believe that the programming ratescharged through these affiliates are lower than those available fromindependent parties.

James A. Attwood, Jr., Michael J. Connelly andWilliam E. Kennard are affiliates of The Carlyle Group. Carlyle rendersmanagement, consulting, acquisition and financial services to the Company foran annual fee of $1.5 million payable quarterly. Affiliates of Carlyle who alsoserve as directors of the Company do not receive additional compensation forservice in such capacity.

Our audit committee operates under a written charter.Pursuant to its charter, our audit committee is required to review and discusswith management and our independent auditors any related party transactions.Our audit committee has the ultimate authority to approve all related partytransactions.

63

----

**Item 14.**                 PrincipalAccountant Fees and Services

Fees for professionalservices provided by our independent auditors in each of the last two fiscalyears, in each of the following categories are as follows: 

| ** **         | ** ** | **2006**                | ** ** | **2005** | ** ** |
|--------------------|------------|-------------------------|------------|----------|------------|
| ** **         | ** ** | **(in thousands)** | ** ** |
| Audit fees         |       | $                       | 704        |     | $          | 727 |   |
| Audit-related fees |       | 66                      |       | 156      |       |
| Tax fees           |       | 249                     |       | 364      |       |
| All other fees     |       | —                  |       | 61       |       |
| Total              |       | $                       | 1,019      |     | $          | 1,308 |   |

 

Audit fees include fees associated with the annualaudit, the reviews of our quarterly reports on Form 10-Q, assistancewith and review of documents filed with the Securities and Exchange Commission,comfort letters and compliance with Section 404 of the Sarbanes-Oxley Actof 2002. Audit-related fees consist of going-private transaction-related costs.Tax fees include tax compliance and tax consultations. All other fees primarilyinclude support and advisory services related to the Company’s 401(k) plan.

The audit committee has adopted a policy that requiresadvance approval of all audit, audit-related, tax and other services performedby the independent auditor. The policy provides for pre-approval by the auditcommittee of specifically defined audit and non-audit services. Unless thespecific service has been previously pre-approved with respect to that year,the audit committee must approve the permitted service before the independentauditor is engaged to perform it.

64

----

**PART IV**

**Item 15.**                 Exhibits,Financial Statement Schedules

**(a)**   FinancialStatements:

Our financial statements,as indicated by the Index to Consolidated Financial Statements set forth below,begin on page F-1 of this Form 10-K, and are herebyincorporated by reference. Financial statement schedules have been omittedbecause they are not applicable or the required information is included in thefinancial statements or notes thereto.

**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

|                                                                                                                            | ** ** | **Page** |
|----------------------------------------------------------------------------------------------------------------------------|------------|----------|
| Report of Independent Registered Public Accounting  Firm                                                                   |       |     |
| —Internal Control over  Financial Reporting                                                                           |       | F-1      |
| Report of Independent Registered Public Accounting  Firm                                                                   |       |     |
| —Financial Statements                                                                                                 |       | F-2      |
| Insight  Communications Company, Inc.                                                                                 |       |     |
| Consolidated Balance Sheets as of December 31,  2006 and 2005                                                         |       | F-3      |
| Insight  Communications Company, Inc.                                                                                 |       |     |
| Consolidated Statements of Operations for the years  ended  December 31, 2006, 2005 and 2004                          |       | F-4      |
| Insight  Communications Company, Inc.                                                                                 |       |     |
| Consolidated Statements of Changes in Stockholders’  Equity for the years ended December 31, 2006, 2005 and 2004 |       | F-5      |
| Insight  Communications Company, Inc.                                                                                 |       |     |
| **Consolidated Statements of Cash Flows for the years  ended  December 31, 2006, 2005 and 2004**                      |       | F-6      |
| Insight  Communications Company, Inc.                                                                                 |       |     |
| Notes to Consolidated Financial Statements                                                                                 |       | F-7      |

 

65

----

**(b) Exhibits:**

|                   | **Exhibit   Number** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ** ** | **Exhibit Description** | ** ** |
|-------------------|----------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
|   2     |                 | Agreement and  Plan of Merger, dated as of July 28, 2005, between Registrant and  Insight Acquisition Corp.(1)                                                                                                                                                                                                                                                                                                                                                                          |       |
|   3(i)  |                 | Amended and  Restated Certificate of Incorporation of Registrant(2)                                                                                                                                                                                                                                                                                                                                                                                                                          |       |
|   3(ii) |                 | By-laws of  Registrant(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |
| 10.1*             |                 | 1999 Equity  Incentive Plan of Registrant(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |
| 10.1A*            |                 | Form of  Deferred Stock Award Agreement(4)                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |
| 10.1B*            |                 | Form of  Amendment to Deferred Stock Award Agreement, dated December 16, 2005(4)                                                                                                                                                                                                                                                                                                                                                                                                   |       |
| 10.2*             |                 | 2005 Stock  Incentive Plan of Registrant(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |
| 10.2A*            |                 | Form of  Subscription Agreement for E Shares(2)                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |
| 10.2B*            |                 | Form of  Subscription Agreement for F Shares(2)                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |
| 10.3              |                 | Credit Agreement,  dated as of October 6, 2006, among Insight Midwest Holdings, LLC, as  Borrower, J.P. Morgan Securities Inc. and Bank of America, N.A., as  Co-Syndication Agents, Morgan Stanley Senior Funding, Inc., General  Electric Capital Corporation, Wachovia Bank, National Association and The  Royal Bank of Scotland plc, as Co-Documentation Agents, and The Bank of New  York, as Administrative Agent, and the other agents and lenders party thereto  (5) |       |
| 10.3A             |                 | Guarantee  Agreement, dated as of October 6, 2006, among Insight Midwest Holdings,  LLC, Insight Midwest, L.P., each of the subsidiaries of Insight Midwest  Holdings, LLC signatory thereto, and The Bank of New York (5)                                                                                                                                                                                                                                                              |       |
| 10.3B             |                 | Security  Agreement, dated as of October 6, 2006, among Insight Midwest Holdings,  LLC, Insight Midwest, L.P., each of the subsidiaries of Insight Midwest  Holdings, LLC signatory thereto, and The Bank of New York (5)                                                                                                                                                                                                                                                               |       |
| 10.4              |                 | Second Amended  and Restated Operating Agreement of Insight Communications Midwest, LLC,  dated as of January 5, 2001(6)                                                                                                                                                                                                                                                                                                                                                                |       |
| 10.5              |                 | Amended and  Restated Management Agreement by and between Insight Communications of  Indiana, LLC (now known as Insight Communications Midwest, LLC) and Insight  Communications Company, L.P., dated as of October 1, 1999(7)                                                                                                                                                                                                                                                          |       |
| 10.6              |                 | First Amendment  to Amended and Restated Management Agreement dated as of January 5,  2001, by and between Insight Communications Midwest, LLC and Insight  Communications Company, L.P.(6)                                                                                                                                                                                                                                                                                             |       |
| 10.7              |                 | Amended and  Restated Limited Partnership Agreement of Insight Kentucky Partners II, L.P.,  dated as of October 1, 1999(6)                                                                                                                                                                                                                                                                                                                                                              |       |
| 10.8              |                 | First Amendment  to Amended and Restated Limited Partnership Agreement of Insight Kentucky  Partners II, L.P., dated as of January 5, 2001(6)                                                                                                                                                                                                                                                                                                                                           |       |
| 10.9              |                 | Management  Agreement by and between Insight Kentucky Partners II, L.P. and Insight  Communications Company, L.P., dated as of October 1, 1999(7)                                                                                                                                                                                                                                                                                                                                       |       |
| 10.10             |                 | Amended and  Restated Operating Agreement of Insight Communications of Central Ohio, LLC,  dated as of September 29, 2003(8)                                                                                                                                                                                                                                                                                                                                                            |       |
| 10.11             |                 | Management  Agreement by and between Insight Communications of Central Ohio, LLC and  Insight Communications Company, L.P., dated as of September 29, 2003(8)                                                                                                                                                                                                                                                                                                                           |       |

----

 

| 10.12  |   | Amended and  Restated Limited Partnership Agreement of Insight Midwest, L.P., dated  January 5, 2001(9)                                                                                                                                    |   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10.12A |   | First Amendment  to Amended and Restated Limited Partnership Agreement of Insight Midwest,  L.P., dated September 30, 2002(10)                                                                                                             |   |
| 10.13  |   | Indenture  relating to 93⁄4% senior notes of Insight Midwest, L.P. and Insight  Capital, Inc., dated as of October 1, 1999(11)                                                                                                     |   |
| 10.13A |   | First  Supplemental Indenture, dated as of January 14, 2004, relating to 93⁄4%  senior notes(12)                                                                                                                                        |   |
| 10.14  |   | Indenture  relating to 12.25% senior discount notes of Registrant, dated as of  February 6, 2001(6)                                                                                                                                        |   |
| 10.14A |   | First  Supplemental Indenture, dated as of January 14, 2004, relating to 12.25%  senior discount notes (12)                                                                                                                                |   |
| 10.15  |   | Promissory Note,  dated March 28, 2002, made by Insight Midwest, L.P. to the  Registrant(13)                                                                                                                                               |   |
| 10.16  |   | Purchase  Agreement, dated July 2, 2004, between Insight Midwest Holdings, LLC and  Comcast Cable Holdings, LLC and certain of its affiliates(14)                                                                                          |   |
| 10.17  |   | Transition and  Termination Agreement, dated as of July 22, 2004, between Comcast of  Montana/Indiana/Kentucky/Utah and Insight Communications Company, L.P.(15)                                                                           |   |
| 10.18  |   | Form of  Exchange Agreement between Registrant and certain employees(13)                                                                                                                                                                   |   |
| 10.19* |   | Employment  agreement with Michael S. Willner, dated December 16, 2005(2)                                                                                                                                                                  |   |
| 10.20* |   | Employment  agreement with Hamid Heidary, effective March 27, 2006(16)                                                                                                                                                                     |   |
| 10.21  |   | Securityholders  Agreement, dated as of December 16, 2005, among The Carlyle Group, the  Registrant, those individuals identified as Continuing Investor  Securityholders, Continuing Investor Holding Company, LLC and PH  Investments(2) |   |
| 10.22  |   | Consulting  Agreement, dated as of December 16, 2005 between Registrant and  affiliates of The Carlyle Group(4)                                                                                                                            |   |
| 14     |   | Code of  Ethics(12)                                                                                                                                                                                                                             |   |
| 21     |   | Subsidiaries of  the Registrant(13)                                                                                                                                                                                                             |   |
| 31.1   |   | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Executive Officer of Insight Communications Company, Inc.                                                                                                                   |   |
| 31.2   |   | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Financial Officer of Insight Communications Company, Inc.                                                                                                                   |   |
| 32     |   | Section 1350  Certifications                                                                                                                                                                                                               |   |

----

                 * Management contract or compensatory plan orarrangement.

       (1) Filed as an exhibit to Amendment No. 1 to the Schedule 13Dfiled by Messrs. Sidney R. Knafel, Michael S. Willner, etc. on July 29,2005 and incorporated herein by reference.

       (2) Filed as an exhibit to Registrant’s Current Report on Form 8-K,dated December 16, 2005, and incorporated herein by reference.

       (3) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Qfor the quarterly period  ended March 31,2005 and incorporated herein by reference.

----

       (4) Filed as an exhibit to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2005 and incorporated herein by reference.

       (5) Filed as an exhibit to Registrant’s Current Report on Form 8-K,dated October 6, 2006, and incorporated herein by reference.

       (6) Filed as an exhibit to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2000 and incorporated herein by reference.

       (7) Filed as an exhibit to the Registration Statement on Form S-4of Insight Midwest, L.P. and Insight Capital, Inc. (Registration No. 333-33540) and incorporated herein by reference.

       (8) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Qfor the quarterly period ended September 30, 2003 and incorporated hereinby reference.

       (9) Filed as an exhibit to Registrant’s Current Report on Form 8-K,dated January 5, 2001, and incorporated herein by reference.

(10) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Qfor the quarterly period ended September 30, 2002 and incorporated hereinby reference.

(11)   Filedas an exhibit to Registrant’s Annual Report on Form 10-K for theyear ended December 31, 1999 and incorporated herein by reference.

(12)   Filed as an exhibit toRegistrant’s Annual Report on Form 10-K for the year ended December 31,2003 and incorporated herein by reference.

(13)   Filed as an exhibit toRegistrant’s Annual Report on Form 10-K for the year ended December 31,2004 and incorporated herein by reference.

(14)   Filed as an exhibit toRegistrant’s Quarterly Report on Form 10-Q for the quarterly periodended June 30, 2004 and incorporated herein by reference.

(15)   Filed as an exhibit toRegistrant’s Quarterly Report on Form 10-Q for the quarterly periodended September 30, 2004 and incorporated herein by reference.

(16)   Filed as an exhibit toRegistrant’s Quarterly  Report on Form 10-Qfor the quarterly period ended March 31, 2006 and incorporated herein byreference.

----

**Report ofIndependent Registered Public Accounting Firm**

The Stockholders and Boardof DirectorsInsight Communications Company, Inc.

We have audited management’sassessment, included in the accompanying Management’s Report on InternalControl Over Financial Reporting appearing under Item 9A, that InsightCommunications Company, Inc. (the “Company”) maintained effective internalcontrol over financial reporting as of December 31, 2006, based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (the “COSO criteria”). The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion on management’sassessment and an opinion on the effectiveness of the company’s internalcontrol over financial reporting based on our audit.

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinion.

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion management’sassessment that Insight Communications Company, Inc. maintained effectiveinternal control over financial reporting as of December 31, 2006, isfairly stated, in all material respects, based on the COSO criteria. Also, inour opinion, Insight Communications Company, Inc. maintained, in allmaterial respects, effective internal control over financial reporting as of December 31,2006, based on****the COSO criteria**.**

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheets of Insight CommunicationsCompany, Inc. as of December 31, 2006 and 2005 and the relatedconsolidated statements of operations, changes in stockholders’ equity, andcash flows for each of the three years in the period ended December 31,2006 and our report dated March 6, 2007 expressed an unqualified opinionthereon.

/s/ Ernst & Young LLP

NewYork, New YorkMarch 6, 2007

F-1

----

**Report ofIndependent Registered Public Accounting Firm**

The Stockholders and Board of DirectorsInsight Communications Company, Inc.

We have audited the accompanying consolidated balancesheets of Insight Communications Company, Inc. (the “Company”) as of December 31,2006 and 2005, and the related consolidated statements of operations, changesin stockholders’ equity, and cash flows for each of the three years in theperiod ended December 31, 2006. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of Insight Communications Company, Inc. at December 31, 2006and 2005, and the consolidated results of their operations and their cash flowsfor each of the three years in the period ended December 31, 2006, inconformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financialstatements, the Company adopted Statement of Financial Accounting Standards No. 123(R),“Share Based Payment,” effective January 1, 2006.

We also have audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theeffectiveness of Insight Communications Company, Inc.’s internal controlover financial reporting as of December 31, 2006, based on criteriaestablished in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated March 6,2007 expressed an unqualified opinion thereon.

/s/ Ernst & YoungLLP

New York, New YorkMarch 6, 2007

F-2

----

**INSIGHTCOMMUNICATIONS COMPANY, INC.**

**CONSOLIDATEDBALANCE SHEETS*(dollars in thousands, except per share amounts)***

| ** **                                                                                                                           | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                                           | * *   |                        | * *   | * *                    |       |   | * * | * * |   |
| Cash and cash equivalents                                                                                                            |       |                        | $          | 43,573                      | * *   |   |   | $ | 29,782 | * * |   |
| Investments                                                                                                                          |       |                        | 7,000      | * *                    |       |   | 5,901 | * * |   |
| Trade accounts receivable, net of allowance for  doubtful accounts of $1,148 and $1,079 as of December 31, 2006 and 2005        |       |                        | 31,060     | * *                    |       |   | 27,261 | * * |   |
| Launch funds receivable                                                                                                              |       |                        | 355        | * *                    |       |   | 974 | * * |   |
| Prepaid expenses and other assets                                                                                                    |       |                        | 8,473      | * *                    |       |   | 9,645 | * * |   |
| Total current assets                                                                                                                 |       |                        | 90,461     | * *                    |       |   | 73,563 | * * |   |
| Fixed assets, net                                                                                                                    |       |                        | 1,151,260  | * *                    |       |   | 1,130,705 | * * |   |
| Goodwill                                                                                                                             |       |                        | 72,430     | * *                    |       |   | 72,430 | * * |   |
| Franchise costs                                                                                                                      |       |                        | 2,361,959  | * *                    |       |   | 2,361,959 | * * |   |
| Deferred financing costs, net of accumulated  amortization of $29,473 and $24,302 as December 31, 2006 and 2005                 |       |                        | 19,053     | * *                    |       |   | 24,220 | * * |   |
| Other non-current assets                                                                                                             |       |                        | 2,941      | * *                    |       |   | 2,287 | * * |   |
| Total assets                                                                                                                         |       |                        | $          | 3,698,104                   | * *   |   |   | $ | 3,665,164 | * * |   |
| **Liabilities  and stockholders’ equity**                                                                                       |       |                        |       | * *                    |       |   |   | * * |   |
| Accounts payable                                                                                                                     |       |                        | $          | 43,772                      | * *   |   |   | $ | 42,333 | * * |   |
| Accrued expenses and other current liabilities                                                                                       |       |                        | 45,521     | * *                    |       |   | 45,413 | * * |   |
| Accrued property taxes                                                                                                               |       |                        | 13,595     | * *                    |       |   | 12,921 | * * |   |
| Accrued programming costs (inclusive of $30,677 and  $29,878 due to related parties as of December 31, 2006 and 2005)           |       |                        | 45,880     | * *                    |       |   | 43,705 | * * |   |
| Deferred revenue                                                                                                                     |       |                        | 2,076      | * *                    |       |   | 4,978 | * * |   |
| Interest payable                                                                                                                     |       |                        | 49,518     | * *                    |       |   | 20,459 | * * |   |
| Debt—current portion                                                                                                            |       |                        | —     | * *                    |       |   | 83,500 | * * |   |
| Total current liabilities                                                                                                            |       |                        | 200,362    | * *                    |       |   | 253,309 | * * |   |
| Deferred revenue                                                                                                                     |       |                        | 683        | * *                    |       |   | 1,499 | * * |   |
| Debt                                                                                                                                 |       |                        | 2,805,722  | * *                    |       |   | 2,676,418 | * * |   |
| Other non-current liabilities                                                                                                        |       |                        | —     | * *                    |       |   | 2,382 | * * |   |
| Minority interest                                                                                                                    |       |                        | 245,634    | * *                    |       |   | 251,011 | * * |   |
| Commitments and  Contingencies (Note 15)                                                                                             |       |                        |       | * *                    |       |   |   | * * |   |
| Stockholders’ equity:                                                                                                           |       |                        |       | * *                    |       |   |   | * * |   |
| Voting preferred stock,  $.01 par value:                                                                                             |       |                        |       | * *                    |       |   |   | * * |   |
| Series A—1,000,000 shares authorized; 848,945  shares issued and outstanding as of December 31, 2006 and 2005         |       |                        | 8          | * *                    |       |   | 8 | * * |   |
| Series B—1,000,000 shares authorized; 517,836  shares issued and outstanding as of December 31, 2006 and 2005         |       |                        | 5          | * *                    |       |   | 5 | * * |   |
| Non-voting preferred  stock, $.01 par value:                                                                                         |       |                        |       | * *                    |       |   |   | * * |   |
| Series C—15,000,000 shares authorized;  13,364,693 shares issued and outstanding as of December 31, 2006 and  2005    |       |                        | 134        | * *                    |       |   | 134 | * * |   |
| Series D—50,000,000 shares authorized;  47,015,659 shares issued and outstanding as of December 31, 2006 and  2005    |       |                        | 470        | * *                    |       |   | 470 | * * |   |
| Non-voting common stock,  $.01 par value:                                                                                            |       |                        |       | * *                    |       |   |   | * * |   |
| Series E—5,000,000 shares authorized; 3,536,247  and 0 shares issued and outstanding as of December 31, 2006 and 2005 |       |                        | 35         | * *                    |       |   | — | * * |   |
| Series F—100,000 shares authorized; 93,250 and 0  shares issued and outstanding as of December 31, 2006 and 2005      |       |                        | 1          | * *                    |       |   | — | * * |   |
| Voting common stock, $.01  par value:                                                                                                |       |                        |       | * *                    |       |   |   | * * |   |
| Series G—10,000,000 shares authorized; 0 shares  issued and outstanding as of December 31, 2006 and 2005              |       |                        | —     | * *                    |       |   | — | * * |   |
| Additional paid-in-capital                                                                                                           |       |                        | 826,509    | * *                    |       |   | 829,337 | * * |   |
| Accumulated deficit                                                                                                                  |       |                        | (381,765   | *)*                         |       |   | (345,199 | *)* |   |
| Accumulated other comprehensive income                                                                                               |       |                        | 306        | * *                    |       |   | — | * * |   |
| Deferred stock compensation                                                                                                          |       |                        | —     | * *                    |       |   | (4,210 | *)* |   |
| Total stockholders’ equity                                                                                                      |       |                        | 445,703    | * *                    |       |   | 480,545 | * * |   |
| Total liabilities  and stockholders’ equity                                                                                     |       |                        | $          | 3,698,104                   | * *   |   |   | $ | 3,665,164 | * * |   |

 

See accompanying notes

F-3

----

**INSIGHT COMMUNICATIONSCOMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS*(dollars in thousands)***

| ** **                                                                                                                                                                                                              | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                                              | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenue                                                                                                                                                                                                                 |       | $                                          | 1,262,557  |   | $ | 1,117,681 |   | $ | 1,002,456 |   |
| Operating costs and  expenses:                                                                                                                                                                                          |       |                                       |       |   |   |   |   |
| Programming and other operating costs (exclusive of  depreciation and amortization) (inclusive of $181,560, $157,643 and $150,956  of programming expense incurred through related parties during 2006, 2005 and  2004) |       | 447,060                                    |       | 378,878 |   | 342,636 |   |
| Selling, general and administrative (inclusive of  $1,413, $17,368 and $4,438 of stock-based compensation for the years ended  December 31, 2006, 2005 and 2004)                                                   |       | 326,714                                    |       | 288,213 |   | 232,212 |   |
| Transaction-related costs                                                                                                                                                                                               |       | —                                     |       | 61,972 |   | — |   |
| Depreciation and amortization                                                                                                                                                                                           |       | 270,231                                    |       | 247,039 |   | 239,123 |   |
| Total operating  costs and expenses                                                                                                                                                                                     |       | 1,044,005                                  |       | 976,102 |   | 813,971 |   |
| Operating income                                                                                                                                                                                                        |       | 218,552                                    |       | 141,579 |   | 188,485 |   |
| Other income  (expense):                                                                                                                                                                                                |       |                                       |       |   |   |   |   |
| Interest expense                                                                                                                                                                                                        |       | (251,404                                   | )          | (226,956 | ) | (201,450 | ) |
| Interest income                                                                                                                                                                                                         |       | 1,787                                      |       | 2,895 |   | 749 |   |
| Other                                                                                                                                                                                                                   |       | (10,719                                    | )          | 3,541 |   | (3,388 | ) |
| Total other  expense, net                                                                                                                                                                                               |       | (260,336                                   | )          | (220,520 | ) | (204,089 | ) |
| Loss before  minority interest, income taxes and extraordinary item                                                                                                                                                     |       | (41,784                                    | )          | (78,941 | ) | (15,604 | ) |
| Minority interest  income (expense)                                                                                                                                                                                     |       | 5,377                                      |       | (5,488 | ) | (14,023 | ) |
| Loss before  income taxes and extraordinary item                                                                                                                                                                        |       | (36,407                                    | )          | (84,429 | ) | (29,627 | ) |
| Benefit  (provision) for income taxes                                                                                                                                                                                   |       | (159                                       | )          | (500 | ) | 201 |   |
| Loss before  extraordinary item                                                                                                                                                                                         |       | (36,566                                    | )          | (84,929 | ) | (29,426 | ) |
| Extraordinary  item, net of tax                                                                                                                                                                                         |       | —                                     |       | — |   | 15,627 |   |
| Net loss                                                                                                                                                                                                                |       | $                                          | (36,566    | ) | $ | (84,929 | ) | $ | (13,799 | ) |

 

See accompanying notes

F-4

----

**INSIGHTCOMMUNICATIONS COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY*(dollars in thousands)***

| ** **                                                                  | ** ** | **Common   Stock** | ** ** | **Preferred   Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Accumulated   Deficit** | ** ** | **Deferred Stock  Compensation** | ** ** | **Accumulated  Other  Comprehensive   Income (Loss)** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|----------------------------------|------------|--------------------------------|------------|---------------------------------------|------------|-----------------------------------------------------------------|------------|-----------|------------|
| Balance at  December 31,  2003                                         |       |                    | $          | 595                        |       |                             |       | $                              | —     |                                  |       |                                                            | $          | 816,600   |       |   |   | $ | (246,471 | ) |   |   | $ | (13,582 | ) |   |   | $ | (23 | ) |   | $ | 557,119 |   |
| Net loss                                                                    |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      | (13,799    | ) |   |   |   |   |   |   |   |   |   | (13,799 | ) |
| Unrealized loss on  investments                                             |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   |   |   |   |   | (279 | ) |   | (279 | ) |
| Realized gain on  investments                                               |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   |   |   |   |   | (386 | ) |   | (386 | ) |
| Unrealized gain on  interest rate swaps                                     |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   |   |   |   |   | 1,010 |   |   | 1,010 |   |
| Total  comprehensive loss                                                   |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   |   |   |   |   |   |   |   | (13,454 | ) |
| Issuance of stock  to 401(k) plan                                      |       |                    | 1          |                       |       |                             |       |                           |       |                                  | 1,309      |                                                            |       |      |       |   |   |   |   |   |   |   |   |   |   | 1,310 |   |
| Issuance of  restricted stock                                               |       |                    | 1          |                       |       |                             |       |                           |       |                                  | 766        |                                                            |       |      |       |   |   |   | (767 | ) |   |   |   |   |   | — |   |
| Issuance of stock  through stock compensation and exercise of stock options |       |                    |       |                       |       |                             |       |                           |       |                                  | 74         |                                                            |       |      |       |   |   |   | 32 |   |   |   |   |   |   | 106 |   |
| Acquisition of  stock in satisfaction of employee loans                     |       |                    | (3         | )                          |       |                             |       |                           |       |                                  | (3,660     | )                                                               |       |      |       |   |   |   |   |   |   |   |   |   |   | (3,663 | ) |
| Mark-to-market  non-cash compensation                                       |       |                    |       |                       |       |                             |       |                           |       |                                  | (1,236     | )                                                               |       |      |       |   |   |   | 4,398 |   |   |   |   |   |   | 3,162 |   |
| Amortization of  non-cash compensation                                      |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   | 1,230 |   |   |   |   |   |   | 1,230 |   |
| Balance at  December 31, 2004                                          |       |                    | 594        |                       |       |                             | —     |                           |       |                                  | 813,853    |                                                            |       |      | (260,270   | ) |   |   | (8,689 | ) |   |   | 322 |   |   | 545,810 |   |
| Net loss                                                                    |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      | (84,929    | ) |   |   |   |   |   |   |   |   |   | (84,929 | ) |
| Realized gain on  investments                                               |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   |   |   |   |   | (448 | ) |   | (448 | ) |
| Unrealized gain on  investments                                             |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   |   |   |   |   | 126 |   |   | 126 |   |
| Total comprehensive  loss                                                   |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   |   |   |   |   |   |   |   | (85,251 | ) |
| Issuance of stock  to 401(k) plan                                      |       |                    | 2          |                       |       |                             |       |                           |       |                                  | 2,563      |                                                            |       |      |       |   |   |   |   |   |   |   |   |   |   | 2,565 |   |
| Issuance of  deferred stock units                                           |       |                    |       |                       |       |                             |       |                           |       |                                  | 2,322      |                                                            |       |      |       |   |   |   | (2,322 | ) |   |   |   |   |   | — |   |
| Issuance of  restricted stock                                               |       |                    | 8          |                       |       |                             |       |                           |       |                                  | 9,661      |                                                            |       |      |       |   |   |   | (9,669 | ) |   |   |   |   |   | — |   |
| Issuance of stock  through stock compensation and exercise of stock options |       |                    |       |                       |       |                             |       |                           |       |                                  | 63         |                                                            |       |      |       |   |   |   | (15 | ) |   |   |   |   |   | 48 |   |
| Cancellation of  restricted stock                                           |       |                    | (2         | )                          |       |                             |       |                           |       |                                  | (1,933     | )                                                               |       |      |       |   |   |   | 1,935 |   |   |   |   |   |   | — |   |
| Mark-to-market  non-cash compensation                                       |       |                    |       |                       |       |                             |       |                           |       |                                  | 2,455      |                                                            |       |      |       |   |   |   | 984 |   |   |   |   |   |   | 3,439 |   |
| Amortization of  non-cash compensation                                      |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   | 3,883 |   |   |   |   |   |   | 3,883 |   |
| Going-private  transaction adjustments                                      |       |                    | (602       | )                          |       |                             | 617        |                           |       |                                  | 353        |                                                            |       |      |       |   |   |   | 9,683 |   |   |   |   |   |   | 10,051 |   |
| Balance at  December 31,   2005                                        |       |                    | —     |                       |       |                             | 617        |                           |       |                                  | 829,337    |                                                            |       |      | (345,199   | ) |   |   | (4,210 | ) |   |   | — |   |   | 480,545 |   |
| Net loss                                                                    |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      | (36,566    | ) |   |   |   |   |   |   |   |   |   | (36,566 | ) |
| Unrealized gain on  interest rate swaps                                     |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   |   |   |   |   | 306 |   |   | 306 |   |
| Total  comprehensive loss                                                   |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   |   |   |   |   |   |   |   | (36,260 | ) |
| Reversal of  deferred compensation upon adoption of SFAS 123(R)             |       |                    |       |                       |       |                             |       |                           |       |                                  | (4,210     | )                                                               |       |      |       |   |   |   | 4,210 |   |   |   |   |   |   | — |   |
| Issuance of  non-voting common stock                                        |       |                    | 36         |                       |       |                             |       |                           |       |                                  |       |                                                            |       |      |       |   |   |   |   |   |   |   |   |   |   | 36 |   |
| Other                                                                       |       |                    |       |                       |       |                             |       |                           |       |                                  | 7          |                                                            |       |      |       |   |   |   |   |   |   |   |   |   |   | 7 |   |
| Amortization of  non-cash compensation                                      |       |                    |       |                       |       |                             |       |                           |       |                                  | 1,375      |                                                            |       |      |       |   |   |   |   |   |   |   |   |   |   | 1,375 |   |
| Balance at  December 31,   2006                                        |       |                    | $          | 36                         |       |                             |       | $                              | 617        |                                  |       |                                                            | $          | 826,509   |       |   |   | $ | (381,765 | ) |   |   | $ | — |   |   |   | $ | 306 |   |   | $ | 445,703 |   |

 

See accompanying notes

F-5

----

**INSIGHTCOMMUNICATIONS COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS*(dollars in thousands)***

| ** **                                                                       | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Operating activities:**                                                        |       |                                       |       |   |   |   |   |
| Net loss                                                                         |       | $                                          | (36,566    | ) | $ | (84,929 | ) | $ | (13,799 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities: |       |                                       |       |   |   |   |   |
| Depreciation and  amortization                                                   |       | 270,231                                    |       | 247,039 |   | 239,123 |   |
| Stock-based compensation                                                         |       | 1,413                                      |       | 17,368 |   | 4,438 |   |
| Non-cash consulting  expense                                                     |       | —                                     |       | 45 |   | 60 |   |
| Gain on sale of  investments                                                     |       | —                                     |       | (448 | ) | (386 | ) |
| Gain on interest rate  swaps                                                     |       | —                                     |       | (2,078 | ) | (36 | ) |
| Loss on early  extinguishments of debt                                           |       | —                                     |       | — |   | 127 |   |
| Minority interest                                                                |       | (5,377                                     | )          | 5,488 |   | 14,023 |   |
| Provision for losses on  trade accounts receivable                               |       | 18,554                                     |       | 17,619 |   | 18,301 |   |
| Contribution of stock to  401(k) Plan                                       |       | —                                     |       | 2,565 |   | 1,309 |   |
| Amortization of note  discount                                                   |       | 6,950                                      |       | 38,755 |   | 34,931 |   |
| Deferred income taxes                                                            |       | —                                     |       | — |   | (701 | ) |
| Changes in operating assets and liabilities, net of  acquisitions:               |       |                                       |       |   |   |   |   |
| Trade accounts  receivable                                                       |       | (22,353                                    | )          | (13,525 | ) | (20,343 | ) |
| Launch funds receivable                                                          |       | 619                                        |       | 1,775 |   | 6,672 |   |
| Prepaid expenses and  other assets                                               |       | 745                                        |       | 2,238 |   | 6,011 |   |
| Accounts payable                                                                 |       | 1,439                                      |       | 10,447 |   | 1,469 |   |
| Interest payable                                                                 |       | 29,059                                     |       | (184 | ) | (2,672 | ) |
| Accrued expenses and  other liabilities                                          |       | (765                                       | )          | (8,602 | ) | 1,387 |   |
| Net cash provided by  operating activities                                       |       | 263,949                                    |       | 233,573 |   | 289,914 |   |
| **Investing activities:**                                                        |       |                                       |       |   |   |   |   |
| Purchase of fixed assets                                                         |       | (286,389                                   | )          | (220,102 | ) | (174,096 | ) |
| Sale of fixed assets                                                             |       | 857                                        |       | 2,113 |   | 1,913 |   |
| Purchase of intangible  assets                                                   |       | —                                     |       | — |   | (107 | ) |
| Purchase of investments                                                          |       | (1,099                                     | )          | (1,801 | ) | (1,856 | ) |
| Sale of investments                                                              |       | —                                     |       | 1,079 |   | 602 |   |
| Net cash used in  investing activities                                           |       | (286,631                                   | )          | (218,711 | ) | (173,544 | ) |
| **Financing activities:**                                                        |       |                                       |       |   |   |   |   |
| Proceeds from borrowings  under old credit facilities                            |       | 85,000                                     |       | — |   | — |   |
| Repayment of old credit  facilities                                              |       | (1,489,250                                 | )          | (83,500 | ) | (68,250 | ) |
| Repayment of notes                                                               |       | (815,000                                   | )          | — |   | (8,134 | ) |
| Debt refinancing costs                                                           |       | (30,282                                    | )          | (1,733 | ) | (14 | ) |
| Proceeds from borrowings  under new credit facilities                            |       | 2,286,000                                  |       | — |   | — |   |
| Other                                                                            |       | 5                                          |       | 9 |   | — |   |
| Net cash provided by  (used in) financing activities                             |       | 36,473                                     |       | (85,224 | ) | (76,398 | ) |
| Net change in cash and  cash equivalents                                         |       | 13,791                                     |       | (70,362 | ) | 39,972 |   |
| Cash and cash  equivalents, beginning of year                                    |       | 29,782                                     |       | 100,144 |   | 60,172 |   |
| Cash and cash equivalents, end of year                                           |       | $                                          | 43,573     |   | $ | 29,782 |   | $ | 100,144 |   |

 

See accompanying notes

F-6

----

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

**1.**   Organizationand Basis of Presentation

Through our wholly owned subsidiary, InsightCommunications Company, L.P. (“Insight LP”), we own a 50% interest in InsightMidwest, L.P. (“Insight Midwest”), which through its operating subsidiaries,Insight Communications Midwest, LLC (“Insight Communications Midwest”), InsightKentucky Partners II, L.P. (“Insight Kentucky”) and Insight Communications ofCentral Ohio, LLC (“Insight Ohio”), owns and operates cable television systemsin Illinois, Indiana, Kentucky and Ohio which passed approximately 2.5 millionhomes and has approximately 1.4 million customer relationships as of December 31,2006.

Insight LP is the general partner of Insight Midwest.Through Insight LP, we manage all of Insight Midwest’s systems and, through July 31,2004, managed certain systems owned by an affiliate of Comcast Cable Holdings,LLC (“Comcast Cable”) (formerly known as AT&T Broadband, LLC), the owner ofthe remaining 50% interest in Insight Midwest.

On July 28, 2005, weentered into a definitive merger agreement (“the merger”) with InsightAcquisition Corp., an entity organized by affiliates of The Carlyle Group inorder to effect the transactions contemplated by the merger agreement. Pursuantto the terms of the merger agreement, on December 16, 2005, InsightAcquisition Corp. merged with and into us, and we are the surviving entity. Asof the effective time of the merger, our public shareholders (other thanstockholders that continued as investors in the surviving corporation andstockholders who demanded appraisal rights) had no further ownership interestin us. Instead, the shares of common stock of such holders were converted intothe right to receive $11.75 in cash per share. As a result of the merger, ourcommon stock is no longer publicly traded.

**2.**   SignificantAccounting Policies

***Basis of Consolidation***

The consolidated financialstatements include our accounts and those of our wholly owned subsidiaries,Insight LP and Insight Cable Services, LLC. Although Insight Midwest is equallyowned by Insight LP and an indirect subsidiary of Comcast Cable, Insight LP, asthe general partner of Insight Midwest, effectively controls all its operatingand financial decisions. Accordingly, the results of Insight Midwest areincluded in our consolidated financial statements. The minority interest in ourfinancial statements represents Comcast Cable’s 50% ownership interest inInsight Midwest. Intercompany balances and transactions have been eliminated inconsolidation.

***Revenue Recognition***

Revenue is earned fromcustomer fees for cable television video services including basic, classic,digital, premium, video-on-demand and ancillary services, such as rental ofconverters, remote control devices and installations. Installation revenuesobtained from the connection of customers to our cable systems are less thanrelated direct installation costs. Therefore, such revenues are recognized asconnections are completed. In addition, we earn revenues from providinghigh-speed Internet services, selling advertising, providing telephoneservices, commissions for products sold through home shopping networks, and,through July 2004, management fees. Revenue is recorded in the month therelated services are rendered. Fees received during 2004 for activation of telephoneservices are amortized over the customer relationship period, generally threeyears (see Note 13 “Related Party Transactions”).

F-7

----

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

**2.**   Significant Accounting Policies (Continued)

***Use of Estimates***

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

***Cash Equivalents***

We consider all highlyliquid investments with original maturities of three months or less to be cashequivalents. The carrying amounts of our cash equivalents approximate theirfair values.

***Investments***

All marketable equityinvestments are classified as available-for-sale under Statement of FinancialAccounting Standards (“SFAS”) No. 115, *Accountingfor Certain Investments in Debt and Equity Securities*. In accordancewith SFAS No. 115, available-for-sale securities are carried at fairvalue, with unrealized gains and losses, net of income taxes, reported as aseparate component of stockholders’ equity. Fair value is based on quotedmarket prices. All other equity investments for which a quoted market price isunavailable are carried at cost and periodically reviewed for impairment.

***Fixed Assets***

Fixed assets are stated at cost and include costscapitalized for labor and overhead incurred in connection with the constructionof cable system infrastructures, including those providing high-speed Internetand the delivery of telephone services. In addition, we capitalize labor,material costs and overhead associated with installations related to newservices on customer premises. Depreciation for buildings, cable systemequipment, furniture, fixtures and office equipment is calculated using thestraight-line method over estimated useful lives ranging from 2 to 30 years.Leasehold improvements are amortized using the straight-line method over theshorter of the remaining term of the leases or the estimated life of theimprovements.

The carrying value offixed assets is reviewed if facts and circumstances suggest that they may beimpaired. If this review indicates that the carrying value of the fixed assetswill not be recovered from undiscounted future cash flows generated from suchassets, an impairment loss would be recognized for the amount that the asset’scarrying value exceeds its fair value. We believe that no impairment of fixedassets existed as of December 31, 2006 or 2005.

***Franchise Costs and Goodwill***

On January 1, 2002, we adopted SFAS No. 142,*Goodwill and Other Intangible Assets.*In accordance with SFAS No. 142, we discontinued the amortization ofindefinite-lived intangible assets, including our franchise costs and goodwill.SFAS No. 142 requires goodwill and indefinite-lived intangible assets betested for impairment annually, or more frequently as warranted by events orchanges in circumstances.

According to guidance prescribed in Emerging IssuesTask Force (“EITF”) Issue No. 02-7, *Unitof Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets*,single units of accounting 

F-8

----

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

**2.**   Significant Accounting Policies (Continued)

operated as a single assetand essentially inseparable from each other, should be combined as a singleasset group for purposes of impairment testing. Management has identified threeasset groups based on cable system management, geographic clustering andmanagement’s belief that such grouping represents the best use of those assets.

Additionally,during September 2004, the SEC staff issued Topic D-108, *Use of the Residual Method to Value Acquired AssetsOther than Goodwill*, which requires the direct method of separatelyvaluing all non-goodwill intangible assets and does not permit goodwill to beincluded in franchise assets. In connection with adopting SFAS No. 142 andTopic D-108 and based on guidance from EITF Issue No. 02-7, weperformed an impairment assessment using an independent third-party appraiserfor the three asset groups identified. The Company determined that, as of October 1,2006 and 2005, there had been no impairment to our franchise costs.

***Deferred Financing Costs***

Deferred financing costsrelate to costs, primarily legal and bank facility fees, incurred in securingbank loans and other sources of financing. These costs are amortized over thelife of the applicable debt. For the years ended December 31, 2006, 2005and 2004, we recorded amortization expense of $5.2 million, $5.4 millionand $5.4 million.

***Stock-Based Compensation***

Prior to January 1, 2006, we accounted for ourshare-based compensation plans in accordance with the provisions of AccountingPrinciples Board (“APB”) Opinion No. 25, *Accountingfor Stock Issued to Employees*(“APB No. 25”), as permitted bySFAS No. 123, *Accounting for Stock-BasedCompensation*(“SFAS No. 123”), and accordingly did notrecognize compensation expense for stock options with an exercise price equalto or greater than the market price of the underlying stock at the date ofgrant.

Effective January 1,2006, we adopted SFAS No. 123R, *Share-Based Payment*(“SFASNo. 123(R)”), using the modified prospective transition method to recordstock-based compensation expense; therefore, prior period results were notrestated. SFAS 123(R) requires all share-based payments to employees to berecognized as compensation expense over the service period (generally thevesting period) in the consolidated financial statements based on their fairvalues (see Note 10 “Capital Stock, Stock Option Plan and Other Stock BasedCompensation”). In connection with the adoption of SFAS 123(R) wereclassified our deferred stock compensation balance within stockholders’equity to additional paid-in capital. The adoption of SFAS 123(R) did notmaterially impact our statement of operations.

***Comprehensive Income***

We own certain investmentsthat are classified as available-for-sale and reported at market value, withnet unrealized gains and losses recorded as components of comprehensive income.Additionally, we record the effective portion of certain derivatives’ netunrealized gains as components of comprehensive income. Comprehensive income ispresented in the accompanying consolidated statements of changes instockholders’ equity. The cumulative amount of comprehensive income ispresented in the accompanying consolidated balance sheets as accumulated othercomprehensive income.

F-9

----

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

**2.**   Significant Accounting Policies (Continued)

***Income Taxes***

Deferred income taxes areprovided for using the liability method. Under this approach, differencesbetween the financial statements and tax bases of assets and liabilities aredetermined annually, and deferred income tax assets and liabilities arerecorded for those differences that have future tax consequences. Valuationallowances are established, if necessary, to reduce deferred tax assets to anamount that will more likely than not be realized in future periods. Income taxexpense is comprised of the current tax payable or refundable for the periodplus or minus the net change in deferred tax assets and liabilities.

***Marketing and Promotional Costs***

Marketing and promotionalcosts are expensed as incurred. Marketing and promotional expenses, net ofmarketing support (recorded as a reduction to marketing expense), for the yearsended December 31, 2006, 2005 and 2004 were $47.9 million, $32.2 million and$21.6 million.

***Recent Accounting Pronouncements***

In February 2006, FASB issued SFAS No. 155, *Accounting for Certain Hybrid Financial Instruments—an Amendment ofFASB Statements No. 133 and 140*(“SFAS No. 155”). SFAS No. 155allows financial instruments that contain an embedded derivative and thatotherwise would require bifurcation to be accounted for as a whole on a fairvalue basis, at the holders’ election. SFAS No. 155 also clarifies andamends certain other provisions of SFAS No. 133 and SFAS No. 140. SFASNo. 155 is effective for fiscal years ending after September 15, 2006or calendar year 2006 for us. Upon completing our evaluation of therequirements of SFAS No. 155, we determined it did not affect ourconsolidated financial statements.

In September, 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*(“SFAS No. 157”).SFAS No. 157 defines fair value, establishing a framework for measuringfair value and expands disclosure about fair value measurements. SFAS No. 157is effective for fiscal years beginning after November 15, 2007 or calendaryear 2008 for us. We do not expect SFAS No. 157 to have a material impacton the Company’s consolidated financial statements.

In June 2006, the Emerging Issues Task Force (“EITF”)reached a consensus on EITF Issue No. 06-3, *How TaxesCollected from Customers and Remitted to Governmental Authorities Should BePresented in the Income Statement (That Is, Gross versus Net Presentation)*(“EITF 06-3”). EITF 06-3 provides that the presentation of taxesassessed by a governmental authority that is directly imposed on arevenue-producing transaction between a seller and a customer on either a grossbasis (included in revenues and costs) or on a net basis (excluded fromrevenues) is an accounting policy decision that should be disclosed. Theprovisions of EITF 06-3 will be effective for us as of January 1,2007. We do not expect EITF 06-3 to have a material impact on the Company’sconsolidated financial statements.

In July 2006, FASBissued FASB Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes—an interpretation of FASB Statement No. 109*, (“FIN48”). FIN 48 clarifies the accounting for uncertainty in income taxesrecognized in financial statements in accordance with FASB Statement No. 109,*Accounting for Income Taxes*. FIN 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in 

F-10

----

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

**2.**   Significant Accounting Policies (Continued)

interimperiods, disclosure and transition. FIN 48 is effective for fiscal years endingafter December 15, 2006 or calendar year 2006 for us. Upon completing ourevaluation of the requirements of FIN 48, we determined it did not affect ourconsolidated financial statements.

In September 2006,the SEC staff issued Staff Accounting Bulletin No. 108, *Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in the Current Year Financial Statements*, (“SAB No. 108”).SAB No. 108 requires that registrants quantify errors using both a balancesheet and income statement approach and evaluate whether either approachresults in a misstated amount that, when all relevant quantitative andqualitative factors are considered, is material. SAB No. 108 is effectivefor fiscal years ending after November 15, 2006 or calendar year 2006 forus. Upon completing our evaluation of the requirements of SAB No. 108, wedetermined it did not affect our consolidated financial statements.

***Reclassifications***

Reclassifications havebeen made to the prior years’ financial statements to conform to thoseclassifications used in 2006.

**3.**   InsightMidwest

In September 1999,Insight Midwest was formed to serve as the holding company and a financingvehicle for our cable television system 50/50 joint venture with AT&TBroadband (now known as Comcast Cable). As of December 31, 2006, InsightMidwest was comprised of systems located in Indiana, Kentucky, Ohio andIllinois.

***Indiana Systems***

On October 31, 1998,Insight LP and AT&T Broadband contributed certain of their cable televisionsystems located in Indiana and Northern Kentucky to form Insight Communicationsof Indiana, LLC (“Insight Indiana”)  inexchange for a 50% equity interest. On October 1, 1999, as part of a jointventure restructuring involving the Kentucky Systems (discussed below), InsightIndiana became a wholly owned subsidiary of Insight Midwest. Pursuant to theterms of their respective operating agreements, Insight Midwest and InsightIndiana will continue until October 1, 2011, unless extended or terminatedsooner by Insight LP and Comcast Cable.

***Kentucky Systems***

On October 1, 1999,Insight LP acquired a combined 50% interest in InterMedia Capital Partners VI,LP (the “IPVI Partnership”) from related parties of Blackstone CableAcquisition Company, LLC, InterMedia Capital Management VI, LLC and asubsidiary and related party of AT&T Broadband, for $341.5 million(inclusive of expenses). Insight Midwest assumed debt of $742.1 million (thetotal debt of the IPVI Partnership) in connection with this transaction.Concurrently with this acquisition, the Kentucky Systems were contributed toInsight Midwest. Pursuant to the terms of its operating agreement, InsightKentucky will continue until October 1, 2011, unless extended orterminated sooner by Insight LP and Comcast Cable.

F-11

----

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

**3.**   Insight Midwest (Continued)

***Illinois Systems***

Effective January 1,2001, Insight Midwest completed a series of transactions with Insight LP andAT&T Broadband for the acquisition of additional cable television systems,primarily located in the state of Illinois, valued at approximately $2.2billion (the “AT&T transactions”), inclusive of systems valued atapproximately $775.8 million, contributed by Insight LP.

In connection with the systems Insight LP purchasedfrom AT&T Broadband that included approximately 105,000 customers, werecorded the purchased systems’ respective assets and liabilities, includingdebt incurred in connection with the purchase, at their respective fair values.The purchase price of $393.5 million was allocated to the cable televisionassets acquired in relation to their fair values as increases in fixed assetsof $52.3 million and franchise costs of $341.2 million.

Concurrently with the completion of Insight LP’spurchase of systems from AT&T Broadband, Insight LP contributed such systems,along with all of its wholly owned systems serving approximately 175,000customers, to Insight Midwest. The total value of such contributed systems was$1.2 billion. The assets and liabilities, including debt assumed, of suchcontributed systems continue to be recorded at their respective carryingvalues, as these systems remain within the consolidated group. We recorded areduction in paid in capital of $113.8 million equal to 50% of thecarrying value of such net assets contributed to Insight Midwest, representingthe interest owned by AT&T Broadband (minority interest) through itsinvestment in Insight Midwest.

Concurrently, AT&T Broadband contributed directlyto Insight Midwest certain Illinois systems serving approximately 250,000customers. The total value of such contributed systems was $983.3 million.We recorded an addition to paid in capital and a reduction to our minority interestliability equal to $328.8 million, representing the value of net assetscontributed attributable to AT&T Broadband’s 50% interest in InsightMidwest. Insight Midwest recorded 100% of the assets and liabilities (includingdebt assumed of $306.2 million) of such systems contributed at their respectivefair values. The fair value of $983.3 million was allocated to the cabletelevision assets acquired in relation to their fair values as increases infixed assets of $116.1 million and franchise costs of $867.2 million.

Both Insight LP andAT&T Broadband contributed their respective systems to Insight Midwestsubject to an amount of indebtedness such that Insight Midwest remains equallyowned by Insight LP and AT&T Broadband. The total debt assumed by InsightMidwest of $654.5 million was financed with the proceeds from the MidwestHoldings Credit Facility. Upon completion of the transactions, Insight Indianachanged its name to Insight Communications Midwest.

***Ohio Systems***

On August 21, 1998, Insight LP and CoaxialCommunications of Central Ohio, Inc. (“Coaxial”) entered into acontribution agreement pursuant to which Coaxial contributed to Insight Ohiosubstantially all of the assets and liabilities of its cable television systemslocated in Columbus, Ohio.

On September 29, 2003, we retired all remainingOhio obligations, comprised of Senior Notes and Senior Discount Notes, throughour refinancing of the Insight Midwest Holdings Credit Facility. Insight Ohiois now a restricted subsidiary under the terms of our indentures. We recorded aloss of $10.9 million 

F-12

----

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

**3.**   Insight Midwest (Continued)

on theextinguishment of these obligations as a result of call premiums and thewrite-off of deferred financing costs.

Pursuant to the terms ofits operating agreement, Insight Ohio will continue until October 1, 2011,unless extended or terminated sooner by Insight LP and Comcast Cable.

**4.**   Investments

***Promptu***

Promptu (formerly AgileTVCorporation) is a privately owned company that develops voice navigationservices for television and mobile devices.

On May 11, 2005, wemade an investment in Promptu by purchasing shares of Promptu’s Series B1 preferredstock and common stock for an aggregate purchase price of(i) approximately $900,000 in cash and (ii) approximately $300,000 inthe form of conversion of an outstanding promissory note. We are accounting forour investment in Promptu under the cost method. As of December 31, 2006and 2005, our carrying value in this investment was $1.2 million.

***Oxygen Cable, LLC***

Oxygen Cable, LLC(“Oxygen”) is an independent cable television network with programming tailoredto the interests of women. On July 9, 2002 we entered into a carriageagreement with Oxygen, whereby we agreed to carry programming content fromOxygen. In October 2006, we agreed to extend the term of the carriageagreement through December 31, 2008. For the years ended December 31,2006, 2005 and 2004, we paid Oxygen approximately $1.2 million, $440,000and $0 for programming content. In addition, Oxygen paid us marketing supportfees, which we record as a reduction of marketing expense, of approximately$68,000, $40,000 and $440,000 for the years ended December 31, 2006, 2005and 2004.

Concurrently with thecarriage agreement, we entered into an equity issuance agreement with Oxygen.The agreement called for Oxygen to deliver to us shares having an aggregatefair market value as of December 31, 2005 of $3.8 million, and byDecember 1, 2006 deliver to us additional shares having an aggregate fairmarket value as of the December 31, 2005 valuation of $2.0 million.Pursuant to the equity issuance agreement, a portion of the monthly programmingfees represent our equity investment in Oxygen. In October 2006, inconnection with the extension of the carriage term, Oxygen issued shares to usof common stock representing a value as of December 31, 2005 of $5.8 millionin full satisfaction of its obligation to issue equity to us under the equityissuance agreement. As of December 31, 2006 and December 31, 2005,our carrying value in this investment was $5.8 million and $4.7 million.

F-13

----

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

**5.**   FixedAssets

| ** **                                       | ** ** | **December 31,**   | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2006**                | ** ** | **2005**              | ** ** |
| ** **                                       | ** ** | **(in thousands)** | ** ** |
| Land, buildings  and improvements                |       | $                       | 45,777     |                  | $          | 41,042 |   |
| Cable system  equipment                          |       | 2,676,108               |       | 2,398,364             |       |
| Furniture,  fixtures and office equipment        |       | 23,197                  |       | 21,352                |       |
|                                             |       | 2,745,082               |       | 2,460,758             |       |
| Less: accumulated  depreciation and amortization |       | (1,593,822              | )          | (1,330,053            | )          |
| Total fixed  assets, net                         |       | $                       | 1,151,260  |                  | $          | 1,130,705 |   |

 

Depreciation expense forthe years ended December 31, 2006, 2005 and 2004 was $265.0 million,$241.5 million and $233.8 million.

**6.**   Debt

| ** **                                      | ** ** | **December 31,**   | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2006**                | ** ** | **2005**              | ** ** |
| ** **                                      | ** ** | **(in thousands)** | ** ** |
| Insight Midwest  Holdings Credit Facility       |       | $                       | 2,286,000  |                  |       | $ | 1,404,250 |   |   |
| Insight Midwest 93¤4%  Senior Notes        |       | 200,000                 |       |                  | 385,000    |   |   |
| Insight Midwest 101¤2%  Senior Notes       |       | —                  |       |                  | 630,000    |   |   |
| Insight Inc. 121¤4%  Senior Discount Notes |       | 350,000                 |       |                  | 350,000    |   |   |
|                                            |       | 2,836,000               |       |                  | 2,769,250  |   |   |
| Net unamortized  discount/premium on notes      |       | (30,278                 | )          |                  | (6,950     | ) |   |
| Market value of  interest rate swaps            |       | —                  |       |                  | (2,382     | ) |   |
| Total debt                                      |       | $                       | 2,805,722  |                  |       | $ | 2,759,918 |   |   |

 

***Insight MidwestHoldings $2.445 Billion Credit Facility***

Insight Midwest Holdings, LLC, a wholly ownedsubsidiary of Insight Midwest, holds all of the outstanding equity of each ofour operating subsidiaries and, on October 6, 2006, entered into a new$2.445 billion senior secured credit facility. The facility is comprisedof a $385.0 million A Term Loan scheduled to mature on October 6,2013, a $1.8 billion B Term Loan scheduled to mature on April 6, 2014and $260.0 million in revolving commitments scheduled to terminate on October 6,2012. Insight Midwest Holdings used the proceeds to refinance its existingsenior credit facility and to redeem a portion of the outstanding Senior Notesof Insight Midwest (see below).

Obligations under the new credit facility are securedby a pledge of the outstanding equity interests of Insight Midwest Holdings andits subsidiaries. Borrowings under the credit facility will bear interest at abase rate selected by Insight Midwest Holdings plus an interest margin. Theapplicable interest margin may be increased or reduced based on Insight MidwestHoldings’ then current leverage ratio. The weighted average interest rate fordebt outstanding under the credit facility was 7.40% at December 31, 2006.The credit facility permits the division of assets and liabilities of InsightMidwest under the terms of its partnership agreement or an alternative divisionmutually agreed to by its partners subject to certain requirements. As of December 31,2006, we were in compliance with the credit facility’s covenant requirements.

F-14

----

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

**6.**   Debt (Continued)

On March 28, 2002, weloaned $100.0 million to Insight Midwest. The loan to Insight Midwestbears annual interest of 9%, compounded semi-annually, has a scheduled maturitydate of January 31, 2011 and permits prepayments. Insight Midwest Holdingsis permitted under the credit facility to make distributions to Insight Midwestfor the purpose of repaying our loan, including accrued interest, provided thatthere are no defaults existing under the credit facility. During the third andfourth quarters of 2006, Insight Midwest repaid a total of $15.5 millionof the loan balance. As of December 31, 2006 and December 31, 2005,the balance of the $100.0 million loan, including accrued interest, was$136.1 million and $139.1 million.

***Insight Midwest Senior Notes***

On October 1, 1999, simultaneously with theclosing of the purchase of Insight Kentucky, Insight Midwest completed a$200.0 million offering of 93¤4% senior notesdue in October 2009. Interest payments on these Senior Notes, whichcommenced on April 1, 2000, are payable semi-annually on April 1 and October 1.

On December 17, 2002,Insight Midwest completed a $185.0 million add-on offering under the 93¤4%Senior Notes indenture. Insight Midwest received proceeds of $176.9 million.The proceeds of this offering were used to repay a portion of the outstandingrevolving loans under the Midwest Holdings Credit Facility.

On November 6, 2000, Insight Midwest completed a$500.0 million offering of 101¤2% senior notesdue in November 2010. Insight Midwest received net proceeds of$486.0 million. The proceeds of the offering were used to repay a portionof the outstanding debt under the then existing Insight Indiana and InsightKentucky credit facilities. On December 9, 2003, Insight Midwest completeda $130.0 million add-on offering under the 101¤2% Senior Notesindenture. Insight Midwest received proceeds of $140.9 million. Theproceeds of this offering were used to repay a portion of the outstandingrevolving loans under the Midwest Holdings Credit Facility.

On November 7, 2006, Insight Midwest Holdingsused a portion of the proceeds from the new $2.445 billion senior securedcredit facilities to redeem all $630.0 million outstanding principal amount ofInsight Midwest’s 101⁄2% Senior Notes due November 1, 2010 at a redemptionprice of 103.5% of the principal amount and $185.0 million principalamount of Insight Midwest’s total outstanding $385.0 million of the 93⁄4%Senior Notes due October 1, 2009 at a redemption price of 101.625% of theprincipal amount redeemed, plus accrued and unpaid interest. We recorded$1.7 million in other expenses in these transactions.

The Insight Midwest SeniorNotes are general unsecured obligations and are subordinate to all otherliabilities of Insight Midwest, the amounts of which were $2.5 billion and$1.6 billion as of December 31, 2006 and 2005. The Insight MidwestSenior Notes contain certain financial and other debt covenants. As of December 31,2006, we were in compliance with all covenant requirements.

***Insight Inc. 12***1¤4% SeniorDiscount Notes

In June 2004, we repurchased $10.0 million faceamount of the 121¤4%Senior Discount Notes at the then accreted value of $8.1 million for$8.9 million, resulting in a loss of $843,000, which includes thewrite-off of unamortized deferred financing costs of $127,000.

F-15

----

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

**6.**   Debt (Continued)

No cash interest on the discount notes accrued priorto February 15, 2006. Thereafter, cash interest on the discount notesbegan to accrue and is payable on February 15 and August 15 of eachyear. The initial accreted value of the discount notes increased until February 15,2006 such that the accreted value equaled the revised outstanding principalamount of $350.0 million on December 31, 2006.

The Insight Inc. 121¤4%Senior Discount Notes contain certain financial and other debt covenants. As ofDecember 31, 2006, we were in compliance with the all covenantrequirements.

***Debt PrincipalPayments***

As of December 31, 2006, the remaining principalpayments required on our debt were as follows (in thousands):

| 2007       |   | $         | —    |   |
|------------|--------|-----------|-----------|--------|
| 2008       |   | 9,313     |      |
| 2009       |   | 243,062   |      |
| 2010       |   | 61,313    |      |
| 2011       |   | 430,563   |      |
| Thereafter |   | 2,091,749 |      |
| Total      |   | $         | 2,836,000 |   |

 

**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 in exchangefor fixed rate interest receipts, known as fair value hedges, over the life ofthe agreement without an exchange of the underlying principal amount. Thedifferential to be paid or received is accrued as interest rates change and isrecognized as an adjustment to interest expense related to the debt. Therelated amount payable or receivable is included in other non-currentliabilities or assets.

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

**Fair Value Hedges**

In July 2003, we entered into three interest rateswap agreements whereby we swapped fixed rates under a tranche of our 101¤2%senior notes due in December 2010 for variable rates equal to six-monthLIBOR, plus the applicable margin of approximately 8.3%, on $185.0 millionnotional value of debt. These 

F-16

----

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

**7.**   Derivative Instruments (Continued)

agreements expired on November 1,2005. We recorded a gain on these swaps of $2.1 million and $36,000 forthe years ended December 31, 2005 and 2004, which is included in otherincome (expense).

In December 2003, weentered into an interest rate swap agreement whereby we swapped fixed ratesunder a different tranche of our 101¤2% senior notesdue in December 2010 for variable rates equal to six-month LIBOR, plus theapplicable margin of approximately 5.9%, on $130.0 million notional value ofdebt. We terminated this agreement as of September 30, 2006 and the costof termination was included in interest expense. This swap was determined to beperfectly effective in hedging against fluctuations in the fair value of theunderlying debt. As such, changes in the fair value of the underlying debtequally offset changes in the value of the interest rate swap in ourconsolidated balance sheets. The cost of this swap if terminated as of December 31,2005 was $2.4 million and was recorded in other non-current liabilitiesand as an adjustment to the carrying value of debt.

**Cash Flow Hedges**

In October 2006,we entered into two interest rate swap agreements whereby we swapped floatingrates for:

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

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

At December 31, 2006we recorded $87,000 of interest receivable related to these agreements. At December 31,2006, the estimated fair value of these interest rate swap agreements wasapproximately $306,000.

**8.**   SupplementalCash Flow Information

Thefollowing amounts were paid in cash during the years ended December 31:

| ** **   | ** ** | **2006**                | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **   | ** ** | **(in thousands)** | ** ** |
| Interest     |       | $                       | 214,702    |     | $          | 188,216  |       | $ | 167,602 |   |
| Income taxes |       | 827                     |       | 266      |       | 271      |       |
|              |            |                         |            |          |            |          |            |  |  |  |

 

**9.**   IncomeTaxes

For the years ended December 31, 2006, 2005 and2004, we recorded a deferred tax benefit of $0.0, $0.0, and $0.7 million. Inaddition, for the tax years ended December 31, 2006, 2005 and 2004, werecorded a current tax expense related to state and local taxes of approximately$159,000, $500,000 and $500,000. Deferred income taxes represent the net taxeffects of temporary differences between the carrying amount of assets andliabilities for financial reporting purposes and amounts used for income taxpurposes.

F-17

----

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

**9.**   Income Taxes (Continued)

Significant components of our deferred tax assets andliabilities consisted of the following:

| ** **                       | ** ** | **December 31,**   | ** ** |
|----------------------------------|------------|-------------------------|------------|
| ** **                       | ** ** | **2006**                | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **(in thousands)** | ** ** |
| Deferred tax  assets:            |       |                    |       |   |   |
| Net operating loss carry-forward |       | $                       | 310,312    |   | $ | 287,773 |   |
| Unrealized loss on investments   |       | 7,134                   |       | 7,134 |   |
| Deferred interest expense        |       | 66,512                  |       | 62,504 |   |
| Capital loss                     |       | 8,497                   |       | 8,497 |   |
| Other                            |       | 176                     |       | 239 |   |
| Gross deferred  tax asset        |       | 392,631                 |       | 366,147 |   |
| Valuation  allowance             |       | (110,442                | )          | (284,490 | ) |
| Net deferred tax  asset          |       | 282,189                 |       | 81,657 |   |
| Deferred tax liabilities:        |       |                    |       |   |   |
| Depreciation and amortization    |       | 4,837                   |       | 4,825 |   |
| Partnership investment           |       | 277,352                 |       | 76,832 |   |
| Gross deferred  tax liability    |       | 282,189                 |       | 81,657 |   |
| Net deferred tax  liability      |       | $                       | —     |   | $ | — |   |

 

We have provided a full valuation allowance on ourdeferred tax asset, consisting primarily of net operating loss carryforwardsand deferred interest expense, due to the uncertainty regarding our realizationof such assets in the future. The valuation allowance decreased byapproximately $174.0 million for the year ended December 31, 2006.

The reconciliationof income tax expense computed at the U.S. federal statutory rate to income taxexpense for the years ended December 31, 2006, 2005 and 2004 were asfollows:

| ** **                                     | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                     | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                     | ** ** | **(in thousands)**                    | ** ** |
| Benefit at  federal statutory rate             |       | $                                          | (12,743    | ) | $ | (29,550 | ) | $ | (4,900 | ) |
| State and local  taxes                         |       | 159                                        |       | 500 |   | 500 |   |
| Expenses not  deductible for U.S. tax purposes |       | 23                                         |       | 33 |   | 36 |   |
| Minority interest                              |       | 1,883                                      |       | — |   | — |   |
| Disallowed  interest expense                   |       | 153                                        |       | 922 |   | 933 |   |
| Disallowed  compensation deduction             |       | 443                                        |       | 6,390 |   | 1,553 |   |
| Capitalized  privatization costs               |       | —                                     |       | 18,331 |   | — |   |
| Tax effect of  interest rate swaps             |       | —                                     |       | — |   | (701 | ) |
| Loss for which no  benefit was received        |       | 10,241                                     |       | 3,874 |   | 2,378 |   |
| Income tax  (benefit) provision                |       | $                                          | 159        |   | $ | 500 |   | $ | (201 | ) |

 

As of December 31, 2006, we had a net operatingloss carry-forward of approximately $757.0 million for U.S. federal incometax purposes. Such losses may be subject to certain annual limitations imposedby Section 382 of the Internal Revenue Code and similar state provisions.Our net operating loss began accumulating effective July 26, 1999, thedate of our initial public offering and will expire in the years 2019 through2026.

F-18

----

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

**9.**   Income Taxes (Continued)

In October 2004, theAmerican Jobs Creation Act of 2004 (the “Act”) became effective. The Act madechanges to the income tax laws that affected us beginning in 2005, the mostsignificant of which is a new deduction relating to qualifying domesticproduction activities. The deduction is equal to 3% of qualifying income for2005 and 2006, 6% in 2007 through 2009, and by 2010, 9% of such income. We didnot derive any benefits from this law change in 2006 or 2005.

**10.**   CapitalStock, Stock Option Plan and Other Stock Based Compensation

***2005 StockIncentive Plan***

On December 16, 2005,concurrently with the going-private merger, our Board of Directors adopted the2005 Stock Incentive Plan (the “2005 Plan”). Under the 2005 Plan the Board hasthe authority to grant awards of shares of its non-voting common stock toofficers, employees and directors. A total of 3,666,887 shares of Series ENon-Voting Common Stock and 100,000 shares of Series F Non-Voting CommonStock are authorized for issuance under the 2005 Plan. Shares granted under the2005 Plan require the execution of a subscription agreement.

As of December 31,2006, 3,536,247 shares of Series E Non-Voting Common Stock and 93,250shares of Series F Non-Voting Common Stock have been issued under the 2005Plan.

***Liquidation andDistribution Rights***

At theeffective time of the merger, our certificate of incorporation was amended andrestated in its entirety to provide for our capitalization, as the survivingcorporation following the merger, and other terms applicable to the post-mergerperiod. Among other provisions, our amended and restated certificate ofincorporation provides that upon any liquidation of the corporation, the cash and other assets ofthe corporation available for distribution would be distributed to ourstockholders as follows:

·       First,the assets will be distributed 100% to holders of the Series A VotingPreferred Stock and the Series B Voting Preferred Stock on a pro ratabasis until each share of the Series A Voting Preferred Stock and eachshare of the Series B Voting Preferred Stock shall have received anaggregate amount (including any amounts distributed on such shares prior toliquidation) equal to $0.01.

·       Second,remaining assets will be distributed 100% to holders of the Series CNon-Voting Preferred Stock and the Series D Non-Voting Preferred Stock ona pro rata basis until each share of the Series C Non-Voting PreferredStock and the Series D Non-Voting Preferred Stock shall have received anaggregate amount (including any amounts distributed on such shares prior toliquidation) equal to $11.75.

·       Third,remaining assets will be distributed 100% to holders of the Series CNon-Voting Preferred Stock and the Series D Non-Voting Preferred Stockand, as of and following such time as such distributions reach certain levelsthat cause participation levels for particular shares of the Series ENon-Voting Common Stock to be achieved, to holders of such shares of the Series ENon-Voting Common Stock for which participation levels have been achieved, inproportion to the number of such shares held by each holder, until the Series DNon-Voting Preferred Stock has received an internal rate of return on capitalinvested therein equal to 10% per annum, compounded annually.

F-19

----

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

**10.**   Capital Stock, Stock Option Plan and Other Stock BasedCompensation (Continued)

·       Fourth,95% of the remaining assets will be distributed to holders of the Series CNon-Voting Preferred Stock and the Series D Non-Voting Preferred Stockand, as of and following such time as such distributions reach certain levelsthat cause participation levels for particular shares of the Series ENon-Voting Common Stock to be achieved, to holders of such shares of the Series ENon-Voting Common Stock for which participation levels have been achieved, inproportion to the number of such shares held by each holder, and 5% to holdersof the Series F Non-Voting Common Stock in proportion to the number ofsuch shares held by each holder, until the Series D Non-Voting PreferredStock has received an internal rate of return on capital invested therein equalto 15% per annum, compounded annually.

·       Fifth,90% of the remaining assets will be distributed to holders of the Series CNon-Voting Preferred Stock and the Series D Non-Voting Preferred Stockand, as of and following such time as such distributions reach certain levelsthat cause participation levels for particular shares of the Series ENon-Voting Common Stock to be achieved, to holders of such shares of the Series ENon-Voting Common Stock for which participation levels have been achieved, inproportion to the number of such shares held by each holder, and 10% to holdersof the Series F Non-Voting Common Stock, in proportion to the number ofsuch shares held by each holder, until the Series D Non-Voting PreferredStock has received an internal rate of return on capital invested therein equalto 20% per annum, compounded annually.

·       Sixth,85% of the remaining assets will be distributed to holders of the Series CNon-Voting Preferred Stock and the Series D Non-Voting Preferred Stockand, as of and following such time as such distributions reach certain levelsthat cause participation levels for particular shares of the Series ENon-Voting Common Stock to be achieved, to holders of such shares of the Series ENon-Voting Common Stock for which participation levels have been achieved, inproportion to the number of such shares held by each holder, and 15% to holdersof the Series F Non-Voting Common Stock, in proportion to the number ofsuch shares held by each holder, until the Series D Non-Voting PreferredStock has received an internal rate of return on capital invested therein equalto 25% per annum, compounded annually.

·       Thereafter,75% of the remaining assets will be distributed to holders of the Series CNon-Voting Preferred Stock and the Series D Non-Voting Preferred Stockand, as of and following such time as such distributions reach certain levelsthat cause participation levels for particular shares of the Series ENon-Voting Common Stock to be achieved, to holders of such shares of the Series ENon-Voting Common Stock for which participation levels have been achieved, inproportion to the number of such shares held by each holder, and 25% to holdersof the Series F Non-Voting Common Stock in proportion to the number ofsuch shares held by each holder.

Distributions other thanupon liquidation will be made in accordance with the first three distributionpriorities above, but no cash or other assets may be distributed in excess ofthe amount that would complete the distributions contemplated by suchpriorities without the consent of a majority in interest of the holders of the Series FNon-Voting Common Stock. If such consent is granted, additional distributionswill continue to be made as specified in the third priority notwithstandingthat they would increase the internal rate of return beyond 10%, provided thatdistributions made thereafter upon a liquidation will be adjusted to cause theaggregate distributions to conform to the complete order of priority set forthabove.

F-20

----

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

**10.**   Capital Stock, Stock Option Plan and Other Stock BasedCompensation (Continued)

***1999 EquityIncentive Plan***

Our 1999 Equity IncentivePlan (the “Plan”) provided for the grant of incentive stock options,nonqualified stock options and restricted stock, as well as other awards suchas performance units, performance shares, deferred stock, dividend equivalentsand other stock-based awards. The Plan remains in effect, with only deferredstock units remaining outstanding.

***Stock Options***

As of the effective time ofthe merger, each option to purchase Insight common stock (whether vested orunvested) outstanding immediately prior to the effective time of the merger wascanceled in exchange for the right to receive a cash payment equal to theproduct of (A) the excess, if any, of (i) $11.75, over (ii) theper share exercise price of the stock option, multiplied by (B) the numberof shares of Insight common stock covered by the stock option.

We have excluded alldisclosures of option activity, options outstanding, options exercisable andweighted average exercise prices as we believe that the presentation of thisinformation would not be meaningful to the reader of the financial statementsbecause as of the effective time of the merger our common stock was no longer  publicly traded, all of our options werecanceled and other equity interests were converted into equity in the survivingcorporation.

Pursuant to SFAS No. 123,we had, prior to the merger, elected to continue to account for employeestock-based compensation under APB No. 25, using an intrinsic valueapproach to measure compensation expense. Accordingly, no compensation expensewas recognized for options granted to employees under the Plan since all suchoptions were granted at exercise prices equal to or greater than fair marketvalue on the date of grant.

The following tablesummarizes relevant information as to our reported results under the intrinsicvalue method of accounting for stock awards, with supplemental information, asif the fair value recognition provisions of SFAS No. 123 had been appliedto each of the years ended December 31, 2005 and 2004. These results takeinto effect the cancellation of all of our options in the going-privatetransaction. The following assumptions were used in determining the fairvalues: weighted average risk-free interest rate—4.05% (2005) and 4.10% (2004);stock price volatility of 50% in all years; dividend yield of 0% in all years;and expected option life of seven years in all years (in thousands):

| ** **                                                                                             | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| Net loss as  reported                                                                                  |       | $                                          | (84,929    | ) | $ | (13,799 | ) |
| Add: Stock-based  compensation as reported                                                             |       | 17,368                                     |       | 4,438 |   |
| Deduct:  Stock-based compensation determined under fair value based method for all  awards, net of tax |       | (42,954                                    | )          | (9,887 | ) |
| Adjusted net loss                                                                                      |       | $                                          | (110,515   | ) | $ | (19,248 | ) |

 

***Other Stock BasedCompensation***

**Restricted Stock**

In 2005 and 2004, weissued to employees 828,141 and 90,000 shares of common stock in the form ofrestricted stock. The restricted stock provided for vesting over a five-yearperiod and were issued in the 

F-21

----

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

**10.**   Capital Stock, Stock Option Plan and Other Stock Based Compensation (Continued)

name ofthe employee on the date of grant and held by us until the shares vested. Forthe years ended December 31, 2005 and 2004 we recorded stock basedcompensation expense of $3.1 million and $471,000, which was being amortized ona straight-line basis over the vesting term.

At the effective time ofthe merger, pursuant to the merger agreement, we waived the transferabilityrestrictions and/or the vesting conditions applicable to all restricted shares,and except for such shares that continued as shares of the survivingcorporation, such shares became entitled to receive $11.75 in cash per share.

**Deferred Stock Units**

In 2005, we issued toemployees 215,500 shares of deferred stock units. The deferred stock units vestover a five-year period and were issued in the name of the employee on the dateof grant. For the years ended December 31, 2006, 2005 and 2004, werecorded stock based compensation expense of $1.4 million, $786,000 and$726,000, which is being amortized on a straight-line basis over the vestingterm.

At the effective time ofthe merger, we adjusted each of the deferred stock unit agreements so that,upon delivery at the end of the deferral period, the holder of each deferredstock unit will be entitled to receive one share of Series C Non-VotingPreferred Stock of the surviving corporation for each share of Insight Class Acommon stock that the holder otherwise would have been entitled to receiveprior to the adjustment. We also amended the agreements evidencing the deferredstock units to provide that the deferral period will end on the earlier of i) achange of control or ii) upon the later to occur of December 16, 2010 orthe employee’s termination of employment. Any deferred stock units thatremained unvested at the effective time of the merger will continue to vestaccording to the schedule set forth in the applicable agreement evidencing thegrant of such deferred stock units.

**Employee Loans**

In October 1999 and April 2000,we made loans to certain of our employees that were used to satisfy theirindividual income tax withholding obligations resulting from their receipt ofshares in connection with our initial public offering. Between December 8and 31, 2004, we made an offer to each of the individuals with a loanobligation to (i) cancel such individual’s loan (including accruedinterest) upon the surrender to us of such individual’s pledged shares and (ii) issuerestricted shares of our Class A common stock as an incentive to surrenderthe pledged shares and, in the case of current employees, to encourage theemployee’s long-term future performance, and in the case of former employees,to reward such former employees for their past service to us.

As of December 31,2004, each of the individuals with a loan obligation accepted the offer andsurrendered an aggregate of 395,210 shares of common stock in repayment of $3.7million (based on the closing price of our Class A common stock on suchdate of $9.27 per share) of the aggregate $4.3 million of loans andaccrued interest. The remaining balance of the loans were cancelled andrecorded as compensation expense during the fourth quarter of 2004. On May 3,2005, following shareholder approval of an amendment to our 1999 EquityIncentive Plan to increase the number of shares available thereunder forissuance, the employees and former employees were issued an aggregate of825,641 shares of restricted stock referred to as “Loan Program ExchangeShares.”  The issuance of these LoanProgram Exchange Shares were recorded during the three months ended June 30,2005.

F-22

----

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

**10.**   CapitalStock, Stock Option Plan and Other Stock Based Compensation (Continued)

As of the effective timeof the merger, vesting conditions on the Loan Program Exchange Shares werewaived.  Holders of Loan Program ExchangeShares contributed a portion of their Loan Program Exchange Shares to InsightAcquisition Corp. and in connection with the merger received a correspondingnumber of shares of Series C non-voting preferred stock. The balance ofthe Loan Program Exchange Shares were converted into the right to receive themerger consideration of $11.75 per share.

**11.**   Financial Instruments

***Concentrations ofCredit Risk***

Financial instruments thatpotentially subject us to concentrations of credit risk consist principally ofcash and cash equivalents and accounts receivable. We maintain cash and cashequivalents with various financial institutions and we consider their creditworthiness as a factor in our decision to hold deposits at these institutions.Concentrations of credit risk with respect to accounts receivable are limiteddue to the large number of customers comprising our customer base.

***Fair Value***

We used the following methods and assumptions inestimating our fair value disclosures for financial instruments:

*Cashequivalents and accounts receivable:*   Thecarrying amount reported in the consolidated balance sheets for cashequivalents and accounts receivable approximates fair value.

*Debt:*   Thecarrying amounts of our borrowings under our credit arrangements approximatefair value as they bear interest at floating rates. The fair value of ourSenior Notes and Senior Discount Notes are based on quoted market prices andare listed in the following table:

| ** **                                    | ** ** | **Fair Value at  December 31,  2006** | ** ** | **Fair Value at  December 31,  2005** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                    | ** ** | **(in thousands)**                              | ** ** |
| Insight Midwest 93⁄4%  Senior Notes        |       |                                                 | $          | 203,000                                              |       |   |   | $ | 394,600 |   |   |
| Insight Midwest  101⁄2% Senior Notes       |       |                                                 | —     |                                                 |       |   | 659,100 |   |   |
| Insight Inc. 121⁄4% Senior  Discount Notes |       |                                                 | 366,625    |                                                 |       |   | 365,300 |   |   |

 

*Interest rate swapagreements:*   Interest rate swap agreements arerecorded in our financial statements at fair value. The fair value, (cost, ifterminated) of such swap agreements was $306,000 million and $(2.4) millionas of December 31, 2006 and 2005.

**12.**   Minorityand Preferred Interests

In May 2003, the FASB issued SFAS No. 150, *Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity*. This Statement establishes standardsfor how an issuer classifies and measures certain financial instruments withcharacteristics of both liabilities and equity. Financial instruments that fallwithin the scope of SFAS No. 150 that were previously classified as equityare now required to be classified as liabilities or, in some circumstances,assets.

F-23

----

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

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

As of December 31, 2006 and 2005 we had$245.6 million and $251.0 million of minority interest recorded inour balance sheet as temporary equity related to Insight Midwest. On October 29,2003, the FASB announced that it had deferred indefinitely the application ofSFAS No. 150 as it applies to minority interests related to limited lifeentities consolidated in parent company financial statements. Although thisapplication was deferred, the disclosure requirements of SFAS No. 150still apply and, therefore, companies are required to disclose the estimatedsettlement value of these non-controlling interests.

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

Depending on the nature ofa dissolution of the partnership, Insight Midwest will be required, inaccordance with the partnership agreement, to either distribute to ComcastCable some of its cable systems and liabilities equal to 50% of the net marketvalue of the partnership or, in the event of a liquidation, an amount in cashequal to 50% of the net proceeds received. As of December 31, 2006, weestimated the settlement value of this minority interest to be between$1.1 billion and $1.8 billion.

**13.**   RelatedParty Transactions

***Managed Systems***

On March 17, 2000, weentered into a management agreement with Comcast ofMontana/Indiana/Kentucky/Ohio (“Comcast”) (formerly known as InterMediaPartners Southeast), an affiliate of Comcast Cable, to provide managementservices to cable television systems owned by Comcast. Effective July 31,2004, the management agreement was terminated by mutual agreement. Werecognized management fees in connection with this agreement of $1.4 millionfor the year ended December 31, 2004.

***Programming***

We purchase the majorityof our programming through affiliates of Comcast Cable. Charges for suchprogramming, including a 11⁄2% administrative fee, were $181.6 million,$157.6 million and $151.0 million for the years ended December 31,2006, 2005 and 2004. As of December 31, 2006 and 2005, $30.7 millionand $29.9 million of accrued programming costs were due to affiliates ofComcast Cable. We believe that the programming rates charged through theseaffiliates are lower than those available from independent parties.

***Telephone Agreements***

Prior to December 31, 2004, to facilitatedelivery of telephone services, we were party to a joint operating agreementwith Comcast Cable that allowed Insight Midwest to deliver to its residentialcustomers, in certain of its service areas, local telephone service provided byComcast Cable. Under the terms of the agreement, Insight Midwest leased certaincapacity on our local network to Comcast Cable. Revenue earned from leasednetwork capacity used in the provision of telephone services was $8.5 millionfor the year ended December 31, 2004. In addition, Insight Midwestreceived additional payments related 

F-24

----

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

**13.**   Related Party Transactions (Continued)

to certain services andsupport, including installations, marketing and billing. Fee revenue earned inconnection with installations was deferred and amortized over the expected terma telephone customer was expected to maintain their telephone service, thenestimated to be three years. Marketing and billing support revenue wasrecognized in the period such services were performed.

On December 31, 2004,we acquired the telephone business conducted by Comcast Cable in the marketsserved under our joint operating agreement and terminated the joint operatingagreement. Subsequent to December 31, 2004, we no longer earn revenue fromthe services described above, but rather we record the continued amortizationof installation fee revenue and revenues earned directly from our customers forproviding telephone and telephone related services. Comcast Cable paid usapproximately $13 million in cash and transferred to us certain assets andliabilities related to the telephone business. We recorded an extraordinarygain of $15.6 million in connection with the acquisition and settledamounts with Comcast Cable under our pre-existing joint operating agreement for$2.6 million, representing the net current liabilities owed to Comcast Cable.The acquisition was accounted for under the purchase method of accounting.

***Advertising Services***

In October 1999, tofacilitate the administration of our advertising services in our KentuckySystems, we entered into an agreement with Comcast Cable, which provided forthis affiliate to perform all of our Kentucky advertising sales and relatedadministrative services. Effective September 26, 2004, this agreement wasterminated by mutual agreement. We earned advertising revenues from thisaffiliate of $13.5 million for the year ended December 31, 2004.

***Consulting Services***

On December 16, 2005,in conjunction with the merger, we entered in an agreement with affiliates ofThe Carlyle Group to render management, consulting, acquisition and financialservices to us for an annual fee of $1.5 million, payable quarterly. For theyears ended December 31, 2006 and 2005 we expensed $1.5 million and$62,000 related to these fees.

**14.**   401(k) Plan

We sponsor a savings andinvestment 401(k) Plan for the benefit of our employees. All employees whohave attained age 18 are eligible to participate in the plan. We make matchingcontributions equal to 100% of the employee’s contribution excluding any suchcontributions in excess of 5% of the employee’s wages. Effective December 20,2005, 100% of our matching contribution to the plan is in the form of cash. Forthe years ended December 31, 2006, 2005 and 2004, we matched contributionsof $4.2 million, $4.2 million and $3.6 million.

**15.**   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 

F-25

----

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

**15.**   Commitments and Contingencies (Continued)

numerousvariables, including number and type of customers, we have not recorded anyliabilities with respect to such contracts.

***Litigation***

Between March 7 and March 15, 2005, fivepurported class action lawsuits were filed in the Delaware Court of Chancerynaming, among others, Insight Communications Company, Inc. and each of itsdirectors as defendants. The cases were subsequently consolidated under thecaption*In Re Insight Communications Company, Inc.Shareholders Litigation* (Civil Action No. 1154-N), and,on April 11, 2005, a Consolidated Amended Complaint (“Complaint”) wasfiled. The Complaint alleged, among other things, that the defendant directorsbreached their fiduciary duties to our stockholders in connection with aproposal from Sidney R. Knafel, Michael Willner, together with certainrelated and other parties, and The Carlyle Group to acquire all of ourthen-outstanding, publicly-held Class A common stock.

On July 28, 2005, the parties to the actionentered into a memorandum of understanding setting forth the terms of aproposed settlement of the litigation, and, on May 11, 2006, filed a stipulationof settlement with the Court. Kim D. Kelly, a former employee and officer,subsequently objected to the proposed settlement. In a separate action, filed April 14,2006, Ms. Kelly sought a statutory appraisal of, among other things,shares of our Class A common stock she held prior to the going-privatemerger, and on August 3, 2006, Ms. Kelly sent our board of directorsa claim letter alleging that the company and certain affiliated entitiesbreached certain purported commitments relating to certain equity interests andoptions that she held. On November 28, 2006, Insight and certain officersand affiliates entered into a settlement agreement with Ms. Kelly. Underthe agreement, in consideration of certain covenants and agreements, includingthe exchange of general releases, Ms. Kelly agreed to withdraw herappraisal petition and objection to the settlement of the class actionlitigation.

On December 1, 2006, the Court ruled that (i) theaction should be certified as a class action; (ii) the settlement of thelitigation be approved as fair, reasonable and adequate; (iii) plaintiffs’request for attorneys’ fees and expenses of $1.2 million should begranted; and (iv) the withdrawn objection was not meritorious. On the sameday, the Court also entered an order and final judgment, which, among otherthings, approved the settlement of the litigation, dismissed the litigationwith prejudice, and released the claims asserted in the litigation. The timefor appeal of the Court’s decision has expired.

In April 2005, Acacia Media TechnologiesCorporation filed a lawsuit against us and others in the United States DistrictCourt for the Southern District of New York. The complaint alleges, among otherthings, infringement of certain United States patents that allegedly relate tosystems and methods for transmitting and/or receiving digital audio and videocontent. The complaint seeks injunctive relief and damages in an unspecifiedamount. In the event that a court ultimately determines that we infringe on anyof the patents, we may be subject to substantial damages, which may includetreble damages and/or an injunction that could require us to materially modifycertain products and services that we currently offer to subscribers. Webelieve that the claims are without merit and intend to defend the actionvigorously. The final disposition of this claim is not expected to have amaterial adverse effect on our consolidated financial position but couldpossibly be material to our consolidated results of operations of any oneperiod. Further, at this time the outcome of the litigation is impossible topredict, and no assurance can be given that any adverse outcome would not bematerial to our consolidated financial position.

F-26

----

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

**15.**   Commitments and Contingencies (Continued)

We are subject to variouslegal proceedings that arise in the ordinary course of business. While it isimpossible to determine with certainty the ultimate outcome of these matters,it is our opinion that the resolution of these matters will not have a materialadverse affect on our consolidated financial condition.

***Lease Agreements***

Welease equipment and office space under various operating lease arrangementsexpiring through February 24, 2101. Future minimum rental paymentsrequired under such operating leases as of December 31, 2006 were (inthousands):

| 2007       |   | $     | 4,381  |   |
|------------|--------|-------|--------|--------|
| 2008       |   | 3,616 |   |
| 2009       |   | 2,603 |   |
| 2010       |   | 682   |   |
| 2011       |   | 221   |   |
| Thereafter |   | 1,218 |   |
| Total      |   | $     | 12,721 |   |

 

Rental expense onoperating leases for the years ended December 31, 2006, 2005 and 2004 was$7.1 million, $6.8 million and $5.6 million.

**16.**   QuarterlySelected Financial Data (Unaudited)

| ** **       | ** ** | ** **                           | ** ** | **Three months ended** | ** ** | **Year ended** | ** ** |
|------------------|------------|--------------------------------------|------------|----------------------------------|------------|---------------------|------------|
| **2006**         | ** ** | ** **                           | ** ** | **March 31**                | ** ** | **June 30**    | ** ** | **September 30** | ** ** | **December 31** | ** ** | **December 31, 2006** | ** ** |
| ** **       | ** ** | **(dollars in thousands)** | ** ** |
| Revenue          |       | $                                    | 301,281    |                             | $          | 311,717             |       |   | $ | 318,105 |   |   |   | $ | 331,454 |   |   |   | $ | 1,262,557 |   |   |
| Operating income |       | 47,389                               |       | 49,894                           |       |                | 55,811     |   |   |   | 65,458 |   |   |   | 218,552 |   |   |
| Net loss         |       | (10,819                              | )          | (8,895                           | )          |                | (7,728     | ) |   |   | (9,124 | ) |   |   | (36,566 | ) |   |
|                  |            |                                      |            |                                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **               | ** ** | ** ** | ** ** | **Three months ended** | ** ** | **Year ended** | ** ** |
|--------------------------|------------|------------|------------|----------------------------------|------------|---------------------|------------|
| **2005**                 | ** ** | ** ** | ** ** | **March 31**                | ** ** | **June 30**    | ** ** | **September 30** | ** ** | **December 31** | ** ** | **December 31, 2005** | ** ** |
| Revenue                  |       | $          | 269,327    |                             | $          | 279,311             |       |   | $ | 278,986 |   |   |   | $ | 290,057 |   |   |   | $ | 1,117,681 |   |   |
| Operating income  (loss) |       | 44,710     |       | 59,611                           |       |                | 51,078     |   |   |   | (13,820 | ) |   |   | 141,579 |   |   |
| Net loss                 |       | (8,342     | )          | (728                             | )          |                | (7,375     | ) |   |   | (68,484 | ) |   |   | (84,929 | ) |   |
|                          |            |            |            |                                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**17.**   SubsequentEvent

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

F-27

----

**SIGNATURES**

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, Insight CommunicationsCompany, Inc. (the “Registrant”) has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

|                      | **Insight Communications Company, Inc.** |
|----------------------|-----------------------------------------------|
| Date: March 27, 2007 | By:                                           |   | /s/ MICHAEL S.  WILLNER |
| ** **           |                                          | ** ** | Michael  S. Willner, Vice Chairman |
| ** **           |                                          | ** ** | and Chief Executive  Officer |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated:

|                                  | **Name**     | ** **                                             | ** **   | ** **               | **Title**    | ** ** | ** ** | ** ** | **Date** | ** ** | ** ** |
|----------------------------------|--------------|--------------------------------------------------------|--------------|--------------------------|--------------|------------|------------|------------|----------|------------|------------|
| /s/  SIDNEY R. KNAFEL            |         | Chairman of the Board                                  | *** *** | **March 27,  2007** | *** *** |
| **Sidney  R. Knafel**            | *** *** |                                                   | *** *** | ** **               | *** *** |
| **/s/ MICHAEL S.  WILLNER**      | *** *** | Vice Chairman, Chief  Executive                        | *** *** | **March 27,  2007** | *** *** |
| **Michael S. Willner**           | *** *** | Officer and Director (Principal Executive Officer)     | *** *** | ** **               | *** *** |
| **/s/ DINNI JAIN**               | *** *** | President, Chief  Operating                            |         | **March 27,  2007** |         |
| Dinni Jain                       |         | Officer and Director                                   |         | ** **               |         |
| /s/ JOHN ABBOT                   |         | Executive Vice President  and Chief                    |         | March 27, 2007      |         |
| John  Abbot                      |         | Financial  Officer (Principal  Financial Officer) |         |                     |         |
| /s/ DANIEL MANNINO               |         | Senior Vice  President and Controller                  |         | March 27, 2007      |         |
| Daniel Mannino                   |         | (Principal Accounting Officer)                         |         |                     |         |
| /s/  JAMES A. ATTWOOD, JR.  |         | Director                                               | *** *** | **March 27,  2007** | *** *** |
| **James A. Attwood, Jr.**   | *** *** |                                                   | *** *** | ** **               | *** *** |
| **/s/ MICHAEL J.  CONNELLY**     | *** *** | Director                                               |         | **March 27,  2007** |         |
| Michael J.  Connelly             |         |                                                   |         | ** **               |         |
| /s/  STEPHEN C. GRAY             |         | Director                                               |         | **March 27,  2007** |         |
| Stephen C. Gray                  |         |                                                   |         | ** **               |         |
| /s/ AMOS  B. HOSTETTER, JR. |         | Director                                               |         | **March 27,  2007** |         |
| Amos B.  Hostetter, Jr.     |         |                                                   |         | ** **               |         |
| /s/  WILLIAM E. KENNARD          |         | Director                                               |         | **March 27,  2007** |         |
| William E.  Kennard              |         |                                                   |         | ** **               |         |
| /s/ GERALDINE B. LAYBOURNE       |         | Director                                               |         | March 27, 2007      |         |
| Geraldine B. Laybourne           |         |                                                   |         |                     |         |

 

 

----