**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-K/A**

**AmendmentNo. 1 to**

**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 AvenueNew 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 ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes  o  No  x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Exchange Act. Yes  x  No  o

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

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

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’s knowledge,in definitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K. NotApplicable

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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

 

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

State the aggregate marketvalue of the common equity held by non-affiliates of the registrant. Not Applicable

Indicatethe number of shares outstanding of the registrant’s common stock. NotApplicable

 

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**Explanatory Note**

We are filing this Amendment No. 1 to our annualreport on Form 10-K for the year ended December 31, 2006,originally filed with the Securities and Exchange Commission on March 27,2007, to amend and restate our consolidated financial statements for each ofthe years ended December 31, 2006, 2005 and 2004 and our selectedfinancial data for the years ended December 31, 2003 and 2002.

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

Our prior accounting treatment resulted in anunderstatement of deferred income tax expense, the related deferred taxliability and goodwill. This resulted in our understatement of net loss in anaggregate amount of $23.2 million for the three years ended December 31,2006, 2005 and 2004. In our audited financial statements for years prior to2004, the correction resulted in an aggregate increase in net loss of$73.9 million. In addition, goodwill should have been higher by $115.6million as of December 31, 2006 and 2005. The correction had no effect onour revenues, operating income, cash flows or liquidity for any period.

A summary of the effects of this change on ourconsolidated balance sheets as of December 31, 2006 and 2005, and ourconsolidated statements of operations and cash flows for the three years endedin the period ended December 31, 2006 is included in Note 2, “Restatementof Consolidated Financial Statements,” located in the notes to our consolidatedfinancial statements elsewhere in this annual report amendment.

The following informationhas been updated to give effect to the restatement. In accordance with Rule 12b-15under the Securities Exchange Act of 1934, as amended, the complete text ofeach amended item is set forth in this report, even though much of thedisclosure in the restated items has not changed. The disclosure in this annualreport amendment supersedes and replaces the corresponding disclosures in ourannual report on Form 10-K for the year ended December 31,2006.

**PART II**

| **Item 6.**   | ***Selected Financial Data***                                                                     |
|---------------|---------------------------------------------------------------------------------------------------|
| **Item 7.**   | ***Management’s Discussion and  Analysis of Financial Condition and Results of Operations*** |
| **Item 8.**   | ***Financial Statements and  Supplementary Data***                                                |
| **Item  9A.** | ***Controls and Procedures***                                                                     |

 

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**PART IV**

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

**PART II**

**Item 6.**                        SelectedFinancial Data

Thefollowing selected historical financial and other data has been adjusted toreflect the restatement of our financial results to correct the previously-reportedincome tax provision, which is more fully described in the “Explanatory Note”on page 1 and Note 2, “Restatement of Consolidated Financial Statements,”located in the notes to our consolidated financial statements elsewhere in thisannual report amendment. 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, (As restated)** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                                                                  | ** ** | **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 | ) |
| Provision for income taxes(2)                                                                                                               |       | (7,796                                                             | )          | (8,147 | ) | (7,756 | ) | (5,296 | ) | (60,682 | ) |
| Loss before extraordinary item and cumulative effect  of change in accounting principle                                                     |       | (44,203                                                            | )          | (92,576 | ) | (37,383 | ) | (22,189 | ) | (108,173 | ) |
| Extraordinary item, net of tax                                                                                                              |       | —                                                             |       | — |   | 15,627 |   | — |   | — |   |
| Loss before preferred interests                                                                                                             |       | (44,203                                                            | )          | (92,576 | ) | (21,756 | ) | (22,189 | ) | (108,173 | ) |
| Accrual of preferred interests(3)                                                                                                           |       | —                                                             |       | — |   | — |   | (10,353 | ) | (20,107 | ) |
| Net loss                                                                                                                                    |       | $                                                                  | (44,203    | ) | $ | (92,576 | ) | $ | (21,756 | ) | $ | (32,542 | ) | $ | (128,280 | ) |

 

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| ** **                                          | ** ** | **Year Ended December 31, (As restated)** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **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                                        |       | 3,813,656                                                          |       | 3,780,716 |   | 3,885,424 |   | 3,925,207 |   | 3,898,320 |   |
| Total debt, including preferred interests(3)        |       | 2,805,722                                                          |       | 2,759,918 |   | 2,807,563 |   | 2,848,291 |   | 2,772,824 |   |
| Stockholders’  equity                          |       | 348,607                                                            |       | 391,086 |   | 463,998 |   | 483,264 |   | 521,198 |   |

 

| ** **                         | ** ** | **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(4)                    |       | 569,400                                         |       | 854,400 |   | 1,041,400 |   | 2,465,200 |   |
| Basic customers(5)                 |       | 285,700                                         |       | 436,100 |   | 601,000 |   | 1,322,800 |   |
| Basic penetration(6)               |       | 50.2                                            | %          | 51.0 | % | 57.7 | % | 53.7 | % |
| Digital ready homes(7)             |       | 274,300                                         |       | 413,600 |   | 571,700 |   | 1,259,600 |   |
| Digital customers(8)               |       | 135,700                                         |       | 230,300 |   | 255,600 |   | 621,600 |   |
| Digital penetration(9)             |       | 49.5                                            | %          | 55.7 | % | 44.7 | % | 49.3 | % |
| Premium units(10)                  |       | 139,600                                         |       | 181,400 |   | 208,300 |   | 529,300 |   |
| Premium penetration(11)            |       | 48.9                                            | %          | 41.6 | % | 34.7 | % | 40.0 | % |
| High-Speed  Internet customers(12) |       | 134,000                                         |       | 210,600 |   | 266,600 |   | 611,200 |   |

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       (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) In 2002, $57.9 million of theprovision for income taxes was attributable to the adoption of SFASNo. 142 on January 1, 2002; see “Explanatory Note” on page 1 ofthis annual report amendment.

       (3) The preferred interests were converted to common interests as of September 26,2003.

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

       (5) 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.

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

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

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       (8) Customers with a digital converter box.

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

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

(11) 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.

(12) Customers receiving high-speed Internet service.

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

**Introduction**

The following discussion and analysis has been revisedonly to reflect and update disclosures for the restatement of historicalfinancial results, as more fully described in the “Explanatory Note” on page 1and Note 2, “Restatement of Consolidated Financial Statements,” located in thenotes to our consolidated financial statements elsewhere in this annual reportamendment. Accordingly, the only changes are to the Net loss and Provision forincome taxes line items in the table under “Reconciliation of Net Loss toAdjusted Operating Income before Depreciation and Amortization” and additionaldisclosure on our income tax provision.

Our revenues are earnedfrom 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.

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. 

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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, (As restated)** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **2006**                                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                          | ** ** | **(in thousands)**                                            | ** ** |
| Net loss                                                            |       | $                                                                  | (44,203    | ) | $ | (92,576 | ) | $ | (21,756 | ) |
| Extraordinary item, net of tax                                      |       | —                                                             |       | — |   | (15,627 | ) |
| Loss before extraordinary item                                      |       | (44,203                                                            | )          | (92,576 | ) | (37,383 | ) |
| Provision for  income taxes                                         |       | 7,796                                                              |       | 8,147 |   | 7,756 |   |
| 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 |   |

 

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

Thefollowing table provides a reconciliation from net cash provided by operatingactivities to Free Cash Flow. In addition, the table provides the componentsfrom net cash provided by operating activities to operating income for purposesof the discussions that follow.

| ** **                                                      | ** ** | **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 |   |

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(1)          Changesin working capital accounts are based on the net cash changes in current assetsand current liabilities, excluding changes related to interest and taxes andother non-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.

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

| ** **           | ** ** | **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.

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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 121¤4% Senior Discount Notes.

The provision for income taxes relates to franchisecosts which are amortized as an expense for tax purposes over 15 years but hasnot been amortized for financial reporting purposes. The $351,000 decreaserelates to the change in the tax amortization of franchise costs and non-incomebased state taxes.

***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.

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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.

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 

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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.

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%, dueto higher interest rates, which averaged 8.2% for the year ended December 31, 2005, as compared to7.1% for the year ended December 31,2004, and an increase in the accreted value of the 121¤4% Senior Discount Notes.

The provision for incometaxes relates to franchise costs which are amortized as an expense for taxpurposes over 15 years but has not been amortized for financial reportingpurposes. The $391,000 increase relates to the change in the tax amortizationof franchise costs and non-income based state taxes.

**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.

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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 the transaction-relatedcosts in 2005 and the timing of cash receipts and payments related to ourworking capital accounts. This increase was partially offset by the decrease inamortization of the note discount because cash interest payments on the 121¤4% notes commenced in February 2006.

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.This source of cash was due to the financing of our $2.445 billion seniorsecured credit facility during the fourth quarter of 2006.

Free Cash Flow forthe year ended December 31, 2006 totaled ($22.4) million, compared to $13.5 millionfor the year ended December 31, 2005. This decrease in Free Cash Flow fromthe 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 121¤4% SeniorDiscount Notes and an increase 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.

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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.The proceeds of this offering were used to repay a portion of the outstandingrevolving loans under the Insight Midwest Holdings credit facility. All ofthese 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 Notesdue November 1, 2010 at a redemption price of 103.5% of the principalamount and $185.0 million principal amount of Insight Midwest’s totaloutstanding $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 $1.7million 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%.

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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 93¤4% SeniorNotes, (b) repay the 121¤4%senior discount notes, (c) repay the $100.0 million intercompany note, (d) prepaythe Term Loans on a pro rata basis, (e) repay other debt and/or (f) forgeneral corporate purposes. After the occurrence of the 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.

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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 asignificant impact on the results we report in our consolidated financialstatements. We evaluate our estimates and judgments on an on-going basis. Webase our estimates on historical experience and on assumptions that we believeto be reasonable under the circumstances. Our experience and assumptions formthe basis for our judgments about the carrying value of assets and liabilitiesthat are not readily apparent from other sources. Actual results may vary fromwhat we anticipate and different assumptions or estimates about the futurecould change our reported results. We believe the following accounting policiesare the 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 

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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 the straight-linemethod over estimated useful lives ranging from 2 to 30 years. Leaseholdimprovements are amortized using the straight-line method over the shorter ofthe remaining terms of the leases or the estimated lives of the improvements.

Refer to Note 3 to ourconsolidated financial statements included in Item 8 for a discussion of ouraccounting policies with respect to these and other items.

**Item 8.**                        FinancialStatements and Supplementary Data

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

**Item 9A.**                Controlsand Procedures

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

In connection with the restatement of our financialresults, which is more fully described in the “Explanatory Note” on page 1of this report and in Note 2 to our consolidated financial statements, underthe supervision and with the participation of our management, including ourChief Executive Officer and Chief Financial Officer, we reevaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of December 31, 2006. Basedupon that reevaluation and particularly in light of the restatement of ourfinancial results, we identified a material weakness in our internal controlover financial reporting with respect to accounting for income taxes relatingto the treatment of tax deductible franchise costs in the determination of thedeferred tax asset valuation allowance.

Solely as a result of this material weakness, weconcluded that our disclosure controls and procedures were not effective as of December 31,2006. Management has discussed the circumstances leading up to the restatementwith the Audit Committee of our board of directors, and management and theAudit Committee have concluded that the error was inadvertent andunintentional.

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

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**Management Reporton Internal Control Over Financial Reporting**

Our management is responsible for establishing andmaintaining adequate internal control over financial reporting. 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. Internal control over financial reportingincludes those policies and procedures that: (i) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the company’s assets; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of the financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures are being made onlywith proper authorizations; and (iii) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use ordisposition of the company’s assets that could have a material effect on thefinancial statements.

With the participation of the Chief Executive Officerand Chief Financial Officer, our management conducted an evaluation of theeffectiveness of our internal control over financial reporting as of December 31,2006, based on the framework and criteria established in InternalControl-Integrated Framework, issued by the Committee of SponsoringOrganizations of the Treadway Commission.

A material weakness is defined as a controldeficiency, or combination of control deficiencies, that results in a more thanremote likelihood that a material misstatement of the annual or interimfinancial statements will not be prevented or detected. As of December 31,2006, we did not maintain effective controls over the determination of theprovision for income taxes and related deferred income tax accounts.Specifically, we did not maintain effective controls as to the completeness andaccuracy of the income tax provision and related deferred income tax accountswith respect to differences between the income tax basis and the financialreporting basis of our assets and liabilities. This deficiency resulted in thisamendment to our annual report in order to restate the consolidated financialstatements for the years ended December 31, 2006, 2005 and 2004 and torestate selected financial information for the years ended December 31,2003 and 2002 and each of the quarters in 2006 and 2005. Accordingly,management has determined that this control deficiency constitutes a materialweakness.

In our annual report on Form 10-K for theyear ended December 31, 2006, management concluded that our internalcontrol over financial reporting was effective as of December 31, 2006. Solelyas a result of this material weakness, management has revised its earlierassessment and has now concluded that our internal control over financialreporting was not effective as of December 31, 2006.

Our independent auditors have issued an audit reporton our revised assessment of our internal control over financial reporting asof December 31, 2006. This report appears on page F-1.

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

17

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**PART IV**

**Item 15.**                 Exhibitsand 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/A, 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.

**INDEXTO CONSOLIDATED 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-3      |   |
| Insight Communications  Company, Inc.   Consolidated Balance Sheets as of December 31, 2006 and 2005 (restated)                                                           |       | F-4      |   |
| Insight Communications  Company, Inc.   Consolidated Statements of Operations for the years ended December 31,  2006, 2005  and 2004 (restated)                           |       | F-5      |   |
| Insight Communications  Company, Inc.   Consolidated Statements of Changes in Stockholders’ Equity for the years  ended  December 31, 2006, 2005 and 2004 (restated) |       | F-6      |   |
| Insight Communications  Company, Inc.   Consolidated Statements of Cash Flows for the years ended December 31,  2006, 2005  and 2004 (restated)                           |       | F-7      |   |
| Insight  Communications Company, Inc.   Notes to Consolidated Financial Statements                                                                                             |       | F-8      |   |

 

**(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)                                                               |

18

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| 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)                                                                                                                                                                                                                                                                                                                                                                                           |

19

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| 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 byreference.

       (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.

20

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(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) Filed as an exhibit to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 1999 and incorporated herein by reference.

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

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

(14) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Qfor the quarterly period ended June 30, 2004 and incorporated herein byreference.

(15) Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Qfor the quarterly period ended September 30, 2004 and incorporated hereinby reference.

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

21

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**Report ofIndependent Registered Public Accounting Firm**

The Stockholders and Board of DirectorsInsight Communications Company, Inc.

We have audited management’s assessment, included inthe accompanying Management Report on Internal Control Over Financial Reporting(As Restated) appearing under Item 9A, that Insight Communications Company, Inc.(the “Company”) did not maintain effective internal control over financialreporting as of December 31, 2006, because of the effect of the Company’smaterial weakness relating to its internal controls over the accounting forincome taxes, 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 is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting.Our responsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the company’s internal control over financialreporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

In our report dated March 6, 2007, we expressedan unqualified opinion on management’s previous assessment that InsightCommunications Company, Inc. maintained effective internal control overfinancial reporting as of December 31, 2006 and an unqualified opinionthat Insight Communications Company, Inc. maintained, in all materialrespects, effective internal control over financial reporting as of December 31,2006, based upon the COSO criteria. Management has subsequently determined thata deficiency in controls relating to the accounting for income taxes existed asof the previous assessment date, and has further concluded that such deficiencyrepresented a material weakness as of December 31, 2006. As a result,management revised its assessment, as presented in the accompanying ManagementReport on Internal Control Over Financial Reporting (As Restated) appearingunder Item 9A, to conclude that the Company’s internal control over financialreporting was not effective as of December 31, 2006. Accordingly, ourpresent opinion on the effectiveness of the Company’s internal control over 

F-1

----

financial reporting as of December 31,2006, as expressed herein, is different from that expressed in our previousreport.

A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. The following material weaknesshas been identified and included in management’s assessment: the Company identifieda material weakness related to its internal control over the determination ofthe provision for income taxes and related deferred income tax accounts withrespect to differences between the income tax basis and the financial reportingbasis of its assets and liabilities. The material weakness resulted in therestatement of the Company’s consolidated financial statements as of December 31,2006 and 2005, and for each of the three years in the period ended December 31,2006. This material weakness was considered in determining the nature, timing,and extent of audit tests applied in our audit of the 2006 consolidatedfinancial statements and this report does not affect our report dated March 6,2007, except for Note 2, as to which the date is August 14, 2007, on thoseconsolidated financial statements (as restated).

In our opinion, management’s assessment that InsightCommunications Company, Inc. did not maintain effective internal controlover financial reporting as of December 31, 2006, is fairly stated, in allmaterial respects, based on the COSO criteria. Also, in our opinion, because ofthe effect of the material weakness described above on the achievement of theobjectives of the control criteria, Insight Communications Company, Inc.has not maintained effective internal control over financial reporting as of December 31,2006, based on the COSO criteria.

We do not express anopinion or any other form of assurance on management’s statement referring tothe remediation of the material weakness.
|                                          | /s/ Ernst &  Young LLP |
|------------------------------------------|----------------------------|
| New York, New  York                      |                       |
| March 6,  2007, except for the      |                       |
| effects of the  material weakness        |                       |
| described in the  sixth paragraph        |                       |
| of this report,  as to which the date is |                       |
| August 14,  2007                    |                       |

 

F-2

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**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 theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards 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 accompanying consolidated financial statements have beenrestated to correct the Company’s accounting for the valuation allowancerelated to deferred tax assets.

As discussed in Note 3 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, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of Insight Communications Company, Inc.’sinternal control over financial reporting as of December 31, 2006, basedon criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our reportdated March 6, 2007, except for the effects of the material weaknessdescribed in the sixth paragraph of that report, as to which the date is August 14,2007, expressed an unqualified opinion on management’s assessment and anadverse opinion on the effectiveness of internal control over financialreporting.
|                                 | /s/ Ernst &  Young LLP |
|---------------------------------|----------------------------|
| New York, New  York             |                       |
| March 6,  2007, except for |                       |
| Note 2 as to  which the date is |                       |
| August 14,  2007           |                       |

 

F-3

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

| ** **                                                                                                                            | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                            | ** ** | **As restated**        | ** ** | **As restated**        | ** ** |
| **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                                                                                                                              |       |                        | 187,982    | * *                    |       |   | 187,982 | * * |   |
| 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                                                                                                                          |       |                        | $          | 3,813,656                   | * *   |   |   | $ | 3,780,716 | * * |   |
| **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 | * * |   |
| Deferred tax  liability                                                                                                               |       |                        | 212,648    | * *                    |       |   | 205,011 | * * |   |
| Other non-current  liabilities                                                                                                        |       |                        | —     | * *                    |       |   | 2,382 | * * |   |
| Minority interest                                                                                                                     |       |                        | 245,634    | * *                    |       |   | 251,011 | * * |   |
| Commitments and Contingencies (Note 16)                                                                                               |       |                        |       | * *                    |       |   |   | * * |   |
| 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                                                                                                                  |       |                        | (478,861   | )                           |       |   | (434,658 | ) |   |
| Accumulated other  comprehensive income                                                                                               |       |                        | 306        |                        |       |   | — |   |   |
| Deferred stock  compensation                                                                                                          |       |                        | —     |                        |       |   | (4,210 | ) |   |
| Total  stockholders’ equity                                                                                                      |       |                        | 348,607    |                        |       |   | 391,086 |   |   |
| Total liabilities  and stockholders’ equity                                                                                      |       |                        | $          | 3,813,656                   |       |   |   | $ | 3,780,716 |   |   |

 

See accompanying notes

F-4

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**INSIGHT COMMUNICATIONS COMPANY, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(dollars in thousands)**

| ** **                                                                                                                                                                                                              | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                                              | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                                                                                                              | ** ** | **As restated**                       | ** ** | **As restated** | ** ** | **As restated** | ** ** |
| 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 | ) |
| Provision for  income taxes                                                                                                                                                                                             |       | (7,796                                     | )          | (8,147 | ) | (7,756 | ) |
| Loss before  extraordinary item                                                                                                                                                                                         |       | (44,203                                    | )          | (92,576 | ) | (37,383 | ) |
| Extraordinary  item, net of tax                                                                                                                                                                                         |       | —                                     |       | — |   | 15,627 |   |
| Net loss                                                                                                                                                                                                                |       | $                                          | (44,203    | ) | $ | (92,576 | ) | $ | (21,756 | ) |

 

See accompanying notes

F-5

----

**INSIGHT COMMUNICATIONS COMPANY, INC.CONSOLIDATED STATEMENTS 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**            | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|----------------------------------|------------|--------------------------|------------|-----------------------------------|------------|-----------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                  | ** ** | ** **        | ** ** | ** **           | ** ** | ** **                       | ** ** | **As restated**     | ** ** | ** **                        | ** ** | ** **                                                | ** ** | **As restated** | ** ** |
| Balance at December 31, 2003                                           |       |              | $          | 595                  |       |                             |       | $                        | —     |                              |       |                                                      | $          | 816,600              |       |   |   | $ | (320,326 | ) |   |   | $ | (13,582 | ) |   |   | $ | (23 | ) |   |   | $ | 483,264 |   |   |
| Net loss                                                                    |       |              |       |                 |       |                             |       |                     |       |                              |       |                                                      |       |                 | (21,756    | ) |   |   |   |   |   |   |   |   |   |   | (21,756 | ) |   |
| 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                                                    |       |              |       |                 |       |                             |       |                     |       |                              |       |                                                      |       |                 |       |   |   |   |   |   |   |   |   |   |   |   | (21,411 | ) |   |
| 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    |                                                      |       |                 | (342,082   | ) |   |   | (8,689 | ) |   |   | 322 |   |   |   | 463,998 |   |   |
| Net loss                                                                    |       |              |       |                 |       |                             |       |                     |       |                              |       |                                                      |       |                 | (92,576    | ) |   |   |   |   |   |   |   |   |   |   | (92,576 | ) |   |
| Realized gain on investments                                                |       |              |       |                 |       |                             |       |                     |       |                              |       |                                                      |       |                 |       |   |   |   |   |   |   |   | (448 | ) |   |   | (448 | ) |   |
| Unrealized gain on investments                                              |       |              |       |                 |       |                             |       |                     |       |                              |       |                                                      |       |                 |       |   |   |   |   |   |   |   | 126 |   |   |   | 126 |   |   |
| Total comprehensive loss                                                    |       |              |       |                 |       |                             |       |                     |       |                              |       |                                                      |       |                 |       |   |   |   |   |   |   |   |   |   |   |   | (92,898 | ) |   |
| 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    |                                                      |       |                 | (434,658   | ) |   |   | (4,210 | ) |   |   | — |   |   |   | 391,086 |   |   |
| Net loss                                                                    |       |              |       |                 |       |                             |       |                     |       |                              |       |                                                      |       |                 | (44,203    | ) |   |   |   |   |   |   |   |   |   |   | (44,203 | ) |   |
| Unrealized gain on interest rate swaps                                      |       |              |       |                 |       |                             |       |                     |       |                              |       |                                                      |       |                 |       |   |   |   |   |   |   |   | 306 |   |   |   | 306 |   |   |
| Total comprehensive loss                                                    |       |              |       |                 |       |                             |       |                     |       |                              |       |                                                      |       |                 |       |   |   |   |   |   |   |   |   |   |   |   | (43,897 | ) |   |
| 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              |       |   |   | $ | (478,861 | ) |   |   | $ | — |   |   |   | $ | 306 |   |   |   | $ | 348,607 |   |   |

 

See accompanying notes

F-6

----

**INSIGHT COMMUNICATIONS COMPANY, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(dollars in thousands)**

| ** **                                                                       | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                       | ** ** | **As restated**                       | ** ** | **As restated** | ** ** | **As restated** | ** ** |
| **Operating activities:**                                                        |       |                                       |       |   |   |   |   |
| Net loss                                                                         |       | $                                          | (44,203    | ) | $ | (92,576 | ) | $ | (21,756 | ) |
| 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                                                            |       | 7,637                                      |       | 7,647 |   | 7,256 |   |
| 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-7

----

**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 Communicationsof Central Ohio, LLC (“Insight Ohio”), owns and operates cable televisionsystems in Illinois, Indiana, Kentucky and Ohio which passed approximately 2.5million homes 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, we entered into a definitivemerger agreement (“the merger”) with Insight Acquisition Corp., an entityorganized by affiliates of The Carlyle Group in order to effect thetransactions contemplated by the merger agreement. Pursuant to the terms of themerger agreement, on December 16, 2005, Insight Acquisition Corp. mergedwith and into us, and we are the surviving entity. As of the effective time ofthe merger, our public shareholders (other than stockholders that continued asinvestors in the surviving corporation and stockholders who demanded appraisalrights) had no further ownership interest in us. Instead, the shares of commonstock of such holders were converted into the right to receive $11.75 in cashper share. As a result of the merger, our common stock is no longer publiclytraded.

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

**2.**                 Restatementof Consolidated Financial Statements

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

Our prior accounting treatment resulted in anunderstatement of deferred income tax expense, the related deferred taxliability and goodwill. This resulted in our understatement of net loss in anaggregate amount of $23.2 million for the three years ended December 31,2006, 2005 and 2004. In our audited 

F-8

----

financial statements foryears prior to 2004, the correction resulted in an aggregate increase in netloss of $73.9 million. In addition, goodwill should have been higher by$115.6 million as of December 31, 2006 and 2005. The correction had noeffect on our revenues, operating income, cash flows or liquidity for anyperiod.

Theeffects of this change on the consolidated balance sheets as of December 31,2006 and 2005, and the consolidated statements of operations and cash flows forthe three years ended December 31, 2006 are summarized as follows (inthousands):

| ** **                       | ** ** | **Consolidated Balance Sheets** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| ** **                       | ** ** | **As Previously  Reported**          | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| As of  December 31, 2006    |       |                                      |       |   |   |   |   |   |   |   |   |
| Goodwill                         |       |                                      | $          | 72,430 |   |   |   | $ | 115,552 |   |   | $ | 187,982 |   |
| Deferred tax liability           |       |                                      | —     |   |   |   | 212,648 |   |   | 212,648 |   |
| Accumulated deficit              |       |                                      | (381,765   | ) |   |   | (97,096 | ) |   | (478,861 | ) |
| Total stockholders’ equity  |       |                                      | 445,703    |   |   |   | (97,096 | ) |   | 348,607 |   |
| As of  December 31, 2005    |       |                                      |       |   |   |   |   |   |   |   |   |
| Goodwill                         |       |                                      | $          | 72,430 |   |   |   | $ | 115,552 |   |   | $ | 187,982 |   |
| Deferred tax liability           |       |                                      | —     |   |   |   | 205,011 |   |   | 205,011 |   |
| Accumulated deficit              |       |                                      | (345,199   | ) |   |   | (89,459 | ) |   | (434,658 | ) |
| Total  stockholders’ equity |       |                                      | 480,545    |   |   |   | (89,459 | ) |   | 391,086 |   |

 

| ** **                           | ** ** | **Consolidated Statements of Operations** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                           | ** ** | **As Previously  Reported**                         | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Year Ended  December 31, 2006   |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes           |       |                                                     | $          | (159 | ) |   |   | $ | (7,637 | ) |   |   | $ | (7,796 | ) |   |
| Loss before extraordinary item       |       |                                                     | (36,566    | ) |   |   | (7,637 | ) |   |   | (44,203 | ) |   |
| Net loss                             |       |                                                     | (36,566    | ) |   |   | (7,637 | ) |   |   | (44,203 | ) |   |
| Year Ended  December 31, 2005   |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes           |       |                                                     | $          | (500 | ) |   |   | $ | (7,647 | ) |   |   | $ | (8,147 | ) |   |
| Loss before extraordinary item       |       |                                                     | (84,929    | ) |   |   | (7,647 | ) |   |   | (92,576 | ) |   |
| Net loss                             |       |                                                     | (84,929    | ) |   |   | (7,647 | ) |   |   | (92,576 | ) |   |
| Year Ended  December 31, 2004   |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Benefit (provision) for income taxes |       |                                                     | $          | 201 |   |   |   | $ | (7,957 | ) |   |   | $ | (7,756 | ) |   |
| Loss before extraordinary item       |       |                                                     | (29,426    | ) |   |   | (7,957 | ) |   |   | (37,383 | ) |   |
| Net loss                             |       |                                                     | (13,799    | ) |   |   | (7,957 | ) |   |   | (21,756 | ) |   |

 

| ** **                         | ** ** | **Consolidated Statements of Cash Flows** | ** ** |
|------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                         | ** ** | **As Previously  Reported**                              | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
| Year Ended  December 31, 2006 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                           |       |                                                          | $          | (36,566 | ) |   |   | $ | (7,637 | ) |   |   | $ | (44,203 | ) |   |
| Deferred income taxes              |       |                                                          | —     |   |   |   | 7,637 |   |   |   | 7,637 |   |   |
| Year Ended  December 31, 2005 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                           |       |                                                          | $          | (84,929 | ) |   |   | $ | (7,647 | ) |   |   | $ | (92,576 | ) |   |
| Deferred income taxes              |       |                                                          | —     |   |   |   | 7,647 |   |   |   | 7,647 |   |   |
| Year Ended  December 31, 2004 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                           |       |                                                          | $          | (13,799 | ) |   |   | $ | (7,957 | ) |   |   | $ | (21,756 | ) |   |
| Deferred income taxes              |       |                                                          | (701       | ) |   |   | 7,957 |   |   |   | 7,256 |   |   |

 

F-9

----

**3.**                 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 are includedin 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 oftelephone services are amortized over the customer relationship period,generally three years (see Note 14 “Related Party Transactions”).

***Use of Estimates***

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions 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 the 

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straight-line methodover estimated useful lives ranging from 2 to 30 years. Leasehold improvementsare amortized using the straight-line method over the shorter of the remainingterm of the leases or the estimated life of the improvements.

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 operated as a single asset and essentiallyinseparable from each other, should be combined as a single asset group forpurposes of impairment testing. Management has identified three asset groupsbased on cable system management, geographic clustering and management’s beliefthat such grouping represents the best use of those assets.

Additionally, during September 2004,the SEC staff issued Topic D-108, *Useof the Residual Method to Value Acquired Assets Other than Goodwill*,which requires the direct method of separately valuing all non-goodwillintangible assets and does not permit goodwill to be included in franchiseassets. In connection with adopting SFAS No. 142 and Topic D-108 andbased on guidance from EITF Issue No. 02-7, we performed animpairment assessment using an independent third-party appraiser for the threeasset groups identified. We determined that, as of October 1, 2006 and2005, 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 million and$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 not restated.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 11 “Capital Stock, Stock Option Plan and Other Stock BasedCompensation”). In connection with the adoption of SFAS 123(R) wereclassified 

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ourdeferred stock compensation balance within stockholders’ equity to additionalpaid-in capital. The adoption of SFAS 123(R) did not materially impact ourstatement 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.

***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.SFAS No. 155 is effective for fiscal years ending after September 15,2006 or calendar year 2006 for us. Upon completing our evaluation of therequirements of SFAS No. 155, we determined it did not affect our consolidatedfinancial 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 orcalendar year 2008 for us. We do not expect SFAS No. 157 to have amaterial impact on our 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 ourconsolidated financial statements.

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

***Reclassifications***

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

**4.**                 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”) in exchange for a 50% equity interest. OnOctober 1, 1999, as part of a joint venture restructuring involving theKentucky Systems (discussed below), Insight Indiana became a wholly owned subsidiaryof Insight Midwest. Pursuant to the terms of their respective operatingagreements, Insight Midwest and Insight Indiana will continue untilOctober 1, 2011, unless extended or terminated sooner by Insight LP andComcast 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 Cable AcquisitionCompany, LLC, InterMedia Capital Management VI, LLC and a subsidiary andrelated party of AT&T Broadband, for $341.5 million (inclusive ofexpenses). Insight Midwest assumed debt of $742.1 million (the total debt ofthe IPVI Partnership) in connection with this transaction. Concurrently withthis acquisition, the Kentucky Systems were contributed to Insight Midwest.Pursuant to the terms of its operating agreement, Insight Kentucky willcontinue until October 1, 2011, unless extended or terminated sooner byInsight LP and Comcast Cable.

***Illinois Systems***

Effective January 1, 2001, Insight Midwestcompleted a series of transactions with Insight LP and AT&T Broadband forthe acquisition of additional cable television systems, primarily located inthe state of Illinois, valued at approximately $2.2 billion (the “AT&Ttransactions”), inclusive of systems valued at approximately $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 

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of $393.5 million wasallocated to the cable television assets acquired in relation to their fairvalues as increases in fixed assets of $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 suchsystems, along with all of its wholly owned systems serving approximately175,000 customers, to Insight Midwest. The total value of such contributedsystems was $1.2 billion. The assets and liabilities, including debt assumed,of such contributed systems continue to be recorded at their respectivecarrying values, as these systems remain within the consolidated group. Werecorded a reduction in paid in capital of $113.8 million equal to 50% ofthe carrying value of such net assets contributed to Insight Midwest,representing the interest owned by AT&T Broadband (minority interest)through its investment 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 minorityinterest liability equal to $328.8 million, representing the value of netassets contributed 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 on the extinguishment of these obligations as a result ofcall premiums and the write-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.

**5.**                 Investments

***Promptu***

Promptu (formerly AgileTV Corporation) is a privatelyowned company that develops voice navigation services for television and mobiledevices.

On May 11, 2005, wemade an investment in Promptu by purchasing shares of Promptu’s Series B1preferred stock and common stock for an aggregate purchase price of (i) approximately$900,000 in cash and (ii) approximately $300,000 in the form of conversionof an outstanding promissory note. We are accounting for our investment inPromptu under the cost method. As of December 31, 2006 and 2005, ourcarrying value in this investment was $1.2 million.

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***Oxygen Cable, LLC***

Oxygen Cable, LLC (“Oxygen”) is an independent cabletelevision network with programming tailored to the interests of women. On July 9,2002 we entered into a carriage agreement with Oxygen, whereby we agreed tocarry programming content from Oxygen. In October 2006, we agreed toextend the term of the carriage agreement through December 31, 2008. Forthe years ended December 31, 2006, 2005 and 2004, we paid Oxygenapproximately $1.2 million, $440,000 and $0 for programming content. Inaddition, Oxygen paid us marketing support fees, which we record as a reductionof marketing expense, of approximately $68,000, $40,000 and $440,000 for theyears ended December 31, 2006, 2005 and 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 by December 1,2006 deliver to us additional shares having an aggregate fair market value asof the December 31, 2005 valuation of $2.0 million. Pursuant to theequity issuance agreement, a portion of the monthly programming fees representour equity investment in Oxygen. In October 2006, in connection with theextension of the carriage term, Oxygen issued shares to us of common stockrepresenting a value as of December 31, 2005 of $5.8 million in fullsatisfaction of its obligation to issue equity to us under the equity issuanceagreement. As of December 31, 2006 and December 31, 2005, ourcarrying value in this investment was $5.8 million and $4.7 million.

**6.**                 Fixed Assets

| ** **                                       | ** ** | **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.

**7.**                 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 Midwest Holdings $2.445 Billion CreditFacility***

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 

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$2.445 billion seniorsecured credit facility. The facility is comprised of a $385.0 million ATerm Loan scheduled to mature on October 6, 2013, a $1.8 billion BTerm Loan scheduled to mature on April 6, 2014 and $260.0 million inrevolving commitments scheduled to terminate on October 6, 2012. InsightMidwest Holdings used the proceeds to refinance its existing senior creditfacility and to redeem a portion of the outstanding Senior Notes of InsightMidwest (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 for debtoutstanding under the credit facility was 7.40% at December 31, 2006. Thecredit 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.

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, thebalance of the $100.0 million loan, including accrued interest, was $136.1million 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 millionoffering of 93¤4%senior notes due in October 2009. Interest payments on these Senior Notes,which commenced on April 1, 2000, are payable semi-annually on April 1and October 1.

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. Theproceeds 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. The proceedsof this offering were used to repay a portion of the outstanding revolvingloans 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.

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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.

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 untilFebruary 15, 2006 such that the accreted value equaled the revisedoutstanding principal amount of $350.0 million on December 31, 2006.

The Insight Inc. 121¤4% SeniorDiscount Notes contain certain financial and other debt covenants. As ofDecember 31, 2006, we were in compliance with all covenant requirements.

***Debt Principal Payments***

As ofDecember 31, 2006, the remaining principal payments required on our debtwere 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 |   |

 

**8.**                 DerivativeInstruments

We enter into derivative instruments, typicallyinterest-rate swap agreements, to modify the interest characteristics of ouroutstanding debt to either a floating or fixed rate basis. These agreementsinvolve fixed rate interest payments in exchange for floating rate interestreceipts, known as cash flow hedges, and floating rate interest payments inexchange for fixed rate interest receipts, known as fair value hedges, over thelife of the agreement without an exchange of the underlying principal amount.The differential to be paid or received is accrued as interest rates change andis recognized 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.

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**Fair Value Hedges**

In July 2003, we entered into three interest rateswap agreements whereby we swapped fixed rates under a tranche of our 101¤2%senior notes due in December 2010 for variable rates equal to six-monthLIBOR, plus the applicable margin of approximately 8.3%, on $185.0 millionnotional value of debt. These agreements expired on November 1, 2005. Werecorded a gain on these swaps of $2.1 million and $36,000 for the yearsended December 31, 2005 and 2004, which is included in other income (expense).

In December 2003, weentered into an interest rate swap agreement whereby we swapped fixed ratesunder a different tranche of our 101¤2% senior 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.

**9.**                 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      |       |
|              |            |                         |            |          |            |          |            |  |  |  |

 

**10.**          IncomeTaxes—Restated See Note 2

For the years ended December 31, 2006, 2005 and2004, we recorded a deferred tax provision of $7.6, $7.6, and $7.3 million. Inaddition, for the tax years ended December 31, 2006, 2005 and 2004, werecorded a current tax expense related to state and local taxes ofapproximately $159,000, $500,000 and $500,000. Deferred income taxes representthe net tax effects of temporary differences between the carrying amount ofassets and liabilities for financial reporting purposes and amounts used forincome tax purposes.

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Significantcomponents of our deferred tax assets and liabilities consisted of thefollowing (in thousands):

| ** **                       | ** ** | **December 31,**  | ** ** |
|----------------------------------|------------|------------------------|------------|
| ** **                       | ** ** | **2006**               | ** ** | **2005** | ** ** |
| ** **                       | ** ** | **(As restated)** | ** ** | **(As restated)** | ** ** |
| Deferred tax assets:             |       |                   |       |   |   |   |   |   |   |
| Net operating loss carry-forward |       |                   | $          | 234,175 |   |   |   | $ | 227,580 |   |   |
| Unrealized loss on investments   |       |                   | 7,134      |   |   |   | 7,134 |   |   |
| Deferred interest expense        |       |                   | 66,512     |   |   |   | 57,478 |   |   |
| Capital loss                     |       |                   | 8,497      |   |   |   | 8,497 |   |   |
| Other                            |       |                   | 252        |   |   |   | 230 |   |   |
| Gross deferred  tax asset        |       |                   | 316,570    |   |   |   | 300,919 |   |   |
| Valuation  allowance             |       |                   | (303,185   | ) |   |   | (281,349 | ) |   |
| Net deferred tax  asset          |       |                   | 13,385     |   |   |   | 19,570 |   |   |
| Deferred tax  liabilities:       |       |                   |       |   |   |   |   |   |   |
| Depreciation and amortization    |       |                   | 6,577      |   |   |   | 6,626 |   |   |
| Partnership investment           |       |                   | 219,456    |   |   |   | 217,955 |   |   |
| Gross deferred  tax liability    |       |                   | 226,033    |   |   |   | 224,581 |   |   |
| Net deferred tax  liability      |       |                   | $          | 212,648 |   |   |   | $ | 205,011 |   |   |

 

As of December 31, 2006, a valuation allowancehas been provided against deferred tax assets net of deferred tax liabilitiesthat are expected to reverse during the periods that the deferred tax assetswill reverse. The valuation allowance was established because of theuncertainty of realization of the deferred tax assets due to lack of sufficienthistory of generating taxable income. Realization is dependent upon generatingsufficient taxable income prior to the expiration of the net operating losscarryforwards in future periods. Although realization is not currently assured,management evaluates the need for a valuation allowance each quarter, and inthe future, should management determine that realization of net deferred taxassets is more likely than not, some or all of the valuation allowance will bereversed, and our effective tax rate may be reduced as a result of suchreversal. The valuation allowance increased by approximately $21.8 millionfor the year ended December 31, 2006.

Thereconciliation of income tax expense computed at the U.S. federal statutoryrate to income tax expense for the years ended December 31, 2006, 2005 and2004 were as follows (in thousands):

| ** **                                     | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                     | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                     | ** ** | **(As restated)**                     | ** ** | **(As restated)** | ** ** | **(As restated)** | ** ** |
| Benefit at  federal statutory rate             |       |                                       | $          | (12,743 | ) |   |   | $ | (29,550 | ) |   |   | $ | (4,900 | ) |   |
| State and local  taxes                         |       |                                       | (1,916     | ) |   |   | (1,636 | ) |   |   | (41 | ) |   |
| Expenses not  deductible for U.S. tax purposes |       |                                       | 23         |   |   |   | 33 |   |   |   | 36 |   |   |
| Disallowed  interest expense                   |       |                                       | 153        |   |   |   | 922 |   |   |   | 830 |   |   |
| Disallowed  compensation deduction             |       |                                       | 443        |   |   |   | 5,047 |   |   |   | 1,553 |   |   |
| Capitalized  privatization costs               |       |                                       | —     |   |   |   | 10,786 |   |   |   | — |   |   |
| Tax effect of  interest rate swaps             |       |                                       | —     |   |   |   | — |   |   |   | (701 | ) |   |
| Change in  valuation allowance                 |       |                                       | 21,836     |   |   |   | 22,545 |   |   |   | 10,979 |   |   |
| Income tax  provision                          |       |                                       | $          | 7,796 |   |   |   | $ | 8,147 |   |   |   | $ | 7,756 |   |   |

 

As of December 31, 2006, we had a net operatingloss carry-forward of approximately $571.2 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 

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accumulating effective July 26,1999, the date of our initial public offering and will expire in the years 2019through 2026.

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.

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

***2005 Stock Incentive Plan***

On December 16, 2005, concurrently with thegoing-private merger, our Board of Directors adopted the 2005 Stock IncentivePlan (the “2005 Plan”). Under the 2005 Plan the Board has the authority togrant awards of shares of its non-voting common stock to officers, employeesand directors. A total of 3,666,887 shares of Series E Non-Voting Common Stockand 100,000 shares of Series F Non-Voting Common Stock are authorized forissuance under the 2005 Plan. Shares granted under the 2005 Plan require theexecution 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 and Distribution Rights***

At the effectivetime of the merger, our certificate of incorporation was amended and restatedin its entirety to provide for our capitalization, as the surviving corporationfollowing the merger, and other terms applicable to the post-merger period.Among other provisions, our amended and restated certificate of incorporationprovides that upon anyliquidation of the corporation, the cash and other assets of the corporationavailable for distribution would be distributed to our stockholders 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.

·       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 

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Series E Non-VotingCommon 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 Stock and,as of and following such time as such distributions reach certain levels thatcause 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.

***1999 Equity Incentive 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.

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***Stock Options***

As of the effective time of the merger, each option topurchase Insight common stock (whether vested or unvested) outstandingimmediately prior to the effective time of the merger was canceled in exchangefor the right to receive a cash payment equal to the product of (A) theexcess, if any, of (i) $11.75, over (ii) the per share exercise priceof the stock option, multiplied by (B) the number of shares of Insightcommon stock covered by the stock option.

We have excluded all disclosures of option activity,options outstanding, options exercisable and weighted average exercise pricesas we believe that the presentation of this information would not be meaningfulto the reader of the financial statements because as of the effective time ofthe merger our common stock was no longer publicly traded, all of our optionswere canceled and other equity interests were converted into equity in thesurviving corporation.

Pursuant to SFAS No. 123, we had, prior to themerger, elected to continue to account for employee stock-based compensationunder APB No. 25, using an intrinsic value approach to measurecompensation expense. Accordingly, no compensation expense was recognized foroptions granted to employees under the Plan since all such options were grantedat exercise prices equal to or greater than fair market value on the date ofgrant.

Thefollowing table summarizes relevant information as to our reported resultsunder the intrinsic value method of accounting for stock awards, withsupplemental information, as if the fair value recognition provisions of SFAS No. 123had been applied to each of the years ended December 31, 2005 and 2004.These results take into effect the cancellation of all of our options in thegoing-private transaction. The following assumptions were used in determiningthe fair values: weighted average risk-free interest rate—4.05% (2005) and4.10% (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 (inthousands):

| ** **                                                                                             | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| ** **                                                                                             | ** ** | **As restated**                       | ** ** | **As restated** | ** ** |
| Net loss as  reported                                                                                  |       | $                                          | (92,576    | ) |   | $ | (21,756 | ) |   |
| 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                                                                                      |       | $                                          | (118,162   | ) |   | $ | (27,205 | ) |   |

 

***Other Stock Based Compensation***

**Restricted Stock**

In 2005 and 2004, we issued to employees 828,141 and90,000 shares of common stock in the form of restricted stock. The restrictedstock provided for vesting over a five-year period and were issued in the nameof the employee on the date of grant and held by us until the shares vested.For the 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.

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**Deferred StockUnits**

In 2005, we issued to employees 215,500 shares ofdeferred stock units. The deferred stock units vest over a five-year period andwere issued in the name of the employee on the date of grant. For the yearsended December 31, 2006, 2005 and 2004, we recorded stock basedcompensation expense of $1.4 million, $786,000 and $726,000, which isbeing amortized on a straight-line basis over the vesting term.

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 madeloans to certain of our employees that were used to satisfy their individualincome tax withholding obligations resulting from their receipt of shares inconnection with our initial public offering. Between December 8 and 31,2004, we made an offer to each of the individuals with a loan obligation to (i) cancelsuch individual’s loan (including accrued interest) upon the surrender to us ofsuch individual’s pledged shares and (ii) issue restricted shares of our Class Acommon stock as an incentive to surrender the pledged shares and, in the caseof current employees, to encourage the employee’s long-term future performance,and in the case of former employees, to reward such former employees for theirpast service to us.

As of December 31, 2004, each of the individualswith a loan obligation accepted the offer and surrendered an aggregate of395,210 shares of common stock in repayment of $3.7 million (based on theclosing price of our Class A common stock on such date of $9.27 per share)of the aggregate $4.3 million of loans and accrued interest. The remainingbalance of the loans were cancelled and recorded as compensation expense duringthe fourth quarter of 2004. On May 3, 2005, following shareholder approvalof an amendment to our 1999 Equity Incentive Plan to increase the number ofshares available thereunder for issuance, the employees and former employeeswere issued an aggregate of 825,641 shares of restricted stock referred to as “LoanProgram Exchange Shares.” The issuance of these Loan Program Exchange Shareswere recorded during the three months ended June 30, 2005.

As of the effective timeof the merger, vesting conditions on the Loan Program Exchange Shares werewaived. Holders of Loan Program Exchange Shares contributed a portion of theirLoan Program Exchange Shares to Insight Acquisition Corp. and in connectionwith the merger received a corresponding number of shares of Series Cnon-voting preferred stock. The balance of the Loan Program Exchange Shareswere converted into the right to receive the merger consideration of $11.75 pershare.

**12.**          Financial Instruments

***Concentrations of Credit 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.

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***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) million as of December 31, 2006 and 2005.

**13.**          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.

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.

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**14.**          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 million for 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 million for the year ended December 31, 2004. In addition,Insight Midwest received additional payments related 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 ComcastCable. The acquisition was accounted for under the purchase method ofaccounting.

***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.

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***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.

**15.**          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.

**16.**          Commitmentsand Contingencies

***Programming Contracts***

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

***Litigation***

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 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 astipulation of settlement with the Court. Kim D. Kelly, a former employeeand officer, 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 withdrawher appraisal 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 other 

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things, approved thesettlement 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 injunction that could require us to materially modifycertain products and services that we currently offer to subscribers. Webelieve that the claims are without merit and intend to defend the actionvigorously. The final disposition of this claim is not expected to have amaterial adverse effect on our consolidated financial position but couldpossibly be material to our consolidated results of operations of any oneperiod. Further, at this time the outcome of the litigation is impossible topredict, and no assurance can be given that any adverse outcome would not bematerial to our consolidated financial position.

We are subject to 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.

**17.**          QuarterlySelected Financial Data (Unaudited) (dollars in thousands)

| ** **       | ** ** | **Three months ended**     | ** ** | **Year ended** | ** ** |
|------------------|------------|--------------------------------------|------------|---------------------|------------|
| **2006**         | ** ** | ** **                           | ** ** | **March 31**   | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** | **December 31, 2006** | ** ** |
| ** **       | ** ** | **As Previously Reported** | ** ** |
| 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** | ** ** |
|------------------|------------|----------------------------------|------------|---------------------|------------|
| **2006**         | ** ** | ** **                       | ** ** | **March 31**   | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** | **December 31, 2006** | ** ** |
| ** **       | ** ** | **As Restated**             | ** ** |
| 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         |       | (12,728                          | )          | (10,804             | )          |   | (9,637 | ) |   |   | (11,034 | ) |   |   | (44,203 | ) |   |
|                  |            |                                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **               | ** ** | **Three months ended**     | ** ** | **Year ended** | ** ** |
|--------------------------|------------|--------------------------------------|------------|---------------------|------------|
| **2005**                 | ** ** | ** **                           | ** ** | **March 31**   | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** | **December 31, 2005** | ** ** |
| ** **               | ** ** | **As Previously Reported** | ** ** |
| 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 | ) |   |
|                          |            |                                      |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **               | ** ** | **Three months ended** | ** ** | **Year ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|---------------------|------------|
| **2005**                 | ** ** | ** **                       | ** ** | **March 31**   | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** | **December 31, 2005** | ** ** |
| ** **               | ** ** | **As Restated**             | ** ** |
| 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                 |       | (10,254                          | )          | (2,640              | )          |   | (9,287 | ) |   |   | (70,395 | ) |   |   | (92,576 | ) |   |
|                          |            |                                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**18.**          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-28

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, Insight Communications Company, Inc. (the “Registrant”) hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
|                             | **INSIGHT COMMUNICATIONS  COMPANY, INC.** |
|-----------------------------|------------------------------------------------|
| Date: August 15,  2007 | By:                                            | /s/ MICHAEL S. WILLNER |   |
| ** **                  |                                           | Michael S. Willner, |
|                        |                                           | Vice Chairman and Chief Executive Officer |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated:
|                                 | **Name**     | ** **                                          | ** ** | ** **            | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** | ** ** |
|---------------------------------|--------------|-----------------------------------------------------|------------|-----------------------|-----------|------------|------------|------------|----------|------------|------------|
| /s/ SIDNEY R.  KNAFEL           | *** *** | Chairman of the Board                               | * *   | August 15,  2007 |      |
| Sidney R. Knafel                | *** *** |                                                |       |                  |      |
| /s/ MICHAEL S. WILLNER          | *** *** | Vice Chairman,  Chief Executive                     | * *   | August 15, 2007  |      |
| Michael S. Willner              | *** *** | Officer and Director  (Principal Executive Officer) |       |                  |      |
| /s/ DINNI JAIN                  |         | President, Chief Operating                          | ** ** | August 15, 2007  |      |
| Dinni Jain                      |         | Officer and Director                                |       |                  |      |
| /s/ JOHN ABBOT                  |         | Executive Vice  President and Chief                 |       | August 15, 2007  |      |
| John Abbot                      |         | Financial Officer  (Principal Financial Officer)    |       |                  |      |
| /s/ DANIEL MANNINO              |         | Senior Vice  President and                          |       | August 15, 2007  |      |
| Daniel Mannino                  |         | Chief Accounting Officer                            |       |                  |      |
|                            |         | (Principal Accounting  Officer)                     |       |                  |      |
| /s/ JAMES A. ATTWOOD, JR.  | *** *** | Director                                            | * *   | August 15, 2007  |      |
| James A. Attwood, Jr.      | *** *** |                                                |       |                  |      |
| /s/ MICHAEL J. CONNELLY         |         | Director                                            | ** ** | August 15, 2007  |      |
| Michael J. Connelly             |         |                                                |       |                  |      |
| /s/ STEPHEN C. GRAY             |         | Director                                            | ** ** | August 15, 2007  |      |
| Stephen C. Gray                 |         |                                                |       |                  |      |
| /s/ AMOS B. HOSTETTER, JR. |         | Director                                            | ** ** | August 15, 2007  |      |
| Amos B. Hostetter, Jr.     |         |                                                |       |                  |      |
| /s/ WILLIAM E. KENNARD          |         | Director                                            | ** ** | August 15, 2007  |      |
| William E. Kennard              |         |                                                |       |                  |      |
| /s/ GERALDINE B. LAYBOURNE      |         | Director                                            |       | August 15, 2007  |      |
| Geraldine B. Laybourne          |         |                                                |       |                  |      |

 

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