**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C. 20549

**FORM 10-K**

**AnnualReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934**

**Forthe fiscal year ended December 31, 2005**

**Commissionfile number 0-26677**

**Insight Communications Company, Inc.**

(Exact name of registrantas specified in its charter)
| **Delaware**                                                    | **13-4053502**                        |
|-----------------------------------------------------------------|---------------------------------------|
| (State or other jurisdiction  of incorporation or organization) | (I.R.S. Employer  Identification No.) |
| **810 Seventh Avenue  New York, New York 10019**                |
| (Address of  principal executive offices)                       |

 

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

Securities registered pursuant to Section 12(b) of theExchange Act:**None**

Securities registered pursuant to Section 12(g) of theExchange 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  x  No  o

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

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

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

 

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

The aggregate market valueof the common equity held by non-affiliates of the registrant as of June 30,2005 was approximately $566 million.

Indicate the number ofshares outstanding of the registrant’s common stock. Not Applicable

 

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**Table of Contents**
|                | ** ** | ** **                                                                                                         | ** ** | **Page** |
|----------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|----------|
|           | ** ** | **PART I**                                                                                                    |       |     |
| Item  1.       |       | Business                                                                                                           |       | 1        |
| Item  1A       |       | Risk  Factors                                                                                                      |       | 27       |
| Item 1B        |       | Unresolved Staff Comments                                                                                     |       | 32       |
| Item  2.       |       | Properties                                                                                                         |       | 32       |
| Item  3.       |       | Legal  Proceedings                                                                                                 |       | 32       |
| Item 4.        |       | Submission of Matters to a Vote of Security Holders                                                                |       | 33       |
|           | ** ** | **PART II**                                                                                                   |       |     |
| Item 5.        |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |       | 35       |
| Item 6.        |       | Selected  Financial Data                                                                                           |       | 36       |
| Item 7.        |       | Management’s Discussion and Analysis of Financial Condition  and Results of  Operations                       |       | 38       |
| Item 7A.       |       | Quantitative and Qualitative Disclosures About Market  Risk                                                        |       | 50       |
| Item 8.        |       | Financial Statements and Supplementary Data                                                                        |       | 50       |
| Item 9.        |       | Changes in and Disagreements with Accountants on  Accounting and Financial  Disclosure                             |       | 51       |
| Item 9A.       |       | Controls and Procedures                                                                                            |       | 51       |
| Item 9B.       |       | Other  Information                                                                                                 |       | 52       |
| ** **     |       | **PART III**                                                                                                  |       |     |
| Item 10.       |       | Directors and Executive Officers of the Registrant                                                                 |       | 53       |
| Item 11.       |       | Executive Compensation                                                                                             |       | 56       |
| Item 12.       |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters     |       | 60       |
| Item 13.       |       | Certain Relationships and Related Transactions                                                                     |       | 62       |
| Item 14.       |       | Principal Accountant Fees and Services                                                                             |       | 63       |
| ** **     |       | **PART IV**                                                                                                   |       |     |
| Item 15.       |       | Exhibits, Financial Statement Schedules                                                                            |       | 64       |
| **SIGNATURES** |       |                                                                                                               |

 

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**CAUTIONARY STATEMENTREGARDING FORWARD-LOOKING INFORMATION**

This annual reporton Form 10-K contains certain forward-looking statements withrespect to the financial condition, results of operations, plans, objectives,future performance and business of our company, including, without limitation,statements preceded by, followed by or that include the words “believes,” “expects,”“anticipates,” “estimates” or similar expressions. We believe it is importantto communicate management’s expectations to our stockholders. However, theremay be events in the future that we are not able to accurately predict or overwhich we have no control. The risk factors listed in this annual report underItem 1A, as well as any other cautionary language in this report, provideexamples of risks, uncertainties and events that may cause our actual resultsto differ materially from the expectations we describe in our forward-lookingstatements. You should be aware that the occurrence of the events described inthese risk factors and elsewhere in this report could have a material adverseeffect on our business, operating results and financial condition. Examples ofthese risks include:

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

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

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

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

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

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

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

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

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**PART I**

**Item 1.**                        Business

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

**General**

Insight Communications Company, Inc. is the ninthlargest cable television system operator in the United States based oncustomers served. We currently serve approximately 1.3 million customers, allof whom are concentrated in the four contiguous states of Indiana, Kentucky, Illinoisand Ohio. We offer our customers an array of broadband products and services,including analog and digital video, high-speed Internet access and, in certainmarkets, telephone services.

On December 16, 2005, we completed thegoing-private transaction contemplated by the Agreement and Plan of Mergerdated as of July 28, 2005 between us and Insight Acquisition Corp., anentity organized by certain affiliates of The Carlyle Group. Pursuant to themerger agreement,  Insight AcquisitionCorp. merged with and into us, and we are the surviving corporation. All sharesof our then outstanding Class A common stock, other than those shares heldby certain stockholders who elected to maintain their investment in us andthose held by stockholders who demanded appraisal rights, were converted intothe right to receive $11.75 per share in cash, and we were recapitalized withnew classes of capital stock. Immediately after completion of the going-privatetransaction, our Class A common stock was delisted from The NasdaqNational Market, and we are now a privately-held corporation.

Insight Midwest, L.P. is a partnership owned 50% by usand 50% by an indirect subsidiary of Comcast Cable Holdings, LLC, which is asubsidiary of Comcast Corporation. Insight Midwest is the owner of the systemsserving all of our customers, and our 50% interest in Insight Midwestconstitutes substantially all of our operating assets. The Insight Midwestpartnership agreement provides that at any time after December 31, 2005either partner has the right to commence a split-up process with respect toInsight Midwest, subject to a limited right of postponement held by thenon-initiating partner. To date, neither partner has commenced the split-upprocess.

The going-private transaction did not result in anydirect change in Insight Midwest’s ownership structure, and we continue toserve as the sole general partner of Insight Midwest and as the manager of eachof its systems. Through a new class of Series A voting preferred stockissued in connection with the transaction, Sidney R. Knafel, Michael S. Willnerand related parties continue to maintain control of a majority of our votingpower. Accordingly, the merger is not expected to result in a change inthe operational aspects of our business.

This report, our quarterly reports on Form 10-Q,our current reports on Form 8-K, as well as any other materials thatwe file with or furnish to the Securities and Exchange Commission are availablefree of charge through our website www.insightcom.com as soon asreasonably practicable after such material is electronically filed orfurnished.

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

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**Strategy**

Our strategy is to be afull-service provider of the highest caliber of entertainment, information andcommunications services. The centerpiece of our strategy, however, is toprovide exceptional customer service. We focus on building strong relationshipswith our customers and potential customers in the communities in which weoperate because we believe that the single most important factor in generatingcustomer loyalty is customer service. We believe that our local presence andmore personal relationships with our communities distinguishes us from ourcompetitors and results in higher customer satisfaction. In addition, wecontinually explore opportunities to leverage the capacity and capability ofour upgraded broadband network to provide new and enhanced products andservices for our customers.

***Deliver excellent customer service and enhancecommunity relations***

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

We believe that ourcommitment to the communities in which we operate enhances our ability toattract and retain customers and fosters excellent franchise relationships. Weare dedicated to building and sustaining strong community relations byproviding valuable in-kind services and promotional opportunities to an arrayof local charities and organizations. We also support the cable industry’sCable in the Classroom initiative and provide free cable and high-speedInternet access to local schools. To further strengthen our bond with ourcommunities and differentiate ourselves from other multichannel videoproviders, we provide locally produced and oriented programming.

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

In addition to its geographic concentration, ourcommunications network is tightly-grouped, or “clustered,” with approximately97% of our customers served from 13 headends, or an average of approximately99,000 customers per headend (a headend processes signals received fordistribution to customers over our network). As a result, the amount ofcapital necessary to deploy new and enhanced products and services issignificantly reduced on a per home basis. We believe that the highly clusterednature of our systems also enables us to more efficiently deploy our marketingdollars and maximizes our ability to enhance customer awareness, increase useof our products and services and build brand support.

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

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

***Leverage our advanced broadband network to offerbundled services and introduce new and enhanced products***

Our advanced broadband network provides significantcapacity and the flexibility to offer our customers an array of products andservices. The capacity ofa cable system to offer products and services 

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isdetermined by its bandwidth. As of December 31, 2005, we estimatethat approximately 97% of our customers were passed by our upgraded network, with a bandwidth capacity of 750megahertz (MHz) or greater. At the end of 2005, digital cable was available to97% of basic customers passed by our broadband network, high-speed Internet wasavailable to 98% of homes passed and telephone service was available to 34% ofhomes passed.

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

***Pursue value-enhancing transactions in nearby oradjacent geographies***

We will seek to swap oracquire systems that strategically fit our clustering and operating strategyand are accretive to our value. We do not currently have any agreements,commitments or understandings for any future acquisitions. There is noassurance that any additional acquisitions will be completed. We believe thatby acquiring or swapping systems in close proximity we have the opportunity toimprove revenue growth and operating margins. This is achieved through theconsolidation of headends, spreading of fixed costs over larger systems andincreased operating efficiencies associated with larger systems.

**Technical Overview**

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

As of December 31, 2005, our systems werecomprised of approximately 30,700 network miles serving approximately 1.3million customers and passing approximately 2.4 million homes resulting in adensity of approximately 78 homes per mile. As of that date, our systems weremade up of an aggregate of 28 headends, and approximately 97% of our customerswere served by 13 headends. As of December 31, 2005, we estimate thatapproximately 97% of our customers were passed by our upgraded network.

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

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

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

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

**Products and Services**

We offer our customers a full array of traditionalcable television services and programming offerings. We tailor both our basicline-up and our additional channel offerings to each regional system inresponse to demographics, programming preferences, competition and localregulation. We offer a basic level of service which includes up to 25 channelsof television programming. As of December 31, 2005, approximately 91% ofour customers chose to pay an additional amount to receive additional channelsunder our “Classic” or “expanded” service. Premium channels, which are offeredindividually or in packages of several channels, are optional add-ons to thebasic service or the classic service. As of December 31, 2005, premiumunits as a percentage of basic subscribers was approximately 36%.

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

***Analog Video***

Ouranalog cable television service offering includes the following:

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

·       *Classic Service or Expanded Service.* Thisexpanded level of service includes a group of satellite-delivered ornon-broadcast channels such as ESPN, CNN, Discovery Channel and Lifetime.

·       *Premium Channels.* These channels provideunedited, commercial-free movies, sports and other special event entertainmentprogramming such as HBO, Cinemax, Starz! and Showtime. We offer subscriptionsto these channels primarily as a multi-channel digital service, along withsubscription video-on-demand services.

·       *Pay-Per-View*. These analog channels allowcustomers with addressable analog or digital set-top boxes to pay to view aone-time special sporting event or music concert on an unedited,commercial-free basis. Pay-per-view movies are available through our video-on-demanddigital service.

 

***Interactive Digital Video***

The implementation of interactive digital technologysignificantly enhances and expands the video and service offerings we provideto our customers. Because of the significantly increased bandwidth and two-waytransmission capability of our state-of-the-art technical platform, we havedesigned a more extensive 

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digital product that isrich in attractive features and provides customers with a high degree ofinteractive capability. Our interactive digital service is designed to exploitthe advantages of a broadband network in the existing generation of set-topdevices. The digital service encompasses three interactive applications: (1) aninteractive program guide; (2) interactive local information and communityguides; and (3) a video-on-demand service.

We have conducted numerous focus groups andcommissioned research studies, the findings of which have helped to develop ourinteractive digital strategy. We believe that our digital penetration willcontinue to increase as a result of our differentiated services such as agraphically rich local information network and video-on-demand pay-per-viewwith full VCR functionality.

We arepackaging our digital service under the “Insight Digital” brand, which includesthe following features:

·       Adigital set-top box and remote control;

·       Aninteractive navigational program guide for all analog and digital channels;

·       Alocal, interactive Internet-style service;

·       Accessto multi-channel premium service for customers who separately subscribe topremium channels, such as HBO and Showtime, and in some cases with subscriptionvideo-on-demand;

·       Accessto video-on-demand;

·       MagRack, a selection of video magazines with video-on-demand functionality; and

·       Adigital 40-channel audio music service.

We offer a high-definition programming serviceconsisting of broadcast networks and premium channels. Digital customers withhigh-definition television (HDTV) sets can receive any high-definition programmingthat is available from local broadcasters. HDTV customers who have HBO orShowtime would receive any HDTV programs available from these networks as well.We believe that offering HDTV programming from local broadcasters puts us in afavorable competitive position with the direct broadcast satellite televisiondistributors which have limited HDTV programming due to capacity restrictions.

Through our wholly-owned subsidiary, InsightInteractive, LLC, our interactive digital platform provides its local,interactive Internet-style service and an interactive program guide. For an additional monthly charge over ourInsight Digital price, we also offer a single digital set-top box whichintegrates our existing HDTV programming and video-on-demand services with anew digital video recorder (DVR) service. These advanced services are supportedby Gemstar-TV Guide’s interactive program guide but do not include the localservice.

Our digital customers are served by a video-on-demand(VOD) infrastructure provided by SeaChange International, Inc. Customersreceive the movies electronically over the network and have full VCRfunctionality, including pause, play, fast forward and rewind. The movies aredelivered with a high quality digital picture and digital sound. Ourvideo-on-demand product is designed to provide movies at prices comparable tothose charged for videotape rentals, pay-per-view and near video-on-demandmovies, but with far greater convenience and functionality. Additionally,customers who subscribe to premium services, such as HBO and Showtime, canaccess selected movies and original programming from these networks at noadditional cost to their regular monthly premium channel fee utilizing ourvideo-on-demand system. Insight’s video-on-demand system also provides freecontent from certain cable networks including the NFL Network, Food Network,DIY Network and the National Geographic Channel to any digital customer withVOD access. As ofDecember 31, 2005, approximately 40% of our customers had access tovideo-on-demand services.

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***High-Speed Internet***

***We offer high-speed Internet service for personal computersfor all of our upgraded systems through our own regional network brandedInsight Broadband***SM, except for our Columbus, Ohiosystem, which utilizes the RoadRunner service. AT&T Corp. provides the IPnetwork backbone for our Insight Broadband service and certain core Internetsupport functions. As of December 31, 2005, high-speed Internet serviceswere available in approximately 2.4 million of our homes passed and served approximately470,400 of our customers.

The broad bandwidth of ourcable network enables data to be transmitted significantly faster thantraditional telephone-based modem technologies, and the cable connection doesnot interfere with normal telephone activity or usage. For example, cable’son-line customers can download large files from the Internet in a fraction ofthe time it takes when using any widely available telephone modem technology.Moreover, surfing the Internet on a high-speed network removes the long delaysfor Web pages to fully appear on the computer screen, allowing theexperience to more closely approximate the responsiveness of changing channelson a television set. In addition, the cable modem is always on and does notrequire the customer to dial into an Internet service provider and awaitauthorization. We believe that these factors of speed and easy accessibilitywill increase the use and impact of the Internet.

***Telephone Services***

Under the “Insight Phone”brand, telephone services are currently available in portions of the Louisvilleand Lexington, Kentucky, Evansville, Indiana, and Columbus, Ohio areas and wereavailable to a total of approximately 832,000 marketable homes passed, withapproximately 89,900 customers as of December 31, 2005.

In August 2005, welaunched Insight Phone to customers in selected areas of Northern Indiana. Thislaunch was subsequently suspended due to the discontinuance of service by a keyvendor. We have since completed our transition off of this vendor’s service.

We currently anticipatethat we will launch Insight Phone in new markets during 2006.

**Business Background**

We were co-founded in 1985as a limited partnership under the name Insight Communications Company, L.P. bySidney R. Knafel and Michael S. Willner after a previous association with oneanother at Vision Cable Communications where Mr. Knafel was co-founder andChairman and Mr. Willner held various operating positions, ultimatelyholding the position of Executive Vice President and Chief Operating Officer. VisionCable was sold to The Newhouse Group Inc. in 1981 and Mr. Willner remainedthere to run the cable operations until 1985 when he and Mr. Knafel formedInsight Communications.

In addition to many yearsof conventional cable television experience, our management team has beeninvolved in the development and deployment of full service communicationsnetworks since 1989. Through a then related entity, Insight CommunicationsCompany UK, L.P., our management and related parties entered the cabletelevision market in the United Kingdom, where today modern networks are widelydeployed.

As a result of ourmanagement’s British experience, we recognized that the technology and productsdeveloped in the United Kingdom would migrate to the United States in similar form.We focused on planning to upgrade our network promptly after it became clearthat the 1996 Telecom Act would encourage competition in the communicationsindustries. We understood, however, that the new products and servicesavailable with new technology were best deployed in markets which provided forefficiencies for branding and technical investment. Our original acquisitionstrategy, which focused on customer growth, was very successful. However, ourmanagement team recognized the opportunity to evolve from 

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our roleas a cable television operator providing only home video entertainment into afull service alternative communications network providing not only standardvideo services, but also interactive digital video, high-speed Internet accessand communications products and services.

Recognizing theopportunities presented by newly available products and services and favorablechanges in the regulatory environment, we executed a series of asset swaps,acquisitions and entered into several joint ventures that resulted in ourcurrent composition. The largest of these transactions were the 50/50 jointventures formed with Comcast Cable (formerly known as AT&T Broadband) andits affiliates in October 1998 with respect to the Indiana systems, in October 1999with respect to the Kentucky systems and in January 2001 with respect tothe Illinois systems. As of December 31, 1997, our systems hadapproximately 180,000 customers with the two largest concentrations in Utah andIndiana, which together represented less than half of our customers. We believethat we have successfully transformed our assets so that we currently own,operate and manage a cable television network serving approximately 1.3 millioncustomers, all of which are clustered in the contiguous states of Indiana,Kentucky, Illinois and Ohio. Our current assets are reflective of our strategyto own systems that have high ratios of customers to headends.

In July 1999, wecompleted  an initial public offering of26,450,000 shares of our Class A common stock, raising an aggregate ofapproximately $650.0 million. In December 2005, we completed agoing-private merger with Insight Acquisition Corp., an entity organized bycertain affiliates of The Carlyle Group. As a result of the transaction, allshares of our then outstanding Class A common stock, other than thoseshares held by certain stockholders who elected to maintain their investment inus and those held by stockholders who demanded appraisal rights, were convertedinto the right to receive $11.75 per share in cash, and we were recapitalizedwith new classes of capital stock. The transaction resulted in us becoming aprivately-held corporation.

**Our Systems**

Our systems in Indiana,Kentucky, Illinois and Ohio serve approximately 1.3 million customers. We arethe largest operator of cable systems in Kentucky and the second-largest inboth Indiana and Illinois. Our systems are clustered to serve an average of99,000 customers per headend.

We are able to realizesignificant operational synergies due to the size of the clusters in thesestates and the demographic proximity of all of our systems. In all of oursystems, we have substantially completed upgrading our system infrastructuresto enable us to deliver new technologies, products and services to provide ourcustomers with greater value and choices in the face of growing competition. Asnetwork upgrades were activated, we deployed new and enhanced products andservices in substantially all of our markets, including interactive digitalvideo and high-speed Internet services. In addition, we are offering telephoneservices to our customers in selected markets.

The highly clusterednature of our systems enables us to (a) more efficiently invest ourmarketing dollars and maximize our brand awareness, (b) more economicallyintroduce new and enhanced services, and (c) reduce our overall operatingand maintenance costs as a result of our ability to deploy fiber and reduce thenumber of headends we use throughout our systems. As a result, we believe weare able to achieve improved operating performance on both a combined andsystem-wide basis. Our relationship with Comcast Cable provides us withsubstantial purchasing economies for both our programming and hardware needs.

***The East Region***

As of December 31,2005, the East Region passed approximately 836,600 homes and servedapproximately 417,300 customers. Approximately 98% of our customers in the EastRegion are served by six headends. The East Region, comprised of systemslocated within the States of Indiana, Kentucky and Ohio, is organized in sixmanagement districts:

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*The Central District*

As of December 31,2005, the Central District passed approximately 144,700 homes and servedapproximately 78,900 customers, principally in the community of Bloomington. TheCity of Bloomington, located 45 miles south of Indianapolis, is the home ofIndiana University. Besides the University, major employers include BloomingtonHospital, Cook Incorporated and General Electric.

*The Southwest District*

As of December 31,2005, the Southwest District passed approximately 128,500 homes and servedapproximately 58,200 customers, principally in the communities of Evansville,Boonville, Mt. Vernon, Princeton and Jasper, Indiana, as well as Henderson,Kentucky. Major employers include Alcoa, Whirlpool and Bristol-Myers Squibb.

In January 2003, HDTVwas launched in this District. Telephone service is now fully deployed inEvansville, Boonville and Mt. Vernon, Indiana, as well as in Henderson,Kentucky.

SIGECOM, LLC has overbuiltthe City of Evansville, providing cable television, high-speed Internet andtelephone services in the City of Evansville and neighboring areas. We believethe SIGECOM overbuild passed approximately 83,000 homes, representing 65% ofthe Southwest District’s total homes passed as of December 31, 2005.

*The Lexington District*

As of December 31,2005, the Lexington District passed approximately 144,600 homes and servedapproximately 85,900 customers from a single headend. Lexington is Kentucky’ssecond largest city, located in the central part of the state. Major employersin the Lexington area include the University of Kentucky, Toyota and LexmarkInternational.

As of December 31,2005, approximately  49% of customershave subscribed to our interactive Insight Digital service. Approximately 29%of customers have Insight Broadband high-speed Internet service. Our phoneservice is available in over 78% of Lexington.

*The Northern Kentucky District*

As of December 31,2005, the Northern Kentucky District passed approximately 158,400 homes andserved approximately 81,600 customers from a single headend primarily in theCity of Edgewood. Covington is Kentucky’s fifth largest city. Major employersin the Covington area include Delta Airlines, Toyota, Citicorp, Ashland, Inc.,Fidelity Investments, BICC General Cable Corporation, Omnicare, COMAIR, LevisStrauss, Gap, Inc., Mazak Corp. and R.A. Jones, Inc and Ticona.

*The Bowling Green District*

As of December 31,2005, the Bowling Green District passed approximately 39,000 homes and served approximately24,700 customers from a single headend. Bowling Green is located 120 milessouth of Louisville, 110 miles southwest of Lexington and 70 miles north ofNashville, Tennessee. Bowling Green is the fourth largest city in Kentucky andis the home of Western Kentucky University. Major employers in the BowlingGreen area include General Motors, Fruit of the Loom, Commonwealth HealthCorporation, DESA International and Houchens Industries.

*The Columbus District*

As of December 31,2005, the Columbus District passed approximately 221,200 homes and servedapproximately 87,900 customers from a single headend. The District serves theeastern portion of the City of Columbus and adjacent suburban communitieswithin eastern Franklin County and the contiguous counties of Delaware,Licking, Fairfield and Pickaway. The City of Columbus is the 34th largestdesignated 

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marketarea, the capital of Ohio and the home of Ohio State University. In addition tothe state government and university, the Columbus economy is well diversifiedwith the significant presence of prominent companies such as The Limited,Merck, Wendy’s, Nationwide Insurance, JP Morgan Chase Bank and WorthingtonIndustries.

As of December 31,2005, approximately 43,800 of customers have subscribed to our interactiveInsight Digital service, representing a penetration of nearly 52% in areaswhere digital service is available. The RoadRunner high-speed Internet service,launched in 2000, has achieved a penetration of approximately 20% as of December 31,2005 in areas where service is available. We have launched a telephone servicealternative to SBC (Ameritech) in the Columbus District. In addition, theColumbus District provides exclusive local sports and entertainmentprogramming, featuring a variety of sporting events from area high schools andthe Ohio State University to Columbus Clippers baseball and Columbus Crew majorleague soccer.

In 1996, Ameritechobtained a citywide cable television franchise for the City of Columbus andmost other suburban communities in Franklin County. WideOpenWest acquired theassets of Ameritech in December 2001, and has built its system, both inour service area and in the Time Warner service area on the west side ofColumbus. The areas of the Columbus District served by both us and WideOpenWestpass approximately 132,000 homes, representing 60% of the Columbus District’stotal homes passed as of December 31, 2005.

***The West Region***

As of December 31,2005, the West Region passed approximately 1,026,700 homes and served approximately588,000 customers. Approximately 96% of our customers in the West Region areserved by six headends. The West Region, comprised of systems located withinthe States of Indiana and Illinois, is organized in six management districts:

*The Northwest District*

As of December 31,2005, the Northwest District passed approximately 108,800 homes and servedapproximately 68,000 customers, principally in the communities of Lafayette andKokomo. The City of Lafayette is the home of Purdue University. Besides PurdueUniversity, major employers include Eli Lilly, Subaru, Caterpillar, Great LakesChemical, Lafayette Life Insurance, Delphi Electronics and Chrysler.

*The Northeast District*

As of December 31,2005, the Northeast District passed approximately 211,500 homes and servedapproximately 116,900 customers in Richmond as well as in the suburbancommunities near Indianapolis, including Noblesville and extending north toAnderson and east to Richmond, Indiana. Indianapolis is the state capital ofIndiana and is the twelfth largest city in the United States. Major employersinclude General Motors, Eli Lilly, Sallie May, Roche, Bridgestone/Firestone andAnderson University.

*The Northern Illinois District*

As of December 31,2005, the Northern Illinois District, which is comprised of Rockford and Dixon,Illinois, passed approximately 206,600 homes and served approximately 117,000customers. Rockford is Illinois’ second largest city. Major employers in theRockford metropolitan area include Chrysler Corporation, Rockford HealthSystem, Sundstrand Corporation and Swedish American Health Systems.

Dixon customers areprincipally in the communities of Rock Falls, Peru and Dixon. Dixon is locatedin the north/central part of the State of Illinois. Major employers in theDixon area include the State of Illinois, Raynor Manufacturing Company and BorgWarner Automotive.

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Approximately 99% of theNorthern Illinois District currently operates with a network of 750 MHz orhigher. As of December 31, 2005, the district achieved penetration levelsfor its digital service of approximately 35% in areas where the service isavailable.

*The Peoria District*

As of December 31,2005, the Peoria District passed approximately 206,900 homes and servedapproximately 123,000 customers, principally in the communities of Bloomingtonand Peoria, Illinois. Bloomington is located in the north central part of thestate. The Bloomington system is home to Illinois State University with over21,000 students and Illinois Wesleyan University with over 2,100 students. Themajor employers in Bloomington are State Farm Insurance and Mitsubishi MotorCompany of America. Peoria is the fifth largest city in Illinois, located inthe north central part of the state. The Peoria system is home to BradleyUniversity. Major employers in the Peoria area include the world headquartersof Caterpillar.  Peoria is the regionalmedical center in the State of Illinois outside Chicago. With the University ofIllinois College of Medicine and four recognized hospitals within the city limits,Peoria ranks high on the list of those cities offering superior health care.

The Peoria Districtcompleted the upgrade of all but 68 miles of its 2,300 mile network to 750 MHzor higher. As of December 31, 2005, the Peoria District achievedpenetration levels for its digital service of approximately 36% in areas wheredigital service is available. The District has launched high-speed Internetservice and has achieved penetration levels of approximately 22% as of December 31,2005 in areas where the service is available. In September 2003,video-on-demand and HDTV services were made available to customers in thePeoria District.

*The Springfield District*

As of December 31,2005, the Springfield District passed approximately 191,800 homes and servedapproximately 111,600 customers, principally in the communities of Decatur andSpringfield. Springfield is the capital of Illinois and the sixth largest cityin the state, located in the central part of the state. The major employer inthe Springfield area is the State of Illinois.

Approximately 74% of theSpringfield District operates with a network which is two-way interactive. Asof December 31, 2005, the district achieved penetration levels for itsdigital service of 37% in the areas where the service is available. Thedistrict has launched Insight Broadband high-speed Internet service and hasachieved penetration levels of approximately 19% in areas where the service isavailable. In September 2003, video-on-demand and HDTV services were madeavailable to customers in the Springfield District.

*The Champaign District*

As of December 31,2005, the Champaign District passed approximately 101,200 homes and servedapproximately 51,400 customers. Champaign/Urbana is located in the easterncentral part of the state. The Champaign District is home to the University ofIllinois with over 45,000 students. Major employers in the Champaign and Urbanaareas include the University of Illinois, Kraft Foods and the Carle ClinicAssociation.

The Champaign Districtserves substantially all of its customers by a two-way, 750 MHz network. Thedistrict had approximately 19,700 digital customers as of December 31,2005. The Champaign District has launched Insight Broadband high-speed Internetservice and as of December 31, 2005 had approximately 22,800 customers.

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***The South Region***

As of December 31, 2005, the South Region passedapproximately 557,300 homes and served approximately 276,400 customers,principally in the City of Louisville, Kentucky. This region includesapproximately 92,798 homes passed and approximately 42,059 customers served bythe Scottsburg, Jeffersonville and New Albany, Indiana systems which areoperated by the management of the Louisville, Kentucky system. Louisville isthe 16th largest city in the United States and isKentucky’s largest city. It is located in the northern region of the state,bordering Indiana. Louisville is located within a day’s drive of nearly 50% ofthe United States population, which makes it an important crossroads for tradeand business. Major employers in the Louisville metropolitan area includeHumana, UPS, General Electric and Ford. Knology, Inc. obtained a franchiseto provide cable television service in the City of Louisville inSeptember 2000, although it had not commenced building a cable system asof December 31, 2005.

Substantially all of thecustomers of the Louisville system are served by two-way 750 MHz cable from asingle headend. As of December 31, 2005, approximately 116,000 customersin the Louisville system have subscribed to our interactive Insight Digitalservice. Our phone service is available in approximately 79% of Louisville.

**Customer Rates**

Rates charged to customers vary based on the marketserved and service selected. As of December 31, 2005, the weighted averagerevenue for our monthly combined basic and classic service was approximately$39.40.

A one-time installationfee, which we may reduce during promotional periods, is charged to newcustomers, as well as reconnected customers. We charge monthly fees for set topboxes and remote control devices. We also charge administrative fees fordelinquent payments for service. Customers are free to discontinue service atany time without additional charge and may be charged a reconnection fee toresume service. Commercial customers, such as hotels, motels and hospitals, arecharged negotiated monthly fees and a non-recurring fee for the installation ofservice. Multiple dwelling unit accounts may be offered a bulk rate in exchangefor single-point billing and basic service to all units.

**Sales and Marketing**

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

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

We build awareness of the “Insight”brand through advertising campaigns and strong community relations. As a resultof our branding efforts and consistent service standards, we believe we havedeveloped a reputation for quality and reliability. We also believe that ourmarketing strategies are 

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particularlyeffective due to our regional clustering and market significance, which enablesus to reach a greater number of both current and potential customers in anefficient, uniform manner.

**Programming Suppliers**

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

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

Because of our relationship with Comcast Cable, wehave the right to purchase certain programming services for our systems directlythrough Comcast Cable’s programming supplier Satellite Services, Inc. Webelieve that Satellite Services has attractive programming costs. Additionally,given the clustering of our systems in the Midwest, we have been successful inaffiliating with regionally based programming products such as sports and news,at lower than average license fees.

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

**Commitment to Community Relations**

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

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

All of our systems provide ongoing support for Cablein the Classroom, an industry initiative that earns recognition both locallyand nationally for its efforts in furthering the education of students. Wefurther underscore our commitment to education by offering high-speed Internetaccess to each accredited school in our service area, building upon the cableindustry’s pledge to provide free high-speed Internet access to eligible localschools and public libraries. We offer students and teachers the resources ofbroadband content and robust cable programming to enrich the learningexperience.

With cable modems in the classroom, teachers andstudents alike can benefit from the speedy downloads and access to advancedapplications to enhance the learning experience. In addition to 

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providing this advancedtechnology free of charge, we intend to continue offering programmingenhancements in partnership with various cable networks.

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

**Franchises**

Cabletelevision systems are constructed and operated under fixed-term non-exclusivefranchises or other types of operating authorities that are granted by eitherlocal governmental or centralized state authorities. These franchises typicallycontain many conditions, such as:

·       Timelimitations on commencement and completion of construction;

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

·       Themaintenance of insurance and indemnity bonds; and

·       Thepayment of fees to communities.

As of December 31, 2005, we held 547 franchisesin the aggregate, consisting of 201 in Indiana, 192 in Kentucky, 125 inIllinois and 29 in Ohio. Many of these franchises require the payment of feesto the issuing authorities of 3% to 5% of gross revenues, as defined by eachfranchise agreement, from the related cable system.

The Communications Act of1934 prohibits franchising authorities from imposing annual franchise fees inexcess of 5% of gross annual revenues from the provision of cable services andalso permits the cable television system operator to seek renegotiation andmodification of franchise requirements if warranted by changed circumstancesthat render performance commercially impracticable.

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The following tablesummarizes information relating to the year of expiration of our franchises, asof December 31, 2005:

| **Year of Franchise Expiration** | ** ** | ** ** | ** ** | **Number of  Franchises** | ** ** | **Percentage of  Total Franchises** | ** ** | **Estimated  Number of  Basic Customers** | ** ** | **Percentage Total  Basic Customers  Under Franchises** | ** ** |
|-------------------------------------------------|------------|------------|------------|--------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| Expired*.                                       |       |       | 109        |                           |       |                                          | 19.9       | %                                                   |       |                                                                   | 128,790    |   |   |   | 10.7 | % |   |
| 2006                                            |       |       | 26         |                           |       |                                          | 4.8        | %                                                   |       |                                                                   | 156,415    |   |   |   | 13.0 | % |   |
| 2007.                                           |       |       | 15         |                           |       |                                          | 2.7        | %                                                   |       |                                                                   | 104,536    |   |   |   | 8.7 | % |   |
| 2008.                                           |       |       | 32         |                           |       |                                          | 5.9        | %                                                   |       |                                                                   | 74,903     |   |   |   | 6.2 | % |   |
| 2009                                            |       |       | 44         |                           |       |                                          | 8.0        | %                                                   |       |                                                                   | 123,103    |   |   |   | 10.2 | % |   |
| After 2009                                      |       |       | 321        |                           |       |                                          | 58.7       | %                                                   |       |                                                                   | 618,172    |   |   |   | 51.2 | % |   |

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*                    Such franchisesare operated on a month-to-month basis and are in the process of being renewed.Of these franchises, 41 serve communities in Indiana and may be renewedpursuant to the state-level franchising statute that will take effect July 1,2006.

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

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

**Competition**

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

Congress has enacted legislation and the FCC hasadopted regulatory policies providing a more favorable operating environmentfor new and existing technologies, in particular direct broadcast satellitetelevision system operators, that continue to provide increased competition tocable systems. Congress has also enacted legislation which permits directbroadcast satellite companies to retransmit local television signals,eliminating one of the objections of consumers about switching to satellites.

The 1996 Telecom Act contains provisions designed toencourage local exchange telephone companies and others to provide a widevariety of video services competitive with services provided by cable systems. Localexchange telephone companies in various states have either announced plans,obtained local franchise authorizations or are currently competing with ourcable communications systems. Certain telephone companies have begun to deployfiber more extensively in their networks and some are carrying out announcedplans to deploy broadband services, including video programming services, usinga switched Internet protocol platform or other technologies designed to avoidcertain regulatory burdens imposed on our business.  Legislation recently passed in several states and similar legislationis pending, or has been proposed in certain other states and in Congress, thatwould allow local telephone companies to deliver services in competition withour cable service, without obtaining equivalent local franchises. Anotherproposal in Congress would also limit our ability to maintain competitiveprices. Such a legislatively granted advantage to our competitors couldadversely affect our business. Indiana, the state in 

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which we have the greatestnumber of local franchises, recently passed legislation under which the IndianaUtility Regulatory Commission would become the state’s sole video franchisingauthority on July 1, 2006. Some franchise obligations under these state-issuedfranchises are tied to a pro-rata application of the obligations imposed on theincumbent under it’s locally-issued franchise issued prior to July 1, 2006. This legislation may significantly speedthe ability to fulfill the regulatory prerequisites to new entrants seeking toprovide video service in Indiana. Local exchange telephone companies and othercompanies also provide facilities for the transmission and distribution tohomes and businesses of interactive computer-based services, including theInternet, as well as data and other non-video services. The ability of localexchange telephone companies to cross-subsidize video, data andtelecommunication services also poses some threat to cable operators.

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

The 1984 Cable Act gives franchised cable operatorsthe right to use existing compatible easements within their franchise areas onnondiscriminatory terms and conditions. Accordingly, where there arepreexisting compatible easements, cable operators may not be unfairly deniedaccess or discriminated against with respect to access to those easements. Conflictingjudicial decisions have been issued interpreting the scope of the access rightgranted by the 1984 Cable Act, particularly with respect to private easementsgranted to a specific utility and not “dedicated” to the public. Moreover, thisstatutory easement access right does not appear to allow a cable operator toinstall facilities within a building without permission from the propertyowner.

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

Cable television systems are operated undernon-exclusive franchises granted by local or state authorities thereby allowingmore than one cable system to be built in the same area. Although the number ofmunicipal and commercial overbuild cable systems is small, the potentialprofitability of a cable system is adversely affected if the local customerbase is divided among multiple systems. Additionally, constructing a competingcable system is a capital intensive process which involves a high degree ofrisk. We believe that in order to be successful, a competitor’s overbuild wouldneed to be able to serve the homes in the overbuilt area on a morecost-effective basis than we can. Any such overbuild operation would requireeither significant access to capital or access to facilities already in placethat are capable of delivering cable television programming. As of December 31,2005, our Evansville, Indiana and Columbus, Ohio systems were overbuilt. As aresult, approximately 9% of the total homes passed by our systems wereoverbuilt as of such date.

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Direct broadcast satellite television systems usedigital video compression technology to increase the channel capacity of theirsystems. Direct broadcast satellite television systems’ programming iscurrently available to individual households, condominiums and apartment andoffice complexes through conventional, medium and high-power satellites.High-power direct broadcast satellite television system service is currentlybeing provided by DIRECTV, Inc., EchoStar Communications Corporation whichduring 2005 acquired certain assets of the VOOM satellite service to providehigh definition programming. Direct broadcast satellite television systems havesome advantages over cable systems that have not been upgraded, such as greaterchannel capacity and digital picture quality. The 2003 acquisition of DIRECTVby News Corp. has provided it with access to financial, programming and otherresources that could enhance its competitive potential. In addition,legislation has been enacted which permits direct broadcast satellitetelevision systems to retransmit the signals of local television stations intheir local markets. However, direct broadcast satellite television systemshave a limited ability to offer locally produced programming, and do not have asignificant local presence in the community. In addition, direct broadcastsatellite television system packages can be more expensive than cable,especially if the subscriber intends to view the service on more than onetelevision in the household. Finally, direct broadcast satellite televisionsystems do not have the same full two-way capability, which we believe willlimit their ability to compete in a meaningful way in interactive television,high-speed Internet and voice communications. Direct broadcast satellite hasenjoyed a 27.7% average penetration nationwide, and we believe that satellite penetrationin our various markets generally is at or below such average.

Telephone companies haveintroduced digital subscriber line technology (“DSL”), which allows Internetaccess over traditional phone lines at data transmission speeds typicallygreater than those available by a standard telephone modem. Although thesetransmission speeds are not as great as the transmission speed of a cablemodem, we believe that the transmission speed of DSL technology is sufficientlyhigh that such technology competes with cable modem technology. The FCC iscurrently considering its authority to promulgate rules to facilitate thedeployment of these services and regulate areas including high-speed Internetand interactive Internet services. We cannot predict the outcome of any FCCproceedings, or the impact of that outcome on the success of our Internetaccess services or on our operations. Major telephone companies have also begunto carry out their announced plans to construct new fiber networks over thenext several years and to offer high-speed data and video services over thesefiber networks. In addition, other technologies are entering the marketplacesuch as broadband wireless networks. One major provider, AT&T, recentlyannounced plans to acquire BellSouth Corp. which could give it access togreater resources and economies of scale as well as increase its geographicfootprint. In addition, the FCC has recently approved the provision ofbroadband Internet service to consumers over electronic power lines.

As we expand our offeringsto include telephone services, such services will be subject to competitionfrom existing providers, including both local exchange telephone companies andlong-distance carriers as well as competing providers using alternativetechnologies such as voice over Internet protocol (“VoIP”). Thetelecommunications industry is highly competitive and many telephone serviceproviders may have greater financial resources than we have, or haveestablished relationships with regulatory authorities. In addition, newtechnologies such as VoIP may allow competing telephone providers to offerservice in competition with us over an existing broadband connection (e.g.,cable modem or DSL), thereby avoiding significant capital expenditures for alocal distribution infrastructure. We cannot predict the extent to which thepresence of these competitors will influence customer penetration in ourtelephone service areas. While we may add our telephone service offering tovarious markets, the service has only been launched in selected markets and hasnot yet achieved material penetration levels.

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

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**Legislation and Regulation**

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

**Federal Legislation**

The principal federalstatute governing the cable television industry is the Communications Act. Asit affects the cable television industry, the Communications Act has beensignificantly amended on three occasions, by the 1984 Cable Act, the 1992 CableAct and the 1996 Telecom Act. The 1996 Telecom Act altered the regulatorystructure governing the nation’s telecommunications providers. It reducedbarriers to competition in both the cable television market and the localtelephone market. Among other things, it also reduced the scope of cable rateregulation.

**Federal Regulation**

The FCC, the principalfederal regulatory agency with jurisdiction over cable television, has adoptedregulations covering such areas as cross-ownership between cable televisionsystems and other communications businesses, carriage of television broadcastprogramming, cable rates, consumer protection and customer service, leasedaccess, obscene and indecent programming, programmer access to cable televisionsystems, programming agreements, technical standards, consumer electronicsequipment compatibility and consumer education, ownership of home wiring,availability of programming to competitors, equal employment opportunity,availability of devices to block objectionable programming, originationcablecasting, sponsorship identification, closed captioning, politicaladvertising, advertising limits for children’s programming, signal leakage andfrequency use, maintenance of various records as well as antenna structurenotification, marking and lighting. The FCC has the authority to enforce theseregulations through the imposition of substantial fines, the issuance of ceaseand desist orders and/or the imposition of other administrative sanctions, suchas the revocation of FCC licenses needed to operate certain transmissionfacilities often used in connection with cable operations. A brief summary ofcertain of these federal regulations as adopted to date follows.

*Rate Regulation*

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

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

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

*Carriage ofBroadcast Television Signals*

The 1992 Cable Actcontains signal carriage requirements which allow commercial televisionbroadcast stations that are “local” to a cable television system, that is tosay that the system is located in the station’s Nielsen “designated marketarea,” to elect every three years whether to require the cable televisionsystem to carry the station, subject to certain exceptions, or whether thecable television system will have to negotiate for “retransmission consent” tocarry the station. The last election between must-carry and retransmissionconsent was October 1, 2005. Both broadcasters electing to requireretransmission consent and affected cable operators are subject to FCC rules thatimpose reciprocal requirements on each party to negotiate in good faith oversuch consent. These rules do not require, however, that an agreement beactually reached. A cable television system is generally required to devote upto one-third of its activated channel capacity for the carriage of localcommercial television stations whether pursuant to mandatory carriagerequirements or the retransmission consent requirements of the 1992 Cable Act. Localnon-commercial television stations are also given mandatory carriage rights,subject to certain exceptions, within the larger of:  (i) a 50 mileradius from the station’ city of license; or (ii) the station’ Grade Bcontour, a measure of signal strength. Unlike commercial stations,noncommercial stations are not given the option to negotiate retransmissionconsent for the carriage of their signal. In addition, cable television systemshave to obtain retransmission consent for the carriage of all “distant”commercial broadcast stations, except for certain “superstations,” which arecommercial satellite-delivered 

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independentstations such as WGN. To date, compliance with the “retransmission consent” and“must carry” provisions of the 1992 Cable Act has not had a material effect onus, although this result may change in the future depending on such factors asmarket conditions, channel capacity and similar matters when such arrangementsare renegotiated. FCC  rules requirecarriage of local television broadcast stations that transmit solely in adigital format. In addition, the FCC recently reaffirmed that a stationtransmitting in both analog and digital formats during the current transitionperiod which will end on February 17, 2009, is entitled to carriage ofonly its analog signal and that the mandatory carriage obligation extends onlyto the primary video signal, not to multiple services transmitted by a stationover its digital channel. No later than February 18, 2009, all televisionbroadcasts must be solely in digital format.

*Packaging ofCertain Programming*

Reversing the findings ofa November 2004 report, the FCC released a report in February 2006finding that consumers could benefit under certain a la carte models fordelivery of video programming. The staff-level report did not specificallyrecommend or propose the adoption of any specific rules by the FCC and itdid not endorse a pure a la carte model where subscribers could purchasespecific channels without restriction. Instead, it favored tiers plusindividual channels or smaller theme-based tiers. Shortly after release of thereport, the FCC voted to seek additional information as to whether cablesystems with at least 36 channels are available to at least 70 percent of U.S.homes and whether 70 percent of households served by those systems subscribe. Ifso, the FCC may have additional discretion under the Cable Act to promulgateadditional rules necessary to promote diversity of information sources. TheFCC did not specify what rules it would seek to promulgate; however, theChairman of the FCC has expressed support for family-friendly tiers ofprogramming and availability of programming on an a la carte basis.  Certain cable operators, including us, haveresponded by announcing the intent to offer “family-friendly” programmingtiers. It is not certain whether those efforts will ultimately be regarded as asufficient response. Congress may also consider legislation regardingprogramming packaging, bundling or a-la-carte delivery of programming. Any suchrequirements could fundamentally change the way in which we package and priceour services. We cannot predict the outcome of any current or future FCCproceedings or legislation in this area, or the impact of such proceedings onour business at this time.

*Deletion of CertainProgramming*

Cable television systemsthat have 1,000 or more customers must, upon the appropriate request of a localtelevision station, delete the simultaneous or nonsimultaneous networkprogramming of distant stations when such programming has also been contractedfor by the local station on an exclusive basis. FCC regulations also enabletelevision stations that have obtained exclusive distribution rights forsyndicated programming in their market to require a cable television system todelete or “black out” such programming from other television stations which arecarried by the cable television system. In addition, the rights holder to alocal sports event can prohibit a cable operator from carrying that event on adistant station if the event is not broadcast live by a local station.

*Franchising*

The FCC recently issued aNotice of Proposed Rulemaking seeking comment on whether the current localfranchising process constitutes an impediment to widespread issuance offranchises to competitive cable providers in terms of the sheer number offranchising authorities, the impact of state-level franchising authorities, theburdens some local franchising authorities seek to impose as conditions ofgranting franchises and whether state “level-playing field” statutes alsocreate barriers to entry. We cannot determine the outcome of any potential new rules onour business; however, any change that would lessen the local franchisingburdens and requirements imposed on our competitors relative to those that areor have been imposed on us could harm our business.

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*Franchise Fees*

Although franchisingauthorities may impose franchise fees under the 1984 Cable Act, such paymentscannot exceed 5% of a cable television system’s annual gross revenues from theprovision of cable services. Under the 1996 Telecom Act, franchisingauthorities may not exact franchise fees from revenues derived fromtelecommunications services, although they may be able to exact some additionalcompensation for the use of public rights-of-way. The FCC has ruled thatfranchise fees may not be imposed on revenue from cable modem service. Franchisingauthorities are also empowered, in awarding new franchises or renewing existingfranchises, to require cable television operators to provide cable-relatedfacilities and equipment and to enforce compliance with voluntary commitments.In the case of franchises in effect prior to the effective date of the 1984Cable Act, franchising authorities may enforce requirements contained in thefranchise relating to facilities, equipment and services, whether or notcable-related. The 1984 Cable Act, under certain limited circumstances, permitsa cable operator to obtain modifications of franchise obligations.

*Renewal ofFranchises*

The 1984 Cable Act and the 1992 Cable Act establishrenewal procedures and criteria designed to protect incumbent franchiseesagainst arbitrary denials of renewal and to provide specific grounds forfranchising authorities to consider in making renewal decisions, including afranchisee’s performance under the franchise and community needs. Even afterthe formal renewal procedures are invoked, franchising authorities and cabletelevision operators remain free to negotiate a renewal outside the formalprocess. Nevertheless, renewal is by no means assured, as the franchisee mustmeet certain statutory standards. Even if a franchise is renewed, a franchisingauthority may impose new and more onerous requirements such as upgradingfacilities and equipment, although the municipality must take into account thecost of meeting such requirements. Similarly, if a franchising authority’sconsent is required for the purchase or sale of a cable television system orfranchise, such authority may attempt to impose burdensome or onerous franchiserequirements in connection with a request for such consent. Historically,franchises have been renewed for cable television operators that have providedsatisfactory services and have complied with the terms of their franchises. Atthis time, we are not aware of any current or past material failure on our partto comply with our franchise agreements. The Telecommunications Board of Northern Kentucky (“TBNK”) has allegedthat Insight has failed to comply with a franchise provision regarding certainoperational capabilities of Insight’s cable television system that servescommunities in northern Kentucky. This matter is currently subject tolitigation before the U.S. District Court for the Northern District ofKentucky. We cannot predict the outcome of this matter. We believe thatwe have generally complied with the terms of our franchises and have providedquality levels of service.

The 1992 Cable Act makesseveral changes to the process under which a cable television operator seeks toenforce its renewal rights which could make it easier in some cases for afranchising authority to deny renewal. Franchising authorities may consider the“level” of programming service provided by a cable television operator indeciding whether to renew. For alleged franchise violations occurring after December 29,1984, franchising authorities are no longer precluded from denying renewalbased on failure to substantially comply with the material terms of thefranchise where the franchising authority has “effectively acquiesced” to suchpast violations. Rather, the franchising authority is estopped if, after givingthe cable television operator notice and opportunity to cure, it fails torespond to a written notice from the cable television operator of its failureor inability to cure. Courts may not reverse a denial of renewal based onprocedural violations found to be “harmless error.”

*Channel Set-Asides*

The 1984 Cable Act permitslocal franchising authorities to require cable television operators to setaside certain television channels for public, educational and governmentalaccess programming. The 1984 

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CableAct further requires cable television systems with thirty-six or more activatedchannels to designate a portion of their channel capacity for commercial leasedaccess by unaffiliated third parties to provide programming that may competewith services offered by the cable television operator. The 1992 Cable Actrequires leased access rates to be set according to a formula determined by theFCC.

*Ownership*

The 1996 Telecom Act repealed the statutory banagainst local exchange carriers providing video programming directly tocustomers within their local exchange telephone service areas. Consequently,the 1996 Telecom Act permits telephone companies to compete directly withoperations of cable television systems. Under the 1996 Telecom Act andimplementing rules adopted by the FCC local exchange carriers may providevideo service as broadcasters, common carriers, or cable operators. Inaddition, local exchange carriers and others may also provide video servicethrough “open video systems,” a regulatory regime that may give them moreflexibility than traditional cable television systems. Open video systemoperators (including local exchange carriers) can, however, be required toobtain a local franchise, and they can be required to make payments to localgovernmental bodies in lieu of cable franchise fees. In general, open videosystem operators must make up to two-thirds of the channels on their systemsavailable to programming providers (other than the incumbent cable operator) onrates, terms and conditions that are reasonable and nondiscriminatory.

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

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

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

The 1996 Telecom Actprovides that registered utility holding companies and subsidiaries may providetelecommunications services, including cable television, notwithstanding thePublic Utilities Holding Company Act of 1935, as amended. Electric utilitiesmust establish separate subsidiaries known as “exempt telecommunicationscompanies” and must apply to the FCC for operating authority.  Certain electric power providers are exploring the provision ofbroadband service over power lines. In 2004, the FCC adopted rules: 1) thataffirmed the ability of electric service providers to provide broadbandInternet access services over their distribution systems; and 2) that seek toavoid interference with existing services. 

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Due to their resources, electric utilitiescould be formidable competitors to traditional cable television systems.

*Access toProgramming*

The 1992 Cable Act imposedrestrictions on the dealings between cable operators and cable programmers. Ofspecial significance from a competitive business posture, the 1992 Cable Actprecludes video programmers affiliated with cable companies from favoring theiraffiliated cable operators and requires such programmers to sell theirprogramming to other multichannel video distributors. This provision limits theability of vertically integrated cable programmers to offer exclusiveprogramming arrangements to cable companies. The prohibition on certain typesof exclusive programming arrangements was set to expire on October 5,2002, but the FCC has determined that a five-year extension of the prohibitionis necessary to preserve and protect competition in video programmingdistribution.

*Privacy*

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

*Franchise Transfers*

The 1992 Cable Actrequires franchising authorities to act on any franchise transfer requestsubmitted after December 4, 1992 within 120 days after receipt of allinformation required by FCC regulations and by the franchising authority.Approval is deemed to be granted if the franchising authority fails to actwithin such period.

*TechnicalRequirements*

The FCC has imposed technical standards applicable toall classes of channels which carry downstream National Television SystemCommittee video programming. The FCC also has adopted additional standardsapplicable to cable television systems using frequencies in the 108 to 137 MHzand 225 to 400 MHz bands in order to prevent harmful interference withaeronautical navigation and safety radio services and has also establishedlimits on cable television system signal leakage. Periodic testing by cabletelevision operators for compliance with the technical standards and signalleakage limits is required and an annual filing of the results of thesemeasurements is required. The 1992 Cable Act requires the FCC to periodicallyupdate its technical standards to take into account changes in technology.Under the 1996 Telecom Act, local franchising authorities may not prohibit,condition or restrict a cable television system’s use of any type of customerequipment or transmission technology.

The FCC has adoptedregulations to implement the requirements of the 1992 Cable Act designed toimprove the compatibility of cable television systems and consumer electronicsequipment. These regulations, among other things, generally prohibit cabletelevision operators from scrambling their basic 

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servicetier. The 1996 Telecom Act directs the FCC to set only minimal standards toassure compatibility between television sets, VCRs and cable televisionsystems, and otherwise to rely on the marketplace. Pursuant to the 1992 CableAct, the FCC has adopted rules to assure the competitive availability toconsumers of customer premises equipment, such as converters, used to accessthe services offered by cable television systems and other multichannel videoprogramming distributors. Pursuant to those rules, consumers are given theright to attach compatible equipment to the facilities of their multichannelvideo programming distributors so long as the equipment does not harm thenetwork, does not interfere with the services purchased by other customers andis not used to receive unauthorized services. As of July 1, 2000,multichannel video programming distributors, other than operators of directbroadcast satellite television systems, were required to separate security fromnon-security functions in the customer premises equipment which they sell orlease to their customers and offer their customers the option of usingcomponent security modules obtained from the multichannel video programmingdistributors with set-top units purchased or leased from retail outlets. As of July 1,2007, multichannel video programming distributors will be prohibited fromdistributing new set-top equipment integrating both security and non-securityfunctions to their customers.

*Inside Wiring;Customer Access*

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

*Pole Attachments*

The FCC currently regulates the rates and conditionsimposed by certain public utilities for use of their poles unless state publicservice commissions are able to demonstrate that they adequately regulate therates, terms and conditions of cable television pole attachments. A number ofstates and the District of Columbia have certified to the FCC that theyadequately regulate the rates, terms and conditions for pole attachments.Illinois, Ohio, and Kentucky, states in which we operate, have made such acertification. In the absence of state regulation, the FCC administers suchpole attachment and conduit use rates through use of a formula which it hasdevised. Pursuant to the 1996 Telecom Act, the FCC has adopted a new rateformula for any attaching party, including cable television systems, whichoffers telecommunications services. This new formula will result in higherattachment rates that will apply only to cable television systems which electto offer telecommunications services. Any increases pursuant to this newformula began in 2001,and will be phased in by equal increments over the fiveensuing years. The FCC ruled that the provision of Internet services will not,in and of itself, trigger use of the new formula. The Supreme Court affirmedthis decision and also held that the FCC ‘s authority to regulate rates forattachments to utility poles extended to attachments by cable operators andtelecommunications carriers that are used to provide Internet service or forwireless telecommunications service. This development benefits our business andwill place a constraint on the prices that utilities can charge with regard tothe cable facilities over which we also provide Internet access service.

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*InteractiveTelevision*

The FCC has issued aNotice of Inquiry covering a wide range of issues relating to InteractiveTelevision (“ITV”). Examples of ITV services are interactive electronic programguides and access to a graphic interface that provides supplementaryinformation related to the video display. In the near term, cable systems arelikely to be the platform of choice for the distribution of ITV services. TheFCC has posed a series of questions including the definition of ITV, thepotential for discrimination by cable systems in favor of affiliated ITVproviders, enforcement mechanisms, and the proper regulatory classification ofITV service.

*Copyright*

Cable television systems are subject to federalcopyright licensing covering carriage of broadcast signals. In exchange formaking semi-annual payments to a federal copyright royalty pool and meetingcertain other obligations, cable television operators obtain a statutorylicense to retransmit broadcast signals. The amount of this royalty payment varies,depending on the amount of system revenues from certain sources, the number ofdistant signals carried, and the location of the cable television system withrespect to over-the-air television stations. Adjustment to the copyrightroyalty rates are done through an arbitration process supervised by the U.S.Copyright Office. Cable television operators are liable for interest onunderpaid and unpaid royalty fees, but are not entitled to collect interest onrefunds received for overpayment of copyright fees.

Various bills have been introduced into Congress overthe past several years that would eliminate or modify the cable televisioncompulsory license. Without the compulsory license, cable television operatorswould have to negotiate rights from the copyright owners for all of theprogramming on the broadcast stations carried by cable television systems. Suchnegotiated agreements would likely increase the cost to cable televisionoperators of carrying broadcast signals. The 1992 Cable Act’s retransmission consentprovisions expressly provide that retransmission consent agreements betweentelevision broadcast stations and cable television operators do not obviate theneed for cable operators to obtain a copyright license for the programmingcarried on each broadcaster’s signal.

Several petitions are currently pending with theUnited States Copyright Office seeking revisions to certain compulsorycopyright license reporting requirements and clarification of certain issuesrelating to the application of the compulsory license to the carriage ofdigital broadcast stations. The Copyright Office may open one or morerulemakings in response to these petitions. We cannot predict the outcome ofany such rulemakings; however, it is possible that certain changes in the rules orcopyright compulsory license fee computations could have an adverse affect onour business by increasing our copyright compulsory license fee costs or bycausing us to reduce or discontinue carriage of certain broadcast signals thatwe currently carry on a discretionary basis.

Copyrighted music performed in programming supplied tocable television systems by pay cable networks, such as HBO, and basic cablenetworks, such as USA Network, is licensed by the networks through privateagreements with performing rights organizations such as the American Society ofComposers and Publishers, generally known as ASCAP, BMI, Inc. and SESAC, Inc.ASCAP and BMI offer “through to the viewer” licenses to the cable networkswhich cover the retransmission of the cable networks’ programming by cabletelevision systems to their customers.

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

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*State and LocalRegulation*

Cable television systems generally are operatedpursuant to nonexclusive franchises, permits or licenses granted by amunicipality or other state or local government entity. The terms andconditions of franchises vary materially from jurisdiction to jurisdiction, andeven from city to city within the same state, historically ranging from reasonableto highly restrictive or burdensome. Franchises generally contain provisionsgoverning fees to be paid to the franchising authority, length of the franchiseterm, renewal, sale or transfer of the franchise, territory of the franchise,design and technical performance of the system, use and occupancy of publicstreets and number and types of cable television services provided. The termsand conditions of each franchise and the laws and regulations under which itwas granted directly affect the profitability of the cable television system.The 1984 Cable Act places certain limitations on a franchising authority’sability to control the operation of a cable television system. The 1992 CableAct prohibits exclusive franchises, and allows franchising authorities toexercise greater control over the operation of franchised cable televisionsystems, especially in the area of customer service and rate regulation. The1992 Cable Act also allows franchising authorities to operate their ownmultichannel video distribution system without having to obtain a franchise andpermits states or local franchising authorities to adopt certain restrictionson the ownership of cable television systems. Moreover, franchising authoritiesare immunized from monetary damage awards arising from regulation of cabletelevision systems or decisions made on franchise grants, renewals, transfersand amendments. The 1996 Telecom Act restricts a franchising authority fromeither requiring or limiting a cable television operator’s provision oftelecommunications services.

Various proposals have been introduced at the stateand local levels with regard to the regulation of cable television systems, anda number of states have adopted legislation subjecting cable television systemsto the jurisdiction of centralized state governmental agencies, some of whichimpose regulation of a character similar to that of a public utility. A newKentucky statute enacted in 2005 replaces the fees established by individualfranchise with a 3% excise tax and a 2.4% gross receipts tax which is alsoimposed on other providers of video programming service, such as DBS.

Several states have recently passed legislation andsimilar legislation is pending, or has been proposed in certain other statesand in Congress, that would allow local telephone companies to deliver servicesthat would compete with our cable service, without obtaining equivalent localfranchise. To the extent that incumbents have made prior payments, includingcapital grants, incumbents would still remain at a competitive disadvantageunder the legislation. Another proposal in Congress would also limit ourability to maintain competitive prices. Any such legislatively grantedadvantages to our competitors could adversely affect our business. The effectof such initiatives, if any, on our obligation to obtain local franchises, manyof which have years remaining in the terms, cannot be predicted.

Under a bill recently passedby the Indiana Legislature, effective July 1, 2006, the IndianaUtility Regulatory Commission would become the state’s sole video franchisingauthority. Under this legislation we would have until November 1, 2006 toelect to switch to the state-issued certificate or our existing localfranchises will continue until the later of January 1, 2009 or thetermination or expiration of each franchise. A state-issued certificate withrespect to us would have some of the same obligations under the existing localfranchises. Some franchise obligations under these state-issued franchises aretied to a pro-rata application of the obligations imposed on the incumbentunder it’s locally-issued franchise issued prior to July 1, 2006.  This legislation would greatly speedfulfillment of the regulatory prerequisites to new entrants seeking to providevideo service in Indiana.

The foregoing summarizescertain material present and proposed federal, state and local regulations andlegislation relating to the cable television industry. Other existing federalregulations, copyright licensing and, in many jurisdictions, state and localfranchise requirements, currently are the subject of a variety of judicialproceedings, legislative hearings and administrative and legislative proposalswhich could 

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change,in varying degrees, the manner in which cable television systems operate.Neither the outcome of these proceedings nor their impact upon the cabletelevision industry or us can be predicted at this time.

**Internet Access Service**

We offer a service which enables consumers to accessthe Internet at high speeds via high capacity broadband transmission facilitiesand cable modems. We compete with many other providers of Internet accessservices which are known as Internet service providers (“ISPs”). ISPs includesuch companies as America Online, MSN and Earthlink as well as majortelecommunications providers, including AT&T and local exchange telephonecompanies. The FCC has decided and the United States Supreme Court has affirmedthat cable Internet service should be classified for regulatory purposes as an “informationservice” rather than either a “cable service” or a “telecommunications service.”Concurrently, the FCC has initiated a wide-ranging rulemaking proceeding inwhich it seeks comment on the regulatory ramifications of this classification. Amongthe issues to be decided are whether the FCC should permit local authorities toimpose an access requirement, whether local authorities should be prohibitedfrom imposing fees on cable Internet service revenues, and what regulatory rolelocal authorities should be permitted to play. We cannot predict the outcome ofthe current FCC proceeding or its impact on our business.

There are currently fewlaws or regulations which specifically regulate communications or commerce overthe Internet. Section 230 of the Communications Act, added to that act bythe 1996 Telecom Act, declares it to be the policy of the United States topromote the continued development of the Internet and other interactivecomputer services and interactive media, and to preserve the vibrant andcompetitive free market that presently exists for the Internet and otherinteractive computer services, unfettered by federal or state regulation. Onearea in which Congress did attempt to regulate content over the Internetinvolved the dissemination of obscene or indecent materials. The provisions ofthe 1996 Telecom Act, generally referred to as the Communications Decency Act,were found to be unconstitutional, in part, by the United States Supreme Courtin 1997. In response, Congress passed the Child Online Protection Act. Theconstitutionality of this act is currently being challenged in the courts. In May 2002,the United States Supreme Court reversed the finding by the Third Circuit Courtof Appeals that the use of “contemporary community standards” to identifymaterial “harmful to minors “ was overly broad and therefore violative of theFirst Amendment. The Supreme Court, however, remanded the matter to the ThirdCircuit to determine the validity of other challenges to the constitutionalityof the Child Online Protection Act and kept the stay prohibiting governmentenforcement in place until further action by the lower courts. Finally,disclosure of customer communications or records is governed by the ElectronicCommunications Privacy Act of 2001 and the Cable Act, both of which wereamended by the USA Patriot Act.

**Local Telecommunications Services**

The 1996 Telecom Act provides that no state or locallaws or regulations may prohibit or have the effect of prohibiting any entityfrom providing any interstate or intrastate telecommunications service. Statesare authorized, however, to impose “competitively neutral” requirementsregarding universal service, public safety and welfare, service quality andconsumer protection. State and local governments also retain their authority tomanage the public rights-of-way and may require fair and reasonable,competitively neutral and non-discriminatory compensation for management of thepublic rights-of-way when cable operators or others provide telecommunications serviceusing public rights-of-way. State and local governments must publicly discloserequired compensation from telecommunications providers for use of publicrights-of-way.

Local telecommunications services are subject toregulation by state utility commissions. Use of local telecommunicationsfacilities to originate and terminate long distance services, a servicecommonly referred to as “exchange access,” is subject to regulation both by theFCC and by state utility commissions. As providers of local exchange service,we are subject to the requirements imposed upon competitive local 

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exchange companies by the1996 Telecom Act. These include requirements governing resale, telephone numberportability, dialing parity, access to rights-of-way and reciprocal compensation,among others. Further, the FCC has recently initiated a proceeding to determinewhether additional safeguards are required to protect the privacy of certaincustomer information including call records. Although we cannot predict whetherand the extent to which a state may seek to regulate us, increased regulationwould likely increase our cost of doing business.

Numerous cable operatorsare either exploring or have commenced offering voice over Internet protocol (“VoIP”)as a competitive alternative to traditional circuit-switched telephone service.Various states, including states where we operate, have adopted or areconsidering differing regulatory treatment for VoIP, ranging from minimal or noregulation to full-blown common carrier status. The FCC recently decided thatalternative voice technologies, like certain types of VoIP telephony, should beregulated only at the federal level, rather than by individual states. Manyimplementation details remain unresolved, and there are substantial regulatorychanges being considered that could either benefit or harm VoIP telephony as abusiness operation. While the final outcome of the FCC proceedings cannot bepredicted, it is generally believed that the FCC favors a “light touch”regulatory approach for VoIP telephony, which might include preemption ofcertain state or local regulation.

**Employees**

As of December 31,2005, we employed approximately 3,770 full-time employees and 59 part-timeemployees. We consider our relations with our employees to be good.

**Item 1A.**                RiskFactors

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

***We have substantial debt and significant interestpayment requirements, which may adversely affect our ability to obtainfinancing in the future, to finance our operations and  to react to changes in our business.***

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

| ** **                  | ** ** | **As of  December 31, 2005** | ** ** |
|-----------------------------|------------|---------------------------------------------|------------|
| ** **                  | ** ** | **(dollars in thousands)**        | ** ** |
| Total debt.                 |       |                                        | $          | 2,759,918 |   |   |
| Stockholders’  equity. |       |                                        | 480,545    |   |   |
| Debt to equity ratio.       |       |                                        | 5.7x       |   |   |

 

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

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

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

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

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·       Our indebtedness may limitour ability to withstand competitive pressures and reduce our flexibility inresponding to changing business and economic conditions.

***Our 50% stake in Insight Midwest constitutessubstantially all of our operating assets, and our sole business is themanagement of Insight Midwest’s cable television systems. We may be forced toliquidate Insight Midwest before our 121⁄4% senior discount notes mature.***

Although our financial statements consolidate theresults of Insight Midwest, we own only 50% of the outstanding partnershipinterests in Insight Midwest. The other 50% of Insight Midwest is owned by anindirect subsidiary of Comcast Corporation, an entity over which we have nocontrol. As a result, although our financial statements include 100% of therevenues of Insight Midwest, we are only entitled to share in the results andassets of Insight Midwest to the extent of our partnership interest. InsightMidwest accounted for substantially all of our 2005 revenues. Our 50% interestin Insight Midwest constitutes substantially all of our operating assets. Theonly cash we receive directly from Insight Midwest is a management fee of 3%based on revenues of the cable television systems and reimbursement ofexpenses.

The Insight Midwest partnership agreement providesthat at any time after December 31, 2005 either Comcast Cable or InsightLP (our wholly-owned subsidiary that owns our 50% interest in Insight Midwest)has the right to cause a split-up of Insight Midwest, subject to a limitedright of postponement held by the non-initiating partner. To date, neitherpartner has commenced the split-up process. The split-up would reduce the cashflow from operations that we need to repay our debt, and could require us tomake a change of control offer which we may be unable to finance.

***We depend upon our operating subsidiaries for cash tofund our obligations.***

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

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

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

Cash interest on our 121⁄4% senior discount notes beganto accrue on February 15, 2006, and cash interest on the 121⁄4% notesbecomes payable semiannually in arrears beginning on August 15, 2006. Evenif Insight Midwest receives funds from its subsidiaries, there can be no assurancethat Insight Midwest can or would distribute cash to us to make payments on ouroutstanding 121⁄4% notes due to restrictions imposed by the indentures governingInsight Midwest’s outstanding senior notes and the Insight Midwest partnershipagreement. The indentures governing Insight Midwest’s outstanding 101⁄2% seniornotes and 93⁄4% senior notes limit Insight Midwest’s ability to distribute cashto us for any purpose. Furthermore, because we only own a 50% equity interestin Insight Midwest, the Insight Midwest partnership agreement provides thatInsight Midwest may not pay dividends or make other distributions to us withoutthe consent of our partner, Comcast Cable. As a result, even if the creditorsof Insight Midwest and its subsidiaries 

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were to permitdistributions to us, Comcast Cable could prohibit any such distribution. As aresult, if we are unable to refinance the indebtedness of Insight Midwest andits subsidiaries on terms that provide Insight Midwest with a greater abilityto provide us with funds, we may not be able to make payments required underthe 121⁄4% senior discount notes.

Furthermore, borrowings under the Insight MidwestHoldings credit facility are secured and will mature prior to our and InsightMidwest’s outstanding notes. Accordingly, we may need to refinance all or aportion of our indebtedness on or before maturity. We cannot assure you that wewill be able to refinance any of our indebtedness on commercially reasonableterms or at all.

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

TheInsight Midwest Holdings credit facility contains covenants that restrictInsight Midwest Holdings and its subsidiaries’ ability to:

·       distributefunds or pay dividends to Insight Midwest;

·       incuradditional indebtedness or issue additional equity;

·       repurchaseor redeem equity interests and indebtedness;

·       pledgeor sell assets or merge with another entity;

·       createliens; and

·       makecertain capital expenditures, investments or acquisitions.

Such restrictions could limit our ability to competeas well as our ability to expand. The ability of Insight Midwest Holdings’subsidiaries to comply with these provisions may be affected by events beyondour control. If they were to breach any of these covenants, they would be indefault under the credit facility and they would be prohibited from makingdistributions to Insight Midwest.

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

We have a history of net losses and expect to incuradditional net losses in the future. We incurred a net loss before accruals ofpreferred interests of $74.8 million for the year ended December 31, 2001,$42.3 million for the year ended December 31, 2002, $14.2 million forthe year ended December 31, 2003, $13.8 million for the year ended December 31, 2004 and $84.9million for the year ended December 31, 2005.

We have and will continue to have a substantial amountof interest expense in respect of debt incurred and depreciation andamortization expenses relating to acquisitions of cable systems as well asexpansion and upgrade programs. Such expenses have contributed to the netlosses we experienced.

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

In recent years, the cable and satellite videoindustries have experienced an escalation in the cost of programming, andsports programming in particular. Our cable programming services are dependentupon our ability to procure programming that is attractive to our customers atreasonable rates. Programming costs may continue to escalate, and we may not beable to pass programming cost increases on to our customers. Our financialcondition and results of operations could be negatively affected by furtherincreases in programming costs. Programming has been and is expected tocontinue to be our largest single expense item and accounted for approximately37% of the total programming and other operating costs and selling, general andadministrative expenses for our systems for the year ended December 31,2005.

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

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

The impact from competition, particularly from directbroadcast satellite television systems and companies that overbuild in ourmarket areas, has resulted in a decrease in customer growth rates as well as aloss of customers.  According to the FCC,the percentage of multichannel video customers served by cable televisionoperators dropped from 71.6% as of June 2004 to 69.4% as of June 2005,while the percentage of customers served nationwide by direct broadcastsatellite grew from 25.1% to 27.7% during this same period. This growingcompetition has negatively impacted our financial performance. Increasedcompetition may continue to impact our financial performance. Many of ourpotential competitors have substantially greater resources than we do, and wecannot predict the market share our competitors will eventually achieve, norcan we predict their ability to develop products which will compete with ourplanned new and enhanced products and services such as high-speed Internetaccess, video-on-demand and telephone services.

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

The 1996 Telecom Act contains provisions designed toencourage local exchange telephone companies and others to provide a widevariety of video services competitive with services provided by cable systems. Localexchange telephone companies in various states have either announced plans,obtained local franchise authorizations or are currently competing with ourcable communications systems. Certain telephone companies have begun to deployfiber more extensively in their networks and to deploy broadband services,including video programming services, using a switched Internet protocolplatform or other technologies designed to avoid the same regulatory burdensimposed on our business. New laws or regulations at the federal or state levelmay clarify the ability of local telephone companies to provide their serviceswithout obtaining state or local cable franchises. If local telephone companiesare not required to obtain local cable franchises comparable to ours, it wouldbe adverse to our business.

Since our cable systems are operated undernon-exclusive franchises, competing operators of cable systems and otherpotential competitors, such as municipalities and municipal utility providers,may be granted franchises to build cable systems in markets where we holdfranchises. Competition in geographic areas where a secondary franchise isobtained and a cable network is constructed is called “overbuilding.”  As of December 31, 2005, approximately9% of the homes passed by our cable systems were overbuilt. As of December 31,2005, SIGECOM, LLC had overbuilt our Evansville, Indiana system and passedapproximately 83,000 homes also passed by us. In addition, as of December 31,2005, WideOpenWest had overbuilt our Columbus, Ohio system and passedapproximately 132,000 homes also passed by us. We cannot predict what effectcompetition from these or future competitors will have on our business andoperations.

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

Several telephone companies are offering digitalsubscriber line technology (also known as DSL services), which allows Internetaccess over traditional phone lines at data transmission speeds greater thanthose available by a standard telephone modem. Although these transmissionspeeds generally have not been as fast as the transmission speeds of a cablemodem, we believe that the transmission speeds of digital subscriber linetechnology are sufficiently high that such technology will compete with cablemodem technology. We cannot predict the impact DSL technology will have on ourInternet access services or on our operations.

As we expand our offerings to include telephoneservices in additional markets, the telephone services we deliver will besubject to competition from existing providers, including both local exchangetelephone companies and long-distance carriers as well as competing providersusing alternative technologies such as voice over Internet protocol (“VoIP”).We cannot predict the extent to which the presence of these competitors willinfluence customer penetration in our telephone service areas.

We expect that the most significant competitors forour Internet access and telephone service offerings will be the existing localexchange telephone companies as well as resellers using the local exchangetelephone companies’ networks, although the FCC, after a one-year grace period, will no longer requiretelecommunications companies to unbudle and resell DSL services as a standalone product.  These competitorsare currently the predominant providers of Internet and telephone services inour markets.

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

The cable televisionindustry is subject to extensive legislation and regulation at the federal andlocal levels, and, in some instances, at the state level, and many aspects ofsuch regulation are currently the subject of judicial proceedings andadministrative or legislative proposals. Operating in a regulated industryincreases the cost of doing business generally. We may also become subject toadditional regulatory burdens and related increased costs. As we continue tointroduce additional communications services, we may be required to obtainfederal, state and local licenses or other authorizations to offer suchservices. We may not be able to obtain such licenses or authorizations in atimely manner, or at all, or conditions could be imposed upon such licenses andauthorizations that may not be favorable to us.

***We could face considerable business and financial riskin implementing our acquisition strategy.***

As part of ourstrategy of pursuing value-enhancing transactions, we intend to seek to swap oracquire systems that strategically fit our clustering and operating strategy.Although we regularly engage in discussions with respect to possibleacquisitions and joint ventures, we do not currently have any understandings,commitments or agreements relating to any acquisitions. Future acquisitionscould result in the incurrence of debt and contingent liabilities and anincrease in amortization expenses related to goodwill and other intangibleassets, which could have a material adverse effect upon our business, financialcondition and results of operations.

Risks we could face with respect to acquisitionsinclude:

·       difficultiesin the integration of the operations, technologies, products and personnel ofthe acquired company;

·       risksof entering markets in which we have no or limited prior experience;

·       diversionof management’s attention away from other business concerns; and

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·       expensesof any undisclosed or potential legal liabilities of the acquired company.

The risks associated withacquisitions could have a material adverse effect upon our business, financialcondition and results of operations. We cannot assure that we will besuccessful in consummating future acquisitions on favorable terms or at all.

**Item1B.**               Unresolved StaffComments

Not applicable.

**Item 2.**                        Properties

Acable television system consists of three principal operating components:

·       Thefirst component, the signal reception processing and originating point called a“headend,” receives television, cable programming service, radio and datasignals that are transmitted by means of off-air antennas, microwave relaysystems and satellite earth systems. Each headend includes a tower, antennae orother receiving equipment at a location favorable for receiving broadcastsignals and one or more earth stations that receives signals transmitted bysatellite. The headend facility also houses the electronic equipment, whichamplifies, modifies and modulates the signals, preparing them for passage overthe system’s network of cables.

·       Thesecond component of the system, the distribution network, originates at theheadend and extends throughout the system’s service area. A cable system’sdistribution network consists of microwave relays, coaxial or fiber opticcables placed on utility poles or buried underground and associated electronicequipment.

·       Thethird component of the system is a “drop cable,” which extends from thedistribution network into each customer’s home and connects the distributionsystem to the customer’s television set.

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

**Item 3.**                        LegalProceedings

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

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transaction isconsummated; an award of costs and disbursements including attorneys’fees; and other relief.

On July 28, 2005, the parties to the actionentered into a memorandum of understanding setting forth the terms of aproposed settlement of the litigation which, among other things, provides thatthe buyers shall proceed with the merger, subject to the terms and conditionsof the merger agreement including the “majority of the minority” stockholdervoting condition, and under which the defendants admit to no wrongdoing orfault. The memorandum of understanding contemplates certification of a plaintiffclass consisting of all record and beneficial owners of our Class A commonstock, other than the buyers, during the period beginning on and including March 6,2005, through and including the date of the consummation of the merger, adismissal of all claims with prejudice, and a release in favor of alldefendants of any and all claims related to the merger. The proposed settlementis subject to a number of conditions, including consummation of the mergerwhich closed on December 16, 2005, the plaintiffs’ approval of adefinitive settlement agreement and final court approval of the settlement.

In April 2005, Acacia Media TechnologiesCorporation filed a lawsuit against us and others in the United States DistrictCourt for the Southern District of New York. The complaint alleges, among otherthings, infringement of certain United States patents that allegedly relate tosystems and methods for transmitting and/or receiving digital audio and videocontent. The complaint seeks injunctive relief and damages in an unspecifiedamount. In the event that a court ultimately determines that we infringe on ayof 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 believe there are noother pending or threatened legal proceedings that, if adversely determined,would have a material adverse effect on us.

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

On December 16, 2005, we held a special meetingof stockholders (i) to consider and vote upon a proposal to adopt andapprove the Agreement and Plan of Merger dated as of July 28, 2005 betweenus and Insight Acquisition Corp. which, among other things, provided for themerger of Insight Acquisition Corp. with and into us, with us as the survivingcorporation, and (ii) to consider and vote upon a proposal to approve acharter amendment making Section 5.6 of our certificate of incorporation,which provided that holders of each class of common stock must receive equalper share payments upon a merger, inapplicable to the merger and the othertransactions contemplated by the merger agreement.

Thestockholders adopted and approved the merger agreement. The proposal requiredthe affirmative vote of the holders of a majority of the voting power of theoutstanding shares of our Class A common stock and Class B commonstock entitled to vote on the matter, voting together as a single class. Theresult of this vote was as follows:

| ** **  | **Vote For** | ** ** | ** ** | ** ** | **Vote Against** | ** ** | ** ** | ** ** | **Abstained** | ** ** |
|-------------|-------------------|------------|------------|------------|-----------------------|------------|------------|------------|---------------|------------|
| 123,305,778 |              | 403,064    |       | 4,557      |

 

Theproposal also required the affirmative vote of the holders of a majority of theoutstanding shares of our Class A common stock entitled to vote on thematter not held by Insight Acquisition Corp., certain stockholders who electedto maintain their investment in us or any member of their immediate families, 

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The Carlyle Group or any of its affiliates, or any ofour officers or directors or any member of their immediate families. The resultof this vote was as follows:

| ** ** | **Vote For** | ** ** | ** ** | ** ** | **Vote Against** | ** ** | ** ** | ** ** | **Abstained** | ** ** |
|------------|-------------------|------------|------------|------------|-----------------------|------------|------------|------------|---------------|------------|
| 36,095,493 |              | 403,064    |       | 4,557      |

 

Thestockholders also adopted and approved the charter amendment. The proposalrequired the affirmative vote of the holders of a majority of the outstandingshares of our Class A common stock entitled to vote, voting separately asa class. The result of this vote was as follows:

| ** ** | **Vote For** | ** ** | ** ** | ** ** | **Vote Against** | ** ** | ** ** | ** ** | **Abstained** | ** ** |
|------------|-------------------|------------|------------|------------|-----------------------|------------|------------|------------|---------------|------------|
| 37,259,962 |              | 661,055    |       | 897,842    |

 

Theproposal to approve the charter amendment also required the affirmative vote ofthe holders of a majority of the outstanding shares of our Class B commonstock entitled to vote, voting separately as a class. The result of this votewas as follows:

| ** ** | **Vote For** | ** ** | ** ** | ** ** | **Vote Against** | ** ** | ** ** | ** ** | **Abstained** | ** ** |
|------------|-------------------|------------|------------|------------|-----------------------|------------|------------|------------|---------------|------------|
| 8,489,454  |              | 0          |       | 0          |

 

 

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**PART II**

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

There is no public tradingmarket for our equity securities. As a result of our going-private transactioncompleted on December 16, 2005, all shares of our then outstanding Class Acommon stock, other than those shares held by certain stockholders who electedto maintain their investment in us and those held by stockholders who demandedappraisal rights, were converted into the right to receive $11.75 per share incash, and we were recapitalized with new classes of capital stock. Immediatelyafter completion of the going-private transaction, our Class A commonstock was delisted from The Nasdaq National Market.

**Dividend Policy**

We have never paid anycash dividends and intend, for the foreseeable future, to retain any futureearnings for the development of our business. Our charter as well as the termsof our indebtedness and the indebtedness of our subsidiaries restrict our abilityto pay dividends. Our future dividend policy will be determined by the Board ofDirectors on the basis of various factors, including our results of operations,financial condition, capital requirements and investment opportunities.

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**Item 6.**                        SelectedFinancial Data

In thefollowing table, we provide you with our selected consolidated historicalfinancial and other data. We have prepared the consolidated selected financialinformation using our consolidated financial statements for the five yearsended December 31, 2005. 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,**                                      | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                             | ** ** | **2005**                                                                        | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                                                                             | ** ** | **(dollars in thousands, except per share data)** | ** ** |
| **Statement of Operations Data:**                                                                                                                      |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Revenue                                                                                                                                                |       | $                                                                               | 1,117,681  |   | $ | 1,002,456 |   | $ | 902,592 |   | $ | 811,995 |   | $ | 729,038 |   |
| Total operating costs and expenses                                                                                                                     |       | 976,102                                                                         |       | 813,971 |   | 747,248 |   | 672,993 |   | 799,871 |   |
| Operating income (loss)                                                                                                                                |       | 141,579                                                                         |       | 188,485 |   | 155,344 |   | 139,002 |   | (70,833 | ) |
| Total other expense, net                                                                                                                               |       | (220,520                                                                        | )          | (204,089 | ) | (177,495 | ) | (203,106 | ) | (173,872 | ) |
| Loss before minority interest, investment activity,  extinguishments of obligations, gain on contract settlement, income taxes and  extraordinary item |       | (78,941                                                                         | )          | (15,604 | ) | (22,151 | ) | (64,104 | ) | (244,705 | ) |
| Minority interest income (expense)                                                                                                                     |       | (5,488                                                                          | )          | (14,023 | ) | (7,936 | ) | 31,076 |   | 141,314 |   |
| Equity in losses of investees                                                                                                                          |       | —                                                                          |       | — |   | - |   | — |   | (2,031 | ) |
| Gain (loss) from early extinguishment of debt(1)                                                                                                       |       | —                                                                          |       | — |   | (10,879 | ) | 3,560 |   | (10,315 | ) |
| 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 | ) | (9,899 | ) |
| Loss before income taxes and extraordinary item                                                                                                        |       | (84,429                                                                         | )          | (29,627 | ) | (16,893 | ) | (47,491 | ) | (125,636 | ) |
| Benefit (provision) for income taxes                                                                                                                   |       | (500                                                                            | )          | 201 |   | 2,702 |   | 5,175 |   | 50,847 |   |
| Loss before extraordinary item                                                                                                                         |       | (84,929                                                                         | )          | (29,426 | ) | (14,191 | ) | (42,316 | ) | (74,789 | ) |
| Extraordinary item, net of tax                                                                                                                         |       | —                                                                          |       | 15,627 |   | — |   | — |   | — |   |
| Loss before preferred interests(2)                                                                                                                     |       | (84,929                                                                         | )          | (13,799 | ) | (14,191 | ) | (42,316 | ) | (74,789 | ) |
| Accrual of preferred interests(3)                                                                                                                      |       | —                                                                          |       | — |   | (10,353 | ) | (20,107 | ) | (19,432 | ) |
| Net loss                                                                                                                                               |       | $                                                                               | (84,929    | ) | $ | (13,799 | ) | $ | (24,544 | ) | $ | (62,423 | ) | $ | (94,221 | ) |

 

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| ** **                                          | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                          | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                          | ** ** | **(dollars in thousands)**       | ** ** |
| **Other Financial Data:**                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Capital expenditures                                |       | $                                          | 220,102    |   | $ | 174,096 |   | $ | 196,658 |   | $ | 283,004 |   | $ | 325,581 |   |
| Net cash provided by operating activities           |       | 233,573                                    |       | 289,914 |   | 197,788 |   | 175,296 |   | 161,325 |   |
| Net cash used in investing activities               |       | 218,711                                    |       | 173,544 |   | 234,691 |   | 293,390 |   | 802,875 |   |
| Net cash provided by (used in) financing activities |       | (85,224                                    | )          | (76,398 | ) | 22,225 |   | (5,604 | ) | 806,365 |   |
| **Balance Sheet Data:**                             |       |                                       |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                           |       | $                                          | 29,782     |   | $ | 100,144 |   | $ | 60,172 |   | $ | 74,850 |   | $ | 198,548 |   |
| Fixed assets, net                                   |       | 1,130,705                                  |       | 1,154,251 |   | 1,216,304 |   | 1,220,251 |   | 1,151,709 |   |
| Total assets                                        |       | 3,665,164                                  |       | 3,769,872 |   | 3,809,655 |   | 3,789,062 |   | 3,867,392 |   |
| Total debt, including preferred interests(3)        |       | 2,759,918                                  |       | 2,807,563 |   | 2,848,291 |   | 2,772,824 |   | 2,728,189 |   |
| Stockholders’  equity                          |       | 480,545                                    |       | 545,810 |   | 557,119 |   | 587,055 |   | 646,030 |   |

 

| ** **                                      | ** ** | **As of December 31, 2005** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                      | ** ** | **South  Region**                               | ** ** | **East  Region** | ** ** | **West  Region** | ** ** | **Total** | ** ** |
| **Technical Data:**                             | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Network miles                                   |       | 6,900                                           |       | 11,000 |   | 12,800 |   | 30,700 |   |
| Number of headends                              |       | 2                                               |       | 9 |   | 17 |   | 28 |   |
| Number of headends serving 97% of our customers |       | 1                                               |       | 6 |   | 6 |   | 13 |   |
| **Operating Data:**                             | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Homes passed(4)                                 |       | 557,300                                         |       | 836,600 |   | 1,026,700 |   | 2,420,600 |   |
| Basic customers(5)                              |       | 276,400                                         |       | 417,300 |   | 588,000 |   | 1,281,700 |   |
| Basic penetration(6)                            |       | 49.6                                            | %          | 49.9 | % | 57.3 | % | 52.9 | % |
| Digital ready homes(7)                          |       | 276,300                                         |       | 403,400 |   | 558,900 |   | 1,238,600 |   |
| Digital customers(8)                            |       | 116,000                                         |       | 187,500 |   | 215,300 |   | 518,800 |   |
| Digital penetration(9)                          |       | 42.0                                            | %          | 46.5 | % | 38.5 | % | 41.9 | % |
| Premium units(10)                               |       | 125,500                                         |       | 156,000 |   | 178,300 |   | 459,800 |   |
| Premium penetration(11)                         |       | 45.4                                            | %          | 37.4 | % | 30.3 | % | 35.9 | % |
| High-Speed Internet customers(12)               |       | 100,800                                         |       | 164,300 |   | 205,300 |   | 470,400 |   |

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(1)          TheFinancial Accounting Standards Board has issued SFAS No. 145 which iseffective for fiscal years beginning after May 15, 2002 and generallyeliminates the classification of gains and losses from the early extinguishmentof debt as extraordinary items. With the adoption of SFAS No. 145, wereclassified $10.3 million recorded in 2001 to results from continuingoperations.

(2)          Inaccordance with the adoption of SFAS No. 142, beginning January 1,2002, we no longer record amortization expense associated with franchise costs,goodwill and other indefinite lived intangible assets. This change inaccounting would have resulted in a net loss of $11.8 million for the yearended December 31, 2001.

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

(4)          Homes passed are thenumber of single residence homes, apartments and condominium units passed bythe cable distribution network in a cable system’s service area.

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(5)          Basic customers arecustomers of a cable television system who receive a package of over-the-airbroadcast stations, local access channels and certain satellite-delivered cabletelevision services, other than premium services, and who are usually charged aflat monthly rate for a number of channels.

(6)          Basic penetration meansbasic customers as a percentage of total number of homes passed.

(7)          Digital ready homesmeans the total number of basic customers to whom digital service is available.

(8)          Customers with a digitalconverter box.

(9)          Digital penetrationmeans digital service units as a percentage of digital ready homes.

(10)   Premium units mean the totalnumber of subscriptions to premium services, which are paid for on anindividual unit basis.

(11)   Premium penetration meanspremium service units as a percentage of the total number of basic customers. Acustomer may purchase more than one premium service, each of which is countedas a separate premium service unit. This ratio may be greater than 100% if theaverage customer subscribes to more than one premium service unit.

(12)   Customersreceiving high-speed Internet service.

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

**Introduction**

Our revenues areearned from customer fees for cable television video services including basic,premium, digital and pay-per-view services and ancillary services, such asrental of converters and remote control devices and installations. In addition,we earn revenues from providing high-speed Internet services, selling advertising,providing telephone services, commissions for products sold through homeshopping networks and, through July 31, 2004, management fees for managingcable systems.

We have generated increases inrevenues for each of the past three fiscal years, primarily through acombination of internal customer growth, increases in monthly revenue percustomer, growth in advertising revenue and increasing revenue from selling newservices including high-speed Internet access, interactive digital video andtelephone services.

We have historically recordednet losses through December 31, 2005. Some of the principal reasons forthese net losses include i) depreciation and amortization associated with ourcapital expenditures for the construction, expansion and maintenance of oursystems, and ii) interest costs on borrowed money. We expect to continue toreport net losses for the foreseeable future. We cannot predict what impact, ifany, continued losses will have on our ability to finance our operations in thefuture.

We face intense competition forour video programming services, primarily from direct broadcast satelliteservice, or DBS service providers. In 2004, competitive pressure from the DBSservice providers increased when they launched local television channels in marketsrepresenting an estimated 37% of our basic customer base. Since they have beenpermitted to deliver local television broadcast signals beginning in 1999,DirecTV, Inc. and Echostar Communications Corporation, the two largest DBSservice providers, have been increasing the number of markets in which theydeliver these local television signals. These “local-into-local” launches weretypically accompanied by significant marketing and advertising and were a majorcause of our loss of basic customers in 2004. As of December 31, 2005,local television coverage in our markets by one or more DBS service providerrepresented an estimated 98% of our basic customers.

The following table is derived for the periods presentedfrom our consolidated financial statements that are included in this report andsets forth certain statement of operations data for our consolidated 

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operations. Certain prior yearamounts have been reclassified to conform to the current year’s presentation.

| ** **                                           | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                           | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                           | ** ** | **(in thousands)**                    | ** ** |
| Revenue                                              |       | $                                          | 1,117,681  |   | $ | 1,002,456 |   | $ | 902,592 |   |
| Operating costs and expenses:                        |       |                                       |       |   |   |   |   |
| Programming and other  operating costs               |       | 380,277                                    |       | 342,636 |   | 327,505 |   |
| Selling, general and  administrative                 |       | 269,446                                    |       | 227,774 |   | 187,983 |   |
| Transaction-related  costs                           |       | 61,972                                     |       | — |   | — |   |
| Stock-based compensation                             |       | 17,368                                     |       | 4,438 |   | 1,729 |   |
| Depreciation and  amortization                       |       | 247,039                                    |       | 239,123 |   | 230,031 |   |
| Total operating costs  and expenses                  |       | 976,102                                    |       | 813,971 |   | 747,248 |   |
| Operating income                                     |       | 141,579                                    |       | 188,485 |   | 155,344 |   |
| Interest expense                                     |       | (226,956                                   | )          | (201,450 | ) | (206,031 | ) |
| Benefit (provision) for  income taxes                |       | (500                                       | )          | 201 |   | 2,702 |   |
| Minority interest  expense                           |       | (5,488                                     | )          | (14,023 | ) | (7,936 | ) |
| Extraordinary item                                   |       | —                                     |       | 15,627 |   | — |   |
| Net loss                                             |       | (84,929                                    | )          | (13,799 | ) | (24,544 | ) |
| Net cash provided by  operating activities           |       | 233,573                                    |       | 289,914 |   | 197,788 |   |
| Net cash used in  investing activities               |       | 218,711                                    |       | 173,544 |   | 234,691 |   |
| Net cash provided by  (used in) financing activities |       | (85,224                                    | )          | (76,398 | ) | 22,225 |   |
| Capital expenditures                                 |       | 220,102                                    |       | 174,096 |   | 196,658 |   |
|                                                      |            |                                            |            |  |  |  |  |  |  |  |

 

**Useof Operating Income before Depreciation and Amortization and Free Cash Flow**

We utilize OperatingIncome before Depreciation and Amortization, among other measures, to evaluatethe performance of our businesses. Operating Income before Depreciation andAmortization is considered an important indicator of the operational strengthof our businesses and is a component of our annual compensation programs. Inaddition, our debt agreements use Operating Income before Depreciation andAmortization, adjusted for certain non-recurring items, in their leverage andother covenant calculations. We also use this measure to determine how we willallocate resources and capital. Our management finds this measure helpfulbecause it captures all of the revenue and ongoing operating expenses of ourbusinesses and therefore provides a means to directly evaluate the ability ofour business operations to generate returns and to compare operatingcapabilities across our businesses. This measure is also used by equity andfixed income research analysts in their reports to investors evaluating ourbusinesses and other companies in the cable television industry. We believeOperating Income before Depreciation and Amortization is useful to investorsbecause it enables them to assess our performance 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, whichmay have different depreciation and amortization policies.

A limitation of OperatingIncome before Depreciation and Amortization, however, is that it does notreflect the periodic costs of certain capitalized tangible and intangibleassets used in generating revenues in our businesses. Management evaluates thecosts of such tangible and intangible assets through other financial measuressuch as capital expenditures, investment spending and Free Cash Flow. Managementalso evaluates the costs of capitalized tangible and intangible assets byanalyzing returns provided on the capital dollars deployed. Another limitationof Operating 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 itself, Free Cash Flow, the returns analysis discussed above and debtservice covenant ratios under our credit facility.

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

Both Operating Incomebefore Depreciation and Amortization and Free Cash Flow should be considered inaddition to, not as a substitute for, Operating Income, Net Income and variouscash flow measures (e.g., Net Cash Provided by Operating Activities), as wellas other measures of financial performance and liquidity reported in accordancewith accounting principles generally accepted in the United States.

***Reconciliation of Net Loss to Operating Income beforeDepreciation and Amortization***

Thefollowing table reconciles Net loss to Operating Income before Depreciation andAmortization. In addition, the table provides the componentsfrom Net loss to Operating Income for purposes of the discussions that follow.

| ** **                                                                                                                                             | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                             | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                                                                             | ** ** | **(in thousands)**                    | ** ** |
| Net loss                                                                                                                                               |       | $                                          | (84,929    | ) | $ | (13,799 | ) | $ | (24,544 | ) |
| Accrual of  preferred Interests                                                                                                                        |       | —                                     |       | — |   | 10,353 |   |
| Loss before preferred interests                                                                                                                        |       | (84,929                                    | )          | (13,799 | ) | (14,191 | ) |
| Extraordinary item, net of tax                                                                                                                         |       | —                                     |       | (15,627 | ) | — |   |
| Loss before extraordinary item                                                                                                                         |       | (84,929                                    | )          | (29,426 | ) | (14,191 | ) |
| (Benefit)  provision for income taxes                                                                                                                  |       | 500                                        |       | (201 | ) | (2,702 | ) |
| Loss before  income taxes and extraordinary item                                                                                                       |       | (84,429                                    | )          | (29,627 | ) | (16,893 | ) |
| Impairment  write-down of investments                                                                                                                  |       | —                                     |       | — |   | 1,500 |   |
| Gain on  settlement of programming contract                                                                                                            |       | —                                     |       | — |   | (37,742 | ) |
| Loss on  settlement of put obligation                                                                                                                  |       | —                                     |       | — |   | 12,169 |   |
| Loss from early  extinguishments of debt                                                                                                               |       | —                                     |       | — |   | 10,879 |   |
| Minority interest  expense                                                                                                                             |       | 5,488                                      |       | 14,023 |   | 7,936 |   |
| Loss before  minority interest, investment activity, extinguishments of obligations, gain  on contract settlement, income taxes and extraordinary item |       | (78,941                                    | )          | (15,604 | ) | (22,151 | ) |
| Other (income) expense:                                                                                                                                |       |                                       |       |   |   |   |   |
| Other                                                                                                                                                  |       | (3,541                                     | )          | 3,388 |   | 31 |   |
| Interest income                                                                                                                                        |       | (2,895                                     | )          | (749 | ) | (1,433 | ) |
| Interest expense                                                                                                                                       |       | 226,956                                    |       | 201,450 |   | 206,031 |   |
| Gain on cable system exchange                                                                                                                          |       | —                                     |       | — |   | (27,134 | ) |
| Total other  expense, net                                                                                                                              |       | 220,520                                    |       | 204,089 |   | 177,495 |   |
| Operating income                                                                                                                                       |       | 141,579                                    |       | 188,485 |   | 155,344 |   |
| Depreciation and  amortization                                                                                                                         |       | 247,039                                    |       | 239,123 |   | 230,031 |   |
| Stock-based  compensation                                                                                                                              |       | 17,368                                     |       | 4,438 |   | 1,729 |   |
| Operating Income before  Depreciation and Amortization                                                                                                 |       | $                                          | 405,986    |   | $ | 432,046 |   | $ | 387,104 |   |

 

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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,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| ** **                                             | ** ** | **(in thousands)**                    | ** ** |
| Operating income                                       |       | $                                          | 141,579    |   | $ | 188,485 |   |
| Depreciation and amortization                          |       | 247,039                                    |       | 239,123 |   |
| Stock-based compensation                               |       | 17,368                                     |       | 4,438 |   |
| Operating Income  before Depreciation and Amortization |       | 405,986                                    |       | 432,046 |   |
| Changes  in working capital accounts (1)               |       | 16,069                                     |       | 25,741 |   |
| Cash paid  for interest                                |       | (188,216                                   | )          | (167,602 | ) |
| Cash paid  for taxes                                   |       | (266                                       | )          | (271 | ) |
| Net cash provided  by operating activities             |       | 233,573                                    |       | 289,914 |   |
| Capital  expenditures                                  |       | (220,102                                   | )          | (174,096 | ) |
| Free Cash Flow                                         |       | $                                          | 13,471     |   | $ | 115,818 |   |

----

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

**Results of Operations**

***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 basic and classic video rate increases. High-speed Internet service revenueincreased 45% over the prior year, which is mainly attributable to an increasedcustomer base. We added a net 139,900 high-speed Internet customers during theyear to end the year at 470,400 customers. In addition, digital service revenueincreased 13% over the prior year due to an increased customer base. We added anet 67,500 digital customers during the year to end the year at 518,800customers.

Basic cable service revenue increased 4% primarily dueto basic and classic video rate increases, partially offset by promotionaldiscounts. Although the number of basic video customers was higher atDecember 31, 2005 than December 31, 2004, the average number ofcustomers during the year declined slightly. We are increasing our customerretention efforts by emphasizing bundling, enhancing and differentiating ourvideo services and providing video-on-demand, high definition television anddigital video recorders.  We are alsocontinuing to focus on improving customer satisfaction through higher servicelevels, increased education of our product offerings and increased spending onsales and marketing efforts.

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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 | % |   |

 

TotalCustomer Relationships were approximately 1,347,500 as of December 31,2005, an increase of 24,800 from 1,322,700 as of December 31, 2004. 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. Revenue Generating Units (“RGUs”),which represent the sum of basic, digital, high-speed Internet and telephonecustomers, as of December 31, 2005 increased 11% as compared to December 31,2004. RGUs by 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 as basicand classic video rate increases. In addition, telephone revenues for the yearended 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 $37.6million, 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 reconnect activities.Other operating costs also increased as a result of increases in repairs andmaintenance costs due to increased repair costs for customer premise 

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equipment, an increase indrop materials due to customer growth and increased property taxes due to afavorable reversal of accrued property taxes recorded in 2004.

Selling, general and administrative expenses increased$41.7 million, or 18%, 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. Marketingexpenses increased over the prior year to support the continued rollout ofhigh-speed Internet, digital and telephone products, and to maintain thecompany’s core video customer base. A decrease in expenses previously allocatedto Comcast under our prior agreement to manage certain Comcast systems alsocontributed to the increase in selling, general and administrative expenses. Asthis agreement was terminated effective July 31, 2004, the year ended December 31,2005 does not include any of these expense allocations, and the year ended December 31,2004 includes seven months of these expense allocations. Some cost savings havebeen realized upon termination of the management agreement, and the impact ofcertain of these savings is reflected 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.

Stock-based compensation expense increased $12.9million due to the expense associated with the accelerated vesting of certainrestricted shares in connection with the going-private transaction and inconnection with the granting of restricted and deferred shares during the yearended December 31, 2005.

Depreciation and amortization expense increased $7.9million, or 3%, primarily as a result of additional capital expendituresthrough December 31, 2005. Theseexpenditures were primarily for telephone equipment, purchases of customerpremise equipment and drop materials and network extensions, all of which weconsider necessary in order to continue to maintain and grow our customer baseand expand our service offerings. Partially offsetting this increase was adecrease in depreciation expense related to certain assets that have becomefully depreciated since December 31, 2004.

As a result of the factorsdiscussed above, Operating Income before Depreciation and Amortizationdecreased $26.0 million. After adjusting for going-private transaction-relatedcosts of $62.0 million, Operating Income before Depreciation andAmortization increased $36.0 million to $468.0 million, an increase of 8%over 2004.

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

***Year Ended December 31, 2004 Compared to YearEnded December 31, 2003***

Revenue for the year ended December 31, 2004 totaled $1.0 billion, an increase of 11%over the prior year, due primarily to customer gains in high-speed Internet anddigital services, as well as basic rate increases. High-speed Internet servicerevenue increased 41% over the prior year, primarily due to an increasedcustomer base. We added a net 100,500 high-speed Internet customers during theyear to end the year at 330,500 customers. Basic cable service revenue increased7%, primarily due to basic rate increases partially offset by customer losses.Our loss in basic customers resulted primarily from greater competitivepressures by DBS service providers, particularly in those markets where weexperienced their “local-to-local” launches. In addition, digital servicerevenue increased 18% over the prior year, primarily due to an increasedcustomer base. We added a net 48,400 digital customers during the year to endthe year at 451,300 customers.

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

| ** **          | ** ** | **Revenue by Service Offering** | ** ** |                              |
|---------------------|------------|------------------------------------------------|------------|-----------------------------------|
| ** **          | ** ** | **2004**                                       | ** ** | **% of Total  Revenue** | ** ** | **2003** | ** ** | **% of Total  Revenue** | ** ** | **% Change  in Revenue** | ** ** |   |
| Basic               |       | $                                              | 573,650    |                              |   | 57.2 | % |   | $ | 537,026 |   |   | 59.5 | % |   |   | 6.8 | % |   |
| High-speed Internet |       | 132,011                                        |       |                              | 13.2 | % |   | 93,937 |   |   | 10.4 | % |   |   | 40.5 | % |   |
| Digital             |       | 98,797                                         |       |                              | 9.9 | % |   | 83,471 |   |   | 9.3 | % |   |   | 18.4 | % |   |
| Advertising         |       | 68,415                                         |       |                              | 6.8 | % |   | 58,832 |   |   | 6.5 | % |   |   | 16.3 | % |   |
| Premium             |       | 57,054                                         |       |                              | 5.7 | % |   | 57,247 |   |   | 6.3 | % |   |   | (0.3 | )% |   |
| Franchise fees      |       | 28,721                                         |       |                              | 2.9 | % |   | 27,350 |   |   | 3.0 | % |   |   | 5.0 | % |   |
| Other               |       | 28,554                                         |       |                              | 2.8 | % |   | 32,396 |   |   | 3.6 | % |   |   | (11.9 | )% |   |
| Telephone           |       | 15,254                                         |       |                              | 1.5 | % |   | 12,333 |   |   | 1.4 | % |   |   | 23.7 | % |   |
| Total               |       | $                                              | 1,002,456  |                              |   | 100.0 | % |   | $ | 902,592 |   |   | 100.0 | % |   |   | 11.1 | % |   |
|                     |            |                                                |            |                                   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

TotalCustomer Relationships were approximately 1,322,700 as of December 31,2004 compared to 1,327,200 as of December 31, 2003. RGUs as of December 31,2004 increased 7% as compared to December 31, 2003. RGUs by category wereas follows (in thousands):

| ** **           | ** ** | **December 31**, 2004 | ** ** | **December 31**, 2003 | ** ** |
|----------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Basic                |       |                            | 1,272.5    |                            |       |   | 1,293.6 |   |   |
| Digital              |       |                            | 451.3      |                            |       |   | 402.9 |   |   |
| High-speed  Internet |       |                            | 330.5      |                            |       |   | 230.0 |   |   |
| Telephone            |       |                            | 64.3       |                            |       |   | 55.4 |   |   |
| Total RGUs           |       |                            | 2,118.6    |                            |       |   | 1,981.9 |   |   |

 

Average monthly revenue per basic customer was $64.96for the year ended December 31, 2004, compared to $58.03 for the yearended December 31, 2003 primarily reflecting the continued successfulrollout of new product offerings in all markets. Average monthly revenue perbasic customer for high-speed Internet and digital service increased to $14.95for the year ended December 31, 2004, up from $11.41 for the year ended December 31,2003.

Programming and other operating costs increased $15.1million, or 5%. Partially offsetting the increase in programming and otheroperating costs was the reversal of a $14.7 million accrual for property taxesfor the years 1999 through 2004. Excluding the reversal of this accrual,programming and other operating costs increased 9%. Programming costs increased11%, primarily as a result of increased programming rates for our classicservice and an increase in digital customers served. In addition, programmingcosts increased due to an increase in high-speed Internet costs driven by thenet addition of 100,500 high-speed Internet customers. This increase inhigh-speed Internet costs was partially offset by more favorable per customercharges under a new agreement with our Internet service provider, beginning July 2004.In addition, programming costs increased as a result of an increased volume ofmodems provided to customers under certain marketing campaigns. Excluding thereversal of the property tax accrual, other operating costs increased 4%,primarily attributable to increases in labor costs, which increased due to areduction of network rebuild/upgrade activities.

44

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Selling, general and administrative expenses increased$39.8 million, or 21%, primarily due to increased payroll and related costsreflecting salary increases for existing employees and increases in healthinsurance costs. In addition, marketing expenses increased to support thecontinued rollout of high-speed Internet and digital products and to maintainthe core video customer base. A decrease in expenses previously allocated toComcast Cable in connection with the cable systems we previously managed for aComcast Cable affiliate also contributed to the increase in selling, generaland administrative expenses. As this management arrangement was terminatedeffective July 31, 2004, the year ended December 31, 2004 containsonly seven months of expense allocations versus a full year for the year ended December 31,2003. While cost savings have been realized upon termination of the managementarrangement, the impact of some of these savings is reflected in programmingand other operating costs. In addition, bad debts and collection costsincreased, reflecting an increase in the number of accounts written offcombined with a higher balance per average account written off.

Depreciation and amortization expense increased $9.1million, or 4%, primarily as a result of additional capital expendituresthrough December 31, 2004to extend the plant and continue the rollout of digital, high-speed Internetand telephone services to existing and new service areas.

As a result of the factors discussed above, OperatingIncome before Depreciation and Amortization increased $44.9 million, or 12%.

Interest expense decreased$4.6 million, or 2%. The decrease is related to lower interest rates, whichaveraged 7.1% for the year ended December 31,2004, compared to 7.4% for the year ended December 31, 2003. For the years ended December 31, 2004and 2003, our outstanding debt averaged $2.8 billion and $2.7 billion.

**Liquidity and Capital Resources**

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

Cash provided by operations for the years ended December 31,2005 and 2004 was $233.6 million and $289.9 million. The decrease was primarilyattributable to an increase in net loss due to costs incurred in connectionwith the going-private transaction partially offset by the effect of non-cashitems.

Cash used in investing activities for the years ended December 31,2005 and 2004 was $218.7 million and $173.5 million. The increase primarily wasdue to capital expenditures to launch our telephone product in additionalmarkets, customer premise equipment and drop materials.

Cash used in financing activities for the years ended December 31,2005 and 2004 was $85.2 million and $76.4 million. The increase was primarilydue to increased amortization payments on the credit facility in 2005.

For the years ended December 31, 2005 and 2004,we spent $220.1 million and $174.1 million in capital expenditures. Theseexpenditures principally constituted purchases of customer premise equipment,telephone equipment, capitalized labor, drop materials, headend equipment andsystem upgrades and rebuilds, all of which are necessary to maintain ourexisting network, grow our customer base and expand our service offerings.

45

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Free Cash Flow forthe year ended December 31, 2005 totaled $13.5 million compared to$115.8 million for the year ended December 31, 2004. The decrease wasprimarily driven by the following:

·       A$46.0 million increase in capital expenditures;

·       A$26.0 million decrease in Operating Income before Depreciation and Amortization(including the impact of $62.0 million of going-private transaction-relatedcosts);

·       A$20.6 million increase in cash interest expense paid driven by an increase ininterest rates; and

·       A$16.0 million source of Free Cash Flow for the year ended December 31,2005 compared to a $25.7 million source for the year ended December 31,2004 from changes in working capital accounts.

The above changes resulted in an overall decrease inFree Cash Flow from 2004 to 2005 of $102.3 million.

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

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 theoffering were used to repay certain outstanding debt of the Kentucky systems. OnNovember 6, 2000, Insight Midwest completed an offering of $500.0 millionprincipal 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. Interest on the Insight Midwest 93¤4% senior notesis payable on April 1 and October 1 of each year and interest on theInsight Midwest 101¤2%senior notes is payable on May 1 and November 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, including $3.8million of interest accruing from October 1, 2002 through the date ofissuance that was repaid to holders of the bonds in the first semi-annualinterest payment due on April 1, 2003, and net of an underwriting fee of$3.1 million and a bond discount of $8.8 million that is being amortizedthrough October 2009. The proceeds of this offering were used to repay aportion of the outstanding revolving loans under the credit facility of InsightMidwest Holdings, LLC. Since this add-on offering occurred under the 93¤4%senior notes indenture, these additional debt securities and the previous 93¤4%senior notes are considered a single series of senior notes with identicalterms.

On December 9, 2003, Insight Midwest completed a$130.0 million add-on offering under the 101¤2% senior notesindenture. Insight Midwest received proceeds of $140.9 million, including $1.4million of interest accruing from November 1, 2003 through the date ofissuance that was repaid to holders of the bonds in the first semi-annualinterest payment on May 1, 2004 and a bond premium of $11.4 million thatis being amortized through November 2010, and net of an underwriting feeof $2.0 million. The proceeds of this offering were used to repay a portion ofthe outstanding revolving loans under the Insight Midwest Holdings creditfacility. Since this additional add-on offering occurred under the 101¤2%senior notes indenture, these additional debt securities and the previous 101¤2%senior notes are considered a single series of senior notes with identicalterms.

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On January 5, 2001, in conjunction with a seriesof transactions with cable subsidiaries of AT&T Broadband (now known asComcast Cable), Insight Midwest Holdings, LLC, a subsidiary of Insight Midwestwhich serves as a holding company for all of Insight Midwest’s systems, enteredinto a $1.75 billion credit facility. Insight Midwest Holdings borrowed$663.0 million to repay the then existing Indiana and Kentucky creditfacilities and $685.0 million to finance the AT&T Broadband transactions.

The Insight Midwest Holdings credit facility permitsthe distribution of cash from Midwest Holdings’ subsidiaries to enable InsightMidwest to pay interest on its 93¤4% senior notesand 101¤2%senior notes, so long as there exists no default under the credit facility. TheInsight Midwest Holdings credit facility contains covenants restricting, amongother things, the ability of Midwest Holdings and its subsidiaries to acquireor dispose of assets, make investments and engage in transactions with relatedparties. The facility also requires compliance with certain financial ratiosand contains customary events of default. As of December 31, 2005, we werein compliance with the credit facility’s covenant requirements. Given currentoperating conditions and projected results of operations, we anticipatecontinued compliance under this credit facility for the foreseeable future.

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 will be payable on February 15 and August 15 of each year,commencing 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, 2005 and 2004,the outstanding principal and accreted amounts of these notes were $350.0million and $343.6 million and $350.0 million and $305.2 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. As of December 31, 2005 and2004, the balance of the $100.0 million loan, including accrued interest, was$139.1 and $127.4 million.

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

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

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operations and theirborrowings. Our subsidiaries are not obligated to make funds available to usand are restricted by the terms of their indebtedness from doing so. Because ofsuch restrictions, our ability to access the cash flow of our subsidiaries maybe contingent upon our ability to refinance the debt of our subsidiaries.

We believe that the Insight Midwest Holdings creditfacility, cash on-hand and our cash flow from operations are sufficient tosupport our current operating plan. For the years ended December 31, 2005and 2004 we had positive Free Cash Flow. We had the ability to draw upon $302.0million of unused availability under the Insight Midwest Holdings CreditFacility as of December 31, 2005 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.

Thefollowing table summarizes our contractual obligations and commitments,excluding interest and commitments for programming, as of December 31,2005, including periods in which the related payments are due (in thousands):

| ** **              | ** ** | **CONTRACTUAL OBLIGATIONS** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **Long-Term  Debt**              | ** ** | **Operating  Leases** | ** ** | **TOTAL** | ** ** |
| 2006                    |       | $                                | 83,500     |   |   | $ | 4,637 |   |   | $ | 88,137 |   |
| 2007                    |       | 83,500                           |       |   | 3,486 |   |   | 86,986 |   |
| 2008                    |       | 104,750                          |       |   | 3,050 |   |   | 107,800 |   |
| 2009                    |       | 1,517,500                        |       |   | 2,169 |   |   | 1,519,669 |   |
| 2010                    |       | 630,000                          |       |   | 783 |   |   | 630,783 |   |
| Thereafter              |       | 350,000                          |       |   | 740 |   |   | 350,740 |   |
| Total cash  obligations |       | $                                | 2,769,250  |   |   | $ | 14,865 |   |   | $ | 2,784,115 |   |

 

**Recent Accounting Pronouncements**

On December 16, 2004, the FASB issued SFAS No. 123(revised 2004), *Share-Based Payment* (“SFAS No. 123(R)”),which is a revision of SFAS No. 123, and supersedes APB Opinion No. 25.SFAS No. 123(R) requires all share-based payments to employees,including grants of employee stock options, to be recognized in the financialstatements based on their fair values, beginning with the next fiscal year thatbegins after June 15, 2005. In addition, SFAS No. 123(R) willcause unrecognized expense related to previously issued options vesting afterthe date of initial adoption to be recognized as a charge to results ofoperations over the remaining vesting period. We are required to adopt SFAS No. 123(R) inour first quarter of 2006. The FASB has concluded that companies may adopt thenew standard in one of two ways: the modified prospective transition method andthe modified retrospective transition method. Under the modified retrospectivetransition method, prior periods may be retroactively adjusted either as of thebeginning of the year of adoption or for all periods presented. The modifiedprospective transition method requires that compensation expense be recordedfor all unvested stock options and share awards at the beginning of the fiscalperiod of adoption of SFAS No. 123R, while the retrospective method wouldrecord compensation expense for all unvested stock options and share awardsbeginning with the fiscal period retroactively adjusted. We do not anticipatethat the adoption of this standard will have a material impact on ourconsolidated financial statements.

In March 2005, FASB issued Interpretation No. 47(“FIN 47”), “*Accounting for Conditional Asset RetirementObligations (an Interpretation of SFAS No. 143)*”. ThisInterpretation provides clarification with respect to the timing of liabilityrecognition for legal obligations associated with the retirement of long-livedassets when the timing and/or method of settlement of the obligation isconditional on a future event. This Interpretation requires that the fair valueof a liability for a conditional asset retirement obligation be recognized inthe period in which it occurred if a reasonable estimate of fair value can bemade. FIN 47 is 

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effective for fiscal yearsending after December 2005. The Company does not anticipate that theadoption of this standard will have a material impact on its consolidatedfinancial statements.

In May 2005, FASBissued SFAS No. 154, *Accounting**Changes and Error Corrections*. SFAS No. 154 replacesAPB Opinion No. 20, *Accounting Changes*,and SFAS No. 3, *Reporting AccountingChanges in Interim Financial Statements* and changes the requirementsfor the accounting for and reporting of a change in accounting principles. SFASNo. 154 applies to all voluntary changes in an accounting principle. Italso applies to changes required by an accounting pronouncement in the unusualinstance that the pronouncement does not include specific transition provisions.When a pronouncement includes specific provisions, those provisions should befollowed. SFAS 154 is effective for accounting changes and corrections oferrors made in fiscal years beginning in 2006. The Company does not anticipatethat the adoption of this standard will have a material impact on itsconsolidated financial statements.

**Critical Accounting Policies**

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.

**FairValue of Assets Acquired and Liabilities Assumed in Purchase Combinations**

The purchase combinationscarried out by us require management to estimate the fair value of the assetsacquired and liabilities assumed in the combinations. These estimates of fairvalue are based on our business plan for the entities acquired includingplanned redundancies, restructuring, use of assets acquired and assumptions asto the ultimate resolution of obligations assumed for which no future benefitwill be received. We also utilize appraisal reports issued by independentappraisers. Should actual use of assets or resolution of obligations differfrom our estimates, revisions to the estimated fair values would be required.If a change in estimate occurs after one year of the acquisition, the changewould be recorded in our statement of operations.

**Goodwilland Other Identifiable 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 expected historical 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.

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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 determined by our management to be commensuratewith the risk inherent in our current business model. With the adoption of SFASNo. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002we ceased amortizing goodwill and franchise costs arising from acquisitions. Inlieu of amortization, we perform an annual impairment analysis. If we determinethrough the impairment review process that goodwill has been impaired, we wouldrecord an impairment charge in our statement of operations.

**Investments**

Periodically,we make strategic investments. All marketable securities are classified asavailable-for-sale securities and are carried at fair value. All other equityinvestments are carried at cost. Periodically, we assess the value of theseinvestments by using information acquired from industry trends, the managementof these companies and other external sources. Based on the informationacquired, we record an impairment charge when we believe an investment hasexperienced a decline in value that is other than temporary. Future adversechanges in market conditions or poor operating results of underlyinginvestments could result in losses or an inability to recover the carryingvalue of the investments that may not be reflected in an investment’s currentcarrying value, thereby possibly requiring an impairment charge in the future.

**Fixed Assets**

Fixed assets include costs capitalized for labor andoverhead incurred in connection with the construction of cable systems and isstated at cost. Depreciation for buildings, cable system equipment, furniture,fixtures and office equipment is calculated using the straight-line method overestimated useful lives ranging from 2 to 30 years. Leasehold improvements areamortized using the straight-line method over shorter of the remaining terms ofthe leases or the estimated lives of the improvements.

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

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

Our revolving credit and term loan agreements bearinterest at floating rates. Accordingly, we are exposed to potential lossesrelated to changes in interest rates. In order to manage our exposure tointerest rate risk, we enter into derivative financial instruments, typicallyinterest rate swaps. The counter-parties to our swap agreements are majorfinancial institutions. We do not enter into derivatives or other financial instrumentsfor trading or speculative purposes. As of December 31, 2005, $130.0million of our interest rate swap agreements expire in November 2010.

The aggregate fair marketvalue and aggregate carrying value of our 93⁄4% senior notes, 101⁄2% senior notes and121⁄4 senior discount notes was $1.4 billion as of December 31, 2005. Thefair market value of our credit facility borrowings approximates its carryingvalue as the credit facility borrowings bear interest at floating rates ofinterest. As of December 31, 2005 and 2004, the cost, if terminated, ofour interest rate swap agreements were $2.4 million and $1.6 million and isreflected in our financial statements as other non-current liabilities. Changesin the fair value of our interest rate derivative financial instruments areeither recognized in income or in stockholders’ equity as a component of othercomprehensive income depending on whether the derivative financial instrumentsqualify for hedge accounting.

**Item 8.**                        FinancialStatements and Supplementary Data

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

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

Not applicable.

**Item 9A.**                Controlsand Procedures

Our management carried out an evaluation, with theparticipation of our Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of our disclosure controls and procedures as of December 31,2005. Based upon that evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that (i) our disclosure controls andprocedures were effective to ensure that information required to be disclosedby us in reports that we file or submit under the Securities Exchange Act of1934 is recorded, processed, summarized and reported, within the time periodsspecified in the rules and forms of the Securities and ExchangeCommission, and (ii) our disclosure controls and procedures were designedto ensure that information required to be disclosed by us in reports that wefile or submit under the Securities Exchange Act of 1934 is accumulated andcommunicated  to our management,including our Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.

There has not been anychange in our internal control over financial reporting in connection with theevaluation required by Rule 13a-15(d) or 15d-15(d) underthe Exchange Act that occurred during the quarter ended December 31, 2005that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

**ManagementReport on Internal Control Over Financial Reporting**

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

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

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

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

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

Management assessed the effectiveness of our internalcontrol over financial reporting as of December 31, 2005. In making thisassessment, management used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in *Internal Control-Integrated Framework*.

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Based on our assessment, management concluded that, asof December 31, 2005, our internal control over financial reporting waseffective.

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

**Item 9B.**               OtherInformation

**Independent Director Compensation**

On February 27, 2006, our board of directorsapproved compensation arrangements for our independent directors (as definedbelow). Our current independent directors are Geraldine B. Laybourne, Amos B.Hostetter, Jr. and Stephen C. Gray. The compensation arrangements consistof an annual retainer fee of $50,000, payable quarterly in cash. In addition,each of the independent directors was granted 10,370 shares of our Series Enon-voting common stock, subject to a five-year vesting schedule, with 20% ofthe shares vesting at the end of each completed year of service.

Our amended and restatedcertificate of incorporation defines an “independent director” as one (x) whoa majority of the independent directors determines has no material relationshipwith our company and has no current or prior relationship with our management,our company or the holders of the Series A voting preferred stock or Series Bvoting preferred stock that might cause such director to act other thanentirely independently with respect to all issues that come before the board ofdirectors; and (y) who satisfies the independence requirements under Rule 303A.02of the Listed Company Manual of the New York Stock Exchange. Geraldine Laybourne, Amos Hostetter and StephenGray were each deemed independent directors as of December 16, 2005.

**AwardsPursuant to the 2005 Incentive Plan**

On December 16, 2005, our board of directorsadopted the Insight Communications Company, Inc. 2005 Stock Incentive Plan(the “Plan”). Under the Plan, our board has the authority to grant awards ofshares of our Series F non-voting common stock to officers, employees anddirectors. A total of 100,000 shares of Series F non-voting commonstock are available for issuance under the Plan.

On February 27,2006, our board authorized the issuance of Series F non-voting commonstock to the following executive officers:

| **Name**              | ** ** | ** ** | ** ** | **Number of Shares  of Series F  Non-Voting  Preferred** | ** ** |
|-----------------------|------------|------------|------------|------------------------------------------------------------------------------|------------|
| Dinni Jain            |       |       | 9,000      |                                                                         |       |
| John Abbot            |       |       | 4,500      |                                                                         |       |
| Christopher  Slattery |       |       | 2,700      |                                                                         |       |
| Elliot Brecher        |       |       | 1,800      |                                                                         |       |

 

Shares granted under the Plan require the execution ofa subscription agreement. All participants in the Plan must also become a partyto our Securityholders Agreement. Unless otherwise provided in the applicablesubscription agreement, Series F shares will vest in five equal annualinstallments commencing on December 16, 2006.

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**PART III**

**Item 10.**                 Directorsand Executive Officers of the Registrant

Ourexecutive officers and directors are as follows: 

| **Name**                     | ** ** | ** ** | ** ** | **Age**                                               | ** ** | **Position** |
|------------------------------|------------|------------|------------|-------------------------------------------------------|------------|--------------|
| Sidney R. Knafel             |       | 75         |       | Chairman of the Board  and Director                   |
| Michael S. Willner           |       | 53         |       | Vice Chairman, Chief  Executive Officer and Director  |
| Dinni Jain                   |       | 42         |       | President, Chief  Operating Officer and Director      |
| John Abbot                   |       | 43         |       | Executive Vice President  and Chief Financial Officer |
| Christopher Slattery         |       | 38         |       | Executive Vice  President, Field Operations           |
| Elliot Brecher               |       | 40         |       | Senior Vice President,  General Counsel and Secretary |
| James A.  Attwood, Jr.  |       | 47         |       | Director                                              |
| Michael J. Connelly          |       | 54         |       | Director                                              |
| Stephen C. Gray              |       | 47         |       | Director                                              |
| Amos B.  Hostetter, Jr. |       | 69         |       | Director                                              |
| William E. Kennard           |       | 49         |       | Director                                              |
| Geraldine B. Laybourne       |       | 58         |       | Director                                              |

 

*Sidney R. Knafel*has served as Chairman of the Board since 1985.He serves as chairman of the governance committee. Mr. Knafel was thefounder, Chairman and an equity holder of Vision Cable Communications, Inc.from 1971 until its sale in 1981. Mr. Knafel is presently the managingpartner of SRK Management Company, a private investment company. He is adirector of General American Investors Company, Inc., IGENE Biotechnology, Inc.and VirtualScopics, Inc., as well as several private companies. Mr. Knafelis a graduate of Harvard College and Harvard Business School.

*Michael S. Willner*has served as Chief Executive Officer since1985. Mr. Willner has also served as Vice Chairman since August 2002,and as President from 1985 to August 2002 and from August 2003 toFebruary 2006. Mr. Willner served as Executive Vice President andChief Operating Officer of Vision Cable from 1979 through 1985, Vice Presidentof Marketing for Vision Cable from 1977 to 1979 and General Manager of VisionCable’s Bergen County, New Jersey cable television system from 1975 to 1977. Hecurrently serves on the board of directors and Executive Committee of theNational Cable & Telecommunications Association. He also serves on theboards of C-SPAN, Women in Cable and Telecommunications, the Cable Center andthe Walter Kaitz Foundation, as well as the Executive Committee of CableLabs. Mr. Willneris a graduate of Boston University’s College of Communication and serves on theschool’s Executive Committee.

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

*John Abbot*has served as Executive Vice President since February 2006and as Chief Financial Officer since January 2004. Mr. Abbot servedas Senior Vice President between January 2004 and February 2006. FromJanuary 1995 to January 2004, Mr. Abbot served in a number ofroles at Morgan Stanley, most recently as Managing Director in the Global Mediaand Communications Group of its Investment Banking 

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*Division.Prior to joining Morgan Stanley, Mr. Abbot was an associate at Goldman,Sachs & Co., and he also served six years as a Surface Warfare Officerin the U.S. Navy. Mr. Abbot received a bachelor’s degree in SystemsEngineering from the U.S. Naval Academy, an ME in Industrial Engineering fromPennsylvania State University and an MBA from Harvard Business School.*

*ChristopherSlattery*has served asExecutive Vice President, Field Operations since February 2006. He joinedour company in October 2004 as Senior Vice President, Sales, then servedas Senior Vice President, Growth from April 2005 until January 2006when he was named Senior Vice President, Field Operations. Prior to joining ourcompany, from September 2002, Mr. Slattery served as a ManagingDirector of NTL’s London operations, responsible for the management of 1.5million cable network homes, and with responsibility in the areas of sales,growth strategy, reduction of churn and customer experience. Prior thereto,from September 2001, he served as Sales Director for NTL’s Europeanoperations, responsible for designing, developing and implementing customergrowth strategies across NTL’s then newly-acquired European assets. From August 2000to August 2001, Mr. Slattery served as a General Manager of NTL’sUnited Kingdom operations, with overall responsibility for sales and marketing,customer retention, customer care and network maintenance, as well as budgetstrategy, planning and implementation. Prior thereto, from January 1990, Mr. Slatteryserved in a number of sales-related roles at NTL and its predecessors.

*Elliot Brecher*has served as Senior Vice President and GeneralCounsel since January 2000. Previously, he was associated with the lawfirm Cooperman Levitt Winikoff Lester & Newman, P.C., which served asInsight’s legal counsel until July 2000 when it merged with SonnenscheinNath & Rosenthal LLP, which continues to serve as Insight’s legalcounsel. He joined that firm in February 1994 and served as a partner fromJanuary 1996 until joining Insight Communications. Prior to that, he wasan associate of the law firm Rosenman & Colin from October 1988. Mr. Brecherreceived his law degree from Fordham University.

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

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

*Stephen C. Gray* was elected as a director effective immediately priorto the effective time of the going-private transaction. He serves as a memberof the audit and compensation committees. Mr. Gray has served as theExecutive Chairman of Security Coverage, Inc. since October 2005.From 1994 through 2004, Mr. Gray served as the President of McLeodUSAIncorporated. Mr. Gray joined McLeodUSA in 1992 as its Chief OperatingOfficer. Mr. Gray was also a member of the board of directors of McLeodUSAIncorporated from 1992 to 2004 and a member of the executive committee from2001 to 2004. On January 31, 2002, McLeodUSA Incorporated filed avoluntary petition for relief under Chapter 11 of the United States BankruptcyCode. On April 16, 2002, McLeodUSA Incorporated emerged from theBankruptcy Court proceedings pursuant to the terms of its amended plan ofreorganization, which became 

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*effectiveon that date. From August 1990 to September 1992, Mr. Grayserved as Vice President of Business Services at MCI Communications Corp.,where he was responsible for MCI’s local access strategy and for marketing andsales support of the Business Markets division. From February 1988 to August 1990,he served as Senior Vice President of National Accounts and Carrier Servicesfor Telecom*USA, Inc., where his responsibilities included sales,marketing, key contract negotiations and strategic acquisitions andcombinations. From September 1986 to February 1988 Mr. Gray helda variety of management positions with Williams Telecommunications Company. Mr. Grayis a graduate of the University of Tennessee.*

*Amos B. Hostetter, Jr.*was elected as a directoreffective immediately prior to the effective time of the going-privatetransaction. He serves as a member of the compensation committee. Mr. Hostetterhas served as the chairman of Pilot House Associates, LLC since its formationin August 1997. Prior to joining Pilot House Associates, Mr. Hostetterwas the chief executive officer of MediaOne, the domestic cable arm of MediaOneGroup, formerly the nation’s third-largest broadband communications provider,serving more than 4.8 million subscribers in 19 states and employing11,000 people. Mr. Hostetter co-founded Continental Cablevision in 1963and served as its chief financial officer from 1963 until 1980 and as itschairman and chief executive officer from 1980 until its merger with MediaOneGroup in November of 1996. Mr. Hostetter was the chairman of theboard of the National Cable & Telecommunications Association from 1973to 1974 and served on that association’s board from 1968 to 1998. He was afounding member and past chairman of the Cable-Satellite Public Affairs Network(C-SPAN) and Cable in the Classroom. President Gerald Ford appointed Mr. Hostettera director of the Corporation for Public Broadcasting, and he is a formermember of the Children’s Television Workshop. Mr. Hostetter is currentlythe Chair Emeritus of the board of trustees of Amherst College, a trustee ofthe Museum of Fine Arts in Boston and Chairman of the board of trustees ofWGBH-TV. Mr. Hostetter earned a bachelor’s degree from Amherst College in1958 and earned an MBA from Harvard Business School in 1961.

*William E. Kennard*was elected as a director effective immediatelyprior to the effective time of the going-private transaction. He serves aschairman of the compensation committee. Since May 2001, Mr. Kennardhas served as a managing director of Carlyle. Before joining Carlyle, Mr. Kennardserved as the Chairman of the Federal Communications Commission from November 1997to January 2001. Mr. Kennard is also a member of the board ofdirectors of The New York Times Company, Sprint Nextel Corporation  and Hawaiian Telecommunications, Inc.

*Geraldine B. Laybourne*has served as a director of Insight since February 2004.She serves as a member of the audit and governance committees. In 1998, Ms. Laybournefounded Oxygen Media, LLC, an independent cable television network withprogramming tailored to the interests of women, and has served as its Chairmanand Chief Executive Officer since its inception. She is most notably known forher work at Nickelodeon, a programming affiliate of MTV Networks, having servedin a number of roles from 1980 to 1995, including as its President from 1989.From 1993 to 1995, she also served as the Vice Chairman of MTV Networks. From1996 to 1998, she served as the President of Disney ABC Cable Networks. Shecurrently serves on the boards of the National Cable &Telecommunications Association and the National Council for Families andTelevision, and on the Advisory Board of New York Women in Film &Television. Ms. Laybourne received a bachelor’s degree in Art History fromVassar College and serves on its board of trustees, and received an MS inElementary Education from the University of Pennsylvania.

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

Effective immediately prior to the effective time ofthe going-private transaction, the number of directors constituting our boardof directors was increased from seven to nine. Each of the directors listedabove was elected as a director effective immediately prior to theeffectiveness of the resignations of 

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David C. Lee, ThomasL. Kempner and James S. Marcus and immediately prior to the effective time ofthe going-private transaction.

Sidney Knafel, Michael Willner and certain trusts forthe benefit of Mr. Knafel’s children, through ownership of our Series Avoting preferred stock, have the right to designate five directors, two of whommust be independent. Affiliates of The Carlyle Group, through ownership of our Series Bvoting preferred stock, have the right to designate four directors, one of whommust be independent. Messrs. Knafel, Willner, Jain and Hostetter and Ms. Laybourneare designees of the holders of Series A voting preferred stock, and theremaining four individuals are designees of the holders of Series B votingpreferred stock.

The directors aredivided into three classes consisting of three members each, and the terms forthe directors are staggered. Each class has at least one Series A directorand one Series B director. The respective terms of office expire at theannual election held in the year specified below. At each annual election, thedirectors chosen to succeed those whose terms then expire will be elected forthat same class for a three-year term. Each of the directors will serve untilhis or her successor is duly elected or appointed and qualified or until his orher death, resignation or removal.

·       Class IDirectors—Term expires in 2006: Michael Willner, Dinni Jain and James Attwood.

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

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

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

**Code of Ethics**

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

**Item 11.**                 ExecutiveCompensation

The following tablesummarizes the compensation paid for services rendered in 2003, 2004 and 2005to the Chief Executive Officer and the other four most highly compensatedexecutive officers in 2005, as well as Christopher Slattery who became anexecutive officer in February 2006 (collectively, the “Named ExecutiveOfficers”).

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**SummaryCompensation Table**

| ** **                                 | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Long-Term  Compensation Awards** | ** ** | ** **                    | ** ** |
|--------------------------------------------|------------|------------|------------|------------------------------|------------|-----------------------------------------|------------|-------------------------------|------------|
| **Name and  Principal Position** | ** ** | **Year**   | ** ** | **Salary**                   | ** ** | **Bonus**                               | ** ** | **Restricted  Stock  Awards** | ** ** | **Number of  Securities  Underlying  Options** | ** ** | **All Other  Compensation (1)** | ** ** |
| Sidney R. Knafel                           |       | 2005       |       | $                            | 250,000    | ** **                              | **—** | ** **                    | **—** | ** ** |   | **—** |   |   |   | $ | 14,614 |   |   |
| Chairman of the  Board                     |       | 2004       |       | $                            | 250,000    | ** **                              | **—** | ** **                    | **—** |   |   | 281,250 |   |   |   | $ | 13,568 |   |   |
|                                       |       | 2003       |       | $                            | 250,000    | ** **                              | **—** |                          | $          | 655,520 | (2) |   | **—** |   |   |   | $ | 13,282 |   |   |
| Michael S. Willner                         |       | 2005       |       | $                            | 691,200    |                                    | $          | 349,300                       | ** ** | **—** | ** ** |   | **—** |   |   |   | $ | 17,460 |   |   |
| Vice Chairman                              |       | 2004       |       | $                            | 635,000    |                                    | $          | 317,500                       | ** ** | **—** |   |   | 521,875 |   |   |   | $ | 13,598 |   |   |
| and Chief  Executive                       |       | 2003       |       | $                            | 577,900    |                                    | $          | 290,000                       |       | $ | 1,638,800 | (2) |   | **—** |   |   |   | $ | 11,896 |   |   |
| Officer                                    |       |       |       |                         |       |                                    |       |                          |       |   | ** ** |   |   |   |   |   |   |
| Dinni Jain                                 |       | 2005       |       | $                            | 522,100    |                                    | $          | 262,500                       | ** ** | **—** | ** ** |   | **—** |   |   |   | $ | 18,349 |   |   |
| President                                  |       | 2004       |       | $                            | 500,000    |                                    | $          | 250,000                       | ** ** | **—** |   |   | 237,500 |   |   |   | $ | 12,572 |   |   |
| and Chief  Operating                       |       | 2003       |       | $                            | 367,900    |                                    | $          | 190,000                       |       | $ | 1,420,150 | (2)(3) |   | **—** |   |   |   | $ | 11,728 |   |   |
| Officer                                    |       |       |       |                         |       |                                    |       |                          |       |   | ** ** |   |   |   |   |   |   |
| John Abbot(4)                              |       | 2005       |       | $                            | 391,600    |                                    | $          | 196,900                       | ** ** | **—** | ** ** |   | **—** |   |   |   | $ | 14,583 |   |   |
| Executive Vice  President                  |       | 2004       |       | $                            | 346,154    |                                    | $          | 278,767                       |       | $ | 767,250 |   |   | 290,000 |   |   |   | $ | 1,555 |   |   |
| and Chief  Financial                       |       |       |       |                         |       |                                    |       |                          |       |   |   |   |   |   |   |   |   |
| Officer                                    |       |       |       |                         |       |                                    |       |                          |       |   |   |   |   |   |   |   |   |
| Christopher Slattery(5)                    |       | 2005       |       | $                            | 279,000    |                                    | $          | 141,900                       | ** ** | **—** | ** ** |   | **—** |   |   |   | $ | 2,259 |   |   |
| Executive Vice  President,                 |       | 2004       |       | $                            | 80,100     |                                    | $          | 25,000                        | ** ** | $ | 135,450 | ** ** |   | 25,000 |   |   |   | $ | 1,992 |   |   |
| Field Operations                           |       |       | ** ** | ** **                   | ** ** | ** **                              | ** ** | ** **                    | ** ** |   | ** ** |   |   |   |   |   |   |
| Elliot Brecher                             |       | 2005       |       | $                            | 329,300    |                                    | $          | 115,800                       | ** ** | **—** | ** ** |   | **—** |   |   |   | $ | 13,884 |   |   |
| Senior Vice  President and                 |       | 2004       |       | $                            | 318,360    |                                    | $          | 110,000                       | ** ** | **—** |   |   | 81,250 |   |   |   | $ | 11,803 |   |   |
| General  Counsel                           |       | 2003       |       | $                            | 306,100    |                                    | $          | 100,000                       |       | $ | 96,400 | (2) |   | **—** |   |   |   | $ | 11,140 |   |   |

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(1)          Amounts for 2003, 2004and 2005 include: (i) matching contributions made by us on behalf of theNamed Executive Officers to our 401(k) plan (Sidney Knafel: $10,000,$10,500 and $10,500; Michael Willner: $10,000, $10,500 and $10,500; Dinni Jain:$10,000, $10,500 and $10,500; John Abbot: $10,500; and Elliot Brecher: $10,000,$10,500 and $10,500) and (ii) life insurance premiums and group term lifeinsurance premiums paid by us on behalf of the Named Executive Officers (SidneyKnafel: $3,282, $3,068 and $4,114; Michael Willner: $1,896, $3,098 and $6,960;Dinni Jain: $1,728, $2,072 and $7,849; John Abbot: $1,555 and $4,083;Christopher Slattery: $1,992 and $2,259; and Elliot Brecher: $1,140, $1,303 and$3,384). One-half of the matching contributions to our 401(k) plan weremade in the form of shares of Class A common stock. In connection with ourgoing-private transaction on December 16, 2005, all 401(k) shareswere converted into the right to receive the $11.75 per share mergerconsideration.

(2)          Includes deferred stockawards the value of which is calculated by multiplying the closing market priceof our Class A common stock on the date of grant (November 6, 2003:$9.64) by the number of shares awarded. In connection with our going-privatetransaction, on December 16, 2005, each of the deferred share awardagreements was amended to provide for delivery of one share of our Series Cnon-voting preferred stock upon settlement for every share of Class Acommon stock that the holder otherwise would have been entitled to receiveprior to giving effect to the amendment. The shares underlying the deferredstock awards are deliverable in settlement upon a change in control (as definedin the respective award agreements) or prior thereto upon the later to occur ofDecember 16, 

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2010 or termination of theexecutive’s employment. The shares vest in five equal annual installments on November 6of each year. The number and value of these awards as of December 31, 2005(based upon the going-private merger price of our Class A common stock($11.75)) was as follows: Sidney Knafel: 68,000 shares = $799,000; MichaelWillner: 170,000 shares = $1,997,500; each of Dinni Jain and Elliot Brecher:10,000 shares = $117,500.

(3)          The restricted stockawards includes the deferred stock award he received on November 6, 2003as described above in note (2) as well as a 125,000 restricted share awardwhich is calculated by multiplying the closing market price of our Class Acommon stock on the date of grant (October 9, 2003: $10.59) by the numberof shares reported. The restricted shares were to vest in five equal annualinstallments on November 15 of each year. On March 15, 2005, Mr. Jainsurrendered for cancellation the remaining balance of 100,000 of suchrestricted shares and was granted a like number of shares of deferred stock.The deferred shares have a vesting schedule that mirrors the remaining vestingschedule of the surrendered restricted shares. In addition to the deferredstock award described in note (2) above, such 100,000 shares of deferredstock held by Mr. Jain as of December 31, 2005 had a value of $1,175,000(based upon the going-private merger price of our Class A common stock($11.75)).

(4)          The 2004 bonus amountindicated above includes a $100,000 sign-on bonus. The restricted stock awardsrepresents the 75,000 restricted share award he received upon joining ourcompany, which is calculated by multiplying the closing price of our Class Acommon stock on the date of grant (January 2, 2004: $10.23) by the numberof shares awarded. The restricted shares were to vest in five equal annualinstallments on March 1 of each year. On March 15, 2005, Mr. Abbotsurrendered for cancellation the remaining balance of 60,000 restricted sharesand was granted a like number of shares of deferred stock. The deferred shareshave a vesting schedule that mirrors the remaining vesting schedule of thesurrendered restricted shares. The deferred stock held by Mr. Abbot as of December 31,2005 had a value of $705,000 (based upon the going-private merger price of our Class Acommon stock ($11.75)).

(5)          Amounts for 2004 reflectthe period from October 2004, when he joined our company. The restrictedstock awards represents the 15,000 restricted share award he received uponjoining our company, which is calculated by multiplying the closing price ofour Class A common stock on the date of grant (October 26, 2004:$9.03) by the number of shares awarded. The restricted shares were to vest inthree nearly equal installments: July 27, 2005, October 26, 2006 andOctober 26, 2007. On March 15, 2005, Mr. Slattery surrenderedfor cancellation all of the restricted shares and was granted a like number ofshares of deferred stock. The deferred shares have a vesting schedule thatmirrors the vesting schedule of the surrendered restricted shares. The deferredstock held by Mr. Slattery as of December 31, 2005 had a value of$176,250 (based upon the going-private merger price of our Class A commonstock ($11.75)).

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Thefollowing table sets forth information as of December 31, 2005 concerningstock options held by the Named Executive Officers in the Summary CompensationTable. In connection with our going-private transaction on December 16,2005, each of our outstanding stock options (whether vested or unvested) werecanceled in exchange for a gross cash payment equal to the excess, if any, ofthe $11.75 merger price and the exercise price for such option, multiplied bythe number of shares covered by such option. The information in the table belowrepresents such exchange. No options held by such individuals were exercisedduring 2005.

| **Name**              | ** ** | ** ** | ** ** | **Number of Shares Underlying  Canceled Options** | ** ** | **Value Realized** | ** ** |
|-----------------------|------------|------------|------------|-----------------------------------------------------------------------|------------|-------------------------|------------|
| Sidney R. Knafel      |       |       | 281,250    |                                                                  |       |                    | $          | 739,690 |   |   |
| Michael S.  Willner   |       |       | 621,875    |                                                                  |       |                    | $          | 1,697,530 |   |   |
| Dinni Jain            |       |       | 237,500    |                                                                  |       |                    | $          | 652,625 |   |   |
| John Abbot            |       |       | 290,000    |                                                                  |       |                    | $          | 507,600 |   |   |
| Christopher  Slattery |       |       | 25,000     |                                                                  |       |                    | $          | 68,000 |   |   |
| Elliot Brecher        |       |       | 101,250    |                                                                  |       |                    | $          | 281,488 |   |   |

 

**Compensation of Directors**

Only our independent directors receive compensationfor their services as directors, consisting of an annual retainer fee of$50,000, payable quarterly in cash. In addition, each of our currentindependent directors received a grant of 10,370 shares of our Series Enon-voting common stock, subject to a five-year vesting schedule, with 20% ofthe shares vesting at the end of each completed year of service. Independentdirectors also are entitled to receive reimbursement of out-of-pocket expensesincurred in connection with their Board service.

Prior to the completion ofour going-private transaction on December 16, 2005, those of our directorswho were not also our employees (Thomas L. Kempner, Geraldine B. Laybourne,David Lee and James S. Marcus) were entitled to receive an annual retainer feeof $25,000 which, at the election of the director, could be in the form of cashor five-year stock options to purchase Class A common stock. Non-employeedirectors also were entitled to receive reimbursement of out-of-pocket expensesincurred for each Board or committee meeting attended. David Lee and GeraldineLaybourne also each received $100,000 in April 2005, in a lump-sumpayment, as compensation for their services on the special committee formed forthe purpose of reviewing, evaluating, negotiating and making a recommendationto our board of directors with respect to the going-private transaction.

**Employment Agreements**

*MichaelWillner.**  *Inconnection with the completion of the going-private transaction onDecember 16, 2005, we entered into an employment agreement with MichaelWillner, our chief executive officer. Under the terms of the employmentagreement, Mr. Willner will serve as our president and chief executiveofficer for a three-year term, which will be automatically extended foradditional one-year periods unless notice has been provided by either partythat such extension will not take effect. He will receive a base salary of$698,500 during the term, subject to an annual review by our compensationcommittee in which it may, in its sole discretion, increase such base salary.Mr. Willner also will be entitled to an annual cash bonus opportunity foreach of our fiscal years, subject to and based on the attainment byMr. Willner and us of individual and financial performance targets to bedetermined by the compensation committee upon the recommendations ofMr. Willner and Sidney Knafel, our chairman of the board. For each fiscalyear, Mr. Willner will have a minimum cash bonus opportunity of up to 50%of his base salary. In addition to the annual cash bonus, Mr. Willner willbe entitled to participate in the management bonus pool established as providedin the securityholders agreement entered into in connection with thegoing-private transaction.

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IfMr. Willner’s employment is terminated without Cause (as defined in theemployment agreement) or Mr. Willner terminates his employment with GoodReason (as defined in the employment agreement), and in each caseMr. Willner executes a general release of all claims against us, we willpay Mr. Willner as liquidated damages:

·       anamount equal to the product of Mr. Willner’s annual cash bonuses and afraction, the numerator of which is equal to the number of days in such fiscalyear that precede the date of termination and the denominator of which is equalto 365, plus

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

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

If Mr. Willner’s employment is terminated due todeath or disability, we will pay Mr. Willner an amount equal to theproduct of his annual cash bonuses and a fraction, the numerator of which isequal to the number of days in such fiscal year that precede the date oftermination and the denominator of which is equal to 365. The employmentagreement also contains covenants relating to non-competition andnon-solicitation of our employees, customers or suppliers from the date of theagreement through the severance period and protection of our confidentialinformation.

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

**CompensationCommittee Interlocks and Insider Participation**

Prior to the completion ofour going-private transaction on December 16, 2005, the members of thecompensation committee were Thomas L. Kempner, Geraldine B. Laybourne, DavidLee and James S. Marcus, none of whom were officers or employees of ourcompany. On December 20, 2005, our compensation committee wasreconstituted, and William Kennard (chairman), Stephen Gray and Amos Hostetterwere appointed as the members of the compensation committee. None of thecurrent compensation committee members is an officer or employee of ourcompany.

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

The following tablesets forth information with respect to the beneficial ownership of our votingsecurities by:

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

·       eachof our directors;

·       eachof our Named Executive Officers in the Summary Compensation Table; and

·       allof our directors and executive officers as a group.

Unlessotherwise indicated, the address of each person named in the table below isInsight Communications Company, Inc., 810 7th Avenue, New York, New York10019, and each beneficial owner named in the table has sole voting and soleinvestment power with respect to all shares beneficially owned. The amounts andpercentage of voting securities beneficially owned are reported on the basis ofregulations of the SEC governing the determination of beneficial ownership ofsecurities. Under the 

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rules of the SEC, a person is deemed to be a “beneficialowner” of a security if that person has or shares “voting power,” whichincludes the power to vote or to direct the voting of such security, or “investmentpower,” which includes the power to dispose of or to direct the disposition ofsuch security. A person is also deemed to be a beneficial owner of any securitiesof which that person has a right to acquire beneficial ownership within60 days. Under these rules, more than one person may be deemed abeneficial owner of the same securities and a person may be deemed to be abeneficial owner of securities as to which such person has no economicinterest.

| ** **                                                                                                                       | ** ** | **Series A  Voting Preferred Stock** | ** ** | **Series B  Voting Preferred Stock** | ** ** | **Percent of  Vote as a**                                                              | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| **Beneficial Owner**                                                                                                        | ** ** | ** **                                          | ** ** | **Number**                                          | ** ** | **        %        ** | ** ** | **Number** | ** ** | **        %        ** | ** ** | **Single Class(1)** | ** ** |
| Sidney R. Knafel                                                                                                                 |       | 398,591                                             |       |                                                | 47.0       |                                                                                                  |       | — |   |   | — |   |   |   | 29.1 |   |   |
| Michael S.  Willner                                                                                                              |       | 110,652                                             |       |                                                | 13.0       |                                                                                                  |       | — |   |   | — |   |   |   | 8.1 |   |   |
| Dinni Jain                                                                                                                       |       | —                                              |       |                                                | —     |                                                                                                  |       | — |   |   | — |   |   |   | — |   |   |
| John Abbot                                                                                                                       |       | —                                              |       |                                                | —     |                                                                                                  |       | — |   |   | — |   |   |   | — |   |   |
| Christopher  Slattery                                                                                                            |       | —                                              |       |                                                | —     |                                                                                                  |       | — |   |   | — |   |   |   | — |   |   |
| Elliot Brecher                                                                                                                   |       | —                                              |       |                                                | —     |                                                                                                  |       | — |   |   | — |   |   |   | — |   |   |
| James A.  Attwood, Jr.(2)                                                                                                   |       | —                                              |       |                                                | —     |                                                                                                  |       | 517,836 |   |   | 100.0 |   |   |   | 37.9 |   |   |
| Michael J.  Connelly(2)                                                                                                          |       | —                                              |       |                                                | —     |                                                                                                  |       | 517,836 |   |   | 100.0 |   |   |   | 37.9 |   |   |
| Stephen C. Gray                                                                                                                  |       | —                                              |       |                                                | —     |                                                                                                  |       | — |   |   | — |   |   |   | — |   |   |
| Amos B.  Hostetter, Jr.                                                                                                     |       | —                                              |       |                                                | —     |                                                                                                  |       | — |   |   | — |   |   |   | — |   |   |
| William E.  Kennard(2)                                                                                                           |       | —                                              |       |                                                | —     |                                                                                                  |       | 517,836 |   |   | 100.0 |   |   |   | 37.9 |   |   |
| Geraldine B.  Laybourne                                                                                                          |       | —                                              |       |                                                | —     |                                                                                                  |       | — |   |   | — |   |   |   | — |   |   |
| The Carlyle Group  affiliates(2)                                                                                                 |       | —                                              |       |                                                | —     |                                                                                                  |       | 517,836 |   |   | 100.0 |   |   |   | 37.9 |   |   |
| Andrew G. Knafel,  Joshua Rubenstein and William L. Scherlis, as trustees under Trusts F/B/O  children of Sidney R. Knafel  |       | 339,702                                             |       |                                                | 40.0       |                                                                                                  |       | — |   |   | — |   |   |   | 24.9 |   |   |
| All directors and  executive officers as a group (12 persons)                                                                    |       | 509,243                                             |       |                                                | 60.0       |                                                                                                  |       | — |   |   | — |   |   |   | 37.2 |   |   |
|                                                                                                                                  |            |                                                     |            |                                                     |            |                                                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Holders of Series Avoting preferred stock and holders of Series B voting preferred stock areentitled to one vote per share. Holders of both series of preferred stock votetogether as a single class on all matters presented for a vote, except as setforth in our amended and restated certificate of incorporation or as otherwiserequired by law.

(2)          Each of Messrs. Attwood,Connelly and Kennard is a managing director of The Carlyle Group, and as suchmay be deemed to beneficially own the shares held by its affiliates. Carlyle’saddress is 520 Madison Avenue, New York, NY 10022.

The following tablesets forth information with respect to the beneficial ownership of ournon-voting equity securities by:

·       each of our directors;

·       each of our Named ExecutiveOfficers in the Summary Compensation Table; and

·       all of our directors andexecutive officers as a group.

The Series E and Series F non-voting commonstock are subject to the vesting schedules and participation levels set forthin the respective award agreements.

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| ** **                                                    | ** ** | **Series C  Non-Voting  Preferred Stock(1)** | ** ** | **Series D  Non-Voting**

**Preferred Stock** | ** ** | **Series E  Non-Voting  Common Stock** | ** ** | **Series F  Non-Voting  Common Stock** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| **Beneficial Owner**                                     | ** ** | ** **                                             | ** ** | **Number**                                              | ** ** | **%**                                            | ** ** | **Number**                                       | ** ** | **%** | ** ** | **Number** | ** ** | **%** | ** ** | **Number** | ** ** | **%** | ** ** |
| Sidney R. Knafel                                              |       | 3,903,132                                              |       | 29.2                                                    |       | —                                           |       | —                                           |       | 281,250 |   | 7.7 |   |   | 22,500 |   |   | 24.8 |   |
| Michael S.  Willner                                           |       | 738,000                                                |       | 5.5                                                     |       | —                                           |       | —                                           |       | 621,875 |   | 17.0 |   |   | 22,500 |   |   | 24.8 |   |
| Dinni Jain                                                    |       | —                                                 |       | —                                                  |       | —                                           |       | —                                           |       | 237,500 |   | 6.5 |   |   | 9,000 |   |   | 9.9 |   |
| John Abbot                                                    |       | 6,000                                                  |       | *                                                       |       | —                                           |       | —                                           |       | 290,000 |   | 7.9 |   |   | 4,500 |   |   | 4.9 |   |
| Christopher  Slattery                                         |       | —                                                 |       | —                                                  |       | —                                           |       | —                                           |       | 25,000 |   | * |   |   | 2,700 |   |   | 3.0 |   |
| Elliot Brecher                                                |       | 1,000                                                  |       | *                                                       |       | —                                           |       | —                                           |       | 101,250 |   | 2.8 |   |   | 1,800 |   |   | 2.0 |   |
| James A.  Attwood, Jr.(2)                                |       | —                                                 |       | —                                                  |       | 47,015,659                                       |       | 100.0                                            | %          | — |   | — |   |   | — |   |   | — |   |
| Michael J.  Connelly(2)                                       |       | —                                                 |       | —                                                  |       | 47,015,659                                       |       | 100.0                                            | %          | — |   | — |   |   | — |   |   | — |   |
| Stephen C. Gray                                               |       | —                                                 |       | —                                                  |       | —                                           |       | —                                           |       | 10,370 |   | * |   |   | — |   |   | — |   |
| Amos B.  Hostetter, Jr.(3)                               |       | 3,404,255                                              |       | 25.5                                                    |       | —                                           |       | —                                           |       | 10,370 |   | * |   |   | — |   |   | — |   |
| William E.  Kennard (2)                                       |       | —                                                 |       | —                                                  |       | 47,015,659                                       |       | 100.0                                            | %          | — |   | — |   |   | — |   |   | — |   |
| Geraldine B.  Laybourne                                       |       | —                                                 |       | —                                                  |       | —                                           |       | —                                           |       | 10,370 |   | * |   |   | — |   |   | — |   |
| All directors and  executive officers as a group (12 persons) |       | 8,052,387                                              |       | 60.2                                                    |       | 47,015,659                                       |       | 100.0                                            | %          | 1,587,985 |   | 43.3 |   |   | 63,000 |   |   | 69.4 |   |
|                                                               |            |                                                        |            |                                                         |            |                                                  |            |                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |

----

*                    Less than 1%.

(1)          Does not include sharesissuable under deferred stock units to the extent they may not be settledwithin 60 days.

(2)          Represents shares heldby affiliates of The Carlyle Group. Each of Messrs. Attwood, Connelly andKennard is a managing director of Carlyle, and as such may be deemed tobeneficially own the shares held by Carlyle’s affiliates.

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

**InsightMidwest Partnership Split-Up Provisions**

We own 50% of theoutstanding partnership interests in Insight Midwest, L.P. The other 50% ofInsight Midwest is owned by an indirect subsidiary of Comcast Corporation, anentity over which we have no control. Our 50% interest in Insight Midwestconstitutes substantially all of our operating assets. The Insight Midwestpartnership agreement provides that at any time after December 31, 2005either partner has the right to commence a split-up process with respect toInsight Midwest, subject to a limited right of postponement held by thenon-initiating partner. To date, neither partner has commenced the split-upprocess.

**Item 13.**                 CertainRelationships and Related Transactions

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

We purchase the majority of our programming throughaffiliates of Comcast Cable. Charges for such programming, including a 11⁄2%administrative fee, were $157.6 million for the year ended December 31,2005. As of December 31, 2005, $29.9 million of accrued programming costswere due to affiliates of 

62

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Comcast Cable. We believethat the programming rates charged through these affiliates are lower thanthose available from independent parties.

On December 16, 2005, PH Investments, LLC, anentity affiliated with Amos B. Hostetter, Jr., one of our directors, madea cash contribution to Insight Acquisition Corp. in the amount of$39,999,996.25 in connection with our going-private merger. Insight AcquisitionCorp. issued to PH Investments 3,404,255 shares of its Class C preferredstock. Such shares were then, in the merger, automatically converted into acorresponding number of shares of our Series C non-voting preferred stock,which number of shares is equal to an approximately 5.6% ownership interest inour company. PH Investments received an investment fee from us in the amount of$400,000 in respect of its cash contribution.

James A. Attwood, Jr.,Michael J. Connelly and William E. Kennard are affiliates of The Carlyle Group.Certain affiliates of Carlyle formed Insight Acquisition Corp. and, inconnection with the going-private merger, contributed $552,439,171.61 toInsight Acquisition Corp. Insight Acquisition Corp. issued to affiliates ofCarlyle 517,836 shares of its Class B preferred stock and 47,015,659shares of its Class D preferred stock. Such shares were then, in themerger, automatically converted into a corresponding number of shares of our Series Bvoting preferred stock and Series D non-voting preferred stock. Carlylereceived an investment fee from us in the amount of $17,373,020 in respect ofits cash contribution. On December 16, 2005, we entered into a consultingagreement with affiliates of Carlyle for the payment to such affiliates of $1.5million per year in the aggregate. Prorated for the period in 2005 followingcompletion of the merger, we paid the Carlyle affiliates $60,000 in respect ofthe consulting fee.

**Item 14.**                 PrincipalAccountant Fees and Services

Feesfor professional services provided by our independent auditors in each of thelast two fiscal years, in each of the following categories are as follows: 

| ** **          | ** ** | **2005**                | ** ** | **2004** | ** ** |
|---------------------|------------|-------------------------|------------|----------|------------|
| ** **          | ** ** | **(in thousands)** | ** ** |
| Audit fees          |       | $                       | 727        |     | $          | 769 |   |
| Audit-related  fees |       | 156                     |       | —   |       |
| Tax fees            |       | 364                     |       | 118      |       |
| All other fees      |       | 61                      |       | —   |       |
| Total               |       | $                       | 1,308      |     | $          | 887 |   |

 

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

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

63

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**PART IV**

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

**(a)   FinancialStatements:**

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

**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-2      |
| Insight  Communications Company, Inc.               |     |
| Consolidated  Balance Sheets as of                       |     |
| December 31, 2005 and 2004                     | F-3      |
| Insight  Communications Company, Inc.               |     |
| Consolidated  Statements of Operations                   |     |
| for the years  ended December 31, 2005,             |     |
| 2004 and 2003                                       | F-4      |
| Insight  Communications Company, Inc.               |     |
| Consolidated  Statements of Changes in                   |     |
| Stockholders’  Equity for the years ended           |     |
| December 31, 2005, 2004 and 2003               | F-5      |
| Insight  Communications Company, Inc.               |     |
| Consolidated  Statements of Cash Flows                   |     |
| for the years  ended December 31, 2005,             |     |
| 2004 and 2003                                       | F-6      |
| Insight  Communications Company, Inc.               |     |
| Notes to  Consolidated Financial                         |     |
| Statements                                               | F-7      |

 

64

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**(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                                                                                                                                                                                                               |
| 10.1B*     |                | Form of  Amendment to Deferred Stock Award Agreement, dated December 16, 2005                                                                                                                                                                    |
| 10.2*      |                | 2005 Stock  Incentive Plan of Registrant(2)                                                                                                                                                                                                                |
| 10.2A*     |                | Form of Subscription  Agreement for E Shares(2)                                                                                                                                                                                                       |
| 10.2B*     |                | Form of Subscription  Agreement for F Shares(2)                                                                                                                                                                                                       |
| 10.3       |                | Amended and  Restated Credit Agreement, dated as of August 26, 2003, among Insight  Midwest Holdings, LLC, several banks and financial institutions or entities,  and The Bank of New York, as administrative agent (“Credit Agreement”)(4) |
| 10.3A      |                | Additional Term  Loan Supplement to Credit Agreement, dated August 26, 2003(4)                                                                                                                                                                        |
| 10.3B      |                | Amendment  No. 1, dated as of July 14, 2005, and Form of Additional Term  Loan Supplement to Credit Agreement(5)                                                                                                                            |
| 10.4       |                | Second Amended  and Restated Operating Agreement of Insight Communications Midwest, LLC,  dated as of January 5, 200(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(4)                                                                                                                          |
| 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(4)                                                                                         |
| 10.12      |                | Amended and  Restated Limited Partnership Agreement of Insight Midwest, L.P., dated  January 5, 2001(8)                                                                                                                                               |

65

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| 10.12A |   | First Amendment  to Amended and Restated Limited Partnership Agreement of Insight Midwest, L.P.,  dated September 30, 2002(9)                                                                                                                                                                                                                                                                      |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.13  |   | Indenture  relating to 93⁄4% senior notes of Insight Midwest, L.P. and Insight  Capital, Inc., dated as of October 1, 1999(10)                                                                                                                                                                                                                                                             |
| 10.13A |   | First  Supplemental Indenture, dated as of January 14, 2004, relating to 93⁄4%  senior notes(11)                                                                                                                                                                                                                                                                                                |
| 10.14  |   | Indenture  relating to 101⁄2% senior notes of Insight Midwest, L.P. and Insight  Capital, Inc., dated as of November 6, 2000(6)                                                                                                                                                                                                                                                            |
| 10.14A |   | First  Supplemental Indenture, dated as of January 14, 2004, relating to 101⁄2%  senior notes(11)                                                                                                                                                                                                                                                                                               |
| 10.15  |   | Indenture  relating to 12.25% senior discount notes of Registrant, dated as of  February 6, 2001(6)                                                                                                                                                                                                                                                                                                |
| 10.15A |   | First  Supplemental Indenture, dated as of January 14, 2004, relating to 12.25%  senior discount notes (11)                                                                                                                                                                                                                                                                                        |
| 10.16  |   | Promissory Note,  dated March 28, 2002, made by Insight Midwest, L.P. to the Registrant(12)                                                                                                                                                                                                                                                                                                        |
| 10.17  |   | Purchase  Agreement, dated July 2, 2004, between Insight Midwest Holdings, LLC and  Comcast Cable Holdings, LLC and certain of its affiliates(13)                                                                                                                                                                                                                                                  |
| 10.18  |   | Transition and  Termination Agreement, dated as of July 22, 2004, between Comcast of  Montana/Indiana/Kentucky/Utah and Insight Communications Company, L.P.(14)                                                                                                                                                                                                                                   |
| 10.19  |   | Form of  Exchange Agreement between Registrant and certain employees(12)                                                                                                                                                                                                                                                                                                                           |
| 10.20  |   | Purchase  Agreement, dated as of August 26, 2003, among Coaxial Communications of  Central Ohio, Inc., Insight Communications of Central Ohio, LLC, Insight  Holdings of Ohio, LLC, Insight Communications Company, L.P., Insight  Communications Company, Inc., Coaxial LLC, Coaxial DJM LLC, Coaxial DSM  LLC, Barry Silverstein, Dennis J. McGillicuddy, and D. Stevens McVoy(4) |
| 10.21* |   | Employment  agreement with Michael S. Willner, dated December 16, 2005(2)                                                                                                                                                                                                                                                                                                                          |
| 10.22  |   | 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)                                                                                                                                                          |
| 10.23  |   | Consulting  Agreement, dated as of December 16, 2005 between Registrant and  affiliates of The Carlyle Group                                                                                                                                                                                                                                                                                       |
| 14     |   | Code of Ethics(11)                                                                                                                                                                                                                                                                                                                                                                                      |
| 21     |   | Subsidiaries of  the Registrant(12)                                                                                                                                                                                                                                                                                                                                                                     |
| 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                                                                                                                                                                                                                                                                                                                                                                       |

----

*                    Managementcontract or compensatory plan or arrangement. 

66

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

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

(3)          Filed as an exhibit toRegistrant’s Quarterly Report on Form 10-Q for the quarterlyperiod  ended March 31, 2005 andincorporated herein by reference.

(4)          Filed as an exhibit toRegistrant’s Quarterly Report on Form 10-Q for the quarterly periodended September 30, 2003 and incorporated herein by reference.

(5)          Filed as an exhibit toRegistrant’s Quarterly Report on Form 10-Q for the quarterly periodended June 30, 2005 and incorporated herein by reference.

(6)          Filed as an exhibit toRegistrant’s Annual Report on Form 10-K for the year endedDecember 31, 2000 and incorporated herein by reference.

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

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

(9)          Filed as an exhibit toRegistrant’s Quarterly Report on Form 10-Q for the quarterly periodended September 30, 2002 and incorporated herein by reference.

(10)   Filed as an exhibit toRegistrant’s Annual Report on Form 10-K for the year endedDecember 31, 1999 and incorporated herein by reference.

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

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

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

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

67

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**Reportof Independent Registered Public Accounting Firm**

TheStockholders and Board of Directors

InsightCommunications Company, Inc.

We have audited management’sassessment, included in the accompanying Management Report on Internal ControlOver Financial Reporting appearing under Item 9A, that Insight CommunicationsCompany, Inc. (the “Company”) maintained effective internal control overfinancial reporting as of December 31, 2005, based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (the “COSO criteria”). The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion on management’sassessment and an opinion on the effectiveness of the company’s internalcontrol over financial reporting based on our audit.

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

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

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

In our opinion, management’sassessment that the Company maintained effective internal control overfinancial reporting as of December 31, 2005, is fairly stated, in allmaterial respects, based on the COSO criteria. Also, in our opinion, theCompany maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2005, based on****theCOSO criteria**.**

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheets of the Company as of December 31,2005 and 2004 and the related consolidated statements of operations,stockholders’ equity, and cash flows for each of the three years in the periodended December 31, 2005 and our report dated March 10, 2006 expressedan unqualified opinion thereon.

/s/ Ernst & Young LLP

NewYork, New York

March 10, 2006

F-1

----

**Report of Independent Registered Public AccountingFirm**

TheStockholders and Board of Directors

Insight Communications Company, Inc.

We have audited the accompanying consolidated balancesheets of Insight Communications Company, Inc. (the “Company”) as of December 31,2005 and 2004, and the related consolidated statements of operations, changesin stockholders’ equity, and cash flows for each of the three years in theperiod ended December 31, 2005. 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, 2005and 2004, and the consolidated results of their operations and their cash flowsfor each of the three years in the period ended December 31, 2005, inconformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theeffectiveness of Insight Communications Company, Inc.’s internal controlover financial reporting as of December 31, 2005, based on criteriaestablished in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated March 10,2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

NewYork, New York

March 10, 2006

F-2

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**INSIGHT COMMUNICATIONS COMPANY, INC.**

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

 

| ** **                                                                                                                              | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                                              | * *   |                        | * *   | ** **                  |       |   | * * | * * |   |
| Cash and cash  equivalents                                                                                                              |       |                        | $          | 29,782                      |       |   |   | $ | 100,144 | * * |   |
| Investments                                                                                                                             |       |                        | 5,901      |                        |       |   | 5,053 | * * |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $1,079 and $1,050 as of  December 31, 2005 and 2004          |       |                        | 27,261     |                        |       |   | 31,355 | * * |   |
| Launch funds  receivable                                                                                                                |       |                        | 974        |                        |       |   | 2,749 | * * |   |
| Prepaid expenses  and other assets                                                                                                      |       |                        | 9,645      |                        |       |   | 11,343 | * * |   |
| Total current  assets                                                                                                                   |       |                        | 73,563     |                        |       |   | 150,644 | * * |   |
| Fixed assets, net                                                                                                                       |       |                        | 1,130,705  |                        |       |   | 1,154,251 | * * |   |
| Goodwill                                                                                                                                |       |                        | 72,430     |                        |       |   | 72,430 | * * |   |
| Franchise costs                                                                                                                         |       |                        | 2,361,959  |                        |       |   | 2,361,959 | * * |   |
| Deferred financing  costs, net of accumulated amortization of $24,302 and $18,892 as  December 31, 2005 and 2004                   |       |                        | 24,220     |                        |       |   | 27,896 | * * |   |
| Other non-current  assets                                                                                                               |       |                        | 2,287      |                        |       |   | 2,692 | * * |   |
| Total assets                                                                                                                            |       |                        | $          | 3,665,164                   |       |   |   | $ | 3,769,872 | * * |   |
| **Liabilities and stockholders’ equity**                                                                                           |       |                        |       |                        |       |   |   | * * |   |
| Accounts payable                                                                                                                        |       |                        | $          | 42,333                      |       |   |   | $ | 31,886 | * * |   |
| Accrued expenses  and other current liabilities                                                                                         |       |                        | 45,413     |                        |       |   | 40,838 | * * |   |
| Accrued property  taxes                                                                                                                 |       |                        | 12,921     |                        |       |   | 13,049 | * * |   |
| Accrued  programming costs (inclusive of $29,878 and $36,838 due to related parties as  of December 31, 2005 and 2004)             |       |                        | 43,705     |                        |       |   | 51,329 | * * |   |
| Deferred revenue                                                                                                                        |       |                        | 4,978      |                        |       |   | 8,996 | * * |   |
| Interest payable                                                                                                                        |       |                        | 20,459     |                        |       |   | 20,643 | * * |   |
| Debt—current  portion                                                                                                              |       |                        | 83,500     |                        |       |   | 83,500 | * * |   |
| Total current  liabilities                                                                                                              |       |                        | 253,309    |                        |       |   | 250,241 | * * |   |
| Deferred revenue                                                                                                                        |       |                        | 1,499      |                        |       |   | 2,904 | * * |   |
| Debt                                                                                                                                    |       |                        | 2,676,418  |                        |       |   | 2,724,063 | * * |   |
| Other non-current  liabilities                                                                                                          |       |                        | 2,382      |                        |       |   | 1,331 | * * |   |
| Minority interest                                                                                                                       |       |                        | 251,011    |                        |       |   | 245,523 | * * |   |
| Stockholders’ equity:                                                                                                              |       |                        |       |                        |       |   |   | * * |   |
| Common stock, $.01 par value:                                                                                                           |       |                        |       |                        |       |   |   | * * |   |
| Class A—300,000,000  shares authorized; 0 and 50,912,910 shares issued and outstanding as of  December 31, 2005 and 2004 |       |                        | —     |                        |       |   | 509 | * * |   |
| Class B—100,000,000  shares authorized; 0 and 8,489,454 shares issued and outstanding as of  December 31, 2005 and 2004  |       |                        | —     |                        |       |   | 85 | * * |   |
| Voting preferred stock, $.01 par value:                                                                                                 |       |                        |       |                        |       |   |   | * * |   |
| Series A—1,000,000  shares authorized; 848,945 and 0 shares issued and outstanding as of  December 31, 2005 and 2004     |       |                        | 8          |                        |       |   | — | * * |   |
| Series B—1,000,000  shares authorized; 517,836 and 0 shares issued and outstanding as of  December 31, 2005 and 2004     |       |                        | 5          |                        |       |   | — | * * |   |
| Non-voting preferred stock, $.01 par value:                                                                                             |       |                        |       |                        |       |   |   | * * |   |
| Series C—15,000,000  shares authorized; 13,364,693 and 0 shares issued and outstanding as of  December 31, 2005 and 2004 |       |                        | 134        |                        |       |   | — | * * |   |
| Series D—50,000,000  shares authorized; 47,015,659 and 0 shares issued and outstanding as of  December 31, 2005 and 2004 |       |                        | 470        |                        |       |   | — | * * |   |
| Non-voting common stock, $.01 par value:                                                                                                |       |                        |       |                        |       |   |   | * * |   |
| Series E—5,000,000  shares authorized; 0 and 0 shares issued and outstanding as of  December 31, 2005 and 2004           |       |                        | —     |                        |       |   | — | * * |   |
| Series F—100,000  shares authorized; 0 and 0 shares issued and outstanding as of  December 31, 2005 and 2004             |       |                        | —     |                        |       |   | — | * * |   |
| Voting common stock, $.01 par value:                                                                                                    |       |                        |       |                        |       |   |   | * * |   |
| Series G—10,000,000  shares authorized; 0 and 0 shares issued and outstanding as of  December 31, 2005 and 2004          |       |                        | —     |                        |       |   | — | * * |   |
| Additional  paid-in-capital                                                                                                             |       |                        | 829,337    |                        |       |   | 813,853 | * * |   |
| Accumulated  deficit                                                                                                                    |       |                        | (345,199   | )                           |       |   | (260,270 | *)* |   |
| Deferred stock  compensation                                                                                                            |       |                        | (4,210     | )                           |       |   | (8,689 | *)* |   |
| Accumulated other  comprehensive income                                                                                                 |       |                        | —     |                        |       |   | 322 | * * |   |
| Total  stockholders’ equity                                                                                                        |       |                        | 480,545    |                        |       |   | 545,810 | * * |   |
| Total liabilities  and stockholders’ equity                                                                                        |       |                        | $          | 3,665,164                   |       |   |   | $ | 3,769,872 | * * |   |

 

See accompanying notes

F-3

----

**INSIGHT COMMUNICATIONS COMPANY, INC.**

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

| ** **                                                                                                                                                                                                                            | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                                                            | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenue                                                                                                                                                                                                                               |       | $                                          | 1,117,681  |   | $ | 1,002,456 |   | $ | 902,592 |   |
| Operating costs  and expenses:                                                                                                                                                                                                        |       |                                       |       |   |   |   |   |
| Programming and other operating costs (exclusive of  depreciation and amortization) (inclusive of $157,643, $150,956 and $142,387  of programming expense incurred through related parties during  December 2005, 2004 and 2003) |       | 380,277                                    |       | 342,636 |   | 327,505 |   |
| Selling, general and administrative                                                                                                                                                                                                   |       | 269,446                                    |       | 227,774 |   | 187,983 |   |
| Transaction-related costs                                                                                                                                                                                                             |       | 61,972                                     |       | — |   | — |   |
| Stock-based compensation                                                                                                                                                                                                              |       | 17,368                                     |       | 4,438 |   | 1,729 |   |
| Depreciation and amortization                                                                                                                                                                                                         |       | 247,039                                    |       | 239,123 |   | 230,031 |   |
| Total operating  costs and expenses                                                                                                                                                                                                   |       | 976,102                                    |       | 813,971 |   | 747,248 |   |
| Operating income                                                                                                                                                                                                                      |       | 141,579                                    |       | 188,485 |   | 155,344 |   |
| Other income  (expense):                                                                                                                                                                                                              |       |                                       |       |   |   |   |   |
| Gain on cable system exchange                                                                                                                                                                                                         |       | —                                     |       | — |   | 27,134 |   |
| Interest expense                                                                                                                                                                                                                      |       | (226,956                                   | )          | (201,450 | ) | (206,031 | ) |
| Interest income                                                                                                                                                                                                                       |       | 2,895                                      |       | 749 |   | 1,433 |   |
| Other                                                                                                                                                                                                                                 |       | 3,541                                      |       | (3,388 | ) | (31 | ) |
| Total other  expense, net                                                                                                                                                                                                             |       | (220,520                                   | )          | (204,089 | ) | (177,495 | ) |
| Loss before  minority interest, investment activity, extinguishments of obligations, gain  on contract settlement, income taxes and extraordinary item                                                                                |       | (78,941                                    | )          | (15,604 | ) | (22,151 | ) |
| Minority interest  expense                                                                                                                                                                                                            |       | (5,488                                     | )          | (14,023 | ) | (7,936 | ) |
| Loss from early  extinguishments of debt                                                                                                                                                                                              |       | —                                     |       | — |   | (10,879 | ) |
| Loss on  settlement of put obligation                                                                                                                                                                                                 |       | —                                     |       | — |   | (12,169 | ) |
| Gain on  settlement of programming contract                                                                                                                                                                                           |       | —                                     |       | — |   | 37,742 |   |
| Impairment  write-down of investments                                                                                                                                                                                                 |       | —                                     |       | — |   | (1,500 | ) |
| Loss before  income taxes and extraordinary item                                                                                                                                                                                      |       | (84,429                                    | )          | (29,627 | ) | (16,893 | ) |
| Benefit  (provision) for income taxes                                                                                                                                                                                                 |       | (500                                       | )          | 201 |   | 2,702 |   |
| Loss before  extraordinary item                                                                                                                                                                                                       |       | (84,929                                    | )          | (29,426 | ) | (14,191 | ) |
| Extraordinary  item, net of tax                                                                                                                                                                                                       |       | —                                     |       | 15,627 |   | — |   |
| Loss before  preferred interests                                                                                                                                                                                                      |       | (84,929                                    | )          | (13,799 | ) | (14,191 | ) |
| Accrual of  preferred interests                                                                                                                                                                                                       |       | —                                     |       | — |   | (10,353 | ) |
| Net loss                                                                                                                                                                                                                              |       | $                                          | (84,929    | ) | $ | (13,799 | ) | $ | (24,544 | ) |

 

See accompanying notes

F-4

----

**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** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|----------------------------------|------------|--------------------------------|------------|---------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------|------------|
| Balance at  December 31, 2002                                     |       |                    | $          | 600                        |       |                             |       | $                              | —     |                                  |       |                                                                  | $          | 829,873   |       |   |   | $ | (232,280 | ) |   |   | $ | (5,882 | ) |   |   | $ | (5,256 | ) |   | $ | 587,055 |   |
| Net loss                                                                    |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      | (14,191    | ) |   |   |   |   |   |   |   |   |   | (14,191 | ) |
| Unrealized gain on  investments                                             |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   | 1,564 |   |   | 1,564 |   |
| Realized gain on  investments                                          |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   | (578 | ) |   | (578 | ) |
| Unrealized gain on  interest rate swaps                                     |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   | 4,247 |   |   | 4,247 |   |
| Total  comprehensive loss                                                   |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   |   |   |   | (8,958 | ) |
| Issuance of stock  to 401(k) plan                                      |       |                    | 1          |                       |       |                             |       |                           |       |                                  | 1,677      |                                                                  |       |      |       |   |   |   |   |   |   |   |   |   |   | 1,678 |   |
| Issuance of  restricted stock                                               |       |                    | 2          |                       |       |                             |       |                           |       |                                  | 4,821      |                                                                  |       |      |       |   |   |   | (4,823 | ) |   |   |   |   |   | — |   |
| Issuance of stock  through exercise of stock options and stock compensation |       |                    |       |                       |       |                             |       |                           |       |                                  | 285        |                                                                  |       |      |       |   |   |   | (31 | ) |   |   |   |   |   | 254 |   |
| Retirement of  stock acquired through the purchase of Coaxial               |       |                    | (8         | )                          |       |                             |       |                           |       |                                  | (8,336     | )                                                                     |       |      |       |   |   |   |   |   |   |   |   |   |   | (8,344 | ) |
| Contribution of  Coaxial to Midwest Holdings                                |       |                    |       |                       |       |                             |       |                           |       |                                  | 1,240      |                                                                  |       |      |       |   |   |   |   |   |   |   |   |   |   | 1,240 |   |
| Retirement of put  obligation                                          |       |                    |       |                       |       |                             |       |                           |       |                                  | (7,100     | )                                                                     |       |      |       |   |   |   |   |   |   |   |   |   |   | (7,100 | ) |
| Accrual of  preferred interests                                        |       |                    |       |                       |       |                             |       |                           |       |                                  | (10,353    | )                                                                     |       |      |       |   |   |   |   |   |   |   |   |   |   | (10,353 | ) |
| Mark-to-market  non-cash compensation                                       |       |                    |       |                       |       |                             |       |                           |       |                                  | 4,493      |                                                                  |       |      |       |   |   |   | (4,493 | ) |   |   |   |   |   | — |   |
| Amortization of  non-cash compensation                                      |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   | 1,647 |   |   |   |   |   |   | 1,647 |   |
| Balance at  December 31, 2003                                     |       |                    | 595        |                       |       |                             | —     |                           |       |                                  | 816,600    |                                                                  |       |      | (246,471   | ) |   |   | (13,582 | ) |   |   | (23 | ) |   | 557,119 |   |
| Net loss                                                                    |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      | (13,799    | ) |   |   |   |   |   |   |   |   |   | (13,799 | ) |
| Unrealized loss on  investments                                             |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   | (279 | ) |   | (279 | ) |
| Realized gain on  investments                                          |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   | (386 | ) |   | (386 | ) |
| Unrealized gain on  interest rate swaps                                     |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   | 1,010 |   |   | 1,010 |   |
| Total  comprehensive loss                                                   |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   |   |   |   | (13,454 | ) |
| Issuance of stock  to 401(k) plan                                      |       |                    | 1          |                       |       |                             |       |                           |       |                                  | 1,309      |                                                                  |       |      |       |   |   |   |   |   |   |   |   |   |   | 1,310 |   |
| Issuance of  restricted stock                                               |       |                    | 1          |                       |       |                             |       |                           |       |                                  | 766        |                                                                  |       |      |       |   |   |   | (767 | ) |   |   |   |   |   | — |   |
| Issuance of stock  through stock compensation and exercise of stock options |       |                    |       |                       |       |                             |       |                           |       |                                  | 74         |                                                                  |       |      |       |   |   |   | 32 |   |   |   |   |   |   | 106 |   |
| Acquisition of  stock in satisfaction of employee loans                     |       |                    | (3         | )                          |       |                             |       |                           |       |                                  | (3,660     | )                                                                     |       |      |       |   |   |   |   |   |   |   |   |   |   | (3,663 | ) |
| Mark-to-market  non-cash compensation                                       |       |                    |       |                       |       |                             |       |                           |       |                                  | (1,236     | )                                                                     |       |      |       |   |   |   | 4,398 |   |   |   |   |   |   | 3,162 |   |
| Amortization of  non-cash compensation                                      |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   | 1,230 |   |   |   |   |   |   | 1,230 |   |
| Balance at  December 31, 2004                                     |       |                    | 594        |                       |       |                             | —     |                           |       |                                  | 813,853    |                                                                  |       |      | (260,270   | ) |   |   | (8,689 | ) |   |   | 322 |   |   | 545,810 |   |
| Net loss                                                                    |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      | (84,929    | ) |   |   |   |   |   |   |   |   |   | (84,929 | ) |
| Realized gain on  investments                                          |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   | (448 | ) |   | (448 | ) |
| Unrealized gain on  investments                                             |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   | 126 |   |   | 126 |   |
| Total  comprehensive loss                                                   |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   |   |   |   |   |   |   |   | (85,251 | ) |
| Issuance of stock  to 401(k) plan                                      |       |                    | 2          |                       |       |                             |       |                           |       |                                  | 2,563      |                                                                  |       |      |       |   |   |   |   |   |   |   |   |   |   | 2,565 |   |
| Issuance of  deferred stock units                                           |       |                    |       |                       |       |                             |       |                           |       |                                  | 2,322      |                                                                  |       |      |       |   |   |   | (2,322 | ) |   |   |   |   |   | — |   |
| Issuance of  restricted stock                                               |       |                    | 8          |                       |       |                             |       |                           |       |                                  | 9,661      |                                                                  |       |      |       |   |   |   | (9,669 | ) |   |   |   |   |   | — |   |
| Issuance of stock  through stock compensation and exercise of stock options |       |                    |       |                       |       |                             |       |                           |       |                                  | 63         |                                                                  |       |      |       |   |   |   | (15 | ) |   |   |   |   |   | 48 |   |
| Cancellation of  restricted stock                                           |       |                    | (2         | )                          |       |                             |       |                           |       |                                  | (1,933     | )                                                                     |       |      |       |   |   |   | 1,935 |   |   |   |   |   |   | — |   |
| Mark-to-market  non-cash compensation                                       |       |                    |       |                       |       |                             |       |                           |       |                                  | 2,455      |                                                                  |       |      |       |   |   |   | 984 |   |   |   |   |   |   | 3,439 |   |
| Amortization of  non-cash compensation                                      |       |                    |       |                       |       |                             |       |                           |       |                                  |       |                                                                  |       |      |       |   |   |   | 3,883 |   |   |   |   |   |   | 3,883 |   |
| Going-private  transaction adjustments                                      |       |                    | (602       | )                          |       |                             | 617        |                           |       |                                  | 353        |                                                                  |       |      |       |   |   |   | 9,683 |   |   |   |   |   |   | 10,051 |   |
| Balance at  December 31, 2005                                     |       |                    | $          | —                     |       |                             |       | $                              | 617        |                                  |       |                                                                  | $          | 829,337   |       |   |   | $ | (345,199 | ) |   |   | $ | (4,210 | ) |   |   | $ | — |   |   | $ | 480,545 |   |

 

See accompanying notes

F-5

----

**INSIGHT COMMUNICATIONS COMPANY, INC.**

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

| ** **                                                                       | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                       | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Operating activities:**                                                        |       |                                       |       |   |   |   |   |
| Net loss                                                                         |       | $                                          | (84,929    | ) | $ | (13,799 | ) | $ | (14,191 | ) |
| Adjustments  to reconcile net loss to net cash provided by operating activities: |       |                                       |       |   |   |   |   |
| Depreciation and amortization                                                    |       | 247,039                                    |       | 239,123 |   | 230,031 |   |
| Stock-based compensation                                                         |       | 17,368                                     |       | 4,438 |   | 1,729 |   |
| Non-cash consulting expense                                                      |       | 45                                         |       | 60 |   | 60 |   |
| Impairment of investments                                                        |       | —                                     |       | — |   | 1,500 |   |
| Gain on sale of investments                                                      |       | (448                                       | )          | (386 | ) | (578 | ) |
| Loss (gain) on interest rate swaps                                               |       | (2,078                                     | )          | (36 | ) | 2,114 |   |
| Loss on early extinguishments of debt                                            |       | —                                     |       | 127 |   | 2,616 |   |
| Settlement of put obligation                                                     |       | —                                     |       | — |   | (7,100 | ) |
| Gain on settlement of programming contract                                       |       | —                                     |       | — |   | (34,819 | ) |
| Gain on cable systems exchange                                                   |       | —                                     |       | — |   | (27,134 | ) |
| Minority interest                                                                |       | 5,488                                      |       | 14,023 |   | 7,936 |   |
| Provision for losses on trade accounts receivable                                |       | 17,619                                     |       | 18,301 |   | 13,366 |   |
| Contribution of stock to 401(k) Plan                                        |       | 2,565                                      |       | 1,309 |   | 1,678 |   |
| Amortization of note discount                                                    |       | 38,755                                     |       | 34,931 |   | 33,118 |   |
| Deferred income taxes                                                            |       | —                                     |       | (701 | ) | (2,952 | ) |
| Changes  in operating assets and liabilities, net of acquisitions:               |       |                                       |       |   |   |   |   |
| Trade accounts receivable                                                        |       | (13,525                                    | )          | (20,343 | ) | (16,954 | ) |
| Launch funds receivable                                                          |       | 1,775                                      |       | 6,672 |   | (4,224 | ) |
| Prepaid expenses and other assets                                                |       | 2,238                                      |       | 6,011 |   | (1,219 | ) |
| Accounts payable                                                                 |       | 10,447                                     |       | 1,469 |   | (16,803 | ) |
| Accrued expenses and other liabilities                                           |       | (8,786                                     | )          | (1,285 | ) | 29,614 |   |
| Net cash provided by operating activities                                        |       | 233,573                                    |       | 289,914 |   | 197,788 |   |
| **Investing  activities:**                                                       |       |                                       |       |   |   |   |   |
| Purchase of fixed assets                                                         |       | (220,102                                   | )          | (174,096 | ) | (196,658 | ) |
| Sale of fixed assets                                                             |       | 2,113                                      |       | 1,913 |   | — |   |
| Purchase of intangible assets                                                    |       | —                                     |       | (107 | ) | (889 | ) |
| Purchase of investments                                                          |       | (1,801                                     | )          | (1,856 | ) | (1,347 | ) |
| Sale of investments                                                              |       | 1,079                                      |       | 602 |   | 999 |   |
| Purchase of Coaxial interests                                                    |       | —                                     |       | — |   | (10,321 | ) |
| Purchase of cable television systems, net                                        |       | —                                     |       | — |   | (26,475 | ) |
| Net cash used in investing activities                                            |       | (218,711                                   | )          | (173,544 | ) | (234,691 | ) |
| **Financing  activities:**                                                       |       |                                       |       |   |   |   |   |
| Distributions of preferred interests                                             |       | —                                     |       | — |   | (11,554 | ) |
| Net proceeds from borrowings under credit facility                               |       | —                                     |       | — |   | 118,000 |   |
| Repayment of credit facilities                                                   |       | (83,500                                    | )          | (68,250 | ) | (25,000 | ) |
| Repayment of debt                                                                |       | —                                     |       | (8,134 | ) | (195,869 | ) |
| Proceeds from issuance of notes                                                  |       | —                                     |       | — |   | 141,375 |   |
| Debt issuance costs                                                              |       | (1,733                                     | )          | (14 | ) | (4,842 | ) |
| Proceeds from the cancellation and conversion of  common stock                   |       | 9                                          |       | — |   | — |   |
| Proceeds from exercise of stock options                                          |       | —                                     |       | — |   | 115 |   |
| Net cash provided by (used in) financing activities                              |       | (85,224                                    | )          | (76,398 | ) | 22,225 |   |
| Net change in cash and cash equivalents                                          |       | (70,362                                    | )          | 39,972 |   | (14,678 | ) |
| Cash and cash equivalents, beginning of year                                     |       | 100,144                                    |       | 60,172 |   | 74,850 |   |
| Cash and cash  equivalents, end of year                                          |       | $                                          | 29,782     |   | $ | 100,144 |   | $ | 60,172 |   |

 

See accompanying notes

F-6

----

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

**1.   Organizationand Basis of Presentation**

Through our wholly owned subsidiary, InsightCommunications Company, L.P. (“Insight LP”), we own a 50% interest in InsightMidwest, L.P. (“Insight Midwest”), which through its operating subsidiaries,Insight Communications Midwest, LLC (“Insight Communications Midwest”), InsightKentucky Partners II, L.P. (“Insight Kentucky”) and Insight Communications ofCentral Ohio, LLC (“Insight Ohio”), owns and operates cable television systemsin Indiana, Kentucky, Ohio, and Illinois which passed approximately 2.4 millionhomes and served approximately 1.3 million customers as of December 31,2005.

Insight LP is the general partner of Insight Midwest. ThroughInsight 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.

The accompanying consolidated financial statementsinclude our accounts and those of our wholly owned subsidiaries, Insight LP andInsight Cable Services, LLC.

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

**2.   SignificantAccounting Policies**

***Basis ofConsolidation***

The consolidated financialstatements include our accounts and those of our wholly owned subsidiaries,Insight LP and Insight Cable Services, LLC.  Although Insight Midwest is equally owned byInsight LP and an indirect subsidiary of Comcast Cable, Insight LP, as thegeneral partner of Insight Midwest, effectively controls all its operating andfinancial decisions. Accordingly, the results of Insight Midwest are includedin our consolidated financial statements. The minority interest representsComcast Cable’s 50% ownership interest in Insight Midwest. Intercompanybalances and transactions have been eliminated in consolidation.

***Revenue Recognition***

Revenue is earned fromcustomer fees for cable television programming services including premium,digital and pay-per-view services and ancillary services, such as rental ofconverters, remote control devices, and installations. In addition, we earnrevenues from providing high-speed Internet services, selling advertising,telephone services, commissions for products sold through home shoppingnetworks, and management fees. Revenue is recorded in the month the relatedservices are rendered. Fees received for activation of telephone services areamortized over the customer relationship period for the years ended December 31,2004 and 2003. (See Note 14 “Related Party Transactions”).

F-7

----

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

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

***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 atcost and include costs capitalized for labor and overhead incurred inconnection with the construction of cable system infrastructures, includingthose providing high-speed Internet and the delivery of telephone services. Inaddition, we capitalize labor, material costs and overhead associated withinstallations related to new services on customer premises. Depreciation forbuildings, cable system equipment, furniture, fixtures and office equipment iscalculated using the straight-line method over estimated useful lives rangingfrom 2 to 30 years. Leasehold improvements are amortized using thestraight-line method over the shorter of the remaining term of the leases or theestimated 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, 2005 or 2004.

***Franchise Costs andGoodwill***

On January 1, 2002, we adopted SFAS No. 142,*Goodwill and Other Intangible Assets.*In accordance with SFAS No. 142, we discontinued the amortization ofindefinite-lived intangible assets, including our franchise costs and goodwill.SFAS No. 142 requires goodwill and indefinite-lived intangible assets betested for impairment annually, or more frequently as warranted by events orchanges in circumstances. According to guidance prescribed in Emerging IssuesTask Force (“EITF”) Issue No. 02-7, *Unitof Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets*,single units of accounting 

F-8

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

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

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

Additionally, during September 2004,the SEC staff issued Topic D-108, *Useof the Residual Method to Value Acquired Assets Other than Goodwill*,which requires the direct method of separately valuing all intangible assetsand does not permit goodwill to be included in franchise assets. In connectionwith adopting SFAS No. 142 and Topic D-108 and based on guidancefrom EITF Issue No. 02-7, we performed an impairment assessmentusing an independent third-party appraiser for the three asset groupsidentified. The Company determined that, as of December 31, 2005 and 2004,there had been no impairment to our franchise costs.

***Deferred FinancingCosts***

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, 2005, 2004and 2003, we recorded amortization expense of $5.4 million, $5.4 million and$4.8 million.

***Stock-Based Compensation***

Pursuant to SFAS No. 148, *Accounting for Stock Based Compensation—Transitionand Disclosure,*we have elected to continue to account for employeestock-based compensation under Accounting Principals Board (“APB”) Opinion No. 25,*Accounting for Stock Issued to Employees*,and related interpretations, as permitted by SFAS No. 123, *Accounting for Stock-Based Compensation*,as amended.

Compensation expense forstock options is measured as the excess, if any, of the quoted market price ofour stock at the date of grant over the amount an option holder must pay toacquire the stock. We record compensation expense for restricted stock awardsbased on the quoted market price at the date of grant over the vesting period. (SeeNote 11 “Stock Option Plan and Other Stock Based Compensation”).

***ComprehensiveIncome (Loss)***

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(loss). Additionally, we record the effective portion of certain derivatives’net unrealized gains as components of comprehensive income (loss). Comprehensiveincome (loss) is presented in the accompanying consolidated statements ofchanges in stockholders’ equity. The cumulative amount of comprehensive income(loss) is presented in the accompanying consolidated balance sheets asaccumulated other comprehensive 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 an 

F-9

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

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

amountthat 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, 2005, 2004 and 2003 were $32.2 million, $21.6 millionand $10.5 million.

***Recent Accounting Pronouncements***

On December 16, 2004, the FASB issued SFAS No. 123(revised 2004), *Share-Based Payment* (“SFAS No. 123(R)”),which is a revision of SFAS No. 123, and supersedes APB Opinion No. 25.SFAS No. 123(R) requires all share-based payments to employees,including grants of employee stock options, to be recognized in the financialstatements based on their fair values, beginning with the next fiscal year thatbegins after June 15, 2005. In addition, SFAS No. 123(R) willcause unrecognized expense related to previously issued options vesting afterthe date of initial adoption to be recognized as a charge to results ofoperations over the remaining vesting period. We are required to adopt SFAS No. 123(R) inour first quarter of 2006. The FASB has concluded that companies may adopt thenew standard in one oftwo ways: the modified prospective transition method and the modifiedretrospective transition method. Under the modified retrospective transitionmethod, prior periods may be retroactively adjusted either as of the beginningof the year of adoption or for all periods presented. The modified prospectivetransition method requires that compensation expense be recorded for allunvested stock options and share awards at the beginning of the fiscal periodof adoption of SFAS No. 123R, while the retrospective method would recordcompensation expense for all unvested stock options and share awards beginningwith the fiscal period retroactively adjusted. The Company does not anticipatethat the adoption of this standard will have a material impact on itsconsolidated financial statements.

In March 2005, FASB issued Interpretation No. 47(“FIN 47”), “*Accounting for Conditional Asset RetirementObligations (an Interpretation of SFAS No. 143)”*. ThisInterpretation provides clarification with respect to the timing of liabilityrecognition for legal obligations associated with the retirement of long-livedassets when the timing and/or method of settlement of the obligation isconditional on a future event. This Interpretation requires that the fair valueof a liability for a conditional asset retirement obligation be recognized inthe period in which it occurred if a reasonable estimate of fair value can bemade. FIN 47 is effective for fiscal years ending after December 2005. TheCompany does not anticipate that the adoption of this standard will have amaterial impact on its consolidated financial statements.

In May 2005, FASBissued SFAS No. 154, *Accounting**Changes and Error Corrections*. SFAS No. 154 replacesAPB Opinion No. 20, *Accounting Changes*,and SFAS No. 3, *Reporting AccountingChanges in Interim Financial Statements* and changes the requirementsfor the accounting for and reporting of a change in accounting principles. SFASNo. 154 applies to all voluntary changes in an accounting principle. Italso applies to changes required by an accounting pronouncement in the unusualinstance that the pronouncement does not include specific transition provisions.When a pronouncement includes specific provisions, those provisions should befollowed. SFAS 154 is effective for accounting changes and 

F-10

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

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

correctionsof errors made in fiscal years beginning in 2006. The Company does notanticipate that the adoption of this standard will have a material impact onits consolidated financial statements.

***Reclassifications***

Reclassifications havebeen made to the prior years’ financial statements to conform to thoseclassifications used in 2005.

**3.   Insight Midwest**

In September 1999, Insight Midwest was formed toserve as the holding company and a financing vehicle for our cable televisionsystem 50/50 joint venture with AT&T Broadband (now known as Comcast Cable).As of December 31, 2005, Insight Midwest was comprised of systems locatedin Indiana, Kentucky, Ohio and Illinois.

***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 Indiana in exchangefor a 50% equity interest. On October 1, 1999, as part of a joint venturerestructuring involving the Kentucky Systems (discussed below), Insight Indianabecame a wholly owned subsidiary of Insight Midwest. Pursuant to the terms oftheir respective operating agreements, Insight Midwest and Insight Indiana willcontinue until October 1, 2011, unless extended or terminated sooner byInsight LP and Comcast Cable.

***Kentucky Systems***

On October 1, 1999,Insight LP acquired a combined 50% interest in InterMedia Capital Partners VI,LP (the “IPVI Partnership”) from related parties of Blackstone CableAcquisition Company, LLC, InterMedia Capital Management VI, LLC and asubsidiary and related party of AT&T Broadband, for $341.5 million(inclusive of expenses). Insight Midwest assumed debt of $742.1 million (thetotal debt of the IPVI Partnership) in connection with this transaction. Concurrentlywith this acquisition, the Kentucky Systems were contributed to Insight Midwest.Pursuant to the terms of their respective operating agreements, Insight Midwestand Insight Kentucky will continue until October 1, 2011, unless extendedor terminated sooner by Insight 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 of $393.5 million was allocated to the cable televisionassets acquired in relation to their fair values as increases in fixed assetsof $52.3 million and franchise costs of $341.2 million.

F-11

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

**3.**   Insight Midwest (Continued)

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% of thecarrying value of such net assets contributed to Insight Midwest, representingthe interest owned by AT&T Broadband (minority interest) through itsinvestment in Insight Midwest.

Concurrently, AT&T Broadband contributed directlyto Insight Midwest certain Illinois systems serving approximately 250,000customers. The total value of such contributed systems was $983.3 million. Werecorded 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.

***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 remaining Ohio obligations, comprised of Senior Notes andSenior Discount Notes, through our refinancing of the Insight Midwest HoldingsCredit Facility. Insight Ohio is now a restricted subsidiary under the terms ofour indentures. We recorded a loss of $10.9 million on the extinguishment ofthese obligations as a result of call premiums and the write-off of deferredfinancing costs.

**4.   Investments**

***Insight Interactive and Liberate Technologies***

Effective November 17, 1999, Insight CableServices entered into a Contribution Agreement with Source Media, Inc.,providing for the creation of a joint venture, Insight Interactive LLC. Underthe terms of the Contribution Agreement, Source Media contributed its VirtualModem 2.5 software and the Interactive Channel products and services, includingSourceGuide and LocalSource television content. We contributed $13.0 million inequity financing for 50% of the equity in the joint venture.

F-12

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

**4.   Investments(Continued)**

On March 3, 2000, pursuant to a merger of thejoint venture with a subsidiary of Liberate Technologies (“Liberate”), Insight Interactive soldall of its VirtualModem assets in exchange for the issuance to each of InsightCable Services and Source Media of 886,000 shares of Liberate common stock. 

Insight Interactive continues to own and operate itsprogramming assets, LocalSource and SourceGuide. In April 2005, Liberatesold its North American business to Double C Technologies, LLC, and in July 2005sold its remaining business outside of North America to SeaChange International, Inc.On June 13, 2005, Liberate filed a complaint against Insight Interactivealleging Insight Interactive owes Liberate fees under a March 6, 2000preferred content provider agreement. We believe that the claims are withoutmerit and intend to defend the action vigorously.

In November 2003, wesold 295,000 shares of our Liberate stock. We received net proceeds of $988,000and recorded a gain on the sale of $566,000, which has been included in otherexpense, net in our consolidated statements of operations. During January andFebruary 2004, we sold a total of 150,000 shares of our Liberate stock. Wereceived net proceeds of $595,000 and recorded a net gain on the sale of$381,000 that has been included in other expense, net in our consolidatedstatements of operations for the year ended December 31, 2004. In July andApril 2005, we received special dividends of $0.15 and $2.10 per share onour 441,000 shares of Liberate stock. The total dividends received of $66,150and $926,100 has been recorded as a decrease in our investment in Liberate. In November andDecember 2005, we sold the remaining shares of our Liberate investment. Thecost basis of these shares was determined by using the specific identificationmethod. We recorded a gain on these sales of $448,000, which has been includedin other expense, net in our consolidated statements of operations. Thecarrying amount of our investment in Liberate was $0 and $953,000 as of December 31,2005 and 2004.

***AgileTV***

AgileTV Corporation is a privately owned company thatdevelops voice navigation services for television.

In November 2001, we purchased 3.0 million sharesof AgileTV’s Series C redeemable, convertible preferred stock for $7.5million, which is accounted for under the cost method. This preferred stock hasa liquidation preference equal to $7.5 million. In connection with thisinvestment, we received 3 million warrants to purchase AgileTV common stockwith an exercise price of $2.50 per share and an additional 800,000 warrantswith an exercise price of $1.25 per share.

Based on our on-going assessment of potentialimpairments in our investments in equity securities, as of December 31,2003 we recorded impairment charges of $1.5 million related to our investmentin AgileTV.

On May 11, 2005, wemade an additional investment in AgileTV by purchasing shares of AgileTV’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 inAgileTV under the cost method. As of December 31, 2005 and December 31,2004, our carrying value in this investment was $1.2 million and $300,000.

F-13

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

**4.**   Investments (Continued)

***Oxygen Cable, LLC***

Oxygen Cable, LLC (“Oxygen”) is an independent cabletelevision network with programming tailored to the interests of women. On July 9,2002 we entered into a carriage agreement with Oxygen, whereby we agreed tocarry programming content from Oxygen. The term of the carriage agreementexpires on December 31, 2006. For the years ended December 31, 2005,2004 and 2003, we paid Oxygen approximately $440,000, $0 and $0 for programmingcontent. In addition, Oxygen paid us marketing support fees, which we record asa reduction of marketing expense, of approximately $40,000, $440,000 and$95,000 for the years ended December 31, 2005, 2004 and 2003. As of December 31,2005 and December 31, 2004, our carrying value in this investment was $4.7million and $3.8 million.

Concurrently with thecarriage agreement, we entered into an equity issuance agreement with Oxygen. Theagreement calls for Oxygen to deliver to us shares having an aggregate fairmarket value as of December 31, 2005 of $3.8 million, and by December 1,2006 deliver us additional shares having an aggregate fair market value as ofthe December 31, 2005 valuation of $2.0 million. We and Oxygen are in theprocess of determining the fair market value of Oxygen shares and as of thedate of this filing no shares have been delivered.

**5.   FixedAssets**

| ** **                                       | ** ** | **December 31,**   | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2005**                | ** ** | **2004**              | ** ** |
| ** **                                       | ** ** | **(in thousands)** | ** ** |
| Land, buildings  and improvements                |       | $                       | 41,042     |                  | $          | 41,131 |   |
| Cable system  equipment                          |       | 2,398,364               |       | 2,182,800             |       |
| Furniture,  fixtures and office equipment        |       | 21,352                  |       | 20,073                |       |
|                                             |       | 2,460,758               |       | 2,244,004             |       |
| Less: accumulated  depreciation and amortization |       | (1,330,053              | )          | (1,089,753            | )          |
| Total fixed  assets, net                         |       | $                       | 1,130,705  |                  | $          | 1,154,251 |   |

 

Depreciation expense for the years ended December 31,2005, 2004 and 2003 was $241.5 million, $233.8 million and $225.2 million.

**6.   Debt**

| ** **                                      | ** ** | **December 31,**   | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2005**                | ** ** | **2004**              | ** ** |
| ** **                                      | ** ** | **(in thousands)** | ** ** |
| Insight Midwest  Holdings Credit Facility       |       |                    | $          | 1,404,250             |       |   |   | $ | 1,487,750 |   |   |
| Insight Midwest 93¤4%  Senior Notes        |       |                    | 385,000    |                  |       |   | 385,000 |   |   |
| Insight Midwest 101¤2%  Senior Notes       |       |                    | 630,000    |                  |       |   | 630,000 |   |   |
| Insight Inc. 121¤4%  Senior Discount Notes |       |                    | 350,000    |                  |       |   | 350,000 |   |   |
|                                            |       |                    | 2,769,250  |                  |       |   | 2,852,750 |   |   |
| Net unamortized  discount/premium on notes      |       |                    | (6,950     | )                     |       |   | (45,706 | ) |   |
| Market value of  interest rate swaps            |       |                    | (2,382     | )                     |       |   | 519 |   |   |
| Total debt                                      |       |                    | $          | 2,759,918             |       |   |   | $ | 2,807,563 |   |   |

 

F-14

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

**6.**   Debt (Continued)

***Insight Midwest Holdings $1.975 Billion CreditFacility***

Insight Midwest Holdings, LLC, a wholly ownedsubsidiary of Insight Midwest, holds all of the outstanding equity of each ofour operating subsidiaries and serves as borrower under a $1.975 billion creditfacility. On March 28, 2002, we loaned $100.0 million to Insight Midwest.The loan to Insight Midwest bears annual interest of 9%, compoundedsemi-annually, has a scheduled maturity date of January 31, 2011 andpermits prepayments. Insight Midwest Holdings is permitted under the creditfacility to make distributions to Insight Midwest for the purpose of repayingour loan, including accrued interest, provided that there are no defaultsexisting under the credit facility. As of December 31, 2005 andDecember 31, 2004, the balance of the $100.0 million loan, includingaccrued interest, was $139.1 million and $127.4 million.

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

***Insight Midwest Senior Notes***

On October 1, 1999 simultaneously with theclosing of the purchase of Insight Kentucky, Insight Midwest completed a $200.0million offering 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 onApril 1 and October 1.

On November 6, 2000, Insight Midwest completed a$500.0 million offering of 101¤2% senior notesdue in November 2010. Insight Midwest received proceeds of $487.5 million,net of an underwriting fee of $5.0 million and a bond discount of $7.5 millionthat is being amortized through November 2010. The proceeds of theoffering were used to repay a portion of the outstanding debt under the thenexisting Insight Indiana credit facility and Insight Kentucky credit facility.Interest payments on these Senior Notes, which commenced on May 1, 2001,are payable semi-annually on May 1 and November 1.

The Insight Midwest 93¤4% Senior Notesbecame redeemable on or after October 1, 2004 and the 101¤2% Senior Notesare redeemable on or after November 1, 2005. In addition, Insight Midwestcan redeem up to 35% of the Insight Midwest 93¤4% and 101¤2%Senior Notes prior to October 1, 2002 and November 1, 2005, with thenet proceeds from certain sales of Insight Midwest’s equity. Each holder of theInsight Midwest Senior Notes may require Insight Midwest to redeem all or partof that holder’s notes upon certain changes of control. The Insight MidwestSenior Notes are general unsecured obligations and are subordinate to all otherliabilities of Insight Midwest, the amounts of which were $1.6 billion and $1.7billion as of December 31, 2005 and 2004. The Insight Midwest Senior Notescontain certain financial and other debt covenants.

In May 2000 and September 2001, InsightMidwest completed exchange offers pursuant to which the 93¤4%Senior Notes and 101¤2%Senior Notes were exchanged for identical notes registered under the SecuritiesAct of 1933.

F-15

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**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

**6.   Debt (Continued)**

In December 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, including $3.8million of interest accruing from October 1, 2002 through the date ofissuance that was repaid to holders of the bonds in the first semi-annualinterest payment due on April 1, 2003, and net of an underwriting fee of$3.1 million and a bond discount of $8.8 million that is being amortizedthrough October 2009. The proceeds of this offering were used to repay aportion of the outstanding revolving loans under the Midwest Holdings CreditFacility. Since this additional add-on offering occurred under the 93¤4%Senior Notes indenture, these additional debt securities and the 93¤4% Senior Notesare considered a single series of senior notes with identical terms. In June 2003,Insight Midwest completed an exchange offer pursuant to which the $185.0million add-on offering under the 93¤4%Senior Notes were exchanged for identical notes registered under the SecuritiesAct of 1933.

In December 2003, Insight Midwest completed a$130.0 million add-on offering under the 101¤2% Senior Notesindenture. Insight Midwest received proceeds of $140.9 million, including $1.5million of interest accruing from November 1, 2003 through the date ofissuance that was repaid to holders of the bonds in the first semi-annualinterest payment due on May 1, 2004 and a bond premium of $11.4 millionthat is being amortized through November 2010 and net of an underwritingfee of $2.0 million. The proceeds of this offering were used to repay a portionof the outstanding revolving loans under the Midwest Holdings Credit Facility. Sincethis additional add-on offering occurred under the 101¤2% Senior Notesindenture, these additional debt securities and the 101¤2% Senior Notesare considered a single series of senior notes with identical terms.

In July 2004, InsightMidwest completed an exchange offer pursuant to which the $130.0 million 101¤2%Senior Notes issued in December 2003 were exchanged for substantiallyidentical notes registered under the Securities Act of 1933.

***Insight Inc. 12***1¤4%Senior Discount 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 $8.9million, resulting in a loss of $843,000, which includes the write-off ofunamortized deferred financing costs of $127,000.

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

F-16

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**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

**6.**   Debt (Continued)

***Debt Principal Payments***

As of December 31,2005, the remaining principal payments required on our debt were as follows (inthousands):

| 2006       |   | $         | 83,500    |   |
|------------|--------|-----------|-----------|--------|
| 2007       |   | 83,500    |      |
| 2008       |   | 104,750   |      |
| 2009       |   | 1,517,500 |      |
| 2010       |   | 630,000   |      |
| Thereafter |   | 350,000   |      |
| Total      |   | $         | 2,769,250 |   |

 

**7.   DerivativeInstruments**

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

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

**Fair Value Hedges**

In February 2003, we entered into two interestrate swap agreements whereby we swapped fixed rates under our 101¤2%senior notes due in December 2010 for variable rates equal to six-monthLIBOR, plus the applicable margin of approximately 7.7%, on $185.0 millionnotional value of debt. Six-month LIBOR ranged between 1.26% and 1.34% for February andMarch 2003. In May 2003, we settled these swaps and received proceedsof $1.8 million and recorded a gain in this amount, which is included in otherincome (expense).

In July 2003, we entered into three interest rateswap agreements whereby we swapped fixed rates under 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 (loss) on these swaps of $2.1 million, $36,000 and ($2.1) millionfor the years ended December 31, 2005, 2004 and 2003, which is included inother income 

F-17

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**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

**7.**   Derivative Instruments (Continued)

(expense). As of December 31,2005 and 2004, we recorded $0 and $364,000 of interest payable related to theseagreements. The cost, if terminated, of these agreements was $0 and $2.1million as of December 31, 2005 and 2004.

In December 2003, weentered into an interest rate swap agreement whereby we swapped fixed ratesunder our 10 1¤2%senior notes due in December 2010 for variable rates equal to six-monthLIBOR, plus the applicable margin of approximately 5.9%, on $130.0 millionnotional value of debt. This agreement expires November 1, 2010. This swaphas been determined to be perfectly effective in hedging against fluctuationsin the fair value of the underlying debt. As such, changes in the fair value ofthe underlying debt equally offset changes in the value of the interest rateswap in our consolidated statements of operations. The fair value (cost ifterminated) of this swap as of December 31, 2005 and 2004 was ($2.4) millionand $519,000 and has been recorded in other non-current assets (liabilities)and as an adjustment to the carrying value of debt.

**8.   Supplemental CashFlow Information**

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

| ** **   | ** ** | **2005**                | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **   | ** ** | **(in thousands)** | ** ** |
| Interest     |       | $                       | 188,216    |     | $          | 167,602  |       | $ | 169,704 |   |
| Income taxes |       | $                       | 266        |     | $          | 271      |       | $ | 448 |   |

 

**9.   Capital Stock**

The followingtable represents the stock authorization levels for the various Classes andSeries of stock authorized by us at December 31, 2005:

| ** **                                       | ** ** | **Number of  shares authorized** | ** ** | **Number of shares  issued as part  of the merger** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| **Voting preferred stock, $.01  par value:**     |       |                                       |       |                                                                              |       |   |   |   |   |
| Series A                                    |       |                                       | 1,000,000  |                                                                              |       |   | 848,945 |   |   |
| Series B                                    |       |                                       | 1,000,000  |                                                                              |       |   | 517,836 |   |   |
| **Non-voting preferred stock,  $.01 par value:** |       |                                       |       |                                                                              |       |   |   |   |   |
| Series C                                    |       |                                       | 15,000,000 |                                                                              |       |   | 13,364,693 |   |   |
| Series D                                    |       |                                       | 50,000,000 |                                                                              |       |   | 47,015,659 |   |   |
| **Non-voting common stock, $.01  par value:**    |       |                                       |       |                                                                              |       |   |   |   |   |
| Series E                                    |       |                                       | 5,000,000  |                                                                              |       |   | — |   |   |
| Series F                                    |       |                                       | 100,000    |                                                                              |       |   | — |   |   |
| **Voting common stock, $.01 par  value:**        |       |                                       |       |                                                                              |       |   |   |   |   |
| Series G                                    |       |                                       | 10,000,000 |                                                                              |       |   | — |   |   |

 

***Common Stock***

Pursuant to the merger,46,835,659 shares of Insight’s former common stock have been cancelled andconverted into the right to receive the $11.75 merger consideration.Additionally, a stockholder who holds 

F-18

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**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

**9.**   Capital Stock (Continued)

180,000restricted shares has demanded appraisal rights on these shares and as ofDecember 31, 2005 these shares have not been cancelled.

***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 uponanyliquidation 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 an aggregateamount (including any amounts distributed on such shares prior to liquidation)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 theSeries E Non-Voting Common Stock for which participation levels have beenachieved, in proportion to the number of such shares held by each holder, untilthe Series D Non-Voting Preferred Stock has received an internal rate ofreturn on capital invested 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 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.

F-19

----

**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

**9.**   CapitalStock (Continued)

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

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

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

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

**10.   Income Taxes**

For the years ended December 31, 2005, 2004 and2003, we recorded a deferred tax benefit of $0, $0.7, and $3.0 million. Inaddition, for the tax years ended December 31, 2005, 2004 and 2003, werecorded a current tax expense related to state and local taxes ofapproximately $500,000, $500,000 and $300,000. 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.

F-20

----

**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

**10.**   Income Taxes (Continued)

Significant components ofour deferred tax assets and liabilities consisted of the following:

| ** **                       | ** ** | **December 31,**   | ** ** |
|----------------------------------|------------|-------------------------|------------|
| ** **                       | ** ** | **2005**                | ** ** | **2004** | ** ** |
| ** **                       | ** ** | **(in thousands)** | ** ** |
| Deferred tax  assets:            |       |                    |       |   |   |
| Net operating loss carry-forward |       | $                       | 287,773    |   | $ | 267,032 |   |
| Unrealized loss on investments   |       | 7,134                   |       | 8,069 |   |
| Deferred interest expense        |       | 62,504                  |       | 47,712 |   |
| Interest rate hedges             |       | —                  |       | — |   |
| Capital loss                     |       | 8,497                   |       | 7,613 |   |
| Other                            |       | 239                     |       | 98 |   |
| Gross deferred  tax asset        |       | 366,147                 |       | 330,524 |   |
| Valuation allowance              |       | (284,490                | )          | (251,188 | ) |
| Net deferred tax  asset          |       | 81,657                  |       | 79,336 |   |
| Deferred tax liabilities:        |       |                    |       |   |   |
| Depreciation and amortization    |       | 4,825                   |       | 5,730 |   |
| Partnership investment           |       | 76,832                  |       | 73,606 |   |
| Gross deferred  tax liability    |       | 81,657                  |       | 79,336 |   |
| Net deferred tax  liability      |       | $                       | —     |   | $ | — |   |

 

We have provided a full valuation allowance on ourdeferred tax asset, consisting primarily of net operating loss carryforwardsand unrealized losses on investments, due to the uncertainty regarding ourrealization of such assets in the future. The increase in the valuationallowance on the deferred tax asset for the year ended December 31, 2005was $33.3 million.

The reconciliation ofincome tax expense computed at the U.S. federal statutory rate to income taxexpense for the years ended December 31, 2005, 2004 and 2003 were asfollows:

| ** **                                     | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                     | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                     | ** ** | **(in thousands)**                    | ** ** |
| Benefit at  federal statutory rate             |       | $                                          | (29,550    | ) | $ | (4,900 | ) | $ | (5,743 | ) |
| State and local  taxes                         |       | 500                                        |       | 500 |   | (1,473 | ) |
| Expenses not  deductible for U.S. tax purposes |       | 33                                         |       | 36 |   | 85 |   |
| Preferred  interest accrual                    |       | —                                     |       | — |   | (3,520 | ) |
| Disallowed  interest expense                   |       | 922                                        |       | 933 |   | 810 |   |
| Disallowed  compensation deduction             |       | 6,390                                      |       | 1,553 |   | — |   |
| Capitalized  privatization costs               |       | 18,331                                     |       | — |   | — |   |
| Tax effect of  interest rate swaps             |       | —                                     |       | (701 | ) | (2,952 | ) |
| Loss for which no  benefit was received        |       | 3,874                                      |       | 2,378 |   | 10,091 |   |
| Income tax  (benefit) provision                |       | $                                          | 500        |   | $ | (201 | ) | $ | (2,702 | ) |

 

F-21

----

**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

**10.**   Income Taxes (Continued)

As of December 31,2005, we had a net operating loss carry-forward of $701.9 million for U.S.federal income tax purposes. Our net operating loss began accumulatingeffective July 26, 1999, the date of our initial public offering. The netoperating loss will expire in the years 2019 through 2025.

**11.   Stock OptionPlan and Other Stock Based Compensation**

***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 under which only thedeferred stock units remain outstanding.

***2005 Stock Incentive Plan***

On December 16, 2005, concurrently with themerger, our Board of Directors adopted the 2005 Stock Incentive Plan (the “2005Plan”). Under the 2005 Plan the Board has the authority to grant awards ofshares of its non-voting common stock to officers, employees and directors. Atotal of 3,666,887 shares of Series E Non-Voting Common Stock and 100,000shares of Series F Non-Voting Common Stock are available for issuanceunder the 2005 Plan. Shares under the 2005 Plan require the execution of asubscription agreement.

On December 16, 2005,the Board authorized the issuance of 3,666,887 shares of Series ENon-Voting Common Stock and 45,000 shares of Series F Non-Voting CommonStock. These Series E and Series F shares were issued on January 20,2006.

**Stock Options**

On November 7, 2003, we commenced an offer toexchange certain outstanding stock options granted under the Plan. The offer,available to all employees, provided the opportunity to tender to us all oftheir outstanding, unexercised options that have an exercise price greater thanor equal to $17.00 per share to purchase our common stock in exchange forgrants of replacement options. Those employees who held stock options withexercise prices between $17.00 and $23.99 received 3 new options for every 4tendered. Those employees who held stock options with exercise prices $24.00 orgreater received 1 option for every 2 tendered. The number of options eligiblefor exchange under this program was 2,852,932. Based on the election of eligible employees, we canceled 2,802,314options on December 9, 2003 and granted 1,612,424 replacement options on June 14,2004 with an exercise price of $9.12, the closing price on the date of grant.

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 

F-22

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**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

**11.**   Stock Option Plan and Other Stock Based Compensation(Continued)

common stock is notpublicly traded, all of our options have been canceled and other equityinterests have been converted into similar rights in the surviving corporation.

Pursuant to SFAS No. 123, we had, prior to themerger, elected to continue to account for employee stock-based compensationunder APB Opinion No. 25, using an intrinsic value approach to measurecompensation expense. Accordingly, no compensation expense has been recognizedfor options granted to employees under the Plan since all such options weregranted at exercise prices equal to or greater than fair market value on thedate of grant.

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, 2004 and2003. These results take into effect the cancellation of all of our options inthe going-private transaction. The following assumptions were used indetermining the fair values: weighted average risk-free interest rate—4.05%(2005), 4.10% (2004) and 3.50% (2003); stock price volatility of 50% in allyears; dividend yield of 0% in all years; and expected option life of sevenyears in all years (in thousands, except per share data):

| ** **                                                                                                                 | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                 | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net loss as  reported                                                                                                      |       | $                                          | (84,929    | ) | $ | (13,799 | ) | $ | (24,544 | ) |
| Add: Stock-based  compensation as reported, net of tax                                                                     |       | 17,368                                     |       | 4,497 |   | 1,707 |   |
| Deduct:  Stock-based compensation determined under fair value based method for all  awards (SFAS No. 123), net of tax |       | (42,954                                    | )          | (9,887 | ) | (831 | ) |
| Adjusted net loss                                                                                                          |       | $                                          | (110,515   | ) | $ | (19,189 | ) | $ | (23,668 | ) |

 

***Other Stock Based Compensation***

**Restricted Stock**

In 2005, 2004 and 2003, we issued to employees828,141, 90,000 and 150,000 shares of common stock in the form of restrictedstock. The restricted stock provided for vesting over a five-year period andwere issued in the name of the employee on the date of grant and held by usuntil the shares vested. We recorded stock based compensation expense of $3.1million, $471,000 and $39,000, which was being amortized on a straight-linebasis over the vesting term.

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

**Deferred Stock Units**

In 2005, 2004 and 2003, we issued to employees215,500, 0 and 338,000 shares of deferred stock units. The deferred stock unitsvest over a five-year period and were issued in the name of the employee on thedate of grant. We recorded stock based compensation expense of $786,000,$726,000 and $81,000, which was being amortized on a straight-line basis overthe vesting term.

F-23

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**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

**11.**   Stock Option Plan and Other Stock Based Compensation (Continued)

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 InsightClass A common stock that the holder otherwise would have been entitled toreceive prior to the adjustment. We also amended the agreements evidencing thedeferred stock units to provide that the deferral period will end on theearlier of a change of control or prior thereto upon the later to occur ofDecember 16, 2010 or the employee’s termination of employment. Any deferredstock units that remained unvested at the effective time of the merger willcontinue to vest according to the schedule set forth in the applicableagreement evidencing the grant 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) cancel such individual’s loan (including accrued interest) upon thesurrender to us of such individual’s pledged shares and (ii) issuerestricted shares of our Class A common stock as an incentive to surrenderthe pledged shares and, in the case of current employees, to encourage theemployee’s long-term future performance, and in the case of former employees,to reward such former employees for their past service to us.

As of December 31, 2004, each of the 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“Loan Program Exchange Shares.”  Theissuance of these Loan Program Exchange Shares were recorded during the threemonths ended June 30, 2005.

Holders of Loan ProgramExchange Shares contributed a portion of their Loan Program Exchange Shares toInsight Acquisition Corp. and in connection with the merger received acorresponding number of shares of Series C non-voting preferred stock. Asof the effective time of the merger, vesting conditions on the Loan ProgramExchange Shares were waived.

**12.  **FinancialInstruments

***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 our policy is designed tolimit exposure to any one institution. Concentrations of credit risk withrespect to accounts receivable are limited due to the large number of customerscomprising our customer base.

F-24

----

**INSIGHT COMMUNICATIONS COMPANY, INC.Notes to Consolidated financial Statements (Continued)**

**12.**   Financial Instruments (Continued)

***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,  2005** | ** ** | **Fair Value at  December 31,  2004** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                    | ** ** | **(in thousands)**                              | ** ** |
| Insight Midwest  93⁄4% Senior Notes        |       |                                                 | $          | 394,600                                              |       |   |   | $ | 404,300 |   |   |
| Insight Midwest  101⁄2% Senior Notes       |       |                                                 | $          | 659,100                                              |       |   |   | $ | 689,900 |   |   |
| Insight Inc. 121⁄4% Senior  Discount Notes |       |                                                 | $          | 365,300                                              |       |   |   | $ | 338,600 |   |   |

 

*Interest rate swapagreements: *Interest rate swap agreements are recorded in ourfinancial statements at fair value. The cost of such swap agreements was $2.4million and $1.6 million as of December 31, 2005 and 2004.

**13.   Minority andPreferred 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 July 1, 2003, we had $195.2 million ofpreferred interests recorded in our balance sheet as temporary equity. Thesepreferred interests were fully accreted to their maturity value of $195.9million as of August 15, 2003 and were subsequently converted to commoninterests in connection with our refinancing of the obligations of Insight Ohio.In connection with the adoption of SFAS No. 150, we recorded a $5.0million accrual of preferred interests during the three months ended September 30,2003, which have been included in interest expense in our third quarter 2003consolidated statements of operations.

As of December 31, 2005 and 2004 we had $251.0million and $245.5 million of minority interest recorded in our balance sheetas temporary equity related to Insight Midwest. On October 29, 2003, theFASB announced that it had deferred indefinitely the application of SFAS No. 150as it applies to minority interests related to limited life entitiesconsolidated in parent company financial statements. Although this applicationwas deferred, the disclosure requirements of SFAS No. 150 still apply and,therefore, companies are required to disclose the estimated settlement value ofthese 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&T 

F-25

----

**INSIGHT COMMUNICATIONS COMPANY, INC.Notes to Consolidated financial Statements (Continued)**

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

Broadband (now known asComcast Cable). The results of the partnership are included in our consolidatedfinancial statements since we as general partner effectively control InsightMidwest’s operating and financial decisions. The partnership will continueuntil October 1, 2011 unless extended or terminated earlier in accordancewith the provisions of the Insight Midwest partnership 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, 2005, weestimated the settlement value of these minority interests to be between $930.3million and $1.3 billion.

**14.   Related PartyTransactions**

***Managed Systems***

On March 17, 2000, we entered into a managementagreement with Comcast of Montana/Indiana/Kentucky/Ohio (“Comcast”) (formerlyknown as InterMedia Partners Southeast), an affiliate of Comcast Cable, toprovide management services to cable television systems owned by Comcast. EffectiveJuly 31, 2004, the management agreement was terminated by mutual agreement.We recognized management fees in connection with this agreement of $0, $1.4million and $2.4 million for the years ended December 31, 2005, 2004 and2003.

On February 28, 2003, Insight Midwest exchangedwith Comcast of Montana/Indiana/Kentucky/Ohio the system we then owned inGriffin, Georgia, serving approximately 11,800 customers, plus $25.0 million,for the managed systems located in New Albany, Indiana and Shelbyville,Kentucky, together serving approximately 23,400 customers. Additionally,pursuant to the agreement, Insight Midwest paid approximately $1.5 million as aclosing adjustment to Comcast of Montana/Indiana/Kentucky/Ohio to complete therebuild and upgrade of the Griffin, Georgia system.

This system exchange wasaccounted for on that date as a sale of the Griffin, Georgia system and apurchase of the New Albany, Indiana and Shelbyville, Kentucky systems. Inconnection with this system exchange, we recorded a gain of approximately $27.1million equal to the difference between the fair value and carrying value ofthe Griffin, Georgia system as of the closing date. Of the $64.5 millionpurchase price of the New Albany, Indiana and Shelbyville, Kentucky systems$31.9 million was allocated to such cable television systems’ assets acquiredin relation to their fair values and $32.6 million was allocated to franchisecosts.

***Programming***

We purchase the majority of our programming throughaffiliates of Comcast Cable. Charges for such programming, including a 11⁄2%administrative fee, were $157.6 million, $151.0 million and $142.4 million forthe years ended December 31, 2005, 2004 and 2003. As of December 31,2005 and 2004, $29.9 million and $36.8 million of accrued programming costswere due to affiliates of Comcast Cable. We believe that the programming ratescharged through these affiliates are lower than those available fromindependent parties.

F-26

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**INSIGHT COMMUNICATIONS COMPANY, INC.Notes to Consolidated financial Statements (Continued)**

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

In 2001, in connectionwith the purchase and contribution of our systems primarily located inIllinois, we acquired, through affiliates of Comcast Cable, an above-marketprogramming contract. The above-market portion of the contract was recorded asan adjustment to the purchase price of the Illinois systems of $36.5 millionwith a long-term programming liability recorded in other non-currentliabilities. This contract was renegotiated, by affiliates of Comcast Cable andthe programmer during the third quarter of 2003 and indirectly resulted in morefavorable programming rates for us. As such, we recorded a reduction toprogramming expense of $3.1 million and recorded a gain on the extinguishmentof the liability for $37.7 million, both of which have been recorded in ourconsolidated statements of operations during the three months ended September 30,2003.

***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 $0, $8.5million and $6.2 million for the years ended December 31, 2005, 2004 and2003. In addition, Insight Midwest received additional payments related tocertain services and support, including installations, marketing and billing. Feerevenue earned in connection with installations was deferred and amortized overthe expected term a telephone customer was expected to maintain their telephoneservice, then estimated to be three years. Marketing and billing supportrevenue was recognized 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 settled amountswith Comcast Cable under our pre-existing joint operating agreement for $2.6million, representing the net current liabilities owed to Comcast Cable. Theacquisition was accounted for under the purchase method of accounting.

***Advertising Services***

In October 1999, to facilitate the administrationof our advertising services in our Kentucky Systems, we entered into anagreement with Comcast Cable, which provided for this affiliate to perform allof our Kentucky advertising sales and related administrative services. EffectiveSeptember 26, 2004, this agreement was terminated by mutual agreement.

We earned advertising revenues through this affiliateof $0, $13.5 million and $18.5 million for the years ended December 31,2005, 2004 and 2003. As of December 31, 2005 and December 31, 2004,we had $0 and $1.1 million as a receivable due from this affiliate included inother current assets. Through September 26, 2004 we paid this affiliate afixed and variable fee for providing this service based on 

F-27

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**INSIGHT COMMUNICATIONS COMPANY, INC.Notes to Consolidated financial Statements (Continued)**

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

advertising sales cashflow growth. As of December 31, 2005 and 2004, we had $0 and $38,500recorded as payables to this affiliate related to such services.

**15.**   401(k) Plan

We sponsor a savings andinvestment 401(k) Plan for the benefit of our employees. All employees whohave completed six months of employment and have attained age 18 are eligibleto participate in the plan. We make matching contributions equal to 100% of theemployee’s contribution excluding any such contributions in excess of 5% of theemployee’s wages. Effective December 20, 2005, 100% of our matchingcontribution to the plan is in the form of cash. For the years endedDecember 31, 2005, 2004 and 2003, we matched contributions of $4.2million, $3.6 million and $3.3 million.

**16.   Commitments andContingencies**

***Programming Contracts***

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

***Litigation***

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

F-28

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**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

**16.   Commitments andContingencies (Continued)**

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

In April 2005, Acacia Media TechnologiesCorporation filed a lawsuit against us and others in the United States DistrictCourt for the Southern District of New York. The complaint alleges, among otherthings, infringement of certain United States patents that allegedly relate tosystems and methods for transmitting and/or receiving digital audio and videocontent. The complaint seeks injunctive relief and damages in an unspecifiedamount. In the event that a court ultimately determines that we infringe on anyof the patents, we may be subject to substantial damages, which may includetreble damages and/or an injunction that could require us to materially modifycertain products and services that we currently offer to subscribers. Webelieve that the claims are without merit and intend to defend the actionvigorously. 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 and sublease equipment and office space under various operating leasearrangements expiring through October 24, 2101. Future minimum rentalpayments required under such operating leases as of December 31, 2005 were(in thousands):

| 2006       |   | $     | 4,637  |   |
|------------|--------|-------|--------|--------|
| 2007       |   | 3,486 |   |
| 2008       |   | 3,050 |   |
| 2009       |   | 2,169 |   |
| 2010       |   | 783   |   |
| Thereafter |   | 740   |   |
| Total      |   | $     | 14,865 |   |

 

Rental expense onoperating leases for the years ended December 31, 2005, 2004 and 2003 was$6.8 million, $5.6 million and $5.6 million.

F-29

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**INSIGHT COMMUNICATIONS COMPANY, INC. Notes to Consolidated financial Statements (Continued)**

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

| ** **               | ** ** | **Three months ended**     | ** ** | **Year ended** | ** ** |
|--------------------------|------------|--------------------------------------|------------|---------------------|------------|
| **2005**                 | ** ** | ** **                           | ** ** | **March 31**   | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** | **December 31, 2005** | ** ** |
| ** **               | ** ** | **(dollars in thousands)** | ** ** |
| 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** | ** ** |
|---------------------------------|------------|--------------------------------------|------------|---------------------|------------|
| **2004**                        | ** ** | ** **                           | ** ** | **March 31**   | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** | **December 31, 2004** | ** ** |
| ** **                      | ** ** | **(dollars in thousands)** | ** ** |
| Revenue                         |       | $                                    | 238,756    |                | $          | 250,638 |   |   | $ | 250,516 |   |   |   | $ | 262,546 |   |   |   | $ | 1,002,456 |   |   |
| Operating income                |       | 41,394                               |       | 46,095              |       |   | 44,714 |   |   |   | 56,282 |   |   |   | 188,485 |   |   |
| Loss before  extraordinary item |       | (6,817                               | )          | (7,527              | )          |   | (5,447 | ) |   |   | (9,638 | ) |   |   | (29,426 | ) |   |
| Extraordinary  Gain             |       | —                               |       | —              |       |   | — |   |   |   | 15,627 |   |   |   | 15,627 |   |   |
| Net income (loss)               |       | $                                    | (6,817     | )                   | $          | (7,527 | ) |   | $ | (5,447 | ) |   |   | $ | 5,992 |   |   |   | $ | (13,799 | ) |   |
|                                 |            |                                      |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-30

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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: March 16, 2006 | By:                                           | /s/ MICHAEL S. WILLNER |
|                 |                                          | Michael S. Willner, Vice Chairman |
|                 |                                          | and Chief Executive Officer |

 

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

|                                  | **Signatures** | ** **                                         | ** ** | ** **     | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|----------------------------------|----------------|----------------------------------------------------|------------|----------------|-----------|------------|------------|------------|----------|------------|
| /s/  SIDNEY R. KNAFEL            |           | Chairman of the Board                              |       | March 16, 2006 |
| Sidney R. Knafel                 |           |                                               |       |           |
| /s/  MICHAEL S. WILLNER          |           | Vice Chairman, Chief  Executive                    |       | March 16, 2006 |
| Michael S.  Willner              |           | Officer and Director (Principal Executive Officer) |       |           |
| /s/  DINNI JAIN                  |           | President, Chief  Operating                        |       | March 16, 2006 |
| Dinni Jain                       |           | Officer and Director                               |       |           |
| /s/  JOHN ABBOT                  |           | Executive Vice President  and Chief Financial      |       | March 16, 2006 |
| John Abbot                       |           | Officer (Principal Financial Officer)              |       |           |
| /s/  DANIEL MANNINO              |           | Senior Vice President  and Controller              |       | March 16, 2006 |
| Daniel Mannino                   |           | (Principal Accounting Officer)                     |       |           |
| /s/  JAMES A. ATTWOOD, JR.  |           | Director                                           |       |           |
| James A.  Attwood, Jr.      |           |                                               |       | March 16, 2006 |
| /s/  MICHAEL J. CONNELLY         |           | Director                                           |       |           |
| Michael J. Connelly              |           |                                               |       | March 16, 2006 |
| /s/  STEPHEN C. GRAY             |           | Director                                           |       |           |
| Stephen C. Gray                  |           |                                               |       | March 16, 2006 |
| /s/  AMOS B. HOSTETTER, JR. |           | Director                                           |       |           |
| Amos B.  Hostetter, Jr.     |           |                                               |       | March 16, 2006 |
| /s/  WILLIAM E. KENNARD          |           | Director                                           |       |           |
| William E.  Kennard              |           |                                               |       | March 16, 2006 |
| /s/  GERALDINE B. LAYBOURNE      |           | Director                                           |       |           |
| Geraldine B.  Laybourne          |           |                                               |       | March 16, 2006 |

 

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