-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AI82rRkUicvcQMQkwoIj71dd9zJZwN8CN01ZOr6UWlpdY8Ugf2IyFqRr3URE8iB+ mJA6BpGbnbYRo3vyC/PtHQ== 0000950130-01-502368.txt : 20010614 0000950130-01-502368.hdr.sgml : 20010614 ACCESSION NUMBER: 0000950130-01-502368 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT COMMUNICATIONS CO INC CENTRAL INDEX KEY: 0001084421 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 134053502 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-26677 FILM NUMBER: 1660181 BUSINESS ADDRESS: STREET 1: 126 EAST 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123712266 MAIL ADDRESS: STREET 1: INSIGHT COMMUNICATIONS CO INC STREET 2: 126 EAST 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 10-Q/A 1 d10qa.txt AMENDMENT #1 TO FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q/A-1 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2001 Commission file number 0-26677 ---------------------- INSIGHT COMMUNICATIONS COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 13-4053502 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 810 7th Avenue New York, New York 10019 Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 917-286-2300 ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 2001 - ------------------------------------ ----------------------------- Class A Common Stock, $.01 Par Value 49,986,880 Class B Common Stock, $.01 Par Value 10,196,350 ============================================================================== PART I. FINANCIAL INFORMATION Item 1. Financial Statements The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes required by accounting principles generally accepted in the United States. However, in our opinion, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the relevant periods have been made. Results for the interim periods are not necessarily indicative of the results to be expected for the year. These financial statements should be read in conjunction with the summary of significant accounting policies and the notes to the consolidated financial statements included in our Annual Report on Form 10-K as amended for the year ended December 31, 2000. 1 INSIGHT COMMUNICATIONS COMPANY, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands)
March 31, December 31, 2001 2000 ------------- -------------- (unaudited) Assets Cash and cash equivalents $ 195,502 $ 33,733 Investments 14,442 27,846 Trade accounts receivable, net of allowance for doubtful accounts of $1,308 and $1,326 as of March 31, 2001 and December 31, 2000 21,165 18,169 Launch funds receivable 11,106 16,123 Prepaid expenses and other assets 8,644 12,178 ------------ ------------ Total current assets 250,859 108,049 Fixed assets, net 1,024,950 820,888 Intangible assets, net 2,517,790 1,270,632 Deferred financing costs, net of accumulated amortization of $1,097 and $3,537 as of March 31, 2001 and December 31, 2000 36,371 28,165 Investment in unconsolidated affiliates 1,460 2,172 Officer and employee loans receivable 14,872 14,680 ------------ ------------ Total assets $ 3,846,302 $ 2,244,586 ============ ============ Liabilities and stockholders' equity Accounts payable $ 34,730 $ 46,158 Accrued expenses and other liabilities 15,540 12,191 Accrued property taxes 15,458 11,698 Accrued programming costs 38,285 23,527 Deferred revenue 3,982 4,069 Interest payable 39,510 20,705 Preferred interest distribution payable 1,750 5,250 ------------ ------------ Total current liabilities 149,255 123,598 Deferred revenue 14,677 14,605 Deferred income taxes 52,668 60,824 Preferred interests 181,547 180,281 Debt 2,320,194 1,372,523 Other non-current liabilities 11,666 - Minority interest 371,878 (47,925) Stockholders' equity: Preferred stock; $.01 par value; 100,000,000 shares authorized; no shares issued and outstanding as of March 31, 2001 and December 31, 2000 - - Common stock; $.01 par value: Class A - 300,000,000 shares authorized; 49,984,880 and 49,957,180 shares issued and outstanding as of March 31, 2001 and December 31, 2000 500 500 Class B - 100,000,000 shares authorized; 10,198,350 and 10,226,050 shares issued and outstanding as of March 31, 2001 and December 31, 2000 102 102 Additional paid in capital 874,380 655,253 Accumulated deficit (117,152) (115,175) Accumulated other comprehensive loss (13,413) - ------------ ------------ Total stockholders' equity 744,417 540,680 ------------ ------------ Total liabilities and stockholders' equity $ 3,846,302 $ 2,244,586 ============ ============
See accompanying notes. 2 INSIGHT COMMUNICATIONS COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share and per share amounts)
Three months ended March 31, ------------------------------------- 2001 2000 --------------- -------------- Revenue $ 168,537 $ 114,807 Operating costs and expenses: Programming and other operating costs 54,399 37,289 Selling, general and administrative 39,102 28,175 Depreciation and amortization 88,266 55,750 ----------- ----------- Total operating costs and expenses 181,767 121,214 ----------- ----------- Operating loss (13,230) (6,407) Other income (expense): Gain (loss) on cable systems exchange (Note 3) 34,178 (21) Interest expense (51,408) (26,347) Interest income 2,051 1,873 Other (227) (230) ----------- ----------- Total other expense, net (15,406) (24,725) Loss before minority interest, investment activity, income taxes and extraordinary item (28,636) (31,132) Minority interest 34,438 15,454 Equity in losses of investees (712) (1,171) Gain on sale of equity investment - 80,968 ------------ ----------- Income before income taxes and extraordinary item 5,090 64,119 Provision for income taxes 981 25,861 ------------ ----------- Income before extraordinary item 4,109 38,258 Extraordinary loss from early extinguishment of debt, net of tax (Note 6) (6,086) - ------------ ----------- Net income (loss) (1,977) 38,258 Accrual of preferred interests (4,766) (4,627) ------------ ----------- Net income (loss) applicable to common stockholders $ (6,743) $ 33,631 ============ =========== Basic and diluted loss per share relating to extraordinary item $ (.10) $ - Basic and diluted income (loss) per share $ (.11) $ .57 Basic weighted-average shares outstanding 60,183,230 59,383,230 Diluted weighted-average shares outstanding 60,183,230 59,383,230
See accompanying notes 3 INSIGHT COMMUNICATIONS COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three months ended March 31, 2001 2000 ------------- ------------ Operating activities: Net income (loss) $ (1,977) $ 38,258 Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 88,266 55,750 Equity in losses of investees 712 Gain on cable systems exchange (34,178) Gain on sale of equity investment - (80,968) Extraordinary loss from early extinguishment of debt, net of tax 6,086 Minority interest (34,438) (15,454) Provision for losses on trade accounts receivable 2,449 1,699 Amortization of bond discount 3,487 (197) Deferred income taxes 856 25,450 Changes in operating assets and liabilities, net of the effect of acquisitions: Trade accounts receivable (1,927) 1,851 Launch fund receivable 5,017 9,808 Prepaid expenses and other assets 3,760 (9,482) Accounts payable (11,428) 10,634 Accrued expenses and other liabilities 40,185 (1,712) ---------- ---------- Net cash provided by operating activities 66,870 35,637 ---------- ---------- Investing activities: Purchase of fixed assets (63,668) (54,717) Purchase of intangible assets - (169) Purchase of cable television systems, net of cash acquired (436,760) (1,718) ---------- ---------- Net cash used in investing activities (500,428) (56,604) ---------- ---------- Financing activities: Distributions of preferred interests (7,000) (7,000) Proceeds from borrowings under credit facilities 1,379,000 9,000 Proceeds from issuance of notes 220,084 - Repayment of credit facilities (654,900) (1,000) Repayment of debt associated with cable system transaction (323,547) - Principal payment on capital leases - (24) Debt issuance costs (18,310) - ---------- ---------- Net cash provided by financing activities 595,327 976 ---------- ---------- Net increase in cash and cash equivalents 161,769 (19,991) Cash and cash equivalents, beginning of period 33,733 113,511 ---------- ---------- Cash and cash equivalents, end of period $ 195,502 $ 93,520 ========== ========== Supplemental disclosure of cash flow information: Cash paid for interest $ 36,837 $ 29,558 Cash paid for income taxes 200 164 Supplemental disclosure of non-cash investing activities: Contribution of cable system assets by joint venture partner $ 981,622 -
See accompanying notes. 4 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation Through our wholly-owned subsidiary, Insight Communications Company, L.P. ("Insight LP"), we own and operate cable television systems in Kentucky, Indiana, Illinois, Ohio and Georgia. Insight LP owns a 50% interest in Insight Midwest, L.P. ("Insight Midwest"), which through its subsidiaries, Insight Communications Midwest, LLC ("Insight Communications Midwest"), Insight Communications of Kentucky, L.P. ("Insight Kentucky") and Insight Communications of Central Ohio, LLC ("Insight Ohio"), owns cable television systems in Indiana, Kentucky, Illinois, Ohio and Georgia. Insight LP is the general partner of Insight Midwest and effectively controls all operating and financial decisions and therefore consolidates Insight Midwest. Through Insight LP, we manage all of Insight Midwest's systems and also manage systems owned by an affiliate of AT&T Broadband, LLC, the owner of the other 50% interest in Insight Midwest. On August 8, 2000, we completed the purchase of the remaining 25% common equity interest in Insight Ohio, which we previously did not own. At the same time, the Insight Ohio operating agreement was amended to provide us with 70% of its total voting power. As such, the results of Insight Ohio have been consolidated in our results for the three months ended March 31, 2001, and our previously reported results for the three months ended March 31, 2000 have been adjusted to give effect to such consolidation. The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries, Insight LP and Insight Interactive LLC ("Insight Interactive"), which owns a 50% equity interest in Source Suite LLC, accounted for under the equity method of accounting. 2. Responsibility for Interim Financial Statements Our accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United Sates for complete financial statements. In our opinion, the consolidated financial statements reflect all adjustments considered necessary for a fair statement of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements contained in our Annual Report on Form 10-K as amended for the year ended December 31, 2000. 5 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Responsibility for Interim Financial Statements (continued) The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001 or any other interim period. Certain 2000 amounts have been reclassified to conform to the 2001 presentation. 3. Cable System Transactions On January 5, 2001, Insight Midwest completed a series of transactions with Insight LP and certain subsidiaries of AT&T Corp. (the "AT&T Cable Subsidiaries") for the acquisition of additional cable television systems, primarily located in the state of Illinois, valued at approximately $2.2 billion (the "AT&T Transactions"), inclusive of systems valued at approximately $775.8 million, contributed by Insight LP. The AT&T Transactions were financed through a credit facility established on January 5, 2001, the Midwest Holdings Credit Facility (Note 6). As a result of the AT&T Transactions, Insight Midwest acquired all of Insight LP's wholly-owned systems serving approximately 280,000 customers, including systems which Insight LP purchased from the AT&T Cable Subsidiaries. At the same time, Insight Midwest acquired from the AT&T Cable Subsidiaries systems serving approximately 250,000 customers. The purchase price was preliminarily allocated to the cable television assets acquired in relation to their estimated fair values as increases to franchise rights. The purchase price allocation will be finalized upon completion and receipt of appraisal reports. Both Insight LP and the AT&T Cable Subsidiaries contributed their respective systems to Insight Midwest subject to an amount of indebtedness such that Insight Midwest remains equally owned by Insight LP and AT&T Broadband. Insight LP continues to serve as the general partner of Insight Midwest and manages and operates the Insight Midwest systems. As a result of the AT&T Transactions, Insight Midwest currently owns and operates cable television systems in Indiana, Kentucky, Illinois, Ohio and Georgia which passed approximately 2.2 million homes and served approximately 1.3 million customers as of March 31, 2001. As part of the AT&T Transactions, we exchanged our Claremont, California cable television system, serving approximately 8,400 customers, with the AT&T Cable Subsidiaries' Freeport, Illinois system, serving approximately 10,000 customers, each valued at approximately $38.0 million. This system exchange was accounted for by Insight LP as a sale of its Claremont system 6 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Cable System Transactions (continued) and a purchase of the Freeport system. We recorded a gain of approximately $34.2 million in connection with this transaction. On January 11, 2001, Insight Midwest acquired Cable One, Inc.'s Greenwood, Indiana cable television system serving approximately 14,800 customers for $62.0 million. The purchase price was allocated to the cable television assets acquired in relation to their fair values as increases in property and equipment and franchise rights. 4. Pro Forma Results of Operations Our unaudited pro forma results of operations for the three months ended March 31, 2001 and 2000, assuming each of the acquisitions and exchanges described in Note 3 occurred as of January 1, 2000 and excluding the effect of the gain on cable system exchange (Note 3) recorded in the three months ended March 31, 2001 are as follows (in thousands, except per share amounts): Three months ended March 31, 2001 2000 ------------- ------------- Revenue $ 168,745 $ 155,609 Income (loss) before extraordinary item and accrual of preferred interests (16,586) 32,942 Net income (loss) applicable to common shareholders (27,438) 28,315 Basic and diluted income (loss) per share (.46) .78 5. Long-Lived Assets Fixed assets consist of: March 31, December 31, 2001 2000 ----------- ------------- (in thousands) Land, buildings and improvements $ 41,897 $ 23,436 Cable television equipment 1,300,173 1,082,194 Furniture, fixtures and office equipment 12,994 9,646 ----------- ----------- 1,355,064 1,115,276 Less accumulated depreciation and amortization (330,114) (294,388) ----------- ----------- Total fixed assets $ 1,024,950 $ 820,888 =========== =========== 7 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Long-Lived Assets (continued) Intangible assets consist of: March 31, December 31, 2001 2000 ---------- ------------- (in thousands) Franchise rights $ 2,678,610 $1,396,416 Goodwill 69,354 71,267 ----------- ---------- 2,747,964 1,467,683 Less accumulated amortization (230,174) (197,051) ----------- ---------- Total intangible assets $ 2,517,790 $1,270,632 =========== ========== 6. Debt Debt consists of: March 31, December 31, 2001 2000 ----------- ------------ (in thousands) Insight Ohio Credit Facility $ 25,000 $ 25,000 Insight Indiana Credit Facility - 298,600 Insight Kentucky Credit Facility - 356,300 Insight Midwest Holdings Credit Facility 1,379,000 - Insight Midwest 9 3/4% Senior Notes 200,000 200,000 Insight Midwest 10 1/2% Senior Notes 500,000 500,000 Insight Inc. 12 1/4% Senior Discount Notes 400,000 - ----------- ---------- 2,504,000 1,379,900 Unamortized discount on Notes (183,806) (7,377) ----------- ---------- Total debt $ 2,320,194 $1,372,523 =========== ========== Insight Midwest Holdings Credit Facility On January 5, 2001, through a wholly-owned subsidiary of Insight Midwest ("Insight Midwest Holdings") which holds all of our cable television systems other than the Ohio System, we 8 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Debt (continued) entered into a credit facility (the "Midwest Holdings Credit Facility") to finance the AT&T Transactions and to repay the outstanding indebtedness under the Indiana and Kentucky Credit Facilities. The Midwest Holdings Credit Facility expires in 2009 and provides for maximum borrowings of $1.75 billion. Obligations under this credit facility are secured by a pledge of the outstanding equity interests of Midwest Holdings and its subsidiaries. The Midwest Holdings Credit Facility requires Insight Midwest Holdings to meet certain financial and other debt covenants. Borrowings under this credit facility bear interest at either an alternative base rate or Eurodollar rate, plus an additional margin yield to Insight Midwest Holdings' leverage ratio, of between 0.5% and 2.75%. As a result of the repayment of the Indiana and Kentucky Credit Facilities on January 5, 2001, we recorded an extraordinary charge of $6.1 million (net of income tax of $4.2 million) related to the write-off of unamortized deferred financing costs related to these credit facilities. Insight Inc. 12 1/4% Senior Discount Notes On February 6, 2001, we completed a $400.0 million offering of 12 1/4% Senior Discount Notes due in February 2011. These notes were issued at a discount to their principal amount at maturity resulting in gross proceeds to us of $220.1 million. We utilized $20.2 million of the proceeds to repay an outstanding intercompany loan from Insight Midwest, which we incurred in connection with the AT&T Transactions. We intend to use the remaining proceeds for general corporate purposes and other joint ventures and/or strategic acquisitions. No cash interest on the discount notes will accrue prior to February 15, 2006. Thereafter, cash interest on the discount notes will accrue and be payable on February 15 and August 15 of each year, commencing August 15, 2006. The initial accreted value of the discount notes of $220.1 million will increase until February 15, 2006 such that the accreted value will equal the principal amount of $400.0 million on February 15, 2006. 9 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Debt (continued) Debt Facility Principal Payments As of March 31, 2001, annual principal payments required on our debt are as follows (in thousands): 2001 - 2002 2,500 2003 3,750 2004 78,750 2005 81,250 Thereafter 2,337,750 --------- 2,504,000 ========= Interest Rate Swap and Collar Agreements In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended by SFAS No. 137, became effective for us beginning January 1, 2001. SFAS No. 133 establishes accounting and reporting standards for derivative instruments embedded in other contracts and for hedging activities. SFAS No. 133 requires us to recognize all derivatives on the balance sheet at fair value. On January 1, 2001, our derivative financial instruments, which were obtained to manage our exposure to interest rate risk, included interest rate swap and collar agreements, which qualified as cash flow hedges. On January 1, 2001, we recorded as a component of other comprehensive income a $1.9 million transition adjustment loss representing the cumulative effect of adopting SFAS No. 133. Changes in the fair value of such cash flow hedges are recognized in stockholders' equity as a component of comprehensive income. For the three months ended March 31, 2001, the change in the fair value (loss) was $(9.8) million. 7. Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), sets forth rules for the reporting and display of comprehensive income (net income plus all other changes in net assets from non-owner sources) and its components in the financial statements. For the three months ended March 31, 2001, components of other comprehensive income consisted of net unrealized losses on investments of $6.5 million and interest rate swaps of $6.9 million, including the transition adjustment loss mentioned above (net 10 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Comprehensive Income (continued) of income tax of $4.8 million). For the three months ended March 31, 2000, components of other comprehensive income consisted of net unrealized losses on investments of $3.6 million. 8. Related Party Transactions We purchase substantially all of our pay television and other programming from affiliates of AT&T Broadband. Charges for such programming were $30.2 million and $13.6 million for the three months ended March 31, 2001 and 2000. As of March 31, 2001 and December 31, 2000, $23.6 million and $9.8 million of accrued programming costs were due to affiliates of AT&T Broadband. We believe that the programming rates charged by the affiliates of AT&T Broadband are lower than those available from independent parties. 9. Commitments and Contingencies Litigation Insight Kentucky and certain prior owners of the Kentucky Systems have been named in class actions regarding the pass-through of state and local property tax charges to customers by the prior owners of the Kentucky Systems. The plaintiffs seek monetary damages and the enjoinment of the collection of such taxes. We believe that the Kentucky Systems have substantial and meritorious defenses to these claims. We are subject to various legal proceedings that arise in the ordinary course of business. While it is impossible to determine with certainty the ultimate outcome of these matters, it is our opinion that the resolution of these matters will not have a material adverse affect on our consolidated financial condition. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Some of the information in this quarterly report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. You should read statements that contain these words carefully because they: . discuss our future expectations; . contain projections of our future results of operations or of our financial condition; or . state other "forward-looking" information. We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors listed in our Annual Report on Form 10-K for the year ended December 31, 2000, as well as any cautionary language in this quarterly report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this quarterly report could have a material adverse effect on our business, operating results and financial condition. Overview Consistent with our strategy of pursuing value-enhancing transactions that fit our geographic and clustering strategy, on January 5, 2001, we completed a series of transactions with certain cable subsidiaries of AT&T Corp. that increased by 530,000 the number of customers we serve. We refer in this report to these transactions, including related bank financing, as the "AT&T transactions." Specifically, Insight Midwest acquired: . all of our systems not already owned by Insight Midwest as well as systems which we acquired from the AT&T cable subsidiaries (comprising in total approximately 280,000 customers); and . systems from the AT&T cable subsidiaries located in Illinois serving approximately 250,000 customers. Insight Midwest acquired the systems from us and the AT&T cable subsidiaries subject to indebtedness in the amount of $685.0 million. Insight Midwest remains equally owned by us and AT&T Broadband. We continue to serve as the general partner of Insight Midwest and manage and operate the Insight Midwest systems. 12 Results of Operations Substantially all of our revenues were earned from customer fees for cable television programming services including premium, digital and pay-per-view services and ancillary services, such as rental of converters and remote control devices, installations and from selling advertising. In addition, we earn revenues from commissions for products sold through home shopping networks. We have had a history of net losses and expect to continue to report net losses for the foreseeable future. The principal reasons for our prior and anticipated net losses include depreciation and amortization expenses associated with our acquisitions and capital expenditures related to construction and upgrading of our systems, and interest costs on borrowed money. We cannot predict what impact, if any, continued losses will have on our ability to finance our operations in the future. The following table is derived for the periods presented from our consolidated financial statements that are included in this report and sets forth certain statement of operations data for our consolidated operations. Three Months Ended March 31, 2001 2000 -------- --------- (in thousands) Revenue $168,537 $114,807 Operating costs and expenses: Programming and other operating costs 54,399 37,289 Selling, general and administrative 39,102 28,175 Depreciation and amortization 88,266 55,750 -------- -------- Total operating costs and expenses 181,767 121,214 -------- -------- Operating loss 13,230 6,407 EBITDA 136,627 144,343 Interest expense 51,408 26,347 Provision for income taxes 981 25,861 Net income (loss) (1,977) 38,258 Net cash provided by operating activities 66,870 35,637 Net cash used in investing activities 500,428 56,604 Net cash provided by financing activities 595,327 976 EBITDA represents earnings before interest, taxes, depreciation and amortization. Our management believes that EBITDA is commonly used in the cable television industry to analyze and compare cable television companies on the basis of operating performance, leverage and liquidity. However, EBITDA is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either operating income or net income as an indicator of operating performance or cash flows as a measure of liquidity, as determined in accordance with generally accepted accounting principles. EBITDA, as computed by management, is not necessarily comparable to similarly titled amounts of other companies. Refer to our financial statements, including our statements of cash flows, which appear elsewhere in this quarterly report. Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000 Revenues increased $53.7 million to $168.5 million for the three months ended March 31, 2001 compared to $114.8 million for the three months ended March 31, 2000. The increase in 13 revenues is primarily the result of the acquisition and contribution of the Illinois cable systems acquired in the AT&T transactions. The incremental revenue generated by the acquisition of the Illinois systems approximated $44.6 million, which represents 83.0% of the increase in consolidated revenue. In addition, the existing systems increased revenue for digital and high-speed data by $4.6 million, a combined 106.7% growth rate. Revenues by service offering were as follows for the three months ended March 31, (in thousands):
2001 2000 Revenues Revenues by Service % of Total by Service % of Total Offering Revenues Offering Revenues --------------------------------------------------------------- Basic $ 116,789 69% $ 81,167 71% Premium 14,999 9% 11,915 10% Pay-per-view 1,286 1% 1,566 1% Digital 9,517 5% 3,255 3% Advertising sales 9,600 6% 7,568 7% Data services 6,477 4% 1,473 1% Other 9,869 6% 7,863 7% --------------------------------------------------------------- Total $ 168,537 100% $ 114,807 100% ========== =========
Average monthly revenue per customer was $43.91 for the three months ended March 31, 2001 compared to $41.39 for the three months ended March 31, 2000 primarily reflecting the continued successful rollout of new product offerings in the Indiana, Kentucky and Ohio markets. Average monthly revenue per customer for high-speed data and interactive digital video increased to $4.17 for the three months ended March 31, 2001 compared to $1.70 for the comparable period in 2000. Excluding the systems acquired in the AT&T transactions, the number of high-speed data service customers increased to 39,800 as of March 31, 2001 from 12,400 as of March 31, 2000, while digital customers increased to 136,600 as of March 31, 2001 from 54,700 as of March 31, 2000. Programming and other operating costs increased $17.1 million to $54.4 million for the three months ended March 31, 2001 compared to $37.3 million for the three months ended March 31, 2000. The increase in programming and other operating costs is primarily the result of the acquisition of the cable television systems acquired in the AT&T transactions. The incremental expense resulting from the acquisition of the Illinois systems approximated $13.9 million, which represents 81.2% of the increase in consolidated programming and other operating costs. Excluding these systems, programming and other operating costs increased by approximately $3.2 million or 18.8% primarily as a result of increased programming rates and additional programming. Selling, general and administrative expenses increased $10.9 million to $39.1 million for the three months ended March 31, 2001 compared to $28.2 million for the three months ended March 31, 2000. The increase in selling, general and administrative expenses is primarily the result of the acquisition of the cable television systems acquired in the AT&T transactions. The incremental selling, general and administrative expenses resulting from the acquisition of the Illinois systems approximated $7.6 million, which represents 69.8% of the increase. Excluding these systems, these costs increased by approximately $3.3 million accounting for approximately 30.2% of the total increase, primarily reflecting increased marketing activity and corporate expenses associated with new product introductions. Depreciation and amortization expense increased $32.5 million to $88.3 million for the three months ended March 31, 2001 compared to $55.8 million for the three months ended March 31, 2000. The increase in depreciation and amortization expense is primarily the result of the acquisition of the cable television systems acquired in the AT&T transactions. The incremental depreciation and amortization expense resulting from the acquisition of the Illinois systems approximated $21.4 million, which represents 65.7% of the consolidated depreciation and amortization increase. Excluding these systems, depreciation and amortization increased by approximately $11.1 million or 34.3% primarily due to capital expenditures made to rebuild the existing cable equipment during previous quarters. 14 EBITDA decreased 5.3% to $136.6 million for the three months ended March 31, 2001 as compared to $144.3 million for the three months ended March 31, 2000 for the following reasons: . The first full quarter of results generated by the systems acquired in the AT&T transactions; . A gain of $34.2 million for the three months ended March 31, 2001 realized on the exchange of the Claremont system versus an $81.0 million gain recorded on the sale of an equity investment for the three months ended March 31, 2000; . Minority interest increased to $34.4 million for the three months ended March 31, 2001 compared to $15.5 million for the three months ended March 31, 2000 primarily due to the Illinois acquisition; and . Offsetting these increases in 2001 was a $6.1 million extraordinary loss, net of tax, recorded during the three months ended March 31, 2001 due to early extinguishments of debt. Interest expense increased $25.1 million to $51.4 million for the three months ended March 31, 2001 compared to $26.3 million for the three months ended March 31, 2000. The increase in interest expense is primarily the result of higher outstanding debt resulting from the acquisition of the cable television systems acquired in the AT&T transactions and funding of capital expenditures during the past year. The provision for income taxes was $1.0 million and $25.9 million for the three months ended March 31, 2001 and 2000, representing effective tax rates of 19.3% and 40.3%. For the three months ended March 31, 2001, the net loss was $2.0 million primarily for the reasons set forth above. Liquidity and Capital Resources Our business requires cash for operations, debt service, capital expenditures and acquisitions. The cable television business has substantial on-going capital requirements for the construction, expansion and maintenance of its broadband networks. Expenditures have primarily been used to upgrade our existing cable network, and in the future will be used for network extensions, new services, converters and network upgrades. Historically, we have been able to meet our cash requirements with cash flow from operations, borrowings under our credit facilities, issuances of private equity and accessing other public sources. For the three months ended March 31, 2001 and March 31, 2000, we spent $63.7 million and $54.7 million in capital expenditures largely to support our plant rebuild, digital converter purchases and to a lesser extent network extensions. We will continue to incur capital expenditures particularly for success-based deployment of new services, including telephone services and for the upgrade of the Illinois cable television systems, which involve the use of fiber optics and other capital projects associated with implementing our clustering strategy. 15 On January 5, 2001, in connection with the AT&T transactions, Insight Midwest Holdings entered into the $1.75 billion Midwest Holdings Credit Facility from which it borrowed $663.0 million to repay the Indiana and Kentucky credit facilities and $685.0 million to finance the AT&T transactions. On January 5, 2001, Insight Midwest acquired all of the common equity interests of Insight Ohio as part of the AT&T transactions. Insight Ohio is an unrestricted subsidiary under the indentures governing our and Insight Midwest's notes, and is prohibited by the terms of its indebtedness from making distributions to Insight Midwest. On February 6, 2001, we completed an offering of $400.0 million principal amount at maturity of 12 1/4% senior discount notes due 2011. These notes were issued at a discount to their principal amount at maturity resulting in gross proceeds to us of approximately $220.1 million. We utilized approximately $20.2 million of the proceeds to repay the outstanding amount of an inter-company loan from Insight Midwest, which we incurred in connection with the financing of the AT&T transactions. We intend to use the remaining proceeds for general corporate purposes, including joint ventures and/or strategic acquisitions. No cash interest on the discount notes will accrue prior to February 15, 2006. Thereafter, cash interest on the discount notes will accrue and be payable on February 15 and August 15 of each year, commencing August 15, 2006. The initial accreted value of the discount notes of approximately $220.1 million will increase until February 15, 2006 such that the accreted value will equal the principal amount of $400.0 million on February 15, 2006. As of March 31, 2001, we had aggregate consolidated indebtedness of $2.32 billion, including $1.40 billion outstanding under senior bank credit facilities. The senior bank credit facilities consisted of: . $1.75 billion Midwest Holdings Credit Facility maturing in 2009, which will be utilized to support Insight Midwest's operations and build-out, of which $1.38 billion was borrowed. The remaining availability of $370.0 million will be used to support the aforementioned capital expenditures; and . $25.0 million Insight Ohio Credit Facility maturing in 2004, which was fully-borrowed. The weighted average interest rate for amounts outstanding under our senior credit facilities as of March 31, 2001 was 8.0%. The facilities contain covenants restricting, among other things, our ability to make capital expenditures, acquire or dispose of assets, make investments and engage in transactions with related parties. The facilities also require compliance with certain financial ratios and contain customary events of default. We believe that the Midwest Holdings credit facility and our cash flow from operations are sufficient to support our current operating plan. We intend to draw upon the $370.0 million of unused availability under the Midwest Holdings credit facility as discussed above to fund any shortfall of Insight Midwest resulting from the inability of its cash from operations to fund its capital expenditures, meet its debt service requirements or otherwise fund its operations. In addition, as a result of our February 2001 offering of notes, we are currently well-funded and could provide additional funding support to Insight Midwest. 16 Item 3. Quantitative and Qualitative Disclosure About Market Risk Our revolving credit and term loan agreements bear interest at floating rates. Accordingly, we are exposed to potential losses related to changes in interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. In order to manage our exposure to interest rate risk, we enter into derivative financial instruments, typically interest rate swaps and collars. The counterparties to our swap and collar agreements are major financial institutions. As of March 31, 2001, our interest rate swap and collar agreements expire in varying amounts through July 2003. The fair market value of our long-term debt approximates its carrying value as the credit facility borrowings bear interest at floating rates of interest and current fair market value of the senior notes approximates par value. As of March 31, 2001, the estimated fair value (loss) of our interest rate swap and collar agreements was approximately $(11.7) million, which represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices and is reflected in our financial statements as other non-current liabilities. Changes in the fair value of derivative financial instruments are either recognized in income or in stockholders' equity as a component of other comprehensive income depending on whether the derivative financial instruments qualify for hedge accounting. As of March 31, 2001, we had entered into interest rate swaps that approximated $625.0 million, or 44.5%, of our borrowings under all of our credit facilities. Accordingly, a hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase our annual interest expense by approximately $7.8 million. 17 PART II OTHER INFORMATION Item 2. Changes in Securities During the three months ended March 31, 2001, we granted stock options to certain of our employees to purchase an aggregate of 133,310 shares of Class A common stock. The grants were not registered under the Securities Act of 1933 because such grants either did not involve an offer or sale for purposes of Section 2(a)(3) of the Securities Act of 1933, in reliance on the fact that the stock options were granted for no consideration, or were offered and sold in transactions not involving a public offering, exempt from registration under the Securities Act of 1933 pursuant to Section 4 (2) and in compliance with Rule 506 thereunder. 18 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: We filed the following reports on Form 8-K during the three months ended March 31, 2001:
Date Report Date of Report Filed with SEC Items Reported - ------------------ ----------------- ----------------------------------------------------- January 5, 2001 January 22, 2001 Item 2 - Acquisition or Disposition of Assets Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits January 5, 2001 March 23, 2001 Item 2 - Acquisition or Disposition of Assets (Amendment No. 1) Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits * January 26, 2001 January 29, 2001 Item 5 - Other Events Item 9 - Regulation FD Disclosure February 1, 2001 February 12, 2001 Item 5 - Other Events Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits
- ------------ * Included historical financial statements for Insight Communications Company, Inc., AT&T Insight Midwest Systems, InterMedia Capital Partners VI, L.P. and Insight Communications of Central Ohio. Also included pro forma financial statements of Insight Communications Company, Inc. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INSIGHT COMMUNICATIONS COMPANY, INC. Date: June 13, 2001 By: /s/ Michael S. Willner ---------------------------- Michael S. Willner President and Chief Executive Officer By: /s/ Kim D. Kelly ---------------------------- Kim D. Kelly Executive Vice President and Chief Financial & Operating Officer 20 -----END PRIVACY-ENHANCED MESSAGE-----