-----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, NoebtZE+1IQkbkXGb793sYboszeVQND/ZCgkFYxhw5VkQiVS25Y57UnCSsF4YEO2 PLT779e5CX66yoX7eKRKrA== 0000950130-02-003647.txt : 20020515 0000950130-02-003647.hdr.sgml : 20020515 20020515120922 ACCESSION NUMBER: 0000950130-02-003647 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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 SEC ACT: 1934 Act SEC FILE NUMBER: 000-26677 FILM NUMBER: 02649588 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 1 d10q.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 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 7/th/ 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, 2002 -------------------------------- ----------------------------- Class A Common Stock, $.01 Par Value 50,204,679 Class B Common Stock, $.01 Par Value 10,071,864 ================================================================================ PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes required by accounting principles generally accepted in the United States. However, in our opinion, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the relevant periods have been made. Results for the interim periods are not necessarily indicative of the results to be expected for the year. These financial statements should be read in conjunction with the summary of significant accounting policies and the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2001. 1 INSIGHT COMMUNICATIONS COMPANY, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands)
March 31, December 31, 2002 2001 ------------------ ------------------- Assets (unaudited) Cash and cash equivalents $ 205,727 $ 198,548 Investments 12,771 18,080 Trade accounts receivable, net of allowance for doubtful accounts of $2,633 and $2,818 as of March 31, 2002 and December 31, 2001 17,905 22,918 Launch funds receivable 9,443 12,980 Prepaid expenses and other assets 17,074 18,363 ------------------ ------------------- Total current assets 262,920 270,889 Fixed assets, net 1,158,175 1,151,709 Goodwill 72,675 72,675 Franchise costs 2,289,704 2,283,155 Other intangible assets, net of accumulated amortization of $2,829 and $2,260 as of March 31, 2002 and December 31, 2001 40,907 41,223 Deferred financing costs, net of accumulated amortization of $6,178 and $5,259 as of March 31, 2002 and December 31, 2001 31,375 32,294 Other non-current assets 14,701 15,447 ------------------ ------------------- Total assets $ 3,870,457 $ 3,867,392 ================== =================== Liabilities and stockholders' equity Accounts payable $ 47,676 $ 67,095 Accrued expenses and other liabilities 20,572 23,793 Accrued property taxes 14,986 11,030 Accrued programming costs 27,885 24,287 Deferred revenue 8,212 8,673 Interest payable 38,698 21,940 Debt - current portion 1,250 ? Preferred interest distribution payable 1,750 5,250 ------------------ ------------------- Total current liabilities 161,029 162,068 Deferred revenue 9,330 12,262 Debt 2,578,743 2,542,476 Other non-current liabilities 57,265 62,964 Minority interest 245,953 255,879 Preferred interests 187,168 185,713 Stockholders' equity: Preferred stock; $.01 par value; 100,000,000 shares authorized; no shares issued and outstanding as of March 31, 2002 and December 31, 2001 - - Common stock; $.01 par value: Class A - 300,000,000 shares authorized; 50,188,336 and 50,266,162 shares issued and outstanding as of March 31, 2002 and December 31, 2001 502 502 Class B - 100,000,000 shares authorized; 10,071,864 and 9,977,537 shares issued and outstanding as of March 31, 2002 and December 31, 2001 101 100 Additional paid-in-capital 848,000 851,936 Accumulated deficit (202,218) (189,964) Accumulated other comprehensive loss (15,416) (16,544) ------------------ ------------------- Total stockholders' equity 630,969 646,030 ------------------ ------------------- Total liabilities and stockholders' equity $ 3,870,457 $ 3,867,392 ================== ===================
See accompanying notes 2 INSIGHT COMMUNICATIONS COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts)
Three months ended March 31, 2002 2001 ------------------- ------------------- Revenue $ 192,178 $ 174,226 Operating costs and expenses: Programming and other operating costs 69,553 62,588 Selling, general and administrative 40,880 36,602 Non-recurring high-speed data charges 4,116 - Depreciation and amortization 48,444 88,266 ------------------- ------------------- Total operating costs and expenses 162,993 187,456 ------------------- ------------------- Operating income (loss) 29,185 (13,230) Other income (expense): Gain on cable systems exchange - 34,178 Interest expense (51,935) (51,408) Interest income 897 2,051 Other 3 (227) ------------------- ------------------- Total other expense, net (51,035) (15,406) Loss before minority interest, investment activity, income taxes and extraordinary item (21,850) (28,636) Minority interest 9,926 34,438 Equity in losses of investees - (712) Impairment write-down of investments (205) - ------------------- ------------------- Income (loss) before income taxes and extraordinary item (12,129) 5,090 Provision for income taxes (125) (981) ------------------- ------------------- Income (loss) before extraordinary item (12,254) 4,109 Extraordinary loss from early extinguishment of debt, net of tax - (6,086) ------------------- ------------------- Net loss (12,254) (1,977) Accrual of preferred interests (4,955) (4,766) ------------------- ------------------- Net loss attributable to common stockholders $ (17,209) $ (6,743) =================== =================== Basic and diluted loss per share before extraordinary item $ (.29) $ (.01) Basic and diluted loss per share related to extraordinary item $ - $ (.10) Basic and diluted loss per share attributable to common Stockholders $ (.29) $ (.11) Basic and diluted weighted average shares outstanding 60,252,500 60,183,230
See accompanying notes 3 INSIGHT COMMUNICATIONS COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three months ended March 31, 2002 2001 ---------------- ---------------- Operating activities: Net loss $ (12,254) $ (1,977) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 48,444 88,266 Equity in losses of investees -- 712 Impairment of investments 205 Gain on cable systems exchange -- (34,178) Extraordinary loss from early extinguishment of debt, net of tax -- 6,086 Minority interest (9,926) (34,438) Provision for losses on trade accounts receivable 2,594 2,449 Contribution of stock to 401(k) Plan 798 Amortization of note discount 7,517 3,487 Deferred income taxes -- 856 Changes in operating assets and liabilities, net of the effect of acquisitions: Trade accounts receivable 2,741 (1,927) Launch fund receivable 3,537 5,017 Prepaid expenses and other assets 1,496 3,760 Accounts payable (19,547) (11,428) Accrued expenses and other liabilities 18,095 40,185 ---------------- ---------------- Net cash provided by operating activities 43,700 66,870 ---------------- ---------------- Investing activities: Purchase of fixed assets (50,348) (63,668) Purchase of intangible assets (40) -- Purchase of cable television systems, net of cash acquired (8,798) (436,760) ---------------- ---------------- Net cash used in investing activities (59,186) (500,428) ---------------- ---------------- Financing activities: Distributions of preferred interests (7,000) (7,000) Proceeds from borrowings under credit facilities 30,000 1,379,000 Repayment of credit facilities -- (654,900) Proceeds from issuance of notes -- 220,084 Repayment of debt associated with cable system transactions -- (323,547) Principal payments on capital leases and other non-current liabilities (335) -- Debt issuance costs -- (18,310) ---------------- ---------------- Net cash provided by financing activities 22,665 595,327 ---------------- ---------------- Net increase in cash and cash equivalents 7,179 161,769 Cash and cash equivalents, beginning of period 198,548 33,733 ---------------- ---------------- Cash and cash equivalents, end of period $ 205,727 $ 195,502 ================ ================
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 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 and operates cable television systems in Indiana, Kentucky, Ohio, Illinois and Georgia which passed approximately 2.2 million homes and served approximately 1.3 million customers as of March 31, 2002. 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 remaining 50% interest in Insight Midwest. Our other wholly owned subsidiary, Insight Interactive LLC ("Insight Interactive"), owns a 100% equity interest in SourceSuite LLC ("SourceSuite") the results of which have been consolidated as of January 1, 2002 as a result of Insight Interactive's acquisition of the remaining 50% equity interest from Source Media, Inc. ("Source Media") in March 2002. The accompanying consolidated financial statements include our accounts and those of our wholly owned subsidiaries, Insight LP and Insight Interactive. 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS Our accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United Sates for complete financial statements. In our opinion, the consolidated financial statements reflect all adjustments considered necessary for a fair statement of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature, except as described in Note 8. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2001. 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, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002 or any other interim period. Certain prior period amounts have been reclassified to conform to the current period presentation. 3. ACCOUNTING FOR FRANCHISE FEES We have historically recorded reimbursements of franchise fees from customers as an offset to franchise fee expense included as a component of selling, general and administrative expense. In November 2001, the Financial Accounting Standards Board concluded that reimbursements received from a customer should be reflected as revenues and not as a reduction of expenses. On March 12, 2002, the Securities Exchange Commission staff concluded that as a result of this guidance, it expected all cable television companies to present franchise fees in their statements of operations. Consequently, beginning January 1, 2002, we have presented reimbursements of franchise fees as revenues and franchise fee payments as expenses in the accompanying consolidated statements of operations. Additionally, we have adjusted the prior period amounts to reflect such presentation. The effect on the prior period statement of operations was to increase both revenue and selling, general and administrative costs by $5.7 million. 4. LONG-LIVED ASSETS Fixed assets consisted of: March 31, December 31, 2002 2001 ------------------------- (in thousands) Land, buildings and improvements $ 36,990 $ 36,501 Cable system equipment 1,626,467 1,573,733 Furniture, fixtures and office equipment 16,148 16,019 ------------------------- 1,679,605 1,626,253 Less accumulated depreciation and amortization (521,430) (474,544) ------------------------- Total fixed assets, net $ 1,158,175 $ 1,151,709 ========================= 6 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4. LONG-LIVED ASSETS (continued) In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which became effective for us beginning January 1, 2002. SFAS No. 144 supersedes FASB Statement No. 121, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions relating to the disposal of a segment of a business of Accounting Principles Board Opinion No. 30. The adoption of SFAS No. 144 had no impact on our consolidated financial position or results of operations. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which became effective for us beginning January 1, 2002 and changes the accounting for goodwill from an amortization method to an impairment only approach. In addition, the standard includes provisions, upon adoption, for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. SFAS No. 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. The second step of the goodwill impairment test measures the amount of the impairment loss, if any, measured as of the beginning of the year of adoption, and must be completed by the end of our fiscal year. Based on our analysis, there was no impairment of goodwill upon the adoption of SFAS No. 142 on January 1, 2002. Applying the effects of the adoption of SFAS No. 142 to the three month period ended March 31, 2001, would have resulted in income before extraordinary items of $19.9 million, net income of $13.8 million, basic and diluted income per share before extraordinary item of $0.25 and basic and diluted income per share applicable to common stockholders of $0.15. The reconciliation of reported net loss to pro forma net income as adjusted for the effects of SFAS No. 142 for the three months ended March 31, 2001 is as follows (in thousands): Three Months Ended March 31, 2001 ----------------------- Net loss as reported $ (1,977) Less amortization for: Franchise costs 12,577 Goodwill 3,172 ----------------------- Pro forma net income $ 13,772 ======================= We recorded amortization expense of $1.5 million and $50.2 million for the three months ended March 31, 2002 and 2001. We estimate aggregate amortization expense to be approximately $5.9 million for each of the five succeeding fiscal years. 7 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5. DEBT Debt consisted of: March 31, December 31, 2002 2001 ----------------------------------- (in thousands) Insight Ohio Credit Facility $ 25,000 $ 25,000 Insight Midwest Holdings Credit Facility 1,610,000 1,580,000 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 400,000 400,000 ----------------------------------- 2,735,000 2,705,000 Less unamortized discount on notes (155,007) (162,524) ----------------------------------- Total debt $ 2,579,993 $ 2,542,476 =================================== Insight Midwest Holdings Credit Facility Insight Midwest Holdings, LLC ("Insight Midwest Holdings"), a wholly owned subsidiary of Insight Midwest which owns all of our cable television systems other than those located in Ohio, is party to a $1.75 billion credit facility. On March 25, 2002, we formally requested approval from the lenders of amendments to the leverage ratio covenant to allow Insight Midwest Holdings more flexibility and to increase the aggregate amount that can be distributed to Insight Midwest for the purpose of making investments in Insight Ohio. In addition, on March 28, 2002, we loaned $100.0 million to Insight Midwest to address its future funding needs, $97.0 million of which was contributed to Insight Midwest Holdings in April 2002 for use in paying down the credit facility balance and $3.0 million of which was contributed to Insight Ohio as of March 28, 2002. Pursuant to the credit facility amendments, Insight Midwest Holdings will be permitted to make distributions to Insight Midwest for the purpose of repaying our loan, subject to the satisfaction of certain financial debt covenants. The loan to Insight Midwest bears annual interest of 9%, has a scheduled maturity date of January 31, 2011 and permits prepayments. On April 18, 2002, the lenders approved these amendments to the credit facility. Debt Principal Payments As of March 31, 2002, principal payments required on our debt were as follows (in thousands): 2002 $ - 2003 5,000 2004 80,000 2005 81,250 2006 106,750 Thereafter 2,462,000 ------------------- Total $ 2,735,000 =================== 8 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5. DEBT (continued) Interest Rate Swap and Collar Agreements We enter into interest-rate swap agreements to modify the interest characteristics of our outstanding debt from a floating rate to a fixed rate basis. These agreements involve the payment of fixed rate amounts in exchange for floating rate interest receipts over the life of the agreement without an exchange of the underlying principal amount. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense related to the debt. The related amount payable or receivable is included in other liabilities or assets. As of March 31, 2002 and December 31, 2001, we had entered into various interest rate swap and collar agreements effectively fixing interest rates between 4.7% and 5.9%, plus the applicable margin, on $435.0 million and $500.0 million notional value of debt. The agreements outstanding as of March 31, 2002 expire July 2003. As of March 31, 2002, we had $2.3 million of accrued interest related to these agreements. 6. COMPREHENSIVE LOSS Comprehensive loss totaled $11.1 million and $15.4 million for the three months ended March 31, 2002 and 2001. Comprehensive loss for the three months ended March 31, 2001 included a $1.1 million transition adjustment loss (net of $776,000 tax benefit) representing the cumulative effect of adopting Statement of Financial Accounting Standards No. 133. We own equity securities that are classified as available-for-sale and reported at market value, with unrealized gains and losses recorded as accumulated other comprehensive income or loss in the accompanying consolidated balance sheets. In addition, we record the effective portion of interest rate swaps' gains or losses as accumulated other comprehensive income or loss in the accompanying consolidated balance sheets. 7. RELATED PARTY TRANSACTIONS Managed Systems On March 17, 2000, we entered into a two-year management agreement with InterMedia Partners Southeast, an affiliate of AT&T Broadband, to provide management services to cable television systems acquired by AT&T Broadband. As of March 31, 2002, these systems served approximately 118,000 customers in the states of Indiana and Kentucky. Through March 31, 2001, we earned a monthly fee of 3% of gross revenues for providing such management services. In September 2001, the management agreement was amended to provide for a monthly fee of 5% of gross revenues retroactive to April 1, 2001. For the three months ended March 31, 2002 and 2001, we recognized $635,000 and $386,000 of management fees in connection with this agreement. The management agreement expires on June 30, 2002. 9 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 7. RELATED PARTY TRANSACTIONS (continued) Programming We purchase substantially all of our pay television and other programming from affiliates of AT&T Broadband. Charges for such programming were $31.0 million and $30.2 million for the three months ended March 31, 2002 and 2001. As of March 31, 2002 and December 31, 2001, $20.4 million and $10.3 million of accrued programming costs were due to affiliates of AT&T Broadband. We believe that the programming rates charged by the affiliates of AT&T Broadband are lower than those available from independent parties. Telephony Agreements In July 2000, to facilitate delivery of telephone services, we entered into a ten-year agreement with AT&T Broadband that allows Insight Midwest to deliver to our customers local telephone service under the AT&T Digital Phone brand. Under the terms of the agreement, Insight Midwest leases for a fee certain capacity on our network to AT&T Broadband. Insight Midwest provides certain services and support for which it receives additional payments. We began providing telephony services to a limited number of our customers in 2001. For the three months ended March 31, 2002 and 2001, revenue related to telephony services was $242,000 and $2,000. The capital required to deploy telephone services over our networks is shared, with AT&T Broadband responsible for switching and transport facilities. AT&T also pays us for installations, marketing and billing support that amounted to $1.2 million for the three months ended March 31, 2002. Advertising Services In October 1999, to facilitate the administration of our advertising services in our Kentucky Systems, we entered into an agreement expiring on January 1, 2004 with TCI Media Services LLC ("TCI Media Services"), a subsidiary of AT&T Corp., which provides for TCI Media Services to perform all of our Kentucky advertising sale and related administrative services. For the three months ended March 31, 2002 and 2001, we received advertising revenues from TCI Media Services derived from our Kentucky Systems of $3.3 million and $2.3 million. As of March 31, 2002 and December 31, 2001, we had $6.9 million recorded as a receivable due from TCI Media Services included in prepaid and other current assets. We pay TCI Media Services a fixed and variable fee based on advertising sales cash flow growth for providing this service. As of March 31, 2002 and December 31, 2001, we had $249,000 and $666,000 recorded as payables to TCI Media Services related to such services. 10 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 7. RELATED PARTY TRANSACTIONS (continued) Sourcesuite On March 14, 2002, Insight Interactive purchased the remaining 50% equity interest in SourceSuite that it did not already own from Source Media by tendering $10.2 million face amount of Source Media's 12% bonds. The fair market value of such tendered bonds on March 14, 2002 was $205,000. The excess of the fair value of SourceSuite's acquired assets and liabilities over the purchase price of $205,000, totaling $571,000 of negative goodwill, was allocated as a reduction to long-lived assets based on their respective fair values. The operating results of SourceSuite have been consolidated in the accompanying financial statements effective January 1, 2002. During 2001, we accounted for our 50% interest in SourceSuite under the equity method. 8. AT HOME CORPORATION Non-recurring high-speed data service charges were incurred through February 28, 2002 as a result of payments made to At Home Corporation ("@Home"), the former provider of high-speed data services for all of our systems, except for those located in Ohio. On September 28, 2001, @Home filed for protection under Chapter 11 of the Bankruptcy Code. For the purpose of continuing service to existing customers and to resume the provisioning of service to new customers, we entered into an interim service arrangement that required that we pay $10.0 million to @Home to extend service for three months through February 28, 2002. As a result of this arrangement we incurred approximately $4.1 million in excess of our original agreed-to cost for such services rendered during the three months ended March 31, 2002. 9. COMMITMENTS AND CONTINGENCIES Programming Contracts We enter into long-term contracts with third parties who provide us with programming for distribution over our cable television systems. These programming contracts are a significant part of our business and represent a substantial portion of our operating costs. Since future fees under such contracts are based on numerous variables, including number and type of customers, we have not recorded any liabilities with respect to such contracts. Litigation The prior owners of the Kentucky systems have named insight Kentucky and certain prior owners of the Kentucky Systems in class actions regarding the pass-through of state and local property tax charges to customers. The plaintiffs seek monetary damages and the enjoinment of the collection of such taxes. We have reached an agreement in principle with the plaintiffs to settle these lawsuits. Such settlement is awaiting the execution of definitive documentation and a determination of fairness by the respective courts where these matters were filed. 11 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 9. COMMITMENTS AND CONTINGENCIES (continued) We have filed a state court action against the City of Louisville for its grant of more favorable franchises to Knology, Inc. ("Knology") and TotaLink of Kentucky, LLC. Our commencement of this action automatically suspended these franchises pending a court determination. In November 2000, Knology filed a federal court action against us seeking unspecified monetary damages and other relief for alleged violations of federal laws arising out of our having filed, pursuant to the provisions of our own franchise from the City, the state court action. In March 2001, the federal court preliminarily set aside the state court suspension of Knology's franchise. We believe we have substantial and meritorious defenses to the asserted federal claims and intend to defend it vigorously. Consequently, we have not recorded any loss reserves in the accompanying financial statements. 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. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Some of the information in this quarterly report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. You should read statements that contain these words carefully because they: . discuss our future expectations; . contain projections of our future results of operations or of our financial condition; or . state other "forward-looking" information. We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors listed in our Annual Report on Form 10-K for the year ended December 31, 2001, as well as any cautionary language in this quarterly report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Examples of these risks include our history and expectation of future net losses, our substantial debt, increasing programming costs and competition. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this quarterly report could have a material adverse effect on our business, operating results and financial condition. RESULTS OF OPERATIONS A substantial portion of our revenues are earned from customer fees for cable television programming services including premium, digital and pay-per-view services and ancillary services, such as rental of converters and remote control devices, installations and from selling advertising. In addition, we earn revenues from providing high-speed data and telephone services as well as from commissions for products sold through home shopping networks. We have historically recorded reimbursements of franchise fees from customers as an offset to franchise fee expense included as a component of selling, general and administrative expense. In November 2001, the Financial Accounting Standards Board concluded that reimbursements received from a customer should be reflected as revenues and not as a reduction of expenses. On March 12, 2002, the Securities Exchange Commission staff concluded that as a result of this guidance, it expected all cable television companies to present franchise fees in their statements of operations. Consequently, beginning January 1, 2002, we have presented reimbursements of franchise fees as revenues and franchise fee payments as expenses in the accompanying consolidated statements of operations. Additionally, we have adjusted the prior period amounts to reflect such presentation. The effect on the prior period statement of operations was to increase both revenue and selling, general and administrative costs by $5.7 million. 13 As a result of its March 14, 2002 purchase of the remaining 50% equity interest in SourceSuite, LLC, Insight Interactive now owns 100% of SourceSuite's equity interests. As such, the operating results of SourceSuite have been consolidated in the accompanying financial statements effective January 1, 2002. During 2001, we accounted for our 50% interest in SourceSuite under the equity method. One of the principal reasons for our net loss through December 31, 2001 include depreciation and amortization associated with our acquisitions and capital expenditures related to construction and upgrading of our systems, and interest costs on borrowed money. Beginning January 1, 2002, we no longer record amortization expense associated with goodwill and indefinite lived intangible assets; however, we expect to continue to report net losses for the foreseeable future. We cannot predict what impact, if any, continued losses will have on our ability to finance our operations in the future. The following table is derived for the periods presented from our consolidated financial statements that are included in this report and sets forth certain statement of operations data for our consolidated operations: Three Months Ended March 31, 2002 2001 ------------- --------------- (in thousands) Revenue $ 192,178 $ 174,226 Operating costs and expenses: Programming and other operating costs 69,553 62,588 Selling, general and administrative 40,880 36,602 Non-recurring high-speed data service charges 4,116 - Depreciation and amortization 48,444 88,266 ------------- --------------- Total operating costs and expenses 162,993 187,456 ------------- --------------- Operating income (loss) 29,185 (13,230) EBITDA 77,632 74,097 Interest expense 51,935 51,408 Minority interest 9,926 34,438 Net loss (12,254) (1,977) Net cash provided by operating activities 43,700 66,870 Net cash used in investing activities 59,186 500,428 Net cash provided by financing activities 22,665 595,327 EBITDA represents earnings before interest, taxes, depreciation and amortization, minority interest, gain on cable system exchanges, impairment write-down of investments and extraordinary items. We believe 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 accounting principles generally accepted in the United States. Refer to our consolidated financial statements, including our consolidated statements of cash flows, which appear elsewhere in this report. 14 The following calculations of EBITDA are not necessarily comparable to similarly titled amounts of other companies: Three Months Ended March 31, 2002 2001 ------------- --------------- (in thousands) Net loss $ (12,254) $ (1,977) Adjustments: Interest expense 51,935 51,408 Interest income (897) (2,051) Tax provision 125 981 Depreciation and amortization 48,444 88,266 Minority interest (9,926) (34,438) Gain on cable system exchange - (34,178) Impairment write-down of investments 205 - Extraordinary loss from early extinguishment of debt, net of tax - 6,086 ------------- --------------- EBITDA $ 77,632 $ 74,097 ============= =============== THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 Revenue increased $18.0 million or 10.3% to $192.2 million for the three months ended March 31, 2002 from $174.2 million for the three months ended March 31, 2001. The increase in revenue was primarily the result of gains in our high-speed data and digital services with revenue increases over the prior year quarter of 79.9% and 62.1%. In addition, our basic cable service revenue increased $5.5 million or 4.7% primarily due to basic cable rate increases that took effect in the second quarter of 2001 and 1.0% internal basic customer growth during the quarter. 15 Revenue by service offering were as follows for the three months ended March 31 (in thousands): 2002 2001 Revenue by Revenue by Service % of Total Service % of Total Offering Revenue Offering Revenue -------------- ----------- ------------ ---------- Basic $ 122,306 63.7% $ 116,788 67.0% Premium 14,838 7.7% 15,005 8.6% Pay-per-view 539 .3% 1,286 .7% Digital 15,431 8.0% 9,520 5.5% Advertising sales 11,531 6.0% 9,599 5.5% Data services 11,652 6.1% 6,476 3.7% Franchise fees 6,389 3.3% 5,689 3.3% Other 9,492 4.9% 9,863 5.7% -------------- ----------- ------------ ---------- Total $ 192,178 100.0% $ 174,226 100.0% ============== =========== ============ ========== RGUs (Revenue Generating Units) were approximately 1,689,900 as of March 31, 2002 compared to approximately 1,540,700 as of March 31, 2001 after giving pro forma effect to acquisitions occurring subsequent to March 31, 2001. This represents an annualized growth rate of 9.7%. RGUs represent the sum of basic and digital video, high-speed data and telephone customers. Average monthly revenue per basic customer, including management fees and revenue from SourceSuite, was $49.46 for the three months ended March 31, 2002 compared to $45.39 for the three months ended March 31, 2001 primarily reflecting the continued successful rollout of new product offerings in the Indiana, Kentucky and Ohio markets. Average monthly revenue per basic customer for high-speed data and interactive digital video increased to $6.97 for the three months ended March 31, 2002 from $4.17 for the three months ended March 31, 2001. Programming and other operating costs increased $7.0 million or 11.1% to $69.6 million for the three months ended March 31, 2002 from $62.6 million for the three months ended March 31, 2001. The increase in programming and other operating costs was primarily the result of increased programming rates for our classic and digital service as well as for additional programming added in rebuilt systems. Selling, general and administrative expenses increased $4.3 million or 11.7% to $40.9 million for the three months ended March 31, 2002 from $36.6 million for the three months ended March 31, 2001. The increase in selling, general and administrative expense was primarily the result of increased employee compensation and other related expenses offset by a decrease in marketing. Non-recurring high-speed data service charges were incurred through February 28, 2002 as a result of payments made to At Home Corporation ("@Home"), the former provider of high-speed data services for all of our systems, except for those located in Ohio. On September 28, 2001, @Home filed for protection under Chapter 11 of the Bankruptcy Code. For the purpose of continuing service to existing customers and to resume the provisioning of service to new customers, we entered into an interim 16 service arrangement that required us to pay $10.0 million to @Home to extend service for three months through February 28, 2002. As a result of this arrangement we incurred approximately $4.1 million in excess of our original agreed-to cost for such services rendered during the three months ended March 31, 2002. Depreciation and amortization expense decreased $39.8 million or 45.1% to $48.4 million for the three months ended March 31, 2002 from $88.3 million for the three months ended March 31, 2001. The decrease in depreciation and amortization expense was primarily the result of ceasing the amortization of goodwill and indefinite lived intangible assets associated with the adoption of SFAS No. 142, effective January 1, 2002, partially offset by capital expenditures made to rebuild the existing cable equipment. EBITDA increased $3.5 million or 4.8% to $77.6 million for the three months ended March 31, 2002 from $74.1 million for the three months ended March 31, 2001 primarily due to increased digital and high-speed data revenue partially offset by increases in programming and other operating costs and selling, general and administrative costs. Interest expense remained relatively flat from the prior year quarter increasing $527,000 or 1.0% to $51.9 million for the three months ended March 31, 2002 from $51.4 million for the three months ended March 31, 2001. The increase is the result of higher outstanding debt resulting from the funding of capital expenditures during the quarter, partially offset by lower average interest rates. Minority interest decreased $24.5 million or 71.2% as a direct result of the decrease in Insight Midwest's net loss applicable to common interests due primarily to the adoption of SFAS No. 142 effective January 1, 2002. The non-amortization provisions of SFAS No. 142 resulted in decreased depreciation and amortization expense for the three months ended March 31, 2002. For the three months ended March 31, 2002, the net loss was $12.3 million primarily for the reasons set forth above. 17 LIQUIDITY AND CAPITAL RESOURCES Our business requires cash for operations, debt service, capital expenditures and acquisitions. The cable television business has substantial on-going capital requirements for the construction, expansion and maintenance of its broadband networks. Expenditures have primarily been used to upgrade our existing cable network, and in the future will be used for network extensions, new services, converters and network upgrades. Historically, we have been able to meet our cash requirements with cash flow from operations, borrowings under our credit facilities and issuances of private and public debt and equity. Cash provided by operations for the three months ended March 31, 2002 and 2001 was $43.7 million and $66.9 million. The decrease was primarily attributable to the timing of cash receipts and payments related to working capital accounts. Cash used in investing activities for the three months ended March 31, 2002 and 2001 was $59.2 million and $500.4 million. The decrease was primarily attributable to no significant acquisitions of cable television systems and reduced capital expenditures in 2002. Cash provided by financing activities for the three months ended March 31, 2002 and 2001 was $22.7 million and $595.3 million. The decrease was primarily attributable to lower net borrowings from credit facilities and no proceeds raised through the issuance of notes in 2002. For the three months ended March 31, 2002 and 2001, we spent $50.3 million and $63.7 million in capital expenditures largely to support our plant rebuild in Illinois which is estimated to be substantially completed by year-end, telephone deployment and success-based capital including interactive digital expansion. On April 18, 2002, we entered into an amendment to the Insight Midwest Holdings credit facility which delayed by six months the scheduled reduction to the leverage ratio covenant to allow Insight Midwest Holdings more financing flexibility, and increased the aggregate amount that can be distributed to Insight Midwest for the purpose of making investments in Insight Ohio. Previously, on March 28, 2002, we loaned $100.0 million to Insight Midwest to address its future funding needs, $97.0 million of which was contributed to Insight Midwest Holdings on April 18, 2002 for use in paying down the credit facility balance and $3.0 million of which was contributed to Insight Ohio on March 28, 2002. Pursuant to the credit facility amendments, Insight Midwest Holdings will be permitted to make distributions to Insight Midwest for the purpose of repaying our loan, subject to the satisfaction of certain financial debt covenants. The loan to Insight Midwest bears annual interest of 9%, has a scheduled maturity date of January 31, 2011 and permits prepayments. We have a substantial amount of debt. Our high level of debt could have important consequences for you. Our investments in our operating subsidiaries, including Insight Midwest, constitute substantially all of our operating assets. Consequently, our subsidiaries conduct all of our consolidated operations and own substantially all of our operating assets. Our principal source of cash we need to pay our obligations and to repay the principal amount of our debt obligations is the cash that our subsidiaries generate from their operations and their borrowings. Our subsidiaries are not obligated to make funds available to us and are restricted by the terms of their indebtedness from doing so. Our ability to access 18 the cash flow of our subsidiaries may be contingent upon our ability to refinance the debt of our subsidiaries. We believe that the Midwest Holdings Credit Facility, cash on-hand and our cash flow from operations are sufficient to support our current operating plan. To the extent our financial covenants permit, we intend to continue to draw upon the $140.0 million of unused availability under the Midwest Holdings Credit Facility to fund any shortfall resulting from the inability of Insight Midwest's cash from operations to fund its capital expenditures, meet its debt service requirements or otherwise fund its operations. The following table summarizes our contractual obligations, excluding commitments for programming, as of March 31, 2002, including periods in which the related payments are due (in thousands):
2003 2005 2002 to 2004 to 2006 Thereafter Total ------------------------------------------------------------------------------------------ Long-term debt $ - $ 85,000 $ 188,000 $ 2,462,000 $ 2,735,000 Capital leases 554 1,476 1,576 3,996 7,602 Operating leases 3,169 7,115 4,935 6,801 22,020 Preferred interests 7,000 35,193 175,387 66,659 284,239 ------------------------------------------------------------------------------------------ Total cash obligations $ 10,723 $ 128,784 $ 369,898 $ 2,539,456 $ 3,048,861 ==========================================================================================
19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Our revolving credit and term loan agreements bear interest at floating rates. Accordingly, we are exposed to potential losses related to changes in interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. In order to manage our exposure to interest rate risk, we enter into derivative financial instruments, typically interest rate swaps and collars. The counter-parties to our swap and collar agreements are major financial institutions. As of March 31, 2002, our interest rate swap and collar agreements expire in July 2003. The fair market value and carrying value of our 9 3/4% senior notes, 10 1/2% senior notes and 12 1/4% senior discount notes was $1.01 billion and $945.0 million as of March 31, 2002. The fair market value of our credit facility borrowings approximates its carrying value as the credit facility borrowings bear interest at floating rates of interest. As of March 31, 2002, the estimated fair value (cost if terminated) of our interest rate swap and collar agreements was approximately $(16.7) 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 loss depending on whether the derivative financial instruments qualify for hedge accounting. As of March 31, 2002, we had entered into interest rate swaps that approximated $435.0 million, or 26.6%, of our borrowings under all of our credit facilities. A hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase our annual interest expense by approximately $12.0 million. 20 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES During the three months ended March 31, 2002, we issued 16,501 shares of Class A common stock in connection with our matching contributions to our 401(k) plan and granted stock options to certain of our employees and external consultants to purchase an aggregate of 38,158 shares of Class A common stock. The issuances of common stock and grants of stock options were not registered under the Securities Act of 1933 because such issuances and 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 matching contributions and stock options were issued and 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 there under. 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1 Amendment No. 1 to Credit Agreement and Amendment No. 1 to Guarantee Agreement, dated as of April 18, 2002, among Insight Midwest Holdings, LLC, several banks and financial institutions or entities, and The Bank of New York, as Administrative Agent. (b) Reports on Form 8-K: None 22 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. Date: May 15, 2002 INSIGHT COMMUNICATIONS COMPANY, INC. By: /s/ Dinesh C. Jain ------------------------------------ Dinesh C. Jain Senior Vice President and Chief Financial Officer (Principal Financial Officer) 23 EX-10.1 3 dex101.txt AMENDMENT NO. 1 TO CRECIT AGREEMENT EXHIBIT 10.1 AMENDMENT NO. 1 TO CREDIT AGREEMENT ----------------------------------- and --- AMENDMENT NO. 1 TO GUARANTEE AGREEMENT -------------------------------------- AMENDMENT NO. 1, dated as of April 18, 2002 (this "Amendment"), to and --------- under (i) the Credit Agreement, dated as of January 5, 2001, among Insight Midwest Holdings, LLC, the Lenders party thereto, Bank of America, N.A. and TD Securities (USA), Inc., as Co-Syndication Agents, Fleet National Bank, as Documentation Agent, and The Bank of New York, as Administrative Agent (as amended, supplemented, or otherwise modified, the "Credit Agreement"), and (ii) ---------------- the Guarantee Agreement (as defined in the Credit Agreement). RECITALS -------- A. Capitalized terms used herein that are defined in the Credit Agreement shall have the same meanings as therein defined. B. The Borrower has requested that the Administrative Agent agree to amend the Credit Agreement and the Guarantee Agreement as described below and the Administrative Agent is willing to so agree subject to the terms and conditions contained in this Amendment. Accordingly, in consideration of the Recitals and the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Borrower and the Administrative Agent hereby agree as follows: 1. Section 1.1 of the Credit Agreement is hereby amended by adding the following defined terms in the appropriate alphabetical order: "Ohio Distribution Amount" means, as of any date of determination, ------------------------ an amount equal to (i) from the Effective Date through March 31, 2002, $37,000,000, (ii) from April 1, 2002 through December 31, 2002, $57,000,000, (iii) from January 1, 2003 through December 31, 2003, $67,000,000, and (iv) at all times thereafter, $77,000,000. "Parent Loan" means the loan made by Insight Holdings, in cash, to ----------- the Parent in the principal sum of $100,000,000, as evidenced by the Parent Loan Note. "Parent Loan Note" means the promissory note attached hereto as ---------------- Exhibit J. 2. The defined term "Designated Holding Company Debt" contained in ------------------------------- Section 1.1 of the Credit Agreement is hereby amended by adding the following sentence to the end thereof: The Parent Loan shall constitute Designated Holding Company Debt. 3. The defined term "Consolidated Pro Forma Interest Expense" --------------------------------------- contained in Section 1.1 of the Credit Agreement is hereby amended by deleting the parenthetical phrase "(other than any non-cash portion thereof)" in both places in which such phrase appears and inserting the following in its place: (other than any non-cash portion thereof and, with respect to the Parent Loan, any payment of interest thereon) 4. Each of subsections (d), (g) and (h) of Section 7.8 of the Credit Agreement is hereby amended and restated in the form of the following paragraph bearing the same designation: (d) the Borrower may declare and pay dividends and other distributions to holders of its Equity Interests, provided that (1) -------- such distributions are for the sole purpose of paying cash interest that is due and payable on Designated Holding Company Debt (other than the Parent Loan), (2) after giving effect to any such distribution, the Borrower would be in pro forma compliance with all financial covenants including the Pro Forma Debt Service Ratio, and (3) no Default or Event of Default shall be in existence or would result therefrom; (g) the Borrower may make one or more distributions to the Parent to allow the Parent to make investments in Insight Ohio or Insight Ohio Holdings, provided that both immediately before and after giving effect thereto (i) the aggregate sum of all distributions pursuant to this Section 7.8(g) shall not have a fair market value (determined at the time of each such distribution) in excess of the Ohio Distribution Amount, and (ii) no Default shall be in existence or would occur; and (h) the Borrower may make one or more Restricted Payments (i) to the Parent in an aggregate amount not to exceed the initial principal amount of, and capitalized or accrued and unpaid interest from time to time on, the Parent Loan, provided that immediately before and after giving effect to each such Restricted Payment (a) no Default shall be in existence or would result therefrom, and (b) the Leverage Ratio shall and would be less than 4.25:1.00, and (ii) for any purpose, provided that immediately before and after giving effect to each such Restricted Payment (a) no Default shall be in existence or would result therefrom, and (b) the Leverage Ratio shall and would be less than 3.25:1.00. 5. Section 7.9 of the Credit Agreement is hereby amended by adding the following phrase immediately before the period at the end of such Section: , and provided further that this Section shall not apply to any -------- ------- transaction that is permitted under clauses (g) or (h) of Section 7.8. 2 6. Section 7.14 of the Credit Agreement is hereby amended and restated in its entirety as follows: Section 7.14 Leverage Ratio -------------- The Borrower will not permit the Leverage Ratio at any time during any period set forth below to be greater than the ratio set forth below with respect to such period: =============================================================================== Period Ratio - ------------------------------------------------------------------------------- Agreement Date through June 30, 2002 5.50:1.00 - ------------------------------------------------------------------------------- July 1, 2002 through June 30, 2003 5.25:1.00 - ------------------------------------------------------------------------------- July 1, 2003 through June 30, 2004 4.75:1.00 - ------------------------------------------------------------------------------- July 1, 2004 through June 30, 2005 4.25:1.00 - ------------------------------------------------------------------------------- July 1, 2005 through June 30, 2006 3.75:1.00 - ------------------------------------------------------------------------------- July 1, 2006 and thereafter 3.25:1.00 =============================================================================== 7. The Credit Agreement is further amended by adding thereto a new Exhibit J in the form of Exhibit J to this Amendment. 8. Section 10 of the Guarantee Agreement is hereby amended by adding the following to the end of such Section: In addition to the foregoing, (i) the Parent shall use all proceeds of Restricted Payments made by the Borrower pursuant to Section 7.8(g) of the Credit Agreement to make investments in Insight Ohio or Insight Ohio Holdings, (ii) the Parent shall use all proceeds of Restricted Payments made by the Borrower pursuant to Section 7.8(h)(i) of the Credit Agreement to repay the principal of, and capitalized or accrued and unpaid interest on, the Parent Loan, and (iii) the Parent shall not, and shall not permit the Borrower or any Subsidiary thereof, to agree to amend, supplement or otherwise modify the terms of the Parent Loan in any way that would be adverse to the interests of the Lenders, including any amendment, supplement or other modification that would (1) increase the rate or effective rate of interest thereon, (2) add any make-whole or other premium, any prepayment or other penalty or any fee or any other cost or expense with respect thereto, (3) cause any payment in respect of the principal of, or interest (other than interest that is payable-in-kind) on the Parent Loan to be due and payable prior to December 31, 2010, (4) grant or agree to grant any collateral security for the repayment of any principal, interest or other amount in respect of the Parent Loan, or (5) have the Borrower or any Subsidiary issue or agree to issue any Guarantee in respect of all or any portion of the principal, interest or other sum in respect of the Parent Loan. 3 9. Paragraphs 1 through 8 above shall not be effective until such time, if any, as each of the following shall have occurred, provided that each -------- of the following shall have occurred on or before May 15, 2002: (a) the Administrative Agent (or its counsel) shall have received from the Issuing Bank, Required Lenders and each of the Loan Parties either (i) a counterpart of this Amendment signed on behalf of such Person or (ii) written evidence satisfactory to the Administrative Agent (which may include facsimile transmission of a signed signature page of this Amendment) that such Person has signed a counterpart of this Amendment, (b) the Administrative Agent shall have received from the Borrower a certificate signed by a Financial Officer, acknowledging the Borrower's receipt, following March 31, 2002, of a capital contribution by the Parent, in cash, in an amount not less than $97,000,000, (c) following March 31, 2002, the Borrower shall have prepaid the aggregate outstanding principal balance of the Revolving Loans by not less than $97,000,000, (d) the Borrower shall have paid to the Administrative Agent, for the account of each Lender that shall execute and deliver this Amendment to the Administrative Agent on or prior to April 18, 2002, an amendment fee equal to 0.10% of the aggregate sum of (i) such Lender's Revolving Commitment and (ii) the outstanding principal balance of such Lender's Term Loans, and (e) the Administrative Agent shall have received all other fees and expenses payable by the Loan Parties in connection with this Amendment, including, without limitation, all reasonable fees and disbursements of its counsel to the extent invoiced. 10. Each of the Loan Parties hereby (i) reaffirms and admits the validity and enforceability of each Loan Document to which it is a party and its obligations thereunder, and agrees and admits that it has no defense to or offset against any such obligation, and (ii) represents and warrants that, as of the date hereof, (a) it is in compliance with all of the terms, covenants and conditions of each Loan Document to which it is a party, (b) there exists no Default and (c) the representations and warranties made by it in the Loan Documents are true and correct with the same effect as though such representations and warranties had been made on the date hereof. 11. This Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which, when taken together, shall constitute but one contract. Delivery of an executed counterpart of a signature page of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Amendment. 4 12. The Credit Agreement, the Guarantee Agreement and the other Loan Documents shall in all other respects remain in full force and effect, and no amendment, consent, waiver, or other modification herein in respect of any term or condition of any Loan Document shall be deemed to be an amendment, consent, waiver, or other modification in respect of any other term or condition of any Loan Document. 13. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. [SIGNATURE PAGES FOLLOW] 5 INSIGHT MIDWEST HOLDINGS, LLC AMENDMENT NO. 1 TO CREDIT AGREEMENT and AMENDMENT NO. 1 TO GUARANTEE AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. INSIGHT MIDWEST HOLDINGS, LLC By: Insight Midwest L.P., its sole member By: Insight Communications Company, L.P., its sole general partner By: Insight Communications Company, Inc., its sole general partner By: ______________________________________________ Name: ____________________________________________ Title:____________________________________________ CONSENTED AND AGREED TO: INSIGHT MIDWEST L.P. By: Insight Communications Company L.P., its sole general partner By: Insight Communications Company Inc., its sole general partner By: ______________________________________ Name: ____________________________________ Title: ___________________________________ INSIGHT MIDWEST HOLDINGS, LLC AMENDMENT NO. 1 TO CREDIT AGREEMENT and AMENDMENT NO. 1 TO GUARANTEE AGREEMENT CONSENTED AND AGREED TO: INSIGHT COMMUNICATIONS MIDWEST, LLC By: Insight Midwest Holdings, LLC, its sole member By: Insight Midwest L.P., its sole member By: Insight Communications Company, L.P., its sole general partner By: Insight Communications Company, Inc., its sole general partner By: ______________________________________ Name: ____________________________________ Title: ___________________________________ CONSENTED AND AGREED TO: INSIGHT COMMUNICATIONS OF KENTUCKY, L.P. By: Insight Midwest Holdings, LLC, its general partner By: Insight Midwest, L.P., its sole member By: Insight Communications Company, L.P., its general partner By: Insight Communications Company, Inc., its general partner By: ______________________________________ Name: ____________________________________ Title: ___________________________________ INSIGHT MIDWEST HOLDINGS, LLC AMENDMENT NO. 1 TO CREDIT AGREEMENT and AMENDMENT NO. 1 TO GUARANTEE AGREEMENT CONSENTED AND AGREED TO: INSIGHT KENTUCKY PARTNERS I, L.P. By: Insight Communications of Kentucky, L.P., its general partner By: Insight Midwest Holdings, LLC, its general partner By: Insight Midwest, L.P., its sole member By: Insight Communications Company, L.P., its general partner By: Insight Communications Company, Inc., its general partner By: ______________________________________ Name: ____________________________________ Title: ___________________________________ CONSENTED AND AGREED TO: INSIGHT KENTUCKY PARTNERS II, L.P. By: Insight Kentucky Partners I, L.P., its general partner By: Insight Communications of Kentucky, L.P., its general partner By: Insight Midwest Holdings, LLC, its general partner By: Insight Midwest L.P., its sole member By: Insight Communications Company, L.P., its sole general partner By: Insight Communications Company, Inc., its sole general partner By: ______________________________________ Name: ____________________________________ Title: ___________________________________ INSIGHT MIDWEST HOLDINGS, LLC AMENDMENT NO. 1 TO CREDIT AGREEMENT and AMENDMENT NO. 1 TO GUARANTEE AGREEMENT THE BANK OF NEW YORK, individually, as Issuing Bank and as Administrative Agent By: ______________________________________ Name: ____________________________________ Title: ___________________________________ INSIGHT MIDWEST HOLDINGS, LLC AMENDMENT NO. 1 TO CREDIT AGREEMENT and AMENDMENT NO. 1 TO GUARANTEE AGREEMENT CONSENTED AND AGREED TO: [___________________________________] By: ______________________________________ Name: ____________________________________ Title: ___________________________________ -----END PRIVACY-ENHANCED MESSAGE-----