PART IV

Item 15. Exhibits and Financial Statement Schedules

PART II

Item 6. Selected Financial Data

The following selected historical financial and other data has been adjusted to reflect the restatement of our financial results to correct the previously-reported income tax provision, which is more fully described in the “Explanatory Note” on page 1 and Note 2, “Restatement of Consolidated Financial Statements,” located in the notes to our consolidated financial statements elsewhere in this annual report amendment. We have prepared the consolidated selected financial information using our consolidated financial statements for the five years ended December 31, 2006. When you read this selected consolidated historical financial and other data, it is important that you read along with it the historical financial statements and related notes in our consolidated financial statements included in this report, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” also included in this report. Certain prior year amounts have been reclassified to conform to the current year’s presentation.

	Year Ended December 31, (As restated)
	2006			2005			2004			2003			2002
	(dollars in thousands)
Statement of Operations Data:
Revenue	$	1,262,557		$	1,117,681		$	1,002,456		$	902,592		$	811,995
Total operating costs and expenses	1,044,005			976,102			813,971			747,248			672,993
Operating income	218,552			141,579			188,485			155,344			139,002
Total other expense, net	(260,336		)	(220,520		)	(204,089		)	(177,495		)	(203,106		)
Loss before minority interest, extinguishments of obligations, gain on contract settlement, income taxes and extraordinary item	(41,784		)	(78,941		)	(15,604		)	(22,151		)	(64,104		)
Minority interest income (expense)	5,377			(5,488		)	(14,023		)	(7,936		)	31,076
Gain (loss) from early extinguishment of debt(1)	—			—			—			(10,879		)	3,560
Loss on settlement of put obligation	—			—			—			(12,169		)	—
Gain on settlement of programming contract	—			—			—			37,742			—
Impairment write-down of investments	—			—			—			(1,500		)	(18,023		)
Loss before income taxes and extraordinary item	(36,407		)	(84,429		)	(29,627		)	(16,893		)	(47,491		)
Provision for income taxes(2)	(7,796		)	(8,147		)	(7,756		)	(5,296		)	(60,682		)
Loss before extraordinary item and cumulative effect of change in accounting principle	(44,203		)	(92,576		)	(37,383		)	(22,189		)	(108,173		)
Extraordinary item, net of tax	—			—			15,627			—			—
Loss before preferred interests	(44,203		)	(92,576		)	(21,756		)	(22,189		)	(108,173		)
Accrual of preferred interests(3)	—			—			—			(10,353		)	(20,107		)
Net loss	$	(44,203	)	$	(92,576	)	$	(21,756	)	$	(32,542	)	$	(128,280	)

	Year Ended December 31, (As restated)
	2006		2005			2004			2003		2002
	(dollars in thousands)
Other Financial Data:
Capital expenditures	$	286,389	$	220,102		$	174,096		$	196,658	$	283,004
Net cash provided by operating activities	263,949		233,573			289,914			197,788		175,296
Net cash used in investing activities	286,631		218,711			173,544			234,691		293,390
Net cash provided by (used in) financing activities	36,473		(85,224		)	(76,398		)	22,225		(5,604		)
Balance Sheet Data:
Cash and cash equivalents	$	43,573	$	29,782		$	100,144		$	60,172	$	74,850
Fixed assets, net	1,151,260		1,130,705			1,154,251			1,216,304		1,220,251
Total assets	3,813,656		3,780,716			3,885,424			3,925,207		3,898,320
Total debt, including preferred interests(3)	2,805,722		2,759,918			2,807,563			2,848,291		2,772,824
Stockholders’ equity	348,607		391,086			463,998			483,264		521,198

	As of December 31, 2006
	South Region		East Region		West Region		Total
Technical Data:
Network miles	7,000		11,200		13,100		31,300
Number of headends	2		8		13		23
Operating Data:
Homes passed(4)	569,400		854,400		1,041,400		2,465,200
Basic customers(5)	285,700		436,100		601,000		1,322,800
Basic penetration(6)	50.2	%	51.0	%	57.7	%	53.7	%
Digital ready homes(7)	274,300		413,600		571,700		1,259,600
Digital customers(8)	135,700		230,300		255,600		621,600
Digital penetration(9)	49.5	%	55.7	%	44.7	%	49.3	%
Premium units(10)	139,600		181,400		208,300		529,300
Premium penetration(11)	48.9	%	41.6	%	34.7	%	40.0	%
High-Speed Internet customers(12)	134,000		210,600		266,600		611,200

(1) The Financial Accounting Standards Board has issued SFAS No. 145 which is effective for fiscal years beginning after May 15, 2002 and generally eliminates the classification of gains and losses from the early extinguishment of debt as extraordinary items.

(2) In 2002, $57.9 million of the provision for income taxes was attributable to the adoption of SFAS No. 142 on January 1, 2002; see “Explanatory Note” on page 1 of this annual report amendment.

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

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

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

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

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

(8) Customers with a digital converter box.

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

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

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

(12) Customers receiving high-speed Internet service.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

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

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

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

We have historically recorded net losses through December 31, 2006. Some of the principal reasons for these net losses include i) depreciation associated with our capital expenditures for the construction, expansion and maintenance of our systems, and ii) interest costs on borrowed money. 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.

Use of Adjusted Operating Income before Depreciation and Amortization and Free Cash Flow

We utilize Adjusted Operating Income before Depreciation and Amortization, (defined as operating income before depreciation, amortization and non-cash stock-based compensation) among other measures, to evaluate the performance of our businesses. Adjusted Operating Income before Depreciation and Amortization is considered an important indicator of the operational strength of our businesses and is a component of our annual compensation programs. In addition, our debt agreements use Adjusted Operating Income before Depreciation and Amortization, adjusted for certain non-recurring items, in our leverage and other covenant calculations. We also use this measure to determine how we will allocate resources and capital. Our management finds this measure helpful because it captures all of the revenue and ongoing operating expenses of our businesses and therefore provides a means to directly evaluate the ability of our business operations to generate returns and to compare operating capabilities across our businesses. This measure is also used by equity and fixed income research analysts in their reports to investors evaluating our businesses and other companies in the cable television industry. We believe Adjusted Operating Income before Depreciation and Amortization is useful to investors and bondholders because it enables them to assess our performance in a manner similar to the methods used by our management and provides a measure that can be used to analyze, value and compare companies in the cable television industry, which may have different depreciation, amortization and stock-based compensation policies.

A limitation of Adjusted Operating Income before Depreciation and Amortization, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our businesses. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures, investment spending and Free Cash Flow.

Management also evaluates the costs of capitalized tangible and intangible assets by analyzing returns provided on the capital dollars deployed. Another limitation of Adjusted Operating Income before Depreciation and Amortization is that it does not reflect income net of interest expense, which is a significant expense for us because of the substantial debt we incurred to acquire cable television systems and finance capital expenditures to upgrade our cable network. Management evaluates the impact of interest expense through measures including interest expense, Free Cash Flow, the returns analysis discussed above and debt service covenant ratios under our credit facility.

Free Cash Flow is net cash provided by operating activities (as defined by accounting principles generally accepted in the United States) less capital expenditures. Free Cash Flow is considered to be an important indicator of our liquidity, including our ability to repay indebtedness. We believe Free Cash Flow is useful for investors and bondholders because it enables them to assess our ability to service our debt and to fund continued growth with internally generated funds in a manner similar to the methods used by our management, and provides a measure that can be used to analyze, value and compare companies in the cable television industry.

Both Adjusted Operating Income before Depreciation and Amortization and Free Cash Flow should be considered in addition to, not as a substitute for, Operating Income, Net Income and various cash flow measures (e.g., Net Cash Provided by Operating Activities), as well as other measures of financial performance and liquidity reported in accordance with accounting principles generally accepted in the United States.

Reconciliation of Net Loss to Adjusted Operating Income before Depreciation and Amortization

The following table reconciles Net Loss to Adjusted Operating Income before Depreciation and Amortization. In addition, the table provides the components from Net Loss to Operating Income for purposes of the discussions that follow.

	Year Ended December 31, (As restated)
	2006			2005			2004
	(in thousands)
Net loss	$	(44,203	)	$	(92,576	)	$	(21,756	)
Extraordinary item, net of tax	—			—			(15,627		)
Loss before extraordinary item	(44,203		)	(92,576		)	(37,383		)
Provision for income taxes	7,796			8,147			7,756
Loss before income taxes and extraordinary item	(36,407		)	(84,429		)	(29,627		)
Minority interest (income) expense	(5,377		)	5,488			14,023
Loss before minority interest, income taxes and extraordinary item	(41,784		)	(78,941		)	(15,604		)
Other (income) expense:
Other	10,719			(3,541		)	3,388
Interest income	(1,787		)	(2,895		)	(749		)
Interest expense	251,404			226,956			201,450
Total other expense, net	260,336			220,520			204,089
Operating income	218,552			141,579			188,485
Depreciation and amortization	270,231			247,039			239,123
Stock-based compensation	1,413			17,368			4,438
Adjusted Operating Income before Depreciation and Amortization	$	490,196		$	405,986		$	432,046

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

The following table provides a reconciliation from net cash provided by operating activities to Free Cash Flow. In addition, the table provides the components from net cash provided by operating activities to operating income for purposes of the discussions that follow.

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

(1) Changes in working capital accounts are based on the net cash changes in current assets and current liabilities, excluding changes related to interest and taxes and other non-cash expenses.

Results of Operations

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

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

Basic cable service revenue increased 7% due to an increased customer base and video rate increases, partially offset by promotional discounts. We added a net 41,200 basic cable customers during the year to end the year at 1,322,800 customers. In addition, digital service revenue increased 24% over the prior year due to an increased customer base. We added a net 102,800 digital customers during the year to end the year at 621,600 customers.

We have been increasing our customer growth and retention efforts by increasing spending on sales and marketing efforts, emphasizing bundling and enhancing and differentiating our video services by providing video-on-demand, high definition television and digital video recorders. To increase our bundling opportunities and extend our growth potential in future years, we, during the second half of 2006 and in January 2007, successfully rolled out our telephone product in eight previously unserved markets. We are also continuing to focus on improving customer satisfaction through higher service levels and increased customer education of our product offerings.

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

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

Total Customer Relationships were 1,401,800 as of December 31, 2006, an increase of 54,300 from 1,347,500 as of December 31, 2005. Total Customer Relationships represent the number of customers who receive one or more of our products (i.e. basic cable, high-speed Internet or telephone) without regard to which product they purchase. In the year ended December 31, 2006, we added 318,300 Revenue Generating Units (“RGUs”), which represent the sum of basic, digital, high-speed Internet and telephone customers, and as of December 31, 2006, had 2,679,000 RGUs, an increase of 13% as compared to December 31, 2005.

RGUs by category were as follows (in thousands):

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

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

Programming and other operating costs increased $68.2 million, or 18%. Increases in programming rates, customers, and the addition of new programming content were significant drivers of the cost increase for the year ended December 31, 2006. For the year ended December 31, 2005, our programming costs reflected certain programming credits and a one-time settlement for a disputed claim with a vendor. These credits resulted from favorable resolution of pricing negotiations related to certain prior period programming costs that were accrued at a higher rate than the amount actually paid. Programming credits for the year ended December 31, 2006 were significantly lower, causing our overall programming cost increases to be greater. Direct operating costs increased due to an increase in telephone cost of sales as we continue to invest and roll out this product partially offset by decreases in our high-speed Internet services costs as we, in 2006, transitioned our Internet services in-house and realized both costs savings and operational benefits from this investment. Other operating costs increased primarily as a result of increases in technical salaries for new and existing employees; increases in repair, maintenance and warranty costs; an increase in taxes due to a change in the tax law in Kentucky; and an increase in outside installation labor due to increased customer activity.

Selling, general and administrative expenses increased $38.5 million, or 13%, primarily due to increased payroll, payroll-related costs and temporary help associated with an increase in the number of employees and salary increases for existing employees. The increase in the number of employees represents investments in sales and marketing, customer care and information technology personnel to continue to upgrade and enhance our product offerings, manage our increasingly complex network, and increase customer satisfaction. A portion of the information technology personnel increases were directly related to the transition of our Internet services in-house. Marketing expenses increased over the prior year to support the continued rollout of high-speed Internet, digital and telephone products, and to grow our core video customer base. Customer billing, collection fees and bad debt expense increased primarily due to the increase in our customer base.

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

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

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

Interest expense increased $24.4 million, or 11%, due to:

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

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

· additional interest expense on the now fully accreted 121¤4% Senior Discount Notes.

The provision for income taxes relates to franchise costs which are amortized as an expense for tax purposes over 15 years but has not been amortized for financial reporting purposes. The $351,000 decrease relates to the change in the tax amortization of franchise costs and non-income based state taxes.

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

Revenue for the year ended December 31, 2005 totaled $1.1 billion, an increase of 12% over the prior year, due primarily to customer gains in all services, as well as video rate increases. High-speed Internet service revenue increased 45% over the prior year, which was attributable to an increased customer base. We added a net 139,900 high-speed Internet customers during the year to end the year at 470,400 customers. In addition, digital service revenue increased 13% over the prior year due to an increased customer base. We added a net 67,500 digital customers during the year to end the year at 518,800 customers.

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

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

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

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

RGUs by category were as follows (in thousands):

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

Average monthly revenue per basic customer was $73.30 for the year ended December 31, 2005, compared to $64.96 for the year ended December 31, 2004. This primarily reflects the continued growth of high-speed Internet and digital product offerings in all markets as well as basic and classic video rate increases. In addition, telephone revenues for the year ended December 31, 2005 reflect service revenues earned directly from customers compared to the year ended December 31, 2004, which reflected revenues billed to Comcast under a previous contractual agreement that was terminated effective December 31, 2004. Also included in telephone revenue for the year ended December 31, 2005 is the continued amortization of installation revenue under the previous arrangement with Comcast in the amount of $3.3 million.

Programming and other operating costs increased $36.2 million, or 11%. Total programming costs for our video products decreased for the year ended December 31, 2005 compared to the year ended December 31, 2004. The substantial increases in programming rates were offset by programming credits. The credits resulted from favorable resolution of pricing negotiations related to certain prior period programming costs that were accrued at a higher rate than the amount actually paid and a settlement of disputed claims with a vendor. In addition, direct operating costs increased due to an increased volume of modems sold and cost of sales associated with telephone that were previously paid by Comcast. Other operating costs increased primarily as a result of increases in technical salaries for new and existing employees, in addition to decreased capitalized labor costs due to the continued transition from upgrade and new connect activities to maintenance and reconnect activities. Other operating costs also increased as

a result of increases in repairs and maintenance costs due to increased repair costs for customer premise equipment, an increase in drop materials due to customer growth and increased property taxes due to a favorable reversal of accrued property taxes recorded in 2004.

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

Depreciation and amortization expense increased $7.9 million, or 3%, primarily as a result of additional capital expenditures through December 31, 2005. These expenditures were primarily for telephone equipment, purchases of customer premise equipment and drop materials and network extensions, all of which we consider necessary in order to continue to maintain and grow our customer base and expand our service offerings. Partially offsetting this increase was a decrease in depreciation expense related to certain assets that have become fully depreciated since December 31, 2004.

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

Interest expense increased $25.5 million, or 13%, due to higher interest rates, which averaged 8.2% for the year ended December 31, 2005, as compared to 7.1% for the year ended December 31, 2004, and an increase in the accreted value of the 121¤4% Senior Discount Notes.

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

Liquidity and Capital Resources

Our business requires cash for operations, debt service and capital expenditures. The cable television business has substantial ongoing capital requirements for the provision of new services and the construction, expansion and maintenance of its broadband networks. In the past, expenditures have been made for various purposes including the upgrade of the existing cable network, and will continue to be made for customer premise equipment (e.g., set-top boxes), installation and deployment of new product and service offerings, capitalized payroll, network capacity, bandwidth increases, network extensions, and, to a lesser extent, 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 years ended December 31, 2006 and 2005 was $263.9 million and $233.6 million. The increase was primarily attributable to the decrease in our net loss due to the affect of the transaction-related costs in 2005 and the timing of cash receipts and payments related to our working capital accounts. This increase was partially offset by the decrease in amortization of the note discount because cash interest payments on the 121¤4% notes commenced in February 2006.

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

The increase in capital expenditures was driven primarily by increases in:

· Customer premise equipment required to support our digital customer growth; and

· Network capacity and bandwidth equipment for the transition of our Internet services in-house in 2006.

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

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

· A $66.3 million increase in capital expenditures;

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

· A $26.5 million increase in cash interest expense paid primarily driven by the initial cash interest payment on the 121¤4% Senior Discount Notes and an increase in interest rates.

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

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

On October 1, 1999, in connection with the formation of Insight Midwest and our acquisition of a 50% interest in the Kentucky systems, Insight Midwest completed an offering of $200.0 million principal amount of its 93¤4% senior notes due 2009. The net proceeds of the offering were used to repay certain outstanding debt of the Kentucky systems. Interest on the Insight Midwest 93¤4% senior notes is payable on April 1 and October 1 of each year. The indentures relating to these senior notes impose certain limitations on the ability of Insight Midwest to, among other things, incur debt, make distributions, make investments and sell assets.

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

On November 6, 2000, Insight Midwest completed an offering of $500.0 million principal amount of its 101¤2% senior notes due 2010. The net proceeds of the offering of $486.0 million were used to repay a portion of the then existing Indiana and Kentucky credit facilities. On December 9, 2003, Insight Midwest completed a $130.0 million add-on offering under the 101¤2% senior notes indenture. Insight Midwest received proceeds of $140.9 million. The proceeds of this offering were used to repay a portion of the outstanding revolving loans under the Insight Midwest Holdings credit facility. All of these 101¤2% senior notes and $185.0 million principal amount of Insight Midwest’s 93¤4% senior notes were retired with proceeds from our new $2.445 billion senior secured credit facility on November 7, 2006, as described below.

On February 6, 2001, we completed an offering of $400.0 million principal amount at maturity of 121¤4% 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 our inter-company loan from Insight Midwest, which we incurred in connection with the financing of the AT&T Broadband transactions. No cash interest on the discount notes accrued prior to February 15, 2006. Cash interest began to accrue on the discount notes beginning on February 15, 2006 and is payable on February 15 and August 15 of each year, with the first such payment having been made on August 15, 2006.

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

On March 28, 2002, we loaned $100.0 million to Insight Midwest. The loan to Insight Midwest bears annual interest of 9%, compounded semi-annually, has a scheduled maturity date of January 31, 2011 and permits prepayments. Insight Midwest Holdings is permitted under the credit facility to make distributions to Insight Midwest for the purpose of repaying our loan, including accrued interest, provided that there are no defaults existing under the credit facility. During the third and fourth quarters of 2006, Insight Midwest repaid a total of $15.5 million of the loan balance. As of December 31, 2006 and 2005, the balance of the $100.0 million loan, including accrued interest, was $136.1 and $139.1 million.

On October 6, 2006, Insight Midwest Holdings entered into a new $2.445 billion senior secured credit facility for the purpose of reducing its interest expense and near term debt amortizations. The facility is comprised of a $385.0 million A Term Loan scheduled to mature on October 6, 2013, a $1.8 billion B Term Loan scheduled to mature on April 6, 2014 and $260.0 million in revolving commitments scheduled to terminate on October 6, 2012. The proceeds were used to refinance Insight Midwest Holdings’ existing senior credit facility and to redeem all $630.0 million outstanding principal amount of Insight Midwest’s 101¤2% Senior Notes due November 1, 2010 at a redemption price of 103.5% of the principal amount and $185.0 million principal amount of Insight Midwest’s total outstanding $385.0 million of the 93¤4% Senior Notes due October 1, 2009 at a redemption price of 101.625% of the principal amount redeemed, plus accrued and unpaid interest. We recorded $1.7 million in other expenses in these transactions. As of December 31, 2006, $110.3 million of the revolving commitments were drawn, including $9.3 million in letters of credit.

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

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

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

As of December 31, 2006, we were in compliance with the credit facility’s covenant requirements. Given current operating conditions and projected results of operations, we anticipate continued compliance under this credit facility for the foreseeable future.

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

· pro forma financial covenant compliance upon consummation of the Exit Event

· compliance with the financial covenants for the remaining life of the credit facility

· there shall not have occurred and be continuing any event of default that would continue after giving effect to the Exit Event.

Subject to pro forma financial covenant compliance, any cash received as a result of the Exit Event may be applied, at our option, to: (a) repay the remaining 93¤4% Senior Notes, (b) repay the 121¤4% senior discount notes, (c) repay the $100.0 million intercompany note, (d) prepay the Term Loans on a pro rata basis, (e) repay other debt and/or (f) for general corporate purposes. After the occurrence of the Exit Event, the margin with respect to the Term Loan B will increase by 50 basis points, or 0.50%, if and for so long as the Insight Midwest Holdings’ leverage ratio exceeds 6.50:1.00. Upon the occurrence of the Exit Event, the maximum leverage permitted will increase by 0.50:1.00.

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. Because of such restrictions, our ability to access the cash flow of our subsidiaries may be contingent upon our ability to refinance the debt of our subsidiaries.

We believe that the Insight Midwest Holdings credit facility, cash on-hand and our cash flow from operations are sufficient to support our current operating plan. As of December 31, 2006, we had the ability to draw upon $149.7 million of unused availability under the Insight 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. We expect to use any available Free Cash Flow to repay our indebtedness.

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

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

Critical Accounting Policies

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. We evaluate our estimates and judgments on an on-going basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. We believe the following accounting policies are the most critical to us, in that they are important to the portrayal of our financial statements and they require our most difficult, subjective or complex judgments in the preparation of our consolidated financial statements.

Goodwill and Other Identifiable Intangibles

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

· Significant underperformance relative to historical performance or

· Projected future operating results;

· Significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and

· Significant negative industry or economic trends.

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

determined by our management to be commensurate with the risk inherent in our current business model. With the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002 we ceased amortizing goodwill and franchise costs arising from acquisitions. In lieu of amortization, we perform an annual impairment analysis. If we determine through the impairment review process that goodwill or other indefinite-lived intangibles have been impaired, we would record an impairment charge in our statement of operations.

Fixed Assets

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

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

Item 8. Financial Statements and Supplementary Data

Reference is made to our consolidated financial statements beginning on page F-1 of this report.

Item 9A. Controls and Procedures

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

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

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

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

Management Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

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

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

In our annual report on Form 10-K for the year ended December 31, 2006, management concluded that our internal control over financial reporting was effective as of December 31, 2006. Solely as a result of this material weakness, management has revised its earlier assessment and has now concluded that our internal control over financial reporting was not effective as of December 31, 2006.

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

We are in the process of designing and implementing improvements in our internal control over financial reporting to address the material weakness in accounting for income taxes. These improvements include, among other things, improved documentation and analysis regarding the temporary differences between financial and tax reporting, training individuals involved in accounting and reporting for income taxes regarding these issues, and enhancing the documentation around conclusions reached in the implementation of the applicable generally accepted accounting principles.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements:

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

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm —Internal Control over Financial Reporting		F-1
Report of Independent Registered Public Accounting Firm—Financial Statements		F-3
Insight Communications Company, Inc. Consolidated Balance Sheets as of December 31, 2006 and 2005 (restated)		F-4
Insight Communications Company, Inc. Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004 (restated)		F-5
Insight Communications Company, Inc. Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2006, 2005 and 2004 (restated)		F-6
Insight Communications Company, Inc. Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004 (restated)		F-7
Insight Communications Company, Inc. Notes to Consolidated Financial Statements		F-8

(b) Exhibits:

Exhibit Number				Exhibit Description
2				Agreement and Plan of Merger, dated as of July 28, 2005, between Registrant and Insight Acquisition Corp.(1)
3(i)				Amended and Restated Certificate of Incorporation of Registrant(2)
3(ii)				By-laws of Registrant(2)
10.1*				1999 Equity Incentive Plan of Registrant(3)
10.1A*				Form of Deferred Stock Award Agreement(4)
10.1B*				Form of Amendment to Deferred Stock Award Agreement, dated December 16, 2005(4)
10.2*				2005 Stock Incentive Plan of Registrant(2)
10.2A*				Form of Subscription Agreement for E Shares(2)
10.2B*				Form of Subscription Agreement for F Shares(2)

10.3		Credit Agreement, dated as of October 6, 2006, among Insight Midwest Holdings, LLC, as Borrower, J.P. Morgan Securities Inc. and Bank of America, N.A., as Co-Syndication Agents, Morgan Stanley Senior Funding, Inc., General Electric Capital Corporation, Wachovia Bank, National Association and The Royal Bank of Scotland plc, as Co-Documentation Agents, and The Bank of New York, as Administrative Agent, and the other agents and lenders party thereto(5)
10.3A		Guarantee Agreement, dated as of October 6, 2006, among Insight Midwest Holdings, LLC, Insight Midwest, L.P., each of the subsidiaries of Insight Midwest Holdings, LLC signatory thereto, and The Bank of New York(5)
10.3B		Security Agreement, dated as of October 6, 2006, among Insight Midwest Holdings, LLC, Insight Midwest, L.P., each of the subsidiaries of Insight Midwest Holdings, LLC signatory thereto, and The Bank of New York(5)
10.4		Second Amended and Restated Operating Agreement of Insight Communications Midwest, LLC, dated as of January 5, 2001(6)
10.5		Amended and Restated Management Agreement by and between Insight Communications of Indiana, LLC (now known as Insight Communications Midwest, LLC) and Insight Communications Company, L.P., dated as of October 1, 1999(7)
10.6		First Amendment to Amended and Restated Management Agreement dated as of January 5, 2001, by and between Insight Communications Midwest, LLC and Insight Communications Company, L.P.(6)
10.7		Amended and Restated Limited Partnership Agreement of Insight Kentucky Partners II, L.P., dated as of October 1, 1999(6)
10.8		First Amendment to Amended and Restated Limited Partnership Agreement of Insight Kentucky Partners II, L.P., dated as of January 5, 2001(6)
10.9		Management Agreement by and between Insight Kentucky Partners II, L.P. and Insight Communications Company, L.P., dated as of October 1, 1999(7)
10.10		Amended and Restated Operating Agreement of Insight Communications of Central Ohio, LLC, dated as of September 29, 2003(8)
10.11		Management Agreement by and between Insight Communications of Central Ohio, LLC and Insight Communications Company, L.P., dated as of September 29, 2003(8)
10.12		Amended and Restated Limited Partnership Agreement of Insight Midwest, L.P., dated January 5, 2001(9)
10.12A		First Amendment to Amended and Restated Limited Partnership Agreement of Insight Midwest, L.P., dated September 30, 2002(10)
10.13		Indenture relating to 9¾% senior notes of Insight Midwest, L.P. and Insight Capital, Inc., dated as of October 1, 1999(11)
10.13A		First Supplemental Indenture, dated as of January 14, 2004, relating to 9¾% senior notes(12)
10.14		Indenture relating to 12.25% senior discount notes of Registrant, dated as of February 6, 2001(6)
10.14A		First Supplemental Indenture, dated as of January 14, 2004, relating to 12.25% senior discount notes(12)
10.15		Promissory Note, dated March 28, 2002, made by Insight Midwest, L.P. to the Registrant(13)

10.16		Purchase Agreement, dated July 2, 2004, between Insight Midwest Holdings, LLC and Comcast Cable Holdings, LLC and certain of its affiliates(14)
10.17		Transition and Termination Agreement, dated as of July 22, 2004, between Comcast of Montana/Indiana/Kentucky/Utah and Insight Communications Company, L.P.(15)
10.18		Form of Exchange Agreement between Registrant and certain employees(13)
10.19*		Employment agreement with Michael S. Willner, dated December 16, 2005(2)
10.20*		Employment agreement with Hamid Heidary, effective March 27, 2006(16)
10.21		Securityholders Agreement, dated as of December 16, 2005, among The Carlyle Group, the Registrant, those individuals identified as Continuing Investor Securityholders, Continuing Investor Holding Company, LLC and PH Investments(2)
10.22		Consulting Agreement, dated as of December 16, 2005 between Registrant and affiliates of The Carlyle Group(4)
14		Code of Ethics(12)
21		Subsidiaries of the Registrant(13)
31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of Insight Communications Company, Inc.
31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of Insight Communications Company, Inc.
32		Section 1350 Certifications

* Management contract or compensatory plan or arrangement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	December 31, 2006				December 31, 2005
	As restated				As restated
Assets
Cash and cash equivalents		$	43,573			$	29,782
Investments		7,000				5,901
Trade accounts receivable, net of allowance for doubtful accounts of $1,148 and $1,079 as of December 31, 2006 and 2005		31,060				27,261
Launch funds receivable		355				974
Prepaid expenses and other assets		8,473				9,645
Total current assets		90,461				73,563
Fixed assets, net		1,151,260				1,130,705
Goodwill		187,982				187,982
Franchise costs		2,361,959				2,361,959
Deferred financing costs, net of accumulated amortization of $29,473 and $24,302 as December 31, 2006 and 2005		19,053				24,220
Other non-current assets		2,941				2,287
Total assets		$	3,813,656			$	3,780,716
Liabilities and stockholders’ equity
Accounts payable		$	43,772			$	42,333
Accrued expenses and other current liabilities		45,521				45,413
Accrued property taxes		13,595				12,921
Accrued programming costs (inclusive of $30,677 and $29,878 due to related parties as of December 31, 2006 and 2005)		45,880				43,705
Deferred revenue		2,076				4,978
Interest payable		49,518				20,459
Debt—current portion		—				83,500
Total current liabilities		200,362				253,309
Deferred revenue		683				1,499
Debt		2,805,722				2,676,418
Deferred tax liability		212,648				205,011
Other non-current liabilities		—				2,382
Minority interest		245,634				251,011
Commitments and Contingencies (Note 16)
Stockholders’ equity:
Voting preferred stock, $.01 par value:
Series A—1,000,000 shares authorized; 848,945 shares issued and outstanding as of December 31, 2006 and 2005		8				8
Series B—1,000,000 shares authorized; 517,836 shares issued and outstanding as of December 31, 2006 and 2005		5				5
Non-voting preferred stock, $.01 par value:
Series C—15,000,000 shares authorized; 13,364,693 shares issued and outstanding as of December 31, 2006 and 2005		134				134
Series D—50,000,000 shares authorized; 47,015,659 shares issued and outstanding as of December 31, 2006 and 2005		470				470
Non-voting common stock, $.01 par value:
Series E—5,000,000 shares authorized; 3,536,247 and 0 shares issued and outstanding as of December 31, 2006 and 2005		35				—
Series F—100,000 shares authorized; 93,250 and 0 shares issued and outstanding as of December 31, 2006 and 2005		1				—
Voting common stock, $.01 par value:
Series G—10,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2006 and 2005		—				—
Additional paid-in-capital		826,509				829,337
Accumulated deficit		(478,861		)		(434,658		)
Accumulated other comprehensive income		306				—
Deferred stock compensation		—				(4,210		)
Total stockholders’ equity		348,607				391,086
Total liabilities and stockholders’ equity		$	3,813,656			$	3,780,716

See accompanying notes

F-4

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

	Year Ended December 31,
	2006			2005			2004
	As restated			As restated			As restated
Revenue	$	1,262,557		$	1,117,681		$	1,002,456
Operating costs and expenses:
Programming and other operating costs (exclusive of depreciation and amortization) (inclusive of $181,560, $157,643 and $150,956 of programming expense incurred through related parties during 2006, 2005 and 2004)	447,060			378,878			342,636
Selling, general and administrative (inclusive of $1,413, $17,368 and $4,438 of stock-based compensation for the years ended December 31, 2006, 2005 and 2004)	326,714			288,213			232,212
Transaction-related costs	—			61,972			—
Depreciation and amortization	270,231			247,039			239,123
Total operating costs and expenses	1,044,005			976,102			813,971
Operating income	218,552			141,579			188,485
Other income (expense):
Interest expense	(251,404		)	(226,956		)	(201,450		)
Interest income	1,787			2,895			749
Other	(10,719		)	3,541			(3,388		)
Total other expense, net	(260,336		)	(220,520		)	(204,089		)
Loss before minority interest, income taxes and extraordinary item	(41,784		)	(78,941		)	(15,604		)
Minority interest income (expense)	5,377			(5,488		)	(14,023		)
Loss before income taxes and extraordinary item	(36,407		)	(84,429		)	(29,627		)
Provision for income taxes	(7,796		)	(8,147		)	(7,756		)
Loss before extraordinary item	(44,203		)	(92,576		)	(37,383		)
Extraordinary item, net of tax	—			—			15,627
Net loss	$	(44,203	)	$	(92,576	)	$	(21,756	)

See accompanying notes

F-5

INSIGHT COMMUNICATIONS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars in thousands)

	Common Stock				Preferred Stock			Additional Paid-in Capital				Accumulated Deficit				Deferred Stock Compensation				Accumulated Other Comprehensive Income (Loss)				Total
												As restated												As restated
Balance at December 31, 2003		$	595			$	—		$	816,600			$	(320,326	)		$	(13,582	)		$	(23	)		$	483,264
Net loss													(21,756		)										(21,756		)
Unrealized loss on investments																					(279		)		(279		)
Realized gain on investments																					(386		)		(386		)
Unrealized gain on interest rate swaps																					1,010				1,010
Total comprehensive loss																									(21,411		)
Issuance of stock to 401(k) plan		1							1,309																1,310
Issuance of restricted stock		1							766								(767		)						—
Issuance of stock through stock compensation and exercise of stock options									74								32								106
Acquisition of stock in satisfaction of employee loans		(3		)					(3,660		)														(3,663		)
Mark-to-market non-cash compensation									(1,236		)						4,398								3,162
Amortization of non-cash compensation																	1,230								1,230
Balance at December 31, 2004		594				—			813,853				(342,082		)		(8,689		)		322				463,998
Net loss													(92,576		)										(92,576		)
Realized gain on investments																					(448		)		(448		)
Unrealized gain on investments																					126				126
Total comprehensive loss																									(92,898		)
Issuance of stock to 401(k) plan		2							2,563																2,565
Issuance of deferred stock units									2,322								(2,322		)						—
Issuance of restricted stock		8							9,661								(9,669		)						—
Issuance of stock through stock compensation and exercise of stock options									63								(15		)						48
Cancellation of restricted stock		(2		)					(1,933		)						1,935								—
Mark-to-market non-cash compensation									2,455								984								3,439
Amortization of non-cash compensation																	3,883								3,883
Going-private transaction adjustments		(602		)		617			353								9,683								10,051
Balance at December 31, 2005		—				617			829,337				(434,658		)		(4,210		)		—				391,086
Net loss													(44,203		)										(44,203		)
Unrealized gain on interest rate swaps																					306				306
Total comprehensive loss																									(43,897		)
Reversal of deferred compensation upon adoption of SFAS 123(R)									(4,210		)						4,210								—
Issuance of non-voting common stock		36																							36
Other									7																7
Amortization of non-cash compensation									1,375																1,375
Balance at December 31, 2006		$	36			$	617		$	826,509			$	(478,861	)		$	—			$	306			$	348,607

See accompanying notes

F-6

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

	Year Ended December 31,
	2006			2005			2004
	As restated			As restated			As restated
Operating activities:
Net loss	$	(44,203	)	$	(92,576	)	$	(21,756	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	270,231			247,039			239,123
Stock-based compensation	1,413			17,368			4,438
Non-cash consulting expense	—			45			60
Gain on sale of investments	—			(448		)	(386		)
Gain on interest rate swaps	—			(2,078		)	(36		)
Loss on early extinguishments of debt	—			—			127
Minority interest	(5,377		)	5,488			14,023
Provision for losses on trade accounts receivable	18,554			17,619			18,301
Contribution of stock to 401(k) Plan	—			2,565			1,309
Amortization of note discount	6,950			38,755			34,931
Deferred income taxes	7,637			7,647			7,256
Changes in operating assets and liabilities, net of acquisitions:
Trade accounts receivable	(22,353		)	(13,525		)	(20,343		)
Launch funds receivable	619			1,775			6,672
Prepaid expenses and other assets	745			2,238			6,011
Accounts payable	1,439			10,447			1,469
Interest payable	29,059			(184		)	(2,672		)
Accrued expenses and other liabilities	(765		)	(8,602		)	1,387
Net cash provided by operating activities	263,949			233,573			289,914
Investing activities:
Purchase of fixed assets	(286,389		)	(220,102		)	(174,096		)
Sale of fixed assets	857			2,113			1,913
Purchase of intangible assets	—			—			(107		)
Purchase of investments	(1,099		)	(1,801		)	(1,856		)
Sale of investments	—			1,079			602
Net cash used in investing activities	(286,631		)	(218,711		)	(173,544		)
Financing activities:
Proceeds from borrowings under old credit facilities	85,000			—			—
Repayment of old credit facilities	(1,489,250		)	(83,500		)	(68,250		)
Repayment of notes	(815,000		)	—			(8,134		)
Debt refinancing costs	(30,282		)	(1,733		)	(14		)
Proceeds from borrowings under new credit facilities	2,286,000			—			—
Other	5			9			—
Net cash provided by (used in) financing activities	36,473			(85,224		)	(76,398		)
Net change in cash and cash equivalents	13,791			(70,362		)	39,972
Cash and cash equivalents, beginning of year	29,782			100,144			60,172
Cash and cash equivalents, end of year	$	43,573		$	29,782		$	100,144

See accompanying notes

F-7

INSIGHT COMMUNICATIONS COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. 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 operating subsidiaries, Insight Communications Midwest, LLC (“Insight Communications Midwest”), Insight Kentucky Partners II, L.P. (“Insight Kentucky”) and Insight Communications of Central Ohio, LLC (“Insight Ohio”), owns and operates cable television systems in Illinois, Indiana, Kentucky and Ohio which passed approximately 2.5 million homes and has approximately 1.4 million customer relationships as of December 31, 2006.

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

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

Our consolidated financial statements have been restated to correct the previously reported income tax provision which is more fully described in Note 2, “Restatement of Consolidated Financial Statements”.

2. Restatement of Consolidated Financial Statements

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

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

F-8

financial statements for years prior to 2004, the correction resulted in an aggregate increase in net loss of $73.9 million. In addition, goodwill should have been higher by $115.6 million as of December 31, 2006 and 2005. The correction had no effect on our revenues, operating income, cash flows or liquidity for any period.

The effects of this change on the consolidated balance sheets as of December 31, 2006 and 2005, and the consolidated statements of operations and cash flows for the three years ended December 31, 2006 are summarized as follows (in thousands):

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

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

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

F-9

3. Significant Accounting Policies

Basis of Consolidation

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

Revenue Recognition

Revenue is earned from customer fees for cable television video services including basic, classic, digital, premium, video-on-demand and ancillary services, such as rental of converters, remote control devices and installations. Installation revenues obtained from the connection of customers to our cable systems are less than related direct installation costs. Therefore, such revenues are recognized as connections are completed. In addition, we earn revenues from providing high-speed Internet services, selling advertising, providing telephone services, commissions for products sold through home shopping networks, and, through July 2004, management fees. Revenue is recorded in the month the related services are rendered. Fees received during 2004 for activation of telephone services are amortized over the customer relationship period, generally three years (see Note 14 “Related Party Transactions”).

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management 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.

Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying amounts of our cash equivalents approximate their fair values.

Investments

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

Fixed Assets

F-10

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

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

Franchise Costs and Goodwill

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

According to guidance prescribed in Emerging Issues Task Force (“EITF”) Issue No. 02-7, Unit of Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets, single units of accounting operated as a single asset and essentially inseparable from each other, should be combined as a single asset group for purposes of impairment testing. Management has identified three asset groups based on cable system management, geographic clustering and management’s belief that such grouping represents the best use of those assets.

Additionally, during September 2004, the SEC staff issued Topic D-108, Use of the Residual Method to Value Acquired Assets Other than Goodwill, which requires the direct method of separately valuing all non-goodwill intangible assets and does not permit goodwill to be included in franchise assets. In connection with adopting SFAS No. 142 and Topic D-108 and based on guidance from EITF Issue No. 02-7, we performed an impairment assessment using an independent third-party appraiser for the three asset groups identified. We determined that, as of October 1, 2006 and 2005, there had been no impairment to our franchise costs.

Deferred Financing Costs

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

Stock-Based Compensation

Prior to January 1, 2006, we accounted for our share-based compensation plans in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), as permitted by SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), and accordingly did not recognize compensation expense for stock options with an exercise price equal to or greater than the market price of the underlying stock at the date of grant.

Effective January 1, 2006, we adopted SFAS No. 123R, Share-Based Payment (“SFAS No. 123(R)”), using the modified prospective transition method to record stock-based compensation expense; therefore, prior period results were not restated. SFAS 123(R) requires all share-based payments to employees to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values (see Note 11 “Capital Stock, Stock Option Plan and Other Stock Based Compensation”). In connection with the adoption of SFAS 123(R) we reclassified

F-11

our deferred stock compensation balance within stockholders’ equity to additional paid-in capital. The adoption of SFAS 123(R) did not materially impact our statement of operations.

Comprehensive Income

We own certain investments that are classified as available-for-sale and reported at market value, with net unrealized gains and losses recorded as components of comprehensive income. Additionally, we record the effective portion of certain derivatives’ net unrealized gains as components of comprehensive income. Comprehensive income is presented in the accompanying consolidated statements of changes in stockholders’ equity. The cumulative amount of comprehensive income is presented in the accompanying consolidated balance sheets as accumulated other comprehensive income.

Income Taxes

Deferred income taxes are provided for using the liability method. Under this approach, differences between the financial statements and tax bases of assets and liabilities are determined annually, and deferred income tax assets and liabilities are recorded for those differences that have future tax consequences. Valuation allowances are established, if necessary, to reduce deferred tax assets to an amount that will more likely than not be realized in future periods. Income tax expense is comprised of the current tax payable or refundable for the period plus or minus the net change in deferred tax assets and liabilities.

Marketing and Promotional Costs

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

Recent Accounting Pronouncements

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

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

In June 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). EITF 06-3 provides that the presentation of taxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer on either a gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. The provisions of EITF 06-3 will be effective for us as of January 1, 2007. We do not expect EITF 06-3 to have a material impact on our consolidated financial statements.

F-12

In July 2006, FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years ending after December 15, 2006 or calendar year 2006 for us. Upon completing our evaluation of the requirements of FIN 48, we determined it did not affect our consolidated financial statements.

Reclassifications

Reclassifications have been made to the prior years’ financial statements to conform to those classifications used in 2006.

4. Insight Midwest

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

Indiana Systems

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

Kentucky Systems

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

Illinois Systems

Effective January 1, 2001, Insight Midwest completed a series of transactions with Insight LP and AT&T Broadband 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.

In connection with the systems Insight LP purchased from AT&T Broadband that included approximately 105,000 customers, we recorded the purchased systems’ respective assets and liabilities, including debt incurred in connection with the purchase, at their respective fair values. The purchase price

F-13

of $393.5 million was allocated to the cable television assets acquired in relation to their fair values as increases in fixed assets of $52.3 million and franchise costs of $341.2 million.

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

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

Both Insight LP and AT&T Broadband 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. The total debt assumed by Insight Midwest of $654.5 million was financed with the proceeds from the Midwest Holdings Credit Facility. Upon completion of the transactions, Insight Indiana changed its name to Insight Communications Midwest.

Ohio Systems

On August 21, 1998, Insight LP and Coaxial Communications of Central Ohio, Inc. (“Coaxial”) entered into a contribution agreement pursuant to which Coaxial contributed to Insight Ohio substantially all of the assets and liabilities of its cable television systems located in Columbus, Ohio.

On September 29, 2003, we retired all remaining Ohio obligations, comprised of Senior Notes and Senior Discount Notes, through our refinancing of the Insight Midwest Holdings Credit Facility. Insight Ohio is now a restricted subsidiary under the terms of our indentures. We recorded a loss of $10.9 million on the extinguishment of these obligations as a result of call premiums and the write-off of deferred financing costs.

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

5. Investments

Promptu

Promptu (formerly AgileTV Corporation) is a privately owned company that develops voice navigation services for television and mobile devices.

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

F-14

Oxygen Cable, LLC

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

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

6. Fixed Assets

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

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

7. Debt

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

Insight Midwest Holdings $2.445 Billion Credit Facility

Insight Midwest Holdings, LLC, a wholly owned subsidiary of Insight Midwest, holds all of the outstanding equity of each of our operating subsidiaries and, on October 6, 2006, entered into a new

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$2.445 billion senior secured credit facility. The facility is comprised of a $385.0 million A Term Loan scheduled to mature on October 6, 2013, a $1.8 billion B Term Loan scheduled to mature on April 6, 2014 and $260.0 million in revolving commitments scheduled to terminate on October 6, 2012. Insight Midwest Holdings used the proceeds to refinance its existing senior credit facility and to redeem a portion of the outstanding Senior Notes of Insight Midwest (see below).

On March 28, 2002, we loaned $100.0 million to Insight Midwest. The loan to Insight Midwest bears annual interest of 9%, compounded semi-annually, has a scheduled maturity date of January 31, 2011 and permits prepayments. Insight Midwest Holdings is permitted under the credit facility to make distributions to Insight Midwest for the purpose of repaying our loan, including accrued interest, provided that there are no defaults existing under the credit facility. During the third and fourth quarters of 2006, Insight Midwest repaid a total of $15.5 million of the loan balance. As of December 31, 2006 and December 31, 2005, the balance of the $100.0 million loan, including accrued interest, was $136.1 million and $139.1 million.

Insight Midwest Senior Notes

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

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

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

On November 7, 2006, Insight Midwest Holdings used a portion of the proceeds from the new $2.445 billion senior secured credit facilities to redeem all $630.0 million outstanding principal amount of Insight Midwest’s 10½% Senior Notes due November 1, 2010 at a redemption price of 103.5% of the principal amount and $185.0 million principal amount of Insight Midwest’s total outstanding $385.0 million of the 9¾% Senior Notes due October 1, 2009 at a redemption price of 101.625% of the principal amount redeemed, plus accrued and unpaid interest. We recorded $1.7 million in other expenses in these transactions.

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

Insight Inc. 121¤4% Senior Discount Notes

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

No cash interest on the discount notes accrued prior to February 15, 2006. Thereafter, cash interest on the discount notes began to accrue and is payable on February 15 and August 15 of each year. The initial accreted value of the discount notes increased until February 15, 2006 such that the accreted value equaled the revised outstanding principal amount of $350.0 million on December 31, 2006.

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

Debt Principal Payments

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

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

8. Derivative Instruments

We enter into derivative instruments, typically interest-rate swap agreements, to modify the interest characteristics of our outstanding debt to either a floating or fixed rate basis. These agreements involve fixed rate interest payments in exchange for floating rate interest receipts, known as cash flow hedges, and floating rate interest payments in exchange for fixed rate interest receipts, known as fair value hedges, 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 non-current liabilities or assets.

Gains and losses related to cash flow hedges that are determined to be effective hedges are recorded as accumulated other comprehensive income or loss in the accompanying consolidated balance sheets. Gains and losses related to fair value hedges that are determined to be effective hedges are recorded in the consolidated statements of operations as an adjustment to the swap instrument and an equal and offsetting adjustment to the carrying value of the underlying debt. Gains and losses related to interest rate swaps that are determined not to be effective hedges and do not qualify for hedge accounting are recorded in our consolidated statements of operations as other income or expense.

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Fair Value Hedges

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

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

Cash Flow Hedges

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

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

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

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

9. Supplemental Cash Flow Information

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

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

10. Income Taxes—Restated See Note 2

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

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Significant components of our deferred tax assets and liabilities consisted of the following (in thousands):

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

As of December 31, 2006, a valuation allowance has been provided against deferred tax assets net of deferred tax liabilities that are expected to reverse during the periods that the deferred tax assets will reverse. The valuation allowance was established because of the uncertainty of realization of the deferred tax assets due to lack of sufficient history of generating taxable income. Realization is dependent upon generating sufficient taxable income prior to the expiration of the net operating loss carryforwards in future periods. Although realization is not currently assured, management evaluates the need for a valuation allowance each quarter, and in the future, should management determine that realization of net deferred tax assets is more likely than not, some or all of the valuation allowance will be reversed, and our effective tax rate may be reduced as a result of such reversal. The valuation allowance increased by approximately $21.8 million for the year ended December 31, 2006.

The reconciliation of income tax expense computed at the U.S. federal statutory rate to income tax expense for the years ended December 31, 2006, 2005 and 2004 were as follows (in thousands):

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

As of December 31, 2006, we had a net operating loss carry-forward of approximately $571.2 million for U.S. federal income tax purposes. Such losses may be subject to certain annual limitations imposed by Section 382 of the Internal Revenue Code and similar state provisions. Our net operating loss began

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

In October 2004, the American Jobs Creation Act of 2004 (the “Act”) became effective. The Act made changes to the income tax laws that affected us beginning in 2005, the most significant of which is a new deduction relating to qualifying domestic production activities. The deduction is equal to 3% of qualifying income for 2005 and 2006, 6% in 2007 through 2009, and by 2010, 9% of such income. We did not derive any benefits from this law change in 2006 or 2005.

11. Capital Stock, Stock Option Plan and Other Stock Based Compensation

2005 Stock Incentive Plan

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

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

Liquidation and Distribution Rights

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

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

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

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

· Fourth, 95% of the remaining assets will be distributed to holders of the Series C Non-Voting Preferred Stock and the Series D Non-Voting Preferred Stock and, as of and following such time as such distributions reach certain levels that cause participation levels for particular shares of the

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Series E Non-Voting Common Stock to be achieved, to holders of such shares of the Series E Non-Voting Common Stock for which participation levels have been achieved, in proportion to the number of such shares held by each holder, and 5% to holders of the Series F Non-Voting Common Stock in proportion to the number of such shares held by each holder, until the Series D Non-Voting Preferred Stock has received an internal rate of return on capital invested therein equal to 15% per annum, compounded annually.

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

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

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

Distributions other than upon liquidation will be made in accordance with the first three distribution priorities above, but no cash or other assets may be distributed in excess of the amount that would complete the distributions contemplated by such priorities without the consent of a majority in interest of the holders of the Series F Non-Voting Common Stock. If such consent is granted, additional distributions will continue to be made as specified in the third priority notwithstanding that they would increase the internal rate of return beyond 10%, provided that distributions made thereafter upon a liquidation will be adjusted to cause the aggregate distributions to conform to the complete order of priority set forth above.

1999 Equity Incentive Plan

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

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Stock Options

As of the effective time of the merger, each option to purchase Insight common stock (whether vested or unvested) outstanding immediately prior to the effective time of the merger was canceled in exchange for the right to receive a cash payment equal to the product of (A) the excess, if any, of (i) $11.75, over (ii) the per share exercise price of the stock option, multiplied by (B) the number of shares of Insight common stock covered by the stock option.

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

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

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

	Year Ended December 31,
	2005			2004
	As restated			As restated
Net loss as reported	$	(92,576	)		$	(21,756	)
Add: Stock-based compensation as reported	17,368				4,438
Deduct: Stock-based compensation determined under fair value based method for all awards, net of tax	(42,954		)		(9,887		)
Adjusted net loss	$	(118,162	)		$	(27,205	)

Other Stock Based Compensation

Restricted Stock

In 2005 and 2004, we issued to employees 828,141 and 90,000 shares of common stock in the form of restricted stock. The restricted stock provided for vesting over a five-year period and were issued in the name of the employee on the date of grant and held by us until the shares vested. For the years ended December 31, 2005 and 2004 we recorded stock based compensation expense of $3.1 million and $471,000, which was being amortized on a straight-line basis over the vesting term.

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

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Deferred Stock Units

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

At the effective time of the merger, we adjusted each of the deferred stock unit agreements so that, upon delivery at the end of the deferral period, the holder of each deferred stock unit will be entitled to receive one share of Series C Non-Voting Preferred Stock of the surviving corporation for each share of Insight Class A common stock that the holder otherwise would have been entitled to receive prior to the adjustment. We also amended the agreements evidencing the deferred stock units to provide that the deferral period will end on the earlier of i) a change of control or ii) upon the later to occur of December 16, 2010 or the employee’s termination of employment. Any deferred stock units that remained unvested at the effective time of the merger will continue to vest according to the schedule set forth in the applicable agreement evidencing the grant of such deferred stock units.

Employee Loans

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

As of December 31, 2004, each of the individuals with a loan obligation accepted the offer and surrendered an aggregate of 395,210 shares of common stock in repayment of $3.7 million (based on the closing price of our Class A common stock on such date of $9.27 per share) of the aggregate $4.3 million of loans and accrued interest. The remaining balance of the loans were cancelled and recorded as compensation expense during the fourth quarter of 2004. On May 3, 2005, following shareholder approval of an amendment to our 1999 Equity Incentive Plan to increase the number of shares available thereunder for issuance, the employees and former employees were issued an aggregate of 825,641 shares of restricted stock referred to as “Loan Program Exchange Shares.” The issuance of these Loan Program Exchange Shares were recorded during the three months ended June 30, 2005.

As of the effective time of the merger, vesting conditions on the Loan Program Exchange Shares were waived. Holders of Loan Program Exchange Shares contributed a portion of their Loan Program Exchange Shares to Insight Acquisition Corp. and in connection with the merger received a corresponding number of shares of Series C non-voting preferred stock. The balance of the Loan Program Exchange Shares were converted into the right to receive the merger consideration of $11.75 per share.

12. Financial Instruments

Concentrations of Credit Risk

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

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Fair Value

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

Cash equivalents and accounts receivable: The carrying amount reported in the consolidated balance sheets for cash equivalents and accounts receivable approximates fair value.

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

	Fair Value at December 31, 2006			Fair Value at December 31, 2005
	(in thousands)
Insight Midwest 9¾% Senior Notes		$	203,000		$	394,600
Insight Midwest 10½% Senior Notes		—			659,100
Insight Inc. 12¼% Senior Discount Notes		366,625			365,300

Interest rate swap agreements: Interest rate swap agreements are recorded in our financial statements at fair value. The fair value, (cost, if terminated) of such swap agreements was $306,000 million and $(2.4) million as of December 31, 2006 and 2005.

13. Minority and Preferred Interests

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

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

The Insight Midwest partnership was formed in September 1999 to serve as the holding company and a financing vehicle for our cable television system 50/50 joint venture with an indirect subsidiary of AT&T Broadband (now known as Comcast Cable). The results of the partnership are included in our consolidated financial statements since we as general partner effectively control Insight Midwest’s operating and financial decisions. The partnership will continue until October 1, 2011 unless extended or terminated earlier in accordance with the provisions of the Insight Midwest partnership agreement.

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

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14. Related Party Transactions

Managed Systems

On March 17, 2000, we entered into a management agreement with Comcast of Montana/Indiana/Kentucky/Ohio (“Comcast”) (formerly known as InterMedia Partners Southeast), an affiliate of Comcast Cable, to provide management services to cable television systems owned by Comcast. Effective July 31, 2004, the management agreement was terminated by mutual agreement. We recognized management fees in connection with this agreement of $1.4 million for the year ended December 31, 2004.

Programming

We purchase the majority of our programming through affiliates of Comcast Cable. Charges for such programming, including a 1½% administrative fee, were $181.6 million, $157.6 million and $151.0 million for the years ended December 31, 2006, 2005 and 2004. As of December 31, 2006 and 2005, $30.7 million and $29.9 million of accrued programming costs were due to affiliates of Comcast Cable. We believe that the programming rates charged through these affiliates are lower than those available from independent parties.

Telephone Agreements

Prior to December 31, 2004, to facilitate delivery of telephone services, we were party to a joint operating agreement with Comcast Cable that allowed Insight Midwest to deliver to its residential customers, in certain of its service areas, local telephone service provided by Comcast Cable. Under the terms of the agreement, Insight Midwest leased certain capacity on our local network to Comcast Cable. Revenue earned from leased network capacity used in the provision of telephone services was $8.5 million for the year ended December 31, 2004. In addition, Insight Midwest received additional payments related to certain services and support, including installations, marketing and billing. Fee revenue earned in connection with installations was deferred and amortized over the expected term a telephone customer was expected to maintain their telephone service, then estimated to be three years. Marketing and billing support revenue was recognized in the period such services were performed.

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

Advertising Services

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

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Consulting Services

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

15. 401(k) Plan

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

16. 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

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

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

On December 1, 2006, the Court ruled that (i) the action should be certified as a class action; (ii) the settlement of the litigation be approved as fair, reasonable and adequate; (iii) plaintiffs’ request for attorneys’ fees and expenses of $1.2 million should be granted; and (iv) the withdrawn objection was not meritorious. On the same day, the Court also entered an order and final judgment, which, among other

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things, approved the settlement of the litigation, dismissed the litigation with prejudice, and released the claims asserted in the litigation. The time for appeal of the Court’s decision has expired.

In April 2005, Acacia Media Technologies Corporation filed a lawsuit against us and others in the United States District Court for the Southern District of New York. The complaint alleges, among other things, infringement of certain United States patents that allegedly relate to systems and methods for transmitting and/or receiving digital audio and video content. The complaint seeks injunctive relief and damages in an unspecified amount. In the event that a court ultimately determines that we infringe on any of the patents, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to materially modify certain products and services that we currently offer to subscribers. We believe that the claims are without merit and intend to defend the action vigorously. The final disposition of this claim is not expected to have a material adverse effect on our consolidated financial position but could possibly be material to our consolidated results of operations of any one period. Further, at this time the outcome of the litigation is impossible to predict, and no assurance can be given that any adverse outcome would not be material to our consolidated financial position.

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.

Lease Agreements

We lease equipment and office space under various operating lease arrangements expiring through February 24, 2101. Future minimum rental payments required under such operating leases as of December 31, 2006 were (in thousands):

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

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

17. Quarterly Selected Financial Data (Unaudited) (dollars in thousands)

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

	Three months ended														Year ended
2006	March 31			June 30			September 30				December 31				December 31, 2006
	As Restated
Revenue	$	301,281		$	311,717			$	318,105			$	331,454			$	1,262,557
Operating income	47,389			49,894				55,811				65,458				218,552
Net loss	(12,728		)	(10,804		)		(9,637		)		(11,034		)		(44,203		)

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

	Three months ended														Year ended
2005	March 31			June 30			September 30				December 31				December 31, 2005
	As Restated
Revenue	$	269,327		$	279,311			$	278,986			$	290,057			$	1,117,681
Operating income (loss)	44,710			59,611				51,078				(13,820		)		141,579
Net loss	(10,254		)	(2,640		)		(9,287		)		(70,395		)		(92,576		)

18. Subsequent Event

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

F-28

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

	/s/ Ernst & Young LLP
New York, New York
March 6, 2007, except for the
effects of the material weakness
described in the sixth paragraph
of this report, as to which the date is
August 14, 2007

	/s/ Ernst & Young LLP
New York, New York
March 6, 2007, except for
Note 2 as to which the date is
August 14, 2007

	INSIGHT COMMUNICATIONS COMPANY, INC.
Date: August 15, 2007	By:	/s/ MICHAEL S. WILLNER
		Michael S. Willner,
		Vice Chairman and Chief Executive Officer

	Name		Title		Date
/s/ SIDNEY R. KNAFEL		Chairman of the Board		August 15, 2007
Sidney R. Knafel
/s/ MICHAEL S. WILLNER		Vice Chairman, Chief Executive		August 15, 2007
Michael S. Willner		Officer and Director (Principal Executive Officer)
/s/ DINNI JAIN		President, Chief Operating		August 15, 2007
Dinni Jain		Officer and Director
/s/ JOHN ABBOT		Executive Vice President and Chief		August 15, 2007
John Abbot		Financial Officer (Principal Financial Officer)
/s/ DANIEL MANNINO		Senior Vice President and		August 15, 2007
Daniel Mannino		Chief Accounting Officer
		(Principal Accounting Officer)
/s/ JAMES A. ATTWOOD, JR.		Director		August 15, 2007
James A. Attwood, Jr.
/s/ MICHAEL J. CONNELLY		Director		August 15, 2007
Michael J. Connelly
/s/ STEPHEN C. GRAY		Director		August 15, 2007
Stephen C. Gray
/s/ AMOS B. HOSTETTER, JR.		Director		August 15, 2007
Amos B. Hostetter, Jr.
/s/ WILLIAM E. KENNARD		Director		August 15, 2007
William E. Kennard
/s/ GERALDINE B. LAYBOURNE		Director		August 15, 2007
Geraldine B. Laybourne

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