-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NDV9eFMOwoEHNG5U4sKZQmMUxt6nviDsCkfIuLt2Olt21hRkNHz/B53IiHNzrJVC hkJBAYOZzj+hsuNHdfi9fg== /in/edgar/work/20000811/0000940180-00-000983/0000940180-00-000983.txt : 20000921 0000940180-00-000983.hdr.sgml : 20000921 ACCESSION NUMBER: 0000940180-00-000983 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT MIDWEST LP CENTRAL INDEX KEY: 0001110458 STANDARD INDUSTRIAL CLASSIFICATION: [4841 ] IRS NUMBER: 134079232 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-33540 FILM NUMBER: 694977 BUSINESS ADDRESS: STREET 1: C/O INSIGHT COMMUNICATIONS COMPANY INC STREET 2: 126 EAST 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123712266 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT CAPITAL INC CENTRAL INDEX KEY: 0001110456 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 134079679 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-33540-01 FILM NUMBER: 694978 BUSINESS ADDRESS: STREET 1: C/O INSIGHT COMMUNICATIONS COMPANY INC STREET 2: 126 EAST 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123712266 10-Q 1 0001.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2000 Commission file numbers 333-33540 333-33540-1 _______________________ INSIGHT MIDWEST, L.P. INSIGHT CAPITAL, INC. (Exact name of registrants as specified in their charters) Delaware 13-4079232 Delaware 13-4079679 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.'s) 810 7th Avenue New York, New York 10019 (Address of principal executive offices) (Zip code) Registrants telephone number, including area code: 917-286-2300 _______________________ Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the registrants' classes of common stock, as of the latest practicable date. Insight Midwest, L.P.--not applicable Insight Capital, Inc.--not applicable =============================================================================== PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes required by generally accepted accounting principles. However, in the opinion of management, all adjustments, consisting only of normal recurring accruals necessary for a fair presentation of the results of operations for the relevant periods have been made. Results for the interim periods are not necessarily indicative of the results to be expected for the year. These financial statements should be read in conjunction with the summary of significant accounting policies and the notes to the consolidated financial statements included in the Company's Registration Statement on Form S-4. 1 INSIGHT MIDWEST, L.P. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, June 30, 1999 2000 ---------------- --------------- (unaudited) ASSETS Cash and cash equivalents............................................ $ 35,996 $ 18,162 Trade accounts receivable (net of allowance for doubtful accounts of: December 1999, $735; June 2000, $722)........................... 15,643 14,100 Prepaid expenses and other current assets............................ 6,976 5,930 ---------------- --------------- Total current assets.......................................... 58,615 38,192 Fixed assets, (net of accumulated depreciation of: December 1999, $87,978; June 2000, $139,816)....................................... 596,246 630,949 Intangible assets (net of accumulated amortization of: December 1999, $55,690; June 2000, 98,032)................................... 1,032,553 991,650 Deferred financing costs, net of amortization........................ 19,185 19,007 ---------------- --------------- Total assets.................................................. $1,706,599 $1,679,798 ================ =============== LIABILITIES AND PARTNERS' CAPITAL Accounts payable..................................................... $ 59,406 $ 49,949 Accrued expenses and other assets.................................... 26,029 18,813 Interest payable..................................................... 19,397 20,384 Due to affiliates.................................................... 1,220 2,937 ---------------- --------------- Total current liabilities..................................... 106,052 92,068 Debt................................................................. 1,232,000 1,281,000 ---------------- --------------- Total liabilities............................................. 1,338,052 1,373,068 Partners' Capital.................................................... 368,547 306,715 ---------------- --------------- $1,706,599 $1,679,798 ================ ===============
See accompanying notes 2 INSIGHT MIDWEST, L.P. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) (unaudited)
Three months ended June 30, Six months ended June 30, --------------------------------- ------------------------------- 1999 2000 1999 2000 ----------------- ------------ --------------- -------------- Revenue................................... $ 36,116 $ 94,734 $ 71,744 $187,237 Costs and expenses: Programming and other operating costs.... 9,735 33,528 20,177 64,864 Selling, general and administrative...... 6,924 14,487 13,651 32,085 Management fees.......................... 1,112 2,737 2,214 5,415 Depreciation and amortization............ 21,421 48,052 43,440 94,180 -------------- ------------ ------------- -------------- 39,192 98,804 79,482 196,544 -------------- ------------ ------------- -------------- Loss from operations..................... (3,076) (4,070) (7,738) (9,307) Other income (expense): Interest expense, net.................... (8,538) (26,899) (16,767) (52,598) Other income............................. 17 44 21 73 -------------- ------------ ------------- -------------- Net loss.................................. $(11,597) $(30,925) $(24,484) $(61,832) ============== ============ ============= ==============
See accompanying notes 3 INSIGHT MIDWEST, L.P. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended June 30, ----------------------------------- 1999 2000 ------------ ------------ Operating activities: Net loss.......................................................... $(24,484) $(61,832) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization................................... 43,440 94,180 Provision for losses on trade accounts receivable............... 746 3,028 Changes in operating assets and liabilities: Trade accounts receivable.................................... 1,656 (1,485) Due from and to affiliates................................... (563) 1,717 Prepaid expenses and other assets............................ (1,056) 1,047 Accounts payable............................................. 10,039 (9,456) Accrued expenses and other liabilities....................... 440 (7,217) Interest payable............................................. (353) 987 ------------- ------------- Net cash provided by operating activities.......................... 29,865 20,969 ------------- ------------- Investing activities: Purchases of fixed assets....................................... (31,144) (86,542) Increase in intangible assets................................... (4,216) (1,261) ------------- ------------- Net cash used in investing activities.............................. (35,360) (87,803) ------------- ------------- Financing activities: Borrowings from bank credit facility............................ 6,000 49,000 ------------- ------------- Net cash provided by financing activities.......................... 6,000 49,000 ------------- ------------- Net increase (decrease) in cash and cash equivalents............... 505 (17,834) Cash and cash equivalents at beginning of period................... 19,493 35,996 ------------- ------------- Cash and cash equivalents at end of period......................... $ 19,998 $ 18,162 ------------- -------------
See accompanying notes 4 INSIGHT MIDWEST, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 A. Organization Insight Midwest, L.P. ("Insight Midwest" or the "Company") was formed in September 1999 to serve as the holding company and a financing vehicle for Insight's cable television system joint ventures with an affiliate of AT&T Broadband, LLC (formerly Tele-Communications, Inc.) ("AT&T Broadband"). Insight Midwest is owned 50% by Insight Communications Company, Inc. ("Insight Inc."), through its subsidiary Insight Communications Company, L.P. ("Insight L.P."), and 50% by TCI of Indiana Holdings, LLC ("TCI"), an indirect subsidiary of AT&T Broadband. On October 1, 1999 Insight Midwest issued $200.0 million of 9 3/4% Senior Notes due 2009 with Insight Capital, Inc., as co-issuer, a wholly-owned subsidiary of Insight Midwest. On October 1, 1999 the Indiana and Kentucky systems and operations were consolidated under Insight Midwest, as described further below. Through its operating subsidiaries Insight Indiana and Insight Kentucky (defined below), Insight Midwest owns and operates cable television systems in Indiana and Kentucky which passed approximately 1.2 million homes and served approximately 734,000 customers as of June 30, 2000. Insight Indiana On October 31, 1998 Insight L.P. and TCI contributed certain of their cable television systems located in Indiana and Northern Kentucky (the "Indiana systems") to Insight Communications of Indiana, LLC ("Insight Indiana") in exchange for 50% equity interests therein. The cable television systems contributed to Insight Indiana by Insight L.P. included the Jasper and Evansville systems that were acquired by Insight L.P. from TCI on October 31, 1998 and the Noblesville, Jeffersonville and Lafayette systems already owned by Insight L.P. (the "Insight Contributed Systems"). Insight L.P. entered into a management agreement with Insight Indiana, pursuant to which Insight L.P. agreed to manage the Indiana systems for an annual fee of 3% of the gross revenues of the Indiana systems. On October 1, 1999, as part of a joint venture restructuring, Insight Indiana became a wholly-owned subsidiary of Insight Midwest and amended its management agreement with Insight L.P., confirming the 3% management fee. In addition to managing the day-to-day operations of the Indiana systems, Insight L.P. is the general partner and therefore effectively controls Insight Midwest. Therefore, subject to certain matters that require TCI's approval as specified in Insight Midwest's partnership agreement, Insight L.P. controls Insight Indiana, including all of the operating and financial decisions pertaining to the Indiana systems. Pursuant to their terms of respective governing agreements, the terms of Insight Midwest and Insight Indiana will continue for twelve years through October 1, 2011, unless extended by Insight L.P. and TCI. Insight Indiana's systems passed approximately 502,000 homes and served approximately 316,000 customers as of June 30, 2000. 5 INSIGHT MIDWEST, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 A. Organization (continued) Insight Kentucky On October 1, 1999, Insight, L.P. acquired a combined 50% interest in InterMedia Capital Partners VI, L.P. (the "IPVI Partnership") from related parties of Blackstone Cable Acquisition Company, LLC, related parties of InterMedia Capital Management VI, LLC and a subsidiary and related party of AT&T Broadband, for approximately $341.5 million (inclusive of expenses) and Insight Midwest assumed debt of approximately $742.1 million. The IPVI Partnership, through several intermediary partnerships, owned and operated cable television systems in four major markets in Kentucky: Louisville, Lexington, Bowling Green and Covington (the "Kentucky systems"). On October 1, 1999, concurrently with this acquisition, the Kentucky systems were contributed to Insight Midwest. As a result of the IPVI Partnership's historical ownership structure, the Kentucky systems are owned and operated by Insight Kentucky Partners II, L.P. ("Insight Kentucky"), a third-tier subsidiary partnership of Insight Midwest. Also on October 1, 1999, Insight L.P. entered into a management agreement with Insight Kentucky, pursuant to which Insight L.P. manages the Kentucky systems in consideration for a 3% management fee. Similar to Insight Indiana, subject to certain matters that require TCI's approval as specified in Insight Midwest's partnership agreement, Insight L.P. effectively controls Insight Kentucky, including all of the operating and financial decisions pertaining to the Kentucky systems. Insight Kentucky and each of the other Kentucky partnerships also have twelve-year terms through October 1, 2011, unless extended by Insight L.P. and TCI. The assets of Insight Kentucky have been valued based on the purchase price and have been preliminarily allocated between fixed and intangible assets based on management's evaluation of each individual operating system including such factors as the age of the cable plant, the progress of rebuilds and franchise relations. This resulted in a step-up in the carrying values of fixed assets of approximately $160.3 million and intangible assets of approximately $272.1 million. Fixed assets are being depreciated over their estimated useful lives and intangible assets are amortized over 15 years. Insight Kentucky's systems passed approximately 709,000 homes and served approximately 418,000 customers as of June 30, 2000. 6 INSIGHT MIDWEST, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 B. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Company's financial statements and footnotes thereto for the year ended December 31, 1999, included in the Company's Registration Statement on Form S-4. C. Significant Accounting Policies Recent Accounting Policies In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 will require the company to recognize all derivatives on the balance sheet at fair value. Although management has not completed its assessment of the impact of this standard on its results of operations and financial position, management does not anticipate that the adoption of this statement will be material. Change in Estimate Effective January 1, 2000 the Company changed the estimated useful lives of fixed assets which related to the Company's current rebuild program. The changes in estimated useful lives were made to reflect managements' evaluation of the economic lives of the newer rebuilt plant. This change was made on a prospective basis and resulted in an increase in net income for the three and six months ended June 30, 2000 of approximately $3.8 and $6.8 million, respectively. 7 INSIGHT MIDWEST, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 D. Pro Forma Results of Operations (unaudited) The pro forma unaudited results of operations for the period ended June 30, 1999 assuming the acquisition of the IPVI Partnership had been consummated on January 1, 1999, follows (in thousands): Revenues $175,276 Net loss 72,945 E. Commitments and Contingencies The Company is a party to or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either the Company's future results of operations or financial position. F. Recent Developments Greenwood Letter of Intent On March 21, 2000, Insight Midwest entered into a letter of intent with Cable One, Inc., a subsidiary of The Washington Post Company, for the acquisition of a cable television system serving approximately 16,000 customers in Greenwood, Indiana. The acquisition of the Greenwood system would occur upon completion of a proposed trade of systems between Cable One and AT&T Broadband. The transaction is subject to the negotiation and execution of definitive agreements. Telephony Agreements On July 17, 2000, Insight Indiana, Insight Kentucky and other affiliates of Insight Inc. entered into definitive agreements with AT&T Broadband, LLC for the provision by AT&T Broadband of all-distance telephone service utilizing the cable systems' infrastructure under the AT&T brand name. Telephony revenues are to be attributed to AT&T Broadband who, in turn, will pay the cable affiliate a monthly per line access fee. AT&T Broadband will also pay the cable affiliate for marketing, installation and billing support. AT&T Broadband would be required to install and maintain the necessary switching equipment, and would be the local exchange carrier of record. It is expected that the cable affiliates will market the telephone services both independently and as part of a bundle of services. 8 INSIGHT MIDWEST, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 Expansion of Insight Midwest On March 23, 2000, Insight entered into a letter of intent with AT&T Broadband for the contribution to Insight Midwest of additional cable television systems serving approximately 537,000 customers. Initially, Insight will exchange its Claremont, California system for a system in Freeport, Illinois. Insight will also purchase from AT&T Broadband systems serving approximately 100,000 customers in North Central Illinois. Concurrently with this purchase, Insight will contribute to Insight Midwest such newly purchased systems, as well as all of its other systems not already owned by Insight Midwest, including the aforementioned Freeport, Illinois swap (comprising in total approximately 187,000 customers). At the same time, AT&T Broadband will contribute to Insight Midwest systems located in Central and North Central Illinois serving approximately 250,000 customers. Both Insight and AT&T Broadband will contribute their respective systems to Insight Midwest subject to an agreed-upon amount of indebtedness so that Insight Midwest will remain equally owned by Insight and AT&T Broadband. Insight will continue to serve as general partner of Insight Midwest and manage and operate Insight Midwest's systems. The transactions are subject to the negotiations and execution of definitive agreements. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements Some of the information in this quarterly report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate," and "continue" or similar words. You should read statements that contain these words carefully because they: . discuss our future expectations; . contain projections of our future results of operations or of our financial condition; or . state other "forward-looking" information. We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors listed in our most recent registration statement, as well as any cautionary language in this quarterly report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this quarterly report could have a material adverse effect on our business, operating results and financial condition. Introduction Because of corporate transactions completed over the past three years, including the contribution agreement with an affiliate of AT&T Broadband with respect to the Indiana systems and the Kentucky acquisition, we do not believe the discussion and analysis of our historical financial condition and results of operations below are indicative of our future performance. On October 31, 1998 our manager exchanged its Utah systems for AT&T Broadband's Evansville, Indiana system. Simultaneously, our manager completed a contribution agreement with AT&T Broadband forming Insight Indiana and contributed certain of its Indiana systems, the Noblesville, Lafayette and Jeffersonville systems (the "Insight Contributed Systems"), as well as the Evansville system to Insight Indiana. At the same time, AT&T Broadband contributed most of its Indiana systems to Insight Indiana. On October 1, 1999, our manager acquired a combined 50% interest in InterMedia Capital Partners VI, L.P. (the "IPVI Partnership") from related parties of Blackstone Cable Acquisition Company, LLC, related parties of InterMedia Capital Management VI, LLC and a subsidiary and related party of AT&T Broadband, for approximately $341.5 million (inclusive of expenses), and we assumed debt of approximately $742.1 million. On October 1, 1999, our manager completed an agreement with affiliates of 10 AT&T Broadband, pursuant to which our manager and affiliates of AT&T Broadband each contributed their respective 50% interests in Insight Indiana and in Insight Kentucky in exchange for a 50% interest in Insight Midwest, L.P. General Substantially all of our historical revenues of each of our systems were earned from customer fees for cable television programming services including premium and pay-per-view services and ancillary services, such as rental of converters and remote control devices and installations and from selling advertising. In addition, we earned revenues from commissions for products sold through home shopping networks. We have generated increases in revenues and EBITDA for each of the past three fiscal years, primarily through internal customer growth, increases in monthly revenue per customer and growth in advertising. Results of Operations As Insight Indiana is the predecessor of Insight Midwest, the following discussion includes the results of operations of Insight Indiana for the three and six months ended June 30, 1999 and the results of Insight Midwest for the three and six months ended June 30, 2000. The following table reflects these results of operations:
Three months ended June 30, Six months ended June 30, ------------------------------------ ----------------------------------- 1999 2000 1999 2000 ---- ---- ---- ---- (in thousands) (in thousands) Revenues $ 36,116 $ 94,734 $ 71,744 $187,237 Costs and expenses: Programming and other operating costs 9,735 33,528 20,177 64,864 Selling, general and administrative 6,924 14,487 13,651 32,085 Management fees 1,112 2,737 2,214 5,415 Depreciation and amortization 21,421 48,052 43,440 94,180 ---------- --------- -------- --------- 39,192 98,804 79,482 196,544 ---------- --------- -------- --------- Operating loss (3,076) (4,070) (7,738) (9,307) EBITDA 18,362 44,026 35,723 84,946 Interest expense 8,538 26,899 16,767 52,598 Net loss (11,597) (30,931) (24,484) (61,832) Net cash provided by (used in) operating 8,797 (7,430) 29,865 20,969 activities Net cash used in investing activities (15,710) (46,276) (35,360) (87,803) Net cash provided by financing activities -- 49,000 6,000 49,000
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Revenues increased 162.3% to $94.7 million for the three months ended June 30, 2000 compared to $36.1 million for the three months ended June 30, 1999. 11 The results were impacted by the acquisition of Insight Kentucky on October 1, 1999. The incremental revenue generated from the Kentucky systems approximated $57.6 million accounting for 98.3% of the consolidated revenue increase. In addition, revenues increased as a result of internal customer growth, rate increases and growth in advertising revenues. Revenues per customer per month averaged $42.63 for the three months ended June 30, 2000 compared to $37.24 for the three months ended June 30, 1999. The increase is primarily attributable to customer rate increases as Insight Indiana turned on nodes in rebuilt areas resulting in higher basic rates. Programming and other operating costs increased 244.4% to $33.5 million for the three months ended June 30, 2000 compared to $9.7 million for the three months ended June 30, 1999. The Kentucky systems accounted for approximately 88.6% or approximately $21.1 million of the total increase. Excluding these systems, these costs increased by approximately $2.7 million accounting for 11.3% of the total increase, primarily as a result of increased programming rates and additional programming carried by our systems. Selling, general and administrative expenses increased 109.2% to $14.5 million for the three months ended June 30, 2000 compared to $6.9 million for the three months ended June 30, 1999. The Kentucky systems accounted for approximately 105.2% or approximately $8.0 million of the total increase, partially offset by a decrease in Insight Indiana general corporate expenses. Depreciation and amortization expense increased 124.3% to $48.1 million for the three months ended June 30, 2000 compared to $21.4 million for the three months ended June 30, 1999. This increase was primarily due to the acquisitions of the cable systems discussed above and additional capital expenditures associated with the rebuilds of our systems, partially offset by a decrease in depreciation expense attributable to a change in estimate as of January 1, 2000 which resulted in assets being depreciated over longer lives. For the three months ended June 30, 2000, an operating loss of $4.1 million was incurred as compared to $3.1 million for the three months ended June 30, 1999, for reasons set forth above. EBITDA increased 139.8% to $44.0 million for the three months ended June 30, 2000 as compared to $18.4 million for the three months ended June 30, 1999 primarily reflecting the acquisition of the Kentucky systems. EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. Our management believes that EBITDA is commonly used in the cable television industry to analyze and compare cable television companies on the basis of operating performance, leverage and liquidity. However, EBITDA is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either operating income or net income as an indicator of operating performance or cash flows as a measure of liquidity, as determined in accordance with generally accepted accounting principles. EBITDA, as computed by management, is not necessarily comparable to similarly titled amounts of other companies. 12 Interest expense increased 214.9% to $26.9 million for the three months ended June 30, 2000 compared to $8.5 million for the three months ended June 30, 1999. The increase was primarily due to higher average outstanding indebtedness related to the acquisitions. Average debt outstanding during the three months ended June 30, 2000 was $1.3 billion at an average interest rate of 8.5%. For the three months ended June 30, 2000 a net loss of $30.9 million was realized for the reasons set forth above. Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Revenues increased 161.0% to $187.2 million for the six months ended June 30, 2000 compared to $71.7 million for the six months ended June 30, 1999. The results were impacted by the acquisition of Insight Kentucky on October 1, 1999. The incremental revenue generated from the Kentucky systems approximated $114.0 million accounting for 98.7% of the consolidated revenue increase. In addition, revenues increased as a result of rate increases and growth in advertising revenues. Revenues per customer per month averaged $42.08 for the six months ended June 30, 2000 compared to $37.29 for the six months ended June 30, 1999. The increase is primarily attributable to customer rate increases as Insight Indiana turned on nodes in rebuilt areas resulting in higher basic rates. Programming and other operating costs increased 221.5% to $64.9 million for the six months ended June 30, 2000 compared to $20.2 million for the six months ended June 30, 1999. The Kentucky systems accounted for approximately 90.9% or approximately $40.7 million of the total increase. Excluding these systems, these costs increased by approximately $4.0 million accounting for 9.0% of the total increase, primarily as a result of increased programming rates and additional programming carried by our systems. Selling, general and administrative expenses increased 135.0% to $32.1 million for the six months ended June 30, 2000 compared to $13.7 million for the six months ended June 30, 1999. The Kentucky systems accounted for approximately 100.0% of the total increase. Depreciation and amortization expense increased 116.8% to $94.2 million for the six months ended June 30, 2000 compared to $43.4 million for the six months ended June 30, 1999. This increase was primarily due to the acquisitions of the cable systems discussed above and additional capital expenditures associated with the rebuilds of our systems, partially offset by a decrease in depreciation expense attributable to a change in estimate as of January 1, 2000 which resulted in assets being depreciated over longer lives. For the six months ended June 30, 2000, an operating loss of $9.3 million was incurred as compared to $7.7 million for the six months ended June 30, 1999, for reasons set forth above. 13 EBITDA increased 137.8% to $84.9 million for the six months ended June 30, 2000 as compared to $35.7 for the six months ended June 30, 1999 primarily reflecting the acquisition of the Kentucky systems. EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. Our management believes that EBITDA is commonly used in the cable television industry to analyze and compare cable television companies on the basis of operating performance, leverage and liquidity. However, EBITDA is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either operating income or net income as an indicator of operating performance or cash flows as a measure of liquidity, as determined in accordance with generally accepted accounting principles. EBITDA, as computed by management, is not necessarily comparable to similarly titled amounts of other companies. Interest expense increased 213.7% to $52.6 million for the six months ended June 30, 2000 compared to $16.8 million for the six months ended June 30, 1999. The increase was primarily due to higher average outstanding indebtedness related to the acquisitions. Average debt outstanding during the six months ended June 30, 2000 was $1.2 billion at an average interest rate of 8.4%. For the six months ended June 30, 2000 a net loss of $61.8 million was realized for the reasons set forth above. Liquidity and Capital Resources Our business requires cash for operations, debt service, capital expenditures and acquisitions. The cable television business has substantial on- going capital requirements for the construction, expansion and maintenance of its broadband networks. Expenditures have primarily been used to rebuild and upgrade our existing cable network, and in the future will be used for plant extensions, new services, converters and system rebuilds. Historically, we have been able to meet our cash requirements with cash flow from operations and borrowings under our credit facilities. We believe we have adequate liquidity to operate our business plan, including making our planned capital expenditures. The completion of our recently announced acquisitions (discussed below under "Recent Developments") will require additional financing. For the six months ended June 30, 2000 and June 30, 1999, we spent $86.5 million and $31.1 million, respectively, in capital expenditures largely to support our plant rebuild, digital converter purchases and to a lesser extent network extensions. For the six months ended June 30, 2000 and June 30, 1999, cash from operations totaled $21.0 million and $29.9 million, which together with borrowings under our credit facilities, funded the above noted capital expenditures. It is anticipated that during 2000, we will have approximately $192.4 million of capital expenditures, exclusive of any capital expenditures required for the deployment of telephony. Included in the planned 2000 capital expenditures is $101.1 million for the upgrade of most of our Indiana and Kentucky cable television systems, which will involve the wide deployment of 14 fiber optics and other capital projects associated with implementing our clustering strategy. The amount of such capital expenditures for years subsequent to 2000 will depend on numerous factors including the level of success in deploying our new services which will impact the amount of capital we will need for digital converters and other network service infrastructure to support demand for new products and services. At June 30, 2000, we had indebtedness of approximately $1.3 billion, including $1.1 billion outstanding under senior bank credit facilities. The senior credit facilities consisted of: . $550.0 million reducing revolver credit/term facility, maturing in December 2006, which supports our Indiana systems, of which $487.0 million was borrowed; and . $675.0 million reducing revolving credit/term loan facility, maturing in October 2006, which supports our Kentucky systems, of which $594.0 million was borrowed. The weighted average interest rates for amounts outstanding under the senior credit facilities at June 30, 2000 were 8.6% and 8.7% for Insight Indiana and Insight Kentucky, respectively. The facilities contain covenants restricting, among other things, our ability to make capital expenditures, acquire or dispose of assets, make investments and engage in transactions with related parties. The facilities also require compliance with certain financial ratios, require us to enter into interest rate protection agreements and contain customary events of default. On October 1, 1999, in connection with our formation, we completed an offering of $200.0 million principal amount of our 9 3/4% senior notes due 2009. The net proceeds of the offering were used to repay certain outstanding debt of the Kentucky systems. Interest on the notes is payable on April 1 and October 1 of each year, which commenced April, 2000. The indenture relating to the senior notes imposes certain limitations on our ability to, among other things, incur debt, make distributions, make investments and sell assets. Recent Developments Greenwood Letter of Intent On March 21, 2000, Insight Midwest entered into a letter of intent with Cable One, Inc., a subsidiary of The Washington Post Company, for the acquisition of a cable television system serving approximately 16,000 customers in Greenwood, Indiana. The acquisition of the Greenwood system would occur upon completion of a proposed trade of systems between Cable One and AT&T Broadband. The transaction is subject to the negotiation and execution of definitive agreements. Telephony Agreements On July 17, 2000, Insight Indiana, Insight Kentucky and other affiliates of Insight Inc. entered into definitive agreements with AT&T Broadband, LLC for the provision by AT&T Broadband of all-distance telephone service utilizing the cable systems' infrastructure under the AT&T brand name. 15 Telephony revenues are to be attributed to AT&T Broadband who, in turn, will pay the cable affiliate a monthly per line access fee. AT&T Broadband will also pay the cable affiliate for marketing, installation and billing support. AT&T Broadband would be required to install and maintain the necessary switching equipment, and would be the local exchange carrier of record. It is expected that the cable affiliates will market the telephone services both independently and as part of a bundle of services. Expansion of Insight Midwest On March 23, 2000, Insight entered into a letter of intent with AT&T Broadband for the contribution to Insight Midwest of additional cable television systems serving approximately 537,000 customers. Initially, Insight will exchange its Claremont, California system for a system in Freeport, Illinois. Insight will also purchase from AT&T Broadband systems serving approximately 100,000 customers in North Central Illinois. Concurrently with this purchase, Insight will contribute to Insight Midwest such newly purchased systems, as well as all of its other systems not already owned by Insight Midwest, including the aforementioned Freeport, Illinois swap (comprising in total approximately 187,000 customers). At the same time, AT&T Broadband will contribute to Insight Midwest systems located in Central and North Central Illinois serving approximately 250,000 customers. Both Insight and AT&T Broadband will contribute their respective systems to Insight Midwest subject to an agreed-upon amount of indebtedness so that Insight Midwest will remain equally owned by Insight and AT&T Broadband. Insight will continue to serve as general partner of Insight Midwest and manage and operate Insight Midwest's systems. The transactions are subject to the negotiations and execution of definitive agreements. Impact of Recently Issued Accounting Standards In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 will require the company to recognize all derivatives on the balance sheet at fair value. Although management has not completed its assessment of the impact of this standard on its results of operations and financial position, management does not anticipate that the adoption of this statement will be material. Item 3. Quantitative and Qualitative Disclosure About Market Risk Our revolving credit and term loan agreements bear interest at floating rates. Accordingly, we are exposed to potential losses related to changes in interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes; however, in order to manage our exposure to interest rate risk, we enter into derivative financial instruments, typically interest rate swaps and collars. The counterparties to our swap and collar agreements are major financial institutions. As of June 30, 2000, our interest rate swap and collar agreements expire in varying amounts through 2002. The fair market value of our long-term debt approximates its carrying value 16 as it bears interest at floating rates of interest. As of June 30, 2000, the estimated fair value of our interest rate swap and collar agreements was approximately $8.4 million, which amount represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices. As of June 30, 2000, we had hedged approximately $690.0 million, or 64.0%, of our borrowings under our Insight Indiana credit facility and Insight Kentucky credit facility. Accordingly, a hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase our annual interest expense by approximately $3.2 million. 17 PART II OTHER INFORMATION 18 Item 6: Exhibits and Reports on Form 8-K (a) Exhibits: 10.1 Cable Facilities Lease Agreement, dated July 17, 2000, among AT&T Broadband, LLC and Insight Communications Company, Inc. and certain of its affiliates, including Insight Kentucky and Insight Indiana (filed as Exhibit 10.1 to Insight Communications Company, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000 (File No. 0-26677) and incorporated herein by reference) 27.1 Financial Data Schedule. (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the period covered by this quarterly report 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INSIGHT MIDWEST, L.P. INSIGHT CAPITAL, INC. Date: August 11, 2000 By: /s/ Michael S. Willner -- ---------------------------- Michael S. Willner President, Chief Executive Officer and Director By: /s/ Kim D. Kelly ---------------------- Kim D. Kelly Executive VP, Chief Financial & Operating Officer, Secretary and Director 20 EX-27.1 2 0002.txt FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 Insight Midwest, L.P. [LEGEND] This schedule contains summary information extracted from the Registrant Company Consolidated Balance Sheet (Unaudited) for June 30, 2000 and Consolidated Statement of Operations (Unaudited) for the Six Months ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. [/LEGEND] 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 18,162 0 14,100 0 0 38,192 770,765 139,816 1,679,798 92,083 0 0 0 0 306,715 1,679,798 187,237 187,237 64,864 196,544 0 0 52,598 (61,832) 0 (61,832) 0 0 0 (61,832) 0 0
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