SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
|
|
Commission file numbers |
333-33540 |
|
|
|
333-33540-1 |
| INSIGHT MIDWEST, L.P. | ||
| (Exact name of registrants as specified in their charters) | ||
|
| ||
| Delaware |
|
13-4079232 |
| Delaware |
|
13-4079679 |
| (State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
| 810 7th Avenue |
|
|
| New York, New York |
|
10019 |
| (Address of principal executive offices) |
|
(Zip code) |
|
|
|
|
| Registrant’s telephone number, including area code: 917-286-2300 | ||
Indicate by check mark whether the 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 o |
Indicate by check mark whether the registrants are accelerated filers (as defined in Exchange Act Rule 12b-2).
| Yes o |
No x |
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 consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes required by accounting principles generally accepted in the United States. However, in our opinion, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the relevant periods have been made. Results for the interim periods are not necessarily indicative of the results to be expected for the year. These financial statements should be read in conjunction with the summary of significant accounting policies and the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2002.
1
INSIGHT MIDWEST, LP
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
March 31, |
|
December 31, |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
unaudited |
|
|
|
| |
| Assets |
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
25,697 |
|
$ |
9,937 |
|
| Trade accounts receivable, net of allowance for doubtful accounts of $1,294 and $1,296 as of March 31, 2003 and December 31, 2002 |
|
|
22,876 |
|
|
26,142 |
|
| Launch funds receivable |
|
|
1,520 |
|
|
5,197 |
|
| Prepaid expenses and other assets |
|
|
18,149 |
|
|
14,513 |
|
|
|
|
|
|
|
|
|
|
| Total current assets |
|
|
68,242 |
|
|
55,789 |
|
|
|
|
|
|
|
|
|
|
| Fixed assets, net |
|
|
1,213,221 |
|
|
1,202,003 |
|
| Goodwill |
|
|
14,684 |
|
|
15,219 |
|
| Franchise costs |
|
|
2,357,347 |
|
|
2,326,833 |
|
| Deferred financing costs, net of accumulated amortization of $7,824 and $6,895 as of March 31, 2003 and December 31, 2002 |
|
|
25,472 |
|
|
26,402 |
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
$ |
3,678,966 |
|
$ |
3,626,246 |
|
|
|
|
|
|
|
|
|
|
| Liabilities and partners’ capital |
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
21,022 |
|
$ |
46,747 |
|
| Accrued expenses and other liabilities |
|
|
20,181 |
|
|
21,427 |
|
| Accrued property taxes |
|
|
18,743 |
|
|
14,428 |
|
| Accrued programming costs |
|
|
49,535 |
|
|
35,362 |
|
| Deferred revenue |
|
|
4,983 |
|
|
4,132 |
|
| Interest payable |
|
|
46,524 |
|
|
24,685 |
|
| Debt – current portion |
|
|
25,417 |
|
|
5,000 |
|
| Preferred interest distribution payable |
|
|
1,750 |
|
|
5,250 |
|
| Due to affiliates |
|
|
28,066 |
|
|
25,775 |
|
|
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
216,221 |
|
|
182,806 |
|
| Deferred revenue |
|
|
6,022 |
|
|
6,533 |
|
| Debt |
|
|
2,436,422 |
|
|
2,428,596 |
|
| Other non-current liabilities |
|
|
46,182 |
|
|
53,085 |
|
| Commitments and contingencies |
|
|
|
|
|
|
|
| Preferred interests |
|
|
193,470 |
|
|
191,820 |
|
| Partners’ capital: |
|
|
|
|
|
|
|
| Partners’ accumulated capital |
|
|
791,729 |
|
|
781,226 |
|
| Accumulated other comprehensive loss |
|
|
(11,080 |
) |
|
(17,820 |
) |
|
|
|
|
|
|
|
|
|
| Total partners’ capital |
|
|
780,649 |
|
|
763,406 |
|
|
|
|
|
|
|
|
|
|
| Total liabilities and partners’ capital |
|
$ |
3,678,966 |
|
$ |
3,626,246 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes
2
INSIGHT MIDWEST, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
|
|
|
Three months ended March 31, |
| ||||
|
|
|
|
| ||||
|
|
|
2003 |
|
2002 |
| ||
|
|
|
|
|
|
|
|
|
| Revenue |
|
$ |
214,295 |
|
$ |
191,686 |
|
| Operating costs and expenses: |
|
|
|
|
|
|
|
| Programming and other operating costs |
|
|
79,533 |
|
|
69,115 |
|
| Selling, general and administrative |
|
|
40,005 |
|
|
36,106 |
|
| Management fees |
|
|
6,296 |
|
|
5,420 |
|
| High-speed data charges |
|
|
— |
|
|
4,116 |
|
| Depreciation and amortization |
|
|
53,568 |
|
|
47,301 |
|
|
|
|
|
|
|
|
|
|
| Total operating costs and expenses |
|
|
179,402 |
|
|
162,058 |
|
|
|
|
|
|
|
|
|
|
| Operating income |
|
|
34,893 |
|
|
29,628 |
|
| Other income (expense): |
|
|
|
|
|
|
|
| Gain on cable system exchange |
|
|
26,992 |
|
|
— |
|
| Interest expense |
|
|
(46,292 |
) |
|
(44,586 |
) |
| Interest income |
|
|
35 |
|
|
50 |
|
| Other |
|
|
25 |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
| Total other expense, net |
|
|
(19,240 |
) |
|
(44,533 |
) |
|
|
|
|
|
|
|
|
|
| Net income (loss) |
|
|
15,653 |
|
|
(14,905 |
) |
| Accrual of preferred interests |
|
|
(5,150 |
) |
|
(4,955 |
) |
|
|
|
|
|
|
|
|
|
| Net income (loss) attributable to common interests |
|
$ |
10,503 |
|
$ |
(19,860 |
) |
|
|
|
|
|
|
|
|
|
See accompanying notes
3
INSIGHT MIDWEST, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
|
|
|
Three months ended March 31, |
| ||||
|
|
|
|
| ||||
|
|
|
2003 |
|
2002 |
| ||
|
|
|
|
|
|
|
|
|
| Operating activities: |
|
|
|
|
|
|
|
| Net income (loss) |
|
$ |
15,653 |
|
$ |
(14,905 |
) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
53,568 |
|
|
47,301 |
|
| Provision for losses on trade accounts receivable |
|
|
2,399 |
|
|
2,594 |
|
| Amortization of note discount |
|
|
493 |
|
|
185 |
|
| Gain on cable system exchange |
|
|
(26,992 |
) |
|
— |
|
| Changes in operating assets and liabilities, net of the effect of acquisitions: |
|
|
|
|
|
|
|
| Trade accounts receivable |
|
|
867 |
|
|
2,815 |
|
| Launch fund receivable |
|
|
3,677 |
|
|
3,537 |
|
| Prepaid expenses and other assets |
|
|
(3,636 |
) |
|
7,627 |
|
| Accounts payable |
|
|
(25,725 |
) |
|
(21,833 |
) |
| Accrued expenses and other liabilities |
|
|
41,549 |
|
|
10,512 |
|
|
|
|
|
|
|
|
|
|
| Net cash provided by operating activities |
|
|
61,853 |
|
|
37,833 |
|
|
|
|
|
|
|
|
|
|
| Investing activities: |
|
|
|
|
|
|
|
| Purchase of fixed assets |
|
|
(39,747 |
) |
|
(45,443 |
) |
| Purchase of intangible assets |
|
|
(621 |
) |
|
(40 |
) |
| Purchase of cable television systems, net of cash acquired |
|
|
(26,475 |
) |
|
(8,822 |
) |
|
|
|
|
|
|
|
|
|
| Net cash used in investing activities |
|
|
(66,843 |
) |
|
(54,305 |
) |
|
|
|
|
|
|
|
|
|
| Financing activities: |
|
|
|
|
|
|
|
| Distributions of preferred interests |
|
|
(7,000 |
) |
|
(7,000 |
) |
| Proceeds from borrowings under credit facilities |
|
|
29,000 |
|
|
30,000 |
|
| Repayment of credit facilities |
|
|
(1,250 |
) |
|
— |
|
| Borrowings from parent under inter-company loan |
|
|
— |
|
|
100,000 |
|
| Principal payments on capital lease and other non-current liabilities |
|
|
— |
|
|
(335 |
) |
|
|
|
|
|
|
|
|
|
| Net cash provided by financing activities |
|
|
20,750 |
|
|
122,665 |
|
|
|
|
|
|
|
|
|
|
| Net increase in cash and cash equivalents |
|
|
15,760 |
|
|
106,193 |
|
| Cash and cash equivalents, beginning of period |
|
|
9,937 |
|
|
12,146 |
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents, end of period |
|
$ |
25,697 |
|
$ |
118,339 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes
4
INSIGHT MIDWEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
We were formed in September 1999 to serve as the holding company and a financing vehicle for Insight Communications Company, Inc.’s (“Insight Inc.”) cable television system joint venture with AT&T Broadband, LLC (now known as Comcast Cable Holdings, LLC (“Comcast Cable”)). We are owned 50% by Insight Communications Company, L.P. (“Insight LP”), which is wholly owned by Insight Inc., and 50% by Comcast Cable. Insight LP serves as our general partner and manages and operates our systems.
Through our wholly owned subsidiaries Insight Communications of Central Ohio, LLC (“Insight Ohio”) and Insight Midwest Holdings, LLC (“Insight Midwest Holdings”), which wholly owns Insight Communications Midwest, LLC (“Insight Communications Midwest”) and Insight Communications of Kentucky, L.P. (“Insight Kentucky”), we own and operate cable television systems in Indiana, Kentucky, Ohio, and Illinois which passed approximately 2.3 million homes and served approximately 1.3 million customers as of March 31, 2003. In addition, as discussed in Note 7, we also owned and operated a cable television system in Griffin, Georgia through February 28, 2003.
The accompanying consolidated financial statements include the accounts of Insight Ohio and Insight Midwest Holdings.
Certain prior period amounts have been reclassified to conform to the current period presentation.
2. Responsibility for Interim Financial Statements
Our accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United Sates for complete financial statements.
In our opinion, the consolidated financial statements reflect all adjustments considered necessary for a fair statement of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2002.
5
INSIGHT MIDWEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Responsibility for Interim Financial Statements (continued)
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003 or any other interim period.
3. Recent Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, “Accounting for Disposal Obligations”, which became effective for us beginning January 1, 2003. SFAS No. 146 supersedes EITF Issue No. 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. SFAS No. 146 addresses the accounting for and disclosure of costs to terminate an existing contractual obligation (including but not limited to operating leases), incremental direct and other costs associated with the related disposal activity and termination benefits (severance pay) provided to employees pursuant to a one-time benefit arrangement that does not constitute a preexisting or newly-created ongoing benefit plan. The adoption of SFAS No. 146 had no impact on our consolidated financial position or results of operations.
4. Long-Lived Assets
Fixed assets consisted of:
|
|
|
March 31, |
|
December 31, |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
| ||||
| Land, buildings and improvements |
|
$ |
32,399 |
|
$ |
32,427 |
|
| Cable system equipment |
|
|
1,875,934 |
|
|
1,829,942 |
|
| Furniture, fixtures and office equipment |
|
|
14,956 |
|
|
14,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,923,289 |
|
|
1,877,032 |
|
| Less accumulated depreciation and amortization |
|
|
(710,068 |
) |
|
(675,029 |
) |
|
|
|
|
|
|
|
|
|
| Total fixed assets, net |
|
$ |
1,213,221 |
|
$ |
1,202,003 |
|
|
|
|
|
|
|
|
|
|
We recorded amortization expense of $944,000 and $1.3 million for the three months ended March 31, 2003 and 2002. We estimate aggregate amortization expense, primarily related to deferred financing costs, to be approximately $3.8 million for each of the five succeeding fiscal years.
6
INSIGHT MIDWEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Debt
Debt consisted of:
|
|
|
March 31, |
|
December 31, |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
| ||||
|
| |||||||