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, 2004
Commission file number 0-26677
INSIGHT COMMUNICATIONS COMPANY, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 13-4053502 | |
| (State or other jurisdiction of 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 registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Outstanding at April 22, 2004 | |
| Class A Common Stock, $.01 Par Value | 50,805,718 | |
| Class B Common Stock, $.01 Par Value | 8,879,468 |
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, 2003.
1
INSIGHT COMMUNICATIONS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
| March 31, 2004 |
December 31, 2003 |
|||||||
| unaudited | ||||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 96,133 | $ | 60,172 | ||||
| Investments |
4,039 | 4,078 | ||||||
| Trade accounts receivable, net of allowance for doubtful accounts of $1,180 and $1,123 as of March 31, 2004 and December 31, 2003 |
17,733 | 29,313 | ||||||
| Launch funds receivable |
1,879 | 9,421 | ||||||
| Prepaid expenses and other assets |
16,341 | 17,446 | ||||||
| Total current assets |
136,125 | 120,430 | ||||||
| Fixed assets, net |
1,204,361 | 1,216,304 | ||||||
| Goodwill |
72,430 | 72,430 | ||||||
| Franchise costs |
2,361,959 | 2,361,959 | ||||||
| Deferred financing costs, net of accumulated amortization of $14,997 and $13,676 as of March 31, 2004 and December 31, 2003 |
31,967 | 33,288 | ||||||
| Other non-current assets |
8,448 | 5,244 | ||||||
| Total assets |
$ | 3,815,290 | $ | 3,809,655 | ||||
| Liabilities and stockholders’ equity |
||||||||
| Accounts payable |
$ | 25,295 | $ | 30,417 | ||||
| Accrued expenses and other liabilities |
30,273 | 34,182 | ||||||
| Accrued property taxes |
22,870 | 22,954 | ||||||
| Accrued programming costs |
47,036 | 43,261 | ||||||
| Deferred revenue |
8,763 | 10,061 | ||||||
| Interest payable |
47,140 | 23,315 | ||||||
| Debt – current portion |
67,563 | 62,250 | ||||||
| Total current liabilities |
248,940 | 226,440 | ||||||
| Deferred revenue |
4,114 | 4,523 | ||||||
| Debt |
2,777,070 | 2,786,041 | ||||||
| Other non-current liabilities |
2,414 | 5,742 | ||||||
| Minority interest |
230,584 | 229,790 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock; $.01 par value; 100,000,000 shares authorized; no shares issued and outstanding as of March 31, 2004 and December 31, 2003 |
— | — | ||||||
| Common stock; $.01 par value: |
||||||||
| Class A - 300,000,000 shares authorized; 50,805,718 and 50,685,317 shares issued and outstanding as of March 31, 2004 and December 31, 2003 |
509 | 507 | ||||||
| Class B - 100,000,000 shares authorized; 8,879,468 shares issued and outstanding as of March 31, 2004 and December 31, 2003 |
88 | 88 | ||||||
| Additional paid-in-capital |
817,558 | 816,600 | ||||||
| Accumulated deficit |
(253,288 | ) | (246,471 | ) | ||||
| Deferred stock compensation |
(12,851 | ) | (13,582 | ) | ||||
| Accumulated other comprehensive income (loss) |
152 | (23 | ) | |||||
| Total stockholders’ equity |
552,168 | 557,119 | ||||||
| Total liabilities and stockholders’ equity |
$ | 3,815,290 | $ | 3,809,655 | ||||
See accompanying notes
2
INSIGHT COMMUNICATIONS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| restated | ||||||||
| Revenue |
$ | 238,756 | $ | 215,045 | ||||
| Operating costs and expenses: |
||||||||
| Programming and other operating costs |
87,911 | 79,868 | ||||||
| Selling, general and administrative |
50,292 | 45,094 | ||||||
| Depreciation and amortization |
59,159 | 54,994 | ||||||
| Total operating costs and expenses |
197,362 | 179,956 | ||||||
| Operating income |
41,394 | 35,089 | ||||||
| Other income (expense): |
||||||||
| Gain on cable system exchange |
— | 26,992 | ||||||
| Interest expense |
(50,202 | ) | (51,446 | ) | ||||
| Interest income |
140 | 234 | ||||||
| Other income (expense) |
1,828 | (5 | ) | |||||
| Total other expense, net |
(48,234 | ) | (24,225 | ) | ||||
| Income (loss) before minority interest and income taxes |
(6,840 | ) | 10,864 | |||||
| Minority interest expense |
(121 | ) | (6,478 | ) | ||||
| Income (loss) before income taxes |
(6,961 | ) | 4,386 | |||||
| Benefit for income taxes |
144 | 1,257 | ||||||
| Net income (loss) |
(6,817 | ) | 5,643 | |||||
| Accrual of preferred interests |
— | (5,150 | ) | |||||
| Net income (loss) applicable to common stockholders |
$ | (6,817 | ) | $ | 493 | |||
| Basic and diluted income (loss) per share attributable to common stockholders |
$ | (.11 | ) | $ | .01 | |||
| Basic and diluted weighted-average shares outstanding |
59,661 | 60,077 | ||||||
See accompanying notes
3
INSIGHT COMMUNICATIONS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| restated | ||||||||
| Operating activities: |
||||||||
| Net income (loss) |
$ | (6,817 | ) | $ | 5,643 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
59,159 | 54,994 | ||||||
| Non-cash consulting expense |
15 | — | ||||||
| Gain on interest rate swaps |
(1,777 | ) | — | |||||
| Gain on cable systems exchange |
— | (26,992 | ) | |||||
| Gain on sale of investments |
(386 | ) | — | |||||
| Minority interest |
121 | 6,478 | ||||||
| Provision for losses on trade accounts receivable |
3,750 | 2,399 | ||||||
| Contribution of stock to 401(k) Plan |
470 | 447 | ||||||
| Amortization of note discount |
8,459 | 8,069 | ||||||
| Benefit for income taxes |
(144 | ) | (1,257 | ) | ||||
| Changes in operating assets and liabilities, net of the effect of acquisitions: |
||||||||
| Trade accounts receivable |
7,830 | 455 | ||||||
| Launch fund receivable |
7,542 | 3,677 | ||||||
| Prepaid expenses and other assets |
260 | (4,880 | ) | |||||
| Accounts payable |
(5,122 | ) | (25,791 | ) | ||||
| Accrued expenses and other liabilities |
21,774 | 39,964 | ||||||
| Net cash provided by operating activities |
95,134 | 63,206 | ||||||
| Investing activities: |
||||||||
| Purchase of fixed assets |
(44,189 | ) | (40,545 | ) | ||||
| Sale of fixed assets |
381 | — | ||||||
| Purchase of intangible assets |
— | (621 | ) | |||||
| Purchase of investments |
(404 | ) | (137 | ) | ||||
| Sale of investments |
602 | — | ||||||
| Purchase of cable television systems, net |
— | (26,475 | ) | |||||
| Net cash used in investing activities |
(43,610 | ) | (67,778 | ) | ||||
| Financing activities: |
||||||||
| Distributions of preferred interests |
— | (7,000 | ) | |||||
| Net borrowings (repayment) of credit facilities |
(15,563 | ) | 27,750 | |||||
| Net cash provided by (used in) financing activities |
(15,563 | ) | 20,750 | |||||
| Net increase in cash and cash equivalents |
35,951 | 16,178 | ||||||
| Cash and cash equivalents, beginning of period |
60,172 | 74,850 | ||||||
| Cash and cash equivalents, end of period |
$ | 96,133 | $ | 91,028 | ||||
See accompanying notes
4
INSIGHT COMMUNICATIONS COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Through our wholly owned subsidiary, Insight Communications Company, L.P. (“Insight LP”), we own a 50% interest in Insight Midwest, L.P. (“Insight Midwest”), which through its 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 Indiana, Kentucky, Ohio, and Illinois which passed approximately 2.3 million homes and served approximately 1.3 million customers as of March 31, 2004. In addition, we also owned and operated a cable television system in Griffin, Georgia through February 28, 2003.
Insight LP is the general partner of Insight Midwest. Through Insight LP, we manage all of Insight Midwest’s systems and also manage 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.
Our other wholly owned subsidiary, Insight Interactive LLC, owns a 100% equity interest in SourceSuite, LLC.
The accompanying consolidated financial statements include our accounts and those of our wholly owned subsidiaries, Insight LP and Insight Interactive LLC.
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 States for complete financial statements.
In our opinion, the consolidated financial statements reflect all adjustments considered necessary for a fair presentation 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, 2003.
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,
5
INSIGHT COMMUNICATIONS COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Responsibility for Interim Financial Statements (continued)
2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004 or any other interim period.
3. Income (Loss) Per Share
Basic income (loss) per share is computed using the average shares outstanding during the period. Diluted loss per share is equal to basic loss per share as we generated a net loss for the three months ended March 31, 2004, thereby making the potential effects of dilutive securities anti-dilutive. Diluted income per share is equal to basic income per share as other securities, primarily stock options, had no dilutive effect. Securities that could potentially dilute basic earnings per share in the future include stock options and restricted stock units.
4. Restatement
During the fourth quarter of 2003, we determined that we had incorrectly accounted for the impact of minority interests related to our interest rate swap agreements which convert the interest on a portion of our variable rate senior credit facility to a fixed rate. In addition, we had not reduced our deferred tax asset and related valuation allowance related to such swaps through other comprehensive income for subsequent changes in our deferred tax position. We have therefore restated our financial statements for the first quarter of 2003. The restatement does not impact our revenue, operating income or income before income taxes. The following table summarizes the impact of the restatement on our consolidated statement of operations for the three months ended March 31, 2003:
| March 31, 2003 | |||||||
| As Reported |
Restated | ||||||
| (in thousands, except per share amounts) | |||||||
| Benefit (provision) for income taxes |
$ | (125 | ) | $ | 1,257 | ||
| Net income |
4,261 | 5,643 | |||||
| Net income (loss) applicable to common stockholders |
(889 | ) | 493 | ||||
| Basic and diluted income (loss) per share attributable to common stockholders |
(.01 | ) | .01 | ||||
5. Recent Accounting Pronouncements
Pursuant to SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” we have elected to continue to account for employee stock-based compensation under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” using an intrinsic value approach to measure compensation expense. Accordingly, no compensation expense has been 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.
6
INSIGHT COMMUNICATIONS COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Recent Accounting Pronouncements (continued)
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, “Accounting for Stock-Based Compensation,” had been applied to each of the three month periods ended March 31, 2004 and 2003 (in thousands, except per share data):
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| restated | ||||||||
| Net income (loss) attributable to common stockholders |
$ | (6,817 | ) | $ | 493 | |||
| Stock-based compensation as reported, net of tax |
1,558 | 313 | ||||||
| Stock-based compensation determined under fair value based method for all awards (SFAS No. 123), net of tax |
(2,569 | ) | (1,821 | ) | ||||
| Adjusted net loss attributable to common stockholders |
$ | (7,828 | ) | $ | (1,015 | ) | ||
| Basic and diluted net income (loss) per share, as reported |
$ | (.11 | ) | $ | .01 | |||
| Basic and diluted net loss per share, SFAS 123 adjusted |
$ | (.13 | ||||||