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, 2004
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 incorporation or organization) |
(I.R.S. Employer Identification Nos.) | |
| 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 by check mark whether the registrants are accelerated filers (as defined in Exchange Act Rule 12b-2). Yes ¨ 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, 2003.
1
INSIGHT MIDWEST, LP
CONSOLIDATED BALANCE SHEETS
(in thousands)
| June 30, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 38,364 | $ | 22,679 | ||||
| Trade accounts receivable, net of allowance for doubtful accounts of $1,242 and $1,123 as of June 30, 2004 and December 31, 2003 |
23,907 | 29,271 | ||||||
| Launch funds receivable |
4,728 | 9,421 | ||||||
| Prepaid expenses and other assets |
15,075 | 17,711 | ||||||
| Total current assets |
82,074 | 79,082 | ||||||
| Fixed assets, net |
1,167,353 | 1,198,830 | ||||||
| Goodwill |
14,684 | 14,684 | ||||||
| Franchise costs, net of accumulated amortization of $358,728 and $358,687 as of June 30, 2004 and December 31, 2003 |
2,357,463 | 2,357,535 | ||||||
| Deferred financing costs, net of accumulated amortization of $12,940 and $10,710 as of June 30, 2004 and December 31, 2003 |
25,002 | 27,222 | ||||||
| Total assets |
$ | 3,646,576 | $ | 3,677,353 | ||||
| Liabilities and partners’ capital |
||||||||
| Accounts payable |
$ | 19,903 | $ | 29,427 | ||||
| Accrued expenses and other liabilities |
31,385 | 31,932 | ||||||
| Accrued property taxes |
25,757 | 22,954 | ||||||
| Accrued programming costs |
48,218 | 43,261 | ||||||
| Deferred revenue |
11,803 | 10,061 | ||||||
| Interest payable |
23,065 | 23,315 | ||||||
| Debt – current portion |
72,875 | 62,250 | ||||||
| Due to affiliates |
48,463 | 40,386 | ||||||
| Total current liabilities |
281,469 | 263,586 | ||||||
| Deferred revenue |
3,670 | 4,523 | ||||||
| Debt |
2,557,201 | 2,607,350 | ||||||
| Other non-current liabilities |
6,718 | 5,742 | ||||||
| Total liabilities |
2,849,058 | 2,881,201 | ||||||
| Partners’ capital: |
||||||||
| Partners’ accumulated capital |
798,133 | 799,574 | ||||||
| Accumulated other comprehensive loss |
(615 | ) | (3,422 | ) | ||||
| Total partners’ capital |
797,518 | 796,152 | ||||||
| Total liabilities and partners’ capital |
$ | 3,646,576 | $ | 3,677,353 | ||||
See accompanying notes
2
INSIGHT MIDWEST, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands)
| Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenue |
$ | 249,952 | $ | 222,376 | $ | 488,036 | $ | 436,671 | ||||||||
| Operating costs and expenses: |
||||||||||||||||
| Programming and other operating costs |
88,513 | 81,349 | 176,004 | 160,882 | ||||||||||||
| Selling, general and administrative |
48,757 | 41,820 | 92,831 | 81,825 | ||||||||||||
| Management fees |
7,323 | 6,494 | 14,326 | 12,790 | ||||||||||||
| Depreciation and amortization |
58,959 | 58,619 | 115,948 | 112,187 | ||||||||||||
| Total operating costs and expenses |
203,552 | 188,282 | 399,109 | 367,684 | ||||||||||||
| Operating income |
46,400 | 34,094 | 88,927 | 68,987 | ||||||||||||
| Other income (expense): |
||||||||||||||||
| Gain on cable system exchange |
— | — | — | 26,992 | ||||||||||||
| Interest expense |
(44,769 | ) | (45,367 | ) | (89,125 | ) | (91,659 | ) | ||||||||
| Interest income |
27 | 64 | 83 | 99 | ||||||||||||
| Other income (expense) |
(3,340 | ) | 1,881 | (1,326 | ) | 1,906 | ||||||||||
| Total other expense, net |
(48,082 | ) | (43,422 | ) | (90,368 | ) | (62,662 | ) | ||||||||
| Net income (loss) |
(1,682 | ) | (9,328 | ) | (1,441 | ) | 6,325 | |||||||||
| Accrual of preferred interests |
— | (5,203 | ) | — | (10,353 | ) | ||||||||||
| Net loss attributable to common interests |
$ | (1,682 | ) | $ | (14,531 | ) | $ | (1,441 | ) | $ | (4,028 | ) | ||||
See accompanying notes
3
INSIGHT MIDWEST, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| Six months ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Operating activities: |
||||||||
| Net income (loss) |
$ | (1,441 | ) | $ | 6,325 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
115,948 | 112,187 | ||||||
| Provision for losses on trade accounts receivable |
8,070 | 5,106 | ||||||
| Amortization of note discount |
148 | 987 | ||||||
| Gain on cable systems exchange |
— | (26,992 | ) | |||||
| Loss on interest rate swaps |
1,235 | — | ||||||
| Changes in operating assets and liabilities, net of the effect of acquisitions: |
||||||||
| Trade accounts receivable |
(2,706 | ) | (7,821 | ) | ||||
| Launch fund receivable |
4,693 | 3,882 | ||||||
| Prepaid expenses and other assets |
1,808 | (861 | ) | |||||
| Accounts payable |
(9,524 | ) | (33,311 | ) | ||||
| Accrued expenses and other liabilities |
15,929 | 41,956 | ||||||
| Net cash provided by operating activities |
134,160 | 101,458 | ||||||
| Investing activities: |
||||||||
| Purchase of fixed assets |
(82,232 | ) | (82,442 | ) | ||||
| Purchase of intangible assets |
— | (788 | ) | |||||
| Sale of fixed assets |
892 | — | ||||||
| Purchase of cable television systems, net |
— | (26,475 | ) | |||||
| Net cash used in investing activities |
(81,340 | ) | (109,705 | ) | ||||
| Financing activities: |
||||||||
| Distributions of preferred interests |
— | (7,000 | ) | |||||
| Net borrowings (repayments) under credit facilities |
(37,125 | ) | 44,500 | |||||
| Debt issuance costs |
(10 | ) | — | |||||
| Net cash provided by (used in) financing activities |
(37,135 | ) | 37,500 | |||||
| Net increase in cash and cash equivalents |
15,685 | 29,253 | ||||||
| Cash and cash equivalents, beginning of period |
22,679 | 9,937 | ||||||
| Cash and cash equivalents, end of period |
$ | 38,364 | $ | 39,190 | ||||
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 an indirect subsidiary of Comcast Cable. Insight LP serves as our general partner and manages and operates our systems.
Through our wholly owned operating subsidiaries, Insight Communications Midwest, LLC (“Insight Communications Midwest”), Insight Communications of Central Ohio, LLC (“Insight Ohio”) and Insight Kentucky Partners II, 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 June 30, 2004. In addition, 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 Midwest Holdings, LLC, our wholly-owned subsidiary which owns 100% of the outstanding equity of our operating subsidiaries. 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 and six months ended June 30, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004 or any other interim period.
5
INSIGHT MIDWEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Fixed Assets
| June 30, 2004 |
December 31, 2003 |
|||||||
| (in thousands) | ||||||||
| Land, buildings and improvements |
$ | 36,408 | $ | 34,856 | ||||
| Cable system equipment |
2,105,895 | 2,026,641 | ||||||
| Furniture, fixtures and office equipment |
16,269 | 15,605 | ||||||
| 2,158,572 | 2,077,102 | |||||||
| Less accumulated depreciation and amortization |
(991,219 | ) | (878,272 | ) | ||||
| Total fixed assets, net |
$ | 1,167,353 | $ | 1,198,830 | ||||
We recorded depreciation expense of $57.8 million and $113.7 million for the three and six months ended June 30, 2004 and $57.7 million and $110.3 million for the three and six months ended June 30, 2003.
4. Debt
| June 30, 2004 |
December 31, 2003 |
|||||||
| (in thousands) | ||||||||
| Note payable to Insight Inc. |
$ | 100,000 | $ | 100,000 | ||||
| Insight Midwest Holdings Credit Facility |
1,518,875 | 1,556,000 | ||||||
| Insight Midwest 9¾% Senior Notes |
385,000 | 385,000 | ||||||
| Insight Midwest 10½% Senior Notes |
630,000 | 630,000 | ||||||
| 2,633,875 | 2,671,000 | |||||||
| Net unamortized discount/premium on notes |
(1,046 | ) | (1,194 | ) | ||||
| Market value of interest rate swaps |
(2,753 | ) | (206 | ) | ||||
| Total debt |
$ | 2,630,076 | $ | 2,669,600 | ||||