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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, 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 Nos)
126 East 56th Street
New York, New York 10022
(Address of principal executive offices) (Zip code)
Registrants telephone number, including area code: 212-371-2266
______________________
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 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
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1
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
(which, except as disclosed elsewhere herein, consist 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.
2
INSIGHT MIDWEST, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, March 31,
1999 2000
------------ -----------
(unaudited)
ASSETS
Cash and cash equivalents $ 35,996 $ 22,868
Trade accounts receivable (net of allowance for doubtful accounts
of: December 1999, $735; March 2000, $718) 15,643 12,268
Prepaid expenses and other current assets 6,976 8,114
------------ -----------
Total current assets 58,615 43,250
Fixed assets, (net of accumulated depreciation of: December 1999,
$87,978; March 2000, $112,954) 596,246 612,685
Intangible assets (net of accumulated amortization of: December
1999, $55,690; March 2000, $76,843) 1,032,553 1,011,902
Deferred financing costs, net of amortization 19,185 18,795
------------ -----------
Total assets $ 1,706,599 $ 1,686,632
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 59,406 $ 68,055
Accrued expenses and other assets 26,029 23,201
Interest payable 19,397 23,635
Due to affiliates 1,220 2,101
------------ -----------
Total current liabilities 106,052 116,992
Debt 1,232,000 1,232,000
------------ -----------
Total liabilities 1,338,052 1,348,992
Partners' Capital 368,547 337,640
------------ -----------
$ 1,706,599 $ 1,686,632
============ ===========
See accompanying notes
3
INSIGHT MIDWEST, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Three Months Ended
March 31,
----------------------------
1999 2000
-------- --------
Revenue $ 35,628 $ 92,503
Costs and expenses:
Programming and other operating costs 10,442 31,336
Selling, general and administrative 6,727 17,598
Management fees 1,102 2,678
Depreciation and amortization 22,019 46,128
-------- --------
40,290 97,740
-------- --------
Loss from operations (4,662) (5,237)
Other income (expense):
Interest expense, net (8,225) (25,699)
Other income - 29
-------- --------
Net loss $(12,887) $(30,907)
======== ========
See accompanying notes
4
INSIGHT MIDWEST, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
------------------------------
1999 2000
-------- --------
Operating activities:
Net loss $(12,887) $(30,907)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 22,019 46,128
Provision for losses on trade accounts receivable 352 1,567
Changes in operating assets and liabilities:
Trade accounts receivable 1,280 1,809
Due from and to affiliates 969 881
Prepaid expenses and other assets (586) (1,138)
Accounts payable 11,001 8,649
Accrued expenses and other liabilities (580) (2,828)
Interest payable (500) 4,238
-------- --------
Net cash provided by operating activities 21,068 28,399
-------- --------
Investing activities:
Purchases of fixed assets (15,481) (41,415)
Increase in intangible assets (4,169) (112)
-------- --------
Net cash used in investing activities (19,650) (41,527)
-------- --------
Financing activities:
Borrowings from bank credit facility 6,000 -
-------- --------
Net cash provided by financing activities 6,000 -
-------- --------
Net increase (decrease) in cash and cash equivalents 7,418 (13,128)
Cash and cash equivalents at beginning of period 19,493 35,996
-------- --------
Cash and cash equivalents at end of period $ 26,911 $ 22,868
-------- --------
See accompanying notes
5
INSIGHT MIDWEST, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 749,000 customers as of March 31, 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.
In accordance with the foregoing, the historical carrying values of the
Indiana systems contributed by TCI were increased by an amount equivalent to 50%
of the
6
INSIGHT MIDWEST, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
A. Organization (continued)
difference between the fair value of the Indiana systems and their respective
carrying values ($89.1 million) as of October 31, 1998. In addition, the
historical values of the Insight Contributed Systems were increased by $44.3
million, an amount equivalent to 50% of the difference between the fair value of
such systems and their respective carrying values as of October 31, 1998.
Furthermore, in connection with Insight L.P.'s acquisition of the Jasper and
Evansville systems, the historical values of such systems were increased by
$112.0 million, an amount equivalent to the difference between the fair value of
such systems and their carrying values as of October 31, 1998. The aggregate
step-up to fair value was allocated to the cable television assets contributed
by TCI in relation to their fair values as increases in property and equipment
of $58.0 million and franchise costs of $181.6 million. Neither Insight L.P. nor
TCI is contractually required to contribute additional capital to Insight
Midwest and, because Insight Midwest is a limited partnership, neither Insight
L.P. nor TCI is liable for the obligations of Insight Indiana or the Indiana
systems. For the purposes of this financial statement, Insight Indiana is
considered the predecessor to Insight Midwest.
Insight Indiana's systems passed approximately 500,000 homes and served
approximately 324,000 customers as of March 31, 2000.
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.
7
INSIGHT MIDWEST, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
A. Organization (continued)
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 699,000 homes and served
approximately 425,000 customers as of March 31, 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 month period ended March 31, 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.
8
INSIGHT MIDWEST, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
C. Significant Accounting Policies (continued)
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 months ended March 31, 2000 of approximately $3.0 million.
D. Pro Forma Results of Operations (unaudited)
The pro forma unaudited results of operations for the period ended March
31, 1999 assuming the acquisition of the IPVI Partnership had been consummated
on January 1, 1999, follows (in thousands):
Revenues $ 87,053
Net loss 38,490
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.
Agreement in Principle with AT&T
On March 15, 2000, Insight Inc. reached an agreement in principle with AT&T
Corp. for the delivery of telephone service utilizing Insight Midwest's cable
television systems under the "AT&T" brand name. The terms of the agreement in
principle provide that Insight Inc. and its affiliates will market, service and
bill for local telephone service. AT&T would be required to install and
maintain the necessary switching equipment, and would be the local exchange
carrier of record. AT&T would pay Insight Inc. and its affiliates a fee for the
use of the cable television lines, and will also compensate Insight Inc. and its
affiliates for installation and maintenance services at customers' residences.
In addition, AT&T would pay Insight Inc. and its affiliates commissions for
sales made to customers. The agreement in principle is subject to the
negotiation and execution of definitive agreements and covers areas serviced by
Insight Midwest.
Expansion of Insight Midwest
On March 23, 2000, Insight L.P. entered into a letter of intent with AT&T
Broadband to contribute to Insight Midwest additional cable television systems
serving approximately 537,000 customers. Through a series of transactions,
Insight L.P. will contribute to Insight Midwest its interests in systems serving
approximately 187,000 customers, and AT&T Broadband will
9
INSIGHT MIDWEST, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
F. Recent Developments (continued)
contribute systems serving approximately 350,000 customers. Initially, Insight
L.P. would exchange its Claremont, California system for a system in Freeport,
Illinois, subject to completion by AT&T Broadband of its proposed acquisition of
MediaOne. The Freeport system would be integrated into Insight L.P.'s Rockford,
Illinois system, creating a cluster of approximately 75,000 customers in the
northern part of the state. Insight L.P. would also purchase from AT&T
Broadband systems serving approximately 100,000 customers in North Central
Illinois. Concurrently with this purchase, Insight L.P. would contribute to
Insight Midwest all of its systems not already owned by Insight Midwest,
including the newly purchased Illinois systems, its expanded Rockford, Illinois
cluster, its interest in its Columbus, Ohio system and its Griffin, Georgia
system, as well as its systems in Indiana not already owned by Insight Midwest.
At the same time, AT&T Broadband would contribute to Insight Midwest systems
located in Central and North Central Illinois serving approximately 250,000
customers. As a result, Insight Midwest would increase its customer base of
approximately 749,000 as of March 31, 2000 to approximately 1.3 million. AT&T
Broadband would receive an amount of cash from Insight L.P. upon completion of
the transactions, Insight Midwest would remain equally owned by Insight L.P. and
AT&T Broadband, and Insight L.P. would continue to serve as general partner and
manage and operate Insight Midwest's systems. The transactions are subject to
the negotiation and execution of definitive agreements.
10
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
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.
11
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
months ended March 31, 1999 and the results of Insight Midwest for the three
months ended March 31, 2000. The following table reflects these results of
operations:
Three Months Ended March 31,
-------------------------------
1999 2000
-------- --------
(in thousands)
Revenue $ 35,628 $ 92,503
Costs and expenses:
Programming and other operating costs 10,442 31,336
Selling, general and administrative 6,727 17,598
Management fees 1,102 2,678
Depreciation and amortization 22,019 46,128
---------- -----------
40,290 97,740
---------- -----------
Operating loss (4,662) (5,237)
EBITDA 17,357 40,920
Interest expense (8,225) (25,699)
Net loss (12,887) (30,907)
Net cash provided by operating activities 21,068 28,399
Net cash used in investing activities (19,650) (41,527)
Net cash provided by financing activities 6,000 -
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues increased 159.6% to $92.5 million for the three months ended March
31, 2000 compared to $35.6 million for the three months ended March 31, 1999.
The results were impacted by the acquisition of Insight Kentucky on October 1,
1999. The incremental revenue generated from the Kentucky systems approximated
$56.4 million accounting for 99.1% of the consolidated revenue increase. In
addition, revenues increased as a result of internal customer growth, rate
increases and growth in advertising revenues.
12
Revenues per customer per month averaged $41.20 for the three months ended
March 31, 2000 compared to $37.13 for the three months ended March 31, 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 200.1% to $31.3 million for
the three months ended March 31, 2000 compared to $10.4 million for the three
months ended March 31, 1999. The Kentucky systems accounted for approximately
93.6% or approximately $19.6 million of the total increase. Excluding these
systems, these costs increased by approximately $1.3 million accounting for 6.4%
of the total increase, primarily as a result of increased programming costs and
additional programming carried by our systems.
Selling, general and administrative expenses increased 161.6% to $17.6
million for the three months ended March 31, 2000 compared to $6.7 million for
the three months ended March 31, 1999. The Kentucky systems accounted for
approximately 96.8% or approximately $10.5 million of the total increase.
Depreciation and amortization expense increased 109.5% to $46.1 million for
the three months ended March 31, 2000 compared to $22.0 million for the three
months ended March 31, 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 March 31, 2000, an operating loss of $5.2
million was incurred as compared to $4.7 million for the three months ended
March 31, 1999, for reasons set forth above.
EBITDA increased 135.8% to $40.9 million for the three months ended March
31, 2000 as compared to $17.4 for the three months ended March 31, 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 212.3% to $25.7 million for the three months
ended March 31, 2000 compared to $8.2 million for the three months ended March
31, 1999. The increase was primarily due to higher average outstanding
indebtedness related to the acquisitions. Average debt outstanding during the
three months ended March 31, 2000 was $1.2 billion at an average interest rate
of 8.5%.
13
For the three months ended March 31, 2000 a net loss of $24.1 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.
For the three months ended March 31, 2000 and March 31, 1999, we spent
$41.4 million and $15.5 million, respectively, in capital expenditures largely
to support our plant rebuild, digital converter purchases and to a lesser extent
network extensions. For the three months ended March 31, 2000 and March 31,
1999, cash from operations totaled $28.4 million and $21.1 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
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 March 31, 2000, we had indebtedness of approximately $1.2 billion,
including $1.0 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 $470.0 million was
borrowed; and
. $675.0 million reducing revolving credit/term loan facility, maturing in
October 2006, which supports our Kentucky systems, of which $562.0 million
was borrowed.
The weighted average interest rates for amounts outstanding under the
senior credit facilities at March 31, 2000 were 8.13% and 8.33% 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.
14
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, commencing 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.
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 March 31, 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
as it bears interest at floating rates of interest. As of March 31, 2000, the
estimated fair value of our interest rate swap and collar agreements was
approximately $9.1 million, which amount represents the amount required to enter
into offsetting contracts with similar remaining maturities based on quoted
market prices.
As of March 31, 2000, we had hedged approximately $690.0 million, or 67%,
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 $3.4 million.
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PART II
OTHER INFORMATION
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Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
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.
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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: May 15, 2000 By: /s/ Michael S. Willner
-----------------------
Michael S. Willner
President, Chief Executive Officer and Director
By: /s/ Kim D. Kelly
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Kim D. Kelly
Executive VP, Chief Financial & Operating Officer,
Secretary and Director
18