SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: January 26, 2001
Insight Communications Company, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 0-26677 13-4053502
(State of incorporation) (Commission File No.) (IRS Employer Identification No.)
810 7th Avenue
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number: (917) 286-2300
Item 5. Other Events.
On January 26, 2001, Insight Communication Company, Inc. issued a press
release pursuant to the Rule 135c safe harbor for reporting issuers announcing a
proposed unregistered $150 million discount bond offering pursuant to a private
placement under Rule 144A of the Securities Act of 1933. A copy of the press
release is attached as Exhibit 99.1 to this Form 8-K.
Item 9. Regulation FD Disclosure.
Insight Communications Company Inc. is conducting a $150 million discount
bond offering to repay inter-company debt and for general corporate purposes,
including a possible purchase of a 50% interest in cable television systems
managed by Insight Communications and other joint ventures and/or strategic
acquisitions. The offering will be a private placement under Rule 144A of the
Securities Act of 1933 and will be made only to qualified institutional buyers
and to a limited number of institutional accredited investors. Included in the
preliminary offering circular for the private placement are certain historical
and pro forma financial statements and operating data that have not been
previously publicly reported. Certain of the pro forma financial and operating
data give effect to our completion on January 5, 2001 of a series of
transactions with certain subsidiaries of AT&T Corp. ("AT&T Cable
Subsidiaries"). We financed these transactions with the Midwest Holdings credit
facility entered into on January 5, 2001. We refer herein to all of the
preceding transactions as the "Transactions."
A copy of the pro forma financial statements and operating data as well as
the historical financial statements of the systems we currently own, which have
not been previously publicly reported, are provided below.
The proposed bonds have not been registered under the Securities Act and
may not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements. This current report or
Form 8-K does not constitute an offer to sell or the solicitation of an offer to
buy any security and shall not constitute an offer, solicitation or sale of any
securities in any jurisdiction in which such offering or sale would be unlawful.
Any statements in this report that are not historical facts are forward-
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended. The words "estimate," "anticipate" and other
expressions that indicate future events and trends identify forward-looking
statements. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from
historical results or those Insight Communications anticipates. Factors that
could have a material and adverse impact on actual results are described in
Insight Communications' annual report on Form 10-K for the year ended December
31, 1999 and quarterly report on Form 10-Q for the nine months ended September
30, 2000. All forward-looking statements in this report are qualified by
reference to the cautionary statements included in Insight Communications' Form
10-K and Form 10-Q.
2
PRO FORMA FINANCIAL STATEMENTS
The following tables set forth selected financial data of the Indiana,
Kentucky, Illinois, Ohio and Georgia systems which are systems in which we have
a significant economic interest. The tables include data for us:
. on a historical basis;
. on a pro forma basis excluding Insight Ohio; and
. on a pro forma basis including Insight Ohio.
The historical data for the nine months ended September 30, 2000 reflect
the operations of all systems for nine months, including the Ohio system
retroactively consolidated as of January 1, 2000.
The pro forma data excluding Insight Ohio for the nine month period ended
September 30, 2000 reflects the following events:
. Issuance of the Insight Midwest 10 1/2% senior notes and the use of the
net proceeds therefrom to repay a portion of the Indiana and Kentucky
credit facilities;
. The Transactions;
. Assumption of debt in connection with the Transactions;
. Exchange of the Claremont, California system; and
. Entering into the Midwest Holdings credit facility and the application
of a portion of the net proceeds therefrom to repay the Kentucky and
Indiana credit facilities.
The pro forma data including Insight Ohio for the nine month period ended
September 30, 2000 includes, in addition to the above, the results of
operations for the Insight Ohio system.
The historical data for the year ended December 31, 1999 reflect the
operations of the Indiana, Griffin, Georgia, Claremont, California and
Rockford, Illinois systems for twelve months, the Kentucky systems for three
months (from October 1, 1999, the date of acquisition, through December 31,
1999), and the Portland and Scottsburg, Indiana systems for nine months (from
April 1, 1999, the date of acquisition, through December 31, 1999). For the
twelve months ended December 31, 1999, the Ohio system was accounted for as an
equity investment.
The pro forma data excluding Insight Ohio for the year ended December 31,
1999 reflect the following events:
. Elimination of our equity share in the operating losses and our
amortization of the deficiency in assets of Insight Ohio;
. Addition of the operating results of the Portland and Scottsburg,
Indiana systems for the three month period ended March 31, 1999;
. Addition of the operating results of the Kentucky systems for the nine
month period ended September 30, 1999;
. Issuance of the Insight Midwest 10 1/2% senior notes and the use of the
net proceeds therefrom to repay a portion of the Indiana and Kentucky
credit facilities and the issuance of the Insight Midwest 9 3/4% senior
notes and the use of the net proceeds therefrom to repay a portion of
the Kentucky credit facility;
. The Transactions;
. Assumption of debt in connection with the Transactions;
. Exchange of the Claremont, California system; and
. Entering into the Midwest Holdings credit facility and the application
of a portion of the net proceeds therefrom to repay the Kentucky and
Indiana credit facilities.
The pro forma data including Insight Ohio for the year ended December 31,
1999 includes, in addition to the above, the results of operations for the
Insight Ohio system.
3
The pro forma financial data sets forth information both excluding and
including Insight Ohio, as Insight Ohio will be an unrestricted subsidiary
under the indenture governing the notes, and will be prohibited by the terms of
its indebtedness from making distributions to us.
The historical data included in the pro forma statement of operations for
the nine months ended September 30, 2000 under the column headings "Insight
Communications (as reported)," "Illinois Systems Contributed by and Purchased
from AT&T Cable Subsidiaries," and "Insight Ohio (as adjusted)" represent for:
. Insight Communications (as reported), nine months of operating results
of Insight Communications.
. Insight Ohio, nine months of operating results of Insight Ohio, which we
acquired on August 9, 2000, plus adjustments to reflect such acquisition
as if it had occurred at January 1, 2000.
. Illinois Systems Contributed by and Purchased from AT&T Cable
Subsidiaries, nine months of operating results of the Illinois systems
owned by the AT&T Cable Subsidiaries for the full nine months ended
September 30, 2000 (including three and one half months of operating
results of systems previously owned by MediaOne), which we acquired
pursuant to the Transactions.
The historical data included in the pro forma statement of operations for
the year ended December 31, 1999 under the column headings "Insight
Communications (as reported)," "Kentucky," "Illinois Systems Contributed by and
Purchased from AT&T Cable Subsidiaries," and "Insight Ohio" represent for:
. Insight Communications (as reported), twelve months of operating results
of Insight Communications which includes twelve months of operating
results of Insight Communications Midwest, Griffin, Georgia, Claremont,
California and Rockford, Illinois and three months of operating results
(October 1, 1999 through December 31, 1999) of Insight Kentucky and
twelve months of our equity share of Insight Ohio's operating results.
. Kentucky, nine months of operating results of InterMedia Capital
Partners VI, L.P., plus adjustments to reflect the October 1999
acquisition of Insight Kentucky and the refinancing of a portion of
Insight Kentucky's indebtedness through the issuance of Insight
Midwest's 9 3/4% senior notes due 2009.
. Insight Ohio, twelve months of operating results of Insight Ohio which
we acquired on August 9, 2000, plus adjustments to reflect such
acquisition as if it had occurred at January 1, 1999.
. Illinois Systems Contributed by and Purchased from AT&T Cable
Subsidiaries, twelve months of operating results of the Illinois systems
owned by the AT&T Cable Subsidiaries for ten months in 1999 and by Tele-
Communications, Inc. (AT&T's cable predecessor) for two months in 1999,
which we acquired pursuant to the Transactions (including seven months
of operating results for an Illinois system which was owned by the AT&T
Cable Subsidiaries as of June 1, 1999), which we acquired pursuant to
the Transactions.
As indicated in footnote (A) on page 6 and footnote (B) and on page 9,
the pro forma financial data do not include results of certain of the Illinois
systems which we acquired pursuant to the Transactions for the periods
specified. If such results were included in the financial data below, revenues
and EBITDA on a pro forma basis excluding Insight Ohio would have been $452.8
million and $362.0 million, respectively, for the nine months ended September
30, 2000, and $571.3 million and $322.3 million, respectively, for the year
ended December 31, 1999. These revenues and EBITDA do not purport to be
indicative of what our financial position or results of operations would have
been had the above transactions been completed on the dates indicated or to
project our results of operations for any future date.
4
INSIGHT COMMUNICATIONS
PRO FORMA STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2000
(in thousands)
Illinois
Systems
Contributed Pro Forma
By And Insight
Insight Purchased Communications
Insight Insight Ohio Communications From AT&T Excluding Insight Ohio
Communications As Excluding Cable Pro Forma Insight Ohio As
As Reported Adjusted (H) Insight Ohio Subsidiaries Adjustments (A) Adjusted (H)
-------------- ------------ -------------- ------------ ----------- -------------- ------------
Revenues......... $353,013 $(36,381) $316,632 $128,357 $ (3,085)(I) $441,904 $36,381
Costs and
expenses:
Programming and
other operating
costs.......... 123,343 (14,197) 109,146 54,303 (1,074)(I) 162,375 14,197
Selling, general
and
administrative.. 72,241 (8,424) 63,817 20,774 (824)(I) 76,756 8,424
(7,011)(D)
Depreciation and
amortization... 175,993 (17,506) 158,487 36,598 60 (B) 219,918 17,506
25,669 (E)
(1,451)(I)
555 (F)
-------- -------- -------- -------- -------- -------- -------
Operating income
(loss).......... (18,564) 3,746 (14,818) 16,682 (19,009) (17,145) (3,746)
Other income
(expense):
Interest income
(expense)...... (77,508) 1,381 (76,127) -- (51,341)(G) (137,459) (1,381)
(9,991)(C)
Other income
(expense)...... 15 (71) (56) -- (56) 71
-------- -------- -------- -------- -------- -------- -------
Income (loss)
before minority
interest and
equity losses of
investees....... (96,057) 5,056 (91,001) 16,682 (80,341) (154,660) (5,056)
Minority
Interest........ 49,032 -- 49,032 -- 27,815 (J) 76,847 2,528 (J)
Gain on sale of
equity
investment...... 80,937 80,937 80,937
Equity in losses
of investees.... (3,030) -- (3,030) -- (3,030) --
-------- -------- -------- -------- -------- -------- -------
Income (loss)
before income
taxes........... $ 30,882 $ 5,056 $ 35,938 $ 16,682 $(52,526) $ 94 $(2,528)
======== ======== ======== ======== ======== ======== =======
Pro Forma
Insight
Communications
Including
Insight Ohio
(A)
--------------
Revenues......... $ 478,285
Costs and
expenses:
Programming and
other operating
costs.......... 176,572
Selling, general
and
administrative.. 85,180
Depreciation and
amortization... 237,424
--------------
Operating income
(loss).......... (20,891)
Other income
(expense):
Interest income
(expense)...... (138,840)
Other income
(expense)...... 15
--------------
Income (loss)
before minority
interest and
equity losses of
investees....... (159,716)
Minority
Interest........ 79,375
Gain on sale of
equity
investment...... 80,937
Equity in losses
of investees.... (3,030)
--------------
Income (loss)
before income
taxes........... $ (2,434)
==============
5
Notes to Pro Forma Statement of Operations for the Nine Months Ended September
30, 2000
(A) The pro forma data includes the results of operations for the Illinois
systems which we acquired pursuant to the Transactions only for the
periods during which they were owned by the AT&T Cable Subsidiaries during
the nine months ended September 30, 2000. Listed below are the revenues
and EBITDA for such systems for the periods during which they were not
owned by the AT&T Cable Subsidiaries. The results below are not included
in the pro forma data for the period indicated. If these results were
included in the financial data above, revenues and EBITDA excluding
Insight Ohio would have been $452.8 million and $362.0 million and
revenues and EBITDA including Insight Ohio would have been $489.2 million
and $378.3 million for the nine months ended September 30, 2000. These
revenues and EBITDA do not purport to be indicative of what our financial
position or results of operations would have been had the above
transactions been completed on the dates indicated or to project our
results of operations for any future date.
January 1, 2000 through June 15, 2000
---------------------------------------
Revenues EBITDA
------------------- ------------------
(in thousands)
Previous MediaOne systems......... $10,939 $ 4,515
(B) Includes the elimination of amortization of deferred financing costs of
$428,000 resulting from the repayment of a portion of the borrowings under
the Indiana and Kentucky credit facilities and the recording of $488,000
amortization of deferred financing issuance costs for the Insight Midwest
10 1/2% senior notes.
(C) Reflects the net increase in interest expense related to the repayment of
approximately $486.0 million of borrowings under the Indiana and Kentucky
credit facilities (decrease in interest expense of $29.9 million) and the
issuance of the Insight Midwest 10 1/2% senior notes (increase in interest
expense of $39.9 million).
(D) Reflects the elimination of management fee expense related to the AT&T
Cable Subsidiary systems.
(E) Includes additional amortization related to a step-up in value of the
intangible assets of the Illinois systems acquired from the AT&T Cable
Subsidiaries, totalling $111.9 million, which will be amortized on a
straight-line basis over fifteen years. In addition, includes an increase
in amortization of approximately $20.1 million related to the pre-
acquisition intangibles, resulting from a reduced period of amortization.
The preliminary purchase price has been allocated to franchise rights. The
purchase price allocation will be finalized upon completion and receipt of
appraisal reports. However, we do not believe that any adjustment
resulting from the final allocation of purchase price will be material.
(F) Includes the elimination of amortization related to deferred financing
costs of $523,000 resulting from the repayment of borrowings under the
Indiana and Kentucky credit facilities and the recording of $1.1 million
in amortization of the deferred financing costs of the Midwest Holdings
credit facility.
(G) Reflects the net increase in interest expense related to the refinancing
of Indiana and Kentucky credit facility borrowings (net increase in
interest expense of $6.7 million), borrowings under the Midwest Holdings
credit facility to fund the acquisition of Illinois systems purchased from
the AT&T Cable Subsidiaries (increase in interest expense of $24.0
million), and borrowings that we assumed pursuant to the Transactions
(increase in interest expense of $20.7 million).
6
Notes to Pro Forma Statement of Operations for the Nine Months Ended September
30, 2000
(H) Includes the operating results of Insight Ohio for the nine months ended
September 30, 2000 and a transaction adjustment as follows:
Operating Results
for the Nine Months Transaction As
Ended September 30, 2000 Adjustment Adjusted
------------------------ ----------- --------
(in thousands)
Revenues.................... $36,381 $ -- $36,381
Costs and expenses:
Programming and other
operating costs........ 14,197 -- 14,197
Selling, general and
administrative......... 8,424 -- 8,424
Depreciation and
amortization........... 7,756 9,750(1) 17,506
------- ------- -------
Operating income (loss)..... 6,004 (9,750) (3,746)
Other income (expense):
Interest expense.......... (1,381) -- (1,381)
Other income.............. 71 -- 71
------- ------- -------
Income (loss) from
continuing operations.... $ 4,694 $(9,750) $(5,056)
======= ======= =======
--------
(1) Reflects amortization related to a step-up in value of intangible
assets of Insight Ohio of $156.0 million recorded by us in the
consolidated financial statements, which is being amortized over
twelve years. The preliminary purchase price has been allocated to
franchise rights. The purchase price allocation will be finalized upon
completion and receipt of appraisal reports. However, we do not
believe that any adjustment resulting from the final allocation of
purchase price will be material.
(I) Reflects the elimination of the operating results of the Claremont,
California System exchanged in connection with the Transactions.
(J) Reflects the increase in AT&T Broadband's minority interest, which is
calculated at 50% of the operating results of the systems purchased and
contributed to Insight Midwest pursuant to the Transactions.
7
INSIGHT COMMUNICATIONS
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(in thousands)
Illinois
Systems
Contributed Pro Forma Pro Forma
By And Insight Insight
Purchased Communications Communications
Insight From AT&T Excluding Insight Including
Communications Kentucky Cable Pro Forma Insight Ohio Ohio Insight Ohio
As Reported (A) Subsidiaries Adjustments (B) (K) (B)
-------------- -------- ------------ ----------- -------------- ------- --------------
Revenues................ $242,693 $159,197 $139,251 $ 451 (E) $ 538,012 $46,747 $ 584,759
636 (F)
(4,216)(M)
Costs & expenses:
Programming and other
operating costs....... 71,956 51,924 57,246 126 (E) 180,206 16,017 196,223
196 (F)
(1,242)(M)
Selling, general and
administrative........ 55,198 41,292 22,540 91 (E) 111,798 11,602 123,400
107 (F)
(1,033)(M)
(6,397)(G)
Non cash compensation
and related charges... 19,285 -- -- -- 19,285 -- 19,285
Depreciation and
amortization.......... 131,308 97,220 35,070 86 (E) 301,243 20,146 321,389
202 (F)
(1,823)(M)
741 (I)
79 (C)
38,360 (H)
-------- -------- -------- --------- --------- ------- ---------
Operating loss.......... (35,054) (31,239) 24,395 (32,622) (74,520) (1,018) (75,538)
Other income (expense):
Interest income
(expense), net......... (50,398) (46,997) -- (1)(E) (188,260) (297) (188,557)
(15,832)(D)
(75,032)(J)
Other income (expense).. 15,454 (1,523) -- (58)(F) 13,873 92 13,965
-------- -------- -------- --------- --------- ------- ---------
Loss before minority
interest and equity
losses of investees.... (69,998) (79,759) 24,395 (123,545) (248,907) (1,223) (250,130)
Minority Interest....... 31,339 -- -- 49,004 (N) 80,343 612 (N) 80,955
Equity in losses of
investees.............. (13,963) -- -- -- (13,963) 13,200 (L) (763)
-------- -------- -------- --------- --------- ------- ---------
Income (loss) before
income taxes........... $(52,622) $(79,759) $ 24,395 $ (74,541) $(182,527) $12,589 $(169,938)
======== ======== ======== ========= ========= ======= =========
8
Notes to Pro Forma Statement of Operations for the Year Ended December 31, 1999
(A) Includes the historical operating results of the Kentucky systems for the
nine months ended September 30, 1999 and pro forma adjustments to reflect
the October 1999 acquisition of Insight Kentucky by Insight Midwest and
the repayment of a portion of the Insight Kentucky credit facility through
the issuance of Insight Midwest's 9 3/4% senior notes, as follows:
Kentucky Systems
For the Nine
Months Ended
September 30,
1999 Adjustments Total
---------------- ----------- --------
(in thousands)
Revenues................................ $159,197 $ -- $159,197
Cost and expenses:
Programming and other operating
costs.............................. 51,924 -- 51,924
Selling, general and administrative... 41,162 130 41,292
Depreciation and amortization......... 91,707 5,513 97,220
-------- -------- --------
Operating loss.......................... (25,596) (5,643) (31,239)
Gain (loss) on cable system exchange.... 15,822 (15,797) 25
Interest expense........................ (41,979) (5,018) (46,997)
Other expense........................... (1,548) -- (1,548)
-------- -------- --------
Loss from continuing operations......... $(53,301) $(26,458) $(79,759)
======== ======== ========
(B) The pro forma data includes the results of operations for the Illinois
systems which we acquired pursuant to the Transactions only for the
periods during which they were owned by the AT&T Cable Subsidiaries in
1999. Listed below are the revenues and EBITDA for such systems for the
periods during which they were not owned by the AT&T Cable Subsidiaries.
The results below are not included in the pro forma data for the periods
indicated. If such results were included in the financial data above,
revenues and EBITDA excluding Insight Ohio would have been $571.3 million
and $322.3 million and revenues and EBITDA including Insight Ohio would
have been $618.1 million and $355.4 million for the year ended December
31, 1999. These revenues and EBITDA do not purport to be indicative of
what our financial position or results of operations would have been had
the above transactions been completed on the dates indicated or to project
our results of operations for any future date.
Year Ended
December 31,
1999
----------------
Revenues EBITDA
-------- -------
(in thousands)
Previous MediaOne systems:............................... $23,597 $10,495
Five Months
Ended May 31,
1999
---------------
Revenues EBITDA
-------- ------
(in thousands)
Previous Time Warner systems:............................. $9,696 $4,870
(C) Includes the elimination of amortization of deferred financing costs of
$571,000 resulting from the repayment of a portion of the borrowings under
the Indiana and Kentucky credit facilities and the recording of $650,000
of amortization of the deferred financing costs for the Insight Midwest 10
1/2% senior notes.
(D) Reflects the net increase in interest expense related to the repayment of
approximately $486.0 million of borrowings under the Indiana and Kentucky
credit facilities (decrease in interest expense of $37.4 million) and the
issuance of the Insight Midwest 10 1/2% senior notes (increase in interest
expense of $53.3 million).
(E) Includes the operating results of the Scottsburg system, acquired by
Insight LP in March 1999, for the three-month period ended March 31, 1999.
9
(F) Includes the operating results of the Portland system, acquired by Insight
LP in March 1999, for the three-month period ended March 31, 1999.
(G) Reflects the elimination of management fee expense related to the AT&T
Cable Subsidiary systems.
(H) Includes additional amortization related to step-up in value of the
intangible assets of the Illinois systems acquired from the AT&T Cable
Subsidiaries totaling $111.9 million over a period of fifteen years. In
addition, includes an increase in amortization of approximately $30.9
million related to the pre-acquisition intangibles, resulting from a
reduced period of amortization. The preliminary purchase price has been
allocated to franchise rights. The purchase price allocation will be
finalized upon completion and receipt of appraisal reports. However, we do
not believe that any adjustment resulting from the final allocation of
purchase price will be material.
(I) Includes the elimination of amortization related to deferred financing
costs of $697,000 resulting from the repayment of borrowings under the
Indiana and Kentucky credit facility borrowings and the recording of
$1.4 million in amortization of the deferred financing costs of the
Midwest Holdings credit facility.
(J) Reflects the net increase in interest expense related to the refinancing
of Indiana and Kentucky credit facility borrowings (net increase in
interest expense of $15.5 million), borrowings under the Midwest Holdings
credit facility to fund the acquisition of Illinois systems (increase in
interest expense of $32.0 million), and borrowings that we assumed
pursuant to the Transactions (increase in interest expense of
$27.6 million).
(K) Includes the operating results of Insight Ohio for the year ended December
31, 1999 and a transaction adjustment as follows:
Operating Results
for the Year Ended Transaction As
December 31, 1999 Adjustment Adjusted
------------------ ----------- --------
Revenues........................ $46,747 $ -- $46,747
Costs and expenses:
Programming and other
operating costs............ 16,017 -- 16,017
Selling, general and
administrative............. 11,602 -- 11,602
Depreciation and
amortization............... 7,148 12,998 (1) 20,146
------- -------- -------
Operating income (loss)......... 11,980 (12,998) (1,018)
Other income (expense):
Interest expense................ (297) -- (297)
Other income.................... 92 -- 92
------- -------- -------
Income (loss) from continuing
operations................... $11,775 $(12,998) $(1,223)
--------
(1) Reflects amortization related to a step up in value of intangible
assets of Insight Ohio of $156.0 million recorded by us in the
consolidated financial statements, which is being amortized over
twelve years. Such amortization schedule is applied based upon
the remaining attractive terms of the franchises. The preliminary
purchase price has been allocated to franchise rights. The
purchase price allocation will be finalized upon completion and
receipt of appraisal reports. However, we do not believe that any
adjustment resulting from the final allocation of purchase price
will be material.
(L) Includes the elimination of our equity share operating loss ($4.6 million)
and amortization of deficiency in assets ($8.6 million) in Insight Ohio.
(M) Includes the elimination of the operating results of the Claremont,
California system exchanged in connection with the Transactions.
(N) Reflects the increase in AT&T Broadband's minority interest, which is
calculated at 50% of the operating results of the systems purchased and
contributed to Insight Midwest pursuant to the Transactions.
10
INSIGHT COMMUNICATIONS
PRO FORMA BALANCE SHEET
September 30, 2000
(in thousands)
Illinois
Systems
Contributed
By And Pro Forma
Insight Purchased Insight
Insight Insight Ohio Communications From AT&T Communications Insight Ohio
Communications As Excluding Cable Pro Forma Excluding As
As Reported Adjusted (F) Insight Ohio Subsidiaries Adjustments Insight Ohio Adjusted (F)
-------------- ------------ -------------- ------------ ----------- -------------- ------------
ASSETS
Cash and cash
equivalents..... $ 43,367 $ (5,591) $ 37,776 $ 2,143 $ (47)(D) $ 13,372 $ 5,591
(26,500)(B)
Investment in
debt and equity
securities...... 39,473 -- 39,473 -- -- 39,473 --
Trade accounts
receivable,
net............. 14,551 (4,183) 10,368 5,845 (29)(D) 16,184 4,183
Prepaid expenses
& other current
assets.......... 25,186 (301) 24,885 -- (91)(D) 24,794 301
---------- --------- ---------- ---------- ----------- ---------- --------
Total current
assets......... 122,577 (10,075) 112,502 7,988 (26,667) 93,823 10,075
Fixed assets,
net............. 792,768 (71,684) 721,084 189,310 (1,679)(D) 908,715 71,684
Intangible 1,282,437 (150,767) 1,131,670 1,073,927 111,919 (B) 2,314,552 150,767
assets, net.....
(2,964)(D)
Other noncurrent
assets.......... 37,607 -- 37,607 -- 2,063 (A) 45,746 --
6,076 (B)
---------- --------- ---------- ---------- ----------- ---------- --------
Total assets.... $2,235,389 $(232,526) $2,002,863 $1,271,225 $ 88,748 $3,362,836 $232,526
========== ========= ========== ========== =========== ========== ========
LIABILITIES &
STOCKHOLDERS'
EQUITY
Accounts payable
& other current
liabilities..... $ 113,091 $ (17,366) $ 95,725 $ 13,829 $ (728)(D) $ 108,826 $ 17,366
Deferred income
taxes........... 77,161 -- 77,161 -- -- 77,161 --
Debt............. 1,338,000 (25,000) 1,313,000 -- (486,000)(A) 2,002,000 25,000
492,500 (A)
682,500 (B)
Preferred
interests....... 179,044 (179,044) -- -- -- -- 179,044
---------- --------- ---------- ---------- ----------- ---------- --------
Total
liabilities.... 1,707,296 (221,410) 1,485,886 13,829 688,272 2,187,987 221,410
Minority
interest........ (29,183) -- (29,183) -- 563,300 (C) 534,117 5,550
Stockholders'
equity.......... 557,276 (11,116) 545,160 1,257,396 (1,162,824)(E) 640,732 5,566
---------- --------- ---------- ---------- ----------- ---------- --------
Total
liabilities &
stockholders'
equity......... $2,235,389 $(232,526) $2,002,863 $1,271,225 $ 88,748 $3,362,836 $232,526
========== ========= ========== ========== =========== ========== ========
Pro Forma
Insight
Communications
Including
Insight Ohio
--------------
ASSETS
Cash and cash
equivalents..... $ 18,963
Investment in
debt and equity
securities...... 39,473
Trade accounts
receivable,
net............. 20,367
Prepaid expenses
& other current
assets.......... 25,095
--------------
Total current
assets......... 103,898
Fixed assets,
net............. 980,399
Intangible 2,465,319
assets, net.....
Other noncurrent
assets.......... 45,746
--------------
Total assets.... $3,595,362
==============
LIABILITIES &
STOCKHOLDERS'
EQUITY
Accounts payable
& other current
liabilities..... $ 126,192
Deferred income
taxes........... 77,161
Debt............. 2,027,000
Preferred
interests....... 179,044
--------------
Total
liabilities.... 2,409,397
Minority
interest........ 539,667
Stockholders'
equity.......... 646,298
--------------
Total
liabilities &
stockholders'
equity......... $3,595,362
==============
11
Notes to Pro Forma Balance Sheet as of September 30, 2000
(A)Reflect the following assumptions:
. receipt of estimated net proceeds from the Insight Midwest 10 1/2% senior
notes of approximately $486.0 million net of $6.5 million of financing
costs and $7.5 million of original issue discount;
. repayment of borrowings under the Indiana and Kentucky credit facilities
of approximately $486.0 million;
. write-off of deferred financing costs of approximately $4.4 million
associated with the repayment of borrowings under the Indiana and
Kentucky credit facilities; and
. recording of estimated deferred financing costs of approximately $6.5
million associated with the offering of the Insight Midwest 10 1/2%
senior notes.
(B)Reflect the following:
. a step-up in value of intangible assets of the Illinois systems acquired
from the AT&T Cable Subsidiaries totalling $111.9 million. The
preliminary purchase price has been allocated to franchise rights. The
purchase price allocation will be finalized upon completion and receipt
of appraisal reports. However, we do not believe that any adjustment
resulting from the final allocation of purchase price will be material;
. refinancing of borrowings under the Midwest Holdings credit facility;
. borrowings of $376.3 million under the Midwest Holdings credit facility
and a decrease in cash and cash equivalents of $26.5 million to fund the
acquisition of the Illinois systems and financing costs;
. borrowings of $306.2 million that we assumed pursuant to the
Transactions;
. write-off of deferred financing costs of approximately $5.4 million
associated with the refinancing of borrowings with proceeds of the
Midwest Holdings credit facility; and
. recording of deferred financing costs of approximately $11.5 million
associated with the Midwest Holdings credit facility.
(C) Reflects the increase in AT&T Broadband's minority interest in Insight
Midwest's net assets based on AT&T Broadband's 50% share of the value of
the net assets purchased by and contributed to Insight Midwest pursuant to
the Transactions.
12
(D) Reflects the elimination of the Claremont, California system exchanged in
connection with the Transaction.
(E)Reflects the following:
Elimination of historical net assets of the Illinois systems
contributed by and purchased from AT&T Cable Subsidiaries..... $(1,257,396)
Net increase in fair value of net assets acquired pursuant to
the Transactions.............................................. 111,919
Elimination of the net assets of the Claremont, California
system........................................................ 4,082
Write-off deferred financing costs and other................... (13,265)
-----------
$(1,162,824)
===========
(F) Includes the balance sheet of Insight Ohio as of September 30, 2000 and a
transaction adjustment as follows:
September 30, Transaction As
2000 Adjustment Adjusted
------------- ----------- --------
(in thousands)
Cash and cash equivalents................ $ 5,591 $ -- $ 5,591
Trade accounts receivable, net........... 4,183 -- 4,183
Prepaid expenses and other current
assets................................ 301 -- 301
Fixed assets, net........................ 71,684 -- 71,684
Intangible assets, net................... 301 150,466(1) 150,767
-------- -------- --------
Total assets............................. $ 82,060 $150,466 $232,526
======== ======== ========
Accounts payable and other current
liabilities........................... $ 17,366 $ -- $ 17,366
Credit facility.......................... 25,000 -- 25,000
Preferred interests...................... 179,044 -- 179,044
-------- -------- --------
Total liabilities........................ 221,410 -- 221,410
Members equity........................... (139,350) 150,466 11,116
-------- -------- --------
Total liabilities and members' equity.... $ 82,060 $150,466 $232,526
======== ======== ========
--------
(1)Reflects a step-up in value of intangible assets of Insight Ohio of
$156.0 million recorded by us in the consolidated financial systems,
which is being amortized over twelve years. The preliminary purchase
price has been allocated to franchise rights. The purchase price
allocation will be finalized upon completion and receipt of appraisal
reports. However, we do not believe that any adjustment resulting from
the final allocation of purchase price will be material.
13
PRO FORMA TECHNICAL OPERATING DATA
As of September 30, 2000, except where noted
-----------------------------------------------------------
Pro Forma
-----------------------------------------------------------
Indiana Kentucky Illinois Ohio Managed Total
Systems Systems Systems(1) System Systems(2) Systems
------- -------- ---------- ------- ---------- ---------
Technical Data:
Network miles(3)...... 8,295 8,316 7,902 2,665 3,356 30,534
Number of headends.... 32 9 40 1 17 99
Number of headends
expected upon
completion of
upgrades during
2001(4)(5)........... 6 5 8 1 0 20
Number of headends
serving 95% of our
customers expected
upon completion of
upgrades during
2001(4)(5)........... 4 4 5 1 0 14
Operating Data:
Homes passed(6)....... 553,900 716,300 675,800 183,200 180,500 2,309,700
Basic customers(7).... 342,300 417,600 430,100 84,700 120,700 1,395,400
Basic
penetration(8)..... 61.8% 58.3% 63.6% 46.2% 66.9% 60.4%
Digital ready
homes(9)........... 171,800 383,000 455,500 35,141 0 1,045,400
Digital
customers(10)...... 21,600 28,500 62,200 9,700 0 122,000
Digital
penetration(11).... 12.6% 7.5% 13.7% 27.6% 0 11.7%
Premium units(12)..... 213,500 283,100 347,700 85,400 45,200 974,900
Premium
penetration(13).... 62.4% 67.8% 80.8% 100.8% 37.4% 69.9%
Cable modem
customers(14)...... 6,500 12,500 17,300 2,900 0 39,200
14
(1) Includes our Griffin, Georgia system.
(2) Projections for capital expenditures related to managed system rebuilds are
subject to approval by AT&T Broadband.
(3) Network miles for newly acquired Illinois systems are as of July 31, 2000.
(4) Headends in managed systems will be consolidated into the Indiana network.
(5) The upgrades of the newly acquired Illinois systems are scheduled to be
completed by the end of 2002.
(6) Homes passed are the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(7) Basic customers are customers of a cable television system who receive a
package of over-the-air broadcast stations, local access channels and
certain satellite-delivered cable television services, other than premium
services, and who are usually charged a flat monthly rate for a number of
channels.
(8) Basic penetration means basic customers as a percentage of total number of
homes passed.
(9) Digital ready homes means the total number of homes passed to which
digital service is available.
(10) Customers with a digital converter box.
(11) Digital penetration means digital service units as a percentage of digital
ready homes.
(12) Premium units mean the number of subscriptions to premium services, which
are paid for on an individual unit basis.
(13) Premium penetration means premium service units as a percentage of the
total number of basic customers. A customer may purchase more than one
premium service, each of which is counted as a separate premium service
unit. This ratio may be greater than 100% if the average customer
subscribes to more than one premium service unit.
(14) Customers receiving high-speed Internet service.
15
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AT&T Broadband, LLC:
We have audited the accompanying combined balance sheet of The AT&T Insight
Midwest Systems (a combination of certain assets as defined in note 1 to the
combined financial statements) as of December 31, 1999, and the related
combined statements of operations and parent's investment, and cash flows for
the period from March 1, 1999 to December 31, 1999 ("New Insight" or
"Successor") and of The AT&T Insight Midwest Systems for the period from
January 1, 1999 to February 28, 1999 ("Old Insight" or "Predecessor"). These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the aforementioned Successor combined financial statements
present fairly, in all material respects, the financial position of New Insight
as of December 31, 1999, and the results of their operations and their cash
flows for the Successor period, in conformity with generally accepted
accounting principles. Further, in our opinion, the aforementioned Predecessor
combined financial statements present fairly, in all material respects, the
results of Old Insight operations and their cash flows for the Predecessor
period, in conformity with generally accepted accounting principles.
As discussed in note 1, effective March 9, 1999, AT&T Corp., parent company
of New Insight, acquired Tele-Communications, Inc., parent company of Old
Insight, in a business combination accounted for as a purchase. As a result of
the acquisition, the combined financial information for the periods after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and therefore, is not comparable.
KPMG LLP
Denver, Colorado
October 11, 2000
F-1
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
COMBINED BALANCE SHEETS
(amounts in thousands)
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
Assets
Cash................................................. $ 2,143 1,769
Trade and other receivables, net..................... 5,845 4,303
Property and equipment, at cost:
Land............................................... 668 639
Distribution systems............................... 196,085 121,647
Support equipment and buildings.................... 14,468 11,048
---------- ---------
211,221 133,334
Less accumulated depreciation...................... 21,911 6,665
---------- ---------
189,310 126,669
---------- ---------
Intangible assets.................................... 1,115,279 954,840
Less accumulated amortization...................... 41,352 22,507
---------- ---------
1,073,927 932,333
---------- ---------
$1,271,225 1,065,074
========== =========
Liabilities and Parent's Investment
Accounts payable..................................... $ 864 740
Accrued expenses..................................... 12,965 4,051
---------- ---------
Total liabilities................................ 13,829 4,791
---------- ---------
Parent's investment (note 3)......................... 1,257,396 1,060,283
---------- ---------
Commitments and contingencies (note 4)............... $1,271,225 1,065,074
========== =========
See accompanying notes to combined financial statements.
F-2
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENT'S INVESTMENT
(see Note 2)
(amounts in thousands)
New Insight Old Insight
------------------------------------ -----------------
Ten months
Nine months ended ended Two months ended
September 30, 2000 December 31, 1999 February 28, 1999
------------------ ----------------- -----------------
(unaudited)
Revenue................................................................ $ 128,357 118,509 20,742
Operating costs and expenses:
Operating (note 3)................................................... 54,303 49,115 8,131
Selling, general, and administrative................................. 13,763 13,590 2,553
Management fees (note 3)............................................. 7,011 5,497 900
Depreciation......................................................... 15,325 11,058 2,158
Amortization......................................................... 21,273 20,141 1,713
---------- --------- -------
111,675 99,401 15,455
---------- --------- -------
Net earnings....................................................... 16,682 19,108 5,287
Parent's investment:
Beginning of period.................................................. 1,060,283 892,683 414,696
Change in due to parent (note 3)..................................... (18,454) (13,727) (4,707)
Acquisition of cable systems by subsidiaries of AT&T Corp. (note 2).. 198,885 162,219 --
---------- --------- -------
End of period...................................................... $1,257,396 1,060,283 415,276
- --------------------------------------------------
========== ========= =======
See accompanying notes to combined financial statements.
F-3
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
COMBINED STATEMENTS OF CASH FLOWS
(see note 2)
(amounts in thousands)
New Insight Old Insight
-------------------------- ------------
Nine months Ten months Two months
ended ended ended
September 30, December 31, February 28,
2000 1999 1999
------------- ------------ ------------
(unaudited)
Cash flows from operating activities:
Net earnings......................................................................... $16,682 19,108 5,287
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization...................................................... 36,598 31,199 3,871
Changes in operating assets and liabilities:
Change in receivables and other assets............................................ (520) 143 (1,606)
Change in accruals, payables and other liabilities................................ 469 1,820 (339)
------- ------- ------
Net cash provided by operating activities........................................ 53,229 52,270 7,213
------- ------- ------
Cash flows from investing activities:
Capital expended for property and equipment.......................................... (34,808) (40,155) (4,165)
Other investing activities, net...................................................... 407 1,929 972
------- ------- ------
Net cash used in investing activities............................................ (34,401) (38,226) (3,193)
------- ------- ------
Cash flows from financing activities--
Change in amounts due to parent, net................................................. (18,454) (13,727) (4,707)
------- ------- ------
Net change in cash................................................................... 374 317 (687)
Cash at beginning of period.......................................................... 1,769 1,452 2,139
------- ------- ------
Cash at end of period................................................................ $ 2,143 1,769 1,452
======= ======= ======
See accompanying notes to combined financial statements.
F-4
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Amounts as of and for the period ended September 30, 2000 are unaudited)
(1) Basis of Presentation and Summary of Significant Accounting Policies
On August 15, 2000, subsidiaries of AT&T Corp. ("AT&T") entered into
certain agreements with Insight Communications Company, L.P. ("Insight") and
Insight Midwest, L.P. ("Insight Midwest"). In accordance with the terms of the
agreements, such subsidiaries agreed to contribute certain cable television
systems serving approximately 252,000 customers located in Illinois (the
"Contributed Systems") to Insight Midwest, a partnership in which AT&T
currently holds a 50% partnership interest. In addition, such subsidiaries
agreed to sell certain cable television systems serving approximately 94,000
customers located in Illinois (the "Sold Systems") to Insight and to exchange a
cable television system serving approximately 10,000 customers in and around
Freeport, Illinois (the "Exchanged System") for a cable television system in
and around Claremont, California. Insight will contribute the Sold Systems and
the Exchanged System to Insight Midwest. Following the above described
transactions, both AT&T and Insight will continue to have a 50% partnership
interest in Insight Midwest.
The above agreements were consummated effective on January 1, 2001.
The accompanying combined financial statements include the specific
accounts directly related to the activities of the Contributed Systems, the
Sold Systems and the Exchanged Systems (collectively, the "AT&T Insight Midwest
Systems"). The AT&T Insight Midwest Systems are wholly-owned by various cable
subsidiaries of AT&T. All significant inter-entity accounts and transactions
have been eliminated in combination. The combined net assets of AT&T Insight
Midwest Systems are referred to as "Parent's Investment."
On March 9, 1999, AT&T acquired AT&T Broadband, LLC ("AT&T Broadband",
formerly known as Tele-Communications, Inc.) in a merger (the "AT&T Merger").
In the AT&T Merger, AT&T Broadband became a subsidiary of AT&T. For financial
reporting purposes, the AT&T Merger was deemed to have occurred on March 1,
1999. The combined financial statements for periods prior to March 1, 1999
include those AT&T Insight Midwest Systems that were then owned by Tele-
Communications, Inc. and are referred to herein as "Old Insight." The combined
financial statements for periods subsequent to February 28, 1999 are referred
to herein as "New Insight." Due to the application of purchase accounting in
connection with the AT&T Merger, the predecessor combined financial statements
of Old Insight are not comparable to the successor combined financial
statements of New Insight. In the following text, "AT&T Insight Midwest
Systems" and "the Company" refer to both Old Insight and New Insight. See note
2.
As further described in note 2, certain of the cable systems included in
the combined financial statements of New Insight were acquired by AT&T and its
subsidiaries in 2000 and 1999. The AT&T Insight Midwest Systems' combined
financial statements include the assets, liabilities and results of operations
for such cable systems since their respective acquisition dates.
Certain costs of AT&T are charged to the Company based on AT&T Insight
Midwest Systems' number of customers (see note 3). Although such allocations
are not necessarily indicative of the costs that would have been incurred by
the AT&T Insight Midwest Systems on a stand alone basis, management believes
that the resulting allocated amounts are reasonable.
The AT&T Insight Midwest System's net assets are held by various wholly-
owned subsidiaries and partnerships of AT&T. Accordingly, the balance sheets of
the AT&T Insight Midwest Systems do
F-5
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
not reflect all of the assets and liabilities that would be indicative in a
stand alone business. In particular, the AT&T Insight Midwest Systems do not
constitute a taxable entity, therefore, no provision has been made for income
tax expense or benefit in the accompanying combined financial statements.
Interim Results (unaudited)
The accompanying interim combined financial statements as of and for the
nine months ended September 30, 2000 are unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the results for such periods. The results
of operations for any interim period are not necessarily indicative of results
for the full year.
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at September 30, 2000 and December 31, 1999, respectively, was not
significant.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, labor and applicable
overhead related to installations and interest during construction are
capitalized. Interest capitalized was not significant for the nine months ended
September 30, 2000, the ten months ended December 31, 1999 and the two months
ended February 28, 1999.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such
property are charged to accumulated depreciation, and salvage, if any, is
credited thereto. Gains or losses are only recognized in connection with the
sale of properties in their entirety.
Intangible Assets
Intangible assets consist primarily of franchise costs. Franchise costs
represent the difference between the value attributable to the AT&T Insight
Midwest Systems' service areas and amounts allocated to the tangible assets of
the AT&T Insight Midwest Systems. Such amounts are generally amortized on a
straight-line basis over 40 years. Costs incurred by the AT&T Insight Midwest
Systems in negotiating and renewing franchise agreements are amortized on a
straight-line basis over the average lives of the franchise, 15 years.
Impairment of Long-lived Assets
The Company periodically reviews the carrying amounts of property and
equipment and its identifiable intangible assets to determine whether current
events or circumstances warrant adjustments to such carrying amounts. If an
impairment adjustment is deemed necessary, based on
F-6
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
an analysis of undiscounted cash flows, such loss is measured by the amount
that the carrying value of such assets exceeds their fair value. Considerable
management judgment is necessary to estimate the fair value of assets,
accordingly, actual results could vary significantly from such estimates.
Assets to be disposed of are carried at the lower of their financial statement
carrying amount or fair value less costs to sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising and pay-per-
view programming is recognized in the period that services are delivered.
Installation revenue is recognized in the period the installation services are
provided to the extent of direct selling costs. Any remaining amount is
deferred and recognized over the estimated average period that customers are
expected to remain connected to the cable distribution system.
Statement of Cash Flows
With the exception of certain system acquisitions and asset transfers (see
note 2), transactions effected through the intercompany account due to (from)
parent have been considered constructive cash receipts and payments for
purposes of the combined statement of cash flows.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB No. 101), "Revenue Recognition in Financial
Statements." The SEC delayed the date by which registrants must apply the
accounting and disclosures described in SAB No. 101 until the fourth quarter of
2000. The Company does not anticipate that SAB No. 101 will have a significant
impact on the financial condition or results of operations of the AT&T Insight
Midwest Systems.
(2) Business Combinations
AT&T Merger
The AT&T Merger has been accounted for using the purchase method of
accounting and has been deemed to be effective as of March 1, 1999 for
financial reporting purposes. Accordingly, the Company's portion of the
allocation of AT&T's purchase price to acquire AT&T Broadband has been
reflected in the combined financial statements of the AT&T Insight Midwest
Systems as of March 1, 1999.
F-7
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The following table reflects the March 1, 1999 balance sheet of New
Insight, as adjusted to give effect to the purchase accounting adjustments
resulting from the allocation to the net assets of the Company of AT&T's
purchase price to acquire AT&T Broadband:
(amounts in
thousands)
-----------
Assets
Cash........................................................... $ 1,452
Receivables.................................................... 3,690
Property and equipment......................................... 71,832
Intangible assets.............................................. 818,088
--------
$895,062
========
Liabilities and Parent's Investment
Accounts payable and accrued expenses.......................... $ 2,379
Parent's Investment............................................ 892,683
--------
$895,062
========
As a result of the application of purchase accounting, New Insight recorded
its assets and liabilities at their fair values on March 9, 1999. The most
significant purchase accounting adjustments related to intangible assets. The
intangible assets include $792.0 million assigned to New Insight's franchise
costs which are amortized over 40 years.
Acquisitions
Exchange
During the second quarter of 1999, AT&T Broadband paid cash and traded
cable television systems serving customers located in Florida, Hawaii, Maine,
New York, Ohio, Texas and Wisconsin in exchange for cable television systems
serving customers located in Illinois, New Jersey, Oregon and Pennsylvania (the
"1999 Exchange"). The 1999 Exchange was consummated pursuant to an agreement
that was executed in November 1998. The 1999 Exchange was deemed to be
effective as of June 1, 1999 for financial reporting purposes and the acquired
systems were recorded using the purchase method of accounting.
Certain of the Illinois cable television systems acquired by AT&T Broadband
in the 1999 Exchange are included in the accompanying financial results of the
AT&T Insight Midwest Systems and are reflected as a contribution from AT&T
Broadband. Accordingly, the assets, liabilities and results of operations of
such systems have been reflected in the combined financial statements of the
AT&T Insight Midwest Systems since June 1, 1999.
F-8
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The following table reflects the June 1, 1999 balance sheet of the 1999
Exchange systems contributed from AT&T Broadband to the AT&T Insight Midwest
Systems:
(amounts in
thousands)
-----------
Assets
Receivables.................................................... $ 483
Property and equipment......................................... 25,670
Intangible assets.............................................. 136,658
--------
$162,811
========
Liabilities and Parent's Investment
Accounts payable and accrued expenses.......................... $ 592
Parent's Investment............................................ 162,219
--------
$162,811
========
The above operating assets and liabilities have been included in the
accompanying combined financial statements at their fair values at June 1,
1999. The most significant purchase accounting adjustments related to
intangible assets. The intangible assets include approximately $131.8 million
of franchise costs which are amortized over 40 years.
Merger with MediaOne Group, Inc. ("MediaOne") (unaudited)
On June 15, 2000, AT&T completed the acquisition of MediaOne in a cash and
stock transaction valued at approximately $56 billion (the "MediaOne Merger").
The MediaOne Merger was accounted for under the purchase method of accounting.
Certain cable television systems received by AT&T in the MediaOne Merger are
included in the accompanying financial statements since their date of
acquisition by AT&T. Accordingly, the preliminary allocation of the Company's
portion of AT&T's purchase price to acquire MediaOne has been reflected in the
accompanying combined financial statements of the AT&T Insight Midwest Systems
as of June 15, 2000.
The following table reflects the June 15, 2000 balance sheet of the cable
systems which were acquired in the MediaOne Merger and included in the AT&T
Insight Midwest Systems, as adjusted to give effect to the preliminary purchase
accounting adjustments:
(amounts in
thousands)
-----------
Assets
Cash........................................................... $ 304
Receivables.................................................... 620
Property and equipment......................................... 47,588
Intangible assets.............................................. 159,419
--------
$207,931
========
Liabilities and Parent's Investment
Accounts payable and accrued expenses.......................... $ 9,046
Parent's Investment............................................ 198,885
--------
$207,931
========
F-9
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The preliminary purchase accounting adjustments in the table above reflect
the preliminary estimates of fair value at June 15, 2000. A final allocation of
AT&T's purchase price will be made upon receipt of final third party
appraisals. The most significant preliminary purchase accounting adjustments
related to intangible assets. The preliminary intangible assets include
approximately $146.0 million of franchise costs which are amortized over 40
years.
Pro Forma Operating Results (unaudited)
The following unaudited combined results of operations for the nine months
ended September 30, 2000 and the year ended December 31, 1999 were prepared
assuming the AT&T Merger, the 1999 Exchange, and the MediaOne Merger occurred
on January 1, 1999. These pro forma amounts are not necessarily indicative of
operating results that would have occurred if the AT&T Merger, the 1999
Exchange, and the MediaOne Merger had occurred on January 1, 1999, nor does it
intend to be a projection of future results:
Nine months
ended Year ended
September 30, December 31,
2000 1999
------------- ------------
(amounts in thousands)
Revenue........................................... $139,476 174,939
Net earnings...................................... $ 16,935 26,679
(3) Parent's Investment
Parent's investment in the AT&T Insight Midwest Systems at September 30,
2000 and December 31, 1999 is summarized as follows (amounts in thousands):
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
Due to parent..................................... $1,221,606 1,041,175
Retained earnings since March 1, 1999............. 35,790 19,108
---------- ---------
$1,257,396 1,060,283
========== =========
The non-interest bearing amount due to parent includes AT&T's equity in
acquired systems, advances for operations, acquisitions and construction costs,
as well as the amounts owed as a results of the allocation of certain costs
from AT&T.
As a result of AT&T's 100% ownership of the AT&T Insight Midwest Systems,
the non-interest bearing amounts due to parent have been classified as a
component of Parent's investment in the accompanying combined balance sheets.
Such amounts are due on demand.
The AT&T Insight Midwest Systems purchase, at AT&T's cost, certain pay
television and other programming through a certain indirect subsidiary of AT&T.
Charges for such programming are included in operating expenses in the
accompanying combined financial statements.
Certain subsidiaries of AT&T provide administrative services to the AT&T
Insight Midwest Systems and have assumed managerial responsibility of the AT&T
Insight Midwest Systems' cable television system operations and construction.
As compensation for these services, the AT&T Insight Midwest Systems pay a
monthly fee calculated on a per-subscriber basis.
F-10
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The intercompany advances and expense allocation activity in amounts due to
parent consist of the following (amounts in thousands):
New Insight Old Insight
-------------------------- ------------
Nine months Ten months Two months
ended ended ended
September 30, December 31, February 28,
2000 1999 1999
------------- ------------ ------------
(unaudited)
Beginning of period................................................................ $1,041,175 892,683 282,834
Programming charges.............................................................. 34,574 30,083 5,282
Management fees.................................................................. 7,011 5,497 900
Cable system acquisitions........................................................ 198,885 162,219 --
Cash transfers................................................................... (60,039) (49,307) (10,889)
---------- --------- -------
End of period...................................................................... $1,221,606 1,041,175 278,127
--------------------------------------------------
========== ========= =======
(4) Commitments and Contingencies
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier. The FCC
historically administered rate regulation of any cable programming service tier
("CPST"). The FCC's authority to regulate CPST rates expired on March 31, 1999.
The Company believes that it has complied in all material respects with the
provisions of the 1992 Cable Act and the 1996 Act, including its rate setting
provisions. If, as a result of the review process, a system cannot substantiate
its rates, it could be required to retroactively reduce its rates to the
appropriate benchmark and refund the excess portion of rates received. Any
refunds of the excess portion of CPST rates would be retroactive to the date of
complaint.
Certain plaintiffs have filed or threatened separate class action
complaints against cable systems across the United States alleging that the
systems' practice of assessing an administrative fee to subscribers whose
payments are delinquent constitutes an invalid liquidated damage provision, a
breach of contract, and violates local consumer protection statutes. Plaintiffs
seek recovery of all late fees paid to the subject systems as a class
purporting to consist of all subscribers who were assessed such fees during the
applicable limitation period, plus attorney fees and costs. In March 2000, a
settlement agreement was executed with respect to certain late fee class action
complaints, which involves certain of the AT&T Insight Midwest Systems. On
October 11, 2000 the court approved the settlement agreement with the exception
of certain customers, including customers in Illinois, which did not receive
notice regarding the settlement. The settlement agreement for the remaining
affected subscribers in the AT&T Insight Midwest Systems was approved in
December, 2000. The settlement is not expected to have a material impact on the
AT&T Insight Midwest Systems' financial condition or results of operations.
F-11
AT&T INSIGHT MIDWEST SYSTEMS
(A combination of certain assets, as defined in note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The AT&T Insight Midwest Systems have contingent liabilities related to
legal proceedings and other matters arising in the ordinary course of business.
Although it is reasonably possible the AT&T Insight Midwest Systems may incur
losses upon conclusion of such matters, an estimate of any loss or range of
loss cannot be made. In the opinion of management, it is expected that amounts,
if any, which may be required to satisfy such contingencies will not be
material in relation to the accompanying combined financial statements.
The AT&T Insight Midwest Systems lease business offices, have entered into
pole rental agreements and use certain equipment under lease arrangements.
Rental expense for such arrangements amounted to $1,219,000, $1,037,000 and
$157,000 for the nine months ended September 30, 2000, the ten months ended
December 31, 1999 and the two months ended February 28, 1999, respectively.
Future minimum lease payments under noncancelable operating leases for each
of the next five years are summarized as follows (amounts in thousands):
Years ending December 31:
2000................................................................ $525
2001................................................................ 382
2002................................................................ 345
2003................................................................ 324
2004................................................................ 325
Thereafter.......................................................... 209
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced.
F-12
Item 7. Financial Statements and Exhibits.
(a) Financial Statements: None
(b) Pro Forma Financial Information: None
(c) Exhibits:
Exhibit No. Description
----------- -----------
99.1 Press Release dated January 26, 2001
F-13
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 Communications Company, Inc.
(Registrant)
Date: January 29, 2001 By: /s/ Elliot Brecher
------------------------------------
Elliot Brecher
Senior Vice President
and General Counsel
F-14