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Insight Announces Fourth Quarter and Year-End 2003 Results

New York – February 26, 2004 –

Insight Communications Company (Nasdaq: ICCI) today announced financial results for the quarter and year ended December 31, 2003.

Revenue for the year ended December 31, 2003 totaled $902.6 million, an increase of 11% over the prior year, due primarily to customer gains in high-speed Internet and digital services as well as basic rate increases. Operating cash flow increased to $387.1 million for the year ended December 31, 2003 from $355.5 million for the year ended December 31, 2002, an increase of 9%. Operating cash flow reported for the year ended December 31, 2002 includes a $4.1 million charge related to high-speed Internet. When this charge is excluded, the resulting 2003 operating cash flow growth is 8%. A reconciliation of operating cash flow to operating income appears below in the discussion of operating data results.

Revenue for the three months ended December 31, 2003 totaled $236.1 million, an increase of 11% over the prior year, due primarily to customer gains in high-speed Internet and digital services as well as basic rate increases. Operating cash flow increased to $104.1 million for the three months ended December 31, 2003 from $96.1 million for the three months ended December 31, 2002, an increase of 8%.

Revenue generating units, representing the sum of basic, digital, high-speed Internet and telephone customers as defined by the NCTA Standard Reporting Categories, increased by 46,900 during the quarter to 1,981,800. High-speed Internet net additions were 21,600; digital net additions were 19,200; telephone net additions were 6,000; and basic net additions were 100. For the full year, revenue generating units increased by 182,900. After giving effect to the system swap in Q1 2003, revenue generating units increased 170,700 in the year.

"We showed strong unit growth in high-speed Internet and digital service, and maintained our basic customers during the fourth quarter," said Michael S. Willner, President and Chief Executive Officer. "Importantly, operating cash flow growth, as we expected, has increased over the previous two quarters, confirming that we are on a path to double digit operating cash flow growth in 2004."

Capital expenditures totaled $65.5 million in the fourth quarter, a 31% reduction over the prior year's quarter, and resulted in $196.7 million for the full year. Of the total spent in 2003, approximately 51% was for Customer Premise Equipment and 17% was for Upgrade/Rebuild costs, as defined by the NCTA Standard Reporting Categories. Capital was funded through cash generated from operations as well as through bank borrowings. As of December 31, 2003, Insight has substantially completed the rebuild of its systems.

"We added 170,700 revenue generating units in 2003, up from 163,700 additions in 2002," said Dinni Jain, Executive Vice President and Chief Operating Officer. "We are particularly pleased with our full year increase in digital penetration of over 500 basis points and our more than 50% increase in high-speed Internet net additions."

Insight reiterated the guidance it previously announced for the full year 2004:

• Total revenue growth of 11.0% to 12.0% over 2003
  
  
• Operating cash flow growth of 10.0% to 11.0% over 2003
  
  
• Capital expenditures of approximately $185 million for the year
  
  
• Free cash flow of approximately $50 million for the year (see discussion of non-GAAP measures below)

Operating results for the year ended December 31, 2003 compared to the year ended December 31, 2002

Revenue for the year ended December 31, 2003 totaled $902.6 million, an increase of 11% over the prior year, due primarily to customer gains in high-speed Internet and digital services as well as basic rate increases. High-speed Internet service revenue increased 59% over the prior year, primarily due to an increased customer base. Insight added a net 85,200 high-speed Internet customers during the year to end the year at 230,000 customers. Basic cable service revenue increased 6%, primarily due to basic rate increases. The average basic rate increase in 2003 was 6%. In addition, digital service revenue increased 26% over the prior year, primarily due to an increased customer base. Insight added a net 68,200 digital customers during the year to end the year at 402,900 customers.

Revenue generating units were approximately 1,981,800 as of December 31, 2003, compared to approximately 1,798,900 as of December 31, 2002, an increase of 10%.

Average monthly revenue per basic customer, including management fee revenue and SourceSuite revenue, was $58.03 for the year ended December 31, 2003, compared to $52.38 for the year ended December 31, 2002, primarily reflecting the continued successful rollout of new product offerings in all markets. Average monthly revenue per basic customer for high-speed Internet and digital service increased to $11.41 for the year ended December 31, 2003, up from $8.07 for the year ended December 31, 2002.

Programming and other operating costs increased $49.5 million, or 18%. Programming costs increased 10%, primarily attributable to increased programming rates for classic service, an increase in digital customers served, and additional programming in the newly rebuilt systems. These increases were offset by a $3.1 million credit from the settlement of a programming contract. Excluding the settlement of the programming contract, programming costs increased 11%. Other operating costs increased 39%, primarily attributable to increases in high-speed Internet costs driven by the net addition of 85,200 high-speed Internet customers, and labor costs, which increased due to the transition from upgrade activities to maintenance activities.

Selling, general and administrative expenses increased $13.6 million, or 8%, primarily as a result of annual salary increases and payroll related costs for existing employees, some of which are one-time expenses, as well as the addition of new employees. In addition, marketing expenses increased to support the continued rollout of new products. Legal fees also increased related to ongoing litigation. Partially offsetting these increases was an increase in marketing support funds (recorded as a reduction to selling, general and administrative expenses) for the promotion of new channel launches.

High-speed Internet service charges were incurred through February 28, 2002 as a result of payments made to At Home Corporation, the former provider of high-speed Internet services for all of Insight's systems, except in Ohio. On September 28, 2001, @Home filed for protection under Chapter 11 of the Bankruptcy Code. In order to continue providing service to existing customers and to resume the provisioning of service to new customers, Insight entered into an interim service arrangement that required the company to pay $10.0 million to @Home to extend service through February 28, 2002. As a result of this arrangement, Insight incurred approximately $7.9 million in excess of the original agreed-to cost for such services rendered, of which $4.1 million was incurred in 2002.

Depreciation and amortization expense increased $15.3 million, or 7%, primarily as a result of additional capital expenditures through December 31, 2003 to complete the rebuild of the Illinois systems, extend the plant and continue the rollout of digital, high-speed Internet and telephone services to existing and new service areas. Excluding the write-down of obsolete video on demand equipment during the year ended December 31, 2002, depreciation and amortization increased $26.4 million, or 13%.

Operating cash flow increased $31.6 million, or 9%, primarily due to increased basic, digital and high-speed Internet revenue, partially offset by increases in programming and other operating costs and selling, general and administrative costs. The increase in operating cash flow is also attributable to the absence of high-speed Internet service payments to @Home for the year ended December 31, 2003 that were previously included in the adjustments to operating cash flow in the amount of $4.1 million during the year ended December 31, 2002. The following is a reconciliation of operating income to operating cash flow:

Three months ended December 31,
	2003	2002
(in thousands)
Operating income	$155,344	$139,002
Adjustment:
Depreciation and amortization	231,760	216,506
Operating Cash Flow	$387,104	$355,508

 

Interest expense remained relatively flat year over year. The increase of $1.3 million, or 1%, is primarily due to the inclusion of $5.0 million of accruals for preferred interests in accordance with SFAS No. 150, effective July 1, 2003. Previously, the accrual was treated as a dividend below net income or loss. Additionally, the increase is related to higher outstanding debt, which averaged $2.7 billion for the year ended December 31, 2003, versus $2.6 billion for the year ended December 31, 2002. These increases were partially offset by a decrease in interest expense due to lower interest rates, which averaged 7.4% for the year ended December 31, 2003, versus 7.9% for the year ended December 31, 2002.

Minority interest decreased $39.0 million, or 126%, to expense of $7.9 million from income of $31.1 million. The decrease is a direct result of the increase in net income attributable to common interests recorded by Insight Midwest, primarily due to the $27.1 million gain recorded on the swap of the Griffin, Ga. system for the managed Shelbyville, Ky. and New Albany, Ind. systems owned by Comcast of Montana/Indiana/Kentucky/Ohio during the first quarter of 2003, the $37.7 million gain on the settlement of a programming contract, and increased operating income partially offset by the $10.9 million loss from the extinguishment of the Coaxial debt.

During the fourth quarter of 2003, the company determined that it had incorrectly accounted for the impact of minority interests related to its interest rate swap agreements, which convert the interest on a portion of the variable rate senior credit facility to a fixed rate. In addition, Insight had not reduced its deferred tax asset and related valuation allowance related to such swaps through other comprehensive income for subsequent changes in its deferred tax position. The company has therefore restated its financial statements for the year ended December 31, 2002. It has not restated its financial statements for the year ended December 31, 2001 since the correction does not have a material impact on them. The restatement does not impact Insight's revenue, operating income, operating cash flow or loss before income taxes. The following table summarizes the impact of the restatement on the consolidated balance sheet and consolidated statement of operations for the year ended December 31, 2002:

Three months ended December 31, 2002
	As Reported	Restated
(in thousands, except per share amounts)
Minority interest	$224,803	$215,893
Accumulated deficit	(237,956)	(232,280)
Accumulated other comprehensive loss	(8,490)	(14,166)
Net loss	(47,992)	(42,316)
Net loss applicable to common stockholders	(68,099)	(62,423)
Basic and diluted loss per share attributable to common stockholders	(1.13)	(1.04)

Use of Non-GAAP Measures

This press release contains disclosure of operating cash flow, system cash flow and free cash flow, each of which is a financial measure that is not calculated and presented in accordance with accounting principles generally accepted in the United States ("GAAP"). This release includes tabular reconciliation of operating income, Insight's most directly comparable financial measure calculated and presented in accordance with GAAP, to operating cash flow and system cash flow. This release also includes a reconciliation of net cash provided by operating activities, Insight's most directly comparable financial measure calculated and presented in accordance with GAAP, to free cash flow.

Insight defines operating cash flow as operating income or loss before depreciation and amortization. Insight defines free cash flow as net cash provided by operating activities less capital expenditures and distribution of preferred interests. Operating cash flow and free cash flow are useful to management in measuring the overall operational strength and performance of the company. A limitation of operating cash flow, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating the company's revenues. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures and investment spending. Another limitation of operating cash flow is that it does not reflect income net of interest expense, which is a significant expense of the company because of the substantial debt it incurred to acquire cable television systems and finance the capital expenditures for the upgrade of the cable network. System cash flow is another non-GAAP financial measure, which Insight uses to evaluate the underlying operating performance of its cable systems. Insight defines system cash flow as operating cash flow excluding management fees payable by the company's operating subsidiaries to Insight Communications, and excluding the corporate overhead of Insight Communications. Such management fees are equal to 3% of system revenues, and are eliminated in consolidation. Corporate overhead is a component of Insight's selling, general and administrative expenses. System cash flow is subject to the same limitations as described above for operating cash flow.

Despite the limitations of operating cash flow, system cash flow and free cash flow, management believes that the presentation of each financial measure is relevant and useful for investors because it allows investors to evaluate Insight's performance in a manner similar to the methods used by management. In addition, operating cash flow, system cash flow and free cash flow are commonly used in the cable television industry to analyze and compare cable television companies on the basis of liquidity, operating performance and leverage, although Insight's measures of operating cash flow, system cash flow and free cash flow may not be directly comparable to similar measures used by other companies.

Operating cash flow, system cash flow and free cash flow should not 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 well as other measures of financial performance reported in accordance with GAAP. Insight is unable to reconcile these non-GAAP measures to their most directly comparable GAAP measures on a forward-looking basis, primarily because it is impractical to project the timing of certain transactions, such as the initiation of depreciation relative to network construction projects.

About Insight Communications

Insight Communications (NASDAQ: ICCI) is the 9th largest cable operator in the United States, serving approximately 1.4 million customers in the four contiguous states of Illinois, Kentucky, Indiana and Ohio. Insight specializes in offering bundled, state-of-the-art services in mid-sized communities, delivering basic and digital video, high-speed Internet and voice telephony in selected markets to its customers.

Any statements in this press release 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," "expect," "anticipate" and other expressions that indicate future events and trends identify forward-looking statements. The above forward-looking statements are subject to risks and uncertainties and are subject to change based upon a variety of factors that could cause actual results to differ materially from those Insight Communications anticipates. Factors that could have a material and adverse impact on actual results include competition, increasing programming costs, changes in laws and regulations, our substantial debt and the other risk factors described in Insight Communications' annual report on Form 10-K, as amended, for the year ended December 31, 2002. All forward-looking statements in this press release are qualified by reference to the cautionary statements included in Insight Communications' Form 10-K.

Supplemental Information & Quarterly Operating Statistics (MS Word)