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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NUMBER: 000-32647
KNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-2424258
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
KNOLOGY, INC. 31833
1241 O.G. SKINNER DRIVE (Zip Code)
WEST POINT, GEORGIA
(Address of principal
executive offices)
Registrant's telephone number, including area code: (706) 645-8553
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
As of July 31, 2002, we had 503,197 shares of common stock, 51,020,921
shares of Series A preferred stock, 21,180,131 shares of Series B preferred
stock, and 37,219,562 shares of Series C preferred stock outstanding.
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KNOLOGY, INC. AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 2002
INDEX
PAGE
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS 2
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Statement of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 23
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 24
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 24
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 24
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24
ITEM 5 OTHER INFORMATION 24
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 24
1
KNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2002
(DOLLARS IN THOUSANDS)
June 30, December 31,
2002 2001
-------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,877 $ 38,074
Accounts receivable, net 15,208 13,420
Affiliate receivable 78 594
Prepaid expenses and other 2,667 946
--------- ---------
Total current assets 40,830 53,034
PROPERTY, PLANT AND EQUIPMENT, net 384,826 400,851
INVESTMENTS 12,580 12,625
INTANGIBLE AND OTHER ASSETS, net 47,987 50,030
--------- ---------
Total assets $ 486,223 $ 516,540
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 18,747 $ 17,096
Accounts payable 21,678 18,102
Accrued liabilities 10,138 10,583
Unearned revenue 7,732 6,636
--------- ---------
Total current liabilities 58,295 52,417
--------- ---------
NONCURRENT LIABILITIES:
Notes payable 29,681 31,331
Unamortized investment tax credits 146 182
Senior discount notes, net of discount 359,982 339,486
--------- ---------
Total noncurrent liabilities 389,809 370,999
--------- ---------
Total liabilities 448,104 423,416
--------- ---------
WARRANTS: 1,861 4,726
STOCKHOLDERS' EQUITY:
Convertible preferred stock 1,094 1,094
Common stock 5 5
Additional paid-in capital 394,741 394,741
Accumulated deficit 359,582 (307,442)
--------- ---------
Total stockholders' equity 33,393 88,398
--------- ---------
Total liabilities and stockholders' equity $ 486,223 $ 516,540
========= =========
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
2
KNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
OPERATING REVENUES: $ 34,878 $ 25,452 $ 66,912 $ 48,958
OPERATING EXPENSES:
Costs and expenses, excluding depreciation and amortization 30,181 26,153 58,679 51,402
Depreciation and amortization 20,604 19,811 39,205 38,424
----------- ----------- ----------- -----------
50,785 45,964 97,884 89,826
----------- ----------- ----------- -----------
OPERATING LOSS (15,907) (20,512) (30,972) (40,868)
OTHER INCOME (EXPENSE):
Interest income 82 810 211 1,929
Interest expense (11,073) (10,905) (21,888) (21,253)
Gain on adjustment of warrants to market 2,865 0 2,865 0
Other expense, net (115) (210) (943) (600)
----------- ----------- ----------- -----------
(8,241) (10,305) (19,755) (19,924)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (24,148) (30,817) (50,727) (60,792)
INCOME TAX PROVISION (110) 0 (119) 0
----------- ----------- ----------- -----------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (24,258) (30,817) (50,846) (60,792)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 0 0 (1,294) 0
----------- ----------- ----------- -----------
NET LOSS (Note 3) $ (24,258) $ (30,817) $ (52,140) $ (60,792)
----------- ----------- ----------- -----------
NON-CASH DISTRIBUTION TO PREFERRED STOCKHOLDERS $ 0 $ 0 $ 0 $ 36,579
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (24,258) $ (30,817) $ (52,140) $ (97,371)
=========== =========== =========== ===========
BASIC AND DILUTED NET LOSS PER SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ (0.20) $ (0.26) $ (0.42) $ (0.85)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 0.00 $ 0.00 $ (0.01) $ 0.00
----------- ----------- ----------- -----------
BASIC AND DILUTED NET LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (0.20) $ (0.26) $ (0.43) $ (0.85)
=========== =========== =========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 122,108,852 120,182,930 122,100,458 115,127,837
=========== =========== =========== ===========
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
3
KNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Six Months Ended
June 30,
--------------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (52,140) $ (97,371)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 39,205 38,424
Write down of inventory to market 852 0
Write off of investment 45 0
Gain on adjustment of warrants to market (2,865) 0
Amortization of bond discount 20,496 21,855
Loss on disposition of assets 6 179
Cumulative effect of change in accounting principle - Goodwill impairment 1,294 0
Changes in operating assets and liabilities:
Accounts receivable (1,788) (1,164)
Accounts receivable - affiliate 516 101
Prepaid expenses and other (1,724) (42)
Accounts payable 3,574 (13,900)
Accrued liabilities (445) (2,593)
Unearned revenue 1,096 967
--------- ---------
Total adjustments 60,262 43,827
--------- ---------
Net cash provided by (used in) operating activities 8,122 (53,544)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of retirements (23,246) (47,260)
Investments 0 (541)
Franchise cost expenditures, net (312) (836)
Proceeds from sale of assets 236 81
--------- ---------
Net cash used in investing activities (23,322) (48,556)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt 0 (4)
Proceeds from private placement 0 109,758
Proceeds from exercised stock options 3 358
--------- ---------
Net cash provided by financing activities 3 110,112
--------- ---------
NET (DECREASE) INCREASE IN CASH (15,197) 8,012
CASH AT BEGINNING OF PERIOD 38,074 20,628
--------- ---------
CASH AT END OF PERIOD $ 22,877 $ 28,640
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,037 $ 819
========= =========
Cash received during the period for income taxes $ 346 $ 0
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
KNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND NATURE OF BUSINESS
Knology, Inc. (including its predecessors, the "Company") offers
residential and business customers broadband communications services, including
analog and digital cable television, local and long distance telephone,
high-speed Internet access service, and broadband carrier services, using
advanced interactive broadband networks. We own, operate and manage interactive
broadband networks in seven metropolitan areas: Montgomery and Huntsville,
Alabama; Columbus and Augusta, Georgia; Panama City, Florida; Charleston, South
Carolina; and Knoxville, Tennessee. We also provide local telephone services in
West Point, Georgia, and Lanett and Valley, Alabama. Our local telephone service
in this area is provided over a traditional copper wire network while our cable
and Internet services are provided over our broadband network. Subject to the
availability of additional funding, we plan to expand to additional
mid-to-large-sized cities in the southeastern United States.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for the fair
presentation of the financial statements have been included, and the financial
statements present fairly the financial position and results of operations for
the interim periods presented. Operating results for the three and six months
ended June 30, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002. These financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
3. ACCOUNTING POLICIES
NET LOSS PER SHARE
The Company follows SFAS No. 128, "Earnings Per Share." This statement
requires the disclosure of basic net income (loss) per share and diluted net
income (loss) per share. Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding during the period. Diluted net loss per share gives effect to all
potentially dilutive securities. As the Company has no significant common stock
outstanding, the convertible preferred stock is assumed to be converted for
purposes of this calculation. The Company's other potentially dilutive
securities, including stock options and stock warrants, are not included in the
computation of diluted net loss per share as their effect is antidilutive.
CARRYING VALUE OF WARRANTS
During the second quarter 2002, the Company adjusted the carrying value of
the warrants to market value based on the approximate per share value of the
Company's Series A Preferred Stock, the underlying equity instrument of the
warrants. In connection with the Restructuring transaction (see Note 3
Subsequent Events), the approximate per share value of Series A preferred stock
is deemed to be $1.87 per share resulting in a $2,865 gain on the adjustment of
warrants to market value.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets," in June 2001. SFAS No. 141 requires all business combinations initiated
after June 30, 2001 to be accounted for using the purchase method. The Company
had no business combinations initiated after June 30, 2001. SFAS No. 142
provides that goodwill is no longer subject to amortization over its estimated
useful life. It requires that goodwill be assessed for impairment on at least an
annual basis by applying a fair value-based test.
5
The Company adopted SFAS No. 142 on January 1, 2002. The Company has
performed a goodwill impairment test in accordance with SFAS No. 142. Based on
the results of the goodwill impairment test, the Company recorded an impairment
loss of $1,294 in the first quarter of 2002 as a cumulative effect of change in
accounting principle. A goodwill impairment test will be performed at least
annually on January 1.
With the adoption of SFAS No. 142, the Company no longer records
amortization of goodwill. During the second quarter of 2001 the Company recorded
approximately $1,198 in amortization of goodwill and $2,397 for the six months
ended June 30, 2001.
The following is a proforma presentation of reported net loss and loss per
share, adjusted for the exclusion of goodwill amortization net of related income
tax effect:
Proforma Results
For the six months ended June 30,
2002 2001
---- ----
Reported loss $(55,005) $(97,371)
Goodwill amortization (net of tax) -- --
Adjusted net loss $(55,055) --
Basic and diluted loss per share
Reported loss per share - basic and diluted $(0.44) --
Goodwill amortization (net of tax) -- --
Adjusted basic earnings per share $(0.44) --
Intangible assets as of June 30, 2002 and December 31, 2002 were as
follows:
Accumulated
Gross Assets Amortization Net Assets
Subscriber Base Non-compete
Agreement, Other
June 30, 2002 $149 $(133) $16
March 31, 2002 $149 $(130) $19
The net amount of goodwill at June 30, 2002 and December 31, 2001 was $40.8
million and $42.1 million, respectively. There were no intangible assets
reclassified to goodwill upon adoption of SFAS 142.
Amortization expense related to goodwill and intangible assets was $3 and
$53 for the three months ended June 30, 2002 and 2001, respectively. Estimated
aggregate future amortization expense for intangible assets remaining as of June
30, 2002 are $14 for fiscal year 2003 and $4 for fiscal year 2004.
In June 2001 the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 is effective for fiscal years
beginning after June 15, 2002. The Company does not believe the adoption of SFAS
143 will have any material impact upon the Company's financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the
Impairment of Disposal of Long-Lived Assets." SFAS 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS supersedes SFAS 121 but retains the fundamental provisions of SFAS 121 for
(i) recognition/measurement of impairment of long-lived assets to be held and
used, and (ii) measurement of long-lived assets to be disposed of by sale. SFAS
144 also supersedes the accounting and reporting provisions of Accounting
Principles Board's No. 30 ("APB30"), "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions,"
6
for segments of a business to be disposed of, but retains APB 30's requirement
to report discontinued operations separately from continuing operations and
extends that reporting to a component of an entity that either has been disposed
of or is classified as held for sale. SFAS 144 is effective for fiscal years
beginning after December 15, 2001. The Company adopted the provisions of SFAS
144 effective January 1, 2002. The adoption of this standard did not have any
impact on the Company's financial statements.
In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Correction," which provides for the rescission
of several previously issued accounting standards, new accounting guidance for
the accounting of certain lease modifications and various technical corrections
that are not substantive in nature to existing pronouncements. The Company will
adopt SFAS No. 145 on January 1, 2003, except for the provisions relating to the
amendment of SFAS No. 13, which was adopted for transactions occurring
subsequent to May 15, 2002. The Company is currently assessing the impact of
SFAS No. 145 on its financial position and results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company is currently assessing the impact
of SFAS No. 146 on its financial position and results of operations.
4. EQUITY TRANSACTIONS
On January 12, 2001, we completed a private placement of 31,166,667 shares
of our Series C preferred stock to a group of institutional investors for
approximately $93.5 million. On March 30, 2001, we completed another private
placement of 1,885,996 shares of Series C preferred stock to a group of
accredited investors for approximately $5.7 million. On April 13, 2001 the
Company issued to a group of accredited investors, in a private placement,
2,621,930 shares of its Series C preferred stock, for aggregate proceeds of
approximately $7.9 million. On June 29, 2001 the Company issued to a group of
accredited investors, in a private placement, 1,544,970 shares of its Series C
preferred stock, for aggregate proceeds of approximately $4.6 million. All
shares of Series C preferred stock were sold at a purchase price of $3.00 per
share. The shares of Series C preferred stock are convertible into shares of our
common stock at any time at the option of the holder and automatically upon the
completion of a Qualified Public Offering (as defined in our amended and
restated certificate of incorporation). The shares are currently convertible
into shares of common stock on a one-to-one basis, subject to customary
anti-dilution adjustments.
In connection with the January 12, 2001 private placement of Series C
preferred stock, the Company amended its amended and restated certificate of
incorporation to adjust the ratios at which the Series A preferred stock and
Series B preferred stock convert into common stock. With respect to the
amendment of the conversion ratios of the Series A preferred stock and Series B
preferred stock, the Company recognized a non-cash dividend in January 2001.
5. SEGMENT INFORMATION
The Company follows SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which established revised standards for the
reporting of financial and descriptive information about operating segments in
financial statements.
The Company owns and operates advanced interactive broadband networks and
provides residential and business customers broadband communications services,
including analog and digital cable television, local and long distance
telephone, and high-speed Internet access, which the Company refers to as video,
voice, and data services. We also provide other services including broadband
carrier services, which includes local transport services such as local Internet
transport, special access, local private line, and local loop services.
While management of the Company monitors the revenue generated from each of
the various broadband services, operations are managed and financial performance
is evaluated based upon the delivery of multiple services to customers over a
single network. As a result of multiple services being provided over a single
network, many expenses and assets are shared related to providing the various
broadband services to customers. Management believes that any allocation of the
shared expenses or assets to the broadband services would be subjective and
impractical.
7
Revenues by broadband communications service are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
Video $15,170 $11,915 $29,320 $23,152
Voice 14,288 10,630 27,618 20,619
Data and other 5,420 2,907 9,974 5,187
------- ------- ------- -------
Consolidated revenues $34,878 $25,452 $66,912 $48,958
======= ======= ======= =======
6. SUBSEQUENT EVENTS
On July 25, 2002, the Company commenced a restructuring (the
"Restructuring") of the capitalization of Knology and its wholly owned
subsidiaries, including Knology Broadband, Inc. ("Broadband"). The Restructuring
will consist of either (1) the consensual exchange of the $444.1 million
principal amount at maturity of the 7/8% Senior Discount Notes due 2007 issued
by Broadband ("Old Notes") for $193.5 million principal amount of newly issued
12% Senior Notes due 2009 of Knology ("New Notes"), an aggregate of
approximately 10,618,339 shares of Series D preferred stock of Knology and
approximately 21,696,794 shares of Series E preferred stock of Knology (together
with the Series D preferred stock, the "New Preferred Stock"), collectively
representing approximately 19.3% of the outstanding shares of Knology common
stock, on an as-converted bases, after giving effect to the Restructuring (the
"Exchange Offer") and the solicitation of consents to amend the indenture
governing the terms of the Old Notes (the "Consent Solicitation," and together
with the Exchange Offer, the "Recapitalization Plan") or (2) the filing of a
prepackaged plan of reorganization of Broadband (the "Prepackaged Plan"), which
will attempt to accomplish the Restructuring on substantially the same terms as
the Recapitalization Plan but under the supervision of the bankruptcy court.
Specifically, each holder of Old Notes, other than SCANA Communications
Holdings, Inc. ("SCANA"), The Burton Partnership, Limited Partnership ("Burton
LP"), The Burton Partnership (QP), Limited Partnership ("Burton QP" and,
together with Burton LP, the "Burton Partnerships"), and Valley Telephone Co.,
Inc. ("Valley"), has been offered in exchange for each $1,000.00 principal
amount at maturity of Old Notes $586.5498 in principal amount of New Notes and,
subject to possible adjustment, 33.1789 shares of Series D preferred stock. The
holders of Old Notes other than SCANA, the Burton Partnerships and Valley are
referred to as the "Non-Affiliated Holders."
SCANA has been offered in exchange for each $1,000.00 in principal amount
at maturity of Old Notes held by it an amount of New Notes and Series E
preferred stock computed as follows: (1) in respect of the first $115.1 million
in principal amount at maturity of Old Notes held by SCANA or its affiliates,
$356.6641 in principal amount of New Notes and, subject to possible adjustment,
187.6864 shares of Series E preferred stock and (2) in respect of Old Notes held
by SCANA and its affiliates in excess of $115.1 million in principal amount at
maturity, $586.5498 in principal amount of New Notes and, subject to possible
adjustment, 33.1789 shares of Series E Preferred Stock. Based on the $118.1
million in principal amount at maturity of Old Notes held by SCANA on July 25,
2002 and assuming no change in such holdings prior to completion of the
Restructuring, each $1,000.00 in principal amount at maturity of Old Notes held
by SCANA would be exchanged for $362.5052 in principal amount of New Notes and,
subject to possible adjustment, 183.7606 shares of Series E preferred stock.
Each Burton Partnership is offered in exchange for each $1,000.00 principal
amount at maturity of Old Notes held by it $356.6641 in principal amount of New
Notes and, subject to possible adjustment, 187.6864 shares of Series D preferred
stock. Old Notes of approximately $64.2 million in principal amount at maturity
held by Valley will be surrendered to Broadband in exchange for a limited
Broadband guaranty of the Existing CoBank Facility (as defined below).
There are several conditions to the completion of the Restructuring, either
pursuant to the Recapitalization Plan or the Prepackaged Plan, including the
following:
o The Amended and Restated Certificate of Incorporation of Knology, as
amended (the "Certificate"), must be amended and restated (the
"Charter Amendment"). The Charter Amendment would have the following
effects:
(1) Increase the number of shares of capital stock and preferred
stock that Knology is authorized to issue;
(2) Designate two new series of preferred stock, the Series D
preferred stock and the non-voting Series E preferred stock to be
issued in the Restructuring, each with a liquidation preference
superior to the existing preferred stock;
(3) Authorize a new class of non-voting common stock;
8
(4) Amend the rights, preferences and privileges of the existing
preferred stock to, among other things:
o Eliminate certain separate class voting rights; and
o Eliminate certain anti-dilution protections;
(5) Change the definition of "Qualified Public Offering" to
eliminate the minimum requirements with respect to the per share
public offering price and the aggregate gross proceeds to be
received by Knology;
(6) Increase the number of shares of common stock that may be reserved
for issuance to Knology's management pursuant to the exercise of
stock options; and
(7) Conform other provisions of the Certificate to give effect to the
foregoing.
o The existing Stockholders Agreement, dated as of February 7, 2000, as
amended as of January 12, 2001, by and among Knology and certain of
its stockholders (the "Stockholders Agreement"), must be amended in
certain respects.
o Certain existing Knology stockholders must contribute approximately
$39.0 million in cash (the "Private Placement") in exchange for 13
million shares of Knology's Series C preferred stock at a purchase
price of $3.00 per share.
o Certain existing Knology stockholders who, pursuant to the
Stockholders Agreement, have preemptive rights to participate in
future offerings of Knology capital stock must waive their preemptive
rights with respect to shares issued in the Private Placement and the
Restructuring.
o The existing $15.5 million senior secured credit facility by and among
Wachovia Bank, National Association ("Wachovia"), as lender,
Broadband, as guarantor, and the subsidiaries of Broadband, as
borrowers (the "Existing Wachovia Facility"), must be amended and
restated.
o The existing $40.0 million 10-year senior secured credit facility by
and among Globe Telecommunications, Inc., Interstate Telephone Company
and Valley, as borrowers, and CoBank, ACB, as lender (the "Existing
CoBank Facility"), must be amended.
In addition, the completion of the Recapitalization Plan is conditioned
upon, among other matters, Knology's receipt of tenders from 100% of the
outstanding principal amount at maturity of the Old Notes held by holders of the
Old Notes, other than Valley, that are "accredited investors," "qualified
institutional buyers" ("QIBs") or persons other than "U.S. Persons" ("non-U.S.
Persons"), in each case as such terms are defined under the Securities Act of
1933, as amended (the "Securities Act") (the "Minimum Tender Condition").
Valley, SCANA, the Burton Partnerships, and certain other holders of Old Notes
who, together with Valley, SCANA and the Burton Partnerships, collectively hold
in the aggregate approximately 79.4% principal amount at maturity of the
outstanding Old Notes, have agreed to tender their Old Notes in the Exchange
Offer and to consent in the Consent Solicitation to the proposed amendments to
the indenture governing the terms of the Old Notes and the waiver of any
defaults or events of default under such indenture pursuant to a lockup
agreement (the "Lockup Agreement") entered into by those holders with Knology
and Broadband. Knology can waive the Minimum Tender Condition only with the
approval of a special committee of Knology's board of directors, Non-Affiliated
Holders that are a party to the Lockup Agreement holding, beneficially or of
record, at least 75% in aggregate principal amount at maturity of the Old Notes
held by all Non-Affiliated Holders that are a party to the Lockup Agreement, and
SCANA.
If the conditions to competition of the Recapitalization Plan, including
the Minimum Tender Condition, are not met or waived or Knology is otherwise
unable to complete the Recapitalization Plan, but Knology and Broadband do
receive required acceptances to confirm the Prepackaged Plan, Broadband has
agreed to file the Prepackaged Plan. The completion of the Prepackaged Plan, if
it is filed, will require the approval of the Prepackaged Plan by the bankruptcy
court. To obtain approval of the Prepackaged Plan by the bankruptcy court on a
consensual basis, Knology and Broadband must receive acceptances from at least
two-thirds in amount and over one-half in number of holders of each class of
impaired claims that vote on the Prepackaged Plan. Knology, Valley, SCANA, the
Burton Partnerships, Wachovia and the Non-Affiliated Holders each constitute a
separate class of impaired claims for purposes of voting to accept the
Prepackaged Plan. Knology, SCANA, the Burton Partnerships, Valley, Wachovia and
certain Non-Affiliated Holders have agreed to vote in favor of acceptance of the
Prepackaged Plan pursuant to the Lockup Agreement.
The New Notes issued in connection with the Restructuring include covenants
limiting our ability to fund expansion into new markets, including Nashville and
Louisville. Due to the restrictive nature of the new covenants as they relate to
the use of operating cash flows or new borrowings for expansion, we are
evaluating our inventory, construction work in process and
9
intangible franchise costs for impairment. Based on our preliminary evaluation,
a one-time charge in the range of $9.5 - $13.0 million may be recorded for the
impairment of inventory, construction work in progress and intangible franchise
costs.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
THE MANAGEMENT'S DISCUSSION AND ANALYSIS AND OTHER PORTIONS OF THIS QUARTERLY
REPORT INCLUDE "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF THE FEDERAL
SECURITIES LAWS, INCLUDING THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,
THAT ARE SUBJECT TO FUTURE EVENTS, RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED. IMPORTANT
FACTORS THAT EITHER INDIVIDUALLY OR IN THE AGGREGATE COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE EXPRESSED INCLUDE, WITHOUT LIMITATION, (1) THAT
THE RESTRUCTURING WILL NOT BE CONSUMATED AS PLANNED, (2) THAT NEEDED FINANCING
WILL NOT BE AVAILABLE TO US IF AND AS NEEDED, (3) THAT WE WILL NOT RETAIN OR
GROW OUR CUSTOMER BASE, (4) THAT WE WILL FAIL TO BE COMPETITIVE WITH EXISTING
AND NEW COMPETITORS, (5) THAT WE WILL NOT ADEQUATELY RESPOND TO TECHNOLOGICAL
DEVELOPMENTS IMPACTING OUR INDUSTRY AND MARKETS, (6) THAT A SIGNIFICANT CHANGE
IN THE GROWTH RATE OF THE OVERALL U.S. ECONOMY WILL OCCUR SUCH THAT CONSUMER AND
CORPORATE SPENDING ARE MATERIALLY IMPACTED, AND (7) THAT SOME OTHER UNFORESEEN
DIFFICULTIES OCCUR, AS WELL AS THOSE RISK SET FORTH IN OUR ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 2001, WHICH ARE INCORPORATED HEREIN BY
REFERENCE. THIS LIST IS INTENDED TO IDENTIFY ONLY CERTAIN OF THE PRINCIPAL
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN.
The following is a discussion of our consolidated financial condition and
results of operations for the three and six months ended June 30, 2002 and
certain factors that are expected to affect our prospective financial condition.
The following discussion and analysis should be read in conjunction with the
financial statements and related notes and other financial data elsewhere in
this Form 10-Q.
GENERAL
Knology was formed in September 1998 to enable ITC Holding Company, Inc. to
complete a reorganization of some of its subsidiaries. One of those ITC Holding
subsidiaries was Broadband which operated most of the broadband network
subsidiaries we currently operate. In November 1999, in order to effectuate the
reorganization:
- ITC Holding contributed to Knology:
o its 85% interest in Broadband;
o all of the outstanding capital stock of Interstate Telephone
Company, Valley, Globe Telecommunications, Inc. and ITC Globe,
Inc., referred to as our "telephone operations group;"
o a note in the principal amount of $9.6 million; and
o its 6% interest in ClearSource, Inc., subscription rights to
purchase ClearSource shares and $5.7 million in cash to purchase
the additional ClearSource shares; and
- the holders of the remaining 15% interest in Broadband exchanged that
interest for shares of Knology, and the holders of outstanding
warrants to purchase Broadband preferred stock exchanged those
warrants for warrants to purchase the Series A preferred stock of
Knology.
As a result of the reorganization, ITC Holding held a 90% interest in us,
which it distributed to its stockholders in February 2000.
10
RECENT ACCOUNTING PRONOUNCEMENTS
Our significant accounting policies are more fully described in Note 2 to
the consolidated financial statements set forth in our Annual Report on Form
10-K for the year ended December 31, 2001. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company's revenues are recognized when services are provided,
regardless of the period in which they are billed. Fees billed in advance are
recorded in the consolidated balance sheets as unearned revenue and are deferred
until the month the service is provided.
The Financial Accounting Standards Board ("FASB") issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets"
in June 2001. SFAS No. 141 requires all business combinations initiated after
June 30, 2001 to be accounted for using the purchase method. The Company had no
business combinations initiated after June 30, 2001. SFAS No. 142 provides that
goodwill is no longer subject to amortization over its estimated useful life. It
requires that goodwill be assessed for impairment on at least an annual basis by
applying a fair-value-based test.
The Company adopted SFAS No. 142 on January 1, 2002. The Company has
performed a goodwill impairment test in accordance with SFAS No. 142. Based on
the results of the goodwill impairment test the Company recorded an impairment
loss of $1.3 million in the first quarter of 2002 as a cumulative effect of
change in accounting principle.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." SFAS No. 143, addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company does not believe the adoption of this new
standard will have any material impact on its financial statements.
In August 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after December
15, 2001. The provisions of this statement provide a single accounting model for
impairment of long-lived assets. There was no impact to the Company upon
adoption of this new standard.
In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Correction," which provides for the rescission
of several previously issued accounting standards, new accounting guidance for
the accounting of certain lease modifications and various technical corrections
that are not substantive in nature to existing pronouncements. The Company will
adopt SFAS No. 145 on January 1, 2003, except for the provisions relating to the
amendment of SFAS No. 13, which was adopted for transactions occurring
subsequent to May 15, 2002. The Company is currently assessing the impact of
SFAS No. 145 on its financial position and results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company is currently assessing the impact
of SFAS No. 146 on its financial position and results of operations.
REVENUES AND EXPENSES
We can group our revenues into the following categories:
o Video revenues. Our video revenues consist of fixed monthly fees for
expanded basic, premium and digital cable television services, as well
as fees from pay-per-view movies and events such as boxing matches and
concerts, that involve a charge for each viewing. Video revenues
accounted for approximately 43.5% and 43.8% of our consolidated
revenues for the three and six months ended June 30, 2002 compared to
46.8% and 47.3% for the three and six months ended June 30, 2001.
o Voice revenues. Our voice revenues consist primarily of fixed monthly
fees for local service, enhanced
11
services, such as call waiting and voice mail, and usage fees for
long-distance service. Voice revenues accounted for approximately
41.0% and 41.3% of our consolidated revenues for the three and six
months ended June 30, 2002 compared to 41.8% and 42.1% for the three
and six months ended June 30, 2001.
o Data revenues and other revenues. Our data revenues consist primarily
of fixed monthly fees for Internet access service and rental of cable
modems. Other revenues result principally from broadband carrier
services and video production services. These combined revenues
accounted for approximately 15.5% and 14.9% of our consolidated
revenues for the three and six months ended June 30, 2002 compared to
11.4% and 10.6% for the three and six months ended June 30, 2001.
As we continue to sell bundled services, we expect that our voice and data
and other revenues will continue to increase at a higher rate compared to video
revenues. Accordingly, we expect that our voice and data and other revenues will
represent a higher percentage of consolidated revenues in the future.
Our operating expenses include cost of services, selling, operations and
administrative and depreciation and amortization.
Cost of services include:
o Video cost of services. Video cost of services consist primarily of
monthly fees to the National Cable Television Cooperative and other
programming providers and are generally based on the average number of
subscribers to each program. Programming costs as a percentage of
video revenue were approximately 47.1% and 47.4% for the three and six
months ended June 30, 2002 compared to 47.0% and 47.2% for the three
and six months ended June 30, 2001. Programming costs are our largest
single cost and since programming cost is partially based on the
number of subscribers, it will increase as we add more subscribers.
Additionally, programming cost will increase as costs per channel
increase over time.
o Voice cost of services. Voice cost of services consists primarily of
transport cost and network access fees. The voice cost of services as
a percentage of voice revenues were approximately 17.5% and 17.9% for
the three and six months ended June 30, 2002 compared to 19.6% and
22.4% for the three and six months ended June 30, 2001.
o Data and other cost of services. Data and other cost of services
consist primarily of transport cost and network access fees. The data
and other cost of services as a percentage of data and other revenue
were 9.8% and 8.6% for the three and six months ended June 30, 2002
compared to 22.4% and 8.7% for the three and six months ended June 30,
2001.
Based on the anticipated changes in our revenue mix, we expect that our
consolidated cost of services as a percentage of our consolidated revenues will
decrease.
Selling, operations and administrative expenses include:
o Sales and marketing expenses. Sales and marketing expenses include the
cost of sales and marketing personnel and advertising and promotional
expenses.
o Network operations and maintenance expenses. Network operations and
maintenance expenses include payroll and departmental costs incurred
for network design and maintenance monitoring.
o Customer service expenses. Customer service expenses include payroll
and departmental costs incurred for customer service representatives
and management.
o General and administrative expenses. General and administrative
expenses consist of corporate and subsidiary management and
administrative costs.
Depreciation and amortization expenses include depreciation of our
interactive broadband networks and equipment and amortization of cost in excess
of net assets and other intangible assets.
12
As our sales and marketing efforts continue and our networks expand, we
expect to add customer connections resulting in increased revenue. We also
expect our operating expenses, including depreciation and amortization, to
increase as we expand our networks and business.
We have experienced operating losses as a result of the expansion of our
advanced broadband communications networks and services into new and existing
markets. We expect to continue to focus on increasing our customer base and
expanding our broadband operations. Accordingly, we expect that our operating
expenses and capital expenditures will continue to increase as we extend our
interactive broadband networks in existing and new markets in accordance with
our business plan.
CONNECTIONS
The following table sets forth certain operating data as of June 30, 2001
and 2002. The information provided in the table reflects revenue-generating
connections. Because we deliver multiple services to our customers, we report
the total number of our various revenue generating service connections for
video, voice and data rather than the total number of customers. For example, a
single customer who purchases cable television, local telephone and Internet
access services would count as three connections.
AS OF JUNE 30,
-------------------
2002 2001
------- -------
Connections: (1)
Video 124,707 110,131
Voice:
On-net 94,969 68,002
Off-net 5,895 6,581
Data 41,464 22,779
------- -------
Total Connections 267,035 207,493
======= =======
Marketable Homes Passed (2) 429,399 399,958
======= =======
(1) All of our video and data connections are provided over our networks. Our
voice connections consist of both "On-net" and "Off-net" connections. On-net
refers to lines provided over our networks. It includes 23,573, and 23,899 lines
as of June 30, 2001 and 2002, respectively, using traditional copper telephone
lines. Off-net refers to telephone connections provided over telephone lines
leased from third parties.
(2) Marketable homes passed are the number of business and residential units,
such as single residence homes, apartments and condominium units, passed by our
broadband networks other than those we believe are covered by exclusive
arrangements with other providers of competing services.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001
The following table sets forth financial data as a percentage of operating
revenues for the six months ended June 30, 2002 and 2001.
SIX MONTHS ENDED
JUNE 30,
----------------
2002 2001
---- ----
Operating revenues:
Video 44% 47%
Voice 41 42
Data and other 15 11
--- ----
13
Total 100 100
Operating expenses:
Cost and expenses, excluding
depreciation and amortization 88 105
Depreciation and amortization 58 79
---- ----
Total 146 184
---- ----
Operating loss (46) (84)
Other income and expenses, net (34) (41)
---- ----
Loss before income taxes and cumulative effect of
change in accounting principle (80) (125)
Income tax provision 0 0
---- ----
Loss before cumulative effect of change in accounting
principle (80) (125)
Cumulative effect of change in accounting principle (2) 0
---- ----
Net loss (82)% (125)%
==== ====
Revenues. Operating revenues increased 36.7% from $49.0 million for the six
months ended June 30, 2001, to $66.9 million for the six months ended June 30,
2002. Operating revenues from video services increased 26.6% from $23.2 million
for the six months ended June 30, 2001 to $29.3 million for the same period in
2002. Operating revenues from voice services increased 33.9% from $20.6 million
for the six months ended June 30, 2001 to $27.6 million for the same period in
2002. Operating revenue from data and other services increased 92.3% from $5.2
million for the six months ended June 30, 2001 to $10.0 million for the same
period in 2002, $9.5 million of which were revenues from data services.
The increased revenues for video, voice and data and other services are
primarily due to an increase in the number of connections, from 207,493 as of
June 30, 2001 to 267,035 as of June 30, 2002. The additional connections
resulted primarily from:
o the extension of our broadband networks in the Augusta, Charleston and
Knoxville markets;
o the upgrade of our existing networks to broadband capacity in
Huntsville and Panama City; and
o internal growth in connections generated by our sales and marketing
efforts.
Expenses. Operating expenses, excluding depreciation and amortization,
increased 14.2% from $51.4 million for the six months ended June 30, 2001, to
$58.7 million for the six months ended June 30, 2002. The increase in our cost
of services and operating expenses is consistent with the growth in revenues and
is a result of the expansion of our operations and an increase in the number of
employees associated with such expansion and growth into new markets. We expect
our cost of services to continue to increase as we add more connections.
Selling, operations and administrative expenses will increase operating expenses
as we expand into additional markets. Programming costs, which are our largest
single expense item, have been increasing over the last several years on an
aggregate basis due to an increase in subscribers and on a per subscriber basis
due to an increase in costs per program channel. We expect this trend to
continue. We may not be able to pass these higher costs on to customers because
of competitive forces, which would adversely affect our cash flow and operating
margins.
Depreciation and amortization increased from $38.4 million for the six
months ended June 30, 2001, to $39.2 million for the six months ended June 30,
2002. We expect our depreciation and amortization expense to increase as we make
capital expenditures to extend our existing networks and build additional
networks. The Company has ceased amortization of goodwill in accordance with the
adoption of SFAS No. 142.
Other Income and Expense, including interest income and interest expense.
Our total other expense increased from $19.9 million for the six months ended
June 30, 2001 to $22.6 million for the six months ended June 30, 2002. Interest
income was $1.9 million for the six months ended June 30, 2001, compared to
$211,000 for the same period in 2002. The decrease in interest income primarily
reflects the lower average cash balances for the six months ended June 30, 2002
compared to the six months ended June 30, 2001. Interest expense increased from
$21.3 million for the six months ended June 30, 2001, to $21.8 million for the
six months ended June 30, 2002. The increase in interest expense is due to the
accretion of the book value of the 11 7/8% senior discount notes issued in
October 1997 by Broadband. In connection with the Restructuring, and during the
six months ended June 30, 2002, we adjusted the carrying value of the warrants
to market value based on the approximate per share value of our Series A
preferred stock, the underlying equity instrument of the warrants. The
approximate per share value of Series A preferred stock is deemed to be $1.87
per share resulting in a $2.9 million gain on the adjustment of warrants to
market value. Other expenses, net increased from $600,000 for the six months
ended June 30, 2001 to $943,000 for the six months ended June 30, 2002.
14
Income Tax Provision. We recorded no tax provision for the six months ended
June 30, 2001, compared to an income tax provision of $119,000 for the same
period in 2002, representing a state tax provision related to our telephone
operations group subsidiaries.
Net Loss. We incurred a net loss of $60.8 million for the six months ended
June 30, 2001, compared to a net loss of $55.0 million for the six months ended
June 30, 2002. We expect net losses to continue to increase as we continue to
expand our business.
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
The following table sets forth financial data as a percentage of operating
revenues for the three months ended June 30, 2001 and 2002.
THREE MONTHS ENDED
JUNE 30,
------------------
2002 2001
---- ----
Operating revenues:
Video. 44% 47%
Voice. 41 42
Data and other 15 11
--- ----
Total 100 100
Operating expenses:
Cost and expenses, excluding
depreciation and amortization 86 103
Depreciation and amortization. 59 78
--- ----
Total 145 181
--- ---
Operating loss (45) (81)
Other income and expenses, net (32) (40)
--- ---
Loss before income taxes and cumulative effect of
change in accounting principle 77) (121)
Income tax provision (1) 0
--- ----
Loss before cumulative effect of change in accounting
principle (78) (121)
Cumulative effect of change in accounting principle (0) 0
--- ----
Net loss (78)% (121)%
=== ====
Revenues. Operating revenues increased 37.0% from $25.5 million for the
three months ended June 30, 2001, to $34.9 million for the three months ended
June 30, 2002. Operating revenues from video services increased 27.3% from $11.9
million for the three months ended June 30, 2001 to $15.2 million for the same
period in 2002. Operating revenues from voice services increased 34.4% from
$10.6 million for the three months ended June 30, 2001 to $14.3 million for the
same period in 2002. Operating revenue from data and other services increased
86.4% from $2.9 million for the three months ended June 30, 2001 to $5.4 million
for the same period in 2002, $5.2 million of which were revenues from data
services in 2002.
Expenses. Our operating expenses, excluding depreciation and amortization,
increased 15.4% from $26.2 million for the three months ended June 30, 2001 to
$30.2 for the three months ended June 30, 2002. The cost of services component
of operating expenses increased 22.0% from $8.3 million for the three months
ended June 30, 2001 to $10.2 million for the three months ended June 30, 2002.
Our selling, operating and administrative expenses increased 12.3% from $17.8
million for the three months ended June 30, 2001 to $20.0 million for the three
months ended June 30, 2002.
Our depreciation and amortization was $19.8 million for the three months
ended June 30, 2001 and $20.6 million for the three months ended June 30, 2002.
Other Income and Expense, including interest income and interest expense.
Our total other expense increased from $10.3 million for the three months ended
June 30, 2001 to $11.1 million for the three months ended June 30, 2002.
Interest income was $810,000 for the three months ended June 30, 2001, compared
to $82,000 for the same period in 2002. Interest expense increased from $10.9
million for the three months ended June 30, 2001, to $11.1 million for the
three months ended
15
June 30, 2002. Gain on adjustment of warrants to market was $2.9 million for the
three months ended June 30, 2002. Other expenses, net decreased from $210,000
for the three months ended June 30, 2001 to $115,000 for the three months ended
June 30, 2002.
Income Tax Provision. We recorded no tax provision for the three months
ended June 30, 2001, compared to an income tax provision of $110,000 for the
same period in 2002, representing a state tax provision related to our telephone
operations group subsidiaries.
Net Loss Attributable to Common Stockholders. We incurred a net loss of
$30.8 million for the three months ended June 30, 2001, compared to a net loss
of $27.1 million for the three months ended June 30, 2002.
16
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002, we had a net working capital deficit of $17.5 million,
compared to net working capital of $617,000 as of December 31, 2001. The
increase in the deficit from December 31, 2001 to June 30, 2002 is due to a
decrease in cash partially offset by an increase in accounts receivable and a
decrease in accounts payable and accrued liabilities.
Net cash used by operations totaled $53.5 million for the six months ended
June 30, 2001 and net cash provided by operations totaled $8.6 million for the
six-month period ended June 30, 2002. The net cash flow activity related to
operations consists primarily of changes in operating assets and liabilities and
adjustments to net income for non-cash transactions including:
o depreciation and amortization;
o cumulative effect of change in accounting principle;
o loss on disposition of assets; and
o write down of inventory.
Net cash used for investing activities was $48.6 million and $23.3 million
for the six months ended June 30, 2001 and 2002, respectively. Our investing
activities for the six months ended June 30, 2001 consisted of $47.3 million of
capital expenditures and $1.4 million of investment and franchise expenditures.
Investing activities in 2002 consisted of $23.2 million of capital expenditures
and $312,000 of franchise expenditures partially offset by $236,000 in proceeds
from the sale of assets.
Net cash provided by financing activities was $110.1 million and $3,000 for
the six months ended June 30, 2001 and 2002, respectively. Financing activities
in 2001 consisted of $110.0 million from an equity private placement of our
Series C preferred stock. Financing activities in 2002 consisted of $3,000 in
proceeds from exercised stock options.
FUNDING TO DATE
We have raised debt and equity capital to finance a significant portion of
our operating, investing and financing activities in the development of our
business.
Debt Financings. On October 22, 1997, Broadband received net proceeds of
$242.4 million from the offering of units consisting of senior discount notes
due 2007 and warrants to purchase preferred stock. The notes were sold at a
substantial discount from their principal amount at maturity, and there will not
be any payment of cash interest on the notes prior to April 15, 2003. The notes
will fully accrete to a face value of $379.9 million on October 15, 2002. On and
after October 15, 2002, the notes will bear interest, which will be payable in
cash, at a rate of 11 7/8% per annum on April 15 and October 15 of each year,
commencing April 15, 2003. The indenture contains covenants that affect, and in
certain cases restrict, the ability of Broadband to:
o incur indebtedness;
o pay dividends;
o prepay subordinated indebtedness;
o redeem capital stock;
o make investments;
o engage in transactions with stockholders and affiliates;
o create liens;
o sell assets; and
o engage in mergers and consolidations.
If Broadband fails to comply with these covenants, Broadband's obligation
to repay the notes may be accelerated. However, these limitations are subject to
a number of important qualifications and exceptions. In particular, while the
indenture restricts Broadband's ability to incur additional indebtedness by
requiring compliance with specified leverage ratios, it permits Broadband and
its subsidiaries to incur an unlimited amount of indebtedness to finance the
acquisition of equipment, inventory and network assets and to secure such
indebtedness, and to incur up to $50.0 million of additional secured
indebtedness. Upon a
17
change of control of Broadband, as defined in the indenture, Broadband would be
required to make an offer to purchase the notes at a purchase price equal to
101% of their accreted value, plus accrued interest.
In November 1999, we completed an exchange in which Knology received the
Broadband warrants, issued in connection with the senior discount notes in 1997,
in exchange for warrants to purchase shares of Series A preferred stock.
In September 2001, our subsidiary, Valley. repurchased senior discount
notes with a face amount of $58.5 million and a carrying amount of $50.5 million
as of the repurchase date for approximately $20.3 million in cash. The
transaction resulted in an extraordinary gain of $29.4 million, consisting of a
gain of $30.2 million due to the discount, offset by the write-off of $0.8
million in issue costs associated with the original issuance of the Old Notes in
October 1997. In October 2001, Valley repurchased Old Notes with a face amount
of $5.7 million for approximately $2.5 million in cash.
Valley used funds borrowed under the Existing CoBank Facility to purchase
the senior discount notes. Valley currently intends to hold the repurchased
notes rather than contributing them to Broadband for retirement, except as
contemplated in the Restructuring. If the Restructuring is not completed, we
will continue to monitor the pricing of outstanding notes on the open market and
may repurchase additional notes when terms are deemed favorable by management.
On December 22, 1998, Broadband entered into a $50 million four-year senior
secured credit facility with Wachovia. The Existing Wachovia Facility, as
amended, allows Knology Broadband to borrow up to the greater of (1) $15.5
million or (2) three times the annualized consolidated cash flow of Broadband.
The credit facility may be used for working capital and other purposes,
including capital expenditures and permitted acquisitions. At Knology
Broadband's option, interest will accrue based on either the prime or federal
funds rate plus applicable margin or the LIBOR rate plus applicable margin. The
applicable margin may vary from 4.0% for base rate loans to 5.0% for LIBOR rate
loans. The credit facility contains a number of covenants that restrict the
ability of Broadband and its subsidiaries to take certain actions, including the
ability to:
o incur indebtedness;
o create liens;
o pay dividends;
o make distributions or stock repurchases;
o make investments;
o engage in transactions with affiliates;
o sell assets; and
o engage in mergers and acquisitions.
The credit facility also includes covenants requiring compliance with
certain operating and financial ratios on a consolidated basis, including the
number of customer connections and average revenue per subscriber. Broadband is
currently in compliance with these covenants, as amended, but there can be no
assurances that Broadband will remain in compliance. Should Broadband not be in
compliance with the covenants, Broadband would be in default and would require a
waiver from the lender. In the event the lender would not provide a waiver,
amounts outstanding under the credit facility could be payable to the lender on
demand. A change of control of Broadband, as defined in the credit facility,
would constitute a default under the covenants.
The maximum amount available under the credit facility as of June 30, 2002,
was approximately $15.5 million. As of June 30, 2002, approximately $15.5
million had been drawn against the credit facility. As part of the Restructuring
the Existing Wachovia Facility will be amended and restated.
In January 2002, Broadband also entered into a secured intercompany credit
facility with Knology, Inc. The secured intercompany credit facility is intended
to provide a mechanism for any funding Knology chooses to advance to Broadband;
however, the facility does not represent a present commitment from Knology to
fund any future cash needs of Broadband. The intercompany credit facility is
secured by substantially all of the assets of Broadband and is subordinate to
the Wachovia credit facility. As of June 30, 2002, approximately $13.0 million
had been drawn against the credit facility.
We obtained an aggregate of approximately $39.4 million in loans from ITC
Holding and its subsidiary InterCall during November 1999 and January 2000.
Approximately $9.6 million was advanced to us in November 1999. This loan was
converted into 2,029,724 shares of Series A preferred stock in November 1999.
Another $29.7 million loan was made in January 2000. The loan bore interest at
an annual rate of 11 7/8% and had a maturity date of March 31, 2000. In February
2000, the loan was converted into options to purchase up to 6,258,036 shares of
Series A preferred stock, and we issued to ITC Holding a
18
note under which we will pay ITC Holding any proceeds from option exercises
received by us, including an amount equal to the exercise price for cashless
exercises. The options were distributed to ITC Holding's option holders in
February 2000.
On June 29, 2001, through our wholly owned subsidiaries, Globe
Telecommunications, Interstate Telephone and Valley Telephone, we entered into a
$40 million secured master loan agreement with CoBank ACB. This master loan
agreement allows us to make one or more advances in an amount not to exceed $40
million. The loan proceeds may be used to purchase the senior discount notes
issued by Knology Broadband and to finance capital expenditures, working capital
and for general corporate purposes. Interest is payable quarterly and will
accrue, at the Company's option, based on either a variable rate established by
CoBank, a fixed quoted rate established by CoBank or a LIBOR rate plus
applicable margin. The applicable margin may vary from 1.50% to 3.00% based on
the leverage ratio of the borrowers. The master loan agreement contains a number
of covenants that restrict our ability to take certain actions, including the
ability to:
o incur indebtedness;
o create liens;
o merge or consolidate with any other entity;
o make distributions or stock repurchases;
o make investments;
o engage in transactions with affiliates; and
o sell or transfer assets.
The master loan agreement also includes covenants requiring compliance with
certain operating and financial ratios on a consolidated basis, including a
total leverage ratio and a debt service coverage ratio. We are currently in
compliance with these covenants, but there can be no assurances that we will
remain in compliance. Should we not be in compliance with the covenants, we
would be in default and would require a waiver from CoBank. In the event CoBank
would not provide a waiver, amounts outstanding under the master loan agreement
could be payable on demand.
As of June 30, 2002, we have $32.5 million outstanding under the master
loan agreement. As part of the Restructuring, the Existing CoBank Facility will
be amended in certain respects.
Equity Financings. In connection with our spin-off from ITC Holding in
February 2000, we entered into an agreement with ITC Holding in which we made
certain covenants that restricted our ability to issue additional shares of
capital stock under certain circumstances. In connection with our private
placement of 31,166,667 shares of our Series C preferred stock on January 12,
2001, ITC Holding agreed to release us from these covenants pursuant to the
agreement. Accordingly, we are no longer restrained by the ITC Holding agreement
with respect to the issuance of additional shares of capital stock.
In February 2000, we issued to accredited investors in a private placement
21,180,131 shares of its Series B preferred stock at a purchase price of $4.75
per share, for aggregate proceeds of $100.6 million.
In 2001, we issued to certain of our existing investors and a select group
of new accredited investors in a private placement 37,219,562 shares of our
Series C preferred stock at a purchase price of $3.00 per share, for aggregate
proceeds of $111.7 million. In connection with the completion of these private
placements, we amended our amended and restated certificate of incorporation to
adjust the ratios at which Series A preferred stock and Series B preferred stock
convert into common stock. Prior to the completion of the private placements of
Series C preferred stock, both the shares of Series A preferred stock and shares
of Series B preferred stock converted into shares of common stock on a
one-to-one basis. As amended, the conversion ratio for each share of Series A
preferred stock was adjusted to a one-to-1.0371 basis and the conversion ratio
for each share of Series B preferred stock was adjusted to a one-to-1.4865
basis, subject to further customary anti-dilution adjustments. With respect to
the amendment of the conversion prices of the Series A preferred stock and
Series B preferred stock, we recognized a non-cash dividend in the approximate
amount of $36.6 million in the first quarter of 2001.
THE RESTRUCTURING
On July 25, 2002, the Company commenced the Restructuring of the
capitalization of Knology and its wholly owned subsidiaries, including
Broadband. The Restructuring will consist of either (1) the consensual exchange
of the $444.1 million principal amount at maturity of the 11-7/8% Senior
Discount Notes due 2007 issued by Broadband ("Old Notes") for $193.5 million
principal amount of newly issued 12% Senior Notes due 2009 of Knology ("New
Notes"), an aggregate of approximately 10,618,339 shares of Series D preferred
stock of Knology and approximately 21,696,794 shares of Series E preferred stock
of Knology, collectively representing approximately 19.3% of the outstanding
shares of Knology common stock, on an as-
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converted bases, after giving effect to the Restructuring and the solicitation
of consents to amend the indenture governing the terms of the Old Notes or (2)
the filing of the Prepackaged Plan of Broadband, which will attempt to
accomplish the Restructuring on substantially the same terms as the
Recapitalization Plan but under the supervision of the bankruptcy court.
Specifically, each Non-Affiliated Holders (holders of Old Notes, other than
SCANA, the Burton Partnerships, and Valley), has been offered in exchange for
each $1,000.00 principal amount at maturity of Old Notes $586.5498 in principal
amount of New Notes and, subject to possible adjustment, 33.1789 shares of
Series D preferred stock.
SCANA has been offered in exchange for each $1,000.00 in principal amount
at maturity of Old Notes held by it an amount of New Notes and Series E
preferred stock computed as follows: (1) in respect of the first $115.1 million
in principal amount at maturity of Old Notes held by SCANA or its affiliates,
$356.6641 in principal amount of New Notes and, subject to possible adjustment,
187.6864 shares of Series E preferred stock and (2) in respect of Old Notes held
by SCANA and its affiliates in excess of $115.1 million in principal amount at
maturity, $586.5498 in principal amount of New Notes and, subject to possible
adjustment, 33.1789 shares of Series E Preferred Stock. Based on the $118.1
million in principal amount at maturity of Old Notes held by SCANA on July 25,
2002 and assuming no change in such holdings prior to completion of the
Restructuring, each $1,000.00 in principal amount at maturity of Old Notes held
by SCANA would be exchanged for $362.5052 in principal amount of New Notes and,
subject to possible adjustment, 183.7606 shares of Series E preferred stock.
Each Burton Partnership is offered in exchange for each $1,000.00 principal
amount at maturity of Old Notes held by it $356.6641 in principal amount of New
Notes and, subject to possible adjustment, 187.6864 shares of Series D preferred
stock. Old Notes of approximately $64.2 million in principal amount at maturity
held by Valley will be surrendered to Broadband in exchange for a limited
Broadband guaranty of the Existing CoBank Facility.
There are several conditions to the completion of the Restructuring, either
pursuant to the Recapitalization Plan or the Prepackaged Plan, including the
following:
The Certificate of Knology, must be amended and restated pursuant to
Charter Amendment. The Charter Amendment would have the following effects:
(1) Increase the number of shares of capital stock and preferred
stock that Knology is authorized to issue;
(2) Designate two new series of preferred stock, the Series D
preferred stock and the non-voting Series E preferred stock to
be issued in the Restructuring, each with a liquidation
preference superior to the existing preferred stock;
(3) Authorize a new class of non-voting common stock;
(4) Amend the rights, preferences and privileges of the existing
preferred stock to, among other things:
o Eliminate certain separate class voting rights; and
o Eliminate certain anti-dilution protections;
(5) Change the definition of "Qualified Public Offering" to eliminate
the minimum requirements with respect to the per share public
offering price and the aggregate gross proceeds to be received by
Knology;
(6) Increase the number of shares of common stock that may be
reserved for issuance to Knology's management pursuant to the
exercise of stock options; and
(7) Conform other provisions of the Certificate to give effect to the
foregoing.
o The existing Stockholders Agreement, dated as of February 7, 2000, as
amended as of January 12, 2001, by and among Knology and certain of
its stockholders, must be amended in certain respects.
o Certain existing Knology stockholders must contribute approximately
$39.0 million in cash pursuant to the Private Placement in exchange
for 13 million shares of Knology's Series C preferred stock at a
purchase price of $3.00 per share.
o Certain existing Knology stockholders who, pursuant to the
Stockholders Agreement, have preemptive rights to o participate in
future offerings of Knology capital stock must waive their preemptive
rights with respect to shares issued in the Private Placement and the
Restructuring.
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o The existing $15.5 million senior secured credit facility by and among
Wachovia, as lender, Broadband, as guarantor, and the subsidiaries of
Broadband, as borrowers, must be amended and restated.
In addition, the completion of the Recapitalization Plan is conditioned
upon, among other matters, Knology's receipt of tenders from 100% of the
outstanding principal amount at maturity of the Old Notes held by holders of the
Old Notes, other than Valley, that are accredited investors, QIBs, or non-U.S.
Persons, in each case as such terms are defined under the Securities Act (the
"Minimum Tender Condition"). Valley, SCANA, the Burton Partnerships, and certain
other holders of Old Notes who, together with Valley, SCANA and the Burton
Partnerships, collectively hold in the aggregate approximately 79.4% principal
amount at maturity of the outstanding Old Notes, have agreed to tender their Old
Notes in the Exchange Offer and to consent in the Consent Solicitation to the
proposed amendments to the indenture governing the terms of the Old Notes and
the waiver of any defaults or events of default under such indenture pursuant to
the Lockup Agreement entered into by those holders with Knology and Broadband.
Knology can waive the Minimum Tender Condition only with the approval of a
special committee of Knology's board of directors, Non-Affiliated Holders that
are a party to the Lockup Agreement holding, beneficially or of record, at least
75% in aggregate principal amount at maturity of the Old Notes held by all
Non-Affiliated Holders that are a party to the Lockup Agreement, and SCANA.
If the conditions to competition of the Recapitalization Plan, including
the Minimum Tender Condition, are not met or waived or Knology is otherwise
unable to complete the Recapitalization Plan, but Knology and Broadband do
receive required acceptances to confirm the Prepackaged Plan, Broadband has
agreed to file the Prepackaged Plan. The completion of the Prepackaged Plan, if
it is filed, will require the approval of the Prepackaged Plan by the bankruptcy
court. To obtain approval of the Prepackaged Plan by the bankruptcy court on a
consensual basis, Knology and Broadband must receive acceptances from at least
two-thirds in amount and over one-half in number of holders of each class of
impaired claims that vote on the Prepackaged Plan. Knology, Valley, SCANA, the
Burton Partnerships, Wachovia and the Non-Affiliated Holders each constitute a
separate class of impaired claims for purposes of voting to accept the
Prepackaged Plan. Knology, SCANA, the Burton Partnerships, Valley, Wachovia and
certain Non-Affiliated Holders have agreed to vote in favor of acceptance of the
Prepackaged Plan pursuant to the Lockup Agreement.
EFFECTS OF RESTRUCTURING
If the contemplated Restructuring, including the Private Placement, is
completed, there will be material changes to our working capital and
capitalization as well as significant changes in recent trends of interest
expense and net income. A one-time charge will be recorded representing the
costs incurred related to the Restructuring. In addition, we are considering a
one-time charge for the impairment of inventory, construction work in progress
and intangible franchise costs resulting from the restrictive nature of certain
new covenants in the indenture as they relate to the use of operating cash flows
or new borrowings for expansion into new markets. The following is a summary of
the transactions resulting from the Restructuring and the impact on our working
capital, capitalization and results of operations:
o Cash and working capital will increase approximately $35.7 million,
consisting of $39.0 million from the Private Placement offset by an
estimated $3.3 million cash payment for fees related to the
Restructuring.
o In accordance with SFAS 15 "Accounting by Debtors and Creditors for
Troubled Debt Restructurings," no gain will be recorded in connection
with the restructuring since the total future cash flows related to
the New Notes exceeds the carrying value of the Old Notes. The
carrying amount of the New Notes will be lower than the carrying
amount of the Old Notes due primarily to the allocation of the equity
issued in the Restructuring. The carrying amount of the New Notes will
include an initial principal amount of $194.9 million plus an amount
of accrued interest to be recorded on the effective date of the
Restructuring, less the amount of equity to be issued in the
Restructuring and the unamortized balance of debt issuance costs
related to the Old Notes.
o Interest expense will significantly decrease to approximately $19.5
million on an annual basis due to the reduced amount of debt and the
accounting treatment of the New Notes in accordance with SFAS 15. SFAS
15 requires interest expense to be accounted for using the effective
interest method after considering the embedded accrued interest
resulting after the allocation of equity issued in the Restructuring.
o A one-time charge of approximately $5.9 million will be recorded as
non-operating expenses representing the costs of the Restructuring,
including fees incurred for financial advisors, legal, accounting and
printer services.
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o The New Notes issued in connection with the Restructuring include
covenants limiting our ability to fund expansion into new markets,
including Nashville and Louisville. Due to the restrictive nature of
the new covenants as they relate to the use of operating cash flows or
new borrowings for expansion, we are evaluating our inventory,
construction work in process and intangible franchise costs for
impairment. Based on our preliminary evaluation, a one-time charge in
the range of $9.5 - $13.0 million may be recorded for the impairment
of inventory, construction work in progress and intangible franchise
costs.
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FUTURE FUNDING
Our business requires substantial investment to finance capital
expenditures and related expenses, incurred in connection with the expansion and
upgrade of our interactive broadband networks, funding subscriber equipment,
maintaining the quality of our networks, and to finance the repayment,
extinguishment or repurchase of our debt.
We have completed the construction of our networks in Montgomery, Alabama;
Columbus, Georgia and Panama City, Florida. Subject to available financing, in
2002, we expect to spend approximately $50.5 million for capital expenditures,
of which $13.0 million relates to network construction and the remainder relates
to the purchase of customer premise equipment, such as cable set-top boxes and
cable modems; network equipment, including switching and transport equipment,
and billing and information systems. We will need to obtain additional financing
to complete our 2002 planned capital expenditures.
As a condition to completing the restructuring, each of ITC Telecom
Ventures, Inc. and SCANA will purchase 6,500,000 shares of our Series C
preferred stock at a per share price of $3.00, for aggregate proceeds of $39.0
million. Although there can be no assurance we will be able to do so, if we are
successful in their efforts to complete the Restructuring, the financing
obtained through the Private Placement should allow us to meet our obligations
and operate as a going concern through 2002.
Funding to complete the construction of our networks throughout our markets
and for our working capital needs, current and future operating losses, and debt
service requirements will require continuing capital investment. We have
historically relied on debt and equity financing to meet our funding
requirements and we plan to continue to rely on debt and equity financing to
fund our capital needs. However, there can be no assurance that sufficient debt
or equity funding will continue to be available in the future or that it will be
available on terms acceptable to us. If we are not successful in raising
additional capital, we may not be able to complete the construction of our
networks throughout our markets. This may cause us to violate our franchise
agreements, which could adversely affect us, or may limit our growth within
these markets. Failure to obtain additional funding would also limit our ability
to continue in business or to expand our business. As a result of the
aforementioned factors and related uncertainties, there is substantial doubt
about the Company's ability to continue as a going concern.
We have received franchises to build networks in Nashville, Tennessee and
Louisville, Kentucky, although our franchise in Louisville is currently being
contested by the incumbent cable provider. We have spent approximately $7.3
million to obtain franchise agreements and perform preliminary construction
activity in Nashville and Louisville. Due to the uncertainties in the current
financial markets, planned expansion into Nashville and Louisville has been
delayed. We also plan to expand to additional cities in the southeastern United
States. We estimate the cost of constructing networks and funding initial
subscriber equipment in these new cities as well as others at approximately $750
to $1,000 per home. The actual costs of each new market may vary significantly
from this range and will depend on the number of miles of network to be
constructed, the geographic and demographic characteristics of the city, costs
associated with the cable franchise in each city, the number of subscribers in
each city, the mix of services purchased, the cost of subscriber equipment we
pay for or finance and other factors. We will need additional financing to
complete this expansion, for new business activities or in the event we decide
to make acquisitions. The schedule for our planned expansion will depend upon
the availability of sufficient capital. Definitive decisions on which cities
will be chosen for expansion are not expected to be made until this capital has
been raised. If we are not successful in raising additional capital, we will not
be able to expand as planned.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates. We manage our
exposure to this market risk through our regular operating and financing
activities. Derivative instruments are not currently used and, if used, are
employed as risk management tools and not for trading purposes.
We have no derivative financial instruments outstanding to hedge interest
rate risk. Our only borrowings subject to market conditions are our borrowings
under our credit facilities which are based on either a prime or federal funds
rate plus applicable margin or LIBOR plus applicable margin. Any changes in
these rates would affect the rate at which we could borrow funds under our bank
credit facilities. A hypothetical 10% increase in interest rates on our variable
rate bank debt for the duration of one year would increase interest expense by
an immaterial amount.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
We are subject to litigation in the normal course of our business. However,
in our opinion, there is no legal proceeding pending against us which would have
a material adverse effect on our financial position, results of operations or
liquidity. We are also a party to regulatory proceedings affecting the relevant
segments of the communications industry generally.
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Default upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS
Exhibit
No. Exhibit Description
3.1 Amended and Restated Certificate of Incorporation of Knology, Inc.
(Incorporated herein by reference to Exhibit 3.1 to Knology Inc.'s
Current Report on Form 8-K filed on January 26, 2001).
3.1.1 Amendment to Amended and Restated Certificate of Incorporation of
Knology, Inc. (Incorporated herein by reference to Exhibit 3.1.1
to Knology, Inc.'s Quarterly Report on Form 10-Q or the quarter
ended June 30, 2001).
3.1.2 Amendment to Amended and Restated Certificate of Incorporation of
Knology, Inc. (Incorporated herein by reference to Exhibit 3.1.2
to Knology, Inc.'s Annual Report on Form 10-K or the quarter
ended December 31, 2001).
3.2 Bylaws of Knology, Inc. (Incorporated herein by reference to Exhibit
3.2 to Knology Inc. Registration Statement on Form S-1/A (File
No. 333-89179) filed December 27, 1999).
4.1 Indenture dated as of October 22, 1997 between Knology Holdings,
Inc. and United States Trust Company of New York, as Trustee,
relating to the 11 7/8% Senior Discount Notes Due 2007 of Knology
Holdings, Inc. (Incorporated herein by reference to Exhibit 4.1
to the Registration Statement of Knology Broadband, Inc.
(formerly Knology Holdings, Inc.) on Form S-4 (File No.
333-43339)).
4.2 Form of Senior Discount Note (contained in Exhibit 4.1).
4.3 Form of Exchange Note (contained in Exhibit 4.1).
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10.1 Credit Facility Agreement between First Union National Bank,
First Union Capital Markets Corp. and Knology Holdings, Inc.
dated December 22, 1998 (Incorporated herein by reference to
Exhibit 10.53 to Knology Broadband, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998).
10.1.1 Ninth Amendment to Credit Facility Agreement, dated as of June 30,
2002.
99.1 Statement of the Chief Executive Officer and the Chief Financial
Officer of Knology, Inc. Pursuant to 18 U.S.C.s.1350
(B) REPORTS ON FORM 8-K
On June 25, 2002, the Company filed on form 8-K, a press release announcing
a change in registrant's certifying accountant for the year ended December 31,
2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KNOLOGY, Inc.
August 14, 2002 By: By: /s/ Rodger L. Johnson
------------------------------
Rodger L. Johnson
President and Chief Executive
Officer
August 14, 2002 By: By: /s/ Robert K. Mills
------------------------------
Robert K. Mills
Chief Financial Officer
(Principal Financial Officer)
26