<PAGE> 1
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, 1998
COMMISSION FILE NUMBER: 333-43339
KNOLOGY HOLDINGS, INC.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 58-2203141
- ----------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
KNOLOGY HOLDINGS, INC.
1241 O.G. SKINNER DRIVE
WEST POINT, GEORGIA 31833
- --------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
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 June 30, 1998, there were no shares of the registrants' Common
Stock outstanding and 49,985 shares of the registrants' Preferred Stock
outstanding.
* The Company does not have any class of equity securities registered
under the Securities Exchange Act of 1934 and files periodic reports
with the Securities and Exchange Commission pursuant to contractual
obligations with third parties.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
KNOLOGY HOLDINGS, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,699,996 $ 6,144,581
Marketable securities 192,961,423 227,880,923
Accounts receivable, net 2,688,524 1,607,859
Prepaid expenses 183,433 37,060
------------- -------------
Total current assets 198,533,376 235,670,423
PROPERTY AND EQUIPMENT, net 101,465,406 62,567,736
COST IN EXCESS OF NET ASSETS ACQUIRED, net 10,503,582 9,433,385
DEBT ISSUANCE COSTS, net 7,800,112 7,761,655
ORGANIZATIONAL COSTS, net 511,452 701,106
OTHER 138,867 63,795
------------- -------------
Total assets $ 318,952,795 $ 316,198,100
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 25,094 $ 25,094
Accounts payable 3,499,086 5,817,733
Accounts payable - affiliate -- 452,346
Accrued liabilities 7,191,947 1,638,042
Unearned revenue 1,157,487 907,048
------------- -------------
Total current liabilities 11,873,614 8,840,263
NONCURRENT LIABILITIES:
Long-term notes payable 118,148 120,804
Long-term accrued interest payable 11,853,085 3,201,688
Bonds payable, net of discount 256,360,038 249,910,431
------------- -------------
Total liabilities 280,204,885 262,073,186
WARRANTS 2,486,960 2,486,960
STOCKHOLDERS' EQUITY
Convertible preferred stock 500 500
Additional paid-in capital 65,060,712 65,060,712
Accumulated deficit (28,784,645) (13,402,495)
Unrealized loss on marketable securities (Note 4) (15,617) (20,763)
------------- -------------
Total stockholders' equity 36,260,950 51,637,954
------------- -------------
Total liabilities and stockholders' equity $ 318,952,795 $ 316,198,100
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE> 3
KNOLOGY HOLDINGS, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Subscriber $ 4,710,676 $ 2,106,693 $ 8,276,028 $ 3,732,656
Miscellaneous 339,513 296,176 882,625 558,158
----------- ----------- ------------ -----------
Total 5,050,189 2,402,869 9,158,653 4,290,814
OPERATING EXPENSES:
General and administrative 2,579,873 504,684 4,711,499 965,882
Programming and other charges 2,163,798 1,106,947 3,936,851 1,982,390
Depreciation and amortization 1,916,494 807,279 3,613,314 1,391,479
Customer service 628,925 208,670 1,052,681 382,039
Field and technical 922,997 339,047 1,607,606 602,297
Sales and marketing 1,172,389 276,402 1,874,247 552,659
----------- ----------- ------------ -----------
Total 9,384,476 3,243,029 16,796,198 5,876,746
----------- ----------- ------------ -----------
OPERATING LOSS (4,334,287) (840,160) (7,637,545) (1,585,932)
OTHER INCOME AND EXPENSES:
Interest income 2,934,910 24,357 6,133,417 66,481
Interest expense (7,066,371) (295,506) (14,054,188) (593,230)
Other income (expense), net 116,164 -- 176,164 (23,464)
----------- ----------- ------------ -----------
Total (4,015,297) (271,149) (7,744,607) (550,213)
----------- ----------- ------------ -----------
NET LOSS $(8,349,584) $(1,111,309) $(15,382,152) $(2,136,145)
=========== =========== ============ ===========
NET LOSS PER SHARE:
Basic and diluted $ (167.04) $ (42.66) $ (307.74) $ (92.35)
=========== =========== ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 49,985 26,052 49,985 23,131
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
KNOLOGY HOLDINGS, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(15,382,152) $ (2,136,145)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,613,314 1,391,346
Loss on disposition of assets -- 56,317
Amortization of bond discount 6,449,607 --
Changes in current assets and liabilities:
Accounts receivable (1,080,665) (558,661)
Prepaid expenses and other (216,299) 281,014
Accounts payable (2,770,993) (1,324,461)
Accrued liabilities and interest 14,205,302 (32,637)
Unearned revenue 250,439 72,285
------------ ------------
Total adjustments 20,450,705 (114,797)
------------ ------------
Net cash provided by (used in) operating activities 5,068,553 (2,250,942)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of retirements (43,037,330) (12,038,835)
Organizational cost expenditures, net (109,002) (49,271)
Proceeds from sales of marketable securities, net 34,919,500 --
------------ ------------
Net cash used in investing activities (8,226,832) (12,088,106)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net of related offering expenses -- 10,705,402
Proceeds from issuance of debt 5,207,433
Expenditures related to issuance of debt (283,650) --
Principal payments on debt (2,656) (1,027,873)
------------ ------------
Net cash (used in) provided by financing activities (286,306) 14,884,962
------------ ------------
NET INCREASE (DECREASE) IN CASH (3,444,585) 545,914
CASH AT BEGINNING OF PERIOD 6,144,581 83,092
------------ ------------
CASH AT END OF PERIOD $ 2,699,996 $ 629,006
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 3,467 $ 588,903
Cash paid during the period for income taxes $ -- $ --
Net cash paid for acquisition (Note 5) $ 1,178,958 $ --
</TABLE>
4
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KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. NATURE OF BUSINESS
KNOLOGY Holdings, Inc. ("KNOLOGY") and its subsidiaries (collectively,
the "Company") provides residential and business customers broadband
communications services ("Broadband Services"), including cable
television, local and long distance telephone and high-speed Internet
access service. The Company provides these Broadband Services using
high-capacity hybrid fiber-coaxial networks that are two-way
interactive ("Interactive Broadband Networks"). The Company currently
operates Interactive Broadband Networks in three cities, Montgomery,
Alabama, Columbus, Georgia and Panama City Beach, Florida. The Company
is expanding and upgrading the networks in these three cities and has
begun construction of Interactive Broadband Networks in Augusta,
Georgia and Charleston, South Carolina. The Company also plans to
expand to additional mid-sized cities in the southeastern United
States. KNOLOGY has been providing cable television service since 1995
and commenced providing telephone and high-speed Internet access
service in July 1997.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of the Company have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
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 months and six
months ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998.
These financial statements should be read in conjunction with the
Company's 1997 Annual Report on Form 10-K including the 1997
consolidated financial statements with footnotes. Certain prior year
amounts have been reclassified to conform with the current
presentation.
3. NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosure About
Segments of an Enterprise and Related Information" effective for fiscal
years beginning after December 15, 1997. Interim period reporting is
not required in the initial year of adoption. Management is currently
studying the impact that SFAS No. 131 will have on its financial
statement disclosures.
5
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The American Institute of Certified Public Accountants issued Statement
of Position ("SOP") No. 98-5 on "Reporting on the Costs of Start-up
Activities". SOP 98-5 requires that all nongovernmental entities
expense costs of start-up activities, including pre-opening and
organization activities, as the costs are incurred. SOP 98-5 must be
adopted in fiscal years beginning after December 15, 1998. The Company
will adopt SOP 98-5 effective January 1, 1999 at which time it will
write off any unamortized costs recorded as start-up activity. The
impact of adopting SOP 98-5 may have a material effect on the Company's
financial statements.
4. COMPREHENSIVE INCOME
During 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income", which the Company
adopted as of January 1, 1997. SFAS No. 130 requires the Company to
report in their financial statements, in addition to its net income
(loss), comprehensive income (loss), which includes all changes in
equity during a period from non-owner sources including, as applicable,
foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. The Company's unrealized loss on marketable securities for
the six months ended June 30, 1998 and the year ended December 31, 1997
is reported in the Stockholders' Equity section of the Company's
Condensed Consolidated Balance Sheets.
5. ACQUISITION OF TTE, INC.
On June 1, 1998 the Company acquired TTE, Inc., a non-facilities based
reseller of local, long distance and operator services to small and
medium-sized business customers throughout South Carolina, for a
purchase price of $1.3 million. The acquisition has been accounted for
under the purchase method of accounting.
6. SUBSEQUENT EVENT
On June 22, 1998, ITC Holding Company, Inc. ("ITC") made an offer to
acquire outstanding shares of KNOLOGY in exchange for $100 in cash and
ITC Common Stock valued at $1,600 for each share of KNOLOGY Preferred
Stock exchanged (the "Exchange"). The Exchange was completed effective
July 31, 1998. Prior to the exchange, ITC (through its wholly owned
subsidiaries) owned approximately 42% of the outstanding stock of
KNOLOGY, representing the largest stockholder of the Company. As a
result of the exchange, ITC owns approximately 85% of the outstanding
stock of KNOLOGY.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. IN ADDITION, MEMBERS OF THE COMPANY'S SENIOR MANAGEMENT MAY, FROM
TIME TO TIME, MAKE CERTAIN FORWARD-LOOKING STATEMENTS CONCERNING THE COMPANY'S
OPERATIONS, PERFORMANCE AND OTHER DEVELOPMENTS. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE SET FORTH UNDER THE
CAPTION "BUSINESS-RISK FACTORS" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
1997.
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Unless otherwise indicated, dollar amounts over $1 million have been rounded to
one decimal place and dollar amounts less than $1 million have been rounded to
the nearest thousand.
The following analysis should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this report.
Substantially all of the Company's revenues through June 30, 1998 come from its
cable television operations. In July 1997 the Company began to offer Internet
access and telephone service in Montgomery. In Columbus, high-speed Internet
access service was introduced in September 1997 and telephone service was
introduced in the fourth quarter of 1997. The Company plans to offer cable
television, telephone and Internet access services in Panama City, Florida,
Augusta, Georgia and Charleston, South Carolina during the third quarter of
1998.
Subscriber revenues consist of fixed monthly fees for basic and premium cable
television services, as well as fees from pay-per-view movies and events, such
as boxing matches and concerts, which involve a charge for each viewing.
Revenues from the Company's telephone services consist primarily of fixed
monthly fees for local service and enhanced services such as call waiting and
voice mail, and variable fees (billed monthly) for long distance service.
Revenues from Internet access services consist primarily of fixed monthly fees.
Additional revenues are derived from installation services and leases or sales
of equipment such as cable modems. Miscellaneous revenues result principally
from converter rentals, installation fees, franchise fees, and late payment
charges.
The Company's operating expenses through June 30, 1998 consisted of programming
and other charges for cable television, telephone and Internet access services,
general and administrative expenses, depreciation and amortization expense,
field and technical expenses, customer service expenses and sales and marketing
costs. Programming charges 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. Operating expenses
related to the Company's Internet access and telephone services include
primarily costs of Internet transport and telephone switching, interconnect and
transport charges payable to local and long distance carriers. General and
administrative expenses consist of corporate and subsidiary general management
and administrative costs. Depreciation and amortization include depreciation of
the Company's Interactive Broadband Networks and equipment, and amortization of
cost in excess of net assets and other intangible assets related to
acquisitions. Field and technical expenses include payroll and departmental
costs incurred for network design, maintenance, monitoring and operations,
including pole rental fees. Customer service expenses include payroll and
departmental costs incurred for customer service representatives and management.
Sales and marketing costs include the cost of sales and marketing personnel and
advertising and promotional expenses.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
REVENUES. Total revenues for the three months ended June 30, 1998 increased 110%
to $5.0 million, compared to $2.4 million for the three months ended June 30,
1997. The Company generated subscriber revenues of $4.7 million for the three
months ended June 30, 1998, as compared to $2.1 million for the same period in
1997. Miscellaneous revenues were $340,000 and $296,000 for the three months
ended June 30, 1998 and 1997, respectively. The increased subscriber and
miscellaneous revenues are primarily due to a higher number of cable subscribers
during the three months ended June 30, 1998 compared to the same period in 1997,
and from telephone and Internet access revenues which were not offered by the
Company during the three months ended June 30, 1997. The additional subscribers
are a result of the
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Company extending its Broadband networks in the Montgomery and Columbus markets
and the acquisition of Beach Cable in Panama City Beach, Florida in December
1997.
EXPENSES. The Company's operating expenses for the three months ended June 30,
1998 excluding depreciation and amortization, increased to $7.5 million,
compared to $2.4 million for the three months ended June 30, 1997. Programming
and other charges were $2.2 million and $1.1 million which represent 45.9% and
52.5% of subscriber revenues, respectively. General and administrative expenses
were $2.6 million and $505,000, field and technical expenses were $923,000 and
$339,000, customer service expenses were $629,000 and $209,000, and sales and
marketing costs were $1.2 million and $276,000, respectively, for such periods.
The increases in the Company's programming charges are primarily a result of the
Company's increased number of cable subscribers. The increase in general and
administrative expenses, field and technical expenses, customer service expenses
and sales and marketing costs reflect the Company's build-up of personnel,
corporate infrastructure, customer service support and brand development in
connection with the planned growth of the business into Panama City, Charleston,
Augusta and additional new markets in the southeastern region of the United
States.
Depreciation and amortization for the three months ended June 30, 1998 increased
to $1.9 million, compared to $807,000 for the same period in 1997. The increase
in depreciation expense reflects increased capital expenditures during 1997 and
the first half of 1998 to expand the Montgomery and Columbus networks, to
acquire Beach Cable in Panama City Beach and to purchase buildings and computer
and office equipment at the corporate and subsidiary locations.
Interest income for the three months ended June 30, 1998 was $2.9 million,
compared to $24,000 for same period in 1997 and reflects the interest earned
from the investment of certain proceeds received from the issuance of the Senior
Discount Notes (as defined herein) in October 1997.
Interest expense for the three months ended June 30, 1998 was $7.1 million,
compared to $296,000 for the same period in 1997 and reflects the accrual of
interest on the Senior Discount Notes issued in October 1997.
NET LOSS. The Company incurred a net loss for the three months ended June 30,
1998 of $8.3 million compared to a net loss of $1.1 million for the three months
ended June 30, 1997 as a result of the increase in expenses during such period.
The Company expects its net losses to continue as the Company continues to
expand its business.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
REVENUES. Total revenues for the six months ended June 30, 1998 increased 113%
to $9.2 million, compared to $4.3 million for the six months ended June 30,
1997. The Company generated subscriber revenues of $8.3 million for the six
months ended June 30, 1998, as compared to $3.7 million for the same period in
1997. Miscellaneous revenues were $883,000 and $558,000 for the six months ended
June 30, 1998 and 1997, respectively. The increased subscriber and miscellaneous
revenues are primarily due to a higher number of cable subscribers during the
six months ended June 30, 1998 compared to the same period in 1997, and from
telephone and Internet access revenues which were not offered by the Company
during the six months ended June 30, 1997. The additional subscribers are a
result of the Company extending its Broadband networks in the Montgomery and
Columbus markets and the acquisition of Beach Cable in Panama City Beach,
Florida in December 1997.
EXPENSES. The Company's operating expenses for the six months ended June 30,
1998 excluding depreciation and amortization, increased to $13.2 million,
compared to $4.5 million for the six months ended June 30, 1997. Programming and
other charges were $3.9 million and $2.0 which represent 47.6% and 53.1% of
subscriber revenues, respectively. General and administrative expenses were $4.7
million
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and $966,000, field and technical expenses were $1.6 million and $602,000,
customer service expenses were $1.1 million and $382,000, and sales and
marketing costs were $1.9 million and $553,000, respectively, for such periods.
The increases in the Company's programming charges are primarily a result of the
Company's increased number of cable subscribers. The increase in general and
administrative expenses, field and technical expenses, customer service expenses
and sales and marketing costs reflect the Company's build-up of personnel,
corporate infrastructure, customer service support and brand development in
connection with the planned growth of the business into Panama City, Charleston,
Augusta and additional new markets in the southeastern region of the United
States.
Depreciation and amortization for the six months ended June 30, 1998 increased
to $3.6 million, compared to $1.4 million for the same period in 1997. The
increase in depreciation expense reflects increased capital expenditures during
1997 and the first half of 1998 to expand the Montgomery and Columbus networks,
to acquire Beach Cable in Panama City Beach and to purchase buildings and
computer and office equipment at the corporate and subsidiary locations.
Interest income for the six months ended June 30, 1998 was $6.1 million,
compared to $66,000 for same period in 1997 and reflects the interest earned
from the investment of certain proceeds received from the issuance of the Senior
Discount Notes (as defined herein) in October 1997.
Interest expense for the six months ended June 30, 1998 was $14.0 million,
compared to $593,000 for the same period in 1997 and reflects the accrual of
interest on the Senior Discount Notes issued in October 1997.
NET LOSS. The Company incurred a net loss for the six months ended June 30, 1998
of $15.4 million compared to a net loss of $2.1 million for the six months ended
June 30, 1997 as a result of the increase in expenses during such period. The
Company expects its net losses to continue as the Company continues to expand
its business.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had net working capital of $186.7 million,
compared to $226.8 million at December 31, 1997.
The Company has required significant capital for operating and investing
activities in the development of its business. For the six months ended June 30,
1998, the Company provided approximately $5.1 million in cash flows from
operating activities and used approximately $8.2 million in cash flows from
investing activities. The Company's investing activities for the six months
ended June 30, 1998 primarily consisted of $43.1 million of capital expenditures
which were funded primarily by proceeds from the sale of marketable securities
of $34.9 million.
On October 22, 1997, the Company received net proceeds of approximately $242.4
million from the offering of Senior Discount Notes (the "Offering"). The Notes
were sold at a substantial discount from their principal amount at maturity and
there will not be any payment of interest on the Notes prior to April 15, 2003.
The Notes will fully accrete to face value of $444.1 million on October 15,
2002. From 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 certain covenants
that affect, and in certain cases significantly limit or prohibit, among other
things, the ability of the Company to incur indebtedness, pay dividends, prepay
subordinated indebtedness, redeem capital stock, make investments, engage in
transactions with stockholders and affiliates, create liens, sell assets and
engage in mergers and consolidations. If the Company fails to comply with these
covenants, the Company'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 the
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Company's ability to incur additional indebtedness by requiring compliance with
specified leverage ratios, it permits the Company 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 "Change of Control" of
the Company (as defined in the Indenture), the Company will be required to make
an offer to purchase the Notes at a purchase price equal to 101% of the Accreted
Value thereof, plus accrued interest.
In connection with the Offering, the Company completed an equity private
placement, pursuant to which the Company issued approximately 21,400 additional
shares of Preferred Stock at $1,500 per share for aggregate proceeds of
approximately $32.2 million.
The Company's business requires substantial investment to finance capital
expenditures and related expenses to expand the Interactive Broadband Networks
in Montgomery and Columbus, to construct additional Interactive Broadband
Networks, to fund subscriber equipment, to fund operating deficits in new
systems until it builds its customer base and to maintain the quality of its
networks. The Company currently expects to spend at least $78.4 million during
1998 to expand and upgrade the Montgomery, Columbus and Panama City Beach
networks and to commence construction of networks in Augusta, Charleston and
Panama City. In addition, the Company estimates the cost of constructing
networks in additional cities and funding initial subscriber equipment at
approximately $35 million to $50 million per city. Actual costs may vary
significantly from this range and will depend in part on the number of miles of
network to be constructed, the geographic and demographic characteristics of the
city, other factors affecting construction costs, costs associated with the
cable franchise in each city, the number of subscribers, the mix of services
purchased, the cost of subscriber equipment paid for or financed by the Company
and other factors. The Company expects to enter into purchase agreements through
1998 in the ordinary course of business for programming services and
construction related services to expand its service offerings and to expand and
upgrade the Systems. Although there can be no assurance, the Company believes
that present cash reserves, cash flow from operations and amounts expected to be
available under a $50 million credit facility currently under negotiation will
provide sufficient funds to expand the Systems as currently planned and fund the
expansion into Panama City Beach/Panama City, Charleston and Augusta. The
Company may need to seek additional financing in the event the credit facility
is not entered into or actual costs vary. In addition, the Company will need
additional financing to expand into additional cities for new business
activities or in the event it decides to make additional acquisitions.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description of Exhibit
21.1 Subsidiaries of KNOLOGY Holdings, Inc.
27.1 Financial Data Schedule for the Six Months Ended June 30, 1998
(b) There were no Reports on Form 8-K during the quarter for which this report
is filed.
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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 Holdings, Inc.
August 14, 1998 By:/s/ James K. McCormick
-----------------------------
James K. McCormick
Chief Financial Officer and
Assistant Secretary
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EXHIBIT 21.1
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATEMENT OF INCORPORATION
------------------ --------------------------
<S> <C>
KNOLOGY of Montomery, Inc. Alabama
KNOLOGY of Columbus, Inc. Delaware
KNOLOGY of Panama City, Inc. Florida
KNOLOGY of Augusta, Inc. Delaware
KNOLOGY of Charleston, Inc. Delaware
KNOLOGY of Alabama, Inc. Delaware
KNOLOGY of Georgia, Inc. Delaware
KNOLOGY of South Carolina, Inc. Delaware
KNOLOGY of Florida, Inc. Delaware
KNOLOGY of Louisiana, Inc. Delaware
KNOLOGY of Tennessee, Inc. Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET OF KNOLOGY HOLDINGS, INC. AS OF JUNE 30, 1998 AND THE
RELATED COMBINED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
1998. THIS INFORMATION IS QUALIFIED IN ITS ENTIREYT BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,699,996
<SECURITIES> 227,880,923
<RECEIVABLES> 1,692,445
<ALLOWANCES> 84,586
<INVENTORY> 17,855,982
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0
500
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</TABLE>
