<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) DECEMBER 5, 1997
KNOLOGY HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-2203141
- --------------------------------------------------------------------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
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
--------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On December 5, 1997, KNOLOGY Holdings, Inc., a Delaware
corporation (the "Company"), consummated the acquisition of Beach Cable, Inc.,
a Florida corporation that owned and operated a cable television system in
Panama City Beach, Florida ("Beach Cable"). The acquisition was effected
pursuant to an Agreement and Plan of Merger dated December 5, 1997 (the
"Merger Agreement") by and among the Company, KNOLOGY of Panama City, Inc.,
Beach Cable and L. Charles Hilton, Jr., the sole stockholder of Beach Cable,
under which KNOLOGY of Panama City, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company, merged (the "Merger") with and into
Beach Cable. Beach Cable was the surviving corporation in the Merger, was
renamed KNOLOGY of Panama City, Inc. as of the effective time of the Merger
(the "Effective Time") and became a wholly-owned subsidiary of the Company. A
copy of the press release announcing the Merger is filed as Exhibit 99.1 to
this Current Report on Form 8-K.
The Company acquired all of the assets and assumed all of the
liabilities of Beach Cable in the Merger. As a provider of cable television
services, Beach Cable's assets primarily consist of, among other things, cable
system plant, equipment, real property, inventory, accounts receivable and
other intangible assets, including franchise licenses. The Company intends to
use the Beach Cable assets to continue to provide cable television services in
Panama City Beach, Florida and to further expand the existing cable television
system into adjacent Panama City. The Company plans to convert the cable
television system into a high-speed fiber-coaxial network that is two-way
interactive to provide additional broadband communications services such as
local and long distance telephone services and Internet services.
At the Effective Time, all of the issued and outstanding
shares of Common Stock, no par value, of Beach Cable were converted into 2,485
shares of preferred stock, par value $.01 per share, of the Company ("KNOLOGY
Preferred Stock") valued at approximately $3.7 million and representing
approximately 5.0% of the KNOLOGY Preferred Stock outstanding (after giving
effect to the Merger). Immediately following the Merger, the Company also
contributed cash of approximately $3.9 million to Beach Cable, from the
Company's working capital, to enable Beach Cable to repay an existing note and
related accrued interest to Hilton, Inc., a holding company owned by L. Charles
Hilton, Jr.
<PAGE> 3
The Merger has been accounted for by the Company under the
purchase method of accounting.
Immediately following the Effective Time, L. Charles Hilton,
Jr. was designated for a one year term to the Company's Board of Directors
pursuant to the Merger Agreement.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
KNOLOGY of Panama City, Inc.:
We have audited the accompanying balance sheets of KNOLOGY OF PANAMA CITY,
INC., a Florida corporation, as of December 31, 1995 and 1996 and the related
statements of operations, stockholder's equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KNOLOGY of Panama City, Inc.
as of December 31, 1995 and 1996 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
February 11, 1998
<PAGE> 5
KNOLOGY OF PANAMA CITY, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ASSETS
December 31, September 30,
---------------------------- -------------
1995 1996 1997
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 300 $ 14,536 $ 29,688
Accounts receivable--trade, less allowance for doubtful accounts
of $12,789 in 1995 and 1996 and $10,000 in 1997 . . . . . . . . . 107,478 147,449 87,791
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . 5,003 417 0
------------- ------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . 112,781 162,402 117,479
------------- ------------- -------------
PROPERTY AND EQUIPMENT:
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,865 480,865 480,875
Cable system and installation equipment . . . . . . . . . . . . . . 5,153,856 5,826,088 5,987,470
Production and studio equipment . . . . . . . . . . . . . . . . . . 550,672 573,503 574,790
Test and office equipment . . . . . . . . . . . . . . . . . . . . . 425,494 428,637 433,480
Automobile and trucks . . . . . . . . . . . . . . . . . . . . . . . 162,353 162,353 165,372
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,794 93,037 86,208
------------- ------------- -------------
6,863,034 7,564,483 7,728,195
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . (1,532,279) (2,530,766) (3,293,184)
------------- ------------- -------------
Property and equipment, net . . . . . . . . . . . . . . . . 5,330,755 5,033,717 4,435,011
------------- ------------- -------------
ORGANIZATIONAL COSTS, net of accumulated amortization of $147,632,
$185,504, and $213,908 in 1995, 1996, and 1997, respectively . . . . . 151,490 113,617 85,213
------------- ------------- -------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 5,595,026 $ 5,309,736 $ 4,637,703
============= ============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,647,867 $ 2,603,450 $ 2,800,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 184,393 162,371 197,097
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 74,385 84,920 77,645
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 280,000 500,000 680,000
------------- ------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . 3,186,645 3,350,741 3,754,742
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, no par value; 1,000,000 shares
authorized, 100 shares issued and outstanding . . . . . . . . . . 1,000 1,000 1,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 6,435,195 7,682,666 7,755,686
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (4,027,814) (5,724,671) (6,873,726)
------------- ------------- -------------
Total stockholder's equity . . . . . . . . . . . . . . . . 2,408,381 1,958,995 882,960
------------- ------------- -------------
Total liabilities and stockholder's equity . . . . . . . . $ 5,595,026 $ 5,309,736 $ 4,637,703
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
KNOLOGY OF PANAMA CITY, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
December 31, September 30,
----------- ------------
1995 1996 1996 1997
------------- ------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Subscriber . . . . . . . . . . . . . . . . . . . . . $ 928,834 $ 1,333,795 1,002,531 $ 1,053,721
Miscellaneous . . . . . . . . . . . . . . . . . . . . 148,646 169,608 118,634 89,884
------------- ------------- -------------- --------------
1,077,480 1,503,403 1,121,165 1,143,605
------------- ------------- -------------- --------------
OPERATING EXPENSES:
General and administrative . . . . . . . . . . . . . 410,181 437,273 304,267 343,140
Programming charges . . . . . . . . . . . . . . . . . 496,716 676,932 506,416 517,578
Depreciation and amortization . . . . . . . . . . . . 1,057,470 1,036,360 893,351 856,404
Field and technical . . . . . . . . . . . . . . . . . 263,706 350,912 216,564 265,084
Production and studio . . . . . . . . . . . . . . . . 156,867 156,341 119,110 69,389
Sales and marketing . . . . . . . . . . . . . . . . . 339,634 273,165 221,361 119,085
------------- ------------- -------------- --------------
2,724,574 2,930,983 2,261,069 2,170,680
------------- ------------- -------------- --------------
OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . (1,647,094) (1,427,580) (1,139,904) (1,027,075)
------------- ------------- -------------- --------------
OTHER EXPENSES:
Interest expense . . . . . . . . . . . . . . . . . . (213,401) (224,587) (542,919) (180,951)
Other income (expense), net . . . . . . . . . . . . . (88,132) (44,690) (44,691) 58,971
------------- ------------- -------------- --------------
(301,533) (269,277) (587,610) (121,980)
------------- ------------- -------------- --------------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . $(1,948,627) $(1,696,857) (1,727,514) $(1,149,055)
============= ============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
KNOLOGY OF PANAMA CITY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDER'S
COMMON PAID-IN ACCUMULATED (DEFICIT)
STOCK CAPITAL DEFICIT EQUITY
----------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 . . . . . . $1,000 $4,118,953 $(1,679,187) $ 2,440,766
Capital contributions . . . . . . . 0 2,316,242 0 2,316,242
Dividends declared . . . . . . . . 0 0 (400,000) (400,000)
Net loss . . . . . . . . . . . . . 0 0 (1,948,627) (1,948,627)
----------- --------------- ---------------- ---------------
BALANCE, DECEMBER 31, 1995 . . . . . . 1,000 6,435,195 (4,027,814) 2,408,381
Capital contributions . . . . . . . 0 1,247,471 0 1,247,471
Net loss . . . . . . . . . . . . . 0 0 (1,696,857) (1,696,857)
----------- --------------- ---------------- ---------------
BALANCE, DECEMBER 31, 1996 . . . . . . 1,000 7,682,666 (5,724,671) 1,958,995
Capital contributions . . . . . . . 0 73,020 0 73,020
Net loss . . . . . . . . . . . . . 0 0 (1,149,055) (1,149,055)
----------- --------------- ---------------- ---------------
BALANCE, SEPTEMBER 30, 1997
(UNAUDITED) . . . . . . . . . . . . $1,000 $7,755,686 $(6,873,726) $ 882,960
=========== =============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
KNOLOGY OF PANAMA CITY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
December 31, September 30,
----------- ------------
1995 1996 1996 1997
------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(1,948,627) $(1,696,857) (1,727,514) $(1,149,055)
------------- ------------- ------------- -------------
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . 1,057,470 1,036,360 893,351 856,404
Gain on sale of inventory . . . . . . . . . . . . . 0 0 0 (58,971)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . (46,311) (39,971) 45,859 59,658
Prepaid expenses and other assets . . . . . 5,003 4,586 31,324 417
Accounts payable . . . . . . . . . . . . . . (220,814) (22,022) (72,527) 34,726
Unearned revenue . . . . . . . . . . . . . . 33,218 10,535 (74,385) (7,274)
Accrued liabilities . . . . . . . . . . . . 98,398 220,000 547,409 180,000
------------- ------------- ------------- -------------
Total adjustments . . . . . . . . . . . . 926,964 1,209,488 1,371,031 1,064,960
------------- ------------- ------------- -------------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . (1,021,633) (487,369) (356,483) (84,095)
------------- ------------- ------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of inventory . . . . . . . . . . . . . 0 0 0 146,400
Capital expenditures . . . . . . . . . . . . . . . . . . (870,544) (701,449) (118,955) (316,723)
------------- ------------- ------------- -------------
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . (870,544) (701,449) (118,955) (170,323)
------------- ------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on debt . . . . . . . . . . . . . . . . . . . . (49,014) (44,417) (30,163) (3,450)
Proceeds from issuance of debt . . . . . . . . . . . . . 0 0 0 200,000
Capital contributions . . . . . . . . . . . . . . . . . . 1,916,242 1,247,471 505,301 73,020
------------- ------------- ------------- -------------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . 1,867,228 1,203,054 475,138 269,570
------------- ------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH . . . . . . . . . . . . . . . (24,979) 14,236 (300) 15,152
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . 25,279 300 300 14,536
------------- ------------- ------------- -------------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . $ 300 $ 14,536 $ 0 $ 29,688
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
KNOLOGY OF PANAMA CITY, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
KNOLOGY of Panama City, Inc. (formerly Beach Cable, Inc.) (the
"Company") provides cable television services to the Panama City
Beach area. Prior to December 5, 1997, the Company was owned 100% by
one stockholder, L. Charles Hilton, Jr. There are 100 shares of
common stock of the Company outstanding at December 31, 1995 and
1996.
The Company has experienced operating losses as a result of efforts to
build out its broadband systems and expand into new markets. The
Company expects to continue to focus on increasing its customer base
and expanding its broadband operations. Accordingly, the Company
expects that is operating expenses and capital expenditures will
continue to increase significantly, all of which will have a negative
impact on short-term operating results. In addition, the Company may
change its pricing policies to respond to a changing competitive
environment. In the opinion of management, the Company's projected
cash flows from operations and existing credit position will be
sufficient to meet the capital and operating needs of the Company
through at least 1998. However, there can be no assurance that growth
in the Company's revenue or customer base will continue or that the
Company will be able to achieve or sustain profitability and/or
positive cash flow.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent 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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
for using the straight-line method over the estimated useful lives of
the assets,
<PAGE> 10
KNOLOGY OF PANAMA CITY, INC.
NOTES TO FINANCIAL STATEMENTS
commencing when the asset is installed or placed in service.
Maintenance, repairs, and minor renewals are charged to expense as
incurred. The cost and accumulated depreciation of property and
equipment disposed of are removed from the related accounts, and any
gain or loss is included in income. Depreciation and amortization are
provided over the estimated useful lives as follows:
<TABLE>
<S> <C>
Building 40 years
Cable system and installation equipment 7-10 years
Production and studio equipment 5-7 years
Test and office equipment 5-7 years
Automobiles and trucks 5 years
</TABLE>
Inventories are valued at the lower of cost or market (determined on a
first-in, first-out basis) and include converter boxes and cable and
electronic cable hook-up equipment. These items are transferred to
cable system and installation equipment when installed.
ORGANIZATIONAL COSTS
Organizational costs represent direct costs, primarily legal and
salary costs, incurred in making the Company viable. All indirect
costs, such as travel and entertainment, and other general and
administrative costs have been expensed as incurred. The deferred
costs are being amortized using the straight-line method over a
five-year period from the date of inception.
LONG-LIVED ASSETS
In 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS
No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and cost in
excess of net assets acquired related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to
be disposed of. The effect of adopting SFAS No. 121 was not material.
The Company periodically reviews the values assigned to long-lived
assets such as inventory, property and equipment, and cost in excess
of net assets acquired to determine whether any impairments are other
than temporary. Management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.
REVENUE RECOGNITION
Subscriber revenues are recognized in the month of service.
Subscriber fees billed in advance are included in the accompanying
balance sheets as unearned revenue and are deferred until the month
the service is provided.
SOURCES OF SUPPLIES
The Company attempts to maintain multiple vendors for each required
product. However, the Company currently has limited suppliers for
cable and for converters and remotes, which represent important
components of its system. If the suppliers are unable
<PAGE> 11
KNOLOGY OF PANAMA CITY, INC.
NOTES TO FINANCIAL STATEMENTS
to meet the Company's needs as it builds out its network
infrastructure, then delays and increased costs in the expansion of
the Company's network infrastructure could result, which would
adversely affect operating results.
CREDIT RISK
The Company's accounts receivable potentially subject the Company to
credit risk, as collateral is generally not required. The Company's
risk of loss is limited due to advance billings to customers for
services and the ability to terminate access on delinquent accounts.
The concentration of credit risk is mitigated by the large number of
customers comprising the customer base. The carrying amount of the
Company's receivables approximates their fair values.
3. NOTES PAYABLE
Notes payable at December 31, 1995, 1996, and September 30, 1997
consist of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C>
Hilton, Inc., bearing interest at 7.75%, payable on
demand . . . . . . . . . . . . . . . . . . . . . . $2,600,000 $2,600,000 $2,800,000
Chrysler Credit Corporation, bearing interest at
7.25% to 7.9%, payable through varying dates . . . 47,867 3,450 0
------------ ------------ -------------
$2,647,867 $2,603,450 $2,800,000
============ ============ =============
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various
litigation; however, in management's opinion, there are no legal
proceedings pending against the Company which would have a material
adverse effect on the financial position, results of operations, or
liquidity of the Company.
5. INCOME TAXES
For federal income tax purposes, the Company is taxed as a subchapter
S Corporation, under which its taxable income is allocated to Mr.
Hilton, the stockholder of the Company, and included in his individual
income tax return.
6. RELATED-PARTY TRANSACTIONS
The notes payable at December 31, 1995 and 1996 include notes due to
Hilton, Inc., a holding company owned by Mr. Hilton. These notes were
repaid, with interest, in December 1997.
<PAGE> 12
KNOLOGY OF PANAMA CITY, INC.
NOTES TO FINANCIAL STATEMENTS
Hilton Enterprises, Inc., owned by Mr. Hilton, provides accounting
services for the Company. During the years ended December 31, 1995
and 1996, the Company recorded $12,000 and $15,000, respectively, in
general and administrative expenses related to these services.
During the years ended December 31, 1995 and 1996, the Company
recorded approximately $30,600 and $36,500, respectively, in general
and administrative expenses which were paid for self-insurance
liabilities to the Hilton Self-Insurance Fund, which is owned by Mr.
Hilton.
The Company has many hotels as commercial customers. Certain of these
hotels are owned by Mr. Hilton. These hotels comprised approximately
5% and 4% of revenues for the years ended December 31, 1995 and 1996,
respectively.
7. SUBSEQUENT EVENTS
On December 5, 1997, Beach Cable, Inc. was acquired by KNOLOGY
Holdings, Inc. pursuant to an Agreement and Plan of Merger ("Merger
Agreement") among Beach Cable, Inc., L. Charles Hilton, Jr., KNOLOGY
Holdings, Inc., and a wholly-owned subsidiary of KNOLOGY Holdings,
Inc. for 2,485 shares of preferred stock of KNOLOGY Holdings, Inc.
valued at approximately $3.7 million, subject to adjustment.
Immediately following the Merger, KNOLOGY Holdings, Inc. also
contributed cash of approximately $3.9 million to enable
Beach Cable, Inc. to repay an existing note and related accrued
interest to Hilton, Inc. Pursuant to the Merger Agreement, Beach
Cable, Inc., the surviving corporation in the merger, became a
wholly-owned subsidiary of KNOLOGY Holdings, Inc. and subsequently
changed its name to KNOLOGY of Panama City, Inc.
<PAGE> 13
(b) Pro Forma Financial Information.
A pro forma balance sheet as of September 30, 1997 and pro
forma statements of operations for the twelve months ended December 31, 1995
and 1996 and for the nine months ended September 30, 1997 are presented below
assuming the acquisition of Beach Cable had occurred at the beginning of each
period presented. The pro forma balance sheet includes adjustments for the
stock issued, cash contributed to Beach Cable, cost in excess of net assets
acquired, and debt and accrued interest paid in connection with the
acquisition. The pro forma statements of operations include adjustments for
interest expense and amortization expense related to the cost in excess of net
assets acquired.
The company's historical consolidated Statement of Operations
for the year ended December 31, 1995 is comprised of two separate periods, the
four months ended April 30, 1995 and the eight months ended December 31, 1995.
A predecessor company, KNOLOGY of Montgomery, Inc., is represented by the four
months ended April 30, 1995 and the successor company, KNOLOGY Holdings, Inc.
is represented by the eight months ended December 31, 1995. The two periods
have been combined for comparison purposes only.
The unaudited pro forma consolidated financial information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the acquisition of Beach Cable, Inc. occurred at the beginning of
the periods presented, nor is it indicative of future financial position or
results of operations.
<PAGE> 14
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Historical Beach Pro Forma Pro Forma
Consolidated Cable Adjustments Consolidated
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents - 29,688 - 29,688
Accounts Receivable, net 1,449,988 87,791 - 1,537,779
Prepaid Expenses 83,289 83,289
---------- ---------- ---------- -----------
TOTAL CURRENT ASSETS 1,533,277 117,479 - 1,650,756
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
PROPERTY & EQUIPMENT, NET 41,493,409 4,435,011 45,928,420
---------- ---------- ---------- -----------
- -
Cost in Excess of Assets Acquired, - -
net 6,688,320 - 2,962,821 (a) 9,651,141
Organizational Costs, net
322,056 85,213 - 407,269
Other 36,919 - 36,919
---------- ---------- ---------- -----------
TOTAL ASSETS 50,073,981 4,637,703 2,962,821 57,674,505
---------- ---------- ---------- -----------
CURRENT LIABILITIES
Current portion of long-term debt 12,687,754 - - 12,687,754
Note Payable - 2,800,000 (2,800,000)(a) -
Accounts Payable 2,872,802 197,097 3,598,281 (a) 6,668,180
Accrued Liabilities 1,427,607 680,000 (680,000)(a) 1,427,607
Unearned Revenue 749,733 77,646 - 827,379
---------- ---------- ---------- -----------
TOTAL CURRENT LIABILITIES 17,737,896 3,754,743 118,281 21,610,920
---------- ---------- ---------- -----------
NON-CURRENT LIABILITIES
Long-term Debt 11,269,031 - - 11,269,031
TOTAL LIABILITIES 29,006,927 3,754,743 118,281 32,879,951
---------- ---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.01 par
value per share; 100,000 shares authorized,
26,052 shares issued and
outstanding in 1997 261 - 25 (b) 286
Common Stock, no par value;
1,000,000 shares authorized,
100 shares issued and outstanding - 1,000 (1,000)(b) -
Additional paid in Capital 29,214,530 7,755,686 (7,755,686)(b) 32,942,005
3,727,475 (b)
Accumulated Deficit (8,147,737) (6,873,726) 6,873,726 (b) (8,147,737)
---------- ---------- ---------- -----------
TOTAL STOCKHOLDERS' EQUITY 21,067,054 882,960 2,844,540 24,794,554
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 50,073,981 4,637,703 2,962,821 57,674,505
========== ========== ========== ===========
</TABLE>
(a) Actual Costs in Excess of Assets Acquired amounted to $2,795,139. The Pro
Forma Adjustments have been revised due to differences in the Historical
Consolidated Balance Sheet as of September 30, 1997 compared to December 5,
1997, the effective date of the acquisition. Actual note payable to
shareholder, accrued interest and other payments made in connection with the
transaction amounted to $3,000,000, $795,206 and $118,281, respectively,
compared to pro forma adjustments of $2,800,000, $680,000 and $118,281,
respectively. The pro forma adjustments are presented to reflect the
payment in full of the note payable to shareholder and related accrued
interest as of September 30, 1997. Cash paid has been reflected as an
increase in accounts payable.
(b) At the effective time of the transaction, all of the common stock of Beach
Cable was converted into 2,485 shares of preferred stock of KNOLOGY
Holdings, Inc., par value $.01 per share, valued at $3,727,500.
<PAGE> 15
Unaudited Pro Forma Statement of Operations
for the Year Ended December 31, 1995
<TABLE>
<CAPTION>
HISTORICAL BEACH PRO FORMA PRO FORMA
CONSOLIDATED CABLE ADJUSTMENTS CONSOLIDATED
--------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Operating Revenues:
Subscriber $ 2,827,185 $ 928,834 $ - $ 3,756,019
Miscellaneous 226,974 148,646 - 375,620
--------------- -------------- ------------ --------------
3,054,159 1,077,480 - 4,131,639
--------------- -------------- ------------ --------------
Operating Expenses:
General and administrative 1,202,725 410,181 - 1,612,906
Programming charges 1,439,284 496,716 - 1,936,000
Depreciation and amortization 1,004,340 1,057,470 69,733 (a) 2,131,543
Field and technical 515,566 263,706 - 779,272
Production and studio - 156,867 156,867
Sales and marketing 75,004 339,634 - 414,638
--------------- -------------- ------------ --------------
4,236,919 2,930,983 69,733 7,031,226
--------------- -------------- ------------ --------------
Operating Loss (1,182,760) (1,427,580) (69,733) (2,899,587)
Other Income and Expenses:
Affiliate interest income 12,098 - - 12,098
Other interest income 6,646 - - 6,646
Affiliate interest expense (60,873) (60,873)
Other interest expense (528,918) (213,401) 201,500 (b) (540,819)
Other income (expense), net - (88,132) - (88,132)
--------------- -------------- ------------ --------------
Total (571,047) (301,533) 201,500 (671,080)
--------------- -------------- ------------ --------------
Loss Before Minority Interest and
Income Tax Benefit (1,753,807) (1,948,627) 131,767 (3,570,667)
Minority Interest 109,837 - - 109,837
--------------- -------------- ------------ --------------
Loss Before Income Tax Benefit (1,643,970) (1,948,627) 131,767 (3,460,830)
Income Tax Benefit 334,451 - - 334,451
--------------- -------------- ------------ --------------
Net Loss (1,309,519) (1,948,627) 131,767 (3,126,379)
Preferred Stock Dividends (230,407) - - (230,407)
--------------- -------------- ------------ --------------
Net Loss After Preferred Stock Dividends $ (1,539,926) $ (1,948,627) $ 131,767 $ (3,356,786)
=============== ============== ============ ==============
Primary Net Loss Per Share $ (204.78) $ (335.51)
=============== ==============
</TABLE>
(a) Reflects amortization of cost in excess of net assets acquired.
Amortization is recorded over a 40 year period.
(b) Reflects reduction in interest expense resulting from payment of note
payable to Hilton, Inc. at the effective date of the acquisition.
<PAGE> 16
Unaudited Pro Forma Statement of Operations
for the Year Ended December 31, 1996
<TABLE>
<CAPTION>
HISTORICAL BEACH PRO FORMA PRO FORMA
CONSOLIDATED CABLE ADJUSTMENTS CONSOLIDATED
--------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Operating Revenues:
Subscriber $ 4,682,666 $ 1,333,795 $ - $ 6,016,461
Miscellaneous 651,517 169,608 - 821,125
--------------- -------------- ------------- ---------------
5,334,183 1,503,403 - 6,837,586
--------------- -------------- ------------- ---------------
Operating Expenses:
General and administrative 2,346,201 437,273 - 2,783,474
Programming charges 2,513,693 676,932 - 3,190,625
Depreciation and amortization 1,640,025 1,036,360 69,733 (a) 2,746,118
Field and technical 877,870 350,912 - 1,228,782
Production and studio - 156,341 156,341
Sales and marketing 659,667 273,165 - 932,832
--------------- -------------- ------------- ---------------
8,037,456 2,930,983 69,733 11,038,172
--------------- -------------- ------------- ---------------
Operating Loss (2,703,273) (1,427,580) (69,733) (4,200,586)
Other Income and Expenses:
Affiliate interest income 273,799 - - 273,799
Other interest income 46,221 - - 46,221
Other interest expense (1,055,498) (224,587) 201,500 (b) (1,078,585)
Other income (expense), net (60,000) (44,690) - (104,690)
--------------- -------------- ------------- ---------------
Total (795,478) (269,277) 201,500 (863,255)
--------------- -------------- ------------- ---------------
Loss Before Income Tax Benefit (3,498,751) (1,696,857) 131,767 (5,063,841)
Income Tax Benefit 373,323 - - 373,323
--------------- -------------- ------------- ---------------
Net Loss $ (3,125,428) $ (1,696,857) $ 131,767 $ (4,690,518)
=============== ============== ============= ===============
Primary Net Loss Per Share $ (229.37) $ (291.14)
=============== ===============
</TABLE>
(a) Reflects amortization of cost in excess of net assets acquired.
Amortization is recorded over a 40 year period.
(b) Reflects reduction in interest expense resulting from payment of
note payable to Hilton, Inc. at the effective date of the
acquisition.
<PAGE> 17
Unaudited Pro Forma Statement of Operations
for Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
HISTORICAL BEACH PRO FORMA PRO FORMA
CONSOLIDATED CABLE ADJUSTMENTS CONSOLIDATED
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Operating Revenues:
Subscriber $ 6,145,495 $ 1,053,721 $ - $ 7,199,216
Miscellaneous 899,191 89,884 - 989,075
-------------- -------------- ------------- --------------
7,044,686 1,143,605 - 8,188,291
-------------- -------------- ------------- --------------
Operating Expenses:
General and administrative 2,368,525 343,140 - 2,711,665
Programming charges 3,263,652 517,578 - 3,781,230
Depreciation and amortization 2,263,982 856,404 52,300 (a) 3,172,686
Field and technical 988,435 265,084 - 1,253,519
Production and studio - 69,389 69,389
Sales and marketing 947,284 119,085 - 1,066,369
-------------- -------------- ------------- --------------
9,831,878 2,170,680 52,300 12,054,858
-------------- -------------- ------------- --------------
Operating Loss (2,787,192) (1,027,075) (52,300) (3,866,567)
Other Income and Expenses:
Affiliate interest income 38,984 - - 38,984
Other interest income 40,443 - - 40,443
Affiliate interest expense - -
Other interest expense (1,099,465) (180,951) 156,937 (b) (1,123,479)
Other income (expense), net (29,545) 58,971 - 29,426
-------------- -------------- ------------- --------------
Total (1,049,583) (121,980) 156,937 (1,014,626)
-------------- -------------- ------------- --------------
Loss Before Income Tax Benefit (3,836,775) (1,149,055) 104,637 (4,881,193)
Income Tax Benefit - - - -
-------------- -------------- ------------- --------------
Net Loss $ (3,836,775) $ (1,149,055) $ 104,637 $ (4,881,193)
============== ============== ============= ==============
Primary Net Loss Per Share $ (159.10) $ (183.50)
============== ==============
</TABLE>
(a) Reflects amortization of cost in excess of net assets acquired.
Amortization is recorded over a 40 year period.
(b) Reflects reduction in interest expense resulting from payment of
note payable to Hilton, Inc. at the effective date of the
acquisition.
<PAGE> 18
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
---------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated December 5, 1997,
by and among KNOLOGY Holdings, Inc., KNOLOGY of
Panama City, Inc., Beach Cable, Inc. and L. Charles
Hilton. (Filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-4 (File No.
333-43339) and incorporated herein by reference.)
27.1 Financial Data Schedule. (Filed herewith).
27.2 Financial Data Schedule. (Filed herewith).
99.1 Press Release dated December 2, 1997. (Filed herewith).
</TABLE>
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
KNOLOGY HOLDINGS, INC.
Date: February 16, 1998 By: /s/ James K. McCormick
---------------------------------
James K. McCormick
Chief Financial Officer
(Principal Financial Officer)
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
- -------
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated December 5, 1997, by and
among KNOLOGY Holdings, Inc., KNOLOGY of Panama City, Inc.,
Beach Cable, Inc. and L. Charles Hilton. (Filed as Exhibit
2.1 to the Company's Registration Statement on Form S-4 (File
No. 333-43339) and incorporated herein by reference.)
27.1 Financial Data Schedule. (Filed herewith).
27.2 Financial Data Schedule. (Filed herewith).
99.1 Press Release dated December 2, 1997. (Filed herewith).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the balance sheet of KNOLOGY of Panama City, Inc. as of December 31, 1996
and the related combined statements of operations for the year ended December
31, 1996. This information is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,536
<SECURITIES> 0
<RECEIVABLES> 160,238
<ALLOWANCES> 12,789
<INVENTORY> 93,037
<CURRENT-ASSETS> 162,402
<PP&E> 7,471,446
<DEPRECIATION> (2,530,766)
<TOTAL-ASSETS> 5,309,736
<CURRENT-LIABILITIES> 3,350,741
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 1,957,995
<TOTAL-LIABILITY-AND-EQUITY> 5,309,736
<SALES> 1,503,403
<TOTAL-REVENUES> 1,503,403
<CGS> 676,932
<TOTAL-COSTS> 3,200,260
<OTHER-EXPENSES> 269,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224,587
<INCOME-PRETAX> (1,696,857)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,696,857)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,696,857)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the balance sheet of KNOLOGY of Panama City, Inc. as of December 31, 1996
and the related combined statements of operations for the year ended December
31, 1996. This information is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 29,688
<SECURITIES> 0
<RECEIVABLES> 97,791
<ALLOWANCES> 10,000
<INVENTORY> 86,208
<CURRENT-ASSETS> 117,479
<PP&E> 7,641,987
<DEPRECIATION> 3,293,184
<TOTAL-ASSETS> 4,637,703
<CURRENT-LIABILITIES> 3,754,742
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 881,960
<TOTAL-LIABILITY-AND-EQUITY> 4,637,703
<SALES> 1,143,605
<TOTAL-REVENUES> 1,143,605
<CGS> 517,578
<TOTAL-COSTS> 2,292,660
<OTHER-EXPENSES> 121,980
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180,951
<INCOME-PRETAX> (1,149,055)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,149,055)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,149,055)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PRESS RELEASE
BEACH CABLE TO MERGE WITH KNOLOGY HOLDINGS, INC.
FOR IMMEDIATE RELEASE
Tuesday, December 02, 1997
Contact: Felix Boccucci: (706) 645-3456
Allen Bense: (904) 769-3456
Panama City Beach, FL - Beach Cable, Inc. and KNOLOGY Holdings, Inc. announced
today the planned merger between the two companies effective December 5, 1997
according to Felix Boccucci, KNOLOGY VP of Business Development. Beach Cable
has provided broadband cable TV services in the Panama City Beach area since
1994. KNOLOGY Holdings, Inc., of West Point, Georgia, is a full service
broadband communication company providing voice, video and data services to
multiple markets in the Southeast.
The merger will provide the new company, KNOLOGY of Panama City, Inc., the
necessary capital to upgrade the Beach network to provide bundled services of
cable TV, telephone and high speed Internet services.
"Beach Cable is excited about this merger and the new services it will bring to
our customers," said Allen Bense President and CEO of Beach Cable. "We have
been seeking a strategic alliance with a quality communications company and
KNOLOGY brings the knowledge and technology that will put Panama City Beach on
the information superhighway" added Mr. Bense.
KNOLOGY will begin upgrading the network in the first quarter of 1998 and
projects to have telephony and Internet services available by mid-summer. "We
will add additional fiber optics to the existing network infrastructure that
will enable the company to deliver enhanced services including local and long
distance telephone service, digital TV and high speed Internet services."
stated Mr. Boccucci.
<PAGE> 2
Press Release
Page 2
KNOLOGY Holdings, Inc. - The Media Company, based in West Point, Georgia, owns
and operates broadband communications companies across the Southeast. KNOLOGY
is part of the ITC group of companies, which includes PowerTel, ITC/\DeltaCom,
MindSpring and Interstate/Valley Telephone. Call Felix Boccucci, Vice
President Business Development, at (706) 645- 8567 for more information about
the benefits of fiber optic technology or the other services provided by
KNOLOGY ... now and in the future.
