<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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.)
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 September 30, 1999, there were 394 shares of the registrant's
Common Stock outstanding and 49,851 shares of the registrant's 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
EXPLANATORY NOTE
Our parent company, KNOLOGY, Inc., has filed a registration statement on
Form S-1 with the Securities and Exchange Commission (Registration No.
333-89179). We are amending our quarterly report on Form 10-Q for the quarter
ended September 30, 1999 to make conforming changes.
This Form 10-Q/A presents information relating to our quarter ended
September 30, 1999 and does not include any updated information or discuss any
recent developments occurring after the original filing of our Form 10-Q for the
quarter ended September 30, 1999 in November 1999.
<PAGE> 3
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION PAGE
ITEM 1 FINANCIAL STATEMENTS........................................................... 2
Consolidated Balance Sheets.................................................... 2
Consolidated Statements of Operations.......................................... 3
Consolidated Statement of Cash Flows........................................... 4
Notes to Consolidated Financial Statements..................................... 5
ITEM 2 MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................. 8
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K............................................... 18
</TABLE>
1
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,169,283 $ 4,859,508
Marketable securities -- 66,231,397
Affiliate receivable 8,636,849 6,785,691
Accounts receivable, net 5,846,291 5,108,491
Prepaid expenses 791,706 430,811
------------ ------------
Total current assets 35,444,129 83,415,898
PROPERTY AND EQUIPMENT, net 241,653,471 195,496,617
INVESTMENT IN CLEARSOURCE, INC. 1,412,064 825,072
INTANGIBLE AND OTHER ASSETS, net 42,691,153 52,606,063
OTHER 151,914 207,000
------------ ------------
Total assets $321,352,731 $332,550,650
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 12,174 $ 12,174
Accounts payable 13,491,352 6,366,923
Accrued liabilities 4,838,182 22,215,281
Unearned revenue 2,468,867 2,116,083
------------ ------------
Total current liabilities 20,810,575 30,710,461
NONCURRENT LIABILITIES:
Long-term notes payable 19,116,496 122,070
Long-term accrued interest payable 35,825,088 21,036,541
Bonds payable, net of discount 274,231,140 263,206,292
------------ ------------
Total liabilities 349,983,299 315,075,364
WARRANTS 2,486,960 2,486,960
STOCKHOLDERS' (DEFICIT) EQUITY
Convertible preferred stock 499 499
Common Stock 4 4
Additional paid-in capital 64,864,366 64,864,366
Accumulated deficit (95,958,747) (49,878,931)
Unrealized (loss) gain on marketable
securities (Note 4) (23,650) 2,388
------------ ------------
Total stockholders' (deficit) equity (31,117,528) 14,988,326
------------ ------------
Total liabilities and stockholders'
(deficit) equity $321,352,731 $332,550,650
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE> 5
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 11,884,458 $ 7,038,178 $ 32,516,573 $ 16,196,831
------------ ----------- ------------ ------------
OPERATING EXPENSES:
Cost of services 5,555,464 3,437,985 15,569,648 7,374,836
Selling, operating, and administrative 9,174,379 6,909,490 27,370,458 16,155,523
Depreciation and amortization 9,248,774 2,433,018 25,308,624 6,046,332
------------ ----------- ------------ ------------
Total 23,978,617 12,780,493 68,248,730 29,576,691
------------ ----------- ------------ ------------
OPERATING LOSS (12,094,159) (5,742,315) (35,732,157) (13,379,860)
OTHER INCOME AND EXPENSES:
Interest income 142,655 2,232,814 1,251,191 8,366,231
Interest expense (8,002,238) (7,422,979) (23,644,689) (21,477,167)
Other income (expense), net 91,470 51,648 184,326 227,812
------------ ----------- ------------ ------------
Total (7,768,113) (5,138,517) (22,209,172) (12,883,124)
------------ ----------- ------------ ------------
LOSS BEFORE INCOME TAX BENEFIT (19,862,272) (10,880,832) (57,941,329) (26,262,984)
INCOME TAX BENEFIT 4,734,388 2,450,911 11,861,510 2,450,911
------------ ----------- ------------ ------------
NET LOSS $(15,127,884) $(8,429,921) $(46,079,819) $(23,812,073)
============ =========== ============ ============
NET LOSS PER SHARE:
Basic and diluted $ (2.02) $ (1.13) $ (6.16) $ (3.18)
============ =========== ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 7,478,044 7,487,905 7,478,044 7,492,170
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 6
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (46,079,819) $ (23,812,073)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 25,308,624 6,046,332
Gain on disposition of assets (7,809) --
Amortization of bond discount 11,024,848 9,805,872
Changes in operating assets and liabilities:
Accounts receivable (737,800) (1,612,259)
Accounts receivable - affiliate (1,851,158) --
Prepaid expenses and other (331,844) (2,636,804)
Accounts payable 7,124,429 (2,658,428)
Accrued liabilities and interest (2,588,552) 20,931,803
Unearned revenue 352,784 213,179
------------- -------------
Total adjustments 38,293,522 30,089,695
------------- -------------
Net cash (used in) provided by operating activities (7,786,297) 6,277,622
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of retirements (61,159,325) (73,444,616)
Acquisitions, net -- (67,203,131)
Investment in Clear Source, Inc. (586,992) (825,072)
Organizational and franchise cost expenditures, net (406,535) (216,122)
Proceeds from sales of assets 74,632 --
Proceeds from sales of marketable securities, net 66,231,397 131,796,692
------------- -------------
Net cash provided by (used in) investing activities 4,153,177 (9,892,249)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility 19,000,000 --
Expenditures related to issuance of debt (51,531) (286,599)
Principal payments on debt (5,574) (8,169)
------------- -------------
Net cash provided by (used in) financing activities 18,942,895 (294,768)
------------- -------------
NET INCREASE (DECREASE) IN CASH 15,309,775 (3,909,395)
CASH AT BEGINNING OF PERIOD 4,859,508 6,144,581
------------- -------------
CASH AT END OF PERIOD $ 20,169,283 $ 2,235,186
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 132,675 $ 3,647
Details of acquisitions:
Property, plant and equipment -- $ 30,133,876
Intangible assets -- 37,069,255
------------- -------------
Net cash paid for acquisitions -- 67,203,131
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE> 7
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
KNOLOGY (the "Company") offers residential and business
customers broadband communications services ("Broadband Services"),
including analog and digital cable television, local and long distance
telephone, high-speed Internet access service, and broadband carrier
services ("BCS"), using high capacity hybrid fiber-coaxial networks
that are two-way interactive ("Interactive Broadband Networks"). The
Company operates Interactive Broadband Networks in five metropolitan
areas (collectively the "Systems"): Montgomery, Alabama; Columbus and
Augusta, Georgia; Panama City, Florida; and Charleston, South Carolina
and plans to expand to additional mid-sized cities in the southeastern
United States. In addition, KNOLOGY provides analog cable television
services in Huntsville, Alabama and is currently upgrading the
Huntsville network to an Interactive Broadband Network, which will
allow the Company to offer additional Broadband Services in the
Huntsville market.
The Company has experienced operating losses as a result of
the expansion of the advanced broadband communications networks and
services into new and existing markets. Management expects to continue
the focus on increasing the customer base and expanding the broadband
operations. Accordingly, operating expenses and capital expenditures
will continue to increase with the extension of the broadband
communications networks in existing and new markets in accordance with
the business plan. While management expects its expansion plans to
result in profitability, 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. 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 at September 30, 1999, and
for the three and nine months then ended are not necessarily indicative
of the results that may be expected for the year ended December 31,
1999. 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 1998 Annual Report on Form
10-K for the year ended December 31, 1998.
5
<PAGE> 8
3. NET LOSS PER SHARE
In 1997, the Company adopted 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)
available to common shareholders by the weighted-average number of
common shares outstanding during the period. As the Company has no
significant common stock outstanding, the convertible preferred stock
is assumed to be converted for purposes of this calculation. Diluted
net loss per share gives effect to all potentially dilutive securities.
The Company's potentially dilutive securities are not included in the
computation of diluted net loss per share as their effect is
antidilutive.
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 nine months ended September 30, 1999 and the year ended December
31, 1998 is reported in the Stockholders' Equity section of the
Company's Condensed Consolidated Balance Sheets.
5. RECLASSIFICATIONS
Certain amounts included in the 1998 financial statements have
been reclassified to conform with the 1999 financial statements.
6. SEGMENT INFORMATION
Effective January 1998, the Company adopted SFAS 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 hybrid fiber-coaxial
networks and provides residential and business customers broadband
communications services, including analog and digital cable television,
local and long distance telephone, data and broadband carrier services
("BCS"). Data services include high-speed Internet access via cable
modems. BCS 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.
6
<PAGE> 9
Revenues by broadband communications service are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Cable Television $ 8,642,090 $5,544,917 $24,966,345 $14,032,666
Telephone 2,433,604 1,430,008 5,834,161 1,998,690
Data and BCS 808,764 63,253 1,716,067 165,475
----------- ---------- ----------- -----------
Consolidated Revenues $11,884,458 $7,038,178 $32,516,573 $16,196,831
=========== ========== =========== ===========
</TABLE>
7. SUBSEQUENT EVENTS
The Company's parent company and majority stockholder, ITC
Holding Company, Inc. ("ITC Holding") intends to complete a
reorganization of certain of its wholly owned and majority owned
subsidiaries during the fourth quarter of 1999 or early 2000 ("the
Reorganization"), as follows:
a) ITC Holding plans to contribute its approximately 85%
interest in the Company to KNOLOGY, Inc. ("New
KNOLOGY"), an entity incorporated under the laws of
the State of Delaware in September 1998 to enable ITC
Holding to complete the Reorganization.
b) ITC Holding plans to contribute all of the
outstanding capital stock of Interstate Telephone,
Inc.; Valley Telephone Inc.; Globe Telephone Inc.;
and ITC Globe Inc. to New KNOLOGY, (collectively
"Telephone Operations Group").
c) ITC Holding plans to contribute its 222,832 shares of
Series A preferred stock and 50,000 shares of Series
B preferred stock, and its subscription rights to
purchase an additional 610,501 shares of Series A
preferred stock and 200,000 shares of Series B
preferred stock (together with approximately
$5,663,000 in cash to be used by New KNOLOGY to make
the subscription payment) in ClearSource, Inc. to New
KNOLOGY.
d) The Company expects that its minority shareholders
will exchange the remaining approximately 15% of its
shares for shares of New KNOLOGY.
As a result of the planned Reorganization, the Company and the
Telephone Operations Group will be wholly owned subsidiaries of New
KNOLOGY.
7
<PAGE> 10
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
REPORT INCLUDE "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF THE FEDERAL
SECURITIES LAWS 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:
- THAT WE WILL NOT RETAIN OR GROW OUR CUSTOMER BASE;
- THAT WE WILL FAIL TO BE COMPETITIVE WITH EXISTING AND NEW
COMPETITORS;
- THAT WE WILL NOT ADEQUATELY RESPOND TO TECHNOLOGICAL
DEVELOPMENTS IMPACTING OUR INDUSTRY AND MARKETS;
- THAT NEEDED FINANCING WILL NOT BE AVAILABLE IF AND AS NEEDED;
- 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;
- THAT WE OR OUR VENDORS AND SUPPLIERS MAY FAIL TO TIMELY
ACHIEVE YEAR 2000 READINESS SUCH THAT THERE IS A MATERIAL
ADVERSE IMPACT ON OUR BUSINESS, OPERATIONS OR FINANCIAL
RESULTS; AND
- THAT SOME OTHER UNFORESEEN DIFFICULTIES OCCUR. 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 nine months ended September 30, 1999
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 notes thereto and other financial data
included elsewhere in this Form 10-Q.
GENERAL
We offer our customers broadband communications services, including:
- traditional and digital cable television;
- local and long distance telephone; and
- high-speed Internet access service.
Our customers have the choice of receiving these services individually
or as part of a bundle of services. In addition, we sell access to our network
and provide various network-related services to other telecommunications
companies, such as long distance telephone companies and Internet service
providers.
We provide all of these services using high-speed broadband networks
that are two-way interactive. Broadband networks are high-capacity, which means
they can handle large volumes of voice, video and data. Two-way interactive
networks give customers the ability to send and receive signals at the same
time. Two-way interactive networks are required for telephone service and
provide for higher speed Internet connections than traditional one-way networks.
It is important to our strategy to provide bundled high-speed communications
services that our networks are broadband and two-way interactive.
We have been providing cable television service since 1995, telephone
and high-speed Internet access services since 1997 and broadband carrier
services since 1998. We own, operate and manage interactive broadband networks
in the five metropolitan areas of Montgomery, Alabama; Columbus and Augusta,
Georgia; Panama City, Florida and Charleston, South Carolina; and we plan to
expand to additional mid-sized cities in the southeastern United States. In
addition, we provide traditional analog and digital cable television services in
Huntsville, Alabama. Our Huntsville facilities are being upgraded to provide
local and long distance telephone and high-speed Internet access services.
We began providing cable television service by acquiring cable
television systems in Montgomery, Alabama and Columbus, Georgia in 1995 and
using these systems as a base for constructing new interactive broadband
networks. Since acquiring the Montgomery and Columbus systems, we have
significantly expanded these networks and upgraded the acquired networks to
offer additional broadband communications services.
In December 1997, we acquired a cable television system in Panama City
Beach, Florida. We are currently upgrading this cable system and extending the
network into the Panama City metro area. We expect to complete this upgrade in
2000.
8
<PAGE> 11
In early 1998, we began expanding into Augusta, Georgia and Charleston,
South Carolina by obtaining new franchise agreements with the local governments
and by constructing new interactive broadband networks. We expect to complete
construction of these networks by 2003.
In June 1998, we 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.
In October 1998, we acquired the Cable Alabama cable television system
serving the Huntsville, Alabama area. The existing Cable Alabama plant is being
upgraded to an interactive broadband network which will be completed by 2001.
REVENUES AND EXPENSES
We can group our revenues into four categories: video revenues,
telephone revenues, Internet revenues and other revenues.
- Video revenues. Our video revenues consist of fixed monthly fees
for 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 76.8% of our consolidated
revenues for the nine months ended September 30, 1999.
- Telephone revenues. Our telephone revenues consist primarily of
fixed monthly fees for local service, enhanced services such as
call waiting and voice mail and usage fees for long distance
service. Telephone revenues accounted for approximately 17.9% of
our consolidated revenues for the nine months ended September 30,
1999.
- Internet revenues and other revenues. Our Internet revenues consist
primarily of fixed monthly fees for Internet access service and
rental of cable modems. Other revenues resulted principally from
broadband carrier services and video production services. These
combined revenues accounted for approximately 5.3% of our
consolidated revenues for the nine months ended September 30, 1999.
Our operating expenses include cost of services expenses, selling,
operations and administrative expenses and depreciation and amortization
expenses.
Cost of services expenses include:
- 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 accounted
for approximately 24.9% of our operating expenses for the nine
months ended September 30, 1999. Programming costs is our largest
single cost and we expect this to continue. Since this cost is
based on numbers of subscribers, it will increase as we add more
subscribers.
- Telephone and Internet access services. Cost of services related to
our telephone and Internet access services include costs of
Internet transport and telephone switching, and interconnection and
transport charges payable to local and long distance carriers.
Selling, operations and administrative expenses include:
- Sales and marketing costs. Sales and marketing costs include the
cost of sales and marketing personnel and advertising and
promotional expenses.
- Network operations and maintenance expenses. Network operations and
maintenance expenses include payroll and departmental costs
incurred for network design and maintenance monitoring.
- Customer service expenses. Customer service expenses include
payroll and departmental costs incurred for customer service
representatives and management.
- General and administrative expenses. General and administrative
expenses consist of corporate and subsidiary general management and
administrative costs.
Depreciation and amortization expenses include:
- Depreciation and amortization expenses. 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 related to
acquisitions.
9
<PAGE> 12
RESULTS OF OPERATIONS
The following table sets forth financial data as a percentage of operating
revenues for the three months ended September 30, 1998 and 1999 and the nine
months ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues........................................ 100% 100% 100% 100%
---- ---- ----- -----
Operating expenses:
Cost of services........................................ 49 47 46 48
Selling, operating and administrative................... 98 77 100 84
Depreciation and amortization........................... 35 78 37 78
---- ---- ----- -----
Total........................................... 182 202 183 210
----- -----
Operating income (loss)................................... (82) (102) (83) (110)
Other income and expenses................................. (73) (65) (79) (68)
----- -----
Income (loss) before, income tax (provision) benefit ..... (155) (167) (162) (178)
Income tax (provision) benefit............................ 35 40 16 36
---- ---- ----- -----
Net income (loss)......................................... (120)% (127)% (146)% (142)%
==== ==== ===== =====
</TABLE>
The following table sets forth certain operating data for the three
months ended September 30, 1999 and 1998. The information provided in the
table reflects revenue-generating connections as of the dates indicated.
Please see the footnotes provided for information regarding revenue-generating
connections.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1999 1998 CHANGE %
------- ------- ------ -----
<S> <C> <C> <C> <C>
HOMES RELEASED TO SALES 277,401 222,238 55,163 24.8%
======= ======= ====== =====
Connections
Video (1) 84,922 75,990 8,932 11.8%
------- ------- ------ -----
Telephone
On - Net (2) 9,782 2,230 7,552 338.7%
Off - Net (3) 6,568 5,911 657 11.1%
------- ------- ------ -----
16,350 8,141 8,209 100.8%
High-Speed Internet 3,419 523 2,896 553.7%
------- ------- ------ -----
Total 104,691 84,654 20,037 23.7%
======= ======= ====== =====
</TABLE>
(1) Connections represent revenue-generating connections. For video and
high-speed Internet, connections represent the number of customers
subscribing to the service. For telephone, connections represent the
number of lines connected. For example, a telephone customer that has
two lines would be counted as two connections.
(2) On-net refers to lines provided over our broadband networks.
(3) Off-net consists of all telephone connections provided within our
broadband network area over telephone lines leased from third parties.
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998.
10
<PAGE> 13
REVENUES. Operating revenues increased 68.9% from $7.0 million for the
three months ended September 30, 1998 to $11.9 million for the three months
ended September 30, 1999. The increased revenues are primarily due to a higher
number of connections during the three months ended September 30, 1999 compared
to the same period in 1998. The additional connections resulted primarily from:
- the extension and/or buildout of our broadband networks in the
Montgomery, Columbus, Panama City, Augusta and Charleston, and
- the acquisition of Cable Alabama (approximately 32,000 video
connections) effective September 1, 1998.
EXPENSES. Our operating expenses, excluding depreciation and
amortization, increased 42.4% from $10.3 million for the three months ended
September 30, 1998 to $14.7 million for the three months ended September 30,
1999. Cost of services increased 61.6% from $3.4 million for the three months
ended September 30, 1998 to $5.6 million for the three months ended September
30, 1999. Our selling, operating, and administrative expenses increased 32.8%
from $6.9 million for the three months ended September 30, 1998 to $9.2 million
for the three months ended September 30, 1999. 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 the increase in the number of
employees associated with such expansion and growth into new markets.
Depreciation and amortization increased from $2.4 million for the three
months ended September 30, 1998 to $9.2 million for the three months ended
September 30, 1999. The increase in depreciation and amortization is due to
significant additions in property, plant, equipment and intangible assets
resulting from the expansion of our networks; the acquisition of the Cable
Alabama system; and the purchase of buildings, computers and office equipment at
the corporate and subsidiary locations.
INTEREST EXPENSE increased from $7.4 million for the three months ended
September 30, 1998 to $8.0 million for the three months ended September 30,
1999. The increase in interest expense reflects the accrual of the interest
attributable to the senior discount notes issued in October 1997.
INTEREST INCOME was $2.2 million for the three months ended September
30, 1998, compared to $143,000 for the same period in 1999 and reflects the
interest earned from the investment of certain proceeds received from the
issuance of the senior discount notes in October 1997. The decrease in interest
income is due to the draw down of cash to fund planned expansion and
acquisitions.
INCOME TAX BENEFIT. The income tax benefit was $2.5 million for the
three months ended September 30, 1998, compared to $4.7 million for the same
period in 1999. Effective August 1998, when our parent company acquired majority
interest, we have participated in a tax sharing agreement with the parent
company. The tax sharing agreement allows us to receive a benefit for federal
taxable losses incurred.
NET LOSS. We incurred a net loss of $8.4 million for the three months
ended September 30, 1998 compared to a net loss of $15.1 million for the three
months ended September 30, 1999. We expect net losses to continue to increase as
we continue to expand our business.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Revenues. Operating revenues increased 100.8% from $16.2 million for the
nine months ended September 30, 1998 to $32.5 million for the nine months ended
September 30, 1999. Our increased revenues are primarily due to a higher number
of connections during the nine months ended September 30, 1999 compared to the
same period in 1998. The additional connections resulted primarily from:
- the extension of our broadband networks in the Montgomery,
Columbus and Panama City markets;
- the continued growth of broadband services in the Augusta and
Charleston markets; and
- the acquisition of the TTE and Cable Alabama systems in June
1998 and October 1998, respectively.
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<PAGE> 14
Particularly in the cable industry, there is a trend towards
consolidation, exclusivity arrangements and other forms of competition. If the
level of competition continues to increase, due to consolidation, exclusivity
arrangements or otherwise, our ability to attract and retain customers and to
increase revenues could suffer.
Expenses. Our operating expenses, excluding depreciation and
amortization, increased 82.5%, from $23.5 million for the nine months ended
September 30, 1998 to $42.9 million for the nine months ended September 30,
1999. The cost of services component of operating expenses increased 111.1%,
from $7.4 million for the 1998 period to $15.6 for the 1999 period. Our selling,
operations, and administration expenses increased 69.4%, from $16.2 million for
the 1998 period to $27.4 million for the 1999 period. The increase in our cost
of services and other operating expenses is consistent with the growth in
revenues and is a result of the expansion of our operations and the 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
revenue generating units. Our selling, operations and administration expenses
will increase as we expand into additional markets. Programming costs, which are
our largest single expense item, have been increasing over the last several
years, and we expect this trend to continue. We may not be able to pass these
higher costs on to customers, which would adversely affect our cash flow and
operating margins.
Our depreciation and amortization expenses increased from $6.0 million
for the nine months ended September 30, 1998 to $25.3 million for the nine
months ended September 30, 1999. Approximately $8.0 million of the increase in
depreciation and amortization is due to the amortization of the excess of the
purchase price of Cable Alabama over the fair value of net assets acquired.
Approximately $6.0 million of the increase is due to depreciation expense
related to network capital expenditures, with the remainder of the increase
primarily due to depreciation expense related to the purchase of buildings,
computers and office equipment at the corporate and subsidiary locations. We
expect our depreciation and amortization expense to continue to increase as we
make capital expenditures to extend our existing networks and build additional
networks.
Our interest expense increased from $21.5 million for the nine months
ended September 30, 1998 to $23.6 million for the nine months ended September
30, 1999. The increase in interest expense reflects the accrual of the interest
attributable to the senior discount notes issued in October 1997.
Our interest income was $8.4 million for the nine months ended September
30, 1998, compared to $1.3 million for the same period in 1999. The interest
income reflects the interest earned from the investment of certain proceeds
received from the issuance of the senior discount notes in October 1997. The
decrease in interest income is due to the draw down of marketable securities to
fund planned expansion and acquisitions.
Income Tax (Provision) Benefit. We recorded an income tax benefit of
$2.5 million for the nine months ended September 30, 1998 compared to an income
tax benefit of $11.9 million for the nine months ended September 30, 1999. The
income tax benefit in 1999 resulted from our utilizing net tax losses under a
tax sharing agreement with ITC Holding. The tax sharing agreement was effective
August 1998 upon the acquisition by ITC Holding of its majority-owned interest
in our company.
Net Loss. We incurred a net loss of $23.8 million for the nine months
ended September 30, 1998 compared to a net loss of $46.1 million for the nine
months ended September 30, 1999. The increase in net loss is a result of the
expansion of our operations and the increase in the number of employees
associated with such expansion and growth into new markets. We expect net losses
to continue to increase as we proceed with the expansion of our business.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had net working capital of $14.6 million,
compared to $52.7 million at December 31, 1998. The decrease in working capital
is principally due to the draw down of cash to fund expansion and operating
losses.
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<PAGE> 15
We have required equity infusions and debt proceeds to finance a
significant portion of our operating, investing and financing activities in the
development of our business. Our operating activities provided cash of $6.3
million and used cash of $7.8 million for the nine months ended September 30,
1998 and 1999, respectively. Net cash used in operating activities in the 1999
period was primarily due to a net loss of $46.1 million offset by a $2.0 million
change in working capital and depreciation and amortization and bond accretion
on the senior discount notes of $25.3 million and $11.0 million, respectively.
Our investing activities used cash of $9.9 million and provided cash of $4.2
million for the nine months ended September 30, 1998 and 1999, respectively. Our
investing activities in the 1999 period primarily consisted of $61.2 million of
capital expenditures principally funded by $66.2 million in proceeds from the
sale of short-term investments. The short-term investments sold represent a
portion of the proceeds received from the October 22, 1997 offering of senior
discount notes that were invested in marketable securities. Financing activities
used cash of $295,000 and provided cash of $18.9 million for the nine months
ended September 30, 1998 and 1999, respectively. We borrowed $19.0 million
against our credit facility during the 1999 period.
FUNDING TO DATE
On October 22, 1997, we received net proceeds of approximately $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 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 covenants that affect, and in
certain cases significantly limit or prohibit, our ability 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 we fail to comply with these covenants, our 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 our
ability to incur additional indebtedness by requiring compliance with specified
leverage ratios, it permits us and our 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 million of
additional secured indebtedness. Upon a change of control, as defined in the
indenture, we 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.
Each unit in the offering also consisted of a warrant to purchase
0.003734 shares of our preferred stock at an exercise price of $0.01 per share.
In connection with the units offering, we completed an equity private
placement, in which we issued approximately 21,400 additional shares of
Preferred Stock at $1,500 per share to ITC Holding, Century Telephone
Enterprises, Inc., SCANA Communications, Inc., South Atlantic Venture Fund III,
Limited Partnership and AT&T venture funds for aggregate proceeds of
approximately $32.2 million. ITC Holding, Century Telephone, South Atlantic,
AT&T venture funds and SCANA Communications, Inc. purchased approximately $10.0
million, $2.5 million, $5.5 million, $5.0 million and $5.0 million of preferred
stock, respectively, in this private placement. A portion of the proceeds from
this private placement were used to repay approximately $11.0 million in
borrowings from SCANA and an additional $11.0 million of debt we incurred to
finance the purchase of our cable television systems in Montgomery, Alabama and
Columbus, Georgia in 1995. ITC Holding subsequently repurchased all shares of
our preferred stock owned by Century Telephone, South Atlantic and SCANA during
1998.
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<PAGE> 16
On December 22, 1998, we entered into a $50 million four-year senior
secured credit facility with First Union National Bank and First Union Capital
Markets Corp. The credit facility allows us to borrow up to five times a certain
individual subsidiary's annualized consolidated adjusted cash flow, as defined
in the credit facility agreement. The credit facility may be used for working
capital and other purposes, including capital expenditures and permitted
acquisitions. At our 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 .50% to 2.50% based on our leverage
ratio. The credit facility contains a number of covenants including, among
others, covenants limiting the our ability and the ability of our subsidiaries
to:
- incur debt;
- create liens;
- pay dividends;
- make distributions or stock repurchases;
- make certain investments;
- engage in transactions with affiliates;
- sell assets; and
- 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 revenue generating units and average revenue per subscriber. We are
currently in compliance with these covenants. Should we not be in compliance
with the covenants
in the future, we would be in default and would require a waiver from the
lender. In the event the lender would not provide a waiver, amounts outstanding
against the facility could be payable to the lender on demand. A change of
control of our company, as defined in the credit facility agreement, would
constitute a default under the covenants.
The maximum amount currently available under the credit facility at
September 30, 1999 was approximately $23 million, assuming compliance with all
of the operating and financial covenants. As of September 30, 1999, $19 million
of the $23 million currently available had been drawn against the credit
facility.
FUTURE FUNDING
Our business requires substantial investment to finance capital
expenditures and related expenses, to expand and/or upgrade the interactive
broadband networks, to fund subscriber equipment and to maintain the quality of
our networks. We currently expect to spend approximately $94 million for capital
expenditures during 1999, which includes $64.3 million spent in the first nine
months of 1999, including the planned expansion and/or upgrade of the
Montgomery, Columbus, Panama City, Augusta, Charleston and Huntsville networks
and approximately $5 million to fund operating losses in 1999. We currently
expect to spend approximately $9 million to fund operating losses and
approximately $131 million for capital expenditures during 2000. The $131
million includes approximately $70 million related to the construction of
networks in our existing markets. The remainder primarily relates to the
purchase of equipment for customer premises, such as set-top cable boxes,
information systems and the commencement of the construction of networks in
additional markets. Failure to have access to additional funds during 2000 could
require us to delay some of our construction plans, delay preliminary efforts in
new markets and possibly require us to restrict or reduce the level of
operations in some markets.
We presently estimate the cost to complete construction of the networks
in our existing markets to be approximately $170 million, of which approximately
$70 million would be expended during 2000. We currently expect that if
sufficient funds are raised, the construction of our networks in our existing
markets would be substantially completed during 2002.
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<PAGE> 17
We presently expect that present cash reserves, cash flow from
operations, funding obtained through our existing credit facility and the
private offering discussed below will be sufficient to fund our 2000 capital
expenditures. We will need additional capital to complete construction of our
networks through 2002. We expect to raise this capital through private and
public debt offerings and private and public equity offerings, although there is
no assurance that this financing will be available on terms favorable 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 current markets. This
may cause us to violate our franchises agreements, which could adversely affect
us, or may just limit our growth within these markets.
We plan to expand to additional mid-sized cities in the southeastern
United States. We estimate the cost of constructing networks and funding initial
subscriber equipment in additional new cities at approximately $50 to $75
million per city, though our costs could be as much as $85 million to $90
million per city for larger markets. 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 expand into additional cities, for new business activities or in
the event we decide to make additional acquisitions. We expect to raise this
capital through private and public debt offerings and private and public equity
offerings, although there is no assurance that this financing will be available
on terms favorable to us. If we are not successful in raising additional
capital, we will not be able to expand to additional cities as planned. 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.
We expect to enter into purchase agreements for programming services and
construction related services to expand our service offerings and to expand and
upgrade our current systems, which will commit us to make some of these planned
expenditures. We believe that present cash reserves, cash flow from operations,
amounts available under our credit facility, and proceeds from loan agreements
with affiliated companies will provide us with sufficient funds to expand our
current networks as planned through 1999. A subsidiary of our parent company,
ITC Holding Company, Inc. has agreed to lend us approximately $13 million and we
expect to obtain these proceeds in November 1999.
ITC Holding intends to complete a reorganization of certain of its
wholly owned and majority owned subsidiaries during the fourth quarter of 1999
or early 2000 as follows:
- ITC Holding plans to contribute its approximately 85% interest in us
to KNOLOGY, Inc.
- ITC Holding plans to contribute all of the outstanding capital stock
of Interstate Telephone, Inc.; Valley Telephone Inc.; Globe
Telecommunications Inc.; and ITC Globe Inc. to KNOLOGY, Inc.
- ITC Holding plans to contribute its 222,832 shares of Series A
preferred stock and 50,000 shares of Series B preferred stock, and
its subscription rights to purchase an additional 610,501 shares of
Series A preferred stock and 200,000 shares of Series B preferred
stock (together with approximately $5,663,000 in cash to be used by
KNOLOGY, Inc. to make the subscription payment) in ClearSource, Inc.
to KNOLOGY, Inc.
- We expect that our minority shareholders will exchange the remaining
approximately 15% of their shares for shares of KNOLOGY, Inc.
As a result of the planned reorganization, Interstate Telephone, Valley
Telephone, Globe Telecommunications, ITC Globe and we will be wholly owned
subsidiaries of KNOLOGY, Inc. A subsidiary of ITC Holding is expected to lend
KNOLOGY, Inc. up to $30.4 million during the fourth quarter with an expected
March 31, 2000 maturity date. The ITC Holding subsidiary may elect, in lieu of
repayment, to convert the amounts outstanding under this loan and the previously
mentioned $13 million loan into KNOLOGY, Inc. common stock or stock options.
ITC Holding proposes to distribute all of its stock, and any stock
options it holds in KNOLOGY, Inc. to ITC's stockholders and optionholders during
the fourth quarter of 1999 or in early 2000. Shortly thereafter, KNOLOGY, Inc.
intends to sell capital stock to a small group of institutional investors in a
private placement of approximately $100 million. The proceeds are expected to be
used to complete the buildout of our existing markets and to launch additional
markets. We will continue to need additional financing to fund further expansion
and to make potential acquisitions.
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<PAGE> 18
THE YEAR 2000 ISSUE
General
The year 2000 issue is a general term used to describe the various
problems that may result in computers and other machinery as we reach the year
2000. These problems generally arise from the fact that most of the world's
computers have historically used only two digits to identify the year in a date,
often meaning that the computer will fail to distinguish dates in the 2000's
from dates in the 1900's.
These problems are expected to increase in frequency and severity as the
year 2000 approaches. This issue impacts our owned or licensed computer systems
and equipment used in connection with internal operations.
Third Parties
We also rely directly and indirectly, in the regular course of business,
on the proper operation and compatibility of third party systems. The year 2000
problem could cause these systems to fail, err, or become incompatible with our
systems.
Certain of our suppliers and vendors could have a material affect on our
business if they fail to become year 2000 ready. In these cases, we are relying
on the determination by an outside testing company that these vendors and
suppliers are ready for the year 2000. Also, we have conducted our own testing
of certain major components of the systems provided to us by third parties.
Nonetheless, if we or a significant third party on which we rely fails to become
year 2000 ready, or if the year 2000 problem causes our systems to become
internally incompatible or incompatible with such third party systems, our
business could suffer from material disruptions, including the inability to
process transactions, send invoices, accept customer orders or provide customers
with our services. We could also face similar disruptions if the year 2000
problem causes general widespread problems or an economic crisis. We cannot now
estimate the extent of these potential disruptions.
Our State of Readiness
We established a year 2000 program office to coordinate activity and
report to our executive management and board of directors with regard to the
year 2000 issue. Our year 2000 program office developed a plan for us to become
year 2000 ready. This plan covered:
- our technology and operating systems;
- billing of our cable, telephone and Internet services;
- customer service;
- financial operations and reporting;
- network monitoring; and
- the systems of our major vendors, third party service providers and
other material service and content providers.
We addressed our year 2000 plan with respect to our internal
operations in six phases:
- an awareness phase, in which we inventoried and evaluated, our
systems, components and other significant infrastructure;
- an assessment phase, in which we identified those elements that
reasonably could be expected to be affected by year 2000 problems;
- a remediation phase, in which we remediated or replaced equipment
that we believe would fail to operate properly in the year 2000;
- a testing and validation phase, in which we tested the remediation
and replacement conducted and validated its ability;
- an implementation phase, in which we added our new or updated
equipment to our current systems; and
- a contingency phase, in which we developed contingency plans for our
at-risk business functions.
We have completed all phases of our plan for all of our services and systems.
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Certain actions in the remediation phase have been conducted by the
third parties who provide hardware, software, or services that comprise our
systems. We have polled all the third parties who provide material hardware,
software, or services as part of our information technology and operating
systems with regard to each of such third party's year 2000 compliance plan and
state of readiness. We have actively sought responses from all vendors and third
parties as to year 2000 compliance, status of plans and readiness. All key
vendors have responded and most of the third parties have assured us that their
hardware and/or software is currently or will be year 2000 compliant before the
end of the year. We
Costs
To date, we have incurred approximately $500,000 of costs in connection
with our year 2000 plan, and we do not anticipate spending additional funds. We
expense all costs associated with our Year 2000 plan as we incur them and
anticipate funding the costs of our plan from cash flows. To date, we have not
deferred any specific information technology projects because of the costs of
our plan.
Risks
The failure to correct a material year 2000 problem or to implement a
contingency plan could result in system failures leading to a disruption in, or
failure of, certain normal business activities or operations. Such failures
could materially and adversely affect our business, profitability and operating
results.
Contingency Plans
We have a year 2000 contingency planning committee, which has developed
year 2000 contingency plans for all of our information technology and operating
systems and for each of our locations. This committee identified key business
risks which were used to drive the development of these plans. Additionally, we
use an outside consulting service to assist in our year 2000 readiness, project
coordination and execution of the year 2000 plan.
Contingency planning to maintain and restore service in the event of
natural disasters, power failures and systems-related problems is a routine part
of our operations. We believe that such contingency plans will assist us in
responding to any failure by outside service providers to successfully address
year 2000 issues. In addition, we have developed complete contingency plans that
address our most reasonably likely worst case year 2000 scenarios including
identification of alternate vendors and service providers and manual
alternatives to system operations.
Our contingency plans for the components of our operations that are
provided by third parties and are of greatest concern to us in the event of a
year 2000 problem are:
- Network. To prepare for potential year 2000 problems affecting our
network, we have leased more facilities to provide greater
redundancy. We have also received vendor assurances with regard to
our network.
- Billing. We have conducted our own testing of our billing systems. In
addition, we are relying on third-party verification that these
systems are ready for the year 2000.
- Switching. A switch is a device that directs voice and data traffic
over a network. Switching is the process of connecting the calling
party with the called party through one or more switches. We have
only one switch, through which we route all of our telephone data
transmissions. A team of specialists from an outside consulting
service will be on call to provide backup support in the event of
any year 2000 problems. The switching functions have also been
tested by us and by third-parties for year 2000 readiness.
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 utilized, 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 facility 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 facility. A hypothetical 10% increase in interest rates on
our variable rate bank debt for a duration of one year would increase interest
expense by an immaterial amount.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
- -------------- ----------------------
<S> <C>
27.1* Financial Data Schedule for the nine months ended
September 30, 1999.
</TABLE>
- ----------
* Previously filed with KNOLOGY Holdings, Inc.'s Form 10-Q for the quarter
ended September 30, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, KNOLOGY
Holdings, Inc. has duly caused this Amendment No. 2 to KNOLOGY Holdings, Inc.'s
Form 10-Q for the quarter ended September 30, 1999 to be signed on its behalf
by the undersigned thereunto duly authorized.
KNOLOGY Holdings, Inc.
December 27, 1999 By: /s/ Rodger L. Johnson
-----------------------------------
Rodger L. Johnson
President and Chief Executive Officer
19
