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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

 

COMMISSION FILE NUMBER: 000-32647

 


 

KNOLOGY, INC.

(Exact name of registrant as specified in its charter)

 


 

DELAWARE   58-2424258

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

KNOLOGY, INC.

1241 O.G. SKINNER DRIVE

WEST POINT, GEORGIA

  31833
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (706) 645-8553

 


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

As of October 31, 2004, Knology, Inc. had 21,515,206 shares of common stock and 2,170,127 shares of non-voting common stock outstanding.

 



Table of Contents

KNOLOGY, INC.

QUARTER ENDED SEPTEMBER 30, 2004

 

INDEX

 

               PAGE

PART I

  

FINANCIAL INFORMATION

    
     ITEM 1   

FINANCIAL STATEMENTS

   3
         

Condensed Consolidated Balance Sheets

   3
         

Condensed Consolidated Statements of Operations

   4
         

Condensed Consolidated Statement of Cash Flows

   5
         

Notes to Condensed Consolidated Financial Statements

   6
     ITEM 2   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   11
     ITEM 3   

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   22
     ITEM 4   

CONTROLS AND PROCEDURES

   22

PART II

  

OTHER INFORMATION

    
     ITEM 1   

LEGAL PROCEEDINGS

   23
     ITEM 2   

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

   23
     ITEM 3   

DEFAULTS UPON SENIOR SECURITIES

   23
     ITEM 4   

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   23
     ITEM 5   

OTHER INFORMATION

   23
     ITEM 6   

EXHIBITS

   24
         

SIGNATURES

   25
         

EXHIBIT INDEX

   26

 

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ITEM 1. FINANCIAL STATEMENTS

 

KNOLOGY, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

 

    

December 31,

2003


   

September 30,

2004


 
ASSETS                 

CURRENT ASSETS:

                

Cash and cash equivalents

   $ 52,021     $ 44,823  

Restricted cash

     11,314       8,428  

Accounts receivable, net of an allowance for doubtful accounts of $1,449 and $665 at December 31, 2003 and September 30, 2004, respectively

     19,284       18,007  

Prepaid expenses and other

     1,818       2,015  

Assets of business held for sale (Note 11)

     0       871  
    


 


Total current assets

     84,437       74,144  

PROPERTY, PLANT AND EQUIPMENT, net

     336,060       326,019  

INVESTMENT

     1,243       1,243  

GOODWILL

     40,834       40,834  

INTANGIBLE AND OTHER ASSETS, net

     1,138       1,532  
    


 


Total assets

   $ 463,712     $ 443,772  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY                 

CURRENT LIABILITIES:

                

Current portion of notes payable

   $ 5,213     $ 44  

Accounts payable

     15,520       19,797  

Accrued liabilities

     9,136       22,508  

Unearned revenue

     11,633       11,352  

Liabilities of business held for sale (Note 11)

     0       807  
    


 


Total current liabilities

     41,502       54,508  
    


 


NONCURRENT LIABILITIES:

                

Notes payable

     45,309       47,779  

Senior unsecured notes

     225,037       237,096  

Warrants

     932       428  

Unamortized investment tax credits

     39       16  
    


 


Total noncurrent liabilities

     271,317       285,319  
    


 


Total liabilities

     312,819       339,827  
    


 


COMMITMENTS AND CONTINGENCIES (Note 8)

                

STOCKHOLDERS’ EQUITY:

                

Common stock, $.01 par value per share; 175,000,000 shares authorized, 20,605,430 and 21,515,206 shares issued and outstanding at December 31, 2003 and September 30, 2004, respectively

     207       215  

Non-voting common stock, $.01 par value per share; 25,000,000 shares authorized, 2,170,127 and 2,170,127 shares issued and outstanding at December 31, 2003 and September 30, 2004, respectively

     21       22  

Additional paid-in capital

     548,518       558,631  

Accumulated deficit

     (397,853 )     (454,923 )
    


 


Total stockholders’ equity

     150,893       103,945  
    


 


Total liabilities and stockholders’ equity

   $ 463,712     $ 443,772  
    


 


 

See notes to condensed consolidated financial statements.

 

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KNOLOGY, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

 

    

Three Months Ended

September 30,


   

Nine Months Ended

September 30,


 
     2003

    2004

    2003

    2004

 

OPERATING REVENUES:

                                

Video

   $ 17,968     $ 23,683     $ 53,131     $ 73,402  

Voice

     17,705       18,096       51,600       54,512  

Data and other

     8,060       10,285       22,558       30,679  
    


 


 


 


TOTAL REVENUE

     43,733       52,064       127,289       158,593  

OPERATING EXPENSES:

                                

Costs of services, excluding depreciation and amortization

     11,868       15,102       34,690       45,990  

Selling, general and administrative expenses

     23,151       30,691       68,884       88,244  

Depreciation and amortization

     19,569       18,373       58,922       55,947  

Expenses associated with capital market activities

     41       8       84       655  

Non-cash stock option compensation

     478       568       1,382       2,850  

Litigation fees

     296       0       907       23  
    


 


 


 


       55,403       64,742       164,869       193,709  
    


 


 


 


OPERATING LOSS

     (11,670 )     (12,678 )     (37,580 )     (35,116 )

OTHER INCOME (EXPENSE):

                                

Interest income

     72       193       281       532  

Interest expense

     (7,267 )     (7,701 )     (21,572 )     (23,225 )

Gain on adjustment of warrants to fair market value

     0       85       0       504  

Loss on investments (Note 5)

     (12,406 )     0       (12,406 )     0  

Other income, net

     22       19       107       159  
    


 


 


 


       (19,579 )     (7,404 )     (33,590 )     (22,030 )
    


 


 


 


LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS

     (31,249 )     (20,082 )     (71,170 )     (57,146 )

INCOME TAX BENEFIT

     0       0       0       24  
    


 


 


 


LOSS FROM CONTINUING OPERATIONS

     (31,249 )     (20,082 )     (71,170 )     (57,122 )

INCOME FROM DISCONTINUED OPERATIONS (Note 11)

     0       43       0       53  
    


 


 


 


NET LOSS

   $ (31,249 )   $ (20,039 )   $ (71,170 )   $ (57,069 )
    


 


 


 


BASIC AND DILUTED NET LOSS PER COMMON SHARE:

                                

Continuing operations

   $ (613.57 )   $ (0.85 )   $ (1,403.58 )   $ (2.41 )

Discontinued operations

     0.00       0.00       0.00       0.00  
    


 


 


 


Net loss per share

   $ (613.57 )   $ (0.85 )   $ (1,403.58 )   $ (2.41 )
    


 


 


 


WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

     50,930       23,685,333       50,706       23,641,036  
    


 


 


 


 

See notes to condensed consolidated financial statements.

 

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KNOLOGY, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

(DOLLARS IN THOUSANDS)

 

    

Nine Months Ended

September 30,


 
     2003

    2004

 

CASH FLOWS FROM OPERATING ACTIVITIES:

                

Net loss

   $ (71,170 )   $ (57,069 )

Adjustments to reconcile net loss to net cash provided by operating activities:

                

Depreciation and amortization

     58,922       55,947  

Non-cash stock option compensation

     1,382       2,850  

Loss on investments

     12,406       0  

Gain on adjustment of warrants to fair market value

     0       (504 )

Non-cash bond interest expense

     19,641       12,059  

Provision for bad debt

     3,475       3,380  

Loss (gain) on disposition of assets

     15       (29 )

Changes in operating assets and liabilities:

                

Accounts receivable

     (3,533 )     (2,103 )

Prepaid expenses and other

     (1,269 )     (160 )

Accounts payable

     (1,941 )     4,277  

Accrued liabilities

     (394 )     13,372  

Unearned revenue

     1,362       (281 )

Assets and liabilities of business held for sale

     0       (87 )
    


 


Total adjustments

     90,066       88,721  
    


 


Net cash provided by operating activities

     18,896       31,652  
    


 


CASH FLOWS FROM INVESTING ACTIVITIES:

                

Capital expenditures

     (26,579 )     (45,741 )

Expenditures for intangible assets

     (329 )     (363 )

Proceeds from sale of assets

     92       166  
    


 


Net cash used in investing activities

     (26,816 )     (45,938 )
    


 


CASH FLOWS FROM FINANCING ACTIVITIES:

                

Principal payments on debt

     (2,504 )     (2,700 )

Proceeds from issuance of common stock, net of $827 offering costs

     0       7,273  

Expenditures related to issuance of debt

     0       (371 )

Expenditures related to reorganization

     (49 )     0  

Proceeds from exercised stock options

     14       0  
    


 


Net cash (used in) provided by financing activities

     (2,539 )     4,202  
    


 


NET DECREASE IN CASH

     (10,459 )     (10,084 )

CASH AT BEGINNING OF PERIOD

     43,913       63,335  
    


 


CASH AT END OF PERIOD

   $ 33,454     $ 53,251  
    


 


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

                

Cash paid during the period for interest

   $ 2,052     $ 1,759  
    


 


Cash received during the period for income taxes

   $ —       $ (25 )
    


 


 

See notes to condensed consolidated financial statements.

 

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KNOLOGY, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2004

(UNAUDITED)

 

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

 

1. ORGANIZATION AND NATURE OF BUSINESS

 

Knology, Inc. (including its predecessors, “Knology” or the “Company”) is a publicly traded company incorporated under the laws of the State of Delaware in September 1998.

 

Knology and its subsidiaries own and operate an advanced interactive broadband network and provide residential and business customers broadband communications services, including analog and digital cable television, local and long-distance telephone, high-speed Internet access, and broadband carrier services to various markets in the southeastern United States.

 

Our telephone operations group, consisting of Interstate Telephone Company, Globe Telecommunications, Inc., ITC Globe, Inc., and Valley Telephone Co., LLC (our “Telephone Operations Group”) is wholly owned and provides a full line of local telephone and related services and broadband services. Certain of the Telephone Operations Group subsidiaries are subject to regulation by state public service commissions of applicable states for intrastate telecommunications services. For applicable interstate matters related to telephone service, certain Telephone Operations Group subsidiaries are subject to regulation by the Federal Communications Commission.

 

2. BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for the fair presentation of the financial statements have been included, and the financial statements present fairly the financial position and results of operations for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

 

The preparation of financial statements in conformity with GAAP 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. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2004, or any other period.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In December 2003, the FASB issued a revision to FASB Interpretation No. 46 (“FIN 46-R”), “Consolidation of Variable Interest Entities.” FIN 46 is an Interpretation of Accounting Research Bulletin 51, “Consolidated Financial Statements” and addresses consolidation by business enterprises of variable interest entities (“VIEs”) that possess certain characteristics. The revision clarifies the definition in the original release that potentially could have classified any business as a VIE. The revision also delays the effective date of the Interpretation from the first reporting period following December 15, 2003 to the first reporting period ending after March 15, 2004. The revision was effective for the Company in the first quarter of fiscal 2004. The Company has not identified any VIEs and, accordingly, the application of this Interpretation did not have an effect on the Company’s results of operations or financial position.

 

At the March 2004 Emerging Issues Task Force (“EITF”) meeting, the Task Force reached a consensus on Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. Issue 03-1 defines the terms other–than-temporary and other-than-temporary impairment and establishes a three-step impairment model applicable to debt and equity securities that are within the scope of SFAS 115. At the November 2003 EITF meeting, the Task Force reached a consensus effective for fiscal years ending after December 15, 2003 on quantitative disclosures. Except for disclosure requirements already in place, the Issue 03-1 consensus will be effective prospectively for all relevant current and future investments in reporting periods beginning after

 

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June 15, 2004. The Company adopted EITF Issue No. 03-1 disclosure requirements for the fiscal year ended December 31, 2003 and does not expect the adoption of future requirements of EITF Issue No. 03-1 to have material impact on the Company’s results of operations or financial position.

 

4. CASH

 

As of September 30, 2004, the Company had $8,428 of cash that was restricted in use. Of this amount, $3,132 was held at the Telephone Operations Group and restricted for use by these entities. Also, the Company has pledged $5,295 of cash as collateral for amounts potentially payable under certain franchise, insurance, lease agreements and surety bond agreements.

 

5. INVESTMENTS

 

Due to certain changes in Grande Communications, Inc.’s business during the third quarter of 2003, including the loss of a significant wholesale contract, the company evaluated the carrying amount of its investment in Grande. Based on the evaluation, the company recorded a loss of $12,406 on its investment in Grande during the third quarter of 2003. This loss is deemed to be other than temporary and has been charged to earnings.

 

6. GOODWILL AND INTANGIBLE ASSETS

 

The Company performs a goodwill impairment test in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” annually on January 1. There was no impairment identified as a result of the January 1, 2004 impairment test.

 

Intangible assets as of December 31, 2003 and September 30, 2004, respectively, were as follows:

 

    

December 31,

2003


  

September 30,

2004


  

Amortization

Period (Years)


Customer base

   $ 326    $ 410    3

Other

     225      462    1-15
    

  

    

Gross carrying value of intangible assets subject to amortization

     551      872     

Less accumulated amortization

     235      461     
    

  

    

Net carrying value of intangible assets subject to amortization

     316      411     

Goodwill

     40,834      40,834     
    

  

    

Total intangibles, net

   $ 41,150    $ 41,245     
    

  

    

 

Amortization expense related to intangible assets was $302 and $251 for the nine months ended September 30, 2003 and 2004, respectively.

 

7. LONG-TERM DEBT

 

Long-term debt at December 31, 2003 and September 30, 2004 consists of the following:

 

    

December 31,

2003


  

September 30,

2004


Senior unsecured notes including accrued interest, with an initial face value of $194,659 bearing interest in-kind at 13% beginning November 6, 2002, interest payable semiannually at 12% beginning November 30, 2004, with principal and unpaid interest due November 30, 2009

   $ 225,037    $ 237,096

Senior secured Wachovia credit facility, at a rate of LIBOR plus 3.75%, interest payable quarterly, with principal and any unpaid interest due September 10, 2007

     15,465      15,465

Senior secured CoBank term credit facility, at a rate of LIBOR plus 3.5%, interest payable quarterly, principal payments due quarterly beginning Jan 2007 with final principal and any unpaid interest due June 30, 2009

     34,588      31,895

Capitalized lease obligation, at a rate of 7%, with monthly principal and interest payments through October 2011

     470      463
    

  

       275,560      284,919

Less current maturities

     5,213      44
    

  

Total long-term debt

   $ 270,347    $ 284,875
    

  

 

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On September 10, 2004, we completed certain amendments to our credit facilities with Wachovia Bank, National Association and CoBank, ACB. The amended credit facilities defer approximately $24,500 of principal payments until 2007 which were previously scheduled during 2004, 2005 and 2006, and modified certain financial covenants. In addition, the amendments allowed our Telephone Operations Group to make a $7,700 dividend payment to us, as well as future dividend payments equal to the net income of the Telephone Operations Group. These dividends decrease the amount of the company’s restricted cash.

 

As of September 30, 2004, the Company was in compliance with all of its debt covenants.

 

8. EQUITY INTERESTS

 

On January 13, 2004, pursuant to the exercise of the underwriters’ over-allotment option, the Company issued approximately 900,000 shares at a per share price to the public of $9.00, with net proceeds of approximately $7,300.

 

These consolidated financial statements have been revised to give effect to the reverse stock split on November 28, 2003, which was a one-for-ten stock split of our common and non-voting common stock. As a result of the stock split, each of the outstanding shares of common stock was reclassified as one-tenth (1/10) of a share of common stock and each of the outstanding shares of non-voting common stock was reclassified as one-tenth (1/10) of a share of non-voting common stock.

 

On May 7, 2004, pursuant to a proposal ratified by a shareholder vote, all outstanding options to purchase common stock granted prior to December 18, 2003 under the 2002 Long-Term Incentive Plan with an exercise price of $18.70 per share were cancelled and replaced with new options with an exercise price of $6.87 per share.

 

9. LOSS PER SHARE

 

The Company computes loss per share in accordance with SFAS No. 128, Earnings per Share. Basic loss per share is computed by dividing income from continuing operations by the weighed-average number of common shares outstanding for the period. Diluted loss per share is computed in the same manner, but also includes the dilutive effect of common stock equivalents and other financial instruments that are convertible or exercisable for the Company’s common stock. For the three months ended September 30, 2003 and 2004, the Company had 17,797,634 and 2,924,203 shares related to preferred stock, stock options and warrants outstanding that were not included in the computation of diluted loss per share because such effects would have been antidilutive for the respective periods.

 

10. COMMITMENTS AND CONTINGENCIES

 

LEGAL PROCEEDINGS

 

In September 2000, the City of Louisville, Kentucky granted Knology of Louisville, Inc., a subsidiary of Knology, Inc., a cable television franchise. On November 2, 2000, Insight filed a complaint against the City of Louisville in Kentucky Circuit Court in Jefferson County, Kentucky claiming that the Company’s franchise was more favorable than Insight’s franchise. Insight’s complaint suspended the Company’s franchise until there is a final, nonappealable order in Insight’s Kentucky Circuit Court case. In April 2001 the City of Louisville moved for summary judgment in Kentucky Circuit Court against Insight. In March 2002, the Kentucky Circuit Court ruled that Insight’s complaint had no merit and the Kentucky Circuit Court granted the City of Louisville’s motion to dismiss Insight’s complaint. Insight appealed the Kentucky Circuit Court order dismissing their complaint and in June 2003 the Kentucky Court of Appeals upheld the Kentucky Circuit Court ruling. Insight sought discretionary review of the Kentucky Court of Appeals ruling from the Kentucky Supreme Court which request was denied

 

On November 8, 2000, the Company filed an action in the U.S. District Court for the Western District of Kentucky against Insight seeking monetary damages, declaratory and injunctive relief from Insight and the City arising out of Insight’s complaint and the suspension of the Company’s franchise. In March 2001, the U.S. District Court issued an order granting the Company’s motion for preliminary injunctive relief and denying Insight’s motion to dismiss. In June 2003, the U.S. District Court ruled on the parties’ cross motions for summary judgment, resolving certain claims and setting others down for trial. The U.S. District Court granted the Company’s motion for summary judgment based on causation on certain claims. In August 2003, the U.S. District Court granted Insight’s motion for an immediate interlocutory appeal on certain issues, which was accepted in October 2003 by the U.S. Court of Appeals for the Sixth Circuit. The matter has been fully briefed and oral arguments have been held. At this time it is impossible to determine with certainty the ultimate outcome of the litigation.

 

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On November 21, 2001, the Company filed a complaint against Georgia Power Company requesting FCC adjudication of a dispute regarding amounts Georgia Power charged the Company in connection with the construction of its network in Augusta, Georgia. The Company requested the FCC to review these charges to determine whether they were “reasonable” in accordance with FCC pole attachment regulations. The company requested reimbursement from Georgia Power of approximately $2,500. Georgia Power responded to the FCC complaint by asserting the Company owed Georgia Power approximately $900 for additional construction-related charges. In May 2003, Georgia Power filed a complaint against Knology Broadband, the Company’s subsidiary, in the Superior Court of Troup County, State of Georgia, re-asserting claims for construction related charges. Georgia Power’s claim duplicates its claim pending before the FCC. The Company responded to Georgia Power’s complaint in state court by re-asserting its claims that are currently pending before the FCC. The Company also sought to remove the state court action to federal court and moved to dismiss the lawsuit or to stay the action to allow the FCC time to issue its decision. Georgia Power has moved to remand the case to state court. On November 20, 2003, the FCC issued an order determining that certain pole attachment fees charged by Georgia Power were improper. The Commission ordered Georgia Power to refund $52 and to recalculate certain charges that it had billed the Company. Georgia Power refunded the $52. On August 11, 2004 the Company filed a motion seeking enforcement of the other provisions of the Commission’s Order. At this time, it is impossible to determine with certainty the ultimate outcome of the motion or the litigation.

 

The Company is subject to other litigation in the normal course of its business. However, in the Company’s opinion, there is no legal proceeding pending against it which would have a material adverse effect on its financial position, results of operations or liquidity. The Company is also a party to regulatory proceedings affecting the segments of the communications industry generally in which it engages in business.

 

11. BUSINESS HELD FOR SALE

 

On May 24, 2004 the Company announced that it had entered into a definitive asset purchase agreement to sell its cable system located in Cerritos, California for $14,800 in cash, subject to customary closing adjustments. The Company acquired the Cerritos cable system in December 2003 from Verizon Media Ventures Inc. in conjunction with its acquisition of Verizon Media’s Pinellas County, Florida operations. The sale of the Cerritos system is expected to close during the first quarter of 2005, subject to the satisfaction of closing conditions, including receipt of regulatory approvals with respect to the municipal franchise in Cerritos, California.

 

Following the guidance of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective April 30, 2004, the Cerritos cable system was deemed to be a long-lived asset to be disposed of based on management’s commitment, plan, and actions taken to sell the property. Therefore, no depreciation expense related to the Cerritos assets will be recorded subsequent to April 30, 2004. The assets and liabilities related to the Cerritos system are separately stated on the Company’s balance sheet. The table below summarizes the major classes of assets and liabilities classified as held for sale.

 

    

September 30,

2004


Assets:

      

Cash

   $ 57

Accounts Receivable

     211

Net Property, Plant, and Equipment

     586

Prepayments and Other

     17
    

Total Assets

   $ 871
    

Liabilities:

      

Accounts Payable

   $ 239

Accrued Liabilities

     60

Unearned Revenue

     192

Advance from Affiliate

     316
    

Total Liabilities

   $ 807
    

 

The net income associated with the Cerritos cable system since April 30, 2004 is presented separately in the statement of operations as income from discontinued operations. The Cerritos cable system generated approximately $1,442 of revenue for the period that the assets have been classified as held for sale.

 

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12. SEGMENT INFORMATION

 

The Company follows SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” which established revised standards for the reporting of financial and descriptive information about operating segments in financial statements.

 

The Company owns and operates advanced interactive broadband networks and provides residential and business customers broadband communications services, including analog and digital cable television, local and long distance telephone, and high-speed Internet access, which the Company refers to as video, voice, and data services. We also provide other services including broadband carrier services, which includes local transport services such as local Internet transport, special access, local private line, and local loop services.

 

While management of the Company monitors the revenue generated from each of the various broadband services, operations are managed and financial performance is evaluated based upon the delivery of multiple services to customers over a single network. As a result of multiple services being provided over a single network, many expenses and assets are shared related to providing the various broadband services to customers. Management believes that any allocation of the shared expenses or assets to the broadband services would be subjective and impractical.

 

Revenues by broadband communications service are as follows:

 

    

THREE MONTHS ENDED

SEPTEMBER 30,


  

NINE MONTHS ENDED

SEPTEMBER 30,


     2003

   2004

   2003

   2004

Video

   $ 17,968    $ 23,683      53,131    $ 73,402

Voice

     17,705      18,096      51,600      54,512

Data and other

     8,060      10,285      22,558      30,679
    

  

  

  

Consolidated revenues

   $ 43,733    $ 52,064    $ 127,289    $ 158,593
    

  

  

  

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

THE MANAGEMENT’S DISCUSSION AND ANALYSIS AND OTHER PORTIONS OF THIS QUARTERLY REPORT INCLUDE “FORWARD-LOOKING” STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS, INCLUDING THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THAT ARE SUBJECT TO FUTURE EVENTS, RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED. IMPORTANT FACTORS THAT EITHER INDIVIDUALLY OR IN THE AGGREGATE COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED INCLUDE, WITHOUT LIMITATION, (1) THAT WE WILL NOT RETAIN OR GROW OUR CUSTOMER BASE, (2) THAT OUR SUPPLIERS AND CUSTOMERS MAY REFUSE TO CONTINUE DOING BUSINESS WITH US, (3) THAT WE WILL FAIL TO BE COMPETITIVE WITH EXISTING AND NEW COMPETITORS, (4) THAT WE WILL NOT ADEQUATELY RESPOND TO TECHNOLOGICAL DEVELOPMENTS IMPACTING OUR INDUSTRY AND MARKETS, (5) THAT NEEDED FINANCING WILL NOT BE AVAILABLE, (6) THAT A SIGNIFICANT CHANGE IN THE GROWTH RATE OF THE OVERALL U.S. ECONOMY WILL OCCUR SUCH THAT CONSUMER AND CORPORATE SPENDING ARE MATERIALLY IMPACTED, (7) THAT WE WILL NOT BE ABLE TO COMPLETE FUTURE ACQUISITIONS, THAT WE MAY HAVE DIFFICULTIES INTEGRATING ACQUIRED BUSINESSES, OR THAT THE COST OF SUCH INTEGRATION WILL BE GREATER THAN WE EXPECT, (8) THAT WE MAY NOT COMPLETE THE SALE OF THE CERRITOS CABLE SYSTEM OR WE MAY NOT COMPLETE THE SALE IN A TIMELY MANNER, OR IN THE EVENT WE DO NOT RECEIVE NECESSARY REGULATORY OR OTHER APPROVALS OR FAIL TO SATISFY THE CONDITIONS TO CLOSING, THE TRANSACTION WILL TERMINATE, AND (9) THAT SOME OTHER UNFORESEEN DIFFICULTIES OCCUR, AS WELL AS THOSE RISKS SET FORTH IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003, WHICH ARE INCORPORATED HEREIN BY REFERENCE. THIS LIST IS INTENDED TO IDENTIFY ONLY CERTAIN OF THE PRINCIPAL FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN.

 

The following is a discussion of our consolidated financial condition and results of operations for the three and nine months ended September 30, 2004, and certain factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this Form 10-Q.

 

Introduction

 

We are a fully integrated provider of video, voice, data and advanced communications services to residential and business customers in nine markets in the southeastern United States. We provide a full suite of video, voice and data services in Huntsville and Montgomery, Alabama; Panama City and Pinellas County, Florida; Augusta, Columbus and West Point, Georgia; Charleston, South Carolina; and Knoxville, Tennessee. We also provide video services in Cerritos, California, but, as discussed below, we have entered into an agreement to sell those assets to Orange Broadband, Inc. Our primary business is the delivery of bundled communication services over our own network. In addition to our bundled package offerings, we sell these services on an unbundled basis.

 

We have built our business through:

 

  acquisitions of other cable companies, networks and franchises;

 

  upgrades of acquired networks to introduce expanded broadband services including bundled video, voice and data services;

 

  construction and expansion of our broadband network to offer integrated video, voice and data services; and

 

  organic growth of connections through increased penetration of services to new marketable homes and our existing customer base.

 

To date, we have experienced operating losses as a result of the expansion of our service territories and the construction of our network. We expect to continue to focus on increasing our customer base and expanding our broadband operations. Our ability to generate profits and positive cash flow from operations will depend in large part on our ability to increase revenues to offset the costs of construction, expansion and operation of our network.

 

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Table of Contents

Recent Transactions

 

On December 23, 2003, we completed a public offering of our common stock. Including the shares issued on January 13, 2004, pursuant to the exercise of the underwriters’ over-allotment option, we issued 6.9 million shares at a per share price to the public of $9.00, and our net proceeds were approximately $56.3 million.

 

In December 2003, we also completed the acquisition of certain assets from Verizon Media, including the cable television systems and franchise rights in Pinellas County, Florida and Cerritos, California. We paid Verizon Media an aggregate of approximately $17.0 million in cash, which was funded with the net proceeds of our common stock offering. In connection with the completion of the Verizon Media acquisition, we also issued to a prior prospective purchaser and certain of its employees warrants to purchase one million shares of our common stock with an exercise price of $9.00 per share in exchange for the release of the prospective purchaser’s exclusivity rights with Verizon Media.

 

On May 24, 2004, we announced that we entered into a definitive asset purchase agreement to sell our cable system located in Cerritos, California to Orange Broadband, Inc. for $14.8 million in cash, subject to customary closing adjustments. We expect the sale of the Cerritos system to close during the first quarter of 2005, subject to the satisfaction of closing conditions, including receipt of regulatory approvals with respect to the municipal franchise in Cerritos, California.

 

On September 10, 2004, we completed certain amendments to our credit facilities with Wachovia Bank, National Association and CoBank, ACB. The amended credit facilities defer approximately $24.5 million of principal payments until 2007 which were previously scheduled during 2004, 2005 and 2006, and modified certain financial covenants. In addition, the amendments allowed our Telephone Operations Group to make a $7.7 million dividend payment to us, as well as future dividend payments equal to the net income of the Telephone Operations Group.

 

Homes Passed and Connections

 

We report homes passed as the number of residential and business units, such as single residence homes, apartments and condominium units, passed by our broadband network and listed in our database. Marketable homes passed are homes passed other than those we believe are covered by exclusive arrangements with other providers of competing services. Because we deliver multiple services to our customers, we report the total number of connections for video, voice and data rather than the total number of customers. We count each video, voice or data service as a separate connection. For example, a single customer who purchases cable television, local telephone and Internet access services would count as three connections. We do not record the purchase of digital video services by an analog video customer as an additional connection. As we continue to sell bundled services, we expect more of our video customers to purchase voice, data and other enhanced services in addition to video services. Accordingly, we expect that our number of voice and data connections will grow faster than our video connections and will represent a higher percentage of our total connections in the future.

 

As of September 30, 2004, 100% of our video and data connections and over 95% of our voice connections were provided over our own network. The following table sets forth the number of marketable homes passed and connections as of September 30, 2003 and 2004.

 

     AS OF SEPTEMBER 30,

     2003

   2004

Connections:(1)

         

Video(2)

   133,267    175,907

Voice:

         

On-net

   118,038    125,337

Off-net

   5,450    5,978

Data

   62,276    82,152
    
  

Total connections

   319,031    389,374
    
  

Residential connections

   286,739    352,007

Business connections

   32,292    37,367

Homes passed(2)

   540,401    957,731

Marketable homes passed(2)

   446,251    751,821

(1) All of our video and data connections are provided over our networks. Our voice connections consist of both “On-net” and “Off-net” connections. On-net refers to lines provided over our networks. It includes 25,278 and 23,650 lines as of September 30, 2003 and 2004, respectively, using traditional copper telephone lines. Off-net refers to telephone connections provided over telephone lines leased from third parties.
(2) The total number of video connections, homes passed and marketable homes passed as of September 30, 2004 include 6,813 video connections, 15,904 homes passed and 15,598 marketable homes passed by our network in Cerritos, California which we plan to sell during the first quarter of 2005.

 

12


Table of Contents

Revenues

 

We group our revenues into the following categories:

 

Video revenues. Our video revenues consist of fixed monthly fees for expanded basic, premium and digital cable television services, as well as fees from pay-per-view movies, fees for video on demand and events such as boxing matches and concerts that involve a charge for each viewing. Video revenues accounted for approximately 45.5% and 46.3% of our consolidated revenues for the three and nine months ended September 30, 2004 compared to 41.1% and 41.7% for the three and nine months ended September 30, 2003. In providing video services we currently compete with Comcast Corporation, Time Warner Cable, Inc., Mediacom Communications Corporation, Charter Communications, Inc. and Bright House Networks. We also compete with satellite television providers Echostar Communications Corporation and DirecTV and the strategic marketing alliance of BellSouth Corporation and DirecTV, Inc. to provide video and voice services in our markets. Other competitors include broadcast television stations and other satellite television companies.

 

Voice revenues. Our voice revenues consist primarily of fixed monthly fees for local service and enhanced services, such as call waiting and voice mail, and usage fees for long-distance service. Voice revenues accounted for approximately 34.8% and 34.4% of our consolidated revenues for the three and nine months ended September 30, 2004 compared to 40.5% and 40.5% for the three and nine months ended September 30, 2003. In providing local and long-distance telephone services, we compete with the incumbent local phone company, competitive local phone companies, various long distance providers and voice over Internet Protocol providers in each of our markets. BellSouth is the incumbent local and long distance phone company except for Pinellas County, Florida, where Verizon Communications, Inc. is our competitor, and both are particularly strong competitors in our current markets and throughout the southeastern United States. We also compete with long-distance phone companies such as AT&T Corporation, MCI, Inc., BellSouth and Sprint Corporation.

 

Data revenues and other revenues. Our data revenues consist primarily of fixed monthly fees for data service and rental of cable modems. Other revenues result principally from broadband carrier services and video production services. These combined revenues accounted for approximately 19.7% and 19.3% of our consolidated revenues for the three and nine months ended September 30, 2004 compared to 18.4% and 17.8% for the three and nine months ended September 30, 2003. Providing data services is a rapidly growing business and competition is increasing in each of our markets. Some of our competitors have competitive advantages such as greater experience, resources, marketing capabilities and stronger name recognition. In providing data services, we compete with traditional dial-up Internet service providers; incumbent local exchange providers that provide dial-up and DSL services subscriber lines; providers of satellite-based Internet access services; long-distance telephone companies; and cable television companies. We also compete with providers of wireless high-speed data services.

 

We experienced a net loss of connections during the first and second quarters of 2004. The lost connections were primarily a result of clean-up activities in the newly acquired Pinellas County market, including the elimination of non-paying customers from prior periods, customer database reconciliations and customers with expired promotions. We added voice services to our current video and data offerings in the Pinellas County market during the third quarter of 2004, and achieved net connection additions in this market. We expect to continue with positive net additions, on a consolidated basis, during the fourth quarter of 2004.

 

We expect the growth of new video connections to decrease as the video segment matures in our current markets. While the number of new video connections may decrease, management feels that opportunity to increase revenue and margins is available with the introduction of new products and new technology. New voice and data connections are expected to increase with sales and marketing efforts directed at selling new customers a bundle of services, penetrating untapped market segments and offering new services to existing and new customers.

 

Our operating expenses include cost of services, selling, operations and administrative expenses, depreciation and amortization, expenses associated with capital market activities, non-cash stock option compensation and litigation fees.

 

Cost of services include:

 

Video cost of services. Video cost of services consists primarily of monthly fees to the National Cable Television Cooperative and other providers of programming to be aired on our network. Programming costs are one of our largest costs and we expect this trend to continue. Programming costs as a percentage of video revenue were approximately 50.9% and 49.8% for the three

 

13


Table of Contents

and nine months ended September 30, 2004 compared to the 46.2% and 46.2% for the three and nine months ended September 30, 2003. We pay a monthly fee for programming services, generally based on the average number of subscribers to the program, although some fees are adjusted based on the total number of subscribers to the system and/or the system penetration percentage. Since programming cost is partially based on numbers of subscribers, it will increase as we add more subscribers. It will also increase as costs per channel increase over time and as programmers increase their rates.

 

Voice cost of services. Voice cost of services consists primarily of transport cost and network access fees. The voice cost of services as a percentage of voice revenues were approximately 14.3% and 14.9% for the three and nine months ended September 30, 2004 compared to 17.2% and 17.1 for the three and nine months ended September 30, 2003.

 

Data and other cost of services. Data and other cost of services consist primarily of transport cost and network access fees. The data and other cost of services as a percentage of data and other revenue were approximately 4.5% and 4.5% for the three and nine months ended September 30, 2004 compared to the 6.4% and 6.0% for the three and nine months ended September 30, 2003. The decrease in data cost of services as a percentage of revenue for the three and nine months ended September 30, 2004 resulted from price increases for our data products in 2004 and the grooming of our network for increased capacity at reduced costs.

 

Relative to our current product mix, we expect voice and data revenue will become larger percentages of our overall revenue, and potentially will provide higher margins. Based on the anticipated changes in our revenue mix, we expect that our consolidated cost of service as a percentage of our consolidated revenue will decrease.

 

Selling, operations and administrative expenses include:

 

Sales and marketing expenses. Sales and marketing expenses 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 monitoring and maintenance.

 

Service and installation expenses. Service and installation expenses include payroll and departmental cost incurred for customer installation and service personnel.

 

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 management and administrative costs.

 

Depreciation and amortization expenses include depreciation of our interactive broadband networks and equipment and amortization of intangible assets related to customer acquisitions.

 

As our sales and marketing efforts continue and our networks expand, we expect to add customer connections resulting in increased revenue. We also expect our operating expenses, including depreciation and amortization, to increase as we expand our networks and business.

 

We have experienced operating losses as a result of the expansion of our advanced broadband communications networks and services into new and existing markets. We expect to continue to focus on increasing our customer base and expanding our broadband operations. Accordingly, we expect that our operating expenses and capital expenditures will continue to increase as we extend our interactive broadband networks in existing and new markets in accordance with our business plan.

 

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Table of Contents

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2004

 

The following table sets forth financial data as a percentage of operating revenues for the three months ended September 30, 2003 and 2004.

 

    

THREE MONTHS

ENDED SEPTEMBER 30,


 
     2003

    2004

 

Operating revenues:

            

Video

   41 %   45 %

Voice

   41     35  

Data

   18     20  
    

 

Total

   100     100  

Cost of services:

            

Video

   19     23  

Voice

   7     5  

Data

   1     1  
    

 

Total

   27     29  

Gross profit

            

Video

   22     22  

Voice

   34     30  

Data

   17     19  
    

 

Total

   73     71  

Operating expenses:

            

Selling, operating and administrative

   53     59  

Depreciation and amortization

   45     35  

Expenses associated with capital market activities

   0     0  

Non-cash stock option compensation

   1     1  

Litigation fees

   1     0  
    

 

Total

   100     95  
    

 

Operating loss

   (27 )   (24 )

Other income and (expense)

   (44 )   (15 )
    

 

Loss before income taxes and discontinued operations

   (71 )   (39 )

Income tax benefit (provision)

   0     0  

Income from discontinued operations

   0     0  
    

 

Net loss

   (71 )%   (39 )%
    

 

 

Revenues. Operating revenues increased 19.1% from $43.7 million for the three months ended September 30, 2003, to $52.1 million for the three months ended September 30, 2004. Operating revenues from video services increased 31.8% from $18.0 million for the three months ended September 30, 2003, to $23.7 million for the same period in 2004. Operating revenues from voice services increased 2.2% from $17.7 million for the three months ended September 30, 2003, to $18.1 million for the same period in 2004. Operating revenues from data and other services increased 27.6% from $8.1 million for the three months ended September 30, 2003, to $10.3 million for the same period in 2004.

 

15


Table of Contents

The increased revenues from video, voice and data and other services are due primarily to an increase in the number of connections, from 319,031 as of September 30, 2003, to 389,374 as of September 30, 2004. The significant increase in the number of connections accounted for substantially all of the increased revenue for the three months ended September 30, 2004. The additional connections resulted primarily from:

 

The December 2003 acquisition of certain cable system assets in Pinellas County, Florida and Cerritos, California from Verizon Media which, at September 30, 2004, had provided 52,829 additional connections.

 

New service offerings and sales promotions specifically marketed to increase customer penetration in the existing broadband markets.

 

The continued construction of the broadband network in the Knoxville market.

 

Cost of services. Cost of services increased 27.3% from $11.9 million for the three months ended September 30, 2003, to $15.1 million for the three months ended September 30, 2004. Cost of services for video services increased 45.27% from $8.3 million for the three months ended September 30, 2003, to $12.0 million for the same period in 2004. Cost of services for voice services decreased 15.1% from $3.0 million for the three months ended September 30, 2003, to $2.6 million for the same period in 2004. Cost of services for data and other services decreased 10.9% from $519,000 for the three months ended September 30, 2003, to $463,000 for the same period in 2004. The decrease in voice and data cost of services is primarily due to efficiency gains in our network architecture. We expect our cost of services to increase as we add more connections. Programming costs, which are one of our largest single expense items, have been increasing over the last several years on an aggregate basis due to an increase in subscribers, as a result of internal growth and the Verizon Media acquisition noted above, and on a per subscriber basis due to an increase in costs per program channel. We expect this trend to continue. We may not be able to pass these higher costs on to customers because of competitive forces, which would adversely affect our cash flow and gross profit.

 

Gross profit. Gross profit increased 16.0% from $31.9 million for the three months ended September 30, 2003, to $37.0 million for the three months ended September 30, 2004. Gross profit for video services increased 20.3% from $9.7 million for the three months ended September 30, 2003, to $11.6 million for the same period in 2004. Gross profit for voice services increased 5.8% from $14.7 million for the three months ended September 30, 2003, to $15.5 million for the same period in 2004. Gross profit for data and other services increased 30.2% from $7.5 million for the three months ended September 30, 2003, to $9.8 million for the same period in 2004. The increase in gross profit is primarily a result of the fluctuations as described above in revenues and cost of services.

 

Operating expenses. Our operating expenses, excluding depreciation and amortization, expenses associated with capital market activities, non-cash stock option compensation and litigation fees, increased 30.8% from $35.0 million for the three months ended September 30, 2003, to $45.8 million for the three months ended September 30, 2004. The increase in our operating expenses is consistent with the growth in revenues and is a result of the expansion of our operations and an increase in the number of employees associated with such expansion and growth in our markets. During the three months ended September 30, 2004, we incurred certain incremental expenses associated with the unusual storm activity. We estimate these incremental expenses to be between $500,000 and $1.0 million. Selling, operations and administrative expenses will continue to increase as we expand into new markets and our existing markets mature.

 

Our depreciation and amortization decreased from $19.6 million for the three months ended September 30, 2003, to $18.4 million for the three months ended September 30, 2004. The decrease in depreciation and amortization resulted from a combination of lower spending for additions in property, plant, equipment and intangible assets in 2004 and a portion of our long-lived assets becoming fully depreciated. We expect depreciation and amortization expense to increase as we make capital expenditures to extend our existing networks and build additional networks.

 

We have adopted SFAS No. 123 and SFAS No. 148 and recorded a non-cash stock option compensation expense of $478,000 for the three months ended September 30, 2003 and $568,000 for the three months ended September 30, 2004.

 

Other income and expense, including interest income and interest expense. Our total other expenses decreased from $19.6 million for the three months ended September 30, 2003, to $7.4 million for the three months ended September 30, 2004. Interest income was $72,000 for the three months ended September 30, 2003, compared to $193,000 for the same period in 2004. The increase in interest income primarily reflects a higher average cash balance for the three months ended September 30, 2004. Interest expense increased from $7.3 million for the three months ended September 30, 2003, to $7.7 million for the three months ended September 30, 2004. The interest expense represents the interest incurred on our 12% senior notes due 2009 and our two existing credit facilities. In the third quarter of 2003, we determined that changes in business conditions at Grande Communications were other than temporary, and recorded a loss on investment of $12.4 million for the quarter ended September 30, 2003.

 

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Table of Contents

In the third quarter of 2004, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value based on the published market per share value of our common stock. The published market per share value of our common stock on September 30, 2004 was $4.15 resulting in an $85,000 gain on the adjustment of warrants to market value. Other income, net decreased to $19,000 for the three months ended September 30, 2004.

 

Income tax benefit. We recorded no income tax benefit or provision for the three months ended September 30, 2003 and 2004, respectively.

 

Net income from discontinued operations. Effective April 30, 2004, following the guidance of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” we deemed the Cerritos cable system to be a long-lived asset to be disposed of based on our plan, and actions taken to sell the property.

 

Net loss. We incurred a net loss of $31.3 million and $20.0 million for the three months ended September 30, 2003 and 2004, respectively. We expect net losses to continue as our business matures.

 

NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2004

 

The following table sets forth financial data as a percentage of operating revenues for the nine months ended September 30, 2003 and 2004.

 

    

NINE MONTHS

ENDED SEPTEMBER 30,


 
     2003

    2004

 

Operating revenues:

            

Video

   42 %   46 %

Voice

   40     35  

Data

   18     19  
    

 

Total

   100     100  

Cost of services:

            

Video

   19     23  

Voice

   7     5  

Data

   1     1  
    

 

Total

   27     29  

Gross profit

            

Video

   23     23  

Voice

   33     30  

Data

   17     18  
    

 

Total

   73     71  

Operating expenses:

            

Selling, operating and administrative

   54     56  

Depreciation and amortization

   46     35  

Expenses associated with capital market activities

   0     0  

Non-cash stock option compensation

   1     2  

Litigation fees

   1     0  
    

 

Total

   102     93  
    

 

Operating loss

   (29 )   (22 )

Other income and (expense)

   (26 )   (14 )
    

 

Loss before income taxes and discontinued operations

   (55 )   (36 )

Income tax benefit (provision)

   0     0  

Income from discontinued operations

   0     0  
    

 

Net loss

   (55 )%   (36 )%
    

 

 

17


Table of Contents

Revenues. Operating revenues increased 24.6% from $127.3 million for the nine months ended September 30, 2003, to $158.6 million for the nine months ended September 30, 2004. Operating revenues from video services increased 38.2% from $53.1 million for the nine months ended September 30, 2003, to $73.4 million for the same period in 2004. Operating revenues from voice services increased 5.6% from $51.6 million for the nine months ended September 30, 2003, to $54.5 million for the same period in 2004. Operating revenues from data and other services increased 36.0% from $22.6 million for the nine months ended September 30, 2003, to $30.7 million for the same period in 2004.

 

Cost of services. Cost of services increased 32.6% from $34.7 million for the nine months ended September 30, 2003, to $46.0 million for the nine months ended September 30, 2004. Cost of services for video services increased 48.9% from $24.5 million for the nine months ended September 30, 2003, to $36.5 million for the same period in 2004. Cost of services for voice services decreased 7.9% from $8.8 million for the nine months ended September 30, 2003, to $8.1 million for the same period in 2004. Cost of services for data and other services increased 0.6% from $1,360,000 for the nine months ended September 30, 2003, to $1,367,000 for the same period in 2004.

 

Gross profit. Gross profit increased 21.6% from $92.6 million for the nine months ended September 30, 2003, to $112.6 million for the nine months ended September 30, 2004. Gross profit for video services increased 29.0% from $28.6 million for the nine months ended September 30, 2003, to $36.9 million for the same period in 2004. Gross profit for voice services increased 8.4% from $42.8 million for the nine months ended September 30, 2003, to $46.4 million for the same period in 2004. Gross profit for data and other services increased 38.3% from $21.2 million for the nine months ended September 30, 2003, to $29.3 million for the same period in 2004.

 

Operating expenses. Our operating expenses, excluding depreciation and amortization, expenses associated with capital market activities, non-cash stock option compensation and litigation fees, increased 29.6% from $103.6 million for the nine months ended September 30, 2003, to $134.2 for the nine months ended September 30, 2004.

 

Our depreciation and amortization decreased from $58.9 million for the nine months ended September 30, 2003, to $55.9 million for the nine months ended September 30, 2004.

 

We have adopted SFAS No. 123 and SFAS No. 148 and recorded a non-cash stock option compensation expense of $1.4 million for the nine months ended September 30, 2003 and $2.8 million for the nine months ended September 30, 2004. The increase in the non-cash stock option compensation expense was due to a re-pricing of certain stock options during the second quarter of 2004.

 

Other income and expense, including interest income and interest expense. Our total other expenses decreased from $33.6 million for the nine months ended September 30, 2003, to $22.0 million for the nine months ended September 30, 2004. Interest income was $281,000 for the nine months ended September 30, 2003, compared to $532,000 for the same period in 2004. Interest expense increased from $21.6 million for the nine months ended September 30, 2003, to $23.2 million for the nine months ended September 30, 2004.

 

In the first, second and third quarters of 2004, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value based on the published market per share value of our common stock. The published market per share value of our common stock on March 31, 2004 was $6.89, on June 30, 2004 was $4.97, and on September 30, 2004 was $4.15, resulting in a $504,000 gain on the adjustment of warrants to market value for the nine months ended September 30, 2004. Other income, net increased from $108,000 for the nine months ended September 30, 2003 to $159,000 for the nine months ended September 30, 2004. In the third quarter of 2003, we determined that changes in business conditions at Grande Communications were other than temporary, and recorded a loss on investment of $12.4 million for the nine months ended September 30, 2003.

 

Income tax benefit. We recorded no income tax benefit or provision for the nine months ended September 30, 2003 and a tax benefit of $24,000 for the nine months ended September 30, 2004.

 

Net income from discontinued operations. Effective April 30, 2004, following the guidance of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” we deemed the Cerritos cable system to be a long-lived asset to be disposed of based on our plan, and actions taken to sell the property.

 

Net loss. We incurred a net loss of $71.2 million and $57.1 million for the nine months ended September 30, 2003 and 2004, respectively. We expect net losses to continue as our business matures.

 

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Liquidity and Capital Resources

 

As of September 30, 2004, we had net working capital of $19.6 million, compared to net working capital of $42.9 million as of December 31, 2003. The decrease in working capital resulted primarily from the following:

 

  a decrease of $10.1 million in cash, cash equivalents and restricted cash;

 

  a decrease of $1.3 million in accounts receivable;

 

  an increase of $4.3 million in accounts payable; and

 

  an increase of $13.4 million in accrued liabilities.

 

The decreases in working capital were partially offset by a decrease of $5.2 million in current portion of notes payable.

 

On May 24, 2004 we entered into a definitive asset purchase agreement to sell our cable system located in Cerritos, California to Orange Broadband, Inc. for $14.8 million in cash, subject to customary closing adjustments. We expect the sale of the Cerritos system to close during the first quarter of 2005, subject to the satisfaction of closing conditions, including receipt of regulatory approvals with respect to the municipal franchise in Cerritos, California.

 

On September 10, 2004, we completed certain amendments to our credit facilities with Wachovia Bank, National Association and CoBank, ACB. The amended credit facilities defer approximately $24.5 million of principal payments until 2007 which were previously scheduled during 2004, 2005 and 2006, and modified certain financial covenants. In addition, the amendments allowed our Telephone Operations Group to make a $7.7 million dividend payment to us, as well as future dividend payments equal to the net income of the Telephone Operations Group. These dividends decrease the amount of our restricted cash.

 

In November 2004, we will begin paying the interest, semiannually at 12%, on our senior notes due 2009. Approximately $14.2 million will be due to be paid on November 30, 2004.

 

We believe we can satisfy all of our anticipated funding requirements, including capital expenditures, through 2004 using a combination of internally generated cash flow from operations and cash currently on hand.

 

Net cash provided by operations totaled $18.9 million and $31.7 million for the nine months ended September 30, 2003 and 2004, respectively. The net cash flow activity related to operations consists primarily of changes in operating assets and liabilities and adjustments to net income for non-cash transactions including:

 

  depreciation and amortization;

 

  non-cash stock option compensation;

 

  loss on investments;

 

  gain on adjustment of warrants to market;

 

  non-cash bond interest expense;

 

  provision for bad debt; and

 

  loss (gain) on disposition of assets.

 

Net cash used for investing activities was $26.8 million and $45.9 million for the nine months ended September 30, 2003 and 2004, respectively. Our investing activities for the nine months ended September 30, 2003 primarily consisted of $26.6 million of capital expenditures and $329,000 of expenditures for intangible assets. Our investing activities for the nine months ended September 30, 2004 primarily consisted of $45.7 million of capital expenditures and $363,000 of expenditures for intangible assets. Of the $45.7 million in capital expenditures for the nine months ended September 30, 2004, $19.4 million related to the newly acquired Pinellas County market.

 

Financing activities used cash of $2.5 million for the nine months ended September 30, 2003, and provided cash of $4.2 million for the nine months ended September 30, 2004. Financing activities for the nine months ended September 30, 2003 primarily consisted of $2.5 million of principal payments on debt. Financing activities for the nine months ended September 30, 2004 consisted of $7.3 million of net proceeds from the exercise of the underwriters’ over-allotment option of 900,000 shares, partially offset by $2.7 million of principal payments on debt.

 

As of September 30, 2004, we were in compliance with all of our debt covenants.

 

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Capital Expenditures

 

We have invested approximately $45.7 million in capital expenditures during 2004 through September 30, and we expect to spend approximately $15.0 million in the fourth quarter of 2004. Of the capital expenditures through September 30, 2004, $25.3 million relates to network construction and the remainder relates to the purchase of customer premise equipment, such as cable set-top boxes and cable modems, network equipment, including switching and transport equipment, and billing and information systems. We believe we have sufficient cash on hand and cash from internally generated cash flow to cover our planned operating expenses and capital expenditures during the remainder of 2004. If we decide to expand our broadband network into new markets, we would require additional funding to operate and for the capital expenditures necessary to finance the construction and purchase of customer premise equipment.

 

We have received franchises to build a network in Louisville, Kentucky and Nashville, Tennessee, although our franchise in Louisville is currently being contested by the incumbent cable provider in that city. The indenture governing our 12% senior notes due 2009 includes a covenant limiting our ability to fund expansion into new markets, including Louisville and Nashville, from operating cash flows or new borrowings.

 

We do not intend to expand into Nashville, Louisville or other markets until the required funding is available. We estimate the cost of constructing our network and funding initial customer premise equipment in new markets to be approximately $750 to $1,000 per home passed. 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, population density, costs associated with the cable franchise in each city, the number of customers in each city, the mix of services purchased, the cost of customer premise equipment we pay for or finance, utility requirements and other factors.

 

Contractual Obligations

 

The following table sets forth, as of September 30, 2004, our long-term debt, capital lease and operating lease obligations for 2004, the following five years and thereafter. The long-term debt obligations are our cash debt service obligations, including both principal and interest. The capital lease obligations are our future rental payments under one lease with a 10-year term. Operating lease obligations are the future minimum rental payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of September 30, 2004.

 

          Payment due by period

Contractual obligations


   Total

  

October 1,

2004

through
September 30,

2005


  

October 1,

2005

through

September 30,

2007


  

October 1,

2007

through

September 30,

2009


  

After

September 30,

2009


          (in thousands)

Long-term debt obligations

   $ 284,456    $ 0    $ 16,215    $ 31,145    $ 237,096

Interest

     165,557      30,808      61,511      58,581      14,657

Capital lease obligation

     461      12      33      46      370

Operating lease obligations

     9,899      2,088      3,120      1,887      2,804
    

  

  

  

  

Total

   $ 460,373    $ 32,908    $ 80,879    $ 91,659    $ 254,927
    

  

  

  

  

 

In addition to the contractual obligations described above, we have entered into contracts with various entities to provide programming to be aired on our network. We pay a monthly fee for the programming services, generally based on the number of average video subscribers to the program, although some fees are adjusted based on the total number of video subscribers to the system and/or the system penetration percentage.

 

Critical Accounting Policies

 

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions. We believe that the following may involve a higher degree of judgment and complexity.

 

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Revenue recognition. We generate recurring or multi-period operating revenues, as well as nonrecurring revenues. We recognize revenue in accordance with SEC Staff Accounting Bulletin, or SAB, No. 104, “Revenue Recognition,” which requires that the following four basic criteria must be satisfied before revenues can be recognized:

 

There is persuasive evidence that an arrangement exists;

 

Delivery has occurred or services rendered;

 

The fee is fixed and determinable; and,

 

Collectibility is reasonably assured.

 

We base our determination of the third and fourth criteria above on our judgment regarding the fixed nature of the fee we have charged for the services rendered and products delivered, and the prospect that those fees will be collected. If changes in conditions should cause us to determine that these criteria likely will not be met for certain future transactions, revenue recognized for any reporting period could be materially affected.

 

We generate recurring revenues for our broadband offerings of video, voice and data and other services. Revenue generated from these services primarily consists of a fixed monthly fee for access to cable programming, local phone services and enhanced services and access to the Internet. Additional fees are charged for services including pay-per-view movies, events such as boxing matches and concerts, long distance service and cable modem rental. Revenues are recognized as services are provided and advance billings or cash payments received in advance of services performed are recorded as deferred revenue.

 

Allowance for doubtful accounts. We use estimates to determine our allowance for bad debts. These estimates are based on historical collection experience, current trends, credit policy and a percentage of our customer accounts receivable. In determining these percentages, we look at historical write-offs of our receivables, but our history is limited.

 

Plant and equipment. The costs associated with the construction of our broadband transmission and distribution facilities and new service installations are capitalized. Capitalized costs include all direct labor and materials, as well as some indirect costs. We perform periodic evaluations of any estimates associated with indirect costs and changes to the estimates, which are significant, are included prospectively in the period in which the evaluations are completed.

 

Valuation of long-lived and intangible assets and goodwill. We assess the impairment of identifiable long-lived assets and related goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable in accordance with Statement of Financial Accounting Standards, or SFAS No. 121, and beginning January 1, 2002 SFAS No. 144. Factors we consider important and that could trigger an impairment review include the following:

 

Significant underperformance of our assets relative to expected historical or projected future operating results;

 

Significant changes in the manner in which we use our assets or in our overall business strategy; and,

 

Significant negative industry or economic trends.

 

In July 2001, the FASB issued SFAS No. 144, “Impairment or Disposal of Long-Lived Assets,” which is effective for fiscal years beginning after December 15, 2001. The provisions of this statement provide a single accounting model for impairment of long-lived assets. We recorded no asset impairment during the nine months ended September 30, 2003 and 2004, respectively, in accordance with SFAS No. 144.

 

We adopted SFAS No. 142 on January 1, 2002 and have performed a goodwill impairment test in accordance with SFAS No. 142. As a result of the impairment test in January 2003 and 2004, no impairments were identified.

 

The foregoing list in not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for us to judge the application. There are also areas in which our judgment in selecting any available alternative would not produce a materially different result. See our consolidated financial statements and related notes thereto contained in our Annual Report on Form 10-K, which contains accounting policies and other disclosures required by accounting principles generally accepted in the United States.

 

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Recent Accounting Pronouncements

 

In December 2003, the FASB issued a revision to FASB Interpretation No. 46 (“FIN 46-R”), “Consolidation of Variable Interest Entities.” FIN 46 is an Interpretation of Accounting Research Bulletin 51, “Consolidated Financial Statements” and addresses consolidation by business enterprises of variable interest entities (“VIEs”) that possess certain characteristics. The revision clarifies the definition in the original release that potentially could have classified any business as a VIE. The revision also delays the effective date of the FIN 46 from the first reporting period following December 15, 2003 to the first reporting period ending after March 15, 2004. The revision was effective for us in the first quarter of fiscal 2004. We have not identified any VIEs and, accordingly, the application of this FIN 46-R did not have an effect on our results of operations or financial position.

 

At the March 2004 Emerging Issues Task Force (“EITF”) meeting, the EITF reached a consensus on Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. Issue 03-1 defines the terms other–than-temporary and other-than-temporary impairment and establishes a three-step impairment model applicable to debt and equity securities that are within the scope of SFAS 115. At the November 2003 EITF meeting, the Task Force reached a consensus effective for fiscal years ending after December 15, 2003 on quantitative disclosures. Except for disclosure requirements already in place, the Issue 03-1 consensus will be effective prospectively for all relevant current and future investments in reporting periods beginning after June 15, 2004. We adopted EITF Issue No. 03-1 disclosure requirements for the fiscal year ended December 31, 2003 and do not expect the adoption of future requirements of EITF Issue No. 03-1 to have material impact on our results of operations or financial position.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed to market risk from changes in interest rates. We manage our exposure to this market risk through our regular operating and financing activities. Derivative instruments are not currently used and, if used, are employed as risk management tools and not for trading purposes.

 

We have no derivative financial instruments outstanding to hedge interest rate risk. Our only borrowings subject to market conditions are our borrowings under our credit facilities, which are based on either a prime or federal funds rate plus applicable margin or LIBOR plus applicable margin. Any changes in these rates would affect the rate at which we could borrow funds under our bank credit facilities. A hypothetical 10% increase in interest rates on our variable rate bank debt for the duration of one year would increase interest expense by an immaterial amount.

 

ITEM 4. CONTROL AND PROCEDURES

 

Based on an evaluation carried out, as of the end of the period covered by this report, under the supervision and with the participation of the our management, including our Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective. As of the end of the period covered by this report, there have been no significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

In September 2000, the City of Louisville, Kentucky granted Knology of Louisville, Inc., our subsidiary, a cable television franchise. On November 2, 2000, Insight filed a complaint against the City of Louisville in Kentucky Circuit Court in Jefferson County, Kentucky claiming that our franchise was more favorable than Insight’s franchise. Insight’s complaint suspended our franchise until there is a final, nonappealable order in Insight’s Kentucky Circuit Court case. In April 2001 the City of Louisville moved for summary judgment in Kentucky Circuit Court against Insight. In March 2002, the Kentucky Circuit Court ruled that Insight’s complaint had no merit and the Kentucky Circuit Court granted the City of Louisville’s motion to dismiss Insight’s complaint. Insight appealed the Kentucky Circuit Court order dismissing their complaint and in June 2003 the Kentucky Court of Appeals upheld the Kentucky Circuit Court ruling. Insight sought discretionary review of the Kentucky Court of Appeals ruling from the Kentucky Supreme Court which request was denied

 

On November 8, 2000, we filed an action in the U.S. District Court for the Western District of Kentucky against Insight seeking monetary damages, declaratory and injunctive relief from Insight and the City arising out of Insight’s complaint and the suspension of our franchise. In March 2001, the U.S. District Court issued an order granting our motion for preliminary injunctive relief and denying Insight’s motion to dismiss. In June 2003, the U.S. District Court ruled on the parties’ cross motions for summary judgment, resolving certain claims and setting others down for trial. The U.S. District Court granted our motion for summary judgment based on causation on certain claims. In August 2003, the U.S. District Court granted Insight’s motion for an immediate interlocutory appeal on certain issues, which was accepted in October 2003 by the U.S. Court of Appeals for the Sixth Circuit. The matter has been fully briefed and oral arguments have been held. At this time it is impossible to determine with certainty the ultimate outcome of the litigation.

 

On November 21, 2001, we filed a complaint against Georgia Power Company requesting FCC adjudication of a dispute regarding amounts Georgia Power charged us in connection with the construction of our network in Augusta, Georgia. We requested the FCC to review these charges to determine whether they were “reasonable” in accordance with FCC pole attachment regulations. We requested reimbursement from Georgia Power of approximately $2.5 million. Georgia Power responded to the FCC complaint by asserting we owed Georgia Power approximately $900,000 for additional construction-related charges. In May 2003, Georgia Power filed a complaint against Knology Broadband, Inc., our subsidiary, in the Superior Court of Troup County, State of Georgia, re-asserting claims for construction related charges. Georgia Power’s claim duplicates its claim pending before the FCC. We responded to Georgia Power’s complaint in state court by re-asserting our claims that are currently pending before the FCC. We also sought to remove the state court action to federal court and moved to dismiss the lawsuit or to stay the action to allow the FCC time to issue its decision. Georgia Power has moved to remand the case to state court. On November 20, 2003, the FCC issued an order determining that certain pole attachment fees charged by Georgia Power were improper. The FCC ordered Georgia Power to refund approximately $52,000 and to recalculate certain charges that it had billed Knology. Georgia Power refunded approximately $52,000. On August 11, 2004 Knology filed a motion seeking enforcement of the other provisions of the FCC’s Order. At this time, it is impossible to determine with certainty the ultimate outcome of the motion or the litigation.

 

We are also subject to other litigation in the normal course of our business. However, in our opinion, there is no legal proceeding pending against us which would have a material adverse effect on our financial position, results of operations or liquidity. We are also a party to regulatory proceedings affecting the segments of the communications industry generally in which we engage in business.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULT UPON SENIOR SECURITIES

 

None

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None

 

ITEM 5. OTHER INFORMATION

 

None

 

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Table of Contents

ITEM 6. Exhibits

 

Exhibit

Number


 

Exhibit Description


3.1   Amended and Restated Certificate of Incorporation of Knology, Inc. (Incorporated herein by reference to Exhibit 3.1 to Knology, Inc.’s Quarterly Report Form 10-Q for the period ended June 30, 2004).
3.2   Bylaws of Knology, Inc. (Incorporated herein by reference to Exhibit 3.2 to Knology Inc.’s Registration Statement on Form S-1 (File No. 333-89179)).
10.1   First Amendment, dated as of September 10, 2004, by and among Knology Broadband, Inc., certain subsidiaries of Knology Broadband, Inc. identified on the signature pages thereto, the Lenders referred to in the Amended and Restated Credit Agreement, dated as of October 22, 2002 and effective as of November 6, 2002, and Wachovia Bank, National Association, as administrative agent for the Lenders (Incorporated herein by reference to Exhibit 10.1 to Knology, Inc.’s Current Report on Form 8-K filed on September 15, 2004).
10.2   First Amendment to Master Loan Agreement and Amended and Restated First Supplement, dated as of September 10, 2004, by and among CoBank, ACB and Globe Telecommunications, Inc., Interstate Telephone Company and Valley Telephone LLC (Incorporated herein by reference to Exhibit 10.2 to Knology, Inc.’s Current Report on Form 8-K filed on September 15, 2004).
10.3   Continuing Guaranty made as of September 10, 2004, by Knology Broadband, Inc. for the benefit of the CoBank, ACB (Incorporated herein by reference to Exhibit 10.3 to Knology, Inc.’s Current Report on Form 8-K filed on September 15, 2004).
31.1   Certification of Chief Executive Officer of Knology, Inc. pursuant to Securities Exchange Act Rules 13a-14.
31.2   Certification of Chief Financial Officer of Knology, Inc. pursuant to Securities Exchange Act Rules 13a-14.
32.1   Statement of the Chief Executive Officer of Knology, Inc. pursuant to 18 U.S.C. § 1350.
32.2   Statement of the Chief Financial Officer of Knology, Inc. pursuant to 18 U.S.C. § 1350.

 

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Table of Contents

SIGNATURES

 

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 thereunto duly authorized.

 

   

KNOLOGY, INC.

November 12, 2004

 

By:

 

/s/ Rodger L. Johnson


       

Rodger L. Johnson

President and Chief Executive Officer

November 12, 2004

 

By:

 

/s/ Robert K. Mills


       

Robert K. Mills

Chief Financial Officer

(Principal Financial Officer)

 

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Table of Contents

EXHIBIT INDEX

 

Exhibit

Number


 

Exhibit Description


3.1   Amended and Restated Certificate of Incorporation of Knology, Inc. (Incorporated herein by reference to Exhibit 3.1 to Knology, Inc.’s Quarterly Report Form 10-Q for the period ended June 30, 2004).
3.2   Bylaws of Knology, Inc. (Incorporated herein by reference to Exhibit 3.2 to Knology Inc.’s Registration Statement on Form S-1 (File No. 333-89179)).
10.1   First Amendment, dated as of September 10, 2004, by and among Knology Broadband, Inc., certain subsidiaries of Knology Broadband, Inc. identified on the signature pages thereto, the Lenders referred to in the Amended and Restated Credit Agreement, dated as of October 22, 2002 and effective as of November 6, 2002, and Wachovia Bank, National Association, as administrative agent for the Lenders (Incorporated herein by reference to Exhibit 10.1 to Knology, Inc.’s Current Report on Form 8-K filed on September 15, 2004).
10.2   First Amendment to Master Loan Agreement and Amended and Restated First Supplement, dated as of September 10, 2004, by and among CoBank, ACB and Globe Telecommunications, Inc., Interstate Telephone Company and Valley Telephone LLC (Incorporated herein by reference to Exhibit 10.2 to Knology, Inc.’s Current Report on Form 8-K filed on September 15, 2004).
10.3   Continuing Guaranty made as of September 10, 2004, by Knology Broadband, Inc. for the benefit of the CoBank, ACB (Incorporated herein by reference to Exhibit 10.3 to Knology, Inc.’s Current Report on Form 8-K filed on September 15, 2004).
31.1   Certification of Chief Executive Officer of Knology, Inc. pursuant to Securities Exchange Act Rules 13a-14.
31.2   Certification of Chief Financial Officer of Knology, Inc. pursuant to Securities Exchange Act Rules 13a-14.
32.1   Statement of the Chief Executive Officer of Knology, Inc. pursuant to 18 U.S.C. § 1350.
32.2   Statement of the Chief Financial Officer of Knology, Inc. pursuant to 18 U.S.C. § 1350.

 

26