Attached files
Exhibit 99.2
FINANCIAL STATEMENTS
JUNE 30, 2010
SUNFLOWER BROADBAND
(A Division of the World Company)
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SUNFLOWER BROADBAND
(A Division of The World Company)
UNAUDITED BALANCE SHEET
JUNE 30, 2010
| 2010 | ||||
| Assets |
||||
| Current Assets |
||||
| Cash and cash equivalents |
$ | 152,743 | ||
| Trade accounts receivable, net of allowance for doubtful accounts of $274,105 |
2,441,140 | |||
| Prepaid expenses |
614,055 | |||
| Total current assets |
3,207,938 | |||
| Property and Equipment, Net |
28,580,406 | |||
| Indefinite-Lived and Other Intangible Assets, Net |
1,667,160 | |||
| Goodwill |
951,683 | |||
| Other Assets |
42,200 | |||
| 2,661,043 | ||||
| Total assets |
$ | 34,449,387 | ||
| 2010 | ||||
| Liabilities and Division Equity |
||||
| Current Liabilities |
||||
| Accounts payable |
$ | 231,704 | ||
| Accrued expenses: |
||||
| Personnel |
285,590 | |||
| Taxes |
1,138,962 | |||
| Video programming |
1,020,110 | |||
| Other |
29,568 | |||
| Deferred revenue |
626,397 | |||
| Refundable deposits |
215,692 | |||
| Current maturities of long-term debt |
89,826 | |||
| Total Current Liabilities |
3,637,849 | |||
| Deferred Revenue, Less Current Portion |
286,932 | |||
| Long-Term Debt |
418,193 | |||
| Total liabilities |
4,342,974 | |||
| Division Equity |
||||
| Total division equity – Sunflower Broadband |
30,157,153 | |||
| Noncontrolling interest |
(50,740 | ) | ||
| Total net assets |
30,106,413 | |||
| Total Liabilities and Division Equity |
$ | 34,449,387 | ||
See accompanying notes to unaudited financial statements
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SUNFLOWER BROADBAND
(A Division of The World Company)
UNAUDITED STATEMENT OF INCOME
PERIOD ENDED JUNE 30, 2010
| 2010 | ||||
| Division Revenues |
$ | 25,218,953 | ||
| Division Operating Expenses |
||||
| Direct costs (excluding depreciation and amortization) |
10,341,631 | |||
| Selling, general and administrative expenses |
4,440,751 | |||
| Depreciation and amortization |
5,292,834 | |||
| Operating expenses |
20,075,216 | |||
| Operating Income |
5,143,737 | |||
| Other Expense |
||||
| Interest expense |
6,997 | |||
| Net Income |
5,136,740 | |||
| Add net loss attributable to the noncontrolling interest |
15,364 | |||
| Net income attributable to the Division |
$ | 5,152,104 | ||
See accompanying notes to unaudited financial statements
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SUNFLOWER BROADBAND
(A Division of The World Company)
UNAUDITED STATEMENT OF DIVISION EQUITY
PERIOD ENDED JUNE 30, 2010
| Division Equity Sunflower Broadband |
Noncontrolling Interest |
Total | ||||||||||
| Balance, January 1, 2010 |
$ | 31,329,889 | $ | (35,376 | ) | $ | 31,294,513 | |||||
| Net income (loss) |
5,152,104 | (15,364 | ) | 5,136,740 | ||||||||
| Interdivision transfers |
6,324,840 | 0 | 6,324,840 | |||||||||
| Net income attributable to the Division |
$ | 30,157,153 | $ | (50,740 | ) | $ | 30,106,413 | |||||
See accompanying notes to unaudited financial statements
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SUNFLOWER BROADBAND
(A Division of The World Company)
UNAUDITED STATEMENT OF CASH FLOWS
PERIOD ENDED JUNE 30, 2010
| 2010 | ||||
| Cash Flows From Operating Activities |
||||
| Net Income before attribution of noncontrolling interest |
$ | 5,136,740 | ||
| Net loss attributable to noncontrolling interest |
15,364 | |||
| Net income attributable to the Division |
5,152,104 | |||
| Adjustments to reconcile net income to net cash provided by operating activities |
||||
| Depreciation and amortization |
5,292,834 | |||
| Provision for bad debts |
90,841 | |||
| Net change in operating assets and liabilities |
(222,436 | ) | ||
| Net cash provided by operating activities |
10,313,343 | |||
| Cash Flows From Investing Activities |
||||
| Additions to property and equipment |
(4,128,373 | ) | ||
| Proceeds from sale of property, plant and equipment |
1,347 | |||
| Net cash used in investing activities |
(4,127,126 | ) | ||
| Cash Flows From Financing Activities |
||||
| Payments to related parties, net |
(6,324,840 | ) | ||
| Principal payments on long-term debt |
(35,871 | ) | ||
| Net cash used in financing activities |
(6,360,711 | ) | ||
| Net Decrease in Cash |
(174,394 | ) | ||
| Cash, beginning of period |
327,137 | |||
| Cash, end of period |
$ | 152,743 | ||
| Supplemental Cash Flows Information |
||||
| Capital lease obligation incurred for equipment |
$ | 243,810 | ||
See accompanying notes to unaudited financial statements
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SUNFLOWER BROADBAND
(A Division of The World Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2010
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
The World Company (the “Parent”) operates in several business divisions. The Sunflower Broadband division operates a community antenna television system (“CATV”) and provides Internet access in Lawrence, Kansas and portions of Douglas, Wyandotte and Leavenworth counties. The Telephony division provides local and long-distance telephone service in Lawrence, Kansas and portions of Douglas and Leavenworth counties. Collectively, these divisions do business as Sunflower Broadband (the “Division”).
Principles of Presentation
The Parent owns 98% interest in WorldNet, L.L.C. (“WorldNet”), which was acquired in 2001 to provide telephony services. Accordingly, the operating results of WorldNet have been included in the accompanying unaudited financial statements for the period ended June 30, 2010. The financial statements present the results of Sunflower Broadband and WorldNet, L.L.C. All interdivision transactions have been eliminated.
The accompanying unaudited financial statements and footnotes as of and for the six months ended June 30, 2010 should be read along with the financial statements and footnotes for the year ended December 31, 2009.
A description of accounting policies applicable to the Company is set forth in Note 1 to the December 31, 2009 financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Income Taxes
The Parent’s stockholders have elected to have the Parent’s income taxed as an S Corporation under provisions of the Internal Revenue Code and a similar section of the state of Kansas income tax law. Therefore, taxable income or loss is reported to the individual stockholders for inclusion in their respective tax returns and no provision for federal and state income taxes is included in these statements. The Parent is no longer subject to federal and state income examinations by tax authorities for years prior to 2006.
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2. Division Revenues
Division revenues consist of the following for the six months ended June 30, 2010:
| Subscriber |
$ | 23,411,393 | ||
| Video advertising |
1,399,861 | |||
| Other |
407,699 | |||
| $ | 25,218,953 | |||
3. Accounts Receivable
Accounts receivable consist of the following at June 30, 2010:
| Subscriber |
$ | 1,785,596 | ||
| Advertising |
468,697 | |||
| Other |
186,847 | |||
| $ | 2,441,140 | |||
4. Long-term Debt
Long-term debt consists of the following for June 30, 2010:
| Capital lease obligations include leases covering vehicles for seven years expiring July 31, 2017 |
$ | 508,019 | ||
| Less current portion |
89,826 | |||
| $ | 418,193 | |||
Aggregate annual payments on capital lease obligations at June 30, 2010 were:
| 2011 |
89,826 | |||
| 2012 |
89,826 | |||
| 2013 |
89,826 | |||
| 2014 |
89,826 | |||
| 2015 |
89,826 | |||
| Thereafter |
127,687 | |||
| 576,817 | ||||
| Less amount representing interest |
68,798 | |||
| Present value of future minimum lease payments |
$ | 508,019 | ||
Property and equipment include the following property under capital leases at June 30, 2010:
| Automotive equipment |
$ | 566,514 | ||
| Less accumulated depreciation and amortization |
54,818 | |||
| $ | 511,696 | |||
6. Defined Contribution 401 (k) Savings Plan
The Parent has a defined contribution 401 (k) savings plan, The World Company Retirement Savings Plan and Trust (the Plan). During 2006, trustees of the Plan recommended changes designed to improve the retirement features and options for plan participants. Employees are eligible to participate in the Plan after completing three months of service, 250 hours and
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attaining age 21. Participants may contribute up to 90% of their annual compensation, subject to Internal Revenue Code maximum limitations. The Parent will match up to 50% of the first 4% of each participant’s compensation deferral. Effective January 1, 2010 the parent suspended its matching contribution.
7. Commitments
The Division is involved in numerous pole attachment agreements, which allow it to extend its fiber optic and cable network to locations outside the central location. Typically, these agreements involve attachment of fiber or coaxial cable to utility poles owned by third parties. These agreements are month-to-month agreements with an indefinite term, absent notification from either party of the intent to end the agreement. These agreements typically require minimal rental payments based on the number of points-of-attachment and are assumed to exist in near perpetuity. Should the Division elect to exit such an agreement, the terms provide that the Division is responsible for both the removal of the equipment and cable.
Accounting principles generally accepted in the United States of America require a liability to be recognized in the period in which (l) a legal obligation to retire a long-lived asset exists and (2) the fair value of the obligation based on retirement cost and settlement date is reasonably estimable.
The Division believes it has a legal obligation to remove the aforementioned equipment upon termination of agreements. However, the Division believes it does not have a reasonable basis by which to assign probabilities to the timing of the potential agreement terminations and, accordingly, cannot reasonably estimate the fair value of the asset retirement obligation.
General Litigation
The Division is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the balance sheet, results of operations and cash flows of the Division.
8. Subsequent Events
Subsequent events have been evaluated through December 23, 2010, which is the date the financial statements were available to be issued.
In October 2010, the assets of Sunflower were acquired by Knology, Inc. for $165 million.
In August 2010, the Parent purchased all of the outstanding minority equity of WorldNet, L.L.C. for $97,570.
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