Attached files
Exhibit 99.3
Knology, Inc.
Unaudited Pro Forma Financial Information
The following unaudited pro forma condensed combined financial statements are based on the historical financial statements of Knology, Inc. (“Knology”) and Sunflower Broadband (A Division of the World Company) (“Sunflower”) after giving effect to the Sunflower acquisition under the purchase method of accounting and to the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. We acquired the operations on October 15, 2010. The pro forma condensed combined balance sheet was prepared as if the acquisition occurred on June 30, 2010 and the pro forma condensed combined statement of operations was prepared as if the acquisition had occurred January 1, 2009. The condensed combined pro forma balance sheet has been prepared using our June 30, 2010 information and Sunflower’s information as of the acquisition date. We believe this presentation is the most informative and transparent pro forma balance sheet because it reflects the company as acquired.
The unaudited pro forma condensed combined financial data should be read in conjunction with the historical consolidated financial statements and related notes thereto of Knology included in our Form 10-K for the year ended December 31, 2009 and in our Form 10-Q for the quarter ended June 30, 2010 and the historical financial statements of Sunflower included elsewhere in this Form 8-K/A. These unaudited pro forma condensed combined financial statements are based on preliminary estimates of purchase price allocations, do not reflect any direct costs or potential savings which may result from the Sunflower acquisition, and are not necessarily indicative of the results that would actually have occurred had the transaction been consummated at the dates indicated, nor are they necessarily indicative of future operating results or financial position of the combined company. We do not currently anticipate that the final purchase price allocation will be materially different from our preliminary estimates.
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Knology, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2010
(in thousands)
| Knology | Sunflower (as of Oct 15, 2010) |
Adjustments | Pro forma condensed combined |
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| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | 41,261 | $ | 205 | $ | (39,332 | ) (a)(b) | $ | 2,134 | |||||||
| Restricted cash |
1,401 | — | — | 1,401 | ||||||||||||
| Certificates of deposit and other short term investments |
44,124 | — | — | 44,124 | ||||||||||||
| Accounts receivable, net |
34,602 | 2,150 | — | (b) | 36,752 | |||||||||||
| Prepaid expenses and other |
4,812 | 639 | — | (b) | 5,451 | |||||||||||
| Total current assets |
126,200 | 2,994 | (39,332 | ) | 89,862 | |||||||||||
| Property, plant and equipment, net |
351,348 | 27,901 | 17,865 | (b) | 397,114 | |||||||||||
| Goodwill |
149,741 | 951 | 103,752 | (b) | 254,444 | |||||||||||
| Customer base, net |
7,594 | — | 13,000 | (b) | 20,594 | |||||||||||
| Deferred debt issuance costs, net |
6,081 | — | (970 | )(c) | 5,111 | |||||||||||
| Investments |
3,683 | — | — | 3,683 | ||||||||||||
| Intangible and other assets, net |
3,389 | 1,816 | 1,127 | (b) | 6,332 | |||||||||||
| Total assets |
$ | 648,036 | $ | 33,662 | $ | 95,442 | $ | 777,140 | ||||||||
| Liabilities and Stockholders’ equity |
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| Current liabilities: |
||||||||||||||||
| Current portion of notes payable |
$ | 10,143 | $ | 90 | $ | (1,737 | ) (e) | $ | 8,496 | |||||||
| Accounts payable |
29,064 | 133 | — | (b) | 29,197 | |||||||||||
| Accrued liabilities |
22,970 | 2,771 | (4,635 | ) (b)(d) | 21,106 | |||||||||||
| Unearned revenue |
14,597 | 1,125 | — | (b) | 15,722 | |||||||||||
| Interest Rate Swaps |
756 | — | — | 756 | ||||||||||||
| Total current liabilities |
77,530 | 4,119 | (6,372 | ) | 75,277 | |||||||||||
| Noncurrent liabilities: |
||||||||||||||||
| Notes payable |
577,068 | 399 | 137,900 | (e) | 715,367 | |||||||||||
| Interest Rate Swaps |
6,975 | — | — | 6,975 | ||||||||||||
| Stockholders’ equity |
||||||||||||||||
| Common stock |
370 | — | — | 370 | ||||||||||||
| Division equity |
— | 29,144 | (29,144 | )(f) | — | |||||||||||
| Additional paid-in capital |
606,145 | — | — | (f) | 606,145 | |||||||||||
| Accumulated deficit |
(620,052 | ) | — | (6,942 | ) (f) | (626,994 | ) | |||||||||
| Total stockholders’ equity |
13,537 | 29,144 | (36,086 | ) | (20,479 | ) | ||||||||||
| Total liabilities and stockholders’ equity |
$ | 648,036 | $ | 33,662 | $ | 95,442 | $ | 777,140 | ||||||||
See notes to unaudited pro forma condensed combined financial statements.
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Knology, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Twelve Months Ended December 31, 2009
(in thousands, except per share and per share data)
| Knology | Sunflower | Adjustments | Pro forma condensed combined |
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| Operating revenues: |
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| Subscriber |
$ | 413,738 | $ | 45,750 | $ | — | $ | 459,488 | ||||||||
| Other |
11,827 | 3,353 | — | 15,180 | ||||||||||||
| Total operating revenues |
425,565 | 49,103 | — | 474,668 | ||||||||||||
| Operating costs: |
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| Direct costs (excluding depreciation and amortization) |
132,870 | 20,194 | — | 153,064 | ||||||||||||
| Selling, general and administrative expenses |
154,925 | 9,389 | (312 | )(h) | 164,002 | |||||||||||
| Depreciation and amortization |
90,702 | 10,694 | (2,302 | )(h)(i)(m) | 99,094 | |||||||||||
| Total operating expenses |
378,497 | 40,277 | (2,614 | ) | 416,160 | |||||||||||
| Operating income |
47,068 | 8,826 | 2,614 | 58,508 | ||||||||||||
| Other income (expense): |
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| Interest income |
656 | — | — | 656 | ||||||||||||
| Interest expense |
(41,632 | ) | (5 | ) | (7,539 | )(j)(l) | (49,176 | ) | ||||||||
| Debt modification expense |
(3,422 | ) | — | — | (3,422 | ) | ||||||||||
| Gain on interest rate swaps |
12,096 | — | — | 12,096 | ||||||||||||
| Amortization of deferred loss on interest rate swaps |
(18,298 | ) | — | — | (18,298 | ) | ||||||||||
| Loss on disposal of property and equipment |
(70 | ) | — | (70 | ) | |||||||||||
| Other than temporary impairment of investments |
(353 | ) | — | — | (353 | ) | ||||||||||
| Loss attributable to noncontrolling interest |
35 | (35 | )(k) | — | ||||||||||||
| Other expense, net |
478 | — | — | 478 | ||||||||||||
| Total other expense |
(50,475 | ) | (40 | ) | (7,574 | ) | (58,089 | ) | ||||||||
| Net (loss) income—before income taxes |
(3,407 | ) | 8,786 | (4,960 | ) | 419 | ||||||||||
| Income taxes |
— | — | — | (g) | — | |||||||||||
| Net (loss) income |
$ | (3,407 | ) | $ | 8,786 | $ | (4,960 | ) | $ | 419 | ||||||
| Basic and diluted net loss per share attributable to common stockholders |
$ | (0.09 | ) | $ | 0.01 | |||||||||||
| Basic and diluted weighted average number of common shares outstanding |
35,990,536 | 35,990,536 | ||||||||||||||
See notes to unaudited pro forma condensed combined financial statements.
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Knology, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2010
(in thousands, except per share and per share data)
| Knology | Sunflower | Adjustments | Pro forma condensed combined |
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| Operating revenues: |
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| Subscriber |
$ | 215,157 | $ | 23,411 | $ | — | $ | 238,568 | ||||||||
| Other |
7,948 | 1,808 | — | 9,756 | ||||||||||||
| Total operating revenues |
223,105 | 25,219 | — | 248,324 | ||||||||||||
| Operating costs: |
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| Direct costs (excluding depreciation and amortization) |
72,499 | 10,341 | — | 82,840 | ||||||||||||
| Selling, general and administrative expenses |
76,547 | 4,441 | (223 | )(h) | 80,765 | |||||||||||
| Depreciation and amortization |
43,693 | 5,293 | (1,120 | )(h)(i)(m) | 47,866 | |||||||||||
| Total operating expenses |
192,739 | 20,075 | (1,343 | ) | 211,471 | |||||||||||
| Operating income |
30,366 | 5,144 | 1,343 | 36,853 | ||||||||||||
| Other income (expense): |
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| Interest income |
213 | — | — | 213 | ||||||||||||
| Interest expense |
(22,780 | ) | (7 | ) | (3,738 | )(j)(l) | (26,525 | ) | ||||||||
| Gain on interest rate swaps |
8,795 | — | — | 8,795 | ||||||||||||
| Amortization of deferred loss on interest rate swaps |
(9,873 | ) | — | — | (9,873 | ) | ||||||||||
| Loss attributable to non controlling interest |
— | 15 | (15 | )(k) | — | |||||||||||
| Other expense, net |
103 | — | — | 103 | ||||||||||||
| Total other expense |
(23,542 | ) | 8 | (3,773 | ) | (27,287 | ) | |||||||||
| Net income (loss) before income taxes |
6,824 | 5,152 | (2,430 | ) | 9,566 | |||||||||||
| Income Taxes |
— | — | — | (g) | — | |||||||||||
| Net income (loss) |
$ | 6,824 | $ | 5,152 | $ | (2,430 | ) | $ | 9,566 | |||||||
| Basic and diluted net income per share |
$ | 0.19 | $ | 0.26 | ||||||||||||
| Diluted net income per share |
$ | 0.18 | $ | 0.25 | ||||||||||||
| Basic and diluted weighted average number of common shares outstanding |
36,754,750 | 36,754,750 | ||||||||||||||
| 38,777,307 | 38,777,307 | |||||||||||||||
See notes to unaudited pro forma condensed combined financial statements.
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Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(dollars in thousands)
Pursuant to an asset purchase agreement, dated as of October 15, 2010, we agreed to purchase all the assets of Sunflower Broadband (“Sunflower”) for $165.0 million cash.
The unaudited pro forma condensed combined financial data has been prepared assuming that the Sunflower acquisition will be accounted for under the purchase method and is based on our historical consolidated financial statements and those of Sunflower.
The pro forma adjustments represent management’s best estimate based on available information at this time. We have engaged third party firms to assist us in determining the value of tangible and intangible assets acquired. Actual adjustments will differ from those reflected in the unaudited pro forma condensed combined financial data once the valuation is finalized.
The unaudited pro forma condensed combined financial data should be read in conjunction with our historical consolidated financial statements and the related notes thereto and those of Sunflower included elsewhere in this Form 8-K/A.
| (a) | Represents cash transactions as follows: |
| Proceeds from new term loans |
$ | 712,840 | ||
| Payoff of existing Knology loans |
(575,827 | ) | ||
| Financing, advisory, legal and transaction costs |
(10,907 | ) | ||
| Working capital adjustment |
(438 | ) | ||
| Payoff to Sunflower shareholders |
(165,000 | ) | ||
| Net cash adjustment |
$ | (39,332 | ) | |
| (b) | This adjustment reflects the purchase price allocation for the Sunflower acquisition as follows: |
| Cash purchase price |
$ | 165,000 | ||
| Working capital adjustment |
438 | |||
| Net cash paid to Sunflower |
165,438 | |||
| Total purchase price |
$ | 165,438 | ||
| Cash purchased |
$ | 205 | ||
| Accounts receivable purchased |
2,150 | |||
| Prepaid assets purchased |
639 | |||
| Sunflower October 15, 2010 property, plant and equipment |
45,766 | |||
| Noncurrent assets purchased |
148 | |||
| Intangibles purchased |
2,795 | |||
| Current liabilities assumed |
(3,479 | ) | ||
| Noncurrent liabilities assumed |
(489 | ) | ||
| Allocation to subscriber base |
13,000 | |||
| Allocation to goodwill |
104,703 | |||
| Net cash adjustment |
$ | 165,438 | ||
| (c) | Represents debt issuance transactions as follows: |
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| Writeoff of existing Knology debt issuance costs, net |
$ | (1,174 | ) | |
| Costs related to new term loan |
204 | |||
| Net deferred debt issuance cost adjustment |
$ | 970 | ||
The pro forma amount was applied pro rata based on the percentage of the increase in debt of the new debt to the old debt. The amount not recorded in the pro forma amounts above is $(4,907) for the write-off of existing debt costs and $854 for costs related to the new term loan. The total mounts for GAAP purposes are $(6,081) for the write-off of existing debt costs and $1,058 for costs related to the new term loan.
| (d) | Represents accrued interest transactions as follows: |
| Payoff of existing Knology loans |
$ | (4,085 | ) | |
| Net accrued interest adjustment |
$ | (4,085 | ) | |
| (e) | Represents debt transactions as follows: |
| Current portion of notes payable |
||||
| Payoff of existing Knology loans |
$ | (5,825 | ) | |
| Proceeds from new term loans |
4,088 | |||
| Net current portion of notes payable adjustment |
$ | 1,737 | ||
| Notes payable |
||||
| Payoff of existing Knology loans |
$ | (570,853 | ) | |
| Proceeds from new term loans |
708,753 | |||
| Net notes payable adjustment |
$ | 137,900 | ||
| (f) | Represents accumulated earnings transactions as follows: |
| Accretion of existing Knology debt |
$ | 4,935 | ||
| Debt issuance costs expensed in transaction settlement |
(9,849 | ) | ||
| Writeoff of existing Knology debt issuance costs, net |
(2,028 | ) | ||
| Elimination of Sunflower accumulated deficit |
(29,144 | ) | ||
| Net accumulated deficit adjustment |
$ | (36,086 | ) | |
| (g) | No tax provision is necessary because Kansas allows Unitary filing, where the Kansas apportionment is applied to the combined/consolidated income. |
| (h) | Reflects the change in Sunflower installation labor capitalization policy to conform with Knology’s existing policy. |
| (i) | Reflects the elimination of Sunflower customer list amortization which would not be incurred assuming acquisition is effective at the beginning of the period presented, and amortization of new subscriber base over a 10 year period. |
| (j) | Reflects the incremental interest expense on the acquisition debt incurred with the acquisition assuming acquisition is effective at January 1, 2009 presented and interest expense on new debt at 5.2% with assumption of quarterly payments. For every 1/8% change in the interest rates on the debt, the effect on interest expense of the combined entities is approximately $899 thousand. |
For the period ended December 31, 2009, the total interest expense on the new debt is $37,373 with $7,213 being added to the pro forma financials and $30,160 being the remaining amount not applied to the pro forma financials. For the period ended June 30, 2010, the total interest expense on the new debt is $18,561 with $3,582 being added to the pro forma financials and $14,979 being the remaining amount not applied to the pro forma financials.
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| (k) | Reflects the elimination of the minority interest in WorldNet, LLC |
| (l) | Reflects the incremental debt issuance cost amortization related to the acquisition debt incurred assuming acquisition is effective at January 1, 2009. |
For the period ended December 31, 2009, the total amortization expense on the new debt issuance costs is $1,687 with $326 being added to the pro forma financials and $1,362 being the remaining amount not applied to the pro forma financials. For the period ended June 30, 2010, the total amortization expense on the new debt issuance costs is $809 with $156 being added to the pro forma financials and $653 being the remaining amount not applied to the pro forma financials.
| (m) | Reflects the depreciation expense which would be recorded based on the value of the acquired assets if the acquisition is effective at January 1, 2009. |
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