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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q/A





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


SECURITIES EXCHANGE ACT OF 1934





FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002





COMMISSION FILE
NUMBER: 333-43339





KNOLOGY BROADBAND, INC.


(Exact name of registrant as specified in its charter)





DELAWARE

58-2203141(State or other jurisdiction ofincorporation or organization)

(I.R.S. EmployerIdentification No.)





KNOLOGY BROADBAND, INC.1241 O.G. SKINNER DRIVEWEST POINT, GEORGIA

31833(Address of principal executive offices)

(Zip Code)





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





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.





YES x*            NO  ̈





As
of April 30, 2002, there were 100 shares of the registrants Common Stock outstanding.





The registrant meets
the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is filing this Form with the reduced disclosure format.





*The registrant does not have any class of equity registered under the Securities Exchange Act of 1934 and files periodic reports with the Securities and Exchange Commission pursuant to contractual obligations with third
parties.




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KNOLOGY BROADBAND, INC. AND SUBSIDIARIES


QUARTER ENDED MARCH 31, 2002


INDEX





PAGEPART I

FINANCIAL INFORMATIONItem 1

FINANCIAL STATEMENTS

2Condensed Consolidated Balance Sheets

2Condensed Consolidated Statements of Operations

3Condensed Consolidated Statement of Cash Flows

4Notes to Condensed Consolidated Financial Statements

5Item 2

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

6Item 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

11PART II

OTHER INFORMATIONItem 1

LEGAL PROCEEDINGS.

11Item 2

CHANGES IN SECURITIES AND USE OF PROCEEDS.

11Item 3

DEFAULTS UPON SENIOR SECURITIES.

11Item 4

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

11Item 5

OTHER INFORMATION.

11Item 6

EXHIBITS AND REPORTS ON FORM 8-K

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ITEM 1.    FINANCIAL STATEMENTS





KNOLOGY BROADBAND, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


(UNAUDITED)


March 31,2002


December 31, 2001(Dollars in Thousands)ASSETSCURRENT ASSETS:Cash

$
147


$
4,525Accounts receivable, net


10,097



9,694Affiliate receivable


26



113Prepaid expenses and other


788



816Total current assets


11,058



15,148PROPERTY AND EQUIPMENT, net


342,978



353,000INVESTMENTS


5,125



5,125INTANGIBLE AND OTHER ASSETS, net


14,092



15,758Total assets

$
373,253


$
389,031LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Current portion of notes payable

$
15,465


$
15,465Accounts payable


10,611



12,912Accounts payable-affiliate


2,979



248Accrued liabilities


5,755



8,519Unearned revenue


5,644



4,969Total current liabilities


40,454



42,113NONCURRENT LIABILITIES:Notes payable-affiliate


14,044



10,000Senior discount notes, net of discount


414,465



402,667Total noncurrent liabilities


428,509



412,667Total liabilities


468,963



454,780STOCKHOLDERS DEFICIT:Common Stock






Additional paid-in capital


271,811



271,811Accumulated deficit


(367,521
)


(337,560
)Total stockholders deficit


(95,710
)


(65,749
)Total liabilities and stockholders deficit

$
373,253


$
389,031





The accompanying notes are an integral part of these condensed consolidated
financial statements.




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KNOLOGY BROADBAND, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)


Three Months EndedMarch 31,2002


2001(Dollars in Thousands)OPERATING REVENUES

$
25,304


$
17,639OPERATING EXPENSES:Costs and expenses, excluding depreciation and amortization


23,926



21,012Depreciation and amortization


17,081



16,079Total operating expenses


41,007



37,091OPERATING INCOME (LOSS)


(15,703
)


(19,452
)OTHER INCOME (EXPENSE):Interest income


2



26Interest expense


(12,389
)


(10,301
)Other expense, net


(577
)


(409
)Total other expense


(12,964
)


(10,684
)LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE


(28,667
)


(30,136
)CUMULATIVE EFFECT OF CHANGE IN ACCOUNTINGPRINCIPLE (Note 2)


(1,294
)


NET LOSS

$
(29,961
)

$
(30,136
)





The accompanying notes are an integral part of these condensed consolidated
financial statements.




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KNOLOGY BROADBAND, INC. AND SUBSIDIARIES


(UNAUDITED)


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





Three Months Ended March
31,2002


2001(Dollars in Thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(29,961
)

$
(30,136
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization


17,081



16,079Write down of inventory to market


619



Amortization of bond discount


11,798



10,505Gain (loss) on disposition of assets


(16
)


Cumulative effect of change in accounting principlegoodwill impairment


1,294



Changes in operating assets and liabilities:Accounts receivable


(403
)


332Accounts receivableaffiliate


87



(16
)Prepaid expenses and other


28



(333
)Accounts payable


(2,301
)


(9,836
)Accounts payableaffiliate


2,661



Accrued liabilities and interest


(2,764
)


(3,740
)Unearned revenue


675



546Total adjustments


28,759



13,537Net cash used in operating activities


(1,202
)


(16,599
)CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures, net of retirements


(7,297
)


(22,551
)Organizational and franchise cost expenditures, net


(10
)


(275
)Investments






(45
)Proceeds from sales of assets


87



Net cash used in investing activities


(7,220
)


(22,871
)CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on debt and short-term borrowings






(4
)Proceeds from affiliate debt


4,044



Equity infusion from parent






40,222Net cash provided by financing activities


4,044



40,218NET (DECREASE) INCREASE IN CASH


(4,378
)


748CASH AT BEGINNING OF PERIOD


4,525



CASH AT END OF PERIOD

$
147


$
748SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest

$
573


$
655





The accompanying notes are an integral part of these condensed
consolidated financial statements.




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





MARCH 31, 2002


(UNAUDITED)





(DOLLARS IN THOUSANDS EXCEPT
PER SHARE DATA)





1.    ORGANIZATION AND NATURE OF BUSINESS





Knology Broadband, Inc. (the Company), formerly KNOLOGY Holdings, Inc., is a wholly owned subsidiary of Knology, Inc. The
Company offers residential and business customers broadband communications services, including analog and digital cable television, local and long distance telephone, high-speed Internet access service, and broadband carrier services, using advanced
interactive broadband networks. The Company operates interactive broadband networks in six metropolitan areas (collectively the Systems): Huntsville and Montgomery, Alabama; Columbus and Augusta, Georgia; Panama City, Florida; and
Charleston, South Carolina.





The Company has experienced operating losses as a result of the expansion of its
advanced interactive broadband communications networks and services into new and existing markets. Management expects to continue to focus on increasing the customer base and expanding the Companys broadband operations. Accordingly, the
Company expects that it will continue to experience operating losses in accordance with the business plan. While management expects its plans to result in profitability, there can be no assurance that growth in the Companys revenue or customer
base will continue or that the Company will be able to achieve or sustain profitability and/or positive cash flow.





2.    BASIS OF PRESENTATION





The accompanying unaudited condensed
consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for the fair presentation of the
financial statements have been included, and the financial statements present fairly the financial position and results of operations for the interim periods presented. Operating results for the three months ended March 31, 2002 are not necessarily
indicative of the results that may be expected for the year ended December 31, 2002. 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, 2001.





Certain amounts included in the 2001 financial statements have been reclassified to conform to the 2002 financial statements.





3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





NEW
ACCOUNTING PRONOUNCEMENTS





The Financial Accounting Standards Board (FASB) issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, in June 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. The
Company had no business combinations initiated after June 30, 2001. SFAS No. 142 provides that goodwill is no longer subject to amortization over its estimated useful life. It requires that goodwill be assessed for impairment on at least an annual
basis by applying a fair value-based test.





The Company adopted SFAS No. 142 on January 1, 2002. The Company has
performed a goodwill impairment test in accordance with SFAS No. 142. Based on the results of the goodwill impairment test, the Company recorded an impairment loss of $1,294 in the first quarter of 2002 as a cumulative effect of change in accounting
principle. A goodwill impairment test will be performed at least annually on January 1.





With the adoption of SFAS
No. 142, the Company no longer records amortization of goodwill. During the first quarter of 2001 the Company recorded approximately $68 in amortization of goodwill.





The following is a proforma presentation of reported net loss, adjusted for the exclusion of goodwill amortization net of related income tax effect:





Proforma Results For the three months ended March 31,2002


2001Reported loss attributable to common stockholders

$
(29,961
)

$
(30,136
)Goodwill amortization (net of tax)






68Adjusted net loss

$
(29,961
)

$
(30,068
)





Intangible assets as of March 31, 2002 and December 31, 2001 were
as follows:





Gross Assets

Accumulated Amortization


Net AssetsSubscriber Base Non-compete Agreement, OtherMarch 31, 2002

$
48,652

$
(38,462
)

$
10,190December 31, 2001

$
50,018

$
(38,392
)

$
11,626





The net amount of goodwill at March 31, 2002 and December 31, 2001
was $8.1 million and $9.4 million, respectively. There were no intangible assets reclassified to goodwill upon adoption of SFAS 142.





Amortization expense related to goodwill and intangible assets was $197 and $3,237 for the three months ended March 31, 2002 and 2001, respectively.




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4.    SEGMENT INFORMATION





Effective January 1998, the Company adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information,
which established revised standards for the reporting of financial and descriptive information about operating segments in financial statements.





The Company owns and operates advanced 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. The Company also provides 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 EndedMarch 31,2002

2001Video

$
13,756

$
10,993Voice


7,200


4,462Data and other


4,348


2,184Consolidated revenues

$
25,304

$
17,639





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 ANNUAL 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 OR MAY REFUSE TO EXTEND TRADE
CREDIT TO US AS A RESULT OF A GOING CONCERN OPINION WE RECEIVED FROM OUR INDEPENDENT ACCOUNTANTS WITH RESPECT TO OUR AUDITED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 2001, (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, AND (7) THAT SOME OTHER UNFORESEEN DIFFICULTIES OCCUR, AS WELL AS THOSE RISK SET FORTH IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001, 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 months ended
March 31, 2002 and certain factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read in conjunction with our financial statements and related notes elsewhere in this Form 10-Q.





Background





ITC Holding formed Knology Broadband, Inc., formerly KNOLOGY Holdings, Inc., in 1995. Its percentage ownership fell below 50% during 1996. ITC Holding acquired additional stock in Knology Broadband, Inc. in 1998, becoming
the holder of approximately 85% of Knology




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Broadband, Inc. In November 1999, ITC Holding contributed its 85% interest in Knology Broadband to Knology, Inc. in exchange for shares of
Knology, Inc. stock. Additionally, other minority shareholders exchanged the remaining 15% of Knology Broadband for shares of Knology, Inc. stock. Knology Broadband, Inc. is a wholly-owned subsidiary of Knology, Inc.





Knology Broadband, Inc. has been providing cable television service since 1995, telephone and high-speed Internet access services since
1997 and broadband carrier services since 1998. We own, operate and manage interactive broadband networks in the six metropolitan areas of Montgomery and Huntsville, Alabama; Columbus and Augusta, Georgia; Panama City, Florida and Charleston, South
Carolina.





In 1995, Knology Broadband, Inc. was originally formed as a limited liability company and later was
incorporated in the State of Delaware. The Companys principal executive offices are located at 1241 O.G. Skinner Drive, West Point, Georgia 31833 and its telephone number is (706) 645-8553.





Significant Accounting Policies





Our significant
accounting policies are more fully described in Note 2 to the consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2001. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of 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 Companys
revenues are recognized when services are provided, regardless of the period in which they are billed. Fees billed in advance are recorded in the consolidated balance sheets as unearned revenue and are deferred until the month the service is
provided.





Recent Accounting Pronouncements





The Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets in June 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. The Company had no business combinations initiated after June 30, 2001. SFAS No. 142 provides
that goodwill is no longer subject to amortization over its estimated useful life. It requires that goodwill be assessed for impairment on at least an annual basis by applying a fair-value-based test.





The Company adopted SFAS No. 142 on January 1, 2002. The Company has performed a goodwill impairment test in accordance with SFAS No. 142.
Based on the results of the goodwill impairment test the Company recorded an impairment loss of $1.3 million in the first quarter of 2002 as a cumulative effect of change in accounting principle.





In June 2001, the FASB issued SFAS No. 143 Accounting for Asset Retirement Obligations. SFAS No. 143, addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact of this new standard.





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. There was no impact to the Company upon the adoption of this new standard.





REVENUES AND EXPENSES





We can group our revenues into four categories: video revenues, voice revenues, data revenues and other revenues.





| |  |  | VIDEO REVENUES.    Our video revenues consist of fixed monthly fees for basic, premium and digital cable television services, as well as
fees from pay-per-view movies and events such as boxing matches and concerts, that involve a charge for each viewing. Video revenues accounted for approximately 62.3% and 54.3% of our consolidated revenues for the three months ended March 31, 2001
and March 31, 2002, respectively. In providing video services we currently compete with AT&T Broadband, Comcast Cable Communications, Inc., Time Warner Cable, Mediacom Communications Corporation and Charter Communications, Inc. We also compete
with satellite television providers DirecTV, Inc. and Echostar Communications Corporation. Our other competitors include other cable television providers; broadcast television stations; and other satellite television companies. We expect in the
future to compete with telephone companies providing cable television service within our service areas and with wireless cable companies.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | VOICE REVENUES.    Our voice revenues consist primarily of fixed monthly fees for local service, enhanced services such as call waiting and
voice mail and usage fees for long distance service. Voice revenues accounted for approximately 25.3% and 28.5% of our consolidated revenues for the three months ended March 31, 2001 and March 31, 2002, respectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | DATA REVENUES AND OTHER REVENUES.    Our data revenues consist primarily of fixed monthly fees for high-speed Internet access service and
rental of cable modems. Other revenues resulted principally from broadband carrier services and video production services. These combined revenues accounted for approximately 12.4% and 17.2% of our consolidated revenues for the three months ended
March 31, 2001 and March 31, 2002, respectively. 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 digital subscriber lines, or DSL; providers of
satellite-based Internet access services; long-distance telephone companies; and cable television companies. We also expect to compete in the future with providers of wireless high-speed data services.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Our operating expenses include cost of services expenses, selling, operations and administrative expenses and depreciation and
amortization expenses.





Cost of service expenses include:





| |  |  | VIDEO COST OF SERVICES.    Video cost of services consist primarily of monthly fees to the National Cable Television Cooperative and other
programming providers, and are generally based on the average number of subscribers to each program. Programming costs as a percentage of video revenues were approximately 46.9% and 47.4% for the three months ended March 31, 2001 and March 31, 2002,
respectively. Programming costs is our largest single cost and we expect this to continue. Since programming cost is primarily based on numbers of subscribers, it will increase as we add more subscribers. Additionally, programming cost will increase
as costs per channel increase over time.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | VOICE COST OF SERVICES.    Voice cost of services consist primarily of transport cost and network access fees. The voice cost of services as
a percentage of revenues were approximately 42.8% and 34.4% for the three months ended March 31, 2001 and March 31, 2002, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | 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 revenues were approximately 10.3% and 7.4% for the three months ended March 31, 2001 and March 31, 2002, respectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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 the opportunity to increase revenue and video 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 customers a bundle of services and penetrating untapped market segments and offering new services. Relative to our current product mix, 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 services as a percentage of our consolidated revenues will decrease.





Selling, operations and administrative expenses include:





| |  |  | SALES AND MARKETING COSTS.    Sales and marketing costs include the cost of sales and marketing personnel and advertising and promotional
expenses.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | NETWORK OPERATIONS AND MAINTENANCE EXPENSES. Network operations and maintenance expenses include payroll and departmental costs incurred for network design and
maintenance monitoring.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | CUSTOMER SERVICE EXPENSES.    Customer service expenses include payroll and departmental costs incurred for customer service representatives
and management.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | GENERAL AND ADMINISTRATIVE EXPENSES.    General and administrative expenses consist of corporate and subsidiary general management and
administrative costs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------




Depreciation and amortization expenses include depreciation of our
interactive broadband networks and equipment, and amortization of cost in excess of net assets and other intangible assets related to acquisitions.





Three Months Ended March 31, 2002 Compared To Three Months Ended March 31, 2001





REVENUES.
Operating revenues increased 43.5% from $17.6 million for the three months ended March 31, 2001 to $25.3 million for the three months ended March 31, 2002.





The increased revenues for video, voice and data and other services are primarily due to an increase in the number of connections, from 162,942 as of March 31, 2001 to 222,184 as of March 31, 2002. The
additional connections resulted primarily from:





| |  |  | The extension of our broadband networks, through the construction of additional facilities and the extension of additional cables passing marketable homes and
businesses in the Augusta and Charleston markets, which provide opportunities for sales to new customers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The upgrade of our existing broadband networks in Huntsville and Panama City to allow for high capacity interactive communication, which allows these markets to
provide voice, data and enhanced products, including digital video and video-on-demand where not previously available. This provides opportunity for new sales to existing customers and sales to new customers in response to requests for bundles of
services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




We expect the growth in the number of new video connections to decrease as the video
segment matures in its current markets. While the number of new video connections may decrease, management believes that the opportunity to increase revenue and video margins is available with the introduction of new products and new technology. New
voice and data connections are expected to increase with sale and marketing efforts directed at selling customers a bundle of services and penetrating untapped market segments and offering new services. Relative to our current product mix, 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, management expects that our consolidated cost of services as a percentage of
consolidated revenues will decrease.





COST OF SERVICES.    Cost of services increased 27.9%
from $7.3 million for the three months ended March 31, 2001, to $9.3 million for the three months ended March 31, 2002. Cost of services for video services increased 26.5% from $5.2 million for the three months ended March 31, 2001, to $6.6 million
for the same period in 2002. Cost of services for voice services decreased 29.6% from $1.9 million for the three months ended March 31, 2001, to $2.5 million for the same period in 2002. Cost of services for data and other services increased 43.6%
from $224,000 for the three months ended March 31, 2001, to $322,000 for the same period in 2002. We expect our cost of services to continue to increase as we add more connections. Programming costs, which are our largest single expense item, have
been increasing over the last several years on an aggregate basis due to an increase in subscribers and on a per subscriber basis due to an increase in costs per program channel. Management expects 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 operating margins.





OPERATING MARGINS.    Margins increased 54.5% from $10.3 million for the three months ended March 31, 2001, to $16.0 million for the three months ended March 31, 2002. Margins for video services increased
23.9% from $5.8 million for the three months ended March 31, 2001, to $7.3 million for the same period in 2002. Margins for voice services increased 85.1% from $2.6 million for the three months ended March 31, 2001, to $4.7 million for the same
period in 2002. Margins for data and other services increased 105% from $1.9 million for the three months ended March 31, 2001, to $4.0 million for the same period in 2002.





OPERATING EXPENSES.    Operating expenses, excluding depreciation and amortization, increased 6.4% from $13.7 million for the three months ended March
31, 2001, to $14.6 million for the three months ended March 31, 2002. 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. Selling, operations and administrative expenses will increase operating expenses as we expand in our markets.




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Our depreciation and amortization expenses increased 6.2% from $16.1 million for the three months ended March 31, 2001 to
$17.1 million for the three months ended March 31, 2002. The increase in depreciation is primarily due to the expansion of our networks and growth in to new markets.





OTHER INCOME AND EXPENSES.    Our interest income was $26,000 for the three months ended March 31, 2001, compared to $2,500 for the three months ended
March 31, 2002.





Our interest expense increased from $10.3 million for the three months ended March 31, 2001 to
$12.4 million for the three months ended March 31, 2002. The increase in interest expense reflects the accrual of the interest attributable to the senior discount notes issued in October 1997.





Other expense, net increased from an expense of $409,000 to an expense of $577,000, primarily due to a $619,000 write down of inventory to the lower of cost or market
value.





NET LOSS.    We incurred a net loss of $30.1 million for the three months ended March
31, 2001 compared to a net loss of $30.2 million for the three months ended March 31, 2002. The increase in net loss is a result of the expansion of our operations and the increase in the number of employees associated with such expansion and growth
into new markets.





Liquidity and Capital Resources





As of March 31, 2002, we had net working capital deficit of $29.4 million, compared to a net working capital deficit of $27.0 million as of December 31, 2001. The increase
in the deficit from December 31, 2001 to March 31, 2002 is due to a decrease in cash of $4.4 million partially offset by a reduction of $2.3 million in accounts payable.





Net cash used in operations totaled $16.6 million for the three months ended March 31, 2001 and $1.2 million for the three months ended March 31, 2002. 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, loss on disposition of assets and write down of
inventory.





Net cash used in investing activities was $22.9 million for the three months ended March 31, 2001 and
$7.2 million for the three months ended March 31, 2002. Investing activities for the three months ended March 31, 2001 consisted of $22.6 million of capital expenditures and $320,000 in organizational, franchise and investment expenditures.
Investing activities for the three months ended March 31, 2002 consisted of $7.3 million of capital expenditures, $10,000 in organizational, franchise and investment expenditures and $87,000 in proceeds from the sale of assets.





We received net cash flow from financing activities of $40.2 million for the three months ended March 31, 2001 and $4.0 million
for the three months ended March 31, 2002. Financing activities in 2001 consisted primarily of $40.2 million of equity infusion from our parent. Financing activities in 2001 consisted of proceeds from affiliate debt of $4.0 million from our parent.





Funding to Date





We have raised equity capital and borrowed money to finance a significant portion of our operating, investing and financing activities in the development of our business. On October 22, 1997, we received net proceeds of
$242.4 million from the offering of units consisting of senior discount notes due 2007 and warrants to purchase preferred stock. The notes were sold at a substantial discount from their principal amount at maturity, and there will not be any payment
of cash interest on the notes prior to April 15, 2003. The notes will fully accrete to face value of $444.1 million on October 15, 2002. From and after October 15, 2002, the notes will bear interest, which will be payable in cash, at a rate of 11
7/8% per annum on April 15 and October 15 of each year, commencing April 15, 2003. The indenture contains covenants that affect, and in certain cases restrict, the ability of Knology Broadband to:





| |  |  | incur indebtedness;
| | - |  | -------------------




| |  |  | pay dividends;
| | - |  | --------------



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| |  |  | prepay subordinated indebtedness;
| | - |  | ---------------------------------




| |  |  | redeem capital stock;
| | - |  | ---------------------




| |  |  | make investments;
| | - |  | -----------------




| |  |  | engage in transactions with stockholders and affiliates;
| | - |  | --------------------------------------------------------




| |  |  | create liens;
| | - |  | -------------




| |  |  | sell assets; and
| | - |  | ----------------




| |  |  | engage in mergers and consolidations.
| | - |  | -------------------------------------




On December 22, 1998, we entered into a $50 million four-year senior secured credit facility with First Union National Bank (now Wachovia Bank, National Association) and First Union Securities, Inc. On
November 7, 2001, First Union National Bank and First Union Securities, Inc. agreed to amend the credit facility. The credit facility, as amended, allows us to borrow up to the greater of (i) $15.5 million or (ii) three times our annualized
consolidated cash flow. The credit facility may be used for working capital and other purposes, including capital expenditures and permitted acquisitions. At our option, interest will accrue based on either the prime or federal funds rate plus
applicable margin or the LIBOR rate plus applicable margin. The applicable margin may vary from 4.0% for Base Rate Loans to 5.0% for LIBOR Rate Loans. The credit facility contains a number of covenants that restrict our ability to take certain
actions, including the ability to:





| |  |  | incur indebtedness;
| | - |  | -------------------




| |  |  | create liens;
| | - |  | -------------




| |  |  | pay dividends;
| | - |  | --------------




| |  |  | make distributions or stock repurchases;
| | - |  | ----------------------------------------




| |  |  | make investments;
| | - |  | -----------------




| |  |  | engage in transactions with affiliates;
| | - |  | ---------------------------------------




| |  |  | sell assets; and
| | - |  | ----------------




| |  |  | engage in mergers and acquisitions.
| | - |  | -----------------------------------




The credit facility also includes covenants requiring compliance with certain operating and financial ratios on a consolidated basis, including the number of customer connections and average revenue
per subscriber. We are currently in compliance with these covenants, as amended, but there can be no assurances that we will remain in compliance. Should we not be in compliance with the covenants, we would be in default and would require a waiver
from the lender. In the event the lender would not provide a waiver, amounts outstanding under the facility could be payable to the lender on demand. A change of control of Knology Broadband, as defined in the credit facility agreement, would
constitute a default under the covenants. In connection with the amendment of the credit facility, we paid First Union National Bank $250,000.





The maximum amount available under the amended credit facility as of December 31, 2001 was approximately $15.5 million. As of March 31, 2002, $15.5 million had been drawn against the credit facility.





In January 2002, we also entered into a secured intercompany credit facility with Knology, Inc. The secured
intercompany credit facility is intended to provide a mechanism for any funding Knology, Inc. chooses to advance to us; however, the facility does not represent a present commitment from Knology, Inc. to fund any our future cash needs. The
intercompany credit facility is secured by substantially all of the assets of Knology Broadband and is subordinate to the First Union credit facility. As of March 31, 2002, $4.0 million had been drawn against the credit facility.




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Future Funding





Our business requires substantial investment to finance capital expenditures and related expenses, incurred in connection with the expansion and upgrade of our interactive
broadband networks, funding subscriber equipment, maintaining the quality of our networks, and to finance the repayment, extinguishment or repurchase of our debt.





We have completed the construction of our networks in Montgomery, Alabama; Columbus, Georgia and Panama City, Florida. We expect that, with sufficient funds, the
construction of our networks in our other existing markets will be substantially completed during 2005. We will not have sufficient funds to complete this construction without significant additional financing.





Following are the cash obligations for maturities of long-term debt for each of the next five years as of March 31, 2002:





In millions2002

$
16.02003


52.72004


52.72005


52.72006


52.7Thereafter


496.8Total

$
723.8





The Company leases office space, utility poles, and other assets
for varying periods. Leases that expire are generally expected to be renewed or replaced by other leases. Future minimum rental payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one
year as of March 31, 2002 are as follows:





In millions2002

$
0.72003


0.82004


0.72005


0.62006


0.5Thereafter


2.6Total minimum lease payments

$
5.9





Funding to complete the construction of our networks throughout our
markets and for our working capital needs, current and future operating losses, and debt service requirements will require continuing capital investment. The Company has historically relied on capital infusions from its parent company to meet its
funding requirements and plans to continue to rely on its parent, however, there can be no assurance that sufficient funding will continue to be available in the future or that it will be available on terms acceptable to the Company. If we are not
successful in raising additional capital, we may not be able to complete the construction of our networks throughout our markets. This may cause us to violate our franchise agreements, which could adversely affect us, or may limit our growth within
these markets. Failure to obtain additional funding would also limit our ability continue in business or to expand our business. As a result of the aforementioned factors and related uncertainties, there is substantial doubt about the Companys
ability to continue as a going concern.





We are considering alternatives to improve our capital structure and
strengthen our liquidity position. We have been engaged in discussions regarding a potential restructuring with an ad hoc committee of the holders of a significant amount of our senior discount notes and with the financial advisor for the committee.
Although we are actively pursuing discussions with the committee, no restructuring agreement has been reached and there can be no assurance that a restructuring agreement will be reached in the future. Management is currently in discussions with ITC
Telecom Ventures, Inc., a current investor in Knology, Inc. and subsidiary of ITC Holding, to negotiate a commitment whereby ITC Telecom Ventures will commit to purchase, at a price, and on terms and conditions, to be negotiated and agreed to by the
parties, up to $19.5 million of debt or equity securities of Knology, Inc. during the year ended December 31, 2002. The ITC Telecom Ventures commitment will be contingent upon the successful restructuring of Knology, Inc.s capital structure,
including our senior discount notes. Although there can be no assurance Knology, Inc. will be able to do so, if Knology Inc. is successful in its efforts to restructure its capital structure, including our senior discount notes, and is able to enter
into the $19.5 million commitment with ITC Telecom Ventures, the financing obtained through the commitment should allow us to meet our obligations and operate as a going concern through 2002.





ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk





Not required under reduced disclosure format.





PART II.    OTHER INFORMATION





ITEM 1.    Legal Proceedings





None





ITEM 2.    Changes in Securities and Use of Proceeds





Not required
under reduced disclosure format.





ITEM 3.    Default upon Senior Securities





Not required under
reduced disclosure format.





ITEM 4.    Submission of Matters to a Vote of Security Holders





Not
required under reduced disclosure format.





ITEM 5.    Other Information





None




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ITEM 6.    Exhibits and Reports on Form 8-K





(A)    EXHIBITS





Exhibit No.

Exhibit Description3.1

Certificate of Incorporation of KNOLOGY Holdings, Inc. (Incorporated herein by reference to Exhibit 3.1 to the Registration Statement on Form S-4 of Knology
Broadband, Inc. (formerly KNOLOGY Holdings, Inc.) (File No. 333-43339)).3.2

Certificate of Amendment of Certificate of Incorporation of KNOLOGY Holdings, Inc. (Incorporated herein by reference to Exhibit 3.1 to Knology Broadband,
Inc.s Form 10-Q for the quarter ended March 31, 1998).3.3

Certificate of Amendment of Certificate of Incorporation of Knology Broadband, Inc. (Incorporated herein by reference to Exhibit 3.1 to Knology Broadband,
Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).3.4

Certificate of Amendment to Certificate of Designation of Preferred Stock of KNOLOGY Holdings, Inc. (Incorporated herein by reference to Exhibit 3.2 to
Knology Broadband, Inc. Form 10-Q for the quarter ended March 31, 1998).3.5

Certificate of Amendment to Certificate of Designation of Preferred Stock of Knology Broadband, Inc. (Incorporated herein by reference to Exhibit 3.2 to
Knology Broadband, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).3.6

Amended and Restated Bylaws of KNOLOGY Holdings, Inc. (Incorporated herein by reference to Exhibit 3.2 to Knology Broadband, Inc.s Registration
Statement on Form S-4 (File No. 333-43339)).4.1

Indenture dated as of October 22, 1997 between KNOLOGY Holdings, Inc. and United States Trust Company of New York, as Trustee, relating to the 11 78% Senior
Discount Notes Due 2007 of KNOLOGY Holdings, Inc. (Incorporated herein by reference to Exhibit 4.1 to the Registration Statement of Knology Broadband, Inc. on Form S-4 (File No. 333-43339)).4.2

Form of Senior Discount Note (contained in Exhibit 4.1).4.3

Form of Exchange Note (contained in Exhibit 4.1).10.1

Subordinated Intercompany Credit Agreement Promissory Note, dated January 1, 2002 made by Knology Broadband, Inc. in favor of Knology, Inc. (Incorporated
herein by reference to Exhibit 10.56 to Knology Inc.s Annual Report on Form 10-K for the year ended December 31, 2001).10.1.1

Intercompany Loan Guarantee, dated as of January 1, 2002, executed by Knology of Columbus, Inc., Knology of Montgomery, Inc., Knology of Panama City, Inc.,
Knology of Augusta, Inc., Knology of Charleston, Inc., Knology of South Carolina, Inc., Knology of Alabama, Inc., and Knology of Florida, Inc., Knology of Huntsville, Inc., and Knology Broadband, Inc., as Guarantors in favor of Knology, Inc.
(Incorporated herein by reference to Exhibit 10.56.1 to Knology Inc.s Annual Report on Form 10-K for the year ended December 31, 2001).10.1.2

Security Agreement, dated as of January 1, 2002, made by Knology Broadband, Inc., and certain undersigned Subsidiaries of Knology Broadband, Inc. in favor of
Knology, Inc. (Incorporated herein by reference to Exhibit 10.56.2 to Knology Inc.s Annual Report on Form 10-K for the year ended December 31, 2001).




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10.1.3

Pledge Agreement, dated as of January 1, 2002, made by Knology Broadband, Inc., in favor of Knology, Inc. (Incorporated herein by reference to Exhibit
10.56.3 to Knology Inc.s Annual Report on Form 10-K for the year ended December 31, 2001).10.2

Credit Facility Agreement between First Union National Bank, First Union Capital Markets Corp. and KNOLOGY Holdings, Inc. dated December 22, 1998
(Incorporated herein by reference to Exhibit 10.53 to Knology Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998).10.2.1

Seventh Amendment to Credit Facility Agreement, dated as of January 1, 2002. (Incorporated herein by reference to Exhibit 10.32.7 to Knology Inc.s
Annual Report on Form 10-K for the year ended December 31, 2001).10.2.2

Eighth Amendment to Credit Facility Agreement, dated as of March 31, 2002. (Incorporated herein by reference to Exhibit 10.3.2 to Knology Inc.s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002).99.1

Statement of the Chief Executive Officer and the Chief Financial Officer of Knology Broadband, Inc. pursuant to 18 U.S.C. §1350.





(B)    REPORTS ON FORM 8-K





On March 11, 2002, the Company filed on form 8-K, a press release announcing its 2001 fourth quarter and year-end results.




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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this amended report to be signed on its behalf by the undersigned thereunto
duly authorized.





Knology Broadband, Inc.October 29, 2002



By:

/s/  RODGER L. JOHNSONRodger L. Johnson President and
Chief Executive Officer





CERTIFICATIONS





I, Rodger L. Johnson, President and Chief Executive Officer of Knology Broadband, Inc., certify that:





1.    I have reviewed this quarterly report on Form 10-Q of Knology Broadband, Inc.;





2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this quarterly report; and





3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this quarterly report.





October 29, 2002


/s/  RODGER L. JOHNSONRodger L. Johnson President and
Chief Executive Officer





I, Robert K. Mills, Chief Financial Officer of Knology Broadband, Inc., certify that:





1.    I have reviewed this quarterly report on Form 10-Q of Knology Broadband, Inc.;





2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and





3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.





October 29, 2002


/s/  ROBERT K. MILLSRobert K. Mills Chief Financial
Officer




14