##### Table of Contents





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 MARCH 31, 2010

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 has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check One)



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.):    Yes   ̈    No  x

As of April 30, 2010, Knology, Inc. had 36,843,020 shares of common stock outstanding.









---

##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

QUARTER ENDED MARCH 31, 2010

INDEX



|        |  |                                                                                                              |  |     
|------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|        |  |                                                                                                              |  | PAGE
|PART I  |  | FINANCIAL INFORMATION                                                                                        |  |     
|ITEM 1  |  | FINANCIAL STATEMENTS                                                                                         |  |     
|        |  | Condensed Consolidated Balance Sheets as of December 31, 2009 and Unaudited as of March 31, 2010             |  | 3   
|        |  | Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 and 2010 |  | 4   
|        |  | Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2010 |  | 5   
|        |  | Notes to Unaudited Condensed Consolidated Financial Statements                                               |  | 6   
|        |  |                                                                                                             
|ITEM 2  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 12  
|        |  |                                                                                                             
|ITEM 3  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 18  
|        |  |                                                                                                             
|ITEM 4  |  | CONTROLS AND PROCEDURES                                                                                      |  | 19  
|        |  |                                                                                                             
|PART II |  | OTHER INFORMATION                                                                                            |  |     
|        |  |                                                                                                             
|ITEM 1  |  | LEGAL PROCEEDINGS                                                                                            |  | 20  
|        |  |                                                                                                             
|ITEM 1A |  | RISK FACTORS                                                                                                 |  | 20  
|        |  |                                                                                                             
|ITEM 2  |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                  |  | 20  
|        |  |                                                                                                             
|ITEM 3  |  | DEFAULTS UPON SENIOR SECURITIES                                                                              |  | 20  
|        |  |                                                                                                             
|ITEM 4  |  | (REMOVED AND RESERVED)                                                                                       |  | 20  
|        |  |                                                                                                             
|ITEM 5  |  | OTHER INFORMATION                                                                                            |  | 20  
|        |  |                                                                                                             
|ITEM 6  |  | EXHIBITS                                                                                                     |  | 21  
|        |  |                                                                                                             
|        |  | SIGNATURES                                                                                                   |  | 22  



2



---

##### Table of Contents

PART 1. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | -------- | - | ------------------------ | - | -------- | -
|                                                                                                                                                                                     |  | December 31,2009 |          |   | March 31,2010(Unaudited) |  
|                                                                                                                                                                                     |  |                 
|ASSETS                                                                                                                                                                               |  |                  |          |   |                          |   |          |  
|                                                                                                                                                                                     |  |                 
|CURRENT ASSETS:                                                                                                                                                                      |  |                  |          |   |                          |   |          |  
|Cash and cash equivalents                                                                                                                                                            |  | $                | 44,016   |   |                          | $ | 43,768   |  
|Restricted cash                                                                                                                                                                      |  |                  | 725      |   |                          |   | 725      |  
|Certificates of deposit and other short term investments                                                                                                                             |  |                  | 35,050   |   |                          |   | 35,023   |  
|Accounts receivable, net of allowance for doubtful accounts of $1,218 and $1,100 as of December 31, 2009 and March 31,
2010, respectively                                            |  |                  | 32,668   |   |                          |   | 32,715   |  
|Prepaid expenses and other                                                                                                                                                           |  |                  | 2,986    |   |                          |   | 4,675    |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total current assets                                                                                                                                                                 |  |                  | 115,445  |   |                          |   | 116,906  |  
|                                                                                                                                                                                     |  |                 
|PROPERTY, PLANT AND EQUIPMENT, NET                                                                                                                                                   |  |                  | 357,880  |   |                          |   | 353,091  |  
|                                                                                                                                                                                     |  |                 
|GOODWILL                                                                                                                                                                             |  |                  | 149,741  |   |                          |   | 149,741  |  
|                                                                                                                                                                                     |  |                 
|CUSTOMER BASE, NET                                                                                                                                                                   |  |                  | 8,661    |   |                          |   | 8,131    |  
|                                                                                                                                                                                     |  |                 
|DEFERRED DEBT ISSUANCE AND DEBT MODIFICATION COSTS, NET                                                                                                                              |  |                  | 7,544    |   |                          |   | 6,806    |  
|                                                                                                                                                                                     |  |                 
|INVESTMENTS                                                                                                                                                                          |  |                  | 3,683    |   |                          |   | 3,683    |  
|                                                                                                                                                                                     |  |                 
|OTHER INTANGIBLES AND OTHER ASSETS, NET                                                                                                                                              |  |                  | 3,947    |   |                          |   | 3,341    |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total assets                                                                                                                                                                         |  | $                | 646,901  |   |                          | $ | 641,699  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|                                                                                                                                                                                     |  |                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                 |  |                  |          |   |                          |   |          |  
|                                                                                                                                                                                     |  |                 
|CURRENT LIABILITIES:                                                                                                                                                                 |  |                  |          |   |                          |   |          |  
|Current portion of long term debt                                                                                                                                                    |  | $                | 9,841    |   |                          | $ | 9,777    |  
|Accounts payable                                                                                                                                                                     |  |                  | 25,768   |   |                          |   | 26,118   |  
|Accrued liabilities                                                                                                                                                                  |  |                  | 22,349   |   |                          |   | 22,979   |  
|Unearned revenue                                                                                                                                                                     |  |                  | 14,795   |   |                          |   | 15,970   |  
|Interest rate swaps                                                                                                                                                                  |  |                  | 16,526   |   |                          |   | 11,172   |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total current liabilities                                                                                                                                                            |  |                  | 89,279   |   |                          |   | 86,016   |  
|                                                                                                                                                                                     |  |                 
|NONCURRENT LIABILITIES:                                                                                                                                                              |  |                  |          |   |                          |   |          |  
|Long term debt, net of current portion                                                                                                                                               |  |                  | 591,514  |   |                          |   | 579,683  |  
|Interest rate swaps                                                                                                                                                                  |  |                  | 0        |   |                          |   | 4,324    |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total noncurrent liabilities                                                                                                                                                         |  |                  | 591,514  |   |                          |   | 584,007  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total liabilities                                                                                                                                                                    |  |                  | 680,793  |   |                          |   | 670,023  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                        |  |                  |          |   |                          |   |          |  
|                                                                                                                                                                                     |  |                 
|STOCKHOLDERS EQUITY:                                                                                                                                                                |  |                  |          |   |                          |   |          |  
|Preferred stock, $.01 par value per share; 199,000,000 shares authorized, none outstanding                                                                                           |  |                  | 0        |   |                          |   | 0        |  
|Non-voting common stock, $.01 par value per share; 25,000,000 shares authorized, none outstanding                                                                                    |  |                  | 0        |   |                          |   | 0        |  
|Common stock, $.01 par value per share; 200,000,000 shares authorized, 36,561,405 and 36,836,115 shares issued and outstanding at
December 31, 2009 and March 31, 2010, respectively |  |                  | 366      |   |                          |   | 368      |  
|Additional paid-in capital                                                                                                                                                           |  |                  | 602,508  |   |                          |   | 604,515  |  
|Accumulated other comprehensive loss                                                                                                                                                 |  |                  | (10,324  | ) |                          |   | (5,950   | )
|Accumulated deficit                                                                                                                                                                  |  |                  | (626,442 | ) |                          |   | (627,257 | )
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total stockholders deficit                                                                                                                                                          |  |                  | (33,892  | ) |                          |   | (28,324  | )
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total liabilities and stockholders equity                                                                                                                                           |  | $                | 646,901  |   |                          | $ | 641,699  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  

See notes to condensed consolidated financial statements.



3



---

##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



|                                                                       |  |                             |            |   |      |   |            |  
|---------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                       |  | Three Months EndedMarch 31, |           
|                                                                       |  | 2009                        |            |   | 2010 |  
|                                                                       |  |                            
|OPERATING REVENUES:                                                    |  |                             |            |   |      |   |            |  
|Video                                                                  |  | $                           | 45,604     |   |      | $ | 49,081     |  
|Voice                                                                  |  |                             | 32,710     |   |      |   | 32,309     |  
|Data                                                                   |  |                             | 24,472     |   |      |   | 25,669     |  
|Other                                                                  |  |                             | 1,897      |   |      |   | 3,059      |  
|                                                                       |  |                             |            |   |      |   |            |  
|Total operating revenues                                               |  |                             | 104,683    |   |      |   | 110,118    |  
|                                                                       |  |                             |            |   |      |   |            |  
|                                                                       |  |                            
|OPERATING EXPENSES:                                                    |  |                             |            |   |      |   |            |  
|Direct costs (excluding depreciation and amortization)                 |  |                             | 32,679     |   |      |   | 36,116     |  
|Selling, general and administrative                                    |  |                             | 38,346     |   |      |   | 37,852     |  
|Depreciation and amortization                                          |  |                             | 22,680     |   |      |   | 22,345     |  
|                                                                       |  |                             |            |   |      |   |            |  
|Total operating expenses                                               |  |                             | 93,705     |   |      |   | 96,313     |  
|                                                                       |  |                             |            |   |      |   |            |  
|OPERATING INCOME                                                       |  |                             | 10,978     |   |      |   | 13,805     |  
|                                                                       |  |                             |            |   |      |   |            |  
|OTHER INCOME (EXPENSE):                                                |  |                             |            |   |      |   |            |  
|Interest income                                                        |  |                             | 141        |   |      |   | 116        |  
|Interest expense                                                       |  |                             | (9,499     | ) |      |   | (11,488    | )
|Gain on interest rate swaps                                            |  |                             | 706        |   |      |   | 1,031      |  
|Amortization of deferred loss on interest rate swaps                   |  |                             | (4,698     | ) |      |   | (4,374     | )
|Other income, net                                                      |  |                             | 99         |   |      |   | 95         |  
|                                                                       |  |                             |            |   |      |   |            |  
|Total other expense                                                    |  |                             | (13,251    | ) |      |   | (14,620    | )
|                                                                       |  |                             |            |   |      |   |            |  
|                                                                       |  |                            
|NET LOSS                                                               |  | $                           | (2,273     | ) |      | $ | (815       | )
|                                                                       |  |                             |            |   |      |   |            |  
|                                                                       |  |                            
|BASIC AND DILUTED NET LOSS PER SHARE                                   |  | $                           | (0.06      | ) |      | $ | (0.02      | )
|                                                                       |  |                             |            |   |      |   |            |  
|                                                                       |  |                            
|BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |  |                             | 35,693,906 |   |      |   | 36,647,361 |  
|                                                                       |  |                             |            |   |      |   |            |  

See notes to condensed consolidated financial statements.



4



---

##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(DOLLARS IN THOUSANDS)



|                                                                                |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                |  | Three Months EndedMarch 31, |        
|                                                                                |  | 2009                        |         |   | 2010 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                             |         |   |      |   |         |  
|Net loss                                                                        |  | $                           | (2,273  | ) |      | $ | (815    | )
|                                                                                |  |                            
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Depreciation and amortization                                                   |  |                             | 22,680  |   |      |   | 22,345  |  
|Non-cash stock compensation                                                     |  |                             | 1,507   |   |      |   | 1,451   |  
|Non-cash bank loan interest expense                                             |  |                             | 677     |   |      |   | 738     |  
|Non-cash gain on interest rate swaps                                            |  |                             | (706    | ) |      |   | (1,031  | )
|Non-cash amortization of deferred loss on interest rate swaps                   |  |                             | 4,698   |   |      |   | 4,374   |  
|Provision for bad debt                                                          |  |                             | 1,224   |   |      |   | 1,212   |  
|Gain on disposition of assets                                                   |  |                             | (32     | ) |      |   | (30     | )
|Changes in operating assets and liabilities:                                    |  |                             |         |   |      |   |         |  
|Accounts receivable                                                             |  |                             | (218    | ) |      |   | (1,259  | )
|Prepaid expenses and other assets                                               |  |                             | (3,239  | ) |      |   | (854    | )
|Accounts payable                                                                |  |                             | 451     |   |      |   | 350     |  
|Accrued liabilities                                                             |  |                             | (1,729  | ) |      |   | 630     |  
|Unearned revenue                                                                |  |                             | 714     |   |      |   | 1,175   |  
|                                                                                |  |                             |         |   |      |   |         |  
|Total adjustments                                                               |  |                             | 26,027  |   |      |   | 29,101  |  
|                                                                                |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                             | 23,754  |   |      |   | 28,286  |  
|                                                                                |  |                             |         |   |      |   |         |  
|                                                                                |  |                            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                             |         |   |      |   |         |  
|Capital expenditures                                                            |  |                             | (14,598 | ) |      |   | (15,953 | )
|Maturities of certificates of deposit                                           |  |                             | 0       |   |      |   | 15,000  |  
|Investment in certificates of deposit and other short term investments          |  |                             | (20,155 | ) |      |   | (14,973 | )
|MDU signing bonuses and other intangible expenditures                           |  |                             | (290    | ) |      |   | (342    | )
|Proceeds from sale of property                                                  |  |                             | 65      |   |      |   | 33      |  
|Change in restricted cash                                                       |  |                             | 155     |   |      |   | 0       |  
|                                                                                |  |                             |         |   |      |   |         |  
|Net cash used in investing activities                                           |  |                             | (34,823 | ) |      |   | (16,235 | )
|                                                                                |  |                             |         |   |      |   |         |  
|                                                                                |  |                            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |                             |         |   |      |   |         |  
|Principal payments on debt and short-term borrowings                            |  |                             | (10,810 | ) |      |   | (12,857 | )
|Stock options exercised                                                         |  |                             | 10      |   |      |   | 558     |  
|                                                                                |  |                             |         |   |      |   |         |  
|Net cash used in financing activities                                           |  |                             | (10,800 | ) |      |   | (12,299 | )
|                                                                                |  |                             |         |   |      |   |         |  
|                                                                                |  |                            
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                       |  |                             | (21,869 | ) |      |   | (248    | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                  |  |                             | 57,362  |   |      |   | 44,016  |  
|                                                                                |  |                             |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      |  | $                           | 35,493  |   |      | $ | 43,768  |  
|                                                                                |  |                             |         |   |      |   |         |  
|                                                                                |  |                            
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                              |  |                             |         |   |      |   |         |  
|Cash paid during the periods for interest                                       |  | $                           | 13,099  |   |      | $ | 10,781  |  
|                                                                                |  |                             |         |   |      |   |         |  
|                                                                                |  |                            
|Non-cash financing activities:                                                  |  |                             |         |   |      |   |         |  
|Debt acquired in capital lease transactions                                     |  | $                           | 0       |   |      | $ | 962     |  
|                                                                                |  |                             |         |   |      |   |         |  

See notes to condensed consolidated financial statements.



5



---

##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2010

(UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1. ORGANIZATION AND NATURE OF BUSINESS

Knology, Inc. and its subsidiaries, 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 owns and operates an advanced interactive broadband network and provides
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
and Midwestern United States. Certain 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
subsidiaries are subject to regulation by the Federal Communications Commission.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of the Company include the accounts of the Company and all of its subsidiaries. The
information included in the condensed consolidated balance sheet at December 31, 2009 has been derived from audited financial statements. The unaudited interim condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted (GAAP) 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 GAAP for complete financial statements. In the opinion of management, all normally recurring 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, 2009. The Company operates as one operating segment.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING ESTIMATES

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, disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including those related to collectability of accounts receivable, valuation of investments, valuation of stock
based compensation, useful lives of property, plant and equipment, recoverability of goodwill and intangible assets, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. These changes in estimates are recognized in the period they are realized.

RECENTLY
ADOPTED ACCOUNTING STANDARDS

In February 2010, the Financial Accounting Standards Board (FASB) issued new accounting guidance
that amends and establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The new guidance is effective for interim and
annual financial periods ending after February 24, 2010. The adoption of this guidance did not have a material impact on the Companys results of operations or financial position.

In January 2010, the FASB issued new accounting guidance that improves fair value measurement disclosures by requiring new disclosures about transfers
into and out of levels of the fair value hierarchy. It also requires separate disclosures about purchases, sales, issuances, and settlements related to the fair value hierarchy. The new guidance is effective for interim and annual financial periods
beginning after December 15, 2009. The adoption of this guidance did not have a material impact on the Companys results of operations or financial position.



6



---

##### Table of Contents

In June 2009, the FASB issued new accounting guidance that improves financial reporting by enterprises
involved with variable interest entities. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2009. The adoption of this guidance did not have a material impact on the Companys
results of operations or financial position.

In June 2009, the FASB issued new accounting guidance that improves and defines the information
that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferors continuing involvement, if any, in
transferred financial assets. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2009. The adoption of this guidance did not have a material impact on the Companys results of
operations or financial position.

In April 2009, the FASB issued new accounting guidance related to disclosures about the fair values of
financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The new guidance also amends previous accounting literature to require those disclosures in summarized financial information
at interim reporting periods. This guidance is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of this guidance did not have a material
impact on the Companys results of operations or financial position.

In April 2009, the FASB issued new accounting guidance related to
estimating fair value in accordance with previous accounting literature when the volume and level of activity for the asset or liability have significantly decreased. The new guidance also relates to identifying circumstances that indicate if a
transaction is not orderly (i.e., a forced liquidation or distressed sale). This guidance is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15,
2009. The adoption of this guidance did not have a material impact on the Companys results of operations or financial position.

4.
CASH

Cash

Cash and cash
equivalents are highly liquid investments with a maturity of three months or less at the date of purchase and consist of time deposits and investment in money market accounts with commercial banks and financial institutions. At times throughout the
year and at quarter-end, cash balances held at financial institutions were in excess of federally insured limits.

Restricted Cash

Restricted cash is presented as a current asset since the associated maturity dates expire within one year of the balance sheet date. At
December 31, 2009 and March 31, 2010, the Company had $725 of cash that was restricted in use, all of which the Company has pledged as collateral related to certain insurance, franchise and surety bond agreements.

5. SHORT TERM INVESTMENTS

Certificates Of Deposit

Certificates of
deposit are short-term investments with original maturities of more than three months and up to twelve months.

Other Short Term
Investments

Other short term investments consist of U.S. Treasury Bills with original maturities of twelve months that are classified as
available for sale securities.

6. GOODWILL AND INTANGIBLE ASSETS

The Company performs a goodwill impairment test in accordance with the FASBs accounting guidance annually on January 1. There was no impairment
identified as a result of the January 1, 2010 impairment test, nor has there been any event in the three months ended March 31, 2010 that indicated a need for reassessment.

7. DERIVATIVE FINANCIAL INSTRUMENTS

On
April 18, 2007, the Company entered into an interest rate swap contract to mitigate interest rate risk on an initial notional amount of $555,000 in connection with the term loan associated with the acquisition of PrairieWave Holdings, Inc.
(PrairieWave). The swap agreement, which became effective May 3, 2007 and ends July 3, 2010, fixes $449,738 of the floating rate debt at 4.977% as of March 31, 2010.



7



---

##### Table of Contents

The notional amount for the remaining four months of the interest rate derivative instrument is summarized
below:



|                |  |               |  |         
|--------------- |  | ------------- |  | --------
|Start date      |  | End date      |  | Amount  
|January 3, 2010 |  | April 2, 2010 |  | $449,738
|April 3, 2010   |  | July 3, 2010  |  | $398,350

On December 19, 2007, the Company entered
into a second interest rate swap contract to mitigate interest rate risk on an initial notional amount of $59,000, amortizing 1% annually, in connection with the incremental term loan incurred in connection with the acquisition of Graceba Total
Communications Group, Inc. (Graceba). The swap agreement, which became effective January 4, 2008 and ends September 30, 2010, fixes $57,673 of the floating rate debt at 3.995% as of March 31, 2010.

The notional amount for the remaining six months of the interest rate derivative instrument is summarized below:



|               |  |                    |  |        
|-------------- |  | ------------------ |  | -------
|Start date     |  | End date           |  | Amount 
|March 31, 2010 |  | June 29, 2010      |  | $57,673
|June 30, 2010  |  | September 30, 2010 |  | $57,525

Knology has borrowings under term loans that bear
interest at variable rates (see Note 8  Debt). For the two term loans in existence as of December 31, 2008, the Company was able to choose interest rates on its debt at a base rate of 1-month, 2-month, 3-month or 6-month LIBOR.
Interest costs are calculated and paid for the corresponding period, followed by another rate reset period.

Until December 31, 2008, the
Company matched 3-month LIBOR rates on the term loans and the interest rate swaps, creating effective hedges under the FASBs guidance on accounting for derivative instruments and hedging activities. Due to a significant difference between the
1-month and 3-month LIBOR rates, the Company decided to reset the borrowing rate on the debt using 1-month LIBOR.



| |  |  | On December 31, 2008, the Company reset the borrowing rate on the $59,000 term loan to 1-month LIBOR (although this became an ineffective
hedge under the FASBs accounting guidance, there was no material effect on the Companys financial results for the one day in 2008).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On January 2, 2009, the Company reset the borrowing rate on the $555,000 term loan to 1-month LIBOR.
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | The Company will determine LIBOR rates on future reset dates based on prevailing conditions at the time.
| | - |  | --------------------------------------------------------------------------------------------------------

As a result of the LIBOR rates on the term loans (1-month LIBOR) not matching the LIBOR rate on the interest rate swaps (3-month LIBOR), the Company is
no longer eligible for hedge accounting related to the interest rate swaps associated with both of these loans.

Until the December 31,
2008 reset of the borrowing rate on the $59,000 term loan, changes in the fair value of the Companys swap agreements were recorded as Accumulated other comprehensive loss in the equity section of the balance sheet, and the swap in
variable to fixed interest rate was recorded as Interest expense on the statement of operations when the interest was incurred. Starting with the reset of the borrowing rate on December 31, 2008, changes in the fair value of the
interest rate swaps are recorded as Gain (loss) on interest rate swaps in the Other income (expense) section of the statement of operations as they are incurred. All of the remaining balance in Accumulated other
comprehensive loss in the stockholdersequity section of the balance sheet is related to the interest rate swaps, and it is amortized as Amortization of deferred loss on interest rate swaps on the statement of operations over
the remaining life of the derivative instruments. The Company recorded amortization expense related to the deferred loss on interest rate swaps in the amounts of $4,698 and $4,374 for the three months ended March 31, 2009 and 2010,
respectively. As of March 31, 2010, there is $5,950 remaining in accumulated other comprehensive loss to be amortized over the remaining life of the derivative instruments. If the Company chooses 3-month LIBOR on future loan reset dates to
match the rate on the interest rate swaps, then the interest rate swaps may again be eligible for hedge accounting and will be assessed for eligibility at that time.

On November 25, 2009, the Company entered into a third interest rate swap contract to mitigate interest rate risk on an initial notional amount of
$400,000. The swap agreement, which does not become effective until July 3, 2010 and ends April 3, 2012, will fix the scheduled notional amount of the floating rate debt at 1.98%. The interest rate swap is recorded at fair value on March
31, 2010, and the income statement reflects any changes in fair value for the period then ended.

The notional amount for the next annual
period is summarized below:



|                |  |                 |  |         
|--------------- |  | --------------- |  | --------
|Start date      |  | End date        |  | Amount  
|July 3, 2010    |  | October 2, 2010 |  | $400,000
|October 3, 2010 |  | January 2, 2011 |  | $398,800
|January 3, 2011 |  | April 2, 2011   |  | $382,600



8



---

##### Table of Contents

As with the other two interest rate swaps, this interest rate instrument is not designated as a hedge and
therefore does not utilize hedge accounting. Changes in the fair value of the swap agreement are recorded as Gain (loss) on interest rate swaps in the Other income (expense) section of the statement of operations and the swap
in variable to fixed interest rate is recorded as Interest expense on the statement of operations when the interest is incurred.

The Company recorded a gain on the change in the fair value of the interest rate swaps in the amount of $706 and $1,031 for the three months ended
March 31, 2009 and 2010, respectively.

8. DEBT

On March 14, 2007, the Company entered into an Amended and Restated Credit Agreement (the Credit Agreement) that provides for a $580,000
credit facility, consisting of a $555,000 term loan (the Initial Term Loan) and a $25,000 revolving credit facility. On April 3, 2007, the Company received proceeds of $555,000 to fund the $255,000 PrairieWave acquisition purchase
price, refinance the Companys existing first and second term loans, and pay transaction costs associated with the transactions. Prior to Amendment No. 2 discussed below, this term loan bears interest at LIBOR plus 2.25% and amortizes at a
rate of 1% per annum, payable quarterly, with a June 30, 2012 maturity date.

On January 4, 2008, the Company entered into a
First Amendment to the Credit Agreement which provides for a $59,000 incremental term loan (the First Amendment Incremental Term Loan) used to fund in part the $75,000 Graceba acquisition purchase price. Prior to Amendment No. 2
discussed below, this term loan bears interest at LIBOR plus 2.75% and amortizes at a rate of 1% per annum, payable quarterly, with a June 30, 2012 maturity date.

On September 28, 2009, the Company entered into Amendment No. 2 to the Credit Agreement (Amendment No. 2) which extends the
maturity date of an aggregate $399,000 of existing term loans under the Credit Agreement by two years (the Extended Term Loan). The Extended Term Loan bears interest at LIBOR plus 3.50% and amortizes at a rate of 1% per annum,
payable quarterly, with a June 30, 2014 maturity date. Amendment No. 2 also, among other modifications, increases the revolving credit facility to $35,000 from $25,000 and allows for an annual, cumulative restricted payment allowance
of $10,000 for dividends and/or share repurchases utilizing excess cash flow and subject to a maximum leverage test.

Long-term debt at
December 31, 2009 and March 31, 2010 consisted of the following:



|                                                                                                                                                                                                                                    |  |                  |         |               |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------- | - | -------
|                                                                                                                                                                                                                                    |  | December 31,2009 |         | March 31,2010
|Initial Term Loan, at a rate of LIBOR plus 2.25% (2.48% at March 31, 2010), with $1,584 annual principal amortization,
principal payable quarterly with final principal and any unpaid interest due June 30, 2012                   |  | $                | 160,586 |               | $ | 157,225
|                                                                                                                                                                                                                                    |  |                 
|First Amendment Incremental Term Loan, at a rate of LIBOR plus 2.75% (2.98% at March 31, 2010), with $324 annual principal
amortization, principal payable quarterly with final principal and any unpaid interest due June 30, 2012 |  |                  | 32,833  |               |   | 32,141 
|                                                                                                                                                                                                                                    |  |                 
|Extended Term Loan, at a rate of LIBOR plus 3.50% (3.75% at March 31, 2010), with $3,917 annual principal amortization,
principal payable quarterly with final principal and any unpaid interest due June 30, 2014                  |  |                  | 396,783 |               |   | 388,767
|                                                                                                                                                                                                                                    |  |                 
|Capitalized lease obligations, at rates between 3.9% and 12.3%, with monthly principal and interest payments through March 2014                                                                                                     |  |                  | 11,153  |               |   | 11,327 
|                                                                                                                                                                                                                                    |  |                  |         |               |   |        
|                                                                                                                                                                                                                                    |  |                 
|Total debt                                                                                                                                                                                                                          |  |                  | 601,355 |               |   | 589,460
|                                                                                                                                                                                                                                    |  |                 
|Less current portion of long term debt                                                                                                                                                                                              |  |                  | 9,841   |               |   | 9,777  
|                                                                                                                                                                                                                                    |  |                  |         |               |   |        
|                                                                                                                                                                                                                                    |  |                 
|Total long term debt, net of current portion                                                                                                                                                                                        |  | $                | 591,514 |               | $ | 579,683
|                                                                                                                                                                                                                                    |  |                  |         |               |   |        

The first lien and incremental term loans are guaranteed by all of the
Companys subsidiaries. The term loans are also secured by first liens on all of the Companys assets and the assets of its guarantor subsidiaries.

The Credit Agreement contains defined events of default. The Credit Agreement also contains defined representations and warranties and various
affirmative and negative covenants, including:



| |  |  | limitations on the incurrence of additional debt;
| | - |  | -------------------------------------------------



| |  |  | limitations on the incurrence of liens;
| | - |  | ---------------------------------------



9



---

##### Table of Contents

| |  |  | restrictions on investments;
| | - |  | ----------------------------



| |  |  | restrictions on the sale of assets;
| | - |  | -----------------------------------



| |  |  | restrictions on the payment of cash dividends on and the redemption or repurchase of capital stock;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | mandatory prepayment of amounts outstanding, as applicable, with excess cash flow, proceeds from asset sales, use of proceeds from the issuance of debt
obligations, proceeds from any equity offerings, and proceeds from casualty losses;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | restrictions on mergers and acquisitions, sale/leaseback transactions and fundamental changes in the nature of our business;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | limitations on capital expenditures; and
| | - |  | ----------------------------------------



| |  |  | maintenance of minimum ratios of debt to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)(as defined in the credit
agreements) and a minimum interest coverage ratio.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of March 31, 2010, the Company was in compliance with its debt
covenants.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted the required provisions of the FASBs accounting guidance pertaining to the valuation of financial instruments on January 1,
2008. This guidance defines fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB accounting guidance establishes a three-tier fair value of hierarchy, which prioritizes the
inputs used in measuring fair value as follows:



| |  |  | Level 1  Observable inputs such as quoted prices in active markets for identical assets or liabilities;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities,
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------

Assets and liabilities measured at fair value on a recurring basis are summarized below:



|                             |  |                |       |         |   |         |  |                                       |   |  |   |       
|---------------------------- |  | -------------- | ----- | ------- | - | ------- |  | ------------------------------------- | - |  | - | ------
|                             |  | March 31, 2010
|                             |  | Level 1        |       | Level 2 |   | Level 3 |  | TotalAssets/Liabilities,at Fair Value
|Assets                       |  |                |       |         |   |         |  |                                       |   |  |   |       
|Certificates of deposit      |  | $              | 0     |         | $ | 26,050  |  | $                                     | 0 |  | $ | 26,050
|Other short term investments |  |                | 8,973 |         |   | 0       |  |                                       | 0 |  |   | 8,973 
|                             |  |                |       |         |   |         |  |                                       |   |  |   |       
|Total Assets                 |  | $              | 8,973 |         | $ | 26,050  |  | $                                     | 0 |  | $ | 35,023
|                             |  |                |       |         |   |         |  |                                       |   |  |   |       
|                             |  |                |       |        
|Liabilities                  |  |                |       |         |   |         |  |                                       |   |  |   |       
|Interest rate swaps          |  | $              | 0     |         | $ | 15,496  |  | $                                     | 0 |  | $ | 15,496
|                             |  |                |       |         |   |         |  |                                       |   |  |   |       
|Total Liabilities            |  | $              | 0     |         | $ | 15,496  |  | $                                     | 0 |  | $ | 15,496
|                             |  |                |       |         |   |         |  |                                       |   |  |   |       

The Company used a discounted cash flow analysis applied to the LIBOR
forward yield cures to value the interest rate swaps on its balance sheet at March 31, 2010.

The carrying values of cash and cash
equivalents, certificates of deposit, accounts receivable, accounts payable and accrued liabilities are reasonable estimates of their fair values due to the short maturity of these financial instruments.

The amortized cost basis of the other short term investments (all U.S. Treasury bills) approximate their fair values as of March 31, 2010.
Therefore, no unrealized gain or loss was recorded in accumulated other comprehensive income for the three months ended March 31, 2010, as the amount was insignificant. There was also no other-than-temporary impairment for the three months
ended March 31, 2010.



10



---

##### Table of Contents

The estimated fair value of the Companys variable-rate debt is subject to the effects of interest rate
risk. On March 31, 2010, the estimated fair value of that debt, based on a dealer quote considering current market rates, approximated the carrying value of $578,133.

10. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

The Company is subject
to litigation in the normal course of its business. However, in the Companys opinion, there is no legal proceeding pending against it that 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.

UNUSED LETTERS OF CREDIT

The
Companys unused letters of credit for vendors and suppliers was $2,012 as of March 31, 2010, which reduces the funds available under the $35,000 five year senior secured revolving loan and letter of credit facility.

11. NONCASH COMPENSATION EXPENSE

The
Company utilizes the recognition provisions of the related FASB accounting guidance, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair
values as the options vest. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model. There have been no changes in the methodology for calculating the expense since the filing of the
Companys Annual Report on Form 10-K for the year ended December 31, 2009.

During the first quarter of 2010, the Company granted
employees options to purchase 345,017 shares of common stock with a market value of $3,858. These options vest equally over the next four years. The Company during the first quarter of 2010 also granted to certain officers 137,405 shares of
performance-based restricted common stock with a market value of $1,535. The shares vest equally on each of the three anniversaries following the grant date.

The Company recognized stock-based compensation of $1,507 and $1,451 for the three months ended March 31, 2009 and 2010, respectively.

12. INCOME TAXES

On January 1,
2007, the Company adopted the provisions of the appropriate FASB accounting guidance in accounting for uncertainty in income taxes. The guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return
should be recorded in the financial statements. Also, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based
on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate
settlement. The accounting literature also provides further guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. Since the date of adoption, the Company
has not recorded a liability for unrecognized tax benefits at any time.

The Company recognizes interest and penalties related to uncertain
tax positions in income tax expense (as applicable). As of March 31, 2010, the Company made no provisions for interest or penalties related to uncertain tax positions.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. For federal tax purposes, the
Companys 2006 through 2009 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. Generally, for state tax purposes, the Companys 2006 through 2009 tax years remain open for
examination by the tax authorities under a three year statute of limitations. Should the Company utilize any of its U.S. or state loss carryforwards, its carryforward losses, which date back to 1995, would be subject to examination.



11



---

##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The Managements Discussion and Analysis of Financial Condition and Results of Operations and other portions of this quarterly report
on Form 10-Q 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,



| |  |  | that we will not retain or grow our customer base:
| | - |  | --------------------------------------------------



| |  |  | that we will fail to be competitive with existing and new competitors:
| | - |  | ----------------------------------------------------------------------



| |  |  | that we will not adequately respond to technological developments that impact our industry and markets:
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | that needed financing will not be available to us if and as needed:
| | - |  | -------------------------------------------------------------------



| |  |  | that a significant change in the growth rate of the overall U.S. economy will occur such that there is a material impact on consumer and corporate
spending:
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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: and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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,
2009, and our other filings with the SEC.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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. Forward-looking statements relating to expectations about future results or events are based upon information
available to us as of todays date, and we do not assume any obligation to update any of these statements.

For
convenience in this quarterly report, Knology, we, us, and the Company refer to Knology, Inc. and our consolidated subsidiaries, taken as a whole.

Overview

We were formed
as a Delaware corporation in September 1998 and began trading publicly on the NASDAQ Global Market in December 2003. We are a fully integrated provider of video, voice, data and advanced communications services to residential and business customers
in ten markets in the Southeastern United States and two markets in the Midwestern United States. We provide a full suite of video, voice and data services in Dothan, Huntsville and Montgomery, Alabama; Panama City and portions of Pinellas County,
Florida; Augusta, Columbus and West Point, Georgia; Charleston, South Carolina; Knoxville, Tennessee; and Rapid City and Sioux Falls, South Dakota, as well as portions of Minnesota and Iowa. 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:



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



| |  |  | organic growth of connections through increased penetration of services to new marketable homes and our existing customer base, along with new service
offerings;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | acquisitions of other broadband companies.
| | - |  | ------------------------------------------

The following is a discussion of our consolidated financial condition and results of operations for the three months ended March 31,
2010, 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 Quarterly
Report on Form 10-Q.



12



---

##### Table of Contents

Acquisition and Expansion

In November 2009, we completed the $7.5 million acquisition of the assets of Private Cable Co., LLC (PCL Cable), which has
delivered small increases in key operating and financial metrics as well as being free cash flow accretive. The transaction was funded using $7.5 million from cash on hand.

We plan to spend approximately $17.9 million to expand our coverage in certain sections of our existing markets as well as build network
in a new franchise area.

Homes Passed and Connections

We report homes passed as the number of residential and business units, such as single family 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 purchase 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. The growth of new video connections has slowed over time relative to our other services as our video segment matures in our current markets. While the number of new video connections may grow at a declining rate, we
believe that new products and new technology, such as additional high-definition channels and video on demand, will continue to fuel growth. New voice and data connections are expected to increase as we continue our sales and marketing efforts
directed at selling customers our bundled service offerings and expand our coverage in certain existing markets plus build network in new franchise areas. Further, business customers primarily take voice and data services, with relatively smaller
amounts of video products. On the other hand, we believe some of our phone customers, especially customers who are only taking our voice product, are moving to alternative voice products (for example, mobile phones). As a result of these various
factors, we expect that data and voice will represent a higher percentage of our total connections in the future, and that our data connections will grow the fastest and voice connections will benefit from our growing commercial business.

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. See our consolidated financial statements and related notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2009, which contains accounting policies including
those that may involve a higher degree of judgment and complexity and other disclosures required by accounting principles generally accepted in the United States.

Revenues

Our operating
revenues are primarily derived from monthly charges for video, voice and data services and other services to residential and business customers. We provide these services over our network. Our products and services involve different types of charges
and in some cases different methods of accounting for recording revenues. Below is a description of our significant sources of revenue:



| |  |  | 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 and video-on-demand movies and events such as boxing matches and concerts that involve a charge for each viewing. Video revenues accounted for approximately 44.6% of our consolidated revenues for the three months ended
March 31, 2010, compared to 43.6% for the three months ended March 31, 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Voice revenues. Our voice revenues consist primarily of fixed monthly fees for local service and enhanced services, such as call waiting, voice
mail and measured and flat rate long-distance service. Voice revenues accounted for approximately 29.3% of our consolidated revenues for the three months ended March 31, 2010, compared to 31.2% for the three months ended March 31, 2009.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data revenues.Our data revenues consist primarily of fixed monthly fees for data service and rental of cable modems. Data revenues accounted
for approximately 23.3% of our consolidated revenues for the three months ended March 31, 2010, compared to 23.4% for the three months ended March 31, 2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



---

##### Table of Contents

| |  |  | Other revenues.Other revenues result principally from broadband carrier services. Other revenues accounted for approximately 2.8% of our
consolidated revenues for the three months ended March 31, 2010, compared to 1.8% for the three months ended March 31, 2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our ability to increase the number of our connections and, as a result, our revenues is directly affected by the level of competition we
face in each of our markets with respect to each of our service offerings:



| |  |  | In providing video services, we currently compete with AT&T, Bright House, CenturyTel, Charter, Comcast, Mediacom, MidCo, Qwest, Time Warner and
Verizon. We also compete with satellite television providers such as DirecTV and Echostar. Our other competitors include broadcast television stations and other satellite television companies. We expect in the future to face additional competition
from telephone companies providing video services within their service areas.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In providing local and long-distance telephone services, we compete with the incumbent local exchange carriers (ILECs) and various long-distance
providers in each of our markets. AT&T Inc., CenturyTel Inc., Qwest Communications and Verizon Communications Inc. are the incumbent local phone companies in our markets. They offer both local and long-distance services in our markets and are
particularly strong competitors. We also compete with providers of long-distance telephone services, such as AT&T, CenturyTel (which acquired Embarq Communications in 2009) and Verizon. We expect an increase in the deployment of voice over
internet protocol (VoIP) services and expect to continue to compete with Vonage Holding Company, cable competitors as they roll out VoIP and other providers.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In providing data services, we compete with ILECs that offer dial-up and DSL services, providers of satellite-based Internet access services, cable
television companies, providers of wireless high-speed data services, and providers of dial-up Internet service. Data services and Internet access 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

Costs and Expenses

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

Direct costs of services include:



| |  |  | Direct costs of video services. Direct costs of video services consist primarily of monthly fees to the National Cable Television Cooperative
and other programming providers. Programming costs are our largest single cost, and we expect this trend to continue. Programming costs as a percentage of video revenue were approximately 52.6% for the three months ended March 31, 2010,
compared to 53.0% for the three months ended March 31, 2009. We have entered into contracts with various entities to provide programming to be aired on our network. We pay a monthly fee for these 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, including retransmission costs we incur with traditional networks.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of voice services. Direct costs of voice services consist primarily of transport cost and network access fees. The direct cost of
voice services as a percentage of voice revenues was approximately 18.5% for the three months ended March 31, 2010 compared to 16.3% for the three months ended March 31, 2009
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of data services. Direct costs of data services consist primarily of transport costs and network access fees. The direct cost of
data services as a percentage of data revenue was approximately 7.9% for the three months ended March 31, 2010, compared to 6.4% for the three months ended March 31, 2009.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of other services. Direct costs of other services consist primarily of transport cost and network access fees. The direct cost of
other services as a percentage of other revenue was approximately 35.7% for the three months ended March 31, 2010, compared to 19.2% for the three months ended March 31, 2009. The increase is a result of our increase in broadband carrier
service revenue for the period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pole attachment and other network rental expenses. Pole attachment and other network rental expenses consist primarily of pole attachment rents
paid to utility companies for space on their utility poles to deliver our various services and network hub rents. Pole attachment and other network rental expenses as a percentage of total revenue was approximately 1.1% for the three months ended
March 31, 2010, compared to 1.2% for the three months ended March 31, 2009.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14



---

##### Table of Contents

We provide our services in competitive markets and we are not always able to pass along
significant price increases and maintain margins, especially for our video services. However, we expect higher-margin voice, data and other revenue to become larger percentages of our overall revenue, and the favorable product mix may potentially
offset pressures on gross profits within individual product lines.

Selling, general 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 design, 24 hours a day, seven days a week maintenance monitoring and plant maintenance activity.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Service and installation expenses. Service and installation expenses include payroll and departmental costs incurred for customer installation
and service technicians.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Customer service expenses. Customer service expenses include payroll and departmental costs incurred for customer service representatives and
customer service management, primarily at our centralized call centers.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 costs in excess of net assets and other intangible assets primarily related to 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 cost of services and operating expenses to increase as we add connections and grow our business.

Results of
Operations

Three months ended March 31, 2010 compared to three months ended March 31, 2009

The following table sets forth financial data as a percentage of operating revenues for the three months ended March 31, 2009 and
2010.



|                                                     |  |                             |   |  |      |  
|---------------------------------------------------- |  | --------------------------- | - |  | ---- | -
|                                                     |  | Three months endedMarch 31, |  
|                                                     |  | 2009                        |   |  | 2010 |  
|Operating revenues:                                  |  |                             |   |  |      |  
|Video                                                |  | 44                          | % |  | 45   | %
|Voice                                                |  | 31                          |   |  | 29   |  
|Data                                                 |  | 23                          |   |  | 23   |  
|Other                                                |  | 2                           |   |  | 3    |  
|                                                     |  |                             |   |  |      |  
|Total                                                |  | 100                         |   |  | 100  |  
|Operating expenses:                                  |  |                             |   |  |      |  
|Direct costs                                         |  | 31                          |   |  | 33   |  
|Selling, general and administrative                  |  | 37                          |   |  | 34   |  
|Depreciation and amortization                        |  | 22                          |   |  | 20   |  
|                                                     |  |                             |   |  |      |  
|Total                                                |  | 90                          |   |  | 87   |  
|                                                     |  |                             |   |  |      |  
|Operating income                                     |  | 10                          |   |  | 13   |  
|                                                     |  |                            
|Interest income                                      |  | 0                           |   |  | 0    |  
|Interest expense                                     |  | (9                          | ) |  | (10  | )
|Gain on interest rate swaps                          |  | 1                           |   |  | 1    |  
|Amortization of deferred loss on interest rate swaps |  | (5                          | ) |  | (4   | )
|Other income (expense), net                          |  | 0                           |   |  | 0    |  
|                                                     |  |                             |   |  |      |  
|Total other expense                                  |  | (13                         | ) |  | (13  | )
|                                                     |  |                             |   |  |      |  
|Net loss                                             |  | (2                          | ) |  | (1   | )
|                                                     |  |                             |   |  |      |  



15



---

##### Table of Contents

Revenues. Operating revenues increased 5.2% from $104.7 million for the three months
ended March 31, 2009, to $110.1 million for three months ended March 31, 2010. Operating revenues from video services increased 7.6% from $45.6 million for the three months ended March 31, 2009, to $49.1 million for the same period in
2010. Operating revenues from voice services decreased 1.2% from $32.7 million for the three months ended March 31, 2009, to $32.3 million for the same period in 2010. Operating revenues from data services increased 4.9% from $24.5 million for
the three months ended March 31, 2009, to $25.7 million for the same period in 2010. Operating revenues from other services increased 61.3% from $1.9 million for the three months ended March 31, 2009, to $3.1 million for the same period in
2010.

The increased revenues are due primarily to an increase in the number of connections, from 685,150 as of March 31,
2009, to 703,663 as of March 31, 2010 and rate increases effective in the first quarter 2009 and first quarter of 2010. The additional connections resulted primarily from:



| |  |  | continued growth in our bundled customers;
| | - |  | ------------------------------------------



| |  |  | continued strong growth in business sales; and
| | - |  | ----------------------------------------------



| |  |  | continued penetration in our mature markets.
| | - |  | --------------------------------------------

The decreased voice services revenues are due primarily to a decrease in features revenue as a result of customers choosing service plans
offering discounted features such as voice mail, call waiting, and call forwarding.

Direct Costs. Direct costs
increased 10.5% from $32.7 million for the three months ended March 31, 2009, to $36.1 million for the three months ended March 31, 2010. Direct costs of video services increased 6.7% from $24.2 million for the three months ended
March 31, 2009, to $25.8 million for the same period in 2010. Direct costs of voice services increased 12.4% from $5.3 million for the three months ended March 31, 2009 to $6.0 million for the same period in 2010. Direct costs of data
services increased 28.6% from $1.6 million for the three months ended March 31, 2009, to $2.0 million for the same period in 2010 due to the addition of data circuits and capacity to handle the increasing volume of data usage. Direct costs of
other services increased 199.5% from $365,000 for the three months ended March 31, 2009, to $1.1 million for the same period in 2010. Pole attachment and other network rental expenses remained relatively unchanged at $1.2 million for the three
months ended March 31, 2009 and 2010. We expect our cost of services to increase as we add more connections. The increase in direct costs of video services are primarily due to programming costs increases, which 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. Further, local commercial television broadcast stations are charging retransmission fees
similar to fees charged by other program providers. We expect the trend of annual increases to continue and we may not be able to pass these higher costs on to customers because of competitive factors, which could adversely affect our cash flow and
gross profit. We expect increases in voice, data and other direct costs of services with the additions of leased facilities used to backhaul our traffic to our switching facilities as connections and data capacity requirements increase.

Selling, general and administrative expenses. Our selling, general and administrative expenses decreased 1.3% from
$38.3 million for the three months ended March 31, 2009, to $37.9 million for the three months ended March 31, 2010. The decrease in these operating costs consists mainly of decreases in marketing, compensation, taxes and licenses,
and installation expense. These decreases were partially offset by increases in insurance expenses, rents, repairs and maintenance, and fuel cost. Our non-cash stock compensation expense remained relatively unchanged at $1.5 million for the three
months ended March 31, 2009 and 2010.

Depreciation and amortization. Our depreciation and amortization decreased
1.5% from $22.7 million for the three months ended March 31, 2009, to $22.3 million for the three months ended March 31, 2010 primarily due to the maturing asset base and lack of substantial build out spending during recent
years.

Interest expense.Interest expense increased from $9.5 million for the three months ended March 31,
2009, to $11.5 million for the three months ended March 31, 2010. The increase in interest expense is primarily a result of the increase in interest rates on our term loans. In addition, we recorded $4.7 million and $4.4 million in amortization
of deferred loss associated with interest rate swaps for the three months ended March 31, 2009 and 2010, respectively. A gain of $706,000 and $1.0 million was recorded on the value of the interest rate swaps for the three months ended
March 31, 2009 and 2010, respectively.

Net loss.We incurred net losses of $2.3 million and $815,000 for the
three months ended March 31, 2009, and 2010, respectively. We expect net income to occur more frequently as our business matures.



16



---

##### Table of Contents

Liquidity and Capital Resources

Overview

As of
March 31, 2010, we had approximately $79.5 million of cash, cash equivalents, restricted cash and certificates of deposit on our balance sheet. Our net working capital on March 31, 2010 and December 31, 2009 was $26.2 million and
$30.9 million, respectively.

On March 14, 2007, the Company entered into the Credit Agreement, which provides for a
$580.0 million credit facility, consisting of a $555.0 million term loan and a $25.0 million revolving credit facility. On April 3, 2007, the Company received the proceeds of the term loan to fund the PrairieWave acquisition purchase price,
refinance the Companys first and second lien credit agreements, and pay transaction costs associated with the transactions. Prior to Amendment No. 2 discussed below, the $555.0 million term loan bears interest at LIBOR plus 2.25% and
amortizes at a rate of 1.0% per annum, payable quarterly, with a June 30, 2012 maturity date. As of March 31, 2010, $157.2 million is outstanding under the term loan (with an additional $388.8 million outstanding under the extended
term loan discussed below), and $2.0 million is outstanding under the revolving credit facility as unused letter of credits. On May 3, 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a notional
amount of $555.0 million amortizing at a rate of 1.0% annually. The swap agreement, which became effective May 3, 2007 and ends July 3, 2010, fixes $449.7 million of the floating rate debt at 4.977% as of March 31, 2010.

On January 4, 2008, the Company entered into a First Amendment to the Credit Agreement which provides for a $59.0 million
incremental term loan. The proceeds of the term loan were used to fund in part the $75.0 million Graceba acquisition purchase price. The term loan bears interest at LIBOR plus 2.75% and amortizes at a rate of 1.0% per annum, payable quarterly,
with a June 30, 2012 maturity date. As of March 31, 2010, $32.1 million is outstanding under the incremental loan. In December 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a notional
amount of $59.0 million. The swap agreement, which became effective January 4, 2008, fixes 100% of the floating rate debt at 3.995% until September 30, 2010.

On September 28, 2009, the Company entered into Amendment No. 2 which extends the maturity date of an aggregate $397 million of
term loans under the Credit Agreement by two years. The extended term loan bears interest at LIBOR plus 3.50% and amortizes at a rate of 1% per annum, payable quarterly, with a June 30, 2014 maturity date. Amendment No. 2 also, among
other modifications, increases the revolving credit facility to $35.0 million from $25.0 million and allows for an annual, cumulative restricted payment allowance of $10 million for dividends and/or share repurchases utilizing excess cash flow and
subject to a maximum leverage test. As of March 31, 2010, $388.8 million is outstanding under the extended term loan. On November 25, 2009, the Company entered into a third interest rate swap contract to mitigate interest rate risk on an
initial notional amount of $400 million. The swap agreement, which does not become effective until July 3, 2010 and ends April 3, 2012, will fix the scheduled notional amount of the floating rate debt at 1.98%.

The Credit Agreement is guaranteed by substantially all of the Companys subsidiaries and secured by a first-priority lien and
security interest in substantially all of the Companys assets and the assets of its subsidiaries. The Credit Agreement contains customary representations, warranties, various affirmative and negative covenants and customary events of default.
As of March 31, 2010, we are in compliance with all of our debt covenants.

We believe there is adequate liquidity from
cash on hand, cash provided from operations and funds available under our $35.0 million revolving credit facility to meet our capital spending requirements and to execute our current business plan.

Operating, Investing and Financing Activities

Net cash provided by operating activities totaled $23.8 million and $28.3 million for the three months ended March 31, 2009 and 2010,
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 compensation;
| | - |  | ----------------------------



| |  |  | non-cash bank loan interest expense;
| | - |  | ------------------------------------



| |  |  | non-cash gain on interest rate swaps;
| | - |  | -------------------------------------



| |  |  | non-cash amortization of deferred loss on interest rate swaps;
| | - |  | --------------------------------------------------------------



| |  |  | provision for bad debt; and
| | - |  | ---------------------------



17



---

##### Table of Contents

| |  |  | loss (gain) on disposition of assets.
| | - |  | -------------------------------------

Net cash used by our investing activities was $34.8 million and $16.2 million for the three months ended March 31, 2009 and 2010,
respectively. Our investing activities for the three months ended March 31, 2009 consisted primarily of $20.2 million for the purchase of certificates of deposit and $14.6 million of capital expenditures. Investing activities for the three
months ended March 31, 2010 consisted primarily of $16.0 million of capital expenditures, $15.0 million for the purchase of certificates of deposit and other short term investments, and $342,000 in payments of MDU signing bonuses offset by
$15.0 million proceeds from certificates of deposit.

Net cash used by our financing activities was $10.8 million and $12.3
million for the three months ended March 31, 2009 and 2010, respectively. Financing activities for the three months ended March 31, 2009, consisted of $10.8 million in principal payments on debt offset by proceeds of $10,000 from the
exercise of stock options. For the three months ended March 31, 2010, financing activities consisted of $12.9 million in principal payments on debt offset by proceeds of $558,000 from the exercise of stock options.

Capital Expenditures

We
spent approximately $16.3 million in capitalized expenditures during the three months ended March 31, 2010, of which $9.1 million related to the purchase and installation of customer premise equipment and enhancements, $5.5 million related
to network equipment, billing and information systems and other capital items and $1.7 million related to plant extensions.

We expect to spend approximately $71 million in capital expenditures during 2010. We believe we will have sufficient cash on hand and
cash from internally generated cash flow to cover our planned operating expenses and capital expenditures and to service our debt during 2010. Our existing indebtedness limits the amount of our capital expenditures on an annual basis.

Recent Accounting Pronouncements

See the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the
Notes to our Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2009.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We use interest rate swap and interest rate cap contracts to manage the impact of interest rate changes on earnings and operating cash
flows. Interest rate swaps involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. Interest rate caps involve the receipt of variable-rate
amounts beyond a specified strike price over the life of the agreements without exchange of the underlying principal amount. We believe that these agreements are with counterparties who are creditworthy financial institutions.

On April 18, 2007, we entered into an interest rate swap contract to mitigate interest rate risk on an initial notional amount of
$555 million in connection with the first lien term loan associated with the acquisition of PrairieWave. The swap agreement, which became effective May 3, 2007 and ends July 3, 2010, fixes $449.7 million at 4.977% as of March 31,
2010.

The hedge notional amount for the next four months is summarized below:



|                |  |               |  |               
|--------------- |  | ------------- |  | --------------
|Start date      |  | End date      |  | Amount        
|January 3, 2010 |  | April 2, 2010 |  | $449.7 million
|April 3, 2010   |  | July 3, 2010  |  | $398.4 million



18



---

##### Table of Contents

On December 19, 2007, the Company entered into a second interest rate swap contract to
mitigate interest rate risk on an initial notional amount of $59 million, amortizing 1% annually, in connection with the incremental term loan associated with the acquisition of Graceba. The swap agreement, which became effective January 4,
2008 and ends September 30, 2010, fixes $57.7 million of the floating rate debt at 3.995% as of March 31, 2010.

The
notional amount for the next six months is summarized below:



|               |  |                    |  |              
|-------------- |  | ------------------ |  | -------------
|Start date     |  | End date           |  | Amount       
|March 31, 2010 |  | June 29, 2010      |  | $57.7 million
|June 30, 2010  |  | September 30, 2010 |  | $57.5 million

On November 25, 2009,
the Company entered into a third interest rate swap contract to mitigate interest rate risk on an initial notional amount of $400 million. The swap agreement, which does not become effective until July 3, 2010 and ends April 3, 2012, will
fix the scheduled notional amount of the floating rate debt at 1.98%.

The notional amount for the next annual period is
summarized below:



|                |  |                 |  |               
|--------------- |  | --------------- |  | --------------
|Start date      |  | End date        |  | Amount        
|July 3, 2010    |  | October 2, 2010 |  | $400.0 million
|October 3, 2010 |  | January 2, 2011 |  | $398.8 million
|January 3, 2011 |  | April 2, 2011   |  | $382.6 million

Until the
December 31, 2008 reset of the borrowing rate on the $59 million term loan, changes in the fair value of the Companys swap agreements were recorded as Accumulated other comprehensive loss in the equity section of the balance
sheet, and the swap in variable to fixed interest rate was recorded as Interest expense on the statement of operations when the interest was incurred. Starting with the reset of the borrowing rate on December 31, 2008, changes in
the fair value of the interest rate swaps are recorded as Gain (loss) on interest rate derivative instruments in the Other income (expense) section of the statement of operations as they are incurred. All of the remaining
balance in Accumulated other comprehensive loss in the stockholders equity section of the balance sheet is related to the interest rate swaps, and it is amortized as Amortization of deferred loss on interest rate swaps
on the statement of operations over the remaining life of the derivative instruments. The Company recorded amortization expense related to the deferred loss on interest rate swaps in the amount of $4.7 million and $4.4 million for the three months
ended March 31, 2009 and 2010, respectively. As of March 31, 2010, there is $6.0 million remaining in accumulated other comprehensive loss to be amortized over the remaining life of the derivative instruments.

The Company recorded a gain on the change in the fair value of the interest rate swaps in the amount of $706,000 and $1.0 million for the
three months ended March 31, 2009 and 2010, respectively.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and Procedures.The Companys management, with the participation of the Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of
March 31, 2010. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2010, the Companys disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting.There have been no changes in our internal control over financial reporting
that occurred during the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



19



---

##### Table of Contents

PART II. OTHER INFORMATION



|ITEM 1. | Legal Proceedings
|------- | -----------------

We are
subject to 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.

We have been named as a defendant in a lawsuit captioned Maynard v. Knology, Inc. filed in the United States District Court for the
Middle District of Georgia. The complaint was filed on February 2, 2010 as a putative class action. The case arose out of an online advertising trial of a system designed by a third-party advertising company, NebuAd Inc., for delivery of
advertising to computer users while they are navigating the Internet. The complaint, which was filed on behalf of Knology customers using the Internet during the trial period, alleges that electronic communications were intercepted and used in
violation of the federal and state privacy statutes and seeks statutory damages for such alleged violations. The action was initially filed in California against Knology and other defendants where it was dismissed for lack of jurisdiction.
Counsel for the plaintiff has filed new complaints against the same defendants but they filed separate complaints against each company trialing NebuAds system. Knology filed its Motion to Dismiss on March 26, 2010 and intends to
vigorously defend the case. Given that this litigation is still in its initial stages, it is premature to estimate the impact this lawsuit could have to our results of operation, financial condition or cash flows.



|ITEM 1A. | Risk Factors
|-------- | ------------

In addition
to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q are not the only risks that we face.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.



|ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|ITEM 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|ITEM 4. | (Removed and Reserved)
|------- | ----------------------



|ITEM 5. | Other Information
|------- | -----------------

On
May 5, 2010, we held our annual meeting of stockholders. At the meeting, our stockholders:



| |  |  | re-elected Mr. Donald W. Burton (with 29,826,455 shares voting in favor, 207,423 shares withholding authority and 3,040,454 broker
non-votes), and Mr. William H. Scott, III (with 28,893,115 shares voting in favor, 1,140,763 shares withholding authority and 3,040,454 broker non-votes) to our Board of Directors, to serve until the 2013 annual meeting of stockholders and
until their respective successors are duly elected and qualified; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | approved the ratification of the appointment of BDO Seidman, LLP as our independent registered public accounting firm for the fiscal year ending
December 31, 2010 (with 32,984,647 shares voted in favor, 48,088 shares voting against and 41,597 shares abstaining).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



---

##### 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            |  | Certificate of Designations of Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of Series X Junior Participating Preferred Stock of Knology, Inc.
(Incorporated herein by reference to Exhibit 3.1 to Knology, Inc.s Current Report on Form 8-K filed July 29, 2005).
|               | 
|3.3            |  | 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)).                                                                                                                                           
|               | 
|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.                                                                                                                                                                                                        



21



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
|            |  |              
|May 7, 2010 |  | By:           |  | /s/ Rodger L. Johnson                
|            |  |               |  | Rodger L. Johnson                    
|            |  |               |  | Chairman and Chief Executive Officer 
|            |  |              
|May 7, 2010 |  | By:           |  | /s/ M. Todd Holt                     
|            |  |               |  | M. Todd Holt                         
|            |  |               |  | President and Chief Financial Officer



22