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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009

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, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One)



|                        |  |                                                |  |                           |  |  
|----------------------- |  | ---------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                              |  | Accelerated filer         |  | x
|                        |  |                                                | 
|Non-accelerated Filer   |  |  ̈  (Do not check if 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 July 31, 2009, Knology, Inc. had 36,031,687 shares of common stock outstanding.











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KNOLOGY, INC. AND SUBSIDIARIES

QUARTER ENDED JUNE 30, 2009

INDEX



|        |  |                                                                                                                     |  |     
|------- |  | ------------------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                                     |  | PAGE
|PART I  |  | FINANCIAL INFORMATION                                                                                               |  |     
|ITEM 1  |  | FINANCIAL STATEMENTS                                                                                                |  |     
|        |  | Condensed Consolidated Balance Sheets as of December 31, 2008 and Unaudited as of June 30, 2009                     |  | 3   
|        |  | Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2009 |  | 4   
|        |  | Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2009           |  | 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                                                          |  | 20  
|        |  |                                                                                                                    
|ITEM 4  |  | CONTROLS AND PROCEDURES                                                                                             |  | 20  
|        |  |                                                                                                                    
|PART II |  | OTHER INFORMATION                                                                                                   |  |     
|        |  |                                                                                                                    
|ITEM 1  |  | LEGAL PROCEEDINGS                                                                                                   |  | 21  
|        |  |                                                                                                                    
|ITEM 1A |  | RISK FACTORS                                                                                                        |  | 21  
|        |  |                                                                                                                    
|ITEM 2  |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                         |  | 21  
|        |  |                                                                                                                    
|ITEM 3  |  | DEFAULTS UPON SENIOR SECURITIES                                                                                     |  | 21  
|        |  |                                                                                                                    
|ITEM 4  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                 |  | 21  
|        |  |                                                                                                                    
|ITEM 5  |  | OTHER INFORMATION                                                                                                   |  | 21  
|        |  |                                                                                                                    
|ITEM 6  |  | EXHIBITS                                                                                                            |  | 22  
|        |  |                                                                                                                    
|        |  | SIGNATURES                                                                                                          |  | 23  



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PART 1. FINANCIAL INFORMATION



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

KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)



|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ----------------------- | - | -------- | -
|                                                                                                                                                                                    |  | December 31,2008 |          |   | June 30,2009(Unaudited) |  
|ASSETS                                                                                                                                                                              |  |                  |          |   |                         |   |          |  
|CURRENT ASSETS:                                                                                                                                                                     |  |                  |          |   |                         |   |          |  
|Cash and cash equivalents                                                                                                                                                           |  | $                | 57,362   |   |                         | $ | 33,050   |  
|Restricted cash                                                                                                                                                                     |  |                  | 680      |   |                         |   | 525      |  
|Certificates of deposit                                                                                                                                                             |  |                  | 0        |   |                         |   | 35,050   |  
|Accounts receivable, net of allowance for doubtful accounts of $1,014 and $1,163 as of December 31, 2008 and June 30, 2009,
respectively                                            |  |                  | 32,641   |   |                         |   | 31,933   |  
|Prepaid expenses and other                                                                                                                                                          |  |                  | 2,177    |   |                         |   | 4,204    |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total current assets                                                                                                                                                                |  |                  | 92,860   |   |                         |   | 104,762  |  
|PROPERTY, PLANT AND EQUIPMENT, NET                                                                                                                                                  |  |                  | 379,710  |   |                         |   | 364,833  |  
|                                                                                                                                                                                    |  |                 
|GOODWILL                                                                                                                                                                            |  |                  | 146,618  |   |                         |   | 146,618  |  
|                                                                                                                                                                                    |  |                 
|CUSTOMER BASE                                                                                                                                                                       |  |                  | 10,684   |   |                         |   | 9,624    |  
|                                                                                                                                                                                    |  |                 
|DEFERRED DEBT ISSUANCE COSTS, NET                                                                                                                                                   |  |                  | 8,461    |   |                         |   | 7,118    |  
|                                                                                                                                                                                    |  |                 
|INVESTMENTS                                                                                                                                                                         |  |                  | 2,536    |   |                         |   | 2,536    |  
|                                                                                                                                                                                    |  |                 
|OTHER INTANGIBLES AND OTHER ASSETS, NET                                                                                                                                             |  |                  | 2,549    |   |                         |   | 3,688    |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total assets                                                                                                                                                                        |  | $                | 643,418  |   |                         | $ | 639,179  |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|                                                                                                                                                                                    |  |                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                |  |                  |          |   |                         |   |          |  
|                                                                                                                                                                                    |  |                 
|CURRENT LIABILITIES:                                                                                                                                                                |  |                  |          |   |                         |   |          |  
|Current portion of long term debt                                                                                                                                                   |  | $                | 7,615    |   |                         | $ | 7,704    |  
|Accounts payable                                                                                                                                                                    |  |                  | 24,876   |   |                         |   | 26,019   |  
|Accrued liabilities                                                                                                                                                                 |  |                  | 20,405   |   |                         |   | 19,955   |  
|Unearned revenue                                                                                                                                                                    |  |                  | 14,289   |   |                         |   | 13,866   |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total current liabilities                                                                                                                                                           |  |                  | 67,185   |   |                         |   | 67,544   |  
|                                                                                                                                                                                    |  |                 
|NONCURRENT LIABILITIES:                                                                                                                                                             |  |                  |          |   |                         |   |          |  
|Long term debt, net of current portion                                                                                                                                              |  |                  | 604,068  |   |                         |   | 591,552  |  
|Interest rate swaps                                                                                                                                                                 |  |                  | 28,622   |   |                         |   | 24,874   |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total noncurrent liabilities                                                                                                                                                        |  |                  | 632,690  |   |                         |   | 616,426  |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total liabilities                                                                                                                                                                   |  |                  | 699,875  |   |                         |   | 683,970  |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|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, 35,663,297 and 36,021,176 shares issued and outstanding at
December 31, 2008 and June 30, 2009, respectively |  |                  | 357      |   |                         |   | 360      |  
|Additional paid-in capital                                                                                                                                                          |  |                  | 594,843  |   |                         |   | 598,133  |  
|Accumulated other comprehensive loss                                                                                                                                                |  |                  | (28,622  | ) |                         |   | (19,309  | )
|Accumulated deficit                                                                                                                                                                 |  |                  | (623,035 | ) |                         |   | (623,975 | )
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total stockholders deficit                                                                                                                                                         |  |                  | (56,457  | ) |                         |   | (44,791  | )
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  
|Total liabilities and stockholders equity                                                                                                                                          |  | $                | 643,418  |   |                         | $ | 639,179  |  
|                                                                                                                                                                                    |  |                  |          |   |                         |   |          |  

See notes to condensed consolidated financial statements.



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KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------ |  | -------------------------- | ---------- | - | ------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                             |  | Three Months EndedJune 30, |            |   | Six Months EndedJune 30, |  
|                                                             |  | 2008                       |            |   | 2009                     |   |            | 2008 |  |   | 2009       |  
|OPERATING REVENUES:                                          |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Video                                                        |  | $                          | 42,971     |   |                          | $ | 46,156     |      |  | $ | 85,334     |   |  | $ | 91,761     |  
|Voice                                                        |  |                            | 34,529     |   |                          |   | 33,834     |      |  |   | 69,251     |   |  |   | 66,544     |  
|Data                                                         |  |                            | 23,181     |   |                          |   | 24,645     |      |  |   | 45,824     |   |  |   | 49,116     |  
|Other                                                        |  |                            | 1,441      |   |                          |   | 3,296      |      |  |   | 3,049      |   |  |   | 5,193      |  
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Total operating revenues                                     |  |                            | 102,122    |   |                          |   | 107,931    |      |  |   | 203,458    |   |  |   | 212,614    |  
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|OPERATING EXPENSES:                                          |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Direct costs (excluding depreciation and amortization)       |  |                            | 30,671     |   |                          |   | 34,086     |      |  |   | 62,041     |   |  |   | 66,765     |  
|Selling, general and administrative expenses                 |  |                            | 40,086     |   |                          |   | 38,726     |      |  |   | 77,769     |   |  |   | 77,072     |  
|Depreciation and amortization                                |  |                            | 23,798     |   |                          |   | 22,880     |      |  |   | 47,660     |   |  |   | 45,560     |  
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                                     |  |                            | 94,555     |   |                          |   | 95,692     |      |  |   | 187,470    |   |  |   | 189,397    |  
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|OPERATING INCOME                                             |  |                            | 7,567      |   |                          |   | 12,239     |      |  |   | 15,988     |   |  |   | 23,217     |  
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|OTHER INCOME (EXPENSE):                                      |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Interest income                                              |  |                            | 163        |   |                          |   | 157        |      |  |   | 394        |   |  |   | 297        |  
|Interest expense                                             |  |                            | (11,747    | ) |                          |   | (9,749     | )    |  |   | (23,666    | ) |  |   | (19,248    | )
|Gain on interest rate swaps                                  |  |                            | 0          |   |                          |   | 3,042      |      |  |   | 0          |   |  |   | 3,748      |  
|Amortization of deferred loss on interest rate swaps         |  |                            | 0          |   |                          |   | (4,615     | )    |  |   | 0          |   |  |   | (9,313     | )
|Other income, net                                            |  |                            | 13         |   |                          |   | 260        |      |  |   | 86         |   |  |   | 359        |  
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Total other expense                                          |  |                            | (11,571    | ) |                          |   | (10,905    | )    |  |   | (23,186    | ) |  |   | (24,157    | )
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|                                                             |  |                            |            |  
|NET INCOME (LOSS)                                            |  | $                          | (4,004     | ) |                          | $ | 1,334      |      |  | $ | (7,198     | ) |  | $ | (940       | )
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|                                                             |  |                            |            |  
|BASIC NET INCOME (LOSS) PER SHARE                            |  | $                          | (0.11      | ) |                          | $ | 0.04       |      |  | $ | (0.20      | ) |  | $ | (0.03      | )
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|DILUTED NET INCOME (LOSS) PER SHARE                          |  | $                          | (0.11      | ) |                          | $ | 0.04       |      |  | $ | (0.20      | ) |  | $ | (0.03      | )
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   |  |                            | 35,516,901 |   |                          |   | 35,883,285 |      |  |   | 35,473,510 |   |  |   | 35,842,375 |  
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |  |                            | 35,516,901 |   |                          |   | 36,968,177 |      |  |   | 35,473,510 |   |  |   | 35,842,375 |  
|                                                             |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  

See notes to condensed consolidated financial statements.



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KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(DOLLARS IN THOUSANDS)



|                                                                                |  |                          |          |   |      |   |         |  
|------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | ------- | -
|                                                                                |  | Six Months EndedJune 30, |         
|                                                                                |  | 2008                     |          |   | 2009 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                          |          |   |      |   |         |  
|Net loss                                                                        |  | $                        | (7,198   | ) |      | $ | (940    | )
|                                                                                |  |                         
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                          |          |   |      |   |         |  
|Depreciation and amortization                                                   |  |                          | 47,660   |   |      |   | 45,560  |  
|Non-cash stock compensation                                                     |  |                          | 1,836    |   |      |   | 3,052   |  
|Non-cash bank loan interest expense                                             |  |                          | 1,442    |   |      |   | 1,343   |  
|Non-cash gain on interest rate swaps                                            |  |                          | 0        |   |      |   | (3,748  | )
|Non-cash amortization of deferred loss on interest rate swaps                   |  |                          | 0        |   |      |   | 9,313   |  
|Provision for bad debt                                                          |  |                          | 2,334    |   |      |   | 2,411   |  
|Gain on disposition of assets                                                   |  |                          | (73      | ) |      |   | (65     | )
|Changes in operating assets and liabilities:                                    |  |                          |          |   |      |   |         |  
|Accounts receivable                                                             |  |                          | (1,986   | ) |      |   | (1,705  | )
|Prepaid expenses and other assets                                               |  |                          | (1,967   | ) |      |   | (2,938  | )
|Accounts payable                                                                |  |                          | (2,406   | ) |      |   | 1,143   |  
|Accrued liabilities                                                             |  |                          | (2,673   | ) |      |   | (450    | )
|Unearned revenue                                                                |  |                          | (154     | ) |      |   | (423    | )
|                                                                                |  |                          |          |   |      |   |         |  
|Total adjustments                                                               |  |                          | 44,013   |   |      |   | 53,493  |  
|                                                                                |  |                          |          |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                          | 36,815   |   |      |   | 52,553  |  
|                                                                                |  |                          |          |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                          |          |   |      |   |         |  
|Capital expenditures                                                            |  |                          | (27,361  | ) |      |   | (29,138 | )
|Acquisition of businesses, net of cash acquired                                 |  |                          | (75,145  | ) |      |   | 0       |  
|Investment in certificates of deposit                                           |  |                          | 0        |   |      |   | (35,050 | )
|MDU signing bonuses and other intangible expenditures                           |  |                          | (741     | ) |      |   | (422    | )
|Proceeds from sale of property                                                  |  |                          | 161      |   |      |   | 117     |  
|Change in restricted cash                                                       |  |                          | (325     | ) |      |   | 155     |  
|                                                                                |  |                          |          |   |      |   |         |  
|Net cash used in investing activities                                           |  |                          | (103,411 | ) |      |   | (64,338 | )
|                                                                                |  |                          |          |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |                          |          |   |      |   |         |  
|Proceeds from long term debt                                                    |  |                          | 59,000   |   |      |   | 0       |  
|Principal payments on debt and short-term borrowings                            |  |                          | (3,443   | ) |      |   | (12,768 | )
|Expenditures related to issuance of long term debt                              |  |                          | (205     | ) |      |   | 0       |  
|Stock options exercised                                                         |  |                          | 648      |   |      |   | 241     |  
|                                                                                |  |                          |          |   |      |   |         |  
|Net cash provided by (used in) financing activities                             |  |                          | 56,000   |   |      |   | (12,527 | )
|                                                                                |  |                          |          |   |      |   |         |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                       |  |                          | (10,596  | ) |      |   | (24,312 | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                  |  |                          | 46,448   |   |      |   | 57,362  |  
|                                                                                |  |                          |          |   |      |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      |  | $                        | 35,852   |   |      | $ | 33,050  |  
|                                                                                |  |                          |          |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                              |  |                          |          |   |      |   |         |  
|Cash paid during the periods for interest                                       |  | $                        | 22,391   |   |      | $ | 22,286  |  
|                                                                                |  |                          |          |   |      |   |         |  
|Non-cash financing activities:                                                  |  |                          |          |   |      |   |         |  
|Debt acquired in capital lease transactions                                     |  | $                        | 1,547    |   |      | $ | 341     |  
|                                                                                |  |                          |          |   |      |   |         |  

See notes to condensed consolidated financial statements.



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KNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE THREE MONTHS ENDED JUNE 30, 2009

(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, 2008 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 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, 2008. 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 May 2009, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 165, Subsequent Events (SFAS No. 165). SFAS No. 165 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. This Statement is effective for interim and annual financial periods ending after June 15, 2009. The
adoption of SFAS No. 165 did not have a material impact on the Companys results of operations or financial position.

In April 2009, the FASB
issued Staff Position (FSP) No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP No. 107-1 and APB 28-1). FSP No. 107-1 and APB 28-1 amend FASB Statement
No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.
This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP 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 FSP No. 107-1 and APB 28-1 did not have a material impact on the Companys results of operations or financial position.



6



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In April 2009, the FASB issued FSP No. 157-4, Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP No. 157-4). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157,
Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate if a transaction is not orderly (i.e., a
forced liquidation or distressed sale). The adoption of FSP No. 157-4 did not have a material impact on the Companys results of operations or financial position.

In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset when the Market for that Asset is Not Active (FSP No. 157-3). FSP No. 157-3
clarifies the application of SFAS No. 157, Fair Value Measurements, in a market that is not active and provides key considerations in determining the fair value for financial assets when the market is not active. This FSP is
effective upon issuance, including prior periods for which financial statements have not been issued. The adoption of FSP No. 157-3 did not have a material impact on the Companys results of operations or financial position.

In April 2008, the FASB issued FSP No. 142-3, Determination of Useful Life of Intangible Assets (FSP No. 142-3). FSP No. 142-3
amends the factors that should be considered in developing renewal or extension assumptions in determining the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP No. 142-3
is effective for financial statements issued for fiscal years beginning after December 15, 2008. The adoption of FSP No. 142-3 did not have a material impact on the Companys results of operations or financial position.

In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS No. 161).
SFAS No. 161 requires enhanced disclosures about an entitys derivative and hedging activities and thereby improves the transparency of financial reporting on those activities. This Statement is effective for financial statements issued
for fiscal years beginning after November 15, 2008. The adoption of SFAS No. 161 did not have a material impact on the Companys results of operations or financial position.

In December 2007, the FASB issued FASB Statement No. 141R, Business Combinations (SFAS No. 141R) and FASB Statement No. 160,
Consolidations (SFAS No. 160). These statements establish principles and requirements for how an acquirer in a business combination recognizes and measures the assets acquired, liabilities assumed, and any noncontrolling
interest (previously referred to as minority interest) in the acquiree. SFAS No. 141R and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. The adoption of SFAS
No. 141R and SFAS No. 160 did not have a material impact on the Companys results of operations or financial position.

In September 2006,
the FASB issued FASB Statement No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements providing a single definition of fair value, which should result in increased consistency and comparability in fair value measurements. This Statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007. In February 2008, the FASB issued FSP 157-2 Partial Deferral of the Effective Date of Statement 157 (FSP 157-2). FSP 157-2 delays the effective date of SFAS No. 157 for all
nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The adoption of SFAS
No. 157 did not have a material impact on the Companys results of operations or financial position.

RECENT ACCOUNTING STANDARDS NOT YET
ADOPTED

In June 2009, the FASB issued FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles (SFAS No. 168), a replacement of FASB Statement No. 162, which establishes the FASB Accounting Standards Codification as the source of accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not expect that the adoption of SFAS
No. 168 will have a material impact on the Companys results of operations or financial position.

In June 2009, the FASB issued FASB Statement
No. 167, Amendments to FASB Interpretation No. 46 (R) (SFAS No. 167). SFAS No. 167 improves financial reporting by enterprises involved with variable interest entities. This Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2009. The Company does not expect that the adoption of SFAS No. 167 will have a material impact on the Companys results of operations or financial position.

In June 2009, the FASB issued FASB Statement No. 166, Accounting for Transfers of Financial Assets (SFAS No. 166). SFAS
No. 166 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. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2009. The Company does not expect that the adoption of
SFAS No. 166 will have a material impact on the Companys results of operations or financial position.



7



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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, 2008 and June 30, 2009, the Company had $680 and $525, respectively, 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. CERTIFICATES OF DEPOSIT

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

6. GOODWILL AND INTANGIBLE ASSETS

The Company performs a goodwill
impairment test in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, annually on January 1. There was no impairment identified as a result of the January 1, 2009 impairment test, nor has there been any
event in the six months ended June 30, 2009 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 first lien 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 $453,900 of the $535,907 floating
rate debt at 4.977% as of June 30, 2009.

The notional amount of the interest rate derivative instrument for the next annual period is summarized
below:



|                |  |                 |  |         
|--------------- |  | --------------- |  | --------
|Start date      |  | End date        |  | Amount  
|April 3, 2009   |  | July 2, 2009    |  | $453,900
|July 3, 2009    |  | October 2, 2009 |  | $452,513
|October 3, 2009 |  | January 2, 2010 |  | $451,125
|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 first amendment debt associated with the acquisition of Graceba Total Communications Group, Inc. (Graceba). The swap agreement, which became
effective January 4, 2008, fixes 100% of the floating rate debt at 3.995% until September 30, 2010.

Knology has borrowings under two term loans
that bear interest at variable rates (see Note 8  Debt). The Company is 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 FASB Statement No. 133 (subsequently amended by SFAS Nos. 137 and 138), Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). 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 SFAS
No. 133, 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 has continued to use 1-month LIBOR for the subsequent reset periods in January through June 2009. The Company will determine LIBOR rates on future reset
dates based on prevailing conditions at the time.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 both 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 both 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. The Company recorded a gain
on the change in the fair value of the interest rate swaps in the amounts of $3,042 and $3,748 for the three and six months ended June 30, 2009, respectively. 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 $4,615 and $9,313 for the three and six months ended June 30, 2009. As of June 30, 2009, there is
$19,309 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.

8. DEBT

On March 14, 2007, the Company entered into an Amended and Restated Credit Agreement (Amended Credit Agreement) that provides for a $580,000 credit
facility, consisting of a $555,000 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. The 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 Amended Credit Agreement which provides for a $59,000 incremental term loan
used to fund the $75,000 Graceba acquisition purchase price. The 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.

Long-term debt at December 31, 2008 and June 30, 2009 consists of the following:



|                                                                                                                                                                                                                                   |  |                  |         |              |   |        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------ | - | -------
|                                                                                                                                                                                                                                   |  | December 31,2008 |         | June 30,2009
|First Lien term loan, at a rate of LIBOR plus 2.25% (2.57% at June 30, 2009), with $5,468 annual principal amortization, principal
payable quarterly with final principal and any unpaid interest due June 30, 2012                |  | $                | 546,675 |              | $ | 535,908
|                                                                                                                                                                                                                                   |  |                 
|First Amendment incremental term loan, at a rate of LIBOR plus 2.75% (3.06% at June 30, 2009), with $590 annual principal amortization,
principal payable quarterly with final principal and any unpaid interest due June 30, 2012 |  |                  | 58,410  |              |   | 57,261 
|                                                                                                                                                                                                                                   |  |                 
|Capitalized lease obligations, at rates between 5.6% and 12.3%, with monthly principal and interest payments through December
2013                                                                                                 |  |                  | 6,598   |              |   | 6,087  
|                                                                                                                                                                                                                                   |  |                  |         |              |   |        
|Total debt                                                                                                                                                                                                                         |  |                  | 611,683 |              |   | 599,256
|                                                                                                                                                                                                                                   |  |                 
|Less current portion of long term debt                                                                                                                                                                                             |  |                  | 7,615   |              |   | 7,704  
|                                                                                                                                                                                                                                   |  |                  |         |              |   |        
|Total long term debt, net of current portion                                                                                                                                                                                       |  | $                | 604,068 |              | $ | 591,552
|                                                                                                                                                                                                                                   |  |                  |         |              |   |        

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

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



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



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



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| |  |  | 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 EBITDA to cash interest.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of June 30, 2009, the Company was in compliance with all of its debt covenants.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted the
required provisions of SFAS No. 157 on January 1, 2008. SFAS No. 157 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. SFAS No. 157 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:



|                        |  |               |   |         |   |         |  |                                       |   |  |   |       
|----------------------- |  | ------------- | - | ------- | - | ------- |  | ------------------------------------- | - |  | - | ------
|                        |  | June 30, 2009
|                        |  | Level 1       |   | Level 2 |   | Level 3 |  | TotalAssets/Liabilities,at Fair Value
|Assets                  |  |               |   |         |   |         |  |                                       |   |  |   |       
|Certificates of deposit |  | $             | 0 |         | $ | 35,050  |  | $                                     | 0 |  | $ | 35,050
|                        |  |               |   |         |   |         |  |                                       |   |  |   |       
|Total Assets            |  | $             | 0 |         | $ | 35,050  |  | $                                     | 0 |  | $ | 35,050
|                        |  |               |   |         |   |         |  |                                       |   |  |   |       
|Liabilities             |  |               |   |         |   |         |  |                                       |   |  |   |       
|Interest rate swaps     |  | $             | 0 |         | $ | 24,874  |  | $                                     | 0 |  | $ | 24,874
|                        |  |               |   |         |   |         |  |                                       |   |  |   |       
|Total Liabilities       |  | $             | 0 |         | $ | 24,874  |  | $                                     | 0 |  | $ | 24,874
|                        |  |               |   |         |   |         |  |                                       |   |  |   |       

The Company used a discounted cash flow analysis to value the interest rate swaps on its balance sheet at
June 30, 2009.

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 estimated fair value of the
Companys variable-rate debt is subject to the effects of interest rate risk. On June 30, 2009, the estimated fair value of that debt, based on a dealer quote considering current market rates, was approximately $551,647, compared to a
carrying value of $593,169.



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##### Table of Contents

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 $1,812 as of June 30, 2009, which reduces the funds available under the $25,000 five year
senior secured revolving loan and letter of credit facility.

11. NONCASH COMPENSATION EXPENSE

The Company utilizes the recognition provisions of FASB Statement No. 123 (Revised 2004), Share-Based Payment (SFAS No. 123R), 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, 2008.

During the second quarter of 2009, the Company granted 7,060 shares with a market value of $55. The shares vest equally over the next four years. The Company has
recognized stock-based compensation of $1,545 and $3,052 for the three and six months ended June 30, 2009, respectively, and $1,264 and $1,836 for the three and six months ended June 30, 2008, respectively.

12. INCOME TAXES

On January 1, 2007, the Company adopted the
provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return
should be recorded in the financial statements. Under FIN 48, 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 50% likelihood of being realized upon
ultimate settlement. FIN 48 also provides 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 June 30, 2009, 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 2005 through 2008 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 2005 through 2008 tax years remain open for examination by the tax authorities under a four 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.

13. SUBSEQUENT EVENTS

For the three and six months ended June 30, 2009, the Company evaluated, for potential recognition and disclosure, events that occurred prior to
the filing of the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 on August 7, 2009.



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##### Table of Contents

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

THE MANAGEMENTS DISCUSSION AND ANALYSIS AND OTHER PORTIONS OF THIS QUARTERLY REPORT INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS, INCLUDING THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THAT ARE SUBJECT TO FUTURE EVENTS, RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED.
IMPORTANT FACTORS THAT EITHER INDIVIDUALLY OR IN THE AGGREGATE COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED INCLUDE, WITHOUT LIMITATION, (1) THAT WE WILL NOT RETAIN OR GROW OUR CUSTOMER BASE, (2) THAT WE WILL FAIL
TO BE COMPETITIVE WITH EXISTING AND NEW COMPETITORS, (3) THAT WE WILL NOT ADEQUATELY RESPOND TO TECHNOLOGICAL DEVELOPMENTS THAT IMPACT OUR INDUSTRY AND MARKETS, (4) THAT NEEDED FINANCING WILL NOT BE AVAILABLE TO US IF AND AS NEEDED,
(5) 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, (6) 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 (7) 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, 2008, 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 National 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 six months ended June 30, 2009, 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.

Acquisition

On January 4, 2008, the Company completed its acquisition of all of the outstanding stock of Graceba Total
Communications Group, Inc. (Graceba), a voice, video and high-speed Internet broadband services provider in Dothan, Alabama. The Company used the proceeds of the $59.0 million First Amendment to the Amended and Restated Credit Agreement
and cash on hand to fund the $75.0 million purchase price. The financial position and results of operations for Graceba are included in the Companys consolidated statements since the date of acquisition. The acquisition has been accounted for
in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. The total purchase price for the assets acquired, net of liabilities assumed and including direct acquisition costs,
was $75.1 million.



12



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##### Table of Contents

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. Accordingly, we expect that our number of voice and data connections will grow faster than our video connections and will represent a higher percentage of our total connections in the future.

The following table summarizes the number of marketable homes passed and connections as of June 30, 2008 and 2009.



|                        |  |           |  |          
|----------------------- |  | --------- |  | ---------
|                        |  | June 30, 
|                        |  | 2008      |  | 2009     
|Connections:(1)         |  |           |  |          
|Video                   |  | 229,026   |  | 231,050  
|Voice:                  |  |           |  |          
|On-net                  |  | 240,445   |  | 247,185  
|Off-net                 |  | 5,936     |  | 526      
|Data:                   |  |           |  |          
|High Speed Data         |  | 186,126   |  | 199,129  
|Dial-up                 |  | 2,387     |  | 1,455    
|                        |  |           |  |          
|Total connections       |  | 663,920   |  | 679,345  
|                        |  |           |  |          
|Residential connections |  | 565,418   |  | 574,973  
|Business connections    |  | 98,502    |  | 104,372  
|Homes passed            |  | 1,124,725 |  | 1,171,960
|Marketable homes passed |  | 915,313   |  | 927,576  



|(1) | All of our video connections are provided over our networks. Our voice and data connections consist of both On-net and Off-net connections.
On-net refers to lines provided over our networks. Off-net refers to voice or data connections provided over lines leased from third parties.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 2008,
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.



13



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##### Table of Contents

Revenues

Our operating revenues are primarily derived from monthly charges for video, voice and Internet 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 several methods of accounting for or 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 movies, fees for video-on-demand and events such as boxing matches and concerts that involve a charge for each viewing. Video revenues accounted for approximately 42.8% and 43.2% of our consolidated revenues for the three and six months
ended June 30, 2009, respectively, compared to 42.1% and 41.9% for the three and six months ended June 30, 2008, respectively.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 31.3% of our consolidated revenues for the three and six months ended June 30, 2009, compared to 33.8% and 34.0% for the three and six months ended
June 30, 2008, respectively.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data revenues.Our data revenues consist primarily of fixed monthly fees for data service and rental of cable modems. Data revenues accounted for
approximately 22.8% and 23.1% of our consolidated revenues for the three and six months ended June 30, 2009, respectively, compared to 22.7% and 22.5% for the three and six months ended June 30, 2008, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other revenues.Other revenues result principally from broadband carrier services. Other revenues accounted for approximately 3.1% and 2.4% of our
consolidated revenues for the three and six months ended June 30, 2009, respectively, compared to 1.4% and 1.5% for the three and six months ended June 30, 2008, respectively.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 Bright House, Charter, Comcast, Mediacom, MidContinent Communications and Time Warner. We also compete with
certain local telephone companies offering video programming such as AT&T, CenturyTel, and Verizon, in addition to 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 phone company and various long-distance providers in each of our
markets. AT&T, CenturyTel, Qwest Communications and Verizon 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, Embarq (formerly Sprint) and Verizon. We also expect to compete with Vonage Holding Company, Comcast and other providers who offer Voice over Internet Protocol (VoIP)
services .
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In providing data services, we compete with cable television companies, incumbent local exchange carriers that provide DSL and dial-up services, and satellite and
other wireless Internet acess service providers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 51.6% and 52.3% for the three and six months ended June 30, 2009,
respectively, compared to 52.0% and 53.2% for the three and six months ended June 30, 2008, respectively. 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14



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##### Table of Contents

| |  |  | 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 19.7% and 18.0% for the three and six months ended June 30, 2009, respectively, compared to 15.9% and 16.0% for the three and six months ended June 30, 2008, respectively.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of data services. Direct costs of data services consist primarily of transport cost and network access fees. The direct cost of data services as
a percentage of data revenue was approximately 6.9% and 6.7% for the three and six months ended June 30, 2009, respectively, compared to 5.8% and 5.6% for the three and six months ended June 30, 2008, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 18.8% and 18.9% for the three and six months ended June 30, 2009, respectively, compared to 15.6 and 15.2% for the three and six months ended June 30, 2008, respectively.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 1.2% for the three and six months ended
June 30, 2009, compared to 1.2% and 1.3% for the three and six months ended June 30, 2008, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Selling, 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 center.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 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.



15



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##### Table of Contents

Results of Operations

Three months ended June 30, 2009 compared to three months ended June 30, 2008

The following table sets forth
financial data as a percentage of operating revenues for the three months ended June 30, 2008 and 2009.



|                                                     |  |                            |   |  |      |  
|---------------------------------------------------- |  | -------------------------- | - |  | ---- | -
|                                                     |  | Three months endedJune 30, |  
|                                                     |  | 2008                       |   |  | 2009 |  
|Operating revenues:                                  |  |                            |   |  |      |  
|Video                                                |  | 42                         | % |  | 43   | %
|Voice                                                |  | 34                         |   |  | 31   |  
|Data                                                 |  | 23                         |   |  | 23   |  
|Other                                                |  | 1                          |   |  | 3    |  
|                                                     |  |                            |   |  |      |  
|Total                                                |  | 100                        |   |  | 100  |  
|Operating expenses:                                  |  |                            |   |  |      |  
|Direct costs                                         |  | 30                         |   |  | 32   |  
|Selling, general and administrative                  |  | 39                         |   |  | 36   |  
|Depreciation and amortization                        |  | 24                         |   |  | 21   |  
|                                                     |  |                            |   |  |      |  
|Total                                                |  | 93                         |   |  | 89   |  
|                                                     |  |                            |   |  |      |  
|Operating income                                     |  | 7                          |   |  | 11   |  
|Interest income                                      |  | 0                          |   |  | 0    |  
|Interest expense                                     |  | (11                        | ) |  | (9   | )
|Gain on interest rate swaps                          |  | 0                          |   |  | 3    |  
|Amortization of deferred loss on interest rate swaps |  | 0                          |   |  | (4   | )
|Other income, net                                    |  | 0                          |   |  | 0    |  
|                                                     |  |                            |   |  |      |  
|Total other expense                                  |  | (11                        | ) |  | (10  | )
|                                                     |  |                            |   |  |      |  
|Income (Loss) from continuing operations             |  | (4                         | ) |  | 1    |  
|                                                     |  |                            |   |  |      |  
|Net income (loss)                                    |  | (4                         | ) |  | 1    |  
|                                                     |  |                            |   |  |      |  

Revenues. Operating revenues increased 5.7% from $102.1 million for the three months ended
June 30, 2008, to $107.9 million for three months ended June 30, 2009. Operating revenues from video services increased 7.4% from $43.0 million for the three months ended June 30, 2008, to $46.2 million for the same period in 2009.
Operating revenues from voice services decreased 2.0% from $34.5 million for the three months ended June 30, 2008, to $33.8 million for the same period in 2009. Operating revenues from data services increased 6.3% from $23.2 million for the
three months ended June 30, 2008, to $24.6 million for the same period in 2009. Operating revenues from other services increased 128.7% from $1.4 million for the three months ended June 30, 2008, to $3.3 million for the same period in
2009.

The increased revenues are due primarily to price increases and an increase in the number of connections, from 663,920 as of
June 30, 2008, to 679,345 as of June 30, 2009. The increase in operating revenues from other services contained $1.3 million of fiber sales recorded during the second quarter of 2009. In addition, revenue was positively impacted by
approximately $1.2 million in the second quarter 2009 due to a change in the reporting of universal service fees compared to the same period last year. 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.
| | - |  | --------------------------------------------

Direct Costs. Direct costs increased 11.1% from $30.7 million for the three months ended June 30, 2008, to $34.1 million for the three months ended June 30, 2009. Direct costs
of video services increased 6.5% from $22.4 million for the three months ended June 30, 2008, to $23.8 million for the same period in 2009. Direct costs of voice services increased 21.4% from $5.5 million for the three months ended
June 30, 2008, to $6.7 million for the same period in 2009. Direct costs of data services increased 26.8% from $1.3 million for the three months ended June 30, 2008, to $1.7 million for the same period in 2009. Direct costs of other
services increased 175.7% from $225,000 for the three months ended June 30, 2008, to $619,000 for the same period in 2009. Pole attachment and other network rental expenses remained relatively flat at $1.3 million for the three months ended
June 30, 2008 and 2009. 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 beginning in 2009,
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.



16



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##### Table of Contents

Selling, general and administrative expenses.Our selling, general and administrative expenses
decreased 3.4% from $40.1 million for the three months ended June 30, 2008, to $38.7 million for the three months ended June 30, 2009. The decrease in our operating costs, included in selling, general and administrative expenses
consists mainly of decreases in salaries and wages, employee benefits, sales and marketing, gas for vehicles, billing expense, and travel costs due to the lack of non-recurring charges associated with the integration of PrairieWave Holdings, Inc.
(PrairieWave) and Graceba, included in selling, general and administrative expenses for the three months ended June 30, 2008. These decreases were partially offset by increases in vehicles lease expense, professional services
related mainly to consulting costs, and hub utilities. Our non-cash stock option compensation expense, included in selling, general and administrative expenses, increased from $1.3 million for the three months ended June 30, 2008, to $1.5
million for the three months ended June 30, 2009 as a result of the issuance of additional stock awards.

Depreciation and
amortization.Our depreciation and amortization decreased from $23.8 million for the three months ended June 30, 2008, to $22.9 million for the three months ended June 30, 2009 primarily due to the maturing of our asset base.

Interest expense.Interest expense decreased from $11.7 million for the three months ended June 30, 2008, to $9.7 million
for the three months ended June 30, 2009. The decrease in interest expense is primarily a result of the decline in interest rates on our term loan due to the PrairieWave acquisition and the incremental loan due to the Graceba acquisition. As
discussed in the Notes to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2008, the Company no longer qualifies to use hedge accounting for our interest rate swaps on these debts and we
recorded $4.6 million in amortization of deferred loss associated with these derivative instruments for the three months ended June 30, 2009. A gain of $3.0 million was recorded on the value of the interest rate swaps for the three months ended
June 30, 2009 as a result of the decrease in the market value of the liability representing the derivative instruments.

Net loss.We incurred a net loss of $4.0 million and net income of $1.3 million for the three months ended June 30, 2008, and 2009, respectively.

Six months ended June 30, 2009 compared to six months ended June 30, 2008

The following table sets forth
financial data as a percentage of operating revenues for the six months ended June 30, 2008 and 2009.



|                                                     |  |                          |   |  |      |  
|---------------------------------------------------- |  | ------------------------ | - |  | ---- | -
|                                                     |  | Six months endedJune 30, |  
|                                                     |  | 2008                     |   |  | 2009 |  
|Operating revenues:                                  |  |                          |   |  |      |  
|Video                                                |  | 42                       | % |  | 43   | %
|Voice                                                |  | 34                       |   |  | 31   |  
|Data                                                 |  | 23                       |   |  | 23   |  
|Other                                                |  | 1                        |   |  | 3    |  
|                                                     |  |                          |   |  |      |  
|Total                                                |  | 100                      |   |  | 100  |  
|Operating expenses:                                  |  |                          |   |  |      |  
|Direct costs                                         |  | 31                       |   |  | 31   |  
|Selling, general and administrative                  |  | 38                       |   |  | 37   |  
|Depreciation and amortization                        |  | 23                       |   |  | 21   |  
|                                                     |  |                          |   |  |      |  
|Total                                                |  | 92                       |   |  | 89   |  
|                                                     |  |                          |   |  |      |  
|Operating income                                     |  | 8                        |   |  | 11   |  
|Interest income                                      |  | 0                        |   |  | 0    |  
|Interest expense                                     |  | (12                      | ) |  | (9   | )
|Gain on interest rate swaps                          |  | 0                        |   |  | 2    |  
|Amortization of deferred loss on interest rate swaps |  | 0                        |   |  | (4   | )
|Other income, net                                    |  | 0                        |   |  | 0    |  
|                                                     |  |                          |   |  |      |  
|Total other expense                                  |  | (12                      | ) |  | (11  | )
|                                                     |  |                          |   |  |      |  
|Loss from continuing operations                      |  | (4                       | ) |  | (0   | )
|                                                     |  |                          |   |  |      |  
|Net loss                                             |  | (4                       | ) |  | (0   | )
|                                                     |  |                          |   |  |      |  

Revenues. Operating revenues increased 4.5% from $203.5 million for the six months ended
June 30, 2008, to $212.6 million for six months ended June 30, 2009. Operating revenues from video services increased 7.5% from $85.3 million for the six months ended June 30, 2008, to $91.8 million for the same period in 2009.
Operating revenues from voice services decreased 3.9% from $69.3 million for the six months ended June 30, 2008, to $66.5 million for the same period in 2009. Operating revenues from data services increased 7.2% from $45.8 million for the six
months ended June 30, 2008, to $49.1 million for the same period in 2009. Operating revenues from other services increased 70.3% from $3.0 million for the six months ended June 30, 2008, to $5.2 million for the same period in 2009.



17



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##### Table of Contents

The increased revenues are due primarily to price increases and an increase in the number of connections,
from 663,920 as of June 30, 2008, to 679,345 as of June 30, 2009. The increase in operating revenues from other services contained $1.3 million of fiber sales recorded during the first half of 2009. In addition, revenue was positively
impacted by approximately $1.2 million in the first six months of 2009 due to a change in the reporting of universal service fees compared to the same period last year. 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.
| | - |  | --------------------------------------------

Direct Costs. Direct costs increased 7.6% from $62.0 million for the six months ended June 30, 2008, to $66.8 million for the six months ended June 30, 2009. Direct costs of video services increased 5.8% from $45.4 million
for the six months ended June 30, 2008, to $48.0 million for the same period in 2009. Direct costs of voice services increased 8.3% from $11.0 million for the six months ended June 30, 2008, to $12.0 million for the same period in 2009.
Direct costs of data services increased 27.2% from $2.6 million for the six months ended June 30, 2008, to $3.3 million for the same period in 2009. Direct costs of other services increased 111.8% from $465,000 for the six months ended
June 30, 2008, to $984,000 for the same period in 2009. Pole attachment and other network rental expenses decreased 1.7% from $2.6 million for the six months ended June 30, 2008, to $2.5 million for the same period in 2009. 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 beginning in 2009, 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.Our selling, general and administrative decreased 0.9% from $77.8 million for the six months ended
June 30, 2008, to $77.1 million for the six months ended June 30, 2009. The decrease in our operating costs, included in selling, general and administrative, consists mainly of decreases in salaries and wages, travel costs, office and
operating supplies, billing expense, gas for vehicles expense, and non-recurring charges related to travel and other PrairieWave and Graceba integration costs, included in selling, general and administrative which totaled $1.2 million for the six
months ended June 30, 2008. These decreases were partially offset by increases in vehicles lease expense, professional services related mainly to consulting costs, and hub utilities. Non-cash stock option compensation expense, included in
selling, general and administrative, increased from $1.8 million for the six months ended June 30, 2008, to $3.1 million for the six months ended June 30, 2009 as a result of the issuance of additional stock awards.

Depreciation and amortization. Our depreciation and amortization decreased from $47.7 million for the six months ended June 30, 2008, to
$45.6 million for the six months ended June 30, 2009 primarily due to the maturing of our asset base.

Interest expense.Interest expense decreased from $23.7 million for the six months ended June 30, 2008, to $19.2 million for the six months ended June 30, 2009. The decrease in interest expense is primarily a result of the decline in interest rates
on our term loan due to the PrairieWave acquisition and the incremental loan due to the Graceba acquisition. As discussed in the Notes to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2008,
the Company no longer qualifies to use hedge accounting for our interest rate swaps on these debts and we recorded $9.3 million in amortization of deferred loss associated with these derivative instruments for the six months ended June 30,
2009. A gain of $3.7 million was recorded on the value of the interest rate swaps for the six months ended June 30, 2009 as a result of the decrease in the market value of the liability representing the derivative instruments.

Net loss. We incurred a net loss of $7.2 million and $940,000 for the six months ended June 30, 2008, and 2009, respectively.

Liquidity and Capital Resources

Overview

As of June 30, 2009, we had approximately $68.6 million of cash, cash equivalents, restricted cash and certificates of deposit on
our balance sheet. Our net working capital on June 30, 2009 and December 31, 2008 was $37.2 million and $25.7 million, respectively.

On March 14, 2007, the Company entered into an Amended and Restated 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



18



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##### Table of Contents

Company received 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. 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
June 30, 2009, $535.9 million is outstanding under the term loan, and $1.8 million is outstanding under the revolving credit facility as unused letter of credits. On April 18, 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, currently fixes $453.9 million of the
$535.9 million floating rate debt at 4.977%.

On January 4, 2008, the Company entered into a First Amendment to the Amended and
Restated Credit Agreement (the Credit Agreement), which provides for a $59.0 million incremental term loan. The proceeds of the Amendment to the Credit Agreement 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 June 30, 2009, $57.3 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 amortizing at a rate of 1.0% annually. The swap agreement, which became effective January 4, 2008,
fixes 100% of the floating rate debt at 3.995% until September 30, 2010.

The first lien and incremental term loans are guaranteed by
all of the Companys subsidiaries. The term loans are also guaranteed by first liens on all of the Companys assets and the assets of its guarantor subsidiaries. The Credit Agreement contains customary representations, warranties, various
affirmative and negative covenants and customary events of default. As of June 30, 2009, 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 a $25.0 million revolver to meet our capital spending requirements and to execute our current business plan

Operating, Investing and Financing Activities

Net
cash provided by operating activities from continuing operations totaled $36.8 million and $52.6 million for the six months ended June 30, 2008 and 2009, respectively. The net cash flow activity related to operations consists primarily of
changes in operating assets and liabilities and adjustments to net income for non-cash transactions including:



| |  |  | depreciation and amortization;
| | - |  | ------------------------------



| |  |  | non-cash stock option compensation;
| | - |  | -----------------------------------



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



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



| |  |  | non-cash gain on interest rate derivative instrument;
| | - |  | -----------------------------------------------------



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



| |  |  | gain on disposition of assets.
| | - |  | ------------------------------

Net
cash used by our investing activities was $103.4 million and $64.3 million for the six months ended June 30, 2008 and 2009, respectively. Investing activities for the six months ended June 30, 2008 consisted primarily of $75.1 million for
the acquisitions of businesses, $27.4 million of capital expenditures and $741,000 of multiple dwelling unit signing bonuses. Our investing activities for the six months ended June 30, 2009 consisted primarily of $35.0 million for the purchase
of certificates of deposit, $29.1 million of capital expenditures and $422,000 of multiple dwelling unit signing bonuses.

Net cash
provided by (used in) our financing activities was $56.0 million and $(12.5) million for the six months ended June 30, 2008 and 2009, respectively. For the six months ended June 30, 2008, financing activities primarily consisted of $59.0
million in proceeds from long term debt and $648,000 from the exercise of stock options, offset by $3.4 million in principal payments on debt and $205,000 of expenditures related to the issuance of long-term debt. Financing activities for the six
months ended June 30, 2009 consisted primarily of $12.8 million in principal payments on debt, offset by $242,000 from the exercise of stock options.

Capital Expenditures

We spent approximately $29.1 million in capital expenditures during the six
months ended June 30, 2009, of which $11.6 million related to the purchase and installation of customer premise equipment, $4.2 million related to plant extensions and enhancements and $11.5 million related to network equipment, billing
and information systems and other capital items.



19



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##### Table of Contents

We expect to spend approximately $55.0 million in capital expenditures during 2009. 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 2009. 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, 2008.



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

The Company uses interest rate swap 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. The Company believes these agreements are with counter-parties who are creditworthy financial institutions.

The
Company has adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (subsequently amended by SFAS Nos. 137 and 138). This statement requires that all derivatives be recorded in the balance sheet as
either an asset or liability measured at fair value, and that changes in fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For derivatives designated as qualifying cash flow hedges, the effective
portion of changes in fair value of the derivatives is initially recognized in other comprehensive income and subsequently reclassified as an increase or decrease to interest expense in the same periods in which the related interest on the
variable-rate debt affects earnings. The ineffective portions are recognized directly in earnings. Upon early termination of a derivative instrument that has been designated as a hedge, the resulting gains or losses are deferred and amortized as
adjustments to interest expense of the related debt over the remaining period covered by the terminated instrument. The Company formally documented, designated and assessed the derivative instruments at inception. Based on criteria listed in SFAS
No. 133 pertaining to cash flow derivative instruments that are interest rate swaps, the Company has assessed that the swap agreements no longer qualify for hedge accounting. The Company uses derivative instruments as risk management tools and
not for trading purposes.

On May 3, 2007, the Company entered into an 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, currently fixes $505.3 million of the $537.3 million floating rate debt at 4.977%.

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



|                |  |                 |  |                      |        
|--------------- |  | --------------- |  | -------------------- | -------
|Start date      |  | End date        |  | Amount(in thousands)
|April 3, 2009   |  | July 2, 2009    |  | $                    | 453,900
|July 3, 2009    |  | October 2, 2009 |  | $                    | 452,513
|October 3, 2009 |  | January 2, 2010 |  | $                    | 451,125
|January 3, 2010 |  | April 2, 2010   |  | $                    | 449,738
|April 3, 2010   |  | July 3, 2010    |  | $                    | 398,350

In December 2007, the Company entered into an interest rate swap contract to mitigate interest
rate risk on a notional amount of $59.0 million amortizing at a rate of 1.0% annually. The swap agreement which became effective January 4, 2008, fixes 100% of the floating rate debt at 3.995% until September 30, 2010.



|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 June 30, 2009. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30,
2009, 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 June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION



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

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.



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

Economic conditions may have an impact on our
business and financial condition in ways that we currently cannot predict.

The continued credit crisis and related turmoil in the
global financial system may have an impact on our business and our financial condition. The credit crisis could have an impact on our interest rate swap agreements or revolving credit facility if our counterparties are forced to file bankruptcy or
are otherwise unable to perform their obligations. Depressed economic conditions could influence the levels of consumer spending and have a material adverse effect on the demand for our services and on financial condition. Our ability to make future
principal and interest payments on our debt depends upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our
control.

In addition to the other information set forth in this Quarterly Report on Form 10-Q and the risk described above, 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, 2008, 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. | Default Upon Senior Securities
|------- | ------------------------------

None.



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

On May 7, 2009, we held our annual meeting of stockholders. At the meeting, our stockholders:



| |  |  | approved the ratification of the appointment of BDO Seidman, LLP as our independent registered public accounting firm for the fiscal year ending December 31,
2009 (with 30,731,793 shares voting in favor, 30,030 shares voting against and 683 shares abstaining);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | re-elected Mr. Alan A. Burgess (with 31,725,350 shares voting in favor and 163,070 shares withholding authority), and Mr. O. Gene Gabbard (with
30,731,793 shares voting in favor and 1,156,627 shares withholding authority) to our Board of Directors, to serve until the 2012 annual meeting of stockholders and until their respective successors are duly elected and qualified:
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

None.



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##### Table of Contents

|ITEM 6. | Exhibits
|------- | --------



|               |  |                                                                                                                                                                                                                                                                                                
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit Description                                                                                                                                                                                                                                                                            
|               | 
|3.1            |  | Amended and Restated Certificate of Incorporation of Knology, Inc. (Incorporated herein by reference to Exhibit 3.1 to Knology, Inc.s Quarterly Report Form 10-Q for the period ended June
30, 2004).                                                                                         
|               | 
|3.3            |  | 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).
|               | 
|3.4            |  | 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.                                                                                                                                                                                                        



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##### 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.
|               |  |              
|August 7, 2009 |  | By:           |  | /s/ Rodger L. Johnson               
|               |  |               |  | Rodger L. Johnson                   
|               |  |               |  | Chairman and Chief Executive Officer
|               |  |              
|August 7, 2009 |  | By:           |  | /s/ M. Todd Holt                    
|               |  |               |  | M. Todd Holt                        
|               |  |               |  | Chief Financial Officer             



23