Reference is made to the "Risk Factors" in Item 1A for a discussion of important factors that could cause actual results to differ from expectations and any of our forward-looking statements contained herein. The following discussion should be read in conjunction with our audited consolidated financial statements as of and for the years ended December 31, 2008, 2007 and 2006.

Overview

We are the nation's eighth largest cable company based on the number of basic video subscribers, and among the leading cable operators focused on serving the smaller cities and towns in the United States. Through our interactive broadband network, we provide our customers with a wide array of advanced products and services, including video services such as VOD, HDTV and DVRs, in addition to HSD and phone service. We offer triple-play bundles of video, HSD and voice to 91% of our estimated homes passed. Bundled products and services offer our customers a single provider contact for ordering, provisioning, billing and customer care.

As of December 31, 2008, our cable systems passed an estimated 2.85 million homes and served 1.32 million basic subscribers in 22 states. We provide digital video services to 643,000 customers, representing a digital penetration of 48.8% of our basic subscribers; HSD service to 737,000 customers, representing a HSD penetration of 25.8% of our estimated homes passed; and phone service to 248,000 customers, representing a penetration of 9.5% of our estimated marketable phone homes.

We evaluate our performance, in part, by measuring the number of RGUs we serve. As of December 31, 2008, we served 2.95 million RGUs, representing an increase of 8.1% over the prior year.

Revenues, Costs and Expenses

Video revenues primarily represent monthly subscription fees charged to customers for our core cable products and services (including basic and digital cable programming services, wire maintenance, equipment rental and services to commercial establishments), pay-per-view charges, installation, reconnection and late payment fees and other ancillary revenues. HSD revenues primarily represent monthly fees charged to customers, including small to medium sized commercial establishments, for our HSD products and services and equipment rental fees, as well as fees charged to medium to large sized businesses for our scalable, fiber- based enterprise network products and services. Phone revenues primarily represent monthly fees charged to customers. Advertising revenues represent the sale of advertising time on various channels.

Significant service costs include: programming expenses; employee expenses related to wages and salaries of technical personnel who maintain our cable network, perform customer installation activities and provide customer support; HSD costs, including costs of bandwidth connectivity and customer provisioning; phone service costs, including delivery and other expenses; and field operating costs, including outside contractors, vehicle, utilities and pole rental expenses.

Video programming costs, which are generally paid on a per subscriber basis, represent our largest single expense and have historically increased due to both increases in the rates charged for existing programming services and the introduction of new programming services to our customers. These costs are expected to continue to grow principally because of contractual unit rate increases and the increasing demands of television broadcast station owners for retransmission consent fees. As a consequence, it is expected that our video gross margins will decline as increases in programming costs outpace growth in video revenues.

Significant selling, general and administrative expenses include: wages and salaries for our call centers, customer service and support and administrative personnel; franchise fees and taxes; marketing; bad debt; billing; advertising; and office costs related to telecommunications and office administration.

Corporate expenses reflect compensation of corporate employees and other corporate overhead.

Adjusted OIBDA

We define Adjusted OIBDA as operating income before depreciation and amortization and non-cash, share-based compensation charges. Adjusted OIBDA is one of the primary measures used by management to evaluate our performance and to forecast future results but is not a financial measure calculated in accordance with generally accepted accounting principles (GAAP) in the United States. It is also a significant performance measure in our annual incentive compensation programs. We believe Adjusted OIBDA is useful for investors because it enables them to assess our performance in a manner similar to the methods used by management, and provides a measure that can be used to analyze, value and compare the companies in the cable industry, which may have different depreciation and amortization policies, as well as different non-cash, share-based compensation programs. Adjusted OIBDA and similar measures are used in calculating compliance with the covenants of our debt arrangements. A limitation of Adjusted OIBDA, however, is that it excludes depreciation and amortization, which represents the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business. Management utilizes a separate process to budget, measure and evaluate capital expenditures. In addition, Adjusted OIBDA has the limitation of not reflecting the effect of the non-cash, share-based compensation charges.

Adjusted OIBDA should not be regarded as an alternative to either operating income or net income (loss) as an indicator of operating performance nor should it be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. We believe that operating income is the most directly comparable GAAP financial measure to Adjusted OIBDA.

Actual Results of Operations

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

The following table sets forth the unaudited consolidated statements of
operations for the years ended December 31, 2008 and 2007 (dollars in thousands
and percentage changes that are not meaningful are marked NM):


                                                Year Ended December 31,
                                                 2008             2007          $ Change        % Change

Revenues                                     $  1,401,894      $ 1,293,375      $ 108,519             8.4 %
Costs and expenses:
Service costs (exclusive of depreciation
and amortization)                                 585,362          544,072         41,290             7.6 %
Selling, general and administrative
expenses                                          278,942          264,006         14,936             5.7 %
Corporate expenses                                 30,824           27,637          3,187            11.5 %
Depreciation and amortization                     227,910          235,331         (7,421 )          (3.2 )%

Operating income                                  278,856          222,329         56,527            25.4 %
Interest expense, net                            (213,333 )       (239,015 )       25,682           (10.7 )%
Loss on derivatives, net                          (54,363 )        (22,902 )      (31,461 )            NM
(Loss) gain on sale of cable systems, net         (21,308 )         11,079        (32,387 )            NM
Other expense, net                                 (9,133 )         (9,054 )          (79 )           0.9 %

Loss before provision for income taxes            (19,281 )        (37,563 )       18,282           (48.7 )%
Provision for income taxes                        (58,213 )        (57,566 )         (647 )           1.1 %

Net loss                                     $    (77,494 )    $   (95,129 )    $  17,635           (18.5 )%

Adjusted OIBDA                               $    511,951      $   462,979      $  48,972            10.6 %

The following represents a reconciliation of Adjusted OIBDA to operating income, which is the most directly comparable GAAP measure (dollars in thousands):

                                                  Year Ended December 31,
                                                   2008              2007         $ Change        % Change

Adjusted OIBDA                                 $     511,951      $  462,979      $  48,972            10.6 %
Non-cash, share-based compensation and other
share-based awards(1)                                 (5,185 )        (5,319 )          134            (2.5 )%
Depreciation and amortization                       (227,910 )      (235,331 )        7,421            (3.2 )%

Operating income                               $     278,856      $  222,329      $  56,527            25.4 %

(1) Includes approximately $17 and $20 for the years ended December 31, 2008 and 2007, respectively, related to the issuance of other share-based awards.

Revenues

The following table sets forth revenue and selected subscriber, customer and
average monthly revenue statistics for the years ended December 31, 2008 and
2007 (dollars in thousands, except per subscriber data):


                           Year Ended December 31,
                             2008            2007         $ Change       % Change

           Video         $    921,098     $   891,594     $  29,504            3.3 %
           HSD                324,764         278,853        45,911           16.5 %
           Phone               89,970          55,892        34,078           61.0 %
           Advertising         66,062          67,036          (974 )         (1.5 )%

           Total         $  1,401,894     $ 1,293,375     $ 108,519            8.4 %

                                                     December 31,               Increase/
                                                2008             2007          (Decrease)        % Change

Basic subscribers                              1,318,000        1,324,000           (6,000 )          (0.5 )%
Digital customers                                643,000          557,000           86,000            15.4 %
HSD customers                                    737,000          658,000           79,000            12.0 %
Phone customers                                  248,000          185,000           63,000            34.1 %

RGUs(1)                                        2,946,000        2,724,000          222,000             8.1 %

Average total monthly revenue per basic
subscriber(2)                                $     88.44      $     79.72      $      8.72            10.9 %

(1) RGUs represent the total of basic subscribers and digital, HSD and phone customers.

(2) Represents total average monthly revenues for the year divided by total average basic subscribers during such period.

Revenues rose 8.4%, largely attributable to the growth in our HSD and phone customers, as well as basic video price increases. RGUs grew 8.1% and average total monthly revenue per basic subscriber was 10.9% higher than the prior year.

Video revenues increased 3.3%, primarily due to basic video rate increases and customer growth in our advanced video products and services, offset in part by a lower number of basic subscribers. During the year ended December 31, 2008, we lost 6,000 basic subscribers, compared to a reduction of 56,000 basic subscribers in the prior year, which includes a significant number of basic subscribers lost in connection with the retransmission consent dispute with an owner of a major television broadcast group and the sale during the period of cable systems serving on a net basis 6,300 basic subscribers. Digital customers grew by 86,000, as compared to an increase of 29,000 in the prior year. We ended the year with 643,000 digital customers, which represents a 48.8% penetration of

basic subscribers. As of December 31, 2008, 33.2% of digital customers received DVR and/or HDTV services, as compared to 29.1% in the prior year.

HSD revenues rose 16.5%, principally due to a 12.0% increase in HSD customers and, to a lesser extent, growth in our enterprise network products and services. HSD customers grew by 79,000, as compared to a gain of 80,000 in the prior year. We ended the year with 737,000 customers, or a 25.8% penetration of estimated homes passed.

Phone revenues grew 61.0%, primarily due to a 34.1% increase in phone customers and, to a lesser extent, a reduction in discounted pricing. Phone customers grew by 63,000, as compared to a gain of 80,000 in the prior year. We ended the year with 248,000 customers, which represents a 9.5% penetration of our estimated marketable phone homes. As of December 31, 2008, our phone service was marketed to 91% of our 2.85 million estimated homes passed.

Advertising revenues decreased 1.5%, largely as a result of a sharp decrease in automotive advertising and, to a lesser extent, an unfavorable comparison to the prior year in which we benefitted from political advertising in certain of our service areas.

Costs and Expenses

Service costs rose 7.6%, primarily due to higher programming, phone service and field operating expenses, offset in part by lower HSD service costs. Programming expenses grew 7.6%, principally as a result of higher contractual rates charged by our programming vendors. Phone service costs rose 46.6%, mainly due to the growth in phone customers. Field operating expenses grew 13.4%, primarily due to greater vehicle fuel and repair expenses and lower capitalization of overhead costs, offset in part by non-recurring expenses in the prior year relating to the retransmission consent dispute noted above and lower insurance costs. HSD expenses decreased 23.3% due to a reduction in product delivery costs, offset in part by HSD customer growth. Service costs as a percentage of revenues were 41.8% and 42.1% for the years ended December 31, 2008 and 2007, respectively.

Selling, general and administrative expenses rose 5.7%, principally due to higher expenses related to marketing and customer service employee costs, offset in part by a decrease in billing expenses. Marketing expenses grew 12.8%, primarily due to higher staffing levels, more frequent direct mailing campaigns, greater expenses tied to sales activity and greater use of third-party sales support, offset in part by a reduction in other advertising. Customer service employee costs rose 14.9% as a result of higher staffing levels at our call centers. Billing expenses fell 5.0%, primarily due to more favorable rates charged by our billing service provider. Selling, general and administrative expenses as a percentage of revenues were 19.9% and 20.4% for the years ended December 31, 2008 and 2007, respectively.

Corporate expenses rose 11.5%, principally due to higher staffing levels. Corporate expenses as a percentage of revenues were 2.2% and 2.1% for the years ended December 31, 2008 and 2007, respectively.

Depreciation and amortization decreased 3.2%, largely as a result of an increase in the useful lives of certain fixed assets, offset in part by increased deployment of shorter-lived customer premise equipment.

Adjusted OIBDA

Adjusted OIBDA rose 10.6%, due to growth in HSD, phone and video revenues, offset in part by higher service costs and, to a lesser extent, selling, general and administrative expenses.

Operating Income

Operating income grew 25.4%, primarily due to the increase in Adjusted OIBDA.

Interest Expense, Net

Interest expense, net, decreased 10.7%, primarily due to lower market interest rates on variable rate debt, offset in part by higher average indebtedness.

Loss on Derivatives, Net

We enter into interest rate exchange agreements, or "interest rate swaps," with counterparties to fix the interest rate on a portion of our variable rate debt to reduce the potential volatility in our interest expense that would otherwise result from changes in variable market interest rates. As of December 31, 2008, we had interest rate swaps with an aggregate notional amount of $2.3 billion, of which $1.0 billion and $0.1 billion are forward starting swaps, which commence during the years ending December 31, 2009 and 2010, respectively. These swaps have not been designated as hedges for accounting purposes. The changes in their mark-to-market values are derived primarily from changes in market interest rates and the decrease in their time to maturity. As a result of the quarterly mark-to-market valuation of these interest rate swaps, we recorded losses on derivatives amounting to $54.4 million and $22.9 million, based upon information provided by our counterparties, for the years ended December 31, 2008 and 2007, respectively.

(Loss) Gain on Sale of Cable Systems, Net

During the year ended December 31, 2008, there was a $21.3 million loss on cable systems, principally due to a $17.7 million non-cash write-down in connection with the sale of certain cable systems in Western North Carolina and $4.0 million of related transaction costs paid, offset in part by miscellaneous net gains of $0.4 million. During the year ended December 31, 2007, we sold a cable system for $32.4 million and recorded a net gain on sale of $11.1 million.

Other Expense, Net

Other expense, net was $9.1 million for each of the years ended December 31, 2008 and 2007. During the year ended December 31, 2008, other expense, net, included $4.6 million of revolving credit facility commitment fees and $4.1 million of deferred financing costs. During the year ended December 31, 2007, other expense, net, included $4.2 million of revolving credit facility commitment fees and $4.0 million of deferred financing costs.

Provision for Income Taxes

The provision for income taxes was approximately $58.2 million for the year ended December 31, 2008, as compared to a provision for income taxes of $57.6 million for the year ended December 31, 2007. During the year ended December 31, 2008, based on our assessment of the facts and circumstances, we determined that an additional portion of our deferred tax assets from net operating loss carryforwards will not be realized under the more-likely-than-not standard required by SFAS No. 109, "Accounting for Income Taxes." As a result, we increased our valuation allowance and recognized a $58.2 million corresponding non-cash charge to income tax expense for the year ended December 31, 2008.

We periodically assess the likelihood of realization of our deferred tax assets considering all available evidence, both positive and negative, including our most recent performance, the scheduled reversal of deferred tax liabilities, our forecast of taxable income in future periods and the availability of prudent tax planning strategies. As a result of these assessments in prior periods and the current period, we have established valuation allowances on a portion of our deferred tax assets due to the uncertainty surrounding the realization of these assets.

Net Loss

As a result of the factors described above, we incurred a net loss for the year ended December 31, 2008 of $77.5 million, as compared to a net loss of $95.1 million for the year ended December 31, 2007.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

The following table sets forth the unaudited consolidated statements of
operations for the years ended December 31, 2007 and 2006 (dollars in thousands
and percentage changes that are not meaningful are marked NM):


                                                   Year Ended December 31,
                                                    2007             2006          $ Change        % Change

Revenues                                        $  1,293,375      $ 1,210,400      $  82,975             6.9 %
Costs and expenses:
Service costs (exclusive of depreciation and
amortization)                                        544,072          492,729         51,343            10.4 %
Selling, general and administrative expenses         264,006          252,688         11,318             4.5 %
Corporate expenses                                    27,637           25,445          2,192             8.6 %
Depreciation and amortization                        235,331          215,918         19,413             9.0 %

Operating income                                     222,329          223,620         (1,291 )          (0.6 )%
Interest expense, net                               (239,015 )       (227,206 )      (11,809 )           5.2 %
Loss on early extinguishment of debt                       -          (35,831 )       35,831              NM
Loss on derivatives, net                             (22,902 )        (15,798 )       (7,104 )          45.0 %
Gain on sale of cable systems, net                    11,079                -         11,079              NM
Other expense                                         (9,054 )         (9,973 )          919            (9.2 )%

Loss before provision for income taxes               (37,563 )        (65,188 )       27,625           (42.4 )%
Provision for income taxes                           (57,566 )        (59,734 )        2,168            (3.6 )%

Net loss                                        $    (95,129 )    $  (124,922 )    $  29,793           (23.8 )%

Adjusted OIBDA                                  $    462,979      $   444,255      $  18,724             4.2 %

The following represents a reconciliation of Adjusted OIBDA to operating income (dollars in thousands):

                                                  Year Ended December 31,
                                                   2007              2006         $ Change        % Change

Adjusted OIBDA                                 $     462,979      $  444,255      $  18,724             4.2 %
Non-cash, share-based compensation and other
share-based awards(1)                                 (5,319 )        (4,717 )         (602 )          12.8 %
Depreciation and amortization                       (235,331 )      (215,918 )      (19,413 )           9.0 %

Operating income                               $     222,329      $  223,620      $  (1,291 )          (0.6 )%

(1) Includes approximately $20 and $239 for the years ended December 31, 2007 and 2006, respectively, related to the issuance of other share-based awards.

Revenues

The following table sets forth revenue, and selected subscriber, customer and
average monthly revenue statistics for the years ended December 31, 2007 and
2006 (dollars in thousands, except per subscriber data):


                           Year Ended December 31,
                             2007            2006         $ Change       % Change

           Video         $    891,594     $   881,530     $  10,064            1.1 %
           HSD                278,853         237,542        41,311           17.4 %
           Phone               55,892          26,996        28,896          107.0 %
           Advertising         67,036          64,332         2,704            4.2 %

           Total         $  1,293,375     $ 1,210,400     $  82,975            6.9 %

                                                       December 31,               Increase/
                                                  2007             2006          (Decrease)        % Change

Basic subscribers                                1,324,000        1,380,000          (56,000 )          (4.1 )%
Digital customers                                  557,000          528,000           29,000             5.5 %
HSD customers                                      658,000          578,000           80,000            13.8 %
Phone customers                                    185,000          105,000           80,000            76.2 %

RGUs                                             2,724,000        2,591,000          133,000             5.1 %

Average total monthly revenue per basic
subscriber                                     $     79.72      $     71.97      $      7.75            10.8 %

(1) RGUs represent the total of basic subscribers and digital, HSD and phone customers.

(2) Represents total average monthly revenues for the year divided by total average basic subscribers during such period.

Revenues rose 6.9% year-over-year, largely attributable to the growth in our HSD and phone customers. RGUs grew 5.1% and average total monthly revenue per RGU was 0.9% higher than the prior year.

Video revenues increased 1.1%, due to higher service fees from our advanced video products and services such as DVRs and HDTV, offset by a lower number of basic subscribers. During the year ended December 31, 2007, we lost 56,000 basic subscribers, including a significant number of basic subscribers lost in connection with the retransmission consent dispute with an owner of a major television broadcast group, and the sale of the period of cable systems serving on a net basis 6,300 basic subscribers, as compared to a loss of 43,000 basic subscribers in the prior year. Digital customers grew by 29,000, as compared to an increase of 34,000 in the prior year. We ended the year with 557,000 digital customers, representing a 42.1% penetration of basic subscribers. As of December 31, 2007, 29.1% of digital customers received DVR and/or HDTV services, as compared to 20.0% in the prior year.

HSD revenues rose 17.4%, primarily due to a 13.8% increase in HSD customers. HSD customers grew by 80,000, as compared to a gain of 100,000 in the prior year, ending the year with 658,000 customers, or a 23.2% penetration of estimated homes passed.

Phone revenues grew 107.0%, primarily due to a 76.2% increase in phone customers. Phone customers grew by 80,000, as compared to a gain of 83,000 in the prior year, ending the year with 185,000 customers, or a 7.3% penetration of estimated marketable phone homes.

Advertising revenues increased by 4.2%, as a result of stronger national advertising sales, despite a meaningful decline in political advertising from the prior year.

Costs and Expenses

Service costs rose 10.4%, primarily due to customer growth in our phone and HSD services and increases in programming and field operating expenses. Recurring expenses related to our phone and HSD services grew 43.0%, commensurate with the significant increase of our phone and HSD customers. Programming expense rose 5.6%, principally as a result of higher unit costs charged by our programming vendors, offset in part by a lower number of basic subscribers. Field operating costs rose 14.0%, primarily as a result of higher outside contractor usage, increases in utility, fuel and vehicle maintenance costs, costs associated with our mobile workforce management system and the purchase of antennas for distribution to our customers during the aforementioned retransmission consent dispute. Service costs as a percentage of revenues were 42.1% and 40.7% for the . . .