##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark one)

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

For the quarterly period ended: March 31, 2010

OR



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

For the transition period from  to

Commission file number 001-32354





IOWA TELECOMMUNICATIONS SERVICES, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Iowa                                                           |  | 42-1490040                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

403 W. Fourth Street North

Newton, Iowa 50208

(Address of principal executive offices)

Registrants telephone number, including area code: (641) 787-2000





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 Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

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



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

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

The number of shares of the registrants common stock, $.01 par value, outstanding as of April 23, 2010 was 33,169,355.









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##### Table of Contents

TABLE OF CONTENTS



|                              |  |                                                                                       |  |     
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                       |  | Page
|PART I. FINANCIAL INFORMATION |  | 1                                                                                    
|                              |  |                                                                                      
|                              |  | FINANCIAL STATEMENTS                                                                  |  | 1   
|                              |  |                                                                                      
|                              |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 18  
|                              |  |                                                                                      
|                              |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 39  
|                              |  |                                                                                      
|                              |  | CONTROLS AND PROCEDURES                                                               |  | 39  
|                              |  |                                                                                      
|PART II.                      |  | OTHER INFORMATION                                                                     |  | 40  
|                              |  |                                                                                      
|                              |  | LEGAL PROCEEDINGS                                                                     |  | 40  
|                              |  |                                                                                      
|                              |  | RISK FACTORS                                                                          |  | 41  
|                              |  |                                                                                      
|                              |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           |  | 42  
|                              |  |                                                                                      
|                              |  | EXHIBITS                                                                              |  | 42  



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##### Table of Contents

PART I - FINANCIAL INFORMATION



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

Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(Dollars in Thousands, Except Per Share Data)



|                                                                                                                             |  |                  |          |   |               |   |          |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                             |  | December 31,2009 |          |   | March 31,2010 |  
|ASSETS                                                                                                                       |  |                  |          |   |               |   |          |  
|CURRENT ASSETS:                                                                                                              |  |                  |          |   |               |   |          |  
|Cash and cash equivalents                                                                                                    |  | $                | 12,259   |   |               | $ | 11,368   |  
|Accounts receivable, net                                                                                                     |  |                  | 22,632   |   |               |   | 23,412   |  
|Inventories                                                                                                                  |  |                  | 5,105    |   |               |   | 5,224    |  
|Prepayments and other current assets                                                                                         |  |                  | 7,857    |   |               |   | 6,990    |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Current Assets                                                                                                         |  |                  | 47,853   |   |               |   | 46,994   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|PROPERTY, PLANT AND EQUIPMENT:                                                                                               |  |                  |          |   |               |   |          |  
|Property, plant and equipment                                                                                                |  |                  | 672,270  |   |               |   | 674,358  |  
|Accumulated depreciation                                                                                                     |  |                  | (365,631 | ) |               |   | (380,155 | )
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Net Property, Plant and Equipment                                                                                            |  |                  | 306,639  |   |               |   | 294,203  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|GOODWILL                                                                                                                     |  |                  | 492,956  |   |               |   | 492,956  |  
|INTANGIBLE ASSETS AND OTHER, net                                                                                             |  |                  | 51,238   |   |               |   | 50,280   |  
|INVESTMENT IN AND RECEIVABLE FROM THE RURAL TELEPHONE FINANCE COOPERATIVE                                                    |  |                  | 17,141   |   |               |   | 16,696   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Assets                                                                                                                 |  | $                | 915,827  |   |               | $ | 901,129  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                         |  |                  |          |   |               |   |          |  
|CURRENT LIABILITIES:                                                                                                         |  |                  |          |   |               |   |          |  
|Revolving credit facility                                                                                                    |  | $                | 37,000   |   |               | $ | 35,000   |  
|Accounts payable                                                                                                             |  |                  | 12,408   |   |               |   | 10,404   |  
|Advanced billings and customer deposits                                                                                      |  |                  | 10,470   |   |               |   | 10,479   |  
|Accrued and other current liabilities                                                                                        |  |                  | 33,195   |   |               |   | 28,415   |  
|Current maturities of long-term debt                                                                                         |  |                  | 3,276    |   |               |   | 2,470    |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Current Liabilities                                                                                                    |  |                  | 96,349   |   |               |   | 86,768   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|LONG-TERM DEBT                                                                                                               |  |                  | 565,214  |   |               |   | 565,513  |  
|DEFERRED TAX LIABILITIES                                                                                                     |  |                  | 60,783   |   |               |   | 63,717   |  
|OTHER LONG-TERM LIABILITIES                                                                                                  |  |                  | 25,914   |   |               |   | 25,943   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Liabilities                                                                                                            |  |                  | 748,260  |   |               |   | 741,941  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|COMMITMENTS AND CONTINGENCIES (Note 9)                                                                                       |  |                  |          |   |               |   |          |  
|STOCKHOLDERS EQUITY:                                                                                                        |  |                  |          |   |               |   |          |  
|Iowa Telecommunications Services, Inc. stockholders equity                                                                  |  |                  |          |   |               |   |          |  
|Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding                             |  |                  |         |   |               |   |         |  
|Common stock, $0.01 par value, 100,000,000 shares authorized, 32,193,036 and 32,224,844 issued and outstanding,
respectively |  |                  | 322      |   |               |   | 322      |  
|Additional paid-in capital                                                                                                   |  |                  | 332,722  |   |               |   | 333,614  |  
|Accumulated deficit                                                                                                          |  |                  | (153,383 | ) |               |   | (162,757 | )
|Accumulated other comprehensive loss                                                                                         |  |                  | (12,094  | ) |               |   | (11,991  | )
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Stockholders Equity                                                                                                   |  |                  | 167,567  |   |               |   | 159,188  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Liabilities and Stockholders Equity                                                                                   |  | $                | 915,827  |   |               | $ | 901,129  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  

See notes to condensed consolidated financial statements.



1



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Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(Amounts in Thousands, Except Per Share Data)



|                                                                       |  |                             |        |   |      |   |        |  
|---------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                       |  | Three Months EndedMarch 31, |       
|                                                                       |  | 2009                        |        |   | 2010 |  
|REVENUES AND SALES                                                     |  | $                           | 61,288 |   |      | $ | 67,406 |  
|OPERATING COSTS AND EXPENSES:                                          |  |                             |        |   |      |   |        |  
|Cost of services and sales (exclusive of items shown separately below) |  |                             | 20,234 |   |      |   | 23,634 |  
|Selling, general and administrative                                    |  |                             | 12,202 |   |      |   | 12,683 |  
|Depreciation and amortization                                          |  |                             | 13,990 |   |      |   | 16,262 |  
|                                                                       |  |                             |        |   |      |   |        |  
|Total Operating Costs and Expenses                                     |  |                             | 46,426 |   |      |   | 52,579 |  
|                                                                       |  |                             |        |   |      |   |        |  
|OPERATING INCOME                                                       |  |                             | 14,862 |   |      |   | 14,827 |  
|                                                                       |  |                             |        |   |      |   |        |  
|OTHER INCOME (EXPENSE):                                                |  |                             |        |   |      |   |        |  
|Interest and dividend income                                           |  |                             | 873    |   |      |   | 617    |  
|Interest expense                                                       |  |                             | (7,596 | ) |      |   | (8,152 | )
|Other, net                                                             |  |                             | (159   | ) |      |   | (173   | )
|                                                                       |  |                             |        |   |      |   |        |  
|Total Other Expense, net                                               |  |                             | (6,882 | ) |      |   | (7,708 | )
|                                                                       |  |                             |        |   |      |   |        |  
|EARNINGS BEFORE INCOME TAXES                                           |  |                             | 7,980  |   |      |   | 7,119  |  
|INCOME TAX EXPENSE                                                     |  |                             | 3,471  |   |      |   | 3,035  |  
|                                                                       |  |                             |        |   |      |   |        |  
|NET INCOME                                                             |  |                             | 4,509  |   |      |   | 4,084  |  
|Net loss attributable to noncontrolling interest                       |  |                             | 98     |   |      |   |       |  
|                                                                       |  |                             |        |   |      |   |        |  
|NET INCOME ATTRIBUTABLE TO IOWA TELECOMMUNICATIONS SERVICES, INC.      |  | $                           | 4,607  |   |      | $ | 4,084  |  
|                                                                       |  |                             |        |   |      |   |        |  
|EARNINGS PER SHARE:                                                    |  |                             |        |   |      |   |        |  
|BASIC - Earnings Per Share                                             |  | $                           | 0.14   |   |      | $ | 0.11   |  
|                                                                       |  |                             |        |   |      |   |        |  
|BASIC - Weighted Average Number of Shares Outstanding                  |  |                             | 31,594 |   |      |   | 32,200 |  
|                                                                       |  |                             |        |   |      |   |        |  
|DILUTED - Earnings Per Share                                           |  | $                           | 0.14   |   |      | $ | 0.11   |  
|                                                                       |  |                             |        |   |      |   |        |  
|DILUTED - Weighted Average Number of Shares Outstanding                |  |                             | 32,149 |   |      |   | 32,231 |  
|                                                                       |  |                             |        |   |      |   |        |  
|Dividends Declared Per Share                                           |  | $                           | 0.405  |   |      | $ | 0.405  |  
|                                                                       |  |                             |        |   |      |   |        |  

See notes to condensed consolidated financial statements.



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Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income

(Unaudited)

(Dollars in Thousands, Except Per Share Amounts)



|                                                           |  |                                            |   |  |             |     |                          |   |         |                    |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|---------------------------------------------------------- |  | ------------------------------------------ | - |  | ----------- | --- | ------------------------ | - | ------- | ------------------ |  | - | ------------------------------------------ | - |  | ---------------------- | ------- | - | ----- | - | --- | - |  | - | ------- | -
|                                                           |  | Three Months Ended March 31, 2009 and 2010 |  
|                                                           |  | CommonShares                               |   |  | CommonStock |     | AdditionalPaid-InCapital |   |         | AccumulatedDeficit |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | NoncontrollingInterest |         |   | Total |  
|Balance, December 31, 2008                                 |  | 31,500,687                                 |   |  | $           | 315 |                          | $ | 327,264 |                    |  | $ | (110,814                                   | ) |  | $                      | (14,308 | ) |       | $ | 287 |   |  | $ | 202,744 |  
|Net income                                                 |  |                                           |   |  |             |    |                          |   |        |                    |  |   | 4,607                                      |   |  |                        |        |   |       |   | (98 | ) |  |   | 4,509   |  
|Unrealized gain on derivatives, net of tax effect          |  |                                           |   |  |             |    |                          |   |        |                    |  |   |                                           |   |  |                        | 66      |   |       |   |    |   |  |   | 66      |  
|Post retirement benefit plan adjustment, net of tax effect |  |                                           |   |  |             |    |                          |   |        |                    |  |   |                                           |   |  |                        | (27     | ) |       |   |    |   |  |   | (27     | )
|                                                           |  |                                            |   |  |             |     |                          |   |         |                    |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|Total comprehensive income (loss)                          |  |                                           |   |  |             |    |                          |   |        |                    |  |   | 4,607                                      |   |  |                        | 39      |   |       |   | (98 | ) |  |   | 4,548   |  
|Compensation from compensatory stock plans                 |  | 6,000                                      |   |  |             |    |                          |   | 885     |                    |  |   |                                           |   |  |                        |        |   |       |   |    |   |  |   | 885     |  
|Exercise of employee stock options                         |  | 419,116                                    |   |  |             | 4   |                          |   | 585     |                    |  |   |                                           |   |  |                        |        |   |       |   |    |   |  |   | 589     |  
|Capital contributions from noncontrolling interest         |  |                                           |   |  |             |    |                          |   | 34      |                    |  |   |                                           |   |  |                        |        |   |       |   | 161 |   |  |   | 195     |  
|Dividends declared ($.405 per share)                       |  |                                           |   |  |             |    |                          |   |        |                    |  |   | (13,242                                    | ) |  |                        |        |   |       |   |    |   |  |   | (13,242 | )
|                                                           |  |                                            |   |  |             |     |                          |   |         |                    |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|Balance, March 31, 2009                                    |  | 31,925,803                                 |   |  | $           | 319 |                          | $ | 328,768 |                    |  | $ | (119,449                                   | ) |  | $                      | (14,269 | ) |       | $ | 350 |   |  | $ | 195,719 |  
|                                                           |  |                                            |   |  |             |     |                          |   |         |                    |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|Balance, December 31, 2009                                 |  | 32,193,036                                 |   |  | $           | 322 |                          | $ | 332,722 |                    |  | $ | (153,383                                   | ) |  | $                      | (12,094 | ) |       | $ |    |   |  | $ | 167,567 |  
|Net income                                                 |  |                                           |   |  |             |    |                          |   |        |                    |  |   | 4,084                                      |   |  |                        |        |   |       |   |    |   |  |   | 4,084   |  
|Unrealized gain on derivatives, net of tax effect          |  |                                           |   |  |             |    |                          |   |        |                    |  |   |                                           |   |  |                        | 101     |   |       |   |    |   |  |   | 101     |  
|Post retirement benefit plan adjustment, net of tax effect |  |                                           |   |  |             |    |                          |   |        |                    |  |   |                                           |   |  |                        | 2       |   |       |   |    |   |  |   | 2       |  
|                                                           |  |                                            |   |  |             |     |                          |   |         |                    |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|Total comprehensive income                                 |  |                                           |   |  |             |    |                          |   |        |                    |  |   | 4,084                                      |   |  |                        | 103     |   |       |   |    |   |  |   | 4,187   |  
|Compensation from compensatory stock plans                 |  | 6,000                                      |   |  |             |    |                          |   | 1,090   |                    |  |   |                                           |   |  |                        |        |   |       |   |    |   |  |   | 1,090   |  
|Shares reacquired                                          |  | (12,333                                    | ) |  |             |    |                          |   | (207    | )                  |  |   |                                           |   |  |                        |        |   |       |   |    |   |  |   | (207    | )
|Exercise of employee stock options                         |  | 38,141                                     |   |  |             |    |                          |   | 9       |                    |  |   |                                           |   |  |                        |        |   |       |   |    |   |  |   | 9       |  
|Dividends declared ($.405 per share)                       |  |                                           |   |  |             |    |                          |   |        |                    |  |   | (13,458                                    | ) |  |                        |        |   |       |   |    |   |  |   | (13,458 | )
|                                                           |  |                                            |   |  |             |     |                          |   |         |                    |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|Balance, March 31, 2010                                    |  | 32,224,844                                 |   |  | $           | 322 |                          | $ | 333,614 |                    |  | $ | (162,757                                   | ) |  | $                      | (11,991 | ) |       | $ |    |   |  | $ | 159,188 |  
|                                                           |  |                                            |   |  |             |     |                          |   |         |                    |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  

See notes to condensed consolidated financial statements.



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Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in Thousands)



|                                                                              |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | Three Months EndedMarch 31, |        
|                                                                              |  | 2009                        |         |   | 2010 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                         |  |                             |         |   |      |   |         |  
|Net income                                                                    |  | $                           | 4,509   |   |      | $ | 4,084   |  
|Adjustments to reconcile net income to cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Depreciation                                                                  |  |                             | 13,582  |   |      |   | 15,438  |  
|Amortization of intangible assets                                             |  |                             | 408     |   |      |   | 824     |  
|Amortization of debt issuance costs                                           |  |                             | 174     |   |      |   | 384     |  
|Deferred income taxes                                                         |  |                             | 3,421   |   |      |   | 2,857   |  
|Non-cash stock-based compensation expense                                     |  |                             | 885     |   |      |   | 1,090   |  
|Changes in operating assets and liabilities, net of impact of acquisitions:   |  |                             |         |   |      |   |         |  
|Receivables                                                                   |  |                             | 1,902   |   |      |   | (780    | )
|Inventories                                                                   |  |                             | (454    | ) |      |   | (119    | )
|Accounts payable                                                              |  |                             | (2,447  | ) |      |   | (2,004  | )
|Other assets and liabilities                                                  |  |                             | (4,457  | ) |      |   | (5,820  | )
|                                                                              |  |                             |         |   |      |   |         |  
|Net Cash Provided by Operating Activities                                     |  |                             | 17,523  |   |      |   | 15,954  |  
|                                                                              |  |                             |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                         |  |                             |         |   |      |   |         |  
|Capital expenditures                                                          |  |                             | (3,627  | ) |      |   | (3,043  | )
|Business acquisitions and settlements                                         |  |                             | (324    | ) |      |   | 2,244   |  
|                                                                              |  |                             |         |   |      |   |         |  
|Net Cash Used in Investing Activities                                         |  |                             | (3,951  | ) |      |   | (799    | )
|                                                                              |  |                             |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                         |  |                             |         |   |      |   |         |  
|Net change in revolving credit facility                                       |  |                             | (6,000  | ) |      |   | (2,000  | )
|Proceeds from exercise of stock options                                       |  |                             | 589     |   |      |   | 9       |  
|Payment on long-term debt                                                     |  |                             | (297    | ) |      |   | (507    | )
|Capital contributions from noncontrolling interests                           |  |                             | 195     |   |      |   |        |  
|Shares reacquired                                                             |  |                             |        |   |      |   | (207    | )
|Dividends paid                                                                |  |                             | (12,949 | ) |      |   | (13,341 | )
|                                                                              |  |                             |         |   |      |   |         |  
|Net Cash Used in Financing Activities                                         |  |                             | (18,462 | ) |      |   | (16,046 | )
|                                                                              |  |                             |         |   |      |   |         |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                       |  |                             | (4,890  | ) |      |   | (891    | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                              |  |                             | 11,605  |   |      |   | 12,259  |  
|                                                                              |  |                             |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                    |  | $                           | 6,715   |   |      | $ | 11,368  |  
|                                                                              |  |                             |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                             |  |                             |         |   |      |   |         |  
|Cash paid for interest                                                        |  | $                           | 7,435   |   |      | $ | 8,056   |  
|                                                                              |  |                             |         |   |      |   |         |  
|Cash paid for income taxes                                                    |  | $                           | 1       |   |      | $ | 151     |  
|                                                                              |  |                             |         |   |      |   |         |  

SUPPLEMENTAL NON-CASH ACTIVITIES:

Dividends on Common Stock of $13,242 were declared on March 16, 2009 for shareholders of record as of March 31, 2009 and the
dividends were paid on April 15, 2009.

Dividends on Common Stock of $13,458 were declared on March 15, 2010 for
shareholders of record as of March 31, 2010 and the dividends were paid on April 15, 2010.

See notes to condensed
consolidated financial statements.



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##### Table of Contents

Iowa Telecommunications Services, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Iowa Telecommunications Services, Inc. and Subsidiaries (the
Company, Iowa Telecom, we, us or our) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim
financial information. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted or condensed pursuant
to such rules and regulations. In the opinion of the Companys management, all adjustments (consisting of only normal and recurring accruals) have been made to present fairly the consolidated balance sheets, statements of income and statements
of cash flows for the periods presented. The statements of income for the periods presented are not necessarily indicative of the results to be expected for the full year. Although the Company believes that the disclosures are adequate to make the
information presented not misleading, these unaudited condensed consolidated financial statements should be read in conjunction with the Companys audited consolidated financial statements as of and for the year ended December 31, 2009,
that are included in the Companys most recently filed annual report on Form 10-K as filed with the SEC.

Windstream Merger
Agreement

On November 23, 2009, the Company entered into a definitive Agreement and Plan of Merger (the
Merger Agreement) with Windstream Corporation, a Delaware corporation (Windstream), and Buffalo Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Windstream (Newco). The Merger Agreement
provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, the Company will merge with and into Newco, with Newco continuing as the surviving corporation (the Merger). Pursuant to the Merger Agreement,
at the effective time and as a result of the Merger, each share of Iowa Telecom common stock, par value $0.01 per share, issued and outstanding immediately prior to the effective time of the Merger will be converted into and become exchangeable for
(i) shares of common stock of Windstream at a fixed exchange ratio of 0.804 and (ii) $7.90 in cash. In connection with the Merger, each outstanding stock option under our 2002 Stock Incentive Plan will be converted into the right to
receive the merger consideration, less the exercise price of the stock option. Each share of restricted stock awarded under our 2005 Stock Incentive Plan will be treated the same as any other outstanding share of Company common stock, but the
forfeiture provisions and other terms and conditions of the restricted stock will continue to apply to the merger consideration received for the restricted stock and the cash portion of the consideration will be retained by Windstream until the
restrictions have lapsed.

The transaction is expected to close mid2010. Completion of the Merger with Windstream is
conditioned upon the receipt of certain governmental consents and approvals, and Iowa Telecom shareholders approval. The Iowa Telecom shareholders approved the transaction at a special meeting on March 25, 2010. No assurance can be given
that the other required conditions to closing will be satisfied or that the Merger will be completed.

Factors outside of
managements control could delay or prevent completion of the proposed Merger. In the event of a termination of the Merger Agreement, we may be required to pay Windstream a termination fee of $25.0 million in certain circumstances. Pending
completion of the Merger, Iowa Telecom is subject to various covenants contained in the Merger Agreement that restrict Iowa Telecoms ability to operate its business outside the ordinary course of business.

Recently Issued Accounting Pronouncements

In December 2007, the FASB issued revised guidance regarding Business Combinations. The revised guidance requires an
acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions, and also includes a substantial number of new disclosure requirements. The revised guidance
applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The revised guidance requires acquisition related costs to
be expensed as incurred. During the first quarter of 2009, the Company expensed acquisition related costs of $868,000 that had been deferred pursuant to the prior guidance on acquisitions that did not close before to the adoption date on
January 1, 2009. Other than expensing acquisition costs deferred pursuant to prior guidance as discussed above, the adoption of the revised guidance did not have a material impact on the Companys consolidated balance sheets, statements of
income or statements of cash flows.



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##### Table of Contents

In January 2010, the FASB issued FASB ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. FASB ASU 2010-06 requires new disclosures and clarifies existing disclosure requirements about fair value measurements as set forth in the FASB Codification Subtopic
820-10. FASB ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair
value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years beginning after December 15, 2010. Early adoption is permitted. Adoption of FASB ASU
2010-06 impacts disclosures only and did not have an impact on the Companys condensed consolidated balance sheets, statements of income or statements of cash flows.

2. EARNINGS PER SHARE

Basic earnings per share is computed based on the weighted average number of common shares issued and outstanding during the period,
including unvested restricted shares. Diluted earnings per share is computed based on the weighted average common shares issued and outstanding plus equivalent shares assuming exercise of stock options. The dilutive effect of stock options is
computed by application of the treasury stock method. The following is a reconciliation between basic and diluted weighted average shares outstanding:



|                                                                                       |  |                                          |        |   |      |   |        |  
|-------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                       |  | Three Months EndedMarch 31,              |       
|                                                                                       |  | 2009                                     |        |   | 2010 |  
|                                                                                       |  | (in thousands,
except per share amounts) |       
|Net income attributable to Iowa Telecommunications Services, Inc.                      |  | $                                        | 4,607  |   |      | $ | 4,084  |  
|Net income allocated to unvested compensatory stock                                    |  |                                          | (84    | ) |      |   | (408   | )
|                                                                                       |  |                                          |        |   |      |   |        |  
|Net income attributable to Iowa Telecommunications Services, Inc. common shares        |  | $                                        | 4,523  |   |      | $ | 3,676  |  
|                                                                                       |  |                                          |        |   |      |   |        |  
|Basic shares outstanding:                                                              |  |                                          |        |   |      |   |        |  
|Weighted average basic shares outstanding                                              |  |                                          | 32,182 |   |      |   | 32,965 |  
|Less unvested compensatory stock included in weighted average basic shares outstanding |  |                                          | (588   | ) |      |   | (765   | )
|                                                                                       |  |                                          |        |   |      |   |        |  
|Weighted average shares outstanding for basic earnings per common share                |  |                                          | 31,594 |   |      |   | 32,200 |  
|                                                                                       |  |                                          |        |   |      |   |        |  
|Diluted shares outstanding:                                                            |  |                                          |        |   |      |   |        |  
|Weighted average shares outstanding for basic earnings per common share                |  |                                          | 31,594 |   |      |   | 32,200 |  
|Add shares issuable upon exercise of stock options                                     |  |                                          | 555    |   |      |   | 31     |  
|                                                                                       |  |                                          |        |   |      |   |        |  
|Weighted average number of shares outstanding  diluted                                |  |                                          | 32,149 |   |      |   | 32,231 |  
|                                                                                       |  |                                          |        |   |      |   |        |  
|Earnings Per Share:                                                                    |  |                                          |        |   |      |   |        |  
|Basic                                                                                  |  | $                                        | 0.14   |   |      | $ | 0.11   |  
|Diluted                                                                                |  | $                                        | 0.14   |   |      | $ | 0.11   |  

As of March 31,
2009 and 2010, total options outstanding were 258,463 and none, respectively.



6



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##### Table of Contents

3. NONCONTROLLING INTEREST

The following table presents the effects of changes in Iowa Telecoms ownership interest in its partially-owned subsidiary on Iowa
Telecoms equity:



|                                                                                                                         |  |                                                                                             |       |      |   |      
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------- | ----- | ---- | - | -----
|                                                                                                                         |  | Net Income Attributable toIowa Telecommunicationsand Transfers 
fromNoncontrolling Interest
|                                                                                                                         |  | Three Months EndedMarch 
31,                                                               
|                                                                                                                         |  | 2009                                                                                        |       | 2010
|                                                                                                                         |  | (dollars in thousands)                                                                     
|Net income attributable to Iowa Telecommunications Services, Inc.                                                        |  | $                                                                                           | 4,607 |      | $ | 4,084
|Increase in Iowa Telecommunications Services, Inc. paid-in capital for issuance of shares                                |  |                                                                                             | 34    |      |   |     
|                                                                                                                         |  |                                                                                             |       |      |   |      
|Change from net income attributable to Iowa Telecommunications Services, Inc. and transfers from noncontrolling
interest |  | $                                                                                           | 4,641 |      | $ | 4,084
|                                                                                                                         |  |                                                                                             |       |      |   |      

4. REVENUES AND SALES

The table below sets forth the components of revenues and sales for the three months ended March 31, 2009 and 2010:



|                           |  |                             |        |      |   |       
|-------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                           |  | Three Months EndedMarch 31,
|                           |  | 2009                        |        | 2010
|Local services             |  | $                           | 18,085 |      | $ | 19,274
|Network access services    |  |                             | 21,854 |      |   | 21,868
|Toll services              |  |                             | 5,566  |      |   | 5,377 
|Data and internet services |  |                             | 9,655  |      |   | 12,235
|Other services and sales   |  |                             | 6,128  |      |   | 8,652 
|                           |  |                             |        |      |   |       
|Total revenues and sales   |  | $                           | 61,288 |      | $ | 67,406
|                           |  |                             |        |      |   |       

5. EMPLOYEE BENEFIT PLANS

Retirement Pension Plan

The Company sponsors the Iowa Telecom Pension Plan (the Plan), a defined benefit pension plan, that covers many former GTE
Midwest Incorporated (GTE) employees. The provisions of the Plan were assumed by the Company in connection with the Companys acquisition of the Iowa operations of GTE in 2000 (GTE Acquisition). The Plan generally
provides for employee retirement at age 65 with benefits based upon length of service and compensation. The Plan provides for early retirement, lump sum benefits, and various annuity options. Approximately 40 employees accrue benefits under the
plan. There were no contributions made to the Plan during the first quarter of 2009 and 2010.



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##### Table of Contents

Components of pension benefit cost are as follows:



|                                                |  |                             |      |   |      |   |      |  
|----------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                                |  | Three Months EndedMarch 31, |     
|                                                |  | 2009                        |      |   | 2010 |  
|                                                |  | (dollars in thousands)      |     
|Pension Benefit Cost:                           |  |                             |      |   |      |   |      |  
|Service cost                                    |  | $                           | 61   |   |      | $ | 64   |  
|Interest cost                                   |  |                             | 201  |   |      |   | 211  |  
|Expected return on plan assets                  |  |                             | (168 | ) |      |   | (197 | )
|Amortization of unrecognized actuarial loss     |  |                             | 57   |   |      |   | 45   |  
|Amortization of unrecognized prior service cost |  |                             | 7    |   |      |   | 7    |  
|                                                |  |                             |      |   |      |   |      |  
|Net periodic benefit cost                       |  | $                           | 158  |   |      | $ | 130  |  
|                                                |  |                             |      |   |      |   |      |  

The benefits to be paid to participants at their normal retirement age of 65 are fixed.

Postretirement Benefits

The Company assumed a postretirement benefit plan obligation for employees who qualified for benefits at the date of the GTE Acquisition.
This plan provides for defined medical and life insurance benefits to select employees who satisfy the requirements for an early or normal pension under the defined benefit pension plan.

Components of postretirement benefit cost (income) are as follows:



|                                                   |  |                             |      |   |      |   |     |  
|-------------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | --- | -
|                                                   |  | Three Months EndedMarch 31, |     
|                                                   |  | 2009                        |      |   | 2010 |  
|                                                   |  | (dollars in thousands)      |     
|Postretirement Benefit Cost (Income):              |  |                             |      |   |      |   |     |  
|Service cost                                       |  | $                           | 1    |   |      | $ | 1   |  
|Interest cost                                      |  |                             | 42   |   |      |   | 36  |  
|Amortization of unrecognized net actuarial loss    |  |                             |     |   |      |   | 11  |  
|Amortization of unrecognized prior service benefit |  |                             | (110 | ) |      |   | (61 | )
|                                                   |  |                             |      |   |      |   |     |  
|Net periodic benefit income                        |  | $                           | (67  | ) |      | $ | (13 | )
|                                                   |  |                             |      |   |      |   |     |  

6. LONG-TERM DEBT AND REVOLVING CREDIT FACILITIES



|                                                   |  |                        |         |  
|-------------------------------------------------- |  | ---------------------- | ------- | -
|                                                   |  | As ofMarch 31,
2010    |        
|                                                   |  | (dollars in thousands) |        
|Total Long-Term Debt:                              |  |                        |         |  
|Iowa Telecom senior secured credit facility:       |  |                        |         |  
|Term Loan B (including Incremental Term Loan)      |  | $                      | 475,000 |  
|Term Loan C                                        |  |                        | 70,000  |  
|Term Loan D                                        |  |                        | 7,778   |  
|EN-TEL Communications, LLC debt                    |  |                        | 10,905  |  
|SHAL, LLC debt                                     |  |                        | 4,300   |  
|                                                   |  |                        |         |  
|Total Debt                                         |  |                        | 567,983 |  
|Less current portion                               |  |                        | (2,470  | )
|                                                   |  |                        |         |  
|Long-term debt obligations, net of current portion |  | $                      | 565,513 |  
|                                                   |  |                        |         |  



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##### Table of Contents

Iowa Telecom Credit Facilities

As of March 31, 2010, the Company had outstanding $552.8 million of senior debt under the Iowa Telecom term loan facilities and had
$35.0 million drawn under its $100.0 million revolving credit facility. The details of the credit facilities are as follows:

The revolving credit facility will expire in November 2011 and permits borrowings up to the aggregate principal amount of $100.0 million
(less amounts reserved for letters of credit up to a maximum amount of $25.0 million). As of March 31, 2010, $35.0 million was outstanding on the revolving credit facility and $65.0 million was available. Borrowings under the revolving credit
facility bear interest per annum at either (a) the London inter-bank offered rate, or LIBOR, plus 2.0% or (b) a base rate plus 1.0%. As of March 31, 2010, the Company had $35.0 million outstanding under LIBOR elections at an average
all-in rate of 2.24%. As of March 31, 2009, the Company had $33.0 million outstanding under LIBOR elections at an average all-in rate of 2.52%.

Term Loan B is a $400.0 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a
LIBOR rate plus an applicable rate adder of 1.75% per annum or (b) a base rate election plus an applicable rate adder of 0.75% per annum. As of March 31, 2010, $350.0 million of Term Loan B was based upon a LIBOR election
effective through June 30, 2010 at an all-in rate of 2.04%. The all-in rate on the $350.0 million Term Loan B as of March 31, 2009 was 2.99%. The Company entered into interest rate swap agreements to fix the rate on $350.0 million of Term
Loan B as more fully described below. As of March 31, 2010, the interest rate on the remaining $50.0 million was based upon a LIBOR election effective through April 22, 2010 at an all-in rate of 1.99%. The all-in rate on the $50.0 million
Term Loan B as of March 31, 2009 was 2.21%.

On July 1, 2009, Iowa Telecom entered into an Incremental Loan
Amendment (the Incremental Amendment) to the Amended and Restated Credit Agreement dated as of November 23, 2004 (as amended from time to time, the Credit Agreement), among Iowa Telecom, the lenders party thereto and
Rural Telephone Finance Cooperative, as administrative agent. Pursuant to the Incremental Amendment, Iowa Telecom borrowed $75.0 million in incremental loans under the incremental loan facility provided under the Credit Agreement. The
incremental loans bear interest at either a base rate plus 1.00% (in the case of base rate loans) or LIBOR plus 2.00% (in the case of Eurodollar loans), at the election of Iowa Telecom. The incremental loans are subject to the terms and conditions
of the Credit Agreement and are entitled to the benefits of the collateral security provided to the other loans made pursuant to the Credit Agreement. The maturity date of the incremental loans is November 23, 2011. As of March 31, 2010,
the interest rate on the $75.0 million was based upon a LIBOR election effective through April 5, 2010 at all-in-rate of 2.23%.

Term Loan C is a $70.0 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a
fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. Effective August 1, 2007, the Company elected a new all-in fixed interest rate of 6.95% through June 2011 on Term Loan C. Upon the expiration of the fixed
interest rate period, the term loan will convert to the Rural Telephone Finance Cooperative-base variable rate plus 0.85%.

Term Loan D is a $7.8 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a
fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. Effective August 1, 2007, the Company elected a new all-in fixed interest rate of 6.95% through June 2011 on Term Loan D. Upon the expiration of the fixed
interest rate period, the term loan will convert to the Rural Telephone Finance Cooperative-base variable rate plus 0.85%.

As
a condition of borrowing under Term Loans C and D, the Company is required to invest $7.8 million, representing 10% of the total amounts of Term Loans C and D, in Subordinated Capital Certificates (SCCs) of the Rural Telephone Finance
Cooperative. The Rural Telephone Finance Cooperative will redeem the SCCs in proportion to our principal repayments on Term Loans C and D. SCCs are non-interest bearing but, as a member of the Rural Telephone Finance Cooperative, the Company shares
proportionately in the institutions net earnings.

The Iowa Telecom credit facilities are secured by substantially all
of the Companys tangible and intangible assets, properties and revenues. The credit facilities are guaranteed by all of the Companys wholly-owned subsidiaries.

The Iowa Telecom credit facilities permit the Company to pay dividends to holders of its common stock; however, they contain significant
restrictions on its ability to do so. The credit facilities contain certain negative covenants that, among other things, limit or restrict the Companys ability (as well as those of our subsidiaries) to: create liens and encumbrances; incur
debt, issue preferred stock, or enter into leases and guarantees; enter into loans, investments and acquisitions; make asset sales, transfers or dispositions; change lines of business; enter into hedging agreements; pay dividends, redeem stock, or
make certain restricted payments; amend material debt agreements or other material contracts; engage in certain transactions with affiliates; enter into sale/leaseback or synthetic lease transactions; grant negative pledges or agree to such other
restrictions relating to subsidiary dividends and distributions; make changes to its fiscal year; and engage in mergers and consolidations.



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##### Table of Contents

The Iowa Telecom credit facilities require the Company, subject to certain exceptions, to
prepay outstanding loans under the credit facilities to the extent of net cash proceeds received from the following: issuance of certain indebtedness; proceeds of certain asset sales; and casualty insurance proceeds. The credit facilities further
require the Company, subject to certain exceptions, to make prepayments under the credit facilities equal to 50% of any net increase in the following: distributable cash during a dividend suspension period, as defined; and cumulative distributable
cash, as defined, during the fiscal year less the cumulative reductions of revolving loans (adjusted to exclude the effects of borrowings to fund permitted acquisitions) through such period, with reductions to the percentage to be determined based
on improvements in certain credit ratios. A mandatory prepayment of $378,000 is due prior to April 30, 2010 under these provisions. The Iowa Telecom credit facilities generally permit voluntary prepayments of the term loans and reductions of
commitments without penalty or premium, other than standard breakage costs.

In addition, the financial covenants under the
Iowa Telecom credit facilities specify, among other things, certain fixed charge coverage ratios and a maximum total leverage ratio, as defined, all of which the Company was in compliance with as of March 31, 2010.

EN-TEL Communications, LLC (EN-TEL) Notes Payable

On July 18, 2008, the Company acquired Bishop Communications Corporation (Bishop Communications). As part of the
acquisition, the Company assumed debt of $13.0 million issued by EN-TEL Communications, LLC, a majority-owned subsidiary of Bishop Communications. The EN-TEL debt consists of notes payable to the Rural Telephone Finance Cooperative which have
quarterly installments of principal and interest. The notes currently bear interest at an average all-in fixed rate of 7.00%. As of March 31, 2009, the all-in rate was 7.20%. The notes have a fixed interest rate for specific periods of time
ranging from July 2010 through December 2013 and will thereafter be either at a variable interest rate or renegotiated at a fixed rate at the end of the specified period. The promissory notes mature in 2015 and 2018. Principal payments of $319,000
were made during the three months ended March 31, 2010. The remaining scheduled payments are $995,000 in 2010, $1.4 million in 2011, $1.5 million in 2012, $1.6 million in 2013, $1.7 million in 2014, and $3.5 million thereafter.

The notes are secured by the assets of EN-TEL. The debt agreements restrict dividends paid by EN-TEL and no amounts are currently
available for dividends.

As a condition of borrowing from the RTFC, the Company is required to invest $1.1 million in SCCs.

SHAL, LLC Notes Payable

On July 1, 2009, the Company acquired substantially all of the assets of Sherburne Tele Systems, Inc. (the Sherburne
Assets). As part of the acquisition, the Company became the majority owner of SHAL, LLC. As a result, the Company began reflecting the results of operations, cash flows and financial position of SHAL, LLC on a consolidated basis. At the time
of the acquisition of the Sherburne Assets, SHAL, LLC had debt outstanding of $4.9 million. The debt is represented by promissory notes payable to the Rural Telephone Finance Cooperative which have quarterly installments of principal and interest.
The notes currently bear interest at an average all-in fixed rate of 7.20%. The notes have a fixed interest rate for specific periods through January 2012 and will thereafter be either at a variable interest rate or renegotiated at a fixed rate at
the end of the specified period. The promissory notes mature in October 2014. A principal payment of $188,000 was made during the quarter ended March 31, 2010. The remaining scheduled payments are $584,000 in 2010, $830,000 in 2011, $893,000 in
2012, $960,000 in 2013, $1.0 million in 2014.

The notes are secured by the assets of SHAL, LLC and SHAL Networks, Inc. The
debt agreements restrict dividends paid by SHAL, LLC. Currently, $993,000 is available for dividends.

As a condition of
borrowing from the RTFC, the Company is required to invest $224,000 in SCCs.



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##### Table of Contents

Interest Rate Swaps

On August 26, 2005, the Company amended an interest rate swap agreement that was originally entered into on November 4, 2004.
The amended swap arrangement resulted in two identical swap agreements which each fixed the interest rate the Company will pay on $175.0 million of indebtedness under Term Loan B, for a total swap notional value of $350.0 million. Effective
September 26, 2008, the Company terminated one of its swap agreements which the Company designated as a hedge against the variability in future interest payments due on $175.0 million of Term Loan B. The Company entered into a new swap
agreement effective September 30, 2008 to replace the terminated swap agreement. The amended terms of the new swap agreement and the remaining swap agreement effective August 31, 2005, effectively convert the variable rate interest
payments due on $350.0 million of Term Loan B to a fixed rate of 5.87% through maturity at November 23, 2011.

7. STOCK INCENTIVE
PLANS

2002 Stock Incentive Plan

The Iowa Telecommunications, Inc. 2002 Stock Incentive Plan (the 2002 Incentive Plan) allows for the issuance of incentive
stock options or nonqualified stock options. Under the 2002 Incentive Plan, options have been granted for the purchase of 2,227,714 shares, of which 1,031,795 were redeemed for cash in 2004 in conjunction with the Companys initial public
offering and, as of March 31, 2010, all remaining options have been exercised. No new options will be granted under the 2002 Incentive Plan. The term of each option did not exceed 10 years from the date of grant. Options granted to employees
vested over 3 to 5 years from the date of the grant. All unvested options outstanding at the time of the closing of the Companys initial public offering vested pursuant to the terms of the 2002 Incentive Plan. The exercise price for
unexercised options was automatically decreased by the amount of dividends that would have been paid on the shares issuable upon exercise.

During the three month period ended March 31, 2009, the Company recorded $104,000 of stock-based compensation expense to reflect the
change in the fair value of the options due to the reduction of the exercise price resulting from the declaration of cash dividends.

The fair value of each option grant and subsequent modification is estimated using the Black-Scholes option-pricing model. The table
below depicts the weighted-average assumptions used in determining the options fair value at the time of the exercise price reductions.



|                                          |  |                             |   |  |     
|----------------------------------------- |  | --------------------------- | - |  | ----
|                                          |  | Three Months EndedMarch 31,
|                                          |  | 2009                        |   |  | 2010
|Weighted Average Expected Life (in years) |  | 0.7yr                       |   |  | NA  
|Risk free interest rate                   |  | 0.2                         | % |  | NA  
|Volatility                                |  | 40.5                        | % |  | NA  
|Dividend yield                            |  | 0                           | % |  | NA  

A summary of the status
of options granted under the 2002 Incentive Plan as of March 31, 2009 and 2010, and the changes during the three month periods then ended, is presented below:



|                                   |  |                                  |   |                                  |                                        |      |        |         |   |                                        |   |     
|---------------------------------- |  | -------------------------------- | - | -------------------------------- | -------------------------------------- | ---- | ------ | ------- | - | -------------------------------------- | - | ----
|                                   |  | Three Months EndedMarch 31, 2009 |   | Three Months EndedMarch 31, 2010
|Fixed Options                      |  | Shares                           |   |                                  | WeightedAverageExercise Priceper Share |      | Shares |         |   | WeightedAverageExercise Priceper Share
|OUTSTANDING AT BEGINNING OF PERIOD |  | 677,579                          |   |                                  | $                                      | 1.48 |        | 38,141  |   |                                        | $ | 0.24
|Granted                            |  |                                 |   |                                  |                                        |     |        |        |   |                                        |   |    
|Exercised                          |  | (419,116                         | ) |                                  |                                        | 1.41 |        | (38,141 | ) |                                        |   | 0.24
|                                   |  |                                  |   |                                  |                                        |      |        |         |   |                                        |   |     
|OUTSTANDING AT MARCH 31,           |  | 258,463                          |   |                                  | $                                      | 1.21 |        |        |   |                                        | $ |    
|                                   |  |                                  |   |                                  |                                        |      |        |         |   |                                        |   |     



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##### Table of Contents

2005 Stock Incentive Plan

The Iowa Telecommunications Services, Inc. 2005 Stock Incentive Plan (the 2005 Incentive Plan) allows for the issuance of up
to an aggregate of 1.5 million shares of restricted or unrestricted stock, of which 1,285,800 shares of restricted stock, net of forfeitures and cancellations, have been awarded to various officers and employees of the Company, and 20,757
shares of unrestricted stock have been issued to members of the Companys Board of Directors as of March 31, 2010.

A summary of the status of the restricted shares awarded pursuant to the 2005 Incentive Plan as of March 31, 2009 and 2010, and the
changes during the three months then ended, is presented below:



|                                   |  |                                  |     |                                  |                                     |       |        |           |     |                                     |   |      
|---------------------------------- |  | -------------------------------- | --- | -------------------------------- | ----------------------------------- | ----- | ------ | --------- | --- | ----------------------------------- | - | -----
|                                   |  | Three Months EndedMarch 31, 2009 |     | Three Months EndedMarch 31, 2010
|                                   |  | Shares                           |     |                                  | WeightedAverageGrant DateFair Value |       | Shares |           |     | WeightedAverageGrant DateFair Value
|OUTSTANDING AT BEGINNING OF PERIOD |  | 471,150                          |     |                                  | $                                   | 18.77 |        | 747,075   |     |                                     | $ | 15.97
|Granted                            |  | 299,000                          | (1) |                                  |                                     | 13.77 |        | 260,000   | (2) |                                     |   | 17.08
|Vested                             |  |                                 |     |                                  |                                     |      |        |          |     |                                     |   |     
|                                   |  |                                  |     |                                  |                                     |       |        |           |     |                                     |   |      
|OUTSTANDING AT MARCH 31,           |  | 770,150                          |     |                                  | $                                   | 16.83 |        | 1,007,075 |     |                                     | $ | 16.25
|                                   |  |                                  |     |                                  |                                     |       |        |           |     |                                     |   |      



|(1) | Weighted average
vesting period at grant date for shares granted is 49 months.
|--- | ------------------------------------------------------------------------------



|(2) | Weighted average
vesting period at grant date for shares granted is 48 months.
|--- | ------------------------------------------------------------------------------

The Company recognizes compensation cost
related to awards of restricted stock on a straight-line basis over the requisite service period for the entire award. The Company recorded $704,000 and $992,000 of stock-based compensation expense during the three month periods ended March 31,
2009 and 2010, respectively. The remaining amount to be charged to expense for the unvested awards over the remaining service periods is $11.6 million as of March 31, 2010. The Company also recorded $77,000 and $98,000 of expense during the
three month periods ended March 31, 2009 and 2010, respectively, related to the unrestricted shares issued to members of its Board of Directors.

8. DISCLOSURES ABOUT FAIR VALUE OF INTEREST RATE SWAPS

The Company is exposed to interest rate risk associated with the Companys floating rate debt. The Company entered into interest rate
swaps in order to manage interest rate risk and adjust the interest rate profile of the Companys debt to achieve a target mix of floating and fixed rate debt.

On August 26, 2005, the Company amended the interest rate swap agreement that was originally entered into on November 4, 2004.
The amended swap agreement resulted in two identical swap agreements which each fixed the interest rate the Company will pay on $175.0 million of indebtedness under Term Loan B for a total swap notional value of $350.0 million.

The guarantor of a floating rate payer under one of the interest rate swap agreements declared bankruptcy during the third quarter of
2008 resulting in a default of the agreement. In accordance with the agreement, the Company elected to terminate the agreement effective September 26, 2008. The swap agreement had been designated as a hedge against the variability in future
interest payments due on $175.0 million of Term Loan B. Accumulated Other Comprehensive Loss (Accumulated OCI) of $870,000 related to the terminated hedge recorded in the Companys Consolidated Statements of Stockholders
Equity is being amortized as an expense in the Other Income (Expense) section of the Companys Condensed Consolidated Statements of Income for the remaining term of the terminated hedge transaction through November 23, 2011.

The Company entered into a new interest rate swap agreement effective September 30, 2008, which the Company designated as a hedge
against the variability in future interest payments due on $175.0 million of Term Loan B. The terms of the new swap agreement, coupled with the remaining August 2005 interest rate swap agreement, effectively convert the variable rate interest
payments due on $350.0 million of Term Loan B to a fixed rate of 5.87% through maturity on November 23, 2011.



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The fair values of the interest rate swaps have been calculated by discounting the future
cash flows of both the fixed rate and variable rate interest payments using discount rates appropriate with consideration given to the Companys and counterparties non-performance risk. The inputs used in determining the fair value fall
within Level 2 of the fair value hierarchy, as defined in FASB ASC 820, Fair Value Measurements and Disclosures. See Note 10 for further information regarding the fair value measurement of the interest rate swaps.



|                             |  |                             |  |                        |        |                    |   |       
|---------------------------- |  | --------------------------- |  | ---------------------- | ------ | ------------------ | - | ------
|                             |  |                             |  | Fair Value            
|                             |  | Balance Sheet               |  | As ofDecember 31,2009  |        | As ofMarch 31,2010
|                             |  |                             |  | (dollars in thousands)
|Interest rate swap contracts |  | Other long-term liabilities |  | $                      | 18,289 |                    | $ | 18,303

FASB ASC 815,Derivatives and Hedging, requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. In accordance with FASB ASC 815, the interest rate swaps held by the Company are designated
and qualify as cash flow hedges of fixed-rate borrowings. The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during
which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.



|                                           |  |                                                                       |    |      |                                                |                             |  |                 |  |   |                             |   |  |                  |        |      |  |              |      |   |      |      |  |   |      |     
|------------------------------------------ |  | --------------------------------------------------------------------- | -- | ---- | ---------------------------------------------- | --------------------------- |  | --------------- |  | - | --------------------------- | - |  | ---------------- | ------ | ---- |  | ------------ | ---- | - | ---- | ---- |  | - | ---- | ----
|Gain Recognized in OCI
(effective portion) |  | Loss Reclassified 
fromAccumulated OCI into Income(effective portion) |    |      | Loss Recognized in Income(ineffective
portion) |                            
|                                           |  | Three Months EndedMarch 31,                                           |    |      |                                                | Three Months EndedMarch 31, |  |                 |  |   | Three Months EndedMarch 31, |  
|                                           |  | 2009                                                                  |    | 2010 |                                                | Income Statement            |  | 2009            |  |   | 2010                        |   |  | Income Statement |        | 2009 |  |              | 2010 |  
|                                           |  | (dollars in thousands)                                                |    |      |                                                | (dollars in thousands)      |  |                 |  |   | (dollars in thousands)      |  
|Other comprehensive income                 |  | $                                                                     | 50 |      | $                                              | 115                         |  | Interestexpense |  | $ | (2,331                      | ) |  | $                | (3,388 | )    |  | Otherexpense |      | $ | (173 | )(1) |  | $ | (192 | )(2)



|(1) | The amount of loss
recognized in income includes $110,000 related to the ineffective portion of the hedging relationship and $63,000 related to the amortization of Accumulated OCI on the terminated hedge discussed above.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The amount of loss
recognized in income includes $129,000 related to the ineffective portion of the hedging relationship and $63,000 related to the amortization of Accumulated OCI on the terminated hedge discussed above.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on the Companys consolidated balance sheets, statements of income or statements of cash flows.

In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated and disclosed subsequent events through the date the
financial statements were issued.

On November 23, 2009, the Company entered into the Merger Agreement with Windstream
and Newco. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, we will merge with and into Newco, with Newco continuing as the surviving corporation. Pursuant to the Merger Agreement,
at the effective time and as a result of the Merger, each share of Iowa Telecom common stock, par value $0.01 per share, issued and outstanding immediately prior to the effective time of the Merger will be converted into and become exchangeable for
(i) shares of common stock of Windstream at a fixed exchange ratio of 0.804 and (ii) $7.90 in cash. Each share of restricted stock awarded under our 2005 Stock Incentive Plan will be treated the same as any other outstanding share of
Company common stock, but the forfeiture provisions and other terms and conditions of the restricted stock will continue to apply to the merger consideration received for the restricted stock and the cash portion of the consideration will be
retained by Windstream until the restrictions have lapsed.

The transaction is expected to close mid - 2010. Completion of the
Merger with Windstream is conditioned upon the receipt of certain governmental consents and approvals, and Iowa Telecom shareholders approval. The Iowa Telecom shareholders approved the transaction at a special meeting on March 25, 2010.
No assurance can be given that the other required conditions to closing will be satisfied or that the Merger will be completed. Pending completion of the Merger, Iowa Telecom is subject to various covenants contained in the Merger Agreement that
restrict Iowa Telecoms ability to operate its business outside the ordinary course of business.



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Factors outside of managements control could delay or prevent completion of the
proposed Merger. In the event of a termination of the Merger Agreement, we may be required to pay Windstream a termination fee of $25.0 million in certain circumstances.

In addition, on November 24, 2009, a purported shareholder of Iowa Telecom filed a petition styled as a class action lawsuit in the
Iowa District Court for Jasper County. The case caption is: Stephen Smigel on behalf of himself and all others similarly situated v. Iowa Telecommunications Services, Inc., Alan L. Wells, Kenneth R. Cole, Norman C. Frost, Brian G. Hart, H. Lynn
Horak, Craig A. Lang, Kendrik A. Packer and Windstream Corporation. The petition alleges that Iowa Telecoms board members breached their fiduciary duties in agreeing to the Merger and that Windstream aided and abetted in the breaches of
fiduciary duties. The petition asserts, among other things, that the consideration to be paid to Iowa Telecoms shareholders is insufficient. The lawsuit seeks to enjoin the Merger. On December 15, 2009, Iowa Telecom moved to dismiss this
petition. Windstream moved to dismiss the petition on January 4, 2010. Those motions remain pending. The plaintiff filed a motion for expedited discovery on December 22, 2009. A hearing was held on the plaintiffs motion for expedited
discovery on January 15, 2010. The Court decided that it would defer a decision on the motion for expedited discovery until it decided Iowa Telecoms and Windstreams motions to dismiss.

On December 4, 2009, a second purported shareholder of Iowa Telecom filed a petition styled as a class action lawsuit in the Iowa
District Court for Jasper County. The case caption is: Francine Gerendasy, individually and on behalf of all others similarly situated v. Alan L. Wells, Kenneth R. Cole, Norman C. Frost, Brian G. Hart, H. Lynn Horak, Craig A. Lang, Kendrik E.
Packer, Iowa Telecommunications Services, Inc., Windstream Corporation, and Buffalo Merger Sub, Inc. Two additional substantially similar petitions were filed in the Iowa District Court for Jasper County on December 23 and December 29,
2009, respectively. Each of these petitions contains substantially similar allegations to the above-described petition.

On
December 11, 2009, a purported shareholder filed a complaint in the United States District Court for the Southern District of Iowa. This complaint names Iowa Telecoms individual board members, Iowa Telecom and Windstream as defendants and
asserts that Iowa Telecoms board members breached their fiduciary duties in agreeing to the Merger. It also seeks to enjoin the Merger. On December 17, 2009, the plaintiff in this action moved for expedited discovery. Windstream and Iowa
Telecom both responded in opposition to this motion. A hearing was held on the plaintiffs motion for expedited discovery on January 12, 2010. On January 21, 2010, the Court granted in part and denied in part the plaintiffs
motion for expedited discovery, ordering that Windstreams and Iowa Telecoms motions to dismiss would be heard before any discovery would begin, but that production of documents would occur on an expedited basis if the Court denies the
motions to dismiss.

On December 16, 2009, another complaint was filed in the United States District Court for the
Southern District of Iowa by a purported shareholder, seeking to enjoin the Merger. It contains allegations substantially similar to the petitions filed in the Iowa District Court for Jasper County, alleging that the individual board members of Iowa
Telecoms board of directors breached their fiduciary duties in agreeing to the Merger and that Windstream aided and abetted in the breaches of fiduciary duties.

On January 4, 2010, Iowa Telecom and Windstream moved to dismiss both complaints in the United States District Court. Those motions
remain pending. On December 18, 2009, the plaintiffs in the two United States District Court cases moved to consolidate those two actions and for the appointment of their attorneys as co-lead class counsel. The motion to consolidate the two
cases was granted on January 12, 2010.

Iowa Telecom, its directors and Windstream believe each of these lawsuits is
without merit. However, in order to eliminate the uncertainty, distraction, burden and expense of further litigation and to permit the Merger to proceed without possible delays from litigation, Iowa Telecom and Windstream have entered into a
memorandum of understanding with counsel to the various plaintiffs to settle the aforementioned actions in exchange for including additional disclosures set forth in the proxy statement/prospectus relating to the transaction. This memorandum of
understanding is subject to the terms and conditions set forth therein, including satisfactory confirmatory discovery by plaintiffs and approval of the settlement by the Iowa District Court for Jasper County. The settlement would result in all of
the above actions being dismissed with prejudice and would become effective only upon consummation of the Merger.



14



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10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

FASB ASC 820,Fair Value Measurements and Disclosures, establishes a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Cash EquivalentsCash equivalents consist of funds invested in money market funds that have daily liquidity and are
recorded at cost which approximates fair value. Therefore, cash and cash equivalents are categorized as Level 1.

Investments Held in Rabbi TrustInvestments held in a rabbi trust account to meet future obligations under a deferred
compensation plan, consist of investments in common equities and mutual funds with quoted market prices that are actively traded. Therefore, investments held in a rabbi trust account are categorized as Level 1. The fair value of the investments
held in a rabbi trust account is recorded in the Intangible Assets and Other section of the Companys Consolidated Balance Sheets.

Interest Rate SwapsThese included the Companys interest rate swap derivative instruments. The fair value of the
interest rate swaps was determined based on the present value of expected future cash flows using discount rates appropriate with consideration given to the Companys and counterparties non-performance risk utilizing inputs that are
readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized these swap contracts as Level 2. Deducted from the March 31, 2010, interest rate swap fair value
calculation was a $278,000 adjustment in consideration of the Companys non-performance risk. The Companys non-performance risk is assessed based on the current trading discount of its Term Loan B debt because the swap agreements are
secured by the same collateral. The fair value of the interest rate swaps is recorded in the Other Long-Term Liabilities section of the Companys Consolidated Balance Sheets.

The following table presents the fair value of the Companys financial instruments:



|                                                       |  |                                              |         |   |        |   |         |         |  |         |       |  |         |         |   |  |   |  
|------------------------------------------------------ |  | -------------------------------------------- | ------- | - | ------ | - | ------- | ------- |  | ------- | ----- |  | ------- | ------- | - |  | - | -
|                                                       |  | Fair Value Measurements as of March 31, 2010
|                                                       |  | CarryingAmount                               |         |   | Totals |   |         | Level 1 |  | Level 2 |       |  | Level 3
|                                                       |  | (dollars in thousands)                      
|Cash equivalents invested in money market mutual funds |  | $                                            | 3,091   |   |        | $ | 3,091   |         |  | $       | 3,091 |  | $       |        |   |  | $ | 
|Investments held in rabbi trust account                |  | $                                            | 1,027   |   |        | $ | 1,027   |         |  | $       | 1,027 |  | $       |        |   |  | $ | 
|Interest rate swaps                                    |  | $                                            | (18,303 | ) |        | $ | (18,303 | )       |  | $       |      |  | $       | (18,303 | ) |  | $ | 



|                                                       |  |                                                 |         |   |        |   |         |         |  |         |       |  |         |         |   |  |   |  
|------------------------------------------------------ |  | ----------------------------------------------- | ------- | - | ------ | - | ------- | ------- |  | ------- | ----- |  | ------- | ------- | - |  | - | -
|                                                       |  | Fair Value Measurements as of December 31, 2009
|                                                       |  | CarryingAmount                                  |         |   | Totals |   |         | Level 1 |  | Level 2 |       |  | Level 3
|                                                       |  | (dollars in thousands)                         
|Cash equivalents invested in money market mutual funds |  | $                                               | 6,841   |   |        | $ | 6,841   |         |  | $       | 6,841 |  | $       |        |   |  | $ | 
|Investments held in rabbi trust account                |  | $                                               | 938     |   |        | $ | 938     |         |  | $       | 938   |  | $       |        |   |  | $ | 
|Interest rate swaps                                    |  | $                                               | (18,289 | ) |        | $ | (18,289 | )       |  | $       |      |  | $       | (18,289 | ) |  | $ | 

See Note
8 for additional information regarding the fair value of the Companys interest rate swap agreements.

Carrying Amount and Fair
Value of Other Financial Instruments

Long-Term InvestmentsLong-term investments consist primarily
of Rural Telephone Finance Cooperative (RTFC) Subordinated Capital Certificates and Patronage Capital Certificates. It is not practicable to estimate the fair value of the RTFC Subordinated Capital Certificates because there is no quoted
market price for these instruments. Therefore, the RTFC Subordinated Capital Certificates are recorded at cost. Ownership of RTFC Subordinated Capital Certificates is a requirement of the Companys debt agreement with the RTFC.



15



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##### Table of Contents

DebtThe fair value of the Term Loan C, Term Loan D, EN-TEL debt and SHAL
debt was estimated using discounted cash flow calculations and current market interest rates. The fair value of the Term Loan B debt was estimated based upon recent observable transactions for the Term Loan B debt. See Note 6 for additional
information regarding the Companys long-term debt.

The fair value and carrying value of the Companys long-term debt, including
current maturities, was as follows:



|               |  |                        |         |                    |   |        
|-------------- |  | ---------------------- | ------- | ------------------ | - | -------
|               |  | As ofDecember 31,2009  |         | As ofMarch 31,2010
|               |  | (dollars in thousands)
|Fair value     |  | $                      | 568,582 |                    | $ | 573,824
|Carrying value |  | $                      | 568,490 |                    | $ | 567,984

11. INCOME TAXES

The Company files income tax returns in the U.S. federal jurisdiction and five state jurisdictions. The Minnesota Department of Revenue is
in the process of reviewing the return of an acquired subsidiary. The review covers both pre and post acquisition periods. The Company is fully indemnified for any tax obligations related to the pre-acquisition period. The Company has been notified
its 2008 tax return will be examined by the Internal Revenue Service. The Company is not currently under income tax examination in any other jurisdiction. For federal and state tax purposes, the Companys 2001 through 2009 tax years remain open
for examination by the tax authorities due to net operating losses remaining to be utilized.

12. GOODWILL, INTANGIBLE ASSETS AND
OTHER

The Company performs its annual impairment review of goodwill and indefinite-lived intangible assets as required by
FASB ASC 350,IntangiblesGoodwill and Other, in the third quarter of every year. No impairment of goodwill or other long-lived intangible assets resulted from the annual valuation as of August 31, 2009.



|         |  |                        |         |     |                    |   |         |    
|-------- |  | ---------------------- | ------- | --- | ------------------ | - | ------- | ---
|         |  | As ofDecember 31,2009  |         |     | As ofMarch 31,2010 |  
|         |  | (dollars in thousands) |        
|Goodwill |  | $                      | 492,956 | (1) |                    | $ | 492,956 | (1)



|(1) | Goodwill for the year December 31, 2009 and the three months ended March 31, 2010 include accumulated impairment losses of $98.4 million.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

Intangible assets and other consisted of the following:



|                                 |  |            |  |                        |        |                         |   |         |               |  |   |       
|-------------------------------- |  | ---------- |  | ---------------------- | ------ | ----------------------- | - | ------- | ------------- |  | - | ------
|                                 |  |            |  | March 31, 2010        
|                                 |  | Life       |  | Cost                   |        | AccumulatedAmortization |   |         | Net BookValue
|                                 |  |            |  | (dollars in thousands)
|Definite-lived intangible assets |  | 4-20 years |  | $                      | 31,792 |                         | $ | (9,111  | )             |  | $ | 22,681
|Debt issuance costs              |  | 7 years    |  |                        | 6,498  |                         |   | (3,972  | )             |  |   | 2,526 
|Wireless licenses                |  |           |  |                        | 18,987 |                         |   |        |               |  |   | 18,987
|Other assets                     |  | NA         |  |                        | 6,086  |                         |   |        |               |  |   | 6,086 
|                                 |  |            |  |                        |        |                         |   |         |               |  |   |       
|Total                            |  |            |  | $                      | 63,363 |                         | $ | (13,083 | )             |  | $ | 50,280
|                                 |  |            |  |                        |        |                         |   |         |               |  |   |       



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##### Table of Contents

|                                 |  |            |  |                   |        |                         |   |         |               |  |   |       
|-------------------------------- |  | ---------- |  | ----------------- | ------ | ----------------------- | - | ------- | ------------- |  | - | ------
|                                 |  |            |  | December 31, 2009
|                                 |  | Life       |  | Cost              |        | AccumulatedAmortization |   |         | Net BookValue
|                                 |  |            |  | (in thousands)   
|Definite-lived intangible assets |  | 4-20 years |  | $                 | 31,792 |                         | $ | (8,288  | )             |  | $ | 23,504
|Debt issuance costs              |  | 7 years    |  |                   | 6,498  |                         |   | (3,589  | )             |  |   | 2,909 
|Wireless licenses                |  |           |  |                   | 18,987 |                         |   |        |               |  |   | 18,987
|Other assets                     |  | NA         |  |                   | 5,838  |                         |   |        |               |  |   | 5,838 
|                                 |  |            |  |                   |        |                         |   |         |               |  |   |       
|Total                            |  |            |  | $                 | 63,115 |                         | $ | (11,877 | )             |  | $ | 51,238
|                                 |  |            |  |                   |        |                         |   |         |               |  |   |       

Amortization expense for definite-lived intangible
assets was $408,000 and $824,000 for the three months ended March 31, 2009 and 2010, respectively. Amortization expense is calculated on the straight-line method unless there is a method that more accurately reflects the consumption of the
benefit provided by the intangible asset. Estimated annual amortization expense for definite-lived intangible assets for each of the next five years and cumulative thereafter is as follows (in thousands):



|           |  |   |       
|---------- |  | - | ------
|2010       |  | $ | 2,472 
|2011       |  |   | 2,935 
|2012       |  |   | 2,553 
|2013       |  |   | 2,247 
|2014       |  |   | 2,159 
|Thereafter |  |   | 10,315
|           |  |   |       
|Total      |  | $ | 22,681
|           |  |   |       



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##### Table of Contents

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

Information contained herein contains forward-looking statements which can be identified by the use of forward-looking
terminology such as believes, expects, may, will, should, intend, or anticipates or the negative thereof or variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that the future results covered by the forward-looking statements will be achieved. Some of the matters set forth in the Risk Factors section of our Annual Report on Form 10-K for the
year ended December 31, 2009 constitute cautionary statements identifying factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future
results indicated in such forward-looking statements. Other factors could also cause actual results to vary materially from the future results indicated in such forward-looking statements. Unless otherwise stated, the forward-looking information
contained in this report does not take into account or give effect to the impact of the proposed Merger with Windstream described below. With respect to the forward-looking information contained in this report relating to the Merger, the following
factors, among others, could cause actual results to differ materially from those described in the forward-looking statements relating to the Merger: risks associated with uncertainty as to whether the Merger will be completed, costs and potential
litigation associated with the transaction, the failure of either party to meet the closing conditions set forth in the Merger Agreement, and the extent and timing of regulatory approvals.

Overview

General

Iowa Telecommunications Services, Inc. (the Company, Iowa Telecom, we, us or
our) and its subsidiaries provide wireline local exchange telecommunications services to residential and business customers in rural Iowa, Minnesota and Missouri. We currently operate 298 telephone exchanges serving 428 communities as
the incumbent or historical local exchange carrier and are the sole telecommunications company providing wireline services in approximately 67% of these communities. In addition, we provide service to residential and business customers
throughout Iowa and Minnesota as a competitive local exchange carrier. In total, we provide services to approximately 249,100 access lines.

Our core business is the provision of local telephone service to end users and network access to other telecommunications carriers for
calls originated or terminated on our network. In addition to these core activities, which generated 61% of our total revenues in the first three months of 2010, we provide long distance service, dial-up and DSL Internet access and other
communications services. We provide services as the incumbent local exchange carrier (ILEC) through Iowa Telecom and its wholly-owned subsidiaries: Lakedale Telephone Company (Lakedale Telephone) and Montezuma Mutual
Telephone Company (Montezuma Telephone). As part of our strategy of pursuing growth beyond our current service area, we compete for customers in Iowa in mostly adjacent markets through our competitive local exchange carrier subsidiaries
Iowa Telecom Communications, Inc. (ITC) and IT Communications, LLC (IT Communications). Additionally, EN-TEL Communications LLC (EN-TEL) Lakedale Link, Inc., and Lakedale Link, LLC are competitive local exchange
carriers that provide local and long distance services in Minnesota. Together, ITC, IT Communications, EN-TEL, Lakedale Link, Inc., and Lakedale Link, LLC are referred to as the CLEC or our CLEC Operations.

Windstream Merger Agreement

On November 23, 2009, we entered into a definitive Agreement and Plan of Merger (the Merger Agreement) with Windstream
Corporation, a Delaware corporation (Windstream), and Buffalo Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Windstream (Newco). The Merger Agreement provides that, upon the terms and subject to the
conditions set forth in the Merger Agreement, we will merge with and into Newco, with Newco continuing as the surviving corporation (the Merger).

Pursuant to the Merger Agreement, at the effective time and as a result of the Merger, each share of Iowa Telecom common stock
outstanding immediately prior to the effective time of the Merger will be converted into and become exchangeable for (i) shares of common stock of Windstream at a fixed exchange ratio of 0.804 and (ii) $7.90 in cash. Each share of
restricted stock awarded under our 2005 Stock Incentive Plan will be treated the same as any other outstanding share of Company common stock, but the forfeiture provisions and other terms and conditions of the restricted stock will continue to apply
to the merger consideration received for the restricted stock and the cash portion of the consideration will be retained by Windstream until the restrictions have lapsed.



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The transaction is expected to close mid2010. Completion of the Merger with Windstream
is conditioned upon the receipt of certain governmental consents and approvals, and our shareholders approval. The shareholders of Iowa Telecom approved the transaction at a special meeting on March 25, 2010. No assurance can be
given that the other required conditions to closing will be satisfied or that the Merger will be completed.

Factors outside
of managements control could delay or prevent completion of the Merger. In the event of a termination of the Merger Agreement, we may be required to pay Windstream a termination fee of $25.0 million in certain circumstances.

Iowa Telecom has agreed that until the effective time of the Merger, unless Windstream otherwise consents in writing, it will, and will
cause each of its subsidiaries to, conduct their respective businesses in the ordinary course of business and seek to preserve intact their current business organizations, and keep available the services of their officers and employees and preserve
their relationships with customers, suppliers and other persons with whom they have business relations.

In addition, Iowa
Telecom has agreed that until the Merger is completed, Iowa Telecom and its subsidiaries will not take the following actions (each as more fully described, and subject to the exceptions set forth in, the Merger Agreement), without Windstreams
prior written consent:



| |  |  | issue, deliver, sell, dispose of, pledge or otherwise encumber its capital stock, or any securities or rights convertible into or exchangeable for any
such shares or ownership interests or permit or authorize any of the above;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | redeem, purchase or otherwise acquire, or propose to redeem, purchase or otherwise acquire, its capital stock;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | split, combine, subdivide or reclassify any of its capital stock;
| | - |  | -----------------------------------------------------------------



| |  |  | except for regular quarterly cash dividends of $0.405 per share of its common stock and except for a pro-rated portion of such quarterly dividend with
respect to the quarter in which the Merger is completed, declare, set aside for payment or pay any dividend, or make any other actual, constructive or deemed distribution in respect of its capital stock, or otherwise make any payments to its
shareholders in such capacity;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of it or
any of its subsidiaries or alter through merger, liquidation, reorganization or restructuring the corporate structure of any of its subsidiaries;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | amend its articles of incorporation or bylaws;
| | - |  | ----------------------------------------------



| |  |  | grant to any current or former director or officer any increase in compensation, bonus or fringe or other benefits or grant any type of compensation or
benefit to any such person not previously receiving or entitled to receive such compensation;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | grant to any current or former employee (other than directors or officers) any increase in compensation, bonus or fringe or other benefits or grant any
type of compensation or benefit to any such person not previously receiving or entitled to receive such compensation, except to employees in the ordinary course of business, or to the extent expressly required under any benefit plan as in effect on
November 23, 2009;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | grant to any person any severance, retention, change in control or termination compensation or benefits or any increase therein, except with respect to
new hires, in the ordinary course of business, or to the extent expressly required under any benefit plan as in effect on November 23, 2009;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | enter into or adopt any benefit plan or amend in any respect any benefit plan;
| | - |  | ------------------------------------------------------------------------------



| |  |  | amend, change or modify the terms of any existing equity grants;
| | - |  | ----------------------------------------------------------------



| |  |  | enter into or make any loans to any of its officers, directors, employees, affiliates, agents or consultants;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | make any material change in financial accounting methods, principles or practices, except insofar as may have been required by a change in GAAP after
November 23, 2009;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | directly or indirectly acquire or agree to acquire in any transaction any equity interest in or business of any entity if the aggregate amount of the
consideration paid would exceed $500,000;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | (A) acquire any tangible properties or assets if the aggregate amount of the consideration paid would exceed $500,000, or (B) sell, lease (as
lessor), license, mortgage, sell and leaseback or otherwise dispose of, tangible properties or assets or any interests therein, if the aggregate amount of the consideration paid would exceed $500,000;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | encumber any tangible properties or assets or any interests therein;
| | - |  | --------------------------------------------------------------------



| |  |  | make or change any material tax election or settle or compromise any material tax liability, or change its fiscal year;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | grant or acquire, or dispose of or permit to lapse, any rights to any material intellectual property;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | incur any indebtedness, except for indebtedness incurred in the ordinary course of business under the revolving credit agreements to which Iowa Telecom
was a party on November 23, 2009, guarantees by Iowa Telecom of indebtedness of any of its subsidiaries, or indebtedness of Iowa Telecom to any of its subsidiaries;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | make, or agree or commit to make, any capital expenditure except in accordance with the capital plans for 2009 and 2010 disclosed to Windstream plus a
15% variance on an aggregate and cumulative basis;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into or amend any contract or take any other action if such contract, amendment or action would reasonably be expected to prevent or materially
impede, interfere with, hinder or delay the consummation of the Merger or any of the other transactions contemplated by the Merger Agreement;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into any material contract not in the ordinary course of business or enter into or amend any material contract to the extent consummation of the
Merger or compliance by Iowa Telecom or its subsidiaries with the provisions of the Merger Agreement would reasonably be expected to conflict with such contract;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into, modify, amend or terminate any collective bargaining agreement;
| | - |  | ---------------------------------------------------------------------------



| |  |  | voluntarily contribute or commit cash or funds to any of Iowa Telecoms pension plans or any administrator thereof for purposes of funding
shortfalls in any of Iowa Telecoms pension plans;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into a new line of business or engage in the conduct of any business in any new state which would require the receipt or transfer of governmental
approval;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | file for any permit or approval outside of the ordinary course of business, or the receipt of which would reasonably be likely to prevent or materially
impair or delay the consummation of the Merger;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | settle, compromise, dismiss, discharge or otherwise dispose of litigation or proceedings;
| | - |  | -----------------------------------------------------------------------------------------



20



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##### Table of Contents

| |  |  | take any action that would reasonably be expected to materially restrict or impede the consummation of the Merger or cause any of the conditions to the
closing of the Merger as set forth in the Merger Agreement to fail to be satisfied as of the closing date;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | approve or authorize any action to be submitted to the shareholders of Iowa Telecom for approval that is intended, or would reasonably be expected, to
prevent, impede, interfere with, delay, postpone or adversely affect the transactions contemplated by the Merger Agreement;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | make any change in its dividend policies other than as permitted by the Merger Agreement; or
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | authorize any of, or commit, resolve or agree to take any of the foregoing actions.
| | - |  | -----------------------------------------------------------------------------------

Factors Affecting Our Operating Performance

We believe that a number of industry and Company-specific factors have affected and will continue to affect our results of operations.
These factors include the following:



| |  |  | the effect on our revenues of declining numbers of access lines resulting from competition and other factors and our strategic response to this trend,
which includes efforts to introduce enhanced local services and additional services like DSL Internet access and long distance service and to cross-sell these services to our subscriber base;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effect on our revenues of our rate and pricing structure, including recent and potential future changes in rate regulation at the state and federal
levels;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to control our variable operating expenses, such as sales and marketing expense;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | the development of our competitive local exchange carrier strategy; and
| | - |  | -----------------------------------------------------------------------



| |  |  | our success integrating acquired operations.
| | - |  | --------------------------------------------

Access Line Trends

The
number of access lines served is a factor that can affect a telecommunications providers revenues. Consistent with a general trend in the rural local exchange carrier industry in the past few years, the number of access lines we serve as an
incumbent local exchange carrier has been decreasing. We expect that this trend will continue. Because substantially all of our revenues result from our relationships with customers who utilize our access lines and the level of activity on those
lines, the access line trend has an adverse impact on our revenues. Our response to this trend will have an important impact on our future revenues. Our primary strategy to respond to this trend is to leverage our strong incumbent market position to
increase our revenue by selling additional services to our customer base and to promote our DSL Internet access service offering, which is often used in lieu of additional access lines devoted to Internet usage. In addition, we expect to add new
access lines as we pursue expansion of our service area through our competitive local exchange carrier subsidiaries and, potentially, through selected acquisitions of other telecommunications companies or lines from other telecommunications
companies. However, we believe that the number of access lines served is not the sole meaningful indicator of our operating prospects and that, given our relatively stable subscriber base and ability to offer additional services, the numbers of long
distance and dial-up and DSL Internet subscribers are also meaningful performance indicators for us.



21



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##### Table of Contents

The table below indicates the total number of access lines we serve and the number of
customers subscribing to the indicated types of service as of the dates and for the periods shown:



|                                                   |  |                 |  |        
|-------------------------------------------------- |  | --------------- |  | -------
|                                                   |  | As of March 31,
|                                                   |  | 2009            |  | 2010(4)
|Incumbent local exchange access
lines(1)           |  | 206,100         |  | 207,300
|Competitive local exchange carrier access
lines(2) |  | 32,400          |  | 41,800 
|                                                   |  |                 |  |        
|Total access lines                                 |  | 238,500         |  | 249,100
|                                                   |  |                 |  |        
|Long distance subscribers                          |  | 145,000         |  | 155,300
|Dial-up Internet subscribers                       |  | 15,100          |  | 9,100  
|DSL subscribers                                    |  | 78,200          |  | 95,900 
|Video
subscribers(3)                               |  | 21,400          |  | 27,500 



|(1) | Includes lines subscribed by our incumbent local exchange carrier retail customers and lines subscribed by our wholesale customers who are
competing local exchange carriers. Wholesale access lines include: lines subscribed by our local exchange carrier competitors pursuant to interconnection agreements on an unbundled network element basis, for which the competitive local exchange
carrier pays us a monthly fee; lines that we provide to competitive local exchange carriers for resale to their subscribers, for which the competitive local exchange carrier pays us a monthly fee equal to what we would charge our customers for local
service less an agreed discount; and shared lines, for which a competitive local exchange carrier pays us a monthly fee to provide DSL service to its customers. We had 2,100 wholesale lines subscribed at March 31, 2009 and 1,700 at
March 31, 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Access lines subscribed by retail customers of our competitive local exchange carrier subsidiaries.
|--- | ---------------------------------------------------------------------------------------------------



|(3) | Includes subscribers served via our facilities as well as subscribers of satellite service which we resell.
|--- | -----------------------------------------------------------------------------------------------------------



|(4) | Includes units acquired from Sherburne Tele Systems, Inc and WH Comm.
|--- | ---------------------------------------------------------------------

The following is a discussion of the major factors affecting our access line counts:

Competition. We currently face competition from other providers of local services in approximately 141 of the 428 communities our
incumbent local exchange carriers serve. Of these 141 communities, we believe 109 communities have some voice service offered by Mediacoms telephony affiliates, MCC Telephony of Iowa, Inc. and MCC Telephony of Minnesota, LLC (MCC),
which initiated service in most of these markets during the second quarter of 2007. Additionally, we believe that in approximately 42 of these communities, independent local exchange carriers operating in mostly adjacent exchanges and municipal
utilities have constructed networks to provide competitive local exchange carrier services to customers in our exchanges.

In
addition, we have experienced and expect to continue experiencing some line losses due to competition from wireless providers, but cannot precisely quantify the effect of this competition on us. We are responding proactively to wireless competition
by offering bundled service packages that include blocks of long distance minutes. These packages are designed to meet the demand of our customers who wish to purchase both local and long distance services in a package, as is typically offered by
wireless providers.

The jurisdiction of the Iowa Utilities Board over our local retail rates changed dramatically as a result
of state deregulatory legislation that became effective on July 1, 2005. Pursuant to this legislation, each telephone utility then subject to rate regulation, such as Iowa Telecom, was permitted to elect to deregulate its charges for all of its
retail business and residential local exchange services except single line flat-rated residential and business service and extended area services, which remained rate-regulated until June 30, 2008, after which such authority sunset. The Iowa
Utilities Board could have extended such sunset to no later than June 30, 2010, but determined on June 27, 2008, not to impose such an extension based on the level of competition in local telecommunications markets. The Iowa Utilities
Board, through its jurisdiction to deregulate services based on the existence of effective competition, had already deregulated all of our rates for local exchange in 14 exchanges pursuant to a December 23, 2004 order, and after the
July 1, 2005, legislation took effect, another 14 exchanges pursuant to a December 5, 2005, order, the latter order focusing only on single-line flat-rated service due to the July 1, 2005, deregulation of all other local exchange
service rates statewide.

MCC is offering voice services through a business arrangement with Sprint Communications L.P.
(Sprint). We challenged the manner in which Sprint sought to implement such an arrangement before both the Iowa Utilities Board and, later, before federal courts. Concurrent with the challenges before the Iowa Utilities Board, MCC filed
a complaint in the Iowa District Court for Polk County on July 31, 2006, alleging that our refusal to accede to Sprints negotiation demands improperly interfered with MCCs contracts and prospective customer relationships. On
January 20, 2010, we executed an interconnection agreement with MCC that envisions MCC connecting directly to us rather than through Sprint and on February 5, 2010, MCC dismissed its Iowa District Court complaint.



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##### Table of Contents

Business Acquisitions. On July 1, 2009, we acquired substantially all of the
assets of Sherburne Tele Systems, Inc. (the Sherburne Assets). As of September 30, 2009, the Sherburne Assts served approximately 14,300 incumbent local exchange carrier access lines, 9,600 competitive local exchange carrier lines,
14,600 DSL high-speed Internet customers and 3,600 video customers, primarily in communities and rural areas adjacent to the Minneapolis/St. Paul Metropolitan Area. The acquired operations include its incumbent local exchange carrier services,
marketed as Connections. Etc., and competitive local exchange carrier services marketed as NorthStar Access.

On
November 1, 2009, the Company completed the acquisition of substantially all the assets of WH Comm (the WH Comm Assets). WH Comm was a division of Wright-Hennepin Cooperative Electric Association based in Rockford, Minnesota. WH
Comm, a competitive local exchange carrier, provides telephone and high speed DSL Internet in several communities near the western suburbs of Minneapolis, Minnesota. As of December 31, 2009, the WH Comm Assets served approximately 1,800 access
lines and 700 DSL subscribers.

Ancillary Effects of our Data Businesses. Part of our decreasing line count has been an
ancillary effect of our strategic focus on growing our Internet access service business. As our Internet service provider business expanded, some competitors offering dial-up Internet service have cancelled their connections to our network. These
connections had historically been counted as access lines. Moreover, as we increase DSL Internet access service penetration, customer demand for second lines for dial-up Internet access service decreases accordingly because DSL Internet access
service often replaces a second line dedicated to Internet usage. We believe that the revenue generated by our dial-up and DSL Internet access services outweighs the effect of these types of access line losses.

Our Retail Local Rate and Pricing Structure.As described under OverviewCompetition above, effective
July 1, 2005, the rates for all of our Iowa retail local exchange service except for single line flat-rated business and residential service and extended area service were deregulated. The remaining retail local exchange service rate regulation
in our then-rate-regulated exchanges, with the arguable exception of extended area service, expired effective July 1, 2008. The Iowa Utilities Board had an opportunity to extend such remaining rate regulation until July 1, 2010, but, in a
June 27, 2008 order, found that an extension of rate regulation was not in the public interest.

Our Ability to
Control Operating Expenses.We strive to control expenses in order to maintain our operating margins. We anticipate that operating expenses generally will remain stable in line with revenue changes. Because some of our operating expenses, such
as those relating to sales and marketing, are variable, we believe we can calibrate expenses to growth in the business to a significant degree.

Development of our Competitive Local Exchange Carrier Strategy.Part of our business strategy is to use our CLEC operations to
pursue customers in markets in close proximity to our rural local exchange carrier markets. We plan to continue this strategy by seeking growth opportunities on a low-cost, selective basis, focusing primarily on business customers.

As of March 31, 2010, our CLEC served 41,800 access lines. Our CLEC Operations accounted for 16.8% of Iowa
Telecoms total access lines. Throughout 2010, we plan to maintain a limited investment approach as we continue to grow our competitive local exchange carrier business.

Revenues

We derive our
revenues from five sources:

Local Services. We receive revenues from providing local exchange telephone services. These
revenues include monthly subscription charges for basic service, as well as charges for extended area service (mandatory expanded calling service to select nearby communities at a flat monthly rate), local private line services and enhanced calling
features, such as voice mail, caller ID and 3-way calling.



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##### Table of Contents

Network Access Services. We receive revenues from charges established to compensate
us for the origination, transport and termination of calls generated by the customers of long distance carriers and for calls transported and terminated for the customers of wireless carriers. These include subscriber line charges imposed on end
users, and switched and special access charges paid by carriers and others. We receive federally administered universal service support, representing approximately 3% of our total revenue in the first three months of 2010, as a result of the
interstate switched access support provisions of the FCCs CALLS Order to which the Company became subject in 2000. In addition, Montezuma Telephone and Lakedale Telephone (through the Sherburne County Rural Telephone study area) received high
cost loop universal service support amounting to less than 1% of our revenue. Our incumbent local exchange carrier (Iowa Telecommunications, Inc.) and our independent incumbent local exchange carriers (Lakedale Telephone and Montezuma Telephone)
switched access charges are based on rates approved by applicable state regulatory agencies. Our incumbent local exchange carrier and our independent incumbent local exchange carriers switched and special access charges for interstate and
international services are based on rates approved by the FCC. The transport and termination charges paid by wireless carriers to our incumbent local exchange carriers are specified in interconnection agreements negotiated with each individual
wireless carrier.

Toll Services. We receive revenues for providing toll or long distance services to our customers.
This revenue category also includes fees relating to our provision of directory assistance, operator assistance and long distance private lines.

Data and Internet Services. We receive revenues from monthly recurring charges for dial-up and DSL Internet access services, as
well as for providing enhanced data services to our customers.

Other Services and Sales. We receive revenues from
directory publishing, inside line care, satellite and cable video, and the sale, installation and maintenance of customer premise voice and data equipment (CPE), and the lease of office space to third parties.

The following table summarizes our revenues and sales from these sources:



|                           |  |                             |        |                                                                   |   |        |  |     |      |  |     |  
|-------------------------- |  | --------------------------- | ------ | ----------------------------------------------------------------- | - | ------ |  | --- | ---- |  | --- | -
|                           |  | Three Months EndedMarch 31, |        | % of Total Revenues andSales for the Three MonthsEnded 
March 31, |  
|                           |  | 2009                        |        | 2010                                                              |   | 2009   |  |     | 2010 | 
|                           |  | (dollars in thousands)      |        |                                                                   |   |        |  |    
|Local services             |  | $                           | 18,085 |                                                                   | $ | 19,274 |  | 29  | %    |  | 29  | %
|Network access services    |  |                             | 21,854 |                                                                   |   | 21,868 |  | 36  | %    |  | 32  | %
|Toll services              |  |                             | 5,566  |                                                                   |   | 5,377  |  | 9   | %    |  | 8   | %
|Data and internet services |  |                             | 9,655  |                                                                   |   | 12,235 |  | 16  | %    |  | 18  | %
|Other services and sales   |  |                             | 6,128  |                                                                   |   | 8,652  |  | 10  | %    |  | 13  | %
|                           |  |                             |        |                                                                   |   |        |  |     |      |  |     |  
|Total revenues and sales   |  | $                           | 61,288 |                                                                   | $ | 67,406 |  | 100 | %    |  | 100 | %
|                           |  |                             |        |                                                                   |   |        |  |     |      |  |     |  

Operating Expenses

Our operating expenses are categorized as cost of services and sales; selling, general and administrative expense; and depreciation and
amortization.

Cost of services and sales. This includes expense for salaries and wages relating to plant operations
and maintenance; other plant operations, maintenance and administrative costs; network access costs paid to other carriers; bad debt expense; operating tax expense; and cost of sales for our dial-up and DSL Internet access services, video services
and customer premise equipment products and services.

Selling, general and administrative expense. This includes
expense for salaries, wages and benefits and contract service payments (e.g., legal fees) relating to customer and corporate operations; recruiting costs; expenses for travel, lodging and meals; internal communications costs; insurance premiums;
supplies and postage; and other charges.

Depreciation and amortization. This includes depreciation of our
telecommunications network and equipment, and amortization of intangible assets.



24



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##### Table of Contents

Results of Operations

The following table sets forth certain items reflected in our consolidated statements of income for the periods indicated, expressed as a
percentage of total revenues and sales:



|                                                                        |  |                             |   |  |      |  
|----------------------------------------------------------------------- |  | --------------------------- | - |  | ---- | -
|                                                                        |  | Three Months EndedMarch 31, |  
|                                                                        |  | 2009                        |   |  | 2010 |  
|Revenues and sales                                                      |  | 100                         | % |  | 100  | %
|Cost of services and sales (excluding expenses listed separately below) |  | 33                          | % |  | 35   | %
|Selling, general and administrative                                     |  | 20                          | % |  | 19   | %
|Depreciation and amortization                                           |  | 23                          | % |  | 24   | %
|                                                                        |  |                             |   |  |      |  
|Operating income                                                        |  | 24                          | % |  | 22   | %
|Total other expenses, net                                               |  | 11                          | % |  | 11   | %
|                                                                        |  |                             |   |  |      |  
|Earnings before income taxes                                            |  | 13                          | % |  | 11   | %
|Income tax expense                                                      |  | 6                           | % |  | 5    | %
|                                                                        |  |                             |   |  |      |  
|Net income                                                              |  | 7                           | % |  | 6    | %
|                                                                        |  |                             |   |  |      |  

The results of operations for the three months ended March 31, 2010 include the results from the
Sherburne Assets which were acquired July 1, 2009.

Three Months Ended March 31, 2010 and 2009

Revenues and Sales

The
table below sets forth the components of our revenues and sales for the three months ended March 31, 2010 compared to the same period in 2009:



|                           |  |                             |        |        |   |        |  |   |         |   |  |      |  
|-------------------------- |  | --------------------------- | ------ | ------ | - | ------ |  | - | ------- | - |  | ---- | -
|                           |  | Three Months EndedMarch 31, |        | Change |  
|                           |  | 2009                        |        | 2010   |   | Amount |  |   | Percent |  
|                           |  | (dollars in thousands)      |       
|Revenues and Sales:        |  |                             |        |        |   |        |  |   |         |   |  |      |  
|Local services             |  | $                           | 18,085 |        | $ | 19,274 |  | $ | 1,189   |   |  | 6.6  | %
|Network access services    |  |                             | 21,854 |        |   | 21,868 |  |   | 14      |   |  | 0.1  | %
|Toll services              |  |                             | 5,566  |        |   | 5,377  |  |   | (189    | ) |  | -3.4 | %
|Data and internet services |  |                             | 9,655  |        |   | 12,235 |  |   | 2,580   |   |  | 26.7 | %
|Other services and sales   |  |                             | 6,128  |        |   | 8,652  |  |   | 2,524   |   |  | 41.2 | %
|                           |  |                             |        |        |   |        |  |   |         |   |  |      |  
|Total revenues and sales   |  | $                           | 61,288 |        | $ | 67,406 |  | $ | 6,118   |   |  | 10.0 | %
|                           |  |                             |        |        |   |        |  |   |         |   |  |      |  

Local Services. Local services revenues increased $1.2 million, or 6.6%, for the three months ended
March 31, 2010 as compared to the same period in 2009. The increase was primarily due to higher access lines resulting from the acquisition of the Sherburne Assets and higher vertical services revenue resulting from our bundled offerings. From
March 31, 2009 to March 31, 2010, total access lines increased by 10,600, or 4.4%, including an increase of 1,200 incumbent local exchange carrier lines and an increase in lines served by our competitive local exchange carriers of 9,400.
Excluding the lines acquired in the Sherburne and WH Comm transactions, incumbent local exchange carrier lines decreased by 12,500, while lines served by our competitive local exchange carriers decreased by 1,000 from March 31, 2009 to
March 31, 2010.

Network Access Services. Our network access services revenues increased $14,000, or 0.1%, for the
three months ended March 31, 2010 as compared to the same period in 2009. The additional revenue from the acquisition of the Sherburne Assets was offset by the decrease in the lines not included in the Sherburne Assets, lower minutes of use per
access line and a decrease in the access rates for the Iowa operations.

Toll Services. Our toll services revenues
decreased by $189,000, or 3.4%, for the three months ended March 31, 2010 as compared to the same period in 2009. The decrease in revenue was due to the decrease in minutes of use per line partially offset by the acquisition of the Sherburne
Assets.



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##### Table of Contents

Data and Internet Services. Data and Internet services revenues increased by $2.6
million, or 26.7%, for the three months ended March 31, 2010 as compared to the same period in 2009. The increase was primarily a result of growth in revenue from our existing DSL Internet access service of $565,000, combined with the growth in
our data solutions products of $476,000 and $1.6 million from the acquisition of the Sherburne Assets. This increase was partially offset by decreases in our existing dial-up Internet revenue of $230,000.

Other Services and Sales. Other services and sales revenues increased by $2.5 million, or 41.2%, for the three months ended
March 31, 2010 as compared to the same period in 2009. The revenue increase was primarily due to CPE sales, the acquisition of the Sherburne Assets and increased revenue from video services.

Operating Costs and Expenses

The table below sets forth the components of our operating costs and expenses for the three months ended March 31, 2010 compared to
the same period in 2009:



|                                                                       |  |                             |        |        |   |        |  |         |       |  |      |  
|---------------------------------------------------------------------- |  | --------------------------- | ------ | ------ | - | ------ |  | ------- | ----- |  | ---- | -
|                                                                       |  | Three Months EndedMarch 31, |        | Change |  
|                                                                       |  | 2009                        |        | 2010   |   | Amount |  | Percent |      
|                                                                       |  | (dollars in thousands)      |       
|Operating Costs and Expenses:                                          |  |                             |        |        |   |        |  |         |       |  |      |  
|Cost of services and sales (exclusive of items shown separately below) |  | $                           | 20,234 |        | $ | 23,634 |  | $       | 3,400 |  | 16.8 | %
|Selling, general and administrative                                    |  |                             | 12,202 |        |   | 12,683 |  |         | 481   |  | 3.9  | %
|Depreciation and amortization                                          |  |                             | 13,990 |        |   | 16,262 |  |         | 2,272 |  | 16.2 | %
|                                                                       |  |                             |        |        |   |        |  |         |       |  |      |  
|Total operating costs and expenses                                     |  | $                           | 46,426 |        | $ | 52,579 |  | $       | 6,153 |  | 13.3 | %
|                                                                       |  |                             |        |        |   |        |  |         |       |  |      |  

Cost of Services and Sales. Cost of services and sales increased $3.4 million, or 16.8%, for the
three months ended March 31, 2010 as compared to the same period in 2009. The increase was principally due to the $3.1 million of operating costs of the Sherburne Assets, including the expenses of SHAL, LLC and certain other entities, which
became consolidated subsidiaries as a result of the acquisition of the additional ownership interest as a part of the acquisition of the Sherburne Assets on July 1, 2009, partially offset by lower access expense and operating taxes.

Selling, General and Administrative. Selling, general and administrative costs increased $481,000, or 3.9%, for the three months
ended March 31, 2010 as compared to the same period in 2009. The 2010 period includes $1.9 million of costs from the Sherburne Assets and $252,000 of transaction-related costs. The 2009 period includes $1.2 million of transaction-related costs
that are now charged to expense in accordance with FASB ASC 805, Business Combinations. The 2010 period also reflects cost reductions resulting from more fully integrating acquired entities into the Companys systems.

Depreciation and Amortization. Depreciation and amortization increased $2.3 million, or 16.2%, for the three months ended
March 31, 2010 as compared to the same period in 2009. The increase was primarily due to $1.7 million of depreciation and amortization expense related to the Sherburne Assets (including the effects of consolidating SHAL, LLC and certain other
entities) and higher plant balances.



26



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##### Table of Contents

Other Income (Expense)

The table below sets forth the components of other income (expense) for the three months ended March 31, 2010 compared to the same
period in 2009:



|                             |  |                             |        |   |        |   |        |        |  |   |         |   |  |       |  
|---------------------------- |  | --------------------------- | ------ | - | ------ | - | ------ | ------ |  | - | ------- | - |  | ----- | -
|                             |  | Three Months EndedMarch 31, |        |   | Change |  
|                             |  | 2009                        |        |   | 2010   |   |        | Amount |  |   | Percent |  
|                             |  | (dollars in thousands)      |       
|Other Income (Expense):      |  |                             |        |   |        |   |        |        |  |   |         |   |  |       |  
|Interest and dividend income |  | $                           | 873    |   |        | $ | 617    |        |  | $ | (256    | ) |  | -29.3 | %
|Interest expense             |  |                             | (7,596 | ) |        |   | (8,152 | )      |  |   | (556    | ) |  | 7.3   | %
|Other, net                   |  |                             | (159   | ) |        |   | (173   | )      |  |   | (14     | ) |  | 8.8   | %
|                             |  |                             |        |   |        |   |        |        |  |   |         |   |  |       |  
|Total other expense, net     |  | $                           | (6,882 | ) |        | $ | (7,708 | )      |  | $ | (826    | ) |  | 12.0  | %
|                             |  |                             |        |   |        |   |        |        |  |   |         |   |  |       |  

Interest and Dividend Income. Interest and dividend income decreased $256,000 for the three months
ended March 31, 2010 as compared to the same period in 2009. The decrease was due to lower patronage income in 2010.

Interest Expense. Interest expense was $7.6 and $8.2 million for the three months ended March 31, 2009 and 2010,
respectively. Interest expense increased year over year due to the debt of SHAL, LLC, and the additional $75.0 million of Term Loan B debt that was issued to acquire the Sherburne Assets.

Other, Net. Other, net was expense of $159,000 and $173,000 for the three months ended March 31, 2009 and 2010, respectively.
The expense resulted primarily from the ineffective portion of an interest rate swap agreement.

Income Tax Expense

Income tax expense decreased by $436,000 to $3.0 million for the three months ended March 31, 2010 as compared to $3.5 million for
the same period in 2009 due to lower income before taxes. Income tax expense is being recorded at an estimated rate of approximately 43%.

During the three months ended March 31, 2009 and 2010, cash income taxes paid were $1,000 and $151,000, respectively, and relate
primarily to payments of alternative minimum tax (AMT) and state income tax.

Liquidity and Capital Resources

Our short-term and long-term liquidity requirements arise primarily from: (i) principal and interest payments related to our credit
facilities; (ii) capital expenditures; (iii) working capital requirements; (iv) dividend payments on our common stock; and (v) potential acquisitions.

We are subject to various covenants contained in the Merger Agreement that restrict our ability to operate our business outside the
ordinary course of business. As such, our ability to address the short-term and long-term liquidity requirements may be impacted by these restrictions.

The table below reflects the dividends declared or paid by the Company during 2009 and 2010:



|                   |  |                    |       |             |                    |              |                 
|------------------ |  | ------------------ | ----- | ----------- | ------------------ | ------------ | ----------------
|Date Declared      |  | Dividend Per Share |       | Record Date |                    | Payment Date
|December 15, 2008  |  | $                  | 0.405 |             | December 31, 2008  |              | January 15, 2009
|March 16, 2009     |  | $                  | 0.405 |             | March 31, 2009     |              | April 15, 2009  
|June 15, 2009      |  | $                  | 0.405 |             | June 30, 2009      |              | July 15, 2009   
|September 15, 2009 |  | $                  | 0.405 |             | September 30, 2009 |              | October 15, 2009
|December 15, 2009  |  | $                  | 0.405 |             | December 31, 2009  |              | January 15, 2010
|March 15, 2010     |  | $                  | 0.405 |             | March 31, 2010     |              | April 15, 2010  

Our intention is to
distribute a substantial portion of the cash generated by our business to our shareholders in regular quarterly dividends to the extent we generate cash in excess of our operating needs, interest and principal payments on our indebtedness, and
capital expenditures.



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We intend to fund our operations, interest expense, principal payments, capital
expenditures, working capital requirements and dividend payments on our common stock with cash from operations. For the three months ended March 31, 2009 and 2010, cash provided by operating activities was $17.5 million and $16.0 million,
respectively.

The purchase price of any significant future acquisitions may be paid in the form of equity securities,
including common stock and/or cash. To the extent cash is used, we intend to use borrowings under our revolving credit facility or, subject to the restrictions in our credit facilities, to arrange additional funding through the sale of public or
private debt and/or equity securities, including common stock, or to obtain additional senior bank debt.

On July 1,
2009, Iowa Telecom completed its acquisition of substantially all of the assets of Sherburne Tele Systems, Inc. for a purchase price of approximately $79.7 million in cash (net of cash acquired), subject to certain tax adjustments. Approximately
$10.9 million of the purchase price was deposited into escrow accounts to satisfy, among other things, potential balance sheet purchase price adjustments, tax adjustments and potential indemnification claims by Iowa Telecom, if any. During the first
quarter of 2010, the Company received $2.2 million as a result of a final tax adjustment. The purchase price was funded by an incremental term loan of $75.0 million under Iowa Telecoms credit facilities, with the balance from borrowings under
Iowa Telecoms revolving credit facility.

On July 1, 2009, Iowa Telecom entered into an Incremental Loan Amendment
(the Incremental Amendment) to the Amended and Restated Credit Agreement dated as of November 23, 2004 (as amended from time to time, the Credit Agreement), among Iowa Telecom, the lenders party thereto and the Rural
Telephone Finance Cooperative, as administrative agent. Pursuant to the Incremental Amendment, Iowa Telecom borrowed $75.0 million in incremental loans under the incremental loan facility provided under the Credit Agreement. Interest accrues on the
incremental loans at either a base rate plus 1.00% (in the case of base rate loans) or LIBOR plus 2.00% (in the case of Eurodollar loans), at the election of Iowa Telecom. The incremental loans are subject to the terms and conditions of the Credit
Agreement and are entitled to the benefits of the collateral security provided to the other loans made pursuant to the Credit Agreement. The maturity date of the incremental loans is November 23, 2011.

On September 24, 2009, the Company completed the acquisition of New Ulm Telecom Inc.s ownership interests in EN-TEL, SHAL,
LLC, SHAL Networks, Inc., and Direct Communications, LLC for $1.9 million and the assumption of New Ulms related debt guarantees. SHAL, LLC and SHAL Networks, Inc. own and lease a 2,500-mile fiber-optic network throughout Minnesota that
provides low cost, high quality transport facilities. EN-TEL is a competitive local exchange carrier based in Willmar, Minnesota, providing local voice, DSL and digital video services. This acquisition resulted in Iowa Telecom owning all of the
outstanding equity in the SHAL, LLC, SHAL Networks, Inc., Direct Communications, LLC and substantially all of EN-TEL.

On
November 2, 2009, the Company completed the acquisition of substantially all the assets of WH Comm for $1.1 million. WH Comm was a division of Wright-Hennepin Cooperative Electric Association based in Rockford, MN. WH Comm, a competitive local
exchange carrier, provides voice and high speed DSL Internet in several communities near the western suburbs of Minneapolis, Minnesota. As of December 31, 2009, WH Comm had approximately 1,800 access lines and 700 DSL subscribers.

Our ability to service our indebtedness will depend on our ability to generate cash in the future. We are not required to make any
scheduled principal payments on Term Loans B, C and D, which will mature in November 2011. However, we may be required to make annual mandatory prepayments under these credit facilities with a portion of our available cash. Accordingly, a mandatory
prepayment of $378,000 is required prior to April 30, 2010. We will need to refinance all or a portion of our indebtedness on or before maturity in 2011. Debt issued by EN-TEL of approximately $10.9 million will have principal payments of
$995,000 in 2010, $1.4 million in 2011, $1.5 million in 2012, $1.6 million in 2013, $1.7 million in 2014, and $3.5 million thereafter. Debt issued by SHAL, LLC of approximately $4.3 million will have scheduled principal payments of $584,000 in 2010,
$830,000 in 2011, $893,000 in 2012, $960,000 in 2013, and $1.0 million in 2014.

The dividend policy adopted by our board of
directors calls for us to distribute a substantial portion of our cash flow to our shareholders. As a result, we may not have significant cash available to meet any large unanticipated liquidity requirements, other than through available borrowings,
if any, under our revolving credit facility. Therefore, we may not have a sufficient amount of cash to finance growth opportunities, including acquisitions, to fund unanticipated capital expenditures or to fund our operations. If we do not have
sufficient cash for these purposes, our consolidated balance sheets, statements of income and our business could suffer. However, our board of directors may, in its discretion, amend or repeal our dividend policy to decrease the level of dividends
provided for under the policy, or to discontinue entirely the payment of dividends.



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##### Table of Contents

We have historically funded our operations and capital expenditure requirements primarily
with cash from operations and our revolving line of credit. The following table summarizes our short-term liquidity and Adjusted Total Debt, as defined in our credit agreement, as of December 31, 2009 and March 31, 2010:



|                                       |  |                        |         |   |               |   |         |  
|-------------------------------------- |  | ---------------------- | ------- | - | ------------- | - | ------- | -
|                                       |  | As of                  |        
|                                       |  | December 31,2009       |         |   | March 31,2010 |  
|                                       |  | (dollars in thousands) |        
|Short-Term Liquidity:                  |  |                        |         |   |               |   |         |  
|Current assets                         |  | $                      | 47,853  |   |               | $ | 46,994  |  
|Current liabilities                    |  |                        | (96,349 | ) |               |   | (86,768 | )
|                                       |  |                        |         |   |               |   |         |  
|Net working capital deficit            |  | $                      | (48,496 | ) |               | $ | (39,774 | )
|                                       |  |                        |         |   |               |   |         |  
|Cash and cash equivalents              |  | $                      | 12,259  |   |               | $ | 11,368  |  
|Available on revolving credit facility |  | $                      | 63,000  |   |               | $ | 65,000  |  
|Adjusted Total Debt:                   |  |                        |         |   |               |   |         |  
|Long-term debt                         |  | $                      | 565,214 |   |               | $ | 565,513 |  
|Current maturities of long-term debt   |  |                        | 3,276   |   |               |   | 2,470   |  
|Revolving credit facility              |  |                        | 37,000  |   |               |   | 35,000  |  
|                                       |  |                        |         |   |               |   |         |  
|Total debt                             |  |                        | 605,490 |   |               |   | 602,983 |  
|Minus:                                 |  |                        |         |   |               |   |         |  
|RTFC Capital Certificates              |  |                        | (7,778  | ) |               |   | (7,778  | )
|Cash and cash equivalents              |  |                        | (12,259 | ) |               |   | (11,368 | )
|                                       |  |                        |         |   |               |   |         |  
|Adjusted Total Debt                    |  | $                      | 585,453 |   |               | $ | 583,837 |  
|                                       |  |                        |         |   |               |   |         |  

The following table summarizes our Adjusted EBITDA, as defined in our credit agreement, and reconciles such
Adjusted EBITDA to net income (which we believe is the most directly comparable GAAP financial measure to Adjusted EBITDA) for the three month periods ended March 31, 2009 and 2010:



|                                                         |  |                             |        |   |      |   |        |  
|-------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                         |  | Three Months EndedMarch 31, |       
|                                                         |  | 2009                        |        |   | 2010 |  
|                                                         |  | (dollars in thousands)      |       
|Adjusted EBITDA:                                         |  |                             |        |   |      |   |        |  
|Net income                                               |  | $                           | 4,509  |   |      | $ | 4,084  |  
|Income tax expense                                       |  |                             | 3,471  |   |      |   | 3,035  |  
|Interest expense                                         |  |                             | 7,596  |   |      |   | 8,152  |  
|Depreciation and amortization                            |  |                             | 13,990 |   |      |   | 16,262 |  
|Unrealized losses on financial derivatives               |  |                             | 173    |   |      |   | 192    |  
|Non-cash stock-based compensation expense                |  |                             | 885    |   |      |   | 1,090  |  
|Extraordinary or unusual (gains) losses                  |  |                             |       |   |      |   |       |  
|Non-cash portion of RTFC Capital Allocation              |  |                             | (337   | ) |      |   | (193   | )
|Other non-cash losses (gains)                            |  |                             |       |   |      |   |       |  
|Loss (gain) on disposal of assets not in ordinary course |  |                             |       |   |      |   |       |  
|Transaction costs                                        |  |                             | 1,164  |   |      |   |       |  
|                                                         |  |                             |        |   |      |   |        |  
|Adjusted EBITDA                                          |  | $                           | 31,451 |   |      | $ | 32,622 |  
|                                                         |  |                             |        |   |      |   |        |  



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##### Table of Contents

The following table summarizes our sources and uses of cash for the three months ended
March 31, 2009 and 2010:



|                             |  |                             |         |   |      |   |         |  
|---------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                             |  | Three Months EndedMarch 31, |        
|                             |  | 2009                        |         |   | 2010 |  
|                             |  | (dollars in thousands)      |        
|Net Cash Provided (Used) By: |  |                             |         |   |      |   |         |  
|Operating activities         |  | $                           | 17,523  |   |      | $ | 15,954  |  
|Investing activities         |  | $                           | (3,951  | ) |      | $ | (799    | )
|Financing activities         |  | $                           | (18,462 | ) |      | $ | (16,046 | )

Cash Provided by Operating Activities

Net cash provided by operating activities of $16.0 million for the three months ended March 31, 2010 decreased $1.6
million from 2009.

Cash Used in Investing Activities

The table below sets forth the components of cash used in investing activities for the three months ended March 31, 2009 and 2010:



|                                      |  |                             |       |      |   |        |  
|------------------------------------- |  | --------------------------- | ----- | ---- | - | ------ | -
|                                      |  | Three Months EndedMarch 31, |      
|                                      |  | 2009                        |       | 2010 |  
|                                      |  | (dollars in thousands)      |      
|Network and support assets            |  | $                           | 2,809 |      | $ | 2,731  |  
|Other                                 |  |                             | 818   |      |   | 312    |  
|                                      |  |                             |       |      |   |        |  
|Total capital expenditures            |  |                             | 3,627 |      |   | 3,043  |  
|Business acquisitions and settlements |  |                             | 324   |      |   | (2,244 | )
|                                      |  |                             |       |      |   |        |  
|Total                                 |  | $                           | 3,951 |      | $ | 799    |  
|                                      |  |                             |       |      |   |        |  

We expect that total capital expenditures in fiscal 2010 will be approximately $26.0 million. We expect to
fund all of these capital expenditures through cash generated by our operations. Our capital expenditures can fluctuate from quarter to quarter, and are impacted to some extent by factors beyond our control, such as customer demand, the level of
construction activity in our region, and weather.

We currently hold 15 FCC Advanced Wireless Service licenses and hold three
700 MHz licenses in Iowa. Our ownership of these licenses subjects us to FCC regulation of the wireless services we may choose to provide and the technical operating characteristics of the network equipment we may utilize. In addition, our right to
renew these licenses depends on our compliance with build-out requirements promulgated by the FCC. For the 700 MHz licenses, we must begin meeting such requirements in stages prior to the expiration of the initial 10-year license term, although
these obligations do not apply until the current holders of the spectrum (television broadcasters that continue to use such spectrum for their digital broadcasts while they continue analog broadcasting) have vacated the spectrum. For our Advanced
Wireless Service licenses, we must meet the FCCs build-out requirements by the end of such licenses 15-year initial term. We cannot predict changes that may occur in the FCCs regulation of our Advanced Wireless Services or 700 MHz
licenses, the network we may build, or the services we may provide over the period of time we may hold the licenses.

On
July 1, 2009, we completed the purchase of Sherburne for a total purchase price of approximately $79.7 million in cash (net of cash acquired), and assumed debt of $4.9 million, subject to certain tax adjustments. The purchase price was funded
by an incremental term loan of $75.0 million under Iowa Telecoms credit facilities, with the balance from borrowings under Iowa Telecoms revolving credit facility. During the first quarter of 2010, we received $2.2 million as a result of
a final tax adjustment.

Cash Used in Financing Activities

For the three months ended March 31, 2009 and 2010, net cash used in financing activities was $18.5 million and $16.0 million,
respectively.



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Long-Term Debt and Revolving Credit Facilities



|                                         |  |                        |        
|---------------------------------------- |  | ---------------------- | -------
|                                         |  | As
ofMarch 31, 2010   
|                                         |  | (dollars in thousands)
|Total Long-Term Debt:                    |  |                        |        
|Iowa Telecom senior secured term loans   |  | $                      | 552,778
|EN-TEL Communications, LLC notes payable |  |                        | 10,905 
|SHAL, LLC notes payable                  |  |                        | 4,300  
|                                         |  |                        |        
|Total Debt                               |  |                        | 567,983
|Current Maturities of long-term debt     |  |                        | 2,470  
|                                         |  |                        |        
|Long-Term Debt                           |  | $                      | 565,513
|                                         |  |                        |        

Iowa Telecom Credit Facilities

As of March 31, 2010, we had outstanding $552.8 million of senior debt under the Iowa Telecom term loan facilities, and had $35.0
million drawn under our $100.0 million revolving credit facility. The details of the credit facilities are as follows:

The
revolving credit facility will expire in November 2011 and permits borrowings up to the aggregate principal amount of $100.0 million (less amounts reserved for letters of credit up to a maximum amount of $25.0 million). As of March 31, 2010,
$35.0 million was outstanding on the revolving credit facility and $65.0 million was available. Borrowings under our revolving credit facility bear interest per annum at either (a) the London inter-bank offered rate, or LIBOR, plus 2.0% or
(b) a base rate plus 1.0%. As of March 31, 2010, we had $35.0 million outstanding under LIBOR elections at an average all-in rate of 2.24%. As of March 31, 2009, the Company had $33.0 million outstanding under LIBOR elections at an
average all-in rate of 2.52%.

Term Loan B is a $400.0 million senior secured term facility maturing in November 2011, bearing
interest per annum at either (a) a LIBOR rate plus an applicable rate adder of 1.75% per annum or (b) a base rate election plus an applicable rate adder of 0.75% per annum. As of March 31, 2010, $350.0 million of Term Loan B
was based upon a LIBOR election effective through June 30, 2010 at an all-in rate of 2.04%. The all-in rate on the $350.0 million Term Loan B as of March 31, 2009 was 2.99%. The Company entered into interest rate swap agreements to fix the
rate on $350.0 million of Term Loan B as more fully described below. As of March 31, 2010, the interest rate on the remaining $50.0 million was based upon a LIBOR election effective through April 22, 2010 at an all-in rate of 1.99%. The
all-in rate on the $50.0 million Term Loan B as of March 31, 2009 was 2.21%.

On July 1, 2009, Iowa Telecom entered
into the Incremental Amendment. Pursuant to the Incremental Amendment, Iowa Telecom borrowed $75.0 million in incremental loans under the incremental loan facility provided under the Credit Agreement. The incremental loans bear interest at either a
base rate plus 1.00% (in the case of base rate loans) or LIBOR plus 2.00% (in the case of Eurodollar loans), at the election of Iowa Telecom. The incremental loans are subject to the terms and conditions of the Credit Agreement and are entitled to
the benefits of the collateral security provided to the other loans made pursuant to the Credit Agreement. The maturity date of the incremental loans is November 23, 2011. As of March 31, 2010, the interest rate on the $75.0 million was
based upon a LIBOR election effective through April 5, 2010 at all-in-rate of 2.23%.

Term Loan C is a $70.0 million
senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. Effective August 1, 2007, we elected a new all-in
fixed interest rate of 6.95% through June 2011 on Term Loan C. Upon the expiration of the fixed interest rate period, the term loan will convert to the Rural Telephone Finance Cooperative-base variable rate plus 0.85%.

Term Loan D is a $7.8 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a
fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. Effective August 1, 2007, we elected an all-in fixed interest rate of 6.95% through June 2011 on Term Loan D. Upon the expiration of the fixed interest rate
period, the term loan will convert to the Rural Telephone Finance Cooperative-base variable rate plus 0.85%.



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As a condition of borrowing under Term Loans C and D, we are required to invest $7.8
million, representing 10% of the total amounts of Term Loans C and D, in Subordinated Capital Certificates (SCCs) of the Rural Telephone Finance Cooperative. The Rural Telephone Finance Cooperative will redeem the SCCs in proportion to
our principal repayments on Term Loans C and D. SCCs are non-interest bearing but, as a member of the Rural Telephone Finance Cooperative, we share proportionately in the institutions net earnings.

The Iowa Telecom credit facilities are secured by substantially all of our tangible and intangible assets, properties and revenues. The
credit facilities are guaranteed by all of the Companys wholly-owned subsidiaries.

The Iowa Telecom credit facilities
permit the Company to pay dividends to holders of its common stock; however, they contain significant restrictions on our ability to do so. The credit facilities contain certain negative covenants that, among other things, limit or restrict the
Companys ability (as well as those of our subsidiaries) to: create liens and encumbrances; incur debt, issue preferred stock, or enter into leases and guarantees; enter into loans, investments and acquisitions; make asset sales, transfers or
dispositions; change lines of business; enter into hedging agreements; pay dividends, redeem stock, or make certain restricted payments; amend material debt agreements or other material contracts; engage in certain transactions with affiliates;
enter into sale/leaseback or synthetic lease transactions; grant negative pledges or agree to such other restrictions relating to subsidiary dividends and distributions; make changes to its fiscal year; and engage in mergers and consolidations.

The Iowa Telecom credit facilities require the Company, subject to certain exceptions, to prepay outstanding loans under the
credit facilities to the extent of net cash proceeds received from the following: issuance of certain indebtedness; proceeds of certain asset sales; and casualty insurance proceeds. The credit facilities further require the Company, subject to
certain exceptions, to make prepayments under the credit facilities equal to 50% of any net increase in the following: distributable cash during a dividend suspension period, as defined; and cumulative distributable cash, as defined, during the
fiscal year less the cumulative reductions of revolving loans (adjusted to exclude the effects of borrowings to fund permitted acquisitions) through such period, with reductions to the percentage to be determined based on improvements in certain
credit ratios. A mandatory prepayment of $378,000 is due prior to April 30, 2010 under these provisions.

The Iowa
Telecom credit facilities generally permit voluntary prepayments of the term loans and reductions of commitments without penalty or premium, other than standard breakage costs.

In addition, the financial covenants under the Iowa Telecom credit facilities specify, among other things, certain fixed charge coverage
ratios and a maximum total leverage ratio, as defined, all of which we were in compliance with as of March 31, 2010.

EN-TEL Notes
Payable

On July 18, 2008, the Company acquired Bishop Communications Corporation (Bishop Communications).
As part of the acquisition, the Company assumed debt of $13.0 million issued by EN-TEL, a majority owned subsidiary of Bishop Communications. The EN-TEL debt consists of notes payable to the Rural Telephone Finance Cooperative which have quarterly
installments of principal and interest. The notes currently bear interest at an average all-in fixed rate of 7.00%. As of March 31, 2009, the all-in rate was 7.20%. The notes have a fixed interest rate for specific periods of time ranging from
July 2010 through December 2013 and will thereafter be either at a variable interest rate or renegotiated at a fixed rate at the end of the specified period. The notes mature in 2015 and 2018. Principal payments of $319,000 were made during the
three months ended March 31, 2010. The remaining scheduled payments are $995,000 in 2010, $1.4 million in 2011, $1.5 million in 2012, $1.6 million in 2013, $1.7 million in 2014, and $3.5 million thereafter.

The notes are secured by the assets of EN-TEL. The debt agreements restrict dividends paid by EN-TEL and no amounts are currently
available for dividends.

As a condition of borrowing from the RTFC, the Company is required to invest $1.1 million in SCCs.



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SHAL, LLC Notes Payable

On July 1, 2009, the Company acquired the Sherburne Assets. As part of the acquisition, the Company became the majority owner of
SHAL, LLC. As a result, the Company began reflecting the results of operations, cash flows and financial position of SHAL, LLC on a consolidated basis. At the time of the acquisition of the Sherburne Assets, SHAL LLC had debt outstanding of $4.9
million. The debt is represented by notes payable to the Rural Telephone Finance Cooperative which have quarterly installments of principal and interest. The notes currently bear interest at an average all-in fixed rate of 7.20%. The notes have a
fixed interest rate for specific periods through January 2012 and will thereafter be either at a variable interest rate or renegotiated at a fixed rate at the end of the specified period. The notes mature in October 2014. A principal payment of
$188,000 was made during the quarter ended March 31, 2010. The remaining scheduled payments are $584,000 in 2010, $830,000 in 2011, $893,000 in 2012, $960,000 in 2013, $1.0 million in 2014.

The notes are secured by the assets of SHAL, LLC and SHAL Networks, Inc. The debt agreements restrict dividends paid by SHAL, LLC.
Currently, $993,000 is available for dividends.

As a condition of borrowing from the RTFC, the Company is required to invest
$224,000 in SCCs.

Interest Rate Swaps

On August 26, 2005, the Company amended an interest rate swap agreement that was originally entered into on November 4, 2004.
The amended swap arrangement resulted in two identical swap agreements which each fixed the interest rate the Company will pay on $175.0 million of indebtedness under Term Loan B, for a total swap notional value of $350.0 million. Effective
September 26, 2008, the Company terminated one of its swap agreements which the Company designated as a hedge against the variability in future interest payments due on $175.0 million of Term Loan B. The Company entered into a new swap
agreement effective September 30, 2008, to replace the terminated swap agreement. The terms of the new swap agreement and the remaining swap agreement effective August 31, 2005, effectively convert the variable rate interest payments due
on $350.0 million of Term Loan B to a fixed rate of 5.87% through maturity of November 23, 2011.

Other Items

On November 23, 2009, we entered into the Merger Agreement with Windstream. Completion of the Merger with Windstream is conditioned
upon the receipt of approvals of the Federal Communications Commission (the FCC), the Iowa Utilities Board, the Minnesota Public Utilities Commission (the MPUC) and the Missouri Public Service Commission (the
MPSC). Pursuant to the Merger Agreement, Windstream and Iowa Telecom filed the applications required for the transfer of control of the relevant franchises, licenses and similar instruments issued under the rules and regulations of the
FCC on December 21, 2009, the Iowa Utilities Board on December 21, 2009, the MPUC on December 18, 2009, and the MPSC on December 18, 2009. There is no timeline for the final approvals necessary from the FCC, although the
deadlines for filing initial comments and reply comments passed on February 4 and February 11, 2010, respectively, without any party filing comments. The Iowa Utilities Boards right to prohibit the transaction expires on
June 19, 2010. A hearing regarding our application to the Iowa Utilities Board is currently scheduled for May 4, 2010. There are currently two intervenors in this proceeding, as well as the Consumer Advocate. The MPUC issued an order on
March 22, 2010, approving the transaction with the condition that Windstream and Iowa Telecom discuss with the MPUC any conditions imposed by any other jurisdiction. The Missouri Public Service commission issued the final order necessary for
its consent to the transaction on February 1, 2010. We cannot predict whether the FCC or the Iowa Utilities Board will approve the transaction. We also cannot predict when the FCC will act or how soon before June 19, 2010, if at all, the
Iowa Utilities Board may act.

In addition, as a condition to the Merger, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the HSR Act) requires Iowa Telecom and Windstream to observe the HSR Acts notification and waiting period. The HSR Act provides for an initial 30-calendar-day waiting period following the necessary filings by the
parties to the Merger which were completed on December 30, 2009 by the filing of notification and report forms with the U.S. Department of Justice (DOJ) and the Federal trade Commission (FTC). On January 8, 2010,
the DOJ and FTC granted early termination of the waiting period under the HSR Act.



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On May 8, 2006, the Company filed with the FCC forbearance and waiver petitions asking
it to allow the Company to become eligible to qualify for high-cost support from the non-rural high cost support program of the Universal Service Fund. On August 6, 2007, the FCC issued an order denying our petition for forbearance. The FCC has
not yet ruled on our petition for waiver and there is no statutory deadline for issuing a ruling. We cannot predict whether the FCC will deny or approve the waiver petition, and the amount, if any, of high cost support funds that we may receive in
the future. Furthermore, because our use of any high cost support program funds that we may receive as a result of our waiver petition would be limited to the provision, maintenance, and upgrading of facilities and services for which the support is
intended, we cannot predict the extent to which receipt of such funds would affect our liquidity or earnings.

The Iowa
Utilities Board took the position in the fourth quarter of 2008 that our incumbent local exchange carriers intrastate access rates have ceased to be subject to the intrastate switched access rate freeze since July 1, 2005, and are subject
to challenge. The Iowa Utilities Board recently considered such a challenge based on a February 20, 2008, MCImetro Transmission Access Transmission Services LLC, (d/b/a Verizon Access Transmission Services) and MCI Communications Services, Inc.
(d/b/a Verizon Business Services) complaint filed with the Iowa Utilities Board against our primary Iowa incumbent local exchange carrier, our Iowa competitive local exchange carriers, Frontier Communication of Iowa, Inc., and Citizens Mutual
Telephone Company alleging that such companies tariffed originating and terminating intrastate switched access rates of each are not just and reasonable and should be lowered by the Iowa Utilities Board to mirror the rates
contained in Qwest Corporations Iowa tariff. The complaint appears to be similar to others asserted by these or related entities against the intrastate access charges of mid-sized incumbent local exchange companies in several other states. We
filed a motion to dismiss the complaint in light of our legislated price plan, and believe the substance of the complaint to be without merit given the absence of any rationale for the proposed decrease. The Iowa Utilities Board denied our motion to
dismiss on November 14, 2008, a decision we could not appeal until the Iowa Utilities Board issued a decision on the merits.

Following the filing of all rounds of testimony but prior to the hearing, Iowa Telecom and Verizon reached a tentative settlement of
Verizons complaint on October 23, 2009 and successfully requested the proceeding to be stayed until a settlement agreement had been executed. Iowa Telecom and Verizon executed the settlement agreement on December 7, 2009 and jointly
filed for approval of the same on December 11, 2009, which the Iowa Utilities Board granted on February 4, 2010. By the terms of the settlement, Iowa Telecom and its Iowa CLECs agreed to decrease their current intrastate switched access
rates for the local switching element to $0.01508, $0.021780, and $0.021780, respectively, in three steps via a single tariff filing to be made by each Iowa Telecom company. As required by the settlement agreement, these tariff revisions were filed
on February 11, 2010 with a requested effective date of March 13, 2010. The Iowa Utilities Board approved such filing on March 18, 2010. The settlement agreement requires Verizon to request dismissal of its complaint with prejudice no
later than five business days after the effective date of the currently-pending tariff filing, a currently pending filing made by Verizon on April 1, 2010. Further, Verizon agreed that it would not seek to reduce any element of Iowa
Telecoms ILEC or CLEC intrastate switching rates before January 1, 2012. The settlement also provides for mutual releases of all claims set forth in Verizons Complaint and Iowa Telecoms Answer in this docket. In addition, the
settlement provides that it shall not limit or affect: Verizons right to seek to reduce, eliminate or otherwise challenge the approximately three-cent-per-minute carrier common line charges (CCLCs) of Iowa Telecom in any rulemaking
proceedings of general applicability; Iowa Telecoms right to implement switched access rate increases or decreases ordered or permitted by the Iowa Utilities Board or the FCC in proceedings to reform intercarrier compensation; and Iowa
Telecoms right to seek to maintain the CCLCs of Iowa Telecom in rulemaking proceedings of general applicability.

On
September 12, 2008, the Iowa Utilities Board issued an order commencing an inquiry into whether the Iowa Utilities Board should create an Iowa Universal Service Fund (USF). At this point, the Iowa Utilities Board is seeking comment
on preliminary issues, such as how it should determine whether an Iowa USF is needed, and on certain policy and implementation issues assuming that an Iowa USF will be established. Comments were filed on October 27, 2008. Eventually, the Iowa
Utilities Board may issue an order commencing rulemaking. Sprint filed a petition for rulemaking on July 6, 2009 requesting that the Iowa Utilities Board eliminate the CCLC, which the Iowa Utilities Board denied on September 4, 2009 and
again on October 13, 2009 following Sprints request for reconsideration. In so doing, the Iowa Utilities Board stated that CCLC matters were best considered in the context of universal service issues. We cannot predict whether the Iowa
Utilities Board will establish a rulemaking as a result of its pending inquiry or, assuming it does, the result of such rulemaking.



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On August 18, 2009, Iowa Telecom filed eleven applications with the National
Telecommunications and Information Administration (NTIA) and the U.S. Department of Agricultures Rural Utilities Service (RUS) seeking Broadband Infrastructure grants to fund 80% of the $8.6 million cost of proposed
broadband projects in and between 46 communities or localities that are within Iowa Telecoms Iowa service territory. Iowa Telecom has been notified that each of the eleven applications was rejected because none scored high enough on
NTIAs ranking system to merit further consideration and each requested a larger portion of grant funding than RUS offered. On January 15, 2010, NTIA and RUS separately released new notices of funds availability soliciting a second, and
final, round of applications for Broadband Infrastructure grants. Each agency made significant changes in the application requirements. After reviewing the second round requirements, Iowa Telecom submitted three new applications to RUS. The RUS
filing deadline was March 29, 2010. The new applications propose construction of 40 interexchange (middle-mile) and 122 intraexchange (last-mile) fiber links in Iowa Telecoms Iowa network. The estimated cost of the 162 projects is $34.3
million, 75% of which could be funded by RUS grants. While we cannot predict when we will learn whether any of these new applications will be granted, the RUS funding authorization expires on September 30, 2010. We filed no new application with
NTIA.

On August 4, 2004, the FCC adopted rules requiring certain telecommunications carriers to begin reporting
additional information to the FCC in the event of selected service outages and related events affecting some fiber facilities. On December 20, 2004, the FCC stayed the rules effectiveness pending agency reconsideration of their merits, in
part due to concerns about the substantial expenditures required of telecommunications carriers in order to comply with the new reporting obligations. At this time, we cannot predict the consequences of the FCCs reconsideration or the
financial or operational impacts any final rules may have on us.

In response to the Independent Panel Reviewing the Impact of
Hurricane Katrina on Communications Networks, the FCC adopted rules on May 31, 2007, requiring incumbent local exchange carriers, competitive local exchange carriers, and wireless carriers to, among other things, maintain emergency back-up
power for a minimum of eight hours for cell sites, remote switches, and digital loop carrier system remote terminals that normally are powered from local AC commercial power. Five days prior to the new rules taking effect, on October 4, 2007,
the FCC released an order amending some of these new requirements to provide greater compliance flexibility. We do not anticipate incurring significant costs in complying with the FCCs requirements.

Obligations and Commitments

Our ongoing capital commitments include capital expenditures and debt service requirements. For the three months ended March 31,
2010, capital expenditures were $3.0 million; see Liquidity and Capital ResourcesCash Used in Investing Activities.

The following table sets forth our contractual obligations as of March 31, 2010, together with cash payments due in each period
indicated:



|                                     |  |                           |         |                 |   |            |  |            |         |               |   |       |  |   |      
|------------------------------------ |  | ------------------------- | ------- | --------------- | - | ---------- |  | ---------- | ------- | ------------- | - | ----- |  | - | -----
|                                     |  | Payments Due by Period(3)
|Obligation                           |  | Total                     |         | Apr. Dec. 2010 |   | 2011 2012 |  | 2013 2014 |         | 2015and after
|                                     |  | (dollars in thousands)   
|Current Debt:                        |  |                           |         |                 |   |            |  |            |         |               |   |       |  |   |      
|Revolving credit
facility(1)         |  | $                         | 35,000  |                 | $ |           |  | $          | 35,000  |               | $ |      |  | $ |     
|Current maturities of long-term debt |  |                           | 2,470   |                 |   | 1,924      |  |            | 546     |               |   |      |  |   |     
|Long-Term Debt:                      |  |                           |         |                 |   |            |  |            |         |               |   |       |  |   |      
|Senior debt payments                 |  |                           | 552,433 |                 |   |           |  |            | 552,433 |               |   |      |  |   |     
|Interest payments on senior
debt(2)  |  |                           | 40,553  |                 |   | 19,458     |  |            | 21,095  |               |   |      |  |   |     
|EN-TEL debt payments                 |  |                           | 9,566   |                 |   |           |  |            | 2,600   |               |   | 3,424 |  |   | 3,542
|SHAL, LLC debt payments              |  |                           | 3,514   |                 |   |           |  |            | 1,521   |               |   | 1,993 |  |   |     
|Operating Lease Payments             |  |                           | 7,535   |                 |   | 889        |  |            | 2,532   |               |   | 2,199 |  |   | 1,915
|                                     |  |                           |         |                 |   |            |  |            |         |               |   |       |  |   |      
|Total Contractual Obligations        |  | $                         | 651,071 |                 | $ | 22,271     |  | $          | 615,727 |               | $ | 7,616 |  | $ | 5,457
|                                     |  |                           |         |                 |   |            |  |            |         |               |   |       |  |   |      



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|(1) | Advances on the line of credit mature in periods within one year. The terms of the line of credit are a component of our senior debt agreement which
expires in November 2011.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes interest payments on variable rate long-term debt that has not been fixed through hedging arrangements. Amounts include the impact of hedging
arrangements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Excludes postretirement benefit obligation payments estimated in accordance with Financial Accounting Standards Board Accounting Standards Codification
715, Compensation-Retirement Benefits, as disclosed in Note 5 to the consolidated financial statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of March 31, 2010, no letters of credit were outstanding under the Revolving Credit facility.

We currently project that cash provided by operations will be adequate to meet our foreseeable operational liquidity needs for the next
twelve months. However, our actual cash needs and the availability of required funding may differ from our expectations and estimates, and those differences could be material. Our future capital requirements will depend on many factors, including,
among others, the demand for our services in our existing markets, regulatory, technological and competitive developments, and the level of construction activity in our region and the impact of weather.

Critical Accounting Policies

The process of preparing financial statements requires the use of estimates on the part of management. The estimates used by management
are based on our historical experiences combined with managements understanding of current facts and circumstances. Certain of our accounting policies are considered critical, as they are both important to the portrayal of our financial
statements and require significant or complex judgments on the part of management. The following is a summary of certain policies considered critical by management:

Impairment of Long-Lived Assets (Including Property, Plant and Equipment), Goodwill and Identifiable Intangible Assets. The
Company assesses the recoverability of long-lived assets, including property, plant and equipment and definite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
In such cases, if the sum of the expected cash flows (undiscounted and without interest) resulting from the use of the asset are less than the carrying amount, an impairment loss is recognized based on the difference between the carrying amount and
the fair value of the assets.

We perform an annual impairment review of goodwill and indefinite-lived intangible assets and
between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount as required by Financial Accounting Standards Board Accounting Standards Codification
(FASB ASC) 350, Intangibles-Goodwill and Other. We performed an annual impairment review of goodwill and indefinite-lived intangible assets as of August 31, 2009 primarily using discounted cash flow and market capitalization
methodologies. No impairment of goodwill or indefinite-lived intangible assets resulted from the annual valuation.

Revenue
Recognition. Revenues are recorded based upon services provided to customers. We record unbilled revenue representing the estimated amounts customers will be billed for services rendered since the last billing date through the end of a
particular month. The unbilled revenue estimate is reversed in the following month when actual billings are made. All revenues are recorded net of applicable taxes assessed by governmental authorities.

Allowance for Doubtful Accounts. Our allowance for doubtful accounts reflects reserves for customer receivables to reduce
receivables to amounts expected to be collected. In estimating uncollectible amounts, management considers factors such as current overall economic conditions, industry-specific economic conditions, historical customer payment trends and anticipated
customer payment trends. While we believe our process effectively addresses our exposure for doubtful accounts, changes in economic, industry or specific customer conditions may require adjustment to the allowance for doubtful accounts recorded by
us.

Income Taxes. Management calculates the income tax provision, current and deferred income taxes, along with the
valuation allowance based upon various complex estimates and interpretations of income tax laws and regulations. Deferred tax assets are reduced by a valuation allowance to the extent that it is more likely than not they will not be realized.



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As of December 31, 2009, our unused tax net operating loss carry forwards were $154.0
million, and will expire between 2021 and 2024. Additionally, the Company expects to be able to continue taking deductions related to the amortization of intangibles in excess of the amount recorded for book purposes in the amount of approximately
$44.0 million per year through June 2015. Based upon the evidence available as of March 31, 2010, the combination of the continued generation of taxable income from operations and reversing temporary differences will, more likely than not, be
sufficient to utilize the entire deferred tax asset. As such, we have determined that no valuation allowance was required for our deferred tax assets.

Interest Rate Swap Agreements. The Company has entered into interest rate swap agreements which the Company designated as a hedge
against the variability in future interest payments due on $350.0 million of Term Loan B. The purpose of the swap agreements is to adjust the interest rate profile of the Companys debt obligations and to achieve a targeted mix of floating and
fixed rate debt.

The swap agreements are accounted for in accordance with FASB ASC 815,Derivatives and Hedging, and
qualify for cash flow hedge accounting of a variable-rate debt. In accordance with this standard, all changes in fair market value of the swap instruments attributable to hedge ineffectiveness are reported currently in earnings and are recorded in
the Other Income (Expense) section of the Companys Consolidated Statements of Income. Changes in fair market value of the swap instruments attributable to hedge effectiveness are recorded, net of income tax effects, in the Accumulated Other
Comprehensive Income (Loss) section of the Companys Consolidated Statements of Stockholders Equity and Comprehensive Income.

In the event that the swap agreements no longer qualify for cash flow hedge accounting treatment, all changes in fair market value would
be reported currently in earnings and would be recorded in the Other Income (Expense) section of the Companys Consolidated Statements of Income. Additionally, the net gain or loss remaining in accumulated other comprehensive income (loss)
would be reclassified into earnings over the remainder of the term of the swap agreements.

The fair values of the interest
rate swaps have been calculated by discounting the future cash flows of both the fixed rate and variable rate interest payments using discount rates appropriate with consideration given to the Companys and counterparties non-performance
risk. The fair value of the interest rate swap is recorded in the Other Long-Term Liabilities section of the Companys Consolidated Balance Sheets.

Off-Balance Sheet Risk and Concentration of Credit Risk

The Company has no known off-balance sheet exposure or risk.

Certain financial instruments potentially subject us to concentrations of credit risk. These financial instruments consist primarily of
trade receivables, interest rate swap agreements, cash, and cash equivalents.

We place our cash and temporary cash
investments with high credit quality financial institutions. We also periodically evaluate the credit worthiness of the institutions with which we invest. We have entered into interest rate swap agreements to adjust the interest rate profile of our
debt obligations and to achieve a targeted mix of floating and fixed rate debt. The floating rate payers under our current interest rate swap agreements are nationally recognized counterparties and we believe to be of strong credit. While we may be
exposed to losses due to non-performance of the counterparties or the calculation agents, we consider the risk remote and do not expect the settlement of these transactions to have a material adverse effect on our consolidated balance sheets or
statements of income.

New Accounting Pronouncements

In December 2007, the FASB issued revised guidance regarding Business Combinations. The revised guidance requires an acquiring
entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions, and also includes a substantial number of new disclosure requirements. The revised guidance applies
prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The revised guidance requires acquisition related costs to be
expensed as incurred. During the first quarter of 2009, the Company expensed acquisition related costs of $868,000 that had been deferred pursuant to the prior guidance on acquisitions that did not close before the adoption date on January 1,
2009. Other than expensing acquisition costs deferred pursuant to prior guidance as discussed above, the adoption of the revised guidance did not have a material impact on the Companys consolidated balance sheets, statements of income or
statements of cash flows.



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In January 2010, the FASB issued FASB ASU 2010-06, Fair Value Measurements and Disclosures
(Topic 820): Improving Disclosures about Fair Value Measurements. FASB ASU 2010-06 requires new disclosures and clarifies existing disclosure requirements about fair value measurements as set forth in the FASB Codification Subtopic 820-10. FASB ASU
2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.
Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years beginning after December 15, 2010. Early adoption is permitted. Adoption of FASB ASU 2010-06 impacts
disclosures only and will not have an impact on the Companys Consolidated Balance Sheets, Statements of Income or Statements of Cash Flows.

Inflation

We do not
believe that inflation has a significant effect on the financial results of our operations.



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

Our short-term excess cash balance, if any, is typically invested in money market funds. We do not invest in any derivative or commodity
type instruments. Accordingly, we are subject to minimal market risk on our investments.

Under the terms of our credit
facilities as amended, our long-term secured debt facilities will mature in November 2011. Our $400.0 million of indebtedness under Term Loan B, maturing in 2011, bears annual interest at either (a) LIBOR plus 1.75% or (b) a base rate plus
0.75%. Our $75.0 million of indebtedness under incremental borrowing portion of our Term Loan B, maturing in 2011 bears annual interest at either (a) LIBOR plus 2.00% or (b) a base rate plus 1.00%. We have entered into two interest rate
swap agreements with nationally recognized counterparties for the purpose of fixing the interest on a portion of these borrowings. Pursuant to the current swap agreements, we will pay a fixed rate of interest of 5.87% on a $350.0 million notional of
Term Loan B through November 23, 2011.

We pay interest at a fixed rate on all borrowings under Term Loans C and D
through June 2011. Thereafter, we expect our interest rates under Term Loans C and D to convert to the Rural Telephone Finance Cooperative variable rate then in effect, as provided in the credit facilities.

We are exposed to interest rate risk, resulting primarily from fluctuations in LIBOR, with respect to $125.0 million of borrowings under
Term Loan B through November 2011. Similarly, changes in LIBOR will be the primary source of interest rate risk we face with respect to the $35.0 million of borrowings drawn under the revolving credit facility at March 31, 2010. With respect to
our $77.8 million of borrowings under Term Loan C and D, we are exposed to interest rate risk, resulting primarily from fluctuations in the Rural Telephone Finance Cooperatives variable rate, from July 2011 through maturity in November 2011.

With respect to our $10.9 million of borrowings at EN-TEL, we are exposed to interest rate risk, resulting primarily from
fluctuations in the Rural Telephone Finance Cooperation variable rate, from the dates on which the current fixed interest rates expire (July 2010 through December 2013) until the notes mature in 2015 and 2018.

With respect to the $4.3 million of borrowings at SHAL, LLC, we are exposed to interest rate risk, resulting primarily from fluctuations
in the Rural Telephone Finance Cooperation variable rate, from the dates on which the current fixed interest rates expire (January 2012) until the notes mature in October 2014.

As of March 31, 2010, a one percent change in the underlying interest rates for all of the variable rate debt that was outstanding
would have an impact of approximately $1.6 million per year on our interest expense while our fixed rates and swaps are in place.



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

Disclosure
Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2010 (the Evaluation
Date). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by
us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to the
issuers management, including its principal executive and principal financial officers to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There was no change in the Companys internal control over financial reporting (as defined in Exchange Act Rules 13a  15(f) and
15d  15(f)) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II - OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We
currently, and from time to time, are involved in litigation and regulatory proceedings incidental to the conduct of our business. We are not a party to any lawsuits or proceedings that, in the opinion of our management, are likely to have a
material adverse effect on us other than as described below.

Iowa Utilities Board Proceedings

The Iowa Utilities Board took the position in the fourth quarter of 2008 that our incumbent local exchange carriers intrastate
access rates have ceased to be subject to the intrastate switched access rate freeze since July 1, 2005, and are subject to challenge. The Iowa Utilities Board recently considered such a challenge based on a February 20, 2008, MCImetro
Transmission Access Transmission Services LLC, (d/b/a Verizon Access Transmission Services) and MCI Communications Services, Inc. (d/b/a Verizon Business Services) complaint filed with the Iowa Utilities Board against our primary Iowa incumbent
local exchange carrier, our Iowa competitive local exchange carriers, Frontier Communication of Iowa, Inc., and Citizens Mutual Telephone Company alleging that such companies tariffed originating and terminating intrastate switched access
rates of each are not just and reasonable and should be lowered by the Iowa Utilities Board to mirror the rates contained in Qwest Corporations Iowa tariff. The complaint appears to be similar to others asserted by these or related
entities against the intrastate access charges of mid-sized incumbent local exchange companies in several other states. We filed a motion to dismiss the complaint in light of our legislated price plan, and believe the substance of the complaint to
be without merit given the absence of any rationale for the proposed decrease. The Iowa Utilities Board denied our motion to dismiss on November 14, 2008, a decision we could not appeal until the Iowa Utilities Board issued a decision on the
merits.

Following the filing of all rounds of testimony but prior to the hearing, Iowa Telecom and Verizon reached a
tentative settlement of Verizons complaint on October 23, 2009 and successfully requested the proceeding to be stayed until a settlement agreement had been executed. Iowa Telecom and Verizon executed the settlement agreement on
December 7, 2009 and jointly filed for approval of the same on December 11, 2009, which the Iowa Utilities Board granted on February 4, 2010. By the terms of the settlement, Iowa Telecom and its Iowa CLECs agreed to decrease their
current intrastate switched access rates for the local switching element to $0.01508, $0.021780, and $0.021780, respectively, in three steps via a single tariff filing to be made by each Iowa Telecom company. As required by the settlement agreement,
these tariff revisions were filed on February 11, 2010 with a requested effective date of March 13, 2010. The Iowa Utilities Board approved such filing on March 18, 2010. The settlement agreement requires Verizon to request dismissal
of its complaint with prejudice no later than five business days after the effective date of the currently-pending tariff filing, a currently-pending filing made by Verizon on April 1, 2010. Further, Verizon agreed that it would not seek to
reduce any element of Iowa Telecoms ILEC or CLEC intrastate switching rates before January 1, 2012. The settlement also provides for mutual releases of all claims set forth in Verizons Complaint and Iowa Telecoms Answer in
this docket. In addition, the settlement provides that it shall not limit or affect: Verizons right to seek to reduce, eliminate or otherwise challenge the approximately three-cent-per-minute carrier common line charges (CCLCs) of
Iowa Telecom in any rulemaking proceedings of general applicability; Iowa Telecoms right to implement switched access rate increases or decreases ordered or permitted by the Iowa Utilities Board or the FCC in proceedings to reform intercarrier
compensation; and Iowa Telecoms right to seek to maintain the CCLCs of Iowa Telecom in rulemaking proceedings of general applicability.

Merger-Related Proceedings

On November 24, 2009, a purported shareholder of Iowa Telecom filed a petition styled as a class action lawsuit in the Iowa District
Court for Jasper County. The case caption is: Stephen Smigel on behalf of himself and all others similarly situated v. Iowa Telecommunications Services, Inc., Alan L. Wells, Kenneth R. Cole, Norman C. Frost, Brian G. Hart, H. Lynn Horak, Craig A.
Lang, Kendrik A. Packer and Windstream Corporation. The petition alleges that Iowa Telecoms board members breached their fiduciary duties in agreeing to the Merger and that Windstream aided and abetted in the breaches of fiduciary duties. The
petition asserts, among other things, that the consideration to be paid to Iowa Telecoms shareholders is insufficient. The lawsuit seeks to enjoin the Merger. On December 15, 2009, Iowa Telecom moved to dismiss this petition. Windstream
moved to dismiss the petition on January 4, 2010. Those motions remain pending. The plaintiff filed a motion for expedited discovery on December 22, 2009. A hearing was held on the plaintiffs motion for expedited discovery on
January 15, 2010. The Court decided that it would defer a decision on the motion for expedited discovery until it decided Iowa Telecoms and Windstreams motions to dismiss.



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On December 4, 2009, a second purported shareholder of Iowa Telecom filed a petition
styled as a class action lawsuit in the Iowa District Court for Jasper County. The case caption is: Francine Gerendasy, individually and on behalf of all others similarly situated v. Alan L. Wells, Kenneth R. Cole, Norman C. Frost, Brian G. Hart, H.
Lynn Horak, Craig A. Lang, Kendrik E. Packer, Iowa Telecommunications Services, Inc., Windstream Corporation, and Buffalo Merger Sub, Inc. Two additional substantially similar petitions were filed in the Iowa District Court for Jasper County on
December 23 and December 29, 2009, respectively. Each of these petitions contains substantially similar allegations to the above-described petition.

On December 11, 2009, a purported shareholder filed a complaint in the United States District Court for the Southern District of
Iowa. This complaint names Iowa Telecoms individual board members, Iowa Telecom and Windstream as defendants and asserts that Iowa Telecoms board members breached their fiduciary duties in agreeing to the Merger. It also seeks to enjoin
the Merger. On December 17, 2009, the plaintiff in this action moved for expedited discovery. Windstream and Iowa Telecom both responded in opposition to this motion. A hearing was held on the plaintiffs motion for expedited discovery on
January 12, 2010. On January 21, 2010, the Court granted in part and denied in part the plaintiffs motion for expedited discovery, ordering that Windstreams and Iowa Telecoms motions to dismiss would be heard before any
discovery would begin, but that production of documents would occur on an expedited basis if the Court denies the motions to dismiss.

On December 16, 2009, another complaint was filed in the United States District Court for the Southern District of Iowa by a
purported shareholder, seeking to enjoin the Merger. It contains allegations substantially similar to the petitions filed in the Iowa District Court for Jasper County, alleging that the individual board members of Iowa Telecoms board of
directors breached their fiduciary duties in agreeing to the Merger and that Windstream aided and abetted in the breaches of fiduciary duties.

On January 4, 2010, Iowa Telecom and Windstream moved to dismiss both complaints in the United States District Court. Those motions
remain pending. On December 18, 2009, the plaintiffs in the two United States District Court cases moved to consolidate those two actions and for the appointment of their attorneys as co-lead class counsel. The motion to consolidate the two
cases was granted on January 12, 2010.

Iowa Telecom, its directors and Windstream believe each of these lawsuits is
without merit. However, in order to eliminate the uncertainty, distraction, burden and expense of further litigation and to permit the Merger to proceed without possible delays from litigation, Iowa Telecom and Windstream have entered into a
memorandum of understanding with counsel to the various plaintiffs to settle the aforementioned actions in exchange for including additional disclosures set forth in the proxy statement/prospectus relating to the transaction. This memorandum of
understanding is subject to the terms and conditions set forth therein, including satisfactory confirmatory discovery by plaintiffs and approval of the settlement by the Iowa District Court for Jasper County. The settlement would result in all of
the above actions being dismissed with prejudice and would become effective only upon consummation of the Merger.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

In addition
to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially
affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. 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.



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|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

During the quarter ended March 31, 2010, the Company reacquired the following number of shares of its common stock from recipients of
stock option awards under the Companys 2002 Stock Incentive Plan in order to satisfy tax withholding obligations due upon option exercise (see also Note 7 to Consolidated Financial Statements):

ISSUER PURCHASES OF EQUITY SECURITIES



|                                |  |                                               |  |                                          |       |                                                                                               |   |                                                                                                                           |  
|------------------------------- |  | --------------------------------------------- |  | ---------------------------------------- | ----- | --------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------------------------------------- | -
|Periods                         |  | (a)
TotalNumber ofShares (or 
Units)Purchased |  | (b) AveragePrice Paid perShare (or Unit) |       | (c) Total Number ofShares 
(or Units)Purchased as Part ofPublicly 
AnnouncedPlans or Programs |   | (d) Maximum Number 
(orApproximate Dollar Value) ofShares (or Units) that May 
YetBe Purchased Under the Plansor Programs
|January 1 to January 31, 2010   |  |                                              |  | $                                        |      |                                                                                               |  |                                                                                                                           | 
|February 1 to February 28, 2010 |  |                                              |  | $                                        |      |                                                                                               |  |                                                                                                                           | 
|March 1 to March 31, 2010       |  | 12,333                                        |  | $                                        | 16.75 |                                                                                               |  |                                                                                                                           | 
|                                |  |                                               |  |                                          |       |                                                                                               |   |                                                                                                                           |  
|Total                           |  | 12,333                                        |  | $                                        | 16.75 |                                                                                               |  |                                                                                                                           | 
|                                |  |                                               |  |                                          |       |                                                                                               |   |                                                                                                                           |  



|ITEM 6. | EXHIBITS
|------- | --------

See Exhibit
Index following the signature page of this Report.



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##### Table of Contents

SIGNATURES

Pursuant to the requirements 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.



|                     |  |                                                                                   
|-------------------- |  | ----------------------------------------------------------------------------------
|Date: April 26, 2010 |  | /s/ Alan L. Wells                                                                 
|                     |  | Alan L. Wells                                                                     
|                     |  | President, Chief Executive Officer and Director
Principal Executive Officer       
|                     |  | Iowa Telecommunications Services, Inc.                                            
|                     | 
|Date: April 26, 2010 |  | /s/ Craig A. Knock                                                                
|                     |  | Craig A. Knock                                                                    
|                     |  | Vice President, Chief Financial Officer and Treasurer
Principal Accounting Officer
|                     |  | Iowa Telecommunications Services, Inc.                                            



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##### Table of Contents

EXHIBIT INDEX

IOWA TELECOMMUNICATIONS SERVICES, INC.

FORM 10-Q FOR QUARTER ENDED MARCH 31, 2010



|               |  |                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description                                                                                       
|31.1*          |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|               | 
|31.2*          |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|               | 
|32.1*          |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|               | 
|32.2*          |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



|* | Filed herewith.
|- | ---------------



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