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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark one)

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



For the quarterly period ended: June 30, 2005



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



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IOWA TELECOMMUNICATIONS SERVICES, INC.

(Exact name of registrant as specified in its charter)



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



115 S. Second Avenue
West

Newton, Iowa 50208

(Address of principal executive offices)



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



Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)



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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 is an accelerated filer (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
July 29, 2005 was 30,915,016.



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##### Table of Contents

TABLE OF C
ONTENTS



|         |  |                       |  |                                                                                       |  |     
|-------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                       |  |                                                                                       |  | Page
|PART I.  |  | FINANCIAL INFORMATION |  | 1                                                                                    
|         |  | ITEM 1.               |  | FINANCIAL STATEMENTS                                                                  |  | 1   
|         |  | ITEM 2.               |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 13  
|         |  | ITEM 3.               |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 32  
|         |  | ITEM 4.               |  | CONTROLS AND PROCEDURES                                                               |  | 32  
|PART II. |  | OTHER INFORMATION     |  | 33                                                                                   
|         |  | ITEM 1.               |  | LEGAL PROCEEDINGS                                                                     |  | 33  
|         |  | ITEM 4.               |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 33  
|         |  | ITEM 6.               |  | EXHIBITS                                                                              |  | 33  



i



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##### Table of Contents

PART I - FINAN
CIAL INFORMATION

ITEM 1: FINAN
CIAL STATEMENTS

Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(Dollars in Thousands)

|                                                                                                                             |  |                  |          |   |              |   |          |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ------------ | - | -------- | -
|                                                                                                                             |  | December 31,2004 |          |   | June 30,2005 |  
|ASSETS                                                                                                                       |  |                  |          |   |              |   |          |  
|                                                                                                                             |  |                 
|CURRENT ASSETS:                                                                                                              |  |                  |          |   |              |   |          |  
|Cash and cash equivalents                                                                                                    |  | $                | 2,874    |   |              | $ | 3,511    |  
|Accounts receivable, net                                                                                                     |  |                  | 19,416   |   |              |   | 20,535   |  
|Inventories                                                                                                                  |  |                  | 2,979    |   |              |   | 4,123    |  
|Prepayments and other current assets                                                                                         |  |                  | 3,224    |   |              |   | 1,842    |  
|                                                                                                                             |  |                  |          |   |              |   |          |  
|Total Current Assets                                                                                                         |  |                  | 28,493   |   |              |   | 30,011   |  
|                                                                                                                             |  |                 
|PROPERTY, PLANT AND EQUIPMENT:                                                                                               |  |                  |          |   |              |   |          |  
|Property, plant and equipment                                                                                                |  |                  | 496,145  |   |              |   | 493,530  |  
|Accumulated depreciation                                                                                                     |  |                  | (164,409 | ) |              |   | (171,686 | )
|                                                                                                                             |  |                  |          |   |              |   |          |  
|Net Property, Plant and Equipment                                                                                            |  |                  | 331,736  |   |              |   | 321,844  |  
|                                                                                                                             |  |                 
|GOODWILL                                                                                                                     |  |                  | 460,113  |   |              |   | 460,113  |  
|INTANGIBLE ASSETS AND OTHER, net                                                                                             |  |                  | 15,800   |   |              |   | 16,393   |  
|INVESTMENT IN AND RECEIVABLE FROM THE RURAL TELEPHONE FINANCE COOPERATIVE                                                    |  |                  | 16,642   |   |              |   | 14,188   |  
|                                                                                                                             |  |                  |          |   |              |   |          |  
|Total Assets                                                                                                                 |  | $                | 852,784  |   |              | $ | 842,549  |  
|                                                                                                                             |  |                  |          |   |              |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                         |  |                  |          |   |              |   |          |  
|                                                                                                                             |  |                 
|CURRENT LIABILITIES:                                                                                                         |  |                  |          |   |              |   |          |  
|Revolving credit facility                                                                                                    |  | $                | 41,507   |   |              | $ | 27,500   |  
|Accounts payable                                                                                                             |  |                  | 15,889   |   |              |   | 10,674   |  
|Advanced billings and customer deposits                                                                                      |  |                  | 6,525    |   |              |   | 6,398    |  
|Accrued and other current liabilities                                                                                        |  |                  | 23,123   |   |              |   | 27,487   |  
|                                                                                                                             |  |                  |          |   |              |   |          |  
|Total Current Liabilities                                                                                                    |  |                  | 87,044   |   |              |   | 72,059   |  
|                                                                                                                             |  |                 
|LONG-TERM DEBT                                                                                                               |  |                  | 477,778  |   |              |   | 477,778  |  
|OTHER LONG-TERM LIABILITIES                                                                                                  |  |                  | 12,000   |   |              |   | 13,349   |  
|                                                                                                                             |  |                  |          |   |              |   |          |  
|Total Liabilities                                                                                                            |  |                  | 576,822  |   |              |   | 563,186  |  
|                                                                                                                             |  |                 
|COMMITMENTS AND CONTINGENCIES (Note 8)                                                                                       |  |                  |         |   |              |   |         |  
|                                                                                                                             |  |                 
|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, 30,864,195 and 30,915,016 issued and outstanding, respectively |  |                  | 309      |   |              |   | 309      |  
|Additional paid-in capital                                                                                                   |  |                  | 314,634  |   |              |   | 315,733  |  
|Retained deficit                                                                                                             |  |                  | (38,897  | ) |              |   | (38,740  | )
|Other comprehensive income (loss)                                                                                            |  |                  | (84      | ) |              |   | 2,061    |  
|                                                                                                                             |  |                  |          |   |              |   |          |  
|Total Stockholders Equity                                                                                                   |  |                  | 275,962  |   |              |   | 279,363  |  
|                                                                                                                             |  |                  |          |   |              |   |          |  
|Total Liabilities and Stockholders Equity                                                                                   |  | $                | 852,784  |   |              | $ | 842,549  |  
|                                                                                                                             |  |                  |          |   |              |   |          |  

See notes to condensed consolidated financial statements.



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##### Table of Contents

Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(Dollars in Thousands, Except Per Share Data)



|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------ |  | -------------------------- | ------- | - | ------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                             |  | Three Months EndedJune 30, |         |   | Six Months Ended June 30, |  
|                                                             |  | 2004                       |         |   | 2005                      |   |        | 2004 |  |   | 2005    |  
|REVENUES AND SALES:                                          |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Local services                                               |  | $                          | 27,508  |   |                           | $ | 19,021 |      |  | $ | 45,270  |   |  | $ | 37,828  |  
|Network access services                                      |  |                            | 23,044  |   |                           |   | 25,365 |      |  |   | 46,709  |   |  |   | 50,867  |  
|Toll services                                                |  |                            | 5,497   |   |                           |   | 5,986  |      |  |   | 11,072  |   |  |   | 11,975  |  
|Other services and sales                                     |  |                            | 6,862   |   |                           |   | 7,665  |      |  |   | 13,292  |   |  |   | 14,868  |  
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Total Revenues and Sales                                     |  |                            | 62,911  |   |                           |   | 58,037 |      |  |   | 116,343 |   |  |   | 115,538 |  
|                                                             |  |                            |         |  
|OPERATING COSTS AND EXPENSES:                                |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Cost of services and sales                                   |  |                            | 13,074  |   |                           |   | 15,909 |      |  |   | 25,923  |   |  |   | 31,442  |  
|Selling, general and administrative                          |  |                            | 8,792   |   |                           |   | 8,808  |      |  |   | 17,985  |   |  |   | 18,926  |  
|Depreciation and amortization                                |  |                            | 11,974  |   |                           |   | 12,346 |      |  |   | 23,774  |   |  |   | 24,689  |  
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Total Operating Costs and Expenses                           |  |                            | 33,840  |   |                           |   | 37,063 |      |  |   | 67,682  |   |  |   | 75,057  |  
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|OPERATING INCOME                                             |  |                            | 29,071  |   |                           |   | 20,974 |      |  |   | 48,661  |   |  |   | 40,481  |  
|                                                             |  |                            |         |  
|OTHER INCOME (EXPENSE):                                      |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Interest and dividend income                                 |  |                            | 782     |   |                           |   | 133    |      |  |   | 1,700   |   |  |   | 292     |  
|Interest expense                                             |  |                            | (13,345 | ) |                           |   | (7,706 | )    |  |   | (26,188 | ) |  |   | (15,449 | )
|Other, net                                                   |  |                            |        |   |                           |   | (67    | )    |  |   |        |   |  |   | (146    | )
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Total Other Expense, net                                     |  |                            | (12,563 | ) |                           |   | (7,640 | )    |  |   | (24,488 | ) |  |   | (15,303 | )
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|NET INCOME                                                   |  |                            | 16,508  |   |                           |   | 13,334 |      |  |   | 24,173  |   |  |   | 25,178  |  
|                                                             |  |                            |         |  
|GAIN ON REDEMPTION OF REDEEMABLE CONVERTIBLE PREFERRED STOCK |  |                            |        |   |                           |   |       |      |  |   | 57,681  |   |  |   |        |  
|PREFERRED DIVIDEND                                           |  |                            |        |   |                           |   |       |      |  |   | (2,056  | ) |  |   |        |  
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|INCOME AVAILABLE FOR COMMON STOCKHOLDERS                     |  | $                          | 16,508  |   |                           | $ | 13,334 |      |  | $ | 79,798  |   |  | $ | 25,178  |  
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|BASIC - Earnings Per Share                                   |  | $                          | 0.73    |   |                           | $ | 0.43   |      |  | $ | 3.53    |   |  | $ | 0.82    |  
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|BASIC - Weighted Average Number of Shares Outstanding        |  |                            | 22,601  |   |                           |   | 30,879 |      |  |   | 22,601  |   |  |   | 30,872  |  
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|DILUTED - Earnings Per Share                                 |  | $                          | 0.72    |   |                           | $ | 0.42   |      |  | $ | 2.83    |   |  | $ | 0.80    |  
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|DILUTED - Weighted Average Number of Shares Outstanding      |  |                            | 23,065  |   |                           |   | 31,598 |      |  |   | 28,930  |   |  |   | 31,596  |  
|                                                             |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  



See notes to condensed
consolidated financial statements.



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##### Table of Contents

Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders Equity

(Unaudited)

(Dollars in Thousands)



|                                                  |  |                                           |  |             |     |                             |   |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|------------------------------------------------- |  | ----------------------------------------- |  | ----------- | --- | --------------------------- | - | --------------- |  | - | ------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|                                                  |  | Three Months Ended June 30, 2004 and 2005 | 
|                                                  |  | CommonShares                              |  | CommonStock |     | Additional Paid- In Capital |   | RetainedDeficit |  |   | OtherComprehensiveIncome |   |  | Total |       
|Balance, April 1, 2004                            |  | 22,601,037                                |  | $           | 226 |                             | $ | 179,774         |  | $ | (40,035                  | ) |  | $     |       |   |  | $ | 139,965 |  
|                                                  |  |                                           |  |             |     |                            
|Income available for common Stockholders          |  |                                          |  |             |    |                             |   |                |  |   | 16,508                   |   |  |       |       |   |  |   | 16,508  |  
|Compensation from compensatory stock option plans |  |                                          |  |             |    |                             |   | 1               |  |   |                         |   |  |       |       |   |  |   | 1       |  
|                                                  |  |                                           |  |             |     |                             |   |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Balance, June 30, 2004                            |  | 22,601,037                                |  | $           | 226 |                             | $ | 179,775         |  | $ | (23,527                  | ) |  | $     |       |   |  | $ | 156,474 |  
|                                                  |  |                                           |  |             |     |                             |   |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|                                                  |  |                                           |  |             |     |                            
|Balance, April 1, 2005                            |  | 30,864,195                                |  | $           | 309 |                             | $ | 314,988         |  | $ | (39,553                  | ) |  | $     | 7,600  |   |  | $ | 283,344 |  
|                                                  |  |                                           |  |             |     |                            
|Net Income                                        |  |                                          |  |             |    |                             |   |                |  |   | 13,334                   |   |  |       |       |   |  |   | 13,334  |  
|Compensation from compensatory stock option plans |  |                                          |  |             |    |                             |   | 361             |  |   |                         |   |  |       |       |   |  |   | 361     |  
|Exercise of stock options                         |  | 50,821                                    |  |             |    |                             |   | 384             |  |   |                         |   |  |       |       |   |  |   | 384     |  
|Other comprehensive income                        |  |                                          |  |             |    |                             |   |                |  |   |                         |   |  |       | (5,539 | ) |  |   | (5,539  | )
|Dividends declared                                |  |                                          |  |             |    |                             |   |                |  |   | (12,521                  | ) |  |       |       |   |  |   | (12,521 | )
|                                                  |  |                                           |  |             |     |                             |   |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Balance, June 30, 2005                            |  | 30,915,016                                |  | $           | 309 |                             | $ | 315,733         |  | $ | (38,740                  | ) |  | $     | 2,061  |   |  | $ | 279,363 |  
|                                                  |  |                                           |  |             |     |                             |   |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|                                                  | 
|                                                  |  | Six Months Ended June 30, 2004 and 2005   | 
|                                                  |  | CommonShares                              |  | CommonStock |     | Additional Paid-In Capital  |   | RetainedDeficit |  |   | OtherComprehensiveIncome |   |  | Total |       
|Balance, January 1, 2004                          |  | 22,601,037                                |  | $           | 226 |                             | $ | 179,774         |  | $ | (103,325                 | ) |  | $     |       |   |  | $ | 76,675  |  
|                                                  |  |                                           |  |             |     |                            
|Income available for common Stockholders          |  |                                          |  |             |    |                             |   |                |  |   | 79,798                   |   |  |       |       |   |  |   | 79,798  |  
|Compensation from compensatory stock option plans |  |                                          |  |             |    |                             |   | 1               |  |   |                         |   |  |       |       |   |  |   | 1       |  
|                                                  |  |                                           |  |             |     |                             |   |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Balance, June 30, 2004                            |  | 22,601,037                                |  | $           | 226 |                             | $ | 179,775         |  | $ | (23,527                  | ) |  | $     |       |   |  | $ | 156,474 |  
|                                                  |  |                                           |  |             |     |                             |   |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|                                                  |  |                                           |  |             |     |                            
|Balance, January 1, 2005                          |  | 30,864,195                                |  | $           | 309 |                             | $ | 314,634         |  | $ | (38,897                  | ) |  | $     | (84    | ) |  | $ | 275,962 |  
|                                                  |  |                                           |  |             |     |                            
|Net Income                                        |  |                                          |  |             |    |                             |   |                |  |   | 25,178                   |   |  |       |       |   |  |   | 25,178  |  
|Compensation from compensatory stock option plans |  |                                          |  |             |    |                             |   | 715             |  |   |                         |   |  |       |       |   |  |   | 715     |  
|Exercise of stock options                         |  | 50,821                                    |  |             |    |                             |   | 384             |  |   |                         |   |  |       |       |   |  |   | 384     |  
|Other comprehensive income                        |  |                                          |  |             |    |                             |   |                |  |   |                         |   |  |       | 2,145  |   |  |   | 2,145   |  
|Dividends declared                                |  |                                          |  |             |    |                             |   |                |  |   | (25,021                  | ) |  |       |       |   |  |   | (25,021 | )
|                                                  |  |                                           |  |             |     |                             |   |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Balance, June 30, 2005                            |  | 30,915,016                                |  | $           | 309 |                             | $ | 315,733         |  | $ | (38,740                  | ) |  | $     | 2,061  |   |  | $ | 279,363 |  
|                                                  |  |                                           |  |             |     |                             |   |                 |  |   |                          |   |  |       |        |   |  |   |         |  



See notes to condensed
consolidated financial statements.



3



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##### Table of Contents

Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in Thousands)



|                                                                              |  |                           |          |   |      |   |         |  
|----------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | ------- | -
|                                                                              |  | Six Months Ended June 30, |         
|                                                                              |  | 2004                      |          |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                         |  |                           |          |   |      |   |         |  
|                                                                              |  |                          
|Net income                                                                    |  | $                         | 24,173   |   |      | $ | 25,178  |  
|Adjustments to reconcile net income to cash provided by operating activities: |  |                           |          |   |      |   |         |  
|Depreciation                                                                  |  |                           | 22,594   |   |      |   | 23,501  |  
|Amortization of intangible assets                                             |  |                           | 1,180    |   |      |   | 1,188   |  
|Non-cash stock based compensation expense                                     |  |                           | 1        |   |      |   | 715     |  
|Changes in operating assets and liabilities:                                  |  |                           |          |   |      |   |         |  
|Receivables                                                                   |  |                           | (628     | ) |      |   | (1,119  | )
|Inventories                                                                   |  |                           | (267     | ) |      |   | (1,144  | )
|Accounts payable                                                              |  |                           | 3,178    |   |      |   | (5,215  | )
|Other assets and liabilities                                                  |  |                           | (9,144   | ) |      |   | 2,810   |  
|                                                                              |  |                           |          |   |      |   |         |  
|Net Cash Provided by Operating activities                                     |  |                           | 41,087   |   |      |   | 45,914  |  
|                                                                              |  |                           |          |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                         |  |                           |          |   |      |   |         |  
|Capital expenditures                                                          |  |                           | (14,636  | ) |      |   | (13,668 | )
|Business acquisition                                                          |  |                           | (1,697   | ) |      |   | (85     | )
|                                                                              |  |                           |          |   |      |   |         |  
|Net Cash Used in Investing Activities                                         |  |                           | (16,333  | ) |      |   | (13,753 | )
|                                                                              |  |                           |          |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                         |  |                           |          |   |      |   |         |  
|Net change in revolving credit facility                                       |  |                           |         |   |      |   | (14,007 | )
|Redemption of redeemable preferred stock                                      |  |                           | (100,000 | ) |      |   |        |  
|Issuance of senior subordinated notes                                         |  |                           | 66,000   |   |      |   |        |  
|Payment of debt issuance costs                                                |  |                           | (1,974   | ) |      |   |        |  
|Payment on long-term debt                                                     |  |                           | (19,250  | ) |      |   |        |  
|Proceeds from exercise of stock options                                       |  |                           |         |   |      |   | 384     |  
|Dividends paid                                                                |  |                           |         |   |      |   | (17,901 | )
|                                                                              |  |                           |          |   |      |   |         |  
|Net Cash Used in Financing Activities                                         |  |                           | (55,224  | ) |      |   | (31,524 | )
|                                                                              |  |                           |          |   |      |   |         |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                       |  | $                         | (30,470  | ) |      | $ | 637     |  
|                                                                              |  |                          
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                              |  |                           | 36,849   |   |      |   | 2,874   |  
|                                                                              |  |                           |          |   |      |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                    |  | $                         | 6,379    |   |      | $ | 3,511   |  
|                                                                              |  |                           |          |   |      |   |         |  
|Cash paid for interest                                                        |  | $                         | 26,949   |   |      | $ | 16,832  |  
|                                                                              |  |                           |          |   |      |   |         |  



SUPPLEMENTAL NON-CASH ACTIVITIES:



During the six months ended June 30, 2004, the Company
recorded undeclared and unpaid preferred stock dividends of $2,056.



Dividends on Common Stock of $12,521 were declared on June 15, 2005 for shareholders of record as of June 30, 2005 and the dividends were paid on July 15, 2005.



See notes to condensed consolidated financial statements.



4



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##### Table of Contents

Iowa Telecommunications Services, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)



1. BASIS OF PRESENTATION



The accompanying unaudited condensed consolidated financial statements of Iowa Telecommunications Services, Inc. and Subsidiaries (the
Company) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. 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 and 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 financial positions, the results of operations and cash flows for the periods presented. The results of operations 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 financial statements should be read in conjunction with the Companys audited consolidated
financial statements as of and for the year ended December 31, 2004, that are included in the Companys most recently filed annual report on Form 10-K.



2. EARNINGS PER SHARE



Basic earnings per share is computed based on the weighted average number of common shares outstanding. Diluted earnings per share is computed based on
the weighted average number of common shares outstanding plus equivalent shares assuming exercise of stock options and conversion of outstanding convertible securities, where dilutive. The following is a reconciliation between basic and diluted
weighted average shares outstanding:



|                                                                         |  |                                          |        |                          |   |        |  |   |        |   |  |   |       
|------------------------------------------------------------------------ |  | ---------------------------------------- | ------ | ------------------------ | - | ------ |  | - | ------ | - |  | - | ------
|                                                                         |  | Three Months EndedJune 30,               |        | Six Months EndedJune 30,
|                                                                         |  | 2004                                     |        | 2005                     |   | 2004   |  |   | 2005  
|                                                                         |  | (in thousands, except per share amounts)
|Net Income                                                               |  | $                                        | 16,508 |                          | $ | 13,334 |  | $ | 24,173 |   |  | $ | 25,178
|Gain on redemption of redeemable convertible preferred stock             |  |                                          |       |                          |   |       |  |   | 57,681 |   |  |   |      
|Preferred dividend                                                       |  |                                          |       |                          |   |       |  |   | (2,056 | ) |  |   |      
|                                                                         |  |                                          |        |                          |   |        |  |   |        |   |  |   |       
|Income available to common stockholders  basic                          |  |                                          | 16,508 |                          |   | 13,334 |  |   | 79,798 |   |  |   | 25,178
|Effects of dilutive securities:                                          |  |                                          |        |                          |   |        |  |   |        |   |  |   |       
|Preferred dividend                                                       |  |                                          |       |                          |   |       |  |   | 2,056  |   |  |   |      
|                                                                         |  |                                          |        |                          |   |        |  |   |        |   |  |   |       
|Income available to common stockholders  diluted                        |  | $                                        | 16,508 |                          | $ | 13,334 |  | $ | 81,854 |   |  | $ | 25,178
|                                                                         |  |                                          |        |                          |   |        |  |   |        |   |  |   |       
|Weighted average shares outstanding  basic                              |  |                                          | 22,601 |                          |   | 30,879 |  |   | 22,601 |   |  |   | 30,872
|                                                                         |  |                                          |        |                          |   |        |  |   |        |   |  |   |       
|Diluted shares outstanding:                                              |  |                                          |        |                          |   |        |  |   |        |   |  |   |       
|Weighted average shares outstanding                                      |  |                                          | 22,601 |                          |   | 30,879 |  |   | 22,601 |   |  |   | 30,872
|Add shares contingently issuable upon conversion of preferred securities |  |                                          |       |                          |   |       |  |   | 6,112  |   |  |   |      
|Add shares issuable upon exercise of stock options, net                  |  |                                          | 464    |                          |   | 719    |  |   | 217    |   |  |   | 724   
|                                                                         |  |                                          |        |                          |   |        |  |   |        |   |  |   |       
|Weighted average number of shares outstanding  diluted                  |  |                                          | 23,065 |                          |   | 31,598 |  |   | 28,930 |   |  |   | 31,596
|                                                                         |  |                                          |        |                          |   |        |  |   |        |   |  |   |       
|Earnings Per Share:                                                      |  |                                          |        |                          |   |        |  |   |        |   |  |   |       
|Basic                                                                    |  | $                                        | 0.73   |                          | $ | 0.43   |  | $ | 3.53   |   |  | $ | 0.82  
|Diluted                                                                  |  | $                                        | 0.72   |                          | $ | 0.42   |  | $ | 2.83   |   |  | $ | 0.80  



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##### Table of Contents

As of June 30, 2005 and June 30, 2004, total options outstanding were 1,145,098 and 2,227,714,
respectively. At June 30, 2004, 27,028 options were outstanding with exercise prices in excess of the average market value of common stock and, therefore, were excluded from the diluted earnings per share calculation.



3. 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 salaried employees and most former GTE Midwest Incorporated hourly employees. The provisions of the Plan were assumed by the Company in connection with the 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 death benefits, and various annuity options. No company
contributions were made during the first six months of 2005.



Components of pension benefit costs are as follows:



|                                            |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  
|------------------------------------------- |  | -------------------------- | ---- | - | ------------------------ | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                            |  | Three Months EndedJune 30, |      |   | Six Months EndedJune 30, |  
|                                            |  | 2004                       |      |   | 2005                     |   |      | 2004 |  |   | 2005 |  
|                                            |  | (dollars in thousands)     |     
|Pension Benefit Cost:                       |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  
|Service cost                                |  | $                          | 242  |   |                          | $ | 197  |      |  | $ | 484  |   |  | $ | 464  |  
|Interest cost                               |  |                            | 334  |   |                          |   | 378  |      |  |   | 668  |   |  |   | 762  |  
|Expected return on plan assets              |  |                            | (225 | ) |                          |   | (256 | )    |  |   | (450 | ) |  |   | (518 | )
|Amortization of unrecognized actuarial loss |  |                            | 69   |   |                          |   | 147  |      |  |   | 138  |   |  |   | 244  |  
|                                            |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  
|Net periodic benefit cost                   |  | $                          | 420  |   |                          | $ | 466  |      |  | $ | 840  |   |  | $ | 952  |  
|                                            |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  



During the second
quarter of 2005, we amended the Plan to mandatorily discontinue further benefit accruals for all salaried and certain hourly participants, and to permit certain other hourly participants to elect to discontinue further benefit accruals. As a result
of the amendment, the number of employees accruing further benefits under the Plan has been reduced to approximately 40 from 175. The accrued benefits for employees subject to the mandatory termination will be transferred to a separate plan (the
Spin-Off Plan) which will be terminated upon the receipt of all the necessary approvals, expected to occur during the fourth quarter of 2006 or the first quarter of 2007. The employees that elected to discontinue further benefit accruals
may elect to receive a current distribution of their accrued benefits without termination of employment. The amendment had a minimal effect on the results of operations for the period ended June 30, 2005.



Due to the pension plan amendment, we updated the measurement of our pension
obligation and our net periodic benefit cost as of May 31, 2005. The pension costs estimate was determined using a discount rate of 5.25%, an expected return on plan assets of 7.0% and a long-term rate of compensation increase of 4.0%.



As a result of the amendment, the distribution of accrued benefits from
the Plan during the last six months of 2005 will likely exceed the amounts in our prior FAS 87 analysis for the period. We estimate that the higher benefit distributions will likely result in additional expense recognition of between $1.0 million
and $1.8 million during the second half of 2005. We anticipate that the expected 2005 funding requirement will be unchanged at approximately $1.7 million.



6



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##### Table of Contents

Upon the termination of the Spin-Off Plan, we expect to recognize additional expense of approximately
$4.8 million to $5.5 million. We also expect that additional funding of approximately $7.1 million to $7.8 million will be required upon the termination of the Spin-Off Plan.



Post Retirement Benefits



The Company assumed a postretirement benefit obligation plan for employees who qualified for benefits at the date of the GTE acquisition. This plan
provides for certain 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 costs are as follows:



|                                                |  |                            |     |   |                          |   |     |      |  |   |      |   |  |   |     |  
|----------------------------------------------- |  | -------------------------- | --- | - | ------------------------ | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                                                |  | Three Months EndedJune 30, |     |   | Six Months EndedJune 30, |  
|                                                |  | 2004                       |     |   | 2005                     |   |     | 2004 |  |   | 2005 |  
|                                                |  | (dollars in thousands)     |    
|Postretirement Benefit Cost:                    |  |                            |     |   |                          |   |     |      |  |   |      |   |  |   |     |  
|Service cost                                    |  | $                          | 47  |   |                          | $ | 45  |      |  | $ | 98   |   |  | $ | 91  |  
|Interest cost                                   |  |                            | 130 |   |                          |   | 134 |      |  |   | 268  |   |  |   | 268 |  
|Amortization of unrecognized net actuarial loss |  |                            | 32  |   |                          |   | 49  |      |  |   | 64   |   |  |   | 98  |  
|Amortization of unrecognized prior service cost |  |                            | (37 | ) |                          |   | (38 | )    |  |   | (57  | ) |  |   | (77 | )
|                                                |  |                            |     |   |                          |   |     |      |  |   |      |   |  |   |     |  
|Net periodic benefit cost                       |  | $                          | 172 |   |                          | $ | 190 |      |  | $ | 373  |   |  | $ | 380 |  
|                                                |  |                            |     |   |                          |   |     |      |  |   |      |   |  |   |     |  



4. LONG-TERM DEBT



Credit Facilities



As a part of our initial public offering and the related debt refinancing, we entered into new credit facilities with a
group of lenders, including the Rural Telephone Finance Cooperative, providing for a total of up to $577.8 million in term and revolving credit facilities and retired the previously outstanding senior credit facility with the Rural Telephone Finance
Cooperative. As of June 30, 2005, we had outstanding $477.8 million of senior debt under the new term facilities and $27.5 million drawn under the $100.0 million revolving credit facility. The details of the facilities are as follows:



The revolving credit facility will expire in 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 million). As of June 30, 2005, $27.5 million was outstanding on the revolving credit facility and $72.5 million was
available. Borrowings under the new 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 June 30, 2005, we had $23.5 million outstanding under
LIBOR elections at an average all-in rate of 5.2% and $4.0 million outstanding under the base rate election with an all-in rate of 6.25%.



Term Loan B is a $400.0 million senior secured term facility maturing in 2011, bearing interest per annum at either (a) LIBOR plus 2.0% or (b) a base rate
plus 1.0%. As of June 30, 2005, $350 million was based upon a LIBOR election effective through September 30, 2005, at an all-in rate of 5.49%. We have entered into an interest rate swap to fix the rate on $350 million of Term Loan B as more fully
described below. As of June 30, 2005, the interest rate on the remaining $50 million was based upon a LIBOR election effective through December 12, 2005 at an all-in rate of 5.54%.



Term Loan C is a $70.0 million senior secured term facility maturing in 2011, bearing interest per annum at either (a) a
fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. Upon the expiration of the 6.65% fixed interest rate on Term Loan C in November 2007, the interest rate on such term loan will convert to the Rural Telephone Finance
Cooperative base variable rate plus 0.85%.



7



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##### Table of Contents

Term Loan D is a $7.8 million senior secured term facility maturing in 2011, bearing interest per annum
at either (a) a fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. Upon the expiration of the 6.65% fixed interest rate on Term Loan D in November 2007, interest on such term loan will convert to the Rural Telephone
Finance Cooperative variable rate plus 0.85%.



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 (SCCs) of the Rural Telephone Finance Cooperative.
SCCs are non-interest bearing but, as a member of the Rural Telephone Finance Cooperative, we share proportionately in the institutions net earnings. The Rural Telephone Finance Cooperative will redeem the SCCs in proportion to our
principal repayments on Term Loans C and D.



The credit
facilities are secured by substantially all of our tangible and intangible assets, properties and revenues as well as those of all of our current and future subsidiaries. The credit facilities will be guaranteed by all of our current and future
subsidiaries.



The credit facilities permit us to pay dividends
to holders of our 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 our 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 our fiscal year; and engage in mergers and consolidations.



In addition, the financial covenants under the 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 June 30, 2005.



Interest Rate Swap



On November 4, 2004, we entered into an interest rate swap agreement with a nationally recognized commercial bank that effectively fixes the interest rate
we will pay on specified portions of our indebtedness under Term Loan B. Pursuant to this swap: from November 5, 2004 through December 30, 2007 the interest on $350.0 million of our indebtedness under Term Loan B will be fixed at a weighted average
rate of 5.69%; from December 31, 2007 through December 30, 2008 the interest rate on $285.3 million of such indebtedness will be fixed at a weighted average rate of 5.76%; and from December 31, 2008 through November 4, 2009 the interest rate on
$142.7 million of such indebtedness will be fixed at 5.87%.



5. REPURCHASE
OF REDEEMABLE CONVERTIBLE PREFERRED STOCK



On March 5,
2004, the Company agreed to repurchase its Series A mandatorily redeemable convertible preferred stock and related accrued preferred stock dividends for an aggregate purchase price of $100 million. The recorded amounts of preferred stock and related
accrued preferred stock dividend were $125 million and $32.7 million, respectively, as of closing of the repurchase on March 26, 2004. The repurchase was financed through a combination of funds received from the issuance of $66 million of senior
subordinated notes and cash on hand.



6. STOCK INCENTIVE PLAN



The Iowa Telecommunications Services, Inc. 2002 Stock
Incentive Plan (the 2002 Stock Incentive Plan) allows for the issuance of incentive stock options or nonqualified stock options. Under the Incentive Plan, options have been granted for the purchase of 2,227,714 shares of which options
for the purchase of 1,145,098 remain outstanding as of



8



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##### Table of Contents

June 30, 2005. No new options will be granted under the Incentive Plan. The term of each option did not exceed 10 years
from the date of grant. All unvested options outstanding at the time of the closing of the Companys initial public offering in November 2004 vested pursuant to the terms of the 2002 Stock Incentive Plan. The exercise price for unexercised
options is automatically decreased by the amount of dividends that would have been paid on the shares issuable upon exercise.



During 2004, the Company adopted the fair value recognition provisions of SFAS No. 123 Accounting for Stock-Based Compensation, using the
retroactive restatement method described in SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, effective January 1, 2004. Under the fair value recognition provisions of SFAS No. 123, stock-based
compensation cost is recognized as expense over the vesting period. In connection with the use of the retroactive restatement method, the Company calculated the fair value of outstanding awards using the minimum value method as if the fair value
method of SFAS No. 123 had been applied from its original effective date. The Company recorded approximately $1,000 of stock-based compensation expense during the three months and six months ended June 30, 2004. During the three and six month
periods ended June 30, 2005, the Company recorded $361,000 and $715,000, respectively, of stock-based compensation expense to reflect the change in fair value of the outstanding options as a result of the reduction of the exercise price due to the
declaration of cash dividends.



The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing model. There were no options granted during the three months or six months ended June 30, 2005. There were no options granted during the three months ended June 30, 2004
and 27,028 options granted during the six months ended June 30, 2004. The table below depicts the weighted-average assumptions used in determining the options fair value on their grant date and at the time of the exercise price reductions.



|                                          |  |                            |  |                          |  |         |     |  |        |    
|----------------------------------------- |  | -------------------------- |  | ------------------------ |  | ------- | --- |  | ------ | ---
|                                          |  | Three Months EndedJune 30, |  | Six Months EndedJune 30, | 
|                                          |  | 2004                       |  | 2005                     |  | 2004    |     |  | 2005   |    
|Weighted Average Expected Life (in years) |  | N/A                        |  | 4.38%                    |  | 10.0 yr |     |  | 4.5 yr |    
|Risk free interest rate                   |  | N/A                        |  | 3.66%                    |  | 4.15%   |     |  | 3.89%  |    
|Volatility                                |  | N/A                        |  | 31%                      |  | 0%      | (1) |  | 33%    | (2)
|Dividend yield                            |  | N/A                        |  | 0%                       |  | 0%      |     |  | 0%     |    

---

|(1) | Because the Company was not a public entity, the volatility of the stock was excluded in estimating the options value, as permitted under SFAS No. 123.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Because the Companys stock had not been publicly traded long enough to establish a reliable historical volatility rate, the average historical volatility rate for a pool of
similar entities was used.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



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##### Table of Contents

A summary of the status of the 2002 Stock Incentive Plan as of June 30, 2005 and 2004, and the changes
during the three and six-month periods then ended is presented below:



|                                                                            |  |                                  |  |                                  |       |        |           |   |                                 |   |     
|--------------------------------------------------------------------------- |  | -------------------------------- |  | -------------------------------- | ----- | ------ | --------- | - | ------------------------------- | - | ----
|                                                                            |  | Three Months Ended June 30, 2004 |  | Three Months Ended June 30, 2005
|Fixed Options                                                               |  | Shares                           |  | AverageExercise Priceper Share   |       | Shares |           |   | AverageExercise Priceper Share 
|OUTSTANDING AT MARCH 31,                                                    |  | 2,227,714                        |  | $                                | 8.08  |        | 1,195,919 |   |                                 | $ | 7.50
|Granted                                                                     |  |                                 |  |                                  |      |        |          |   |                                 |   |    
|Exercised                                                                   |  |                                 |  |                                  |      |        | (50,821   | ) |                                 |   | 7.55
|                                                                            |  |                                  |  |                                  |       |        |           |   |                                 |   |     
|OUTSTANDING AT JUNE 30,(1)                                                  |  | 2,227,714                        |  | $                                | 8.08  |        | 1,145,098 |   |                                 | $ | 7.09
|                                                                            |  |                                  |  |                                  |       |        |           |   |                                 |   |     
|                                                                            |  |                                 
|                                                                            |  | Six Months Ended June 30, 2004   |  | Six Months Ended June 30, 2005  
|Fixed Options                                                               |  | Shares                           |  | AverageExercise Priceper Share   |       | Shares |           |   | AverageExercise Price per Share
|OUTSTANDING AT BEGINNING OF YEAR                                            |  | 2,200,686                        |  | $                                | 8.04  |        | 1,195,919 |   |                                 | $ | 7.90
|Granted                                                                     |  | 27,028                           |  |                                  | 11.10 |        |          |   |                                 |   |    
|Exercised                                                                   |  |                                 |  |                                  |      |        | (50,821   | ) |                                 |   | 7.55
|                                                                            |  |                                  |  |                                  |       |        |           |   |                                 |   |     
|OUTSTANDING AT JUNE 30,(1)                                                  |  | 2,227,714                        |  | $                                | 8.08  |        | 1,145,098 |   |                                 | $ | 7.09
|                                                                            |  |                                  |  |                                  |       |        |           |   |                                 |   |     
|Options exercisable at JUNE 30,(1)                                          |  | 1,845,895                        |  | $                                | 8.00  |        | 1,145,098 |   |                                 | $ | 7.09
|                                                                            |  |                                  |  |                                  |       |        |           |   |                                 |   |     
|Weighted-average grant date fair value of options granted during the period |  | 27,028                           |  | $                                | 0.67  |        |          |   |                                 | $ |    
|                                                                            |  |                                  |  |                                  |       |        |           |   |                                 |   |     

---

|(1) | The weighted average exercise price of options exercisable at June 30, 2005 reflects the reduction in accordance with the 2002 Stock Incentive Plan, which resulted from the
declaration of cash dividends.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following
table summarizes information about stock options outstanding at June 30, 2005:



|                               |  |                     |  |                                                  |  |         |  |                                          |      
|------------------------------ |  | ------------------- |  | ------------------------------------------------ |  | ------- |  | ---------------------------------------- | -----
|                               |  | Options Outstanding |  | Options Exercisable                             
|Exercise Price per Share Range |  | Number              |  | WeightedAverageRemainingContractualLife in Years |  | Number  |  | Weighted AverageExercise Price per Share
|$6.75 - $7.25                  |  | 986,546             |  | 7.33                                             |  | 986,546 |  | $                                        | 6.98 
|$7.26 - $7.75                  |  | 143,357             |  | 7.65                                             |  | 143,357 |  | $                                        | 7.53 
|$10.00 - $10.50                |  | 15,195              |  | 9.08                                             |  | 15,195  |  | $                                        | 10.11



Pursuant to the
Incentive Plan, all options became fully vested on November 23, 2004 as a result of the change in share ownership resulting from the Companys initial public offering of common stock.



2005 Stock Incentive Plan



On June 16, 2005, the shareholders of the Company approved the Iowa
Telecommunications Services, Inc. 2005 Stock Incentive Plan (the 2005 Stock Incentive Plan), which provides for the issuance of up to 500,000 shares of



10



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##### Table of Contents

common stock pursuant to grants of restricted stock and restricted stock units, dividend equivalents, performance awards
and awards of unrestricted stock to employees, officers, directors, consultants and advisors. The term of the 2005 Stock Incentive Plan is until June 16, 2015, unless terminated before then by the Board.



As of June 30, 2005, no awards have been made under the 2005 Stock Incentive
Plan.



7. DISCLOSURES ABOUT FAIR VALUE OF INTEREST RATE SWAP



On November 4, 2004, the Company entered into an interest rate swap
agreement in contemplation of the recapitalization, which occurred on November 23, 2004. The purpose of the swap agreement is to adjust the interest rate profile of our debt obligations and to achieve a targeted mix of floating and fixed rate debt.



Effective November 23, 2004, the Company designated the swap
agreement as a hedge against the variability of interest payments resulting from fluctuations in market interest rates. The hedged item is $350 million of the Companys Term Loan B. For the three and six months ended June 30, 2005, the Company
recognized a loss of $5.6 million and a gain of $2.0 million, respectively, resulting from the changes in fair market value of the swap instrument. The portion of the change in fair value attributable to hedge ineffectiveness, which for the three
and six months ended June 30, 2005 was $0 and $1,000, respectively, is recorded in the Other Income section of the Companys Consolidated Statement of Operations. The portion of the change attributable to hedge effectiveness, for the three and
six months ended June 30, 2005 was a loss of $5.6 million and a gain of $2.0 million, respectively, is recorded in the Other Comprehensive Income section of the Companys Statement of Stockholders Equity. In assessing hedge effectiveness,
no portion of the gain or loss from the swap is excluded.



The
fair value of our interest rate swap has been calculated by discounting the future cash flows of both the fixed rate and variable rate interest payments. The discount rate was derived from a yield curve created by a nationally recognized financial
institution. The fair value and the carrying amount of the interest rate swap as of June 30, 2005 was approximately $3.4 million and is recorded in the Intangible and Other Assets section of our Consolidated Balance Sheets. The entry to adjust the
fair value of the interest rate swap has not been tax effected as a valuation allowance has been provided at June 30, 2005 for the net deferred tax assets. The Company did not have any interest rate swaps at any time during the six months ended June
30, 2004.



8. COMMITMENTS AND CONTINGENCIES



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 is not expected to have a material adverse effect on the Companys financial position, results of operations or cash flows.



9. NEW ACCOUNTING PRONOUNCEMENT



In December 2004, the FASB issued SFAS No. 123 (Revised), Share-Based
Payment. This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires companies to apply a
fair-value-based measurement method in accounting for share-based payment transactions with employees and to record compensation cost for all stock awards granted, modified, repurchased or cancelled after the effective date. On April 14, 2005 the
Securities and Exchange Commission announced the adoption of a rule that defers the effective date for adoption to the first fiscal year beginning after June 15, 2005. Adoption of this standard is not expected to have a material effect on the
Companys financial position, results of operations or cash flows as all of our outstanding stock options were fully vested at the date of issuance of SFAS 123R. Grants of stock-based awards under the 2005 stock Incentive Plan or modifications
to outstanding stock options after the effective date of the standard may result in additional compensation expense pursuant to the provisions of SFAS 123R.



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##### Table of Contents

10. SUBSEQUENT EVENTS



On August 2 and August 3 of 2005, the Company Board of Directors granted awards for a total of 242,500 shares of restricted stock to certain
employees pursuant to the 2005 Stock Incentive Plan. The fair value of the awards in determining compensation expense will be based upon the market value of the shares as of the close of business on the day of the grant. The weighted average fair
value per share for the shares granted is $18.66 and will be recorded as compensation expense over the vesting period. The awards include graded vesting schedules that result in vesting at various dates beginning April 1, 2007 through August 2,
2010. The awards also include dividend equivalents entitling the award recipients to receive, with respect to the shares awarded, all dividends paid by the Company to holders of common stock.



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##### Table of Contents

ITE
M 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, 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 Form10-K for the year ended December 31, 2004 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.



Overview



General



We are the
largest provider of wireline local exchange telecommunications services to residential and business customers in rural Iowa, serving over 440 communities across the state. We are the second-largest local exchange carrier in Iowa. We operate 294
telephone exchanges as the incumbent or historical local exchange carrier and are currently the sole telecommunications company providing wireline services in approximately 86% of the communities where we serve as the incumbent. Together
with our competitive local exchange carrier subsidiary, we provide services to approximately 265,400 access lines in Iowa.



Our core businesses are the provision of local telephone service and network access to other telecommunications carriers for calls originated or
terminated on our network. In addition to these core activities, which generated 77% of our total revenues in the first six months of 2005, we provide long distance service, dial-up and DSL Internet access and other communications services. In 2002,
as part of our strategy of pursuing low-cost growth beyond our current service area, we began to compete for customers in adjacent markets in Iowa through our competitive local exchange carrier subsidiary, Iowa Telecom Communications, Inc. (ITC).



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 and our strategic response to this trend, which includes efforts to introduce enhanced local services and additional
services like dial-up and 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the order adopted by the FCC on August 5, 2005, placing our DSL Internet access service at regulatory parity with cable modem service, which we believe will allow us to modify our
retail DSL Internet access service rates without reference to any tarriffed wholesale DSL transmission service and will ultimately require equivalent contributions to the Federal Universal Service Fund from DSL and cable modem services.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effect of the implementation of the Iowa Utilities Board order deregulating retail local service rates in fourteen exchanges and the effect of the statewide election we made,
effective July 1, 2005, to begin offering certain retail local services at deregulated rates in accordance with the new Iowa regulatory statute enacted in March 2005.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



Revenues



Revenue Sources



We
derive our revenues from four sources:



Local Telephone
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 (usually mandatory expanded calling service to
selected 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. During the three and six-month periods ended June 30, 2004, we also received revenues
from expanded local calling plans (optional service to additional selected nearby communities at an additional flat monthly rate). We discontinued expanded local calling plans in the third quarter of 2004.



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 to the customers of wireless carriers. These include subscriber line charges
imposed on end users, and switched and special access charges paid by carriers. In addition, we receive federally administered universal service support, representing approximately 1% of our total revenue in 2004, as a result of the interstate
switched access support provisions of the FCCs CALLS Order which the Company became subject to in 2000. Switched access charges for long distance services within Iowa are based on rates approved by the Iowa Utilities Board. 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 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.



Other Services and Sales. We receive revenues from monthly recurring
charges for dial-up and DSL Internet access services. Other services and sales also include revenues from directory publishing, inside line care and the sale and maintenance of customer premise equipment.



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



|                         |  |                           |         |                                                               |   |          |  |     |      |  |     |  
|------------------------ |  | ------------------------- | ------- | ------------------------------------------------------------- | - | -------- |  | --- | ---- |  | --- | -
|                         |  | Six Months Ended June 30, |         | % of Total Revenues andSales for the Six MonthsEnded June 30, |  
|                         |  | 2004 (1)                  |         | 2005                                                          |   | 2004 (1) |  |     | 2005 | 
|                         |  | (dollars in thousands)    |         |                                                               |   |          |  |    
|Local services           |  | $                         | 45,270  |                                                               | $ | 37,828   |  | 39  | %    |  | 33  | %
|Network access services  |  |                           | 46,709  |                                                               |   | 50,867   |  | 40  | %    |  | 44  | %
|Toll services            |  |                           | 11,072  |                                                               |   | 11,975   |  | 10  | %    |  | 10  | %
|Other services and sales |  |                           | 13,292  |                                                               |   | 14,868   |  | 11  | %    |  | 13  | %
|                         |  |                           |         |                                                               |   |          |  |     |      |  |     |  
|Total                    |  | $                         | 116,343 |                                                               | $ | 115,538  |  | 100 | %    |  | 100 | %
|                         |  |                           |         |                                                               |   |          |  |     |      |  |     |  

---

|(1) | Local services revenue for the six-months ended June 30, 2004 includes the recognition, as a result of our rate settlement with the Iowa Utilities Board in April 2004, of $7.1
million of revenue collected in prior periods subject to refund. Excluding the prior period revenue, the percentages of total revenues and sales for the six-months ended June 30, 2004 attributable to local services, network access services, toll
services and other services and sales were 35%, 43%, 10%, and 12%, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Access Line Trends



The number of access lines served is a factor affecting a telecommunications providers revenues. Reflecting 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 gradually decreasing. We expect that this trend will continue. As substantially all of our revenues result from our relationships
with customers who utilize our access lines and the level of activity recorded 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 consists of leveraging our strong incumbent market position to increase revenue per access line 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 obtain some new access lines as we pursue expansion of our service area through our competitive local exchange carrier subsidiary and, potentially,
through selected acquisitions of 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, average revenue per access line is also a meaningful indicator for us.



The table below indicates the total number of access lines served by us, the number of customers subscribing to the indicated types of service, and
average revenue per access line, as of the dates and for the periods shown:



|                                                                               |  |                |         |      |   |        
|------------------------------------------------------------------------------ |  | -------------- | ------- | ---- | - | -------
|                                                                               |  | As of June 30,
|                                                                               |  | 2004           |         | 2005
|Incumbent local exchange access lines(1)                                       |  |                | 257,500 |      |   | 246,200
|Competitive local exchange carrier access lines(2)                             |  |                | 10,100  |      |   | 19,200 
|                                                                               |  |                |         |      |   |        
|Total access lines                                                             |  |                | 267,600 |      |   | 265,400
|                                                                               |  |                |         |      |   |        
|Long distance subscribers                                                      |  |                | 121,400 |      |   | 141,200
|Dial-up Internet subscribers                                                   |  |                | 53,100  |      |   | 47,200 
|DSL subscribers                                                                |  |                | 9,900   |      |   | 22,600 
|Average monthly revenue per access line for the three months ended June 30,(3) |  | $              | 68.74   |      | $ | 72.76  
|                                                                               |  |                |         |      |   |        
|Average monthly revenue per access line for the six months ended June 30,(3)   |  | $              | 68.27   |      | $ | 72.34  
|                                                                               |  |                |         |      |   |        

---

|(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 4,100 wholesale lines subscribed at June 30, 2005, compared to 4,500 wholesale lines subscribed at June
30, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(3) | Average monthly revenue per access line is computed by dividing the total revenue for the period, excluding revenue collected in prior periods subject to refund recognized in the
current period, by the average of the access lines at the beginning and at the end of the period. Revenue collected in prior periods subject to refund recognized in the current period was $7.7 million and $7.1 million for the three and six- month
periods ended June 30, 2004, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
believe that one of the primary reasons for our loss of 11,300 incumbent local exchange carrier access lines between June 30, 2004 and June 30, 2005 was customer response to the rate increases we have instituted pursuant to our April 2004 rate
settlement with the Iowa Utilities Board.



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We will continue our strategy of increasing revenues by cross selling services to our existing customer
base, in the form of both bundled service packages and individual additional services. Between June 30, 2004 and June 30, 2005, total long distance service subscribers increased by 16%, total DSL Internet access service subscribers increased by
12,700, and total dial-up Internet access service subscribers decreased by 5,900, with some of the decrease in total dial-up subscribers being a reflection of customer migration from dial-up to DSL service. Thus, while our total access line count
fell by 0.8% from June 30, 2004 to June 30, 2005, average revenue per access line for the period grew by 6.0%. We believe the primary contributor to our ability to maintain our revenue stream during a time of decreasing access lines has been our
success at selling additional services and our ability to increase our pricing.



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



Cyclical Economic and Industry Factors. We believe that the general downturn in economic conditions since 2000 has had a negative effect on our
access line counts. We expect that improved performance in the Iowa economy will stabilize this cyclical factor. In addition, incumbent local exchange carriers generally experienced an unusual increase in access line demand during the late
1990s, for example, as households purchased additional lines devoted to dial-up Internet access. In our view, this spike in access line demand was not sustainable over the long term, and current access line levels are more indicative of
underlying demand.



Competition. Competitive local
exchange carriers are offering service or are in the process of beginning to offer service in approximately 43 of the 424 incumbent local exchange communities that we serve. Of these communities, 31 were subject to competition at the time of the
acquisition of the Iowa property from GTE in 2000. We believe that most of these competitive local exchange carrier incursions and subsequent line losses were related to customer dissatisfaction with the previous providers service. Since 2001,
we believe we have slowed significantly the loss of customers to competitive local exchange carriers by providing additional service offerings, focusing our marketing efforts and implementing competitive pricing.



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 the threat of 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.



As a result of the competition that we face in specific Iowa communities,
regulation of rates we charge for retail local exchange service in 14 communities has been eliminated. In December 2004, the Iowa Utilities Board determined that effective competition existed in 14 exchanges where we operate as the incumbent local
exchange carrier and issued an order deregulating local service in these exchanges. We implemented this order in the first quarter of 2005 and are offering deregulated pricing in some of these markets. In addition, in early 2005, the Iowa Utilities
Board approved our request to modify our rates for local exchange services in three exchanges in order to respond to a competitors lower rates. We believe implementation of the Iowa Utilities Boards orders deregulating the 14 exchanges
and approving competitively responsive rates in the three exchanges will enhance our ability to compete and regain market share in these exchanges. In addition, in May 2005, the Iowa Utilities Board initiated a second deregulation proceeding in
which it proposes to deregulate retail single line and extended area (EAS) local service in an additional 14 Company exchanges where competitive local exchange service is offered. We expect an order in the second deregulation proceeding by the end
of the year.



Also, on June 1, 2005, we elected effective July
1, 2005, to deregulate our rates for all retail local exchange services except for single-line flat-rated business and residential service and extended area service (EAS) in accordance with legislation enacted by the Iowa General Assembly in March
2005. Under this new law, single-line flat-rated business and residential service and EAS will be deregulated as of July 1, 2008 unless the Iowa Utilities Board determines that the public interest requires it to extend its jurisdiction over such
services to July 1, 2010. This legislation also provides us the opportunity to increase rates for services which remain price regulated, as discussed in more detail below. We believe that the gradual deregulation of our business will enable us to
better respond to competitive offerings by other providers.



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##### Table of Contents

Exchange Sales. We currently have agreed to two exchange sale transactions, subject to certain
regulatory approvals and conditions, in which we will sell approximately 800 lines and 2,200 lines, respectively. In each of these cases, we believe the sale price makes the disposal economically compelling. We expect that the two pending sales will
result in $13.2 million of net cash, and as part of one transaction we have already purchased the buyers dial-up and DSL Internet businesses since this component of the transaction did not require regulatory approval.



Ancillary Effects of our Data Businesses. Part of our decreasing line
count has been an ancillary effect of our strategic focus on growing our DSL Internet access service business. As our Internet service provider business expanded, some of our smaller competitors 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 obviates the need for 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 this type of access line loss.



Our Retail Local Rate and Pricing Structure



Basic business and residential telephone service, intra-state switched
access, extended area service, 911 and E911 services, white pages directory listings and dual party relay service are all regulated as basic communications services by the Iowa Utilities Board. The Iowa statutory price regulation plan
pursuant to which we operate provides a mechanism to adjust our rates for basic communications services to reflect the impact of inflation. On April 2, 2004, we entered into a settlement agreement relating to an Iowa Utilities Board rate proceeding
we had initiated in 2002. As a result of the settlement agreement, effective April 23, 2004, our monthly charges for basic local service in all of our exchanges were consolidated to $16.60 for residential customers and $32.09 for business customers.
Pursuant to our settlement agreement relating to the Iowa Utilities Board rate proceeding, most of the resulting incremental regulated local basic service revenues we will receive as a result of these rate increases must be expended on capital
improvements to our network. Effective January 17, 2005, our monthly charges for basic local services were adjusted to $16.98 for residential customers and $32.98 for business customers pursuant to an inflationary increase allowed under the existing
Iowa statutory price regulation plan. Prior to the settlement agreement, rates for local basic service varied by exchange and by customer class. The average monthly basic local service rate across all of our exchanges for residence and business
customers were $12.15 and $25.09 respectively.



Our rates for
other non-basic services we provide, including local services like caller ID, call waiting, call forwarding, voice messaging, Centrex station lines, private lines and directory assistance, long-distance services and data services like dial-up and
DSL Internet access, are not price regulated.



As described
under Competition, effective July 1, 2005 pursuant to recently-enacted legislation, the rates for all of our retail local exchange service except for single-line flat-rate business and residential service and extended area service (EAS) were
deregulated. From July 1, 2005 onward, rates for single line services remaining under price regulation may be adjusted annually by one dollar for residential lines and two dollars for business lines, up to a monthly rate cap of $19.00 for residence
lines and $38.00 for business lines. Rates may be further adjusted annually to reflect inflation. If the Iowa Utilities Board decides to continue price regulation past 2008 to 2010, the annual rate increase caps will be doubled to two dollars and
four dollars and the overall rate caps of $19.00 and $38.00 will be eliminated.



Operating Expenses



Categories of Operating Expense



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



17



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##### Table of Contents

Cost of services and sales. This includes expense for salaries and wages relating to plant
operation and maintenance; other plant operations, maintenance and administrative costs; network access costs; bad debt expense; operating tax expense and cost of sales for our dial-up and DSL Internet access services and CPE 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; and supplies and postage.



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



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 growth. Because many 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 competitive local exchange
carrier subsidiary, ITC, to pursue customers in markets adjacent to our rural local exchange carrier markets. We plan to continue this strategy by seeking growth opportunities on a low-cost, selective basis.



As of June 30, 2005, ITC served approximately 5,900 business and 13,300
residential access lines. ITC accounted for 7.2% of Iowa Telecoms total access lines as of June 30, 2005. As of June 30, 2005, our investment in ITC was $3.2 million, the majority of which relates to customer acquisition and marketing expense.
Throughout 2005, we plan to maintain this limited investment approach as we continue to grow our competitive local exchange carrier business.



Results of Operations



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



|                                                                        |  |                            |   |  |                          |   |  |      |   |  |      |  
|----------------------------------------------------------------------- |  | -------------------------- | - |  | ------------------------ | - |  | ---- | - |  | ---- | -
|                                                                        |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                                                                        |  | 2004                       |   |  | 2005                     |   |  | 2004 |   |  | 2005 |  
|Total revenues and sales                                                |  | 100                        | % |  | 100                      | % |  | 100  | % |  | 100  | %
|Cost of services and sales (excluding expenses listed separately below) |  | 21                         | % |  | 28                       | % |  | 22   | % |  | 27   | %
|Selling, general and administrative                                     |  | 14                         | % |  | 15                       | % |  | 16   | % |  | 17   | %
|Depreciation and amortization                                           |  | 19                         | % |  | 21                       | % |  | 20   | % |  | 21   | %
|                                                                        |  |                            |   |  |                          |   |  |      |   |  |      |  
|Operating income                                                        |  | 46                         | % |  | 36                       | % |  | 42   | % |  | 35   | %
|Total other expenses, net                                               |  | 20                         | % |  | 13                       | % |  | 21   | % |  | 13   | %
|                                                                        |  |                            |   |  |                          |   |  |      |   |  |      |  
|Net income                                                              |  | 26                         | % |  | 23                       | % |  | 21   | % |  | 22   | %
|                                                                        |  |                            |   |  |                          |   |  |      |   |  |      |  



18



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##### Table of Contents

Three Months Ended June 30, 2005 and 2004



Revenues and Sales



The table below sets forth the components of our revenues and sales for the three months ended June 30, 2005 compared to the same period in 2004:



|                         |  |                            |        |        |   |        |  |   |         |   |  |       |  
|------------------------ |  | -------------------------- | ------ | ------ | - | ------ |  | - | ------- | - |  | ----- | -
|                         |  | Three Months EndedJune 30, |        | Change |  
|                         |  | 2004                       |        | 2005   |   | Amount |  |   | Percent |  
|                         |  | (dollars in thousands)     |        |        |   |       
|Revenues and Sales       |  |                            |        |        |   |        |  |   |         |   |  |       |  
|Local services           |  | $                          | 27,508 |        | $ | 19,021 |  | $ | (8,487  | ) |  | -30.9 | %
|Network access services  |  |                            | 23,044 |        |   | 25,365 |  |   | 2,321   |   |  | 10.1  | %
|Toll services            |  |                            | 5,497  |        |   | 5,986  |  |   | 489     |   |  | 8.9   | %
|Other services and sales |  |                            | 6,862  |        |   | 7,665  |  |   | 803     |   |  | 11.7  | %
|                         |  |                            |        |        |   |        |  |   |         |   |  |       |  
|Total revenues and sales |  | $                          | 62,911 |        | $ | 58,037 |  | $ | (4,874  | ) |  | -7.7  | %
|                         |  |                            |        |        |   |        |  |   |         |   |  |       |  



Local Services.
Local services revenues decreased $8.5 million, or 30.9%, for the three months ended June 30, 2005, as compared to 2004, primarily due to $7.7 million of revenue collected subject to refund in prior periods and recognized during the second quarter
of 2004. The new rates established under the settlement agreement became effective on April 23, 2004. Also contributing to the decrease was the loss of $1.5 million in revenues resulting from the discontinuance of the expanded local area calling
plans during the third quarter of 2004. These reductions were partially offset by the benefit of the April 23, 2004 increase, for the entire quarter in 2005, which resulted in additional revenue of $427,000 as compared to the same period in 2004.
Also contributing favorably was an increase in revenue from enhanced local services of $291,000 for the three months ended June 30, 2005 as compared to 2004, due to the growth of our bundled product offerings.



Our historical ability to provide expanded local calling plans at favorable
margins depended on the existence of an agreement for mutual exchange of traffic with another telecommunications provider. Expanded local calling plans allowed customers, for a fixed monthly fee, to increase the geographic range of their local
calling areas. That agreement terminated on July 31, 2004. As a result, we have discontinued the expanded local calling plans and encouraged customers who subscribed to our expanded local calling plans to replace those plans with substitute toll
services.



Network Access Services. Our network access
services revenues increased $2.3 million, or 10.1%, for the three months ended June 30, 2005 as compared to the same period in 2004. Revenues from switched access services increased approximately $2.4 million, due primarily to an increase in access
minutes per line which is due in part to the elimination of the expanded local calling plans. That increase was partially offset by a $342,000 decrease in revenue from the Universal Service Fund.



Toll Services. Our toll services revenues increased by $489,000, or
8.9%, for the three months ended June 30, 2005 as compared to the same period in 2004. This revenue growth was attributable to an increase in the number of long distance customers of approximately 19,800, or 16%, partially offset by a decrease in
average minutes of use per customer and average revenue per minute. Our growth in long distance customers from June 30, 2004 to June 30, 2005 can be attributed in part to the elimination of the expanded local calling plans.



Other Services and Sales. Other services and sales revenues increased
by $803,000, or 11.7%, for the three months ended June 30, 2005 as compared to the same period 2004. The revenue increase was primarily due to growth in the number of DSL Internet customers. DSL Internet access service revenues increased $1.4
million, or 106.8%, due primarily to customer growth. This increase was partially offset by decreases in dial-up Internet revenue of $252,000. We believe the decline in dial-up Internet access service customers is the result of customer migration to
broadband products such as our DSL service.



19



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##### Table of Contents

Operating Costs and Expenses



The table below sets forth the components of our operating costs and expenses for the three months ended June 30, 2005,
compared to the same period in 2004:



|                                                                       |  |                            |        |        |   |        |  |         |       |  |      |  
|---------------------------------------------------------------------- |  | -------------------------- | ------ | ------ | - | ------ |  | ------- | ----- |  | ---- | -
|                                                                       |  | Three Months EndedJune 30, |        | Change |  
|                                                                       |  | 2004                       |        | 2005   |   | Amount |  | Percent |      
|                                                                       |  | (dollars in thousands)     |       
|Operating Costs and Expenses:                                          |  |                            |        |        |   |        |  |         |       |  |      |  
|Cost of services and sales (exclusive of items shown separately below) |  | $                          | 13,074 |        | $ | 15,909 |  | $       | 2,835 |  | 21.7 | %
|Selling, general and administrative                                    |  |                            | 8,792  |        |   | 8,808  |  |         | 16    |  | 0.2  | %
|Depreciation and amortization                                          |  |                            | 11,974 |        |   | 12,346 |  |         | 372   |  | 3.1  | %
|                                                                       |  |                            |        |        |   |        |  |         |       |  |      |  
|Total operating costs and expenses                                     |  | $                          | 33,840 |        | $ | 37,063 |  | $       | 3,223 |  | 9.5  | %
|                                                                       |  |                            |        |        |   |        |  |         |       |  |      |  



Cost of Services
and Sales. Cost of services and sales increased $2.8 million, or 21.7%, for the three months ended June 30, 2005 as compared to the same period in 2004. As a result of customer growth, we experienced an increase in competitive local exchange
carrier access lines which, in turn, raised costs for providing this service by $817,000 for the three months ended June 30, 2005 as compared to the same period in 2004. The increase in long distance customers, coupled with the termination of the
historical agreement for the exchange of traffic related to our discontinued local calling plans, resulted in approximately $1.6 million of additional cost to deliver long distance traffic.



Selling, General and Administrative Costs. Selling, general and
administrative costs increased $16,000, or 0.2%, for the three months ended June 30, 2005 as compared to the same period in 2004. The second quarter of 2005 includes a $2.0 million favorable impact resulting from past access disputes with other
carriers. Offsetting this favorable impact was a $1.2 million increase in salary wages and benefits, $537,000 of external costs related to Sarbanes Oxley compliance and other costs related to being a publicly traded company. Contributing to the
increase in salary, wages and benefits was $361,000 of non-cash compensation expense related to exercise price reductions on outstanding stock options as provided for in our 2002 Stock Incentive Plan.



Depreciation and Amortization. Depreciation and amortization increased
$372,000, or 3.1%, for the three months ended June 30, 2005 as compared to the same period in 2004. This was primarily due to higher average plant balances relating mainly to additions to our network facilities.



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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 June 30, 2005 compared to the
same period in 2004.

|                             |  |                            |         |   |        |   |        |        |  |   |         |   |  |       |  
|---------------------------- |  | -------------------------- | ------- | - | ------ | - | ------ | ------ |  | - | ------- | - |  | ----- | -
|                             |  | Three Months EndedJune 30, |         |   | Change |  
|                             |  | 2004                       |         |   | 2005   |   |        | Amount |  |   | Percent |  
|                             |  | (dollars in thousands)     |        
|Other Income (Expense)       |  |                            |         |   |        |   |        |        |  |   |         |   |  |       |  
|Interest and dividend income |  | $                          | 782     |   |        | $ | 133    |        |  | $ | (649    | ) |  | -83.0 | %
|Interest expense             |  |                            | (13,345 | ) |        |   | (7,706 | )      |  |   | 5,639   |   |  | -42.3 | %
|Other, net                   |  |                            |         |   |        |   | (67    | )      |  |   | (67     | ) |  | NA    |  
|                             |  |                            |         |   |        |   |        |        |  |   |         |   |  |       |  
|Total other expense          |  | $                          | (12,563 | ) |        | $ | (7,640 | )      |  | $ | 4,923   |   |  | -39.2 | %
|                             |  |                            |         |   |        |   |        |        |  |   |         |   |  |       |  



Interest and
Dividend Income. Interest and dividend income decreased $649,000, or 83.0%, primarily due to the reduction in patronage dividend income from the RTFC Subordinated Capital Certificates, which were partially redeemed in connection with the initial
public offering and debt refinancing in November 2004.



Interest Expense. Interest expense decreased $5.6 million, or 42.3%, for the three months ended June 30, 2005 as compared to the same period in 2004, principally as a result of the reductions in the amount of debt outstanding, and in
the average interest rate on our new debt issued in connection with our debt refinancing in November 2004.



Other, Net. Other, net was a net expense of $67,000 for the three months ended June 30, 2005 compared to $0 in the same period in 2004, related to
the change in the fair value of the interest rate swap agreement.



Income
Tax Expense



A valuation allowance has been provided at
June 30, 2005 for our net deferred tax assets due to our cumulative losses. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent we generate taxable income in future years and it is
determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time. As of June 30, 2005, the balance of the deferred tax asset and the valuation allowance was $14
million. Our unused tax net operating loss carryforward was approximately $209 million, and will expire between 2020 and 2024.



Our initial public offering resulted in an ownership change for purposes of Section 382 of the Internal Revenue Code, and consequently our ability to
utilize our net operating losses will be subject to limitation each year. We currently anticipate that, as a result of such ownership change, we will generally be limited by Section 382 to utilizing approximately $19 million of our pre-transaction
net operating losses annually. However, Internal Revenue Code Section 338 may allow for an increase in this allowance for tax periods ending in 2005 through 2009. After 2009, the IRC Section 382 limitation will apply. Furthermore, we expect that we
will continue to be able to take deductions related to the amortization of intangibles in excess of the amount recorded for book purposes in the amount of approximately $40 million annually through 2014.



Six Months Ended June 30, 2005 and 2004



Revenues and Sales



The table below sets forth the components of our revenues and sales for the
six months ended June 30, 2005 compared to the six months ended June 30, 2004:

|                         |  |                           |         |        |   |         |  |   |         |   |  |       |  
|------------------------ |  | ------------------------- | ------- | ------ | - | ------- |  | - | ------- | - |  | ----- | -
|                         |  | Six Months Ended June 30, |         | Change |  
|                         |  | 2004                      |         | 2005   |   | Amount  |  |   | Percent |  
|                         |  | (dollars in thousands)    |        
|Revenues and Sales       |  |                           |         |        |   |         |  |   |         |   |  |       |  
|Local services           |  | $                         | 45,270  |        | $ | 37,828  |  | $ | (7,442  | ) |  | -16.4 | %
|Network access services  |  |                           | 46,709  |        |   | 50,867  |  |   | 4,158   |   |  | 8.9   | %
|Toll services            |  |                           | 11,072  |        |   | 11,975  |  |   | 903     |   |  | 8.2   | %
|Other services and sales |  |                           | 13,292  |        |   | 14,868  |  |   | 1,576   |   |  | 11.9  | %
|                         |  |                           |         |        |   |         |  |   |         |   |  |       |  
|Total revenues and sales |  | $                         | 116,343 |        | $ | 115,538 |  | $ | (805    | ) |  | -0.7  | %
|                         |  |                           |         |        |   |         |  |   |         |   |  |       |  



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##### Table of Contents

Local Services. Local services revenues decreased $7.4 million, or 16.4%, for the six months ended
June 30, 2005, as compared to 2004, primarily due to $7.1 million of revenue collected subject to refund in prior periods and recognized during the second quarter of 2004. The new rates established under the settlement agreement became effective on
April 23, 2004. Also contributing to the decrease was the loss of $3.1 million in revenues resulting from the discontinuance of the expanded local area calling plans during the third quarter of 2004. These reductions partially offset the benefit of
the April 23, 2004 rate increase for the entire period which resulted in additional revenue of $2.3 million. In addition, we experienced an increase in revenue from enhanced local services of $537,000 for the six months ended June 30, 2005 as
compared to 2004, due to the growth of bundled product offerings.



Network Access Services. Our network access services revenues increased $4.2 million, or 8.9%, for the six months ended June 30, 2005 as compared to the same period in 2004. Revenues from switched access services increased
approximately $4.4 million, due primarily to an increase in access minutes per line which is due in part to the elimination of the expanded local calling plans. That increase was partially offset by a $668,000 decrease in revenue from the Universal
Service Fund.



Toll Services. Our toll services revenues
increased by $903,000, or 8.2%, for the six months ended June 30, 2005 as compared to the same period in 2004. This revenue growth was attributable to an increase in the number of long distance customers of approximately 19,800, or 16%, partially
offset by a decrease in average minutes of use per customer and average revenue per minute. Our growth in long distance customers from June 30, 2004 to June 30, 2005 can be attributed in part to the elimination of the expanded local calling plans.



Other Services and Sales. Other services and sales
revenues increased by $1.6 million, or 11.9%, for the six months ended June 30, 2005 as compared to the same period 2004. The revenue increase was primarily due to growth in the number of DSL Internet customers. DSL Internet access service revenues
increased $2.5 million, or 104.1%, due primarily to customer growth. This increase was partially offset by a decrease in dial-up Internet of $344,000. We believe the decline in dial-up Internet access service customers is the result of customer
migration to broadband products such as our DSL service.



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##### Table of Contents

Operating Costs and Expenses



The table below sets forth the components of our operating costs and expenses for the six months ended June 30, 2005,
compared to the same period in 2004:



|                                                                                     |  |                          |        |        |   |        |  |         |       |  |      |  
|------------------------------------------------------------------------------------ |  | ------------------------ | ------ | ------ | - | ------ |  | ------- | ----- |  | ---- | -
|                                                                                     |  | Six Months EndedJune 30, |        | Change |  
|                                                                                     |  | 2004                     |        | 2005   |   | Amount |  | Percent |      
|                                                                                     |  | (dollars in thousands)   |       
|Operating Costs and Expenses:                                                        |  |                          |        |        |   |        |  |         |       |  |      |  
|Local service Cost of services and sales (exclusive of items shown separately below) |  | $                        | 25,923 |        | $ | 31,442 |  | $       | 5,519 |  | 21.3 | %
|Selling, general and administrative                                                  |  |                          | 17,985 |        |   | 18,926 |  |         | 941   |  | 5.2  | %
|Depreciation and amortization                                                        |  |                          | 23,774 |        |   | 24,689 |  |         | 915   |  | 3.8  | %
|                                                                                     |  |                          |        |        |   |        |  |         |       |  |      |  
|Total operating costs and expenses                                                   |  | $                        | 67,682 |        | $ | 75,057 |  | $       | 7,375 |  | 10.9 | %
|                                                                                     |  |                          |        |        |   |        |  |         |       |  |      |  



Cost of Services
and Sales. Cost of services and sales increased $5.5 million, or 21.3%, for the six months ended June 30, 2005 as compared to the same period in 2004. The increase in long distance customers, coupled with the termination of the historical
agreement for the exchange of traffic related to our discontinued local calling plans, resulted in approximately $3.5 million of additional cost to deliver long distance traffic. As a result of customer growth, we experienced an increase in
competitive local exchange carrier access lines which, in turn, raised costs for providing this service by $1.8 million for the six months ended June 30, 2005 as compared to the same period in 2004.



Selling, General and Administrative Costs. Selling, general and
administrative costs increased $941,000, or 5.2%, for the six months ended June 30, 2005 as compared to the same period in 2004. The second quarter of 2005 includes a $2.0 million favorable impact resulting from past access disputes with other
carriers. Offsetting this favorable impact was a $2.2 million increase in salary wages and benefits, $537,000 of external costs related to Sarbanes Oxley compliance and other costs related to being a publicly traded company. Contributing to the
increase in salary, wages and benefits was $715,000 of non-cash compensation expense related to exercise price reductions on outstanding stock options as provided for in our 2002 Stock Incentive Plan.



Depreciation and Amortization. Depreciation and amortization increased
$915,000, or 3.8%, for the six months ended June 30, 2005 as compared to the same period in 2004. This was primarily due to higher average plant balances relating mainly to additions to our network facilities.



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##### Table of Contents

Other Income (Expense)



The table below sets forth the components of other income (expense) for the six months ended June 30, 2005 compared to the
same period in 2004:



|                             |  |                           |         |   |        |   |         |        |  |   |         |   |  |       |  
|---------------------------- |  | ------------------------- | ------- | - | ------ | - | ------- | ------ |  | - | ------- | - |  | ----- | -
|                             |  | Six Months Ended June 30, |         |   | Change |  
|                             |  | 2004                      |         |   | 2005   |   |         | Amount |  |   | Percent |  
|                             |  | (dollars in thousands)    |        
|Other Income (Expense)       |  |                           |         |   |        |   |         |        |  |   |         |   |  |       |  
|Interest and dividend income |  | $                         | 1,700   |   |        | $ | 292     |        |  | $ | (1,408  | ) |  | -82.8 | %
|Interest expense             |  |                           | (26,188 | ) |        |   | (15,449 | )      |  |   | 10,739  |   |  | -41.0 | %
|Other, net                   |  |                           |        |   |        |   | (146    | )      |  |   | (146    | ) |  | NA    |  
|                             |  |                           |         |   |        |   |         |        |  |   |         |   |  |       |  
|Total other expense          |  | $                         | (24,488 | ) |        | $ | (15,303 | )      |  | $ | 9,185   |   |  | -37.5 | %
|                             |  |                           |         |   |        |   |         |        |  |   |         |   |  |       |  



Interest and
Dividend Income. Interest and dividend income decreased $1.4 million, or 82.8%, primarily due to the reduction in patronage dividend income from the RTFC Subordinated Capital Certificates, which were partially redeemed in connection with the
initial public offering and debt refinancing in November 2004.



Interest Expense. Interest expense decreased $10.7 million, or 41.0%, for the six months ended June 30, 2005 as compared to the same period in 2004, principally as a result of the reductions in the amount of debt outstanding, and in
the average interest rate on our new debt issued in connection with our debt refinancing in November 2004.



Other, Net. Other, net was a net expense of $146,000 for the six months ended June 30, 2005 compared to $0 in the same period in 2004, related to
the change in the fair value of the interest rate swap agreement.



Income
Tax Expense



A valuation allowance has been provided at
June 30, 2005 for our net deferred tax assets due to our cumulative losses. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent we generate taxable income in future years and it is
determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time. As of June 30, 2005, the balance of the deferred tax asset and the valuation allowance was $14
million. Our unused tax net operating loss carryforward was approximately $209 million, and will expire between 2020 and 2024.



Our initial public offering resulted in an ownership change for purposes of Section 382 of the Internal Revenue Code, and consequently our ability to
utilize our net operating losses will be subject to limitation each year. We currently anticipate that, as a result of such ownership change, we will generally be limited by Section 382 to utilizing approximately $19 million of our pre-transaction
net operating losses annually. However, Internal Revenue Code Section 338 may allow for an increase in this allowance for tax periods ending in 2005 through 2009. After 2009, the IRC Section 382 limitation will apply. Furthermore, we expect that we
will continue to be able to take deductions related to the amortization of intangibles in excess of the amount recorded for book purposes in the amount of approximately $40 million annually through 2014.



Redemption of Preferred Stock



On March 26, 2004, we repurchased our Series A mandatorily redeemable
convertible preferred stock and related accrued dividends for an aggregate purchase price of $100.0 million. The recorded amounts of the preferred stock and the related accrued preferred stock dividend were $125.0 million and $32.7 million,
respectively, as of the redemption date of March 26, 2004.



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##### Table of Contents

Liquidity and Capital Resources



Our short-term and long-term liquidity requirements arise primarily from: (i) 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.



On December 17, 2004, our board of directors declared an initial dividend of $0.175 per share on our common stock. This dividend was paid on January 17,
2005, to shareholders of record at the close of business on December 31, 2004. On March 15, 2005, our board of directors declared a dividend of $0.405 per share on our common stock. The dividend was paid on April 15, 2005, to shareholders of record
on March 31, 2005. On June 15, 2005, our board of directors declared a dividend of $0.405 per share on our common stock. The dividend was paid on July 15, 2005, to shareholders of record on June 30, 2005. The dividends represent an indicated annual
dividend rate of $1.62 per share. 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 operating needs, interest and
principal payments on our indebtedness, and capital expenditures. This policy reflects our judgment that our shareholders would be better served if we distributed to them a substantial portion of the cash generated by our business.



We intend to fund our operations, interest expense, capital expenditures,
working capital requirements and dividend payments on our common stock from cash from operations. For the six months ended June 30, 2004 and 2005, cash provided by operating activities was $41.1 million and $45.9 million, respectively.



During the second quarter of 2005, we amended the Plan to mandatorily
discontinue future benefit accruals for all salaried and certain hourly participants, and to permit certain other hourly participants to elect to discontinue further benefit accruals. As a result of the amendment, the number of employees accruing
further benefits under the Plan has been reduced to approximately 40 from 175. The accrued benefits for employees subject to the mandatory termination will be transferred to a separate plan (the Spin-Off Plan) which will be terminated
upon the receipt of all the necessary approvals, expected to occur during the fourth quarter of 2006 or the first quarter of 2007. The employees that elected to discontinue further benefit accruals may elect to receive a current distribution of
their accrued benefits without termination of employment. The amendment had a minimal effect on the results of operations for the period ended June 30, 2005.



As a result of the amendment, the distributions of accrued benefits from the Plan during the last six months of 2005 will likely exceed the amounts
assumed in our prior FAS 87 analysis for that period. We estimate that the higher benefit distributions will likely result in additional expense recognition of between $1.0 million and $1.8 million during the second half of 2005. We anticipate that
the expected 2005 funding requirement will be unchanged at approximately $1.7 million.



Upon the termination of the Spin-Off Plan, we expect to recognize additional expense of approximately $4.8 million to $5.5 million. We also expect that additional funding of approximately $7.1 million to $7.8 million
will be required upon the termination of the Spin-Off Plan.



We
expect that the projected benefit obligation for our defined benefit pension plans subsequent to the termination of the Spin-Off Plan will be between $13 million and $16 million as compared to the projected benefit obligation of $26 million as of
December 31, 2004. We estimate that the pension amendments will result in a reduction in annual pension expense from $1.8 million in the twelve months ended June 30, 2005 to approximately $725,000 to $800,000 in 2007.



To fund any significant future acquisitions, we intend to use borrowings
under our new revolving credit facility or, subject to the restrictions in the new 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.



Our ability to service our indebtedness will
depend on our ability to generate cash in the future. We will not be required to make any scheduled amortization payments under our credit facilities, which will mature in 2011. However, we may be required to make annual mandatory prepayments under
our new credit facilities with a portion of our available cash. We will need to refinance all or a portion of our indebtedness on or before maturity in 2011.



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##### Table of Contents

Based on the dividend policy with respect to our common stock which our board of directors has adopted,
we may not have any significant cash available to meet any large unanticipated liquidity requirements, other than available borrowings, if any, under our revolving credit facility. As a result, we may not retain a sufficient amount of cash to
finance growth opportunities, including acquisitions, or unanticipated capital expenditures or to fund our operations. If we do not have sufficient cash for these purposes, our financial condition and our business could suffer. However, our board of
directors may, in its discretion, amend or repeal this dividend policy to decrease the level of dividends provided for under the policy, or discontinue entirely the payment of dividends.



We have historically funded our operations and capital expenditure requirements primarily from cash from operations and our
revolving line of credit. The following table summarizes our short-term liquidity, as of June 30, 2005, and December 31, 2004:



|                                       |  |                        |         |   |              |   |         |  
|-------------------------------------- |  | ---------------------- | ------- | - | ------------ | - | ------- | -
|                                       |  | As of                  |        
|                                       |  | December 31,2004       |         |   | June 30,2005 |  
|                                       |  | (dollars in thousands) |        
|Short-Term Liquidity:                  |  |                        |         |   |              |   |         |  
|Current assets                         |  | $                      | 28,493  |   |              | $ | 30,011  |  
|Current liabilities                    |  |                        | (87,044 | ) |              |   | (72,059 | )
|                                       |  |                        |         |   |              |   |         |  
|Net working capital                    |  | $                      | (58,551 | ) |              | $ | (42,048 | )
|                                       |  |                        |         |   |              |   |         |  
|Cash and cash equivalents              |  | $                      | 2,874   |   |              | $ | 3,511   |  
|Available on revolving credit facility |  | $                      | 58,493  |   |              | $ | 72,500  |  



The decrease in
current liabilities from December 31, 2004 to June 30, 2005 is primarily due to the use of cash generated from operations to reduce the amount outstanding on our revolving line of credit.



The following table summarizes our sources and uses of cash for the six months ended June 30, 2004 and 2005:



|                         |  |                                  |         |   |      |   |         |  
|------------------------ |  | -------------------------------- | ------- | - | ---- | - | ------- | -
|                         |  | For the Six Months EndedJune 30, |        
|Description              |  | 2004                             |         |   | 2005 |  
|                         |  | (dollars in thousands)           |        
|Net Cash Provided (Used) |  |                                  |         |   |      |   |         |  
|Operating activities     |  | $                                | 41,087  |   |      | $ | 45,914  |  
|Investing activities     |  |                                  | (16,333 | ) |      |   | (13,753 | )
|Financing activities     |  |                                  | (55,224 | ) |      |   | (31,524 | )



Cash Provided by Operating
Activities



For the six months ended June 30, 2004 and
2005, cash provided by operating activities was $41.1 million, and $45.9 million, respectively.



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##### Table of Contents

Cash Used in Investing Activities



The table below sets forth the components of cash used in investing activities for the six months ended June 30, 2004 and
2005:



|                           |  |                                  |        |      |   |       
|-------------------------- |  | -------------------------------- | ------ | ---- | - | ------
|                           |  | For the Six Months EndedJune 30,
|                           |  | 2004                             |        | 2005
|                           |  | (dollars in thousands)          
|Network and support assets |  | $                                | 12,007 |      | $ | 12,244
|Other                      |  |                                  | 2,629  |      |   | 1,424 
|                           |  |                                  |        |      |   |       
|Total capital expenditures |  |                                  | 14,636 |      |   | 13,668
|Business acquisitions      |  |                                  | 1,697  |      |   | 85    
|                           |  |                                  |        |      |   |       
|Total                      |  | $                                | 16,333 |      | $ | 13,753
|                           |  |                                  |        |      |   |       



Capital expenditures
for the six-months ended June 30, 2005 decreased by $1.0 million as compared to first six months of 2004 primarily due to information systems expenditures made during 2004.



Pursuant to the terms of our April 2004 Iowa Utilities Board rate proceeding settlement agreement, substantially all
additional revenues generated by the new rates approved pursuant to the agreement are required to be invested in capital improvements identified in a network improvement plan approved by the Iowa Utilities Board on May 10, 2004. This plan was
updated and filed in November of 2004 and approved by the Iowa Utilities Board in December 2004 to reflect anticipated network improvements to be made in 2005 through 2007.



We expect that capital expenditures will be approximately $30.0 million in fiscal 2005. We estimate that approximately $25.8
million of this amount will be used to maintain and enhance our network infrastructure, as directed by our rate settlement agreement, and that approximately $4.2 million of this amount will be used for information technology or other capital
expenditures. We expect to fund all of these capital expenditures through cash generated by our business. Although the amount of our capital expenditures will fluctuate from quarter to quarter, on an annual basis we do not expect capital
expenditures for our existing operations beyond 2005 to vary significantly from our estimated amounts.



The deregulation of local retail services will affect our capital expenditure obligations pursuant to our rate settlement agreement. We believe that the
impact of deregulation of our retail local service lines will reduce our capital expenditure obligations under the settlement agreement.



On August 4, 2004, the FCC adopted an order increasing the obligations of carriers to report service outages to the FCC. Most significantly, the order
required us to report certain non-customer affecting events related to our fiber optic transmission facilities. As part of an industry-wide effort requesting that the FCC reconsider this requirement, we stated to the FCC, in industry-wide hearings
held on November 19, 2004, that compliance would cause Iowa Telecom to incur at least $16 million of additional capital expenditures over a period of three to five years. As a result of the industry efforts, on December 20, 2004, the FCC prevented
the rule from going into effect until the FCC has reconsidered the matter. At this time, we cannot predict the result of this FCC reconsideration, the financial or operational effects or the impact the final rules may have on our operations.



Cash Used in Financing Activities



For the six months ended June 30, 2005, net cash used in financing
activities was $31.5 million as compared to $55.2 million for the same period in 2004, due primarily to the use of cash on hand in 2004 to redeem the Redeemable Convertible Preferred Stock, and the net impact of our initial public offering and the
related refinancing on our 2005 levels. Cash used in financing activities for 2005 included $17.9 million in dividends paid on our common stock during the six months ended June 30, 2005.



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##### Table of Contents

Long-Term Debt and Revolving Credit Facilities



Credit Facilities



As a part of our initial public offering and the related debt refinancing, we entered into new credit facilities with a group of lenders, including the
Rural Telephone Finance Cooperative, providing for a total of up to $577.8 million in term and revolving credit facilities, and retired the previously outstanding senior credit facility with the Rural Telephone Finance Cooperative. As of June 30,
2005, we had outstanding $477.8 million of senior debt under the new term facilities, and had $27.5 million drawn under the $100.0 million revolving credit facility. The details of the facilities are as follows:



The revolving credit facility will expire in 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 million). As of June 30, 2005, $27.5 million was outstanding on the revolving credit facility and $72.5 million was
available. Borrowings under the new 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 June 30, 2005, we had $23.5 million outstanding under
LIBOR elections at an average all-in rate of 5.24% and $4.0 million outstanding under the base rate election with an all-in rate of 6.25%.



Term Loan B is a $400.0 million senior secured term facility maturing in 2011, bearing interest per annum at either (a) LIBOR plus 2.0% or (b) a base rate
plus 1.0%. As of June 30, 2005, $350 million was based upon a LIBOR election effective through September 30, 2005, at an all-in rate of 5.49%. We have entered into an interest rate swap to fix the rate on $350 million of Term Loan B as more fully
described below. As of June 30, 2005, the interest rate on the remaining $50 million was based upon a LIBOR election effective through December 12, 2005 at an all-in rate of 5.54%.



Term Loan C is a $70.0 million senior secured term facility maturing in 2011, bearing interest per annum at either (a) a
fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. Upon the expiration of the 6.65% fixed interest rate on Term Loan C in November 2007, the interest rate on such 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 2011, bearing interest per annum at either (a) a fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. Upon the expiration of the 6.65% fixed interest rate on Term
Loan D in November 2007, interest on such term loan will convert to the Rural Telephone Finance Cooperative variable rate plus 0.85%.



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 (SCCs) of the Rural Telephone Finance Cooperative. SCCs are non-interest bearing but, as a member of the Rural Telephone Finance Cooperative, we share proportionately in the
institutions net earnings. The Rural Telephone Finance Cooperative will redeem the SCCs in proportion to our principal repayments on Term Loans C and D.



The credit facilities are secured by substantially all of our tangible and intangible assets, properties and revenues as
well as those of all of our current and future subsidiaries. The new credit facilities will be guaranteed by all of our current and future subsidiaries.



The credit facilities permit us to pay dividends to holders of our 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 our 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 our fiscal year; and engage in mergers and consolidations.



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In addition, the financial covenants under the 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 June 30, 2005.



Interest Rate Swap



On November 4, 2004, we entered into an interest rate swap agreement with a nationally recognized commercial bank that effectively fixes the interest rate
we will pay on specified portions of our indebtedness under Term Loan B. Pursuant to this swap: from November 5, 2004 through December 30, 2007 the interest on $350.0 million of our indebtedness under Term Loan B will be fixed at a weighted average
rate of 5.69%; from December 31, 2007 through December 30, 2008 the interest rate on $285.3 million of such indebtedness will be fixed at a weighted average rate of 5.76%; and from December 31, 2008 through November 4, 2009 the interest rate on
$142.7 million of such indebtedness will be fixed at 5.87%.



Obligations and
Commitments



Our ongoing capital commitments include
capital expenditures and debt service requirements. For the six months ended June 30, 2005, capital expenditures were $13.7 million.



The following table sets forth our contractual obligations as of June 30, 2005.



|                              |  |                        |         |                 |   |           |  |           |        |              |   |        |  |   |        
|----------------------------- |  | ---------------------- | ------- | --------------- | - | --------- |  | --------- | ------ | ------------ | - | ------ |  | - | -------
|                              |  | Payments Due by Period
|Obligation                    |  | Total                  |         | July - Dec.2005 |   | 2006-2007 |  | 2008-2010 |        | 2011 & After
|                              |  | (dollars in thousands)
|Long-Term Debt:               |  |                        |         |                 |   |           |  |           |        |              |   |        |  |   |        
|Senior debt payments          |  | $                      | 477,778 |                 | $ |          |  | $         |       |              | $ |       |  | $ | 477,778
|Revolving credit facility     |  |                        | 27,500  |                 |   |          |  |           |       |              |   |       |  |   | 27,500 
|Interest Payments(1)          |  |                        | 87,145  |                 |   | 13,965    |  |           | 49,604 |              |   | 23,576 |  |   |       
|Operating Lease Payments      |  |                        | 633     |                 |   | 141       |  |           | 348    |              |   | 142    |  |   | 2      
|                              |  |                        |         |                 |   |           |  |           |        |              |   |        |  |   |        
|Total Contractual Obligations |  | $                      | 593,056 |                 | $ | 14,106    |  | $         | 49,952 |              | $ | 23,718 |  | $ | 505,280
|                              |  |                        |         |                 |   |           |  |           |        |              |   |        |  |   |        

---

|(1) | Excludes interest payments on variable rate long-term debt that has not been fixed through hedging arrangements. Amounts include the impact of hedging arrangements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of June 30, 2005, no letters of credit were
outstanding.



We currently project that cash provided by
operations will be adequate to meet our foreseeable operational liquidity needs for the next 12 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 and regulatory, technological and competitive developments.



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. We reduce the carrying amounts of long-lived assets, goodwill and identifiable intangible assets to



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their fair values when the fair value of such assets is determined to be less than their carrying amounts. Fair value is
typically estimated using a discounted cash flow analysis, which requires us to estimate the future cash flows anticipated to be generated by the particular asset being tested for impairment, and to select a discount rate to measure the present
value of the anticipated cash flows. When determining future cash flow estimates, we consider historical operating results, as adjusted to reflect current and anticipated operating conditions. Estimating future cash flows requires significant
judgment by us in such areas as future economic conditions, industry specific conditions and necessary capital expenditures. The use of different assumptions or estimates for future cash flows could produce different impairment amounts (or none at
all) for long-lived assets, goodwill and identifiable intangible assets.



We are required to perform an annual impairment review of goodwill as required by Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. No impairment of goodwill or other
long-lived assets resulted from the annual valuation of goodwill we conducted in August 2004.



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.



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. As of June 30, 2005, the balance of the deferred tax asset and the valuation allowances was $14 million. To the extent we begin to generate taxable income in future years and it is determined the valuation
allowance is no longer required, the tax benefit for the remaining deferred tax assets will be recognized at such time.



At June 30, 2005, our unused tax net operating loss carry forward was $209 million, and will expire between 2020 and 2024. The amount of net operating
loss allowable to offset income after a change in ownership is limited under Internal Revenue Code (IRC) Section 382. Additionally, IRC Section 338 may allow for an increase in this allowance for the periods ending in 2005 through 2009.
IRC Section 382 will continue to apply after 2009. Furthermore, we expect that we will continue to be able to take deductions related to the amortization of intangibles in excess of the amount recorded for book purposes in the amount of
approximately $40 million annually through 2014.



Employee-Related Benefits. We incur certain employee-related benefits associated with pensions and other post-retirement health care benefits (OPEB). We use third party specialists to assist management in appropriately
measuring the expenses associated with these employee-related benefits. In order to measure the expense associated with these employee-related benefits, management must make a variety of estimates, including discount rates used to measure the
present value of certain liabilities, assumed rates of return on assets set aside to fund these expenses, compensation increases, employee turnover rates, anticipated mortality rates and anticipated healthcare costs. The estimates used by management
are based on our historical experience, as well as current facts and circumstances. Different estimates could result in our recognizing different amounts of expense over different time periods. We evaluate our critical assumptions at least annually,
and selected assumptions are based on the following factors:



| |  |  | The discount rate is based on a hypothetical portfolio of high quality bonds with cash flows matching our expected benefit payments.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The expected return on plan assets is based on our asset allocation mix and our historical return, taking into consideration current and expected market conditions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The healthcare costs trend rate is based on our historical rates of inflation and expected market conditions.
| | - |  | -------------------------------------------------------------------------------------------------------------



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The following table presents the key assumptions used to measure pension and OPEB expense for 2005 and
the estimated impact on pension and OPEB expense for the first six months of 2005 relative to a change in those assumptions:



|                                                 |  |                |   |  |                                                           |      |   |      |   |      |  
|------------------------------------------------ |  | -------------- | - |  | --------------------------------------------------------- | ---- | - | ---- | - | ---- | -
|                                                 |  | Pension        |   |  |                                                           |     
|Assumptions                                      |  | Jan 1 May 31, |   |  | June 1 - June 30,                                         |      |   | OPEB |  
|Discount rate                                    |  | 5.75           | % |  |                                                           | 5.25 | % |      |   | 5.50 | %
|Expected return on plan assets                   |  | 7.00           | % |  |                                                           | 7.00 | % |      |   | NA   |  
|Healthcare costs trend rate                      |  |                |   |  |                                                           |      |   |      |   |      |  
|Current                                          |  | NA             |   |  |                                                           | NA   |   |      |   | 9.50 | %
|Level in 2010                                    |  | NA             |   |  |                                                           | NA   |   |      |   | 7.00 | %
|                                                 |  |               
|                                                 |  |                |   |  | Increase in Expense for the SixMonths Ended June 30, 2005 |     
|Sensitivities                                    |  |                |   |  | Pension                                                   |      |   | OPEB |  
|                                                 |  |                |   |  | (in thousands)                                            |     
|0.25% decrease in discount rate                  |  |                |   |  | $                                                         | 70   |   |      | $ | 8    |  
|0.25% decrease in expected return on plan assets |  |                |   |  |                                                           | 18   |   |      |   | NA   |  
|1% increase in healthcare costs trend rate       |  |                |   |  |                                                           | NA   |   |      |   | 254  |  



Off-Balance Sheet
Risk and Concentration of Credit Risk



The Company has no
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 and cash and temporary cash investments.



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 an interest rate swap agreement 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 payer under the
interest rate swap agreement is a nationally recognized commercial bank, which has been accorded ratings similar to other large commercial banks by primary rating agencies. We periodically monitor these credit ratings. While we may be exposed to
losses due to non-performance of the bank or the calculation agent, we consider the risk remote and do not expect the settlement of this transaction to have a material effect on our financial condition or results of operations.



New Accounting Pronouncements



In December 2004, the FASB issued SFAS No. 123 (Revised), Share-Based
Payment. This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires companies to apply a
fair-value-based measurement method in accounting for share-based payment transactions with employees and to record compensation cost for all stock awards granted after the required effective date and to awards modified, repurchased, or cancelled
after that date. On April 14, 2005, the Securities and Exchange Commission announced the adoption of a rule that defers the effective date for adoption to the first fiscal year beginning after June 15, 2005. Adoption of this standard is not expected
to have a material effect on the Companys financial position, results of operations or cash flows as all of our outstanding stock options were fully vested at the date of issuance of SFAS 123R. Grants of stock based awards under the 2005 stock
Incentive Plan or modifications to outstanding stock options after the effective date of the standard may result in additional compensation expense pursuant to the provisions of SFAS 123R.



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Inflation



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



ITE
M 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



For information regarding our exposure to certain market risks, see Item 7A, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, in our Annual Report on Form 10-K for the year ended December 31, 2004. There
have been no significant changes in our market risk exposures from December 31, 2004.



IT
EM 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 June 30, 2005 (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.



Changes in Internal Controls



There were no changes in our internal control over financial reporting
during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



I
TEM 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.



IT
EM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



(a) The registrant held its 2005 Annual Meeting of the Shareholders on June 16, 2005.



(b) Proxies for the Annual Meeting were solicited pursuant to Regulation 14A; there was no solicitation in opposition to managements nominees for
directors as listed in the Proxy Statement. All such nominees were elected pursuant to the following votes:



|                  |  |                 |  |        
|----------------- |  | --------------- |  | -------
|                  |  | Number of Votes |  |        
|DIRECTORS         |  | FOR             |  | WITHELD
|Brian P. Friedman |  | 28,485,561      |  | 316,472
|Alan L. Wells     |  | 28,486,458      |  | 315,575



The Companys other directors
whose terms of office continued after the Annual Meeting are Kevin R. Hraniska and Stuart B. Katz.



(c) Other matters voted upon:



Ratification of appointment of Deloitte & Touche LLP as the Companys independent public accountants for 2005.



|                                |  |           
|------------------------------- |  | ----------
|Number of votes FOR             |  | 28,717,216
|Number of votes AGAINST/WITHELD |  | 68,861    
|Number of votes ABSTAINING      |  | 15,955    
|Number of BROKER NON-VOTES      |  | 0         



Shareholder vote for
adoption of the Iowa Telecommunications Services, Inc. 2005 Stock Incentive Plan.



|                                |  |           
|------------------------------- |  | ----------
|Number of votes FOR             |  | 14,323,564
|Number of votes AGAINST/WITHELD |  | 8,045,629 
|Number of votes ABSTAINING      |  | 59,085    
|Number of BROKER NON-VOTES      |  | 6,373,755 



ITEM 6. EXHIB
ITS



See Exhibit Index following
the signature page of this Report



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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.



|                   |  |                                                                                       |  |                
|------------------ |  | ------------------------------------------------------------------------------------- |  | ---------------
|                   |  | IOWA TELECOMMUNICATIONS SERVICES, INC. (Registrant)                                   |  |                
|                   |  |                                                                                      
|Signature          |  | Title                                                                                 |  | Date           
|/s/ Alan L. Wells  |  | President, Chief Executive Officer and Director                                       |  | August 12, 2005
|Alan L. Wells      |  |                                                                                      
|                   |  |                                                                                      
|/s/ Craig A. Knock |  | Vice President, Chief Financial Officer and Treasurer, (Principal Accounting Officer) |  | August 12, 2005
|Craig A. Knock     |  |                                                                                      





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EXHIBIT INDEX



IOWA TELECOMMUNICATIONS SERVICES, INC.

FORM 10-Q FOR QUARTER ENDED JUNE 30, 2005



|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.1            |  | Amended and Restated Articles of Incorporation of Iowa Telecommunications Services, Inc. - incorporated by reference to Exhibit 3.1 to Iowa Telecoms Registration Statement on Form
S-1/Amendment No. 6 (File No. 333-114349)                                                                                                                                                                                                                                                                                                                                                                                  
|               | 
|3.2            |  | Amended and Restated Articles of Incorporation of Iowa Telecommunications Services, Inc. - incorporated by reference to Exhibit 3.2 to Iowa Telecoms Registration Statement on Form
S-1/Amendment No. 6 (File No. 333-114349)                                                                                                                                                                                                                                                                                                                                                                                  
|               | 
|4.1            |  | Amended and Restated Stockholders and Registration Rights Agreement, dated as of November 17, 2004, among Iowa Telecommunications Services, Inc., ING Furman Selz Investors III, L.P., ING
Barings US Leveraged Equity Plan LLC, ING Barings Global Leveraged Equity Plan Ltd., Iowa Network Services, Inc., BancBoston Ventures Inc., Teachers Insurance and Annuity Association of America, and the individual holders of options to purchase
common stock named therein - incorporated by reference to Exhibit 4.2 to Iowa Telecoms Registration Statement on Form S-1/Amendment No. 7 (File No. 333-114349)
|               | 
|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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