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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark one)

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

For the quarterly period ended: March 31, 2009

OR



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

For the transition period from  to

Commission file number 001-32354





IOWA TELECOMMUNICATIONS SERVICES, INC.

(Exact name of registrant as specified
in its charter)







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

403 W. Fourth Street North

Newton, Iowa 50208

(Address of principal executive offices)

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





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

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

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



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

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

The number of shares of the registrants common stock, $.01 par value, outstanding as of April 21, 2009 was 32,694,735.









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##### Table of Contents

TABLE OF CONTENTS



|         |  |                       |  |                                                                                       |  |     
|-------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                       |  |                                                                                       |  | Page
|PART I.  |  | FINANCIAL INFORMATION |  | 1                                                                                    
|         |  |                       | 
|         |  |                       |  | FINANCIAL STATEMENTS                                                                  |  | 1   
|         |  |                       | 
|         |  |                       |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 15  
|         |  |                       | 
|         |  |                       |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 33  
|         |  |                       | 
|         |  |                       |  | CONTROLS AND PROCEDURES                                                               |  | 33  
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  | 34                                                                                   
|         |  |                       | 
|         |  |                       |  | LEGAL PROCEEDINGS                                                                     |  | 34  
|         |  |                       | 
|         |  |                       |  | RISK FACTORS                                                                          |  | 34  
|         |  |                       | 
|         |  |                       |  | EXHIBITS                                                                              |  | 34  



i



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PART I - FINANCIAL INFORMATION



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

Iowa Telecommunications
Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(Dollars in Thousands, Except Per Share Data)



|                                                                                                                             |  |                  |          |   |               |   |          |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                             |  | December 31,2008 |          |   | March 31,2009 |  
|ASSETS                                                                                                                       |  |                  |          |   |               |   |          |  
|CURRENT ASSETS:                                                                                                              |  |                  |          |   |               |   |          |  
|Cash and cash equivalents                                                                                                    |  | $                | 11,605   |   |               | $ | 6,715    |  
|Accounts receivable, net                                                                                                     |  |                  | 23,320   |   |               |   | 21,418   |  
|Inventories                                                                                                                  |  |                  | 3,946    |   |               |   | 4,400    |  
|Prepayments and other current assets                                                                                         |  |                  | 3,149    |   |               |   | 4,284    |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Current Assets                                                                                                         |  |                  | 42,020   |   |               |   | 36,817   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|PROPERTY, PLANT AND EQUIPMENT:                                                                                               |  |                  |          |   |               |   |          |  
|Property, plant and equipment                                                                                                |  |                  | 601,782  |   |               |   | 604,264  |  
|Accumulated depreciation                                                                                                     |  |                  | (310,936 | ) |               |   | (323,432 | )
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Net Property, Plant and Equipment                                                                                            |  |                  | 290,846  |   |               |   | 280,832  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|GOODWILL                                                                                                                     |  |                  | 473,984  |   |               |   | 474,117  |  
|INTANGIBLE ASSETS AND OTHER, net                                                                                             |  |                  | 36,904   |   |               |   | 35,536   |  
|INVESTMENT IN AND RECEIVABLE FROM THE RURAL TELEPHONE FINANCE COOPERATIVE                                                    |  |                  | 16,174   |   |               |   | 15,948   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Assets                                                                                                                 |  | $                | 859,928  |   |               | $ | 843,250  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                         |  |                  |          |   |               |   |          |  
|CURRENT LIABILITIES:                                                                                                         |  |                  |          |   |               |   |          |  
|Revolving credit facility                                                                                                    |  | $                | 39,000   |   |               | $ | 33,000   |  
|Accounts payable                                                                                                             |  |                  | 11,017   |   |               |   | 8,565    |  
|Advanced billings and customer deposits                                                                                      |  |                  | 8,615    |   |               |   | 9,152    |  
|Accrued and other current liabilities                                                                                        |  |                  | 32,429   |   |               |   | 27,342   |  
|Current maturities of long-term debt                                                                                         |  |                  | 1,219    |   |               |   | 1,242    |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Current Liabilities                                                                                                    |  |                  | 92,280   |   |               |   | 79,301   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|LONG-TERM DEBT                                                                                                               |  |                  | 489,003  |   |               |   | 488,683  |  
|DEFERRED TAX LIABILITIES                                                                                                     |  |                  | 47,575   |   |               |   | 51,024   |  
|OTHER LONG-TERM LIABILITIES                                                                                                  |  |                  | 28,326   |   |               |   | 28,523   |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Liabilities                                                                                                            |  |                  | 657,184  |   |               |   | 647,531  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|COMMITMENTS AND CONTINGENCIES (Note 9)                                                                                       |  |                  |         |   |               |   |         |  
|STOCKHOLDERS EQUITY:                                                                                                        |  |                  |          |   |               |   |          |  
|Iowa Telecommunications Services, Inc. stockholders equity                                                                  |  |                  |          |   |               |   |          |  
|Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding                             |  |                  |         |   |               |   |         |  
|Common stock, $0.01 par value, 100,000,000 shares authorized, 31,500,687 and 31,925,803 issued and outstanding, respectively |  |                  | 315      |   |               |   | 319      |  
|Additional paid-in capital                                                                                                   |  |                  | 327,264  |   |               |   | 328,768  |  
|Retained deficit                                                                                                             |  |                  | (110,814 | ) |               |   | (119,449 | )
|Accumulated other comprehensive loss                                                                                         |  |                  | (14,308  | ) |               |   | (14,269  | )
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Iowa Telecommunications Services, Inc. Stockholders Equity                                                            |  |                  | 202,457  |   |               |   | 195,369  |  
|Noncontrolling interest                                                                                                      |  |                  | 287      |   |               |   | 350      |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Stockholders Equity                                                                                                   |  |                  | 202,744  |   |               |   | 195,719  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  
|Total Liabilities and Stockholders Equity                                                                                   |  | $                | 859,928  |   |               | $ | 843,250  |  
|                                                                                                                             |  |                  |          |   |               |   |          |  

See notes to condensed consolidated financial statements.



1



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Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(Amounts in Thousands, Except Per Share Data)



|                                                                       |  |                             |        |   |      |   |        |  
|---------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                       |  | Three Months EndedMarch 31, |       
|                                                                       |  | 2008                        |        |   | 2009 |  
|REVENUES AND SALES                                                     |  | $                           | 60,845 |   |      | $ | 61,288 |  
|OPERATING COSTS AND EXPENSES:                                          |  |                             |        |   |      |   |        |  
|Cost of services and sales (exclusive of items shown separately below) |  |                             | 18,613 |   |      |   | 20,234 |  
|Selling, general and administrative                                    |  |                             | 10,115 |   |      |   | 12,202 |  
|Depreciation and amortization                                          |  |                             | 12,605 |   |      |   | 13,990 |  
|                                                                       |  |                             |        |   |      |   |        |  
|Total Operating Costs and Expenses                                     |  |                             | 41,333 |   |      |   | 46,426 |  
|                                                                       |  |                             |        |   |      |   |        |  
|OPERATING INCOME                                                       |  |                             | 19,512 |   |      |   | 14,862 |  
|                                                                       |  |                             |        |   |      |   |        |  
|OTHER INCOME (EXPENSE):                                                |  |                             |        |   |      |   |        |  
|Interest and dividend income                                           |  |                             | 378    |   |      |   | 873    |  
|Interest expense                                                       |  |                             | (7,698 | ) |      |   | (7,596 | )
|Other, net                                                             |  |                             | (259   | ) |      |   | (159   | )
|                                                                       |  |                             |        |   |      |   |        |  
|Total Other Expense, net                                               |  |                             | (7,579 | ) |      |   | (6,882 | )
|                                                                       |  |                             |        |   |      |   |        |  
|EARNINGS BEFORE INCOME TAXES                                           |  |                             | 11,933 |   |      |   | 7,980  |  
|INCOME TAX EXPENSE                                                     |  |                             | 4,976  |   |      |   | 3,471  |  
|                                                                       |  |                             |        |   |      |   |        |  
|NET INCOME                                                             |  |                             | 6,957  |   |      |   | 4,509  |  
|Net loss attributable to noncontrolling interest                       |  |                             |       |   |      |   | 98     |  
|                                                                       |  |                             |        |   |      |   |        |  
|NET INCOME ATTRIBUTABLE TO IOWA TELECOMMUNICATIONS SERVICES, INC.      |  | $                           | 6,957  |   |      | $ | 4,607  |  
|                                                                       |  |                             |        |   |      |   |        |  
|EARNINGS PER SHARE:                                                    |  |                             |        |   |      |   |        |  
|BASIC - Earnings Per Share                                             |  | $                           | 0.22   |   |      | $ | 0.14   |  
|                                                                       |  |                             |        |   |      |   |        |  
|BASIC - Weighted Average Number of Shares Outstanding                  |  |                             | 31,444 |   |      |   | 31,594 |  
|                                                                       |  |                             |        |   |      |   |        |  
|DILUTED - Earnings Per Share                                           |  | $                           | 0.21   |   |      | $ | 0.14   |  
|                                                                       |  |                             |        |   |      |   |        |  
|DILUTED - Weighted Average Number of Shares Outstanding                |  |                             | 31,993 |   |      |   | 32,149 |  
|                                                                       |  |                             |        |   |      |   |        |  
|Dividends Declared Per Share                                           |  | $                           | 0.405  |   |      | $ | 0.405  |  
|                                                                       |  |                             |        |   |      |   |        |  

See notes to condensed consolidated financial statements.



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Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders Equity

(Unaudited)

(Dollars in Thousands, Except Per Share Data)



|                                                           |  |              |  |                                            |     |                          |   |                 |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|---------------------------------------------------------- |  | ------------ |  | ------------------------------------------ | --- | ------------------------ | - | --------------- |  | - | ------------------------------------------ | - |  | ---------------------- | ------- | - | ----- | - | --- | - |  | - | ------- | -
|                                                           |  |              |  | Three Months Ended March 31, 2008 and 2009 |    
|                                                           |  | CommonShares |  | CommonShares                               |     | AdditionalPaid-InCapital |   | RetainedDeficit |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | NoncontrollingInterest |         |   | Total |  
|Balance, December 31, 2007                                 |  | 31,440,215   |  | $                                          | 314 |                          | $ | 324,170         |  | $ | (82,154                                    | ) |  | $                      | 637     |   |       | $ |    |   |  | $ | 242,967 |  
|Net income                                                 |  |             |  |                                            |    |                          |   |                |  |   | 6,957                                      |   |  |                        |        |   |       |   |    |   |  |   | 6,957   |  
|Unrealized loss on derivatives, net of tax effect          |  |             |  |                                            |    |                          |   |                |  |   |                                           |   |  |                        | (7,471  | ) |       |   |    |   |  |   | (7,471  | )
|Post retirement benefit plan adjustment, net of tax effect |  |             |  |                                            |    |                          |   |                |  |   |                                           |   |  |                        | (144    | ) |       |   |    |   |  |   | (144    | )
|                                                           |  |              |  |                                            |     |                          |   |                 |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|Total comprehensive income (loss)                          |  |             |  |                                            |    |                          |   |                |  |   | 6,957                                      |   |  |                        | (7,615  | ) |       |   |    |   |  |   | (658    | )
|Compensation from compensatory stock plans                 |  | 5,000        |  |                                            |    |                          |   | 870             |  |   |                                           |   |  |                        |        |   |       |   |    |   |  |   | 870     |  
|Dividends declared ($.405 per share)                       |  |             |  |                                            |    |                          |   |                |  |   | (12,959                                    | ) |  |                        |        |   |       |   |    |   |  |   | (12,959 | )
|                                                           |  |              |  |                                            |     |                          |   |                 |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|Balance, March 31, 2008                                    |  | 31,445,215   |  | $                                          | 314 |                          | $ | 325,040         |  | $ | (88,156                                    | ) |  | $                      | (6,978  | ) |       | $ |    |   |  | $ | 230,220 |  
|                                                           |  |              |  |                                            |     |                          |   |                 |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|Balance, December 31, 2008                                 |  | 31,500,687   |  | $                                          | 315 |                          | $ | 327,264         |  | $ | (110,814                                   | ) |  | $                      | (14,308 | ) |       | $ | 287 |   |  | $ | 202,744 |  
|Net income (loss)                                          |  |             |  |                                            |    |                          |   |                |  |   | 4,607                                      |   |  |                        |        |   |       |   | (98 | ) |  |   | 4,509   |  
|Unrealized gain on derivatives, net of tax effect          |  |             |  |                                            |    |                          |   |                |  |   |                                           |   |  |                        | 66      |   |       |   |    |   |  |   | 66      |  
|Post retirement benefit plan adjustment, net of tax effect |  |             |  |                                            |    |                          |   |                |  |   |                                           |   |  |                        | (27     | ) |       |   |    |   |  |   | (27     | )
|                                                           |  |              |  |                                            |     |                          |   |                 |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|Total comprehensive income (loss)                          |  |             |  |                                            |    |                          |   |                |  |   | 4,607                                      |   |  |                        | 39      |   |       |   | (98 | ) |  |   | 4,548   |  
|Compensation from compensatory stock plans                 |  | 6,000        |  |                                            |    |                          |   | 885             |  |   |                                           |   |  |                        |        |   |       |   |    |   |  |   | 885     |  
|Exercise of employee stock options                         |  | 419,116      |  |                                            | 4   |                          |   | 585             |  |   |                                           |   |  |                        |        |   |       |   |    |   |  |   | 589     |  
|Capital contributions from noncontrolling interest         |  |             |  |                                            |    |                          |   | 34              |  |   |                                           |   |  |                        |        |   |       |   | 161 |   |  |   | 195     |  
|Dividends declared ($.405 per share)                       |  |             |  |                                            |    |                          |   |                |  |   | (13,242                                    | ) |  |                        |        |   |       |   |    |   |  |   | (13,242 | )
|                                                           |  |              |  |                                            |     |                          |   |                 |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  
|Balance, March 31, 2009                                    |  | 31,925,803   |  | $                                          | 319 |                          | $ | 328,768         |  | $ | (119,449                                   | ) |  | $                      | (14,269 | ) |       | $ | 350 |   |  | $ | 195,719 |  
|                                                           |  |              |  |                                            |     |                          |   |                 |  |   |                                            |   |  |                        |         |   |       |   |     |   |  |   |         |  

See notes to condensed consolidated financial statements.



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Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in Thousands)



|                                                                              |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | Three Months EndedMarch 31, |        
|                                                                              |  | 2008                        |         |   | 2009 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                         |  |                             |         |   |      |   |         |  
|Net income                                                                    |  | $                           | 6,957   |   |      | $ | 4,509   |  
|Adjustments to reconcile net income to cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Depreciation                                                                  |  |                             | 12,231  |   |      |   | 13,582  |  
|Amortization of intangible assets                                             |  |                             | 374     |   |      |   | 408     |  
|Amortization of debt issuance costs                                           |  |                             | 148     |   |      |   | 174     |  
|Deferred income taxes                                                         |  |                             | 4,769   |   |      |   | 3,421   |  
|Non-cash stock based compensation expense                                     |  |                             | 866     |   |      |   | 885     |  
|Changes in operating assets and liabilities, net of impact of acquisitions:   |  |                             |         |   |      |   |         |  
|Receivables                                                                   |  |                             | 1,778   |   |      |   | 1,902   |  
|Inventories                                                                   |  |                             | (418    | ) |      |   | (454    | )
|Accounts payable                                                              |  |                             | (1,064  | ) |      |   | (2,447  | )
|Other assets and liabilities                                                  |  |                             | (6,448  | ) |      |   | (4,457  | )
|                                                                              |  |                             |         |   |      |   |         |  
|Net Cash Provided by Operating Activities                                     |  |                             | 19,193  |   |      |   | 17,523  |  
|                                                                              |  |                             |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                         |  |                             |         |   |      |   |         |  
|Capital expenditures                                                          |  |                             | (5,858  | ) |      |   | (3,627  | )
|Business acquisitions, net of cash acquired                                   |  |                             |        |   |      |   | (324    | )
|Deposit for wireless licenses                                                 |  |                             | (1,906  | ) |      |   |        |  
|                                                                              |  |                             |         |   |      |   |         |  
|Net Cash Used in Investing Activities                                         |  |                             | (7,764  | ) |      |   | (3,951  | )
|                                                                              |  |                             |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                         |  |                             |         |   |      |   |         |  
|Net change in revolving credit facility                                       |  |                             | (15,000 | ) |      |   | (6,000  | )
|Proceeds from exercise of stock options                                       |  |                             |        |   |      |   | 589     |  
|Payment on long-term debt                                                     |  |                             |        |   |      |   | (297    | )
|Cash contributions from noncontrolling interests                              |  |                             |        |   |      |   | 195     |  
|Dividends paid                                                                |  |                             | (12,887 | ) |      |   | (12,949 | )
|                                                                              |  |                             |         |   |      |   |         |  
|Net Cash Used in Financing Activities                                         |  |                             | (27,887 | ) |      |   | (18,462 | )
|                                                                              |  |                             |         |   |      |   |         |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                       |  |                             | (16,458 | ) |      |   | (4,890  | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                              |  |                             | 21,919  |   |      |   | 11,605  |  
|                                                                              |  |                             |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                    |  | $                           | 5,461   |   |      | $ | 6,715   |  
|                                                                              |  |                             |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                             |  |                             |         |   |      |   |         |  
|Cash paid for interest                                                        |  | $                           | 7,672   |   |      | $ | 7,435   |  
|                                                                              |  |                             |         |   |      |   |         |  
|Cash paid for income taxes                                                    |  | $                           | 4       |   |      | $ | 1       |  
|                                                                              |  |                             |         |   |      |   |         |  

SUPPLEMENTAL NON-CASH ACTIVITIES:

Dividends on Common Stock of $12,959 were declared on March 14, 2008 for shareholders of record as of March 31, 2008 and the dividends were paid on April 15, 2008.

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

See notes to condensed consolidated financial statements.



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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 or Iowa Telecom) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for
interim financial information. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted or condensed
pursuant to such rules and regulations. In the opinion of the Companys management, all adjustments (consisting of only normal and recurring accruals) have been made to present fairly the 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 unaudited condensed consolidated financial statements should be read in conjunction with the Companys audited consolidated financial statements as of and for the year ended December 31, 2008,
that are included in the Companys most recently filed annual report on Form 10-K as filed with the SEC.

Recently Issued Accounting
Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 160,Noncontrolling Interests in Consolidated Financial Statements (SFAS 160), an amendment of Accounting Review Bulletin No. 51. SFAS 160 establishes new accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that changes in a parents ownership interest in a subsidiary that do not result in deconsolidation are equity
transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair
value of the non-controlling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interest of the parent and its non-controlling interest. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008. Adoption of SFAS 160 did not have a material impact on the Companys financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (SFAS 141(R)). SFAS 141(R) requires an acquiring entity
to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions, and also includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to
business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141(R) requires acquisition related costs to be expensed as incurred. During
the first quarter of 2009, the Company expensed acquisition related costs of $868,000 that had been deferred pursuant to SFAS No. 141 (SFAS 141) on acquisitions that did not close prior to the adoption date of SFAS 141(R) on
January 1, 2009. Other than expensing acquisition costs deferred pursuant to SFAS 141 as discussed above, the adoption of SFAS 141(R) did not have a material impact on the Companys financial position, results of operations and cash flows.



5



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##### Table of Contents

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161)  an amendment of FASB Statement No. 133. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entitys financial condition, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15,
2008. Adoption of SFAS 161 impacted disclosures only and did not have an impact on the Companys consolidated financial condition, results of operations and cash flows. See footnote 8 for expanded disclosures related to the adoption of SFAS
161.

In December 2008, the FASB issued FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets(FAS 132(R)-1). FAS 132(R)-1 amends FASB Statement No. 132 (Revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits,to provide guidance on an employers disclosures about plan
assets of a defined benefit pension or other postretirement plan. FAS 132(R)-1 also includes a technical amendment to Statement 132R that requires a nonpublic entity to disclose net periodic benefit cost for each annual period for which a statement
of income is presented. FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. FAS 132(R)-1 will impact disclosures only and will not have an impact on the Companys consolidated financial condition, results of
operations or cash flows.

In April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1 (FAS 107-1), Interim
Disclosures about Fair Value of Financial Instruments. FAS 107-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim
financial information. FAS 107-1 also amends Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. Under FAS 107-1,
publicly traded companies must include disclosures about the fair value of their financial instruments whenever summarized financial information for interim reporting periods is issued. In addition, companies must disclose in the body or in the
accompanying notes of their summarized financial information for interim reporting periods and in their financial statements for annual reporting periods the fair value of all financial instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of financial position, as required by FASB Statement No. 107. FAS 107-1 is effective for interim periods ending after June 15, 2009. FAS 107-1 will impact disclosures only and will not
have an impact on the Companys consolidated financial condition, results of operations and cash flows.

2. EARNINGS PER SHARE

Effective January 1, 2009, the Company adopted FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities(EITF 03-6-1). Under EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are
included in computing earnings per share (EPS) pursuant to the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend
equivalents and their respective participation rights in undistributed earnings. Restricted stock granted to employees under the Companys 2005 Stock Incentive Plan are considered participating securities as they receive non-forfeitable
dividend equivalents at the same rate as common stock. EITF 03-6-1 was adopted via retroactive application for the quarter ended March 31, 2008, resulting in no change to basic EPS and a decrease to diluted EPS of $0.01 to $0.21.



6



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##### Table of Contents

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



|                                                                                       |  |                                          |        |   |      |   |        |  
|-------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                       |  | Three Months EndedMarch 31,              |       
|                                                                                       |  | 2008                                     |        |   | 2009 |  
|                                                                                       |  | (in thousands, except per share amounts) |       
|Net income attributable to Iowa Telecommunications Services, Inc.                      |  | $                                        | 6,957  |   |      | $ | 4,607  |  
|Net income allocated to unvested compensatory stock                                    |  |                                          | (94    | ) |      |   | (84    | )
|                                                                                       |  |                                          |        |   |      |   |        |  
|Net income attributable to Iowa Telecommunications Services, Inc. common shares        |  |                                          | 6,863  |   |      |   | 4,523  |  
|                                                                                       |  |                                          |        |   |      |   |        |  
|Basic shares outstanding:                                                              |  |                                          |        |   |      |   |        |  
|Weighted average basic shares outstanding                                              |  |                                          | 31,874 |   |      |   | 32,182 |  
|Less unvested compensatory stock included in weighted average basic shares outstanding |  |                                          | (430   | ) |      |   | (588   | )
|                                                                                       |  |                                          |        |   |      |   |        |  
|Weighted average shares outstanding for basic earnings per common share                |  |                                          | 31,444 |   |      |   | 31,594 |  
|                                                                                       |  |                                          |        |   |      |   |        |  
|Diluted shares outstanding:                                                            |  |                                          |        |   |      |   |        |  
|Weighted average shares outstanding for basic earnings per common share                |  |                                          | 31,444 |   |      |   | 31,594 |  
|Add shares issuable upon exercise of stock options, net                                |  |                                          | 549    |   |      |   | 555    |  
|                                                                                       |  |                                          |        |   |      |   |        |  
|Weighted average number of shares outstanding  diluted                                |  |                                          | 31,993 |   |      |   | 32,149 |  
|                                                                                       |  |                                          |        |   |      |   |        |  
|Earnings Per Share:                                                                    |  |                                          |        |   |      |   |        |  
|Basic                                                                                  |  | $                                        | 0.22   |   |      | $ | 0.14   |  
|Diluted                                                                                |  | $                                        | 0.21   |   |      | $ | 0.14   |  

As of March 31, 2008 and 2009, total options outstanding were 677,579 and 258,463,
respectively.

3. NONCONTROLLING INTEREST

Effective January 1, 2009, the Company adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements(SFAS 160), an amendment of ARB No. 51. SFAS 160 establishes new accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.

The following table
presents the effects of changes in Iowa Telecoms ownership interest in its partially-owned subsidiary on Iowa Telecoms equity as required by the adoption of SFAS 160.



|                                                                                                                         |  |                                                                                                     |       |      |   |      
|------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------- | ----- | ---- | - | -----
|                                                                                                                         |  | Net Income Attributable toIowa Telecommunicationsand Transfers (to) from theNoncontrolling Interest
|                                                                                                                         |  | Three Months Ended March 31,                                                                       
|                                                                                                                         |  | 2008                                                                                                |       | 2009
|                                                                                                                         |  | (dollars in thousands)                                                                             
|Net income attributable to Iowa Telecommunications Services, Inc.                                                        |  | $                                                                                                   | 6,957 |      | $ | 4,607
|Increase in Iowa Telecommunications Services, Inc. paid-in capital for issuance of shares                                |  |                                                                                                     |      |      |   | 34   
|                                                                                                                         |  |                                                                                                     |       |      |   |      
|Change from net income attributable to Iowa Telecommunications Services, Inc. and transfers from noncontrolling interest |  | $                                                                                                   | 6,957 |      | $ | 4,641
|                                                                                                                         |  |                                                                                                     |       |      |   |      

4. REVENUES AND SALES

The table below sets forth the components of revenues and sales for the three months ended March 31, 2008 and 2009:



|                           |  |                             |        |      |   |       
|-------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                           |  | Three Months EndedMarch 31,
|                           |  | 2008                        |        | 2009
|                           |  | (dollars in thousands)     
|Local services             |  | $                           | 17,691 |      | $ | 18,085
|Network access services    |  |                             | 22,662 |      |   | 21,854
|Toll services              |  |                             | 5,870  |      |   | 5,566 
|Data and internet services |  |                             | 8,078  |      |   | 9,655 
|Other services and sales   |  |                             | 6,544  |      |   | 6,128 
|                           |  |                             |        |      |   |       
|Total revenues and sales   |  | $                           | 60,845 |      | $ | 61,288
|                           |  |                             |        |      |   |       



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##### Table of Contents

5. EMPLOYEE BENEFIT PLANS

Retirement Pension Plan

The Company sponsors the Iowa Telecom Pension Plan (the Plan), a defined benefit
pension plan that covers many former GTE Midwest Incorporated (GTE) employees and several union employees. The provisions of the Plan were assumed by the Company in connection with the GTE acquisition on June 30, 2000. The Plan
generally provides for employee retirement at age 65 with benefits based upon length of service and compensation. The Plan provides for early retirement, lump sum benefits, and various annuity options. There were no contributions to the Plan made
during the first quarter of 2009.

Components of pension benefit cost are as follows:



|                                            |  |                             |      |   |      |   |      |  
|------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                            |  | Three Months EndedMarch 31, |     
|                                            |  | 2008                        |      |   | 2009 |  
|                                            |  | (dollars in thousands)      |     
|Pension Benefit Cost:                       |  |                             |      |   |      |   |      |  
|Service cost                                |  | $                           | 55   |   |      | $ | 61   |  
|Interest cost                               |  |                             | 185  |   |      |   | 201  |  
|Expected return on plan assets              |  |                             | (175 | ) |      |   | (168 | )
|Amortization of unrecognized actuarial loss |  |                             | 7    |   |      |   | 57   |  
|Amortization of prior service cost          |  |                             |     |   |      |   | 7    |  
|                                            |  |                             |      |   |      |   |      |  
|Net periodic benefit cost                   |  | $                           | 72   |   |      | $ | 158  |  
|                                            |  |                             |      |   |      |   |      |  

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

Postretirement Benefits

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

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



|                                            |  |                             |      |   |      |   |      |  
|------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                            |  | Three Months EndedMarch 31, |     
|                                            |  | 2008                        |      |   | 2009 |  
|                                            |  | (dollars in thousands)      |     
|Pension Benefit Cost (Income):              |  |                             |      |   |      |   |      |  
|Service cost                                |  | $                           | 4    |   |      | $ | 1    |  
|Interest cost                               |  |                             | 51   |   |      |   | 42   |  
|Amortization of unrecognized actuarial loss |  |                             | 12   |   |      |   |     |  
|Amortization of prior service benefit       |  |                             | (264 | ) |      |   | (110 | )
|                                            |  |                             |      |   |      |   |      |  
|Net periodic benefit income                 |  | $                           | (197 | ) |      | $ | (67  | )
|                                            |  |                             |      |   |      |   |      |  

6. LONG-TERM DEBT AND REVOLVING CREDIT FACILITIES



|                                         |  |                     |         |  
|---------------------------------------- |  | ------------------- | ------- | -
|                                         |  | As ofMarch 31, 2009 |        
|                                         |  | ( in thousands)     |        
|Total Long-Term Debt:                    |  |                     |         |  
|Iowa Telecom senior secured term loans   |  | $                   | 477,778 |  
|EN-TEL Communications, LLC notes payable |  |                     | 12,147  |  
|                                         |  |                     |         |  
|Total Debt                               |  |                     | 489,925 |  
|Current maturities of long-term debt     |  |                     | (1,242  | )
|                                         |  |                     |         |  
|Long-Term Debt                           |  | $                   | 488,683 |  
|                                         |  |                     |         |  



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##### Table of Contents

Iowa Telecom Credit Facilities

As of March 31, 2009, the Company had outstanding $477.8 million of senior debt under the Iowa Telecom term loan facilities and had $33.0 million
drawn under its $100.0 million revolving credit facility. The details of the credit facilities are as follows:

The revolving credit
facility will expire in November 2011 and permits borrowings up to the aggregate principal amount of $100.0 million (less amounts reserved for letters of credit up to a maximum amount of $25.0 million). As of March 31, 2009, $33.0 million was
outstanding on the revolving credit facility and $67.0 million was available. Borrowings under the revolving credit facility bear interest per annum at either (a) the London inter-bank offered rate, or LIBOR, plus 2.0% or (b) a base rate
plus 1.0%. As of March 31, 2009, the Company had $33.0 million outstanding under LIBOR elections at an average all-in rate of 2.52%.

Term Loan B is a $400.0 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a LIBOR rate plus an applicable rate adder of 1.75% per annum or (b) a base rate election plus
an applicable rate adder of 0.75% per annum. The Company has entered into interest rate swap agreements to fix the rate on $350.0 million of Term Loan B as more fully described below. As of March 31, 2009, $350.0 million of Term Loan B was
based upon a LIBOR election effective through June 30, 2009 at an all-in rate of 2.99%. As of March 31, 2009, the interest rate on the remaining $50.0 million was based upon a LIBOR election effective through April 13, 2009 at an
all-in rate of 2.21%.

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

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

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

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

The Iowa Telecom credit facilities require us, subject to certain exceptions, to prepay outstanding loans under the credit facilities to the extent of
net cash proceeds received from the following: issuance of certain indebtedness; proceeds of certain asset sales; and casualty insurance proceeds. The credit facilities further require us, subject to certain exceptions, to make prepayments under the
credit facilities equal to 50% of any net increase in the following: distributable cash during a dividend suspension period, as defined;



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##### Table of Contents

and cumulative distributable cash, as defined, during the fiscal year less the cumulative reductions of revolving loans (adjusted to exclude the effects of
borrowings to fund permitted acquisitions) through such period, with reductions to the percentage to be determined based on improvements in certain credit ratios. As of March 31, 2009, no prepayment amounts were due under these provisions.

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

In addition, the financial covenants under the Iowa Telecom credit facilities specify,
among other things, certain fixed charge coverage ratios and a maximum total leverage ratio, as defined, all of which the Company was in compliance with as of March 31, 2009.

EN-TEL Communications, LLC Notes Payable

On July 18, 2008, the Company acquired Bishop
Communications Corporation (Bishop Communications). As part of the acquisition, the Company assumed $13.0 million of debt of EN-TEL Communications, LLC (EN-TEL), a majority owned subsidiary of Bishop Communications. The
assumed debt is represented by promissory notes payable to the Rural Telephone Finance Cooperative which have quarterly installments of principal and interest. The notes currently bear interest at an average all-in fixed rate of 7.20%. The notes
have a fixed interest rate for specific periods of time ranging from June of 2009 through December 2013 and will thereafter be either at a variable interest rate or renegotiated at a fixed rate at the end of the specified period. The promissory
notes mature in 2015 and 2018. Principal payments of $297,000 were made during the first quarter of 2009. The remaining scheduled payments are $923,000 in 2009, $1.3 million in 2010, $1.4 million in 2011, $1.5 million in 2012, $1.6 million in 2013,
and $5.3 million thereafter.

The notes are secured by the assets of EN-TEL, a majority owned subsidiary of Bishop Communications. The debt
agreements restrict dividends paid by EN-TEL and no amounts are currently available for dividends.

Interest Rate Swaps

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

7. STOCK INCENTIVE PLANS

2002 Stock Incentive Plan

The Iowa
Telecommunications, Inc. 2002 Stock Incentive Plan (the 2002 Incentive Plan) allows for the issuance of incentive stock options or nonqualified stock options. Under the 2002 Incentive Plan, options have been granted for the purchase of
2,227,714 shares, of which 1,031,795 were redeemed for cash in 2004 in conjunction with the Companys initial public offering, 937,456 have been exercised and 258,463 remained outstanding as of March 31, 2009. No new options will be
granted under the 2002 Incentive Plan. The term of each option did not exceed 10 years from the date of grant. Options granted to employees vested over 3 to 5 years from the date of the grant. All unvested options outstanding at the time of the
closing of the Companys initial public offering vested pursuant to the terms of the 2002 Incentive Plan. The exercise price for unexercised options is automatically decreased by the amount of dividends that would have been paid on the shares
issuable upon exercise.



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##### Table of Contents

During the three-month periods ended March 31, 2008 and 2009, the Company recorded $266,000 and
$104,000, respectively, of stock-based compensation expense to reflect the change in the fair value of the options due primarily to the reduction of the exercise price resulting from the declaration of cash dividends.

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



|                                          |  |                             |    |  |      |   
|----------------------------------------- |  | --------------------------- | -- |  | ---- | --
|                                          |  | Three Months EndedMarch 31, |   
|                                          |  | 2008                        |    |  | 2009 |   
|Weighted Average Expected Life (in years) |  | 1.7                         | yr |  | 0.7  | yr
|Risk free interest rate                   |  | 1.8                         | %  |  | 0.2  | % 
|Volatility                                |  | 30                          | %  |  | 40.5 | % 
|Dividend yield                            |  | 0                           | %  |  | 0    | % 

A summary of the status of options granted under the 2002 Incentive Plan as of March 31, 2008
and 2009, and the changes during the three-month periods then ended, is presented below:



|                                 |  |                                  |  |                                        |      |        |          |   |                                        |   |     
|-------------------------------- |  | -------------------------------- |  | -------------------------------------- | ---- | ------ | -------- | - | -------------------------------------- | - | ----
|                                 |  | Three Months EndedMarch 31, 2008 |  | Three Months EndedMarch 31, 2009      
|Fixed Options                    |  | Shares                           |  | WeightedAverageExercise Priceper Share |      | Shares |          |   | WeightedAverageExercise Priceper Share
|OUTSTANDING AT BEGINNING OF YEAR |  | 677,579                          |  | $                                      | 3.10 |        | 677,579  |   |                                        | $ | 1.48
|Granted                          |  |                                 |  |                                        |     |        |         |   |                                        |   |    
|Exercised                        |  |                                 |  |                                        |     |        | (419,116 | ) |                                        |   | 1.41
|                                 |  |                                  |  |                                        |      |        |          |   |                                        |   |     
|OUTSTANDING AT MARCH 31,         |  | 677,579                          |  | $                                      | 2.70 |        | 258,463  |   |                                        | $ | 1.21
|                                 |  |                                  |  |                                        |      |        |          |   |                                        |   |     

The following table summarizes information about stock options outstanding at March 31, 2009:



|                               |  |                     |  |                                                  |  |         |  |                                        |      |                                         |   |          
|------------------------------ |  | ------------------- |  | ------------------------------------------------ |  | ------- |  | -------------------------------------- | ---- | --------------------------------------- | - | ---------
|                               |  | Options Outstanding |  | Options Exercisable                             
|Exercise Price per Share Range |  | Number              |  | WeightedAverageRemainingContractualLife In Years |  | Number  |  | WeightedAverageExercise Priceper Share |      | WeightedAverageAggregateIntrinsic Value
|$0.51 to $1.00                 |  | 187,334             |  | 3.1                                              |  | 187,334 |  | $                                      | 0.90 |                                         | $ | 1,977,451
|$1.01 to $1.50                 |  | 55,934              |  | 3.1                                              |  | 55,934  |  | $                                      | 1.45 |                                         | $ | 559,850  
|$4.01 to $4.50                 |  | 15,195              |  | 4.8                                              |  | 15,195  |  | $                                      | 4.04 |                                         | $ | 112,759  

The weighted average exercise prices of options exercisable at March 31, 2009 reflect the
reductions required by the plan as a result of the declaration of cash dividends.

2005 Stock Incentive Plan

The Iowa Telecommunications Services, Inc. 2005 Stock Incentive Plan (the 2005 Incentive Plan) allows for the issuance of up to an aggregate
of 1.5 million shares of restricted or unrestricted stock, of which 933,800 shares of restricted stock, net of forfeitures and cancellations, have been awarded to various officers and employees of the Company, and 14,757 shares of unrestricted
stock have been issued to members of the Companys Board of Directors.



11



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##### Table of Contents

A summary of the status of the restricted shares awarded pursuant to the 2005 Incentive Plan as of
March 31, 2008 and 2009, and the changes during the three-month periods then ended, is presented below:



|                                 |  |                                  |     |                                  |                                     |       |        |         |     |                                     |   |      
|-------------------------------- |  | -------------------------------- | --- | -------------------------------- | ----------------------------------- | ----- | ------ | ------- | --- | ----------------------------------- | - | -----
|                                 |  | Three Months EndedMarch 31, 2008 |     | Three Months EndedMarch 31, 2009
|                                 |  | Shares                           |     |                                  | WeightedAverageGrant DateFair Value |       | Shares |         |     | WeightedAverageGrant DateFair Value
|OUTSTANDING AT BEGINNING OF YEAR |  | 378,475                          |     |                                  | $                                   | 19.64 |        | 471,150 |     |                                     | $ | 18.77
|Granted                          |  | 174,500                          | (1) |                                  |                                     | 16.73 |        | 299,000 | (2) |                                     |   | 13.77
|Vested                           |  |                                 |     |                                  |                                     |      |        |        |     |                                     |   |     
|Cancelled/Forfeited              |  |                                 |     |                                  |                                     |      |        |        |     |                                     |   |     
|                                 |  |                                  |     |                                  |                                     |       |        |         |     |                                     |   |      
|OUTSTANDING AT MARCH 31,         |  | 552,975                          |     |                                  | $                                   | 18.72 |        | 770,150 |     |                                     | $ | 16.83
|                                 |  |                                  |     |                                  |                                     |       |        |         |     |                                     |   |      



|(1) | Weighted average vesting period at grant date for shares granted is 61 months.
|--- | ------------------------------------------------------------------------------

|(2) | Weighted average vesting period at grant date for shares granted is 49 months.
|--- | ------------------------------------------------------------------------------

The Company recognizes compensation cost related to awards of restricted stock on a straight-line basis over the requisite service period for the entire
award. The Company recorded $524,000 and $704,000 of stock-based compensation expense during the three-month periods ended March 31, 2008 and 2009, respectively. The remaining amount to be charged to expense for the unvested awards over the
remaining service periods is $9.6 million. The Company also recorded $77,000 of expense during the three-month periods ended March 31, 2008 and 2009 related to the unrestricted shares issued to members of its Board of Directors.

8. DISCLOSURES ABOUT FAIR VALUE OF INTEREST RATE SWAP

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

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

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

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



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The fair values of the interest rate swaps have been calculated by discounting the future cash flows of
both the fixed rate and variable rate interest payments using discount rates appropriate with the consideration given to the Companys non-performance risk. The inputs used in determining the fair value fall within Level 2 of the fair value
hierarchy, as defined in SFAS No. 157, Fair Value Measurements (SFAS 157). See Note 10 for further information regarding the fair value measurement of the interest rate swaps.



|                             |  |                             |  |                        |        |                    |   |       
|---------------------------- |  | --------------------------- |  | ---------------------- | ------ | ------------------ | - | ------
|                             |  |                             |  | Fair Value            
|                             |  | Balance Sheet               |  | As ofDecember 31,2008  |        | As ofMarch 31,2009
|                             |  |                             |  | (dollars in thousands)
|Interest rate swap contracts |  | Other long-term liabilities |  | $                      | 22,155 |                    | $ | 22,215

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,requires
companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. In accordance with SFAS No. 133, the interest rate swaps held by the Company are designated and qualify as
cash flow hedges of fixed-rate borrowings. The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged
transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.



|                                  |  |                                                             |         |   |                                     |                             |                  |  |                 |  |                             |     |  |                  |        |      |  |              |      |   |      |   |  |   |      |     
|--------------------------------- |  | ----------------------------------------------------------- | ------- | - | ----------------------------------- | --------------------------- | ---------------- |  | --------------- |  | --------------------------- | --- |  | ---------------- | ------ | ---- |  | ------------ | ---- | - | ---- | - |  | - | ---- | ----
|Gain or (Loss) Recognized in OCI  |  | Gain or (Loss) Reclassified fromAccumulated OCI into Income |         |   | Gain or (Loss) Recognized in Income |                            
|                                  |  | Three Months EndedMarch 31,                                 |         |   |                                     | Three Months EndedMarch 31, |                  |  |                 |  | Three Months EndedMarch 31, |    
|                                  |  | 2008                                                        |         |   | 2009                                |                             | Income Statement |  | 2008            |  | 2009                        |     |  | Income Statement |        | 2008 |  |              | 2009 |  
|                                  |  | (dollars in thousands)                                      |         |   |                                     | (dollars in thousands)      |                  |  |                 |  | (dollars in thousands)      |    
|Other Comprehensive Income (loss) |  | $                                                           | (12,727 | ) |                                     | $                           | 50               |  | InterestExpense |  | $                           | 626 |  | $                | (2,331 | )    |  | OtherExpense |      | $ | (259 | ) |  | $ | (173 | )(1)



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

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

Sherburne Tele Systems, Inc. (Sherburne).On November 21, 2008, the Company announced a definitive agreement to acquire
substantially all of the assets of Sherburne Tele Systems, Inc. for a total purchase price of $80.6 million, subject to certain adjustments and regulatory approvals. The Company intends to fund the acquisition of Sherburne with the proceeds of $75.0
million of new term debt issued under existing credit facilities, borrowings on the revolving credit facility and cash on hand.

Sherburne
is a closely-held telecommunications company headquartered in Big Lake, Minnesota, less than 30 miles from the headquarters of Bishop Communications, which we acquired on July 18, 2008. As of March 31, 2009, Sherburne served 15,100
incumbent local exchange carrier access lines, 9,900 competitive local exchange carrier lines, 14,400 DSL high-speed Internet customers and 3,700 video customers, primarily in communities and rural areas adjacent to the Minnesota/St. Paul
Metropolitan Area. Sherburnes operations include its incumbent local exchange carrier services, marketed as Connections, Etc., and competitive local exchange carrier services provided through its wholly-owned subsidiary, Northstar Access.



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10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157,Fair Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

SFAS 157 establishes a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Interest Rate SwapsThese include the Companys interest rate swap derivative instruments. The fair values of the interest rate
swaps were determined based on the present value of expected future cash flows using discount rates appropriate with consideration given to the Companys non-performance risk utilizing inputs that are readily available in public markets or can
be derived from information available in publicly quoted markets. Therefore, the Company has categorized these swap contracts as Level 2. Deducted from the March 31, 2009, interest rate swap fair value calculation was a $1.5 million adjustment
in consideration of the Companys non-performance risk. The Companys non-performance risk is assessed based on the current trading discount of its Term Loan B debt as the swap agreements are secured by the same collateral. The fair value
of the interest rate swaps is recorded in the Other Long-Term Liabilities section of the Companys Consolidated Balance Sheets.

Cash
equivalents consist of funds invested in bank accounts and money market funds that have daily liquidity. Therefore, cash equivalents are categorized as Level 1. The following table presents fair value of the Companys cash equivalents and
interest rate swaps:



|                    |  |                                              |        |       |   |         |  |         |       |         |   |        |  |   |  
|------------------- |  | -------------------------------------------- | ------ | ----- | - | ------- |  | ------- | ----- | ------- | - | ------ |  | - | -
|                    |  | Fair Value Measurements as of March 31, 2009
|                    |  | CarryingAmount                               |        | Total |   | Level 1 |  | Level 2 |       | Level 3
|                    |  | (dollars in thousands)                      
|Cash equivalents    |  | $                                            | 7,435  |       | $ | 7,435   |  | $       | 7,435 |         | $ |       |  | $ | 
|Interest Rate Swaps |  | $                                            | 22,215 |       | $ | 22,215  |  | $       |      |         | $ | 22,215 |  | $ | 

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

11. BUSINESS ACQUISITIONS

Bishop Communications.On July 18, 2008, the Company acquired 100% of the outstanding stock of Bishop Communications, a provider of telecommunications, video, and high speed Internet services to
customers in portions of rural Minnesota. The acquisition of Bishop Communications expanded the Companys service area and customer base. The purchase price was $33.1 million in cash, net of cash received, and assumed debt of $13.0
million, subject to working capital adjustments. The transaction did not result in a tax basis step-up, as such, the goodwill acquired is not deductible for tax purposes.

The purchase price allocations for this acquisition are preliminary and subject to revision as more detailed analyses are completed and additional information on the fair value of acquired assets and liabilities is
developed. The preliminary allocation of the purchase price of Bishop Communication includes amortizable intangible assets consisting primarily of customer relationship intangibles which have a weighted average useful life of 11.6 years.

The results of operations for the acquired company are included in the Condensed Consolidated Statements of Income beginning on the acquisition date.



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

Information contained herein contains forward-looking statements which can be identified by the use of forward-looking terminology such as
believes, expects, may, will, should, intend, or anticipates or the negative thereof or variations thereon or comparable terminology, or by discussions of strategy.
No assurance can be given that the future results covered by the forward-looking statements will be achieved. Some of the matters set forth in the Risk Factors section of our Annual Report on Form 10-K for the year ended
December 31, 2008 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

Iowa Telecommunications Services, Inc. (Iowa Telecom) and its subsidiaries provide wireline local exchange telecommunications services to residential and business customers in rural Iowa, Minnesota and
Missouri. We currently operate 294 telephone exchanges serving 423 communities as the incumbent or historical local exchange carrier and are the sole telecommunications company providing wireline services in approximately 67% of these
communities. In addition, we provide service to residential and business customers throughout Iowa and portions of Minnesota as a competitive local exchange carrier. In total, we provide services to approximately 238,500 access lines.

Our core business is the provision of local telephone service to end users and network access to other telecommunications carriers for calls originated
or terminated on our network. In addition to these core activities, which generated 65% of our total revenues in the first three months of 2009, we provide long distance service, dial-up and DSL Internet access and other communications services. We
provide services as the incumbent local exchange carrier through Iowa Telecom and its wholly-owned subsidiaries: Lakedale Telephone Company (Lakedale Telephone) and Montezuma Mutual Telephone Company (Montezuma Telephone). As
part of our strategy of pursuing growth beyond our current service area, we compete for customers in Iowa in mostly adjacent markets through our competitive local exchange carrier subsidiaries Iowa Telecom Communications, Inc. (ITC) and
IT Communications, LLC (IT Communications). Additionally, EN-TEL Communications LLC (EN-TEL) and Lakedale Link, Inc., are competitive local exchange carriers that provide local and long distance services in Minnesota.
Together, ITC, IT Communications, EN-TEL and Lakedale Link, Inc. are referred to as the CLEC or our CLEC Operations.

Factors
Affecting Our Operating Performance

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



| |  |  | the effect on our revenues of declining numbers of access lines resulting from competition and other factors and our strategic response to this trend, which
includes efforts to introduce enhanced local services and additional services like 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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Access Line Trends

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

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



|                                                   |  |                 |  |        
|-------------------------------------------------- |  | --------------- |  | -------
|                                                   |  | As of March 31,
|                                                   |  | 2008            |  | 2009(3)
|Incumbent local exchange access lines(1)           |  | 210,300         |  | 206,100
|Competitive local exchange carrier access lines(2) |  | 26,700          |  | 32,400 
|                                                   |  |                 |  |        
|Total access lines                                 |  | 237,000         |  | 238,500
|                                                   |  |                 |  |        
|Long distance subscribers                          |  | 141,000         |  | 145,000
|Dial-up Internet subscribers                       |  | 20,800          |  | 15,100 
|DSL subscribers                                    |  | 65,800          |  | 78,200 
|Video subscribers(4)                               |  | 10,700          |  | 21,400 



|(1) | Includes lines subscribed by our incumbent local exchange
carrier retail customers and lines subscribed by our wholesale customers who are competing local exchange carriers. Wholesale access lines include: lines subscribed by our local exchange carrier competitors pursuant to interconnection
agreements on an unbundled network element basis, for which the competitive local exchange carrier pays us a monthly fee; lines that we provide to competitive local exchange carriers for resale to their subscribers, for which the competitive local
exchange carrier pays us a monthly fee equal to what we would charge our customers for local service less an agreed discount; and shared lines, for which a competitive local exchange carrier pays us a monthly fee to provide DSL service to its
customers. We had 2,800 wholesale lines subscribed at March 31, 2008 and 2,100 at March 31, 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(3) | Includes units acquired from Bishop Communications.
|--- | ---------------------------------------------------

|(4) | Includes subscribers served via our facilities as well as
subscribers of satellite service which we resell.
|--- | -----------------------------------------------------------------------------------------------------------

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

Competition. We currently face competition from other providers of local services in approximately 138 of the
423 communities our incumbent local exchange carriers serve. Of these 138 communities, we believe 109 communities have some voice service offered by Mediacoms telephony affiliates, MCC Telephony of Iowa, Inc. and MCC Telephony of Minnesota,
LCC. (MCC), which initiated service in most of these markets during the second quarter of 2007. Additionally, we believe that in approximately 40 of these communities, independent local exchange carriers operating in mostly adjacent
exchanges and municipal utilities have constructed networks to provide competitive local exchange carrier services to customers in our exchanges.



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

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

MCC is offering voice services through a business arrangement with Sprint Communications L.P. (Sprint). On June 23, 2006, we filed a
complaint against the Iowa Utilities Board and Sprint in the U.S. District Court for the Southern District of Iowa asking the court to rule that the Iowa Utilities Board acted unlawfully when it required us to enter into an interconnection agreement
with Sprint and asking the court to invalidate the agreement. On April 15, 2008, the court issued a ruling in favor of the Iowa Utilities Board and Sprint, therefore maintaining the status quo in which we are obligated to enter into an
interconnection agreement with Sprint. We appealed this decision to the U.S. Court of Appeals for the Eighth Circuit on May 14, 2008. The Eighth Circuit issued an opinion on April 28, 2009 affirming the lower courts decision (and,
ultimately, the Boards decision). We are currently reviewing the opinion and considering our next steps.

Notwithstanding the period
in which our complaint was under consideration, we have negotiated, mediated and litigated with Sprint and, at times, with MCC to resolve issues relating to interpretation and implementation of the interconnection agreement. On January 22,
2007, we filed a second complaint against the Iowa Utilities Board and Sprint in U.S. District Court asking the court to rule that the Iowa Utilities Board acted unlawfully when it interpreted the interconnection agreement to require Iowa Telecom to
provide certain services to Sprint, particularly in the manner requested by Sprint. Briefing on this complaint concluded on August 11, 2008. We cannot predict how or when this litigation will be resolved.

In addition to the disputes pending in federal district court and before the Iowa Utilities Board, we are also defending a complaint filed by MCC on
July 31, 2006, in the Iowa District Court for Polk County alleging that our refusal to accede to Sprints negotiation demands improperly interfered with MCCs contracts and prospective customer relationships. The state court complaint
seeks unspecified damages and costs and additional relief as warranted. This state court proceeding had been stayed pending the result of our first federal complaint. On September 9, 2008, the state court refused to lift the stay due to the
pending appeal of the federal district courts decision on the first complaint to the Eighth Circuit. The Eight Circuit issued their opinion on April 28, 2009. Although the stay is still in effect, we cannot predict how long it will
continue nor how or when this state court litigation will be resolved.

Business Acquisitions: We completed the purchase of Bishop
Communications on July 18, 2008. As of September 30, 2008, Bishop Communications provided telecommunications services to 11,600 access lines as the incumbent local exchange carrier, 4,600 access lines as a competitive local
exchange carrier, 9,700 long distance subscribers, and Internet access service to more than 6,600 subscribers.



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

Our Retail Local Rate and Pricing Structure

As
described under OverviewCompetition above, effective July 1, 2005, the rates for all of our Iowa retail local exchange service except for single line flat-rated business and residential service and EAS were deregulated.
Beginning July 1, 2005, monthly rates for single line services remaining under price regulation could be adjusted annually by one dollar for residential lines and two dollars for business lines, plus an inflation increment, up to a monthly rate
cap of $19.00 for residential lines and $38.00 for business lines. These rate caps did not, however, include charges for EAS. The remaining retail local exchange service rate regulation in our then-rate-regulated exchanges, with the arguable
exception of EAS, expired effective July 1, 2008. The Iowa Utilities Board had an opportunity to extend such remaining rate regulation until July 1, 2010, but, in a June 27, 2008 order, found that an extension of rate regulation was
not in the public interest.

Our Ability to Control Operating Expenses

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

Development of our Competitive Local Exchange Carrier Strategy

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

As of March 31, 2009, our CLEC served 32,400 access lines and accounted for 13.6% of Iowa Telecoms total access lines. We plan to maintain a
limited investment approach as we continue to grow our competitive local exchange carrier business.

Revenues

We derive our revenues from five sources:

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

Network Access Services. We receive revenues from charges established to compensate us for the origination, transport and termination of calls generated by the customers of long distance carriers and for calls
transported and terminated for the customers of wireless carriers. These include subscriber line charges imposed on end users, and switched and special access charges paid by carriers and others. We receive federally administered universal service
support, representing approximately 2% of our total revenue in the first three months of 2009, as a result of the interstate switched access support provisions of the FCCs CALLS Order to which the Company became subject in 2000. In addition,
Montezuma Telephone received high cost loop universal service support amounting to less than 1% of our revenue. Our incumbent local exchange carrier (Iowa Telecommunications, Inc.) and our independent incumbent local exchange carriers (Lakedale
Telephone and Montezuma Telephone) switched access charges are based on rates approved by applicable state regulatory agencies. Our incumbent local exchange carrier and our independent incumbent local



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##### Table of Contents

exchange carriers switched and special access charges for interstate and international services are based on rates approved by the FCC. The transport and
termination charges paid by wireless carriers to our incumbent local exchange carriers are specified in interconnection agreements negotiated with each individual wireless carrier.

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

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

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

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



|                           |  |                             |        |                                                                  |   |        |  |     |      |  |     |  
|-------------------------- |  | --------------------------- | ------ | ---------------------------------------------------------------- | - | ------ |  | --- | ---- |  | --- | -
|                           |  | Three Months EndedMarch 31, |        | % of Total Revenues andSales for the Three MonthsEnded March 31, |  
|                           |  | 2008                        |        | 2009                                                             |   | 2008   |  |     | 2009 | 
|                           |  | (dollars in thousands)      |        |                                                                  |   |        |  |    
|Local services             |  | $                           | 17,691 |                                                                  | $ | 18,085 |  | 29  | %    |  | 29  | %
|Network access services    |  |                             | 22,662 |                                                                  |   | 21,854 |  | 37  | %    |  | 36  | %
|Toll services              |  |                             | 5,870  |                                                                  |   | 5,566  |  | 10  | %    |  | 9   | %
|Data and internet services |  |                             | 8,078  |                                                                  |   | 9,655  |  | 13  | %    |  | 16  | %
|Other services and sales   |  |                             | 6,544  |                                                                  |   | 6,128  |  | 11  | %    |  | 10  | %
|                           |  |                             |        |                                                                  |   |        |  |     |      |  |     |  
|Total revenues and sales   |  | $                           | 60,845 |                                                                  | $ | 61,288 |  | 100 | %    |  | 100 | %
|                           |  |                             |        |                                                                  |   |        |  |     |      |  |     |  

Operating Expenses

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

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

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

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



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Results of Operations

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



|                                                                        |  |                             |   |  |      |  
|----------------------------------------------------------------------- |  | --------------------------- | - |  | ---- | -
|                                                                        |  | Three Months EndedMarch 31, |  
|                                                                        |  | 2008                        |   |  | 2009 |  
|Total revenues and sales                                                |  | 100                         | % |  | 100  | %
|Cost of services and sales (excluding expenses listed separately below) |  | 31                          | % |  | 33   | %
|Selling, general and administrative                                     |  | 17                          | % |  | 20   | %
|Depreciation and amortization                                           |  | 21                          | % |  | 23   | %
|                                                                        |  |                             |   |  |      |  
|Operating income                                                        |  | 31                          | % |  | 24   | %
|Total other expenses, net                                               |  | 12                          | % |  | 11   | %
|                                                                        |  |                             |   |  |      |  
|Income before income taxes                                              |  | 19                          | % |  | 13   | %
|Income taxes                                                            |  | 8                           | % |  | 6    | %
|                                                                        |  |                             |   |  |      |  
|Net income                                                              |  | 11                          | % |  | 7    | %
|                                                                        |  |                             |   |  |      |  

The results of operations for the three months ended March 31, 2009 include Bishop
Communications which was acquired July 18, 2008.

Three Months Ended March 31, 2009 and 2008

Revenues and Sales

The table below sets forth the
components of our revenues and sales for the three months ended March 31, 2009 compared to the same period in 2008:



|                           |  |                             |        |        |   |        |  |   |         |   |  |      |  
|-------------------------- |  | --------------------------- | ------ | ------ | - | ------ |  | - | ------- | - |  | ---- | -
|                           |  | Three Months EndedMarch 31, |        | Change |  
|                           |  | 2008                        |        | 2009   |   | Amount |  |   | Percent |  
|                           |  | (dollars in thousands)      |       
|Revenues and Sales:        |  |                             |        |        |   |        |  |   |         |   |  |      |  
|Local services             |  | $                           | 17,691 |        | $ | 18,085 |  | $ | 394     |   |  | 2.2  | %
|Network access services    |  |                             | 22,662 |        |   | 21,854 |  |   | (808    | ) |  | -3.6 | %
|Toll services              |  |                             | 5,870  |        |   | 5,566  |  |   | (304    | ) |  | -5.2 | %
|Data and internet services |  |                             | 8,078  |        |   | 9,655  |  |   | 1,577   |   |  | 19.5 | %
|Other services and sales   |  |                             | 6,544  |        |   | 6,128  |  |   | (416    | ) |  | -6.4 | %
|                           |  |                             |        |        |   |        |  |   |         |   |  |      |  
|Total revenues and sales   |  | $                           | 60,845 |        | $ | 61,288 |  | $ | 443     |   |  | 0.7  | %
|                           |  |                             |        |        |   |        |  |   |         |   |  |      |  

Local Services. Local services revenues increased $394,000, or 2.2%, for the three months
ended March 31, 2009 as compared to the same period in 2008. The increase was primarily due to higher access lines resulting from the acquisition of Bishop Communications. From March 31, 2008 to March 31, 2009, total access lines
increased by 1,500 including the loss of 4,200 incumbent local exchange carrier lines offset by an increase in lines served by our competitive local exchange carriers of 5,700. Excluding the lines acquired in the Bishop Communications transaction,
incumbent local exchange carrier lines decreased by 15,400, while lines served by our competitive local exchange carriers increased by 1,300 lines from March 31, 2008 to March 31, 2009. The revenue from higher access lines was partially
offset by lower revenue per line.

Network Access Services. Our network access services revenues decreased $808,000, or 3.6%, for
the three months ended March 31, 2009 as compared to the same period in 2008. The decrease was primarily due to lower minutes of use per access line and a decrease in the switched access rates for the CLEC operation in Iowa and Montezuma
Telephone partially offset by the acquisition of Bishop Communications.

Toll Services. Our toll services revenues decreased by
$304,000, or 5.2%, for the three months ended March 31, 2009 as compared to the same period in 2008. The decrease in revenue was due to the decrease in minutes of use partially offset by the acquisition of Bishop Communications.



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Data and Internet Services. Data and Internet services revenues increased by $1.6 million, or
19.5%, for the three months ended March 31, 2009 as compared to the same period in 2008. The increase was primarily a result of growth in revenue from our existing DSL Internet access service of $1.4 million combined with the acquisition of
Bishop Communications. This increase was partially offset by decreases in dial-up Internet revenue of $298,000. We believe the decline in dial-up Internet access service customers primarily was the result of customer migration to broadband products
such as our DSL service.

Other Services and Sales. Other services and sales revenues decreased by $416,000, or 6.4%, for the three
months ended March 31, 2009 as compared to the same period in 2008. The revenue decrease was primarily due to lower CPE sales partially offset by the acquisition of Bishop Communications.

Operating Costs and Expenses

The table below sets
forth the components of our operating costs and expenses for the three months ended March 31, 2009 compared to the same period in 2008:



|                                                                       |  |                             |        |        |   |        |  |         |       |  |      |  
|---------------------------------------------------------------------- |  | --------------------------- | ------ | ------ | - | ------ |  | ------- | ----- |  | ---- | -
|                                                                       |  | Three Months EndedMarch 31, |        | Change |  
|                                                                       |  | 2008                        |        | 2009   |   | Amount |  | Percent |      
|                                                                       |  | (dollars in thousands)      |       
|Operating Costs and Expenses:                                          |  |                             |        |        |   |        |  |         |       |  |      |  
|Cost of services and sales (exclusive of items shown separately below) |  | $                           | 18,613 |        | $ | 20,234 |  | $       | 1,621 |  | 8.7  | %
|Selling, general and administrative                                    |  |                             | 10,115 |        |   | 12,202 |  |         | 2,087 |  | 20.6 | %
|Depreciation and amortization                                          |  |                             | 12,605 |        |   | 13,990 |  |         | 1,385 |  | 11.0 | %
|                                                                       |  |                             |        |        |   |        |  |         |       |  |      |  
|Total operating costs and expenses                                     |  | $                           | 41,333 |        | $ | 46,426 |  | $       | 5,093 |  | 12.3 | %
|                                                                       |  |                             |        |        |   |        |  |         |       |  |      |  

Cost of Services and Sales. Cost of services and sales increased $1.6 million, or 8.7%, for
the three months ended March 31, 2009 as compared to the same period in 2008. The increase was principally due to operating costs at Bishop Communications.

Selling, General and Administrative. Selling, general and administrative costs increased $2.1 million, or 20.6%, for the three months ended March 31, 2009 as compared to the same period in 2008. The
increase was primarily a result of $1.2 million of acquisition related costs that were charged to expense in accordance with SFAS No. 141(R) which was adopted on January 1, 2009 and additional operating expenses from our acquisition of
Bishop Communications.

Depreciation and Amortization. Depreciation and amortization increased $1.4 million, or 11.0%, for the three
months ended March 31, 2009 as compared to the same period in 2008. The increase was primarily due to $1.2 million of depreciation and amortization expense at Bishop Communications and higher plant balances.

Other Income (Expense)

The table below sets forth
the components of other income (expense) for the three months ended March 31, 2009 compared to the same period in 2008:



|                             |  |                             |        |   |        |   |        |        |  |         |     |  |       |  
|---------------------------- |  | --------------------------- | ------ | - | ------ | - | ------ | ------ |  | ------- | --- |  | ----- | -
|                             |  | Three Months EndedMarch 31, |        |   | Change |  
|                             |  | 2008                        |        |   | 2009   |   |        | Amount |  | Percent |    
|                             |  | (dollars in thousands)      |       
|Other Income (Expense):      |  |                             |        |   |        |   |        |        |  |         |     |  |       |  
|Interest and dividend income |  | $                           | 378    |   |        | $ | 873    |        |  | $       | 495 |  | 131.0 | %
|Interest expense             |  |                             | (7,698 | ) |        |   | (7,596 | )      |  |         | 102 |  | -1.3  | %
|Other, net                   |  |                             | (259   | ) |        |   | (159   | )      |  |         | 100 |  | -38.6 | %
|                             |  |                             |        |   |        |   |        |        |  |         |     |  |       |  
|Total other expense, net     |  | $                           | (7,579 | ) |        | $ | (6,882 | )      |  | $       | 697 |  | -9.2  | %
|                             |  |                             |        |   |        |   |        |        |  |         |     |  |       |  

Interest and Dividend Income. Interest and dividend income increased $495,000 for the three
months ended March 31, 2009 as compared to the same period in 2008. The increase was due to higher patronage income in 2009 primarily as a result of higher holdings in our Term B debt by a bank cooperative.



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Interest Expense. Interest expense was $7.7 and $7.6 million for the three months ended
March 31, 2008 and 2009, respectively. Interest expense remained steady year over year due to lower interest rates, which offset a higher average balance on the revolving line of credit in 2009 and the debt of EN-TEL.

Other, Net. Other, net was net expense of $159,000 resulting principally from the ineffectiveness of an interest rate swap agreement during the
three months ended March 31, 2009. The $259,000 of expense in the same period in 2008 also related to the ineffective portion of our interest rate swap agreements.

Income Tax Expense

Income tax expense decreased by $1.5 million to $3.5 million for the three months
ended March 31, 2009 as compared to $5.0 million for the same period in 2008 due to lower income before taxes. Income tax expense is being booked at an estimated rate of 43%.

During the three months ended March 31, 2008 and 2009, cash income taxes paid were $4,000 and $1,000, respectively, and relate primarily to payments
of alternative minimum tax (AMT).

Liquidity and Capital Resources

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

The table below reflects the dividends
declared or paid by the Company during 2008 and 2009:



|                   |  |                    |       |             |                    |              |                 
|------------------ |  | ------------------ | ----- | ----------- | ------------------ | ------------ | ----------------
|Date Declared      |  | Dividend Per Share |       | Record Date |                    | Payment Date
|December 14, 2007  |  | $                  | 0.405 |             | December 31, 2007  |              | January 15, 2008
|March 14, 2008     |  | $                  | 0.405 |             | March 31, 2008     |              | April 15, 2008  
|June 12, 2008      |  | $                  | 0.405 |             | June 30, 2008      |              | July 15, 2008   
|September 15, 2008 |  | $                  | 0.405 |             | September 30, 2008 |              | October 15, 2008
|December 15, 2008  |  | $                  | 0.405 |             | December 31, 2008  |              | January 15, 2009
|March 16, 2009     |  | $                  | 0.405 |             | March 31, 2009     |              | April 15, 2009  

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

We intend to fund our operations, interest expense, principal payments, capital expenditures, working capital requirements and dividend payments on our
common stock with cash from operations. For the three months ended March 31, 2008 and 2009, cash provided by operating activities was $19.2 million and $17.5 million, respectfully.

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

On November 21, 2008, the Company announced a definitive agreement
to acquire substantially all of the assets of Sherburne for a total purchase price of $ 80.6 million, subject to certain adjustments and regulatory approvals. Sherburne is a closely held telecommunications company headquartered in Big Lake,
Minnesota, less than 30 miles from the headquarters of Bishop Communications, which we acquired on July 18, 2008. The Company intends to fund the acquisition of Sherburne with the proceeds of $75.0 million of new term debt issued under our
existing credit facilities, borrowings on our revolving credit facility and cash on hand. The new term debt is expected to bear interest per annum at a LIBOR rate plus 2.0% and will mature in November 2011. The Company intends to close the
transaction by the middle of the year.



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Our ability to service our indebtedness will depend on our ability to generate cash in the future. We are
not required to make any scheduled principal payments on Term Loans B, C and D, which will mature in November 2011. However, we may be required to make annual mandatory prepayments under these credit facilities with a portion of our available cash.
We will need to refinance all or a portion of our indebtedness on or before maturity in 2011. Debt issued by EN-TEL, of approximately $12.1 million, will have principal payments of $923,000 in 2009, $1.3 million in 2010, $1.4 million in 2011, $1.5
million in 2012, $1.6 million in 2013, and $5.3 million thereafter.

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

We have historically funded our operations and capital expenditure
requirements primarily with cash from operations and our revolving line of credit. The following table summarizes our Short-Term Liquidity and Adjusted Total Debt, as defined in our credit agreement, as of December 31, 2008 and March 31,
2009:



|                                       |  |                        |         |   |               |   |         |  
|-------------------------------------- |  | ---------------------- | ------- | - | ------------- | - | ------- | -
|                                       |  | As of                  |        
|                                       |  | December 31,2008       |         |   | March 31,2009 |  
|                                       |  | (dollars in thousands) |        
|Short-Term Liquidity:                  |  |                        |         |   |               |   |         |  
|Current assets                         |  | $                      | 42,020  |   |               | $ | 36,817  |  
|Current liabilities                    |  |                        | (92,280 | ) |               |   | (79,301 | )
|                                       |  |                        |         |   |               |   |         |  
|Net working capital deficit            |  | $                      | (50,260 | ) |               | $ | (42,484 | )
|                                       |  |                        |         |   |               |   |         |  
|Cash and cash equivalents              |  | $                      | 11,605  |   |               | $ | 6,715   |  
|Available on revolving credit facility |  | $                      | 61,000  |   |               | $ | 67,000  |  
|Adjusted Total Debt:                   |  |                        |         |   |               |   |         |  
|Long-term debt                         |  | $                      | 489,003 |   |               | $ | 488,683 |  
|Current maturities of long-term debt   |  |                        | 1,219   |   |               |   | 1,242   |  
|Revolving credit facility              |  |                        | 39,000  |   |               |   | 33,000  |  
|                                       |  |                        |         |   |               |   |         |  
|Total debt                             |  |                        | 529,222 |   |               |   | 522,925 |  
|Minus:                                 |  |                        |         |   |               |   |         |  
|RTFC Capital Certificates              |  |                        | (7,778  | ) |               |   | (7,778  | )
|Cash and cash equivalents              |  |                        | (11,605 | ) |               |   | (6,715  | )
|                                       |  |                        |         |   |               |   |         |  
|Adjusted Total Debt                    |  | $                      | 509,839 |   |               | $ | 508,432 |  
|                                       |  |                        |         |   |               |   |         |  

The change in net working capital deficit from December 31, 2008 to March 31, 2009 is
primarily due to the cash flow from operations. The reductions in current assets and current liabilities are mostly due to the use of cash and cash equivalents to reduce the outstanding balance on the revolving credit facility and property taxes.



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The following table summarizes our Adjusted EBITDA, as defined in our credit agreement, and reconciles
such Adjusted EBITDA to net income (which we believe is the most directly comparable GAAP financial measure to Adjusted EBITDA) for the three month periods ended March 31, 2008 and 2009:



|                                                         |  |                             |        |   |      |   |        |  
|-------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                         |  | Three Months EndedMarch 31, |       
|                                                         |  | 2008                        |        |   | 2009 |  
|                                                         |  | (dollars in thousands)      |       
|Adjusted EBITDA:                                         |  |                             |        |   |      |   |        |  
|Net income                                               |  | $                           | 6,957  |   |      | $ | 4,509  |  
|Income tax expense                                       |  |                             | 4,976  |   |      |   | 3,471  |  
|Interest expense                                         |  |                             | 7,698  |   |      |   | 7,596  |  
|Depreciation and amortization                            |  |                             | 12,605 |   |      |   | 13,990 |  
|Unrealized (gains) losses on financial derivatives       |  |                             | 259    |   |      |   | 173    |  
|Non-cash stock-based compensation expense                |  |                             | 866    |   |      |   | 885    |  
|Extraordinary or unusual (gains) losses                  |  |                             |       |   |      |   |       |  
|Non-cash portion of RTFC Capital Allocation              |  |                             | (102   | ) |      |   | (337   | )
|Other non-cash losses (gains)                            |  |                             |       |   |      |   |       |  
|Loss (gain) on disposal of assets not in ordinary course |  |                             |       |   |      |   |       |  
|Transaction costs                                        |  |                             |       |   |      |   | 1,164  |  
|                                                         |  |                             |        |   |      |   |        |  
|Adjusted EBITDA                                          |  | $                           | 33,259 |   |      | $ | 31,451 |  
|                                                         |  |                             |        |   |      |   |        |  

The following table summarizes our sources and uses of cash for the three months ended
March 31, 2008 and 2009:



|                             |  |                             |         |   |      |   |         |  
|---------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                             |  | Three Months EndedMarch 31, |        
|Description                  |  | 2008                        |         |   | 2009 |  
|                             |  | (dollars in thousands)      |        
|Net Cash Provided (Used) By: |  |                             |         |   |      |   |         |  
|Operating activities         |  | $                           | 19,193  |   |      | $ | 17,523  |  
|Investing activities         |  | $                           | (7,764  | ) |      | $ | (3,951  | )
|Financing activities         |  | $                           | (27,887 | ) |      | $ | (18,462 | )

Cash Provided by Operating Activities

Net cash provided by operating activities of $17.5 million for the three months ended March 31, 2009 decreased $1.7 million from 2008.

Cash Used in Investing Activities

The table below
sets forth the components of cash used in investing activities for the three months ended March 31, 2008 and 2009:



|                                            |  |                             |       |      |   |      
|------------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                            |  | Three Months EndedMarch 31,
|                                            |  | 2008                        |       | 2009
|                                            |  | (dollars in thousands)     
|Network and support assets                  |  | $                           | 4,127 |      | $ | 2,809
|Other                                       |  |                             | 1,731 |      |   | 818  
|                                            |  |                             |       |      |   |      
|Total capital expenditures                  |  |                             | 5,858 |      |   | 3,627
|Business acquisitions, net of cash acquired |  |                             |      |      |   | 324  
|Deposit for wireless licenses               |  |                             | 1,906 |      |   |     
|                                            |  |                             |       |      |   |      
|Total                                       |  | $                           | 7,764 |      | $ | 3,951
|                                            |  |                             |       |      |   |      

We expect that total capital expenditures, excluding those associated with the Sherburne
acquisition, will be between approximately $25 million and $27 million in fiscal 2009. We expect to fund all of these capital expenditures through cash generated by our operations. Our capital expenditures can fluctuate from quarter to quarter, and
are impacted to some extent by factors beyond our control, such as customer demand, the level of construction activity in our region, and weather.



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During the first quarter of 2008, we participated in the FCCs auction of 700 MHz Band licenses
(Auction No. 73) after depositing $1.9 million with the FCC. We were the high bidder on three Cellular Market Area licenses in the 704-710 MHz, and 734-740 MHz bands. We submitted the balance of our $5.9 million total winning bids on
April 17, 2008. The FCC issued the licenses during the second quarter of 2008. We currently hold 15 FCC Advanced Wireless Service licenses and hold three 700 MHz licenses in Iowa. Our ownership of these licenses subjects us to FCC regulation of
the wireless services we may choose to provide and the technical operating characteristics of the network equipment we may utilize. In addition, our right to renew these licenses depends on our compliance with build-out requirements promulgated by
the FCC. For the 700 MHz licenses, we must begin meeting such requirements in stages prior to the expiration of the initial 10-year license term, although these obligations do not apply until the current holders of the spectrum (television
broadcasters that continue to use such spectrum for their digital broadcasts while they continue analog broadcasting) have vacated the spectrum. For our Advanced Wireless Service licenses, we must meet the FCCs build-out requirements by the
end of such licenses 15-year initial term. We cannot predict changes that may occur in the FCCs regulation of our Advanced Wireless Services or 700 MHz licenses, the network we may build, or the services we may provide over the period of
time we may hold the licenses.

Cash Used in Financing Activities

For the three months ended March 31, 2008 and 2009, net cash used in financing activities was $27.9 million and $18.5 million, respectively. The decrease in net cash used in financing activities of $9.4 million
was primarily the result of lower level of payments related to the revolving credit facility.

Long-Term Debt and Revolving Credit Facilities



|                                         |  |                        |         |  
|---------------------------------------- |  | ---------------------- | ------- | -
|                                         |  | As ofMarch 31, 2009    |        
|                                         |  | (dollars in thousands) |        
|Total Long-Term Debt:                    |  |                        |         |  
|Iowa Telecom senior secured term loans   |  | $                      | 477,778 |  
|EN-TEL Communications, LLC notes payable |  |                        | 12,147  |  
|                                         |  |                        |         |  
|Total Debt                               |  |                        | 489,925 |  
|Current Maturities of long-term debt     |  |                        | (1,242  | )
|                                         |  |                        |         |  
|Long-Term Debt                           |  | $                      | 488,683 |  
|                                         |  |                        |         |  

Iowa Telecom Credit Facilities

As of March 31, 2009, we had outstanding $477.8 million of senior debt under the Iowa Telecom term loan facilities, and had $33.0 million drawn under
our $100.0 million revolving credit facility. The details of the credit facilities are as follows:

The revolving credit facility will
expire in November 2011 and permits borrowings up to the aggregate principal amount of $100.0 million (less amounts reserved for letters of credit up to a maximum amount of $25.0 million). As of March 31, 2009, $33.0 million was outstanding on
the revolving credit facility and $67.0 million was available. Borrowings under our revolving credit facility bear interest per annum at either (a) the London inter-bank offered rate, or LIBOR, plus 2.0% or (b) a base rate plus 1.0%. As of
March 31, 2009, we had $33.0 million outstanding under LIBOR elections at an average all-in rate of 2.52%.

Term Loan B is a $400.0
million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a LIBOR rate plus an applicable rate adder of 1.75% per annum or (b) a base rate election plus an applicable rate adder of
0.75% per annum. As of March 31, 2009, $350.0 million was outstanding under Term Loan B based upon a LIBOR election effective through June 30, 2009 at an all-in rate of 2.99%. We have entered into interest rate swap agreements to fix
the rate on $350.0 million of Term Loan B as more fully described below. As of March 31, 2009, the interest rate on the remaining $50.0 million was based upon a LIBOR election effective through April 13, 2009 at an all-in rate of 2.21%.



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##### Table of Contents

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

Term Loan D is a $7.8 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. Effective
August 1, 2007, we elected a new all-in fixed interest rate of 6.95% through June 2011 on Term Loan D. Upon the expiration of the fixed interest rate period, the term loan will convert to the Rural Telephone Finance Cooperative 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 (SCCs) of the Rural Telephone Finance Cooperative. SCCs are non-interest bearing but, as a member of the Rural Telephone Finance Cooperative, we share proportionately in
the institutions net earnings. The Rural Telephone Finance Cooperative will redeem the SCCs 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. The credit facilities are guaranteed by all of our wholly-owned 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 Iowa Telecom 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.

The Iowa Telecom credit facilities
require us, subject to certain exceptions, to prepay outstanding loans under the credit facilities to the extent of net cash proceeds received from the following: issuance of certain indebtedness; proceeds of certain asset sales; and casualty
insurance proceeds. The credit facilities further require us, subject to certain exceptions, to make prepayments under the credit facilities equal to 50% of any net increase in the following: distributable cash during a dividend suspension period,
as defined; and cumulative distributable cash, as defined, during the fiscal year less the cumulative reductions of revolving loans (adjusted to exclude the effects of borrowings to fund permitted acquisitions) through such period, with reductions
to the percentage to be determined based on improvements in certain credit ratios. As of March 31, 2009, no prepayment amounts were due under these provisions.

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

In addition, the financial covenants under the Iowa Telecom credit facilities specify, among other things, certain fixed charge coverage ratios and a
maximum total leverage ratio, as defined, all of which we were in compliance with as of March 31, 2009.



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##### Table of Contents

EN-TEL Communications, LLC Notes Payable

On July 18, 2008, the Company acquired Bishop Communications Corporation (Bishop Communications). As part of the acquisition, the Company
assumed debt of $13.0 million. The assumed debt is represented by promissory notes payable to the Rural Telephone Finance Cooperative which have quarterly installments of principal and interest. The notes currently bear interest at an average all-in
fixed rate of 7.20%. The notes have a fixed interest rate for specific periods of time ranging from June 2009 through December 2013 and will thereafter be either at a variable interest rate or renegotiated at a fixed rate at the end of the specified
period. The promissory notes mature in 2015 and 2018. Principal payments of $297,000 were made during the first quarter of 2009. The remaining scheduled payments are $923,000 in 2009, $1.3 million in 2010, $1.4 million in 2011, $1.5 million in 2012
and $7.0 million thereafter.

The notes are secured by the assets of EN-TEL, a majority-owned subsidiary of Bishop Communications. The debt
agreements restrict dividends paid by EN-TEL and no amounts are currently available for dividends.

Interest Rate Swaps

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

Other Items

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

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



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round of testimony on March 5, 2009, we estimated that the potential annual effect of Verizons complaint on the incumbent local exchange carrier
operations of Iowa Telecommunications Services, Inc. was $16 million based on current levels of access service demand. Following further rounds of testimony by Verizon and Iowa Telecom and Frontier, the final round of testimony will be filed by
Verizon on June 29, 2009, with a hearing to be held starting July 13, 2009. We cannot predict when this proceeding will conclude and what the outcome may be.

On September 12, 2008, the Iowa Utilities Board issued an order commencing an inquiry into whether the Board should create an Iowa universal service fund (USF). At this point, the Board is seeking
comment on preliminary issues, such as how it should determine whether an Iowa USF is needed, although the Board is also inquiring into certain broad policy and implementation issues assuming that an Iowa USF will be established. Comments were due
October 27, 2008. The Board held an initial informal workshop on March 25, 2009 to discuss issues. This workshop may be followed by other workshops and/or an order commencing rulemaking. At this time, the Board has yet to state formally
whether its Iowa USF inquiry is tied to potential reductions in intrastate access charges. We cannot predict whether the Board will establish a rulemaking as a result of its pending inquiry and, if assuming it does, the result of such rulemaking or
its potential impact on our operations.

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

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

Obligations and Commitments

Our ongoing capital
commitments include capital expenditures, debt service requirements and acquisition commitments. For the three months ended March 31, 2009, capital expenditures were $4.0 million; see Liquidity and Capital ResourcesCash Used
in Investing Activities.

The following table sets forth our contractual obligations as of March 31, 2009, together with cash
payments due in each period indicated:



|                                        |  |                        |         |                 |   |            |  |            |         |               |   |       |  |   |      
|--------------------------------------- |  | ---------------------- | ------- | --------------- | - | ---------- |  | ---------- | ------- | ------------- | - | ----- |  | - | -----
|                                        |  | Payments Due by Period
|Obligation                              |  | Total                  |         | Apr. Dec. 2009 |   | 2010 2011 |  | 2012 2013 |         | 2014and after
|                                        |  | (dollars in thousands)
|Current Debt:                           |  |                        |         |                 |   |            |  |            |         |               |   |       |  |   |      
|Revolving credit facility(1)            |  | $                      | 33,000  |                 | $ |           |  | $          | 33,000  |               | $ |      |  | $ |     
|Current Maturities of long term debt    |  |                        | 1,242   |                 |   | 923        |  |            | 319     |               |   |      |  |   |     
|Interest payments on current maturities |  |                        |        |                 |   |           |  |            |        |               |   |      |  |   |     
|Long-Term Debt:                         |  |                        |         |                 |   |            |  |            |         |               |   |       |  |   |      
|Senior debt payments                    |  |                        | 477,778 |                 |   |           |  |            | 477,778 |               |   |      |  |   |     
|Interest payments on senior debt(2)     |  |                        | 66,536  |                 |   | 19,471     |  |            | 47,065  |               |   |      |  |   |     
|EN-TEL debt payments                    |  |                        | 10,905  |                 |   |           |  |            | 2,783   |               |   | 3,235 |  |   | 4,887
|Operating Lease Payments                |  |                        | 921     |                 |   | 211        |  |            | 294     |               |   | 230   |  |   | 186  
|                                        |  |                        |         |                 |   |            |  |            |         |               |   |       |  |   |      
|Total Contractual Obligations(3)        |  | $                      | 590,382 |                 | $ | 20,605     |  | $          | 561,239 |               | $ | 3,465 |  | $ | 5,073
|                                        |  |                        |         |                 |   |            |  |            |         |               |   |       |  |   |      



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



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

|(3) | Excludes commitments for Sherburne of $80.6 million, subject to certain future adjustments and regulatory approvals.
|--- | --------------------------------------------------------------------------------------------------------------------

As of March 31, 2009, 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 twelve months.
However, our actual cash needs and the availability of required funding may differ from our expectations and estimates, and those differences could be material. Our future capital requirements will depend on many factors, including, among others,
the demand for our services in our existing markets, regulatory, technological and competitive developments, and the level of construction activity in our region and the impact of weather.

Critical Accounting Policies

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

Impairment of Long-Lived Assets (Including Property, Plant and Equipment), Goodwill and
Identifiable Intangible Assets. We reduce the carrying amounts of long-lived assets, goodwill and identifiable intangible assets to 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 perform an impairment review of goodwill and
indefinite lived intangible assets annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount as required by Statement of Financial
Accounting Standards (SFAS) No. 142,Goodwill and Other Intangible Assets. We performed an annual impairment review of goodwill and indefinite lived intangible assets as of August 31, 2008 primarily using discounted cash
flow and market value of debt methodologies. No impairment of goodwill or other long lived assets resulted from the annual valuation.

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

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

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



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As of December 31, 2008, our unused tax net operating loss carry forwards were $149.0 million, and
will expire between 2021 and 2024. Additionally, the Company expects to be able to continue taking deductions related to the amortization of intangibles in excess of the amount recorded for book purposes in the amount of approximately $41 million
per year through June 2015. Based upon the evidence available as of March 31, 2009, the combination of the continued generation of taxable income from operations and reversing temporary differences will, more likely than not, be sufficient to
utilize the entire deferred tax asset. As such, we have determined that no valuation allowance was required for our deferred tax assets.

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

The swap agreements are accounted for in accordance with Statement of Financial Accounting Standard SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,and qualify for cash flow
hedge accounting of a variable-rate debt. In accordance with this standard, all changes in fair market value of the swap instruments attributable to hedge ineffectiveness are reported currently in earnings and are recorded in the Other Income
(Expense) section of the Companys Consolidated Statements of Income. Changes in fair market value of the swap instruments attributable to hedge effectiveness are recorded, net of income tax effects, in the Accumulated Other Comprehensive
Income section of the Companys Consolidated Statements of Stockholders Equity and Comprehensive Income.

In the event that the
swap agreements no longer qualify for cash flow hedge accounting treatment, all changes in fair market value would be reported currently in earnings and would be recorded in the Other Income (Expense) section of the Companys Consolidated
Statements of Income. Additionally, the net gain or loss remaining in accumulated other comprehensive income would be reclassified into earnings over the remainder of the term of the swap agreements. For the period ended March 31, 2009, the
Company would have recognized in earnings a loss of $60,000 had the interest rate swaps ceased to qualify for hedge accounting.

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

Off-Balance Sheet Risk and Concentration of Credit Risk

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

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

We place our cash and temporary cash
investments with high credit quality financial institutions. We also periodically evaluate the credit worthiness of the institutions with which we invest. We have entered into interest rate swap agreements to adjust the interest rate profile of our
debt obligations and to achieve a targeted mix of floating and fixed rate debt. The guarantor of one of the floating rate payers under the interest rate swap agreements declared bankruptcy during the third quarter of 2008 resulting in a default of
the agreement. In accordance with our agreement, we elected to terminate the agreement and entered into a new interest rate swap agreement for the same notional amount and approximate rate with another party. The floating rate payers under our
current interest rate swap agreements are nationally recognized counterparties and are believed to be of strong credit. While we may be exposed to losses due to non-performance of the counterparties or the calculation agents, we consider the risk
remote and do not expect the settlement of these transactions to have a material adverse effect on our financial condition or results of operations.



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New Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 160,Noncontrolling Interests in Consolidated Financial
Statements (SFAS 160), an amendment of Accounting Review Bulletin No. 51. SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
SFAS 160 clarifies that changes in a parents ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment on the deconsolidation date. SFAS 160 also includes expanded
disclosure requirements regarding the interest of the parent and its non-controlling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Adoption of SFAS 160
did not have a material impact on the Companys financial position, results of operations and cash flows.

In December 2007, the FASB
issued SFAS No. 141(R),Business Combinations (SFAS 141(R)). SFAS 141(R) requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with
limited exceptions, and also includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. SFAS 141(R) requires acquisition related costs to be expensed as incurred. During the first quarter of 2009, the Company expensed acquisition related costs of $868,000 that had been deferred pursuant to
SFAS No. 141 (SFAS 141) on acquisitions that did not close prior to the adoption date of SFAS 141(R) on January 1, 2009. Other than expensing acquisition costs deferred pursuant to SFAS 141 as discussed above, the adoption of
SFAS 141(R) did not have a material impact on the Companys financial position, results of operations and cash flows.

In March 2008,
the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities (SFAS 161)  an amendment of FASB Statement No. 133. The new standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entitys financial condition, financial performance and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008. Adoption of SFAS 161 impacted disclosures only and did not have an impact on the Companys consolidated financial condition, results of operations
and cash flows. See footnote 8 to the Condensed Consolidated Financial Statements for expanded disclosures related to the adoption of SFAS 161.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities(EITF 03-6-1). Under EITF 03-6-1, unvested
share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share (EPS) pursuant to the two-class method. The
two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. Restricted stock granted
to employees under the Companys 2005 Stock Incentive Plan are considered participating securities as they receive non-forfeitable dividend equivalents at the same rate as common stock. Adoption of EITF 03-6-1 effective January 1, 2009,
only impacted the EPS calculation and did not have an impact on the Companys consolidated financial condition, results of operations or cash flows. EITF 03-6-1 was adopted via retroactive application for the quarter ended March 31, 2008,
resulting in no change to basic EPS and a decrease to diluted EPS of $0.01 to $0.21.

In December 2008, the FASB issued FAS 132(R)-1,
Employers Disclosures about Postretirement Benefit Plan Assets(FAS 132(R)-1). FAS 132(R)-1 amends FASB Statement No. 132 (Revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits,to provide guidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement plan. FAS 132(R)-1 also includes a technical amendment to Statement 132R that requires a nonpublic entity to disclose
net periodic benefit cost for each annual period for which a statement of income is presented. FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. FAS 132(R)-1 will impact disclosures only and will not have an impact on
the Companys consolidated financial condition, results of operations or cash flows.



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In April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1 (FAS 107-1),
Interim Disclosures about Fair Value of Financial Instruments. FAS 107-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in
interim financial information. FAS 107-1 also amends Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. Under FAS 107-1,
publicly traded companies must include disclosures about the fair value of their financial instruments whenever summarized financial information for interim reporting periods is issued. In addition, companies must disclose in the body or in the
accompanying notes of their summarized financial information for interim reporting periods and in their financial statements for annual reporting periods the fair value of all financial instruments for which it is practicable to estimate that value,
whether recognized or not recognized in the statement of financial position, as required by FASB Statement No. 107. FAS 107-1 is effective for interim periods ending after June 15, 2009. FAS 107-1 will impact disclosures only and will not
have an impact on the Companys consolidated financial condition, results of operations and cash flows.

Inflation

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



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

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

Under the terms of our credit facilities as amended, our long-term secured debt facilities will mature in November 2011. Our $400.0
million of indebtedness under Term Loan B, maturing in 2011, bears annual interest at either (a) LIBOR plus 1.75% or (b) a base rate plus 0.75%. On August 26, 2005, we entered into two identical interest rate swap agreements with
nationally recognized counterparties for the purpose of fixing the interest on a portion of these borrowings. On September 26, 2008, we terminated one of our swap agreements and entered into a new swap agreement effective September 30,
2008. Pursuant to the current swap agreements, we will pay a fixed rate of interest of 5.87% on a $350.0 million notional of Term Loan B from September 30, 2008 through November 23, 2011.

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

We are
exposed to interest rate risk, resulting primarily from fluctuations in LIBOR, with respect to $50.0 million of borrowings under Term Loan B through November 2011. Similarly, changes in LIBOR will be the primary source of interest rate risk we face
with respect to the $33.0 million of borrowings drawn under the revolving credit facility at March 31, 2009. With respect to our $77.8 million of borrowings under Term Loan C and D, we are exposed to interest rate risk, resulting primarily from
fluctuations in the Rural Telephone Finance Cooperatives variable rate, from July 2011 through maturity in November 2011.

With
respect to our $12.1 million of borrowings at EN-TEL, we are exposed to interest rate risk, resulting primarily from fluctuations in the Rural Telephone Finance Cooperation variable rate, from the dates on which the current interest rate locks
expire (June 2009 through December 2013) until the notes mature in 2015 and 2018.

As of March 31, 2009, a one percent change in the
underlying interest rates for all of the variable rate debt that was outstanding would have an impact of approximately $830,000 per year on our interest expense while our fixed rates and swaps are in place.



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

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2009 (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 was no significant change in the Companys internal control over financial
reporting (as defined in Exchange Act Rules 13a  15(f) and 15d  15(f)) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over
financial reporting.



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PART II - OTHER INFORMATION



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

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

The Iowa Utilities Board took the position in the fourth quarter of 2008 that our incumbent local exchange carriers intrastate
access rates have ceased to be subject to the intrastate switched access rate freeze since July 1, 2005, and are subject to challenge. The Board is currently considering such a challenge based on a February 20, 2008, MCImetro Transmission
Access Transmission Services LLC, d/b/a Verizon Access Transmission Services and MCI Communications Services, Inc. d/b/a Verizon Business Services complaint filed with the Iowa Utilities Board against our local incumbent exchange carrier, our Iowa
competitive local exchange carriers, Frontier Communication of Iowa, Inc., and Citizens Mutual Telephone Company alleging that such companies tariffed originating and terminating intrastate switched access rates of each are not just and
reasonable and should be lowered by the Iowa Utilities Board to mirror the rates contained in Qwest Corporations Iowa tariff. The complaint appears to be similar to others asserted by these or related entities against the
intrastate access charges of mid-sized incumbent local exchange companies in several other states. We filed a motion to dismiss the complaint in light of our legislated price plan, and believe the substance of the complaint to be without merit given
the absence of any rationale for the proposed decrease. The Iowa Utilities Board denied our motion to dismiss on November 14, 2008, a decision we cannot appeal until the Board issues a decision on the merits. In our initial round of testimony
on March 5, 2009, we estimated that the potential annual effect of Verizons complaint on the incumbent local exchange carrier operations of Iowa Telecommunications Services, Inc. was $16 million based on current levels of access service
demand. Following further rounds of testimony by Verizon and Iowa Telecom and Frontier, the final round of testimony will be filed by Verizon on June 29, 2009, with a hearing to be held starting July 13, 2009. We cannot predict when this
proceeding will conclude and what the outcome may be.



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

In addition to the other information
set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008, which could materially affect our business,
financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating results.



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

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.



|                     |  |                                                                                   
|-------------------- |  | ----------------------------------------------------------------------------------
|Date: April 30, 2009 |  | /s/ Alan L. Wells                                                                 
|                     |  | Alan L. Wells                                                                     
|                     |  | President, Chief Executive Officer and Director Principal Executive Officer       
|                     | 
|Date: April 30, 2009 |  | /s/ Craig A. Knock                                                                
|                     |  | Craig A. Knock                                                                    
|                     |  | Vice President, Chief Financial Officer and Treasurer Principal Accounting Officer



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EXHIBIT INDEX

IOWA TELECOMMUNICATIONS SERVICES, INC.

FORM 10-Q FOR QUARTER ENDED MARCH 31, 2009



|               |  |                                                                                                                                                                                                                               
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)
|               | 
|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.
|- | ---------------



36