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: ~~September~~March 3031, ~~2009~~2010

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

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

The number of shares of the registrant’s common stock, $.01 par value, outstanding as of ~~October~~April 1623, ~~2009~~2010 was 3233,~~806~~169,~~162~~355.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		1
	FINANCIAL STATEMENTS	1
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS	21
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4339
	CONTROLS AND PROCEDURES	4339
PART II.	OTHER INFORMATION	4440
	LEGAL PROCEEDINGS	4440
	RISK FACTORS	4441
	PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	44
	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	42
	EXHIBITS	4442

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			September 30,2009
	December 31,2009			March 31,2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1112,~~605~~259		$	1211,~~091~~368
Accounts receivable, net		2322,~~320~~632			2223,~~663~~412
Inventories		35,~~946~~105			5,~~527~~224
Prepayments and other current assets		37,~~149~~857			56,~~767~~990
Total Current Assets		4247,~~020~~853			46,~~048~~994
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment		~~601~~672,~~782~~270			~~664~~674,~~688~~358
Accumulated depreciation		(~~310~~365,~~936~~631	)		(~~350~~380,~~982~~155	)
Net Property, Plant and Equipment		~~290~~306,~~846~~639			~~313~~294,~~706~~203
GOODWILL		~~473~~492,~~984~~956			~~494~~492,~~400~~956
INTANGIBLE ASSETS AND OTHER, net		3651,~~904~~238			5150,~~960~~280
INVESTMENT IN AND RECEIVABLE FROM THE RURAL TELEPHONE FINANCE COOPERATIVE		1617,~~174~~141			1716,~~036~~696
Total Assets	$	~~859~~915,~~928~~827		$	~~923~~901,~~150~~129
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Revolving credit facility	$	3937,000		$	4135,000
Accounts payable		1112,~~017~~408			10,~~026~~404
Advanced billings and customer deposits		810,~~615~~470			10,~~662~~479
Accrued and other current liabilities		3233,~~429~~195			2728,~~291~~415
Current maturities of long-term debt		13,~~219~~276			2,~~048~~470
Total Current Liabilities		9296,~~280~~349			9186,~~027~~768
LONG-TERM DEBT		~~489~~565,~~003~~214			~~566~~565,~~940~~513
DEFERRED TAX LIABILITIES		4760,~~575~~783			5663,~~296~~717
OTHER LONG-TERM LIABILITIES		2825,~~326~~914			2725,~~944~~943
Total Liabilities		~~657~~748,~~184~~260			~~742~~741,~~207~~941
COMMITMENTS AND CONTINGENCIES (Note 10)		—			—
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 32,046,087 issued and outstanding, respectively		315			320
Common stock, $0.01 par value, 100,000,000 shares authorized, 32,193,036 and 32,224,844 issued and outstanding, respectively		322			322
Additional paid-in capital		~~327~~332,~~264~~722			~~332~~333,~~156~~614
Accumulated deficit		(~~110~~153,~~814~~383	)		(~~138~~162,~~390~~757	)
Accumulated other comprehensive loss		(1412,~~308~~094	)		(1311,~~143~~991	)
Total Iowa Telecommunications Services, Inc. Stockholders’ Equity		202,457			180,943
Total Stockholders’ Equity		167,567			159,188
Noncontrolling interest		287			—
Total Liabilities and Stockholders’ Equity	$	915,827		$	901,129
Total Stockholders’ Equity		202,744			180,943
Total Liabilities and Stockholders’ Equity	$	859,928		$	923,150

See notes to condensed consolidated financial statements.

Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(Amounts in Thousands, Except Per Share Data)

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

Three Months EndedMarch 31,

2008

2009

2008

2009

2010

REVENUES AND SALES

6261,~~923~~288

6867,~~296~~406

~~181,945~~

~~188,403~~

OPERATING COSTS AND EXPENSES:

Cost of services and sales (exclusive of items shown separately below)

20,~~424~~234

2223,~~650~~634

~~57,781~~

~~61,536~~

Selling, general and administrative

1112,~~965~~202

1412,~~312~~683

~~32,230~~

~~39,973~~

Depreciation and amortization

13,~~736~~990

16,~~412~~262

~~39,006~~

~~44,730~~

Total Operating Costs and Expenses

46,~~125~~426

5352,~~374~~579

~~129,017~~

~~146,239~~

OPERATING INCOME

1614,~~798~~862

14,~~922~~827

~~52,928~~

~~42,164~~

OTHER INCOME (EXPENSE):

Interest and dividend income

~~179~~873

~~480~~617

~~729~~

~~1,742~~

Interest expense

(87,~~033~~596

)

(8,~~333~~152

)

~~(23,194~~

)

~~(23,541~~

)

Other, net

~~1,080~~(159

)

~~845~~(173

)

~~821~~

~~576~~

Total Other Expense, net

(6,~~774~~882

)

(7,~~008~~708

)

~~(21,644~~

)

~~(21,223~~

)

EARNINGS BEFORE INCOME TAXES

107,~~024~~980

7,~~914~~119

~~31,284~~

~~20,941~~

INCOME TAX EXPENSE

43,~~301~~471

3,~~341~~035

~~13,311~~

~~8,938~~

NET INCOME

54,~~723~~509

4,~~573~~084

~~17,973~~

~~12,003~~

Net loss attributable to noncontrolling interest

—98

23—

—

~~195~~

NET INCOME ATTRIBUTABLE TO IOWA TELECOMMUNICATIONS SERVICES, INC.

54,~~723~~607

4,~~596~~084

~~17,973~~

~~12,198~~

EARNINGS PER SHARE:

BASIC - Earnings Per Share

0.1814

0.1311

~~0.55~~

~~0.35~~

BASIC - Weighted Average Number of Shares Outstanding

31,~~492~~594

32,~~038~~200

~~31,469~~

~~31,880~~

DILUTED - Earnings Per Share

0.1714

0.1311

~~0.54~~

~~0.35~~

DILUTED - Weighted Average Number of Shares Outstanding

32,~~085~~149

32,~~239~~231

~~32,043~~

~~32,187~~

Dividends Declared Per Share

0.405

~~1.215~~

See notes to condensed consolidated financial statements.

Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income

(Unaudited)

(Dollars in Thousands, Except Per Share ~~Data~~ Amounts)

			Three Months Ended September 30, 2008 and 2009
	Three Months Ended March 31, 2009 and 2010
	CommonShares		CommonStock		AdditionalPaid-InCapital			AccumulatedDeficit			AccumulatedOtherComprehensiveIncome (Loss)			NoncontrollingInterest			Total
Balance, June 30, 2008	31,476,776		$	315	$	325,670		$	(95,816	)	$	304		$	—			230,473
Balance, December 31, 2008	31,500,687		$	315	$	327,264		$	(110,814	)	$	(14,308	)	$	287		$	202,744
Net income	—			—		—			54,~~723~~607			—			—(98	)		54,~~723~~509
Unrealized loss on derivatives, net of tax effect	—			—		—			—			(1,662	)		—			(1,662	)
Unrealized gain on derivatives, net of tax effect	—			—		—			—			66			—			66
Post retirement benefit plan adjustment, net of tax effect	—			—		—			—			(~~149~~27	)		—			(~~149~~27	)
Total comprehensive income (loss)	—			—		—			54,~~723~~607			~~(1,811~~39	)		—(98	)		34,~~912~~548
Compensation from compensatory stock plans, net of tax	35,625			—		890			—			—			—			890
Compensation from compensatory stock plans	6,000			—		885			—			—			—			885
Shares reacquired	(11,714	)		—		(210	)		—			—			—			(210	)
Exercise of employee stock options	419,116			4		585			—			—			—			589
Dividends declared ($.405 per share)	—			—		—			(12,949	)		—			—			(12,949	)
Capital contributions from noncontrolling interest	—			—		34			—			—			161			195
Balance, September 30, 2008	31,500,687		$	315	$	326,350		$	(103,042	)	$	(1,507	)	$	—		$	222,116
Dividends declared ($.405 per share)	—			—		—			(13,242	)		—			—			(13,242	)
Balance, June 30, 2009	32,017,203		$	320	$	329,479		$	(129,701	)	$	(12,721	)	$	365		$	187,742
Balance, March 31, 2009	31,925,803		$	319	$	328,768		$	(119,449	)	$	(14,269	)	$	350		$	195,719
Net income (loss)	—			—		—			4,596			—			(23	)		4,573
Balance, December 31, 2009	32,193,036		$	322	$	332,722		$	(153,383	)	$	(12,094	)	$	—		$	167,567
Unrealized loss on derivatives, net of tax effect	—			—		—			—			(422	)		—			(422	)
Net income	—			—		—			4,084			—			—			4,084
Post retirement benefit plan adjustment, net of tax effect	—			—		—			—			—			—			—
Unrealized gain on derivatives, net of tax effect	—			—		—			—			101			—			101
Total comprehensive income (loss)	—			—		—			4,596			(422	)		(23	)		4,151
Post retirement benefit plan adjustment, net of tax effect	—			—		—			—			2			—			2
Compensation from compensatory stock plans	35,625			—		959			—			—			—			959
Total comprehensive income	—			—		—			4,084			103			—			4,187
Shares reacquired	(11,741	)		—		(146	)		—			—			—			(146	)
Compensation from compensatory stock plans	6,000			—		1,090			—			—			—			1,090
Exercise of employee stock options	5,000			—		3			—			—			—			3
Shares reacquired	(12,333	)		—		(207	)		—			—			—			(207	)
Capital contributions from noncontrolling interest	—			—		(18	)		—			—			108			90
Exercise of employee stock options	38,141			—		9			—			—			—			9
Noncontrolling interest in acquired entities	—			—		—			—			—			3,319			3,319
Dividends declared ($.405 per share)	—			—		—			(13,458	)		—			—			(13,458	)
Acquisition of noncontrolling interest	—			—		1,879			—			—			(3,769)			(1,890	)
Balance, March 31, 2010	32,224,844		$	322	$	333,614		$	(162,757	)	$	(11,991	)	$	—		$	159,188
Dividends declared ($.405 per share)	—			—		—			(13,285	)		—			—			(13,285	)
Balance, September 30, 2009	32,046,087		$	320	$	332,156		$	(138,390	)	$	(13,143	)	$	—		$	180,943

See notes to condensed consolidated financial statements.

			Nine Months Ended September 30, 2008 and 2009
	CommonShares		CommonStock		AdditionalPaid-InCapital			AccumulatedDeficit			AccumulatedOtherComprehensiveIncome (Loss)			NoncontrollingInterest			Total
Balance, December 31, 2007	31,440,215		$	314	$	324,170		$	(82,154	)	$	637		$	—		$	242,967
Net income	—			—		—			17,973			—			—			17,973
Unrealized loss on derivatives, net of tax effect	—			—		—			—			(1,702	)		—			(1,702	)
Post retirement benefit plan adjustment, net of tax effect	—			—		—			—			(442	)		—			(442	)
Total comprehensive income (loss)	—			—		—			17,973			(2,144	)		—			15,829
Compensation from compensatory stock plans, net of tax	87,825			1		2,668			—			—			—			2,669
Shares reacquired	(27,353	)		—		(488	)		—			—			—			(488	)
Dividends declared ($1.215 per share)	—			—		—			(38,861	)		—			—			(38,861	)
Balance, September 30, 2008	31,500,687		$	315	$	326,350		$	(103,042	)	$	(1,507	)	$	—		$	222,116
Balance, December 31, 2008	31,500,687		$	315	$	327,264		$	(110,814	)	$	(14,308	)	$	287		$	202,744
Net income (loss)	—			—		—			12,198			—			(195	)		12,003
Unrealized gain on derivatives, net of tax effect	—			—		—			—			1,501			—			1,501
Post retirement benefit plan adjustment, net of tax effect	—			—		—			—			(336	)		—			(336	)
Total comprehensive income (loss)	—			—		—			12,198			1,165			(195	)		13,168
Compensation from compensatory stock plans	121,075			—		2,802			—			—			—			2,802
Shares reacquired	(41,218	)		—		(493	)		—			—			—			(493	)
Exercise of employee stock options	465,543			5		672			—			—			—			677
Capital contributions from noncontrolling interest	—			—		32			—			—			358			390
Noncontrolling interest in acquired entities	—			—		—			—			—			3,319			3,319
Acquisition of noncontrolling interest	—			—		1,879			—			—			(3,769	)		(1,890	)
Dividends declared ($1.215 per share)	—			—		—			(39,774	)		—			—			(39,774	)
Balance, September 30, 2009	32,046,087		$	320	$	332,156		$	(138,390	)	$	(13,143	)	$	—		$	180,943

See notes to condensed consolidated financial statements.

Iowa Telecommunications Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in Thousands)

	Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2008			2009
	2009			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	174,~~973~~509		$	124,~~003~~084
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		3713,~~841~~582			4215,~~978~~438
Amortization of intangible assets		~~1,165~~408			~~1,752~~824
Amortization of debt issuance costs		~~466~~174			~~729~~384
Deferred income taxes		123,~~673~~421			82,~~667~~857
Non-cash stock-based compensation expense		~~2,660~~885			21,~~802~~090
Changes in operating assets and liabilities, net of impact of acquisitions:
Receivables		~~278~~1,902			~~3,153~~(780	)
Inventories		(~~280~~454	)		(~~167~~119	)
Accounts payable		~~528~~(2,447	)		(2,~~430~~004	)
Other assets and liabilities		(74,~~333~~457	)		(5,~~858~~820	)
Net Cash Provided by Operating Activities		6517,~~971~~523			6315,~~629~~954
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(203,~~122~~627	)		(163,~~251~~043	)
Business acquisitions, net of cash acquired		(33,419	)		(80,043	)
Business acquisitions and settlements		(324	)		2,244
Purchase of wireless licenses		(5,938	)		—
Net Cash Used in Investing Activities		(3,951	)		(799	)
Net Cash Used in Investing Activities		(59,479	)		(96,294	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving credit facility		19(6,000	)		(2,000	)
Proceeds from exercise of stock options		—589			~~677~~9
Payment of debt issuance costs		(351	)		(2,009	)
Payment on long-term debt		(297	)		(507	)
Issuance of long-term debt		—			75,000
Capital contributions from noncontrolling interests		195			—
Payment on long-term debt		(308	)		(1,087	)
Shares reacquired		—			(207	)
Cash contributions from noncontrolling interests		—			390
Dividends paid		(12,949	)		(13,341	)
Acquisition of noncontrolling interests		—			(1,890	)
Net Cash Used in Financing Activities		(18,462	)		(16,046	)
Shares reacquired		(488	)		(493	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(4,890	)		(891	)
Dividends paid		(38,799	)		(39,437	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		11,605			12,259
Net Cash Used in or Provided by Financing Activities		(20,946	)		33,151
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	6,715		$	11,368
NET CHANGE IN CASH AND CASH EQUIVALENTS		(14,454	)		486
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		21,919			11,605
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,465		$	12,091
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	237,~~527~~435		$	228,~~719~~056
Cash paid for income taxes	$	~~346~~1		$	71151

SUPPLEMENTAL NON-CASH ACTIVITIES:

Dividends on Common Stock of $1213,~~949~~242 were declared on ~~September~~March 1516, ~~2008~~2009 for shareholders of record as of ~~September~~March 3031, ~~2008~~2009 and ~~the~~ the dividends were paid on ~~October~~April 15, ~~2008~~2009.

Dividends on Common Stock of $13,~~284~~458 were declared on ~~September~~March 15, ~~2009~~ ~~for~~2010 for shareholders of record as of ~~September~~March 3031, ~~2009~~2010 and the dividends were paid on ~~October~~April 15, ~~2009~~2010.

In the nine months ended September 30, 2008, the Company completed the purchase of Bishop Communications Corporation for approximately $33 million net of cash received. See Note 12 for further information on the Company’s acquisition of Bishop Communications Corporation.

In the nine months ended September 30, 2009, the Company completed the purchase of substantially all of the assets of Sherburne Tele Systems, Inc. (“the Sherburne Assets”) for approximately $79.7 million in cash (net of cash acquired), subject to certain tax adjustments, and New Ulm Telecom Inc.’s ownership interests in EN-TEL Communications, LLC, SHAL, LLC and SHAL Networks, Inc. for $1.9 million. See Note 12 for further information on the Company’s acquisitions.

See notes to condensed consolidated financial statements.

Iowa Telecommunications Services, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Iowa Telecommunications Services, Inc. and Subsidiaries (the “Company,” or “Iowa Telecom,” “we,” “us” or “our”) have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted or condensed pursuant to such rules and regulations. In the opinion of the Company’s management, all adjustments (consisting of only normal and recurring accruals) have been made to present fairly the consolidated balance sheets, statements of income and statements of cash flows for the periods presented. The statements of income for the periods presented are not necessarily indicative of the results to be expected for the full year. Although the Company believes that the disclosures are adequate to make the information presented not misleading, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, ~~2008~~2009, that are included in the Company’s most recently filed annual report on Form 10-K as filed with the SEC.

Windstream Merger Agreement

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

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

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

Recently Issued Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued amended guidance regarding “Noncontrolling Interests in Consolidated Financial Statements” which establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The amended guidance 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 amended guidance 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 noncontrolling equity investment on the deconsolidation date. The amended guidance also includes expanded disclosure requirements regarding the interest of the parent and its noncontrolling interest. The amended guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Adoption of the amended guidance did not have a material impact on the Company’s consolidated balance sheets, statements of income or statements of cash flows.

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

In5 March 2008, the FASB issued amended guidance regarding “Disclosures about Derivative Instruments and Hedging Activities.” The amended guidance 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. The amended guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Adoption of the amended guidance impacted disclosures only and did not have an impact on the Company’s consolidated balance sheets, statements of income or statements of cash flows. See Note 9 to Financial Statements for expanded disclosures related to the adoption of the amended guidance.

In ~~December~~January ~~2008~~2010, the FASB ~~amended~~issued ~~its~~FASB ~~prior~~ASU ~~guidance~~2010-06, ~~regarding~~Fair ~~“Employer’s~~Value Measurements and Disclosures (Topic 820): Improving Disclosures about ~~Postretirement~~Fair ~~Benefit~~Value ~~Plan~~Measurements. ~~Assets~~FASB ASU 2010-06 requires new disclosures and clarifies existing disclosure requirements about fair value measurements as set forth in the FASB Codification Subtopic 820-10.” ~~The~~FASB ~~amended~~ASU ~~guidance~~2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years ~~ending~~beginning after December 15, ~~2009~~2010, and for interim periods within those fiscal years beginning after December 15, 2010. ~~The~~Early ~~amended~~adoption ~~guidance~~is ~~will~~permitted. ~~impact~~Adoption of FASB ASU 2010-06 impacts disclosures only and ~~will~~did not have an impact on the Company’s condensed consolidated balance sheets, statements of income or statements of cash flows.

In April 2009, the FASB issued amended guidance regarding “Interim Disclosures about Fair Value of Financial Instruments” which requires disclosures about fair value of financial instruments in interim financial information. The amended guidance also requires those disclosures in summarized financial information at interim reporting periods. Under the amended guidance, 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 Company’s balance sheet. The amended guidance is effective for interim periods ending after June 15, 2009. Adoption of the amended guidance impacted disclosures only and did not have an impact on the Company’s consolidated balance sheets, statements of income or statements of cash flows. See Note 11 to Financial Statements for expanded disclosures related to the adoption of the amended guidance.

In May 2009, the FASB issued guidance regarding “Subsequent Events.” The new guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, the new guidance provides: the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The new guidance is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. Adoption of the new guidance impacted disclosures only and did not have an impact on the Company’s consolidated balance sheets, statements of income or statements of cash flows. See Note 10 to Financial Statements for expanded disclosures related to the adoption of the new guidance.

In June 2009, the FASB issued FASB Accounting Standards Update 2009-01, Topic 105-Generally Accepted Accounting Principles amendments based on Statement of Financial Accounting Standards No. 168-The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“FASB ASU 2009-01”). FASB ASU 2009-01establishes the FASB Accounting Standards Codification (“Codification”) as the single source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. The FASB will not issue new standards in the form of statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the bases for conclusions on the change(s) in the Codification. FASB ASU 2009-01 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the FASB ASU 2009-01 did not have a material impact on the Company’s consolidated balance sheets, statements of income or statements of cash flows.

2. EARNINGS PER SHARE

Plan are considered participating securities as they receive non-forfeitable dividend equivalents at the same rate as common stock. The amended guidance was adopted via retroactive application for the quarter and nine months ended September 30, 2008, resulting in no change to basic EPS and a $0.01 decrease in diluted EPS for the quarter and a $0.02 decrease to both basic and diluted EPS for the year.

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 EndedSeptember 30,

Nine Months EndedSeptember 30,

Three Months EndedMarch 31,

2008

2009

2008

2009

2010

(in thousands, except per share amounts)

Net income attributable to Iowa Telecommunications Services, Inc.

54,~~723~~607

4,~~596~~084

~~17,973~~

~~12,198~~

Net income allocated to unvested compensatory stock

(~~191~~84

)

(~~306~~408

)

~~(620~~

)

~~(898~~

)

Net income attributable to Iowa Telecommunications Services, Inc. common shares

54,~~532~~523

43,~~290~~676

~~17,353~~

~~11,300~~

Basic shares outstanding:

Weighted average basic shares outstanding

3132,~~976~~182

32,~~713~~965

~~31,946~~

~~32,534~~

Less unvested compensatory stock included in weighted average basic shares outstanding

(~~484~~588

)

(~~675~~765

)

~~(477~~

)

~~(654~~

)

Weighted average shares outstanding for basic earnings per common share

31,~~492~~594

32,~~038~~200

~~31,469~~

~~31,880~~

Diluted shares outstanding:

Weighted average shares outstanding for basic earnings per common share

31,~~492~~594

32,~~038~~200

~~31,469~~

~~31,880~~

Add shares issuable upon exercise of stock options

~~593~~555

~~201~~31

~~574~~

~~307~~

Weighted average number of shares outstanding – diluted

32,~~085~~149

32,~~239~~231

~~32,043~~

~~32,187~~

Earnings Per Share:

Basic

0.1814

0.1311

~~0.55~~

~~0.35~~

Diluted

0.1714

0.1311

~~0.54~~

~~0.35~~

As of ~~September~~March 3031, 2009 ~~2008~~ and ~~2009~~2010, total options outstanding were ~~677~~258,~~579~~463 and ~~212~~ none,~~036,~~ respectively.

3. NONCONTROLLING INTEREST

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

	Net Income Attributable toIowa Telecommunicationsand Transfers (to) from theNoncontrolling Interest
	Net Income Attributable toIowa Telecommunicationsand Transfers fromNoncontrolling Interest
	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2008		2009			2008		2009
	2009		2010
	(dollars in thousands)
Net income attributable to Iowa Telecommunications Services, Inc.	$	54,~~723~~607	$	4,~~596~~084		$	~~17,973~~	$	~~12,198~~
Increase (decrease) in Iowa Telecommunications Services, Inc. paid-in capital for issuance of shares		—		(18	)		—		32
Increase in Iowa Telecommunications Services, Inc. paid-in capital for issuance of shares		34		—
Increase in Iowa Telecommunications Services, Inc. paid-in capital due to gain on acquisition of noncontrolling interest		—		1,879			—		1,879
Change from net income attributable to Iowa Telecommunications Services, Inc. and transfers from noncontrolling interest	$	4,641	$	4,084
Change from net income attributable to Iowa Telecommunications Services, Inc. and transfers from noncontrolling interest	$	5,723	$	6,457		$	17,973	$	14,109

4. REVENUES AND SALES

The table below sets forth the components of revenues and sales for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2008~~2009 and ~~2009~~2010:

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2008		2009		2008		2009
	2009		2010
	(dollars in thousands)
Local services	$	18,085	$	19,274
Local services	$	18,013	$	19,618	$	53,126	$	55,538
Network access services		21,854		21,868
Network access services		22,852		23,306		65,857		64,873
Toll services		5,566		5,377
Toll services		5,845		5,658		17,394		16,705
Data and internet services		9,655		12,235
Data and internet services		9,129		11,658		25,615		31,117
Other services and sales		6,128		8,652
Other services and sales		7,084		8,056		19,953		20,170
Total revenues and sales	$	61,288	$	67,406
Total revenues and sales	$	62,923	$	68,296	$	181,945	$	188,403

5. ~~GOODWILL,~~EMPLOYEE ~~INTANGIBLE~~BENEFIT ~~ASSETS~~PLANS ~~AND OTHER~~

The Company performed its annual impairment review of goodwill and indefinite-lived intangible assets as required by FASB ASC 350, Intangibles—Goodwill and Other, as of August 31, 2008 and 2009.

Total goodwill at December 31, 2008 was $474.0 million. During 2009, the Company acquired the Sherburne Assets and a controlling interest in SHAL, LLC and SHAL Networks, Inc. which increased goodwill by $21.0 million, definite-lived intangibles by $15.1 million and wireless licenses by $1.3 million. The allocation of the purchase price for those assets is preliminary as of September 30, 2009. The Company also recorded a $584,000 purchase accounting adjustment related to the Bishop Communications Corporation acquisition decreasing goodwill and resulting in a goodwill balance of $494.4 million at September 30, 2009.

Intangible assets and other consisted of the following:

	September 30, 2009
	Life	Cost		AccumulatedAmortization			Net BookValue
	(dollars in thousands)
Definite-lived intangible assets	6-20 yrs	$	32,046	$	(8,130	)	$	23,916
Debt issuance costs	7 yrs		6,498		(3,205	)		3,293
Wireless licenses	—		18,987		—			18,987
Other assets	NA		5,764		—			5,764
Total		$	63,295	$	(11,335	)	$	51,960
	December 31, 2008
	Life	Cost		AccumulatedAmortization			Net BookValue
	(dollars in thousands)
Definite-lived intangible assets	6-20 yrs	$	16,996	$	(6,378	)	$	10,618
Debt issuance costs	7 yrs		4,489		(2,476	)		2,013
Wireless licenses	—		17,691		—			17,691
Other assets	NA		6,582		—			6,582
Total		$	45,758	$	(8,854	)	$	36,904

Amortization expense for definite-lived intangible assets was $936,000 and $1.8 million for the three and nine months ended September 30, 2009, respectively. Amortization expense for definite-lived intangible assets was $419,000 and $1.2 million for the three and nine months ended September 30, 2008, respectively. Amortization expense is calculated on the straight-line method unless there is a method that more accurately reflects the consumption of the benefit provided by the intangible asset. Estimated annual amortization expense for definite-lived-intangible assets for each of the next five years and cumulative thereafter is as follows (in thousands):

2009	$	914
2010		3,155
2011		2,823
2012		2,462
2013		2,174
Thereafter		12,388
Total	$	23,916

6. 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~~Company’s acquisition onof ~~June 30,~~the Iowa operations of GTE in 2000 (“GTE Acquisition”). The Plan generally provides for employee retirement at age 65 with benefits based upon length of service and compensation. The Plan provides for early retirement, lump sum benefits, and various annuity options. Approximately 40 employees accrue benefits under the plan. There were no contributions made to the Plan during the ~~third~~first quarter of 2009. ~~During~~and ~~the nine months ended September 30, 2009 the Company contributed $750,000 to the Plan~~2010.

Components of pension benefit cost are as follows:

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2008			2009			2008			2009
	2009			2010
	(dollars in thousands)
Pension Benefit Cost:
Service cost	$	5561		$	6164		$	~~165~~		$	~~183~~
Interest cost		~~189~~201			~~202~~211			~~563~~			~~604~~
Expected return on plan assets		(~~175~~168	)		(~~168~~197	)		~~(525~~	)		~~(504~~	)
Amortization of unrecognized actuarial loss		157			5645			9			~~170~~
Amortization of prior service cost		9			7			18			21
Amortization of unrecognized prior service cost		7			7
Net periodic benefit cost	$	79158		$	~~158~~130		$	~~230~~		$	~~474~~

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

Postretirement Benefits

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

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

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2008			2009			2008			2009
	2009			2010
	(dollars in thousands)
Postretirement Benefit Cost (Income):
Service cost	$	31		$	1		$	10		$	3
Interest cost		4642			4136			~~143~~			~~124~~
Amortization of unrecognized net actuarial loss		1—			—11			14			—
Amortization of unrecognized prior service benefit		(~~265~~110	)		(6361	)		~~(794~~	)		~~(267~~	)
Net periodic benefit income	$	(~~215~~67	)	$	(2113	)		~~(627~~	)		~~(140~~	)
Curtailment gain		—			—			—			(590	)
Total postretirement benefit income, with adjustments	$	(215	)	$	(21	)	$	(627	)	$	(730	)

~~During the second quarter of 2009, the Company eliminated a portion of the postretirement welfare benefits~~6. ~~The~~LONG-TERM ~~elimination~~DEBT ofAND ~~life~~REVOLVING ~~insurance~~CREDIT ~~benefits~~FACILITIES ~~for a significant portion of the total active participants triggered a plan curtailment. The curtailment required the immediate recognition of unrecognized prior service credit of $590,000.~~

7. LONG-TERM DEBT AND REVOLVING CREDIT FACILITIES


	As of March 31, 2010
	(dollars in thousands)
Total Long-Term Debt:
Iowa Telecom senior secured credit facility:
Term Loan B (including Incremental Term Loan)	$	475,000
Term Loan C		70,000
Term Loan D		7,778
EN-TEL Communications, LLC debt		10,905
SHAL, LLC debt		4,300

Total Debt		567,983
Less current portion		(2,470	)

Long-term debt obligations, net of current portion	$	565,513

	As ofSeptember 30, 2009
	(dollars in thousands)
Total Long-Term Debt:
Iowa Telecom senior secured term loans	$	552,778
EN-TEL Communications, LLC notes payable		11,538
SHAL, LLC notes payable		4,672
Total Debt		568,988
Current maturities of long-term debt		(2,048	)
Long-Term Debt	$	566,940

Iowa Telecom Credit Facilities

As of ~~September~~March 3031, ~~2009~~2010, the Company had outstanding $552.8 million of senior debt under the Iowa Telecom term loan facilities and had $4135.0 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 ~~September~~ March 3031, ~~2009~~2010, $4135.0 million was outstanding on the revolving credit facility and $5965.0 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 ~~September~~March 3031, 2010, the Company had $35.0 million outstanding under LIBOR elections at an average all-in rate of 2.24%. As of March 31, 2009, the Company had $4133.0 million outstanding under LIBOR elections at an average all-in rate of 2.2552%.

Term Loan B is a $400.0 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a LIBOR rate plus an applicable rate adder of 1.75% per annum or (b) a base rate election plus an applicable rate adder of 0.75% per annum. As of March 31, 2010, $350.0 million of Term Loan B was based upon a LIBOR election effective through June 30, 2010 at an all-in rate of 2.04%. The ~~Company~~all-in ~~has~~rate on the $350.0 million Term Loan B as of March 31, 2009 was 2.99%. The Company entered into interest rate swap agreements to fix the rate on $350.0 million of ~~Term~~ Term Loan B as more fully described below. As of ~~September~~March 3031, ~~2009~~2010, ~~$350.0~~the ~~million~~interest ofrate ~~Term~~on ~~Loan~~the Bremaining $50.0 million was based upon a LIBOR election effective through ~~December~~April 3022, ~~2009~~2010 at an all-in rate of 21.0499%. AsThe ofall-in ~~September 30, 2009, the interest~~ rate on the ~~remaining~~ $50.0 million Term ~~was~~Loan ~~based~~B ~~upon~~as aof ~~LIBOR election effective through October~~March 1931, 2009 atwas ~~an all-in rate of~~ 2.0021%.

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

12Term Loan C is a $70.0 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a fixed rate or (b) a Rural Telephone Finance Cooperative variable rate plus 0.85%. Effective August 1, 2007, the Company elected a new all-in fixed interest rate of 6.95% through June 2011 on Term Loan C. Upon the expiration of the fixed interest rate period, the term loan will convert to the Rural Telephone Finance Cooperative-base variable rate plus 0.85%.

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

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

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

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

~~under~~The ~~the~~Iowa ~~Credit~~Telecom ~~Agreement.~~credit ~~The~~facilities ~~incremental~~require ~~loans~~the ~~bear~~Company, ~~interest~~subject atto ~~either~~certain aexceptions, ~~base~~to prepay ~~rate~~outstanding ~~plus~~loans ~~1.00%~~under ~~(in~~the credit facilities to the ~~case~~extent of ~~base~~net ~~rate~~cash ~~loans)~~proceeds orreceived ~~LIBOR~~from ~~plus~~the ~~2.00%~~following: ~~(in~~issuance ~~the~~of ~~case~~certain indebtedness; proceeds of ~~Eurodollar~~certain ~~loans),~~asset atsales; ~~the election~~and ofcasualty ~~Iowa~~insurance ~~Telecom~~proceeds. The ~~incremental~~credit ~~loans~~facilities ~~are~~further require the Company, subject to certain exceptions, to make prepayments under the ~~terms~~credit ~~and~~facilities ~~conditions~~equal to 50% of any net increase in the ~~Credit~~following: ~~Agreement~~distributable cash during a dividend suspension period, as defined; and ~~are~~cumulative ~~entitled~~distributable cash, toas defined, during the ~~benefits~~fiscal ofyear less the ~~collateral~~cumulative ~~security~~reductions ~~provided~~of revolving loans (adjusted to exclude the ~~other~~effects ~~loans~~of ~~made~~borrowings ~~pursuant~~to fund permitted acquisitions) through such period, with reductions to the ~~Credit~~percentage ~~Agreement.~~to ~~The~~be determined based ~~maturity~~on ~~date~~improvements ofin ~~the~~certain ~~incremental~~credit ~~loans~~ratios. isA ~~November 23~~mandatory prepayment of $378,000 ~~2011.~~is Asdue ofprior ~~September~~to April 30, ~~2009,~~2010 ~~the~~under ~~interest~~these ~~rate~~provisions. onThe ~~the~~Iowa ~~$75.0~~Telecom ~~million~~credit ~~was~~facilities ~~based~~generally ~~upon~~permit avoluntary ~~LIBOR~~prepayments ~~election~~of ~~effective~~the ~~through~~term ~~October 5~~loans and reductions of commitments without penalty or premium, ~~2009~~other atthan ~~all-in-rate~~standard ofbreakage 2costs.~~26%.~~

~~Term~~In ~~Loan~~addition, Cthe isfinancial acovenants ~~$70.0~~under ~~million~~the Iowa ~~senior~~Telecom ~~secured~~credit ~~term~~facilities ~~facility~~specify, ~~maturing~~among inother ~~November 2011~~things, ~~bearing~~certain ~~interest~~fixed ~~per~~charge ~~annum~~coverage atratios ~~either~~and (a~~) a~~ ~~fixed rate~~maximum ortotal ~~(b) a~~leverage ~~Rural~~ratio, ~~Telephone~~as ~~Finance~~defined, ~~Cooperative~~all ~~variable~~of ~~rate~~which ~~plus 0.85%. Effective August 1, 2007,~~ the Company ~~elected~~was ~~a new all-~~in ~~fixed~~compliance ~~interest~~with ~~rate~~as of ~~6.95% through June 2011 on Term Loan C. Upon the expiration of the fixed interest rate period~~March 31, ~~the term loan will convert to the Rural Telephone Finance Cooperative base variable rate plus 0~~2010.~~85%.~~

~~Term~~EN-TEL ~~Loan D is a $7.8 million senior secured term facility maturing in November 2011~~Communications, ~~bearing~~LLC ~~interest per annum at either~~ (a“EN-TEL”) a ~~fixed~~Notes ~~rate~~Payable 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%.

AsOn aJuly 18, ~~condition~~2008, ofthe ~~borrowing~~Company ~~under~~acquired ~~Term~~Bishop ~~Loans~~Communications CCorporation ~~and~~(“Bishop DCommunications”). As part of the acquisition, the Company isassumed ~~required~~debt toof ~~invest~~ $713.80 million issued by EN-TEL Communications, ~~representing~~LLC, ~~10%~~a majority-owned subsidiary of Bishop Communications. The EN-TEL debt consists of notes payable to the Rural Telephone Finance Cooperative which have ~~total~~quarterly ~~amounts~~installments of ~~Term~~principal ~~Loans~~and Cinterest. ~~and~~The D,notes currently bear interest at an average all-in ~~Subordinated~~fixed ~~Capital~~rate ~~Certificates~~of ~~(“SCCs”)~~7.00%. As of March 31, 2009, the ~~Rural~~all-in ~~Telephone~~rate ~~Finance~~was ~~Cooperative~~7.20%. ~~SCCs~~The ~~are~~notes ~~non-~~have a fixed interest ~~bearing~~rate ~~but,~~for asspecific periods of time ranging from July 2010 through December 2013 and will thereafter be either at a ~~member~~variable interest rate or renegotiated at a fixed rate at the end of the ~~Rural~~specified ~~Telephone~~period. ~~Finance~~The ~~Cooperative,~~promissory ~~the~~notes ~~Company~~mature ~~shares~~in 2015 and 2018. Principal payments of $319,000 ~~proportionately~~were inmade during the ~~institution’s~~three ~~net~~months ~~earnings~~ended March 31, 2010. The ~~Rural~~remaining ~~Telephone~~scheduled ~~Finance~~payments ~~Cooperative~~are ~~will~~$995,000 ~~redeem~~in ~~the~~2010, ~~SCCs~~$1.4 million in ~~proportion~~2011, to$1.5 ~~our~~million ~~principal~~in ~~repayments~~2012, on$1.6 ~~Term~~million ~~Loans~~in C2013, $1.7 million in 2014, and D$3.5 million thereafter.

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; 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 September 30, 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 September 30, 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 7.02%. The notes have a fixed interest rate for specific periods of time ranging from December 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 $308,000 and $906,000 were made during the three and nine months ended September 30, 2009. The remaining scheduled payments are $313,000 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. The debt agreements restrict dividends paid by EN-TEL and no amounts are currently available for dividends.

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

SHAL, LLC Notes Payable

On July 1, 2009, the Company acquired substantially all of the assets of Sherburne Tele Systems, Inc. (the “Sherburne Assets”). As part of the acquisition, the Company became the majority owner of SHAL, LLC. As a result, the Company began reflecting the results of operations, cash flows and financial position of SHAL, LLC on a consolidated basis. At the time of the acquisition of the Sherburne Assets, SHAL, LLC had debt outstanding of $4.9 million. The debt is represented by promissory notes payable to the Rural Telephone Finance Cooperative which have quarterly installments of principal and interest. The notes currently bear interest at an average all-in fixed rate of 7.2520%. The notes have a fixed interest rate for specific periods ~~of time ranging from January 2010~~ through January 2012 and will thereafter be either at a variable interest rate or renegotiated at a fixed rate at the end of the specified period. The promissory notes mature in ~~January~~October ~~2015~~2014. A principal payment of $~~181~~188,000 was made during the quarter ended ~~September~~March 3031, ~~2009~~2010. The remaining scheduled payments are $~~184~~584,000 in ~~2009, $772,000 in~~ 2010, $830,000 in 2011, $893,000 in 2012, $960,000 in 2013, ~~and~~ $1.0 million ~~thereafter~~in 2014.

The notes are secured by the assets of SHAL, LLC and SHAL Networks, Inc. The debt agreements restrict dividends paid by SHAL, LLC. ~~and~~Currently, $~~950~~993,000 is ~~currently~~ available for dividends.

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

Interest Rate Swaps

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

87. 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, ~~983~~and,~~883~~ ~~have~~as ~~been~~of ~~exercised~~March 31, ~~and 212~~2010,~~036~~ ~~remained~~all ~~outstanding~~remaining ~~as of~~options ~~September 30,~~have ~~2009~~been exercised. No new options will be granted under the 2002 Incentive Plan. The term of each option did not exceed 10 years from the date of grant. Options granted to employees vested over 3 to 5 years from the date of the grant. All unvested options outstanding at the time of the closing of the Company’s initial public offering vested pursuant to the terms of the 2002 Incentive Plan. The exercise price for unexercised options iswas automatically decreased by the amount of dividends that would have been paid on the shares issuable upon exercise.

14During the three month period ended March 31, 2009, the Company recorded $104,000 of stock-based compensation expense to reflect the change in the fair value of the options due to the reduction of the exercise price resulting from the declaration of cash dividends.

The Company recorded $86,000 and $278,000 of stock-based compensation expense during the three and nine month periods ended September 30, 2009, respectively, to reflect the change in the fair value of the options due to the reduction of the exercise price resulting from the declaration of cash dividends. During the three and nine month periods ended September 30, 2008, the Company recorded $269,000 and $803,000 of stock-based compensation expense, respectively, to reflect the change in the fair value of the options due to the reduction of the exercise price resulting from the declaration of cash dividends.

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

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2008		2009		2008		2009
	2009		2010
Weighted Average Expected Life (in years)	10.~~2 yr~~7yr		~~0.1 yr~~NA		~~1.4 yr~~		~~0.5 yr~~
Risk free interest rate	10.502	%	~~0.03~~NA	%	~~1.79~~	%	~~0.12~~	%
Volatility	3240.5	%	31NA	%	31	%	39	%
Dividend yield	0	%	0NA	%	0	%	0	%

A summary of the status of options granted under the 2002 Incentive Plan as of ~~September~~ March 3031, ~~2008~~2009 and ~~2009~~2010, and the changes during the three ~~and nine~~ month periods then ended, is presented below:

	Three Months EndedSeptember 30, 2008					Three Months EndedSeptember 30, 2009
	Three Months EndedMarch 31, 2009						Three Months EndedMarch 31, 2010
Fixed Options	Shares		~~WeightedAverageExercise Priceper Share~~	WeightedAverageExercise Priceper Share		~~Shares~~	Shares		~~WeightedAverageExercise Priceper Share~~	WeightedAverageExercise Priceper Share
OUTSTANDING AT JUNE 30,	677,579		$	2.29		217,036			$	0.64
OUTSTANDING AT BEGINNING OF PERIOD	677,579			$	1.48		38,141			$	0.24
Granted	—			—	—	—	—			—	—
Exercised	—(419,116	)		—	1.41	~~(5,000~~	)(38,141	)		~~0.50~~	0.24
OUTSTANDING AT SEPTEMBER 30,	677,579		$	1.89		212,036			$	0.24
OUTSTANDING AT MARCH 31,	258,463			$	1.21		—			$	—
	Nine Months EndedSeptember 30, 2008					Nine Months EndedSeptember 30, 2009
Fixed Options	Shares		WeightedAverageExercise Priceper Share			Shares			WeightedAverageExercise Priceper Share
OUTSTANDING AT BEGINNING OF YEAR	677,579		$	3.10		677,579			$	1.08
Granted	—			—		—				—
Exercised	—			—		(465,543	)			1.45
OUTSTANDING AT SEPTEMBER 30,	677,579		$	1.89		212,036			$	0.24

~~The~~11 ~~following table summarizes information about stock options outstanding at September 30, 2009:~~

	Options Outstanding		Options Exercisable
Exercise Price per Share Range	Number	WeightedAverageRemainingContractualLife In Years	Number	WeightedAverageExercise Priceper Share		WeightedAverageAggregateIntrinsic Value
$0.01 to $0.50	156,102	2.6	156,102	$	0.09	$	1,952,173
$0.51 to $1.00	55,934	2.6	55,934	$	0.64	$	668,921

The weighted average exercise prices of options exercisable at September 30, 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 to an aggregate of 1.5 million shares of restricted or unrestricted stock, of which 1,~~033~~285,800 shares of restricted stock, net of forfeitures and cancellations, have been awarded to various officers and employees of the Company, and 1420,757 ~~shares~~ shares of unrestricted stock have been issued to members of the Company’s Board of Directors as of March 31, 2010.

A summary of the status of the restricted shares awarded pursuant to the 2005 Incentive Plan as of ~~September~~March 3031, ~~2008~~2009 and ~~2009~~2010, and the changes during the three ~~and~~months ~~nine month periods~~ then ended, is presented below:

	Three Months EndedSeptember 30, 2008				Three Months EndedSeptember 30, 2009
	Three Months EndedMarch 31, 2009				Three Months EndedMarch 31, 2010
	Shares		WeightedAverageGrant DateFair Value		Shares		WeightedAverageGrant DateFair Value
OUTSTANDING AT JUNE 30,	506,775		$	18.76	690,700		$	16.49
OUTSTANDING AT BEGINNING OF PERIOD	471,150		$	18.77	747,075		$	15.97
Granted	—299,000	(1)		—13.77	~~100~~260,000	(12)		1317.2208
Vested	~~(35,625~~—	)		~~18.66~~—	~~(35,625~~—	)		~~18.66~~—
OUTSTANDING AT SEPTEMBER 30,	471,150		$	18.77	755,075		$	15.95
OUTSTANDING AT MARCH 31,	770,150		$	16.83	1,007,075		$	16.25
	Nine Months EndedSeptember 30, 2008				Nine Months EndedSeptember 30, 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	(2)		16.73	399,000	(3)		13.63
Vested	(81,825	)		18.47	(115,075	)		19.43
OUTSTANDING AT SEPTEMBER 30,	471,150		$	18.77	755,075		$	15.95

(1) Weighted average vesting period at grant date for shares granted is 3649 months.

(2) Weighted average vesting period at grant date for shares granted is 6148 months.

~~(3)~~The ~~Weighted~~Company ~~average~~recognizes ~~vesting~~compensation cost related to awards of restricted stock on a straight-line basis over the requisite service period atfor ~~grant~~the ~~date~~entire award. The Company recorded $704,000 and $992,000 of stock-based compensation expense during the three month periods ended March 31, 2009 and 2010, respectively. The remaining amount to be charged to expense for ~~shares~~the ~~granted~~unvested awards over the remaining service periods is 46$11.6 ~~months~~million as of March 31, 2010. The Company also recorded $77,000 and $98,000 of expense during the three month periods ended March 31, 2009 and 2010, respectively, related to the unrestricted shares issued to members of its Board of Directors.

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 $872,000 and $2.4 million of stock-based compensation expense during the three and nine month periods ended September 30, 2009, respectively. The Company recorded $620,000 and $1.8 ~~million of stock-based compensation expense during the three and nine month periods ended September 30, 2008, respectively~~. ~~The~~DISCLOSURES ~~remaining~~ABOUT ~~amount~~FAIR toVALUE beOF ~~charged~~INTEREST toRATE ~~expense~~SWAPS for the unvested awards over the remaining service periods is $9.2 million as of September 30, 2009. The Company also recorded zero and $77,000 of expense during the three and nine month periods ended September 30, 2009, respectively, related to the unrestricted shares issued to members of its Board of Directors. During the three and nine month periods ended September 30, 2008, the Company recorded zero and $93,000, respectively, of expense related to the unrestricted shares issued to members of its Board of Directors. The total fair value of shares vested during the three and nine months periods ended September 30, 2009 was $437,000 and $1.4 million, respectively.

9. DISCLOSURES ABOUT FAIR VALUE OF INTEREST RATE SWAPS

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

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

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

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

~~The~~12 fair values of the interest rate swaps have been calculated by discounting the future cash flows of both the fixed rate and variable rate interest payments using discount rates appropriate with consideration given to the Company’s non-performance risk. The inputs used in determining the fair value fall within Level 2 of the fair value hierarchy, as defined in FASB ASC 820, Fair Value Measurements and Disclosures. See Note 11 for further information regarding the fair value measurement of the interest rate swaps.

		Fair Value
	Balance Sheet	As ofDecember 31,2008		As ofSeptember 30,2009
		(dollars in thousands)
Interest rate swap contracts	Other long-term liabilities	$	22,155	$	20,126

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

Gain Recognized in OCI (effective portion)							Loss Reclassified fromAccumulated OCI into Income(effective portion)							Loss Recognized in Income(ineffective portion)
	Three Months EndedSeptember 30,							Three Months EndedSeptember 30,							Three Months EndedSeptember 30,
	2008			2009			Income Statement	2008			2009			Income Statement	2008			2009
	(dollars in thousands)							(dollars in thousands)							(dollars in thousands)
Other comprehensive income (loss)	$	(2,894	)	$	(788	)	Interestexpense	$	(1,175	)	$	(3,153	)	Otherexpense	$	(144	)(1)	$	(236	)(2)
Gain or (Loss) Recognized in OCI (effective portion)							Loss Reclassified fromAccumulated OCI into Income(effective portion)							Loss Recognized in Income(ineffective portion)
	Nine Months EndedSeptember 30,							Nine Months EndedSeptember 30,							Nine Months EndedSeptember 30,
	2008			2009			Income Statement	2008			2009			Income Statement	2008			2009
	(dollars in thousands)							(dollars in thousands)							(dollars in thousands)
Other comprehensive income (loss)	$	(2,962	)	$	2,377		Interestexpense	$	(1,805	)	$	(8,052	)	Otherexpense	$	(403	)(3)	$	(540	)(4)

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

(1) The amount of loss recognized in income includes $79,000 related to the ineffective portion of the hedging relationship and $65,000 related to the amortization of Accumulated OCI on the terminated hedge discussed above.


		Fair Value
	Balance Sheet	As of December 31, 2009		As of March 31, 2010
		*(dollars in thousands)*
Interest rate swap contracts	Other long-term liabilities	$	18,289	$	18,303

~~(2)~~FASB ~~The~~ASC ~~amount~~815, Derivatives ofand ~~loss~~Hedging, ~~recognized~~requires companies to recognize all derivative instruments as either assets or liabilities at fair value in ~~income~~the ~~includes~~balance ~~$171~~sheet. In accordance with FASB ASC 815,~~000~~ ~~related~~the tointerest rate swaps held by the ~~ineffective~~Company are designated and qualify as cash flow hedges of fixed-rate borrowings. The effective portion of the ~~hedging~~gain ~~relationship~~or loss on the derivative is reported as a component of other comprehensive income (loss) and ~~$65,000~~reclassified ~~related~~into toearnings in the ~~amortization~~same ofperiod ~~Accumulated~~or ~~OCI~~periods during which the hedged transaction affects earnings. Gains and losses on the ~~terminated~~derivative representing either hedge ~~discussed~~ineffectiveness ~~above~~or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

(3) The amount of loss recognized in income includes $338,000 related to the ineffective portion of the hedging relationship and $65,000 related to the amortization of Accumulated OCI on the terminated hedge discussed above.

Gain Recognized in OCI

(effective portion)

Loss Reclassified from
Accumulated OCI into Income
(effective portion)

Loss Recognized in Income
(ineffective portion)

Three Months Ended
March 31,

2009

2010

Income Statement

2009

2010

Income Statement

2009

2010

(dollars in thousands)

Other comprehensive income

115

Interest
expense

(2,331

)

(3,388

)

Other
expense

(173

)⁽¹⁾

(192

)⁽²⁾

(41) The amount of loss recognized in income includes $~~348~~110,000 related to the ineffective portion of the hedging relationship and $~~192~~63,000 related to the amortization of Accumulated OCI on the terminated hedge discussed above.

In(2) ~~addition~~The toamount ~~the amounts shown above, the Condensed Consolidated Statements~~ of ~~Income~~loss ~~for~~recognized ~~the~~in ~~three~~income ~~and~~includes ~~nine months ended September 30~~$129,000 ~~2008 include certain amounts~~ related to the ~~termination~~ineffective ofportion ~~an interest rate swap agreement. The guarantor~~ of ~~a floating rate payer under an interest rate swap agreement declared bankruptcy during~~ the ~~third~~hedging ~~quarter~~relationship ofand ~~2008 resulting in a default of the agreement. In accordance with the agreement~~$63,000 ~~the~~related ~~Company elected~~ to ~~terminate~~ the ~~agreement~~amortization ~~effective~~of ~~September 26,~~Accumulated ~~2008.~~OCI ~~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. The following impacts are included in~~ the ~~Condensed~~terminated ~~Consolidated~~hedge ~~Statements~~discussed ~~of Income for the three and nine months ended September 30, 2008 (in thousands):~~ above.

Interest rate swap not qualifying as hedging instrument:
Hedge ineffectiveness on interest rate swap	$	(676	)
Termination of interest rate swap		1,848
Total adjustments to Other Income (Expense)	$	1,172

9. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS

10. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS

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

In accordance with FASB ASC 855, Subsequent Events, the Company has evaluated and disclosed subsequent events through ~~October 29,~~ ~~2009,~~ the date the financial statements were issued.

~~Asset~~On ~~acquisition~~November 23, of2009, WHthe ~~Comm.~~Company ~~(“WH~~entered into the Merger Agreement with Windstream ~~Comm”)~~and Newco. OnThe ~~June 23,~~Merger ~~2009~~Agreement provides that, upon the ~~Company~~terms ~~announced~~and asubject ~~definitive~~to ~~agreement~~the toconditions ~~acquire~~set ~~substantially~~forth ~~all~~in the ~~assets~~Merger ofAgreement, WHwe ~~Comm~~will ~~for~~merge ~~$1.1~~with ~~million~~and into Newco, ~~subject~~with toNewco ~~regulatory~~continuing ~~approval~~as the surviving corporation. WHPursuant ~~Comm~~to isthe Merger Agreement, at the effective time and as a ~~division~~result of ~~Wright-Hennepin~~the ~~Cooperative Electric~~Merger, ~~Association~~each ~~based~~share inof ~~Rockford~~Iowa Telecom common stock, MNpar value $0.01 WHper ~~Comm~~share, aissued ~~Competitive~~and ~~Local~~outstanding ~~Exchange~~immediately ~~Carrier~~prior to the effective time of the Merger will be converted into and become exchangeable for (~~CLEC~~i), shares ~~provides~~of ~~voice~~common ~~and~~stock ~~high~~of ~~speed~~Windstream ~~DSL~~at ~~Internet~~a fixed exchange ratio of 0.804 and (ii) $7.90 in ~~several~~cash. ~~communities~~Each ~~near~~share of restricted stock awarded under our 2005 Stock Incentive Plan will be treated the ~~western~~same ~~suburbs~~as any other outstanding share of Company ~~Minneapolis~~common stock, ~~Minnesota.~~but Asthe forfeiture provisions and other terms and conditions of ~~September 30~~the ,restricted ~~2009, WH~~stock ~~Comm~~will ~~had~~continue ~~approximately~~to ~~2,000~~apply ~~access~~to ~~lines~~the merger consideration received for the restricted stock and ~~700~~the ~~DSL~~cash ~~subscribers~~portion of the consideration will be retained by Windstream until the restrictions have lapsed.

11The transaction is expected to close mid - 2010. ~~DISCLOSURES~~Completion ~~ABOUT~~of ~~FAIR~~the Merger ~~VALUE~~with OFWindstream ~~FINANCIAL~~is ~~INSTRUMENTS~~conditioned upon the receipt of certain governmental consents and approvals, and Iowa Telecom shareholders’ approval. The Iowa Telecom shareholders approved the transaction at a special meeting on March 25, 2010. No assurance can be given that the other required conditions to closing will be satisfied or that the Merger will be completed. Pending completion of the Merger, Iowa Telecom is subject to various covenants contained in the Merger Agreement that restrict Iowa Telecom’s ability to operate its business outside the ordinary course of business.

~~Fair~~13 ~~Value of Financial Instruments~~

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

~~Interest~~Factors ~~Rate~~outside ~~Swaps—These~~of ~~included the Company~~management’s ~~interest~~control ~~rate~~could ~~swap derivative~~delay ~~instruments.~~or ~~The~~prevent ~~fair~~completion ~~value~~ of the ~~interest rate swaps was determined based on the present value of expected future cash flows using discount rates appropriate with consideration given to the Company’s non-performance risk utilizing~~ ~~inputs~~proposed ~~that are readily available in public markets or can be derived from information available in publicly quoted markets~~Merger. ~~Therefore,~~In the ~~Company~~event ~~has~~of ~~categorized these swap contracts as Level 2. Deducted from the September 30, 2009, interest rate swap fair value calculation was~~ a ~~$680,000~~termination ~~adjustment in consideration~~ of the ~~Company’s~~Merger ~~non-performance~~Agreement, ~~risk.~~we ~~The~~may ~~Company’s~~be ~~non-performance~~required ~~risk~~to ispay ~~assessed~~Windstream ~~based~~a ontermination ~~the~~fee ~~current trading discount~~ of ~~its Term Loan B debt as the swap agreements are secured by the same collateral~~$25.0 ~~The~~million ~~fair value of the interest rate swaps is recorded~~ in ~~the~~certain ~~Other Long-Term Liabilities section of the Company’s Consolidated Balance Sheets~~circumstances.

~~Cash~~In ~~Equivalents~~addition, ~~and~~on ~~Investments—Cash~~November 24, ~~equivalents~~2009, ~~consist~~a purported shareholder of ~~funds~~Iowa ~~invested~~Telecom infiled ~~money~~a ~~market~~petition ~~funds~~styled ~~that~~as ~~have~~a ~~daily~~class action lawsuit in the ~~liquidity~~Iowa District Court for Jasper County. ~~Investments~~The ~~held~~case incaption ~~rabbi~~is: ~~trust~~Stephen ~~account~~Smigel ~~consist~~on behalf of ~~investments~~himself inand ~~stock~~all ~~and~~others ~~mutual~~similarly ~~funds~~situated ~~with~~v. ~~quoted~~Iowa ~~market~~Telecommunications ~~prices~~Services, ~~that~~Inc., ~~are~~Alan ~~actively~~L. ~~traded~~Wells, Kenneth R. ~~Therefore~~Cole, ~~cash~~Norman ~~equivalents~~C. Frost, Brian G. Hart, H. Lynn Horak, Craig A. Lang, Kendrik A. Packer and ~~investments~~Windstream ~~held~~Corporation. The petition alleges that Iowa Telecom’s board members breached their fiduciary duties in ~~rabbi~~agreeing ~~trust~~to ~~account~~the ~~are~~Merger ~~categorized~~and asthat Windstream aided and abetted in the breaches of ~~Level~~fiduciary duties. The petition asserts, among other things, that the consideration to be paid to Iowa Telecom’s shareholders is insufficient. The lawsuit seeks to enjoin the Merger. On December 115, 2009, Iowa Telecom moved to dismiss this petition. Windstream moved to dismiss the petition on January 4, 2010. Those motions remain pending. The ~~following~~plaintiff ~~table~~filed ~~presents~~a motion for expedited discovery on December 22, 2009. A hearing was held on the ~~fair~~plaintiff’s ~~value~~motion offor expedited discovery on January 15, 2010. The Court decided that it would defer a decision on the ~~Company~~motion for expedited discovery until it decided Iowa Telecom’s ~~financial~~and ~~instruments:~~Windstream’s motions to dismiss.

	Fair Value Measurements as of September 30, 2009
	CarryingAmount		Totals		Level 1		Level 2		Level 3
	(dollars in thousands)
Cash equivalents	$	9,941	$	9,941	$	9,941	$	—	$	—
Investments held in rabbi trust account	$	880	$	880	$	880	$	—	$	—
Interest rate swaps	$	20,126	$	20,126	$	—	$	20,126	$	—

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

~~See~~On December 11, ~~Note~~2009, 9a ~~for~~purported ~~additional~~shareholder ~~information~~filed ~~regarding~~a complaint in the ~~fair~~United ~~value~~States District Court for the Southern District of Iowa. This complaint names Iowa Telecom’s individual board members, Iowa Telecom and Windstream as defendants and asserts that Iowa Telecom’s board members breached their fiduciary duties in agreeing to the ~~Company~~Merger. It also seeks to enjoin the Merger. On December 17, 2009, the plaintiff in this action moved for expedited discovery. Windstream and Iowa Telecom both responded in opposition to this motion. A hearing was held on the plaintiff’s motion for expedited discovery on January 12, 2010. On January 21, 2010, the Court granted in part and denied in part the plaintiff’s ~~interest~~motion ~~rate~~for ~~swap~~expedited ~~agreements~~discovery, ordering that Windstream’s and Iowa Telecom’s motions to dismiss would be heard before any discovery would begin, but that production of documents would occur on an expedited basis if the Court denies the motions to dismiss.

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

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

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

10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

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

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

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

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


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


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

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

Carrying Amount and Fair Value of Other Financial Instruments

~~The~~Long-Term ~~following~~Investments—Long-term ~~methods~~investments consist primarily of Rural Telephone Finance Cooperative (“RTFC”) Subordinated Capital Certificates and ~~assumptions~~Patronage ~~were~~Capital ~~used~~Certificates. It is not practicable to estimate the fair value of ~~each~~the ~~class~~RTFC ofSubordinated ~~financial~~Capital ~~instruments~~Certificates because there is no quoted market price for ~~which~~these itinstruments. Therefore, the RTFC Subordinated Capital Certificates are recorded at cost. Ownership of RTFC Subordinated Capital Certificates is ~~practicable to~~a ~~estimate~~requirement ~~that~~of ~~value:~~the Company’s debt agreement with the RTFC.

~~Cash~~15 ~~and Cash Equivalents—The carrying amount approximates fair value because of the short maturity of these instruments.~~

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

Debt—The fair value of the Term Loan C, Term Loan D, EN-TEL debt and SHAL debt was estimated using discounted cash flow calculations and current market interest rates. The fair value of the Term Loan B debt was estimated based upon recent observable transactions for the Term Loan B debt. See Note 7 for additional information regarding the Company’s long-term debt.

The estimated fair value of the Company’s financial instruments as of September 30, 2009, was as follows:

	CarryingAmount		Fair Value
	(dollars in thousands)
Financial Assets:
Cash and Cash equivalents	$	12,091	$	12,091
Financial Liabilities:
Fixed Rate long-term debt:
Term Loan C	$	70,000	$	73,002
Term Loan D	$	7,778	$	8,111
EN-TEL debt	$	11,538	$	11,958
SHAL, LLC debt	$	4,672	$	4,895
Floating rate debt:
Term Loan B	$	475,000	$	460,750

~~Certain~~Debt—The ~~financial~~fair ~~instruments~~value ~~potentially~~of ~~subject~~ the ~~Company~~Term toLoan ~~concentrations~~C, ofTerm ~~credit risk.~~Loan ~~These~~D, ~~financial~~EN-TEL ~~instruments~~debt ~~consist~~and ~~primarily~~SHAL debt ofwas ~~trade~~estimated ~~receivables,~~using discounted cash ~~and~~flow ~~temporary~~calculations ~~cash~~and ~~investments~~current ~~and~~market interest ~~rate~~rates. ~~swaps~~The fair value of the Term Loan B debt was estimated based upon recent observable transactions for the Term Loan B debt. See Note 6 for additional information regarding the Company’s long-term debt.

The ~~Company~~fair ~~places~~value ~~its cash~~ and ~~cash~~carrying ~~equivalents~~value ~~with~~of ~~high~~the ~~credit quality financial institutions. The~~ Company’s ~~also periodically evaluates the credit~~long-~~worthiness~~term ofdebt, ~~the~~including current ~~institutions~~maturities, ~~with~~was ~~which~~as itfollows: ~~invests.~~

12. BUSINESS ACQUISITIONS


	As of December 31, 2009		As of March 31, 2010
	*(dollars in thousands)*
Fair value	$	568,582	$	573,824
Carrying value	$	568,490	$	567,984

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 approximately $33 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 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.~~INCOME TAXES

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

~~Sherburne Tele Systems, Inc~~12. ~~Assets. On July 1~~GOODWILL, ~~2009,~~INTANGIBLE ~~the~~ASSETS ~~Company acquired substantially all of the assets of Sherburne Tele Systems, Inc., a provider of telecommunications services to~~AND ~~nine~~OTHER communities adjacent to the Minneapolis/St. Paul Metropolitan Area. The acquisition of the Sherburne Assets expanded the Company’s service area and customer base. The purchase price was approximately $79.7 million in cash (net of cash acquired), subject to certain tax adjustments. The transaction may result in a tax basis step-up.

~~Included in the assets of Sherburne was a one-third interest in certain joint ventures including SHAL, LLC and SHAL Networks, Inc.~~ The Company ~~had~~performs ~~previously~~its ~~owned~~annual aimpairment ~~one-third~~review ~~interest in these entities. As a result~~ of ~~the~~goodwill ~~acquisition~~and ofindefinite-lived ~~the~~intangible ~~Sherburne~~assets ~~Assets,~~as ~~the~~required ~~Company~~by ~~became~~FASB ~~the~~ASC ~~majority~~350, ~~owner~~Intangibles—Goodwill and ~~began~~Other, ~~accounting for its ownership interest~~ in ~~these~~the ~~entities~~third onquarter aof ~~consolidated~~every ~~basis~~year. AsNo ~~such,~~impairment ~~the Company has reflected the outstanding balance~~ of ~~the~~goodwill ~~SHAL,~~or ~~LLC~~other ~~debt~~long-lived ofintangible ~~$4.9~~assets ~~million~~resulted infrom ~~its~~the ~~consolidated~~annual ~~balance~~valuation ~~sheet~~ as of ~~July~~August 131, 2009.

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


	As of December 31, 2009			As of March 31, 2010
	*(dollars in thousands)*
Goodwill	$	492,956	⁽¹⁾	$	492,956	⁽¹⁾

~~New~~(1) ~~Ulm~~Goodwill ~~Telecom~~for ~~Inc.’s Ownership Interests. On September 24, 2009,~~ the ~~Company~~year ~~acquired~~December ~~New Ulm Telecom Inc.’s ownership interests in EN-TEL~~31, ~~SHAL,~~2009 ~~LLC~~ and ~~SHAL Networks, Inc. for a purchase price of $1.9 million. In addition,~~ the ~~Company~~three ~~assumed~~months ~~New~~ended ~~Ulm~~March ~~Telecom Inc.’s debt guarantee obligations on the SHAL~~31, ~~LLC~~2010 ~~and~~include ~~EN-TEL~~accumulated ~~debt.~~impairment ~~The~~losses ~~outstanding balances due on the SHAL and EN-TEL debt as~~ of ~~September 30, 2009 are reflected in the consolidated financial statements~~$98.4 million.

20Intangible assets and other consisted of the following:


		March 31, 2010
	Life	Cost		Accumulated Amortization			Net Book Value
		*(dollars in thousands)*
Definite-lived intangible assets	4-20 years	$	31,792	$	(9,111	)	$	22,681
Debt issuance costs	7 years		6,498		(3,972	)		2,526
Wireless licenses	—		18,987		—			18,987
Other assets	NA		6,086		—			6,086

Total		$	63,363	$	(13,083	)	$	50,280


		December 31, 2009
	Life	Cost		Accumulated Amortization			Net Book Value
		*(in thousands)*
Definite-lived intangible assets	4-20 years	$	31,792	$	(8,288	)	$	23,504
Debt issuance costs	7 years		6,498		(3,589	)		2,909
Wireless licenses	—		18,987		—			18,987
Other assets	NA		5,838		—			5,838

Total		$	63,115	$	(11,877	)	$	51,238

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


2010	$	2,472
2011		2,935
2012		2,553
2013		2,247
2014		2,159
Thereafter		10,315

Total	$	22,681

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~~2009 constitute cautionary statements identifying factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future results indicated in such forward-looking statements. Other factors could also cause actual results to vary materially from the future results indicated in such forward-looking statements. Unless otherwise stated, the forward-looking information contained in this report does not take into account or give effect to the impact of the proposed Merger with Windstream described below. With respect to the forward-looking information contained in this report relating to the Merger, the following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements relating to the Merger: risks associated with uncertainty as to whether the Merger will be completed, costs and potential litigation associated with the transaction, the failure of either party to meet the closing conditions set forth in the Merger Agreement, and the extent and timing of regulatory approvals.

Overview

General

Iowa Telecommunications Services, Inc. (the “Company,” “Iowa Telecom,” “we,” “us” or “our”) and its subsidiaries provide wireline local exchange telecommunications services to residential and business customers in rural Iowa, Minnesota and Missouri. We currently operate 298 telephone exchanges serving 428 communities as the incumbent or “historical” local exchange carrier and are the sole telecommunications company providing wireline services in approximately 67% of these communities. In addition, we provide service to residential and business customers throughout Iowa and ~~portions of~~ Minnesota as a competitive local exchange carrier. In total, we provide services to approximately ~~255~~249,~~600~~100 access lines.

Our core business is the provision of local telephone service to end users and network access to other telecommunications carriers for calls originated or terminated on our network. In addition to these core activities, which generated 6461% of our total revenues in the first ~~nine~~three months of ~~2009~~ 2010, we provide long distance service, dial-up and DSL Internet access and other communications services. We provide services as the incumbent local exchange carrier (“ILEC”) through Iowa Telecom and its wholly-owned subsidiaries: Lakedale Telephone Company (“Lakedale Telephone”) and Montezuma Mutual Telephone Company (“Montezuma Telephone”). ~~On July 1, 2009, the Company, through its subsidiaries, acquired substantially all of the assets of Sherburne Tele Systems, Inc. (“Sherburne” or “the Sherburne Assets”).~~ As ~~of July 1, 2009 Lakedale Telephone includes the acquired ILEC assets of Sherburne. As~~ part of our strategy of pursuing growth beyond our current service area, we compete for customers in Iowa in mostly adjacent markets through our competitive local exchange carrier subsidiaries Iowa Telecom Communications, Inc. (“ITC”) and IT Communications, LLC (“IT Communications”). Additionally, EN-TEL Communications LLC (“EN-TEL”) Lakedale Link, Inc., and Lakedale Link, LLC are competitive local exchange carriers that provide local and long distance services in Minnesota. Together, ITC, IT Communications, EN-TEL, Lakedale Link, Inc., and Lakedale Link, LLC are referred to as the “CLEC” or our “CLEC Operations”. ~~As of July 1, 2009 Lakedale Link, LLC includes the Sherburne CLEC assets.~~

Windstream Merger Agreement

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

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

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

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

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

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

•

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

•

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

•

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

•

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

•

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

•

amend its articles of incorporation or bylaws;

•

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

•

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

•

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

•

enter into or adopt any benefit plan or amend in any respect any benefit plan;

•

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

•

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

•

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

•

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

•

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

•

encumber any tangible properties or assets or any interests therein;

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

Factors Affecting Our Operating Performance

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

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

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 September 30,
	As of March 31,
	2008	2009(4)
	2009	2010(4)
Incumbent local exchange access lines(1)	~~213~~206,~~700~~100	~~214~~207,~~100~~300
Competitive local exchange carrier access lines(2)	32,~~100~~400	41,~~500~~800
Total access lines	~~245~~238,~~800~~500	~~255~~249,~~600~~100
Long distance subscribers	~~147~~145,~~600~~000	~~160~~155,~~100~~300
Dial-up Internet subscribers	1815,~~500~~100	119,~~800~~100
DSL subscribers	7478,~~500~~200	9495,~~500~~900
Video subscribers(3)	1821,~~500~~400	2627,~~400~~500

(1) Includes lines subscribed by our incumbent local exchange carrier retail customers and lines subscribed by our “wholesale” customers who are competing local exchange carriers. Wholesale access lines include: lines subscribed by our local exchange carrier competitors pursuant to interconnection agreements on an unbundled network element basis, for which the competitive local exchange carrier pays us a monthly fee; lines that we provide to competitive local exchange carriers for resale to their subscribers, for which the competitive local exchange carrier pays us a monthly fee equal to what we would charge our customers for local service less an agreed discount; and shared lines, for which a competitive local exchange carrier pays us a monthly fee to provide DSL service to its customers. We had 2,~~400~~100 wholesale lines subscribed at ~~September~~March 3031, ~~2008~~2009 and 1,~~900~~700 at ~~September~~March 3031, ~~2009~~2010.

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

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

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

		As of September 30,
		2009
Incumbent local exchange access lines		14,300
Competitive local exchange carrier access lines		9,600
Total access lines		23,900
Long distance subscribers		18,600
Dial-up Internet subscribers		500
DSL subscribers		14,600
Video subscribers		3,600

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

Competition. We currently face competition from other providers of local services in approximately 141 of the 428 communities our incumbent local exchange carriers serve. Of these 141 communities, we believe 109 communities have some voice service offered by Mediacom’s telephony affiliates, MCC Telephony of Iowa, Inc. and MCC Telephony of Minnesota, ~~LCC~~ LLC (“MCC”), which initiated service in most of these markets during the second quarter of 2007. Additionally, we believe that in approximately 4142 of these communities, independent local exchange carriers operating in mostly adjacent exchanges and municipal utilities have constructed networks to provide competitive local exchange carrier services to customers in our exchanges.

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

The jurisdiction of the Iowa Utilities Board ~~(“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 ~~expired~~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”). OnWe ~~June 23,~~challenged ~~2006, we filed a complaint against~~ the ~~Board~~manner ~~and Sprint~~ in ~~the~~which ~~U.S.~~Sprint ~~District~~sought ~~Court~~to ~~for~~implement ~~the~~such ~~Southern~~an ~~District~~arrangement ofbefore ~~Iowa~~both ~~asking~~ the ~~court~~Iowa toUtilities ~~rule~~Board ~~that~~and, ~~the~~later, ~~Board acted~~before ~~unlawfully~~federal ~~when~~courts. itConcurrent ~~required~~with usthe tochallenges ~~enter~~before ~~into~~the anIowa ~~interconnection~~Utilities ~~agreement~~Board, ~~with~~MCC ~~Sprint~~filed a ~~and~~complaint ~~asking~~in the ~~court~~Iowa toDistrict ~~invalidate~~Court ~~the~~for ~~agreement.~~Polk OnCounty ~~April~~on July 1531, ~~2008~~2006, ~~the~~alleging ~~court~~that ~~issued~~our arefusal ~~ruling~~to inaccede ~~favor~~to ofSprint’s ~~the~~negotiation ~~Board~~demands ~~and~~improperly ~~Sprint,~~interfered ~~therefore~~with ~~maintaining the~~MCC’s ~~status~~contracts ~~quo~~and inprospective ~~which~~customer werelationships. ~~are~~On January 20, ~~obligated~~2010, towe ~~enter~~executed ~~into~~ an interconnection agreement with ~~Sprint.~~MCC Wethat ~~appealed~~envisions ~~this~~MCC ~~decision~~connecting directly to ~~the~~us ~~U.S.~~rather ~~Court~~than ofthrough ~~Appeals~~Sprint ~~for~~and ~~the Eighth Circuit~~ on ~~May~~February 145, ~~2008. The Eighth Circuit issued an opinion on April 28~~2010, ~~2009~~MCC ~~affirming~~dismissed ~~the~~its ~~lower~~Iowa ~~court’s~~District ~~decision~~Court ~~(and, ultimately, the Board’s decision)~~complaint. ~~We elected not to seek further review of the Eighth Circuit’s decision.~~

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 Board and Sprint in U.S. District Court asking the court to rule that the 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. On June 12, 2009, the District Court held that the Board acted improperly by requiring us to serve as a traffic-switching intermediary between Sprint and third-party long distance carriers and vacated that part of the order, although the District Court did find that the Board acted properly with regard to another interconnection-related issue. No party appealed this decision, the deadline for which was August 17, 2009.

In addition to the disputes pending in federal district court and before the 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 but the stay was lifted on June 23, 2009 based on the Eighth Circuit’s April 28, 2009 decision. We are currently considering our options in light of the District Court’s June 12, 2009 decision holding partially in our favor. We cannot predict how or when this litigation will be resolved.

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

On ~~September~~ November 241, 2009, the Company completed the acquisition of ~~New~~substantially ~~Ulm Telecom~~all ~~Inc~~the assets of WH Comm (the “WH Comm Assets”).’s ~~ownership~~WH ~~interests~~Comm inwas ENa division of Wright-~~TEL,~~Hennepin ~~SHAL,~~Cooperative ~~LLC,~~Electric ~~SHAL~~Association ~~Networks~~based in Rockford, ~~Inc~~Minnesota. WH Comm, ~~and~~a ~~Direct~~competitive ~~Communications~~local exchange carrier, ~~LLC~~provides ~~(collectively~~telephone ~~referred~~and tohigh asspeed ~~“Joint~~DSL ~~Ventures”)~~Internet ~~for~~in ~~$1.9~~several ~~million~~communities ~~and~~near the ~~assumption~~western suburbs of ~~New~~Minneapolis, ~~Ulm’s~~Minnesota. ~~related~~As ~~debt~~of ~~guarantees.~~December 31, 2009, the WH Comm Assets served approximately 1,800 access lines and 700 DSL subscribers.

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

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

AsOur ~~described~~Ability ~~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~~to ~~residential~~Control ~~service~~Operating ~~and EAS were deregulated~~Expenses. ~~Beginning~~We ~~July 1,~~strive ~~2005,~~to ~~monthly~~control ~~rates~~expenses ~~for~~in ~~single~~order ~~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 amaintain ~~monthly~~our ~~rate~~operating ~~cap of $19~~margins.00 ~~for~~We ~~residential~~anticipate ~~lines~~that ~~and~~operating ~~$38.00~~expenses ~~for~~generally ~~business~~will ~~lines.~~remain ~~These~~stable ~~rate~~in ~~caps~~line ~~did~~with ~~not,~~revenue ~~however, include charges for EAS~~changes. ~~The~~Because ~~remaining~~some ~~retail~~of ~~local~~our ~~exchange~~operating ~~service~~expenses, ~~rate regulation in our~~such ~~then-rate-regulated~~as ~~exchanges,~~those ~~with~~relating ~~the~~to ~~arguable~~sales ~~exception~~and ~~of EAS~~marketing, ~~expired~~are ~~effective July 1~~variable, ~~2008.~~we ~~The~~believe ~~Board~~we ~~had~~can ancalibrate ~~opportunity~~expenses to ~~extend~~growth ~~such~~in ~~remaining~~the ~~rate~~business ~~regulation~~to ~~until July 1, 2010, but, in~~ a ~~June 27,~~significant ~~2008 order, found that an extension of rate regulation was not in the public interest~~degree.

~~Our~~Development ~~Ability~~of our Competitive Local Exchange Carrier Strategy. Part of our business strategy is to ~~Control~~use ~~Operating~~our ~~Expenses~~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.

WeAs ~~strive~~of toMarch 31, ~~control~~2010, ~~expenses~~our inCLEC ~~order~~served to41,800 ~~maintain~~access ~~our operating margins~~lines. WeOur ~~anticipate~~CLEC ~~that~~Operations ~~operating~~accounted ~~expenses~~for ~~generally~~16.8% ~~will~~of ~~remain stable~~Iowa inTelecom’s ~~line~~total ~~with~~access ~~revenue changes~~lines. ~~Because~~Throughout ~~some of our operating expenses~~2010, ~~such~~we asplan ~~those relating~~ to ~~sales~~maintain ~~and~~a ~~marketing,~~limited ~~are~~investment ~~variable,~~approach weas ~~believe~~ we ~~can~~continue ~~calibrate expenses~~ to ~~growth~~grow inour ~~the~~competitive ~~business~~local toexchange acarrier ~~significant degree~~business.

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 September 30, 2009, our CLEC served 41,500 access lines and accounted for 16.2% 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~~23 Access Services. We receive revenues from charges established to compensate us for the origination, transport and termination of calls generated by the customers of long distance carriers and for calls transported and terminated for the customers of wireless carriers. These include subscriber line charges imposed on end users, and switched and special access charges paid by carriers and others. We receive federally administered universal service support, representing approximately 3% of our total revenue in the first nine 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 and Lakedale Telephone (through the Sherburne County Rural Telephone study area) received high cost loop universal service support amounting to less than 1% of our revenue. Our incumbent local exchange carrier (Iowa Telecommunications, Inc.) and our independent incumbent local exchange carriers (Lakedale Telephone and Montezuma Telephone) switched access charges are based on rates approved by applicable state regulatory agencies. Our incumbent local exchange carrier and our independent incumbent local exchange carriers switched and special access charges for interstate and international services are based on rates approved by the FCC. The transport and termination charges paid by wireless carriers to our incumbent local exchange carriers are specified in interconnection agreements negotiated with each individual wireless carrier.

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

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

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

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

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

	Nine Months EndedSeptember 30,				% of Total Revenues andSales for the Nine MonthsEnded September 30,
	Three Months EndedMarch 31,				% of Total Revenues andSales for the Three MonthsEnded March 31,
	2008		2009		2008		2009
	2009		2010		2009		2010
	(dollars in thousands)
Local services	$	5318,~~126~~085	$	5519,~~538~~274	29	%	29	%
Network access services		6521,~~857~~854		6421,~~873~~868	36	%	3432	%
Toll services		175,~~394~~566		165,~~705~~377	109	%	98	%
Data and internet services		259,~~615~~655		3112,~~117~~235	1416	%	1718	%
Other services and sales		196,~~953~~128		208,~~170~~652	1110	%	1113	%
Total revenues and sales	$	~~181~~61,~~945~~288	$	~~188~~67,~~403~~406	100	%	100	%

Operating Expenses

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

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

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

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

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 EndedSeptember 30,				Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2008		2009		2008		2009
	2009		2010
Revenues and sales	100	%	100	%	~~100~~	%	~~100~~	%
Cost of services and sales (excluding expenses listed separately below)	3233	%	3335	%	32	%	33	%
Selling, general and administrative	1920	%	2119	%	18	%	21	%
Depreciation and amortization	2223	%	24	%	21	%	24	%
Operating income	2724	%	22	%	29	%	22	%
Total other expenses, net	11	%	1011	%	12	%	11	%
Earnings before income taxes	1613	%	1211	%	17	%	11	%
Income tax expense	76	%	5	%	7	%	5	%
Net income	97	%	76	%	10	%	6	%

The results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~ 2010 include the results from the Sherburne Assets which were acquired July 1, 2009.

Three Months Ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~ 2009

Revenues and Sales

The table below sets forth the components of our revenues and sales for the three months ended ~~September~~March 3031, ~~2009~~2010 compared to the same period in ~~2008~~2009:

	Three Months EndedJune 30,				Change
	Three Months EndedMarch 31,				Change
	2008		2009		Amount			Percent
	2009		2010		Amount			Percent
	(dollars in thousands)
Revenues and Sales:
Local services	$	18,~~013~~085	$	19,~~618~~274	$	1,~~605~~189		86.96	%
Network access services		2221,~~852~~854		2321,~~306~~868		~~454~~14		2.0.1	%
Toll services		5,~~845~~566		5,~~658~~377		(~~187~~189	)	-3.24	%
Data and internet services		9,~~129~~655		1112,~~658~~235		2,~~529~~580		2726.7	%
Other services and sales		76,~~084~~128		8,~~056~~652		~~972~~2,524		1341.72	%
Total revenues and sales	$	6261,~~923~~288	$	6867,~~296~~406	$	56,~~373~~118		810.50	%

26Local Services. Local services revenues increased $1.2 million, or 6.6%, for the three months ended March 31, 2010 as compared to the same period in 2009. The increase was primarily due to higher access lines resulting from the acquisition of the Sherburne Assets and higher vertical services revenue resulting from our bundled offerings. From March 31, 2009 to March 31, 2010, total access lines increased by 10,600, or 4.4%, including an increase of 1,200 incumbent local exchange carrier lines and an increase in lines served by our competitive local exchange carriers of 9,400. Excluding the lines acquired in the Sherburne and WH Comm transactions, incumbent local exchange carrier lines decreased by 12,500, while lines served by our competitive local exchange carriers decreased by 1,000 from March 31, 2009 to March 31, 2010.

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

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

~~Local~~Data and Internet Services. ~~Local~~Data and Internet services revenues increased by $12.6 million, or 826.97%, for the three months ended ~~September~~March 3031, ~~2009~~2010 as compared to the same period in ~~2008~~2009. The increase was primarily ~~due~~a toresult ~~higher access lines resulting from the acquisition~~ of ~~the~~growth ~~Sherburne~~in ~~Assets and higher vertical services~~ revenue ~~resulting~~ from our ~~bundled~~ ~~offerings.~~existing ~~From~~DSL ~~September 30,~~Internet ~~2008 to September 30, 2009, total~~ access ~~lines~~service ~~increased~~of ~~by 9~~$565,~~800~~000, orcombined ~~4.0%,~~with ~~including~~the angrowth ~~increase of 400 incumbent local exchange carrier lines and an increase~~ in ~~lines served by~~ our ~~competitive~~data ~~local exchange~~solutions ~~carriers~~products of 9$476,~~400~~000 and $1.6 ~~Excluding~~million from the ~~lines~~acquisition ~~acquired~~of in the Sherburne ~~transaction,~~Assets. ~~incumbent~~This ~~local~~increase ~~exchange~~was ~~carrier~~partially ~~lines~~offset ~~decreased~~ by ~~13,900,~~decreases ~~while~~in ~~lines served by~~ our ~~competitive~~existing ~~local~~dial-up ~~exchange~~Internet ~~carriers~~revenue ~~decreased~~of ~~by 200 lines from September 30~~$230, ~~2008 to September 30, 2009~~000.

~~Network~~Other ~~Access~~ Services. ~~Our~~and ~~network~~Sales. ~~access~~Other services and sales revenues increased by $~~454~~2.5 million,~~000,~~ or 241.02%, for the three months ended ~~September~~ March 3031, ~~2009~~2010 as compared to the same period in ~~2008~~2009. The revenue increase was primarily due to CPE sales, the acquisition of the Sherburne Assets ~~partially offset by lower minutes of use per access line~~ and aincreased ~~decrease~~revenue infrom ~~the~~video ~~switched access rates for the CLEC operations in Iowa and at Montezuma Telephone~~services.

Toll Services. Our toll services revenues decreased by $187,000, or 3.2%, for the three months ended September 30, 2009 as compared to the same period in 2008. The decrease in revenue was due to the decrease in minutes of use per line partially offset by the acquisition of the Sherburne Assets.

Data and Internet Services. Data and Internet services revenues increased by $2.5 million, or 27.7%, for the three months ended September 30, 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 $648,000, combined with the growth in our data solutions products of $543,000 and $1.6 million from the acquisition of the Sherburne Assets. This increase was partially offset by decreases in our existing dial-up Internet revenue of $324,000.

Other Services and Sales. Other services and sales revenues increased by $972,000, or 13.7%, for the three months ended September 30, 2009 as compared to the same period in 2008. The revenue increase was primarily due to the acquisition of the Sherburne Assets and increased revenue from video services.

Operating Costs and Expenses

The table below sets forth the components of our operating costs and expenses for the three months ended ~~September~~March 3031, ~~2009~~2010 compared to the same period in ~~2008~~2009:

	Three Months EndedJune 30,				Change
	Three Months EndedMarch 31,				Change
	2008		2009		Amount		Percent
	2009		2010		Amount		Percent
	(dollars in thousands)
Operating Costs and Expenses:
Cost of services and sales (exclusive of items shown separately below)	$	20,~~424~~234	$	2223,~~650~~634	$	23,~~226~~400	1016.98	%
Selling, general and administrative		1112,~~965~~202		1412,~~312~~683		~~2,347~~481	193.69	%
Depreciation and amortization		13,~~736~~990		16,~~412~~262		2,~~676~~272	1916.52	%
Total operating costs and expenses	$	46,~~125~~426	$	5352,~~374~~579	$	76,~~249~~153	1513.73	%

Cost of Services and Sales. Cost of services and sales increased $23.24 million, or 1016.98%, for the three months ended ~~September~~March 3031, ~~2009~~2010 as compared to the same period in ~~2008~~2009. The increase was principally due to the $3.1 million of operating costs of the Sherburne Assets, ~~and~~ including the expenses ~~from~~of ~~the~~SHAL, ~~Joint~~LLC ~~Ventures,~~and ~~excluding EN-TEL~~certain other entities, which became consolidated subsidiaries as a result of the acquisition of the additional ownership interest as a part of the acquisition of the Sherburne Assets on July 1, 2009, partially offset by lower access expense and operating taxes.

Selling, General and Administrative. Selling, general and administrative costs increased $~~2.3 million~~481,000, or 19 3.69%, for the three months ended ~~September~~March 3031, ~~2009~~2010 as compared to the same period in ~~2008~~2009. The ~~increase~~2010 ~~was~~period ~~primarily~~includes ~~due to additional operating expenses of~~ $21.39 million ~~related~~of tocosts from the Sherburne Assets and ~~acquisition~~$252,000 of transaction-related costs. of The 2009 period includes $~~766,000~~1.2 million of transaction-related costs that are now charged to expense in accordance with FASB ASC 805, Business Combinations. ~~These~~The ~~increases~~2010 ~~were~~period ~~partially~~also ~~offset~~reflects bycost ~~lower~~reductions ~~contract~~resulting ~~services expense, and other savings realized~~ from ~~the~~more ~~integration~~fully ofintegrating ~~Bishop~~acquired ~~Companies~~ entities into the Company’s systems ~~and processes~~.

27Depreciation and Amortization. Depreciation and amortization increased $2.3 million, or 16.2%, for the three months ended March 31, 2010 as compared to the same period in 2009. The increase was primarily due to $1.7 million of depreciation and amortization expense related to the Sherburne Assets (including the effects of consolidating SHAL, LLC and certain other entities) and higher plant balances.

Depreciation and Amortization. Depreciation and amortization increased $2.7 million, or 19.5%, for the three months ended September 30, 2009 as compared to the same period in 2008. The increase was primarily due to $1.7 million of depreciation and amortization expense related to the Sherburne Assets (including the effects of consolidating SHAL, LLC, SHAL Networks, Inc. and Direct Communications, LLC) and higher plant balances.

Other Income (Expense)

The table below sets forth the components of other income (expense) for the three months ended ~~September~~March 3031, ~~2009~~ 2010 compared to the same period in ~~2008~~2009:

	Three Months EndedSeptember 30,						Change
	Three Months EndedMarch 31,						Change
	2008			2009			Amount			Percent
	2009			2010			Amount			Percent
	(dollars in thousands)
Other Income (Expense):
Interest and dividend income	$	~~179~~873		$	~~480~~617		$	~~301~~(256	)	~~168~~-29.23	%
Interest expense		(87,~~033~~596	)		(8,~~333~~152	)		(~~300~~556	)	3.7.3	%
Other, net		~~1,080~~(159	)		~~845~~(173	)		(~~235~~14	)	~~-21~~8.8	%
Total other expense, net	$	(6,~~774~~882	)	$	(7,~~008~~708	)	$	~~234~~(826	)	312.50	%

Interest and Dividend Income. Interest and dividend income ~~increased~~decreased $~~301~~256,000 for the three months ended ~~September~~March 3031, ~~2009~~2010 as compared to the same period in ~~2008~~2009. The ~~increase~~decrease was due to ~~higher~~lower patronage income in ~~2009~~2010.

Interest Expense. Interest expense was $87.06 and $8.32 million for the three months ended ~~September~~March 3031, ~~2008~~2009 and ~~2009~~2010, respectively. Interest expense ~~remained~~increased ~~steady~~ year over year due to ~~lower interest rates, which offset a higher average balance on~~ the ~~revolving line of credit in 2009, the~~ debt of SHAL, LLC, and the additional $75.0 million of Term Loan B debt that was issued to acquire the Sherburne Assets.

Other, Net. Other, net was ~~income~~expense of $~~845~~159,000 ~~resulting~~and ~~principally from a gain of~~ $~~1.0~~173,000 ~~million~~for on the previously owned one-third interest in the Joint Ventures. The gain was recorded as part of the acquisition of the Sherburne Assets and was partially off set by the ineffective portion of an interest rate swap agreement during the three months ended ~~September~~March 3031, 2009~~. The~~ ~~$1.1~~and ~~million net income for the three months ended September 30~~2010, ~~2008~~respectively. The expense resulted ~~principally~~primarily from the ~~ineffectiveness~~ineffective ~~and~~portion ~~termination~~ of an interest rate swap agreement ~~during the three months ended September 30, 2008~~.

Income Tax Expense

Income tax expense decreased by $~~960~~436,000 to $3.30 million for the three months ended ~~September~~March 3031, ~~2009~~2010 as compared to $4.3.5 million for the same period in ~~2008~~2009 due to lower income before taxes. Income tax expense is being ~~booked~~recorded at an estimated rate of approximately 4243%.

During the three months ended ~~September~~March 3031, ~~2008~~2009 and ~~2009~~2010, cash income taxes paid were $~~199~~1,000 and ~~zero~~ $151,000, respectively, and relate primarily to payments of alternative minimum tax (AMT) ~~during~~and ~~2008~~state income tax.

Nine Months Ended September 30, 2009 and 2008

Revenues and Sales

The table below sets forth the components of our revenues and sales for the nine months ended September 30, 2009 compared to the same period in 2008:

	Nine Months EndedSeptember 30,				Change
	2008		2009		Amount			Percent
	(dollars in thousands)
Revenues and Sales:
Local services	$	53,126	$	55,538	$	2,412		4.5	%
Network access services		65,857		64,873		(984	)	-1.5	%
Toll services		17,394		16,705		(689	)	-4.0	%
Data and internet services		25,615		31,117		5,502		21.5	%
Other services and sales		19,953		20,170		217		1.1	%
Total revenues and sales	$	181,945	$	188,403	$	6,458		3.5	%

Local Services. Local services revenues increased $2.4 million, or 4.5%, for the nine months ended September 30, 2009 as compared to the same period in 2008. The increase was primarily due to $1.9 million from the purchase of the Sherburne Assets and increased revenue from vertical services which offset other line losses as further described under “Results of Operations – Three Months Ended September 30, 2009 and 2008”.

Network Access Services. Network access services revenues decreased $984,000, or 1.5%, for the nine months ended September 30, 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 switched access rates for the CLEC operations in Iowa and at Montezuma Telephone, partially offset by the acquisition of the Sherburne Assets.

Toll Services. Toll services revenues decreased by $689,000, or 4.0%, for the nine months ended September 30, 2009 as compared to the same period in 2008. The decrease in revenue was due to a decrease in the average minutes of use per customer partially offset by the acquisition of the Sherburne Assets.

Data and Internet Services. Data and Internet Services revenues increased by $5.5 million, or 21.5%, for the nine months ended September 30, 2009 as compared to the same period in 2008. The increase was primarily a result of growth in our DSL Internet access service revenue of $3.2 million, $1.6 million of DSL Internet access service revenue from the Sherburne Assets, and growth in our data solutions products revenue of $1.5 million. This increase was partially offset by decreases in dial-up Internet revenue of $855,000.

Other Services and Sales. Other services and sales revenues increased by $217,000, or 1.1%, for the nine months ended September 30, 2009 as compared to the same period in 2008. The revenue increase was primarily due to $1.8 million in revenue from video services, which includes $546,000 from the acquired Sherburne Assets, partially offset by lower CPE sales.

Operating Costs and Expenses

The table below sets forth the components of our operating costs and expenses for the nine months ended September 30, 2008 compared to the same period in 2009:

	Nine Months EndedJune 30,				Change
	2008		2009		Amount		Percent
	(dollars in thousands)
Operating Costs and Expenses:
Cost of services and sales (exclusive of items shown separately below)	$	57,781	$	61,536	$	3,755	6.5	%
Selling, general and administrative		32,230		39,973		7,743	24.0	%
Depreciation and amortization		39,006		44,730		5,724	14.7	%
Total operating costs and expenses	$	129,017	$	146,239	$	17,222	13.3	%

Cost of Services and Sales. Cost of services and sales increased $3.8 million, or 6.5%, for the nine months ended September 30, 2009 as compared to the same period in 2008. The increase was principally due to operating costs for the Sherburne Assets of $3.4 million, higher operating taxes and nine months of operating expenses for Bishop Communications in 2009 (compared to only a partial quarter in the prior year), partially offset by lower network access costs and a curtailment gain of $590,000 in 2009 resulting from changes to a postretirement benefit plan.

Selling, General and Administrative. Selling, general and administrative costs increased $7.7 million, or 24.0%, for the nine months ended September 30, 2009 as compared to the same period in 2008. The increase was primarily due to additional operating expenses of $2.3 million from our acquisition of the Sherburne Assets, $2.2 million of acquisition related costs that were charged to expense in accordance with FASB ASC 805, Business Combinations, a $1.8 million one-time charge related to a network access matter and nine months of operating expenses for Bishop Communication in 2009 compared to only a partial quarter in the prior year.

Depreciation and Amortization. Depreciation and amortization increased $5.7 million, or 14.7%, for the nine months ended September 30, 2009 as compared to the same period in 2008. The increase was primarily due to $1.7 million of depreciation and amortization expense for the Sherburne Assets, and higher plant balances on the previously owned operations.

Other Income (Expense)

The table below sets forth the components of other income (expense) for the nine months ended September 30, 2009 compared to the same period in 2008:

	Nine Months EndedSeptember 30,						Change
	2008			2009			Amount			Percent
	(dollars in thousands)
Other Income (Expense):
Interest and dividend income	$	729		$	1,742		$	1,013		139.0	%
Interest expense		(23,194	)		(23,541	)		(347	)	1.5	%
Other, net		821			576			(245	)	-29.8	%
Total other expense, net	$	(21,644	)	$	(21,223	)	$	421		-1.9	%

Interest and Dividend Income. Interest and dividend income increased $1.0 million, or 139.0%, as compared to the same period in 2008. The increase was due to higher patronage income in 2009.

Interest Expense. Interest expense increased $347,000, or 1.5%, for the nine months ended September 30, 2009 as compared to the same period in 2008. The increase was due to a higher average balance on the revolving credit facility, interest on the debt of EN-TEL for nine months in 2009 as compared to two and one half months in 2008, the SHAL, LLC debt for one quarter in 2009 and the additional Term Loan B debt of $75 million for one quarter in 2009 partially offset by lower interest rates on the Company’s variable rate debt.

Other, Net. Other, net was income of $576,000 related primarily to a gain of $1.0 million on the previously owned one-third interest in the Joint Ventures. The gain was recorded as part of the acquisition of the Sherburne Assets and was partially offset by the ineffective portion of the interest rate swap for the nine months ended September 30, 2009. The $821,000 of expense in the same period in 2008 resulted principally from the ineffectiveness and subsequent termination of an interest rate swap agreement.

Income Tax Expense

Income tax expense decreased $4.4 million to $8.9 million for the nine months ended September 30, 2009 as compared to $13.3 million for the same period in 2008 due to lower income before taxes. During the nine months ended September 30, 2008 and 2009, cash income taxes paid were $346,000 and $71,000, respectively.

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~~We ~~table~~are ~~below~~subject ~~reflects~~to various covenants contained in the ~~dividends~~Merger ~~declared~~Agreement orthat ~~paid~~restrict byour ability to operate our business outside the ordinary ~~Company~~course ~~during~~of ~~2008~~business. As such, our ability to address the short-term and ~~2009:~~long-term liquidity requirements may be impacted by these restrictions.

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
June 15, 2009	$	0.405	June 30, 2009	July 15, 2009
September 15, 2009	$	0.405	September 30, 2009	October 15, 2009

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

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


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

WeOur ~~intend~~intention is to distribute ~~fund~~a ~~our~~substantial ~~operations,~~portion ~~interest~~of ~~expense,~~the ~~principal~~cash ~~payments,~~generated ~~capital~~by ~~expenditures,~~our ~~working~~business ~~capital~~to ~~requirements~~our ~~and~~shareholders ~~dividend payments~~in onregular ~~our~~quarterly ~~common~~dividends ~~stock~~to ~~with~~the ~~cash~~extent ~~from~~we ~~operations.~~generate ~~For~~cash ~~the~~in ~~nine~~excess ~~months~~of ~~ended~~our ~~September 30~~operating needs, ~~2008~~interest and ~~2009,~~principal ~~cash~~payments ~~provided~~on byour ~~operating~~indebtedness, ~~activities was $66.0 million~~ and capital ~~$63~~expenditures.6 ~~million, respectively.~~

~~The~~27 purchase price of any significant future acquisitions may be paid in the form of equity securities, including common stock, and/or cash. To the extent cash is used, we intend to use borrowings under our revolving credit facility or, subject to the restrictions in our credit facilities, to arrange additional funding through the sale of public or private debt and/or equity securities, including common stock, or to obtain additional senior bank debt.

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

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

~~SHAL,~~We ~~LLC~~intend ~~and~~to ~~SHAL~~fund ~~Networks,~~our ~~Inc. own and lease a 2~~operations,~~500-mile~~ ~~fiber-optic~~interest ~~network throughout Minnesota that provides low cost~~expense, ~~high~~principal ~~quality transport facilities. EN-TEL is a CLEC based in Willmar~~payments, ~~Minnesota~~capital expenditures, ~~providing~~working ~~local~~capital ~~voice,~~requirements ~~DSL~~ and ~~digital~~dividend ~~video~~payments ~~services.~~on ~~This~~our ~~acquisition~~common ~~resulted~~stock inwith ~~Iowa~~cash ~~Telecom~~from ~~owning~~operations. ~~all~~For of the ~~outstanding~~three ~~equity in~~months ~~the~~ended ~~SHAL~~March 31, ~~LLC,~~2009 ~~SHAL~~and ~~Networks~~2010, ~~Inc.,~~cash ~~Direct~~provided ~~Communications,~~by ~~LLC~~operating ~~and~~activities ~~substantially~~was ~~all~~$17.5 ofmillion ~~EN-TEL~~and $16.0 million, respectively.

OnThe ~~June 23,~~purchase ~~2009,~~price ~~the Company~~of ~~announced~~any asignificant ~~definitive~~future ~~agreement~~acquisitions tomay ~~acquire~~be ~~substantially~~paid ~~all~~in the ~~assets~~form of WHequity ~~Comm for $1.1 million~~securities, including ~~subject~~common tostock ~~regulatory~~and/or ~~approval~~cash. WHTo ~~Comm~~the isextent acash ~~division~~is ofused, ~~Wright-Hennepin~~we ~~Cooperative~~intend ~~Electric~~to ~~Association~~use ~~based~~borrowings inunder ~~Rockford,~~our ~~MN.~~revolving WHcredit ~~Comm~~facility or, ~~a Competitive~~subject ~~Local~~to ~~Exchange~~the ~~Carrier~~restrictions ~~(CLEC),~~in ~~provides~~our ~~voice~~credit ~~and~~facilities, ~~high~~to ~~speed~~arrange ~~DSL~~additional ~~Internet~~funding inthrough ~~several communities near~~ the ~~western~~sale ~~suburbs~~ of ~~Minneapolis,~~public ~~Minnesota.~~or private Asdebt ofand/or ~~September~~equity 30securities, ~~2009,~~including WHcommon ~~Comm had approximately 2~~stock,~~000~~ ~~access~~or ~~lines and 700 DSL subscribers. The Company expects~~ to ~~close~~obtain ~~the~~additional ~~transaction~~senior ~~during~~bank ~~the fourth quarter of 2009~~debt.

~~Our~~On ~~ability to service our~~July 1, ~~indebtedness~~2009, ~~will~~Iowa ~~depend~~Telecom oncompleted ~~our~~its ~~ability~~acquisition toof ~~generate~~substantially ~~cash~~all inof the ~~future.~~assets Weof ~~are~~Sherburne ~~not~~Tele ~~required~~Systems, toInc. ~~make~~for ~~any~~a ~~scheduled~~purchase ~~principal~~price ~~payments~~of onapproximately ~~Term~~$79.7 ~~Loans~~million B,in Ccash ~~and~~(net D,of ~~which~~cash ~~will mature in November 2011. However~~acquired), wesubject ~~may be required~~ to ~~make~~certain ~~annual~~tax ~~mandatory~~adjustments. Approximately ~~prepayments~~$10.9 ~~under~~million ~~these~~of ~~credit~~the ~~facilities~~purchase ~~with~~price awas ~~portion~~deposited ofinto ~~our~~escrow ~~available~~accounts ~~cash. We will need~~ to ~~refinance~~satisfy, ~~all~~among orother athings, ~~portion~~potential ofbalance ~~our~~sheet ~~indebtedness~~purchase onprice oradjustments, ~~before~~tax ~~maturity~~adjustments inand ~~2011.~~potential ~~Debt~~indemnification ~~issued~~claims by ~~EN-TEL~~Iowa Telecom, ofif ~~approximately $11~~any.5 ~~million,~~During ~~will~~the ~~have principal~~first ~~payments~~quarter of ~~$313,000 in 2009, $1.3 million in~~ 2010, ~~$1.4~~the ~~million~~Company inreceived ~~2011,~~ $12.52 million inas ~~2012,~~a ~~$1.6~~result ~~million~~of ina ~~2013,~~final ~~and~~tax $5adjustment.3 ~~million~~The ~~thereafter.~~purchase ~~Debt~~price ~~issued~~was funded by ~~SHAL,~~an ~~LLC~~incremental ofterm ~~approximately~~loan of $475.70 million ~~will~~under ~~have~~Iowa ~~scheduled~~Telecom’s ~~principal~~credit ~~payments of $184~~facilities,~~000~~ inwith ~~2009,~~the ~~$772,000~~balance infrom ~~2010,~~borrowings ~~$830,000~~under Iowa inTelecom’s ~~2011,~~revolving ~~$893,000~~credit ~~in 2012, $960,000 in 2013 and $1~~facility.0 ~~million thereafter.~~

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

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

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

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

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

We28 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 September 30, 2009:

	As of
	December 31,2008			September 30,2009
	(dollars in thousands)
Short-Term Liquidity:
Current assets	$	42,020		$	46,048
Current liabilities		(92,280	)		(91,027	)
Net working capital deficit	$	(50,260	)	$	(44,979	)
Cash and cash equivalents	$	11,605		$	12,091
Available on revolving credit facility	$	61,000		$	59,000
Adjusted Total Debt:
Long-term debt	$	489,003		$	566,940
Current maturities of long-term debt		1,219			2,048
Revolving credit facility		39,000			41,000
Total debt		529,222			609,988
Minus:
RTFC Capital Certificates		(7,778	)		(7,778	)
Cash and cash equivalents		(11,605	)		(12,091	)
Adjusted Total Debt	$	509,839		$	590,119

The change in net working capital deficit from December 31, 2008 to September 30, 2009 is primarily due to the cash flow from operations.

~~The~~We ~~following~~have ~~table~~historically ~~summarizes~~funded our ~~Adjusted~~operations ~~EBITDA,~~and ascapital ~~defined~~expenditure inrequirements ~~our credit agreement, and~~primarily ~~reconciles~~with ~~such~~cash ~~Adjusted~~from ~~EBITDA~~operations toand ~~net~~our ~~income~~revolving ~~(which~~line weof ~~believe~~credit. isThe ~~the~~following ~~most~~table ~~directly~~summarizes ~~comparable~~our ~~GAAP~~short-term ~~financial~~liquidity ~~measure~~and to Adjusted ~~EBITDA)~~Total ~~for~~Debt, ~~the~~as ~~three~~defined ~~and~~in ~~nine~~our ~~month~~credit ~~periods~~agreement, ~~ended~~as ~~September~~of December 3031, ~~2008~~2009 and ~~2009~~March 31, 2010:

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	As of
	2008			2009			2008			2009
	December 31,2009			March 31,2010
Adjusted EBITDA:
	(dollars in thousands)
Net income	$	5,723		$	4,573		$	17,973		$	12,003
Short-Term Liquidity:
Income tax expense		4,301			3,341			13,311			8,938
Current assets	$	47,853		$	46,994
Interest expense		8,033			8,333			23,194			23,541
Current liabilities		(96,349	)		(86,768	)
Depreciation and amortization		13,736			16,412			39,006			44,730
Net working capital deficit	$	(48,496	)	$	(39,774	)
Unrealized (gains) losses on financial derivatives		(1,028	)		236			(769	)		540
Cash and cash equivalents	$	12,259		$	11,368
Non-cash stock-based compensation expense		890			959			2,660			2,802
Available on revolving credit facility	$	63,000		$	65,000
Extraordinary or unusual (gains) losses		—			—			—			—
Adjusted Total Debt:
Non-cash portion of RTFC Capital Allocation		(45	)		(165	)		(191	)		(674	)
Long-term debt	$	565,214		$	565,513
Other non-cash losses (gains)		—			(1,036	)		—			(1,036	)
Current maturities of long-term debt		3,276			2,470
Loss (gain) on disposal of assets not in ordinary course		—			—			—			—
Revolving credit facility		37,000			35,000
Transaction costs		—			766			—			2,226
Total debt		605,490			602,983
Adjusted EBITDA	$	31,610		$	33,419		$	95,184		$	93,070
Minus:
RTFC Capital Certificates		(7,778	)		(7,778	)
Cash and cash equivalents		(12,259	)		(11,368	)
Adjusted Total Debt	$	585,453		$	583,837

The following table summarizes our ~~sources~~Adjusted EBITDA, as defined in our credit agreement, and ~~uses~~reconciles ofsuch Adjusted ~~cash~~EBITDA to net income (which we believe is the most directly comparable GAAP financial measure to Adjusted EBITDA) for the ~~nine~~three ~~months~~month periods ended ~~September~~ March 3031, ~~2008~~2009 and ~~2009~~2010:

	Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2008			2009
	2009			2010
	(dollars in thousands)
Net Cash Provided (Used) By:
Adjusted EBITDA:
Operating activities	$	65,971		$	63,629
Net income	$	4,509		$	4,084
Investing activities	$	(59,479	)	$	(96,294	)
Income tax expense		3,471			3,035
Financing activities	$	(20,946	)	$	33,151
Interest expense		7,596			8,152
Depreciation and amortization		13,990			16,262
Unrealized losses on financial derivatives		173			192
Non-cash stock-based compensation expense		885			1,090
Extraordinary or unusual (gains) losses		—			—
Non-cash portion of RTFC Capital Allocation		(337	)		(193	)
Other non-cash losses (gains)		—			—
Loss (gain) on disposal of assets not in ordinary course		—			—
Transaction costs		1,164			—
Adjusted EBITDA	$	31,451		$	32,622

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


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

Cash Provided by Operating Activities

Net cash provided by operating activities of $6316.60 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 decreased $21.3 6 million from ~~2008~~ 2009.

Cash Used in Investing Activities

The table below sets forth the components of cash used in investing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2008~~2009 and ~~2009~~2010:

	Nine Months EndedSeptember 30,
	Three Months EndedMarch 31,
	2008		2009
	2009		2010
	(dollars in thousands)
Network and support assets	$	162,~~189~~809	$	122,~~538~~731
Other		~~3,933~~818		~~3,713~~312
Total capital expenditures		203,~~122~~627		163,~~251~~043
Business acquisitions, net of cash acquired		33,419		80,043
Business acquisitions and settlements		324		(2,244	)
Purchase of wireless licenses		5,938		—
Total	$	3,951	$	799
Total	$	59,479	$	96,294

We expect that total capital expenditures in fiscal ~~2009,~~2010 ~~including those associated with the Sherburne acquisition,~~ will be atapproximately ~~the lower end of a range of between~~ $26.0 million ~~and $28 million in fiscal 2009, however we expect it to be on the lower end of the range~~. 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.

33We currently hold 15 FCC Advanced Wireless Service licenses and hold three 700 MHz licenses in Iowa. Our ownership of these licenses subjects us to FCC regulation of the wireless services we may choose to provide and the technical operating characteristics of the network equipment we may utilize. In addition, our right to renew these licenses depends on our compliance with build-out requirements promulgated by the FCC. For the 700 MHz licenses, we must begin meeting such requirements in stages prior to the expiration of the initial 10-year license term, although these obligations do not apply until the current holders of the spectrum (television broadcasters that continue to use such spectrum for their digital broadcasts while they continue analog broadcasting) have vacated the spectrum. For our Advanced Wireless Service licenses, we must meet the FCC’s build-out requirements by the end of such licenses’ 15-year initial term. We cannot predict changes that may occur in the FCC’s regulation of our Advanced Wireless Services or 700 MHz licenses, the network we may build, or the services we may provide over the period of time we may hold the licenses.

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

Cash Used in Financing Activities

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

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 Provided by (Used in) Financing Activities

For the nine months ended September 30, 2008 and 2009, net cash used in financing activities was $20.9 million and cash provided by financing was $33.2 million, respectively. The increase in net cash provided by financing activities of $54.1 million was the result of incremental Term Loan B utilized in the acquisition of Sherburne and advances on the revolving credit facility in conjunction with acquisitions. The cash flows from financing activities for the nine months ended September 30, 2008, included advances on the revolving line of credit to fund business acquisitions of $33.4 million.

Long-Term Debt and Revolving Credit Facilities

	As ofSeptember 30, 2009
	As ofMarch 31, 2010
	(dollars in thousands)
Total Long-Term Debt:
Iowa Telecom senior secured term loans	$	552,778
EN-TEL Communications, LLC notes payable		1110,~~538~~905
SHAL, LLC notes payable		4,~~672~~300
Total Debt		~~568~~567,~~988~~983
Current Maturities of long-term debt		(2,~~048~~470	)
Long-Term Debt	$	~~566~~565,~~940~~513

Iowa Telecom Credit Facilities

As of ~~September~~March 3031, ~~2009~~2010, we had outstanding $552.8 million of senior debt under the Iowa Telecom term loan facilities, and had $4135.0 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 ~~September~~March 3031, ~~2009,~~ 2010, $4135.0 million was outstanding on the revolving credit facility and $5965.0 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 or (b) a base rate plus 1.0%. As of ~~September~~March 3031, ~~2009~~2010, we had $4135.0 million outstanding under LIBOR elections at an average all-in rate of 2.2524%. As of March 31, 2009, the Company had $33.0 million outstanding under LIBOR elections at an average all-in rate of 2.52%.

Term Loan B is a $400.0 million senior secured term facility maturing in November 2011, bearing interest per annum at either (a) a LIBOR rate plus an applicable rate adder of 1.75% per annum or (b) a base rate election plus an applicable rate adder of 0.75% per annum. As of ~~September~~March 3031, ~~2009~~2010, $350.0 million ~~was~~of ~~outstanding under~~ Term Loan B was based upon a LIBOR election effective through ~~December~~June 30, ~~2009~~2010 at an all-in rate of 2.04%. WeThe ~~have~~all-in rate on the $350.0 million Term Loan B as of March 31, 2009 was 2.99%. The Company entered into interest rate swap agreements to fix the rate on $350.0 million of Term Loan B as more fully described below. As of March 31, 2010, the interest rate on the remaining $50.0 million was based upon a LIBOR election effective through April 22, 2010 at an all-in rate of 1.99%. The all-in rate on the $50.0 million Term Loan B as of March 31, 2009 was 2.21%.

34On July 1, 2009, Iowa Telecom entered into the Incremental Amendment. Pursuant to the Incremental Amendment, Iowa Telecom borrowed $75.0 million in incremental loans under the incremental loan facility provided under the Credit Agreement. The incremental loans bear interest at either a base rate plus 1.00% (in the case of base rate loans) or LIBOR plus 2.00% (in the case of Eurodollar loans), at the election of Iowa Telecom. The incremental loans are subject to the terms and conditions of the Credit Agreement and are entitled to the benefits of the collateral security provided to the other loans made pursuant to the Credit Agreement. The maturity date of the incremental loans is November 23, 2011. As of March 31, 2010, the interest rate on the $75.0 million was based upon a LIBOR election effective through April 5, 2010 at all-in-rate of 2.23%.

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

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

~~$350.0~~As ~~million~~a condition of borrowing under Term ~~Loan~~Loans BC asand ~~more~~D, ~~fully~~we ~~described~~are ~~below~~required to invest $7.8 million, Asrepresenting 10% of ~~September 30,~~the ~~2009~~total amounts of Term Loans C and D, in Subordinated Capital Certificates (“SCCs”) of the ~~interest~~Rural ~~rate~~Telephone onFinance Cooperative. The Rural Telephone Finance Cooperative will redeem the ~~remaining~~SCCs ~~$50~~in proportion to our principal repayments on Term Loans C and D.0 ~~million~~SCCs ~~was~~are ~~based~~non-interest ~~upon~~bearing but, as a ~~LIBOR~~member ~~election~~of ~~effective~~the ~~through October 19~~Rural Telephone Finance Cooperative, ~~2009~~we atshare anproportionately ~~all-~~in ~~rate~~the ofinstitution’s 2net earnings.~~00%.~~

OnThe ~~July 1, 2009,~~ Iowa Telecom ~~entered~~credit ~~into~~facilities anare ~~Incremental~~secured ~~Loan Amendment~~by ~~(the~~substantially ~~“Incremental~~all ~~Amendment”)~~of toour ~~the~~tangible ~~Amended~~ and ~~Restated~~intangible ~~Credit Agreement dated as of November 23~~assets, ~~2004~~properties ~~(as amended from time to time, the “Credit Agreement”), among Iowa Telecom, the lenders party thereto~~ and ~~Rural~~ ~~Telephone Finance Cooperative, as administrative agent~~revenues. Pursuant to the Incremental Amendment, Iowa Telecom borrowed $75.0 million in incremental loans under the incremental loan facility provided under the Credit Agreement. Interest will accrue on the incremental loans at either a base rate plus 1.00% (in the case of base rate loans) or LIBOR plus 2.00% (in the case of Eurodollar loans), at the election of Iowa Telecom. The ~~incremental loans are subject to the terms and conditions~~ ofcredit ~~the~~facilities ~~Credit Agreement and~~ are ~~entitled~~guaranteed toby ~~the~~all ~~benefits~~ of the ~~collateral~~Company’s security provided to the other loans made pursuant to the Credit Agreement. The maturity date of the incremental loans is November 23, 2011. As of September 30, 2009, the interest rate on the $75.0 million was based upon a LIBOR election effective through October 5, 2009 at allwholly-~~in-rate~~owned ~~of 2~~subsidiaries.~~26%.~~

~~Term~~The ~~Loan~~Iowa CTelecom iscredit afacilities permit ~~$70.0~~the ~~million~~Company ~~senior~~to ~~secured~~pay ~~term~~dividends ~~facility~~to ~~maturing~~holders inof ~~November~~its ~~2011~~common stock; however, ~~bearing~~they ~~interest~~contain ~~per~~significant ~~annum~~restrictions aton ~~either~~our ~~(a) a~~ability ~~fixed~~to ~~rate~~do so. The credit facilities contain certain negative covenants that, among other things, limit or restrict the Company’s ability (bas well as those of our subsidiaries) a ~~Rural~~to: ~~Telephone~~create ~~Finance~~liens ~~Cooperative~~and ~~variable~~encumbrances; incur debt, issue preferred stock, or enter into leases and guarantees; enter into loans, investments and acquisitions; make asset sales, transfers or ~~rate~~dispositions; ~~plus~~change ~~0.85%.~~lines ~~Effective~~of ~~August 1~~business; enter into hedging agreements; pay dividends, ~~2007~~redeem stock, weor ~~elected~~make acertain ~~new~~restricted ~~all-~~payments; amend material debt agreements or other material contracts; engage in ~~fixed~~certain ~~interest~~transactions ~~rate~~with ofaffiliates; enter ~~6.95%~~into ~~through~~sale/leaseback ~~June~~or ~~2011~~synthetic onlease ~~Term~~transactions; ~~Loan~~grant C.negative ~~Upon~~pledges ~~the~~or ~~expiration~~agree ofto ~~the~~such ~~fixed~~other ~~interest~~restrictions ~~rate~~relating ~~period,~~to ~~the~~subsidiary ~~term~~dividends ~~loan~~and ~~will~~distributions; ~~convert~~make changes to ~~the~~its ~~Rural~~fiscal ~~Telephone~~year; ~~Finance Cooperative~~and ~~base~~engage ~~variable~~in ~~rate~~mergers ~~plus~~and 0consolidations.~~85%.~~

~~Term~~The ~~Loan~~Iowa DTelecom iscredit afacilities ~~$7.8~~require ~~million~~the ~~senior~~Company, ~~secured~~subject ~~term~~to ~~facility~~certain ~~maturing~~exceptions, into ~~November~~prepay outstanding loans under the ~~2011,~~credit ~~bearing~~facilities ~~interest~~to ~~per~~the ~~annum~~extent atof ~~either~~net ~~(a) a~~cash ~~fixed~~proceeds ~~rate~~received orfrom ~~(b) a~~the ~~Rural~~following: ~~Telephone~~issuance ~~Finance~~of ~~Cooperative~~certain ~~variable~~indebtedness; ~~rate~~proceeds ~~plus~~of 0certain asset sales; and casualty insurance proceeds.~~85%.~~ ~~Effective~~The ~~August 1~~credit facilities further require the Company, ~~2007~~subject to certain exceptions, weto ~~elected~~make aprepayments ~~new~~under ~~all-in~~the ~~fixed~~credit ~~interest~~facilities ~~rate~~equal ofto ~~6.95~~50% ~~through~~of ~~June~~any ~~2011~~net ~~on Term~~increase ~~Loan~~in D.the ~~Upon~~following: distributable cash during a dividend suspension period, as defined; and cumulative distributable cash, as defined, during the fiscal ~~expiration~~year less the cumulative reductions of revolving loans (adjusted to exclude the ~~fixed~~effects ~~interest~~of ~~rate~~borrowings to fund permitted acquisitions) through such period, ~~the~~with ~~term~~reductions ~~loan~~to ~~will~~the ~~convert~~percentage to ~~the~~be ~~Rural~~determined ~~Telephone~~based ~~Finance~~on ~~Cooperative~~improvements ~~variable~~in ~~rate~~certain credit ~~plus~~ratios. 0A mandatory prepayment of $378,000 is due prior to April 30, 2010 under these provisions.~~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 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 ~~September~~March 3031, ~~2009~~2010.

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 issued by EN-TEL, a majority owned subsidiary of Bishop Communications. The ~~assumed~~EN-TEL debt is ~~represented~~consists byof ~~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 7.0200%. As of March 31, 2009, the all-in rate was 7.20%. The notes have a fixed interest rate for specific periods of time ranging from July ~~December~~2010 ~~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 $~~308~~319,000 ~~and $906,000~~ were made during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010. The remaining scheduled payments are $~~313~~995,000 in ~~2009~~2010, $1.34 million in ~~2010~~2011, $1.45 million in ~~2011~~2012, $1.56 million in ~~2012~~ 2013, $1.67 million in ~~2013~~2014, and $5.3.5 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.

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

SHAL, LLC Notes Payable

On July 1, 2009, the Company acquired the Sherburne Assets. As part of the acquisition, the Company became the majority owner of SHAL, LLC. As a result, the Company began reflecting the results of operations, cash flows and financial position of SHAL, ~~LCC~~LLC on a consolidated basis. At the time of the acquisition of the Sherburne Assets, SHAL LLC had debt outstanding of $4.9 million. The debt is represented by ~~promissory~~ notes payable to the Rural Telephone Finance Cooperative which have quarterly installments of principal and interest. The notes currently bear interest at an average all-in fixed rate of 7.2520%. The notes have a fixed interest rate for specific periods ~~of time ranging from January 2010~~ through January 2012 and will thereafter be either at a variable interest rate or renegotiated at a fixed rate at the end of the specified period. The ~~promissory~~ notes mature in ~~January~~October ~~2015~~2014. A principal payment of $~~181~~188,000 was made during the quarter ended ~~September~~March 3031, ~~2009~~2010. The remaining scheduled payments are $~~184~~584,000 in ~~2009~~2010, $~~772,000 in 2010, $~~830,000 in 2011, $893,000 in 2012, $960,000 in 2013, ~~and~~ $1.0 million ~~thereafter~~in 2014.

The notes are secured by the assets of SHAL, LLC and SHAL Networks, Inc. ~~While~~The ~~the~~ debt agreements restrict dividends paid by SHAL, LLC. Currently, ~~and~~ $~~950~~993,000 is ~~currently~~ available for dividends.

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

Interest Rate Swaps

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

Other Items

On ~~May~~November 823, ~~2006~~2009, we entered into the ~~Company~~Merger ~~filed~~Agreement with Windstream. Completion of the Merger with Windstream is conditioned upon the receipt of approvals of the Federal Communications Commission (the “FCC”), ~~forbearance~~the Iowa Utilities Board, the Minnesota Public Utilities Commission (the “MPUC”) and ~~waiver~~the ~~petitions~~Missouri ~~asking~~Public itService ~~to allow~~Commission (the “MPSC”). ~~Company~~Pursuant to ~~become~~the ~~eligible~~Merger toAgreement, ~~qualify~~Windstream and Iowa Telecom filed the applications required for ~~high-cost~~the ~~support~~transfer ~~from~~of control of the ~~non-rural~~relevant ~~high~~franchises, ~~cost~~licenses ~~support~~and ~~program~~similar instruments issued under the rules and regulations of the FCC ~~Universal~~on ~~Service~~December 21, ~~Fund.~~2009, Onthe ~~August~~Iowa Utilities Board on December 621, ~~2007~~2009, the ~~FCC~~MPUC ~~issued~~on anDecember 18, ~~order~~2009, ~~denying~~and ~~our~~the ~~petition~~MPSC ~~for~~on ~~forbearance~~December 18, 2009. ~~The~~There is no timeline for the final approvals necessary from the FCC, ~~has~~although ~~not~~the ~~yet~~deadlines ~~ruled~~for filing initial comments and reply comments passed on February 4 and February 11, 2010, respectively, without any party filing comments. The Iowa Utilities Board’s right to prohibit the transaction expires on June 19, 2010. A hearing regarding our ~~petition~~application to the Iowa Utilities Board is currently scheduled for ~~waiver~~May 4, 2010. There are currently two intervenors in this proceeding, as well as the Consumer Advocate. The MPUC issued an order on March 22, 2010, approving the transaction with the condition that Windstream and ~~there~~Iowa isTelecom nodiscuss ~~statutory~~with ~~deadline~~the MPUC any conditions imposed by any other jurisdiction. The Missouri Public Service commission issued the final order necessary for its ~~issuing~~consent ato ~~ruling~~the transaction on February 1, 2010. We cannot predict whether the FCC ~~will~~or ~~deny~~the orIowa Utilities Board will approve the ~~waiver~~transaction. ~~petition~~We also cannot predict when the FCC will act or how soon before June 19, ~~and~~2010, if at all, the Iowa Utilities Board may act.

36In addition, as a condition to the Merger, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) requires Iowa Telecom and Windstream to observe the HSR Act’s notification and waiting period. The HSR Act provides for an initial 30-calendar-day waiting period following the necessary filings by the parties to the Merger which were completed on December 30, 2009 by the filing of notification and report forms with the U.S. Department of Justice (“DOJ”) and the Federal trade Commission (“FTC”). On January 8, 2010, the DOJ and FTC granted early termination of the waiting period under the HSR Act.

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~~Iowa isUtilities ~~currently~~Board ~~considering~~recently considered such a challenge based on a February 20, 2008, MCImetro Transmission Access Transmission Services LLC, (d/b/a Verizon Access Transmission Services) and MCI Communications Services, Inc. (d/b/a Verizon Business Services) complaint filed with the Iowa Utilities Board against our ~~local~~primary Iowa incumbent local exchange carrier, our Iowa competitive local exchange carriers, Frontier Communication of Iowa, Inc., and Citizens Mutual Telephone Company alleging that such companies’ tariffed originating and terminating intrastate switched access rates of each are not just and reasonable and should be lowered by the Iowa Utilities Board to “mirror” the rates contained in Qwest Corporation’s Iowa tariff. The complaint appears to be similar to others asserted by these or related entities against the intrastate access charges of mid-sized incumbent local exchange companies in several other states. We filed a motion to dismiss the complaint in light of our legislated price plan, and believe the substance of the complaint to be without merit given the absence of any rationale for the proposed decrease. The Iowa Utilities Board denied our motion to dismiss on November 14, 2008, a decision we ~~cannot~~could not 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~~Utilities Services, Inc. was $16 million based on levels of access service demand at that time. The final round of pre-filed testimony was filed on August 31, 2009. On October 26, 2009, the Company and Verizon filed a joint motion with the Board ~~stating~~issued ~~that they had reached~~ a ~~tentative~~decision ~~settlement~~ on ~~October 23, 2009 and requested that~~ the ~~hearing otherwise scheduled to start October 27, 2009 be postponed so that the Company and Verizon can draft and execute a formal settlement agreement~~merits. This motion was granted on October 27, 2009. The Company cannot predict whether it will be able to arrive at a formal executed settlement agreement with Verizon, or whether the Board will accept such settlement agreement. Further, if the proceeding continues, the Company cannot predict when or how it will conclude or what the outcome may be. This proceeding has been stayed with respect to Frontier and Citizens since May 21, 2009 at the request of Verizon, Frontier, and Citizens due to pending settlement negotiations between the parties.

OnFollowing the filing of all rounds of testimony but prior to the hearing, Iowa Telecom and Verizon reached a tentative settlement of ~~September~~Verizon’s complaint on October 1223, ~~2008,~~2009 and successfully requested the ~~Board~~proceeding ~~issued~~to anbe ~~order~~stayed ~~commencing~~until ana ~~inquiry~~settlement ~~into~~agreement ~~whether~~had been executed. Iowa Telecom and Verizon executed the ~~Board~~settlement ~~should~~agreement ~~create~~on anDecember 7, ~~Iowa~~2009 ~~universal~~and ~~service~~jointly filed ~~fund~~for ~~(“USF”).~~approval Atof ~~this~~the ~~point~~same on December 11, 2009, which the ~~Board~~Iowa isUtilities ~~seeking~~Board ~~comment~~granted on ~~preliminary issues~~February 4, ~~such~~2010. asBy ~~how~~the itterms ~~should determine~~of ~~whether~~the ansettlement, Iowa ~~USF~~Telecom isand ~~needed,~~its ~~although~~Iowa ~~the~~CLECs ~~Board~~agreed isto ~~also~~decrease ~~inquiring~~their ~~into~~current ~~certain~~intrastate ~~broad~~switched ~~policy~~access rates for the local switching element to $0.01508, $0.021780, and ~~implementation~~$0.021780, ~~issues~~respectively, ~~assuming~~in ~~that~~three ansteps ~~Iowa~~via ~~USF~~a ~~will~~single tariff filing to be ~~established~~made by each Iowa Telecom company. ~~Comments~~As required by the settlement agreement, these tariff revisions were ~~due~~filed on ~~October~~February 2711, ~~2008~~2010 with a requested effective date of March 13, 2010. The ~~Board~~Iowa ~~held~~Utilities anBoard ~~initial informal~~approved ~~workshop~~such filing on March 2518, ~~2009~~2010. The settlement agreement requires Verizon to ~~discuss~~request ~~issues.~~dismissal ~~This~~of ~~workshop~~its ~~may~~complaint bewith ~~followed~~prejudice no later than five business days after the effective date of the currently-pending tariff filing, a currently pending filing made by ~~other~~Verizon ~~workshops~~on ~~and/~~April 1, 2010. Further, Verizon agreed that it would not seek to reduce any element of Iowa Telecom’s ILEC or anCLEC ~~order~~intrastate ~~commencing~~switching ~~rulemaking~~rates before January 1, 2012. AtThe settlement also provides for mutual releases of all claims set forth in Verizon’s Complaint and Iowa Telecom’s Answer in this ~~time~~docket. In addition, the settlement ~~Board~~provides ~~has~~that ~~yet~~it shall not limit or affect: Verizon’s right to ~~state~~seek ~~formally~~to ~~whether~~reduce, ~~its~~eliminate ~~Iowa~~or ~~USF~~otherwise ~~inquiry~~challenge isthe ~~tied~~approximately tothree-cent-per-minute carrier common line charges (“CCLCs”) of Iowa Telecom in any rulemaking ~~potential~~proceedings ~~charges~~of general applicability; Iowa Telecom’s right to ~~other~~implement ~~rates~~switched oraccess ~~any~~rate ~~other~~increases ~~matter.~~or Wedecreases ~~cannot~~ordered ~~predict~~or ~~whether~~permitted by the ~~Board~~Iowa ~~will~~Utilities ~~establish~~Board aor ~~rulemaking~~the asFCC ain ~~result~~proceedings ofto ~~its~~reform ~~pending~~intercarrier ~~inquiry~~compensation; and, ifIowa Telecom’s ~~assuming~~right itto ~~does,~~seek to maintain the ~~result~~CCLCs of ~~such~~Iowa ~~rulemaking~~Telecom orin ~~its~~rulemaking ~~potential~~proceedings ~~effect~~of ongeneral ~~our operations~~applicability.

On ~~August~~ September 1812, ~~2009~~2008, the Iowa ~~Telecom~~Utilities ~~filed~~Board ~~eleven~~issued ~~applications~~an ~~with~~order ~~the~~commencing ~~National~~an ~~Telecommunications~~inquiry ~~and Information~~into ~~Administration~~whether ~~(“NTIA”)~~the ~~and~~Iowa ~~the~~Utilities ~~U.S.~~Board ~~Department~~should ofcreate ~~Agriculture’s~~an ~~Rural~~Iowa ~~Utilities~~Universal Service Fund (“~~RUS~~USF”). At this point, the Iowa Utilities Board is seeking ~~Broadband~~comment on ~~Infrastructure~~preliminary ~~grants~~issues, tosuch ~~fund~~as ~~80%~~how ofit ~~$8.6~~should ~~million~~determine ofwhether ~~broadband~~an ~~projects~~Iowa inUSF is needed, and ~~between~~on ~~46 communities~~certain orpolicy ~~localities~~and ~~that~~implementation ~~are~~issues ~~within~~assuming that an Iowa ~~Telecom’s~~USF ~~service~~will ~~territory~~be established. If ~~some~~Comments were filed on October 27, or2008. ~~all~~Eventually, ofthe ~~these~~Iowa Utilities ~~applications~~Board ~~are~~may ~~granted~~issue ~~and~~an ~~Iowa~~order ~~Telecom~~commencing ~~accepts,~~rulemaking. ~~Iowa~~Sprint ~~Telecom~~filed ~~will~~a ~~provide~~petition ~~20%~~for ~~matching~~rulemaking ~~funds. On~~on ~~October~~July 286, 2009, requesting that the Iowa ~~Telecom~~ ~~filed~~Utilities ~~comments~~Board ~~with~~eliminate ~~NTIA~~the ~~and~~CCLC, ~~RUS~~which ~~opposing~~the ~~certain~~Iowa ~~requests~~Utilities ~~filed~~Board bydenied ~~other~~on ~~carriers~~September 4, ~~which~~2009 ~~seek~~and again ~~funds~~on ~~for~~October 13, ~~competing~~2009 ~~projects~~following Sprint’s request for reconsideration. ~~Iowa~~ ~~Telecom~~In ~~expects~~so todoing, ~~learn~~the inIowa ~~mid-November~~Utilities ~~whether~~Board ~~any~~stated ofthat ~~its~~CCLC ~~applications~~matters were ~~accepted~~best ~~for~~considered ~~further~~in ~~review~~the context of universal service issues. We cannot predict whether the Iowa ~~Funds~~Utilities ~~for~~Board ~~successful~~will ~~applications are~~establish ~~currently~~a ~~scheduled~~rulemaking ~~to be~~as ~~released~~a byresult of its pending inquiry or, assuming it does, the ~~end~~result of ~~2009~~such rulemaking.

On34 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.

~~digital~~On ~~loop~~August 18, ~~carrier~~2009, ~~system~~Iowa ~~remote~~Telecom ~~terminals~~filed ~~that~~eleven ~~normally~~applications ~~are~~with ~~powered~~the ~~from~~National Telecommunications ~~local~~and ACInformation ~~commercial~~Administration ~~power~~(“NTIA”) and the U.S. ~~Five~~Department ~~days~~of ~~prior~~Agriculture’s Rural Utilities Service (“RUS”) seeking Broadband Infrastructure grants to fund 80% of the ~~new~~$8.6 ~~rules~~million ~~taking~~cost ~~effect,~~of proposed broadband projects in and between 46 communities or localities that are within Iowa Telecom’s Iowa service territory. Iowa Telecom has been notified that each of the ~~FCC~~eleven applications was rejected because none scored high enough on NTIA’s ~~October~~ranking system to merit further consideration and each requested a larger portion of grant funding than RUS offered. On January 415, ~~2007~~2010, NTIA and RUS separately released ~~an order~~new ~~amending~~notices ~~some~~of funds availability soliciting a second, and final, round of ~~these~~applications ~~new~~for Broadband Infrastructure grants. Each agency made significant changes in the application requirements. After reviewing the second round requirements, Iowa Telecom submitted three new applications to ~~provide~~RUS. ~~greater~~The ~~compliance~~RUS filing ~~flexibility~~deadline was March 29, 2010. WeThe donew ~~not~~applications ~~anticipate~~propose ~~incurring~~construction ~~significant~~of ~~costs~~40 ininterexchange ~~complying~~(middle-mile) ~~with~~and ~~the~~122 ~~FCC~~intraexchange (last-mile) fiber links in Iowa Telecom’s ~~requirements~~Iowa network. The estimated cost of the 162 projects is $34.3 million, 75% of which could be funded by RUS grants. While we cannot predict when we will learn whether any of these new applications will be granted, the RUS funding authorization expires on September 30, 2010. We filed no new application with NTIA.

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

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

Obligations and Commitments

Our ongoing capital commitments include capital expenditures, and debt service requirements ~~and acquisition commitments~~. For the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~ 2010, capital expenditures were $~~16.~~3.0 million; see “—Liquidity and Capital Resources—Cash Used in Investing Activities.”

The following table sets forth our contractual obligations as of ~~September~~March 3031, ~~2009~~2010, together with cash payments due in each period indicated:

Payments Due by Period

Payments Due by Period(3)

Obligation

Total

~~Oct~~Apr. –Dec. ~~2009~~2010

~~2010~~2011 –~~2011~~2012

~~2012~~2013 –~~2013~~2014

~~2014and~~2015and after

(dollars in thousands)

Current Debt:

Revolving credit facility(1)

4135,000

—

4135,000

—

Current maturities of long-term debt

2,~~048~~470

~~498~~1,924

~~1,550~~546

—

Long-Term Debt:

Senior debt payments

552,~~778~~433

—

552,~~778~~433

—

Interest payments on senior debt(2)

5340,~~555~~553

619,~~490~~458

4721,~~065~~095

—

EN-TEL debt payments

109,~~248~~566

—

12,~~755~~600

3,~~175~~424

53,~~318~~542

SHAL, LLC debt payments

3,~~914~~514

—

1,~~028~~521

1,~~853~~993

~~1,033~~—

Operating Lease Payments

7,~~939~~535

~~1,494~~889

2,~~497~~532

2,~~060~~199

1,~~888~~915

Total Contractual Obligations

~~671~~651,~~482~~071

822,~~482~~271

~~647~~615,~~673~~727

7,~~088~~616

85,~~239~~457

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

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

As(3) ofExcludes ~~September 30,~~postretirement ~~2009~~benefit obligation payments estimated in accordance with Financial Accounting Standards Board Accounting Standards Codification 715, noCompensation-Retirement ~~letters~~Benefits, ofas ~~credit~~disclosed ~~were~~in ~~outstanding~~Note ~~under~~5 to the ~~Revolving Credit~~consolidated ~~facility.~~financial statements.

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

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

Critical Accounting Policies

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

Impairment of Long-Lived Assets (Including Property, Plant and Equipment), Goodwill and Identifiable Intangible Assets. WeThe Company ~~reduce~~assesses the ~~carrying~~recoverability ~~amounts~~ of long-lived assets, ~~goodwill~~including ~~and~~property, ~~identifiable~~plant ~~intangible~~and ~~assets~~equipment toand ~~their~~definite-lived ~~fair~~intangible ~~values~~assets, ~~when~~whenever ~~the~~events ~~fair~~or ~~value~~changes ofin ~~such~~circumstances ~~assets~~indicate isthat ~~determined~~the ~~to be less than their~~ carrying ~~amounts.~~amount ~~Fair~~of ~~value~~an isasset ~~typically~~may ~~estimated~~not ~~using~~be arecoverable. In ~~discounted~~such ~~cash flow analysis~~cases, ~~which~~if ~~requires~~the ussum toof ~~estimate~~ the ~~future~~expected cash flows ~~anticipated~~(undiscounted ~~to be generated by the particular asset being tested for impairment,~~ and towithout ~~select~~interest) aresulting ~~discount rate~~from ~~to measure~~ the ~~present~~use ~~value~~ of the ~~anticipated~~asset ~~cash~~are ~~flows.~~less ~~When~~than ~~determining~~the ~~future~~carrying ~~cash flow estimates~~amount, wean ~~consider~~impairment ~~historical~~loss ~~operating~~is ~~results,~~recognized asbased ~~adjusted~~on tothe ~~reflect~~difference ~~current~~between ~~and~~the ~~anticipated~~carrying ~~operating~~amount ~~conditions. Estimating future cash flows~~and ~~requires~~the ~~significant~~fair ~~judgment~~value ~~by us in such areas as future economic conditions, industry specific conditions and necessary capital expenditures. The use~~ of ~~different~~the ~~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~~.

38We perform an annual impairment review of goodwill and indefinite-lived intangible assets and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount as required by Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 350, Intangibles-Goodwill and Other. We performed an annual impairment review of goodwill and indefinite-lived intangible assets as of August 31, 2009 primarily using discounted cash flow and market capitalization methodologies. No impairment of goodwill or indefinite-lived intangible assets resulted from the annual valuation.

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 Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 350, Intangibles-Goodwill and Other. We performed an annual impairment review of goodwill and indefinite lived intangible assets as of August 31, 2009 primarily using discounted cash flow and market capitalization methodologies. No impairment of goodwill or 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.

As36 of December 31, 2008, our unused tax net operating loss carry forwards were $157 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 $43 million per year through June 2015. Based upon the evidence available as of September 30, 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 FASB ASC 815, Derivatives and Hedging, and qualify for cash flow hedge accounting of a variable-rate debt. In accordance with this standard, all changes in fair market value of the swap instruments attributable to hedge ineffectiveness are reported currently in earnings and are recorded in the Other Income (Expense) section of the Company’s Consolidated Statements of Income. Changes in fair market value of the swap instruments attributable to hedge effectiveness are recorded, net of income tax effects, in the Accumulated Other Comprehensive Income 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 three months ended September 30, 2009, the Company would have recognized in earnings a loss of $959,000 had the interest rate swaps ceased to qualify for hedge accounting.

~~The~~As ~~fair values~~ of ~~the~~December 31, ~~interest~~2009, ~~rate~~our ~~swaps~~unused ~~have~~tax ~~been~~net ~~calculated~~operating byloss ~~discounting~~carry ~~the~~forwards ~~future~~were $154.0 ~~cash~~million, ~~flows~~and ofwill ~~both~~expire ~~the~~between ~~fixed~~2021 ~~rate~~ and ~~variable~~2024. ~~rate~~Additionally, ~~interest~~the ~~payments~~Company ~~using~~expects ~~discount~~to ~~rates~~be ~~appropriate~~able ~~with~~to ~~the~~continue ~~consideration~~taking ~~given~~deductions related to the ~~Company’s~~amortization ~~non-performance~~of ~~risk.~~intangibles ~~The~~in ~~fair~~excess ~~value~~ of the ~~interest~~amount ~~rate~~recorded ~~swap~~for isbook ~~recorded~~purposes in the ~~Other~~amount of approximately ~~Long-Term~~$44.0 ~~Liabilities~~million ~~section~~per year through June 2015. Based upon the evidence available as of March 31, 2010, the ~~Company’s~~combination ~~Consolidated~~of ~~Balance~~the ~~Sheets~~continued generation of taxable income from operations and reversing temporary differences will, more likely than not, be sufficient to utilize the entire deferred tax asset. As such, we have determined that no valuation allowance was required for our deferred tax assets.

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

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

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

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

Off-Balance Sheet Risk and Concentration of Credit Risk

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

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

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

New Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued amended guidance regarding “Noncontrolling Interests in Consolidated Financial Statements” which establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The amended guidance 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 noncontrolling equity investment on the deconsolidation date. The amended guidance also includes expanded disclosure requirements regarding the interest of the parent and its noncontrolling interest. The amended guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Adoption of the amended guidance did not have a material impact on the Company’s consolidated balance sheets, statements of income or statements of cash flows.

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

In37 March 2008, the FASB issued amended guidance regarding “Disclosures about Derivative Instruments and Hedging Activities.” The amended guidance 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. The amended guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Adoption of the amended guidance impacted disclosures only and did not have an impact on the Company’s consolidated balance sheets, statements of income or statements of cash flows. See Note 9 to Financial Statements for expanded disclosures related to the adoption of the amended guidance.

In ~~December~~January ~~2008~~2010, the FASB ~~amended~~issued ~~its~~FASB ~~prior~~ASU ~~guidance~~2010-06, ~~regarding~~Fair ~~“Employer’s~~Value Measurements and Disclosures (Topic 820): Improving Disclosures about ~~Postretirement~~Fair ~~Benefit~~Value ~~Plan Assets~~Measurements.” ~~The~~FASB ~~amended~~ASU ~~guidance~~2010-06 requires new disclosures and clarifies existing disclosure requirements about fair value measurements as set forth in the FASB Codification Subtopic 820-10. FASB ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years ~~ending~~beginning after December 15, ~~2009~~2010, and for interim periods within those fiscal years beginning after December 15, 2010. ~~The~~Early ~~amended~~adoption ~~guidance~~is ~~will~~permitted. ~~impact~~Adoption of FASB ASU 2010-06 impacts disclosures only and will not have an impact on the Company’s ~~consolidated~~ ~~balance~~Consolidated ~~sheets~~Balance Sheets, ~~statements~~Statements of ~~income~~Income or ~~statements~~Statements of ~~cash~~Cash ~~flows~~Flows.

Effective January 1, 2009, the Company adopted amended guidance related to “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the amended guidance, 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. The amended guidance was adopted via retroactive application for the quarter and nine months ended September 30, 2008, resulting in no change to basic EPS and a $0.01 decrease in diluted EPS for the quarter and a $0.02 decrease to both basic and diluted EPS for the year.

Standards Updates, which will serve only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the bases for conclusions on the change(s) in the Codification. FASB ASU 2009-01 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the FASB ASU 2009-01 did not have a material impact on the Company’s consolidated balance sheets, statements of income or statements of cash flows.

Inflation

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

4238

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Under the terms of our credit facilities as amended, our long-term secured debt facilities will mature in November 2011. Our $400.0 million of indebtedness under Term Loan B, maturing in 2011, bears annual interest at either (a) LIBOR plus 1.75% or (b) a base rate plus 0.75%. Our $75.0 million of indebtedness under incremental borrowing portion of our Term Loan B, maturing in 2011 bears annual interest at either (a) LIBOR plus 2.00% or (b) a base rate plus 1.00%. OnWe ~~August 26,~~have ~~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 $125.0 million of borrowings under Term Loan B through November 2011. Similarly, changes in LIBOR will be the primary source of interest rate risk we face with respect to the $4135.0 million of borrowings drawn under the revolving credit facility at ~~September~~March 3031, ~~2009~~2010. With respect to our $77.8 million of borrowings under Term Loan C and D, we are exposed to interest rate risk, resulting primarily from fluctuations in the Rural Telephone Finance Cooperative’s variable rate, from July 2011 through maturity in November 2011.

With respect to our $1110.59 million of borrowings at EN-TEL, we are exposed to interest rate risk, resulting primarily from fluctuations in the Rural Telephone Finance Cooperation variable rate, from the dates on which the current fixed interest rates expire (~~December~~July ~~2009~~2010 through December 2013) until the notes mature in 2015 and 2018.

With respect to the $4.73 million of borrowings at SHAL, LLC, we are exposed to interest rate risk, resulting primarily from fluctuations in in the Rural Telephone Finance Cooperation variable rate, from the dates on which the current fixed interest rates expire (January ~~2010 through January~~ 2012) until the notes mature in ~~January~~October ~~2015~~2014.

As of ~~September~~March 3031, ~~2009~~2010, a one percent change in the underlying interest rates for all of the variable rate debt that was outstanding would have an impact of approximately $1.76 million per year on our interest expense while our fixed rates and swaps are in place.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of ~~September~~March 3031, ~~2009~~2010 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There was no ~~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.

4339

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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

~~The~~ Iowa Utilities Board ~~(“Board”)~~Proceedings 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 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 are not just and reasonable and should be lowered by the 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 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 levels of access service demand at that time. The final round of pre-filed testimony was filed on August 31, 2009. On October 26, 2009, the Company and Verizon filed a joint motion with the Board stating that they had reached a tentative settlement on October 23, 2009 and requested that the hearing otherwise scheduled to start October 27, 2009 be postponed so that the Company and Verizon can draft and execute a formal settlement agreement. This motion was granted on October 27, 2009. The Company cannot predict whether it will be able to arrive at a formal executed settlement agreement with Verizon, or whether the Board will accept such settlement agreement. Further, if the proceeding continues, the Company cannot predict when or how it will conclude or what the outcome may be. This proceeding has been stayed with respect to Frontier and Citizens since May 21, 2009 at the request of Verizon, Frontier, and Citizens due to pending settlement negotiations between the parties.

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

Merger-Related Proceedings

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

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

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~~2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

~~ITEM~~41 ~~2. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS~~

DuringTable the quarter ended September 30, 2009, the Company reacquired the following number of shares of its common stock from recipients of restricted stock awards under the Company’s 2005 Stock Incentive Plan in order to satisfy tax withholding obligations due upon vesting of such restricted stock (see also Note 8 to Consolidated Financial Statements above): Contents

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

ISSUER PURCHASES OF EQUITY SECURITIES

Periods	(a) TotalNumber ofShares (or Units)Purchased	(b) AveragePrice Paid perShare (or Unit)		(c) Total Number ofShares (or Units)Purchased as Part ofPublicly AnnouncedPlans or Programs	(d) Maximum Number (orApproximate Dollar Value) ofShares (or Units) that May YetBe Purchased Under the Plansor Programs
July 1 to July 31, 2009	—	$	—	—	—
January 1 to January 31, 2010	—	$	—	—	—
August 1 to August 31, 2009	11,741	$	12.26	—	—
February 1 to February 28, 2010	—	$	—	—	—
September 1 to September 30, 2009	—	$	—	—	—
March 1 to March 31, 2010	12,333	$	16.75	—	—
Total	1112,~~741~~333	$	1216.2675	—	—

ITEM 6.

EXHIBITS

See Exhibit Index following the signature page of this Report.

4442

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: October 29, 2009		/s/ Alan L. Wells
Date: April 26, 2010		/s/ Alan L. Wells
		Alan L. Wells
		President, Chief Executive Officer and Director Principal Executive Officer
		Iowa Telecommunications Services, Inc.
Date: October 29, 2009		/s/ Craig A. Knock
Date: April 26, 2010		/s/ Craig A. Knock
		Craig A. Knock
		Vice President, Chief Financial Officer and Treasurer Principal Accounting Officer
		Iowa Telecommunications Services, Inc.

4543

EXHIBIT INDEX

IOWA TELECOMMUNICATIONS SERVICES, INC.

FORM 10-Q FOR QUARTER ENDED ~~SEPTEMBER~~ 30MARCH 31, ~~2009~~2010

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 Bylaws 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.

4644

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · IOWA TELECOMMUNICATIONS SERVICES INC