IWA Iowa Telecommunications Services

Iowa Telecommunications Services, Inc. (NYSE: IWA) today announced operating results for the fourth quarter and year ended December 31, 2009. Quarterly highlights for the Company include:

• Operating revenues were $65.7 million.
• Operating income was $10.8 million.
• Net loss was $1.7 million or $(0.06) per diluted share.
• Adjusted EBITDA (as defined herein) was $31.1 million.

“Our operational and financial performance during 2009 was very strong, particularly in light of the year’s challenging economic conditions,” said Alan L. Wells, Iowa Telecom Chairman and Chief Executive Officer. “For the year, we generated revenues of $254.1 million, operating income of $53.0 million, net income of $10.3 million and Adjusted EBITDA of $124.2 million. More importantly, we paid our shareholders $52.7 million in dividends. At year end, we had 253,000 total telephone access lines as well as 158,500 long distance subscribers, 95,200 DSL subscribers, 27,100 video subscribers and 10,200 dial up subscribers, reflecting the successful integration of several acquisitions completed during the year.

“2009 was also an important year strategically for our Company and shareholders. On November 23, 2009, our Board of Directors approved an agreement for Windstream Corporation (“Windstream”) to acquire our Company in a transaction valued at approximately $1.1 billion,” added Wells. “Our loss for the quarter was primarily the result of costs related to this transaction. The transaction is proceeding as planned and we continue to anticipate a closing in mid-2010. I am excited about the prospects of this new combined entity.”

FINANCIAL DISCUSSION FOR FOURTH QUARTER 2009:

• Revenues and Sales were $65.7 million in the fourth quarter, compared to $65.0 million in the fourth quarter of 2008 as the impact of our acquisitions offset the impact of lost access lines and a $3.1 million decrease in CPE sales.
• Operating Costs and Expenses increased $7.4 million to $54.9 million in the fourth quarter of 2009, compared to $47.5 million in the fourth quarter of 2008. The 2009 period includes $3.1 million of costs related to the proposed transaction with Windstream and $938,000 of costs related to business acquisitions. In addition, depreciation and amortization increased $1.7 million for 2009, as compared to the fourth quarter of 2008.
• Operating Income was $10.8 million, compared to $17.5 million in the fourth quarter of 2008.
• Interest Expense was $8.3 million in the fourth quarter of both 2009 and 2008.
• Earnings Before Income Taxes was $2.5 million, compared to $9.1 million in the fourth quarter of 2008.
• Income Tax Expense for the fourth quarter was $4.2 million, compared to $4.0 million in the fourth quarter of 2008. The recorded book tax expense reflects a higher effective tax rate on income before taxes in part due to the $3.1 million of costs related to the proposed transaction with Windstream, most of which are not deductible for tax purposes. The recorded book tax expense did not impact the cash taxes paid during the quarter. Cash income taxes reflect the continued utilization of net operating loss carry forwards and continued goodwill amortization for tax purposes. The Company paid no actual cash income taxes during the quarter.
• Net loss was $1.7 million for the quarter, compared to net income of $5.1 million in the fourth quarter of 2008.
• Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA as defined herein) was $31.1 million for the fourth quarter of 2009, compared with $33.1 million in the same period in 2008. Adjusted EBITDA for the fourth quarter of 2009 includes approximately $4.1 million of costs related to the proposed transaction with Windstream and business acquisitions, of which only $2.8 million is allowed to be added back in accordance with the definition of Adjusted EBITDA in our credit agreement.
• Total Access Lines decreased by 2,600 during the fourth quarter of 2009, as compared to the third quarter in 2009, as ILEC access lines decreased by 3,800 lines and CLEC lines increased by 1,200 lines. DSL subscribers and video subscribers each increased by 700, and long distance subscribers and dial-up Internet subscribers each decreased by 1,600.

Fourth Quarter 2009 Financial Summary (Unaudited) (dollars in thousands, except per share amounts)  

 

4th Quarter

4th Quarter

Change

 

 

2009

   

2008

Amount

Percent

  Revenue $ 65,739 $ 65,020 $ 719 1.1 % Operating Income $ 10,845 $ 17,538 $ (6,693 ) -38.2 % Interest Expense $ 8,272 $ 8,250 $ 22 0.3 % Earnings Before Income Taxes $ 2,513 $ 9,105 $ (6,592 ) -72.4 % Income Tax Expense $ 4,179 $ 4,034 $ 145 3.6 % Net Income $ (1,666 ) $ 5,071 $ (6,737 ) -132.9 %   Basic Earnings Per Share (1) $ (0.06 ) $ 0.16 $ (0.22 ) -137.5 % Diluted Earnings Per Share (1) $ (0.06 ) $ 0.16 $ (0.22 ) -137.5 %   Adjusted EBITDA (2) $ 31,102 $ 33,127 $ (2,025 ) -6.1 % Capital Expenditures $ 8,056 $ 8,044 $ 12 0.1 % Dividends Paid $ 13,285 $ 12,949 $ 336 2.6 %  

(1) Basic and diluted earnings per share amounts for 2008 have been retrospectively adjusted to conform with new authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which was adopted by Iowa Telecom effective January 1, 2009.  The effect of adopting this guidance was immaterial to all periods presented.

(2) See the definition of Adjusted EBITDA under Explanation and Reconciliation to Non-GAAP Concepts at the end of the financial statements.

Key Operating Statistics   4th Quarter   4th Quarter  

Change

  2009(4)   2008 Amount   Percent   Telephone Access Lines ILEC Lines (1) 210,300 209,700 600 0.3% CLEC Lines (2) 42,700 32,400 10,300 31.8% Total Telephone Access Lines 253,000 242,100 10,900 4.5%   Long Distance Subscribers 158,500 146,400 12,100 8.3% Dial-up Internet Subscribers 10,200 16,700 (6,500 ) -38.9% DSL Subscribers 95,200 75,700 19,500 25.8% Video Subscribers (3) 27,100 20,300 6,800 33.5% 4th Quarter

3rd Quarter

Change  

2009(4)

2009(4)

Amount Percent   Telephone Access Lines ILEC Lines (1) 210,300   214,100   (3,800 ) -1.8 % CLEC Lines (2) 42,700   41,500   1,200 2.9 % Total Telephone Access Lines 253,000 255,600 (2,600 ) -1.0 %   Long Distance Subscribers 158,500 160,100 (1,600 ) -1.0 % Dial-up Internet Subscribers 10,200 11,800 (1,600 ) -13.6 % DSL Subscribers 95,200 94,500 700 0.7 % Video Subscribers (3) 27,100 26,400 700 2.7 %  

(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 2,300 wholesale lines subscribed at December 31, 2008; 1,900 at September 30, 2009; and 1,800 at December 31, 2009.

(2) Access lines subscribed by customers of our competitive local exchange carrier subsidiaries, Iowa Telecom Communications, Inc., IT Communications, LLC, En-Tel Communications, LLC, Lakedale Link, Inc. and Lakedale Link, LLC.

3 Includes subscribers served via our facilities as well as subscribers of satellite services which we resell.

4 Includes units acquired from Sherburne Tele Systems, Inc. as of July 1, 2009.

FINANCIAL DISCUSSION FOR YEAR ENDED DECEMBER 31, 2009:

• Operating Revenues increased $7.2 million, or 2.9%, to $254.1 million for the year ended December 31, 2009, as compared to 2008. The impact of our acquisitions and increased data and internet services revenue more than offset the impact of lost access lines and a $5.3 million decrease in CPE sales.
• Costs and Expenses increased $24.6 million, or 14.0%, to $201.1 million in 2009, as compared to 2008. The 2009 period included $3.1 million of costs related to the proposed transaction with Windstream, $3.2 million of costs related to business acquisitions and a $1.8 million one-time charge related to a network access matter. Costs of CPE sales decreased by $3.9 million. The remaining increase in costs of services and sales and selling, general and administrative costs is primarily due to the impact of the Sherburne acquisition and the full-year impact of the Bishop Communications acquisition. Depreciation and amortization increased $7.4 million, or 13.8%, to $61.1 million.
• Operating Income decreased to $53.0 million in 2009, compared to $70.5 million in 2008.
• Interest Expense was $31.8 million in 2009, compared to $31.4 million in 2008.
• Earnings Before Income Taxes for the year was $23.5 million, a decrease of 41.9%, compared to $40.4 million in 2008.
• Income Tax Expense for 2009 was $13.1 million, compared $17.3 million in 2008. The Company paid actual cash income taxes in 2009 of only $62,000. The recorded book tax expense reflects a higher effective tax rate on income before taxes in part due to the $3.1 million of costs related to the proposed transaction with Windstream, most of which are not deductible for tax purposes.
• Net Income was $10.3 million for 2009, compared to net income of $23.0 million in 2008.
• Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA as defined herein) was $124.2 million for 2009, as compared with $128.3 million for 2008. Adjusted EBITDA for 2009 included approximately $6.3 million of costs related to the proposed transaction with Windstream and business acquisitions, of which only $5.0 million is allowed to be added back in accordance with the definition of Adjusted EBITDA in our credit agreement. In addition, 2009 included a one-time $1.8 million charge related to a network access billing matter.

• Total Access Lines increased by 10,900, or 4.5%, for 2009, as compared to 2008 primarily due to the addition of access lines related to the Sherburne acquisition. Incumbent local exchange carrier access lines increased by 600 lines and competitive local exchange carrier lines increased by 10,300 lines from the end of 2008.

2009 Financial Summary (Unaudited) (dollars in thousands, except per share amounts)

 

Change

    2009   2008 Amount

Percent

  Revenue $ 254,142 $ 246,965 $ 7,177 2.9 % Operating Income $ 53,009 $ 70,466 $ (17,457 ) -24.8 % Interest Expense $ 31,813 $ 31,444 $ 369 1.2 % Earnings Before Income Taxes $ 23,454 $ 40,389 $ (16,935 ) -41.9 % Income Tax Expense $ 13,117 $ 17,345 $ (4,228 ) -24.4 % Net Income $ 10,337 $ 23,044 $ (12,707 ) -55.1 %   Basic Earnings Per Share (1) $ 0.29 $ 0.71 $ (0.42 ) -59.2 % Diluted Earnings Per Share (1) $ 0.29 $ 0.70 $ (0.41 ) -58.6 %   Adjusted EBITDA(2) $ 124,172 $ 128,311 $ (4,139 ) -3.2 % Capital Expenditures $ 24,307 $ 28,166 $ (3,859 ) -13.7 %   Dividends Paid $ 52,722 $ 51,748 $ 974 1.9 %  

(1) Basic and diluted earnings per share amounts for 2008 have been retrospectively adjusted to conform with new authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which was adopted by Iowa Telecom effective January 1, 2009.  The effect of adopting this guidance was immaterial to all periods presented.

(2) See the definition of Adjusted EBITDA under Explanation and Reconciliation to Non-GAAP Concepts at the end of the financial statements.

Windstream Merger Agreement

On November 23, 2009, we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Windstream and Buffalo Merger Sub, Inc., 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.

The transaction is expected to close in the middle of 2010. Completion of the Merger with Windstream is conditioned upon the receipt of certain governmental consents and approvals, and our shareholders’ approval. The special meeting of the Company’s shareholders to vote on the Merger has been scheduled for March 25, 2010, and the proxy statement/prospectus for the special meeting was mailed to shareholders on or about February 22, 2010. No assurance can be given that the required conditions to closing will be satisfied or that the Merger will be completed.

The merger agreement is attached as Exhibit 2.1 to the Current Report on Form 8-K that Iowa Telecom filed with the Securities and Exchange Commission on November 24, 2009.

Iowa Telecom will not host an investor call with respect to the financial results.

Additional Information and Where to Find It

In connection with the proposed transaction, Windstream has filed a registration statement on Form S-4 with the SEC, which includes the Company’s proxy statement and also constitutes a prospectus with respect to the Windstream securities. On or about February 22, 2010, the Company mailed the proxy statement/prospectus to its shareholders. INVESTORS ARE URGED TO READ THE REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS) BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Investors may obtain free copies of the registration statement and proxy statement/prospectus, as well as other filings containing information about Windstream and the Company, without charge, at the SEC’s Internet web site (www.sec.gov). These documents may also be obtained for free from the Company’s Investor Relations web site (www.iowatelecom.com) or by directing a request to the Company at 403 W. Fourth Street North, Newton, Iowa 50208 or by calling (641) 787-2000. Copies of Windstream’s filings may be obtained for free from Windstream’s Investor Relations Web Site (www.windstream.com) or by directing a request to Windstream at Windstream Investor Relations, 4001 Rodney Parham Road, Little Rock, Arkansas 72212 or by calling (866) 320-7922.

The Company, Windstream and their respective officers and directors may be deemed, under SEC rules, to be participants in the solicitation of proxies from the Company’s shareholders with respect to the proposed Merger. Information regarding the officers and directors of the Company is included in its definitive proxy statement for its 2009 annual meeting filed with the SEC on April 29, 2009. Information regarding the officers and directors of Windstream is included in its Form 10-K for 2009 filed on February 22, 2010, and in its definitive proxy statement for its 2009 annual meeting filed with the SEC on March 23, 2009. More detailed information regarding the identity of potential participants in the solicitation, and their direct or indirect interests, by securities, holdings or otherwise, which interests may be different from those of the Company’s shareholders generally, are set forth in the proxy statement/prospectus and other materials to be filed with SEC in connection with the proposed transaction.

About Iowa Telecom

Iowa Telecommunications Services, Inc. (d/b/a Iowa Telecom) is a telecommunications service provider that offers local telephone, long distance, Internet, broadband and network access services to business and residential customers. The Company and its subsidiaries serve over 450 Iowa communities and 10 Minnesota communities, and employ nearly 800 people. The company’s headquarters are in Newton, Iowa. The Company trades on the New York Stock Exchange under the symbol IWA. For further information regarding Iowa Telecom, please go to www.iowatelecom.com and select “Investor Relations.” The Iowa Telecom logo is a registered trademark of Iowa Telecommunications Services, Inc. in the United States.

Forward-Looking Statements

The press release may contain forward-looking statements that are not based on historical fact, including without limitation statements containing the words “believes,” “may,” “plans,” “will,” “estimate,” “continue,” “anticipates,” “intends,” “expects,” and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be materially different from future results, events or developments described in the forward-looking statements. Such factors include those risks described in Iowa Telecom’s Form 10-K on file with the SEC. In addition, with respect to the forward-looking information contained in this release relating to the Merger, if the Company does not receive the required shareholder approval or fails to satisfy other conditions to closing, the Merger may not be consummated, and 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 to obtain approval of the Company’s shareholders, the failure of either party to meet the closing conditions set forth in the Merger Agreement, and the extent and timing of regulatory approvals. These and the factors referenced above should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. All information is current as of the date this press release is issued, and Iowa Telecom undertakes no duty to update this information.

IOWA TELECOMMUNICATIONS SERVICES, INC. AND SUBSIDIARIES Balance Sheets (Unaudited) (dollars in thousands, except per share amounts)   As of As of December 31, 2009 December 31, 2008 ASSETS   CURRENT ASSETS Cash and cash equivalents $ 12,259 $ 11,605 Accounts receivable, net 22,632 23,320 Inventories 5,105 3,946 Prepayments and other current assets   7,857     3,149   Total Current Assets   47,853     42,020     PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment 672,270 601,782 Accumulated depreciation   (365,631 )   (310,936 ) Property, Plant and Equipment, net   306,639     290,846     GOODWILL 492,956 473,984 INTANGIBLE ASSETS AND OTHER, NET 51,238 36,904 INVESTMENT IN AND RECEIVABLE FROM THE RURAL TELEPHONE FINANCE COOPERATIVE   17,141     16,174   Total Assets $ 915,827   $ 859,928     LIABILITIES AND STOCKHOLDERS’ EQUITY   CURRENT LIABILITIES Revolving credit facility $ 37,000 $ 39,000 Accounts payable 12,408 11,017 Advanced billings and customer deposits 10,470 8,615 Accrued and other current liabilities 33,195 32,429 Current maturities of long-term debt   3,276    

1,219

 

 

Total Current Liabilities

 

96,349

   

92,280

 

LONG-TERM DEBT

565,214 489,003 DEFERRED TAX LIABILITIES 60,783 47,575 OTHER LONG-TERM LIABILITIES   25,914     28,326   Total long-term liabilities   651,911     564,904     Total Liabilities   748,260     657,184     STOCKHOLDERS’ EQUITY Common stock, $.01 par value, 100,000,000 shares authorized, 32,193,036 and 31,500,687 shares issued and outstanding 322 315 Additional paid-in capital 332,722 327,264 Accumulated deficit (153,383 ) (110,814 ) Accumulated other comprehensive loss   (12,094 )   (14,308 ) Total Iowa Telecom stockholders’ equity 167,567 202,457 Noncontrolling interest   -     287   Total Stockholders’ Equity   167,567     202,744     Total Liabilities and Stockholders’ Equity $ 915,827   $ 859,928     IOWA TELECOMMUNICATIONS SERVICES, INC. AND SUBSIDIARIES Income Statements (Unaudited) (in thousands, except per share amounts)  

Three Months Ended

December 31,

Twelve Months Ended

December 31,

  2009     2008     2009     2008     REVENUE AND SALES Local services $ 19,321 $ 18,005 74,859 $ 71,131 Network access services 22,817 23,563 87,690 89,420 Toll services 5,529 5,616 22,234 23,010 Data and internet services 11,923 9,548 43,040 35,163 Other services and sales   6,149     8,288     26,319     28,241   Total revenues and sales 65,739 65,020 254,142 246,965   OPERATING COSTS AND EXPENSES

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

22,104 20,310 83,640 78,091 Selling, general and administrative 16,428 12,484 56,401 44,714 Depreciation and amortization   16,362     14,688     61,092     53,694   Total operating costs and expenses 54,894 47,482 201,133 176,499   OPERATING INCOME 10,845 17,538 53,009 70,466   OTHER INCOME (EXPENSE) Interest and dividend income 138 209 1,880 938 Interest expense (8,272 ) (8,250 ) (31,813 ) (31,444 ) Other, net   (198 )   (392 )   378     429   Total other expense, net (8,332 ) (8,433 ) (29,555 ) (30,077 )   EARNINGS BEFORE INCOME TAXES 2,513 9,105 23,454 40,389   INCOME TAX EXPENSE   4,179     4,034     13,117     17,345     NET INCOME (LOSS) (1,666 ) 5,071 10,337 23,044 Noncontrolling interest   -     105     195     105    

NET INCOME (LOSS) ATTRIBUTABLE TO IOWA TELECOMMUNICATIONS

$ (1,666 ) $ 5,176   $ 10,532   $ 23,149     COMPUTATION OF EARNINGS PER SHARE (1) Basic - Earnings Per Share $ (0.06 ) $ 0.16 $ 0.29 $ 0.71

Basic - Weighted average number of shares outstanding

32,093 31,501 31,934 31,477   Diluted - Earnings Per Share $ (0.06 ) $ 0.16 $ 0.29 $ 0.70

Diluted - Weighted average number of shares outstanding

32,093 32,095 32,203 32,056  

(1) Basic and diluted earnings per share amounts for 2008 have been retrospectively adjusted to conform with new authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which was adopted by Iowa Telecom effective January 1, 2009.  The effect of adopting this guidance was immaterial to all periods presented.

IOWA TELECOMMUNICATIONS SERVICES, INC. AND SUBSIDIARIES Statements of Cash Flows (Unaudited) (in thousands)      

Three Months Ended

December 31,

Twelve Months Ended

December 31,

    2009     2008     2009     2008     CASH FLOWS FROM OPERATING ACTIVITIES Net income $ (1,666 ) $ 5,071 $ 10,337 $ 23,044 Adjustments to reconcile net income to net cash provided by operating activities:   Depreciation 15,425 13,906 58,403 51,747 Amortization of intangible assets 937 782 2,689 1,947 Amortization of debt issuance costs 384 174 1,113 640 Deferred income taxes 4,176 4,613 12,843 17,286

Non-cash stock-based compensation expense

969 893 3,771 3,553 Changes in operating assets and liabilities: Receivables 11 (2,032 ) 3,164

(1,754

)

 

Inventories

493

265

326

(15

)

Accounts payable 2,382 739 (48 ) 1,267

Pension and postretirement benefit plan obligations

(31 ) (2,746 ) (687 ) (4,147 ) Other assets and liabilities   4,469     920     (733 )   (5,012 ) Net cash provided by operating activities 27,549 22,585 91,178 88,556   CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (8,056 ) (8,044 ) (24,307 ) (28,166 ) Business acquisitions (net of cash acquired) (1,136 ) 319 (81,179 ) (33,100 ) Purchase of wireless licenses   -     -     -     (5,938 ) Net cash used in investing activities (9,192 ) (7,725 ) (105,486 ) (67,204 )   CASH FLOWS FROM FINANCING ACTIVITIES Net change in revolving credit facility (4,000 ) 2,000 (2,000 ) 21,000 Proceeds from exercise of stock options 26 - 703 - Payment of debt issuance costs - - (2,009 ) (351 ) Issuance of long-term debt - - 75,000 - Payment on long-term debt (498 ) (291 ) (1,585 ) (599 ) Acquisition of noncontrolling interest - - (1,890 ) - Capital contributions from noncontrolling interests - 520 390 520 Shares reacquired (432 ) - (925 ) (488 ) Dividends paid   (13,285 )   (12,949 )   (52,722 )   (51,748 )

Net cash provided by (used in) financing activities

(18,189 ) (10,720 ) 14,962 (31,666 )   Net Change in Cash and Cash Equivalents   168     4,140     654     (10,314 )

Cash and Cash Equivalents at Beginning of Period

  12,091     7,465     11,605     21,919    

Cash and Cash Equivalents at End of Period

$ 12,259   $ 11,605   $ 12,259   $ 11,605   IOWA TELECOMMUNICATIONS SERVICES, INC. AND SUBSIDIARIES EXPLANATIONS AND RECONCILIATIONS TO NON-GAAP CONCEPTS (Unaudited) (in thousands)  

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

2009 2008(1) 2009 2008 (1)   ADJUSTED EBITDA: Net income $ (1,666 ) $ 5,176 $ 10,337 $ 23,149 Income tax expense 4,179 4,034 13,117 17,345 Interest expense 8,272 8,250 31,813 31,444 Depreciation and amortization 16,362 14,688 61,092 53,694

Unrealized (gains) losses on financial derivatives

189 455 729 (314 )

Non-cash stock-based compensation expense (2)

969 893 3,771 3,553 Extraordinary or unusual (gains) losses - - - - Non-cash portion of RTFC Capital Allocation (3) 23 (369 ) (651 ) (560 ) Other non-cash losses (gains) - - (1,036 ) -

Loss (gain) on disposal of assets not in ordinary course

- - - - Transaction costs 2,774 - 5,000 - ADJUSTED EBITDA $ 31,102 $ 33,127 $ 124,172 $ 128,311  

(1) The FASB issued amended guidance regarding “Noncontrolling Interest in Consolidated Financial Statements.”  The amended guidance was adopted by Iowa Telecom effective January 1, 2009 and the Statement of Operations has been retrospectively adjusted to conform to new authoritative guidance. The Adjusted EBITDA calculation as presented for 2008 is calculated in accordance with the definition of Adjusted EBITDA, as defined in our credit agreement, and financial statements prepared in accordance with the authoritative guidance in effect at that time.

(2) Included in Selling, General and Administrative Expense on the Consolidated Statements of Operations.

(3) Included in Interest and Dividend Income on the Consolidated Statements of Operations.

We present Adjusted EBITDA because we believe it is a useful indicator of our historical debt capacity and our ability to service debt and pay dividends. We also present Adjusted EBITDA because covenants in our credit facilities contain ratios based on Adjusted EBITDA.

Adjusted EBITDA is defined in our credit facilities as: (1) consolidated net income, as defined therein; plus (2) the following items, to the extent deducted from consolidated net income: (a) interest expense; (b) provision for income taxes; (c) depreciation and amortization; (d) transaction expenses related to the IPO and the related debt refinancing and other limited expenses related to permitted securities offerings, investments and acquisitions incurred after the closing date of the IPO, to the extent not exceeding $5.0 million; (e) unrealized losses on financial derivatives; (f) non-cash stock-based compensation expense; (g) extraordinary or unusual losses (including extraordinary or unusual losses on permitted sales of assets and casualty events); (h) losses on sales of assets other than in the ordinary course of business; and (i) all other non-cash charges that represent an accrual for which no cash is expected to be paid in the next twelve months; minus (3) the following items, to the extent any of them increases consolidated net income: (w) extraordinary or unusual gains (including extraordinary or unusual gains on permitted sales of assets and casualty events); (x) gains on asset disposals not in the ordinary course; (y) unrealized gains on financial derivatives; and (z) all other non-cash income (including the non-cash portion of any RTFC patronage capital allocation). If our Adjusted EBITDA were to decline below certain levels, covenants in our credit facilities that are based on Adjusted EBITDA, including our fixed charge coverage and total leverage ratio covenants, may be violated and could cause, among other things, a default or mandatory prepayment under our credit facilities, or result in our inability to pay dividends.

We believe that net income is the most directly comparable financial measure to Adjusted EBITDA under GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for consolidated statement of operations and cash flows data prepared in accordance with GAAP. Adjusted EBITDA is not a complete measure of an entity’s profitability because it does not include costs and expenses identified above; nor is Adjusted EBITDA a complete net cash flow measure because it does not include reductions for cash payments for an entity’s obligation to service its debt, fund its working capital, capital expenditures and acquisitions and pay its income taxes and dividends.