Iowa Telecommunications Services (IWA)

Income Tax Expense

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

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

Income Tax Expense

Income tax expense decreased $3.6 million to $17.3 million for 2008 as compared to 2007.

At December 31, 2008, we had unused tax net operating loss carryforwards of approximately $149.0 million which expire in 2021 to 2024. Furthermore, we expect that we will continue to be able to take deductions related to the amortization of intangibles in excess of the amount recorded for book purposes in the amount of approximately $41 million annually through June 2015. We determined that, based upon the evidence available as of December 31, 2008, the combination of the continued generation of taxable income and the taxable income generated from reversing temporary differences will, more likely than not, be sufficient to utilize the entire deferred tax asset. As such, we determined that no valuation allowance was required for our deferred tax assets. During the years ended December 31, 2007 and 2008, cash income taxes paid were $633,000, and $399,000, respectively, and primarily relate to payments of alternative minimum tax (AMT).

48

Table of Contents

Income Tax Expense

Income tax expense decreased $3.2 million to $13.3 million for the nine months ended September 30, 2008 as compared to $16.5 million for the same period in 2007 due to lower income before taxes. During the nine months ended September 30, 2007 and 2008, cash income taxes paid were $494,000 and $346,000, respectively.

Income Tax Expense

Income tax expense decreased $3.0 million to $9.0 million for the six months ended June 30, 2008 as compared to $12.1 million for the same period in 2007 due to lower income before taxes. During the six months ended June 30, 2007 and 2008, cash income taxes paid were $442,000 and $147,000, respectively.

22

Table of Contents

Income Tax Expense

Income tax expense decreased $2.3 million to $5.0 million for the three months ended March 31, 2008 as compared to $7.3 million for the same period in 2007 due to lower income before taxes.

During the three months ended Mach 31, 2007 and 2008, cash income taxes paid were $3,000 and $4,000, respectively.

Income Tax Expense

A valuation allowance had been recorded at December 31, 2005 for our deferred tax assets that expire over time to the extent that they exceeded the net deferred tax assets and liabilities resulting from reversing temporary differences. We determined that, based upon the evidence available as of December 31, 2006, that the combination of the continued generation of taxable income and the taxable income generated from reversing temporary differences will be, more likely than not, sufficient to utilize the entire deferred tax asset. As such, we have determined that no valuation allowance was required for our deferred tax assets, and we reversed the remaining valuation allowance during the period.

Income tax expense for 2006, before adjustments to the deferred tax valuation allowance, was $19.5 million. As a result of reversing the remaining valuation allowance during 2006, income tax expense was reduced by $7.2 million, resulting in net expense for the period of $12.3 million.

At December 31, 2006, we had unused tax net operating loss carryforwards of approximately $185 million which expire in 2021 to 2024. Furthermore, we expect that we will continue to be able to take deductions related to the amortization of intangibles in excess of the amount recorded for book purposes in the amount of approximately $40 million annually through June 2015.

Income Tax Expense

SIZE="1"> 

A valuation allowance had been recorded at December 31, 2005 for our deferred tax assets that expire over time to the
extent that they exceeded the net deferred tax assets and liabilities resulting from reversing temporary differences. We determined that, based upon the evidence available as of December 31, 2006, that the combination of the continued
generation of taxable income and the taxable income generated from reversing temporary differences will be, more likely than not, sufficient to utilize the entire deferred tax asset. As such, we have determined that no valuation allowance was
required for our deferred tax assets, and we reversed the remaining valuation allowance during the period.

Income Tax Expense

Income tax expense increased $8.2 million to $16.5 million for the nine months ended September 30, 2007 as compared to the same period in 2006. Income tax expense for the nine months ended September 30, 2006, before adjustments to the deferred tax valuation allowance, was $15.6 million. As a result of reversing the remaining valuation allowance during 2006, income tax expense during the nine month period was reduced by $7.2 million, resulting in a net expense for the period of $8.4 million.

A valuation allowance had been recorded at December 31, 2005 for our deferred tax assets that expire over time to the extent that they exceeded the net deferred tax assets and liabilities resulting from reversing temporary differences. We determined that, based upon the evidence available as of June 30, 2006 and as of the end of each period thereafter, 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 determined that no valuation allowance was required for our deferred tax assets, and we reversed the remaining allowance during 2006. During the nine months ended September 30, 2006 and 2007, cash income taxes paid were $654,000, and $494,000, respectively, and relate to payments of alternative minimum tax (AMT).

Income Tax Expense

A valuation allowance had been recorded at December 31, 2005 for our deferred tax assets that expire over time to the extent that they exceeded the net deferred tax assets and liabilities resulting from reversing temporary differences. We determined that, based upon the evidence available as of December 31, 2006, that the combination of the continued generation of taxable income and the taxable income generated from reversing temporary differences will be, more likely than not, sufficient to utilize the entire deferred tax asset. As such, we have determined that no valuation allowance was required for our deferred tax assets, and we reversed the remaining valuation allowance during the period.

Income tax expense for 2006, before adjustments to the deferred tax valuation allowance, was $19.5 million. As a result of reversing the remaining valuation allowance during 2006, income tax expense was reduced by $7.2 million, resulting in net expense for the period of $12.3 million.

Our initial public offering resulted in an ownership change for purposes of Section 382 of the Internal Revenue Code, and consequently our ability to utilize our net operating losses will be subject to limitation each year. We currently anticipate that, as a result of such ownership change, we will generally be limited by Section 382 to utilizing approximately $19 million of our pre-transaction net operating losses annually. However, Internal Revenue Code Section 338 allows for an increase in this allowance by an additional $762,000, $37.4 million, $26.3 million, $18.7 million and $17.2 million, for tax periods ending in 2005 through 2009, respectively. After 2009, the IRC Section 382 limitation will apply. At December 31, 2006, the company had unused tax net operating loss carryforwards of approximately $185 million which expire in 2020 to 2024. Furthermore, we expect that we will continue to be able to take deductions related to the amortization of intangibles in excess of the amount recorded for book purposes in the amount of approximately $40 million annually through 2014.

47

Table of Contents

Income Tax Expense

A valuation allowance was provided at December 31, 2004 for our net deferred tax assets, due to our cumulative losses. As of December 31, 2004 the balance of the deferred tax asset and the valuation allowance was $26.1 million and our unused tax net operating loss carry forward was approximately $216 million and will expire between 2020 and 2024.

Income Tax Expense

A valuation allowance has been provided at September 30, 2005 for our deferred tax assets that expire over time to the extent that they exceed the net deferred tax assets and liabilities resulting from reversing temporary differences. We will continue to assess the recoverability of our deferred tax assets and the related valuation allowance. To the extent we generate taxable income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time. As of September 30, 2005, the balance of the valuation allowance was $10 million. Our unused tax net operating loss carryforward was approximately $211 million, and will expire between 2020 and 2025. As of September 30, 2005 we have a $150,000 Alternative Minimum Tax (“AMT”) liability and a corresponding AMT credit carryforward. No valuation allowance has been provided for the AMT credit carryforward due to its indefinite life.

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

Income Tax Expense

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

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

Income Tax Expense

A valuation allowance has been provided at December 31, 2004 for our net deferred tax assets, due to our cumulative losses. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent we generate taxable income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time. As of December 31, 2004 the balance of the deferred tax asset and the valuation allowance was $26.1 million and our unused tax net operating loss carry forward was approximately $216 million and will expire between 2020 and 2024.

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