Madison River Capital, LLC Announces 2005 Second Quarter and Six Months Unaudited Financial and Operating Results

Business Wire, August 2, 2005

MEBANE, N.C. -- Madison River Capital, LLC today announced its unaudited financial and operating results for the second quarter and six months ended June 30, 2005. The Company operates four rural telephone companies, or RLECs, that serve business and residential customers in the Southeast and Midwest regions of the United States. The Company also provides edge-out services as a competitive local exchange carrier to markets in close proximity to its RLECs.

2005 Second Quarter Financial and Operating Results

The Company reported an increase in net operating income of $2.3 million, or 16.7%, to $16.1 million in the second quarter ended June 30, 2005 from $13.8 million in the second quarter ended June 30, 2004. Total revenues in the second quarter ended June 30, 2005 were $47.7 million, a decrease of $0.1 million, or 0.2%, from revenues of $47.8 million in the second quarter ended June 30, 2004. In addition, the Company reported net income of $2.1 million in the second quarter of 2005 compared to a net loss of $2.5 million in the second quarter of 2004, an improvement of $4.6 million.

Adjusted Operating Income (1) is computed as net operating income (loss) before depreciation, amortization and non-cash long-term incentive plan expenses. Please refer to Footnote 1 - "Non-GAAP Financial Measures" for a reconciliation of Adjusted Operating Income to net operating income (loss). For the second quarter ended June 30, 2005, Adjusted Operating Income was $25.2 million and was computed by taking operating income of $16.1 million and adding back depreciation and amortization expenses of $9.4 million and subtracting the benefit from the reversal of long-term incentive plan expenses of $0.3 million. The Adjusted Operating Income of $25.2 million was a decrease of $0.3 million, or 1.0%, from the $25.5 million in Adjusted Operating Income reported in the second quarter ended June 30, 2004.

Revenues from the RLEC operations in the second quarter of 2005 were $45.1 million compared to $44.8 million in the second quarter of 2004, an increase of $0.3 million, or 0.7%. The increase is attributed primarily to a $1.0 million increase in Internet and enhanced data service revenues and a $0.3 million increase in long distance revenues. These increases were partially offset by a $0.7 million decrease in local service revenues and a $0.3 million decrease in miscellaneous telecommunications revenues. The increase in Internet and enhanced data services revenues is attributed to the growth in the number of DSL connections in service. At June 30, 2005, the RLECs served 42,827 DSL connections compared to 34,254 DSL connections at June 30, 2004, an increase of 8,573 connections, or 25.0%. The increase in long distance revenues is attributed to the growth in the number of long distance accounts served by the Company as well as the additional revenues from the long distance accounts included in the acquisition of the two exchanges in North Carolina. The decrease in local service revenues is attributed primarily to a decrease in end user revenues and a decrease in network access revenues as the result of a decrease in voice access lines in service. The RLEC operations served 182,004 voice access lines at June 30, 2005 compared to 185,331 voice access lines in service at June 30, 2004, a decrease of 3,327 lines or 1.8%. Partially offsetting the decrease in local service revenues and the decrease in voice access lines are 3,587 voice access lines in two exchanges the Company acquired at the end of April 2005. In addition, in the second quarter of 2004, network access revenues benefited from certain non-recurring revenues from wireless settlements. No comparable amounts were recognized in the second quarter of 2005. The decrease in miscellaneous telecommunications revenues is attributed primarily to a $0.5 million decrease in revenues from a special construction project, partially offset by a decrease of $0.2 million in uncollectible expenses, which are included in miscellaneous telecommunications revenues, in the second quarter of 2005 compared to the second quarter of 2004.

Net operating income from the RLEC operations for the second quarter ended June 30, 2005 was $18.6 million compared to net operating income for the second quarter ended June 30, 2004 of $16.1 million, an increase of $2.5 million, or 15.5%. The increase is attributed to a decrease in operating expenses of $2.2 million in addition to the $0.3 million increase in revenues as discussed above. The decrease in operating expenses is comprised of a $0.3 million decrease in cost of services and sales, a $1.0 million decrease in selling, general and administrative expenses and a $0.9 million decrease in depreciation and amortization expenses. The decrease in cost of services and sales is attributed primarily to lower materials and labor costs related to less activity on a special construction project and a reduction in expenses for DSL modems which are expensed at the time the DSL connection is placed in service. In the second quarter of 2005, the Company placed in service 970 net new DSL connections compared to 3,608 net new DSL connections placed in service in the second quarter of 2004. This decrease was partially offset by an increase in access expenses. In selling, general and administrative expenses, the decrease of $1.0 million is attributed primarily to a decrease in long-term incentive plan expenses. In the second quarter of 2005, the RLEC operations recognized a benefit of $0.3 million for the reversal of long-term incentive plan expenses related to employees who are no longer employed by the Company. In the second quarter of 2004, long-term incentive plan expenses in the RLEC operations were $0.9 million, or $1.2 million higher than the second quarter of 2005. The $0.9 million decrease in depreciation and amortization expenses in the second quarter of 2005 when compared to the second quarter of 2004 was largely due to certain classes of assets becoming fully depreciated.