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SureWest Reports Strong First Quarter 2009 Results -- Revenue Growth of 19% and EBITDA Growth of 34%

Posted on: Wednesday, 6 May 2009, 15:12 CDT

Results Driven by Broadband Business and Residential Revenue Growth

ROSEVILLE, Calif., May 6 /PRNewswire-FirstCall/ -- Leading independent communications holding company SureWest Communications (Nasdaq: SURW) today announced operating results for the first quarter ended March 31, 2009.

Year-over-Year Financial Highlights:

• Revenue increased 19% to $60.9 million due to continued Broadband growth
• EBITDA, adjusted for non-cash pension ($755 thousand) and stock compensation ($608 thousand), increased 34% to $19.5 million
• Income from operations increased 23% to $3.3 million
• Net income increased to $2.5 million from $283 thousand due to a gain from the sale of SureWest's wireless towers in February 2009

Year-over-Year Pro Forma Highlights (captures Kansas City results prior to the acquisition):

• Revenue increased 4% resulting from 14% Broadband revenue growth partially offset by Telecom revenue declines of 11%
• Broadband Business revenues grew 21% driven by 12% customer growth and a 9% average revenue per user (ARPU) increase
• Broadband Residential revenues increased 12% due to 5% residential ARPU growth and a 12% increase in revenue generating units (RGUs)
• Broadband Residential customer churn remained favorable, with a low rate of 1.4%
• Broadband VoIP, which launched in March 2008, continues to slow traditional telephone line erosion with a residential voice loss of 4,800 (4%) compared to a loss of 9,000 (7%) in the first quarter 2008

The following table highlights financial results for continuing operations on both a consolidated and pro forma basis to include the acquisition of the Kansas City operations (dollars are in thousands):

Y-O-Y Comparison Q-O-Q Comparison Consolidated Q109 Q108 Growth Q408 Growth Broadband Revenue $39,222 $26,831 46% $36,929 6% Telecom Revenue $21,720 $24,482 -11% $22,009 -1% Total Revenue $60,942 $51,313 19% $58,938 3% EBITDA (adjusted) $19,493 $14,506 34% $17,015 15% Income from Operations $3,320 $2,691 23% $2,559 30% Pro Forma Broadband Revenue $39,222 $34,388 14% $36,929 6% Telecom Revenue $21,720 $24,482 -11% $22,009 -1% Total Revenue $60,942 $58,870 4% $58,938 3% EBITDA (adjusted) $19,493 $17,344 12% $17,015 15% See Non-GAAP measure notes near end of release and EBITDA reconciliation for detailed adjustments.

Steve Oldham, SureWest's president and chief executive officer, said, "The sales environment continues to be challenging as cost-savings and value have understandably become our customer's main priorities, particularly in the Sacramento region. We constantly review and amend our marketing tactics in response to market dynamics in order to maximize sales opportunities. Despite strong competition, this has resulted in sustained residential growth, particularly in RGUs and ARPU, and a business product offering that continues to excel. We also have the ability to add new features and products capable of generating additional revenue streams such as unique and exclusive residential video content, fee-based home entertainment installation, IT outsourcing for business clients and expanded data center services.

"Our decision last year to purchase the network assets in Kansas City continues to provide regulatory, economic and market diversity that benefits the company. Our Northern California markets experienced relatively flat customer growth while our Kansas City area markets continue to see stronger growth, with the Kansas City business services sector exceeding our aggressive growth targets."

Consolidated Financial Results

Consolidated revenues increased 19% year-over-year to $60.9 million and consolidated adjusted EBITDA increased 34% to $19.5 million. The growth was attributable to significant Broadband performance, which included a full quarter of the Kansas City operations in the first quarter 2009 compared to six weeks in the first quarter 2008. This more than offset the anticipated Telecom segment revenue declines.

Income from operations increased 23% year-over-year to $3.3 million primarily due to continued growth in Broadband. Net income increased to $2.5 million from $283 thousand due to a gain from the sale of SureWest's wireless towers in February 2009.

Operating expenses, exclusive of depreciation and amortization, increased 17% to $42.8 million compared to $36.5 million in the first quarter 2008. Cost of services increased due to the yearly increase of video programming fees and transport charges related to the growth of commercial business revenues. Customer operations and selling increased due to the increase in the residential and business sales team in Kansas City, and general and administrative expenses declined due to decreases in consulting fees for information system projects and strategic initiatives.

Earnings per share from continuing operations was $0.01 compared to zero in the first quarter 2008.

Consolidated capital expenditures totaled $18.4 million, consistent with the first quarter 2008 total of $18.3 million. The company is projecting 2009 capital expenditures of $55-60 million, most of which occurs in the first half of the year with much lower capital spend expected in the second half. The 2009 capital plan is aimed at the company's targeted network expansion and success-based capital associated with obtaining market share through increased penetration, subscribers and RGUs.

Pro Forma Consolidated Results (includes Kansas City results in prior periods)

Operating revenues totaled $60.9 million, a pro forma increase of 4%. EBITDA totaled $19.5 million, a pro forma increase of 12%. Revenue from business customers grew by $1.7 million, a pro forma increase of 10%.

Pro Forma Broadband Segment Results

Broadband revenues increased 14% and accounted for 64% of the company's total revenue for the first quarter 2009.

Broadband Residential:

Broadband Residential revenues increased 12%. To illustrate growth trends, Broadband RGUs, subscriber counts and ARPU are detailed both year-over-year and sequentially in the table and text below:

Q1 '09 vs. Q1 '08 change Q1 '09 vs. Q4 '08 change Kansas Kansas Sacramento City Total Sacramento City Total Market Market Market Market ------- ------- ----- ------- ------- ----- Broadband Residential RGUs 18% 6% 12% 2% 1% 2% Data RGUs 7% 7% 7% 0% 2% 1% Video RGUs - Fiber & HFC 15% 7% 10% -2% 1% 0% Voice RGUs 55% 4% 23% 9% 1% 4% Total Residential Subscribers 6% 7% 6% 0% 1% 0%

ARPU for triple-play marketable homes, consisting of the company's fiber-to-the-home (FTTH) and hybrid fiber coaxial (HFC) networks, increased to $112 from $110 year-over-year and $107 sequentially.

"During the first quarter, we strategically focused on growing ARPU," said Oldham. "While this strategy was successful due to a combination of price increases and being more conservative with discounts, it came at a cost in Sacramento of a small sequential loss of some video subscribers and flat growth of data subscribers. Kansas City historically experiences slower subscriber growth in the first quarter due to the effects of weather impacting customer acquisition. In response to the general economic conditions in California and in response to our competition, in the second quarter we have become more aggressive with our marketing promotions and customer retention offers while continuing to focus on maintaining ARPU and increasing EBITDA."

Residential marketable homes increased 21,600, or 8%, to 308,200 year-over-year and by 4,000, or 1%, sequentially. SureWest is projecting to pass roughly 7,500 marketable homes with its advanced fiber network in 2009. Sacramento will upgrade roughly 2,000 ILEC homes to fiber in the second quarter and Kansas City released 4,000 new homes in the first quarter and an additional 1,500 in April. SureWest's expectation is to exceed 35% penetration on its fiber networks.

Broadband Business:

Broadband Business, which comprised 24% of the Broadband segment, increased revenues by 21% to $9.6 million. Customer counts increased 12% to 6,700 and total Business ARPU grew 9% to $484.

Commercial development in the Kansas City service territory remained active and ARPU in that market is expected to sustain positive growth due to the company's successful efforts in acquiring new business clients. Kansas City will launch a new data center service in the third quarter of 2009 with expectations of additional growth among new and existing customers. The company successfully grew ARPU in the Sacramento business market by upgrading DSL business customers from the 3 Mbps product to 6 and 10 Mbps as the business demand for more Internet bandwidth continues to increase. Revenues were also impacted by a $247 thousand non-recurring sale of business equipment.

Telecom Segment Results

Operating only in the Sacramento market, Telecom segment revenues declined 11% to $21.7 million due to an expected revenue loss in Telecom Residential access lines and associated access revenues.

Telecom Residential:

Telecom Residential results were impacted by anticipated losses in Telecom voice RGUs of 26%. The company continues to mitigate industry-wide trends of Telecom voice line losses through its Broadband VoIP product. Of the 4,500 sequential Telecom Residential voice RGU losses, 2,200 migrated to the VoIP service during the first quarter.

The company anticipates continued voice line losses, which will be partially offset as customers move to the Broadband VoIP service and its feature-rich capabilities. Launched in March 2008, Broadband VoIP continues to slow traditional telephone line erosion with a residential voice loss of 4,800 (4%) compared to a loss of 9,000 (7%).

Telecom Business:

Telecom Business revenues remained flat at $9 million. ARPU grew 7% to $332, which helped offset subscriber count decreases of 6% that were largely due to the economic impact on small-to-medium size businesses.

Telecom Access:

Telecom Access consists of the company's switched access revenues, interstate common line revenues and California High Cost Fund (CHCF) subsidies. Revenues decreased 11% to $5.6 million due to scheduled reductions in the CHCF subsidies, as well as a decline in switched access revenues. Sequential revenue increased 3% due to an increase in common line revenues, which resulted from an increase in rate base and a non-recurring $224 thousand settlement of a prior year CHCF claim.

Wireless Towers

On February 27, 2009, SureWest completed the previously announced sale of its 52 wireless towers to Global Tower Partners for an aggregate cash purchase price of $9.2 million. As a result of this sale, SureWest consolidated results now reflect Wireless Towers as discontinued operations.

Non-GAAP Measures

In addition to the results presented in accordance with Generally Accepted Accounting Principles (GAAP) throughout this press release; the company has presented non-GAAP financial measures, such as EBITDA. EBITDA represents net income (loss) from continuing operations excluding amounts for income taxes; depreciation and amortization; non-cash pension and certain post-retirement benefits; non-cash stock compensation; and all other non-operating income/expenses. The company believes these non-GAAP measures, viewed in addition to but not in lieu of its reported GAAP results, provide useful information to investors because they are an integral part of its internal evaluation of operating performance. In addition, they are measures that the company uses to evaluate management's effectiveness. A reconciliation to the comparable GAAP measures is provided in the accompanying financial and operating summaries. SureWest's non-GAAP financial measures may not be comparable to similarly titled measures presented by other companies.

Conference Call and Webcast

SureWest will host a conference call providing details about its results and business strategy at 5:00 p.m. Eastern Time on Wednesday, May 6, 2009. Open to the public, a simultaneous live webcast of the call will be available from the company's investor relations Web site at www.surw.com. A telephone replay of the call will be available shortly after completion through Wednesday, May 13 by dialing (888) 286-8010 and entering passcode 65142820. Visit www.surw.com for updates prior to the call.

About SureWest

SureWest Communications (www.surewest.com) is one of the nation's leading integrated communications providers and is the bandwidth leader in the markets it serves. Headquartered in Northern California for more than 90 years, the company expanded into the Kansas City region in February 2008 with the acquisition of Everest Broadband, Inc. and offers bundled residential and commercial services that include IP-based digital and high-definition television, high-speed Internet, Voice over IP, and local and long distance telephone. SureWest was the nation's first provider to launch residential HDTV over an IP network and offers one of the nation's fastest symmetrical Internet services with speeds of up to 50 Mbps in each direction on its fiber-to-the-home network.

Safe Harbor Statement

Statements made in this news release that are not historical facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements may be identified by the use of words such as may, will, should, expect, plan, anticipate, or project or the negative of those words or other comparable words. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking statements are subject to a number of risks, assumptions and uncertainties that could cause the company's actual results to differ from those projected in such forward-looking statements.

Important factors that could cause actual results to differ from those set forth in the forward-looking statements include, but are not limited to, advances in telecommunications technology, changes in the telecommunications regulatory environment, changes in the financial stability of other telecommunications providers who are customers of the company, changes in competition in markets in which the company operates, adverse circumstances affecting the economy in California, Kansas and Missouri in general, and in the greater Sacramento, California and greater Kansas City, Kansas and Missouri areas in particular, the availability of future financing, changes in the demand for services and products, new product and service development and introductions, and pending and future litigation.

Contacts: Ron Rogers Corporate Communications 916-746-3123 r.rogers@surewest.com Misty Wells Investor Relations 916-786-1799 m.wells@surewest.com SUREWEST COMMUNICATIONS CONSOLIDATED STATEMENTS OF INCOME (Unaudited; Amounts in thousands, except per share amounts) Quarter Quarter Ended Ended $ % March 31, March 31, 2009 2008 Change Change --------- --------- ------ ------ Operating revenues: Broadband $39,222 $26,831 $12,391 46% Telecom 21,720 24,482 (2,762) -11% ------ ------ ------ --- Total operating revenues 60,942 51,313 9,629 19% Operating expenses: Cost of services and products (exclusive of depreciation and amortization) 25,014 18,553 6,461 35% Customer operations and selling 8,235 7,444 791 11% General and administrative 9,563 10,558 (995) -9% Depreciation and amortization 14,810 12,067 2,743 23% ------ ------ ----- -- Total operating expenses 57,622 48,622 9,000 19% ------ ------ ----- -- Income from operations 3,320 2,691 629 23% Other income (expense): Interest income 37 334 (297) -89% Interest expense (2,310) (2,755) 445 16% Other, net (84) 1 (85) nm --- --- --- -- Total other income (expense), net (2,357) (2,420) 63 3% ------ ------ -- --- Loss from continuing operations before income taxes 963 271 692 255% Income tax expense 884 249 635 255% --- --- --- --- Income from continuing operations 79 22 57 259% Discontinued operations, net of tax: Income (loss) from discontinued operations (69) 261 (330) -126% Gain on sale of discontinued operations 2,508 - 2,508 100% ----- --- ----- --- Total discontinued operations 2,439 261 2,178 834% ----- --- ----- --- Net income $2,518 $283 $2,235 790% ====== ==== ====== === Basic and diluted earnings per common share: Income from continuing operations $0.01 $- $0.01 Discontinued operations, net of tax 0.17 0.02 0.15 ---- ---- ---- Net income per basic common share $0.18 $0.02 $0.16 ===== ===== ===== Shares of common stock used to calculate earnings per share: Basic 14,008 14,310 (302) ====== ====== ==== Diluted 14,008 14,329 (321) ====== ====== ==== SUREWEST COMMUNICATIONS CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited; Amounts in thousands, except per share amounts) Quarter Quarter Ended Ended $ % March 31, March 31, 2009 2008 Change Change --------- --------- ------ ------ Operating revenues: Broadband $39,222 $36,929 $2,293 6% Telecom 21,720 22,009 (289) -1% ------ ------ ---- -- Total operating revenues 60,942 58,938 2,004 3% Operating expenses: Cost of services and products (exclusive of depreciation and amortization) 25,014 23,875 1,139 5% Customer operations and selling 8,235 9,260 (1,025) -11% General and administrative 9,563 8,578 985 11% Depreciation and amortization 14,810 14,666 144 1% ------ ------ --- - Total operating expenses 57,622 56,379 1,243 2% ------ ------ ----- - Income from operations 3,320 2,559 761 30% Other income (expense): Interest income 37 83 (46) -55% Interest expense (2,310) (3,281) 971 30% Other, net (84) 261 (345) -132% --- --- ---- ---- Total other income (expense), net (2,357) (2,937) 580 20% ------ ------ --- -- Income (loss) from continuing operations before income taxes 963 (378) 1,341 355% Income tax expense 884 1,169 (285) -24% --- ----- ---- --- Income (loss) from continuing operations 79 (1,547) 1,626 105% Discontinued operations, net of tax: Loss from discontinued operations (69) (229) 160 70% Gain (loss) on sale of discontinued operations 2,508 (358) 2,866 801% ----- ---- ----- --- Total discontinued operations 2,439 (587) 3,026 516% ----- ---- ----- --- Net income (loss) $2,518 $(2,134) $4,652 218% ====== ======= ====== === Basic and diluted earnings per common share: Income (loss) from continuing operations $0.01 $(0.11) $0.12 Discontinued operations, net of tax 0.17 (0.04) 0.21 ---- ----- ---- Net income (loss) per basic common share $0.18 $(0.15) $0.33 ===== ====== ===== Shares of common stock used to calculate earnings per share: Basic 14,008 13,976 32 ====== ====== == Diluted 14,008 13,976 32 ====== ====== ==

SUREWEST COMMUNICATIONS - Consolidated Operations SELECTED OPERATING METRICS (inc KC results from periods prior to acquisition) As of and for the quarter ended 3/31/ 3/31/ BROADBAND 2009 (1) 2008 (1) Chg Chg % --------- -------- -------- --- ----- Residential Video Marketable Homes - Fiber & HFC (2) 236,500 211,000 25,500 12% RGUs - Fiber & HFC 57,600 52,500 5,100 10% RGUs - Copper 2,400 2,700 (300) -11% Penetration - Fiber & HFC 24.4% 24.9% -0.5% -2% ARPU $65 $63 $2 2% Voice Marketable Homes 308,200 286,600 21,600 8% RGUs 66,300 53,800 12,500 23% Penetration 21.5% 18.8% 2.7% 15% ARPU $33 $32 $1 1% Data Marketable Homes 308,200 286,600 21,600 8% RGUs 98,100 91,800 6,300 7% Penetration 31.8% 32.0% -0.2% -1% ARPU $37 $37 $0 -1% Total Marketable Homes - Fiber, HFC, Copper 308,200 286,600 21,600 8% RGUs 224,400 200,800 23,600 12% Subscriber totals Subscribers (3) 102,800 96,900 5,900 6% Penetration 33.4% 33.8% -0.5% -1% ARPU (4) $94 $89 $5 5% Triple Play ARPU (5) $112 $110 $2 2% Triple Play RGUs per Subscriber (5) 2.59 2.59 - 0% Churn 1.4% 1.4% 0.1% 5% Business (6) Customers 6,700 6,000 700 12% ARPU $484 $444 $40 9% 3/31/ 3/31/ TELECOM 2009 (1) 2008 (1) Chg Chg % ------- -------- -------- --- ----- Residential Voice Marketable Homes 90,800 89,900 900 1% RGUs (7) 49,500 66,800 (17,300) -26% Cumulative Migration to Broadband Voice (8) 6,900 0 6,900 n/a Penetration 54.5% 74.3% -19.8% -27% ARPU $44 $44 $0 0% Churn (9) 2.1% 2.3% -0.2% -9% Business (6) Customers 9,000 9,600 (600) -6% ARPU $332 $311 $21 7% CONSOLIDATED RESIDENTIAL 3/31/ 3/31/ VOICE RGUs 2009 (1) 2008 (1) Chg Chg % ------------------------ -------- -------- --- ----- ILEC Voice RGUs Broadband 9,900 100 9,800 n/a Telecom 49,500 66,800 (17,300) -26% ------ ------ ------- Total ILEC Voice RGUs (10) 59,400 66,900 (7,500) -11% CLEC Residential Voice RGUs (11) 56,400 53,700 2,700 5% ------ ------ ----- TOTAL Residential Voice RGUs (12) 115,800 120,600 (4,800) -4% 3/31/ 3/31/ NETWORK METRICS 2009 (1) 2008 (1) Chg Chg % --------------- -------- -------- --- ----- Marketable Homes - Fiber 142,900 119,900 23,000 19% Marketable Homes - HFC 93,600 91,100 2,500 3% Marketable Homes - Copper 71,700 75,600 (3,900) -5% ------ ------ ------ Total 308,200 286,600 21,600 8% 12/31/ BROADBAND 2008 (1) Chg Chg % --------- --------- --- ----- Residential Video Marketable Homes - Fiber & HFC (2) 232,400 4,100 2% RGUs - Fiber & HFC 57,500 100 0% RGUs - Copper 2,600 (200) -8% Penetration - Fiber & HFC 24.7% -0.4% -2% ARPU $59 $6 9% Voice Marketable Homes 304,200 4,000 1% RGUs 63,500 2,800 4% Penetration 20.9% 0.6% 3% ARPU $32 $1 2% Data Marketable Homes 304,200 4,000 1% RGUs 97,400 700 1% Penetration 32.0% -0.2% -1% ARPU $36 $1 1% Total Marketable Homes - Fiber, HFC, Copper 304,200 4,000 1% RGUs 221,000 3,400 2% Subscriber totals Subscribers (3) 102,400 400 0% Penetration 33.7% -0.3% -1% ARPU (4) $89 $5 6% Triple Play ARPU (5) $107 $5 5% Triple Play RGUs per Subscriber (5) 2.59 - 0% Churn 1.4% 0.1% 4% Business (6) Customers 6,500 200 3% ARPU $467 $17 3% 12/31/ TELECOM 2008 (1) Chg Chg % ------- -------- --- ----- Residential Voice Marketable Homes 90,800 0 0% RGUs (7) 54,000 (4,500) -8% Cumulative Migration to Broadband Voice (8) 4,700 2,200 n/a Penetration 59.5% -5.0% -8% ARPU $43 $1 3% Churn (9) 2.2% -0.1% -6% Business (6) Customers 9,200 (200) -2% ARPU $327 $5 2% CONSOLIDATED RESIDENTIAL 12/31/ VOICE RGUs 2008 (1) Chg Chg % ------------------------ -------- --- ----- ILEC Voice RGUs Broadband 7,100 2,800 39% Telecom 54,000 (4,500) -8% ------ ------ Total ILEC Voice RGUs (10) 61,100 (1,700) -3% CLEC Residential Voice RGUs (11) 56,400 0 0% ------ - TOTAL Residential Voice RGUs (12) 117,500 (1,700) -1% 12/31/ NETWORK METRICS 2008 (1) Chg Chg % --------------- -------- --- ----- Marketable Homes - Fiber 138,800 4,100 3% Marketable Homes - HFC 93,600 0 0% Marketable Homes - Copper 71,800 (100) 0% ------ ---- Total 304,200 4,000 1% (1) The calculation of certain metrics have been revised over time to reflect the current view of our business. Where necessary prior period metric calculations have been revised to conform with current practice. All amounts rounded to the nearest 100s, except percents and dollars. (2) Marketable Homes - Fiber & HFC consists of Sacramento fiber homes and Kansas City hybrid fiber coax (HFC) homes. (3) A residential subscriber is a customer who subscribers to one or more residential RGUs. (4) ARPU is the total residential revenue per average subscriber. (5) Triple play ARPU and RGU per Subscriber includes the total residential revenue per average subscriber and ending RGUs per ending subscriber for the triple play markets, excluding the ILEC market. (6) A business customer is a customer who subscribes to business data, voice or video and represents a unique customer account. ARPU is the total business revenue per average customer. (7) A voice RGU is a residential customer who subscribers to one or more voice access line. (8) Telecom Voice RGU Migration to Broadband Voice are residential Telecom voice RGUs in Line (7) that have ported their Telecom primary access line service to Broadband VoIP. (9) Telecom Churn excludes disconnects in Line (8) that have ported their Telecom primary access line service to Broadband VoIP. (10) ILEC Voice RGUs are the total residential voice RGUs in the ILEC franchise market area that are either a Telecom primary access line or Broadband VoIP subscriber. (11) CLEC Voice RGUs are the total residential voice RGUs in the Kansas City and Sacramento markets, excluding the ILEC market. (12) Total Voice RGUs are the total of ILEC and CLEC residential voice RGUs, and represent the total company residential voice RGUs of both the Broadband and Telecom Segments. (13) Telecom access lines include residential and business access lines. For information purposes, access line counts were 110,200 at 3/31/08, 94,600 at 12/31/08, and 88,400 at 3/31/09.

SureWest Communications Unaudited Pro Forma Selected Financial Results (3) (on a pro forma consolidated and a pro forma segment basis) (Amounts in thousands) Twelve Months Ended December For the 2008 Quarters Ended: 31, 2008 ---------------- ---------------------------- -------- March June September December Consolidated 31 30 30 31 ---------------- ----- ---- --------- -------- Operating revenues (1) Residential $34,647 $34,621 $33,959 $34,180 $137,407 Business 16,946 18,188 19,342 18,218 72,694 Access 6,647 6,393 6,308 5,922 25,270 Other 630 650 661 618 2,559 --- --- --- --- ----- Total operating revenues from external customers 58,870 59,852 60,270 58,938 237,930 ------ ------ ------ ------ ------- Operating expenses (1) 41,274 39,903 42,034 41,713 164,924 Depreciation and amortization 13,259 14,075 14,219 14,666 56,219 ------ ------ ------ ------ ------ Income from operations $4,337 $5,874 $4,017 $2,559 $16,787 ====== ====== ====== ====== ======= Quarter Ended March 31, Y-o-Y Q-o-Q 2009 chg % chg % ---------------- -------- ----- -- ------ -- Consolidated ---------------- Operating revenues (1) Residential $35,713 $1,066 3.1% $1,533 4.5% Business 18,633 1,687 10.0% 415 2.3% Access 6,031 (616) -9.3% 109 1.8% Other 565 (65) -10.3% (53) -8.6% --- --- ----- --- ---- Total operating revenues from external customers 60,942 2,072 3.5% 2,004 3.4% ------ ----- --- ----- --- Operating expenses (1) 42,812 1,538 3.7% 1,099 2.6% Depreciation and amortization 14,810 1,551 11.7% 144 1.0% ------ ----- ---- --- --- Income from operations $3,320 $(1,017) -23.4% $761 29.7% ====== ======= ===== ==== ==== Consolidated Reconciliation of Adjusted EBITDA to Net Income (Loss) from Continuing Operations Twelve Months Ended For the 2008 December Quarters Ended: 31, 2008 ---------------- -------- March June September December 31 30 30 31 ----- ---- --------- -------- Net income (loss) from continuing operations $376 $1,729 $622 $(1,547) $1,180 Add back: income tax expense 489 1,139 582 1,169 3,379 Less: other (income)/expense 3,472 3,006 2,813 2,937 12,228 ----- ----- ----- ----- ------ Income from operations 4,337 5,874 4,017 2,559 16,787 Add (subtract): Depreciation and amortization 13,259 14,075 14,219 14,666 56,219 Non-cash pension (income)/expense (393) (524) (458) (433) (1,808) Non-cash stock compensation expense 141 345 169 223 878 ------- ------- ------- ------- ------- Adjusted EBITDA (2) $17,344 $19,770 $17,947 $17,015 $72,076 ======= ======= ======= ======= ======= Other data: Total debt $277,830 $231,828 $233,827 $241,688 n/a Quarter Ended March Y-o-Y Q-o-Q 31, 2009 chg % chg % -------- ----- -- ------ -- Net income (loss) from continuing operations $79 $(297) -79.0% $1,626 105.1% Add back: income tax expense 884 395 80.8% (285) -24.4% Less: other (income)/expense 2,357 (1,115) -32.1% (580) -19.7% ----- ------ ----- ---- ----- Income from operations 3,320 (1,017) -23.4% 761 29.7% Add (subtract): Depreciation and amortization 14,810 1,551 11.7% 144 1.0% Non-cash pension (income)/expense 755 1,148 292.0% 1,188 274.3% Non-cash stock compensation expense 608 467 331.2% 385 172.6% ------- ----- ---- ----- ---- Adjusted EBITDA (2) $19,493 2,149 12.4% 2,478 14.6% ======= ===== ==== ===== ==== Other data: Total debt $240,187 (37,643) -13.5% (1,501) -0.6% Twelve Months Ended December For the 2008 Quarters Ended: 31, 2008 ------------- ---------------------------- -------- March June September December Broadband 31 30 30 31 ------------- ----- ---- --------- -------- Data $10,128 $10,338 $10,348 10,491 $41,305 Video 10,359 10,365 10,264 10,522 41,510 Voice 5,258 5,395 5,542 5,933 22,128 ----- ----- ----- ----- ------ Total residential revenues 25,745 26,098 26,154 26,946 104,943 Business 7,899 8,374 9,271 9,084 34,628 Access 305 370 414 449 1,538 Other 439 459 441 450 1,789 --- --- --- --- ----- Total operating revenues from external customers 34,388 35,301 36,280 36,929 142,898 Intersegment revenues 140 141 138 120 539 --- --- --- --- --- Total operating revenues 34,528 35,442 36,418 37,049 143,437 ------ ------ ------ ------ ------- Operating expenses without depreciation 30,742 31,085 32,844 32,698 127,369 Depreciation and amortization 9,597 10,335 10,700 11,051 41,683 ----- ------ ------ ------ ------ Loss from operations $(5,811) $(5,978) $(7,126) $(6,700) $(25,615) ======= ======= ======= ======= ======== Quarter Ended March Y-o-Y Q-o-Q 31, 2009 chg % chg % ------------- ------- ---- -- ---- -- Broadband ------------- Data $10,763 $635 6.3% $272 2.6% Video 11,689 1,330 12.8% 1,167 11.1% Voice 6,399 1,141 21.7% 466 7.9% ----- ----- ---- --- --- Total residential revenues 28,851 3,106 12.1% 1,905 7.1% Business 9,585 1,686 21.3% 501 5.5% Access 384 79 25.9% (65) -14.5% Other 402 (37) -8.4% (48) -10.7% --- --- ---- --- ----- Total operating revenues from external customers 39,222 4,834 14.1% 2,293 6.2% Intersegment revenues 91 (49) -35.0% (29) -24.2% -- --- ----- --- ----- Total operating revenues 39,313 4,785 13.9% 2,264 6.1% ------ ----- ---- ----- --- Operating expenses without depreciation 34,695 3,953 12.9% 1,997 6.1% Depreciation and amortization 11,620 2,023 21.1% 569 5.1% ------ ----- ---- --- --- Loss from operations $(7,002) $(1,191) -20.5% $(302) -4.5% ======= ======= ===== ===== ==== Broadband Reconciliation of Adjusted EBITDA to Net Loss from Continuing Operations Twelve Months Ended December For the 2008 Quarters Ended: 31, 2008 ---------------------------- -------- March June September December 31 30 30 31 ----- ---- --------- -------- Loss from continuing operations $(5,416) $(5,391) (5,856) $(6,667) $(23,330) Add back: income tax benefits (4,054) (3,690) (3,994) (3,179) (14,917) Less: other (income)/ expense 3,659 3,103 2,724 3,146 12,632 ----- ----- ----- ----- ------ Loss from operations (5,811) (5,978) (7,126) (6,700) (25,615) Add (subtract): Depreciation and amortization 9,597 10,335 10,700 11,051 41,683 Non-cash pension (income)/expense (162) (212) (187) (178) (739) Non-cash stock compensation expense 54 173 77 103 407 ------ ------ ------ ------ ------- Adjusted EBITDA (2) $3,678 $4,318 $3,464 $4,276 $15,736 ====== ====== ====== ====== ======= Quarter Ended March Y-o-Y Q-o-Q 31, 2009 chg % chg % ------- --- -- ------ -- Loss from continuing operations $(5,398) $18 0.3% $1,269 19.0% Add back: income tax benefits (3,656) 398 9.8% (477) -15.0% Less: other (income)/expense 2,052 (1,607) -43.9% (1,094) -34.8% ----- ------ ----- ------ ----- Loss from operations (7,002) (1,191) -20.5% (302) -4.5% Add (subtract): Depreciation and amortization 11,620 2,023 21.1% 569 5.1% Non-cash pension (income)/expense 327 489 301.6% 505 283.5% Non-cash stock compensation expense 304 250 463.0% 201 195.1% ------ ------ ---- ---- ---- Adjusted EBITDA (2) $5,249 $1,571 42.7% $973 22.7% ====== ====== ==== ==== ==== SureWest Communications Unaudited Pro Forma Selected Financial Results (3) (on a pro forma consolidated and a pro forma segment basis) (Amounts in thousands) Twelve Months Ended December For the 2008 Quarters Ended: 31, 2008 ----------- ---------------------------- -------- March June September December Telecom 31 30 30 31 ----------- ----- ---- --------- -------- Residential $8,902 $8,523 $7,805 $7,234 $32,464 Business 9,047 9,814 10,071 9,134 38,066 Access 6,342 6,023 5,894 5,473 23,732 Other 191 191 220 168 770 --- --- --- --- --- Total operating revenues from external customers 24,482 24,551 23,990 22,009 95,032 Intersegment revenues 4,343 4,560 4,706 4,846 18,455 ----- ----- ----- ----- ------ Total operating revenues 28,825 29,111 28,696 26,855 113,487 ------ ------ ------ ------ ------- Operating expenses without depreciation 15,015 13,519 14,034 13,981 56,549 Depreciation and amortization 3,662 3,740 3,519 3,615 14,536 ----- ----- ----- ----- ------ Income from operations $10,148 $11,852 $11,143 $9,259 $42,402 ======= ======= ======= ====== ======= Quarter Ended March Y-o-Y Q-o-Q 31, 2009 chg % chg % ----------- -------- ------- -- ----- -- Telecom ----------- Residential $6,862 $(2,040) -22.9% $(372) -5.1% Business 9,048 1 0.0% (86) -0.9% Access 5,647 (695) -11.0% 174 3.2% Other 163 (28) -14.7% (5) -3.0% --- --- ----- -- ---- Total operating revenues from external customers 21,720 (2,762) -11.3% (289) -1.3% Intersegment revenues 4,874 531 12.2% 28 0.6% ----- --- ---- -- --- Total operating revenues 26,594 (2,231) -7.7% (261) -1.0% ------ ------ ---- ---- ---- Operating expenses without depreciation 13,082 (1,933) -12.9% (899) -6.4% Depreciation and amortization 3,190 (472) -12.9% (425) -11.8% ----- ---- ----- ---- ----- Income from operations $10,322 $174 1.7% $1,063 11.5% ======= ==== === ====== ==== Telecom Reconciliation of Adjusted EBITDA to Net Income from Continuing Operations Twelve Months Ended December For the 2008 Quarters Ended: 31, 2008 ---------------------------- -------- March June September December 31 30 30 31 ----- ---- --------- -------- Net income from continuing operations $5,792 $7,120 $6,478 $5,120 $24,510 Add back: income tax expense 4,543 4,829 4,576 4,348 18,296 Less: other (income)/expense (187) (97) 89 (209) (404) ---- --- -- ---- ---- Income from operations 10,148 11,852 11,143 9,259 42,402 Add (subtract): Depreciation and amortization 3,662 3,740 3,519 3,615 14,536 Non-cash pension (income)/expense (231) (312) (271) (255) (1,069) Non-cash stock compensation expense 87 172 92 120 471 ------- ------- ------- ------- ------- Adjusted EBITDA (2) $13,666 $15,452 $14,483 $12,739 $56,340 ======= ======= ======= ======= ======= Quarter Ended March Y-o-Y Q-o-Q 31, 2009 chg % chg % ------ ----- -- ---- -- Net income from continuing operations $5,477 $(315) -5.4% $357 7.0% Add back: income tax expense 4,540 (3) -0.1% 192 4.4% Less: other (income)/ expense 305 492 263.1% 514 245.9% --- --- ----- --- ----- Income from operations 10,322 174 1.7% $1,063 11.5% Add (subtract): Depreciation and amortization 3,190 (472) -12.9% (425) -11.8% Non-cash pension (income)/expense 428 659 285.3% 683 267.9% Non-cash stock compensation expense 304 217 249.4% 184 153.3% ------- ---- --- ------ ---- Adjusted EBITDA (2) $14,244 $578 4.2% $1,505 11.8% ======= ==== === ====== ==== --------------------- (1) External customers only. (2) Adjusted EBITDA represents net income (loss) from continuing operations excluding amounts for income taxes; depreciation and amortization; non-cash pension and certain post-retirement benefits; non-cash stock compensation; and all other non-operating income/expenses. Adjusted EBITDA is a common measure of operating performance in the telecommunications industry. Adjusted EBITDA is not a measure of financial performance under United States generally accepted accounting principles and should not be considered in isolation or as a substitute for consolidated net income (loss) as a measure of performance. (3) The pro forma selected financial results are based on the historical consolidated financial statements of SureWest Communications and Everest Broadband, Inc. ("Everest") and have been adjusted to reflect the Everest acquisition, which was consummated on February 13, 2008. The unaudited condensed combined pro forma financial statements give the effect as if the acquisition had occurred on January 1, 2008. On May 9, 2008, the sale of the Wireless assets was completed and the pro forma financial results reflect for all periods presented the classification of the sold Wireless operations as discontinued operations. Also, on February 27, 2009, SureWest Communications completed the sale of its Tower Assets and the pro forma financial results reflect the classification of the operations for the Tower Assets sold as discontinued operations for all periods presented.

SUREWEST COMMUNICATIONS ADJUSTED EBITDA RECONCILIATION TO NET INCOME (LOSS) FROM CONTINUING OPERATIONS (Unaudited; Amounts in thousands) Quarter Ended March 31, 2009 ---------------------------- Broadband Telecom Consolidated --------- ------- ------------ Income (loss) from continuing operations $(5,398) $5,477 $79 Add (subtract): Income taxes (benefit)/expense (3,656) 4,540 884 Other (income)/expense 2,052 305 2,357 Depreciation and amortization 11,620 3,190 14,810 Non-cash pension (income)/expense 327 428 755 Non-cash stock compensation expense 304 304 608 ------ ------- ------- Adjusted EBITDA (1) $5,249 $14,244 $19,493 ====== ======= ======= Quarter Ended December 31, 2008 ------------------------------- Broadband Telecom Consolidated --------- ------- ------------ Income (loss) from continuing operations $(6,667) $5,120 $(1,547) Add (subtract): Income taxes (benefit)/expense (3,179) 4,348 1,169 Other (income)/expense 3,146 (209) 2,937 Depreciation and amortization 11,051 3,615 14,666 Non-cash pension (income)/expense (178) (255) (433) Non-cash stock compensation expense 103 120 223 ------ ------- ------- Adjusted EBITDA (1) $4,276 $12,739 $17,015 ====== ======= ======= Quarter Ended March 31, 2008 ---------------------------- Broadband Telecom Consolidated --------- ------- ------------ Income (loss) from continuing operations $(5,770) $5,792 $22 Add (subtract): Income taxes (benefit)/expense (4,294) 4,543 249 Other (income)/expense 2,607 (187) 2,420 Depreciation and amortization 8,405 3,662 12,067 Non-cash pension (income)/expense (162) (231) (393) Non-cash stock compensation expense 54 87 141 ---- ------- ------- Adjusted EBITDA (1) $840 $13,666 $14,506 ==== ======= ======= (1) Adjusted EBITDA represents net income (loss) from continuing operations excluding amounts for income taxes; depreciation and amortization; non-cash pension and certain post-retirement benefits; non-cash stock compensation; and all other non-operating income/ expenses. Adjusted EBITDA is a common measure of operating performance in the telecommunications industry. Adjusted EBITDA is not a measure of financial performance under United States generally accepted accounting principles and should not be considered in isolation or as a substitute for consolidated net income (loss) as a measure of performance.

SUREWEST COMMUNICATIONS CONSOLIDATED BALANCE SHEETS (Unaudited; Amounts in thousands) March December 31, 31, $ % 2009 2008 Change Change ---- ---- ------ ------ ASSETS Current assets: Cash and cash equivalents $1,678 $2,840 $(1,162) -40.9% Short-term investments 559 610 (51) -8.4% Accounts receivable, net 21,733 21,415 318 1.5% Income tax receivable 6,624 6,391 233 3.6% Inventories 6,510 6,527 (17) -0.3% Prepaid expenses 3,423 4,539 (1,116) -24.6% Deferred income taxes 3,186 2,989 197 6.6% Other current assets 1,832 1,752 80 4.6% Assets of discontinued operations - 5,002 (5,002) -100.0% --- ----- ------ ------ Total current assets 45,545 52,065 (6,520) -12.5% Property, plant and equipment, net 527,115 523,231 3,884 0.7% Intangible and other assets: Long-term investments 3,508 3,508 - 0.0% Customer relationships, net 4,737 5,062 (325) -6.4% Goodwill 45,814 45,814 - 0.0% Deferred charges and other assets 4,392 4,129 263 6.4% ----- ----- --- --- 58,451 58,513 (62) -0.1% ------ ------ --- ---- $631,111 $633,809 $(2,698) -0.4% ======== ======== ======= ==== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations $15,642 $15,643 $(1) 0.0% Accounts payable 1,537 2,798 (1,261) -45.1% Other accrued liabilities 17,326 19,050 (1,724) -9.0% Advance billings and deferred revenues 9,007 8,960 47 0.5% Accrued compensation 7,455 11,292 (3,837) -34.0% Liabilities of discontinued operations - 453 (453) -100.0% --- --- ---- ------ Total current liabilities 50,967 58,196 (7,229) -12.4% Long-term debt and capital lease obligations 224,545 226,045 (1,500) -0.7% Deferred income taxes 48,873 46,358 2,515 5.4% Accrued pension and other post-retirement benefits 36,904 36,046 858 2.4% Other liabilities and deferred revenues 5,461 5,819 (358) -6.2% Commitments and contingencies - - Shareholders' equity: Common stock, without par value; 100,000 shares authorized, 14,281 and 14,082 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively 147,023 146,558 465 0.3% Accumulated other comprehensive loss (19,283) (19,248) (35) -0.2% Retained earnings 136,621 134,035 2,586 1.9% ------- ------- ----- --- Total shareholders' equity 264,361 261,345 3,016 1.2% ------- ------- ----- --- $631,111 $633,809 $(2,698) -0.4% ======== ======== ======= ====

SOURCE SureWest Communications

Source: PR Newswire

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