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2011 Annual Meeting Report

Answering the call

Executive Report ............................................................................................................................1-2

Highlights of Operation......................................................................................................................3

Technology.....................................................................................................................................4-5

Economic Development..................................................................................................................6-7

Education.......................................................................................................................................8-9

Business ....................................................................................................................................10-11

Board of Directors......................................................................................................................12-13

Financials...................................................................................................................................14-17

Community Involvement .............................................................................................................18-19

Service and Dedication ..............................................................................................................20-21

Table of Contents

01 2011 Annual Meeting Report

Our mission is to provide competitively priced, high-quality products

and services to our customers, to meet their diverse needs. We

recognize those who have an interest in our organization and we will

represent them with respect and integrity in all of our actions. For our

members/owners, we will be good stewards of their investment to

ensure long-term financial viability. For our customers, we will strive to

identify their needs and continue to develop an innovative, efficient

and effective network. For our employees, we will equip them with the

opportunities and tools needed to be successful in their careers. For

our communities, we will be good corporate citizens and strive to

enhance the quality of life in the areas we serve.

P.O. Box 7591200 NC Hwy 194 N.West Jefferson, NC 28694

(800) 759.2226 toll free(336) 877.3111 phone(336) 877.2020 fax

www.skyline.orgwww.skybest.com

West JeffersonSpartaSeven Devils

Some of you may remember a time whentelephone service existed only in the smalltowns of this region. During the early1950s, commercial companies were not

willing to bring service to outlying areas. So asmall group of visionaries took it upon themselvesto create a cooperative business to providetelephone service to the rural communities ofAshe, Alleghany and Watauga counties. This yearmarks the 60th anniversary that those residentsreceived a charter from the State of NorthCarolina that established SkyLine TelephoneMembership Corporation.

While SkyLine was based in Ashe, it soonacquired community-based systems includingWatauga Telephone Company and later CentralTelephone’s Sparta facilities in Alleghany County.By 1961, SkyLine merged with CherokeeTelephone, acquiring facilities and customers inAvery County and Shady Valley, Tennessee. Overtime, SkyLine has grown to become the eighthlargest telephone cooperative in the nation.SkyLine’s original founders were progressive, andwhile many things have changed over thedecades, that progressive mindset has enduredand continues today.

Clear Stream Communications, LLC In April of 2011, SkyLine announced a partnershipagreement with Verizon Wireless that will enableSkyLine to provide a 4G wireless solution toresidents of Ashe and Alleghany counties. Theproduct of this agreement was the creation of anew company, Clear Stream Communications, LLC.

SkyLine’s wholly-owned subsidiary, SkyBestCommunications, is part owner of Clear Stream,along with sister cooperatives Wilkes Telephoneand Surry Telephone, and the cooperatives’wireless affiliate, Carolina West Wireless.

Clear Stream will lease spectrum from Verizonand have access to Verizon’s national 4G networkfor roaming. The service will be complementary

to the 3G network deployed by Carolina WestWireless today. Further details will be shared asplans are developed.

Fiber-Optic TechnologySkyLine has invested in fiber-optic technologyaggressively over the last few years. Our strategicposition is anchored by our sustained investmentin superior network technologies such as fiber.

We have made solid progress toward our goal of overbuilding the entire service area with fiber-optic facilities. In 2010, 192 miles of fiber wereconstructed which now places the project at 31-percent complete.

Fiber gives us an unparalleled platform fordelivering the expansive high-definition videocontent that makes up a rapidly growing portion ofthe Internet.

Fiber-to-the-Premise (FTTP) technology allowsSkyLine to provide high-speed Internet, high-definition TV, and voice over an advanced InternetProtocol (IP) network. We have already deployedthis FTTP network to several communities,consisting of more than 9,400 living units, and nowhave more than 3,100 subscribers served withFTTP technology.

Executive Report

2011 SkyLine Membership Corporation 01


We continue to deploy fiber to businesses and tothe tower sites of all wireless carriers in our servicearea. With these fiber investments, we are able to deliver speeds of 1 Gbps and higher. Whencompleted, the fiber network will be the foundationfor future service applications, a network that’smore powerful and capable than ever. The realpower of the network is in how it empowerspeople and communities to connect and reachtheir potential.

The amount of innovation taking place in ourindustry is unprecedented. With the fiber networkwe are deploying, no one is better positioned thanSkyLine to deliver that future.

Multiple routers have been installed deeper in thenetwork to enhance the Internet platform,improving both reliability and broadband speeds.Internet service options also have been enhanced.In July of 2010, SkyBest upgraded its standardDSL base speed by 250 percent, to 4 Mbps, atno additional cost to the consumer. SkyBest nowoffers end-user speeds of 50 Mbps for customersrequiring advanced broadband. At the other endof the spectrum are the customers who only wantto use the Internet occasionally for checking email.For this reason, we rolled out an economy optionat a substantially discounted price which offers aspeed of 768 Kbps.

Through annual focus group studies, we learnedof customers’ desire to purchase stand-alonebroadband. So we rolled out “Simply Broadband,”which is broadband service and nothing else. Tocomplement this service, the option of adding anemergency phone line, called E-Line, was addedto the suite of services. With E-Line, customersmay access 9-1-1 from their home phone andcontinue to receive unlimited incoming calls.

As more applications are added to the Internet, webelieve the demand for data services willunderscore the importance of a robust, wireline,high-capacity network. To that end, the companyis transitioning from a legacy Time-DivisionMultiplexing (TDM) voice network to a convergedVoice-Over-IP (VoIP) platform that will meetgrowing broadband demands. This year, threelegacy switches will be retired and replaced withthe new vintage IP switches.

AwardsOne measure of SkyLine’s commitment tocommunity occurred in February, when thecooperative was recognized with the PublicRelations Achievement Award at the NationalTelecommunications Cooperative Association’sAnnual Meeting in Dallas, Texas. SkyLine wascited especially for its Technology Education GrantProgram/SMART Board initiative as an example ofa telco working to enhance the quality of life in theirservice area.

Employees - meeting the needs of thecustomer and the communityWhile much of our efforts are concentrated on technology, our company’s primary focusremains on meeting the needs of the members andthe community. SkyLine employees are theembodiment of outreach in the communities. Notonly are they dedicated to bringing you exemplarytelecommunications service, they also are willingto contribute to the needs of the community.

Financial ResultsWe are in a strong financial position with a soundcapital structure and significant free cash flow tosustain our fiber build-out and strategic investments.

As you will see further in this report, SkyLinefinished 2010 with a consolidated net income of$5,644,427. The company’s cash reserves remainstrong as the Board of Directors recently approveda capital credit disbursement to active members ofover $900,000.

Meeting the needs for over 60 yearsOn this the 60th anniversary of the cooperative’sfounding, the Board of Directors and staff wouldlike to pay tribute to its visionary, dedicated groupof founders. This year’s Annual Report includes aspecial section that looks back over the past sixdecades and celebrates some of SkyLine’sproudest moments.

SkyLine was created out of a need, a need toprovide telephone service where no one elsewould. Today, the needs may be slightlydifferent, but our role of meeting those needsremains the same.

Jimmy C. BlevinsChief Executive Officer SkyLine Membership Corporation

R.C. Mitchell President SkyLine Membership Corporation

Executive Report


$33,658,133

$28,785,831

$762,563

$5,644,427

$11,827,591

$182,199,933

35,912

27,596

133

$31,924,802

$26,785,831

$518,692

$5,699,062

$10,433,225

$170,372,342

36,887

28,323

130

$1,733,331

$2,000,000

$243,871

($54,635)

$1,394,366

$11,827,591

(975)

(727)

3

Operating Revenues

Operating Expenses

Other Income/Expenses

Consolidated Margin

Capital Expenditures

Investment in Property & Equipment

Lines Serving Customers at Year End

Number of Members

Number of Employees at Year End

2010 2009 Net increase(decrease)

Total Access Lines(SkyLine & SkyBest combined)

N.C. Telephone CooperativesTotal Access Lines

(as of 06-30-2011)

35,000 36,2

79

37,7

76

38,8

40

36,000

37,000

38,000

39,000

2008 20072010

36,8

87

2009

Atlantic..............................................36,321Randolph ............................................9,056SkyLine ...........................................32,638Star...................................................15,832Surry.................................................14,782Tri-County ...........................................2,918Wilkes.................................................9,458Yadkin Valley .....................................23,855

As of 08-2011 As of 08-2010

Highlights of Operation

35,4

39

2011ytd as of 08-2011


With the convenience of a single bill, Carroll and Deaett Roten of Ashe County enjoy high-quality phone, Internetand TV services from SkyLine, a local company they know and trust. Mr. Roten also uses SkyLine services forhis business, Roten Insurance in Warrensville.


Technology

In 2004, SkyLine announced plans to build an all-fiber network over the next several years. It wasa bold blueprint for the future, but one that wasimperative to take full advantage of technology.When fiber and technology come together, thereseems to be no limit of possibilities for the futureof telecommunications.

The mid-1990s represented a paradigm shift forthe cooperative when it introduced local Internetaccess to the region. Going forward, the Internetwould be a major driver in the future growth ofSkyLine’s network. Within a few years, dial-up wassurpassed by a faster speed of Internet called DSL(Digital Subscriber Line). Looking to furtherexpand services, SkyLine turned its sights to videodelivery. In late 2004, SkyLine's move to a fullyfiber-based infrastructure had begun.

In 2010, the company made further advancestoward this goal when it received a combination ofgrant and loan funds through the BroadbandInitiatives Program from the Rural Utilities Service(RUS). This stimulus initiative will help acceleratefiber deployment to communities in Alleghany,Ashe and Johnson counties that had limitedaccess to broadband services. Within three yearsof the grant/loan announcement, nearly 900 milesof fiber will be constructed to more than 7,300homes and businesses in 25 rural communities ofSkyLine’s service area. To put it into perspective,that’s like driving from here to the Carolina coastand back, and back to the coast again.

In recent months, construction crews have beenextending fiber to the west end of Ashe County,including such areas as Rock Creek, Big Laurel,Pottertown, Creston and other communities alongHighway 88. Carroll and Deaett Roten, who live inthe Rich Hill community of Ashe County, areparticularly glad to have access to these enhancedservices. With their new fiber-based connection,they can now subscribe to SkyLine’s triple play ofservices—telephone, higher speeds of Internet (up to 50 Mbps) and digital television.

“We’ve always had good telephone and Internetservice with SkyLine, so when we were able to geteven faster Internet and now, TV, we knew theservice would be great,” Mr. Roten said. “Over theyears, I have enjoyed all aspects of TV. Livingwhere we do, it all started with two channels andan antenna. When we moved to cable, it wasgreat; when we moved from cable to satellite it wassuper, but when we moved from satellite toSkyBest TV, we were amazed. SkyBest TV blewthe satellite dish away. We're thrilled.”

The next phase of fiber construction and servicewill be Shady Valley, Tennessee and othercommunities of Ashe and Alleghany counties.

Technology


NAPCO President and founder Rocky Proffit is shown at the company headquarters in Sparta, surroundedby products the company has produced. NAPCO has received numerous design awards from the Printing Industry of the Carolinas Association (PICA) Awards Program, the premier symbol of graphics excellence inthe Carolinas, and was also the first non-printing company to receive the prestigious Gutenberg Award in2010 which recognizes the company with the most “Best of Category” (First Place) entries. Napco received19 “Best of Category” awards including five for the HBO “Sex and the City Collection.” Best of Categorywinning pieces honored the diversity of Napco’s capabilities by including everything from collector’s editionsets for “World of Warcraft Cataclysm” and “Starcraft Wings of Liberty” to National Geographic slipcases, albums and maps for coin collecting, presentation kits, binders and folders.


Economic Development

Throughout its history, SkyLine has been a leaderin keeping pace with new technologies andservices. The cooperative was created by localresidents as a response to the lack of commitmentby larger telephone companies that chose not to serve more rural, sparsely-populated areas of northwest North Carolina. Today, SkyLineembraces new technologies in order to make them accessible and affordable to rural familiesand businesses.

SkyLine is also proud of its role as an anchorinstitution in the community. The cooperative hassignificant capital invested in its network, and isamong the leading employers of the region.Beyond its commitment to maintaining anadvanced telecom infrastructure, SkyLine madea significant step forward in supporting ruraleconomic development when it applied for, andreceived, a grant from the Rural Utilities Serviceto establish a Revolving Loan Fund in 1994. The fund's purpose is to provide zero-interestloans to support rural development activities thathelp create or retain jobs for rural people,enhance essential community facilities andsupport new business development or existingbusiness expansion.

The impetus for that initial grant was to help buildan industrial park in Alleghany County. Since thatinitial award of $400,000, which required a 20-percent company match, the loan fund hasmore than doubled the amount of investmentacross the region by re-circulating the repaid loansback into new projects.

Many projects have directly benefited from thefund including the establishment of a MagnoliaManufacturing facility in Alleghany County, thepaint facility expansion at American EmergencyVehicles (AEV) in Ashe County and creation of Cove Creek Preservation & Development, Inc., located in a WPA-era high school building in Watauga County that is dedicated to historic preservation and sustainable communitydevelopment. This former school is now home tothe Doc & Merle Watson Museum, Sugar GroveDevelopmental Day School, Jung Tao School ofChinese Medicine and Journey Woodworks.

To date, 11 projects have benefited from theRevolving Loan Fund. Two recent recipients arebased in Alleghany County. Earlier this year,Alleghany Memorial Hospital in Sparta received aloan to purchase equipment to support two newservice lines: urology and pulmonology.

The most recent recipient is NAPCO, ahomegrown specialty packaging operation thatbegan in 1977 when the Sparta Pipe Factoryneeded someone to produce point-of-purchasedisplays and setup boxes for their smoking pipes.Today, NAPCO is a market leader in providing rigidpaperboard products and packaging solutions.These markets include: Home Entertainment,Luxury Cosmetic, Consumer Product Packaging,Coin Collector Albums and Folders, and Officeand Presentation Products. NAPCO is projecting$3 to $4 million in new business over the next 12months, which will create 25 to 35 permanent jobsin the region.

Economic Development


Students in Mary Beth Knight Greene's class at Ashe County High School learn to use iPads in conjunctionwith a wide variety of new science-related applications.


Education

SkyLine is firmly committed to supportingeducation. The cooperative sees it as aninvestment in the future of communities itserves. As a telecom company and architect ofan advanced communications network,SkyLine understands the critical need to keeppace with exponential changes in technology.Area public schools face similar challenges tokeep current with technology in order toaugment student learning.

Six years ago, SkyLine established a new grantprogram designed specifically to support andenhance the use of technology in the classroom.The program was a collaborative effort with areaschool systems from the start. The cooperativeasked all five school systems in its service area toidentify their technology needs, and a commontheme quickly emerged. At that time, schools werejust beginning to use interactive white boards,called SMART Boards, in school media centersand computer labs. The schools hoped to placeadditional SMART Boards in classrooms overtime. SMART Board systems comprise threepieces of technology linked together - a computer,a digital projector and the interactive whiteboarditself. Research studies on technology in educationdemonstrate that the SMART Boards can increasestudent motivation and success.

Through the grant program, SkyLine has helpedadvance the placement of this new and valuableteaching tool in local classrooms, and the

feedback we have received has been nothing shortof inspiring. One educator said, “In my 25 years ofteaching, this is truly the most wonderful teachingtool I have ever experienced.” A student from AsheCounty Middle School credited the SMART Boardfor helping her to better understand ratios in mathclass. She said, “I could barely understand thembefore, but now, they’re very clear.”

This year, the SkyLine grant program willcontinue to support the placement of SMARTBoard-related equipment in Avery, Watauga andJohnson counties. In Alleghany County, a newone-to-one initiative, which will pair approximately40 high school students with a laptop, hasrequested support for a special program inconjunction with the new initiative that includesInternet access for some students who need itat home.

This past Spring, Ashe County High Schoolreceived a separate grant to purchase two 24-setiPad carts to use in a limited number of classrooms.

The 2011 SkyLine grant will go toward thepurchase of a third 24-set iPad cart. Through theAshe County Educational Endowment program,teachers from across the curriculum are applyingfor grants to use the newest means of computertechnology in their classrooms backed by a WiFinetwork engineered by SkyLine.

Education


Nancy J. Byrnes, Family Nurse Practitioner with Mountain Family Care Center, and her staff use laptops tomanage patient data and send prescriptions to local pharmacies. Here she’s shown conferring with MedicalOffice Assistant Norma Pasley before meeting with her first patient of the day.


Business

Ashe Memorial Hospital serves rural residentsof western North Carolina with a highlysophisticated level of care. When it recentlyneeded telecom service for two new locations,SkyBest Communications was the hospital’sfirst choice.

“SkyLine has been a great community partner withus over the years, so it was natural to contact themwhen we embarked on these two new projects,”said Joe Thore, Chief Operating Officer at AsheMemorial Hospital.

The telecom services were supplied to MountainFamily Care Center’s (MFCC) new facilitylocated on the main drive to the EmergencyDepartment, and the new Ashe Women’s Centerin West Jefferson.

Mountain Family Care Center While MFCC has offered non-emergency careto residents of Ashe County since 2007 atlocations in Warrensville and elsewhere on thehospital campus, its new, more visible locationoffers greater convenience to families needingafter-hours care.

“We realize that families who have a loved onedealing with a minor medical problem after hoursmay think the only option is the emergency room,”said Nancy J. Byrnes, Family Nurse Practitioner atMountain Family Care Center. “We can treat avariety of acute illnesses such as respiratoryinfections, influenza and strep throat, as well as

bronchitis, gastrointestinal problems, minor burns,nosebleeds and urinary tract infections.”

Additionally, the center offers physicals for sportsand commercial driving licenses, pre-employmentscreening services and various immunizations.Beyond extended weekday hours, the center isalso open on Saturdays.

Along with telephone service provided bySkyLine’s wholly-owned subsidiary, SkyBest,Mountain Family Care Center signed up forbroadband and chose SkyBest TV as aconvenience to patients and families in thepatient/family waiting area.

Ashe Women’s CenterIn May, the hospital expanded its services evenfurther by opening the Ashe Women's Center. Dr.Terry Williams runs the center and is the county’sonly specialist who offers obstetrics andgynecological services. The center chose SkyBestfor a range of services including a new phonesystem, SkyBest Security, and Metro Ethernet, abusiness class of dedicated access to the Internetand other resources.

Just as the hospital is committed to the wellnessand health care of Ashe County families,SkyBest is dedicated to offering local andpersonalized telecom services to businesscustomers like Ashe Memorial.

Business

Board of Directors


SkyLine Membership Corporation Board of DirectorsSkyLine Membership Corporation is a local, member-owned cooperative, established in 1951 to bringtelephone service to rural residents of Alleghany, Ashe and Watauga counties. Later, the cooperativeexpanded its service territory to include areas of Avery County and Shady Valley, Tennessee when itmerged with Cherokee Telephone Membership Corporation. SkyLine serves a 12-exchange networkwith over 32,000 access lines across a five-county area in northwest North Carolina and east Tennessee.The company also co-owns Carolina West Wireless, a regional wireless carrier operating in 10 northwestNorth Carolina counties.

Standing left to right: Jerry Roten; Ray Ward; Raymond Parker, Attorney; Molly Gambill, Assistant Secretary; D.C. Smith; Olan Bentley.Seated left to right: Buster Burleson, Vice President; Jimmy Blevins, CEO; R.C. Mitchell, President; James L. Shepherd, Secretary; Joseph McNeil, Treasurer.

Board of Directors


SkyBest Communications, Inc. Board of DirectorsSkyBest Communications, Inc. is a wholly-owned subsidiary of SkyLine Membership Corporation.Established in 1998, SkyBest is a competitive local exchange carrier (CLEC), offering a variety ofderegulated services including dial-up and broadband Internet, long-distance, dial tone, business andnetwork solutions, SkyBest Security and SkyBest TV over an expanding fiber network.

Standing left to right: Joseph McNeil, Treasurer; Raymond A. Parker, Attorney; Sharon Kasel; R.C. Mitchell, Assistant Secretary; James L. Shepherd. Seated left to right: Jimmy Blevins, President; Buster Burleson, Chairman; Haskell McGuire, Secretary.Not pictured: Dennis Gambill, Vice President.


FinancialsSkyLine Membership Corporation Consolidated Balance SheetYear Ended December 31, 2010

Current Assets: Cash and temporary investments Accounts receivable (less allowances) Investment in debt and equity securities Materials and supplies Prepayments and deferred charges Total Current Assets Non-Current Assets: Investment in debt and equity securities Goodwill Equity investment Other investments (net) Notes receivable Total Non-Current Assets Property and Equipment: Telecommunications plant in service Telecommunications plant under construction Non-operating plant Total Property and Equipment Less, Accumulated Depreciation Net Property and Equipment

Total Assets:

Current Liabilities: Accounts payable and customer deposits Advance billings and payments Current maturities on long-term debt Accrued liabilities Total Current Liabilities

Non-Current Liabilities: Long-term debt, less current maturities Deferred compensation Post-retirement benefits Deferred income taxes Total Non-Current Liabilities

Total Liabilities:

Capitalization: Accumulated other comprehensive income (loss) Patronage capital Total Capitalization

Total Liabilities and Capitalization:

LIABILITIES & CAPITALIZATION

2,468,7653,330,6648,487,0562,980,333

786,45518,053,273

11,858,366576,000

12,575,9311,720,5801,784,146

28,515,023

177,642,3394,498,058

59,536182,199,933113,178,29869,021,635

115,589,931

2,665,2351,920,5091,018,5031,803,5017,407,748

4,640,933612,130

2,901,107327,796

8,481,966

15,889,714

(3,192,472)102,892,68999,700,217

115,589,931

$

$

2010

$

$


FinancialsSkyLine Membership Corporation Consolidated Statement of Revenues and Expenses

Year Ended December 31, 2010

Operating Revenues: Basic local network service Network access and long-distance revenue Internet and other sales and services Other Less uncollectible Total Operating Revenues Operating Expenses: Plant specific operations Plant non-specific operations Depreciation and amortization Customer operations Corporate operations Total Operating Expenses Operating Income:

Non-Operating Income (Expenses): Investment income Allowance for funds used in construction Earnings from equity investments (net) Realized gain (loss) on sale of securities available for sale Interest expense Total Non-Operating Income

Net margins before income taxes Federal and state income taxes (benefits) Net Margins for the Year

Maintenance$6,306,441 - 18.22%

Non-Operating Revenue$965,512 - 2.79%

Miscellaneous$1,083,558 - 3.13%

Local Service$8,373,822 - 24.18%

Toll/Access$13,000,845 - 37.55%

Other Sales & Service Income$11,291,879 - 32.62%

Depreciation$9,196,684 - 26.56%

Interest on Debt$202,949 - 0.59%

Customer/Corporate Operations$13,270,458 - 38.33%

Member Ownership$5,644,427 - 16.30%

How our dollars are spent

How our dollars are received

Bad Debt Recovery($91,971 - 0.27%)

8,373,82213,000,84511,291,8791,083,558

(91,971)33,658,133

3,121,5753,184,8669,196,6845,124,8398,145,619

28,773,583

4,884,550

607,335155,192127,70175,284

(202,949)762,563

5,647,1132,686

5,644,427

$

$

2010

Current Assets: Cash Accounts receivable parent company Other accounts receivable Prepayments and deferred charges Total Current Assets Non-Current Assets: Parent company capital credits receivable Total Non-Current Assets Property and Equipment: Telecommunications plant in service Telecommunications plant under construction Total property and equipment Less, accumulated depreciation Net Property and Equipment

Total Assets:

Current Liabilities: Accounts payable and customer deposits Accounts payable parent company Current maturities on long-term debt Accrued liabilities Total Current Liabilities

Non-Current Liabilities: Long-term debt, less current maturities Equity Investments Deferred income taxes Total Non-Current Liabilities

Total Liabilities:

Capitalization: Capital stock Additional paid-in capital Retained earnings Total Capitalization

Total Liabilities and Capitalization:

LIABILITIES & CAPITALIZATION


FinancialsSkyBest Communications, Inc. Balance SheetYear Ended December 31, 2010

2010

182,13333,0416,805

30,820252,799

1,204,3311,204,331

7,844,63055,776

7,900,4062,622,4215,277,985

6,735,115

$

$

167,501419,566669,92334,330

1,291,320

3,473,84342,229

327,7963,843,868

5,135,188

200,0001,000,000

399,9271,599,927

6,735,115

$

$

Operating Revenues: Basic local network service Network access and long-distance revenue Internet revenue Other revenue Less uncollectible Total Operating Revenues Operating Expenses: Plant specific operations Plant non-specific operations Depreciation and amortization Customer operations Corporate operations Total Operating Expenses Operating Income (Loss):

Non-Operating Income (Expenses): Investment income Interest on long-term debt Loss from equity investment Allowance for funds used in construction Total Non-Operating Income

Income before income taxes Federal and state income taxes (benefits) Net Income (Loss) for the Year


FinancialsSkyBest Communications, Inc. Statement of Revenues and Expenses

Year Ended December 31, 2010

2010

785,3742,593,0447,362,8632,563,753

(51,275)13,253,759

2,023,7944,829,546

706,5561,863,9483,614,167

13,038,011

215,748

9,267(176,385)(45,584)

3,342(209,360)

6,3882,686

3,702

$

$


Community Involvement

Project Teamwork, our employee-led communityoutreach program, provides financial relief to areafamilies at a time when they need it most—whenunforeseen events, accidents or serious illnessesstrike. Since 1997, we have raised more than$80,000 to help our neighbors through thisprogram.

SkyLine was among the corporate sponsors ofLees-McRae’s Summer Theatre Program, and thisyear saw the return to a schedule featuring threeproductions: “I Do, I Do,” “Swing” and “TheSound of Music,” chosen specifically inconjunction with the centennial celebration for theTown of Banner Elk.

SkyBest Communications continues to be theofficial telecommunications partner withAppalachian State University Athletics. SkyBestalso was a presenting sponsor of Mountain Heartwith Tony Rice during An Appalachian SummerFestival, the monthlong arts series that bringscultural enrichment to the region and keepsadmission prices more affordable for ourmembers.

SkyLine was delighted to learn that two AsheCounty High School seniors—Courtney Bowersand Christopher Hamby, were among 30 studentsfrom across rural America to be named winners ofthe Foundation for Rural Service Scholarship thisspring. The $2,500 scholarship is sponsoredlocally by SkyLine and is presented to thosestudents who desire to return to a rural communityfollowing college.

SkyLine’s Directory Recycling Program is a win-win program for area schools. Through thispartnership, we raise awareness about the benefitsof recycling and reward schools with financialdonations for their efforts. More than $90,000 hasbeen awarded to schools since the programstarted in 1993 and supports numerous schoolneeds including library books, campusbeautification projects, field trips and classroomsupplies.

The Frank James-SkyLine Scholarship ispresented to graduating high school seniorswhose parents are customers of SkyLine/SkyBest.The renewable scholarships are for both four- andtwo-year college-bound students and are awardedon the basis of scholastic achievement, financialneed and school/community involvement.


Community Involvement

SkyLine has been among the first local companiesto step up when it comes to supporting the fightagainst heart disease and cancer. Each year, theco-op provides the phone bank at the annual AsheCounty Heart Auction, and our employees raised$2,700 this year as part of their team efforts for theannual Heart Walk in Jefferson.

While we have fielded Relay for Life teams in Ashefor many years to support the American CancerSociety, our employees in Avery/Watauga alsowere part of Bodie’s StarHeels team in support ofThad Vance, raising $2,650, and they also helpedorganize a benefit for him earlier this year.Through a pledge campaign and other fund-raisingefforts that were supported by employees anddirectors, SkyLine also raised more than $6,400systemwide in 2011.

SkyLine sponsored four high school students fromAshe and Avery counties to attend the N.C.Cooperative Leadership Camp at White Lake.Sponsored by cooperatives and agriculturalorganizations, the program helps students buildleadership skills and learn the important rolecooperatives play in their communities.

Since 1996, SkyLine has been a local sponsor ofthe Foundation for Rural Service Youth Tour toWashington, D.C. This five-day experience of alifetime includes tours of our nation’s mostcherished landmarks, opportunities to seegovernment in action and hear about programs thatemphasize the vital role of telecommunications inrural communities.

The Christmas holidays are brighter for manyfamilies thanks to the outpouring of support by somany individuals and businesses in ourcommunities. Our employees continue to sponsor“angels” and “stars” through the Ashe CountyInteragency Children’s Christmas Project andAppalachian Senior Programs’ Project Star. Ourarea office employees also reach out to individualfamilies in their communities with gifts, heatingassistance and other needs.


These employees are among several who are celebrating incremental service anniversaries with SkyLine this year.

David Hoosier 5/20

Shelia Miller4/30

James Horney11/16

Laura Shepherd9/5

Traci Phipps4/3

Travus Lovell4/10

Eugene Seatz3/6

Crystal Spencer7/24

5 Years


Service & Dedication

Tim Hall 10/16

Cristy Houck5/29

Janet Goodman9/13

Makisha Howell 1/1

Paul Winterton4/17

10 Years

Randy Ward7/15

Van Lawrence9/24

Buster BurlesonDirector 4/14

Jimmy Barnes1/5

30 Years 35 Years

RetireeRuth Smith

34 Years of Service

RetireeI.S. “Buck” Cooper

Director28 Years of Service

Chad Jenkins4/10

Joe McNeil Director 11/5

Steve Brown9/9

Tony Shelton9/9

Derrick Osborne9/9

Brent Keith1/1

20 Years

Susie Hoosier9/23

In MemoryJ.L. Shumate

Director51 Years of Service

RetireeRonnie Gwyn

30 Years of Service

Bobby Hudler 4/1

Debbie Stephens8/1

25 Years

Robin Miller10/14

Mary Sexton6/27

Kathy Barnes4/22

15 Years

Darren Main4/23

Dawn Nichols4/2

Over 60 years1951-2011

New Co-op is Formed to Make the Dream of Telephone Service a RealityIn the late summer of 1950, a small group of residents residing in Alleghany, Ashe and Watauga

counties pursue the dream of providing telephone service to every resident of the "lost province."

In the vanguard of this group was Mr. G.W. Edwards, who later became president of SkyLine.

Under the date of December 30, 1950, Articles of Incorporation were written for a cooperative

association to be known as "SkyLine Telephone Membership Corporation." On January 4, 1951,

SkyLine Telephone Membership Corporation became official after receiving its charter from the

N.C. Secretary of State. As early as January 1951, SkyLine started construction and began

purchasing equipment through a loan of $1,060,000 from the Rural Electrification Administration

(REA). At this time, the membership drive began. A few area residents were convinced that man

would walk on the moon before a telephone call could be made from the communities of Creston,

Whitehead or Mabel. Thanks to these dedicated and determined early SkyLine leaders, dial tone

came to these areas long before Neil Armstrong took "one small step for man and one giant leap

for mankind."

About the cover: Nannie Farthing Swift was the switchboard operator at Sugar Grove (Watauga

County). Nannie and her brothers, Dana, David and Ivan were the children of William Y. Farthing,

who operated Watauga Telephone Company before it was acquired by SkyLine in 1952. Nannie

continued her role as switchboard operator for SkyLine until 1957.

Former Board Members

A.E. Andrews

J. Max Barlow

J.O. Blevins

Ray Blevins

Dwight Cable

Ray Clark

H.M. Colvard

I.S. Cooper

Sanford Creed

Joe W. Davis

Clifton Edwards

G.W. Edwards

Lonnie Edwards

Raymond Francis

I.C. Garland

John Gentry

Ned Glenn

Johnny Greene

Ralph Gwaltney

Blake Hampton

Frank James

B.H. Rector

Frank Roland

J.L. Shumate

Henry Taylor

Dana Tugman

Thomas Johnston (Attorney)

Former General Managers/

Chief Executive Officers

Joe Farthing

John McGuire

Hobart G. Davis

John Dixon

· First operations commenced in July 1954 uponSkyLine's purchase of the Watauga TelephoneCompany, a magneto system which had served a large area of Watauga County for about 50 years. Ashe County operations began in September 1955 by purchase of the Riverside Telephone Company which operatedand maintained approximately 40 telephones on lines from the West Jefferson exchange of Central Telephone Company.

· In March 1957, initial dial service was providedby SkyLine upon completion of the Sugar Grove exchange in Watauga County. Dial service in Ashe began in June with the completion of the Baldwin exchange. Mr. John McGuire was hired as manager in 1957 and served until his retirement in 1984.

· In June 1957, SkyLine members were able to call residents served by Central Telephone in West Jefferson. Members also could make long distance telephone calls for the first time.

· In October 1957, SkyLine schedules its first Annual Meeting of members, but no business could be conducted for lack of a quorum of members present.

· In December 1958, SkyLine acquired Central Telephone Company's Sparta facilities, which allowed SkyLine to serve residents of the town of Sparta.

1951-1959

1951-1959

50’s01

60’s02

1960-1969

1960-1969· Upon conversion to dial operation in 1960, Sparta

became the last of the magneto systems in North Carolina to give way to the modern dial system.

· On December 16, 1961, SkyLine's Board of Directors approved a merger with Cherokee Telephone Membership Corporation, which included certain telephone exchanges, lines and facilities in Avery and Watauga counties in North Carolina and in Johnson County, Tennessee. As a result, two new exchanges, Banner Elk, North Carolina, and Shady Valley, Tennessee, were added.

· In April, SkyLine moved from its second office location where it was sharing facilities with Central Telephone on Third Avenue in West Jefferson to a new office building on Highway 194, SkyLine's current corporate office location.

· In 1966, President G.W. Edwards announced completion of further outside plant construction, at a cost of $750,000, which provided basic cable facilities for reducing the number of party lines from eight to four and provided one and two-part service at a reasonable rate. The cooperative further planned to provide direct trunking between SkyLine's Ashe County exchanges rather than switching through the West Jefferson exchange of Central Telephone Company.

03

1970-1979

1970-1979

70’s

· In 1970, a new building to house the new central office switching equipment for the Banner Elk exchange was completed. Construction also had commenced on the newexchange to serve Beech Mountain, bringing the total number of exchanges to 12.

· In July 1976, SkyLine announced plans to expand its headquarters building in West Jefferson, adding approximately 7,500 square feet of floor space for offices for the 19 employees who worked in the headquarters building, a new board room and a conference room with a seating capacity of 75.

· In 1976, the company's Baldwin Central Office expanded by 1,200 square feet of floor space, to add 400 new lines and 500 new telephone numbers; the Creston Central Office expanded by 1,200 square feet to add 400 new lines and 400 telephone numbers, and an addition to the Lansing Central Office was completed to accommodate 500 new lines and 300 new telephone numbers. At the time, the company served approximately 5,000subscribers in Ashe County.

· In 1977, SkyLine introduced touch-tone or push-button dialing service to all of its Ashe County exchanges following a successful offering in previous months to customers in Sparta.

· In 1978, SkyLine completed its 20,000th telephone installation at the home of Mrs. Ida Duvall in Baldwin. President Frank James and General Manager John McGuire joined Installer Ernest Severt for this historic occasion.

1981-19891980-1989

80’s

· The telephone industry made a drastic change in 1984 with the historic divestiture of American Telephone & Telegraph (AT&T). Competition and technology replaced regulatory agencies as the driving forces in the telecom industry.

· In 1987, the Board of Directors established the SkyLine Telephone Scholarship program for children of SkyLine members. Since that time, more than 200 local students have received support from this program to further their education.

· One of the co-ops major achievements occurred in 1988, when SkyLine provided an all-digital network to its members with the conversion of theScottville exchange from electromechanical technology to digital technology.

· Also in 1988, SkyLine began the placement of fiber-optic cable into its network. The introduction of fiber-optic cable has brought enhanced communications services, greatly expanded calling capability and reliability.

1980-1989

04

1990-1999

1990-1999

90’s05

· In 1990, SkyLine joined with three other regional telephone cooperatives to form a wireless company, Carolina West Cellular (now Carolina West Wireless). The new subsidiary served a six-county region, including SkyLine's N.C. service area beginning in fall 1991.

· In 1992-1993, SkyLine signed up to be a localsponsor of the state Co-op Council's summer leadership program for high school students. Partnering with area schools, SkyLine began a directory recycling program.

· In 1993, SkyLine introduced advanced calling features: Caller ID, Call Trace and Call Return.

· In 1994, SkyLine created revolving loan fund to encourage economic development.

· In late 1995, SkyLine was the first area business to introduce local Internet access.

· In 1996, SkyLine employees established Project Teamwork, a crisis relief fund.

· In 1999, SkyBest Communications, Inc., a wholly-owned subsidiary, was established.

· In April and June 1999, grand opening ceremonies were held at the new Customer Center locations in West Jefferson and Seven Devils, followed by Sparta in 2001.

1981-19892000-2009

00’s

2000-2009

06

· In spring 2000, the first high-speed Internet service offering (FastZone DSL) was introduced to SkyLine members.

· In 2002, SkyBest Communications was granted CLEC Status.

· In 2004, SkyLine announced plans to deploy fiber-to-the-home services throughout its five-county service area in the next two decades.

· In February 2006, SkyLine unveiled a new educational grant program for area public schools designed to increase student access to technology in the classroom.

· In September 2006, SkyLine is named among thenation’s top 15 outstanding employers of NationalGuard and Reserve members, receiving the Employer Support of the Guard and Reserve's (ESGR) 2006 Secretary of Defense Employer Support Freedom Award.

· In July 2008, digital television service was launched in limited areas after many years of testing and field trials. To offer the best signal available, a Motorola head-end was installed at SkyLine’s headquarters, which provides superior quality standard-definition and high-definition channels.

· In August 2009, SkyBest introduced a new suite of state-of-the art security systems that help protect homes and businesses from burglary, fire and other dangers, as well as Medical Alert Monitoring for customers with health concerns.

2010 & Beyond

2010 & Beyond

07

Beyond2010&

· In June 2010, broadband speeds increased from 1.5 Mbps to 4 Mbps, 3 Mbps to 6 Mbps and 8 Mbps to 10 Mbps.

· On August 26, 2010 at SkyLine's corporate offices, State Directors with USDA Rural Development from North Carolina and Tennessee announced that SkyLine was the recipient of a $28.9 million grant/loan from the USDA Broadband Initiatives Program as part of the American Recovery and Reinvestment Act to expand the provision of advanced fiber-to-the-premises services via a fiber-optic network in Alleghany, Ashe and Johnson counties.

· In November 2010, outside plant construction begins on the stimulus-funded Fiber-to-the-Premise (FTTP) project in the Rock Creek remote in Creston (Ashe County). The first customer to receive FTTP service through the stimulus project is Cathy Johnson in Creston (Ashe) on March 14, 2011.

· In December 2010, SkyBest’s newestCLEC-served area to be established is the Headwaters residential community in Elk Park.

· In May 2011, four members of SkyLine’s construction department were dispatched to Farmer’s Telephone Cooperative in northern Alabama to assist with service restoration efforts following a series of deadly tornadoes.

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